ITEM 2
. MANAGEMENT’S DISCUSSIO
N AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This management’s discussion and analysis (“MD&A”) 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 Part I, Item 3.“Quantitative and Qualitative Disclosures about Market Risk” and “Information Regarding Forward-Looking Statements” in this report and “Risk Factors” in the Company’s most recent annual report on Form 10-K and its other filings with the Securities and Exchange Commission (the “SEC”). This discussion should be read in conjunction with our consolidated condensed financial statements included under Part I, Item 1. of this report.
Throughout this MD&A, we refer to certain measures used by management to evaluate financial performance. We also may refer to a number of financial measures that are not defined under GAAP, but have corresponding GAAP-based measures. Where non-GAAP measures appear, we provide tables reconciling these to their corresponding GAAP-based measures and make reference to a discussion of their use. We believe these measures provide investors with important information that is useful in understanding our business results and trends. Please see “Explanation of Certain Terms and Measures Used in MD&A” beginning on page
40
for more information on the use and calculation of certain GAAP-based and non-GAAP financial measures.
OVERVIEW
We incorporated as Helen of Troy Corporation in Texas in 1968 and were reorganized as Helen of Troy Limited in Bermuda in 1994. We are a global designer, developer, importer, marketer, and distributor of an expanding portfolio of brand-name consumer products. We have four segments: Housewares, Health & Home, Nutritional Supplements, and Beauty. Our Housewares segment provides a broad range of innovative consumer products for the home. Product offerings include food preparation tools and appliances, insulated stainless steel food and beverage containers, gadgets and storage containers, cleaning, organization, and baby and toddler care products. The Health & Home segment focuses on healthcare devices such as thermometers, humidifiers, blood pressure monitors, and heating pads; water filtration systems; and small home appliances such as portable heaters, fans, air purifiers, and insect control devices. Our Nutritional Supplements segment is a leading provider of premium branded vitamins, minerals and supplements, as well as other health products sold directly to consumers. Our Beauty segment products include electric hair care, beauty care and wellness appliances; grooming tools and accessories; and liquid-, solid- and powder-based personal care and grooming products.
The Nutritional Supplements segment sells directly to consumers. Our other segments sell their products primarily through mass merchandisers, drugstore chains, warehouse clubs, catalogs, grocery stores, and specialty stores. In addition, the Beauty segment sells extensively through beauty supply retailers and wholesalers, and the Health & Home segment sells certain of its product lines through medical distributors and other products through home improvement stores. We purchase our products from unaffiliated manufacturers, most of which are located in China, Mexico and the United States.
The overall sales pattern for the Nutritional Suppliments segment is not highly seasonal. Our other segments are seasonal due to the different calendar events, holidays and seasonal weather patterns. Historically, the third fiscal quarter produces the highest net sales revenue and operating income during the fiscal year.
We believe that the growth in the internet as a sales channel is reducing market share in the traditional “brick and mortar” channels. During the fiscal quarter ended May 31, 2016, sales to internet-based customers comprised 10.9 percent of our total consolidated net sales revenue compared to 9.6 percent for the same period last year. As a result, we continue to refine our domestic distribution capabilities to adjust to this form of demand and meet the logistical challenge of higher frequency, smaller order size shipments.
Our business is dependent upon discretionary consumer demand for most of our products and primarily operates within mature and highly developed consumer markets. The principal driver of our operating performance is the strength of the U.S. retail economy, as approximately 80 percent of our fiscal year 2016 net sales revenue was from U.S. shipments. While we believe that domestic macroeconomic conditions have somewhat improved the prospects for our U.S. business, we believe consumer sentiment remains cautious. We believe the recent referendum vote in the U.K. to exit the European Union has increased uncertainty and volatility in the foreign currency and financial markets, the effects of which we believe will have the greatest impact within our Europe, Middle East and Africa (“EMEA”) operations. The retail outlook for the EMEA region has grown considerably more uncertain and our operations may be affected by regional recessions, currency volatility and emergent regional trade disputes, any of which could have a material adverse effect on our business. For the fiscal quarter ended May 31, 2016, net sales revenue denominated in the Euro and the British Pound represented 5.1 and 2.3 percent of our consolidated net sales revenue, respectively.
The outlook for our non-EMEA international operations continues to remain uncertain as these operations serve consumers in more inconsistently recovering economies that are more susceptible to fiscal and geo-political instabilities. During the fiscal quarter ended May 31, 2016, foreign currency fluctuations, particularly in Latin America, exposed our international operating results to significant variability and uncertainty, which was compounded by weakness in the retail environments in these markets.
As further discussed in Note 13 to the accompanying consolidated condensed financial statements and under Part I. Item 3. “Quantitative and Qualitative Disclosures about Market Risk – Foreign Currency Risk – Venezuelan Bolivar Currency Exchange Uncertainties” below, we adopted the new Venezuela DICOM exchange rate at the beginning of the first quarter of fiscal year 2017. DICOM opened at 207 Bolivars per U.S. Dollar and devalued to approximately 521 Bolivars per U.S. Dollar as of May 31, 2016. Absent further changes in the exchange system, or unless future developments call for further changes, we intend to use DICOM to re-measure our financial statements going forward. At the current DICOM exchange rate, we expect that U.S. Dollar reported operating results from Venezuela will no longer be meaningful to the Company or the Beauty segment. Net sales revenue from Venezuela for the quarter ended May 31, 2016 was $0.23 million compared to $4.11 million for the quarter ended May 31, 2015. Operating income (loss) from Venezuela for the quarter ended May 31, 2016 was ($0.10) million compared to $1.58 million for the quarter ended May 31, 2015.
Developments within the Venezuelan economy, including any future governmental interventions, are beyond our ability to control or predict, and we cannot assess the impacts, if any, such events may have on our Venezuelan business.
Significant Recent Development
On March 18, 2016, the Company acquired Steel Technology, LLC, doing business as Hydro Flask (“Hydro Flask”). Hydro Flask is a leading designer, distributor and marketer of high performance insulated stainless steel food and beverage containers for active lifestyles. Hydro Flask adds a fast growing brand that has built equity among outdoor and active lifestyle enthusiasts with a product lineup, innovation pipeline and margin profile that complements, and will operate in, our Housewares segment. The acquisition extends the segment’s reach into the outdoor and athletic specialty, natural foods and e-commerce channels. Hydro Flask’s products have a carefully cultivated brand heritage rooted in the outdoor mecca of Bend, Oregon. The aggregate purchase price for the transaction was approximately $209.26 million in cash. Significant assets acquired include receivables, inventory, prepaid expenses, property and equipment, trade names, technology assets, customer relationships, and goodwill. Acquisition-related expenses incurred during fiscal year 2016 were approximately $0.70 million (before and after after tax). The purchase price was funded with borrowings under our credit facility. Hydro Flask reports its operations in our Housewares segment and the fiscal quarter ended May 31, 2016 includes approximately two and a half months of its operating results.
Financial Performance Highlights
Consolidated net sales revenue for the fiscal quarter ended May 31, 2016 increased $2.59 million, or 0.8 percent, to $347.94 million compared to $345.35 million for the same period last year. Core business net sales revenue decreased $12.49 million, or 3.6 percent, for the fiscal quarter ended May 31, 2016 compared to the same period last year. Net sales revenue for the fiscal quarter ended May 31, 2016 includes the unfavorable impact of net foreign exchange fluctuations of $1.81 million compared to the same period last year, most of which impacted the Beauty segment’s Latin American operations as a result of the weakening of the Mexican Peso. In addition to the impact from foreign currency fluctuations, the year-over-year comparison of net sales revenue was unfavorably impacted by the Company’s transition from the official exchange rate in Venezuela to the market rate of DICOM, which is the lowest rate in the current exchange rate system. Net sales revenue from our Venezuelan operations decreased by $3.88 million to $0.23 million for the fiscal quarter ended May 31, 2016, compared to $4.11 million in the same period last year, almost entirely due to the adoption of the DICOM exchange rate. This impact is reported in the Beauty segment. Net sales revenue in our Housewares segment increased $19.42 million for the fiscal quarter ended
May 31,
2016, or 29.8 percent, compared to the same period last year. The year-over-year increase was comprised of $14.37 million of net sales from the Hydro Flask acquisition and $5.05 million of core business net sales revenue growth. Net sales revenue in our Health & Home segment increased $3.31 million for the fiscal quarter ended May 31, 2016, or 2.3 percent, compared to the same period last year. Net sales revenue in our Nutritional Supplements segment decreased $3.50 million, or 8.9 percent, for the fiscal quarter ended May 31, 2016, compared to the same period last year. Net sales revenue in our Beauty segment decreased $16.64 million, or 17.0 percent, for the fiscal quarter ended May 31, 2016, compared to the same period last year. The decline in the Beauty segment includes the net unfavorable impacts of $1.40 million of foreign currency exchange fluctuations and the $3.88 million decline from our Venezuelan operations, which is primarily due to the adoption of the new DICOM exchange rate referred to above.
In addition to our net sales revenue performance discussed above, key results for the fiscal quarter ended May 31, 2016 include the following:
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·
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Consolidated gross profit margin increased 2.3 percentage points to 43.8 percent for the fiscal quarter ended May 31, 2016, compared to 41.5 percent for the same period last year.
|
|
·
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|
Our SG&A ratio
increased 2.2 percentage points to 35.1 percent for the fiscal quarter ended
May 31,
2016, compared to 32.9 percent for the same period last year.
|
|
·
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Operating income was $22.90 million for the fiscal quarter ended May 31, 2016, compared to $26.54
million for the same period last year. Operating income for the year-to-date period ended May 31, 2016, includes non-cash intangible asset impairment charges totaling $7.40 million compared to $3.00 million for the same period last year. Operating income for the fiscal quarter ended May 31, 2016 also includes a patent litigation charge of $1.47 million for which there were no comparable charges in the same period last year.
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·
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Adjusted operating margin increased 1.7 percentage points to 12.8 percent for the fiscal quarter ended May 31, 2016 compared to 11.1 percent for the same period last year.
|
|
·
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Income tax expense was $0.37 million, or 1.9 percent of income before taxes, for the fiscal quarter ended May 31, 2016, compared to $3.38 million, or 14.2 percent of income before taxes, for the same period last year.
|
|
·
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|
Net income was $19.03 million for the fiscal quarter ended May 31, 2016 compared to $20.41 million
for the same period last year. Diluted earnings per share was $0.68 for the fiscal quarter ended May 31, 2016, compared to $0.70 for the same period last year.
|
|
·
|
|
Adjusted income was $35.88 million for the fiscal quarter ended May 31, 2016, compared to $30.70 million
for the same period last year.
Our adjusted diluted EPS
was $1.27 for the fiscal quarter ended May 31, 2016, compared to $1.06 for the same period last year.
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Adjusted operating income, adjusted operating margin, adjusted income, and adjusted diluted EPS are non-GAAP financial measures as contemplated by SEC Regulation G, Rule 100. These measures are discussed further, and reconciled to their applicable GAAP-based measures on pages
33
through
35
.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, our selected operating data, in U.S. Dollars, as a year-over-year percentage change and as a percentage of net sales revenue. We will refer to this table in the discussion of results of operations which follows:
SELECTED OPERATING DATA (1)
(in thousands)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31,
|
|
|
|
|
|
|
|
% of Sales Revenue, net
|
|
|
|
2016 (1)
|
|
2015
|
|
$ Change
|
|
% Change
|
|
|
2016 (1)
|
|
2015
|
|
Sales revenue by segment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housewares (1)
|
|
$
|
84,603
|
|
$
|
65,186
|
|
$
|
19,417
|
|
29.8
|
%
|
|
24.3
|
%
|
18.9
|
%
|
Health & Home
|
|
|
146,355
|
|
|
143,042
|
|
|
3,313
|
|
2.3
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%
|
|
42.1
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%
|
41.4
|
%
|
Nutritional Supplements
|
|
|
35,940
|
|
|
39,440
|
|
|
(3,500)
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|
(8.9)
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%
|
|
10.3
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%
|
11.4
|
%
|
Beauty
|
|
|
81,040
|
|
|
97,677
|
|
|
(16,637)
|
|
(17.0)
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%
|
|
23.3
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%
|
28.3
|
%
|
Total sales revenue, net
|
|
|
347,938
|
|
|
345,345
|
|
|
2,593
|
|
0.8
|
%
|
|
100.0
|
%
|
100.0
|
%
|
Cost of goods sold
|
|
|
195,511
|
|
|
202,026
|
|
|
(6,515)
|
|
(3.2)
|
%
|
|
56.2
|
%
|
58.5
|
%
|
Gross profit
|
|
|
152,427
|
|
|
143,319
|
|
|
9,108
|
|
6.4
|
%
|
|
43.8
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%
|
41.5
|
%
|
Selling, general and administrative expense
|
|
|
122,129
|
|
|
113,776
|
|
|
8,353
|
|
7.3
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%
|
|
35.1
|
%
|
32.9
|
%
|
Asset impairment charges
|
|
|
7,400
|
|
|
3,000
|
|
|
4,400
|
|
146.7
|
%
|
|
2.1
|
%
|
0.9
|
%
|
Operating income
|
|
|
22,898
|
|
|
26,543
|
|
|
(3,645)
|
|
(13.7)
|
%
|
|
6.6
|
%
|
7.7
|
%
|
Nonoperating income, net
|
|
|
149
|
|
|
138
|
|
|
11
|
|
8.0
|
%
|
|
-
|
%
|
-
|
%
|
Interest expense
|
|
|
(3,651)
|
|
|
(2,892)
|
|
|
(759)
|
|
26.2
|
%
|
|
(1.0)
|
%
|
(0.8)
|
%
|
Total other expense
|
|
|
(3,502)
|
|
|
(2,754)
|
|
|
(748)
|
|
27.2
|
%
|
|
(1.0)
|
%
|
(0.8)
|
%
|
Income before income taxes
|
|
|
19,396
|
|
|
23,789
|
|
|
(4,393)
|
|
(18.5)
|
%
|
|
5.6
|
%
|
6.9
|
%
|
Income tax expense
|
|
|
370
|
|
|
3,379
|
|
|
(3,009)
|
|
(89.1)
|
%
|
|
0.1
|
%
|
1.0
|
%
|
Net income
|
|
$
|
19,026
|
|
$
|
20,410
|
|
$
|
(1,384)
|
|
(6.8)
|
%
|
|
5.5
|
%
|
5.9
|
%
|
|
(1)
|
|
Includes approximately two and a half months of operating results of Hydro Flask, with no comparable results in the same period last year. Hydro Flask operating results are reported in the Housewares segment.
|
First Quarter of Fiscal Year 2017 Compared to First Quarter of Fiscal Year 2016
Consolidated net sales revenue:
Consolidated net sales revenue for the fiscal quarter ended May 31, 2016 increased $2.59 million to $347.94 million, compared to $345.35 million for the same period last year, an increase of 0.8 percent. Net sales revenue in our Housewares segment increased $19.42 million, or 29.8 percent, compared to the same period last year. The year-over-year increase was comprised of $14.37 million of net sales from the Hydro Flask acquisition and $5.05 million of core business net sales revenue growth. Net sales revenue in our Health & Home segment increased $3.31 million, or 2.3 percent, compared to the same period last year. Net sales revenue in our Nutritional Supplements segment decreased $3.50 million, or 8.9 percent, compared to the same period last year. Net sales revenue in our Beauty segment decreased $16.64 million, or 17.0 percent, compared to the same period last year. The decline in the Beauty segment includes the net unfavorable impacts of $1.40 million of foreign currency exchange fluctuations and the $3.88 million decline from our Venezuelan operations, which is primarily due to the adoption of the new DICOM exchange rate referred to previously.
Impact of acquisitions on net sales revenue:
Because we are an acquisition-oriented company, we provide an analysis of our net sales revenue in terms of growth from our core business and growth from acquisitions. Our most recent acquisition of Hydro Flask occurred on March 18, 2016. Hydro Flask reports its operating results in the Housewares segment. For further information about this acquisition, see Note 9 to the accompanying consolidated condensed financial statements.
IMPACT OF ACQUISITIONS ON NET SALES REVENUE
(in thousands)
|
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|
|
|
|
|
|
|
|
Three Months Ended May 31,
|
|
|
|
2016
|
|
2015
|
|
Prior year's sales revenue, net
|
|
$
|
345,345
|
|
$
|
311,778
|
|
Components of sales revenue change, net
|
|
|
|
|
|
|
|
Core business
|
|
|
(12,488)
|
|
|
(6,525)
|
|
Incremental net sales revenue from acquisitions (non-core business):
|
|
|
|
|
|
|
|
Healthy Directions (three months in fiscal year 2016)
|
|
|
-
|
|
|
39,440
|
|
Vicks VapoSteam (one and two months in fiscal years 2017 and 2016, respectively)
|
|
|
712
|
|
|
652
|
|
Hydro Flask (two and a half months in fiscal year 2017)
|
|
|
14,369
|
|
|
-
|
|
Change in sales revenue, net
|
|
|
2,593
|
|
|
33,567
|
|
Total sales revenue, net
|
|
$
|
347,938
|
|
$
|
345,345
|
|
|
|
|
|
|
|
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|
Total net sales revenue growth
|
|
|
0.8
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%
|
|
10.8
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%
|
Core business
|
|
|
(3.6)
|
%
|
|
(2.1)
|
%
|
Acquisitions
|
|
|
4.4
|
%
|
|
12.9
|
%
|
Impact of foreign currencies on net sales revenue:
During the fiscal quarters ended May 31, 2016 and 2015, approximately 14 percent of our net sales revenue in each period was denominated in foreign currencies. These transactions were primarily denominated in British Pounds, Euros, Mexican Pesos, Canadian Dollars, and Venezuelan Bolivars. For the fiscal quarter ended May 31, 2016, the impact of net foreign currency exchange rate fluctuations negatively impacted our consolidated U.S. Dollar reported net sales revenue by approximately $1.81 million. In our Beauty segment, where our Canadian and Latin American operations comprise a higher proportion of foreign revenues than other regions, foreign exchange fluctuations had a $1.40 million unfavorable impact on U.S. Dollar reported net sales revenue. In our Housewares and Health & Home segments, where our European, Canadian and U.K. operations comprise a high proportion of foreign revenues, foreign exchange fluctuations had unfavorable impacts of $0.16 and $0.25 million, respectively, on U.S. Dollar reported net sales revenue.
In addition to the impact from foreign currency fluctuations, the year-over-year comparison of net sales revenue was unfavorably impacted by the Company’s transition from the official exchange rate in Venezuela to the market rate of DICOM, which is the lowest rate in the current exchange rate system. Net sales revenue from our Venezuelan operations decreased by $3.88 million to $0.23 million for the fiscal quarter ended May 31, 2016, compared to $4.11 million in the same period last year, almost entirely due to the adoption of the DICOM exchange rate. This impact is reported in the Beauty segment.
Segment net sales revenue:
Housewares Segment
- Net sales revenue in the Housewares segment for the fiscal quarter ended May 31, 2016 increased $19.42 million, or 29.8 percent, to $84.60 million, compared to $65.19 million for the same period last year. The year-over-year increase was comprised of $14.37 million of net sales from the Hydro Flask acquisition and $5.05 million of core business net sales revenue growth. Hydro Flask operated for approximately two and a half months since its acquisition on March 18, 2016 and accounted for 22.0 percentage points of the net sales growth within the segment. In the segment’s core business, higher average unit selling prices and an increase in unit volume contributed approximately 6.8 and 1.0 percent, respectively, to the
segment’s growth. The overall increase in core net sales revenue continues to be primarily due to new product introductions. The net sales revenue increase was slightly offset by higher overall promotional program spending to support new product launches. We expect our Housewares segment’s longer-term growth to continue to be driven by new products, category expansion, expanded shelf space and assortments at key traditional and internet retailers, and new distribution gains in international markets.
Health & Home Segment
- Net sales revenue in the Health & Home segment for the fiscal quarter ended May 31, 2016 increased $3.31 million, or 2.3 percent, to $146.36 million, compared to $143.04 million for the same period last year. Higher average unit selling prices and an increase in unit volume contributed approximately 1.8 and 0.5 percent, respectively to the segment’s growth. Foreign currency fluctuations reduced U.S. Dollar reported net sales revenue by $0.25 million, or 0.2 percent. Strong sell-in of seasonal fans and year-over-year gains in the thermometry and air purification categories were partially offset by declines in the hot/cold therapy and water filtration categories. With respect to our hot/cold therapy category, the net sales decline is due to the rationalization of lower margin products and programs within the category. The comparable decline in the water filtration category was primarily due to the discontinuation of a large seasonal promotion program in the club channel, and a slowdown in replenishment orders after a recent surge in demand as a result of consumer reaction to municipal water quality issues across the U.S.
Nutritional Supplements Segment
- Net sales revenue for the fiscal quarter ended May 31, 2016 decreased $3.50 million, or 8.9 percent, to $35.94 million, compared to $39.44 million for the same period last year. Lower unit volumes and a slight decrease in average unit selling prices contributed approximately 8.0 and 0.9 percent, respectively, to the decline in the segment’s net sales revenue. The segment saw declines in its offline response rates and legacy print newsletter subscription business, partially offset by increases in its AutoDelivery program, a continuity program where customers can reschedule delivery of refills based on their timing and frequency requirements. The print newsletter subscription business is being strategically de-emphasized in the segment’s business model. The decline in average selling price was primarily driven by an increase in promotional pricing to develop new buyer growth in selected categories and lower average order values.
Beauty Segment
- Net sales revenue in the Beauty segment for the fiscal quarter ended May 31, 2016 decreased $16.64 million, or 17.0 percent, to $81.04 million, compared to $97.68 million for the same period last year. The decline in the Beauty segment net sales revenue includes the net unfavorable impact of $1.40 million of foreign currency exchange fluctuations and the $3.88 million net sales decline from our Venezuelan operations, which is almost entirely due to the adoption of the new DICOM exchange rate. Additionally, $4.03 million of the sales decline relates to a decline in the foot care category due to high inventory in the channel and competitive pressures. Finally, the segment experienced a slowdown in replenishment orders in the first quarter of fiscal year 2017 due to inventory adjustments by a few key retailers after strong shipments in the fourth quarter of fiscal year 2016.
Consolidated gross profit margin:
Consolidated gross profit as a percentage of net sales revenue for the fiscal quarter ended May 31, 2016 increased 2.3 percentage points to 43.8 percent, compared to 41.5 percent for the same period last year. The increase in consolidated gross profit margin is primarily due to favorable shifts in product mix, product rationalization efforts, accretion from the Hydro Flask acquisition, and declines in product costs, partially offset by the unfavorable impact of foreign currency fluctuations.
A significant portion of the products we sell are purchased from third-party manufacturers in China. The Chinese Renminbi has fluctuated against the U.S. Dollar in recent years, devaluing by approximately 6 percent against the U.S. Dollar during fiscal year 2016I. If China’s currency fluctuates against the U.S. Dollar in the short-to-intermediate term, we cannot accurately predict the impact of those fluctuations on our results of operations. There
can be no assurance that foreign exchange rates will be stable in the future or that fluctuations in Chinese foreign currency markets will not have a material adverse effect on our business, financial condition and results of operations.
Selling, general and administrative expense (“SG&A”):
Our consolidated SG&A ratio increased 2.2 percentage points to 35.1 percent for
fiscal quarter ended May 31, 2016
, compared to 32.9 percent for the same period last year. The increase was primarily due to:
|
·
|
|
the impact of higher share-based compensation costs including a $0.23 million impact from a change in the accounting for forfeitures of share-based awards. For more information regarding the impact of the change in accounting, see Note 2 to the accompanying consolidated condensed financial statements;
|
|
·
|
|
the impact of additional patent litigation charges incurred during the quarter, which increased the SG&A ratio by 0.4 percentage points; and
|
|
·
|
|
the impact within our core business that lower overall net sales had on operating leverage.
|
These factors were partially offset by:
|
·
|
|
lower outbound freight costs; and
|
|
·
|
|
lower year-over-year foreign currency revaluation losses, partially due to cash flow hedges and $10 million of U.S. Dollar to Euro cross-currency debt swaps.
|
Asset impairment charges:
We performed our annual evaluation of goodwill and indefinite-lived intangible assets for impairment during the fiscal quarter ended May 31, 2016. As a result of our testing of indefinite-lived trademarks, we recorded non-cash asset impairment charges of $7.40 million ($5.10 million after tax). The charges were related to certain brand assets and trademarks in our Beauty and Nutritional Supplements segments, which were written down to their estimated fair values, determined on the basis of future discounted cash flows using the relief from royalty valuation method. We recorded a similar charge of $3.00 million ($2.66 million after tax) in the fiscal quarter ended May 31, 2015.
Operating income by segment:
The following table sets forth segment operating income, for the periods covered below:
OPERATING INCOME BY SEGMENT
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31,
|
|
|
|
|
|
|
|
% of Sales Revenue, net
|
|
|
|
2016 (1)
|
|
2015
|
|
$ Change
|
|
% Change
|
|
|
2016 (1)
|
|
2015
|
|
Housewares (1)
|
|
$
|
15,500
|
|
$
|
11,183
|
|
$
|
4,317
|
|
38.6
|
%
|
|
18.3
|
%
|
17.2
|
%
|
Health & Home
|
|
|
9,604
|
|
|
8,418
|
|
|
1,186
|
|
14.1
|
%
|
|
6.6
|
%
|
5.9
|
%
|
Nutritional Supplements
|
|
|
(5,272)
|
|
|
2,620
|
|
|
(7,892)
|
|
*
|
|
|
(14.7)
|
%
|
6.6
|
%
|
Beauty
|
|
|
3,066
|
|
|
4,322
|
|
|
(1,256)
|
|
(29.1)
|
%
|
|
3.8
|
%
|
4.4
|
%
|
Total operating income
|
|
$
|
22,898
|
|
$
|
26,543
|
|
$
|
(3,645)
|
|
(13.7)
|
%
|
|
6.6
|
%
|
7.7
|
%
|
* Calculation is not meaningful
|
(1)
|
|
Includes approximately two and a half months of operating results of Hydro Flask, with no comparable results in the same period last year. Hydro Flask operating results are reported in the Housewares segment.
|
In the discussion that follows, our usage of the terms operating margin, operating expense ratio and operating leverage are further described and explained beginning on page
40
.
Housewares Segment
- Operating income for the fiscal quarter ended May 31, 2016 increased $4.32 million, or 38.6 percent, compared to the same period last year. Operating margin increased 1.1 percentage points to 18.3, compared to 17.2 percent for the same period last year. The increase in operating margin was primarily due to the accretive impact of the Hydro Flask acquisition, which increased the segment operating margin by 1.3 percentage points for the fiscal quarter ended May 31, 2016, partially offset by higher promotional spending and higher media advertising in support of new products and categories.
Health & Home Segment
- Operating income for the fiscal quarter ended May 31, 2016 increased $1.19 million, or 14.1 percent, compared to the same period last year. Operating margin increased 0.7 percentage points to 6.6 percent, compared to 5.9 percent for the same period last year. The increase in operating margin is due to improved gross margin as a result of product cost decreases and improvement in product sales mix, partially offset by higher share-based compensation expense and the impact of additional patent litigation charges.
Nutritional Supplements Segment
- Operating income for the fiscal quarter ended May 31, 2016 decreased $7.89 million compared to the same period last year. Operating margin was (
14.7) percent
, compared to 6.6 percent for the same period last year. Operating income includes a non-cash intangible asset impairment charge of $5.00 million for the fiscal quarter ended May 31, 2016, for which there was no comparable charge in the same period last year. This charge accounted for 13.9 percentage points of operating margin decline. Additional drivers of the operating margin decline were:
|
·
|
|
net sales declines in the offline channel and in the legacy print newsletter subscription business;
|
|
·
|
|
increased investments in promotions, advertising, customer acquisition, and online sales channel development;
|
|
·
|
|
higher share-based compensation costs; and
|
|
·
|
|
the impact that lower net sales had on operating leverage.
|
Beauty Segment
- Operating income for the fiscal quarter ended May 31, 2016 decreased $1.26 million to $3.07 million, compared to $4.32 million for the same period last year. Operating margin decreased 0.6 percentage points to 3.8 percent, compared to 4.4 percent for the same period last year. Drivers of the operating margin decline were:
|
·
|
|
net sales revenue declines as a result the unfavorable impact of the $1.40 million of foreign currency exchange fluctuations and a decline of
$4.03 million in the foot care category due to high inventory in the channel and competitive pressures;
|
|
·
|
|
a decline in operating income of $1.68 million from our Venezuelan operations, due almost entirely to the adoption of the new DICOM exchange rate;
|
|
·
|
|
higher share-based compensation costs; and
|
|
·
|
|
the impact that lower overall net sales had on operating leverage.
|
These factors were partially offset by an
increase in the segment’s gross profit margin primarily due to lower product costs and improvement in product sales mix. O
perating income included non-cash intangible asset impairment charges of $2.40 and $3.00 million for the fiscal quarters ended May 31, 2016 and 2015, respectively.
ADJUSTED OPERATING INCOME AND OPERATING MARGIN
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, 2016
|
|
|
|
Housewares
|
|
|
Health & Home
|
|
|
Nutritional
Supplements
|
|
|
Beauty
|
|
|
Total
|
|
Operating income, as reported (GAAP)
|
|
$
|
15,500
|
|
18.3
|
%
|
|
$
|
9,604
|
|
6.6
|
%
|
|
$
|
(5,272)
|
|
(14.7)
|
%
|
|
$
|
3,066
|
|
3.8
|
%
|
|
$
|
22,898
|
|
6.6
|
%
|
Asset impairment charges (1)
|
|
|
-
|
|
-
|
%
|
|
|
-
|
|
-
|
%
|
|
|
5,000
|
|
13.9
|
%
|
|
|
2,400
|
|
3.0
|
%
|
|
|
7,400
|
|
2.1
|
%
|
Patent litigation charge (2)
|
|
|
-
|
|
-
|
%
|
|
|
1,468
|
|
1.0
|
%
|
|
|
-
|
|
-
|
%
|
|
|
-
|
|
-
|
%
|
|
|
1,468
|
|
0.4
|
%
|
Subtotal
|
|
|
15,500
|
|
18.3
|
%
|
|
|
11,072
|
|
7.6
|
%
|
|
|
(272)
|
|
(0.8)
|
%
|
|
|
5,466
|
|
6.7
|
%
|
|
|
31,766
|
|
9.1
|
%
|
Amortization of intangible assets (3)
|
|
|
657
|
|
0.8
|
%
|
|
|
3,538
|
|
2.4
|
%
|
|
|
1,571
|
|
4.4
|
%
|
|
|
1,438
|
|
1.8
|
%
|
|
|
7,204
|
|
2.1
|
%
|
Non-cash share-based compensation (4)
|
|
|
1,028
|
|
1.2
|
%
|
|
|
1,910
|
|
1.3
|
%
|
|
|
1,032
|
|
2.9
|
%
|
|
|
1,644
|
|
2.0
|
%
|
|
|
5,614
|
|
1.6
|
%
|
Adjusted operating income (non-GAAP)
|
|
$
|
17,185
|
|
20.3
|
%
|
|
$
|
16,520
|
|
11.3
|
%
|
|
$
|
2,331
|
|
6.5
|
%
|
|
$
|
8,548
|
|
10.5
|
%
|
|
$
|
44,584
|
|
12.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31, 2015
|
|
|
|
Housewares
|
|
|
Health & Home
|
|
|
Nutritional
Supplements
|
|
|
Beauty
|
|
|
Total
|
|
Operating income, as reported (GAAP)
|
|
$
|
11,183
|
|
17.2
|
%
|
|
$
|
8,418
|
|
5.9
|
%
|
|
$
|
2,620
|
|
6.6
|
%
|
|
$
|
4,322
|
|
4.4
|
%
|
|
$
|
26,543
|
|
7.7
|
%
|
Asset impairment charges (1)
|
|
|
-
|
|
-
|
%
|
|
|
-
|
|
-
|
%
|
|
|
-
|
|
-
|
%
|
|
|
3,000
|
|
3.1
|
%
|
|
|
3,000
|
|
0.9
|
%
|
Subtotal
|
|
|
11,183
|
|
17.2
|
%
|
|
|
8,418
|
|
5.9
|
%
|
|
|
2,620
|
|
6.6
|
%
|
|
|
7,322
|
|
7.5
|
%
|
|
|
29,543
|
|
8.6
|
%
|
Amortization of intangible assets (3)
|
|
|
312
|
|
0.5
|
%
|
|
|
3,500
|
|
2.4
|
%
|
|
|
1,564
|
|
4.0
|
%
|
|
|
1,438
|
|
1.5
|
%
|
|
|
6,814
|
|
2.0
|
%
|
Non-cash share-based compensation (4)
|
|
|
306
|
|
0.5
|
%
|
|
|
595
|
|
0.4
|
%
|
|
|
303
|
|
0.8
|
%
|
|
|
857
|
|
0.9
|
%
|
|
|
2,061
|
|
0.6
|
%
|
Adjusted operating income (non-GAAP)
|
|
$
|
11,801
|
|
18.1
|
%
|
|
$
|
12,513
|
|
8.7
|
%
|
|
$
|
4,487
|
|
11.4
|
%
|
|
$
|
9,617
|
|
9.8
|
%
|
|
$
|
38,418
|
|
11.1
|
%
|
In the tables above, footnote references (1) to (4) correspond to the notes beginning on page 34 under the table entitled “Adjusted Income and EPS”.
Adjusted operating income and adjusted operating margin, as discussed in the preceding tables, may be considered non-GAAP financial measures as set forth in SEC Regulation G, Rule 100. An explanation of the reasons why the Company believes the non-GAAP financial information is useful and the nature and limitations of the non-GAAP financial measures is furnished on page
35
.
Interest expense:
Interest expense for the fiscal quarter ended May 31, 2016 was $3.65 million, compared to $2.89 million for the same period last year. The increase in interest expense is due to higher levels of debt held during the fiscal quarter ended
May 31, 2016, partially offset by a lower average interest rate
.
Income tax expense:
Income tax expense for the fiscal quarter ended May 31, 2016 was 1.9 percent of income before
income taxes, compared to 14.2 percent for the same period last year. The year-over-year decrease in our effective tax rate was primarily due to a $1.40 million tax benefit related to the resolution of uncertain tax positions and a $1.10 million tax benefit resulting from the recognition of excess tax benefits from share-based compensation in income tax expense rather than paid-in capital due to our adoption of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” See Note 2 to the accompanying consolidated condensed financial statements for further information regarding the impact of this recent accounting change.
Net income:
Net income for the fiscal quarter ended May 31, 2016 decreased by $1.38 million, compared to the same period last year. Our diluted earnings per share decreased $0.02 to $0.68 compared to $0.70 for the same period last year.
Adjusted
income and EPS
:
In order to provide a better understanding of the impact of certain items on our net income and EPS, the analysis that follows reports the comparative after tax impact of non
‐
cash asset impairment charges, patent litigation charges, amortization of intangible assets, and non-cash share-based compensation, as applicable, on our net income, and basic and diluted EPS for the periods covered below.
ADJUSTED INCOME AND EPS
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31,
|
|
Basic EPS
|
|
Diluted EPS
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net income as reported (GAAP)
|
|
$
|
19,026
|
|
$
|
20,410
|
|
$
|
0.69
|
|
$
|
0.72
|
|
$
|
0.68
|
|
$
|
0.70
|
Asset impairment charges, net of tax (1)
|
|
|
5,097
|
|
|
2,656
|
|
|
0.18
|
|
|
0.09
|
|
|
0.18
|
|
|
0.09
|
Patent litigation charge, net of tax (2)
|
|
|
1,464
|
|
|
-
|
|
|
0.05
|
|
|
-
|
|
|
0.05
|
|
|
-
|
Subtotal
|
|
|
25,587
|
|
|
23,066
|
|
|
0.92
|
|
|
0.81
|
|
|
0.91
|
|
|
0.79
|
Amortization of intangible assets, net of tax (3)
|
|
|
6,202
|
|
|
5,894
|
|
|
0.22
|
|
|
0.21
|
|
|
0.22
|
|
|
0.20
|
Non-cash share-based compensation, net of tax (4)
|
|
|
4,093
|
|
|
1,742
|
|
|
0.15
|
|
|
0.06
|
|
|
0.15
|
|
|
0.06
|
Adjusted income (non-GAAP)
|
|
$
|
35,882
|
|
$
|
30,702
|
|
$
|
1.29
|
|
$
|
1.08
|
|
$
|
1.27
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock used in
computing basic and diluted EPS
|
|
|
|
|
|
|
|
|
27,773
|
|
|
28,520
|
|
|
28,147
|
|
|
29,088
|
|
(1)
|
|
For the fiscal quarters ended May 31, 2016 and 2015, non-cash intangible asset impairment charges totaled $7.40 million ($5.10 million after tax) and $3.00 million ($2.66 million after tax), respectively
.
|
|
(2)
|
|
The fiscal quarter ended May 31, 2016 includes a patent litigation charge of $1.47 million ($1.46 million after tax).
|
|
(3)
|
|
For the fiscal quarters ended May 31, 2016 and 2015, amortization of intangible assets was $7.20 million ($6.20 million after tax) and $6.81 million ($5.89 million after tax), respectively.
|
|
(4)
|
|
For the fiscal quarters ended May 31, 2016 and 2015, non-cash share based compensation was $5.61 million ($4.09 million after tax) and $2.06 million ($1.74 million after tax), respectively.
|
Adjusted income for the fiscal quarter ended May 31, 2016 increased $5.18 million compared to the same period last year. The increase in adjusted income was primarily due to:
|
·
|
|
the overall improvement in consolidated gross profit margin;
|
|
·
|
|
the accretive impact of the Hydro Flask acquisition;
|
|
·
|
|
lower outbound freight costs;
|
|
·
|
|
lower year-over-year foreign currency revaluation losses, partially due to cash flow hedges and $10 million of U.S. Dollar to Euro cross-currency debt swaps; and
|
|
·
|
|
lower tax expense as a result of the recognition of a tax benefit related to the resolution of uncertain tax positions and the recognition of excess tax benefits from share-based compensation in income tax expense rather than paid-in capital.
|
These factors were partially offset by:
|
·
|
|
a $1.81 million negative impact of net foreign currency exchange rate fluctuations on our consolidated U.S. Dollar reported net sales revenue, of which $1.40 million affected Beauty segment net sales;
|
|
·
|
|
a decline in net income of $1.35 million from our Venezuelan operations, due almost entirely to the adoption of the new DICOM exchange rate; and
|
|
·
|
|
the impact within our core business that lower overall net sales had on operating leverage.
|
Adjusted diluted EPS was $1.27 for the fiscal quarter ended May 31, 2016, compared to $1.06 for the same period last year. Adjusted diluted EPS increased primarily due to the impact of higher earnings and lower weighted average diluted shares outstanding for the fiscal quarter ended May 31, 2016 compared to the same period last year.
The tables referred to on pages
33
through
34
entitled “Adjusted operating income and operating margin” and “Adjusted income and EPS”, respectively report operating income, operating margin, net income, and EPS without the after tax impact of non-cash asset impairment charges, patent litigation charges, amortization of intangible assets, and non-cash share-based compensation for the periods presented, as applicable. For additional information on these adjusted measures, see “Explanation of Certain Terms and Measures Used in MD&A” on page
40
. These measures may be considered non-GAAP financial information as set forth in SEC Regulation G, Rule 100. The preceding tables reconcile these measures to their corresponding GAAP-based measures presented in our consolidated condensed statements of income. We believe that adjusted operating income, adjusted operating margin, adjusted income and adjusted EPS provide useful information to management and investors regarding financial and business trends relating to the Company’s financial condition and results of operations. We believe that these non-GAAP financial measures, in combination with the Company’s financial results calculated in accordance with GAAP, provide investors with additional perspective regarding the impact of such charges on operating income, operating margin, net income, and earnings per share. We also believe that these non-GAAP measures facilitate a more direct comparison of the Company’s performance with its competitors. We further believe that including the excluded charges would not accurately reflect the underlying performance of the Company’s continuing operations for the period in which the charges are incurred, even though such charges may be incurred and reflected in the Company’s GAAP financial results in the near future. The material limitation associated with the use of the non-GAAP financial measures is that the non-GAAP measures do not reflect the full economic impact of the Company's activities. The Company’s adjusted operating income, adjusted operating margin, adjusted income and adjusted EPS are not prepared in accordance with GAAP, are not an alternative to GAAP financial information and may be calculated differently than non-GAAP financial information disclosed by other companies.
Accordingly, undue reliance should not be placed on non-GAAP information
.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The following are selected measures of our liquidity and capital resources for the periods covered below:
SELECTED MEASURES OF OUR LIQUIDITY AND CAPITAL UTILIZATION (1)
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31,
|
|
|
|
2016
|
|
2015
|
|
Accounts Receivable Turnover (Days)
|
|
|
54.1
|
|
|
57.1
|
|
Inventory Turnover (Times)
|
|
|
2.8
|
|
|
2.7
|
|
Working Capital
(in thousands)
|
|
$
|
283,023
|
|
$
|
273,102
|
|
Current Ratio
|
|
|
2.0:1
|
|
|
2.0:1
|
|
Ending Debt to Ending Equity Ratio
|
|
|
61.4
|
%
|
|
46.6
|
%
|
Return on Average Equity (2)
|
|
|
10.6
|
%
|
|
15.8
|
%
|
|
(1)
|
|
Our computation and use of the measures in this table are described beginning on page
40
.
|
|
(2)
|
|
Net income and average equity reported above include the twelve month trailing impacts, after tax, of non-cash asset impairment charges, acquisition-related expenses, CEO succession costs, Venezuelan currency re-measurement related charges, and patent litigation charges, as applicable. For the periods reported above, these items had an unfavorable impact of 5.1 and 0.5 percentage points, respectively, on the return on average equity.
|
Operating Activities:
Operating activities provided $41.74 million of cash during the fiscal quarter ended May 31, 2016, compared to $37.82 million of cash provided during the same period last year. The year-over-year increase in operating cash flow was primarily due to higher non-cash charges and the timing of fluctuations in working capital components.
Accounts receivable decreased $13.00 million, to $204.54 million as of May 31, 2016, compared to $217.54 million at the end of fiscal year 2016. Accounts receivable as of May 31, 2016 includes $9.69 million added from the Hydro Flask acquisition. Accounts receivable turnover decreased to 54.1 days at May 31, 2016, compared to 57.1 days for the same period last year. This calculation is based on a rolling five quarter accounts receivable balance.
Inventory increased $17.64 million, including $9.92 million added from the Hydro Flask acquisition, to $319.25 million as of May 31, 2016, compared to $301.61 million at the end of fiscal year 2016. Inventory turnover improved to 2.8 times at May 31, 2016 compared to 2.7 times for the same period last year.
Working capital was $283.02 million at May 31, 2016, compared to $273.10 million at May 31, 2015 and our current ratio was 2.0:1 at the end of each period. As a result of the adoption of new accounting guidance, we reclassified certain prior period balances affecting the determination of comparative working capital and cash provided by operating activities. These reclassifications had no impact on the reported results of our operations for the three months ended May 31, 2015. Our prior period working capital, current ratio and debt to equity ratio, without reclassifications, were originally reported at May 31, 2015 as $297.30 million, 2.1:1 and 47.1 percent, respectively. For more information regarding the impact of these changes in accounting, see Note 2 to the accompanying consolidated condensed financial statements.
Investing activities:
Investing activities used $214.41 million of cash during the three months ended May 31, 2016. Highlights of those activities follow:
|
·
|
|
we spent $3.25 million on computers, furniture and other equipment, $1.65 million on tools, molds and other capital asset additions, and $0.25 million on the development of new patents; and
|
|
·
|
|
we paid $209.26 million to acquire Hydro Flask.
|
Financing activities:
Financing activities used $30.01 million of cash during the three months ended May 31, 2016. Highlights of those activities follow:
|
·
|
|
we had draws of $100.20 million under our credit agreement;
|
|
·
|
|
we repaid $129.10 million drawn under our credit agreement;
|
|
·
|
|
we repaid $3.80 million of our long-term debt;
|
|
·
|
|
employees exercised options to purchase 73,635 shares of common stock, providing $3.13 million of cash; and
|
|
·
|
|
we paid $0.42 million in tax obligations resulting from cashless share award settlements.
|
Revolving Credit Agreement:
We have a credit agreement (the “Credit Agreement”) with Bank of America, N.A., as administrative agent, and other lenders that provides for an unsecured total revolving commitment of $650 million as of May 31, 2016. The commitment under the Credit Agreement terminates on January 16, 2020. Accordingly, borrowings under the Credit Agreement are reported as long-term debt. Borrowings accrue interest under one of two alternative methods as described in the Credit Agreement. With each borrowing against our credit line, we can elect the interest rate method based on our funding needs at the time. We also incur loan commitment fees and letter of credit fees under the Credit Agreement. Outstanding letters of credit reduce the borrowing availability under the Credit Agreement on a dollar-for-dollar basis. As of May 31, 2016, the outstanding revolving loan principal balance was $521.20 million and there were $1.50 million of open letters of credit outstanding under the Credit Agreement. For the fiscal quarter ended May 31, 2016, borrowings under the Credit Agreement incurred interest charges at rates ranging from 1.93 to 4.00. For the fiscal quarter ended May 31, 2015, borrowings under the Credit Agreement incurred interest charges at rates ranging from 1.43 to 4.00 percent. As of May 31, 2016, the amount available for borrowings under the Credit Agreement was $127.30 million. As of May 31, 2016, our debt agreements effectively limited our ability to incur more than $153.39 million of additional debt from all sources, including the Credit Agreement.
Other Debt Agreements:
In addition to the Credit Agreement, at May 31, 2016, we had the following other long term debt outstanding:
|
·
|
|
$40 million aggregate principal amount of 3.90% Senior Notes due January 2018 outstanding with equal annual $20 million installments in January 2017 and 2018.
|
|
·
|
|
$30.01 million principal outstanding under floating rate loan agreement with the Mississippi Business Finance Corporation (the “MBFC Loan”), which funded the original construction of our Olive Branch, Mississippi distribution facility. The remaining principal balance of the MBFC loan is payable as follows: $5.70 million
|
on March 1, 2017; $1.90 million annually on March 1, 2018 through 2022; and $14.81 million on March 1, 2023. Any remaining outstanding principal and interest is due upon maturity on March 1, 2023.
|
Our debt agreements require the maintenance of certain financial covenants, including maximum leverage ratios, minimum interest coverage ratios and minimum consolidated net worth levels (as each of these terms are defined in the various agreements). Our debt agreements also contain other customary covenants, including, among other things, covenants restricting or limiting the Company, except under certain conditions set forth therein, from (1) incurring debt, (2) incurring liens on its properties, (3) making certain types of investments, (4) selling certain assets or making other fundamental changes relating to mergers and consolidations, and (5) repurchasing shares of our common stock and paying dividends. Our debt agreements also contain customary events of default, including failure to pay principal or interest when due, among others. Our debt agreements are cross-defaulted to each other. Upon an event of default under our debt agreements, the holders or lenders may, among other things, accelerate the maturity of any amounts outstanding under our debt agreements. Under the terms of our Credit Agreement, the commitments of the lenders to make loans to us are several and not joint. Accordingly, if any lender fails to make loans to us, our available liquidity could be reduced by an amount up to the aggregate amount of such lender’s commitments under the Credit Agreement.
The table below provides the formulas in effect for certain key financial covenants as defined in our debt agreements as of May 31, 2016:
|
|
|
|
Applicable Financial Covenant
|
|
Credit Agreement and MBFC Loan
|
3.90% Senior Notes
|
|
|
|
|
|
|
|
$500 Million
|
Minimum Consolidated Net Worth
|
|
None
|
+
|
|
|
|
25% of Fiscal Quarter Net Earnings
|
|
|
|
After August 31, 2010 (1)
|
|
|
|
|
|
|
EBIT (2)
|
EBIT (2)
|
|
|
÷
|
÷
|
Interest Coverage Ratio
|
|
Interest Expense (2)
|
Interest Expense (2)
|
|
|
Minimum Required: 3.00 to 1.00
|
Minimum Required: 2.50 to 1.00
|
|
|
Total Current and Long Term Debt (3)
|
Total Current and Long Term Debt (3)
|
|
|
÷
|
÷
|
Maximum Leverage Ratio
|
|
[EBITDA (2) + Pro Forma Effect of
|
[ EBITDA (2) + Pro Forma Effect of Acquisitions ]
|
|
|
Acquisitions]
|
|
|
|
Maximum Allowed: 3.25 to 1.00
|
Maximum Allowed: 3.25 to 1.00
|
Key Definitions:
|
|
|
EBIT:
|
|
Earnings Before Non-Cash Charges, Interest Expense and Taxes
|
|
|
|
EBITDA:
|
|
EBIT + Depreciation and Amortization Expense + Share Based Compensation
|
|
|
|
Total Capitalization:
|
|
Total Current and Long Term Debt + Total Equity
|
|
|
|
Pro Forma Effect of Acquisitions:
|
|
For any acquisition, pre-acquisition EBITDA of the acquired business is included so that the EBITDA of the acquired business included in the computation equals its twelve month trailing total.
|
Notes:
(1) Excluding any fiscal quarter net losses.
(2) Computed using totals for the latest reported four consecutive fiscal quarters.
(3) Computed using the ending balances as of the latest reported fiscal quarter.
Contractual obligations and commercial commitments:
Our contractual obligations and commercial commitments at May 31, 2016, were:
PAYMENTS DUE BY PERIOD - TWELVE MONTHS ENDED THE LAST DAY OF MAY:
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
After
|
|
|
Total
|
|
1
year
|
|
2 years
|
|
3 years
|
|
4 years
|
|
5 years
|
|
5 years
|
Fixed rate debt
|
|
$
|
40,000
|
|
$
|
20,000
|
|
$
|
20,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
Floating rate debt
|
|
|
551,207
|
|
|
5,700
|
|
|
1,900
|
|
|
1,900
|
|
|
523,100
|
|
|
1,900
|
|
|
16,707
|
Long-term incentive plan payouts
|
|
|
10,164
|
|
|
6,103
|
|
|
3,303
|
|
|
758
|
|
|
-
|
|
|
-
|
|
|
-
|
Interest on fixed rate debt
|
|
|
1,742
|
|
|
1,261
|
|
|
481
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Interest on floating rate debt (1)
|
|
|
41,195
|
|
|
11,154
|
|
|
11,062
|
|
|
11,025
|
|
|
7,068
|
|
|
354
|
|
|
532
|
Open purchase orders
|
|
|
185,612
|
|
|
185,612
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Long-term purchase commitments
|
|
|
1,414
|
|
|
657
|
|
|
606
|
|
|
151
|
|
|
-
|
|
|
-
|
|
|
-
|
Minimum royalty payments
|
|
|
65,535
|
|
|
12,699
|
|
|
12,451
|
|
|
12,333
|
|
|
9,143
|
|
|
9,067
|
|
|
9,842
|
Advertising and promotional
|
|
|
47,391
|
|
|
9,646
|
|
|
6,386
|
|
|
6,489
|
|
|
6,599
|
|
|
6,711
|
|
|
11,560
|
Operating leases
|
|
|
34,604
|
|
|
5,818
|
|
|
5,288
|
|
|
4,383
|
|
|
3,357
|
|
|
2,946
|
|
|
12,812
|
Capital spending commitments
|
|
|
1,837
|
|
|
1,837
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Total contractual obligations (2)
|
|
$
|
980,701
|
|
$
|
260,487
|
|
$
|
61,477
|
|
$
|
37,039
|
|
$
|
549,267
|
|
$
|
20,978
|
|
$
|
51,453
|
|
(1)
|
|
We estimate our future obligations for interest on our floating rate debt by assuming the weighted average interest rates in effect on each floating rate debt obligation at May 31, 2016 remain constant into the future. This is an estimate, as actual rates will vary over time. In addition, for the Credit Agreement, we assume that the balance outstanding as of May 31, 2016 remains the same for the remaining term of the agreement. The actual balance outstanding under our Credit Agreement may fluctuate significantly in future periods, depending on the availability of cash flow from operations and future investing and financing considerations.
|
|
(2)
|
|
In addition to the contractual obligations and commercial commitments in the table above, as of May 31, 2016, we have recorded total provisions for our uncertain tax positions totaling $6.85 million. We are unable to reliably estimate the timing of most of the future payments, if any, related to uncertain tax positions. Therefore, we have excluded these tax liabilities from the table above.
|
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 our foreseeable short- and long-term liquidity requirements. We expect our capital needs to stem primarily from the need to purchase sufficient levels of inventory and to carry normal levels of accounts receivable on our balance sheet. In addition, we continue to evaluate acquisition opportunities on a regular basis. We may finance acquisition activity with available cash, the issuance of shares of common stock, additional debt, or other sources of financing, depending upon the size and nature of any such transaction and the status of the capital markets at the time of such acquisition. The Company may also elect to repurchase additional shares of common stock up to the balance of its current authorization over the next two fiscal years, subject to limitations contained in its debt agreements and based upon its assessment of a number of factors, including share price, trading volume and general market conditions, as well as on working capital requirements, general business conditions, financial conditions, any applicable contractual limitations and other factors, including alternative investment opportunities.
CRITICAL ACCOUNTING POLICIES
The SEC 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. For a discussion of our critical accounting policies, see Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, under the heading “Critical Accounting Policies” in our annual report on Form 10-K for the year ended February 29, 2016. There have been no material changes to the Company’s critical accounting policies from the information provided in our annual report on Form 10-K.
NEW ACCOUNTING GUIDANCE
See Note (2) “New Accounting Pronouncements” in the accompanying consolidated condensed financial statements for a discussion of the status and potential impact of any new accounting pronouncements.
EXPLANATION OF CERTAIN TERMS AND MEASURES USED IN MD&A
Accounts receivable turnover:
Twelve-month trailing net sales revenue divided by the average of the current and prior four fiscal quarters’ ending accounts receivable balances. This result is divided into 365 to express turnover in terms of average days outstanding.
Adjusted diluted EPS (non-GAAP):
Adjusted income divided by the weighted average shares of common stock
outstanding plus the effect of dilutive securities.
Adjusted income (non-GAAP):
Net income as reported under GAAP excluding the following items net of their applicable tax effects: non-cash asset impairment charges, CEO succession costs, acquisition
‐
related expenses, Venezuelan
re-measurement related charges, patent litigation charges,
amortization of intangible assets, and non-cash share-based compensation, as applicable.
Adjusted operating income (non-GAAP):
Operating income for the Company or a segment as reported under GAAP excluding non-cash asset impairment charges, CEO succession costs, acquisition
‐
related expenses, Venezuelan
re-measurement related charges, patent litigation charges,
amortization of intangible assets, and non-cash share-based compensation, as applicable.
Adjusted operating margin (non-GAAP):
Adjusted Operating income for the Company or a segment divided by
the related net sales revenue for the Company or a segment.
Core business:
Core business is net sales revenue and related operations associated with product lines or brands after the first twelve months from the date the product line or brand was acquired. Net sales revenue and related operations from internally developed product lines or brands are always considered core business.
Corporate overhead costs:
General corporate managerial and related administrative compensation costs, legal, accounting, and regulatory compliance costs, together with associated operating overhead that is not directly attributable to any one operating segment, but benefits the Company as a whole. These charges are allocated to each operating segment based upon a number of factors depending on the nature of the expense. Such factors include relative revenues, estimates of relative labor expenditures for each segment and certain intangible asset levels held by each segment.
Current ratio:
Current assets divided by current liabilities at the end of a reporting period, expressed as a ratio.
Ending debt to ending equity ratio:
Total interest bearing short- and long-term debt divided by shareholders’ equity. We use this as a leverage metric to indicate what proportion of debt and equity we are using to finance assets.
Growth from acquisitions:
Net sales revenue growth associated with product lines or brands that we have acquired and operated for less than twelve months during each period presented.
Inventory turnover:
Twelve-month trailing cost of goods sold divided by the average of the current and prior four fiscal quarters’ ending inventory balances.
Operating expense ratio:
Total operating expense (SG&A plus asset impairment charges) for the Company or a segment divided by the related net sales revenue for the Company or a segment.
Operating leverage:
The improvement in operating margin that the Company or a segment achieves with sales growth, due to the fixed nature of certain operating expenses.
Operating margin:
Operating income for the Company or a segment divided by the related net sales revenue for the Company or a segment.
Return on average equity:
Twelve month trailing net income divided by the average of the current and prior four fiscal quarters’ ending shareholders’ equity.
Segment operating income:
We compute segment operating income based on net sales revenue, less cost of goods sold, SG&A, and any asset impairment charges associated with the segment. The SG&A used to compute each segment’s operating income is directly associated with the segment. We then deduct allocations for operational shared services and corporate overhead costs. We do not allocate nonoperating income and expense, including interest or income taxes to operating segments.
SG&A ratio:
This is total SG&A for the Company or a segment divided by the related net sales revenue for the Company or a segment.
Working capital:
Current assets less current liabilities.
ITEM 3
. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RIS
K
Changes in currency exchange rates and interest rates are our primary financial market risks.
Foreign Currency Risk:
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 fiscal quarters ended May 31, 2016 and 2015, approximately 14 percent of our net sales revenue in each period was in foreign currencies. These sales were primarily denominated in British Pounds, Euros, Mexican Pesos, Canadian Dollars, and Venezuelan Bolivars. We make most of our inventory purchases from the Far East and primarily use the U.S. Dollar for such purchases. In our consolidated condensed statements of income, exchange gains and losses resulting from the remeasurement of foreign taxes receivable, taxes payable, deferred tax assets, and deferred tax liabilities, are recognized in their respective income tax lines, and all other foreign exchange gains and losses from remeasurement of the balance sheet are recognized in SG&A.
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 hedge against certain foreign currency exchange rate risk by using a series of forward contracts designated as cash flow hedges and mark-to-market derivatives 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. For cash flow hedges, 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 during the forecasted period. To the extent that we forecast the expected foreign currency cash flows from the period we enter into the forward contract 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. We also enter into certain foreign currency contracts we refer to as “cross-currency debt swaps.” Cross-currency debt swaps have been used with respect to $10 million of our 3.90% Senior Notes, creating an economic hedge against currency movements. We have elected not to designate these contracts as fair value hedges. Accordingly, the net unrealized mark-to-market gain or loss on these derivatives is recognized in SG&A as incurred, and associated net fixed interest payments are recognized as an adjustment to interest expense. We enter into these types of agreements where we believe we have meaningful exposure to foreign currency exchange risk and the hedge pricing appears reasonable. It is not practical for us to hedge all our exposures, nor are we able to project in any meaningful way the possible effect and interplay of all foreign currency fluctuations on translated amounts or future earnings. This is due to our constantly changing exposure to various currencies, the fact that each foreign currency reacts differently to the U.S. Dollar and the significant number of currencies involved. Accordingly, we will always be subject to foreign exchange rate-risk on exposures we have not hedged, and these risks may be material. We do not enter into any forward exchange contracts or similar instruments for trading or other speculative purposes. 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 certain potential foreign exchange losses.
Chinese Renminbi Currency Exchange Uncertainties
-
A significant portion of the products we sell are purchased from third-party manufacturers in China. The Chinese Renminbi has fluctuated against the U.S. Dollar in recent years, devaluing by approximately 6 percent against the U.S. Dollar during fiscal year 2016. If China’s currency fluctuates against the U.S. Dollar in the short-to-intermediate term, we cannot accurately predict the impact of those fluctuations on our results of operations. There can be no assurance that foreign exchange rates will be stable in the future or that fluctuations in Chinese foreign currency markets will not have a material adverse effect on our business, financial condition and results of operations.
Venezuelan Bolivar Currency Exchange Uncertainties
- In February 2016, the Venezuelan government announced further changes to its foreign currency exchange system. These changes included an immediate devaluation of its official rate, now known as DIPRO, from 6.30 Bolivars per U.S. Dollar to 10.00 Bolivars per U.S. Dollar. The changes also included the dissolution of its previous alternative exchange rate systems, and the institution of a new alternative exchange system known as DICOM governing all other transactions not covered by DIPRO. DICOM replaced SIMADI, which was the lowest rate in the previous exchange system. SIMADI closed at February 29, 2016 at approximately 205 Bolivars per U.S. Dollar. DICOM opened in early March 2016 at approximately 207 Bolivars per U.S. Dollar.
As a result of the further devaluation of the official rate, continued economic instability from declines in oil prices and the declaration of an economic emergency, among other factors, we determined that SIMADI was the most appropriate rate to use to re-measure our financial statements as of February 29, 2016. The determination was further substantiated by the announcement of DICOM as an intended market-based rate, which opened at approximately the same rate as SIMADI shortly after the end of our fiscal year. As a result of the adoption of SIMADI, we recorded Venezuelan re-measurement related charges totaling $18.73 million in the fourth quarter of fiscal year 2016.
The Company adopted DICOM in the first quarter of fiscal year 2017. Absent further changes in the exchange system, or unless future developments call for further changes, we intend to use DICOM to re-measure our financial statements going forward. At the current DICOM exchange rate, we expect that U.S. Dollar reported operating results from Venezuela will no longer be meaningful to the Company or the Beauty segment. Net sales revenue from Venezuela for the quarter ended May 31, 2016 was $0.23 million compared to $4.11 million for the quarter ended May 31, 2015. Operating income (loss) from Venezuela for the quarter ended May 31, 2016 was ($0.10) million compared to $1.58 million for the quarter ended May 31, 2015.
Developments within the Venezuelan economy, including any future governmental interventions, are beyond our ability to control or predict, and we cannot assess the impacts, if any, such events may have on our Venezuelan business.
Interest Rate Risk:
Interest on our outstanding debt as of May 31, 2016 is both floating and fixed. Fixed rates are in place on $40 million of Senior Notes at 3.90% and floating rates are in place on the balance of all other debt outstanding, which totaled $551.21 million as of May 31, 2016. If short-term interest rates increase, we will incur higher interest rates on any outstanding balances under our Credit Agreement
and the MB
FC Loan.
The fair values of our derivative instruments are as follows:
FAIR VALUES OF DERIVATIVE INSTRUMENTS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2016
|
|
|
|
|
|
|
|
|
|
Prepaid
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
Expenses
|
|
|
|
|
|
|
Final
|
|
|
|
|
and
Other
|
|
|
|
and
Other
|
|
Other
|
|
|
|
|
Settlement
|
|
Notional
|
|
Current
|
|
Other
|
|
Current
|
|
Liabilities,
|
Derivatives designated as hedging instruments
|
|
Hedge
Type
|
|
Date
|
|
Amount
|
|
Assets
|
|
Assets
|
|
Liabilities
|
|
Non-current
|
Foreign currency contracts - sell Euro
|
|
Cash flow
|
|
2/2018
|
|
€
|
32,250
|
|
$
|
547
|
|
$
|
175
|
|
$
|
-
|
|
$
|
-
|
Foreign currency contracts - sell Canadian Dollars
|
|
Cash flow
|
|
10/2017
|
|
$
|
29,250
|
|
|
-
|
|
|
11
|
|
|
925
|
|
|
-
|
Foreign currency contracts - sell Pounds
|
|
Cash flow
|
|
8/2017
|
|
£
|
10,950
|
|
|
-
|
|
|
13
|
|
|
6
|
|
|
-
|
Foreign currency contracts - sell Australian Dollars
|
|
Cash flow
|
|
2/2017
|
|
$
|
3,000
|
|
|
-
|
|
|
-
|
|
|
12
|
|
|
-
|
Subtotal
|
|
|
|
|
|
|
|
|
|
547
|
|
|
199
|
|
|
943
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated under hedge accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts - cross-currency debt swaps
|
|
(1)
|
|
1/2018
|
|
$
|
10,000
|
|
|
-
|
|
|
259
|
|
|
-
|
|
|
-
|
Total fair value
|
|
|
|
|
|
|
|
|
$
|
547
|
|
$
|
458
|
|
$
|
943
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2016
|
|
|
|
|
|
|
|
|
|
Prepaid
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
Expenses
|
|
|
|
|
|
|
Final
|
|
|
|
|
and Other
|
|
|
|
and Other
|
|
Other
|
|
|
|
|
Settlement
|
|
Notional
|
|
Current
|
|
Other
|
|
Current
|
|
Liabilities,
|
Derivatives designated as hedging instruments
|
|
Hedge Type
|
|
Date
|
|
Amount
|
|
Assets
|
|
Assets
|
|
Liabilities
|
|
Non-current
|
Foreign currency contracts - sell Euro
|
|
Cash flow
|
|
2/2017
|
|
€
|
27,000
|
|
$
|
1,066
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
Foreign currency contracts - sell Canadian Dollars
|
|
Cash flow
|
|
6/2017
|
|
$
|
28,000
|
|
|
-
|
|
|
-
|
|
|
495
|
|
|
7
|
Foreign currency contracts - sell Pounds
|
|
Cash flow
|
|
2/2017
|
|
£
|
3,450
|
|
|
94
|
|
|
-
|
|
|
-
|
|
|
-
|
Foreign currency contracts - sell Australian Dollars
|
|
Cash flow
|
|
8/2016
|
|
$
|
1,650
|
|
|
6
|
|
|
-
|
|
|
-
|
|
|
-
|
Subtotal
|
|
|
|
|
|
|
|
|
|
1,166
|
|
|
-
|
|
|
495
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated under hedge accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts - cross-currency debt swap
|
|
(1)
|
|
1/2018
|
|
$
|
5,000
|
|
|
-
|
|
|
206
|
|
|
-
|
|
|
-
|
Total fair value
|
|
|
|
|
|
|
|
|
$
|
1,166
|
|
$
|
206
|
|
$
|
495
|
|
$
|
7
|
|
(1)
|
|
We have entered into foreign currency contracts referred to as "cross-currency debt swaps", which in effect adjust the currency denomination of our 3.90% Senior Notes due January 2018 to the Euro for the notional amounts reported, creating an economic hedge against currency movements. On these contracts, we have not elected hedge accounting.
|
Counterparty Credit Risks:
Financial instruments, including foreign currency contracts, expose us to counterparty credit risk for nonperformance. We manage our exposure to counterparty credit risk by only dealing with counterparties who are substantial international financial institutions with significant experience using such derivative instruments. Although our theoretical credit risk is the replacement cost at the then-estimated fair value of these instruments, we believe that the risk of incurring credit risk losses is remote.
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 Securities and Exchange Commission (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 our current expectations and various assumptions. We believe there is a reasonable basis for our expectations and assumptions, but there can be no assurance that we will realize our expectations or that our assumptions will prove correct. Forward-looking statements are subject to risks that could cause them to differ materially from actual results. Accordingly, we caution 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 Item 1A., “Risk Factors” and that are otherwise described from time to time in our SEC reports as filed. As described later in this report, such risks, uncertainties and other important factors include, among others:
|
·
|
|
our ability to deliver products to our customers in a timely manner and according to their fulfillment standards;
|
|
·
|
|
our relationships with key customers and licensors;
|
|
·
|
|
the costs of complying with the business demands and requirements of large sophisticated customers;
|
|
·
|
|
our dependence on the strength of retail economies and vulnerabilities to any prolonged economic downturn;
|
|
·
|
|
the retention and recruitment of key personnel;
|
|
·
|
|
expectations regarding our recent and future acquisitions, including our ability to realize anticipated cost savings, synergies and other benefits along with our ability to effectively integrate acquired businesses;
|
|
·
|
|
foreign currency exchange rate fluctuations;
|
|
·
|
|
disruptions in U.S., U.K., Euro zone, Venezuela, and other international credit markets;
|
|
·
|
|
risks associated with weather conditions, the duration and severity of the cold and flu season and other related factors;
|
|
·
|
|
our dependence on foreign sources of supply and foreign manufacturing, and associated operational risks including, but not limited to, long lead times, consistent local labor availability and capacity, and timely availability of sufficient shipping carrier capacity;
|
|
·
|
|
risks to the Nutritional Supplements segment associated with the availability, purity and integrity of materials used in the manufacture of vitamins, minerals and supplements;
|
|
·
|
|
the impact of changing costs of raw materials, labor and energy on cost of goods sold and certain operating expenses;
|
|
·
|
|
the geographic concentration and peak season capacity of certain U.S. distribution facilities increases our exposure to significant shipping disruptions and added shipping and storage costs;
|
|
·
|
|
our projections of product demand, sales and net income are highly subjective in nature and future sales and net income could vary in a material amount from such projections;
|
|
·
|
|
circumstances which may contribute to future impairment of goodwill, intangible or other long-lived assets;
|
|
·
|
|
the risks associated with the use of trademarks licensed from and to third parties;
|
|
·
|
|
our ability to develop and introduce a continuing stream of new products to meet changing consumer preferences;
|
|
·
|
|
increased product liability and reputational risks associated with the formulation and distribution of vitamins, minerals and supplements;
|
|
·
|
|
the risks associated with potential adverse publicity and negative public perception regarding the use of vitamins, minerals and supplements;
|
|
·
|
|
trade barriers, exchange controls, expropriations, and other risks associated with foreign operations;
|
|
·
|
|
debt leverage and the constraints it may impose on our cash resources and ability to operate our business;
|
|
·
|
|
the costs, complexity and challenges of upgrading and managing our global information systems;
|
|
·
|
|
the risks associated with information security breaches;
|
|
·
|
|
the increased complexity of compliance with a number of new government regulations as a result of adding vitamins, minerals and supplements to the Company’s portfolio of products;
|
|
·
|
|
risks associated with product recalls, product liability, other claims, and related litigation against us;
|
|
·
|
|
the risks associated with tax audits and related disputes with taxing authorities;
|
|
·
|
|
the risks of potential changes in laws, including tax laws, health insurance laws and regulations related to conflict minerals along with the costs and complexities of compliance with such laws; and
|
|
·
|
|
our ability to continue to avoid classification as a controlled foreign corporation.
|
We undertake no obligation to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise.