HELEN OF TROY LTD - FORM 10-Q

Attached files

file	filename
EX-32 - EX-32 - HELEN OF TROY LTD	a11-1872_1ex32.htm
EX-31.1 - EX-31.1 - HELEN OF TROY LTD	a11-1872_1ex31d1.htm
EX-31.2 - EX-31.2 - HELEN OF TROY LTD	a11-1872_1ex31d2.htm

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

FORM 10-Q

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

	For the quarterly period ended November 30, 2010

	or

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

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

Commission file number: 001-14669

HELEN OF TROY LIMITED

(Exact name of registrant as specified in its charter)

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

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

1 Helen of Troy Plaza
El Paso, Texas		79912
(Registrant’s United States Mailing Address)		(Zip Code)

(915) 225-8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer x

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

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

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at January 4, 2011
Common Shares, $0.10 par value, per share		30,714,023 shares

HELEN OF TROY LIMITED AND SUBSIDIARIES

INDEX – FORM 10-Q

			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Condensed Balance Sheets (unaudited)
		as of November 30, 2010 and February 28, 2010	3

		Consolidated Condensed Statements of Income (unaudited)
		for the Three- and Nine-Months Ended
		November 30, 2010 and November 30, 2009	4

		Consolidated Condensed Statements of Cash Flows (unaudited)
		for the Nine Months Ended
		November 30, 2010 and November 30, 2009	5

		Notes to Consolidated Condensed Financial Statements (unaudited)	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition
		and Results of Operations	25

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41

	Item 4.	Controls and Procedures	46

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	47

	Item 1A.	Risk Factors	47

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

	Item 6.	Exhibits	47

	Signatures		48

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (unaudited)

(in thousands, except shares and par value)

	November 30,			February 28,
	2010			2010

Assets
Asset, current:
Cash and cash equivalents	$	70,623		$	110,208
Derivative assets, current	556			795
Receivables - principally trade, less allowances of $3,834 and $3,346	152,414			109,722
Inventory, net	152,312			124,021
Prepaid expenses	4,337			2,485
Income taxes receivable	1,618			597
Deferred tax assets, net	11,936			11,526
Total assets, current	393,796			359,354

Property and equipment, net of accumulated depreciation of $63,400 and $58,464	78,991			82,113
Goodwill	201,542			185,937
Other intangible assets, net of accumulated amortization of $32,729 and $33,449	218,417			177,124
Other assets, net of accumulated amortization of $3,997 and $3,825	30,688			30,205
Total assets	$	923,434		$	834,733


Liabilities and Stockholders’ Equity
Liabilities, current:
Accounts payable, principally trade	$	39,210		$	35,005
Accrued expenses and other current liabilities	82,068			67,289
Long-term debt, current maturities	53,000			3,000
Total liabilities, current	174,278			105,294

Deferred compensation liability	4,110			3,758
Other liabilities, noncurrent	715			75
Deferred tax liabilities, net	1,441			1,202
Long-term debt, excluding current maturities	78,000			131,000
Liability for uncertain tax positions	1,326			2,562
Derivative liabilities, noncurrent	7,621			7,070
Total liabilities	267,491			250,961

Commitments and contingencies

Stockholders’ equity:
Cumulative preferred stock, non-voting, $1.00 par. Authorized 2,000,000 shares; none issued	-			-
Common stock, $0.10 par. Authorized 50,000,000 shares; 30,656,277 and 30,571,813 shares issued and outstanding	3,065			3,057
Additional paid in capital	125,393			120,761
Accumulated other comprehensive loss	(8,446		)	(8,574		)
Retained earnings	535,931			468,528
Total stockholders’ equity	655,943			583,772
Total liabilities and stockholders’ equity	$	923,434		$	834,733

See accompanying notes to consolidated condensed financial statements.

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Statements of Income (unaudited)

(in thousands, except per share data)

	Three Months Ended November 30,						Nine Months Ended November 30,
	2010			2009			2010			2009

Sales revenue, net	$	205,001		$	189,399		$	539,977		$	495,465
Cost of goods sold	112,256			105,877			294,529			284,540
Gross profit	92,745			83,522			245,448			210,925

Selling, general, and administrative expense	61,205			53,658			163,020			141,230
Operating income before impairment	31,540			29,864			82,428			69,695

Asset impairment charges	-			-			501			900
Operating income	31,540			29,864			81,927			68,795

Nonoperating income (expense), net	156			125			490			927
Interest expense	(2,081		)	(2,146		)	(6,377		)	(8,192		)
Income before income taxes	29,615			27,843			76,040			61,530

Income tax expense (benefit):
Current	2,191			2,589			7,365			3,887
Deferred	361			521			(248		)	2,490
Net income	$	27,063		$	24,733		$	68,923		$	55,153

Earnings per share:
Basic	$	0.88		$	0.81		$	2.25		$	1.83
Diluted	$	0.86		$	0.80		$	2.20		$	1.79

Weighted average shares of common stock used in computing net earnings per share:
Basic	30,644			30,357			30,640			30,110
Diluted	31,297			31,047			31,293			30,848

See accompanying notes to consolidated condensed financial statements.

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows (unaudited)

(in thousands)

	Nine Months Ended November 30,
	2010			2009

Net cash provided by operating activities:
Net income	$	68,923		$	55,153
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	12,415			11,436
Provision for doubtful receivables	69			577
Share-based compensation	1,547			1,264
Intangible asset impairment charges	501			900
Loss on the sale of property and equipment	50			33
Realized and unrealized gain on investments	-			(421		)
Deferred income taxes and tax credits	(324		)	2,427
Changes in operating assets and liabilities, net of effects of acquisition of businesses:
Receivables	(34,172		)	(41,860		)
Inventories	(23,404		)	40,023
Prepaid expenses	(1,460		)	(1,329		)
Other assets	(765		)	(397		)
Accounts payable	(901		)	3,789
Accrued expenses and other current liabilities	13,214			24,837
Accrued income taxes	(2,094		)	1,497
Net cash provided by operating activities	33,599			97,929

Net cash used in investing activities:
Capital, license, trademark, and other intangible expenditures	(3,032		)	(3,303		)
Proceeds from the sale of property and equipment	63			44
Proceeds from sale of investments	300			1,141
Payments to acquire businesses	(69,000		)	(60,000		)
Net cash used in investing activities	(71,669		)	(62,118		)

Net cash used in financing activities:
Repayment of long-term debt	(3,000		)	(78,000		)
Proceeds from exercise of stock options, employee stock purchases and excess tax benefits	3,284			6,059
Payment of tax obligations resulting from cashless option exercise	-			(7,166		)
Payments for repurchases of common stock	(1,799		)	(419		)
Net cash used in financing activities	(1,515		)	(79,526		)
Net decrease in cash and cash equivalents	(39,585		)	(43,715		)
Cash and cash equivalents, beginning balance	110,208			102,675
Cash and cash equivalents, ending balance	$	70,623		$	58,960

Supplemental cash flow information:
Interest paid	$	6,208		$	8,673
Income taxes paid, net of refunds	$	9,389		$	(2,194	)
Value of common stock received as exercise price of options	$	-		$	23,261

See accompanying notes to consolidated condensed financial statements.

HELEN OF TROY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)

November 30, 2010

Note 1 - Basis of Presentation

In our opinion, the accompanying consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly our consolidated financial position as of November 30, 2010 and February 28, 2010, and the results of our consolidated operations for the three- and nine-month periods ended November 30, 2010 and 2009. The same accounting policies are followed in preparing quarterly financial data as are followed in preparing annual data. These statements should be read in conjunction with the consolidated financial statements and the notes included in our latest annual report on Form 10-K for the fiscal year ended February 28, 2010, and our other reports on file with the Securities and Exchange Commission (“SEC”). In some cases, we have provided additional information for prior periods in the accompanying notes to consolidated condensed financial statements to conform to the current period’s presentation. In this report and the accompanying consolidated condensed financial statements and notes, unless the context suggests otherwise or otherwise indicated, references to “the Company,” “our Company,” “Helen of Troy,” “we,” “us” or “our” refer to Helen of Troy Limited and its subsidiaries. We refer to the Company’s common shares, par value $0.10 per share, as “common stock.”

Product and service names mentioned in this report are used for identification purposes only and may be protected by trademarks, trade names, services marks and/or other intellectual property rights of the Company and/or other parties in the United States and/or other jurisdictions. The absence of a specific attribution in connection with any such mark does not constitute a waiver of any such right. All trademarks, trade names, service marks and logos referenced herein belong to their respective companies.

Note 2 – New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”) or other standards setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company’s management believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position, results of operations and cash flows upon adoption.

Note 3 – Litigation

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

Note 4 – Earnings per Share

Basic earnings per share is computed based upon the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based upon the weighted average number of shares of common stock outstanding during the period plus the effect of dilutive securities. Our dilutive securities consist entirely of outstanding options for common stock that were “in-the-money,” meaning that the exercise price of the options was less than the average market price of our common stock during the period reported. “Out-of-the-money” options are outstanding options to purchase common stock that were excluded from the computation of earnings per share because the exercise price of the options was greater than the average market price of our common stock during the period reported. Thus, their effect would be antidilutive.

The effect of dilutive securities was approximately 652,600 and 653,900 shares of common stock for the three- and nine-month periods ended November 30, 2010, respectively, and 690,600 and 737,400 shares of common stock for the three- and nine-month periods ended November 30, 2009, respectively. Options for common stock that were antidilutive totaled approximately 527,700 and 620,500 for the three- and nine-month periods ended November 30, 2010, respectively, and 1,203,400 and 1,521,400 for the three- and nine-month periods ended November 30, 2009, respectively.

Note 5 – Comprehensive Income

The components of comprehensive income, net of tax, for the periods covered by this report are as follows:

COMPONENTS OF COMPREHENSIVE INCOME

(in thousands)

	Three Months Ended November 30,						Nine Months Ended November 30,
	2010			2009			2010			2009

Net income	$	27,063		$	24,733		$	68,923		$	55,153
Other comprehensive income (loss), net of tax:
Cash flow hedges - interest rate swaps, net of tax (1)	860			(828		)	118			355
Cash flow hedges - foreign currency, net of tax (2)	(412		)	66			17			(801		)
Unrealized gain (loss) - auction rate securities, net of tax (3)	(4		)	(59		)	(7		)	311
Comprehensive income, net of tax	$	27,507		$	23,912		$	69,051		$	55,018

The components of accumulated other comprehensive loss, net of tax, for the periods covered by our consolidated condensed balance sheets are as follows:

COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS

(in thousands)

	November 30,			February 28,
	2010			2010

Unrealized holding losses on cash flow hedges - interest rate swaps, net of tax (1)	$	(7,816	)	$	(7,934	)
Unrealized holding gains on cash flow hedges - foreign currency, net of tax (2)	609			592
Temporary impairment loss on auction rate securities, net of tax (3)	(1,239		)	(1,232		)
Total accumulated other comprehensive loss	$	(8,446	)	$	(8,574	)

(1)	The change in unrealized loss on interest rate swap cash flow hedges is recorded net of tax expense (benefits) of $0.44 and $0.06 million for the three- and nine-month periods ended November 30, 2010, respectively, and ($0.43) and $0.18 million for the three- and nine-month periods ended November 30, 2009, respectively. The unrealized holding loss on interest rate swap cash flow hedges included in accumulated other comprehensive loss includes net deferred tax benefits of $4.03 and $4.09 million at November 30, 2010 and February 28, 2010, respectively.

(2)	The change in unrealized gain (loss) on foreign currency cash flow and ordinary hedges is recorded net of tax expense (benefits) of ($0.21) and $0.02 million for the three- and nine-month periods ended November 30, 2010, respectively, and $0.03 and ($0.34) million for the three- and nine-month periods ended November 30, 2009, respectively. The unrealized holding gain on foreign currency cash flow hedges included in accumulated other comprehensive loss, includes net deferred tax expense of $0.26 and $0.24 million at November 30, 2010 and February 28, 2010, respectively.

(3)	The change in temporary impairment loss on auction rate securities is recorded net of tax expense (benefits) of $0.00 for both the three- and nine-month periods ended November 30, 2010, and ($0.03) and $0.16 million for the three- and nine-month periods ended November 30, 2009, respectively. The temporary impairment loss on auction rate securities included in accumulated other comprehensive loss, includes net deferred tax benefits of ($0.64) and ($0.63) million at November 30, 2010 and February 28, 2010, respectively.

Note 6 – Segment Information

In the tables that follow, we present 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 styling products, men’s fragrances, men’s and women’s antiperspirants and 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 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, rechargeable lighting products and baby-toddler products. We use third-party manufacturers to produce our goods. 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 through beauty supply retailers and wholesalers.

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

THREE MONTHS ENDED NOVEMBER 30, 2010 AND 2009

(in thousands)

	Personal
November 30, 2010	Care		Housewares		Total

Sales revenue, net	$	146,506	$	58,495	$	205,001
Operating income before impairment	18,816		12,724		31,540
Asset impairment charges	-		-		-
Operating income	18,816		12,724		31,540
Capital, license, trademark and other intangible expenditures	299		734		1,033
Depreciation and amortization	2,674		1,435		4,109

	Personal
November 30, 2009	Care		Housewares		Total

Sales revenue, net	$	134,206	$	55,193	$	189,399
Operating income before impairment	16,591		13,273		29,864
Asset impairment charges	-		-		-
Operating income	16,591		13,273		29,864
Capital, license, trademark and other intangible expenditures	982		740		1,722
Depreciation and amortization	2,131		1,372		3,503

NINE MONTHS ENDED NOVEMBER 30, 2010 AND 2009

(in thousands)

	Personal
November 30, 2010	Care		Housewares		Total

Sales revenue, net	$	377,853	$	162,124	$	539,977
Operating income before impairment	47,142		35,286		82,428
Asset impairment charges	501		-		501
Operating income	46,641		35,286		81,927
Capital, license, trademark and other intangible expenditures	1,220		1,812		3,032
Depreciation and amortization	7,904		4,511		12,415

	Personal
November 30, 2009	Care		Housewares		Total

Sales revenue, net	$	347,018	$	148,447	$	495,465
Operating income before impairment	36,503		33,192		69,695
Asset impairment charges	900		-		900
Operating income	35,603		33,192		68,795
Capital, license, trademark and other intangible expenditures	1,264		2,039		3,303
Depreciation and amortization	7,329		4,107		11,436

We compute operating income for each segment based on net sales revenue, less cost of goods sold, selling, general and administrative expense (“SG&A”), and any impairment charges associated with the segment. The SG&A used to compute each segment’s operating income includes SG&A directly associated with the segment, plus overhead expenses that are allocable to the segment. We do not allocate nonoperating income (expense), interest expense or income taxes to operating segments. The following tables contain identifiable assets allocable to each segment for the periods covered by our consolidated condensed balance sheets:

IDENTIFIABLE ASSETS AT NOVEMBER 30, 2010 AND FEBRUARY 28, 2010

(in thousands)

	Personal
	Care		Housewares		Total

November 30, 2010	$	558,058	$	365,376	$	923,434
February 28, 2010	483,106		351,627		834,733

Note 7 – Property and Equipment

A summary of property and equipment is as follows:

PROPERTY AND EQUIPMENT

(in thousands)

	Estimated
	Useful Lives	November 30,			February 28,
	(Years)	2010			2010

Land	-	$	9,073		$	9,073
Building and improvements	10 - 40	65,059			65,117
Computer and other equipment	3 - 10	46,529			46,088
Tools, dies and molds	1 - 3	11,489			9,573
Transportation equipment	3 - 5	153			240
Furniture and fixtures	5 - 15	8,601			8,532
Construction in process	-	1,487			1,954
Property and equipment, gross		142,391			140,577
Less accumulated depreciation		(63,400		)	(58,464		)
Property and equipment, net		$	78,991		$	82,113

Depreciation expense was $1.97 and $6.07 million for the three- and nine-month periods ended November 30, 2010, respectively, and $1.95 and $6.89 million for the three- and nine-month periods ended November 30, 2009, respectively.

We lease certain facilities, equipment and vehicles under operating leases, which expire at various dates through fiscal 2019. Certain leases contain escalation clauses and renewal or purchase options. Rent expense related to our operating leases was $0.60 and $1.62 million for the three- and nine-month periods ended November 30, 2010, respectively, and $0.56 and $1.71 million for the three- and nine-month periods ended November 30, 2009, respectively.

Note 8 – Intangible Assets

Annual Impairment Testing in the First Quarter of Fiscal 2011 - The Company performed its annual evaluation of goodwill and indefinite-lived intangible assets for impairment during the first quarter of fiscal 2011. As a result of its testing, the Company recorded a non-cash impairment charge of $0.50 million ($0.49 million after tax). The charge was related to an indefinite-lived trademark in our Personal Care segment that was written down to its fair value, determined on the basis of future discounted cash flows using the relief from royalty method.

Annual Impairment Testing in the First Quarter of Fiscal 2010 - The Company performed its annual evaluation of goodwill and indefinite-lived intangible assets for impairment during the first quarter of fiscal 2010. As a result of its testing, the Company concluded no further impairments had occurred since the fourth quarter of fiscal 2009, when interim testing was performed and a total non-cash impairment charge of $99.51 million ($99.06 million after tax) was recorded.

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

GOODWILL AND INTANGIBLE ASSETS

(in thousands)


	November 30, 2010											February 28, 2010
		Gross		Cumulative									Gross		Cumulative
		Carrying		Goodwill			Accumulated			Net Book			Carrying		Goodwill			Accumulated			Net Book
Description / Life		Amount		Impairments			Amortization			Value			Amount		Impairments			Amortization			Value

Personal Care:
Goodwill		$	81,901	$	(46,490	)	$	-		$	35,411		$	66,296	$	(46,490	)	$	-		$	19,806
Trademarks - indefinite		76,203					-			76,203			53,054		-			-			53,054
Trademarks - finite		338		-			(249		)	89			338		-			(245		)	93
Licenses - indefinite		10,300		-			-			10,300			10,300		-			-			10,300
Licenses - finite		19,564		-			(15,314		)	4,250			24,196		-			(19,495		)	4,701
Other intangibles - finite		49,401		-			(7,560		)	41,841			26,286		-			(4,049		)	22,237
Total Personal Care		237,707		(46,490		)	(23,123		)	168,094			180,470		(46,490		)	(23,789		)	110,191

Housewares:
Goodwill		166,131		-			-			166,131			166,131		-			-			166,131
Trademarks - indefinite		75,554		-			-			75,554			75,554		-			-			75,554
Other intangibles - finite		19,786		-			(9,606		)	10,180			20,845		-			(9,660		)	11,185
Total Housewares		261,471		-			(9,606		)	251,865			262,530		-			(9,660		)	252,870

Total		$	499,178	$	(46,490	)	$	(32,729	)	$	419,959		$	443,000	$	(46,490	)	$	(33,449	)	$	363,061

Intangible asset activity for the nine month period ended November 30, 2010 was as follows:

· Personal Care segment: During the three month period ended May 31, 2010, we recorded $63.13 million of intangible assets, net of certain acquisition adjustments, in connection with our acquisition of the Pert Plus and Sure products business (as discussed further in Note 9), and a non-cash impairment charge of $0.50 million against the carrying value of an indefinite-lived trademark. During the three- and nine-month periods ended November 30, 2010, we recorded $0.00 and $0.24 million, respectively, in acquisition adjustment reductions related to the Pert Plus and Sure products business. In addition, during nine month period ended November 30, 2010, we recorded adjustments to remove certain fully amortized license agreements and other intangibles with a combined gross carrying value of $5.39 million.

· Housewares segment: During the three- and nine-month periods ended November 30, 2010, we recorded adjustments to remove certain fully amortized patents having a gross carrying value of $0.05 and $0.91 million, respectively. During the three- and nine-month periods ended November 30, 2010, we recorded

adjustments to remove certain fully amortized other intangibles with a gross carrying value of $0.00 and $0.59 million, respectively. We also recorded new patent development costs of $0.15 and $0.45 million for the three- and nine-month periods ended November 30, 2010, respectively.

The following table summarizes the amortization expense attributable to intangible assets for the three- and nine-month periods ended November 30, 2010 and 2009, as well as our estimated amortization expense for the fiscal years ending the last day of each February 2011 through 2016.

AMORTIZATION OF INTANGIBLE ASSETS *(in thousands)*
Aggregate Amortization Expense For the three months ended
November 30, 2010	$	2,086
November 30, 2009	$	1,496

Aggregate Amortization Expense
For the nine months ended
November 30, 2010	$	6,177
November 30, 2009	$	4,281

Estimated Amortization Expense
For the fiscal years ended
February 2011	$	8,195
February 2012	$	8,053
February 2013	$	8,020
February 2014	$	7,555
February 2015	$	7,479
February 2016	$	7,295

NOTE 9 - Acquisitions

Pert Plus and Sure Acquisition - On March 31, 2010, we completed the acquisition of certain assets and liabilities of the Pert Plus hair care and Sure antiperspirant and deodorant businesses from Innovative Brands, LLC for a net purchase price of $69.00 million, 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 certain product related operating accruals and other current liabilities. We market Pert Plus and Sure products primarily into retail trade channels.

We have accounted for the acquisition as the purchase of a business and have recorded the excess purchase price as goodwill. All of the goodwill is held in jurisdictions that do not allow deductions for tax purposes. We have completed our analysis of the economic lives of all the assets acquired and determined the appropriate allocation of the initial purchase price. We assigned the acquired trademarks indefinite economic lives and will amortize the customer list and patent rights over expected average lives of approximately 8.2 and 7.5 years, respectively. For the customer list, we used our historical attrition rates to assign an expected life. For patent rights, we used the underlying non-renewable term of a royalty free license we acquired for the use of patented formulas in certain Pert Plus and Sure products. The trademarks acquired are considered to have indefinite lives that are not subject to amortization. The goodwill arising from the Pert Plus and Sure acquisition consists largely of the distribution network, marketing synergies and economies of scale expected to occur from the addition of the new product line.

The following schedule presents the acquisition date fair value of the net assets of Pert Plus and Sure:

PERT PLUS AND SURE - NET ASSETS ACQUIRED ON MARCH 31, 2010 *(in thousands)*
Receivables	$	8,589
Inventory	4,887
Prepaid expenses	392
Tools, dies and molds	730
Goodwill	15,845
Trademarks	23,650
Patent rights	2,600
Customer list	21,275
Total assets acquired	77,968
Less: Accounts payable and other current liabilities assumed or recorded at acquisition	(8,968		)
Net assets acquired	$	69,000

The fair values of the intangible assets acquired were estimated by applying income and market approaches. These fair value measurements were based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements as defined under U.S. generally accepted accounting principles (“GAAP”). Key assumptions included various discount rates based upon a 15.8 percent weighted average cost of capital, royalty rates of 5 percent used in the determination of trademark values and customer attrition rates of 11.5 percent per year used in the determination of customer list values.

The impact of the Pert Plus and Sure acquisition on the Company’s consolidated condensed statements of income from the acquisition date through the three- and nine-month periods ended November 30, 2010 was as follows:

PERT PLUS AND SURE - IMPACT ON CONSOLIDATED CONDENSED STATEMENTS OF INCOME March 31, 2010 (Acquisition Date) through November 30, 2010 *(in thousands, except per share data)*
	Periods Ended November 30, 2010
	Three Months		Nine Months

Sales revenue, net	$	17,593	$	48,422
Net income	3,469		9,504

Earning per share impact
Basic	$	0.11	$	0.31
Diluted	$	0.11	$	0.30

The following supplemental pro forma information presents the Company’s financial results as if the Pert Plus and Sure acquisition had occurred as of the beginning of each of the fiscal periods presented. This supplemental pro forma information has been prepared for comparative purposes and would not necessarily indicate what may have occurred if the acquisition had been completed on March 1, 2010 or 2009, and this information is not intended to be indicative of future results.

PERT PLUS AND SURE - PRO FORMA IMPACT ON CONSOLIDATED CONDENSED STATEMENTS OF INCOME As if the Acquisition Had Been Completed at the Beginning of Each Period *(in thousands, except per share data)*
	Three Months Ended November 30,					Nine Months Ended November 30,
		2010		2009			2010		2009

Sales revenue, net		$	205,001	$	206,061		$	545,608	$	549,400
Net income		27,063		28,252			70,020		66,477

Earning per share impact
Basic		$	0.88	$	0.93		$	2.29	$	2.21
Diluted		$	0.86	$	0.91		$	2.24	$	2.15

Infusium 23 Acquisition - On March 31, 2009, we completed the acquisition of certain assets, trademarks, customer lists, distribution rights, patents, goodwill and formulas for Infusium 23 (“Infusium”) hair care products from The Procter & Gamble Company for a purchase price of $60 million, which we paid with cash on hand. We accounted for the acquisition as the purchase of a business and recorded the excess purchase price as goodwill. All of this goodwill is held in jurisdictions that do not allow deductions for tax purposes. We completed our analysis of the economic lives of all the assets acquired and determined the appropriate allocation of the initial purchase price. We assigned the acquired trademarks indefinite economic lives and will amortize the customer list and patent rights over expected lives of 9.0 and 7.5 years, respectively. For the customer list, we used our historical attrition rates to assign an expected life. For patent rights, we used the underlying non-renewable term of a royalty free license we acquired for the use of patented formulas in certain Infusium products. The trademarks acquired are considered to have indefinite lives that are not subject to amortization. The goodwill arising from the Infusium acquisition consists largely of the distribution network, marketing synergies and economies of scale expected to occur from the addition of the new product line. The following schedule presents the acquisition date fair value of the net assets of Infusium:

INFUSIUM 23 - BRAND ASSETS ACQUIRED ON MARCH 31, 2009 *(in thousands)*
Goodwill	$	19,700
Trademarks	18,700
Patent rights	600
Customer list	21,000
Total assets acquired	$	60,000

Note 10 – Short Term Debt

In June 2004, we entered into a Revolving Line of Credit Agreement (the “2004 RCA”) with Bank of America, N.A. that provides for a total revolving commitment of up to $50 million. Borrowings under the 2004 RCA accrued interest at a “Base Rate” plus a margin of 0.25 to 0.75 percent based on the Leverage Ratio (as defined in the 2004 RCA) at the time of borrowing. The base rate is equal to the highest of the Federal Funds Rate (as defined in the 2004 RCA) plus 0.50 percent, Bank of America’s prime rate, or the one month LIBOR rate plus 1 percent. Alternatively, if we elected, borrowings accrued interest based on the respective 1, 2, 3, or 6-month LIBOR rate plus a margin of 1.25 to 1.75 percent based upon the Leverage Ratio at the time of the borrowing. We incured loan commitment fees at a rate of 0.20 percent per annum on the unused balance of the 2004 RCA and letter of credit fees at a rate of 1.25 percent per annum on the face value of any letter of credit. Outstanding letters of credit reduced the borrowing availability dollar for dollar. As of November 30, 2010, there were no revolving loans and $0.20 million of open letters of credit outstanding against this facility.

The 2004 RCA contained certain covenants and formulas that limited our outstanding indebtedness from all sources (less unrestricted cash on hand in excess of $15 million) to no more than 3.0 times the latest twelve months’ trailing EBITDA. The 2004 RCA was unconditionally guaranteed, on a joint and several basis, by the parent company, Helen of Troy Limited and certain subsidiaries. As with our other debt agreements, the 2004 RCA restricted us, among other things, from incurring liens on any of our properties, except under certain conditions, and limited our ability to repurchase shares of our common stock. As of November 30, 2010, we were in compliance with the terms of the 2004 RCA and our other debt agreements.

On December 31, 2010, we terminated the 2004 RCA and, in connection with our acquisition of Kaz, Inc. (“Kaz”), we entered into a new Revolving Line of Credit Agreement (the “2010 RCA”) with Bank of America, N.A. We also entered into a Term Loan Credit Agreement with Bank of America, N.A. on December 30, 2010. For further information about these subsequent events, see Note 18.

Note 11 – Accrued Expenses and Current Liabilities

A summary of accrued expenses and other current liabilities is as follows:

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

(in thousands)

	November 30,		February 28,
	2010		2010

Accrued defectives, discounts and allowances	$	26,579	$	20,758
Accrued compensation	16,802		17,888
Accrued advertising	12,322		6,862
Accrued interest	1,337		1,339
Accrued royalties	4,716		3,612
Accrued professional fees	1,486		730
Accrued benefits and payroll taxes	1,696		1,170
Accrued freight	2,545		1,398
Accrued property, sales and other taxes	3,959		879
Derivative liabilities, current	4,222		4,951
Other	6,404		7,702
Total accrued expenses and other current liabilities	$	82,068	$	67,289

Note 12 – Income Taxes

United States Income Taxes - In April 2010, the IRS concluded its audit of the Company’s 2007 and 2008 tax returns. No adjustments were made to either year’s tax returns.

Income Tax Provisions - We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments must be used in the calculation of certain tax assets and liabilities because of differences in the timing of recognition of revenue and expense for tax and financial statement purposes. We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. As changes occur in our assessments regarding our ability to recover our deferred tax assets, our tax provision is increased in any period in which we determine that the recovery is not probable.

In 1994, we engaged in a corporate restructuring that, among other things, resulted in a greater portion of our income not being subject to taxation in the U.S. If such income were subject to U.S. federal income taxes, our effective income tax rate would increase materially. Future actions by taxing authorities may result in tax liabilities that are significantly higher than the reserves established which could have a material adverse effect on our consolidated results of operations or cash flows. Additionally, the U.S. government is currently considering several alternative proposed changes in the tax law that, if enacted, could increase our overall effective tax rate.

Note 13 – Long-Term Debt

A summary of long-term debt is as follows:

LONG-TERM DEBT

(dollars in thousands)

Original

Interest

November 30,

February 28,

Borrowed

Rates

Matures

2010

2010

$15 million unsecured Senior Note payable at a fixed interest rate of 7.24%. Interest payable quarterly. Annual principal payments of $3 million began in July 2008.

07/97

7.24%

07/12

6,000

9,000

$50 million unsecured floating interest rate 7 year Senior Notes. Interest set and payable quarterly at three-month LIBOR plus 85 basis points. Principal is due at maturity. Notes can be prepaid without penalty. (1)

06/04

5.89%

06/11

50,000

50,000

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

06/04

6.01%

06/14

75,000

75,000

Total long-term debt

131,000

134,000

Less current maturities of long-term debt

(53,000

)

(3,000

)

Long-term debt, excluding current maturities

78,000

131,000

(1) Floating interest rates have been hedged with interest rate swaps to effectively fix interest rates. Additional information regarding these swaps is provided in Note 15.

All of our long-term debt is unconditionally guaranteed by the parent company, Helen of Troy Limited and/or certain subsidiaries on a joint and several basis. Our debt agreements require the maintenance of certain maximum debt leverage and interest coverage ratios, specify minimum consolidated net worth levels and contain other customary covenants. Additionally, among other things, our debt agreements restrict us from incurring liens

on any of our properties, except under certain conditions, and limit our ability to repurchase our common stock. As of November 30, 2010, we were in compliance with the terms of these agreements.

The following table contains a summary of the components of our interest expense for the periods covered by our consolidated condensed statements of income:

INTEREST EXPENSE

(in thousands)

	Three Months Ended November 30,				Nine Months Ended November 30,
	2010		2009		2010		2009

Interest and commitment fees	$	534	$	601	$	1,704	$	2,917
Deferred finance costs	57		61		171		272
Interest rate swap settlements, net	1,490		1,484		4,502		5,003
Total interest expense	$	2,081	$	2,146	$	6,377	$	8,192

Note 14 – Fair Value

The following tables present the fair value hierarchy of our financial assets and liabilities carried at fair value or measured for disclosure purposes on a recurring basis as of November 30, 2010 and February 28, 2010:

FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES

(in thousands)

Quoted Prices in

Significant Other

Significant

Active Markets

Observable

Unobservable

Fair Values at

for Identical Assets

Market Inputs

Inputs

Description

November 30, 2010

(Level 1)

(Level 2)

(Level 3)

Assets:

Money market accounts

15,852

Commercial paper

8,640

Auction rate securities

20,223

Foreign currency contracts

755

Total assets

45,470

24,492

755

20,223

Liabilities:

Long-term debt - fixed rate (1)

6,412

Long-term debt - floating rate (1)

125,000

Interest rate swaps

11,843

Total liabilities

143,255

			Quoted Prices in		Significant Other		Significant
			Active Markets		Observable		Unobservable
	Fair Values at		for Identical Assets		Market Inputs		Inputs
Description	February 28, 2010		(Level 1)		(Level 2)		(Level 3)

Assets:
Money market accounts	$	14,099	$	14,099	$	-	$	-
Commercial paper	88,822		88,822		-		-
Auction rate securities	20,534		-		-		20,534
Foreign currency contracts	795		-		795		-
Total assets	$	124,250	$	102,921	$	795	$	20,534


Liabilities:
Long-term debt - fixed rate (1)	$	9,600	$	-	$	9,600	$	-
Long-term debt - floating rate (1)	125,000		-		125,000		-
Interest rate swaps	12,021		-		12,021		-
Total liabilities	$	146,621	$	-	$	146,621	$	-

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

Money market accounts and commercial paper are included in cash and cash equivalents in the accompanying consolidated condensed balance sheets and are classified as Level 1 assets.

We classify our auction rate securities (“ARS”) as Level 3 assets because we determine their estimated fair values with discounted cash flow models using the methodology and assumptions described in Note 10 to the consolidated financial statements contained in our latest annual report on Form 10-K.

We classify our fixed and floating rate debt as Level 2 liabilities because the estimation of the fair market value of debt requires the use of a discount rate based upon current market rates of interest for debt with comparable remaining terms. Such comparable rates are considered significant other observable market inputs. The fair market value of the fixed rate debt at November 30, 2010 was computed using a discounted cash flow analysis and discount rate of 1.85 percent. All other long-term debt has floating interest rates and its book value approximates its fair value as of the reporting date.

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

The Company’s other non-financial assets include goodwill and other intangible assets, which we classify as Level 3 assets. These assets are measured at fair value on a nonrecurring basis as part of the Company’s impairment assessments and as circumstances require.

The table below presents a reconciliation of our ARS measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three- and nine-month periods ended November 30, 2010:

FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS (Level 3)

(in thousands)

	Periods Ended November 30, 2010
	Three Months			Nine Months

Balance at beginning of period	$	20,330		$	20,534
Total gains (losses):
Included in other comprehensive income - unrealized	(7		)	(11		)
Sales at par	(100		)	(300		)
Balance at end of period	$	20,223		$	20,223

Cumulative unrealized losses relating to assets still held at the reporting date, net of taxes				$	(1,239	)

In connection with our annual impairment testing during the fiscal quarter ended May 31, 2010, we recorded a non-cash impairment charge of $0.50 million against the carrying value of indefinite-lived trademark in our Personal Care segment, which we classify as a nonrecurring Level 3 asset. The indefinite-lived trademark was written down to its fair value of $5.60 million, as determined on the basis of future discounted cash flows using the relief from royalty method.

Note 15 – Financial Instruments and Risk Management

Foreign currency risk - Our functional currency is the U.S. Dollar. By operating internationally, we are subject to foreign currency risk from transactions denominated in currencies other than the U.S. Dollar (“foreign currencies”). Such transactions include sales, certain inventory purchases and operating expenses. As a result of such transactions, portions of our cash, trade accounts receivable and trade accounts payable are denominated in foreign currencies. During the three- and nine-month periods ended November 30, 2010, approximately 16 and 13 percent, respectively, of our net sales revenue were in foreign currencies. During the three- and nine-month periods ended November 30, 2009, approximately 16 and 15 percent, respectively, of our net sales revenue were in foreign currencies. These sales were primarily denominated in British Pounds, Euros, Mexican Pesos, Canadian Dollars, Chilean Pesos, Peruvian Soles and Venezuelan Bolivares Fuertes. We make most of our inventory purchases from the Far East and use the U.S. Dollar for such purchases. In our consolidated condensed statements of income, exchange gains and losses resulting from the remeasurement of foreign taxes receivable, taxes payable,

deferred tax assets and deferred tax liabilities, are recognized in their respective income tax lines, and all other foreign exchange gains and losses are recognized in SG&A. For the three- and nine-month periods ended November 30, 2010, we recorded net foreign exchange gains (losses), including the impact of currency hedges, of $0.40 and $0.49 million, respectively, in SG&A and ($0.05) and $0.09 million, respectively, in income tax expense. For the three- and nine-month periods ended November 30, 2009, we recorded net foreign exchange gains (losses), including the impact of currency hedges, of $0.14 and $3.43 million, respectively, in SG&A and ($0.02) and $0.10 million, respectively, in income tax expense.

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

Venezuela has recently experienced currency instability driven by a highly inflationary economy, government restrictions on cash transfers out of the country and a recent devaluation. Our method of foreign currency translation has always required us to remeasure foreign monetary assets at the current exchange rates with all exchange gains or losses recognized in our income statement. The exchange rate we use to remeasure Venezuelan activity is currently the official exchange rate of 4.30 Bolivares Fuertes to $1.00. At November 30, 2010, the Company included in its consolidated condensed balance sheet $3.94 million in total assets and $3.27 million in net assets from its Venezuelan operations. Net assets are primarily working capital. It is unclear to us whether the current restrictions on transfers of cash out of Venezuela is other than temporary; however, we believe it appropriate to classify these assets and liabilities as current items in our consolidated condensed balance sheets since they support current operations within the country.

Interest rate risk – Interest on our long-term debt outstanding as of November 30, 2010 is both floating and fixed. Fixed rates are in place on $6 million of Senior Notes at 7.24 percent and floating rates are in place on $125 million of Senior Notes, which reset as described in Note 13, and have been effectively converted to fixed rate debt using interest rate swaps, as described below.

We manage our floating rate debt using interest rate swaps (the “swaps”). As of November 30, 2010, we had two swaps that converted an aggregate notional principal of $125 million from floating interest rate payments under our 7- and 10-year Senior Notes to fixed interest rate payments at 5.89 and 6.01 percent, respectively. In the swap transactions, we maintain two contracts to pay fixed rates of interest on an aggregate notional principal amount of $125 million at rates of 5.04 and 5.11 percent on our 7- and 10-year Senior Notes, respectively, while simultaneously receiving floating rate interest payments set at 0.29 percent as of November 30, 2010 on the same notional amounts. The fixed rate side of the swap will not change over the life of the swap. The floating rate payments are reset quarterly based on three month LIBOR. The resets are concurrent with the interest payments made on the underlying debt. Changes in the spread between the fixed rate payment side of the swap and the floating rate receipt side of the swap fully offset the change in any period of the underlying debt’s floating rate payments. These swaps are used to reduce the Company’s risk of increased interest costs; however, when interest rates drop significantly below the swap rates, we lose the benefit that our floating rate debt would provide, if not managed with swaps. The swaps are considered highly effective.

The following tables summarize the fair values of our various derivative instruments at November 30, 2010 and February 28, 2010:

FAIR VALUES OF DERIVATIVE INSTRUMENTS IN THE CONSOLIDATED BALANCE SHEETS

(in thousands)

November 30, 2010
Designated as hedging instruments	Hedge Type	Final Settlement Date	Notional Amount		Derivative Assets, Current		Derivative Assets, Noncurrent		Accrued Expenses and Other Current Liabilities		Derivative Liabilities, Noncurrent

Currency contracts - sell Pounds	Cash flow	2/2012	£	10,700	$	355	$	156	$	-	$	-
Currency contracts - sell Canadian	Cash flow	12/2011	$	8,000	80		43		-		-
Currency contracts - sell Euros	Cash flow	2/2012	€	7,000	121		-		-		-
Subtotal					556		199		-		-

Interest rate swaps	Cash flow	6/2014	$	125,000	-		-		4,222		7,621
Total fair value					$	556	$	199	$	4,222	$	7,621

February 28, 2010
Designated as hedging instruments	Hedge Type	Final Settlement Date	Notional Amount		Derivative Assets, Current		Derivative Assets, Noncurrent		Accrued Expenses and Other Current Liabilities		Derivative Liabilities, Noncurrent

Currency contracts - sell Pounds	Cash flow	2/2011	£	5,000	$	651	$	-	$	-	$	-
Currency contracts - sell Canadian	Cash flow	12/2010	$	6,000	144		-		-		-
Subtotal					795		-		-		-

Interest rate swaps	Cash flow	6/2014	$	125,000	-		-		4,951		7,070
Total fair value					$	795	$	-	$	4,951	$	7,070

The pre-tax effect of derivative instruments for the three- and nine-month periods ended November 30, 2010 and 2009 is as follows:

PRE TAX EFFECT OF DERIVATIVE INSTRUMENTS

(in thousands)

Three Months Ended November 30,

Gain \ (Loss)
Recognized in OCI
(effective portion)

Gain \ (Loss) Reclassified
from Accumulated Other
Comprehensive Loss into Income

Gain \ (Loss) Recognized
as Income (1)

2010

2009

HELEN OF TROY LTD - FORM 10-Q - January 10, 2011

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