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 MD&A, we refer to our Leadership Brands, which are brands that have number-one and number-two positions in their respective categories and include OXO®, Honeywell®, Braun®, PUR®, Hydro Flask®, Vicks®, and Hot Tools®.
Throughout 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 refer 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.
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 leading global consumer products company offering creative products and solutions for our customers through a diversified portfolio of well-recognized and widely-trusted brands. We have built leading market positions through new product innovation, product quality and competitive pricing. We operate in four segments consisting of Housewares, Health & Home, Nutritional Supplements, and Beauty. In fiscal 2015, we launched a transformational strategy to improve the performance of our business segments and strengthen our shared service capabilities. We believe we continue to make progress on achieving our strategic objectives.
Significant Trends Impacting the Business
Restructuring Plan
On October 5, 2017, the Company announced that it had approved a restructuring plan (referred to as “Project Refuel”) intended to enhance the performance of the Nutritional Supplements and Beauty segments. Through the restructuring, the Company is targeting annualized profit improvement of $10 million combined over the next 18 months and expects to incur restructuring charges in the range of $4.0 to $6.0 million over the same period.
Nutritional Supplements Business
We continue to evaluate strategic alternatives for our Nutritional Supplements business, which could include a transaction to divest the business, further investments in the segment’s e-commerce platforms, further restructuring or realignment programs, and consolidation of our operations and functions. We believe that over the longer-term, these alternatives are designed to enhance revenue growth and profitability; however, over the transitional near-term, certain of these alternatives may have a disproportionate impact on our income relative to the cost savings or generate other charges or losses.
During the first quarter of fiscal 2018, we received information regarding the potential fair value of our Nutritional Supplements business that we concluded should be considered when determining if impairments of our long-lived assets, including goodwill, had occurred. Consequently, we performed interim impairment testing to determine whether our long-lived assets, including goodwill, associated with our Nutritional Supplements segment were impaired. As a result of our testing, we recorded non-cash asset impairment charges totaling $32.0 million, consisting of $6.0 million to the segment’s indefinite-lived trademarks, and $26.0 million to the segment’s goodwill.
In the second quarter of fiscal 2018, we performed additional impairment testing for the Nutritional Supplements segment due to a revised financial projection. As a result of our testing, we recorded non-cash asset impairment charges totaling $18.1 million related to the the segment’s indefinite-lived brand assets.
The fair values used in our impairment tests were determined using a weighted average of various valuation methods including estimated future discounted cash flows and other market data. The valuation techniques utilized assumptions we believe to be appropriate in the circumstances; however, future circumstances attributable to a strategic change in the Nutritional Supplements segment could result in changes to those assumptions and other charges or losses relating to the segment may be recorded and could be material. For example, if we determine that a divestiture is the probable outcome of our strategic review, we expect to perform additional impairment tests with updated assumptions. We are unable to project what, if any, expense, charges or losses will be in future periods.
Foreign Currency Exchange Rate Fluctuations
Due to the nature of our operations, we have exposure to the impact of fluctuations in exchange rates from transactions that are denominated in a currency other than our reporting currency (the U.S. Dollar). The most significant currencies affecting our operating results are the British Pound, Euro, Canadian Dollar, and Mexican Peso. For the three months ended August 31, 2017, changes in foreign currency exchange rates had a favorable impact on consolidated U.S dollar reported net sales revenue of approximately $0.5 million, or 0.1%. For the six-months ended August 31, 2017, net foreign currency exchange rate fluctuations negatively impacted our consolidated U.S. dollar reported net sales revenue by approximately $1.7 million, or 0.2%.
Consumer Spending and Changes in Shopping Preference
s
Our business depends 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 81%, 80% and 79% of our consolidated net sales were from U.S. shipments in fiscal 2017, 2016 and 2015, respectively. Additionally, the shift in consumer shopping preferences to online or multichannel shopping experiences has shifted the concentration of our sales. For fiscal 2017, 2016 and 2015, our net sales to retail customers fulfilling end-consumer online orders and online sales directly to consumers comprised approximately 13%, 10% and 9%, respectively, of our total consolidated net sales revenue for each fiscal year and grew over 30% in fiscal 2017. For the second quarter and first six months of fiscal 2018, our net sales to retail customers fulfilling end-consumer online orders and online sales directly to consumers comprised approximately 16% and 15% respectively of our total consolidated net sales revenue and grew approximately 18% and 23%, respectively, compared to the same periods last year. With the continued growth in online sales across the retail landscape, many brick and mortar retailers are aggressively looking for ways to improve their customer delivery capabilities to be able to meet customer expectations. As a result, it will become increasingly important for us to leverage our distribution capabilities in order to meet the changing demands of our customers, as well as to increase our online capabilities to support our direct-to-consumer sales channels and online channel sales by our retail customers.
Variability of the Cough/Cold/Flu Season
Sales in several of our Health & Home segment categories are highly correlated to the severity of winter weather and cough/cold/flu incidence. In the U.S., the cough/cold/flu season historically runs from November through March, with peak activity normally in January to March. For the 2016-2017 season, fall and winter season weather was mild and reports of cough/cold/flu incidence were below the 2015-2016 season, which was a below average season. We expect that the weakness in the 2016-2017 cough/cold/flu season will have an unfavorable impact on initial replenishment of affected categories during fiscal 2018, due to high retail inventory levels.
Second Quarter Fiscal 2018 Financial Results
|
·
|
|
Consolidated net sales revenue increased 2.8%, or $10.3 million, to $378.5 million for the three months ended August 31, 2017, compared to $368.2 million for the same period last year.
|
|
·
|
|
Consolidated operating income was $20.1 million for the three months ended August 31, 2017, compared to operating income of $37.5 million in the same period last year. Consolidated operating income for the three months ended August 31, 2017 includes pre-tax non-cash impairment charges of $18.1 million, and a $3.6 million charge related to the bankruptcy of Toys “R” Us (“TRU”). There were no comparable charges in the same period last year.
|
|
·
|
|
Consolidated adjusted operating income increased 7.7%, or $3.7 million, to $51.5 million for the three months ended August 31, 2017, compared to $47.9 million in the same period last year. Consolidated adjusted operating margin increased 0.6 percentage points to 13.6% of consolidated net sales revenue in the three months ended August 31, 2017, compared to 13.0% in the same period last year.
|
|
·
|
|
Net income was $8.9 million for the three months ended August 31, 2017, compared to $28.4 million for the same period last year. Diluted EPS decreased to $0.33 in the three months ended August 31, 2017, compared to $1.00 in the same period last year.
|
|
·
|
|
Adjusted income increased 22.0% to $45.2 million in the three months ended August 31, 2017, compared to $37.0 million in the same period last year. Adjusted diluted EPS increased 26.0% to $1.65 in the three months ended August 31, 2017, compared to $1.31 in the same period last year.
|
Year-To-Date Fiscal 2018 Financial Results
|
·
|
|
Consolidated net sales revenue increased 3.1%, or $22.0 million, to $738.1 million for the six months ended August 31, 2017, compared to $716.1 million for the same period last year.
|
|
·
|
|
Consolidated operating income was $16.9 million for the six months ended August 31, 2017, compared to operating income of $60.4 million in the same period last year. Consolidated operating income for the six months ended August 31, 2017 includes pre-tax non-cash impairment charges of $54.1 million and a $3.6 million charge related to the bankruptcy of TRU. The six months ended August 31, 2016 includes pre-tax non-cash impairment charges of $7.4 million and a patent litigation charge of $1.5 million.
|
|
·
|
|
Consolidated adjusted operating income increased 1.9%, or $1.7 million to $94.2 million for the six months ended August 31, 2017, compared to $92.4 million in the same period last year. Consolidated adjusted operating margin decreased 0.1 percentage point to 12.8% of consolidated net sales revenue in the six months ended August 31, 2017, compared to 12.9% in the same period last year.
|
|
·
|
|
Net income was $14.8 million for the six months ended August 31, 2017, compared to $47.4 million for the same period last year. Diluted EPS decreased to $0.54 in the six months ended August 31, 2017, compared to $1.68 in the same period last year.
|
|
·
|
|
Adjusted income increased 13.4% to $82.7 million in the six months ended August 31, 2017, compared to $72.9 million in the same period last year. Adjusted diluted EPS increased 17.0% to $3.03 in the six months ended August 31, 2017, compared to $2.59 in the same period last year.
|
Adjusted operating income, adjusted operating margin, adjusted income, and adjusted diluted EPS as discussed above and on the pages that follow 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 28 through 37.
RESULTS OF OPERATIONS
The following tables set 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended August 31,
|
|
|
|
|
|
|
|
% of Sales Revenue, net
|
|
(In thousands)
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
|
2017
|
|
2016
|
|
Sales revenue by segment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housewares
|
|
$
|
114,720
|
|
$
|
105,976
|
|
$
|
8,744
|
|
8.3
|
%
|
|
30.3
|
%
|
28.8
|
%
|
Health & Home
|
|
|
147,861
|
|
|
144,453
|
|
|
3,408
|
|
2.4
|
%
|
|
39.1
|
%
|
39.2
|
%
|
Nutritional Supplements
|
|
|
31,257
|
|
|
33,112
|
|
|
(1,855)
|
|
(5.6)
|
%
|
|
8.3
|
%
|
9.0
|
%
|
Beauty
|
|
|
84,624
|
|
|
84,629
|
|
|
(5)
|
|
(0.0)
|
%
|
|
22.4
|
%
|
23.0
|
%
|
Total sales revenue, net
|
|
|
378,462
|
|
|
368,170
|
|
|
10,292
|
|
2.8
|
%
|
|
100.0
|
%
|
100.0
|
%
|
Cost of goods sold
|
|
|
210,529
|
|
|
205,202
|
|
|
5,327
|
|
2.6
|
%
|
|
55.6
|
%
|
55.7
|
%
|
Gross profit
|
|
|
167,933
|
|
|
162,968
|
|
|
4,965
|
|
3.0
|
%
|
|
44.4
|
%
|
44.3
|
%
|
Selling, general and administrative expense
|
|
|
129,755
|
|
|
125,481
|
|
|
4,274
|
|
3.4
|
%
|
|
34.3
|
%
|
34.1
|
%
|
Asset impairment charges
|
|
|
18,070
|
|
|
-
|
|
|
18,070
|
|
*
|
|
|
4.8
|
%
|
-
|
%
|
Operating income
|
|
|
20,108
|
|
|
37,487
|
|
|
(17,379)
|
|
(46.4)
|
%
|
|
5.3
|
%
|
10.2
|
%
|
Nonoperating income, net
|
|
|
81
|
|
|
88
|
|
|
(7)
|
|
(8.0)
|
%
|
|
-
|
%
|
-
|
%
|
Interest expense
|
|
|
(3,869)
|
|
|
(3,866)
|
|
|
(3)
|
|
0.1
|
%
|
|
(1.0)
|
%
|
(1.1)
|
%
|
Total other expense
|
|
|
(3,788)
|
|
|
(3,778)
|
|
|
(10)
|
|
0.3
|
%
|
|
(1.0)
|
%
|
(1.0)
|
%
|
Income before income taxes
|
|
|
16,320
|
|
|
33,709
|
|
|
(17,389)
|
|
(51.6)
|
%
|
|
4.3
|
%
|
9.2
|
%
|
Income tax expense
|
|
|
7,387
|
|
|
5,354
|
|
|
2,033
|
|
38.0
|
%
|
|
2.0
|
%
|
1.5
|
%
|
Net income
|
|
$
|
8,933
|
|
$
|
28,355
|
|
$
|
(19,422)
|
|
(68.5)
|
%
|
|
2.4
|
%
|
7.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
August 31,
|
|
|
|
|
|
|
|
% of Sales Revenue, net
|
|
|
|
2017
|
|
2016
|
|
$ Change
|
|
% Change
|
|
|
2017
|
|
2016
|
|
Sales revenue by segment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Housewares (1)
|
|
$
|
213,148
|
|
$
|
190,579
|
|
$
|
22,569
|
|
11.8
|
%
|
|
28.9
|
%
|
26.6
|
%
|
Health & Home
|
|
|
298,127
|
|
|
290,808
|
|
|
7,319
|
|
2.5
|
%
|
|
40.4
|
%
|
40.6
|
%
|
Nutritional Supplements
|
|
|
62,876
|
|
|
69,052
|
|
|
(6,176)
|
|
(8.9)
|
%
|
|
8.5
|
%
|
9.6
|
%
|
Beauty
|
|
|
163,916
|
|
|
165,669
|
|
|
(1,753)
|
|
(1.1)
|
%
|
|
22.2
|
%
|
23.1
|
%
|
Total sales revenue, net
|
|
|
738,067
|
|
|
716,108
|
|
|
21,959
|
|
3.1
|
%
|
|
100.0
|
%
|
100.0
|
%
|
Cost of goods sold
|
|
|
413,685
|
|
|
400,713
|
|
|
12,972
|
|
3.2
|
%
|
|
56.0
|
%
|
56.0
|
%
|
Gross profit
|
|
|
324,382
|
|
|
315,395
|
|
|
8,987
|
|
2.8
|
%
|
|
44.0
|
%
|
44.0
|
%
|
Selling, general and administrative expense
|
|
|
253,438
|
|
|
247,610
|
|
|
5,828
|
|
2.4
|
%
|
|
34.3
|
%
|
34.6
|
%
|
Asset impairment charges
|
|
|
54,070
|
|
|
7,400
|
|
|
46,670
|
|
*
|
|
|
7.3
|
%
|
1.0
|
%
|
Operating income
|
|
|
16,874
|
|
|
60,385
|
|
|
(43,511)
|
|
(72.1)
|
%
|
|
2.3
|
%
|
8.4
|
%
|
Nonoperating income, net
|
|
|
247
|
|
|
237
|
|
|
10
|
|
4.2
|
%
|
|
-
|
%
|
-
|
%
|
Interest expense
|
|
|
(7,708)
|
|
|
(7,517)
|
|
|
(191)
|
|
2.5
|
%
|
|
(1.0)
|
%
|
(1.0)
|
%
|
Total other expense
|
|
|
(7,461)
|
|
|
(7,280)
|
|
|
(181)
|
|
2.5
|
%
|
|
(1.0)
|
%
|
(1.0)
|
%
|
Income before income taxes
|
|
|
9,413
|
|
|
53,105
|
|
|
(43,692)
|
|
(82.3)
|
%
|
|
1.3
|
%
|
7.4
|
%
|
Income tax expense (benefit)
|
|
|
(5,388)
|
|
|
5,724
|
|
|
(11,112)
|
|
*
|
|
|
(0.7)
|
%
|
0.8
|
%
|
Net income
|
|
$
|
14,801
|
|
$
|
47,381
|
|
$
|
(32,580)
|
|
(68.8)
|
%
|
|
2.0
|
%
|
6.6
|
%
|
|
(1)
|
|
The six months ended August 31, 2017 includes approximately one-half month of incremental operating results from Hydro Flask, which was acquired on March 18, 2016.
|
* Calculation is not meaningful
Comparison of Second Quarter Fiscal 2018 to Second Quarter Fiscal 2017
Consolidated and Segment Net Sales
The following table summarizes the impact that core business, foreign exchange and acquisitions, as applicable, had on our net sales revenue by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended August 31,
|
|
(in thousands)
|
|
Housewares
|
|
|
Health & Home
|
|
|
Nutritional Supplements
|
|
|
Beauty
|
|
|
Total
|
|
Fiscal 2017 sales revenue, net
|
$
|
105,976
|
|
$
|
144,453
|
|
$
|
33,112
|
|
$
|
84,629
|
|
$
|
368,170
|
|
Core business
|
|
8,804
|
|
|
3,024
|
|
|
(1,855)
|
|
|
(177)
|
|
|
9,796
|
|
Impact of foreign currency
|
|
(60)
|
|
|
384
|
|
|
-
|
|
|
172
|
|
|
496
|
|
Change in sales revenue, net
|
|
8,744
|
|
|
3,408
|
|
|
(1,855)
|
|
|
(5)
|
|
|
10,292
|
|
Fiscal 2018 sales revenue, net
|
$
|
114,720
|
|
$
|
147,861
|
|
$
|
31,257
|
|
$
|
84,624
|
|
$
|
378,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales revenue growth
|
|
8.3
|
%
|
|
2.4
|
%
|
|
(5.6)
|
%
|
|
0.0
|
%
|
|
2.8
|
%
|
Core business
|
|
8.3
|
%
|
|
2.1
|
%
|
|
(5.6)
|
%
|
|
(0.2)
|
%
|
|
2.7
|
%
|
Impact of foreign currency
|
|
(0.1)
|
%
|
|
0.3
|
%
|
|
0.0
|
%
|
|
0.2
|
%
|
|
0.1
|
%
|
In the above table, core business refers to our net sales revenue associated with product lines or brands after the first twelve months from the date the product line or brand is acquired, excluding the impact that foreign currency had on reported net sales. Net sales revenue from internally developed brands or product lines is considered core business activity.
Consolidated Net Sales Revenue
Consolidated net sales revenue increased $10.3 million, or 2.8%, to $378.5 million for the three months ended August 31, 2017, compared to $368.2 million for the same period last year. The growth was primarily driven by new product introductions, online customer growth, incremental distribution, growth in international sales, and a favorable impact from foreign currency, partially offset by:
|
·
|
|
a decline in the Nutritional Supplements segment of $1.9 million, or 5.6%;
|
|
·
|
|
a decline in our personal care category within Beauty; and
|
|
·
|
|
the impact of lower store traffic and soft consumer spending at traditional brick and mortar retail.
|
Segment Net Sales Revenue
Housewares
Net sales revenue in the Housewares segment increased $8.7 million, or 8.3%, to $114.7 million for the three months ended August 31, 2017, compared to $106.0 million for same period last year. The growth was primarily driven by an increase in online sales, incremental distribution with existing customers, expanded international and U.S. distribution, and new product introductions for both the Hydro Flask and OXO brands. These factors were partially offset by the unfavorable impact of lower store traffic and soft consumer spending at traditional brick and mortar retail, and the unfavorable comparative impact of strong retail pipeline fill in the same period last year.
Health & Home
Net sales revenue in the Health & Home segment increased $3.4 million, or 2.4%, to $147.9 million for the three months ended August 31, 2017, compared to $144.5 million for the same period last year. The growth was primarily driven by online sales, strong sales in certain seasonal categories, incremental distribution with existing customers, new product introductions, and growth in international sales. Segment net sales also benefitted from the favorable impact of net foreign currency fluctuations of approximately $0.4 million, or 0.3%. These factors were partially offset by lower club sales and lower royalty revenue.
Nutritional Supplements
Net sales revenue in the Nutritional Supplements segment decreased $1.9 million, or 5.6%, to $31.3 million for the three months ended August 31, 2017, compared to $33.1 million for the same period last year. The change was primarily driven by a decline in auto-delivery revenue resulting primarily from the transition to new order management and customer relationship management systems, partially offset by increases in direct mail and third-party retail sales. The segment continues to implement a multi-year strategic transition from offline to online channels.
Beauty
Net sales revenue in the Beauty segment was unchanged at $84.6 million for the three months ended August 31, 2017, compared to the same period last year. Solid growth in both retail and professional appliance sales, particularly to online retail customers, was offset by declines in the personal care category due primarily to competitive conditions. Segment net sales benefitted from the favorable impact of net foreign currency fluctuations of approximately $0.2 million, or 0.2%.
Gross Profit Margin
Consolidated gross profit as a percentage of net sales revenue for the three months ended August 31, 2017 increased 0.1 percentage point to 44.4%, compared to 44.3% for the same period last year. The increase in consolidated gross profit margin was primarily due to favorable product mix and growth in our Leadership Brands, partially offset by higher overall promotional spending with customers and the unfavorable impact that the revenue decline in Nutritional Supplements has on consolidated gross profit margin.
Selling, General and Administrative Expense (“SG&A”)
Our consolidated SG&A ratio, defined as consolidated SG&A expense as a percent of consolidated net sales, increased 0.2 percentage points to 34.3% for the three months ended August 31, 2017, compared to 34.1% for the same period last year. The increase in consolidated SG&A ratio was primarily due to a $3.6 million charge related to the bankruptcy of TRU, higher product liability expense and higher overall marketing, advertising and new product development expense in support of our Leadership Brands, partially offset by:
|
·
|
|
lower license royalty expense;
|
|
·
|
|
lower incentive compensation expense;
|
|
·
|
|
lower amortization expense; and
|
|
·
|
|
improved distribution and logistics efficiency and lower outbound freight expense.
|
Asset Impairment Charges
As previously discussed under the heading “Significant Trends Impacting the Business”, we performed interim impairment testing in the second quarter of fiscal 2018 as the result of a revised financial projection for the Nutritional Supplements segment. As a result of our testing, we recorded pre-tax non-cash asset impairment charges totaling $18.1 million related to the segment’s indefinite-lived brand assets.
Operating Income, Operating Margin, Adjusted Operating Income (non-GAAP), and Adjusted Operating Margin (non-GAAP) by Segment
In order to provide a better understanding of the comparative impact of certain items on operating income, the tables that follow report the comparative before tax impact of non
‐
cash asset impairment charges, the TRU bankruptcy charge, patent litigation charges, amortization of intangible assets, and non
‐
cash share
‐
based compensation, as applicable, on operating income and operating margin for each segment and in total for the periods covered below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended August 31, 2017
|
|
(In thousands)
|
|
Housewares
|
|
|
Health & Home
|
|
|
Nutritional
Supplements
|
|
|
Beauty
|
|
|
Total
|
|
Operating income (loss), as reported (GAAP)
|
|
$
|
23,513
|
|
20.5
|
%
|
|
$
|
7,730
|
|
5.2
|
%
|
|
$
|
(20,293)
|
|
(64.9)
|
%
|
|
$
|
9,158
|
|
10.8
|
%
|
|
$
|
20,108
|
|
5.3
|
%
|
Asset impairment charges (1)
|
|
|
-
|
|
-
|
%
|
|
|
-
|
|
-
|
%
|
|
|
18,070
|
|
57.8
|
%
|
|
|
-
|
|
-
|
%
|
|
|
18,070
|
|
4.8
|
%
|
TRU bankruptcy charge (2)
|
|
|
956
|
|
0.8
|
%
|
|
|
2,640
|
|
1.8
|
%
|
|
|
-
|
|
-
|
%
|
|
|
-
|
|
-
|
%
|
|
|
3,596
|
|
1.0
|
%
|
Subtotal
|
|
|
24,469
|
|
21.3
|
%
|
|
|
10,370
|
|
7.0
|
%
|
|
|
(2,223)
|
|
(7.1)
|
%
|
|
|
9,158
|
|
10.8
|
%
|
|
|
41,774
|
|
11.0
|
%
|
Amortization of intangible assets (3)
|
|
|
485
|
|
0.4
|
%
|
|
|
2,790
|
|
1.9
|
%
|
|
|
1,772
|
|
5.7
|
%
|
|
|
1,416
|
|
1.7
|
%
|
|
|
6,463
|
|
1.7
|
%
|
Non-cash share-based compensation (4)
|
|
|
1,028
|
|
0.9
|
%
|
|
|
1,080
|
|
0.7
|
%
|
|
|
332
|
|
1.1
|
%
|
|
|
848
|
|
1.0
|
%
|
|
|
3,288
|
|
0.9
|
%
|
Adjusted operating income (loss)(non-GAAP)
|
|
$
|
25,982
|
|
22.6
|
%
|
|
$
|
14,240
|
|
9.6
|
%
|
|
$
|
(119)
|
|
(0.4)
|
%
|
|
$
|
11,422
|
|
13.5
|
%
|
|
$
|
51,525
|
|
13.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended August 31, 2016
|
|
(In thousands)
|
|
Housewares
|
|
|
Health & Home
|
|
|
Nutritional
Supplements
|
|
|
Beauty
|
|
|
Total
|
|
Operating income (loss), as reported (GAAP)
|
|
$
|
24,233
|
|
22.9
|
%
|
|
$
|
9,397
|
|
6.5
|
%
|
|
$
|
(1,229)
|
|
(3.7)
|
%
|
|
$
|
5,086
|
|
6.0
|
%
|
|
$
|
37,487
|
|
10.2
|
%
|
Amortization of intangible assets (3)
|
|
|
671
|
|
0.6
|
%
|
|
|
3,542
|
|
2.5
|
%
|
|
|
1,571
|
|
4.7
|
%
|
|
|
1,438
|
|
1.7
|
%
|
|
|
7,222
|
|
2.0
|
%
|
Non-cash share-based compensation (4)
|
|
|
705
|
|
0.7
|
%
|
|
|
1,005
|
|
0.7
|
%
|
|
|
333
|
|
1.0
|
%
|
|
|
1,101
|
|
1.3
|
%
|
|
|
3,144
|
|
0.9
|
%
|
Adjusted operating income (non-GAAP)
|
|
$
|
25,609
|
|
24.2
|
%
|
|
$
|
13,944
|
|
9.7
|
%
|
|
$
|
675
|
|
2.0
|
%
|
|
$
|
7,625
|
|
9.0
|
%
|
|
$
|
47,853
|
|
13.0
|
%
|
In the tables above, footnote references (1) to (4) correspond to the notes beginning on page 31 under the heading entitled “Net Income, EPS, Adjusted Income (non-GAAP) and Adjusted EPS (non-GAAP).” Adjusted operating income and adjusted operating margin 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 beginning on page 38.
Consolidated
Consolidated operating income decreased 46.4% to $20.1 million, or 5.3% of net sales, compared to $37.5 million, or 10.2% of net sales, for the same period last year. The three months ended August 31, 2017 includes pre-tax non-cash asset impairment charges totaling $18.1 million and a $3.6 million charge related to the bankruptcy of TRU, with no comparable charges in the same period last year. These items unfavorably impacted the year-over-year comparison of operating margin by 5.8 percentage points. The remaining increase in consolidated operating margin primarily reflects:
|
·
|
|
a higher mix of Leadership Brand sales at a higher operating margin;
|
|
·
|
|
lower license royalty expense;
|
|
·
|
|
lower incentive compensation expense;
|
|
·
|
|
lower amortization expense; and
|
|
·
|
|
improved distribution and logistics efficiency and lower outbound freight costs.
|
These factors were partially offset by:
|
·
|
|
lower operating leverage in the Nutritional Supplements segment;
|
|
·
|
|
higher product liability expense; and
|
|
·
|
|
higher marketing, advertising and new product development expense in support of our Leadership Brands.
|
Consolidated adjusted operating income increased 7.7% to $51.5 million, or 13.6% of net sales, compared to $47.9 million, or 13.0% of net sales, in the same period last year.
Housewares
The Housewares segment’s operating income was $23.5 million, or 20.5% of segment net sales, compared to $24.2 million, or 22.9% of segment net sales, for the same period last year. The 2.4 percentage point decrease in segment operating margin is primarily due to:
|
·
|
|
higher marketing, advertising and new product development expense; and
|
|
·
|
|
a $1.0 million charge related to the bankruptcy of TRU.
|
These factors were partially offset by lower incentive compensation expense and the impact of increased operating leverage from net sales growth.
Segment adjusted operating income increased 1.5%
to $26.0 million, or 22.6% of segment net sales, compared to $25.6 million, or 24.2% of segment net sales, in the same period last year.
Health & Home
The Health & Home segment’s operating income was $7.7 million, or 5.2% of segment net sales, compared to $9.4 million, or 6.5% of segment net sales, in the same period last year. The 1.3 percentage point decrease in segment operating margin is primarily due to:
|
·
|
|
an increase in marketing, advertising and new product development expense;
|
|
·
|
|
a $2.6 million charge related to the bankruptcy of TRU; and
|
|
·
|
|
an increase in product liability expense.
|
These factors were partially offset by:
|
·
|
|
improved distribution and logistics efficiency and lower outbound freight costs;
|
|
·
|
|
increased operating leverage from net sales growth;
|
|
·
|
|
lower legal fee expense; and
|
Segment adjusted operating income increased 2.1% to $14.2 million, or 9.6% of segment net sales, compared to $13.9 million, or 9.7% of segment net sales, in the same period last year.
Nutritional Supplements
The Nutritional Supplements segment’s operating loss was $20.3 million for the three months ended August 31, 2017, compared to an operating loss of $1.2 million in the same period last year. The increase in the segment operating loss is primarily due to:
|
·
|
|
the comparative impact of pre-tax non-cash asset impairment charges of $18.1 million recorded during the three months ended August 31, 2017, with no comparable charges in the same period last year;
|
|
·
|
|
the net sales decline and its unfavorable impact on operating leverage; and
|
|
·
|
|
higher promotion, advertising and customer acquisition costs.
|
These factors were partially offset by lower royalty expense and lower incentive compensation expense.
Segment adjusted operating loss was $0.1 million compared to segment adjusted operating income of $0.7 million in the same period last year.
Beauty
:
The Beauty segment’s operating income was $9.2 million, or 10.8% of segment net sales, for the three months ended August 31, 2017, compared to $5.1 million, or 6.0% of segment net sales, in the same period last year. The increase in operating margin is primarily due to:
|
·
|
|
the favorable impact of new product introductions in the appliance category;
|
|
·
|
|
lower personnel expense;
|
|
·
|
|
lower media advertising expense; and
|
|
·
|
|
improved distribution and logistics efficiency and lower outbound freight costs.
|
These factors were partially offset by the net sales decline in the personal care category and its unfavorable impact on sales mix and operating leverage
.
Segment adjusted operating income increased 49.8% to $11.4 million, or 13.5% of segment net sales, compared to $7.6 million, or 9.0% of segment net sales, in the same period last year.
Interest Expense
Interest expense was $3.9 million for the three months ended August 31, 2017 and 2016, respectively. Lower average levels of debt held during the three months ended August 31, 2017, were offset by higher overall average interest rates.
Income Tax Expense
The year-over-year comparison of our effective tax rates is impacted by the mix of taxable income in our various tax jurisdictions. Due to our organization in Bermuda and the ownership structure of our foreign subsidiaries, many of which are not owned directly or indirectly by a U.S. parent company, an immaterial amount of our foreign income is subject to U.S. taxation on a permanent basis under current law. Additionally, our intellectual property is largely owned by our foreign subsidiaries, resulting in proportionally higher earnings in jurisdictions with lower statutory tax rates, which decreases our overall effective tax rate.
For the three months ended August 31, 2017, income tax expense as a percentage of pretax income was 45.3%, compared to 15.9% for the same period last year, primarily due to the recognition of tax benefits from impairment charges over the course of the year in relation to pre-tax income, as opposed to the periods in which the charges were incurred. The net effect of this treatment resulted in an additional tax expense of $6.5 million in the second quarter of fiscal 2018. For the six months ended August 31, 2017, the Company has recognized $6.4 million of the expected $19.9 million tax benefit from impairment charges. The remaining tax benefit of $13.5 million will be recognized in the third and fourth quarters of fiscal 2018 relative to pre-tax income each quarter.
In addition to the tax expense of $6.5 million referred to above, income taxes for the three months ended August 31, 2017 also includes a tax benefit of $2.2 million related to the favorable resolution of an uncertain tax position. There were no comparable expenses or benefits in the same period last year.
Net Income, EPS, Adjusted Income (non-GAAP), and Adjusted EPS (non-GAAP)
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended August 31,
|
|
Basic EPS
|
|
Diluted EPS
|
(in thousands, except per share data)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income as reported (GAAP)
|
|
$
|
8,933
|
|
$
|
28,355
|
|
$
|
0.33
|
|
$
|
1.02
|
|
$
|
0.33
|
|
$
|
1.00
|
Asset impairment charges, net of tax (1)
|
|
|
24,559
|
|
|
-
|
|
|
0.90
|
|
|
-
|
|
|
0.90
|
|
|
-
|
TRU bankruptcy charge (2)
|
|
|
3,392
|
|
|
-
|
|
|
0.12
|
|
|
-
|
|
|
0.12
|
|
|
-
|
Subtotal
|
|
|
36,884
|
|
|
28,355
|
|
|
1.35
|
|
|
1.02
|
|
|
1.35
|
|
|
1.00
|
Amortization of intangible assets, net of tax (3)
|
|
|
5,607
|
|
|
6,228
|
|
|
0.21
|
|
|
0.22
|
|
|
0.20
|
|
|
0.22
|
Non-cash share-based compensation, net of tax (4)
|
|
|
2,698
|
|
|
2,451
|
|
|
0.10
|
|
|
0.09
|
|
|
0.10
|
|
|
0.09
|
Adjusted income (non-GAAP)
|
|
$
|
45,189
|
|
$
|
37,034
|
|
$
|
1.66
|
|
$
|
1.33
|
|
$
|
1.65
|
|
$
|
1.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock used in
computing basic and diluted EPS
|
|
|
|
|
|
|
|
|
27,232
|
|
|
27,845
|
|
|
27,401
|
|
|
28,224
|
|
(1)
|
|
Non-cash intangible asset impairment charges for the three months ended August 31, 2017 of $18.1 million ($24.6 million after tax).
|
|
(2)
|
|
A $3.6 million charge ($3.4 million after tax) related to the TRU bankruptcy.
|
|
(3)
|
|
Amortization of intangible assets for the three months ended August 31, 2017 and 2016 of $6.5 million ($5.6 million after tax) and $7.2 million ($6.2 million after tax), respectively.
|
|
(4)
|
|
Non-cash share-based compensation for the three months ended August 31, 2017 and 2016 of $3.3 million ($2.7 million after tax) and $3.1 million ($2.5 million after tax), respectively.
|
Our net income was $8.9 million for the three months ended August 31, 2017 compared to $28.4 million for the same period last year. Our diluted earnings per share decreased to $0.33 for the three months ended August 31, 2017 compared to $1.00 for the same period last year.
Adjusted income increased $8.2 million, or 22.0%, to $45.2 million for the three months ended August 31, 2017 compared to $37.0 million the same period last year. Adjusted diluted EPS increased 26.0% to $1.65 for the three months ended August 31, 2017 compared to $1.31 for the same period last year. Adjusted diluted EPS increased primarily due to the impact of higher adjusted operating income across all segments except for the Nutritional Supplements segment, and lower weighted average diluted shares outstanding for the three months ended August 31, 2017 compared to the same period last year.
Adjusted income and EPS, 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 beginning on page 38.
Comparison of First Six Months of Fiscal 2018 to First Six Months of Fiscal 2017
Consolidated and Segment Net Sales
The following table summarizes the impact that core business, foreign exchange and acquisitions, as applicable, had on our net sales revenue by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended August 31,
|
|
(in thousands)
|
|
Housewares
|
|
|
Health & Home
|
|
|
Nutritional Supplements
|
|
|
Beauty
|
|
|
Total
|
|
Fiscal 2017 sales revenue, net
|
$
|
190,579
|
|
$
|
290,808
|
|
$
|
69,052
|
|
$
|
165,669
|
|
$
|
716,108
|
|
Core business
|
|
16,969
|
|
|
8,041
|
|
|
(6,176)
|
|
|
(1,294)
|
|
|
17,540
|
|
Impact of foreign currency
|
|
(548)
|
|
|
(722)
|
|
|
-
|
|
|
(459)
|
|
|
(1,729)
|
|
Acquisitions (1)
|
|
6,148
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,148
|
|
Change in sales revenue, net
|
|
22,569
|
|
|
7,319
|
|
|
(6,176)
|
|
|
(1,753)
|
|
|
21,959
|
|
Fiscal 2018 sales revenue, net
|
$
|
213,148
|
|
$
|
298,127
|
|
$
|
62,876
|
|
$
|
163,916
|
|
$
|
738,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales revenue growth
|
|
11.8
|
%
|
|
2.5
|
%
|
|
(8.9)
|
%
|
|
(1.1)
|
%
|
|
3.1
|
%
|
Core business
|
|
8.9
|
%
|
|
2.8
|
%
|
|
(8.9)
|
%
|
|
(0.8)
|
%
|
|
2.4
|
%
|
Impact of foreign currency
|
|
(0.3)
|
%
|
|
(0.2)
|
%
|
|
0.0
|
%
|
|
(0.3)
|
%
|
|
(0.2)
|
%
|
Acquisitions
|
|
3.2
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.9
|
%
|
|
(1)
|
|
Includes approximately one-half month of incremental operating results from Hydro Flask, which was acquired on March 18, 2016.
|
In the above table, core business refers to our net sales revenue associated with product lines or brands after the first twelve months from the date the product line or brand is acquired, excluding the impact that foreign currency had on reported net sales. Net sales revenue from internally developed brands or product lines is considered core business activity.
Consolidated Net Sales Revenue
Consolidated net sales revenue increased $22.0 million, or 3.1%, to $738.1 million for the six months ended August 31, 2017, compared to $716.1 million for the same period last year. The growth was primarily driven by:
|
·
|
|
a core business increase of $17.5 million, or 2.4%, primarily due to new product introductions, online customer growth, incremental distribution and growth in international sales; and
|
|
·
|
|
growth from acquisitions of $6.1 million, or 0.9%.
|
These factors were partially offset by:
|
·
|
|
a decline in the Nutritional Supplements segment of $6.2 million;
|
|
·
|
|
a decline in the personal care category within Beauty;
|
|
·
|
|
the unfavorable impact from foreign currency fluctuations of approximately $1.7 million, or 0.2%; and
|
|
·
|
|
the impact of lower store traffic and soft consumer spending at traditional brick and mortar retail.
|
Segment Net Sales Revenue
Housewares
Net sales revenue in the Housewares segment increased $22.6 million, or 11.8%, to $213.1 million for the six months ended August 31, 2017, compared to $190.6 million for same period last year. The growth was primarily driven by:
|
·
|
|
a core business increase of $17.0 million, or 8.9%, due to incremental distribution with existing customers, expanded international and U.S. distribution, and new product introductions for both the Hydro Flask and OXO brands; and
|
|
·
|
|
growth from acquisitions of $6.1 million, or 3.2%, representing an incremental half month of operating results from Hydro Flask, compared to the same period last year.
|
These factors were partially offset by:
|
·
|
|
lower store traffic and soft consumer spending at traditional brick and mortar retail;
|
|
·
|
|
the unfavorable comparative impact of strong retail pipeline fill in the prior year period; and
|
|
·
|
|
the unfavorable impact of net foreign currency fluctuations of approximately $0.5 million, or 0.3%.
|
Health & Home
Net sales revenue in the Health & Home segment increased $7.3 million, or 2.5%, to $298.1 million for the six months ended August 31, 2017, compared to $290.8 million for the same period last year. The growth was primarily driven by an increase in online sales, incremental distribution and shelf space gains with existing customers, as well as growth in international sales, partially offset by lower club sales, lower royalty revenue and the unfavorable impact of net foreign currency fluctuations of approximately $0.7 million, or 0.2%.
Nutritional Supplements
Net sales revenue in the Nutritional Supplements segment decreased $6.2 million, or 8.9%, to $62.9 million for the six months ended August 31, 2017, compared to $69.1 million for the same period last year. The change was primarily driven by a decline in auto-delivery revenue resulting primarily from the transition to new order management and customer relationship management systems; partially offset by increases in direct mail and third-party retail sales. The segment continues to implement a multi-year strategic transition from offline to online channels.
Beauty
Net sales revenue in the Beauty segment decreased $1.8 million, or 1.1%, to $163.9 million for the six months ended August 31, 2017, compared to $165.7 million for the same period last year. The change was primarily driven by declines in the personal care category due to competitive conditions, a decline in international sales and the unfavorable impact of net foreign currency fluctuations of approximately $0.5 million, or 0.3%. These factors were partially offset by solid growth in both retail and professional appliance sales, particularly to online retail customers.
Gross Profit Margin
Consolidated gross profit as a percentage of net sales revenue for the six months ended August 31, 2017 and 2016 was 44.0% in both periods. The favorable impact of growth in our Leadership Brands and a higher margin mix was offset by higher overall promotional spending with customers and the unfavorable impact of net foreign currency fluctuations.
Selling, General and Administrative Expense
Our consolidated SG&A ratio, decreased 0.3% percentage points to 34.3% for the six months ended August 31, 2017, compared to 34.6% for the same period last year. The decrease in consolidated SG&A ratio was primarily due to:
|
·
|
|
the favorable comparative impact of a $1.5 million patent litigation charge in the same period last year;
|
|
·
|
|
lower share-based compensation expense;
|
|
·
|
|
lower amortization expense;
|
|
·
|
|
lower license royalty expense; and
|
|
·
|
|
improved distribution and logistics efficiency and lower outbound freight expense.
|
These factors were partially offset by a $3.6 million charge related to the bankruptcy of TRU, higher product liability expense, and higher overall marketing, advertising and new product development expense in support of our Leadership Brands.
Asset Impairment Charges
As previously discussed under the heading “Significant Trends Impacting the Business”, for the six months ended August 31, 2017, we recorded non-cash asset impairment charges totaling $54.1 million to certain goodwill and intangible assets as further discussed below.
We performed interim impairment testing in the first quarter of fiscal 2018 in connection with our continuing evaluation of strategic alternatives for the Nutritional Supplements segment. We performed interim impairment testing in the second quarter of fiscal 2018 as the result of a revised financial projection for the segment. As a result of our testing, we recorded non-cash asset impairment charges totaling $50.1 million, consisting of 24.1 million to the the segment’s indefinite-lived brand assets and $26.0 million to the segment’s goodwill.
We also performed interim impairment testing in the first quarter of fiscal 2018 for a certain brand in our Beauty segment as a result of a revised financial projection. As a result of our testing, we recorded a non-cash impairment charge of $4.0 million.
Operating Income, Operating Margin, Adjusted Operating Income (non-GAAP), and Adjusted Operating Margin (non-GAAP) by Segment
In order to provide a better understanding of the comparative impact of certain items on operating income, the tables that follow report the comparative before tax impact of non
‐
cash asset impairment charges, the TRU bankruptcy charge, patent litigation charges, amortization of intangible assets, and non
‐
cash share
‐
based compensation, as applicable, on operating income and operating margin for each segment and in total for the periods covered below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended August 31, 2017
|
|
(In thousands)
|
|
Housewares (6)
|
|
|
Health & Home
|
|
|
Nutritional
Supplements
|
|
|
Beauty
|
|
|
Total
|
|
Operating income (loss), as reported (GAAP)
|
|
$
|
41,619
|
|
19.5
|
%
|
|
$
|
22,290
|
|
7.5
|
%
|
|
$
|
(54,892)
|
|
(87.3)
|
%
|
|
$
|
7,857
|
|
4.8
|
%
|
|
$
|
16,874
|
|
2.3
|
%
|
Asset impairment charges (1)
|
|
|
-
|
|
-
|
%
|
|
|
-
|
|
-
|
%
|
|
|
50,070
|
|
79.6
|
%
|
|
|
4,000
|
|
2.4
|
%
|
|
|
54,070
|
|
7.3
|
%
|
TRU bankruptcy charge (3)
|
|
|
956
|
|
0.4
|
%
|
|
|
2,640
|
|
0.9
|
%
|
|
|
-
|
|
-
|
%
|
|
|
-
|
|
-
|
%
|
|
|
3,596
|
|
0.5
|
%
|
Subtotal
|
|
|
42,575
|
|
20.0
|
%
|
|
|
24,930
|
|
8.4
|
%
|
|
|
(4,822)
|
|
(7.7)
|
%
|
|
|
11,857
|
|
7.2
|
%
|
|
|
74,540
|
|
10.1
|
%
|
Amortization of intangible assets (4)
|
|
|
1,129
|
|
0.5
|
%
|
|
|
5,576
|
|
1.9
|
%
|
|
|
3,610
|
|
5.7
|
%
|
|
|
2,833
|
|
1.7
|
%
|
|
|
13,148
|
|
1.8
|
%
|
Non-cash share-based compensation (5)
|
|
|
2,052
|
|
1.0
|
%
|
|
|
2,160
|
|
0.7
|
%
|
|
|
513
|
|
0.8
|
%
|
|
|
1,754
|
|
1.1
|
%
|
|
|
6,479
|
|
0.9
|
%
|
Adjusted operating income (loss) (non-GAAP)
|
|
$
|
45,756
|
|
21.5
|
%
|
|
$
|
32,666
|
|
11.0
|
%
|
|
$
|
(699)
|
|
(1.1)
|
%
|
|
$
|
16,444
|
|
10.0
|
%
|
|
$
|
94,167
|
|
12.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended August 31, 2016
|
|
(In thousands)
|
|
Housewares
|
|
|
Health & Home
|
|
|
Nutritional
Supplements
|
|
|
Beauty
|
|
|
Total
|
|
Operating income (loss), as reported (GAAP)
|
|
$
|
39,733
|
|
20.8
|
%
|
|
$
|
19,001
|
|
6.5
|
%
|
|
$
|
(6,501)
|
|
(9.4)
|
%
|
|
$
|
8,152
|
|
4.9
|
%
|
|
$
|
60,385
|
|
8.4
|
%
|
Asset impairment charges (1)
|
|
|
-
|
|
-
|
%
|
|
|
-
|
|
-
|
%
|
|
|
5,000
|
|
7.2
|
%
|
|
|
2,400
|
|
1.4
|
%
|
|
|
7,400
|
|
1.0
|
%
|
Patent litigation charge (2)
|
|
|
-
|
|
-
|
%
|
|
|
1,468
|
|
0.5
|
%
|
|
|
-
|
|
-
|
%
|
|
|
-
|
|
-
|
%
|
|
|
1,468
|
|
0.2
|
%
|
Subtotal
|
|
|
39,733
|
|
20.8
|
%
|
|
|
20,469
|
|
7.0
|
%
|
|
|
(1,501)
|
|
(2.2)
|
%
|
|
|
10,552
|
|
6.4
|
%
|
|
|
69,253
|
|
9.7
|
%
|
Amortization of intangible assets (4)
|
|
|
1,328
|
|
0.7
|
%
|
|
|
7,080
|
|
2.4
|
%
|
|
|
3,142
|
|
4.6
|
%
|
|
|
2,876
|
|
1.7
|
%
|
|
|
14,426
|
|
2.0
|
%
|
Non-cash share-based compensation (5)
|
|
|
1,733
|
|
0.9
|
%
|
|
|
2,915
|
|
1.0
|
%
|
|
|
1,365
|
|
2.0
|
%
|
|
|
2,745
|
|
1.7
|
%
|
|
|
8,758
|
|
1.2
|
%
|
Adjusted operating income (non-GAAP)
|
|
$
|
42,794
|
|
22.5
|
%
|
|
$
|
30,464
|
|
10.5
|
%
|
|
$
|
3,006
|
|
4.4
|
%
|
|
$
|
16,173
|
|
9.8
|
%
|
|
$
|
92,437
|
|
12.9
|
%
|
|
(6)
|
|
Includes approximately one-half month of incremental operating results from Hydro Flask, which was acquired on March 18, 2016.
|
In the tables above, footnote references (1) to (5) correspond to the notes beginning on page 37 under the heading entitled “Net Income, EPS, Adjusted Income (non-GAAP) and Adjusted EPS (non-GAAP).” Adjusted operating income and adjusted operating margin 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 beginning on page 38.
Consolidated
Consolidated operating income was $16.9 million, or 2.3% of net sales, compared to consolidated operating income of $60.4 million, or 8.4% of net sales, for the same period last year. The six months ended August 31, 2017 includes pre-tax non-cash asset impairment charges totaling $54.1 million and a $3.6 million charge related to the TRU bankruptcy. The six months ended August 31, 2016 includes pre-tax non-cash asset impairment charges of $7.4 million and a patent litigation charge of $1.5 million. The effect of these items in both years unfavorably impacted the year-over-year comparison of operating margin by a combined 6.6 percentage points. The remaining improvement in consolidated operating margin primarily reflects:
|
·
|
|
a higher mix of Leadership Brand sales at a higher operating margin;
|
|
·
|
|
lower share-based compensation expense;
|
|
·
|
|
lower license royalty expense;
|
|
·
|
|
lower amortization expense; and
|
|
·
|
|
improved distribution and logistics efficiency and lower outbound freight costs.
|
These factors were partially offset by:
|
·
|
|
lower operating leverage in the Nutritional Supplements and Beauty segments;
|
|
·
|
|
higher marketing, advertising and new product development expense in support of our Leadership Brands;
|
|
·
|
|
an increase in product liability expense; and
|
|
·
|
|
the unfavorable impact from foreign currency fluctuations.
|
Consolidated adjusted operating income increased 1.9% to $94.2 million, or 12.8% of net sales, compared to $92.4 million, or 12.9% of net sales, in the same period last year.
Housewares
The Housewares segment’s operating income was $41.6 million, or 19.5% of segment net sales, compared to $39.7 million, or 20.8% of segment net sales, for the same period last year. The 1.3 percentage point decrease in segment operating margin is primarily due to:
|
·
|
|
higher marketing, advertising and new product development expense; and
|
|
·
|
|
a $1.0 million charge related to the bankruptcy of TRU.
|
These factors were partially offset the favorable margin impact from growth in the Hydro Flask business, improved distribution and logistics efficiency and lower outbound freight costs, and the impact of increased operating leverage from overall sales growth.
Segment adjusted operating income increased 6.9% to $45.8 million, or 21.5% of segment net sales, compared to $42.8 million, or 22.5% of segment net sales, in the same period last year.
Health & Home
The Health & Home segment’s operating income was $22.3 million, or 7.5% of segment net sales, compared to $19.0 million, or 6.5% of segment net sales, in the same period last year. The 1.0 percentage point increase in segment operating margin is primarily due to:
|
·
|
|
the comparative impact of a $1.5 million patent litigation charge in the same period last year;
|
|
·
|
|
lower legal fee expense;
|
|
·
|
|
improved distribution and logistics efficiency and lower outbound freight costs; and
|
These factors were partially offset by:
|
·
|
|
an increase in marketing, advertising and new product development expense;
|
|
·
|
|
a $2.6 million charge related to the bankruptcy of TRU;
|
|
·
|
|
an increase in product liability expense; and
|
|
·
|
|
the unfavorable impact of foreign currency fluctuations.
|
Segment adjusted operating income increased 7.2% to $32.7 million, or 11.0% of segment net sales, compared to $30.5 million, or 10.5% of segment net sales, in the same period last year.
Nutritional Supplements
The Nutritional Supplements segment’s operating loss was $54.9 million, or (87.3)% of segment net sales, for the six months ended August 31, 2017, compared to an operating loss of $6.5 million, or (9.4)% of segment net sales, in the same period last year. The increase in the segment operating loss is primarily due to:
|
·
|
|
pre-tax non-cash asset impairment charges of $50.1 million recorded during the six months ended August 31, 2017, compared to $5.0 million recorded in the same period last year;
|
|
·
|
|
the net sales decline and its unfavorable impact on operating leverage; and
|
|
·
|
|
higher promotion, advertising and customer acquisition costs.
|
These factors were partially offset by lower personnel expense.
Segment adjusted operating loss was $0.7 million, or (1.1)% of segment net sales, compared to segment adjusted operating income of $3.0 million, or 4.4% of segment net sales in the same period last year.
Beauty
The Beauty segment’s operating income was $7.9 million, or 4.8% of segment net sales, for the six months ended August 31, 2017, compared to operating income of $8.2 million, or 4.9% of segment net sales, in the same period last year. The 0.1 percentage point decrease in segment operating margin is primarily due to:
|
·
|
|
pre-tax non-cash asset impairment charges of $4.0 million, recorded during the six months ended August 31, 2017, compared to $2.4 million recorded in the same period last year;
|
|
·
|
|
the net sales decline in the personal care category and its unfavorable impact on sales mix and operating leverage;
|
|
·
|
|
higher marketing and advertising expense; and
|
|
·
|
|
the unfavorable impact of foreign currency fluctuations.
|
Segment adjusted operating income increased 1.7% to $16.4 million, or 10.0% of segment net sales, compared to $16.2 million, or 9.8% of segment net sales, in the same period last year.
Interest Expense
Interest expense was $7.7 million for the six months ended August 31, 2017 compared to $7.5 million in the same period last year. The increase in interest expense is due to higher overall average interest rates, partially offset by lower average levels of debt held during the six months ended August 31, 2017.
Income Tax Expense
The year-over-year comparison of our effective tax rates is impacted by the mix of taxable income in our various tax jurisdictions. Due to our organization in Bermuda and the ownership structure of our foreign subsidiaries, many of which are not owned directly or indirectly by a U.S. parent company, an immaterial amount of our foreign income is subject to U.S. taxation on a permanent basis under current law. Additionally, our intellectual property is largely owned by our foreign subsidiaries, resulting in proportionally higher earnings in jurisdictions with lower statutory tax rates, which decreases our overall effective tax rate.
For the six months ended August 31, 2017, the Company has recognized $6.4 million of the expected $19.9 million tax benefit from impairment charges. The remaining tax benefit of $13.5 million will be recognized in the third and fourth quarters of fiscal 2018 relative to pre-tax income each quarter.
For the six months ended August 31, 2017, income tax expense as a percentage of pre-tax income was (57.2)%, compared to 10.8% for the same period last year, primarily due to:
|
·
|
|
net tax benefits of $6.4 million related to asset impairment charges, as described above;
|
|
·
|
|
$2.6 million in excess tax benefits from share-based compensation settlements and exercises; and
|
|
·
|
|
tax benefits of $2.8 million related to the resolution of uncertain tax positions.
|
Income taxes for the six months ended August 31, 2016 includes tax benefits of $1.4 million related to the resolution of uncertain tax positions and $1.3 million in excess tax benefits from share-based compensation settlements and exercises.
Net Income, EPS, Adjusted Income (non-GAAP), and Adjusted EPS (non-GAAP)
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, the TRU bankruptcy charge, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended August 31,
|
|
Basic EPS
|
|
Diluted EPS
|
(in thousands, except per share data)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income as reported (GAAP)
|
|
$
|
14,801
|
|
$
|
47,381
|
|
$
|
0.55
|
|
$
|
1.70
|
|
$
|
0.54
|
|
$
|
1.68
|
Asset impairment charges, net of tax (1)
|
|
|
47,687
|
|
|
5,097
|
|
|
1.76
|
|
|
0.18
|
|
|
1.75
|
|
|
0.18
|
Patent litigation charge, net of tax (2)
|
|
|
-
|
|
|
1,464
|
|
|
-
|
|
|
0.05
|
|
|
-
|
|
|
0.05
|
TRU bankruptcy charge (3)
|
|
|
3,392
|
|
|
-
|
|
|
0.12
|
|
|
-
|
|
|
0.12
|
|
|
-
|
Subtotal
|
|
|
65,880
|
|
|
53,942
|
|
|
2.43
|
|
|
1.94
|
|
|
2.41
|
|
|
1.91
|
Amortization of intangible assets, net of tax (4)
|
|
|
11,376
|
|
|
12,430
|
|
|
0.42
|
|
|
0.45
|
|
|
0.42
|
|
|
0.44
|
Non-cash share-based compensation, net of tax (5)
|
|
|
5,398
|
|
|
6,544
|
|
|
0.20
|
|
|
0.24
|
|
|
0.20
|
|
|
0.23
|
Adjusted income (non-GAAP)
|
|
$
|
82,654
|
|
$
|
72,916
|
|
$
|
3.04
|
|
$
|
2.62
|
|
$
|
3.03
|
|
$
|
2.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock used in
computing basic and diluted EPS
|
|
|
|
|
|
|
|
|
27,154
|
|
|
27,809
|
|
|
27,323
|
|
|
28,185
|
(1)
Non-cash intangible asset impairment charges for the six months ended August 31, 2017 and 2016 of $54.1 million ($47.7 million after tax) and $7.4 million ($5.1 million after tax), respectively.
|
(2)
|
|
Patent litigation charge for the six months ended August 31, 2016 of $1.5 million (before and after tax).
|
|
(3)
|
|
A $3.6 million charge ($3.4 million after tax) related to the TRU bankruptcy.
|
|
(4)
|
|
Amortization of intangible assets for the six months ended August 31, 2017 and 2016 of $13.1 million ($11.4 million after tax) and $14.4 million ($12.4 million after tax), respectively.
|
|
(5)
|
|
Non-cash share-based compensation for the six months ended August 31, 2017 and 2016 of $6.5 million ($5.4 million after tax) and $8.8 million ($6.5 million after tax), respectively.
|
Consolidated net income was $14.8 million for the six months ended August 31, 2017 compared to $47.4 million for the same period last year. Diluted earnings per share decreased to $0.54 for the six months ended August 31, 2017 compared to $1.68 for the same period last year.
Adjusted income increased $9.7 million, or 13.4%, to $82.7 million for the six months ended August 31, 2017 compared to $72.9 million the same period last year. Adjusted diluted EPS increased 17.0% to $3.03 for the six months ended August 31, 2017 compared to $2.59 for the same period last year. Adjusted diluted EPS increased primarily due to the impact of higher adjusted operating income across all segments except for the Nutritional Supplements segment, and lower weighted average diluted shares outstanding for the six months ended August 31, 2017 compared to the same period last year.
The tables referred to beginning on pages 28, 30, 34 and 37 under the headings “Operating Income, Operating Margin, Adjusted Operating Income (non-GAAP) and Adjusted Operating Margin (non-GAAP) by Segment” and “Net Income, EPS, Adjusted Income (non-GAAP), and Adjusted EPS (non-GAAP),” respectively report operating income, operating margin, net income and EPS without the impact of non-cash asset impairment charges, the TRU bankruptcy charge, patent litigation charges, amortization of intangible assets, and non-cash share-based compensation for the periods presented, as applicable. These measures may be considered non-GAAP financial information as set forth in SEC Regulation G, Rule 100. The preceding table reconciles these measures to their corresponding GAAP-based measures presented in our consolidated 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 our financial condition and results of operations. We believe that these non-GAAP financial measures, in combination with our financial results calculated in accordance with GAAP, provide investors with additional perspective regarding the impact of such charges on net income and earnings per share. We also believe that these non-GAAP measures facilitate a more direct comparison of our performance with our competitors. We further believe that including the excluded charges would not accurately reflect the underlying performance of our continuing operations for the period in which the charges are incurred, even though such charges may be incurred and reflected in our 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 our activities. Our 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
Selected measures of our liquidity and capital resources are shown for the periods below:
SELECTED MEASURES OF OUR LIQUIDITY AND CAPITAL UTILIZATION
|
|
|
|
|
|
|
|
|
|
Three Months Ended August 31,
|
|
|
|
2017
|
|
2016
|
|
Accounts Receivable Turnover (Days) (1)
|
|
|
55.7
|
|
|
54.8
|
|
Inventory Turnover (Times) (1)
|
|
|
2.8
|
|
|
2.7
|
|
Working Capital
(in thousands)
|
|
$
|
279,921
|
|
$
|
283,958
|
|
Current Ratio
|
|
|
1.9:1
|
|
|
2.0:1
|
|
Ending Debt to Ending Equity Ratio
|
|
|
42.8
|
%
|
|
55.3
|
%
|
Return on Average Equity (1) (2)
|
|
|
10.7
|
%
|
|
10.9
|
%
|
|
(1)
|
|
Accounts receivable turnover, inventory turnover and return on average equity computations use 12 month trailing net sales revenue, cost of goods sold or net income components as required by the particular measure. The current and four prior quarters' ending balances of accounts receivable, inventory and equity are used for the purposes of computing the average balance component as required by the particular measure.
|
|
(2)
|
|
Net income and average equity reported above include the twelve month trailing impacts, after tax, of non-cash asset impairment charges and patent litigation charges, as applicable to each period. For the periods reported above, these items had an unfavorable impact of 5.3 and 4.9 percentage points, respectively, on the return on average equity.
|
Operating Activities
Operating activities provided $50.0 million of cash during the six months ended August 31, 2017 compared to $85.7 million of cash provided during the same period last year.
Accounts receivable increased $8.5 million, to $238.4 million as of August 31, 2017, compared to $229.9 million at the end of fiscal year 2017. Accounts receivable turnover was 55.7 days at August 31, 2017, compared to 54.8 days for the same period last year.
Inventory increased $36.4 million, to $325.6 million as of August 31, 2017, compared to $289.1 million at the end of fiscal year 2017. Inventory turnover was 2.8 times at August 31, 2017 compared to 2.7 times August 31, 2016.
Working capital was $279.9 million at August 31, 2017, compared to $284.0 million at August 31, 2016 and our current ratio was 1.9:1 at August 31, 2017, compared to 2.0:1 as of August 31, 2016.
Investing Activities
Investing activities used $16.8 million of cash during the six months ended August 31, 2017. We spent $5.3 million on computers, furniture and other equipment, $2.9 million on tools, molds and other capital asset additions, and $8.6 million on patents and certain trademark related assets.
Financing Activities
Financing activities used $42.6 million of cash during the six months ended August 31, 2017. Highlights of those activities follow:
|
·
|
|
we had draws of $249.0 million against our credit agreement;
|
|
·
|
|
we repaid $285.3 million drawn against our credit agreement;
|
|
·
|
|
we repaid $5.7 million of our long-term debt;
|
|
·
|
|
employees exercised options to purchase 103,404 shares of common stock, providing $5.0 million of cash;
|
|
·
|
|
employees purchased 16,018 shares of common stock for $1.2 million through our employee stock purchase plan; and
|
|
·
|
|
we paid $6.8 million in tax obligations resulting from cashless share award settlements.
|
Credit and Other Debt Agreements
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 $1 billion as of August 31, 2017. The commitment under the Credit Agreement terminates on December 7, 2021. 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 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 August 31, 2017, the outstanding revolving loan principal balance was $404.4 million and the balance of outstanding letters of credit was $7.6 million. As of August 31, 2017, the amount available for borrowings under the Credit Agreement was $588.0 million. Covenants in our debt agreements limit the amount of total indebtedness we can incur. As of August 31, 2017, these covenants effectively limited our ability to incur more than $315.2 million of additional debt from all sources, including our Credit Agreement.
Other Debt Agreements
In addition to the Credit Agreement, at August 31, 2017, we had an aggregate principal balance of $20 million of 3.9% Senior Notes due January 2018 with one remaining installment due in January 2018.
We also have an aggregate principal balance of $24.3 million under a loan agreement with the Mississippi Business Finance Corporation (the “MBFC Loan”). The borrowings were used to fund construction of our Olive Branch, Mississippi distribution facility. The remaining loan balance is payable as follows: $1.9 million annually on March 1, 2018 through 2022; and $14.8 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 key financial covenants, defined in the table below. Our debt agreements also contain other customary covenants, including, among other things, covenants restricting or limiting us, 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. The commitments of the lenders to make loans to us under the Credit Agreement 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 currently in effect for certain key financial covenants as defined under our debt agreements:
|
|
|
Applicable Financial Covenant
|
Credit Agreement and MBFC Loan
|
3.9% 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 Acquisitions]
|
[EBITDA (2) + Pro Forma Effect of Acquisitions]
|
|
|
|
|
|
|
|
Maximum Currently 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
Our contractual obligations and commercial commitments in effect as of
August 31, 2017
, were:
PAYMENTS DUE BY PERIOD - TWELVE MONTHS ENDED THE LAST DAY OF
AUGUST
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
After
|
(in thousands)
|
|
Total
|
|
1
year
|
|
2 years
|
|
3 years
|
|
4 years
|
|
5 years
|
|
5 years
|
Fixed rate debt
|
|
$
|
20,000
|
|
$
|
20,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
Floating rate debt
|
|
|
428,708
|
|
|
1,900
|
|
|
1,900
|
|
|
1,900
|
|
|
1,900
|
|
|
406,300
|
|
|
14,808
|
Long-term incentive plan payouts
|
|
|
9,196
|
|
|
4,539
|
|
|
3,719
|
|
|
938
|
|
|
-
|
|
|
-
|
|
|
-
|
Interest on fixed rate debt
|
|
|
1,324
|
|
|
1,324
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Interest on floating rate debt (1)
|
|
|
50,478
|
|
|
11,147
|
|
|
11,099
|
|
|
11,050
|
|
|
11,002
|
|
|
5,900
|
|
|
280
|
Open purchase orders
|
|
|
178,697
|
|
|
178,697
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Long-term purchase commitments
|
|
|
1,324
|
|
|
1,324
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Minimum royalty payments
|
|
|
58,683
|
|
|
12,553
|
|
|
12,767
|
|
|
13,035
|
|
|
9,293
|
|
|
8,980
|
|
|
2,055
|
Advertising and promotional
|
|
|
52,787
|
|
|
20,179
|
|
|
7,287
|
|
|
7,366
|
|
|
7,422
|
|
|
7,267
|
|
|
3,266
|
Operating leases
|
|
|
35,786
|
|
|
6,536
|
|
|
5,390
|
|
|
4,631
|
|
|
4,123
|
|
|
3,777
|
|
|
11,329
|
Capital spending commitments
|
|
|
742
|
|
|
742
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Total contractual obligations (2)
|
|
$
|
837,725
|
|
$
|
258,941
|
|
$
|
42,162
|
|
$
|
38,920
|
|
$
|
33,740
|
|
$
|
432,224
|
|
$
|
31,738
|
|
(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 August 31, 2017 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 August 31, 2017 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
August 31, 2017
, we have recorded total provisions for our uncertain tax positions totaling
$4.5
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. We may also elect to repurchase additional shares of common stock up to the balance of its current authorization over the next three 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.