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 May 31, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the transition period from...................to............. Commission file number 0-23312 HELEN OF TROY LIMITED --------------------- (Exact name of registrant as specified in its charter) Bermuda 74-2692550 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6827 Market Avenue El Paso, TX 79915 (Address of principal executive offices, 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 July 7, 1998 there were 27,856,428 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 May 31, 1998 and February 28, 1998...........................3 Consolidated Condensed Statements of Income for the Three Months Ended May 31, 1998 and May 31, 1997.........5 Consolidated Condensed Statements of Cash Flows for the Three Months Ended May 31, 1998 and May 31, 1997.........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................................10 Item 6 Exhibits and Reports on Form 8-K.................10 SIGNATURES.................................................................11 2
3 PART I. FINANCIAL INFORMATION HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except shares) <TABLE> <CAPTION> May 31, February 28, 1998 1998 -------- ------------ (unaudited) Assets <S> <C> <C> Current assets: Cash and cash equivalents $ 35,505 $ 55,670 Receivables - principally trade, less allowance for doubtful receivables of $742 at May 31, 1998 and $568 at February 28, 1998 51,844 44,569 Inventories 78,464 71,357 Prepaid expenses 8,263 3,802 Deferred income tax benefits 1,711 1,522 -------- -------- Total current assets 175,787 176,920 Property and equipment, net of accumulated depreciation of $5,534 at May 31, 1998 and $4,892 at February 28, 1998 29,686 26,255 License agreements, at cost, less accumulated amortization of $8,322 at May 31, 1998 and $8,068 at February 28, 1998 8,730 8,984 Other assets, net of amortization 15,907 15,401 -------- -------- Total assets $230,110 $227,560 ======== ======== (continued) </TABLE> 3
4 HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except shares) <TABLE> <CAPTION> May 31, February 28, 1998 1998 -------- ----------- (unaudited) Liabilities and Stockholders' Equity <S> <C> <C> Current liabilities: Accounts payable, principally trade $ 758 $ 1,430 Accrued expenses: Advertising and promotional 6,383 4,599 Other 7,891 7,389 Income taxes payable 6,121 9,208 -------- ---------- Total current liabilities 21,153 22,626 Long-term debt 55,450 55,450 -------- -------- Total liabilities 76,603 78,076 Stockholders' equity: Cumulative preferred stock, non-voting, $1.00 par value. Authorized 2,000,000 shares; none issued -- -- Common stock, $.10 par value authorized 50,000,000 shares; issued and outstanding 27,825,780 shares at May 31, 1998 and 27,281,242 shares at February 28, 1998 2,783 2,728 Additional paid-in-capital 31,031 31,899 Retained earnings 119,693 114,857 -------- -------- Total stockholders' equity 153,507 149,484 -------- -------- Commitments and contingencies (Note 2) -- -- Total liabilities and stockholders' equity $230,110 $227,560 ======== ======== See accompanying notes to consolidated condensed financial statements. </TABLE> 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 May 31, 1998 1997 -------- -------- <S> <C> <C> Net sales $ 64,136 $ 52,448 Cost of sales 39,147 32,637 -------- -------- Gross profit 24,989 19,811 Selling, general and administrative expenses 18,796 14,944 -------- -------- Operating income 6,193 4,867 Other income (expense): Interest expense (912) (711) Other income, net 764 427 -------- -------- Total other income (expense) (148) (284) -------- -------- Earnings before income taxes 6,045 4,583 Income tax expense (benefit): Current 1,398 916 Deferred (189) 115 -------- -------- Net earnings $ 4,836 $ 3,552 ======== ======== Earnings per share: Basic $ .18 $ .13 Diluted .17 .12 Weighted average number of common and common equivalent shares used in computing earnings per share Basic 27,544,779 26,373,504 Diluted 29,129,930 28,417,516 </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> Three Months Ended May 31, 1998 1997 ------- ------- <S> <C> <C> Cash flows from operating activities: Net earnings $ 4,836 $ 3,552 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 1,079 872 Provision for doubtful receivables 174 195 Deferred taxes, net (189) 115 Changes in operating assets and liabilities: Accounts receivable (7,449) (5,740) Inventory (7,107) 3,756 Prepaid expenses (4,461) (1,515) Accounts payable (672) (542) Accrued expenses 2,286 2,500 Income taxes payable (3,087) 781 ------- ------- Net cash provided (used) by operating activities (14,590) 3,974 Cash flows from investing activities: Capital and license expenditures (3,808) (652) Other assets (954) (177) Collection on note receivable -- 117 ------- ------- Net cash used by investing activities (4,762) (712) (continued) </TABLE> 6
7 HELEN OF TROY LIMITED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited, in thousands) <TABLE> <CAPTION> Three Months Ended May 31, 1998 1997 -------- -------- <S> <C> <C> Cash flows from financing activities: Net payments on revolving line of credit -- (4,001) Exercise of stock options including related tax benefits (813) 506 -------- -------- Net cash used by financing activities (813) (3,495) -------- -------- Net decrease in cash and cash equivalents (20,165) (233) -------- -------- Cash and cash equivalents, beginning of period 55,670 25,798 -------- -------- Cash and cash equivalents, end of period $ 35,505 $ 25,565 ======== ======== Supplemental cash flow disclosures: Interest paid $ 982 $ 728 Income taxes paid, net of refund -- -- See accompanying notes to consolidated condensed financial statements. </TABLE> 7
8 HELEN OF TROY LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS May 31, 1998 Note 1 - In the opinion of the Company, the accompanying consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly its financial condition as of May 31, 1998 and February 28, 1998 and the results of its operations for the periods ended May 31, 1998 and 1997. While the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these statements be read in conjunction with the financial statements and the notes included in the Company's latest annual report on Form 10-K. Note 2 - The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of such claims and legal actions will not have a material adverse effect on the financial position of the Company. Note 3 - Basic earnings per share is computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed based upon the weighted average number of common shares plus the effects of dilutive securities. The number of dilutive securities was 1,585,151 and 2,044,012 for the three months ended May 31, 1998 and 1997, respectively. All potentially dilutive securities are included in the calculations of diluted earnings per share. Note 4 - On August 26, 1997, the Company's Directors approved a 2-for-1 stock split that was paid as a 100% stock dividend 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. 8
9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net sales increased $11,688,000, or 22%, during the first quarter of fiscal 1999, when compared to the same period of fiscal 1998. The growth in net sales was due to broadly based volume increases for existing products, combined with the introduction of new retail products in the consumer appliance category. Gross profit as a percentage of sales increased to 39.0% for the first quarter of fiscal 1999, versus 37.8% in the first quarter of fiscal 1998. During the four quarters of fiscal 1998 the Company experienced a pattern of consecutive small increases in gross profit percentages, with gross profit reaching 38.8% in the fourth quarter of fiscal 1998. These improvements in the gross profit margin are attributable to changes in the mix of products sold. Selling, general, and administrative expenses remained relatively constant as a percentage of net sales at 29% for the first quarter of fiscal 1999 and the first quarter of fiscal 1998. Expanded sales promotion and advertising expenses were offset by the economies of increased sales volume. Interest expense increased to $912,000 in the first quarter of fiscal 1999, from $711,000 in the first quarter of fiscal 1998. The increase is attributable to an additional $15,000,000 of long-term debt beginning July 18, 1997. Other income increased to $764,000 in the first quarter of fiscal 1999, compared to $427,000 for the first quarter of fiscal 1998. The Company earned more interest income mainly because of a larger balance of invested funds. Income tax expense as a percentage of earnings before income taxes decreased to 20% in the first quarter of fiscal 1999 compared to 22.5% in fiscal 1998. In the course of conducting a periodic review of the facts and circumstances relevant to the accrual of income taxes, management concluded that an accrual rate of 20% is appropriate for fiscal 1999. Liquidity and Capital Resources The Company's working capital and current ratio were $154,634,000 and 8.3, respectively at May 31, 1999. Cash decreased to $35,505,000 at May 31, 1998 from $55,670,000 at February 28, 1998. Increases in accounts receivable, inventory, prepaid expenses and capital expenditures for the construction of the Company's new corporate headquarters contributed to the decrease in cash. Additionally, the payment of employee withholding taxes in connection with the exercise of stock options reduced the Company's cash balance. The decrease in income taxes payable resulted from recording the tax benefit to the Company's U.S. subsidiary for the exercise of stock options. The Company believes its capital resources are adequate to finance growth and to service the Company's debt obligations. The Company also believes that internal funds and available credit will be adequate to finance the new headquarters office building, which is planned for completion near the end of calendar 1998. 9
10 PART II. OTHER INFORMATION Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Restated Financial Data Schedule for the year ended February 28, 1997 27.2 Restated Financial Data Schedule for the three months ended May 31, 1997 27.3 Restated Financial Data Schedule for the six months ended August 31, 1997 27.4 Restated Financial Data Schedule for the nine months ended November 30, 1997 27.5 Financial Data Schedule for the three months ended May 31, 1998 10
11 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 July 8, 1998 /s/ Gerald J. Rubin -------------------- ---------------------------- Gerald J. Rubin Chairman of the Board, Chief Executive Officer (Principal Executive Officer) Date July 8, 1998 /s/ Sam L. Henry -------------------- ---------------------------- Sam L. Henry Senior Vice-President, Finance, and Chief Financial Officer (Principal Financial Officer) 11
12 <TABLE> <CAPTION> EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION ------- ----------------------- <S> <C> 27.1 Restated Financial Data Schedule for the year ended February 28, 1997 27.2 Restated Financial Data Schedule for the three months ended May 31, 1997 27.3 Restated Financial Data Schedule for the six months ended August 31, 1997 27.4 Restated Financial Data Schedule for the nine months ended November 30, 1997 27.5 Financial Data Schedule for the three months ended May 31, 1998 </TABLE>