Unassociated Document
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 ACT OF
1934
|
|
|
|
For
the quarterly period ended August 31, 2006
|
|
|
|
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
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.)
|
|
|
|
Clarenden
House
Church
Street
Hamilton,
Bermuda
|
|
|
(Address
of principal executive offices)
|
|
|
|
|
|
1
Helen of Troy Plaza
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|
|
El
Paso, Texas
|
|
79912
|
(Registrant’s
United States Mailing Address )
|
|
(Zip
Code)
|
(915)
225-8000
(Registrant’s
telephone number, including area code)
[Not
Applicable]
(Former
name, former address and former fiscal year, if changed since last
report)
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.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
one):
Large
accelerated filer £
|
Accelerated
filer T
|
Non-accelerated
filer £
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
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 October 3, 2006
|
Common
Shares, $0.10 par value per share
|
|
30,061,557
shares
|
HELEN
OF TROY LIMITED AND SUBSIDIARIES
INDEX
- FORM 10-Q
|
|
|
Page
|
PART
I.
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
|
Item
1
|
Financial
Statements
|
|
|
|
|
|
|
|
Consolidated
Condensed Balance Sheets
|
|
|
|
as
of August 31, 2006 (unaudited) and February 28, 2006
|
3
|
|
|
|
|
|
|
Consolidated
Condensed Statements of Income (unaudited)
|
|
|
|
for
the Three Months and Six Months Ended
|
|
|
|
August
31, 2006 and August 31, 2005
|
4
|
|
|
|
|
|
|
Consolidated
Condensed Statements of Cash Flows (unaudited)
|
|
|
|
for
the Six Months Ended
|
|
|
|
August
31, 2006 and August 31, 2005
|
5
|
|
|
|
|
|
|
Consolidated
Condensed Statements of Comprehensive Income (unaudited)
|
|
|
|
for
the Three Months and Six Months Ended
|
|
|
|
August
31, 2006 and August 31, 2005
|
6
|
|
|
|
|
|
|
Notes
to Consolidated Condensed Financial Statements
|
7
|
|
|
|
|
|
Item
2
|
Management’s
Discussion and Analysis of Financial Condition
|
|
|
|
and
Results of Operations
|
24
|
|
|
|
|
|
Item
3
|
Quantitative
and Qualitative Disclosures about Market Risk
|
39
|
|
|
|
|
|
Item
4
|
Controls
and Procedures
|
41
|
|
|
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|
PART
II.
|
OTHER
INFORMATION
|
|
|
|
|
|
|
Item
1
|
Legal
Proceedings |
42
|
|
|
|
|
|
Item
1A
|
Risk
Factors |
44
|
|
|
|
|
|
Item
2
|
Unregistered
Sales of Equity Securities and Use of
Proceeds |
47
|
|
|
|
|
|
Item
4
|
Submission
of Matters to a Vote of Security Holders |
47
|
|
|
|
|
|
Item
6
|
Exhibits |
48
|
|
|
|
|
|
Signatures |
49
|
PART
1. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
HELEN
OF TROY LIMITED AND SUBSIDIARIES
|
|
|
|
|
|
Consolidated
Condensed Balance Sheets
|
|
|
|
|
|
(in
thousands, except shares and par value)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
31,
|
|
February
28,
|
|
|
|
2006
|
|
2006
|
|
|
|
(unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
31,837
|
|
$
|
18,320
|
|
Trading
securities, at market value
|
|
|
212
|
|
|
97
|
|
Foreign
currency forward contracts
|
|
|
-
|
|
|
584
|
|
Receivables
- principally trade, less allowance of $1,212 and $850
|
|
|
117,032
|
|
|
107,289
|
|
Inventories
|
|
|
185,324
|
|
|
168,401
|
|
Prepaid
expenses
|
|
|
8,398
|
|
|
5,793
|
|
Deferred
income tax benefits
|
|
|
10,387
|
|
|
10,690
|
|
Total
current assets
|
|
|
353,190
|
|
|
311,174
|
|
|
|
|
|
|
|
|
|
Property
and equipment, at cost less accumulated depreciation of $32,007
and
$27,039
|
|
|
98,839
|
|
|
100,703
|
|
Goodwill
|
|
|
201,003
|
|
|
201,003
|
|
Trademarks,
net of accumulated amortization of $228 and $225
|
|
|
157,708
|
|
|
157,711
|
|
License
agreements, net of accumulated amortization of $15,233 and
$14,514
|
|
|
27,082
|
|
|
27,801
|
|
Other
intangible assets, net of accumulated amortization of $3,878 and
$3,044
|
|
|
15,101
|
|
|
15,757
|
|
Tax
certificates
|
|
|
25,144
|
|
|
28,425
|
|
Deferred
income tax benefits
|
|
|
253
|
|
|
-
|
|
Other
assets
|
|
|
14,897
|
|
|
15,170
|
|
|
|
$
|
893,217
|
|
$
|
857,744
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
14,974
|
|
$
|
10,000
|
|
Accounts
payable, principally trade
|
|
|
45,182
|
|
|
30,175
|
|
Accrued
expenses
|
|
|
54,819
|
|
|
54,145
|
|
Income
taxes payable
|
|
|
26,830
|
|
|
31,286
|
|
Total
current liabilities
|
|
|
141,805
|
|
|
125,606
|
|
|
|
|
|
|
|
|
|
Long-term
compensation liability
|
|
|
1,371
|
|
|
1,706
|
|
Deferred
income tax liability
|
|
|
-
|
|
|
81
|
|
Long-term
debt, less current portion
|
|
|
257,660
|
|
|
254,974
|
|
Total
liabilities
|
|
|
400,836
|
|
|
382,367
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (See Notes 3, 11 and 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
Cumulative
preferred shares, non-voting, $1.00 par. Authorized 2,000,000 shares;
none
issued
|
|
|
-
|
|
|
-
|
|
Common
shares, $.10 par. Authorized 50,000,000 shares; 30,058,957 and
30,013,172
shares
|
|
|
|
|
|
|
|
issued
and outstanding
|
|
|
3,006
|
|
|
3,001
|
|
Additional
paid-in-capital
|
|
|
91,224
|
|
|
90,300
|
|
Retained
earnings
|
|
|
398,469
|
|
|
380,916
|
|
Accumulated
other comprehensive income (loss)
|
|
|
(318
|
)
|
|
1,160
|
|
Total
stockholders' equity
|
|
|
492,381
|
|
|
475,377
|
|
|
|
$
|
893,217
|
|
$
|
857,744
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated condensed financial
statements.
|
|
HELEN
OF TROY LIMITED AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
Consolidated
Condensed Statements of Income (unaudited)
|
|
|
|
|
|
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended August 31,
|
|
Six
Months Ended August 31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
147,172
|
|
$
|
130,389
|
|
$
|
277,613
|
|
$
|
257,781
|
|
Cost
of sales
|
|
|
80,504
|
|
|
70,171
|
|
|
153,004
|
|
|
138,871
|
|
Gross
profit
|
|
|
66,668
|
|
|
60,218
|
|
|
124,609
|
|
|
118,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general, and administrative expense
|
|
|
50,028
|
|
|
46,088
|
|
|
97,053
|
|
|
89,482
|
|
Operating
income
|
|
|
16,640
|
|
|
14,130
|
|
|
27,556
|
|
|
29,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(4,696
|
)
|
|
(3,795
|
)
|
|
(9,202
|
)
|
|
(7,058
|
)
|
Other
income, net
|
|
|
287
|
|
|
403
|
|
|
1,077
|
|
|
345
|
|
Total
other income (expense)
|
|
|
(4,409
|
)
|
|
(3,392
|
)
|
|
(8,125
|
)
|
|
(6,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before income taxes
|
|
|
12,231
|
|
|
10,738
|
|
|
19,431
|
|
|
22,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
833
|
|
|
233
|
|
|
1,772
|
|
|
1,106
|
|
Deferred
|
|
|
524
|
|
|
1,053
|
|
|
106
|
|
|
1,610
|
|
Net
earnings
|
|
$
|
10,874
|
|
$
|
9,452
|
|
$
|
17,553
|
|
$
|
19,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.36
|
|
$
|
0.32
|
|
$
|
0.58
|
|
$
|
0.67
|
|
Diluted
|
|
$
|
0.35
|
|
$
|
0.30
|
|
$
|
0.56
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares used in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
computing
net earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
30,040
|
|
|
29,896
|
|
|
30,031
|
|
|
29,875
|
|
Diluted
|
|
|
31,506
|
|
|
31,877
|
|
|
31,483
|
|
|
31,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated condensed financial
statements.
|
|
|
|
|
|
|
|
HELEN
OF TROY LIMITED AND SUBSIDIARIES
|
|
|
|
|
|
Consolidated
Condensed Statements of Cash Flows (unaudited)
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended August 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
earnings
|
|
$
|
17,553
|
|
$
|
19,999
|
|
Adjustments
to reconcile net earnings to net cash provided / (used) by operating
activities
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
7,347
|
|
|
5,618
|
|
Provision
for doubtful receivables
|
|
|
(362
|
)
|
|
(984
|
)
|
Stock-based
compensation expense
|
|
|
370
|
|
|
-
|
|
Unrealized
(gain) / loss - trading securities
|
|
|
(25
|
)
|
|
(66
|
)
|
Deferred
taxes, net
|
|
|
12
|
|
|
496
|
|
Gain
on the sale of property, plant and equipment
|
|
|
(422
|
)
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(9,381
|
)
|
|
1,910
|
|
Forward
contracts
|
|
|
1,524
|
|
|
(1,959
|
)
|
Inventories
|
|
|
(16,923
|
)
|
|
(69,827
|
)
|
Prepaid
expenses
|
|
|
(1,587
|
)
|
|
1,527
|
|
Other
assets
|
|
|
1,843
|
|
|
(774
|
)
|
Accounts
payable
|
|
|
15,007
|
|
|
6,602
|
|
Accrued
expenses
|
|
|
(2,215
|
)
|
|
(8,472
|
)
|
Income
taxes payable
|
|
|
(4,388
|
)
|
|
(593
|
)
|
Net
cash provided / (used) by operating activities
|
|
|
8,353
|
|
|
(46,523
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Capital,
license, trademark, and other intangible expenditures
|
|
|
(3,748
|
)
|
|
(9,190
|
)
|
Proceeds
from the sale of property, plant and equipment
|
|
|
666
|
|
|
150
|
|
Net
cash used by investing activities
|
|
|
(3,082
|
)
|
|
(9,040
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from debt
|
|
|
7,660
|
|
|
-
|
|
Net
borrowings on revolving line of credit
|
|
|
-
|
|
|
41,000
|
|
Payment
of financing costs
|
|
|
-
|
|
|
(91
|
)
|
Proceeds
from exercise of stock options and employee stock
purchases
|
|
|
492
|
|
|
1,026
|
|
Share-based
compensation tax benefit
|
|
|
94
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
8,246
|
|
|
41,935
|
|
Net
increase / (decrease) in cash and cash equivalents
|
|
|
13,517
|
|
|
(13,628
|
)
|
Cash
and cash equivalents, beginning of period
|
|
|
18,320
|
|
|
21,752
|
|
Cash
and cash equivalents, end of period
|
|
$
|
31,837
|
|
$
|
8,124
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow disclosures:
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
8,275
|
|
$
|
6,409
|
|
Income
taxes paid (net of refunds)
|
|
$
|
6,159
|
|
$
|
2,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated condensed financial
statements.
|
|
|
|
HELEN
OF TROY LIMITED AND SUBSIDIARIES
|
|
|
Consolidated
Condensed Statements Of Comprehensive Income
(unaudited)
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended August 31,
|
|
Six
Months Ended August 31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings, as reported
|
|
$
|
10,874
|
|
$
|
9,452
|
|
$
|
17,553
|
|
$
|
19,999
|
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow hedges
|
|
|
(556
|
)
|
|
306
|
|
|
(1,478
|
)
|
|
2,691
|
|
Comprehensive
income
|
|
$
|
10,318
|
|
$
|
9,758
|
|
$
|
16,075
|
|
$
|
22,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated condensed financial
statements.
|
|
|
|
|
HELEN
OF TROY LIMITED AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
August
31, 2006
Note
1 - Basis
of Presentation
In
our
opinion, 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 August 31, 2006 and
February 28, 2006, and the results of our consolidated operations for the
three-month and six-month periods ended August 31, 2006 and 2005. The same
accounting policies are followed in preparing quarterly financial data as are
followed in preparing annual data.
Due
to
the seasonal nature of our business, quarterly revenues, expenses, earnings
and
cash flows are not necessarily indicative of the results that may be expected
for the full fiscal year. While we believe that the disclosures presented are
adequate and the consolidated condensed financial statements are not misleading,
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,
and
our other reports on file with the Securities and Exchange
Commission.
We
have
reclassified certain prior-period amounts, and in some cases provided additional
information in our consolidated condensed financial statements and accompanying
footnotes to conform to the current period’s presentation. These
reclassifications have no impact on previously reported net
earnings.
In
these
consolidated condensed financial statements and accompanying footnotes, amounts
shown are in thousands of U.S. dollars, except as otherwise indicated.
Note
2 - Adoption
of New Accounting Standard for Share-Based Payments
The
Company has equity awards outstanding under four share-based compensation plans.
The plans consist of two employee stock option and restricted stock plans,
a
non-employee director stock option plan, and an employee stock purchase plan.
These plans are described below. The plans are generally administered by the
Compensation Committee of the Board of Directors, consisting of non-employee
directors.
Effective
March 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), ‘‘Share-Based Payment’’ (‘‘SFAS 123R’’), utilizing the
modified prospective method whereby prior periods will not be restated for
comparability. SFAS 123R requires recognition of share-based compensation
expense in the statements of income over the vesting period based on the fair
value of the award at the grant date. Previously, the Company used the intrinsic
value method under Accounting Principles Board Opinion No. 25, ‘‘Accounting for
Stock Issued to Employees’’ (‘‘APB 25’’), as amended by related interpretations
of the Financial Accounting Standards Board (“FASB”). Under APB 25, no
compensation cost was recognized for stock options because the quoted market
price of the stock at the grant date was equal to the amount per share the
employee had to pay to acquire the stock after fulfilling the vesting period.
SFAS 123R supersedes APB 25 as well as Statement of Financial Accounting
Standard 123 "Accounting for Stock-Based Compensation", which permitted pro
forma footnote disclosures to report the difference between the fair value
method and the intrinsic value method.
Under
stock option and restricted stock plans adopted in 1994 and 1998 (the "1994
Plan" and the "1998 Plan," respectively), as amended, we have reserved a total
of 14,750,000 common shares for issuance to key officers and employees. Under
these plans, we grant options to purchase our common shares at a price equal
to
or greater than the fair market value on the grant date. Both plans contain
provisions for incentive stock options ("ISO's"), non-qualified stock options
("Non-Q's") and restricted share grants. Generally, options granted under the
1994 and 1998 Plans become exercisable immediately or over one, four, or
five-year vesting periods and expire on dates ranging from seven to ten years
from the date of grant. As of August 31, 2006, 544,586 shares remained available
for issue and 6,621,144 options were outstanding under these plans.
Under
a
stock option plan for non-employee directors (the "Directors’ Plan") adopted in
fiscal 1996, we reserved a total of 980,000 of our common shares for issuance
to
non-employee members of the Board of Directors. We granted options under the
Directors' Plan at a price equal to the fair market value of our common shares
at the date of grant. Options granted under the Directors' Plan vest one year
from the date of issuance and expire ten years after issuance. The Directors’
Plan expired by its terms on June 6, 2005. On that date, the remaining 284,000
shares available for issue expired. As of August 31, 2006, 278,500 options
were
outstanding under this plan.
Under
an
employee stock purchase plan (the "Stock Purchase Plan"), we have reserved
a
total of 500,000 common shares for issuance to our employees, nearly all of
whom
are eligible to participate. Under the terms of the Stock Purchase Plan,
employees authorize the withholding of from 1 percent to 15 percent of their
wages or salaries to purchase our common shares. The purchase price for shares
acquired under the Stock Purchase Plan is equal to the lower of 85 percent
of
the share’s fair market value on either the first day of each option period or
the last day of each period. During the second quarter of fiscal 2007, plan
participants acquired 12,485 shares at a price of $15.21 per share under the
stock purchase plan. At August 31, 2006, 319,231 shares remained available
for
future issue under this plan.
For
the
three-month and six-month periods ending August 31, 2006, the Company expensed
$183 and $370 pre-tax, respectively, for stock options issued and employee
share
purchases under the above plans. These amounts were classified in selling,
general, and administrative expense in the consolidated condensed statements
of
income for the fiscal periods then ended. The following table highlights the
impact of share based compensation expense:
SHARE
BASED PAYMENT EXPENSE
|
|
|
|
|
|
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended August 31,
|
|
Six
Months Ended August 31,
|
|
|
|
2006
|
|
2005
(1)
|
|
2006
|
|
2005
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
$
|
133
|
|
$
|
-
|
|
$
|
320
|
|
$
|
-
|
|
Employee
stock purchase plan
|
|
|
50
|
|
|
-
|
|
|
50
|
|
|
-
|
|
Share-based
payment expense
|
|
$
|
183
|
|
$
|
-
|
|
$
|
370
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
payment expense, net of income tax benefits of $54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
$94 for the three and six months ended August 31, 2006.
|
|
$
|
129
|
|
$
|
-
|
|
$
|
276
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share impact of share based payment expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
$
|
-
|
|
$
|
0.01
|
|
$
|
-
|
|
Diluted
|
|
$
|
0.00
|
|
$
|
-
|
|
$
|
0.01
|
|
$
|
-
|
|
(1)
Prior
year amounts are before adoption of SFAS 123R under the modified prospective
method. Under this method, periods prior to adoption
are not restated.
The
following table provides the pro forma effect on net earnings and earnings
per
share as if the fair-value-based measurement method had been applied to all
stock-based compensation for the three-month and six-month periods ended August
31, 2005:
PRO
FORMA NET INCOME AND PRO FORMA EARNINGS PER SHARE
|
|
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
31, 2005
|
|
|
|
(Three
Months)
|
|
(Six
Months)
|
|
|
|
|
|
|
|
Net
income:
|
|
|
|
|
|
As
reported
|
|
$
|
9,452
|
|
$
|
19,999
|
|
Share-based
payment expense, net of income tax benefit of $132 and $238,
respectively
|
|
|
454
|
|
|
750
|
|
Pro
forma
|
|
$
|
8,998
|
|
$
|
19,249
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
0.32
|
|
$
|
0.67
|
|
Pro
forma
|
|
|
0.30
|
|
|
0.64
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
0.30
|
|
$
|
0.63
|
|
Pro
forma
|
|
|
0.28
|
|
|
0.60
|
|
The
fair
value of all share-based payment awards are estimated using the Black-Scholes
option pricing model with the following assumptions and weighted-average fair
values for the three-month and six-month periods ended August 31, 2006 and
2005:
FAIR
VALUE OF AWARDS AND ASSUMPTIONS USED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended August 31,
|
|
Six
Months Ended August 31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
fair value of grants (in
dollars)
|
|
$
|
6.71
|
|
$
|
7.91
|
|
$
|
7.16
|
|
$
|
8.68
|
|
Risk-free
interest rate
|
|
|
4.94
|
%
|
|
3.63
|
%
|
|
4.95
|
%
|
|
3.70
|
%
|
Dividend
yield
|
|
|
0.00
|
%
|
|
0.00
|
%
|
|
0.00
|
%
|
|
0.00
|
%
|
Expected
volatility
|
|
|
38.65
|
%
|
|
42.04
|
%
|
|
39.13
|
%
|
|
42.42
|
%
|
Expected
life (in
years)
|
|
|
4.01
|
|
|
3.10
|
|
|
4.11
|
|
|
3.08
|
|
The
following describes how certain assumptions affecting the estimated fair value
of options or discounted employee share purchases (“share based payments”) are
determined. The risk-free interest rate is based on U.S. Treasury securities
with maturities equal to the expected life of the share based payments. The
dividend yield is computed as zero because the Company has not historically
paid
dividends nor does it expect to at this time. Expected volatility is based
on a
weighted average of the market implied volatility and historical volatility
over
the expected life of the underlying share based payments. The Company uses
its
historic experience to estimate the expected life of each stock-option grant
and
also to estimate the impact of exercise, forfeitures, termination and holding
period behavior for fair value expensing purposes.
Employee
share purchases vest immediately at the time of purchase. Accordingly, the
fair
value award associated with their discounted purchase price is expensed at
the
time of purchase.
A
summary
of option activity as of August 31, 2006, and changes during the six-months
then
ended is as follows:
SUMMARY
OF STOCK OPTION ACTIVITY
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands, except contractual term and per share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
Remaining
|
|
|
|
|
|
|
|
Average
|
|
Average
|
|
Contractual
|
|
Aggregate
|
|
|
|
|
|
Exercise
|
|
Grant
Date
|
|
Term
|
|
Intrinsic
|
|
|
|
Options
|
|
Price
|
|
Fair
Value
|
|
(in
years)
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at February 28, 2006
|
|
|
6,923
|
|
$
|
14.83
|
|
$
|
5.52
|
|
|
4.83
|
|
$
|
39,317
|
|
Granted
|
|
|
21
|
|
|
18.82
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(32
|
)
|
|
(9.19
|
)
|
|
|
|
|
|
|
|
|
|
Forfeited
/ expired
|
|
|
(12
|
)
|
|
(19.23
|
)
|
|
|
|
|
|
|
|
|
|
Outstanding
at August 31, 2006
|
|
|
6,900
|
|
$
|
14.86
|
|
$
|
5.53
|
|
|
4.34
|
|
$
|
21,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exerciseable
at August 31, 2006
|
|
|
6,602
|
|
$
|
14.75
|
|
$
|
5.48
|
|
|
4.21
|
|
$
|
21,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
aggregate intrinsic value of options exercised during the six-month period
ended
August 31, 2006 was $309. A summary of non-vested option activity as of August
31, 2006, and changes during the six-month period then ended is as
follows:
NON-VESTED
STOCK OPTION ACTIVITY
|
|
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
Non-Vested
|
|
Grant
Date
|
|
|
|
Options
|
|
Fair
Value
|
|
|
|
|
|
|
|
Outstanding
at February 28, 2006
|
|
|
410
|
|
$
|
6.27
|
|
Granted
|
|
|
21
|
|
|
7.16
|
|
Vested
|
|
|
(133
|
)
|
|
(5.87
|
)
|
Outstanding
at August 31, 2006
|
|
|
298
|
|
$
|
6.51
|
|
A
summary
of the Company’s total unrecognized share-based compensation cost as of August
31, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Period
of Expense
|
|
|
|
Unearned
|
|
Recognition
|
|
|
|
Compensation
|
|
(in
months)
|
|
|
|
|
|
|
|
Stock
options
|
|
$
|
1,346
|
|
|
43.1
|
|
Note
3 - Litigation
Securities
Class Action Litigation - Class
action lawsuits have been filed and consolidated into one action against the
Company, Gerald J. Rubin, the Company’s Chairman of the Board, President and
Chief Executive Officer, and Thomas J. Benson, the Company’s Chief Financial
Officer, on behalf of purchasers of publicly traded securities of the Company.
The Company understands that the plaintiffs allege violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
thereunder, on the grounds that the Company and the two officers engaged in
a
scheme to defraud the Company’s shareholders through the issuance of positive
earnings guidance intended to artificially inflate the Company’s share price so
that Mr. Rubin could sell almost 400,000 of the Company’s common shares at an
inflated price. The plaintiffs are seeking unspecified damages, interest, fees,
costs, an accounting of the insider trading proceeds, and injunctive relief,
including an accounting of and the imposition of a constructive trust and/or
asset freeze on the defendants’ insider trading proceeds. The class period
stated in the complaint was October 12, 2004 through October 10,
2005.
The
lawsuit was brought in the United States District Court for the Western District
of Texas and is still in the preliminary stages. The Company intends to defend
the foregoing lawsuit vigorously, but, because the lawsuit has been recently
filed, the Company cannot predict the outcome and is not currently able to
evaluate the likelihood of success or the range of potential loss, if any,
that
might be incurred in connection with the action. However, if the Company were
to
lose on any issues connected with the lawsuit or if the lawsuit is not settled
on favorable terms, the judgement or settlement may have a material adverse
effect on the Company's consolidated financial position, results of operations
and cash flows. There is a risk that such litigation could result in substantial
costs and divert management attention and resources from its business, which
could adversely affect the Company's business. The Company carries insurance
that provides an aggregate coverage of $20 million after a self-insured
retention of $500 thousand for the period during which the claims were filed,
but cannot evaluate at this time whether such coverage will be adequate to
cover
losses, if any, arising out of the lawsuit.
On
May
15, 2006 the Company filed a motion to dismiss the aforementioned lawsuit citing
numerous deficiencies with the claims asserted in the lawsuit. On June 29,
2006,
the plaintiffs filed with the court their opposition to the Company’s motion to
dismiss. On July 17, 2006 the Company filed a reply rebutting the plaintiffs’
June 29th opposition. As of the date this report was filed, this matter was
before the court for its consideration.
Other
Matters -
We
are
involved in various other legal claims and proceedings in the normal course
of
operations. We believe the outcome of these matters will not have a material
adverse effect on our consolidated financial position, results of operations,
or
liquidity.
Note
4 - Earnings
per Share
Basic
earnings per share is computed based upon the weighted average number of shares
of common stock outstanding during the period. Diluted earnings per share is
computed based upon the weighted average number of shares of common stock plus
the effects of dilutive securities. The number of dilutive securities was
1,466,683 and 1,452,051 for the three- and six-month periods ended August 31,
2006, respectively, and 1,980,758 and 2,069,738 for the three- and six-month
periods ended August 31, 2005. All dilutive securities during these periods
consisted of stock options issued under our stock option plans. There were
options to purchase common shares that were outstanding but not included in
the
computation of earnings per share because the exercise prices of such options
were greater than the average market prices of our common shares. These options
totaled 1,154,381 and 203,966 at August 31, 2006 and 2005, respectively.
Note
5 - Segment
Information
In
the
tables that follow, we present two segments: Personal Care and Housewares.
The
Personal Care segment’s products include hair dryers, straighteners, curling
irons, hairsetters, women’s shavers, mirrors, hot air brushes, home hair
clippers, paraffin baths, massage cushions, footbaths, body massagers, brushes,
combs, hair accessories, liquid hair styling products, men’s fragrances, men’s
deodorants, body powder, and skin care products. The
Housewares segment’s products include kitchen tools, cutlery, bar and wine
accessories, household cleaning tools, tea kettles, trash cans, storage and
organization products, hand tools, gardening tools, kitchen mitts and trivets,
and barbeque tools. Both
segments sell their portfolio of products principally through mass merchants,
general retail and specialty retail outlets in the United States and other
countries.
The
accounting policies of our segments are the same as those described in the
summary of significant accounting policies in Note 1 to the consolidated
financial statements in our 2006 Annual Report in Form10-K,
except as discussed below.
Operating
profit for each operating segment is computed based on net sales, less cost
of
goods sold and any selling, general, and administrative expenses ("SG&A")
associated with the segment. The selling, general, and administrative expenses
used to compute each segment's operating profit are comprised of SG&A
expense directly associated with the segment, plus overhead expenses that are
allocable to the operating segment. In connection with the acquisition of our
Housewares segment, the seller agreed to perform certain operating functions
for
the segment for a transitional period of time that ended February 28, 2006.
The
costs of these functions were reflected in SG&A for the Housewares segment’s
operating income. During the transitional period, we did not make an allocation
of our corporate overhead to Housewares. For the three-month and six-month
periods ended August 31, 2006, we began making an allocation of corporate
overhead and distribution center expenses to Housewares in lieu of transition
charges previously recorded. For the three-month and six-month periods ended
August 31, 2006, we allocated expenses totaling $3,333 and $5,758, respectively,
to the Housewares segment, some of which were previously absorbed by the
Personal Care segment. For the three-month and six-month periods ended August
31, 2005, transition charges of $2,811 and $4,784, respectively, were used
to
compute the Housewares segments operating income.
Major
expense categories now allocated to the Housewares segment in lieu of the
transition services charges the Housewares segment previously incurred include
the following:
Customer
Service
|
Credit,
Collection and Accounting
|
Distribution
Facility and Equipment Costs
|
Distribution
Labor Charges
|
General
and Administrative Overhead
|
During
the first quarter of fiscal 2007, we completed the transition of our Housewares
segment’s operations to our internal operating systems and our new distribution
facility in Southaven, Mississippi. The process of consolidating our domestic
appliance inventories into the same new facility is still underway. As a result
of these transitions, we have incurred, and will continue to incur, additional
expenses that we believe will decline as operations in the new facility
stabilize. Accordingly, we are in the process of re-evaluating our allocation
methodology, and plan to change our methodology later in the current fiscal
year. At that time, we expect the new methodology to result in some reduction
in
operating income for the Housewares segment, offset by an increase in the
operating income for the Personal Care segment. Until we finalize our approach,
the extent of this operating income impact between the segments cannot be
determined.
Other
items of income and expense, including income taxes, are not allocated to
operating segments.
The
following tables contain segment information for the periods covered by our
consolidated condensed statements of income:
THREE
MONTHS ENDED AUGUST 31, 2006 AND 2005
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
|
|
|
|
|
|
August
31, 2006
|
|
Care
|
|
Housewares
|
|
Total
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
110,976
|
|
$
|
36,196
|
|
$
|
147,172
|
|
Operating
income
|
|
|
9,701
|
|
|
6,939
|
|
|
16,640
|
|
Capital,
license, trademark and other intangible expenditures
|
|
|
1,798
|
|
|
250
|
|
|
2,048
|
|
Depreciation
and amortization
|
|
|
2,280
|
|
|
1,187
|
|
|
3,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
|
|
|
|
|
|
|
|
August
31, 2005
|
|
|
Care
|
|
|
Housewares
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
100,861
|
|
$
|
29,528
|
|
$
|
130,389
|
|
Operating
income
|
|
|
6,441
|
|
|
7,689
|
|
|
14,130
|
|
Capital,
license, trademark and other intangible expenditures
|
|
|
4,987
|
|
|
447
|
|
|
5,434
|
|
Depreciation
and amortization
|
|
|
2,103
|
|
|
789
|
|
|
2,892
|
|
SIX
MONTHS ENDED AUGUST 31, 2006 AND 2005
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
|
|
|
|
|
|
August
31, 2006
|
|
Care
|
|
Housewares
|
|
Total
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
216,300
|
|
$
|
61,313
|
|
$
|
277,613
|
|
Operating
income
|
|
|
15,893
|
|
|
11,663
|
|
|
27,556
|
|
Capital,
license, trademark and other intangible expenditures
|
|
|
2,980
|
|
|
768
|
|
|
3,748
|
|
Depreciation
and amortization
|
|
|
4,899
|
|
|
2,448
|
|
|
7,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
|
|
|
|
|
|
|
|
August
31, 2005
|
|
|
Care
|
|
|
Housewares
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
201,377
|
|
$
|
56,404
|
|
$
|
257,781
|
|
Operating
income
|
|
|
14,351
|
|
|
15,077
|
|
|
29,428
|
|
Capital,
license, trademark and other intangible expenditures
|
|
|
8,317
|
|
|
873
|
|
|
9,190
|
|
Depreciation
and amortization
|
|
|
4,065
|
|
|
1,553
|
|
|
5,618
|
|
The
following tables contain net assets allocable to each segment for the periods
covered by our consolidated condensed balance sheets:
IDENTIFIABLE
NET ASSETS AT AUGUST 31, 2006 AND FEBRUARY 28,
2006
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
|
|
|
|
|
|
|
|
Care
|
|
Housewares
|
|
Total
|
|
|
|
|
|
|
|
|
|
August
31, 2006
|
|
$
|
547,972
|
|
$
|
345,245
|
|
$
|
893,217
|
|
February
28, 2006
|
|
|
512,594
|
|
|
345,150
|
|
|
857,744
|
|
Note
6 - Property
and Equipment
A
summary
of property and equipment is as follows:
PROPERTY
AND EQUIPMENT
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
Useful
Lives
|
|
August
31,
|
|
February
28,
|
|
|
|
(Years)
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
-
|
|
$
|
9,537
|
|
$
|
9,623
|
|
Building
and improvements
|
|
|
10
- 40
|
|
|
63,281
|
|
|
62,374
|
|
Computer
and other equipment
|
|
|
3
- 10
|
|
|
40,023
|
|
|
37,601
|
|
Molds
and tooling
|
|
|
1
- 3
|
|
|
5,890
|
|
|
4,907
|
|
Transportation
equipment
|
|
|
3
- 5
|
|
|
3,902
|
|
|
3,875
|
|
Furniture
and fixtures
|
|
|
5
- 15
|
|
|
7,900
|
|
|
7,865
|
|
Construction
in process
|
|
|
-
|
|
|
313
|
|
|
457
|
|
Information
system under development
|
|
|
-
|
|
|
-
|
|
|
1,040
|
|
|
|
|
|
|
|
130,846
|
|
|
127,742
|
|
Less
accumulated depreciation
|
|
|
|
|
|
(32,007
|
)
|
|
(27,039
|
)
|
Property
and equipment, net
|
|
|
|
|
$
|
98,839
|
|
$
|
100,703
|
|
On
May
31, 2006, we sold 3.9 acres of raw land adjacent to our El Paso, Texas office
and distribution center. The land was sold for $666 and we recorded a gain
on
the sale of $422.
On
July
7, 2006, we acquired a 3,600 square foot office facility in Mexico City for
approximately $830. To date we have advanced approximately $89 to remodel and
furnish this and other facilities and expect to incur approximately $111 of
additional capital expenditures to complete the remodeling and furnishing of
facilities.
We
recorded depreciation of $2,540 and $4,968 for the three-month and six-month
periods ended August 31, 2006, respectively, and $1,661and $3,265 for the
three-month and six-month periods ended August 31, 2005, respectively.
Note
7 - Intangible
Assets
In
accordance with Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142"), we do not record amortization expense
on goodwill or other intangible assets that have indefinite useful lives.
Amortization expense is recorded for intangible assets with definite useful
lives. SFAS 142 also requires at least an annual impairment review of goodwill
and other intangible assets. Any asset deemed to be impaired is to be written
down to its fair value. We completed our annual impairment test during the
first
quarter of fiscal 2007 as required by SFAS 142, and have determined that none
of
our goodwill or other intangible assets were impaired at that time.
The
following table discloses information regarding the carrying amounts and
associated accumulated amortization for all intangible assets and indicates
the
operating segments to which they belong:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
31, 2006
|
|
February
28, 2006
|
|
|
|
|
|
|
|
Gross
|
|
Accumulated
|
|
Net
|
|
Gross
|
|
Accumulated
|
|
Net
|
|
|
|
|
|
Estimated
|
|
Carrying
|
|
Amortization
|
|
Carrying
|
|
Carrying
|
|
Amortization
|
|
Carrying
|
|
Type
/ Description
|
|
Segment
|
|
Life
|
|
Amount
|
|
(if
Applicable)
|
|
Amount
|
|
Amount
|
|
(if
Applicable)
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OXO
|
|
|
Housewares
|
|
|
Indefinite
|
|
$
|
165,934
|
|
$
|
-
|
|
$
|
165,934
|
|
$
|
165,934
|
|
$
|
-
|
|
$
|
165,934
|
|
All
other goodwill
|
|
|
Personal
Care
|
|
|
Indefinite
|
|
|
35,069
|
|
|
-
|
|
|
35,069
|
|
|
35,069
|
|
|
-
|
|
|
35,069
|
|
|
|
|
|
|
|
|
|
|
201,003
|
|
|
-
|
|
|
201,003
|
|
|
201,003
|
|
|
-
|
|
|
201,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OXO
|
|
|
Housewares
|
|
|
Indefinite
|
|
|
75,200
|
|
|
-
|
|
|
75,200
|
|
|
75,200
|
|
|
-
|
|
|
75,200
|
|
Brut
|
|
|
Personal
Care
|
|
|
Indefinite
|
|
|
51,317
|
|
|
-
|
|
|
51,317
|
|
|
51,317
|
|
|
-
|
|
|
51,317
|
|
All
other - definite lives
|
|
|
Personal
Care
|
|
|
[1]
|
|
338
|
|
|
(228
|
)
|
|
110
|
|
|
338
|
|
|
(225
|
)
|
|
113
|
|
All
other - indefinite lives
|
|
|
Personal
Care
|
|
|
Indefinite
|
|
|
31,081
|
|
|
-
|
|
|
31,081
|
|
|
31,081
|
|
|
-
|
|
|
31,081
|
|
|
|
|
|
|
|
|
|
|
157,936
|
|
|
(228
|
)
|
|
157,708
|
|
|
157,936
|
|
|
(225
|
)
|
|
157,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seabreeze
|
|
|
Personal
Care
|
|
|
Indefinite
|
|
|
18,000
|
|
|
-
|
|
|
18,000
|
|
|
18,000
|
|
|
-
|
|
|
18,000
|
|
All
other licenses
|
|
|
Personal
Care
|
|
|
8
- 25 Years
|
|
|
24,315
|
|
|
(15,233
|
)
|
|
9,082
|
|
|
24,315
|
|
|
(14,514
|
)
|
|
9,801
|
|
|
|
|
|
|
|
|
|
|
42,315
|
|
|
(15,233
|
)
|
|
27,082
|
|
|
42,315
|
|
|
(14,514
|
)
|
|
27,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents,
customer lists and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
non-compete
agreements
|
Housewares
|
|
|
2
- 13 Years
|
|
|
18,979
|
|
|
(3,878
|
)
|
|
15,101
|
|
|
18,801
|
|
|
(3,044
|
)
|
|
15,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
420,233
|
|
$
|
(19,339
|
)
|
$
|
400,894
|
|
$
|
420,055
|
|
$
|
(17,783
|
)
|
$
|
402,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[1]
Includes one fully amortized trademark and one trademark with an
estimated
life of 30 years
|
The
following table summarizes the amortization expense attributable to intangible
assets for the three-month and six-month periods ending August 31, 2006 and
2005, as well as our latest estimate of amortization expense for the fiscal
years ending the last day of February 2007 through 2012.
AMORTIZATION
OF INTANGIBLES
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Aggregate
Amortization Expense
|
|
|
|
For
the three months ended
|
|
|
|
|
|
|
|
August
31, 2006
|
|
$
|
741
|
|
August
31, 2005
|
|
$
|
791
|
|
|
|
|
|
|
Aggregate
Amortization Expense
|
|
|
|
|
For
the six months ended
|
|
|
|
|
|
|
|
|
|
August
31, 2006
|
|
$
|
1,556
|
|
August
31, 2005
|
|
$
|
1,580
|
|
|
|
|
|
|
Estimated
Amortization Expense
|
|
|
|
|
For
the fiscal years ended
|
|
|
|
|
|
|
|
|
|
February
2007
|
|
$
|
3,046
|
|
February
2008
|
|
$
|
2,922
|
|
February
2009
|
|
$
|
2,673
|
|
February
2010
|
|
$
|
2,628
|
|
February
2011
|
|
$
|
2,155
|
|
February
2012
|
|
$
|
2,049
|
|
Note
8 - Short
Term Debt
On
June
1, 2004, we entered into a five year $75,000 Credit Agreement (“Revolving Line
of Credit Agreement”), with Bank of America, N.A. and other lenders. Borrowings
under the Revolving Line of Credit Agreement accrue interest equal to the higher
of the Federal Funds Rate plus 0.50 percent or Bank of America's prime rate.
Alternatively, upon timely election by the Company, borrowings accrue interest
based on the respective 1, 2, 3, or 6-month LIBOR rate plus a margin of 0.75
percent to 1.25 percent based upon the "Leverage Ratio" at the time of the
borrowing. The "Leverage Ratio" is defined by the Revolving Line of Credit
Agreement as the ratio of total consolidated indebtedness, including the subject
funding on such date, to consolidated EBITDA ("Earnings Before Interest, Taxes,
Depreciation and Amortization") for the period of the four consecutive fiscal
quarters most recently ended.
The
credit line allows for the issuance of letters of credit up to $10,000.
Outstanding letters of credit reduce the $75,000 borrowing limit dollar for
dollar. There
were
no outstanding borrowings or associated interest expense during the fiscal
three-month and six-month periods ended August 31, 2006. As of August 31, 2006,
there was a $616 open letter of credit outstanding against this
facility.
The
Revolving Line of Credit Agreement requires the maintenance of certain
Debt/EBITDA, fixed charge coverage ratios, and other customary covenants.
Certain covenants, as of the latest balance sheet date, effectively limited
our
ability to incur no more than $30,204 of additional debt from all sources,
including draws on our Revolving Line of Credit. The agreement is guaranteed,
on
a joint and several basis, by the parent company, Helen of Troy Limited, and
certain U.S. subsidiaries. Any amounts outstanding under the Revolving Line
of
Credit Agreement will mature on June 1, 2009. As of August 31, 2006, we were
in
compliance with the terms of this agreement.
Note
9 - Accrued
Expenses
A
summary
of
accrued expenses was as follows:
ACCRUED
EXPENSES
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
31,
|
|
February
28,
|
|
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
Accrued
sales returns, discounts and allowances
|
|
$
|
25,449
|
|
$
|
24,176
|
|
Accrued
compensation
|
|
|
3,984
|
|
|
7,603
|
|
Accrued
advertising
|
|
|
7,242
|
|
|
7,617
|
|
Accrued
interest
|
|
|
3,224
|
|
|
2,671
|
|
Accrued
royalties
|
|
|
2,064
|
|
|
2,577
|
|
Accrued
professional fees
|
|
|
1,397
|
|
|
1,502
|
|
Accrued
benefits and payroll taxes
|
|
|
1,657
|
|
|
1,495
|
|
Accrued
freight
|
|
|
1,671
|
|
|
858
|
|
Accrued
property, sales and other taxes
|
|
|
1,174
|
|
|
593
|
|
Foreign
currency forward contracts
|
|
|
899
|
|
|
-
|
|
Other
|
|
|
6,058
|
|
|
5,053
|
|
Total
Accrued Expenses
|
|
$
|
54,819
|
|
$
|
54,145
|
|
Note
10 - Product
Warranties
The
Company's products are under warranty against defects in material and
workmanship for a maximum of two years. We have established accruals to cover
future warranty costs of approximately $6,148 and $7,373 as of August 31, 2006
and February 28, 2006, respectively. We estimate our warranty accrual using
historical trends. We believe that these trends are the most reliable method
by
which we can estimate our warranty liability.
The
following table summarizes the activity in the
Company's accrual for the three-month and six-month periods ended August 31,
2006 and fiscal year ended February 28, 2006:
ACCRUAL
FOR WARRANTY RETURNS
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
28,
|
|
|
|
August
31, 2006
|
|
2006
|
|
|
|
(Three
Months)
|
|
(Six
Months)
|
|
(Year)
|
|
|
|
|
|
|
|
|
|
Balance
at the beginning of the period
|
|
$
|
6,571
|
|
$
|
7,373
|
|
$
|
5,767
|
|
Additions
to the accrual
|
|
|
3,510
|
|
|
8,481
|
|
|
22,901
|
|
Reductions
of the accrual - payments and credits issued
|
|
|
(3,933
|
)
|
|
(9,706
|
)
|
|
(21,295
|
)
|
Balance
at the end of the period
|
|
$
|
6,148
|
|
$
|
6,148
|
|
$
|
7,373
|
|
Note
11 - Income
Taxes
Hong
Kong Income Taxes
- On May
10, 2006, the Inland Revenue Department (the “IRD”) and the Company reached a
settlement regarding tax liabilities for the fiscal years 1995 through 1997.
This agreement was subsequently approved by the IRD’s Board of Review. For those
tax years, we agreed to an assessment of approximately $4,019 including
estimated penalties and interest. Our consolidated financial statements at
May
31, 2006 and February 28, 2006 include adequate provisions for this liability.
As a result of this tax settlement, in the first quarter of fiscal 2007, we
reversed $192 of tax provision previously established and recorded $279 of
associated interest. During the fiscal quarter just ended, the liability was
paid with $3,282 of tax reserve certificates and the balance in
cash.
For
the
fiscal years 1998 through 2003, the IRD has assessed a total of $25,461 (U.S.)
in tax on certain profits of our foreign subsidiaries. Hong Kong levies taxes
on
income earned from certain activities previously conducted in Hong Kong.
Negotiations with the IRD regarding these issues are ongoing, and it is unclear
at this time when they will be resolved.
In
connection with the IRD's tax assessment for the fiscal years 1998 through
2003,
we have purchased tax reserve certificates in Hong Kong totaling $25,144. Tax
reserve certificates represent the prepayment by a taxpayer of potential tax
liabilities. The amounts paid for tax reserve certificates are refundable in
the
event that the value of the tax reserve certificates exceeds the related tax
liability. These certificates are denominated in Hong Kong dollars and are
subject to the risks associated with foreign currency fluctuations.
If
the
IRD were to successfully assert the same position for fiscal years after fiscal
year 2003, the resulting assessment could total $18,673 (U.S.) in taxes for
fiscal years 2004 and 2005. We would vigorously disagree with any such proposed
adjustments and would aggressively contest this matter through the applicable
taxing authority and judicial process, as appropriate.
Although
the final resolution of the proposed adjustments is uncertain and involves
unsettled areas of the law, based on currently available information, we have
provided for our best estimate of the probable tax liability for this matter.
While the resolution of the issue may result in tax liabilities that are
significantly higher or lower than the reserves established for this matter,
management currently believes that the resolution will not have a material
effect on our consolidated financial position or liquidity. However, an
unfavorable resolution could have a material effect on our consolidated results
of operations or cash flows in the quarter in which an adjustment is recorded
or
the tax is due or paid.
Effective
March 2005, we had concluded the conduct of all operating activities in Hong
Kong that we believe were the basis of the IRD’s assessments. In the third
quarter of fiscal 2005, the Company established a Macao offshore company (“MOC”)
and began operating from Macao. As a MOC, we have been granted an indefinite
tax
holiday and currently pay no taxes. Accordingly, no additional accruals for
Hong
Kong contingent tax liabilities beyond fiscal 2005 have been provided.
United
States Income Taxes
- The
Internal Revenue Service (the “IRS”) has completed its audits of the U.S.
consolidated federal tax returns for fiscal years 2000, 2001 and 2002. We
previously disclosed that the IRS provided notice of proposed adjustments to
taxes of $13,424 for the three years under audit. We have resolved the various
tax issues and reached an agreement on additional tax in the amount of $3,568.
The resulting tax liability had already been provided for in our tax reserves
and prior to the current fiscal year we had decreased our tax accruals related
to the IRS audits for fiscal years 2000, 2001 and 2002, accordingly. This
additional tax liability and associated interest of $914 were settled in the
fourth quarter of fiscal 2006.
The
IRS
is auditing the U.S. consolidated federal tax returns for fiscal years 2003
and
2004 and has provided notice of proposed adjustments of $5,953 to taxes for
the
years under audit. The Company is vigorously contesting these adjustments.
Although the ultimate outcome of the examination cannot be predicted with
certainty, management is of the opinion that adequate provisions for taxes
in
those years have been made in the Company’s consolidated condensed financial
statements.
Repatriation
of Foreign Earnings
- On
February 22, 2006, the Board of Directors of a subsidiary of the Company
approved the repatriation, pursuant to The American Jobs Creation Act of 2004
(the “AJCA”), of $48,554 in foreign earnings. As a result, we incurred a
one-time tax charge of $2,792 in the fourth fiscal quarter ending February
28,
2006.
Income
Tax Provisions
- We
must make certain estimates and judgments in determining income tax expense
for
financial statement purposes. These estimates and judgments must be used in
the
calculation of certain tax
assets
and liabilities because of differences in the timing of recognition of revenue
and expense for tax and financial statement purposes. We must assess the
likelihood that we will be able to recover our deferred tax assets. If recovery
is not likely, we must increase our provision for taxes by recording a valuation
allowance against the deferred tax assets that we estimate will not ultimately
be recoverable. As changes occur in our assessments regarding our ability to
recover our deferred tax assets, our tax provision is increased in any period
in
which we determine that the recovery is not probable.
In
1994,
we engaged in a corporate restructuring that, among other things, resulted
in a
greater portion of our income not being subject to taxation in the United
States. If such income were subject to U.S. federal income taxes, our effective
income tax rate would increase materially. The AJCA included an anti-inversion
provision that denies certain tax benefits to companies that have reincorporated
outside the United States after March 4, 2003. We completed our reincorporation
in 1994; therefore, our inverted corporate structure is grandfathered by the
AJCA.
In
addition to future changes in tax laws, our position on various tax matters
may
be challenged. Our ability to maintain our position that the parent company
is
not a Controlled Foreign Corporation (as defined under the U.S. Internal Revenue
Code) is critical to the tax treatment of our non-U.S. earnings. A Controlled
Foreign Corporation is a non-U.S. corporation whose largest U.S. shareholders
(i.e., those owning 10 percent or more of its shares) together own more than
50
percent of the shares in such corporation. If a change of ownership were to
occur such that the parent company became a Controlled Foreign Corporation,
such
a change could have a material negative effect on the largest U.S. shareholders
and, in turn, on our business.
The
calculation of our tax liabilities involves dealing with uncertainties in the
application of other complex tax regulations. We recognize liabilities for
anticipated tax audit issues in the United States and other tax jurisdictions
based on our estimate of whether, and the extent to which, additional taxes
will
be due. If we ultimately determine that payment of these amounts are not
probable, we reverse the liability and recognize a tax benefit during the period
in which we determine that the liability is no longer probable. We record an
additional charge in our provision for taxes in the period in which we determine
that the recorded tax liability is less than we expect the ultimate assessment
to be.
Note
12 - Long
Term-Debt
A
summary
of long-term debt was as follows:
LONG-TERM
DEBT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range
of Interest Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original
|
|
Ended
|
|
|
|
Latest
|
|
|
|
|
|
|
|
|
|
Date
|
|
August
31,
|
|
Fiscal
|
|
Rate
|
|
|
|
August
31,
|
|
February
28,
|
|
|
|
Borrowed
|
|
2006
|
|
2006
|
|
Payable
|
|
Matures
|
|
2006
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$40,000
unsecured Senior Note Payable at a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fixed
interest rate of 7.01%. Interest payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
quarterly,
principal of $10,000 payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
annually
beginning on January 2005.
|
01/96
|
|
|
7.01
|
%
|
|
7.01
|
%
|
|
7.01
|
%
|
|
01/08
|
|
$
|
20,000
|
|
$
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$15,000
unsecured Senior Note Payable at a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fixed
interest rate of 7.24%. Interest payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
quarterly,
principal of $3,000 payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
annually
beginning on July 2008.
|
07/97
|
|
|
7.24
|
%
|
|
7.24
|
%
|
|
7.24
|
%
|
|
07/12
|
|
|
15,000
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$100,000
unsecured floating interest rate 5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Senior Notes. Interest set and payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
quarterly
at three-month LIBOR plus 85 basis
|
|
|
5.81
|
%
|
|
3.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
points.
Principal is due at maturity. Notes
|
|
|
to
|
|
|
to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
can
be prepaid without penalty.
|
06/04
|
|
|
6.35
|
%
|
|
5.371
|
%
|
|
5.89
|
%
|
|
06/09
|
|
|
100,000
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$50,000
unsecured floating interest rate 7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Senior Notes. Interest set and payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
quarterly
at three-month LIBOR plus 85 basis
|
|
|
5.81
|
%
|
|
3.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
points.
Principal is due at maturity. Notes can
|
|
|
to
|
|
|
to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
be
prepaid without penalty.
|
06/04
|
|
|
6.35
|
%
|
|
5.371
|
%
|
|
5.89
|
%
|
|
06/11
|
|
|
50,000
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$75,000
unsecured floating interest rate 10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Senior Notes. Interest set and payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
quarterly
at three-month LIBOR plus 90 basis
|
|
|
5.86
|
%
|
|
3.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
points.
Principal is due at maturity. Notes can
|
|
|
to
|
|
|
to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
be
prepaid without penalty.
|
06/04
|
|
|
6.40
|
%
|
|
5.421
|
%
|
|
6.01
|
%
|
|
06/14
|
|
|
75,000
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$12,634
unsecured Industrial Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Bond. Interest is set and payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
quarterly
at Company's election at either Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
prime
or applicable LIBOR plus 75 to 125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basis
points as determined by loan agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
formula.
Principal converted to five-year
|
|
|
|
|
|
5.295
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
bonds
in May 2006, balance due
|
|
|
|
|
|
to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May,
2011.
|
08/05
|
|
|
6.12
|
%
|
|
5.42
|
%
|
|
6.65
|
%
|
|
05/11
|
|
|
12,634
|
|
|
4,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
272,634
|
|
|
264,974
|
|
Less
current portion of long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,974
|
)
|
|
(10,000
|
)
|
Long-term
debt, less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
257,660
|
|
$
|
254,974
|
|
Included
in interest expense are amortized financing costs of $185 and $374 for the
three-month
and six-month periods ended August 31, 2006, respectively, and $203 and $401
for
the three-month and six-month periods ended August 31, 2005, respectively.
All
of
our long-term debt is guaranteed by either the parent company, Helen of Troy
Limited, and/or certain subsidiaries on a joint and several basis and has
customary covenants covering Debt/EBITDA ratios, fixed charge coverage ratios,
consolidated net worth levels, and other financial requirements. Certain
covenants as of the latest balance sheet date, effectively limited our ability
to incur no more than $30,204 of additional debt from all sources, including
draws on our Revolving Line of Credit. Additionally, our debt agreements
restrict us from incurring liens on any of our properties, except under certain
conditions. As
of
August 31, 2006, we are in compliance with all the terms of these
agreements.
During
the fiscal quarter ended August 31, 2006, management evaluated the impact
of
prepaying some or all of its recently issued Industrial Development Revenue
Bond
(“the bond”). On September 15, 2006, the Company prepaid without penalty $4,974
of the bond and agreed with its holder that the remaining balance would be
due
at maturity in May 2011. Management continues to be able, at its discretion,
to
prepay any or all of the remaining balance due on the bond without penalty.
Accordingly, the Company reclassified $4,974 of the bond as current at August
31, 2006 and the remaining balance as due at maturity.
On
September 28, 2006, the Company entered into interest rate hedge agreements
in
conjunction with its outstanding unsecured floating interest rate $100,000,
5
Year; $50,000, 7 Year; and $75,000 10 Year Senior Notes (the “September 2006
Swaps”). The interest rate swaps are a hedge of the variable LIBOR rates used to
reset the floating rates on the Senior Notes. The September 2006 Swaps
effectively fix the interest rates on the 5, 7 and 10 Year Senior Notes at
5.89,
5.89 and 6.01 percent, respectively, beginning September 29, 2006. These swaps
settle quarterly and terminate upon maturity of the related debt. These swaps
are considered cash flow hedges under SFAS No. 133 because they are intended
to
hedge, and are effective as a hedge, against variable cash flows.
Note
13 - Contractual
Obligations
Our
contractual obligations and commercial commitments, as of August 31, 2006 were:
PAYMENTS
DUE BY PERIOD - TWELVE MONTHS ENDED AUGUST 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
After
|
|
|
|
Total
|
|
1
year
|
|
2
years
|
|
3
years
|
|
4
years
|
|
5
years
|
|
5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term
debt - floating rate
|
|
$
|
237,634
|
|
$
|
4,974
|
|
$
|
-
|
|
$
|
100,000
|
|
$
|
-
|
|
$
|
57,660
|
|
$
|
75,000
|
|
Term
debt - fixed rate
|
|
|
35,000
|
|
|
10,000
|
|
|
13,000
|
|
|
3,000
|
|
|
3,000
|
|
|
3,000
|
|
|
3,000
|
|
Long-term
incentive plan payouts
|
|
|
2,619
|
|
|
1,498
|
|
|
1,121
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Unrecorded
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on floating rate debt *
|
|
|
69,592
|
|
|
13,826
|
|
|
13,813
|
|
|
13,323
|
|
|
7,923
|
|
|
7,560
|
|
|
13,147
|
|
Interest
on fixed rate debt
|
|
|
5,493
|
|
|
2,079
|
|
|
1,351
|
|
|
842
|
|
|
624
|
|
|
407
|
|
|
190
|
|
Open
purchase orders
|
|
|
65,975
|
|
|
65,975
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Minimum
royalty payments
|
|
|
59,091
|
|
|
2,380
|
|
|
2,501
|
|
|
2,417
|
|
|
5,967
|
|
|
6,208
|
|
|
39,618
|
|
Advertising
and promotional
|
|
|
25,499
|
|
|
11,863
|
|
|
7,075
|
|
|
3,141
|
|
|
1,420
|
|
|
800
|
|
|
1,200
|
|
Operating
leases
|
|
|
3,709
|
|
|
2,443
|
|
|
753
|
|
|
340
|
|
|
173
|
|
|
-
|
|
|
-
|
|
Capital
spending commitments
|
|
|
1,611
|
|
|
1,611
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Open
letters of credit pending settlement
|
|
|
616
|
|
|
616
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Other
|
|
|
569
|
|
|
414
|
|
|
155
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
contractual obligations
|
|
$
|
507,408
|
|
$
|
117,679
|
|
$
|
39,769
|
|
$
|
123,063
|
|
$
|
19,107
|
|
$
|
75,635
|
|
$
|
132,155
|
|
*
The
future obligation for interest on our variable rate debt has normally been
estimated assuming the rates in effect as of the end of the latest fiscal
quarter on which we are reporting. As mentioned above in Note 12, on On
September 28, 2006, the Company entered into interest rate hedge agreements
in
conjunction with its outstanding unsecured floating interest rate $100,000,
5
Year; $50,000, 7 Year; and $75,000 10 Year Senior Notes (the “September 2006
Swaps”). The interest rate swaps are a hedge of the variable LIBOR rates used to
reset the floating rates on the Senior Notes. The September 2006 Swaps
effectively fix the interest rates on the 5, 7 and 10 Year Senior Notes at
5.89,
5.89 and 6.01 percent, respectively, beginning September 29, 2006. Accordingly,
the future interest obligations related to this debt has been estimated using
these rates. We also have an unsecured Industrial Development Revenue Bond,
whose rate is subject to periodic adjustment. The bond’s interest rate has not
been hedged. Accordingly, we estimated our future obligation for interest on
it
using the rates in effect as of August 31, 2006. This is only an estimate,
actual rates on the bond may vary over time. For instance, taking into account
that $4,974 of the bond was prepaid on September 15, 2006; a 1 percent increase
in interest rates could add approximately $77 per year to floating rate interest
expense over the bond’s remaining maturity.
We
lease
certain facilities, equipment and vehicles under operating leases, which
expire
at various dates through fiscal 2011. Certain of the leases contain escalation
clauses and renewal or purchase options.
On
February 2, 2006, we sold a 619,000 square foot distribution facility in
Southaven, Mississippi for $16,850 recording a gain on the sale of $1,304.
We
entered into an initial lease agreement with the new owners through April
2006
calling for monthly rentals of $141 per month including insurance and property
tax payments.
In
the
first quarter of fiscal 2007, we obtained an extension on the lease of our
formerly owned distribution facility. As a result we will now be making monthly
lease payments of $175 including insurance and property tax payments through
the
end of the new lease term, which expires on February 28, 2007. The distribution
facility is primarily used for appliances inventory, which we are in the process
of moving from this facility to our new 1,200,000 square foot distribution
facility, also located in Southaven. This extension of the agreement was made
in
order to provide us additional flexibility in the timing of the transition
of
our remaining operations between facilities.
Capital
spending commitments include $111 for remodeling
and furnishing office facilities and approximately $1,500 for additional
warehouse racking and forklifts, which will allow us to improve space
utilization in our new Southaven, Mississippi distribution
facility.
Rent
expense related to our operating leases was $1,169 and $2,242 for the
three-month
and six-month periods ended August 31, 2006, respectively, and $591 and $1,224
for the three-month and six-month periods ended August 31, 2005, respectively.
Note
14 - Forward
Contracts
Our
functional currency is the U.S. Dollar. By operating internationally, we are
subject to foreign currency risk from transactions denominated in currencies
other than the U.S. Dollar ("foreign currencies"). Such transactions include
sales, certain inventory purchases and operating expenses. As a result of such
transactions, portions of our cash, trade accounts receivable, and trade
accounts payable are denominated in foreign currencies. During the three-month
and six-month periods ended August 31, 2006, we transacted approximately 14
percent of our net sales in foreign currencies. During the three-month and
six-month periods ended August 31, 2005, we transacted approximately 13 percent
of our net sales in foreign currencies. These sales were primarily denominated
in the British Pound, the Euro, the Canadian Dollar, the Brazilian Real and
the
Mexican Peso. We make most of our inventory purchases from the Far East and
use
the U.S. Dollar for such purchases.
We
identify foreign currency risk by regularly monitoring our foreign
currency-denominated transactions and balances. Where operating conditions
permit, we reduce foreign currency risk by purchasing most of our inventory
with
U.S. Dollars and by converting cash balances denominated in foreign currencies
to U.S. Dollars.
We
also
hedge against foreign currency exchange rate-risk by using a series of forward
contracts designated as cash flow hedges to protect against the foreign currency
exchange risk inherent in our forecasted transactions denominated in currencies
other than the U.S. Dollar. In these transactions, we execute a forward currency
contract that will settle at the end of a forecasted period. During the
forecasted period, a hedging relationship is created because the size and terms
of the forward contract are designed so that its fair market value will move
in
the opposite direction and approximate magnitude of the underlying foreign
currency’s forecasted exchange gain or loss. To the extent we forecast the
expected foreign currency cash flows from the period the forward contract is
entered into until the date it will settle with reasonable accuracy, we
significantly
lower
or
materially eliminate a particular currency’s exchange risk exposure over the
life of the related forward contract.
For
transactions designated as cash flow hedges, the effective portion of the change
in the fair value (arising from the change in the spot rates from period to
period) is deferred in other comprehensive income. These amounts are
subsequently recognized in "Selling, general, and administrative expense" in
the
consolidated condensed statements of income in the same period as the forecasted
transactions close out over the remaining balance of their terms. The
ineffective portion of the change in fair value (arising from the change in
the
difference between the spot rate and the forward rate) is recognized in the
period it occurred. These amounts are also recognized in "Selling, general,
and
administrative expense" in the consolidated condensed statements of income.
We
do not enter into any forward exchange contracts or similar instruments for
trading or other speculative purposes.
The
following table summarizes the various forward contracts we designated as
cash
flow hedges that were open at August 31, 2006 and February 28,
2006:
CASH
FLOW HEDGES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
31, 2006
|
|
Contract
|
|
Currency
to
|
|
Notional
|
|
Contract
|
|
Range
of Maturities
|
|
Spot
Rate at Contract
|
|
Spot
Rate at
August
31,
|
|
Weighted
Average
Forward
Rate
at
|
|
Weighted
Average
Forward
Rate
at
August
31,
|
|
Market
Value
of
the
Contract
in
U.S. Dollars
|
|
Type
|
|
Deliver
|
|
Amount
|
|
Date
|
|
From
|
|
To
|
|
Date
|
|
2006
|
|
Inception
|
|
2006
|
|
(Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sell
|
|
|
Pounds
|
|
|
£10,000,000
|
|
|
1/26/2005
|
|
|
12/11/2006
|
|
|
2/9/2007
|
|
|
1.8700
|
|
|
1.9047
|
|
|
1.8228
|
|
|
1.9059
|
|
|
($831
|
)
|
Sell
|
|
|
Pounds
|
|
|
£10,000,000
|
|
|
5/12/2006
|
|
|
12/14/2007
|
|
|
2/14/2008
|
|
|
1.8940
|
|
|
1.9047
|
|
|
1.9010
|
|
|
1.9079
|
|
|
($69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($899
|
)
|
|
|
February
28, 2006
|
|
Contract
|
|
|
Currency
to
|
|
|
Notional
|
|
|
Contract
|
|
|
Range
of Maturities
|
|
|
Spot
Rate at Contract
|
|
|
Spot
Rate
at
Feb.
28,
|
|
|
Weighted
Average
Forward
Rate
at
|
|
|
Weighted
Average
Forward
Rate
at
Feb. 28,
|
|
|
Market
Value
of
the
Contract
in
U.S. Dollars
|
|
Type
|
|
|
Deliver
|
|
|
Amount
|
|
|
Date
|
|
|
From
|
|
|
To
|
|
|
Date
|
|
|
2006
|
|
|
Inception
|
|
|
2006
|
|
|
(Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sell
|
|
|
Pounds
|
|
|
£10,000,000
|
|
|
1/26/2005
|
|
|
12/11/2006
|
|
|
2/9/2007
|
|
|
1.8700
|
|
|
1.7540
|
|
|
1.8228
|
|
|
1.7644
|
|
$
|
584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
15 - Repurchase
of Helen of Troy Shares
During
the quarter ended August 31, 2003, our Board of Directors approved a resolution
authorizing the purchase, in open market or through private transactions, of
up
to 3,000,000 common shares over an initial period extending through May 31,
2006. On April 25, 2006 our Board of Directors approved a resolution to extend
the existing plan for three more years through May 31, 2009. During the fiscal
quarters ended August 31, 2006 and 2005, respectively, we did not repurchase
any
common shares. From September 1, 2003 through August 31, 2006, we have
repurchased 1,563,836 shares at a total cost of $45,612, or an average price
per
share of $29.17. An additional 1,436,164 shares remain authorized for purchase
under this plan.
Note
16 - Customer
and Supplier Concentrations
Customers
- Sales
to our largest customer and its affiliate accounted for approximately 22 percent
and 25 percent of our net sales in fiscal 2006 and 2005, respectively. Sales
to
our second largest customer accounted for approximately 10 percent and 8 percent
of our net sales in fiscal 2006 and 2005, respectively. No other customers
accounted for ten percent or more of net sales during those fiscal years. Sales
to our top five customers accounted for approximately 46 percent and 44 percent
in fiscal 2006 and 2005, respectively.
Suppliers
- We use
third party manufacturers to fulfill our manufacturing needs. Most of these
manufacturers are in
the
Far
East,
primarily in the Peoples' Republic of China. Most of our grooming, skin care
and
hair care products are currently manufactured in North America.
We
have
found that contract manufacturing maximizes our flexibility and responsiveness
to industry and consumer trends while minimizing the need for capital
expenditures and the risk embedded in such expenditures. Manufacturers
who produce our products use formulas, molds, and certain other tooling, some
of
which we own, in manufacturing those products. Both our business segments employ
numerous technical and quality control persons to assure high product quality.
We
have
relationships with over 200 third-party manufacturers. Of those, the top two
manufactures currently fulfill approximately 25 percent of our product
requirements. Our top five suppliers currently fulfill approximately 42 percent
of our product requirements.
We
do not
have long-term contracts with our manufacturers. We rely on our longstanding
relationships with these suppliers to assure adequate sources of supply.
Should
one or more of our manufacturers stop producing product on our behalf, it
could
have a material adverse effect on our business, financial condition, and
results
from operations.
ITEM
2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
This
discussion contains a number of forward-looking statements, all of which are
based on current expectations. Actual results may differ materially due to
a
number of factors, including those discussed in the section entitled Item 3.
"Quantitative and Qualitative Disclosures about Market Risk", "Information
Regarding Forward Looking Statements", Part II, Item 1A, “Risk Factors” and in
the Company's most recent report on Form 10-K. This discussion should be read
in
conjunction with our consolidated condensed financial statements included under
Part I, Item 1 of this Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 2006.
OVERVIEW
OF THE QUARTER'S AND YEAR-TO-DATE ACTIVITIES:
The
second fiscal quarter’s net sales traditionally average approximately 23 percent
of the fiscal year's total net sales on a historical basis. Our second fiscal
quarter is traditionally characterized by stable shipping levels from June
through the first half of July with increasing shipment levels beginning in
the
second half of July through August as we build towards a peak shipping season
in
the third quarter.
Our
focus
this quarter remained on our domestic distribution system. During the quarter,
we continued to refine and improve our abilities to operate our new 1,200,000
square foot Southaven, Mississippi distribution facility. After we complete
our
peak shipping season, we plan to move our Personal Care appliance inventory
to
the same facility in the fourth fiscal quarter. Our current intent is to have
the appliance move completed by the end of this fiscal year.
In
the
first fiscal quarter, we
obtained an extension on the lease of our formerly owned distribution facility,
which is currently used for our appliance inventory.
As a
result of the extension, the lease term expires February 28, 2007. This
extension of the agreement was made in order to provide us additional
flexibility in the timing of the transition of our remaining operations to
the
new facility to help ensure customer service levels. The need to operate out
of
two facilities is currently resulting in some duplication of costs. We do not
expect to achieve anticipated cost savings relating to our distribution facility
consolidation until early to the middle of fiscal 2008.
·
|
Consolidated
net sales for the fiscal quarter just ended increased 12.9 percent
to
$147,172 compared to $130,389 for the same period last year. Consolidated
net sales for the six month period ending August 31, 2006 increased
7.7%
to $277,613 compared to $257,781 for the same period last year. Both
the
quarter and year to date periods produced sales increases across
all
product lines, when compared to the same fiscal periods last year
except
for our domestic sales of grooming, skin care, and hair product lines.
Domestic sales of these lines were negatively impacted in the second
fiscal quarter by a combination of (i) slowing reorders from major
retail
and mass merchant chains in order to reduce their inventory in the
first
fiscal quarter; (ii) competitive promotional pricing and close-out
selling
throughout the first half of the fiscal year; and (iii) lower retail
point
of sale unit volumes in the second fiscal quarter.
|
|
|
·
|
Consolidated
gross profit margin for the fiscal quarter just ended decreased 0.9
percent to 45.3 percent compared to 46.2 percent for the same period
last
year. Consolidated gross profit margin for the six-month period ending
August 31, 2006 decreased 1.2 percent to 44.9 percent compared to
46.1
percent for the same period last year.
|
|
|
·
|
Selling,
general and administrative costs for the fiscal quarter just ended
decreased 1.3 percent to 34.0 percent compared to 35.3 percent for
the
same period last year. Selling, general and administrative expense
for the
the six-month period ending August 31, 2006 increased 0.3 percent
to 35.0
percent compared to 34.7 percent for the same period last year. The
improvement for the quarter is due to the impact of higher sales
volumes
on our cost structure, offset somewhat by percentage increases in
depreciation, advertising and higher facility related costs due to
the
operational transition of our domestic distribution system.
|
|
|
·
|
Our
financial position continues to strengthen when compared to our financial
position as of February 28, 2006 and August 31, 2005. Total assets
increased 2.3 percent, or $20,184, to $893,217 at August 31, 2006
when
compared with August 31, 2005. Total current and long-term debt
outstanding at August 31, 2006 was $272,634 compared to $311,000
outstanding at August 31, 2005. Total stockholders’ equity was $492,381 at
August 31, 2006 compared to $444,512 at August 31,
2005.
|
·
|
On
August 9, 2006, we extended our agreement to remain the title sponsor
of
the Sun Bowl for the December 2007, 2008, and 2009 games and changed
the
name to the Brut® Sun Bowl beginning with the December 2006 game. The
Brut® Sun Bowl is one of the nation’s longest-running invitational college
football games with a 73 year history. CBS sports has announced that
its
network will continue to televise the games nationally through
2009.
|
We
will
be transitioning Mexico and other Latin American operations to our global
information system later in fiscal 2007 and in fiscal 2008. In addition, our
Housewares segment recently opened selling offices in Japan and Great Britain,
and efforts to bring up appropriate software systems for these operations are
underway. Due to the complexities of these efforts, we expect to continue to
experience a period of significant change. While nothing has come to our
attention that would lead us to believe that we may experience related
operational issues, errors or misstatements of our financial results during
this
time-frame, we recognize that these continue to be challenging transitions
for
us and will require close monitoring to keep our documentation and application
of internal controls current.
While
we
believe we have taken appropriate measures to mitigate the recent shipment
disruptions arising from the transition of our Housewares segment, as discussed
above, we still have significant transitions to complete. While we believe
we
have the process and appropriate management in place to effectively manage
these
transitions and rapidly respond to mitigate any issues that may arise as a
result of the transition, there can be no assurance that additional disruptions
will not occur.
Personal
Care Segment
Net
sales
in the segment for the second fiscal quarter increased 10.0 percent to $110,976
compared with $100,861 for the same period last year. Net sales for the six
month period ending August 31, 2006 increased 7.4 percent to $216,300 compared
with $201,377 for the same period last year.
Two
of
our three major product lines: appliances and brushes, combs and accessories
showed increases in the second quarter when compared with the same period last
year. Our Grooming, Skin Care, and Hair lines showed overall declines for the
quarter and year-to-date when compared to the same periods last
year.
Domestically,
we operate in mature markets where we compete on product innovation, price,
quality and customer service. We continuously adjust our product mix, pricing
and marketing programs in order to maintain, and in some cases, acquire more
retail shelf space. Changes in product mix are generally allowing us to realize
higher average unit prices, which offset is some categories, unit volume
decreases. Over the last year, the prices of raw materials such as copper,
steel, plastics and alcohol have experienced significant increases and we
currently expect them to remain high for the foreseeable future. We largely
have
been able to avoid significant price increases to our customers due to raw
materials increases, or pass these on by moving customers to newer product
models with enhancements that we can charge higher prices for. We have and
may
continue to discuss the need to raise prices with our customers and have already
put certain increases into effect. The extent to which we will be able to
continue with price increases, the timing, and the ultimate impact of such
increases on net sales is uncertain. Accordingly we expect to experience margin
pressure in this segment throughout the balance of the year.
·
|
Appliances.
Products in this line include electronic curling irons, thermal brushes,
hair straighteners, hair crimpers, hair dryers, massagers, spa products,
foot baths, electric clippers and trimmers. Net sales for the three-
and
six-month periods ended August 31, 2006 increased approximately 9.9
percent and 6.5 percent, respectively, over the same periods in the
prior
year. We have succeeded in moving our business to higher unit prices
with
increased unit volumes. For the quarter and year-to-date, increases
in our
average unit selling price contributed approximately 5.9 and 4.1
percent,
respectively, to net sales growth while increases in our unit volumes
contributed approximately 4.0 and 2.4 percent, respectively to net
sales
growth. Revlon®, Vidal Sassoon®, Hot Tools®, Dr. Scholl's®, Wigo®,
Sunbeam®, and Health o Meter® were key selling brands in this
line.
|
|
|
|
In
March 2006, we secured the rights in certain European and Asian Markets
to
introduce a line of hair care appliances under the Toni & Guy® brand
name. Toni & Guy® is an international chain of hundreds of hair salons
throughout Europe that has expanded operations into certain key urban
markets in the United States. We believe our association with Toni
&
Guy® will create new sales opportunities for our products in Europe.
During the fiscal quarter ended August 31, 2006, we began shipment
of
product under the Toni & Guy® brand. Also in August, we began shipping
our new Fusion Tools® line of professional appliances designed to compete
at the higher end of the professional market.
|
|
|
|
Grooming,
Skin Care, and Hair Products.
Products in this line include liquid hair styling products, men’s
fragrances, men’s deodorants, body powder, and skin care products. Our
grooming, skin care, and hair care portfolio includes the Brut®, Sea
Breeze®, Vitalis®, Condition® 3-in-1, Ammens®, and Skin Milk® brand names.
Net sales for the second fiscal quarter ended August 31, 2006 decreased
approximately 1.4 percent while net sales for the six-month period
ended
August 31, 2006 increased 2.1 percent, when compared against the
same
periods in the prior year.
|
|
|
|
Domestic
net sales of grooming, skin care, and hair products continued to
be soft
during the second fiscal quarter and six-months ended August 31,
2006 due
to a combination of (i) slowing reorders from major retail and mass
merchant chains in order to reduce their inventory in the first fiscal
quarter; (ii) competitive promotional pricing and close-out selling
throughout the first half of the fiscal year; and (iii) lower retail
point
of sale unit volumes in the second fiscal quarter. In our domestic
market,
we are currently launching the third fiscal quarter release of Brut
Revolution®, initially a newly formulated, glass bottled, higher-end men’s
cologne that will sell at higher price points than Brut’s traditional
plastic bottled line.
|
|
|
|
The
Latin American region’s net sales within this product line continue to
show strength, primarily from our Brut® and Ammens® brands. Growth
resulted from the performance of Brut in the Mexican market, new
distribution and continued expansion of our product lines across
the Latin
American region.
|
|
|
·
|
Brushes,
Combs, and Accessories.
Net sales for the three- and six-month periods ended August 31, 2006
increased approximately 42.3 percent and 29.3 percent, respectively
over
the same periods in the prior year. This was due to new customers
and
product development and positioning changes made over the last year.
Our
new lines and mix of Vidal Sassoon® and Revlon® accessories, high end
private label products, and other product initiatives are achieving
higher
unit prices along with new distribution. Vidal Sassoon®, Revlon® and
Karina® were key brands in this line.
|
Housewares
Segment
Our
Housewares segment includes the operations of OXO International, acquired in
fiscal 2004. OXO Good Grips®, OXO Steel™ and OXO SoftWorks® are our key brands
in this segment.
Net
sales
in the segment for the second fiscal quarter increased 22.6 percent to $36,196
compared with $29,528 for the same period last year. Net sales for the six
month
period ending August 31, 2006 increased 8.7 percent to $61,313 compared with
$56,404 for the same period last year. In the first fiscal quarter, we
experienced sales declines as a result of the distribution transition issues
previously discussed. These issues had a negative impact on the first fiscal
quarter net sales estimated between approximately $4.5 to $5 million. A portion
of these sales were recovered during the second fiscal quarter, and accounted
for part of our Housewares segment’s second quarter net sales increase when
compared to the same period last year.
For
the
second fiscal quarter ended August 31, 2006, higher average unit prices and
increased unit volumes favorably impacted net sales by approximately 20.2 and
2.4 percent, respectively when compared to the same period last year. Unit
prices are increasing because the Houseware segment’s business has been
expanding its product mix into higher price point goods such as trash cans,
tea
kettles, and hand tools. Unit volumes increased primarily through growth with
existing accounts.
For
the
six-months ended August 31, 2006, higher average unit prices favorably impacted
net sales by approximately 13.3 percent. As mentioned above, unit prices
increased because the Houseware segment’s business has been expanding its
product mix into higher price point goods such as trash cans, tea kettles,
and
hand tools. This was partially offset by first fiscal quarter declines in
unit
volumes due to issues associated with our transition to our new distribution
center as previously discussed.
We
have
begun to expand our Housewares segment’s sales operations in Europe and Japan.
In the second quarter, we terminated certain existing distribution agreements
we
had in these countries and are establishing our own selling offices, leveraging
certain existing facilities, infrastructure and sales contacts, where possible.
We believe that with relatively modest additional infrastructure investments,
we
can enhance our presence in those markets. This is a long range initiative
and
we do not expect any meaningful sales impact from these efforts through the
end
of the current fiscal year.
RESULTS
OF OPERATIONS
Comparison
of fiscal quarter and six-month periods ended August 31, 2006 to the same
periods ended August 31, 2005.
The
following table sets forth, for the periods indicated, our selected operating
data, in U.S. dollars, as a percentage of net sales, and as a year-over-year
percentage change.
SELECTED
OPERATING DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of Net Sales
|
|
Quarter
ended August 31,
|
|
2006
|
|
2005
|
|
$
Change
|
|
%
Change
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
Care Segment
|
|
$
|
110,976
|
|
$
|
100,861
|
|
$
|
10,115
|
|
|
10.0
|
%
|
|
75.4
|
%
|
|
77.4
|
%
|
Housewares
Segment
|
|
|
36,196
|
|
|
29,528
|
|
|
6,668
|
|
|
22.6
|
%
|
|
24.6
|
%
|
|
22.6
|
%
|
Total
net sales
|
|
|
147,172
|
|
|
130,389
|
|
|
16,783
|
|
|
12.9
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of sales
|
|
|
80,504
|
|
|
70,171
|
|
|
10,333
|
|
|
14.7
|
%
|
|
54.7
|
%
|
|
53.8
|
%
|
Gross
profit
|
|
|
66,668
|
|
|
60,218
|
|
|
6,450
|
|
|
10.7
|
%
|
|
45.3
|
%
|
|
46.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general, and administrative expense
|
|
|
50,028
|
|
|
46,088
|
|
|
3,940
|
|
|
8.5
|
%
|
|
34.0
|
%
|
|
35.3
|
%
|
Operating
income
|
|
|
16,640
|
|
|
14,130
|
|
|
2,510
|
|
|
17.8
|
%
|
|
11.3
|
%
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(4,696
|
)
|
|
(3,795
|
)
|
|
(901
|
)
|
|
23.7
|
%
|
|
-3.2
|
%
|
|
-2.9
|
%
|
Other
income, net
|
|
|
287
|
|
|
403
|
|
|
(116
|
)
|
|
-28.8
|
%
|
|
0.2
|
%
|
|
0.3
|
%
|
Total
other income (expense)
|
|
|
(4,409
|
)
|
|
(3,392
|
)
|
|
(1,017
|
)
|
|
30.0
|
%
|
|
-3.0
|
%
|
|
-2.6
|
%
|
Earnings
before income taxes
|
|
|
12,231
|
|
|
10,738
|
|
|
1,493
|
|
|
13.9
|
%
|
|
8.3
|
%
|
|
8.2
|
%
|
Income
tax expense
|
|
|
1,357
|
|
|
1,286
|
|
|
71
|
|
|
5.5
|
%
|
|
0.9
|
%
|
|
1.0
|
%
|
Net
earnings
|
|
$
|
10,874
|
|
$
|
9,452
|
|
$
|
1,422
|
|
|
15.0
|
%
|
|
7.4
|
%
|
|
7.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of Net Sales
|
|
Six
Months ended August 31,
|
|
2006
|
|
2005
|
|
$
Change
|
|
%
Change
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
Care Segment
|
|
$
|
216,300
|
|
$
|
201,377
|
|
$
|
14,923
|
|
|
7.4
|
%
|
|
77.9
|
%
|
|
78.1
|
%
|
Housewares
Segment
|
|
|
61,313
|
|
|
56,404
|
|
|
4,909
|
|
|
8.7
|
%
|
|
22.1
|
%
|
|
21.9
|
%
|
Total
net sales
|
|
|
277,613
|
|
|
257,781
|
|
|
19,832
|
|
|
7.7
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of sales
|
|
|
153,004
|
|
|
138,871
|
|
|
14,133
|
|
|
10.2
|
%
|
|
55.1
|
%
|
|
53.9
|
%
|
Gross
profit
|
|
|
124,609
|
|
|
118,910
|
|
|
5,699
|
|
|
4.8
|
%
|
|
44.9
|
%
|
|
46.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general, and administrative expense
|
|
|
97,053
|
|
|
89,482
|
|
|
7,571
|
|
|
8.5
|
%
|
|
35.0
|
%
|
|
34.7
|
%
|
Operating
income
|
|
|
27,556
|
|
|
29,428
|
|
|
(1,872
|
)
|
|
-6.4
|
%
|
|
9.9
|
%
|
|
11.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(9,202
|
)
|
|
(7,058
|
)
|
|
(2,144
|
)
|
|
30.4
|
%
|
|
-3.3
|
%
|
|
-2.7
|
%
|
Other
income, net
|
|
|
1,077
|
|
|
345
|
|
|
732
|
|
|
*
|
|
|
0.4
|
%
|
|
0.1
|
%
|
Total
other expense, net
|
|
|
(8,125
|
)
|
|
(6,713
|
)
|
|
(1,412
|
)
|
|
21.0
|
%
|
|
-2.9
|
%
|
|
-2.6
|
%
|
Earnings
before income taxes
|
|
|
19,431
|
|
|
22,715
|
|
|
(3,284
|
)
|
|
-14.5
|
%
|
|
7.0
|
%
|
|
8.8
|
%
|
Income
tax expense
|
|
|
1,878
|
|
|
2,716
|
|
|
(838
|
)
|
|
-30.9
|
%
|
|
0.7
|
%
|
|
1.1
|
%
|
Net
earnings
|
|
$
|
17,553
|
|
$
|
19,999
|
|
$
|
(2,446
|
)
|
|
-12.2
|
%
|
|
6.3
|
%
|
|
7.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Calculation is Not Meaningful
Consolidated
Sales and Gross Profit Margins
Consolidated
net sales for the second fiscal quarter ending August 31, 2006 increased 12.9
percent to $147,172 compared with $130,389 for the same period last year.
Consolidated net sales for the six-month period ending August 31, 2006 increased
7.7 percent to $277,613 compared with $257,781 for the same period last year.
There were no new product acquisitions to provide net sales growth during the
six-months ending August 31, 2006. All growth during the quarter came from
our
core business (business we operated during the same fiscal period last year).
For the fiscal quarter ending August 31, 2005, new product acquisition included
the Skin Milk® and Time Block® lines of skin care products, acquired in
September, 2004. For the six-month period ending August 31, 2005, new product
acquisitions included OXO Housewares products until May 31, 2005 and the Skin
Milk® and Time Block® lines of skin care products for the full six months. The
following table sets forth the impact acquisitions had on our net
sales:
IMPACT
OF ACQUISITION ON NET SALES
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended August 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Prior
year's net sales for the same period
|
|
$
|
130,389
|
|
$
|
141,229
|
|
|
|
|
|
|
|
|
|
Components
of net sales change
|
|
|
|
|
|
|
|
Core
business net sales change
|
|
|
16,783
|
|
|
(12,099
|
)
|
Net
sales from acquisitions (non-core business net sales)
|
|
|
-
|
|
|
1,259
|
|
Change
in net sales
|
|
|
16,783
|
|
|
(10,840
|
)
|
Net
sales
|
|
$
|
147,172
|
|
$
|
130,389
|
|
|
|
|
|
|
|
|
|
Total
net sales growth
|
|
|
12.9
|
%
|
|
-7.7
|
%
|
Core
business net sales change
|
|
|
12.9
|
%
|
|
-8.6
|
%
|
Net
sales change from acquisitions (non-core business net sales
change)
|
|
|
0.0
|
%
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended August 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Prior
year's net sales for the same period
|
|
$
|
257,781
|
|
$
|
248,250
|
|
|
|
|
|
|
|
|
|
Components
of net sales change
|
|
|
|
|
|
|
|
Core
business net sales change
|
|
|
19,832
|
|
|
(19,649
|
)
|
Net
sales from acquisitions (non-core business net sales)
|
|
|
-
|
|
|
29,180
|
|
Change
in net sales
|
|
|
19,832
|
|
|
9,531
|
|
Net
sales
|
|
$
|
277,613
|
|
$
|
257,781
|
|
|
|
|
|
|
|
|
|
Total
net sales growth
|
|
|
7.7
|
%
|
|
3.8
|
%
|
Core
business net sales change
|
|
|
7.7
|
%
|
|
-7.9
|
%
|
Net
sales change from acquisitions (non-core business net sales
change)
|
|
|
0.0
|
%
|
|
11.7
|
%
|
For
the
three-months ended August 31, 2006, our personal care segment contributed
$10,115, or 7.8 percent to our consolidated net sales growth and our Housewares
segment contributed $6,668, or 5.1 percent to our consolidated net sales growth
for a combined growth rate of 12.9 percent.
For
the
six-months ended August 31, 2006, our personal care segment contributed $14,923,
or 5.8 percent to our consolidated net sales growth and our Housewares segment
contributed $4,909, or 1.9 percent to our consolidated net sales growth for
a
combined growth rate of 7.7 percent.
In
our
Personal Care segment, overall product mix changes allowed us to realize higher
average unit prices in all product lines except for our grooming, skin care,
and
hair product lines, as previously discussed. For the three- and six-month
periods ended August 31, 2006, average unit volume increases contributed 8.6
and
4.2 percent, respectively, to sales growth while average unit price
increases contributed 1.4 and 3.2 percent, respectively, to sales growth over
the same periods in the prior year.
In
our
Housewares segment, product mix changes also allowed us to realize higher
average unit prices. For
the
three- and six-month periods ended August 31, 2006, average unit prices
increases contributed 20.2 and 13.3 percent, respectively, to sales growth
over
the same periods in the prior year. For the three-months ended August 31, 2006,
unit volume increases contributed 2.4 percent to our sales growth over the
same
period in the prior year. For the six-month period ended August 31, 2006, we
experienced an overall unit volume decline of 4.6 percent over the same period
in the prior year. As previously discussed, the decline in unit volumes was
due
to
issues associated with our transition to our new distribution center during
the
first fiscal quarter.
Consolidated
gross profit, as a percentage of sales for the three- and six-month periods
ended August 31, 2006, decreased 0.9 and 1.2 percent to 45.3 and 44.9 percent,
respectively, compared to 46.2 and 46.1 percent, respectively, for the same
periods in the prior year. The decrease in gross profit is primarily due
to:
·
|
price
concessions, allowances and accommodations granted to customers for
late
shipments in our Housewares segment during the first fiscal
quarter;
|
|
|
·
|
the
Housewares segment’s expansion into higher price point lower margin
product lines;
|
|
|
·
|
margin
pressure in our Personal Care segment due to raw materials price
increases
in grooming, skin care, and hair products line; and
|
|
|
·
|
promotional
pricing and close-out selling throughout the first half of the fiscal
year
primarily in the grooming, skin care, and hair products and brushes,
combs
and accessories lines of our personal care businesses in order to
reduce
domestic inventory levels.
|
In
the
fiscal quarter ended August 31, 2006, margins continued to benefit from an
overall favorable impact on net sales of exchange rates. The dollar reversed
its
first fiscal quarter year-over-year trend of strengthening against the British
Pound and Euro and began to weaken. The dollar continued its first quarter
trend
of strengthening against the Mexican Peso. The overall net impact of foreign
currency changes was to provide approximately $526 and $714 of additional sales
dollars for the three- and six-month periods ended August 31, 2006 when compared
to the same periods in the prior year. For the six-month period ended August
31,
2006, the British Pound, the Euro, Canadian Dollar and Brazil Real were a source
of exchange rate gains, which were partially offset by unfavorable exchange
rates for the Mexican Peso and other Latin American currencies.
Selling,
general, and administrative expenses
Selling,
general, and administrative expenses, expressed as a percentage of net sales,
decreased for the three-months ended August 31, 2006 to 34.0 percent from 35.3
percent for the same period in the prior year. The improvement for the quarter
is due to the impact of higher sales volumes on our cost structure, offset
somewhat by percentage increases in depreciation, advertising and higher
facility related costs due to the operational transition of our domestic
distribution system.
Selling,
general, and administrative expenses, expressed as a percentage of net sales,
increased for the six-months ended August 31, 2006 to 35.0 percent from 34.7
percent for the same period in the prior year. The change is primarily due
to
percentage of net sales increases in depreciation and higher facility related
costs due to the operational transition of our domestic distribution system.
Operating
Income by Segment:
The
following table sets forth, for the periods indicated, our operating income
by
segment, as a percentage of net sales, and as a year-over-year percentage
change:
OPERATING
INCOME BY SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of Segment Net Sales
|
|
Quarter
Ended August 31,
|
|
2006
|
|
2005
|
|
$
Change
|
|
%
Change
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
Care
|
|
$
|
9,701
|
|
$
|
6,441
|
|
$
|
3,260
|
|
|
50.6
|
%
|
|
8.7
|
%
|
|
6.4
|
%
|
Housewares
|
|
|
6,939
|
|
|
7,689
|
|
|
(750
|
)
|
|
-9.8
|
%
|
|
19.2
|
%
|
|
26.0
|
%
|
Total
operating income
|
|
$
|
16,640
|
|
$
|
14,130
|
|
$
|
2,510
|
|
|
17.8
|
%
|
|
11.3
|
%
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of Segment Net Sales
|
|
Six
Months Ended August 31,
|
|
2006
|
|
2005
|
|
$
Change
|
|
%
Change
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal
Care
|
|
$
|
15,893
|
|
$
|
14,351
|
|
$
|
1,542
|
|
|
10.7
|
%
|
|
7.3
|
%
|
|
7.1
|
%
|
Housewares
|
|
|
11,663
|
|
|
15,077
|
|
|
(3,414
|
)
|
|
-22.6
|
%
|
|
19.0
|
%
|
|
26.7
|
%
|
Total
operating income
|
|
$
|
27,556
|
|
$
|
29,428
|
|
$
|
(1,872
|
)
|
|
-6.4
|
%
|
|
9.9
|
%
|
|
11.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
addition to the changes in operating income components discussed above, during
the three- and six-month periods ended August 31, 2006, we began allocating
corporate overhead to our Housewares segment. The operating income for the
three- and six-month periods ended August 31, 2005 does not include this
allocation for the reasons discussed below.
Operating
profit for each operating segment is computed based on net sales, less cost
of
goods sold and any selling, general, and administrative expenses ("SG&A")
associated with the segment. The selling, general, and administrative expenses
used to compute each segment's operating profit are comprised of SG&A
expense directly associated with the segment, plus overhead expenses that are
allocable to the operating segment. In connection with the acquisition of our
Housewares segment, the seller agreed to perform certain operating functions
for
the segment for a transitional period of time that ended February 28, 2006.
The
costs of these functions were reflected in SG&A for the Housewares segment’s
operating income. During the transitional period, we did not make an allocation
of our corporate overhead to Housewares. For the three- and six-month periods
ended August 31, 2006, we began making allocations of corporate overhead and
distribution center expenses to Housewares in lieu of the transition charges
recorded in the prior year. These allocations had a negative impact on the
operating income from the Housewares segment. For the three- and six-month
periods ended August 31, 2006, we allocated expenses totaling $3,333 and $5,758,
respectively, to the Housewares segment, some of which were previously absorbed
by the Personal Care segment. For the three- and six-month periods ended August
31, 2005, transition charges of $2,811 and $4,784, respectively, were used
to
compute the Housewares segments operating income. For additional discussion
of
these charges, see Note 5 to the accompanying consolidated condensed financial
statements.
The
recent transition of our Houseware segment’s operations to our internal
operating systems and our new distribution facility in Southaven, Mississippi
and the pending consolidation of our domestic appliance inventories into the
same new distribution facility have caused us to incur, and will continue to
cause us to incur, additional expenses that we believe will decline when
operations in the new distribution facility stabilize. Accordingly, we are
in
the process of re-evaluating our allocation methodology, and plan to change
our
methodology later in the current fiscal year. At that time, we expect the new
methodology to result in some reduction in operating income for the Housewares
segment, offset by an increase in the operating income for the Personal Care
segment. Until we finalize our approach, the extent of this operating income
impact between the segments can not yet be determined.
Interest
expense and other income / expense
Interest
expense for the three- and six-month periods ended August 31, 2006 increased
to
$4,696 and $9,202, respectively, compared to $3,795 and $7,058, respectively,
for the same periods in the prior year. The overall increase is the result
of
increased interest rates on our floating rate debt and interest expense recorded
in our first fiscal quarter ended May 31, 2006 in connection with a Hong Kong
tax settlement.
Other
income, net for the three- and six-month periods ended August 31, 2006 was
$287
and $1,077, respectively, compared to $403 and $345, respectively, for the
same
periods in the prior year. The following table sets forth, for the periods
indicated, the key components of other income and expense, as a percentage
of
net sales, and as a year-over-year percentage change:
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of Net Sales
|
|
Quarter
Ended August 31,
|
|
2006
|
|
2005
|
|
$
Change
|
|
%
Change
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
345
|
|
$
|
50
|
|
$
|
295
|
|
|
*
|
|
|
0.2
|
%
|
|
*
|
|
Net
unrealized gains (losses) on securities
|
|
|
(36
|
)
|
|
188
|
|
|
(224
|
)
|
|
*
|
|
|
*
|
|
|
0.2
|
%
|
Miscellaneous
other income
|
|
|
(22
|
)
|
|
165
|
|
|
(187
|
)
|
|
*
|
|
|
*
|
|
|
0.1
|
%
|
Total
other income, net
|
|
$
|
287
|
|
$
|
403
|
|
$
|
(116
|
)
|
|
-28.8
|
%
|
|
0.2
|
%
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Calculation is not meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
of Net Sales
|
|
Six
Months Ended August 31,
|
|
2006
|
|
2005
|
|
$
Change
|
|
%
Change
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
634
|
|
$
|
135
|
|
$
|
499
|
|
|
*
|
|
|
0.2
|
%
|
|
0.1
|
%
|
Net
unrealized gains on securities
|
|
|
24
|
|
|
7
|
|
|
17
|
|
|
*
|
|
|
*
|
|
|
*
|
|
Miscellaneous
other income
|
|
|
419
|
|
|
203
|
|
|
216
|
|
|
*
|
|
|
0.2
|
%
|
|
0.1
|
%
|
Total
other income, net
|
|
$
|
1,077
|
|
$
|
345
|
|
$
|
732
|
|
|
*
|
|
|
0.4
|
%
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Calculation is not meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income is higher for the three- and six-month periods ended August 31, 2006
when
compared to the same periods last year due to higher levels of temporarily
invested cash being held thus far this year and higher interest rates
earned.
Miscellaneous
other income for the six-month period ended August 31, 2006 includes a $422
first quarter gain from the sale of 3.9 acres of raw land adjacent to our El
Paso, Texas office and distribution center.
Income
tax expense
Income
tax expense for the three-month and six-month periods ended August 31, 2006
was
11.1 and 9.7 percent of earnings before income taxes, respectively, versus
12.0
percent of earnings before income taxes, respectively, for the same periods
in
the prior year. Our tax expense for the latest fiscal quarter has increased
to
more normalized levels on a year-to-date basis over the 7.2 percent of earnings
recorded for the first three months of the current fiscal year. This is due
to:
·
|
In
the first fiscal quarter of the current year, we reversed $192 of
tax
provision previously established in connection with a Hong Kong tax
settlement. This had the effect of lowering that quarter’s tax expense by
2.7 percent; and
|
|
|
·
|
During
the latest fiscal quarter, more income was recognized in higher tax
rate
jurisdictions than was recognized in the previous fiscal
quarter.
|
FINANCIAL
CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
Selected
measures of our liquidity and capital resources as of August 31, 2006 and August
31, 2005 are shown below:
SELECTED
MEASURES OF OUR LIQUIDITY AND CAPITAL RESOURCES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended August 31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Accounts
Receivable Turnover (Days) (1)
|
|
|
73.7
|
|
|
77.1
|
|
Inventory
Turnover (Times) (1)
|
|
|
1.9
|
|
|
2.0
|
|
Working
Capital (in
thousands)
|
|
$
|
211,385
|
|
$
|
173,051
|
|
Current
Ratio
|
|
|
2.5
: 1
|
|
|
2.0
: 1
|
|
Ending
Debt to Ending Equity Ratio (2)
|
|
|
55.4
|
%
|
|
70.0
|
%
|
Return
on Average Equity (1)
|
|
|
9.9
|
%
|
|
15.1
|
%
|
(1)
|
Accounts
receivable turnover, inventory turnover, and return on average equity
computations use 12-month trailing sales, cost of sales, or net income
components as required by the particular measure. The current and
four
prior quarters' ending balances of accounts receivable, inventory,
and
equity are used for the purposes of computing the average balance
component as required by the particular measure.
|
|
|
(2)
|
Total
debt is defined as all debt outstanding at the balance sheet date.
This
includes the sum of the following lines when they appear on our
consolidated condensed balance sheets: "Revolving line of credit",
"Current portion of long-term debt", and "Long-term debt, less current
portion."
|
Operating
Activities
Our
cash
balance was $31,837 at August 31, 2006 compared to $18,320 at February 28,
2006.
Operating activities provided $8,353 of cash during the first six months of
fiscal 2007, compared to $46,523 of cash consumed during the same period in
fiscal 2006.
Accounts
receivable increased $9,743 to $117,032 as of August 31, 2006 compared to
$107,289 at the end of fiscal 2006. Accounts receivable turnover improved to
73.7 days at August 31, 2006 from 77.1 days at August 31, 2005. The change
is
due to improving receivables management. Our twelve month trailing sales was
$609,579 at August 31, 2006 against $591,080 at August 31, 2005 while over
the
same period, our average receivables investment was $123,003 and $124,894,
respectively.
Inventories
increased $16,923 to $185,324 as of August 31, 2006 compared to $168,401 at
the
end of fiscal 2006. Normally, inventory levels increase in the first half of
the
fiscal year, as we build up new product introductions for late summer and fall.
Inventory turnover decreased to 1.9 at the end of August, 2006 when compared
to
2.0 at the end of August 2005. Higher product costs and a higher average
inventory investment for the five quarters ended August 31, 2006 as compared
to
the five quarters ended August 31, 2005 accounted for the change.
Working
capital increased to $211,385 at August 31, 2006 compared to $173,051 at August
31, 2005. Our current ratio increased to 2.5:1 at August 31, 2006 compared
to
2.0:1 at August 31, 2005. The
improvements in our working capital and current ratio positions over the past
year is the result of the strength of our cash flow, which allowed us to pay
down $38,366 of debt while increasing our investable cash by $23,713.
Investing
Activities
Investing
activities used $3,082 of cash during the six months ended August 31, 2006.
Listed below are some significant highlights of our investing
activities:
·
|
We
spent $507 on the Housewares segment conversion to our new information
systems. We expect that significant spending on this project is now
complete.
|
|
|
·
|
We
spent $830 to acquire office space in Mexico City.
|
|
|
·
|
We
spent an additional $356 on our equipment and building improvements
in our
new Southaven Mississippi distribution facility.
|
|
|
·
|
We
spent $952 on molds and tooling, $377 on information technology
infrastructure, and $548 for recurring additions and/or replacements
of
fixed assets in the normal and ordinary course of
business.
|
|
|
·
|
We
spent $178 on new patent costs and registrations.
|
|
|
·
|
We
sold 3.9 acres of raw land adjacent to our El Paso, Texas office
and
distribution center. The land was sold for $666 and resulted in a
gain on
the sale of $422.
|
Financing
Activities
Financing
activities provided $8,246 of cash during the six months ended August 31, 2006.
Highlights of those activities follow.
·
|
We
drew $7,660 against our $15,000 industrial revenue bond established
to
acquire equipment, machinery and related assets for our new Southaven,
Mississippi distribution facility. At May 31, 2006 we converted the
$12,634 total drawn into a five-year industrial revenue bond. See
Note 12
to the accompanying condensed financial statements for additional
information concerning the prepayment of $4,974 of this debt in September,
2006 and change in its balance sheet classification.
|
|
|
·
|
For
the three- and six-month periods ended August 31, 2006, proceeds
from
employee option exercises provided $159 and $302 of cash,
respectively.
|
|
|
·
|
In
July 2006, purchases through our employee stock purchase plan provided
$190 of cash.
|
Our
ability to access our Revolving Line of Credit facility is subject to our
compliance with the terms and conditions of the credit facility and long-term
debt agreements, including financial covenants. The financial covenants require
us to maintain certain Debt/EBITDA ratios, fixed charge coverage ratios,
consolidated net worth levels, and other financial requirements. Certain
covenants as of August 31, 2006, effectively limited our ability to incur no
more than $30,204 of additional debt from all sources, including draws on our
Revolving Line of Credit. Additionally, our debt agreements restrict us from
incurring liens on any of our properties, except under certain conditions.
In
the event we were to default on any of our other debt, it would constitute
a
default under our credit facilities as well. As of August 31, 2006, we are
in
compliance with the terms of the various credit agreements.
Contractual
Obligations:
Our
contractual obligations and commercial commitments, as of August 31, 2006 were:
PAYMENTS
DUE BY PERIOD - TWELVE MONTHS ENDED AUGUST 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
After
|
|
|
|
Total
|
|
1
year
|
|
2
years
|
|
3
years
|
|
4
years
|
|
5
years
|
|
5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term
debt - floating rate
|
|
$
|
237,634
|
|
$
|
4,974
|
|
$
|
-
|
|
$
|
100,000
|
|
$
|
-
|
|
$
|
57,660
|
|
$
|
75,000
|
|
Term
debt - fixed rate
|
|
|
35,000
|
|
|
10,000
|
|
|
13,000
|
|
|
3,000
|
|
|
3,000
|
|
|
3,000
|
|
|
3,000
|
|
Long-term
incentive plan payouts
|
|
|
2,619
|
|
|
1,498
|
|
|
1,121
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Unrecorded
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on floating rate debt *
|
|
|
69,592
|
|
|
13,826
|
|
|
13,813
|
|
|
13,323
|
|
|
7,923
|
|
|
7,560
|
|
|
13,147
|
|
Interest
on fixed rate debt
|
|
|
5,493
|
|
|
2,079
|
|
|
1,351
|
|
|
842
|
|
|
624
|
|
|
407
|
|
|
190
|
|
Open
purchase orders
|
|
|
65,975
|
|
|
65,975
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Minimum
royalty payments
|
|
|
59,091
|
|
|
2,380
|
|
|
2,501
|
|
|
2,417
|
|
|
5,967
|
|
|
6,208
|
|
|
39,618
|
|
Advertising
and promotional
|
|
|
25,499
|
|
|
11,863
|
|
|
7,075
|
|
|
3,141
|
|
|
1,420
|
|
|
800
|
|
|
1,200
|
|
Operating
leases
|
|
|
3,709
|
|
|
2,443
|
|
|
753
|
|
|
340
|
|
|
173
|
|
|
-
|
|
|
-
|
|
Capital
spending commitments
|
|
|
1,611
|
|
|
1,611
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Open
letters of credit pending settlement
|
|
|
616
|
|
|
616
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Other
|
|
|
569
|
|
|
414
|
|
|
155
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
contractual obligations
|
|
$
|
507,408
|
|
$
|
117,679
|
|
$
|
39,769
|
|
$
|
123,063
|
|
$
|
19,107
|
|
$
|
75,635
|
|
$
|
132,155
|
|
*
The
future obligation for interest on our variable rate debt has normally been
estimated assuming the rates in effect as of the end of the latest fiscal
quarter on which we are reporting. As mentioned above in Note 12, on September
28, 2006, the Company entered into interest rate hedge agreements in conjunction
with its outstanding unsecured floating interest rate $100,000, 5 Year; $50,000,
7 Year; and $75,000 10 Year Senior Notes (the “September 2006 Swaps”). The
interest rate swaps are a hedge of the variable LIBOR rates used to reset the
floating rates on the Senior Notes. The September 2006 Swaps effectively fix
the
interest rates on the 5, 7 and 10 Year Senior Notes at 5.89, 5.89 and 6.01
percent, respectively, beginning September 29, 2006. Accordingly, the future
interest obligations related to this debt has been estimated using these rates.
We also have an unsecured Industrial Development Revenue Bond, whose rate is
subject to periodic adjustment. The bond’s interest rate has not been hedged.
Accordingly, we estimated our future obligation for interest on it using the
rates in effect as of August 31, 2006. This is only an estimate, actual rates
on
the bond may vary over time. For instance, taking into account that $4,974
of
the bond was prepaid on September 15, 2006; a 1 percent increase in interest
rates could add approximately $77 per year to floating rate interest expense
over the bond’s remaining maturity.
Off-Balance
Sheet Arrangements:
We
have
no existing activities involving special purpose entities or off-balance sheet
financing.
Current
and Future Capital Needs:
Based
on
our current financial condition and current operations, we believe that cash
flows from operations and available financing sources will continue to provide
sufficient capital resources to fund the Company's foreseeable short and
long-term liquidity requirements. We expect our capital needs to stem primarily
from the need to purchase sufficient levels of inventory, to carry normal levels
of accounts receivable on our balance sheet, to fund normal levels of capital
expenditure, to continue to enhance our North American distribution and
logistics capabilities, and to continue to expand the scope of our operations
in
selected European, Asian and Latin American markets. Over the longer term,
we
expect we will have sufficient capability to repay maturities of our fixed
and
floating rate debt through a combination of cash generated from operations,
the
issuance of additional common shares, and the proceeds of associated new
financings.
The
Company may elect to repurchase additional shares of its common stock from
time
to time based upon its assessment of its liquidity position and market
conditions at the time, and subject to limitations contained in its debt
agreements.
We
continue to evaluate acquisition opportunities on a regular basis and may
augment our internal growth with acquisitions of complementary businesses or
product lines. We may finance acquisition activity with available cash, the
issuance of common shares, or with additional debt, depending upon the size
and
nature of any such transaction and the status of the capital markets at the
time
of such acquisition.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
U.S.
Securities and Exchange Commission defines critical accounting policies as
"those that are both most important to the portrayal of a company's financial
condition and results, and require management's most difficult, subjective
or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain." Preparation of our financial
statements involves the application of several such policies. These policies
include: estimates used in computing share based compensation expense, estimates
of our exposure to liability for income taxes, estimates of credits to be issued
to customers for sales that have already been recorded, the valuation of
inventory on a lower-of-cost-or-market basis, the carrying value of long-lived
assets, and the economic useful life of intangible assets.
Stock
Options -
Effective March 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), ‘‘Share-Based Payment’’ (‘‘SFAS 123R’’), using
the modified prospective method and therefore has not restated results for
prior
periods. Under this transition method, stock-based compensation expense for the
first quarter of fiscal 2007 includes compensation expense for all stock-based
compensation awards granted prior to, but not yet vested as of March 1, 2006,
based on the grant date fair value estimated in accordance with the original
provisions of SFAS 123, “Accounting for Stock-based Compensation” (“SFAS 123”).
Share-based compensation expense for all awards granted after February 28,
2006
is based on the grant-date fair value estimated in accordance with the provision
of SFAS 123R. The Company recognizes stock based compensation expense on a
straight-line basis over the requisite service period of the award, which is
generally the underlying option’s vesting term. Prior to the adoption of SFAS
123R, the Company recognized stock-based compensation expense by applying the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, “Accounting for Stock Issued to Employees”. In March 2005, the
Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin
No. 107 (“SAB 107”) regarding the SEC’s interpretation of SFAS 123R as it
pertains to public companies. The Company has considered the provisions of
SAB
107 in its adoption of SFAS 123R. Determining the appropriate fair value model
and calculating the fair value of share-based payment awards require the input
of subjective assumptions, including the expected life of the awards and stock
price volatility. The assumptions used in calculating the fair value represent
management’s best estimates, but these estimates involve inherent uncertainties
and the application of management judgment. As a result, if factors change
and
we use different assumptions, our compensation expense could be materially
different in the future. In addition, we are required to estimate the expected
pre-vesting forfeiture rate and only recognize expense for those shares expected
to vest. If our actual pre-vesting forfeiture rate is materially different
from
our estimate, the stock-based compensation expense could be significantly
different from our estimates. See Note 2 to the consolidated condensed financial
statements for a further discussion of stock-based compensation.
Income
Taxes
-
We must
make certain estimates and judgments in determining income tax expense for
financial statement purposes. These estimates and judgments must be used in
the
calculation of certain tax assets and liabilities because of differences in
the
timing of recognition of revenue and expense for tax and financial statement
purposes. We must assess the likelihood that we will be able to recover our
deferred tax assets. If recovery is not likely, we must increase our provision
for taxes by recording a valuation allowance against the deferred tax assets
that we estimate will not ultimately be recoverable. As changes occur in our
assessments regarding our ability to recover our deferred tax assets, our tax
provision is increased in any period in which we determine that the recovery
is
not probable.
In
addition, the calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. We recognize
liabilities for anticipated tax audit issues in the United States and other
tax
jurisdictions based on our estimate of whether, and the extent to which,
additional taxes will be due. If we ultimately determine that payment of these
amounts are unnecessary, we reverse the liability and recognize a tax benefit
during the period in which we determine that the liability is no longer
necessary. We record an additional charge in our provision for taxes in the
period in which we determine that the recorded tax liability is less than we
expect the ultimate assessment to be.
Estimates
of credits to be issued to customers
- We
regularly receive requests for credits from retailers for returned products
or
in connection with sales incentives, such as cooperative advertising and volume
rebate agreements. We reduce sales or increase selling, general, and
administrative expenses, depending on the nature of the credits, for estimated
future credits to customers. Our estimates of these amounts are based either
on
historical information about credits issued, relative to total sales, or on
specific knowledge of incentives offered to retailers. This process entails
a
significant amount of inherent subjectivity and uncertainty.
Valuation
of inventory
- We
account for our inventory using a first-in-first-out system in which we record
inventory on our balance sheet at the lower of its average cost or its net
realizable value. Determination of net realizable value requires us to estimate
the point in time that an item's net realizable value drops below its cost.
We
regularly review our inventory for slow-moving items and for items that we
are
unable to sell at prices above their original cost. When we identify such an
item, we reduce its book value to the net amount that we expect to realize
upon
its sale. This process entails a significant amount of inherent subjectivity
and
uncertainty.
Carrying
value of long-lived assets
- We
apply the provisions of Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142") and Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144") in assessing the carrying values of our
long-lived assets. SFAS 142 and SFAS 144 both require that we consider whether
circumstances or conditions exist which suggest that the carrying value of
a
long-lived asset might be impaired. If such circumstances or conditions exist,
further steps are required in order to determine whether the carrying value
of
the asset exceeds its fair market value. If analyses indicate that the asset's
carrying value does exceed its fair market value, the next step is to record
a
loss equal to the excess of the asset's carrying value over its fair value.
The
steps required by SFAS 142 and SFAS 144 entail significant amounts of judgment
and subjectivity. We completed our analysis of the carrying value of our
goodwill and other intangible assets during the first quarter of fiscal 2007,
and accordingly, recorded no impairment.
Economic
useful life of intangible assets
- We
apply Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142") in determining the useful economic lives of
intangible assets that we acquire and that we report on our consolidated balance
sheets. SFAS 142 requires that we amortize intangible assets, such as licenses
and trademarks, over their economic useful lives, unless those assets' economic
useful lives are indefinite. If an intangible asset's economic useful life
is
deemed to be indefinite, that asset is not amortized. When we acquire an
intangible asset, we consider factors such as the asset's history, our plans
for
that asset, and the market for products associated with the asset. We consider
these same factors when reviewing the economic useful lives of our previously
acquired intangible assets as well. We review the economic useful lives of
our
intangible assets at least annually. The determination of the economic useful
life of an intangible asset requires a significant amount of judgment and
entails significant subjectivity and uncertainty. We have completed our analysis
of the remaining useful economic lives of our intangible assets during the
first
quarter of fiscal 2007 and determined that the useful lives currently being
used
to determine amortization of each asset are appropriate.
For
a
more comprehensive list of our accounting policies, we encourage you to read
Note 1 - Summary of Significant Accounting Policies, accompanying the
consolidated financial statements included in our latest annual report on Form
10-K. Note 1 in the consolidated financial statements included with Form 10-K
contains several other policies, including policies governing the timing of
revenue recognition, that are important to the preparation of our consolidated
financial statements, but do not meet the SEC's definition of critical
accounting policies because they do not involve subjective or complex
judgments.
NEW
ACCOUNTING GUIDANCE
Liability
Recognition on Endorsement Split-Dollar Life Insurance Arrangements
-
In June
2006, the EITF reached a consensus on EITF Issue No. 06-4 ("EITF 06-4"),
"Accounting for Deferred Compensation and Postretirement Benefit Aspects
of
Endorsement Split-Dollar Life Insurance Arrangements," which requires the
application of the provisions of FASB SFAS 106 (“SFAS 106”), “Employers’
Accounting for Postretirement Benefits Other Than Pensions” to endorsement
split-dollar life insurance arrangements. SFAS 106 would require the Company
to
recognize a liability for the discounted future benefit obligation that the
Company will have to pay upon the death of the underlying insured employee.
An
endorsement-type arrangement generally exists when the Company owns and controls
all incidents of ownership of the underlying policies. EITF 06-4 is effective
for fiscal years beginning after December 15, 2006. The Company may have
certain
policies subject to the provisions of this new pronouncement and is currently
determining the effect the adoption of EITF 06-4 will have on its financial
statements during its 2008 fiscal year.
Uncertainty
in Income Taxes -
In July
2006, the FASB issued Interpretation 48, “Accounting for Uncertainty in Income
Taxes—An Interpretation of Statement of Financial Accounting Standards No. 109”
(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements, and prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and
measurement of a tax position taken or expected to be taken in a tax return.
FIN
48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. The
provisions of FIN 48 are effective for fiscal years beginning after December
15,
2006. The Company is currently determining the effect, if any, the adoption
of
FIN 48 will have on its financial statements.
Fair
Value Measurements -
In
September 2006, FASB issued SFAS 157 “Fair Value Measurements.” This Statement
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements. Accordingly,
this
Statement does not require any new fair value measurements, but will potentially
require additional disclosures regarding existing fair value measurements we
currently report. This Statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. The Company is currently determining the effect, if any,
this pronouncement will have on its financial statements.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Changes
in interest rates and currency exchange rates are our primary financial market
risks. Fluctuation in interest rates causes variation in the amount of interest
that we can earn on our available cash and the amount of interest expense
we
incur on our short-term and long-term borrowings. Interest on our long-term
debt
outstanding as of August 31, 2006 is both floating and fixed. Fixed rates
are in
place on $35,000 of senior notes at rates ranging from 7.01 percent to 7.24
percent.
Floating
rates are in place on $237,634 of debt. Interest rates on these notes are reset
as outlined in Note 12 to our consolidated condensed financial statements.
Interest rates during the latest fiscal quarter on these notes ranged from
5.81
to 6.65 percent. On September 28, 2006, the Company entered into interest rate
hedge agreements in conjunction with its outstanding unsecured floating interest
rate $100,000, 5 Year; $50,000, 7 Year; and $75,000 10 Year Senior Notes (the
“September 2006 Swaps”). The interest rate swaps are a hedge of the variable
LIBOR rates used to reset the floating rates on the Senior Notes. The September
2006 Swaps effectively fix the interest rates on the 5, 7 and 10 Year Senior
Notes at 5.89, 5.89 and 6.01 percent, respectively, beginning September 29,
2006. These swaps settle quarterly and terminate upon maturity of the related
debt. These swaps are considered cash flow hedges under SFAS No. 133 because
they are intended to hedge, and are effective as a hedge, against variable
cash
flows.
We
also
have an unsecured Industrial Development Revenue Bond, whose rate is subject
to
periodic adjustment. The bond’s interest rate has not been hedged. Accordingly,
we estimated our future obligation for interest on it using the rates in effect
as of August 31, 2006. This is only an estimate, actual rates on the bond may
vary over time. For instance, taking into account that $4,974 of the bond was
prepaid on September 15, 2006, a 1 percent increase in interest rates could
add
approximately $77 per year to floating rate interest expense over the bond’s
remaining maturity.
The
addition of these levels of debt, the future impact of any draws against our
Revolving Line of Credit, whose interest rates can vary with the term of each
draw, and the uncertainty regarding the level of future interest rates,
increases our risk profile.
Because
we purchase a majority of our inventory using U.S. Dollars, we are subject
to
minimal short-term foreign exchange rate risk in purchasing inventory. However,
long-term declines in the value of the U.S. Dollar could subject us to higher
inventory costs. Such an increase in inventory costs could occur if foreign
vendors were to react to such a decline by raising prices. Sales in the United
States are transacted in U.S. Dollars. The majority of our sales in the United
Kingdom are transacted in British Pounds, in France and Germany is transacted
in
Euros, in Mexico is transacted in Pesos, in Brazil is transacted in Reals,
and
in Canada is transacted in Canadian Dollars. When the U.S. Dollar strengthens
against other currencies in which we transact sales, we are exposed to foreign
exchange losses on those sales because our foreign currency sales prices are
not
adjusted for currency fluctuations. When the U.S. Dollar weakens against those
currencies, we realize foreign currency gains.
During
the three-month and six-month periods ended August 31, 2006, we transacted
approximately 14 percent of our net sales in foreign currencies. During the
three-month and six-month periods ended August 31, 2005, we transacted
approximately 13 percent of our net sales in foreign currencies. For the
three-month and six-month periods ended August 31, 2006, we incurred net foreign
exchange gains of $570 and $886, respectively. During the same fiscal periods
in
the prior year, we
incurred net foreign exchange losses of $227 and $925.
We
hedge
against foreign currency exchange rate risk by entering into a series of forward
contracts designated as cash flow hedges to protect against the foreign currency
exchange risk inherent in our forecasted transactions denominated in currencies
other than the U.S. Dollar. In
these
transactions, we execute a forward currency contract that will settle at the
end
of a forecasted period. During the forecasted period, a hedging relationship
is
created because the size and terms of the forward contract are designed so
that
its fair market value will move in the opposite direction and approximate
magnitude of the underlying foreign currency’s forecasted exchange gain or loss.
To the extent we forecast the expected foreign currency cash flows from the
period the forward contract is entered into until the date it will settle with
reasonable accuracy, we significantly lower or materially eliminate a particular
currency’s exchange risk exposure over the life of the related forward contract.
For
transactions designated as cash flow hedges, the effective portion of the change
in the fair value (arising from the change in the spot rates from period to
period) is deferred in Other Comprehensive Income. These amounts are
subsequently recognized in "Selling, general, and administrative expense" in
the
consolidated statements of income in the same period as the forecasted
transactions close out over the remaining balance of their terms. The
ineffective portion of the change in fair value (arising from the change in
the
difference between the spot rate and the forward rate) is recognized in the
period it occurred. These amounts are also recognized in "Selling, general,
and
administrative expense" in the consolidated statements of income. Our cash
flow
hedges, while executed in order to minimize our foreign currency exchange rate
risk, do subject us to fair value fluctuations on the underlying contracts.
We
do not enter into any forward exchange contracts or similar instruments for
trading or other speculative purposes.
The
following table summarizes the various forward contracts we designated as cash
flow hedges that were open at August 31, 2006 and February 28,
2006:
CASH
FLOW HEDGES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
31, 2006
|
|
Contract
|
|
Currency
to
|
|
Notional
|
|
Contract
|
|
Range
of Maturities
|
|
Spot
Rate at Contract
|
|
Spot
Rate at
August
31,
|
|
Weighted
Average
Forward
Rate
at
|
|
Weighted
Average
Forward
Rate
at
August
31,
|
|
Market
Value
of
the
Contract
in
U.S. Dollars
|
|
Type
|
|
Deliver
|
|
Amount
|
|
Date
|
|
From
|
|
To
|
|
Date
|
|
2006
|
|
Inception
|
|
2006
|
|
(Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sell
|
|
|
Pounds
|
|
|
£10,000,000
|
|
|
1/26/2005
|
|
|
12/11/2006
|
|
|
2/9/2007
|
|
|
1.8700
|
|
|
1.9047
|
|
|
1.8228
|
|
|
1.9059
|
|
|
($831
|
)
|
Sell
|
|
|
Pounds
|
|
|
£10,000,000
|
|
|
5/12/2006
|
|
|
12/14/2007
|
|
|
2/14/2008
|
|
|
1.8940
|
|
|
1.9047
|
|
|
1.9010
|
|
|
1.9079
|
|
|
($69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($899
|
)
|
|
|
February
28, 2006
|
|
Contract
|
|
|
Currency
to
|
|
|
Notional
|
|
|
Contract
|
|
|
Range
of Maturities
|
|
|
Spot
Rate at Contract
|
|
|
Spot
Rate
at
Feb.
28,
|
|
|
Weighted
Average
Forward
Rate
at
|
|
|
Weighted
Average
Forward
Rate
at
Feb. 28,
|
|
|
Market
Value
of
the
Contract
in
U.S. Dollars
|
|
Type
|
|
|
Deliver
|
|
|
Amount
|
|
|
Date
|
|
|
From
|
|
|
To
|
|
|
Date
|
|
|
2006
|
|
|
Inception
|
|
|
2006
|
|
|
(Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sell
|
|
|
Pounds
|
|
|
£10,000,000
|
|
|
1/26/2005
|
|
|
12/11/2006
|
|
|
2/9/2007
|
|
|
1.8700
|
|
|
1.7540
|
|
|
1.8228
|
|
|
1.7644
|
|
$
|
584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
expect
that as currency market conditions warrant, and our foreign denominated
transaction exposure grows, we will continue to execute additional contracts
in
order to hedge against potential foreign exchange losses.
INFORMATION
REGARDING FORWARD-LOOKING STATEMENTS
Certain
written and oral statements made by our Company and subsidiaries of our Company
may constitute "forward-looking statements" as defined under the Private
Securities Litigation Reform Act of 1995. This includes statements made in
this
report, in other filings with the SEC, in press releases, and in certain other
oral and written presentations. Generally, the words "anticipates", "believes",
"expects", "plans", "may", "will", "should", "seeks", "estimates", “project”,
"predict", "potential", "continue", "intends", and other similar words identify
forward-looking statements. All statements that address operating results,
events or developments that we expect or anticipate will occur in the future,
including statements related to sales, earnings per share results, and
statements expressing general expectations about future operating results,
are
forward-looking statements and are based upon the Company’s current expectations
and various assumptions. The Company believes there is a reasonable basis for
its expectations and assumptions, but there can be no assurance that the Company
will realize its expectations or that the Company's assumptions will prove
correct. Forward-looking statements are subject to risks that could cause them
to differ materially from actual results. Accordingly, the Company cautions
readers not to place undue reliance on forward-looking statements. We believe
that these risks include but are not limited to the risks described in this
report under Part II, Item 1A. “Risk Factors", and that are otherwise described
from time to time in our SEC reports filed after this report. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or
otherwise.
ITEM
4. CONTROLS AND PROCEDURES
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
Our
management, under the supervision and with the participation of our Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), has evaluated the
effectiveness of our disclosure controls and procedures as defined in Rule
13a-15(e) promulgated under the Securities Exchange Act as of the end of the
period covered by this report. Based on these evaluations management believes
that our disclosure controls and procedures are effective and ensure that
information we are required to disclose in reports that we file or submit under
the Securities Exchange Act is accumulated and communicated to management,
including the CEO and CFO, as appropriate to allow timely decisions regarding
required disclosure and is recorded, processed, summarized, and reported within
the time periods specified in the SEC’s rules and forms.
Our
management, including the CEO and CFO, does not expect that our disclosure
controls or our internal control over financial reporting will prevent all
error
and all fraud. A control system, no matter how well designed and operated,
can
provide only reasonable, not absolute, assurance that the control system’s
objectives will be met. Further, the design of a control system must reflect
the
fact that there are resource constraints, and the benefits of controls must
be
considered relative to their costs. Because of the inherent limitations in
all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the company have
been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Controls can also be circumvented by the individual acts
of
some persons, by collusion of two or more people, or by management override
of
the controls. The design of any system of controls is based in part on certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. Over time, controls may become inadequate because of changes
in conditions or deterioration in the degree of compliance with policies or
procedures. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
In
the
process of our evaluation, among other matters, we considered the existence
of
any “significant deficiencies” or “material weaknesses” in our internal control
over financial reporting, and whether we had identified any acts of fraud
involving personnel with a significant role in our internal control over
financial reporting. In the professional auditing literature, “significant
deficiencies” are referred to as “reportable conditions,” which are deficiencies
in the design or operation of controls that could adversely affect our ability
to record, process, summarize and report financial data in the financial
statements. Auditing literature defines “material weakness” as a particularly
serious reportable condition in which the internal control does not reduce
to a
relatively low level the risk that misstatements caused by error or fraud may
occur in amounts that would be material in relation to the financial statements
and the risk that such misstatements would not be detected within a timely
period by employees in the normal course of performing their assigned functions.
CHANGES
IN INTERNAL CONTROLS
In
connection with the evaluation described above, we identified no change in
our
internal control over financial reporting that occurred during our fiscal
quarter ended August 31, 2006, that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
PART
2. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
Securities
Class Action Litigation - Class
action lawsuits have been filed and consolidated into one action against the
Company, Gerald J. Rubin, the Company’s Chairman of the Board, President and
Chief Executive Officer, and Thomas J. Benson, the Company’s Chief Financial
Officer, on behalf of purchasers of publicly traded securities of the Company.
The Company understands that the plaintiffs allege violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
thereunder, on the grounds that the Company and the two officers engaged in
a
scheme to defraud the Company’s shareholders through the issuance of positive
earnings guidance intended to artificially inflate the Company’s share price so
that Mr. Rubin could sell almost 400,000 of the Company’s common shares at an
inflated price. The plaintiffs are seeking unspecified damages, interest, fees,
costs, an accounting of the insider trading proceeds, and injunctive relief,
including an accounting of and the imposition of a constructive trust and/or
asset freeze on the defendants’ insider trading proceeds. The class period
stated in the complaint was October 12, 2004 through October 10,
2005.
The
lawsuit was brought in the United States District Court for the Western District
of Texas and is still in the preliminary stages. The Company intends to defend
the foregoing lawsuit vigorously, but, because the lawsuit has been recently
filed, the Company cannot predict the outcome and is not currently able to
evaluate the likelihood of success or the range of potential loss, if any,
that
might be incurred in connection with the action. However, if the Company were
to
lose on any issues connected with the lawsuit or if the lawsuit is not settled
on favorable terms, the judgement or settlement may have a material adverse
effect on the Company's consolidated financial position, results of operations
and cash flows. There is a risk that such litigation could result in substantial
costs and divert management attention and resources from its business, which
could adversely affect the Company's business. The Company carries insurance
that provides an aggregate coverage of $20 million after a self-insured
retention of $500 thousand for the period during which the claims were filed,
but cannot evaluate at this time whether such coverage will be adequate to
cover
losses, if any, arising out of the lawsuit.
On
May
15, 2006 the Company filed a motion to dismiss the aforementioned lawsuit citing
numerous deficiencies with the claims asserted in the lawsuit. On June 29,
2006,
the plaintiffs filed with the court their opposition to the Company’s motion to
dismiss. On July 17, 2006 the Company filed a reply rebutting the plaintiffs’
June 29th opposition. As of the date this report was filed, this matter was
before the court for its consideration.
Hong
Kong Income Taxes
- On May
10, 2006, the Inland Revenue Department (the “IRD”) and the Company reached a
settlement regarding tax liabilities for the fiscal years 1995 through 1997.
This agreement was subsequently approved by the IRD’s Board of Review. For those
tax years, we agreed to an assessment of approximately $4,019 including
estimated penalties and interest. Our consolidated financial statements at
May
31, 2006 and February 28, 2006 include adequate provisions for this liability.
As a result of this tax settlement, in the first fiscal quarter of 2007, we
reversed $192 of tax provision previously established and recorded $279 of
associated interest. During the fiscal quarter just ended, the liability was
paid with $3,282 of tax reserve certificates and the balance in
cash.
For
the
fiscal years 1998 through 2003, the IRD has assessed a total of $25,461 (U.S.)
in tax on certain profits of our foreign subsidiaries. Hong Kong levies taxes
on
income earned from certain activities previously conducted in Hong Kong.
Negotiations with the IRD regarding these issues are ongoing, and it is unclear
at this time when they will be resolved.
In
connection with the IRD's tax assessment for the fiscal years 1998 through
2003,
we have purchased tax reserve certificates in Hong Kong totaling $25,144. Tax
reserve certificates represent the prepayment by a taxpayer of potential tax
liabilities. The amounts paid for tax reserve certificates are refundable in
the
event that the value of the tax reserve certificates exceeds the related tax
liability. These certificates are denominated in Hong Kong dollars and are
subject to the risks associated with foreign currency fluctuations.
If
the
IRD were to successfully assert the same position for fiscal years after fiscal
year 2003, the resulting assessment could total $18,673 (U.S.) in taxes for
fiscal years 2004 and 2005. We would vigorously disagree with any such proposed
adjustments and would aggressively contest this matter through the applicable
taxing authority and judicial process, as appropriate.
Although
the final resolution of the proposed adjustments is uncertain and involves
unsettled areas of the law, based on currently available information, we have
provided for our best estimate of the probable tax liability for this matter.
While the resolution of the issue may result in tax liabilities that are
significantly higher or lower than the reserves established for this matter,
management currently believes that the resolution will not have a material
effect on our consolidated financial position or liquidity. However, an
unfavorable resolution could have a material effect on our consolidated results
of operations or cash flows in the quarter in which an adjustment is recorded
or
the tax is due or paid.
United
States Income Taxes
- The
Internal Revenue Service (the “IRS”) has completed its audits of the U.S.
consolidated federal tax returns for fiscal years 2000, 2001 and 2002. We
previously disclosed that the IRS provided notice of proposed adjustments to
taxes of $13,424 for the three years under audit. We have resolved the various
tax issues and reached an agreement on additional tax in the amount of $3,568.
The resulting tax liability had already been provided for in our tax reserves
and prior to the current fiscal year we had decreased our tax accruals related
to the IRS audits for fiscal years 2000, 2001 and 2002, accordingly. This
additional tax liability and associated interest of $914 were settled in the
fourth quarter of fiscal 2006.
The
IRS
is auditing the U.S. consolidated federal tax returns for fiscal years 2003
and
2004 and has provided notice of proposed adjustments of $5,953 to taxes for
the
years under audit. The Company is vigorously contesting these adjustments.
Although the ultimate outcome of the examination cannot be predicted with
certainty, management is of the opinion that adequate provisions for taxes
in
those years have been made in the Company’s consolidated condensed financial
statements.
Other
Matters -
We
are
involved in various other legal claims and proceedings in the normal course
of
operations. We believe the outcome of these matters will not have a material
adverse effect on our consolidated financial position, results of operations,
or
liquidity.
ITEM
1A. RISK FACTORS
The
ownership of our common shares involves a number of risks and uncertainties.
In
evaluating us and our business before making an investment decision regarding
our securities, potential investors should carefully consider the risk factors
and uncertainties described in "Item 1A. Risk Factors" to Part I of our Annual
Report on Form 10-K for the year ended February 28, 2006 as well as the risk
factors listed below, which supplement the risk factors contained in our
Form
10-K. If any of the events or circumstances described in our 10-K or listed
below actually occur, our business, financial condition or results of operations
could be materially adversely affected. The risks contained in our 10-K and
those listed below are not the only risks that we face. Additional risks
that we
do not yet know of or that we currently think are not significant may also
impact our business operation.
We
rely on key
senior management to operate our business; the loss of any of these senior
managers could have a material adverse impact on our
business.
We
do not
have a large group of senior executives in our business. Accordingly, we depend
on a small number of key senior executives. The loss of any of these persons
could have a material adverse effect on our business, financial condition and
results of operations, particularly if we are unable to find, relocate and
integrate adequate replacements for any of these persons. Further, in order
to
continue to grow our business, we will need to expand our key senior management
team. We may be unable to attract or retain these persons. This could hinder
our
ability to grow our business and could disrupt our operations or materially
adversely affect the success of our business.
We
have experienced delays in implementing the consolidation of our inventories
into our new Southaven, Mississippi distribution facility. Additional delays
could have a material adverse impact on our operations and
profitability.
Our
business operations are dependent on our logistical systems, which include
our
order management system and our computerized warehouse management system. These
logistical systems depend on our new Global Enterprise Resource Planning System.
On September 7, 2004, we implemented our new Global Enterprise Resource Planning
System, along with other new technologies. Following the implementation of
this
new system, most of our businesses (other than our Housewares segment) ran
under
one integrated information system. We continue to closely monitor the new system
and make normal and expected adjustments to improve its effectiveness.
Complications resulting from process adjustments could potentially cause
considerable disruptions to our business. The change to the new system continues
to involve risk. Application program bugs, system conflict crashes, user error,
data integrity issues, customer data conflicts and integration issues with
certain remaining legacy systems all pose potential risks. Implementing new
data
standards and converting existing data to accommodate the new system's
requirements have required a significant effort across our entire organization.
During
the third fiscal quarter of 2005, we began the implementation and transition
of
our Housewares segment to the new system. The information system transition
was
completed late in the fourth fiscal quarter of 2006. We continue to implement
several significant functionality enhancements related to both the Housewares
segment’s and Personal Care segment’s systems. We expect this process will
continue during fiscal 2007.
The
Houseware segment’s move to our new 1,200,000 square foot distribution facility
in Southaven, Mississippi and conversion to related distribution systems began
in December 2005 and is substantially complete. Our Housewares segment
distribution and logistics requirements differ significantly from our
traditional Personal Care segment business. In our Housewares segment, we were
required to improve our ability to deliver larger, more complex assortments
in
smaller individual item volumes to a much more diverse group of retailers,
as
compared to our Personal Care segment. Conversions of this nature involve
extremely complex processes, characterized by interruptions and the diversion
of
management's attention for a period of time after the conversion as the
organization adapts to the new system and seeks to respond quickly to its
day-to-day operations requirements. Initially, we experienced warehouse order
processing and shipment delays. These delays were the result of software issues,
adapting to the new equipment, new employees, and the operation of the new
distribution facility. The delays caused a backlog in orders and in some cases,
order cancellations. Throughout the first fiscal quarter of 2007 we continued
to
work to resolve the technical and operational issues that were causing the
delays and address the issues with affected customers. By the end of the
quarter, we believe we had addressed the most significant issues and the new
facility began to attain its originally planned operational throughput. In
the
fourth quarter of fiscal 2006, we also completed the move of our grooming,
skin
care, and hair products inventories from our El Paso, Texas distribution
facility to the new Southaven, Mississippi facility and commenced shipments
from
that facility. In this move, we experienced transitional issues, but none of
the
magnitude or impact as those we experienced with Housewares.
We
originally had planned to move the balance of our domestic Personal Care segment
appliance inventory into the new distribution facility by the end of the first
fiscal quarter. However, due to the issues we experienced with our Housewares
segment, we decided to delay the completion of this transition. Once we are
satisfied that operations have stabilized with respect to the inventories in
place at the new distribution facility, and we are past our peak shipping
season, we will move the balance of our appliance inventory from its existing
distribution facility to the new distribution facility. In connection with
this
decision, we
have
recently obtained an extension on the lease of our formerly owned distribution
facility
which is currently used for our appliance inventory.
As a
result of the extension, the lease term expires February 28, 2007. This
extension of the agreement was made in order to provide us additional
flexibility in the timing of the transition of our remaining operations between
distribution
facilities.
While
we
believe we have taken appropriate measures to mitigate the recent shipment
disruptions arising from the transition of our Housewares segment, as discussed
above, we still have a significant inventory transition to complete with our
Personal Care Segment appliance product line. Unanticipated operational changes
made as a result of this and future transitions may impact the level of the
cost
benefits we ultimately realize. These transitions will increase the risk that
operations might be further disrupted, and that the cost benefits expected
to be
achieved through facility consolidation will continue to be delayed. While
we
believe we have the process and appropriate management in place to effectively
manage these transitions and rapidly respond to mitigate any issues that may
arise as a result of the transition, there can be no assurance that additional
disruptions will not occur.
We
rely on our Global Enterprise Resource Planning System for a significant portion
of our operations. Certain international operations still need to be
transitioned to the new system. Our failure to, or delays in, successfully
transitioning all our operations onto this system, could have a material adverse
impact on our operations and profitability.
We
will
be transitioning Mexico and other Latin American operations to the new system
later in fiscal 2007 and in fiscal 2008. In addition, our Housewares segment
recently opened selling offices in Japan and Great Britain and efforts to bring
up appropriate software systems for these operations are underway. Due to the
complexities of these efforts, we expect to continue to experience a period
of
significant change and tuning of the system for many months. While nothing
has
come to our attention that would lead us to believe that we may experience
additional operational issues, errors or misstatements of our financial results
during this time-frame, we recognize that these continue to be challenging
transitions for us and will require close monitoring to keep our documentation
and application of internal controls current.
We
expect
that these and other planned implementations and functional software
enhancements will continue to strain our internal resources, could further
impact our business, and may result in higher implementation costs and
reallocation of human resources. While we believe we have the process and
appropriate management in place to effectively manage these changes and rapidly
respond to mitigate any issues that may arise as a result of the transition,
there can be no assurance that additional disruptions will not occur.
To
support these new technologies, we are continuously building and supporting
a
much larger and more complex information technology infrastructure. Increased
computing capacity, power requirements, back-up capacities, broadband network
infrastructure and increased security requirements are all potential areas
for
failure and risk. We continue to rely on outside vendors to assist us with
implementation and enhancements and will continue to rely on certain vendors
to
assist us in maintaining some of our infrastructure. Should they fail to perform
due to events outside our control, it could affect our service levels and
threaten our ability to conduct business. We continue to transition many of
these third party services to our in-house staff. The transition from third
party services to in-house staffing of such services poses risks that could
cause additional business disruptions. Finally, natural disasters may disrupt
our infrastructure and our disaster recovery process may not be sufficient
to
protect against loss.
Any
interruption in our logistical systems would impact our ability to procure
our
products from our factories and suppliers, transport them to our distribution
facilities, and store and deliver them to our customers on time and in the
correct amounts. These and other factors described above could have a material
and adverse affect on our business, financial condition and results of
operations.
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
During
the quarter ended August 31, 2003, our Board of Directors authorized us to
purchase, in the open market or through private transactions, up to 3,000,000
shares of our common stock over a period extending to May 31, 2006. On April
25,
2006 our Board of Directors approved a resolution to extend the existing
plan
for three more years through May 31, 2009. During the three- and six-months
ended August 31, 2006 and 2005, respectively, we did not repurchase any common
shares. From September 1, 2003 through August 31, 2006, we have repurchased
1,563,836 shares at a total cost of $45,611,690 or an average share price
of
$29.17. An additional 1,436,164 shares are authorized for purchase under
this
plan.
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
The
Company's Annual Meeting of Shareholders was held August 8, 2006 in El Paso,
Texas. At that meeting, the shareholders voted on the following
proposals:
·
|
Proposal
1.
|
Election
of a board of eight directors;
|
|
|
|
·
|
Proposal 2. |
Appointment
of KPMG LLP as independent auditors of the Company to serve for the
2007
fiscal year.
|
A
description of the foregoing matters is contained in the Company's Proxy
Statement dated June 29, 2006, relating to the 2006 Annual Meeting of
Shareholders.
With
respect to Proposal 1, the shareholders elected each of the following directors
to the Company's Board of Directors by the votes indicated below, to serve
for
the ensuing year:
|
|
For
|
|
Against
|
|
|
|
|
|
|
|
Gary
B. Abromovitz
|
|
|
23,828,775
|
|
|
4,084,929
|
|
John
B. Butterworth
|
|
|
25,700,018
|
|
|
2,213,686
|
|
Timothy
F. Meeker
|
|
|
18,826,642
|
|
|
9,087,062
|
|
Byron
H. Rubin
|
|
|
18,992,969
|
|
|
8,920,735
|
|
Gerald
J. Rubin
|
|
|
19,566,148
|
|
|
8,347,556
|
|
Stanlee
N. Rubin
|
|
|
17,441,202
|
|
|
10,472,502
|
|
Adolpho
R. Telles
|
|
|
25,692,853
|
|
|
2,220,851
|
|
Darren
G. Woody
|
|
|
25,190,598
|
|
|
2,723,106
|
|
The
proposal to appoint KPMG LLP as independent auditors of the Company received
the
following votes:
|
|
|
|
|
|
Broker
|
|
For
|
|
Against
|
|
Abstentions
|
|
Non-Votes
|
|
|
|
|
|
|
|
|
|
27,762,341
|
|
|
119,908
|
|
|
31,455
|
|
|
-
|
|
ITEM 6. |
EXHIBITS
|
|
|
|
|
|
|
(a)
|
Exhibits
|
|
|
|
|
|
|
|
31.1
|
Certification
of the Chief Executive Officer required by Rule 13a-14(a) or Rule
15d-14(a) pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
|
31.2
|
Certification
of the Chief Financial Officer required by Rule 13a-14(a) or Rule
15d-14(a) pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
|
32.1
|
Certification
of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
|
32.2
|
Certification
of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
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
9, 2006
|
/s/
Gerald J. Rubin
|
|
Gerald
J. Rubin
|
|
Chairman
of the Board, Chief
|
|
Executive
Officer, President, Director
|
|
and
Principal Executive Officer
|
|
|
Date: October
9, 2006
|
/s/
Thomas J. Benson
|
|
Thomas
J. Benson
|
|
Senior
Vice-President
|
|
and
Chief Financial Officer
|
|
|
Date: October
9, 2006
|
/s/
Richard J. Oppenheim
|
|
Richard
J. Oppenheim
|
|
Financial
Controller
|
|
and
Principal Accounting Officer
|
|
|
Index
to Exhibits
31.1*
|
Certification
of the Chief Executive Officer required by Rule 13a-14(a) or Rule
15d-14(a) pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
31.2*
|
Certification
of the Chief Financial Officer required by Rule 13a-14(a) or Rule
15d-14(a) pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.1*
|
Certification
of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.2*
|
Certification
of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
*
Filed
herewith