<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
----------- ------------------
Commission file number 0-23312
HELEN OF TROY LIMITED
(Exact name of registrant as specified in its charter)
Bermuda 74-2692550
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6827 Market Avenue
El Paso, TX 79915
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (915) 779-6363
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 X No
--- ---
As of October 12, 1998 there were 28,691,972 shares of Common Stock,
$.10 Par Value, outstanding.
<PAGE> 2
HELEN OF TROY LIMITED AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Consolidated Condensed Balance
Sheets as of August 31, 1998 and
February 28, 1998.........................................................................3
Consolidated Condensed Statements
of Income for the Three and Six
Months Ended August 31, 1998 and
August 31, 1997...........................................................................5
Consolidated Condensed Statements
of Cash Flows for the Six Months
Ended August 31, 1998 and
August 31, 1997...........................................................................6
Notes to Consolidated Condensed
Financial Statements......................................................................8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................................................9
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders................................................12
Item 5 Other Information..................................................................................13
Item 6 Exhibits and Reports on Form 8-K...................................................................13
SIGNATURES...................................................................................................................14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
HELEN OF TROY LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except par value and shares)
<TABLE>
<CAPTION>
August 31, February 28,
1998 1998
---------- ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 24,450 $ 55,670
Receivables - principally trade,
less allowance for doubtful
receivables of $606 at August 31, 1998
and $568 at February 28, 1998 56,581 44,569
Inventories 99,850 71,357
Prepaid expenses 7,835 3,802
Deferred income tax benefits 1,961 1,522
-------- --------
Total current assets 190,677 176,920
Property and equipment
net of accumulated depreciation of
$5,921 at August 31, 1998 and
$4,892 at February 28, 1998 33,329 26,255
License agreements, at cost, less accumulated
amortization of $8,577 at August 31, 1998
and $8,068 at February 28, 1998 8,475 8,984
Other assets, net of amortization 19,628 15,401
-------- --------
Total assets $252,109 $227,560
======== ========
</TABLE>
3
<PAGE> 4
HELEN OF TROY LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except par value and shares)
<TABLE>
<CAPTION>
August 31, February 28,
1998 1998
---------- ------------
(unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 10,000 $ --
Accounts payable, principally trade 875 1,430
Accrued expenses:
Advertising and promotional 7,859 4,599
Other 8,086 7,389
Income taxes payable 8,145 9,208
-------- --------
Total current liabilities 34,965 22,626
Long-term debt 55,450 55,450
-------- --------
Total liabilities 90,415 78,076
Stockholders' equity:
Cumulative preferred stock, non-voting,
$1.00 par value. Authorized 2,000,000
shares; none issued -- --
Common stock, $.10 par value
Authorized 50,000,000 shares; issued and outstanding
27,961,428 shares at August 31, 1998 and 27,281,242 shares at
February 28, 1998 2,796 2,728
Additional paid-in-capital 31,661 31,899
Retained earnings 127,237 114,857
-------- --------
Total stockholders' equity 161,694 149,484
Commitments and contingencies (Note 2) -- --
Total liabilities and stockholders' equity $252,109 $227,560
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
HELEN OF TROY LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(unaudited)
(in thousands, except shares and earnings per share)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 72,162 $ 60,929 $ 136,298 $ 113,356
Cost of sales 43,467 37,666 82,614 70,303
------------ ------------ ------------ ------------
Gross profit 28,695 23,263 53,684 43,053
Selling, general and administrative expenses 19,016 15,537 37,812 30,460
------------ ------------ ------------ ------------
Operating income 9,679 7,726 15,872 12,593
Other income (expense):
Interest expense (852) (846) (1,764) (1,558)
Other income, net 603 729 1,367 1,157
------------ ------------ ------------ ------------
Total other income (expense) (249) (117) (397) (401)
------------ ------------ ------------ ------------
Earnings before income taxes 9,430 7,609 15,475 12,192
Income tax expense (benefit):
Current 2,136 1,760 3,534 2,676
Deferred (250) (48) (439) 67
------------ ------------ ------------ ------------
Net earnings $ 7,544 $ 5,897 $ 12,380 $ 9,449
============ ============ ============ ============
Earnings per share
Basic $ .27 $ .22 $ .45 $ .36
Diluted .26 .21 .42 .33
Weighted average number of common and common
equivalent shares used in computing
earnings per share -
Basic 27,880,371 26,706,646 27,713,194 26,539,480
Diluted 29,416,613 28,728,096 29,273,890 28,572,212
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE> 6
HELEN OF TROY LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Six Months Ended
August 31,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 12,380 $ 9,449
Adjustments to reconcile net income
to net cash provided/(used) by
operating activities:
Depreciation and amortization 2,190 1,893
Provision for doubtful receivables 38 84
Provision for deferred taxes, net (439) 66
Gain on sale of assets -- (282)
Changes in operating assets and liabilities:
Accounts receivable (12,050) (13,140)
Inventory (28,493) 3,597
Prepaid expenses (4,033) (2,250)
Accounts payable (555) (1,859)
Accrued expenses 3,957 3,594
Income taxes payable (1,063) 2,831
-------- --------
Net cash provided/(used) by
operating activities (28,068) 3,983
Cash flows from investing activities:
Capital and license expenditures (7,838) (1,587)
Proceeds from sale of assets -- 1,678
Other assets (5,144) (3,591)
Collection on note receivable -- 234
-------- --------
Net cash used by investing activities (12,982) (3,266)
</TABLE>
6
<PAGE> 7
HELEN OF TROY LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Six Months Ended
August 31,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Net borrowings (payments) on revolving
line of credit 10,000 (4,001)
Proceeds from long-term debt -- 15,000
Exercise of stock options including
related tax benefits (170) 2,950
-------- --------
Net cash provided by financing activities 9,830 13,949
-------- --------
Net increase/(decrease) in cash
and cash equivalents (31,220) 14,666
-------- --------
Cash and cash equivalents, beginning of period 55,670 25,798
-------- --------
Cash and cash equivalents, end of period $ 24,450 $ 40,464
======== ========
Supplemental cash flow disclosures:
Interest paid $ 1,964 $ 1,448
Income tax (refund, net of payments)/taxes paid -- (213)
</TABLE>
See accompanying notes to consolidated condensed financial statements.
(Continued)
7
<PAGE> 8
HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
August 31, 1998
Note 1 - In the opinion of the Company, the accompanying consolidated
condensed financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to
present fairly its financial condition as of August 31, 1998
and February 28, 1998 and the results of its operations for
the periods ended August 31, 1998 and 1997. While the Company
believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these
statements be read in conjunction with the financial
statements and the notes included in the Company's latest
annual report on Form 10-K.
Note 2 - The Company is involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of such claims and legal
actions will not have a material adverse effect on the
financial position of the Company.
Note 3 - Basic earnings per share is computed based upon the weighted
average number of common shares outstanding during the period.
Diluted earnings per share is computed based upon the weighted
average number of common shares plus the effects of dilutive
securities. The number of dilutive securities was 1,536,242
and 2,021,450, respectively, for the three months ended August
31, 1998 and 1997, and 1,560,696 and 2,032,732, respectively,
for the six months ended August 31, 1998 and 1997. All
potentially dilutive securities are included in the
calculations of diluted earnings per share.
Note 4 - On September 25, 1998, the Company acquired 100% of the stock
of Karina, Inc., a New Jersey corporation. Karina develops,
designs and markets basic and fashion hair accessories,
brushes, combs, and various personal care implements. In
exchange for the stock of Karina, the Company issued 691,760
shares of its Common Stock to Karina's shareholders. The
Company will report this acquisition using the purchase method
of accounting. As of and for the fiscal year ended May 31,
1998, its most recent fiscal year-end, Karina's unaudited
financial statements reflected total assets and net revenues
of $4,786,000 and $14,201,000, respectively.
8
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Quarter ended August 31, 1998
Net second quarter sales increased $11,233,000, or 18.4%, when compared to the
quarter ended August 31, 1997, as the Company experienced broadly based sales
growth in all of its product groups.
The Company anticipates achieving further sales increases in the brushes, combs
and accessories product group through its September 1998 acquisition of 100% of
the outstanding stock of Karina, Inc. Karina develops, designs and markets basic
and fashion hair accessories, hairbrushes, combs, and various personal care
implements under the Karina, Chez Robere, Aimee, Altesse, and Kent trade names.
The Company believes that the acquisition of Karina provides it with an entry
into the "high-end" segment of the markets for these products and with new
opportunities in mass retail markets.
Gross profit as a percentage of sales increased to 39.8% for the quarter ended
August 31, 1998, from 38.2% for the quarter ended August 31, 1997. The increased
gross profit percentage reflected a favorable mix of products sold, as well as
slight reductions in the cost of goods sold for some of the Company's products.
Growth in sales of brushes, combs and accessories as a percentage of the
Company's total sales contributed to the beneficial product mix change in second
quarter of fiscal 1999.
Selling, general, and administrative expenses as a percentage of sales increased
to 26.4% for the second quarter of fiscal 1999, from 25.5% for the same period
in fiscal 1998. Increased bad debt and freight expenses more than offset the
economies of higher sales in the second quarter of fiscal 1999. Due to the
financial failure of the independent distributor of the Company's products in
Russia, the Company recognized a bad debt loss of $740,000 in the second
quarter. That distributor's account represented the Company's only significant
exposure to receivable losses in Russia or Asia. Freight expense increased as a
percentage of net sales primarily because of a shift in sales mix to products
for which freight expense is a higher percentage of the sales price.
Interest expense remained comparable between the second quarters of fiscal 1999
and fiscal 1998. Interest payments resulting from the $15,000,000 Guaranteed
Senior Note issued on July 18, 1997 increased interest expense for the quarter
ended August 31, 1998, compared to the same period in the prior fiscal year. The
capitalization of interest on construction of the Company's new headquarters
offset most of the increased interest expense.
Second quarter fiscal 1999 other income decreased $126,000, or 17.3%, versus the
second quarter of fiscal 1998. A $237,000 gain recorded on the sale of land
during the quarter ended August 31, 1997 more than offset increased interest
income for the three months ended August 31, 1998.
9
<PAGE> 10
The Company recorded income tax expense equal to 20.0% of pre-tax income for the
quarter ended August 31, 1998, compared to 22.5% for the quarter ended August
31, 1997. Beginning in the first quarter of fiscal 1999, management's review of
the facts and circumstances relevant to the accrual of income taxes indicated
that a tax rate of 20.0% is appropriate for fiscal 1999.
Six Months Ended August 31, 1998
Net sales for the first six months of fiscal 1999 increased $22,942,000, or
20.2%, when compared to the same period in fiscal 1998. Sales for the first six
months of fiscal 1999 increased in all of the Company's product groups, compared
to the same period in fiscal 1998.
Gross profit as a percentage of sales increased from 38.0% for the six months
ended August 31, 1997 to 39.4% for the six months ended August 31, 1998. As with
the increase for the second quarter discussed above, the Company attained growth
in its gross profit margins through a favorable product mix and through slight
reductions in its costs of goods sold.
Selling, general, and administrative expenses increased to 27.8% of sales for
the six months ended August 31, 1998, compared to 26.9% for the six months ended
August 31, 1997. The effects of increased bad debt and freight expenses
mentioned above in the discussion of the results for the second quarter, as well
as higher advertising and sales promotion expenses, exceeded slightly the
economies produced by increased sales.
Interest expense increased 13.2% for the first six months of fiscal 1999,
compared to the same period in fiscal 1998. The average outstanding debt balance
was higher during the six months ended August 31, 1998 than for the six months
ended August 31, 1997 due to the issuance of $15,000,0000 in Guaranteed Senior
Notes by one of the Company's subsidiaries in July of 1997.
Other income decreased $210,000, or 18.2%, for the six months ended August
31,1998, compared to the same period last fiscal year, primarily because of the
gain on sale of land recorded by the Company in fiscal 1998 and mentioned above
in the discussion of other income for the quarter.
Liquidity and Capital Resources
The Company's working capital and current ratio were $155,712,000 and 5.5,
respectively, at August 31, 1998, compared to $154,294,000 and 7.8,
respectively, at February 28, 1998. The Company's cash balance decreased to
$24,450,000 at August 31, 1998 from $55,670,000 at February 28, 1998, due to
seasonal increases in accounts receivable and inventory, the addition of new
inventories for new product lines and the construction of a new office building.
The new product lines include both internally developed products and products
obtained through acquisitions.
The Company believes its capital resources are adequate to finance growth and to
service the Company's debt obligations. The Company also believes that internal
funds and available credit will be adequate to finance the completion of the new
headquarters office building, which is expected to occur in March 1999.
10
<PAGE> 11
Year 2000
Until recently most computer software and hardware, as well as chips and
processors embedded in various products, (collectively referred to as "computer
applications") used two digits, rather than four, to define the applicable year.
Such computer applications might process incorrectly any date after December 31,
1999. Consequently, many business and governmental entities face the risk of
some degree of interruption in their operations when using computer applications
to process dates of January 1, 2000 and beyond. This is known as the Year 2000
("Y2K") Issue.
The Company's sales, accounts receivable, inventory management, accounts
payable, general ledger, payroll and Electronic Data Interchange systems
comprise its critical information technology ("IT") systems. The Company has
assessed its Y2K readiness with regard to critical IT systems. Based on internal
assessments and upon vendor representations, the Company believes that it will
complete the necessary actions to bring all of its critical IT systems into Y2K
compliance by December 1998.
Software and hardware, such as security and telephone systems, that facilitate
the operations of its warehouses and corporate headquarters, as well as computer
chips embedded in its products comprise the Company's primary non-IT systems.
The Company is in the process of assessing the Y2K compliance of the non-IT
systems that operate at its facilities and expects to conclude this assessment
by December 1998. The computer chips embedded in the products sold by the
Company are not date-sensitive and therefore pose no Y2K risk.
The Company has not incurred, nor does it expect to incur, material costs in
readying its computer applications for the Year 2000. The IT and non-IT systems
currently in place or expected to be in place were not purchased specifically,
nor was their installation accelerated, because of the Y2K issue.
The Company has assessed communications received from its major customers and
the representations that some of those customers have made in reports filed with
the Securities and Exchange Commission. Based on this assessment, the Company
believes that those customers will be Y2K compliant. After an assessment of its
relationships with its suppliers, the Company will send Y2K readiness inquiries
to vendors that supply products or components that could not be easily obtained
from other suppliers, if it is determined that any such vendor relationships
exist. The Company expects to send such inquiries, if deemed necessary, by the
end of December 1998. The Company has received communications from its key
financial service providers indicating that they are actively working to resolve
their Y2K service issues.
There can be no guarantee that the Company or its trading partners will not
experience Y2K compliance difficulties. If the Company or its significant
trading partners experience Y2K compliance problems, adverse business
consequences could result. The Company believes that the most likely negative
effects, if any, could include disruptions in both shipments and receipts of
products, delays in the Company's receipt of payments from customers and delays
in the ability to pay certain suppliers.
11
<PAGE> 12
The Company believes that the Y2K compliance of its IT and non-IT systems as
well as its efforts to assess the Y2K compliance of its trading partners should
minimize the business difficulties encountered as a result of the Y2K issue.
Consequently, the Company does not anticipate the need to formulate contingency
plans to deal with Y2K issues and has not formulated such plans. If this
assessment changes, the Company will develop contingency plans as deemed
necessary.
Information relating to forward-looking statements
This report, some of the Company's press releases and some of the Company's
comments to the news media, contain certain forward-looking statements that are
based on management's current expectations with respect to future events or
financial performance. A number of risks or uncertainties could cause actual
results to differ materially from historical or anticipated results. Generally,
the words "anticipates," "believes," "expects" and other similar words identify
forward-looking statements. The Company cautions readers not to place undue
reliance on forward-looking statements. Factors that could cause actual results
to differ from those anticipated include: (1) industry conditions and
competition, (2) risks associated with operating in foreign jurisdictions, (3)
worldwide and domestic economic conditions, (4) the impact of current and future
laws and litigation, (5) uninsured losses, (6) management's reliance on the
representations of third parties, and (7) the risks described from time to time
in the Company's reports to the Securities and Exchange Commission, including
the Company's Annual Report on Form 10-K for the year ended February 28, 1998.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held August 25, 1998, in El
Paso, Texas. At that meeting, the shareholders voted on the following proposals:
o Proposal 1. Election of Directors;
o Proposal 2. To consider approval of the Helen of Troy Limited 1998 Stock
Option and Restricted Stock Plan;
o Proposal 3. To consider approval of the Helen of Troy Limited 1998
Employee Stock Purchase Plan.
A description of the foregoing matters is contained in the Company's Proxy
Statement dated July 23, 1998, relating to the 1998 Annual Meeting of
Shareholders.
12
<PAGE> 13
With respect to Proposal 1, the Directors received the following votes:
<TABLE>
<CAPTION>
Against or Broker
For Withheld Abstentions Non-Votes
<S> <C> <C> <C> <C>
Gerald J. Rubin 24,721,330 600 59,278 0
Daniel C. Montano 24,623,040 98,890 59,278 0
Byron H. Rubin 24,714,793 7,137 59,278 0
Stanlee N. Rubin 24,548,323 173,607 59,278 0
Gary B. Abromovitz 24,719,805 2,125 59,278 0
Christopher L. Carameros 24,720,615 1,315 59,278 0
</TABLE>
Proposals 2 and 3 received the following votes:
<TABLE>
<CAPTION>
Proposal 2
Broker
For Against Abstentions Non-Votes
<S> <C> <C> <C>
12,915,107 7,879,062 66,498 3,944,745
</TABLE>
<TABLE>
<CAPTION>
Proposal 3
Broker
For Against Abstentions Non-Votes
<S> <C> <C> <C>
15,007,105 5,922,436 63,791 3,812,080
</TABLE>
Item. 5. Other Information
Shareholder Proposals
Proposals of the shareholders intended to be presented at the Company's 1999
Annual Meeting of Shareholders pursuant to Rule 14a-8 promulgated under the
Securities Exchange Act of 1934, as amended, for inclusion in the Company's
proxy materials must be received by the Company no later than March 5, 1999. If
a proponent fails to notify the Company by May 19, 1999 of a non-Rule 14a-8
shareholder proposal that it intends to submit at the Company's 1999 Annual
Meeting of Shareholders, the proxy solicited by the Board of Directors with
respect to such meeting may grant discretionary authority to the proxies named
therein to vote with respect to such matter.
Items 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HELEN OF TROY LIMITED
(Registrant)
Date October 14, 1998 /s/ Gerald J. Rubin
---------------- ----------------------------------
Gerald J. Rubin
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date October 14, 1998 /s/ Sam L. Henry
---------------- ----------------------------------
Sam L. Henry
Senior Vice-President, Finance,
and Chief Financial Officer
(Principal Financial Officer)
14
<PAGE> 15
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This financial data schedule contains summary financial information extracted
from the consolidated financial statements of Helen of Troy Limited and
subsidiaries as of, and for the six months ended August 31, 1998, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> AUG-31-1998
<CASH> 24,450,000
<SECURITIES> 0
<RECEIVABLES> 57,187,000
<ALLOWANCES> 606,000
<INVENTORY> 99,850,000
<CURRENT-ASSETS> 190,677,000
<PP&E> 39,250,000
<DEPRECIATION> 5,921,000
<TOTAL-ASSETS> 252,109,000
<CURRENT-LIABILITIES> 34,965,000
<BONDS> 55,450,000
0
0
<COMMON> 2,796,000
<OTHER-SE> 158,898,000
<TOTAL-LIABILITY-AND-EQUITY> 252,109,000
<SALES> 136,298,000
<TOTAL-REVENUES> 136,298,000
<CGS> 82,614,000
<TOTAL-COSTS> 82,614,000
<OTHER-EXPENSES> 37,812,000
<LOSS-PROVISION> 1,029,000
<INTEREST-EXPENSE> 1,764,000
<INCOME-PRETAX> 15,475,000
<INCOME-TAX> 3,095,000
<INCOME-CONTINUING> 12,380,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,380,000
<EPS-PRIMARY> .45
<EPS-DILUTED> .42
</TABLE>
