Commitments and Contingencies

3 Months Ended

May 31, 2021

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 8 - Commitments and Contingencies

Legal 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, except as described below.

Regulatory Matters

As a global company, we are subject to U.S. and foreign regulations, including environmental, health and

safety laws, and industry-specific product certifications. Many of the products we sell are subject to

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, labeling and claim requirements. Additionally, some of our product lines within our Health & Home segment are subject to product identification, labeling and claim requirements, which are monitored and enforced by regulatory agencies, such as the U.S. Environmental Protection Agency (the “EPA”), U.S. Customs and Border Protection, the U.S. Food and Drug Administration, and the U.S. Consumer Product Safety Commission.

We are currently in discussions with the EPA regarding the compliance of packaging claims on certain of our products in the air and water filtration categories and a limited subset of humidifier products within the Health & Home segment that are sold in the U.S. The EPA has not raised any product quality, safety or performance issues. We expect these products to be available for distribution with the only changes being modified labeling or different packaging. As a result of these discussions, on May 27, 2021, we voluntarily implemented a temporary stop shipment action across this line of products in the U.S. while we ensure that all labeling is in compliance and we work with the EPA towards an expedient resolution. The EPA has approved modest changes to our labeling claims on our existing water filtration packaging, which we have begun to implement. We resumed shipment of these products and are actively working towards similar agreements regarding our air filtration and humidification packaging in continued collaboration with the EPA. At our request, the EPA issued a Stop Sale, Use or Removal Order on June 29, 2021, which, among other things, allows for the movement of certain of our products among our warehouses and will facilitate rework of the affected air filtration packaging once agreed to with the EPA. We believe this is meaningful progress towards a final resolution with the EPA. The stop shipment will remain in effect until we implement an approved labeling and repackaging plan. We expect that our consolidated and Health & Home segment’s fiscal 2022 net sales revenue, gross profit and operating income will be materially and adversely impacted by the stop shipment. At this time, we are not aware of any fines or penalties related to this matter imposed against us by the EPA. While we do not anticipate material fines or penalties, there can be no assurances that such fines or penalties will not be imposed.

In addition, during the first quarter of fiscal 2022, we recorded a $13.1 million charge to write-off the obsolete packaging for the affected products in our inventory on-hand and in-transit as of the end of the first quarter of fiscal 2022. The charge was recognized in cost of goods sold and is referred to throughout this Form 10-Q as “EPA compliance costs.” We expect to incur additional compliance costs, which may include costs to relabel or repackage our existing inventory as well as incremental freight and storage costs, among other things. Costs to relabel or repackage our existing inventory will be capitalized into

inventory; however, many of the other potential incremental EPA compliance costs will be expensed as incurred and could materially and adversely impact our consolidated and Health & Home segment’s gross profit and operating income. Additional impacts or more pronounced adverse impacts may arise that we are not currently aware of today. Accordingly, our business, results of operations and financial condition could be adversely and materially impacted by our actions or in ways that we are not able to predict today. For additional information refer to Part I, Item 2., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including “EPA Compliance Costs” and to Part II, Item 1A., “Risk Factors” included within this Form 10-Q.