<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 May 31, 1999
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.)
One Helen of Troy Plaza
El Paso, TX 79912
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (915) 225-8000
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 July 7, 1999 there were 29,054,862 shares of Common Stock, $.10
Par Value, outstanding.
<PAGE> 2
HELEN OF TROY LIMITED AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1 Consolidated Condensed Balance
Sheets as of May 31, 1999 (unaudited) and
February 28, 1999............................................3
Consolidated Condensed Statements
of Income (unaudited) for the Three Months
Ended May 31, 1999 and May 31, 1998..........................5
Consolidated Condensed Statements
of Cash Flows (unaudited) for the Three Months
Ended May 31, 1999 and May 31, 1998..........................6
Notes to Consolidated Condensed
Financial Statements.........................................7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................................8
PART II. OTHER INFORMATION
Item 5 Other information..............................................12
Item 6 Exhibits and Reports on Form 8-K...............................12
SIGNATURES......................................................................13
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
HELEN OF TROY LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except shares)
<TABLE>
<CAPTION>
May 31, February 28,
1999 1999
-------- ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 30,631 $ 33,691
Investments 1,566 --
Receivables, principally trade, less allowance for
doubtful receivables of $728 at May 31, 1999 and $1,756 at
February 28, 1999 66,500 59,799
Inventories 80,077 90,288
Prepaid expenses 2,684 2,048
Deferred income tax benefits 3,884 3,858
-------- --------
Total current assets 185,342 189,684
Property and equipment, net of accumulated depreciation of $7,358 at May 31,
1999 and $6,905 at February 28, 1999
44,557 42,464
Goodwill, net of accumulated amortization of $2,674 at
May 31, 1999 and $2,224 at February 28, 1999 39,053 39,052
License agreements, at cost less accumulated amortization of $9,339 at May 31,
1999 and $9,085 at February 28, 1999
7,713 7,967
Other assets, net of amortization 14,684 14,869
-------- --------
$291,349 $294,036
======== ========
</TABLE>
(Continued)
3
<PAGE> 4
HELEN OF TROY LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except shares)
<TABLE>
<CAPTION>
May 31, February 28,
1999 1999
-------- ----------
(unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ -- $ 10,000
Accounts payable, principally trade 2,706 1,592
Accrued expenses:
Advertising and promotional 4,242 4,935
Other 8,573 8,563
Income taxes payable 14,671 13,654
-------- --------
Total current liabilities 30,192 38,744
Long-term debt 55,450 55,450
------- -------
Total liabilities 85,642 94,194
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;
29,051,562 and 29,047,332 shares issued and outstanding at May 31,
1999 and February 28, 1999, respectively 2,905 2,905
Additional paid-in capital 53,769 53,750
Retained earnings 149,033 143,187
-------- --------
Total stockholders' equity 205,707 199,842
-------- --------
Commitments and contingencies -- --
$291,349 $294,036
======== ========
</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
May 31,
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 72,188 $ 64,136
Cost of sales 43,239 39,147
------------ ------------
Gross profit 28,949 24,989
Selling, general and administrative expenses 21,565 18,796
------------ ------------
Operating income 7,384 6,193
Other income (expense):
Interest expense (536) (912)
Other income, net 459 764
------------ ------------
Total other income (expense) (77) (148)
------------ ------------
Earnings before income taxes 7,307 6,045
Income tax expense (benefit):
Current 1,487 1,398
Deferred (26) (189)
------------ ------------
Net earnings $ 5,846 $ 4,836
============ ============
Earnings per share:
Basic $ .20 $ .18
Diluted .20 .17
Weighted average number of common and common
equivalent shares used in computing earnings per
share:
Basic 29,048,278 27,544,779
Diluted 29,930,822 29,129,930
</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>
Three months ended May 31,
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,846 $ 4,836
Adjustments to reconcile net income to cash provided
(used) by operating activities
Depreciation and amortization 1,523 1,079
Provision for doubtful receivables 534 174
Deferred taxes, net (26) (189)
Changes in operating assets and liabilities:
Accounts receivable (7,235) (7,449)
Inventory 10,211 (7,107)
Prepaid expenses (636) (4,461)
Accounts payable 1,114 (672)
Accrued expenses (683) 2,286
Income taxes payable 1,017 2,437
-------- --------
Net cash provided (used) by operating activities 11,665 (9,066)
Cash flows from investing activities:
Capital and license expenditures (2,546) (3,808)
Purchase of investment securities (1,566) --
Other assets (632) (954)
-------- --------
Net cash used by investing activities (4,744) (4,762)
Cash flows from financing activities:
Net payments on revolving line of credit (10,000) --
Payment of payroll tax and income tax withholding
associated with stock options exercised -- (6,669)
Exercise of stock options 19 332
-------- --------
Net cash (used) by financing activities (9,981) (6,337)
-------- --------
Net (decrease) in cash equivalents (3,060) (20,165)
Cash equivalents, beginning of period 33,691 55,670
-------- --------
Cash equivalents, end of period $ 30,631 $ 35,505
======== ========
Supplemental cash flow disclosures:
Interest paid $ 970 $ 982
Income taxes paid, net of refunds 450 --
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE> 7
HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
May 31, 1999
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 position as of May 31, 1999 and
February 28, 1999 and the results of its operations for the
three month periods ended May 31, 1999 and 1998. While the
Company believes that the disclosures presented are adequate
to make the information not misleading, these statements
should be read in conjunction with the financial statements
and the notes included in the Company's latest annual report
on Form 10-K.
Certain reclassifications were made to information for the
three months ended May 31, 1998 in order to conform to the
presentation for the three months ended May 31, 1999.
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 882,544 and
1,585,151 for the three months ended May 31, 1999 and 1998,
respectively. Dilutive securities for the three months ended
May 31, 1999 consisted of 791,599 shares attributable to
dilutive stock options issued under the Company's stock option
plans and 90,945 shares that are contingently issuable as part
of an acquisition that occurred in fiscal 1999. All dilutive
securities for the three months ended May 31, 1998 consist of
dilutive stock options issued under the Company's stock option
plans. All potentially dilutive securities are included in the
calculations of diluted earnings per share.
Note 4 - Subsequent to May 31, 1999, the Company purchased, in several
transactions, 536,999 shares of stock in a manufacturer of
housewares, at a total purchase price, including brokerage
commissions, of approximately $10,555,000. The Company's
holdings represent approximately 13.3% of the outstanding
stock of the housewares manufacturer. The Company funded
approximately $9,965,000 of its investment in the housewares
manufacturer by borrowing on a line of credit.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales for the three months ended May 31, 1999 (the first quarter of
fiscal 2000) increased $8,052,000, or 12.6%, to $72,188,000, compared to
$64,136,000 for the three months ended May 31, 1998 (the first quarter of fiscal
1999). Increases in domestic sales, especially of brushes, combs, and hair care
accessories, together with growth in the Company's international business,
contributed significantly to the increase in net sales for the first quarter of
fiscal 2000. Sales attributable to the Company's third quarter fiscal 1999
acquisitions of Karina, Inc. and DCNL, Inc. and the introduction by the Company
of new product lines played particularly important roles in the domestic net
sales growth.
Gross profit as a percentage of sales increased to 40.1% in the first
quarter of fiscal 2000 from 39.0% in the first quarter of fiscal 1999. The
Company's gross profit percentage in the first quarter of fiscal 2000 was
comparable to its gross profit percentage of 40.5% for the fiscal year ended
February 28, 1999. Sales of products resulting from the Company's prior year
acquisitions of Karina, Inc. and DCNL, Inc. were important to the increase in
gross profit as a percentage of sales, versus the same three-month period last
fiscal year.
Selling, general and administrative expenses as a percentage of sales
increased to 29.9% of sales for the three months ended May 31, 1999, compared to
29.3% during the three months ended May 31, 1998. This increase was due, in
part, to amortization of the goodwill that was recorded as a result of the
Company's fiscal 1999 acquisitions.
Interest expense for the three months ended May 31, 1999 totaled
$536,000, a decrease of $376,000, or 41.2%, compared to interest expense of
$912,000 for the three months ended May 31, 1998. This decrease was due to the
capitalization of interest on the construction of the Company's new corporate
headquarters facility. That facility will be complete in the second quarter of
fiscal 2000. Other income decreased by $305,000, or 39.9%, to $459,000 for the
three months ended May 31, 1999. The reduction in other income resulted
primarily from decreased interest income, as the Company's cash balances were
lower during the first three months of fiscal 2000 than the same period for
fiscal 1999.
Liquidity and Capital Resources
The Company's working capital and current ratio were $155,150,000 and
6.1, respectively at May 31, 1999, compared to working capital of $150,940,000
and a current ratio of 4.9 at February 28, 1999. The increase in the Company's
current ratio was primarily due to the absence at May 31, 1999 of the
$10,000,000 short-term note payable that was present on the Company's balance
sheet at February 28, 1999. The Company repaid the short-term note payable in
full during the first quarter of fiscal 2000. Subsequent to May 31, 1999, the
Company again borrowed $10,000,000 under the same credit facility.
8
<PAGE> 9
Cash decreased from $33,691,000 at February 28, 1999 to $30,631,000 at
May 31, 1999. The Company's operating activities produced a positive cash flow
of $11,665,000 as net earnings after income taxes, combined with a reduction in
inventory, more than offset an increase in net accounts receivable. Items that
utilized cash during the quarter ended May 31, 1999 included repayment of the
$10,000,000 short-term note receivable that was outstanding at February 28,
1999, capital expenditures on the Company's new corporate headquarters and the
purchase of equity securities as investments. The Company's first quarter fiscal
2000 purchase of equity securities is part of its continuing strategy to
evaluate business opportunities and make investments that might enhance
shareholder value. For a further update on the Company's investment in equity
securities, see the section below entitled "Subsequent Events."
The Company believes that its capital resources are adequate to finance
its debt obligations and that its capital resources and available credit are
adequate to finance the growth of its existing business.
Year 2000
The Company is continuing to assess its Year 2000 ("Y2K") readiness
through examining and updating its critical information technology ("IT")
systems and monitoring the Y2K readiness of its business partners and
formulating contingency plans. Management believes that the Company's non-IT
systems are Y2K compliant.
The Company's sales, accounts receivable, inventory management,
accounts payable, general ledger, payroll and Electronic Data Interchange
systems comprise its critical information technology 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 all of the necessary actions to bring all of its critical IT systems
into Y2K compliance by September 1999.
Security, telephone and other 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 has
completed the updates necessary to bring these systems into Y2K compliance. 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, any material
expenses in readying its computer applications for the Year 2000. The IT and
non-IT systems currently in place or expected to be in place on January 1, 2000
were not purchased specifically, nor was their installation accelerated, because
of the Y2K issue.
The Company has substantially completed its analysis of its
relationships with its business partners. The Company has inquired with major
customers as to their Y2K compliance. Based on its assessment of customers'
representations in their reports to the Securities and Exchange Commission and
their answers to the Company's inquiries, the Company's management believes that
its major customers will be Y2K compliant. The Company has made inquiries of key
suppliers and
9
<PAGE> 10
has tested its computer links with key suppliers in the Far East for Y2K
compliance. Based on written responses to these inquiries and the results of its
tests, management does not believe that the Y2K issue will cause the Company to
experience any significant difficulties in obtaining products. The Company has
received communications from its key financial service providers indicating that
they are actively working to resolve their Y2K service issues. The Company has
made inquiries of its primary domestic utility service providers as to their Y2K
readiness. The responses received to date have not indicated that any of the
Company's primary domestic utility service providers expect any service
disruptions due to the Y2K issue, although the utilities have indicated that
they cannot provide complete assurance that no interruptions will occur. The
Company continues to monitor these service providers' Y2K readiness through
additional inquiries.
The Company believes that the remaining updates to its IT systems, the
Y2K readiness of its non-IT systems and its efforts to assess the Y2K compliance
of its trading partners should minimize the business difficulties encountered as
a result of the Y2K issue. However, the Company is in the process of formulating
contingency plans. Management expects that these contingency plans, when
formulated, will entail procedures to be followed if certain IT or non-IT
systems experience unexpected Y2K difficulties or if customers experience
difficulties transmitting orders because of the Y2K issue.
There can be no guarantee that the Company or its trading and business
partners will not experience Y2K compliance difficulties. If the Company or its
significant trading and business 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.
Subsequent Events
As part of its continuing strategy to evaluate business opportunities
and make investments that might enhance shareholder value, the Company acquired,
in several transactions, 536,999 shares of the common stock of General
Housewares Corp. subsequent to May 31, 1999 at a total cost, including brokerage
commissions, of $10,554,855. The Company might seek to increase its ownership
stake under certain circumstances and is attempting to enter into discussions
with General Housewares Corp. regarding a possible business combination. The
Company has retained a financial advisor in connection with any transaction
involving General Housewares Corp. Further information concerning the Company's
ownership of shares of General Housewares common stock is contained in a Form
13D filed by the Company with the Securities and Exchange Commission on June 28,
1999.
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
10
<PAGE> 11
statements. Forward-looking statements are subject to risks that could cause
such statements to differ materially from actual results. Factors that could
cause actual results to differ from those anticipated include: (1) general
industry conditions and competition, (2) credit risks, (3) the Company's
material reliance on individual customers or small numbers of customers, (4) the
Company's material reliance on certain trademarks, (5) risks associated with
inventory, including potential obsolescence, (6) risks associated with operating
in foreign jurisdictions, (7) worldwide and domestic economic conditions, (8)
the impact of current and future laws, including tax laws and litigation, (9)
uninsured losses, (10) reliance on computer systems, (11) management's reliance
on the representations of third parties, (12) risks associated with newly
acquired product lines and subsidiaries, (13) risks associated with investments
in equity securities, (14) technological issues associated with Year 2000
compliance efforts and (15) 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, 1999.
11
<PAGE> 12
PART II. OTHER INFORMATION
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule for the three months ended May 31, 1999.
12
<PAGE> 13
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 July 14, 1999 /s/ Gerald J. Rubin
------------------------------ --------------------------------
Gerald J. Rubin
Chairman of the Board, Chief
Executive Officer
(Principal Executive Officer)
Date July 14, 1999 /s/ Dona Fisher
------------------------------ --------------------------------
Dona Fisher
Senior Vice-President, Finance,
and Chief Financial Officer
(Principal Financial Officer)
13
<PAGE> 14
INDEX TO EXHIBIT
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
27 Financial Data Schedule for the three months ended May 31, 1999.
</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 THREE MONTHS ENDED MAY 31, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-END> MAY-31-1999
<CASH> 30,631,000
<SECURITIES> 1,566,000
<RECEIVABLES> 67,228,000
<ALLOWANCES> 728,000
<INVENTORY> 80,077,000
<CURRENT-ASSETS> 185,342,000
<PP&E> 51,915,000
<DEPRECIATION> 7,358,000
<TOTAL-ASSETS> 291,349,000
<CURRENT-LIABILITIES> 30,192,000
<BONDS> 55,450,000
0
0
<COMMON> 2,905,000
<OTHER-SE> 202,802,000
<TOTAL-LIABILITY-AND-EQUITY> 291,349,000
<SALES> 72,188,000
<TOTAL-REVENUES> 72,188,000
<CGS> 43,239,000
<TOTAL-COSTS> 43,239,000
<OTHER-EXPENSES> 21,565,000
<LOSS-PROVISION> 414,000
<INTEREST-EXPENSE> 536,000
<INCOME-PRETAX> 7,307,000
<INCOME-TAX> 1,461,000
<INCOME-CONTINUING> 5,846,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,846,000
<EPS-BASIC> .20
<EPS-DILUTED> .20
</TABLE>
