HELEN OF TROY LTD - 10-K Annual Report

Back to GetFilings.com

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

FORM 10-K

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934

Commission file number 001-14669

HELEN OF TROY LIMITED
(Exact name of the registrant as specified in its charter)

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

Securities registered pursuant to Section 12(b) of the Act:
NONE

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK - $.10 PAR VALUE
(Title of Class)

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
--- ---

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

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act) Yes X No
--- ---

The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant as the last day of the registrant's
most recently completed second quarter was $307,175,162.

As of May 28, 2003 there were 28,220,445 shares of Common Stock, $.10
Par Value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the Company's definitive proxy statement, which is to be
filed under the Securities Exchange Act of 1934 within 120 days of the end of
the Company's fiscal year on February 28, 2003, are incorporated by reference
into Part III hereof. Except for those portions specifically incorporated by
reference herein, such document shall not be deemed to be filed with the
Securities and Exchange Commission as part of this Form 10-K.

Index to Exhibits - Page 67

TABLE OF CONTENTS

i

PART I

ITEM 1. BUSINESS

GENERAL

Unless the context requires otherwise, references to "the Company," to
"our Company," or to "Helen of Troy" and references such as "we" and "us" refer
to Helen of Troy Limited and its subsidiaries. Our Company is comprised of three
operating segments. The North American segment sells hair care and other
personal care products in the U.S. and Canada. The International segment sells
the same products outside the U.S. and Canada. Our third segment, Tactica, sells
personal care and other consumer products to retailers and uses direct response
marketing to sell such products directly to consumers. The section of Item 1
entitled "Products" contains more detailed information about the products that
we sell. We present financial information for each of our operating segments in
Note (11) of the Consolidated Financial Statements. The matters discussed in
Item 1 pertain to all three of our operating segments, unless otherwise
specified.

We use outside manufacturers to produce our goods. We sell our products
to mass merchandisers, drug chains, warehouse clubs, grocery stores, beauty
supply retailers and wholesalers, as well as to individual consumers in the U.S.
and other countries.

We sell some of our products under licenses from third parties. Our
licensed trademarks include Vidal Sassoon(R), licensed from The Procter & Gamble
Company; Revlon(R), licensed from Revlon Consumer Products Corporation; Dr.
Scholl's(R), licensed from Schering-Plough HealthCare Products, Inc.; Scholl(R)
(in areas other than North America), licensed from Scholl Limited; Sunbeam(R),
and Sunbeam Health at Home(R), licensed from American Household, Inc; Sea
Breeze(R), licensed from Shisheido Corporation; and Vitapointe(R), licensed from
Fizons Corporation. We also own a number of trademarks, including Helen of
Troy(R), Salon Edition(R), Hot Tools(R), Ecstasy(TM), Gold Series(R), Hotspa(R),
Gallery Series(R), Wigo(R), Caruso(TM), Dazey(R), Lady Dazey(R), Carel(R), Lady
Carel(R), Sable(R), Karina(R), Karina Girl(TM), Kurl*Mi(R), Detangle*Mi(R),
Heat*Mi(R), DCNL(R), DCNL Signature(TM), Nandi(TM), Isobel(TM), Vitalis(R),
Final Net(R), Ammens(R), Condition 3-in-1(R), IGIA(R), and Epil-Stop(R).

We were incorporated as Helen of Troy Corporation in Texas in 1968 and
reincorporated as Helen of Troy Limited in Bermuda in 1994.

PRODUCTS

The business of Helen of Troy's North American and International
segments is designing, developing and selling a full line of personal care and
comfort products. The following table lists the primary products that the North
American and International segments sell and some of the brand names that appear
on those products.

We own 55 percent of Tactica International, Inc. ("Tactica"). Tactica's
net sales comprised approximately 17 percent, 24 percent and five percent of the
Company's consolidated net sales in fiscal 2003, 2002 and 2001, respectively.
Tactica designs, develops and sells a variety of personal care and other
consumer products in categories such as hair care, hair removal, dental care,
skin care, sports and exercise, household, and kitchen. Tactica sells these
products, primarily under the IGIA(R) and Epil-Stop(R) trademarks, to retailers
and uses direct response marketing to sell such products directly to consumers.
Some of the products developed and marketed by Tactica are trend-oriented and
have shorter product lives than Helen of Troy's other products.

We continue to develop new products and enhance existing products in
order to maintain and improve our position in the personal care and comfort
product market. For example, during fiscal 2003 we improved existing products by
adding new technologies to them. Examples include ionic hair care appliances and
ceramic hair care appliances. We plan to extend our line of ceramic hair care
appliances during fiscal 2004. During fiscal 2003, we also extended our line of
hair care appliances that incorporate ionic technology.

Our fiscal 2003 acquisition from The Procter & Gamble Company of the
rights and formulas associated with six hair and skin care brand names augmented
our internal product development efforts. Under the terms of an October 2002
transaction, we acquired ownership of the Vitalis(R), Condition 3-in-1(R), Final
Net(R), and Ammens(R) trade names. Additionally, we acquired the rights under
long-term license agreements to sell products using the Sea Breeze(R) and
Vitapointe(R) trademarks. Currently, we are selling hair care and styling
liquids under the Vitalis(R), Condition 3-in-1(R), Final Net(R), and
Vitapointe(R) trademarks; skin care liquid, in the form of an astringent, under
the Sea Breeze(R) trademark; and mediated skin care powder under the Ammens(R)
name.

2

You can learn more about our products at the following Internet
addresses:

http://www.helenoftroyusa.com
http://www.igia.com

SALES AND MARKETING

We market our products primarily within the U.S. Sales within the U.S.
comprised 90 percent of total net sales in fiscal 2003, 91 percent of net sales
in fiscal 2002, and 89 percent of net sales in fiscal 2001. Our North American
and International operating segments sell their products primarily through mass
merchandisers, drug chains, warehouse clubs, catalogs, grocery stores and beauty
supply retailers and wholesalers. Both of these segments market our products
through outside sales representatives and through our own sales staff. Tactica
sells directly to retailers and distributors and uses direct consumer marketing,
such as direct response and catalog advertising to sell its products to
consumers.

The companies from whom we license many of our brand names promote
those names extensively. Revlon Consumer Products Corporation engages in
national advertising of its beauty care products. The Vidal Sassoon(R), Dr.
Scholl's(R) and Sunbeam(R) trademarks are widely recognized because of
advertising and the sale of a variety of products. We benefit from the name
recognition associated with a number of our licensed trademarks and seek to
further improve the name recognition and perceived quality of all the trademarks
under which we sell products through our own advertising and product development
efforts. We also promote our products through television advertising and through
print media, including consumer and trade magazines and various industry trade
shows.

MANUFACTURING AND DISTRIBUTION

We contract with unaffiliated manufacturers in the Far East, primarily
in the Peoples' Republic of China, Thailand, Taiwan, and South Korea, to
manufacture most of the hair and personal care appliances and hair brushes,
combs, and hair care accessories sold by our North American and International
segments (see discussion of International Manufacturing and Operations in Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" under the heading "Risk Factors"). For fiscal 2003, goods
manufactured by vendors in the Far East comprised approximately 95 percent of
the dollar value of the North American and International segments' inventory
purchases and approximately 58 percent of the Tactica segment's inventory
purchases. We purchase the remainder of our products from unaffiliated
manufacturers, primarily in North America and Europe. The manufacturers who
produce our products use formulas, molds, and certain other tooling, some of
which we own, in manufacturing those products. The North American and
International segments employ numerous technical and quality control persons to
assure high product quality.

Our products that are manufactured in the Far East and sold in North
America are shipped to the West Coast of the U.S. and the West Coast of Canada.
The products are then shipped by truck or rail service to warehouse facilities
in El Paso, Texas; Southaven, Mississippi; Toronto, Canada; and Vancouver,
Canada, or directly to customers. We ship substantially all products to North
American customers from these warehouses by ground transportation services.
Products sold by the International segment outside the U.S. and Canada are
shipped from manufacturers, primarily in the Far East, to warehouse facilities
in The Netherlands, the United Kingdom, Brazil, or directly to customers. We
ship products stored at the warehouses in The Netherlands, the United Kingdom,
and Brazil to distributors or retailers.

Our customers in both the North American and International segments
seek to minimize their inventory levels and often demand that we fulfill their
orders within relatively short time frames. Consequently, these inventory
management practices often require us to carry substantial levels of inventory
in order to meet our customers' needs.

Tactica also contracts with unaffiliated manufacturers both within and
outside the U.S. to manufacture its products. Tactica's products are shipped to
a warehouse facility in Reno, Nevada for shipment to individuals or retail

3

customers. Tactica also sometimes ships products from manufacturers directly to
retailers. When selling to retail customers, Tactica often faces the same
challenges as do our other two segments with regard to retailers' inventory
management practices.

Most of our three segments' products manufactured outside the countries
in which they are sold are subject to import duties, which have the effect of
increasing the amount we pay to obtain such products.

LICENSE AGREEMENTS, TRADEMARKS, AND PATENTS

Our North American and International operating segments depend
materially upon the continued use of trademarks licensed under various
agreements. The Vidal Sassoon(R) and Revlon(R) trademarks are of particular
importance. New product introductions under licensed trademarks require approval
from the respective licensors. The licensors also must approve the product
packaging. Many of the license agreements require the Company to pay minimum
royalties, meet minimum sales volumes, and make minimum levels of advertising
expenditures. The duration of the license agreements for the Revlon(R) and Vidal
Sassoon(R) trademarks, including the renewal terms, exceeds ten years. Upon
expiration of the current terms of these agreements, we have the right to extend
their terms upon payment of a renewal fee.

The discussion below covers the primary product categories that Helen
of Troy currently sells under its major license agreements. The product
categories discussed do not necessarily include all of the products that Helen
of Troy is entitled to sell under these or other license agreements.

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

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

We are licensed to sell foot baths, foot massagers, hydro massagers,
cushion massagers, body massagers, paraffin baths, and support pillows bearing
the Dr. Scholl's(R) trademark in the U.S. and Canada, under an agreement with
Schering-Plough HealthCare Products, Inc. We also are licensed to sell the same
products under the Scholl(R) trademark in other areas of the world through an
agreement with Scholl Limited.

Under an agreement with American Household, Inc. we are licensed to
sell hair clippers, hair trimmers, hair dryers, curling irons, hairsetters, hot
air brushes, mirrors, manicure kits, hair brushes and combs, hair rollers, hair
accessories, paraffin baths, and spa products bearing the Sunbeam(R) and Sunbeam
Health at Home(R) trademarks in the U.S., Canada, Mexico, Central America, South
America, and the Caribbean.

In October 2002, we acquired from The Procter & Gamble Company the
right to sell products under the trademark Sea Breeze(R) pursuant to a perpetual
license from Shisheido Corporation. We currently sell a line of liquid skin care
products under the Sea Breeze(R) name.

Helen of Troy has filed or obtained licenses for design and utility
patents in the U.S. and several foreign countries. The Company does not believe
that the loss of any particular patent or patent license would have a materially
adverse effect on its business.

4

RELIANCE ON ONE CUSTOMER

Sales to Wal-Mart Stores, Inc., and its affiliate, SAM'S Club,
accounted for approximately 24 percent, 22 percent, and 23 percent of our net
sales in fiscal 2003, 2002, and 2001, respectively. No other customer accounted
for ten percent or more of net sales during those fiscal years.

ORDER BACKLOG

When placing orders, our retail and wholesale customers usually request
that we ship the related products within specific time frames. Our Tactica
segment ships some of its products to direct response customers and provides
these customers with estimated delivery dates at the time that it receives their
respective orders. There was no significant backlog of orders in any of our
distribution channels at February 28, 2003.

COMPETITIVE CONDITIONS

The markets in which we sell our products are very competitive.
Maintaining and gaining market share depends heavily on product development and
enhancement, pricing, quality, performance, packaging and availability, brand
name recognition, patents, and marketing and distribution approaches. Our
primary competitors include The Conair Corporation, Applica Incorporated,
Remington Products Company, Goody Products, Inc., a division of Newell
Rubbermaid Inc., Homedics-USA, Inc., The New L & N Marketing and Sales
Corporation, Chattem, J&J Boots, Andrew Jergens, Loreal, Unilever, and Alberto
Culver. Some of these competitors have significantly greater financial and other
resources than we do.

SEASONALITY

The Company's business is somewhat seasonal. Net sales in the Company's
fiscal second and third quarters, combined, accounted for approximately 55
percent of fiscal 2003 net sales and for approximately 57 percent of fiscal 2002
and 2001 net sales. As a result of the seasonality of sales, our working capital
needs fluctuate during the year.

REGULATION

Our electrical products must meet the safety standards imposed in
various national, state, local, and provincial jurisdictions. Our electrical
products sold in the U.S. are designed, manufactured, and tested to meet the
safety standards of Underwriters Laboratories, Inc. or Electronic Testing
Laboratories.

The medicated skin powder that we sell under the Ammens(R) trademark is
regulated by the United States Food and Drug Administration.

EMPLOYEES

We employ 672 full-time employees in the U.S., Hong Kong, and Europe,
of which 238 are marketing and sales employees, 159 are distribution employees,
55 are engineering and development employees, and 220 are administrative
personnel. Included in these totals are 76 employees of Tactica. Tactica employs
57 administrative and 19 sales and marketing personnel. None of the Company's
employees are covered by a collective bargaining agreement. We have never
experienced a work stoppage and we believe that we have satisfactory working
relations with our employees.

GEOGRAPHIC INFORMATION

Note (11) to the Consolidated Financial Statements contains geographic
information concerning our net sales and long-lived assets.

5

SECURITIES EXCHANGE ACT REPORTS

We maintain an Internet site at the following address:
http://www.helenoftroyusa.com. We make available on or through our Internet
website certain reports and amendments to those reports that we file with or
furnish to the Securities and Exchange Commission (the "SEC") in accordance with
the Securities Exchange Act of 1934 (the "Securities Exchange Act"). These
include our annual reports on Form 10-K, our quarterly reports on Form 10-Q and
our current reports on Form 8-K. We make this information available on our
website free of charge as soon as reasonably practicable after we electronically
file the information with, or furnish it to, the SEC. The public may read and
copy any of the materials we file with the SEC in accordance with the Securities
Exchange Act at the SEC's Public Reference Room at 450 Fifth Street, N.W.
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0300. The SEC
maintains an Internet site that contains reports, proxy and information
statements, and other information about our Company. The address of the SEC's
Internet site is http://www.sec.gov.

ITEM 2. PROPERTIES

PLANT AND FACILITIES

North American Segment. We own a 135,000 square foot office building
and a 408,000 square foot warehouse in El Paso, Texas. The office building
houses our U.S. operations. The El Paso office building and warehouse are
located on a 50-acre plot of land that we own. We also own a 619,000 square foot
warehouse in Southaven, Mississippi, as well as the 29-acre plot of land on
which that warehouse is located. We purchased the Southaven warehouse in January
2003. It became fully operational during May 2003. We lease 108,000 square feet
of warehouse space in El Paso, Texas; 50,000 square feet of warehouse space in
Toronto, Canada; and 20,000 square feet of warehouse space in Vancouver, Canada.
During fiscal 2003 we also leased 360,000 square feet of warehouse space in
Memphis, Tennessee. Our lease in Memphis terminated upon the Southaven warehouse
becoming fully operational. We also lease sales offices in Bentonville,
Arkansas, Minneapolis Minnesota, Troy Michigan, and Toronto, Canada.

We own 22 acres of land in El Paso, Texas, near the 50 acres on which
the warehouse and the U.S. office building that we own are located. The Company
is holding this land for future business use.

International Segment. We lease warehouse space in public warehouses
located in Hong Kong; The Netherlands, and the United Kingdom. In addition, we
also lease sales offices in the United Kingdom, France, Germany, and Brazil.

Tactica. Tactica leases administrative offices in New York, New York
and leases public warehouse space in Reno, Nevada.

Corporate. A subsidiary located in Hong Kong leases approximately
23,000 square feet of office space. Prior to fiscal 1996 this subsidiary was
headquartered in approximately 12,000 square feet of office space that the
Company still owns.

We also own 12,000 square feet of warehouse space on a 62,000 square
foot lot adjacent to the building that formerly housed our U.S. operations. We
are holding this property for sale.

6

ITEM 3. LEGAL PROCEEDINGS

The Hong Kong Inland Revenue Department (the "IRD") has assessed
$6,753,000 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 our position that we
conducted the activities that produced the profits in question outside of Hong
Kong and 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
$34,101,000 (U.S.) for the period from fiscal 1995 through fiscal 2003.

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 49 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 Balance Sheets as of February 28, 2003 and 2002 on the line
entitled "Other assets." The tax reserve certificates are denominated in Hong
Kong dollars and are, therefore, 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 the fiscal years 1990 through 1994. During the second
quarter of the fiscal year ended February 28, 2003, 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
Consolidated Balance Sheet and paid approximately $137,000 in cash to the IRD.
The tax reserve certificates that we forfeited were included on our Consolidated
Balance Sheet as of February 28, 2002 on the line entitled "Other assets." The
settlement did not affect the current status of the IRD's assessments for fiscal
years 1995 through 1997 and did not have a material effect on our consolidated
results of operations.

Although the ultimate resolution of the IRD's claims cannot be
predicted with certainty, we believe that we have made adequate provision in the
financial statements for the resolution of the IRD's claims and potential future
assessments relating to activity since fiscal 1997. Such provision appears on
our Consolidated Balance Sheets as of February 28, 2003 and 2002 on the line
entitled "Income taxes payable."

In the fourth quarter of the fiscal year ended February 28, 2001, the
Company recorded a $2,457,000 charge for the remaining unamortized costs under a
distribution agreement (which was later formally terminated) with The Schawbel
Corporation ("Schawbel"), the supplier of the Company's butane hair care
products. In a related matter, in September 1999, Schawbel commenced litigation
in the U.S. District Court for the District of Massachusetts against The Conair
Corporation ("Conair"), the predecessor distributor for Schawbel's butane
products. In its action, amended in June 2000, Schawbel alleged, among other
things, that Conair, following Schawbel's termination of the Conair distribution
agreement, stockpiled and sold Schawbel product beyond the 120 day "sell-off"
period afforded under the agreement, and manufactured, marketed and sold its own
line of butane products which infringed patents held by Schawbel. In November
2000, the Massachusetts court granted Schawbel its request for preliminary
injunction, and ordered that Conair cease selling all allegedly infringing
products. The Company intervened as a plaintiff in the action to assert claims
against Conair similar to the claims raised by Schawbel. The Company is seeking
to recover damages in excess of $10 million, arising from the Company's
inability to meet minimum purchase requirements under its distribution agreement
with Schawbel and the subsequent termination of that agreement by Schawbel.
Conair responded by filing a counterclaim alleging that the Company conspired
with Schawbel to unlawfully terminate Conair's distribution agreement with
Schawbel, and to disparage Conair's reputation in the industry. The counterclaim
seeks $15 million in damages. Although the ultimate outcome of the matter cannot
be predicted, the Company contends that Conair's counterclaims lack validity.
The Company intends to pursue vigorously its claims and defense in the
litigation.

7

The Company is involved in various other legal claims and proceedings
in the normal course of operations. In the opinion of management, the outcome of
these matters will not have a material adverse effect on the consolidated
financial position, results of operations or liquidity of the Company.

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

No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 2003.

8

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

Our Common Stock is listed on the NASDAQ National Market System
[symbol: HELE]. The following table sets forth, for the periods indicated, in
dollars per share, the high and low bid prices of the Common Stock as reported
on the NASDAQ National Market System. These quotations reflect the inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.

APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS

We have one class of equity security outstanding at February 28, 2003;
Common Stock with a par value of $0.10. As of April 30, 2003 there were 404
holders of record of the Company's Common Stock. Shares held in "nominee" or
"street" name at each bank nominee or brokerage house are included in the number
of shareholders of record as a single shareholder. We estimate that
approximately 14,000 individuals and institutions hold our Common Stock.

CASH DIVIDENDS

The Board of Directors' current policy is to retain earnings to provide
funds for the operation and expansion of the Company's business and for
potential acquisitions. The Company has not paid any cash dividends on its
Common Stock since inception. The Company's current intention is to pay no cash
dividends in fiscal 2004. Any change in dividend policy will depend upon future
conditions, including earnings and financial condition, general business
conditions, any applicable contractual limitations, and other factors deemed
relevant by the Board of Directors.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

9

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial information set forth below has
been summarized from the Company's Consolidated Financial Statements. This
information should be read in conjunction with the Consolidated Financial
Statements and the related Notes to Consolidated Financial Statements included
in Item 8. "Financial Statements and Supplementary Data." All currency amounts
in this document are denominated in U.S. dollars.

For the year ended the last day of February,
(all numbers except shares and earnings per share in thousands)

10

ITEM 6. SELECTED FINANCIAL DATA - CONTINUED

Last Day of February
(in thousands)

(1) Fiscal 2003, 2002 and 2001 results include 100 percent of the results
of Tactica, a subsidiary in which the Company acquired a 55 percent
interest in March 2000. See "Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a
further explanation of this accounting policy.

(2) We adopted Emerging Issues Task Force Abstract 01-9 ("EITF 01-9") for
fiscal 2003. EITF 01-9 requires that certain vendors record certain
consideration given to customers as reductions of sales, rather than as
selling, general, and administrative expenses. Certain items that,
prior to fiscal 2003, were classified as selling, general, and
administrative expenses have been reclassified as reductions to net
sales. Those items totaled $3,930,000 for fiscal 2002, $4,234,000 for
fiscal 2001, $2,256,000 for fiscal 2000, and $1,124,000 for fiscal
1999.

(3) In fiscal 2001, the Company recorded a $2,457,000 charge for the
remaining unamortized costs under a distribution agreement, which was
later formally terminated.

(4) In fiscal 2000, the Company incurred $2,669,000 of charges to cost of
goods sold and $8,725,000 of charges to selling, general and
administrative expenses as a result of the discontinuance of its
artificial nails product line. In fiscal 2000 the Company also incurred
$770,000 of charges related to the restructuring and reorganization of
several departments.

(5) Other income includes gains of approximately $75,000 in fiscal 2003,
$165,000 in fiscal 2002, $1,400,000 in fiscal 2001 and $6,300,000 in
fiscal 2000 from the sale and appreciation of trading securities.

(6) In fiscal 2000 the Company repurchased 526,485 shares of its Common
Stock at a cost of $4,076,000. In fiscal 2001, the Company repurchased
815,946 shares of its Common Stock at a cost of $4,623,000. No Common
Stock was repurchased in any other year presented above.

11

ITEM 7. 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 sections entitled
"Risk Factors" and "Information Relating to Forward Looking Statements" and in
Item 7A. "Quantitative and Qualitative Disclosures About Market Risk."

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected
consolidated operating data for the Company as a percentage of net sales.

Relationship to Net Sales
Fiscal Year

12

Sales by operating segment for fiscal 2003, 2002 and 2001 were as
follows:

Operating income (loss) by operating segment for fiscal 2003, 2002 and
2001 was as follows:

(1) Includes items not allocated to the three operating segments.

RESULTS OF OPERATIONS

Consolidated Sales and Gross Profit Margins

Our net sales for the 12-month period ended February 28, 2003 ("fiscal
2003") grew by $11,506,000, or 2.6 percent, compared to the 12-month period
ended February 28, 2002 ("fiscal 2002"). Net sales increased in our North
American and International operating segments, while our Tactica segment's net
sales decreased.

Fiscal 2002 net sales improved 25.2 percent or $90,155,000 versus the
12-month period ended February 28, 2001 ("fiscal 2001"). All three of our
operating segments exceeded their prior year sales totals, with the Tactica
operating segment producing $84,665,000 of the fiscal 2002 sales increase. The
International operating segment was responsible for most of the remaining sales
growth.

Gross profit, as a percentage of sales decreased from 46.6 percent in
fiscal 2002 to 46.0 percent in fiscal 2003, primarily because of the mix of net
sales among our operating segments. Our North American and International
segments' net sales increased during fiscal 2003, both in absolute terms and as
a percentage of consolidated net sales. These segments generally achieve lower
gross margins than Tactica, but also incur lower selling, general, and
administrative expenses, as a percentage of net sales, than Tactica. This change
in sales mix contributed to the decrease in gross profit margins. The North
American and International segments both achieved improved gross margins during
fiscal 2003, offsetting, in part, the effect of the change in our sales mix.

Our fiscal 2002 gross profit margins improved from 38.3 to 46.6
percent. Most of this increase was attributable

13

to Tactica's higher sales. Tactica's net revenues made up 24.1 percent of our
consolidated fiscal 2002 net sales, versus 6.7 percent in fiscal 2001, thus
increasing the effect of its relatively high gross margins on consolidated gross
margins. North American segment gross margins also improved from fiscal 2001 to
fiscal 2002, primarily because of a favorable change in the mix of products sold
and our ability to source product more efficiently.

Selling, general, and administrative expense

During fiscal 2003, selling, general, and administrative expenses
("SG&A"), expressed as a percentage of sales, decreased from 37.3 percent to
34.5 percent. Three factors contributed significantly to this decrease. First,
we experienced a $2,035,000 reduction in SG&A due to the discontinuance of
goodwill amortization associated with the adoption of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets." Second,
SG&A dropped by $1,945,000, compared to fiscal 2002, because of foreign exchange
gains. Finally, our North American and International segments comprised larger
portions of our business in fiscal 2003 than in fiscal 2002. As mentioned above,
the North American and International segments generally incur lower SG&A, as a
percentage of sales, than our other segment, Tactica. The difference in SG&A
rates is largely due to the fact that Tactica's business model requires it to
spend higher percentages of its net sales on media advertising. Because the
North American and International segments contributed larger percentages of our
consolidated net sales in fiscal 2003 than in fiscal 2002, the lower SG&A, as a
percentage of sales, that they incurred, had a greater weight in determining
consolidated SG&A as a percentage of net sales.

From fiscal 2001 to fiscal 2002, SG&A expressed as a percentage of net
sales, increased from 31.8 percent to 37.3 percent. Because Tactica grew
significantly during fiscal 2002, both in its sales volume and as a percentage
of our consolidated business, all of its operating statistics, including SG&A as
a percentage of sales, became much more significant to our overall results. This
was the primary reason for higher SG&A, as a percentage of sales, during fiscal
2002. Although its SG&A percentage was higher than the percentages incurred by
the other segments, Tactica's SG&A declined as a percentage of its net sales
from fiscal 2001 to fiscal 2002. The main reason for the decline was a drop in
Tactica's fixed expenses as a percentage of its increased sales. The variable
portion of Tactica's SG&A expense rose slightly as a percentage of its fiscal
2002 net sales, mainly because of higher advertising expense. Excluding Tactica,
our fiscal 2002 SG&A as a percentage of sales was consistent with fiscal 2001,
as lower media advertising expenses largely offset slightly higher personnel,
insurance, and inventory storage costs.

North American Segment

The North American segment sells hair care and other personal care and
comfort appliances, hair brushes, combs, utility and decorative hair
accessories, liquid hair care products, and liquid and powder skin care products
in the U.S. and Canada. The North American segment's main customers are mass
merchandisers, drug chains, warehouse clubs, grocery stores, and beauty supply
retailers and wholesalers.

Net sales in the North American segment grew $37,254,000 or 12.1
percent from fiscal 2002 to fiscal 2003. On October 23, 2002, we expanded our
product lines into the liquid and powder hair and skin care category by
acquiring four brand names and licenses to sell products under two additional
brand names. Sales of liquid and powder hair and skin care products under the
six new brand names resulted in $11,200,000 of sales growth in the North
American segment. Exclusive of these sales our North American segment grew 8.4
percent. The growth, exclusive of the liquid and powder product lines, resulted
from increased sales of existing product lines that have been enhanced with new
technologies and features. Examples include hair care appliances utilizing ionic
technology and ceramic, rather than traditional, heating surfaces. We also
experienced increased sales in our Vidal Sassoon(R) line of hair clippers, as
well as hair care appliances sold under our Wave Rage(TM) trade name. Partially
offsetting the gains discussed above, our fiscal 2003 net sales of hair brushes,
combs and accessories were lower than in fiscal 2002.

North American segment sales remained relatively constant from fiscal
2001 to fiscal 2002, increasing by less than one percent. In the retail
distribution channel, our new line of ion hair care appliances and our private
label products produced sales increases. Slight decreases in sales of some of
our branded hair care and personal care appliances, as well

14

as lower sales of brushes, combs, and accessories offset partially the sales
increases. Sales in the North American professional distribution channel grew
mainly because of new product introductions and the expansion of some of our
larger customers in this channel of distribution. The weakness of the U.S.
economy in fiscal 2002, relative to the recent past, contributed to a difficult
North American sales environment.

The North American segment's operating income grew $17,351,000, or 53.9
percent, for fiscal 2003, compared to fiscal 2002. Operating income in the North
American segment was 14.3 percent of sales, compared to 10.4 percent in fiscal
2002. The sales growth discussed above was a significant factor in the North
American segment's achievement of higher operating income. The North American
segment benefited from the absence of goodwill amortization during fiscal 2003,
due to the adoption of SFAS 142, and achieved better gross margins in fiscal
2003 than fiscal 2002. The increased gross margins were attributable primarily
to more efficient product sourcing. In addition, the North American segment
benefited during fiscal 2003 from the reclassification of $580,000 that was
accrued during fiscal 2000 for anticipated customer credits related to the
artificial fingernails business, but was not needed for that purpose. This
amount was reclassified in fiscal 2003 to accrue for customer credits related to
other products.

Operating income generated by the North American segment increased 12.1
percent in the fiscal year ended February 28, 2002, compared to the same period
a year earlier. Expressed as a percentage of sales, the North American segment's
operating income rose from 9.3 percent to 10.4 percent from fiscal 2001 to
fiscal 2002. The improved North American operating results were primarily the
result of higher gross profit margins, arising from favorable changes in the mix
of products sold and our ability to source product more efficiently.

International Segment

The International segment sells hair care and other personal care and
comfort appliances, hairbrushes, combs, utility and decorative hair accessories,
liquid hair care products, and liquid and powder skin care products outside of
the U.S. and Canada. The International segment, like the North American segment,
sells primarily to mass merchandisers, drug chains, warehouse clubs, grocery
stores, and beauty supply retailers and wholesalers.

Net sales in the International segment grew $3,853,000 or 12.9 percent
from fiscal 2002 to fiscal 2003. As discussed in the North American segment
sales analysis above, on October 23, 2002, we expanded our product lines into
the liquid and powder hair and skin care category by acquiring four brand names
and licenses to sell products under two additional brand names. Sales of liquid
and powder hair and skin care products under the six new brand names resulted in
$1,797,000 of sales growth in the International segment. Exclusive of these
sales our International segment grew 6.9 percent. The International segment
sales increase, exclusive of the liquid and powder products, is mainly comprised
of improved sales in the United Kingdom ("UK"). The introduction of hair
straighteners under the Vidal Sassoon(R) trade name in the UK produced part of
the sales growth, while the introduction of a new line of hair care appliances
under the Cosmopolitan trade name contributed the balance. The strengthening
during fiscal 2003 of the British pound and the Euro versus the U.S. dollar also
had a positive effect on our International segment's net sales.

Increased sales in Latin and South America, France, and the UK drove
International segment net sales up 17.8 percent during fiscal 2002. The growth
in Latin America and South America was attributable to our successful efforts to
increase distribution by expanding our customer base in that geographic area.
The net sales increase in France was due both to the development of
relationships with a larger number of customers and the growth of our business
with existing customers. Expanded sales to some of our larger customers in the
UK drove sales increases there.

The International segment generated $2,995,000 of operating income,
compared to a $244,000 operating loss in fiscal 2002. Higher net sales, along
with better gross profit margins, were keys to the International segment's
improved operating results for fiscal 2003. As was the case with the North
American segment, more efficient sourcing contributed to the International
segment's improved gross margins. Foreign currency exchange gains also increased
the International segment's operating profits by approximately $1,900,000. Our
operations in the UK, Germany, and France purchase inventory using United States
dollars and bill customers in British pounds or Euros upon selling such
inventory. This

15

method of purchasing and billing combined with a weakening U.S. dollar to
produce foreign exchange gains during fiscal 2003.

Our International segment incurred an operating loss of $244,000 in
fiscal 2002, compared to operating income of $94,000 in fiscal 2001. During
fiscal 2002, we experienced collection difficulties with a customer in the Latin
and South American market, as well as several customers in the Middle East. We
are currently exploring strategies that might reduce our credit risk in the
Latin and South American market. In addition to collection difficulties,
inventory markdowns and currency exchange losses contributed to the
International segment's fiscal 2002 operating loss.

Tactica Segment

We own a 55 percent interest in Tactica International, Inc.
("Tactica"). Tactica sells a variety of personal care and other products to
retailers and directly to consumers. Tactica uses television and print media
advertising extensively. As a result, Tactica incurs higher SG&A expenses, as a
percentage of sales, than the North American and International operating
segments.

At the time that we acquired Tactica, we determined that use of the
purchase method of accounting and consolidation was appropriate and we continue
to use that method of consolidation. Tactica had accumulated a net deficit at
the time that we acquired our interest in it and the minority shareholders have
not adequately guaranteed their portion of the accumulated deficit. At February
28, 2003, Tactica's accumulated deficit totaled $2,172,000. Therefore, our
Consolidated Statements of Income for fiscal 2003, 2002 and 2001 include 100
percent of Tactica's net earnings or loss. We will continue to recognize all of
Tactica's net income or loss until such time as Tactica's $2,172,000 accumulated
deficit is extinguished.

Tactica's fiscal 2003 net revenues decreased 27.2 percent, compared to
fiscal 2002. Sales of Tactica's Epil-Stop(R) hair removal products decreased
approximately 50 percent, with this change being the primary reason for
Tactica's lower net revenues. We expect Tactica's fiscal 2004 net revenues to
remain relatively constant, compared to fiscal 2003. Please refer to the section
below entitled "Risk Factors" regarding this and other forward-looking
statements.

During fiscal 2002, Tactica's net revenues increased to over four times
their fiscal 2001 levels. Epil-Stop(R) products played the most significant role
of any product in Tactica's fiscal 2002 sales increase. The Electrosage(TM)
muscle stimulation / exercise product line and the new Twist-A-Braid(TM) hair
styling accessory also contributed to higher fiscal 2002 sales.

Due mainly to the sales decrease discussed above, Tactica's operating
income decreased from $11,930,000 in fiscal 2002 to $2,657,000 in fiscal 2003.
In addition to lower sales, Tactica also achieved slightly lower gross profit,
as a percentage of sales, in fiscal 2003 than in fiscal 2002 as its sales mix
shifted more heavily toward retailers and away from sales directly to consumers.
Because its sales decreased, Tactica experienced an increase in SG&A as a
percentage of sales, despite lowering its SG&A spending by approximately
$16,000,000.

Tactica's operating income of $11,930,000 in fiscal 2002 was a
$16,559,000 improvement over its fiscal 2001 operating loss of $4,629,000.
Tactica's improvement in net sales was the primary factor leading to its better
operating results in fiscal 2002. Higher fiscal 2002 revenues produced more
gross profit for Tactica and caused its SG&A expenses, as a percentage of sales,
to decrease.

Interest expense and Other income / expense

Interest expense was $291,000, or 6.8 percent, lower in fiscal 2003
than in fiscal 2002. We did not borrow any funds under our line of credit during
fiscal 2003, as opposed to fiscal 2002, when we borrowed funds during the first
three quarters of that fiscal year and incurred the related interest expense.
During fiscal 2003, our interest expense

16

consisted entirely of interest on our fixed rate long-term notes payable.

Interest expense increased 6.7 percent, or $267,000, from fiscal 2001
to fiscal 2002. This was largely due to increased borrowings under our line of
credit during the first three quarters of fiscal 2002. The increase in
borrowings was due to our relatively high levels of inventory purchases early in
the year. Such purchases enabled us to obtain products from suppliers at
favorable prices.

The increase of $706,000, or 62 percent, in our other income for fiscal
2003, over fiscal 2002, was due mainly to the fact that we had more cash
available for investment during most of fiscal 2003 than fiscal 2002.

Other income decreased to $1,146,000 in fiscal 2002, compared to
$1,883,000 in fiscal 2001. The primary reason for the decrease was a drop in
income from the sale and appreciation of trading securities from approximately
$1,400,000 in fiscal 2001 to $147,000 in fiscal 2002. Interest income also fell
because of lower interest rates and because of lower cash balances for most of
fiscal 2002 versus fiscal 2001.

Income tax expense

Our fiscal 2003 income tax expense was 23.7 percent of net income
before taxes, a rate relatively constant with the 24.2 percent rate that we
experienced in fiscal 2002. Because of our corporate structure, the earnings
produced by our North American and International operating segments are
generally taxed at lower rates than earnings produced by Tactica. The North
American and International segments, combined, contributed a significantly
larger portion of our earnings in fiscal 2003 than in fiscal 2002. This change
in the mix of our earnings served to reduce our consolidated effective income
tax rate. However, as discussed below, we removed a valuation allowance from a
deferred tax asset during fiscal 2002, thereby making that year's effective
income tax rate lower than it otherwise would have been. This factor offset the
reduction of income taxes as a percentage of earnings before income taxes,
caused by the reduction in Tactica's contribution to pre-tax earnings.

In fiscal 2002 our income tax expense was 24.2 percent of net income
before income taxes, as opposed to 17.0 percent in fiscal 2001. The main reason
for this change was Tactica. As mentioned above, Tactica usually incurs higher
income tax rates than do our other two segments combined. Because Tactica
produced net income during fiscal 2002, as opposed to a loss in fiscal 2001, our
fiscal 2002 effective tax rate rose. The removal during fiscal 2002 of a
valuation allowance from a $1,115,000 deferred tax asset reduced Tactica's
income tax expense for fiscal 2002.

LIQUIDITY AND CAPITAL RESOURCES

During fiscal 2003, we funded several significant capital, trademark,
and license expenditures with cash generated internally. Our largest such
expenditures consisted of the purchase of four trade names and the rights under
licenses for two additional trade names. We now sell hair care liquids and skin
care liquids and powder under those six brand names. In addition, we purchased a
warehouse in Mississippi and entered an agreement with a licensor whereby we
prepaid royalties due in future years. We used approximately $63,000,000 of cash
in these transactions and ended the year with cash of more than $47,000,000.

Operating activities provided $43,513,000 during fiscal 2003, compared
to $52,632,000 during fiscal 2002. The primary reason for the difference between
these two figures was our use of $11,500,000 to prepay royalties under a license
agreement in connection with alterations to the terms of that agreement.
Investing activities used $60,529,000 of cash during fiscal 2003, compared with
$5,778,000 in fiscal 2002, mainly because of our purchase of a warehouse in
Mississippi and our acquisition of four trade names under which we will sell
hair care liquids and skin care liquids and powder, as well as licenses to sell
such products under two additional trade names. The new warehouse replaces space
that we were leasing in a warehouse operated by a third party in the Southeast.
The purchase of the brand names and rights under licenses allows us to expand
into an additional portion of the personal care market. We believe that this
transaction will result in increased net sales and earnings for the Company.

17

Net accounts receivable decreased 11.4 percent from February 28, 2002
to February 28, 2003. This decrease is largely a result of the timing of our
fourth quarter sales. Our sales during the first month of the fourth quarter
were higher in fiscal 2003 than in fiscal 2002. The reverse was true of sales
for the third month of the quarter. This pattern resulted in earlier collection
of fiscal 2003 fourth quarter sales, compared to fiscal 2002.

Our February 28, 2003 inventory balance increased 11.6 percent,
compared to the same time a year earlier, while net sales grew by 2.6 percent.
The primary reason for the difference between the percentage increase in
inventory and sales was an increase in the Tactica segment's inventory, while
its sales decreased.

Our working capital balance decreased to $173,809,000 at February 28,
2003, from $191,438,000 at February 28, 2002. Our current ratio was 3.8 at
February 2003, compared to 4.7 at February 28, 2002. The decreases in our
working capital and current ratio resulted from the conversion of cash into
non-current assets in connection with the purchases of brand names and a new
warehouse facility, as well as the prepayment of royalties, all of which are
discussed earlier in this section.

In connection with its acquisition of a 55 percent interest in Tactica,
the Company loaned $3,500,000 to the minority shareholders of Tactica. The
annual interest rate on these loans is 8.75 percent. All principal and unpaid
interest on these loans is due March 14, 2005. These loans are secured by the
shares of Tactica held by the minority shareholders. The total amounts of
principal and accrued interest due to the Company under the loans to Tactica's
minority shareholders were $4,409,000 and $4,103,000 at February 28, 2003 and
2002, respectively. These amounts are included in "Other assets" on the
Consolidated Balance Sheets.

We maintain a revolving credit loan with a bank to facilitate
short-term borrowings and the issuance of letters of credit. This line of credit
allows borrowings totaling $25,000,000, incurs 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 February 28, 2003 the interest rate charged
under the line of credit was 2.31 percent. This 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 February 28, 2003, there were no borrowings under this line of credit
and outstanding letters of credit totaled $828,000. The revolving credit
agreement provides that the Company must satisfy requirements concerning its
minimum net worth, debt to capitalization ratio, debt to EBITDA ratio and its
fixed charge coverage ratio. The Company is in compliance with all of these
requirements. Under the terms of the revolving credit agreement, one of our U.S.
subsidiaries is the borrower. Our parent company, located in Bermuda and three
of our U.S. subsidiaries fully guarantee any amounts outstanding under the
revolving line of credit on a joint and several basis.

Our $55,000,000 of long-term debt is comprised of a group of unsecured
Senior Notes with face values totaling $40,000,000 and an annual interest rate
of 7.01 percent, as well as an unsecured Senior Note with a face value of
$15,000,000 and an annual interest rate of 7.24 percent. We pay interest on
these notes each calendar quarter. The $40,000,000 group of Senior Notes
requires annual principal payments of $10,000,000 beginning January 5, 2005,
with the final payment due January 5, 2008. The $15,000,000 Senior Note requires
annual principal payments of $3,000,000 beginning July 18, 2008, with the final
payment due July 18, 2012. The Senior Notes contain covenants that require the
Company to meet certain net worth and other financial requirements.
Additionally, the Senior Notes restrict the Company from incurring liens on any
of its properties, except under certain conditions. The Company is in compliance
with all the terms of these notes. Under the terms of the Senior Notes, one of
our U.S. subsidiaries is the borrower. Our parent company, located in Bermuda,
one of our subsidiaries located in Barbados, and three of our U.S. subsidiaries
fully guarantee the Senior Notes on a joint and several basis.

Capital and license expenditures totaled $42,865,000, $878,000, and
$3,185,000 in fiscal 2003, 2002, and 2001, respectively. Capital and license
expenditures during fiscal 2003 included $16,700,000 associated with our
purchase of a new warehouse facility in Mississippi, $19,000,000 paid for the
acquisition of the rights to sell Sea Breeze(R) and

18

Vitapointe(R) products under a license agreement, and $2,000,000 paid in
connection with the renewal and alteration of terms of a license agreement. We
also used $16,920,000 of cash to acquire trademarks. We are in the process of
replacing certain of our key information technology systems. We estimate that we
will spend a total of approximately $5,000,000 to $6,000,000 on this project,
with the expenditures occurring during fiscal 2004 and fiscal 2005. It is our
expectation that we will capitalize at least 80 percent of the amount spent on
the information technology project. In addition, we plan to move our UK
operation into a new office facility during fiscal 2004. We expect to make a
capital expenditure of approximately $1,800,000 in connection with the
construction of our new office facility in the UK. We expect to pay for the
information technology project and the new UK office facility with funds
generated internally.

Our contractual obligations and commercial commitments, as of February
28, 2003 were:

Our 55 percent-owned subsidiary, Tactica International, Inc.
("Tactica") leases office space in New York City. One of our U.S. subsidiaries
has issued a $389,000 standby letter of credit to the lessor. The lessor may
draw funds from the standby letter of credit if Tactica fails to pay its rent.
The standby letter of credit decreases to $195,000 on April 30, 2005 and expires
on the same date as the related lease, February 27, 2006.

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

Based on our current financial condition and current 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. Other than the planned capital
expenditures discussed above, 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. In addition, we
evaluate acquisition opportunities on a regular basis and might augment our
internal growth with acquisitions of complementary businesses and product lines.
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 upon conditions in the capital markets.

ACQUISITION OF TRADE NAMES AND LICENSES

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 to us 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 portion of the purchase price assigned to the four
trademarks purchased is included in our consolidated balance sheet as of
February 28, 2003 on the line entitled "Trademarks, net of accumulated
amortization." We have concluded that the useful economic lives of these
trademarks are indefinite, meaning that they are not subject to amortization.
This conclusion was reached after consideration of the history of the brands and
of our

19

plans and forecasts for sales of products under these trademarks. The portion of
the purchase price assigned to the rights obtained under the Sea Breeze(R) and
Vitapointe(R) licenses appears on our consolidated balance sheet as of February
28, 2003 on the line entitled "License agreements, at cost less accumulated
amortization." After consideration of the fact that the Sea Breeze(R) license is
perpetual and an analysis of the history of the brand as well as our plans and
forecasts with respect to the brand, we determined that the Sea Breeze(R)
license has an indefinite economic useful life. Therefore it is not subject to
amortization. The Vitapointe(R) license expires on December 31, 2010. Although,
our long-range expectation is to renew this license upon its expiration, we
determined that the finite nature of this license indicates that it has a
definite life and is, therefore subject to amortization. We expect annual
amortization expense associated with the Vitapointe(R) license to be
approximately $125,000.

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. We also have options
to extend the agreement for two additional ten-year periods.

NON-MONETARY TRANSACTIONS

During fiscal 2003, we entered into two non-monetary transactions in
which we exchanged inventory with a net book value of approximately $3,100,000
for advertising credits. As a result of these transactions, we recorded both
sales and cost of goods sold equal to the exchanged inventory's net book value.
We used approximately $600,000 of the advertising credits during fiscal 2003 and
expect to use the remaining advertising credits by February 28, 2004. The
remaining credits are valued at $2,500,000 on our Consolidated Balance Sheet at
February 28, 2003 and are included in the line item entitled "Prepaid Assets."

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: consolidation of Tactica International, Inc. ("Tactica") under
the purchase method, estimates of our exposure to liability for income taxes in
Hong Kong, estimates of credits to be issued to customers for sales that have
already been recorded, the calculation of our allowance for doubtful accounts,
and the valuation of inventory on a lower-of-cost-or-market basis.

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 fiscal 2003, 2002 and 2001 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.

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 1990 through 1997. During fiscal
2003, we came to an agreement with the IRD, settling its assessment for
fiscal 1990 through 1994 for approximately 56 percent of the amount
originally assessed. The ultimate resolution of the remaining IRD
claims cannot be

20

predicted with certainty. However, we have recorded a liability for the
IRD's claims, based on consultations with outside 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 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 $34,101,000 (U.S.) for
the period from fiscal 1995 through fiscal 2003.

Estimates of credits to be issued to customers - We regularly receive
requests for credits from retailers for returned products or in
connection with sales incentives, such as cooperative 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.

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.

Carrying value of long-lived assets - We apply the provisions of
Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142") and Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144") in assessing the carrying
values of our long-lived assets. SFAS 142 and SFAS 144 both require
that a company consider whether circumstances or conditions exist that
suggest that the carrying value of a long-lived asset might be
impaired. If such circumstances or conditions exist, further steps are
required in order to determine whether the carrying value of the asset
exceeds its fair market value. If analyses indicate that the asset's
carrying value does exceed its fair market value, the next step is to
record a loss equal to the excess of the asset's carrying value over
its fair value. The steps required by SFAS 142 and SFAS 144 entail
significant amounts of judgment and subjectivity. We did not record any
charges for impairment of long-lived assets during fiscal 2003.

Economic useful life of intangible assets - We apply Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142") in determining the useful economic lives of
intangible assets that we acquire and that we report on our
consolidated balance sheets. SFAS 142 requires that companies amortize
intangible assets, such as licenses and trademarks, over their economic
useful lives, unless those assets' economic useful lives are
indefinite. If an intangible asset's economic useful life is deemed to
be indefinite, that asset is not amortized. When we acquire an
intangible asset, we consider factors such as the asset's history, our
plans for that asset, and the market for products associated with the
asset. We consider these same factors when reviewing the economic
useful lives of our previously acquired intangible assets as well. We
review the economic useful lives of our intangible assets at least
annually. The determination of the economic useful life of an
intangible asset requires a significant amount of judgment and entails
significant subjectivity and uncertainty.

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
judgments.

21

RISK FACTORS

OUR FINANCIAL POSITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY
ADVERSELY AFFECTED BY CHANGES IN TAX LAWS. Currently, we benefit from an
international corporate structure that produces relatively low tax effective tax
rates on a consolidated basis. If we were to encounter changes in the rates or
rules imposed by certain key taxing jurisdictions, such changes could have a
material adverse effect on the Company's financial position and profitability.
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. Several bills have been introduced
recently in the U.S. Congress that, if enacted into law, could adversely affect
our U.S. federal income tax status. In addition to the legislation introduced in
Congress, the U.S. Treasury Department has published a study of restructurings
such as ours. 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 U.S. Treasury Department's study. However,
there is a risk that new laws in the U.S. 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 financial
condition and results of operations. In addition to potential changes in tax
laws, the Company's position on various tax matters may be challenged. Our
ability to maintain our position that the parent company is not a Controlled
Foreign Corporation (as defined under the U.S. Internal Revenue Code) is
critical to the tax treatment of our non-U.S. earnings. A Controlled Foreign
Corporation is a non-U.S. corporation whose largest U.S. shareholders (i.e.,
those owning 10% or more of its stock) together own more than 50% of the stock
in such corporation. If a change of ownership of the Company were to occur such
that the parent company became a Controlled Foreign Corporation, such a change
could have a material negative effect on the largest U.S. shareholders and, in
turn, on the Company's business.

THE HONG KONG INLAND REVENUE DEPARTMENT HAS CHALLENGED OUR POSITION ON
CERTAIN PROFITS AND ASSESSED TAXES ON SUCH PROFITS. WE HAVE SETTLED CERTAIN OF
THE CHALLENGES; HOWEVER, CERTAIN AMOUNTS ARE STILL OUTSTANDING AND WE MAY HAVE
TO PAY FURTHER MATERIAL AMOUNTS IN THE FUTURE. The Hong Kong Inland Revenue
Department ("the IRD") assessed $6,753,000 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 our position that we 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. 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 49% 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 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 1990 through 1994. During the second quarter of
fiscal 2003, the Company and the IRD agreed on a settlement for fiscal years
1990 through 1994. The Company and the IRD agreed to settle the amount for
$2,505,000 (56% of the assessed amount), plus interest of approximately
$100,000. In addition to the tax reserve certificates discussed above, we
previously purchased $2,468,000 in tax reserve certificates in connection with
the IRD's assessment for 1990 through 1994. We were able to apply these reserve
certificates to amounts due under the settlement. We paid the IRD approximately
$37,000 of additional cash, plus interest to settle the issues raised by the IRD
for fiscal 1990 through 1994. The settlement of the IRD's assessments for fiscal
1990 through 1994 did not affect the status of the IRD's assessments for fiscal
years 1995 through 1997. 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 $34,101,000 (U.S.) for the period from fiscal 1995 through fiscal
2003. Although the ultimate resolution of the IRD's claims cannot be predicted
with certainty, we believe that adequate provision has been made in the
financial statements for the resolution of the IRD's assessments for the fiscal
years 1990 through 1997 and potential future assessments relating to activity
since fiscal 1997. However, such provisions do not reserve for the full

22

amount of such contingency and if the IRD's position was to prevail the
Company's financial condition and future results of operations could be
materially adversely affected.

A FEW CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PERCENTAGE OF OUR SALES. OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD SUFFER IF WE LOST ALL OR A
PORTION OF THE SALES TO THESE CUSTOMERS. We are dependent on certain principal
customers. Wal-Mart Stores, Inc. and its affiliate, SAM'S Club accounted for
approximately 24 percent of the Company's net sales in fiscal 2003. Our top
three customers accounted for approximately 36 percent of fiscal 2003 net sales.
Although we have long-standing relationships with our major customers, no
contracts require these customers to buy from us. A substantial decrease in
sales to any of our major customers could have a material adverse effect on our
financial condition and results of operations.

THE SALES OF OUR TACTICA PRODUCTS ARE VERY VOLATILE. ACCORDINGLY, OUR
FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED AND THE RESULTS OF OPERATIONS
COULD FLUCTUATE MATERIALLY. Tactica's net sales increased by approximately 353
percent from fiscal 2001 and fiscal 2002 and decreased by approximately 27
percent from fiscal 2002 to fiscal 2003. Tactica's net sales comprised
approximately 17 percent and 24 percent of the Company's consolidated net sales
during fiscal 2003 and 2002, respectively. Tactica sells some products that have
short life cycles. Furthermore, Tactica relies on television infomercials and
direct response marketing campaigns for the marketing of some of its products.
Accordingly, Tactica's sales could continue to be more volatile than the sales
of our other two segments. Our financial position could be adversely affected
and the results of operations could fluctuate materially because of the
volatility of sales of Tactica products.

ONE OF OUR SUBSIDIARIES IS SUBJECT TO A STOCKHOLDERS' AGREEMENT WITH
THE FORMER STOCKHOLDERS OF TACTICA. UNDER THE TERMS OF THE STOCKHOLDERS'
AGREEMENT, UNDER CERTAIN CIRCUMSTANCES WE COULD BE REQUIRED TO BUY THE REMAINING
OUTSTANDING SHARES OF TACTICA OR SELL OUR TACTICA SHARES TO A THIRD PARTY. THE
COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE NEGATIVELY
AFFECTED IF IT WAS FORCED TO CHANGE ITS OWNERSHIP POSITION IN TACTICA. One of
our subsidiaries is a party to a stockholders' agreement with the former owners
of Tactica, who retained a 45% interest in Tactica (collectively the "other
Tactica stockholders"). Under the terms of the stockholders' agreement, we have
been granted the right to initiate a process whereby we can purchase, and the
other Tactica stockholders are required to sell, the shares they own. In
addition, the other Tactica stockholders have the right to initiate a process
regarding the sale of their remaining interest in Tactica. We may elect at our
option not to purchase the shares owned by the other Tactica stockholders and
under the terms of the stockholders' agreement the parties will then be required
to initiate a procedure under which the entire business of Tactica would be
offered for sale to third parties. In either case, the purchase price will be
based upon fair market value as determined by independent appraisal. A sale to a
third party would be subject to the approval of the other Tactica stockholders
and us. In the event that either party exercises its rights under the
stockholders' agreement, our financial position and results of operations could
be adversely affected.

WE ARE DEPENDENT ON THIRD PARTY MANUFACTURERS, MOST OF WHICH ARE IN THE
FAR EAST. CHANGES IN FOREIGN POLICY, INTERNATIONAL LAW OR THE INTERNAL LAWS OF
THE COUNTRIES WHERE OUR MANUFACTURERS ARE LOCATED COULD HAVE A MATERIAL NEGATIVE
EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS. All of
our products are manufactured by unaffiliated companies, most of which are in
the Far East. Risks associated with such foreign manufacturing include: changing
international political relations; changes in laws, including tax laws,
regulations and treaties; changes in labor laws, regulations, and policies;
changes in customs duties and other trade barriers; changes in shipping costs;
currency exchange fluctuations; local political unrest; and the availability and
cost of raw materials and merchandise. To date, these factors have not
significantly affected our production in the Far East. However, any change that
impairs our ability to obtain products from such manufacturers, or to obtain
products at marketable rates, could have a material negative effect on our
business, financial condition and results of operations.

23

THE RECENT OUTBREAK OF SEVERE ACUTE RESPIRATORY SYNDROME ("SARS") COULD
DISRUPT THE FLOW OF FINISHED GOODS THAT WE PURCHASE AND RE-SELL. Our subsidiary
in Hong Kong assists in the procurement of a large portion of the products that
we sell. Many of these products are produced in South China. SARS has been most
prevalent in these two regions. Should a SARS outbreak interfere with the
operations of the third party factories from whom we purchase product or should
it interfere with the operation of our office in Hong Kong, we might experience
a shortage of inventory. This type of shortage could have a material negative
effect on our financial position, results of operations, and cash flow. Thus
far, SARS has had no effect on our business.

OUR INDUSTRY IS EXTREMELY COMPETITIVE. OUR BUSINESS WILL SUFFER IF WE
DO NOT DEVELOP AND COMPETITIVELY MARKET PRODUCTS THAT APPEAL TO CONSUMERS. The
personal care and comfort products industry is extremely competitive.
Maintaining and gaining market share depends heavily upon price, quality, brand
name recognition, patents, innovative designs of new products and replacement
models, and marketing and distribution approaches. We compete with domestic and
international companies, some of which have substantially greater financial and
other resources than those of the Company. We believe that our ability to
produce reliable products that incorporate developments in technology and to
satisfy consumer tastes with respect to style and design, as well as our ability
to market a broad offering of products in each applicable category at
competitive prices, are keys to our future success. No assurance can be given
that we will be able to successfully compete on the basis of these factors in
the future.

WE ARE MATERIALLY DEPENDENT ON OUR LICENSED TRADEMARKS AS A SUBSTANTIAL
PORTION OF OUR SALES REVENUE COMES FROM SELLING PRODUCTS UNDER LICENSED
TRADEMARKS. OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE
MATERIALLY ADVERSELY AFFECTED IF WE ARE UNABLE TO SELL PRODUCTS UNDER THESE
TRADEMARKS. A substantial portion of our sales revenue is derived from sales of
products under licensed trademarks. As a result, we are materially dependent
upon the continued use of such trademarks, particularly the Vidal Sassoon(R) and
Revlon(R) trademarks. Actions taken by licensors and other third parties could
diminish greatly the value of any of our licensed trademarks. If we were unable
to sell products under these licensed trademarks or the value of the trademarks
were diminished by the licensor or third parties, the effect on our business,
financial condition and results of operations could be both negative and
material.

OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS WILL SUFFER
IF WE DO NOT ACCURATELY FORECAST OUR CUSTOMERS' DEMANDS. Because of our reliance
on manufacturers in the Far East, our production lead times are relatively long.
Therefore, we must commit to production in advance of customer orders. If we
fail to forecast customer or consumer demand accurately we may encounter
difficulties in filling customer orders or in liquidating excess inventories, or
may find that customers are canceling orders or returning products. Distribution
difficulties may have an adverse effect on our business by increasing the amount
of inventory and the cost of storing inventory. Additionally, changes in
retailer inventory management strategies could make inventory management more
difficult. Any of these results could have a material adverse effect on our
business, financial condition and results of operations.

OUR FUTURE ACQUISITIONS, IF ANY, AND NEW PRODUCTS MAY NOT BE
SUCCESSFUL, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. We may decide to grow our business through
the acquisition of new product lines and businesses. The acquisition of a
business or of the rights to market specific products or use specific product
names involves a financial commitment. In the case of an acquisition, such
commitments are usually in the form of either cash or stock consideration. In
the case of a new license, such commitments could take the form of license fees,
prepaid royalties, and future minimum royalty and advertising payments. While
our strategy is to acquire businesses and to develop products that will
contribute positively to earnings, there is no guarantee of such results.
Anticipated synergies may not materialize, cost savings may be less than
expected, sales of products may not meet expectations and acquired businesses

24

may carry unexpected liabilities. Each of these factors could result in a newly
acquired business or product line having a material negative impact on our
financial condition and results of operations.

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 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 the factors discussed above in the section entitled
"Risk Factors" and other risks described from time to time in the Company's
reports to the Securities and Exchange Commission, including this report.

NEW ACCOUNTING GUIDANCE

As explained in Note 1 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."
Our adoption of EITF 01-9 in fiscal 2003 had no effect on operating income, net
earnings, or earnings per share. The following table presents the impact of EITF
01-9 on net sales and SG&A had the standard been in effect for all fiscal years
during the three-year period ending February 28, 2003.

In June 2001, the Financial Accounting Standards ("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. We completed
reviews of our goodwill to determine whether any of that goodwill was impaired.
Based on the results of these reviews, we concluded that our goodwill was not
impaired as of March 1, 2002 or March 1, 2003. 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 $2,035,000
for the fiscal year ended February 28, 2003.

25

The following tables present the impact of SFAS 142 on net earnings and earnings
per share had the standard been in effect for the fiscal years ended February
28, 2003, 2002 and 2001. (In thousands, except per-share amounts):

In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, "Business Combinations" ("SFAS 141"). SFAS 141 requires all
business combinations to be accounted for using the purchase method and requires
the recognition of intangible assets apart from goodwill if they arise from
contractual or legal rights or if they are separable from goodwill. SFAS 141
applies to all business combinations initiated after June 30, 2001. We did not
enter into any transactions during fiscal 2003 that required the application of
SFAS 141. Our fiscal 2003 purchase from The Procter & Gamble Company of four
brand names and rights under licenses for two additional brand names was a
purchase of specific assets, rather than a business combination.

In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143").
SFAS 143 requires that legal obligations associated with the retirement of an
asset be recorded as liabilities as incurred and capitalized as part of the cost
of the associated asset. These obligations are then depreciated over the course
of the asset's useful life. We believe that SFAS 143 will have no effect on our
consolidated financial statements.

In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment of Long-Lived Assets" ("SFAS
144"). We adopted the provisions of SFAS 144 effective March 1, 2002. SFAS 144
requires that companies consider whether indicators are present that would
indicate impairment of any of their long-lived assets. If such indicators are
present the company compares the projected future undiscounted cash flows from
the asset to its book value. If the cash flows exceed the book value, no further
action is necessary. If the book value exceeds the projected undiscounted cash
flows, a loss is recognized for the excess of the asset's book value over its
fair value. SFAS 144 did not affect our consolidated financial statements as of
or for the year ending February 28, 2003.

In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" ("SFAS 148"). This statement amends Statement of Financial
Accounting Standards No. 123, "Accounting For Stock-Based Compensation" ("SFAS
123") by providing alternative methods of transition to the fair-value-based
method of accounting for stock-based employee compensation. It also amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures of
stock compensation information, including the method used to account for
stock-based compensation and the effects of that method on reported financial
results in interim, as well as annual, financial statements. We account for
stock-based compensation using the intrinsic value method in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." We recognize no compensation expense in our financial
statements for

26

stock options issued with exercise prices that equal or exceed the cost of our
common stock on the date such options are issued. As a result, we do not expect
the provisions of SFAS 148 covering the transition to fair-value method
accounting for stock-based compensation to affect our financial statements. We
make the disclosures required by SFAS 148 in Note (7) to our consolidated
financial statements. Beginning with our financial statements as of and for the
three months ended May 31, 2003, we will make the interim disclosures required
by SFAS 148.

In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that
a guarantor record a liability for and disclose certain types of guarantees. For
certain other guarantees, FIN 45 requires only disclosure in the notes to the
financial statements. We have not made any of the types of guarantees for which
FIN 45 requires that a liability be recorded. However, certain entities whose
financial statements are a part of our consolidated financial statements have
guaranteed obligations of other entities within our consolidated group. FIN 45
requires disclosure of these guarantees and of our product warranties. These
disclosures are contained in the notes to our consolidated financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 requires that a
company with an interest in a variable interest entity include such an entity in
its consolidated financial statements if its financial interest in the entity
indicates control. The statement applies immediately to interests in all
variable interest entities acquired after January 1, 2003. For other variable
interest entities, FIN is to be applied effective July 1, 2003. We have no
interests in entities covered by FIN 46. Therefore, we do not expect FIN 46 to
affect our consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Changes in interest rates and currency exchange rates represent our
primary financial market risks. Fluctuation in interest rates causes variation
in the amount of interest that we can earn on our available cash. Interest on
our long-term debt is fixed at rates ranging from 7.01 percent to 7.24 percent.
Increases in interest rates do not expose us to risk on this debt. However, as
interest rates drop below the rates on our long-term debt, our interest cost can
exceed the cost of capital of companies who borrow at lower rates of interest.

As mentioned in the "Liquidity and Capital Resources" discussion,
interest rates on our revolving credit agreement vary based on the three-month
LIBOR rate and on our ratio of debt to EBITDA. Therefore, the potential for
interest rate increases exposes us to interest rate risk on our revolving credit
agreement. That agreement allows maximum borrowings of $25,000,000. At the end
of fiscal 2003, no borrowings were outstanding under this agreement. However, if
the need to borrow under the revolving credit agreement were to arise, higher
interest rates would increase the cost of such debt. We do not currently hedge
against interest rate risk.

Because we purchase a substantial majority of our inventory using U.S.
dollars, we are subject to minimal short-term foreign exchange rate risk in
purchasing inventory. However long-term declines in the value of the U.S. dollar
could subject us to higher inventory costs. Such an increase in inventory costs
could occur if foreign vendors were to react to such a decline by raising
prices. Sales in countries other than the United Kingdom, Germany, and France
are transacted in U.S. dollars. Our sales in the United Kingdom are transacted
in British pounds and our sales in France and Germany are invoiced in Euros.
When the U.S. dollar strengthens against other currencies in which we transact
sales, we are exposed to foreign exchange losses on those sales because our
foreign currency sales prices are not adjusted for currency fluctuations. When
the U.S. dollar weakens against those currencies, we could realize foreign
currency gains. In fiscal 2003, our net sales denominated originally in
currencies other than the U.S. dollar totaled approximately $43,366,000,
converted at average monthly exchange rates. Our fiscal 2003 foreign currency
exchange gains totaled $1,638,000. During fiscal 2003, we began hedging against
foreign currency exchange rate risk by entering into forward contracts to
exchange a total of 5,000,000 British pounds for U.S. dollars at rates ranging
from 1.5393 to 1.548 dollars per British pound. At February 28, 2003, one
forward contract to exchange 1,000,000 British pounds for U.S. dollars at a rate
of 1.5393 U.S. dollars per British pound remained outstanding. We expect to
enter into additional forward contracts to hedge foreign currency risk up to one
year in advance in the future.

27

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE

All other schedules are omitted as the required information is included
in the consolidated financial statements or is not applicable.

28

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Helen of Troy Limited:

We have audited the consolidated financial statements of Helen of Troy Limited
and subsidiaries (the Company) as listed in the index on page 28. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedule as listed in the index on page 28. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Helen of Troy
Limited and subsidiaries as of February 28, 2003 and February 28, 2002, and the
results of their operations and their cash flows for each of the years in the
three-year period ended February 28, 2003, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth thereon.

As discussed in Note (1) to the consolidated financial statements, effective
March 1, 2002, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets."

/s/ KPMG LLP

El Paso, Texas
May 13, 2003

29

HELEN OF TROY LIMITED
AND SUBSIDIARIES

Consolidated Balance Sheets

February 28, 2003 and 2002
(in thousands, except par value and shares)

(Continued)

30

HELEN OF TROY LIMITED
AND SUBSIDIARIES

Consolidated Balance Sheets

February 28, 2003 and 2002
(in thousands, except par value and shares)

See accompanying notes to consolidated financial statements.

31

HELEN OF TROY LIMITED
AND SUBSIDIARIES

Consolidated Statements of Income
(in thousands, except shares and earnings per share)

See accompanying notes to consolidated financial statements.

32

HELEN OF TROY LIMITED
AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

Years ended February 28, 2003, 2002, and 2001
(in thousands)

See accompanying notes to consolidated financial statements.

33

HELEN OF TROY LIMITED
AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(in thousands)

(Continued)

34

HELEN OF TROY LIMITED
AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(in thousands)

See accompanying notes to consolidated financial statements.

35

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) General

Helen of Troy Limited, a Bermuda company, and its subsidiaries
("the Company") design, develop, import, and distribute hair care
appliances, hair brushes, combs, hair accessories, hair and skin care
liquids and powders, and other personal care products. The Company
purchases its products from unaffiliated manufacturers most of which
are located in the People's Republic of China, Thailand, Taiwan, and
South Korea.

The consolidated financial statements are prepared in U.S.
dollars and in accordance with accounting principles generally accepted
in the United States of America. These principles require management to
make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues, expenses, and the disclosure of
contingent assets and liabilities. Actual results could differ from
those estimates.

(b) Consolidation

The consolidated financial statements include the accounts of
Helen of Troy Limited and its subsidiaries, including Tactica
International, Inc. ("Tactica"), a subsidiary in which the Company
acquired a 55 percent interest in fiscal 2001. The Company's
consolidated net income includes and will continue to include 100
percent of Tactica's net income or loss until such time as the
minority interest in Tactica's accumulated deficit has been
extinguished. Intercompany balances and transactions have been
eliminated in consolidation.

(c) Revenue recognition

Sales are recognized when revenue is realized or realizable
and has been earned. Sales and shipping terms vary among customers,
and, as such, revenue is recognized when risk and title to the product
transfer to the customer. Net sales is comprised of gross revenues less
estimates of expected returns, trade discounts, and customer
allowances, which include incentives such as cooperative advertising
agreements and off-invoice markdowns. Such deductions are recorded
and/or amortized during the period the related revenue is recognized.

(d) Consideration paid to customers

The Company offers certain incentives in the form of
cooperative advertising arrangements, volume rebates, product markdown
allowances, trade discounts, cash discounts, and slotting fees to
customers who purchase its products. The Company accounts for these
types of incentives in accordance with Emerging Issues Task Force Issue
No. 01-9, "Accounting for Consideration Given by a Vendor to a
Customer" ("EITF 01-9"). In instances where the customer is required to
provide the Company with proof of performance, reductions in amounts
received from customers as a result of cooperative advertising programs
are included in the Consolidated Statement of Income on the line
entitled "Selling, general, and administrative expenses" ("SG&A").
Other reductions in amounts received from customers as a result of
cooperative advertising programs are recorded as reductions of net
sales. Markdown allowances, slotting fees, trade discounts, cash
discounts, and volume rebates are all recorded as reductions of net
sales. After the implementation of EITF 01-9 customer incentives
recorded as part of SG&A totaled $14,942,000, $12,261,000, and
$12,390,000, respectively, for the fiscal years ended February 28,
2003, 2002, and 2001.

36

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

(e) Inventories and cost of sales

The Company's inventories consist almost entirely of finished
goods. The Company accounts for its inventory using a
first-in-first-out system in which it records inventory on its balance
sheet at the lower of its cost or its net realizable value. A product's
cost is comprised of the amount that the Company pays a manufacturer
for the product, tariffs and duties associated with transporting the
product across national borders, freight costs associated with
transporting the product from its shipping point to the Company's
warehouse locations, and selling, general, and administrative ("SG&A")
expenses attributable directly to the procurement of inventory. SG&A
expenses attributable directly to the procurement of inventory include
the expenses associated with operating the Company's Hong Kong sourcing
facility, expenses associated with production forecasting, and certain
expenses incurred in designing products and packaging. The Company
charged $10,195,000, $9,608,000 and $10,074,000 of SG&A expenses to
inventory during the fiscal years ended February 28, 2003, 2002, and
2001, respectively. The Company estimates that $4,493,000 and
$4,332,000 of its inventory balances at February 28, 2003 and 2002,
respectively, consisted of SG&A expenses charged to inventory. Net
realizable value is based on the Company's estimate of future selling
prices, less estimated disposal costs.

The "Cost of sales" line item on the Consolidated Statements
of Income is comprised of the book value (lower of cost or net
realizable value) of inventory sold to customers during the reporting
period.

(f) Shipping and handling revenues and expenses

The Company reports revenue from shipping and handling charges
on the "Net sales" line of its Consolidated Statements of Income, in
accordance with paragraph 5 of Emerging Issues Task Force Issue 00-10,
"Accounting for Shipping and Handling Fees and Costs." The Company only
includes charges for shipping and handling in "Net sales" in respect of
sales to direct response customers and retail customers ordering
relatively small dollar amounts of product. The Company's shipping and
handling expenses far exceed its shipping and handling revenues.
Shipping and handling expenses are included in our Consolidated
Statements of Income on the line entitled "Selling, general, and
administrative expenses." The Company's expenses for shipping and
handling totaled $31,355,000, $32,495,000, and $21,670,000 during its
fiscal years ended February 28, 2003, 2002, and 2001.

(g) Valuation of accounts receivable

The allowance for doubtful accounts reflects the Company's
best estimate of probable losses, determined principally on the basis
of historical experience and specific allowances for known troubled
accounts.

(h) Property and equipment

Property and equipment are stated at cost. Depreciation is
recorded on a straight-line basis over the estimated useful lives of
the assets. Expenditures for repair and maintenance of property and
equipment are expensed as incurred.

(i) License agreements and Trademarks

A substantial majority of the Company's sales are made subject
to license agreements with the licensors of the Vidal Sassoon(R),
Revlon(R), Sunbeam(R), and Dr. Scholl's(R) trademarks. License
agreements are reported on the Company's Consolidated Balance Sheets at
cost, less accumulated amortization. The cost of license agreements
represents amounts paid to the licensor to acquire the license or to
alter the terms of the license in a manner which the Company believes
to be in its favor. Royalty payments are not included in the cost of
license agreements. The Company amortizes the acquisition costs of the
existing license agreements on a straight-line basis over the lives of
the respective agreements. Net sales subject to license agreements
comprised 59 percent, 56 percent, and 73 percent of total net sales for
fiscal years 2003, 2002, and 2001, respectively. Royalty expense under
the Company's license agreements is recognized as it is incurred and
comprises part of the totals reported on the line item entitled
"Selling, general, and administrative expenses" on our Consolidated
Statements of Income. See Note (3) for more information on the
Company's licenses.

37

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

The Company also sells products under trademarks that it owns.
Trademarks that the Company acquires from other entities are reported,
at the cost of acquiring the trademark, net of accumulated
amortization, on the Company's Consolidated Balance Sheets. Costs
associated with developing trademarks internally are recorded as
expenses in the period incurred. The Company amortizes the costs of
trademarks on a straight-line basis over the useful life of the
trademark. See Note (3) for more information on the Company's
trademarks.

(j) Income taxes

The Company uses the asset and liability method to account for
income taxes. Deferred income tax assets and liabilities are recognized
for the future tax consequences of temporary differences between the
book and tax bases of various assets and liabilities. Generally,
deferred tax assets represent future income tax reductions while
deferred tax liabilities represent income taxes that the Company
expects to pay in the future. The Company measures deferred tax assets
and liabilities using enacted tax rates for the years in which it
expects that temporary differences will reverse or be settled. Changes
in tax rates affect the carrying values of deferred tax assets and
liabilities. The effects of tax rate changes are recognized in the
periods in which they are enacted.

(k) Earnings per share

Basic earnings per share are computed based upon the weighted
average number of common shares outstanding during the period. Diluted
earnings per share are computed based upon the weighted average number
of common shares plus the effects of potentially dilutive securities.
The number of potentially dilutive securities was 1,359,098; 1,109,900;
and 308,689 for fiscal years 2003, 2002, and 2001, respectively.
Dilutive securities for the years ended February 28, 2003 and February
28, 2002 consisted entirely of stock options. Dilutive securities for
the year ended February 28, 2001 included 258,084 attributable to
dilutive stock options, as well as 50,605 contingently issuable as part
of an acquisition. 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 price of the Company's common stock totaled 4,162,662;
2,794,900; and 4,319,762 for fiscal 2003, 2002, and 2001, respectively.

(l) Cash equivalents

The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents. Cash equivalents comprised $37,049,000 and $48,911,000 of
the amount reported on the Company's consolidated balance sheets as
"Cash and cash equivalents" at February 28, 2003 and 2002,
respectively. The Company's cash equivalents consist of variable rate
demand bonds that mature in 35 or fewer days.

(m) Trading securities

Trading securities consist of shares of common stock of
several publicly traded companies and are stated on the Company's
Consolidated Balance sheets at market value, as determined by the most
recent trading price of each security as of the balance sheet date.
Management determines the appropriate classification of the Company's
investments when those investments are purchased and reevaluates those
determinations at each balance sheet date. At February 28, 2003, the
Company held its investments in equity securities of unaffiliated
companies for the purpose of trading them in the near term. Therefore,
all investments in equity securities are classified as trading
securities and included in the "Current assets" section of the
Company's Consolidated Balance Sheets. All unrealized gains and losses
attributable to such securities are included in "Other income" on the
Consolidated Statements of Income. The sum of unrealized and realized
net gains attributable to trading securities totaled $67,000, $165,000,
and $1,389,000 in fiscal 2003, 2002, and 2001, respectively.

38

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

(n) Foreign currency transactions and derivative financial instruments

The U.S. dollar is the Company's functional currency. All of
Helen of Troy Limited's non-U.S. subsidiaries' transactions involving
other currencies have been re-measured in U.S. dollars using average
exchange rates for the months in which the transactions occurred.
Changes in exchange rates that affect cash flows and the related
receivables or payables are included as part of the totals on our
Consolidated Statements of Income on the line entitled "Selling,
general, and administrative expenses" ("SG&A"). SG&A for fiscal 2003
and 2001, respectively, included reductions for foreign exchange gains
of $1,638,000 and $31,000. SG&A for fiscal 2002 included a charge of
$307,000 for foreign exchange losses.

The Company periodically hedges foreign currency risk for up
to one year by purchasing contracts to exchange foreign currencies for
U.S. dollars at specified rates. The Company first entered into such
contracts in fiscal 2003. See Note (13) to these consolidated financial
statements for a further discussion of the Company's hedging
activities. The Company's accounting for these contracts complies with
Statement of Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). The contracts into
which the Company entered in fiscal 2003 qualified as "effective
hedges." Therefore, changes in their market value due to changes in
exchange rates were recorded to selling, general, and administrative
expenses. The contracts into which the Company entered were "effective
hedges" according to the definition provided by SFAS 133. The Company's
forward exchange contracts at February 28, 2003 had a negative value of
$34,000. This amount is included in "Current Liabilities" section of
the Company's Consolidated Balance Sheet as of February 28, 2003 as a
component of the line entitled "Other." Since all of the cash flows
hedged by the Company had been realized at February 28, 2003, the
entire gain or loss attributable to the foreign exchange contracts
appears on our Consolidated Statement of Income on the line entitled
"Selling, general, and administrative expenses." The gain or loss
related to foreign currency exchange contracts appears in our
Consolidated Statements of Cash flows as a line item in the
reconciliation of net earnings to cash flows from operations.

(o) Advertising

Advertising costs are expensed in the fiscal year in which
they are incurred. During the fiscal years ended February 28, 2003,
February 28, 2002 and February 28, 2001, the Company charged
$45,917,000, $49,261,000, and $31,675,000, respectively, of advertising
costs to selling, general, and administrative expenses.

(p) Warranties

The Company's products are under warranty against defects in
material and workmanship for a maximum of two years. The Company has
established an accrual of approximately $3,263,000 and $3,428,000 as of
February 28, 2003 and February 28, 2002, respectively, to cover future
warranty costs. The Company estimates its warranty accrual using
historical trends. The Company believes that these trends are the most
reliable method by which it can estimate its warranty liability. The
following table summarizes the activity in the Company's accrual for
the past three fiscal years:

ACCRUAL FOR WARRANTY RETURNS
(in thousands)

39

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

(q) Carrying value of long-lived assets

The Company applies the provisions of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142") and Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144") in assessing the carrying values of its long-lived assets. SFAS
142 and SFAS 144 both require that a company consider whether
circumstances or conditions exist that suggest that the carrying value
of a long-lived asset might be impaired. If such circumstances or
conditions exist, further steps are required in order to determine
whether the carrying value of the asset exceeds its fair market value.
If the analyses indicate that the asset's carrying value does exceed
its fair market value, the next step is to record a loss equal to the
excess of the asset's carrying value over its fair value. The steps
required by SFAS 142 and SFAS 144 entail significant amounts of
judgment and subjectivity. The Company did not record any charges for
impairment of long-lived assets during fiscal 2003. Also see the
subsection of this note entitled "New Accounting Guidance."

(r) Economic useful lives and amortization of intangible assets

The Company applies Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142")
in determining the useful economic lives of intangible assets that it
acquires and that it reports on its Consolidated Balance Sheets. SFAS
142 requires that companies amortize intangible assets, such as
licenses and trademarks, over their economic useful lives, unless those
assets' economic useful lives are indefinite. If an intangible asset's
economic useful life is deemed to be indefinite, that asset is not
amortized. When the Company acquires an intangible asset, it considers
factors such as the asset's history, the Company's plans for that
asset, and the market for products associated with the asset. The
Company considers these same factors when reviewing the economic useful
lives of its existing intangible assets as well. The Company reviews
the economic useful lives of its intangible assets at least annually.
The determination of the economic useful life of an intangible asset
requires a significant amount of judgment and entails significant
subjectivity and uncertainty. Also see the subsection of this note
entitled "New Accounting Guidance."

Intangible assets consist primarily of goodwill, license
agreements and trademarks. The Company amortizes intangible assets
using the straight-line method over appropriate periods ranging from
five to forty years. The Company recorded amortization of intangible
assets totaling $1,329,000, $3,244,000, and $3,450,000 during fiscal
2003, 2002, and 2001, respectively. See Note (3) to these consolidated
financial statements for more information about the Company's
intangible assets.

(s) Interest income

Interest income is included in "Other income, net" on the
Consolidated Statements of Income. Interest income totaled $1,410,000,
$727,000, and $931,000 in fiscal 2003, 2002, and 2001, respectively.

(t) Financial instruments

The carrying amounts of cash and cash equivalents,
receivables, accounts payable, accrued expenses and income taxes
payable approximate fair value because of the short maturity of these
items. See Note (5) for management's assessment of the fair value of
the Company's guaranteed Senior Notes. The Company hedges a portion of
its foreign exchange rate risk by entering into contracts to exchange
foreign currencies for U.S. dollars at specified rates. The fair value
of such contracts is determined in accordance with Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." See Note (13) for more information
on the Company's hedging activities.

40

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

(u) Stock-based compensation plans

Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," encourages, but does not
require companies to record compensation expense for stock-based
compensation plans at fair value. The Company has chosen to account for
its stock-based compensation plans using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations.
Accordingly, the Company recognizes no expense in connection with its
stock-based compensation plans, as all stock option grants are made at
market value on the date of grant. Income tax benefits attributable to
stock options exercised are credited to Additional paid-in-capital.
Disclosures about the Company's stock-based compensation plans are
included in Note (7) to these consolidated financial statements.

(v) New accounting guidance

On March 1, 2002, the Company 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
table presents the impact of EITF 01-9 on net sales and SG&A had the
standard been in effect for all fiscal years during the three-year
period ending February 28, 2003.

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 completed reviews of its goodwill to determine whether any of
that goodwill was impaired. Based on the results of these reviews, the
Company's goodwill was not impaired as of March 1, 2002 or March 1,
2003. Therefore, it incurred no impairment charge as a result of the
adoption of SFAS 142. Because it eliminates the amortization of
goodwill, SFAS 142 decreased the Company's SG&A expense by $2,035,000
for the fiscal year ended February 28, 2003.

41

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

The following tables present the impact of SFAS 142 on net
earnings and earnings per share had the standard been in effect for the
fiscal years ended February 28, 2003, 2002 and 2001. (in thousands,
except per-share amounts):

The Company recorded $3,079,000, $2,865,000 and $3,003,000 of
depreciation expense for fiscal 2003, 2002, and 2001, respectively. Capital
expenditures totaled $20,865,000, $878,000, and $1,351,000 in fiscal 2003, 2002,
and 2001, respectively.

The Company recorded a $158,000 impairment charge in fiscal 2001
related to assets held for sale. The related assets consisted of the Company's
former office and warehouse facilities located in El Paso, Texas. The Company
sold its former office facility during fiscal 2002. The carrying value of the
Company's former warehouse facility is included within the total classified as
"Other assets" on the February 28, 2003 and 2002 Consolidated Balance Sheets.

The Company leases 108,000 square feet of warehouse space, as well as
various administrative office spaces, from a real estate partnership in which
the Chief Executive Officer and another member of the Board of Directors are
limited partners. During fiscal 2003, 2002, and 2001, the Company paid the real
estate partnership $614,000, $624,000, and $510,540, respectively, under these
leases.

(3) INTANGIBLE ASSETS

The following table is a summary, by operating segment, of the
Company's goodwill balances as of February 28, 2003 and February 28, 2002.

Total Goodwill by Operating Segment (thousands)

44

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) INTANGIBLE ASSETS, CONTINUED

The following table discloses information regarding the carrying
amounts and associated accumulated amortization for intangible assets, other
than goodwill.

Intangible Assets (in thousands)

(a) February 28, 2003 gross and net carrying amounts include
$16,920,000 of trademarks and $18,000,000 of licenses not subject to
amortization.

The following table summarizes the amortization expense attributable to
intangible assets for the year ending February 28, 2003, 2002, and 2001, as well
as estimated amortization expense for the fiscal years ending the last day of
February 2004 through 2008.

(a) Totals for the twelve months ending February 28, 2002 and 2001
include $2,035,000 and $2,025,000 respectively, of goodwill
amortization.

Many of the license agreements under which the Company sells or intends
to sell products with trademarks owned by other entities require the Company to
pay minimum royalties and make minimum levels of advertising expenditures. For
the fiscal year ending February 29, 2004, minimum royalties due and minimum
advertising expenditures under these agreements total $3,705,000 and $6,274,000,
respectively.

(4) REVOLVING LINE OF CREDIT

The Company maintains a revolving credit loan with a bank to facilitate
short-term borrowings and the issuance of letters of credit. This 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 February 28, 2003 the interest rate
charged under the line of credit was 2.31 percent. This 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 February 28, 2003, there were no borrowings under this line of credit
and outstanding letters of credit totaled $828,000. The revolving credit
agreement provides that the Company must satisfy requirements concerning its
minimum net worth, total debt to consolidated total capitalization ratio, debt
to EBITDA ratio, and its fixed charge coverage ratio. The Company is in
compliance with all of these requirements. Under the terms of the revolving
credit agreement, one of the Company's U.S. subsidiaries is the borrower. The
consolidated group's parent company, located in Bermuda and three of its U.S.
subsidiaries fully guarantee the Revolving Line of Credit on a joint and several
basis.

45

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5) LONG-TERM DEBT

On January 5, 1996, a U.S. subsidiary issued guaranteed Senior Notes at
face value of $40,000,000. Interest is paid quarterly at an annual rate of 7.01
percent. The Senior Notes are unsecured, and are guaranteed by Helen of Troy
Limited and certain of its subsidiaries. Annual principal payments of
$10,000,000 each begin January 5, 2005, with the final payment due January 5,
2008. Using a discounted cash flow analysis based on estimated market rates, the
estimated fair value of the guaranteed Senior Notes at February 28, 2003 is
approximately $41,465,000.

On July 18, 1997, a U.S. subsidiary of the Company issued a $15,000,000
Senior Note. Interest is paid quarterly at an annual rate of 7.24 percent. The
$15,000,000 Senior Note is unsecured, is guaranteed by Helen of Troy Limited and
certain of its subsidiaries and is due July 18, 2012. Annual principal payments
of $3,000,000 each begin July 18, 2008, with the final payment due July 18,
2012. Using a discounted cash flow analysis based on estimated market rates, the
estimated fair value of the guaranteed Senior Note at February 28, 2003 is
approximately $16,105,000.

Both the $40,000,000 and $15,000,000 Senior Notes contain covenants
that require the Company to meet certain net worth and other financial
requirements. Additionally, the notes restrict the Company from incurring liens
on any of its properties, except under certain conditions as defined in the
Senior Note agreements. The Company is in compliance with all the terms of these
notes. Under the terms of the Senior Notes, one of the Company's U.S.
subsidiaries is the borrower. The consolidated group's parent company, located
in Bermuda, one of its subsidiaries located in Barbados, and three of its U.S.
subsidiaries fully guarantee the Senior Notes on a joint and several basis.

See Note (8) to these consolidated financial statements for maturity
schedules of principal amounts due under the Senior Notes.

(6) INCOME TAXES

The components of earnings before income tax expense are as follows:

The components of income tax expense (benefit) are as follows:

46

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6) INCOME TAXES, CONTINUED

Total income tax expense differs from the amounts computed by applying
the statutory tax rate to earnings before income taxes. The reasons for these
differences are as follows:

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at February 28, 2003 and
2002 are as follows:

The Company's gross deferred tax asset of $581,000 attributable to U.S.
net operating loss carryforwards expires if not utilized by various dates
ranging from fiscal 2019 to 2023. The Company's gross deferred tax asset of
$165,000 attributable to non-U.S. net operating loss carryforwards expire at
various dates between fiscal 2005 and fiscal 2012. Accounting standards require
that deferred income taxes reflect the tax consequences of future tax benefits,
including net operating losses, to the extent that realization of such benefits
is more likely than not. Certain of the Company's gross deferred tax assets did
not, in the opinion of management, meet that standard as of February 28, 2003
and 2002. Therefore, the Company placed a valuation allowance against those
assets. Although realization is not assured, management believes it is more
likely than not that the remaining net deferred tax assets, including net
operating losses, will be realized. The amount of the deferred tax assets
considered realizable, however, could be lower if estimates of future taxable
income during the carryforward period are reduced. During the fiscal year ended
February 28, 2003, the Company removed the valuation allowances that were in
place at February 28, 2002. These valuation allowances were related to net
operating loss carryforwards of the Company's United Kingdom subsidiary and one
of its U.S. subsidiaries. During fiscal 2003, circumstances arose that either
allowed the use of such net operating losses or that caused management to
believe that it to be more likely than not that they will be used at a future
date.

47

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6) INCOME TAXES, CONTINUED

The Hong Kong Inland Revenue Department ("the IRD") has assessed
$6,753,000 in income 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, the Company has
recorded a liability for the IRD's claims, based on consultations with outside
Hong Kong tax experts as to the probability that some or all of the IRD's claims
prevail. If the IRD were to assert the same position for later years and that
position were to prevail, the resulting tax liability could total $34,101,000
(U.S.) for the period from fiscal 1995 through fiscal 2003. In connection with
the IRD's tax assessment, the Company purchased tax reserve certificates in Hong
Kong. The certificates were valued at $3,282,000 (U.S.) as of February 28, 2003,
or approximately 49 percent of the liability assessed by the IRD for fiscal 1995
through 1997. Tax reserve certificates represent the prepayment of potential tax
liabilities by a taxpayer. The amounts paid for tax reserve certificates are
refundable in the event that the value of the tax reserve certificates exceeds
the related tax liability. These certificates are denominated in Hong Kong
dollars and are subject to the risks associated with foreign currency
fluctuations. Although the ultimate resolution of the IRD's claims cannot be
predicted with certainty, management believes that adequate provision has been
made in the financial statements for the resolution of the IRD's claims.

The IRD also assessed $4,468,000 in tax on certain profits of the
Company's foreign subsidiaries for fiscal years 1990 through 1994. During the
second quarter of the fiscal year ended February 28, 2003, the Company settled
its dispute for those years with the IRD 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 tax reserve certificates that we forfeited were included on our
Consolidated Balance Sheet as of February 28, 2002 on the line entitled "Other
assets, net of accumulated amortization." The settlement did not affect the
current status of the IRD's assessments for fiscal years 1995 through 1997 and
did not have a material effect on the Company's fiscal 2003 consolidated net
earnings.

The Internal Revenue Service ("IRS") is auditing the U.S. federal tax
returns of the Company's largest U.S. subsidiary for the fiscal years 1997,
1998, and 1999. The IRS has proposed adjustments to those returns. If the IRS's
position with respect to these adjustments were to prevail, the resulting tax
liability could total $9,884,000. The Company plans to vigorously contest these
adjustments and is engaged in the process of formulating its response. Although
the ultimate outcome of the examination cannot be predicted with certainty,
management is of the opinion that adequate provision has been made in the
consolidated financial statements for the adjustments proposed. The IRS is also
auditing the U.S. federal tax returns of the Company's largest U.S. subsidiary
for fiscal years 2000, 2001, and 2002. Thus far, the IRS has proposed no
adjustments to these tax returns. The Company cannot predict with certainty the
results of the IRS examination for these years.

The Company plans to permanently reinvest all of the undistributed
earnings of the non-U.S. subsidiaries of the U.S. subsidiaries. The Company has
made no provision for U.S. federal income taxes on these undistributed earnings.
At February 28, 2003, undistributed earnings for which the Company had not
provided deferred U.S. federal income taxes totaled $50,244,000.

48

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7) STOCK-BASED COMPENSATION PLANS

The Company sponsors four stock-based compensation plans. The plans
consist of two employee stock option plans, a non-employee director stock option
plan and an employee stock purchase plan. These plans are described below. As
all options were granted at or above market prices on the dates of grant, no
compensation expense has been recognized for the Company's stock option plans or
its stock purchase plan. Had the Company recorded compensation expense for its
stock option plans based on the fair value of the options at the dates of grant
for those awards, consistent with the method of Statement of Financial
Accounting Standards No. 123, "Accounting For Stock-Based Compensation," net
earnings and earnings per share would have been reduced to the following pro
forma amounts:

The Company computed the pro forma figures disclosed above using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in fiscal 2003, 2002, and 2001, respectively;
expected dividend yields of zero for all years; expected volatility of 39.6
percent for fiscal 2003, 40.8 percent for fiscal 2002, and 34.9 percent for
fiscal 2001, risk-free interest rates of 4.1 percent for fiscal 2003, 4.7
percent for fiscal 2002, and 4.9 percent for fiscal 2001 and expected lives of
3, 4, 5 or 10 years depending on the option granted.

Under stock option and restricted stock plans adopted in 1994 and 1998
(the "1994 Plan" and the "1998 Plan," respectively) the Company reserved a total
of 14,000,000 shares of its common stock for issuance to key officers and
employees. Pursuant to the 1994 and 1998 Plans, the Company grants options to
purchase its common stock at a price equal to or greater than the fair market
value on the grant date. Both plans contain provisions for incentive stock
options ("ISOs"), non-qualified stock options ("Non-Qs") and restricted stock
grants. Generally, options granted under the 1994 and 1998 Plans become
exercisable immediately, or over a one, four or five-year vesting period and
expire on a date ranging from seven to ten years from their date of grant.

Under a stock option plan for non-employee directors (the "Directors'
Plan"), adopted in fiscal 1996, the Company reserved a total of 980,000 shares
of its common stock for issuance to non-employee members of the Board of
Directors. The Company grants options under the Directors' Plan at a price equal
to the fair market value of the Company's common stock at the date of grant.
Options granted under the Directors' Plan vest one year from their date of
issuance and expire ten years after issuance.

49

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7) STOCK-BASED COMPENSATION PLANS, CONTINUED

A summary of stock option activity under all plans is as follows:

The following table summarizes information about stock options at
February 28, 2003:

50

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7) STOCK-BASED COMPENSATION PLANS, CONTINUED

In fiscal 1999 the Company's shareholders approved an employee stock
purchase plan (the "Stock Purchase Plan") under which 500,000 shares of common
stock are reserved for issuance to the Company's employees, nearly all of whom
are eligible to participate. Under the terms of the Stock Purchase Plan
employees authorize the Company to withhold from 1 percent to 15 percent of
their wages or salaries to purchase the Company's common stock. The purchase
price for stock purchased under the plan is equal to the lower of 85 percent of
the stock's fair market value on either the first day of each option period or
the last day of each period. During fiscal 2003, employees purchased 19,828
shares of common stock from the Company under the stock purchase plan.

(8) COMMITMENTS AND CONTINGENCIES

Under agreements with customers, licensors, and parties from whom it
has acquired assets or entered into business combinations, the Company
indemnifies these parties against liability associated with the Company's
products. Additionally, the Company is party to a number of agreements under
leases whereby it indemnifies lessors for liabilities attributable to the
Company's action or conduct. The indemnity agreements to which it is a party do
not, in general, increase the Company's liability for claims related to its
products or actions and have not affected materially the Company's consolidated
financial position as of February 28, 2003 and 2002 or its consolidated earnings
and cash flows for the years ended February 28, 2003, 2002, and 2001.

Helen of Troy Limited, the parent company of the consolidated group,
has guaranteed two commitments of its subsidiary based in the United Kingdom
("the UK"). Under one of the guarantees, the parent company guaranteed a
commitment by the UK subsidiary to purchase a new office facility. Under this
guarantee, the parent company is liable for up to 1,150,000 British pounds,
should the UK subsidiary fail to fulfill its obligations under its purchase
agreement. Under the second arrangement with a marketing company used by the UK
subsidiary, the parent company guaranteed up to 600,000 British pounds on behalf
of the UK subsidiary. No liability is recorded on the February 28, 2003
Consolidated Balance Sheet for either of the parent company guarantees on behalf
of the UK subsidiary.

The Company's 55-percent owned subsidiary, Tactica International, Inc.
("Tactica") leases office space in New York City. One of the Company's U.S.
subsidiaries has issued a $389,000 standby letter of credit to the lessor. The
lessor may draw funds from the standby letter of credit if Tactica fails to pay
its rent due under the lease. The standby letter of credit decreases to $195,000
on April 30, 2005 and expires on the same date as the related lease, February
27, 2006.

The Company has employment contracts with certain of its officers.
These agreements provide for minimum salary levels and potential incentive
bonuses. One agreement automatically renews itself each month for a five-year
period and provides that in the event of a merger, consolidation or transfer of
all or substantially all of the assets of the Company to an unaffiliated party,
the officer may make an election to receive a cash payment for the balance of
the obligations under the agreement. The expiration dates for these agreements
range from March 15, 2004 to February 28, 2008. The aggregate commitment for
future salaries pursuant to such contracts, at February 28, 2003, excluding
incentive compensation, was approximately $4,000,000.

The Company purchases most of the appliances and products that it sells
from unaffiliated manufacturers located in the Far East, principally in the
Peoples' Republic of China, Thailand, Taiwan and South Korea. Due to the fact
that most of its products are manufactured in the Far East, the Company is
subject to risks associated with trade barriers, currency exchange fluctuations,
and political unrest. These risks have not historically affected the Company's
operations. Additionally, the Company's management believes that it could obtain
its products from facilities in other countries, if necessary. However, the
relocation of production capacity could require substantial time and could
result in increased costs.

The Company regularly enters into arrangements with customers whereby
it offers those customers incentives, including incentives in the form of volume
rebates. The Company's estimate of its liability for such incentives is included
on its Consolidated Balance Sheets on the line entitled "Accrued liabilities"
and is based on incentives applicable to sales up to the respective balance
sheet dates.

51

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8) COMMITMENTS AND CONTINGENCIES, CONTINUED

In the fourth quarter of fiscal 2001, the Company recorded a $2,457,000 charge
for the remaining unamortized costs under a distribution agreement (which was
later formally terminated) with The Schawbel Corporation ("Schawbel"), the
supplier of the Company's butane hair care products. In a related matter, in
September 1999, Schawbel commenced litigation in the U.S. District Court for the
District of Massachusetts against The Conair Corporation ("Conair"), the
predecessor distributor for Schawbel's butane products. In its action, amended
in June 2000, Schawbel alleged, among other things, that Conair, following
Schawbel's termination of the Conair distribution agreement, stockpiled and sold
Schawbel product beyond the 120 day "sell-off" period afforded under the
agreement, and manufactured, marketed and sold its own line of butane products
which infringed patents held by Schawbel. In November 2000, the Massachusetts
court granted Schawbel its request for preliminary injunction, and ordered that
Conair cease selling all allegedly infringing products. The Company intervened
as a plaintiff in the action to assert claims against Conair similar to the
claims raised by Schawbel. The Company is seeking to recover damages in excess
of $10 million, arising from the Company's inability to meet minimum purchase
requirements under its distribution agreement with Schawbel and the subsequent
termination of that agreement by Schawbel. Conair responded by filing a
counterclaim alleging that the Company conspired with Schawbel to unlawfully
terminate Conair's distribution agreement with Schawbel, and to disparage
Conair's reputation in the industry. The counterclaim seeks $15 million in
damages. Although the ultimate outcome of the matter cannot be predicted, the
Company contends that Conair's counterclaims lack validity. The Company intends
to pursue vigorously its claims and defense in the litigation.

The Company is also involved in various other legal claims and
proceedings in the normal course of operations. In the opinion of management,
the outcome of these matters will not have a material adverse effect on the
consolidated financial position, results of operations or liquidity of the
Company and its subsidiaries.

One of the Company's subsidiaries is a party to a stockholders'
agreement with the former owners of Tactica, who retained a 45% interest in
Tactica (collectively the "other Tactica stockholders"). Under the terms of the
stockholders' agreement, the Company has been granted the right to initiate a
process whereby it can purchase, and the other Tactica stockholders are required
to sell, the shares they own. In addition, the other Tactica stockholders have
the right to initiate a process regarding the sale of their remaining interest
in Tactica. The Company may elect at its option not to purchase the shares owned
by the other Tactica stockholders and under the terms of the stockholders'
agreement the parties will then be required to initiate a procedure under which
the entire business of Tactica would be offered for sale to third parties. In
either case, the purchase price will be based upon fair market value as
determined by independent appraisal. A sale to a third party would be subject to
the approval of the other Tactica stockholders and the Company.

Under the terms of a Shareholders' Rights Plan approved by the Board of
Directors in fiscal 1999, the Board of Directors declared a dividend of one
preference share right ("Right") for each outstanding share of Common Stock. The
dividend resulted in no cash payment by the Company, created no liability on the
part of the Company and did not change the number of shares of Common Stock
outstanding. The Rights are inseparable from the shares of Common Stock and
entitle the holders to purchase one one-thousandth of a share of Series A First
Preference Shares ("Preference Shares"), par value $1.00, at a price of $100 per
one-one thousandth of a Preference Share. Should certain persons or groups of
persons ("Acquiring Persons") acquire more than 15% of the Company's outstanding
Common Stock, the Board of Directors may either adjust the price at which
holders of Rights may purchase Preference Shares or may redeem all of the then
outstanding Rights at $.01 per Right. The Rights associated with the Acquiring
Person's shares of Common Stock would not be exercisable. The Rights have
certain anti-takeover effects. The Rights could cause substantial dilution to a
person or group that attempts to acquire the Company in certain circumstances,
but should not interfere with any merger or other business combination approved
by the Board of Directors. The Rights expire December 1, 2008, unless their
expiration date is advanced or extended or unless the Rights are earlier
redeemed or exchanged by the Company.

52

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8) COMMITMENTS AND CONTINGENCIES, CONTINUED

The Company's contractual obligations and commercial commitments, as of
February 28, 2003 were:

Contractual Obligations PAYMENTS DUE BY PERIOD (IN 000S)
After
Total 1 year 2 years 3 years 4 years 5 years 5 years
-------- -------- -------- -------- -------- -------- --------

Long-term debt $ 55,000 -- 10,000 10,000 10,000 10,000 15,000
Open purchase orders - inventory 68,249 68,249 -- -- --
Minimum royalty payments 24,830 3,705 3,829 3,260 2,658 2,658 8,720
Advertising commitments under license agreements 23,775 6,274 5,724 5,705 868 878 4,326
Management fees - Corporate jet 1,811 362 362 363 362 362 --
Operating leases 3,678 1,960 894 818 6 -- --
New office facility in UK 1,800 1,800 -- -- -- -- --
Purchase of software 1,113 1,113 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total contractual obligations $180,256 83,463 20,809 20,146 13,894 13,898 28,046
======== ======== ======== ======== ======== ======== ========

(9) FOURTH QUARTER CHARGES/TRANSACTIONS

In the fourth quarter of fiscal 2001, the Company recognized $2,457,000
in pre-tax charges due to the planned discontinuance of a product. See Note (8)
to these consolidated financial statements for further discussion of this issue.
The Company's fourth quarter fiscal 2001 results also included a $1,895,000
reduction in SG&A due to the settlement of a license obligation for which the
Company accrued a liability in fiscal 2000.

The Company's results for the fourth quarters of fiscal 2003 and 2002
do not contain any transactions of a non-routine nature.

53

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(10) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly financial data is as follows (in thousands, except
per share amounts):

Unaudited -- see accompanying accountants' report

The business of the Company is somewhat seasonal. Between 54 percent
and 57 percent of annual sales volume normally occurs in the second and third
fiscal quarters.

54

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(11) SEGMENT INFORMATION

The following table contains segment information for fiscal 2003, 2002,
and 2001.

The North American segment sells hair care appliances, other personal
care appliances, including massagers and spa products, hairbrushes, combs, and
utility and decorative hair accessories in the U.S. and Canada. The
International segment sells hair care appliances, personal care appliances,
hairbrushes, combs, and hair accessories in other countries. Tactica sells a
variety of personal care and other consumer products directly to customers and
to retailers. The column above entitled "Corporate / other" contains items not
allocated to any specific operating segment.

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 overhead expenses
that are allocable to operating segments. Other items of income and expense,
including income taxes, are not allocated to operating segments.

55

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(11) SEGMENT INFORMATION, CONTINUED

The Company's domestic and international net revenues from third
parties and long-lived assets are as follows:

Sales to one customer and its affiliate accounted for 24 percent, 22
percent, and 23 percent of the Company's net sales in fiscal 2003, 2002, and
2001, respectively. Of the Company's total sales to that customer and its
affiliate, 92 percent, 98 percent, and 99 percent, respectively were made by the
North American segment during fiscal 2003, 2002, and 2001, respectively. Tactica
made the remainder of the Company's sales to this customer and its affiliate.

(12) ACQUISITION OF TRADEMARKS AND OF RIGHTS UNDER LICENSE AGREEMENTS

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 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 portion of the
purchase price assigned to the four trademarks purchased is included on the
Company's February 28, 2003 consolidated balance sheet on the line entitled
"Trademarks, at cost, net of accumulated amortization." The Company concluded
that the useful economic lives of these trademarks are indefinite, meaning that
these trademarks are not subject to amortization. This conclusion was reached
after consideration of the history of the brands and of plans and forecasts for
sales of products under these trademarks. The portion of the purchase price
assigned to the rights obtained under the Sea Breeze(R) and Vitapointe(R)
licenses appears on the Company's February 28, 2003 consolidated balance sheet
on the line entitled "License agreements, at cost less accumulated
amortization." After consideration of the fact that the Sea Breeze(R) license is
perpetual and an analysis of the history of the brand as well as the Company's
plans and forecasts with respect to the brand, the Company determined that the
Sea Breeze(R) license has an indefinite economic useful life. Therefore, it is
not subject to amortization. The Vitapointe(R) license expires on December 31,
2010. Although, its long-range expectation is to renew the Vitapointe(R) license
upon its expiration, the Company determined that the finite nature of this
license indicates that it has a definite life and is, therefore subject to
amortization. The Company expects annual amortization expense associated with
the Vitapointe(R) license to be approximately $125,000.

56

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(13) FORWARD CONTRACTS

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 British pounds or
Euros. 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. During fiscal 2003,
the Company hedged against foreign currency exchange rate risk by entering into
forward contracts to exchange a total of 5,000,000 British pounds for U.S.
dollars at rates ranging from 1.5393 to 1.548 dollars per British pound. At
February 28, 2003, one forward contract to exchange 1,000,000 British pounds for
U.S. dollars at a rate of 1.5393 U.S. dollars per British pound remained
outstanding. The line item entitled "Other income, net" in the Consolidated
Statements of Income includes $34,000 of expense associated with hedges of
foreign currency risk.

(14) NON-MONETARY TRANSACTIONS

During fiscal 2003, the Company entered into two non-monetary
transactions in which it exchanged inventory with a net book value of
approximately $3,100,000 for advertising credits. As a result of these
transactions, the Company recorded both sales and cost of goods sold equal to
the inventory's net book value. The Company used approximately $600,000 of the
advertising credits during fiscal 2003 and expects to use the remaining
advertising credits by February 28, 2004. The remaining credits are valued at
$2,500,000 on the Company's Consolidated Condensed Balance Sheet at February 28,
2003 and are included in the line item entitled "Prepaid expenses."

57

HELEN OF TROY LIMITED AND SUBSIDIARIES

Schedule II

Valuation and Qualifying Accounts

Years ended February 28, 2003, February 28, 2002 and February 28, 2001
(in thousands)

58

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information in the Company's Proxy Statement, which will be
filed within 120 days of the end of the Company's 2003 fiscal
year, is incorporated herein by reference in response to this
Item 10.

ITEM 11. EXECUTIVE COMPENSATION

Information in the Company's Proxy Statement, which will be
filed within 120 days of the end of the Company's 2003 fiscal
year, is incorporated herein by reference in response to this
Item 11.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information in the Company's Proxy Statement, which will be
filed within 120 days of the end of the Company's 2003 fiscal
year, is incorporated herein by reference in response to this
Item 12.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information in the Company's Proxy Statement, which will be
filed within 120 days of the end of the Company's 2003 fiscal
year, is incorporated herein by reference in response to this
Item 13.

ITEM 14. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are
designed to ensure that information required to be disclosed
in the Company's Securities Exchange Act reports is recorded,
processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such
information is accumulated and communicated to the Company's
management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving
the desired control objectives, as ours are designed to do,
and management necessarily was required to apply its judgment
in evaluating the cost-benefit relationship of possible
controls and procedures.

During the 90-day period prior to the date of this report, an
evaluation was performed under the supervision and with the
participation of our Company's management, including the Chief
Executive Officer and the Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures. Based upon that evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded
that our disclosure controls and procedures were effective.
Subsequent to the date of this evaluation, there have been no
significant changes in the Company's internal controls or in
other factors that could significantly affect these controls,
and no corrective actions taken with regard to significant
deficiencies or material weaknesses in such controls.

ITEM 16. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information in the Company's Proxy Statement, which will be
filed within 120 days of the end of the Company's 2003 fiscal
year, is incorporated herein by reference in response to this
Item 16.

59

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULE, AND REPORTS ON FORM 8-K

(a) Exhibits

3. Exhibits

3.1 Memorandum of Association (incorporated by reference to
Exhibit 3.1 to the Registrant's Registration Statement on Form
S-4, File No. 33-73594, filed with the Securities and Exchange
Commission on December 30, 1993 (the "1993 S-4")).

3.2 Bye-Laws (incorporated by reference to Exhibit 3.2 of the 1993
S-4).

4.1 Rights Agreement, dated as of December 1, 1998, between Helen
of Troy Limited and Harris Trust and Savings Bank, as Rights
Agent (incorporated by reference to Exhibit 4 to the
Registrant's Current Report on Form 8-K, filed with the
Securities and Exchange Commission on December 4, 1998).

10.1** Form of Directors' and Executive Officers' Indemnity Agreement
(incorporated by reference to Exhibit 10.2 to the 1993 S-4).

10.2** 1994 Stock Option and Restricted Stock Plan (incorporated by
reference to Exhibit 10.1 to the 1993 S-4).

10.3 Revlon Consumer Products Corporation (RCPC) North American
Appliances License Agreement dated September 30, 1992
(incorporated by reference to Exhibit 10.31 to Helen of Troy
Corporation's Quarterly Report on Form 10-Q for the period
ending November 30, 1992 (the "November 1992 10-Q")).

10.4 Revlon Consumer Products Corporation (RCPC) International
Appliances License Agreement dated September 30, 1992
(incorporated by reference to Exhibit 10.32 to the November
1992 10-Q).

10.5 Revlon Consumer Products Corporation (RCPC) North American
Comb and Brush License Agreement dated September 30, 1992
(incorporated by reference to Exhibit 10.33 to the November
1992 10-Q).

10.6 Revlon Consumer Products Corporation (RCPC) International Comb
and Brush License Agreement dated September 30, 1992
(incorporated by reference to Exhibit 10.34 to the November
1992 10-Q).

10.7 First Amendment to RCPC North America Appliance License
Agreement, dated September 30, 1992 (incorporated by reference
to Exhibit 10.26 to Helen of Troy Corporation's Annual Report
on Form 10-K for the period ending February 28, 1993 (the
"1993 10-K").

10.8 First Amendment to RCPC North America Comb and Brush License
Agreement, dated September 30, 1992 (incorporated by reference
to Exhibit 10.27 to the 1993 10-K).

10.9 First Amendment to RCPC International Appliance License
Agreement, dated September 30, 1992 (incorporated by reference
to Exhibit 10.28 to the 1993 10-K).

10.10 First Amendment to RCPC International Comb and Brush License
Agreement, dated

60

September 30, 1992 (incorporated by reference to Exhibit 10.29
to the 1993 10-K).

10.11 Amended and Restated Note Purchase, Guaranty and Master Shelf
Agreement, $40,000,000 7.01% Guaranteed Senior Notes and
$40,000,000 Guaranteed Senior Note Facility (incorporated by
reference to Exhibit 10.23 to Helen of Troy Limited's
Quarterly Report on Form 10-Q for the period ending November
30, 1996).

10.12** Helen of Troy Limited 1998 Employee Stock Option and
Restricted Stock Plan (incorporated by reference to Exhibit
4.3 to Helen of Troy Limited's Registration Statement on
Form S-8, File Number 333-67349, filed with the Securities and
Exchange Commission on November 6, 1998 (the "1998 S-8").

10.13** Helen of Troy Limited 1998 Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4.3 of the 1998 S-8).

10.14** Amended and Restated Employment Agreement between Helen of
Troy Limited and Gerald J. Rubin, dated March 1, 1999
(incorporated by reference to Exhibit 10.29 to Helen of Troy
Limited's Quarterly Report on Form 10-Q for the period
ending August 31, 1999 (the "August 1999 10-Q")).

10.15** Amended and Restated Helen of Troy Limited 1995 Non-Employee
Director Stock Option Plan (incorporated by reference to
Exhibit 10.30 to the August 1999 10-Q).

10.16 Loan Agreement, dated December 31, 1996, between Helen of Troy
L.P. and Texas Commerce Bank National Association
(incorporated by reference to Exhibit 10.21 to Helen of Troy
Limited's Quarterly Report on Form 10-Q for the period
ending August 31, 2001 (the "August 2001 10-Q")).

10.17 First Amendment, dated July 31, 1997, to Loan Agreement
between Helen of Troy L.P, and Texas Commerce Bank National
Association (incorporated by reference to Exhibit 10.22 of the
August 2001 10-Q).

10.18 Second Amendment, dated July 31, 1998 to Loan Agreement
between Helen of Troy L.P. and Chase Bank of Texas National
Association (incorporated by reference to Exhibit 10.23 of the
August 2001 10-Q).

10.19 Third Amendment, dated July 31, 2000 to Loan Agreement between
Helen of Troy L.P. and The Chase Manhattan Bank (incorporated
by reference to Exhibit 10.24 of the August 2001 10-Q).

10.20 Fourth Amendment, dated July 31, 2001 to Loan Agreement
between Helen of Troy L.P. and The Chase Manhattan Bank
(incorporated by reference to Exhibit 10.25 of the August 2001
10-Q).

10.21 Fifth Amendment, dated August 31, 2001 to Loan Agreement
between Helen of Troy L.P. and The Chase Manhattan Bank
(incorporated by reference to Exhibit 10.26 of the August 2001
10-Q).

10.22** Helen of Troy 1997 Cash Bonus Performance Plan (incorporated
by reference to Exhibit 10.26 of Helen of Troy Limited's
Annual Report on Form 10-K for the period ended February 28,
2002 (the "2002 10-K")).

10.23 Stockholders Agreement dated March 14, 2000 by and among
Tactica International, Inc., Helen of Troy, LLC, Avi Sivan,
Prem Atma Ramchandani, Avraham Ovadia, and APA

61

International, LLC (incorporated by reference to Exhibit 10.27
of the 2002 10-K).

10.24* Master License Agreement dated October 21, 2002, between The
Procter & Gamble Company and Helen of Troy Limited (Barbados)
(Confidential treatment has been requested with respect to
certain portions of this exhibit. Omitted portions have been
filed separately with the Commission).

21* Subsidiaries of the Registrant.

23* Independent Auditors' Consent.

- ----------

*filed herewith

** Indicates management contract or compensatory plan or arrangement

(b) The following documents are filed as part of the report:

1. Financial Statements

Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

2. Schedule: Schedule II - Valuation and Qualifying Accounts

(c) Reports on Form 8-K

The Company filed no reports on Form 8-K during the three months ended
February 28, 2003.

62

The registrant will send its annual report to security holders and proxy
solicitation material subsequent to the filing of this form and shall furnish
copies of both to the Commission when they are sent to security holders.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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

By: /s/ Gerald J. Rubin
--------------------------------------
Gerald J. Rubin, Chairman,
Chief Executive Officer and Director

Dated May 29, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

63

/s/ Byron H. Rubin Director May 29, 2003
- -----------------------------------------
(Byron H. Rubin)

/s/ Daniel C. Montano Director May 29, 2003
- -----------------------------------------
(Daniel C. Montano)

/s/ Gary B. Abromovitz Director May 29, 2003
- -----------------------------------------
(Gary B. Abromovitz)

/s/ John B. Butterworth Director May 29, 2003
- -----------------------------------------
(John B. Butterworth)

64

CERTIFICATION

I, Gerald J. Rubin, certify that:

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

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual
report (the "Evaluation Date"); and

c) presented in this annual 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 annual
report whether 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: May 29, 2003
-------------

/s/ Gerald J. Rubin
- --------------------------------

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

65

CERTIFICATION

I, Russell G. Gibson, certify that:

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

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual
report (the "Evaluation Date"); and

c) presented in this annual 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 annual
report whether 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: May 29, 2003
------------

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

66

Index to Exhibits