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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, 2010

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, 2009, based upon the closing price of the common shares as reported by The NASDAQ Global Select Market on such date, was approximately $609,758,000.

As of May 10, 2010 there were 30,651,611 common shares, $.10 par value per share (“common stock”), 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 2010 Annual General Meeting of Shareholders.

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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;

·     our projections of product demand, sales and net income are highly subjective in nature and future sales and net income could vary in a material amount from such projections.

·     our relationship with key customers and licensors;

·     the costs of complying with the business demands and requirements of large sophisticated customers;

·     our dependence on foreign sources of supply and foreign manufacturing, and associated operational risks including but not limited to long lead times, consistent local labor availability and capacity, and timely availability of sufficient shipping carrier capacity;

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

·     the inability to liquidate auction rate securities;

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

·     the risks associated with the use of trademarks licensed from third parties;

·     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 new products to meet changing consumer preferences;

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

·     exchange rate risks;

·     expectations regarding future acquisitions and the integration of acquired businesses;

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

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

·     the risks associated with tax audits and related disputes with taxing authorities;

·     the risks of potential changes in laws, including tax laws and the complexities of compliance with such laws; 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, shampoos, hair treatments, foot powder, body powder and skin care products. Our Housewares segment reports the operations of the OXO® (“OXO”) family of brands 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 and attract 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 consolidated annual net sales revenue for fiscal year 2010.  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 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.  Examples of such new products are OXO’s recent launch of a new wet food storage line and a planned fiscal 2011 debut of the OXO Tot™ line of approximately 70 baby and toddler care products, including the Sprout™ convertible highchair, which requires no tools to adjust.

·                  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, on March 31, 2009, we acquired the Infusium 23® (“Infusium”) hair care products line from The Procter & Gamble Company.  Additionally on March 31, 2010, we acquired the Pert Plus® (“Pert Plus”) hair care and Sure®

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(“Sure”) anti-perspirant and deodorant businesses from Innovative Brands, LLC.   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 the Veet® brand in Europe, has given us the opportunity to provide epilation appliances styled and packaged for the European female consumer.

·                  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 a key focus throughout our Company.

We present financial information by operating segment in Note (19) 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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During fiscal 2010, we began to earn royalties from the strategic brand licensing agreements with Staples Inc. (“Staples”), the world’s largest office products company, and UCB S.A. (“UCB”), a global biopharmaceutical leader.  Staples now sells an exclusive assortment of more than 30 OXO branded office products.  UCB offers patients suffering from rheumatoid arthritis and related conditions an OXO branded syringe that is ergonomically designed to simplify self injection.   While the Staples and UCB royalty revenue streams are not yet significant, we believe they have attractive long term growth potential and will add value to OXO’s brand equity by extending its reach into new consumer categories.

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 2010, we introduced 362 new products across all of our categories compared to 415 and 526 new products introduced in fiscal 2009 and 2008, respectively.  Currently, 389 additional new products are in our product development pipeline for expected introduction in fiscal 2011.   The following discussion summarizes key product introductions and strategies we launched in fiscal 2010.

Personal Care:  For our retail appliance customers, we continue to execute our strategy of being consumer centric and brand-driven. We have a strong portfolio of consumer brands which allow us to develop appropriate solutions for each consumer segment.  We introduced 255 new products in fiscal 2010 and expect to launch another 234 products for fiscal 2011 under such brand names as Revlon®, Vidal Sassoon®, Bed Head®, Pro Beauty Tools™, Hot Tools®, Dr. Scholl’s®, Scholl®, Mega Hot®, Brazilian Heat®, Gold ‘N Hot® and Veet®. Our growth continues to be focused on innovation that is consumer relevant. Our research supports our understanding that consumers desire to express their personality through the tools they use every day. We recently addressed this need by launching a line of Revlon Designer Series products that feature sophisticated patterns in classic feminine colors. In addition, the Vidal Sassoon “Nano” line was launched featuring hair dryers and straighteners in three vibrant on-trend colors.  Under Revlon, we launched the “IT Styler” straightener featuring a unique plate design, which allows consumers to straighten, flip and curl their hair with one tool.   We also continue to tailor specific styling appliances to particular styling looks.  An example of this was the introduction of the Revlon Satin Straightener, featuring ceramic satin plates, which gives the consumer an extra smooth and silky finish.

In our personal care appliance business, we introduced new brands or sub-brands in fiscal 2010 with a combination of features, technology and pricing targeted to the needs of specific consumer segments. For example, we introduced the Pro Beauty Tools™ professional ceramic straightener into our retail sales channel at the end of fiscal 2010 and have developed a full line of Pro Beauty Tools™ professional appliances and brushes planned for introduction in the second quarter of fiscal 2011. Pro Beauty Tools™ are premium professional products incorporating our latest innovations and technology, but at a value proposition that we believe is not available in the retail market today.

Hot Tools® (“Hot Tools”) continues to be a preferred brand of styling tools in the professional beauty industry. Hot Tools Curling Irons were the first irons in the industry to use a specially designed electronic heating system for fast heatup and heat restoration. This patented Pulse Auto Heat Control® keeps the iron’s heat so stylists can work quickly and with consistent curl results. Hot Tools specialty irons provide stylists with a variety of tools to create a wide variety of special curl types that are popular in today’s hair fashions, along with select flat irons for straight sleek looks.  In fiscal 2010, we continued to enhance the visual appeal of our Hot Tools line with new packaging and designs released in our Nano Ceramic Black and White, Pink Titanium, Diamond Platinum and Blue Ice Titanium sub-lines.

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For professional appliances that are more ethnically focused, we continued to execute Belson business’s strategy with our emphasis on Smart Heat hair care appliances, which have settings optimized for specific hairstyles, and Brazilian Heat® (“Brazilian Heat”) for full-service distributors.  Brazilian Heat 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.

On March 31, 2009, we acquired the Infusium brand of shampoos and conditioners from The Procter & Gamble Company to add to our domestic grooming, skin care and hair care product line offerings. The line includes Infusium Leave-in Treatments, which feature essential pro-vitamins and other therapeutic ingredients for repairing and preventing hair damage.  Infusium offers outstanding product performance, strong consumer loyalty, distinctive positioning and has established a trusted reputation with stylists and consumers.  In Latin America, several new Ammens® Brand (“Ammens”) product introductions continued to lift the brand’s sales despite weak economic conditions.  For instance, in Mexico, we introduced Ammens medicated Chamomile and Aloe Vera based body powders and in Venezuela and Peru, we introduced the Ammens line of liquid hand soaps.  On March 31, 2010, we also acquired the Pert Plus hair care and Sure anti-perspirant and deodorant businesses from Innovative Brands, LLC.

Housewares:   Our OXO brand’s development pipeline continues to be strong, supporting OXO’s leadership in kitchen and household products. In fiscal 2010, we launched over 100 new items and currently have over 125 items scheduled for launch in fiscal 2011. Each was developed based on the principles of Universal Design, a philosophy of creating products that are easy to use for the widest possible spectrum of users.  This user-focused design has produced a portfolio of relevant, lasting products that have proven to be resistant to the impact of recessions.  During fiscal 2010, we expanded upon the success of the OXO POP line of modular dry food storage containers and launched the OXO TOP line of airtight wet food storage containers.

While OXO has been creating products for a broad base of users for 20 years, and we plan to expand our user base further to include young toddlers with the development of our OXO Tot™ line of products.  The OXO Tot™ products are developed to grow with a child for use over several years or stages of development.  All products are designed to be intuitive, easy to use and include features that improve performance.   We are targeting these products to be appealing aesthetically to children as well as their parents, many of whom are already loyal OXO consumers.  The suite of products, covering feeding, cleaning and bathing babies and toddlers, is scheduled to be available in the second half of fiscal 2011.   We also plan to launch our Good Grips® line of interlocking deep drawer plastic storage bins that we anticipate will begin to ship during the second half of fiscal 2011.

With each of these programs, OXO continues to expand its reach, bringing Universal Design and its mission to providing innovative consumer products that make everyday living easier into every area of the home.

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 74 countries throughout the world.  Sales within the United States comprised 79, 76 and 78 percent of total net sales revenue in fiscal 2010, 2009 and 2008, 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.

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

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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®, Scholl®, Bed Head®, Veet®, Toni and Guy® 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.

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 2010, 2009 and 2008, cost of goods sold manufactured by vendors in the Far East comprised approximately 85, 88 and 88 percent, respectively, of total consolidated cost of goods sold.  Our mix between Far East and domestic manufacturing changed in fiscal 2010 as grooming, skin care and hair care solutions became a larger part of our business.

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 U.S. Dollars.  Because of our long lead times, from time to time, we must discount end of model product or sell it through closeout sales channels to eliminate excess inventories.

In total, we occupy approximately 1,960,000 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, grooming, skin care and hair care inventories into our Southaven, Mississippi distribution center. Approximately 72 percent of our consolidated gross sales volume shipped from this facility in fiscal 2010.  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, Peru, Venezuela, or directly to customers. We then ship products stored at these international distribution centers to distributors or retailers.

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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®, Scholl®, Bed Head®, Toni&Guy®, Sea Breeze® and Veet® 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.  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. These agreements have a remaining duration, including renewal terms, of approximately 53 years.

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. This agreement has a remaining duration, including renewal terms, of approximately 23 years.

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 and Canada.  The Sunbeam Products Inc. license is currently scheduled to expire on December 31, 2012.

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. These agreements have a remaining duration, including renewal terms, of approximately 10 years.

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.

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.

Veet®:  We license the right to sell women’s hair removal appliances in the United States, Canada, Mexico, Europe and the Middle East under this trademark pursuant to a license from Reckitt Benckiser Corporate Services Limited.  The license agreement for Europe and the Middle East is currently scheduled to expire on September 30, 2012 while the license agreement for United States, Canada and Mexico is currently scheduled to expire on December 31, 2013.

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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 affiliates) accounted for approximately 18, 17 and 19 percent of our net sales revenue in fiscal 2010, 2009 and 2008, respectively.   Sales to our second largest customer, Bed Bath and Beyond, Inc., all within the United States and Canada, accounted for approximately 10, 8 and 8 percent of our net sales revenue in fiscal 2010, 2009 and 2008, respectively.  No other customers accounted for ten percent or more of net sales revenue during those fiscal years.  Sales to our top five customers accounted for approximately 46, 43 and 44 percent in fiscal 2010, 2009 and 2008, 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.  Additionally, certain retailers 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), FHI Heat, Inc., Jamella Limited (GHD), The Cricket Company LLC, Turbo Ion, Inc. (Croc Hair Products), 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 Group, Unilever N.V., the Alberto-Culver Company, Colgate-Palmolive Company, Beirsdorf AG and Coty Inc.  In the Housewares segment, the competition is highly fragmented.  Our primary competitors in that segment include Lifetime Brands, Inc. (KitchenAid), Zyliss AG, Wilton Industries, Inc. (Copco), Simplehuman LLC,  Casabella Holdings LLC and Interdesign, Inc.  Some of these competitors have significantly greater financial and other resources than we do.

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SEASONALITY

Our business is somewhat seasonal. Net sales revenue in the third fiscal quarter accounted for approximately 29, 30 and 32 percent of fiscal 2010, 2009 and 2008 net sales revenue, respectively. Our lowest net sales revenue usually occurs in our first fiscal quarter, which accounted for approximately 22, 23 and 22 percent of fiscal 2010, 2009 and 2008 net sales revenue, respectively.  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.  These laws and regulations impose workplace standards and regulate the discharge of pollutants into the environment.  In addition, they establish various standards for the handling, generation, emission, release, discharge, treatment, storage and disposal of materials and substances including solid and hazardous wastes.

Many of the products we sell are subject to a number of product safety laws and regulations in various jurisdictions.  These laws and regulations specify the maximum allowable levels of certain materials that may be contained in our products, provide statutory prohibitions against misbranded and adulterated products, establish ingredients and manufacturing procedures for certain products, specify product safety testing requirements and set product identification and labeling requirements.

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 all applicable environmental laws and regulations.

EMPLOYEES

As of fiscal year end 2010, we employed 877 full-time employees in the United States, Canada, Macao, China, Japan, the United Kingdom, France, Peru, Venezuela, Chile, Costa Rica and Mexico of which 171 are marketing and sales employees, 237 are distribution employees, 41 are engineering and development employees, and 428 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 (19) to our consolidated financial statements contains geographic information concerning our net sales revenue 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 stock 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 72 percent of our consolidated gross sales volume shipped from this facility in fiscal 2010.  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 peak shipping periods, should we continue to grow our sales revenue either through organic growth or  acquisitions.  These and other factors described above could cause delays in the delivery of our products and increases in shipping and storage costs that could have a material and adverse effect on our business and operating results.

Our projections of product demand, sales and net income are highly subjective in nature and our future sales and net income could vary in a material amount from our projections.

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 net income.  Since we do not require long-term purchase commitments from our major customers and the customer order and ship process is very short, it is difficult for us to accurately predict the demand for many of our products, or the amount and timing of our future sales and related net income.  Our projections

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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 product demand and the timing of related sales includes significant subjective input, there is a risk that our future sales and net income 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 net sales revenue.  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 our largest customer accounted for approximately 18 percent of our net sales revenue in fiscal 2010. Sales to our second largest customer, all within the U.S. and Canada, accounted for approximately 10 percent of our net sales revenue in fiscal 2010.  While only two customers accounted for 10 percent or more of net sales revenue in fiscal 2010, our top five customers accounted for approximately 46 percent of fiscal 2010 net sales revenue.  We expect that a small group of customers will continue to account for a significant portion of our net sales revenue.  Although we have long-standing relationships with our major customers, we generally do not have written agreements that require these customers to buy from us or to purchase a minimum amount of our products.  A substantial decrease in sales to any of our major customers could have a material adverse effect on our financial condition and 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 (2) 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. Additionally, these mass merchandisers source and sell products under their own private label brands that compete with our Company’s products.  As mass merchandisers grow larger and become more sophisticated, they may demand lower pricing, special packaging, shorter lead times for the delivery of products, 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.

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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 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.

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.  Another recent development affecting most companies importing goods from China is that it has become increasingly difficult to secure cargo capacity on a timely basis and at contracted prices.  We believe this may signal a trend of higher ocean freight transportation prices in fiscal 2011.  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 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.  Many of our suppliers are currently dealing with labor shortages in China which may result in future 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 2010, the Chinese Renminbi remained relatively stable against the U.S. Dollar.  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 Chinese Renminbi appreciates with respect to the U.S. Dollar in the future, the Company may experience cost increases on such purchases, and this could adversely impact profitability. China has suggested that it may move its currency off a peg to the U.S. dollar, which could result in an appreciation move and increase our product costs over time.  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.

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High costs of raw materials and energy may result in increased cost of goods sold 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 goods sold 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 to our customers or passing on product 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 19 to 36 years).  At February 28, 2010, 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 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 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 there is 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 have resulted in the recording of unrealized losses on the ARS.  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 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), (10), (11) and (16) to our consolidated financial statements.

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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 their carrying value may not be recoverable.  Events and changes in circumstances that may indicate there is impairment and which may indicate interim impairment testing is necessary include, but are not limited to, strategic decisions to exit a business or dispose of an asset made in response to changes in economic, political and competitive conditions, the impact of the economic environment on our customer base and on broad market conditions that drive valuation considerations by market participants, our internal expectations with regard to future revenue growth and the assumptions we make when performing our impairment reviews, a significant decrease in the market price of our assets, a significant adverse change in the extent or manner in which our assets are used, a significant adverse change in legal factors or the business climate that could affect our assets, an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset, and significant changes in the cash flows associated with an asset.  We analyze these assets at the individual asset, reporting unit and Company levels. As a result of such circumstances, we may be required to record a significant charge to net income in our financial statements during the period in which any impairment of our goodwill, indefinite-lived 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.

For example, 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. As a result of our impairment testing as of February 28, 2009, we recorded 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 (4) 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.

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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 asset 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 during fiscal 2009 and 2010, could continue to have a material adverse effect on our business, financial condition and results of operations.

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.

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

Disruptions in national and international credit markets have led to limitations on credit availability, tighter lending standards, higher interest rates on consumer and business loans, and higher fees associated with obtaining and maintaining credit availability.  Additional and continued disruptions 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 (“RCA”) 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 (6) to the accompanying consolidated financial statements. The amendment to the RCA increased our borrowing costs and adjusted the limitations on our ability to incur additional debt.  In addition, in the event of new disruptions in the financial markets and an 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

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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.  While the Chinese Renminbi remained relatively stable against the U.S. Dollar during fiscal 2010, it appreciated significantly against the U.S. Dollar in fiscal 2009 and 2008 and some news reports suggest future appreciation is likely during fiscal 2011.  Although our purchases are in U.S. Dollars, if the Chinese Renminbi were to resume its rise against the U.S. Dollar, the costs of our products would likely rise over time 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.

Where operating conditions permit, we seek to 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 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 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 net income.  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 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.

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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 stock.

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 stock.  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.

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;

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·     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 stock;

·     repurchase our common stock;

·     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.

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 (“ERP”), which we originally implemented in September 2004. Most of our operations are dependent on this system. We continuously make adjustments to improve the effectiveness of the ERP and other peripheral information systems. Any failures or disruptions in the ERP and other information systems or any complications resulting from adjustments could cause interruption or loss of data in our information or logistical systems that could materially impact our ability to procure products from our factories and suppliers, transport them to our distribution centers, and store and deliver them to our customers on time and in the correct amounts. In addition, natural disasters or other extraordinary events may disrupt our information systems and other infrastructure, and our data recovery processes may not be sufficient to protect against loss. Furthermore, application program bugs, system conflict crashes, user error, data integrity issues, customer data conflicts and integration issues all pose significant risks.

We rely on certain outside vendors to assist us with implementation of, and enhancements to, our information systems 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, at the end of fiscal 2010, we have not completed the migration of our core software to newer versions because of the degree of customization it underwent upon its initial installation. This places our software vendor’s ability to continue to provide the appropriate level of support for these systems at risk.

These factors described above could cause significant disruptions to our business and have a material adverse effect on our financial condition and results of operations.

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Audits and related disputes with taxing authorities 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.  For more information about tax audits and related disputes, see Note (9) to the accompanying consolidated financial statements.

Potential changes in laws, including tax laws, and the costs and complexities of compliance with such laws could have an adverse impact on our business.

The impact of future legislation in the U.S. or abroad, including such things as climate change related legislation, tax legislation, regulations or treaties, including any that would affect the companies or subsidiaries that comprise our consolidated group is always uncertain. The U.S. Congress continues to consider certain proposed changes in the tax laws, and new energy and environmental legislation that, if enacted, may increase our costs of doing business.  Our ability to respond to such changes, the cost and complexity of compliance with new law changes, and their impact on our ability to operate economically and effectively in jurisdictions always presents a risk.

Under current tax law,  favorable tax treatment of our non-U.S. net income is dependent on our ability to avoid classification as a Controlled Foreign Corporation. Changes in the composition of our stock ownership could have an impact on our classification. If our classification were to change, it could have a material adverse effect on the largest U.S. shareholders and, in turn, on 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 stock 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.

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 31 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, 2010 is provided below:

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ITEM 3.  LEGAL PROCEEDINGS

We are involved in various 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.  RESERVED

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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 STOCK

Our common stock is 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 stock 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 stock with a par value of $0.10 per share is our only class of equity security outstanding at February 28, 2010.  As of May 10, 2010, there were approximately 260 holders of record of the Company’s common stock. 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 stock since inception.  Our current intention is to pay no cash dividends in fiscal 2011.  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

Under the latest program approved by our Board of Directors, as of February 28, 2010 we are authorized to purchase up to 1,280,650 shares of common stock in the open market or through private transactions.   For the fiscal years ended 2010, 2009 and 2008, we repurchased and retired 47,648, 574,365 and 1,095,392 shares of common stock at a total purchase price of $0.42, $7.42 and $26.00 million, and an average purchase price of $8.80, $12.91 and $23.74 per share, respectively.  In addition, during the fiscal quarters ended May 31, 2009 and November 30, 2009, our chief executive officer tendered certain shares of common stock as payment for the exercise price and related federal tax obligations arising from the exercise of options.   We accounted for this activity as a purchase and retirement of the shares.   The table below summarizes these option exercise transactions:

There was no repurchase activity for the last quarter of fiscal 2010.

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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, 2005. The Peer Group Index is the Dow Jones—U.S. Personal Products, Broad Market Cap, Yearly, and Total Return Index.  The comparisons in this table are required by the SEC and are not intended to forecast or be indicative of the possible future performance of our common stock.

COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
FOR HELEN OF TROY LIMITED, PEER GROUP INDEX AND NASDAQ
MARKET 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 income data for the years ended on the last day of February 2010, 2009 and 2008, and the selected consolidated balance sheet data as of the last day of February 2010 and 2009, have been derived from our audited consolidated financial statements included in this report.  The selected consolidated statements of  income data for the years ended on the last day of February 2007 and 2006, and the selected consolidated balance sheet data as of the last day of February 2008, 2007 and 2006, 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,

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ITEM 6.  SELECTED FINANCIAL DATA, CONTINUED

Last Day of February,

(1)  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.  In connection with the 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.

(2)  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 (9) to our consolidated financial statements for more information on our income taxes.

(3)  Fiscal year 2010 includes the results of operations of Infusium, which we acquired on March 31, 2009 for a cash purchase price of $60.00 million.  The acquisition was funded with cash.  At acquisition, we recorded $19.70 million of goodwill, $18.70 million of trademarks, $21.00 million for a customer list and $0.6 million of patent rights.

(4)  For the fiscal years ended 2010, 2009 and 2008, we repurchased and retired 1,485,757, 574,365 and 1,095,392 shares of common stock at a total purchase price of $30.57, $7.42 and $26.00 million, respectively.  No shares of common stock were repurchased during the fiscal years ended 2007 and 2006.

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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

In fiscal 2010, Helen of Troy confronted extraordinary global macroeconomic conditions which contracted consumer discretionary spending in the U.S. and internationally.  In the face of declining comparable store sales, particularly earlier in the year, many of our retail partners reduced both the number of stock keeping units (SKU’s) they carried and the number of days of on-hand inventory carried.  Although retail inventory levels appear to have stabilized, the economy has continued to negatively impact retail sales, primarily with respect to our personal care appliance product sales.  When consumers did spend, the general trend was to trade down to lower price points, especially within our appliance product group.  Another factor contributing to our appliance business results was the negative impact of a strengthening U.S. dollar versus most other currencies in the first and second quarters of fiscal 2010.  Generally, a stronger U.S. dollar means that foreign results translated into fewer U.S. dollars on a reported basis.  Sales declines in the core Personal Care business were offset with new sales from our recently acquired Ogilvie® (“Ogilvie”) line of home permanent and straightening products and Infusium line of shampoos and conditioners and continued organic growth in our Housewares segment.  The Housewares segment has proven to be much more resistant to the impacts of the recent economic downturn.

Although the global economy has shown some signs of improvement recently, we believe that many of our consumers still face difficult circumstances, which may not significantly change during fiscal 2011.  We expect that net sales revenue performance in many of our Personal Care segment’s product lines will likely lag pre-recession averages and be heavily dependent on real improvements in employment, housing markets, and consumers’ personal finances.

We prepared for and responded to these difficult circumstances with an intense, disciplined focus on creating operational efficiencies and improving our ability to execute against ever more challenging customer requirements.  We continue to leverage the investments we made in our information technology and distribution infrastructure and have implemented a number of cost-containment programs.  We also benefited from the impact on our cost of goods sold of commodity price decreases we received early during the fiscal year.  As a result, in a difficult year, we generated the second highest net income in our Company’s history.  During the next fiscal year, we will continue to focus on our initiatives.  Current significant initiatives include the integration of the Pert Plus hair care and Sure anti-perspirant and deodorant businesses acquired from Innovative Brands, LLC, further efficiency initiatives, and our commitment to consumer relevant product innovation and service delivery.

Helen of Troy continues to maintain a solid financial foundation, with no short term debt outstanding at the end of fiscal 2010, relatively modest long-term debt leverage and cash and cash equivalents totaling more than $110 million. This solid financial position and continued strong cash flow generation have provided us with the flexibility to make ongoing investments in our core business, while seeking new sales growth opportunities through selective acquisitions.

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Significant Developments and Events during Fiscal 2010

·                  Acquisition of Infusium: On March 31, 2009, we completed the acquisition of certain assets, trademarks, customer lists, distribution rights, patents, goodwill and formulas for Infusium hair care products from The Procter & Gamble Company for a cash purchase price of $60 million, which we paid with cash on hand.  Infusium 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. The acquisition was a significant addition to the Company’s Personal Care segment, yet required minimal additional staffing and infrastructure to integrate. We are marketing Infusium products in both retail and professional trade channels.  The fiscal year ended February 28, 2010 includes eleven months of Infusium net sales revenue totaling $34.19 million.  For further information regarding the acquisition, see Note (5) in the accompanying consolidated financial statements.

·                  Strategic Brand Licensing Agreements:  During the fiscal quarter ended May 31, 2009, we began earning royalties from strategic brand licensing agreements with Staples Inc. (“Staples”), the world’s largest office products company, and UCB S.A. (“UCB”), a global biopharmaceutical leader.  Staples now sells an exclusive assortment of more than 30 OXO branded office products.  UCB offers patients suffering from rheumatoid arthritis and related conditions an OXO branded syringe that is ergonomically designed to simplify self injection.   While the Staples and UCB royalty revenue streams are not yet significant, we believe they have attractive long term growth potential and will add value to OXO’s brand equity by extending its reach into new consumer categories.

·                  New Product Development and Innovation:  We are 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 an overall contraction in product development efforts would be a shortsighted strategy.  In our Personal Care segment, we introduced 255 new products in fiscal 2010 and expect to launch another 234 products for fiscal 2011 under such brand names as Revlon®, Vidal Sassoon®, Bed Head®, Pro Beauty Tools™, Hot Tools, Dr. Scholl’s®, Scholl®, Mega Hot®, Brazilian Heat, Gold ‘N Hot® and Veet®.  In our Housewares segment, we launched 107 new products in fiscal 2010 and we plan to launch 155 new products in fiscal 2011.  For additional information on these new products, please see Item 1., “Business – Products.”

·                  Sourcing Initiatives:  Throughout fiscal 2010, we continued with our efforts to streamline our sourcing operations and secure product cost reductions through both better component pricing and value engineering.  These efforts, in combination with an improvement in sales mix and selective price increases, contributed to an improvement of 2.1 percentage points in our gross profit margin to 43.1 percent in fiscal 2010, compared to 41.0 percent in fiscal 2009.

Significant Subsequent Developments in Fiscal 2011

·                  Acquisition of Pert Plus and Sure Brands:   On March 31, 2010, we completed the acquisition of certain assets and liabilities of the Pert Plus hair care and Sure anti-perspirant and deodorant businesses from Innovative Brands, LLC for a net cash purchase price of $69 million (subject to certain potential post acquisition-adjustments), which we paid with cash on hand.  Net assets acquired consist principally of accounts receivable, finished goods inventories, prepaid expenses, goodwill, patents, trademarks, tradenames, product design specifications, production know-how, certain fixed assets, distribution rights and customer lists, less accounts payable and certain other current liabilities.  Pert Plus enjoys a long history as a leading brand in the $2 billion U.S. shampoo category.  Sure is one of the leading brands in the $1.7 billion U.S. anti-perspirant and deodorant category. We will market Pert Plus and Sure products primarily into U.S. retail trade channels.

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Financial Recap of Fiscal 2010

·                  Consolidated net sales revenue increased 4.0 percent, or $24.88 million, to $647.63 million in fiscal 2010 compared to $622.75 million in fiscal 2009.  Personal Care segment consolidated net sales revenue increased 0.4 percent in fiscal 2010 when compared to fiscal 2009.  Housewares segment net sales revenue increased 13.1 percent in fiscal 2010 when compared to fiscal 2009. Our fiscal 2010 net sales revenue includes the unfavorable impact of a net foreign exchange loss of $6.26 million compared to fiscal 2009.

·                  Consolidated gross profit margin as a percentage of net sales revenue increased 2.1 percentage points to 43.1 percent in fiscal 2010 compared to 41.0 percent in fiscal 2009.

·                  SG&A as a percentage of net sales revenue decreased 1.0 percentage point to 29.2 percent in fiscal 2010 compared to 30.2 percent in fiscal 2009.

·                  Interest expense was $10.31 million in fiscal 2010 compared to $13.69 million in fiscal 2009.  The decrease in interest expense was principally due to lower amounts of debt outstanding due to the scheduled retirement of $78.00 million of long-term debt during the year, when compared to fiscal 2009.

·                  Income tax expense was $8.29 million in fiscal 2010 compared to $5.33 million in fiscal 2009.  Fiscal 2009 income tax expense includes a benefit of $0.46 million due to a tax settlement with the IRS.

·                  Our net income of $71.82 million in fiscal 2010 compares to a net loss of $56.79 million in fiscal 2009.  In addition to an increase in current year net sales revenue and decreasing cost of goods sold, the year-over-year comparability of  our net income is affected by the 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 ‘n Things retail chain (“Linens”) bankruptcy, partially offset by the benefits of a tax settlement and gains on casualty insurance settlements.  Diluted earnings per share was $2.32 in fiscal 2010 compared to $1.59 in fiscal 2009, after excluding the significant items from fiscal 2009.  Income and related diluted earnings per share without significant items are 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 49.

Key Net Sales Revenue and Net Income Growth Drivers for Fiscal 2011

We plan to implement or continue the following specific initiatives for fiscal 2011 with the goal of achieving sales and net income growth:

·                  Continued growth and expansion of OXO product lines;

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

·                  Integration and development of our new Pert Plus and Sure product lines;

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

·                  Continued sourcing and product cost management initiatives to offset expected commodity and inbound transportation cost increases; and

·                  Continued implementation of productivity initiatives to reduce operating expenses.

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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 revenue, and as a year-over-year percentage change.