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OTHER COMMITMENTS AND CONTINGENCIES | 12 Months Ended
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Feb. 28, 2013
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 – During fiscal year 2012, we entered into an Amended and Restated Employment Agreement (the “Employment Agreement”) with Gerald J. Rubin, our Chief Executive Officer and President (the “CEO”) 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 held on October 11, 2011. The base and incentive compensation provisions of the Employment Agreement are effective for fiscal years 2013 through 2015, subject to earlier termination by either party. Substantially all of the CEO’s compensation pursuant to the Employment Agreement is performance-based and contingent upon our achievement of specified performance goals. The performance-based compensation is made up of the following three components: · Restricted Stock Units - Under the Employment Agreement, the CEO received a grant of 700,000 performance-based restricted stock units (“Performance RSUs”), which may be earned in tranches based on the Company’s achievement of specified performance goals for fiscal years 2013, 2014 and 2015. Any earned Performance RSUs are subject to additional time-based vesting requirements. Up to 100,000 and 200,000 Performance RSUs may be earned based on the Company’s achievement of the specified performance goals for fiscal years 2013 and 2014, respectively. With respect to fiscal year 2015, up to 700,000 Performance RSUs (less the number of Performance RSUs previously earned, if any) may be earned based on the Company’s achievement of either the specified performance goal for fiscal year 2015 or the three year average performance goal for the three fiscal years 2013 through 2015. A portion of any Performance RSUs earned in fiscal years 2013 and 2014 will be subject to annual vesting requirements through fiscal year 2015. The Performance RSUs had a fair value at the date of grant of $32.88 per share for a grant date fair value of $23.02 million. Compensation expense associated with Performance RSUs is equal to the market value of our common stock on the date of the grant multiplied by the number of Performance RSUs vesting during any given period. Expense for each tranche must be estimated until earned, subject to a probability assessment of achieving the performance criteria specified for the tranche. We are recording the expense for each tranche over the related service periods in SG&A . · Annual Bonus - The CEO is also eligible to receive an annual bonus of up to $25.00 million in cash and stock, subject to the achievement of specified performance goals. Any such bonus that is earned and payable will be paid two-thirds in the form of cash or cash equivalents up to a maximum of $10.00 million. The remainder will be paid in the form of restricted stock. Any restricted stock granted will vest, with respect to annual bonuses for fiscal years 2013 and 2014, on February 28, 2015, and with respect to annual bonus for fiscal year 2015, on the date the Compensation Committee certifies that the performance goals have been achieved. · Life Insurance Bonuses - Under the Employment Agreement, three split-dollar life insurance policies and the obligation to pay the associated premiums will be transferred to the CEO over the term of the agreement subject to the satisfaction of certain performance conditions. The amount of the value of the transfer of each of the three split-dollar life insurance policies (based on cash surrender values) is capped at $3.00, $4.00 and $7.00 million, respectively. We have entered into employment contracts with certain 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 28, 2013, the estimated aggregate commitment for future compensation and/or severance pursuant to all employment contracts discussed above, was approximately $69.00 million, payable over varying terms for the next two 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 in effect as of the end of fiscal year 2013 were: PAYMENTS DUE BY PERIOD - TWELVE MONTHS ENDED THE LAST DAY OF FEBRUARY: (in thousands)
|  |  |  | 2014 |  | 2015 |  | 2016 |  | 2017 |  | 2018 |  | After |
|  | Total |  | 1 year |  | 2 years |  | 3 years |  | 4 years |  | 5 years |  | 5 years |
Term debt - fixed rate |  | $ | 100,000 |  | $ | 20,000 |  | $ | 20,000 |  | $ | 20,000 |  | $ | 20,000 |  | $ | 20,000 |  | $ | - |
Term debt - floating rate (1) |  | 75,000 |  | - |  | 75,000 |  | - |  | - |  | - |  | - |
Long-term incentive plan payouts |  | 9,376 |  | 4,138 |  | 3,352 |  | 1,886 |  | - |  | - |  | - |
Interest on fixed rate debt |  | 11,180 |  | 3,796 |  | 3,016 |  | 2,236 |  | 1,456 |  | 676 |  | - |
Interest on floating rate debt (1) |  | 6,085 |  | 4,570 |  | 1,515 |  | - |  | - |  | - |  | - |
Open purchase orders |  | 183,273 |  | 183,273 |  | - |  | - |  | - |  | - |  | - |
Long-term purchase commitments |  | 3,030 |  | 303 |  | 606 |  | 606 |  | 606 |  | 606 |  | 303 |
Minimum royalty payments |  | 84,884 |  | 13,453 |  | 12,689 |  | 12,731 |  | 9,795 |  | 9,424 |  | 26,792 |
Advertising and promotional |  | 58,284 |  | 8,842 |  | 5,659 |  | 5,660 |  | 5,263 |  | 5,368 |  | 27,492 |
Operating leases |  | 20,146 |  | 5,971 |  | 5,863 |  | 4,556 |  | 1,599 |  | 1,133 |  | 1,024 |
Capital spending commitments |  | 36,085 |  | 36,085 |  | - |  | - |  | - |  | - |  | - |
Total contractual obligations (2) |  | $ | 587,343 |  | $ | 280,431 |  | $ | 127,700 |  | $ | 47,675 |  | $ | 38,719 |  | $ | 37,207 |  | $ | 55,611 |
(1) The Company uses an interest rate hedge agreement (the “swap”), in conjunction with its unsecured floating interest rate $75.00 million, Senior Notes due June 2014. 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 June 2014 at 6.01 percent. (2) In addition to the contractual obligations and commercial commitments in the table above, as of February 28, 2013, we have recorded a provision for uncertain tax positions of $15.76 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.

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