Commitments and Contingencies

9 Months Ended

Nov. 30, 2015

Note 3 – Commitments and Contingencies

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.

On November 12, 2015, the Company resolved a lawsuit with its former CEO, which resulted in the payment of severance compensation due under his employment and separation agreements. The severance compensation was previously accrued and disclosed in fiscal year 2014 and was paid through the issuance of common shares of the Company. The Company also transferred ownership of a life insurance policy on the lives of its former CEO and his spouse as part of the settlement. As a result of the transfer of the policy and other expenses incurred in connection with the settlement, the Company recorded CEO succession costs of $6.71 million ($4.64 million after tax), or $0.16 per fully diluted share, in the third quarter of fiscal year 2016.

Notes 7, 10, 12, 13, and 14 to these consolidated condensed financial statements provide additional information regarding certain of our significant commitments and contingencies.

Our products are under warranty against defects in material and workmanship for periods ranging from two to five years. We estimate our warranty accrual using historical trends and believe that these trends are the most reliable method by which we can estimate our warranty liability. The following table summarizes the activity in our warranty accrual for the periods covered below:

ACCRUAL FOR WARRANTY RETURNS

(in thousands)


	Three Months Ended November 30,				Nine Months Ended November 30,
	2015		2014		2015		2014 (1)
Beginning balance	$	20,797	$	22,492	$	23,553	$	19,269
Additions to the accrual		17,127		16,574		43,885		46,088
Reductions of the accrual - payments and credits issued		(14,386)		(13,821)		(43,900)		(40,112)
Ending balance	$	23,538	$	25,245	$	23,538	$	25,245

(1)

Includes opening balance accrual additions totaling $3.19 million and related payments and credits issued of $1.82 million attributed to the Healthy Directions acquisition.