UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

For the quarterly period ended November 30, 2004

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

Commission file number 001-14669

HELEN OF TROY LIMITED

Clarendon House
Church Street
Hamilton, Bermuda
(Address of Principal Executive Offices)

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

     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 is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes þ No o

     As of January 5, 2005 there were 29,822,525 shares of Common Stock, $.10 par value, outstanding.

HELEN OF TROY LIMITED AND SUBSIDIARIES

INDEX

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PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Consolidated Condensed Balance Sheets
(in thousands, except shares and par value)

See accompanying notes to consolidated condensed financial statements.

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HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Statements of Income
(unaudited)
(in thousands, except per share data)

See accompanying notes to consolidated condensed financial statements.

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HELEN OF TROY LIMITED AND SUBSIDIARIES

See accompanying notes to consolidated condensed financial statements.

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HELEN OF TROY LIMITED AND SUBSIDIARIES

See accompanying notes to consolidated condensed financial statements.

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HELEN OF TROY LIMITED AND SUBSIDIARIES

Note 1 -	In our opinion, the accompanying consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly our consolidated financial position as of November 30, 2004 and February 29, 2004, and the results of our consolidated operations for the three- and nine-month periods ended November 30, 2004 and 2003. While we believe that the disclosures presented are adequate to make the information not misleading, these statements should be read in conjunction with the consolidated financial statements and the notes included in our latest annual report on Form 10-K, and other reports on file with the Securities and Exchange Commission.
	The following reclassifications were made to the accompanying consolidated condensed balance sheets and related footnotes for balances as of November 30, 2004 and February 29, 2004:

	•	During the quarter ended November 30, 2004, molds having a net book value of $2,289,000 and $124,000 at November 30, 2004 and February 29, 2004, respectively, were reclassified from “Other assets” to “Property and equipment”. The acquisition of OXO International (“OXO”) accounted for most of the increase in the net book value of molds since February 29, 2004. Given the scope and nature of OXO’s activities, management now believes this reclassification to be a more appropriate characterization of the nature of the assets acquired and has reclassified all previously acquired similar assets accordingly (See Note 14 for a further discussion of the OXO acquisition).
	•	During the quarter ended November 30, 2004, we reclassified $17,717,000 from Brut® goodwill to Brut® trademarks having an indefinite life and have reclassified this amount in both the November 30, 2004 and February 29, 2004 consolidated condensed balance sheets and related schedules accordingly. The reclassification has no impact on the consolidated condensed statements of income. Management believes this reclassification to be a more appropriate characterization of the nature of the acquisition costs paid for the Brut® brand.

Note 2 -	We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of such claims and legal actions will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Note 3 -

Basic earnings per share is computed based upon the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based upon the weighted average number of shares of common stock plus the effects of dilutive securities. The number of dilutive securities was 2,381,576 and 2,936,767 for the three- and nine-months ended November 30, 2004, respectively, and 3,687,222 and 2,655,726 for the three- and nine-months ended November 30, 2003, respectively. All dilutive securities during these periods consisted of stock options issued under our stock option plans. There were options to purchase shares of common stock that were outstanding but not included in the computation of earnings per share because the exercise prices of such options were greater than the average market prices of our common stock. These options totaled 113,700 and 1,500 at November 30, 2004 and 2003, respectively.

Note 4 -

During the quarter ended August 31, 2003, our Board of Directors authorized us to purchase, in open market or through private transactions, up to 3,000,000 shares of our common stock over a period extending to May 31, 2006. During the quarter ended November 30, 2004, we did not purchase any shares. During the quarter ended November 30, 2003, the Company purchased and retired 231,800 shares under this resolution at a total purchase price of $5,226,000, for a $22.55 per share average price. From September 1, 2003 through November 30, 2004, we have repurchased 1,563,836 shares at a total cost of $45,611,690 or an average share price of $29.17. An additional 1,436,164 shares are authorized for purchase under this plan.

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Note 5 -	In the tables that follow, we have revised our segment information for prior periods to reflect a change in operating segments reported. In the first fiscal quarter of 2005, we reported a single segment: Personal Care. The Personal Care Segment reflects the global operations of hair care appliances, hair brushes, combs, hair accessories, hair and skin care liquids and powders and other personal care products business. We are also reporting a Discontinued Segment, which summarizes the operations of Tactica International, Inc. (“Tactica”) (see Note 13 for a further discussion of the sale of our interest in Tactica). Beginning with the second fiscal quarter of 2005, we have added an additional operating segment: Housewares, to report the operations of OXO, which offers home product tools in several categories, including: kitchen, cleaning, barbecue, barware, garden, automotive, storage and organization (See Note 14 for a further discussion of the OXO acquisition). We believe these segments are appropriate based on the evolution of our business and believe the new segments more closely align the Company’s external segment reporting to how management evaluates and allocates resources and will provide more transparent disclosure to our investors.
	The accounting policies of our new segments are the same as those described in the summary of significant accounting policies in Note 1 to the consolidated financial statements in the Company’s 2004 Annual Report in Form 10-K.
	Operating profit for each operating segment is computed based on net sales, less cost of goods sold, less any selling, general and administrative expenses associated with the segment. The selling, general, and administrative expenses (“SG&A”) used to compute each segment’s operating profit are comprised of SG&A directly associated with those segments, plus overhead expenses (certain corporate costs, including those related to finance, legal, risk management, human resources, corporate management and information technology systems) that are allocable to operating segments. In connection with the acquisition of OXO, we agreed that World Kitchen, Inc. would perform certain corporate functions for OXO for a transitional period of time. The costs of these functions is reflected in SG&A for the housewares segment. These costs are currently expected to continue to be incurred through the end of fiscal 2006. During this transitional period, we have not made an allocation of our corporate overhead to OXO. We are currently evaluating whether it is appropriate to make an allocation of a portion of our corporate overhead to OXO. If we decide that these allocations are appropriate, there will be some reduction in operating income for the housewares segment, offset by an equal increase in operating income for the personal care segment. The extent of this operating income impact between the segments has yet to be determined. Other items of income and expense, including income taxes, are not allocated to operating segments.
	The tables on the following page contain segment information for the periods covered by our consolidated condensed statements of income:

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(1)

Segment information from prior periods has been restated due to the classification of Tactica as discontinued operations.

Note 6 -

Hong Kong Income Taxes - The Inland Revenue Department (“the IRD”) in Hong Kong has assessed a total of $32,086,000 (U.S.) in tax on certain profits of our foreign subsidiaries for the fiscal years 1995 through 2003. Hong Kong taxes income earned from certain activities conducted in Hong Kong. We are vigorously defending our position that we conducted the activities that produced the profits in question outside of Hong Kong. We also assert that we have complied with all applicable reporting and tax payment obligations. In connection with the IRD’s tax assessment for the fiscal years 1995 through 1997, we were required to purchase $3,282,000 (U.S.) in tax reserve certificates in Hong Kong. In the first fiscal quarter of 2005, we purchased additional tax reserve certificates in the amount of $3,583,000 (U.S.) as required by the IRD. In the third fiscal quarter of 2005, we purchased additional tax reserve certificates in the amount of $8,635,000 (U.S.) as required by the IRD. The IRD has asked us to purchase an additional $12,960,000 of tax reserve

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certificates by February 11, 2005. If we purchase these certificates, we will have purchased tax reserve certificates totaling $28,460,000. On December 11, 2004, we purchased an additional $4,281,000 of these certificates. Tax reserve certificates represent the prepayment by a taxpayer of potential tax liabilities. The amounts paid for tax reserve certificates are refundable in the event that the value of the tax reserve certificates exceeds the related tax liability. These certificates are denominated in Hong Kong dollars and are subject to the risks associated with foreign currency fluctuations.

If the IRD’s position were to prevail and if it were to assert the same position for fiscal years after fiscal year 2003, the resulting assessment could total $18,659,000 (U.S.) in tax for fiscal year 2004 and the first three fiscal quarters of 2005. We vigorously disagree with the proposed adjustments and intend to aggressively contest this matter through applicable taxing authority and judicial procedures, as appropriate. Although the final resolution of the proposed adjustments is uncertain and involves unsettled areas of the law, based on currently available information, we have provided for our best estimate of the probable tax liability for this matter. While the resolution of the issue may result in tax liabilities which are significantly higher or lower than the reserves established for this matter, management currently believes that the resolution will not have a material effect on our consolidated financial position or liquidity. However, an unfavorable resolution could have a material effect on our consolidated results of operations or cash flows in the quarter in which an adjustment is recorded or the tax is due or paid.

United States Income Taxes - The Internal Revenue Service (“the IRS”) is currently auditing the U.S. federal tax returns of our largest U.S. subsidiary for fiscal years 2000, 2001 and 2002. The IRS has provided notice of proposed adjustments to taxes of approximately $13,424,000 for the three years under audit. We vigorously disagree with the proposed adjustments and are aggressively contesting this matter through applicable IRS and judicial procedures, as appropriate. Although the final resolution of the proposed adjustments is uncertain and involves areas of law subject to varying interpretation, based on currently available information, we have provided for our best estimate of the probable tax liability for these matters. This estimate includes additional tax liabilities related to U.S. taxable income for all periods subsequent to fiscal year 2002, as well as the years currently under audit. While the resolution of the issue may result in tax liabilities which are significantly higher or lower than the reserves established for this matter, management currently believes that the resolution will not have a material effect on our consolidated financial position or liquidity. However, an unfavorable resolution could have a material effect on our consolidated results of operations or cash flows in the quarter in which an adjustment is recorded or the tax is due or paid.

The American Jobs Creation Act (“AJCA”) was signed into law by the President on October 22, 2004. The AJCA creates a temporary incentive for U.S. multinational corporations to repatriate accumulated income earned outside the United States by providing an 85% dividend received deduction for certain dividends from controlled foreign corporations. According to the AJCA, the amount of eligible repatriation is limited to $500 million or the amount described as permanently reinvested earnings outside the United States in the most recent audited financial statements filed with the Securities and Exchange Commission on or before June 30, 2003. Whether the Company will ultimately take advantage of the provision depends on a number of factors including potential forthcoming Congressional actions, Treasury regulations and development of a qualified reinvestment plan.

At this time, we have not made any changes to our existing position on reinvestment of foreign earnings subject to the AJCA. Our position is that we will permanently reinvest all of the undistributed earnings of the non-U.S. subsidiaries of certain U.S. subsidiaries, and accordingly have made no provision for U.S. federal income taxes on these undistributed earnings. At November 30, 2004, undistributed earnings for which we had not provided deferred U.S. federal income taxes totaled $37,748,000.

Income Tax Provisions - We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. We must assess the likelihood that we will be able to recover our deferred tax

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assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. As changes occur in our assessments regarding our ability to recover our deferred tax assets, our tax provision is increased in any period in which we determine that the recovery is not probable.

In 1994, we engaged in a corporate restructuring that, among other things, resulted in a greater portion of our income not being subject to taxation in the United States. If such income were subject to U.S. federal income taxes, our effective income tax rate would increase materially. The AJCA includes an anti-inversion provision that denies certain tax benefits to companies that have reincorporated outside the United States after March 4, 2003. We completed our reincorporation in 1994; therefore, our transaction is grandfathered by the AJCA, and we expect to continue to benefit from our current structure. In addition to future changes in tax laws, our position on various tax matters may be challenged. Our ability to maintain our position that the parent company is not a Controlled Foreign Corporation (as defined under the U.S. Internal Revenue Code) is critical to the tax treatment of our non-U.S. earnings. A Controlled Foreign Corporation is a non-U.S. corporation whose largest U.S. shareholders (i.e., those owning 10 percent or more of its stock) together own more than 50 percent of the stock in such corporation. If a change of ownership were to occur such that the parent company became a Controlled Foreign Corporation, such a change could have a material negative effect on the largest U.S. shareholders and, in turn, on our business.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of other complex tax regulations. We recognize liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts are not probable, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer probable. We record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.

Note 7 -

In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), the Company does not record amortization expense on goodwill or other intangible assets that have indefinite useful lives. Amortization expense is recorded for intangible assets with definite useful lives. SFAS 142 also requires at least an annual impairment review of goodwill and other intangible assets. Any asset deemed to be impaired is to be written down to its fair value. We completed our annual impairment test during the first quarter of fiscal 2005 as required by SFAS 142, and have determined that none of our goodwill or other intangible assets were impaired at that time.

The table on the following page discloses information regarding the carrying amounts and associated accumulated amortization for all intangible assets and indicates the operating segments to which they belong:

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