1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - --- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 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) (Zip Code) Registrant's telephone number, including area code: (915) 779-6363 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of January 12, 1998 there were 27,250,742 shares of Common Stock, $.10 Par Value, outstanding.
2 HELEN OF TROY LIMITED AND SUBSIDIARIES INDEX Page No. PART I. FINANCIAL INFORMATION Item 1 Consolidated Condensed Balance Sheets as of November 30, 1997 and February 28, 1997.....................................3 Consolidated Condensed Statements of Income for the Three and Nine Months Ended November 30, 1997 and November 30, 1996.....................................5 Consolidated Condensed Statements of Cash Flows for the Nine Months ended November 30, 1997 and November 30, 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 6 Exhibits and Reports on Form 8-K.............................11 SIGNATURES....................................................................12 2
3 PART I. FINANCIAL INFORMATION HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except shares) <TABLE> <CAPTION> November 30, February 28, 1997 1997 ----------- ------------ (unaudited) Assets <S> <C> <C> Current Assets: Cash and cash equivalents $35,152 $ 25,798 Receivables - principally trade, less allowance for doubtful receivables of $756 at November 30, 1997 and $400 at February 28, 1997 71,253 36,951 Inventories 68,358 68,267 Prepaid expenses 2,947 939 Deferred income tax benefits 1,759 1,276 -------- -------- Total current assets 179,469 133,231 Property and equipment net of accumulated depreciation of $4,926 at November 30, 1997 and $3,983 at February 28, 1997 25,500 25,780 License agreements, at cost, less amortization of $7,814 at November 30, 1997 and $7,117 at February 28, 1997 9,238 9,935 Note receivable 109 522 Other assets, net of amortization 15,558 12,758 -------- -------- Total assets $229,874 $182,226 ======== ======== </TABLE> (continued) 3
4 HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except shares) <TABLE> <CAPTION> November 30, February 28, 1997 1997 ----------- ------------ (unaudited) <S> <C> <C> Liabilities and Stockholders' Equity Current liabilities: Notes payable $ -- $ 4,001 Accounts payable, principally trade 1,990 2,645 Accrued expenses: Advertising and promotional 8,858 2,580 Other 9,294 6,934 Income taxes payable 11,081 5,134 ----------- ------------ Total current liabilities 31,223 21,294 Long-term debt 55,450 40,450 ----------- ------------ Total liabilities 86,673 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, 27,249,942 shares at November 30, 1997 and 26,286,874 shares at February 28, 1997 2,725 1,314 Additional paid-in-capital 29,259 26,643 Retained earnings 111,217 92,525 ----------- ------------ Total stockholders' equity 143,201 120,482 ----------- ------------ Commitments and contingencies (Note 2) -- -- Total liabilities and stockholders' equity $ 229,874 $ 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> For the Three Months For the Nine Months Ended November 30, Ended November 30, 1997 1996 1997 1996 ---------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Net sales $ 82,780 $ 74,477 $ 196,137 $ 168,804 Cost of sales 50,979 46,143 121,283 105,445 ---------- ----------- ----------- ----------- Gross profit 31,801 28,334 74,854 63,359 Selling, general and administrative expenses 19,398 18,278 49,858 44,553 ---------- ----------- ----------- ----------- Operating income 12,403 10,056 24,996 18,806 Other income (expense): Interest (expense) (986) (710) (2,544) (2,130) Interest income 468 644 1,160 1,568 Other, net 52 83 517 211 ---------- ----------- ----------- ----------- Total other income (expense) (466) 17 (867) (351) ---------- ----------- ------------ ----------- Earnings before income taxes 11,937 10,073 24,129 18,455 Income tax expense (benefit): Current 3,243 2,935 5,919 5,176 Deferred (549) (667) (482) (1,023) ---------- ----------- ----------- ------------ Net earnings $ 9,243 $ 7,805 $ 18,692 $ 14,302 ========== =========== =========== ============ Net earnings per common and common equivalent share (Note 3) - Primary $ .32 $ .28 $ .65 $ .52 Weighted average number of common and common equivalent shares used in computing net earnings per share - Primary 29,285,932 27,929,776 28,809,121 27,552,310 </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> Nine Months Ended November 30 1997 1996 ----------- ----------- <S> <C> <C> Cash flows from operating activities: Net earnings $ 18,692 $ 14,302 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization 2,921 1,902 Provision for doubtful receivables 356 1,080 Provision for deferred taxes, net (483) (1,027) Gain on sale of assets (282) -- Changes in operating assets and liabilities: Accounts receivable (34,658) (36,457) Inventory (91) (14,193) Prepaid expenses (2,008) (326) Accounts payable (655) 4,093 Accrued expenses 8,638 10,218 Income taxes payable 5,947 3,512 ----------- ----------- Net cash used by operating activities (1,623) (16,896) Cash flows from investing activities: Capital and license expenditures (2,063) (11,398) Proceeds from sale of assets 1,678 -- Other assets (4,077) (8,816) Collection on note receivable 413 429 ----------- ----------- Net cash used by investing activities (4,049) (19,785) (continued) </TABLE> 6
7 HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited, in thousands) <TABLE> <CAPTION> Nine Months Ended November 30, 1997 1996 ----------- ----------- <S> <C> <C> Cash flows from financing activities: Net (payments)/borrowings on revolving line of credit $ (4,001) $ 6,208 Proceeds from long-term debt 15,000 -- Proceeds from exercise of options and warrants 4,027 784 ----------- ----------- Net cash provided by financing activities 15,026 6,992 ----------- ----------- Net increase/(decrease) in cash and cash equivalents 9,354 (29,689) ----------- ----------- Cash and cash equivalents, beginning of period 25,798 44,195 ----------- ----------- Cash and cash equivalents, end of period $ 35,152 $ 14,506 =========== =========== Supplemental cash flow disclosures: Interest paid $ 2,431 $ 2,241 Income taxes paid (213) 1,728 </TABLE> See accompanying notes to consolidated condensed financial statements. 7
8 HELEN OF TROY LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS November 30, 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 November 30, 1997 and February 28, 1997 and the results of its operations for the periods ended November 30, 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 a material adverse effect 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. Note 6 - Certain prior year numbers have been reclassified to conform with current year reporting classifications. 8
9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Quarter ended November 30, 1997 Net sales increased $8,303,000 during the three-month period ended November 30, 1997, an 11% increase when compared with the quarter ended November 30, 1996. The sales increase is attributed to volume. The majority of the increase occurred in the Company's appliances groups. The Company's gross profit margin for the quarter ended November 30, 1997 increased to 38.4%, as compared with the Company's 38.0% gross profit margin for the quarter ended November 30, 1996. The increased gross profit margin is attributable to change in the mix of products sold. Selling, general and administrative expenses decreased as a percentage of sales to 23.4% in the quarter ended November 30, 1997 as compared to 24.5% for the same quarter in 1996. The decrease in expenses as a percentage of net sales is due to the fixed nature of certain expenses. Interest expense during the quarter ended November 30, 1997, increased over interest expense for the same quarter in the previous year due to the $15,000,000 senior note issued by the Company's US subsidiary in July, 1997. Interest income during the quarter ended November 30, 1997 decreased from interest income for the same period in the previous year. The decrease resulted from the Company's increased working capital needs, which reduced the average amount of funds available for short-term investments. Nine-month period ended November 30, 1997 Net sales increased $27,333,000 for the nine-month period ended November 30, 1997, when compared with the same period in 1996. The 16% increase is attributed to volume. As explained for the quarter sales gain, most of the increase occurred in the Company's appliances groups. The Company's gross profit margin for the nine-month period ended November 30, 1997 increased to 38.2% from 37.5% for the nine-month period ended November 30, 1996. The higher gross profit rate is attributable to change in the mix of products sold. Selling, general and administrative expenses decreased to 25.4% during the nine-month period ended November 30, 1997, compared with 26.4% for the same period during 1996. The decrease in expenses as a percentage of net sales is due to the fixed nature of certain expenses. (continued) 9
10 Interest expense for the nine-month period ended November 30, 1997 increased over interest expense for the nine-month period ended November 30, 1996, due to the $15,000,000 senior note issued by the Company's US subsidiary in July, 1997. Interest income during the nine-month period ended November 30, 1997 decreased from interest income for the same period in the previous year. The decrease resulted from the Company's increased working capital needs, which reduced the average amount of funds available for short-term investments. Other income increased over the prior year amount because of a gain on the sale of land, which occurred in the second quarter of fiscal 1998. Liquidity and Capital Resources Cash and cash equivalents increased to $35,152,000 at November 30, 1997 from $25,798,000 at February 28, 1997, primarily due to earnings and the issuance of a $15,000,000 Guaranteed Senior Note by the Company's U.S. subsidiary. Receivables increased to $71,253,000 at November 30, 1997 from $36,951,000 at February 28, 1997. This increase relates to the seasonal increase in sales in the third fiscal quarter as compared to the fourth fiscal quarter and to the growth in sales. The Company's working capital was $148,246,000 at November 30, 1997. The current ratio was 5.7 to 1. In December 1996 the Company's U.S. subsidiary negotiated a shelf, long-term debt facility. The new long-term debt facility provided for an additional $40 million of approved credit. In July 1997 the Company's U.S. subsidiary issued a Guaranteed Senior Note at face value of $15 million under this shelf agreement. Management believes the Company's capital resources are adequate to finance all anticipated funding requirements. 10
11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 10.24 Form of employment contract for H. McIntyre Gardner 11 Computation of Per Share Earnings 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 January 12, 1997 /s/ Gerald J. Rubin ---------------- ------------------- Gerald J. Rubin Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date January 12, 1997 /s/ Sam L. Henry ---------------- ---------------- Sam L. Henry Senior Vice-President, Finance, and Chief Financial Officer (Principal Financial Officer) 12
13 Exhibit Index <TABLE> <CAPTION> Exhibit Number Description ------- ----------- <C> <S> 10.24 Form of employment contract for H. McIntyre Gardner 11 Computation of Per Share Earnings 27 Financial Data Schedule </TABLE>