SecProbe.io

CORRESP
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filename1.htm

  May 4, 2009

Via E-mail

United
States Securities and Exchange Commission

Division
of Corporation Finance

100
F Street, N.E.

Mail
Stop 3720

Washington,
DC 20549-7010

Attention:
Ms. Christy Adams

  Re:

  Helen
  of Troy Limited

  Form 10-K
  for the fiscal year ended February 29, 2008

  Filed
  May 13, 2008

  File
  No. 001-14669

Dear
Ms. Adams:

This
firm represents Helen of Troy Limited (the “Company”).  On behalf of the Company, we supplementally submit
for your review this letter in response to the comments of the Staff of the
Securities and Exchange Commission (the “Commission”) dated April 6,
2009.  As we discussed, please find
enclosed a draft disclosure that the Company intends to include in its annual
report on Form 10-K for the fiscal year ended February 28, 2009 (“Form 10-K”),
addressing the Company’s goodwill impairment testing.

The
Company’s fourth quarter and year end financial results teleconference is
scheduled for Wednesday, May 13, 2009 at 11:00 a.m. ET.  For the benefit of investors, the Company
plans to file its Form 10-K with the Commission prior to the date of the
conference.  Therefore, as discussed, we
would greatly appreciate receiving any comments that you may have at your
earliest convenience once you have had an opportunity to review the draft
disclosure.

Should
you have any additional questions, please do not hesitate to contact Crews Lott
of Baker & McKenzie LLP at (214) 978-3042.

Very
truly yours,

Baker &
McKenzie LLP

  /s/
  W. Crews Lott

  W.
  Crews Lott

  HELEN
  OF TROY LIMITED

  DRAFT

Goodwill and Indefinite-Lived
Intangibles —
We consider whether circumstances or conditions exist which suggest
that the carrying value of our goodwill and other long-lived assets might be
impaired. If such circumstances or conditions exist, further steps are required
in order to determine whether the carrying value of each of the individual
assets exceeds its fair market value. If analysis indicates that an individual
asset’s carrying value does exceed its fair market value, the next step is to
record a loss equal to the excess of the individual asset’s carrying value over
its fair value. The steps required by SFAS 142 and SFAS 144 entail significant
amounts of judgment and subjectivity.  We
complete our analysis of the carrying value of our goodwill and other
intangible assets during the first quarter of each fiscal year, or more
frequently whenever events or changes in circumstances indicate that their
carrying value may not be recoverable.
Events and changes in circumstances that may indicate that there is
impairment include, but are not limited to, strategic decisions to exit a
business or dispose of an asset made in response to changes in economic,
political and competitive conditions, the impact of the economic environment on
our customer base and on broad market conditions that drive valuation
considerations by market participants, our internal expectations with regard to
future revenue growth and the assumptions we make when performing our
impairment reviews, a significant decrease in the market price of our assets, a
significant adverse change in the extent or manner in which our assets are
used, a significant adverse change in legal factors or the business climate
that could affect our assets, an accumulation of costs significantly in excess
of the amount originally expected for the acquisition of an asset, and
significant changes in the cash flows associated with an asset.  We analyze these assets at the individual
asset, reporting unit and Company levels.

As a result of acquisitions,
the Company has significant intangible assets on its balance sheet that include
goodwill and indefinite-lived intangibles (primarily trademarks and
licenses).  Accounting for business combinations requires
the use of estimates and assumptions in determining the fair value of assets
acquired and liabilities assumed in order to properly allocate the purchase
price. The estimates of the fair value of the assets acquired and liabilities
assumed are based upon assumptions believed to be reasonable using established
valuation techniques that consider a number of factors, and when appropriate,
valuations performed by independent third party appraisers.

In the following
discussion, we use the terms “market participant discount rate”, “terminal period”,
and “terminal year revenue growth rates”.
The market participant discount rate is the weighted average cost of
capital derived from a composite of similar companies that are in
similar lines of business and serving similar distribution channels.  Inputs in the computation of the weighted
average cost of capital are a risk free rate of return (we used long-term U.S.
treasury rates), a market risk premium (which represents the return on equity
required by investors in similar types of businesses), an unsystematic risk
premium (which accounts for the hypothetical risk facing investors in the
reporting unit), the after tax cost of debt, and the average weights of debt
and equity for similar companies.  The
terminal period is the annual forecast used after the explicit forecast period
that reflects a stable level of operations and is assumed to continue in
perpetuity at the terminal year revenue growth rate.  The terminal period is used to determine the
continuing value of the cash flows into perpetuity.  The terminal year revenue growth rate
represents the revenue growth rate expected to continue  in perpetuity.

Annual Impairment Testing in 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 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 statements of income (loss) as a
component of operating income (loss).
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 fair values of
the assets were primarily determined using estimated future discounted cash
flow models  (“DCF Models”) over five
years and a terminal period.   This
approach was used for the indefinite-lived trademarks and licenses, the
reporting units, and the Company as a whole.
The DCF Models use a number of assumptions including expected future
cash flows from the assets, volatility, risk free rate, and the expected life
of the assets, the determination of which require significant judgments from
management.  In determining the
assumptions to be used, the Company considers, among other things, the existing
rates on treasury bills, yield spreads on assets with comparable expected
lives, historical volatility of the Company’s common shares and that of
comparable companies and general economic and industry trends.  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

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  HELEN
  OF TROY LIMITED

  DRAFT

expectation
of net sales driven by our near-term outlook for the economy and projected
declines in consumer retail spending levels.

Impairment Testing in the Fourth Quarter of Fiscal
2009 — As a result of the continued deterioration of
economic conditions during the second half of fiscal 2009, the Company
evaluated the impact of these conditions and other developments on its
reporting units to assess whether impairment indicators were present that would
require interim impairment testing. During the latter half of the third quarter
of fiscal 2009, the Company’s total market capitalization began to decline
below the Company’s consolidated shareholders’ equity balance at November 30,
2008.  If the Company’s total market
capitalization remains below its consolidated shareholders’ equity balance for
a sustained period of time, we believe this is an indicator of potential
impairment of goodwill.  Because this
condition continued throughout the balance of the fourth quarter of fiscal
2009, the Company determined that the carrying amount of our goodwill and other
intangible assets might not be recoverable and performed additional impairment
testing as of February 28, 2009.

The Company’s traditional impairment test methodology used primarily
DCF Models.  The Company expanded its
traditional impairment test methodology to give weight to other methods that
provide additional observable market information and that management believes
reflect the current risk level being incorporated into market prices, in order
to corroborate the fair values of each of the Company’s reporting units.  The additional methods included the Subject
Company Stock Price Method, the Guideline Public Company Method, and the
Mergers and Acquisitions Method (together, the “Market Models”). The Subject
Company Stock Price Method uses the same revenue and earnings valuation
multiples embedded in the Company’s common share price, including an
appropriate control premium, as a basis for estimating the separate values of
each of the Company’s reporting units.
The Guideline Public Company Method uses a composite of revenue and
earnings multiples derived as of the valuation date from a group of publicly
traded companies that are in similar lines of business and serving similar
distribution channels as a basis for estimating the separate values, including
appropriate control premiums for each of the Company’s reporting units.  The Mergers and Acquisitions Method uses the
revenue and earnings multiples embedded in a group of representative business
acquisition transactions, to the extent that comparable transactions are available,
as a basis for estimating the separate values of each of the Company’s
reporting units.   For each of the
methods used, considerable management judgment is necessary in reaching a
conclusion regarding the reasonableness of fair value estimates, evaluating the
most likely impact of a range of possible external conditions, considering the
resulting operating changes and their impact on estimated future cash
flows,  determining the appropriate
discount factors to use, and selecting and weighting appropriate comparable
market level inputs.

After determining the fair value of our reporting units using the DCF
Models and the Market Models, the Company assigned weights to the valuation
methods used based on management’s assessment of the extent to which the current
economic environment affects each reporting unit’s value.  Management believes that each method used has
relative merits and that by using multiple methods, particularly in times of
economic uncertainty, a better estimate of fair value is determined.  Current accounting literature defines fair
value as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the
measurement date.  In applying weights to
the various methods, the Company believes that its DCF Models capture
management’s estimate regarding the results of its future prospects and its
internal valuation for each reporting unit.
However, we also believe there is currently a divergence between
management’s expectations for its reporting units’ prospects and the market’s
expectations based on observable market information.  Accordingly, management believes that the
Market Models could more accurately reflect the value that a buyer would assign
to the reporting units in the current economic environment.  Because fair value needs to consider the
value of a company from both the buy side and the sell side of a potential
transaction, the weights we assigned to the DCF Models and the Market Models
attempted to balance this divergence in points of view.   We believe that the market has embedded
significant discounts for risk into its valuations, and that the weightings we
have assigned attempt to recognize the appropriate risk premiums the market
would assign to each reporting unit.  In
the future, the weightings assigned to the valuation methods may change as a
result of changes in our business or market conditions.

The impairment testing for
the fourth quarter of fiscal 2009 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

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  HELEN
  OF TROY LIMITED

  DRAFT

the projections and discount
rates upon which our annual impairment tests were prepared during the first
fiscal quarter of 2009.  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 2010.  Additionally, the Company increased the
market participant discount rates used in its analysis because management
believes that the lending market and the restrained liquidity in the current
environment have increased the cost of capital.
In determining the extent to which to change its assumptions, management
considered consumer spending trends and the anticipated impact on each
reporting unit as well as the market cost of capital for comparable companies
for each reporting unit.

During its evaluation of
goodwill in the fourth quarter of fiscal 2009, the Company determined that the
carrying values of  the Personal Care
segment’s Appliances and Accessories and Grooming, Skin Care and Hair Care
Solutions reporting units exceeded their fair values; consequently, goodwill
was impaired.  The Company then reviewed
the fair values of the individual reporting unit’s indefinite-lived intangibles
for potential impairment.  The review
used the lower of:  (1) the carrying
value, and (2) the fair value using DCF Models under the relief from
royalty method for trademarks, or using DCF Models under the excess earnings
method for indefinite-lived licenses.
The discount rate utilized to value our indefinite-lived assets was one
percent higher than the associated reporting unit’s market participant discount
rate in order to reflect the higher rate of return that would likely be required
when the associated trademark or license is sold as a separate asset.  In our case, after first recognizing
additional impairments of indefinite-lived intangibles, we determined that 100
percent of recorded goodwill in both reporting units was impaired.

In total, we recorded
non-cash impairment charges of $99.51 million in the fourth quarter of fiscal
2009.  This consisted of non-cash
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.  The impairment for these reporting
units was due to a decrease in the fair value of forecasted cash flows, and
other market conditions reflecting the continued deterioration of the domestic
and global economies and the declines in retail sales activity.  No impairment charges were required for our
Housewares segment as this reporting unit’s estimated fair value of total net
assets including recorded goodwill, trademarks and other intangible assets,
exceeded their carrying values as of the date of the evaluation.

After we recorded the
impairments discussed above, and reviewed all other long-lived assets of each
reporting unit for potential impairment, the carrying values in our Personal
Care segment reporting units still exceed their estimated fair val