UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

For the quarterly period ended November 30, 2004

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

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

     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 þ No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes þ No o

     As of January 5, 2005 there were 29,822,525 shares of Common Stock, $.10 par value, outstanding.

HELEN OF TROY LIMITED AND SUBSIDIARIES

INDEX

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PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Consolidated Condensed Balance Sheets
(in thousands, except shares and par value)

See accompanying notes to consolidated condensed financial statements.

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HELEN OF TROY LIMITED AND SUBSIDIARIES

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

See accompanying notes to consolidated condensed financial statements.

4

HELEN OF TROY LIMITED AND SUBSIDIARIES

See accompanying notes to consolidated condensed financial statements.

5

HELEN OF TROY LIMITED AND SUBSIDIARIES

See accompanying notes to consolidated condensed financial statements.

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HELEN OF TROY LIMITED AND SUBSIDIARIES

Note 1 -	In our opinion, the accompanying consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly our consolidated financial position as of November 30, 2004 and February 29, 2004, and the results of our consolidated operations for the three- and nine-month periods ended November 30, 2004 and 2003. While we believe that the disclosures presented are adequate to make the information not misleading, these statements should be read in conjunction with the consolidated financial statements and the notes included in our latest annual report on Form 10-K, and other reports on file with the Securities and Exchange Commission.
	The following reclassifications were made to the accompanying consolidated condensed balance sheets and related footnotes for balances as of November 30, 2004 and February 29, 2004:

	•	During the quarter ended November 30, 2004, molds having a net book value of $2,289,000 and $124,000 at November 30, 2004 and February 29, 2004, respectively, were reclassified from “Other assets” to “Property and equipment”. The acquisition of OXO International (“OXO”) accounted for most of the increase in the net book value of molds since February 29, 2004. Given the scope and nature of OXO’s activities, management now believes this reclassification to be a more appropriate characterization of the nature of the assets acquired and has reclassified all previously acquired similar assets accordingly (See Note 14 for a further discussion of the OXO acquisition).
	•	During the quarter ended November 30, 2004, we reclassified $17,717,000 from Brut® goodwill to Brut® trademarks having an indefinite life and have reclassified this amount in both the November 30, 2004 and February 29, 2004 consolidated condensed balance sheets and related schedules accordingly. The reclassification has no impact on the consolidated condensed statements of income. Management believes this reclassification to be a more appropriate characterization of the nature of the acquisition costs paid for the Brut® brand.

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

Note 3 -

Basic earnings per share is computed based upon the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based upon the weighted average number of shares of common stock plus the effects of dilutive securities. The number of dilutive securities was 2,381,576 and 2,936,767 for the three- and nine-months ended November 30, 2004, respectively, and 3,687,222 and 2,655,726 for the three- and nine-months ended November 30, 2003, respectively. All dilutive securities during these periods consisted of stock options issued under our stock option plans. There were options to purchase shares of common stock that were outstanding but not included in the computation of earnings per share because the exercise prices of such options were greater than the average market prices of our common stock. These options totaled 113,700 and 1,500 at November 30, 2004 and 2003, respectively.

Note 4 -

During the quarter ended August 31, 2003, our Board of Directors authorized us to purchase, in open market or through private transactions, up to 3,000,000 shares of our common stock over a period extending to May 31, 2006. During the quarter ended November 30, 2004, we did not purchase any shares. During the quarter ended November 30, 2003, the Company purchased and retired 231,800 shares under this resolution at a total purchase price of $5,226,000, for a $22.55 per share average price. From September 1, 2003 through November 30, 2004, we have repurchased 1,563,836 shares at a total cost of $45,611,690 or an average share price of $29.17. An additional 1,436,164 shares are authorized for purchase under this plan.

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Note 5 -	In the tables that follow, we have revised our segment information for prior periods to reflect a change in operating segments reported. In the first fiscal quarter of 2005, we reported a single segment: Personal Care. The Personal Care Segment reflects the global operations of hair care appliances, hair brushes, combs, hair accessories, hair and skin care liquids and powders and other personal care products business. We are also reporting a Discontinued Segment, which summarizes the operations of Tactica International, Inc. (“Tactica”) (see Note 13 for a further discussion of the sale of our interest in Tactica). Beginning with the second fiscal quarter of 2005, we have added an additional operating segment: Housewares, to report the operations of OXO, which offers home product tools in several categories, including: kitchen, cleaning, barbecue, barware, garden, automotive, storage and organization (See Note 14 for a further discussion of the OXO acquisition). We believe these segments are appropriate based on the evolution of our business and believe the new segments more closely align the Company’s external segment reporting to how management evaluates and allocates resources and will provide more transparent disclosure to our investors.
	The accounting policies of our new segments are the same as those described in the summary of significant accounting policies in Note 1 to the consolidated financial statements in the Company’s 2004 Annual Report in Form 10-K.
	Operating profit for each operating segment is computed based on net sales, less cost of goods sold, less any selling, general and administrative expenses associated with the segment. The selling, general, and administrative expenses (“SG&A”) used to compute each segment’s operating profit are comprised of SG&A directly associated with those segments, plus overhead expenses (certain corporate costs, including those related to finance, legal, risk management, human resources, corporate management and information technology systems) that are allocable to operating segments. In connection with the acquisition of OXO, we agreed that World Kitchen, Inc. would perform certain corporate functions for OXO for a transitional period of time. The costs of these functions is reflected in SG&A for the housewares segment. These costs are currently expected to continue to be incurred through the end of fiscal 2006. During this transitional period, we have not made an allocation of our corporate overhead to OXO. We are currently evaluating whether it is appropriate to make an allocation of a portion of our corporate overhead to OXO. If we decide that these allocations are appropriate, there will be some reduction in operating income for the housewares segment, offset by an equal increase in operating income for the personal care segment. The extent of this operating income impact between the segments has yet to be determined. Other items of income and expense, including income taxes, are not allocated to operating segments.
	The tables on the following page contain segment information for the periods covered by our consolidated condensed statements of income:

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(1)

Segment information from prior periods has been restated due to the classification of Tactica as discontinued operations.

Note 6 -

Hong Kong Income Taxes - The Inland Revenue Department (“the IRD”) in Hong Kong has assessed a total of $32,086,000 (U.S.) in tax on certain profits of our foreign subsidiaries for the fiscal years 1995 through 2003. 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. We also assert that we have 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. In the first fiscal quarter of 2005, we purchased additional tax reserve certificates in the amount of $3,583,000 (U.S.) as required by the IRD. In the third fiscal quarter of 2005, we purchased additional tax reserve certificates in the amount of $8,635,000 (U.S.) as required by the IRD. The IRD has asked us to purchase an additional $12,960,000 of tax reserve

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certificates by February 11, 2005. If we purchase these certificates, we will have purchased tax reserve certificates totaling $28,460,000. On December 11, 2004, we purchased an additional $4,281,000 of these certificates. 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 fiscal years after fiscal year 2003, the resulting assessment could total $18,659,000 (U.S.) in tax for fiscal year 2004 and the first three fiscal quarters of 2005. 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, we have provided for our 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 consolidated financial position or liquidity. However, an unfavorable resolution could have a material effect on our consolidated 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 Internal Revenue Service (“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 proposed adjustments to taxes of approximately $13,424,000 for the three years under audit. We vigorously disagree with the proposed adjustments and are aggressively contesting this matter through applicable IRS and judicial procedures, as appropriate. Although the final resolution of the proposed adjustments is uncertain and involves areas of law subject to varying interpretation, based on currently available information, we have provided for our best estimate of the probable tax liability for these matters. This estimate includes additional tax liabilities related to U.S. taxable income for all periods subsequent to fiscal year 2002, as well as the years currently under audit. 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 consolidated financial position or liquidity. However, an unfavorable resolution could have a material effect on our consolidated results of operations or cash flows in the quarter in which an adjustment is recorded or the tax is due or paid.

The American Jobs Creation Act (“AJCA”) was signed into law by the President on October 22, 2004. The AJCA creates a temporary incentive for U.S. multinational corporations to repatriate accumulated income earned outside the United States by providing an 85% dividend received deduction for certain dividends from controlled foreign corporations. According to the AJCA, the amount of eligible repatriation is limited to $500 million or the amount described as permanently reinvested earnings outside the United States in the most recent audited financial statements filed with the Securities and Exchange Commission on or before June 30, 2003. Whether the Company will ultimately take advantage of the provision depends on a number of factors including potential forthcoming Congressional actions, Treasury regulations and development of a qualified reinvestment plan.

At this time, we have not made any changes to our existing position on reinvestment of foreign earnings subject to the AJCA. Our position is that we will permanently reinvest all of the undistributed earnings of the non-U.S. subsidiaries of certain U.S. subsidiaries, and accordingly have made no provision for U.S. federal income taxes on these undistributed earnings. At November 30, 2004, undistributed earnings for which we had not provided deferred U.S. federal income taxes totaled $37,748,000.

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

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

In 1994, we engaged in a corporate restructuring that, among other things, resulted in a greater portion of our income not being subject to taxation in the United States. If such income were subject to U.S. federal income taxes, our effective income tax rate would increase materially. The AJCA includes an anti-inversion provision that denies certain tax benefits to companies that have reincorporated outside the United States after March 4, 2003. We completed our reincorporation in 1994; therefore, our transaction is grandfathered by the AJCA, and we expect to continue to benefit from our current structure. In addition to future changes in tax laws, our position on various tax matters may be challenged. Our ability to maintain our position that the parent company is not a Controlled Foreign Corporation (as defined under the U.S. Internal Revenue Code) is critical to the tax treatment of our non-U.S. earnings. A Controlled Foreign Corporation is a non-U.S. corporation whose largest U.S. shareholders (i.e., those owning 10 percent or more of its stock) together own more than 50 percent of the stock in such corporation. If a change of ownership 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 our business.

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 not probable, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer probable. 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.

Note 7 -

In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), the Company does not record amortization expense on goodwill or other intangible assets that have indefinite useful lives. Amortization expense is recorded for intangible assets with definite useful lives. SFAS 142 also requires at least an annual impairment review of goodwill and other intangible assets. Any asset deemed to be impaired is to be written down to its fair value. We completed our annual impairment test during the first quarter of fiscal 2005 as required by SFAS 142, and have determined that none of our goodwill or other intangible assets were impaired at that time.

The table on the following page discloses information regarding the carrying amounts and associated accumulated amortization for all intangible assets and indicates the operating segments to which they belong:

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[1] Includes one fully amortized trademark and one trademark with an estimated life of 30 years

During the quarter ended November 30, 2004, we reclassified $17,717,000 from Brut® goodwill to Brut® trademarks having an indefinite life and have reclassified this amount in both the November 30, 2004 and February 29, 2004 consolidated condensed balance sheets and related schedules accordingly. The reclassification has no impact on the consolidated condensed statements of income. Management believes this reclassification to be a more appropriate characterization of the nature of the acquisition costs paid for the Brut® brand.

The $18,000,000 license not subject to amortization is for a perpetual, royalty free license for the Sea Breeze® brand of products, which we acquired in October 2002. All other licenses are amortized over the primary life of the underlying license agreements, ranging from 8 to 25 years. In the first fiscal quarter of 2005, as part of the proceeds of our sale of Tactica, we recorded $2,255,000 for the Epil Stop® trademark, which we believe to have an indefinite useful life (see Note 13). In the second fiscal quarter of 2005, we recorded additional trademarks with indefinite useful lives (and thus not subject to amortization) of $75,200,000, and other intangible assets totaling $18,155,000 (subsequently adjusted to $18,202,000). The other intangible assets are subject to amortization over varying lives ranging from 2 to 13 years (see Note 14). On September 29, 2004, we recorded $11,906,000 for the Skin Milk® and Time Block® trademarks which we acquired from Naterra International, Inc. We believe these new trademarks have an indefinite useful life (See Note 15).

The table on the following page summarizes the amortization expense attributable to intangible assets for the three months and nine months ending November 30, 2004 and 2003, as well as estimated amortization expense for the fiscal years ending the last day of February 2005 through 2010.

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

Debt Agreements Outstanding at February 29, 2004

The following current and long-term borrowings were available or outstanding at February 29, 2004.

On September 22, 2003, certain subsidiaries of the Company entered into a $50,000,000 unsecured revolving credit facility with Bank of America to facilitate short-term borrowings and the issuance of letters of credit. The $50,000,000 unsecured revolving credit facility was cancelled effective June 1, 2004.

On January 5, 1996, one of our U.S. subsidiaries issued guaranteed Senior Notes at face value of $40,000,000. Interest is paid quarterly at an annual rate of 7.01 percent. The Senior Notes are unsecured, and are guaranteed by Helen of Troy Limited and certain of our subsidiaries. Annual principal payments of $10,000,000 each begin January 5, 2005, with the final payment due January 5, 2008.

On July 18, 1997, one of our U.S. subsidiaries issued a $15,000,000 Senior Note. Interest is paid quarterly at an annual rate of 7.24 percent. The $15,000,000 Senior Note is unsecured, is guaranteed by Helen of Troy Limited and certain of our subsidiaries and is due July 18, 2012. Annual principal payments of $3,000,000 each begin July 18, 2008, with the final payment due July 18, 2012.

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

	Debt Agreements Entered into During the Second Fiscal Quarter

On June 1, 2004, we entered into a five year $75,000,000 Revolving Line of Credit Agreement, dated as of June 1, 2004, with Bank of America, N.A. and other lenders and a one year $200,000,000 Term Loan

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Credit Agreement, dated as of June 1, 2004, with Banc of America Mezzanine Capital, LLC. The Term Loan Credit Agreement was a temporary financing to fund the balance of OXO’s purchase price (see Note 14). We entered into this Term Loan Credit Agreement until more permanent long-term financing could be put into place. The purchase price of the OXO International acquisition was funded by borrowings of $73,173,000 under the new Revolving Line of Credit Agreement and $200,000,000 under the Term Loan Credit Agreement. Borrowings under the Term Loan Credit Agreement were subsequently paid off with the proceeds of the funding of $225,000,000 Floating Rate Senior Notes on June 29, 2004 (see below). For the period outstanding, borrowings under the Term Loan Credit Agreement accrued interest at LIBOR plus a margin of 1.125%.

Borrowings under the Revolving Line of Credit Agreement accrue interest equal to the higher of the Federal Funds Rate plus 0.50% or Bank of America’s prime rate. Alternatively, upon timely election by the Company, borrowings accrue interest based on the respective 1, 2, 3, or 6-month LIBOR rate plus a margin of 0.75% to 1.25% based upon the “Leverage Ratio” at the time of the borrowing. The “Leverage Ratio” is defined by the Revolving Line of Credit Agreement as the ratio of total consolidated indebtedness, including the subject funding on such date to consolidated EBITDA (“Earnings Before Interest, Taxes, Depreciation and Amortization”) for the period of the four consecutive fiscal quarters most recently ended, with EBITDA adjusted on a pro forma basis to reflect the acquisition of OXO and the disposition of Tactica. At the time of funding, we elected LIBOR based funding with an initial margin rate of 1.125%. The rates paid on various draws for the current fiscal quarter ranged from 2.705 percent to 3.465 percent. The new credit line allows for the issuance of letters of credit up to $10,000,000. Outstanding letters of credit reduce the $75,000,000 borrowing limit dollar for dollar. Upon the execution of this new credit facility, our previous $50,000,000 unsecured revolving credit facility with Bank of America was cancelled. As of November 30, 2004, there were $46,000,000 of revolving loans and $1,282,000 of open letters of credit outstanding against this facility (including a $295,000 standby letter of credit to a lessor, as more fully discussed under “Other Letters of Credit” below).

The Revolving Line of Credit Agreement continues to require and the Term Loan Credit Agreement required the maintenance of certain Debt/EBITDA, fixed charge coverage ratios, and other customary covenants. The agreements were guaranteed, on a joint and several basis, by the parent company, Helen of Troy Limited, and certain U.S. subsidiaries.

On June 29, 2004, we closed on a $225,000,000 Floating Rate Senior Note (“Senior Notes”) financing arranged by Banc of America Securities LLC with a group of ten financial institutions. The Senior Notes consist of $100,000,000 of five year notes, $50,000,000 of seven year notes, and $75,000,000 of ten year notes. Interest on the notes is payable quarterly. Interest rates are reset quarterly based on the 3 month LIBOR rate plus 85 basis points for the five and seven year notes, and the 3 month LIBOR rate plus 90 basis points for the ten year notes. At closing, the initial interest rates were 2.436 percent for the five and seven year notes, and 2.486 percent for the ten year notes. On September 29, 2004, the interest rates on these notes were reset for the next three months at 2.82 percent for the five and seven year notes and 2.87 percent for the ten year notes. On December 29, 2004, the interest rates on these notes were reset for the next three months at 3.410 percent for the five and seven year notes and 3.460 percent for the ten year notes. The Senior Notes allow for prepayment subject to the following terms: five year notes can be prepaid in the first year with a 2 percent penalty, thereafter there is no penalty; seven and ten year notes can be prepaid after one year with a 1 percent penalty, and after two years with no penalty.

The proceeds of the Senior Notes financing were used to repay the $200,000,000 borrowings under the Term Loan Credit Agreement, and $25,000,000 of the outstanding borrowings on our $75,000,000 Revolving Line of Credit Agreement.

The Senior Notes are unsecured and require the maintenance of certain Debt/EBITDA, fixed charge coverage ratios, consolidated net worth levels, and other customary covenants. The Senior Notes have been guaranteed, on a joint and several basis, by the parent company, Helen of Troy Limited, and certain U.S. subsidiaries.

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Other Letters of Credit

One of the Company’s U.S. subsidiaries had issued a $389,000 standby letter of credit to the lessor of Tactica’s office space in New York City. The lessor could draw funds from the standby letter of credit if Tactica failed to meet its obligations under the lease. After our sale of Tactica (see Note 13), we took measures to cancel the original letter of credit and issue another standby letter of credit under a new banking relationship. Tactica has since filed for bankruptcy and did indeed fail to meet its obligations under the lease. The lessor has drawn against the original letter of credit for a total of $241,000, through November 30, 2004, which has been adequately provided for in our financial statements for the quarter ending November 30, 2004.

Product Warranties

The Company’s products are under warranty against defects in material and workmanship for a maximum of two years. We have established accruals to cover future warranty costs of approximately $10,670,000 and $4,114,000 as of November 30, 2004 and February 29, 2004, respectively. We estimate our warranty accrual using historical trends. We believe that these trends are the most reliable method by which we can estimate our warranty liability. The following table summarizes the activity in the Company’s accrual for the three months and nine months ended November 30, 2004 and fiscal year ended February 29, 2004:

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Contractual Obligations

Our contractual obligations and commercial commitments as of November 30, 2004 were:

Note 9 -	The Company sponsors four stock-based compensation plans. The plans consist of two employee stock option plans, a non-employee director stock option plan and an employee stock purchase plan. These plans are described below. As all options were granted at or above market prices on the dates of grant, no compensation expense has been recognized for our stock option plans.

The following table sets forth the computation of basic and diluted earnings per share for the three months and nine months ended November 30, 2004 and 2003, respectively, and illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation” to stock-based employee compensation.

Under stock option and restricted stock plans adopted in 1994 and 1998 (the “1994 Plan” and the “1998 Plan,” respectively) the Company reserved a total of 14,000,000 shares of its common stock for issuance to key officers and employees. Pursuant to the 1994 and 1998 Plans, we grant options to purchase our common stock at a price equal to or greater than the fair market value on the grant date. Both plans contain provisions for incentive stock options, non-qualified stock options, and restricted stock grants. Generally, options granted under the 1994 and 1998 Plans become exercisable immediately, or over a one, four, or five-year vesting period and expire on a date ranging from seven to ten years from their date of grant. 24,986 and 80,411 shares remained available for future grants under the 1998 Plan at November 30, 2004 and February 29, 2004, respectively.

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Under a stock option plan for non-employee directors (the “Directors’ Plan”), adopted in fiscal 1996, the Company reserved a total of 980,000 shares of its common stock for issuance to non-employee members of the Board of Directors. We grant options under the Directors’ Plan at a price equal to the fair market value of our common stock at the date of grant. Options granted under the Directors’ Plan vest one year from their date of issuance and expire ten years after issuance. 364,000 and 432,000 shares remained available for future grants under this plan at November 30, 2004 and February 29, 2004, respectively.

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

During the second quarter of fiscal 2005, plan participants acquired 5,614 shares at an average price of $23.35 per share from the Company under the stock purchase plan. At November 30, 2004 and February 29, 2004, 360,648 and 366,262 shares respectively, remained available for future purchases under this plan.

Note 10 -

During the fiscal year ended February 28, 2003, we entered into nonmonetary 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 inventory’s book value. We had used approximately $2,000,000 of the credits through the fiscal year ending February 29, 2004. In addition, during the quarters ended August 31, 2004 and November 30, 2004, we entered into additional nonmonetary transactions in which we exchanged inventory with a book value of approximately $952,000 and $59,000 respectively, for additional advertising credits. As a result of these transactions, we recorded both sales and cost of goods sold equal to the inventory’s book value, which approximated their fair value.

During the three months ended November 30, 2004, we used $368,000 of credits against these transactions and expect to use most of the remaining advertising credits acquired by the end of fiscal year 2005. All remaining credits are included in the line item entitled “Prepaid expenses” on our consolidated condensed balance sheets and are valued at $1,743,000 and $1,100,000 at November 30, 2004 and February 29, 2004, respectively.

Note 11 -

Our functional currency is the U.S. Dollar. By operating internationally, we are subject to foreign currency risk from transactions denominated in currencies other than the U.S. Dollar (“foreign currencies”). Such transactions include sales, certain inventory purchases, and operating expenses. As a result of such transactions, portions of our cash, trade accounts receivable, and trade accounts payable are denominated in foreign currencies. During the three- and nine-month periods ended November 30, 2004, we transacted 18 and 16 percent, respectively, of our sales from continuing operations in foreign currencies. For the three- and nine-month periods ended November 30, 2003, we transacted 18 and 14 percent respectively, of our sales from continuing operations in foreign currencies. These sales were primarily denominated in the Canadian Dollar, the British Pound, Euro and the Mexican Peso. We make most of our inventory purchases from the Far East and use the U.S. Dollar for such purchases.

We identify foreign currency risk by regularly monitoring our foreign currency-denominated transactions and balances. Where operating conditions permit, we reduce our foreign currency risk by purchasing most of our inventory using U.S. Dollars and by converting cash balances denominated in foreign currencies to U.S. Dollars.

We also hedge against foreign currency exchange rate-risk by using a series of forward contracts designated as cash flow hedges to protect against the foreign currency exchange risk inherent in our forecasted transactions denominated in currencies other than the U.S. Dollar. 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

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period to period) is deferred in other comprehensive income. These amounts are subsequently recognized in “Selling, general and administrative expense” in the consolidated condensed 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 recognized in the period it occurred. These amounts are also recognized in “Selling, general and administrative expense” in the consolidated condensed 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 November 30, 2004 and February 29, 2004:

Note 12   -	In the first quarter of fiscal 2004, we recorded income of $2,600,000, net of legal fees, in connection with the settlement of litigation matters. This income is included in the line item entitled “Other income, net” in the consolidated condensed statements of income for the nine months ended November 30, 2003.

Note 13   -

On April 29, 2004, we sold our 55 percent interest in Tactica International, Inc. (“Tactica”), to certain shareholder-operating managers. In exchange for our 55 percent ownership share of Tactica and the release of $16,936,000 of its secured debt and accrued interest owed to us, we received marketable securities, intellectual properties, and the right to certain tax refunds. The fair value of net assets received was equal to the book value of net assets transferred; accordingly, no gain or loss was recorded as a result of this sale. The schedule below shows the assets we received in a non-cash exchange for our ownership interest in Tactica.

Assets Received in Noncash Exchange for Ownership Interest in Tactica
at April 29, 2004
(in thousands)

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The marketable securities received in the Tactica sale carry a restriction that prevents us from disposing of the stock prior to July 31, 2005. At November 30, 2004 the market value of these securities was $420,000. During the quarter ended November 30, 2004, management determined the decline in market value to be other than temporary and accordingly recorded a $2,610,000 loss in other income (expense), net. $2,010,000 of this loss had previously been recorded in other comprehensive income as of the quarter ended August 31, 2004.

Tactica was sold because we believed it no longer fit into our business model and that a sale was the most appropriate course of action to maximize our long-term shareholder value.

Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) requires at least an annual impairment review of goodwill and other intangible assets, which we normally undertake on March 1 of each year. SFAS 142 also requires a review of goodwill for impairment upon the occurrence of certain events that would more likely than not reduce the fair value of a segment below its carrying amount. One of those events is the impending disposal of a segment. After evaluating the facts and circumstances surrounding the fiscal 2004 operations of our Tactica operating segment and its subsequent sale, against the guidelines established by SFAS 142, we recorded a loss of $5,699,000 for the impairment of 100 percent of the Tactica goodwill, net of $1,938,000 of related tax benefits, in the fourth fiscal quarter of 2004.

Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”) provides accounting guidance for accounting segments to be disposed by sale and, in our circumstances, required 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 condensed balance sheet as of February 29, 2004. SFAS 144 also requires us to report Tactica’s operating results, net of taxes, as a separate summarized component after income from continuing operations for each year presented. The accompanying consolidated condensed statements of income and consolidated condensed statements of cash flows contain all appropriate reclassifications for each period presented.

Note 14 -	On June 1, 2004, we acquired certain assets and liabilities of OXO International (“OXO”) for a net cash purchase price of approximately $273,173,000 including the assumption of certain liabilities. This acquisition was accounted for as the purchase of a business. The results of OXO’s operations have been included in the consolidated financial statements since that date.

The assets acquired in the OXO acquisition included intellectual property, contracts, goodwill, inventory and books and records. The assumed liabilities included contractual obligations and accruals, and certain lease obligations assumed in connection with OXO’s office facilities in New York City. Thirty five OXO employees, including its President, joined the Company as part of the acquisition.

OXO is a world leader in providing innovative consumer products in a variety of product areas. OXO offers approximately 500 consumer product tools in several categories, including: kitchen, cleaning, barbecue, barware, garden, automotive, storage, and organization. OXO also has strong customer relationships with leading specialty and department store retailers. Each year approximately 90 products are introduced through the OXO Good Grips®, OXO Steel™, OXO Good Grips i-Series®, and OXO SoftWorks® product lines.

The schedule on the following page presents the net assets of OXO acquired at closing:

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OXO — Net Assets Acquired on June 1, 2004
(in thousands)

The allocations above reflect the completion of our analysis of the economic lives of the assets acquired and appropriate allocation of the initial purchase price based upon independent appraisals. We believe that the OXO acquisition resulted in recognition of goodwill primarily because of its industry position, management strength, and business growth potential. “Other intangible assets” are subject to amortization over varying lives ranging from 2 to 13 years and consist of patents, customer lists and a non-compete agreement.

The following pro forma unaudited financial data for the three- and nine-month periods ending November 30, 2004 and November 30, 2003 is presented to illustrate the estimated effects of the OXO acquisition as if the transaction had occurred as of the beginning of the fiscal periods presented.

Results of Operations if OXO Acquisition Had Been Completed at March 1, 2003
(in thousands, except per share data)

Note 15   -

On September 29, 2004, we acquired certain assets related to the worldwide production and distribution of TimeBlock® and Skin Milk® body and skin care products lines from Naterra International, Inc. TimeBlock® is a line of clinically tested anti-aging skin care products. Skin Milk® is a line of body, bath and skin care products enriched with real milk proteins, vitamins and botanical extracts. The assets consist principally of patents, trademarks and trade names, product formulations and production technology, distribution rights, and customer lists. The Company paid the purchase price of $12,001,000 in cash funded out of the Company’s revolving line of credit. The purchase price was allocated $11,906,000 to trademarks and $95,000 to property and equipment. The allocations above reflect the completion of our analysis of the economic lives of the assets acquired and appropriate allocation of the initial purchase price based upon independent appraisals.

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

          This discussion contains a number of forward-looking statements, all of which are based on current expectations. Actual results may differ materially due to a number of factors, including those discussed in the section entitled “Forward-Looking Information and Factors That May Affect Future Results”, Item 3. “Quantitative and Qualitative Disclosures About Market Risk”, and in the Company’s most recent report on Form 10-K.

OVERVIEW OF THE QUARTER’S ACTIVITIES:

          Our first fiscal quarter of each year is our seasonal low point in terms of overall activity, with sales tending to run approximately 20 percent of the year’s total on a historical basis. Our second fiscal quarter is characterized by stable sales in the June through first half of July timeframe with increasing sales in the second half of the July through August timeframe as we build towards a peak shipping season in the third quarter. The second and third fiscal quarters of 2005 also include the operations of our housewares segment (the operations of OXO International (“OXO”) acquired on June 1, 2004), offering home product tools in several categories, including: kitchen, cleaning, barbecue, barware, garden, automotive, storage and organization. Overall, revenues were up 24.4 and 25.4 percent for the third fiscal quarter of 2005 and year-to-date, respectively, over the same periods in the prior year. Profitability followed revenue growth with fiscal third quarter and year-to-date increases of 35.2 and 32.9 percent, respectively, for operating income and 20.1 and 17.1 percent, respectively, for income from continuing operations.

     Personal Care Segment

	•	Appliances. Products in this group include electronic curling irons, thermal brushes, hair straighteners, hair crimpers, hair dryers, massagers, spa products, foot baths, electric clippers and trimmers. Revenues increased approximately 4.7 and 5.8 percent over the same quarter and year-to-date periods in the prior year. Jade and ceramic hair straighteners and variable heat ion select hair dryers are the strongest performing products in this category. Revlon®, Sunbeam®, Vidal Sassoon®, Hot Tools®, Wigo® and Dr. Scholl’s® were key brands in this group.
	•	Grooming, Skin Care, and Hair Products. Sales for this group are up 30.2 and 71.9 percent over the same quarter and year-to-date periods in the prior year, driven by the addition of new brands. The Brut® men’s grooming product line in the Western Hemisphere was acquired in September 2003 so it was not part of our brand portfolio in the first seven months of fiscal 2004. TimeBlock® and Skin Milk® brands were acquired September 29, 2004 and contributed two months of sales to the quarter and nine months ended November 30, 2004. Our Grooming, Skin Care, and Hair Care portfolio includes these names: Vitalis®, Sea Breeze®, Ammens®, Condition 3-in-1®, Final Net®, Vitapointe®, Brut®, Epil-Stop®, TimeBlock® and Skin Milk®.
	•	Brushes, Combs, and Accessories. This very traditional category of our business was down 14.7 and 11.6 percent in total dollar volume compared to the same quarter and year-to-date periods in the prior year. With the trend towards straighter, cleaner hair styles, the accessory business has suffered. In order to address this general trend in this market, we continue to look to new technologies such as ceramic brushes, Ionic brushes and Ion-ceramic brushes to capitalize on grooming trends.

     Housewares Segment

•

This was the second quarter of operations for our new housewares segment (the operations of OXO acquired on June 1, 2004). We are now offering home product tools in several categories, including: kitchen, cleaning, barbecue, barware, garden, automotive, storage and organization. Kitchen tools are leading sales in this category with the introduction of several new products, including the OXO Good Grips Mandoline Slicer (a tool used for making an easy chore of slicing fruits, vegetables and creating attractive garnishes), and Nylon Flexible Turners and Spatulas in an array of colors. Good Grips®, OXO Steel™, OXO Grind it™ and OXO SoftWorks® are our key brands in this group. OXO also has customer relationships with leading specialty and department store retailers.

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In addition to the above activities, we continued to invest in our business, with a view toward potential future growth, through the following activities:

	•	During the second fiscal quarter, we substantially completed Phase 1 of development and implementation of a new Global Enterprise Resource Planning system. On September 7, 2004, we went live on the new system. With the implementation of this new system, most of our businesses run under one integrated information system. We believe this system will help to promote uniform business processes and practices amongst our operations. During the third fiscal quarter, we continued the process of closely monitoring the new system and making normal and expected adjustments to improve its effectiveness. We expect this process to continue over the remainder of the fiscal year. Also during the third fiscal quarter, we began the implementation and transition of our housewares segment to the new system. We also are investigating several significant functionality enhancements planned for implementation under Phase 2 of our IT enhancement program. Since the inception of the project commencing in late fiscal 2003, through the end of the third fiscal quarter of 2005, we had invested approximately $11,080,000 on Phase 1 of the project and $83,000 on the preliminary implementation and transition of our housewares segment, which is included in property and equipment on our consolidated condensed balance sheet at November 30, 2004. During the third fiscal quarter, we placed into service and commenced depreciating almost all of the Phase 1 investment, which added approximately $555,000 per quarter to our depreciation expense.
	•	We continue to expand our brand offerings in our Skin Care Category. On September 29, 2004, we acquired certain assets related to the worldwide production and distribution of TimeBlock® and Skin Milk® body and skin care products lines from Naterra International, Inc. TimeBlock® is a line of clinically tested anti-aging skin care products. Skin Milk® is a line of body, bath and skin care products enriched with milk proteins, vitamins and botanical extracts. The Company paid $12,001,000 in cash in the transaction funded out of the Company’s revolving line of credit.

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RESULTS OF OPERATIONS

Comparison of fiscal quarter and nine-month periods ended November 30, 2004 to the same periods ended November 30, 2003

          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.

*	Calculation is not meaningful

*	Calculation is not meaningful

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          As more fully discussed in Note 5 to the accompanying consolidated condensed financial statements, in the first fiscal quarter of 2005, we reported a single operating segment, Personal Care and a discontinued segment. The Personal Care Segment includes the hair care appliances, hair brushes, combs, hair accessories, hair and skin care liquids and powders and other personal care products business. The Discontinued Segment includes the operations of Tactica International, Inc. (See Note 13 to the consolidated condensed financial statements for a further discussion of the sale of Tactica). Beginning with the second fiscal quarter of 2005, we are presenting an additional operating segment: housewares, to report the operations of OXO, which offers home product tools in several categories, including: kitchen, cleaning, barbecue, barware, garden, automotive, storage and organization (See Note 14 to the consolidated condensed financial statements for a further discussion of the OXO acquisition). The accompanying discussion and analysis reflects this new change in operating segments.

Consolidated Sales and Gross Profit Margins

          Our net sales for the three- and nine-months ended November 30, 2004 increased 24.4 and 25.4 percent, or $40,296,000 and $91,975,000, respectively, versus the same periods a year earlier. New product acquisitions accounted for 21.1 percent or $34,857,000 and $76,467,000 respectively of the sales percentage growth for the three- and nine-months ended November 30, 2004 verses the same periods a year earlier. Sales of Brut® men’s grooming products for September 2004 are included in new product acquisitions because Brut® was acquired September 29, 2003. The OXO product lines which we acquired from WKI Holding Company in June 2004 to form our new housewares segment and the TimeBlock® and Skin Milk® body and skin care brands acquired from Naterra International, Inc. in September 2004 are also included in new product acquisitions. Core growth (growth without acquisitions) accounted for 3.3 and 4.3 percent, respectively, or $5,439,000 and $15,508,000, respectively, of the sales growth over the same three-and nine-month periods last year. The core growth for the first nine months came from sales growth from our appliance business and growth in grooming, skin care and hair products, offset somewhat by sales volume declines in our brushes, combs and accessories business.

          Also contributing to growth has been the strengthening of the British Pound, Canadian Dollar and the Euro versus the U.S. Dollar, offset somewhat by the impact of the weakening Mexican Peso vs. the U.S. Dollar. With the growth in our Latin American operations, the Mexican Peso exposure is growing and will be included in our foreign currency impact analysis. The overall net impact of foreign currency changes was to provide approximately $2,461,000 and $3,702,000 of additional sales dollars for the three- and nine-month periods ended November 30, 2004, respectively, versus the same periods a year earlier.

          Consolidated gross profit, as a percentage of sales for the three- and nine-month periods ended November 30, 2004, increased 2.5 and 1.7 percentage points, respectively, to 48.0 and 47.5 percent compared to the same periods in the prior year. The increase is primarily due to a combination of sales mix changes to higher margin items resulting from Brut and OXO acquisitions and margin improvement due to selected product purchase cost decreases.

Selling, general and administrative expenses

          Selling, general and administrative expenses, expressed as a percentage of net sales, increased from 26.3 to 27.1 percent for the three-months, and from 27.7 to 28.4 percent for the nine-months ended November 30, 2004 compared to the same periods in the prior year. The increase for the quarter ending November 30, 2004 is primarily due to higher management incentive costs resulting from improved operating results and higher consulting and depreciation costs related to our new computer system.

          The increase for the nine months ended November 30, 2004 is primarily due to higher management incentive costs, higher media advertising costs and higher consulting and depreciation costs related to our new computer system.

Interest expense and other income / expense

          Interest expense for the three- and nine-month periods ended November 30, 2004 increased compared with the three- and nine-month periods ended November 30, 2003, to $3,052,000 and $6,727,000 from $1,024,000 and $2,989,000.

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The overall increase in interest expense is the result of the use of both short-term and long-term debt to fund the $273,173,000 acquisition of OXO and the $12,001,000 acquisition of Timeblock® and Skin Milk® (See Notes 8, 14 and 15 for related discussions of new debt financings and the OXO, Timeblock® and Skin Milk® acquisitions).

          Other income (expense), net for the three- and nine-month periods ended November 30, 2004 was $2,399,000 and $2,280,000 of net expense, respectively, compared with other income, net of $696,000 and $4,434,000, respectively, for the same periods in the prior year. The following schedule shows key components of other income and expense:

          Interest income is lower for the three- and nine-month periods ended November 30, 2004 compared to the same periods last year due to lower levels of temporarily investable cash being held this year.

          Realized and unrealized losses on securities for the three- and nine- month periods ended November 30, 2004 includes a $2,610,000 loss on marketable securities acquired in connection with the sale of Tactica (see Note 13). These marketable securities carry a restriction that prevents us from disposing of the stock prior to July 31, 2005, and are accordingly classified as stock available for sale. At acquisition, the securities had a market value of $3,030,000. At November 30, 2004 the market value of these securities was $420,000. Management determined the decline in market value to be other than temporary and accordingly recorded the $2,610,000 loss. $2,010,000 of this loss had previously been recorded in other comprehensive income as of the quarter ended August 31, 2004.

          In the fiscal quarter ended November 30, 2003 we recorded other income of $2,600,000 in connection with the settlement of litigation.

Income tax expense

          Income tax expense for the three- and nine-month periods ended November 30, 2004 was 16.7 and 17.1 percent of earnings before income taxes, respectively, versus 17.3 and 17.4 percent of earnings before income taxes, respectively, for the same periods in the prior year. The overall year-to-year decline in rates is due to more of our income in fiscal 2005 being taxed in lower tax rate jurisdictions.

DISCONTINUED OPERATIONS

          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 ownership share of Tactica and the release of $16,936,000 of its secured debt and accrued interest owed to us, we received marketable securities, intellectual properties, and the right to certain tax refunds. The fair value of net assets received was equal to the book value of net assets transferred. Accordingly, no gain or loss was recorded as a result of this sale.

          Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) requires at least an annual impairment review of goodwill and other intangible assets, which we normally undertake on March 1 of each year. SFAS 142 also requires a review of goodwill for impairment upon the occurrence of certain events that would more likely than not reduce the fair value of a segment below its carrying amount. One of those events at the end of fiscal 2004 was the impending disposal of Tactica. After evaluating the facts and circumstances surrounding Tactica’s fiscal 2004 operations and its subsequent sale against the guidelines established by SFAS 142, we recorded a loss of $5,699,000 as of February 29, 2004 for the impairment of 100 percent of the Tactica goodwill, net of $1,938,000 of related tax benefits.

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          Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”) provides accounting guidance for accounting segments to be disposed by sale and, in our circumstances, required 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 condensed balance sheet as of February 29, 2004. SFAS 144 also requires us to report Tactica’s operating results, net of taxes, as a separate summarized component after income from continuing operations for each year presented. The accompanying consolidated condensed statements of income and consolidated condensed statements of cash flows contain all appropriate reclassifications for each period presented.

FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES

          Selected measures of our liquidity and capital resources as of November 30, 2004 and November 30, 2003 are shown below: