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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended May 31, 2018

 

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

Picture 1

 

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.)

 

 

 

Clarendon 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       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       No 

 

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

 

 

 

 

 

 

Large accelerated filer

Accelerated filer 

Non-accelerated filer

Smaller reporting company 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Yes     No

 

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

 

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 5, 2018

Common Shares, $0.10 par value, per share

 

26,342,986 shares

 

 

 

 

 

 


 

Table of Contents

HELEN OF TROY LIMITED AND SUBSIDIARIES

FORM 10Q

TABLE OF CONTENTS

 

 

 

 

 

PAGE 

 

 

 

PART 1. 

FINANCIAL INFORMATION

 

 

 

 

Item 1. 

Financial Statements

2

 

 

 

 

Note 1   - Basis of Presentation and Related Information

6

 

Note 2   - New Accounting Pronouncements

7

 

Note 3   - Revenue Recognition

8

 

Note 4   - Discontinued Operations

9

 

Note 5   - Supplemental Balance Sheet Information

10

 

Note 6   - Goodwill and Intangible Assets

10

 

Note 7   - Share-Based Compensation Plans

11

 

Note 8   - Repurchase of Helen of Troy Common Stock

12

 

Note 9   - Restructuring Plan

13

 

Note 10 - Commitments and Contingencies

13

 

Note 11 - Long-Term Debt

13

 

Note 12 - Fair Value

14

 

Note 13 - Financial Instruments and Risk Management

16

 

Note 14 - Segment Information

17

 

Note 15 - Income Taxes

18

 

Note 16 - Earnings Per Share

19

 

 

 

Item 2. 

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

20

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

35

 

 

 

Item 4. 

Controls and Procedures

35

 

 

 

PART 2. 

OTHER INFORMATION

 

 

 

 

Item 1. 

Legal Proceedings

36

 

 

 

Item 1A. 

Risk Factors

36

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

36

 

 

 

Item 6. 

Exhibits

38

 

 

 

 SIGNATURES

39

 

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Table of Contents

PART I.   FINANCIAL INFORMATION

 

ITEM 1.   FINANCIAL STATEMENTS

 

HELEN OF TROY LIMITED AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

 

 

 

 

 

 

 

 

 

May 31, 

 

February 28,

(in thousands, except shares and par value)

  

2018

  

2018

Assets

 

 

 

 

 

 

Assets, current:

 

 

 

 

 

 

Cash and cash equivalents

 

$

16,929

 

$

20,738

Receivables - principally trade, less allowances of $1,703 and $2,912

 

 

255,674

 

 

275,565

Inventory

 

 

256,268

 

 

251,511

Prepaid expenses and other current assets

 

 

13,831

 

 

9,545

Income taxes receivable

 

 

1,266

 

 

349

Total assets, current

 

 

543,968

 

 

557,708

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $118,971 and $115,202

 

 

123,619

 

 

123,503

Goodwill

 

 

602,320

 

 

602,320

Other intangible assets, net of accumulated amortization of $171,474 and $167,354

 

 

298,915

 

 

302,915

Deferred tax assets, net

 

 

13,476

 

 

16,654

Other assets, net of accumulated amortization of $2,045 and $2,022

 

 

20,676

 

 

20,617

Total assets

 

$

1,602,974

 

$

1,623,717

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Liabilities, current:

 

 

 

 

 

 

Accounts payable, principally trade

 

$

125,805

 

$

129,341

Accrued expenses and other current liabilities

 

 

131,174

 

 

168,261

Long-term debt, current maturities

 

 

1,884

 

 

1,884

Total liabilities, current

 

 

258,863

 

 

299,486

 

 

 

 

 

 

 

Long-term debt, excluding current maturities

 

 

298,239

 

 

287,985

Deferred tax liabilities, net

 

 

7,561

 

 

7,096

Other liabilities, noncurrent

 

 

14,614

 

 

14,691

Total liabilities

 

 

579,277

 

 

609,258

 

 

 

 

 

 

 

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; 26,317,046 and 26,575,634 shares

 

 

 

 

 

 

issued and outstanding

 

 

2,629

 

 

2,658

Additional paid in capital

 

 

233,783

 

 

230,676

Accumulated other comprehensive income

 

 

4,068

 

 

631

Retained earnings

 

 

783,217

 

 

780,494

Total stockholders' equity

 

 

1,023,697

 

 

1,014,459

Total liabilities and stockholders' equity

 

$

1,602,974

 

$

1,623,717

 

See accompanying notes to condensed consolidated financial statements.

 

 

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HELEN OF TROY LIMITED AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Unaudited) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended May 31, 

 

 

(in thousands, except per share data)

 

    

2018

    

2017

    

 

Sales revenue, net

 

 

$

354,679

 

$

325,491

 

 

Cost of goods sold

 

 

 

208,121

 

 

193,921

 

 

Gross profit

 

 

 

146,558

 

 

131,570

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expense ("SG&A")

 

 

 

101,506

 

 

96,987

 

 

Asset impairment charges

 

 

 

 -

 

 

4,000

 

 

Restructuring charges

 

 

 

1,725

 

 

 -

 

 

Operating income

 

 

 

43,327

 

 

30,583

 

 

 

 

 

 

 

 

 

 

 

 

Nonoperating income, net

 

 

 

75

 

 

166

 

 

Interest expense

 

 

 

(2,687)

 

 

(3,725)

 

 

Income before income tax

 

 

 

40,715

 

 

27,024

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

 

 

2,542

 

 

(284)

 

 

Income from continuing operations

 

 

 

38,173

 

 

27,308

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of tax

 

 

 

(381)

 

 

(21,440)

 

 

Net income

 

 

$

37,792

 

$

5,868

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share - basic:

 

 

 

 

 

 

 

 

 

Continuing operations

 

 

$

1.44

 

$

1.01

 

 

Discontinued operations

 

 

 

(0.01)

 

 

(0.79)

 

 

Total earnings per share - basic

 

 

$

1.42

 

$

0.22

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share - diluted:

 

 

 

 

 

 

 

 

 

Continuing operations

 

 

$

1.43

 

$

1.00

 

 

Discontinued operations

 

 

 

(0.01)

 

 

(0.79)

 

 

Total earnings per share - diluted

 

 

$

1.42

 

$

0.22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock used in

 

 

 

 

 

 

 

 

 

computing earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

 

 

26,521

 

 

27,076

 

 

Diluted

 

 

 

26,614

 

 

27,245

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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HELEN OF TROY LIMITED AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended May 31, 

 

 

2018

 

2017

 

 

Before

 

Tax (Expense)

 

Net of

 

Before

 

Tax (Expense)

 

Net of

(in thousands)

 

Tax

 

Benefit

 

Tax

 

Tax

 

Benefit

 

Tax

Income from continuing operations

 

$

40,715

   

$

(2,542)

   

$

38,173

   

$

27,024

 

$

284

 

$

27,308

Loss from discontinued operations

 

 

(484)

 

 

103

 

 

(381)

 

 

(33,931)

 

 

12,491

 

 

(21,440)

Net income

 

 

40,231

 

 

(2,439)

 

 

37,792

 

 

(6,907)

 

 

12,775

 

 

5,868

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - interest rate swap

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

 

(61)

 

 

15

 

 

(46)

 

 

 -

 

 

 -

 

 

 -

Adoption of ASU No. 2018-02

 

 

 -

 

 

150

 

 

150

 

 

 -

 

 

 -

 

 

 -

Subtotal

 

 

(61)

 

 

165

 

 

104

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - foreign currency contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

 

4,576

 

 

(622)

 

 

3,954

 

 

(2,245)

 

 

316

 

 

(1,929)

Settlements reclassified to income

 

 

(687)

 

 

64

 

 

(623)

 

 

(302)

 

 

54

 

 

(248)

Adoption of ASU No. 2018-02

 

 

 -

 

 

 2

 

 

 2

 

 

 -

 

 

 -

 

 

 -

Subtotal

 

 

3,889

 

 

(556)

 

 

3,333

 

 

(2,547)

 

 

370

 

 

(2,177)

Total other comprehensive income (loss)

 

 

3,828

 

 

(391)

 

 

3,437

 

 

(2,547)

 

 

370

 

 

(2,177)

Comprehensive income (loss)

 

$

44,059

 

$

(2,830)

 

$

41,229

 

$

(9,454)

 

$

13,145

 

$

3,691

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

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HELEN OF TROY LIMITED AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

 

 

 

 

 

 

 

Three Months Ended May 31,

(in thousands)

2018

  

2017

  

Cash provided by operating activities:

 

 

 

 

 

  

Net income

$

37,792

  

$

5,868

  

Loss from discontinued operations

 

(381)

 

 

(21,440)

 

Income from continuing operations

 

38,173

 

 

27,308

 

Adjustments to reconcile income from continuing operations to net cash  provided by operating activities:

 

 

  

 

 

  

Depreciation and amortization

 

7,982

  

 

8,341

  

Amortization of financing costs

 

255

  

 

210

  

Provision for doubtful receivables

 

369

  

 

32

  

Non-cash share-based compensation

 

6,324

  

 

3,138

  

Non-cash intangible asset impairment charges

 

 -

  

 

4,000

  

Loss (gain) on the sale or disposal of property and equipment

 

32

  

 

(10)

  

Deferred income taxes and tax credits

 

3,098

  

 

(768)

  

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

 

 

  

 

 

  

Receivables

 

19,522

  

 

21,921

  

Inventories

 

(4,757)

  

 

(24,072)

  

Prepaid expenses and other current assets

 

(2,344)

  

 

(679)

  

Other assets and liabilities, net

 

305

  

 

(2,901)

  

Accounts payable

 

(3,536)

 

 

25,365

 

Accrued expenses and other current liabilities

 

(35,253)

  

 

(20,713)

  

Accrued income taxes

 

(1,259)

  

 

(1,336)

  

Net cash provided by operating activities - continuing operations

 

28,911

  

 

39,836

  

Net cash provided (used) by operating activities - discontinued operations

 

(381)

 

 

1,907

 

Net cash provided by operating activities

 

28,530

 

 

41,743

 

 

 

 

 

 

 

 

Cash used by investing activities:

 

 

  

 

 

  

Capital and intangible asset expenditures

 

(4,182)

 

 

(4,082)

  

Proceeds from the sale of property and equipment

 

 -

 

 

13

  

Net cash used by investing activities - continuing operations

 

(4,182)

  

 

(4,069)

  

Net cash used by investing activities - discontinued operations

 

 -

 

 

(8,945)

 

Net cash used by investing activities

 

(4,182)

 

 

(13,014)

 

 

 

 

  

 

 

  

Cash used by financing activities:

 

 

  

 

 

  

Proceeds from line of credit

 

161,200

 

 

131,200

  

Repayment of line of credit

 

(149,300)

 

 

(157,600)

  

Repayment of long-term debt

 

(1,900)

 

 

(5,700)

  

Proceeds from share issuances under share-based compensation plans

 

3,391

 

 

3,580

  

Payment of tax obligations resulting from cashless share award settlements

 

(4,481)

 

 

(6,788)

  

Payments for repurchases of common stock

 

(37,067)

 

 

 -

  

Net cash used by financing activities - continuing operations

 

(28,157)

  

 

(35,308)

  

Net cash used by financing activities - discontinued operations

 

 -

 

 

 -

 

Net cash used by financing activities

 

(28,157)

 

 

(35,308)

 

 

 

 

 

 

 

 

 

 

 

  

 

 

  

Net decrease in cash and cash equivalents

 

(3,809)

  

 

(6,579)

  

Cash and cash equivalents, beginning balance

 

20,738

  

 

23,087

  

Cash and cash equivalents, ending balance

 

16,929

 

 

16,508

 

Less: Cash and cash equivalents of discontinued operations, ending balance

 

 -

 

 

(598)

 

Cash and cash equivalents of continuing operations, ending balance

$

16,929

  

$

17,106

  

 

 

 

  

 

 

  

 

See accompanying notes to condensed consolidated financial statements.

 

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HELEN OF TROY LIMITED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

May 31, 2018

Note 1 - Basis of Presentation and Related Information

The accompanying condensed consolidated financial statements contain all adjustments (consisting of of normal recurring adjustments) necessary to present fairly our consolidated financial position as of May 31, 2018 and February 28, 2018, and the results of our consolidated operations for the interim periods presented.  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, 2018, and our other reports on file with the Securities and Exchange Commission (the “SEC”).

When used in these notes, unless otherwise indicated or the context suggests otherwise, references to “the Company”, “our Company”, “Helen of Troy”, “we”, “us”, or “our” refer to Helen of Troy Limited and its subsidiaries. We refer to our common shares, par value $0.10 per share, as “common stock.” References to “the FASB” refer to the Financial Accounting Standards Board. References to “GAAP” refer to United States (“U.S.”) generally accepted accounting principles.  References to “ASU” refer to the codification of GAAP in the Accounting Standards Updates issued by the FASB.  References to “ASC” refer to the codification of GAAP in the Accounting Standards Codification issued by the FASB.

We incorporated as Helen of Troy Corporation in Texas in 1968 and were reorganized as Helen of Troy Limited in Bermuda in 1994.  We are a global designer, developer, importer, marketer, and distributor of an expanding portfolio of brand-name consumer products.  We have three segments: Housewares, Health & Home, and Beauty.  Our Housewares segment provides a broad range of innovative consumer products for the home.  Product offerings include food preparation tools and storage containers; cleaning, bath and garden tools and accessories; infant and toddler care products; and insulated beverage and food containers.  The Health & Home segment focuses on healthcare devices such as thermometers, humidifiers, blood pressure monitors, and heating pads; water filtration systems; and small home appliances such as portable heaters, fans, air purifiers, and insect control devices.  Our Beauty segment products include electric hair care, beauty care and wellness appliances; grooming tools and accessories; and liquid-, solid- and powder-based personal care and grooming products.

On December 20, 2017, we completed the divestiture of the Nutritional Supplements segment through the sale of Healthy Directions LLC and its subsidiaries to Direct Digital, LLC.  The results of the Nutritional Supplements operations have been reported as discontinued operations for all periods presented in the consolidated financial statements.  For more information, see Note 4 to these condensed consolidated financial statements.  All other notes present results from continuing operations.

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.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Actual results may differ materially from those estimates.

Our condensed consolidated financial statements are prepared in U.S. Dollars.  All intercompany

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accounts and transactions are eliminated in consolidation.

We have reclassified, combined or separately disclosed certain amounts in the prior years’ condensed consolidated financial statements and accompanying footnotes to conform with the current period’s presentation, including reclassifications for discontinued operations (see Note 4) and the adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606)  (see Notes 2 and 3).

 

Note 2 – New Accounting Pronouncements

 

Not Yet Adopted

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities (Topic 815), which amends and simplifies hedge accounting with the intent of better aligning financial reporting for hedging relationships with an entity's risk management activities. The ASU is effective for us March 1, 2019.  We are currently evaluating the impact this guidance may have on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842),  which requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases.  Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease.  The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases.  The ASU must be adopted using a modified retrospective transition and requires the new guidance to be applied at the beginning of the earliest comparative period presented.  The ASU is effective for us on March 1, 2019.  We are currently evaluating the impact this guidance may have on our consolidated financial statements.

There have been no other accounting pronouncements issued but not yet adopted, which are expected to have a material impact on our consolidated financial statements.

Adopted

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income  (Topic 220).  The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017.  Adoption of this guidance in the first quarter of fiscal 2019 did not have a material impact on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718):  Scope of Modification Accounting (Topic 718).  This update amends the scope of modification accounting surrounding share-based payment arrangements as issued in ASU 2016-09 by providing guidance on the various types of changes which would trigger modification accounting for share-based payment awards.  Adoption of this guidance in the first quarter of fiscal 2019 did not have a material impact on our consolidated financial statements.

In January 2017, the FASB, issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.  This guidance provides for a single-step quantitative test to identify and measure impairment, requiring an entity to recognize an impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit’s fair value.  Adoption of this guidance in the first quarter of fiscal 2018 did not have a material impact on our consolidated financial statements.

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In October 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes: Intra–Entity Asset Transfers of Assets Other Than Inventory (Topic 740).  ASU 2016-16 amends accounting guidance for intra-entity transfers of assets other than inventory to require the recognition of taxes when the transfer occurs.  The amendment was effective for us on March 1, 2018.  A modified retrospective approach is required for transition to the new guidance, with a cumulative-effect adjustment consisting of the net impact from (1) the write-off of any unamortized expense previously deferred and (2) recognition of any previously unrecognized deferred tax assets, net of any valuation allowance.  The new guidance does not include any specific new disclosure requirements.  Adoption of this guidance in the first quarter of fiscal 2019 did not have a material impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 provides a framework for revenue recognition that replaces most existing GAAP revenue recognition guidance.  We adopted the guidance in the first quarter of fiscal 2019. See Note 3 for a further discussion regarding the impact of adoption of this guidance on our consolidated financial statements.

Note 3 – Revenue Recognition

 

We adopted the provisions of ASU 2014-09 in the first quarter of fiscal 2019, and we elected to adopt the standard using the retrospective method. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. 

 

Our revenue is primarily generated from the sale of non-customized consumer products to customers.  Revenue is recognized when control of, and title to, the product sold transfers to the customer.  Therefore, the timing and amount of revenue recognized is not materially impacted by the new guidance. We have thus concluded that the adoption of the guidance did not have a material impact on our consolidated financial statements. The provisions of the new guidance do however impact the classification of certain consideration paid to our customers. We therefore, have reclassified an immaterial amount of such payments from SG&A to a reduction of net sales revenue for all periods presented. Also, in accordance with the guidance, we reclassified an immaterial amount of estimated sales returns from a reduction of receivables to accrued expenses and other current liabilities for all periods presented.  We have elected to adopt the guidance using the full restrospective method. 

 

We measure revenue as the amount of consideration for which we expect to be entitled, in exchange for transferring goods.  Certain customers may receive cash incentives such as customer discounts (including volume or trade discounts), advertising discounts and other customer-related programs which are accounted for as variable consideration.  In some cases, we apply judgment, such as contractual rates and historical payment trends, when estimating variable consideration.  In accordance with the guidance, most variable consideration is classified as a reduction to net sales.

 

Sales taxes and other similar taxes are excluded from revenue.  We elected to account for shipping and handling activities as a fulfillment cost as permitted by the guidance.  We do not have unsatisfied performance obligations since our performance obligations are satisfied at a single point in time.

 

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The effect of the adoption of ASU 2014-09 on the condensed consolidated financial statements is as follows:

 

 

 

 

 

 

 

 

 

 

Before Reclassification

 

 

 

After Reclassification

 

 

February 28,

 

 

 

February 28,

Balance Sheet (in thousands)

 

2018

 

Reclassification

 

2018

Receivables  (1)

$

273,168

$

2,397

$

275,565

Accrued expenses and other current liabilities  (1)

$

165,864

$

2,397

$

168,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Before Reclassification

 

 

 

After Reclassification

 

 

Three Months

 

 

 

Three Months

 

 

Ended May 31,

 

 

 

Ended May 31,

Statement of Income (in thousands)

 

2017

 

Reclassification

 

2017

Sales revenue, net (1)

$

327,986

$

(2,495)

$

325,491

SG&A (1)

$

99,482

$

(2,495)

$

96,987

 

(1)

Reflects amounts from continuing operations.

 

Note 4 – Discontinued Operations

On December 20, 2017, we completed the divestiture of the Nutritional Supplements segment through the sale of Healthy Directions LLC and its subsidiaries to Direct Digital, LLC. The Nutritional Supplements segment sold premium branded doctor formulated nutritional supplements, skincare and pain relief products through highly targeted catalog and other printed collateral mailings, online and direct response print, radio and television media.

The purchase price from the sale is comprised of $46.0 million in cash, which was paid at closing, and a supplemental payment with a target value of $25.0 million, payable on or before August 1, 2019.  The final amount of the supplemental payment may be adjusted up or down based on the performance of Healthy Directions through February 28, 2018.  In conjunction with the sale of the business, we have agreed to provide certain transition services for up to an eighteen-month period following the closing of the transaction. 

 

There were no balance sheet amounts related to discontinued operations for either period presented.  The results of operations associated with discontinued operations are presented in the following table:

 

 

 

 

 

 

 

 

Three Months Ended May 31,

(in thousands)

 

2018

 

2017

Sales revenue, net

$

 -

$

31,619

Cost of goods sold

 

 -

 

9,236

Gross profit

 

 -

 

22,383

 

 

 

 

 

Selling, general and administrative expense ("SG&A")

 

 -

 

24,200

Asset impairment charges (1)

 

 -

 

32,000

Operating loss

 

 -

 

(33,817)

 

 

 

 

 

Gain (loss) on sale before income tax (2)

 

(484)

 

 -

Interest expense

 

 -

 

(114)

Loss before income tax

 

(484)

 

(33,931)

 

 

 

 

 

Income tax benefit

 

103

 

12,491

Loss from discontinued operations

$

(381)

$

(21,440)

 

 

 

 

 

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(1)

Includes pre-tax goodwill impairment charges of $26.0 million and indefinite-lived trademark impairment charges of $6.0 million during the first quarter of fiscal 2018.  Total after tax asset impairment charges were $19.6 million for the first quarter of fiscal 2018.

(2)

Includes adjustments recorded in the first quarter of fiscal 2019 to the initial estimated gain on sale before income tax recorded in the fourth quarter of fiscal 2018.

 

Note 5 – Supplemental Balance Sheet Information

PROPERTY AND EQUIPMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

Useful Lives

 

May 31, 

 

February 28,

(in thousands)

 

(Years)

 

2018

    

2018

Land

 

 

 -

 

 

$

12,800

 

$

12,800

Building and improvements

 

3

 -

40

 

 

107,176

 

 

106,870

Computer, furniture and other equipment

 

3

 -

15

 

 

80,581

 

 

79,657

Tools, molds and other production equipment

 

1

 -

10

 

 

33,761

 

 

33,466

Construction in progress

 

 

 -

 

 

 

8,272

 

 

5,912

Property and equipment, gross

 

 

 

 

 

 

242,590

 

 

238,705

Less accumulated depreciation

 

 

 

 

 

 

(118,971)

 

 

(115,202)

Property and equipment, net

 

 

 

 

 

$

123,619

 

$

123,503

 

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES 

 

 

 

 

 

 

 

 

 

May 31,

 

February 28,

(in thousands)

    

2018

    

2018

Accrued compensation, benefits and payroll taxes

 

$

18,490

 

$

37,666

Accrued sales discounts and allowances

 

 

27,860

 

 

28,311

Accrued sales returns

 

 

23,169

 

 

24,842

Accrued advertising

 

 

28,077

 

 

25,324

Accrued legal fees and settlements

 

 

996

 

 

17,243

Other

 

 

32,582

 

 

34,875

Total accrued expenses and other current liabilities

 

$

131,174

 

$

168,261

 

OTHER LIABILITIES, NONCURRENT

 

 

 

 

 

 

 

 

 

May 31, 

 

February 28,

(in thousands)

    

2018

    

2018

Deferred compensation liability

 

$

5,650

 

$

6,736

Liability for uncertain tax positions

 

 

3,008

 

 

3,349

Other liabilities

 

 

5,956

 

 

4,606

Total other liabilities, noncurrent

 

$

14,614

 

$

14,691

 

 

Note 6 – Goodwill and Intangible Assets

 

Impairment Testing during the first quarter of Fiscal 2018 – During the first quarter of fiscal 2018, we performed interim impairment testing for a certain brand in our Beauty segment due to a revised financial projection. As a result of our testing, we recorded a non-cash asset impairment charge of $4.0 million ($3.6 million after tax).  

 

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The following table summarizes the carrying amounts and accumulated amortization for all intangible assets by segment as of the end of the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 31, 2018

 

February 28, 2018

 

 

 

Gross

 

Cumulative

 

 

 

 

 

 

 

Gross

 

Cumulative

 

 

 

 

 

 

 

 

 

Carrying

 

Goodwill

 

Accumulated

 

Net Book

 

Carrying

 

Goodwill

 

Accumulated

 

Net Book

(in thousands)

 

 

Amount

 

Impairments

 

Amortization

 

Value

 

Amount

 

Impairments

 

Amortization

 

Value

Housewares:

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

Goodwill

 

 

$

282,056

 

$

 -

 

$

 -

 

$

282,056

 

$

282,056

 

$

 -

 

$

 -

 

$

282,056

Trademarks - indefinite

 

 

 

134,200

 

 

 -

 

 

 -

 

 

134,200

 

 

134,200

 

 

 -

 

 

 -

 

 

134,200

Other intangibles - finite

 

 

 

40,932

 

 

 -

 

 

(18,007)

 

 

22,925

 

 

40,828

 

 

 -

 

 

(17,530)

 

 

23,298

Subtotal

 

 

 

457,188

 

 

 -

 

 

(18,007)

 

 

439,181

 

 

457,084

 

 

 -

 

 

(17,530)

 

 

439,554

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Health & Home:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

 

284,913

 

 

 -

 

 

 -

 

 

284,913

 

 

284,913

 

 

 -

 

 

 -

 

 

284,913

Trademarks - indefinite

 

 

 

54,000

 

 

 -

 

 

 -

 

 

54,000

 

 

54,000

 

 

 -

 

 

 -

 

 

54,000

Licenses - finite

 

 

 

15,300

 

 

 -

 

 

(15,300)

 

 

 -

 

 

15,300

 

 

 -

 

 

(15,300)

 

 

 -

Licenses - indefinite

 

 

 

7,400

 

 

 -

 

 

 -

 

 

7,400

 

 

7,400

 

 

 -

 

 

 -

 

 

7,400

Other intangibles - finite

 

 

 

117,602

 

 

 -

 

 

(79,832)

 

 

37,770

 

 

117,586

 

 

 -

 

 

(77,128)

 

 

40,458

Subtotal

 

 

 

479,215

 

 

 -

 

 

(95,132)</