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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 29, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-14669
HELEN OF TROY LIMITED
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Bermuda
74-2692550
Clarendon House, 2 Church Street, Hamilton, Bermuda
(Address of principal executive offices)
1 Helen of Troy Plaza, El Paso, Texas
(Registrant’s United States Mailing Address)
(915) 225-8000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
79912
(Zip Code)
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Shares, $0.10 par value per share
HELE
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the voting and non-voting common shares held by non-affiliates of the registrant as of August 31, 2019, based upon
the closing price of the common shares as reported by The NASDAQ Global Select Market on such date, was approximately 3,831,315,388.
As of April 22, 2020, there were 25,243,702 common shares, $0.10 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2020 Annual General Meeting of Shareholders to be filed within one hundred and twenty days of the fiscal
year ended February 29, 2020 (2020 Proxy Statement) are incorporated by reference into Part III of this report to the extent described herein.
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TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases
of Equity Securities
Item 6.
Item 7.
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Item 13.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Signatures
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EXPLANATORY NOTE
In this report and the accompanying consolidated financial statements and notes, unless
otherwise indicated or the context suggests otherwise, references to “the Company”, “our
Company”, “Helen of Troy”, “we”, “us”, or “our” refer to Helen of Troy Limited and its
subsidiaries. We refer to our common shares, par value $0.10 per share, as “common stock.”
References to “EMEA” refer to the combined geographic markets of Europe, the Middle East and
Africa. We use product and service names in this report for identification purposes only and they
may be protected in the United States and other jurisdictions by trademarks, trade names, service
marks, and other intellectual property rights of ours and other parties. The absence of a specific
attribution in connection with any such mark does not constitute a waiver of any such right. All
trademarks, trade names, service marks, and logos referenced herein belong to their respective
owners. References to “fiscal” in connection with a numeric year number denotes our fiscal year
ending on the last day of February, during the year number listed. References to “the FASB” refer
to the Financial Accounting Standards Board. References to “GAAP” refer to U.S. generally
accepted accounting principles. References to “ASU” refer to the codification of GAAP in the
Accounting Standards Updates issued by the FASB. References to “ASC” refer to the
codification of GAAP in the Accounting Standards Codification issued by the FASB.
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Item 1. Business
Our Company
PART I
We incorporated in Texas in 1968 and were reorganized in Bermuda in 1994. We are a leading global
consumer products company offering creative solutions for our customers through a diversified portfolio
of well-recognized and widely-trusted brands. We have built leading market positions through new
product innovation, product quality and competitive pricing.
Segment Information
We currently have three business segments, which are included in our financial statements in continuing
operations:
• Housewares: Provides a broad range of products to help with food preparation, cooking,
cleaning, organization, beverage service, and other tasks to ease everyday living for families.
This segment sells primarily to retailers as well as through our direct-to-consumer channel.
• Health & Home: Provides healthcare and home environment products. Sales for the segment
are primarily to retailers, with some direct-to-consumer channel sales.
• Beauty: Provides mass and prestige market personal care and beauty appliance products
including hair styling appliances, grooming tools, decorative haircare accessories, and liquid, solid
and powder-based personal care products. This segment sells primarily to retailers, beauty
supply wholesalers and directly to the consumer.
Unless otherwise indicated, all amounts are presented from continuing operations. Discontinued
operations refers to our former Nutritional Supplements segment, which was divested on December 20,
2017. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") and Note 6 to the accompanying consolidated financial statements for more
information.
For more segment and geographic information concerning our net sales revenue, long-lived assets and
operating income, refer to Note 20 to the accompanying consolidated financial statements.
Our Strategic Initiatives
In fiscal 2015, we launched a five-year transformational strategy designed to improve the performance of
our business segments and strengthen our shared service capabilities. This strategy has driven our
decisions on where we will operate and how we will achieve our goals in markets around the world. The
overall design of our business and organizational plan is intended to create sustainable and profitable
growth and improve organizational capability.
Fiscal 2019 marked the completion of Phase I of our multi-year transformation strategy, which delivered
performance across a wide range of measures. We improved organic sales growth by focusing on our
Leadership Brands, made strategic acquisitions, became a more efficient operating company with strong
global shared services, upgraded our organization and culture, improved inventory turns and return on
invested capital, and returned capital to shareholders.
Fiscal 2020 began Phase II of our transformation and is designed to drive the next five years of progress.
The long-term objectives of Phase II include improved organic sales growth, continued margin
expansion, and strategic and effective capital deployment. We expect Phase II will include continued
investment in our Leadership Brands, with a focus on growing them through consumer-centric innovation,
expanding them more aggressively outside the United States, and adding new brands through
acquisition. We anticipate building further shared service capability and operating efficiency, as well as
attracting, retaining, unifying and training the best people.
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On January 23, 2020, we completed the acquisition of Drybar Products LLC ("Drybar Products"), for
approximately $255.9 million in cash, subject to certain customary closing adjustments. Drybar Products
is a fast-growing, innovative, trend-setting prestige hair care and styling brand. As part of the transaction,
we granted a worldwide license to Drybar Holdings LLC, the owner and long-time operator of Drybar
blowout salons, to use the Drybar trademark in their continued operation of Drybar salons. The salons
will exclusively use, promote, and sell Drybar products globally. The acquisition of Drybar Products adds
an 8th Leadership Brand to the Company. Leadership Brands are brands which have number-one or
number-two positions in their respective categories and, in addition to Drybar, include OXO, Honeywell,
Braun, PUR, Hydro Flask, Vicks, and Hot Tools.
During the fourth quarter of fiscal 2020, we committed to a plan to divest certain assets within our mass
market personal care business. The assets to be disposed of include intangible assets, inventory and
fixed assets relating to our mass channel liquids, powder and aerosol products under brands such as
Pert, Brut, Sure and Infusium. We expect the divestiture to occur within fiscal 2021. Accordingly, we have
classified the identified assets of the disposal group as held for sale. The plan to divest these assets
advances our strategy to focus our resources on our Leadership Brands.
Our Products
The following table summarizes the types of products we sell by business segment:
Segment
Product Category
Primary Products
Housewares
Food Preparation and Storage
Cleaning, Bath and Garden
Infant and Toddler
Food preparation tools and gadgets, food storage containers and
storage and organization products
Household cleaning products, shower organization, bathroom
accessories, and gardening products
Feeding and drinking products, child seating, cleaning tools and
nursery accessories
Hot and Cold Beverage and Food
Containers
Insulated water bottles, jugs, thermoses, drinkware, travel mugs and
food containers
Health & Home
Healthcare
Thermometers, blood pressure monitors and humidifiers
Water Filtration
Faucet mount water filtration systems and pitcher based water
filtration systems
Home Environment
Air purifiers, heaters, fans, humidifiers and dehumidifiers
Beauty
Appliances and Accessories (1)
Personal Care (1)(2)
Mass and prestige market hair and skin care appliances, grooming
brushes, tools and decorative hair accessories
Mass and prestige market shampoos, liquid hair styling products,
treatments and conditioners.
(1) On January 23, 2020, we completed the acquisition of Drybar Products which offers innovative, trend setting prestige hair
care and styling products.
(2) During the fourth quarter of fiscal 2020, we committed to a plan to divest certain assets within our mass market personal
care business. The assets to be disposed of include intangible assets, inventory and fixed assets relating to our mass
channel liquids, powder and aerosol products. We have classified the identified assets as held for sale. For additional
information see Note 5 to the accompanying consolidated financial statements.
Our Trademarks
We market products under a number of trademarks that we own and sell certain of our products under
trademarks licensed from third parties. We believe our principal trademarks, both owned and licensed,
have high levels of brand name recognition among retailers and consumers throughout the world.
Through our favorable partnerships with our licensors, we believe we have developed stable, enduring
relationships that provide access to unique brands that complement our owned and internally developed
trademarks.
The Beauty and Health & Home segments rely on the continued use of trademarks licensed under
various agreements for a substantial portion of their net sales revenue. New product introductions under
licensed trademarks require approval from the respective licensors. The licensors must also approve the
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product packaging. Many of our license agreements require us to pay minimum royalties, meet minimum
sales volumes and some require us to make minimum levels of advertising expenditures.
The following table lists our key trademarks by segment:
Segment
Owned
Housewares
OXO, Good Grips, Hydro Flask, Soft Works, OXO tot
Health & Home PUR
Beauty
Drybar, Hot Tools, Brut, Pert, Sure, Infusium
Patents and Other Intellectual Property
Licensed
Honeywell, Braun, Vicks
Revlon, Bed Head
We maintain utility and design patents in the United States and several foreign countries. We also
protect certain details about our processes, products and strategies as trade secrets, keeping
confidential the information that we believe provides us with a competitive advantage.
Sales and Marketing
We currently market our products in over 95 countries throughout the world. Sales within the United
States comprised approximately 79%, 78% and 79% of total net sales revenue in fiscal 2020, 2019 and
2018, respectively. Our segments primarily sell their products through mass merchandisers, drugstore
chains, warehouse clubs, home improvement stores, grocery stores, specialty stores, beauty supply
retailers, e-commerce retailers, wholesalers, and various types of distributors, as well as directly to
consumers. We collaborate extensively with our retail customers and, in many instances, produce
specific versions of our product lines with exclusive designs and packaging for their stores, which are
appropriately priced for their respective customer bases. We market products principally through the use
of outside sales representatives and our own internal sales staff, supported by our internal marketing,
category management, engineering, creative services, and customer and consumer service staff. These
groups work closely together to develop pricing and distribution strategies, to design packaging and to
help develop product line extensions and new products.
Research and Development
Our research and development activities focus on new, differentiated and innovative products designed
to drive sustained organic growth. We continually invest to strengthen our product design and research
and development capabilities, including extensive study to gain consumer insight. Research and
development expenses consist primarily of salary and employee benefit expenses and contracted
development and testing efforts associated with development of products.
Manufacturing and Distribution
We contract with unaffiliated manufacturers, primarily in China and Mexico, to manufacture a significant
portion of our finished goods for the Beauty appliances and accessories, Housewares, Healthcare, Water
Filtration, and Home Environment product categories. The North American region of the personal care
category of the Beauty segment sources most of its products from U.S. manufacturers. Finished goods
manufactured by vendors in the Far East comprised approximately 76%, 74% and 74% of finished goods
purchased for fiscal 2020, 2019 and 2018, respectively.
We occupy owned and leased office and distribution space in various locations to support our operations.
These facilities include our U.S. headquarters in El Paso, Texas, and distribution centers in Southaven,
Mississippi, and Olive Branch, Mississippi, which are used to support a significant portion of our domestic
distribution.
Customers
Sales to our largest customer accounted for approximately 18%, 16% and 13% of our consolidated net
sales revenue in fiscal 2020, 2019 and 2018, respectively. Sales to our second largest customer
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accounted for approximately 14%, 16% and 17% of our consolidated net sales revenue in fiscal 2020,
2019 and 2018, respectively. Sales to our third largest customer did not account for 10% or more of our
consolidated net sales revenue in fiscal 2020, however, did account for 10% of our consolidated net
sales revenue in fiscal 2019 and 2018, respectively. No other customers accounted for 10% or more of
consolidated net sales revenue during those fiscal years. Sales to our top five customers accounted for
approximately 50%, 51% and 49% of our consolidated net sales revenue in fiscal 2020, 2019 and 2018,
respectively.
Order Backlog
When placing orders, our individual consumer, retail and wholesale customers usually request that we
ship the related products within a short time frame. As such, there usually is no significant backlog of
orders in any of our distribution channels.
Seasonality
SEASONALITY AS A PERCENTAGE OF ANNUAL NET SALES REVENUE
Fiscal Quarter Ended
May
August
November
February
Fiscal Years Ended Last Day of February
2020
2019
2018
22.0%
24.2%
27.8%
26.0%
22.7%
25.2%
27.6%
24.5%
22.0%
23.3%
28.5%
26.2%
Our sales are seasonal due to different calendar events, holidays and seasonal weather patterns.
Historically, the third fiscal quarter produces the highest net sales revenue during the fiscal year.
Competitive Conditions
We generally sell our products in markets that are very competitive and mature. Our products compete
against similar products of many large and small companies, including well-known global competitors. In
many of the markets and industry segments in which we sell our products we compete against other
branded products as well as retailers' private-label brands. We believe that we have certain key
competitive advantages, such as well recognized brands, engineering expertise and innovation, sourcing
and supply chain know-how, and productive co-development relationships with our Far East
manufacturers. We support our products with advertising, promotions and other marketing activities, as
well as an extensive sales force in order to build awareness and to encourage new consumers to try our
brands and products. We are well positioned in the industry segments and markets in which we operate,
often holding a leadership or significant market share position. We believe these advantages allow us to
bring our retailers a differentiated value proposition.
The following table summarizes our primary competitors by business segment:
Segment
Competitor
Housewares
Lifetime Brands, Inc. (KitchenAid), Newell Brands Inc., Simple Human LLC, Yeti Holdings, Inc. (Yeti),
Bradshaw Home, Inc. (BradshawHome)
Health & Home
Beauty
Exergen Corporation, Omron Healthcare, Inc., Crane Engineering, Newell Brands, Inc., Lasko Products,
LLC., The Clorox Company (Brita), Zero Technologies, LLC, Vornado Air Circulation Systems, Dyson Ltd,
Unilever (Blueair), Guardian Technologies LLC.
Conair, Spectrum Brands Holdings Inc. (Remington), Newell Brands, Inc., The Procter & Gamble
Company, Unilever N.V., Colgate-Palmolive Company, Coty Inc., Dyson Ltd
Environmental and Health and Safety Matters
Our operations are subject to national, state, local, and provincial jurisdictions’ environmental, health and
safety laws and regulations. Many of the products we sell are subject to a number of product safety laws
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and regulations in various jurisdictions. These laws and regulations specify the maximum allowable
levels of certain materials that may be contained in our products, provide statutory prohibitions against
misbranded and adulterated products, establish ingredients and manufacturing procedures for certain
products, specify product safety testing requirements, and set product identification and labeling
requirements.
Additionally, an emerging trend with both governments and our retail customers is to prescribe public and
private social accountability reporting requirements regarding our worldwide business activities. In our
product space, some requirements have already been mandated and we believe others may become
required in the future. Examples of current requirements include conflict minerals content reporting,
customer reporting of foreign fair labor practices in connection with our supply chain vendors, and
evaluating the risks of human trafficking and slavery.
We believe that we are in material compliance with these laws, regulations and other reporting
requirements. Further, the cost of maintaining compliance has not had a material adverse effect on our
business, consolidated results of operations and consolidated financial condition, nor do we expect it to
do so in the foreseeable future. Due to the nature of our operations and the frequently changing nature
of compliance and social reporting standards and technology, we cannot predict with any certainty that
future material capital or operating expenditures will not be required in order to comply with applicable
laws, regulations and other reporting mandates.
Employees
As of February 29, 2020, we employed approximately 1,650 full-time employees worldwide. We also use
temporary, part-time and seasonal employees as needed. None of our U.S. employees are covered by a
collective bargaining agreement. Certain of our employees in Europe are covered by collective
arrangements or works counsel in accordance with local practice. We have never experienced a work
stoppage, and we believe that we have satisfactory working relations with our employees.
Available Information
We maintain our main Internet site at: http://www.helenoftroy.com. The information contained on this
website is not included as a part of, or incorporated by reference into, this report. We make available on
or through our main website’s Investor Relations page under the heading “SEC Filings” certain reports
and amendments to those reports that we file with, or furnish to, the SEC in accordance with the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). These include our annual reports
on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, our proxy
statements on Schedule 14A, amendments to these reports, and the reports required under Section 16 of
the Exchange Act of transactions in our common stock by directors and officers. We make this
information available on our website free of charge as soon as reasonably practicable after we
electronically file the information with, or furnish it to, the SEC. Also, on the Investor Relations page,
under the heading “Corporate Governance,” are our Code of Ethics, Code of Conduct, Corporate
Governance Guidelines and the Charters of the Committees of the Board of Directors.
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Item 1A. Risk Factors
Carefully consider the risks described below and all of the other information included in our report on
Form 10-K when deciding whether to invest in our securities or otherwise evaluating our business. If any
of the following risks or other events or circumstances described elsewhere in this report materialize, our
business, operating results or financial condition may suffer. In this case, the trading price of our
common stock and the value of your investment might significantly decline. The risks listed below are
not the only risks that we face. Additional risks unknown to us or that we currently believe are
insignificant may also affect our business.
We expect the current public health crisis resulting from the outbreak of novel coronavirus
disease (commonly referred to as "COVID-19") to adversely impact our business, which could
have a material impact on our operating results and financial condition. We must successfully
manage the demand, supply, and operational challenges associated with the actual or perceived
effects of COVID-19 and any similar future public health crisis, pandemic or epidemic.
Our business may be negatively impacted by the fear of exposure to, or actual effects of, pandemics and
epidemics or similar public health crises. In response to a public health crisis, national, state and local
authorities may implement a variety of measures to limit the spread of a disease, such as travel
restrictions, social distancing or imposing quarantine and isolation measures on the population. The
impacts of a public health crisis may include, but are not limited to:
• Significant reductions in demand or significant volatility in demand for our products, which may be
caused by, among other things, the temporary inability of consumers to purchase our products
due to illness, self-quarantine, travel restrictions, financial hardship, restrictions that limit access
to or close customer stores, or shifts in demand away from one or more of our more discretionary
or higher priced products to lower priced products;
Inability to meet our customers’ needs and achieve costs targets due to disruptions in distribution
capabilities or our supply chain caused by the loss or disruption of essential manufacturing and
supply elements such as raw materials or other finished product components, restricted
transportation or increased freight costs, reduced workforce, or other manufacturing sources and
distribution processes;
•
• Failure of third parties on which we rely, including our suppliers, customers, distributors,
commercial banks, and external business partners, to meet their obligations to us, or significant
disruptions in their ability to do so, which may be caused by their own financial or operational
difficulties and may adversely impact our operations; or
• Significant changes in the political environment in which we manufacture, sell or distribute our
products, including quarantines, governmental authority actions, closures or other restrictions that
limit or close operating and manufacturing or distribution facilities, restrict employees’ ability to
travel or perform necessary business functions, or otherwise prevent our external business
partners, suppliers, or customers from sufficiently staffing operations, including operations
necessary for the production, distribution, sale, and support of our products, which could
adversely impact our results.
On March 13, 2020, the President of the United States announced a National Emergency relating to
COVID-19. There is a possibility of widespread infection in the U.S. and abroad, with the potential for
catastrophic impact. As a result of these and other effects, we expect COVID-19 to adversely impact our
business, which could be material. The impact includes the effect of temporary closures of, and limited
hours of operation and materially lower store traffic at, customer stores. The COVID-19 pandemic is also
impacting our third-party manufacturers, most of which are located in the Far East, principally China. The
extent of the impact of COVID-19 on our business and financial results will depend largely on future
developments, including the duration of the spread of the COVID-19 outbreak within the U.S. and
globally, the impact on capital and financial markets and the related impact on consumer confidence and
spending. These future developments are outside of our control, are highly uncertain and cannot be
predicted. If the impact is prolonged, then it can further increase the difficulty of planning for operations.
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These and other potential impacts of the current public health crisis could therefore materially and
adversely affect our business, financial condition, cash flows and results of operations. This situation is
changing rapidly, and additional impacts may arise that we are not currently aware of. Accordingly, the
results for the first quarter of fiscal 2021, as well as for the full fiscal 2021, could be impacted in ways that
we are not able to predict today, including, but not limited to, non-cash write-downs and asset impairment
charges (including impairments of goodwill and other indefinite-lived intangible assets).
Our ability to deliver products to our customers in a timely manner and to satisfy our customers’
fulfillment standards are subject to several factors, some of which are beyond our control.
Retailers place great emphasis on timely delivery of our products for specific selling seasons, especially
during our third fiscal quarter, and on the fulfillment of consumer demand throughout the year. We
cannot control all of the various factors that might affect product delivery to retailers. Vendor production
delays, difficulties encountered in shipping from overseas, customs clearance delays, and operational
issues with any of the third-party logistics providers we use in certain countries are on-going risks of our
business. We also rely upon third-party carriers for our product shipments from our distribution centers
to customers. In certain circumstances, we rely on the shipping arrangements our suppliers have made
in the case of products shipped directly to retailers from the suppliers. Accordingly, we are subject to
risks, including labor disputes, inclement weather, public health crises (such as pandemics and
epidemics), natural disasters, possible acts of terrorism, availability of shipping containers, and increased
security restrictions associated with the carriers’ ability to provide delivery services to meet our shipping
needs. Further, our delivery process must often accommodate special vendor requirements to use
specific carriers and delivery schedules. Failure to deliver products to our retailers in a timely and
effective manner could damage our reputation and brands and result in the loss of customers or reduced
orders, which could have a material adverse effect on our business, operating results and financial
condition.
Large customers may take actions that adversely affect our gross profit and operating results.
With the continuing trend towards retail trade consolidation, we are increasingly dependent upon key
customers whose bargaining strength is substantial and growing. We may be negatively affected by
changes in the policies of our customers, such as actions to respond to a public health crisis, on-hand
inventory reductions, limitations on access to shelf space, use of private label brands, price and term
demands, and other conditions, which could negatively impact our business, operating results and
financial condition.
In addition, the growth in e-commerce sales, both by large traditional retailers and pure-play online
retailers, has increased the size and influence of these types of customers. Certain of these customers
source and sell products under their own private label brands that compete with our products. As certain
large customers and online retailers grow even larger and become more sophisticated, they may
continue to demand lower pricing, special packaging, shorter lead times for the delivery of products,
smaller more frequent shipments, or impose other requirements on product suppliers. These business
demands may relate to inventory practices, logistics or other aspects of the customer-supplier
relationship. If we do not effectively respond to these demands, these customers could decrease their
purchases from us. A reduction in the demand for our products by these customers and the costs of
complying with their business demands could have a material adverse effect on our business, operating
results and financial condition.
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We are subject to risks related to our dependence on the strength of retail economies and may be
vulnerable in the event of a prolonged economic downturn, including from the effects of
COVID-19.
Our business depends on the strength of the retail economies in various parts of the world, primarily in
North America and to a lesser extent EMEA, Asia and Latin America. These retail economies are
affected for the most part by factors such as consumer demand and the condition of the retail industry,
which, in turn, are affected by general economic conditions and specific events such as natural disasters,
public health crises (such as pandemics and epidemics), terrorist attacks and political unrest. Consumer
spending in any geographic region is generally affected by a number of factors, including local economic
conditions, government actions, inflation, interest rates, energy costs, unemployment rates, gasoline
prices, and consumer confidence, all of which are beyond our control. Consumer purchases of
discretionary items tend to decline during recessionary periods, when disposable income is lower, and
may impact sales of our products. The COVID-19 pandemic has reduced consumer demand, and is
expected to continue to do so. Measures imposed or that may in the future be imposed by national, state
and local authorities in response to COVID-19 are expected to have serious adverse impacts of uncertain
severity and duration on domestic and foreign economies. The effectiveness of economic stabilization
efforts, including government payments and loans to affected citizens and industries, is uncertain. Some
economists are predicting the U.S. may enter a recession as a result of the pandemic. Any sustained
economic downturn in the U.S. or any of the other countries in which we conduct significant business,
may cause significant readjustments in both the volume and mix of our product sales, which could
materially and adversely affect our business, operating results and financial condition.
Our operating results are dependent on sales to several large customers and the loss of, or
substantial decline in, sales to a top customer could have a material adverse effect on our
revenues and profitability.
A few customers account for a substantial percentage of our net sales revenue. Our financial condition
and operating results could suffer if we lost all or a portion of the sales to any one of these customers. In
particular, sales to our two largest customers accounted for approximately 32% of our consolidated net
sales revenue in fiscal 2020. While only two customers individually accounted for 10% or more of our
consolidated net sales revenue in fiscal 2020, sales to our top five customers in aggregate accounted for
approximately 50% of fiscal 2020 consolidated net sales revenue. We expect that a small group of
customers will continue to account for a significant portion of our net sales revenue. Although we have
long-standing relationships with our major customers, we generally do not have written agreements that
require these customers to buy from us or to purchase a minimum amount of our products. A substantial
decrease in sales to any of our major customers could have a material adverse effect on our financial
condition and operating results. We expect that the creditworthiness of some of our customers may be
vulnerable to the impact of the current public health crisis. We regularly monitor and evaluate the credit
status of our customers and attempt to adjust sales terms as appropriate. Despite these efforts, a
deterioration in the credit worthiness or bankruptcy filing of a key customer could have a material adverse
effect on our business, operating results and financial condition.
Expectations regarding recent acquisitions, and any future acquisitions or divestitures, including
our ability to realize related synergies, along with our ability to effectively integrate acquired
businesses or disaggregate divested businesses, may adversely affect the price of our common
stock.
We continue to look for opportunities to make strategic business and/or brand acquisitions. Additionally,
we frequently evaluate our portfolio of business products and may consider divestitures or exits of
businesses that we no longer believe to be an appropriate strategic fit. Our financial results could be
impacted in the event that changes in the cash flows or other market-based assumptions or conditions
cause the value of acquired assets to fall below book value, or we are not able to deliver the expected
benefits or synergies associated with acquisition transactions, which could also have an impact on
associated goodwill and intangible assets. Any acquisition or divestiture, if not favorably received by
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consumers, shareholders, analysts, and others in the investment community, could have a material
adverse effect on the price of our common stock.
In addition, any acquisition involves numerous risks, including:
• difficulties in the assimilation of the operations, technologies, products, and personnel associated
with the acquisitions;
• challenges in integrating distribution channels;
• diversion of management's attention from other business concerns;
• difficulties in transitioning and preserving customer, contractor, supplier, and other important third-
party relationships;
• challenges realizing anticipated cost savings, synergies and other benefits related to an
•
acquisition;
risks associated with subsequent losses or operating asset write-offs, contingent liabilities and
impairment of related acquired intangible assets;
risks of entering markets in which we have no or limited experience; and
•
• potential loss of key employees associated with the acquisitions.
If our goodwill, indefinite-lived intangible assets or other long-term assets become impaired, we
will be required to record impairment charges, which may be significant.
A significant portion of our long-term assets consists of goodwill and other indefinite-lived intangible
assets recorded as a result of past acquisitions. We do not amortize goodwill and indefinite-lived
intangible assets, but rather review them for impairment on an annual basis or more frequently whenever
events or changes in circumstances indicate that their carrying value may not be recoverable. If such
circumstances or conditions exist, further steps are required in order to determine whether the carrying
value of each of the individual assets exceeds its fair market value. If our analysis indicates that an
individual asset’s carrying value does exceed its fair market value, the next step is to record a loss equal
to the excess of the individual asset’s carrying value over its fair value. The analysis required by GAAP
entails significant amounts of judgment and subjectivity.
We complete our analysis of the carrying value of our goodwill and other intangible assets during the
fourth quarter of our fiscal year, or more frequently, whenever events or changes in circumstances
indicate their carrying value may not be recoverable. Events and changes in circumstances that may
indicate there is impairment and which may indicate interim impairment testing is necessary include, but
are not limited to: strategic decisions to exit a business or dispose of an asset made in response to
changes in economic, political and competitive conditions; the impact of the economic environment on
our customer base and on broad market conditions that drive valuation considerations by market
participants; our internal expectations with regard to future revenue growth and the assumptions we
make when performing our impairment reviews; a significant decrease in the market price of our assets;
a significant adverse change in the extent or manner in which our assets are used; a significant adverse
change in legal factors or the business climate that could affect our assets; an accumulation of costs
significantly in excess of the amount originally expected for the acquisition of an asset; and significant
changes in the cash flows associated with an asset. We analyze these assets at the individual asset,
reporting unit and company levels. As a result of such circumstances, we may be required to record a
significant charge to net income in our financial statements during the period in which any impairment of
our goodwill, indefinite-lived intangible assets or other long-term assets is determined. As a result of
such circumstances and the current public health crisis, we may be required to revise certain accounting
estimates and judgments such as those related to the valuation of goodwill and other indefinite-lived
intangible assets, which could result in material non-cash impairment charges. Any such impairment
charges could have a material adverse effect on our results of operations.
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We rely on our Chief Executive Officer and a limited number of other key senior officers to
operate our business. The loss of any of these individuals could have a material adverse effect on
our business.
The loss of our Chief Executive Officer or any of our key senior officers could have a material adverse
effect on our business, operating results and financial condition, particularly if we are unable to hire and
integrate suitable replacements on a timely basis. Further, as we continue to grow our business, we will
continue to adjust our senior management team. If we are unable to attract or retain the right individuals
for the team, it could hinder our ability to grow our business and could disrupt our operations or otherwise
have a material adverse effect on our business.
We rely on central Global Enterprise Resource Planning (“ERP”) systems and other peripheral
information systems. Obsolescence or interruptions in the operation of our computerized
systems or other information technologies could have a material adverse effect on our operations
and profitability.
Our operations are largely dependent on our ERP system. We continuously make adjustments to
improve the effectiveness of the ERP and other peripheral information systems, including the installation
of significant new subsystems. Any failures or disruptions in the ERP and other information systems or
any complications resulting from ongoing adjustments to our systems could cause interruption or loss of
data in our information or logistical systems that could materially impact our ability to procure products
from our factories and suppliers, transport them to our distribution centers, and store and deliver them to
our customers on time and in the correct amounts. In addition, natural disasters or other extraordinary
events may disrupt our information systems and other infrastructure, and our data recovery processes
may not be sufficient to protect against loss.
Failure to maintain cybersecurity and the integrity of internal or customer data could have a
material adverse effect on our operations and profitability and may result in faulty business
decisions, operational inefficiencies, damage to our reputation and/or subject us to costs, fines,
or lawsuits.
Information systems require constant updates to their security policies and hardware systems to reduce
the risk of unauthorized access, malicious destruction of data or information theft. We rely on
commercially available systems, software, tools, and monitoring to provide security for processing,
transmission and storage of confidential information and data. While we have security measures in
place, our systems and networks have been and will continue to be subject to ongoing threats.
Therefore, our security measures may be breached as a result of employee error, failure to implement
appropriate processes and procedures, advances in computer and software capabilities and encryption
technology, new tools and discoveries, malfeasance, third-party action, including cyber-attacks or other
international misconduct by computer hackers or otherwise. This could result in one or more third-parties
obtaining unauthorized access to our customer or supplier data or our internal data, including personally
identifiable information, intellectual property and other confidential business information. Third-parties
may also attempt to fraudulently induce employees into disclosing sensitive information such as user
names, passwords or other information in order to gain access to customer or supplier data or our
internal data, including intellectual property and other confidential business information. Because
techniques used to obtain unauthorized access or sabotage systems change frequently and generally
are not identified until they are launched against a target, we may be unable to anticipate these
techniques or to implement adequate preventative or mitigation measures. Though it is difficult to
determine what harm may directly result from any specific interruption or breach, any failure to maintain
performance, reliability, security and availability of our network infrastructure or otherwise to maintain the
confidentiality, security, and integrity of data that we store or otherwise maintain on behalf of third-parties
may harm our reputation and our customer and consumer relationships.
If such unauthorized disclosure or access does occur, we may be required to notify our customers,
consumers, or those persons whose information was improperly used, disclosed or accessed. We may
also be subject to claims of breach of contract for such use or disclosure, investigation and penalties by
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regulatory authorities and potential claims by persons whose information was improperly used or
disclosed. We could also become the subject of regulatory action or litigation from our consumers,
customers, employees, suppliers, service providers, and shareholders, which could damage our
reputation, require significant expenditures of capital and other resources, and cause us to lose business
and revenue. Additionally, an unauthorized disclosure or use of information could cause interruptions in
our operations and might require us to spend significant management time and other resources
investigating the event and dealing with local and federal law enforcement. Regardless of the merits and
ultimate outcome of these matters, we may be required to devote time and expense to their resolution.
In addition, the increase in the number and the scope of data security incidents has increased regulatory
and industry focus on security requirements and heightened data security industry practices. New
regulation, evolving industry standards, and the interpretation of both, may cause us to incur additional
expense in complying with any new data security requirements. As a result, the failure to maintain the
integrity of and protect customer or supplier data or our internal data could have a material adverse effect
on our business, operating results and financial condition.
Recent global legal developments regarding privacy and data security could result in changes to
our business practices, penalties, increased cost of operations, or otherwise harm our business.
As a global company, we are subject to global privacy and data security laws, regulations, and codes of
conduct that apply to our various business units. These laws and regulations may be inconsistent across
jurisdictions and are subject to evolving and differing interpretations. Government regulators, privacy
advocates and class action attorneys are increasingly scrutinizing how companies collect, process, use,
store, share and transmit personal data. This increased scrutiny may result in new interpretations of
existing laws, thereby further impacting our business.
Globally, new and emerging laws, such as the General Data Protection Regulation in Europe, state laws
in the U.S. on privacy, data and related technologies, such as the California Consumer Privacy Act, as
well as industry self-regulatory codes create new compliance obligations and expand the scope of
potential liability, either jointly or severally with our customers and suppliers. While we have invested in
readiness to comply with applicable requirements, these new and emerging laws, regulations and codes
may affect our ability to reach current and prospective consumers, to respond to consumer requests
under the laws (such as individual rights of access, correction, and deletion of their personal information),
and to implement our business models effectively. The costs of compliance or failure to comply with such
laws, regulations, codes of conduct and expectations could have a material adverse impact on our
financial condition and results of operations.
Our operating results may be adversely affected by foreign currency exchange rate fluctuations.
Our functional currency is the U.S. Dollar. Changes in the relation of other foreign currencies to the U.S.
Dollar will affect our sales and profitability and can result in exchange losses because we have
operations and assets located outside the U.S. We transact a portion of our international business in
currencies other than the U.S. Dollar (“foreign currencies”). Such transactions include sales, certain
inventory purchases and operating expenses. As a result, portions of our cash, trade accounts
receivable and trade accounts payable are denominated in foreign currencies. Accordingly, foreign
operations will continue to expose us to foreign currency fluctuations, both for purposes of actual
conversion and financial reporting purposes. Additionally, we purchase a substantial amount of our
products from Chinese manufacturers in U.S Dollars. The Chinese Renminbi has fluctuated against the
U.S. Dollar in recent years. During fiscal 2020 the Chinese Renminbi weakened against the U.S. dollar
by approximately 5.0%. Chinese Renminbi currency fluctuations have the potential to add volatility to our
product costs over time.
Where operating conditions permit, we seek to reduce foreign currency risk by purchasing most of our
inventory with U.S. Dollars and by converting cash balances denominated in foreign currencies to U.S.
Dollars. We use derivative financial instruments including forward contracts, cross currency debt swaps
and zero-cost collars to hedge against certain foreign currency exchange rate-risk inherent in our
transactions denominated in currencies other than the U.S. Dollar. We enter into these types of
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agreements to partially mitigate our exposure to foreign currency exchange risk. It is not practical for us
to hedge all our exposures, nor are we able to accurately project the possible effect of all foreign
currency fluctuations on translated amounts or future net income due to our constantly changing
exposure to various currencies, the fact that each foreign currency reacts differently to the U.S. Dollar
and the significant number of currencies involved.
The impact of future foreign currency exchange rate fluctuations on our results of operations cannot be
accurately predicted. Accordingly, there can be no assurance that foreign currency exchange rates:
• will be stable in the future;
• can be mitigated with currency hedging or other risk management strategies; or
• will not have a material adverse effect on our business, operating results and financial condition.
Our judgments regarding the accounting for tax positions and the resolution of tax disputes may
impact our net earnings and cash flow.
Significant judgment is required to determine our effective tax rate and evaluate our tax positions. We
provide for uncertain tax positions when such tax positions do not meet the recognition thresholds or
measurement criteria prescribed by applicable accounting standards. Fluctuations in federal, state, local
and foreign taxes or a change to uncertain tax positions, including related interest and penalties, may
impact our effective tax rate and financial results. Additionally, we are subject to audits in the various
taxing jurisdictions in which we conduct business. In cases where audits are conducted and issues are
raised, a number of years may elapse before such issues are finally resolved. Unfavorable resolution of
any tax matter could increase the effective tax rate, which could have an adverse effect on our operating
results and cash flow. For additional information regarding our taxes, see Note 22 to the accompanying
consolidated financial statements.
Changes in laws, including tax laws, and the costs and complexities of compliance with such
laws could have a material adverse impact on our business.
The impact of future legislation in the U.S. or abroad, including such things as employment and health
insurance laws, climate change related legislation, tax legislation, regulations or treaties is always
uncertain. Federal and local legislative agendas from time to time contain numerous proposals dealing
with taxes, financial regulation, energy policy, environmental policy, transportation policy and
infrastructure policy, among others that, if enacted into law, could increase our costs of doing business.
As additional regulatory guidance is issued by the applicable taxing authorities, accounting treatment is
clarified, we perform additional analysis on the application of the law, and we refine estimates in
calculating the effect, our final analysis may be different from provisional amounts, which could materially
affect our tax obligations and effective tax rate in the period completed.
Under current tax law, favorable tax treatment of our non-U.S. income is dependent on our ability
to avoid classification as a Controlled Foreign Corporation. Changes in the composition of our
stock ownership could have an impact on our classification. If our classification were to change,
it could have a material adverse effect on the largest U.S. shareholders and, in turn, on our
business.
A non-U.S. corporation, such as ours, will constitute a “controlled foreign corporation” or “CFC” for U.S.
federal income tax purposes if its largest U.S. shareholders together own more than 50 percent of the
stock outstanding. A U.S. shareholder is defined as any U.S. person who owns directly, indirectly, or
constructively: (1) 10 percent or more of the total combined voting power of all classes of stock, or (2) 10
percent or more of the total value of shares of all classes of stock. If the IRS or a court determined that
we were a CFC at any time during the tax year, then each of our U.S. shareholders as defined above
would be required to include in gross income for U.S. federal income tax purposes its pro rata share of
our “subpart F income” (and the subpart F income of any of our subsidiaries determined to be a CFC) for
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the period during which we (and our non-U.S. subsidiaries) were deemed a CFC. In addition, any gain
on the sale of our shares realized by such a shareholder may be treated as ordinary income to the extent
of the shareholder’s proportionate share of our and our CFC subsidiaries’ undistributed earnings and
profits accumulated during the shareholder’s holding period of the shares while we were deemed to be a
CFC.
Legislation enacted in Bermuda and Barbados in response to the European Union’s review of harmful
tax competition could adversely affect our operations.
In December 2017, the EU Economic and Financial Affairs Council (“ECOFIN”) released a list of non-
cooperative jurisdictions for tax purposes. The stated aim of this list, and accompanying report, was to
promote good governance worldwide in order to maximize efforts to prevent tax fraud and tax evasion.
Our jurisdiction of organization is Bermuda and one of our subsidiaries is organized in Barbados, two of
the countries identified in the ECOFIN report. In light of recent “economic substance” legislation in
Bermuda and Barbados (discussed in more detail below), ECOFIN has declared that both countries now
“cooperate with the EU” and are considered to have “implemented all commitments.”
The economic substance legislation in each of Bermuda and Barbados requires certain entities engaged
in “relevant activities” in that country to maintain a substantial economic presence in the country, and to
satisfy economic substance requirements. The list of “relevant activities” in the respective statutes
includes carrying on as a business any one or more of several enumerated activities, such as
headquarters, shipping, distribution and service center, intellectual property and holding entities. Any
entity that is required to satisfy economic substance requirements must file a declaration with the
Bermuda Registrar of Companies and the Ministry of International Business and Industry in Barbados, as
applicable. Failure to comply with the economic substance requirements could result in automatic
disclosure of relevant information to competent authorities in the EU (and perhaps elsewhere). Other
sanctions include financial penalties, restriction or regulation of business activities and/or being struck off
as a registered entity in Bermuda or Barbados.
Although the local authorities have released some implementing guidelines, the impact of the foregoing
legislation and developments is unclear, including how the requirements will be measured and whether
additional or revised requirements may be enacted by Bermuda or Barbados. We are evaluating the
guidelines and will be implementing changes as needed to comply with the legislation. However, we
cannot predict the effect of Bermuda’s or Barbados’s current or future economic substance requirements
on our business, which may impact the manner and jurisdictions in which we operate, and which could
adversely affect our business, financial condition or results of operations.
Our business is subject to weather conditions, the duration and severity of the cold and flu
season and other related factors, which can cause our operating results to vary from quarter to
quarter and year to year.
Sales in our Health & Home segment are influenced by weather conditions. Sales volumes for
thermometry, humidifiers and heating appliances are higher during, and subject to, the severity of the
cold weather months, while sales of fans and insect control devices are higher during, and subject to,
weather conditions in spring and summer months. Weather conditions can also more broadly impact
sales across the organization. Additionally, natural disasters (such as wildfires, hurricanes and ice
storms), public health crises (such as pandemics and epidemics), or unusually severe winter weather
may result in temporary unanticipated fluctuations in retail traffic and consumer demand, may impact our
ability to staff our distribution facilities or could otherwise impede timely transport and delivery of products
from our distribution facilities. Sales in our Health & Home segment are also impacted by cough, cold
and flu seasonal trends, including the duration and severity of the cold and flu season. These factors
could have a material adverse effect on our business, operating results and financial condition.
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We are dependent on third-party manufacturers, most of which are located in the Far East, and
any inability to obtain products from such manufacturers could have a material adverse effect on
our business, operating results and financial condition.
All of our products are manufactured by unaffiliated companies, most of which are in the Far East,
principally in China. For fiscal 2020, finished goods manufactured in the Far East comprised
approximately 76% of total finished goods purchased. This concentration exposes us to risks associated
with doing business globally, including: global public health crises (such as pandemics and epidemics);
changing international political relations; labor availability and cost; changes in laws, including tax laws,
regulations and treaties; changes in labor laws, regulations and policies; changes in customs duties,
additional tariffs and other trade barriers; changes in shipping costs; currency exchange fluctuations;
local political unrest; an extended and complex transportation cycle; the impact of changing economic
conditions; and the availability and cost of raw materials and merchandise. The political, legal and
cultural environment in the Far East is rapidly evolving, and any change that impairs our ability to obtain
products from manufacturers in that region, or to obtain products at marketable rates, could have a
material adverse effect on our business, operating results and financial condition.
The current global public health crisis has disrupted our ability to receive manufactured products from the
Far East and has disrupted our suppliers located elsewhere who rely on products from the Far East.
Temporary factory closures and the pace of workers returning to work could further impact our suppliers'
ability to source certain raw materials and to produce and fulfill finished goods orders in a timely manner.
If we continue to experience supply disruptions as a result of the global public health crisis, we may not
be able to develop short-term sourcing alternatives. Any disruption to our supply chain, even for a
relatively short period of time, could cause a loss of revenue, which could adversely affect our operating
results.
With most of our manufacturers located in the Far East, our production lead times are relatively long.
Therefore, we must commit to production in advance of customer orders. If we fail to forecast customer
or consumer demand accurately, we may encounter difficulties in filling customer orders on a timely basis
or in liquidating excess inventories. We may also find that customers are canceling orders or returning
products. Any of these results could have a material adverse effect on our business, operating results
and financial condition.
Increased costs of raw materials and energy may adversely affect our operating results and cash
flow.
Significant increases in the costs and availability of raw materials and energy may negatively affect our
operating results. Our suppliers purchase significant amounts of metals and plastics to manufacture our
products. In addition, they also purchase significant amounts of electricity to supply the energy required
in their production processes. Middle East tensions and related political instabilities may drive up fuel
prices resulting in higher transportation prices and product costs.
The cost of these raw materials and energy, in the aggregate, represents a significant portion of our cost
of goods sold and certain operating expenses, which we may not be able to pass on to our customers.
Our operating results could be adversely affected by future increases in these costs. Additionally, the
loss or disruption of essential manufacturing and supply elements such as raw materials or other finished
product components, restricted transportation or increased freight costs, reduced workforce, or other
manufacturing and distribution disruption could adversely impact our ability to meet our customers’
needs.
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If significant tariffs or other restrictions are placed on imports from China or any retaliatory trade
measures are taken by China, our business and results of operations could be materially and
adversely affected.
We purchase our products from unaffiliated manufacturers, most of which are located in China, Mexico
and the U.S. This concentration exposes us to risks associated with doing business globally, including
changes in tariffs. Any alteration of trade agreements and terms between China and the U.S., including
limiting trade with China, imposing additional tariffs on imports from China and potentially imposing other
restrictions on exports from China to the U.S. may result in further and or higher tariffs, or retaliatory
trade measures by China, all of which could have a material adverse effect on our business and
operating results.
Certain of our U.S. distribution facilities are geographically concentrated and operate during peak
shipping periods at or near capacity. These factors increase our risk that disruptions could occur
and significantly affect our ability to deliver products to our customers in a timely manner. Such
disruptions could have a material adverse effect on our business.
Most of our U.S. distribution, receiving and storage functions are consolidated into two distribution
facilities in northern Mississippi. Approximately 67% of our consolidated gross sales volume shipped
from facilities in this region in fiscal 2020. For this reason, any disruption in our distribution process in
either of these facilities, even for a few days, could adversely affect our business, operating results and
financial condition. For example, in connection with the current public health crisis, government
mandated or suggested isolation protocols could limit or disrupt the distribution process at either facility,
or even cause the closure of either facility, which could have a material adverse effect on our business,
operating results and financial condition.
Additionally, our U.S. distribution operations may incur capacity constraints during peak shipping periods
as we continue to grow our sales revenue through a combination of organic growth and acquisitions.
These and other factors described above could cause delays in the delivery of our products and
increases in shipping and storage costs that could have a material and adverse effect on our business,
operating results and financial condition.
Our projections of product demand, sales and net income are highly subjective in nature and our
future sales and net income could vary in a material amount from our projections.
From time to time, we may provide financial projections to our shareholders, lenders, investment
community, and other stakeholders of our future sales and net income. Since we do not require long-
term purchase commitments from our major customers and the customer order and ship process is very
short, it is difficult for us to accurately predict the demand for many of our products, or the amount and
timing of our future sales, related net income and cash flows.
Our projections are based on management’s best estimate of sales using historical sales data and other
relevant information available at the time. These projections are highly subjective since sales to our
customers can fluctuate substantially based on the demand of their retail consumers and related ordering
patterns, as well as other risks described in this report. Additionally, changes in retailer inventory
management strategies could make our inventory management more difficult. Due to these factors, our
future sales and net income could vary materially from our projections.
The extent of the impact of the current public health crisis on our business and financial results will
depend largely on future developments, including the duration of the spread of the COVID-19 outbreak
within the U.S. and globally, the impact on capital and financial markets and the related impact on
consumer confidence and spending, all of which are highly uncertain and cannot be predicted.
Consequently, these and other potential impacts could also cause future sales and net income to vary
materially from our projections. This situation is changing rapidly, and additional impacts may arise that
we are not currently aware of.
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We rely on licensed trademarks from third parties and license certain trademarks to third parties
in exchange for royalty income, the loss of which could have a material adverse effect on our
revenues and profitability.
A substantial portion of our sales revenue comes from selling products under licensed trademarks,
particularly in the Beauty and Health & Home segments. As a result, we are dependent upon the
continued use of these trademarks. Additionally, we license certain owned trademarks to third parties in
exchange for royalty income. It is possible that certain actions taken by us, our licensors, licensees, or
other third parties might diminish greatly the value of any of our licensed trademarks. Some of our
licensors and licensees also have the ability to terminate their license agreements with us at their option
subject to each parties’ right to continue the license for a limited period of time following notice of
termination. If we or our licensees were unable to sell products under these licensed trademarks, or one
or more of our license agreements were terminated or the value of the trademarks were diminished, the
effect on our business, operating results and financial condition could be both negative and material.
To compete successfully, we must develop and introduce a continuing stream of innovative new
products to meet changing consumer preferences.
Our long-term success in the competitive retail environment depends on our ability to develop and
commercialize a continuing stream of innovative new products that meet changing consumer preferences
and take advantage of opportunities sooner than our competition. We face the risk that our competitors
will introduce innovative new products that compete with our products. There are numerous
uncertainties inherent in successfully developing and commercializing new products on a continuing
basis and new product launches may not deliver expected growth in sales or operating income.
Additionally, the effects of COVID-19 could delay our development or introduction of new products or
require us to make unexpected changes to our products. If we are unable to develop and introduce a
continuing stream of competitive new products, it may have an adverse effect on our business, operating
results and financial condition.
Our operating results may be adversely affected by trade barriers, exchange controls,
expropriations, and other risks associated with domestic and foreign operations.
The economies of foreign countries important to our operations, including countries in Asia, EMEA and
Latin America, could suffer slower economic growth or economic, social and/or political instability or
hyperinflation in the future. Our international operations in countries in Asia, EMEA and Latin America,
including manufacturing and sourcing operations (and the international operations of our customers), are
subject to inherent risks which could adversely affect us. Additionally, there may be uncertainty resulting
from recent political changes in the U.S. and abroad, the Brexit transition in the United Kingdom (the
“U.K.”), ongoing terrorist activity, and other global events. The exit of the U.K. from European Union (the
“EU”) membership (commonly referred to as “Brexit”) could cause disruptions to and create uncertainty
surrounding our business, including affecting our relationships with our existing and future customers,
suppliers and employees, which could have an adverse effect on our business, financial results and
operations. These factors are outside of our control, but may nonetheless cause us to adjust our
strategy in order to compete effectively in global markets.
The domestic and foreign risks of these changes include, among other things:
• protectionist policies restricting or impairing the manufacturing, sales or import and export of our
products;
lack of required infrastructure;
inflation (including hyperinflation) or recession;
• new restrictions on access to markets;
•
•
• changes in, and the burdens and costs of compliance with, a variety of U.S. and foreign laws and
regulations, including tax laws, accounting standards, environmental laws, and occupational
health and safety laws;
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• social, political or economic instability;
• acts of war and terrorism;
• natural disasters and public health crises, such as pandemics and epidemics (including
COVID-19);
reduced protection of intellectual property rights in some countries;
increases in duties and taxation;
restrictions on transfer of funds or exchange of currencies;
•
•
•
• currency devaluations;
• expropriation of assets; and
• other adverse changes in policies, including monetary, tax or lending policies, encouraging
foreign investment or foreign trade by our host countries.
Should any of these events occur, our ability to sell or export our products or repatriate profits could be
impaired, we could experience a loss of sales and profitability from our domestic or international
operations, and/or we could experience a substantial impairment or loss of assets, any of which could
materially and adversely affect our business, operating results and financial condition.
Our liquidity may be materially adversely affected by constraints in the capital and credit markets
and limitations under our financing arrangements.
We need sufficient sources of liquidity to fund our working capital requirements, service our outstanding
indebtedness and finance business opportunities. Without sufficient liquidity, we could be forced to curtail
our operations, or we may not be able to pursue business opportunities. The principal sources of our liquidity
are funds generated from operating activities, available cash, credit facilities, and other debt arrangements.
If our sources of liquidity do not satisfy our requirements, we may need to seek additional financing. The
future availability of financing will depend on a variety of factors, such as economic and market conditions,
the reaction by banks and financial institutions to a public health crisis (such as pandemics and epidemics),
the regulatory environment for banks and other financial institutions, the availability of credit and our
reputation with potential lenders. Further, disruptions in national and international credit markets could
result in limitations on credit availability, tighter lending standards, higher interest rates on consumer and
business loans, and higher fees associated with obtaining and maintaining credit availability. Disruptions
may also materially limit consumer credit availability and restrict credit availability to us and our customer
base. In addition, in the event of disruptions in the financial markets, current or future lenders may become
unwilling or unable to continue to advance funds under any agreements in place, increase their commitments
under existing credit arrangements or enter into new financing arrangements. These factors could materially
adversely affect our liquidity, costs of borrowing and our ability to pursue business opportunities or grow our
business, and threaten our ability to meet our obligations as they become due. In addition, covenants in
our debt agreements could restrict or delay our ability to respond to business opportunities, or in the event
of a failure to comply with such covenants, could result in an event of default, which if not cured or waived,
could have a material adverse effect on us.
Our business involves the potential for product recalls, product liability and other claims against
us, which could materially and adversely affect our business, operating results and financial
condition.
We are, from time to time, involved in various claims, litigation matters and regulatory proceedings that
arise in the ordinary course of our business and that could have a material adverse effect on us. These
matters may include personal injury and other tort claims, deceptive trade practice disputes, intellectual
property disputes, product recalls, contract disputes, warranty disputes, employment and tax matters and
other proceedings and litigation, including class actions. It is not possible to predict the outcome of
pending or future litigation. As with any litigation, it is possible that some of the actions could be decided
unfavorably, resulting in significant liability and, regardless of the ultimate outcome, can be costly to
defend. Our results and our business could also be negatively impacted if one of our brands suffers
substantial damage to its reputation due to a significant product recall or other product-related litigation
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and if we are unable to effectively manage real or perceived concerns about the safety, quality, or
efficacy of our products.
We also face exposure to product liability and other claims in the event that one of our products is
alleged to have resulted in property damage, bodily injury or other adverse effects. Although we maintain
liability insurance in amounts that we believe are reasonable, that insurance is, in most cases, subject to
large self-insured retentions for which we are responsible. We cannot provide assurance that we will be
able to maintain such insurance on acceptable terms, if at all in the future, or that product liability or other
claims will not exceed the amount of insurance coverage, or that all such matters would be covered by
our insurance. As a result, these types of claims could have a material adverse effect on our business,
operating results and financial condition.
Significant changes in regulations or product certifications could adversely impact our
operations.
As a global company, we are subject to U.S. and foreign regulations and industry-specific product
certifications. For example, thermometers distributed by our Health and Home segment must comply
with various regulations governing the production and distribution of medical devices. These regulations
could vary from country to country. Significant new regulations or material changes to existing
regulations could delay or interrupt distribution of our products in certain countries. Additionally, we
cannot guarantee that our products will receive regulatory approval in all countries. Similarly, some of
our Beauty segment’s customers demand that our Beauty appliances comply with various safety
certifications, including UL certifications. Significant new certification requirements or changes to
existing certification requirements could delay or interrupt distribution of our products, or make them
more costly to produce.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of February 29, 2020, we own, lease or otherwise utilize through third-party management service
agreements various properties worldwide for sales, procurement, research and development,
administrative and distribution facilities. Our U.S. headquarters are located in El Paso, Texas, and we
have two main distribution facilities in Southaven and Olive Branch, Mississippi, which service all of our
segments. We believe our facilities are adequate to conduct our business.
Item 3. Legal Proceedings
We are involved in various legal claims and proceedings in the normal course of operations. In the
opinion of management, the outcome of these matters will not have a material adverse effect on our
consolidated financial position, operating results or liquidity. See Note 15 to the accompanying
consolidated financial statements for a further discussion.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
Market Information for Common Stock
Our common stock is listed on the NASDAQ Global Select Market under symbol: HELE.
Approximate Number of Equity Security Holders of Record
Our common stock is our only class of equity security outstanding at February 29, 2020. As of April 22,
2020, there were 136 holders of record of our common stock. A substantially greater number of holders
of our common stock are “street name” or beneficial holders whose shares are held of record by banks,
brokers and other financial institutions.
Cash Dividends
Our current policy is to retain earnings to provide funds for the operation and expansion of our business,
common stock repurchases and for potential acquisitions. We have not paid any cash dividends on our
common stock since inception. Any change in dividend policy will depend upon future conditions,
including earnings and financial condition, general business conditions, any applicable contractual
limitations, and other factors deemed relevant by our Board of Directors.
Issuer Purchases of Equity Securities
In May 2019, we announced that our Board of Directors had authorized the repurchase of up
to $400 million of our outstanding common stock. The authorization is effective May 8, 2019 for a period
of three years and replaced Helen of Troy's previous repurchase authorization, of which
approximately $107.4 million remained. These repurchases may include open market purchases,
privately negotiated transactions, block trades, accelerated stock repurchase transactions, or any
combination of such methods. The number of shares purchased and the timing of the purchases will
depend on a number of factors, including share price, trading volume and general market conditions,
working capital requirements, general business conditions, financial conditions, any applicable
contractual limitations, and other factors, including alternative investment opportunities. See Note 13 to
the accompanying consolidated financial statements for additional information.
Our current equity-based compensation plans include provisions that allow for the “net exercise” of
share-settled awards by all plan participants. In a net exercise, any required payroll taxes, federal
withholding taxes and exercise price of the shares due from the equity holder can be paid for by having
the equity holder tender back to the Company a number of shares at fair value equal to the amounts
due. Net exercises are treated as purchases and retirements of shares.
Share repurchase activity during the three-month period ended February 29, 2020, was as follows:
Period
December 1 through December 31, 2019
January 1 through January 31, 2020
February 1 through February 29, 2020
Total
Total Number of
Shares
Purchased (1)
Average Price
Paid per Share
171
$
34
—
158.40
188.32
—
205
$
163.36
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Dollar
Value of Shares
That May Yet Be
Purchased Under
the Plans or
Programs
(in thousands) (2)
171
$
34
—
205
392,986
392,979
392,979
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(1) The number of shares above includes shares of common stock acquired from employees who tendered shares to: 1)
satisfy the tax withholding on equity awards as part of our long-term incentive plans or 2) satisfy the exercise price on
stock option exercises. For the three-month period ended February 29, 2020 and the full fiscal year 2020, 205 and
77,272 shares were acquired from employees at a weighted average per share price of $163.36 and $131.61,
respectively.
(2) Reflects the remaining dollar value of shares that may yet be purchased under our Stock Repurchase Plan through the
end of February 29, 2020 as authorized by the Company's Board of Directors in May 2019. For additional information,
see Note 13 to the accompanying consolidated financial statements.
The following table summarizes our share repurchase activity for the periods shown:
(in thousands, except share and per share data)
Common stock repurchased on the open market:
Number of shares
Aggregate value of shares
Average price per share
Common stock received in connection with share-based compensation:
Number of shares
Aggregate value of shares
Average price per share
Fiscal Years Ended
Last Day of February,
2020
2019
2018
— 1,875,469
— $ 212,080
113.08
— $
77,272
10,169
131.61
$
$
59,024
5,413
91.70
717,300
65,795
91.73
75,785
7,258
95.77
$
$
$
$
$
$
$
$
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Performance Graph
The graph below compares the cumulative total return of our Company to the NASDAQ Market Index
and a Peer Group Index, assuming $100 was invested on February 27, 2015. The Peer Group Index is
the Dow Jones - U.S. Personal Products, Broad Market Cap, Yearly, and Total Return Index. The
comparisons in this table are required by the SEC and are not intended to forecast or be indicative of the
possible future performance of our common stock.
The Performance Graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC or
subject to the liabilities of Section 18 under the Exchange Act. In addition, it shall not be deemed
incorporated by reference by any statement that incorporates this annual report on Form 10-K by
reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that
we specifically incorporate this information by reference.
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Item 6. Selected Financial Data
The selected consolidated statements of income and cash flow data for fiscal 2020, 2019 and 2018, and
the selected consolidated balance sheet data as of the end of fiscal 2020 and 2019, have been derived
from our audited consolidated financial statements included in this report. The selected consolidated
statements of income and cash flow data for fiscal 2017 and 2016, and the selected consolidated
balance sheet data as of the end of fiscal 2018, 2017 and 2016, have been derived from our audited
consolidated financial statements, which are not included in this report. This information should be read
together with the discussion in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and our consolidated financial statements and notes to those statements included
in this report. All currency amounts are denominated in U.S. Dollars.
In December 2017, we sold our former Nutritional Supplements segment. The operating results of this
segment are presented as discontinued operations for all applicable periods presented. Additional
information related to the sale of our former Nutritional Supplement segment is included in Note 6 to the
accompanying consolidated financial statements.
In January 2020, we completed the acquisition of Drybar Products LLC ("Drybar Products"), for
approximately $255.9 million in cash, subject to certain customary closing adjustments. Fiscal 2020
includes approximately five weeks of operating results in the Beauty segment. See Note 9 to the
accompanying consolidated financial statements.
In the fourth quarter of fiscal 2020, we committed to a plan to divest certain assets within our mass
market personal care business. We expect the divestiture to occur within fiscal 2021. Accordingly, we
have classified the identified assets of the disposal group as held for sale as of February 29, 2020. See
Note 5 to the accompanying consolidated financial statements.
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(in thousands, except per share data)
Income Statement Data:
Housewares
Health & Home
Beauty
Sales revenue, net
Gross profit
Asset impairment charges
Restructuring charges
Operating income
Interest expense
Income tax expense
Income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Earnings (loss) per share - basic
Continuing operations
Discontinued operations
Net income
Earnings (loss) per share - diluted
Continuing operations
Discontinued operations
Net income
2020 (1)(2)(3)
2019 (1)(2)
2018 (1)(2)(4) 2017 (1)(2)(4)(5) 2016 (1)(2)(5)
$ 640,965 $ 523,807 $ 459,004 $
695,217
345,127
685,397
381,070
1,707,432
734,466
41,000
3,313
178,251
12,705
13,607
152,333
—
152,333
674,062
345,779
1,564,151 1,478,845
611,199
15,447
1,857
169,062
13,951
26,556
128,882
(84,436)
44,446
641,106
—
3,586
199,379
11,719
13,776
174,224
(5,679)
168,545
418,558
626,982
351,995
1,397,535
573,416
2,900
—
169,664
14,361
11,407
144,310
(3,621)
140,689
311,023
637,427
434,943
1,383,393
516,551
6,000
—
116,294
10,581
13,021
92,991
8,237
101,228
$
$
$
$
6.06 $
—
6.06 $
6.02 $
—
6.02 $
6.68 $
(0.22)
6.46 $
6.62 $
(0.22)
6.41 $
4.76 $
(3.12)
1.64 $
4.73 $
(3.10)
1.63 $
5.24 $
(0.13)
5.11 $
5.17 $
(0.13)
5.04 $
3.29
0.29
3.58
3.23
0.29
3.52
Weighted average shares outstanding - basic
Weighted average shares outstanding - diluted
25,118
25,322
26,073
26,303
27,077
27,254
27,522
27,891
28,273
28,749
Cash Flow Data from Continuing Operations:
Depreciation and amortization
$
37,409 $
29,927 $
33,730 $
36,175 $
34,889
Net cash provided by operating activities
Capital and intangible asset expenditures
Payments to acquire businesses, net of cash acquired
Repurchases of common stock(8)
Net amounts borrowed (repaid)
271,293
17,759
255,861
10,169
16,900
200,568
218,609
26,385
—
217,493
29,900
13,605
—
73,053
(197,000)
212,491
15,507
209,267
75,595
(133,200)
170,263
16,676
43,150
106,411
190,700
(in thousands)
2020 (1)(2)(3)
2019 (1)(2)
2018 (1)(2)(4) 2017 (1)(2)(4)(5)
2016 (1)(2)(5)
Balance Sheet Data from Continuing Operations:
Working capital (6)(7)
Goodwill and other intangible assets(6)(7)
Total assets (6)(7)
$ 343,940 $ 292,828 $ 258,222 $
267,896 $
487,861
1,040,853
893,846
905,235
938,324
762,879
1,903,883
1,649,535
1,623,717
1,616,235
1,639,673
Long-term debt, excluding current maturities
Stockholders' equity (8)
337,421
318,900
287,985
461,211
1,161,723
996,637
1,014,459
1,020,766
600,107
930,043
(1) We adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) in the first quarter of fiscal 2019 and
have reclassified amounts in the prior year’s statements of income to conform to the current period’s presentation. For
additional information see Note 3 to the accompanying consolidated financial statements.
(2) In December 2017, we divested our former Nutritional Supplements segment, which is reported as discontinued
operations. For additional information see Note 6 to the accompanying consolidated financial statements.
(3) Fiscal 2020 includes approximately five weeks of operating results from the acquisition of Drybar Products, acquired on
January 23, 2020, for a net cash purchase of approximately $255.9 million. For additional information see Note 9 to the
accompanying consolidated financial statements.
(4) Fiscal 2017 includes eleven and one-half months of operating results from the acquisition of Hydro Flask, acquired for a
net cash purchase price of $209.3 million. Fiscal 2018 and thereafter includes a full year of operating results.
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(5) Fiscal 2016 includes eleven months of operating results from the Vicks VapoSteam inhalant business acquired for a net
cash purchase price of $42.8 million. Fiscal 2017 and thereafter includes a full year of operating results.
(6) In the fourth quarter of fiscal 2020, we committed to a plan to divest certain assets within our mass market personal care
business. We expect the divestiture to occur within fiscal 2021. Fiscal 2020 includes assets classified as "held for sale"
of $44.8 million related to our mass market personal care business.
(7) Fiscal 2016 includes certain reclassifications to conform with fiscal 2017 adopted accounting changes.
(8) During fiscal 2020, 2019, 2018, 2017 and 2016, we repurchased and retired 77,272, 1,934,493, 793,085, 929,017, and
1,244,090 shares of common stock having total cost of $10.2, $217.5, $73.1, $75.6, and $106.4 million, respectively.
Information Regarding Forward-Looking Statements
Certain written and oral statements in this Form 10-K may constitute "forward-looking statements" as
defined under the Private Securities Litigation Reform Act of 1995. This includes statements made in this
report, in other filings with the Securities and Exchange Commission (the "SEC"), in press releases, and
in certain other oral and written presentations. Generally, the words "anticipates", "believes", "expects",
"plans", "may", "will", "should", "seeks", "estimates", "project", "predict", "potential", "continue", "intends",
and other similar words identify forward-looking statements. All statements that address operating
results, events or developments that may occur in the future, including statements related to sales,
earnings per share ("EPS") results, and statements expressing general expectations about future
operating results and the effect of the outbreak of a novel strain of the coronavirus (COVID-19) on our
financial results, cash flows and operations, are forward-looking statements and are based upon our
current expectations and various assumptions. We believe there is a reasonable basis for our
expectations and assumptions, but there can be no assurance that we will realize our expectations or
that our assumptions will prove correct. Forward-looking statements are subject to risks that could cause
them to differ materially from actual results. Accordingly, we caution readers not to place undue reliance
on forward-looking statements. We believe that these risks include but are not limited to the risks
described in this report under Item 1A., “Risk Factors” and that are otherwise described from time to time
in our SEC reports as filed. We undertake no obligation to publicly update or revise any forward-looking
statements as a result of new information, future events or otherwise.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
should be read in conjunction with the other sections of this report, including Part I, Item 1., “Business”;
Part II, Item 6., “Selected Financial Data”; and Part II, Item 8., “Financial Statements and Supplementary
Data.” The various sections of this MD&A contain a number of forward-looking statements, all of which
are based on our current expectations. Actual results may differ materially due to a number of factors,
including those discussed in Item 1A.,“Risk Factors,” and in the section entitled “Information Regarding
Forward-Looking Statements,” preceding this MD&A, and in Item 7A., “Quantitative and Qualitative
Disclosures About Market Risk.” Throughout MD&A, we refer to our Leadership Brands, which are
brands that have number-one and number-two positions in their respective categories and include OXO,
Honeywell, Braun, PUR, Hydro Flask, Vicks, Hot Tools and Drybar.
This MD&A, including the tables under the headings “Operating income, operating margin, adjusted
operating income (non-GAAP) and adjusted operating margin (non-GAAP) by segment" and “Income
from continuing operations, diluted earnings per share ("EPS") from continuing operations, adjusted
income from continuing operations (non-GAAP), adjusted diluted EPS from continuing operations (non-
GAAP) and core and non-core adjusted diluted EPS from continuing operations (non-GAAP)”
respectively, reports operating income, operating margin, income from continuing operations and diluted
earnings per share from continuing operations without the impact of non-cash asset impairment charges,
acquisition-related expenses, restructuring charges, the TRU bankruptcy charge, tax reform, amortization
of intangible assets, and non-cash share-based compensation for the periods presented, as applicable.
These measures may be considered non-GAAP financial information as set forth in SEC Regulation G,
Rule 100. The tables reconcile these measures to their corresponding GAAP-based measures
presented in our condensed consolidated statements of income. We believe that adjusted operating
income, adjusted operating margin, adjusted income from continuing operations, and adjusted diluted
EPS from continuing operations provide useful information to management and investors regarding
financial and business trends relating to our financial condition and results of operations. We believe that
these non-GAAP financial measures, in combination with our financial results calculated in accordance
with GAAP, provide investors with additional perspective regarding the impact of such charges on
applicable income, margin and earnings per share measures. We also believe that these non-GAAP
measures facilitate a more direct comparison of our performance to our competitors. We further believe
that including the excluded charges would not accurately reflect the underlying performance of our
continuing operations for the period in which the charges are incurred, even though such charges may be
incurred and reflected in our GAAP financial results in the near future. The material limitation associated
with the use of the non-GAAP financial measures is that the non-GAAP measures do not reflect the full
economic impact of our activities. Our adjusted operating income, adjusted operating margin, adjusted
income from continuing operations, adjusted diluted EPS from continuing operations and core and non-
core adjusted diluted EPS from continuing operations are not prepared in accordance with GAAP, are not
an alternative to GAAP financial information and may be calculated differently than non-GAAP financial
information disclosed by other companies. Accordingly, undue reliance should not be placed on non-
GAAP information.
The non-GAAP measures are discussed further and reconciled to their applicable GAAP based
measures contained in this MD&A beginning on page 42.
In addition to the above non-GAAP financial measures, we also refer to a number of financial measures
which are not defined under GAAP. We believe these measures provide management and investors with
important information that is useful in understanding our business results and trends. The following
represents our key financial measures:
• Accounts receivable turnover: Twelve-month trailing net sales revenue divided by the average
of the current and prior four fiscal quarters’ ending accounts receivable balances. This result is
divided by 365 days to express turnover in terms of average days outstanding.
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• Core business sales: Net sales revenue associated with strategic businesses that we expect to
be an ongoing part of our operations.
• Current ratio: Current assets divided by current liabilities at the end of a reporting period,
expressed as a ratio.
• EBITDA: Earnings before interest, taxes, depreciation and amortization expense.
• Ending debt to ending equity ratio: Total interest bearing short- and long-term debt divided by
shareholders’ equity at the end of a reporting period, expressed as a ratio.
• Gross profit margin: Gross profit divided by the related net sales revenue expressed as a
•
percentage.
Inventory turnover: Trailing twelve month cost of goods sold divided by the average of the
current and prior four fiscal quarters’ ending inventory balances to express turnover in terms of
the number of times per year.
• Leadership Brand net sales: Net sales from brands which have number-one and number-two
positions in their respective categories and include OXO, Honeywell, Braun, PUR, Hydro Flask,
Vicks, Hot Tools, and Drybar.
• Leverage ratio: Total current and long-term debt plus outstanding letters of credit, divided by
EBITDA plus non-cash charges and the proforma effect of acquisitions, as defined in our Credit
Agreement.
• Non-Core business sales: Net sales revenue associated with business or assets (including
assets held for sale) that we expect to divest within a year of its designation as Non-Core.
• Online net sales: Net sales to pure-play online retailers, distinct online businesses of omni-
channel customers and direct to consumers through Company-owned websites.
• Operating margin: Operating income for the Company or a business segment divided by the
related net sales revenue for the Company or a business segment.
• Organic business sales (previously referred to as Core business sales): Net sales revenue
associated with product lines or brands after the first twelve months from the date the product line
or brand was acquired, excluding the impact that foreign currency re-measurement had on
reported net sales.
• Return on average equity: Trailing twelve month net income divided by the average of the
current and prior four fiscal quarters’ ending shareholders’ equity.
• SG&A ratio: Total selling, general and administrative expense (SG&A) divided by net sales
revenue.
• Working capital: Current assets less current liabilities.
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Overview
We are a leading global consumer products company offering creative products and solutions for our
customers through a diversified portfolio of well-recognized and widely-trusted brands. We have built
leading market positions through new product innovation, product quality and competitive pricing. We
currently operate in three segments consisting of Housewares, Health & Home and Beauty.
In fiscal 2015, we launched a five-year transformational strategy designed to improve the performance of
our business segments and strengthen our shared service capabilities. This strategy has driven our
decisions on where we will operate and how we will achieve our goals in markets around the world. The
overall design of our business and organizational plan is intended to create sustainable and profitable
growth and improve organizational capability.
Fiscal 2019 marked the completion of Phase I of our multi-year transformation strategy, which delivered
performance across a wide range of measures. We improved organic sales growth by focusing on our
Leadership Brands, made strategic acquisitions, became a more efficient operating company with strong
global shared services, upgraded our organization and culture, improved inventory turns and return on
invested capital, and returned capital to shareholders.
Fiscal 2020 began Phase II of our transformation and is designed to drive the next five years of progress.
The long-term objectives of Phase II include improved organic sales growth, continued margin
expansion, and strategic and effective capital deployment. We expect Phase II will include continued
investment in our Leadership Brands, with a focus on growing them through consumer-centric innovation,
expanding them more aggressively outside the United States, and adding new brands through
acquisition. We anticipate building further shared service capability and operating efficiency, as well as
attracting, retaining, unifying and training the best people.
In fiscal 2018, we announced a restructuring plan (referred to as “Project Refuel”) intended to enhance
the performance primarily in the Beauty and former Nutritional Supplements segments. Project Refuel
includes charges for a reduction-in-force and the elimination of certain contracts. During the first quarter
of fiscal 2019, we expanded Project Refuel to include the realignment and streamlining of our supply
chain structure. We are targeting total annualized profit improvements of approximately $9.0 to $11.0
million over the duration of the plan. During fiscal 2020, we incurred $3.3 million of pre-tax restructuring
costs related to Project Refuel consisting of employee severance and termination benefits and contract
termination costs. We estimate the plan to be completed during fiscal 2021 and expect to incur total
restructuring charges of approximately $9.5 million. Restructuring provisions are determined based on
estimates prepared at the time the restructuring actions are approved by management and are revised
periodically. See Note 14 to the accompanying consolidated financial statements for additional
information.
On January 23, 2020, we completed the acquisition of Drybar Products LLC ("Drybar Products"), for
approximately $255.9 million in cash, subject to certain customary closing adjustments. Drybar is a fast-
growing, innovative, trendsetting prestige hair care and styling brand in the multi-billion-dollar beauty
industry. As part of the transaction, we granted a worldwide license to Drybar Holdings LLC, the owner
and long-time operator of Drybar blowout salons, to use the Drybar trademark in their continued
operation of Drybar salons. The salons will exclusively use, promote, and sell Drybar products globally.
During the fourth quarter of fiscal 2020, we committed to a plan to divest certain assets within our mass
channel personal care business. The assets to be disposed of include intangible assets, inventory and
fixed assets relating to our mass channel liquids, powder and aerosol products under brands such as
Pert, Brut, Sure and Infusium. We expect the divestiture to occur within fiscal 2021. Accordingly, we have
classified the identified assets of the disposal group as held for sale. The plan to divest these assets
advances our strategy to focus our resources on our Leadership Brands.
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Subsequent to the end of fiscal 2020, on March 13, 2020, we entered into an amendment to our Credit
Agreement with Bank of America, N.A., as administrative agent, and other lenders (as amended, the
"Credit Agreement"). The amendment extended the maturity of the commitment under the Credit
Agreement from December 7, 2021 to March 13, 2025. Further, the amendment increased the
unsecured revolving commitment from $1.0 billion to $1.25 billion. The amount of the accordion was
increased from $200 million to $300 million. The accordion permits the Company to request to increase
its borrowing capacity, not to exceed the $300 million commitment in the aggregate, provided certain
conditions are met, including lender approval. Following the amendment, borrowings under the Credit
Agreement bear interest at either the base rate or LIBOR, plus a margin based on the Net Leverage
Ratio (as defined in the Credit Agreement) of 0% to 1.0% and 1.0% to 2.0%, respectively, for base rate
and LIBOR borrowings. See Note 16 to the accompanying consolidated financial statements for
additional information.
Significant Trends Impacting the Business
Potential Impact of COVID-19
On March 13, 2020, the President of the United States announced a National Emergency relating to
COVID-19. There is a possibility of widespread infection in the U.S. and abroad, with the potential for
catastrophic impact. As a result of these and other effects, we expect COVID-19 to adversely impact our
business, which could be material. The impact includes the effect of temporary closures of, and limited
hours of operation and materially lower store traffic at, customer stores. The COVID-19 pandemic is also
impacting our third-party manufacturers, most of which are located in the Far East, principally China. The
extent of the impact of COVID-19 on our business and financial results will depend largely on future
developments, including the duration of the spread of the COVID-19 outbreak within the U.S. and
globally, the impact on capital and financial markets and the related impact on consumer confidence and
spending. These future developments are outside of our control, are highly uncertain and cannot be
predicted. If the impact is prolonged, then it can further increase the difficulty of planning for operations.
These and other potential impacts of the current public health crisis could therefore materially and
adversely affect our business, financial condition, cash flows and results of operations.
Due to the impacts of COVID-19, we are experiencing favorable demand trends for some of our
products, while others are being adversely impacted due to retail store closures and consumer
uncertainty. At the end of fiscal 2020, we began to experience increased demand for certain products in
our Health & Home segment, particularly thermometers. This trend continued into the beginning of fiscal
2021 and became more pronounced in other product categories such as humidification, water purification
and air purification. Additionally, at the beginning of fiscal 2021, we began to experience favorable
demand trends for OXO products within our Housewares segment as consumers engage in pantry
stocking, cleaning, nesting and cooking at home. Our products that are more discretionary in nature or
more dependent on the retail brick and mortar channel are experiencing unfavorable demand trends. All
of our products are being adversely impacted by the effect of temporary closures of, and limited hours of
operation and materially lower store traffic at, customer stores. We are also experiencing supply chain
disruptions with some of our third-party manufacturers, which is adversely affecting our ability to meet
consumer demand in product categories where it is strong. Accordingly, we expect that the net effect of
COVID-19 will adversely impact our results for the first quarter of fiscal 2021, as well as the full fiscal
2021, and that impact could be material. This situation is changing rapidly, and additional impacts may
arise that we are not currently aware of.
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As part of a comprehensive approach to preserve our cash flow and adjust our cost structure to lower
expected revenue, we have implemented a number of measures that will remain in place until there is
greater certainty, a re-opening of retail brick and mortar stores and improved consumer demand. These
measures include the following:
• A graduated salary reduction for all associates, including named executive officers and the other
members of the Company’s executive leadership team;
• A reduction in the cash compensation of the Company's Board of Directors;
• Suspension of merit increases, promotions and new associate hiring until further notice;
• The furlough of associates in specific areas directly tied to sales volume, with assistance to
maintain health insurance coverage, as well as a reduction of external temporary labor and
reduced work hours;
• Reduction or deferral of marketing expense, while continuing to support brands with strong
consumer demand and to keep brands top of mind with the consumer;
• Limited reduction of investment in new product development and launches, in anticipation of more
normalized economic activity;
• Elimination of travel expense in the short term, with a significant reduction planned for the second
half of fiscal 2021; and
• Reduction of consulting fees and capital expenditures for projects that are not critical.
These temporary measures don’t change our view of the Phase II transformation plan and the longer-
term opportunities we see to further grow our business.
For additional information on our related material risks, see Item 1A., Risk Factors.
Potential Impact of Tariffs
During fiscal 2019 and 2020, the Office of the U.S. Trade Representative (‘‘USTR’’) has imposed, and in
certain cases subsequently reduced or removed, additional tariffs on products imported from China. We
purchase a high concentration of our products from unaffiliated manufacturers located in China. This
concentration exposes us to risks associated with doing business globally, including changes in tariffs.
Any alteration of trade agreements and terms between China and the United States, including limiting
trade with China, imposing additional tariffs on imports from China and potentially imposing other
restrictions on exports from China to the United States may result in further and or higher tariffs or
retaliatory trade measures by China, all of which could have a material adverse effect on our business
and results of operations.
Potential Impact of Brexit and Offshore Receipts in Respect of Intangible Property Tax
The transitional exit of the U.K. from E.U. membership (commonly referred to as "Brexit") could cause
disruptions to and create uncertainty surrounding our business, including affecting our relationships with
our existing and future customers, suppliers and employees, which could have an adverse effect on our
business, financial results and operations. Negotiations are ongoing to determine the future of a trade
deal between the U.K. and the E.U. The effects of Brexit will depend on any agreements the U.K. makes
to retain access to E.U. markets either during a transitional period or more permanently. These measures
could potentially disrupt the markets we serve and the tax jurisdictions in which we operate, adversely
change tax benefits or liabilities in these or other jurisdictions, and cause us to lose customers, suppliers,
and employees. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws
and regulations as the U.K. determines which E.U. laws to replace or replicate.
The U.K.’s Offshore Receipts in respect of Intangible Property ("ORIP") rules were introduced by the
Finance Act 2019 and came into effect on April 6, 2019. Under the ORIP rules, where intangible property
("IP") is held in offshore companies, in a territory with which the U.K. does not have a full double taxation
arrangement and the IP is used directly or indirectly to enable, facilitate or promote U.K. sales, income
derived from that IP could be subject to a U.K. gross receipts tax at 20% of the gross amounts. Based
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on currently available information, we intend to treat this tax as a transactional tax included in operating
expenses. Certain aspects of this legislation and its implementation remain unclear at this time and we
expect that additional regulations or guidance may be issued and the accounting treatment of the new
tax may be clarified.
While we do not believe the ORIP tax will have a material adverse impact on our consolidated operating
results, we do believe that it could be material to the profitability of our EMEA operating unit. As a result,
the ORIP tax could cause us to evaluate different strategic choices with respect to our EMEA operating
unit, including a rationalization of the product portfolio sold in the U.K. or an exit from the market, which
could adversely impact our net sales revenue.
Foreign Currency Exchange Rate Fluctuations
Due to the nature of our operations, we have exposure to the impact of fluctuations in exchange rates
from transactions that are denominated in a currency other than our reporting currency (the U.S. Dollar).
The most significant currencies affecting our operating results are the British Pound, Euro, Canadian
Dollar, and Mexican Peso.
For fiscal 2020, changes in foreign currency exchange rates had an unfavorable impact on consolidated
U.S. Dollar reported net sales revenue of approximately $7.0 million, or 0.4%. For fiscal 2019, changes
in foreign currency exchange rates had a unfavorable impact on consolidated U.S. Dollar reported net
sales revenue of approximately $1.2 million, or 0.1%.
Consumer Spending and Changes in Shopping Preferences
Our business depends upon discretionary consumer demand for most of our products and primarily
operates within mature and highly developed consumer markets. The principal driver of our operating
performance is the strength of the U.S. retail economy. Approximately 79% of our consolidated net sales
in fiscal 2020 were from U.S. shipments compared to 78% and 79% in fiscal 2019 and 2018,
respectively.
Additionally, the shift in consumer shopping preferences to online or multichannel shopping experiences
has shifted the concentration of our sales. For fiscal 2020, 2019 and 2018, our net sales to customers
fulfilling end-consumer online orders and online sales directly to consumers comprised approximately
24%, 19% and 16%, respectively, of our total consolidated net sales revenue and grew approximately
34% in fiscal 2020. With the continued growth in online sales across the retail landscape, many brick
and mortar retailers are aggressively looking for ways to improve their customer delivery capabilities to
be able to meet customer expectations. As a result, it will become increasingly important for us to
leverage our distribution capabilities in order to meet the changing demands of our customers, as well as
to increase our online capabilities to support our direct-to-consumer sales channels and online channel
sales by our retail customers.
Variability of the Cough/Cold/Flu Season
Sales in several of our Health & Home segment categories are highly correlated to the severity of winter
weather and cough/cold/flu incidence. In the U.S., the cough/cold/flu season historically runs from
November through March, with peak activity normally in January to March. For the 2019-2020 season,
cough/cold/flu incidence was slightly higher than the 2018-2019 season, which was a below average
season.
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Results of Operations
The following table provides selected operating data, in U.S. Dollars, as a percentage of net sales
revenue, and as a year-over-year percentage change.
Total sales revenue, net
1,707,432
1,564,151
1,478,845
100.0 % 100.0 % 100.0 %
(in thousands)
Sales revenue by segment, net
Housewares
Health & Home
Beauty
Cost of goods sold
Gross profit
Selling, general and administrative expense (SG&A)
Asset impairment charges
Restructuring charges
Operating income
Nonoperating income, net
Interest expense
Income before income tax
Income tax expense
Income from continuing operations
Fiscal Years Ended
Last Day of February,
% of Sales Revenue, net
% Change
2020 (1)
2019 (2)
2018 (2)
2020
2019
2018
20/19
19/18
$
640,965
$
523,807
$
459,004
37.5 %
33.5 %
31.0 %
22.4 %
14.1 %
685,397
381,070
695,217
345,127
674,062
40.1 %
44.4 %
45.6 %
(1.4)%
345,779
22.3 %
22.1 %
23.4 %
10.4 %
9.2 %
5.4 %
972,966
734,466
511,902
41,000
3,313
923,045
641,106
438,141
—
3,586
867,646
57.0 %
59.0 %
58.7 %
611,199
43.0 %
41.0 %
41.3 %
14.6 %
424,833
30.0 %
28.0 %
28.7 %
16.8 %
15,447
1,857
2.4 %
0.2 %
— %
0.2 %
1.0 %
0.1 %
*
(7.6)%
178,251
199,379
169,062
10.4 %
12.7 %
11.4 %
(10.6)%
394
340
327
— %
— %
— %
15.9 %
(12,705)
(11,719)
(13,951)
(0.7)%
(0.7)%
(0.9)%
8.4 %
(16.0)%
165,940
13,607
152,333
188,000
13,776
174,224
155,438
9.7 %
12.0 %
10.5 %
(11.7)%
20.9 %
26,556
128,882
0.8 %
0.9 %
8.9 %
11.1 %
1.8 %
8.7 %
(1.2)%
(48.1)%
(12.6)%
35.2 %
3.1 %
(0.2)%
5.8 %
6.4 %
4.9 %
3.1 %
*
93.1 %
17.9 %
4.0 %
Loss from discontinued operations (3)
—
(5,679)
(84,436)
— %
(0.4)%
(5.7)%
*
(93.3)%
Net income
$
152,333
$
168,545
$
44,446
8.9 %
10.8 %
3.0 %
(9.6)%
279.2 %
(1) Fiscal 2020 includes approximately five weeks of operating results from the acquisition of Drybar Products, acquired on
January 23, 2020. For additional information see Note 9 to the accompanying consolidated financial statements.
(2) We adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) in the first quarter of fiscal 2019 and
have reclassified amounts in the prior years' statements of income to conform to the current period’s presentation. For
additional information see Note 3 to the accompanying consolidated financial statements.
(3) During fiscal 2018, we divested our Nutritional Supplements segment, which is reported as discontinued operations for all
periods presented. For additional information see Note 6 to the accompanying consolidated financial statements.
* Calculation is not meaningful.
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Fiscal 2020 Financial Results
• Consolidated net sales revenue increased 9.2%, or $143.3 million, to $1,707.4 million compared
to $1,564.2 million for the same period last year.
• Consolidated operating income decreased 10.6%, or $21.1 million, to $178.3 million, compared to
$199.4 million for the same period last year. Consolidated operating margin decreased 2.3
percentage points to 10.4% of consolidated net sales revenue, compared to 12.7% for the same
period last year. Fiscal 2020 includes pre-tax non-cash asset impairment charges of $41.0
million, pre-tax restructuring charges of $3.3 million related to Project Refuel and pretax
acquisition-related expenses of $2.5 million. Consolidated operating income for 2019 included
pre-tax restructuring charges of $3.6 million.
• Consolidated adjusted operating income increased 12.6%, or $30.1 million, to $269.3 million,
compared to $239.2 million for the same period last year. Consolidated adjusted operating
margin increased 0.5 percentage points to 15.8% of consolidated net sales revenue, compared to
15.3% for the same period last year.
•
Income from continuing operations decreased 12.6%, or $21.9 million, to $152.3 million,
compared to $174.2 million for the same period last year. Diluted earnings per share (“EPS”)
from continuing operations decreased 9.1% to $6.02, compared to $6.62 for the same period last
year.
• Adjusted income from continuing operations increased 11.1% to $235.6 million, compared to
$212.1 million for the same period last year. Adjusted diluted EPS from continuing operations
increased 15.4% to $9.30, compared to $8.06 for the same period last year.
• There were no results from discontinued operations, compared to a loss from discontinued
operations of $5.7 million, or $0.22 per diluted share, for the same period last year.
• Net income was $152.3 million, compared to $168.5 million for the same period last year. Diluted
EPS was $6.02, compared to $6.41 for the same period last year.
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Fiscal 2019 Financial Results
• Consolidated net sales revenue increased 5.8%, or $85.3 million, to $1,564.2 million in fiscal
2019, compared to $1,478.8 million in fiscal 2018.
• Consolidated operating income increased 17.9%, or $30.3 million, to $199.4 million in fiscal 2019,
compared to $169.1 million in fiscal 2018. Consolidated operating margin increased 1.3
percentage points to 12.7% of consolidated net sales revenue, compared to 11.4% in fiscal 2018.
Fiscal 2019 included pre-tax restructuring charges of $3.6 million related to Project Refuel.
Consolidated operating income for fiscal 2018 included pre-tax non-cash impairment charges of
$15.4 million, a pre-tax charge of $3.6 million related to the bankruptcy of Toys "R" Us ("TRU"),
and pre-tax restructuring charges of $1.9 million.
• Consolidated adjusted operating income increased 6.9%, or $15.3 million, to $239.2 million in
fiscal 2019, compared to $223.9 million in fiscal 2018. Consolidated adjusted operating margin
increased 0.2 percentage points to 15.3% of consolidated net sales revenue in fiscal 2019
compared to 15.1% in fiscal 2018.
•
Income from continuing operations increased 35.2%, or $45.3 million, to $174.2 million in fiscal
2019, compared to $128.9 million in fiscal 2018. Diluted EPS from continuing operations
increased 40.0% to $6.62 in fiscal 2019, compared to $4.73 in fiscal 2018.
• Adjusted income from continuing operations increased 7.5% to $212.1 million in fiscal 2019,
compared to $197.2 million in fiscal 2018. Adjusted diluted EPS from continuing operations
increased 11.3% to $8.06 in fiscal 2019, compared to $7.24 in fiscal 2018.
• Loss from discontinued operations, net of tax, decreased to $5.7 million in fiscal 2019, compared
to a loss of $84.4 million in fiscal 2018. Diluted loss per share from discontinued operations was
$0.22 in fiscal 2019, compared to $3.10 in fiscal 2018. Fiscal 2018 included after tax non-cash
asset impairment charges of $83.5 million.
• Net income was $168.5 million in fiscal 2019, compared to $44.4 million in fiscal 2018. Diluted
EPS was $6.41 in fiscal 2019, compared to $1.63 in fiscal 2018.
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Consolidated and Segment Net Sales
The following table summarizes the impact that acquisitions and foreign currency had on our net sales
revenue by segment:
(in thousands)
Fiscal 2019 sales revenue, net (1)
Organic business (3)
Impact of foreign currency
Acquisition (2)
Change in sales revenue, net
Fiscal 2020 sales revenue, net
Total net sales revenue growth
Organic business
Impact of foreign currency
Acquisition
(in thousands)
Fiscal 2018 sales revenue, net (1)
Organic business (3)
Impact of foreign currency
Acquisition
Change in sales revenue, net
Fiscal 2019 sales revenue, net (1)
Total net sales revenue growth
Organic business
Impact of foreign currency
Acquisition
Fiscal Year Ended Last Day of February,
Housewares
523,807
$
Health & Home
695,217
$
Beauty
$
345,127
Total
$ 1,564,151
118,446
(1,288)
—
117,158
(5,349)
(4,471)
—
(9,820)
31,157
(1,253)
6,039
35,943
144,254
(7,012)
6,039
143,281
$
640,965
$
685,397
$
381,070
$ 1,707,432
22.4 %
22.6 %
(0.2)%
— %
(1.4)%
(0.8)%
(0.6)%
— %
10.4 %
9.0 %
(0.4)%
1.7 %
9.2 %
9.2 %
(0.4)%
0.4 %
Fiscal Year Ended Last Day of February,
Housewares
459,004
$
Health & Home
674,062
$
Beauty
$
345,779
Total
$ 1,478,845
64,886
(83)
—
64,803
21,061
94
—
21,155
572
(1,224)
—
(652)
86,519
(1,213)
—
85,306
$
523,807
$
695,217
$
345,127
$ 1,564,151
14.1 %
14.1 %
— %
— %
3.1%
3.1%
—%
—%
(0.2)%
0.2 %
(0.4)%
— %
5.8 %
5.9 %
(0.1)%
— %
(1) We adopted ASU 2014-09 in the first quarter of fiscal 2019 and have reclassified amounts in the prior years' statements
of income to conform to the current period’s presentation. For additional information see Note 3 to the accompanying
consolidated financial statements.
(2) Includes approximately five weeks of incremental operating results for Drybar Products, which was acquired on January
23, 2020. For additional information see Note 9 to the accompanying consolidated financial statements.
(3) Previously referred to as "Core" business.
In the above tables Organic business refers to our net sales revenue associated with product lines or
brands after the first twelve months from the date the product line or brand is acquired, excluding the
impact that foreign currency re-measurement had on reported net sales. Net sales revenue from
internally developed brands or product lines is considered Organic business activity. We previously
referred to Organic business sales as Core business sales.
During the fourth quarter of fiscal 2020, we committed to a plan to divest certain assets within our mass
market personal care business (Personal Care). The assets to be disposed of include intangible assets,
inventory and fixed assets relating to our mass channel liquids, powder and aerosol products under
brands such as Pert, Brut, Sure and Infusium. We expect the divestiture to occur within fiscal 2021.
Accordingly, we have classified the identified assets of the disposal group as held for sale on our balance
sheet. In conjunction with this change, we now define Core as strategic business that we expect to be an
ongoing part of our operations, and Non-Core as business or assets (including assets held for sale) that
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we expect to divest within a year of its designation as Non-Core. The following tables summarizes the
impact that Core and Non-Core (Personal Care) business had on our net sales revenue by segment:
(in thousands)
Fiscal 2019 sales revenue, net
Core business
Non-core business (Personal Care)
Change in sales revenue, net
Fiscal 2020 sales revenue, net
Total net sales revenue growth
Core business
Non-core business (Personal Care)
(in thousands)
Fiscal 2018 sales revenue, net
Core business
Non-core business (Personal Care)
Change in sales revenue, net
Fiscal 2019 sales revenue, net
Total net sales revenue growth
Core business
Non-core business (Personal Care)
Fiscal Year Ended Last Day of February,
Housewares
523,807
$
Health & Home
695,217
$
Beauty
$
345,127
Total
$ 1,564,151
117,158
—
117,158
(9,820)
—
(9,820)
46,796
(10,853)
35,943
154,134
(10,853)
143,281
$
640,965
$
685,397
$
381,070
$ 1,707,432
22.4%
22.4%
—%
(1.4)%
(1.4)%
— %
10.4 %
13.6 %
(3.1)%
9.2 %
9.9 %
(0.7)%
Fiscal Year Ended Last Day of February,
Housewares
459,004
$
Health & Home
674,062
$
Beauty
$
345,779
Total
$ 1,478,845
64,803
—
64,803
21,155
—
21,155
4,962
(5,614)
(652)
90,920
(5,614)
85,306
$
523,807
$
695,217
$
345,127
$ 1,564,151
14.1%
14.1%
—%
3.1%
3.1%
—%
(0.2)%
1.4 %
(1.6)%
5.8 %
6.1 %
(0.4)%
Leadership Brand and Other Net Sales
The following tables summarizes our Leadership Brand and other net sales:
Fiscal Years Ended Last Day of
February,
$ Change
% Change
(in thousands)
Leadership Brand sales revenue, net (1) $ 1,360,059
347,373
All other sales revenue, net
$ 1,707,432
Total sales revenue, net
2020
2019
$ 1,243,600
320,551
$ 1,564,151
2018
$ 1,142,183
336,662
$ 1,478,845
20/19
$ 116,459
26,822
$ 143,281
19/18
$ 101,417
(16,111)
$ 85,306
20/19
19/18
9.4% 8.9 %
8.4% (4.8)%
9.2% 5.8 %
(1) Fiscal 2020 includes approximately five weeks, or $6.0 million, of net sales from the Drybar Products acquisition. For
additional information regarding the acquisition of Drybar Products see Note 9 to the accompanying consolidated financial
statements.
Consolidated Net Sales Revenue
Comparison of Fiscal 2020 to 2019
Consolidated net sales revenue increased $143.3 million, or 9.2%, to $1,707.4 million, compared to
$1,564.2 million. Growth was driven by an Organic business increase of $144.3 million, or 9.2%,
primarily due to:
• growth in consolidated online sales;
• an increase in brick and mortar sales in our Housewares segment; and
• an increase in sales in the appliance category in the Beauty segment.
Net sales of $6.0 million, or 0.4%, from the Drybar Products acquisition also contributed to consolidated
net sales growth.
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These factors were partially offset by:
• a decline in Personal Care within the Beauty segment;
•
•
lower sales in our Health & Home segment; and
the unfavorable impact from foreign currency fluctuations of approximately $7.0 million, or 0.4%.
Net sales from our Leadership Brands were $1,360.1 million in 2020, compared to $1,243.6 million for
the same period last year, representing growth of 9.4%.
Comparison of Fiscal 2019 to 2018
Consolidated net sales revenue increased $85.3 million, or 5.8%, to $1,564.2 million, compared to
$1,478.8 million. Growth was driven by an Organic business increase of $86.5 million, or 5.9%, primarily
due to:
• overall point of sale growth in the brick and mortar channel;
•
incremental distribution;
• growth in online sales;
•
• new product introductions.
increased international sales; and
These factors were partially offset by:
• a consumption decline in the personal care category;
•
•
the discontinuation of certain brands and products within our Beauty segment; and
the unfavorable impact from foreign currency fluctuations of approximately $1.2 million or 0.1%.
Net sales from our Leadership Brands were $1,243.6 million, compared to $1,142.2 million, representing
growth of 8.9%.
Segment Net Sales Revenue
Housewares
Comparison of Fiscal 2020 to 2019
Net sales revenue increased $117.2 million, or 22.4%, to $641.0 million, compared to $523.8 million.
Growth was driven by an Organic business increase of $118.4 million, or 22.6%, primarily due to:
• point of sale growth with existing domestic brick and mortar customers;
• an increase in online sales; and
• new product introductions.
These factors were partially offset by lower international sales and the unfavorable impact from foreign
currency fluctuations of approximately $1.3 million, or 0.2%.
Comparison of Fiscal 2019 to 2018
Net sales revenue increased $64.8 million, or 14.1%, to $523.8 million, compared to $459.0 million.
Growth was driven by an Organic business increase of $64.9 million, or 14.1%, primarily due to:
• point of sale growth with existing customers;
• an increase in online sales;
• higher sales in the club channel; and
• new product introductions.
These factors were partially offset by lower closeout sales.
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Health & Home
Comparison of Fiscal 2020 to 2019
Net sales revenue decreased $9.8 million, or 1.4%, to $685.4 million compared to $695.2 million. The
decline was mostly driven by an Organic business decrease of $5.3 million or, 0.8%, primarily due to:
•
•
•
lower domestic sales driven by net distribution changes year-over-year;
the unfavorable comparative impacts of more wildfire activity in the same period last year; and
lower international sales.
Net sales were also unfavorably impacted by net foreign currency fluctuations of approximately $4.5
million, or 0.6%.
These factors were partially offset by new product introductions and increased demand for certain
products, particularly thermometers, related to the global impact of COVID-19 late in the fourth quarter.
Comparison of Fiscal 2019 to 2018
Net sales revenue increased $21.2 million, or 3.1%, to $695.2 million compared to $674.1 million.
Growth was driven by an Organic business increase of 3.1%, primarily due to higher sales of seasonal
products and growth in international sales.
These factors were partially offset by an unfavorable comparison to fiscal 2018, which benefited from
strong cough/cold/flu incidence along with unseasonably cold fall and winter weather. Net foreign
currency fluctuations were not meaningful.
Beauty
Comparison of Fiscal 2020 to 2019
Net sales revenue increased $35.9 million, or 10.4%, to $381.1 million compared to $345.1 million. The
increase was driven by an increase in Organic business of $31.2 million, or 9.0%, primarily due to:
increased demand in the appliance category;
•
• growth in the online channel; and
• an increase in international sales.
Net sales growth also benefited from approximately 5 weeks of sales of $6.0 million, or 1.7%, from the
Drybar Products acquisition.
These factors were partially offset by a decline in net sales in Personal Care and the unfavorable impact
of net foreign currency fluctuations of approximately $1.3 million, or 0.4%.
Comparison of Fiscal 2019 to 2018
Net sales revenue decreased $0.7 million, or 0.2%, to $345.1 million compared to $345.8 million. Net
sales were unfavorably impacted by net foreign currency fluctuations of approximately $1.2 million, or
0.4%. Organic revenue increased by 0.2%, primarily due to:
• growth in the online channel;
• new product introductions in the retail appliance category; and
• an increase in international sales.
These factors were partially offset by:
• a decline in brick and mortar sales;
•
• a decrease in Personal Care.
the discontinuation of certain brands and products; and
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Gross Profit Margin
Comparison of Fiscal 2020 to 2019
Consolidated gross profit margin increased 2.0 percentage points to 43.0%, compared to 41.0%. The
increase in consolidated gross profit margin is primarily due to:
• a higher mix of Housewares sales at a higher overall gross profit margin;
• a favorable product and channel mix within the Housewares segment;
•
tariff exclusion refunds received for certain duties expensed in the second half of fiscal 2019 and
the first quarter of fiscal 2020; and
• a lower mix of shipments made on a direct import basis.
These factors were partially offset by:
• unfavorable foreign currency fluctuations;
•
the dilutive impact of higher tariffs; and
• higher inbound freight expense.
Comparison of Fiscal 2019 to 2018
Consolidated gross profit margin decreased 0.3 percentage points to 41.0%, compared to 41.3%. The
decrease in consolidated gross profit margin is primarily due to:
less favorable channel and product mix;
•
• a higher mix of shipments made on a direct import basis; and
•
the impact of tariff increases.
These factors were partially offset by the favorable margin impact from growth in our Leadership Brands.
Selling General and Administrative Expense
Comparison of Fiscal 2020 to 2019
Consolidated SG&A ratio increased 2.0 percentage points to 30.0%, compared to 28.0%. The increase
in the consolidated SG&A ratio was primarily due to:
• higher short- and long-term performance-based incentive compensation expense;
• higher advertising expense;
• higher freight and distribution expense; and
• higher amortization expense.
These factors were partially offset by:
•
•
the impact from tariff related pricing actions taken with retail customers; and
the favorable impact of foreign currency exchange and forward contract settlements.
Comparison of Fiscal 2019 to 2018
Consolidated SG&A ratio decreased 0.7 percentage points to 28.0%, compared to 28.7%. The decrease
in the consolidated SG&A ratio was primarily due to:
•
•
•
•
•
lower amortization expense;
the favorable impact from foreign currency exchange and forward contract settlements;
the favorable comparative impact of a $3.6 million charge related to the bankruptcy of TRU in the
same period in fiscal 2018;
the favorable impact of a higher mix of shipments made on a direct import basis; and
the impact that higher overall net sales had on operating leverage.
These factors were partially offset by:
• higher advertising expense;
• higher share-based compensation expense; and
• higher freight expense.
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Asset Impairment Charges
Fiscal 2020
As a result of our annual testing of goodwill and indefinite-lived trademarks, we recorded non-cash asset
impairment charges primarily related to goodwill and intangible assets of $41.0 million ($36.4 million after
tax) in continuing operations. The charges were related to Personal Care goodwill and trademark assets
within our Beauty segment, classified as held for sale in the fourth quarter of fiscal 2020.
Fiscal 2019
We did not record any asset impairment charges.
Fiscal 2018
As a result of our interim and annual testing of indefinite-lived trademarks, we recorded non-cash asset
impairment charges of $15.4 million ($13.8 million after tax) in continuing operations. The charges were
related to Personal Care trademarks in our Beauty segment.
Restructuring Charges
Fiscal 2020
We incurred $3.3 million of pre-tax restructuring costs related to employee termination benefits and
contract termination costs under Project Refuel. During fiscal 2020, we made total cash restructuring
payments of $3.8 million and had a remaining liability of $0.8 million as of February 29, 2020.
Fiscal 2019
We incurred $3.6 million of pre-tax restructuring costs related to employee termination benefits under
Project Refuel. During fiscal 2019, we made total cash restructuring payments of $3.1
million and had a remaining liability of $1.2 million as of February 28, 2019.
Fiscal 2018
We incurred $1.9 million of pre-tax restructuring costs related to employee termination benefits and
contract termination costs under Project Refuel. During fiscal 2018, we made total cash
restructuring payments of $1.3 million and had a remaining liability of $0.5 million as of February 28,
2018.
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Operating income, operating margin, adjusted operating income (non-GAAP), and adjusted
operating margin (non-GAAP) by segment
In order to provide a better understanding of the impact of certain items on our operating income, the
below tables report the comparative pre-tax impact of non cash asset impairment charges, acquisition-
related expenses, restructuring charges, the TRU bankruptcy charge, amortization of intangible assets,
and non cash share based compensation, as applicable, on operating income and operating margin for
each segment and in total for the periods covered below. Adjusted operating income and adjusted
operating margin may be considered non-GAAP financial measures as contemplated by SEC regulation
G, Rule 100. For additional information regarding management’s decision to present this non-GAAP
financial information, see the introduction to this Item 7., “Management’s Discussion and Analysis of
Financial Condition and Results of Operation.”
(In thousands)
Housewares
Health & Home
Beauty (1)
Total
Operating income (loss), as reported (GAAP)
$ 123,135
19.2% $ 68,166
9.9% $ (13,050)
(3.4)% $
178,251
10.4%
Fiscal Year Ended February 29, 2020
Acquisition-related expenses
Asset impairment charges
Restructuring charges
Subtotal
Amortization of intangible assets
Non-cash share-based compensation
—
—
—%
—%
1,351
0.2%
—
—
93
—%
—%
—%
2,546
0.7 %
41,000
10.8 %
1,869
124,486
19.4%
68,259
10.0%
32,365
2,055
7,218
0.3%
1.1%
10,539
9,717
1.5%
1.4%
8,677
5,994
2,546
41,000
3,313
0.1%
2.4%
0.2%
225,110
13.2%
21,271
22,929
1.2%
1.3%
0.5 %
8.5 %
2.3 %
1.6 %
Adjusted operating income (non-GAAP)
$ 133,759
20.9% $ 88,515
12.9% $ 47,036
12.3 % $
269,310
15.8%
Fiscal Year Ended February 28, 2019
(In thousands)
Housewares
Health & Home
Beauty
Total
Operating income, as reported (GAAP)
$ 100,743
19.2% $ 68,448
9.8% $ 30,188
8.7% $
199,379
12.7%
Asset impairment charges
Restructuring charges
Subtotal
Amortization of intangible assets
Non-cash share-based compensation
—
926
—%
0.2%
101,669
19.4%
1,980
7,974
0.4%
1.5%
—
686
69,134
10,925
9,204
—%
0.1%
—
1,974
9.9% 32,162
1.6%
1.3%
1,299
4,875
—%
0.6%
9.3%
0.4%
1.4%
—
3,586
—%
0.2%
202,965
13.0%
14,204
22,053
0.9%
1.4%
Adjusted operating income (non-GAAP)
$ 111,623
21.3% $ 89,263
12.8% $ 38,336
11.1% $
239,222
15.3%
Fiscal Year Ended February 28, 2018
(In thousands)
Housewares
Health & Home
Beauty
Total
Operating income, as reported (GAAP)
$ 89,319
19.5% $ 62,099
9.2% $ 17,644
5.1% $
169,062
11.4%
Asset impairment charges
Restructuring Charges
TRU bankruptcy charge
Subtotal
Amortization of intangible assets
Non-cash share-based compensation
—
220
956
—%
—%
0.2%
90,495
19.7%
2,226
4,701
0.5%
1.0%
—
—
2,640
64,739
11,101
5,721
—%
—%
0.4%
9.6%
1.6%
0.8%
15,447
1,637
—
4.5%
0.5%
—%
15,447
1,857
3,596
1.0%
0.1%
0.2%
34,728
10.0%
189,962
12.8%
5,527
4,632
1.6%
1.3%
18,854
15,054
1.3%
1.0%
Adjusted operating income (non-GAAP)
$ 97,422
21.2% $ 81,561
12.1% $ 44,887
13.0% $
223,870
15.1%
(1) Fiscal 2020 includes approximately 5 weeks of incremental operating results from the Drybar Products acquisition completed
on January 23, 2020.
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Consolidated Operating Income
Comparison of Fiscal 2020 to 2019
Consolidated operating income was $178.3 million, or 10.4% of net sales, compared to $199.4 million, or
12.7% of net sales. Fiscal 2020 includes pre-tax non-cash asset impairment charges of $41.0 million,
pre-tax acquisition-related charges of $2.5 million and pre-tax restructuring charges of $3.3 million,
compared to pre-tax restructuring charges of $3.6 million in the same period last year. The effect of
these items in both years unfavorably impacted the year-over-year comparison of operating margin by a
combined 2.5 percentage points. The remaining increase in operating margin was driven by:
•
tariff exclusion refunds received for certain duties expensed in the second half of fiscal 2019 and
the first quarter of fiscal 2020;
• a higher mix of Housewares sales at a higher overall operating margin;
• a favorable product and channel mix within the Housewares segment; and
•
the favorable impact of increased operating leverage from net sales growth.
These factors were partially offset by:
• higher short- and long-term performance-based incentive compensation expense;
• higher advertising expense;
• higher freight and distribution expense;
• higher amortization expense; and
•
the net unfavorable impact of foreign currency fluctuations.
Consolidated adjusted operating income increased 12.6% to $269.3 million, or 15.8% of net sales,
compared to $239.2 million, or 15.3% of net sales.
Comparison of Fiscal 2019 to 2018
Consolidated operating income was $199.4 million, or 12.7% of net sales, compared to $169.1 million, or
11.4% of net sales. Fiscal 2019 included pre-tax restructuring charges of $3.6 million associated with
Project Refuel. Fiscal 2018 included pre-tax non-cash asset impairment charges of $15.4 million, a $3.6
million charge related to the TRU bankruptcy and pre-tax restructuring charges of $1.9 million. The effect
of these items in both years favorably impacted the year-over-year comparison of operating margin by a
combined 1.1 percentage points. The remaining improvement in fiscal 2019 consolidated operating
margin was driven by:
• a higher mix of Leadership Brand sales at a higher operating margin;
•
•
•
improved distribution and logistics efficiency and lower outbound freight costs;
lower amortization expense; and
the favorable impact of increased operating leverage from net sales growth.
These factors were partially offset by:
• a less favorable channel and product mix;
• higher advertising expense;
•
• higher share-based compensation expense.
the impact of tariff increases; and
Consolidated adjusted operating income increased 6.9% to $239.2 million, or 15.3% of net sales,
compared to $223.9 million, or 15.1% of net sales.
Housewares
Comparison of Fiscal 2020 to 2019
Operating income was $123.1 million, or 19.2% of segment net sales, compared to $100.7 million, or
19.2% of segment net sales. Segment operating margin remained the same in both periods as the
margin impact of a more favorable product and channel mix was offset by:
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• higher freight and distribution center expense to support increased retail customer shipments and
strong direct-to-consumer demand;
• higher annual incentive compensation expense;
• higher advertising expense; and
•
the favorable impact of increased operating leverage from net sales growth.
Segment adjusted operating income increased 19.8% to $133.8 million, or 20.9% of segment net sales,
compared to $111.6 million, or 21.3% of segment net sales.
Comparison of Fiscal 2019 to 2018
Operating income was $100.7 million, or 19.2% of segment net sales, compared to $89.3 million, or
19.5% of segment net sales. The 0.3% percentage point decrease in segment operating margin was
primarily due to:
• higher advertising expense;
• higher share-based compensation expense;
• higher performance-based annual incentive compensation expense;
• higher freight expense; and
• higher rent expense related to new office space.
These factors were partially offset by:
•
•
•
the favorable margin impact from growth in the Hydro Flask business;
the favorable impact of increased operating leverage from net sales growth; and
the favorable comparative impact of a $1.0 million charge related to the bankruptcy of TRU in the
same period last year.
Segment adjusted operating income increased 14.6% to $111.6 million, or 21.3% of segment net sales,
compared to $97.4 million, or 21.2% of segment net sales.
Health & Home
Comparison of Fiscal 2020 to 2019
Operating income was $68.2 million, or 9.9% of segment net sales, compared to $68.4 million, or 9.8% of
segment net sales. The 0.1 percentage point increase in segment operating margin is primarily due to:
tariff exclusion refunds received for certain duties expensed in the second half of fiscal 2019 and
first quarter of fiscal 2020; and
lower advertising expense.
•
•
These factors were partially offset by:
the dilutive impact of tariff increases;
• higher royalty expense;
•
• higher share-based compensation expense:
•
• unfavorable operating leverage from the decline in sales.
the net unfavorable impact of foreign currency fluctuations; and
Segment adjusted operating income decreased 0.8% to $88.5 million, or 12.9% of segment net sales,
compared to $89.3 million, or 12.8% of segment net sales.
Comparison of Fiscal 2019 to 2018
Operating income was $68.4 million, 9.8% of segment net sales, compared to $62.1 million, or 9.2% of
segment net sales. The 0.6 percentage point increase in segment operating margin was primarily due to:
•
•
•
the favorable comparative impact of a $2.6 million charge related to the bankruptcy of TRU in
fiscal 2018;
strong sales growth in the Asia Pacific region at a higher operating margin;
the favorable impact that higher overall net sales had on operating leverage; and
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•
the favorable impact of foreign currency exchange and forward contract settlements.
These factors were partially offset by:
the margin impact of a less favorable product mix;
the impact of tariff increases;
•
•
• higher share-based compensation expense; and
• higher advertising expense.
Segment adjusted operating income increased 9.4% to $89.3 million, or 12.8% of segment net sales,
compared to $81.6 million, or 12.1% of segment net sales.
Beauty
Comparison of Fiscal 2020 to 2019
Operating loss was $13.1 million, or 3.4% of segment net sales, compared to operating income of $30.2
million, or 8.7% of segment net sales. Operating loss in fiscal 2020 includes $41.0 million of pre-tax non-
cash asset impairment charges, $2.5 million of pre-tax acquisition-related expenses and $1.9 million of
pre-tax restructuring charges. Fiscal 2019 included pre-tax restructuring charges of $2.0 million. The
effect of these items unfavorably impacted the year-over-year comparison of operating margin by 11.4
percentage points. The remaining 0.8 percentage point decline in segment operating margin was
primarily due to:
• higher annual incentive and share-based compensation expense related to short- and long-term
performance;
• higher amortization expense;
•
•
the impact of higher freight expense to meet strong demand in the appliance category; and
the unfavorable margin impact of a lower mix of Personal Care sales.
These factors were partially offset by the favorable impact of increased operating leverage from net sales
growth.
Segment adjusted operating income increased 22.7% to $47.0 million, or 12.3% of segment net sales,
compared to $38.3 million, or 11.1% of segment net sales.
Comparison of Fiscal 2019 to 2018
Operating income was $30.2 million, or 8.7% of segment net sales, compared to $17.6 million, or 5.1% of
segment net sales. Fiscal 2019 included pre-tax restructuring charges of $2.0 million, compared to $1.6
million in fiscal 2018. Fiscal 2018 also included a $15.4 million pre-tax non-cash asset impairment
charge that did not reoccur in fiscal 2019. The effect of these items favorably impacted the year-over-
year comparison of operating margin by 4.4 percentage points. The remaining decrease in segment
operating margin is primarily due to:
the net sales decline in Personal Care and its unfavorable impact on operating margin;
•
• higher freight expense; and
• higher share-based compensation expense.
These factors were partially offset by:
•
•
cost savings from Project Refuel; and
lower amortization expense.
Segment adjusted operating income decreased 14.6% to $38.3 million, or 11.1% of segment net sales,
compared to $44.9 million, or 13.0% of segment net sales.
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Interest Expense
Interest expense was $12.7 million in fiscal 2020, compared to $11.7 million in fiscal 2019. The increase
in interest expense was primarily due to incremental borrowings to fund the acquisition of Drybar
Products on January 23, 2020, unfavorable interest rate swap settlements year-over-year and higher
deferred financing costs.
Interest expense was $11.7 million in fiscal 2019, compared to $14.0 million in fiscal 2018. The decrease
in interest expense was due to lower average levels of debt held during fiscal 2019, partially offset by
higher average interest rates.
Income Tax Expense
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and
signed into law. The CARES Act is an emergency economic stimulus package in response to the
COVID-19 outbreak which contains numerous tax provisions. Among other things, the CARES Act
amended the net operating loss provisions and provides a payment delay of employer payroll taxes
during 2020 after the date of enactment. We are currently evaluating the impact of the CARES Act and
will begin to reflect any impact during the period of enactment, our first quarter of fiscal 2021.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. Among other
changes, the Tax Act lowered the U.S. corporate statutory income tax rate from 35% to 21% and
established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed
earnings of foreign subsidiaries.
The year-over-year comparison of our effective tax rates is impacted by the mix of taxable income in our
various tax jurisdictions, among other factors. Due to our organization in Bermuda and the ownership
structure of our foreign subsidiaries, many of which are not owned directly or indirectly by a U.S. parent
company, an immaterial amount of our foreign income is subject to U.S. taxation on a permanent basis
under current law. Additionally, our intellectual property is largely owned by our foreign subsidiaries,
resulting in proportionally higher earnings in jurisdictions with lower statutory tax rates, which decreases
our overall effective tax rate.
Fiscal 2020 income tax expense as a percentage of income before tax was 8.2% compared to 7.3% in
the same period last year. The increase in our effective tax rate was primarily due to shifts in the mix of
taxable income in our various tax jurisdictions, increases in certain statutory tax rates and the
comparative impact of discrete benefits recorded in the same period last year.
Fiscal 2019 income tax expense as a percentage of income before tax was 7.3% compared to 17.1% in
fiscal 2018. The decrease in our effective tax rate was primarily due to the provisional charge of $17.9
million recorded in fiscal 2018 related to the Tax Act.
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Income from continuing operations, diluted EPS from continuing operations, adjusted Income
from continuing operations (non-GAAP), and adjusted diluted EPS from continuing operations
(non-GAAP)
In order to provide a better understanding of the impact of certain items on our income and EPS from
continuing operations, the below tables report the comparative after tax impact of non cash asset
impairment charges, acquisition-related expenses, restructuring charges, tax reform, the TRU bankruptcy
charge, amortization of intangible assets, and non cash share based compensation, as applicable, on
income from continuing operations, and basic and diluted EPS from continuing operations for the periods
covered below. For additional information regarding management’s decision to present this non-GAAP
financial information, see the introduction to this Item 7., “Management’s Discussion and Analysis of
Financial Condition and Results of Operation.”
(in thousands, except per share data)
Before Tax
Tax
Net of Tax Before Tax
Tax
Net of Tax
Income From Continuing Operations
Diluted Earnings Per Share
Fiscal Year Ended February 29, 2020
As reported (GAAP)
$
165,940
$
13,607
$ 152,333
$
Acquisition-related expenses
Asset impairment charges
Restructuring charges
Subtotal
Amortization of intangible assets
Non-cash share-based compensation
2,546
41,000
3,313
38
4,574
161
2,508
36,426
3,152
212,799
18,380
194,419
21,271
22,929
1,245
1,803
20,026
21,126
6.55
0.10
1.62
0.13
8.40
0.84
0.91
Adjusted (non-GAAP)
$
256,999
$
21,428
$ 235,571
$
10.15
$
$
0.54
$
—
0.18
0.01
0.73
0.05
0.07
0.85
$
6.02
0.10
1.44
0.12
7.68
0.79
0.83
9.30
Weighted average shares of common stock used in computing diluted earnings per share
25,322
Fiscal Year Ended February 28, 2019
Income From Continuing Operations
Diluted Earnings Per Share
(in thousands, except per share data)
Before Tax
Tax
Net of Tax Before Tax
Tax
Net of Tax
As reported (GAAP)
$
188,000
$
13,776
$ 174,224
$
7.15
$
0.52
$
6.62
Acquisition-related expenses
Asset impairment charges
Restructuring charges
Subtotal
Amortization of intangible assets
Non-cash share-based compensation
—
—
3,586
191,586
14,204
22,053
—
—
215
—
—
3,371
13,991
177,595
372
1,395
13,832
20,658
Adjusted (non-GAAP)
$
227,843
$
15,758
$ 212,085
$
—
—
0.14
7.28
0.54
0.84
8.66
$
—
—
0.01
0.53
0.01
0.05
0.60
$
—
—
0.13
6.75
0.53
0.79
8.06
Weighted average shares of common stock used in computing diluted earnings per share
26,303
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(in thousands, except per share data)
Before Tax
Tax
Net of Tax Before Tax
Tax
Net of Tax
Fiscal Year Ended February 28, 2018
Income From Continuing Operations
Diluted Earnings Per Share
$
155,438
$
26,556
$ 128,882
$
5.70
$
0.97
$
As reported (GAAP)
Tax reform
Asset impairment charges
Restructuring charges
TRU bankruptcy
Subtotal
Amortization of intangible assets
Non-cash share-based compensation
—
(17,939)
15,447
1,857
3,596
1,613
69
204
17,939
13,834
1,788
3,392
176,338
10,503
165,835
18,854
15,054
850
1,669
18,004
13,385
Adjusted (non-GAAP)
$
210,246
$
13,022
$ 197,224
$
—
0.57
0.07
0.13
6.47
0.69
0.55
7.71
$
(0.66)
0.06
—
0.01
0.39
0.03
0.06
0.48
$
4.73
0.66
0.51
0.07
0.12
6.08
0.66
0.49
7.24
Weighted average shares of common stock used in computing diluted earnings per share
27,254
Comparison of Fiscal 2020 to 2019
Income from continuing operations was $152.3 million compared to $174.2 million. Diluted EPS from
continuing operations was $6.02 compared to $6.62. Diluted EPS decreased primarily due to after-tax
non-cash asset impairment charges of $36.4 million in the Beauty segment and higher interest expense,
partially offset by higher operating income in the Housewares segment and the impact of lower weighted
average diluted shares outstanding compared to the same period last year.
Adjusted income from continuing operations increased $23.5 million, or 11.1%, to $235.6 million
compared to $212.1 million. Adjusted diluted EPS from continuing operations increased 15.4% to $9.30
compared to $8.06.
Comparison of Fiscal 2019 to 2018
Income from continuing operations was $174.2 million compared to $128.9 million. Diluted EPS from
continuing operations increased $1.89, or 40.0%, to $6.62 compared to $4.73.
Adjusted income from continuing operations increased $14.9 million, or 7.5%, to $212.1 million compared
to $197.2 million. Adjusted diluted EPS from continuing operations increased 11.3% to $8.06 compared
to $7.24. The increase in adjusted income from continuing operations was primarily due to an increase
in adjusted operating income and lower interest expense. The increase in adjusted diluted EPS from
continuing operations was due to increased adjusted income and lower diluted shares outstanding during
fiscal 2019.
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Financial Condition, Liquidity and Capital Resources
Selected measures of our liquidity and capital utilization for fiscal 2020 and 2019 are shown below:
Accounts Receivable Turnover (Days) (1)
Inventory Turnover (Times) (1)
Working Capital (in thousands)
Current Ratio
Ending Debt to Ending Equity Ratio
Return on Average Equity (1)
Fiscal Years Ended Last Day of February,
2020
2019
67.0
3.0
68.3
3.3
$
343,940
$
292,828
2.0:1
29.2%
14.0%
1.9:1
32.2%
16.9%
(1) Accounts receivable turnover, inventory turnover and return on average equity computations use 12 month trailing net
sales revenue, cost of goods sold or income from continuing operations components as required by the particular
measure. The current and four prior quarters' ending balances of accounts receivable, inventory and equity are used for
the purposes of computing the average balance component as required by the particular measure.
Operating Activities:
Comparison of Fiscal 2020 to 2019
Operating activities from continuing operations provided net cash of $271.3 million during fiscal 2020
compared to $200.6 million during fiscal 2019. The increase in cash provided was primarily driven by
higher cash earnings and a decrease in cash used for inventory. These factors were partially offset by an
increase in cash used for receivables.
Comparison of Fiscal 2019 to 2018
Operating activities from continuing operations provided net cash of $200.6 million compared to $218.6
million. The decrease was primarily driven by an increase in cash used for inventory and a dispute
settlement payment of $15.0 million. These factors were partially offset by an increase in income from
continuing operations and higher non-cash share-based compensation.
Investing Activities:
Investing activities from continuing operations used cash of $273.6 million, $25.2 million, and $13.6
million in fiscal 2020, 2019 and 2018, respectively.
Highlights from Fiscal 2020
• We acquired Drybar Products for $255.9 million. In addition, we invested in capital expenditures
of $17.8 million primarily for leasehold improvements; computers, furniture and other equipment;
and tools, molds and other production equipment.
Highlights from Fiscal 2019
• We invested in capital expenditures of $26.4 million primarily for leasehold improvements;
computers, furniture and other equipment; and tools, molds, and other production equipment.
Highlights from Fiscal 2018
• We invested in capital expenditures of $13.6 million primarily for leasehold improvements;
computers, furniture and other equipment; tools, molds, other production equipment; and the
development of new patents.
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Financing Activities:
Financing activities provided cash of $14.9 million in fiscal 2020 and used cash of $178.9 million and
$262.2 million in fiscal 2019 and 2018, respectively.
Highlights from Fiscal 2020
•
•
•
•
we had draws of $771.3 million under our Credit Agreement;
we repaid $752.5 million drawn under our Credit Agreement;
we repaid $1.9 million of long-term debt; and
we repurchased and retired 77,272 shares of common stock at an average price of $131.61 per
share for a total purchase price of $10.2 million through the settlement of certain stock awards.
Highlights from Fiscal 2019
•
•
•
•
we had draws of $667.3 million under our Credit Agreement;
we repaid $635.5 million drawn under our Credit Agreement;
we repaid $1.9 million of long-term debt; and
we repurchased and retired 1,934,493 shares of common stock at an average price of $112.43
per share for a total purchase price of $217.5 million through a combination of open market
purchases and the settlement of certain stock awards.
Highlights from Fiscal 2018
•
•
•
•
we had draws of $521.2 million under our Credit Agreement;
we repaid $692.5 million drawn under our Credit Agreement;
we repaid $25.7 million of long-term debt, and;
we repurchased and retired 793,085 shares of common stock at an average price of $92.13 per
share for a total purchase price of $73.1 million through a combination of open market purchases
and the settlement of certain stock awards.
Credit Agreement and Other Debt Agreements
Credit Agreement
As of February 29, 2020, we had a credit agreement (the “Credit Agreement”) with Bank of America,
N.A., as administrative agent, and other lenders that provided for an unsecured total revolving
commitment of $1.0 billion. Borrowings accrued interest under one of two alternative methods (based
upon a base rate or LIBOR) as described in the Credit Agreement. With each borrowing against our
credit line, we could elect the interest rate method based on our funding needs at the time. We also
incurred loan commitment and letter of credit fees under the Credit Agreement. Outstanding letters of
credit reduced the borrowing availability under the Credit Agreement on a dollar-for-dollar basis. We may
repay amounts borrowed at any time without penalty. As of February 29, 2020, the outstanding revolving
loan principal balance was $320.0 million (excluding prepaid financing fees) and the balance of
outstanding letters of credit was $9.0 million. As of February 29, 2020, the amount available for
borrowings under the Credit Agreement was $671.0 million. Covenants in the Credit Agreement limit the
amount of total indebtedness we could incur. As of February 29, 2020, these covenants did not limit our
ability to incur $671.0 million of additional debt under the Credit Agreement.
On March 13, 2020, we entered into an amendment to the Credit Agreement. The amendment extended
the maturity of the commitment under the Credit Agreement from December 7, 2021 to March 13, 2025.
Further, the amendment increased the unsecured revolving commitment from $1.0 billion to $1.25 billion.
The accordion was amended to increase it from $200 million to $300 million and to include the ability to
use it for term loan commitments. The accordion permits the Company to request to increase its
borrowing capacity, not to exceed the $300 million commitment in the aggregate, provided certain
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conditions are met, including lender approval. Any increase to term loan commitments and revolving
loan commitments must be made on terms identical to the revolving loans under the Credit Agreement
and must have a maturity date of no earlier than March 13, 2025. Following the amendment, borrowings
under the Credit Agreement bear interest at either the base rate or LIBOR, plus a margin based on the
Net Leverage Ratio (as defined in the Credit Agreement) of 0% to 1.0% and 1.0% to 2.0%, respectively,
for base rate and LIBOR borrowings.
On March 24, 2020, we borrowed approximately $200 million under the Credit Agreement as part of a
comprehensive precautionary approach to increase our cash position and maximize our financial
flexibility in light of the current volatility in the global markets resulting from the COVID-19 outbreak. After
giving effect to the borrowing, the remaining amount available for borrowings under the Credit Agreement
was $536.4 million and our cash and cash equivalents on hand was approximately $393.0 million. As
described above, covenants in our debt agreements can limit the amount of indebtedness we can incur.
We may repay amounts borrowed at any time without penalty.
Other Debt Agreements
We have an aggregate principal balance of $20.5 million under a loan agreement with the Mississippi
Business Finance Corporation (the “MBFC Loan”). The borrowings were used to fund construction of our
Olive Branch, Mississippi distribution facility. The remaining principal balance is payable as follows: $1.9
million annually on March 1, 2020 through 2022; and $14.8 million on March 1, 2023. Any remaining
outstanding principal and interest is due upon maturity on March 1, 2023.
All of our debt is unconditionally guaranteed, on a joint and several basis, by the Company and certain of
its subsidiaries. Our debt agreements require the maintenance of certain key financial covenants,
defined in the table below. Our debt agreements also contain other customary covenants, including,
among other things, covenants restricting or limiting us, except under certain conditions set forth therein,
from (1) incurring debt, (2) incurring liens on our properties, (3) making certain types of investments, (4)
selling certain assets or making other fundamental changes relating to mergers and consolidations, and
(5) repurchasing shares of our common stock and paying dividends. Our debt agreements also contain
customary events of default, including failure to pay principal or interest when due, among others. Our
debt agreements are cross-defaulted to each other. Upon an event of default under our debt
agreements, the holders or lenders may, among other things, accelerate the maturity of any amounts
outstanding under our debt agreements. The commitments of the lenders to make loans to us under the
Credit Agreement are several and not joint. Accordingly, if any lender fails to make loans to us, our
available liquidity could be reduced by an amount up to the aggregate amount of such lender’s
commitments under the Credit Agreement.
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The table below provides the formulas in effect for certain key financial covenants under the Credit
Agreement as of February 29, 2020:
Applicable Financial Covenant
Interest Coverage Ratio
Maximum Leverage Ratio
Key Definitions:
Credit Agreement and MBFC Loan
EBIT (1) ÷ Interest Expense (1)
Minimum Required: 3.00 to 1.00
Total Current and Long Term Debt (2) ÷
EBITDA (1) + Pro Forma Effect of Acquisitions
Maximum Currently Allowed: 3.50 to 1.00 (3)
EBIT:
EBITDA:
Pro Forma Effect of Acquisitions: For any acquisition, pre-acquisition EBITDA of the acquired business is included so
Earnings Before Non-Cash Charges, Interest Expense and Taxes
EBIT + Depreciation and Amortization Expense + Non-Cash Charges
that the EBITDA of the acquired business included in the computation equals its twelve
month trailing total.
Notes:
(1) Computed using totals for the latest reported four consecutive fiscal quarters.
(2) Computed using the ending balances as of the latest reported fiscal quarter.
(3) In the event a qualified acquisition is consummated, the maximum leverage ratio is 4.25 to 1.00.
Contractual Obligations
Our contractual obligations and commercial commitments in effect as of the end of fiscal 2020 were:
Fiscal Years Ended the Last Day of February:
2021
2022
2023
2024
2025
After
Total
1 year
2 years
3 years
4 years
5 years
5 years
$ 340,507 $
1,900 $ 321,900 $
1,900 $ 14,807 $
— $
(in thousands)
Floating rate debt
—
—
—
—
—
—
Long-term incentive plan payouts
Interest on floating rate debt (1)
Open purchase orders
9,018
16,653
5,614
9,142
239,841
239,841
3,404
7,124
—
—
386
—
—
1
—
—
—
—
Minimum royalty payments
Advertising and promotional
Operating leases
Capital spending commitments
55,154
34,228
62,876
2,716
12,823
18,359
6,082
1,986
12,674
13,090
12,381
4,186
9,131
5,959
596
6,738
5,601
134
—
—
5,102
5,762
34,370
—
—
—
Total contractual obligations
$ 760,993 $ 295,747 $ 360,788 $ 27,849 $ 32,291 $
9,948 $ 34,370
(1) We estimate our future obligations for interest on our floating rate debt by assuming the weighted average interest rates
in effect on each floating rate debt obligation at February 29, 2020 remain constant into the future. This is an estimate,
as actual rates will vary over time. In addition, we assume that the revolving credit debt balance outstanding as of
February 29, 2020 remains the same for the remaining term of our revolving credit agreement. The actual balance
outstanding may fluctuate significantly in future periods, depending on the availability of cash flow from operations and
future investing and financing considerations.
Off-Balance Sheet Arrangements
We have no existing activities involving special purpose entities or off-balance sheet financing.
Current and Future Capital Needs
Based on our current financial condition and current operations, we believe that cash flows from
operations and available financing sources will continue to provide sufficient capital resources to fund our
foreseeable short- and long-term liquidity requirements. We expect our capital needs to stem primarily
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from the need to purchase sufficient levels of inventory and to carry normal levels of accounts receivable
on our balance sheet.
Additionally, on March 24, 2020, we borrowed approximately $200 million under the Credit Agreement as
part of a comprehensive precautionary approach to increase our cash position and maximize our
financial flexibility in light of the current volatility in the global markets resulting from the COVID-19
outbreak.
We continue to evaluate acquisition opportunities on a regular basis. We may finance acquisition activity
with available cash, the issuance of shares of common stock, additional debt, or other sources of
financing, depending upon the size and nature of any such transaction and the status of the capital
markets at the time of such acquisition. We may also elect to repurchase additional shares of common
stock under our Board authorization over the next fiscal year, subject to limitations contained in our debt
agreements and based upon our assessment of a number of factors, including share price, trading
volume and general market conditions, working capital requirements, general business conditions,
financial conditions, any applicable contractual limitations, and other factors, including alternative
investment opportunities. We may finance share repurchases with available cash, additional debt or
other sources of financing. For additional information, see Part II, Item 5., “Market for Registrant’s
Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities” in this
report. As of February 29, 2020, the amount of cash and cash equivalents held by our foreign
subsidiaries was $22.5 million, of which, an immaterial amount was held in foreign countries where the
funds may not be readily convertible into other currencies.
Critical Accounting Policies and Estimates
The SEC defines critical accounting policies as those that are both most important to the portrayal of a
company's financial condition and results, and require management’s most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the effect of matters that are
inherently uncertain. We consider the following policies to meet this definition.
Income Taxes
We must make certain estimates and judgments in determining income tax expense for financial
statement purposes. These estimates and judgments must be used in the calculation of certain tax
assets and liabilities because of differences in the timing of recognition of revenue and expense for tax
and financial statement purposes. We must assess the likelihood that we will be able to recover our
deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a
valuation allowance against the deferred tax assets that we estimate will not ultimately be
recoverable. As changes occur in our assessments regarding our ability to recover our deferred tax
assets, our tax provision is increased in any period in which we determine that the recovery is not
probable.
In addition, the calculation of our tax liabilities requires us to account for uncertainties in the application of
complex tax regulations. We recognize liabilities for uncertain tax positions based on the two-step
process prescribed within GAAP. The first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates that it is more likely than not that the position will
be sustained on audit based upon its technical merits, including resolution of related appeals or litigation
processes, if any. The second step requires us to estimate and measure the tax benefit as the largest
amount that has greater than a 50 percent likelihood of being realized upon ultimate settlement. It is
inherently difficult and subjective to estimate such amounts, as this requires us to determine the
probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly
basis. This evaluation is based on factors including, but not limited to, changes in facts or
circumstances, changes in tax law, effectively settled issues under audit, historical experience with
similar tax matters, guidance from our tax advisors, and new audit activity. A change in recognition or
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measurement would result in the recognition of a tax benefit or an additional charge to the tax provision
in the period in which the change occurs.
Customer Credit Risk and Estimates of Credits to be Issued to Customers
Our trade receivables subject us to credit risk, which is evaluated based on changing economic, political
and specific customer conditions. We assess these risks and make provisions for collectability based on
our best estimate of the risks presented and information available throughout the year. The use of
different assumptions may change our estimate of collectability. We extend credit to our customers
based upon an evaluation of the customer’s financial condition and credit history and generally do not
require collateral. Our credit terms generally range between 30 and 90 days from invoice date
depending upon the evaluation of the customer’s financial condition and history, pricing and the
relationship with the customer. We monitor our customers’ credit and financial condition in order to
assess whether the economic conditions have changed and adjust our credit policies with respect to any
individual customer as we determine appropriate. These adjustments may include, but are not limited to,
restricting shipments to customers, reducing credit limits, shortening credit terms, requiring cash
payments in advance of shipment or securing credit insurance.
We regularly receive requests for credits from retailers for returned products or in connection with sales
incentives, such as cooperative advertising and volume rebate agreements. We reduce sales or
increase SG&A, depending on the nature of the credits, for estimated future credits to customers. Our
estimates of these amounts are based on either historical information about credits issued, relative to
total sales, or on specific knowledge of incentives offered to retailers. This process entails a significant
amount of subjectivity and uncertainty.
Valuation of Inventory
We currently record inventory on our balance sheet at average cost, or net realizable value, if it is below
our recorded cost. Determination of net realizable value requires us to estimate the point in time at which
an item's net realizable value drops below its recorded cost. We regularly review our inventory for slow-
moving items and for items that we are unable to sell at prices above their original cost. When we
identify such an item, we reduce its book value to the net amount that we expect to realize upon its
sale. This process entails a significant amount of inherent subjectivity and uncertainty.
Goodwill and Indefinite-Lived Intangibles
As a result of acquisitions, we have significant intangible assets on our balance sheet that include
goodwill and indefinite-lived intangibles (primarily trademarks and licenses). Accounting for business
combinations requires the use of estimates and assumptions in determining the fair value of assets
acquired and liabilities assumed in order to properly allocate the purchase price. The estimates of the
fair value of the assets acquired and liabilities assumed are based upon assumptions believed to be
reasonable using established valuation techniques that consider a number of factors, and when
appropriate, valuations performed by independent third-party appraisers.
We consider whether circumstances or conditions exist which suggest that the carrying value of our
goodwill and other long-lived assets might be impaired. If such circumstances or conditions exist, further
steps are required in order to determine whether the carrying value of each of the individual assets
exceeds its fair market value. If analysis indicates that an individual asset’s carrying value does exceed
its fair market value, the next step is to record a loss equal to the excess of the individual asset’s carrying
value over its fair value. The steps entail significant amounts of judgment and subjectivity.
We complete the annual analysis of the carrying value of our goodwill and other intangible assets during
the fourth quarter of each fiscal year, or more frequently whenever events or changes in circumstances
indicate that their carrying value may not be recoverable.
Considerable management judgment is necessary in reaching a conclusion regarding the
reasonableness of fair value estimates, evaluating the most likely impact of a range of possible external
conditions, considering the resulting operating changes and their impact on estimated future cash flows,
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determining the appropriate discount factors to use, and selecting and weighting appropriate comparable
market level inputs.
We continue to monitor our reporting units for any triggering events or other signs of impairment. For
both the goodwill and indefinite-lived intangible assets in its reporting units, the recoverability of these
amounts is dependent upon achievement of our projections and the continued execution of key initiatives
related to revenue growth and improved profitability. The rates used in our projections are
management’s estimate of the most likely results over time, given a wide range of potential
outcomes. The assumptions and estimates used in our impairment testing involve significant elements of
subjective judgment and analysis by our management. While we believe that the assumptions we use
are reasonable at the time made, changes in business conditions or other unanticipated events and
circumstances may occur that cause actual results to differ materially from projected results and this
could potentially require future adjustments to our asset valuations.
Carrying Value of Other Long-Lived Assets
We consider whether circumstances or conditions exist that suggest that the carrying value of a long-
lived asset might be impaired. If such circumstances or conditions exist, further steps are required in
order to determine whether the carrying value of the asset exceeds its fair market value. If analysis
indicates that the asset’s carrying value does exceed its fair market value, the next step is to record a
loss equal to the excess of the asset’s carrying value over its fair value. The steps entail significant
amounts of judgment and subjectivity.
We segregate and similarly test whether the carrying value of assets classified as held for sale are
recoverable. See Note 5 to the accompanying consolidated financial statements for additional
information.
Economic Useful Life of Intangible Assets
We amortize intangible assets, such as licenses, trademarks, customer lists and distribution rights over
their economic useful lives, unless those assets' economic useful lives are indefinite. If an intangible
asset’s economic useful life is deemed indefinite, that asset is not amortized. When we acquire an
intangible asset, we consider factors such as the asset's history, our plans for that asset and the market
for products associated with the asset. We consider these same factors when reviewing the economic
useful lives of our previously acquired intangible assets as well. We review the economic useful lives of
our intangible assets at least annually. The determination of the economic useful life of an intangible
asset requires a significant amount of judgment and entails significant subjectivity and uncertainty. We
complete our analysis of the remaining useful economic lives of our intangible assets during the fourth
quarter of each fiscal year or when a triggering event occurs.
Share-Based Compensation
We account for share-based employee compensation plans under the fair value recognition and
measurement provisions in accordance with applicable accounting standards, which require all share-
based payments to employees, including grants of stock options, restricted stock awards, restricted stock
units, performance restricted stock units ("PSU") and performance stock awards ("PSA"), to be measured
based on the grant date fair value of the awards. The resulting expense is recognized over the periods
during which the employee is required to perform service in exchange for the award. The estimated
number of PSU’s and PSA's that will ultimately vest requires judgment, and to the extent actual results or
updated estimates differ from our current estimates, such amounts will be recorded as a cumulative
adjustment in the period estimates are revised.
Stock options are recognized in the financial statements based on their fair values using an option pricing
model at the date of grant. We use a Black-Scholes option-pricing model to calculate the fair value of
options. This model requires various judgmental assumptions including volatility and expected option
life.
For a more comprehensive list of our accounting policies, refer to Note 1 included in the accompanying
consolidated financial statements. Note 1 describes several other policies, including policies governing
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the timing of revenue recognition, that are important to the preparation of our consolidated financial
statements, but do not meet the SEC's definition of critical accounting policies because they do not
involve subjective or complex judgments.
New Accounting Guidance
Refer to Note 2 in the accompanying consolidated financial statements for a discussion of any new
accounting pronouncements and the potential impact to our consolidated results of operations and
financial position.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Changes in currency exchange rates and interest rates are our primary financial market risks.
Foreign Currency Risk
Our functional currency is the U.S. Dollar. By operating internationally, we are subject to foreign currency
risk from transactions denominated in currencies other than the U.S. Dollar (“foreign currencies”). Such
transactions include sales, certain inventory purchases and operating expenses. As a result of such
transactions, portions of our cash, trade accounts receivable and trade accounts payable are
denominated in foreign currencies.
For fiscal 2020, approximately 14% of our net sales revenue was in foreign currency compared to 13%
for fiscal 2019 and 2018. These sales were primarily denominated in British Pounds, Euros, Mexican
Pesos, and Canadian Dollars. We make most of our inventory purchases from the Far East and use the
U.S. Dollar for such purchases. In our consolidated statements of income, exchange gains and losses
resulting from the remeasurement of foreign taxes receivable, taxes payable, deferred tax assets, and
deferred tax liabilities are recognized in their respective income tax lines, and all other foreign exchange
gains and losses are recognized in SG&A.
We identify foreign currency risk by regularly monitoring our foreign currency-denominated transactions
and balances. Where operating conditions permit, we reduce foreign currency risk by purchasing most of
our inventory with U.S. Dollars and by converting cash balances denominated in foreign currencies to
U.S. Dollars.
We hedge against certain foreign currency exchange rate-risk by using a series of forward contracts and
zero-cost collars designated as cash flow hedges and mark-to-market derivatives to protect against the
foreign currency exchange risk inherent in our forecasted transactions denominated in foreign
currencies. Our primary objective in holding derivatives is to reduce the volatility of net earnings and
cash flows, and the net asset value associated with changes in foreign currency exchange rates. Our
foreign currency risk management strategy includes both hedging instruments and derivatives that are
not designated as hedging instruments, which generally have terms of up to 18 to 24 months. We do not
enter into any forward exchange contracts or similar instruments for trading or other speculative
purposes. We expect that as currency market conditions warrant, and our foreign denominated
transaction exposure grows, we will continue to execute additional contracts in order to hedge against
certain potential foreign exchange losses. As of February 29, 2020 and February 28, 2019, a
hypothetical adverse 10% change in foreign currency rates would reduce the carrying and fair values of
the hedging instruments and derivatives by $8.1 and $8.2 million on a pre-tax basis, respectively. This
calculation is for risk analysis purposes and does not purport to represent actual losses or gains in fair
value that we could incur. It is important to note that the change in value represents the estimated
change in fair value of the contracts. Actual results in the future may differ materially from these
estimated results due to actual developments in the global financial markets. Because the contracts
hedge an underlying exposure, we would expect a similar and opposite change in foreign exchange
gains or losses over the same periods as the contracts. Refer to Note 18 to the accompanying
consolidated financial statements for further information regarding these instruments.
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A significant portion of the products we sell are purchased from third-party manufacturers in China. The
Chinese Renminbi has fluctuated against the U.S. Dollar in recent years and in fiscal 2020 the Chinese
Renminbi weakened against the U.S. Dollar by approximately 5.0%. If China’s currency continues to
fluctuate against the U.S. Dollar in the short-to-intermediate term, we cannot accurately predict the
impact of those fluctuations on our results of operations. Accordingly, there can be no assurance that
foreign exchange rates will be stable in the future or that fluctuations in Chinese foreign currency markets
will not have a material adverse effect on our business, results of operations and financial condition.
Interest Rate Risk
Interest on our outstanding debt as of February 29, 2020 is floating, as such, we are exposed to changes
in short-term market interest rates and these changes in rates will impact our net interest expense. We
hedge against interest rate volatility by using interest rate swaps to hedge a portion of our outstanding
floating rate debt. Additionally, our cash and short-term investments generate interest income that will
vary based on changes in short-term interest. As of February 29, 2020 and February 28, 2019, a
hypothetical adverse 10% change in interest rates would reduce the carrying and fair values of the
interest rate swaps by $0.6 and $2.1 million on a pre-tax basis, respectively. This calculation is for risk
analysis purposes and does not purport to represent actual losses or gains in fair value that we could
incur. It is important to note that the change in value represents the estimated change in the fair value of
the swaps. Actual results in the future may differ materially from these estimated results due to actual
developments in the global financial markets. Because the swaps hedge an underlying exposure, we
would expect a similar and opposite change in floating interest rates over the same periods
as the swaps. Refer to Notes 16 and 18 to the accompanying consolidated financial statements for
further information regarding our interest rate sensitive assets and liabilities.
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Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Management’s Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets as of February 29, 2020 and February 28, 2019
Consolidated Statements of Income for each of the years in the three-year period ended February 29, 2020
Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended
February 29, 2020
Consolidated Statements of Stockholders' Equity for each of the years in the three-year period ended
February 29, 2020
Consolidated Statements of Cash Flows for each of the years in the three-year period ended February 29,
2020
Notes to Consolidated Financial Statements
Financial Statement Schedule:
PAGE
59
60
64
65
66
67
68
69
Schedule II - Valuation and Qualifying Accounts for each of the years in the three-year period ended
February 29, 2020
105
All other schedules are omitted as the required information is included in the consolidated financial
statements or is not applicable.
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Helen of Troy’s management is responsible for establishing and maintaining adequate internal control
over financial reporting as defined by Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act.
Our internal control system is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
U.S. generally accepted accounting principles and includes those policies and procedures that:
• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our
transactions and dispositions of assets;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that our
receipts and expenditures are being made only in accordance with authorizations of our
management and Board of Directors; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the financial statements.
There are inherent limitations in the effectiveness of internal control over financial reporting, including the
possibility that misstatements may not be prevented or detected. Furthermore, the effectiveness of
internal controls may become inadequate because of future changes in conditions, or variations in the
degree of compliance with our policies or procedures.
Our management assesses the effectiveness of our internal control over financial reporting using the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
in Internal Control-Integrated Framework.
On January 23, 2020, we completed our acquisition of Drybar Products LLC ("Drybar Products"). In
accordance with Securities Exchange Commission guidance permitting a company to exclude an
acquired business from management’s assessment of the effectiveness of internal control over financial
reporting for the year in which the acquisition is completed, we have excluded Drybar Products from our
assessment of the effectiveness of internal control over financial reporting as of February 29, 2020. The
assets and net sales revenue of Drybar Products that were excluded from our assessment constituted
approximately 1.6 and 0.4 percent, respectively, of the related consolidated financial statement amounts
as of and for the year ended February 29, 2020. The scope of management’s assessment of the
effectiveness of the design and operation of our disclosure controls and procedures as of February 29,
2020 includes all of our consolidated operations except for those disclosure controls and procedures of
Drybar Products. See Note 9 for additional information regarding the Drybar Products acquisition.
Based on our assessment, we have concluded that our internal control over financial reporting was
effective as of February 29, 2020.
Our independent registered public accounting firm, Grant Thornton LLP, has issued an audit report on the
effectiveness of our internal control over financial reporting. Their report appears on the following page.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Helen of Troy Limited
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Helen of Troy Limited and subsidiaries (the “Company”)
as of February 29, 2020, based on criteria established in the 2013 Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of February 29, 2020, based
on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended February 29,
2020, and our report dated April 29, 2020 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control
over financial reporting of Drybar Products LLC (“Drybar Products”), a wholly-owned subsidiary, whose financial
statements reflect total assets and net sales revenue constituting 1.6 and 0.4 percent, respectively, of the related
consolidated financial statement amounts as of and for the year ended February 29, 2020. As indicated in
Management’s Report, Drybar Products was acquired during 2020. Management’s assertion on the effectiveness of
the Company’s internal control over financial reporting excluded internal control over financial reporting of Drybar
Products.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ GRANT THORNTON LLP
Dallas, Texas
April 29, 2020
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Helen of Troy Limited
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Helen of Troy Limited and subsidiaries (the
“Company”) as of February 29, 2020 and February 28, 2019, the related consolidated statements of income,
comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended February
29, 2020, and the related notes and schedule (collectively referred to as the “financial statements”). In our opinion,
the financial statements present fairly, in all material respects, the financial position of the Company as of February
29, 2020 and February 28, 2019, and the results of its operations and its cash flows for each of the three years in the
period ended February 29, 2020, in conformity with accounting principles generally accepted in the United States of
America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Company’s internal control over financial reporting as of February 29, 2020, based on criteria
established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”), and our report dated April 29, 2020 expressed an unqualified opinion.
Change in accounting principle
As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for leases
due to the adoption of Accounting Standard Codification 842, Leases. The Company adopted the new leasing standard
by recognizing a cumulative catch-up adjustment to the opening balance sheet as of March 1, 2019.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical audit matters
The critical audit matters communicated below are matters arising from the current period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill and Indefinite-Lived Intangible Impairment Assessment
The Company has $739.9 million of goodwill and $195.6 million of indefinite lived intangibles as of February 29, 2020.
The Company determined it was necessary to estimate the fair value for its reporting units as of December 1, 2019,
the Company’s assessment date, to determine whether the fair value was less than the carrying amount for each of
the reporting units. The Company estimates the fair value of its reporting unit using a weighting of fair values derived
from the income and market approaches. The determination of fair value using the income approach is based on the
present value of estimated future cash flows, which requires management to make significant estimates and
assumptions of revenue growth rates and operating margins, and selection of the discount rate. The determination of
the fair value using the market approach requires management to make significant assumptions related to market
multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and
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investment characteristics as the reporting unit. The Company estimates the fair value of its indefinite lived intangibles
using relief from royalty method for its tradenames and multi-period excess earnings method for its licenses. The
determination of fair value under both methods is based on the present value of estimated future cash flows, which
requires management to make significant estimates and assumptions of revenue growth rates and operating margins,
and selection of the discount and tax rates. Based on the results of the annual impairment testing, the Company
recognized goodwill impairment of $25.5 million related to the personal care reporting unit due to changes in
assumptions related to the projected future revenues and cash flows.
The principal consideration for our determination that the Company’s goodwill and indefinite lived intangible impairment
assessment as a critical audit matter are that there was a high estimation uncertainty due to significant judgements
with respect to assumptions used to estimate the future revenues and cash flows, including revenue growth rates,
forecasted costs, weighted average costs of capital and future market conditions as well as the valuation methodologies
applied by the Company and the significance of the respective assets to total assets for the Company.
Our audit procedures related to the estimation of the fair value of the reporting units and indefinite lived intangibles
included the following procedures, among others. We tested the effectiveness of controls relating to management’s
review of the assumptions used to develop the future revenues and cash flows, the reconciliation of future revenues
and cash flows prepared by management to the data used in the impairment assessment, the discount rates used,
and valuation methodologies applied by management. In addition to testing the effectiveness of controls, we also
performed the following:
• Utilized an internal valuation specialist to evaluate:
The methodologies used and whether they were acceptable for the underlying assets or operations
and being applied correctly by performing an independent calculation,
The calculation of the discount rate by recalculating the weighted average costs of capital, and
The qualifications of management based on their credentials and experience.
• Tested the revenue growth rate and forecasted costs by comparing such items to historical operating results
of the respective reporting unit or indefinite lived intangible and by assessing the likelihood or capability of the
reporting unit or indefinite lived intangible to undertake activities or initiatives underpinning significant drivers
of growth in the forecasted period.
Drybar Products Acquisition
As described further in Note 9 to the consolidated financial statements, on January 23, 2020, the Company completed
the acquisition of Drybar Products LLC (“Drybar Products”) for a purchase price of $255.9 million. The Company
accounted for the acquisition under the acquisition method of accounting for business combinations and the assets
acquired and liabilities assumed were required to be recorded at fair value as of the transaction date, for which the
Company utilized a third party valuation firm. We identified the estimation of the fair value of the assets acquired and
liabilities assumed in the acquisition of Drybar Products as a critical audit matter.
The principal considerations for our determination that the estimation of the fair value of the assets acquired and
liabilities assumed in the acquisition of Drybar Products was a critical audit matter are that there was a high estimation
uncertainty due to significant judgements with respect to the selection of the valuation methodologies applied by the
third party valuation firm, the assumptions used to estimate the future revenues and cash flows, including revenue
growth rates, royalty rates, attrition rates, forecasted costs, weighted average costs of capital and future market
conditions in the determination of the fair value of the intangible assets acquired.
Our audit procedures responsive to the estimation of the fair value of the assets acquired and liabilities assumed in
the acquisition of Drybar Products included the following procedures, among others. We tested the effectiveness of
controls relating to management’s review of the assumptions used to develop the future revenues and cash flows, the
reconciliation of future revenues and cash flows prepared by management to the data used in the third party valuation
report, and the valuation methodologies applied by the third party valuation firm. In addition to testing the effectiveness
of controls, we also performed the following:
• Utilized an internal valuation specialist to evaluate:
The methodologies used and whether they were acceptable for the underlying assets or operations
and being applied correctly by performing an independent calculation,
The calculation of the discount rate by recalculating the weighted average costs of capital and
evaluating future market conditions, and
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The qualifications of the third party firm engaged by the Company based on their credentials and
experience.
• Assessed the reasonableness of management’s revenue growth rate and forecasted costs of Drybar Products
by comparing such items to the historical operating results of the acquired entity and by assessing the likelihood
or capability of the acquired entity to undertake activities or initiatives underpinning significant drivers of growth
in the forecasted period.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2008.
Dallas, Texas
April 29, 2020
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HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except shares and par value)
Assets
Assets, current:
Cash and cash equivalents
Receivables - principally trade, less allowances of $1,461 and $2,032
Inventory
Prepaid expenses and other current assets
Assets held for sale
Total assets, current
Property and equipment, net of accumulated depreciation of $132,340 and $123,744
Goodwill
Other intangible assets, net of accumulated amortization of $148,891 and $181,463
Operating lease assets
Deferred tax assets, net
Other assets, net of accumulated amortization of $2,167 and $2,115
February 29,
2020
February 28,
2019
$
24,467
$
11,871
348,023
256,311
9,229
44,806
682,836
132,107
739,901
300,952
32,645
14,635
807
280,280
302,339
10,369
—
604,859
130,338
602,320
291,526
—
7,991
12,501
Total assets
$
1,903,883
$ 1,649,535
Liabilities and Stockholders' Equity
Liabilities, current:
Accounts payable, principally trade
Accrued expenses and other current liabilities
Income taxes payable
Long-term debt, current maturities
Total liabilities, current
Long-term debt, excluding current maturities
Lease liabilities, non-current
Deferred tax liabilities, net
Other liabilities, noncurrent
Total liabilities
Commitments and contingencies
Stockholders' equity:
$
152,674
$
143,560
183,157
165,160
1,181
1,884
338,896
337,421
40,861
4,224
20,758
742,160
1,427
1,884
312,031
318,900
—
5,748
16,219
652,898
Cumulative preferred stock, non-voting, $1.00 par. Authorized 2,000,000 shares; none issued
—
—
Common stock, $0.10 par. Authorized 50,000,000 shares; 25,193,766 and 24,946,046
shares issued and outstanding
Additional paid in capital
Accumulated other comprehensive income
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying notes to consolidated financial statements.
2,519
268,043
(7,005)
898,166
1,161,723
2,495
246,585
1,191
746,366
996,637
$
1,903,883
$ 1,649,535
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HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except per share data)
Sales revenue, net
Cost of goods sold
Gross profit
Selling, general and administrative expense ("SG&A")
Asset impairment charges
Restructuring charges
Operating income
Nonoperating income, net
Interest expense
Income before income tax
Income tax expense
Income from continuing operations
Loss from discontinued operations, net of tax
Net income
Earnings (loss) per share - basic:
Continuing operations
Discontinued operations
Total earnings per share - basic
Earnings (loss) per share - diluted:
Continuing operations
Discontinued operations
Total earnings per share - diluted
Fiscal Years Ended Last Day of February,
2020
2019
2018
$ 1,707,432
$ 1,564,151
$ 1,478,845
972,966
734,466
511,902
41,000
3,313
923,045
641,106
438,141
—
3,586
867,646
611,199
424,833
15,447
1,857
178,251
199,379
169,062
394
340
327
(12,705)
(11,719)
(13,951)
165,940
13,607
152,333
188,000
13,776
174,224
155,438
26,556
128,882
—
(5,679)
(84,436)
$
152,333
$
168,545
$
44,446
$
$
$
$
6.06
$
6.68
$
—
(0.22)
6.06
$
6.46
$
6.02
$
6.62
$
—
(0.22)
6.02
$
6.41
$
4.76
(3.12)
1.64
4.73
(3.10)
1.63
Weighted average shares of common stock used in computing earnings per
share:
Basic
Diluted
25,118
25,322
26,073
26,303
27,077
27,254
See accompanying notes to consolidated financial statements.
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HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(in thousands)
Net income
Other comprehensive income (loss), net of tax:
Cash flow hedge activity - interest rate swaps
Cash flow hedge activity - foreign currency contracts
Total other comprehensive income (loss), net of tax
Fiscal Years Ended Last Day of February,
2020
2019
2018
$
152,333
$
168,545
$
44,446
(8,331)
135
(8,196)
(1,573)
2,133
560
1,705
(2,247)
(542)
Comprehensive income
$
144,137
$
169,105
$
43,904
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HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Common Stock
Shares
Par
Value
Additional
Paid in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Shareholders'
Equity
27,029 $ 2,703 $ 218,760 $
—
—
—
(in thousands, including shares)
Balances at February 28, 2017
Income from continuing operations
Loss from discontinued operations
Other comprehensive income (loss), net of tax
Exercise of stock options
Net issuance and settlement of restricted stock
Issuance of common stock related to stock purchase plan
Common stock repurchased and retired
Share-based compensation
Balances at February 28, 2018
Income from continuing operations
Loss from discontinued operations
Other comprehensive income (loss), net of tax
Exercise of stock options
Net issuance and settlement of restricted stock
Issuance of common stock related to stock purchase plan
Common stock repurchased and retired
Share-based compensation
Cumulative effect of accounting change
Balances at February 28, 2019
Income from continuing operations
Loss from discontinued operations
Other comprehensive income (loss), net of tax
Exercise of stock options
Net issuance and settlement of restricted stock
Issuance of common stock related to stock purchase plan
Common stock repurchased and retired
Share-based compensation
Balances at February 29, 2020
—
—
126
198
16
(793)
—
26,576
—
—
—
126
147
31
(1,934)
—
—
24,946
—
—
—
93
202
30
(77)
—
—
—
12
20
2
—
—
6,547
(318)
1,525
(79)
—
(10,892)
15,054
2,658
230,676
—
—
—
13
15
3
—
—
—
6,262
(15)
2,392
(194)
—
—
(14,783)
22,053
—
2,495
246,585
—
—
—
9
20
3
(8)
—
—
—
5,344
(20)
2,833
(9,628)
22,929
—
25,194 $ 2,519 $ 268,043 $
1,173 $ 798,130 $
— 128,882
— (84,436)
—
(542)
—
—
—
—
— (62,082)
—
—
780,494
631
—
— 174,224
(5,679)
—
560
—
—
—
—
— (202,516)
—
—
(157)
746,366
—
1,191
—
—
—
—
1,020,766
128,882
(84,436)
(542)
6,559
(298)
1,527
(73,053)
15,054
1,014,459
174,224
(5,679)
560
6,275
—
2,395
(217,493)
22,053
(157)
996,637
— 152,333
152,333
—
(8,196)
—
—
—
—
—
—
—
—
—
—
(533)
—
—
(8,196)
5,353
—
2,836
(10,169)
22,929
(7,005) $ 898,166 $
1,161,723
See accompanying notes to consolidated financial statements.
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HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Cash provided by operating activities:
Net income
Less: Loss from discontinued operations
Income from continuing operations
Adjustments to reconcile income from continuing operations to net cash provided by
operating activities:
Depreciation and amortization
Amortization of financing costs
Non-cash operating lease asset amortization
Provision for doubtful receivables
Non-cash share-based compensation
Non-cash intangible asset impairment charges
Loss (gain) on the sale or disposal of property and equipment
Deferred income taxes and tax credits
Changes in operating assets and liabilities, net of effects of acquisition of business:
Receivables
Inventories
Prepaid expenses and other current assets
Other assets and liabilities, net
Accounts payable
Accrued expenses and other current liabilities
Accrued income taxes
Net cash provided by operating activities - continuing operations
Net cash provided (used) by operating activities - discontinued operations
Net cash provided by operating activities
Cash provided (used) by investing activities:
Capital and intangible asset expenditures
Proceeds from the sale of property and equipment
Payments to acquire businesses, net of cash acquired
Net cash used by investing activities - continuing operations
Net cash provided (used) by investing activities - discontinued operations
Net cash provided (used) by investing activities
Cash used by financing activities:
Proceeds from line of credit
Repayment of line of credit
Repayment of long-term debt
Proceeds from share issuances under share-based compensation plans
Repurchases of common stock in the open market and from share settlements
Net cash provided (used) by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning balance
Cash and cash equivalents, ending balance
Less: Cash and cash equivalents of discontinued operations, ending balance
Cash and cash equivalents of continuing operations, ending balance
Supplemental cash flow information:
Interest paid
Income taxes paid, net of refunds
Supplemental non-cash items not included above resulting from the adoption of ASC 842
Initial recognition of operating lease asset
Initial recognition of lease liabilities
Accrued expenses and other current liabilities
Other assets and liabilities, net
Prepaid expenses and other current assets
See accompanying notes to consolidated financial statements.
68
Fiscal Years Ended Last Day of February,
2020
2019
2018
$
$
152,333
—
152,333
$
168,545
(5,679)
174,224
44,446
(84,436)
128,882
37,409
1,620
1,682
529
22,929
41,000
188
(5,696)
(60,562)
45,482
863
24,075
7,166
5,296
(3,021)
271,293
—
271,293
(17,759)
3
(255,861)
(273,617)
—
(273,617)
771,300
(752,500)
(1,900)
8,189
(10,169)
14,920
29,927
1,015
—
1,097
22,053
—
(540)
7,636
(5,812)
(50,828)
239
7,549
14,219
(1,526)
1,315
200,568
(5,265)
195,303
(26,385)
1,138
—
(25,247)
—
(25,247)
667,250
(635,450)
(1,900)
8,670
(217,493)
(178,923)
12,596
11,871
24,467
—
24,467
12,777
23,279
$
$
$
(37,082) $
47,223
$
(2,873) $
(7,311) $
$
43
$
$
$
$
$
$
$
$
(8,867)
20,738
11,871
—
11,871
11,292
4,277
$
$
$
— $
— $
— $
— $
— $
33,730
887
—
1,066
15,054
15,447
331
21,264
(44,921)
29,366
(383)
(16,728)
23,689
12,293
(1,368)
218,609
5,598
224,207
(13,605)
13
—
(13,592)
49,226
35,634
521,200
(692,500)
(25,700)
7,863
(73,053)
(262,190)
(2,349)
23,087
20,738
—
20,738
13,543
6,081
—
—
—
—
—
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HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. Dollars, except share and per share data, unless indicated otherwise)
Note 1 - Summary of Significant Accounting Policies and Related Information
General
When used in these notes, unless otherwise indicated or the context suggests otherwise, references to
“the Company”, “our Company”, “Helen of Troy”, “we”, “us”, or “our” refer to Helen of Troy Limited and its
subsidiaries. We refer to our common shares, par value $0.10 per share, as “common stock.”
References to “the FASB” refer to the Financial Accounting Standards Board. References to “GAAP”
refer to U.S. generally accepted accounting principles. References to “ASU” refer to the codification of
GAAP in the Accounting Standards Updates issued by the FASB. References to “ASC” refer to the
codification of GAAP in the Accounting Standards Codification issued by the FASB.
We incorporated as Helen of Troy Corporation in Texas in 1968 and were reorganized as Helen of Troy
Limited in Bermuda in 1994. We are a global designer, developer, importer, marketer, and distributor of
an expanding portfolio of brand-name consumer products. As of February 29, 2020, we operated three
segments: Housewares, Health & Home, and Beauty. Our Housewares segment provides a broad range
of innovative consumer products for the home. Product offerings include food preparation tools and
storage containers; cleaning, bath and garden tools and accessories; infant and toddler care products;
and insulated beverage and food containers. The Health & Home segment focuses on healthcare
devices such as thermometers, humidifiers, blood pressure monitors, and heating pads; water filtration
systems; and small home appliances such as portable heaters, fans, air purifiers, and insect control
devices. Our Beauty segment products include electric hair care, beauty care and wellness appliances;
grooming tools and accessories; and liquid-, solid- and powder-based personal care and grooming
products.
On December 20, 2017, we completed the divestiture of the Nutritional Supplements segment through
the sale of Healthy Directions LLC and its subsidiaries to Direct Digital, LLC. The results of the
Nutritional Supplements operations have been reported as discontinued operations for all periods
presented in the consolidated financial statements (see Note 6). All other footnotes present results from
continuing operations.
On January 23, 2020, we completed the acquisition of Drybar Products LLC ("Drybar Products"), for
approximately $255.9 million in cash, subject to certain customary closing adjustments. Drybar Products
is a fast-growing, innovative, trend setting prestige hair care and styling brand in the multi-billion-dollar
beauty industry. As part of the transaction, Helen of Troy granted a worldwide license to Drybar Holdings
LLC, the owner and long-time operator of Drybar blowout salons, to use the Drybar trademark in their
continued operation of Drybar salons. The salons will exclusively use, promote, and sell Drybar products
globally (see Note 9).
During the fourth quarter of fiscal 2020, we committed to a plan to divest certain assets within our mass
market personal care business. The assets to be disposed of include intangible assets, inventory and
fixed assets relating to our mass channel liquids, powder and aerosol products including brands such as
Pert, Brut, Sure and Infusium. We expect the divestiture to occur within fiscal 2021. Accordingly, we have
classified the identified assets of the disposal group as held for sale (see Note 5).
Our business is seasonal due to different calendar events, holidays and seasonal weather patterns.
Historically, our highest sales volume and operating income occur in our third fiscal quarter ending
November 30th. We purchase our products from unaffiliated manufacturers, most of which are located in
China, Mexico and the United States.
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The preparation of financial statements in accordance with GAAP requires management to make
estimates and assumptions that affect the amounts reported in our consolidated financial statements
and accompanying notes. Actual results may differ materially from those estimates.
Our consolidated financial statements are prepared in United States (“U.S.”) Dollars. All intercompany
accounts and transactions are eliminated in consolidation.
We have reclassified, combined or separately disclosed certain amounts in the prior years’ consolidated
financial statements and accompanying footnotes to conform to the current year’s presentation, including
discontinued operations (see Note 6) and the adoption of ASU 2014-09, Revenue from Contracts with
Customers (Topic 606) (see Note 3).
Our significant accounting policies include:
Cash and cash equivalents
Cash equivalents include all highly liquid investments with an original maturity of three months or less.
We maintain cash and cash equivalents at several financial institutions, which at times may not be
federally insured or may exceed federally insured limits. We have not experienced any losses in such
accounts and believe we are not exposed to any significant credit risks on such accounts. We consider
money market accounts to be cash equivalents.
Receivables
Our receivables are comprised of trade credit granted to customers, primarily in the retail industry, offset
by an allowance for doubtful receivables. Our allowance for doubtful receivables reflects our best
estimate of probable losses, determined principally based on historical experience and specific
allowances for known at-risk accounts. Our policy is to write off receivables when we have determined
they will no longer be collectible. Write-offs are applied as a reduction to the allowance for doubtful
accounts and any recoveries of previous write-offs are netted against bad debt expense in the period
recovered.
We have a significant concentration of credit risk with three major customers at February 29, 2020
representing approximately 18%, 14%, and 13% of our gross trade receivables, respectively. During
fiscal 2019 our significant concentration of credit risk with three major customers represented
approximately 17%, 12%, and 12% of our gross trade receivables, respectively. In addition, as of
February 29, 2020 and February 28, 2019, approximately 54% and 48%, respectively, of our gross trade
receivables were due from our five top customers.
Foreign currency transactions and related derivative financial instruments
The U.S. Dollar is the functional currency for the Company and all of its subsidiaries; therefore, we do not
have a translation adjustment recorded through accumulated other comprehensive income. All our non-
U.S. subsidiaries' transactions involving other currencies have been re-measured in U.S. Dollars using
exchange rates in effect on the date each transaction occurred. In our consolidated statements of
income, exchange gains and losses resulting from the remeasurement of foreign taxes receivable, taxes
payable, deferred tax assets, and deferred tax liabilities are recognized in their respective income tax
lines and all other foreign exchange gains and losses are recognized in SG&A. In order to manage our
exposure to changes in foreign currency exchange rates, we use forward currency contracts, zero-cost
collars and cross-currency swaps to exchange foreign currencies for U.S. Dollars at specified rates.
Derivatives for which we have elected and qualify for hedge accounting, are recorded on the balance
sheet at their fair value and changes in the fair value of the forward exchange contracts and zero cost
collars are recorded each period in our consolidated statements of comprehensive income until the
underlying hedge transaction is settled, at which point changes in fair value are recorded in our
consolidated statements of income. For derivatives which we have not elected, or do not qualify for,
hedge accounting, changes in the fair value of the contracts are recorded each period in our consolidated
statements of income. We evaluate all hedging transactions each quarter to determine that they remain
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effective. Any material ineffectiveness is recorded as part of SG&A in our consolidated statements of
income.
Inventory and cost of goods sold
Our inventory consists almost entirely of finished goods. Inventories are stated at the lower of average
costs or net realizable value. We write down a portion of our inventory to net realizable value based on
the historical success of product lines and estimates about future demand and market conditions, among
other factors. Our average costs include the amounts we pay manufacturers for product, tariffs and
duties associated with transporting product across national borders, freight costs associated with
transporting the product from our manufacturers to our distribution centers, and general and
administrative expenses directly attributable to acquiring inventory, as applicable.
General and administrative expenses in inventory include all the expenses of operating our sourcing
activities and expenses incurred for production monitoring, product design, engineering, and packaging.
We charged $44.6, $47.7, and $43.2 million of such general and administrative expenses to inventory
during fiscal 2020, 2019 and 2018, respectively. We estimate that $16.0 and $15.6 million of general and
administrative expenses directly attributable to the procurement of inventory were included in our
inventory balances on hand at February 29, 2020 and February 28, 2019, respectively.
The “Cost of goods sold” line item in the consolidated statements of income is comprised of the book
value of inventory sold to customers during the reporting period. When circumstances dictate that we
use net realizable value as the basis for recording inventory, we base our estimates on expected future
selling prices less expected disposal costs.
For fiscal 2020, 2019 and 2018, finished goods purchased from vendors in the Far East comprised
approximately 76%, 74%, and 74%, respectively, of total finished goods purchased. During fiscal 2020,
we had one vendor (located in Mexico) who fulfilled approximately 9% of our product requirements
compared to 11% for fiscal 2019 and 2018. For fiscal 2020, 2019 and 2018, our top two manufacturers
combined fulfilled approximately 18%, 20%, and 19% of our product requirements. Over the same
periods, our top five suppliers fulfilled approximately 39%, 38%, and 34% of our product requirements,
respectively.
Property and equipment
These assets are stated at cost. Depreciation is recorded on a straight-line basis over the estimated
useful lives of the assets. Expenditures for repair and maintenance of property and equipment are
expensed as incurred. For tax purposes, accelerated depreciation methods are used where allowed by
tax laws.
License agreements, trademarks, patents, and other intangible assets
A significant portion of our sales are made subject to trademark license agreements with various
licensors. Our license agreements are reported on our consolidated balance sheets at cost, less
accumulated amortization. The cost of our license agreements represent amounts paid to licensors to
acquire the license or to alter the terms of the license in a manner that we believe to be in our best
interest. Certain licenses have extension terms that may require additional payments to the licensor as
part of the terms of renewal. We capitalize costs incurred to renew or extend the term of a license
agreement and amortize such costs on a straight-line basis over the remaining term or economic life of
the agreement, whichever is shorter. Royalty payments are not included in the cost of license
agreements. Royalty expense under our license agreements is recognized as incurred and is included in
our consolidated statements of income in SG&A. Net sales revenue subject to trademark license
agreements requiring royalty payments comprised approximately 43%, 41% and 45% of consolidated net
sales revenue for fiscal 2020, 2019 and 2018, respectively. During fiscal 2020, three license agreements
accounted for net sales revenue subject to royalty payments of approximately 14%, 11% and 10% of
consolidated net sales, respectively. No other license agreements had associated net sales revenue
subject to royalty payments that accounted for 10% or more of consolidated net sales revenue.
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We also sell products under trademarks and brand assets that we own. Trademarks and brand assets
that we acquire from other entities are generally recorded on our consolidated balance sheets based
upon the appraised fair value of the acquired asset, net of any accumulated amortization and impairment
charges. Costs associated with developing trademarks internally are recorded as expenses in the period
incurred. In certain instances where trademarks or brand assets have readily determinable useful lives,
we amortize their costs on a straight-line basis over such lives. In some instances, we have determined
that such acquired assets have an indefinite useful life. In these cases, no amortization is recorded.
Patents acquired through acquisition, if material, are recorded on our consolidated balance sheets based
upon the appraised value of the acquired patents and amortized over the remaining life of the patent.
Additionally, we incur certain costs in connection with the design and development of products to be
covered by patents, which are capitalized as incurred and amortized on a straight-line basis over the life
of the patent in the jurisdiction filed, typically 14 years.
Other intangible assets include customer lists, distribution rights, patent rights, and non-compete
agreements that we acquired. These are recorded on our consolidated balance sheets based upon the
fair value of the acquired asset and amortized on a straight-line basis over the remaining life of the asset
as determined either through outside appraisal or by the term of any controlling agreements.
Goodwill, intangible and other long-lived assets and related impairment testing
Goodwill is recorded as the difference, if any, between the aggregate consideration paid and the fair
value of the net tangible and intangible assets received in the acquisition of a business. We evaluate
goodwill at the reporting unit level (operating segment or one level below an operating segment). We
measure the amount of any goodwill impairment based upon the estimated fair value of the underlying
assets and liabilities of the reporting unit, including any unrecognized intangible assets and estimates of
the implied fair value of goodwill. An impairment charge is recognized to the extent the recorded goodwill
exceeds the implied fair value of goodwill.
We complete our analysis of the carrying value of our goodwill and other intangible assets annually, or
whenever events or changes in circumstances indicate their carrying value may not be recoverable. If
such circumstances or conditions exist, further steps are required in order to determine whether the
carrying value of each of the individual assets exceeds its fair market value. If the analysis indicates that
an individual asset’s carrying value does exceed its fair market value, the next step is to record a loss
equal to the excess of the individual asset’s carrying value over its fair value. These steps entail
significant amounts of judgment and subjectivity.
We perform our annual impairment testing for goodwill and indefinite-lived assets as of the beginning of
the fourth quarter of our fiscal year (see Note 10).
Economic useful lives and amortization of intangible assets
We amortize intangible assets, such as licenses and trademarks, over their economic useful lives, unless
those assets' economic useful lives are indefinite. If an intangible asset's economic useful life is deemed
indefinite, that asset is not amortized. We review the economic useful lives of our intangible assets at
least annually.
Intangible assets consist primarily of goodwill, license agreements, trademarks, brand assets, customer
lists, distribution rights, patents, and patent licenses. For certain intangible assets subject to
amortization, we use the straight-line method over appropriate periods ranging from 5 to 30 years (see
Note 10).
Sales Returns
We allow for sales returns for defects in material and workmanship for periods ranging from two to five
years. We recognize an allowance for sales returns to reduce sales to reflect our best estimate of future
customer returns, determined principally based on historical experience and specific allowances for
known pending returns.
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Financial instruments
The carrying amounts of cash and cash equivalents, receivables, accounts payable, accrued expenses,
and income taxes payable approximate fair value because of the short maturity of these items. See Note
17 for our assessment of the fair value of our long-term debt.
Income taxes and uncertain tax positions
The provision for income tax expense is calculated on reported income before income taxes based on
current tax law and includes, in the current period, the cumulative effect of any changes in tax rates from
those used previously in determining deferred tax assets and liabilities. Tax laws may require items to be
included in the determination of taxable income at different times from when the items are reflected in the
financial statements. Deferred tax balances reflect the effects of temporary differences between the
financial statement carrying amounts of assets and liabilities and their tax bases, as well as from net
operating losses and tax credit carryforwards, and are stated at enacted tax rates in effect for the year
taxes are expected to be paid or recovered.
Deferred tax assets represent tax benefits for tax deductions or credits available in future years and
require certain estimates and assumptions to determine whether it is more likely than not that all or a
portion of the benefit will not be realized. The recoverability of these future tax deductions and credits is
determined by assessing the adequacy of future expected taxable income from all sources, including the
future reversal of existing taxable temporary differences, taxable income in carryback years, estimated
future taxable income and available tax planning strategies. Should a change in facts or circumstances
lead to a change in judgment about the ultimate recoverability of a deferred tax asset, we record or adjust
the related valuation allowance in the period that the change in facts and circumstances occurs, along
with a corresponding increase or decrease in income tax expense.
We record tax benefits for uncertain tax positions based upon management’s evaluation of the
information available at the reporting date. To be recognized in the financial statements, the tax position
must meet the more-likely-than-not threshold that the position will be sustained upon examination by the
tax authority based on technical merits assuming the tax authority has full knowledge of all relevant
information. For positions meeting this recognition threshold, the benefit is measured as the largest
amount of benefit that meets the more-likely-than-not threshold to be sustained. We periodically
evaluate these tax positions based on the latest available information. For tax positions that do not meet
the threshold requirement, we record liabilities for unrecognized tax benefits as a tax expense or benefit
in the period recognized or reversed and disclose as a separate liability in our financial statements,
including related accrued interest and penalties.
Revenue recognition
We adopted the provisions of ASU 2014-9 in the first quarter of fiscal 2019, and we elected to adopt the
standard using the retrospective method. The core principle of the guidance is that a company should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. We recognize revenue when control of, and title to, the product sold transfers to the customer.
We measure revenue as the amount of consideration for which we expect to be entitled, in exchange for
transferring goods.
We offer our customers certain incentives in the form of volume rebates, product markdown allowances,
trade discounts, cash discounts, slotting fees, and other similar arrangements which are accounted for as
variable consideration. In some cases, we apply judgment, such as contractual rates and historical
payment trends, when estimating variable consideration. These programs are generally recorded as
reductions of net sales revenue. In instances when we purchase a distinct good or service from our
customer and fair value can be reasonably estimated, these amounts are expensed in our consolidated
statements of income in SG&A. The amount of consideration granted to customers recorded in SG&A
were $20.9, $17.0, and $11.8 million for fiscal 2020, 2019 and 2018, respectively.
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Sales taxes and other similar taxes are excluded from revenue. We account for shipping and handling
activities as a fulfillment cost. We do not have unsatisfied performance obligations since our
performance obligations are satisfied at a single point in time.
Advertising
Advertising costs include cooperative retail advertising with our customers, traditional and digital media
advertising and production expenses, and expenses associated with other promotional product
messaging and consumer awareness programs. Advertising costs are expensed in the period in which
they are incurred and included in our consolidated statements of income in SG&A. We incurred total
advertising costs of $71.4, $62.4, and $53.7 million during fiscal 2020, 2019 and 2018, respectively.
Research and development expense
Research and development expenses consist primarily of salary and employee benefit expenses and
contracted development efforts and expenses associated with development of products. Expenditures
for research activities relating to product design, development and improvement are generally charged to
expense as incurred and are included in our consolidated statements of income in SG&A. We incurred
total research and development expenses of $17.8, $13.0, and $13.5 million during fiscal 2020, 2019 and
2018, respectively.
Shipping and handling revenue and expense
Shipping and handling revenue and expense are included in our consolidated statements of income in
SG&A. This includes distribution center costs, third-party logistics costs and outbound transportation
costs we incur. Our net expense for shipping and handling was $102.7, $89.4, $78.1 million during fiscal
2020, 2019 and 2018, respectively.
Share-based compensation plans
We account for share-based employee compensation plans under the fair value recognition and
measurement provisions in accordance with applicable accounting standards, which require all share-
based payments to employees, including grants of stock options, restricted stock awards (“RSA”),
restricted stock units (“RSU”), performance stock awards ("PSA"), and performance stock units (“PSU”),
to be measured based on the grant date fair value of the awards. The resulting expense is recognized
over the periods during which the employee is required to perform service in exchange for the award.
The estimated number of PSA's and PSU’s that will ultimately vest requires judgment, and to the extent
actual results or updated estimates differ from our current estimates, such amounts will be recorded as a
cumulative adjustment in the period estimates are revised. All share-based compensation expense is
recorded net of forfeitures in our consolidated statements of income.
Stock options are recognized in the financial statements based on their fair values using an option-pricing
model at the date of grant. We use a Black-Scholes option-pricing model to calculate the fair value of
options. This model requires various judgmental assumptions including volatility, forfeiture rates and
expected option life.
See Note 11 for further information on our share-based compensation plans.
Note 2 - New Accounting Pronouncements
Not Yet Adopted
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”) ASU 2019-12 "Income Taxes," which provides for certain updates to reduce complexity in
the accounting for income taxes, including the utilization of the incremental approach for intra-period tax
allocation, among others. The amendments in ASU 2019-12 are effective for fiscal years, and interim
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periods within those fiscal years, beginning after December 15, 2020. We are currently evaluating the
impact this guidance may have on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software
(Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service contract with the requirements
for capitalizing implementation costs incurred to develop or obtain internal-use software. The ASU is
effective for us on March 1, 2020, and interim periods within those fiscal years. Early adoption is
permitted. We believe that the adoption of this guidance will not have a material impact on our
consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure
Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13
removes certain disclosures, modifies certain disclosures and adds additional disclosures. The ASU is
effective for us on March 1, 2020, and interim periods within those fiscal years. Early adoption is
permitted. Certain disclosures in ASU 2018-13 would need to be applied on a retrospective basis and
others on a prospective basis. We believe that the adoption of this guidance will not have a material
impact on our consolidated financial statements.
There have been no other accounting pronouncements issued but not yet adopted that are expected to
have a material impact on our consolidated financial statements.
Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new guidance requires the
recognition of lease liabilities, representing future minimum lease payments, on a discounted basis, and
corresponding right-of-use assets on a balance sheet for most leases, along with requirements for
enhanced disclosures to give financial statement users the ability to assess the amount, timing and
uncertainty of cash flows arising from leasing arrangements. In July 2018, the FASB issued guidance
which permits application of the new guidance at the beginning of the year of adoption, recognizing a
cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, in
addition to the method of applying the new guidance retrospectively to each prior reporting period
presented. We adopted the standard in the first quarter of fiscal 2020 using the transition method
introduced by ASU 2018-11, which does not require revisions to comparative periods. We elected to
implement the transition package of practical expedients permitted within the new standard, which
included (i) not reassessing whether expired or existing contracts contain leases, (ii) not reassessing
lease classification, and (iii) not revaluing initial direct costs for existing leases. Adoption of the new
standard resulted in the recording of initial lease assets and lease liabilities of approximately $37.1
million and $47.2 million, respectively, as of March 1, 2019. The difference between the lease assets and
lease liabilities primarily relates to deferred rent and unamortized lease incentives recorded in
accordance with the previous lease guidance. The new standard did not materially impact our condensed
consolidated statements of income or cash flows (see Note 4).
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging - Targeted Improvements to
Accounting for Hedging Activities (Topic 815), which amends and simplifies hedge accounting with the
intent of better aligning financial reporting for hedging relationships with an entity's risk management
activities. In April 2019, the FASB issued ASU 2019-04, which provides clarifications and minor
improvements related to Topic 815. Adoption of this guidance in the first quarter of fiscal 2020 did not
have a material impact on our consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income (Topic 220). The amendments in ASU 2018-02 allow a
reclassification from accumulated other comprehensive income to retained earnings for stranded tax
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effects resulting from the Tax Cuts and Jobs Act of 2017. Adoption of this guidance in the first quarter of
fiscal 2019 did not have a material impact on our consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope
of Modification Accounting (Topic 718). This update amends the scope of modification accounting
surrounding share-based payment arrangements as issued in ASU 2016-09 by providing guidance on the
various types of changes which would trigger modification accounting for share-based payment awards.
Adoption of this guidance in the first quarter of fiscal 2019 did not have a material impact on our
consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes: Intra–Entity Asset
Transfers of Assets Other Than Inventory (Topic 740). ASU 2016-16 amends accounting guidance for
intra-entity transfers of assets other than inventory to require the recognition of taxes when the transfer
occurs. The amendment was effective for us on March 1, 2018. A modified retrospective approach is
required for transition to the new guidance, with a cumulative-effect adjustment consisting of the net
impact from (1) the write-off of any unamortized expense previously deferred and (2) recognition of any
previously unrecognized deferred tax assets, net of any valuation allowance. The new guidance does
not include any specific new disclosure requirements. Adoption of this guidance in the first quarter of
fiscal 2019 did not have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU
2014-09 provides a framework for revenue recognition that replaces most existing GAAP revenue
recognition guidance. We adopted the guidance in the first quarter of fiscal 2019 (see Note 3).
In January 2017, the FASB, issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment. This guidance provides for a single-step quantitative test to identify and
measure impairment, requiring an entity to recognize an impairment charge for the amount by which the
goodwill carrying amount exceeds the reporting unit’s fair value. We adopted the guidance on March 1,
2017, applying it on a prospective basis. The application of this guidance did not have a material impact
on our financial statements.
Note 3 - Revenue Recognition
We adopted the provisions of ASU 2014-09 in the first quarter of fiscal 2019, and we elected to adopt the
standard using the retrospective method. The core principle of the guidance is that a company should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services.
Our revenue is primarily generated from the sale of non-customized consumer products to customers.
Revenue is recognized when control of, and title to, the product sold transfers to the customer.
Therefore, the timing and amount of revenue recognized was not materially impacted by the new
guidance. We have thus concluded that the adoption of the guidance did not have a material impact on
our consolidated financial statements. The provisions of the new guidance did however impact the
classification of certain consideration paid to our customers. We therefore have reclassified an
immaterial amount of such payments from SG&A to a reduction of net sales revenue for all periods
presented. Also, in accordance with the guidance, we reclassified an immaterial amount of estimated
sales returns from a reduction of receivables to accrued expenses and other current liabilities for all
periods presented. We elected to adopt the guidance using the full retrospective method.
We measure revenue as the amount of consideration for which we expect to be entitled, in exchange for
transferring goods. Certain customers may receive cash incentives such as customer discounts
(including volume or trade discounts), advertising discounts and other customer-related programs which
are accounted for as variable consideration. In some cases, we apply judgment, such as contractual
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rates and historical payment trends, when estimating variable consideration. In accordance with the
guidance, most variable consideration is classified as a reduction to net sales.
Sales taxes and other similar taxes are excluded from revenue. We elected to account for shipping and
handling activities as a fulfillment cost as permitted by the guidance. We do not have unsatisfied
performance obligations since our performance obligations are satisfied at a single point in time.
The effect of the adoption of ASU 2014-09 on the consolidated financial statements from continuing
operations is as follows:
(in thousands)
Balance Sheet
Receivables
Accrued expenses and other current liabilities
Before Reclassification
February 28, 2018
$
$
273,168
165,864
After Reclassification
Reclassification
2,397
$
2,397
$
$
$
February 28, 2018
275,565
168,261
(in thousands)
Before Reclassification
After Reclassification
Statement of Income
Sales revenue, net
SG&A
Note 4 - Leases
Fiscal Year Ended
February 28, 2018
$
$
1,489,747
435,735
Reclassification
$
$
(10,902) $
(10,902) $
Fiscal Year Ended
February 28, 2018
1,478,845
424,833
Adoption of the new lease standard resulted in the recording of lease assets and lease liabilities of
approximately $37.1 million and $47.2 million, respectively, as of March 1, 2019. The difference between
the lease assets and lease liabilities primarily relates to unamortized lease incentives and deferred rent
recorded in accordance with the previous lease guidance. The new standard did not materially impact
our consolidated statements of income or cash flows.
The Company primarily has leases for office space, which are classified as operating leases. Operating
leases are included in operating lease assets, accrued expenses and other current liabilities, and lease
liabilities, non-current in our consolidated balance sheets. Operating lease assets and operating lease
liabilities are recognized based on the present value of the future lease payments over the lease term at
commencement date. As most of our lease contracts do not provide an explicit interest rate, we use an
estimated secured incremental borrowing rate based on the information available at commencement date
in determining the present value of lease payments.
We include options to extend or terminate the lease in the lease term for accounting considerations,
when it is reasonably certain that we will exercise that option. Our leases have remaining lease terms of
less than one year to 13 years. Lease expense for lease payments is recognized on a straight-line basis
over the lease term in a manner similar to previous accounting guidance. We do not recognize leases
with an initial term of twelve months or less on the balance sheet and instead recognize the related lease
payments as expense in the condensed consolidated statements of income on a straight-line basis over
the lease term. We account for lease and non-lease components as a single lease component for all
asset classes. Our lease agreements do not contain any material residual value guarantees or material
restrictive covenants. Under the new guidance, operating lease expense recognized in the condensed
consolidated statements of income during fiscal 2020 was $6.4 million. Short-term lease expense is
excluded from this amount and is not material. Rent expense related to all our operating leases was
$7.8, $7.9, and $5.5 million for fiscal 2020, 2019 and 2018, respectively.
The non-cash component of lease expense is included as an adjustment to reconcile income from
continuing operations to net cash provided by operating activities in the condensed consolidated
statements of cash flows.
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A summary of supplemental lease information is as follows:
Weighted average remaining lease term (years)
Weighted average discount rate
Year-to-date cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
February 29, 2020
10.8
6.13%
$
4,579
A summary of our estimated lease payments, imputed interest and liabilities are as follows:
(in thousands)
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025
Thereafter
Total future lease payments
Less: imputed interest
Present value of lease liability
Lease liabilities, current (1)
Lease liabilities, non-current
Total lease liability
$
$
$
$
6,082
5,959
5,601
5,102
5,762
34,370
62,876
(18,374)
44,502
February 29, 2020
3,641
40,861
44,502
(1) Included as part of "Accrued expenses and other current liabilities" on the condensed consolidated balance sheet.
Note 5 - Assets Held for Sale
We record assets held for sale in accordance with ASC 360 “Property, Plant, and Equipment,” and
present them as single asset amounts in our condensed consolidated financial statements. Assets held
for sale consist of assets that we expect to sell within the next year. The assets are reported at the lower
of carrying amount or fair value less costs to sell. We cease recording depreciation on assets that are
classified as held for sale. If the determination is made that we no longer expect to sell an asset within
the next year, the asset is reclassified out of held for sale. We review assets held for sale each reporting
period to determine whether the existing carrying amounts are fully recoverable in comparison to
estimated fair values.
During the fourth quarter of fiscal 2020, we committed to a plan to divest certain assets within our mass
market personal care business. The assets to be disposed of include intangible assets, inventory and
fixed assets relating to our mass channel liquids, powder and aerosol products under brands such as
Pert, Brut, Sure and Infusium. We expect the divestiture to occur within fiscal 2021. Accordingly, we
have classified the identified assets of the disposal group as held for sale.
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The carrying amounts of the major classes of assets for the personal care business that were classified
held for sale are as follows:
(in thousands)
Assets
Inventory
Property and equipment, net of accumulated depreciation of $403
Goodwill
Other intangible assets, net of accumulated amortization of $4,474
Total assets held for sale
February 29,
2020
$
$
17,150
83
9,849
17,724
44,806
The following table summarizes income (loss) before income tax for the personal care business:
(in thousands)
Fiscal Years Ended Last Day of February,
2019
2018
2020
Income (loss) before income taxes
$
(29,760) $
23,190
$
1,713
Income (loss) before income taxes includes asset impairment charges of $41.0 million, $0 and $15.4
million for fiscal 2020, 2019 and 2018, respectively. It also includes corporate overhead expenses that
are allocable to the business.
Note 6 - Discontinued Operations
In December 2017, we completed the divestiture of the Nutritional Supplements segment through the
sale of Healthy Directions LLC and its subsidiaries ("Healthy Directions") to Direct Digital, LLC. The
purchase price from the sale was comprised of $46.0 million in cash, which was paid at closing, and a
supplemental payment with a target value of $25.0 million, payable on or before August 1, 2019. During
fiscal 2019, the final amount of the supplemental payment was adjusted to $10.8 million based on a
settlement with respect to the calculation of the performance of Healthy Directions through February 28,
2018. The adjustment resulted in a corresponding pre-tax charge of $5.8 million ($4.4 million after tax) to
discontinued operations. The supplemental payment of $10.8 million was received during the second
quarter of fiscal 2020. Also, during fiscal 2019, we recorded an additional charge of $1.5 million ($1.3
million after tax) to discontinued operations, resulting from the resolution of certain contingencies. In
conjunction with the sale of the business, we provided certain transition services that ceased during the
second quarter of fiscal 2020.
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There were no balance sheet amounts related to discontinued operations at either balance sheet date
presented. The results of operations associated with discontinued operations for fiscal 2020, 2019 and
2018 are presented in the following table:
(in thousands)
Sales revenue, net
Cost of goods sold
Gross profit
February 29, 2020
$
February 28, 2019
— $
—
—
February 28, 2018 (1)
99,013
28,744
70,269
— $
—
—
Selling, general and administrative expense ("SG&A")
Asset impairment charges (2)
Restructuring charges
Operating loss
Gain (loss) on sale before income tax
Interest expense
Loss before income tax
Income tax benefit
Loss from discontinued operations
$
—
—
—
—
—
—
—
—
— $
—
—
—
—
(7,257)
—
(7,257)
1,578
(5,679) $
72,419
132,297
621
(135,068)
1,624
(367)
(133,811)
49,375
(84,436)
(1) Fiscal 2018 included approximately 9.6 months of operating results prior to the divestiture on December 20, 2017.
(2)
Impairment charges included goodwill impairment charges of $96.6 million and trademark impairment charges of $35.7
million during fiscal 2018. Total after tax asset impairment charges were $83.5 million for fiscal 2018.
Note 7 - Property and Equipment
A summary of property and equipment is as follows:
(in thousands)
Land
Building and improvements
Computer, furniture and other equipment
Tools, molds and other production equipment
Construction in progress
Property and equipment, gross
Less accumulated depreciation
Property and equipment, net
Estimated
Useful Lives
(Years)
Fiscal Years Ended
Last Day of February,
2020
2019
—
$
12,644
$
3 — 40
3 — 15
3 — 7
—
115,592
89,257
37,652
9,302
264,447
(132,340)
$
132,107
$
12,644
113,820
84,711
36,378
6,529
254,082
(123,744)
130,338
We recorded $16.1, $15.7 and $14.9 million of depreciation expense including $4.3, $4.1 and $3.7 million
in cost of goods sold and $11.8, $11.6 and $11.2 million in SG&A in the consolidated statements of
income for fiscal 2020, 2019 and 2018, respectively.
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Note 8 - Accrued Expenses and Other Current Liabilities
A summary of accrued expenses and other current liabilities is as follows:
(in thousands)
Accrued compensation, benefits and payroll taxes
Accrued sales discounts and allowances
Accrued sales returns
Accrued advertising
Other
Total accrued expenses and other current liabilities
Note 9 - Drybar Products Acquisition
Fiscal Years Ended Last Day of February,
2020
2019
$
$
49,624
$
34,176
22,972
31,351
45,034
36,782
28,655
23,316
26,549
49,858
183,157
$
165,160
On January 23, 2020, we completed the acquisition of Drybar Products for approximately $255.9 million
in cash, subject to certain customary closing adjustments. Acquisition-related expenses incurred during
fiscal 2020 were approximately $2.5 million before tax. The purchase price was funded by borrowings
under the Company's revolving credit agreement.
Drybar is a fast-growing, innovative, trend setting prestige hair care and styling brand in the multi-billion-
dollar beauty industry. As part of the transaction, we granted a worldwide license to Drybar Holdings
LLC, the owner and long-time operator of Drybar blowout salons, to use the Drybar trademark in their
continued operation of Drybar salons. The salons will exclusively use, promote, and sell Drybar products
globally.
We accounted for the acquisition as a purchase of a business and recorded the excess purchase price
as goodwill. We completed our analysis of the economic lives of the assets acquired and determined the
appropriate fair values of the acquired assets. We assigned $30.0 million to trade names and are
amortizing over a 15 year expected life. We assigned $17.0 million to customer relationships and are
amortizing over a 14.5 year expected life. We used historical attrition rates to assign the expected life.
We assigned $10.0 million to a consulting agreement and $6.0 million to a non-compete provision, and
we are amortizing these assets over expected lives of 5 and 10 years, respectively.
The following schedule presents the net assets recorded upon acquisition of Drybar Products at January
23, 2020:
(in thousands)
Assets:
Receivables
Inventory
Prepaid expenses and other current assets
Property and equipment
Goodwill
Trade names - definite
Other intangible assets - definite
Subtotal - assets
Liabilities:
Accounts payable
Accrued expenses
Subtotal - liabilities
Net assets recorded
81
$
7,710
16,603
190
1,472
172,933
30,000
33,000
261,908
1,948
4,099
6,047
$
255,861
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The fair values of the above assets acquired and liabilities assumed were estimated by applying income
and market approaches. Key assumptions include various discount rates based upon a 12.6% weighted
average cost of capital; royalty rates used in the determination trade names and customer relationships
asset values of 5.0% and 3.0%, respectively; and a customer attrition rate used in the determination of
customer relationship values of 6.7% per year.
The impact of the Drybar Products acquisition on our consolidated statements of income for fiscal 2020 is
as follows:
January 23, 2020 (acquisition date) though February 29, 2020
(in thousands, except earnings per share data)
Fiscal Year Ended
February 29, 2020
Sales revenue, net
Income from continuing operations
Earnings per share from continuing operations:
Basic
Diluted
$
$
$
6,039
1,483
0.06
0.06
The following supplemental unaudited pro forma information presents our financial results as if the
Drybar Products acquisition had occurred at the beginning of the fiscal years presented. This
supplemental pro forma information has been prepared for comparative purposes and would not
necessarily indicate what may have occurred as if the acquisition had been completed on March 1, 2018,
and this information is not intended to be indicative of future results:
As if the acquisition had been completed on March 1. 2018
(in thousands, except earnings per share data)
Sales revenue, net
Income from continuing operations
Earnings per share from continuing operations:
Basic
Diluted
Note 10 - Goodwill and Intangibles
Fiscal Years Ended the Last
Day of February,
2020
2019
$
1,773,592
$
1,621,117
162,114
179,550
$
$
6.45
6.40
$
$
6.89
6.83
We do not record amortization expense for goodwill or other intangible assets that have indefinite useful
lives. Amortization expense is recorded for intangible assets with definite useful lives. Some of our goodwill
is held in jurisdictions that allow deductions for tax purposes, however, in some of those jurisdictions we have
no tax basis for the associated goodwill recorded for book purposes. Accordingly, the majority of our goodwill
is not deductible for tax purposes. We perform annual impairment testing each fiscal year and interim
impairment testing, if necessary. We write down any asset deemed to be impaired to its fair value.
Our impairment test methodology uses primarily estimated future discounted cash flow models (“DCF
Models”). The DCF Models use a number of assumptions including expected future cash flows from the
assets, volatility, risk free rate, and the expected life of the assets, the determination of which require
significant judgments from management. In determining the assumptions to be used, we consider the
existing rates on Treasury Bills, yield spreads on assets with comparable expected lives, historical volatility of
our common stock and that of comparable companies, and general economic and industry trends, among
other considerations. When stock market or other conditions warrant, we expand our traditional impairment
test methodology to give weight to other methods that provide additional observable market information in
order to better reflect the current risk level being incorporated into market prices and in order to corroborate
the fair values of each of our reporting units. Management will place increased reliance on these additional
methods in conjunction with its DCF Models in the event that the total market capitalization of its stock drops
below its consolidated stockholders’ equity balance for a sustained period.
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Considerable management judgment is necessary in reaching a conclusion regarding the reasonableness of
fair value estimates, evaluating the most likely impact of a range of possible external conditions, considering
the resulting operating changes and their impact on estimated future cash flows, determining the appropriate
discount factors to use, and selecting and weighting appropriate comparable market level inputs.
The fair values used in our impairment tests are determined using estimated future discounted cash flows
and relative market-based data. The valuation techniques utilized assumptions we believed to be
appropriate in the circumstances; however, future circumstances attributable to a strategic change in our
business could result in changes to those assumptions and other charges or losses relating our segments
may be recorded and could be material. We are unable to project the amount of any expense, charge or loss
that may be incurred in future periods.
Impairment Testing in Fiscal 2020 - We recorded non-cash asset impairment charges related to goodwill
and intangible assets of $41.0 million ($36.4 million after tax). The charges were related to mass market
personal care assets within our Beauty segment, which were written down to their estimated fair values, and
are classified as assets held for sale.
Impairment Testing in Fiscal 2019 - We did not record any impairment charges related to goodwill or
intangible assets.
Impairment Testing in Fiscal 2018 - As a result of our testing of indefinite-lived trademarks, we recorded
non-cash impairment charges of $15.4 million ($13.8 million after tax). The charges were related to certain
mass market personal care trademarks in our Beauty segment, which were written down to estimated fair
value.
The following tables summarize the changes in our goodwill and intangible assets by segment for fiscal 2020
and 2019:
Balances at
February 28, 2019
Year Ended February 29, 2020
Balances at
February 29, 2020
Weighted
Average
Life
(Years)
Gross
Carrying
Amount
Cumulative
Goodwill
Impairments
Additions
Impairments
Retirement /
Reclassification
Adjustments
Reclassification
to Held for Sale
Gross
Carrying
Amount
Cumulative
Goodwill
Impairments
Accumulated
Amortization
(1)
Net Book
Value
$ 282,056 $
— $
— $
— $
— $
— $ 282,056 $
— $
— $ 282,056
(in thousands)
Housewares:
Goodwill
Trademarks - indefinite
134,200
Other intangibles - finite
13.8
41,417
Subtotal
Health & Home:
Goodwill
Trademarks - indefinite
Licenses - finite
3.7
Licenses - indefinite
457,673
284,913
54,000
17,050
7,400
Other Intangibles - finite
5.8
117,967
Subtotal
Beauty:
Goodwill
Trademarks - indefinite
Trademarks - finite
Licenses - indefinite
Licenses - finite
Other intangibles - finite
Subtotal
Total
481,330
81,841
30,407
150
10,300
13,696
46,402
14.9
2.8
10.7
—
—
—
—
—
—
—
—
—
—
709
709
—
—
—
—
256
256
—
—
—
—
—
—
—
—
—
(46,490)
172,933
(25,503)
—
—
—
—
—
—
—
30,000
(11,168)
—
—
33,000
—
(4,234)
(95)
—
(31)
(31)
—
—
—
—
—
—
—
(30,407)
30,407
(10,300)
10,300
—
—
—
—
—
—
—
—
—
—
—
134,200
42,095
458,351
284,913
54,000
17,050
7,400
118,223
481,586
—
—
—
—
—
—
—
—
—
(9,849)
244,925
(71,993)
—
—
(15,997)
33,392
—
(6,065)
(136)
—
13,697
79,171
—
—
—
—
—
—
134,200
(21,469)
20,626
(21,469)
436,882
—
—
(15,752)
—
284,913
54,000
1,298
7,400
(98,142)
20,081
(113,894)
367,692
—
—
172,932
—
(3,564)
29,828
—
(12,800)
—
897
(46,549)
32,622
(32,047)
371,185
(71,993)
(62,913)
236,279
182,796
(46,490)
235,933
(41,000)
$1,121,799 $
(46,490)
$ 236,898 $
(41,000) $
(31) $
(32,047)
$1,311,122 $
(71,993) $
(198,276) $ 1,040,853
(1) Reflects the retirement and reclassification of accumulated amortization of $49.4 million related to impaired assets and assets held
for sale related to the Personal Care business in the Beauty segment.
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(in thousands)
Housewares:
Goodwill
Weighted
Average
Life
(Years)
Balances at
February 28, 2018
Gross
Carrying
Amount
Cumulative
Goodwill
Impairments
Year Ended February 28, 2019
Balances at
February 28, 2019
Additions
Impairments
Retirement
Adjustments
Gross
Carrying
Amount
Cumulative
Goodwill
Impairments
Accumulated
Amortization
Net Book
Value
$
282,056 $
— $
— $
— $
— $
282,056 $
— $
— $
282,056
Trademarks - indefinite
Other intangibles - finite
14.7
Subtotal
Health & Home:
Goodwill
Trademarks - indefinite
Licenses - finite
Licenses - indefinite
Other Intangibles - finite
Subtotal
Beauty:
Goodwill
Trademarks - indefinite
Trademarks - finite
Licenses - indefinite
Licenses - finite
Other intangibles - finite
Subtotal
Total
4.7
5.5
9.6
3.8
4.6
134,200
40,828
457,084
284,913
54,000
15,300
7,400
117,586
479,199
81,841
30,407
150
10,300
13,696
46,402
—
—
—
—
—
—
—
—
—
(46,490)
—
—
—
—
—
182,796
(46,490)
—
684
684
—
—
1,750
—
381
2,131
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(95)
(95)
—
—
—
—
—
—
—
—
—
—
—
—
—
134,200
41,417
457,673
284,913
54,000
17,050
7,400
117,967
481,330
81,841
30,407
150
10,300
13,696
46,402
—
—
—
—
—
—
—
—
—
(46,490)
—
—
—
—
—
—
134,200
(19,398)
22,019
(19,398)
438,275
—
—
(15,402)
—
284,913
54,000
1,648
7,400
(87,953)
30,014
(103,355)
377,975
—
—
(102)
—
(12,482)
(46,126)
35,351
30,407
48
10,300
1,214
276
182,796
(46,490)
(58,710)
77,596
$ 1,119,079 $
(46,490)
$
2,815 $
— $
(95)
$ 1,121,799 $
(46,490) $
(181,463) $
893,846
The following table summarizes the amortization expense attributable to intangible assets recorded in SG&A
in the consolidated statements of income for fiscal 2020, 2019 and 2018, as well as estimated amortization
expense for fiscal 2021 through 2025:
Aggregate Amortization Expense (in thousands)
Fiscal 2020
Fiscal 2019
Fiscal 2018
Estimated Amortization Expense (in thousands)
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025
$
$
21,271
14,204
18,854
16,600
10,276
10,202
9,817
9,130
Note 11 - Share-Based Compensation Plans
During the fiscal year we had equity transactions under one expired and two active share-based
compensation plans. The expired plans consist of the 2008 Stock Incentive Plan (the “2008 Stock
Incentive Plan”). The active plans consists of the 2018 Stock Incentive Plan (the "2018 Plan") and the
2018 Employee Stock Purchase Plan (the "2018 ESPP"). See the below tables for additional
information. The plans are administered by the Compensation Committee of the Board of Directors,
which consists of non-employee directors who are independent under the applicable listing standards for
companies traded on the NASDAQ Stock Market LLC.
On August 22, 2018, our shareholders approved the 2018 Plan. The 2018 Plan permits the granting of
stock options, stock appreciation rights, restricted stock awards ("RSAs"), restricted stock units ("RSUs"),
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performance stock awards ("PSAs"), performance stock units ("PSUs"), and other stock-based awards.
The aggregate number of shares for issuance under the 2018 Plan will not exceed 2,000,000 shares.
A summary of shares available for issue under the 2018 Plan follows:
Shares originally authorized
Less share awards issued
Plus forfeitures
Less share awards previously vested and settled
Subtotal
Less RSUs and RSAs issuable upon vesting (1)
Less maximum PSUs and PSAs issuable upon vesting (1)
Shares available for issuance
2,000,000
(6,464)
32,126
—
2,025,662
(259,932)
(122,402)
1,643,328
(1) RSUs, PSUs, RSAs, and PSAs potentially issuable are estimated assuming the maximum payouts adjusted for actual
forfeitures to date.
The 2018 ESPP: On August 22, 2018, our shareholders approved the 2018 ESPP. The aggregate
number of shares of common stock that may be purchased under the 2018 ESPP will not exceed
750,000 shares. Under the terms of the plan, employees may authorize the withholding of up to 15% of
their wages or salaries to purchase our shares of common stock, not to exceed $25,000 of the fair
market value of such shares for any calendar year. The purchase price for shares acquired under the
2018 ESPP is equal to the lower of 85% of the share's fair market value on either the first day of each
option period or the last day of each period. The plan will expire by its terms on September 1, 2028.
Shares of common stock purchased under the 2018 ESPP vest immediately at the time of purchase.
Accordingly, the fair value award associated with their discounted purchase price is expensed at the time
of purchase. During fiscal 2020, there were 14,848 shares purchased under the plan.
We recorded share-based compensation expense in SG&A as follows:
(in thousands, except per share data)
Stock options
Directors stock compensation
Performance based and other stock awards
Employee stock purchase plan
Share-based compensation expense
Less income tax benefits
Share-based compensation expense, net of income tax benefits
Continuing operations earnings per share impact of share-based
compensation expense:
Basic
Diluted
Fiscal Years Ended Last Day of February,
2020
2019
2018
$
189
604
21,351
785
22,929
(1,803)
$
829
526
20,047
651
22,053
(1,395)
1,634
525
12,631
264
15,054
(1,669)
21,126
$
20,658
$
13,385
0.84
0.83
$
$
0.79
0.79
$
$
0.49
0.49
$
$
$
$
A summary of our total unrecognized share-based compensation expense as of February 29, 2020 is as
follows:
(in thousands, except weighted average expense period data)
Stock options
Restricted stock (RSUs, PSUs, RSAs and PSAs)
85
Unrecognized
Compensation
Expense
$
19
18,515
Weighted
Average
Period of
Recognition
(in years)
0.6
2.0
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Stock Options
There were no new grants of options made during fiscal 2020, 2019 or 2018. A summary of stock option
activity under our expired plans is as follows:
(in thousands, except contractual term and
per share data)
Outstanding at February 28, 2017
Grants
Exercises
Forfeitures / expirations
Outstanding at February 28, 2018
Grants
Exercises
Forfeitures / expirations
Outstanding at February 28, 2019
Grants
Exercises
Forfeitures / expirations
Outstanding at February 29, 2020
Exercisable at February 29, 2020
Weighted
Average
Exercise
Price
(per share)
57.41
$
—
52.28
72.37
58.35
—
49.82
80.33
63.47
—
57.09
87.61
71.78
71.10
$
$
Weighted
Average
Grant Date
Fair Value
(per share)
20.54
$
Weighted
Average
Remaining
Contractual
Term
(in years)
Intrinsic
Value
5.0
$
18,097
5,400
32.04
4.3
9,606
6,414
48.64
3.6
7,925
$
$
92.82
93.50
3.2
3.1
$
$
9,059
6,333
6,157
Options
448
—
(126)
(22)
300
—
(126)
(11)
163
—
(93)
(1)
69
66
A summary of non-vested stock option activity and changes under our expired share-based
compensation plans follows:
(in thousands, except per share data)
Outstanding at February 28, 2017
Grants
Vested or forfeited
Outstanding at February 28, 2018
Grants
Vested or forfeited
Outstanding at February 28, 2019
Grants
Vested or forfeited
Outstanding at February 29, 2020
Director Restricted Stock Awards
Non-
Vested
Options
280
—
(155)
125
—
(88)
37
—
(35)
2
Weighted
Average
Grant Date
Fair Value
(per share)
22.48
—
25.02
19.31
—
14.67
30.44
—
27.36
74.09
$
$
Under the 2008 Directors’ Plan for fiscal 2019 and 2018, we issued 2,737 and 5,658 shares, respectively,
subject to restricted stock awards to non-employee Board members with grant date fair values of $0.2
and $0.5 million, respectively, and share prices of $89.77 and $92.95 respectively. The restricted stock
awards vested immediately, were valued at the fair value of our common stock at the date of grant, and
accordingly, were expensed at the time of the grants. No restricted stock awards were granted under the
2008 Directors' Plan in fiscal 2020.
Under the 2018 Plan, during fiscal 2020 and 2019 we issued 4,336 and 2,128 shares, respectively,
subject to restricted stock awards to non-employee Board members with a total grant date fair value of
$0.6 million and $0.3 million, respectively, or $139.36 and $131.74 per share, respectively. No restricted
stock awards under the 2018 Plan were granted in fiscal 2018. The restricted stock awards vested
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immediately, were valued at the fair value of our common stock at the date of grant, and accordingly,
were expensed at the time of the grants.
Restricted Stock Units and Performance Stock Units
A summary of Restricted Stock Unit and Performance Stock Unit activity and changes under our equity
incentive plans are as follows:
(in thousands, except per share data)
Outstanding at February 28, 2017
Granted
Vested or Forfeited (1) (2)
Outstanding at February 28, 2018
Granted
Vested or Forfeited (1) (2)
Outstanding at February 28, 2019
Granted
Vested or Forfeited (1) (2)
Outstanding at February 29, 2020
Expired Equity Plan
Active Equity Plan
Restricted
Stock
Units
Weighted
Average
Grant Date
Fair Value
(per share)
Fair Value
at Grant
Date
Restricted
Stock
Units
Weighted
Average
Grant Date
Fair Value
(per share)
Fair Value
at Grant
Date
322
262
(274)
310
197
(155)
81.19
96.44
78.71
90.05
84.02
82.19
31,418
—
—
27,944
—
—
—
—
—
—
79
(5)
—
—
—
—
125.40
124.71
—
—
352 $
92.45 $
32,519
74 $
125.45 $
9,202
49
(192)
164.60
95.48
—
—
254
(45)
110.92
122.55
209 $
90.73 $
19,010
283 $
112.85 $
31,907
(1) The expired equity plan reflects the 2008 Stock Incentive Plan, which expired on August 19, 2018. The active equity plan
reflects the 2018 Plan.
(2) Under the expired equity plan, 175,022, 141,541, and 192,002 RSUs and PSUs vested and settled throughout the year at
a weighted average fair values of $95.98, $81.23, and $62.88 per share in fiscal 2020, 2019 and 2018, respectively.
Under the active equity plan, 20,240 and 900 RSUs vested and settled throughout the year at a weighted average fair
value of $125.34 and $120.70 per share in fiscal 2020 and 2019, respectively.
Restricted Stock Awards and Performance Stock Awards
A summary of Restricted Stock Award and Performance Stock Award activity and changes under our
2018 Plan are as follows:
(in thousands, except per share data)
Outstanding at February 28, 2019
Granted
Vested or Forfeited (1)
Outstanding at February 29, 2020
Restricted Stock Awards
Performance Stock Awards (2)
Restricted
Stock
Awards
Weighted
Average
Grant Date
Fair Value
(per share)
Fair Value
at Grant
Date
Restricted
Stock
Awards
Weighted
Average
Grant Date
Fair Value
(per share)
Fair Value
at Grant
Date
— $
49
(4)
— $
118.51
123.17
—
—
—
— $
— $
122
(4)
110.85
110.85
—
—
—
45 $
118.11 $
5,354
118 $
110.85 $
13,130
(1) Under the 2018 Plan, 1,014 Restricted Stock Awards vested and settled throughout the year at a weighted average fair
value of $150.86 per share in fiscal 2020. There were no RSAs issued during fiscal 2019.
(2) Performance stock awards reflected in the table above assumes target (100%) achievement. These Performance stock
awards can be paid out within some range of 0% to 200% depending upon the final outcome of the performance
achievement.
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Note 12 - Defined Contribution Plans
We sponsor defined contribution savings plans in the U.S. and other countries where we have
employees. Total company matching contributions made to these plans for fiscal 2020, 2019 and 2018
were $4.3, $4.0 and $3.9 million, respectively.
Note 13 - Repurchase of Helen of Troy Common Stock
In May 2019, we announced that our Board of Directors had authorized the repurchase of up to $400
million of our outstanding common stock. The authorization is effective May 8, 2019 for a period of three
years and replaced Helen of Troy's previous repurchase authorization, of which approximately $107.4
million remained. These repurchases may include open market purchases, privately negotiated
transactions, block trades, accelerated stock repurchase transactions, or any combination of such
methods. The number of shares purchased and the timing of the purchases will depend on a number of
factors, including share price, trading volume and general market conditions, working capital
requirements, general business conditions, financial conditions, any applicable contractual limitations,
and other factors, including alternative investment opportunities. As of February 29, 2020, our
repurchase authorization allowed for the purchase of $393.0 million of common stock.
Our current equity-based compensation plans include provisions that allow for the “net exercise” of
share-settled awards by all plan participants. In a net exercise, any required payroll taxes, federal
withholding taxes and exercise price of the shares due from the equity holder can be paid for by having
the equity holder tender back to the Company a number of shares at fair value equal to the amounts due.
Net exercises are treated as purchases and retirements of shares.
The following table summarizes our share repurchase activity for the periods shown:
(in thousands, except share and per share data)
Common stock repurchased on the open market:
Number of shares
Aggregate value of shares
Average price per share
Common stock received in connection with share-based compensation:
Number of shares
Aggregate value of shares
Average price per share
Note 14 - Restructuring Plan
Fiscal Years Ended
Last Day of February,
2020
2019
2018
— 1,875,469
— $ 212,080
113.08
— $
77,272
10,169
131.61
$
$
59,024
5,413
91.70
717,300
65,795
91.73
75,785
7,258
95.77
$
$
$
$
$
$
$
$
In October 2017, we announced a restructuring plan (referred to as “Project Refuel”) intended to enhance
the performance primarily in the Beauty and former Nutritional Supplements segments. Project Refuel
includes charges for a reduction-in-force and the elimination of certain contracts. During the first quarter
of fiscal 2019, we expanded Project Refuel to include the realignment and streamlining of our supply
chain structure. We are targeting total annualized profit improvements of approximately $9.0 to $11.0
million over the duration of the plan. We estimate the plan to be completed during fiscal 2021 and expect
to incur total restructuring charges of approximately $9.5 million. Restructuring provisions are
determined based on estimates prepared at the time the restructuring actions are approved by
management and are revised periodically.
During fiscal 2020, we incurred $3.3 million of pre-tax restructuring costs related to employee severance
and termination benefits and contract termination costs. Since implementing Project Refuel, we have
incurred $8.7 million of pre-tax restructuring costs related to employee severance and termination
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benefits and contract termination costs as of February 29, 2020. During fiscal 2020, we made total cash
restructuring payments of $3.8 million and had a remaining liability of $0.8 million as of February 29,
2020. Since implementing Project Refuel, we have made total cash restructuring payments of $8.0
million as of February 29, 2020.
Note 15 - Other Commitments and Contingencies
Indemnity Agreements – Under agreements with customers, licensors and parties from whom we have
acquired assets or entered into business combinations, we indemnify these parties against liability
associated with our products. Additionally, we are party to a number of agreements under leases where
we indemnify the lessor for liabilities attributable to our actions or conduct. The indemnity agreements to
which we are a party do not, in general, increase our liability for claims related to our products or actions
and have not materially affected our consolidated financial statements.
Employment Contract – We have an employment contract with Mr. Julien Mininberg, our CEO, that was
amended and restated on November 7, 2018. The amended and restated agreement, among other
things, extended the term of Mr. Mininberg’s employment agreement from March 1, 2019 through
February 28, 2023. The agreement provides a base salary, potential incentive bonus and long-term
incentive compensation. The agreement also specifies varying levels of salary continuation and/or
severance compensation dependent on certain circumstances such as involuntary termination for other
than cause or involuntary termination due to a change of control.
International Trade – We purchase most of our appliances and a significant portion of other products
that we sell from unaffiliated manufacturers located in the Far East, mainly in China. With most of our
products being manufactured in the Far East, we are subject to risks associated with global public health
crises (such as pandemics and epidemics), trade barriers, the imposition of additional tariffs, currency
exchange fluctuations and social, economic and political unrest. In recent years, increasing labor costs,
regional labor dislocations driven by new government policies, local inflation, changes in ocean cargo
carrier capacity and costs, the impact of energy prices on transportation, and fluctuations in the Chinese
Renminbi against the U.S. Dollar have resulted in variability in our cost of goods sold. In the past, certain
Chinese suppliers have closed operations due to economic conditions that pressured their profitability.
Although we have multiple sourcing partners for certain products, occasionally we may be unable to
source certain items on a timely basis due to changes occurring with our suppliers. We believe that we
could source similar products outside China, if necessary, and we continuously explore expanding
sourcing alternatives in other countries. However, the relocation of any production capacity could require
substantial time and increased costs.
Customer Incentives – We regularly enter into arrangements with customers whereby we offer various
incentives, including incentives in the form of volume rebates. Our estimates of the liabilities for such
incentives is included in the accompanying consolidated balance sheets on the line entitled “Accrued
expenses and other current liabilities,” and in Note 8 to these consolidated financial statements included
in the lines entitled “Accrued sales discounts and allowances” and “Accrued advertising” and are based
on incentives applicable to sales occurring up to the respective balance sheet dates.
Legal Matters – In May 2018, we settled a patent infringement dispute related to two forehead
thermometer models sold by our subsidiary, Kaz USA, Inc., in the United States and made a settlement
payment of $15.0 million, which was accrued in prior periods along with related legal fees and other
costs.
We are involved in various other legal claims and proceedings in the normal course of operations. We
believe the outcome of these matters will not have a material adverse effect on our consolidated financial
position, results of operations or liquidity.
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Contractual Obligations and Commercial Commitments – Our contractual obligations and
commercial commitments at the end of fiscal 2020 were:
(in thousands)
Floating rate debt
Interest on floating rate debt (1)
Long-term incentive plan payouts
Open purchase orders
Operating Leases
Minimum royalty payments
Advertising and promotional
Capital spending commitments
Fiscal Years Ended the Last Day of February,
2021
2022
2023
2024
2025
After
Total
1 year
2 years
3 years
4 years
5 years
5 years
$ 340,507 $
1,900 $ 321,900 $
1,900 $ 14,807 $
— $
16,653
9,018
9,142
5,614
239,841
239,841
62,876
55,154
34,228
2,716
6,082
12,823
18,359
1,986
7,124
3,404
—
5,959
12,674
9,131
596
386
—
—
5,601
13,090
6,738
134
1
—
—
5,102
12,381
—
—
—
—
—
5,762
4,186
—
—
—
—
—
—
34,370
—
—
—
Total contractual obligations
$ 760,993 $ 295,747 $ 360,788 $ 27,849 $ 32,291 $
9,948 $ 34,370
(1) We estimate our future obligations for interest on our floating rate debt by assuming the weighted average interest rates
in effect on each floating rate debt obligation at February 29, 2020 remain constant into the future. This is an estimate, as
actual rates will vary over time. In addition, we assume the revolving credit debt balance outstanding as of February 29,
2020 remains the same for the remaining term of our revolving credit agreement. The actual balance outstanding may
fluctuate significantly in future periods, depending on the availability of cash flow from operations and future investing and
financing considerations.
Note 16 - Long Term Debt
As of February 29, 2020, we had a credit agreement (the “Credit Agreement”) with Bank of America,
N.A., as administrative agent, and other lenders that provided for an unsecured total revolving
commitment of $1.0 billion. Borrowings accrued interest under one of two alternative methods (based
upon a base rate or LIBOR) as described in the Credit Agreement. With each borrowing against our
credit line, we could elect the interest rate method based on our funding needs at the time. We also
incurred loan commitment and letter of credit fees under the Credit Agreement. Outstanding letters of
credit reduced the borrowing availability under the Credit Agreement on a dollar-for-dollar basis. We may
repay amounts borrowed at any time without penalty. As of February 29, 2020, the outstanding revolving
loan principal balance was $320.0 million (excluding prepaid financing fees) and the balance of
outstanding letters of credit was $9.0 million. As of February 29, 2020, the amount available for
borrowings under the Credit Agreement was $671.0 million. Covenants in the Credit Agreement limit the
amount of total indebtedness we could incur. As of February 29, 2020, these covenants did not limit our
ability to incur $671.0 million of additional debt under the Credit Agreement.
On March 13, 2020, we entered into an amendment to the Credit Agreement. The amendment extended
the maturity of the commitment under the Credit Agreement from December 7, 2021 to March 13, 2025.
Further, the amendment increased the unsecured revolving commitment from $1.0 billion to $1.25 billion.
The accordion was amended to increase it from $200 million to $300 million and to include the ability to
use it for term loan commitments. The accordion permits the Company to request to increase its
borrowing capacity, not to exceed the $300 million commitment in the aggregate, provided certain
conditions are met, including lender approval. Any increase to term loan commitments and revolving
loan commitments must be made on terms identical to the revolving loans under the Credit Agreement
and must have a maturity date of no earlier than March 13, 2025. Following the amendment, borrowings
under the Credit Agreement bear interest at either the base rate or LIBOR, plus a margin based on the
Net Leverage Ratio (as defined in the Credit Agreement) of 0% to 1.0% and 1.0% to 2.0%, respectively,
for base rate and LIBOR borrowings.
On March 24, 2020, we borrowed approximately $200 million under the Credit Agreement as part of a
comprehensive precautionary approach to increase our cash position and maximize our financial
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flexibility in light of the current volatility in the global markets resulting from the COVID-19 outbreak. After
giving effect to the borrowing, the remaining amount available for borrowings under the Credit Agreement
was $536.4 million and our cash and cash equivalents on hand was approximately $393.0 million. As
described above, covenants in our debt agreements can limit the amount of indebtedness we can incur.
We may repay amounts borrowed at any time without penalty.
A summary of our long-term debt follows:
(dollars in thousands)
February 29, 2020 February 28, 2019
Mississippi Business Finance Corporation Loan (the "MBFC Loan") (1)
Credit Agreement (2)
Total long-term debt
Less current maturities of long-term debt
Long-term debt, excluding current maturities
$
$
20,451 $
318,854
339,305
(1,884)
337,421 $
22,335
298,449
320,784
(1,884)
318,900
(1) The MBFC Loan is unsecured and bears floating interest based on either LIBOR plus a margin of up to 2.0%, or a Base
Rate plus a margin of up to 1.0%, as determined by the interest rate elected and the leverage ratio defined in the loan
agreement. Since March 2018, the loan may be called by the holder at anytime. The loan can be prepaid without
penalty. The remaining principal balance is payable as follows: $1.9 million annually on March 1, 2020 through 2022;
and $14.8 million on March 1, 2023. Any remaining outstanding principal and interest is due upon maturity on March 1,
2023.
(2) The Credit Agreement's floating interest rates are hedged with interest rate swaps to effectively fix interest rates on $225
million of the outstanding principal balance under the Credit Agreement (see Notes 17 and 18 regarding interest rate
swaps).
At February 29, 2020 and February 28, 2019 our long-term debt has floating interest rates, and its book
value approximates its fair value.
All of our debt is unconditionally guaranteed, on a joint and several basis, by the Company and certain of
its subsidiaries. Our debt agreements require the maintenance of certain financial covenants, including
maximum leverage ratios, minimum interest coverage ratios and minimum consolidated net worth levels
(as each of these terms is defined in the various agreements). Our debt agreements also contain other
customary covenants. We were in compliance with the terms of these agreements as of February 29,
2020.
The following table contains information about interest rates on our Credit Agreement and the related
weighted average borrowings outstanding for the periods covered by our consolidated statements of
income:
(in thousands)
Average borrowings outstanding (1)
Average interest rate during each year (2)
Interest rate range during each year
Fiscal Years Ended Last Day of February,
2020
2019
2018
$
286,640
$
290,860
$
382,960
3.2%
3.2%
2.7%
2.6% - 5.5% 2.8% - 5.5%
2.3 - 4.8%
Weighted average interest rates on borrowings outstanding at year end
2.7%
3.6%
2.9%
(1) Average borrowings outstanding is computed as the average of the current and four prior quarters ending balances of our
credit facility.
(2) The average interest rate during each year is computed by dividing the total interest expense associated with the Credit
Agreement for a fiscal year by the average borrowings outstanding for the same fiscal year.
The following table contains a summary of the components of our interest expense for the periods
covered by our consolidated statements of income:
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(in thousands)
Interest and commitment fees
Deferred finance costs
Interest rate swap settlements, net
Cross-currency debt swap
Total interest expense
Note 17 - Fair Value
Fiscal Years Ended Last Day of February,
2019
2020
2018
$
$
10,970 $
1,620
262
(147)
12,705 $
11,366 $
1,015
(515)
(147)
11,719 $
13,084
887
54
(74)
13,951
We classify our various assets and liabilities recorded or reported at fair value under a hierarchy
prescribed by GAAP that prioritizes inputs to fair value measurement techniques into three broad levels:
•
•
•
Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active
markets;
Level 2: Observable inputs other than quoted prices that are directly or indirectly observable
for the asset or liability, including quoted prices for similar assets or liabilities in active
markets; quoted prices for similar or identical assets or liabilities in markets that are not active;
and model-derived valuations whose inputs are observable or whose significant value drivers
are observable; and
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
Assets and liabilities subject to classification are classified upon acquisition. When circumstances dictate
the transfer of an asset or liability to a different level, our policy is to recognize the transfer at the
beginning of the reporting period in which the event resulting in the transfer occurred.
The following tables present the fair value of our financial assets and liabilities measured on a recurring
basis as of the last day of February 2020 and 2019:
(in thousands)
Assets:
Money market accounts
Interest rate swaps
Foreign currency contracts
Total assets
Liabilities:
Floating rate debt
Interest rate swaps
Foreign currency contracts
Total liabilities
Fair Values at
February 29, 2020
(level 2) (1)
$
$
$
$
2,648
—
2,083
4,731
339,305
10,717
159
350,181
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(in thousands)
Assets:
Money market accounts
Interest rate swap
Foreign currency contracts
Total assets
Liabilities:
Floating rate debt
Interest rate swap
Foreign currency contracts
Total liabilities
Fair Values at
February 28, 2019
(level 2) (1)
$
$
$
915
512
1,692
3,119
320,784
339
563
321,686
(1) Our financial assets and liabilities are classified as Level 2 assets because their valuation is dependent on observable
inputs and other quoted prices for similar assets or liabilities, or model-derived valuations whose significant value drivers
are observable.
The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair
value because of the short maturity of these items.
We use derivatives for hedging purposes and our derivatives are primarily interest rate swaps, foreign
currency contracts, zero cost collars and cross-currency debt swaps (see Notes 1, 18 and 19 for more
information on our hedging activities).
We classify our floating rate debt as a Level 2 item because the estimation of the fair market value of
these financial assets requires the use of current market rates of interest for obligations with comparable
remaining terms. Such comparable rates are considered significant other observable market inputs. Our
debt has floating interest rates and its book value approximates its fair value as of the reporting date.
Our other non-financial assets include goodwill and other intangible assets, which we classify as Level 3
items. These assets are measured at fair value on a non-recurring basis as part of our impairment
testing. Note 10 to these consolidated financial statements contains additional information regarding
impairment testing and related intangible asset impairments.
The table below presents other non-financial assets measured on a non-recurring basis using significant
unobservable inputs (Level 3) for fiscal 2020 and 2019:
(in thousands)
Beginning balances
Total income (expense):
Included in net income - realized
Acquired during the period
Retirement adjustments during the period
Reclassification to assets held for sale
Ending balances
Fiscal Years Ended
Last Day of February,
2019
2020
$
893,846 $
905,235
(62,287)
236,898
(31)
(27,573)
1,040,853 $
$
(14,109)
2,815
(95)
—
893,846
Note 18 - Financial Instruments and Risk Management
Foreign Currency Risk – Our functional currency is the U.S. Dollar. By operating internationally, we are
subject to foreign currency risk from transactions denominated in currencies other than the U.S. Dollar
(“foreign currencies”). Such transactions include sales, certain inventory purchases and operating
expenses. As a result of such transactions, portions of our cash, trade accounts receivable and trade
accounts payable are denominated in foreign currencies. For fiscal 2020, approximately 14% of our net
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sales revenue was in foreign currency. These sales were primarily denominated in British Pounds,
Euros, Mexican Pesos and Canadian Dollars. We make most of our inventory purchases from the Far
East and primarily use the U.S. Dollar for such purchases. In our consolidated statements of income,
exchange gains and losses resulting from the remeasurement of foreign taxes receivable, taxes payable,
deferred tax assets, and deferred tax liabilities are recognized in their respective income tax lines, and all
other foreign exchange gains and losses are recognized in SG&A. We recorded net exchange gains
(losses) from foreign currency fluctuations, including the impact of currency hedges and the cross-
currency debt swap, of $2.2, $1.3 and $(3.1) million in SG&A during fiscal 2020, 2019 and 2018,
respectively.
We hedge against certain foreign currency exchange rate-risk by using a series of forward contracts and
zero-cost collars designated as cash flow hedges and mark-to-market derivatives to protect against the
foreign currency exchange risk inherent in our forecasted transactions denominated in currencies other
than the U.S. Dollar. We do not enter into any forward exchange contracts or similar instruments for
trading or other speculative purposes. The effective portion of the changes in fair value of these
instruments is reported in OCI and reclassified into SG&A in the same period they are settled. The
ineffective portion, which is not material for any year presented, is immediately recognized in SG&A.
Interest Rate Risk – Interest on our outstanding debt as of February 29, 2020 is based on floating
interest rates. If short-term interest rates increase, we will incur higher interest expense on any future
outstanding balances of floating rate debt. Floating interest rates are hedged with interest rate swaps to
effectively fix interest rates on $225.0 million of the outstanding principal balance under the Credit
Agreement, which totaled $320.0 million as of February 29, 2020.
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The following table summarizes the fair values of our various derivative instruments at the end of fiscal
2020 and 2019:
February 29, 2020
(in thousands)
Derivatives designated as hedging instruments
Zero-cost collar - Euro
Foreign currency contracts - sell Euro
Foreign currency contracts - sell Canadian Dollars
Zero-cost collar - Pounds
Foreign currency contracts - sell Pounds
Foreign currency contracts - sell Mexican Pesos
Interest rate swaps
Subtotal
Derivatives not designated under hedge accounting
Hedge
Type
Cash flow
Cash flow
Cash flow
Cash flow
Cash flow
Cash flow
Cash flow
Final
Settlement
Date
2/2021
5/2021
2/2021
2/2021
5/2021
5/2020
1/2024
Notional
Amount
€8,000
€25,875
$14,000
£6,500
£13,000
$10,000
$225,000
Foreign currency contracts - cross-currency debt swaps - Euro
Foreign currency contracts - cross-currency debt swaps - Pound
(1)
(1)
04/2020
04/2020
€5,280
£6,395
Subtotal
Total fair value
Prepaid
Expenses
and Other
Current
Assets
Other
Assets
Accrued
Expenses
and Other
Current
Liabilities
Other
Liabilities
Non-
current
$
74
837
202
—
435
12
—
1,560
473
27
500
$ — $
—
—
—
23
—
—
23
—
—
—
23
— $
—
—
144
—
—
3,489
3,633
—
—
—
—
15
—
—
—
—
7,228
7,243
—
—
—
$
2,060
$
February 28, 2019
Prepaid
Expenses
and Other
Current
Assets
$
3,633
$
7,243
Accrued
Expenses
and Other
Current
Liabilities
Other
Liabilities
Non-
current
(in thousands)
Derivatives designated as hedging instruments
Zero-cost collar - Euro
Foreign currency contracts - sell Euro
Foreign currency contracts - sell Canadian Dollars
Zero-cost collar - Pounds
Foreign currency contracts - sell Pounds
Foreign currency contracts - sell Mexican Pesos
Interest rate swaps
Subtotal
Derivatives not designated under hedge accounting
Hedge
Type
Cash flow
Cash flow
Cash flow
Cash flow
Cash flow
Cash flow
Cash flow
Final
Settlement
Date
Notional
Amount
2/2020
2/2020
2/2020
5/2020
5/2020
9/2019
1/2024
$
€9,500
€29,000
$16,000
£4,500
£19,500
$30,000
$225,000
Foreign currency contracts - cross-currency debt swap - Euro
Foreign currency contracts - cross-currency debt swaps - Pound
(1)
(1)
04/2020
04/2020
€5,280
£6,395
Subtotal
Total fair value
11
1,047
168
—
248
—
512
1,986
—
—
—
Other
Assets
$ — $
—
—
—
—
—
—
—
218
—
218
218
— $
—
—
200
—
58
—
258
—
—
—
—
—
—
—
13
—
339
352
—
292
292
644
$
1,986
$
$
258
$
(1) These are foreign currency contracts for which we have not elected hedge accounting. We refer to them as “cross-
currency debt swaps”. They, in effect, adjust the currency denomination of a portion of our outstanding debt to the Euro
and British Pound, as applicable, for the notional amounts reported, creating an economic hedge against currency
movements.
The pre-tax effect of derivative instruments for fiscal 2020 and 2019 is as follows:
Years Ended Last Day of February,
Gain (Loss)
Recognized in OCI
(effective portion)
Gain (Loss) Reclassified from
Accumulated Other Comprehensive
Income (Loss) into Income
Gain (Loss) Recognized
As Income
(in thousands)
2020
2019
Location
2020
2019
Location
2020
2019
Currency contracts - cash flow hedges
$
(2,756) $
(94) SG&A
$
(2,977) $
(2,488)
$ — $
Interest rate swaps - cash flow hedges
(10,890)
(2,308)
Interest expense
Cross-currency debt swaps - principal
Cross-currency debt swaps - interest
—
—
—
—
—
—
—
— Interest expense
(262)
— SG&A
— Interest Expense
574
147
459
$
—
515
700
147
Total
$ (13,646) $
(2,402)
$
(2,977) $
(2,488)
$
1,362
We expect a loss of $2.1 million associated with foreign currency contracts and interest rate swaps
currently reported in accumulated other comprehensive income, to be reclassified into income over the
next twelve months. The amount ultimately realized, however, will differ as exchange rates change and
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the underlying contracts settle. See Notes 1, 17 and 19 to these consolidated financial statements for
more information on our hedging activities.
Counterparty Credit Risk – Financial instruments, including foreign currency contracts, cross-currency
debt swaps and interest rate swaps, expose us to counterparty credit risk for nonperformance. We
manage our exposure to counterparty credit risk by dealing with counterparties who are substantial
international financial institutions with significant experience using such derivative instruments. Although
our theoretical credit risk is the replacement cost at the then-estimated fair value of these instruments, we
believe that the risk of incurring credit risk losses is remote.
Risks Inherent in Cash and Cash Equivalents – As the levels of our cash and cash equivalents
change, they can become more subject to foreign exchange rate risk, interest rate risk, credit risk, and
liquidity risk. Cash consists of interest-bearing, non-interest-bearing and short-term investment
accounts. We consider money market accounts to be cash equivalents.
The following table summarizes our cash and cash equivalents at the end of fiscal 2020 and 2019:
(in thousands)
Cash, interest and non-interest-bearing accounts
Money market funds
Total cash and cash equivalents
Fiscal Years Ended Last Day of February
2019
2020
Carrying
Amount
Range of
Interest Rates
Carrying
Amount
$
$
21,819
2,648
24,467
0.00 to 0.30% $
0.15% to 5.39%
$
10,956
915
11,871
Range of
Interest Rates
0.00 to 0.30%
0.00 to 1.25%
Note 19 - Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) by component and related tax effects
for fiscal 2020 and 2019 were as follows:
(in thousands)
Balance at February 28, 2018
Other comprehensive income (loss) before reclassification
Amounts reclassified out of accumulated other comprehensive income
Tax effects
Other comprehensive income (loss)
Balance at February 28, 2019
Other comprehensive income (loss) before reclassification
Amounts reclassified out of accumulated other comprehensive income
Tax effects
Other comprehensive income (loss)
Balance at February 29, 2020
Interest
Rate Swaps
1,705
$
(2,308)
—
735
(1,573)
132
(10,890)
—
2,559
(8,331)
(8,199) $
$
$
$
Foreign
Currency
Contracts
$
(1,074) $
(94)
2,488
(261)
2,133
1,059
(2,756)
2,977
(86)
135
1,194
$
$
Total
631
(2,402)
2,488
474
560
1,191
(13,646)
2,977
2,473
(8,196)
(7,005)
See Notes 1, 17 and 18 to these consolidated financial statements for additional information regarding
our hedging activities.
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Note 20 - Segment and Geographic Information
The following table contains segment information included in continuing operations.
SEGMENT INFORMATION
(in thousands)
Fiscal 2020
Sales revenue, net
Asset impairment charges
Restructuring charges
Operating income
Identifiable assets (2)
Capital and intangible asset expenditures
Depreciation and amortization
(in thousands)
Fiscal 2019
Sales revenue, net
Asset impairment charges
Restructuring charges
Operating income
Identifiable assets
Capital and intangible asset expenditures
Depreciation and amortization
(in thousands)
Fiscal 2018
Sales revenue, net
Asset impairment charges
Restructuring charges
Operating income
Identifiable assets
Capital and intangible asset expenditures
Depreciation and amortization
Housewares
Health & Home
Beauty (1)
Total
$
640,965 $
685,397 $
—
1,351
123,135
723,491
10,602
7,298
—
93
68,166
652,390
5,853
16,113
381,070 $ 1,707,432
41,000
3,313
178,251
1,903,883
17,759
37,409
41,000
1,869
(13,050)
528,002
1,304
13,998
Housewares
Health & Home
Beauty
Total
$
523,807 $
695,217 $
—
926
100,743
698,519
16,023
6,048
—
686
68,448
686,335
8,508
17,058
345,127 $ 1,564,151
—
3,586
199,379
1,649,335
26,385
29,927
—
1,974
30,188
264,481
1,854
6,821
Housewares
Health & Home
Beauty
$
459,004 $
674,062 $
—
220
89,319
664,622
8,537
5,825
—
—
62,099
675,627
3,716
16,750
345,779
15,447
1,637
17,644
283,468
1,352
11,155
Total
1,478,845
15,447
1,857
169,062
1,623,717
13,605
33,730
(1) Includes approximately five weeks of operating results from the Drybar Products acquisition, which was completed on
January 23, 2020.
(2) Includes assets held for sale of $44,806 related to the Personal Care business in our Beauty segment (see Note 5)
We compute segment operating income based on net sales revenue, less cost of goods sold, SG&A and
any asset impairment charges associated with the segment. The SG&A used to compute each
segment’s operating income is directly associated with the segment, plus shared service and corporate
overhead expenses that are allocable to the segment. We have reallocated corporate overhead
expenses to the above continuing segments that were previously allocated to our former Nutritional
Supplements segment. We do not allocate nonoperating income and expense, including interest or
income taxes, to operating segments.
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GEOGRAPHIC INFORMATION
The following table provides net sales revenue by geographic region, in U.S. Dollars:
(in thousands)
Sales revenue, net by geographic region
United States
Canada
EMEA
Asia Pacific
Latin America
Total sales revenue, net
Fiscal Years Ended
Last Day of February,
2020
2019 (1)
2018 (1)
$ 1,357,345
71,417
138,858
99,378
40,434
$ 1,707,432
79.5% $ 1,221,806
66,855
4.2%
143,024
8.1%
90,073
5.8%
2.4%
42,393
100% $ 1,564,151
78.1% $ 1,161,698
58,856
4.3%
143,668
9.1%
75,376
5.8%
2.7%
39,247
100% $ 1,478,845
78.6%
4.0%
9.7%
5.1%
2.7%
100%
(1) We adopted ASU 2014-09, Revenue of Contracts with Customers (Topic 606) in the first quarter of fiscal 2019 and have
reclassified amounts in the prior year’s statements of income to conform to the current period’s presentation (see Note 3).
Worldwide sales to our largest customer accounted for approximately 18%, 16% and 13% of our
consolidated net sales revenue in fiscal 2020, 2019 and 2018, respectively. Sales to our second largest
customer accounted for approximately 14%, 16% and 17% of our consolidated net sales revenue in fiscal
2020, 2019 and 2018, respectively. Sales to our third largest customer did not account for 10% or more
of our consolidated net sales revenue in fiscal 2020, however, did account for 10% of our consolidated
net sales revenue in fiscal 2019 and 2018, respectively. No other customers accounted for 10% or more
of consolidated net sales revenue during those fiscal years. Sales to our top five customers accounted
for approximately 50%, 51% and 49% of our consolidated net sales revenue in fiscal 2020, 2019 and
2018, respectively. Our domestic and international long-lived assets were as follows:
(in thousands)
United States
International:
Barbados
Other international
Subtotal
Total
Fiscal Years Ended Last Day of February,
2020
453,784
$
2019
416,521
$
2018
437,920
$
606,261
161,002
767,263
$ 1,221,047
499,589
128,566
628,155
$ 1,044,676
496,258
131,831
628,089
$ 1,066,009
The table above classifies assets based upon the country where we hold legal title.
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Note 21 - Selected Quarterly Financial Data (Unaudited)
Selected unaudited quarterly financial data is as follows (in thousands except share data):
SELECTED QUARTERLY FINANCIAL DATA
Fiscal Year 2020:
Sales revenue, net
Gross profit
Asset impairment charges
Restructuring charges
Income (loss) from continuing operations
Loss from discontinued operations
Earnings (loss) per share (1)
Basic
Continuing operations
Discontinued operations
Total earnings (loss) per share
Diluted
Continuing operations
Discontinued operations
Total earnings (loss) per share
Fiscal Year 2019:
Sales revenue, net
Gross profit
Asset impairment charges
Restructuring charges
Income from continuing operations
Loss from discontinued operations
Earnings (loss) per share (1)
Basic
Continuing operations
Discontinued operations
Total earnings per share
Diluted
Continuing operations
Discontinued operations
Total earnings per share
May
376,335 $
153,727
—
619
40,694
—
August
November
February
Total
413,995 $
178,151
—
430
46,095
—
474,737 $
209,973
—
12
68,699
—
442,365 $ 1,707,432
734,466
192,615
41,000
41,000
3,313
2,252
152,333
(3,155)
—
—
1.63 $
—
1.63 $
1.61 $
—
1.61 $
1.84 $
—
1.84 $
1.83 $
—
1.83 $
2.73 $
—
2.73 $
2.71 $
—
2.71 $
(0.13) $
—
(0.13) $
(0.13) $
—
(0.13) $
6.06
—
6.06
6.02
—
6.02
May
354,679 $
146,558
—
1,725
38,173
(381)
August
November
February
Total
393,548 $
155,173
—
859
44,017
—
431,081 $
181,845
—
25
54,320
(4,850)
384,843 $ 1,564,151
641,106
157,530
—
—
3,586
977
174,224
37,714
(5,679)
(448)
1.44 $
(0.01)
1.42 $
1.43 $
(0.01)
1.42 $
1.67 $
—
1.67 $
1.66 $
—
1.66 $
2.08 $
(0.19)
1.90 $
1.49 $
(0.02)
1.47 $
2.06 $
(0.18)
1.88 $
1.47 $
(0.02)
1.45 $
6.68
(0.22)
6.46
6.62
(0.22)
6.41
$
$
$
$
$
$
$
$
$
$
(1) Earnings per share calculations for each quarter are based on the weighted average number of shares outstanding
for each period, and the sum of the quarterly amounts may not necessarily equal the annual earnings per share
amounts.
Note 22 - Income taxes
We reorganized the Company in Bermuda in 1994 and many of our foreign subsidiaries are not directly
or indirectly owned by a U.S. parent. As such, a large portion of our foreign income is not subject to U.S.
taxation on a permanent basis under current law. Additionally, our intellectual property is largely owned
by foreign subsidiaries, resulting in proportionally higher earnings in jurisdictions with lower statutory tax
rates, which decreases our overall effective tax rate. The taxable income earned in each jurisdiction,
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whether U.S. or foreign, is determined by the subsidiary's operating results, and transfer pricing and tax
regulations in the related jurisdictions.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted
signed into law. The CARES Act is an emergency economic stimulus package in response to the
COVID-19 outbreak, which contains numerous tax provisions. Among other things, the CARES Act
amended the net operating loss provisions and provides a payment delay of employer payroll taxes
during 2020 after the date of enactment. We are currently evaluating the impact of the CARES Act and
will begin to reflect any impact during the period of enactment, which is our first quarter of fiscal 2021.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. Among other
changes, the Tax Act lowered the U.S. statutory corporate income tax rate from 35% to 21% and
established a modified territorial system requiring a mandatory deemed repatriation tax on undistributed
earnings of certain foreign subsidiaries. The rate change was effective at the beginning of calendar year
2018 and, as a result, we were subject to a blended U.S. federal statutory tax rate of 32.7% for our fiscal
2018 and a tax rate of 21% for subsequent periods.
Under accounting standards for income taxes, the impact of new tax legislation must be taken into
account in the period in which it is enacted. Subsequent to the Tax Act, the SEC issued Staff Accounting
Bulletin 118 (“SAB 118”) allowing companies to use provisional estimates to record the effects of the Tax
Act. SAB 118 also provides a measurement period (not to exceed one year from the date of enactment)
to complete the accounting for the impacts of the Tax Act.
As a result of the enactment, we recorded a provisional tax charge of $17.9 million in fiscal 2018 related
to the one-time remeasurement of our U.S. deferred tax assets and liabilities based on the rates at which
they are expected to reverse in the future, the one-time repatriation tax applied to our undistributed
foreign earnings and the impact of executive compensation that is no longer deductible under the Tax
Act. In accordance with SAB 118, we completed the accounting for the tax effects of the Tax Act and
recorded immaterial adjustments to the provisional tax charge during the fourth quarter of fiscal 2019.
The Tax Act introduced new provisions for U.S. taxation of certain global intangible low-taxed income
(“GILTI”). The Company elected to account for the tax on GILTI as a period cost and therefore has not
recorded deferred taxes related to GILTI on its foreign subsidiaries.
In connection with the enactment of the Tax Act, we repatriated $48.3 million of cash held in our U.S.
owned foreign subsidiaries without such funds being subject to further U.S. federal income tax. As of
February 29, 2020, we had approximately $22.3 million of undistributed earnings in these U.S. owned
foreign subsidiaries. While U.S. federal tax expense has been recognized as a result of the Tax Act, no
deferred tax liabilities with respect to items such as certain foreign exchange gains or losses, foreign
withholding taxes or state taxes have been recognized.
No deferred taxes have been provided on the undistributed earnings of our subsidiaries since these
earnings will continue to be permanently reinvested. Due to the number of legal entities and jurisdictions
involved, our legal entity structure, and the tax laws in the relevant jurisdictions, we believe it is not
practicable to estimate the amount of additional taxes which may be payable upon distribution of these
undistributed earnings.
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Our components of income before income tax expense are as follows:
(in thousands)
U.S.
Non-U.S.
Total
Our components of income tax expense (benefit) are as follows:
Fiscal Years Ended Last Day of February,
2020
2019
2018
$
$
40,146
$
32,135
$
23,824
125,794
155,865
131,614
165,940
$
188,000
$
155,438
(in thousands)
U.S.
Current
Deferred
Non-U.S.
Current
Deferred
Total
Fiscal Years Ended Last Day of February,
2019
2020
2018
$
16,732
$
2,460
$
(4,789)
11,943
10,480
12,940
2,571
(907)
1,664
2,102
(1,266)
836
3,380
19,578
22,958
1,912
1,686
3,598
$
13,607
$
13,776
$
26,556
Our total income tax expense differs from the amounts computed by applying the U.S. statutory tax rate
to income before income taxes. A income tax rate reconciliation of these differences are as follows:
Fiscal Years Ended Last Day of
February,
2019
2018
2020
Effective income tax rate at the U.S. statutory rate
Impact of U.S. state income taxes
Effect of statutory tax rate in Macau
Effect of statutory tax rate in Barbados
Effect of statutory tax rate in Europe
Effect of income from other non-U.S. operations subject to varying rates
Effect of foreign exchange fluctuations
Effect of asset impairment charges
Effect of U.S. tax reform
Effect of uncertain tax positions
Effect of nondeductible executive compensation
Effect of base erosion and anti-abuse tax
Other items
Effective income tax rate
21.0 %
1.6 %
(13.6)%
(5.5)%
(0.4)%
2.3 %
0.7 %
2.4 %
— %
(1.7)%
1.4 %
— %
— %
8.2 %
21.0 %
1.2 %
(10.3)%
(5.9)%
(1.9)%
1.8 %
0.2 %
— %
(0.1)%
(0.6)%
0.9 %
1.0 %
— %
7.3 %
32.7 %
0.5 %
(19.5)%
(5.2)%
(5.3)%
2.1 %
0.3 %
2.2 %
11.5 %
(1.3)%
0.6 %
— %
(1.5)%
17.1 %
Our Macau subsidiary generates income from the sale of the goods that it has sourced and
procured. This subsidiary is responsible for the sourcing and procurement of a large portion of the
products that we sell. We currently have an indefinite tax holiday in Macau conditioned on the subsidiary
meeting certain employment and investment thresholds. The Macau Offshore Law and its
supplementary regulations that grant tax incentives to approved offshore institutions will be abolished on
January 1, 2021. Existing approved offshore institutions such as ours can continue to operate under the
offshore regime until the end of the calendar year 2020. Beginning in calendar year 2021, we believe our
Macau subsidiary will become subject to a statutory corporate income tax of approximately 12%. The
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ultimate impact of this change, if any, on our overall effective tax rate will depend on a variety of factors
including our mix of income by jurisdiction, transfer pricing considerations and the specific tax regulations
applicable to us when we are no longer under the Macau Offshore regime. It is not practicable for us to
determine the potential impact on our financial statements until the tax changes in Macau are fully
established and our transfer pricing analysis is complete. Because our Macau subsidiary is not directly
or indirectly owned by a U.S. parent, there is no U.S. tax liability associated with the income generated in
Macau.
Each year there are significant transactions or events that are incidental to our core businesses and that
by a combination of their nature and jurisdiction, can have a disproportionate impact on our reported
effective tax rates. Without these transactions or events, the trend in our effective tax rates would follow a
more normalized pattern.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets
and liabilities as of the last day of February 2020 and 2019 are as follows:
(in thousands)
Deferred tax assets, gross:
Operating loss carryforwards
Accounts receivable
Inventories
Operating lease liabilities
Accrued expenses and other
Total gross deferred tax assets
Valuation allowance
Deferred tax liabilities:
Operating lease assets
Depreciation and amortization
Total deferred tax assets, net
Fiscal Years Ended
Last Day of February,
2020
2019
$
13,908
$
18,300
5,467
8,751
10,451
7,692
46,269
4,680
7,806
—
8,293
39,079
(14,073)
(17,086)
(7,573)
(14,212)
—
(19,750)
$
10,411
$
2,243
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. We consider the scheduled reversal of
deferred tax liabilities, expected future taxable income and tax planning strategies in assessing the
ultimate realization of deferred tax assets. If recovery is not likely, we must increase our provision for
taxes by recording a valuation allowance against the deferred tax assets that we estimate will not be
recoverable. In fiscal 2020, the $3.0 million net decrease in our valuation allowance was principally due
to a reduction in the value of the operating loss carryforwards to be used in the future.
The composition of our operating loss carryforwards at the end of fiscal 2020 is as follows:
(in thousands)
U.S. state operating loss carryforward
Non-U.S. operating loss carryforwards with definite carryover periods
Non-U.S. operating loss carryforwards with indefinite carryover periods
Subtotals
Less portion of valuation allowance established for operating loss
carryforwards
Total
102
Tax Year
Expiration
Date Range
2028-2038
2021-2037
Indefinite
February 29, 2020
Deferred
Tax
Assets
Operating
Loss
Carryforward
245
1,823
11,840
13,908 $
4,149
6,917
43,369
54,435
(13,406)
502
$
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Any future amount of deferred tax asset considered realizable could be reduced in the near term if
estimates of future taxable income during any carryforward periods are reduced.
During fiscal 2020 and 2019, changes in the total amount of unrecognized tax benefits were as follows:
(in thousands)
Fiscal Years Ended
Last Day of February,
2020
2019
Total unrecognized tax benefits, beginning balance
$
3,205
$
4,428
Resolution of tax dispute
Changes in tax positions taken during a prior period
Lapse in statute of limitations
Impact of foreign currency re-measurement
Settlements
Total unrecognized tax benefits, ending balance
Less current unrecognized tax benefits
Noncurrent unrecognized tax benefits
—
(2,819)
—
—
(273)
113
—
$
113
$
—
15
(1,057)
(161)
(20)
3,205
(316)
2,889
Included in the balance of unrecognized tax benefits at the end of fiscal 2019 were $3.2 million (includes
interest) of tax benefits, which were principally reversed during fiscal 2020. We do not expect any
significant changes to our existing unrecognized tax benefits during the next twelve months resulting
from any issues currently pending with tax authorities.
We classify interest and penalties on uncertain tax positions as income tax expense. At the end of fiscal
2020 and 2019, the liability for tax-related interest and penalties included in unrecognized tax benefits
was $0.1 and $0.6 million, respectively. Additionally, during fiscal 2020, 2019 and 2018 we recognized
tax benefits from tax-related interest and penalties of $0.5, $0.5 and $0.5 million, respectively, in the
consolidated statements of income.
We file income tax returns in the U.S. federal jurisdiction and in various states and foreign jurisdictions.
We do not expect that any proposed adjustments from these tax jurisdictions will have a material impact
on our consolidated financial statements.
As of February 29, 2020, tax years under examination or still subject to examination by material tax
jurisdictions are as follows:
Jurisdiction
Tax Years Under Examination
Open Tax Years
United Kingdom
United States
Switzerland
Hong Kong
- None -
2017 - 2018
- None -
- None -
2019
2017
2016
2014
—
—
—
—
2020
2020
2020
2020
During fiscal 2017 we received an assessment from a state tax authority which adjusted taxable income
applicable to the particular state resulting from interpretations of certain state income tax provisions
applicable to our legal structure. We believe we have accurately reported our taxable income and are
vigorously protesting the assessment through administrative processes with the state. We believe it is
unlikely that the outcome of these matters will have a material adverse effect on our consolidated
financial position, results of operations, or liquidity.
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Note 23 - Earnings Per Share
We compute basic earnings per share using the weighted average number of shares of common stock
outstanding during the period. We compute diluted earnings per share using the weighted average
number of shares of common stock outstanding plus the effect of dilutive securities. Dilutive securities at
any given point in time may consist of outstanding options to purchase common stock and issued and
contingently issuable unvested RSUs, PSUs, RSAs, PSAs and other stock-based awards (see Note
11). Anti-dilutive securities are not included in the computation of diluted earnings per share under the
treasury stock method.
For fiscal 2020, 2019 and 2018, the components of basic and diluted shares were as follows:
WEIGHTED AVERAGE DILUTED SECURITIES
(in thousands)
Weighted average shares outstanding, basic
Incremental shares from share-based compensation arrangements
Weighted average shares outstanding, diluted
Antidilutive securities
Note 24 - Subsequent Events
Fiscal Years Ended Last Day of February,
2019
2020
2018
25,118
204
25,322
197
26,073
230
26,303
262
27,077
177
27,254
319
On March 13, 2020, the President of the United States announced a National Emergency relating to
COVID-19. There is a possibility of widespread infection in the U.S. and abroad, with the potential for
catastrophic impact. As a result of these and other effects of COVID-19, we expect the current public
health crisis to adversely impact our business, which may be material. The impact includes the effect of
temporary closures of, and limited hours of operation and materially lower store traffic at, customer
stores. The COVID-19 pandemic is also impacting our third-party manufacturers, most of which are
located in the Far East, principally China. The extent of the impact of COVID-19 on our business and
financial results will depend largely on future developments, including the duration of the spread of the
COVID-19 outbreak within the U.S. and globally, the impact on capital and financial markets and the
related impact on consumer confidence and spending. These future developments are outside of our
control, are highly uncertain and cannot be predicted. If the impact is prolonged, then it can further
increase the difficulty of planning for operations. These and other potential impacts of the current public
health crisis could therefore materially and adversely affect our business, financial condition, cash flows
and results of operations. This situation is changing rapidly, and additional impacts may arise that we are
currently not aware of. Accordingly, the results for the first quarter of fiscal 2021 and the full fiscal 2021
could also be impacted in ways that we are not able to predict today, including, but not limited to, non-
cash write-downs and asset impairment charges (including impairments on goodwill and other indefinite-
lived intangible assets).
On March 13, 2020, we entered into an amendment to the Credit Agreement. The amendment extended
the maturity of the commitment under the Credit Agreement from December 7, 2021 to March 13, 2025.
Further, the amendment increased the unsecured revolving commitment from $1.0 billion to $1.25 billion.
See Note 16.
On March 24, 2020, we borrowed approximately $200 million under the Credit Agreement as part of a
comprehensive precautionary approach to increase our cash position and maximize our financial
flexibility in light of the current volatility in the global markets resulting from the COVID-19 outbreak. After
giving effect to the borrowing, the remaining amount available for borrowings under the Credit Agreement
was $536.4 million and our cash and cash equivalents on hand was approximately $393.0 million.
Covenants in our debt agreements can limit the amount of indebtedness we can incur. We may repay
amounts borrowed at any time without penalty.
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HELEN OF TROY LIMITED AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
(in thousands)
Year Ended February 28, 2018
Allowances for doubtful accounts
Year Ended February 28, 2019
Allowances for doubtful accounts
Year Ended February 29, 2020
Allowances for doubtful accounts
Beginning
Balance
Additions (1) Deductions (2)
Ending
Balance
$
$
$
3,266 $
1,066 $
1,420 $
2,912
2,912 $
1,097 $
1,977 $
2,032
2,032 $
529 $
1,100 $
1,461
All amounts presented above have been restated to exclude the impact of our discontinued operations.
(1) Represents periodic charges to the provision for doubtful accounts.
(2) Represents write-offs of doubtful accounts, net of recoveries of previously reserved amounts.
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Item 9. Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive
Officer (CEO) and Chief Financial Officer (CFO), we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures as defined in Rule 13a-15(e) promulgated under the
Exchange Act as of February 29, 2020. In conducting our evaluation of the effectiveness of internal
control over financial reporting, we have excluded the assets and liabilities and results of operations of
Drybar Products, which we acquired on January 23, 2020, in accordance with the Securities and
Exchange Commission’s guidance concerning the reporting of internal controls over financial reporting in
connection with a material acquisition. The assets and net sales revenue of Drybar Products that were
excluded from our assessment constituted approximately 1.6 and 0.4 percent, respectively, of the related
consolidated financial statement amounts as of and for the year ended February 29, 2020.
Based upon that evaluation, which excluded the internal control over financial reporting of Drybar
Products, our CEO and CFO concluded that our disclosure controls and procedures are effective to
ensure that information we are required to disclose in reports that we file or submit under the Exchange
Act is accumulated and communicated to management, including the CEO and CFO, as appropriate to
allow timely decisions regarding required disclosure and is recorded, processed, summarized, and
reported within the time periods specified in the SEC’s rules and forms.
Management’s Report on Internal Control Over Financial Reporting
The management’s report on internal control over financial reporting and the attestation report on internal
controls over financial reporting of the independent registered public accounting firm required by this item
are set forth under Item 8., “Financial Statements and Supplementary Data” of this report on Form 10-K
and are incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
In connection with the evaluation described above, we identified no change in our internal control over
financial reporting as defined in Rule 13a-15(f) promulgated under the Exchange Act that occurred during
our fiscal year ended February 29, 2020, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information in our definitive Proxy Statement for the 2020 Annual General Meeting of Shareholders (the
“Proxy Statement”) is incorporated by reference in response to this Item 10, as noted below:
•
•
•
•
•
Information about our Directors who are standing for re-election is set forth under “Election of
Directors”;
Information about our executive officers is set forth under “Executive Officers”;
Information about our Audit Committee, including members of the committee, and our
designated “audit committee financial experts” is set forth under “Corporate Governance” and
“Board Committees and Meetings”;
Information about Section 16(a) beneficial ownership reporting compliance is set forth under
“Section 16(a) Beneficial Ownership Reporting Compliance”; and
Information about any material changes to procedures for recommending nominees to the
board of directors is set forth under “Board Committees and Meetings.”
We have adopted a Code of Ethics governing our Chief Executive Officer, Chief Financial Officer,
Principal Accounting Officer, and finance department members. The full text of our Code of Ethics is
published on our website, at www.helenoftroy.com, under the “Investor Relations-Corporate Governance”
caption. We intend to disclose future amendments to, or waivers from, certain provisions of this Code on
our website or in a current report on Form 8-K.
Item 11. Executive Compensation
Information set forth under the captions “Director Compensation”; “Executive Compensation”;
“Compensation Discussion and Analysis”; “Compensation Committee Interlocks and Insider
Participation”; and “Report of the Compensation Committee” in our Proxy Statement is incorporated by
reference in response to this Item 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters
Information set forth under the captions “Security Ownership of Certain Beneficial Owners and
Management” and “Executive Compensation” in our Proxy Statement is incorporated by reference in
response to this Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information set forth under the captions “Certain Relationships - Related Person Transactions”;
“Corporate Governance”; and “Board Committees and Meetings” in our Proxy Statement is incorporated
by reference in response to this Item 13.
Item 14. Principal Accounting Fees and Services
Information set forth under the caption “Audit and Other Fees Paid to our Independent Registered Public
Accounting Firm” in our Proxy Statement is incorporated by reference in response to this Item 14.
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Item 15. Exhibits, Financial Statement Schedules
PART IV
(a)
1. Financial Statements: See “Index to Consolidated Financial Statements” under Item 8 in this
Report on Form 10-K.
3. Exhibits
The exhibit numbers succeeded by an asterisk (*) indicate exhibits physically filed with this Form 10-K.
The exhibit numbers succeeded by an asterisk (**) indicate exhibits furnished with this Form 10-K that
are not deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise
are not subject to liability. All other exhibit numbers indicate exhibits filed by incorporation by reference.
Exhibit numbers succeeded by a cross (†) are management contracts or compensatory plans or
arrangements.
2.1
3.1
3.2
4.1*
10.1†
10.2†
10.3†
10.4†
10.5
10.6
10.7
Agreement and Plan of Merger dated as of December 8, 2010, among Helen of Troy Texas
Corporation, KI Acquisition Corp., Kaz, Inc., the Company, and the Kaz, Inc. shareholders
party thereto (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on
Form 8-K, filed with the Securities and Exchange Commission on December 9, 2010).
Memorandum of Association (incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-4, File No. 33-73594, filed with the Securities and
Exchange Commission on December 30, 1993 (the “1993 S-4”)).
Amended and Restated Bye-Laws (incorporated by reference to Appendix A to the
Company's Definitive Proxy Statement on Schedule 14A, File No. 001-14669, filed with the
Securities and Exchange Commission on June 27, 2016).
Description of the Company's Securities registered pursuant to Section 12 of the Securities
and Exchange Act of 1934.
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 of the
Company's Annual Report on Form 10-K for the fiscal year ended February 28, 2014, filed
with the Securities and Exchange Commission on April 29, 2014 (the “2014 10-K”)).
Helen of Troy Limited 2008 Non-Employee Directors Stock Incentive Plan (incorporated by
reference to Appendix C to the 2008 Proxy Statement).
Helen of Troy Limited Amended and Restated 2008 Stock Incentive Plan (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on August 25, 2015).
Amended and Restated Helen of Troy Limited 2011 Annual Incentive Plan (incorporated by
reference to Exhibit 10.1 of the Company’s Quarterly Report on 10-Q, filed with the
Securities and Exchange Commission on October 11, 2016).
Loan Agreement, dated as of March 1, 2013, by and between Kaz USA, Inc. and
Mississippi Business Finance Corporation (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K, filed with the Securities and Exchange
Commission on March 26, 2013).
Guaranty Agreement, dated as of March 1, 2013, by Helen of Troy Limited and certain of its
subsidiaries in favor of Bank of America, N.A. (incorporated by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K, filed with the Securities and Exchange
Commission on March 26, 2013).
Trust Indenture, dated as of March 1, 2013 between Mississippi Business Finance
Corporation and Deutsche Bank National Trust, as trustee (incorporated by reference to
Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the Securities and
Exchange Commission on March 26, 2013).
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10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
First Amendment to Guaranty Agreement, dated as of February 7, 2014, made by Helen of
Troy, L.P., Helen of Troy Limited, a Barbados company, HOT Nevada, Inc, Helen of Troy
Nevada Corporation, Helen of Troy Texas Corporation, Idelle Labs Ltd., OXO International
Ltd., Helen of Troy Macao Commercial Offshore Limited, Kaz, Inc., Kaz USA, Inc., Kaz
Canada, Inc., and Pur Water Purification Products, Inc., in favor of Bank of America, N.A.
(incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K,
filed with the Securities and Exchange Commission on February 10, 2014).
Second Amendment to Guaranty Agreement, dated as of June 11, 2014, made by Helen of
Troy Limited and certain of its subsidiaries in favor of Bank of America, N.A. (incorporated
by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed with the
Securities and Exchange Commission on June 17, 2014).
Amended and Restated Credit Agreement dated January 16, 2015, by and among Helen of
Troy, L.P., a Texas limited partnership, Helen of Troy Limited, a Bermuda company, Bank of
America, N.A., as administrative agent, and the other lenders party thereto (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the
Securities and Exchange Commission on January 20, 2015).
First Amendment to Amended and Restated Credit Agreement dated December 7, 2016, by
and among Helen of Troy, L.P., a Texas limited partnership, Helen of Troy Limited, a
Bermuda company, Bank of America, N.A., as administrative agent, and the other lenders
party thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report
on Form 8-K, filed with the Securities and Exchange Commission on December 13, 2016).
Amended and Restated Guaranty, dated March 1, 2018, made by Helen of Troy Limited
and certain of its subsidiaries in favor of Bank of America, N.A. and other lenders, pursuant
to the Amended and Restated Credit Agreement, dated January 16, 2015 (incorporated by
reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K for the fiscal year
ended February 28, 2019, filed with the Securities and Exchange Commission on April
29,2019 (the “2019 10-K”)).
Third Amendment to Guaranty Agreement, dated as of January 16, 2015, made by Helen of
Troy Limited and certain of its subsidiaries in favor of Bank of America, N.A. (incorporated
by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, filed with the
Securities and Exchange Commission on January 20, 2015).
Fourth Amendment to Guaranty Agreement, dated as of December 7, 2016, made by Helen
of Troy Limited and certain of its subsidiaries in favor of Bank of America, N.A.
(incorporated by reference to Exhibit 10.22 of the Company’s Annual Report on Form 10-K
for the fiscal year ended February 28, 2017, filed with the Securities and Exchange
Commission on May 1, 2017 (the “2017 10-K”)).
First Supplemental Trust Indenture, dated as of March 1, 2014, by and between Mississippi
Business Finance Corporation and Deutsche Bank National Trust, as trustee (incorporated
by reference to Exhibit 10.24 of the Company’s Annual Report on Form 10-K for the fiscal
year ended February 28, 2015, filed with the Securities and Exchange Commission on April
29, 2015 (the “2015 10-K”)).
Second Supplemental Trust Indenture, dated as of February 18, 2015 but effective
February 1, 2015, by and between Mississippi Business Finance Corporation and Deutsche
Bank National Trust, as trustee (incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K, filed with the Securities and Exchange Commission on
February 23, 2015).
Third Supplemental Trust Indenture, dated as of December 7, 2016, but effective December
1, 2016, by and between Mississippi Business Finance Corporation and Deutsche Bank
National Trust, as trustee (incorporated by reference to Exhibit 10.25 of the 2017 10-K).
Second Amendment, Assumption, Consent and Ratification Agreement, dated effective as
of March 1, 2018, by and among Helen of Troy Limited, a Bermuda company, Helen of Troy
Texas Corporation, a Texas corporation, Helen of Troy L.P., a Texas limited partnership, the
guarantors party thereto, Bank of America, N.A., as administrative agent, and the other
lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed with the Securities and Exchange Commission on March 7,
2018).
109
Table of Contents
10.19
10.20†
10.21†
10.22†
10.23†
10.24
10.25
21*
23.1*
31.1*
31.2*
32**
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
104
Third Amendment and Commitment Increase to Amended and Restated Credit Agreement
dated March 13, 2020, by and among Helen of Troy Texas Corporation, a Texas
Corporation, Helen of Troy Limited, a Bermuda company, Bank of America, N.A., as
administrative agent, and the other lenders party thereto (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and
Exchange Commission on March 17, 2020).
Amended and Restated Employment Agreement among Helen of Troy Nevada Corporation,
Helen of Troy Limited, a Bermuda company, Helen of Troy Limited, a Barbados company,
and Julien Mininberg, effective March 1, 2019 (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 7, 2018).
Helen of Troy Limited 2018 Stock Incentive Plan (incorporated by reference to Annex B of
the Company's Definitive Proxy Statement on Schedule 14A, filed with the Securities and
Exchange Commission on June 28, 2018).
Helen of Troy Limited 2018 Employee Stock Purchase Plan (incorporated by reference to
Annex C of the Company's Definitive Proxy Statement on Schedule 14A, filed with the
Securities and Exchange Commission on June 28, 2018).
Severance Agreement among Helen of Troy Nevada Corporation, a Nevada
corporation,Helen of Troy Limited, a Bermuda company, and Brian L. Grass, effective June
17, 2019 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-Kfiled with the Securities and Exchange Commission on June 21, 2019).
Fourth Supplemental Trust Indenture, dated effective as of September 28, 2018, by and
between Mississippi Business Finance Corporation and U.S. Bank National Association
(successor to Deutsche Bank National Trust Company), as trustee (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period
ending November 30, 2018, filed with the Securities and Exchange Commission on January
9, 2019).
Fifth Amendment to Guaranty Agreement, dated effective as of September 28, 2018, made
by Helen of Troy Limited and certain of its subsidiaries in favor of Bank of America, N. A.
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the period ending November 30, 2018, filed with the Securities and Exchange
Commission on January 9, 2019).
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm, Grant Thornton LLP.
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Joint certification of the Chief Executive Officer and the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Inline XBRL Instance Document
Inline XBRL Taxonomy Extension Schema
Inline XBRL Taxonomy Extension Calculation Linkbase
Inline XBRL Taxonomy Extension Definition Linkbase
Inline XBRL Taxonomy Extension Label Linkbase
Inline XBRL Taxonomy Extension Presentation Linkbase
Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101
110
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
HELEN OF TROY LIMITED
By: /s/ Julien R. Mininberg
Julien R. Mininberg
Chief Executive Officer and Director
April 29, 2020
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
/s/ Julien R. Mininberg
Julien R. Mininberg
Chief Executive Officer, Director and Principal
Executive Officer
April 29, 2020
/s/ Brian L. Grass
Brian L. Grass
Chief Financial Officer, Principal Financial Officer and
Principal Accounting Officer
April 29, 2020
/s/ Gary B. Abromovitz
Gary B. Abromovitz
Director, Deputy Chairman of the Board
April 29, 2020
/s/ Timothy F. Meeker
Timothy F. Meeker
Director, Chairman of the Board
April 29, 2020
/s/ Beryl B. Raff
Beryl B. Raff
Director
April 29, 2020
/s/ Darren G. Woody
Darren G. Woody
Director
April 29, 2020
/s/ William F. Susetka
William F. Susetka
Director
April 29, 2020
/s/ Krista Berry
Krista Berry
Director
April 29, 2020
/s/ Thurman K. Case
Thurman K. Case
Director
April 29, 2020
/s/ Vincent D. Carson
Vincent D. Carson
Director
April 29, 2020
111
EXHIBIT 4.1
DESCRIPTION OF REGISTRANT'S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF
THE SECURITIES EXCHANGE ACT OF 1934
Helen of Troy Limited (the “Company,” “our” and “us”) has one class of securities registered under
Section 12 of the Securities Exchange Act of 1934, as amended: our common stock. The following
summary of the terms of our common stock is based upon our Memorandum of Association (the
“Memorandum”) and our Amended and Restated Bye-Laws (the “Bye-Laws”). This summary does not
purport to be complete and is subject to, and is qualified in its entirety by express reference to, the
applicable provisions of our Memorandum and our Bye-Laws, which are incorporated by reference to our
Annual Report on Form 10-K and are incorporated by reference herein. We encourage you to read our
Memorandum, our Bye-Laws and the applicable provisions of the Companies Act 1981 (Bermuda), as
amended (the “Act”), for more information.
Authorized Shares of Capital Stock
DESCRIPTION OF CAPITAL STOCK
The authorized share capital of the Company is 50,000,000 common shares, par value $0.10 per share
(“Common Stock”), and 2,000,000 preference shares, par value $1.00. Please refer to the cover of our
Annual Report on Form 10-K for the number of shares of Common Stock outstanding. There are no
preference shares currently outstanding.
Stock Exchange Listing
Our Common Stock is listed on The Nasdaq Global Select Market under the symbol “HELE.”
Voting Rights
In general, and except as provided below, a shareholder who is present in person and entitled to vote at
an annual general meeting is entitled to one vote on a show of hands regardless of the number of shares
he or she holds. On a poll, the method by which we have conducted our previous annual general
meetings, each shareholder having the right to vote, who is present in person or by proxy, is entitled to
one vote for each share of Common Stock. A poll may be requested by:
the chairman of the meeting;
•
• at least three shareholders present in person or represented by proxy;
• any shareholder or shareholders present in person or represented by proxy and holding between
them not less than one-tenth (10%) of the total voting rights of all the shareholders having the
right to vote at such meeting; or
• any shareholder or shareholders present in person or represented by proxy holding shares in the
Company conferring the right to vote at such meeting, being shares on which an aggregate sum
has been paid up equal to not less than one-tenth of the total amount paid up on all such shares
conferring such right.
Subject to the Act and the Bye-Laws, a director will, except in a contested election, be elected by the
affirmative votes of a majority of the votes cast in accordance with the Bye-Laws in favour of such
nominee by the shareholders entitled to vote in the election. In a contested election, a director will be
elected by a plurality of the votes cast in accordance with the Bye-Laws in favor of such nominee by the
shareholders entitled to vote in the election. A contested election is defined as the situation in which the
number of director nominees exceeds the number of positions on the Company’s Board of Directors (the
“Board”) by election at that general meeting.
Our Bye-Laws provide that any questions posed for the consideration of the shareholders will be decided
by the affirmative votes of a majority of the votes cast in accordance with the Bye-Laws and in the case
of an equality of votes, the resolution will fail. No shareholder is (unless otherwise entitled under the Act)
entitled to vote at any general meeting unless such shareholder has paid all the calls on all shares held
by such shareholder.
The Bye-Laws do not provide for cumulative voting.
Dividends
Subject to the prior rights of any outstanding preference shares, holders of Common Stock are entitled to
receive such dividends as may be lawfully declared from time to time by the Board. Such dividend may
be paid in cash or wholly or partly in specie, in which case the Board may fix the value for distribution in
specie of any assets.
Bermuda law does not permit payment of dividends or distributions of contributed surplus by a company
if there are reasonable grounds for believing that:
•
•
the company is, or would be, after the payment is made, unable to pay its liabilities as they
become due; or
the realizable value of the company’s assets would be less than its liabilities.
Variation of Rights
If, at any time, the share capital is divided into different classes of shares, the rights attached to any class
(unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the
Company is being wound-up, be varied with the consent in writing of the holders of three-fourths (75%) of
the issued shares of that class or with the sanction of a resolution passed by a majority of the votes cast
at a separate general meeting of the holders of the shares of the class in accordance with Section 47(7)
of the Act. The rights conferred upon the holders of the shares of any class or series issued with
preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the
shares of that class or series, be deemed to be varied by the creation or issue of further shares ranking
pari passu therewith.
Rights of Repurchase / Redemption / Sinking Fund
The Company may purchase its own shares for cancellation or acquire them as Treasury Shares (as
defined in the Bye-Laws) in accordance with the Act and on such terms as the Board shall think fit. The
Board may exercise all the powers of the Company to purchase or acquire all or any part of its own
shares in accordance with the Act.
The Common Stock does not have sinking-fund provisions.
Pre-Emptive Rights
Under Bermuda law, unless otherwise provided in a company’s Bye-Laws, shareholders of a company
are not entitled to pre-emptive rights. Our Bye-Laws do not provide for pre-emptive rights.
Call on Shares
The Board may make such calls as it thinks fit upon the shareholders in respect of any moneys (whether
in respect of nominal value or premium) unpaid on the shares allotted to or held by such shareholders
(and not made payable at fixed times by the terms and conditions of issue) and, if a call is not paid on or
before the day appointed for payment thereof, at the discretion of the Board, the shareholder may be
liable to pay the Company interest on the amount of such call at such rate as the Board may determine,
from the date when such call was payable up to the actual date of payment.
The Board may differentiate between the holders as to the amount of calls to be paid and the times of
payment of such calls.
Preferences
Our Board may, subject to the Bye-Laws or a resolution of the shareholders to the contrary, from time to
time, direct the issuance of preference shares in one or more classes and is authorized to fix or alter by
resolution or resolutions, the designations, preferences and relative participating, optional or other
special rights of the shares of each such class and the qualifications, limitations or restrictions thereon,
including but not limited to, determination of the dividend rights, dividend rates, conversion rights, voting
rights, rights in terms of redemption (including sinking fund provisions), redemption price or prices and
liquidation preferences of any wholly unissued class of preference shares and the number of shares
constituting any such class and the designation thereof or any of them; and to increase or decrease the
number of shares of any class subsequent to the issue of shares of such class then outstanding. In case
the number of shares of any class shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution originally fixing the number of
shares in such class.
It is not possible to state the actual effect of the issuance of any preference shares upon the rights of
holders of our Common Stock until the Board determines the specific rights of the holders of that series.
However, the effects might include, among other things:
•
restricting dividends on Common Stock;
• diluting the voting power of Common Stock;
•
• delaying or preventing a change in control of the Company without further action by the
impairing the liquidation rights of Common Stock; or
shareholders.
There are no preference shares currently outstanding.
Rights of Inspection
Members of the general public have the right to inspect the public documents of a company available at
the office of the Registrar of Companies in Bermuda. These documents include:
• our Memorandum;
• any amendment to our Memorandum; and
•
the register of directors of the Company.
Additionally, our shareholders have the right to inspect our minutes of our annual general meeting and
the audited annual financial statements, which, subject to the Bye-Laws, must be presented at the annual
general meeting.
The Register of Members (as defined in the Bye-Laws) is open to inspection by shareholders or
members of the public without charge at the registered office of the Company every business day,
subject to such reasonable restrictions as the Board may impose, so that not less than two hours in each
business day be allowed for inspection. Bermuda law does not provide a general right for shareholders to
inspect or obtain copies of any other corporate records.
Advance Notice Provisions
Generally, for director nominations to be made at an annual general meeting or special general meeting
by a shareholder, the shareholder must provide timely notice in writing and in proper form to the
Secretary of the Company at the Company’s principal executive offices. With respect to an annual
general meeting, a shareholder’s notice of a director nomination would be timely if the notice is received
by the Secretary at the principal executive offices of the Company not less than 60 and not more than 90
days prior to the date of the annual general meeting. With respect to a special general meeting, a
shareholder notice of a director nomination is timely if it is given not later than 10 days following the
earlier of the date on which notice of the special general meeting was posted to shareholders or the date
on which public disclosure of the date of the special general meeting was made. In no event shall an
adjournment, or postponement of a general meeting for which notice has been given commence a new
time period for the giving of a shareholder of record’s notice.
Generally, for business to be properly brought before an annual general meeting or special general
meeting by a shareholder, the business must be a proper matter for shareholder action under applicable
law and the shareholder must provide timely notice in writing and in proper form to the Secretary of the
Company at the Company’s principal executive office. With respect to an annual general meeting, a
shareholder’s notice would be timely if the notice is received by the Secretary at the principal executive
offices of the Company not less than 60 and not more than 90 days prior to the date of the annual
general meeting. With respect to a special general meeting, a shareholder notice is timely if it is given not
later than 10 days following the earlier of the date on which notice of the special general meeting was
posted to shareholders or the date on which public disclosure of the date of the special general meeting
was made. In no event shall an adjournment, or postponement of a general meeting for which notice has
been given commence a new time period for the giving of a shareholder of record’s notice.
Our Bye-Laws set forth the information that must be furnished to the Secretary of the Company in order
for any such notice to be proper.
Board of Directors
The Board will consist of not less than two directors and not more than a maximum number as the Board
may from time to time determine.
Each director is elected for a term of one year or until their successors are elected or appointed, unless
they resign or are earlier removed from office pursuant to our Bye-Laws. If there is a vacancy on the
Board occurring as a result of the death, disability, disqualification or resignation of any director or as a
result of an increase in the size of the Board, the Board or, subject to our Bye-Laws, the shareholders in
a general meeting, shall have the power to appoint any person as a director to fill the vacancy on the
Board.
Subject to our Bye-Laws, the shareholders entitled to vote for the election of directors may, at any special
general meeting convened and held in accordance with these Bye-laws, remove a director, provided that
the notice of any such meeting convened for the purpose of removing a director shall contain a statement
of the intention to do so and be served on such director not less than 60 days before the meeting and at
such meeting the director shall be entitled to be heard on the motion for such director’s removal. If a
director is removed from the Board at a special general meeting, the shareholders may fill the vacancy at
the meeting at which such director is removed. In the absence of such election or appointment, the Board
may fill the vacancy.
Transfer of Shares
The Board may in its absolute discretion and without assigning any reason therefor refuse to register the
transfer of a share which is not fully paid up. The Board shall refuse to register a transfer unless all
applicable consents, authorizations and permissions of any governmental body or agency in Bermuda
have been obtained.
Certain Anti-Takeover Provisions / Change in Control
Our Bye-Laws contain certain provisions that may impede or delay an unsolicited takeover of the
company under certain circumstances. For example, under our Bye-Laws:
• only upon the affirmative vote or the written consent of the holders of shares holding at the date of
the resolution or consent as the case may be not less than sixty six and two thirds percent of the
paid up share capital of the Company will the Board have the power to sell, lease or exchange all
the property and assets of the Company;
• our Board, subject to the Bye-Laws or to a resolution of the shareholders to the contrary, is
permitted to issue preference shares, in one or more series, and determine by resolution any
designations, preferences, qualifications, privileges, limitations, restrictions, or special or relative
rights thereon. The rights of the preference shares may supersede the rights of Common Stock;
• our Board is authorized to expand its size and fill vacancies; and
•
shareholders cannot act by written consent unless the consent is unanimous.
Liquidation Rights
If the Company is to be wound up, the liquidator may, with the sanction of a resolution of the
shareholders, divide amongst the shareholders in specie or in kind the whole or any part of the assets of
the Company (whether they shall consist of property of the same kind or not) and may, for such purpose,
set such value as he or she deems fair upon any property to be divided as aforesaid and may determine
how such division shall be carried out as between the shareholders or different classes of shareholders.
The liquidator may, with the like sanction, vest the whole or any part of such assets in the trustees upon
such trusts for the benefit of the shareholders as the liquidator shall think fit, however, no shareholder will
be compelled to accept any shares or other securities or assets whereon there is any liability.
Limitations on Liability and Indemnification of Officers and Directors
Section 98 of the Act (“Section 98”) provides generally that we, as a Bermuda company, may indemnify
our directors, officers and auditors against any liability which by virtue of any rule of law would be
imposed on them in respect of any negligence, default, breach of duty or breach of trust, except in cases
where such liability arises from fraud or dishonesty of which such officer, director or auditor may be guilty
in relation to us. Section 98 further provides that we may indemnify our directors, officers and auditors
against any liability incurred against them in defending any proceedings, whether civil or criminal, in
which judgment is awarded in their favor or they are acquitted or granted relief by the Supreme Court of
Bermuda pursuant to Section 281 of the Act.
We have adopted provisions in our Bye-Laws that provide that we will indemnify our officers and directors
to the maximum extent permitted under the Act. We have also entered into indemnity agreements with
each of our directors and officers that provide them with the maximum indemnification allowed under our
Bye-Laws and the Act.
The Act and our Bye-Laws also permit us to purchase and maintain insurance for the benefit of our
officers and directors covering certain liabilities. We maintain a policy of officers’ and directors’ liability
insurance for the benefit of our officers and directors.
Discontinuance/Continuation
Under Bermuda law, an exempted company may be discontinued in Bermuda and continued in a
jurisdiction outside Bermuda as if it had been incorporated under the laws of that other jurisdiction. The
Board may exercise all the powers of the Company to discontinue the Company to a jurisdiction outside
Bermuda pursuant to the Act.
Amendment of Bye-Laws
No Bye-law may be rescinded, altered or amended and no new Bye-law may be made until the same has
been approved by a resolution of the Board and by a resolution of the shareholders.
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21
The following is a list of subsidiaries of the company as of February 29, 2020, omitting subsidiaries
which, considered in the aggregate, would not constitute a significant subsidiary.
Name
Incorporation
Doing Business as
Helen of Troy Limited
Barbados
Helen of Troy Commercial Offshore de Macau Limitada
Macau
Same Name
Same Name
Helen of Troy L.P.
Idelle Labs, Ltd.
OXO International Ltd.
HOT (UK) Limited
Steel Technology, LLC
Kaz, Inc.
Kaz USA, Inc.
Pur Water Purification Products, Inc.
Kaz Europe Sarl
Helen of Troy Texas Corporation
Drybar Products LLC
Texas Limited Partnership
Same Name, Helen of Troy and Belson Products
Texas Limited Partnership
Same Name
Texas Limited Partnership
Same Name
United Kingdom
Same Name, HOT UK and OXO Goodgrips
Oregon
New York
Massachusetts
Nevada
Switzerland
Texas
Delaware
Same Name and Hydro Flask
Same Name
Same Name
Same Name
Same Name
Same Name
Same Name
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated April 29, 2020, with respect to the consolidated financial statements,
schedule, and internal control over financial reporting included in the Annual Report of Helen of Troy Limited
on Form 10-K for the year ended February 29, 2020. We consent to the incorporation by reference of said
reports in the Registration Statements of Helen of Troy Limited on Forms S-8 (File No. 333-154525; File
No. 333-154526; File No. 333-178217; File No. 333-227074; and File No. 333-227075).
/s/ GRANT THORNTON LLP
Dallas, Texas
April 29, 2020
CERTIFICATION
EXHIBIT 31.1
I, Julien R. Mininberg, certify that:
1. I have reviewed this annual report on Form 10-K of Helen of Troy Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects, the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant’s internal control over financial reporting.
Date: April 29, 2020
/s/ Julien R. Mininberg
Julien R. Mininberg
Chief Executive Officer,
Director and Principal Executive Officer
CERTIFICATION
EXHIBIT 31.2
I, Brian L. Grass, certify that:
1. I have reviewed this annual report on Form 10-K of Helen of Troy Limited;
2. Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects, the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant’s internal control over financial reporting.
Date: April 29, 2020
/s/ Brian L. Grass
Brian L. Grass
Chief Financial Officer,
Principal Financial Officer and
Principal Accounting Officer
CERTIFICATION
EXHIBIT 32
In connection with the Annual Report of Helen of Troy Limited (the “Company”) on Form 10-K for
the fiscal year ended February 29, 2020, as filed with the Securities and Exchange Commission
(the “Report”), and pursuant to 18 U.S.C., chapter 63, Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned, the Chief Executive
Officer and Director and the Senior Vice President and Chief Financial Officer of the Company,
hereby certifies that to the best of their knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: April 29, 2020
/s/ Julien R. Mininberg_
Julien R. Mininberg
Chief Executive Officer,
Director and Principal Executive Officer
_/s/ Brian L. Grass__
Brian L. Grass
Chief Financial Officer,
Principal Financial Officer and
Principal Accounting Officer
This certification is not deemed to be “filed” for purposes of section 18 of the Securities Exchange
Act, or otherwise subject to the liability of that section. This certification is not deemed to be
incorporated by reference into any filing under the Securities Act of 1933 or Securities Exchange
Act of 1934, except to the extent that the Company specifically incorporates it by reference.