Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

T   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended May 31, 2014

 

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: 001-14669

 

 

HELEN OF TROY LIMITED

(Exact name of registrant as specified in its charter)

 

Bermuda

 

74-2692550

 

 

 

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

Clarenden House

2 Church Street

Hamilton, Bermuda

 

 

 

 

 

(Address of principal executive offices)

 

 

 

 

 

1 Helen of Troy Plaza

 

 

 

 

 

El Paso, Texas

 

79912

 

 

 

(Registrant’s United States Mailing Address)

 

(Zip Code)

 

(915) 225-8000

 

(Registrant’s telephone number, including area code)

 

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 T    No £

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).                                                                                             Yes T    No £

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer T

Accelerated filer £

Non-accelerated filer £

Smaller Reporting Company £

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                                 Yes £    No T

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at July 3, 2014

 

 

 

Common Shares, $0.10 par value, per share

 

28,368,876 shares

 

 


 


Table of Contents

 

 

HELEN OF TROY LIMITED AND SUBSIDIARIES

 

FORM 10-Q

 

TABLE OF CONTENTS

 

 

 

PAGE

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

2

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

36

 

 

 

Item 4.

Controls and Procedures

41

 

 

 

PART 2.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

42

 

 

 

Item 1A.

Risk Factors

42

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43

 

 

 

Item 6.

Exhibits

44

 

 

 

SIGNATURES

45

 

 

 

1

 


 


Table of Contents

 

 

PART I.   FINANCIAL INFORMATION

 

ITEM 1.   FINANCIAL STATEMENTS

 

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (Unaudited)

(in thousands, except shares and par value)

 

 

 

 

May 31,

 

 

February 28,

 

 

 

 

2014

 

 

2014

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Assets, current:

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

29,170

 

 

$

70,027

 

Receivables - principally trade, less allowances of $4,894 and $4,679

 

 

217,415

 

 

213,054

 

Inventory, net

 

 

298,450

 

 

289,255

 

Prepaid expenses and other current assets

 

 

8,501

 

 

10,097

 

Income taxes receivable

 

 

7,924

 

 

3,783

 

Deferred tax assets, net

 

 

24,834

 

 

29,260

 

Total assets, current

 

 

586,294

 

 

615,476

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $74,730 and $71,516

 

 

127,586

 

 

129,117

 

Goodwill

 

 

453,241

 

 

453,241

 

Other intangible assets, net of accumulated amortization of $99,956 and $94,698

 

 

308,161

 

 

322,309

 

Deferred tax assets, net

 

 

2,343

 

 

2,523

 

Other assets, net of accumulated amortization of $7,180 and $6,781

 

 

10,030

 

 

10,636

 

Total assets

 

 

$

1,487,655

 

 

$

1,533,302

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Liabilities, current:

 

 

 

 

 

 

 

Revolving line of credit

 

 

$

235,000

 

 

$

-

 

Accounts payable, principally trade

 

 

84,818

 

 

75,585

 

Accrued expenses and other current liabilities

 

 

124,571

 

 

156,688

 

Deferred tax liabilities, net

 

 

182

 

 

181

 

Long-term debt, current maturities

 

 

96,900

 

 

96,900

 

Total liabilities, current

 

 

541,471

 

 

329,354

 

 

 

 

 

 

 

 

 

Long-term debt, excluding current maturities

 

 

93,807

 

 

95,707

 

Deferred tax liabilities, net

 

 

54,069

 

 

56,988

 

Other liabilities, noncurrent

 

 

18,505

 

 

21,766

 

Total liabilities

 

 

707,852

 

 

503,815

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

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; 28,358,198 and 32,272,519 shares issued and outstanding

 

 

2,836

 

 

3,227

 

Additional paid in capital

 

 

170,087

 

 

180,861

 

Accumulated other comprehensive loss

 

 

(290

)

 

(1,091

)

Retained earnings

 

 

607,170

 

 

846,490

 

Total stockholders’ equity

 

 

779,803

 

 

1,029,487

 

Total liabilities and stockholders’ equity

 

 

$

1,487,655

 

 

$

1,533,302

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

 

 

2

 



Table of Contents

 

 

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Statements of Income (Unaudited)

(in thousands, except per share data)

 

 

 

 

Three Months Ended May 31,

 

 

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

 

$

311,778

 

 

$

304,516

 

Cost of goods sold

 

 

192,258

 

 

184,351

 

Gross profit

 

 

119,520

 

 

120,165

 

 

 

 

 

 

 

 

 

Selling, general and administrative expense

 

 

87,397

 

 

87,490

 

Asset impairment charges

 

 

9,000

 

 

12,049

 

Operating income

 

 

23,123

 

 

20,626

 

 

 

 

 

 

 

 

 

Nonoperating income (expense), net

 

 

50

 

 

84

 

Interest expense

 

 

(3,417

)

 

(2,942

)

Income before income taxes

 

 

19,756

 

 

17,768

 

 

 

 

 

 

 

 

 

Income tax expense:

 

 

 

 

 

 

 

Current

 

 

2,039

 

 

3,896

 

Deferred

 

 

1,319

 

 

(520

)

Net income

 

 

$

16,398

 

 

$

14,392

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

Basic

 

 

$

0.56

 

 

$

0.45

 

Diluted

 

 

$

0.55

 

 

$

0.45

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock used in computing net earnings per share:

 

 

 

 

 

 

 

Basic

 

 

29,105

 

 

31,908

 

Diluted

 

 

29,616

 

 

32,180

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

 

 

3

 



Table of Contents

 

 

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Statements of Comprehensive Income (Unaudited)

 

(in thousands)

 

 

 

Three months ended May 31,

 

 

 

2014

 

 

 

2013

 

 

 

Before

 

 

 

Net of

 

 

 

Before

 

 

 

Net of

 

 

 

Tax

 

Tax

 

Tax

 

 

 

Tax

 

Tax

 

Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income

 

$

19,756

 

$

(3,358

)

$

16,398

 

 

 

$

17,768

 

$

(3,376

)

$

14,392

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

12

 

(5

)

7

 

 

 

(3

)

1

 

(2

)

Interest rate settlements reclassified to income

 

914

 

(320

)

594

 

 

 

914

 

(320

)

594

 

Subtotal

 

926

 

(325

)

601

 

 

 

911

 

(319

)

592

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - foreign currency contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

78

 

(17

)

61

 

 

 

36

 

(7

)

29

 

Settlements reclassified to income

 

166

 

(27

)

139

 

 

 

(216

)

40

 

(176

)

Subtotal

 

244

 

(44

)

200

 

 

 

(180

)

33

 

(147

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

1,170

 

(369

)

801

 

 

 

731

 

(286

)

445

 

Comprehensive income

 

$

20,926

 

$

(3,727

)

$

17,199

 

 

 

$

18,499

 

$

(3,662

)

$

14,837

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

 

 

4

 



Table of Contents

 

 

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows (Unaudited)

(in thousands)

 

 

 

 

Three months ended May 31,

 

 

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

Cash provided (used) by operating activities:

 

 

 

 

 

 

 

Net income

 

 

$

16,398

 

 

$

14,392

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

8,757

 

 

8,447

 

Provision for doubtful receivables

 

 

118

 

 

279

 

Non-cash share-based compensation

 

 

1,295

 

 

3,378

 

Intangible asset impairment charges

 

 

9,000

 

 

12,049

 

(Gain) loss on the sale of property and equipment

 

 

1

 

 

37

 

Deferred income taxes and tax credits

 

 

1,321

 

 

(509

)

Changes in operating capital, net of effects of acquisition of businesses:

 

 

 

 

 

 

 

Receivables

 

 

(4,479

)

 

13,419

 

Inventories

 

 

(9,195

)

 

(7,510

)

Prepaid expenses and other current assets

 

 

1,641

 

 

(3,302

)

Other assets and liabilities, net

 

 

(2,987

)

 

1,748

 

Accounts payable

 

 

9,233

 

 

14,275

 

Accrued expenses and other current liabilities

 

 

(23,939

)

 

(11,389

)

Accrued income taxes

 

 

(4,193

)

 

1,519

 

Net cash provided by operating activities

 

 

2,971

 

 

46,833

 

 

 

 

 

 

 

 

 

Cash provided (used) by investing activities:

 

 

 

 

 

 

 

Capital and intangible asset expenditures

 

 

(1,822

)

 

(17,000

)

Net cash used by investing activities

 

 

(1,822

)

 

(17,000

)

 

 

 

 

 

 

 

 

Cash provided (used) by financing activities:

 

 

 

 

 

 

 

Proceeds from line of credit

 

 

337,700

 

 

28,400

 

Repayment of line of credit

 

 

(102,700

)

 

(72,400

)

Proceeds from issuance of long-term debt

 

 

-    

 

 

11,835

 

Repayment of long-term debt

 

 

(1,900

)

 

-    

 

Payment of financing costs

 

 

(1

)

 

(157

)

Proceeds from share issuances under share-based compensation plans, including tax benefits

 

 

2,935

 

 

2,758

 

Payment of tax obligations resulting from cashless share award exercises

 

 

(4,569

)

 

(393

)

Payments for repurchases of common stock

 

 

(273,598

)

 

(1,311

)

Share-based compensation tax benefit

 

 

127

 

 

723

 

Net cash used by financing activities

 

 

(42,006

)

 

(30,545

)

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(40,857

)

 

(712

)

Cash and cash equivalents, beginning balance

 

 

70,027

 

 

12,842

 

Cash and cash equivalents, ending balance

 

 

$

29,170

 

 

$

12,130

 

 

 

See accompanying notes to consolidated condensed financial statements.

 

 

 

5

 


 


Table of Contents

 

 

HELEN OF TROY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

May 31, 2014

 

Note 1 – Basis of Presentation and Conventions Used in this Report

 

The accompanying consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly our consolidated financial position as of May 31, 2014 and February 28, 2014, and the results of our consolidated operations for the fiscal quarters ended May 31, 2014 and 2013. We follow the same accounting policies when preparing quarterly financial data as we use for preparing annual data. These statements should be read in conjunction with the consolidated financial statements and the notes included in our latest annual report on Form 10-K for the fiscal year ended February 28, 2014, and our other reports on file with the Securities and Exchange Commission (“SEC”).

 

In this report and the accompanying consolidated condensed financial statements and notes, unless the context suggests otherwise or otherwise indicated, 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 the Company’s common shares, par value $0.10 per share, as “common stock.” References to “OXO” refer to the operations of OXO International and certain of its affiliated subsidiaries that comprise our Housewares segment. References to “Kaz” refer to the operations of Kaz, Inc. and its subsidiaries. References to “PUR” refer to the PUR brand of water filtration products that we acquired, along with certain other assets and liabilities, from The Procter & Gamble Company and certain of its affiliates. Kaz and PUR comprise a segment within the Company referred to as the Healthcare / Home Environment segment. Product and service names mentioned in this report are used for identification purposes only and may be protected by trademarks, trade names, services marks, and other intellectual property rights of the Company and other parties in the United States and other jurisdictions. 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 “the FASB” refer to the Financial Accounting Standards Board. References to “GAAP” refer to U.S. generally accepted accounting principles. References to “ASC” refer to the codification of GAAP in the Accounting Standards Codification issued by the FASB.

 

We are a global designer, developer, importer, marketer, and distributor of an expanding portfolio of brand-name consumer products. We have three segments: Housewares, Healthcare / Home Environment and Personal Care. Our Housewares segment provides a broad range of innovative consumer products for the home. Product offerings include food preparation tools, gadgets and storage containers, cleaning, organization, and baby and toddler care products. The Healthcare / Home Environment segment focuses on health care 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 Personal Care segment’s 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.

 

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.

 

Our consolidated condensed financial statements are prepared in U.S. Dollars and in accordance with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.  We have reclassified, combined or separately disclosed certain amounts in the prior period’s consolidated condensed financial statements and accompanying footnotes to conform to the current period’s presentation.

 

 

 

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Table of Contents

 

 

Note 2 – New Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that we adopt according to the various timetables the FASB specifies.  Unless otherwise discussed, we believe the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial position, results of operations and cash flows upon adoption.

 

Note 3 – Commitments and Contingencies

 

We are involved in various 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.

 

Notes 7, 9, 11, and 12 provide additional information regarding certain of our significant commitments and certain significant contingencies we have provided for in the accompanying consolidated condensed financial statements.

 

Our products are under warranty against defects in material and workmanship for periods ranging from two to five years. We estimate our warranty accrual using historical trends and believe that these trends are the most reliable method by which we can estimate our warranty liability.  The following table summarizes the activity in our warranty accrual for the periods covered below:

 

ACCRUAL FOR WARRANTY RETURNS

(in thousands)

 

 

 

 

Three months ended May 31,

 

 

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

Beginning balance

 

 

$

19,269

 

 

$

23,150

 

Additions to the accrual

 

 

13,286

 

 

13,578

 

Reductions of the accrual - payments and credits issued

 

 

(13,415

)

 

(15,946

)

Ending balance

 

 

$

19,140

 

 

$

20,782

 

 

Note 4 – 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.  For the fiscal quarter ended May 31, 2014, our dilutive securities consisted of outstanding options to purchase common stock and the impact of a $15 million severance payment to our former Chief Executive Officer (“CEO”) to be settled with common stock on September 1, 2014.   For the fiscal quarter ended May 31, 2013, our dilutive securities consisted of outstanding options to purchase common stock and issued and contingently issuable unvested restricted share units and awards.  Options for common stock are excluded from the computation of diluted earnings per share if their effect is antidilutive.  See Note 14 to these consolidated condensed financial statements for more information regarding restricted share units and awards.  For the periods covered below, the basic and diluted shares are as follows:

 

WEIGHTED AVERAGE DILUTED SECURITIES

(in thousands)

 

 

 

 

Three months ended May 31,

 

 

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

 

29,105

 

 

31,908

 

Incremental shares from share-based payment arrangements

 

 

511

 

 

272

 

Weighted average shares outstanding, diluted

 

 

29,616

 

 

32,180

 

 

 

 

 

 

 

 

 

Dilutive securities, as a result of in-the-money options

 

 

728

 

 

199

 

Dilutive securities, as a result of unvested or unsettled share awards due

 

 

231

 

 

234

 

Antidilutive securities, as a result of out-of-the-money options

 

 

233

 

 

797

 

 

 

 

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Table of Contents

 

 

Note 5 – Segment Information

 

The following tables contain segment information for the periods covered below:

 

THREE MONTHS ENDED MAY 31, 2014 AND 2013

(in thousands)

 

 

 

 

 

Healthcare /

 

Personal

 

 

 

May 31, 2014

 

Housewares

 

Home Environment

 

Care

 

Total

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

66,756

 

$

142,489

 

$

102,533

 

$

311,778

 

Asset impairment charges

 

-    

 

-    

 

9,000

 

9,000

 

Operating income

 

13,035

 

8,717

 

1,371

 

23,123

 

Capital and intangible asset expenditures

 

824

 

406

 

592

 

1,822

 

Depreciation and amortization

 

914

 

5,463

 

2,380

 

8,757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare /

 

Personal

 

 

 

May 31, 2013

 

Housewares

 

Home Environment

 

Care

 

Total

 

 

 

 

 

 

 

 

 

 

 

Sales revenue, net

 

$

63,530

 

$

125,602

 

$

115,384

 

$

304,516

 

Asset impairment charges

 

-    

 

-    

 

12,049

 

12,049

 

Operating income

 

12,456

 

6,536

 

1,634

 

20,626

 

Capital and intangible asset expenditures

 

214

 

16,105

 

681

 

17,000

 

Depreciation and amortization

 

1,019

 

4,781

 

2,647

 

8,447

 

 

We compute segment operating income based on net sales revenue, less cost of goods sold, selling, general and administrative expense (“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 overhead expenses that are allocable to the segment.

 

We do not allocate nonoperating income and expense, including interest or income taxes to operating segments.

 

 

 

8

 



Table of Contents

 

 

Note 6 – Comprehensive Loss

 

The table below presents the changes in accumulated other comprehensive income / (loss) by component and the amounts reclassified out of accumulated other comprehensive loss for the 2015 fiscal year-to-date:

 

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT

(in thousands)

 

 

 

 

Unrealized Holding Gains (Losses)

 

 

 

 

 

 

On Cash Flow Hedges

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

Interest Rate

 

Currency

 

 

 

 

 

 

Swaps (1)

 

Contracts (2)

 

Total

 

 

 

 

 

 

 

 

 

 

Balance at February 28, 2014

 

 

$

(797

)

$

(294

)

$

(1,091

)

 

 

 

 

 

 

 

 

 

Other comprehensive income before reclassification

 

 

12

 

78

 

90

 

Amounts reclassified out of accumulated other comprehensive income

 

 

914

 

166

 

1,080

 

Tax effects

 

 

(325

)

(44

)

(369

)

Other comprehensive income

 

 

601

 

200

 

801

 

 

 

 

 

 

 

 

 

 

Balance at May 31, 2014

 

 

$

(196

)

$

(94

)

$

(290

)

 

(1)  Includes net deferred tax benefits of $0.11 and $0.43 million at May 31, 2014 and February 28, 2014, respectively.

 

(2)  Includes net deferred tax benefits of $0.03 and $0.08 million at May 31, 2014 and February 28, 2014, respectively.

 

Note 7 – Supplemental Balance Sheet Information

 

PROPERTY AND EQUIPMENT

(in thousands)

 

 

 

Estimated

 

 

 

 

 

 

 

 

 

Useful Lives

 

 

May 31,

 

 

February 28,

 

 

 

(Years)

 

 

2014

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

Land

 

-

 

 

$

12,800

 

 

$

12,800

 

Building and improvements

 

3 - 40

 

 

98,818

 

 

98,660

 

Computer, furniture and other equipment

 

3 - 15

 

 

62,174

 

 

60,291

 

Tools, molds and other production equipment

 

1 - 10

 

 

23,022

 

 

23,017

 

Construction in progress

 

-

 

 

5,502

 

 

5,865

 

Property and equipment, gross

 

 

 

 

202,316

 

 

200,633

 

Less accumulated depreciation

 

 

 

 

(74,730

)

 

(71,516

)

Property and equipment, net

 

 

 

 

$

127,586

 

 

$

129,117

 

 

 

 

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Table of Contents

 

 

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

(in thousands)

 

 

May 31,

 

 

February 28,

 

 

 

2014

 

 

2014

 

 

 

 

 

 

 

 

Accrued compensation, benefits and payroll taxes

 

$

30,103

 

 

$

69,877

 

Accrued sales returns, discounts and allowances

 

28,376

 

 

25,297

 

Accrued warranty returns

 

19,140

 

 

19,269

 

Accrued advertising

 

20,902

 

 

16,414

 

Accrued product liability, legal and professional fees

 

5,769

 

 

5,705

 

Accrued royalties

 

5,335

 

 

5,712

 

Accrued property, sales and other taxes

 

6,666

 

 

6,835

 

Derivative liabilities, current

 

471

 

 

1,596

 

Liability for uncertain tax positions

 

-    

 

 

453

 

Other

 

7,809

 

 

5,530

 

Total accrued expenses and other current liabilities

 

$

124,571

 

 

$

156,688

 

 

 

 

 

 

 

 

OTHER LIABILITIES, NONCURRENT

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

May 31,

 

 

February 28,

 

 

 

2014

 

 

2014

 

 

 

 

 

 

 

 

Deferred compensation liability

 

$

3,998

 

 

$

7,257

 

Liability for uncertain tax positions

 

13,546

 

 

13,471

 

Other liabilities

 

961

 

 

1,038

 

Total other liabilities, noncurrent

 

$

18,505

 

 

$

21,766

 

 

Note 8 – Goodwill and Intangible Assets

 

Annual Impairment Testing in the First Quarter of Fiscal Year 2015 - We performed our annual evaluation of goodwill and indefinite-lived intangible assets for impairment during the first quarter of fiscal year 2015.  As a result of our testing of indefinite-lived trademarks and licenses, we recorded a non-cash asset impairment charge of $9.00 million ($8.16 million after tax).  The charge was related to certain trademarks in our Personal Care segment, which were written down to their estimated fair value, determined on the basis of future discounted cash flows using the relief from royalty valuation method.

 

Annual Impairment Testing in the First Quarter of Fiscal Year 2014 - We performed our annual evaluation of goodwill and indefinite-lived intangible assets for impairment during the first quarter of fiscal year 2014.  As a result of our testing of indefinite-lived trademarks and licenses, we recorded a non-cash asset impairment charge of $12.05 million ($12.03 million after tax).  The charge was related to certain trademarks in our Personal Care segment, which were written down to their estimated fair value, determined on the basis of future discounted cash flows using the relief from royalty valuation method.

 

 

 

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Table of Contents

 

 

A summary of the carrying amounts and associated accumulated amortization for all intangible assets by operating segment follows:

 

GOODWILL AND INTANGIBLE ASSETS

 

(in thousands)

 

 

May 31, 2014

 

 

 

February 28, 2014

 

 

 

Gross

 

Cumulative

 

 

 

 

 

 

 

Gross

 

Cumulative

 

 

 

 

 

 

 

Carrying

 

Goodwill

 

Accumulated

 

Net Book

 

 

 

Carrying

 

Goodwill

 

Accumulated

 

Net Book

 

Description

 

Amount

 

Impairments

 

Amortization

 

Value

 

 

 

Amount

 

Impairments

 

Amortization

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Housewares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

166,132

 

$

-    

 

$

-    

 

$

166,132

 

 

 

$

166,132

 

$

-    

 

$

-    

 

$

166,132

 

Trademarks - indefinite

 

75,200

 

-    

 

-    

 

75,200

 

 

 

75,200

 

-    

 

-    

 

75,200

 

Other intangibles - finite

 

15,803

 

-    

 

(11,463

)

4,340

 

 

 

15,693

 

-    

 

(11,149

)

4,544

 

Total Housewares

 

257,135

 

-    

 

(11,463

)

245,672

 

 

 

257,025

 

-    

 

(11,149

)

245,876

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare / Home Environment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

251,758

 

-    

 

-    

 

251,758

 

 

 

251,758

 

-    

 

-    

 

251,758

 

Trademarks - indefinite

 

54,000

 

-    

 

-    

 

54,000

 

 

 

54,000

 

-    

 

-    

 

54,000

 

Licenses - finite

 

15,300

 

-    

 

(7,156

)

8,144

 

 

 

15,300

 

-    

 

(6,416

)

8,884

 

Other intangibles - finite

 

114,490

 

-    

 

(37,329

)

77,161

 

 

 

114,490

 

-    

 

(34,606

)

79,884

 

Total Healthcare / Home Environment

 

435,548

 

-    

 

(44,485

)

391,063

 

 

 

435,548

 

-    

 

(41,022

)

394,526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal Care:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

81,841

 

(46,490

)

-    

 

35,351

 

 

 

81,841

 

(46,490

)

-    

 

35,351

 

Trademarks - indefinite

 

54,754

 

-    

 

-    

 

54,754

 

 

 

63,754

 

-    

 

-    

 

63,754

 

Trademarks - finite

 

150

 

-    

 

(78

)

72

 

 

 

150

 

-    

 

(77

)

73

 

Licenses - indefinite

 

10,300

 

-    

 

-    

 

10,300

 

 

 

10,300

 

-    

 

-    

 

10,300

 

Licenses - finite

 

18,683

 

-    

 

(15,966

)

2,717

 

 

 

18,683

 

-    

 

(15,887

)

2,796

 

Other intangibles - finite

 

49,437

 

-    

 

(27,964

)

21,473

 

 

 

49,437

 

-    

 

(26,563

)

22,874

 

Total Personal Care

 

215,165

 

(46,490

)

(44,008

)

124,667

 

 

 

224,165

 

(46,490

)

(42,527

)

135,148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

907,848

 

$

(46,490

)

$

(99,956

)

$

761,402

 

 

 

$

916,738

 

$

(46,490

)

$

(94,698

)

$

775,550

 

 

The following table summarizes the amortization expense attributable to intangible assets for the periods covered in this quarterly report, as well as our estimated amortization expense for the fiscal years 2015 through 2020.

 

AMORTIZATION OF INTANGIBLE ASSETS

 

(in thousands)

Aggregate Amortization Expense

 

 

 

For the three months ended

 

 

 

 

 

 

 

May 31, 2014

 

$

5,259

 

May 31, 2013

 

$

5,431

 

 

 

 

 

 

 

 

 

Estimated Amortization Expense

 

 

 

For the fiscal years ended

 

 

 

 

 

 

 

February 2015

 

$

21,035

 

February 2016

 

$

20,853

 

February 2017

 

$

20,540

 

February 2018

 

$

16,717

 

February 2019

 

$

12,012

 

February 2020

 

$

10,285

 

 

 

 

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Table of Contents

 

 

Note 9 – Debt

 

Revolving Line of Credit - We have a Credit Agreement (the “Credit Agreement”) with Bank of America, N.A. that provides for an unsecured total revolving commitment of up to $375 million. The commitment under the Credit Agreement terminates on December 30, 2015.  Borrowings accrue interest under one of two alternative methods as described in the Credit Agreement.  With each borrowing against our credit line, we can elect the interest rate method based on our funding needs at the time.  We also incur loan commitment fees and letter of credit fees under the Credit Agreement.  Outstanding letters of credit reduce the borrowing availability under the Credit Agreement on a dollar-for-dollar basis.  As of May 31, 2014, the outstanding revolving loan principal balance was $235 million and there were $0.30 million of open letters of credit outstanding against the Credit Agreement.  For the fiscal quarter ended May 31, 2014, borrowings under the Credit Agreement incurred interest charges at rates ranging from 1.90 to 4.00 percent.  For the fiscal quarter ended May 31, 2013, borrowings under the Credit Agreement incurred interest charges at rates ranging from 1.57 to 3.63 percent.  As of May 31, 2014, the amount available for borrowings under the Credit Agreement was $139.70 million.

 

Long-Term Debt - In March 2014, the Company concluded its borrowings under a loan agreement with the Mississippi Business Finance Corporation (the “MBFC Loan”). Under the MBFC Loan, a principal balance of $37.61 million was incurred to fund construction of our Olive Branch, Mississippi distribution facility.  A $1.90 million principal payment was made on March 1, 2014.   The remaining loan balance is  payable as follows: $1.90 million on March 1 in each of 2015, 2018, 2019, 2020, 2021, and 2022; $3.80 million on March 1, 2016; $5.70 million on March 1, 2017; and $14.81 million on March 1, 2023. Any remaining outstanding principal and interest is due upon maturity on March 1, 2023.

 

A summary of our long-term debt is as follows:

 

LONG-TERM DEBT

(dollars in thousands)

 

 

Original

 

 

 

 

 

 

 

 

 

 

 

 

 

Date

 

Interest

 

 

 

 

May 31,

 

 

February 28,

 

 

 

Borrowed

 

Rates

 

Matures

 

 

2014

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$37.61 million unsecured loan with a state industrial development corporation, interest is set and payable quarterly at a Base Rate, plus a margin of up to 1.125%, or applicable LIBOR plus a margin of up to 2.125%, as determined by the interest rate elected. Loan subject to holder’s call on or after March 1, 2018. Loan can be prepaid without penalty.

 

03/13

 

1.90%

 

03/23

 

 

$

35,707

 

 

$

37,607

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$75 million unsecured floating interest rate Senior Notes. Interest set and payable quarterly at three month LIBOR plus 90 basis points. Principal is due in June 2014. Notes can be prepaid without penalty. (1) (2)

 

06/04

 

6.01%

 

06/14

 

 

75,000

 

 

75,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$100 million unsecured Senior Notes payable at a fixed interest rate of 3.90%. Interest payable semi-annually. Annual principal payments of $20 million begin in January 2014. Prepayment of notes are subject to a “make whole” premium.

 

01/11

 

3.90%

 

01/18

 

 

80,000

 

 

80,000

 

Total long-term debt

 

 

 

 

 

 

 

 

190,707

 

 

192,607

 

Less current maturities of long-term debt

 

 

 

 

 

 

 

 

(96,900

)

 

(96,900

)

Long-term debt, excluding current maturities

 

 

 

 

 

 

 

 

$

93,807

 

 

$

95,707

 

 

(1)      Floating interest rates have been hedged with an interest rate swap to effectively fix interest rates. Additional information regarding the swap is provided in Note 12 to these consolidated condensed financial statements.

 

(2)      On June 30, 2014, $75 million of principal on our Senior Notes was repaid at maturity.

 

 

 

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Table of Contents

 

 

The fair market value of the fixed rate debt at May 31, 2014, computed using a discounted cash flow analysis, was $83.87 million compared to the $80 million book value and represents a Level 2 liability. All other long-term debt has floating interest rates, and its book value approximates its fair value at May 31, 2014.

 

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, including, among other things, covenants restricting or limiting the Company, except under certain conditions set forth therein, from (1) incurring debt, (2) incurring liens on its 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.

 

As of May 31, 2014, our debt agreements effectively limited our ability to incur more than $150.84 million of additional debt from all sources, including our Credit Agreement.  We were in compliance with the terms of these agreements as of May 31, 2014.

 

See Note 15 to these consolidated condensed financial statements for information regarding subsequent amendments to our debt agreements that increased borrowing limits under the unsecured revolving commitment of the Credit Agreement from $375 million to $570 million.

 

Note 10 – Income Taxes

 

Income tax expense for the fiscal quarter ended May 31, 2014 was 17.0 percent of income before income taxes compared to 19.0 percent for the same period last year. The year-over-year change in our effective tax rate was primarily due to shifts in the mix of taxable income between our various tax jurisdictions.  Our effective tax rates were also impacted by asset impairment charges of $9.00 million for the fiscal quarter ended May 31, 2014, and $12.05 million for the fiscal quarter ended May 31, 2013, for which the related tax benefits were $0.86 and $0.02 million, respectively.

 

 

 

13

 



Table of Contents

 

 

Note 11 – Fair Value

 

The fair value hierarchy of our financial assets and liabilities carried at fair value and measured on a recurring basis is as follows:

 

FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES

(in thousands)

 

 

 

 

Quoted Prices in

 

Significant Other

 

 

 

 

 

Active Markets

 

Observable

 

 

 

Fair Values at

 

for Identical Assets

 

Market Inputs

 

Description

 

May 31, 2014

 

(Level 1)

 

(Level 2)

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Money market accounts

 

$

1,365

 

$

1,365

 

$

-    

 

Foreign currency contracts

 

45

 

45

 

-    

 

Total assets

 

$

1,410

 

$

1,410

 

$

-    

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Long-term debt - fixed rate (1)

 

$

83,866

 

$

-    

 

$

83,866

 

Long-term debt - floating rate

 

110,707

 

-    

 

110,707

 

Interest rate swaps and foreign currency contracts

 

471

 

-    

 

471

 

Total liabilities

 

$

195,044

 

$

-    

 

$

195,044

 

 

 

 

 

 

 

Quoted Prices in

 

Significant Other

 

 

 

 

 

Active Markets

 

Observable

 

 

 

Fair Values at

 

for Identical Assets

 

Market Inputs

 

Description

 

February 28, 2014

 

(Level 1)

 

(Level 2)

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Money market accounts

 

$

1,549

 

$

1,549

 

$

-    

 

Foreign currency contracts

 

-    

 

-    

 

-    

 

Total assets

 

$

1,549

 

$

1,549

 

$

-    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Long-term debt - fixed rate (1)

 

$

83,951

 

$

-    

 

$

83,951

 

Long-term debt - floating rate

 

112,607

 

-    

 

112,607

 

Interest rate swaps and foreign currency contracts

 

1,596

 

-    

 

1,596

 

Total liabilities

 

$

198,154

 

$

-    

 

$

198,154

 

 

(1) Debt values are reported at estimated fair value in these tables, but are recorded in the accompanying consolidated condensed balance sheets at the undiscounted value of remaining principal payments due.

 

The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair value because of the short maturity of these items. Money market accounts are included in cash and cash equivalents in the accompanying consolidated condensed balance sheets and are classified as Level 1 items.

 

We classify our fixed and floating rate debt as Level 2 liabilities because the estimation of the fair market value of these financial liabilities requires the use of discount rates based upon current market rates of interest for debt with comparable remaining terms. Such comparable rates are significant other observable market inputs. The fair

 

 

 

14

 



Table of Contents

 

 

market value of the fixed rate debt was computed using a discounted cash flow analysis and discount rates of 1.54 percent at May 31, 2014 and 1.75 percent at February 28, 2014. All other long-term debt has floating interest rates, and its book value approximates its fair value as of the reporting date.

 

We use derivatives for hedging purposes and our derivatives are primarily foreign currency contracts and an interest rate swap. We determine the fair value of our derivative instruments based on Level 2 inputs in the fair value hierarchy. See Notes 6, 9  and 12 to these consolidated condensed financial statements for more information on our hedging activities.

 

The Company’s other non-financial assets include goodwill and other intangible assets, which we classify as Level 3 assets. These assets are measured at fair value on a non-recurring basis as part of the Company’s impairment assessments and as circumstances require.  As discussed in Note 8 to these consolidated condensed financial statements, in connection with our annual impairment testing during the fiscal quarter ended May 31, 2014, we recorded a non-cash asset impairment charge of $9.00 million ($8.16 million after tax). The charge related to certain trademarks in our Personal Care segment, which were written down to their estimated fair value, determined on the basis of future discounted cash flows using the relief from royalty valuation method.

 

Note 12 – 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. During each of the fiscal quarters ended May 31, 2014 and 2013, approximately 15 percent of our net sales revenue was in foreign currencies.  These sales were primarily denominated in British Pounds, Euros, Mexican Pesos, Canadian Dollars, Australian Dollars, Peruvian Soles, and Venezuelan Bolivars.  We make most of our inventory purchases from the Far East and use the U.S. Dollar for such purchases. In our consolidated condensed 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 from remeasurement are recognized in SG&A. For the fiscal quarters ended May 31, 2014 and 2013, we recorded net foreign exchange gains (losses), including the impact of currency hedges, of ($0.03) and ($0.12) million, respectively, in SG&A and $0.04 and $0.05 million, respectively, in income tax expense.

 

We have historically hedged against certain foreign currency exchange rate risk by using a series of forward contracts designated as cash flow hedges 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.

 

Venezuelan Bolivar Currency Exchange Uncertainties - In February 2013, the Venezuelan government devalued its currency from 4.30 to 6.30 Bolivars per U.S. Dollar for all goods and services. In connection with this devaluation, we recorded a charge of $1.41 million in the fourth quarter of fiscal year 2013.  In March 2013, the Venezuelan government announced an additional complementary auction-based exchange rate mechanism known as SICAD 1.  SICAD 1 was made available to certain companies that operate in designated industry sectors.  At May 31, 2014, the SICAD 1 rate was 10 Bolivars to the U.S. Dollar.  In early 2014, the Venezuelan government created a National Center of Foreign Commerce (“CENCOEX”) to control the multiple currency exchange rate mechanisms that may be available for a company to exchange funds.  CENCOEX was granted the authority to determine the sectors that will be allowed to buy U.S. dollars in SICAD auctions, and subsequently introduced a more accessible market-based, SICAD 2 daily auction exchange market.  At May 31, 2014, the SICAD 2 rate was approximately 50 Bolivars to the U.S. Dollar.

 

 

 

15

 



Table of Contents

 

 

Despite the recent announcements made by the Venezuelan government, there remains a significant degree of uncertainty as to which exchange markets might be available for particular types of transactions. To date, we have not gained access to U.S. Dollars in Venezuela through either SICAD 1 or SICAD 2 auctions, nor do we intend to.  These auctions do not eliminate or change the official rate of 6.30 Bolivars per U.S. Dollar.

 

Our business in Venezuela continues to be entirely self-funded with earnings from operations.  We have no current need or intention to repatriate Venezuelan earnings and remain committed to the business for the long-term.  Within Venezuela, we market primarily liquid-, solid- and powder-based personal care and grooming products which are sourced almost entirely within the country.  We do not have, nor do we foresee having, any need to access SICAD 1 or SICAD 2. Accordingly, we continue to utilize the official rate of 6.30 Bolivars per U.S. Dollar to re-measure our Venezuelan financial statements.

 

For the fiscal quarters ended May 31, 2014 and 2013, sales in Venezuela represented approximately 0.6 and 0.5 percent, respectively, of the Company’s consolidated net sales revenue.  At May 31, 2014, we had a U.S. Dollar based net investment in our Venezuelan business of $7.84 million, consisting almost entirely of working capital.

 

Developments within the Venezuelan economy, including any future governmental interventions, are beyond our ability to control or predict, nor can we assess what impacts, if any, such events may have on our Venezuelan business.  We will continue to closely monitor the applicability and viability of the various exchange mechanisms.  A future devaluation, if any, would result in additional charges against income, and these charges could be material.

 

Interest Rate Risk - Interest on our outstanding debt as of May 31, 2014 is both floating and fixed. Fixed rates are in place on $80 million of Senior Notes at 3.90 percent, while floating rates are in place on the balance of all other debt outstanding, which totaled $345.71 million as of May 31, 2014.  If short-term interest rates increase, we will incur higher interest rates on any outstanding balances under our Credit Agreement and MBFC Loan.  The floating rate $75 million Senior Notes due June 2014 reset as described in Note 9  and  have been effectively converted to fixed rate debt using an interest rate swap (the “swap”).  As of May 31, 2014, the swap converted the total aggregate notional principal from floating interest rate payments to fixed interest rate payments at 6.01 percent.  In the swap transaction, we maintain contracts to pay fixed rates of interest on an aggregate notional principal at a rate of 5.11 percent, while simultaneously receiving floating rate interest payments set at 0.23 percent as of May 31, 2014 on the same notional amounts. The fixed rate side of the swap did not change over its life. The floating rate payments reset quarterly based on three month LIBOR. The resets were concurrent with the interest payments made on the underlying debt. Changes in the spread between the fixed rate payment side of the swap and the floating rate receipt side of the swap offset 100 percent of the change in any period of the underlying debt’s floating rate  payments.  The swap was 100 percent effective.  As of June 30, 2014, the swap ended concurrent with the repayment at maturity of $75 million of principal on the related Senior Notes.

 

 

 

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The fair values of our various derivative instruments are as follows:

 

FAIR VALUES OF DERIVATIVE INSTRUMENTS

(in thousands)

May 31, 2014

 

 

 

 

 

 

 

 

Prepaid

 

Accrued

 

 

 

 

 

 

 

 

 

Expenses

 

Expenses

 

 

 

 

 

Final

 

 

 

and Other

 

and Other

 

 

 

 

 

Settlement

 

Notional

 

Current

 

Current

 

Designated as hedging instruments

 

Hedge Type

 

Date

 

Amount

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts - sell Euro

 

Cash flow

 

10/2014

 

3,350

 

$

45

 

$

-   

 

Foreign currency contracts - sell Pounds

 

Cash flow

 

2/2015

 

£

4,500

 

-   

 

170

 

Interest rate swap

 

Cash flow

 

6/2014

 

$

75,000

 

-   

 

301

 

Total fair value

 

 

 

 

 

 

 

$

45

 

$

471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

February 28, 2014

 

 

 

 

 

 

 

 

Prepaid

 

Accrued

 

 

 

 

 

 

 

 

 

Expenses

 

Expenses

 

 

 

 

 

Final

 

 

 

and Other

 

and Other

 

 

 

 

 

Settlement

 

Notional

 

Current

 

Current

 

Designated as hedging instruments

 

Hedge Type

 

Date

 

Amount

 

Assets

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts - sell Euro

 

Cash flow

 

6/2014

 

2,850

 

$

-   

 

$

89

 

Foreign currency contracts - sell Pounds

 

Cash flow

 

11/2014

 

£

4,250

 

-   

 

280

 

Interest rate swap

 

Cash flow

 

6/2014

 

$

75,000

 

-   

 

1,227

 

Total fair value

 

 

 

 

 

 

 

$

-   

 

$

1,596

 

 

The pre-tax effect of derivative instruments for the periods covered in this quarterly report are as follows:

 

PRE-TAX EFFECT OF DERIVATIVE INSTRUMENTS

(in thousands)

 

 

Three months ended May 31,

 

 

 

Gain / (Loss)

 

 

Gain / (Loss) Reclassified

 

 

 

Recognized in OCI

 

 

from Accumulated Other

 

 

 

(effective portion)

 

 

Comprehensive Loss into Income

 

 

 

2014

 

 

2013

 

 

Location

 

 

2014

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency contracts - cash flow hedges

 

$

78

 

 

$

36

 

 

SG&A

 

 

$

(166

)

 

$

216

 

Interest rate swaps - cash flow hedges

 

12

 

 

(3

)

 

Interest expense

 

 

(914

)

 

(914

)

Total

 

$

90

 

 

$

33

 

 

 

 

 

$

(1,080

)

 

$

(698

)

 

We expect net losses of $0.13 million associated with foreign currency contracts and $0.30 million associated with our interest rate swap, currently reported in accumulated other comprehensive loss, to be reclassified into income over the next nine months. The amount ultimately realized, however, will differ as exchange rates and interest rates change and the underlying contracts settle.

 

 

 

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Counterparty Credit Risk - Financial instruments, including foreign currency contracts and interest rate swaps, expose us to counterparty credit risk for nonperformance. We manage our exposure to counterparty credit risk by only 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.

 

Note 13 – Repurchase of Helen of Troy Common Stock

 

As of May 31, 2014, we were authorized by our Board of Directors to purchase up to $265.43 million of common stock in the open market or through private transactions.  On March