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Table of Contents

 

 

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 November 30, 2017

 

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 January 4, 2018

Common Shares, $0.10 par value, per share

 

26,968,072 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   - Supplemental Balance Sheet Information

8

 

Note 4   - Acquisitions

9

 

Note 5   - Goodwill and Intangible Assets

10

 

Note 6   - Share-Based Compensation Plans

13

 

Note 7   - Repurchase of Helen of Troy Common Stock

14

 

Note 8   - Restructuring Plan

14

 

Note 9   - Commitments and Contingencies

15

 

Note 10 - Long-Term Debt

15

 

Note 11 - Fair Value

17

 

Note 12 - Financial Instruments and Risk Management

18

 

Note 13 - Comprehensive Income (Loss)

20

 

Note 14 - Segment Information

21

 

Note 15 - Income Taxes

22

 

Note 16 - Earnings Per Share

22

 

Note 17 - Subsequent Events

23

 

 

 

Item 2. 

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

24

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

47

 

 

 

Item 4. 

Controls and Procedures

48

 

 

 

PART 2. 

OTHER INFORMATION

 

 

 

 

Item 1. 

Legal Proceedings

50

 

 

 

Item 1A. 

Risk Factors

50

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

51

 

 

 

Item 6. 

Exhibits

52

 

 

 

 SIGNATURES

53

 

1


 

Table of Contents

PART I.   FINANCIAL INFORMATION

 

ITEM 1.   FINANCIAL STATEMENTS

 

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (Unaudited)

 

 

 

 

 

 

 

 

 

November 30, 

 

February 28,

(in thousands, except shares and par value)

    

2017

    

2017

Assets

 

 

 

 

 

 

Assets, current:

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,157

 

$

23,087

Receivables - principally trade, less allowances of $9,624 and $5,656

 

 

302,390

 

 

229,928

Inventory

 

 

285,594

 

 

289,122

Prepaid expenses and other current assets

 

 

13,505

 

 

11,699

Income taxes receivable

 

 

 -

 

 

2,242

Total assets, current

 

 

622,646

 

 

556,078

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $118,485 and $106,561

 

 

132,989

 

 

134,935

Goodwill

 

 

602,320

 

 

698,929

Other intangible assets, net of accumulated amortization of $184,937 and $165,388

 

 

369,201

 

 

419,489

Deferred tax assets, net

 

 

44,590

 

 

1,955

Other assets, net of accumulated amortization of $1,999 and $1,930

 

 

3,149

 

 

1,710

Total assets

 

$

1,774,895

 

$

1,813,096

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Liabilities, current:

 

 

 

 

 

 

Accounts payable, principally trade

 

$

109,196

 

$

111,763

Accrued expenses and other current liabilities

 

 

174,532

 

 

153,200

Income taxes payable

 

 

54,538

 

 

 -

Long-term debt, current maturities

 

 

20,860

 

 

24,404

Total liabilities, current

 

 

359,126

 

 

289,367

 

 

 

 

 

 

 

Long-term debt, excluding current maturities

 

 

405,331

 

 

461,211

Deferred tax liabilities, net

 

 

8,153

 

 

20,091

Other liabilities, noncurrent

 

 

17,875

 

 

21,661

Total liabilities

 

 

790,485

 

 

792,330

 

 

 

 

 

 

 

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; 26,960,863 and 27,028,665 shares

 

 

 

 

 

 

issued and outstanding

 

 

2,696

 

 

2,703

Additional paid in capital

 

 

228,143

 

 

218,760

Accumulated other comprehensive income (loss)

 

 

(1,338)

 

 

1,173

Retained earnings

 

 

754,909

 

 

798,130

Total stockholders' equity

 

 

984,410

 

 

1,020,766

Total liabilities and stockholders' equity

 

$

1,774,895

 

$

1,813,096

 

See accompanying notes to consolidated condensed financial statements.

 

 

2


 

Table of Contents

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Statements of Operations (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended November 30, 

 

Nine Months Ended November 30, 

 

(in thousands, except per share data)

 

2017

    

2016

    

2017

    

2016

 

Sales revenue, net

 

$

453,045

 

$

444,414

 

$

1,191,112

 

$

1,160,522

 

Cost of goods sold

 

 

251,271

 

 

250,199

 

 

664,956

 

 

650,912

 

Gross profit

 

 

201,774

 

 

194,215

 

 

526,156

 

 

509,610

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

133,894

 

 

130,896

 

 

387,332

 

 

378,506

 

Asset impairment charges

 

 

82,227

 

 

 -

 

 

136,297

 

 

7,400

 

Restructuring charges

 

 

1,283

 

 

 -

 

 

1,283

 

 

 -

 

Operating income (loss)

 

 

(15,630)

 

 

63,319

 

 

1,244

 

 

123,704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonoperating income, net

 

 

34

 

 

106

 

 

281

 

 

343

 

Interest expense

 

 

(3,619)

 

 

(3,625)

 

 

(11,327)

 

 

(11,142)

 

Income (loss) before income taxes

 

 

(19,215)

 

 

59,800

 

 

(9,802)

 

 

112,905

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit):

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

46,625

 

 

4,928

 

 

60,188

 

 

16,625

 

Deferred

 

 

(35,404)

 

 

(2,740)

 

 

(54,355)

 

 

(8,713)

 

Net income (loss)

 

$

(30,436)

 

$

57,612

 

$

(15,635)

 

$

104,993

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.12)

 

$

2.10

 

$

(0.58)

 

$

3.79

 

Diluted

 

$

(1.12)

 

$

2.07

 

$

(0.58)

 

$

3.74

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock used in

 

 

 

 

 

 

 

 

 

 

 

 

 

computing net earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

27,113

 

 

27,484

 

 

27,140

 

 

27,700

 

Diluted

 

 

27,113

 

 

27,802

 

 

27,140

 

 

28,058

 

 

See accompanying notes to consolidated condensed financial statements.

 

3


 

Table of Contents

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended November 30, 

 

 

2017

 

2016

 

 

Before

 

Tax (Expense)

 

Net of

 

Before

 

Tax (Expense)

 

Net of

(in thousands)

 

Tax

 

Benefit

 

Tax

 

Tax

 

Benefit

 

Tax

Income (loss)

 

$

(19,215)

   

$

(11,221)

   

$

(30,436)

   

$

59,800

 

$

(2,188)

 

$

57,612

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

 

753

 

 

(290)

 

 

463

 

 

 -

 

 

 -

 

 

 -

Subtotal

 

 

753

 

 

(290)

 

 

463

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - foreign currency contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

 

2,928

 

 

(725)

 

 

2,203

 

 

2,049

 

 

(370)

 

 

1,679

Settlements reclassified to income

 

 

(1,328)

 

 

271

 

 

(1,057)

 

 

(522)

 

 

73

 

 

(449)

Subtotal

 

 

1,600

 

 

(454)

 

 

1,146

 

 

1,527

 

 

(297)

 

 

1,230

Total other comprehensive income

 

 

2,353

 

 

(744)

 

 

1,609

 

 

1,527

 

 

(297)

 

 

1,230

Comprehensive income (loss)

 

$

(16,862)

 

$

(11,965)

 

$

(28,827)

 

$

61,327

 

$

(2,485)

 

$

58,842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended November 30, 

 

 

2017

 

2016

 

 

Before

 

Tax (Expense)

 

Net of

 

Before

 

Tax (Expense)

 

Net of

(in thousands)

 

Tax

 

Benefit

 

Tax

 

Tax

 

Benefit

 

Tax

Income (loss)

 

$

(9,802)

   

$

(5,833)

   

$

(15,635)

   

$

112,905

 

$

(7,912)

 

$

104,993

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

 

753

 

 

(290)

 

 

463

 

 

 -

 

 

 -

 

 

 -

Subtotal

 

 

753

 

 

(290)

 

 

463

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedge activity - foreign currency contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair market value

 

 

(1,275)

 

 

75

 

 

(1,200)

 

 

2,319

 

 

(412)

 

 

1,907

Settlements reclassified to income

 

 

(2,208)

 

 

434

 

 

(1,774)

 

 

(505)

 

 

20

 

 

(485)

Subtotal

 

 

(3,483)

 

 

509

 

 

(2,974)

 

 

1,814

 

 

(392)

 

 

1,422

Total other comprehensive income (loss)

 

 

(2,730)

 

 

219

 

 

(2,511)

 

 

1,814

 

 

(392)

 

 

1,422

Comprehensive income (loss)

 

$

(12,532)

 

$

(5,614)

 

$

(18,146)

 

$

114,719

 

$

(8,304)

 

$

106,415

 

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)

 

 

 

 

 

 

 

 

Nine Months Ended November 30, 

(in thousands)

2017

  

2016

  

Cash provided by operating activities:

 

 

 

 

 

  

Net income (loss)

$

(15,635)

  

$

104,993

  

Adjustments to reconcile net income (loss) to net cash  provided by operating activities:

 

 

  

 

 

  

Depreciation and amortization

 

32,362

  

 

33,323

  

Amortization of financing costs

 

976

  

 

876

  

Provision for doubtful receivables

 

2,076

  

 

1,489

  

Non-cash share-based compensation

 

11,130

  

 

11,661

  

Non-cash intangible asset impairment charges

 

136,297

  

 

7,400

  

Gain (loss) on the sale or disposal of property and equipment

 

(10)

  

 

167

  

Deferred income taxes and tax credits

 

(54,355)

  

 

(8,769)

  

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

 

 

  

 

 

  

Receivables

 

(74,538)

  

 

(66,005)

  

Inventories

 

3,528

  

 

7,001

  

Prepaid expenses and other current assets

 

(2,850)

  

 

(2,134)

  

Other assets and liabilities, net

 

(1,532)

  

 

(3,772)

  

Accounts payable

 

(2,532)

  

 

29,004

  

Accrued expenses and other current liabilities

 

19,075

  

 

22,410

  

Accrued income taxes

 

53,637

  

 

1,496

  

Net cash provided by operating activities

 

107,629

  

 

139,140

  

 

 

 

  

 

 

  

Cash used in investing activities:

 

 

  

 

 

  

Capital and intangible asset expenditures

 

(19,854)

  

 

(14,989)

  

Proceeds from the sale of property and equipment

 

13

 

 

32

  

Payments to acquire businesses, net of cash acquired

 

 -

  

 

(209,258)

  

Net cash used in investing activities

 

(19,841)

  

 

(224,215)

  

 

 

 

  

 

 

  

Cash used in financing activities:

 

 

  

 

 

  

Proceeds from line of credit

 

389,500

  

 

328,600

  

Repayment of line of credit

 

(444,200)

  

 

(380,600)

  

Repayment of long-term debt

 

(5,700)

  

 

(3,800)

  

Payment of financing costs

 

 -

  

 

(89)

  

Proceeds from share issuances under share-based compensation plans

 

6,670

  

 

7,451

  

Payment of tax obligations resulting from cashless share award settlements

 

(6,830)

  

 

(507)

  

Payments for repurchases of common stock

 

(29,158)

  

 

(75,000)

  

Net cash used in financing activities

 

(89,718)

  

 

(123,945)

  

 

 

 

 

 

 

 

 

 

 

  

 

 

  

Net decrease in cash and cash equivalents

 

(1,930)

  

 

(209,020)

  

Cash and cash equivalents, beginning balance

 

23,087

  

 

225,800

  

Cash and cash equivalents, ending balance

$

21,157

  

$

16,780

  

 

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)

NOVEMBER 30, 2017

Note 1 - Basis of Presentation and Related Information

In this quarterly report on Form 10-Q and the accompanying consolidated condensed financial statements and notes thereto, 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. References to “the FASB” refer to the Financial Accounting Standards Board. References to “GAAP” refer to 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. As of November 30, 2017, we had four segments: Housewares, Health & Home, Nutritional Supplements, 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. The Nutritional Supplements segment is a leading provider of premium branded vitamins, minerals and supplements, topical skin products and other health products sold directly to consumers, which was divested on December 20, 2017 (see Note 17 to these consolidated condensed financial statements). 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.

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 November 30, 2017 and February 28, 2017, 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, 2017, and our other reports on file with the Securities and Exchange Commission (the “SEC”).

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 consolidated condensed financial statements and accompanying notes. Actual results may differ materially from those estimates.

Our consolidated condensed financial statements are prepared in United States (“U.S.”) Dollars. All intercompany accounts and transactions are eliminated in consolidation.

6


 

Table of Contents

We have reclassified, combined or separately disclosed certain amounts in the prior years’ consolidated condensed financial statements and accompanying footnotes to conform to the current year’s presentation.

 

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 February 1, 2019. We are currently evaluating the effect this new accounting guidance may have on our consolidated financial position, results of operations and cash flows.

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. 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. ASU 2017-09 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. We do not expect the adoption of ASU 2017-09 to have a material effect on our consolidated financial position, results of operations and cash flows.

In October 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes: Intra–Entity Asset Transfers of Assets Other Than Inventory. 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 will be effective for us in fiscal 2019. A modified retrospective approach will be 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. The new guidance may impact our effective tax rate, after adoption. We are currently evaluating the impact this guidance may have on our consolidated financial position, results of operations and cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 will require lessees to recognize on their balance sheets “right-of-use assets” and corresponding lease liabilities, measured on a discounted basis over the lease term. Virtually all leases will be subject to this treatment except leases that meet the definition of a “short-term lease.” For expense recognition, the dual model requiring leases to be classified as either operating or finance leases has been retained from the prior standard. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. Classification will use criteria very similar to those applied in current lease accounting, but without explicit bright lines. The new lease guidance will essentially eliminate off-balance sheet financing. The guidance is effective for us in fiscal 2020. The new standard 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. We are currently evaluating the effect this new accounting guidance may have on our consolidated financial position, results of operations and cash flows.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, issued as a new Topic, ASC Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to

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customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We plan to adopt the new standard on March 1, 2018.  If changes in policy or practice are required, we can adopt either retrospectively or as a cumulative effect adjustment as of the date of adoption. We continue to make progress in our assessment and implementation of the new standard. Our implementation approach has included a survey of revenue recognition policies and practices across each of our global reporting units, and a detailed study of the various types of commercial arrangements that we have with our customers to assess conformance of our current accounting practices with the new standard.  While our completion of this assessment is ongoing, based on progress to date, we expect the new standard to primarily impact qualitative disclosure rather than materially effecting our accounting policies or practices. This is because our revenue is primarily generated from the sale of non-customized finished product to customers. Such sales contain a single delivery element and revenue is recognized at a single point in time when ownership, risks and rewards transfer. The accounting for these transactions is largely not impacted by the new standard.

Unless otherwise discussed above, 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.

Adopted

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. We adopted the new guidance in the first quarter of fiscal 2018, applying it on a prospective basis. The application of this guidance has not had a material impact on our financial position, results of operations or cash flows.

 

Note 3 – Supplemental Balance Sheet Information

PROPERTY AND EQUIPMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

Useful Lives

 

November 30, 

 

February 28,

(in thousands)

 

(Years)

 

2017

    

2017

Land

 

 

 -

 

 

$

12,800

 

$

12,800

Building and improvements

 

3

 -

40

 

 

109,108

 

 

109,026

Computer, furniture and other equipment

 

3

 -

15

 

 

89,838

 

 

81,122

Tools, molds and other production equipment

 

1

 -

10

 

 

33,792

 

 

31,157

Construction in progress

 

 

 -

 

 

 

5,936

 

 

7,391

Property and equipment, gross

 

 

 

 

 

 

251,474

 

 

241,496

Less accumulated depreciation

 

 

 

 

 

 

(118,485)

 

 

(106,561)

Property and equipment, net

 

 

 

 

 

$

132,989

 

$

134,935

 

 

 

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

November 30, 

 

February 28,

(in thousands)

    

2017

    

2017

Accrued compensation, benefits and payroll taxes

 

$

31,311

 

$

34,917

Accrued sales returns, discounts and allowances

 

 

32,050

 

 

27,377

Accrued warranty returns

 

 

23,653

 

 

21,766

Accrued advertising

 

 

30,134

 

 

23,747

Accrued legal fees and settlements

 

 

17,282

 

 

16,908

Accrued royalties

 

 

10,599

 

 

9,553

Accrued property, sales and other taxes

 

 

9,509

 

 

6,564

Accrued freight and duty

 

 

5,480

 

 

3,454

Accrued product liability

 

 

2,224

 

 

2,141

Derivative liabilities, current

 

 

2,305

 

 

47

Liability for uncertain tax positions

 

 

1,024

 

 

 -

Other

 

 

8,961

 

 

6,726

Total accrued expenses and other current liabilities

 

$

174,532

 

$

153,200

 

OTHER LIABILITIES, NONCURRENT

 

 

 

 

 

 

 

 

 

November 30, 

 

February 28,

(in thousands)

    

2017

    

2017

Deferred compensation liability

 

$

5,988

 

$

6,560

Liability for uncertain tax positions

 

 

3,467

 

 

6,611

Other liabilities

 

 

8,420

 

 

8,490

Total other liabilities, noncurrent

 

$

17,875

 

$

21,661

 

 

Note 4 – Acquisitions

Hydro Flask Acquisition  - On March 18, 2016, we completed the acquisition of all membership units of Steel Technology, LLC, doing business as Hydro Flask. Hydro Flask is a leading designer, distributor and marketer of high performance insulated stainless steel food and beverage containers for active lifestyles. The aggregate purchase price for the transaction was approximately $209.3 million, net of cash acquired. Significant assets acquired include receivables, inventory, prepaid expenses, property and equipment, trade names, technology assets, customer relationships, and goodwill. Acquisition-related expenses, incurred during fiscal 2016, were approximately $0.7 million (before and after tax).

We accounted for the acquisition as the purchase of a business and recorded the excess purchase price as goodwill, which is not expected to be deductible for income tax purposes. We completed our analysis of the economic lives of all the assets acquired and determined the appropriate fair values of the acquired assets. We assigned $59.0 million to trade names with indefinite economic lives. We assigned $10.3 million to technology assets and $14.2 million to customer relationships and are amortizing these assets over expected lives of 10 and 24 years, respectively. For technology assets, we considered the average life cycle of the underlying products, which range from 7 - 15 years, and the overall average life of the associated patent portfolio. For the customer relationships, we used historical attrition rates to assign an expected life.

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The following schedule presents the net assets of Hydro Flask recorded at the acquisition date, excluding cash acquired:

HYDRO FLASK - NET ASSETS RECORDED UPON ACQUISITION AT MARCH 18, 2016

(in thousands)

 

 

 

 

Assets:

    

 

 

Receivables

 

$

7,955

Inventory

 

 

6,243

Prepaid expenses and other current assets

 

 

336

Property and equipment

 

 

1,108

Goodwill

 

 

116,053

Trade names - indefinite

 

 

59,000

Technology assets - definite

 

 

10,300

Customer relationships - definite

 

 

14,200

Subtotal - assets

 

 

215,195

 

 

 

 

Liabilities:

 

 

 

Accounts payable

 

 

2,275

Accrued expenses

 

 

3,662

Subtotal - liabilities

 

 

5,937

Net assets recorded

 

$

209,258

The fair values of the above assets acquired and liabilities assumed were estimated by applying income and market approaches. Key assumptions include various discount rates based upon a 12.3% weighted average cost of capital; royalty rates used in the determination of trade names and technology asset values of 6% and 2%, respectively; and a customer attrition rate used in the determination of customer relationship values of approximately 4% per year.

 

Note 5 – Goodwill and Intangible Assets

Impairment Testing in Fiscal 2018

Nutritional Supplements

During the third quarter of fiscal 2018, we continued to evaluate strategic alternatives for our Nutritional Supplements segment, including a transaction to divest the business. Over the short-term, certain of these alternatives may have a disproportionate impact on our income relative to the cost savings or generate other charges or losses.

During the third quarter of fiscal 2018, we received new information regarding the potential fair value of our Nutritional Supplements segment that we concluded should be considered when determining if impairments of our long-lived assets, including goodwill, had occurred.  Consequently, we performed interim impairment testing. As a result of our testing, we recorded pre-tax non-cash asset impairment charges totaling $82.2 million, consisting of $70.6 million to the segment’s goodwill and $11.6 million to the segment’s indefinite-lived brand assets.

During the second quarter of fiscal 2018, we performed additional impairment testing for our Nutritional Supplements segment due to a revised financial projection. As a result of our testing, we recorded pre-tax non-cash asset impairment charges totaling $18.1 million to the segment’s indefinite-lived brand assets.

During the first quarter of fiscal 2018, we received information regarding the potential fair value of our Nutritional Supplements segment that we concluded should be considered when determining if impairments of our long-lived assets, including goodwill, had occurred.  Consequently, we performed

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interim impairment testing. As a result of our testing, we recorded pre-tax non-cash asset impairment charges totaling $32.0 million, consisting of $6.0 million to the segment’s indefinite-lived brand assets and $26.0 million to the segment’s goodwill.

Beauty

In our Beauty segment, we performed interim impairment testing in the first quarter of fiscal 2018 for a certain brand due to a revised financial projection. As a result of our testing, we recorded a pre-tax non-cash asset impairment charge of $4.0 million.  

The fair values used in our impairment tests were determined using a weighted average of various valuation methods including estimated future discounted cash flows and other market data. The valuation techniques utilized assumptions we believed to be appropriate in the circumstances; however, future circumstances attributable to a strategic change in our business could result in changes to those assumptions and other charges or losses relating our segments may be recorded and could be material. For example, if we determine that a divestiture is a probable outcome of our strategic reviews, we may need to perform additional impairment tests that may include future offer values. We are unable to project the amount of any expense, charge or loss that may be incurred in future periods.

Impairment Testing in Fiscal 2017

Our annual impairment testing for goodwill and indefinite-lived intangible assets had historically occurred in the first quarter of our fiscal year. In December 2016, we elected to change our annual impairment testing to the fourth quarter of our fiscal year. Accordingly, for fiscal 2017 we completed impairment tests during the first and fourth fiscal quarters. As a result of our testing of indefinite-lived trademarks in the fourth quarter, we recorded non-cash asset impairment charges of $5.0 million ($3.2 million after tax). As a result of our testing of indefinite-lived trademarks in the first quarter, we recorded non-cash asset impairment charges of $7.4 million ($5.1 million after tax). The charges in both quarters were related to certain brand assets and trademarks in our Beauty and Nutritional Supplements segments, which were written down to their estimated fair values, determined on the basis of our estimated future discounted cash flows using the relief from royalty valuation method. The fair values used for our impairment testing in fiscal 2017 were estimated using a weighted average approach, which heavily weighted a valuation derived from a discounted cash flow model based on the Company’s estimates of future cash flows and based on management’s intentions with respect to the business.

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

GOODWILL AND INTANGIBLE ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

November 30, 2017

 

February 28, 2017

 

 

 

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

 

 

 

40,751

 

 

 -

 

 

(17,074)

 

 

23,677

 

 

40,393

 

 

 -

 

 

(15,476)

 

 

24,917

Total Housewares

 

 

 

457,007

 

 

 -

 

 

(17,074)

 

 

439,933

 

 

456,649

 

 

 -

 

 

(15,476)

 

 

441,173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Health & Home:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

 

284,913

 

 

 -

 

 

 -

 

 

284,913

 

 

284,913

 

 

 -

 

 

 -

 

 

284,913

Trademarks - indefinite

 

 

 

54,000

 

 

 -