Commitments and Contingencies:

Leases

We lease certain real and personal property under non-cancelable operating leases. Several of the lease agreements contain rent escalation clauses (including index-based escalations), rent holidays, capital improvement funding or other lease concessions. We recognize our minimum rental expense on a straight-line basis. We amortize this expense over the term of the lease beginning with the date of initial possession, which is the date we enter the leased space and begin to make improvements in preparation for its intended use.

The approximate minimum commitments under all non-cancelable leases outstanding as of December 31, 2012 were as follows (in millions):



	Operating Leases		Capital Leases
2013	$	52.8	$	1.1
2014	36.1		1.0
2015	26.0		0.7
2016	17.9		0.1
2017	12.9		—
Thereafter	18.1		14.6
Total minimum lease payments⁽¹⁾	$	163.8	17.5
Less amount representing interest			0.8
Present value of minimum payments			$	16.7

⁽¹⁾ Approximately $25.9 million of operating lease commitments relate to discontinued operations. No capital lease obligations relate to discontinued operations.

On June 22, 2006, we entered into an agreement with a financial institution to lease our corporate headquarters in Richardson, Texas for a term of seven years (the “Lake Park Lease”). The leased property consists of an office building of approximately 192,000 square feet, land and related improvements. During the term, the Lake Park Lease requires us to pay base rent in quarterly installments, payable in arrears. At the end of the term, we must do one of the following: (i) purchase the property for approximately $41.2 million; (ii) make a final payment under the lease equal to approximately 82% of the lease balance and return the property to the financial institution in good condition; (iii) arrange for the sale of the leased property to a third party; or (iv) renew the lease under mutually agreeable terms. If we elect to sell the property to a third party and the sales proceeds are less than the lease balance, we must pay any such deficit to the financial institution. Any such payment cannot exceed 82% of the lease balance.

Our obligations under the Lake Park Lease are secured by a pledge of our interest in the leased property and are also guaranteed by us and certain of our subsidiaries. The Lake Park Lease, as amended, contains restrictive covenants that are consistent with those of our Domestic Revolving Credit Facility. We were in compliance with these financial covenants as of December 31, 2012. The Lake Park Lease is accounted for as an operating lease.

Environmental

Applicable environmental laws can potentially impose obligations to remediate hazardous substances at our properties, at properties formerly owned or operated by us, and at facilities to which we have sent or send waste for treatment or disposal. We are aware of contamination at some facilities, however, we do not presently believe that any future remediation costs at such facilities will be material to our results of operations.

The amount and timing of cash payments are reliably determinable and, therefore, we have recorded environmental reserves at their present values. The following information relates to our environmental reserves (in millions, except percentages):



	As of December 31,
	2012		2011
Discounted liabilities recorded in:
Accrued expenses	$	1.4	$	1.3
Other liabilities	3.7		3.1
	$	5.1	$	4.4

Undiscounted liabilities	$	5.0	$	4.7
Discount rate	2.3% - 3.0%		3.1% - 4.7%

Future environmental costs are estimates and are subject to change due to changes in environmental remediation regulations, site-specific requirements or discount rates.

Product Warranties and Product Related Contingencies

Total liabilities for estimated product warranty related to continuing operations are included in the following captions on the accompanying Consolidated Balance Sheets (in millions):



	As of December 31,
	2012		2011
Accrued expenses	$	25.1	$	26.7
Other liabilities	46.8		41.6
	$	71.9	$	68.3

The changes in total product warranty liabilities related to continuing operations for the years ended December 31, 2012 and 2011 were as follows (in millions):




Total warranty liability as of December 31, 2010	$	70.8
Payments made in 2011	(24.3		)
Changes resulting from issuance of new warranties	22.6
Changes in estimates associated with pre-existing liabilities	(0.4		)
Changes in foreign currency translation rates and other	(0.4		)
Total warranty liability as of December 31, 2011	$	68.3
Payments made in 2012	(22.4		)
Changes resulting from issuance of new warranties	25.1
Changes in estimates associated with pre-existing liabilities	0.6
Changes in foreign currency translation rates and other	0.3
Total warranty liability as of December 31, 2012	$	71.9

At the end of each accounting period, we evaluate our warranty liabilities and, during the second quarter of each year, we perform a complete re-evaluation of our heating, ventilation and air conditioning (“HVAC”) warranty liabilities. As a result of the second quarter 2012 re-evaluation, we decreased our warranty liability by $0.4 million and that amount is the principal change in the estimate associated with pre-existing liabilities as shown in the table above.

We incur the risk of liability claims for the installation and service of heating and air conditioning products, and we maintain liabilities for those claims that we self-insure. We are involved in various claims and lawsuits related to our products. Our product liability insurance policies have limits that, if exceeded, may result in substantial costs that could have an adverse effect on our results of operations. In addition, warranty claims are not covered by our product liability insurance and certain product liability claims also may not be covered by our product liability insurance. There have been no material changes in the circumstances that affect our product warranties since our latest fiscal year-end.

We may also incur costs related to our products that may not be covered under our warranties and are not covered by insurance, and we may, from time to time, repair or replace installed products experiencing quality issues in order to satisfy our customers and to protect our brand. These product quality issues may be caused by vendor-supplied components that fail to meet required specifications.

We identified non-warranty product quality issues we believe resulted from vendor supplied materials, including a heating and cooling product line produced in 2006 and 2007 as well as a refrigerant product quality issue. The expense for these product quality issues, and the related liabilities, are not included in the above tables related to our estimated warranty liabilities. The expenses related to these product quality issues were classified in Cost of Goods Sold in the Consolidated Statements of Operations and the related liabilities are included in Accrued Expenses in the Consolidated Balance Sheets. We may incur additional charges in the future as more information becomes available. The changes in the accrued product quality issues for the years ended December 31, 2012 and 2011 were as follows (in millions):




Total accrued product quality issue as of December 31, 2010	$	16.0
Changes in estimates associated with pre-existing liabilities	(2.8		)
Product quality claims	(5.7		)
Total accrued product quality issue as of December 31, 2011	$	7.5
Estimated expense for expected product quality claims	2.2
Product quality claims	(3.0		)
Total accrued product quality issues as of December 31, 2012	$	6.7

Self Insurance

We use a combination of third-party insurance and self-insurance plans to provide protection against claims relating to workers' compensation/employers' liability, general liability, product liability, auto liability, auto physical damage and other exposures. We use large deductible insurance plans, written through third-party insurance providers, for workers' compensation/employers' liability, general liability, product liability, and auto liability. We also carry umbrella or excess liability insurance for all third-party and self-insurance plans, except for directors' and officers' liability, property damage and various other insurance programs. For property damage, directors' and officers' liability and certain other exposures, we use third-party insurance plans that may include per occurrence and annual aggregate limits. We believe the deductibles and liability limits for all of our insurance policies are appropriate for our business and are adequate for companies of our size in our industry.

We maintain safety and manufacturing programs that are designed to remove risk and improve the effectiveness of our business processes and, as a result, reduce the likelihood and significance of our various retained and insured risks. In recent years, our actual claims experience has collectively trended favorably and therefore, both self-insurance expense and the related liability have decreased.

The self-insurance expense and liabilities are primarily determined based on our historical claims information, as well as industry factors and trends. To the extent actuarial assumptions change and claims experience rates differ from historical rates, our liability may change. Also, the majority of our self-insured risks (excluding auto liability and physical damage) will be paid over an extended period of time. The self-insurance liabilities recorded in Accrued Expenses in the accompanying Consolidated Balance Sheets were $57.2 million and $63.1 million as of December 31, 2012 and 2011, respectively.

Litigation

We are involved in a number of claims and lawsuits incident to the operation of our businesses. Insurance coverages are maintained and estimated costs are recorded for such claims and lawsuits, including costs to settle claims and lawsuits based on experience involving similar matters and specific facts known. Costs related to such matters were not material to the periods presented.

Some of these claims and lawsuits allege health problems resulting from exposure to asbestos and we expect that additional claims will be brought against us in the future. However, our liability exposure from those additional claims cannot be estimated because of numerous uncertainties, including the number of such claims and lawsuits and the costs of defending and settling them, possible adverse judgments in amounts greater than previously experienced, and possible changes in the laws and process governing the compensation of asbestos claimants.

We are also involved in patent litigation claims related to products from an acquired business. The Company believes it has indemnification protection (with certain limitations) for these claims.

It is management's opinion that none of these claims or lawsuits or any threatened litigation will have a material adverse effect on our financial condition, results of operations or cash flows. Claims and lawsuits, however, involve uncertainties and it is possible that their eventual outcome could adversely affect our results of operations for a particular period.