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

FORM 10-Q

Commission file number: 001-14669

HELEN OF TROY LIMITED

(Exact name of registrant as specified in its charter)

(915) 225-8000

(Registrant’s telephone number, including area code)

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 T       No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).           Yes £       No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £      No T

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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HELEN OF TROY LIMITED AND SUBSIDIARIES

INDEX — FORM 10-Q

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PART I.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Balance Sheets (unaudited)

(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 Operations (unaudited)

(in thousands, except per share data)

See accompanying notes to consolidated condensed financial statements.

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HELEN OF TROY LIMITED AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows (unaudited)

(in thousands)

See accompanying notes to consolidated condensed financial statements.

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HELEN OF TROY LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

May 31, 2009

Note 1 - Basis of Presentation

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 May 31, 2009 and February 28, 2009, and the results of our consolidated operations for the three month periods ended May 31, 2009 and 2008. The same accounting policies are followed in preparing quarterly financial data as are followed in preparing annual data.

Due to the seasonal nature of our business, quarterly revenues, expenses, earnings and cash flows are not necessarily indicative of the results that may be expected for the full fiscal year. While we believe that the disclosures presented are adequate and the consolidated condensed financial statements are 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 our other reports on file with the Securities and Exchange Commission (“SEC”).

In some cases, we have provided additional information for prior periods in the accompanying notes to consolidated condensed financial statements to conform to the current period’s presentation.

In this report and these accompanying consolidated condensed financial statements and notes, unless the context suggests otherwise or otherwise indicated, references to “the Company,” “our Company,” “Helen of Troy,” “we,” “us” or “our” refer to Helen of Troy Limited and its subsidiaries.

Note 2 – New Accounting Pronouncements

New Accounting Standards Currently Adopted

Accounting for Business Combinations – In the first quarter of fiscal 2010, we adopted FASB Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”), as amended by FASB staff position FSP 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.”  SFAS No. 141R establishes the principles and requirements for how an acquirer: (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) replaced SFAS No. 141, “Business Combinations.”  SFAS No. 141(R) became applicable to us for business combinations on a prospective basis beginning in the first quarter of fiscal 2010.  On March 31, 2009, we acquired certain assets, trademarks, customer lists, distribution rights, patents and formulas for Infusium 23® hair care products (the “Infusium acquisition” or “Infusium”) from The Procter & Gamble Company, which will be accounted for under SFAS No. 141(R).  Note 10 to these consolidated condensed financial statements contains additional information regarding the Infusium acquisition.

Disclosures about Derivative Instruments and Hedging Activities - In the first quarter of fiscal 2010, we adopted FASB Statement of Financial Accounting Standards No. 161, “Disclosures About Derivative Instruments and Hedging Activities” (“SFAS 161”), which amends SFAS 133 and expands disclosures to include information about the fair value of derivatives, related credit risks and a company’s strategies and objectives for using derivatives.  SFAS 161 became effective for us beginning in the first quarter of fiscal 2010.   Since SFAS 161 requires only additional disclosures concerning derivatives and hedging activities its adoption had no effect on our consolidated financial position, results of operations or cash flows.  Note 18 to these consolidated condensed financial statements contains certain disclosures related to the adoption of SFAS 161.

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Useful Lives of Intangible Assets - In the first quarter of fiscal 2010, we adopted FASB Staff Position FSP 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”).  FSP 142-3 removes the requirement to consider whether an intangible asset’s legal or contractual life can be renewed without substantial cost or material modifications to the existing terms and conditions and, instead, requires an entity to consider its own historical experience in renewing similar arrangements and any factors that would require adjustment of such assumptions from historical experience.  FSP FAS 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives.  FSP 142-3 became effective for us beginning in the first quarter of fiscal 2010.  Note 10 to these consolidated condensed financial statements contains certain disclosures related to the adoption of FSP 142-3.

Fair Value Measurements -  In February 2008, the FASB issued FSP 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”), which delayed the effective date for us of certain provisions of SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”) related to our other non-financial assets and liabilities until the beginning of the first quarter of fiscal 2010.  Therefore, in the first quarter of fiscal 2010, we adopted SFAS No. 157 for other nonfinancial assets and liabilities. These new provisions did not have a material effect on the consolidated financial position, results of operations or cash flows.  Note 16 to these consolidated condensed financial statements contains certain disclosures related to the adoption SFAS No. 157 for other nonfinancial assets and liabilities.

New Accounting Standards Subject to Future Adoption

Recognition and Presentation of Other-Than-Temporary Impairments – In April 2009, the FASB issued FASB Staff Position FSP 115-2 and 124-2, “Recognition of Other-Than-Temporary Impairments” (“FSP 115-2 and 124-2”).  This FSP amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. In addition, the FSP requires that the annual disclosures required by FSP 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“FSP 115-1 and 124-1”), including the aging of securities with unrealized losses, be made for interim periods.  This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities.   FSP 115-2 and 124-2 are effective for interim periods and fiscal years ending after June 15, 2009.  We do not expect the adoption of FSP 115-2 and 124-2 to have a material impact on our consolidated financial statements.

Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly - In April 2009, the FASB issued FASB Staff Position FSP 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP 157-4”).  This FSP emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same, and provides additional guidance on when market level data should not be relied upon or should be adjusted in determining fair value.  FSP 157-4 is effective for interim periods and fiscal years ending after June 15, 2009. We do not expect the adoption of this pronouncement to have a material effect on our consolidated financial statements.

Disclosures about the Fair Value of Financial Instruments – In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosure about Fair Value of Financial Instruments” (“FSP 107-1 and APB 28-1”). FSP 107-1 and APB 28-1 require interim disclosures regarding the fair values of financial instruments that are within the scope of SFAS 107, “Disclosures about the Fair Value of Financial Instruments.” Additionally, FSP 107-1 and APB 28-1 require disclosure of the methods and significant assumptions used to estimate the fair value of financial instruments on an interim basis as well as changes of the methods and significant assumptions from prior periods. FSP 107-1 and APB 28-1 do not change the accounting treatment for these financial instruments and are effective for interim periods and fiscal years ending after June 15, 2009.

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Subsequent Events - In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”, which established principles and requirements for events that occur after the balance sheet date but before financial statements are issued or available to be issued. The statement defines the period after the balance sheet date during which the Company should evaluate such events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which the Company should recognize such events or transactions in its financial statements and the required disclosures for such events. This statement is effective for interim or annual reporting periods ending after June 15, 2009.

Accounting Standards Codification - In June 2009, the FASB confirmed that the FASB Accounting Standards Codification (the “Codification”) will become the single official source of authoritative U.S. GAAP (other than guidance issued by the SEC), superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force (“EITF”) guidance, and related literature. After that date, only one level of authoritative U.S.  GAAP will exist. All other literature will be considered non-authoritative. The Codification does not change U.S.  GAAP.  Instead, it introduces a new structure for organizing U.S. GAAP guidance. The Codification becomes effective for interim and annual periods ending on or after September 15, 2009.

Note 3 – Litigation

We are involved in various legal claims and proceedings in the normal course of operations. We believe the outcome of these matters will not have a material adverse effect on our consolidated financial position, results of operations, or liquidity.

Note 4 – Earnings per Share

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 outstanding during the period plus the effect of dilutive securities.   The effect of dilutive securities was approximately 699,700 and 800,000 shares for the three month periods ended May 31, 2009 and 2008, respectively.  All dilutive securities during these periods consisted of stock options which were issued under our stock option plans. There were options to purchase common shares 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 shares. The common shares subject to these options totaled approximately 1,751,500 and 1,920,900 at May 31, 2009 and 2008, respectively.

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Note 5 – Comprehensive Income

The components of comprehensive income are as follows:

COMPONENTS OF COMPREHENSIVE INCOME

(in thousands)

The components of accumulated other comprehensive income (loss), net of tax, at the end of each period are as follows:

COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

(in thousands)

Note 6 – Segment Information

In the tables that follow, we present two segments: Personal Care and Housewares.  Our Personal Care segment’s products include hair dryers, straighteners, curling irons, hairsetters, shavers, mirrors, hot air brushes, home hair clippers and trimmers, paraffin baths, massage cushions, footbaths, body massagers, brushes, combs, hair accessories, liquid and aerosol hair styling products, men’s fragrances, men’s deodorants, liquid and bar soaps, shampoos, hair treatments, foot powder, body powder and skin care products.  Our Housewares segment reports the operations of OXO International (“OXO”) whose products include kitchen tools, cutlery, bar and wine accessories, household cleaning tools, food storage containers, tea kettles, trash cans, storage and organization products, hand tools, gardening tools, kitchen mitts and trivets, barbeque tools and rechargeable lighting products.  We use third-party manufacturers to produce our goods.  Both our Personal Care and Housewares segments sell their products primarily through mass merchandisers, drugstore chains, warehouse clubs, catalogs, grocery stores and specialty stores.  In addition, the Personal Care segment sells through beauty supply retailers and wholesalers.

The accounting policies of our segments are the same as those described in the summary of significant accounting policies in Note 1 to the consolidated financial statements in our annual report on Form 10-K for the fiscal year ended February 28, 2009.

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The following tables contain segment information for the periods covered by our consolidated condensed statements of operations:

THREE MONTHS ENDED MAY 31, 2009 AND 2008

(in thousands)

Operating income for each operating segment is computed based on net sales, less cost of sales, selling, general, and administrative expenses (“SG&A”), and any impairment charges associated with the segment. The SG&A used to compute each segment’s operating income are comprised of SG&A directly associated with the segment, plus overhead expenses that are allocable to the operating segment. The following tables contain identifiable assets allocable to each segment for the periods covered by our consolidated condensed balance sheets:

IDENTIFIABLE ASSETS AT MAY 31, 2009 AND FEBRUARY 28, 2009

(in thousands)

Note 7 – Significant Charge against Allowance for Doubtful Accounts

On May 2, 2008, Linens ‘n Things retail chain (“Linens”), filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Our accounts receivable balance with Linens at the date of bankruptcy was $4.17 million.  For the fiscal quarter ended May 31, 2008, a bad debt provision charge of $3.88 million was made to SG&A and we established a specific allowance of the same amount to account for the portion of the receivable we estimated to be uncollectible.  For the fiscal quarter ended August 31, 2008, we charged the remaining $0.29 million unreserved balance of Linens’ pre-petition accounts receivables to our bad debt provision and wrote off the resulting 100 percent reserved balance as uncollectable.   During the fiscal quarter ended November 30, 2008, Linens announced plans to liquidate by December 31, 2008.  We expect no further sales to Linens and we have fully collected all post-petition receivables as of the quarter ended November 30, 2008.

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Note 8 – Property and Equipment

A summary of property and equipment is as follows:

PROPERTY AND EQUIPMENT

(in thousands)

During the quarter ended May 31, 2008, we sold a fractional share of a corporate jet for $0.97 million and recognized a pretax gain of $0.10 million.

Depreciation expense was $2.46 million and $2.53 million for the three month periods ended May 31, 2009 and 2008, respectively.

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Note 9 – Intangible Assets

We do 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. We perform an annual impairment review of goodwill and other intangible assets during the first quarter of each fiscal year. We also test for impairment if events or circumstances indicate that it is more likely than not that the fair value of a reporting unit or an indefinite-lived intangible asset is below its carrying amount as required by SFAS 142 and 144.  Any asset deemed to be impaired is written down to its fair value.

Annual Impairment Testing in the First Quarter of Fiscal 2010 - Because an extensive analysis was completed for the fourth quarter of fiscal 2009, the Company performed an abbreviated evaluation of its goodwill and indefinite-lived intangible assets for impairment in the first quarter of fiscal 2010.  The Company abbreviated its evaluation because it believes that macroeconomic factors, specifically the decline in consumer demand and consumer confidence, did not deteriorate meaningfully during the first quarter of fiscal 2010.  Macroeconomic factors and market conditions, namely the sustained decline of the Company’s total market capitalization below the Company’s consolidated equity late in the third quarter of fiscal 2009 through the first half of the first quarter of fiscal 2010, were originally contributing factors to our determination that interim testing was necessary in the fourth quarter of fiscal 2009.  However, the Company’s latest projected sales and operating income for its reporting units available at the end of the first quarter of fiscal 2010 did not vary significantly relative to previous estimates determined in the fourth quarter of fiscal 2009 and certain values used in our impairment testing methodology were based on market prices which had improved over the quarter.   Also, the Company’s common share price recovered from the declines it experienced at the end of fiscal 2009.  These reasons, when considered together, caused us to conclude that further impairments had not occurred and extensive testing was not required for the quarter ended May 31, 2009.

Additional Impairment Testing in the Fourth Quarter of Fiscal 2009 - During the fourth quarter of fiscal 2009, the Company determined that interim impairment testing was necessary.  This impairment testing was performed using an updated outlook for the Company’s reporting units completed in connection with its annual planning process.  This outlook included downward adjustments to certain future expected revenues and increases in the market participant discount rates, when compared to previous impairment tests.  The Company decreased its expected revenues in response to the reduction in consumer spending during the second half of fiscal 2009 and its expectation that depressed spending levels would persist into fiscal 2010.  Our projections assumed a continued but decelerating economic contraction through the first half of fiscal 2011, an economic recovery beginning in the second half of fiscal 2011 and general economic growth returning to slightly above mean levels in fiscal years 2012 through 2014. As a result of this interim testing, total non-cash impairment charges of $99.51 million ($99.06 million after tax) were recorded in the fourth quarter of fiscal 2009.  This consisted of non-cash pre-tax impairment charges of $46.49 million against goodwill and $2.75 million against a trademark in our Personal Care segment’s Appliances and Accessories reporting unit and $50.27 million against certain trademarks and an indefinite-lived license held by our Grooming, Skin Care and Hair Care Solutions reporting unit.

Annual Impairment Testing in the First Quarter of Fiscal 2009 - The Company performed its annual impairment tests of its goodwill and trademarks during the first quarter of fiscal 2009.  This resulted in non-cash impairment charges of $7.76 million ($7.61 million after tax) on certain intangible assets associated with our Personal Care segment recognized during the first quarter of fiscal 2009.  The charges were recorded in the Company’s consolidated condensed statement of operations as a component of operating income.  The impairment charges reflected the amounts by which the carrying values of the associated assets exceeded their estimated fair values at the time of the analysis.  The decline in the fair value of the affected trademarks described above resulted from lower sales expectations on certain lower volume brands as a result of management’s strategic decision to reduce advertising and other resources dedicated to those brands, combined with a lower overall expectation of net sales driven by our near-term outlook for the economy and projected declines in consumer retail spending levels.

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A summary of the carrying amounts and associated accumulated amortization for all intangible assets by operating segment is as follows:

INTANGIBLE ASSETS

(in thousands)

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

The following table summarizes the amortization expense attributable to intangible assets for the three month periods ended May 31, 2009 and 2008, respectively, as well as our estimated amortization expense for the fiscal years ending the last day of each February 2010 through 2015.

AMORTIZATION OF INTANGIBLES

(in thousands)

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NOTE 10 - Acquisitions and New Trademark License Agreements

Infusium Acquisition - On March 31, 2009, we completed the acquisition of certain assets, trademarks, customer lists, distribution rights, patents, goodwill and formulas for Infusium 23® hair care products from The Procter & Gamble Company for a cash purchase price of $60 million, which we paid with cash on hand.  Given that Infusium constitutes an integrated set of activities and assets, capable of being conducted and managed for the purpose of providing a return in the form of economic benefits to our investors, we have accounted for the acquisition as the purchase of a business, and have recorded the excess purchase price as goodwill, which is partially deductible for income tax purposes in the jurisdiction in which the asset is held.  Infusium has a heritage of over 80 years and its shampoos, conditioners, and leave-in treatments have an established reputation for product performance with stylists and consumers. The acquisition is a significant addition to the Company’s Grooming, Skin Care and Hair Care solutions product portfolio which should require minimal additional staffing and infrastructure. We are marketing Infusium products into both retail and professional trade channels.  We have completed our analysis of the economic lives of all the assets acquired and determined the appropriate allocation of the initial purchase price based on an independent appraisal. We assigned the acquired trademarks indefinite economic lives and will amortize the customer list and patent rights over expected lives of 9.0 and 7.5 years, respectively.  For the customer list, we used our historical attrition rates to assign an expected life.  For patent rights, we used the underlying non-renewable term of a royalty free license we acquired for the use of patented formulas in certain Infusium products. The trademarks acquired are considered to have indefinite lives that are not subject to amortization.  The goodwill arising from the Infusium acquisition consists largely of the distribution network, marketing synergies, and economies of scale expected to occur from the addition of the new product line. The following schedule presents the acquisition date fair value of the net assets of Infusium:

INFUSIUM 23® - ASSETS ACQUIRED ON MARCH 31, 2009