UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended February 28, 2009

OR

o 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 the registrant as specified in its charter)

Registrant’s telephone number, including area code: (915) 225-8000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

NONE

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.                    Yes o No þ

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 o No þ

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 þ No o

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.                                                                                                                                                     o

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of August 31, 2008, based upon the closing price of the common shares as reported by The NASDAQ Global Select Market on such date, was approximately $678,822,000.

As of May 6, 2009 there were 29,832,340 shares of Common Shares, $.10 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required for Part III of this annual report will be set forth in and incorporated herein by reference into Part III of this report from the Company’s definitive Proxy Statement for the 2009 Annual General Meeting of Shareholders.

Index to Exhibits - Page 132

TABLE OF CONTENTS

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In this report and accompanying consolidated financial statements and notes thereto, unless the context suggests otherwise or otherwise indicated, references to “the Company”, “our Company”, “Helen of Troy”, “we”, “us” or “our” refer to Helen of Troy Limited and its subsidiaries, and amounts are expressed in thousands of U.S. Dollars.

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

Certain written and oral statements made by our Company and subsidiaries of our Company may constitute “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. This includes statements made in this report, in other filings with the Securities and Exchange Commission (“SEC”), in press releases, and in certain other oral and written presentations. Generally, the words “anticipates”, “believes”, “expects”, “plans”, “may”, “will”, “should”, “seeks”, “estimates”, “project”, “predict”, “potential”, “continue”, “intends” and other similar words identify forward-looking statements. All statements that address operating results, events or developments that we expect or anticipate will occur in the future, including statements related to sales, earnings per share results, and statements expressing general expectations about future operating results, are forward-looking statements and are based upon our current expectations and various assumptions. We believe there is a reasonable basis for our expectations and assumptions, but there can be no assurance that we will realize our expectations or that our assumptions will prove correct.

Forward-looking statements are subject to risks that could cause them to differ materially from actual results.  Accordingly, we caution readers not to place undue reliance on forward-looking statements.  We believe that these risks include but are not limited to the risks described in this report under Item 1A., “Risk Factors” and that are otherwise described from time to time in our SEC reports filed after this report.  As described later in this report, such risks, uncertainties and other important factors include, among others:

·                  the departure and recruitment of key personnel;

·                  our ability to deliver products to our customers in a timely manner and according to their fulfillment standards;

·                  requirements to accurately project product demand and the timing of orders received from customers;

·                  our relationship with key customers;

·                  the costs of complying with the business demands and requirements of large sophisticated customers may adversely affect our gross profit and results of operations;

·                  our dependence on foreign sources of supply and foreign manufacturing;

·                  the impact of changing costs of raw materials and energy on cost of sales and certain operating expenses;

·                  our holding of auction rate securities which we may be unable to liquidate at their recorded values or at all;

·                  circumstances which may contribute to future impairment of goodwill, intangible or other long-lived assets;

·                  our relationship with key licensors;

·                  our dependence on the strength of retail economies and vulnerabilities to a prolonged economic downturn;

·                  our ability to develop and introduce a continuing stream of innovative new products to meet changing consumer preferences;

·                  the potential impact of continued disruptions in U.S. and international credit markets;

·                  the exchange rate risks associated with transacting business in foreign currencies;

·                  our expectation of future acquisitions and issues surrounding the integration of acquired businesses;

·                  our use of debt and the constraints it may impose, under certain circumstances, on our ability to operate our business;

·                  the costs, complexity and challenges of managing our global information systems;

·                  the risks associated with a breach of our computer security systems;

·                  the risks associated with tax audits, potential changes in tax laws and related disputes with taxing authorities; and

·                  our ability to continue to avoid classification as a controlled foreign corporation.

We undertake no obligation to publicly update or revise any forward-looking statements as a result of new information, future events, or otherwise.

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PART I

ITEM 1.  BUSINESS

GENERAL

We are a global designer, developer, importer and distributor of an expanding portfolio of brand-name consumer products.  We were incorporated as Helen of Troy Corporation in Texas in 1968 and reincorporated as Helen of Troy Limited in Bermuda in 1994.  We have two segments: Personal Care and Housewares.  Our Personal Care segment’s products include hair dryers, straighteners, curling irons, hairsetters, shavers, mirrors, hot air brushes, home hair clippers and trimmers, paraffin baths, massage cushions, footbaths, body massagers, brushes, combs, hair accessories, liquid and aerosol hair care and styling products, men’s fragrances, men’s deodorants, liquid and bar soaps, foot powder, body powder and skin care products. Our Housewares segment reports the operations of OXO International (“OXO”) whose products include kitchen tools, cutlery, bar and wine accessories, household cleaning tools, food storage containers, tea kettles, trash cans, storage and organization products, hand tools, gardening tools, kitchen mitts and trivets, barbeque tools and rechargeable lighting products.   Both our Personal Care and Housewares segments sell their products primarily through mass merchandisers, drugstore chains, warehouse clubs, catalogs, grocery stores and specialty stores.  In addition, the Personal Care segment sells extensively through beauty supply retailers and wholesalers.

In each of our segments, we strive to be the first to market with a broad line of competitively priced innovative products.  We believe this strategy is one of our most important growth drivers.  Our goal is to provide consumers with unique features, better functionality and higher performance at competitive price points.  This strategy has allowed us to sustain, and in many categories to strengthen, our market position in many of our product lines.  As we extend our product lines and enter new product categories, we intend to expand our business in our existing customer base while attracting new customers.

As part of our overarching objective to grow our business and increase shareholder value, we have established five core initiatives. These initiatives and their key elements are outlined below:

·                  Maximize high growth potential branded products.  We seek to maximize high growth products by selectively investing in consumer marketing propositions that we believe offer the best opportunities to capture market share and increase growth.  Ten key brands currently account for approximately 83 percent of our annual net sales volume for fiscal year 2009.  When a brand fails to achieve a desired market potential, we evaluate whether to continue to invest in brand maintenance, exit the brand and/or selectively replace it with revenue streams from similar, more effectively performing branded products.

·                  Accelerate our new product pipeline.  We strive to reduce the time required to develop and introduce new products to meet changing consumer preferences and take advantage of opportunities sooner.  A majority of our products are produced in China, where long production lead times are normal.  We continuously work with our manufacturers to simplify and shorten the length of our supply chain for new products.

·                  Leverage innovation.  We constantly seek ways to foster our culture of innovation and new product development.  We intend to enhance and extend our existing product categories and develop new allied product categories to grow our business.  We believe that new innovative products permit us to generate higher per unit sales prices and margins for us and the customers we serve, and increase the value of our brand base.

·                  Broaden our growth opportunities.  We plan to continue to seek opportunities to acquire brands and product categories through aggressive external development and acquisitions.  For example, our May 2007 acquisition of Belson provided us with nine brands that complement and broaden our existing professional product offerings.  In October 2008, we acquired the Ogilvie® brand of “at home” salon hair permanent and straightening products for our Grooming, Skin Care and Hair Care Solutions group to market.  Additionally, on March 31, 2009, we acquired the Infusium 23® hair care products line from The Procter & Gamble

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Company.  When brand acquisition is not possible, we look for licensed brands that have developed substantial brand equity in product categories that will create synergies with our existing products.  For example, our licensing of Bed Head® and Toni&Guy® provides an opportunity to deliver professional quality appliances and accessories with Bed Head® branded products styled and packaged for introduction to a younger market through selective retail distribution channels and Toni&Guy® branded products targeted toward sophisticated retail buyers who appreciate European styling.

·                  Reduce cost and increase productivity.  We seek to control our expenses and strengthen operating margins by eliminating unnecessary spending, co-innovating with our manufacturers to eliminate costs, leveraging technology, and making productivity drivers a key focus of our Company.

We present financial information by operating segment in Note (14) of our consolidated financial statements. The matters discussed in this Item 1. “Business,” pertain to all existing operating segments, unless otherwise specified.

LICENSES AND TRADEMARKS

We sell certain of our products under licenses from third parties.  Our licensed trademarks, among others, include:

·                  Vidal Sassoon®, licensed from The Procter & Gamble Company;

·                  Revlon®, licensed from Revlon Consumer Products Corporation;

·                  Dr. Scholl’s®, licensed from Schering-Plough HealthCare Products, Inc.;

·                  Scholl® (in areas other than North America), licensed from SSL International, PLC;

·                  Sunbeam® and Health o meter®, licensed from Sunbeam Products, Inc.;

·                  Sea Breeze®, licensed from Shiseido Company Ltd.;

·                  Vitapointe®, licensed from Sara Lee Household and Body Care UK Limited;

·                  Toni&Guy®, licensed from Mascolo Limited (in areas other than North and South America);

·                  Toni&Guy®, licensed form MBL/Toni&Guy Products LP (in North and South America);

·                  Bed Head® and TIGI® licensed from MBL/TIGI Products LP; and

·                  Veet®, licensed from Reckitt Benckiser Corporate Services Limited.

We own and market under a number of trademarks, including:

We also own and market hair care and beauty care products under the following trademarks to the professional market:

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PRODUCTS

We market and sell a full line of personal care products and an expanding line of housewares products that we acquire, design and/or develop. The following table lists the primary products we sell and some of the brand names that appear on those products.

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We continue to develop new products, respond to market innovations and enhance existing products with the objective of improving our position in the personal care and housewares markets. Overall, in fiscal 2009, we introduced 415 new products across all of our categories compared to 526 and 389 new products introduced in fiscal 2008 and 2007, respectively.  Currently, 265 additional new products are in our product development pipeline for expected introduction in fiscal 2010.   The following discussion summarizes key product introductions and strategies we launched in fiscal 2009.

Appliances and Accessories:  In the retail category of our appliance business, we focused our efforts on adding new and unique functionality and product concepts across all our brands.  New functionality on certain products introduced included joystick controls, mirrored-digital information centers, retractable power cords, and mini-travel sized dryers and styling irons.   Under the Vidal Sassoon® brand, we introduced a new line of hair care appliance solutions called VS Answers®, with appliances specifically designed for each of three common hair types: fine, normal and coarse.  In addition, under the Vidal Sassoon® brand, we developed the Ecostyle™ Line, a family of salon quality, high performance, energy efficient styling tools engineered specifically to reduce energy consumption by at least 35%, while using recycled materials where possible, and ergonomic design principles to reduce material content in order to lower the product’s manufactured carbon footprint.

In our professional appliance category, our Belson business was able to effectively consolidate and enhance its line offerings with such concepts as Smart Heat Hair Care appliances, which have settings optimized for specific hairstyles, and Brazilian Heat™ by Mega Hot for full-service distributors.  Brazilian Heat™ by Mega Hot styling irons provide six heat settings up to 450 degrees and 30 second heat-up.  These irons give the stylist the ability to provide glossy, smooth styling for the finest straight hair to the coarsest curliest hair.   During fiscal 2009, our Wigo® line experienced significant growth with such features as artistic patterns and designs embedded into the appliance casings.

Grooming, Skin Care and Hair Care:  In our domestic business, we acquired the Ogilvie® brand of “at home” salon hair permanent and straightening products during the third quarter of fiscal 2009.   Ogilvie is the leading brand of home permanent and straightening products sold in the food, drug and mass merchandising markets. The Ogilvie brand maintains a loyal core user base of consumers who are interested in “do it yourself” products for their hair care needs.  In Mexico, we began selling the Brut XT® line of men’s body sprays during fiscal 2009.  In Chile, we began shipping our extended line of Ammens® body powders, baby shampoos and hair conditioners, and we planned and developed a line of liquid hand soaps for a fiscal 2010 launch in Venezuela and Peru.  On March 31, 2009, we acquired the Infusium 23® hair care products line from The Procter & Gamble Company.

Housewares:  Our OXO® brands continue to exert significant influence in the U.S. kitchen gadget and tool markets.  OXO® products are based on the principles of Universal Design, which is a philosophy of making products that are easy to use for the widest possible spectrum of users.  We believe we have a strong development pipeline in the Housewares segment.  In fiscal 2009, we launched over 90 new items and currently have over 90 items scheduled for launch in fiscal 2010.   During fiscal 2009, our Good Grips® POP line of modular food storage containers, which began shipping in late fiscal 2008, was a top selling category within the segment.   These containers are airtight, stackable and space-efficient.  In fiscal 2009, food storage containers added $10.30 million of incremental sales growth compared to fiscal 2008.  In addition, in fiscal 2009,  new product offerings such as digital instant read thermometers and a new line of dusting products accounted for approximately $7.89 million in total incremental sales growth in the Housewares segment during a soft retail year overall.

You can learn more about our products at www.hotus.com.  Information contained on the Company’s website is not included as a part of, or incorporated by reference into, this report.

SALES AND MARKETING

We now market our products in approximately 70 countries throughout the world.  Sales within the United States comprised approximately 76, 78 and 81 percent of total net sales in fiscal 2009, 2008 and 2007, respectively.  We sell our products through mass merchandisers, drugstore chains, warehouse clubs, catalogs, grocery stores, specialty stores, beauty supply retailers, wholesalers and distributors, as well as directly to end-user 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.

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We market products through a combination of outside sales representatives and our own internal sales staff, supported by our internal marketing, category management, engineering, creative services and customer service staff.  These groups work closely together to develop pricing and distribution strategies, to design packaging, and to develop product line extensions and new products.

Regional sales and business unit managers work with our inside and outside sales representatives.  Our sales managers are organized by product group and geographic area and, in some cases, key customers.  Our regional managers are responsible for customer relations management, pricing, distribution strategies and sales generation.

The companies from whom we license many of our brand names promote those names extensively. The Revlon®, Vidal Sassoon®, Dr. Scholl’s®, Bed Head®, Veet® and Sunbeam® trademarks are widely recognized because of advertising and the sale of a variety of products. We believe we benefit from the name recognition associated with a number of our licensed trademarks and seek to further improve the name recognition and perceived quality of all trademarks under which we sell products through our own advertising and product development efforts. We also promote our products through television advertising and through print media, including consumer and trade magazines, the internet and various industry trade shows.

We also use selective sports and entertainment venues to enhance our brand recognition and equity.  In fiscal 2004, Helen of Troy became the title sponsor of the Sun Bowl game, one of the longest running invitational post-season college football games in the United States with a history that spans over 70 years. The “Vitalis® Sun Bowl” was the official name for the December 2004 and 2005 games.  In fiscal 2007, we extended our agreement through the calendar 2009 football season and changed the official name beginning with the December 2006 game to the “Brut® Sun Bowl.”  CBS Sports broadcasts the Brut® Sun Bowl game to nationwide audiences.

MANUFACTURING AND DISTRIBUTION

We contract with unaffiliated manufacturers in the Far East, primarily in the Peoples’ Republic of China, to manufacture a significant portion of our products in the appliance, accessories and housewares product categories.  Most of our grooming, skin care and hair care solutions are manufactured in North America.  For a discussion regarding our dependency on third party manufacturers, see Item 1A., “Risk Factors.”  For fiscal 2009, 2008 and 2007, goods manufactured by vendors in the Far East comprised approximately 90, 87 and 83 percent, respectively, of the dollar value of all segments’ inventory purchases.

Many of our key Far East manufacturers have been doing business with us since we went into business.  In some instances, we are now working with the second generation of entrepreneurs from the same families.  We believe these relationships give us a stable and sustainable advantage over many of our competitors.

Manufacturers who produce our products use formulas, molds, and certain other tooling, some of which we own, in manufacturing those products.  Both of our business segments employ numerous technical and quality control personnel responsible for ensuring high product quality.  Most of our products manufactured outside the countries in which they are sold are subject to import duties, which increase the amount we pay to obtain such products.

Our customers seek to minimize their inventory levels and often demand that we fulfill their orders within relatively short time frames. Consequently, our policy is to maintain several months of supply of inventory in order to meet our customers’ needs. Accordingly, we order products substantially in advance of the anticipated time of their sale to our customers. While we do not have any long-term formal arrangements with any of our suppliers, in most instances, we place purchase orders for products several months in advance of receipt of orders from our customers.  Our relationships and arrangements with most of our manufacturers allow for some flexibility in modifying the quantity, composition and delivery dates of orders.  Most purchase orders are in United States Dollars.  Because of our long lead times, from time to time, we must discount end of model product or dispose of it in non-traditional ways to eliminate excess inventories.

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In total, we occupy approximately 1,989,000 square feet of distribution space in various locations to support our operations, which includes our 1,200,000 square foot Southhaven, Mississippi distribution center.  At the end of February 2007, we completed the consolidation of our domestic appliance, housewares, men’s grooming, skin care and hair care inventories into our Southaven, Mississippi distribution center. Approximately 70 percent of our consolidated gross sales volume shipped from this facility in fiscal 2009.  For a further discussion of the risks associated with our distribution capabilities, see Item 1A., “Risk Factors.”   Products that are manufactured in the Far East and sold in North America are shipped to the West Coast of the United States and Canada. The products are then shipped by truck or rail service to distribution centers in El Paso, Texas; Southaven, Mississippi; and Toronto, Canada, or directly to customers. We ship substantially all products to North American customers from these distribution centers by ground transportation services. Products sold outside the United States and Canada are shipped from manufacturers, primarily in the Far East, to distribution centers in the Netherlands, the United Kingdom, Mexico, Brazil, Peru, Venezuela, or directly to customers. We then ship products stored at these international distribution centers to distributors or retailers.

LICENSE AGREEMENTS, TRADEMARKS, AND PATENTS

The Personal Care segment depends significantly upon the continued use of trademarks licensed under various agreements. The Vidal Sassoon®, Revlon®, Sunbeam®, Health o meter®, Dr. Scholl’s®, Bed Head® and Toni&Guy® trademarks are of particular importance to this segment’s business. New product introductions under licensed trademarks require approval from the respective licensors. The licensors must also approve the product packaging. Many of our license agreements require us to pay minimum royalties, meet minimum sales volumes, and make minimum levels of advertising expenditures.  The remaining duration of the license agreements for the Revlon®, Vidal Sassoon®, Dr. Scholl’s®, Bed Head® and Toni&Guy® trademarks, including the renewal terms, are approximately 54, 24, 11, 5 and 4 years, respectively. If we decide to renew these agreements upon expiration of their current terms, we will be required to pay prescribed renewal fees at the time of that election. The discussion below covers the primary product categories that we currently sell under our key license agreements. The product categories discussed do not necessarily include all of the products that Helen of Troy is entitled to sell under these or other license agreements.

Revlon®: Under agreements with the Revlon Consumer Products Corporation, we are licensed to sell worldwide, except in Western Europe, hair dryers, curling irons, straightening irons, brush irons, hairsetters, brushes, combs, mirrors, functional hair accessories, personal spa products, hair clippers and trimmers, and battery-operated and electric women’s shavers bearing the Revlon® trademark.

Vidal Sassoon®: Under an agreement with The Procter & Gamble Company, Helen of Troy is licensed to sell certain products bearing this trademark worldwide, except in Asia. Products sold under the terms of this license include hair dryers, curling irons, straightening irons, styling irons, hairsetters, hot air brushes, hair clippers and trimmers, mirrors, brushes, combs, and hair care accessories.

Dr. Scholl’s® and Scholl®:  We are licensed to sell foot baths, foot massagers, hydro massagers, cushion massagers, body massagers, paraffin baths, and support pillows bearing the Dr. Scholl’s® trademark in the United States and Canada under an agreement with Schering-Plough HealthCare Products, Inc. We also are licensed to sell the same products under the Scholl® trademark in other areas of the world through an agreement with SSL International, PLC.

Sunbeam® and Health o meter®:   Under an agreement with Sunbeam Products, Inc., we are licensed to sell hair clippers and trimmers, hair dryers, curling irons, hairsetters, hot air brushes, mirrors, manicure kits, hair brushes and combs, hair rollers, hair accessories, paraffin baths, foot massagers, back massagers, body massagers, memory foam products, and spa products bearing these trademarks in the United States, Canada, Mexico, Central America, South America, and the Caribbean.   The Sunbeam® license is currently scheduled to expire on December 31, 2009.  We do not intend to exercise our option to renew under the original terms and conditions of the agreement.   We are currently in discussions to enter into a new license agreement under revised terms and conditions.

Sea Breeze®: We license the right to sell products in the United States, Canada, and the Caribbean under this trademark pursuant to a perpetual royalty free license from Shiseido Company Ltd.  We currently sell a line of liquid skin care products under this name in the United States and Canada.

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Toni&Guy® and Bed Head®: Under an agreement with Mascolo Limited, we are licensed to sell hair care and grooming appliances under the Toni&Guy® trademark in Western Europe and portions of Asia.  The initial term of the license agreement expires in March 2011, and may be extended an additional two years upon proper notice.

In December 2006, we also entered into separate licensing arrangements with Mascolo Limited, MBL/Toni&Guy Products LP and MBL/TIGI Products LP for the use of the Bed Head® by TIGI and Toni&Guy® trademarks.  The licenses grant us the right to use the trademarks to market personal care products in the Western Hemisphere.  The initial term of each license agreement expires in December 2011, and may be extended for five additional three-year terms upon proper notice.

Helen of Troy has filed or obtained licenses for over 500 design and utility patents in the United States and several foreign countries.  Most of these patents cover product designs in our Housewares segment, and over two-thirds of these are utility patents.  We believe the loss of the protection afforded by any one of these patents would not have a material adverse effect on our business as a whole.  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.  We believe our principal trademarks have high levels of brand name recognition among retailers and consumers throughout the world. In addition, we believe our brands have an established reputation for quality, reliability and value.  We monitor and protect our brands against infringement. as we deem appropriate, however, our ability to enforce patents, copyrights, licenses, and other intellectual property is subject to general litigation risks, as well as uncertainty as to the enforceability of various intellectual property rights in various jurisdictions.

CUSTOMERS

Sales to Wal-Mart Stores, Inc. (including its affiliate, SAM’S Club) accounted for approximately 17, 19 and 21 percent of our net sales in fiscal 2009, 2008 and 2007, respectively.   No other customers accounted for ten percent or more of net sales during those fiscal years.  Sales to our top five customers accounted for approximately 43, 44 and 45 percent in fiscal 2009, 2008 and 2007, respectively.

ORDER BACKLOG

When placing orders, our 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.

COMPETITIVE CONDITIONS

The markets in which we sell our products are very competitive and highly mature.  The rapid growth of large mass merchandisers, together with changes in consumer shopping patterns, have contributed to a significant consolidation of the consumer products retail industry and the formation of dominant multi-category retailers with strong negotiating power.  Current trends among retailers include fostering high levels of competition among suppliers, the requirement to maintain or reduce prices and deliver products under shorter lead times.  Another current trend is for retailers to import generic products directly from foreign sources and to source and sell products under their own private label brands that compete with our Company’s products.  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, some of which have been built over 30 years or more of working together. We believe these advantages allow us to bring our retailers a value proposition in our products that can significantly out-perform private label products.  Maintaining and gaining market share depends heavily on product development and enhancement, pricing, quality, performance, packaging and availability, brand name recognition, patents, and marketing and distribution approaches.

In the Personal Care segment, our primary competitors include Conair Corporation, Farouk Systems, Inc. (Chi), T3 Micro, Inc., International Consulting Associates, Inc. (InfraShine), Spectrum Brands, Inc., Goody Products, Inc., a division of Newell Rubbermaid, Inc., Homedics-U.S.A, Inc., Chattem, Inc., KAO Brands Company, The Procter & Gamble Company, L´Oréal, Unilever, and the Alberto-Culver Company. In the Housewares segment, the competition is highly fragmented.  Our primary competitors in that segment include KitchenAid (Lifetime Brands, Inc.), Zyliss AG,

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Copco (Wilton Industries, Inc.), Simple Human, Casabella and Interdesign, Inc.  Some of these competitors have significantly greater financial and other resources than we do.

SEASONALITY

Our business is somewhat seasonal. Net sales in the third fiscal quarter accounted for approximately 30, 32 and 34 percent of fiscal 2009, 2008 and 2007 net sales, respectively. Our lowest net sales usually occur in our first fiscal quarter, which accounted for approximately 23, 22 and 21 percent of fiscal 2009, 2008 and 2007 net sales, respectively.  In fiscal 2009, our fourth quarter had the lowest quarterly net sales for the fiscal year with approximately 22 percent of the fiscal year’s total.  As a result of the seasonality of sales, our working capital needs fluctuate during the year.

GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS

Our operations are subject to national, state, local and provincial jurisdictions’ environmental and health and safety laws and regulations, including those that impose workplace standards and regulate the discharge of pollutants into the environment and establish standards for the handling, generation, emission, release, discharge, treatment, storage and disposal of materials and substances including solid and hazardous wastes. We believe that we are in material compliance with these laws and regulations. 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 environmental compliance standards and technology, we cannot predict with any certainty that future material capital or operating expenditures will not be required in order to comply with applicable environmental laws and regulations.

In July 2006, RoHS (Restriction of Hazardous Substances), a new European Directive became effective.  RoHS requires that electrical and electronic equipment sold in the European Union comply with certain requirements regarding maximum allowable levels of lead, cadmium, mercury, hexavalent chromium, polybrominated biphenyls (PBBs), and polybrominated diphenyl ethers (PBDEs).  We became RoHS compliant at the time the directive was effective.

Our electrical products must meet the safety standards imposed in various national, state, local, and provincial jurisdictions.  In the U.S., we maintain our own testing facilities that have been certified by various recognized public and private testing standards setting groups including Underwriters Laboratories, Inc. and Intertek Testing Laboratories.   We also are certified under the Scheme of the International Electrotechnical Commission System for Conformity Testing and Certification of Electrical Equipment (IECEE).  The scheme facilitates the international exchange and acceptance of product-safety test results among participating Certification Bodies (CB) for national approval or certification in one or more countries, normally without the need for additional testing.  Currently, 50 countries participate in the CB scheme, which provides significant advantages including reduction of product certification and compliance costs and reduced certification lead-times.

Certain of our skin care products are regulated by the United States Food and Drug Administration (“FDA”).   Among other things, the FDA enforces statutory prohibitions against misbranded and adulterated products, establishes ingredients and manufacturing procedures for certain products, establishes standards of identity for certain products, determines the safety of products and establishes labeling standards and requirements. In addition, various states regulate these products by enforcing federal and state standards of identity for selected products, limiting the volatility and types of aerosol agents used, grading products, inspecting production facilities and imposing their own labeling requirements.

In our Housewares segment, where applicable, our products comply with NSF International and American National Standards Institute (“ANSI”) standards for product quality, materials composition and safety.

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EMPLOYEES

As of fiscal year end 2009, we employed 924 full-time employees in the United States, Canada, Macao, China, Japan, the United Kingdom, France, Brazil, Peru, Venezuela, Chile and Mexico of which 157 are marketing and sales employees, 249 are distribution employees, 39 are engineering and development employees, and 479 are administrative personnel. We also use temporary, part time and seasonal employees as needed.  None of the Company’s employees are covered by a collective bargaining agreement.  We have never experienced a work stoppage and we believe that we have satisfactory working relations with our employees.

GEOGRAPHIC INFORMATION

Note (14) to our consolidated financial statements contains geographic information concerning our net sales and long-lived assets.

AVAILABLE INFORMATION

We maintain our main Internet site at the following address: http://www.hotus.com. The information contained on this website is not included as a part of, or incorporated by reference into, this report.  We make available on or through our main website’s Investor Relations page under the heading “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 Company shares 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.  Also, on the Investor Relations page, under the heading “Corporate Governance,” are the Company’s Code of Ethics, Corporate Governance Guidelines and the Charters of the Committees of the Board of Directors.

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ITEM 1A.  RISK FACTORS

The ownership of our common shares involves a number of risks and uncertainties.  When evaluating us and our business before making a decision regarding investment in our securities, potential investors should carefully consider the risk factors and uncertainties described below, together with other information contained in this report.  If any of the events or circumstances described below or elsewhere in this report actually occur, they could adversely effect our business and operating results.  The risks listed below are not the only risks that we face.  Additional risks that are presently unknown to us or that we currently think are not significant may also impact our business operations.

We rely on our chief executive officer and a small number of other key senior managers to operate our business. The loss of any of these individuals could have a material adverse effect on our business.

We do not have a large group of senior managers in our business.  The loss of our chief executive officer or any of our senior managers could have a material adverse effect on our business, financial condition and results of operations, particularly if we are unable to hire or relocate and integrate suitable replacements on a timely basis or at all.  Further, in order to continue to grow our business, we will need to expand our senior management team.  We may be unable to attract or retain these persons.  This could hinder our ability to grow our business and could disrupt our operations or otherwise have a material adverse effect on our business.

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 as well as customs clearance are on-going risks of our business. We also rely upon third-party carriers for our product shipments from our distribution centers to customers, and 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, natural disasters, possible acts of terrorism, availability of shipping containers, and increased security restrictions associated with such carriers’ ability to provide delivery services to meet our shipping needs.  Failure to deliver products to our retailers in a timely and effective manner, often under special vendor requirements to use specific carriers and delivery schedules, could damage our reputation and brands and result in loss of customers or reduced orders.

To make our distribution operations more efficient, we have consolidated many of our U.S. distribution, receiving and storage functions into our Southaven, Mississippi distribution center. Approximately 70 percent of our consolidated gross sales volume shipped from this facility in fiscal 2009.  For this reason, any disruption in our distribution process in this facility, even for a few days, could adversely effect our business and operating results.

Additionally, our Mississippi distribution center operations have grown to a level where we may incur capacity constraints during our peak shipping season, which occurs during our third fiscal quarter each year.  These and other factors described above could cause delays in delivery of our products and increases in shipping and storage costs that could have a material and adverse effect on our business and operating results.

Our projections of sales and earnings are highly subjective and our future sales and earnings could vary in a material amount from our projections.

Most of our major customers purchase our products electronically through electronic data interchange and expect prompt delivery of products from our existing inventories to the customers’ retail stores or distribution centers.  This method of ordering products allows our customers to respond quickly to changes in demands of their retail customers.  From time to time, we may provide projections to our shareholders, lenders, investment community, and other stakeholders of our future sales and earnings.  Since we do not require long-term purchase commitments from our major

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customers and the customer order and ship process is very short, it is difficult for us to accurately predict the amount of our future sales and related earnings.  Our projections are based on management’s best estimate of sales using historical sales data and other information deemed relevant.  These projections are highly subjective since sales to our customers can fluctuate substantially based on the demands of their retail customers and due to other risks described in this report. Additionally, changes in retailer inventory management strategies could make our inventory management more difficult. Because our ability to forecast sales is highly subjective, there is a risk that our future sales and earnings could vary materially from our projections.

Our results of operations 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 sales.  Our financial condition and results of operations could suffer if we lost all or a portion of the sales to these customers.  In particular, sales to Wal-Mart Stores, Inc. (including its affiliate, SAM’S Club) accounted for approximately 17 percent of our net sales in fiscal 2009. While only one customer accounted for ten percent or more of net sales in fiscal 2009, our top five customers accounted for approximately 43 percent of fiscal 2009 net sales.  We expect customer concentrations will continue to account for a significant portion of our sales.  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 results of operations.

With the growing 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 on-hand inventory reductions, limitations on access to shelf space, use of private label brands, price demands and other conditions, which could negatively impact our financial condition and results of operations.

A significant deterioration in the financial condition of our major customers could have a material adverse effect on our sales and profitability. We regularly monitor and evaluate the credit status of our customers and attempt to adjust sales terms as appropriate.  Despite these efforts, a bankruptcy filing by a key customer could have a material adverse effect on our business, financial condition and results of operations.  For further information regarding the impact of such issues with a significant customer that ceased operations in fiscal 2009, see Note (19) to our consolidated financial statements.

Large sophisticated customers may take actions that adversely affect our gross profit and results of operations.

In recent years, we have observed a consumer trend away from traditional grocery and drugstore channels and toward mass merchandisers, which include super centers and club stores.  This trend has resulted in the increased size and influence of these mass merchandisers. As these mass merchandisers grow larger and become more sophisticated, they may demand lower pricing, special packaging, 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 the demands of these mass merchandisers, they could decrease their purchases from us.  A reduction in the demand of our products by these mass merchandisers and the costs of complying with customer business demands could have a material adverse effect on our business, financial condition and operating results.

We are dependent on third party manufacturers, most of which are located in the Far East, and any inability to obtain products from such manufacturers could have a material adverse effect on our business, financial condition and results of operations.

All of our products are manufactured by unaffiliated companies, most of which are in the Far East, principally in China.  This exposes us to risks associated with doing business globally, including: changing international political relations; labor availability and cost; changes in laws, including tax laws, regulations and treaties; changes in labor laws, regulations, and policies; changes in customs duties 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.  The political, legal and cultural environment

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in the Far East 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, financial condition and results of operations.

We have sourcing relationships with over 200 third-party manufacturers.  During fiscal 2009, the top two manufacturers fulfilled approximately 40 percent of our product requirements.  Over the same period, our top five suppliers fulfilled approximately 55 percent of our product requirements.

With most of our manufacturers located in the Far East, 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, financial condition and results of operations.

Historically, labor in China has been readily available at relatively low cost as compared to labor costs in North America.  China has experienced rapid social, political and economic change in recent years. There is no assurance that labor will continue to be available in China at costs consistent with historical levels or that changes in labor or other laws will not be enacted which would have a material adverse effect on product costs in China.  Labor shortages in China could result in supply delays and disruptions and drive a substantial increase in labor costs.  Similarly, evolving government labor regulations and associated compliance standards could cause our product costs to rise or could cause manufacturing partners we rely on to exit the business.  This could have an adverse impact on product availability and quality.  The Chinese economy has experienced rapid expansion and highly fluctuating rates of inflation.  Higher general inflation rates will require manufacturers to continue to seek increased product prices.  During fiscal 2009 and 2008, the Chinese Renminbi appreciated approximately 4 percent and 9 percent, respectively, against the U.S. Dollar.  To the extent the Renminbi continues to appreciate with respect to the U.S. Dollar, the Company may experience cost increases on such purchases, and this could adversely impact profitability. The Company may not be successful at implementing customer pricing or other actions in an effort to mitigate the related effects of the product cost increases.  Although China currently enjoys “most favored nation” trading status with the U.S., the U.S. government has in the past proposed to revoke such status and to impose higher tariffs on products imported from China. There is no assurance that our business will not be affected by any of the aforementioned risks, each of which could have a material adverse effect on our business, financial condition and results of operations.

High costs of raw materials and energy may result in increased cost of sales and certain operating expenses and adversely affect our results of operations and cash flow.

Significant variations in the costs and availability of raw materials and energy may negatively affect our results of operations.  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.  Changes in the cost of fuel have corresponding impacts to our transportation costs.  The cost of these raw materials and energy, in the aggregate, represents a significant portion of our cost of sales and certain operating expenses.  Our results of operations could be adversely affected by future increases in these costs.  We have had some success in implementing price increases or passing on cost increases by moving customers to newer product models with enhancements that justify higher prices and we intend to continue these efforts.  We can make no assurances that these efforts will be successful in the future or will materially offset the cost increases we may incur.

We hold certain auction rate securities that we may be unable to liquidate at their recorded values or at all due to credit concerns in the U.S. capital markets.  Protracted illiquidity and any deterioration in the credit ratings of the issuers, dealers or credit insurers may require us to record other-than-temporary impairment charges.

We hold investments in auction rate securities (“ARS”) collateralized by student loans (with underlying maturities from 20 to 37 years).  At February 28, 2009, 97 percent of the aggregate collateral was guaranteed by the U.S. government under the Federal Family Education Loan Program.  Liquidity for these securities was normally dependent on an auction process that resets the applicable interest rate at pre-determined intervals, ranging from 7 to 35 days.  Beginning in February 2008, the auctions for the ARS held by us and others were unsuccessful, requiring us to hold them

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beyond their typical auction reset dates. Auctions fail when there is insufficient demand.  However, this does not represent a default by the issuer of the security. Upon an auction’s failure, the interest rates reset based on a formula contained in the security.  The rate is generally equal to or higher than the current market rate for similar securities.  The securities will continue to accrue interest and be auctioned until one of the following occurs: the auction succeeds; the issuer calls the securities; or the securities mature.

Conditions in the capital markets have significantly reduced our ability to liquidate our ARS.  At this time, there is a very limited demand for the securities we continue to hold and limited acceptable alternatives to liquidate such securities.  Based on current market conditions, we believe it is likely that auctions of our holdings in these securities will be unsuccessful in the near term, resulting in us continuing to hold securities beyond their next scheduled auction reset dates and limiting the short-term liquidity of these investments.  Management intends to continue to reduce our holdings in these securities as circumstances allow, but believes we have sufficient liquidity from operating cash flows and available financial sources, including our revolving credit facility, which we believe will continue to provide sufficient capital resources to fund our foreseeable short and long-term liquidity requirements.

During the quarter ended August 31, 2008, we developed a series of discounted cash flow models and began using them to value our ARS.   Some of the inputs into the discounted cash flow models we use are unobservable in the market and have a significant effect on valuation.  These inputs attempt to capture the impact of illiquidity on the investments and during the fiscal year ended February 28, 2009, we recorded pre-tax unrealized losses on our ARS totaling $2.68 million on $22.65 million of face value ARS.  The impairment was reflected in accumulated other comprehensive loss in our accompanying consolidated balance sheet net of related tax effects of $0.91 million.  The recording of these unrealized losses is not a result of the quality of the underlying collateral, but rather a markdown reflecting a lack of liquidity and other market conditions.  If the issuers’ credit ratings or other market conditions continue to deteriorate, the Company may be required to record other-than-temporary impairment charges on these investments in the future, which could have a material adverse effect on our business, financial condition and results of operations.  For further information on our ARS, see Notes (1), (15) and (16) to our consolidated financial statements.

If our goodwill, indefinite-lived intangible assets or other long-term assets become impaired, we will be required to record additional impairment charges, which may be significant.

A significant portion of our long-term assets continues to consist 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.   We consider whether circumstances or conditions exist which suggest that the carrying value of our 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 required by U.S. generally accepted accounting principles (“GAAP”) entail significant amounts of judgment and subjectivity.  We complete our analysis of the carrying value of our goodwill and other intangible assets during the first quarter of each fiscal year, or more frequently whenever events or changes in circumstances indicate that their carrying value may not be recoverable.  Events and changes in circumstances that may indicate that there is impairment and which may indicate that 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 earnings in our financial statements during the period in which any impairment of our goodwill, indefinite-lived intangible assets or other long-term assets is determined.  Any such impairment charges could have a material adverse effect on our business, financial condition and operating results.

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As a result of the continued deterioration of economic conditions during the second half of fiscal 2009, the Company evaluated the impact of these conditions and other developments on its reporting units to assess whether impairment indicators were present that would require interim impairment testing. During the latter half of the third quarter of fiscal 2009, the Company’s total market capitalization began to decline below the Company’s consolidated shareholders’ equity balance at November 30, 2008.  When the Company’s total market capitalization remains below its consolidated shareholders’ equity balance for a sustained period of time, this may be an indicator of potential impairment of goodwill and other intangible assets.  Because this condition continued throughout the balance of the fourth quarter of fiscal 2009, the Company determined that the carrying amount of our goodwill and other intangible assets might not be recoverable and performed additional impairment testing as of February 28, 2009.   These tests resulted in impairment charges totaling $99.51 million ($99.06 million after tax) in the fourth quarter of fiscal 2009.  For additional information, see the discussion under Notes (1) and (3) to our consolidated financial statements and in “Results of Operations” under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We rely on licensed trademarks, the loss of which could have a material adverse effect on our revenues and profitability.

We are materially dependent on our licensed trademarks as a substantial portion of our sales revenue comes from selling products under licensed trademarks. As a result, we are materially dependent upon the continued use of such trademarks, particularly the Vidal Sassoon® and Revlon® trademarks. Actions taken by licensors and other third parties could diminish greatly the value of any of our licensed trademarks. If we were unable to sell products under these licensed trademarks or the value of the trademarks were diminished by the licensor due to any inability to perform under the terms of the agreements or other reasons, or due to the actions of third parties, the effect on our business, financial condition and results of operations could be both negative and material.

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.

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 Europe and Latin America. These retail economies are affected primarily 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, 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, gasoline prices and consumer confidence generally, 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. As a result of the global recession, consumers may have less money for discretionary purchases as a result of job losses, foreclosures, bankruptcies, reduced access to credit, and sharply falling home prices, among other things.  A prolonged economic downturn or recession in the United States, United Kingdom, Canada, Mexico 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 the Company’s business, financial condition and results of operations.

The impact of these external factors and the extent to which they may continue is difficult to predict, and one or more of the factors could adversely impact our business. In recent years, the retail industry in the U.S. and, increasingly, elsewhere has been characterized by intense competition among retailers. Because such competition, particularly in weak retail economies, can cause retailers to struggle or fail, we must continuously monitor, and adapt to changes in, the profitability, creditworthiness and pricing policies of our customers.  A continued weakening of retail economies, as we have seen over the last fiscal year, could continue to have a material adverse effect on our business, financial condition and results of operations.

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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. Our core initiatives include fostering our culture of innovation and new product development, enhancing and extending our existing product categories and developing new allied product categories.  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 new products, it may have an adverse effect on our business, financial condition and results of operations.

Continued disruption in U.S. and international credit markets may adversely affect our business, financial condition and results of operations.

Recent disruptions in national and international credit markets have lead to a scarcity of credit, tighter lending standards, higher interest rates on consumer and business loans, and higher fees associated with obtaining and maintaining credit availability.  Continued disruption may materially limit consumer credit availability and restrict credit availability to our customer base and the Company.

Effective December 15, 2008, we amended our revolving credit agreement (the “Revolving Line of Credit Agreement”) dated June 1, 2004 between Helen of  Troy, L.P., as borrower, and Bank of America N.A. and other lenders.  The amendment extended the maturity date until December 15, 2013 and modified certain terms and covenants.  For additional information regarding the amendment, see Note (5) to the accompanying consolidated financial statements. The amendment to the Revolving Line of Credit Agreement increased our borrowing costs and adjusted the limitations on our ability to incur additional debt.  In addition, because of recent disruption in the financial markets and the increased level of recent banking failures, 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.  The failure of our lenders to provide sufficient financing may constrain our ability to operate or grow the business and to make complementary strategic business and/or brand acquisitions.  This could have a material adverse effect on our business, financial condition and results of operations.

Our operating results may be adversely affected by foreign currency fluctuations.

Our functional currency is the U.S. Dollar. Changes in the relation of other foreign currencies to the U.S. Dollar will affect our sales and profitability and can result in exchange losses because the Company has operations and assets located outside the United States.  The Company transacts a significant portion of its business in currencies other than the U.S. Dollar (“foreign currencies”).  Such transactions include sales, certain inventory purchases and operating expenses. As a result, portions of our cash, trade accounts receivable and trade accounts payable are denominated in foreign currencies.  Accordingly, foreign operations will continue to expose us to foreign currency fluctuations, both for purposes of actual conversion and financial reporting purposes.  Additionally, we purchase a substantial amount of our products from Chinese manufacturers.  The Chinese Renminbi has appreciated against the U.S. Dollar over the last year.  Although our purchases are in U.S. Dollars, if the Chinese Renminbi continues to rise against the U.S. Dollar, the costs of our products will continue to rise because of the impact the fluctuations will have on our suppliers, and we may not be able to pass any or all of these price increases on to our customers.

We identify foreign currency risk by regularly monitoring our foreign currency-denominated transactions and balances.  Where operating conditions permit, we reduce foreign currency risk by purchasing most of our inventory with U.S. Dollars and by converting cash balances denominated in foreign currencies to U.S. Dollars.

We have historically hedged against certain foreign currency exchange rate-risk by using a series of forward contracts designated as cash flow hedges to protect against the foreign currency exchange risk inherent in our forecasted transactions denominated in currencies other than the U.S. Dollar.  In these transactions, we execute a forward currency

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contract that will settle at the end of a forecasted period.  Because the size and terms of the forward contract are designed so that its fair market value will move in the opposite direction and approximate magnitude of the underlying foreign currency’s forecasted exchange gain or loss during the forecasted period, a hedging relationship is created.  To the extent that we forecast the expected foreign currency cash flows from the period the forward contract is entered into until the date it will settle with reasonable accuracy, we significantly lower or materially eliminate a particular currency’s exchange risk exposure over the life of the related forward contract. We enter into these types of agreements where we believe we have meaningful exposure to foreign currency exchange risk and the hedge pricing appears reasonable.  It is not practical for us to hedge all our exposures, nor are we able to project in any meaningful way the possible effect and interplay of all foreign currency fluctuations on translated amounts or future earnings.  This is due to our constantly changing exposure to various currencies, the fact that each foreign currency reacts differently to the U.S. Dollar and the significant number of currencies involved. The impact of future exchange rate fluctuations on our results of operations cannot be accurately predicted.  Accordingly, there can be no assurance that the U.S. Dollar foreign exchange rates will be stable in the future or that fluctuations in foreign currency markets will not have a material adverse effect on our business, results of operations and financial condition.

Acquisitions may be more costly or less profitable than anticipated or we may not be able to identify suitable new acquisition opportunities, which may constrain our prospects for future growth and profitability and adversely affect the price of our common shares.

We are constantly looking for opportunities to make complementary strategic business and/or brand acquisitions. These acquisitions, 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 shares.  In addition, any acquisition involves numerous risks, including:

·     difficulties in the assimilation of the operations, technologies, products and personnel associated with the acquisitions;

·     difficulties 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;

·     difficulties realizing anticipated cost savings, synergies and other benefits related to an acquisition;

·     risks associated with subsequent 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.

Any difficulties encountered with acquisitions could have a material adverse effect on our business, financial condition and operating results.

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We may incur debt to fund acquisitions and capital expenditures, which could have an adverse impact on our business and profitability.

Our debt could adversely affect our financial condition and can add constraints on our ability to operate our business.  Our indebtedness can, among other things:

·     increase our vulnerability to general adverse economic conditions;

·     limit our ability to obtain necessary financing and to fund future working capital, capital expenditures and other general corporate requirements;

·     require us to dedicate a portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital and capital expenditures, and for other general corporate purposes;

·     subject us to a higher interest expense (a significant portion of our debt is fixed or effectively fixed through the use of interest rate swaps and these rates may produce higher interest expense than would be available with floating rate debt, as is currently the case with decreased market interest rates);

·     limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

·     place us at a competitive disadvantage compared to our competitors that have less debt;

·     limit our ability to pursue acquisitions or sell assets; and

·     limit our ability to borrow additional funds.

Any of these events could have a material adverse effect on us. In addition, our debt agreements contain restrictive financial and operational covenants. Significant restrictive covenants include limitations on, among other things, our ability under certain circumstances to:

·     incur additional debt, including guarantees;

·     grant certain types of liens;

·     sell or otherwise dispose of assets;

·     engage in mergers, acquisitions or consolidations;

·     pay dividends on our common shares;

·     repurchase our common shares;

·     enter into substantial new lines of business; and

·     enter into certain types of transactions with our affiliates.

Our failure to comply with these and other restrictive covenants could result in an event of default, which if not cured or waived, could have a material adverse effect on us.

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We rely on our central Global Enterprise Resource Planning Systems and other peripheral information systems.  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.

We conduct most of our businesses under one integrated Global Enterprise Resource Planning System, which we implemented in September 2004.  Most of our operations are dependent on this system.  Any failures or disruptions in this system could cause considerable disruptions to our business and may have a material adverse effect on our business, financial condition and results of operations.

We continue to experience delays in transitioning our Mexican operations to our global information system.  We have encountered difficulties and delays in integrating information exchanges between our Company and a key third party order fulfillment provider we use in Mexico.  While certain systems have gone live, our plan for a full transition of our Mexican operations to our global information system has been extended into fiscal 2010.

We continuously make adjustments to improve the effectiveness of our systems. Complications resulting from such adjustments could potentially cause considerable disruptions to our business.  Application program bugs, system conflict crashes, user error, data integrity issues, customer data conflicts and related integration issues all pose significant risks.

To support new technologies, we continue to support and upgrade a growing technology infrastructure base. Increased computing capacity, power requirements, back-up capacities, broadband network infrastructure and increased security needs are all potential areas for disruption or failure.  We rely on certain outside vendors to assist us with implementation and enhancements and other vendors to assist us in maintaining some of our infrastructure.  Should any of these vendors fail to perform as expected, it could adversely affect our service levels and threaten our ability to conduct business.  In addition, we have not migrated our core software to newer versions because of the degree of customization it underwent upon its initial implementation.  This places the Company’s and its software vendor’s ability to continue to provide the appropriate level of support for these systems at risk.  The Company also routinely assesses how much longer it can continue to use current software versions, and the most appropriate strategy for making any changes that will be required.  Upgrading to later versions of this software or replacing the software with a new vendor’s offerings may require a substantial investment of time and resources by the Company and may result in disruptions in various aspects of our operations.

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.  Any interruption or loss of data in our information or logistical systems could materially impact our ability to procure our 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. These and other factors described above could have a material adverse effect on our business, financial condition and results of operations.

A breach of our computer security systems and unauthorized intrusion could allow for fraudulent use of sensitive information and/or damage to critical data and systems.  Such activity could subject us to litigation and various other claims and have a material adverse effect on our financial condition, results of operations and the reputation of our business.

Information systems require constant updates to their security policies and hardware systems to reduce the risk of unauthorized access, malicious destruction of data, or information theft.  We believe we have taken steps designed to strengthen the security of our computer systems and protocols and have instituted an ongoing program to continue to do so.  Nevertheless, we cannot assure that we will not suffer a data compromise. We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential information.  Improper activities by third parties, advances in computer and software capabilities and encryption technology, new tools and discoveries and other events or developments may facilitate or result in a compromise or breach of our computer systems.

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Any such compromises or breach could cause interruptions in our operations and might require us to spend significant management time and money investigating the event and dealing with local and federal law enforcement.  In addition, we could become the subject of litigation and various claims from our customers, employees, suppliers, service providers and shareholders.  Regardless of the merits and ultimate outcome of these matters, litigation and proceedings of this type are expensive to respond to and defend, and we could devote substantial resources and time to responding to and defending them. The ultimate resolution of any such litigation, claims and investigations could cause damage to our reputation and have a material adverse effect on our financial condition, results of operations and reputation.

Audits and related disputes with taxing authorities, tax compliance and the impact of changes in tax law could have an adverse impact on our business.

From time to time, we are involved in tax audits and related disputes with various taxing jurisdictions.  We believe that we have complied with all applicable reporting and tax payment obligations and in the past have disagreed with taxing authority positions on various issues.  Historically, we have vigorously defended our tax positions through available administrative and judicial avenues.  Based on currently available information, we have established reserves for our best estimate of the probable tax liabilities.  Future actions by taxing authorities may result in tax liabilities that are significantly higher or lower than the reserves established, which could have a material effect on our consolidated results of operations or cash flows.

The impact of future tax legislation, regulations or treaties, including any legislation in the U.S. or abroad that would effect the companies or subsidiaries that comprise our consolidated group is always uncertain. The U.S. Congress is currently considering several alternative proposed changes in the tax law that, if enacted may increase our effective overall tax rate.  Our ability to respond to such changes so that we maintain favorable tax treatment, the cost and complexity of such compliance, and its impact on our ability to operate effectively in jurisdictions always presents a risk.

For more information about recently completed tax audits and related disputes, see Note (8) to the accompanying consolidated financial statements.

Under current tax law,  favorable tax treatment of our non- U.S. earnings is dependent on our ability to avoid classification as a Controlled Foreign Corporation. Changes in the composition of our shareholdings 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 the Company’s 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 (i.e., those owning 10 percent or more of its shares) together own more than 50 percent of the shares outstanding.  If the IRS or a court determined that we were a CFC, then each of our U.S. shareholders who own (directly, indirectly, or constructively) 10 percent or more of the total combined voting power of all classes of our stock on the last day of our taxable year 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 our subsidiaries determined to be a CFC) for the period during which we (and our non-U.S. subsidiaries) were 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 are a CFC.

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ITEM 1B.  UNRESOLVED STAFF COMMENTS

Not Applicable.

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ITEM 2.  PROPERTIES

PLANT AND FACILITIES

The Company owns, leases, or otherwise utilizes through third-party management service agreements, a total of 33 facilities, which include selling, procurement, administrative and distribution facilities worldwide.  All facilities operated by the Company are adequate for the purpose for which they are intended.  Information regarding the location, use, segment, ownership and approximate size of the facilities and undeveloped land as of February 28, 2009 is provided below:

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ITEM 3.  LEGAL PROCEEDINGS

Securities Class Action Litigation – An agreement was reached to settle the consolidated class action lawsuit filed on behalf of purchasers of our publicly traded securities against the Company, Gerald J. Rubin, the Company’s Chairman of the Board, President and Chief Executive Officer, and Thomas J. Benson, the Company’s Chief Financial Officer. In the consolidated action, the plaintiffs alleged violations of Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 thereunder. The class period stated in the complaint was October 12, 2004 through October 10, 2005.  The lawsuit was brought in the United States District Court for the Western District of Texas.

On June 19, 2008, the Court held a hearing at which it approved the terms of the settlement, the certification of the class for purposes of the settlement, and the award of attorney’s fees and costs related to the lawsuit.  The order approving the settlement became final on July 19, 2008.  Under the settlement, the lawsuit has been dismissed with prejudice in exchange for a cash payment of $4.5 million.  The Company’s insurance carrier paid the settlement amount and the Company’s remaining legal and related fees associated with defending the lawsuit because the Company had met its self-insured retention obligation.  The Company and the two officers of the Company named in the lawsuit have denied any and all allegations of wrongdoing and have received a full release of all claims.

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

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ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2009.

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PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

PRICE RANGE OF COMMON SHARES

Our common shares are listed on the NASDAQ Global Select Market (“NASDAQ”) [symbol: HELE].  The following table sets forth, for the periods indicated, in dollars per share, the high and low sales prices of the common shares as reported on the NASDAQ.  These quotations reflect the inter-dealer prices, without retail mark-up, markdown, or commission and may not necessarily represent actual transactions.

APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS OF RECORD

Our common shares with a par value of $0.10 per share are our only class of equity security outstanding at February 28, 2009. As of May 6, 2009, there were approximately 280 holders of record of the Company’s common shares. Shares held in “nominee” or “street” name at each bank nominee or brokerage house are included in the number of shareholders of record as a single shareholder.

CASH DIVIDENDS

Our current policy is to retain earnings to provide funds for the operation and expansion of our business and for potential acquisitions.  We have not paid any cash dividends on our common shares since inception.  Our current intention is to pay no cash dividends in fiscal 2010.  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.

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ISSUER PURCHASES OF EQUITY SECURITIES

During the quarter ended August 31, 2003, our Board of Directors approved a resolution authorizing the purchase, in the open market or through private transactions, of up to 3,000,000 common shares over an initial period extending through May 31, 2006.  On April 25, 2006, our Board of Directors approved a resolution to extend the existing plan to May 31, 2009.  On October 15, 2008, the Board of Directors approved a resolution to add 3,000,000 shares to the existing shares authorized for repurchase and to extend the repurchase program through October 31, 2011.

For the fiscal years ended 2009 and 2008, we repurchased and retired 574,365 and 1,095,392 shares at a total purchase price of $7.42 and $26.00 million, and an average purchase price of $12.91 and $23.74 per share, respectively.  We did not repurchase any shares during fiscal 2007. From September 1, 2003 through February 28, 2009, we have repurchased 3,233,593 common shares at a total cost of $79.03 million, or an average price per share of $24.44.  An additional 2,766,407 common shares remain authorized for purchase under this plan as of February 28, 2009.   The following schedule sets forth the purchase activity for each month during the three months ended February 28, 2009:

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PERFORMANCE GRAPH

The graph below compares the cumulative total return of our Company to the NASDAQ Market Index and a peer group index, assuming $100 invested March 1, 2004. 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 shares.

COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
FOR HELEN OF TROY LIMITED, NASDAQ MARKET INDEX,
AND PEER GROUP INDEX

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-K 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.

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ITEM 6.  SELECTED FINANCIAL DATA

The selected consolidated statements of operations data for the years ended on the last day of February 2009, 2008 and 2007, and the selected consolidated balance sheet data as of the last day of February 2009 and 2008, have been derived from our audited consolidated financial statements included in this report.  The selected consolidated statements of operations data for the years ended on the last day of February 2006 and 2005, and the selected consolidated balance sheet data as of the last day of February 2007, 2006 and 2005, have been derived from our audited consolidated financial statements which are not included in this report.  This information should be read together with the discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes to those statements included in this report.  All currency amounts are denominated in U.S. Dollars.

Years Ended The Last Day of February,

(in thousands, except per share data)

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ITEM 6.  SELECTED FINANCIAL DATA, CONTINUED

Last Day of February,

(in thousands)

(1)  Fiscal year 2005 results include 100 percent of the results of Tactica under the line item, “Loss from discontinued segment’s operations, net of tax effects.”  We acquired a 55 percent interest in Tactica in March 2000. On April 29, 2004, we completed the sale of our interest in Tactica back to certain of its key operating manager-shareholders. Our consolidated financial statements for fiscal 2005 (for the period of time we owned Tactica) included 100 percent of Tactica’s net loss because Tactica had accumulated a net deficit at the time that we acquired our ownership interest, and because the minority shareholders of Tactica had not adequately guaranteed their portion of the accumulated deficit.

(2)  Fiscal year 2005 and thereafter includes the results of operations of OXO International, which we acquired on June 1, 2004 for a net cash purchase price of $273.17 million including the assumption of certain liabilities.  At acquisition, we recorded $11.67 million of working capital, $2.9 million of property and equipment, and $258.58 million of goodwill, trademarks and other intangible assets.  The acquisition was funded by a $73.17 million advance under the Revolving Line of Credit Agreement and a $200 million Term Loan Credit Agreement. The $200 million Term Loan Credit Agreement and a portion of the outstanding balance under the Revolving Line of Credit Agreement were subsequently repaid with the proceeds from $225 million of Floating Rate Senior Notes issued on June 29, 2004.

(3)  Fiscal year 2008 and thereafter includes the results of operations of Belson Products, which we acquired on May 1, 2007 for a net cash purchase price of $36.50 million including the assumption of certain liabilities.  The acquisition was funded with cash.  At acquisition, we recorded $13.98 million of working capital, $0.14 million of fixed assets, and $22.38 million of goodwill, trademarks and other intangible assets.

(4)  During fiscal 2008, we settled certain tax disputes with the Hong Kong Inland Revenue Department, and the U.S. Internal Revenue Service (the “IRS”).  As a result of these settlements, we recorded tax benefits totaling $9.31 million during fiscal 2008.  These benefits represent the reversal of tax provisions previously established for the periods under dispute.  See Note (8) to our consolidated financial statements for more information on our income taxes.

(5)  For the fiscal years ended 2009 and 2008, we repurchased and retired 574,365 and 1,095,392 shares at a total purchase price of $7.42 and $26.00 million, respectively.  No common shares were repurchased during the fiscal years ended 2007 and 2006. In fiscal 2005, we repurchased 757,710 common shares at a cost of $25.04 million.

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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, 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 on page 2 of this report in the section entitled “Information Regarding Forward-Looking Statements,”  Item 1A., “Risk Factors,” and in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.”

OVERVIEW

Our financial results for the 2009 fiscal year reflect the impact of the continued deterioration of global macroeconomic conditions that began last year and accelerated throughout fiscal 2009.  These conditions negatively affected consumer spending causing many of our retail partners to face declining same store sales trends and a highly promotional holiday season.  This environment had an adverse impact on most of our businesses, both foreign and domestic.  In addition to the impact of the global macroeconomic conditions on consumer demand, the following factors contributed to a decline in the Company’s net sales in fiscal 2009:

·      In anticipation of a decline in consumer spending, key retail partners reduced inventory levels across most of our product categories, resulting in lower sales orders for most of fiscal 2009.  This trend reversed slightly in the fourth quarter as our retail partners replenished to support minimum inventory levels.

·      A significant strengthening of the U.S. Dollar against other currencies in which we transact sales, which exposed the Company to foreign exchange losses on those sales because our foreign currency sales prices are not adjusted for short term or sudden currency fluctuations.  We are attempting to adjust sales prices to help offset the impact of the currency changes.

·      Disruptions in product supply due to the closure of certain suppliers in the Far East.  This caused delays in the delivery of certain items and adversely affected Personal Care appliance sales.  Although we have multiple sourcing partners for many of our products, we were unable to source certain items on a timely basis due to the rapid changes occurring within the Far East.  We believe the contraction in suppliers was a widespread issue within our industry, which now appears to have stabilized.

·      The loss of some appliance placement at retail due to branded competition, movement to private label and disruptions in the supply of product.

·      An introduction of an entirely new line of hair care appliance solutions for specific hair types, VS Answers®, which replaced some of our existing product on our retailers’ shelves, fell short of our expectations due to disappointing sell-through and its launch at a time when retailers were cutting back shelf space and tightening their inventory management practices.

·      In fiscal 2008, we introduced the Bed Head® line of appliances and accessories.  Due to a shift by consumers away from higher price points at retail, we granted certain price adjustments and allowances to our retailers as part of our commitment to Bed Head®, which negatively impacted fiscal 2009 Bed Head® net sales.

·      The impact of the Linens ‘n Things, Inc. (“Linens”) bankruptcy liquidation in October 2008 had an adverse impact on sales.  Linens is a significant Housewares segment customer.  In addition to the current and future loss of sales, we believe the impact of Linens’ merchandise liquidation negatively affected other competing retailers by diverting consumer purchases to Linens’ deeply discounted merchandise in the third and fourth quarters of fiscal 2009.

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In part as a result of these factors, fiscal 2009 consolidated net sales decreased $29.80 million or 4.6% when compared to fiscal 2008.  While our Housewares segment continued to grow and expand its sales base despite the challenging retail sales environment, our Personal Care segment, whose product categories are generally in more mature market positions, experienced sales declines.

Global economic conditions also put upward pressure on our product costs for much of the fiscal year. There was significant volatility in energy costs, inbound and outbound transportation costs and in the costs of the basic materials used to manufacture our products, namely plastic resins, copper, stainless steel and other metals.  In addition, declining labor availability and evolving government labor regulations and associated compliance standards caused increases in labor costs in the Far East, where we currently source a significant portion of our products.  These conditions coupled with rising credit costs and increased borrowing constraints have forced certain of our suppliers to exit the business, leading to supply shortages, added services and tooling costs and product availability issues.  In the fourth quarter of fiscal 2009, we saw these same costs stabilize and begin to move downward in some cases, but we believe that the full impact of such cost decreases will not meaningfully benefit our operating results until the second half of fiscal 2010.  The following factors also impacted on our product and operating costs:

·      Rapid weakening of many foreign currencies against the U.S. Dollar during the third and fourth quarters of fiscal 2009 resulted in significant foreign exchange losses, which are a component of operating costs.

·      Appreciation of the Chinese Renminbi with respect to the U.S. Dollar increased cost of sales during fiscal 2009.  The appreciation of the Renminbi has slowed over the last half of the fiscal year.  Continued stabilization of the Renminbi can be expected to favorably affect our future cost of sales.

  The economic environment provided an opportunity to study our cost structure and position the Company for profitable growth going forward.  We were able to partially offset rising product costs with operating expense efficiencies that enabled us to complete fiscal 2009 with selling, general and administrative expense (“SG&A”) as a percentage of sales improving 1.6 percentage points to 30.2 percent compared to 31.8 percent for the same period last year.  We achieved this improvement despite the unfavorable year over year impact of foreign exchange fluctuations totaling $5.73 million, which increased SG&A by 0.9 percentage points.

Net earnings in fiscal 2009 decreased by $118.30 million when compared to fiscal 2008.  In addition to a decline in sales and increasing cost of sales, a significant amount of this decline is due to the unfavorable impact of significant items in fiscal 2009, including: the effects of intangible impairment charges of $107.27 million ($106.67 million after tax) and a charge to bad debt of $3.88 million ($2.52 million after tax) associated with the Linens bankruptcy, partially offset by $0.46 million in benefits of a tax settlement and a $2.70 million ($2.64 million after tax) gain on casualty insurance settlements.  This compares to the favorable impact of significant items in fiscal 2008, including: the benefits of various tax settlements, a litigation settlement and a gain on the sale of land, partially offset by impairment charges and a tax valuation allowance on a net operating loss in Brazil.  Excluding these items from both years, fiscal 2009 earnings without significant items decreased by $6.42 million or 11.5 percent when compared to fiscal 2008, and fiscal 2009 earnings per diluted share without significant items decreased to $1.59 as compared to $1.75 in fiscal 2008.  The remaining decline in earnings without significant items of $0.16 per diluted share is a result of the impact of global economic, and other factors referred to previously.  Earnings and related earnings per diluted share without significant items may be considered non-GAAP financial measures as contemplated by SEC Regulation G, Rule 100.  These measures are discussed further, and reconciled to their applicable GAAP-based measures, on page 54.

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Significant Developments and Events Other significant developments and events that occurred during fiscal year 2009 are described below.

·      Impairment Charges:  As further discussed under the sections “Impairment Charges” and “Critical Accounting Policies”, and Notes (1) and (3) to the accompanying consolidated financial statements, we have recorded non-cash impairment charges totaling $107.27 million ($106.67 million after tax) in fiscal 2009 in order to reflect the carrying value of goodwill and certain trademarks in our Personal Care segment at current estimates of their fair values.  With respect to all trademarks for which such impairments were recorded, we currently expect to continue to hold these trademarks for use.  See page 54 for a table showing the impact of impairment charges and other significant items on net earnings (loss) and earnings per share.

·      Acquisition of Ogilvie:  On October 10, 2008, we acquired the trademarks, customer lists, distribution rights, formulas and inventory of the Ogilvie brand of home permanent and hair-straightening products for $4.77 million from Ascendia Brands, Inc.  The products are now being sold through our Personal Care segment.  Ogilvie is the leading brand of “at home” permanent and straightening products sold in the food, drug and mass merchandising markets.  The Ogilvie brand maintains a loyal core user base of consumers who are interested in “do it yourself” products for their hair care needs.  We have begun the integration of the Ogilvie operations into our Idelle division of grooming, skin and hair care solutions and expect the business to be fully integrated during the first quarter of fiscal 2010.

·      Productivity and Operational Improvement Initiatives: During fiscal 2009, we implemented a comprehensive cost reduction program designed to increase the productivity of our assets and employees, streamline operations, improve our use of technology, eliminate unproductive expenditures, and effectively leverage our existing supply chain, distribution and corporate structures.  As a result of these initiatives, we were able to reduce our Far East sourcing costs and increase capacity within our existing distribution structure, while reducing returns from the customer that result from warranty claims or shipment inaccuracies.  The Far East sourcing savings were realized even as we completed the transition of the majority of our U.S. based Housewares sourcing to our operations in the Far East.  We also focused our advertising and promotional expenditures, decreased personnel costs, and reduced a variety of operational and corporate expenses.  These initiatives resulted in significant operating expense reductions in an environment of rising costs.

·      New Product Development and Innovation: Despite the unfavorable macroeconomic conditions, we continue to be disciplined in our strategy of continually investing in new product development.  We believe this will position us to gain market share and take advantage of the economic upturn, when it occurs.  Although we must be selective and cost-conscious regarding our development efforts, we feel that an overall contraction in product development efforts would be a shortsighted strategy.  Towards the end of fiscal 2008, we successfully introduced our Good Grips® POP line of modular food storage containers (“POP Containers”).  In fiscal 2009, our POP Containers accounted for incremental net sales of $10.30 million, while other new product introductions in the Housewares segment overall contributed $7.89 million in incremental sales growth and allowed the segment to grow 6.9 percent in the face of strong economic headwinds and the bankruptcy of a significant customer.  In total, there were over 90 new product introductions in the Housewares segment in fiscal year 2009.  We plan to launch over 90 new products in the Housewares segment in fiscal 2010.  In Personal Care, we introduced approximately 325 new products in fiscal 2009 and expect to launch another 175 products for fiscal 2010 under such brand names as Revlon®, Vidal Sassoon®, Bed Head®, Hot Tools®, Dr. Scholl’s®, and Veet®.

·      Amendment of Revolving Line of Credit: On December 15, 2008, we amended the Revolving Line of Credit Agreement, extending its maturity date until December 15, 2013, adjusting interest rate margins and modifying certain financial covenants.  As of February 28, 2008, we have no outstanding borrowings and $1.52 million of open letters of credit under this line.  On June 29, 2009, $75 million of unsecured floating rate senior debt will mature.  We currently plan on funding this maturity from our available cash and availability under our Revolving Line of Credit Agreement.

·      Liquidation of Auction Rate Securities: As a result of ongoing lack of liquidity in the ARS market, we reclassified our remaining ARS as long-term investments in the first quarter of fiscal 2009.  We have recorded a

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pre-tax unrealized loss of $2.68 million during fiscal 2009, which is reflected as a component of accumulated other comprehensive loss in our consolidated balance sheet at February 28, 2009 net of related tax effects of $0.91 million.  Despite the liquidity issues experienced by investors throughout the market, we were able to liquidate at par $41.18 million of ARS during fiscal 2009.

·      IRS Settlement: During fiscal 2009, the IRS completed its audit of our U.S. consolidated federal tax return for fiscal year 2005.  As a result of its audit, the IRS proposed adjustments totaling $8.63 million to taxes.  In December 2008, the Company and the IRS reached a settlement agreement.  As a result of the settlement, we agreed to adjustments totaling $0.49 million to fiscal 2005 taxes and interest and reversed $5.20 million of tax provisions, including interest and penalties previously established for fiscal 2005 and other years on the basis of the terms of the settlement.  Of the $5.20 million, $0.57 million was credited to fiscal year 2009 tax expense and $4.63 million was credited to additional paid-in-capital.  The amount credited to additional paid-in-capital was for the tax effects of prior year stock compensation expense that was deemed deductible under the audit, and when originally accrued, was charged against additional paid-in-capital.

·      Linens ‘n Things Bankruptcy Liquidation: On May 2, 2008, Linens filed for protection under chapter 11 of the U.S. Bankruptcy Code. During the fiscal quarter ended November 30, 2008, Linens announced plans to liquidate by December 31, 2008. Our accounts receivable balance with Linens at the date of bankruptcy was $4.17 million and was fully written off during fiscal 2009.  We expect no further sales to Linens and we have fully collected all post-petition receivables as of the quarter ended November 30, 2008.  Linens was a significant customer of the Company with net sales for fiscal 2009 of $0.55 million and $7.24 million for the Personal Care and Housewares segments, respectively, compared to net sales of $1.30 million and $17.30 million in the same segments, respectively, for fiscal 2008.  In addition to the current and future loss of sales, we believe the impact of Linens’ merchandise liquidation negatively affected other competing retailers by diverting consumer purchases to Linens’ deeply discounted merchandise in the third and fourth quarters of fiscal 2009.

·      First Quarter Fiscal 2010 Acquisition of Infusium 23®: On March 31, 2009, we completed the acquisition of certain assets, trademarks, customer lists, distribution rights, patents and formulas for Infusium 23® hair care products from The Procter & Gamble Company for a cash purchase price of $60 million, which we paid with cash on hand.  Infusium 23® has a heritage of over 80 years and its shampoos, conditioners and leave-in treatments have an established reputation for product performance with stylists and consumers. We will market Infusium 23® products into both retail and professional trade channels.  We have begun to integrate the product line into our operations and are in the process of completing our analysis of the economic lives of the assets acquired and appropriate allocation of the initial purchase price.

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Financial Recap of Fiscal 2009

·      Consolidated net sales decreased 4.6 percent, or $29.80 million, to $622.75 million in fiscal 2009 compared to $652.55 million in fiscal 2008.  Personal Care segment consolidated net sales decreased 8.4 percent in fiscal 2009 when compared to fiscal 2008.  Housewares segment net sales increased 6.9 percent in fiscal 2009 when compared to fiscal 2008. Our fiscal 2009 net sales include the unfavorable impact of a net foreign exchange loss of $8.78 million compared to a net gain of $5.61 million in fiscal 2008.

·      Consolidated gross profit margin as a percentage of net sales decreased 2.2 percentage points to 41.0 percent in fiscal 2009 compared to 43.2 percent in fiscal 2008.

·      SG&A as a percentage of net sales decreased 1.6 percentage points to 30.2 percent in fiscal 2009 compared to 31.8 percent in fiscal 2008.  Fiscal 2009 SG&A includes net foreign exchange losses of $5.21 million, bad debt expense of $5.71 million and insurance claim gains of $2.78 million, which resulted in a net unfavorable impact to SG&A of $8.14 million.  Fiscal 2008 SG&A includes net foreign exchange gains of $0.53 million and bad debt expense of $0.48 million, which resulted in a net favorable impact to SG&A of $0.04 million.  Excluding the impact of these items from both years, SG&A as a percentage of net sales decreased 2.9 percentage points to 28.9 percent in fiscal 2009 compared to 31.8 percent in fiscal 2008.  SG&A excluding these items may be a non-GAAP financial measure as contemplated by SEC Regulation G, Rule 100.  These measures are discussed further, and reconciled to their applicable GAAP-based measure, on page 44.

·      As further discussed under the sections “Impairment Charges” and “Critical Accounting Policies”, and Notes (1) and (3) to the accompanying consolidated financial statements, we have recorded non-cash impairment charges totaling $107.27 million ($106.67 million after tax) in fiscal 2009 in order to reflect the carrying value of goodwill and certain trademarks in our Personal Care segment at current estimates of their fair value.  During the third quarter of fiscal 2008, we recorded non-cash impairment charges, on certain intangible assets totaling $4.98 million ($4.88 million after tax).

·      Interest expense was $13.69 million in fiscal 2009 compared to $15.03 million in fiscal 2008.  The decrease in interest expense is due to lower amounts of debt outstanding, when compared to the same periods last year.

·      Income tax expense was $5.33 million in fiscal 2009 compared to a benefit of $0.24 million in fiscal 2008.  Fiscal 2009 income tax expense includes a benefit of $0.46 million due to a tax settlement with the IRS.  Fiscal 2008 taxes include benefits of $9.31 million due to various tax settlements with the Hong Kong Inland Revenue Department and the IRS and an expense of $0.98 million resulting from a net operating loss valuation allowance.

·      Our net loss of $56.79 million in fiscal 2009 compares to net earnings of $61.51 million in fiscal 2008.  In addition to a decline in sales and increasing cost of sales, this decline is due to the unfavorable impact of significant items in fiscal 2009, including: the effects of non-cash intangible impairment charges and a charge to bad debt associated with the Linens bankruptcy, partially offset by the benefits of a tax settlement and gains on casualty insurance settlements.  This compares to the favorable impact of significant items in fiscal 2008, including; the benefits of various tax settlements, a gain on a litigation settlement and a gain on the sale of land, partially offset by impairment charges and a tax valuation allowance on a net operating loss in Brazil.  Earnings excluding the impact of the respective significant items for the year was $49.29 million in fiscal 2009 compared to $55.71 million in fiscal 2008. Our diluted earnings (loss) per share was ($1.88) in fiscal 2009 compared to diluted earnings per share of $1.93 in fiscal 2008.  Excluding the significant items referred to above from both years, fiscal 2009 diluted earnings per share was $1.59 compared to $1.75 in fiscal 2008.  Earnings and related diluted earnings per share excluding these items may be non-GAAP financial measures as contemplated by SEC Regulation G, Rule 100.  These measures are discussed further, and reconciled to their applicable GAAP-based measures, on page 54.

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Key Revenue and Net Earnings Growth Drivers for Fiscal 2010:  We plan to implement the following specific initiatives for fiscal 2010 with the goal of achieving sales and net earnings growth:

·      Continued growth and expansion of OXO® product lines and global market distribution;

·      Continued investment in new product line development and introductions to gain market share;

·      Integration and development of our new Ogilvie® and Infusium 23® product lines;

·      Pursuit of additional acquisitions of complementary businesses or product lines;

·      Development of licensing opportunities for the OXO® brand;

·      Implementation of certain price increases to retailers in categories with increased cost of goods;

·      Improved cost of goods sold for all products, particularly those sourced in the Far East;

·      Continued implementation of productivity initiatives to reduce operating expenses; and

·      Working capital improvement through the reduction of inventories throughout the Company.

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RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, our selected operating data, in U.S. Dollars, as a percentage of net sales, and as a year-over-year percentage change.