HELEN OF TROY LTD - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

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

For the quarterly period ended May 31, 2003

OR

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

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

Commission file number 001-14669

HELEN OF TROY LIMITED
---------------------
(Exact name of 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

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 whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes [X] No [ ]

As of July 9, 2003 there were 28,232,745 shares of issuer's common
stock, $.10 par value, outstanding.

HELEN OF TROY LIMITED AND SUBSIDIARIES

INDEX

2

PART I. FINANCIAL INFORMATION

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

(Continued)

3

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

See accompanying notes to consolidated condensed financial statements.

4

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

See accompanying notes to consolidated condensed financial statements.

5

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

(Continued)

6

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

See accompanying notes to consolidated condensed financial statements.

7

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

See accompanying notes to consolidated condensed financial statements.

8

HELEN OF TROY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
May 31, 2003

Note 1 - In the opinion of the Company, the accompanying
consolidated condensed financial statements contain all
adjustments (consisting of only normal recurring adjustments)
necessary to present fairly its consolidated financial
position as of May 31, 2003 and February 28, 2003 and the
results of its consolidated operations for the three-month
periods ended May 31, 2003 and 2002. While the Company
believes that the disclosures presented are adequate to make
the information not misleading, these statements should be
read in conjunction with the consolidated financial statements
and the notes included in the Company's latest annual report
on Form 10-K.

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

Note 3 - Basic earnings per share is computed based upon the weighted
average number of common shares outstanding during the period.
Diluted earnings per share is computed based upon the weighted
average number of common shares plus the effects of dilutive
securities. The number of dilutive securities was 1,689,557
and 1,543,132 for the three months ended May 31, 2003 and
2002, respectively. All dilutive securities for the three
months ended May 31, 2003 and May 31, 2002 consisted of stock
options issued under the Company's stock option plans. There
were options to purchase common stock that were outstanding
but not included in the computation of earnings per share
because the exercise prices of such options were greater than
the average market prices of the Company's common stock during
the first quarter of fiscal 2004. These options totaled
2,742,650 at May 31, 2003 and 2,271,650 at May 31, 2002.

9

Note 4 - The following table contains segment information for the first
quarter of each of fiscal 2004 and 2003.

Identifiable assets at May 31, 2003 and February 28, 2003 were as
follows:

The North American segment sells hair care appliances, other
personal care appliances, including massagers and spa
products, hair and skin care products, hairbrushes, combs, and
decorative hair accessories in the U.S. and Canada. The
International segment sells hair care appliances, personal
care appliances, hair and skin care products, hairbrushes,
combs, and decorative 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.

10

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
("SG&A") 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.

Note 5 - The Hong Kong Inland Revenue Department ("IRD") has
assessed $6,753,000 in tax on certain profits of the Company's
foreign subsidiaries for the fiscal years 1995 through 1997.
If the IRD were to assert the same position for later years
and that position were to prevail, the resulting tax liability
would total approximately $37,033,000 for fiscal 1995 through
the fiscal quarter ended May 31, 2003. The Company has
recorded a liability for the IRD's claims and potential
claims, based on consultations with outside Hong Kong tax
experts as to the probability that some or all of the IRD's
claims prevail. Although the ultimate resolution of the IRD's
claims and potential claims cannot be predicted with
certainty, management believes that adequate provision has
been made in the consolidated condensed financial statements
for the resolution of those claims. In connection with the
IRD's tax assessment for the fiscal years 1995 through 1997,
the Company purchased tax reserve certificates in Hong Kong.
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. As of May 31, 2003 and February 28,
2003, the tax reserve certificates were valued at $3,282,000
(U.S.), or approximately 49 percent of the liability assessed
by the IRD for fiscal 1995 through 1997. The value of the tax
reserve certificates comprises part of the amounts reported on
the line entitled "Other assets" on the Company's May 31, 2003
and February 28, 2003 condensed consolidated balance sheets.

The United States Internal Revenue Service ("IRS") is auditing
the U.S. federal tax returns of the Company's largest U.S.
subsidiary for fiscal years 1997 through 1999. The IRS
proposed adjustments to those returns. If the IRS's positions
with respect to those adjustments were to prevail, the
resulting tax liability could total $7,500,000. 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 for the proposed adjustments has been made in the
Company's condensed consolidated financial statements as of
May 31, 2003 and February 28, 2003. The IRS also is auditing
the U.S. federal tax returns of the Company's largest U.S.
subsidiary for fiscal years 2000 through 2002. To date, the
IRS has not proposed any adjustments to these returns. The
Company cannot predict with certainty the results of the IRS
audit for these years.

11

Note 6 - Helen of Troy's consolidated results of operations for the
three-month periods ended May 31, 2003 and 2002 include 100
percent of the net earnings and losses of Tactica
International, Inc. ("Tactica"), a subsidiary in which Helen
of Troy owns a 55 percent interest. Because Tactica had
accumulated a net deficit at the time that Helen of Troy
acquired its interest and because the minority shareholders of
Tactica have not adequately guaranteed their portion of the
accumulated deficit, Helen of Troy will include 100 percent of
Tactica's net earnings and losses in its consolidated income
statement until Tactica's accumulated deficit is eliminated.
At May 31, 2003, Tactica's accumulated deficit remaining to be
eliminated was approximately $1,949,000. Helen of Troy's 55
percent share of this deficit totals $1,073,000 with the
minority interest totaling $876,000. The Company will continue
to recognize all of Tactica's net income or loss until such
time as Tactica's accumulated deficit is fully recovered.

Note 7 - In accordance with Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" (SFAS 142),
the Company does not record amortization expense on goodwill
or other intangible assets that have indefinite useful lives.
Amortization expense is recorded for intangible assets with
definite useful lives. SFAS 142 also requires at least an
annual impairment review of goodwill and other intangible
assets. Any asset deemed to be impaired is to be written down
to its fair value. The Company has performed the analysis
required by SFAS 142 and has determined that none of its
goodwill is impaired.

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

(a) May 31, 2003 and February 28, 2003 gross and net carrying amounts include
$16,920,000 of trademarks and $18,000,000 of licenses not subject to
amortization.

12

The following table summarizes the amortization expense
attributable to intangible assets for the three months ending
May 31, 2003 and 2002, as well as estimated amortization
expense for the fiscal years ending the last day of February
2004 through 2009.

Note 8 - The consolidated group's parent company, Helen of Troy
Limited, a Bermuda company, and various subsidiaries guarantee
certain obligations and arrangements on behalf of some members
of the consolidated group of companies whose financial
position and results are included in our consolidated
financial statements.

The $55,000,000 reflected as "Long-term debt" in our
consolidated condensed balance sheets as of May 31, 2003 and
February 28, 2003, represents senior notes issued by one of
the Company's U.S. subsidiaries. The consolidated group's
parent company, located in Bermuda, one of its subsidiaries
located in Barbados, and three of its U.S. subsidiaries
guarantee the senior notes on a joint and several basis.

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 subsidiary"). 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 May 31, 2003 or 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 meet its obligations 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.

13

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 $2,894,000
and $3,263,000 as of May 31, 2003 and February 28, 2003,
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 fiscal quarter ended May 31, 2003 and fiscal
year 2003:

Our contractual obligations and commercial commitments as of
May 31, 2003 were:

Note 9 - 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.

14

The following table sets forth the computation of basic and
diluted earnings per share for the three months ended May 31,
2003 and May 31, 2002, and illustrates the effect on net
income and earnings per share if the Company had applied the
fair value recognition provisions of SFAS 123, "Accounting for
Stock-Based Compensation" to stock-based employee
compensation.

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,
non-qualified stock options 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.

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

15

the first quarter of fiscal 2004, there were no purchases of
shares of common stock from the Company under the stock
purchase plan.

Note 10 - The following table is a summary by operating segment of
the Company's goodwill balances as of May 31, 2003 and
February 28, 2003.

Total Goodwill by Operating Segment (thousands)

Note 11 - On October 21, 2002, the Company acquired from The Procter &
Gamble Company the right to sell products under six
trademarks. The Company acquired all rights to the trademarks
and certain rights to the formulas and production processes
for four of the six trademarks; Ammens(R), Vitalis(R),
Condition 3-in-1(R), and Final Net(R). The Procter & Gamble
Company assigned to the Company its rights under licenses to
sell products bearing the other two trademarks; Sea Breeze(R)
and Vitapointe(R). The Sea Breeze(R) license is perpetual. The
Company has completed its analysis of the economic lives of
the trademarks acquired and is of the initial belief that
these trademarks have indefinite economic lives except for the
Vitapointe(R) license. The Company has determined that the
license covering the Vitapointe(R) trademark has an economic
life equal to its initial term through December 2010 and is
currently amortizing the intangible asset over that period.
The Company recorded amortization expense related to this
trademark of approximately $32,000 during the quarter ending
May 31, 2003.

Note 12 - During the fiscal year ended February 28, 2003, the Company
entered into nonmonetary 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 credits during the fiscal year
ending 2003 and expects to use the remaining advertising
credits acquired by the end of fiscal year 2004. The remaining
credits are valued at $2,500,000 on the Company's Consolidated
Condensed Balance Sheets at May 31, 2003 and February 28, 2003
and are included in the line item entitled "Prepaid expenses."

Note 13 - 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").

16

Such transactions include sales and certain inventory
purchases. As a result of such transactions, portions of the
Company's cash, trade accounts receivable, and trade accounts
payable are denominated in foreign currencies. During the
three-month periods ended May 31, 2003 and 2002, the Company
transacted 9 percent and 4 percent, respectively, of its sales
in foreign currencies. These sales were primarily denominated
in the Canadian Dollar, the British Pound 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. The Company sought to reduce its foreign currency
risk by purchasing most of its inventory using U.S. Dollars
and by converting cash balances denominated in foreign
currencies to U.S. Dollars on a regular basis. During fiscal
2003, the Company entered into a series of forward contracts
to exchange British Pounds for U.S. Dollars. These contracts
were cash flow hedges that hedge the foreign currency risk
associated with a portion of the Company's forecasted net
British Pound cash flows and closed during March 2003. During
the quarter ended May 31, 2003, the Company entered into
another series of contracts that were cash flow hedges that
hedge the foreign currency risk associated with a portion of
the Company's forecasted net cash flows from the British Pound
and the Euro.

The line item entitled "Other income (net)" in the
Consolidated Condensed Statements of Income and Comprehensive
Income includes $237,000 of expense associated with hedges of
foreign currency risk related to the contracts entered into
during the quarter ended May 31, 2003. The $237,000 total is
comprised of $23,000 resulting from changes in "spot" exchange
rates between the dates of the contracts and May 31, 2003. The
remaining $214,000 is due to changes in the time value of the
forward contracts.

The transactions anticipated cash flow from sales denominated
in foreign currency, produced the cash flows hedged by the
Company's current forward contracts and totaled $5,000,000 in
British Pounds and $2,500,000 in Euros. The anticipated sales
are forecasted to occur during the twelve months ending
February 28, 2004. Changes in "spot" exchange rates have
reduced the value of the Euro contract by $195,000 and the
British Pound contract by $19,000 since their inception. These
amounts are charged against Other Comprehensive Income ("OCI")
for the three months ended May 31, 2003. The cumulative
$214,000 after-tax charge comprises the entire amount
reflected as OCI and Accumulated OCI in the Company's May 31,
2003 Consolidated Condensed Statement of Income and
Consolidated Condensed Statement of Comprehensive Income and
Consolidated Condensed Balance Sheets, respectively. The
Company expects to reclassify the $214,000 charge against
"Other income" as the forecasted transactions occur during the
twelve months ending February 28, 2004.

17

Note 14 - In the first quarter of fiscal 2004, the Company recorded
income of $2,600,000, net of legal fees, in connection with
the settlement of two pieces of litigation. This income is
included in the line item entitled "Other income, net" in the
Consolidated Condensed Statements of Income for the quarter
ended May 31, 2003.

Note 15 - Under a June 2003 Board of Directors resolution, the Company
may repurchase up to a total of 3,000,000 shares of its common
stock over a period extending to May 31, 2006. The Company has
yet to repurchase any of its common stock pursuant to this
resolution.

18

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

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

RESULTS OF OPERATIONS

Consolidated Sales and Gross Profit Margins

Our net sales for the three months ended May 31, 2003 improved 4
percent or $4,017,000 versus the three months ended May 31, 2002. Net sales
increased in our North American and International operating segments, while our
Tactica segment's net sales decreased.

Net sales in the North American segment grew $9,458,000 or 13 percent
for the three months ended May 31, 2003 versus the same period a year earlier.
In October 2002, we acquired six brand names from The Procter & Gamble Company
(the "Idelle Labs division") which comprise the majority of our liquid and
powder hair and skin care products. Sales of the Idelle Labs division resulted
in $8,034,000 of sales growth and accounted for 85 percent of the growth in the
North American segment. We entered the hair and skin care products market during
the third quarter of the prior fiscal year; therefore, net sales figures for the
three months ended May 31, 2002 include no sales of such products. Exclusive of
the Idelle Labs division sales, our North American segment grew $1,424,000, or 2
percent, over the same period last year. This growth 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 Hot Tools and Wigo brands through our professional
distribution channel, in our Vidal Sassoon(R) line of hair clippers and in our
Dr. Scholl's(R) line of massagers.

Our International segment's sales for the three-month period ended May
31, 2003 grew by 134 percent, or $5,645,000, compared to the same period a year
earlier. Increased sales in the United Kingdom, Germany, and France accounted
for most of the International segment's sales growth. As discussed in the North
American segment's sales analysis above, Idelle Labs division sales also
contributed to the International segment's sales growth. These sales produced
$1,061,000 of sales growth in the International segment which accounted for 19
percent of the segment's total growth. International sales, excluding the Idelle
Labs division, increased $4,584,000 or 109 percent. This increase was due
primarily to the introduction of the Cosmopolitan line of appliances and
increased sales in our Vidal Sassoon(R) line of appliances.

The Tactica operating segment experienced an $11,086,000, or 42
percent, decrease in its net sales during the three months ended May 31, 2003,
versus the three months ended May 31, 2002. Decreased sales of Tactica's
Epil-Stop(R) depilatory products played a key role in Tactica's sales decrease.

19

Gross profit, as a percentage of sales for the quarter ended May 31,
2003, rose as compared with the quarter ended May 31, 2002, increasing from 48.3
percent to 49.6 percent. North American and International segment gross profit
margins increased significantly primarily due to a favorable change in the mix
of products sold and our ability to source product more efficiently. The North
American segment also experienced a lower volume of closeout sales with higher
gross margins as compared to a high volume of closeout sales with low margins
during the same period last year. The North American segment's gross profit also
benefited from the addition of the Idelle Labs division that produces higher
gross margins than the remainder of the segment. The International gross margin
also benefited from the strengthening of the Euro and the British Pound. The
North American and International segment gross margin increases were offset
partially by Tactica's decline in gross margins and lower sales volume.

Selling, general, and administrative expenses

From the first quarter of fiscal 2002 to the first quarter of fiscal
2003, selling, general, and administrative expenses ("SG&A"), expressed as a
percentage of net sales, decreased from 38.5 to 34.4 percent. This decrease is
due to lower advertising costs primarily in the Tactica operating segment, lower
outbound freight costs and reduced third party warehouse storage costs.
Additionally, we experienced foreign currency exchange gains of $566,000 versus
gains of $253,000 during the same period a year earlier. The exchange rate gains
were primarily due to the U.S. Dollar's weakness versus the British Pound and
the Euro. These decreases were partially offset by increased expenses related to
the opening of the Mississippi warehouse operations, the addition of the Idelle
Labs division and various other increases in SG&A expenses.

Interest expense and Other income / expense

Interest expense for the quarter ended May 31, 2003 declined compared
with the quarter ended May 31, 2002, decreasing to $1,009,000 from $1,067,000.

Income tax expense

In the first quarter of fiscal 2004, our income tax expense was 17.8
percent of net income before income taxes, as opposed to 28.8 percent in the
first quarter of fiscal 2003. The reason for this decrease was a combination of
events. Firstly, Tactica incurs a total income tax rate of approximately 45
percent, versus approximately 19 percent for our other two segments combined and
Tactica's lower net income as a percentage of our consolidated net income caused
a reduction in our overall tax rate. Secondly, the majority of the $2,600,000 of
other income received in connection with the settlement of litigation was
recognized by one of the companies in the consolidated group of companies with
a lower effective tax rate as compared to our overall effective tax rate.
Therefore, this settlement's tax, approximating 15 percent of consolidated
taxable income, effectively lowered our consolidated tax rate.

LIQUIDITY AND CAPITAL RESOURCES

During the first quarter of fiscal 2004, our financial condition
remained strong. Our cash balance decreased 31.8 percent to $32,606,000 at May
31, 2003 from $47,837,000 at February 28, 2003. Operating activities used
$13,509,000 of cash during the first quarter of fiscal 2004,

20

compared to providing $25,554,000 during the previous fiscal year's first
quarter. An increase in inventory and accounts receivable levels due to
increased sales during the quarter, expected ocean freight increases beginning
at mid-year, and our initial purchase of inventory of skin and hair care
products for the new Idelle Labs division accounted for the principal uses of
operating cash during the quarter. Investing activities used $1,857,000 of cash
during the quarter ended May 31, 2003, due primarily to the acquisition of
equipment for the new Mississippi distribution warehouse and costs associated
with the upgrade of our information technology systems. Financing activities
provided $135,000 due to the exercise of stock options.

Net accounts receivable increased 16 percent from February 28, 2003 to
May 31, 2003. This increase is due to the increased sales experienced during the
quarter. Our May 31, 2003 inventory balance totaled $137,271,000, versus
$111,966,000 at February 28, 2003, a 22.6 percent increase. This increase was in
response to an early build up of inventory for anticipated sales increases,
expected increases in ocean freight costs, and the addition of inventory of skin
and hair care products for the Idelle Labs division.

Our working capital balance increased to $188,889,000 at May 31, 2003
from $173,809,000 at February 28, 2003. Our current ratio remained consistent,
decreasing slightly from 3.85 at February 28, 2003 to 3.78 at May 31, 2003. The
increase in our working capital was largely due to the increase in accounts
receivable and inventory levels experienced during the quarter offset partially
by a smaller increase in accounts payable and income taxes payable.

In connection with the acquisition of a 55 percent interest in Tactica,
we loaned $3,500,000 to the minority shareholders of Tactica. The interest rate
on these loans is 8.75 percent. All principal and unpaid interest on these loans
is due March 14, 2005. The total amounts of principal and accrued interest due
to the Company under these loans were $4,486,000 and $4,409,000 at May 31, 2003
and February 28, 2003, respectively. These amounts are included in "Other
assets" on the consolidated condensed balance sheets.

We maintain a revolving line of credit 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. Prior to its expiration, we fully
anticipate that this revolving line of credit will either be renewed or replaced
with a revolving credit agreement that will provide sufficient capital resources
to fund our ongoing liquidity needs. At May 31, 2003 the interest rate charged
under the line of credit was 2.25 percent. This line of credit allows for the
issuance of letters of credit of 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 May 31, 2003, there were no borrowings under this line of credit and
outstanding letters of credit totaled $839,450. 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
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.

21

Our contractual obligations and commercial commitments as of May 31,
2003 were:

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

Under a June 2003 Board of Directors resolution, the Company may
repurchase up to a total of 3,000,000 shares of its common stock over a period
extending to May 31, 2006. The Company has yet to repurchase any of its common
stock pursuant to this resolution.

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. We expect that our capital needs
will stem primarily from the need 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 may augment our
internal growth with acquisitions of complimentary businesses or product lines.
Additionally, we may finance acquisition activity with available cash, the
issuance of stock, or with additional debt, depending upon the size and nature
of any such transaction and the status of the capital markets at the time of
such acquisition.

INCOME TAXES

The Hong Kong Inland Revenue Department ("IRD") has assessed $6,753,000
in tax on certain profits of our foreign subsidiaries for the fiscal years 1995
through 1997. If the IRD were to assert the same position for later years and
that position were to prevail, the resulting tax liability would total
approximately $37,000,000 for fiscal 1995 through the fiscal quarter ended May
31, 2003. We have recorded a liability for the IRD's claims and potential
claims, based on consultations with outside Hong Kong tax experts as to the
probability that some or all of the

22

IRD's claims prevail. Although the ultimate resolution of the IRD's claims and
potential claims cannot be predicted with certainty, we believe that an adequate
provision has been made in the financial statements for the resolution of those
claims. In connection with the IRD's tax assessment for the fiscal years 1995
through 1997, we purchased tax reserve certificates in Hong Kong. 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. As of May
31, 2003 and February 28, 2003, the tax reserve certificates were valued at
$3,282,000 (U.S.), or approximately 49 percent of the liability assessed by the
IRD for fiscal 1995 through 1997. The value of the tax reserve certificates
comprises part of the amounts reported on the line entitled "Other assets" on
the Company's May 31, 2003 and February 28, 2003 condensed consolidated balance
sheets.

The United States Internal Revenue Service ("IRS") is auditing the U.S.
federal tax returns of our largest U.S. subsidiary for fiscal years 1997 through
1999. The IRS has proposed adjustments to those returns. If the IRS's positions
with respect to those adjustments were to prevail, the resulting tax liability
could total $7,500,000. We plan to vigorously contest these adjustments and are
engaged in the process of formulating our response. Although the ultimate
outcome of the examination cannot be predicted with certainty, we are of the
opinion that adequate provision for the adjustments proposed has been made in
our Condensed Consolidated Financial Statements. The IRS also is auditing the
U.S. federal tax returns of the Company's largest U.S. subsidiary for fiscal
years 2000 through 2002. To date, the IRS has not proposed any adjustments to
these returns. We cannot predict with certainty the results of the IRS audit for
these years.

PROPOSED UNITED STATES FEDERAL INCOME TAX LEGISLATION

Currently, we benefit from an international corporate structure that
results in relatively low tax rates on a consolidated basis. If we were to
encounter significant changes in the rates or rules imposed by certain key
taxing jurisdictions, such changes could have a material adverse effect on the
Company's financial position and profitability. In 1994, we engaged in a
corporate restructuring that, among other things, resulted in a portion of our
income not being subject to taxation in the United States. If such income were
subject to United States federal income taxes, our effective income tax rate
would increase materially. Several bills have been introduced recently in the
United States Congress that, if enacted into law, could adversely affect our
United States federal income tax status. At least one of the bills introduced
would apply to companies such as ours that restructured several years ago. That
bill could, if enacted into law, subject all of our income to United States
income taxes, thereby reducing our net income. Other bills introduced recently
would exempt restructuring transactions, such as ours, that were completed
before certain dates in 2001 and 2002, but would limit the deductibility of
certain intercompany transactions for U.S. income tax purposes and would subject
gains on certain asset transfers to U.S. income tax. In addition to the
legislation introduced in Congress, the United States Treasury Department has
issued a study of restructurings such as ours, which concluded in part that
additional limitations should be imposed on the deductibility of certain
inter-company transactions. It is not currently possible to predict whether any
legislation that has been introduced will become law, whether any additional
bills will be introduced, or the consequences

23

of the Treasury Department's study. However, there is a risk that new laws in
the United States, or elsewhere, 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 position and
profitability.

CRITICAL ACCOUNTING POLICIES

The U.S. Securities and Exchange Commission defines critical accounting
policies as "those that are both most important to the portrayal of a company's
financial condition and results, and require management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain." Preparation of our
financial statements involves the application of several such policies. These
policies include: consolidation of Tactica International, Inc. ("Tactica") under
the purchase method, estimates of our exposure to liability for income taxes in
Hong Kong and the United States, estimates of credits to be issued to customers
for sales that have already been recorded, the valuation of inventory on a
lower-of-cost-or-market basis, the carrying value of long-lived assets and the
economic useful life of intangible assets.

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 Condensed
Consolidated Statements of Income for the three months ended May 31,
2003 and 2002 include 100 percent of Tactica's net income for those
periods. We will continue to recognize all of Tactica's net income or
loss until Tactica's accumulated deficit is extinguished. At May 31,
2003, Tactica's accumulated deficit totaled $1,949,000.

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 IRD has assessed $6,753,000 in tax on certain profits of
the Company's foreign subsidiaries for the fiscal years 1995 through
1997. In connection with the IRD's tax assessment for the fiscal years
1995 through 1997, the Company also purchased tax reserve certificates
in Hong Kong. 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. As of May 31,
2003 and February 28, 2003, the tax reserve certificates were valued at
$3,282,000 (U.S.), or approximately 49 percent of the liability
assessed by the IRD for fiscal 1995 through 1997. 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
$30,280,000 (U.S.) for the period from fiscal 1998 through May 31,
2003. The ultimate resolution of the remaining IRD claims cannot be
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.

24

The United States Internal Revenue Service ("IRS") is auditing the U.S.
federal tax returns of our largest U.S. subsidiary for fiscal years
1997 through 1999. The IRS has proposed adjustments to those returns.
If the IRS's positions with respect to those adjustments were to
prevail, the resulting tax liability could total $7,500,000. We plan to
vigorously contest these adjustments and are engaged in the process of
formulating our response. Although the ultimate outcome of the
examination cannot be predicted with certainty, we are of the opinion
that adequate provision for the adjustments proposed has been made in
our Condensed Consolidated Financial Statements. The IRS also is
auditing the U.S. federal tax returns of the Company's largest U.S.
subsidiary for fiscal years 2000 through 2002. To date, the IRS has not
proposed any adjustments to these returns. The Company cannot predict
with certainty the results of the IRS audit for these years.

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 completed our
analysis of the carrying value of our goodwill during the first quarter
of fiscal 2004 and, accordingly, recorded no impairment.

25

Economic useful life of intangible assets - We apply 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. We
completed our analysis of the useful economic lives of our intangible
assets and determined that the useful lives currently being used to
determine amortization of each asset are appropriate.

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.

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:

o general industry conditions and competition,

o credit risks,

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

o the Company's material reliance on certain trademarks,

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

26

o the impact of other current and future laws and regulations,

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

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

o risks associated with inventory, including potential
obsolescence,

o risks associated with new products and new product lines,

o risks associated with operating in foreign jurisdictions,

o foreign currency exchange losses,

o worldwide and domestic economic conditions,

o uninsured losses,

o reliance on computer systems,

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

o risks associated with new business ventures and
acquisitions,

o risks associated with investments in equity securities, and

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

NEW ACCOUNTING GUIDANCE

In accordance with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" (SFAS 142), the Company does not record
amortization expense on goodwill or other intangible assets that have indefinite
useful lives. Amortization expense is recorded for intangible assets with
definite useful lives. SFAS 142 also requires at least an annual impairment
review of goodwill and other intangible assets. Any asset deemed to be impaired
is to be written down to its fair value. The Company has performed the analysis
required by SFAS 142 and has determined that none of its goodwill is impaired.

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

(a) May 31, 2003 and February 28, 2003 gross and net carrying amounts include
$16,920,000 of trademarks and $18,000,000 of licenses not subject to
amortization.

27

The following table summarizes the amortization expense
attributable to intangible assets for the three months ending
May 31, 2003 and 2002, as well as estimated amortization
expense for the fiscal years ending the last day of February
2004 through 2009.

In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment of Long-Lived Assets" ("SFAS
144"). The Company 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 the Company's financial
statements as of or for the three-month period ending May 31, 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. The Company
accounts 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." Accordingly, it recognizes no
compensation expense in our financial statements for 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, the Company does not expect the provisions
of SFAS 148 covering the transition to fair-value method accounting for
stock-based compensation to affect its financial statements.

28

The following table sets forth the computation of basic and diluted
earnings per share for the three months ended May 31, 2003 and May 31, 2002, and
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of SFAS 123, "Accounting for
Stock-Based Compensation" to stock-based employee compensation.

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. The Company has 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 these consolidated financial
statements have guaranteed obligations of other entities within the consolidated
group. FIN 45 requires disclosure of these guarantees, of the Company's product
warranties, and of various indemnity arrangements to which the Company is a
party. These disclosures are contained in Note 8 in our consolidated condensed
financial statements.

On April 30, 2003, the FASB issued FASB Statement No. 149 "Amendment
of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149").
These amendments clarify the definition of derivatives, expand the nature of
exemptions from Statement 133, clarify the application of hedge accounting when
using certain instruments and modify the cash flow presentation of derivative
instruments that contain financing elements. The Statement clarifies the
accounting for option-based contracts used as hedging instruments in a cash flow
hedge of the variability of the functional-currency-equivalent cash flows for a
recognized foreign-currency-denominated asset or liability that is remeasured at
spot exchange rates. This approach was issued to alleviate income statement
volatility that is generated by the mark-to-market accounting of an option's
time value component. This Statement is effective for all derivative
transactions and hedging relationships entered into or modified after June 30,
2003. These types of contracts are discussed in Note 13 in our consolidated
condensed financial statements. Management does not believe that SFAS 149 will
have a material effect on our consolidated financial statements.

In May 2003, the FASB issued FASB Statement No. 150 "Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity" ("SFAS 150"). This Statement establishes standards for how an issuer
classifies and measures in its statement of financial position certain financial
instruments with characteristics of both liabilities and equity. It requires
that issuers classify as liabilities a financial instrument that is within its
scope as a liability because that financial instrument embodies an obligation of
the issuer. This Statement does not affect the timing of recognition of
financial instruments as contingent consideration nor does it apply to
obligations under stock-based compensation arrangements if those obligations are
accounted for under APB Option No. 25. We are still reviewing the effects of
SFAS 150 on our consolidated condensed financial statements. We currently
believe that we do not have any financial instruments that are covered under
this statement; however we will make interim disclosures required by SFAS 150 in
our next interim report if considered necessary.

29

ITEM 3. 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, France,
Brazil, Canada and Mexico are transacted in U.S. dollars. The majority of our
sales are in the United Kingdom which are transacted in British Pounds, in
France and Germany which are invoiced in Euros, and in Canada which are
transacted in Canadian Dollars. 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. Our net sales denominated originally in
currencies other than the U.S. dollar totaled approximately $9,753,000 and
$4,341,000 for the quarter ended May 31, 2003 and May 31, 2002, converted at the
month end exchange rates. Our foreign currency exchange gains totaled $566,000
and $253,000 for quarters ended May 31, 2003 and 2002 respectively. 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. This forward contract closed during March 2003. During the quarter ended
May 31, 2003, we entered into two series of forward contracts. The first
contract was to exchange 5,000,000 British Pounds for U.S. dollars at rates
ranging from 1.6056 to 1.6153 U.S. dollars per British Pound. The second forward
contract was to exchange 2,500,000 Euros for U.S. dollars at a rate of 1.09 U.S.
dollars per Euro. All forward contracts remained outstanding at the end of May
31, 2003. We do not anticipate entering into any further forward contracts at
this time.

ITEM 4. 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. Our Chief Executive Officer and Chief
Financial Officer have evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14(c) and
15d-14(c)) as of a date within 90 days of this quarterly report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that these disclosure controls and procedures are effective. 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.

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

30

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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. The Company
intervened as a plaintiff in the action to assert claims against
Conair similar to the claims raised 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. In
June 2003, the parties to the litigation settled their claims and the
proceeding was dismissed. See Note 14 to the Company's Consolidated
Condensed Financial Statements for the fiscal quarter ended May 31,
2003 for a description of the impact of the settlement of this
litigation and one other lawsuit on the Company's consolidated
condensed financial statements.

ITEM 6. EXHIBITS AND REPORT ON FORM 8-K

(a) Exhibits

99.1 CEO Certification

99.2 CFO Certification

(b) Report on Form 8-K

On May 13, 2003, the Company furnished a report on Form 8-K in
connection with the public announcement of its fourth quarter fiscal
2003 earnings release.

31

SIGNATURES

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

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

Date July 15, 2003 /s/ Gerald J. Rubin
------------------------ ----------------------------------
Gerald J. Rubin
Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer)

Date July 15, 2003 /s/ Christopher L. Carameros
----------------------- ----------------------------------
Christopher L. Carameros
Executive Vice-President
and Chief Financial Officer
(Principal Financial Officer)

32

CERTIFICATION

I, Gerald J. Rubin, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: July 15, 2003
-----------------------------------

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

33

CERTIFICATION

I, Christopher L. Carameros, certify that:

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

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

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

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

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

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

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

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

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

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

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

Dated: July 15, 2003
-------------------------

/s/ Christopher L. Carameros
- ------------------------------------
Christopher L. Carameros
Executive Vice-President
and Chief Financial Officer
(Principal Financial Officer)

34

Index to Exhibits

99.1 CEO Certification

99.2 CFO Certification