HELEN OF TROY LTD - FORM 10-Q

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EX-31.2 - EX-31.2 - HELEN OF TROY LTD	hele-20170831ex312a70bcb.htm
EX-31.1 - EX-31.1 - HELEN OF TROY LTD	hele-20170831ex311024940.htm

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2017

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ..... to …..

Commission file number: 001-14669

HELEN OF TROY LIMITED

(Exact name of registrant as specified in its charter)


Bermuda		74-2692550
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

Clarendon House 2 Church Street Hamilton, Bermuda
(Address of principal executive offices)

1 Helen of Troy Plaza
El Paso, Texas		79912
(Registrant’s United States Mailing Address)		(Zip Code)

(915) 225-8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Yes ☐ No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at October 4, 2017
Common Shares, $0.10 par value, per share		27,266,562 shares

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HELEN OF TROY LIMITED AND SUBSIDIARIES

FORM 10‐Q

TABLE OF CONTENTS


PAGE

PART 1.	FINANCIAL INFORMATION

Item 1.	Financial Statements	2

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43

Item 4.	Controls and Procedures	45

PART 2.	OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 6.	Exhibits	48

SIGNATURES		49

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (Unaudited)


	August 31,		February 28,
(in thousands, except shares and par value)	2017		2017
Assets
Assets, current:
Cash and cash equivalents	$	13,720	$	23,087
Receivables - principally trade, less allowances of $10,300 and $5,656		238,421		229,928
Inventory		325,562		289,122
Prepaid expenses and other current assets		14,999		11,699
Income taxes receivable		-		2,242
Total assets, current		592,702		556,078

Property and equipment, net of accumulated depreciation of $114,327 and $106,561		134,672		134,935
Goodwill		672,929		698,929
Other intangible assets, net of accumulated amortization of $178,522 and $165,388		386,856		419,489
Deferred tax assets, net		8,809		1,955
Other assets, net of accumulated amortization of $1,976 and $1,930		2,519		1,710
Total assets	$	1,798,487	$	1,813,096

Liabilities and Stockholders' Equity
Liabilities, current:
Accounts payable, principally trade	$	136,225	$	111,763
Accrued expenses and other current liabilities		147,283		153,200
Income taxes payable		8,484		-
Long-term debt, current maturities		20,789		24,404
Total liabilities, current		312,781		289,367

Long-term debt, excluding current maturities		423,477		461,211
Deferred tax liabilities, net		7,030		20,091
Other liabilities, noncurrent		17,860		21,661
Total liabilities		761,148		792,330

Commitments and contingencies

Stockholders' equity:
Cumulative preferred stock, non-voting, $1.00 par. Authorized 2,000,000 shares; none issued		-		-
Common stock, $0.10 par. Authorized 50,000,000 shares; 27,262,549 and 27,028,665 shares
issued and outstanding		2,726		2,703
Additional paid in capital		224,689		218,760
Accumulated other comprehensive income (loss)		(2,947)		1,173
Retained earnings		812,871		798,130
Total stockholders' equity		1,037,339		1,020,766
Total liabilities and stockholders' equity	$	1,798,487	$	1,813,096

See accompanying notes to consolidated condensed financial statements.

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HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Statements of Income (Unaudited)


	Three Months Ended August 31,				Six Months Ended August 31,
(in thousands, except per share data)	2017		2016		2017		2016
Sales revenue, net	$	378,462	$	368,170	$	738,067	$	716,108
Cost of goods sold		210,529		205,202		413,685		400,713
Gross profit		167,933		162,968		324,382		315,395

Selling, general and administrative expense ("SG&A")		129,755		125,481		253,438		247,610
Asset impairment charges		18,070		-		54,070		7,400
Operating income		20,108		37,487		16,874		60,385

Nonoperating income, net		81		88		247		237
Interest expense		(3,869)		(3,866)		(7,708)		(7,517)
Income before income taxes		16,320		33,709		9,413		53,105

Income tax expense (benefit):
Current		14,164		7,925		13,563		11,697
Deferred		(6,777)		(2,571)		(18,951)		(5,973)
Net income	$	8,933	$	28,355	$	14,801	$	47,381

Earnings per share:
Basic	$	0.33	$	1.02	$	0.55	$	1.70
Diluted	$	0.33	$	1.00	$	0.54	$	1.68

Weighted average shares of common stock used in
computing net earnings per share:
Basic		27,232		27,845		27,154		27,809
Diluted		27,401		28,224		27,323		28,185

See accompanying notes to consolidated condensed financial statements.

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HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Statements of Comprehensive Income (Unaudited)


	Three Months Ended August 31,
	2017						2016
	Before		Tax (Expense)		Net of		Before		Tax (Expense)		Net of
(in thousands)	Tax		Benefit		Tax		Tax		Benefit		Tax
Income	$	16,320	$	(7,387)	$	8,933	$	33,709	$	(5,354)	$	28,355
Cash flow hedge activity - foreign currency contracts
Changes in fair market value		(1,958)		484		(1,474)		1,289		(275)		1,014
Settlements reclassified to income		(578)		109		(469)		(141)		3		(138)
Total other comprehensive income (loss)		(2,536)		593		(1,943)		1,148		(272)		876
Comprehensive income	$	13,784	$	(6,794)	$	6,990	$	34,857	$	(5,626)	$	29,231

	Six Months Ended August 31,
	2017						2016
	Before		Tax (Expense)		Net of		Before		Tax (Expense)		Net of
(in thousands)	Tax		Benefit		Tax		Tax		Benefit		Tax
Income	$	9,413	$	5,388	$	14,801	$	53,105	$	(5,724)	$	47,381
Cash flow hedge activity - foreign currency contracts
Changes in fair market value		(4,203)		800		(3,403)		270		(42)		228
Settlements reclassified to income		(880)		163		(717)		17		(53)		(36)
Total other comprehensive income (loss)		(5,083)		963		(4,120)		287		(95)		192
Comprehensive income	$	4,330	$	6,351	$	10,681	$	53,392	$	(5,819)	$	47,573

See accompanying notes to consolidated condensed financial statements.

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HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows (Unaudited)


	Six Months Ended August 31,
(in thousands)	2017		2016
Cash provided by operating activities:
Net income	$	14,801	$	47,381
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		21,602		22,098
Amortization of financing costs		650		583
Provision for doubtful receivables		2,020		886
Non-cash share-based compensation		6,479		8,758
Non-cash intangible asset impairment charges		54,070		7,400
Gain on the sale or disposal of property and equipment		(10)		(10)
Deferred income taxes and tax credits		(18,952)		(5,916)
Changes in operating capital, net of effects of acquisition of businesses:
Receivables		(10,513)		1,632
Inventories		(36,440)		(9,408)
Prepaid expenses and other current assets		(4,730)		(3,986)
Other assets and liabilities, net		(2,550)		(3,870)
Accounts payable		24,497		24,788
Accrued expenses and other current liabilities		(9,513)		(4,246)
Accrued income taxes		8,588		(409)
Net cash provided by operating activities		49,999		85,681

Cash provided by investing activities:
Capital and intangible asset expenditures		(16,814)		(10,215)
Proceeds from the sale of property and equipment		13		32
Payments to acquire businesses, net of cash acquired		-		(209,258)
Net cash used in investing activities		(16,801)		(219,441)

Cash provided by financing activities:
Proceeds from line of credit		249,000		155,900
Repayment of line of credit		(285,300)		(224,000)
Repayment of long-term debt		(5,700)		(3,800)
Payment of financing costs		-		(36)
Proceeds from share issuances under share-based compensation plans		6,236		6,129
Payment of tax obligations resulting from cashless share award settlements		(6,801)		(424)
Net cash used in financing activities		(42,565)		(66,231)

Net decrease in cash and cash equivalents		(9,367)		(199,991)
Cash and cash equivalents, beginning balance		23,087		225,800
Cash and cash equivalents, ending balance	$	13,720	$	25,809

See accompanying notes to consolidated condensed financial statements.

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HELEN OF TROY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

August 31, 2017

Note 1 - Basis of Presentation and Related Information

The accompanying consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly our consolidated financial position as of August 31, 2017 and February 28, 2017, and the results of our consolidated operations for the interim periods presented. We follow the same accounting policies when preparing quarterly financial data as we use for preparing annual data. These statements should be read in conjunction with the consolidated financial statements and the notes included in our latest annual report on Form 10-K for the fiscal year ended February 28, 2017, and our other reports on file with the Securities and Exchange Commission (the “SEC”).

In this report and the accompanying consolidated condensed financial statements and notes, unless otherwise indicated or the context suggests otherwise, references to “the Company”, “our Company”, “Helen of Troy”, “we”, “us”, or “our” refer to Helen of Troy Limited and its subsidiaries. References to “the FASB” refer to the Financial Accounting Standards Board. References to “GAAP” refer to U.S. generally accepted accounting principles. References to “ASU” refer to the codification of GAAP in the Accounting Standards Updates issued by the FASB. References to “ASC” refer to the codification of GAAP in the Accounting Standards Codification issued by the FASB.

We incorporated as Helen of Troy Corporation in Texas in 1968 and were reorganized as Helen of Troy Limited in Bermuda in 1994. We are a global designer, developer, importer, marketer, and distributor of an expanding portfolio of brand-name consumer products. 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 storage containers; cleaning, bath and garden tools and accessories; infant and toddler care products; and insulated beverage and food containers. The Health & Home segment focuses on healthcare devices such as thermometers, humidifiers, blood pressure monitors, and heating pads; water filtration systems; and small home appliances such as portable heaters, fans, air purifiers, and insect control devices. Our Nutritional Supplements segment is a leading provider of premium branded vitamins, minerals and supplements, topical skin products and other health products sold directly to consumers. 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.

Our business is seasonal due to different calendar events, holidays and seasonal weather patterns. Historically, our highest sales volume and operating income occur in our third fiscal quarter ending November 30th. We purchase our products from unaffiliated manufacturers, most of which are located in China, Mexico and the United States.

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated condensed financial statements and accompanying notes. Actual results may differ materially from those estimates.

Our consolidated condensed financial statements are prepared in U.S. Dollars and include the accounts of Helen of Troy Limited and its wholly owned subsidiaries. All intercompany accounts and transactions are eliminated in consolidation.

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

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Note 2 – New Accounting Pronouncements

Not Yet Adopted

In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” This update amends the scope of modification accounting surrounding share-based payment arrangements as issued in ASU 2016-09 by providing guidance on the various types of changes which would trigger modification accounting for share-based payment awards. ASU 2017-09 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. We do not expect the adoption of ASU 2017-09 to have a material effect on our consolidated financial position, results of operations and cash flows.

In October 2016, the FASB issued ASU 2016-16, “Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other Than Inventory.” ASU 2016-16 amends accounting guidance for intra-entity transfers of assets other than inventory to require the recognition of taxes when the transfer occurs. The amendment will be effective for us in fiscal 2019 with early adoption permitted as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. A modified retrospective approach will be required for transition to the new guidance, with a cumulative-effect adjustment consisting of the net impact from (1) the write-off of any unamortized expense previously deferred and (2) recognition of any previously unrecognized deferred tax assets, net of any valuation allowance. The new guidance does not include any specific new disclosure requirements. The new guidance may impact our effective tax rate, after adoption. We are currently evaluating the impact this guidance may have on our consolidated financial position, results of operations and cash flows.

In February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 will require lessees to recognize on their balance sheets “right-of-use assets” and corresponding lease liabilities, measured on a discounted basis over the lease term. Virtually all leases will be subject to this treatment except leases that meet the definition of a “short-term lease.” For expense recognition, the dual model requiring leases to be classified as either operating or finance leases has been retained from the prior standard. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. Classification will use criteria very similar to those applied in current lease accounting, but without explicit bright lines. The new lease guidance will essentially eliminate off-balance sheet financing. The guidance is effective for us in fiscal 2021. The new standard must be adopted using a modified retrospective transition and requires the new guidance to be applied at the beginning of the earliest comparative period presented. We are currently evaluating the effect this new accounting guidance may have on our consolidated financial position, results of operations and cash flows.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”, issued as a new Topic, ASC Topic 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle of the guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We plan to adopt the new standard on March 1, 2018. If changes in policy or practice are required, we can adopt either retrospectively or as a cumulative effect adjustment as of the date of adoption. We continue to make progress in our assessment and implementation of the new standard. Our implementation approach has included a survey of revenue recognition policies and practices across each of our global reporting units, and a detailed study of the various types of commercial arrangements that we have with our customers to assess conformance of our current accounting practices with the new standard. While our completion of this assessment is ongoing, based on progress to date, we expect the new standard to primarily impact qualitative disclosure rather than materially effecting our accounting policies or practices. This is because our revenue is primarily generated from the sale of non-customized finished product to customers. Such sales contain a single delivery element and revenue is recognized at a single point in time when ownership, risks and rewards transfer. The accounting for these transactions is largely not impacted by the new standard.

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Unless otherwise discussed above, we believe the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial position, results of operations and cash flows upon adoption.

Adopted

In January 2017, the FASB, issued ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This guidance provides for a single-step quantitative test to identify and measure impairment, requiring an entity to recognize an impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit’s fair value. We adopted the new guidance in the first quarter of fiscal 2018, applying it on a prospective basis. The application of this guidance has not had a material impact on our financial position, results of operations or cash flows.

Note 3 – Commitments and Contingencies

Thermometer Patent Litigation – In January 2016, a jury ruled against the Company in a case that involved claims by Exergen Corporation. The case involved the alleged patent infringement related to two forehead thermometer models sold by our subsidiary, Kaz USA, Inc., in the United States. As a result of the jury verdict, we recorded a charge in fiscal 2016, including legal fees and other related expenses, of $17.8 million (before and after tax). In June 2016, certain post-trial motions were concluded with Exergen Corporation being awarded an additional $1.5 million of pre-judgment compensation. We accrued this additional amount in May 2016. In July 2016, we appealed the judgment to the United States Court of Appeals for the Federal Circuit. The Company continues to vigorously pursue its appellate rights and defend against the underlying judgment.

Other Matters – We are involved in various other legal claims and proceedings in the normal course of operations, including from time to time inquiries and audits from various taxing authorities. We believe the outcome of these matters will not have a material adverse effect on our consolidated financial position, results of operations or liquidity, although the estimation of certain loss contingencies inherently involves some amount of uncertainty.

Product Warranties – Most of our products are under warranty against defects in material and workmanship for periods ranging from two to five years. We estimate our warranty accrual using our historical experience and believe that this is the most reliable method by which we can estimate our warranty liability. The following table summarizes the activity in our accrual for the periods shown:

ACCRUAL FOR WARRANTY RETURNS


	Three Months Ended August 31,				Six Months Ended August 31,
(in thousands)	2017		2016		2017		2016
Beginning balance	$	20,629	$	18,981	$	21,766	$	20,622
Additions to the accrual		13,943		13,671		26,182		28,194
Reductions of the accrual - payments and credits issued		(12,478)		(13,193)		(25,854)		(29,357)
Ending balance	$	22,094	$	19,459	$	22,094	$	19,459

Notes 7, 10, 12 and 13 to these consolidated condensed financial statements provide additional information regarding certain of our significant commitments and contingencies.

Note 4 – Earnings per Share

We compute basic earnings per share using the weighted average number of shares of common stock outstanding during the period. We compute diluted earnings per share using the weighted average number of shares of common stock outstanding plus the effect of dilutive securities. Dilutive securities at any given point in time may consist of outstanding options to purchase common stock and issued and contingently issuable unvested restricted share units (RSUs) and performance-based restricted share units (PSUs). Options for common stock are excluded from the computation of diluted earnings per share if their effect is antidilutive. See Note 15 to these consolidated condensed financial statements for more information regarding share-based payment awards.

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The following table presents our basic and diluted shares for the periods shown:

WEIGHTED AVERAGE DILUTED SECURITIES


	Three Months Ended August 31,		Six Months Ended August 31,
(in thousands)	2017	2016	2017	2016
Weighted average shares outstanding, basic	27,232	27,845	27,154	27,809
Incremental shares from share-based payment arrangements	169	379	169	376
Weighted average shares outstanding, diluted	27,401	28,224	27,323	28,185

Dilutive securities, stock options	233	386	243	405
Dilutive securities, unvested or unsettled stock awards	141	324	110	329
Antidilutive securities	300	133	339	138

Note 5 – Segment Information

The following tables present segment information for the periods shown:

THREE MONTHS ENDED


(in thousands)					Nutritional
August 31, 2017	Housewares		Health & Home		Supplements		Beauty		Total
Sales revenue, net	$	114,720	$	147,861	$	31,257	$	84,624	$	378,462
Asset impairment charges		-		-		18,070		-		18,070
Operating income (loss)		23,513		7,730		(20,293)		9,158		20,108
Capital and intangible asset expenditures		2,267		1,133		264		123		3,787
Depreciation and amortization		1,419		4,183		2,390		2,813		10,805


					Nutritional
August 31, 2016	Housewares		Health & Home		Supplements		Beauty		Total
Sales revenue, net	$	105,976	$	144,453	$	33,112	$	84,629	$	368,170
Asset impairment charges		-		-		-		-		-
Operating income (loss)		24,233		9,397		(1,229)		5,086		37,487
Capital and intangible asset expenditures		2,249		845		545		1,422		5,061
Depreciation and amortization		1,442		5,284		2,174		2,242		11,142

SIX MONTHS ENDED


(in thousands)					Nutritional
August 31, 2017	Housewares (1)		Health & Home		Supplements		Beauty		Total
Sales revenue, net	$	213,148	$	298,127	$	62,876	$	163,916	$	738,067
Asset impairment charges		-		-		50,070		4,000		54,070
Operating income (loss)		41,619		22,290		(54,892)		7,857		16,874
Capital and intangible asset expenditures		4,758		2,246		9,209		601		16,814
Depreciation and amortization		2,846		8,321		4,846		5,589		21,602


					Nutritional
August 31, 2016	Housewares (1)		Health & Home		Supplements		Beauty		Total
Sales revenue, net	$	190,579	$	290,808	$	69,052	$	165,669	$	716,108
Asset impairment charges		-		-		5,000		2,400		7,400
Operating income (loss)		39,733		19,001		(6,501)		8,152		60,385
Capital and intangible asset expenditures		2,838		2,034		2,107		3,236		10,215
Depreciation and amortization		2,771		10,517		4,134		4,676		22,098

(1)

The six months ended August 31, 2017 includes a full six months of operating results for Hydro Flask compared to five and a half months for the six months ended August 31, 2016.

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, plus shared service and corporate overhead expenses that are allocable to the

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segment. We do not allocate nonoperating income and expense, including interest or income taxes, to operating segments.

Note 6 – Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) by component and related tax effects for the fiscal 2018 year-to-date are as follows:

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT


(in thousands)		Unrealized Holding Gains (Losses) on Cash Flow Hedges (1)
Balance at February 28, 2017	$	1,173
Other comprehensive income before reclassification		(4,203)
Amounts reclassified out of accumulated other comprehensive income		(880)
Tax effects		963
Other comprehensive income (loss)		(4,120)
Balance at August 31, 2017	$	(2,947)

(1)

Represents activity associated with certain foreign currency contracts. Balances at August 31, 2017 and February 28, 2017 include net deferred tax benefits (expense) of $0.7 and ($0.2) million, respectively.

Note 7 – Supplemental Balance Sheet Information

PROPERTY AND EQUIPMENT


	Estimated
	Useful Lives			August 31,		February 28,
(in thousands)	(Years)			2017		2017
Land		-		$	12,800	$	12,800
Building and improvements	3	-	40		109,055		109,026
Computer, furniture and other equipment	3	-	15		89,128		81,122
Tools, molds and other production equipment	1	-	10		32,650		31,157
Construction in progress		-			5,366		7,391
Property and equipment, gross					248,999		241,496
Less accumulated depreciation					(114,327)		(106,561)
Property and equipment, net				$	134,672	$	134,935

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES


	August 31,		February 28,
(in thousands)	2017		2017
Accrued compensation, benefits and payroll taxes	$	22,543	$	34,917
Accrued sales returns, discounts and allowances		27,034		27,377
Accrued warranty returns		22,094		21,766
Accrued advertising		24,390		23,747
Accrued legal fees and settlements		17,512		16,908
Accrued royalties		8,612		9,553
Accrued property, sales and other taxes		8,099		6,564
Accrued freight and duty		4,565		3,454
Accrued product liability		3,199		2,141
Derivative liabilities, current		3,643		47
Other		5,592		6,726
Total accrued expenses and other current liabilities	$	147,283	$	153,200

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OTHER LIABILITIES, NONCURRENT


	August 31,		February 28,
(in thousands)	2017		2017
Deferred compensation liability	$	4,956	$	6,560
Liability for uncertain tax positions		4,473		6,611
Other liabilities		8,431		8,490
Total other liabilities, noncurrent	$	17,860	$	21,661

Note 8 – Goodwill and Intangible Assets

Impairments in Fiscal 2018 – We continue to evaluate strategic alternatives for our Nutritional Supplements segment, which could include a transaction to divest the business, further investments in the segment’s e-commerce platforms, further restructuring or realignment programs, and consolidating our operations and functions. We believe that over the longer-term, these alternatives are designed to enhance revenue growth and profitability; however, over the short-term, certain of these alternatives may have a disproportionate impact on our income relative to the cost savings or generate other charges or losses.

During the first quarter of fiscal 2018, we received information regarding the potential fair value of our Nutritional Supplements segment that we concluded should be considered when determining if impairments of our long-lived assets, including goodwill, had occurred. Consequently, we performed interim impairment testing. As a result of our testing, we recorded pre-tax non-cash asset impairment charges totaling $32.0 million, consisting of $6.0 million to the segment’s indefinite-lived brand assets and $26.0 million to the segment’s goodwill.

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

The fair values used in our impairment tests were determined using a weighted average of various valuation methods including estimated future discounted cash flows and other market data. The valuation techniques utilized assumptions we believed to be appropriate in the circumstances; however, future circumstances attributable to a strategic change in 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 may need to perform additional impairment tests that may include future offer values. We are unable to project the amount of any expense, charge or loss that may be incurred in future periods.

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

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

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

GOODWILL AND INTANGIBLE ASSETS

August 31, 2017

February 28, 2017

Gross

Cumulative

Gross

Cumulative

Carrying

Goodwill

Accumulated

Net Book

Carrying

Goodwill

Accumulated

Net Book

(in thousands)

Amount

Impairments

Amortization

Value

HELEN OF TROY LTD - FORM 10-Q - October 10, 2017

Attached files