Edgar Filing: HELEN OF TROY LTD

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

FORM 10-Q

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

For the quarterly period ended August 31, 2013

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

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

Commission file number: 001-14669

HELEN OF TROY LIMITED

(Exact name of registrant as specified in its charter)

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

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

1 Helen of Troy Plaza
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 T 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 T No £

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

Large accelerated filer T		Accelerated filer £

Non-accelerated filer £ (Do not check if a smaller reporting company)		Smaller reporting company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £ No T

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 7, 2013
Common Shares, $0.10 par value, per share		32,045,496 shares

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HELEN OF TROY LIMITED AND SUBSIDIARIES

INDEX – FORM 10-Q

			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Condensed Balance Sheets (unaudited)
		as of August 31, 2013 and February 28, 2013	3

		Consolidated Condensed Statements of Income (unaudited)
		for the Three- and Six-Months Ended
		August 31, 2013 and August 31, 2012	4

		Consolidated Condensed Statements of Comprehensive Income (unaudited)
		for the Three- and Six-Months Ended
		August 31, 2013 and August 31, 2012	5

		Consolidated Condensed Statements of Cash Flows (unaudited)
		for the Six Months Ended
		August 31, 2013 and August 31, 2012	6

		Notes to Consolidated Condensed Financial Statements (unaudited)	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition
		and Results of Operations	20

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35

	Item 4.	Controls and Procedures	39

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	40

	Item 1A.	Risk Factors	40

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

	Item 6.	Exhibits	41

	Signatures		42

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (Unaudited)

(in thousands, except shares and par value)

	August 31,			February 28,
	2013			2013

Assets
Assets, current:
Cash and cash equivalents	$	10,097		$	12,842
Receivables - principally trade, less allowances of $3,610 and $5,031	231,309			219,719
Inventory, net	306,854			280,872
Prepaid expenses and other current assets	13,715			8,442
Income taxes receivable	1,919			1,800
Deferred tax assets, net	24,009			21,530
Total assets, current	587,903			545,205

Property and equipment, net of accumulated depreciation of $75,860 and $74,775	130,450			101,716
Goodwill	453,241			453,241
Other intangible assets, net of accumulated amortization of $84,097 and $73,344	332,918			355,628
Deferred tax assets, net	2,726			2,401
Other assets, net of accumulated amortization of $5,948 and $5,403	10,933			15,813
Total assets	$	1,518,171		$	1,474,004

Liabilities and Stockholders’ Equity
Liabilities, current:
Revolving line of credit	$	23,500		$	82,000
Accounts payable, principally trade	109,067			72,263
Accrued expenses and other current liabilities	130,982			134,063
Deferred tax liabilities, net	224			339
Long-term debt, current maturities	96,900			20,000
Total liabilities, current	360,673			308,665

Long-term debt, excluding current maturities	107,247			155,000
Deferred tax liabilities, net	55,889			57,991
Other liabilities, non-current	23,639			25,742
Total liabilities	547,448			547,398

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; 32,033,505 and 31,868,416 shares issued and outstanding	3,203			3,187
Additional paid in capital	171,264			164,471
Accumulated other comprehensive loss	(1,843		)	(2,729		)
Retained earnings	798,099			761,677
Total stockholders’ equity	970,723			926,606
Total liabilities and stockholders’ equity	$	1,518,171		$	1,474,004

See accompanying notes to consolidated condensed financial statements.

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HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Statements of Income (Unaudited)

(in thousands, except per share data)

	Three Months Ended August 31,					Six Months Ended August 31,
	2013			2012		2013			2012

Sales revenue, net	$	319,387		$	287,411	$	623,903		$	587,622
Cost of goods sold	196,132			170,381		380,484			349,444
Gross profit	123,255			117,030		243,419			238,178

Selling, general and administrative expense	92,899			86,189		180,389			176,189
Asset impairment charges	-			-		12,049			-
Operating income	30,356			30,841		50,981			61,989

Nonoperating income (expense), net	56			31		140			54
Interest expense	(2,192		)	(3,130)		(5,134		)	(6,442		)
Income before income taxes	28,220			27,742		45,987			55,601

Income tax expense:
Current	9,973			8,487		13,869			14,388
Deferred	(5,071		)	(3,713)		(5,591		)	(5,227		)
Net income	$	23,318		$	22,968	$	37,709		$	46,440

Earnings per share:
Basic	$	0.73		$	0.72	$	1.18		$	1.46
Diluted	$	0.72		$	0.72	$	1.17		$	1.46

Weighted average shares of common stock used in computing net earnings per share:
Basic	31,993			31,743		31,951			31,721
Diluted	32,272			31,846		32,226			31,843

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)

(in thousands)

	Three Months Ended August 31,
	2013						2012
	Before				Net of		Before				Net of
	Tax		Tax		Tax		Tax		Tax		Tax

Income	$ 28,220		$ (4,902	)	$ 23,318		$ 27,742		$ (4,774	)	$ 22,968
Other comprehensive income
Cash flow hedge activity - interest rate swaps:
Changes in fair market value	(24	)	9		(15	)	(457	)	160		(297	)
Interest rate settlements reclassified to income	925		(325	)	600		980		(343	)	637
Subtotal	901		(316	)	585		523		(183	)	340

Cash flow hedge activity - foreign currency contracts:
Changes in fair market value	(68	)	18		(50	)	(933	)	327		(606	)
Ineffectiveness recorded in income	-		-		-		(14	)	5		(9	)
Settlements reclassified to income	(108	)	13		(95	)	(11	)	3		(8	)
Subtotal	(176	)	31		(145	)	(958	)	335		(623	)

Total other comprehensive income (loss)	725		(285	)	440		(435	)	152		(283	)
Comprehensive income	$ 28,945		$ (5,187	)	$ 23,758		$ 27,307		$ (4,622	)	$ 22,685

	Six Months Ended August 31,
	2013						2012
	Before				Net of		Before				Net of
	Tax		Tax		Tax		Tax		Tax		Tax

Income	$ 45,987		$ (8,278	)	$ 37,709		$ 55,601		$ (9,161	)	$ 46,440
Other comprehensive income
Cash flow hedge activity - interest rate swaps:
Changes in fair market value	(27	)	10		(17	)	(501	)	175		(326	)
Interest rate settlements reclassified to income	1,839		(645	)	1,194		1,906		(667	)	1,239
Subtotal	1,812		(635	)	1,177		1,405		(492	)	913

Cash flow hedge activity - foreign currency contracts:
Changes in fair market value	(32	)	11		(21	)	(23	)	9		(14	)
Ineffectiveness recorded in income	-		-		-		(49	)	17		(32	)
Settlements reclassified to income	(324	)	54		(270	)	(37	)	12		(25	)
Subtotal	(356	)	65		(291	)	(109	)	38		(71	)

Total other comprehensive income	1,456		(570	)	886		1,296		(454	)	842
Comprehensive income	$ 47,443		$ (8,848	)	$ 38,595		$ 56,897		$ (9,615	)	$ 47,282

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)

(in thousands)

	Six Months Ended August 31,
	2013			2012

Cash provided (used) by operating activities:
Net income	$	37,709		$	46,440
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	16,889			17,795
Provision for doubtful receivables	316			(54		)
Non-cash share-based compensation	6,797			3,057
Intangible asset impairment charges	12,049			-
(Gain) loss on the sale of property and equipment	63			(15		)
Deferred income taxes and tax credits	(5,592		)	(5,231		)
Changes in operating capital:
Receivables	(11,906		)	(12,947		)
Inventories	(25,982		)	(72,450		)
Prepaid expenses and other current assets	(1,991		)	(674		)
Other assets and liabilities, net	(3,232		)	(390		)
Accounts payable	36,807			36,611
Accrued expenses and other current liabilities	(3,401		)	(8,472		)
Accrued income taxes	(1,386		)	7,083
Net cash provided by operating activities	57,140			10,753

Cash provided (used) by investing activities:
Capital and intangible asset expenditures	(34,578		)	(5,760		)
Proceeds from the sale or disposal of property and equipment	-			20
Note receivable from land sale	-			737
Net cash used by investing activities	(34,578		)	(5,003		)

Cash provided (used) by financing activities:
Proceeds from line of credit	76,800			114,950
Repayment of line of credit	(135,300		)	(125,050		)
Proceeds (repayments) of long-term debt	29,147			(3,000		)
Payments of financing costs	(127		)	(28		)
Proceeds from share issuances under share-based compensation plans, including tax benefits	4,511			6,913
Payment of tax obligations resulting from issuance of restricted shares	(438		)	(72		)
Payments for repurchases of common stock	(1,311		)	-
Share-based compensation tax benefit	1,411			458
Net cash used by financing activities	(25,307		)	(5,829		)

Net decrease in cash and cash equivalents	(2,745		)	(79		)
Cash and cash equivalents, beginning balance	12,842			21,846
Cash and cash equivalents, ending balance	$	10,097		$	21,767

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, 2013

Note 1 - Basis of Presentation and Conventions Used in this Report

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, 2013 and February 28, 2013, and the results of our consolidated operations for the three- and six-month periods ended August 31, 2013 and 2012. 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, 2013, and our other reports on file with the Securities and Exchange Commission (“SEC”).

In this report and the accompanying consolidated condensed financial statements and notes, unless the context suggests otherwise or otherwise indicated, references to “the Company”, “our Company”, “Helen of Troy”, “we”, “us”, or “our” refer to Helen of Troy Limited and its subsidiaries, and amounts are expressed in thousands of U.S. Dollars. We refer to the Company’s common shares, par value $0.10 per share, as “common stock.” References to “Kaz” refer to the operations of Kaz, Inc. and its subsidiaries. References to “PUR” refer to the PUR brand of water filtration products that we acquired, along with certain other assets and liabilities, from The Procter & Gamble Company and certain of its affiliates. Kaz and PUR comprise a segment within the Company referred to as the Healthcare / Home Environment segment. References to “OXO” refer to the operations of OXO International and certain of its affiliated subsidiaries that comprise our Housewares segment. Product and service names mentioned in this report are used for identification purposes only and may be protected by trademarks, trade names, services marks, and/or other intellectual property rights of the Company and/or other parties in the United States and/or other jurisdictions. The absence of a specific attribution in connection with any such mark does not constitute a waiver of any such right. All trademarks, trade names, service marks, and logos referenced herein belong to their owners. References to “the FASB” refer to the Financial Accounting Standards Board. References to “GAAP” refer to U.S. generally accepted accounting principles. References to “ASC” refer to the codification of GAAP in the Accounting Standards Codification issued by the FASB.

We are a global designer, developer, importer, marketer and distributor of an expanding portfolio of brand-name consumer products. We have three segments: Housewares, Healthcare / Home Environment and Personal Care. Our Housewares segment provides a broad range of innovative consumer products for the home. Product offerings include food preparation and storage, cleaning, organization, and baby and toddler care products. The Healthcare / Home Environment segment focuses on health care devices such as thermometers, blood pressure monitors, humidifiers, and heating pads; water filtration systems; and small home appliances such as air purifiers, portable heaters, fans, and insect control devices (bug zappers). Our Personal Care segment’s 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. All three segments sell their products primarily through mass merchandisers, drugstore chains, warehouse clubs, catalogs, grocery stores, and specialty stores. In addition, the Healthcare / Home Environment segment sells certain of its product lines through medical distributors and other products through home improvement stores, and the Personal Care segment sells extensively through beauty supply retailers and wholesalers. We purchase our products from unaffiliated manufacturers, most of which are located in China, Mexico and the United States.

Our consolidated condensed financial statements are prepared in accordance with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. We have reclassified, combined or separately disclosed certain amounts in the prior period’s consolidated condensed financial statements and accompanying footnotes to conform to the current period’s presentation.

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Note 2 – New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that we adopt according to the various timetables the FASB specifies. Unless otherwise discussed, 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.

Note 3 – Commitments and Contingencies

We are involved in various legal claims and proceedings in the normal course of operations. We believe the outcome of these matters will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

Notes 7, 9, 11, 12, and 14 provide additional information regarding certain of our significant commitments and certain significant contingencies we have provided for in the accompanying consolidated condensed financial statements.

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 historical trends and believe that these trends are the most reliable method by which we can estimate our warranty liability. The following table summarizes the activity in our warranty accrual for the periods covered in the accompanying consolidated condensed statements of income:

ACCRUAL FOR WARRANTY RETURNS

(in thousands)

	Three Months Ended August 31,						Six Months Ended August 31,
	2013			2012			2013			2012

Beginning balance	$	20,782		$	23,313		$	23,150		$	26,665
Additions to the accrual	9,578			7,899			18,776			14,773
Reductions of the accrual - payments and credits issued	(9,003		)	(9,352		)	(20,569		)	(19,578		)
Ending balance	$	21,357		$	21,860		$	21,357		$	21,860

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 and diluted earnings per share using basic earnings per share plus the effect of dilutive securities. Our securities that can have dilutive effects consist of outstanding options to purchase common stock and issued and contingently issuable unvested restricted share units and awards. See Note 14 to these consolidated condensed financial statements for more information regarding these restricted share units and awards. Options for common stock are excluded from the computation of diluted earnings per share if their effect is antidilutive.

For the periods covered in the accompanying consolidated condensed statements of income, the basic and diluted shares are as follows:

WEIGHTED AVERAGE DILUTED SECURITIES

(in thousands)

	Three Months Ended August 31,		Six Months Ended August 31,
	2013	2012	2013	2012

Weighted average shares outstanding, basic	31,993	31,743	31,951	31,721
Incremental shares from share-based payment arrangements	279	103	275	122
Weighted average shares outstanding, diluted	32,272	31,846	32,226	31,843

Dilutive securities, as a result of in-the-money options	347	380	273	376
Dilutive securities, as a result of unvested restricted shares	251	-	242	-
Antidilutive securities, as a result of out-of-the-money options	603	617	700	621

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Note 5 – Segment Information

The following tables contain segment information for the periods covered in the accompanying consolidated condensed statements of income:

THREE MONTHS ENDED AUGUST 31, 2013 AND 2012

(in thousands)

Healthcare /

Personal

August 31, 2013

Housewares

Home Environment

Care

Total

Sales revenue, net

70,165

133,044

116,178

319,387

Asset impairment charges

Operating income

13,772

4,974

11,610

30,356

Capital and intangible asset expenditures

167

17,009

402

17,578

Depreciation and amortization

1,030

4,767

2,645

8,442

			Healthcare /		Personal
August 31, 2012	Housewares		Home Environment		Care		Total

Sales revenue, net	$	64,570	$	110,477	$	112,364	$	287,411
Operating income	12,078		6,883		11,880		30,841
Capital and intangible asset expenditures	326		1,202		864		2,392
Depreciation and amortization	1,278		4,175		3,242		8,695

SIX MONTHS ENDED AUGUST 31, 2013 AND 2012

(in thousands)

Healthcare /

Personal

August 31, 2013

Housewares

Home Environment

Care

Total

Sales revenue, net

133,695

258,646

231,562

623,903

Asset impairment charges

12,049

Operating income

26,228

11,510

13,243

50,981

Capital and intangible asset expenditures

381

33,114

1,083

34,578

Depreciation and amortization

2,049

9,548

5,292

16,889

			Healthcare /		Personal
August 31, 2012	Housewares		Home Environment		Care		Total

Sales revenue, net	$	124,819	$	232,887	$	229,916	$	587,622
Operating income	23,355		14,874		23,760		61,989
Capital and intangible asset expenditures	517		2,124		3,119		5,760
Depreciation and amortization	2,576		8,710		6,509		17,795

We compute operating income for each segment based on net sales revenue, less cost of goods sold, selling, general and administrative expense (“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 overhead expenses that are allocable to the segment. We make allocations of overhead between operating segments using a number of relevant allocation criteria, depending on the nature of the expense, the most significant of which are relative revenues, estimates of relative labor expenditures, headcount, and facility square footage. We do not allocate nonoperating income and expense, including interest or income taxes to operating segments.

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Note 6 – Comprehensive Income (Loss)

The components of accumulated other comprehensive loss, net of tax, are as follows:

COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS

(in thousands)

	August 31,			February 28,
	2013			2013

Unrealized holding losses on cash flow hedges - interest rate swap, net of tax (1)	$	(1,958	)	$	(3,135	)
Unrealized holding gains on cash flow hedges - foreign currency contracts, net of tax (2)	115			406
Total accumulated other comprehensive loss	$	(1,843	)	$	(2,729	)

(1) Includes net deferred tax benefits of $1.05 and $1.69 million at August 31, 2013 and February 28, 2013, respectively.

(2) Includes net deferred tax expense of $0.03 and $0.09 million at August 31, 2013 and February 28, 2013, respectively.

Note 7 – Supplemental Balance Sheet Information

PROPERTY AND EQUIPMENT

(in thousands)

	Estimated
	Useful Lives	August 31,			February 28,
	(Years)	2013			2013

Land	-	$	12,800		$	12,800
Building and improvements	3 - 40	67,494			66,994
Computer, furniture and other equipment	3 - 15	55,670			58,284
Tools, molds and other production equipment	1 - 10	29,311			29,264
Construction in progress	-	41,035			9,149
Property and equipment, gross		206,310			176,491
Less accumulated depreciation		(75,860		)	(74,775		)
Property and equipment, net		$	130,450		$	101,716

Construction in progress includes expenditures of $30.94 million at August 31, 2013 for construction costs incurred in connection with our new 1.3 million square foot distribution facility on approximately 84 acres of land in Olive Branch, Mississippi. The new facility will consolidate the operations of our U.S. based Personal Care and Healthcare / Home Environment appliance businesses. The new facility became operational for the Healthcare / Home Environment segment during the first week of September 2013. See Note 9 to these consolidated condensed financial statements for related information regarding the debt incurred to fund the construction of the new distribution facility.

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

(in thousands)

	August 31,		February 28,
	2013		2013

Accrued compensation, benefits and payroll taxes	$	32,790	$	34,265
Accrued sales returns, discounts and allowances	27,829		22,561
Accrued warranty returns	21,357		23,150
Accrued advertising	18,111		14,554
Accrued product liability, legal and professional fees	7,057		9,061
Accrued royalties	5,993		7,731
Accrued property, sales and other taxes	6,934		5,729
Derivative liabilities, current	3,012		3,044
Other	7,899		13,968
Total accrued expenses and other current liabilities	$	130,982	$	134,063

OTHER LIABILITIES, NON-CURRENT

(in thousands)

	August 31,		February 28,
	2013		2013

Deferred compensation liability	$	6,431	$	6,443
Liability for uncertain tax positions	15,903		15,759
Derivative liabilities	-		1,780
Other liabilites	1,305		1,760
Total other liabilities, non-current	$	23,639	$	25,742

Note 8 – Goodwill and Intangible Assets

Annual Impairment Testing in the First Quarter of Fiscal Year 2014 - We performed our annual evaluation of goodwill and indefinite-lived intangible assets for impairment during the first quarter of fiscal year 2014. As a result of our testing of indefinite-lived trademarks and licenses, we recorded a non-cash asset impairment charge of $12.05 million ($12.03 million after tax). The charge was related to certain trademarks in our Personal Care segment, which were written down to their estimated fair value, determined on the basis of future discounted cash flows using the relief from royalty valuation method.

Annual Impairment Testing in the First Quarter of Fiscal Year 2013 - We performed our annual evaluation of goodwill and indefinite-lived intangible assets for impairment during the first quarter of fiscal year 2013. As a result, we concluded no asset impairment charges were required. For fiscal year 2013, the estimated fair value of the indefinite-lived trademarks and licenses, reporting unit net assets, and the Company’s estimated enterprise value exceeded their respective carrying values as of the date of the evaluation.

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A summary of the carrying amounts and associated accumulated amortization for all intangible assets by operating segment follows:

GOODWILL AND INTANGIBLE ASSETS

(in thousands)

	August 31, 2013										February 28, 2013
	Gross		Cumulative								Gross		Cumulative
	Carrying		Goodwill			Accumulated			Net Book		Carrying		Goodwill			Accumulated			Net Book
Description	Amount		Impairments			Amortization			Value		Amount		Impairments			Amortization			Value

Housewares:
Goodwill	$	166,132	$	-		$	-		$	166,132	$	166,132	$	-		$	-		$	166,132
Trademarks - indefinite	75,200		-			-			75,200		75,200		-			-			75,200
Other intangibles - finite	15,701		-			(10,637		)	5,064		15,609		-			(10,070		)	5,539
Total Housewares	257,033		-			(10,637		)	246,396		256,941		-			(10,070		)	246,871

Healthcare / Home Environment:
Goodwill	251,758		-			-			251,758		251,758		-			-			251,758
Trademarks - indefinite	54,000		-			-			54,000		54,000		-			-			54,000
Licenses - finite	15,300		-			(4,935		)	10,365		15,300		-			(3,455		)	11,845
Other Intangibles - finite	114,490		-			(28,962		)	85,528		114,490		-			(23,220		)	91,270
Total Healthcare / Home Environment	435,548		-			(33,897		)	401,651		435,548		-			(26,675		)	408,873

Personal Care:
Goodwill		81,841		(46,490	)		-			35,351		81,841		(46,490	)		-			35,351
Trademarks - indefinite	63,754		-			-			63,754		75,803		-			-			75,803
Trademarks - finite	150		-			(75		)	75		150		-			(72		)	78
Licenses - indefinite	10,300		-			-			10,300		10,300		-			-			10,300
Licenses - finite	18,683		-			(15,729		)	2,954		18,683		-			(15,570		)	3,113
Other intangibles - finite	49,437		-			(23,759		)	25,678		49,437		-			(20,957		)	28,480
Total Personal Care	224,165		(46,490		)	(39,563		)	138,112		236,214		(46,490		)	(36,599		)	153,125

Total	$	916,746	$	(46,490	)	$	(84,097	)	$	786,159	$	928,703	$	(46,490	)	$	(73,344	)	$	808,869

The following table summarizes the amortization expense attributable to intangible assets for the periods covered in the accompanying consolidated condensed statements of income, as well as our estimated amortization expense for the fiscal years 2014 through 2019.

AMORTIZATION OF INTANGIBLE ASSETS

(in thousands)

Aggregate Amortization Expense
For the three months ended

August 31, 2013	$	5,408

August 31, 2012	$	5,626


Aggregate Amortization Expense
For the six months ended

August 31, 2013	$	10,839

August 31, 2012	$	11,262


Estimated Amortization Expense
For the fiscal years ended

February 2014	$	21,557
February 2015	$	21,018
February 2016	$	20,838
February 2017	$	20,515
February 2018	$	16,697
February 2019	$	11,917

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Note 9 – Debt

Revolving Line of Credit - We have a Credit Agreement (the “Credit Agreement”) with Bank of America, N.A. that provides for an unsecured total revolving commitment of up to $250.00 million. The commitment under the Credit Agreement terminates on December 30, 2015. Borrowings accrue interest under one of two alternative methods as described in the Credit Agreement. With each borrowing against our credit line, we can elect the interest rate method based on our funding needs at the time. We also incur loan commitment fees and letter of credit fees under the Credit Agreement. Outstanding letters of credit reduce the borrowing availability under the Credit Agreement on a dollar-for-dollar basis. As of August 31, 2013, the outstanding revolving loan principal balance was $23.50 million and there were $0.31 million of open letters of credit outstanding against the Credit Agreement. For both the three- and six-months ended August 31, 2013, borrowings under the Credit Agreement incurred interest charges at rates ranging from 1.18 to 3.63 percent. For the three- and six-months ended August 31, 2012, borrowings under the Credit Agreement incurred interest charges at rates ranging from 1.61 to 3.63 percent and 1.61 to 4.00 percent, respectively. As of August 31, 2013, the amount available for borrowings under the Credit Agreement was $226.19 million.

Long-Term Debt – A summary of our long-term debt is as follows:

LONG-TERM DEBT

(dollars in thousands)

Original

Date

Interest

August 31,

February 28,

Borrowed

Rates

Matures

2013

2013

$38 million unsecured loan with a state industrial development corporation, interim draws, interest is set and payable quarterly at the Base Rate, as defined below, plus a margin of up to 1.125%, or applicable LIBOR plus a margin of up to 2.125%, as determined by the interest rate elected. Loan subject to holder’s call on or after March 1, 2018. Loan can be prepaid without penalty any time after March 20, 2014.

03/13

1.18% to 1.57%

03/23

29,147

$75 million unsecured floating interest rate 10 year Senior Notes. Interest set and payable quarterly at three-month LIBOR plus 90 basis points. Principal is due in June 2014. Notes can be prepaid without penalty. (1)

06/04

6.01%

06/14

75,000

75,000

$100 million unsecured Senior Notes payable at a fixed interest rate of 3.90%. Interest payable semi-annually. Annual principal payments of $20 million begin in January 2014. Prepayment of notes are subject to a “make whole” premium.

01/11

3.90%

01/18

100,000

100,000

Total long-term debt

204,147

175,000

Less current maturities of long-term debt

(96,900

)

(20,000

)

Long-term debt, excluding current maturities

107,247

155,000

(1) Floating interest rates have been hedged with an interest rate swap to effectively fix interest rates. Additional information regarding the swap is provided in Note 12 to these consolidated condensed financial statements.

In March 2013, Kaz USA, Inc. (“Kaz USA”), a wholly owned subsidiary of the Company, entered into a Loan Agreement, dated as of March 1, 2013, with the Mississippi Business Finance Corporation (the “MBFC”) in connection with the issuance by MBFC of up to $38.00 million of taxable industrial development revenue bonds (the “Bonds”). The Bonds are issued under a Trust Indenture (the “IRB Indenture”), between MBFC and Deutsche Bank National Trust Company, as trustee. Interim draws, accumulating up to a $38.00 million aggregate maximum, may be made through March 20, 2014. The Bonds and the related loan to Kaz USA (the “MBFC Loan”) will bear interest at a variable rate as elected by Kaz USA equal to either (a) a “Base Rate” plus a margin of 0.00 to 1.125 percent, depending upon the leverage ratio at the time of the borrowing or (b) the respective one-, two-, three-, or six-month LIBOR rate plus 1.00 to 2.125 percent, depending upon the leverage ratio at the time of the borrowing. The Base Rate is equal to the highest of (i) the federal funds rate for the day,

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plus 0.50 percent, (ii) the prime rate of Bank of America, N.A., or (iii) the respective one-, two-, three-, or six-month LIBOR rate plus 1.00 percent. The proceeds of the MBFC Loan are being used by Kaz USA to finance the purchase of land, construction of a distribution facility and the acquisition and installation of equipment, machinery and related assets located in Olive Branch, Mississippi.

Assuming the $38.00 million aggregate maximum is borrowed, outstanding principal of the MBFC Loan will be payable as follows: $1.90 million on March 1 in each of 2014, 2015, 2018, 2019, 2020, 2021 and 2022; $3.80 million on March 1, 2016; $5.70 million on March 1, 2017; and $15.20 million on March 1, 2023. Any remaining outstanding principal and interest is due upon maturity on March 1, 2023. The MBFC Loan may be prepaid in whole or part without penalty any time after March 20, 2014. Additionally, Bank of America, N.A., the purchaser of the Bonds, may elect for the MBFC Loan to be prepaid in full on March 1, 2018. Following March 1, 2018, Bank of America, N.A. may elect for the MBFC Loan to be prepaid on March 1 of each subsequent year prior to maturity upon at least 90 days notice. In lieu of any prepayment, the Bonds may be purchased by a transferee, as permitted under the IRB Indenture.

The fair market value of the fixed rate debt at August 31, 2013, computed using a discounted cash flow analysis, was $103.96 million compared to the $100.00 million book value and represents a Level 2 liability. All other long-term debt has floating interest rates, and its book value approximates its fair value at August 31, 2013.

All of our debt is unconditionally guaranteed, on a joint and several basis, by the Company and certain of its subsidiaries. Our debt agreements require the maintenance of certain financial covenants, including maximum leverage ratios, minimum interest coverage ratios and minimum consolidated net worth levels (as each of these terms is defined in the various agreements). Our debt agreements also contain other customary covenants, including, among other things, covenants restricting or limiting the Company, except under certain conditions set forth therein, from (1) incurring debt, (2) incurring liens on its properties, (3) making certain types of investments, (4) selling certain assets or making other fundamental changes relating to mergers and consolidations, and (5) repurchasing shares of our common stock and paying dividends.

As of August 31, 2013, our debt agreements effectively limited our ability to incur more than $354.23 million of additional debt from all sources, including draws on the Credit Agreement. As of August 31, 2013, we were in compliance with the terms of all of our debt agreements.

Note 10 – Income Taxes

Income tax expense for the three- and six-month periods ended August 31, 2013 was 17.4 and 18.0 percent of income before income taxes, respectively, compared to 17.2 and 16.5 percent, respectively, for the same periods last year. Our effective tax rate for the six months ended August 31, 2013 was also impacted by asset impairment charges of $12.05 million, for which the related tax benefit was only $0.02 million.

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Note 11 – Fair Value

The fair value hierarchy of our financial assets and liabilities carried at fair value and measured on a recurring basis is as follows:

FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
*(in thousands)*
			Quoted Prices in		Significant Other
			Active Markets		Observable
	Fair Values at		for Identical Assets		Market Inputs
Description	August 31, 2013		(Level 1)		(Level 2)

Assets:
Money market accounts	$	913	$	913	$	-
Foreign currency contracts	140		-		140
Total assets	$	1,053	$	913	$	140

Liabilities:
Long-term debt - fixed rate (1)	$	103,960	$	-	$	103,960
Long-term debt - floating rate	104,147		-		104,147
Interest rate swaps	3,012		-		3,012
Total liabilities	$	211,119	$	-	$	211,119

			Quoted Prices in		Significant Other
			Active Markets		Observable
	Fair Values at		for Identical Assets		Market Inputs
Description	February 28, 2013		(Level 1)		(Level 2)

Assets:
Money market accounts	$	1,091	$	1,091	$	-
Foreign currency contracts	496		-		496
Total assets	$	1,587	$	1,091	$	496

Liabilities:
Long-term debt - fixed rate (1)	$	105,725	$	-	$	105,725
Long-term debt - floating rate	75,000		-		75,000
Interest rate swaps	4,824		-		4,824
Total liabilities	$	185,549	$	-	$	185,549

(1) Debt values are reported at estimated fair value in these tables, but are recorded in the accompanying consolidated condensed balance sheets at the undiscounted value of remaining principal payments due.

The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair value because of the short maturity of these items. Money market accounts are included in cash and cash equivalents in the accompanying consolidated condensed balance sheets and are classified as Level 1 assets.

We classify our fixed and floating rate debt as Level 2 liabilities because the estimation of the fair market value of these financial liabilities requires the use of discount rates based upon current market rates of interest for debt with comparable remaining terms. Such comparable rates are significant other observable market inputs. The fair market value of the fixed rate debt was computed using a discounted cash flow analysis and discount rates of 2.16 and 1.83 percent at August 31, 2013 and February 28, 2013, respectively. All other long-term debt has floating interest rates, and its book value approximates its fair value as of the reporting date.

We use derivatives for hedging purposes and our derivatives are primarily foreign currency contracts and an interest rate swap. We determine the fair value of our derivative instruments based on Level 2 inputs in the fair

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value hierarchy. See Note 12 to these consolidated condensed financial statements for more information on our hedging activities.

The Company’s other non-financial assets include goodwill and other intangible assets, which we classify as Level 3 assets. These assets are measured at fair value on a non-recurring basis as part of the Company’s impairment assessments and as circumstances require. As discussed in Note 8, in connection with our annual impairment testing during the fiscal quarter ended May 31, 2013, we recorded a non-cash asset impairment charge of $12.05 million ($12.03 million after tax). The charge related to certain trademarks in our Personal Care segment, which were written down to their estimated fair value, determined on the basis of future discounted cash flows using the relief from royalty valuation method.

Note 12 – Financial Instruments and Risk Management

Foreign Currency Risk - Our functional currency is the U.S. Dollar. By operating internationally, we are subject to foreign currency risk from transactions denominated in currencies other than the U.S. Dollar (“foreign currencies”). Such transactions include sales, certain inventory purchases and operating expenses. As a result of such transactions, portions of our cash, trade accounts receivable and trade accounts payable are denominated in foreign currencies. During each of the three- and six-month periods ended August 31, 2013, approximately 14 percent of our net sales revenue was in foreign currencies. During each of the three- and six-month periods ended August 31, 2012, approximately 16 percent of our net sales revenue was in foreign currencies. These sales were primarily denominated in British Pounds, Euros, Mexican Pesos, Canadian Dollars, Australian Dollars, Peruvian Soles, and Venezuelan Bolivares Fuertes. We make most of our inventory purchases from the Far East and use the U.S. Dollar for such purchases. In our consolidated condensed statements of income, exchange gains and losses resulting from the remeasurement of foreign taxes receivable, taxes payable, deferred tax assets, and deferred tax liabilities, are recognized in their respective income tax lines, and all other foreign exchange gains and losses from remeasurement are recognized in SG&A. For the three- and six-month periods ended August 31, 2013, we recorded net foreign exchange gains (losses), including the impact of currency hedges, of ($0.38) and ($0.50) million, respectively, in SG&A and ($0.02) and $0.03 million, respectively, in income tax expense. For the three- and six-month periods ended August 31, 2012, we recorded net foreign exchange gains (losses), including the impact of currency hedges and currency swaps, of $0.77 and ($0.17) million, respectively, in SG&A and ($0.03) and $0.16 million, respectively, in income tax expense.

We have historically hedged against certain foreign currency exchange rate risk by using a series of forward contracts designated as cash flow hedges to protect against the foreign currency exchange risk inherent in our forecasted transactions denominated in currencies other than the U.S. Dollar. We do not enter into any forward exchange contracts or similar instruments for trading or other speculative purposes.

Interest Rate Risk – Interest on our outstanding debt as of August 31, 2013 is both floating and fixed. Fixed rates are in place on $100.00 million of Senior Notes at 3.90 percent, while floating rates are in place on $23.50 million of borrowings under our Credit Agreement, $29.15 million of interim draws under our MBFC Loan and $75.00 million of Senior Notes due June 2014. If short-term interest rates increase, we will incur higher interest rates on any outstanding balances under the Credit Agreement and MBFC Loan. The floating rate Senior Notes due June 2014 reset as described in Note 9, and have been effectively converted to fixed rate debt using an interest rate swap (the “swap”), as described below.

We manage our floating rate $75.00 million of Senior Notes due June 2014 using an interest rate swap. As of August 31, 2013, the swap converted an aggregate notional principal amount of $75.00 million from floating interest rate payments under our Senior Notes due June 2014 to fixed interest rate payments at 6.01 percent. In the swap transaction, we maintain contracts to pay fixed rates of interest on an aggregate notional principal amount of $75.00 million at a rate of 5.11 percent on our Senior Notes due June 2014, while simultaneously receiving floating rate interest payments set at 0.28 percent as of August 31, 2013 on the same notional amounts. The fixed rate side of the swap will not change over its life. The floating rate payments are reset quarterly based on three-month LIBOR. The resets are concurrent with the interest payments made on the underlying debt. Changes in the spread between the fixed rate payment side of the swap and the floating rate receipt side of the swap offset 100 percent of the change in any period of the underlying debt’s floating rate payments. The swap is

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used to reduce our risk of increased interest costs; however, when interest rates drop significantly below the swap rate, we lose the benefit that our floating rate debt would provide, if not managed with a swap. The swap is considered 100 percent effective.

The fair values of our various derivative instruments are as follows:

FAIR VALUES OF DERIVATIVE INSTRUMENTS

(in thousands)

August 31, 2013

Prepaid

Accrued