HELEN OF TROY LTD - 10-Q Quarterly Report

Back to GetFilings.com

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, 2002

OR

[ ] 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.)

Clarendon 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)

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

As of January 10, 2002 there were 28,182,514 shares of Common Stock,
$.10 Par Value, outstanding.

HELEN OF TROY LIMITED AND SUBSIDIARIES

INDEX

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL INFORMATION

HELEN OF TROY LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except shares)

(Continued)

3

HELEN OF TROY LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except shares)

See accompanying notes to consolidated condensed financial statements.

4

HELEN OF TROY LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except shares and earnings per share)

See accompanying notes to consolidated condensed financial statements.

5

HELEN OF TROY LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)

(Continued)

6

HELEN OF TROY LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)

See accompanying notes to consolidated condensed financial statements.

7

HELEN OF TROY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)

8

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
November 30, 2002

Note 1- In the opinion of the Company, the accompanying consolidated
condensed financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to
present fairly its financial position as of November 30, 2002
and February 28, 2002 and the results of its operations for
the three-month and nine-month periods ended November 30, 2002
and 2001. While the Company believes that the disclosures
presented are adequate to make the information not misleading,
these statements should be read in conjunction with the
financial statements and the notes included in the Company's
latest annual report on Form 10-K.

Certain reclassifications were made to information for the
three-month and nine-month periods ended November 30, 2001 in
order to conform to the presentation for the three-month and
nine-month periods ended November 30, 2002.

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

Note 3 - Basic earnings per share is computed based upon the weighted
average number of common shares outstanding during the period.
Diluted earnings per share is computed based upon the weighted
average number of common shares plus the effects of dilutive
securities. The number of dilutive securities was 1,058,192
and 1,221,192 for the three months ended November 30, 2002 and
2001, respectively, and 1,319,889 and 987,946 for the nine
months ended November 30, 2002 and 2001, respectively. All
dilutive securities for the nine months ended November 30,
2002 and November 30, 2001 consisted of stock options issued
under the Company's stock option plans. Options to purchase
common stock that were outstanding but not included in the
computation of earnings per share because the exercise prices
of such options were greater than the average market prices of
the Company's common stock totaled 4,789,012 at November 30,
2002 and 3,221,662 at November 30, 2001.

Note 4 - On September 29, 1999, the Company's Board of Directors
approved a resolution authorizing the Company to purchase, in
open market or private transactions, up to 3,000,000 shares of
its common stock over a period extending to September 29,
2002. The Company purchased and retired a total of 1,342,341
of its shares under this resolution at a total cost of
$8,699,000. The Company did not purchase any of its shares
during the nine months ended November 30, 2002.

9

Note 5 - The following table contains segment information as of and for
the three-month and nine-month periods ended November 30, 2002
and November 30, 2001.

THREE MONTHS ENDED NOVEMBER 30, 2002 AND 2001
(in thousands)

NINE MONTHS ENDED NOVEMBER 30, 2002 AND 2001
(in thousands)

Identifiable assets at November 30, 2002 and February 28, 2002 were as
follows:

(in thousands)

10

The North American segment sells hair care appliances,
massagers, spa products, hairbrushes, combs, utility and
decorative hair accessories, hair styling liquids, and skin
care liquids and powders in the United States and Canada. The
International segment sells the same types of products in
countries outside the U.S. and Canada. Tactica sells a variety
of personal care and other consumer products directly to
consumers and to retailers.

Operating profit for each operating segment is computed based
on net sales, less cost of goods sold, less any selling,
general and administrative expenses associated with the
segment. The selling, general, and administrative expense
totals used to compute each segment's operating profit are
comprised of SG&A expense directly associated with those
segments, plus corporate overhead expenses that are allocable
to operating segments. Other items of income and expense,
including income taxes, are not allocated to operating
segments.

Note 6 - The Hong Kong Inland Revenue Department ("the IRD") has
assessed $6,564,000 in tax on certain profits of the Company's
foreign subsidiaries for the fiscal years 1995 through 1997.
Hong Kong taxes income earned from certain activities
conducted in Hong Kong. The Company is vigorously defending
its position that it conducted the activities that produced
the profits in question outside of Hong Kong. The Company also
asserts that it has complied with all applicable reporting and
tax payment obligations. If the IRD's position were to prevail
and if it were to assert the same position for years after
fiscal 1997, the resulting assessment could total $32,858,000
(U.S.) for the period from fiscal 1995 through the quarter
ended November 30, 2002.

Although the ultimate resolution of the IRD's claims cannot be
predicted with certainty, management believes that adequate
provision has been made in the consolidated condensed
financial statements for the resolution of the IRD's
assessments covering fiscal years 1995 through 1997 and for
potential future assessments relating to activity since fiscal
1997. Such provision is included in the Company's Consolidated
Condensed Balance Sheets as of November 30, 2002 and February
28, 2002 as part of the amounts identified as "Income taxes
payable."

Note 7 - Helen of Troy's consolidated results of operations for the
three-month and nine-month periods ended November 30, 2002 and
2001 include 100 percent of the net earnings and losses of
Tactica International, Inc. ("Tactica"), a subsidiary in which
Helen of Troy owns a 55 percent interest. At the time Helen of
Troy acquired this interest, Tactica reported an accumulated
net deficit. Because the minority interest portion of that
deficit was recorded as a reduction in Helen of Troy's
stockholders' equity, rather than as an asset, Helen of Troy
will include 100 percent of Tactica's net earnings and losses
in its consolidated income statement until Tactica's
accumulated deficit is eliminated. At November 30, 2002,
Tactica's accumulated deficit remaining to be eliminated was
approximately $144,000. Helen of Troy's 55 percent share of
this deficit totals $80,000 with the minority interest
totaling $64,000. If, in future periods, Tactica realizes net
earnings sufficient to eliminate the accumulated deficit, the

11

consolidated net earnings of the Company will include 55
percent, rather than 100 percent, of the amount Tactica earns
after the deficit's elimination.

Note 8 - In June 2001, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" (SFAS 142).
The Company adopted SFAS 142 on March 1, 2002. SFAS 142
eliminates the amortization of goodwill and other intangible
assets that have indefinite useful lives. Amortization will
continue to be recorded for intangible assets with definite
useful lives. SFAS 142 also requires at least an annual
impairment review of goodwill and other intangible assets. Any
asset deemed to be impaired is to be written down to its fair
value. The Company has reviewed its goodwill for impairment,
in accordance with SFAS 142. Based on the results of this
review, the Company concluded that its goodwill was not
impaired at March 1, 2002. Because it eliminates the
amortization of goodwill, SFAS 142 decreased the Company's
SG&A expense by approximately $474,000 and $1,526,000,
respectively, for the three-month and nine-month periods
ending November 30, 2002.

The following table presents the impact of SFAS 142 on net
earnings and earnings per share had the standard been in
effect for the three- and nine-month periods ended November
30, 2001:

12

The following table discloses information regarding the
carrying amounts and associated accumulated amortization for
intangible assets after the adoption of SFAS 142.

(a) November 30, 2002 gross and net carrying amounts include $ 35,920 of
intangible assets not subject to amortization.

The following table summarizes the amortization expense
attributable to intangible assets for the three- and
nine-month periods ended November 30, 2002 and 2001, as well
as estimated amortization expense for the fiscal years ending
in February 2003 through 2008.

(a) Totals for the three and nine months ending
November 30, 2001 include $474 and $1,526,
respectively, of goodwill amortization.

13

Note 9 - The following table is a summary by operating segment of the
Company's goodwill balances as of November 30, 2002 and
February 28, 2002.

Total Goodwill by Operating Segment (thousands)

Note 10 - In April 2001, the EITF reached a consensus on Issue No.
00-25, "Vendor Income Statement Characterization of
Consideration Paid to a Reseller of the Vendor's Products." In
November 2001, the issues discussed in EITF 00-25 were
codified with related issues into EITF 01-9, "Accounting for
Consideration Given By a Vendor To a Customer (Including a
Reseller of the Vendor's Products)," which addresses the
income statement classification of slotting fees, cooperative
advertising arrangements with trade customers and buydowns.
The consensus reached by the EITF requires that certain
customer promotional payments that were previously classified
as marketing expenses be classified as reductions of revenue.
The Company adopted the consensus on March 1, 2002. Prior to
the adoption of this consensus, the Company classified certain
of these payments as selling, general, and administrative
expenses in its Consolidated Statement of Income. The adoption
of EITF 01-9 reduced net sales, gross profit and selling,
general, and administrative expenses by $512,000 and $836,000
for the three-month periods ended November 30, 2002 and
November 30, 2001, respectively. Similar reductions totaled
$1,759,000 and $2,322,000 for the nine-month periods ending
November 30, 2002 and November 30, 2001, respectively. Because
adoption of EITF 01-9 resulted solely in reclassification
within the Consolidated Condensed Statement of Income, there
was no effect on the Company's financial condition, operating
income or net earnings for any of the periods presented.

14

The following tables present the impact of EITF 01-9 on net
sales and SG&A had the standard been in effect for the three-
and nine-month periods ending November 30, 2002 and 2001:

Note 11 - On October 21, 2002, the Company acquired from The Procter &
Gamble Company the right to sell products under six trade
names. The Company acquired all rights to the trademarks,
formulas, and production processes for four of the six trade
names, Ammens(R), Vitalis(R), Condition 3-in-1(R), and Final
Net(R). The Procter & Gamble Company assigned to the Company
its rights under licenses to sell products bearing the other
two trade names, Sea Breeze(R) and Vitapointe(R). The Sea
Breeze(R) license is perpetual. The Company is in the process
of completing its analysis of the economic lives of the trade
names acquired and is of the initial belief that these trade
names have indefinite economic lives. Therefore, the Company
did not record any amortization expense related to these trade
names. The Company will complete its analysis of the trade
names' values and economic lives during the three-month period
ending February 28, 2003. Depending on the results of this
analysis, the Company might, in future periods, record
amortization expense on one or more of the intangible assets
associated with the six trade names.

15

Note 12 - During September 2002, the Company signed amendments to
certain of its licenses to sell appliances and combs and hair
brushes in the United States and Canada. In connection with
such amendments, the Company prepaid $11,500,000 for minimum
royalties due under the agreements from the third quarter of
calendar 2002 through the fourth quarter of calendar 2005. The
Company obtained a discount on the future royalties in
exchange for its prepayment. The Company remains obligated to
pay any earned royalties that exceed the minimum royalties for
those periods.

Note 13 - During the three months ended November 30, 2002, the Company
entered into a nonmonetary transaction in which it exchanged
inventory with a net book value of approximately $2,400,000
for advertising credits. As a result of this transaction, the
Company recorded both sales and cost of goods sold equal to
the inventory's net book value. The Company expects to use the
advertising credits acquired within the next twelve months.
The credits are valued at $2,400,000 on the Company's
Consolidated Condensed Balance Sheet at November 30, 2002 and
are included in the line item entitled "Prepaid Assets."

Note 14 - The Company's functional currency is the U.S. Dollar. Because
it operates internationally, the Company is subject to foreign
currency risk from transactions denominated in currencies
other than the U.S. Dollar ("foreign currencies"). Such
transactions include sales and certain inventory purchases. As
a result of such transactions, portions of the Company's cash,
trade accounts receivable, and trade accounts payable are
denominated in foreign currencies. During the nine-month
periods ended November 30, 2002 and 2001, the Company
transacted 11 and 10 percent, respectively, of its sales in
foreign currencies. These sales were primarily denominated in
the British Pound Sterling and the Euro. The Company makes
most of its inventory purchases from the Far East and uses the
U.S. Dollar for such purchases.

The Company identifies foreign currency risk by regularly
monitoring its foreign currency-denominated transactions and
balances. Prior to the three-month period ended November 30,
2002, the Company sought to reduce its foreign currency risk
by purchasing most of its inventory using U.S. Dollars and by
converting cash balances denominated in foreign currencies to
U.S. Dollars on a regular basis. During the three months ended
November 30, 2002, the Company also entered into a series of
forward contracts to exchange British Pounds for U.S. Dollars.
These contracts are cash flow hedges that hedge the foreign
currency risk associated with a portion of the Company's
forecasted net British Pound cash flows. The Company based its
forecasted British Pound cash flows for that period on cash
collections from customers and expenses expected to occur by
February 28, 2003.

The line item entitled "Other income (net)" in the
Consolidated Condensed Statements of Income and Comprehensive
Income includes $28,000 of expense associated with hedges of
foreign currency risk. The $28,000 total is comprised of
$15,000 resulting from changes in "spot" exchange rates
between the dates of the contracts and November 30, 2002. The
remaining $13,000 is due to changes in the time value of the
forward contracts.

The transactions producing the cash flows hedged by one of the
Company's forward contracts are forecasted to occur during the
three months ending February 28, 2003. Changes in "spot"
exchange rates have reduced the value of that contract by
$4,000, net of income tax benefit, since its inception. This
amount is charged against Other Comprehensive Income ("OCI")
for the nine months ended November 30, 2003. The $4,000
after-tax charge comprises the entire amount reflected as OCI
and Accumulated OCI in the Company's November 30, 2003
Condensed Statement of Income and Comprehensive Income and
Consolidated Condensed Balance Sheets, respectively. The
Company expects to reclassify the $4,000 charge against "Other
income" as the forecasted transactions occur during the three
months ending February 28, 2003.

16

Note 15 - During December 2002, the Company signed a new agreement with
The Procter & Gamble Company to sell appliances and combs,
hair brushes and accessories using the Vidal Sassoon trade
name. The agreement allows the company to sell products under
the Vidal Sassoon trade name worldwide except in Australia,
China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia,
New Zealand, The Philippines, Singapore, Taiwan and Thailand.
In connection with the new agreement, the Company paid a
$2,000,000 non-refundable licensing fee which the Company will
amortize over the agreement's initial term.

Note 16 - The Company anticipates completing the purchase of a 600,000
square foot distribution center in Mississippi during the
fourth quarter of this fiscal year. The new facility will
replace warehouse space that the Company currently rents in a
distribution center operated by a third party. The Company
expects to use approximately $16,250,000 of its cash to
purchase the distribution center.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This discussion contains a number of forward-looking statements, all of
which are based on current expectations. Actual results may differ materially
due to a number of factors, including those discussed in the section entitled
"Information Relating to Forward Looking Statements" and in the Company's most
recent report on Form 10-K.

Results of Operations

Quarter ended November 30, 2002

Consolidated Net Sales and Gross Profit Margins

Our net sales for the quarter ended November 30, 2002 increased by
$1,210,000, or less than one percent, versus the quarter ended November 30,
2001. North American and International operating segment sales both increased,
while the Tactica operating segment's sales declined. North American operating
segment sales for the quarter ended November 30, 2002 grew by $10,560,000, or
10.8 percent, compared to the same period a year earlier. Appliance sales in the
North American segment grew by approximately $8,800,000, while brush, comb, and
hair accessory sales decreased by a total of approximately $1,600,000. Sales of
hair straighteners contributed significantly to the growth in appliance sales.
Hair straighteners are also referred to as flat curling irons and allow
consumers to shape their hair in a different manner than with traditional
curling irons. Sales of hair care and skin care products under six new trade
names acquired on October 21, 2002 contributed approximately $3,400,000 to North
American sales growth. The six trade names acquired are discussed more fully
below in the section entitled "Acquisition of Trade Names." The International
operating segment achieved sales growth of $717,000, or 4.9 percent during the
quarter ended November 30, 2002, compared to the same period last fiscal year.
Sales growth of $2,200,000 in the United Kingdom and $300,000 in France more
than offset lower sales in the Company's other international markets during the
quarter ended November 30, 2002. Tactica's sales for the quarter declined by
$10,067,000, or 34.7 percent, compared to the same period a year earlier.
Tactica's sales of its Epil Stop(R) depilatory product declined by 74.3 percent,
with decreases in both the retail and direct response distribution channels.
Sales of other Tactica products such as the newly-introduced Lazer Vac, the
Twist-a-Braid hair styling implement, and a pore cleanser, all sold under the
IGIA(R) brand name, offset part of the decline in Epil Stop(R) sales. On
September 29, 2002, port operators and shipping lines locked out longshoremen
working in 29 ports on the West Coast of the United States. The work stoppage
lasted approximately two weeks and affected Tactica adversely, delaying
approximately $2,500,000 in shipments for the quarter.

Gross profit, as a percentage of sales for the quarter ended November
30, 2002, remained relatively consistent, compared with the quarter ended
November 30, 2001, increasing from to 45.3 percent to 45.7 percent. North
American and International segment gross profit margins increased, primarily due
to more efficient sourcing of product. Increased shipping costs due to the work
stoppage at West Coast ports affected the North American and Tactica segments'
gross profits negatively by increasing shipping costs. The effect of the
reduction in Tactica operating

17

segment sales as a percentage of consolidated sales offset, in part, the
increases in the North American and International segments' gross profits.
Tactica experiences higher gross profit and higher selling, general, and
administrative expense, as percentages of net sales, than do our other operating
segments. Therefore, changes in the percentage of sales contributed by Tactica
affect consolidated gross profit margins.

Selling, general, and administrative expense

Selling, general, and administrative expenses ("SG&A"), decreased from
33.5 of net sales during the quarter ended November 30, 2001 to 31.1 percent
during the quarter ended November 30, 2002. Tactica reduced its direct response
advertising program for its Epil-Stop(R) depilatory product as a result of
declining consumer response to direct response advertising of that product. In
the North American and International operating segments, SG&A levels, as
percentages of net sales, for the quarter ended November 30, 2002 remained
relatively consistent with the same period last year. The primary reductions in
SG&A in these segments resulted from the discontinuance of goodwill amortization
and from foreign currency exchange gains. Due to our adoption of Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"), we recorded no goodwill amortization expense (see "New Accounting
Guidance" below). The adoption of SFAS 142 reduced SG&A by $474,000 for the
quarter ended November 30, 2002, compared to the same period a year earlier.
Additionally, during the quarter ended November 30, 2002, we experienced foreign
currency exchange gains of $113,000, versus losses of $284,000 during the same
period a year earlier. The exchange rate gains were primarily due to the U.S.
Dollar's weakness versus the British Pound, the Euro, and the Canadian Dollar,
relative to the same period last year.

Other income

Other income increased by $1,112,000 for the quarter ended November 30,
2002. The primary reason for this increase was $781,000 of income from
unrealized gains in the market value of trading securities, compared to a
$32,000 loss from changes in the market values of trading securities during the
same period last year.

Income tax expense

For the quarter ended November 30, 2002, our income tax expense was
20.5 percent of earnings before income taxes, as opposed to 16.8 percent for the
quarter ended November 30, 2001. Tactica's recognition of a $1,115,000 net
operating loss carryforward benefit reduced income tax expense during the
quarter ended November 30, 2001, relative to the same period this fiscal year.

18

Nine months ended November 30, 2002

Consolidated Net Sales and Gross Profit Margins

We achieved an increase in net sales of $10,680,000, or 3.1 percent,
for the nine months ended November 30, 2002, compared to the nine months ended
November 30, 2001. North American segment sales grew by $23,259,000, or 9.6
percent for this period. Appliance sales in the North American segment grew by
approximately $22,700,000, while sales of brushes, combs, and hair accessories
decreased approximately $2,900,000. As was the case for the three months ended
November 30, 2002, hair straighteners played an important role in North American
appliance sales growth. The approximately $3,400,000 in sales of hair care and
skin care products resulting from our acquisition on October 21, 2002 of six
trade names comprised the rest of the sales increase in North America. The
International operating segment's sales grew by $1,419,000, or 5.8 percent, as
sales in the United Kingdom and France increased by $3,420,000 and $1,480,000,
respectively. The sales growth in the United Kingdom and France was offset
partially by lower sales in other international markets, particularly Latin
America. Tactica's sales decreased by $13,998,000, or 17.4 percent, due
primarily to lower Epil Stop(R) sales.

Gross profit, as a percentage of sales, remained relatively consistent
at 46.5 percent for the nine months ended November 30, 2002, compared to 46.8
percent for the nine months ended November 30, 2001. Increases in the North
American and International segments' gross profit percentages as a result of
more efficient product sourcing offset the negative effect of the reduction in
Tactica's sales as a percentage of consolidated net sales.

Selling, general, and administrative expense

For the nine months ended November 30, 2002, SG&A, expressed as a
percentage of net sales, decreased from 36.7 to 34.4 percent. As during the
quarter ended November 30, 2002, the adoption of SFAS 142 and foreign currency
exchange gains contributed to the reduction in SG&A as a percentage of sales in
the North American and International segments. The adoption of SFAS 142, which
eliminated the amortization of goodwill, reduced SG&A for the nine-month period
by $1,526,000, compared to the same period a year ago (see section below
entitled "New Accounting Guidance"). Exchange gains contributed $1,230,000 to
the reduction in SG&A. In addition, the North American and International
segments' combined inventory storage cost decreased by $1,100,000 as a result of
reduced inventory balances versus the same period a year earlier. Finally, the
effect of higher net sales on certain fixed costs also reduced SG&A as a
percentage of net sales in the North American and International segments. A bad
debt charge of $700,000, due to collection difficulties with a customer in
Brazil, offset part of this reduction in SG&A expenses. Tactica's SG&A increased
slightly as a percentage of its net sales due to the combination of the fixed
nature of certain expenses and the decrease in Tactica's net sales.

Other income / expense

Other income increased by $1,265,000 for the nine months ended November
30, 2002, compared to the nine months ended November 30, 2001. Higher interest
income, together with

19

income from the sale and appreciation of trading securities were the primary
factors behind this increase.

Income tax expense

For the nine months ended November 30, 2002, our income tax expense was
23.4 percent of earnings before income taxes, as opposed to 22.8 percent during
the same period a year earlier. Tactica's recognition during the nine months
ended November 30, 2001, of a $1,115,000 tax benefit related to a net operating
loss carryforward lowered income tax expense for that period.

LIQUIDITY AND CAPITAL RESOURCES

During the three months ended November 30, 2002, we entered into two
transactions that required us to use significant amounts of cash. First, we
prepaid future royalties due under our license agreements with Revlon. We
obtained a discount on the future royalties in exchange for our prepayment.
Second, we acquired, from The Procter & Gamble Company, six consumer brands that
we feel will add to the Company's profitability in both the near future and the
long-term. The acquisition of the trade names from The Procter & Gamble Company
is discussed further in the section entitled "Acquisition of Trade Names." Cash
provided by our operations offset, in part, the use of cash in these
transactions, resulting in a net decrease in our cash balance from $64,293,000
at February 28, 2002 to $29,731,000 at November 30, 2002.

We expect to complete the purchase of a 600,000 square foot
distribution center in Mississippi during the fourth quarter of this fiscal
year. The new facility will replace distribution center space that we currently
rent in a distribution center operated by a third party. We expect to use
approximately $16,250,000 of our cash to purchase the warehouse.

Our net accounts receivable balance increased 62.7 percent from
February 28, 2002 to November 30, 2002. Our net sales during the quarter ended
November 30, 2002 exceeded our net sales for the quarter ended February 28,
2002, producing a corresponding increase in accounts receivable balances.
Inventory grew only 5.3 percent, as we were able to minimize the effect of
seasonally high sales volume during the holiday selling season on inventory
balances.

Our accounts payable balance at November 30, 2002 was $28,230,000,
versus $11,549,000 at February 28, 2002. This increase is due to our purchase of
more inventory in the third quarter of our fiscal year, than in the fourth
quarter to meet product demands of the holiday selling season. Accrued
liabilities grew from $20,552,000 at February 28, 2002 to $31,447,000 at
November 30, 2002. The Company's accrued liabilities at the end of November tend
to exceed those at the end of February due to accruals of expenses that vary
with sales activity.

Our working capital balance decreased to $186,598,000 at November 30,
2002 from $191,438,000 at February 28, 2002. Our current ratio was 3.29 at
November 30, 2002, compared to 4.67 at February 28, 2002. The decreases in our
current ratio and working capital were due to the decrease in our cash balance
discussed above, combined with an increase in our accounts payable and accrued
liabilities balances, as compared to the balance at February 28, 2002.

20

When we acquired a 55 percent interest in Tactica, we loaned a total of
$3,500,000 to the minority shareholders of Tactica. The interest rate on these
loans is 8.75 percent. All principal and unpaid interest on these loans is due
March 14, 2005. The total amounts of principal and accrued interest due to the
Company under these loans were $4,333,000 and $4,103,000 at November 30, 2002
and February 28, 2002, respectively. These amounts are included in "Other
assets" on our Consolidated Condensed Balance Sheets.

We maintain a revolving line of credit with a bank to facilitate
short-term borrowings, if necessary, and the issuance of letters of credit. The
line of credit allows borrowings totaling $25,000,000, charges interest at the
three-month LIBOR rate plus a percentage that varies based on the ratio of the
Company's debt to its Earnings Before Interest, Taxes, Depreciation, and
Amortization ("EBITDA"), and expires August 31, 2003. At November 30, 2002 the
interest rate applicable to the line of credit was 2.40 percent. The line of
credit allows for the issuance of letters of credit up to $7,000,000. Any
outstanding letters of credit reduce the $25,000,000 maximum borrowing limit on
a dollar-for-dollar basis. At November 30, 2002, there were no borrowings under
this line of credit and outstanding letters of credit totaled $690,531. The
revolving credit agreement provides that we must satisfy requirements concerning
minimum net worth, total debt to consolidated total capitalization ratio, debt
to EBITDA ratio and our fixed charge coverage ratio. We are in compliance with
all of these requirements.

Our contractual obligations and commercial commitments as of November
30, 2002 were:

We do not engage in any activities involving special purpose entities
or off-balance sheet financing.

Based on our current financial condition and operations, we believe
that cash flows from operations and available financing sources will continue to
provide sufficient capital resources to fund the Company's ongoing liquidity
needs for the foreseeable future. We expect that our capital needs will stem
primarily from the needs to purchase sufficient levels of inventory and to carry
normal levels of accounts receivable on our balance sheet, as well as the
expected purchase of a warehouse discussed above. In addition, we evaluate
acquisition opportunities on a regular basis and might augment our internal
growth with acquisitions of complimentary businesses and product lines (see
discussion below). We might finance acquisition activity with available cash,
the issuance of stock, or with additional debt, depending upon the size and
nature of any such transaction and the status of the capital markets.

21

NONMONETARY TRANSACTION

During the three months ended November 30, 2002, we entered into a
nonmonetary transaction in which it exchanged inventory with a net book value of
approximately $2,400,000 for advertising credits. As a result of this
transaction, we recorded both sales and cost of goods sold equal to the
inventory's net book value. The Company expects to use the advertising credits
acquired within the next twelve months. The credits are valued at $2,400,000 on
our Consolidated Condensed Balance Sheet at November 30, 2002 and are included
in the line item entitled "Prepaid Assets."

ACQUISITION OF TRADE NAMES

On October 21, 2002, we acquired from The Procter & Gamble Company the
right to sell products under six trade names. We acquired all rights to the
trademarks, formulas, and production processes for four of the six trade names,
Ammens(R), Vitalis(R), Condition 3-in-1(R), and Final Net(R). The Procter &
Gamble Company assigned us its rights under licenses to sell products bearing
the other two trade names, Sea Breeze(R) and Vitapointe(R). The Sea Breeze
license is perpetual. We are in the process of completing the analysis of the
economic lives of the trade names acquired. Our initial belief is that these
trade names have indefinite economic lives. Therefore, we did not record any
amortization expense related to these trade names. We will complete our analysis
of the trade names' values and economic lives during the three-month period
ending February 28, 2003. Depending on the results of this analysis, we might,
in future periods, record amortization expense on one or more of the intangible
assets associated with the six trade names.

ROYALTY PREPAYMENT AND LICENSE AMENDMENTS

During September 2002, we signed amendments to certain of our licenses
to sell appliances and combs and hair brushes in the United States and Canada.
In connection with such amendments, we prepaid $11,500,000 for minimum royalties
due under the agreements from the third quarter of calendar 2002 through the
fourth quarter of calendar 2005. We obtained a discount on the future royalties
in exchange for our prepayment. We remain obligated to pay any earned royalties
that exceed the minimum royalties for those periods.

TRADEMARK LICENSE AGREEMENT RENEWAL

During December 2002, we signed a new agreement with The Procter &
Gamble Company to sell appliances and combs, hair brushes and accessories using
the Vidal Sassoon trade name. The agreement allows us to sell products under the
Vidal Sassoon trade name worldwide except in Australia, China, Hong Kong, India,
Indonesia, Japan, Korea, Malaysia, New Zealand, The Philippines, Singapore,
Taiwan and Thailand. In connection with the new agreement, we paid a $2,000,000
non-refundable licensing fee, which we will amortize over the agreement's
initial term, January 2003 through December 2012. In addition, we are obligated
under the agreement to pay royalties on a quarterly basis. The agreement
contains options to extend for two additional ten-year periods.

HONG KONG INCOME TAXES

The Hong Kong Inland Revenue Department ("the IRD") has assessed
$6,564,000 in tax on certain profits of our foreign subsidiaries for the fiscal
years 1995 through 1997. Hong Kong taxes income earned from certain activities
conducted in Hong Kong. We are vigorously defending the position that we
conducted the activities that produced the profits in question

22

outside of Hong Kong. We also assert that we have complied with all applicable
reporting and tax payment obligations. If the IRD's position were to prevail and
if it were to assert the same position for years after fiscal 1997, the
resulting assessment could total $32,858,000 (U.S.) for the period from fiscal
1995 through November 30, 2002.

In connection with the IRD's tax assessment for the fiscal years 1995
through 1997, we were required to purchase $3,282,000 (U.S.) in tax reserve
certificates in Hong Kong, which represented approximately 50 percent of the
liability assessed by the IRD. Tax reserve certificates represent the prepayment
by a taxpayer of potential tax liabilities. The amounts paid for tax reserve
certificates are refundable in the event that the value of the tax reserve
certificates exceeds the related tax liability. These certificates are included
on our Consolidated Condensed Balance Sheets as of November 30, 2002 and
February 28, 2002 on the line entitled "Other assets, net of accumulated
amortization." The tax reserve certificates are denominated in Hong Kong dollars
and are subject to the risks associated with foreign currency fluctuations.

The IRD also assessed $4,468,000 in tax on certain profits of our
foreign subsidiaries for fiscal years 1990 through 1994. During the quarter
ended August 31, 2002, we and the IRD settled our dispute related to those years
for $2,505,000 (56 percent of the assessed amount), plus interest of
approximately $100,000. As a result of the assessment, we forfeited tax reserve
certificates previously valued at $2,468,000 on our balance sheet and paid
approximately $137,000 in cash to the IRD. The settlement did not affect the
current status of the IRD's assessments for fiscal years 1995 through 1997.

Although the ultimate resolution of the IRD's claims cannot be
predicted with certainty, we believe that we have made adequate provision for
the resolution of the IRD's assessments covering fiscal years 1995 through 1997
and for potential future assessments relating to activity since fiscal 1997.
Such provision appears on the Company's Consolidated Condensed Balance Sheets as
of November 30, 2002 and February 28, 2002 on the line entitled "Income taxes
payable."

PROPOSED UNITED STATES FEDERAL INCOME TAX LEGISLATION

Currently, we benefit from an international corporate structure that
results in relatively low tax rates on a consolidated basis. If we were to
encounter significant changes in the rates or rules imposed by certain key
taxing jurisdictions, such changes could have a material adverse effect on our
financial position and profitability. In 1994, we engaged in a corporate
restructuring that, among other things, resulted in a portion of our non-U.S.
earnings not being subject to taxation in the United States. If such earnings
were subject to United States federal income taxes, our effective income tax
rate could increase materially. Several bills have been introduced recently in
the United States Congress that, if enacted into law, could adversely affect our
United States federal income tax status. At least one of the bills introduced
would apply to companies such as ours that restructured several years ago. That
bill could, if enacted into law, subject all of our earnings to United States
income taxes, thereby reducing our net earnings. Other bills introduced recently
would exempt restructuring transactions, such as ours, that were completed
before certain dates ranging from 1996 to 2002, but would limit the
deductibility of some intercompany transactions for U.S. income tax purposes and
would subject gains on certain asset transfers to U.S. income tax. In addition
to the legislation introduced in Congress, the United States Treasury Department
has issued a study of restructurings such as ours, which concluded in part that
additional limitations should be imposed on the deductibility of certain
intercompany transactions. It is not currently possible to predict whether the
legislation that has been introduced will become law, whether any additional
bills will be introduced, or the consequences of the Treasury Department's
study. However, there is a risk that new laws in the United States could
eliminate or substantially reduce the current income tax benefits of our
corporate structure. If this were to occur, such changes could have a material
adverse effect on our consolidated financial position and profitability.

CRITICAL ACCOUNTING POLICIES

The U.S. Securities and Exchange Commission defines critical accounting
policies as "those that are both most important to the portrayal of a company's
financial condition and results, and require management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain." Preparation of our
financial statements involves the application of several such policies. These
policies include:

23

Consolidation of Tactica - In March 2000 (fiscal 2001), we acquired a
55 percent interest in Tactica. At that time, we determined that use of
the purchase method of accounting and consolidation was appropriate and
we continue to use that method of consolidation. Because Tactica had
accumulated a net deficit at the time that we acquired our interest in
it and because the minority shareholders of Tactica have not adequately
guaranteed their portion of the accumulated deficit, our Consolidated
Statements of Income for the periods ended November 30, 2001 and 2002
include 100 percent of Tactica's net income or loss. We will continue
to recognize all of Tactica's net income or loss until such time as
Tactica's accumulated deficit is extinguished. After that time, our
consolidated net earnings will include 55 percent of Tactica's net
income or loss. Tactica's remaining accumulated deficit at November 30,
2002 is $144,000.

Hong Kong Income Taxes - The Inland Revenue Department (the "IRD") in
Hong Kong assessed tax on certain profits of the Company's foreign
subsidiaries for the fiscal years 1995 through 1997. The ultimate
resolution of the IRD's claims cannot be predicted with certainty.
However, we have recorded a liability for the IRD's claims, based on
consultations with Hong Kong tax experts as to the probability that
some or all of the IRD's claims prevail. Such liability is included in
"Income taxes payable" on the Consolidated Condensed Balance Sheets. If
the IRD's position were to prevail and it were to assert the same
position with respect to fiscal years after 1997, the resulting tax
liability could total $32,858,000 (U.S.) for the period from fiscal
1995 through November 30, 2002.

Estimates of credits to be issued to customers - We regularly receive
requests for credits from retailers for returned product or in
connection with sales incentives, such as co-operative advertising and
volume rebate agreements. We reduce sales or increase selling, general,
and administrative expenses, depending on the nature of the credits,
for estimated future credits to customers. Our estimates of these
amounts are based either on historical information about credits
issued, relative to total sales, or on specific knowledge of incentives
offered to retailers.

Allowance for doubtful accounts - From time to time, amounts due from
certain customers become uncollectible due to specific customers'
inability to pay. We record allowances specifically for customers'
balances based on the probability that we will not receive payment.
When major customers declare bankruptcy, we record an allowance equal
to the amount due from that customer, less the portion of the
receivable that we expect to collect either by selling the receivable
in a secondary market or through settlement with the bankruptcy estate.

Valuation of inventory - We account for our inventory using a
first-in-first-out system in which we record inventory on our balance
sheet at the lower of its cost or its net realizable value.
Determination of net realizable value requires management to estimate
the point in time at which an item's net realizable value drops below
its cost. We regularly review our inventory for slow-moving items and
for items that we are unable to sell at prices above their original
cost. When we identify such an item, we reduce its book value to the
net amount that we expect to realize upon its sale. This process
entails a significant amount of inherent subjectivity and uncertainty.

24

In addition to the above policies, several other policies, including
policies governing the timing of revenue recognition, are important to the
preparation of our financial statements, but do not meet the definition of
critical accounting policies because they do not involve subjective or complex
judgements.

NEW ACCOUNTING GUIDANCE

As explained in Note 10 to the consolidated condensed financial
statements, on March 1, 2002, we adopted EITF 01-9 "Vendor Income Statement
Characterization of Consideration Paid to a Reseller of a Vendor's Products."
The adoption of EITF 01-9 had no effect on operating income, net earnings, or
earnings per share. The following tables present the impact of EITF 01-9 on net
sales and SG&A had the standard been in effect for the three and nine month
periods ending November 30, 2002 and 2001 (in thousands):

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). The Company adopted SFAS 142 on March 1, 2002.
SFAS 142 eliminates the amortization of goodwill and other intangible assets
that have indefinite useful lives. Amortization will continue to be recorded for
intangible assets with definite useful lives. SFAS 142 also requires at least an
annual impairment review of goodwill and other intangible assets. Any asset
deemed to be

25

impaired is to be written down to its fair value. We have completed a review of
our goodwill to determine whether any of that goodwill was impaired. Based on
the results of this review, we concluded that our goodwill was not impaired as
of March 1, 2002. Therefore, we incurred no impairment charge as a result of the
adoption of SFAS 142. Because it eliminates the amortization of goodwill, SFAS
142 decreased our SG&A expense by approximately $474,000 and $1,526,000 in the
three-month and nine-month periods ended November 30, 2002.

The following tables present the impact of SFAS 142 on net earnings and earnings
per share had the standard been in effect for the three- and nine- month periods
ending November 30, 2002 and 2001. (in thousands, except per-share amounts):

INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

Certain written and oral statements made by our Company and
subsidiaries or with the approval of an authorized executive officer 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, in press
releases, and in certain other oral and written presentations. Generally, the
words "anticipates," "believes," "expects" 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

26

statements. The Company cautions readers not to place undue reliance on
forward-looking statements. Forward-looking statements are subject to risks that
could cause such statements to differ materially from actual results. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.

Factors that could cause actual results to differ from those
anticipated include:

o Risks that customers who owe the Company money will become
unable to pay the amounts they owe,

o the Company's, or its operating segments' material reliance on
individual customers or small numbers of customers,

o the Company's material reliance on certain trademarks,

o the impact of tax legislation, regulations, or treaties,
including proposed legislation in the United States that would
affect companies or subsidiaries of companies that have
headquarters outside the United States and file U.S. income
tax returns,

o the results of our disagreement with the Hong Kong Inland
Revenue Department concerning the portion of our profits that
are subject to Hong Kong income tax,

o any future disagreements with the United States Internal
Revenue Service or other taxing authority regarding our
assessment of the effects or interpretation of existing tax
laws, regulations, or treaties,

o risks associated with inventory, including potential
obsolescence,

o risks associated with new products and new product lines
because the Company's growth depends significantly on the
introduction of new products,

o risks associated with operating in foreign jurisdictions,
including the risk of delays in importing products from
foreign manufacturers,

o foreign currency exchange losses,

o uninsured losses,

o reliance on computer systems,

o management's reliance on the representations of third parties,

o risks associated with new business ventures and acquisitions,

o risks associated with investments in equity securities, and

o the risks described from time to time in the Company's reports
to the Securities and Exchange Commission, including this
report.

27

ITEM 4. CONTROLS AND PROCEDURES

Our Chief Executive Officer and our Chief Financial Officer, after
evaluating the effectiveness of the Company's "disclosure controls and
procedures" (as defined in Exchange Act Rules 13a-14(c) and 15-d-14(c)) as of a
date (the "Evaluation Date") within 90 days of the filing date of this quarterly
report, have concluded that as of the Evaluation Date, our disclosure controls
and procedures were adequate and effective and designed to ensure that material
information relating to us and our consolidated subsidiaries would be made known
to them by others within those entities.

There were no significant changes in our internal controls or to our
knowledge, in other factors that could significantly affect our internal
controls and procedures subsequent to the Evaluation Date.

28

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

99.1 CEO Certification

99.2 CFO Certification

(b) Reports on Form 8-K

On September 27, 2002, the Company filed a Form 8-K announcing its
signing of a definitive agreement to acquire directly and through
license agreements six consumer products brand names from The Procter &
Gamble Company.

29

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

HELEN OF TROY LIMITED
-------------------------------
(Registrant)

Date January 14, 2003 /s/ Gerald J. Rubin
------------------------ -------------------------------

Gerald J. Rubin
Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer)

Date January 14, 2003 /s/ Russell G. Gibson
------------------------ -------------------------------
Russell G. Gibson
Senior Vice-President, Finance,
and Chief Financial Officer
(Principal Financial Officer)

30

CERTIFICATION

I, Gerald J. Rubin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Helen of Troy Limited;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: January 14, 2003
------------------------

/s/ Gerald J. Rubin
- -----------------------------
Gerald J. Rubin
Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer)

31

CERTIFICATION

I, Russell G. Gibson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Helen of Troy Limited;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: January 14, 2003
------------------------

/s/ Russell G. Gibson
- -----------------------------
Russell G. Gibson
Senior Vice President, Finance,
and Chief Financial Officer
(Principal Financial Officer)

32

Index to Exhibits

99.1 CEO Certification

99.2 CFO Certification