SecProbe.io

CORRESP
1
filename1.htm

  W. Crews Lott

  Tel: +1 214 978 3042

  June 26, 2009

  crews.lott@bakernet.com

Via
Edgar - Correspondence Only

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 submit this
letter setting forth the Company’s responses to the supplemental comments of
the Staff of the Securities and Exchange Commission dated June 9, 2009.  For ease of reference, each comment has been
repeated below in italics, with our responses set forth below each
comment.  The numbering below corresponds
to that used in the Staff’s comment letter.

Critical
Accounting Policies and Estimates, page 12

1.             We note
your response to prior comment 1.  We
refer to your discussion of the Housewares segment on page 49.  You state that this reporting unit has
experienced annual growth rates ranging from 6.9 to 26 percent since
acquisition, with an average annual compound revenue growth rate of 15 percent
over the last five years.  It is
difficult to ascertain the recent trend from your current disclosure.  Please revise this section to disclose the
historical revenue growth rates for each of the last three fiscal years.

Response:

In
response to the Staff’s comment, the Company proposes to provide the disclosure
in the Company’s quarterly report on Form 10-Q for the quarter ended May 31,
2009 (the “Form 10-Q”) as set forth in Exhibit A attached hereto.

2.                                       You
state that the annual average compound earnings growth rate needed to avoid
having a goodwill impairment charge is approximately 11 percent.  It is unclear from this disclosure how your
historical earnings growth rates compare to this threshold.  Accordingly, please revise to provide a
discussion of your historical earnings growth rates in the Housewares segment,
how they compare to the 11 percent and explain how they were considered when
determining the growth rates utilized in your cash flows projections.  The disclosure provided in your next Form 10-Q
should be based upon the assumptions included in the interim impairment test
performed in the fourth fiscal quarter of 2008.

Response:

In
response to the Staff’s comment, the Company proposes to provide the disclosure
in the Company’s Form 10-Q as set forth in Exhibit A attached hereto.

3.                                       On page
49 you state that, assuming all other factors were to remain constant, a 1
percent increase in the market participant discount rate would result in a
goodwill impairment charge in the Housewares reporting unit.  Please revise to provide a similar disclosure,
indicating the impact of a 1 percent reduction in your earnings growth rate on
your goodwill impairment test.  The
disclosure provided in your next Form 10-Q should be based upon the assumptions
included in the interim impairment test performed in the fourth fiscal quarter
of 2008.

Response:

In
response to the Staff’s comment, the Company proposes to provide the disclosure
in the Company’s Form 10-Q as set forth in Exhibit A attached hereto.

Closing Information

In
accordance with the Staff’s request, the Company acknowledges that:

·               the Company is
responsible for the adequacy and accuracy of the disclosure in the filing;

·               Staff comments
or changes to disclosure in response to Staff comments do not foreclose the
Commission from taking any action with respect to the filing; and

·               the Company may
not assert staff comments as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the United
States.

2

Should you have any additional questions or comments, please do not
hesitate to contact Crews Lott of Baker & McKenzie LLP at (214) 978-3042 or
Vince Carson of the Company at (915) 225-8033.

Very truly yours,

Baker & McKenzie LLP

  /s/ W. Crews Lott

  W. Crews Lott

cc: Terry French

3

Exhibit A

While the Personal Care’s Appliances and Accessories and Grooming, Skin
Care and Hair Care reporting units recorded impairment charges in the fourth
quarter of fiscal 2009, the Housewares reporting unit was not impaired under
the analysis because its fair value exceeded its carrying value.  Under the impairment analysis, the Housewares
reporting unit’s estimated fair value of its total net assets (including
goodwill, trademarks and other intangible assets) of $407.00 million exceeded
its $399.27 million carrying value.  In
the case of the Housewares reporting unit, the Company assigned equal weights
of 50 percent to the fair value estimates provided by the DCF Model and Market
Models.

The key assumptions used in the Company’s DCF Model for the Housewares
reporting unit were a 13.5 percent market participant discount rate and a
compound average annual operating income growth rate (“CAGR”) of 12 percent for
the five year forecast period.  The
following analysis provides an indication of the reporting unit’s sensitivity
to changes in these two factors, holding Market Model estimates and all other
factors constant:

HOUSEWARES SEGMENT -  SENSITIVITY OF ESTIMATED FAIR VALUES

(dollars in thousands)

  Fair Value

  1 Percent

  As Originally

  1 Percent

  Increase in

  Determined

  Reduction in

  Market

  at February

  Operating Income

  Participant

  Weight

  28, 2009

  Growth (1)

  Discount Rate (2)

  DCF Model
  estimate of fair value

  50

  %

  $

  464,000

  $

  447,000

  $

  428,000

  Market model estimates of fair value

  50

  %

  $

  350,000

  $

  350,000

  $

  350,000

  Weighted Average, rounded

  $

  407,000

  $

  398,500

  $

  389,000

The tables below summarize the historical performance of the Housewares
reporting unit as compared to current operating results and related assumptions
used in the DCF Model estimate of its fair value.  The table sets forth the Housewares reporting
unit’s operating income, which the Company’s management used in formulating its
income growth estimates.  Operating
income does not take into account the tax effects applied in determining
earnings, as used in DCF Models; however, the Company believes the earnings and
operating income growth rates would be substantially equivalent.

1

HOUSEWARES
SEGMENT -  KEY PERFORMANCE MEASURES AND DCF MODEL
ASSUMPTIONS

(dollars in  thousands)

Three Months Ended May 31,

  Operating

  Operating

  Operating

  Income Before

  Income

  Income

  Significant

  Growth

  Net

  Before

  Item as a

  Operating

  Before

  Net

  Sales

  Operating

  Significant

  Significant

  Percentage

  Income

  Significant

  Sales

  Growth (1)

  Income

  Item (2)

  Item

  of Net Sales

  Growth (1)

  Item (1)

  2004

  $

  21,255

  $

  5,812

  —

  $

  5,812

  27.3

  %

  2005

  26,875

  26.4

  %

  7,388

  —

  7,388

  27.5

  %

  27.1

  %

  27.1

  %

  2006

  25,117

  -6.5

  %

  4,724

  —

  4,724

  18.8

  %

  -36.1

  %

  -36.1

  %

  2007

  33,358

  32.8

  %

  5,429

  —

  5,429

  16.3

  %

  14.9

  %

  14.9

  %

  2008

  38,472

  15.3

  %

  2,469

  3,718

  6,187

  16.1

  %

  -54.5

  %

  14.0

  %

  2009

  42,688

  11.0

  %

  8,594

  —

  8,594

  20.1

  %

  248.1

  %

  38.9

  %

  5
  Yr CAGR

  15.0

  %

  8.1

  %

  8.1

  %

Years Ended Last Day
of February,

  Operating

  Operating

  Operating

  Income Before

  Income

  Income

  Significant

  Growth

  Net

  Before

  Item as a

  Operating

  Before

  Net

  Sales

  Operating

  Significant

  Significant

  Percentage

  Income

  Significant

  Sales

  Growth (1)

  Income

  Item (2)

  Item

  of Net Sales

  Growth (1)

  Item (1)

  2004

  $

  86,506

  $

  21,947

  —

  $

  21,947

  25.4

  %

  2005

  101,398

  17.2

  %

  30,843

  —

  30,843

  30.4

  %

  40.5

  %

  40.5

  %

  2006

  127,800

  26.0

  %

  34,118

  —

  34,118

  26.7

  %

  10.6

  %

  10.6

  %

  2007

  137,108

  7.3

  %

  27,886

  —

  27,886

  20.3

  %

  -18.3

  %

  -18.3

  %

  2008

  164,134

  19.7

  %

  31,401

  —

  31,401

  19.1

  %

  12.6

  %

  12.6

  %

  2009

  175,501

  6.9

  %

  25,626

  3,718

  29,344

  16.7

  %

  -18.4

  %

  -6.6

  %

  5
  Yr CAGR

  15.2

  %

  3.1

  %

  6.0

  %

(1) Reflects
the percentage change in the performance measure compared to the same period in
the prior year.

(2) First quarter
fiscal 2009 charge to bad debt expense due to the Linen’s retail chain
bankruptcy, previously a significant customer of the Housewares reporting
unit.  Operating income before
significant item may be a non-GAAP financial measure contemplated by SEC
Regulation G. Rule 100.  Management
used a measure that eliminates the effect of $3.72 million in bad debt expense
because it believes it was unusual and not expected to occur in the normal
course of operations and provides more meaningful and normalized information
about the Housewares reporting unit’s long term earnings trend.  This measure is discussed further, and
reconciled to its applicable GAAP measure in the preceding tables.

For the fiscal quarter ended May 31, 2009, the Housewares
reporting unit exceeded the operating plan used to prepare our DCF Model
estimates.  Net sales for the quarter
were $42.69 million compared to $37.55 million included in the DCF Model
estimates while operating income was $8.59 million compared to $6.07 million
included in the DCF Model estimates.  We
acquired the Housewares reporting unit on June 1, 2004.  Since that time it has achieved annual net
sales growth rates ranging from 6.9 to 26.0 percent with a compound average
annual net sales growth rate (“CAGR”) of 15.2 percent over the last five fiscal
years.  This compares to net sales growth
rates ranging from 1.6% to 7.9% used to project the next five year’s revenue in
the Company’s DCF Model estimates.  In
preparing these estimates, the Company considered the relative strength of the
Housewares reporting unit’s revenue, assuming a normal range of new product
introductions and line extensions based upon historical levels.  Management tempered the estimates based on
its near term expectations for a

2

relatively
weak retail environment.  However,
management also considered that the Housewares reporting unit has consistently
demonstrated some resistance to recessionary trends.

The Housewares reporting unit has generated annual operating income
growth rates ranging from -18.4 to 40.5 percent since its acquisition with an
operating income CAGR of 3.1 percent over the last five fiscal years. The
annual operating income growth rates excluding the significant item noted in
the tables above ranged from -18.3 to 40.5 percent, with a five year CAGR of
6.0 percent.  This compares to net
operating income growth rates ranging from 8.9 to 16.5 percent and a five year
operating income CAGR of 12.0 percent used in the projections supporting our
DCF estimates.  Management’s expectations
for operating income growth are higher than historical results based upon the
following factors included in its plan:

·                  Projected net sales growth driven by category
and geographic expansion, new product development within existing categories,
and increased license fee revenues.

·                  Projected gross profit improvement through a
combination of product cost decreases, customer price increases, continued
improvement in product mix and license fee revenue.  Projected increases in license fee revenue
results in an increase to net sales with no additional cost of sales and
minimal operating overhead, which improves gross profit and operating income as
a percentage of net sales.  This is one
of the factors contributing to projected operating income growth in excess of
projected sales growth.

·                  Projected declines in outbound transportation
costs based on the decrease in fuel prices.

·                  Projected distribution cost improvements due
to the elimination of cost intensive product labeling requirements for a
significant portion of this reporting unit’s shipments as a result of the Linen’s
bankruptcy.

·                  Based on the capacity built into its existing
operating structure, the Houseware’s reporting unit is expected to leverage
future sales growth with minimal additional overhead expense.

Management believes that a
significant portion of the decline in the Company’s common share price in the
period of time surrounding February 28, 2009 was related to the
deterioration in general economic conditions, a loss of consumer confidence,
and instability in the financial markets, and was not reflective of the
combined underlying future cash flows of all of its reporting units.  The analysis below compares the impact of
stock prices on the Company’s estimated fair market value and compares this to
both the estimated fair market value of the common shares implied by the total
estimated fair market value of all of the reporting units used when performing
the impairment analysis at February 28, 2009, and the respective carrying
values for the Company at November 30, 2008, February 28, 2009 and May 31,
2009.

3

ESTIMATES OF FAIR VALUE OF HELEN OF TROY

(in thousands, except
share values)

  Implied By the

  Fair Values

  At

  At

  At

  determined at

  November 30,

  February 28,

  May 31,

  February 28,

  2008

  2009

  2009

  2009

  Market
  price of Helen of Troy’s Stock (minority shareholder value)

  $

  15.66

  $

  10.04

  $

  19.33

  $

  12.65

  x
  Weighted average control premium(1)

  30.2

  %

  30.2

  %

  30.2

  %

  30.2

  %

  Controlling
  interest value of Helen of Troy’s Stock

  20.39

  13.07

  25.17

  16.47

  Number
  of shares outstanding (2)

  30,218

  30,142

  29,879

  29,879

  Controlling
  interest value of Helen of Troy’s Equity

  616,124

  394,019

  751,985

  492,000

  Outstanding
  debt (2)

  212,000

  212,000

  212,000

  212,000

  Indicated
  fair market value of Helen of Troy

  $

  828,124

  $

  606,019

  $

  963,985

  $

  704,000

  Carrying
  value of Helen of Troy

  $

  810,609

  $

  720,693

  $

  733,722

(1)   The relative weighted average of the median control premiums for
each reporting unit, financial buyers only, using comparable industry
information from current published control premium studies.

(2)   Reflects the last reported number of shares outstanding for the
quarter ended prior to the quarter for which fair value and carrying value of
the Company is indicated. The use of this number in the Company’s calculation
of fair value is based on management’s assumption that market participants
would have used the same number in their own calculations, as it is the last
publicly available number.

The preceding table shows the changes in market conditions between February 28,
2009 and May 31, 2009, and resulting higher market based fair values of
all underlying assets.  In the Personal
Care segment’s reporting units, all goodwill and a significant portion of the
segment’s intangible assets were written off as of February 28, 2009.  The Company’s May 31, 2009 carrying
values include the March 31, 2009 acquisition of the Infusium
business.  For this acquisition, we
recorded $19.7 million of goodwill, $18.7 million for trademarks, and $21.6
million of definite lived intangible assets in our Grooming, Skin Care and Hair
Solutions reporting unit.  The value of
these intangible assets were recorded at their fair values established by
independent appraisal as of the acquisition date.  The Housewares reporting unit’s financial
performance during the first quarter of fisc