Table of Contents

Products

We market and sell Personal Care, Housewares, and Healthcare / Home Environment, Nutritional Supplements, and Personal Care products that we acquire, design, andformulate or otherwise develop. The following table summarizes the types of products we sell by business segment:

Innovation is a core strategy of the Company. We continue to develop new products, respond to market innovations and enhance existing products with the objective of improving our market positions.  Overall, in fiscal year 2014,2015, we shipped 430approximately 340 new products across all of our categories.  Currently, approximately 440350 additional new products are in our product development pipeline for expected introduction in fiscal year 2015.2016.

SALES AND MARKETING

We now market our products in approximately 8587 countries throughout the world.  Sales within the United States comprised approximately 79,  77 79 and 7779 percent of total net sales revenue in fiscal years 2015,  2014 and 2013, and 2012, respectively.  WeOur segments primarily sell ourtheir products through mass merchandisers, drugstore chains, warehouse clubs, home improvement stores, catalogs, grocery stores, specialty stores, beauty supply retailers, e-commerce retailers, wholesalers, and various types of distributors, as well as directly online to end user consumers. We collaborate extensively with our retail customers and in many instances produce specific versions of our product lines with exclusive designs and packaging for their stores, which are appropriately priced for their respective customer bases.

We market products principally through the use of outside sales representatives and our own internal sales staff, supported by our internal marketing, category management, engineering, creative services, and customer and consumer service staff.  These groups work closely together to develop pricing and distribution strategies, to design packaging and to help develop product line extensions and new products.

RegionalThe Nutritional Supplements segment sells directly to consumers through highly targeted catalog and other printed collateral mailings, internet websites and direct response print, radio and television media. The segment also sells over the telephone, through a number of customer call centers. The segment maintains exclusive development and marketing relationships with several physicians, who provide research and advocacy for Company products and are key components of its marketing and customer outreach programs.  The Nutritional Supplements segment does not have any material formal relationships with any re-distributors, nor does it maintain any field sales and business unit managers work with our inside andforce outside sales representatives.  Our sales managers are organized by product group and geographic area and, in some cases, key customers.  Our regional managers are responsible for customer relations management, pricing programs, distribution strategies, and sales generation.of its call centers.

The companies from whom we license many of our brand names promote those names extensively. The Honeywell, Braun, Vicks, Febreze, Revlon, Vidal Sassoon, Dr. Scholl’s,Scholl's, Scholl, Bed Head, and Toni&Guy trademarks are widely recognized because of the licensor’slicensors’ advertising and the sale of a variety of products in categories other than ours.

9

Table of Contents

We believe we benefit from the name recognition associated with a number of our licensed trademarks and seek to further improve the name recognition and perceived quality of all trademarks under which we sell products through our own advertising and product development efforts. We also promote our non-licensed products through television advertising and various media, including consumer and trade magazines, extensive in-store and customer cooperative advertising, company websites, social media websites, other digital media and various industry trade shows.

MANUFACTURING AND DISTRIBUTION

We contract with unaffiliated manufacturers in the Far East, primarily in China, to manufacture a significant portion of our products infinished goods for the Personal Care segment appliance and accessories,appliances, Housewares, segment product categories, Healthcare, Water Filtration and Home Environment segment product categories. Our mix of Far East manufacturing has declined since fiscal year 2012 as the Healthcare / Home EnvironmentThe Nutritional Supplements segment has become a larger part of our business.  This segment sources a higher proportion of its products in bothand the U.S. region of the Grooming, Skin and Mexico.Hair Care category of the Personal Care segment source most of their products from U.S. manufacturers. For a discussion regarding our dependency on third-partythird party manufacturers, see Item 1A., “Risk Factors.”  For fiscal years 2015,  2014 and 2013,  and 2012, cost offinished goods sold manufactured by vendors in the Far East comprised approximately 67,  6669 and 7868 percent, respectively, of consolidated cost oftotal finished goods sold.purchased.

Many of our key Far East manufacturers have been doing business with us for over 30 years.  In some instances, we are now working with the second generation of entrepreneurs from the same families.  We believe these relationships give us a stable and sustainable advantage over many of our competitors.

Manufacturers who produce our products use formulas, molds and certain other tooling, some of which we own, in manufacturing those products.  We employ numerous technical and quality control personnel responsible for ensuring high product quality.  Most of our products manufactured outside the countries in which they are sold are subject to import duties, which increase the amount we pay to obtain such products.

The Nutritional Supplements segment owns nearly all of the formulations used in its products, with the majority having formulations that are proprietary, and in some cases, include ingredient combinations that are exclusive to the segment.  Quality is paramount to the efficacy of our products and a  competitive differentiator in nutritional supplements.  Products are formulated and manufactured under the direction of the Company, following a rigorous triple testing method    to ensure the stability, purity, potency and safety of all finished products. 

Our retail customers seek to minimize their inventory levels and often demand that we fulfill their orders within relatively short time frames. Consequently, our policy is to maintain several months of supply of inventory in order to meet our customers’ needs. Accordingly, we order products substantially in advance of the anticipated time of their sale to our customers. While we have limited formal long-term arrangements with our suppliers, in most instances, we place purchase orders for products several months in advance of receipt of orders from our customers.  Our relationships and arrangements with most of our manufacturers allow for some flexibility in modifying the quantity, composition and delivery dates of orders. Most purchase orders are in U.S. Dollars.  Because of our long lead times for most of our foreign sourced products, from time to time, we must discount end of model product or sell it through closeout sales channels to eliminate excess inventories. Most purchase orders are in U.S. Dollars.

In total, we occupy approximately 3,381,0003,429,000 square feet of distribution space in various locations to support our operations, which includes a 1,200,000 square foot distribution center in Southaven, Mississippi, and a 1,300,000 square foot distribution center in Olive Branch, Mississippi, used to support a significant portion of our domestic distribution. We began shippingship Housewares and Personal Care grooming,  skin care and hair care solutions products out of the Southaven facility. We ship Healthcare / Home Environment and Personal Care segment appliance products out of the Olive Branch facility during the first week of September 2013. This facility will consolidate the distribution operations of both our Personal Care and Healthcare / Home Environment segments’ appliance businesses. We moved the domestic Healthcare / Home Environment segment distribution operation out of its previously leased Memphis, Tennessee location during fiscal year 2014 and have terminated the lease associated with the facility as of October 31, 2013. We are in the process of completing the transition of our domestic Personal Care segment appliance distribution operation to the new facility in the first quarter of fiscal year 2015. The project remains on schedule and on budget. facility.

Approximately 6863 percent of our consolidated gross sales volume shipped from these threetwo facilities in fiscal year 2014.2015.  Nearly all Nutritional Supplement segment products are currently processed in a third-party facility based in Arden, North Carolina.  We are beginning the process of relocating the segment’s distribution operations to our Southaven facility, which we expect to complete in mid-fiscal year 2016.  For a further discussion of the risks associated with our distribution capabilities, see Item 1A., “Risk Factors.”

Products that are manufactured in the Far East and sold in North America are shipped to the West Coast of the United States and Canada. The products are then shipped by truck or rail service to distribution centers in El Paso, Texas; Southaven, Mississippi; Olive Branch, Mississippi; and Toronto, Canada, or directly to customers. We ship substantially all products to North American customers from these distribution centers by ground transportation services. The Nutritional Supplement segment’s products are shipped almost exclusively through U.S. mail and parcel delivery services.  Products sold outside the United States and Canada are shipped from manufacturers, primarily in the Far East, to distribution centers in Belgium, the United Kingdom, Mexico, and Hong Kong or directly to customers. We then ship products stored at these international distribution centers to distributors or retailers.

10

Table of Contents

CUSTOMERS

Sales to Wal-Mart Stores, Inc. (including its worldwide affiliates) accounted for approximately 19,18,  19 and 2019 percent of our consolidated net sales revenue in fiscal years 2015,  2014 2013 and 2012,2013, respectively.   Sales to our second largest customer, Target Corporation, in the United States and Canada, accounted for approximately 9,  11 and 11 percent of our consolidated net sales revenue in fiscal years 2015,  2014 2013 and 2012,2013, respectively.  No other customers accounted for 10 percent or more of consolidated net sales revenue during those fiscal years.  Sales to our top five customers accounted for approximately 41,  43 42 and 4442 percent of our consolidated net sales revenue in fiscal years 2015,  2014 and 2013, respectively.  The Nutritional Supplement segment maintains a database of over 600,000 customers to whom it actively markets.  A large proportion of these customers take advantage of the segment’s auto-delivery service that periodically ships a re-supply of product, resulting in a more stable and 2012, respectively.less seasonal order flow.

ORDER BACKLOG

When placing orders, our individual consumer, retail and wholesale customers usually request that we ship the related products within a short time frame.  As such, there usually is no significant backlog of orders in any of our distribution channels.

COMPETITIVE CONDITIONS

The markets in which we sell our products are very competitive and mature. The rapid growth of large mass merchandisers, together with changes in consumer shopping patterns, have contributed to a significant consolidation of the consumer products retail industry and the formation of dominant multi-category retailers with strong negotiating power. The growth in internet sales both by traditional retailers and pure online retailers, such as Amazon.com haveAmazon, has begun to erode market share at “brick-and-mortar” retailers. Current trends among retailers include fostering high levels of competition among suppliers, insistenceinsisting on maintaining or reducing prices, and the requirement to deliverrequiring delivery of products in shorter lead times, and a significant closingsnumber of domestic locationsNorth American store closings by underperforming retail chains. Certain retailers continue to source and sell products under their own private label brands that compete with our Company’s products. We believe that we have certain key competitive advantages, such as well recognized brands, engineering expertise and innovation, sourcing and supply chain know-how, and productive co-development relationships with our Far East manufacturers, some of which have been built over 30 years or more of working together. We believe these advantages allow us to bring our retailers a value proposition in our products that can significantly out-perform private label products in most categories. Maintaining and gaining market share depends heavily on product development and enhancement, pricing, quality, performance, packaging and availability, brand name recognition, patents, and rapidly adaptive marketing and distribution approaches.

11We believe the market for the Nutritional Supplements segment is growing, but highly fragmented.  Competition includes multi-level marketers, internet sites, specialty and mass retailers, pharmacy, grocery and membership clubs.  The primary competitive factors across these channels are pricing, perceived value and efficacy of ingredients, supporting clinical research, ease of ordering, customer service and cost of delivery.  We believe we compete favorably with respect to the above factors.

Table of Contents

GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS

Our operations are subject to national, state, local, and provincial jurisdictions’ environmental, and health and safety laws and regulations.  These laws and regulations impose workplace standards and regulate the discharge of pollutants into the environment.  In addition, they establish various standards for the handling, generation, emission, release, discharge, treatment, storage and disposal of materials, and substances including solid and hazardous wastes.

Many of the products we sell are subject to a number of product safety laws and regulations in various jurisdictions.  These laws and regulations specify the maximum allowable levels of certain materials that may be contained in our products, provide statutory prohibitions against misbranded and adulterated products, establish ingredients and manufacturing procedures for certain products, specify product safety testing requirements, and set product identification and labeling requirements.requirements.The Nutritional Supplements segment operates almost entirely in the United States.  Importing, manufacturing, processing, formulating, packaging, labeling, distributing, selling and advertising of our Nutritional Supplements segment products may be subject to regulation by one or more federal or state agencies.  The Food and Drug Administration (the “FDA”) has primary jurisdiction over our products pursuant to the Federal Food, Drug and Cosmetic Act (the “FDCA”) as amended by the Dietary Supplement and Health Education Act of 1994 (the  “DSHEA”), and is responsible for issuing regulations under these and associated laws. The FDCA provides the regulatory framework for the safety and labeling of dietary supplements, foods, and medical foods. In particular, the FDA regulates the safety, manufacturing, labeling and distribution of dietary supplements.  The Federal Trade Commission (the “FTC”) and the FDA share jurisdiction over the promotion and advertising of dietary supplements.  Pursuant to a memorandum of understanding between the two agencies, the FDA has primary jurisdiction over claims that appear on product labels and labeling and the FTC has primary jurisdiction over product advertising.

FDA rules impose requirements on the manufacture, packaging, labeling, holding, and distribution of dietary supplement products. For example, it requires that companies establish extensive written procedures and controls governing areas such as: (1) personnel, (2) plant and equipment cleanliness, (3) production controls, (4) laboratory operations, (5) packaging and labeling, (6) distribution, (7) product returns, and (8) complaint handling. The FDA also requires identity testing of all incoming ingredients unless a company successfully petitions for an exemption from this testing requirement in accordance with the regulations. FDA prescribed good manufacturing practices are designed to ensure that dietary supplements and dietary ingredients are not adulterated with contaminants or impurities, and are accurately labeled to reflect the active ingredients and other ingredients in the products.

Additionally, an emerging trend with both governments and our retail customers is to prescribe public and private social accountability reporting requirements regarding our worldwide business activities.  In our product space, some

requirements have already been mandated and we believe others may become required.  Examples of current requirements include conflict minerals content reporting and reporting of foreign fair labor practices in connection with our supply chain vendors.

We believe that we are in material compliance with these laws, regulations and other reporting requirements. Further, the cost of maintaining compliance has not had a material adverse effect on our business, consolidated results of operations and consolidated financial condition, nor do we expect it to do so in the foreseeable future.  Due to the nature of our operations and the frequently changing nature of compliance and social reporting standards and technology, we cannot predict with any certainty that future material capital or operating expenditures will not be required in order to comply with all applicable laws, regulations and other reporting mandates.

EMPLOYEES

As of February 28, 2014,2015, we employed 1,495approximately 1,640 full-time employees world-wide.worldwide.  We also use temporary, part-time and seasonal employees as needed.  None of our U.S. employees are covered by a collective bargaining agreement.  Certain of our employees in Europe are covered by collective arrangements in accordance with local practice.  We have never experienced a work stoppage, and we believe that we have satisfactory working relations with our employees.

GEOGRAPHIC AND SEGMENT INFORMATION

Note (20)(21) to our accompanying consolidated financial statements contains geographic and segment information concerning our net sales revenue, long-lived assets and operating income.

AVAILABLE INFORMATION

We maintain our main Internet site at the following address: 1H1H1H1H1H1H1H1H1H1H1H1H1H1Hhttp://www.hotus.com. The information contained on this website is not included as a part of, or incorporated by reference into, this report.  We make available on or through our main website’s Investor Relations page under the heading “SEC Filings” certain reports and amendments to those reports that we file with, or furnish to, the SEC in accordance with the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, our proxy statements on Schedule 14A, amendments to these reports, and the reports required under Section 16 of the Exchange Act of transactions in Company shares by directors and officers.  We make this information available on our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC.  Also, on the Investor Relations page, under the heading “Corporate Governance”, are the Company’s Code of Ethics, Corporate Governance Guidelines and the Charters of the Committees of the Board of Directors.

13

Table of Contents

Chinese Renminbi appreciates with respect to the U.S. Dollar in the future, the Company may experience cost increases on such purchases, and this can adversely impact profitability. Future interventions by China may result in further currency appreciation and increase our product costs over time.  The Company may not be successful at implementing customer pricing or other actions in an effort to mitigate the related effects of the product cost increases.  Although China currently enjoys “most favored nation” trading status with the U.S., the U.S. government has in the past proposed to revoke such status and to impose higher tariffs on products imported from China. There is no assurance that our business will not be affected by any of the aforementioned risks, each of which could have a material adverse effect on our business, financial condition and results of operations.

The availability, purity and integrity of raw materials used in the manufacture of the Nutritional Supplements segment’s products could be compromised.

The Nutritional Supplements segment depends on outside suppliers for raw materials, acquiring all of its raw materials for the manufacture of its products from third-party suppliers. The segment uses multiple agreements for the supply of materials used in the manufacture of its products in order to hedge against shortages or potential spikes in material costs.  The segment also contracts with third-party manufacturers and suppliers for the production of its products. In the event of a loss of any significant supplier, the segment could experience difficulties in finding or transitioning to alternative suppliers, which could result in product shortages or product back orders, which could harm its business. There can be no assurance that suppliers will be able to provide the segment with the raw materials in the quantities and at the appropriate level of quality requested or at prices it will be willing to pay.  The segment is also subject to the delays caused by any interruption in the production of these materials including weather, crop conditions, climate change, transportation interruptions, and natural disasters or other catastrophic events.

Occasionally, suppliers have experienced production difficulties with respect to the segment’s products, including the delivery of materials or products that do not meet rigorous quality control standards. These quality problems have in the past resulted in, and in the future could result in, stock outages or shortages of our products, and could harm sales or create inventory write-offs for unusable product.

High costs of raw materials and energy may result in increased cost of goods sold and certain operating expenses and adversely affect our results of operations and cash flow.

Significant variations in the costs and availability of raw materials and energy may negatively affect our results of operations.  Our suppliers purchase significant amounts of metals and plastics to manufacture our products. In addition, they also purchase significant amounts of electricity to supply the energy required in their production processes.  Changes in the cost of fuel as a result of Middle East tensions and related political instabilities may continue to drive up fuel prices resulting in higher transportation prices and product costs.  The cost of these raw materials and energy, in the aggregate,

represents a significant portion of our cost of goods sold and certain operating expenses.  Our results of operations could be adversely affected by future increases in these costs.  We have had some success in implementing price increases to our customers or passing on product cost increases by moving customers to newer product models with enhancements that justify higher prices, and we intend to continue these efforts.  We can make no assurances that these efforts will be successful in the future or will materially offset the cost increases we may incur.

Certain of our U.S. distribution facilities are geographically concentrated and operate during peak shipping periods at or near capacity.  These factors increase our risk that disruptions could occur and significantly affect our ability to deliver products to our customers in a timely manner.  Such disruptions could have a material adverse effect on our business.

To make our distribution operations more efficient, we have consolidated most of our U.S. distribution, receiving and storage functions into two distribution facilities in northern Mississippi. Approximately 6863 percent of our consolidated gross sales volume shipped from facilities in this region in fiscal year 2014.2015. For this reason, any disruption in our distribution process in either of these facilities, even for a few days, could adversely effect our business and operating results.

Additionally, our U.S. distribution operations may incur capacity constraints during peak shipping periods as we continue to grow our sales revenue through a combination of organic growth and acquisitions. These and other factors described above could cause delays in the delivery of our products and increases in shipping and storage costs that could have a material and adverse effect on our business, financial condition and results of operations.

Any difficulties encountered during the first quarter of fiscal year 20152016 transition of certain Personal Care appliance inventories and staffingthe Nutritional Supplements segment’s distribution operations from a formerthird-party operated facility to a newour Company operated facility in Olive Branch,Southaven, Mississippi, could interrupt our logistical systems and could have a material adverse impact on our business.

As previously discussed in further detail under Item 1. Business, “Manufacturing and Distribution”, we commenced shipments out of our new 1.3 million square foot distribution facility in Olive Branch, Mississippi during the first week of September 2013. The new facility will consolidate the distribution operations of both our Personal Care and Healthcare / Home Environment appliance businesses. We have moved the domestic Healthcare / Home Environment distribution operation out of its previously leased Memphis, Tennessee location and have terminated the lease associated with the facility. We expect to complete the transition of our domestic Personal Care applianceNutritional Supplements segment’s distribution operationoperations from a third-party operated facility to our Southaven, Mississippi distribution facility during the new facility in the first quartermiddle of fiscal year 2015.2016. During these transitions,this transition, there is a risk for warehouse order processing and shipment delays as a result of the impacts of new software installations, adapting to new equipment and processes, and the training of new employees. Any resulting interruption in our logistical systems could negatively impact our ability to procure our products from our factories and suppliers, transport them to our distribution facilities, and store and deliver them to our customers on time and in the correct amounts. These and other factors described above could have a material and adverse affecteffect on our business, financial condition and results of operations.

18

Table of Contents

Our projections of product demand, sales and net income are highly subjective in nature and our future sales and net income could vary in a material amount from our projections.

From time to time, we may provide projections to our shareholders, lenders, investment community, and other stakeholders of our future sales and net income.  Since we do not require long-term purchase commitments from our major customers and the customer order and ship process is very short, it is difficult for us to accurately predict the demand for many of our products, or the amount and timing of our future sales and related net income.  Our projections are based on management’s best estimate of sales using historical sales data and other information deemed relevant.  These projections are highly subjective since sales to our customers can fluctuate substantially based on the demands of their retail customers and due to other risks described in this report. Additionally, changes in retailer inventory management strategies could make our inventory management more difficult. Because our ability to forecast product demand and the timing of related sales includes significant subjective input, our future sales and net income could vary materially from our projections.

If our goodwill, indefinite-lived intangible assets or other long-term assets become impaired, we will be required to record impairment charges, which may be significant.

A significant portion of our long-term assets continues to consist of goodwill and other indefinite-lived intangible assets recorded as a result of past acquisitions.  We do not amortize goodwill and indefinite-lived intangible assets, but rather review them for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate that their carrying value may not be recoverable.  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 our 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 GAAP 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 their carrying value may not be recoverable.  Events and changes in circumstances that may indicate there is impairment and which may indicate interim impairment testing is necessary 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,conditions; the impact of the economic environment on our customer base and on broad market conditions that drive valuation considerations by market participants,participants; our internal expectations with regard to future revenue growth and the assumptions we make when performing our impairment reviews,reviews; a significant decrease in the market price of our assets,assets; a significant adverse change in the extent or manner in which our assets are used,used; a significant adverse change in legal factors or the business climate that could affect our assets,assets; an accumulation of costs significantly in excess of the amount originally expected for the acquisition of an asset,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 such circumstances, we may be required to record a significant charge to net income in our financial statements during the period in which any impairment of our goodwill, indefinite-lived intangible assets or other long-term assets is determined.  Any such impairment charges could have a material adverse effect on our business, financial condition and results of operations.

We rely on licensed trademarks with third parties and license certain trademarks to third parties in exchange for royalty income, the loss of which could have a material adverse effect on our revenues and profitability.

We are dependent on our various licensed trademarks as aA substantial portion of our sales revenue comes from selling products under licensed trademarks. As a result, we are dependent upon the continued use of these trademarks, including the Revlon, Vicks, Braun, Honeywell, and Vidal Sassoon trademarks.  Additionally, we now license certain owned trademarks, including OXO and PUR, to third parties in exchange for royalty income.  It is possible that certain actions taken by the Company, its licensors, licensees, or other third parties might diminish greatly the value of any of our licensed trademarks. Additionally, someSome of our licensors and licensees also have the ability to terminate their license agreements with us at their option subject to each parties’ right to continue the license for a limited period of time following notice of termination.  If we or our licensees were unable to sell products under these licensed trademarks, or one or more of our license agreements are terminated or the value of the trademarks were diminished, by the Company, a licensor, or licensee due to any inability to perform under the terms of the agreements or other reasons, or due to the

19