UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

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

Commission file number 001-14669

HELEN OF TROY LIMITED

CLARENDON HOUSE
CHURCH STREET
HAMILTON, BERMUDA
(Address of principal executive offices)

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 (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

     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 $573,049,954.

     As of May 11, 2004 there were 29,471,111 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 29, 2004, 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 75

TABLE OF CONTENTS

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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”, “our” and “us” refer to Helen of Troy Limited and its subsidiaries.

     Helen of Troy Limited is a global designer, developer, importer and distributor of hair care appliances, hair brushes, combs, hair accessories, hair and skin care liquids and powders and other personal care products. In past years, our Company has reported segment information for three operating segments: North America, International, and Tactica. The North American and International segments sell the same portfolio of products, principally through mass merchants, general retail and specialty retail outlets. Tactica sells personal care and other consumer products to retailers and uses direct response marketing to sell such products directly to consumers. As more fully described in Note (15) to our consolidated financial statements, in the fourth fiscal quarter of 2004, we made the decision to sell our business activities with Tactica, and have made appropriate reclassifications to reflect its activities as a discontinued operation in the accompanying consolidated financial statements. On April 29, 2004 we completed the sale of our ownership interest in Tactica International, Inc. (“Tactica”) back to certain of its key operating manager-shareholders. In exchange for our 55 percent ownership share of Tactica and $17,161,000 of its secured debt and accrued interest, we received marketable securities, intellectual properties, and the right to certain tax refunds. We do not expect a material gain or loss to arise from this sale transaction. We expect to conclude all related exit activities by the end of the second fiscal quarter of 2005.

     Our brand portfolio and operations continue to expand and evolve. During the year, we completed the operating integration of six liquid and powder hair and skin care brands acquired from Procter & Gamble Company in October 2002. Additionally, at the end of September 2003, we acquired the rights to produce and distribute Brut® fragrances, deodorants and antiperspirants throughout North America, Latin America, and the Caribbean. We are currently completing our operating integration of the Brut® product line. We believe these brand acquisitions provide us a solid foothold in grooming, skin care, and hair care products, and represent a significant growth opportunity for us over the coming years. In addition to the core growth (growth from other than acquisition) of our existing brands, when the right opportunity presents itself, we expect to continue to make selective acquisitions of brands that fit our marketing expertise, distribution capability, and return on investment requirements.

     With this strategy in mind, over the past fiscal year we have started an effort to simplify our operating structure in advance of conversion to a new global information system (to be placed into service in fiscal 2005). With the implementation of our new information system, substantially all of our business will be operated under one integrated reporting platform. Management’s philosophy is to emphasize uniform processes within a global operating system that markets and distributes an optimal mix from its product portfolio tailored to the needs, requirements, and economics of local markets. Our Discussion and Analysis of Financial Condition and Results of Operations beginning on page 18 reflects certain changes in content and organization necessary and appropriate to your understanding of our performance. We expect our financial presentations to continue to evolve further next year as the full impact of our recently announced acquisition of OXO International from WKI Holding Company, Inc. becomes reflected in our continuing operations. Our pending acquisition of OXO is further discussed in Note (15) to our consolidated financial statements. We present financial information for each of our operating segments in Note (11) of the consolidated financial statements. The matters discussed in Item 1, herein pertain to all of our existing operating segments, unless otherwise specified.

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     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 United States and other countries.

     We sell certain of our products under licenses from third parties. Our licensed trademarks include Vidal Sassoon®, licensed from The Procter & Gamble Company; Revlon® licensed from Revlon Consumer Products Corporation; Dr. Scholl’s®, licensed from Schering-Plough HealthCare Products, Inc.; Scholl® (in areas other than North America), licensed from SSL Int. Ltd.; Sunbeam®, licensed from American Household, Inc.; Sea Breeze®, licensed from Shisheido Corporation; and Vitapointe®, licensed from Sara Lee Household and Body Care UK Limited.

     We own and actively market a number of trademarks, including Brut®, Vitalis®, Final Net®, Ammens®, Condition 3-in-1®, Dazey®, Caruso®, Karina®, DCNL™, Nandi™, Isobel™, and WaveRage™. We also market hair and beauty care products under the Helen of Troy®, Hot Tools®, Hot Spa®, Salon Edition®, Gallery Series®, and Wigo® trademarks to the professional beauty salon industry.

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

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PRODUCTS

     Our business is designing, developing, and selling a full line of personal care and comfort products. The following table lists the primary products we sell and some of the brand names that appear on those products.

     In addition to the products shown above, we owned 55 percent of Tactica which we re-classified as a discontinued operation at the end of fiscal 2004, and subsequently sold on April 29, 2004. 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.

     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

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existing products by adding new technologies to them. Examples include ionic hair care appliances and ceramic hair care appliances. We continued to extend our line of ceramic hair care appliances during fiscal 2004. Ceramic heating surfaces allow infrared heat to penetrate hair quickly and evenly, drying hair faster with superior results. We also continued to extend our line of hair care appliances that incorporate Ionic Technology™. Ionic appliances introduce negative ions into the hair which breaks up moisture on the hair’s surface allowing for quicker drying, better conditioning and smoothing, giving hair a shinier, silkier look and feel. During fiscal 2005 we expect to introduce cordless rechargeable hair care appliances. Also, to provide our consumers more precise thermal application and styling control, we expect to continue to add digital controls, pulse heat and a wider range of wattages to the appliances in our product line.

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

     At the end of September 2003 we acquired certain assets related to the Western Hemisphere production and distribution of Brut® fragrances, deodorants, and antiperspirants from Conopco, Inc., a wholly owned subsidiary of Unilever NV. This acquisition continues to expand our brand presence in the grooming, skin care, and hair products categories of our business.

     You can learn more about our currently marketed products at the following Internet address:

http://www.hotus.com

SALES AND MARKETING

     We market our products primarily within the United States. Sales within the United States comprised 84, 90 and 88 percent of total net sales in fiscal 2004, 2003, and 2002, respectively. Both our North American and International 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 products through a combination of outside sales representatives and our own internal sales staff.

     The companies from whom we license many of our brand names promote those names extensively. The Revlon®, Vidal Sassoon®, Dr. Scholl’s® and Sunbeam® trademarks are widely recognized because of advertising and the sale of a variety of products. We believe we benefit from the name recognition associated with a number of our licensed trademarks and seek to further improve the name recognition and perceived quality of all 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.

     In fiscal 2004 we reached an agreement to become the title sponsor of the Sun Bowl for the next three years starting with the December 2004 game. The Sun Bowl is one of the longest running invitational post season college football games in the United States with a history that spans over 70 years. The “Vitalis Sun Bowl” will be the official name of this event. CBS Sports will broadcast the game to a nationwide audience and

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we believe this sponsorship will provide us an opportunity to re-introduce the Vitalis brand to a whole new generation of consumers.

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 “Forward-Looking Information and Factors That May Affect Future Results”). For fiscal 2004, goods manufactured by vendors in the Far East comprised approximately 89 percent of the dollar value of the North American and International segments’ inventory purchases. 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. Our mix of Far East production continues to decrease with the expansion of our product offerings (most of our grooming, skin care and hair care products are sourced with unaffiliated manufacturers in North America). We purchase the remainder of our products from unaffiliated manufacturers, primarily in Europe.

     The manufacturers who produce our products use formulas, molds, and certain other tooling, some of which we own, in manufacturing those products. All our business 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 United States and 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 outside the United States and Canada are shipped from manufacturers primarily in the Far East, to warehouse facilities in The Netherlands, the United Kingdom, Mexico, Brazil, or directly to customers. We ship products stored at the warehouses in The Netherlands, the United Kingdom, Mexico, and Brazil to distributors or retailers.

     Our customers in 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.

     Most of our 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

     The North American and International operating segments depend materially upon the continued use of trademarks licensed under various agreements. The Vidal Sassoon®, Revlon®, Sunbeam® and Dr. Scholl’s® 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®, Vidal Sassoon®, Sunbeam®, and Dr. Scholl’s® 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.

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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® 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 Western Europe, hair dryers, curling irons, straightening irons, brush irons, hairsetters, brushes, combs, mirrors, functional hair accessories, personal spa products, hair clippers and trimmers, and battery-operated and electric women’s shavers bearing the Revlon® trademark.

     We are licensed to sell foot baths, foot massagers, hydro massagers, cushion massagers, body massagers, paraffin baths, and support pillows bearing the Dr. Scholl’s® trademark in the United States and Canada, under an agreement with Schering-Plough HealthCare Products, Inc. We also are licensed to sell the same products under the Scholl® trademark in other areas of the world through an agreement with 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® and Sunbeam Health at Home® trademarks in the United States, 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® pursuant to a perpetual royalty free license from Shisheido Corporation. We currently sell a line of liquid skin care products under the Sea Breeze® name in the United States and Canada.

     Helen of Troy has filed or obtained licenses for design and utility patents in the United States and several foreign countries. We also protect certain details about our processes, products and strategies as trade secrets, keeping confidential the information that we believe provides us with a competitive advantage. Our ability to enforce patents, copyrights, licenses, and other intellectual property is subject to general litigation risks, as well as uncertainty as to the enforceability of various intellectual property rights in various countries.

RELIANCE ON ONE CUSTOMER

     Sales to Wal-Mart Stores, Inc., and its affiliate, SAM’S Club, accounted for approximately 28 percent, 29 percent, and 29 percent of our net sales in fiscal 2004, 2003, and 2002, 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. There was no significant backlog of orders in any of our distribution channels as of the end of fiscal 2004.

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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

     Our business is somewhat seasonal. Net sales in third fiscal quarter accounted for approximately 35, 33, and 33 percent of fiscal 2004, 2003 and 2002 net sales, respectively. 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 United States 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® trademark is regulated by the United States Food and Drug Administration.

EMPLOYEES

     As of fiscal year end 2004, we employed 681 full-time employees in the United States, Hong Kong, Europe, Brazil and Mexico of which 205 are marketing and sales employees, 158 are distribution employees, 34 are engineering and development employees, and 284 are administrative personnel. As more fully discussed in Note (15) to our consolidated financial statements, these totals include 58 employees from Tactica, a discontinued business segment sold on April 29, 2004. At the end of fiscal 2004, Tactica employed 41 administrative and 17 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.

SECURITIES EXCHANGE ACT REPORTS

     We maintain an Internet site at the following address: http://www.hotus.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

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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.

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ITEM 2. PROPERTIES

PLANT AND FACILITIES

     North American Operations (servicing all business segments, except Tactica). 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. We also lease sales offices in Danbury, Connecticut; Bentonville, Arkansas; Minneapolis, Minnesota; Troy, Michigan; and Toronto, Canada.

     We also 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 Operations (servicing all business segments, except Tactica). In mid fiscal 2004, we purchased and moved into a new 10,000 square foot sales and administrative facility in Sheffield, England. 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 France, Germany, Mexico, and Brazil.

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

     Corporate Procurement Operations (servicing our North American and International segments). A subsidiary located in Hong Kong leases approximately 18,000 square feet of office space in Hong Kong. Prior to fiscal 1996 this subsidiary was headquartered in approximately 12,000 square feet of office space in Hong Kong that the Company still owns. This facility is used as a sales office, showroom and staff training site. In January 2004 we entered into a lease for approximately 12,000 square feet of Macao office space to be occupied early in fiscal 2005.

     In December 2003, we sold 12,000 square feet of warehouse space on a 62,000 square foot lot located in El Paso, Texas.

ITEM 3. LEGAL PROCEEDINGS

     Hong Kong Income Taxes - The Inland Revenue Department (“the IRD”) in Hong Kong assessed $6,753,000 (U.S.) in tax on certain profits of our foreign subsidiaries for the fiscal years 1995 through 1997. In March of 2004, the IRD made an additional assessment of $3,583,000 (U.S.) for fiscal year 1998. 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 percent of the liability assessed by the IRD. The Company purchased additional tax reserve certificates in the amount of $3,583,000 (U.S.) on April 26, 2004 as required 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

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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.

     If the IRD’s position were to prevail and if it were to assert the same position for years after fiscal 1998, the resulting assessment could total $44,053,000 (U.S.) for the period from fiscal 1995 through fiscal 2004. We vigorously disagree with the proposed adjustments and intend to aggressively contest this matter through applicable taxing authority and judicial procedures, as appropriate. Although the final resolution of the proposed adjustments is uncertain and involves unsettled areas of the law, based on currently available information, the Company has provided for the best estimate of the probable tax liability for this matter. While the resolution of the issue may result in tax liabilities which are significantly higher or lower than the reserves established for this matter, management currently believes that the resolution will not have a material effect on our financial position or liquidity. However, an unfavorable resolution could have a material effect on our results of operations or cash flows in the quarter in which an adjustment is recorded or the tax is due or paid.

     The IRD also assessed $4,468,000 (U.S.) in tax on certain profits of our foreign subsidiaries for the fiscal years 1990 through 1994. During the second quarter of fiscal 2003, we settled our dispute with the IRD 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 Sheets and paid the IRD approximately $137,000 in cash. The tax reserve certificates that we forfeited were included on our Consolidated Balance Sheet as of fiscal year end 2003, on the line entitled “Other assets.” The settlement did not affect the current status of the IRD’s assessments for fiscal years 1995 through 1998 and did not have a material effect on our consolidated results of operations.

     United States Income Taxes - The Internal Revenue Service (“the IRS”) audited the U.S. federal tax returns of the Company’s largest U.S. subsidiary for the fiscal years through 1999 and all associated taxes have been settled.

     The IRS is currently auditing the U.S. federal tax returns of our largest U.S. subsidiary for fiscal years 2000, 2001, and 2002. The IRS has provided notice of certain proposed adjustments to taxable income. We vigorously disagree with the proposed adjustments and intend to aggressively contest this matter through applicable IRS and judicial procedures, as appropriate. Although the final resolution of the proposed adjustments is uncertain and involves unsettled areas of the law, based on currently available information, we have provided for the best estimate of the probable tax liability for these matters. While the resolution of the issue may result in tax liabilities which are significantly higher or lower than the reserves established for this matter, management currently believes that the resolution will not have a material effect on our financial position or liquidity. However, an unfavorable resolution could have a material effect on our results of operations or cash flows in the quarter in which an adjustment is recorded or the tax is due or paid.

     We plan to permanently reinvest all of the undistributed earnings of the non-U.S. subsidiaries of the U.S. subsidiaries. We have made no provision for U.S. federal income taxes on these undistributed earnings. At February 29, 2004, undistributed earnings for which we had not provided deferred U.S. federal income taxes totaled $50,244,000.

     Other Matters - We are 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 our consolidated financial position, results of operations or liquidity.

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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 2004.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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 29, 2004; Common Stock with a par value of $0.10. As of May 05, 2004 there were approximately 405 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 24,500 individuals and institutions hold our Common Stock.

CASH DIVIDENDS

     Our current policy is to retain earnings to provide funds for the operation and expansion of the Company’s business and for potential acquisitions. We have not paid any cash dividends on our Common Stock since inception. Our current intention is to pay no cash dividends in fiscal 2005. Any change in dividend policy will depend upon future conditions, including earnings and financial condition, general business conditions, any applicable contractual limitations, and other factors deemed relevant by our Board of Directors.

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SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table summarizes information about our equity compensation plans as of February 29, 2004. All outstanding awards relate to our common stock.

EQUITY COMPENSATION PLAN INFORMATION

(1) Includes 366,262 shares authorized and available for issuance in connection with the Helen of Troy Limited 1998 Employee Stock Purchase Plan

PURCHASES OF HELEN OF TROY COMMON STOCK

     The SEC recently amended Item 5 of Form 10-K to add the requirement that a registrant furnish the information required by Item 703 of SEC Regulation S-K for any repurchase of shares made in a month within the fourth quarter of the fiscal year covered by the Form 10-K. Although compliance with this new requirement is not required in a Form 10-K for a fiscal year ending prior to March 15, 2004, we have voluntarily included the following table in order to provide information regarding our purchases of our Common Stock during the three fiscal months ended February 29, 2004:

(1)

The number shown represents, as of the end of each period, the maximum number of shares of Common Stock that may yet be purchased under our publicly announced stock repurchase program. During the quarter ended August 31, 2003, our Board of Directors approved a resolution authorizing the purchase, in open market or through private transactions, of up to 3,000,000 shares of our common stock over a period extending through May 31, 2006.

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During the third fiscal quarter ended November 30, 2003, we purchased and retired a total of 231,800 shares under this resolution at a total purchase price of $5,226,000, for a $22.55 per share average price. For the fourth fiscal quarter ended February 29, 2004, as noted above we purchased and retired an additional 574,326 shares under this resolution at a total purchase price of $15,346,000, for a $26.72 per share average price. We did not purchase any shares during the first half of fiscal 2004.

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ITEM 6. SELECTED FINANCIAL DATA

     The selected consolidated financial information set forth below has been summarized from our consolidated financial statements. This information contains certain reclassifications necessary to restate prior years operations of Tactica as a discontinued segment. 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,
(in thousands, except per share data)

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ITEM 6. SELECTED FINANCIAL DATA - CONTINUED

As of last day of February,
(in thousands)

(1)		Fiscal 2004, 2003, 2002 and 2001 results include 100 percent of the results of Tactica under the line item, “Income from discontinued operations, net of tax”. We acquired a 55 percent interest in Tactica in March 2000. On April 29, 2004 we completed the sale of our interest in Tactica back to certain of its key operating manager-shareholders. Accordingly, the results of operations of Tactica have been reclassified out of income from continuing operations and working capital has been restated to eliminate the impact of Tactica’s current assets and current liabilities. Also, in the fourth fiscal quarter of 2004, we recorded a loss of $5,699,000 from the impairment of Tactica goodwill, net of $1,938,000 of related tax benefits. Because Tactica had accumulated a net deficit at the time that we acquired our interest in it, and because the minority shareholders of Tactica had not adequately guaranteed their portion of the accumulated deficit, our consolidated financial statements for fiscal 2004, 2003, 2002, 2001 and 2000, as restated include 100 percent of Tactica’s net income or loss. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a further explanation of the accounting for Tactica.
(2)		In fiscal 2003, we adopted Emerging Issues Task Force Abstract 01-9 (“EITF 01-9”). 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, $4,234,000, and $2,256,000 for fiscal years 2002, 2001, and 2000, respectively.
(3)		In fiscal 2001, we recorded a $2,457,000 charge for the remaining unamortized costs under a distribution agreement, which was later formally terminated. In the fiscal 2004, we recorded income of $2,600,000, net of legal fees, in connection with the settlement of litigation matters related to this item. This income is included in the line item entitled “Other income”.
(4)		In fiscal 2000, we 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 our artificial nails product line. In fiscal 2000, we also incurred $770,000 of charges related to the restructuring and reorganization of several departments.
(5)		Other income includes gains from the sale and appreciation of trading securities of approximately $311,000, $75,000, $165,000, $1,400,000, and $6,300,000 for fiscal years 2004, 2003, 2002, 2001 and 2000, respectively.
(6)		In fiscal 2004, we repurchased 806,126 shares of Common Stock at a cost of $20,572,000. In fiscal 2001, we repurchased 815,946 shares of Common Stock at a cost of $4,623,000. In fiscal 2000 we repurchased 526,485 shares of Common Stock at a cost of $4,076,000. No Common Stock was repurchased during the fiscal years ended 2002 and 2003.

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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 section entitled “ Forward-Looking Information And Factors That May Affect Future Results” and in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.”

OVERVIEW OF THE YEAR’S ACTIVITIES

     As a leading designer, producer and marketer of brand name personal care products, we are constantly searching for new avenues of sales growth. We use product innovation to enhance the versatility, speed, and convenience of our appliances, enabling us to keep our product offerings fresh and exciting to our consumers. Our business over the last year was characterized by the following changes in our business and the market place in which we operate:

•		Electronic Curling Irons, Thermal Brushes, Hair Straighteners, and Hair Crimpers. The curling iron category is a cyclical style driven business. Industry trade estimates place the total market dollar volume growth for this category at approximately 3 percent over the last three years. We continue to add life to this category and additional margin through higher price points by offering numerous performance updates including ceramic elements, higher wattages and pulse heat, and variable rheostat controls for faster heat-up and more precise heat applications. High powered hot air thermal brushes which combine curling brush and hair dryer in one appliance were a top seller in this category. Ceramic hair straighteners continue to grow as an industry category as the straight-hair, sleek-with-a-shine look has gained prominence in the fashion and entertainment industries. Specialty crimpers and wavers have also shown signs of growth. Over the year, we showed gains in market share in this group. Revlon®, Sunbeam®, Vidal Sassoon®, Hot Tools®, Wigo®, and Wave Rage™ were key brands in this group.
•		Hair Dryers. Hair dryers that offer consumers styling versatility continue to be an important product category in our business. The category is subject to aggressive price competition at entry level price points. The retail market for this group, while still the largest of our product categories has been decreasing. Industry trade estimates place the total market volume growth as trending down approximately 2 percent over the last three years. Innovation has helped us to thrive in this category and perform against the general trend. We were the first to market with Ionic hair dryers. Ionic dryers dry rapidly while leaving hair softer and shinier compared with standard dryers. We have extended our price points, increased volume and broadened the appeal of this category by including nice value added touches such as volumizers, hair pik, and concentrator attachments which allow for more precision styling. Additionally, professional-styles with more powerful AC motors and heavier duty cords and construction are gaining popularity with the retail consumer. Revlon®, Sunbeam®, Vidal Sassoon®, Hot Tools®, Wigo®, and Wave Rage™ were key brands in this group.
•		Electronic Clippers and Trimmers. Increasing popularity of facial hair has picked up the pace of growth in our clippers and trimmers business. The focus of numerous infomercials on this product group has helped to fuel sales. Industry trade estimates place the total dollar volume market growth over the last three years at over 12 percent with most of this growth occurring last year. While we expect that overall market sales in this group will level out over the coming year, we are a relatively new entrant to the market, and expect to see continuing sales growth in our offerings for the category. Vidal Sassoon® and Sunbeam® were key brands in this group.

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•		Massagers and Wellness Products. This category includes hand held massagers, cushion massagers, foot spas, home spa facial and manicure appliances, paraffin baths, and spa care gift sets. The overall size of the Massager and Wellness market is about one half of the personal hair care market. The massager market was trending down over the previous three years, driven by lower retail unit prices but showed new signs of life in calendar 2003. Industry trade estimates place the total market growth overall as down approximately 3 percent over the last three years, but overall dollar volumes were up 16 percent in the latest calendar year with higher end cushioned and heated back and body massagers leading the growth. Another key trend is the health, fitness, and wellness movement which is being helped with the addition of technology to the group. Given the size of this market, we believe there are opportunities to leverage our core competencies of innovation and speed to market to create additional sales growth for Helen of Troy. During fiscal 2004, we embarked on a new product development initiative that resulted in a combined share growth for our wellness and massager brands of 26.3 percent in our served market segments. For fiscal 2005 and beyond, we plan to build on our successes by continuing to track the consumer and retail landscape to develop and offer unique and innovative solutions for our customers. Revlon® and Dr. Scholl’s® were key brands in this group.
•		Grooming, Skin Care, and Hair Products. We are a new entrant into this market. In October of 2002 we formed Idelle Labs to revive and energize trusted brand names in our recently acquired Men’s Grooming, Skin Care, and Hair Care portfolio. We are focused on aggressively growing the Vitalis®, Sea Breeze®, Ammens®, Condition 3-in-1®, Final Net®, and Vitapointe® product franchises. Our key strategies are to bring growth to these brands through increased investment in consumer advertising and customer promotion. Focusing in the near term on launching complementary, innovative extensions, we are also developing new product lines based on our consumer insights. These brands are contributing positive sales growth momentum to our family of products.
		During September of 2003, we also acquired the rights to produce and distribute the Brut® men’s grooming product line throughout the Western Hemisphere. Fiscal 2004 operations contain five months of Brut® sales.
•		Brushes, Combs, and Accessories. This very traditional category of our business was down 4 percent in total dollar volume in fiscal 2004. With the trend towards straighter, cleaner hair styles, the accessory business has suffered. In order to combat the general trend in this market, we are looking to new technologies such as ceramic brushes, Ionic brushes and Ion-ceramic brushes to capitalize on grooming trends. If successful, these will not only bring back volume, but we believe will allow us to sell at higher price points. Vidal Sassoon product packaging is also being refreshed for greater eye appeal and ease of consumer shopping. Finally, an expanded broad advertising program from a key licensor, Revlon will benefit brand awareness for our Revlon® grooming products in fiscal 2005.
•		Hairsetters. This is an older technology that tends to be cyclical and is not seeing much current consumer emphasis due to fashion trending toward straighter hair. Retailers continue to de-emphasize this category to make display space for newer more exciting hair-styling products. In fiscal 2004, our business in this group continued to trend down. Revlon®, Vidal Sassoon®, and Wave Rage™ were key brands in this group.

In addition to the above activities, we continued to pursue the following activities to strengthen our business, and lay the foundation for significant future growth, both organically and through acquisition:

•

We continued with the development and implementation of a new Global Enterprise Resource Planning system. In connection with this, we have devoted a significant amount of our staff’s time to re-thinking

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		every aspect of how we transact business. Through the end of fiscal 2004, we had spent approximately $5,523,000 on this project. We plan to go live on the new system during fiscal 2005.
•		We completed the integration of Ammens®, Brut®, Condition 3-in-1®, Final Net®, Sea Breeze®, Vitalis®, and Vitapointe® brands into our operations, and we believe we are now positioned to expand the sales of these products.
•		At the end of September, 2003, as more fully described in Note (4) to our consolidated financial statements, we entered into a new $50,000,000 unsecured revolving credit facility to facilitate our short-term borrowings and issuances of letters of credit. We immediately used $32,000,000 of this credit facility and available cash to fund the acquisition of the Brut® family of products from Unilever NV. By year end of fiscal 2004, we repaid these borrowings from cash generated from operations.
•		We reached an agreement to become the title sponsor of the Sun Bowl for the next three years starting with the December 2004 game. The Sun Bowl is one of the longest running invitational post season college football games in the United States with a history that spans over 70 years. We have chosen the “Vitalis Sun Bowl” to be the official name of this event which will be broadcast to a nationwide audience by CBS. In addition to being of great benefit to the community where we are headquartered, we believe the “Vitalis Sun Bowl” will provide us the opportunity to showcase the Vitalis® brand to a whole new generation of users.
•		We continued to invest and expand our presence internationally. Overall, our international sales grew 73 percent in fiscal 2004. Due to continued growth in Europe, we had outgrown our existing sales and administrative facilities in Great Britain. Early in fiscal 2004, we invested approximately $2,142,000 to open a new 10,000 square foot office facility in Sheffield, England. Great Britain serves as the base of operations for our European business and oversees our operations in Germany and France. In connection with our Brut® acquisition, we expanded our Latin America activity. In 2003, we opened a Mexico City office which will serve as our base of operations for Latin America. We now have a sales presence in the following countries: the United States, Canada, Great Britain, France, Germany, China, Greece, Australia, Mexico, Brazil, Venezuela, Panama, Chile, Cost Rica, Peru, Trinidad & Tobago, The Dominican Republic, Guatemala, and El Salvador.
•		In order to continue to expand our global market for personal care products under the Revlon® trade name, we amended our trademark licensing agreements with Revlon Consumer Products Corporation, to expand our Revlon® brand name geographic coverage in North America to include Mexico for appliances, spa products, brushes, and hair accessories. The new agreements also allow for the sale of fashion hair care accessories on a worldwide basis except for Western Europe. As part of the new agreement, we prepaid $5,251,000 for calendar years 2006 and 2007 minimum royalties at a fifteen percent per annum discount. Revlon, at its option can require us to prepay our 2008 minimum royalties by December 15, 2004, also at a fifteen percent per annum discount. In the fourth quarter of 2004, in connection with these amendments, we paid $4,749,000 as full payment of a license renewal fee on all Revlon® license agreements which commence January 1, 2008 and run for fifteen years. Additionally, we received two new 20 year renewal options, which allow us to extend the life of the agreements for up to 59 years.

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OTHER SIGNIFICANT ACTIVITIES:

     During fiscal 2004 we addressed and/or concluded certain matters which had significant impact on our consolidated financial condition. These are highlighted below:

     As announced in October, 2003 we began evaluating strategic alternatives for our investment in Tactica International, Inc. (“Tactica”), with a view towards maximizing shareholder value. In the fourth fiscal quarter of 2004, we made the decision to exit our business activities with Tactica, and have made reclassifications to reflect its activities as a discontinued operation in the accompanying consolidated financial statements. For fiscal 2004, in connection with the discontinued operations of Tactica and the impairment of its goodwill, we recorded a total loss of $11,040,000, net of taxes. On April 29, 2004 we completed the sale of Tactica back to certain of its key operating manager-shareholders. In exchange for our 55 percent ownership share of Tactica and $17,161,000 of its secured debt and accrued interest, we received marketable securities, intellectual properties, and the right to certain tax refunds. We do not expect a material gain or loss to arise from this sale transaction. We expect to conclude all related exit activities by the end of the second fiscal quarter of 2005. This matter is more fully discussed in Note (15) to our consolidated financial statements.

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RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, our selected operating data, in dollars, as a percentage of net sales, and as a year-over-year percentage change.

(1)

Cost of sales percentages by segment are computed as a percentage of the related segment’s net sales. All other percentages shown are computed as a percentage of total net sales.

Net Sales:

     Consolidated net sales increased 25.0 percent or $95,117,000 in fiscal 2004 over fiscal 2003. $41,074,000 or 10.8 percent of the fiscal 2004 incremental sales growth is due to the acquisition in October 2002 of six new brands and September 2003 of one new brand in the grooming, skin care, and hair care product group. Core growth (growth without acquisitions) in fiscal 2004 was $54,043,000 or 14.2 percent. Our core growth was as a result of both unit growth and higher price points due to new product enhancements through technology and added features. Examples include hair care appliances utilizing ionic and ceramic technology rather than traditional heating systems. Incremental sales volume in all distribution channels also came from an expansion of our line of massagers under the Dr. Scholl’s® brand and introduction of new products marketed on infomercials and sold at retail outlets.

     Consolidated net sales increased 12.1 percent or $41,107,000 in fiscal 2003 over fiscal 2002. $12,997,000 or 3.8 percent of the fiscal 2003 incremental sales growth is due to the acquisition in October 2002 of six brands in the grooming, skin care, and hair care product group. Core growth (growth without acquisitions) in fiscal 2003 was $28,110,000 or 8.3 percent. Our core growth was as a result of product enhancements through technology and added features. Examples include hair care appliances utilizing ionic

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and ceramic technology rather than traditional heating systems. We also experienced increased sales in our Vidal Sassoon® line of hair clippers, as well as hair care appliances sold under our Wave Rage™ trademark. Partially offsetting the gains discussed above, our fiscal 2003 net sales of hair brushes, combs, and accessories were 14.9 percent lower than fiscal 2002.

     Net sales increased 20.3 percent or $70,320,000 in our North American segment in fiscal 2004 over fiscal 2003. $32,966,000 or 9.5 percent of the fiscal 2004 incremental sales growth is due to the acquisitions explained above and $37,354,000 or 10.8 percent is due to core growth.

     Net sales increased 12.1 percent or $37,254,000 in our North American segment in fiscal 2003 over fiscal 2002. $11,200,000 or 3.6 percent of fiscal 2003 incremental sales growth is due to the acquisitions explained above and $26,054,000 or 8.4 percent is due to core growth.

     Net sales increased 73.5 percent or $24,797,000 in our International segment in fiscal 2004 over fiscal 2003. $8,108,000 or 24.2 percent of the fiscal 2004 incremental sales growth is due to the acquisitions explained above and $16,689,000 or 49.3 percent is due to core growth. The International segment core sales increases came 60 percent from United Kingdom sales, 17 percent from French sales, and 23 percent from other International segment countries. The strength of the British Pound and Euro against the U.S. dollar in fiscal 2004 also had a positive impact on our International segment’s net sales.

     Net sales increased 12.9 percent or $3,853,000 in our International segment in fiscal 2003 over fiscal 2002. $1,797,000 or 6.0 percent of fiscal 2003 incremental sales growth is due to the acquisitions explained above and $2,056,000 or 6.9 percent is due to core growth. The strength of the British Pound and Euro against the U.S. dollar in fiscal 2003 also had a positive impact on our International segment’s net sales.

Gross Profit Margins:

     Gross profit, as a percentage of sales increased to 45.7 percent in fiscal 2004 from 41.0 percent in fiscal 2003 and 37.7 percent in fiscal 2002. In addition to a more favorable product mix from our North American and International operating segments, and the impact of higher gross margins on grooming, skin care, and hair products, we achieved declines in costs of goods sold due to better sourcing agreements and higher production volumes. Favorable currency exchange rates for the British Pound and Euro also helped improve margins in fiscal 2004 and fiscal 2003. Almost all of our products are purchased in U.S. dollars. 72.3 percent and 85.1 percent of International sales were in British Pounds or Euros during fiscal 2004 and fiscal 2003, respectively.

Selling, general, and administrative expense (“SG&A”):

     SG&A decreased to 27.7 percent of sales in fiscal 2004 from 27.8 percent in fiscal 2003. The 0.1 percent decrease in SG&A between fiscal 2004 and fiscal 2003 resulted from the continued decrease in royalty expense as a percentage of sales due to our renewing of royalty agreements on more favorable terms, the benefit of prepaying minimum royalties early, and an increase in sales for which we own the brand and thus do not incur royalty payments. Freight out costs continue to increase mostly due to higher fuel sur-charges. The increased transportation costs were offset by lower distribution costs as a result of opening our new Southaven, Mississippi warehouse in early fiscal 2004.

     SG&A expenses decreased to 27.8 percent of sales in fiscal 2003 from 28.9 percent in fiscal 2002. Two factors contributed to the 1.1 percent 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

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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.

Operating Income by Segment:

     Operating income (loss) by operating segment for fiscal 2004, 2003 and 2002 was as follows:

     The North American segment’s operating income grew $35,077,000, or 70.8 percent for fiscal 2004 compared to fiscal 2003, and $17,351,000, or 53.4 percent for fiscal 2003 compared to fiscal 2002. Net sales growth, improved gross margins, and decreased SG&A, as previously discussed were the significant contributing factors.

     The International segment’s operating income grew $7,667,000 for fiscal 2004 compared to fiscal 2003, and $3,239,000 for fiscal 2003 compared to fiscal 2002. Net sales growth and improved gross margins, as previously discussed were the significant contributing factors.

     Corporate / other operating loss increased $7,172,000 for fiscal 2004 over fiscal 2003. This increase was attributable to $5,400,000 of executive compensation and $1,600,000 of community relations expenditures included in this line item in fiscal 2004. With shareholder approval, the executive compensation of Mr. Rubin, the Company’s Chief Executive Officer and President, was changed effective September 1, 2003 to provide Mr. Rubin an increased incentive bonus opportunity. Also, effective September 1, 2003, Mr. Rubin’s employment agreement was amended to reduce his quarterly options grants.

Interest expense and Other income / expense:

     Interest expense was $82,000, or 2.1 percent, higher in fiscal 2004 than fiscal 2003. This is due to our draw of $32,000,000 under our revolving line of credit at the end of September 2003 to purchase the rights to produce and distribute Brut® product. By fiscal year end we had repaid all borrowings against this loan.

     Interest expense was $220,000, or 5.3 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 consisted entirely of interest on our fixed rate long-term notes payable.

     The increase of $1,979,000, or 84.8 percent, in our other income for fiscal 2004, over fiscal 2003, was primarily due to the favorable settlement of two litigation matters, resulting in our recording $2,600,000, net of related legal costs, of other income. This was partially offset by a drop in interest income of $658,000 for the year due to less investable cash and lower interest rates.

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     The increase of $406,000, or 21.1 percent, in our other income for fiscal 2003 over fiscal 2002, was due primarily to the fact that we had more cash available for investment during most of fiscal 2003 than fiscal 2002.

Income tax expense:

     Our fiscal 2004 income tax expense was 16.8 percent of net income before taxes, a rate substantially lower than the 22.2 percent rate that we experienced in fiscal 2003. The decline was due to more of our income in fiscal 2004 being taxed in lower tax rate jurisdictions.

     Our fiscal 2003 income tax expense of 22.2 percent of net income before taxes, was higher than the 19.9 percent rate that we experienced in fiscal 2002. The higher rate in fiscal 2003 over fiscal 2002 was a result of additional tax reserves set up in fiscal 2003 to provide for potential tax audit exposures and the comparative impact of the removal of a valuation allowance from a deferred tax asset during fiscal 2002, thereby making that year’s effective tax rate lower than it otherwise would have been.

DISCONTINUED OPERATIONS

     As more fully described in Note (15) to our consolidated financial statements, on October 2, 2003 we announced that we had begun evaluating strategic alternatives for our investment in Tactica International, Inc. (“Tactica”), with a view towards maximizing shareholder value. On April 29, 2004 we completed the sale of our 55 percent interest in Tactica back to certain shareholder-operating managers. In exchange for our 55 percent share of Tactica and $17,161,000 of its secured debt and accrued interest, we received marketable securities, intellectual properties, and the right to certain tax refunds. We do not expect a material gain or loss to arise from this sale transaction.

     Tactica was sold because we believed it no longer fit into our business model. We believe selling Tactica was the most appropriate course of action to maximize our long-term shareholder value. The sale will free key corporate managers to concentrate their efforts on our remaining core operating divisions and to explore and integrate new business opportunities better suited to our long-term objectives and operating system.

     Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”) provides accounting guidance for accounting for segments to be disposed by sale and, in our circumstances, requires us to report Tactica as a discontinued operation. In accordance with SFAS 144, we classified all assets and liabilities of Tactica as “Assets of discontinued segment held for sale” and “Liabilities of discontinued segment held for sale” in the accompanying Consolidated balance sheets as of the end of fiscal 2004 and 2003. SFAS 144 also requires us to report Tactica’s operating results, net of taxes, as a separate summarized component after net income from continuing operations for each year presented. For fiscal 2004, in connection with the discontinued operations of Tactica and the impairment of its goodwill, we recorded a total loss of $11,040,000, net of taxes. The accompanying Statements of Income and Consolidated Statements of Cash Flows contain all appropriate reclassifications for each year presented.

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FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

     Selected measures of our liquidity and capital resources as of fiscal year end 2004 and 2003 are shown below:

Operating Activities:

     Our cash balance was $53,048,000 at the end of fiscal 2004 compared to $47,441,000 at the end of fiscal 2003. Operating activities provided $77,656,000 of cash during fiscal 2004, compared to $47,339,000 during fiscal 2003. During fiscal 2004, net income, along with an increase in accounts payable, accrued expenses, and income taxes payable provided operating capital necessary to fund $18,953,000 of growth in accounts receivable and inventory. During fiscal 2003, our growth in receivables and payables was relatively flat over the prior year.

     In 2004, the growth in inventory and accounts receivable were required to support growth in our core business and our grooming, skin care, and hair care products. Accounts receivable grew $15,674,000, or 27.4 percent during fiscal 2004, compared to a decrease of $5,084,000, or 8.1 percent during fiscal 2003. Inventory grew $3,279,000 or 3.3 percent during fiscal 2004, compared to $5,967,000 or 6.3 percent during fiscal 2003.

     In fiscal 2004, our accounts receivable turnover improved to 49.9 days from 57.7 days in fiscal 2003, due to improved collections procedures. In fiscal 2004, inventory turnover improved slightly to 2.5 from 2.3 in fiscal 2003. The improved turns were due to the annualization of a full year’s sales and operations in fiscal 2004 against inventory acquired from The Procter & Gamble Company late in fiscal 2003.

     Working Capital increased to $166,445,000 during fiscal 2004 from the levels we reported at the end of fiscal 2003. Our current ratio dropped to 3.2:1 in fiscal 2004 from 4.0:1 in fiscal 2003. The principal reasons for this decrease was a $10,254,000 increase in accrued expenses, a $2,784,000 increase in income taxes due and the classification of a $10,000,000 long-term note payment due in January 2005 as a current liability. This payment represents the first in a series of scheduled payments we will make against our $55,000,000 unsecured Senior Notes, as more fully discussed below.

Investing Activities:

     In fiscal 2004, we acquired the Brut® brand from Unilever NV with internally generated cash flow and $32,000,000 drawn against a revolving credit line and in fiscal 2003 we acquired six brands from The Procter & Gamble Company with internally generated cash flow. These acquisitions resulted in the recording of inventory, capital equipment, trademarks, long-term licenses, and goodwill. In both years, we prepaid certain minimum royalties and licensing renewals in order to secure advantageous modifications of terms in our licensing agreements, and favorable payment discounts against our future royalty obligations. In addition, over the past two years, we have made significant investments to position our corporate infrastructure for future growth opportunities. In the latter half of fiscal 2003 and early fiscal 2004, we completed the purchase and

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transition to a new warehouse facility in Mississippi, which expanded our ability to serve our customer base in the midwest and eastern United States. In our International operations, we moved to a new owned administrative facility in the UK, which is the base for our European operations. Finally, over the last two years, we have made a significant investment in internal staff time, external consulting resources, software and hardware in developing an integrated Global Information System which we expect to go live with during fiscal 2005.

     Listed below are some highlights of our investing activities:

•		In fiscal 2004, we spent $55,255,000 to acquire from Unilever NV all marketing rights, formulas, fixed assets and production process know-how to distribute the Brut® brands in North America, Latin America and the Carribean. This transaction is more fully described in Note (12) to the consolidated financial statements.
•		In fiscal 2003, we spent $16,920,000 to acquire from The Procter & Gamble Company all rights to the trademarks and certain rights to the formulas and production processes for four trademarks: Ammens®, Vitalis®, Condition 3-in-1®, and Final Net®. In connection with this acquistion, we also spent $19,000,000 to acquire rights under licenses to sell products for two additional trademarks, Sea Breeze® and Vitapointe®.
•		In fiscal 2004, we spent $4,749,000 prepaying license renewals and $5,251,000 prepaying certain future minimum royalty obligations. In fiscal 2003, we spent $11,500,000 prepaying certain minimum royalty obligations.
•		During fiscal 2003, we signed a new agreement with The Procter & Gamble Company and paid a $2,000,000 licensing fee allowing us to sell appliances and combs, hair brushes, and accessories using 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 addition, we are obligated under the agreement to pay royalties on a quarterly basis. The initial agreement was for a ten-year term with options to extend the agreement for two additional ten-year periods.
•		We spent $947,000 in fiscal 2004 and $16,700,000 in fiscal 2003 on the purchase, outfitting, and start-up of our Mississippi warehouse operation.
•		We spent $2,142,000 in fiscal 2004 on our new office facility in the UK.
•		We spent $5,523,000 in fiscal 2004 on our global information system to be deployed later in fiscal 2005.
•		Other capital expenditures of $444,000 in fiscal 2004 and $312,000 in fiscal 2003 were for normal and recurring additions and/or replacements of fixed assets in the normal and ordinary course of business. In fiscal 2003, we also spent $3,664,000 on transportation equipment.

Financing Activities:

     During fiscal 2004 and fiscal 2003, we funded our activities with internally generated cash flow. While we borrowed from time to time against certain revolving credit facilities, all borrowings were short-term and repaid within months of the initial advances. Our most significant short-term borrowing was the draw of

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$32,000,000 of cash to initially fund our September 29, 2004 acquisition of the Brut® brand. As of fiscal year end, we used internally generated operating cash flow to pay off this advance.

     We are always looking for the most advantageous use for the cash we generate from operations. During fiscal 2004, we concluded that repurchase of our own stock on the open market would be beneficial to the long term interests of our shareholders. During the second fiscal quarter of 2004, our Board of Directors approved a resolution to purchase, in open market or through private transactions, up to 3,000,000 shares of our common stock. During the year, we purchased and retired a total of 344,000 shares of our common stock on the open market at a total purchase price of $7,877,000. An additional 462,126 shares of common stock were tendered by a key shareholder and retired as payment and satisfaction of $12,695,000 of stock purchase price and federal income tax obligations arising from the exercise of 1,200,000 options by a key employee-shareholder. This transaction was valued at an average share price of $27.47 using the average of the high bid and low bid prices for Helen of Troy stock as reported on the NASDAQ National Market System on the day the stock was tendered.

     Proceeds from employee option exercises and purchases through our employee stock purchase plan combined to provide $13,426,000 of cash and $ 8,045,000 in tax benefits in fiscal 2004.

     During fiscal 2003 and through October 30, 2003, we maintained a revolving line of credit with a bank providing for borrowings up to $25,000,000, accruing interest at the three-month LIBOR rate plus a percentage that varied based on the ratio of our debt to earnings before interest, taxes, depreciation, and amortization (EBITDA). This facility was terminated on October 30, 2003. Letters of credit issued and outstanding under this facility at the end of fiscal 2004 were approximately $389,000. We are currently arranging to transfer this letter of credit to our new lender, Bank of America.

     On September 22, 2003, certain of our subsidiaries entered into a new $50,000,000 unsecured revolving credit facility with Bank of America to facilitate short-term borrowings and the issuance of letters of credit. All borrowings accrue interest equal to the higher of the Federal Funds Rate plus 0.50 percent or Bank of America’s prime rate. Alternatively, upon our timely election, borrowings accrue interest based on the respective 1, 2, 3, or 6 month LIBOR rate plus 0.75 percent (based upon the term of the borrowing). The new credit facility allows for the issuance of letters of credit up to $10,000,000. Outstanding letters of credit will reduce the $50,000,000 borrowing limit dollar for dollar. The credit facility terminates in September 2004. As previously mentioned, we used $32,000,000 of this credit facility to fund the acquisition of the Brut® family of products from Unilever NV. As of the end of fiscal 2004, no revolving loans or letters of credit were outstanding under this facility.

     The Bank of America credit agreement requires the maintenance of certain Debt/EBITDA, fixed charge coverage ratios, and other customary covenants. The agreement has been guaranteed, on a joint and several basis, by our parent company, Helen of Troy Limited, and certain U.S. subsidiaries.

     As more fully described in Note (15) of our consolidated financial statements, on April 29, 2004, we entered into an agreement to acquire certain assets and liabilities of OXO International from WKI Holding Company, Inc. Banc of America Securities, LLC has been engaged to assist us in securing funding for this acquisition which will require an estimated $275,000,000 at closing and is expected to close sometime in our second fiscal quarter of 2005. We are currently negotiating the interest rates, maturities, and payment terms of various potential financing instruments associated with the acquisition.

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Contractual Obligations:

     Our contractual obligations and commercial commitments, as of the end of fiscal 2004 were:

PAYMENTS DUE BY PERIOD
(in thousands)

Off-Balance Sheet Arrangements:

     We have no existing activities involving special purpose entities or off-balance sheet financing.

Current and Future Capital Needs:

     Based on our current financial condition and current operations, and subject to the satisfactory completion of our financing the acquisition of certain assets and liabilities of OXO International from WKI Holding Company, Inc., we believe that cash flows from operations and available financing sources will continue to provide sufficient capital resources to fund the Company’s foreseeable short and long-term liquidity requirements. Except for the OXO International transaction, 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 will continue to evaluate acquisition opportunities on a regular basis and may augment our internal growth with acquisitions of complementary businesses or product lines. 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.

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®, Vitalis®, Condition 3-in-1®, and Final Net®. The Procter & Gamble Company assigned to us its rights under licenses to sell products bearing the other two trade names; Sea Breeze® and Vitapointe®. The Sea Breeze® license is perpetual. The portion of the purchase price assigned to the four trademarks purchased is included in our consolidated balance sheet as of the end of fiscal 2004 and fiscal 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 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® and Vitapointe® licenses appears on our consolidated balance sheets as of the end of fiscal 2004

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and fiscal 2003 on the line entitled “License agreements, at cost less accumulated amortization.” After consideration of the fact that the Sea Breeze® 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® license has an indefinite economic useful life. Therefore it is not subject to amortization. The Vitapointe® 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 in the annual amount of $128,000.

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 $1,400,000 and $600,000 of the advertising credits during fiscal 2004 and fiscal 2003, respectively, and expect to use substantially all remaining advertising credits during the third and fourth quarters of fiscal 2005. The credits are valued at $1,100,000 and $2,500,000 on our consolidated balance sheets at the end of fiscal 2004 and 2003, respectively, and are included in the line item entitled “Prepaid Assets.”

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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.” We consider the following policies to meet this definition.

     Hong Kong Income Taxes - The Inland Revenue Department (“the IRD”) in Hong Kong assessed $6,753,000 (U.S.) in tax on certain profits of our foreign subsidiaries for the fiscal years 1995 through 1997. In March of 2004, the IRD made an additional assessment of $3,583,000 (U.S.) for fiscal year 1998. 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 percent of the liability assessed by the IRD. The Company purchased additional tax reserve certificates in the amount of $3,583,000 (U.S.) on April 26, 2004 as required 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.

     If the IRD’s position were to prevail and if it were to assert the same position for years after fiscal 1998, the resulting assessment could total $44,053,000 (U.S.) for the period from fiscal 1995 through fiscal 2004. We vigorously disagree with the proposed adjustments and intend to aggressively contest this matter through applicable taxing authority and judicial procedures, as appropriate. Although the final resolution of the proposed adjustments is uncertain and involves unsettled areas of the law, based on currently available information, the Company has provided for the best estimate of the probable tax liability for this matter. While the resolution of the issue may result in tax liabilities which are significantly higher or lower than the reserves established for this matter, management currently believes that the resolution will not have a material effect on our financial position or liquidity. However, an unfavorable resolution could have a material effect on our results of operations or cash flows in the quarter in which an adjustment is recorded or the tax is due or paid.

     United States Income Taxes - The IRS is currently auditing the U.S. federal tax returns of our largest U.S. subsidiary for fiscal years 2000, 2001, and 2002. The IRS has provided notice of certain proposed adjustments to taxable income. We vigorously disagree with the proposed adjustments and intend to aggressively contest this matter through applicable IRS and judicial procedures, as appropriate. Although the final resolution of the proposed adjustments is uncertain and involves unsettled areas of the law, based on currently available information, we have provided for the best estimate of the probable tax liability for these matters. While the resolution of the issue may result in tax liabilities which are significantly higher or lower than the reserves established for this matter, management currently believes that the resolution will not have a material effect on our financial position or liquidity. However, an unfavorable resolution could have a material effect on our results of operations or cash flows in the quarter in which an adjustment is recorded or the tax is due or paid.

     We plan to permanently reinvest all of the undistributed earnings of the non-U.S. subsidiaries of the U.S. subsidiaries. We have made no provision for U.S. federal income taxes on these undistributed earnings. At February 29, 2004, undistributed earnings for which we had not provided deferred U.S. federal income taxes totaled $50,244,000.

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     Income Tax Provisions - We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

     We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. As changes occur in our assessments regarding our ability to recover our deferred tax assets, our tax provision is increased in any period in which we determine that the recovery is not probable.

     In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of other complex tax regulations. We recognize liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts are unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.

     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. This process entails a significant amount of inherent subjectivity and uncertainty.

     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 us 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 we 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. In fiscal 2004, we recorded a goodwill impairment charge in connection with the discontinued operations of our Tactica segment, as more fully described in Note (15) to our consolidated financial statements. 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

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we 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.

     For a more comprehensive list of our accounting policies, we encourage you to read Note 1 — Summary of Significant Accounting Policies, included in the accompanying consolidated financial statements. Note (1) contains several other policies, including policies governing the timing of revenue recognition, that are important to the preparation of our consolidated financial statements, but do not meet the SEC’s definition of critical accounting policies because they do not involve subjective or complex judgments.

FORWARD-LOOKING INFORMATION AND FACTORS THAT MAY AFFECT FUTURE RESULTS

     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”, “plans”, “may”, “will”, “should”, “seeks”, “estimates”, “predict”, “potential”, “continue”, “intends”, and other similar words identify forward-looking statements. All statements that address operating results, events or developments that we expect or anticipate will occur in the future, including statements related to sales, earnings per share results, and statements expressing general expectations about future operating results, are forward-looking statements. 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:

•		general industry conditions and competition, including our ability to continue to competitively market products with broad consumer appeal,
•		credit risks,
•		the Company’s, or its operating segments’, material reliance on individual customers or small numbers of customers,
•		the Company’s material reliance on certain trademarks, and its ability to protect this and other intellectual property both domestically and internationally,
•		the Company’s material concentration of licensing agreements with a limited number of licensors, and the continuing long-term financial capability of those licensors to perform under the terms of such agreements,

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•		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,
•		the impact of other current and future laws and regulations,
•		the results of continuing disagreements with the Hong Kong Inland Revenue Department concerning the portion of our profits that are subject to Hong Kong income tax,
•		any 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,
•		risks associated with inventory, including potential obsolescence and our ability to accurately forecast our customer demand,
•		risks associated with new products and new product lines,
•		risks associated with the Company’s material reliance on certain manufacturers for a significant portion of its production needs,
•		risks associated with operating in foreign jurisdictions,
•		interest rate risk, particularly those associated with debt instruments we will issue in connection with our recently announced transaction to acquire substantially all the assets and liabilities of OXO International from WKI Holding Company, Inc.,
•		foreign currency exchange losses,
•		general worldwide and domestic economic conditions,
•		uninsured losses,
•		changes in business, political and economic conditions due to the threat of future terrorist activity in the United States and other parts of the world, and related U.S. military action overseas,
•		reliance on computer systems,
•		management’s reliance on the representations of third parties,
•		risks associated with new business ventures and acquisitions, including our ability to manage the transition and integration, and our ability to obtain the anticipated results and synergies from our recently announced transaction to acquire certain assets and liabilities of OXO International from WKI Holding Company, Inc.,
•		risks associated with any current or future investments in equity securities,
•		risks associated with the sale of all our interest in Tactica, including our ability to realize the full value of the sales price from certain assets, including marketable securities, intellectual properties and the

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		right to tax refunds that Tactica transferred to us as payment for our 55 percent interest in its stock and secured debt,
•		the risks described from time to time in the Company’s reports to the Securities and Exchange Commission, including this report,
•		the risks associated with the impact that any future changes in generally accepted accounting principles may have on the reported results of operations, and
•		the risks associated with our ability to avoid classification of our parent company as a Controlled Foreign Corporation. In order for us to preserve our current tax treatment of our non-U.S. earnings, it is critical we avoid Controlled Foreign Corporations status. A Controlled Foreign Corporation is a non-U.S. corporation whose largest U.S. shareholders (i.e., those owning 10 percent or more of its stock) together own more than 50 percent 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.

NEW ACCOUNTING GUIDANCE

     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 Opinion No. 25. We are still reviewing the effects of SFAS 150 on our financial statements. We currently do not have any financial instruments that are covered under this statement.

     In December 2003, the FASB issued FASB Interpretation No. 46R (FIN 46R), Consolidation of Variable Interest Entities (“FIN 46R”). FIN 46R replaces the same titled FIN 46 that was issued in January 2003. FIN 46R identifies when entities must be consolidated with the financial statements of a company where the investors in an entity do not have the characteristics of a controlling financial interest or the entity does not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. Application of this Interpretation is effective for any financial statements we issue after December 15, 2003. We have no interests in entities covered by FIN 46R. Therefore, FIN 46R had no affect on our consolidated financial statements.

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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 and the amount of interest expense we incur on our short-term borrowings. 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 “Financial Condition, Liquidity, and Capital Resources”, interest rates on our revolving credit agreement varies based on the LIBOR rate and the period we lock LIBOR in for. Therefore, the potential for interest rate increases exposes us to interest rate risk on our revolving credit agreement. Our revolving credit agreement with Bank of America, entered into on September 22, 2003 allows for maximum revolving borrowings of $50,000,000. At the end of fiscal 2004, there were no outstanding borrowings or open letters of credit under this credit line. The need to borrow under this agreement could ultimately subject us to higher interest rates, thus increasing the future cost of such debt. We do not currently hedge against interest rate risk.

     As mentioned under “Financial Condition, Liquidity, and Capital Resources”, and “Forward-Looking Information and Factors that may affect Future Results”, on April 29, 2004, we entered into an agreement to acquire certain assets and liabilities of OXO International from WKI Holding Company, Inc., which will require approximately $275,000,000 at closing and is expected to close sometime in our second fiscal quarter of 2005. We are currently negotiating the interest rates, maturities, and payment terms of various potential financing instruments associated with the acquisition. The addition of this level of debt exposure to our consolidated operations, and the uncertainty regarding the associated interest rates, maturities, and payment terms yet to be negotiated, substantially increases our risk profile.

     Because we purchase a 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 the United States are transacted in U.S. Dollars. The majority of our sales in the United Kingdom are transacted in British Pounds, in France and Germany are transacted in Euros, and in Canada 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 $73,259,000, $43,366,000 and $25,500,000, for the fiscal years ended 2004, 2003 and 2002, respectively. Our foreign currency exchange gains totaled $1,216,000 and $1,638,000 for the fiscal years ended 2004 and 2003, respectively. In fiscal 2002, we recorded a foreign exchange loss of $307,000.

     During fiscal 2003, we began hedging against foreign currency exchange rate-risk by entering into a series of forward contracts designated as cash flow hedges to protect against the foreign currency exchange risk inherent in our forecasted transactions denominated in currencies other than the U.S. Dollar. For transactions designated as cash flow hedges, the effective portion of the change in the fair value (arising from the change in the spot rates from period to period) is deferred in Other Comprehensive Income. These amounts are subsequently recognized in “Other income (net)” in the Consolidated Statements of Income in the same period as the forecasted transactions close out over the remaining balance of their terms. The ineffective portion of the change in fair value (arising from the change in the difference between the spot rate and the forward rate) is

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recognized in the period it occurred. These amounts are also recognized in “Other income (net)” in the Consolidated Statements of Income. We do not enter into any forward exchange contracts or similar instruments for trading or other speculative purposes.

     The following table summarizes the various forward contracts we designated as cash flow hedges that were open at the end of fiscal 2004 and 2003:

February 29, 2004

     We expect that as currency market conditions warrant, and our foreign denominated transaction exposure grows, we will continue to execute additional contracts in order to hedge against potential foreign exchange losses.

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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.

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders
Helen of Troy Limited:

     We have audited the accompanying consolidated balance sheets of Helen of Troy Limited and subsidiaries (the Company) as of February 29, 2004 and February 28, 2003, and the related consolidated statements of income, stockholders’ equity and comprehensive income and cash flows for each of the years in the three year period ended February 29, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements 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 29, 2004 and February 28, 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended February 29, 2004, in conformity with accounting principles generally accepted in the United States of America.

     Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule titled “Schedule II - Valuation and Qualifying Accounts” is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, the information is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.

El Paso, Texas
May 12, 2004

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HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Balance Sheets

February 29, 2004 and February 28, 2003
(in thousands, except shares and par value)

See accompanying notes to consolidated financial statements.

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HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Statements of Income
(in thousands, except per share data)

See accompanying notes to consolidated financial statements.

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HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity and Comprehensive Income

Years Ended The Last Day of February, 2004, 2003, and 2002
(in thousands)