1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from..............to............. Commission file number 0-23312 HELEN OF TROY LIMITED (Exact name of registrant as specified in its charter) Bermuda 74-2692550 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6827 Market Avenue El Paso, TX 79915 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (915) 779-6363 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of October 8, 1997 there were 27,019,792 shares of Common Stock, $.10 Par Value, outstanding.
2 HELEN OF TROY LIMITED AND SUBSIDIARIES INDEX <TABLE> <CAPTION> Page No. -------- <S> <C> <C> PART I. FINANCIAL INFORMATION Item 1 Consolidated Condensed Balance Sheets as of August 31, 1997 and February 28, 1997.............................. 3 Consolidated Condensed Statements of Income for the Three and Six Months Ended August 31, 1997 and August 31, 1996................................ 5 Consolidated Condensed Statements of Cash Flows for the Six Months Ended August 31, 1997 and August 31, 1996................................ 6 Notes to Consolidated Condensed Financial Statements........................... 8 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 9 PART II. OTHER INFORMATION Item 5 Other Information......................................... 11 Item 6 Exhibits and Reports on Form 8-K......................... 11 SIGNATURES................................................................. 12 </TABLE> 2
3 PART I. FINANCIAL INFORMATION HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except shares) <TABLE> <CAPTION> August 31, February 28, 1997 1997 ---------- ---------- (unaudited) <S> <C> <C> Assets Current assets: Cash and cash equivalents $ 40,464 $ 25,798 Receivables - principally trade, less allowance for doubtful receivables of $484 at August 31, 1997 and $400 at February 28, 1997 50,007 36,951 Inventories 64,670 68,267 Prepaid expenses 3,189 939 Deferred income tax benefits 1,210 1,276 ---------- ---------- Total current assets 159,540 133,231 Property and equipment net of accumulated depreciation of $4,599 at August 31, 1997 and $3,983 at February 28, 1997 25,354 25,780 License agreements, at cost, less accumulated amortization of $7,560 at August 31, 1997 and $7,117 at February 28, 1997 9,492 9,935 Note receivable 288 522 Other assets, net of amortization 15,516 12,758 ---------- ---------- Total assets $ 210,190 $ 182,226 ========== ========== </TABLE> (Continued) 3
4 HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except shares) <TABLE> <CAPTION> August 31, February 28, 1997 1997 ---------- ---------- (unaudited) <S> <C> <C> Liabilities and Stockholders' Equity Current liabilities: Notes payable $ -- $ 4,001 Accounts payable, principally trade 786 2,645 Accrued expenses: Advertising and promotional 6,292 2,580 Other 6,816 6,934 Income taxes payable 7,965 5,134 ---------- ---------- Total current liabilities 21,859 21,294 Long-term debt 55,450 40,450 ---------- ---------- Total liabilities 77,309 61,744 Stockholders' equity: Cumulative preferred stock, non-voting, $1.00 par value. Authorized 2,000,000 shares; none issued -- -- Common stock, $.10 par value Authorized 50,000,000 shares; issued and outstanding 27,008,692 shares at August 31, 1997 and 26,286,874 shares at February 28, 1997 1,350 1,314 Additional paid-in-capital 29,557 26,643 Retained earnings 101,974 92,525 ---------- ---------- Total stockholders' equity 132,881 120,482 ---------- ---------- Commitments and contingencies (Note 2) -- -- Total liabilities and stockholders' equity $ 210,190 $ 182,226 ========== ========== </TABLE> See accompanying notes to consolidated condensed financial statements. 4
5 HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited) (in thousands, except shares and earnings per share) <TABLE> <CAPTION> Three Months Ended Six Months Ended August 31, August 31, 1997 1996 1997 1996 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net sales $ 60,929 $ 50,491 $ 113,356 $ 94,327 Cost of sales 37,666 31,805 70,303 59,301 ------------ ------------ ------------ ------------ Gross profit 23,263 18,686 43,053 35,026 Selling, general and administrative expenses 15,537 13,157 30,460 26,275 ------------ ------------ ------------ ------------ Operating income 7,726 5,529 12,593 8,751 Other income (expense): Interest expense (846) (710) (1,558) (1,466) Other income, net 729 465 1,157 1,098 ------------ ------------ ------------ ------------ Total other income (expense) (117) (245) (401) (368) ------------ ------------ ------------ ------------ Earnings before income taxes 7,609 5,284 12,192 8,383 Income tax expense (benefit): Current 1,760 1,376 2,676 2,242 Deferred (48) (187) 67 (356) ------------ ------------ ------------ ------------ Net earnings $ 5,897 $ 4,095 $ 9,449 $ 6,497 ============ ============ ============ ============ Net earnings per common and common equivalent share (Note 3) - Primary $ .21 $ .15 $ .33 $ .24 Weighted average number of common and common equivalent shares used in computing net earnings per share - Primary 28,728,096 27,602,450 28,572,212 27,419,940 </TABLE> See accompanying notes to consolidated condensed financial statements. 5
6 HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited, in thousands) <TABLE> <CAPTION> Six Months Ended August 31, 1997 1996 ---------- ---------- <S> <C> <C> Cash flows from operating activities: Net earnings $ 9,449 $ 6,497 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization 1,893 1,202 Provision for doubtful receivables 84 459 Provision for deferred taxes, net 66 (360) Gain on sale of assets (282) -- Changes in operating assets and liabilities: Accounts receivable (13,140) (10,543) Inventory 3,597 (10,505) Prepaid expenses (2,250) (508) Accounts payable (1,859) 3,497 Accrued expenses 3,594 4,815 Income taxes payable 2,831 946 ---------- ---------- Net cash provided/(used) by operating activities 3,983 (4,500) Cash flows from investing activities: Capital and license expenditures (1,587) (8,510) Proceeds from sale of assets 1,678 -- Other assets (3,591) (489) Collection on note receivable 234 234 ---------- ---------- Net cash used by investing activities (3,266) (8,765) </TABLE> (Continued) 6
7 HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited, in thousands) <TABLE> <CAPTION> Six Months Ended August 31, 1997 1996 ---------- ---------- <S> <C> <C> Cash flows from financing activities: Net payments on revolving line of credit (4,001) (2,593) Proceeds from long-term debt 15,000 -- Proceeds from exercise of options 2,950 378 ---------- ---------- Net cash provided/(used) by financing activities 13,949 (2,215) ---------- ---------- Net increase/(decrease) in cash and cash equivalents 14,666 (15,480) ---------- ---------- Cash and cash equivalents, beginning of period 25,798 44,195 ---------- ---------- Cash and cash equivalents, end of period $ 40,464 $ 28,715 ========== ========== Supplemental cash flow disclosures: Interest paid $ 1,448 $ 1,530 Income tax (refund, net of payments)/taxes paid (213) 1,189 </TABLE> See accompanying notes to consolidated condensed financial statements. 7
8 HELEN OF TROY LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS August 31, 1997 Note 1 - In the opinion of the Company, the accompanying consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly its financial condition as of August 31, 1997 and February 28, 1997 and the results of its operations for the periods ended August 31, 1997 and 1996. 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 material adverse affect on the financial position of the Company. Note 3 - Primary earnings per common and common equivalent share are computed based upon the weighted average number of common shares plus common share equivalents (dilutive stock options and warrants) outstanding during the period. Fully diluted earnings per share is based on the weighted average number of common shares plus equivalents determined on the basis of maximum potential dilution from stock options and warrants. Earnings per common and common equivalent share, assuming full dilution, is not materially dilutive for any of the periods presented. On August 26, 1997, the Company's Directors approved a 2-for-1 stock split which was paid as a 100% stock dividend. The stock dividend was paid on September 22, 1997 to stockholders of record on September 8, 1997. All references in the financial statements to number of shares and per share amounts of the Company's common stock have been retroactively restated to reflect the increased number of common shares outstanding. Note 4 - The business of the Company is seasonal with greater than 60% of annual sales volume normally occurring in the second and third fiscal quarters. Note 5 - On July 18, 1997, the Company's US subsidiary issued a Guaranteed Senior Note at face value of $15,000,000. The Note was issued pursuant to the Amended and Restated Note Purchase, Guaranty and Master Shelf Agreement executed on December 31, 1996. Interest is paid quarterly at a rate of 7.24%. The Note is unconditionally guaranteed by the Company and is due July 18, 2012. Principal payments begin in Fiscal 2009. 8
9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Quarter ended August 31, 1997 Net sales increased $10,438,000 during the three month period ended August 31, 1997, a 21% increase in net sales when compared with the quarter ended August 31, 1996. The largest volume increases were registered in the appliances groups, which benefited from market share increases and sales of Dazey, Dr. Scholl's and Carel products. That business, acquired in October of 1996, was not included in the prior year results. Sales of artificial nails were first shipped in this fiscal year. Gross profit, as a percentage of net sales, for the quarter ended August 31, 1997, was 38%, as compared with 37% for the quarter ended August 31, 1996. The increased gross profit margin is attributable to a favorable change in the mix of products sold. Selling, general and administrative expenses remained relatively constant as a percentage of net sales at 26% in the quarter ended August 31, 1997, and in the same quarter in 1996. Interest expense for the quarter ended August 31, 1997, increased 19% over interest expense for the same quarter in the previous year due to the increase in the average outstanding debt balance which resulted from the issuance of the $15,000,000 Guaranteed Senior Note by the Company's US subsidiary on July 18, 1997. Other income for the quarter ended August 31, 1997, increased 57% over the amount for the prior year quarter due to a $237,000 gain from sale of land. Six-month period ended August 31, 1997 Net sales increased $19,029,000 for the six-month period ended August 31, 1997, a 20% increase in net sales when compared with the same period in 1996. The largest volume increases were registered in the appliances groups, which benefited from market share increases and sales of Dazey, Dr. Scholl's and Carel products. That business, acquired in October of 1996, was not included in the prior year results. Market share increases were also gained in the brush, comb and hair accessory group. Sales of artificial nails were first shipped in this fiscal year. The Company's gross profit, as a percentage of net sales, for the six-month period ended August 31, 1997, increased to 38% from 37% for the six-month period ended August 31, 1996. The reason for this increase for the six-month period is the same as for the quarter, as discussed above. Selling, general and administrative expenses decreased as a percentage of net sales to 27% during (Continued) 9
10 the six-month period ended August 31, 1997, as compared to 28% for the same period during 1996. The decrease in expenses as a percentage of net sales is due to the relatively fixed nature of certain expenses associated with increased sales during the quarter. Interest expense for the six-month period ended August 31, 1997, increased 6% over interest expense for the six-month period ended August 31, 1996, due to the increase in the average outstanding debt balance which resulted from the issuance of the $15,000,000 Guaranteed Senior Note by the Company's US subsidiary on July 18, 1997. Liquidity and Capital Resources Cash and cash equivalents increased to $40,464,000 at August 31, 1997, from $25,798,000 at February 28, 1997, primarily due to the Company's US subsidiary issuing a $15,000,000 Guaranteed Senior Note. Receivables increased to $50,007,000 at August 31, 1997, from $36,951,000 at February 28, 1997, and inventory decreased to $64,670,000 at August 31, 1997, from $68,267,000 at February 28, 1997. The increase in accounts receivable relates to the seasonal increase in sales in the second fiscal quarter as compared to the fourth fiscal quarter. The decrease in inventory is due primarily to variances in the timing of the manufacture of inventories. The Company's working capital was $137,681,000 at August 31, 1997, and the current ratio was 7.3 to 1. The Company believes its capital resources are adequate to finance normal growth and service the Company's debt obligations. Additionally, the Company believes that internal funds and available credit will be adequate to finance a new headquarters office building, which is planned for construction within the next fifteen months. 10
11 PART II. OTHER INFORMATION Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11 Earnings Per Share Computation 27 Financial Data Schedule 11
12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HELEN OF TROY LIMITED (Registrant) Date October 10, 1997 /s/ Gerald J. Rubin ----------------- ------------------------------------- Gerald J. Rubin Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date October 10, 1997 /s/ Sam L. Henry ----------------- ------------------------------------- Sam L. Henry Senior Vice-President, Finance, and Chief Financial Officer (Principal Financial Officer) 12
13 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------- ----------- 11 Earnings Per Share Computation 27 Financial Data Schedule