UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 29, 202028, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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 | (I.R.S. Employer | |||||||
| of incorporation or organization) | Identification No.) | |||||||
2 Church Street,
Hamilton,, Bermuda (Address
(Address of principal executive offices)
1 Helen of Troy Plaza,
El Paso,, Texas79912
(Registrant’sRegistrant's United States Mailing Address) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading | Name of each exchange on which registered | ||||||||||||
| Common Shares, $0.10 par value per share | HELE | The NASDAQ Stock Market LLC | ||||||||||||
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 every Interactive Data File required to be submitted 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 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. [ ]☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common shares held by non-affiliates of the registrant as of August 31, 2019,2021, based upon the closing price of the common shares as reported by The NASDAQ Global Select Market on such date, was approximately 3,831,315,388.$5,726.4 million.
As of April 22, 2020,21, 2022, there were 25,243,70223,841,808 common shares, $0.10 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 20202022 Annual General Meeting of Shareholders to be filed within one hundred and twenty days of the fiscal year ended February 29, 2020 (202028, 2022 (2022 Proxy Statement) are incorporated by reference into Part III of this report to the extent described herein.
TABLE OF CONTENTS
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EXPLANATORY NOTE
In this report andAnnual Report on Form 10-K (the “Annual Report”), which includes the accompanying consolidated 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. We refer to our common shares, par value $0.10 per share, as “common stock.” References to “EMEA” refer to the combined geographic markets of Europe, the Middle East and Africa. We use product and service names in this reportAnnual Report for identification purposes only and they may be protected in the United States and other jurisdictions by trademarks, trade names, service marks, and other intellectual property rights of ours and other parties. 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 respective owners. References to “fiscal” in connection with a numeric year number denotes our fiscal year ending on the last day of February, during the year number listed. References to “the FASB” refer to the Financial Accounting Standards Board. References to “GAAP” refer to U.S.accounting principles generally accepted accounting principles.in the United States of America (the “U.S.”). 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.
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PART I
Item 1. Business
Our Company
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 go to market under a number of brands, some of which are licensed. Our Leadership Brands are brands which have number-one or number-two positions in their respective categories and include the OXO, Hydro Flask, Osprey, Vicks, Braun, Honeywell, PUR, Hot Tools and Drybar brands.
Segment Information
In the fourth quarter of fiscal 2022, we changed the names of two of our segments to align with the growth in certain product offerings and brands within our portfolio. Our previously named “Housewares” segment was changed to “Home & Outdoor,” and our previously named “Health & Home” segment was changed to “Health & Wellness.” There were no changes to the products or brands included within the segments as part of these name changes. The Osprey brand and products were added to the Home & Outdoor segment upon the completion of the acquisition of Osprey Packs, Inc. ("Osprey") discussed further below.
We currently haveoperate in three business segments, whichsegments:
•Home & Outdoor: Provides a broad range of innovative consumer products for home activities such as food preparation, cooking, cleaning, and organization; as well as products for outdoor and on the go activities such as hydration, food storage, backpacks, and travel gear. This segment sells primarily to retailers as well as through our direct-to-consumer channel.
•Health & Wellness: Provides health and wellness products including healthcare devices, thermometers, water and air filtration systems, humidifiers, and fans. Sales for the segment are included inprimarily to retailers and distributors with some direct-to-consumer channel sales.
•Beauty: Provides mass and prestige market beauty appliances including hair styling appliances, grooming tools, decorative hair accessories, and prestige market liquid-based hair and personal care products. This segment sells primarily to retailers, beauty supply wholesalers and through our financial statements in continuing operations:direct- to- consumer channel.
For more segment and geographic information concerning our net sales revenue, long-lived assets and operating income, refer to Note 2018 to the accompanying consolidated financial statements.
Our Strategic Initiatives
In fiscal 2015, we launched a five-year transformational strategy designed to improve the performance of our business segments and strengthen our shared service capabilities. This strategy has driven our decisions on where we will operate and how we will achieve our goals in markets around the world. The overall design of our business and organizational plan is intended to create sustainable and profitable growth and improve organizational capability.
Fiscal 2019 marked the completion of Phase I of our multi-year transformation strategy, which delivered performance across a wide range of measures. We improved organic sales growth by focusing on our Leadership Brands, made strategic acquisitions, became a more efficient operating company with strong global shared services, upgraded our organization and culture, improved inventory turns and return on invested capital, and returned capital to shareholders.
Fiscal 2020 began Phase II of our transformation, and iswhich was designed to drive the next five years of progress. The long-term objectives of Phase II include improved organic sales growth, continued margin expansion, and strategic and effective capital deployment. We expect Phase II will includeincludes continued investment in our
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Leadership Brands, with a focus on growing them through consumer-centric innovation, expanding them more aggressively outside the United States,U.S., and adding new brands through acquisition. We anticipateare building further shared service capability and operating efficiency, as well as focusing on attracting, retaining, unifying and training the best people.
Additionally, we are continuing to enhance and consolidate our Environmental, Social and Governance (“ESG”) efforts and accelerate programs related to Diversity, Equity, and Inclusion (“DE&I”) to support our Phase II transformation. See further discussion below of our initiatives in these areas.
Consistent with our strategy of focusing resources on our Leadership Brands, during the fourth quarter of fiscal 2020, we committed to a plan to divest certain assets within our Beauty segment's mass channel personal care business, which included liquid, powder and aerosol products under brands such as Pert, Brut, Sure and Infusium (“Personal Care”). On June 7, 2021, we completed the sale of our North America Personal Care business to HRB Brands LLC, for $44.7 million in cash and recognized a gain on the sale in selling, general and administrative expense (“SG&A”) totaling $0.5 million. Subsequent to our fiscal 2022 year end, on March 25, 2022, we completed the sale of the Latin America and Caribbean Personal Care businesses to HRB Brands LLC, for $1.8 million in cash. The net assets sold included intangible assets, inventory, certain net trade receivables, fixed assets and certain accrued sales discounts and allowances relating to our Personal Care business. Accordingly, we continued to classify the identified net assets of the Latin America and Caribbean Personal Care businesses as held for sale in our fiscal 2022 consolidated balance sheet.
Subsequent to our fiscal 2022 year end, on April 22, 2022, we completed the acquisition of Recipe Products Ltd., a producer of innovative prestige hair care products for all types of curly and wavy hair under the Curlsmith brand (“Curlsmith”). The total purchase consideration, net of cash acquired, was $150.0 million in cash, subject to certain customary closing adjustments. The acquisition was funded with cash on hand and borrowings under our existing revolving credit facility.
On December 29, 2021, we completed the acquisition of Osprey, a longtime U.S. leader in technical and everyday packs, for $410.9 million in cash, net of a preliminary closing net working capital adjustment and cash acquired. Osprey is highly respected in the outdoor industry with a product lineup that includes a wide range of backpacks and daypacks for hiking, mountaineering, skiing, climbing, mountain biking, trail running, commuting, and school, as well as rugged adventure travel packs, wheeled luggage, and travel accessories. The acquisition of Osprey complements our outdoor platform, accelerates our international strategy and adds a 9th Leadership Brand to the Company.
On January 23, 2020, we completed the acquisition of Drybar Products LLC ("(“Drybar Products"Products”), for approximately $255.9 million in cash, subject to certain customary closing adjustments.cash. Drybar Products is a fast-growing,an innovative, trend-setting prestige hair care and styling brand. As partbrand in the multibillion-dollar beauty industry.
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Our Products
The following table summarizes the types of products we sell by business segment:
| Segment | Product Category | Primary Products | ||||||||||||
| Home & Outdoor | Food Preparation and Storage | Food preparation tools and gadgets, food storage containers and storage and organization products | ||||||||||||
| Coffee and Tea | Coffee makers, grinders, manual pour overs and tea kettles | |||||||||||||
| Cleaning and Bath | Household cleaning products, shower organization and bathroom accessories | |||||||||||||
| Infant and Toddler | Feeding and drinking products, child seating, cleaning tools and nursery accessories | |||||||||||||
| Hot and Cold Beverage Containers and Food Transport and Storage Solutions | Insulated hydration bottles, hydration packs, drinkware, mugs, food containers, lunch containers, insulated totes, soft coolers and accessories | |||||||||||||
| Backpacks and Gear | Technical and outdoor sports packs, hydration packs, travel packs, luggage, daypacks and everyday packs | |||||||||||||
| Health & Wellness | Healthcare | Thermometers, blood pressure monitors, pulse oximeters, nasal aspirators and humidifiers | ||||||||||||
| Wellness | Faucet mount water filtration systems and pitcher-based water filtration systems, air purifiers, heaters, and fans | |||||||||||||
| Beauty | Appliances and Accessories | Mass, professional and prestige market hair appliances, grooming brushes, tools and decorative hair accessories | ||||||||||||
| Personal and Hair Care (1) | Prestige market shampoos, liquid hair styling products, treatments and conditioners | |||||||||||||
(1)During the fourth quarter of fiscal 2020, we committed to a plan to divest certain assets within our mass market personal care business. The assets to be disposed of include intangible assets, inventory and fixed assets relating toPersonal Care business, which included our mass channel liquids,liquid, powder and aerosol products under brands such as Pert, Brut, Sure and Infusium.products. During fiscal 2022, we completed the sale of our North America Personal Care business. We expectcontinued to classify the divestiture to occur within fiscal 2021. Accordingly, we have classified the identified net assets of the disposal groupLatin America and Caribbean Personal Care businesses as held for sale. The planSubsequent to divest these assets advances our strategyfiscal 2022 year end, on March 25, 2022, we completed the sale of the Latin America and Caribbean Personal Care businesses. For additional information see Note 4 to focus our resources on our Leadership Brands.the accompanying consolidated financial statements.
Our ProductsTrademarks
We market products under a number of trademarks that we own and sell certain of our products under trademarks licensed from third parties. We believe our principal trademarks, both owned and licensed, have high levels of brand name recognition among retailers and consumers throughout the world. Through our favorable partnerships with our licensors, we believe we have developed stable, enduring relationships that provide access to unique brands that complement our owned and internally developed trademarks.
The Beauty and Health & HomeWellness segments rely on the continued use of trademarks licensed under various agreements for a substantial portion of their net sales revenue. New product introductions under licensed trademarks require approval from the respective licensors. The licensors must also approve the
product packaging. ManySome of our license agreements require us to pay minimum royalties, meet minimum sales volumesroyalties.
During fiscal 2022, we sold our Pert, Sure and some require usInfusium trademarks in connection with the sale of our North America Personal Care business. Subsequent to make minimum levelsour fiscal 2022 year end, on March 25, 2022, we sold our Brut trademark in connection with the sale of advertising expenditures.our Latin America and Caribbean Personal Care businesses.
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The following table lists our key trademarks by segment:
| Segment | Owned | Licensed | ||||||||||||
| OXO, Good Grips, Hydro Flask, Soft Works, OXO tot, OXO Brew, OXO Strive, OXO Outdoor, Osprey | ||||||||||||||
| Health & | PUR | Honeywell, Braun, Vicks | ||||||||||||
| Beauty | Drybar, Hot Tools | Revlon, Bed Head | ||||||||||||
Patents and Other Intellectual Property
We maintain utility and design patents in the United StatesU.S. and several foreign countries. We also protect certain details about our processes, products and strategies as trade secrets, keeping confidential the information that we believe provides us with a competitive advantage.
Sales and Marketing
We currently market our products in over 95 countries throughout the world. Sales within the United StatesU.S. comprised approximately 79%, 78% of total net sales revenue in fiscal 2022 and 79% of total net sales revenue in both fiscal 2020, 20192021 and 2018, respectively.2020. Our segments primarily sell their products through mass merchandisers, drugstore chains, warehouse clubs, home improvement stores, grocery stores, specialty stores, beauty supply retailers, e-commerce retailers, wholesalers, and various types of distributors, as well as directly to consumers. We collaborate extensively with our retail customers and, in many instances, produce specific versions of our product lines with exclusive designs and packaging for their stores, which are appropriately priced for their respective customer bases. We market products principally through the use of outside sales representatives and our own internal sales staff, supported by our internal marketing, category management, engineering, creative services, and customer and consumer service staff. These groups work closely together to develop pricing and distribution strategies, to design packaging and to help develop product line extensions and new products.
Research and Development
Our research and development activities focus on new, differentiated and innovative products designed to drive sustained organic growth. We continually invest to strengthen our product design and research and development capabilities, including extensive studystudies to gain consumer insight.insights. Research and development expenses consist primarily of salary and employee benefit expenses and contracted development and testing efforts associated with development of products.
Manufacturing and Distribution
We contract with unaffiliated manufacturers, primarily in China, Mexico and Mexico,Vietnam, to manufacture a significant portion of our finished goods for the Home & Outdoor and Health & Wellness segments and our Beauty appliances and accessories Housewares, Healthcare, Water Filtration,product category. The personal and Home Environment product categories. The North American region of the personalhair care category of the Beauty segment sources most of its products from U.S. manufacturers. Finished goods manufactured by vendors in the Far EastAsia comprised approximately 76%88%, 74%80% and 74%76% of finished goods purchased for fiscal 2022, 2021 and 2020, 2019 and 2018, respectively.
We occupy owned and leased office and distribution space in various locations to support our operations. These facilities include our U.S. headquarters in El Paso, Texas, and distribution centers in Southaven, Mississippi, and Olive Branch, Mississippi, which are used to support a significant portion of our domestic distribution. We are currently constructing an additional distribution facility in Gallaway, Tennessee that we expect to be operational by the end of fiscal year 2023.
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Customers
Sales to our largest customer, Amazon.com Inc., accounted for approximately 18%19%, 16%20% and 13%18% of our consolidated net sales revenue in fiscal 2020, 20192022, 2021 and 2018,2020, respectively. Sales to our second largest customer,
Walmart, Inc., including its worldwide affiliates, accounted for approximately 14%11%, 16%13% and 17%14% of our consolidated net sales revenue in fiscal 2020, 20192022, 2021 and 2018,2020, respectively. Sales to our third largest customer, did not accountTarget Corporation, accounted for 10% or moreapproximately 11%, 11% and 9% of our consolidated net sales revenue in fiscal 2020, however, did account for 10% of our consolidated net sales revenue in fiscal 20192022, 2021 and 2018,2020, respectively. No other customers accounted for 10% or more of consolidated net sales revenue during thosethese fiscal years. Sales to our top five customers accounted for approximately 50%49%, 51%52% and 49%50% of our consolidated net sales revenue in fiscal 2022, 2021 and 2020, 2019 and 2018, respectively.
Order Backlog
When placing orders, our individual consumer, retail and wholesale customers usually request that we ship the related products within a short time frame. As such, there usually is no significant backlog of orders in any of our distribution channels.
Seasonality
| SEASONALITY AS A PERCENTAGE OF ANNUAL NET SALES REVENUE | ||||||
| Fiscal Years Ended Last Day of February | ||||||
| Fiscal Quarter Ended | 2020 | 2019 | 2018 | |||
| May | 22.0 | % | 22.7 | % | 22.0 | % |
| August | 24.2 | % | 25.2 | % | 23.3 | % |
| November | 27.8 | % | 27.6 | % | 28.5 | % |
| February | 26.0 | % | 24.5 | % | 26.2 | % |
| Fiscal Quarters Ended Last Day of Month | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| May | 24.3 | % | 20.0 | % | 22.0 | % | |||||||||||
| August | 21.4 | % | 25.3 | % | 24.2 | % | |||||||||||
| November | 28.1 | % | 30.4 | % | 27.8 | % | |||||||||||
| February | 26.2 | % | 24.3 | % | 26.0 | % | |||||||||||
Our sales are seasonal due to different calendar events, holidays and seasonal weather patterns. Historically, the third fiscal quarter produces the highest net sales revenue during the fiscal year.
Competitive Conditions
We generally sell our products in markets that are very competitive and mature. Our products compete against similar products of many large and small companies, including well-known global competitors. In many of the markets and industry segments in which we sell our products we compete against other branded products as well as retailers' private-label brands. We believe that we have certain key competitive advantages, such as well recognized brands, engineering expertise and innovation, sourcing and supply chain know-how, and productive co-development relationships with our Far East manufacturers. We support our products with advertising, promotions and other marketing activities, as well as an extensive sales force in order to build awareness and to encourage new consumers to try our brands and products. We are well positioned in the industry segments and markets in which we operate, often holding a leadership or significant market share position. We believe these advantages allow us to bring our retailers a differentiated value proposition.
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The following table summarizes our primary competitors by business segment:
| Segment | Competitor | |||||||
| Lifetime Brands, Inc. (KitchenAid), Newell Brands Inc., Simple Human LLC, Yeti Holdings, Inc. | ||||||||
| Health & | Exergen Corporation, Omron Healthcare, Inc., Crane Engineering, Newell Brands, Inc., Lasko Products, | |||||||
| Beauty | Conair, Spectrum Brands Holdings Inc. (Remington), | |||||||
Environmental and Health and Safety Matters
Our operations are subject to national, state, local, and provincial jurisdictions’ environmental, health and safety laws and regulations.regulations and industry-specific product certifications. Many of the products we sell are subject to a number of product safety laws
and regulations in various jurisdictions. These laws and regulations specify the maximum allowable levels of certain materials that may be contained in our products, provide statutory prohibitions against misbranded and adulterated products, establish ingredients and manufacturing procedures for certain products, specify product safety testing requirements, and set product identification, labeling and claim requirements. For example, some of our Beauty segment’s customers require that our Beauty appliances comply with various safety certifications, including UL certifications. Similarly, thermometers distributed by our Health & Wellness segment must comply with various regulations governing the production and distribution of medical devices. Additionally, some product lines within our Health & Wellness segment are subject to product identification, labeling requirements.and claim requirements, which are monitored and enforced by regulatory agencies, such as the U.S. Environmental Protection Agency (the “EPA”), U.S. Customs and Border Protection, the U.S. Food and Drug Administration, and the U.S. Consumer Product Safety Commission.
During fiscal 2022, we were in discussions with the EPA regarding the compliance of packaging claims on certain of our products in the air and water filtration categories and a limited subset of humidifier products within the Health & Wellness segment that are sold in the U.S. The EPA did not raise any product quality, safety or performance issues. As a result of these packaging compliance discussions, we voluntarily
implemented a temporary stop shipment action across this line of products in the U.S. as we worked with
the EPA towards an expedient resolution. The EPA approved modest changes to our labeling claims on packaging of the air and water filtration impacted products, which we implemented, and subsequently resumed shipping during fiscal 2022. Our consolidated and Health & Wellness segment’s net sales revenue, gross profit and operating income during fiscal 2022 was materially and adversely impacted by the stop shipment actions and the time needed to execute repackaging plans after changes were approved by the EPA. While we have resumed normalized levels of shipping of the affected inventory, we are still in process of repackaging our existing inventory of impacted products. Additionally, as a result of continuing dialogue with the EPA, we are executing further repackaging and relabeling plans on certain additional humidifier products and certain additional air filtration products. If we are not able to execute our repackaging plans on schedule to meet demand, our net sales revenue, gross profit and operating income could continue to be materially and adversely impacted. At this time, we are not aware of any fines or penalties related to this matter imposed against us by the EPA. While we do not anticipate material fines or penalties, there can be no assurances that such fines or penalties will not be imposed.
During fiscal 2022, we recorded a $13.1 million charge to cost of goods sold to write-off the obsolete packaging for the affected products in our inventory on-hand and in-transit as of the end of the first quarter of fiscal 2022. During fiscal 2022, we incurred additional compliance costs of $19.3 million, comprised of $14.6 million of incremental warehouse storage costs and legal fees, which were recognized in SG&A, and $4.7 million of storage, obsolete packaging and other charges from vendors, which were recognized in cost of goods sold. These charges are referred to throughout this Annual Report as “EPA compliance costs.” In addition, during fiscal 2022, we incurred and capitalized into
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inventory costs to repackage a portion of our existing inventory of the affected products and expect to continue to incur and capitalize such costs as we continue to repackage inventory. We also expect to incur additional compliance costs, which may include incremental freight, warehouse storage costs, charges from vendors, and legal fees, among other things. Such potential incremental EPA compliance costs will be expensed as incurred and could materially and adversely impact our consolidated and Health & Wellness segment’s gross profit and operating income. In addition, our net sales revenue could be materially and adversely impacted by customer returns, an increase in sales discounts and allowances and by the potential impact of distribution losses at certain retailers.
An emerging trend with both governmentsgovernmental and ournon-governmental organizations, consumers, shareholders, retail customers, communities, and other stakeholders is increased focus and expectations on ESG matters. These trends have led to, prescribeamong other things, increased public and private social accountability reporting requirements regardingrelating to labor practices, climate change, human trafficking and other ESG matters and greater demands on our worldwide business activities.packaging and products. In our product space, some requirements have already been mandated and we believe others may become required in the future. Examples of current requirements include conflict minerals content reporting, customer reporting of foreign fair labor practices in connection with our supply chain vendors, and evaluating the risks of human trafficking and slavery.
We believe that we are in material compliance with these laws, regulations and other reporting requirements. Further, the cost of maintaining compliance has not had a material adverse effect on our business, consolidated results of operations and consolidated financial condition, nor do we expect it to do so in the foreseeable future. Due to the nature of our operations and the frequently changing nature of compliance and social reporting standards and technology, we cannot predict with any certainty thatwhat future material capital or operating expenditures, if any, will not be required in order to comply with applicable laws, regulations and other reporting mandates. Further, any failure to achieve our ESG goals or a perception of our failure to act responsibly or to effectively respond to new, or changes in, legal or regulatory requirements relating to ESG concerns could adversely affect our business, financial condition, results of operations and reputation.
ESG Initiatives
We seek to maintain best-in-class level of corporate governance on behalf of our stakeholders, including our associates, customers, consumers, communities, and shareholders. We also recognize the importance of environmental and social factors related to how we operate our business. We are continuing to enhance and consolidate our ESG efforts and accelerate programs related to DE&I to support our Phase II transformation.
The Corporate Governance Committee of our Board of Directors has oversight of ESG-related matters, including climate change risks and opportunities. Our ESG Task Force, which includes associate representatives from our business segments and global shared services, leads the development and implementation of our strategic ESG plan with the goal of aligning our ESG performance with relevant standards, such as the Sustainability Accounting Standards Board (“SASB”) and the Task Force on Climate Finance Disclosures (“TCFD”). In June 2021, we published our first ESG Report, which aligns with relevant standards such as the SASB, the TCFD and the Global Reporting Initiative. Our ESG Report summarizes our ESG strategy and performance, including in the areas of climate change, DE&I and human capital, and environmental and natural capital management. Information in our ESG Report is not part of this Annual Report or any other report we file with, or furnish to, the Securities and Exchange Commission (“SEC”), except as expressly set forth by specific reference in such a filing.
We are working to implement a system to minimize negative impacts of our practices on the environment and continue to work on initiatives to reduce emissions in our supply chain and product use. As part of these efforts and in order to strengthen our support of climate action, we became a signatory of We Mean Business, a coalition of organizations and businesses with a goal of catalyzing business action to accelerate the transition to a zero-carbon economy. With our participation in this coalition, we intend to
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(1) report climate change data and measures to the Carbon Disclosure Project aligned with the guidelines of the TCFD, (2) implement a responsible climate policy, and (3) develop targets which were approved in October 2021 by the Science Based Targets initiative.
We will also continue to advance our DE&I efforts as part of our ESG initiatives to support our focus on attracting and retaining top talent, and to help promote a work environment where everyone has the opportunity to grow to their fullest potential. We believe progress on our ESG initiatives will have a positive impact on our shareholders, consumers, customers, our talented worldwide associates and the communities in which we are proud to live and work.
Human Capital
Overview
We are committed to fostering a positive and engaging culture of inclusion, care, and support where all people throughout our global workforce can thrive. Resources provided to enhance associates' “total well-being” include learning and development opportunities, charitable leave policy, financial advice and stock purchase programs, health and wellness programs, and product discounts. Perks and benefits vary by region and office. We also monitor our culture and associate engagement through a number of methods, including periodic culture surveys.
We have a performance evaluation and feedback program for all of our associates. We encourage career planning at all levels of the Company. We have a formal system for identifying and developing talent and growth for associates within our organization and support the creation of development and succession plans across key positions in the Company. Our senior leadership team develops and recommends to the Board of Directors succession plans for all of our senior management.
We believe our culture, fair pay, benefits, rewards and recognition, healthy-living initiatives, collaborative projects, and open communication between management and staff enables us to attract and retain talented associates.
Our Associates
As of February 29, 2020,28, 2022, we employed approximately 1,6502,146 full-time employeesassociates worldwide. We also use temporary, part-time and seasonal employeesassociates as needed.
None of our U.S. employeesassociates are covered by a collective bargaining agreement. Certain of our employeesassociates in Europe and Vietnam are covered by collective arrangements or works counsel in accordance with local practice. We have never experienced a work stoppage, and we believe that we have satisfactory working relations with our employees.associates.
DE&I
We believe that a diverse workforce is essential to innovation, growth, and the well-being of our associates. We celebrate the diversity of our people and value the unique perspectives they bring. We are committed to cultivating an inclusive culture where all of our associates can thrive.
We are advancing short- and long-term initiatives which include: leadership coaching and training to build awareness and sponsorship, recruitment actions to increase diversity of new hires, associate learning programs to develop skills that foster inclusion, business resource groups to further support inclusion, ongoing dialogue sessions with our associates and charitable donations to non-profit organizations whose mission and values align with our culture.
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Communities
We have a 50-plus-year tradition of supporting the communities where we live and work through charitable donations from both the Company and its associates. In addition, we provide our associates two paid community service days to donate their time to organizations that matter most to them. We believe our community engagement and good corporate citizenship will lead to stronger communities and shared success for our Company.
Available Information
We maintain our main Internet site at: http://www.helenoftroy.com. The information contained on this website is not included as a part of, or incorporated by reference into, this report.Annual Report. We make available on or through our main website’s Investor Relations page under the heading “SEC“Financials - SEC Filings” certain reports and amendments to those reports that we file with, or furnish to, the SEC in accordance with the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, our proxy statements on Schedule 14A, amendments to these reports, and the reports required under Section 16 of the Exchange Act of transactions in our common stock by directors and officers. We make this information available on our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC. The SEC maintains a website at https://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Also, on the Investor Relations page, under the heading “Corporate Governance,“Governance,” are our Code of Ethics, Code of Conduct, Corporate Governance Guidelines and the Charters of the Committees of the Board of Directors.
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Item 1A. Risk Factors
Carefully consider the risks described below and all of the other information included in our report on Form 10-KAnnual Report when deciding whether to invest in our securities or otherwise evaluating our business. If any of the following risks or other events or circumstances described elsewhere in this reportAnnual Report materialize, our business, operating results or financial condition may suffer. In this case, the trading price of our common stock and the value of your investment might significantly decline. The risks listed below are not the only risks that we face. Additional risks unknown to us or that we currently believe are insignificant may also affect our business.
You should also refer to the explanation of the qualifications and limitations on forward-looking statements under “Information Regarding Forward-Looking Statements,” at the end of Item 7., “Management's Discussion and Analysis of Financial Condition and Results of Operations.” All forward-looking statements made by us are qualified by the risk factors described below.
The following is a summary of some of the principal risk factors which are more fully described below.
Business, Operational and Strategic Risks
•The occurrence of cyber incidents, or failure by us or our third-party service providers to maintain cybersecurity and the integrity of confidential internal or customer data could have a material adverse effect on our operations and profitability.
•A cybersecurity breach, obsolescence or interruptions in the operation of our central global Enterprise Resource Planning systems and other peripheral information systems could have a material adverse effect on our operations and profitability.
•The geographic concentration and peak season capacity of certain of our U.S. distribution facilities increase our risk to disruptions that could affect our ability to deliver products in a timely manner.
•Our ability to successfully manage the demand, supply, and operational challenges associated with the actual or perceived effects of COVID-19 and any similar future public health crisis, pandemic or epidemic.
•To compete successfully, we must develop and introduce a continuing stream of innovative new products to meet changing consumer preferences.
•Our operating results are dependent on sales to several large customers; furthermore, our large customers may take actions that adversely affect our gross profit and operating results.
•We are dependent on third-party manufacturers, most of which are located in Asia, and any inability to obtain products from such manufacturers could have a material adverse effect on our business, operating results and financial condition.
•Our ability to deliver products to our customers in a timely manner and to satisfy our customers’ fulfillment standards are subject to several factors, some of which are beyond our control.
•Our operating results may be adversely affected by trade barriers, exchange controls, expropriations, and other risks associated with domestic and foreign operations including uncertainty and business interruptions resulting from political changes and actions in the U.S. and abroad, such as the current conflict between Russia and Ukraine, and volatility in the global credit and financial markets and economy.
•We are subject to risks related to our dependence on the strength of retail economies and may be vulnerable in the event of a prolonged economic downturn.
•We are subject to risks associated with the use of licensed trademarks from or to third parties.
•Our business is subject to weather conditions, the duration and severity of the cold and flu season and other related factors.
•We rely on our Chief Executive Officer and a limited number of other key senior officers to operate our business.
•We may be unsuccessful integrating acquired businesses or disaggregating divested businesses.
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Legal, Regulatory and Tax Risks
•Changes in laws and regulations, including environmental, employment and health and safety and tax laws, and the costs and complexities of compliance with such laws could have a material adverse impact on our business.
•We face risks associated with the increased focus and expectations on climate change and other environmental, social and governance matters.
•Significant changes in or our compliance with regulations, interpretations or product certification requirements could adversely impact our operations.
•We face risks associated with global legal developments regarding privacy and data security that could result in changes to our business practices, penalties, increased cost of operations, or otherwise harm our business.
•Under current tax law, favorable tax treatment of our non-U.S. income is dependent on our ability to avoid classification as a Controlled Foreign Corporation.
•Legislation enacted in Bermuda and Barbados in response to the European Union’s review of harmful tax competition could adversely affect our operations.
•Our judgments regarding the accounting for tax positions and the resolution of tax disputes may impact our net earnings and cash flow.
•All of our products are manufactured by unaffiliated manufacturers, most of which are located in China, Mexico and Vietnam; we face risks of significant tariffs or other restrictions being placed on imports from China, Mexico or Vietnam or any retaliatory trade measures taken by China, Mexico or Vietnam, adversely impacting our business.
•We face risks associated with product recalls, product liability and other claims against us.
Financial Risks
•If our goodwill, indefinite-lived and definite-lived intangible assets, or other long-lived assets become impaired, we will be required to record impairment charges, which may be significant.
•Increased costs of raw materials, energy and transportation may adversely affect our operating results and cash flow.
•Our liquidity or cost of capital may be materially adversely affected by constraints or changes in the capital and credit markets and limitations under our financing arrangements.
•We face risks associated with foreign currency exchange rate fluctuations.
•Our projections of product demand, sales and net income are highly subjective in nature and our future sales and net income could vary in a material amount from our projections.
You should carefully consider this summary with the more detailed descriptions of risks described below and all of the other information included in our Annual Report when deciding whether to invest in our securities or otherwise evaluating our business.
Business, Operational and Strategic Risks
The occurrence of cyber incidents, or failure by us or our third-party service providers to maintain cybersecurity and the integrity of confidential internal or customer data could have a material adverse effect on our operations and profitability. Such incidents may also result in faulty business decisions, operational inefficiencies, damage to our reputation or our associate and business relationships, and/or subject us to costs, fines, or lawsuits.
Information systems require constant updates to their security policies, networks, software, and hardware systems to reduce the risk of unauthorized access, malicious destruction of data or information theft. We rely on commercially available systems, software, tools, third-party service providers and monitoring to provide security for processing, transmission and storage of confidential information and data. While we have security measures in place, our systems, networks, and third-party service providers have been and
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will continue to be subject to ongoing threats. We and our third-party service providers have experienced and expect to continue to experience actual or attempted cyber-attacks of our information systems or networks; however, none of these actual or attempted cyber-attacks had a material impact on our operations or financial condition. Our security measures may also be breached in the future as a result of associate error, failure to implement appropriate processes and procedures, advances in computer and software capabilities and encryption technology, new tools and discoveries, malfeasance, third-party action, including cyber-attacks or other international misconduct by computer hackers or otherwise. Additionally, we may have heightened cybersecurity, information security and operational risks as a result of work-from-home arrangements. Our workforce is in a state of transition to a combination of remote work and flexible work schedules opening us up for cybersecurity threats and potential breaches as a result of increased employee usage of networks other than company-managed. Furthermore, due to geopolitical tensions related to the current conflict between Russia and Ukraine, the risk of cyber-attacks may be elevated. This could result in one or more third-parties obtaining unauthorized access to our customer or supplier data or our internal data, including personally identifiable information, intellectual property and other confidential business information. Third-parties may also attempt to fraudulently induce associates into disclosing sensitive information such as user names, passwords or other information in order to gain access to customer or supplier data or our internal data, including intellectual property, financial, and other confidential business information. We believe our mitigation measures reduce but cannot eliminate the risk of a cyber incident; however, there can be no assurance that our existing and planned precautions of backup systems, regular data backups, security protocols and other procedures will be adequate to prevent significant damage, system failure or data loss and the same is true for our partners, vendors and other third parties on which we rely. Because techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative or mitigation measures. Though it is difficult to determine what harm may directly result from any specific interruption or breach, any failure to maintain performance, reliability, security and availability of our network infrastructure or otherwise maintain the confidentiality, security, and integrity of data that we store or otherwise maintain on behalf of third-parties may harm our reputation and our associate, customer and consumer relationships.
If such unauthorized disclosure or access does occur, we may be required to notify our customers, consumers, associates or those persons whose information was improperly used, disclosed or accessed. We may also be subject to claims of breach of contract for such use or disclosure, investigation and penalties by regulatory authorities and potential claims by persons whose information was improperly used or disclosed. We could also become the subject of regulatory action or litigation from our consumers, customers, associates, suppliers, service providers, and shareholders, which could damage our reputation, require significant expenditures of capital and other resources, and cause us to lose business and revenue. Additionally, an unauthorized disclosure or use of information could cause interruptions in our operations and might require us to spend significant management time and other resources investigating the event and dealing with local and federal law enforcement. Regardless of the merits and ultimate outcome of these matters, we may be required to devote time and expense to their resolution.
In addition, the increase in the number and the scope of data security incidents has increased regulatory and industry focus on security requirements and heightened data security industry practices. New regulation, evolving industry standards, and the interpretation of both, may cause us to incur additional expense in complying with any new data security requirements. As a result, the failure to maintain the integrity of and protect customer or supplier data or our confidential internal data could have a material adverse effect on our business, operating results and financial condition.
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We rely on central global Enterprise Resource Planning (“ERP”) systems and other peripheral information systems. A cybersecurity breach, obsolescence or interruptions in the operation of our computerized systems or other information technologies could have a material adverse effect on our operations and profitability.
Our operations are largely dependent on our ERP system. We continuously make adjustments to improve the effectiveness of the ERP and other peripheral information systems, including the installation of significant new subsystems. Our ERP system is subject to continually evolving cybersecurity and technological risks, including risks associated with cloud data storage. Any failures or disruptions in the ERP and other information systems, including a cybersecurity breach, or any complications resulting from ongoing adjustments to our systems could cause interruption or loss of data in our information or logistical systems that could materially impact our ability to procure products from our factories and suppliers, transport them to our distribution centers, and store and deliver them to our customers on time and in the correct amounts. In addition, natural disasters or other extraordinary events may disrupt our information systems and other infrastructure, and our data recovery processes may not be sufficient to protect against loss.
Certain of our U.S. distribution facilities are geographically concentrated and operate during peak shipping periods at or near capacity. These factors increase our risk that disruptions could occur and significantly affect our ability to deliver products to our customers in a timely manner. Such disruptions could have a material adverse effect on our business.
Most of our U.S. distribution, receiving and storage functions are consolidated into two distribution facilities in northern Mississippi. Approximately 67% of our consolidated gross sales volume shipped from facilities in this region in fiscal 2022. For this reason, any disruption in our distribution process in either of these facilities, even for a few days, could adversely affect our business, operating results and financial condition. As examples, government mandated or suggested isolation protocols relating to a pandemic or other public health crisis, or severe weather events, could limit or disrupt the distribution process at either facility, or even cause the closure of either facility, which could have a material adverse effect on our business, operating results and financial condition.
Additionally, our U.S. distribution operations may incur capacity constraints during peak shipping periods as we continue to grow our sales revenue through a combination of organic growth and acquisitions. These and other factors described above could cause delays in the delivery of our products and increases in shipping and storage costs that could have a material and adverse effect on our business, operating results and financial condition.
We expect the currentcontinuing public health crisis resulting from the outbreak of novel coronavirus disease (commonly referred to as "COVID-19"“COVID-19”) to continue to adversely impact certain parts of our business, which has had and could continue to have a material impact on our operating results and financial condition. We must successfully manage the demand, supply, and operational challenges associated with the actual or perceived effects of COVID-19 and any similar future public health crisis, pandemic or epidemic.
In response to a public health crisis, national, state and local authorities may implement a variety of measures to limit the spread of a disease, such as travel restrictions, social distancing or imposing quarantine and isolation measures on the population. The impacts of a public health crisis may include, but are not limited to:
COVID-19 pandemic is also impacting our third-party manufacturers, most of which are located in the Far East,Asia, principally China. As a result, COVID-19 has disrupted certain parts of our supply chain, which in certain cases, limited our ability to fulfill demand and may limit our ability to fulfill demand in the future. Additionally, surges in demand and shifts in shopping patterns related to COVID-19, as well as other factors, have
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strained the global freight network, which is resulting in higher costs, less capacity, and longer lead times. Demand for Chinese imports has caused shipment receiving and unloading backlogs at many U.S. ports that have been unable to keep pace with unprecedented inbound container volume. The situation has been further exacerbated by COVID-19 illness and protocols at many port locations. Due to the backlog and increasing trade imbalance with China, many shipping containers are not being sent back to China, or are being sent to China empty. With continued increases in demand for containers, limited supply and freight vendors bearing the cost of shipping empty containers, the market cost of inbound freight has increased by several multiples compared to calendar year 2020 averages. During fiscal 2022, we were adversely impacted by COVID-19 related global supply chain disruptions and cost increases. Similar effects could arise in the future. In addition to increasing cost trends, our third party manufacturing partners are not equipped to hold meaningful amounts of inventory and if shipping container capacity remains limited or unavailable, they could pause manufacturing, which could ultimately impact our ability to meet consumer demand on a timely basis. These factors may impact our ability to fulfill some orders on a timely basis.
Demand for raw materials, components and semiconductor chips impacted by the supply chain challenges described above has created surges in prices and shortages of these materials may become more significant which could further increase our costs. Further, in the U.S., the surge in demand for labor along with COVID-19 related government stimulus payments and rising hourly labor wages, have created labor shortages and higher labor costs. The majority of our hourly labor is employed in our distribution centers and these factors may increase our costs and negatively impact our ability to attract and retain qualified associates.
The extent of the future impact of COVID-19 on our business and financial results will depend largely on future developments, including the duration of the continued surges in the spread of the COVID-19 outbreak within the U.S. and globally, the effectiveness of any vaccines for COVID-19, the impact on capital and financial markets and the related impact on consumer confidence and spending. These future developments are outside of our control, are highly uncertain and cannot be predicted. If the impact is prolonged, then it canpredicted and may further increase the difficulty of planning for operations.
The impacts and potential future impact of COVID-19 described above, failure of third parties on which we rely and significant adverse changes in the political environment in which we manufacture, sell or distribute our products, all could adversely impact our business if a future public health crisis, pandemic or epidemic were to occur.
To compete successfully, we must develop and introduce a continuing stream of innovative new products to meet changing consumer preferences.
Our long-term success in the competitive retail environment depends on our ability to develop and commercialize a continuing stream of innovative new products that meet changing consumer preferences and take advantage of opportunities sooner than our competition. We face the risk that our competitors will introduce innovative new products that compete with our products. There are numerous uncertainties inherent in successfully developing and commercializing new products on a continuing basis and new product launches may not deliver expected growth in sales or operating income. If we are unable to develop and introduce a continuing stream of competitive new products, it may have an adverse effect on our business, operating results and financial condition.
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Large customers may take actions that adversely affect our gross profit and operating results.
With the continuing trend towards retail trade consolidation, we are increasingly dependent upon key customers whose bargaining strength is substantial and growing. We may be negatively affected by changes in the policies of our customers, such as actions to respond to a public health crisis, on-hand inventory reductions, limitations on access to shelf space, use of private label brands, price and term demands, and other conditions, which could negatively impact our business, operating results and financial condition.
Certain of our customers source and sell products under their own private label brands that compete with our products. Additionally, as large traditional retail and online customers grow even larger and become more sophisticated, they may continue to demand lower pricing, special packaging, shorter lead times for the fulldelivery of products, smaller more frequent shipments, or impose other requirements on product suppliers. These business demands may relate to inventory practices, logistics or other aspects of the customer-supplier relationship. If we do not effectively respond to these demands, these customers could decrease their purchases from us. A reduction in the demand for our products by these customers and the costs of complying with their business demands could have a material adverse effect on our business, operating results and financial condition.
Our operating results are dependent on sales to several large customers and the loss of, or substantial decline in, sales to a top customer could have a material adverse effect on our revenues and profitability.
A few customers account for a substantial percentage of our net sales revenue. Our financial condition and operating results could suffer if we lost all or a portion of the sales to any one of these customers. In particular, sales to our two largest customers accounted for approximately 30% of our consolidated net sales revenue in fiscal 2021,2022. While only three customers individually accounted for 10% or more of our consolidated net sales revenue in fiscal 2022, sales to our top five customers in aggregate accounted for approximately 49% of fiscal 2022 consolidated net sales revenue. We expect that a small group of customers will continue to account for a significant portion of our net sales revenue. Although we have long-standing relationships with our major customers, we generally do not have written agreements that require these customers to buy from us or to purchase a minimum amount of our products. A substantial decrease in sales to any of our major customers could have a material adverse effect on our financial condition and operating results. Some of our customers creditworthiness may be impactedvulnerable to the impact of COVID-19 or a prolonged economic downturn. We regularly monitor and evaluate the credit status of our customers and attempt to adjust sales terms as appropriate. Despite these efforts, a deterioration in waysthe credit worthiness or bankruptcy filing of a key customer could have a material adverse effect on our business, operating results and financial condition.
We are dependent on third-party manufacturers, most of which are located in Asia, and any inability to obtain products from such manufacturers could have a material adverse effect on our business, operating results and financial condition.
All of our products are manufactured by unaffiliated companies, most of which are in Asia, principally in China. For fiscal 2022, finished goods manufactured in Asia comprised approximately 88% of total finished goods purchased. This concentration exposes us to risks associated with doing business globally, including among others: global public health crises (such as pandemics and epidemics); changing international political relations and conflicts; labor availability and cost; changes in laws, including tax laws, regulations and treaties; changes in labor laws, regulations and policies; changes in customs duties, additional tariffs and other trade barriers; changes in shipping costs; currency exchange fluctuations; local political unrest; an extended and complex transportation cycle; the impact of changing economic conditions; and the availability and cost of raw materials and merchandise. In recent years, increasing labor costs, import tariffs, regional labor dislocations driven by new government policies, local
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inflation, changes in ocean cargo carrier capacity and costs, the impact of energy prices on transportation, and fluctuations in the Chinese Renminbi against the U.S. Dollar have resulted in variability in our cost of goods sold. In the past, certain Chinese suppliers have closed operations due to economic conditions that pressured their profitability. Although we have multiple sourcing partners for certain products, occasionally we may be unable to source certain items on a timely basis due to changes occurring with our suppliers. We believe that we could source similar products outside of China and are moving towards a more diversified supplier base through continuously exploring the expansion of sourcing alternatives in other countries. However, the relocation of any production capacity could require substantial time and costs. The political, legal and cultural environment in Asia is rapidly evolving, and any change that impairs our ability to obtain products from manufacturers in that region, or to obtain products at marketable rates, could have a material adverse effect on our business, operating results and financial condition.
COVID-19 has also disrupted our ability to receive manufactured products from Asia and has disrupted our suppliers located elsewhere who rely on products from Asia. If we continue to experience supply disruptions as a result of the global public health crisis, we may not be able to predict today, including, but not limiteddevelop short-term sourcing alternatives. Any disruption to non-cash write-downsour supply chain, even for a relatively short period of time, could cause a loss of revenue, which could adversely affect our operating results. Additionally, the impact of COVID-19, as well as other factors, has continued to strain the global supply chain network resulting in higher inbound freight costs and asset impairment charges (including impairmentssurges in prices for raw materials, components and semiconductor chips, which has adversely impacted our operating costs. If such trends continue, we may experience further cost increases which could have a material adverse effect on our business, operating results and financial condition.
With most of goodwillour manufacturers located in Asia, our production lead times are relatively long. Therefore, we must commit to production in advance of customer orders. If we fail to forecast customer or consumer demand accurately, we may encounter difficulties in filling customer orders on a timely basis or in liquidating excess inventories. We may also find that customers are canceling orders or returning products. Any of these results could have a material adverse effect on our business, operating results and other indefinite-lived intangible assets).financial condition.
Our ability to deliver products to our customers in a timely manner and to satisfy our customers’ fulfillment standards are subject to several factors, some of which are beyond our control.
Retailers place great emphasis on timely delivery of our products for specific selling seasons, especially during our third fiscal quarter, and on the fulfillment of consumer demand throughout the year. We cannot control all of the various factors that might affect product delivery to retailers. Vendor production delays, difficulties encountered in shipping from overseas, customs clearance delays, and operational issues with any of the third-party logistics providers we use in certain countries are on-going risks of our business. We also rely upon third-party carriers for our product shipments from our distribution centers to customers. In certain circumstances, we rely on the shipping arrangements our suppliers have made in the case of products shipped directly to retailers from the suppliers. Accordingly, we are subject to risks, including labor disputes, inclement weather, public health crises (such as pandemics and epidemics), natural disasters, possible acts of terrorism, port and canal backlogs and blockages, availability of shipping containers, and increased security restrictions associated with the carriers’ ability to provide delivery services to meet our shipping needs. These risks have been exacerbated by surges in demand and shifts in shopping patterns related to COVID-19, which has resulted in carrier-imposed capacity restrictions, carrier delays, and longer lead times for our products. Our third party manufacturing partners are not equipped to hold meaningful amounts of inventory and if shipping container capacity remains limited or unavailable, they could pause manufacturing, which could ultimately impact our ability to meet consumer demand on a timely basis. Further, our delivery process must often accommodate special vendor requirements to use specific carriers and delivery schedules. Failure to deliver products to our retailers in a timely and effective manner could damage our reputation and brands and result in the loss
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of customers or reduced orders, which could have a material adverse effect on our business, operating results and financial condition.
Our operating results may take actions thatbe adversely affected by trade barriers, exchange controls, expropriations, and other risks associated with domestic and foreign operations.
The economies of foreign countries important to our operations, including countries in Asia, EMEA and Latin America, could suffer slower economic growth or economic, social and/or political instability or hyperinflation in the future. Our international operations in countries in Asia, EMEA and Latin America, including manufacturing and sourcing operations (and the international operations of our customers), are subject to inherent risks which could adversely affect our gross profit and operating results.
Furthermore, the exit of the U.K. from European Union (the “EU”) membership (commonly referred to as “Brexit”) could cause disruptions to, and create uncertainty surrounding our business, including affecting our relationships with our existing and future customers, suppliers and associates, which could have an adverse effect on our business, financial results and operations. Recent effects of Brexit include changes in customs regulations, shortages of truck drivers in the policiesU.K., and administrative burdens placed on transportation companies, which have lead to challenges and delays in moving inventory across U.K./EU borders, and higher importation, freight and distribution costs. If such trends continue, we may experience further cost increases. These factors are outside of our customers, such as actionscontrol, but may nonetheless cause us to respondadjust our strategy in order to a public health crisis, on-hand inventory reductions, limitationscompete effectively in global markets.
The domestic and foreign risks of these changes include, among other things:
•protectionist policies restricting or impairing the manufacturing, sales or import and export of our products;
•new restrictions on access to shelf space, usemarkets;
•lack of private label brands, pricerequired infrastructure;
•inflation (including hyperinflation) or recession;
•changes in, and term demands,the burdens and costs of compliance with, a variety of U.S. and foreign laws and regulations, including environmental laws, occupational health and safety laws, tax laws, and accounting standards;
•social, political or economic instability;
•acts of war and terrorism;
•natural disasters and public health crises, such as pandemics and epidemics (including COVID-19);
•reduced protection of intellectual property rights in some countries;
•increases in duties and taxation;
•restrictions on transfer of funds or exchange of currencies;
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•currency devaluations;
•expropriation of assets; and
•other conditions,adverse changes in policies, including monetary, tax or lending policies, encouraging foreign investment or foreign trade by our host countries.
Should any of these events occur, our ability to sell or export our products or repatriate profits could be impaired, we could experience a loss of sales and profitability from our domestic or international operations, and/or we could experience a substantial impairment or loss of assets, any of which could negatively impactmaterially and adversely affect our business, operating results and financial condition.
We are subject to risks related to our dependence on the strength of retail economies and may be vulnerable in the event of a prolonged economic downturn, including a future downturn from the effects of COVID-19.COVID-19 or other public health crises.
Our business depends on the strength of the retail economies in various parts of the world, primarily in North America and to a lesser extent EMEA, Asia and Latin America. These retail economies are affected for the most part by factors such as consumer demand and the condition of the retail industry, which, in turn, are affected by general economic conditions and specific events such as natural disasters, public health crises (such as pandemics and epidemics), terrorist attacks and political unrest. Consumer spending in any geographic region is generally affected by a number of factors, including local economic conditions, government actions, inflation, interest rates, energy costs, unemployment rates, gasoline prices, and consumer confidence, all of which are beyond our control. Consumer purchases of discretionary items tend to decline during recessionary periods, when disposable income is lower, and may impact sales of our products. The COVID-19 pandemic has reduced consumer demand, and is expected to continue to do so. Measures imposed, or that may in the future be imposed, by national, state and local authorities in response to COVID-19 are expected tomay have serious adverse impacts of uncertain severity and duration on domestic and foreign economies. The effectiveness of economic stabilization efforts, including government payments and loans to affected citizens and industries, is uncertain. Some economists are predicting the U.S. may enter a recession as a result of the pandemic. Any sustained economic downturn in the U.S. or any of the other countries in which we conduct significant business, may cause significant readjustments in both the volume and mix of our product sales, which could materially and adversely affect our business, operating results and financial condition.
We rely on saleslicensed trademarks from third parties and license certain trademarks to several large customers andthird parties in exchange for royalty income, the loss of or substantial decline in, sales to a top customerwhich could have a material adverse effect on our revenues and profitability.
A few customers accountsubstantial portion of our sales revenue comes from selling products under licensed trademarks, particularly in the Beauty and Health & Wellness segments. As a result, we are dependent upon the continued use of these trademarks. Additionally, we license certain owned trademarks to third parties in exchange for royalty income. It is possible that certain actions taken by us, our licensors, licensees, or other third parties might diminish greatly the value of any of our licensed trademarks. Some of our licensors and licensees also have the ability to terminate their license agreements with us at their option subject to each parties’ right to continue the license for a substantial percentagelimited period of time following notice of termination. If we, or our net sales revenue. Our financial condition and operating results could suffer if we lost alllicensees, were unable to sell products under these licensed trademarks, or a portion of the sales to any one of these customers. In particular, sales to our two largest customers accounted for approximately 32% of our consolidated net sales revenue in fiscal 2020. While only two customers individually accounted for 10% or more of our consolidated net sales revenue in fiscal 2020, sales to our top five customers in aggregate accounted for approximately 50%license agreements were terminated or the value of fiscal 2020 consolidated net sales revenue. We expect that a small group of customers will continue to account for a significant portion of our net sales revenue. Although we have long-standing relationships with our major customers, we generally do not have written agreements that require these customers to buy from us or to purchase a minimum amount of our products. A substantial decrease in sales to any of our major customers could have a material adversethe trademarks were diminished, the effect on our business, operating results and financial condition could be both negative and material.
Our business is subject to weather conditions, the duration and severity of the cold and flu season and other related factors, which can cause our operating results. We expect that the creditworthiness of some ofresults to vary from quarter to quarter and year to year.
Sales in our customers may be vulnerableHealth & Wellness segment are influenced by weather conditions. Sales volumes for thermometers, humidifiers and heating appliances are higher during, and subject to the impactseverity of, the currentcold weather months, while sales of fans are higher during, and subject to weather conditions in, spring
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and summer months. Weather conditions can also more broadly impact sales across the organization. Additionally, natural disasters (such as wildfires, hurricanes and ice storms), public health crisis. We regularly monitorcrises (such as pandemics and evaluateepidemics), or unusually severe winter weather may result in temporary unanticipated fluctuations in retail traffic and consumer demand, may impact our ability to staff our distribution facilities or could otherwise impede timely transport and delivery of products to and from our distribution facilities. Sales in our Health & Wellness segment are also impacted by cough, cold and flu seasonal trends, including the credit statusduration and severity of our customersthe cold and attempt to adjust sales terms as appropriate. Despite these efforts, a deterioration in the credit worthiness or bankruptcy filing of a key customerflu season. These factors could have a material adverse effect on our business, operating results and financial condition.
We rely on our Chief Executive Officer and a limited number of other key senior officers to operate our business. The loss of any of these individuals could have a material adverse effect on our business.
The loss of our Chief Executive Officer or any of our key senior officers could have a material adverse effect on our business, operating results and financial condition, particularly if we are unable to hire and integrate suitable replacements on a timely basis. Further, as we continue to grow our business, we will continue to adjust our senior management team. If we are unable to attract or retain the right individuals for the team, it could hinder our ability to grow our business and could disrupt our operations or otherwise have a material adverse effect on our business.
Expectations regarding recent acquisitions, and any future acquisitions or divestitures, including our ability to realize related synergies, along with our ability to effectively integrate acquired businesses or disaggregate divested businesses, may adversely affect the price of our common stock.
We continue to look for opportunities to make strategic business and/or brand acquisitions. Additionally, we frequently evaluate our portfolio of business products and may consider divestitures or exits of businesses that we no longer believe to be an appropriate strategic fit. Our financial results could be impacted in the event that changes in the cash flows or other market-based assumptions or conditions cause the value of acquired assets to fall below book value, or we are not able to deliver the expected benefits or synergies associated with acquisition transactions, which could also have an impact on associated goodwill and intangible assets. Any acquisition or divestiture, if not favorably received by
consumers, shareholders, analysts, and others in the investment community, could have a material adverse effect on the price of our common stock.
In addition, any acquisition involves numerous risks, including:
•difficulties in the assimilation of the operations, technologies, products, and personnel associated with the acquisitions;acquisition;
•challenges in integrating distribution channels;
•diversion of management's attention from other business concerns;
•difficulties in transitioning and preserving customer, contractor, supplier, and other important third-party relationships;
•challenges realizing anticipated cost savings, synergies and other benefits related to an acquisition;benefits;
•risks associated with subsequent losses or operating asset write-offs, contingent liabilities and impairment of related acquired intangible assets;
•risks of entering markets in which we have no or limited experience; and
•potential loss of key employees associated with the acquisitions.acquisition.
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Legal, Regulatory and Tax Risks
Changes in laws and regulations, including environmental, employment and health and safety and tax laws, and the costs and complexities of compliance with such laws could have a material adverse impact on our business.
The impact of future legislation in the U.S. or abroad, including such things as employment and health insurance laws, environmental and climate change related legislation, tax legislation, regulations or treaties is always uncertain. Global, federal and local legislative agendas from time to time contain numerous proposals dealing with environmental policy, energy policy, taxes, financial regulation, transportation policy and infrastructure policy, among others that, if enacted into law, could increase our costs of doing business. Changes in government administrations in the U.S. or abroad, increase the uncertainty of future changes in legislation, enhanced regulations, and greater oversight, or more stringent interpretations, of existing policies by regulatory agencies. Changes in such laws, regulations or oversight could cause us to incur material capital or operating expenditures in the future to comply with applicable laws and regulations, increase our effective income tax rate, delay or interrupt distribution of our products, or make them more costly to produce, all of which could have a material adverse impact on our business.
As additional tax or financial regulatory guidance is issued by the applicable authorities and accounting treatment is clarified, we perform additional analysis on the application of the law and we refine our estimates. Our final analysis may be different from provisional amounts, which could materially affect our tax obligations, effective tax rate and operating results in the period completed.
Increased focus and expectations on climate change and other ESG matters could have a material adverse effect on our business, financial condition and results of operations and damage our reputation.
Increased focus and expectations on ESG are emerging trends with governmental and non-governmental organizations, consumers, shareholders, retail customers, communities, and other stakeholders. These trends have led to, among other things, increased public and private social accountability reporting requirements relating to labor practices, climate change, human trafficking and other ESG matters and greater demands on our packaging and products. The increased focus on ESG matters may also lead to new or more regulations and customer, shareholder and consumer demands that could require us to incur additional costs or make changes to our operations to comply with new regulations or address these demands. We expect that these trends will continue. If we are unable to adequately respond to, or we are not perceived as adequately responding to, existing or new requirements or demands, customers and consumers may choose to purchase products from another company or a competitor. Increased requirements and costs to comply with these requirements, such as climate change regulations and international accords may also cause disruptions in or higher costs associated with manufacturing or distributing our products. Any failure to achieve our ESG goals or a perception of our failure to act responsibly or to effectively respond to new, or changes in, legal or regulatory requirements relating to ESG matters could adversely affect our business, financial condition, results of operations and reputation.
Significant changes in or our compliance with regulations, interpretations or product certification requirements could adversely impact our operations.
As a global company, we are subject to U.S. and foreign regulations, including environmental, health and safety laws, and industry-specific product certifications. Many of the products we sell are subject to product safety laws and regulations in various jurisdictions. These laws and regulations specify the maximum allowable levels of certain materials that may be contained in our products, provide statutory prohibitions against misbranded and adulterated products, establish ingredients and manufacturing procedures for certain products, specify product safety testing requirements, and set product
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identification, labeling and claim requirements. For example, thermometers distributed by our Health & Wellness segment must comply with various regulations governing the production and distribution of medical devices.
Significant new regulations, material changes to existing regulations, or greater oversight, enforcement or changes in interpretation of existing regulations, could further delay or interrupt distribution of our products in the U.S. and other countries, result in fines or penalties or cause our costs of compliance to increase. We cannot guarantee that our products will receive regulatory approval in all countries. Similarly, some of our Beauty segment’s customers require that our Beauty appliances comply with various safety certifications, including UL certifications. Significant new certification requirements or changes to existing certification requirements could further delay or interrupt distribution of our products, or make them more costly to produce.
We are not able to predict the nature of potential changes to, or enforcement of laws, regulations, product certification requirements, repeals or interpretations. Nor are we able to predict the impact that any of these changes would have on our business in the future. Further, if we were found to be noncompliant with applicable laws and regulations in these or other areas, we could be subject to governmental or regulatory actions, including fines, import detentions, injunctions, product withdrawals or recalls or asset seizures, any of which could have a material adverse effect on our business, results of operations and financial condition.
Additionally, some product lines within our Health & Wellness segment are subject to product identification, labeling and claim requirements, which are monitored and enforced by regulatory agencies, such as the U.S. Environmental Protection Agency (the “EPA”), U.S. Customs and Border Protection, the U.S. Food and Drug Administration, and the U.S. Consumer Product Safety Commission. As discussed elsewhere in this Annual Report, during fiscal 2022, we were in discussions with the EPA regarding the compliance of packaging claims on certain of our products in the air and water filtration categories and a limited subset of humidifier products within the Health & Wellness segment that are sold in the U.S. As a result, we voluntarily implemented a temporary stop shipment action across this line of products in the U.S. as we worked to execute repackaging plans after modest changes to our labeling claims on packaging of the air and water filtration impacted products were approved by the EPA. While we have resumed normalized levels of shipping of the affected inventory, we are still in process of repackaging some of our existing inventory of impacted products. Additionally, as a result of continuing dialogue with the EPA, we are executing further repackaging and relabeling plans on certain additional humidifier products and certain additional air filtration products. We expect to incur additional compliance costs, which could materially and adversely impact our gross profit and operating income. If we are not able to execute our repackaging plans on schedule to meet demand, our net sales revenue, gross profit and operating income could continue to be materially and adversely impacted. While we do not anticipate material fines or penalties by the EPA, there can be no assurances that such fines or penalties will not be imposed against us. Additional impacts or more pronounced adverse impacts may arise that we are not currently aware of today. As a result, our business, results of operations and financial condition could be adversely and materially impacted in ways that we are not able to predict today. For additional information refer to Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including “EPA Compliance Costs” in this Annual Report.
Global legal developments regarding privacy and data security could result in changes to our business practices, penalties, increased cost of operations, or otherwise harm our business.
As a global company, we are subject to global privacy and data security laws, regulations, and codes of conduct that apply to our various business units. These laws and regulations may be inconsistent across jurisdictions and are subject to evolving and differing interpretations. Government regulators, privacy advocates and class action attorneys are increasingly scrutinizing how companies collect, process, use,
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store, share and transmit personal data. This increased scrutiny may result in new interpretations of existing laws, thereby further impacting our business.
New and emerging global and local laws on privacy, data and related technologies, as well as industry self-regulatory codes, are creating new compliance obligations and expanding the scope of potential liability, either jointly or severally with our customers and suppliers. While we have invested in readiness to comply with applicable requirements, these new and emerging laws, regulations and codes may affect our ability to reach current and prospective consumers, to respond to consumer requests under the laws (such as individual rights of access, correction, and deletion of their personal information), and to implement our business models effectively. The costs of compliance or failure to comply with such laws, regulations, codes of conduct and expectations could have a material adverse impact on our financial condition and results of operations.
Under current tax law, favorable tax treatment of our non-U.S. income is dependent on our ability to avoid classification as a Controlled Foreign Corporation. Changes in the composition of our stock ownership could have an impact on our classification. If our classification were to change, it could have a material adverse effect on the largest U.S. shareholders and, in turn, on our business.
A non-U.S. corporation, such as ours, will constitute a “controlled foreign corporation” or “CFC” for U.S. federal income tax purposes if its largest U.S. shareholders together own more than 50 percent of the stock outstanding. A U.S. shareholder is defined as any U.S. person who owns directly, indirectly, or constructively: (1) 10 percent or more of the total combined voting power of all classes of stock, or (2) 10 percent or more of the total value of shares of all classes of stock. If the IRS or a court determined that we were a CFC at any time during the tax year, then each of our U.S. shareholders as defined above would be required to include in gross income for U.S. federal income tax purposes its pro rata share of our “subpart F income” (and the subpart F income of any of our subsidiaries determined to be a CFC) for the period during which we (and our non-U.S. subsidiaries) were deemed a CFC. In addition, any gain on the sale of our shares realized by such a shareholder may be treated as ordinary income to the extent of the shareholder’s proportionate share of our and our CFC subsidiaries’ undistributed earnings and profits accumulated during the shareholder’s holding period of the shares while we were deemed to be a CFC.
Legislation enacted in Bermuda and Barbados in response to the European Union’s review of harmful tax competition could adversely affect our operations.
Our jurisdiction of organization is Bermuda and one of our subsidiaries is organized in Barbados, two of the countries identified in the EU Economic and Financial Affairs Council (“ECOFIN”) report issued in December 2017 listing non-cooperative tax jurisdictions. In response to the ECOFIN report, “economic substance” legislation was enacted in Bermuda and Barbados and ECOFIN subsequently declared that both countries “cooperate with the EU” and are considered to have “implemented all commitments.”
The economic substance legislation in each of Bermuda and Barbados requires certain entities engaged in “relevant activities” in that country to maintain a substantial economic presence in the country, and to satisfy economic substance requirements. The list of “relevant activities” in the respective statutes includes carrying on as a business any one or more of several enumerated activities, such as headquarters, shipping, distribution and service center, intellectual property and holding entities. Any entity that is required to satisfy economic substance requirements must file a declaration with the Bermuda Registrar of Companies and the Ministry of International Business and Industry in Barbados, as applicable. Failure to comply with the economic substance requirements could result in automatic disclosure of relevant information to competent authorities in the EU (and perhaps elsewhere). Other sanctions include financial penalties, restriction or regulation of business activities and/or being struck off as a registered entity in Bermuda or Barbados.
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Although the local authorities have released some implementing guidelines, the impact of the foregoing legislation and developments is unclear, including how the requirements will be measured and whether additional or revised requirements may be enacted by Bermuda or Barbados. We are evaluating the guidelines and will be implementing changes as needed to comply with the legislation. However, we cannot predict the effect of Bermuda’s or Barbados’s current or future economic substance requirements on our business, which may impact the manner and jurisdictions in which we operate, and which could adversely affect our business, financial condition or results of operations.
Our judgments regarding the accounting for tax positions and the resolution of tax disputes may impact our net earnings and cash flow.
Significant judgment is required to determine our effective tax rate and evaluate our tax positions. We provide for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement criteria prescribed by applicable accounting standards. Fluctuations in federal, state, local and foreign taxes or a change to uncertain tax positions, including related interest and penalties, may impact our effective tax rate and financial results. Additionally, we are subject to audits in the various taxing jurisdictions in which we conduct business. In cases where audits are conducted and issues are raised, a number of years may elapse before such issues are finally resolved. Unfavorable resolution of any tax matter could increase the effective tax rate, which could have an adverse effect on our operating results and cash flow. For additional information regarding our taxes, see Note 19 to the accompanying consolidated financial statements.
If significant tariffs or other restrictions are placed on imports from China, Mexico or Vietnam or any retaliatory trade measures are taken by China, Mexico or Vietnam, our business and results of operations could be materially and adversely affected.
All of our products are manufactured by unaffiliated manufacturers, most of which are located in China, Mexico, Vietnam and the U.S. This concentration exposes us to risks associated with doing business globally, including changes in tariffs. Any alteration of trade agreements and terms between China, Mexico, Vietnam and the U.S., including limiting trade with China, Mexico and Vietnam, imposing additional tariffs on imports from China, Mexico or Vietnam and potentially imposing other restrictions on imports from China, Mexico or Vietnam to the U.S. may result in further or higher tariffs, or retaliatory trade measures by China, Mexico or Vietnam, all of which could have a material adverse effect on our business and operating results.
Our business involves the potential for product recalls, product liability and other claims against us, which could materially and adversely affect our business, operating results and financial condition.
We are, from time to time, involved in various claims, litigation matters and regulatory proceedings that arise in the ordinary course of our business and that could have a material adverse effect on us. These matters may include personal injury and other tort claims, deceptive trade practice disputes, intellectual property disputes, product recalls, contract disputes, warranty disputes, employment and tax matters and other proceedings and litigation, including class actions. It is not possible to predict the outcome of pending or future litigation. As with any litigation, it is possible that some of the actions could be decided unfavorably, resulting in significant liability and, regardless of the ultimate outcome, can be costly to defend. Our results and our business could also be negatively impacted if one of our brands suffers substantial damage to its reputation due to a significant product recall or other product-related litigation and if we are unable to effectively manage real or perceived concerns about the safety, quality, or efficacy of our products.
We also face exposure to product liability and other claims in the event that one of our products is alleged to have resulted in property damage, bodily injury or other adverse effects. Although we maintain liability
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insurance in amounts that we believe are reasonable, that insurance is, in most cases, subject to large self-insured retentions for which we are responsible. We cannot provide assurance that we will be able to maintain such insurance on acceptable terms, if at all in the future, or that product liability or other claims will not exceed the amount of insurance coverage, or that all such matters would be covered by our insurance. As a result, these types of claims could have a material adverse effect on our business, operating results and financial condition.
Financial Risks
If our goodwill, indefinite-lived and definite-lived intangible assets, or other long-termlong-lived assets become impaired, we will be required to record impairment charges, which may be significant.
A significant portion of our long-termnon-current assets consists of goodwill and other indefinite-lived intangible assets recorded as a result of past acquisitions. We do not amortize goodwill and indefinite-lived intangible assets, but rather review them for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If such circumstances or conditions exist, further steps are required in orderWe review intangible assets with definite lives and long-lived assets held and used for impairment if a triggering event occurs during the reporting period. We evaluate long-lived assets held for sale quarterly to determine whetherif fair value less cost to sell has changed during the reporting period. We record impairment charges to the extent the carrying values of these assets are not recoverable in accordance with the applicable accounting standards.
Considerable management judgment is necessary in reaching a conclusion regarding the reasonableness of fair value estimates, evaluating the most likely impact of eacha range of possible external conditions, considering the resulting operating changes and their impact on estimated future cash flows, determining the appropriate discount factors to use, and selecting and weighting appropriate comparable market level inputs. The recoverability of these non-current assets is dependent upon achievement of our projections and the continued execution of key initiatives related to revenue growth and profitability. The rates used in our projections are management’s estimate of the individual assets exceeds its fair market value. Ifmost likely results over time, given a wide range of potential outcomes. The assumptions and estimates used in our analysis indicates that an individual asset’s carrying value does exceed its fair market value, the next step is to record a loss equal to the excessimpairment testing involve significant elements of the individual asset’s carrying value over its fair value. The analysis required by GAAP entails significant amounts ofsubjective judgment and subjectivity.
Events and changes in circumstances that may indicate there is impairment and which may indicate interim impairment testing is necessary include, but are not limited to: strategic decisions to exit a business or dispose of an asset made in response to changes in economic, political and competitive conditions; the impact of the economic environment on our customer base and on broad market conditions that drive valuation considerations by market participants; our internal expectations with regard to future revenue growth and the assumptions we make when performing our impairment reviews; a significant decrease in the market price of our assets; a significant adverse change in the extent or manner in which our assets are used; a significant adverse change in legal factors or the business climate that could affect our assets; an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset; and significant changes in the cash flows associated with an asset. We analyze these assets at the individual asset, reporting unit and company levels. As a result of such circumstances, we may be required to record a significant charge to net income in our financial statements during the period in which any impairment of our goodwill, indefinite-lived and definite-lived intangible assets or other long-termlong-lived assets is determined. As a result of such circumstances and the current public health crisis, we may be required to revise certain accounting estimates and judgments such as those related to the valuation of goodwill, indefinite-lived and definite-lived intangible assets and other indefinite-lived intangiblelong-lived assets, which could result in material non-cash impairment charges. Any such impairment charges could have a material adverse effect on our results of operations.
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Increased costs of raw materials, energy and energytransportation may adversely affect our operating results and cash flow.
Significant increases in the costs and availability of raw materials, energy and energytransportation may negatively affect our operating results. Our suppliers purchase significant amounts of metals and plastics to manufacture our products. In addition, they also purchase significant amounts of electricity to supply the energy required in their production processes. Middle EastGlobal political instabilities and tensions and related political instabilitiesmany other factors may drive up fuel prices resulting in higher transportation prices and product costs. We are heavily dependent on inbound sea, rail and truck freight. Disruptions in the global supply chain and freight networks, including shortages of qualified drivers, has, and may continue to limit inbound and outbound shipment capacity and increase our cost of goods sold and certain operating expenses.
The cost of these raw materials, energy and energy,transportation, in the aggregate, represents a significant portion of our cost of goods sold and certain operating expenses, which we may not be able to pass on to our customers. Our operating results could be adversely affected by future increases in these costs. Additionally, the loss or disruption of essential manufacturing and supply elements such as raw materials or other finished product components, restricted transportation or increased freight costs, reduced workforce, or other manufacturing and distribution disruption could adversely impact our ability to meet our customers’ needs.
Our liquidity or cost of capital may be materially adversely affected by constraints or changes in the capital and credit markets and limitations under our financing arrangements.
We need sufficient sources of liquidity to fund our working capital requirements, service our outstanding indebtedness and finance business opportunities. Without sufficient liquidity, we could be forced to curtail our operations, or we may not be able to pursue business opportunities. The principal sources of our liquidity are funds generated from operating activities, available cash, credit facilities, and other debt arrangements. If our sources of liquidity do not satisfy our requirements, we may need to seek additional financing. The future availability of financing will depend on a variety of factors, such as economic and market conditions, the reaction by banks and financial institutions to a public health crisis (such as pandemics and epidemics), the regulatory environment for banks and other financial institutions, the availability of credit and our reputation with potential lenders. Further, disruptions in national and international credit markets could result in limitations on credit availability, tighter lending standards, higher interest rates on consumer and business loans, and higher fees associated with obtaining and maintaining credit availability. Disruptions may also materially limit consumer credit availability and restrict credit availability to us and our customer base. In addition, in the event of disruptions in the financial markets, current or future lenders may become unwilling or unable to continue to advance funds under any agreements in place, increase their commitments under existing credit arrangements or enter into new financing arrangements. These factors could materially adversely affect our liquidity, costs of borrowing and our ability to pursue business opportunities or grow our business, and threaten our ability to meet our obligations as they become due. In addition, covenants in our debt agreements could restrict or delay our ability to respond to business opportunities, or in the event of a failure to comply with such covenants, could result in an event of default, which if not cured or waived, could have a material adverse effect on us. As of April 20, 2022, the remaining amount available for borrowings under our Credit Agreement was $192.8 million. We may also assume or incur additional debt, including secured debt, in the future in connection with, or to fund, future acquisitions or for other operating needs.
In addition, the potential for product recalls, product liabilityLondon Interbank Offered Rate (“LIBOR”), the interest rate benchmark used as a reference rate on our variable rate debt and related interest rate swaps, began being phased out at the beginning of calendar year 2022, with the one-month LIBOR, which we utilize as a reference rate, scheduled to cease immediately after June 30, 2023. A reference rate based on the Secured Overnight Financing Rate (“SOFR”), and other claims against us,alternative benchmark rates, are replacing LIBOR. We intend to amend our variable rate debt agreements and related interest rate swaps to replace LIBOR with an
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agreed upon replacement index, such as Bloomberg’s Short-Term Bank Yield Index (“BSBY”) or similar index, prior to the one-month LIBOR ceasing, which could materiallyresult in higher interest rates and adversely affect our business,interest expense. Additionally, it remains uncertain whether the BSBY or another alternative replacement rate will be agreed upon by the lenders as the replacement for the one-month LIBOR under our variable rate debt agreements and related interest rate swaps. For additional information, refer to Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 7A., “Quantitative and Qualitative Disclosures About Market Risk” in this Annual Report.
Our operating results may be adversely affected by foreign currency exchange rate fluctuations.
The U.S. Dollar is the functional currency for the Company and financial condition.
Where operating conditions permit, we seek to reduce foreign currency risk by purchasing most of our inventory with U.S. Dollars and other tort claims, deceptive trade practice disputes, intellectual property disputes, product recalls, contract disputes, warranty disputes, employmentby converting cash balances denominated in foreign currencies to U.S. Dollars. We use derivative financial instruments including forward contracts and tax matters and other proceedings and litigation, including class actions.cross-currency debt swaps to mitigate certain foreign currency exchange rate risk inherent in our transactions denominated in foreign currencies. It is not practical for us to mitigate all our exposures, nor are we able to accurately project the possible to predict the outcomeeffect of pendingforeign currency remeasurement on our operating results or future litigation. As with any litigation, it is possible that somenet income due to our constantly changing exposure to various foreign currencies, difficulty in predicting fluctuations in foreign currency exchange rates relative to the U.S. Dollar and the significant number of the actions couldcurrencies involved.
The impact of future foreign currency exchange rate fluctuations on our results of operations cannot be decided unfavorably, resulting in significant liability and, regardless of the ultimate outcome,accurately predicted. Accordingly, there can be costly to defend. Our results and our business could alsono assurance that foreign currency exchange rates:
•will be negatively impacted if one of our brands suffers substantial damage to its reputation due to a significant product recallstable in the future;
•can be mitigated with currency hedging or other product-related litigationrisk management strategies; or
Our projections of product demand, sales and net income are highly subjective in regulations or product certifications could adversely impactnature and our operations.
From time to country. Significant new regulations or material changestime, we may provide financial projections to existing regulations could delay or interrupt distributionour shareholders, lenders, investment community, and other stakeholders of our products in certain countries. Additionally,future sales and net income. Since we cannot guarantee thatdo not require long-term purchase commitments from our products will receive regulatory approval in all countries. Similarly, some of our Beauty segment’smajor customers and the customer order and ship process is very short, it is difficult for us to accurately predict the demand that our Beauty appliances comply with various safety certifications, including UL certifications. Significant new certification requirements or changes to existing certification requirements could delay or interrupt distributionfor many of our products, or the amount and timing of our future sales, related net income and cash flows.
Our projections are based on management’s best estimate of sales using historical sales data and other relevant information available at the time. These projections are highly subjective since sales to our customers can fluctuate substantially based on the demand of their retail consumers and related ordering
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patterns, as well as other risks described in this Annual Report. Additionally, changes in consumer demand, retailer inventory management strategies, transportation lead times, supplier capacity, and raw material availability could make themour inventory management and sales forecasting more costlydifficult. Due to produce. these factors, our future sales and net income could vary materially from our projections.
We are dependent on discretionary spending, which is affected by, among other things, economic and political conditions, consumer confidence, interest, inflation and tax rates, and financial and housing markets, which are all outside of our control. Furthermore, the future extent of COVID-19 on our business and financial results will depend largely on the duration of the continued surges in spread of COVID-19 within the U.S. and globally, the effectiveness of any COVID-19 vaccines, the impact on capital and financial markets and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted. Consequently, these and other potential impacts we are not currently aware of could also cause future sales and net income to vary materially from our projections.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of February 29, 2020,28, 2022, we own, lease or otherwise utilize through third-party management service agreements various properties worldwide for sales, procurement, research and development, administrative and distribution facilities. Our U.S. headquarters are located in El Paso, Texas, and we have two main distribution facilities in Southaven and Olive Branch, Mississippi, which service all of our segments. We are currently constructing an additional distribution facility in Gallaway, Tennessee that we expect to be operational by the end of fiscal year 2023 and will service our Home & Outdoor segment. We believe our facilities are adequate to conduct our business.
Item 3. Legal Proceedings
We are involved in various legal claims and proceedings in the normal course of operations. In the opinion of management,We believe the outcome of these matters will not have a material adverse effect on our consolidated financial position, results of operations or liquidity, except as described below.
Water Filtration Patent Litigation
On December 23, 2021, Brita LP filed a complaint against Kaz USA, Inc. and Helen of Troy Limited in the United States District Court for the Western District of Texas (the “Patent Litigation”), alleging patent infringement by the Company relating to its PUR gravity-fed water filtration systems. In the Patent Litigation, Brita LP seeks monetary damages and injunctive relief relating to the alleged infringement. Brita LP simultaneously filed a complaint with the United States International Trade Commission (“ITC”) against Kaz USA, Inc., Helen of Troy Limited and five other companies that sell water filtration systems (the “ITC Action”). The complaint in the ITC Action also alleges patent infringement by the Company with respect to its PUR gravity-fed water filtration systems. In the ITC Action, Brita LP requested the ITC to initiate an unfair import investigation relating to the filtration systems. It seeks injunctive relief to prevent entry of PUR products (and certain other products) into the U.S. and removal of existing inventory that is already in the U.S.On January 25, 2022, the ITC instituted the investigation requested by the ITC Action. The Patent Litigation has been stayed pending resolution of the ITC Action. We intend to vigorously pursue our claims and defenses in these proceedings. However, we cannot predict the outcome of these proceedings, the amount or range of any potential loss, or when the proceedings will be resolved. Litigation is inherently unpredictable, and the resolution or disposition of these proceedings could, if
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adversely determined, have a material and adverse impact on our financial position and results of operations.
EPA Regulatory Matter
During fiscal 2022, we were in discussions with the EPA regarding the compliance of packaging claims on certain of our products in the air and water filtration categories and a limited subset of humidifier products within the Health & Wellness segment that are sold in the U.S. The EPA did not raise any product quality, safety or performance issues. As a result of these packaging compliance discussions, we voluntarily
implemented a temporary stop shipment action across this line of products in the U.S. as we worked with
the EPA towards an expedient resolution. The EPA approved modest changes to our labeling claims on packaging of the air and water filtration impacted products, which we implemented, and subsequently resumed shipping during fiscal 2022. Our consolidated and Health & Wellness segment’s net sales revenue, gross profit and operating resultsincome during fiscal 2022 was materially and adversely impacted by the stop shipment actions and the time needed to execute repackaging plans after changes were approved by the EPA. While we have resumed normalized levels of shipping of the affected inventory, we are still in process of repackaging our existing inventory of impacted products. Additionally, as a result of continuing dialogue with the EPA, we are executing further repackaging and relabeling plans on certain additional humidifier products and certain additional air filtration products. If we are not able to execute our repackaging plans on schedule to meet demand, our net sales revenue, gross profit and operating income could continue to be materially and adversely impacted. At this time, we are not aware of any fines or liquidity. penalties related to this matter imposed against us by the EPA. While we do not anticipate material fines or penalties, there can be no assurances that such fines or penalties will not be imposed.
See Note 1513 to the accompanying consolidated financial statements for a further discussion.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Market Information for Common Stock
Our common stock is listed on the NASDAQ Global Select Market under symbol: HELE.
Approximate Number of Equity Security Holders of Record
Our common stock is our only class of equity security outstanding at February 29, 2020.28, 2022. As of April 22, 2020,21, 2022, there were 136119 holders of record of our common stock. A substantially greater number of holders of our common stock are “street name” or beneficial holders whose shares are held of record by banks, brokers and other financial institutions.
Cash Dividends
Our current policy is to retain earnings to provide funds for the operation and expansion of our business, common stock repurchases and for potential acquisitions. We have not paid any cash dividends on our common stock since inception. Any change in dividend policy will depend upon future conditions, including earnings and financial condition, general business conditions, any applicable contractual limitations, and other factors deemed relevant by our Board of Directors.
Issuer Purchases of Equity Securities
In May 2019, we announced thatAugust 2021, our Board of Directors had authorized the repurchase of up to $400$500 million of our outstanding common stock. The authorization isbecame effective May 8, 2019August 25, 2021, for a period of three years, and replaced Helen of Troy's previousour former repurchase authorization, of which approximately $107.4$79.5 million remained. These repurchases may include open market purchases, privately negotiated transactions, block trades, accelerated stock repurchase transactions, or any combination of such methods. The number of shares purchased and the timing of the purchases will depend on a number of factors, including share price, trading volume and general market conditions, working capital requirements, general business conditions, financial conditions, any applicable contractual limitations, and other factors, including alternative investment opportunities. See Note 1311 to the accompanying consolidated financial statements for additional information.
Our current equity-based compensation plans include provisions that allow for the “net exercise” of share-settled awards by all plan participants. In a net exercise, any required payroll taxes, federal withholding taxes and exercise price of the shares due from the equity holder can be paid foroption or other share-based award holders are settled by having the equity holder tender back to the Companyus a number of shares at fair value equal to the amounts due. Net exercises are treated as purchases and retirements of shares.
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Share repurchase activity during the three-month period ended February 29, 2020,28, 2022, was as follows:
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Maximum Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (in thousands) (2) | ||||||||||||||||||||||
| December 1 through December 31, 2021 | 21 | $ | 246.27 | 21 | $ | 497,166 | ||||||||||||||||||||
| January 1 through January 31, 2022 | 338,720 | 221.24 | 338,720 | 422,227 | ||||||||||||||||||||||
| February 1 through February 28, 2022 | 1,170 | 204.80 | 1,170 | 421,988 | ||||||||||||||||||||||
| Total | 339,911 | $ | 221.19 | 339,911 | ||||||||||||||||||||||
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in thousands) (2) | ||||||||||
| December 1 through December 31, 2019 | 171 | $ | 158.40 | 171 | $ | 392,986 | ||||||||
| January 1 through January 31, 2020 | 34 | 188.32 | 34 | 392,979 | ||||||||||
| February 1 through February 29, 2020 | — | — | — | 392,979 | ||||||||||
| Total | 205 | $ | 163.36 | 205 | ||||||||||
(1)The following table summarizesnumber of shares includes shares of common stock acquired from associates who tendered shares to: (i) satisfy the tax withholding on equity awards as part of our long-term incentive plans or (ii) satisfy the exercise price on stock option exercises. For the three-month period ended February 28, 2022, 152 shares were acquired from associates at an average price per share of $215.68.
(2)Reflects the remaining dollar value of shares that could be purchased under our current stock repurchase activity forauthorization through the periods shown:expiration or termination of the plan. For additional information, see Note 11 to the accompanying consolidated financial statements.
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| (in thousands, except share and per share data) | Fiscal Years Ended Last Day of February, | ||||||||||
| 2020 | 2019 | 2018 | |||||||||
| Common stock repurchased on the open market: | |||||||||||
| Number of shares | — | 1,875,469 | 717,300 | ||||||||
| Aggregate value of shares | $ | — | $ | 212,080 | $ | 65,795 | |||||
| Average price per share | $ | — | $ | 113.08 | $ | 91.73 | |||||
| Common stock received in connection with share-based compensation: | |||||||||||
| Number of shares | 77,272 | 59,024 | 75,785 | ||||||||
| Aggregate value of shares | $ | 10,169 | $ | 5,413 | $ | 7,258 | |||||
| Average price per share | $ | 131.61 | $ | 91.70 | $ | 95.77 | |||||
Performance Graph
The graph below compares the cumulative total return of our Company to the NASDAQ MarketComposite Index and a Peer Group Index, assuming $100 was invested on February 27, 2015.28, 2017. The Peer Group Index is the Dow Jones - U.S. Personal Products, Broad Market Cap, Yearly, and Total Return Index. The comparisons in this table are required by the SEC and are not intended to forecast or be indicative of the possible future performance of our common stock.
The Performance Graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to the liabilities of Section 18 under the Exchange Act. In addition, it shall not be deemed incorporated by reference by any statement that incorporates this annual report on Form 10-KAnnual Report by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that we specifically incorporate this information by reference.
Item 6. Selected Financial Data
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| (in thousands, except per share data) | 2020 (1)(2)(3) | 2019 (1)(2) | 2018 (1)(2)(4) | 2017 (1)(2)(4)(5) | 2016 (1)(2)(5) | ||||||||||
| Income Statement Data: | |||||||||||||||
| Housewares | $ | 640,965 | $ | 523,807 | $ | 459,004 | $ | 418,558 | 311,023 | ||||||
| Health & Home | 685,397 | 695,217 | 674,062 | 626,982 | 637,427 | ||||||||||
| Beauty | 381,070 | 345,127 | 345,779 | 351,995 | 434,943 | ||||||||||
| Sales revenue, net | 1,707,432 | 1,564,151 | 1,478,845 | 1,397,535 | 1,383,393 | ||||||||||
| Gross profit | 734,466 | 641,106 | 611,199 | 573,416 | 516,551 | ||||||||||
| Asset impairment charges | 41,000 | — | 15,447 | 2,900 | 6,000 | ||||||||||
| Restructuring charges | 3,313 | 3,586 | 1,857 | — | — | ||||||||||
| Operating income | 178,251 | 199,379 | 169,062 | 169,664 | 116,294 | ||||||||||
| Interest expense | 12,705 | 11,719 | 13,951 | 14,361 | 10,581 | ||||||||||
| Income tax expense | 13,607 | 13,776 | 26,556 | 11,407 | 13,021 | ||||||||||
| Income from continuing operations | 152,333 | 174,224 | 128,882 | 144,310 | 92,991 | ||||||||||
| Income (loss) from discontinued operations, net of tax | — | (5,679 | ) | (84,436 | ) | (3,621 | ) | 8,237 | |||||||
| Net income | 152,333 | 168,545 | 44,446 | 140,689 | 101,228 | ||||||||||
| Earnings (loss) per share - basic | |||||||||||||||
| Continuing operations | $ | 6.06 | $ | 6.68 | $ | 4.76 | $ | 5.24 | $ | 3.29 | |||||
| Discontinued operations | — | (0.22 | ) | (3.12 | ) | (0.13 | ) | 0.29 | |||||||
| Net income | $ | 6.06 | $ | 6.46 | $ | 1.64 | $ | 5.11 | $ | 3.58 | |||||
| Earnings (loss) per share - diluted | |||||||||||||||
| Continuing operations | $ | 6.02 | $ | 6.62 | $ | 4.73 | $ | 5.17 | $ | 3.23 | |||||
| Discontinued operations | — | (0.22 | ) | (3.10 | ) | (0.13 | ) | 0.29 | |||||||
| Net income | $ | 6.02 | $ | 6.41 | $ | 1.63 | $ | 5.04 | $ | 3.52 | |||||
| Weighted average shares outstanding - basic | 25,118 | 26,073 | 27,077 | 27,522 | 28,273 | ||||||||||
| Weighted average shares outstanding - diluted | 25,322 | 26,303 | 27,254 | 27,891 | 28,749 | ||||||||||
| Cash Flow Data from Continuing Operations: | |||||||||||||||
| Depreciation and amortization | $ | 37,409 | $ | 29,927 | $ | 33,730 | $ | 36,175 | $ | 34,889 | |||||
| Net cash provided by operating activities | 271,293 | 200,568 | 218,609 | 212,491 | 170,263 | ||||||||||
| Capital and intangible asset expenditures | 17,759 | 26,385 | 13,605 | 15,507 | 16,676 | ||||||||||
| Payments to acquire businesses, net of cash acquired | 255,861 | — | — | 209,267 | 43,150 | ||||||||||
Repurchases of common stock(8) | 10,169 | 217,493 | 73,053 | 75,595 | 106,411 | ||||||||||
| Net amounts borrowed (repaid) | 16,900 | 29,900 | (197,000 | ) | (133,200 | ) | 190,700 | ||||||||
| (in thousands) | 2020 (1)(2)(3) | 2019 (1)(2) | 2018 (1)(2)(4) | 2017 (1)(2)(4)(5) | 2016 (1)(2)(5) | ||||||||||
| Balance Sheet Data from Continuing Operations: | |||||||||||||||
Working capital (6)(7) | $ | 343,940 | $ | 292,828 | $ | 258,222 | $ | 267,896 | $ | 487,861 | |||||
Goodwill and other intangible assets(6)(7) | 1,040,853 | 893,846 | 905,235 | 938,324 | 762,879 | ||||||||||
Total assets (6)(7) | 1,903,883 | 1,649,535 | 1,623,717 | 1,616,235 | 1,639,673 | ||||||||||
| Long-term debt, excluding current maturities | 337,421 | 318,900 | 287,985 | 461,211 | 600,107 | ||||||||||
Stockholders' equity (8) | 1,161,723 | 996,637 | 1,014,459 | 1,020,766 | 930,043 | ||||||||||
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the other sections of this report,Annual Report, including Part I, Item 1., “Business”; Part II, Item 6., “Selected Financial Data”; and Part II, Item 8., “Financial Statements and Supplementary Data.” The various sections of this MD&A contain a number of forward-looking statements, all of which are based on our current expectations. Actual results may differ materially due to a number of factors, including those discussed in Item 1A.,“Risk Factors,” and in the section entitled “Information Regarding Forward-Looking Statements,” precedingfollowing this MD&A, and in Item 7A., “Quantitative and Qualitative Disclosures About Market Risk.” Throughout this 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, Osprey, Vicks, Braun, Honeywell, PUR, Hot Tools and Drybar.
This MD&A, including the tables under the headings “Operating income, operating margin, adjusted operating incomeIncome, Operating Margin, Adjusted Operating Income (non-GAAP), and adjusted operating marginAdjusted Operating Margin (non-GAAP) by segment"Segment” and “Income from continuing operations, diluted earnings per share ("EPS") from continuing operations, adjusted income from continuing operations“Net Income, Diluted EPS, Adjusted Income (non-GAAP), adjusted dilutedand Adjusted Diluted EPS from continuing operations (non-GAAP) and core and non-core adjusted diluted EPS from continuing operations (non-GAAP),” respectively, reports operating income, operating margin, net income from continuing operations and diluted earnings per share from continuing operations(“EPS”) without the impact of non-cash asset impairment charges, acquisition-related expenses, EPA compliance costs, restructuring charges, the TRU bankruptcy charge, tax reform, 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 tables reconcile these measures to their corresponding GAAP-based measures presented in our condensed consolidated statements of income. We believe that adjusted operating income, adjusted operating margin, adjusted income, from continuing operations, and adjusted diluted EPS from continuing operations 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 and benefits on applicable income, margin and earnings per share measures. We also believe that these non-GAAP measures facilitate a more direct comparison of our performance to our competitors. We further believe that including the excluded charges and benefits would not accurately reflect the underlying performance of our continuing operations for the period in which the charges and benefits are incurred, even though such charges and benefits 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, from continuing operations,and adjusted diluted EPS from continuing operations and core and non-core adjusted diluted EPS from continuing operations 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.
•Accounts receivable turnover:Twelve-month trailing net sales revenue divided by the average of the current and prior four fiscal quarters’ ending accounts receivable balances. This result is divided by 365 days to express turnover in terms of average days outstanding. 34 •Core business sales: Net sales revenue associated with strategic business that we expect to be an ongoing part of our operations. •Current ratio: Current assets divided by current liabilities at the end of a reporting period, expressed as a ratio. •EBITDA: Earnings before interest, taxes, depreciation and amortization expense. •Ending debt to ending equity ratio: Total interest bearing short- and long-term debt divided by stockholders’ equity at the end of a reporting period, expressed as a ratio. •Gross profit margin: Gross profit divided by the related net sales revenue expressed as a percentage. •Inventory turnover: Trailing twelve month cost of goods sold divided by the average of the current and prior four fiscal quarters’ ending inventory balances to express turnover in terms of the number of times per year. •Leadership Brand sales revenue, net: Net sales revenue from brands which have number-one and number-two positions in their respective categories and include OXO, Hydro Flask, Osprey, Vicks, Braun, Honeywell, PUR, Hot Tools and Drybar. •Leverage ratio: Total current and long-term debt plus outstanding letters of credit, divided by EBITDA plus non-cash charges and certain allowed addbacks, less certain non-cash income, plus the pro forma effect of acquisitions and certain pro forma run-rate cost savings for acquisitions and dispositions, as defined in our Credit Agreement. •Non-Core business sales: Net sales revenue associated with business or net assets (including net assets held for sale) that we expect to divest within a year of its designation as Non-Core. •Online channel net sales: Direct to consumer online net sales, net sales to retail customers fulfilling end-consumer online orders and net sales to pure-play online retailers. •Operating margin: Operating income for the Company or a business segment divided by the related net sales revenue for the Company or a business segment. •Organic business sales: Net sales revenue associated with product lines or brands after the first twelve months from the date the product line or brand was acquired, excluding the impact that foreign currency remeasurement had on reported net sales revenue. •Return on average equity: Trailing twelve month net income divided by the average of the current and prior four fiscal quarters’ ending stockholders’ equity. •SG&A ratio: Total selling, general and administrative expense (“SG&A”) divided by net sales revenue. •Working capital: Current assets less current liabilities. 35 |
Overview
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 currently operate in three segments consisting of Housewares,Home & Outdoor, Health & HomeWellness and Beauty. In the fourth quarter of fiscal 2022, we changed the names of two of our segments to align with the growth in certain product offerings and brands within our portfolio. Our previously named “Housewares” segment was changed to “Home & Outdoor,” and our previously named “Health & Home” segment was changed to “Health & Wellness.” There were no changes to the products or brands included within our reportable segments as part of these name changes. The Osprey brand and products were added to the Home & Outdoor segment upon the completion of the acquisition of Osprey discussed further below.
In fiscal 2015, we launched a five-year transformational strategy designed to improve the performance of our business segments and strengthen our shared service capabilities. This strategy has driven our decisions on where we will operate and how we will achieve our goals in markets around the world. The overall design of our business and organizational plan is intended to create sustainable and profitable growth and improve organizational capability.
Fiscal 2019 marked the completion of Phase I of our multi-year transformation strategy, which delivered performance across a wide range of measures. We improved organic sales growth by focusing on our Leadership Brands, made strategic acquisitions, became a more efficient operating company with strong global shared services, upgraded our organization and culture, improved inventory turns and return on invested capital, and returned capital to shareholders.
Fiscal 2020 began Phase II of our transformation, and iswhich was designed to drive the next five years of progress. The long-term objectives of Phase II include improved organic sales growth, continued margin expansion, and strategic and effective capital deployment. We expect Phase II will includeincludes continued investment in our Leadership Brands, with a focus on growing them through consumer-centric innovation, expanding them more aggressively outside the United States,U.S., and adding new brands through acquisition. We anticipateare building further shared service capability and operating efficiency, as well as focusing on attracting, retaining, unifying and training the best people. Additionally, we are continuing to enhance and consolidate our ESG efforts and accelerate programs related to DE&I to support our Phase II transformation.
Consistent with our strategy of focusing resources on our Leadership Brands, during the fourth quarter of fiscal 2020, we committed to a plan to divest certain assets within our Personal Care business. On June 7, 2021, we completed the sale of our North America Personal Care business to HRB Brands LLC, for $44.7 million in cash and recognized a gain on the sale in SG&A totaling $0.5 million. Subsequent to our fiscal 2022 year end, on March 25, 2022, we completed the sale of the Latin America and Caribbean Personal Care businesses to HRB Brands LLC, for $1.8 million in cash. The net assets sold included intangible assets, inventory, certain net trade receivables, fixed assets and certain accrued sales discounts and allowances relating to our Personal Care business. Accordingly, we continued to classify the identified net assets of the Latin America and Caribbean Personal Care businesses as held for sale in our fiscal 2022 consolidated balance sheet. See Note 4 to the accompanying consolidated financial statements for additional information.
Subsequent to our fiscal 2022 year end, on April 22, 2022, we completed the acquisition of Recipe Products Ltd., a producer of innovative prestige hair care products for all types of curly and wavy hair under the Curlsmith brand (“Curlsmith”). The total purchase consideration, net of cash acquired, was $150.0 million in cash, subject to certain customary closing adjustments. The acquisition was funded with cash on hand and borrowings from our existing revolving credit facility.
On December 29, 2021, we completed the acquisition of Osprey, a longtime U.S. leader in technical and everyday packs, for $410.9 million in cash, net of a preliminary closing net working capital adjustment and cash acquired. Osprey is highly respected in the outdoor industry with a product lineup that includes a wide range of backpacks and daypacks for hiking, mountaineering, skiing, climbing, mountain biking,
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trail running, commuting, and school, as well as rugged adventure travel packs, wheeled luggage, and travel accessories.
On December 22, 2020, we entered into an amended and extended Trademark License Agreement with Revlon to license Revlon’s trademark for hair care appliances and tools (the “Revlon License”). The Revlon License grants us an exclusive, global, fully paid-up license to use the licensed trademark to manufacture, sell and distribute licensed merchandise in accordance with the terms of the agreement. The Revlon License has an initial term of 40 years, which will automatically renew at the end of the initial term for three consecutive additional 20-year periods unless we give notice of non-renewal. The Revlon License amends and restates the existing Revlon trademark licensing agreements entirely, and eliminates ongoing royalties we have historically paid and recognized as expense within SG&A in accordance with such agreements. In exchange for this exclusive global license, we paid a one-time, up-front license fee of $72.5��million, which was recorded as an intangible asset at cost and is being amortized on a straight-line basis over a useful life of 40 years, representing the initial term. As a result of the Revlon License, we are no longer obligated to pay royalties to Revlon, and thus have not recognized royalty expense after December 22, 2020, the effective date of the Revlon License.
On January 23, 2020, we completed the acquisition of Drybar Products, for approximately $255.9 million in cash. Drybar is an innovative, trend-setting prestige hair care and styling brand in the multibillion-dollar beauty industry.
In fiscal 2018, we announced a restructuring plan (referred to as “Project Refuel”) intended to enhance the performance primarily in the Beauty and former Nutritional Supplements segments. Project Refuel includes charges for a reduction-in-force and the elimination of certain contracts. During the first quarter of fiscal 2019, we expanded Project Refuel to include the realignment and streamlining of our supply chain structure. We are targeting total annualized profit improvements of approximately $9.0 to $11.0 million over the duration of the plan. During fiscal 2020,2022, we incurred $3.3$0.4 million of pre-tax restructuring costs related to Project Refuel consistingRefuel. During the fourth quarter of employee severance and termination benefits and contract termination costs. We estimatefiscal 2022, we completed the plan, to be completed during fiscal 2021 and expect to incurwhich resulted in total restructuring charges of $9.6 million and total annualized profit improvements of approximately $9.5 million. Restructuring provisions are determined based on estimates prepared at$12.5 million over the timeduration of the restructuring actions are approved by management and are revised periodically.plan. See Note 1412 to the accompanying consolidated financial statements for additional information.
Subsequent to our fiscal 2022 year end, on March 30, 2022, a third-party facility that we utilize for inventory storage incurred severe damage from a weather-related incident. The inventory stored at this facility primarily relates to our Health & Wellness and Beauty segments. While the endinventory is insured, some seasonal inventory and inventory designated for specific customer promotions is currently not accessible, and as a result, may unfavorably impact our net sales revenue in the first half of fiscal 2020, on March 13, 2020, we entered into an amendment2023. We are working with local officials and our insurance provider to our Credit Agreement with Bank of America, N.A., as administrative agent, and other lenders (as amended,understand the "Credit Agreement"). The amendment extended the maturityextent of the commitment underdamage, however the Credit Agreement from December 7, 2021 to March 13, 2025. Further, the amendment increased the unsecured revolving commitment from $1.0 billion to $1.25 billion. The amount of the accordion was increased from $200 million to $300 million. The accordion permits the Company to request to increase its borrowing capacity, not to exceed the $300 million commitment in the aggregate, provided certain conditions are met, including lender approval. Following the amendment, borrowings under the Credit Agreement bear interest at either the base rate or LIBOR, plus a margin based on the Net Leverage Ratio (as defined in the Credit Agreement) of 0% to 1.0%building must be assessed and 1.0% to 2.0%, respectively, for base rate and LIBOR borrowings. See Note 16made structurally sound before we will have access to the accompanying consolidatedinventory and be able to fully assess damages. The potential financial statements for additional information.impact of this weather-related incident remains ongoing and could have a material adverse effect on our operating results and financial condition.
Significant Trends Impacting the Business
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During fiscal 2021, the COVID-19 to adverselyrelated impact on our business which could be material. The impact includesincluded the effect of temporary closures of andcertain customer stores or limited hours of operation and materially lower store traffic which shifted consumer shopping preferences from brick and mortar to more online purchases. In addition, we saw high demand for healthcare products as well as cooking, storage and related product lines as consumers spent more time at customer stores. Thehome. We also experienced disruptions to our supply chain due to shifting consumer purchasing patterns, limited capacity of shipping containers, and COVID-19 pandemic is also impacting our third-party manufacturers, mostrelated work stoppages in the global supply chain. During the first quarter of fiscal 2021, we implemented a number of temporary precautionary cost reduction measures, many of which are locatedwe reversed during the second quarter of fiscal 2021, including restoration of all wages, salaries and director compensation to pre-COVID-19 levels. In addition, during the third quarter of fiscal 2021, we reinstituted merit increases, promotions and new associate hiring. In the third and fourth quarters of fiscal 2021, we continued to increase the amount of our investments including marketing, new product development and capital expenditures to continue progressing our Phase II transformation plan and longer-term opportunities to further grow our business.
During fiscal 2022, we were adversely impacted by COVID-19 related global supply chain disruptions and cost increases. We also saw recovery of our product lines and brands that were unfavorably impacted in fiscal 2021 as a result of the pandemic. Additionally, as customers have been able to return to more brick and mortar shopping, our mix of online sales has been negatively impacted compared to fiscal 2021.
Impacts could arise in the Far East, principally China.future as this situation continues to evolve, and additional impacts or more pronounced adverse impacts may arise that we are not currently aware of today. The extent of COVID-19’s impact on the impactdemand for certain of COVID-19 on our business and financial resultsproduct lines in the future will depend largely on future developments, including the duration ofcontinued surges in the spread of the COVID-19, outbreak within the U.S.our continued ability to source and globally,distribute our products, the impact of COVID-19 on capital and financial markets, and the related impact on consumer confidence and spending. These future developmentsspending, all of which are outside of our control, are highly uncertain and cannot be predicted. Ifdifficult to predict considering the impact is prolonged, then it can further increase the difficulty of planning for operations. Thesecontinuously evolving landscape. Accordingly, our liquidity and other potential impacts of the current public health crisis could therefore materially and adversely affect our business, financial condition, cash flows and results of operations.
For additional information on our related material risks, see Item 1A., Risk“Risk Factors.
Global Supply Chain and Related Cost Inflation Trends
Surges in demand and shifts in shopping patterns related to COVID-19, as well as other factors, have continued to strain the global supply chain network, which has resulted in carrier-imposed capacity restrictions, carrier delays, and longer lead times. Demand for Chinese imports has caused shipment receiving and unloading backlogs at many U.S. ports that have been unable to keep pace with unprecedented inbound container volume. The situation has been further exacerbated by COVID-19 illness and protocols at many port locations. Due to the backlog and increasing trade imbalance with China, many shipping containers are not being sent back to China, or are being sent to China empty. With continued increases in demand for containers, limited supply and freight vendors bearing the cost of shipping empty containers, the market cost of inbound freight has increased by several multiples compared to calendar year 2020 averages. The disruptions in the global supply chain and freight networks are also resulting in shortages of qualified drivers, which has, and may continue to limit inbound and outbound shipment capacity and increase our costs of goods sold and certain operating expenses. In addition to increasing cost trends, our third party manufacturing partners are not equipped to hold meaningful amounts of inventory and if shipping container capacity remains limited or unavailable, they could pause manufacturing, which could ultimately impact our ability to meet consumer demand on a timely basis. Demand for raw materials, components and semiconductor chips impacted by the supply chain challenges described above has created surges in prices and shortages of these materials may become more significant which could further increase our costs. Further, in the U.S., the surge in demand for labor along with COVID-19 related government stimulus payments and rising hourly labor wages, have created labor shortages and higher labor costs. The majority of our hourly labor is employed in our distribution centers and these factors have, and may further, increase our costs and negatively impact our ability to attract and retain qualified associates. Global supply chain disruptions and related inflationary cost trends have adversely impacted our business, financial condition, cash flows
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and results of operations. Continuation of current trends, or more pronounced adverse impacts may arise which could have further negative impacts to our business, results of operations and financial condition.
EPA Compliance Costs
Some product lines within our Health & Wellness segment are subject to product identification, labeling and claim requirements, which are monitored and enforced by regulatory agencies, such as the EPA, U.S. Customs and Border Protection, the U.S. Food and Drug Administration, and the U.S. Consumer Product Safety Commission.
During fiscal 2022, we were in discussions with the EPA regarding the compliance of packaging claims on certain of our products in the air and water filtration categories and a limited subset of humidifier products within the Health & Wellness segment that are sold in the U.S. The EPA did not raise any product quality, safety or performance issues. As a result of these packaging compliance discussions, we voluntarily implemented a temporary stop shipment action on the impacted products as we worked with the EPA towards an expedient resolution. The EPA approved modest changes to our labeling claims on packaging of the air and water filtration impacted products, which we implemented, and subsequently resumed shipping during fiscal 2022. Our fiscal 2022 consolidated, and Health & Wellness segment’s, net sales revenue, gross profit, SG&A, and operating income was materially and adversely impacted by the stop shipment actions and the time needed to execute repackaging plans after changes were approved by the EPA. While we have resumed normalized levels of shipping of the affected inventory, we are still in process of repackaging our existing inventory of impacted products. Additionally, as a result of continuing dialogue with the EPA, we are executing further repackaging and relabeling plans on certain additional humidifier products and certain additional air filtration products. If we are not able to execute our repackaging plans on schedule to meet demand, our net sales revenue, gross profit and operating income could continue to be materially and adversely impacted. In addition, our net sales revenue could be materially and adversely impacted by customer returns, an increase in sales discounts and allowances and by the potential impact of distribution losses at certain retailers.
During fiscal 2022, we recorded a $13.1 million charge to cost of goods sold to write-off the obsolete packaging for the affected products in our inventory on-hand and in-transit as of the end of the first quarter of fiscal 2022. During fiscal 2022, we incurred additional compliance costs of $19.3 million, comprised of $14.6 million of incremental warehouse storage costs and legal fees, which were recognized in SG&A, and $4.7 million of storage, obsolete packaging and other charges from vendors, which were recognized in cost of goods sold. These charges are referred to throughout this Annual Report as “EPA compliance costs.”In addition, during fiscal 2022, we incurred and capitalized into inventory costs to repackage a portion of our existing inventory of the affected products and expect to continue to incur and capitalize such costs as we continue to repackage inventory.We also expect to incur additional compliance costs, which may include incremental freight, warehouse storage costs, charges from vendors, and legal fees, among other things. Such potential incremental EPA compliance costs will be expensed as incurred and could materially and adversely impact our consolidated and Health & Wellness segment's gross profit and operating income. Additional impacts or more pronounced adverse impacts may arise that we are not currently aware of today. Accordingly, our business, results of operations and financial condition could be adversely and materially impacted in ways that we are not able to predict today.
At this time, we are not aware of any fines or penalties related to this matter imposed against us by the EPA. While we do not anticipate material fines or penalties, there can be no assurances that such fines or penalties will not be imposed.
See Note 13 to the accompanying consolidated financial statements for additional information and Item 1A., “Risk Factors” in this Annual Report for additional information on our related material risks.
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Potential Impact of Tariffs
Potential Impact of Brexit and Offshore Receipts in Respect of Intangible Property Tax
The transitional exit of the U.K. from E.U. membership (commonly referred to as "Brexit"“Brexit”) could cause disruptions to and create uncertainty surrounding our business, including affecting our relationships with our existing and future customers, suppliers and employees,associates, which could have an adverse effect on our business, financial results and operations. Negotiations are ongoing to determine the future of a trade deal between theThe U.K. and the E.U. signed an EU-UK Trade and Cooperation Agreement (the “TCA”), which became provisionally applicable on January 1, 2021 and was formally approved by the European Parliament on May 1, 2021. The ultimate effects of Brexit will depend, in part, on how the terms of the TCA take effect in practice and on any other agreements the U.K. makesmay make with the EU. Recent effects include changes in customs regulations, shortages of truck drivers in the U.K., and administrative burdens placed on transportation companies, which have lead to retain access to E.U. markets either during a transitional period or more permanently. These measureschallenges and delays in moving inventory across U.K./EU borders, and higher importation, freight and distribution costs. If such trends continue, we may experience further cost increases. The TCA and any future trade negotiations could potentially disrupt the markets we serve and the tax jurisdictions in which we operate, adversely change tax benefits or liabilities in these or other jurisdictions, and cause us to lose customers, suppliers, and employees.associates. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which E.U. laws to replace or replicate.
LIBOR, which is the interest rate benchmark used as a reference rate on our variable rate debt and related interest rate swaps, began being phased out at the beginning of calendar year 2022, with the one-month LIBOR, which we utilize as a reference rate, scheduled to cease immediately after June 30, 2023. A reference rate based on the SOFR, and other alternative benchmark rates, are replacing LIBOR. We intend to amend our variable rate debt agreements and related interest rate swaps, to replace LIBOR with an agreed upon replacement index, such as Bloomberg’s Short-Term Bank Yield Index (“BSBY”) or similar index, prior to the one-month LIBOR ceasing, which could result in respecthigher interest rates and adversely affect our interest expense. For additional information, refer to Item 1A., “Risk Factors” and Item 7A., “Quantitative and Qualitative Disclosures About Market Risk” in this Annual Report.
Potential Impact of Intangible PropertyMacroeconomic Trends
Since March 2020, interest rates have remained at historically low levels, primarily due to impacts to the U.S economy caused by COVID-19. More recently, higher consumer demand, lower interest rates, global supply chain disruption, and other factors have contributed to rapidly accelerating economic inflation. To offset the impacts of inflation, the Federal Open Market Committee ("ORIP"FOMC") rules were introduced byhas been, and intends to continue, raising interest rates throughout the Finance Act 2019remainder of 2022 and camepossibly into effect on April 6, 2019. Under2023. While the ORIP rules, where intangible property ("IP") is held in offshore companies, in a territory with which the U.K. does not have a full double taxation arrangementactual timing and the IP is used directly or indirectly to enable, facilitate or promote U.K. sales, income derived from that IP could be subject to a U.K. gross receipts tax at 20%extent of the gross amounts. Based
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to the profitability of our EMEA operating unit. As a result, the ORIP tax could cause us to evaluate different strategic choices with respect to our EMEA operating unit, including a rationalization of the product portfolio sold in the U.K. or an exit from the market,negatively impact consumer spending, which couldmay adversely impact our net sales revenue.business, financial condition, cash flows and results of operations.
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 reportingfunctional currency (the U.S. Dollar). Such transactions include sales, certain inventory purchases and operating expenses. The most significant currencies affecting our operating results are the British Pound, Euro, Canadian Dollar, and Mexican Peso.
Consumer Spending and Changes in Shopping Preferences
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. Approximately 79%78% of our consolidated net sales revenue in fiscal 2020 were2022 was from U.S. shipments compared to 78%79% of consolidated net sales revenue in both fiscal 2021 and 79% in fiscal 2019 and 2018, respectively.2020.
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 & HomeWellness 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 2019-2020 season,The 2021-2022 cough/cold/flu incidenceseason was slightlybelow historical averages, but higher than the 2018-20192020-2021 season, which experienced historically low incidence levels due to COVID-19 prevention measures including mask-wearing, remote learning, work from home, and reduced travel, brick and mortar shopping, and group gatherings. The 2019-2020 cough/cold/flu season was a below averagein line with historical averages for such season.
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Results of Operations
This section provides an analysis of our results of operations for fiscal year 2022 as compared to fiscal year 2021 including descriptions of material changes. Refer to Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our2021 Annual Report on Form 10-K, filed with the SEC on April 29, 2021, for an analysis of the fiscal year 2021 results of operations as compared to fiscal year 2020, which such section is hereby incorporated by reference. Additionally, as previously noted, in the fourth quarter of fiscal 2022, we changed the names of two of our segments to align with the growth in certain product offerings and brands within our portfolio. Item 7., “Management's Discussion and Analysis of Financial Condition and Results of Operations,” in our 2021 Annual Report on Form 10-K references the previously named “Housewares” segment which has been changed to “Home & Outdoor,” and our previously named “Health & Home” segment which has been changed to “Health & Wellness.” There were no changes to the products or brands included within our reportable segments as part of these name changes.
The following table provides selected operating data, in U.S. Dollars, as a percentage of net sales revenue, and as a year-over-year percentage change.
Fiscal Years Ended Last Day of February, | % of Sales Revenue, net | % Change | Fiscal Years Ended Last Day of February, | % of Sales Revenue, net | % Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2020 (1) | 2019 (2) | 2018 (2) | 2020 | 2019 | 2018 | 20/19 | 19/18 | (in thousands) | 2022 (1)(2) | 2021 (2) | 2020 (2) | 2022 | 2021 | 2020 | 22/21 | 21/20 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales revenue by segment, net | Sales revenue by segment, net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Housewares | $ | 640,965 | $ | 523,807 | $ | 459,004 | 37.5 | % | 33.5 | % | 31.0 | % | 22.4 | % | 14.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Health & Home | 685,397 | 695,217 | 674,062 | 40.1 | % | 44.4 | % | 45.6 | % | (1.4 | )% | 3.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Home & Outdoor | Home & Outdoor | $ | 865,844 | $ | 727,354 | $ | 640,965 | 38.9 | % | 34.7 | % | 37.5 | % | 19.0 | % | 13.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Health & Wellness | Health & Wellness | 777,080 | 890,191 | 685,397 | 35.0 | % | 42.4 | % | 40.1 | % | (12.7) | % | 29.9 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beauty | 381,070 | 345,127 | 345,779 | 22.3 | % | 22.1 | % | 23.4 | % | 10.4 | % | (0.2 | )% | Beauty | 580,431 | 481,254 | 381,070 | 26.1 | % | 22.9 | % | 22.3 | % | 20.6 | % | 26.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Total sales revenue, net | 1,707,432 | 1,564,151 | 1,478,845 | 100.0 | % | 100.0 | % | 100.0 | % | 9.2 | % | 5.8 | % | Total sales revenue, net | 2,223,355 | 2,098,799 | 1,707,432 | 100.0 | % | 100.0 | % | 100.0 | % | 5.9 | % | 22.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Cost of goods sold | 972,966 | 923,045 | 867,646 | 57.0 | % | 59.0 | % | 58.7 | % | 5.4 | % | 6.4 | % | Cost of goods sold | 1,270,168 | 1,171,497 | 972,966 | 57.1 | % | 55.8 | % | 57.0 | % | 8.4 | % | 20.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | 734,466 | 641,106 | 611,199 | 43.0 | % | 41.0 | % | 41.3 | % | 14.6 | % | 4.9 | % | Gross profit | 953,187 | 927,302 | 734,466 | 42.9 | % | 44.2 | % | 43.0 | % | 2.8 | % | 26.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative expense (SG&A) | 511,902 | 438,141 | 424,833 | 30.0 | % | 28.0 | % | 28.7 | % | 16.8 | % | 3.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SG&A | SG&A | 680,257 | 637,012 | 511,902 | 30.6 | % | 30.4 | % | 30.0 | % | 6.8 | % | 24.4 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset impairment charges | 41,000 | — | 15,447 | 2.4 | % | — | % | 1.0 | % | * | * | Asset impairment charges | — | 8,452 | 41,000 | — | % | 0.4 | % | 2.4 | % | * | (79.4) | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring charges | 3,313 | 3,586 | 1,857 | 0.2 | % | 0.2 | % | 0.1 | % | (7.6 | )% | 93.1 | % | Restructuring charges | 380 | 350 | 3,313 | — | % | — | % | 0.2 | % | 8.6 | % | (89.4) | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Operating income | 178,251 | 199,379 | 169,062 | 10.4 | % | 12.7 | % | 11.4 | % | (10.6 | )% | 17.9 | % | Operating income | 272,550 | 281,488 | 178,251 | 12.3 | % | 13.4 | % | 10.4 | % | (3.2) | % | 57.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Nonoperating income, net | 394 | 340 | 327 | — | % | — | % | — | % | 15.9 | % | 4.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-operating income, net | Non-operating income, net | 260 | 559 | 394 | — | % | — | % | — | % | (53.5) | % | 41.9 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | (12,705 | ) | (11,719 | ) | (13,951 | ) | (0.7 | )% | (0.7 | )% | (0.9 | )% | 8.4 | % | (16.0 | )% | Interest expense | 12,844 | 12,617 | 12,705 | 0.6 | % | 0.6 | % | 0.7 | % | 1.8 | % | (0.7) | % | |||||||||||||||||||||||||||||||||||||||||||
| Income before income tax | 165,940 | 188,000 | 155,438 | 9.7 | % | 12.0 | % | 10.5 | % | (11.7 | )% | 20.9 | % | Income before income tax | 259,966 | 269,430 | 165,940 | 11.7 | % | 12.8 | % | 9.7 | % | (3.5) | % | 62.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | 13,607 | 13,776 | 26,556 | 0.8 | % | 0.9 | % | 1.8 | % | (1.2 | )% | (48.1 | )% | Income tax expense | 36,202 | 15,484 | 13,607 | 1.6 | % | 0.7 | % | 0.8 | % | * | 13.8 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Income from continuing operations | 152,333 | 174,224 | 128,882 | 8.9 | % | 11.1 | % | 8.7 | % | (12.6 | )% | 35.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loss from discontinued operations (3) | — | (5,679 | ) | (84,436 | ) | — | % | (0.4 | )% | (5.7 | )% | * | (93.3 | )% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 152,333 | $ | 168,545 | $ | 44,446 | 8.9 | % | 10.8 | % | 3.0 | % | (9.6 | )% | 279.2 | % | Net income | $ | 223,764 | $ | 253,946 | $ | 152,333 | 10.1 | % | 12.1 | % | 8.9 | % | (11.9) | % | 66.7 | % | ||||||||||||||||||||||||||||||||||||||||
(1)Fiscal 2022 includes approximately nine weeks of operating results from Osprey, acquired on December 29, 2021. For additional information see Note 7 to the accompanying consolidated financial |
(2)Fiscal 2020 includes approximately five weeks of operating results from Drybar Products, acquired on January 23, 2020, and fiscal 2022 and 2021 include a full year of operating results. For additional information see Note 7 to the accompanying consolidated financial statements |
* Calculation is not meaningful.
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Fiscal 20202022 Financial Results
•Consolidated net sales revenue increased 9.2%5.9%, or $143.3$124.6 million, to $1,707.4$2,223.4 million compared to $1,564.2$2,098.8 million for the same period last year.
•Consolidated operating income decreased 10.6%3.2%, or $21.1$8.9 million, to $178.3$272.6 million, compared to $199.4$281.5 million for the same period last year. Consolidated operating margin decreased 2.31.1 percentage points to 10.4%12.3%, compared to 13.4% for the same period last year. Consolidated operating income for fiscal 2022 includes pre-tax restructuring charges of $0.4 million related to Project Refuel, pre-tax acquisition-related expenses of $2.4 million, and pre-tax EPA compliance costs of $32.4 million. Consolidated operating income for fiscal 2021 included pre-tax asset impairment charges of $8.5 million and pre-tax restructuring charges of $0.4 million related to Project Refuel.
•Consolidated adjusted operating income increased 6.2%, or $20.7 million, to $355.1 million, compared to $334.4 million for the same period last year. Consolidated adjusted operating margin increased 0.1 percentage points to 16.0% of consolidated net sales revenue, compared to 12.7%15.9% for the same period last year.
•Net income decreased 11.9%, or $30.2 million, to $223.8 million, compared to $253.9 million for the same period last year. Diluted EPS decreased 9.0% to $9.17, compared to $10.08 for the same period last year.
•Adjusted income increased 2.8% to $301.8 million, compared to $293.7 million for the same period last year. Adjusted diluted EPS increased 6.1% to $12.36, compared to $11.65 for the same period last year.
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Fiscal 2021 Financial Results
•Consolidated net sales revenue increased 22.9%, or $391.4 million, to $2,098.8 million in fiscal 2021, compared to $1,707.4 million in fiscal 2020.
•Consolidated operating income increased 57.9%, or $103.2 million, to $281.5 million in fiscal 2021, compared to $178.3 million in fiscal 2020. Consolidated operating margin increased 3.0 percentage points to 13.4% in fiscal 2021, compared to 10.4% in fiscal 2020. Consolidated operating income for fiscal 2021 included pre-tax asset impairment charges of $8.5 million and pre-tax restructuring charges of $0.4 million related to Project Refuel. Consolidated operating income for fiscal 2020 includesincluded pre-tax non-cash asset impairment charges of $41.0 million, pre-tax restructuring charges of $3.3 million related to Project Refuel, and pretaxpre-tax acquisition-related expenses of $2.5 million. Consolidated operating income for 2019 included pre-tax restructuring charges of $3.6 million.
•Consolidated adjusted operating income increased 12.6%24.2%, or $30.1$65.1 million, to $334.4 million in fiscal 2021, compared to $269.3 million compared to $239.2 million for the same period last year.in fiscal 2020. Consolidated adjusted operating margin increased 0.50.1 percentage pointspoint to 15.8% of consolidated net sales revenue, compared to 15.3% for the same period last year.
•Net income increased 35.2%66.7%, or $45.3$101.6 million, to $174.2$253.9 million in fiscal 2019,2021, compared to $128.9$152.3 million in fiscal 2018.2020. Diluted EPS from continuing operations increased 40.0%67.4% to $6.62$10.08 in fiscal 2019,2021, compared to $4.73$6.02 in fiscal 2018.2020.
•Adjusted income from continuing operations increased 7.5%24.7% to $212.1$293.7 million in fiscal 2019,2021, compared to $197.2$235.6 million in fiscal 2018.2020. Adjusted diluted EPS from continuing operations increased 11.3%25.3% to $8.06$11.65 in fiscal 2019,2021, compared to $7.24$9.30 in fiscal 2018.2020.
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Consolidated and Segment Net Sales
The following table summarizestables summarize the impact that acquisitionsOrganic business, foreign currency, and foreign currencyacquisitions had on our net sales revenue by segment:
we expect to divest within a year of its designation as Non-Core. The following tables summarizessummarize the impact that Core business and Non-Core (Personal Care) business had on our net sales revenue by segment:
an increase in brick•the impact of customer price increases related to rising freight and mortar sales in our Housewares segment; andproduct costs.an increase in sales in the appliance category in the Beauty segment.
Net sales of $6.0 million, or 0.4%, from the Drybar Products acquisition also contributed to consolidated net sales growth.
lower sales in our Health & Home segment;Wellness segment as a result of the EPA packaging compliance matter and
Net sales from our Leadership Brands were $1,360.1 million in 2020, compared to $1,243.6 million for the same period last year, representing growth of 9.4%.
Comparison of Fiscal 2019 to 2018•Consolidateda net sales revenue increased $85.3decline in Non-Core business primarily due to the sale of our North America Personal Care business during the second quarter of fiscal 2022.
overall point of sale growth in the brick and mortar channel;incremental distribution;growth in online sales;increased international sales; andnew product introductions.
These factors were partially offset by:a consumption decline in the personal care category;the discontinuation of certain brands and products within our Beauty segment; andthe unfavorable impact from foreign currency fluctuations of approximately $1.2 million or 0.1%.
Netconsolidated net sales from our Leadership Brands were $1,243.6 million, compared to $1,142.2 million, representing growth of 8.9%.
Segment Net Sales RevenueHousewares
Comparison of Fiscal 2020 to 2019point of sale growth with existing domestic brick and mortar customers;an increase in online sales; andnew product introductions.These factors were partially offset by lower international sales and the unfavorable impact from foreign currency fluctuations of approximately $1.3 million, or 0.2%.
Comparison of Fiscal 2019 to 2018Net sales revenue increased $64.8 million, or 14.1%, to $523.8 million, compared to $459.0 million. Growth was driven by an Organic business increase of $64.9 million, or 14.1%, primarily due to:point of sale growth with existing customers;an increase in online sales;higher sales in the club channel; andnew product introductions.
These factors were partially offset by lower closeout sales.
Health & Home
Comparison of Fiscal 2020 to 2019Net sales revenue decreased $9.8 million, or 1.4%, to $685.4 million compared to $695.2 million. The decline was mostly driven by an Organic business decrease of $5.3 million or, 0.8%, primarily due to:lower domestic sales driven by net distribution changes year-over-year;the unfavorable comparative impacts of more wildfire activity in the same period last year; andlower international sales.
Net sales were also unfavorablyfavorably impacted by net foreign currency fluctuations of approximately $4.5$6.8 million, or 0.6%0.3%.
These factors were partially offset by new product introductions and increased demand for certain products, particularly thermometers, relatedNet sales revenue from our Leadership Brands was $1,810.2 million, compared to the global impact$1,706.5 million, representing growth of COVID-19 late in the fourth quarter.
increased•higher brick and mortar and online channel sales driven by strong consumer demand and the favorable comparative impact of COVID-19 related store closures and reduced store traffic in the appliance category;prior year;growth•new product introductions;an increase in•higher international sales.
Net sales growth also benefited from approximately 5 weeks of sales of $6.0 million, or 1.7%, from the Drybar Products acquisition.
Comparison of Fiscal 2019 to 2018
growth in the online channel;
new product introductions in the retail appliance category; and
an increase in international sales.
These factors were partially offset by:a decline in brick and mortar sales;the discontinuation of certain brands and products; anda decrease in Personal Care.
Consolidated gross profit margin increased 2.0 percentage points to 43.0%, compared to 41.0%. The increase in consolidated gross profit margin is primarily due to:a higher mix of Housewares sales at a higher overall gross profit margin;a favorable product and channel mix within the Housewares segment;tariff exclusion refunds received for certain duties expensed in the second half of fiscal 2019 and the first quarter of fiscal 2020; anda lower mix of shipments made on a direct import basis.
These factors were partially offset by:unfavorable foreign currency fluctuations;the dilutive impact of higher tariffs; andhigher inbound freight expense.
Comparison of Fiscal 2019 to 20182021a higher mix of shipments made on a direct import basis; andthe impact of tariff increases.
Selling General and Administrative Expense
higher advertising expense;•increased distribution expense.higher freight and distribution expense; andhigher amortization expense.
the impact from tariff related pricing actions taken with retail customers;•a decrease in marketing expense;
Comparison of Fiscal 2019 to 2018Consolidated SG&A ratio decreased 0.7 percentage points to 28.0%, compared to 28.7%. The decrease in the consolidated SG&A ratio was primarily due to:lower amortization expense;the favorable impact from foreign currency exchange and forward contract settlements;the favorable comparative impact of a $3.6 million charge related to the bankruptcy of TRU in the same period in fiscal 2018;the favorable impact of a higher mix of shipments made on a direct import basis; andthe impact that higher overall net sales had on operating leverage.growth.
These factors were partially offset by:higher advertising expense;higher share-based compensation expense; andhigher freight expense.
Fiscal 2020As a result of our annual testing of goodwill and indefinite-lived trademarks, we recorded non-cash asset impairment charges primarily related to goodwill and intangible assets of $41.0 million ($36.4 million after tax) in continuing operations. The charges were related to Personal Care goodwill and trademark assets within our Beauty segment, classified as held for sale in the fourth quarter of fiscal 2020.
Fiscal 2019We incurred $3.6 million of pre-tax restructuring costs related to employee termination benefits under Project Refuel. During fiscal 2019, we made total cash restructuring payments of $3.1 million and had a remaining liability of $1.2$0.1 million as of February 28, 2019.2021.
Fiscal 2018Table of ContentsWe incurred $1.9 million of pre-tax restructuring costs related to employee termination benefits and contract termination costs under Project Refuel. During fiscal 2018, we made total cash restructuring payments of $1.3 million and had a remaining liability of $0.5 million as of February 28, 2018.
| Fiscal Year Ended Last Day of February, | ||||||||||||||||
| (in thousands) | Housewares | Health & Home | Beauty | Total | ||||||||||||
| Fiscal 2019 sales revenue, net (1) | $ | 523,807 | $ | 695,217 | $ | 345,127 | $ | 1,564,151 | ||||||||
| Organic business (3) | 118,446 | (5,349 | ) | 31,157 | 144,254 | |||||||||||
| Impact of foreign currency | (1,288 | ) | (4,471 | ) | (1,253 | ) | (7,012 | ) | ||||||||
| Acquisition (2) | — | — | 6,039 | 6,039 | ||||||||||||
| Change in sales revenue, net | 117,158 | (9,820 | ) | 35,943 | 143,281 | |||||||||||
Fiscal 2020 sales revenue, net | $ | 640,965 | $ | 685,397 | $ | 381,070 | $ | 1,707,432 | ||||||||
| Total net sales revenue growth | 22.4 | % | (1.4 | )% | 10.4 | % | 9.2 | % | ||||||||
| Organic business | 22.6 | % | (0.8 | )% | 9.0 | % | 9.2 | % | ||||||||
| Impact of foreign currency | (0.2 | )% | (0.6 | )% | (0.4 | )% | (0.4 | )% | ||||||||
| Acquisition | — | % | — | % | 1.7 | % | 0.4 | % | ||||||||
| Fiscal Year Ended Last Day of February, | ||||||||||||||||
| (in thousands) | Housewares | Health & Home | Beauty | Total | ||||||||||||
| Fiscal 2018 sales revenue, net (1) | $ | 459,004 | $ | 674,062 | $ | 345,779 | $ | 1,478,845 | ||||||||
| Organic business (3) | 64,886 | 21,061 | 572 | 86,519 | ||||||||||||
| Impact of foreign currency | (83 | ) | 94 | (1,224 | ) | (1,213 | ) | |||||||||
| Acquisition | — | — | — | — | ||||||||||||
| Change in sales revenue, net | 64,803 | 21,155 | (652 | ) | 85,306 | |||||||||||
| Fiscal 2019 sales revenue, net (1) | $ | 523,807 | $ | 695,217 | $ | 345,127 | $ | 1,564,151 | ||||||||
| Total net sales revenue growth | 14.1 | % | 3.1 | % | (0.2 | )% | 5.8 | % | ||||||||
| Organic business | 14.1 | % | 3.1 | % | 0.2 | % | 5.9 | % | ||||||||
| Impact of foreign currency | — | % | — | % | (0.4 | )% | (0.1 | )% | ||||||||
| Acquisition | — | % | — | % | — | % | — | % | ||||||||
| Fiscal Year Ended Last Day of February, | |||||||||||||||||||||||
| (in thousands) | Home & Outdoor | Health & Wellness | Beauty | Total | |||||||||||||||||||
| Fiscal 2021 sales revenue, net | $ | 727,354 | $ | 890,191 | $ | 481,254 | $ | 2,098,799 | |||||||||||||||
| Organic business | 113,495 | (116,690) | 96,550 | 93,355 | |||||||||||||||||||
| Impact of foreign currency | 622 | 3,579 | 2,627 | 6,828 | |||||||||||||||||||
| Acquisition (1) | 24,373 | — | — | 24,373 | |||||||||||||||||||
| Change in sales revenue, net | 138,490 | (113,111) | 99,177 | 124,556 | |||||||||||||||||||
Fiscal 2022 sales revenue, net | $ | 865,844 | $ | 777,080 | $ | 580,431 | $ | 2,223,355 | |||||||||||||||
| Total net sales revenue growth (decline) | 19.0 | % | (12.7) | % | 20.6 | % | 5.9 | % | |||||||||||||||
| Organic business | 15.6 | % | (13.1) | % | 20.1 | % | 4.4 | % | |||||||||||||||
| Impact of foreign currency | 0.1 | % | 0.4 | % | 0.5 | % | 0.3 | % | |||||||||||||||
| Acquisition | 3.4 | % | — | % | — | % | 1.2 | % | |||||||||||||||
| Fiscal Year Ended Last Day of February, | |||||||||||||||||||||||
| (in thousands) | Home & Outdoor | Health & Wellness | Beauty | Total | |||||||||||||||||||
| Fiscal 2020 sales revenue, net | $ | 640,965 | $ | 685,397 | $ | 381,070 | $ | 1,707,432 | |||||||||||||||
| Organic business | 85,916 | 202,786 | 57,110 | 345,812 | |||||||||||||||||||
| Impact of foreign currency | 473 | 2,008 | (2,926) | (445) | |||||||||||||||||||
| Acquisition (2) | — | — | 46,000 | 46,000 | |||||||||||||||||||
| Change in sales revenue, net | 86,389 | 204,794 | 100,184 | 391,367 | |||||||||||||||||||
| Fiscal 2021 sales revenue, net | $ | 727,354 | $ | 890,191 | $ | 481,254 | $ | 2,098,799 | |||||||||||||||
| Total net sales revenue growth (decline) | 13.5 | % | 29.9 | % | 26.3 | % | 22.9 | % | |||||||||||||||
| Organic business | 13.4 | % | 29.6 | % | 15.0 | % | 20.3 | % | |||||||||||||||
| Impact of foreign currency | 0.1 | % | 0.3 | % | (0.8) | % | — | % | |||||||||||||||
| Acquisition | — | % | — | % | 12.1 | % | 2.7 | % | |||||||||||||||
(1)On December 29, 2021, we completed the acquisition of Osprey. Osprey sales are reported in Acquisition in fiscal 2022 and consist of approximately nine weeks of operating results. For additional information see Note 7 to the accompanying consolidated financial statements.
(2)On January 23, 2020, we completed the acquisition of Drybar Products. Drybar Products sales prior to the first annual anniversary of the acquisition are reported in Acquisition in fiscal 2021 and consist of approximately 47 weeks of incremental operating results. For additional information see Note 7 to the accompanying consolidated financial statements.
In the above tables, Organic 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 iswas acquired, excluding the impact that foreign currency re-measurementremeasurement had on reported net sales.sales revenue. Net sales revenue from internally developed brands or product lines is considered Organic business activity.
We previously referred to Organic business sales asdefine Core business sales.
as strategic business that we expect to be an ongoing part of our operations, and Non-Core business as business or net assets (including net assets held for sale) that we expect to divest within a year of its designation as Non-Core. During the fourth quarter of fiscal 2020, we committed to a plan to divest certain assets within our mass market personal carePersonal Care business. As a result, sales from
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our Personal Care business (Personal Care). The assetsare included in Non-Core business for all periods presented. On June 7, 2021, we completed the sale of our North America Personal Care business. Sales from our Latin America and Caribbean Personal Care businesses continue to be disposed of include intangibleincluded in Non-Core business for all periods presented as the related net assets inventory and fixed assets relatingcontinue to our mass channel liquids, powder and aerosol products under brands such as Pert, Brut, Sure and Infusium. We expect the divestiture to occur within fiscal 2021. Accordingly, we havebe classified the identified assets of the disposal group as held for sale. Subsequent to our fiscal 2022 year end, on March 25, 2022, we completed the sale on our balance sheet. In conjunction with this change, we now define Core as strategic business that we expect to be an ongoing part of our operations,the Latin America and Non-Core as business or assets (including assets held for sale) thatCaribbean Personal Care businesses.
| Fiscal Year Ended Last Day of February, | ||||||||||||||||
| (in thousands) | Housewares | Health & Home | Beauty | Total | ||||||||||||
| Fiscal 2019 sales revenue, net | $ | 523,807 | $ | 695,217 | $ | 345,127 | $ | 1,564,151 | ||||||||
| Core business | 117,158 | (9,820 | ) | 46,796 | 154,134 | |||||||||||
| Non-core business (Personal Care) | — | — | (10,853 | ) | (10,853 | ) | ||||||||||
| Change in sales revenue, net | 117,158 | (9,820 | ) | 35,943 | 143,281 | |||||||||||
| Fiscal 2020 sales revenue, net | $ | 640,965 | $ | 685,397 | $ | 381,070 | $ | 1,707,432 | ||||||||
| Total net sales revenue growth | 22.4 | % | (1.4 | )% | 10.4 | % | 9.2 | % | ||||||||
| Core business | 22.4 | % | (1.4 | )% | 13.6 | % | 9.9 | % | ||||||||
| Non-core business (Personal Care) | — | % | — | % | (3.1 | )% | (0.7 | )% | ||||||||
| Fiscal Year Ended Last Day of February, | |||||||||||||||||||||||
| (in thousands) | Home & Outdoor | Health & Wellness | Beauty | Total | |||||||||||||||||||
| Fiscal 2021 sales revenue, net | $ | 727,354 | $ | 890,191 | $ | 481,254 | $ | 2,098,799 | |||||||||||||||
| Core business | 138,490 | (113,111) | 143,407 | 168,786 | |||||||||||||||||||
| Non-Core business (Personal Care) | — | — | (44,230) | (44,230) | |||||||||||||||||||
| Change in sales revenue, net | 138,490 | (113,111) | 99,177 | 124,556 | |||||||||||||||||||
| Fiscal 2022 sales revenue, net | $ | 865,844 | $ | 777,080 | $ | 580,431 | $ | 2,223,355 | |||||||||||||||
| Total net sales revenue growth (decline) | 19.0 | % | (12.7) | % | 20.6 | % | 5.9 | % | |||||||||||||||
| Core business | 19.0 | % | (12.7) | % | 29.8 | % | 8.0 | % | |||||||||||||||
| Non-Core business (Personal Care) | — | % | — | % | (9.2) | % | (2.1) | % | |||||||||||||||
| Fiscal Year Ended Last Day of February, | |||||||||||||||||||||||
| (in thousands) | Home & Outdoor | Health & Wellness | Beauty | Total | |||||||||||||||||||
| Fiscal 2020 sales revenue, net | $ | 640,965 | $ | 685,397 | $ | 381,070 | $ | 1,707,432 | |||||||||||||||
| Core business | 86,389 | 204,794 | 114,176 | 405,359 | |||||||||||||||||||
| Non-Core business (Personal Care) | — | — | (13,992) | (13,992) | |||||||||||||||||||
| Change in sales revenue, net | 86,389 | 204,794 | 100,184 | 391,367 | |||||||||||||||||||
| Fiscal 2021 sales revenue, net | $ | 727,354 | $ | 890,191 | $ | 481,254 | $ | 2,098,799 | |||||||||||||||
| Total net sales revenue growth (decline) | 13.5 | % | 29.9 | % | 26.3 | % | 22.9 | % | |||||||||||||||
| Core business | 13.5 | % | 29.9 | % | 30.0 | % | 23.7 | % | |||||||||||||||
| Non-Core business (Personal Care) | — | % | — | % | (3.7) | % | (0.8) | % | |||||||||||||||
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| Fiscal Year Ended Last Day of February, | ||||||||||||||||
| (in thousands) | Housewares | Health & Home | Beauty | Total | ||||||||||||
| Fiscal 2018 sales revenue, net | $ | 459,004 | $ | 674,062 | $ | 345,779 | $ | 1,478,845 | ||||||||
| Core business | 64,803 | 21,155 | 4,962 | 90,920 | ||||||||||||
| Non-core business (Personal Care) | — | — | (5,614 | ) | (5,614 | ) | ||||||||||
| Change in sales revenue, net | 64,803 | 21,155 | (652 | ) | 85,306 | |||||||||||
| Fiscal 2019 sales revenue, net | $ | 523,807 | $ | 695,217 | $ | 345,127 | $ | 1,564,151 | ||||||||
| Total net sales revenue growth | 14.1 | % | 3.1 | % | (0.2 | )% | 5.8 | % | ||||||||
| Core business | 14.1 | % | 3.1 | % | 1.4 | % | 6.1 | % | ||||||||
| Non-core business (Personal Care) | — | % | — | % | (1.6 | )% | (0.4 | )% | ||||||||
Leadership Brand and Other Net Sales Revenue
The following tablestable summarizes our Leadership Brand and other net sales: sales revenue:
| Fiscal Years Ended Last Day of February, | $ Change | % Change | Fiscal Years Ended Last Day of February, | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2020 | 2019 | 2018 | 20/19 | 19/18 | 20/19 | 19/18 | (in thousands) | 2022 | 2021 | 2020 | 22/21 | 21/20 | 22/21 | 21/20 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Leadership Brand sales revenue, net (1) | $ | 1,360,059 | $ | 1,243,600 | $ | 1,142,183 | $ | 116,459 | $ | 101,417 | 9.4 | % | 8.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leadership Brand sales revenue, net (1)(2) | Leadership Brand sales revenue, net (1)(2) | $ | 1,810,249 | $ | 1,706,545 | $ | 1,360,059 | $ | 103,704 | $ | 346,486 | 6.1 | % | 25.5 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
| All other sales revenue, net | 347,373 | 320,551 | 336,662 | 26,822 | (16,111 | ) | 8.4 | % | (4.8 | )% | All other sales revenue, net | 413,106 | 392,254 | 347,373 | 20,852 | 44,881 | 5.3 | % | 12.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||
| Total sales revenue, net | $ | 1,707,432 | $ | 1,564,151 | $ | 1,478,845 | $ | 143,281 | $ | 85,306 | 9.2 | % | 5.8 | % | Total sales revenue, net | $ | 2,223,355 | $ | 2,098,799 | $ | 1,707,432 | $ | 124,556 | $ | 391,367 | 5.9 | % | 22.9 | % | |||||||||||||||||||||||||||||||||||||
(1)Fiscal 2022 includes approximately nine weeks of operating results from Osprey, acquired on December 29, 2021. For additional information see Note 7 to the accompanying consolidated financial statements.
(2)Fiscal 2022 and 2021 include a full year of operating results from Drybar Products, acquired on January 23, 2020, compared to approximately five weeks of operating results in fiscal 2020. For additional information see Note 7 to the accompanying consolidated financial statements.
Consolidated Net Sales Revenue
Comparison of Fiscal 20202022 to 20192021
Consolidated net sales revenue increased $143.3$124.6 million, or 9.2%5.9%, to $1,707.4$2,223.4 million, compared to $1,564.2$2,098.8 million. Growth was driven by an increase from Organic business increase of $144.3$93.4 million, or 9.2%4.4%, primarily due to:
•higher brick and mortar and online channel sales in our Beauty and Home & Outdoor segments primarily reflecting strong consumer demand and the favorable comparative impact of COVID-19 related store closures, reduced store traffic and a soft back-to-school season in the prior year;
•higher sales in the club and closeout channels;
•growth in consolidated onlineinternational sales; and
These factors were partially offset by:
•a declinedecrease in Personal Care within the Beauty segment;
related stop shipment actions and stronger COVID-19 driven demand for healthcare and healthy living products, primarily in thermometry and air filtration, in the unfavorable impact from foreign currency fluctuations of approximately $7.0 million, or 0.4%.
The Osprey acquisition also contributed $24.4 million, or 5.8%1.2%, to $1,564.2 million, compared to $1,478.8 million. Growth was driven by an Organic business increase of $86.5 million, or 5.9%, primarily due to:
revenue growth. Net sales revenue increased $117.2 million, or 22.4%, to $641.0 million, compared to $523.8 million. Growth was driven by an Organic business increase of $118.4 million, or 22.6%, primarily due to:
Segment Net Sales Revenue
Home & Outdoor
Comparison of Fiscal 20192022 to 20182021
Net sales revenue increased $21.2$138.5 million, or 3.1%19.0%, to $695.2$865.8 million, compared to $674.1$727.4 million. Growth was driven by an increase from Organic business increase of 3.1%$113.5 million, or 15.6%, primarily due to to:
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•higher brick and mortar and online channel sales driven by strong consumer demand and the favorable comparative impact of COVID-19 related store closures, reduced store traffic and a soft back-to-school season in the prior year;
•higher sales of seasonal productsin the club and closeout channels;
•growth in international sales.sales; and
•the impact of customer price increases related to rising freight and product costs.
Net sales revenue growth also benefited from approximately nine weeks of net sales revenue of $24.4 million, or 3.4%, from the Osprey acquisition. Net sales revenue was also favorably impacted by net foreign currency fluctuations of approximately $0.6 million, or 0.1%.
Health & Wellness
Comparison of Fiscal 2022 to 2021
Net sales revenue decreased $113.1 million, or 12.7%, to $777.1 million, compared to $890.2 million. The decrease was primarily driven by a decrease from Organic business of $116.7 million, or 13.1%, primarily due to:
•a decrease in both brick and mortar and online sales of air filtration, water filtration, and humidification products as a result of the EPA packaging compliance matter and related stop shipment actions;
•a decline in sales of thermometers and air filtration products due to stronger COVID-19 driven demand for healthcare and healthy living products in the comparative prior year; and
•the unfavorable impact on sales of air filtration products driven by greater wildfire activity on the west coast of the U.S. in the comparative prior year.
These factors were partially offset by an unfavorable comparisonincrease in sales of fans as some customers accelerated seasonal orders, and the impact of customer price increases related to fiscal 2018, which benefited from strong cough/cold/flu incidence along with unseasonably cold fallrising freight and winter weather. product costs.
Net sales revenue was also favorably impacted by net foreign currency fluctuations were not meaningful.of approximately $3.6 million, or 0.4%.
Beauty
Comparison of Fiscal 20202022 to 20192021
Net sales revenue increased $35.9$99.2 million, or 10.4%20.6%, to $381.1$580.4 million, compared to $345.1$481.3 million. The increase was driven by an increase infrom Organic business of $31.2$96.6 million, or 9.0%20.1%, primarily due to:
•expanded distribution primarily in the onlineclub channel;
•increased closeout channel sales; and
These factors were partially offset by a decline in Non-Core business net sales inrevenue primarily due to the sale of the North America Personal Care andbusiness during the unfavorable impactsecond quarter of net foreign currency fluctuations of approximately $1.3 million, or 0.4%.
Net sales revenue decreased $0.7 million, or 0.2%, to $345.1 million compared to $345.8 million. Net sales were unfavorablywas also favorably impacted by net foreign currency fluctuations of approximately $1.2$2.6 million, or 0.4%0.5%. Organic revenue increased by 0.2%, primarily due to:
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Consolidated Gross Profit Margin
Comparison of Fiscal 20202022 to 2019
Consolidated gross profit margin decreased 0.31.3 percentage points to 41.0%42.9%, compared to 41.3%44.2%. The decrease in consolidated gross profit margin iswas primarily due to:
•the net dilutive impact of inflationary costs and related customer price increases;
•EPA compliance costs recognized in cost of goods sold in the Health & Wellness segment of $17.8 million; and
•a less favorable channel and product mix;mix within the Home & Outdoor segment.
These factors were partially offset by a more favorable product mix within the Beauty and Home & Outdoor segments and a favorable margin impact from growth inmix of more Beauty and Home & Outdoor sales within our Leadership Brands.
Consolidated SG&A
Comparison of Fiscal 20202022 to 20192021
Consolidated SG&A ratio increased 2.00.2 percentage points to 30.0%30.6%, compared to 28.0%30.4%. The increase in the consolidated SG&A ratio was primarily due to:
•the comparative impact of higher short-personnel expense due to cost reduction initiatives in the prior year period related to the uncertainty of COVID-19;
•EPA compliance costs of $14.6 million in the Health & Wellness segment as a result of the EPA packaging compliance matter and long-term performance-based incentiverelated stop shipment actions;
•higher share-based compensation expense; and
These factors were partially offset by:
•lower royalty expense;
•reduced amortization expense; and
•the favorable leverage impact of foreign currency exchange and forward contract settlements.
Asset Impairment Charges
Fiscal 20192022
We did not record any asset impairment charges.
Fiscal 20182021
As a result of our interim and annual testingquarterly impairment evaluation of indefinite-lived trademarks,long-lived assets held for sale, we recorded non-cashan asset impairment chargescharge of $15.4$8.5 million ($13.87.4 million after tax) in continuing operations. The charges were related to reduce the goodwill of our Personal Care trademarks in our Beauty segment.business during the fourth quarter of fiscal 2021.
Restructuring Charges
Fiscal 20202022
We incurred $3.3$0.4 million of pre-tax restructuring costs related to employee severance and termination benefits under Project Refuel. During fiscal 2022, we made total cash restructuring payments of $0.5 million.
Fiscal 2021
We incurred $0.4 million of pre-tax restructuring costs related to employee severance and termination benefits and contract termination costs under Project Refuel. During fiscal 2020,2021, we made total cash restructuring payments of $3.8$1.1 million and had a remaining liability of $0.8 million as of February 29, 2020.
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Operating income, operating margin, adjusted operating incomeIncome, Operating Margin, Adjusted Operating Income (non-GAAP), and adjusted operating marginAdjusted Operating Margin (non-GAAP) by segmentSegment
In order to provide a better understanding of the impact of certain items on our operating income, the below tables that follow report the comparative pre-tax impact of non‐cash asset impairment charges, acquisition-related expenses, EPA compliance costs, restructuring charges, the TRU bankruptcy charge, 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 coveredpresented below. Adjusted operating income and adjusted operating margin may be considered non-GAAP financial measures as contemplated by SEC regulationRegulation G, Rule 100. For additional information regarding management’s decision to present this non-GAAP financial information, see the introduction to this Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operation.Operations.”
| Fiscal Year Ended February 28, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | Home & Outdoor (1) | Health & Wellness | Beauty (2) | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating income, as reported (GAAP) | Operating income, as reported (GAAP) | $ | 134,925 | 15.6 | % | $ | 39,217 | 5.0 | % | $ | 98,408 | 17.0 | % | $ | 272,550 | 12.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition-related expenses | Acquisition-related expenses | 2,424 | 0.3 | % | — | — | % | — | — | % | 2,424 | 0.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fiscal Year Ended February 29, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | Housewares | Health & Home | Beauty (1) | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating income (loss), as reported (GAAP) | $ | 123,135 | 19.2 | % | $ | 68,166 | 9.9 | % | $ | (13,050 | ) | (3.4 | )% | $ | 178,251 | 10.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition-related expenses | — | — | % | — | — | % | 2,546 | 0.7 | % | 2,546 | 0.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset impairment charges | — | — | % | — | — | % | 41,000 | 10.8 | % | 41,000 | 2.4 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EPA compliance costs | EPA compliance costs | — | — | % | 32,354 | 4.2 | % | — | — | % | 32,354 | 1.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring charges | 1,351 | 0.2 | % | 93 | — | % | 1,869 | 0.5 | % | 3,313 | 0.2 | % | Restructuring charges | 369 | — | % | — | — | % | 11 | — | % | 380 | — | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subtotal | 124,486 | 19.4 | % | 68,259 | 10.0 | % | 32,365 | 8.5 | % | 225,110 | 13.2 | % | Subtotal | 137,718 | 15.9 | % | 71,571 | 9.2 | % | 98,419 | 17.0 | % | 307,708 | 13.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 2,055 | 0.3 | % | 10,539 | 1.5 | % | 8,677 | 2.3 | % | 21,271 | 1.2 | % | Amortization of intangible assets | 2,891 | 0.3 | % | 2,284 | 0.3 | % | 7,589 | 1.3 | % | 12,764 | 0.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-cash share-based compensation | 7,218 | 1.1 | % | 9,717 | 1.4 | % | 5,994 | 1.6 | % | 22,929 | 1.3 | % | Non-cash share-based compensation | 13,812 | 1.6 | % | 12,001 | 1.5 | % | 8,805 | 1.5 | % | 34,618 | 1.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted operating income (non-GAAP) | $ | 133,759 | 20.9 | % | $ | 88,515 | 12.9 | % | $ | 47,036 | 12.3 | % | $ | 269,310 | 15.8 | % | Adjusted operating income (non-GAAP) | $ | 154,421 | 17.8 | % | $ | 85,856 | 11.0 | % | $ | 114,813 | 19.8 | % | $ | 355,090 | 16.0 | % | ||||||||||||||||||||||||||||||||||||||||||
| Fiscal Year Ended February 28, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | Home & Outdoor | Health & Wellness | Beauty (2) | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating income, as reported (GAAP) | Operating income, as reported (GAAP) | $ | 122,487 | 16.8 | % | $ | 94,103 | 10.6 | % | $ | 64,898 | 13.5 | % | $ | 281,488 | 13.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fiscal Year Ended February 28, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | Housewares | Health & Home | Beauty | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating income, as reported (GAAP) | $ | 100,743 | 19.2 | % | $ | 68,448 | 9.8 | % | $ | 30,188 | 8.7 | % | $ | 199,379 | 12.7 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset impairment charges | — | — | % | — | — | % | — | — | % | — | — | % | Asset impairment charges | — | — | % | — | — | % | 8,452 | 1.8 | % | 8,452 | 0.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring charges | 926 | 0.2 | % | 686 | 0.1 | % | 1,974 | 0.6 | % | 3,586 | 0.2 | % | Restructuring charges | 249 | — | % | (6) | — | % | 107 | — | % | 350 | — | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Subtotal | 101,669 | 19.4 | % | 69,134 | 9.9 | % | 32,162 | 9.3 | % | 202,965 | 13.0 | % | Subtotal | 122,736 | 16.9 | % | 94,097 | 10.6 | % | 73,457 | 15.3 | % | 290,290 | 13.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 1,980 | 0.4 | % | 10,925 | 1.6 | % | 1,299 | 0.4 | % | 14,204 | 0.9 | % | Amortization of intangible assets | 2,055 | 0.3 | % | 8,611 | 1.0 | % | 6,977 | 1.4 | % | 17,643 | 0.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-cash share-based compensation | 7,974 | 1.5 | % | 9,204 | 1.3 | % | 4,875 | 1.4 | % | 22,053 | 1.4 | % | Non-cash share-based compensation | 10,278 | 1.4 | % | 9,191 | 1.0 | % | 6,949 | 1.4 | % | 26,418 | 1.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted operating income (non-GAAP) | $ | 111,623 | 21.3 | % | $ | 89,263 | 12.8 | % | $ | 38,336 | 11.1 | % | $ | 239,222 | 15.3 | % | Adjusted operating income (non-GAAP) | $ | 135,069 | 18.6 | % | $ | 111,899 | 12.6 | % | $ | 87,383 | 18.2 | % | $ | 334,351 | 15.9 | % | ||||||||||||||||||||||||||||||||||||||||||
| Fiscal Year Ended February 29, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | Home & Outdoor | Health & Wellness | Beauty (2) | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating income (loss), as reported (GAAP) | Operating income (loss), as reported (GAAP) | $ | 123,135 | 19.2 | % | $ | 68,166 | 9.9 | % | $ | (13,050) | (3.4) | % | $ | 178,251 | 10.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition-related expenses | Acquisition-related expenses | — | — | % | — | — | % | 2,546 | 0.7 | % | 2,546 | 0.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset impairment charges | Asset impairment charges | — | — | % | — | — | % | 41,000 | 10.8 | % | 41,000 | 2.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring charges | Restructuring charges | 1,351 | 0.2 | % | 93 | — | % | 1,869 | 0.5 | % | 3,313 | 0.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fiscal Year Ended February 28, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | Housewares | Health & Home | Beauty | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating income, as reported (GAAP) | $ | 89,319 | 19.5 | % | $ | 62,099 | 9.2 | % | $ | 17,644 | 5.1 | % | $ | 169,062 | 11.4 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset impairment charges | — | — | % | — | — | % | 15,447 | 4.5 | % | 15,447 | 1.0 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring Charges | 220 | — | % | — | — | % | 1,637 | 0.5 | % | 1,857 | 0.1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TRU bankruptcy charge | 956 | 0.2 | % | 2,640 | 0.4 | % | — | — | % | 3,596 | 0.2 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Subtotal | 90,495 | 19.7 | % | 64,739 | 9.6 | % | 34,728 | 10.0 | % | 189,962 | 12.8 | % | Subtotal | 124,486 | 19.4 | % | 68,259 | 10.0 | % | 32,365 | 8.5 | % | 225,110 | 13.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 2,226 | 0.5 | % | 11,101 | 1.6 | % | 5,527 | 1.6 | % | 18,854 | 1.3 | % | Amortization of intangible assets | 2,055 | 0.3 | % | 10,539 | 1.5 | % | 8,677 | 2.3 | % | 21,271 | 1.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-cash share-based compensation | 4,701 | 1.0 | % | 5,721 | 0.8 | % | 4,632 | 1.3 | % | 15,054 | 1.0 | % | Non-cash share-based compensation | 7,218 | 1.1 | % | 9,717 | 1.4 | % | 5,994 | 1.6 | % | 22,929 | 1.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted operating income (non-GAAP) | $ | 97,422 | 21.2 | % | $ | 81,561 | 12.1 | % | $ | 44,887 | 13.0 | % | $ | 223,870 | 15.1 | % | Adjusted operating income (non-GAAP) | $ | 133,759 | 20.9 | % | $ | 88,515 | 12.9 | % | $ | 47,036 | 12.3 | % | $ | 269,310 | 15.8 | % | ||||||||||||||||||||||||||||||||||||||||||
(1)Fiscal 20202022 includes approximately 5nine weeks of incremental operating results from Osprey, acquired on December 29, 2021. For additional information see Note 7 to the accompanying consolidated financial statements.
(2)Fiscal 2022 and 2021 include a full year of operating results from Drybar Products, acquisition completedacquired on January 23, 2020, compared to approximately five weeks of operating results in fiscal 2020. For additional information see Note 7 to the accompanying consolidated financial statements.
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Consolidated Operating Income
Comparison of Fiscal 20202022 to 20192021
Consolidated operating income was $178.3$272.6 million, or 10.4%12.3% of net sales revenue, compared to $199.4$281.5 million, or 12.7%13.4% of net sales.sales revenue. Fiscal 20202022 includes pre-tax non-cash asset impairment chargesacquisition-related expenses of $41.0$2.4 million, pre-tax acquisition-related chargesEPA compliance costs of $2.5$32.4 million, and pre-tax restructuring charges of $3.3$0.4 million, compared to pre-tax asset impairment charges of $8.5 million and pre-tax restructuring charges of $3.6$0.4 million in the same period last year.fiscal 2021. The effect of these items in both years unfavorably impacted the year-over-year comparison of consolidated operating margin by a combined 2.51.2 percentage points. The remaining 0.1 percentage point increase in consolidated operating margin was primarily driven by:
•a favorable product and channel mix within the Housewares segment;Beauty and
•a decrease in marketing expense;
•lower royalty expense; and
•reduced amortization expense.
These factors were partially offset by:
•the net dilutive impact of inflationary costs and related customer price increases;
•the comparative impact of higher short- and long-term performance-based incentivepersonnel expense due to cost reduction initiatives in the prior year period related to the uncertainty of COVID-19;
•higher share-based compensation expense;
Consolidated adjusted operating income increased 12.6%6.2% to $269.3$355.1 million, or 15.8%16.0% of net sales revenue, compared to $239.2$334.4 million, or 15.3%15.9% of net sales.
Home & Outdoor
Comparison of Fiscal 20192022 to 2018
Operating income was $123.1$134.9 million, or 19.2%15.6% of segment net sales revenue, compared to $100.7$122.5 million, or 19.2% of segment net sales. Segment operating margin remained the same in both periods as the margin impact of a more favorable product and channel mix was offset by:
•a less favorable channel mix;
•an increase in marketing expense;
•higher advertising expense;acquisition-related expense in connection with the Osprey transaction;
•the net dilutive impact of inflationary costs and related customer price increases; and
•higher share-based compensation expense;expense.
These factors were partially offset by:
Health & Home
Comparison of Fiscal 20202022 to 20192021
Operating income was $68.2$39.2 million, or 9.9%5.0% of segment net sales revenue, compared to $68.4$94.1 million, or 9.8%10.6% of segment net sales.sales revenue. The 0.15.6 percentage point increasedecrease in segment operating margin is primarily due to:
•EPA compliance costs of $32.4 million;
•the second halfnet dilutive impact of fiscal 2019inflationary costs and first quarterrelated customer price increases;
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•higher personnel expense;
•increased inventory obsolescence expense;
•increased distribution expense; and
These factors were partially offset by:
•lower inbound air freight expense;
•the dilutivefavorable comparative impact of tariff increases;exclusion refunds received in fiscal 2022;
•reduced amortization expense; and
•decreased annual incentive compensation expense:expense.
Beauty
Comparison of Fiscal 20192022 to 20182021
Operating income was $68.4$98.4 million, 9.8%or 17.0% of segment net sales revenue, compared to $62.1$64.9 million, or 9.2%13.5% of segment net sales.sales revenue. Operating income in fiscal 2021 included $8.5 million of pre-tax asset impairment charges. The 0.6effect of this item favorably impacted the year-over-year comparison of segment operating margin by 1.8 percentage points. The remaining 1.7 percentage point increase in segment operating margin was primarily due to:
•a more favorable product mix;
•lower inventory obsolescence expense;
•a decrease in outbound freight costs; and
•reduced royalty expense as a result of the amended Revlon trademark license.
These factors were partially offset by:
•increased marketing expense;
•higher shared-based compensation expense; and
•the marginnet dilutive impact of a less favorable product mix;inflationary costs and related customer price increases.
Interest Expense
Comparison of Fiscal 20192022 to 2018
Interest expense was $12.7$12.8 million, in fiscal 2020, compared to $11.7 million in fiscal 2019.$12.6 million. The increase in interest expense was primarily due to incrementalhigher average levels of debt outstanding, including borrowings to fund the acquisition of Drybar Products on January 23, 2020, unfavorable interest rate swap settlements year-over-year and higher deferred financing costs.
Income Tax Expense
The year-over-yearperiod-over-period comparison of our effective tax ratesrate is often impacted by the mix of taxable income in our various tax jurisdictions, among other factors.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
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proportionally higher earnings in jurisdictions with lower statutory tax rates, which decreases our overall effective tax rate.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted and signed into law. The CARES Act is an emergency economic stimulus package in response to the COVID-19 outbreak that contains numerous tax provisions. Among other things, the CARES Act included technical corrections to the effective date language in the Tax Cuts and Jobs Act, enacted into law on December 22, 2017 (the “Tax Act”), related to net operating loss carrybacks.
Upon the enactment of the Tax Act in fiscal 2018, there was a net operating loss on our balance sheet, which was measured using the U.S. statutory tax rate in effect prior to enactment. As a result of the Tax Act, we were required to record a one-time charge of $17.9 million in fiscal 2018, which included a charge of $9.4 million to remeasure the net operating loss at the reduced rate at which it was expected to reverse in the future. The CARES Act effectively reversed the impact of the Tax Act on our net operating loss, resulting in a corresponding tax benefit of $9.4 million recorded in the first quarter of fiscal 2021. Fiscal 20202022 income tax expense as a percentage of income before income tax was 8.2%13.9% compared to 7.3% in the same period last year. The increase in our effectiveincome tax rate wasexpense of 5.7% for fiscal 2021, primarily due to shifts in the mix of taxable income in our various tax jurisdictions increasesand the benefit of the CARES Act in certain statutory tax rates andfiscal 2021, partially offset by the favorable comparative impact of discrete benefits recordedincreases in liabilities related to uncertain tax positions in the same period lastprior year.
Our Macau subsidiary generates income from the sale of the goods that it has sourced and procured. This subsidiary is responsible for the sourcing and procurement of a large portion of the products that we sell. We previously had an indefinite tax holiday in Macau conditioned on the subsidiary meeting certain employment and investment thresholds. The Macau Offshore Law and its supplementary regulations that grant tax incentives to approved offshore institutions was abolished on January 1, 2021. Existing approved offshore institutions such as ours continued to operate under the offshore regime until the end of the calendar year 2020. Beginning in calendar year 2021, our Macau subsidiary transitioned to onshore status and became subject to a statutory corporate income tax expense asof approximately 12%. Because our Macau subsidiary is not directly or indirectly owned by a percentageU.S. parent, there is no U.S. tax liability associated with the income generated in Macau.
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Net Income, from continuing operations, dilutedDiluted EPS, from continuing operations, adjustedAdjusted Income from continuing operations (non-GAAP), and adjusted dilutedAdjusted Diluted EPS from continuing operations (non-GAAP)
In order to provide a better understanding of the impact of certain items on our income and diluted EPS, from continuing operations, the below tables that follow report the comparative after taxafter-tax impact of non‐cash asset impairment charges, acquisition-related expenses, EPA compliance costs, restructuring charges, tax reform, the TRU bankruptcy charge, amortization of intangible assets, and non‐cash share‐based compensation, as applicable, on income from continuing operations, and basic and diluted EPS from continuing operations for the periods coveredpresented below. For additional information regarding management’s decision to present this non-GAAP financial information, see the introduction to this Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operation.Operations.”
| Fiscal Year Ended February 29, 2020 | Fiscal Year Ended February 28, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income From Continuing Operations | Diluted Earnings Per Share | Income | Diluted EPS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except per share data) | Before Tax | Tax | Net of Tax | Before Tax | Tax | Net of Tax | (in thousands, except per share data) | Before Tax | Tax | Net of Tax | Before Tax | Tax | Net of Tax | ||||||||||||||||||||||||||||||||||||||||||||||
| As reported (GAAP) | $ | 165,940 | $ | 13,607 | $ | 152,333 | $ | 6.55 | $ | 0.54 | $ | 6.02 | As reported (GAAP) | $ | 259,966 | $ | 36,202 | $ | 223,764 | $ | 10.65 | $ | 1.48 | $ | 9.17 | ||||||||||||||||||||||||||||||||||
| Acquisition-related expenses | 2,546 | 38 | 2,508 | 0.10 | — | 0.10 | Acquisition-related expenses | 2,424 | 87 | 2,337 | 0.10 | — | 0.10 | ||||||||||||||||||||||||||||||||||||||||||||||
| Asset impairment charges | 41,000 | 4,574 | 36,426 | 1.62 | 0.18 | 1.44 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| EPA compliance costs | EPA compliance costs | 32,354 | 485 | 31,869 | 1.33 | 0.02 | 1.31 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring charges | 3,313 | 161 | 3,152 | 0.13 | 0.01 | 0.12 | Restructuring charges | 380 | 6 | 374 | 0.02 | — | 0.02 | ||||||||||||||||||||||||||||||||||||||||||||||
| Subtotal | 212,799 | 18,380 | 194,419 | 8.40 | 0.73 | 7.68 | Subtotal | 295,124 | 36,780 | 258,344 | 12.09 | 1.51 | 10.58 | ||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 21,271 | 1,245 | 20,026 | 0.84 | 0.05 | 0.79 | Amortization of intangible assets | 12,764 | 1,010 | 11,754 | 0.52 | 0.04 | 0.48 | ||||||||||||||||||||||||||||||||||||||||||||||
| Non-cash share-based compensation | 22,929 | 1,803 | 21,126 | 0.91 | 0.07 | 0.83 | Non-cash share-based compensation | 34,618 | 2,965 | 31,653 | 1.42 | 0.12 | 1.30 | ||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted (non-GAAP) | $ | 256,999 | $ | 21,428 | $ | 235,571 | $ | 10.15 | $ | 0.85 | $ | 9.30 | Adjusted (non-GAAP) | $ | 342,506 | $ | 40,755 | $ | 301,751 | $ | 14.03 | $ | 1.67 | $ | 12.36 | ||||||||||||||||||||||||||||||||||
| Weighted average shares of common stock used in computing diluted earnings per share | 25,322 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average shares of common stock used in computing diluted EPS | Weighted average shares of common stock used in computing diluted EPS | 24,410 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fiscal Year Ended February 28, 2021 | |||||||||||||||||||||||||||||||||||
| Income | Diluted EPS | ||||||||||||||||||||||||||||||||||
| (in thousands, except per share data) | Before Tax | Tax | Net of Tax | Before Tax | Tax | Net of Tax | |||||||||||||||||||||||||||||
| As reported (GAAP) | $ | 269,430 | $ | 15,484 | $ | 253,946 | $ | 10.69 | $ | 0.61 | $ | 10.08 | |||||||||||||||||||||||
| Asset impairment charges | 8,452 | 1,009 | 7,443 | 0.34 | 0.04 | 0.30 | |||||||||||||||||||||||||||||
| Restructuring charges | 350 | 2 | 348 | 0.01 | — | 0.01 | |||||||||||||||||||||||||||||
| Tax reform | — | 9,357 | (9,357) | — | 0.37 | (0.37) | |||||||||||||||||||||||||||||
| Subtotal | 278,232 | 25,852 | 252,380 | 11.04 | 1.03 | 10.02 | |||||||||||||||||||||||||||||
| Amortization of intangible assets | 17,643 | 865 | 16,778 | 0.70 | 0.03 | 0.67 | |||||||||||||||||||||||||||||
| Non-cash share-based compensation | 26,418 | 1,926 | 24,492 | 1.05 | 0.08 | 0.97 | |||||||||||||||||||||||||||||
| Adjusted (non-GAAP) | $ | 322,293 | $ | 28,643 | $ | 293,650 | $ | 12.79 | $ | 1.14 | $ | 11.65 | |||||||||||||||||||||||
| Weighted average shares of common stock used in computing diluted EPS | 25,196 | ||||||||||||||||||||||||||||||||||
| Fiscal Year Ended February 29, 2020 | |||||||||||||||||||||||||||||||||||
| Income | Diluted EPS | ||||||||||||||||||||||||||||||||||
| (in thousands, except per share data) | Before Tax | Tax | Net of Tax | Before Tax | Tax | Net of Tax | |||||||||||||||||||||||||||||
| As reported (GAAP) | $ | 165,940 | $ | 13,607 | $ | 152,333 | $ | 6.55 | $ | 0.54 | $ | 6.02 | |||||||||||||||||||||||
| Acquisition-related expenses | 2,546 | 38 | 2,508 | 0.10 | — | 0.10 | |||||||||||||||||||||||||||||
| Asset impairment charges | 41,000 | 4,574 | 36,426 | 1.62 | 0.18 | 1.44 | |||||||||||||||||||||||||||||
| Restructuring charges | 3,313 | 161 | 3,152 | 0.13 | 0.01 | 0.12 | |||||||||||||||||||||||||||||
| Subtotal | 212,799 | 18,380 | 194,419 | 8.40 | 0.73 | 7.68 | |||||||||||||||||||||||||||||
| Amortization of intangible assets | 21,271 | 1,245 | 20,026 | 0.84 | 0.05 | 0.79 | |||||||||||||||||||||||||||||
| Non-cash share-based compensation | 22,929 | 1,803 | 21,126 | 0.91 | 0.07 | 0.83 | |||||||||||||||||||||||||||||
| Adjusted (non-GAAP) | $ | 256,999 | $ | 21,428 | $ | 235,571 | $ | 10.15 | $ | 0.85 | $ | 9.30 | |||||||||||||||||||||||
| Weighted average shares of common stock used in computing diluted EPS | 25,322 | ||||||||||||||||||||||||||||||||||
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| Fiscal Year Ended February 28, 2019 | ||||||||||||||||||||||||
| Income From Continuing Operations | Diluted Earnings Per Share | |||||||||||||||||||||||
| (in thousands, except per share data) | Before Tax | Tax | Net of Tax | Before Tax | Tax | Net of Tax | ||||||||||||||||||
| As reported (GAAP) | $ | 188,000 | $ | 13,776 | $ | 174,224 | $ | 7.15 | $ | 0.52 | $ | 6.62 | ||||||||||||
| Acquisition-related expenses | — | — | — | — | — | — | ||||||||||||||||||
| Asset impairment charges | — | — | — | — | — | — | ||||||||||||||||||
| Restructuring charges | 3,586 | 215 | 3,371 | 0.14 | 0.01 | 0.13 | ||||||||||||||||||
| Subtotal | 191,586 | 13,991 | 177,595 | 7.28 | 0.53 | 6.75 | ||||||||||||||||||
| Amortization of intangible assets | 14,204 | 372 | 13,832 | 0.54 | 0.01 | 0.53 | ||||||||||||||||||
| Non-cash share-based compensation | 22,053 | 1,395 | 20,658 | 0.84 | 0.05 | 0.79 | ||||||||||||||||||
| Adjusted (non-GAAP) | $ | 227,843 | $ | 15,758 | $ | 212,085 | $ | 8.66 | $ | 0.60 | $ | 8.06 | ||||||||||||
| Weighted average shares of common stock used in computing diluted earnings per share | 26,303 | |||||||||||||||||||||||
| Fiscal Year Ended February 28, 2018 | ||||||||||||||||||||||||
| Income From Continuing Operations | Diluted Earnings Per Share | |||||||||||||||||||||||
| (in thousands, except per share data) | Before Tax | Tax | Net of Tax | Before Tax | Tax | Net of Tax | ||||||||||||||||||
| As reported (GAAP) | $ | 155,438 | $ | 26,556 | $ | 128,882 | $ | 5.70 | $ | 0.97 | $ | 4.73 | ||||||||||||
| Tax reform | — | (17,939 | ) | 17,939 | — | (0.66 | ) | 0.66 | ||||||||||||||||
| Asset impairment charges | 15,447 | 1,613 | 13,834 | 0.57 | 0.06 | 0.51 | ||||||||||||||||||
| Restructuring charges | 1,857 | 69 | 1,788 | 0.07 | — | 0.07 | ||||||||||||||||||
| TRU bankruptcy | 3,596 | 204 | 3,392 | 0.13 | 0.01 | 0.12 | ||||||||||||||||||
| Subtotal | 176,338 | 10,503 | 165,835 | 6.47 | 0.39 | 6.08 | ||||||||||||||||||
| Amortization of intangible assets | 18,854 | 850 | 18,004 | 0.69 | 0.03 | 0.66 | ||||||||||||||||||
| Non-cash share-based compensation | 15,054 | 1,669 | 13,385 | 0.55 | 0.06 | 0.49 | ||||||||||||||||||
| Adjusted (non-GAAP) | $ | 210,246 | $ | 13,022 | $ | 197,224 | $ | 7.71 | $ | 0.48 | $ | 7.24 | ||||||||||||
| Weighted average shares of common stock used in computing diluted earnings per share | 27,254 | |||||||||||||||||||||||
Comparison of Fiscal 20202022 to 20192021
Net Income from continuing operations was $152.3$223.8 million compared to $174.2$253.9 million. Diluted EPS from continuing operations was $6.02$9.17 compared to $6.62.$10.08. Diluted EPS decreased primarily due to after-tax non-cash asset impairment charges of $36.4 millionlower operating income in the BeautyHealth & Wellness segment and a higher interest expense,effective income tax rate primarily due to the tax reform benefit recognized in the prior year, partially offset by higher operating income in the Housewares segmentBeauty and the impact ofHome & Outdoor segments and lower weighted average diluted shares outstanding compared to the same period last year.outstanding.
Adjusted income from continuing operations increased $23.5$8.1 million, or 11.1%2.8%, to $235.6$301.8 million compared to $212.1$293.7 million. Adjusted diluted EPS from continuing operations increased 15.4%6.1% to $9.30$12.36 compared to $8.06.$11.65.
Financial Condition, Liquidity and Capital Resources
Selected measures of our liquidity and capital utilizationresources for fiscal 20202022 and 20192021 are shown below:
| Fiscal Years Ended Last Day of February, | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Accounts receivable turnover (days) (1) | 72.6 | 68.6 | |||||||||||||||
| Inventory turnover (times) (1) | 2.3 | 3.2 | |||||||||||||||
Working capital (in thousands) | $ | 479,390 | $ | 357,045 | |||||||||||||
| Current ratio | 1.8:1 | 1.6:1 | |||||||||||||||
| Ending debt to ending equity ratio | 61.3% | 27.7% | |||||||||||||||
| Return on average equity (1) | 17.5% | 20.7% | |||||||||||||||
(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.
We principally rely on our cash flow from operations and borrowings under our Credit Agreement (as defined below) to finance our operations, capital and intangible asset expenditures, acquisitions and share repurchases. Historically, our principal uses of cash to fund our operations have included operating expenses, primarily SG&A, and working capital, predominantly for inventory purchases and the extension of credit to our retail customers. We have typically been able to generate positive cash flow from operations sufficient to fund our operating activities. In the past, we have utilized a combination of available cash and existing, or additional, sources of financing to fund strategic acquisitions, share repurchases and capital investments. We generated $140.8 million in cash from operations during fiscal 2022 and had $33.4 million in cash and cash equivalents at February 28, 2022. As of February 28, 2022, the amount of cash and cash equivalents held by our foreign subsidiaries was $25.5 million. Capital and intangible asset expenditures in fiscal 2022 of $78.0 million included the purchase of land and initial construction expenditures related to a new two million square foot distribution center for our Home & Outdoor segment. During fiscal 2022 we acquired Osprey for $410.9 million in cash, net of cash acquired. The acquisition was funded with cash on hand and borrowings under our existing revolving credit facility. We have no existing activities involving special purpose entities or off-balance sheet financing.
Subsequent to our fiscal 2022 year end, we completed the acquisition of Curlsmith, which was funded with cash on hand and a $150.0 million borrowing under our existing revolving credit facility. For additional information, see Note 21 to the accompanying consolidated financial statements.
In addition to the $150.0 million of cash used for our acquisition of Curlsmith, our anticipated remaining material cash requirements in fiscal 2023 include the following:
•operating expenses, primarily SG&A and working capital predominately for inventory purchases and to carry normal levels of accounts receivable on our balance sheet;
•repayment of a current maturity of long term debt of $1.9 million;
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| Fiscal Years Ended Last Day of February, | ||||||||
| 2020 | 2019 | |||||||
| Accounts Receivable Turnover (Days) (1) | 67.0 | 68.3 | ||||||
| Inventory Turnover (Times) (1) | 3.0 | 3.3 | ||||||
Working Capital (in thousands) | $ | 343,940 | $ | 292,828 | ||||
| Current Ratio | 2.0:1 | 1.9:1 | ||||||
| Ending Debt to Ending Equity Ratio | 29.2 | % | 32.2 | % | ||||
| Return on Average Equity (1) | 14.0 | % | 16.9 | % | ||||
•minimum royalty payments under existing license agreements of approximately $7.4 million; and
•capital and intangible asset expenditures between approximately $180 million to $205 million to support ongoing operations and future infrastructure needs, including construction and equipment expenditures related to a new 2 million square foot distribution center that we expect to be operational by the end of fiscal 2023.
Our anticipated material cash requirements beyond fiscal 2023 include the following:
•operating expenses, primarily SG&A and working capital predominately for inventory purchases and to carry normal levels of accounts receivable on our balance sheet;
•outstanding long-term debt obligations maturing between fiscal 2024 and fiscal 2026, in an aggregate principal value of approximately $814.3 million, with $799.5 million of that amount maturing in fiscal 2026 (refer to Note 14 for additional information);
•estimated interest payments of approximately $10.8 million, $10.0 million and $0.4 million in fiscal 2024, fiscal 2025, and fiscal 2026, respectively, based on outstanding debt obligations, weighted average interest rates and interest rate swaps in effect at February 28, 2022 (refer to Note 14 for additional information);
•minimum operating lease payments of approximately $56.8 million over the term of our existing operating lease arrangements (refer to Note 3 for additional information);
•minimum royalty payments of approximately $22.8 million over the term of the existing license agreements (refer to Note 13 for additional information); and
•capital and intangible asset expenditures to support ongoing operations and future infrastructure 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 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 under our Board of Directors' authorization, subject to limitations contained in our debt agreements and based upon our assessment of a number of factors, including share price, trading volume and general market conditions, working capital requirements, general business conditions, financial conditions, any applicable contractual limitations, and other factors, including alternative investment opportunities. We may finance share repurchases with available cash, additional debt or other sources of financing. For additional information, see Item 5., “Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities” in this Annual Report.
Operating Activities:Activities
Comparison of Fiscal 20202022 to 20192021
Operating activities from continuing operations provided net cash of $271.3 million during fiscal 2020 compared to $200.6 million during fiscal 2019. The increase in cash provided was primarily driven by higher cash earnings and a decrease in cash used for inventory. These factors were partially offset by an increase in cash used for receivables.
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Investing Activities:Activities
Investing activities from continuing operations used cash of $273.6 million, $25.2$438.9 million and $13.6$98.7 million in fiscal 2020, 20192022 and 2018,2021, respectively.
Highlights from Fiscal 20202022
•
We paid $410.9 million, net of cash acquired, Drybar Productsto acquire Osprey and made investments in capital and intangible asset expenditures of $78.0 million, of which $55.8 million was for $255.9 million.land and initial construction expenditures related to a new 2 million square foot distribution center for our Home & Outdoor segment. In addition, we invested in capital and intangible asset expenditures of $17.8$22.2 million were made primarily for leasehold improvements; computers, furniture and other equipment; and tools, molds, and other production equipment and computer, software, furniture and other equipment.
Highlights from Fiscal 20192021
•
We investedmade investments in capital and intangible asset expenditures of $98.7 million, primarily for the extension of the Revlon License and use of the trademark royalty-free for the next 100 years, for which we paid a one-time, up-front license fee of $72.5 million. In addition, capital expenditures of $26.4$26.2 million primarilywere made for leasehold improvements; computers, furnituremolds, production and other equipment;distribution equipment, information technology equipment, and tools, molds, and other production equipment.
Financing Activities:Activities
Financing activities provided cash of $14.9$286.4 million in fiscal 20202022 and used cash of $178.9 million and $262.2$194.8 million in fiscal 2019 and 2018, respectively.2021.
Highlights from Fiscal 2020 2022
•we had draws of $771.3$998.2 million under our Credit Agreement;
•we repaid $752.5$527.7 million drawn under our Credit Agreement;
•we repaid $1.9 million of long-term debt; and
•we repurchased and retired 77,272854,959 shares of common stock at an average price of $131.61$220.13 per share for a total purchase price of $10.2 million through the settlement of certain stock awards.
Highlights from Fiscal 20182021
•
we had draws of $521.2$937.4 million under our Credit Agreement;
•we repaid $692.5$928.4 million drawn under our Credit Agreement;
•we repaid $25.7$1.9 million of long-term debt, and;debt;
•we paid $3.8 million of financing costs in connection with the amendment of our Credit Agreement; and
•we repurchased and retired 793,0851,030,023 shares of common stock at an average price of $92.13$197.37 per share for a total purchase price of $73.1$203.3 million through a combination of open market purchases and the settlement of certain stock awards.
Credit Agreement and Other Debt Agreements
Credit Agreement
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methods (based upon a base rateBase Rate or LIBOR) as described in the Credit Agreement. With each borrowing against our credit line, we couldcan elect the interest rate method based on our funding needs at the time. We also incurredincur loan commitment and letter of credit fees under the Credit Agreement. Outstanding letters of credit reduced the borrowing availability under the
The Credit Agreement onincludes a dollar-for-dollar basis. We may repay amounts borrowed at any time without penalty. As of February 29, 2020, the outstanding revolving loan principal balance was $320.0 million (excluding prepaid financing fees) and the balance of outstanding letters of credit was $9.0 million. As of February 29, 2020, the amount available for borrowings under the Credit Agreement was $671.0 million. Covenants in the Credit Agreement limit the amount of total indebtedness we could incur. As of February 29, 2020, these covenants did not limit our ability to incur $671.0 million of additional debt under the Credit Agreement.
conditions are met, including lender approval. Any increase to term loan commitments and revolving loan commitments must be made on terms identical to the revolving loans under the Credit Agreement and must have a maturity date of no earlier than March 13, 2025. Following the amendment, borrowingsBorrowings under the Credit Agreement bear interest at either the base rateBase Rate or LIBOR, plus a margin based on the Net Leverage Ratio (as defined in the Credit Agreement) of 0% to 1.0% and 1.0% to 2.0%, respectively, for base rateBase Rate and LIBOR borrowings.
As of a comprehensive precautionary approach to increase our cash positionFebruary 28, 2022, the outstanding revolving loan principal balance was $799.5 million (excluding prepaid financing fees) and maximize our financial flexibility in lightthe balance of outstanding letters of credit was $32.7 million. The weighted average interest rate on borrowings outstanding under the current volatility inCredit Agreement was 1.2% at February 28, 2022. As of February 28, 2022, the global markets resulting from the COVID-19 outbreak. After giving effect to the borrowing, the remaining amount available for borrowings under the Credit Agreement was $536.4 million and our cash and cash equivalents on hand was approximately $393.0$417.8 million. As described above, covenantsCovenants in our debt agreements canthe Credit Agreement limit the amount of total indebtedness we can incur. We may repayAs of February 28, 2022, these covenants did not limit our ability to incur $417.8 million of additional debt under the Credit Agreement.
Subsequent to our fiscal 2022 year end, we borrowed $150.0 million under our Credit Agreement in connection with the acquisition of Curlsmith. The proceeds of the borrowing and cash on hand were used to pay all of the cash consideration payable for the acquisition, including amounts borrowed at any time without penalty.for cash acquired. After giving effect to the borrowing on April 20, 2022, the remaining amount available for borrowings under our Credit Agreement was $192.8 million. As of April 20, 2022, covenants in the Credit Agreement did not limit our ability to incur $192.8 million of additional debt under the Credit Agreement. For additional information on the acquisition, see Note 21 to the accompanying consolidated financial statements.
For information on the potential impact of the transition from LIBOR, see the section entitled “Significant Trends Impacting the Business” to this Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Other Debt Agreements
On May 14, 2020, Helen of Troy Limited and certain of its subsidiaries entered into the Sixth Amendment to Guaranty Agreement (the “Amended Guaranty”) in favor of Bank of America, N.A. The Amended Guaranty amends the Guaranty Agreement (as amended, the “Guaranty Agreement”), dated March 1, 2013, made by the Company and certain of its subsidiaries in favor of Bank of America, N.A. and other lenders. Certain of the representations and warranties, and covenants in the Guaranty Agreement were
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amended by the Amended Guaranty to include or modify certain baskets, exceptions and other customary provisions.
The Bonds were issued under a Trust Indenture, dated as of March 1, 2013 (as supplemented, the “Indenture”), by and between MBFC and U.S. Bank National Association, as trustee (the “Trustee”). On May 14, 2020, MBFC and U.S. Bank National Association, as Trustee, entered into the Fifth Supplemental Trust Indenture, effective May 14, 2020 (the “Fifth Supplemental Indenture”), with the consent of Kaz USA, Inc. (“Kaz USA”) and Bank of America, N.A., the purchaser of the Bonds. As amended by the Fifth Supplemental Indenture, the Bonds and the related loans to Kaz USA will bear interest at a Base Rate or LIBOR plus a margin based on the Net Leverage Ratio (as defined in the Fifth Supplemental Indenture). The Fifth Supplemental Indenture amended the pricing grid for the LIBOR and Base Rate margins.
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 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 our 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.
As of February 28, 2022, we were in compliance with all covenants as defined under the terms of the Credit Agreement and our other debt agreements.
The table below provides the formulas currently in effect for certain key financial covenants as defined under the Credit Agreement as of February 29, 2020:our debt agreements:
| Applicable Financial Covenant | Credit Agreement and MBFC Loan | ||||
| Minimum Interest Coverage Ratio | EBIT (1)÷ Interest Expense (1) | ||||
| Minimum Required: 3.00 to 1.00 | |||||
| Maximum Leverage Ratio | Total Current and Long Term Debt (2)÷ EBITDA (1) + Pro Forma Effect of | ||||
| Maximum Currently Allowed: 3.50 to 1.00 (3) | |||||
Key Definitions:
| Earnings + Interest Expense + Taxes + Non-Cash Charges (4) + Certain Allowed Addbacks (4) - Certain Non-Cash Income (4) | |||||
| EBIT + Depreciation and Amortization Expense | |||||||||||
| 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. In addition, the |
(2)Computed using the ending debt balances plus outstanding letters of credit as of the latest reported fiscal quarter.
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(3)In the event a qualified acquisition is consummated, the maximum leverage ratio is 4.25 to 1.00 for the first fiscal quarter after the qualified acquisition and then steps down until the maximum leverage ratio is 3.75 to 1.00 at the end of the fifth fiscal 2020 were: quarter after the qualified acquisition is consummated.
| Fiscal Years Ended the Last Day of February: | |||||||||||||||||||||
| 2021 | 2022 | 2023 | 2024 | 2025 | After | ||||||||||||||||
| (in thousands) | Total | 1 year | 2 years | 3 years | 4 years | 5 years | 5 years | ||||||||||||||
| Floating rate debt | $ | 340,507 | $ | 1,900 | $ | 321,900 | $ | 1,900 | $ | 14,807 | $ | — | $ | — | |||||||
| Long-term incentive plan payouts | 9,018 | 5,614 | 3,404 | — | — | — | — | ||||||||||||||
Interest on floating rate debt (1) | 16,653 | 9,142 | 7,124 | 386 | 1 | — | — | ||||||||||||||
| Open purchase orders | 239,841 | 239,841 | — | — | — | — | — | ||||||||||||||
| Minimum royalty payments | 55,154 | 12,823 | 12,674 | 13,090 | 12,381 | 4,186 | — | ||||||||||||||
| Advertising and promotional | 34,228 | 18,359 | 9,131 | 6,738 | — | — | — | ||||||||||||||
| Operating leases | 62,876 | 6,082 | 5,959 | 5,601 | 5,102 | 5,762 | 34,370 | ||||||||||||||
| Capital spending commitments | 2,716 | 1,986 | 596 | 134 | — | — | — | ||||||||||||||
| Total contractual obligations | $ | 760,993 | $ | 295,747 | $ | 360,788 | $ | 27,849 | $ | 32,291 | $ | 9,948 | $ | 34,370 | |||||||
Critical Accounting Policies and Estimates
The SEC defines critical accounting policiesestimates as those made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are both most importantreasonably likely to the portrayal ofhave a material impact on a company's financial condition andor results and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.operations. We consider the following policiesestimates to meet this definition.definition and represent our more critical estimates and assumptions used in the preparation of our consolidated financial statements.
Income Taxes
We must make certain estimates and judgments in determining our provision for income tax expense. The provision for income tax expense for financial statement purposes. These estimatesis calculated on reported income before income taxes based on current tax law and judgments must be usedincludes, in the calculationcurrent period, the cumulative effect of certainany changes in tax rates from those used previously in determining deferred tax assets and liabilities because of differencesliabilities. Tax laws may require items to be included in the timingdetermination of recognitiontaxable income at different times from when the items are reflected in the financial statements. Deferred tax balances reflect the effects of revenuetemporary differences between the financial statement carrying amounts of assets and expenseliabilities and their tax bases, as well as from net operating losses and tax credit carryforwards, and are stated at enacted tax rates in effect for the year taxes are expected to be paid or recovered.
Deferred tax assets represent tax benefits for tax deductions or credits available in future years and financial statement purposes. We must assessrequire certain estimates and assumptions to determine whether it is more likely than not that all or a portion of the likelihood thatbenefit will not be realized. The recoverability of these future tax deductions and credits is determined by assessing the adequacy of future expected taxable income from all sources, including the future reversal of existing taxable temporary differences, taxable income in carryback years, estimated future taxable income and available tax planning strategies. In projecting future taxable income, we will be ablebegin with historical results and incorporate assumptions including future operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgement and are consistent with the plans and estimates we are using to recovermanage our underlying business. Should a change in facts or circumstances, such as changes in our business plans, economic conditions or future tax legislation, lead to a change in judgment about the ultimate recoverability of a deferred tax assets. If recovery is not likely,asset, we must increase our provision for taxes by recording arecord or adjust the related valuation allowance againstin the deferred tax assets that we estimate will not ultimately be recoverable. As changes occur in our assessments regarding our ability to recover our deferred tax assets, our tax provision is increased in any period in which we determine that the recovery is not probable.change in facts and circumstances occurs, along with a corresponding increase or decrease in income tax expense. Additionally, if future taxable income varies from projected taxable income, we may be required to adjust our valuation allowance in future years.
In addition, the calculation of our tax liabilities requires us to account for uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions based on the two-step process prescribed within GAAP. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on auditupon examination by the tax authority based upon its technical merits including resolutionassuming the tax authority has full knowledge of related appeals or litigation processes, if any. Theall relevant information. To be recognized in the financial statements, the tax position must meet this more-likely-than-not threshold. For positions meeting this recognition threshold, the second step requires us to estimate and measure the tax benefit as the largest amount that has greater than a 50 percent likelihood of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, historical experience with similar tax matters, guidance from our tax advisors, and new audit activity. For tax positions that do not meet the threshold requirement, we
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record liabilities for unrecognized tax benefits as a tax expense or benefit in the period recognized or reversed and disclose as a separate liability in our financial statements, including related accrued interest and penalties. A change in recognition or
measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period in which the change occurs.
Revenue Recognition
We measure revenue as the amount of Creditsconsideration for which we expect to be Issuedentitled, in exchange for transferring goods. We allow for sales returns for defects in material and workmanship for periods ranging from two to Customers
Certain customers based upon an evaluation of the customer’s financial condition and credit history and generally do not require collateral. Our credit terms generally range between 30 and 90 days from invoice date depending upon the evaluation of the customer’s financial condition and history, pricing and the relationship with the customer. We monitor our customers’ credit and financial condition in order to assess whether the economic conditions have changed and adjust our credit policies with respect to any individual customer as we determine appropriate. These adjustments may include, but are not limited to, restricting shipments to customers, reducing credit limits, shortening credit terms, requiringreceive cash payments in advance of shipment or securing credit insurance.
Valuation of Inventory
We currently record inventory on our balance sheet at the lower of average cost or net realizable value, if it is belowvalue. We write down a portion of our recorded cost. Determination ofinventory to net realizable value requires us to estimatebased on the point in time at which an item's net realizable value drops below its recorded cost.historical sales trends of products and estimates about future demand and market conditions, among other factors. We regularly review our inventory for slow-moving items and for items that we are unable to sell at prices above their original cost. When we identify such an item, we reduce its bookuse net realizable value toas the net amount that we expect to realize upon its sale. This process entailsbasis for recording such inventory and base our estimates on expected future selling prices less expected disposal costs. These estimates entail a significant amount of inherent subjectivity and uncertainty. As a result, these estimates could vary significantly from the amounts that we may ultimately realize upon the sale of inventories if future economic conditions, product demand, product discontinuances, competitive conditions or other factors differ from our estimates and expectations. Additionally, changes in consumer demand, retailer inventory management strategies, transportation lead times, supplier capacity and raw material availability could make our inventory management and reserves more difficult to estimate.
Goodwill and Indefinite-Lived Intangibles and Related Impairment Testing
We consider whether circumstances or conditions exist which suggest that the carrying value of ourreview goodwill and other long-lived assets might be impaired. If such circumstances or conditions exist, further steps are required in order to determine whether the carrying value of each of the individual assets exceeds its fair market value. If analysis indicates that an individual asset’s carrying value does exceed its fair market value, the next step is to record a loss equal to the excess of the individual asset’s carrying value over its fair value. The steps entail significant amounts of judgment and subjectivity.
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below an operating segment). If the results of the qualitative assessment indicate that it is more likely than not that the assets are impaired, further steps are required in order to determine whether the carrying value of each reporting unit and indefinite-lived intangible assets exceeds its fair market value. An impairment charge is recognized to the extent the goodwill or indefinite-lived intangible asset recorded exceeds the reporting unit’s or asset's fair value. We perform our annual impairment testing for goodwill and indefinite-lived assets as of the beginning of the fourth quarter of our fiscal year.
Our impairment test methodology primarily uses estimated future discounted cash flow models (“DCF Models”). The DCF Models use a number of assumptions including expected future cash flows from the assets, volatility, risk free rate, and the expected life of the assets, the determination of which require significant judgments from management. In determining the assumptions to be used, we consider the existing rates on Treasury Bills, yield spreads on assets with comparable expected lives, historical volatility of our common stock and that of comparable companies, and general economic and industry trends, among other considerations. When stock market or other conditions warrant, we expand our traditional impairment test methodology to give weight to other methods that provide additional observable market information in order to better reflect the current risk level being incorporated into market prices and in order to corroborate the fair values of each of our reporting units. Management will place increased reliance on these additional methods in conjunction with its DCF Models in the event that the total market capitalization of its stock drops below its consolidated stockholders’ equity balance for a sustained period.
Considerable management judgment is necessary in reaching a conclusion regarding the reasonableness of fair value estimates, evaluating the most likely impact of a range of possible external conditions, considering the resulting operating changes and their impact on estimated future cash flows,
determining the appropriate discount factors to use, and selecting and weighting appropriate comparable market level inputs.
Impairment of Other Long-Lived Assets
We consider whether circumstances or conditions exist that suggest thatreview intangible assets with definite lives and long-lived assets held and used if a triggering event occurs during the carrying value of a long-lived asset might be impaired.reporting period. If such circumstances or conditions exist, further steps are required in order to determine whether the carrying value of each of the assetindividual assets exceeds its fair market value. If our analysis indicates that thean individual asset’s carrying value does exceed its fair market value, the next step is to record a loss equal to the excess of the individual asset’s carrying value over its fair value. The steps entailWe evaluate long-lived assets held for sale quarterly to determine if fair value less cost to sell has changed during the reporting period. This analysis entails a significant amountsamount of judgment and subjectivity.
Economic Useful LifeLives of Intangible Assets
We amortize intangible assets, such as licenses, trademarks, customer lists and distribution rights over their economic useful lives, unless those assets' economic useful lives are indefinite. If an intangible asset’s economic useful life is deemed indefinite, that asset is not amortized. When we acquire an intangible asset, we consider factors such as the asset's history, our plans for that asset and the market for products associated with the asset. We consider these same factors when reviewing the economic useful lives of our previously acquired intangible assets as well. We review the economic useful lives of
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our intangible assets at least annually. The determination of the economic useful life of an intangible asset requires a significant amount of judgment and entails significant subjectivity and uncertainty. We complete our analysis of the remaining useful economic lives of our intangible assets during the fourth quarter of each fiscal year or when a triggering event occurs.
Share-Based Compensation
We accountgrant share-based compensation awards to non-employee directors and certain associates under our equity plans. We measure the cost of services received in exchange for share-based employee compensation plans under the fair value recognition and measurement provisions in accordance with applicable accounting standards,equity awards, which require all share-based payments to employees, includinginclude grants of stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance restricted stock units ("PSU"awards (“PSAs”), and performance stock awards ("PSA"units (“PSUs”), to be measured based on the grant date fair value of the awards. The resulting expense is recognizedawards on the grant date. These awards may be subject to attainment of certain service conditions, performance conditions and/or market conditions.
We grant PSAs and PSUs to certain officers and associates, which cliff vest after three years and are contingent upon meeting one or more defined operational performance metrics over the periods during whichthree year performance period (“Performance Condition Awards”). The quantity of shares ultimately awarded can range from 0% to 200% of “Target”, as defined in the employee is requiredaward agreement as 100%, based on the level of achievement against the defined operational performance metrics. We recognize compensation expense for Performance Condition Awards over the requisite service period to perform service in exchange for the award. The estimatedextent performance conditions are considered probable. Estimating the number of PSU’s and PSA'sshares of Performance Condition Awards that will ultimately vestare probable of vesting requires judgment, andincluding assumptions about future operating performance. While the assumptions used to estimate the probability of achievement against the defined operational performance metrics are management's best estimates, such estimates involve inherent uncertainties. The extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment to share-based compensation expense in the period estimates are revised.
The critical accounting estimates described above supplement the financial statements based on their fair values using an option pricing model at the date of grant. We use a Black-Scholes option-pricing model to calculate the fair value of options. This model requires various judgmental assumptions including volatility and expected option life.
New Accounting Guidance
For information on recently adopted and issued accounting pronouncements, see Note 2 to the accompanying consolidated financial statements.
Information Regarding Forward-Looking Statements
Certain written and oral statements in this Annual Report may constitute “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. This includes statements made in this Annual Report, in other filings with the SEC, in press releases, and in certain other oral and written presentations. Generally, the words “anticipates”, “believes”, “expects”, “plans”, “may”, “will”, “would”, “should”, “seeks”, “estimates”, “project”, “predict”, “potential”, “currently”, “continue”, “intends”, “outlook”, “forecasts”, “could”, and other similar words identify forward-looking statements. All statements that address operating results, events or developments that may occur in the accompanyingconsolidated financialfuture, including statements related to sales, EPS results, and statements expressing general expectations about future operating results, are forward-looking statements and are based upon our current expectations and various assumptions. We believe there is a reasonable basis for our expectations and assumptions, but there can be no assurance that we will realize our expectations or that our assumptions will prove correct. Forward-looking statements are subject to risks that could cause them to differ materially from actual results. Accordingly, we caution readers not to place undue reliance on forward-looking statements. We believe that these risks include but are not limited to the risks described in this Annual Report under Item 1A., “Risk Factors” and that are otherwise described from time to time in our SEC reports as filed. We
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undertake no obligation to publicly update or revise any forward-looking statements as a discussionresult of any new accounting pronouncements and the potential impact to our consolidated results of operations and financial position.information, future events or otherwise.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Changes in currency exchange rates and interest rates are our primary financial market risks.
Foreign Currency Risk
In our consolidated statements of income, foreign currency exchange rate 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 currency exchange rate gains and losses are recognized in SG&A. We recorded in SG&A foreign currency exchange rate net losses of $0.2 million and $0.6 million during fiscal 2022 and 2021, respectively, and net gains of $2.2 million during fiscal 2020.
We identify foreign currency risk by regularly monitoring our foreign currency-denominatedcurrency denominated transactions and balances. Where operating conditions permit, we reduce our foreign currency risk by purchasing most of our inventory with U.S. Dollars and by converting cash balances denominated in foreign currencies to U.S. Dollars.
We hedge againstmitigate certain foreign currency exchange rate-riskrate risk by using a series of forward contracts and zero-cost collars designated as cash flow hedges and mark-to-market derivativescross-currency debt swaps to protect against the foreign currency exchange rate risk inherent in our forecasted transactions denominated in foreign currencies. Our primary objective in holding derivatives is to reduce the volatility of net earnings, and cash flows, and the net asset value associated with changes in foreign currency exchange rates. Our
foreign currency risk management strategy includes both hedging instruments and derivatives that are not designated as hedging instruments, which generally have terms of up to 18generally 12 to 24 months. We do not enter into any forward exchange contractsderivatives or similar instruments for trading or other speculative purposes. We expect that as currency market conditions warrant, and our foreign currency denominated transaction exposure grows, we will continue to execute additional contracts in order to hedge against certain potential foreign currency exchange rate losses.
As of February 29, 202028, 2022 and February 28, 2019,2021, a hypothetical adverse 10% change in foreign currency exchange rates would reduce the carrying and fair values of the hedging instruments andour derivatives by $8.1$10.3 million and $8.2$14.2 million on a pre-tax basis, respectively. This calculation is for risk analysis purposes and does not purport to represent actual losses or gains in fair value that we could incur. It is important to note that the change in value represents the estimated change in fair value of the contracts. Actual results in the future may differ materially from these estimated results due to actual developments in the global financial markets. Because the contracts hedge an underlying exposure, we would expect a similar and opposite change in foreign currency exchange rate gains or losses over the same periods as the contracts. Refer to Note 1816 to the accompanying consolidated financial statements for further information regarding these instruments.
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A significant portion of the products we sell are purchased from third-party manufacturers in China.China, who source a significant portion of their labor and raw materials in Chinese Renminbi. The Chinese Renminbi has fluctuated against the U.S. Dollar in recent years and in fiscal 20202022 the average rate of the Chinese Renminbi weakenedstrengthened against the U.S. Dollar by approximately 5.0%. compared to the average rate during fiscal 2021. If China’s currency continues to fluctuate against the U.S. Dollar in the short-to-intermediate term, we cannot accurately predict the impact of those fluctuations on our results of operations. Accordingly, there can be no assurance that foreign exchange rates will be stable in the future or that fluctuations in Chinese foreign currency markets will not have a material adverse effect on our business, results of operations and financial condition.
Interest Rate Risk
Interest on our outstanding debt as of February 29, 202028, 2022 is based on variable floating asinterest rates. As such, we are exposed to changes in short-term market interest rates and these changes in rates will impact our net interest expense. We hedge against interest rate volatility by using interest rate swaps to hedge a portion of our outstanding floating rate debt. Additionally, our cash and short-term investments generate interest income that will vary based on changes in short-term interest. As of February 29, 202028, 2022 and February 28, 2019,2021, a hypothetical adverse 10% change in interest rates would reduce the carrying and fair values of the interest rate swaps by $0.6$0.4 million and $2.1$0.1 million on a pre-tax basis, respectively. This calculation is for risk analysis purposes and does not purport to represent actual losses or gains in fair value that we could incur. It is important to note that the change in value represents the estimated change in the fair value of the swaps. Actual results in the future may differ materially from these estimated results due to actual developments in the global financial markets. Because the swaps hedge an underlying exposure, we would expect a similar and opposite change in floating interest rates over the same periods as the swaps. Refer to Notes 1614 and 1816 to the accompanying consolidated financial statements for further information regarding our interest rate sensitive assets and liabilities.
LIBOR, which is the interest rate benchmark used as a reference rate on our variable rate debt and related interest rate swaps, began being phased out at the beginning of calendar year 2022, with the one-month LIBOR, which we utilize as a reference rate, scheduled to cease immediately after June 30, 2023. A reference rate based on the Secured Overnight Financing Rate SOFR, and other alternative benchmark rates, are replacing LIBOR. We intend to amend our variable rate debt agreements and related interest rate swaps, to replace LIBOR with an agreed upon replacement index, such as Bloomberg’s Short-Term Bank Yield Index (“BSBY”) or similar index, prior to the one-month LIBOR ceasing, which could result in higher interest rates and adversely affect our interest expense. For additional information, refer to Item 1A., “Risk Factors” and Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report.
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Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
| PAGE | ||||||||
Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 248) | ||||||||
| Consolidated Financial Statements: | ||||||||
| 2021 | ||||||||
| 28, 2022 | ||||||||
Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended February | ||||||||
| 28, 2022 | ||||||||
Consolidated Statements of Cash Flows for each of the years in the three-year period ended February | ||||||||
| Financial Statement Schedule: | ||||||||
Schedule II - Valuation and Qualifying Accounts for each of the years in the three-year period ended February | ||||||||
All other schedules are omitted as the required information is included in the consolidated financial statements or is not applicable.
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Helen of Troy’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined by Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act.
Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of assets;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and Board of Directors; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
There are inherent limitations in the effectiveness of internal control over financial reporting, including the possibility that misstatements may not be prevented or detected. Furthermore, the effectiveness of internal controls may become inadequate because of future changes in conditions, or variations in the degree of compliance with our policies or procedures.
Our management assesses the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
On January 23, 2020,December 29, 2021, we completed our acquisition of Drybar Products LLC ("Drybar Products"Osprey Packs, Inc. (“Osprey”). In accordance with Securities Exchange Commission guidance permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is completed, we have excluded Drybar ProductsOsprey from our assessment of the effectiveness of internal control over financial reporting as of February 29, 2020.28, 2022. The assets and net sales revenue of Drybar ProductsOsprey that were excluded from our assessment constituted approximately 1.6 and 0.42.9 percent respectively, of the relatedCompany's total consolidated financial statement amountsassets (excluding goodwill and intangibles, which are included within the scope of the assessment) and 1.1 percent of total consolidated net sales revenue, as of and for the year ended February 29, 2020.28, 2022. The scope of management’s assessment of the effectiveness of the design and operation of our disclosure controls and procedures as of February 29, 202028, 2022 includes all of our consolidated operations except for those disclosure controls and procedures of Drybar Products.Osprey. See Note 97 for additional information regarding the Drybar ProductsOsprey acquisition. Based on our assessment, we have concluded that our internal control over financial reporting was effective as of February 29, 2020.28, 2022.
Our independent registered public accounting firm, Grant Thornton LLP, has issued an audit report on the effectiveness of our internal control over financial reporting. Their report appears on the following page.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Helen of Troy Limited
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Helen of Troy Limited and subsidiaries (the “Company”) as of February 29, 2020,28, 2022, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 29, 2020,28, 2022, based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended February 29, 2020,28, 2022, and our report dated April 29, 202028, 2022 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.Reporting (“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of Drybar Products LLCOsprey Packs, Inc. (“Drybar Products”Osprey”), a wholly-owned subsidiary, whose financial statements reflect total assets and net sales revenue constituting 1.62.9 and 0.41.1 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended February 29, 2020.28, 2022. As indicated in Management’s Report, Drybar ProductsOsprey was acquired during 2020.2022. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of Drybar Products.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Dallas, Texas
April 29, 202028, 2022
68
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Helen of Troy Limited
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Helen of Troy Limited and subsidiaries (the “Company”) as of February 29, 202028, 2022 and February 28, 2019,2021, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended February 29, 2020,28, 2022, and the related notes and schedule (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 29, 202028, 2022 and February 28, 2019,2021, and the results of its operations and its cash flows for each of the three years in the period ended February 29, 2020,28, 2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of February 29, 2020,28, 2022, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated April 29, 202028, 2022 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit mattersmatter
The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the financial statements that werewas communicated or required to be communicated to the audit committee and that: (1) relaterelates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which theyit relate.
As described further in Note 7 to the financial statements, the Company completed its acquisition of Osprey Packs, Inc. (“Osprey”) on December 29, 2021. The Company has $739.9 millionCompany’s accounting for the acquisition required the estimation of goodwill and $195.6 million of indefinite lived intangibles as of February 29, 2020. The Company determined it was necessary to estimate the fair value for its reporting units as of December 1, 2019, the Company’s assessment date, to determine whether the fair value was less than the carrying amount for each of the reporting units. The Company estimates the fair value of its reporting unit usingassets acquired and liabilities assumed, which included a weightingpreliminary purchase price allocation of fair values derived fromidentifiable intangible assets of customer relationships and trade names. We identified the incomevaluation of customer relationships and market approaches. The determination of fair value using the income approach is based on the present value of estimated future cash flows, which requires managementtrade names to make significant estimates and assumptions of revenue growth rates and operating margins, and selection of the discount rate. The determination of the fair value using the market approach requires management to make significant assumptions related to market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and
The principal consideration for our determination that the Company’s goodwillvaluation of customer relationships and indefinite lived intangible impairment assessment astrade names is a critical audit matter areis that there was a high estimation uncertainty due to significant judgementsjudgments with respect to assumptions used to estimate the future revenues and cash flows, including revenue growth rates, forecasted costs, weighted average costs of capitalgross profit margins, the discount rate and future market conditions as well as the valuation methodologies applied by the Company and the significance of the respective assets to total assetsthird-party valuation specialist for the Company.
Our audit procedures responsive to the estimation of the fair value of the intangible assets acquired and liabilities assumed in the acquisition of Drybar ProductsOsprey included the following procedures, among others. We tested the design and operating effectiveness of key controls relating to management’s reviewdevelopment of the assumptions used to develop the future revenuesforecasted growth rates and cash flows,gross profit margins, the reconciliation of future revenuesforecasted growth rates and cash flowsgross profit
69
margins prepared by management to the data used in the third partythird-party valuation report, and the valuation methodologies applied by the third partythird-party valuation firm.
In addition to testing the effectiveness of controls, we also performedevaluated the following:
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2008.
Dallas, Texas
April 29, 202028, 2022
70
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Balance Sheets
| (in thousands, except shares and par value) | February 29, 2020 | February 28, 2019 | (in thousands, except shares and par value) | February 28, 2022 | February 28, 2021 | |||||||||||||
| Assets | Assets | |||||||||||||||||
| Assets, current: | Assets, current: | |||||||||||||||||
| Cash and cash equivalents | $ | 24,467 | $ | 11,871 | Cash and cash equivalents | $ | 33,381 | $ | 45,120 | |||||||||
| Receivables - principally trade, less allowances of $1,461 and $2,032 | 348,023 | 280,280 | ||||||||||||||||
| Receivables - principally trade, less allowances of $843 and $998 | Receivables - principally trade, less allowances of $843 and $998 | 457,623 | 382,449 | |||||||||||||||
| Inventory | 256,311 | 302,339 | Inventory | 557,992 | 481,611 | |||||||||||||
| Prepaid expenses and other current assets | 9,229 | 10,369 | Prepaid expenses and other current assets | 25,712 | 16,170 | |||||||||||||
| Income taxes receivable | Income taxes receivable | 5,430 | 6,720 | |||||||||||||||
| Assets held for sale | 44,806 | — | Assets held for sale | 1,942 | 39,867 | |||||||||||||
| Total assets, current | 682,836 | 604,859 | Total assets, current | 1,082,080 | 971,937 | |||||||||||||
| Property and equipment, net of accumulated depreciation of $132,340 and $123,744 | 132,107 | 130,338 | ||||||||||||||||
| Property and equipment, net of accumulated depreciation of $161,006 and $140,379 | Property and equipment, net of accumulated depreciation of $161,006 and $140,379 | 205,378 | 136,535 | |||||||||||||||
| Goodwill | 739,901 | 602,320 | Goodwill | 948,873 | 739,901 | |||||||||||||
| Other intangible assets, net of accumulated amortization of $148,891 and $181,463 | 300,952 | 291,526 | ||||||||||||||||
| Other intangible assets, net of accumulated amortization of $150,309 and $151,240 | Other intangible assets, net of accumulated amortization of $150,309 and $151,240 | 537,846 | 357,264 | |||||||||||||||
| Operating lease assets | 32,645 | — | Operating lease assets | 37,759 | 32,533 | |||||||||||||
| Deferred tax assets, net | 14,635 | 7,991 | Deferred tax assets, net | 3,628 | 21,748 | |||||||||||||
| Other assets, net of accumulated amortization of $2,167 and $2,115 | 807 | 12,501 | ||||||||||||||||
| Other assets | Other assets | 7,887 | 3,570 | |||||||||||||||
| Total assets | $ | 1,903,883 | $ | 1,649,535 | Total assets | $ | 2,823,451 | $ | 2,263,488 | |||||||||
| Liabilities and Stockholders' Equity | Liabilities and Stockholders' Equity | |||||||||||||||||
| Liabilities, current: | Liabilities, current: | |||||||||||||||||
| Accounts payable, principally trade | $ | 152,674 | $ | 143,560 | Accounts payable, principally trade | $ | 308,178 | $ | 334,807 | |||||||||
| Accrued expenses and other current liabilities | 183,157 | 165,160 | Accrued expenses and other current liabilities | 271,675 | 271,179 | |||||||||||||
| Income taxes payable | 1,181 | 1,427 | Income taxes payable | 20,718 | 7,022 | |||||||||||||
| Long-term debt, current maturities | 1,884 | 1,884 | Long-term debt, current maturities | 1,884 | 1,884 | |||||||||||||
| Liabilities held for sale | Liabilities held for sale | 235 | — | |||||||||||||||
| Total liabilities, current | 338,896 | 312,031 | Total liabilities, current | 602,690 | 614,892 | |||||||||||||
| Long-term debt, excluding current maturities | 337,421 | 318,900 | Long-term debt, excluding current maturities | 811,332 | 341,746 | |||||||||||||
| Lease liabilities, non-current | 40,861 | — | Lease liabilities, non-current | 43,745 | 38,352 | |||||||||||||
| Deferred tax liabilities, net | 4,224 | 5,748 | Deferred tax liabilities, net | 21,582 | 5,735 | |||||||||||||
| Other liabilities, noncurrent | 20,758 | 16,219 | ||||||||||||||||
| Other liabilities, non-current | Other liabilities, non-current | 16,763 | 23,416 | |||||||||||||||
| Total liabilities | 742,160 | 652,898 | Total liabilities | 1,496,112 | 1,024,141 | |||||||||||||
| Commitments and contingencies | Commitments and contingencies | 0 | 0 | |||||||||||||||
| Stockholders' equity: | 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; 25,193,766 and 24,946,046 shares issued and outstanding | 2,519 | 2,495 | ||||||||||||||||
| Cumulative preferred stock, non-voting, $1.00 par. Authorized 2,000,000 shares; NaN issued | Cumulative preferred stock, non-voting, $1.00 par. Authorized 2,000,000 shares; NaN issued | — | — | |||||||||||||||
| Common stock, $0.10 par. Authorized 50,000,000 shares; 23,800,305 and 24,405,921 shares issued and outstanding | Common stock, $0.10 par. Authorized 50,000,000 shares; 23,800,305 and 24,405,921 shares issued and outstanding | 2,380 | 2,441 | |||||||||||||||
| Additional paid in capital | 268,043 | 246,585 | Additional paid in capital | 303,740 | 283,396 | |||||||||||||
| Accumulated other comprehensive income | (7,005 | ) | 1,191 | |||||||||||||||
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | 202 | (11,656) | |||||||||||||||
| Retained earnings | 898,166 | 746,366 | Retained earnings | 1,021,017 | 965,166 | |||||||||||||
| Total stockholders' equity | 1,161,723 | 996,637 | Total stockholders' equity | 1,327,339 | 1,239,347 | |||||||||||||
| Total liabilities and stockholders' equity | $ | 1,903,883 | $ | 1,649,535 | Total liabilities and stockholders' equity | $ | 2,823,451 | $ | 2,263,488 | |||||||||
See accompanying notes to consolidated financial statements.
71
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Income
| Fiscal Years Ended Last Day of February, | |||||||||||
| (in thousands, except per share data) | 2020 | 2019 | 2018 | ||||||||
| Sales revenue, net | $ | 1,707,432 | $ | 1,564,151 | $ | 1,478,845 | |||||
| Cost of goods sold | 972,966 | 923,045 | 867,646 | ||||||||
| Gross profit | 734,466 | 641,106 | 611,199 | ||||||||
| Selling, general and administrative expense ("SG&A") | 511,902 | 438,141 | 424,833 | ||||||||
| Asset impairment charges | 41,000 | — | 15,447 | ||||||||
| Restructuring charges | 3,313 | 3,586 | 1,857 | ||||||||
| Operating income | 178,251 | 199,379 | 169,062 | ||||||||
| Nonoperating income, net | 394 | 340 | 327 | ||||||||
| Interest expense | (12,705 | ) | (11,719 | ) | (13,951 | ) | |||||
| Income before income tax | 165,940 | 188,000 | 155,438 | ||||||||
| Income tax expense | 13,607 | 13,776 | 26,556 | ||||||||
| Income from continuing operations | 152,333 | 174,224 | 128,882 | ||||||||
| Loss from discontinued operations, net of tax | — | (5,679 | ) | (84,436 | ) | ||||||
| Net income | $ | 152,333 | $ | 168,545 | $ | 44,446 | |||||
| Earnings (loss) per share - basic: | |||||||||||
| Continuing operations | $ | 6.06 | $ | 6.68 | $ | 4.76 | |||||
| Discontinued operations | — | (0.22 | ) | (3.12 | ) | ||||||
| Total earnings per share - basic | $ | 6.06 | $ | 6.46 | $ | 1.64 | |||||
| Earnings (loss) per share - diluted: | |||||||||||
| Continuing operations | $ | 6.02 | $ | 6.62 | $ | 4.73 | |||||
| Discontinued operations | — | (0.22 | ) | (3.10 | ) | ||||||
| Total earnings per share - diluted | $ | 6.02 | $ | 6.41 | $ | 1.63 | |||||
| Weighted average shares of common stock used in computing earnings per share: | |||||||||||
| Basic | 25,118 | 26,073 | 27,077 | ||||||||
| Diluted | 25,322 | 26,303 | 27,254 | ||||||||
| Fiscal Years Ended Last Day of February, | |||||||||||||||||
| (in thousands, except per share data) | 2022 | 2021 | 2020 | ||||||||||||||
| Sales revenue, net | $ | 2,223,355 | $ | 2,098,799 | $ | 1,707,432 | |||||||||||
| Cost of goods sold | 1,270,168 | 1,171,497 | 972,966 | ||||||||||||||
| Gross profit | 953,187 | 927,302 | 734,466 | ||||||||||||||
| Selling, general and administrative expense (“SG&A”) | 680,257 | 637,012 | 511,902 | ||||||||||||||
| Asset impairment charges | — | 8,452 | 41,000 | ||||||||||||||
| Restructuring charges | 380 | 350 | 3,313 | ||||||||||||||
| Operating income | 272,550 | 281,488 | 178,251 | ||||||||||||||
| Non-operating income, net | 260 | 559 | 394 | ||||||||||||||
| Interest expense | 12,844 | 12,617 | 12,705 | ||||||||||||||
| Income before income tax | 259,966 | 269,430 | 165,940 | ||||||||||||||
| Income tax expense | 36,202 | 15,484 | 13,607 | ||||||||||||||
| Net income | $ | 223,764 | $ | 253,946 | $ | 152,333 | |||||||||||
| Earnings per share (“EPS”): | |||||||||||||||||
| Basic | $ | 9.27 | $ | 10.16 | $ | 6.06 | |||||||||||
| Diluted | 9.17 | 10.08 | 6.02 | ||||||||||||||
| Weighted average shares used in computing EPS: | |||||||||||||||||
| Basic | 24,142 | 24,985 | 25,118 | ||||||||||||||
| Diluted | 24,410 | 25,196 | 25,322 | ||||||||||||||
See accompanying notes to consolidated financial statements.
72
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
| Fiscal Years Ended Last Day of February, | |||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||
| Net income | $ | 223,764 | $ | 253,946 | $ | 152,333 | |||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||
| Cash flow hedge activity - interest rate swaps | 5,450 | 623 | (8,331) | ||||||||||||||
| Cash flow hedge activity - foreign currency contracts | 6,408 | (5,274) | 135 | ||||||||||||||
| Total other comprehensive income (loss), net of tax | 11,858 | (4,651) | (8,196) | ||||||||||||||
| Comprehensive income | $ | 235,622 | $ | 249,295 | $ | 144,137 | |||||||||||
See accompanying notes to consolidated financial statements.
73
| Fiscal Years Ended Last Day of February, | |||||||||||
| (in thousands) | 2020 | 2019 | 2018 | ||||||||
| Net income | $ | 152,333 | $ | 168,545 | $ | 44,446 | |||||
| Other comprehensive income (loss), net of tax: | |||||||||||
| Cash flow hedge activity - interest rate swaps | (8,331 | ) | (1,573 | ) | 1,705 | ||||||
| Cash flow hedge activity - foreign currency contracts | 135 | 2,133 | (2,247 | ) | |||||||
| Total other comprehensive income (loss), net of tax | (8,196 | ) | 560 | (542 | ) | ||||||
| Comprehensive income | $ | 144,137 | $ | 169,105 | $ | 43,904 | |||||
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
| Common Stock | Additional Paid in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Stockholders' Equity | ||||||||||||||||
| (in thousands, including shares) | Shares | Par Value | ||||||||||||||||||
| Balances at February 28, 2019 | 24,946 | $ | 2,495 | $ | 246,585 | $ | 1,191 | $ | 746,366 | $ | 996,637 | |||||||||
| Net income | — | — | — | — | 152,333 | 152,333 | ||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | (8,196) | — | (8,196) | ||||||||||||||
| Exercise of stock options | 93 | 9 | 5,344 | — | — | 5,353 | ||||||||||||||
| Issuance and settlement of restricted stock | 202 | 20 | (20) | — | — | — | ||||||||||||||
| Issuance of common stock related to stock purchase plan | 30 | 3 | 2,833 | — | — | 2,836 | ||||||||||||||
| Common stock repurchased and retired | (77) | (8) | (9,628) | — | (533) | (10,169) | ||||||||||||||
| Share-based compensation | — | — | 22,929 | — | — | 22,929 | ||||||||||||||
| Balances at February 29, 2020 | 25,194 | $ | 2,519 | $ | 268,043 | $ | (7,005) | $ | 898,166 | $ | 1,161,723 | |||||||||
| Net income | — | — | — | — | 253,946 | 253,946 | ||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | (4,651) | — | (4,651) | ||||||||||||||
| Exercise of stock options | 21 | 2 | 1,592 | — | — | 1,594 | ||||||||||||||
| Issuance and settlement of restricted stock | 194 | 20 | (20) | — | — | — | ||||||||||||||
| Issuance of common stock related to stock purchase plan | 27 | 3 | 3,608 | — | — | 3,611 | ||||||||||||||
| Common stock repurchased and retired | (1,030) | (103) | (16,245) | — | (186,946) | (203,294) | ||||||||||||||
| Share-based compensation | — | — | 26,418 | — | — | 26,418 | ||||||||||||||
| Balances at February 28, 2021 | 24,406 | $ | 2,441 | $ | 283,396 | $ | (11,656) | $ | 965,166 | $ | 1,239,347 | |||||||||
| Net income | — | — | — | — | 223,764 | 223,764 | ||||||||||||||
| Other comprehensive income, net of tax | — | — | — | 11,858 | — | 11,858 | ||||||||||||||
| Exercise of stock options | 23 | 2 | 1,693 | — | — | 1,695 | ||||||||||||||
| Issuance and settlement of restricted stock | 202 | 20 | (20) | — | — | — | ||||||||||||||
| Issuance of common stock related to stock purchase plan | 24 | 2 | 4,259 | — | — | 4,261 | ||||||||||||||
| Common stock repurchased and retired | (855) | (85) | (20,206) | — | (167,913) | (188,204) | ||||||||||||||
| Share-based compensation | — | — | 34,618 | — | — | 34,618 | ||||||||||||||
| Balances at February 28, 2022 | 23,800 | $ | 2,380 | $ | 303,740 | $ | 202 | $ | 1,021,017 | $ | 1,327,339 | |||||||||
| Common Stock | Additional Paid in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Shareholders' Equity | |||||||||||||
| (in thousands, including shares) | Shares | Par Value | |||||||||||||||
| Balances at February 28, 2017 | 27,029 | $ | 2,703 | $ | 218,760 | $ | 1,173 | $ | 798,130 | $ | 1,020,766 | ||||||
| Income from continuing operations | — | — | — | — | 128,882 | 128,882 | |||||||||||
| Loss from discontinued operations | — | — | — | — | (84,436 | ) | (84,436 | ) | |||||||||
| Other comprehensive income (loss), net of tax | — | — | — | (542 | ) | — | (542 | ) | |||||||||
| Exercise of stock options | 126 | 12 | 6,547 | — | — | 6,559 | |||||||||||
| Net issuance and settlement of restricted stock | 198 | 20 | (318 | ) | — | — | (298 | ) | |||||||||
| Issuance of common stock related to stock purchase plan | 16 | 2 | 1,525 | — | — | 1,527 | |||||||||||
| Common stock repurchased and retired | (793 | ) | (79 | ) | (10,892 | ) | — | (62,082 | ) | (73,053 | ) | ||||||
| Share-based compensation | — | — | 15,054 | — | — | 15,054 | |||||||||||
| Balances at February 28, 2018 | 26,576 | 2,658 | 230,676 | 631 | 780,494 | 1,014,459 | |||||||||||
| Income from continuing operations | — | — | — | — | 174,224 | 174,224 | |||||||||||
| Loss from discontinued operations | — | — | — | — | (5,679 | ) | (5,679 | ) | |||||||||
| Other comprehensive income (loss), net of tax | — | — | — | 560 | — | 560 | |||||||||||
| Exercise of stock options | 126 | 13 | 6,262 | — | — | 6,275 | |||||||||||
| Net issuance and settlement of restricted stock | 147 | 15 | (15 | ) | — | — | — | ||||||||||
| Issuance of common stock related to stock purchase plan | 31 | 3 | 2,392 | — | — | 2,395 | |||||||||||
| Common stock repurchased and retired | (1,934 | ) | (194 | ) | (14,783 | ) | — | (202,516 | ) | (217,493 | ) | ||||||
| Share-based compensation | — | — | 22,053 | — | — | 22,053 | |||||||||||
| Cumulative effect of accounting change | — | — | — | — | (157 | ) | (157 | ) | |||||||||
| Balances at February 28, 2019 | 24,946 | 2,495 | 246,585 | 1,191 | 746,366 | 996,637 | |||||||||||
| Income from continuing operations | — | — | — | — | 152,333 | 152,333 | |||||||||||
| Loss from discontinued operations | — | — | — | — | — | — | |||||||||||
| Other comprehensive income (loss), net of tax | — | — | — | (8,196 | ) | — | (8,196 | ) | |||||||||
| Exercise of stock options | 93 | 9 | 5,344 | — | — | 5,353 | |||||||||||
| Net issuance and settlement of restricted stock | 202 | 20 | (20 | ) | — | — | — | ||||||||||
| Issuance of common stock related to stock purchase plan | 30 | 3 | 2,833 | — | — | 2,836 | |||||||||||
| Common stock repurchased and retired | (77 | ) | (8 | ) | (9,628 | ) | — | (533 | ) | (10,169 | ) | ||||||
| Share-based compensation | — | — | 22,929 | — | — | 22,929 | |||||||||||
| Balances at February 29, 2020 | 25,194 | $ | 2,519 | $ | 268,043 | $ | (7,005 | ) | $ | 898,166 | $ | 1,161,723 | |||||
See accompanying notes to consolidated financial statements.
74
HELEN OF TROY LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
| Fiscal Years Ended Last Day of February, | ||||||||||||
| (in thousands) | 2020 | 2019 | 2018 | |||||||||
| Cash provided by operating activities: | ||||||||||||
| Net income | $ | 152,333 | $ | 168,545 | $ | 44,446 | ||||||
| Less: Loss from discontinued operations | — | (5,679 | ) | (84,436 | ) | |||||||
| Income from continuing operations | 152,333 | 174,224 | 128,882 | |||||||||
| Adjustments to reconcile income from continuing operations to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 37,409 | 29,927 | 33,730 | |||||||||
| Amortization of financing costs | 1,620 | 1,015 | 887 | |||||||||
| Non-cash operating lease asset amortization | 1,682 | — | — | |||||||||
| Provision for doubtful receivables | 529 | 1,097 | 1,066 | |||||||||
| Non-cash share-based compensation | 22,929 | 22,053 | 15,054 | |||||||||
| Non-cash intangible asset impairment charges | 41,000 | — | 15,447 | |||||||||
| Loss (gain) on the sale or disposal of property and equipment | 188 | (540 | ) | 331 | ||||||||
| Deferred income taxes and tax credits | (5,696 | ) | 7,636 | 21,264 | ||||||||
| Changes in operating assets and liabilities, net of effects of acquisition of business: | ||||||||||||
| Receivables | (60,562 | ) | (5,812 | ) | (44,921 | ) | ||||||
| Inventories | 45,482 | (50,828 | ) | 29,366 | ||||||||
| Prepaid expenses and other current assets | 863 | 239 | (383 | ) | ||||||||
| Other assets and liabilities, net | 24,075 | 7,549 | (16,728 | ) | ||||||||
| Accounts payable | 7,166 | 14,219 | 23,689 | |||||||||
| Accrued expenses and other current liabilities | 5,296 | (1,526 | ) | 12,293 | ||||||||
| Accrued income taxes | (3,021 | ) | 1,315 | (1,368 | ) | |||||||
| Net cash provided by operating activities - continuing operations | 271,293 | 200,568 | 218,609 | |||||||||
| Net cash provided (used) by operating activities - discontinued operations | — | (5,265 | ) | 5,598 | ||||||||
| Net cash provided by operating activities | 271,293 | 195,303 | 224,207 | |||||||||
| Cash provided (used) by investing activities: | ||||||||||||
| Capital and intangible asset expenditures | (17,759 | ) | (26,385 | ) | (13,605 | ) | ||||||
| Proceeds from the sale of property and equipment | 3 | 1,138 | 13 | |||||||||
| Payments to acquire businesses, net of cash acquired | (255,861 | ) | — | — | ||||||||
| Net cash used by investing activities - continuing operations | (273,617 | ) | (25,247 | ) | (13,592 | ) | ||||||
| Net cash provided (used) by investing activities - discontinued operations | — | — | 49,226 | |||||||||
| Net cash provided (used) by investing activities | (273,617 | ) | (25,247 | ) | 35,634 | |||||||
| Cash used by financing activities: | ||||||||||||
| Proceeds from line of credit | 771,300 | 667,250 | 521,200 | |||||||||
| Repayment of line of credit | (752,500 | ) | (635,450 | ) | (692,500 | ) | ||||||
| Repayment of long-term debt | (1,900 | ) | (1,900 | ) | (25,700 | ) | ||||||
| Proceeds from share issuances under share-based compensation plans | 8,189 | 8,670 | 7,863 | |||||||||
| Repurchases of common stock in the open market and from share settlements | (10,169 | ) | (217,493 | ) | (73,053 | ) | ||||||
| Net cash provided (used) by financing activities | 14,920 | (178,923 | ) | (262,190 | ) | |||||||
| Net increase (decrease) in cash and cash equivalents | 12,596 | (8,867 | ) | (2,349 | ) | |||||||
| Cash and cash equivalents, beginning balance | 11,871 | 20,738 | 23,087 | |||||||||
| Cash and cash equivalents, ending balance | 24,467 | 11,871 | 20,738 | |||||||||
| Less: Cash and cash equivalents of discontinued operations, ending balance | — | — | — | |||||||||
| Cash and cash equivalents of continuing operations, ending balance | $ | 24,467 | $ | 11,871 | $ | 20,738 | ||||||
| Supplemental cash flow information: | ||||||||||||
| Interest paid | $ | 12,777 | $ | 11,292 | $ | 13,543 | ||||||
| Income taxes paid, net of refunds | $ | 23,279 | $ | 4,277 | $ | 6,081 | ||||||
| Supplemental non-cash items not included above resulting from the adoption of ASC 842 | ||||||||||||
| Initial recognition of operating lease asset | $ | (37,082 | ) | $ | — | $ | — | |||||
| Initial recognition of lease liabilities | $ | 47,223 | $ | — | $ | — | ||||||
| Accrued expenses and other current liabilities | $ | (2,873 | ) | $ | — | $ | — | |||||
| Other assets and liabilities, net | $ | (7,311 | ) | $ | — | $ | — | |||||
| Prepaid expenses and other current assets | $ | 43 | $ | — | $ | — | ||||||
| Fiscal Years Ended Last Day of February, | |||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||
| Cash provided by operating activities: | |||||||||||||||||
| Net income | $ | 223,764 | $ | 253,946 | $ | 152,333 | |||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | 35,829 | 37,718 | 37,409 | ||||||||||||||
| Amortization of financing costs | 986 | 1,021 | 1,620 | ||||||||||||||
| Non-cash operating lease expense | 9,580 | 6,895 | 6,269 | ||||||||||||||
| Provision for credit losses | 312 | 2,093 | 529 | ||||||||||||||
| Non-cash share-based compensation | 34,618 | 26,418 | 22,929 | ||||||||||||||
| Asset impairment charges | — | 8,452 | 41,000 | ||||||||||||||
| Gain on sale of North America Personal Care business | (513) | — | — | ||||||||||||||
| (Gain) loss on the sale or disposal of property and equipment | (2,243) | 193 | 188 | ||||||||||||||
| Deferred income taxes and tax credits | (8,871) | (4,400) | (5,696) | ||||||||||||||
| Changes in operating capital, net of effects of acquisition of business: | |||||||||||||||||
| Receivables | (66,834) | (38,149) | (60,562) | ||||||||||||||
| Inventory | (45,913) | (220,817) | 45,482 | ||||||||||||||
| Prepaid expenses and other current assets | (5,589) | (2,033) | 863 | ||||||||||||||
| Other assets and liabilities, net | (6,595) | (6,613) | 19,488 | ||||||||||||||
| Accounts payable | (43,745) | 175,784 | 7,166 | ||||||||||||||
| Accrued expenses and other current liabilities | (3,593) | 73,010 | 5,296 | ||||||||||||||
| Accrued income taxes | 19,630 | 588 | (3,021) | ||||||||||||||
| Net cash provided by operating activities | 140,823 | 314,106 | 271,293 | ||||||||||||||
| Cash used by investing activities: | |||||||||||||||||
| Capital and intangible asset expenditures | (78,039) | (98,668) | (17,759) | ||||||||||||||
| Payments to acquire businesses, net of cash acquired | (410,880) | — | (255,861) | ||||||||||||||
| Proceeds from sale of North America Personal Care business | 44,700 | — | — | ||||||||||||||
| Proceeds from the sale of property and equipment | 5,305 | — | 3 | ||||||||||||||
| Net cash used by investing activities | (438,914) | (98,668) | (273,617) | ||||||||||||||
| Cash provided (used) by financing activities: | |||||||||||||||||
| Proceeds from line of credit | 998,200 | 937,400 | 771,300 | ||||||||||||||
| Repayment of line of credit | (527,700) | (928,400) | (752,500) | ||||||||||||||
| Repayment of long-term debt | (1,900) | (1,900) | (1,900) | ||||||||||||||
| Payment of financing costs | — | (3,796) | — | ||||||||||||||
| Proceeds from share issuances under share-based compensation plans | 5,956 | 5,205 | 8,189 | ||||||||||||||
| Payments for repurchases of common stock | (188,204) | (203,294) | (10,169) | ||||||||||||||
| Net cash provided (used) by financing activities | 286,352 | (194,785) | 14,920 | ||||||||||||||
| Net (decrease) increase in cash and cash equivalents | (11,739) | 20,653 | 12,596 | ||||||||||||||
| Cash and cash equivalents, beginning balance | 45,120 | 24,467 | 11,871 | ||||||||||||||
| Cash and cash equivalents, ending balance | $ | 33,381 | $ | 45,120 | $ | 24,467 | |||||||||||
| Supplemental cash flow information: | |||||||||||||||||
| Interest paid | $ | 11,694 | $ | 11,640 | $ | 12,777 | |||||||||||
| Income taxes paid, net of refunds | 22,831 | 19,692 | 23,279 | ||||||||||||||
| Supplemental non-cash investing activity: | |||||||||||||||||
| Capital expenditures included in accounts payable | 6,858 | — | — | ||||||||||||||
See accompanying notes to consolidated financial statements.
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HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. Dollars, except share and per share data, unless indicated otherwise)
Note 1 - Summary of Significant Accounting Policies and Related Information
When used in these notes within this Annual Report on Form 10-K (the “Annual Report”), 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.subsidiaries, which are all wholly-owned. We refer to our common shares, par value $0.10 per share, as “common stock.” References to “the FASB” refer to the Financial Accounting Standards Board. References to “GAAP” refer to U.S.accounting principles generally accepted accounting principles.in the United States of America (the “U.S.”). 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,leading consumer products company offering creative products and distributor of an expandingsolutions for our customers through a diversified portfolio of brand-name consumer products.brands. As of February 29, 2020,28, 2022, we operated 3 segments: Housewares,Home & Outdoor, Health & Home,Wellness, and Beauty. In the fourth quarter of fiscal 2022, we changed the names of two of our segments to align with the growth in certain product offerings and brands within our portfolio. Our Housewarespreviously named “Housewares” segment was changed to “Home & Outdoor,” and our previously named “Health & Home” segment was changed to “Health & Wellness.” There were no changes to the products or brands included within our reportable segments as part of these name changes. The Osprey brand and products were added to the Home & Outdoor segment upon the completion of the acquisition of Osprey Packs, Inc. (“Osprey”), discussed further below. Our Home & Outdoor segment provides a broad range of innovative consumer products for the home. Product offerings includehome activities such as food preparation, toolscooking, cleaning, and organization; as well as products for outdoor and on the go activities such as hydration, food storage, containers; cleaning, bathbackpacks, and garden tools and accessories; infant and toddler care products; and insulated beverage and food containers.travel gear. The Health & HomeWellness segment focuses onprovides health and wellness products including healthcare devices, such as thermometers, water and air filtration systems, 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.fans. Our Beauty segment products include electricprovides mass and prestige market beauty appliances including hair care, beauty care and wellness appliances;styling appliances, grooming tools, decorative hair accessories, and accessories;prestige market liquid-based hair 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. Our fiscal reporting period ends on the last day in February. 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, Vietnam and the United States.U.S.
During the fourth quarter of fiscal 2020, we committed to a plan to divest certain assets within our Beauty segment's mass channel personal care business, which included liquid, powder and aerosol products under brands such as Pert, Brut, Sure and Infusium (“Personal Care”). On June 7, 2021, we completed the sale of our North America Personal Care business to HRB Brands LLC, for $44.7 million in cash and recognized a gain on the sale in SG&A totaling $0.5 million. Subsequent to our fiscal 2022 year end, on March 25, 2022, we completed the sale of the Latin America and Caribbean Personal Care businesses to HRB Brands LLC, for $1.8 million in cash. The net assets sold included intangible assets, inventory, certain net trade receivables, fixed assets and certain accrued sales discounts and allowances relating to our Personal Care business. Accordingly, we continued to classify the identified net assets of the Latin America and Caribbean Personal Care businesses as held for sale in our fiscal 2022 consolidated balance sheet. See Note 4 for additional information.
On December 29, 2021, we completed the acquisition of Osprey, a longtime U.S. leader in technical and everyday packs, for $410.9 million in cash, net of a preliminary closing net working capital adjustment
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and cash acquired. Osprey is highly respected in the outdoor industry with a product lineup that includes a wide range of backpacks and daypacks for hiking, mountaineering, skiing, climbing, mountain biking, trail running, commuting, and school, as well as rugged adventure travel packs, wheeled luggage, and travel accessories.
On January 23, 2020, we completed the acquisition of Drybar Products LLC (“Drybar Products”), for approximately $255.9 million in cash. Drybar is an innovative, trendsetting prestige hair care and styling brand in the multibillion-dollar beauty industry. See Note 7 for additional information.
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) to be a pandemic. COVID-19 has spread throughout the U.S. and the world. COVID-19 is impacting consumer shopping patterns and demand for goods in certain product categories. Additionally, COVID-19 has disrupted certain parts of our supply chain, which in certain cases, limited our ability to fulfill demand and may limit our ability to fulfill demand in the future. Surges in demand and shifts in shopping patterns related to COVID-19, as well as other factors, have strained the global freight network, which is resulting in higher costs, less capacity, and longer lead times for our products.
During fiscal 2021, the COVID-19 related impact on our business included the effect of temporary closures of certain customer stores or limited hours of operation and materially lower store traffic which shifted consumer shopping preferences from brick and mortar to more online purchases. In addition, we saw high demand for healthcare products as well as cooking, storage and related product lines as consumer spent more time at home. We also experienced disruptions to our supply chain due to shifting consumer purchasing patterns, limited capacity of shipping containers, and COVID-19 related work stoppages in the global supply chain.
During fiscal 2022, we were adversely impacted by COVID-19 related global supply chain disruptions and cost increases. We also saw recovery of our product lines and brands that were unfavorably impacted in fiscal 2021 as a result of the pandemic. Additionally, as customers have been able to return to more brick and mortar shopping, our mix of online sales has been negatively impacted compared to fiscal 2021.
The extent of COVID-19’s impact on the demand for certain of our product lines in the future will depend on future developments, including the continued surges in the spread of COVID-19, our continued ability to source and distribute our products, the impact of COVID-19 on capital and financial markets, and the related impact on consumer confidence and spending, all of which are uncertain and difficult to predict considering the continuously evolving landscape. Accordingly, our liquidity and financial results could be impacted in ways that we are not able to predict today.
Principles of Consolidation
The accompanying consolidated financial statements are prepared in accordance with GAAP and include all of our subsidiaries. Our consolidated financial statements are prepared in U.S. Dollars. All intercompany balances and transactions are eliminated in consolidation.
The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results may differ materially from those estimates.
Reclassifications
We have reclassified, combined or separately disclosed certain amounts in the prior years’ consolidated financial statements and accompanying footnotes to conform to the current year’s presentation, including discontinued operations (see Note 6) and the adoptionpresentation.
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Cash and cash equivalentsCash Equivalents
Cash equivalents include all highly liquid investments with an original maturity of three months or less. We maintain cash and cash equivalents at several financial institutions, which at times may not be federally insured or may exceed federally insured limits. We have not experienced any losses in such accounts and believe we are not exposed to any significant credit risks on such accounts. We consider money market accounts to be cash equivalents.
Receivables
Our receivables are principally comprised of trade credit granted toreceivables from customers, primarily in the retail industry, offset by an allowance for doubtful receivables.credit losses. Our allowance for doubtful receivablescredit losses reflects our best estimate of probableexpected credit losses over the receivables' term, determined principally based on historical experience, and specific allowances for known at-risk accounts.accounts, and consideration of current economic conditions and management’s expectations of future economic conditions. Our policy is to write off receivables when we have determined they will no longer be collectible. Write-offs are applied as a reduction to the allowance for doubtful accountscredit losses and any recoveries of previous write-offs are netted against bad debt expense in the period recovered.
We have a significant concentration of credit risk with three major customers at February 29, 202028, 2022 representing approximately 18%23%, 14%17%, and 13%9% of our gross trade receivables, respectively. During fiscal 2019As of February 28, 2021, our significant concentration of credit risk with three major customers represented approximately 17%18%, 12%16%, and 12%15% of our gross trade receivables, respectively. In addition, as of February 29, 202028, 2022 and February 28, 2019,2021, approximately 54%55% and 48%58%, respectively, of our gross trade receivables were due from our five top customers.
Foreign currency transactionsCurrency Transactions and related derivative financial instrumentsRelated Derivative Financial Instruments
The U.S. Dollar is the functional currency for the Company and all of its subsidiaries;subsidiaries and is also the reporting currency for the Company; therefore, we do not have a translation adjustment recorded through accumulated other comprehensive income. All our non-U.S. subsidiaries' transactions involvingdenominated in other currencies have been re-measured inremeasured into U.S. Dollars using exchange rates in effect on the date each transaction occurred. In our consolidated statements of income, foreign currency exchange rate 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 currency exchange rate gains and losses are recognized in SG&A.
In order to manage our exposure to changes in foreign currency exchange rates, we use forward currency contracts zero-cost collars and cross-currency debt swaps to exchange foreign currencies for U.S. Dollars at specified rates. Derivatives for which we have elected and qualify for hedge accounting include our forward contracts (“foreign currency contracts”). Our foreign currency contracts are designated as cash flow hedges and are recorded on the balance sheet at their fair value and changes in the fair value of the forward exchange contracts and zero cost collars are recorded each period in our consolidated statements of comprehensive income until the underlying hedge transaction is settled, at which pointwith changes in fair value are recorded in Other Comprehensive (Loss) Income (“OCI”) until the hedged forecasted transaction affects earnings, at which point amounts are reclassified from Accumulated Other Comprehensive (Loss) Income (“AOCI”) to our consolidated statements of income. For derivativesDerivatives for which we have not elected or do not qualify for hedge accounting include our cross-currency debt swaps and any changes in the fair value of the contractsderivatives are recorded each period in our consolidated statements of income. We evaluate all hedging transactionsour derivatives designated as cash flow hedges each quarter to determine that they remain
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Inventory and costCost of goods soldGoods Sold
Our inventory consists almost entirely of finished goods. Inventories are stated at the lower of average costscost or net realizable value. We write down a portion of our inventory to net realizable value based on the historical successsales trends of product linesproducts and estimates about future demand and market conditions, among other factors. Our average costs include the amounts we pay manufacturers for product, tariffs and duties associated with transporting product across national borders, freight costs associated with transporting the product from our manufacturers to our distribution centers, and general and administrative expenses directly attributable to acquiring inventory, as applicable.
General and administrative expenses indirectly attributable to acquiring inventory include all the expenses of operating our sourcing activities and expenses incurred for production monitoring, product design, engineering, and packaging. We chargedcapitalized $26.0 million, $33.9 million, and $44.6 $47.7, and $43.2 million of such general and administrative expenses tointo inventory during fiscal 2020, 20192022, 2021 and 2018,2020, respectively. We estimate that $16.0$17.6 million and $15.6$15.1 million of general and administrative expenses directly attributable to the procurement of inventory were included in our inventory balances on hand at February 29, 202028, 2022 and February 28, 2019,2021, respectively.
The “Cost of goods sold” line item in the consolidated statements of income is comprised of the book value of inventory sold to customers during the reporting period. When circumstances dictate that we use net realizable value as the basis for recording inventory, we base our estimates on expected future selling prices less expected disposal costs.
For fiscal 2020, 20192022, 2021 and 2018,2020, finished goods purchased from vendors in the Far EastAsia comprised approximately 76%88%, 74%80%, and 74%76%, respectively, of total finished goods purchased. During fiscal 2020,2022, we had one vendor (located in Mexico)China) who fulfilled approximately 9% of our product requirements compared to 11% and 7% for fiscal 20192021 and 2018.2020, respectively. Additionally, during fiscal 2022, we had one vendor (located in Mexico) who fulfilled approximately 7% of our product requirements compared to 9% in both fiscal 2021 and fiscal 2020. For fiscal 2020, 20192022, 2021 and 2018,2020, our top two manufacturers combined fulfilled approximately 18%16%, 20%, and 19%18% of our product requirements.requirements, respectively. Over the same periods, our top five suppliers fulfilled approximately 39%36%, 38%, and 34%39% of our product requirements, respectively.
Property and equipmentEquipment
These assets are statedrecorded at cost. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets. Expenditures for repair and maintenance of property and equipment are expensed as incurred. For tax purposes, accelerated depreciation methods are used where allowed by tax laws.
License agreements, trademarks, patents,Agreements, Trademarks, Patents, and other intangible assetsOther Intangible Assets
A significant portion of our sales are made subject to trademark license agreements with various licensors. Our license agreements are reported on our consolidated balance sheets at cost, less accumulated amortization. The cost of our license agreements represent amounts paid to licensors to acquire the license or to alter the terms of the license in a manner that we believe to be in our best interest. Certain licenses have extension terms that may require additional payments to the licensor as part of the terms of renewal. We capitalize costs incurred to renew or extend the term of a license agreement and amortize such costs on a straight-line basis over the remaining term or economic life of the agreement, whichever is shorter. Royalty payments are not included in the cost of license agreements. Royalty expense under our license agreements is recognized as incurred and is included in our consolidated statements of income in SG&A. Net sales revenue subject to trademark license agreements requiring royalty payments comprised approximately 43%30%, 41%, and 45%43% of consolidated net sales revenue for fiscal 2020, 20192022, 2021 and 2018,2020, respectively. During fiscal 2020, 32022, 2 license
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agreements accounted for net sales revenue subject to royalty payments of approximately 14%, 11%13% and 10% of consolidated net sales respectively.revenue. No other license agreements had associated net sales revenue subject to royalty payments that accounted for 10% or more of consolidated net sales revenue.
We also sell products under trademarks and brand assets that we own. Trademarks and brand assets that we acquire through acquisition from other entities are generally recorded on our consolidated balance sheets based upon the appraised fair value of the acquired asset, net of any accumulated amortization and impairment charges. Costs associated with developing trademarks internally are recorded as expenses in the period incurred. In certain instances where trademarks or brand assets have readily determinable useful lives, we amortize their costs on a straight-line basis over such lives. In some instances, we have determined that such acquired assets have an indefinite useful life. In these cases, no amortization is recorded. Patents acquired through acquisition, if material, are recorded on our consolidated balance sheets based upon the appraised value of the acquired patents and amortized over the remaining life of the patent. Additionally, we incur certain costs in connection with the design and development of products to be covered by patents, which are capitalized as incurred and amortized on a straight-line basis over the life of the patent in the jurisdiction filed, typically 12 to 14 years.
Other intangible assets include customer lists, distribution rights, patent rights, and non-compete agreements that we acquired. These are recorded on our consolidated balance sheets based upon the fair value of the acquired asset and amortized on a straight-line basis over the remaining life of the asset as determined either through outsideby a third-party appraisal or by the term of any controlling agreements.
Goodwill, intangibleIntangible and other long-lived assetsOther Long-Lived Assets and related impairment testingRelated Impairment Testing
Goodwill is recorded as the difference, if any, between the aggregate consideration paid and the fair value of the net tangible and intangible assets received in the acquisition of a business. The estimates of the fair value of the assets acquired and liabilities assumed are based upon assumptions believed to be reasonable using established valuation techniques that consider a number of factors, and when appropriate, valuations performed by independent third-party appraisers.
We review goodwill and indefinite-lived intangible assets for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate that their carrying value may not be recoverable. We consider whether circumstances or conditions exist which suggest that the carrying value of our goodwill and indefinite-lived intangible assets might be impaired. If such circumstances or conditions exist, we perform a qualitative assessment to determine whether it is more likely than not that the assets are impaired. We evaluate goodwill at the reporting unit level (operating segment or one level below an operating segment). We measureIf the amountresults of any goodwill impairment based upon the estimated fairqualitative assessment indicate that it is more likely than not that the assets are impaired, further steps are required in order to determine whether the carrying value of the underlying assets and liabilities of theeach reporting unit including any unrecognizedand indefinite-lived intangible assets and estimates of the impliedexceeds its fair value of goodwill.market value. An impairment charge is recognized to the extent the goodwill or indefinite-lived intangible asset recorded goodwill exceeds the impliedreporting unit’s or asset's fair valuevalue. We perform our annual impairment testing for goodwill and indefinite-lived intangible assets as of goodwill.the beginning of the fourth quarter of our fiscal year (see Note 8).
We complete our analysis of the carrying value of our goodwill and otherreview intangible assets annually, or whenever events or changes in circumstances indicate their carrying value may not be recoverable.with definite lives and long-lived assets held and used if a triggering event occurs during the reporting period. If such circumstances or conditions exist, further steps are required in order to determine whether the carrying value of each of the individual assets exceeds its fair market value. If theour analysis indicates that an individual asset’s carrying value does exceed its fair market value, the next step is to record a loss equal to the excess of the individual asset’s carrying value over its fair value. These steps entailWe evaluate long-lived assets held for sale quarterly to determine if estimated fair value less cost to sell has changed during the reporting period. See Note 4 for additional information on our assets held for sale impairment analysis.
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The assumptions and estimates used in our impairment testing involve significant amountselements of subjective judgment and subjectivity.analysis. While we believe that the assumptions we use are reasonable at the time made, changes in business conditions or other unanticipated events and circumstances may occur that cause actual results to differ materially from projected results and this could potentially require future adjustments to our asset valuations.
Economic useful livesUseful Lives and amortizationAmortization of intangibleIntangible Assets
Intangible assets
consist primarily of license agreements, trademarks, brand assets, customer lists, distribution rights, patents, patent rights, and non-compete agreements. We amortize intangible assets such as licenses and trademarks, over their economic useful lives, unless those assets' economic useful lives are indefinite. If an intangible asset'sasset’s economic useful life is deemed indefinite, that asset is not amortized. When we acquire an intangible asset, we consider factors such as the asset's history, our plans for that asset and the market for products associated with the asset. We consider these same factors when reviewing the economic useful lives of our previously acquired intangible assets as well. We review the economic useful lives of our intangible assets at least annually.
Financial instrumentsInstruments
The carrying amounts of cash, and cash equivalents, receivables, accounts payable, accrued expenses and other current liabilities and income taxes payable approximate fair value because of the short maturity of these items. The carrying amounts of receivables approximate fair value due to the effect of the related allowance for credit losses. The carrying amount of our floating rate long-term debt approximates its fair value.
We use derivatives to manage our exposure to changes in foreign currency exchange rates, which include foreign currency forward contracts and cross-currency debt swaps. In addition, we use interest rate swaps to manage our exposure to changes in interest rates. All of our derivative assets and liabilities are recorded at fair value. See NoteNotes 15, 16 and 17 for more information on our assessment of the fair value of our long-term debt.measurements and derivatives.
Income taxesTaxes and uncertain tax positionsUncertain Tax Positions
The provision for income tax expense is calculated on reported income before income taxes based on current tax law and includes, in the current period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Tax laws may require items to be included in the determination of taxable income at different times from when the items are reflected in the financial statements. Deferred tax balances reflect the effects of temporary differences between the financial statement carrying amounts of assets and liabilities and their tax bases, as well as from net operating losses and tax credit carryforwards, and are stated at enacted tax rates in effect for the year taxes are expected to be paid or recovered.
Deferred tax assets represent tax benefits for tax deductions or credits available in future years and require certain estimates and assumptions to determine whether it is more likely than not that all or a portion of the benefit will not be realized. The recoverability of these future tax deductions and credits is determined by assessing the adequacy of future expected taxable income from all sources, including the future reversal of existing taxable temporary differences, taxable income in carryback years, estimated future taxable income and available tax planning strategies. Should a change in facts or circumstances
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lead to a change in judgment about the ultimate recoverability of a deferred tax asset, we record or adjust the related valuation allowance in the period that the change in facts and circumstances occurs, along with a corresponding increase or decrease in income tax expense.
We record tax benefits for uncertain tax positions based upon management’s evaluation of the information available at the reporting date. To be recognized in the financial statements, the tax position must meet the more-likely-than-not threshold that the position will be sustained upon examination by the tax authority based on its technical merits assuming the tax authority has full knowledge of all relevant information. For positions meeting this recognition threshold, the benefit is measured as the largest amount that has greater than a 50 percent likelihood of benefit that meets the more-likely-than-not threshold to be sustained.being realized upon ultimate settlement. We periodically evaluatereevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on the latest available information.factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, historical experience with similar tax matters, guidance from our tax advisors, and new audit activity. For tax positions that do not meet the threshold requirement, we record liabilities for unrecognized tax benefits as a tax expense or benefit in the period recognized or reversed and disclose as a separate liability in our financial statements, including related accrued interest and penalties.
Revenue recognitionRecognition
Our revenue is primarily generated from the provisionssale of ASU 2014-9 in the first quarter of fiscal 2019, and we electednon-customized consumer products to adopt the standard using the retrospective method. The core principle of the guidance is that a company should recognize revenue to depict the transfer ofcustomers. These products are 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 recognize revenueare distinct performance obligations. Revenue is recognized when control of, and title to, the product sold transfers to the customer. customer in accordance with applicable shipping terms, which can occur on the date of shipment or the date of receipt by the customer, depending on the customer and the agreed upon shipping terms. Payment terms from the sale of our products are typically due to us in thirty to ninety days after the date of sale.
We measure revenue as the amount of consideration for which we expect to be entitled, in exchange for transferring goods. We allow for sales returns for defects in material and workmanship for periods ranging from two to five years, which are accounted for as variable consideration. We recognize an accrual for sales returns to reduce sales to reflect our best estimate of future customer returns, determined principally based on historical experience and specific allowances for known pending returns.
Sales taxes and other similar taxes are excluded from revenue. We have elected to account for shipping and handling activities as a fulfillment cost.cost as permitted by the guidance. We do not have unsatisfied performance obligations since our performance obligations are satisfied at a single point in time.
Advertising
Advertising costs include cooperative retail advertising with our customers, traditional and digital media advertising and production expenses, and expenses associated with other promotional product messaging and consumer awareness programs. Advertising costs are expensed in the period in which they are incurred and included in our consolidated statements of income in SG&A. We incurred total advertising costs of $71.4, $62.4,$96.4 million, $110.7 million, and $53.7$71.4 million during fiscal 2022, 2021 and 2020, 2019 and 2018, respectively.
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Research and development expenseDevelopment Expense
Research and development expenses consist primarily of salary and employee benefit expenses and contracted development efforts and expenses associated with development of products. Expenditures for research activities relating to product design, engineering, development and improvement are generally charged to expense as incurred and are included in our consolidated statements of income in SG&A. We incurred total research and development expenses of $17.8, $13.0,$37.2 million, $30.6 million, and $13.5$17.8 million during fiscal 2022, 2021 and 2020, 2019 and 2018, respectively.
Shipping and handling revenueHandling Revenue and expenseExpense
Shipping and handling revenue and expense are included in our consolidated statements of income in SG&A. This includes distribution center costs, third-party logistics costs and outbound transportation costs we incur. Our net expense for shipping and handling was $173.4 million, $140.1 million, and $102.7 $89.4, $78.1 million during fiscal 2020, 20192022, 2021 and 2018,2020, respectively.
Share-Based Compensation Plans
We accountgrant share-based compensation awards to non-employee directors and certain associates under our equity plans. We measure the cost of services received in exchange for share-based employee compensation plans under the fair value recognition and measurement provisions in accordance with applicable accounting standards,equity awards, which require all share-based payments to employees, includinginclude grants of stock options, restricted stock awards (“RSA”RSAs”), restricted stock units (“RSU”RSUs”), performance stock awards ("PSA"(“PSAs”), and performance stock units (“PSU”PSUs”), to be measured based on the grant date fair value of the awards. The resultingawards on the grant date. These awards may be subject to attainment of certain service conditions, performance conditions and/or market conditions. Share-based compensation expense is recognized over the periodsrequisite service period during which the employee is required to performprovide service in exchange for the award. The estimatedaward, unless the awards are subject to performance conditions (“Performance Condition Awards”), in which case we recognize compensation expense over the requisite service period to the extent performance conditions are considered probable. Estimating the number of PSA's and PSU’sshares of Performance Condition Awards that will ultimately vestare probable of vesting requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment to share-based compensation expense in the period estimates are revised. Share-based compensation expense is recorded ratably for PSAs and PSUs subject to attainment of market conditions (“Market Condition Awards”) during the requisite service period and is not reversed, except for forfeitures, at the vesting date regardless of whether the market condition is met. All share-based compensation expense is recorded net of forfeitures in our consolidated statements of income.
The grant date fair value of RSAs, RSUs, PSAs, and PSUs is determined using the closing price of our common stock on the date of grant, except for Market Condition Awards, in which case we use a Monte Carlo simulation model. The Monte Carlo simulation model utilizes multiple input variables to estimate the financial statements basedprobability that market conditions will be achieved and is applied to the closing price of our common stock on their fair values using an option-pricing model at the date of grant. We use a Black-Scholes option-pricing model to calculate the fair value of options. This model requires various judgmental assumptions including volatility, forfeiture rates and expected option life.
See Note 119 for further information on our share-based compensation plans.
Note 2 - New Accounting Pronouncements
We did not adopt any new accounting pronouncements during fiscal 2022.
Not Yet Adopted
In December 2019,October 2021, the FinancialFASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2019-12 "Income Taxes,"for Contract Assets and Contract Liabilities from Contracts with Customers, which provides for certain updatesrequires contract assets and contract liabilities acquired in a business combination to reduce complexitybe recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. Prior to the accounting for income taxes, includingissuance of this guidance, contract assets and contract liabilities were recognized by the utilization
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acquirer at fair value on the incremental approach for intra-period tax allocation, among others.acquisition date. The amendments in ASU 2019-122021-08 are effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2020. We are currently evaluating2022, with early adoption permitted and should be applied prospectively to acquisitions occurring on or after the impact this guidance may have on our consolidated financial statements.
In August 2018,November 2021, the FASB issued ASU 2018-13,2021-10, Fair Value MeasurementGovernment Assistance (Topic 820)832): Disclosure Framework-ChangesDisclosures by Business Entities about Government Assistance, which requires business entities to disclose information about transactions with a government that are accounted for by applying a grant or contribution model by analogy to other accounting guidance due to the lack of specific authoritative guidance in GAAP (for example, a grant model within International Accounting Standard 20, Accounting for Government Grants and Disclosure Requirementsof Government Assistance, or Subtopic 958-605, Not-For-Profit Entities - Revenue Recognition). This guidance excludes transactions in the scope of specific GAAP, such as tax incentives accounted for Fair Value Measurementunder ASC 740, Income Taxes. ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures. TheThis new ASU is effective for annual periods beginning after December 15, 2021, with early adoption and retrospective or prospective application permitted. This ASU will be effective for us on March 1, 2020, and interim periods within thosein our Form 10-K for fiscal years. Early adoption is permitted. Certain disclosures in ASU 2018-13 would need to be applied on a retrospective basis and others on a prospective basis.2023. We believe that the adoption of this guidanceASU will not have a material impact on our consolidated financial statements.
Note 3 - Revenue RecognitionLeases
| (in thousands) | Before Reclassification | After Reclassification | |||||||||
Balance Sheet | February 28, 2018 | Reclassification | February 28, 2018 | ||||||||
| Receivables | $ | 273,168 | $ | 2,397 | $ | 275,565 | |||||
| Accrued expenses and other current liabilities | $ | 165,864 | $ | 2,397 | $ | 168,261 | |||||
| (in thousands) | Before Reclassification | After Reclassification | |||||||||
Statement of Income | Fiscal Year Ended February 28, 2018 | Reclassification | Fiscal Year Ended February 28, 2018 | ||||||||
| Sales revenue, net | $ | 1,489,747 | $ | (10,902 | ) | $ | 1,478,845 | ||||
| SG&A | $ | 435,735 | $ | (10,902 | ) | $ | 424,833 | ||||
We include options to extend or terminate the lease in the lease term for accounting considerations, when it is reasonably certain that we will exercise that option. Our leases have remaining lease terms of less than one1 year to 1311 years. Lease expense for lease payments is recognized on a straight-line basis over the lease term in a manner similar to previous accounting guidance.term. We do not recognize leases with an initial term of twelve months or less on the balance sheet and instead recognize the related lease payments as expense in the condensed consolidated statements of income on a straight-line basis over the lease term. We account for lease and non-lease components as a single lease component for all asset classes. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Under the new guidance, operating
Operating lease expense recognized within SG&A in the condensed consolidated statements of income duringwas $9.6 million, $7.0 million, and $6.4 million for fiscal 2022, 2021, and 2020, was $6.4 million.respectively. Short-term lease expense is excluded from this amount and is not material. Rent expense related to all our operating leases was $7.8, $7.9,$13.3 million, $9.5 million, and $5.5$7.8 million for fiscal 2022, 2021 and 2020, 2019 and 2018, respectively.
The non-cash component of lease expense is included as an adjustment to reconcile net income from continuing operations to net cash provided by operating activities in the condensed consolidated statements of cash flows.
A summary of supplemental lease information is as follows:
| February 29, 2020 | |||
| Weighted average remaining lease term (years) | 10.8 | ||
| Weighted average discount rate | 6.13 | % | |
| Year-to-date cash paid for amounts included in the measurement of lease liabilities: | |||
| Operating cash flows from operating leases | $ | 4,579 | |
| February 28, 2022 | February 28, 2021 | ||||||||||
| Weighted average remaining lease term (years) | 9.5 | 9.6 | |||||||||
| Weighted average discount rate | 5.52% | 6.03% | |||||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | 9,715 | $ | 6,951 | |||||||
| Operating lease assets obtained in exchange for operating lease liabilities | $ | 12,213 | $ | 4,163 | |||||||
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A summary of our estimated lease payments, imputed interest and liabilities are as follows:
| (in thousands) | |||
| Fiscal 2021 | $ | 6,082 | |
| Fiscal 2022 | 5,959 | ||
| Fiscal 2023 | 5,601 | ||
| Fiscal 2024 | 5,102 | ||
| Fiscal 2025 | 5,762 | ||
| Thereafter | 34,370 | ||
| Total future lease payments | 62,876 | ||
| Less: imputed interest | (18,374 | ) | |
| Present value of lease liability | $ | 44,502 | |
| (in thousands) | February 28, 2022 | ||||
| Fiscal 2023 | $ | 8,320 | |||
| Fiscal 2024 | 6,621 | ||||
| Fiscal 2025 | 6,665 | ||||
| Fiscal 2026 | 5,361 | ||||
| Fiscal 2027 | 5,966 | ||||
| Thereafter | 32,178 | ||||
| Total future lease payments | 65,111 | ||||
| Less: imputed interest | (15,611) | ||||
| Present value of lease liability | $ | 49,500 | |||
| February 29, 2020 | |||
| Lease liabilities, current (1) | $ | 3,641 | |
| Lease liabilities, non-current | 40,861 | ||
| Total lease liability | $ | 44,502 | |
| (in thousands) | February 28, 2022 | February 28, 2021 | |||||||||
| Lease liabilities, current (1) | $ | 5,755 | $ | 5,972 | |||||||
| Lease liabilities, non-current | 43,745 | 38,352 | |||||||||
| Total lease liability | $ | 49,500 | $ | 44,324 | |||||||
(1)Included as part of "Accrued“Accrued expenses and other current liabilities"liabilities” on the condensed consolidated balance sheet.
Note 54 - Assets and Liabilities Held for Sale
We record assets held for sale in accordance with ASC 360 “Property, Plant, and Equipment,” and present them as single asset amounts in our condensed consolidated financial statements. Assets held for sale consist of assets that we expect to sell within the next year. The assets are reported at the lower of carrying amount or fair value less costs to sell. We cease recording depreciation on assets that are classified as held for sale. If the determination is made that we no longer expect to sell an asset within the next year, the asset is reclassified out of held for sale. We review assets held for sale each reporting period to determine whether the existing carrying amounts are fully recoverable in comparison to estimated fair values.values less costs to sell.
During the fourth quarter of fiscal 2020, we committed to a plan to divest certain assets within our mass market personal care business. The assets to be disposed of include intangible assets, inventoryPersonal Care business and fixed assets relating to our mass channel liquids, powder and aerosol products under brands such as Pert, Brut, Sure and Infusium. We expect the divestiture to occur within fiscal 2021. Accordingly,accordingly, we have classified the identified net assets of the disposal group as held for sale. During the fourth quarter of fiscal 2020, we recorded asset impairment charges of $41.0 million ($36.4 million after tax) related to goodwill and intangible assets.
During the fourth quarter of fiscal 2021, our quarterly impairment evaluation of long-lived assets held for sale resulted in an asset impairment charge of $8.5 million ($7.4 million after tax) to reduce the goodwill of our Personal Care business to reflect the disposal group at fair value less cost to sell.
On June 7, 2021, we completed the sale of our North America Personal Care business to HRB Brands LLC, for $44.7 million in cash and recognized a gain on the sale in SG&A totaling $0.5 million. The net assets sold included intangible assets, inventory, certain net trade receivables, fixed assets and certain accrued sales discounts and allowances relating to our Personal Care business. Accordingly, we continued to classify the identified net assets of the Latin America and Caribbean Personal Care businesses as held for sale in our fiscal 2022 consolidated balance sheet.
Subsequent to our fiscal 2022 year end, on March 25, 2022, we completed the sale of the Latin America and Caribbean Personal Care businesses to HRB Brands LLC, for $1.8 million in cash.
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The carrying amounts of the major classes of assets and liabilities for the personal careour Personal Care business that were classified as held for sale are as follows:
| (in thousands) | February 29, 2020 | ||
| Assets | |||
| Inventory | $ | 17,150 | |
| Property and equipment, net of accumulated depreciation of $403 | 83 | ||
| Goodwill | 9,849 | ||
| Other intangible assets, net of accumulated amortization of $4,474 | 17,724 | ||
| Total assets held for sale | $ | 44,806 | |
| (in thousands) | February 28, 2022 | February 28, 2021 | |||||||||||||||
| Receivables, net of allowance of $23 and $30 | $ | 1,265 | $ | 7,979 | |||||||||||||
| Inventory | 611 | 12,667 | |||||||||||||||
| Property and equipment, net of accumulated depreciation of $152 and $403 | 66 | 100 | |||||||||||||||
| Goodwill (1) | — | 1,397 | |||||||||||||||
| Other intangible assets (1) | — | 17,724 | |||||||||||||||
| Assets held for sale | $ | 1,942 | $ | 39,867 | |||||||||||||
| Accrued sales discounts and allowances | $ | 235 | $ | — | |||||||||||||
| Liabilities held for sale | $ | 235 | $ | — | |||||||||||||
(1)Goodwill and other intangible assets as of February 28, 2021 are presented net of accumulated impairment and accumulated amortization of $80,445 and $4,474, respectively.
The following table summarizes income (loss) before income tax for the personal careour Personal Care business:
| Fiscal Years Ended Last Day of February, | |||||||||||
| (in thousands) | 2020 | 2019 | 2018 | ||||||||
| Income (loss) before income taxes | $ | (29,760 | ) | $ | 23,190 | $ | 1,713 | ||||
| Fiscal Years Ended Last Day of February, | |||||||||||||||||
| (in thousands) | 2022 | 2021 | 2020 | ||||||||||||||
| Income (loss) before income tax | $ | 5,546 | $ | 8,705 | $ | (29,760) | |||||||||||
Income (loss) before income taxes includes asset impairment charges of $41.0$8.5 million $0 and $15.4$41.0 million for fiscal 2021 and 2020, 2019respectively, and 2018, respectively. Itamortization of intangible assets of $7.8 million for fiscal 2020. NaN impairment charges were recorded in fiscal 2022. No amortization of intangible assets was recorded in fiscal 2022 or 2021 for our Personal Care business. Income (loss) before income taxes also includes corporate overhead expenses that are allocable to the business.
| (in thousands) | February 29, 2020 | February 28, 2019 | February 28, 2018 (1) | |||||||||
| Sales revenue, net | $ | — | $ | — | $ | 99,013 | ||||||
| Cost of goods sold | — | — | 28,744 | |||||||||
| Gross profit | — | — | 70,269 | |||||||||
| Selling, general and administrative expense ("SG&A") | — | — | 72,419 | |||||||||
| Asset impairment charges (2) | — | — | 132,297 | |||||||||
| Restructuring charges | — | — | 621 | |||||||||
| Operating loss | — | — | (135,068 | ) | ||||||||
| Gain (loss) on sale before income tax | — | (7,257 | ) | 1,624 | ||||||||
| Interest expense | — | — | (367 | ) | ||||||||
| Loss before income tax | — | (7,257 | ) | (133,811 | ) | |||||||
| Income tax benefit | — | 1,578 | 49,375 | |||||||||
| Loss from discontinued operations | $ | — | $ | (5,679 | ) | $ | (84,436 | ) | ||||
Note 75 - Property and Equipment
A summary of property and equipment is as follows:
Estimated Useful Lives (Years) | Fiscal Years Ended Last Day of February, | Estimated Useful Lives (Years) | Fiscal Years Ended Last Day of February, | |||||||||||||||||||||||||||||||
| (in thousands) | 2020 | 2019 | (in thousands) | 2022 | 2021 | |||||||||||||||||||||||||||||
| Land | — | $ | 12,644 | $ | 12,644 | Land | — | $ | 20,632 | $ | 12,644 | |||||||||||||||||||||||
| Building and improvements | 3 | — | 40 | 115,592 | 113,820 | Building and improvements | 3 | — | 40 | 126,093 | 116,652 | |||||||||||||||||||||||
| Computer, furniture and other equipment | 3 | — | 15 | 89,257 | 84,711 | Computer, furniture and other equipment | 3 | — | 15 | 102,566 | 97,810 | |||||||||||||||||||||||
| Tools, molds and other production equipment | 3 | — | 7 | 37,652 | 36,378 | Tools, molds and other production equipment | 3 | — | 7 | 55,925 | 42,729 | |||||||||||||||||||||||
| Construction in progress | — | 9,302 | 6,529 | Construction in progress | — | 61,168 | 7,079 | |||||||||||||||||||||||||||
| Property and equipment, gross | 264,447 | 254,082 | Property and equipment, gross | 366,384 | 276,914 | |||||||||||||||||||||||||||||
| Less accumulated depreciation | (132,340 | ) | (123,744 | ) | ||||||||||||||||||||||||||||||
| Less: accumulated depreciation | Less: accumulated depreciation | (161,006) | (140,379) | |||||||||||||||||||||||||||||||
| Property and equipment, net | $ | 132,107 | $ | 130,338 | Property and equipment, net | $ | 205,378 | $ | 136,535 | |||||||||||||||||||||||||
We recorded $16.1, $15.7$23.1 million, $20.1 million and $14.9$16.1 million of depreciation expense including $4.3, $4.1$10.0 million, $6.8 million and $3.7$4.3 million in cost of goods sold and $11.8, $11.6$13.1 million, $13.3 million and $11.2$11.8 million in SG&A in the consolidated statements of income for fiscal 2020, 20192022, 2021 and 2018,2020, respectively.
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Note 86 - Accrued Expenses and Other Current Liabilities
A summary of accrued expenses and other current liabilities is as follows:
| Fiscal Years Ended Last Day of February, | |||||||
| (in thousands) | 2020 | 2019 | |||||
| Accrued compensation, benefits and payroll taxes | $ | 49,624 | $ | 36,782 | |||
| Accrued sales discounts and allowances | 34,176 | 28,655 | |||||
| Accrued sales returns | 22,972 | 23,316 | |||||
| Accrued advertising | 31,351 | 26,549 | |||||
| Other | 45,034 | 49,858 | |||||
| Total accrued expenses and other current liabilities | $ | 183,157 | $ | 165,160 | |||
| Fiscal Years Ended Last Day of February, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Accrued compensation, benefits and payroll taxes | $ | 55,405 | $ | 66,385 | |||||||
| Accrued sales discounts and allowances | 69,120 | 59,426 | |||||||||
| Accrued sales returns | 33,384 | 29,434 | |||||||||
| Accrued advertising | 55,775 | 50,923 | |||||||||
| Other | 57,991 | 65,011 | |||||||||
| Total accrued expenses and other current liabilities | $ | 271,675 | $ | 271,179 | |||||||
Note 97 - Drybar Products AcquisitionAcquisitions
Osprey
On January 23, 2020,December 29, 2021, we completed the acquisition of Drybar ProductsOsprey, a longtime U.S. leader in technical and everyday packs. Osprey is highly respected in the outdoor industry with a product lineup that includes a wide range of backpacks and daypacks for approximately $255.9hiking, mountaineering, skiing, climbing, mountain biking, trail running, commuting, and school, as well as rugged adventure travel packs, wheeled luggage, and travel accessories. The total purchase consideration, net of cash acquired, was $410.9 million in cash, subject to certainincluding the impact of a preliminary $9.1 million favorable customary closing adjustments. Acquisition-relatednet working capital adjustment. The acquisition was funded with cash on hand and borrowings under our existing revolving credit facility. We incurred pre-tax acquisition-related expenses incurredof $2.4 million during fiscal 20202022, which were approximately $2.5 million before tax. The purchase price was funded by borrowings under the Company's revolving credit agreement.recognized in SG&A within our consolidated statements of income.
We accounted for the acquisition as a purchase of a business and recorded the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed as goodwill. The goodwill recognized is attributable primarily to expected synergies including leveraging our information systems, shared service capabilities and international footprint. The goodwill is not expected to be deductible for income tax purposes. We have provisionally determined the appropriate fair values of the acquired intangible assets and completed our analysis of the economic lives of the assets acquired and determined the appropriate fair values of the acquired assets.acquired. We assigned $30.0$170.0 million to trade names and are amortizing over a 15 year expectedwhich were determined to have an indefinite life. We assigned $17.0$22.0 million to customer relationships and are amortizing over a 14.54.5 year expected life. We usedlife, based on historical attrition rates to assign the expected life. We assigned $10.0 million to a consulting agreement and $6.0 million to a non-compete provision, and we are amortizing these assets over expected livesrates.
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Table of 5and 10 years, respectively.Contents
The following scheduletable presents the preliminary net assets recorded upon acquisition of Drybar ProductsOsprey at January 23, 2020:December 29, 2021:
(in thousands) | |||
| Assets: | |||
| Receivables | $ | 7,710 | |
| Inventory | 16,603 | ||
| Prepaid expenses and other current assets | 190 | ||
| Property and equipment | 1,472 | ||
| Goodwill | 172,933 | ||
| Trade names - definite | 30,000 | ||
| Other intangible assets - definite | 33,000 | ||
| Subtotal - assets | 261,908 | ||
| Liabilities: | |||
| Accounts payable | 1,948 | ||
| Accrued expenses | 4,099 | ||
| Subtotal - liabilities | 6,047 | ||
| Net assets recorded | $ | 255,861 | |
(in thousands) | |||||
| Assets: | |||||
| Receivables | $ | 11,758 | |||
| Inventory | 30,056 | ||||
| Prepaid expenses and other current assets | 3,699 | ||||
| Income taxes receivable | 4,197 | ||||
| Property and equipment | 11,386 | ||||
| Goodwill | 208,972 | ||||
| Trade names - indefinite | 170,000 | ||||
| Customer relationships - definite | 22,000 | ||||
| Operating lease assets | 2,155 | ||||
| Total assets | 464,223 | ||||
| Liabilities: | |||||
| Accounts payable | 4,487 | ||||
| Accrued expenses and other current liabilities | 7,345 | ||||
| Lease liabilities, non-current | 1,719 | ||||
| Deferred tax liabilities, net | 39,792 | ||||
| Total liabilities | 53,343 | ||||
| Net assets recorded | $ | 410,880 | |||
The fair valuesvalue of receivables acquired is $11.8 million, with the above assets acquiredgross contractual amount being $11.9 million and liabilities assumed were estimated by applying income and market approaches. Key assumptions include various discount rates based upon a 12.6% weighted average cost of capital; royalty rates used in the determination trade names and customer relationships asset values of 5.0% and 3.0%, respectively; and a customer attrition rate used in the determination of customer relationship values of 6.7% per year.$0.1 million expected to be uncollectible.
The impact of the Drybar Products acquisition of Osprey on our consolidated statements of income for fiscal 20202022 is as follows:
January 23, 2020 (acquisition date) though February 29, 2020 (in thousands, except earnings per share data) | Fiscal Year Ended February 29, 2020 | ||
| Sales revenue, net | $ | 6,039 | |
| Income from continuing operations | 1,483 | ||
| Earnings per share from continuing operations: | |||
| Basic | $ | 0.06 | |
| Diluted | $ | 0.06 | |
December 29, 2021 (acquisition date) through February 28, 2022 (in thousands, except earnings per share data) | Fiscal Year Ended February 28, 2022 | ||||
| Sales revenue, net | $ | 24,373 | |||
| Net income | 696 | ||||
| EPS: | |||||
| Basic | $ | 0.03 | |||
| Diluted | $ | 0.03 | |||
The following supplemental unaudited pro forma information presents our financial results as if the Drybar Products acquisition of Osprey had occurred at the beginning of the fiscal years presented.on March 1, 2020. This supplemental pro forma information has been prepared for comparative purposes and would not necessarily indicate what may have occurred if the acquisition had been completed on March 1, 2020, and this information is not intended to be indicative of future results:
| Fiscal Years Ended the Last Day of February, | |||||||||||
| (in thousands, except earnings per share data) | 2022 | 2021 | |||||||||
| Sales revenue, net | $ | 2,361,906 | $ | 2,224,196 | |||||||
| Net income | 202,507 | 259,311 | |||||||||
| EPS: | |||||||||||
| Basic | $ | 8.39 | $ | 10.38 | |||||||
| Diluted | $ | 8.30 | $ | 10.29 | |||||||
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These amounts have been calculated after applying our accounting policies and adjusting the results of Osprey to reflect the effect of definite-lived intangible assets recognized as part of the business combination on amortization expense as if the acquisition had occurred on March 1, 2020.
Drybar Products
On January 23, 2020, we completed the acquisition of Drybar Products for approximately $255.9 million in cash. The purchase price was funded by borrowings under the Company's revolving credit agreement. We accounted for the acquisition as a purchase of a business and recorded the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed as goodwill. Acquisition-related expenses incurred during fiscal 2020 were approximately $2.5 million before tax.
Drybar is an innovative, trend setting prestige hair care and styling brand in the multibillion-dollar beauty industry. As part of the transaction, we granted a worldwide license to Drybar Holdings LLC, which has subsequently been assumed by WellBiz Brands, Inc., as successor owner of Drybar blowout salons, to use the Drybar trademark in relation to the franchising and operation of Drybar salons. The salons exclusively use, promote, and sell Drybar products globally.
The following table presents the net assets recorded upon acquisition of Drybar Products at January 23, 2020:
(in thousands) | |||||
| Assets: | |||||
| Receivables | $ | 7,710 | |||
| Inventory | 16,603 | ||||
| Prepaid expenses and other current assets | 190 | ||||
| Property and equipment | 1,472 | ||||
| Goodwill | 172,933 | ||||
| Trade names - definite | 30,000 | ||||
| Other intangible assets - definite | 33,000 | ||||
| Subtotal - assets | 261,908 | ||||
| Liabilities: | |||||
| Accounts payable | 1,948 | ||||
| Accrued expenses | 4,099 | ||||
| Subtotal - liabilities | 6,047 | ||||
| Net assets recorded | $ | 255,861 | |||
The impact of the acquisition of Drybar Products on our consolidated statements of income for fiscal 2020 is as follows:
January 23, 2020 (acquisition date) through February 29, 2020 (in thousands, except earnings per share data) | Fiscal Year Ended February 29, 2020 | ||||
| Sales revenue, net | $ | 6,039 | |||
| Net income | 1,483 | ||||
| EPS: | |||||
| Basic | $ | 0.06 | |||
| Diluted | $ | 0.06 | |||
The following supplemental unaudited pro forma information presents our financial results as if the acquisition of Drybar Products had occurred on March 1, 2018. This supplemental pro forma information has been prepared for comparative purposes and would not necessarily indicate what may have occurred
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as if the acquisition had been completed on March 1, 2018, and this information is not intended to be indicative of future results:
As if the acquisition had been completed on March 1. 2018 (in thousands, except earnings per share data) | Fiscal Years Ended the Last Day of February, | ||||||
| 2020 | 2019 | ||||||
| Sales revenue, net | $ | 1,773,592 | $ | 1,621,117 | |||
| Income from continuing operations | 162,114 | 179,550 | |||||
| Earnings per share from continuing operations: | |||||||
| Basic | $ | 6.45 | $ | 6.89 | |||
| Diluted | $ | 6.40 | $ | 6.83 | |||
| (in thousands, except earnings per share data) | Fiscal Year Ended February 29, 2020 | ||||||||||
| Sales revenue, net | $ | 1,773,592 | |||||||||
| Net income | 162,114 | ||||||||||
| EPS: | |||||||||||
| Basic | $ | 6.45 | |||||||||
| Diluted | $ | 6.40 | |||||||||
Note 108 - Goodwill and Intangibles
Impairment Testing in Fiscal 2022- We did not record any impairment test methodology uses primarily estimated future discounted cash flow models (“DCF Models”). The DCF Models use a numbercharges related to goodwill or intangible assets.
Impairment Testing in Fiscal 2021- During the fourth quarter of assumptions including expected future cash flows fromfiscal 2021, our quarterly impairment evaluation of long-lived assets held for sale resulted in an asset impairment charge of $8.5 million ($7.4 million after tax) to reduce the assets, volatility, risk free rate, and the expected life of the assets, the determination of which require significant judgments from management. In determining the assumptions to be used, we consider the existing rates on Treasury Bills, yield spreads on assets with comparable expected lives, historical volatilitygoodwill of our common stock and that of comparable companies, and general economic and industry trends, among other considerations. When stock market or other conditions warrant, we expand our traditional impairment test methodologyPersonal Care business to give weight to other methods that provide additional observable market information in order to better reflect the current risk level being incorporated into market prices and in order to corroborate the fair values of each of our reporting units. Management will place increased reliance on these additional methods in conjunction with its DCF Models in the event that the total market capitalization of its stock drops below its consolidated stockholders’ equity balance for a sustained period.
Impairment Testing in Fiscal 2020 - We recorded non-cash asset impairment charges related to goodwill and intangible assets of $41.0 million ($36.4 million after tax). The charges were related to mass market personal care assets within our Beauty segment,Personal Care business, which werewas written down to theirits estimated fair values,value, and are classified as assets held for sale.
There were no changes to goodwillthe gross carrying amount or intangible assets.
Balances at February 28, 2019 | Year Ended February 29, 2020 | Balances at February 29, 2020 | ||||||||||||||||||||||||||||||||
| (in thousands) | Weighted Average Life (Years) | Gross Carrying Amount | Cumulative Goodwill Impairments | Additions | Impairments | Retirement / Reclassification Adjustments | Reclassification to Held for Sale | Gross Carrying Amount | Cumulative Goodwill Impairments | Accumulated Amortization (1) | Net Book Value | |||||||||||||||||||||||
| Housewares: | ||||||||||||||||||||||||||||||||||
| Goodwill | $ | 282,056 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 282,056 | $ | — | $ | — | $ | 282,056 | ||||||||||||||
| Trademarks - indefinite | 134,200 | — | — | — | — | — | 134,200 | — | — | 134,200 | ||||||||||||||||||||||||
| Other intangibles - finite | 13.8 | 41,417 | — | 709 | — | (31 | ) | — | 42,095 | — | (21,469 | ) | 20,626 | |||||||||||||||||||||
| Subtotal | 457,673 | — | 709 | — | (31 | ) | — | 458,351 | — | (21,469 | ) | 436,882 | ||||||||||||||||||||||
| Health & Home: | ||||||||||||||||||||||||||||||||||
| Goodwill | 284,913 | — | — | — | — | — | 284,913 | — | — | 284,913 | ||||||||||||||||||||||||
| Trademarks - indefinite | 54,000 | — | — | — | — | — | 54,000 | — | — | 54,000 | ||||||||||||||||||||||||
| Licenses - finite | 3.7 | 17,050 | — | — | — | — | — | 17,050 | — | (15,752 | ) | 1,298 | ||||||||||||||||||||||
| Licenses - indefinite | 7,400 | — | — | — | — | — | 7,400 | — | — | 7,400 | ||||||||||||||||||||||||
| Other Intangibles - finite | 5.8 | 117,967 | — | 256 | — | — | — | 118,223 | — | (98,142 | ) | 20,081 | ||||||||||||||||||||||
| Subtotal | 481,330 | — | 256 | — | — | — | 481,586 | — | (113,894 | ) | 367,692 | |||||||||||||||||||||||
| Beauty: | ||||||||||||||||||||||||||||||||||
| Goodwill | 81,841 | (46,490 | ) | 172,933 | (25,503 | ) | — | (9,849 | ) | 244,925 | (71,993 | ) | — | 172,932 | ||||||||||||||||||||
| Trademarks - indefinite | 30,407 | — | — | — | (30,407 | ) | — | — | — | — | — | |||||||||||||||||||||||
| Trademarks - finite | 14.9 | 150 | — | 30,000 | (11,168 | ) | 30,407 | (15,997 | ) | 33,392 | — | (3,564 | ) | 29,828 | ||||||||||||||||||||
| Licenses - indefinite | 10,300 | — | — | — | (10,300 | ) | — | — | — | — | — | |||||||||||||||||||||||
| Licenses - finite | 2.8 | 13,696 | — | — | (4,234 | ) | 10,300 | (6,065 | ) | 13,697 | — | (12,800 | ) | 897 | ||||||||||||||||||||
| Other intangibles - finite | 10.7 | 46,402 | — | 33,000 | (95 | ) | — | (136 | ) | 79,171 | — | (46,549 | ) | 32,622 | ||||||||||||||||||||
| Subtotal | 182,796 | (46,490 | ) | 235,933 | (41,000 | ) | — | (32,047 | ) | 371,185 | (71,993 | ) | (62,913 | ) | 236,279 | |||||||||||||||||||
| Total | $ | 1,121,799 | $ | (46,490 | ) | $ | 236,898 | $ | (41,000 | ) | $ | (31 | ) | $ | (32,047 | ) | $ | 1,311,122 | $ | (71,993 | ) | $ | (198,276 | ) | $ | 1,040,853 | ||||||||
(in thousands) | Weighted Average Life (Years) | Balances at February 28, 2018 | Year Ended February 28, 2019 | Balances at February 28, 2019 | |||||||||||||||||||||||||||
Gross Carrying Amount | Cumulative Goodwill Impairments | Additions | Impairments | Retirement Adjustments | Gross Carrying Amount | Cumulative Goodwill Impairments | Accumulated Amortization | Net Book Value | |||||||||||||||||||||||
| Housewares: | |||||||||||||||||||||||||||||||
| Goodwill | $ | 282,056 | $ | — | $ | — | $ | — | $ | — | $ | 282,056 | $ | — | $ | — | $ | 282,056 | |||||||||||||
| Trademarks - indefinite | 134,200 | — | — | — | — | 134,200 | — | — | 134,200 | ||||||||||||||||||||||
| Other intangibles - finite | 14.7 | 40,828 | — | 684 | — | (95 | ) | 41,417 | — | (19,398 | ) | 22,019 | |||||||||||||||||||
| Subtotal | 457,084 | — | 684 | — | (95 | ) | 457,673 | — | (19,398 | ) | 438,275 | ||||||||||||||||||||
| Health & Home: | |||||||||||||||||||||||||||||||
| Goodwill | 284,913 | — | — | — | — | 284,913 | — | — | 284,913 | ||||||||||||||||||||||
| Trademarks - indefinite | 54,000 | — | — | — | — | 54,000 | — | — | 54,000 | ||||||||||||||||||||||
| Licenses - finite | 4.7 | 15,300 | — | 1,750 | — | — | 17,050 | — | (15,402 | ) | 1,648 | ||||||||||||||||||||
| Licenses - indefinite | 7,400 | — | — | — | — | 7,400 | — | — | 7,400 | ||||||||||||||||||||||
| Other Intangibles - finite | 5.5 | 117,586 | — | 381 | — | — | 117,967 | — | (87,953 | ) | 30,014 | ||||||||||||||||||||
| Subtotal | 479,199 | — | 2,131 | — | — | 481,330 | — | (103,355 | ) | 377,975 | |||||||||||||||||||||
| Beauty: | |||||||||||||||||||||||||||||||
| Goodwill | 81,841 | (46,490 | ) | — | — | — | 81,841 | (46,490 | ) | — | 35,351 | ||||||||||||||||||||
| Trademarks - indefinite | 30,407 | — | — | — | — | 30,407 | — | — | 30,407 | ||||||||||||||||||||||
| Trademarks - finite | 9.6 | 150 | — | — | — | — | 150 | — | (102 | ) | 48 | ||||||||||||||||||||
| Licenses - indefinite | 10,300 | — | — | — | — | 10,300 | — | — | 10,300 | ||||||||||||||||||||||
| Licenses - finite | 3.8 | 13,696 | — | — | — | — | 13,696 | — | (12,482 | ) | 1,214 | ||||||||||||||||||||
| Other intangibles - finite | 4.6 | 46,402 | — | — | — | — | 46,402 | — | (46,126 | ) | 276 | ||||||||||||||||||||
| Subtotal | 182,796 | (46,490 | ) | — | — | — | 182,796 | (46,490 | ) | (58,710 | ) | 77,596 | |||||||||||||||||||
| Total | $ | 1,119,079 | $ | (46,490 | ) | $ | 2,815 | $ | — | $ | (95 | ) | $ | 1,121,799 | $ | (46,490 | ) | $ | (181,463 | ) | $ | 893,846 | |||||||||
The following table summarizes the amortization expense attributable tochanges in our goodwill by segment for fiscal 2022:
| (in thousands) | Home & Outdoor | Health & Wellness | Beauty | Total | |||||||||||||||||||
| Gross carrying amount as of February 28, 2021 | $ | 282,056 | $ | 284,913 | $ | 172,932 | $ | 739,901 | |||||||||||||||
| Accumulated impairment as of February 28, 2021 | — | — | — | — | |||||||||||||||||||
| Acquisitions (1) | 208,972 | — | — | 208,972 | |||||||||||||||||||
| Gross carrying amount as of February 28, 2022 | 491,028 | 284,913 | 172,932 | 948,873 | |||||||||||||||||||
| Accumulated impairment as of February 28, 2022 | — | — | — | — | |||||||||||||||||||
| Net carrying amount as of February 28, 2022 | $ | 491,028 | $ | 284,913 | $ | 172,932 | $ | 948,873 | |||||||||||||||
(1)Reflects the goodwill recorded in connection with the acquisition of Osprey on December 29, 2021. For additional information see Note 7.
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The following table summarizes the components of our other intangible assets as follows:
| February 28, 2022 (1) | February 28, 2021 | ||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||||||||
| Indefinite-lived: | |||||||||||||||||||||||||||||||||||||||||
| Licenses | $ | 7,400 | $ | — | $ | 7,400 | $ | 7,400 | $ | — | $ | 7,400 | |||||||||||||||||||||||||||||
| Trademarks | 358,200 | — | 358,200 | 188,200 | — | 188,200 | |||||||||||||||||||||||||||||||||||
| Definite-lived: | |||||||||||||||||||||||||||||||||||||||||
| Licenses | 74,250 | (3,267) | 70,983 | 87,946 | (14,800) | 73,146 | |||||||||||||||||||||||||||||||||||
| Trademarks | 30,150 | (4,332) | 25,818 | 30,150 | (2,327) | 27,823 | |||||||||||||||||||||||||||||||||||
| Other Intangibles | 218,155 | (142,710) | 75,445 | 194,808 | (134,113) | 60,695 | |||||||||||||||||||||||||||||||||||
| Total | $ | 688,155 | $ | (150,309) | $ | 537,846 | $ | 508,504 | $ | (151,240) | $ | 357,264 | |||||||||||||||||||||||||||||
(1)Balances as of February 28, 2022 include intangible assets recorded in SG&A inconnection with the consolidated statementsacquisition of income for fiscal 2020, 2019 and 2018, as well as estimatedOsprey on December 29, 2021. For additional information see Note 7.
The following tables summarize amortization expense for fiscal 2021 through 2025:related to our other intangible assets as follows:
Aggregate Amortization Expense(in thousands) | |||||
| Fiscal 2022 | $ | 12,764 | |||
| Fiscal 2021 | 17,643 | ||||
| Fiscal 2020 | 21,271 | ||||
Aggregate Amortization Expense (in thousands) | |||
| Fiscal 2020 | $ | 21,271 | |
| Fiscal 2019 | 14,204 | ||
| Fiscal 2018 | 18,854 | ||