<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 November 30, 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) (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 January 12, 1999 there were 29,044,652 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 November 30, 1998 and
February 28, 1998......................................3
Consolidated Condensed Statements
of Income for the Three and Nine
Months Ended November 30, 1998 and
November 30, 1997......................................5
Consolidated Condensed Statements
of Cash Flows for the Nine Months
ended November 30, 1998 and
November 30, 1997......................................6
Notes to Consolidated Condensed
Financial Statements...................................8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................10
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K............................14
SIGNATURES...................................................................15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
HELEN OF TROY LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except shares)
<TABLE>
<CAPTION>
November 30, February 28,
1998 1998
-------------- --------------
(unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 9,433 $ 55,670
Receivables - principally trade,
less allowance for doubtful
receivables of $1,206 at November 30,
1998 and $568 at February 28, 1998 76,675 44,569
Inventories 98,524 71,357
Prepaid expenses 3,445 3,802
Deferred income tax benefits 2,257 1,522
-------------- --------------
Total current assets 190,334 176,920
Property and equipment,
net of accumulated depreciation of
$7,039 at November 30, 1998 and $4,892
at February 28, 1998 38,867 26,255
License agreements, at cost, less
amortization of $8,830 at November 30,
1998 and $8,068 at February 28, 1998 8,221 8,984
Goodwill 37,154 10,856
Other assets, net of amortization 15,233 4,545
-------------- --------------
Total assets $ 289,809 $ 227,560
============== ==============
</TABLE>
(continued)
3
<PAGE> 4
HELEN OF TROY LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except shares)
<TABLE>
<CAPTION>
November 30, February 28,
1998 1998
-------------- --------------
(unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 4,814 $ --
Accounts payable, principally trade 4,830 1,430
Accrued expenses:
Advertising and promotional 7,704 4,599
Other 11,142 7,389
Income taxes payable 11,167 9,208
-------------- --------------
Total current liabilities 39,657 22,626
Long-term debt 55,479 55,450
-------------- --------------
Total liabilities 95,136 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, 29,043,652 shares
at November 30, 1998 and 27,281,242
shares at February 28, 1998 2,904 2,728
Additional paid-in-capital 53,441 31,899
Retained earnings 138,328 114,857
-------------- --------------
Total stockholders' equity 194,673 149,484
-------------- --------------
Commitments and contingencies -- --
Total liabilities and stockholders' equity $ 289,809 $ 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>
For the Three Months For the Nine Months
Ended November 30, Ended November 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 89,144 $ 82,780 $ 225,442 $ 196,137
Cost of sales 53,085 50,979 135,699 121,283
------------ ------------ ------------ ------------
Gross profit 36,059 31,801 89,743 74,854
Selling, general and administrative expenses 21,719 19,398 59,531 49,858
------------ ------------ ------------ ------------
Operating income 14,340 12,403 30,212 24,996
Other income (expense):
Interest (expense) (817) (986) (2,581) (2,544)
Interest income 144 468 1,330 1,160
Other, net 196 52 377 517
------------ ------------ ------------ ------------
Total other income (expense) (477) (466) (874) (867)
------------ ------------ ------------ ------------
Earnings before income taxes 13,863 11,937 29,338 24,129
Income tax expense (benefit):
Current 3,069 3,243 6,603 5,919
Deferred (296) (549) (735) (482)
------------ ------------ ------------ ------------
Net earnings $ 11,090 $ 9,243 $ 23,470 $ 18,692
============ ============ ============ ============
Earnings per share
Basic $ .39 $ .34 $ .84 $ .70
Diluted .37 .32 .80 .65
Weighted average number of common and common
equivalent shares used in computing
earnings per share
Basic 28,665,065 27,096,534 28,026,758 26,724,167
Diluted 29,784,645 29,285,932 29,440,416 28,809,121
</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>
Nine Months Ended
November 30,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 23,470 $ 18,692
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation and amortization 3,405 2,921
Provision for doubtful receivables 444 356
Provision for deferred taxes, net (735) (483)
Gain on sale of assets -- (282)
Changes in operating assets and liabilities:
Accounts receivable (29,730) (34,658)
Inventory (23,865) (91)
Prepaid expenses 598 (2,008)
Accounts payable (792) (655)
Accrued expenses 6,478 8,638
Income taxes payable 1,832 5,947
-------- --------
Net cash used by operating activities (18,895) (1,623)
Cash flows from investing activities:
Capital and license expenditures (13,376) (2,063)
Proceeds from sale of assets -- 1,678
Other assets (14,930) (4,077)
Acquisitions, net of cash acquired (2,234) --
Collection on note receivable -- 413
-------- --------
Net cash used by investing activities (30,540) (4,049)
</TABLE>
(continued)
6
<PAGE> 7
HELEN OF TROY LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
November 30,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Net (payments)/borrowings on revolving line of credit $ 4,814 $ (4,001)
Proceeds from long-term debt -- 15,000
Payments on long-term debt (1,634) --
Exercise of stock options, including related tax benefits 18 4,027
-------- --------
Net cash provided by financing activities 3,198 15,026
-------- --------
Net increase/(decrease) in cash and cash equivalents (46,237) 9,354
-------- --------
Cash and cash equivalents, beginning of period 55,670 25,798
-------- --------
Cash and cash equivalents, end of period $ 9,433 $ 35,152
======== ========
Supplemental cash flow disclosures:
Interest paid $ 2,949 $ 2,431
Income taxes paid -- (213)
Capital stock issued for acquisitions 21,700 --
- -------------------------------------------------------------------------------------------------
Details of Acquisitions:
Fair value of assets acquired $ 30,783 $ --
Liabilities assumed 6,362 --
Stock issued 21,700 --
-------- --------
Cash paid 2,721 --
Less: cash acquired (487) --
-------- --------
Net cash paid for acquisitions $ 2,234 $ --
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
7
<PAGE> 8
HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
November 30, 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 November 30, 1998 and February 28, 1998 and the results
of its operations for the periods ended November 30, 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 weighed 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 1,119,580 and 2,189,398, respectively, for
the three months ended November 30, 1998 and 1997, and 1,413,658 and
2,084,954, respectively, for the nine months ended November 30, 1998
and 1997. Dilutive securities for the three months ended November 30,
1998 included 1,087,490 shares for dilutive stock options and 32,090
shares contingently issuable as part of an acquisition. For the nine
months ended November 30, 1998, dilutive securities included 1,402,962
shares attributable to dilutive stock options and 10,696 shares
contingently issuable as part of an acquisition. All dilutive
securities for the three and nine-month periods ended November 30,
1997 consisted of dilutive stock options outstanding. All 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.
On October 19, 1998, the Company acquired 100% of the stock of DCNL,
Inc., a California corporation. DCNL develops, designs and markets
specialized hair brushes and accessories. In exchange for the stock of
DCNL, the Company issued 350,000 shares of its Common Stock and made
additional cash payments to DCNL's
8
<PAGE> 9
shareholders. Under the terms of the agreement, DCNL's shareholders
will receive additional shares of Helen of Troy Common Stock if the
market price of the Company's Common Stock does not exceed a specified
level. In order to qualify for that additional consideration, the
former DCNL shareholders must hold the 350,000 shares of the Company's
Common Stock until October 19, 1999.
The Company accounted for the Karina and DCNL acquisitions using the
purchase method of accounting. As of November 30, 1998, the Company
had recorded $23.4 million of goodwill on the Karina and DCNL
acquisitions, combined. The Company is amortizing that goodwill over a
30-year life.
Note 5 - Certain prior year numbers have been reclassified to conform with
current year reporting classifications.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Quarter ended November 30, 1998
Net sales for the quarter ended November 30, 1998 increased $6,364,000, or 7.7%,
when compared with the quarter ended November 30, 1997. The introduction of new
product lines, increased international sales, and sales of products connected
with the Company's third quarter acquisitions, produced most of the third
quarter sales growth.
Gross profit as a percentage of sales increased to 40.5% for the quarter ended
November 30, 1998, compared to 38.4% for the quarter ended November 30, 1997.
The increase in gross profit was attributable to a favorable change in the mix
of products sold and to small reductions in the cost of some of the Company's
products.
Selling, general, and administrative expenses as a percentage of sales increased
to 24.4% of sales for the quarter ended November 30, 1998, compared to 23.4% for
the quarter ended November 30, 1997. The shift in sales mix, as described above,
also caused a shift in selling, freight, and other expenses that are related to
those sales. Recent acquisitions also increased selling, general, and
administrative costs in absolute amounts and as a percentage of net sales. Cost
efficiencies expected from the elimination of certain costs have not yet been
realized.
Interest expense decreased $169,000, or 17.1%, for the third quarter of fiscal
1999, compared to the same period in fiscal 1998. The capitalization of interest
expense on the construction of the Company's new headquarters building produced
the decrease in interest expense.
Interest income decreased by $324,000, or 69.2% for the quarter ended November
30, 1998, versus the quarter ended November 30, 1997. This decrease is due
primarily to the Company's average cash balance being lower in the third quarter
of fiscal 1999 than in the same period in fiscal 1998.
Nine-month period ended November 30, 1998
Net sales for the first nine months of fiscal 1999 increased $29,305,000, or
14.9%, compared to the first nine months of fiscal 1998. Sales increases
produced by acquisitions, the Company's introduction of new product lines,
increased international sales and higher domestic sales of existing products
produced the sales growth for the nine months ended November 30, 1998.
Gross profit as a percentage of sales grew from 38.2% for the nine months ended
November 30, 1997 to 39.8% for the nine months ended November 30, 1998. As with
the gross profit increase for the
10
<PAGE> 11
third quarter, the Company has achieved a favorable mix of products sold as well
as small reductions in the costs of some of the products sold.
Selling, general, and administrative expenses increased to 26.4% of sales for
the nine months ended November 30, 1998, compared to 25.4% for the same period a
year earlier. As was the case for the third quarter of fiscal 1999, higher
freight expenses, due to the mix of products sold, contributed to the increase
in selling, general, and administrative expenses as a percentage of sales for
the first nine months of fiscal 1999. Additionally, the Company recognized a
$740,000 bad debt charge during the second quarter of fiscal 1999, due to the
bankruptcy of a Russian distributor of its products. That distributor's account
was the Company's only significant exposure to credit risk in Russia or Asia.
Interest expense for the first nine months of fiscal 1999 remained relatively
constant, compared to the same period last year, increasing $37,000, or 1.5%.
The capitalization of interest on the construction of the Company's new
corporate headquarters offset most of the increase in interest expense produced
by the Company's issuance of $15,000,000 of Guaranteed Senior Notes in July
1997.
Interest income for the first nine months of fiscal 1999 increased 14.7% over
the same period of fiscal 1998. That increase in interest income occurred in the
first quarter of fiscal 1999. As explained in the Company's May 31, 1998
quarterly report on Form 10-Q, the Company's interest income was greater because
the Company's average cash balance was greater in the quarter ended May 31, 1998
than it was in the same period a year earlier.
Other income for the nine months ended November 30, 1998 decreased when compared
to the same period ended November 30, 1997. During the nine months ended
November 30, 1997 the Company recorded a gain from the sale of land. No such
transaction occurred during the nine month period ended November 30, 1998.
Liquidity and Capital Resources
The Company's working capital and current ratio were $150,677,000 and 4.8,
respectively, at November 30, 1998, compared to $154,294,000 and 7.8,
respectively, at February 28, 1998. The Company's cash balance decreased to
$9,433,000 at November 30, 1998, compared to $55,670,000 at February 28, 1998.
Increases in inventory levels and in accounts receivable balances, along with
capital expenditures for construction of the Company's new corporate
headquarters and cash used for acquisitions were the primary factors causing the
cash decrease. The increase in inventory is primarily due to seasonality, the
introduction of new product lines and the acquisition of new businesses.
The Company believes that 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 corporate headquarters office building. The new headquarters is
expected to be complete in April 1999.
11
<PAGE> 12
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 has completed the
necessary actions to bring all of its critical IT systems into Y2K compliance.
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 February 1999. 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 continues to assess 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. Additionally, the Company is in the
process of inquiring with major customers as to their Y2K compliance. Based on
this assessment and communications received to date, the Company believes that
its major customers will be Y2K compliant.
The Company is currently analyzing its relationships with its suppliers. By
February 1999 the Company expects to finish sending Y2K readiness inquiries to
any vendors that supply products or components that could not be easily obtained
from other suppliers. 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.
12
<PAGE> 13
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.
13
<PAGE> 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits
27. Financial Data Schedule
Reports on Form 8-K
The Company did not file any reports on form 8-K during the third quarter of
fiscal 1999.
14
<PAGE> 15
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 January 14, 1999 s/Gerald J. Rubin
---------------- -----------------------------
Gerald J. Rubin
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date January 14, 1999 s/Sam L. Henry
---------------- -------------------------------
Sam L. Henry
Senior Vice-President, Finance,
and Chief Financial Officer
(Principal Financial Officer)
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits
- --------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE 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 NINE MONTHS ENDED NOVEMBER 30, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> NOV-30-1998
<CASH> 9,433,000
<SECURITIES> 0
<RECEIVABLES> 77,881,000
<ALLOWANCES> 1,206,000
<INVENTORY> 98,524,000
<CURRENT-ASSETS> 190,334,000
<PP&E> 45,906,000
<DEPRECIATION> 7,039,000
<TOTAL-ASSETS> 289,809,000
<CURRENT-LIABILITIES> 39,657,000
<BONDS> 55,479,000
0
0
<COMMON> 2,904,000
<OTHER-SE> 191,769,000
<TOTAL-LIABILITY-AND-EQUITY> 289,809,000
<SALES> 225,442,000
<TOTAL-REVENUES> 225,442,000
<CGS> 135,699,000
<TOTAL-COSTS> 135,699,000
<OTHER-EXPENSES> 59,531,000
<LOSS-PROVISION> 1,525,000
<INTEREST-EXPENSE> 2,581,000
<INCOME-PRETAX> 29,338,000
<INCOME-TAX> 5,868,000
<INCOME-CONTINUING> 23,470,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,470,000
<EPS-PRIMARY> .84
<EPS-DILUTED> .80
</TABLE>
