Helen of Troy(HELE) - 2019 Q4 - Annual Report

PART I Item 1. Business Helen of Troy is a global consumer products company with three core segments, executing a multi-phase transformation strategy focused on its Leadership Brands - Helen of Troy operates in three continuing business segments: Housewares, Health & Home, and Beauty[15] - Fiscal 2019 marked the completion of Phase I of a multi-year transformation strategy, which improved core sales growth, facilitated strategic acquisitions, enhanced operating efficiency, and returned capital to shareholders[18] - Phase II of the transformation strategy, starting in fiscal 2020, aims for improved organic sales growth, continued margin expansion, and strategic capital deployment[19][21] - The company is exploring the divestiture of its Personal Care business to focus resources on Leadership Brands such as OXO, Honeywell, Braun, PUR, Hydro Flask, Vicks, and Hot Tools[22] - Sales within the United States comprised approximately 78% of total net sales revenue in fiscal 2019[28] - Finished goods manufactured by vendors in the Far East comprised approximately 74% of total finished goods purchased in fiscal 2019[30] Consolidated Net Sales Revenue by Key Customer (Fiscal Years 2017-2019) | Customer | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | | :--- | :--- | :--- | :--- | | Walmart, Inc | 16% | 17% | 17% | | Amazon.com Inc | 16% | 13% | 10% | | Target Corporation | 10% | 10% | 10% | | Top Five Customers (Aggregate) | 51% | 49% | 48% | Seasonality as a Percentage of Annual Net Sales Revenue (Fiscal Years 2017-2019) | Fiscal Quarter Ended | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | May | 22.7% | 22.0% | 22.2% | | August | 25.2% | 23.3% | 23.8% | | November | 27.6% | 28.5% | 29.3% | | February | 24.6% | 26.2% | 24.7% | Item 1A. Risk Factors The company faces risks from customer concentration, potential asset impairment, currency fluctuations, and reliance on third-party manufacturing in the Far East - The company is increasingly dependent on key customers, with its two largest customers accounting for approximately 32% of consolidated net sales revenue in fiscal 2019, and the top five customers accounting for approximately 51%[46][50] - A significant portion of long-term assets consists of goodwill and other indefinite-lived intangible assets, which are reviewed annually for impairment and could result in significant charges[53][54] - Operations are exposed to foreign currency exchange rate fluctuations, particularly from non-U.S. operations and purchases from Chinese manufacturers[56][57] - The company is dependent on third-party manufacturers, primarily in China (74% of finished goods purchased in fiscal 2019), exposing it to various international trade and political risks[60][64] - Most U.S. distribution functions are consolidated into two facilities in Mississippi, which handled approximately 60% of consolidated gross sales volume in fiscal 2019, increasing disruption risk[65] - New global privacy laws like GDPR and CCPA create new compliance obligations and expand potential liability, which could materially impact financial condition[77][78] - New economic substance legislation in Bermuda and Barbados, enacted in response to EU reviews, has an unclear impact on the company's operations[86][88][89] Item 1B. Unresolved Staff Comments There are no unresolved staff comments - No unresolved staff comments[90] Item 2. Properties The company owns or leases 38 properties globally, totaling approximately 4.2 million square feet, including key distribution centers in Mississippi - As of February 28, 2019, the company owns, leases, or utilizes 38 properties worldwide, totaling approximately 4.2 million square feet[91] Owned Properties by Location, Type, Use, and Size (as of February 28, 2019) | Location | Type and Use | Business Segment | Approximate Size (Square Feet) | | :--- | :--- | :--- | :--- | | El Paso, Texas, USA | Land & Building - U.S. Headquarters | All Segments | 135,000 | | El Paso, Texas, USA | Land & Building - Distribution Facility | Housewares, Health & Home and Beauty | 408,000 | | Olive Branch, Mississippi, USA | Land & Building - Distribution Facility | Health & Home and Beauty | 1,300,000 | | Southaven, Mississippi, USA | Land & Building - Distribution Facility | Housewares and Beauty | 1,200,000 | | Sheffield, England | Land & Building - Office Space | Housewares, Health & Home and Beauty | 10,400 | | Mexico City, Mexico | Land & Building - Office Space | Health & Home and Beauty | 3,900 | - The company leases or otherwise utilizes 32 properties, comprising approximately 1.5 million square feet of office and distribution space[93] Item 3. Legal Proceedings The company is involved in various legal proceedings that are not expected to have a material adverse effect on its financial position or results - The company is involved in various legal claims and proceedings in the normal course of operations, which management believes will not have a material adverse effect[94] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[95] PART II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The company's stock (HELE) is on NASDAQ; earnings are retained for growth, and a $400 million share repurchase program is active - The company's common stock is listed on the NASDAQ Global Select Market under the symbol: HELE[98] - As of April 22, 2019, there were 144 holders of record of the company's common stock[99] - The company's policy is to retain earnings for operations and has not paid any cash dividends since inception[100] - A $400 million common stock repurchase authorization is effective until May 2020, with $110.5 million remaining available as of February 28, 2019[101] Common Stock Repurchase Activity (Fiscal Years 2017-2019) | Category | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | | :--- | :--- | :--- | :--- | | Common stock repurchased on the open market: | | | | | Number of shares | 1,875,469 | 717,300 | 922,731 | | Aggregate value of shares | $212,080 | $65,795 | $75,000 | | Average price per share | $113.08 | $91.73 | $81.28 | | Common stock received in connection with share-based compensation: | | | | | Number of shares | 59,024 | 75,785 | 6,286 | | Aggregate value of shares | $5,413 | $7,258 | $595 | | Average price per share | $91.70 | $95.77 | $94.61 | Item 6. Selected Financial Data This section presents a five-year summary of selected financial data from continuing operations, excluding the divested Nutritional Supplements segment - Selected financial data is derived from audited financial statements for fiscal years 2017-2019[109] - The operating results of the Nutritional Supplements segment, divested in December 2017, are presented as discontinued operations for all applicable periods[109] Selected Consolidated Income Statement Data (Fiscal Years 2015-2019) | (in thousands, except per share data) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Sales revenue, net | $1,564,151 | $1,478,845 | $1,397,535 | $1,383,393 | $1,334,970 | | Gross profit | $641,106 | $611,199 | $573,416 | $516,551 | $516,906 | | Operating income | $199,379 | $169,062 | $169,664 | $116,294 | $152,215 | | Income from continuing operations | $174,224 | $128,882 | $144,310 | $92,991 | $126,322 | | Net income | $168,545 | $44,446 | $140,689 | $101,228 | $131,164 | | Diluted EPS - Continuing operations | $6.62 | $4.73 | $5.17 | $3.23 | $4.35 | | Diluted EPS - Net income | $6.41 | $1.63 | $5.04 | $3.52 | $4.52 | Selected Consolidated Cash Flow Data from Continuing Operations (Fiscal Years 2015-2019) | (in thousands) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $200,568 | $218,609 | $212,491 | $170,263 | $171,742 | | Capital and intangible asset expenditures | $26,385 | $13,605 | $15,507 | $16,676 | $5,908 | | Payments to acquire businesses, net of cash acquired | — | — | $209,267 | $43,150 | $195,943 | Selected Consolidated Balance Sheet Data from Continuing Operations (Fiscal Years 2015-2019) | (in thousands) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Working capital | $292,828 | $258,222 | $267,896 | $487,861 | $308,895 | | Total assets | $1,649,535 | $1,623,717 | $1,616,235 | $1,639,673 | $1,444,163 | | Long-term debt | $318,900 | $287,985 | $461,211 | $600,107 | $411,307 | | Stockholders' equity | $996,637 | $1,014,459 | $1,020,766 | $930,043 | $904,565 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial results, highlighting the transformation strategy, key business trends, segment performance, and liquidity - Fiscal 2019 marked the completion of Phase I of the multi-year transformation strategy, which improved core sales growth and operating efficiency[120] - Phase II of the transformation strategy, starting in fiscal 2020, aims for improved organic sales growth and continued margin expansion[121] - Project Refuel, a restructuring plan, is expected to be completed in fiscal 2020, targeting $8.0 million to $10.0 million in annualized profit improvements[122] - USTR tariffs on Chinese imports unfavorably impacted cost of sales by approximately $4.0 million in fiscal 2019[123][124] - Online sales comprised approximately 19% of total consolidated net sales revenue in fiscal 2019, growing over 28% year-over-year[130] Consolidated Operating Results Summary (Fiscal Years 2017-2019) | Metric (in thousands) | 2019 | % of Sales | 2018 | % of Sales | 2017 | % of Sales | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Sales revenue, net | $1,564,151 | 100.0% | $1,478,845 | 100.0% | $1,397,535 | 100.0% | | Gross profit | $641,106 | 41.0% | $611,199 | 41.3% | $573,416 | 41.0% | | SG&A | $438,141 | 28.0% | $424,833 | 28.7% | $400,852 | 28.7% | | Operating income | $199,379 | 12.7% | $169,062 | 11.4% | $169,664 | 12.1% | | Income from continuing operations | $174,224 | 11.1% | $128,882 | 8.7% | $144,310 | 10.3% | | Net income | $168,545 | 10.8% | $44,446 | 3.0% | $140,689 | 10.1% | Consolidated Net Sales Revenue Growth (Fiscal Years 2018-2019) | Metric | FY2019 vs FY2018 | FY2018 vs FY2017 | | :--- | :--- | :--- | | Total net sales revenue growth | 5.8% | 5.8% | | Core business growth | 5.9% | 5.0% | | Impact of foreign currency | (0.1)% | 0.4% | | Acquisitions growth | —% | 0.4% | Leadership Brand and Other Net Sales (Fiscal Years 2017-2019) | (in thousands) | 2019 | 2018 | 2017 | $ Change 19/18 | $ Change 18/17 | % Change 19/18 | % Change 18/17 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Leadership Brand sales revenue, net | $1,243,600 | $1,142,183 | $1,044,208 | $101,417 | $97,975 | 8.9% | 9.4% | | All other sales revenue, net | $320,551 | $336,662 | $353,327 | $(16,111) | $(16,665) | (4.8)% | (4.7)% | | Total sales revenue, net | $1,564,151 | $1,478,845 | $1,397,535 | $85,306 | $81,310 | 5.8% | 5.8% | Consolidated and Adjusted Operating Income and Margin (Fiscal Years 2017-2019) | Metric (in thousands) | 2019 | Margin | 2018 | Margin | 2017 | Margin | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Operating income (GAAP) | $199,379 | 12.7% | $169,062 | 11.4% | $169,664 | 12.1% | | Adjusted operating income (non-GAAP) | $239,222 | 15.3% | $223,870 | 15.1% | $209,917 | 15.0% | Income from Continuing Operations and Diluted EPS (Fiscal Years 2017-2019) | Metric (in thousands, except per share data) | 2019 | Diluted EPS | 2018 | Diluted EPS | 2017 | Diluted EPS | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Income from continuing operations (GAAP) | $174,224 | $6.62 | $128,882 | $4.73 | $144,310 | $5.17 | | Adjusted income from continuing operations (non-GAAP) | $212,085 | $8.06 | $197,224 | $7.24 | $180,905 | $6.49 | Selected Liquidity and Capital Utilization Measures (Fiscal Years 2018-2019) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Accounts Receivable Turnover (Days) | 68.3 | 62.7 | | Inventory Turnover (Times) | 3.3 | 3.0 | | Working Capital (in thousands) | $292,828 | $258,222 | | Current Ratio | 1.9:1 | 1.9:1 | | Ending Debt to Ending Equity Ratio | 32.2% | 28.6% | | Return on Average Equity | 16.9% | 12.7% | Net Cash Provided by Operating Activities (Fiscal Years 2017-2019) | (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Continuing operations | $200,568 | $218,609 | $212,491 | | Discontinued operations | $(5,265) | $5,598 | $16,010 | | Total | $195,303 | $224,207 | $228,501 | Contractual Obligations and Commercial Commitments (as of February 28, 2019) | (in thousands) | Total | < 1 year | 1-2 years | 2-3 years | 3-4 years | 4-5 years | > 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Floating rate debt | $323,607 | $1,900 | $1,900 | $303,100 | $1,900 | $14,807 | — | | Long-term incentive plan payouts | $12,708 | $7,012 | $3,481 | $2,215 | — | — | — | | Interest on floating rate debt | $32,237 | $11,453 | $11,387 | $8,879 | $518 | — | — | | Open purchase orders | $234,659 | $234,659 | — | — | — | — | — | | Minimum royalty payments | $49,159 | $12,650 | $12,855 | $13,040 | $7,914 | $2,700 | — | | Advertising and promotional | $37,401 | $18,933 | $6,411 | $6,527 | $5,530 | — | — | | Operating leases | $69,482 | $5,171 | $6,678 | $6,411 | $5,743 | $5,078 | $40,401 | | Capital spending commitments | $4,602 | $4,602 | — | — | — | — | — | | Total contractual obligations | $763,855 | $296,380 | $42,712 | $340,172 | $21,605 | $22,585 | $40,401 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are foreign currency exchange rates and interest rates, which are managed through hedging instruments - The company's primary financial market risks are changes in currency exchange rates and interest rates[231] - Foreign currency risk arises from transactions denominated in foreign currencies (approximately 13% of net sales revenue in fiscal 2019) and purchases from Chinese manufacturers[232][236] - The company uses forward contracts and zero-cost collars as cash flow hedges and mark-to-market derivatives to mitigate foreign currency exchange rate risk[235] - A hypothetical adverse 10% change in foreign currency rates would reduce the carrying and fair values of hedging instruments by $8.2 million on a pre-tax basis in fiscal 2019[235] - Interest on outstanding debt is floating, and interest rate swaps are used to hedge $225.0 million of the outstanding floating rate debt[238] - A hypothetical adverse 10% change in interest rates would reduce the carrying and fair values of interest rate swaps by $2.1 million on a pre-tax basis in fiscal 2019[238] Item 8. Financial Statements and Supplementary Data This section contains the audited consolidated financial statements, management's report on internal controls, and the independent auditor's reports - Management concluded that the company's internal control over financial reporting was effective as of February 28, 2019, based on the COSO framework[245] - Grant Thornton LLP issued an unqualified opinion on the effectiveness of internal control over financial reporting and the consolidated financial statements for the year ended February 28, 2019[248][249][256][257] Consolidated Balance Sheets (as of February 28, 2019 and 2018) | (in thousands) | Feb 28, 2019 | Feb 28, 2018 | | :--- | :--- | :--- | | Assets, current: | | | | Cash and cash equivalents | $11,871 | $20,738 | | Receivables - principally trade | $280,280 | $275,565 | | Inventory | $302,339 | $251,511 | | Total assets, current | $604,859 | $557,708 | | Property and equipment, net | $130,338 | $123,503 | | Goodwill | $602,320 | $602,320 | | Other intangible assets, net | $291,526 | $302,915 | | Total assets | $1,649,535 | $1,623,717 | | Liabilities, current: | | | | Accounts payable, principally trade | $143,560 | $129,341 | | Accrued expenses and other current liabilities | $165,160 | $168,261 | | Total liabilities, current | $312,031 | $299,486 | | Long-term debt, excluding current maturities | $318,900 | $287,985 | | Total liabilities | $652,898 | $609,258 | | Stockholders' equity: | | | | Total stockholders' equity | $996,637 | $1,014,459 | Consolidated Statements of Income (Fiscal Years 2017-2019) | (in thousands, except per share data) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Sales revenue, net | $1,564,151 | $1,478,845 | $1,397,535 | | Gross profit | $641,106 | $611,199 | $573,416 | | Operating income | $199,379 | $169,062 | $169,664 | | Income from continuing operations | $174,224 | $128,882 | $144,310 | | Loss from discontinued operations, net of tax | $(5,679) | $(84,436) | $(3,621) | | Net income | $168,545 | $44,446 | $140,689 | | Diluted EPS - Continuing operations | $6.62 | $4.73 | $5.17 | | Diluted EPS - Total | $6.41 | $1.63 | $5.04 | Consolidated Statements of Cash Flows (Fiscal Years 2017-2019) | (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $195,303 | $224,207 | $228,501 | | Net cash provided (used) by investing activities | $(25,247) | $35,634 | $(229,854) | | Net cash used by financing activities | $(178,923) | $(262,190) | $(201,360) | | Net decrease in cash and cash equivalents | $(8,867) | $(2,349) | $(202,713) | | Cash and cash equivalents, ending balance | $11,871 | $20,738 | $23,087 | Note 1 – Summary of Significant Accounting Policies and Related Information This note details the company's significant accounting policies, including revenue recognition, inventory valuation, and goodwill impairment testing - The company operates in three segments, and its business is seasonal, with the highest sales typically in the third fiscal quarter[271][273] - The U.S. Dollar is the functional currency for the company and all its subsidiaries, with foreign exchange gains and losses recognized in SG&A[280] - Inventory is stated at the lower of average costs or net realizable value[281][282] - Net sales revenue subject to trademark license agreements requiring royalty payments comprised approximately 41% of consolidated net sales revenue for fiscal 2019[286] - Goodwill and indefinite-lived intangible assets are not amortized but are evaluated for impairment annually[289][291] - The company adopted ASU 2014-9 (Topic 606) in fiscal 2019, recognizing revenue when control of the product transfers to the customer[301] Note 2 – New Accounting Pronouncements This note details new accounting pronouncements, highlighting the material balance sheet impact expected from the new lease accounting standard - ASU 2016-02, Leases (Topic 842), effective March 1, 2019, is expected to have a material impact on the consolidated balance sheet by recognizing lease liabilities and right-of-use assets[311] - ASU 2017-12, Derivatives and Hedging, effective March 1, 2019, is not expected to have a material impact[312] - ASU 2018-15 (Cloud Computing) and ASU 2018-13 (Fair Value Measurement) are effective March 1, 2020, and their impacts are currently being evaluated[313][314] - Recently adopted pronouncements, including those related to revenue recognition and goodwill impairment, had no material impact on financial statements[316][317][319][320][321] Note 3 – Revenue Recognition The company adopted ASU 2014-09 (Topic 606) retrospectively, resulting in the reclassification of certain customer incentives from SG&A to net sales - The company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), in the first quarter of fiscal 2019 using the retrospective method[322] - The adoption led to the reclassification of certain customer incentives from SG&A to a reduction of net sales revenue[323] - Estimated sales returns were reclassified from a reduction of receivables to accrued expenses and other current liabilities[323] Impact of ASU 2014-9 Reclassification on Financial Statements (Fiscal Years 2017-2018) | (in thousands) | Before Reclassification (FY2018) | Reclassification (FY2018) | After Reclassification (FY2018) | | :--- | :--- | :--- | :--- | | Sales revenue, net | $1,489,747 | $(10,902) | $1,478,845 | | SG&A | $435,735 | $(10,902) | $424,833 | | | | | | | (in thousands) | Before Reclassification (FY2017) | Reclassification (FY2017) | After Reclassification (FY2017) | | :--- | :--- | :--- | :--- | | Sales revenue, net | $1,406,676 | $(9,141) | $1,397,535 | | SG&A | $409,993 | $(9,141) | $400,852 | Note 4 – Discontinued Operations The Nutritional Supplements segment was divested in December 2017, and its results, including significant prior-year impairment charges, are reported as discontinued operations - The Nutritional Supplements segment was divested on December 20, 2017, for $46.0 million in cash and a supplemental payment[326] - The estimated value of the supplemental payment was reduced in Q3 FY2019, resulting in a pre-tax charge of $5.8 million to discontinued operations[326] - Fiscal 2018 loss from discontinued operations included goodwill and trademark impairment charges totaling $132.3 million pre-tax[328] Results of Discontinued Operations (Fiscal Years 2017-2019) | (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Sales revenue, net | — | $99,013 | $130,543 | | Gross profit | — | $70,269 | $92,911 | | Operating loss | — | $(135,068) | $(5,331) | | Loss from discontinued operations | $(5,679) | $(84,436) | $(3,621) | Note 5 – Property and Equipment Net property and equipment totaled $130.3 million as of February 28, 2019, with depreciation expense for the fiscal year at $15.7 million - Depreciation expense for fiscal 2019 was $15.7 million[329] - Rent expense related to operating leases was $7.9 million for fiscal 2019[330] Property and Equipment, Net (as of February 28, 2019 and 2018) | (in thousands) | Feb 28, 2019 | Feb 28, 2018 | | :--- | :--- | :--- | | Land | $12,644 | $12,800 | | Building and improvements | $113,820 | $106,870 | | Computer, furniture and other equipment | $84,711 | $79,657 | | Tools, molds and other production equipment | $36,378 | $33,466 | | Construction in progress | $6,529 | $5,912 | | Property and equipment, gross | $254,082 | $238,705 | | Less accumulated depreciation | $(123,744) | $(115,202) | | Property and equipment, net | $130,338 | $123,503 | Note 6 – Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities totaled $165.2 million as of February 28, 2019, with key components including compensation and sales allowances Accrued Expenses and Other Current Liabilities (as of February 28, 2019 and 2018) | (in thousands) | Feb 28, 2019 | Feb 28, 2018 | | :--- | :--- | :--- | | Accrued compensation, benefits and payroll taxes | $36,782 | $37,666 | | Accrued sales discounts and allowances | $28,655 | $28,311 | | Accrued sales returns | $23,316 | $24,842 | | Accrued advertising | $26,549 | $25,324 | | Accrued legal fees and settlements | $2,604 | $17,243 | | Other | $47,254 | $34,875 | | Total accrued expenses and other current liabilities | $165,160 | $168,261 | Note 7 – Hydro Flask Acquisition The company acquired Hydro Flask in March 2016 for approximately $209.3 million, recording significant goodwill and intangible assets - On March 18, 2016, the company acquired Steel Technology, LLC (Hydro Flask) for approximately $209.3 million, net of cash acquired[332] Net Assets of Hydro Flask Recorded at Acquisition Date (March 18, 2016) | (in thousands) | Amount | | :--- | :--- | | Receivables | $7,955 | | Inventory | $6,243 | | Property and equipment | $1,108 | | Goodwill | $116,053 | | Trade names - indefinite | $59,000 | | Technology assets - definite | $10,300 | | Customer relationships - definite | $14,200 | | Total Assets | $215,195 | | Total Liabilities | $5,937 | | Net assets recorded | $209,258 | Hydro Flask Pro Forma Impact on Consolidated Statements of Income (Fiscal Years 2016-2017) | (in thousands, except earnings per share data) | 2017 | 2016 | | :--- | :--- | :--- | | Sales revenue, net | $1,410,171 | $1,450,530 | | Net income | $144,947 | $105,669 | | Earnings per share: Basic | $5.27 | $3.74 | | Earnings per share: Diluted | $5.20 | $3.68 | Note 8 – Goodwill and Intangibles Goodwill and intangible assets are tested annually for impairment, with no charges in fiscal 2019 but charges recorded for Beauty segment trademarks in prior years - Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment annually[338][340] - Impairment testing primarily uses estimated future discounted cash flow models, which involve significant management judgment[339][340] - No impairment charges related to goodwill or intangible assets were recorded during fiscal 2019[342] - In fiscal 2018, non-cash asset impairment charges of $15.4 million were recorded for certain trademarks in the Beauty segment[342] - In fiscal 2017, non-cash impairment charges of $2.9 million were recorded for certain trademarks in the Beauty segment[344] Goodwill and Intangible Assets by Segment (as of February 28, 2019) | (in thousands) | Goodwill | Trademarks - indefinite | Other intangibles - finite | Total Net Book Value | | :--- | :--- | :--- | :--- | :--- | | Housewares | $282,056 | $134,200 | $22,019 | $438,275 | | Health & Home | $284,913 | $54,000 | $31,662 | $377,975 | | Beauty | $35,351 | $30,407 | $1,538 | $77,596 | | Total | $602,320 | $218,607 | $55,219 | $893,846 | Estimated Amortization Expense for Intangible Assets (Fiscal Years 2020-2024) | Fiscal Year | Estimated Amortization Expense (in thousands) | | :--- | :--- | | 2020 | $13,142 | | 2021 | $10,563 | | 2022 | $4,057 | | 2023 | $3,986 | | 2024 | $3,679 | Note 9 – Share-Based Compensation Plans The company maintains active stock incentive and employee stock purchase plans, with total share-based compensation expense of $22.1 million in fiscal 2019 - The company has two active share-based compensation plans: the 2018 Stock Incentive Plan and the 2018 Employee Stock Purchase Plan (ESPP)[348] - The 2018 Plan permits the granting of various stock awards, with an aggregate of 2,000,000 shares authorized for issuance[353] - The 2018 ESPP authorizes 750,000 shares, allowing employees to purchase shares at a discount[354] - Total unrecognized share-based compensation expense as of February 28, 2019, was $18.8 million[356] Share-Based Compensation Expense (Fiscal Years 2017-2019) | (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Stock options | $829 | $1,634 | $2,614 | | Directors stock compensation | $526 | $525 | $514 | | Performance based and other stock awards | $20,047 | $12,631 | $10,243 | | Employee stock purchase plan | $651 | $264 | $490 | | Share-based compensation expense | $22,053 | $15,054 | $13,861 | | Less income tax benefits | $(1,395) | $(1,669) | $(1,762) | | Share-based compensation expense, net of income tax benefits | $20,658 | $13,385 | $12,099 | Note 10 – Defined Contribution Plans The company sponsors defined contribution savings plans, with total matching contributions of $4.0 million in fiscal 2019 - Total company matching contributions to defined contribution savings plans were $4.0 million in fiscal 2019, $3.9 million in fiscal 2018, and $3.2 million in fiscal 2017[362] Note 11 – Repurchase of Helen of Troy Common Stock The company repurchased $212.1 million of its common stock in fiscal 2019 under a $400 million authorization effective until May 2020 - The Board of Directors authorized the repurchase of up to $400 million of common stock, with $110.5 million remaining available as of February 28, 2019[363] - Repurchases may include open market purchases, privately negotiated transactions, block trades, and accelerated stock repurchase transactions[363] Common Stock Repurchase Activity (Fiscal Years 2017-2019) | Category | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | | :--- | :--- | :--- | :--- | | Common stock repurchased on the open market: | | | | | Number of shares | 1,875,469 | 717,300 | 922,731 | | Aggregate value of shares | $212,080 | $65,795 | $75,000 | | Average price per share | $113.08 | $91.73 | $81.28 | | Common stock received in connection with share-based compensation: | | | | | Number of shares | 59,024 | 75,785 | 6,286 | | Aggregate value of shares | $5,413 | $7,258 | $595 | | Average price per share | $91.70 | $95.77 | $94.61 | Note 12 – Restructuring Plan The "Project Refuel" restructuring plan targets $8.0 to $10.0 million in annualized profit improvements and is expected to be completed in fiscal 2020 - Project Refuel, a restructuring plan initiated in October 2017, aims to enhance performance in the Beauty and former Nutritional Supplements segments[366] - The plan was expanded in fiscal 2019 to include realignment and streamlining of the supply chain structure[366] - Project Refuel targets total annualized profit improvements of approximately $8.0 million to $10.0 million and is estimated to be completed during fiscal 2020[366] - In fiscal 2019, $3.6 million of pre-tax restructuring costs were incurred, primarily related to employee severance[367] Note 13 – Other Commitments and Contingencies This note details commitments including the CEO's contract, international trade risks, and a $15.0 million litigation settlement paid in May 2018 - The CEO's employment contract was amended and extended through February 28, 2023[369] - The company faces international trade risks due to significant manufacturing in the Far East, mainly China[370][371] - Thermometer patent litigation was settled, resulting in a $15.0 million settlement payment made on May 31, 2018[373] Contractual Obligations and Commercial Commitments (as of February 28, 2019) | (in thousands) | Total | < 1 year | 1-2 years | 2-3 years | 3-4 years | 4-5 years | > 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Floating rate debt | $323,607 | $1,900 | $1,900 | $303,100 | $1,900 | $14,807 | — | | Long-term incentive plan payouts | $12,708 | $7,012 | $3,481 | $2,215 | — | — | — | | Interest on floating rate debt | $32,237 | $11,453 | $11,387 | $8,879 | $518 | — | — | | Open purchase orders | $234,659 | $234,659 | — | — | — | — | — | | Minimum royalty payments | $49,159 | $12,650 | $12,855 | $13,040 | $7,914 | $2,700 | — | | Advertising and promotional | $37,401 | $18,933 | $6,411 | $6,527 | $5,530 | — | — | | Operating leases | $69,482 | $5,171 | $6,678 | $6,411 | $5,743 | $5,078 | $40,401 | | Capital spending commitments | $4,602 | $4,602 | — | — | — | — | — | | Total contractual obligations | $763,855 | $296,380 | $42,712 | $340,172 | $21,605 | $22,585 | $40,401 | Note 14 – Long Term Debt The company maintains a $1.0 billion credit facility with $689.8 million available and was in compliance with all debt covenants as of February 28, 2019 - The company has a $1.0 billion unsecured revolving credit agreement, with $301.2 million outstanding and $689.8 million available as of February 28, 2019[376] - The company also has an aggregate principal balance of approximately $22.3 million under an MBFC Loan[377] - All debt is unconditionally guaranteed and requires maintenance of certain financial covenants[378] - The company was in compliance with all debt agreement terms as of February 28, 2019[378] Long-Term Debt Summary (as of February 28, 2019 and 2018) | (dollars in thousands) | Feb 28, 2019 | Feb 28, 2018 | | :--- | :--- | :--- | | MBFC Loan | $22,335 | $24,219 | | Credit Agreement | $298,449 | $265,650 | | Total long-term debt | $320,784 | $289,869 | | Less current maturities | $(1,884) | $(1,884) | | Long-term debt, excluding current maturities | $318,900 | $287,985 | Interest Expense Components (Fiscal Years 2017-2019) | (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Interest and commitment fees | $11,366 | $13,084 | $13,745 | | Deferred finance costs | $1,015 | $887 | $706 | | Interest rate swap settlements, net | $(515) | $54 | — | | Cross-currency debt swap | $(147) | $(74) | $(90) | | Total interest expense | $11,719 | $13,951 | $14,361 | Note 15 – Fair Value The company classifies financial instruments by fair value hierarchy, with derivatives categorized as Level 2 and goodwill as Level 3 for impairment testing - Financial assets and liabilities are classified into a three-level hierarchy based on the observability of inputs to fair value measurement[380] - Money market accounts, interest rate swaps, and foreign currency contracts are classified as Level 2 assets/liabilities[381] - Goodwill and other intangible assets are classified as Level 3 items, measured at fair value on a non-recurring basis for impairment testing[384] Fair Value of Financial Assets and Liabilities (as of February 28, 2019 and 2018) | (in thousands) | Feb 28, 2019 (Level 2) | Feb 28, 2018 (Level 2) | | :--- | :--- | :--- | | Assets: | | | | Money market accounts | $915 | $1,107 | | Interest rate swaps | $512 | $2,481 | | Foreign currency contracts | $1,692 | $642 | | Total assets | $3,119 | $4,230 | | Liabilities: | | | | Floating rate debt | $320,784 | $289,869 | | Interest rate swaps | $339 | — | | Foreign currency contracts | $563 | $2,606 | | Total liabilities | $321,686 | $292,475 | Note 16 – Financial Instruments and Risk Management The company uses derivatives to manage foreign currency and interest rate risks and mitigates counterparty credit risk by dealing with major financial institutions - Foreign currency risk is managed using forward contracts and zero-cost collars designated as cash flow hedges and mark-to-market derivatives[387] - Interest rate risk on floating-rate debt is hedged with interest rate swaps, effectively fixing rates on $225.0 million of outstanding principal[388] - The company expects a gain of $1.7 million from derivatives to be reclassified into income over the next twelve months[391] - Counterparty credit risk for financial instruments is managed by dealing with substantial international financial institutions[393] Fair Values of Derivative Instruments (as of February 28, 2019 and 2018) | (in thousands) | Feb 28, 2019 Assets | Feb 28, 2019 Liabilities | Feb 28, 2018 Assets | Feb 28, 2018 Liabilities | | :--- | :--- | :--- | :--- | :--- | | Derivatives designated as hedging instruments: | | | | | | Zero-cost collar - Euro | $11 | — | — | $1,320 | | Foreign currency contracts - sell Euro | $1,047 | — | $102 | — | | Foreign currency contracts - sell Canadian Dollars | $168 | — | $378 | — | | Zero-cost collar - Pounds | — | $200 | — | $513 | | Foreign currency contracts - sell Pounds | $248 | $13 | $56 | — | | Foreign currency contracts - sell Mexican Pesos | — | $58 | $5 | — | | Interest rate swaps | $512 | $339 | $539 | — | | Derivatives not designated under hedge accounting: | | | | | | Foreign currency contracts - cross-currency debt swaps - Euro | $218 | — | — | $208 | | Foreign currency contracts - cross-currency debt swaps - Pound | — | $292 | — | $565 | | Total fair value | $1,986 | $902 | $922 | $2,606 | Note 17 – Accumulated Other Comprehensive Income (Loss) This note details changes in accumulated other comprehensive income, which increased to a balance of $1.2 million as of February 28, 2019 Changes in Accumulated Other Comprehensive Income (Loss) (Fiscal Years 2018-2019) | (in thousands) | Interest Rate Swaps | Foreign Currency Contracts | Total | | :--- | :--- | :--- | :--- | | Balance at February 28, 2017 | $— | $1,173 | $1,173 | | Other comprehensive income before reclassification | $2,481 | $1,758 | $4,239 | | Amounts reclassified out of accumulated other comprehensive income | $— | $(4,364) | $(4,364) | | Tax effects | $(776) | $359 | $(417) | | Other comprehensive income (loss) | $1,705 | $(2,247) | $(542) | | Balance at February 28, 2018 | $1,705 | $(1,074) | $631 | | Other comprehensive income (loss) before reclassification | $(2,308) | $(94) | $(2,402) | | Amounts reclassified out of accumulated other comprehensive income | $— | $2,488 | $2,488 | | Tax effects | $735 | $(261) | $474 | | Other comprehensive income (loss) | $(1,573) | $2,133 | $560 | | Balance at February 28, 2019 | $132 | $1,059 | $1,191 | Note 18 – Segment and Geographic Information This note provides a breakdown of financial data by business segment and geographic region, with the United States being the largest market - Worldwide sales to the largest customer accounted for approximately 16% of net sales revenue in fiscal 2019, with 78% of these sales within the United States[401] Segment Information (Fiscal Year 2019) | (in thousands) | Housewares | Health & Home | Beauty | Total | | :--- | :--- | :--- | :--- | :--- | | Sales revenue, net | $523,807 | $695,217 | $345,127 | $1,564,151 | | Operating income | $100,743 | $68,448 | $30,188 | $199,379 | | Identifiable assets | $698,519 | $686,335 | $264,481 | $1,649,335 | | Capital and intangible asset expenditures | $16,023 | $8,508 | $1,854 | $26,385 | | Depreciation and amortization | $6,048 | $17,058 | $6,821 | $29,927 | Net Sales Revenue by Geographic Region (Fiscal Years 2017-2019) | (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | United States | $1,221,806 | $1,161,698 | $1,104,870 | | Canada | $66,855 | $58,856 | $58,631 | | EMEA | $143,024 | $143,668 | $133,172 | | Asia Pacific | $90,073 | $75,376 | $60,532 | | Latin America | $42,393 | $39,247 | $40,330 | | Total sales revenue, net | $1,564,151 | $1,478,845 | $1,397,535 | Domestic and International Long-Lived Assets (Fiscal Years 2017-2019) | (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | United States | $416,521 | $437,920 | $409,337 | | International | $628,155 | $628,089 | $658,554 | | Total | $1,044,676 | $1,066,009 | $1,067,891 | Note 19 – Selected Quarterly Financial Data (Unaudited) This note provides unaudited selected quarterly financial data for fiscal years 2019 and 2018 Selected Quarterly Financial Data (Fiscal Year 2019) | Fiscal Year 2019: | May | August | November | February | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Sales revenue, net | $354,679 | $393,548 | $431,081 | $384,843 | $1,564,151 | | Gross profit | $146,558 | $155,173 | $181,845 | $157,530 | $641,106 | | Operating income | $41,000 | $44,876 | $54,345 | $59,158 | $199,379 | | Income from continuing operations | $38,173 | $44,017 | $54,320 | $37,714 | $174,224 | | Diluted EPS - Continuing operations | $1.43 | $1.66 | $2.06 | $1.47 | $6.62 | Selected Quarterly Financial Data (Fiscal Year 2018) | Fiscal Year 2018: | May | August | November | February | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Sales revenue, net | $325,491 | $344,949 | $420,841 | $387,564 | $1,478,845 | | Gross profit | $131,570 | $143,477 | $178,138 | $158,014 | $611,199 | | Operating income | $23,308 | $34,572 | $57,459 | $53,723 | $169,062 | | Income from continuing operations | $27,308 | $34,572 | $58,624 | $8,378 | $128,882 | | Diluted EPS - Continuing operations | $1.00 | $1.26 | $2.15 | $0.31 | $4.73 | Note 20 – Income Taxes The effective tax rate was 7.3% in fiscal 2019, influenced by foreign tax rates and the prior-year impact of the U.S. Tax Cuts and Jobs Act - The Tax Cuts and Jobs Act (Tax Act) led to a provisional tax charge of $17.9 million in fiscal 2018[406][408] - The effective income tax rate was 7.3% in fiscal 2019, a decrease from 17.1% in fiscal 2018, primarily due to the provisional charge related to the Tax Act in the prior year[184][413] - The company's intellectual property is largely owned by foreign subsidiaries, resulting in a lower overall effective tax rate[405] - The Macau Offshore Law, which grants tax incentives, will be abolished on January 1, 2021, subjecting the subsidiary to a 12% corporate income tax[413] - As of February 28, 2019, the total unrecognized tax benefits were $3.2 million[418] Components of Income Before Income Tax Expense (Fiscal Years 2017-2019) | (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | U.S. | $32,135 | $23,824 | $20,878 | | Non-U.S. | $155,865 | $131,614 | $134,839 | | Total | $188,000 | $155,438 | $155,717 | Income Tax Rate Reconciliation (Fiscal Years 2017-2019) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Effective income tax rate at the U.S. statutory rate | 21.0% | 32.7% | 35.0% | | Impact of U.S. state income taxes | 1.2% | 0.5% | 0.5% | | Effect of statutory tax rate in Macau | (10.3)% | (19.5)% | (20.1)% | | Effect of statutory tax rate in Barbados | (5.9)% | (5.2)% | (7.3)% | | Effect of U.S. tax reform | (0.1)% | 11.5% | —% | | Effective income tax rate | 7.3% | 17.1% | 7.3% | Note 21 – Earnings Per Share This note provides the computation of basic and diluted earnings per share, including the impact of dilutive securities like stock options and RSUs - Basic earnings per share is computed using the weighted average number of common stock shares outstanding[421] - Diluted earnings per share includes the effect of dilutive securities, such as outstanding options and unvested RSUs and PSUs[421] Weighted Average Diluted Securities (Fiscal Years 2017-2019) | (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Weighted average shares outstanding, basic | 26,073 | 27,077 | 27,522 | | Incremental shares from share-based compensation arrangements | 230 | 177 | 369 | | Weighted average shares outstanding, diluted | 26,303 | 27,254 | 27,891 | | Antidilutive securities | 262 | 319 | 137 | Schedule II - Valuation and Qualifying Accounts This schedule details the activity in the allowance for doubtful accounts for fiscal years 2017 through 2019 - Additions represent periodic charges to the provision for doubtful accounts, while deductions represent write-offs, net of recoveries[425] Allowances for Doubtful Accounts (Fiscal Years 2017-2019) | (in thousands) | Beginning Balance | Additions (1) | Deductions (2) | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | Year Ended February 28, 2017 | $1,712 | $2,277 | $723 | $3,266 | | Year Ended February 28, 2018 | $3,266 | $1,066 | $1,420 | $2,912 | | Year Ended February 28, 2019 | $2,912 | $1,097 | $1,977 | $2,032 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There are no changes in or disagreements with accountants on accounting and financial disclosure - Not applicable[427] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of February 28, 2019 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of February 28, 2019[428][429] - Management's report on internal control over financial reporting is incorporated by reference from Item 8[430] - No material changes in internal control over financial reporting were identified during the fiscal year ended February 28, 2019[431] PART III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2019 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2019 Proxy Statement[434] - The company has adopted a Code of Ethics for its key financial officers, available on its website[434] Item 11. Executive Compensation Information concerning executive compensation is incorporated by reference from the company's Proxy Statement - Information on executive compensation is incorporated by reference from the Proxy Statement for the 2019 Annual General Meeting of Shareholders[435] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Details regarding security ownership and related shareholder matters are incorporated by reference from the company's Proxy Statement - Information regarding security ownership of certain beneficial owners and management and related shareholder matters is incorporated by reference from the Proxy Statement[436] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related person transactions and director independence is incorporated by reference from the company's Proxy Statement - Information on certain relationships and related transactions, and director independence is incorporated by reference from the Proxy Statement[437] Item 14. Principal Accounting Fees and Services Information concerning principal accounting fees and services is incorporated by reference from the company's Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the Proxy Statement[438] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and various exhibits filed with the Form 10-K - This item lists the financial statements, financial statement schedules, and exhibits filed with the Form 10-K[439][441] - Exhibits include various agreements, corporate documents, and compensation plans[440][442][443][444] Signatures This section contains the signatures of the registrant's authorized officers and directors certifying the report - The report is signed by the Chief Executive Officer, Chief Financial Officer, and other directors on behalf of Helen of Troy Limited[448][449]