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OTHER COMMITMENTS AND CONTINGENCIES
 12 Months Ended
Feb. 29, 2012
OTHER COMMITMENTS AND CONTINGENCIES  
OTHER COMMITMENTS AND CONTINGENCIES

NOTE 13 – OTHER COMMITMENTS AND CONTINGENCIES

 

Indemnity Agreements - Under agreements with customers, licensors and parties from whom we have acquired assets or entered into business combinations, we indemnify these parties against liability associated with our products. Additionally, we are party to a number of agreements under leases where we indemnify the lessor for liabilities attributable to our actions or conduct.  The indemnity agreements to which we are a party do not, in general, increase our liability for claims related to our products or actions and have not materially affected our consolidated financial statements.

 

Employment Contracts – As a result of the Kaz acquisition, on February 14, 2011, the Company’s Compensation Committee adopted an amendment to the method in which the Chief Executive Officer’s bonus under the 1997 Cash Bonus Performance Plan is calculated.  As a result of the amendment, for fiscal 2012, $10.00 million of earnings attributable to Kaz is excluded from the bonus calculation under the provisions of the plan.

 

On September 13, 2011, we entered into an Amended and Restated Employment Agreement with Gerald J. Rubin, our Chief Executive Officer and President (the “Revised Employment Agreement”) and adopted the Helen of Troy Limited 2011 Annual Incentive Plan (the “2011 Bonus Plan”).  The 2011 Bonus Plan was approved by our shareholders at our Annual General Meeting of Shareholders held on October 11, 2011.  The base and incentive compensation provisions of the Revised Employment Agreement are effective for fiscal years beginning after February 29, 2012. The Revised Employment Agreement will continue until February 28, 2015, subject to earlier termination by either party.  Substantially all of Mr. Rubin’s compensation pursuant to the Revised Employment Agreement is performance-based and contingent upon our achievement of specified performance targets.  Specifically, Mr. Rubin was granted performance-based restricted stock units for 700,000 shares of common stock, the vesting of which are contingent on our achievement of certain performance targets.  Mr. Rubin is also eligible to receive an annual bonus payable in cash and restricted stock, subject to the achievement of specified performance targets as outlined in the 2011 Bonus Plan.  The annual bonus is payable in cash and restricted stock with the restricted stock vesting over various terms through February 28, 2015.

 

We have entered into employment contracts with certain of our other officers. These agreements provide for minimum salary levels and potential incentive bonuses. These agreements also specify varying levels of salary continuation and/or severance compensation dependant on certain circumstances such as involuntary termination for other than cause or involuntary termination due to a change of control.  The expiration dates for these agreements are indefinite, unless terminated by either party.

 

At February 29, 2012, the maximum aggregate commitment for future compensation and/or severance pursuant to all employment contracts discussed above, excluding incentive compensation already accrued, was approximately $38.1 million, payable over varying terms for the next three years.

 

International Trade - We purchase most of our appliances and a significant portion of other products that we sell from unaffiliated manufacturers located in the Far East, mainly in China. Due to the fact that most of our products are manufactured in the Far East, we are subject to risks associated with trade barriers, currency exchange fluctuations and social, economic and political unrest.  In recent years, increasing labor costs, regional labor dislocations as a result of new government social policies, growing local inflation, changes in available ocean cargo carrier capacity and costs, the impact of energy prices on transportation, and the appreciation of the Chinese Renminbi against the U.S. Dollar have resulted in fluctuations in our cost of goods sold.  Certain of our suppliers in China have closed operations due to economic conditions that put rapid upward pressure on their operating costs. This caused and may continue to cause periodic disruptions in delivery of certain items that can affect our sales.  Although we have multiple sourcing partners for many of our products, from time to time we are unable to source certain items on a timely basis due to the rapid changes occurring with our Chinese suppliers.  We believe that the contraction in suppliers continues to be a widespread trend in our industry. Additionally, we believe that we could obtain similar products from facilities in other countries, if necessary, and we continuously explore expanding sourcing alternatives in other countries. However, the relocation of any production capacity could require substantial time and increased costs.

 

Customer Incentives - We regularly enter into arrangements with customers whereby we offer those customers incentives, including incentives in the form of volume rebates. Our estimate of the liability for such incentives is included on the consolidated balance sheets on the line entitled “Accrued expenses and other current liabilities,” and in Note (7) included in the lines entitled “Accrued sales returns, discounts and allowances” and “Accrued advertising” and are based on incentives applicable to sales occurring up to the respective balance sheet dates.

 

Other Matters - 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.

 

Contractual Obligations and Commercial Commitments - Our contractual obligations and commercial commitments, as of February 29, 2012, were:

 

PAYMENTS DUE BY PERIOD - TWELVE MONTHS ENDED THE LAST DAY OF FEBRUARY:

(in thousands)

 

 

 

 

 

2013

 

2014

 

2015

 

2016

 

2017

 

After

 

 

 

Total

 

1 year

 

2 years

 

3 years

 

4 years

 

5 years

 

5 years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term debt - fixed rate

 

$

103,000

 

$

3,000

 

$

20,000

 

$

20,000

 

$

20,000

 

$

20,000

 

$

20,000

 

Term debt - floating rate (1)

 

75,000

 

-

 

-

 

75,000

 

-

 

-

 

-

 

Long-term incentive plan payouts

 

6,744

 

3,193

 

2,368

 

1,183

 

-

 

-

 

-

 

Interest on fixed rate debt

 

15,165

 

3,981

 

3,796

 

3,016

 

2,236

 

1,460

 

676

 

Interest on floating rate debt (1)

 

10,655

 

4,570

 

4,570

 

1,515

 

-

 

-

 

-

 

Open purchase orders

 

153,838

 

153,838

 

-

 

-

 

-

 

-

 

-

 

Minimum royalty payments

 

90,724

 

15,222

 

13,540

 

11,564

 

9,031

 

5,539

 

35,828

 

Advertising and promotional

 

65,463

 

6,712

 

5,494

 

5,251

 

5,435

 

5,625

 

36,946

 

Operating leases

 

19,063

 

4,520

 

3,891

 

3,917

 

3,144

 

1,538

 

2,053

 

Capital spending commitments

 

809

 

809

 

-

 

-

 

-

 

-

 

-

 

Total contractual obligations (2)

 

$

540,461

 

$

195,845

 

$

53,659

 

$

121,446

 

$

39,846

 

$

34,162

 

$

95,503

 

 

(1)     The Company uses an interest rate hedge agreement, or swap, in conjunction with its unsecured floating interest rate $75.00 million, Senior Notes due 2015.  The swap hedges the variable LIBOR rates used to reset the floating rates on these Senior Notes.  The swap effectively fixes the interest rates on the Senior Notes due 2015 at 6.01 percent.   Accordingly, the future interest obligations related to this debt have been estimated using this rate.

 

(2)      In addition to the contractual obligations and commercial commitments in the table above, as of February 29, 2012, we have recorded a provision for uncertain tax positions of $13.21 million. We are unable to reliably estimate the timing of future payments, if any, related to uncertain tax positions; therefore, we have excluded these tax liabilities from the table above.