Contingent Liabilities and Commitments

12 Months Ended

May 31, 2012

Contingent Liabilities and Commitments

Note E – Contingent Liabilities and Commitments

Legal Proceedings

On January 27, 2012, the Fifth Appellate District of the Ohio Court of Appeals upheld a lower court ruling against the Company for professional negligence regarding the wrongful death of an employee of a third-party freight company. The lower court’s ruling awarded damages to the plaintiff of approximately $3,700,000; however, our overall exposure related to this matter is limited under our stop-loss insurance policy. As a result, we accrued an additional pre-tax charge of $1,500,000, which was recorded within SG&A expense during fiscal 2012.

In connection with the acquisition of the BernzOmatic business (“Bernz”) of Irwin Industrial Tool Company, a subsidiary of Newell Rubbermaid, Inc., we settled a dispute over our early termination of a supply contract for $10,000,000. Reserves previously recognized in connection with this matter totaled $14,402,000. Refer to “NOTE N – Acquisitions” for additional information regarding our acquisition of Bernz.

We are defendants in certain other legal actions. In the opinion of management, the outcome of these actions, which is not clearly determinable at the present time, would not significantly affect our consolidated financial position or future results of operations. We also believe that environmental issues will not have a material effect on our capital expenditures, consolidated financial position or future results of operations.

Pressure Cylinders Voluntary Product Recall

On January 10, 2012, we announced a voluntary recall of our MAP-PRO^®, propylene and MAAP^® cylinders and related hand torch kits. The recall is a precautionary step and involves a valve supplied by a third party that may leak when a torch or hose is disconnected from the cylinder. There have been no reported incidents of fire or injury caused by this situation. In connection with this matter, we recorded certain accruals for our estimated probable costs during the quarter-ended November 30, 2011, consisting of $4,737,000 for product returns and $3,883,000 for recall-related costs. In addition, we wrote-off $1,051,000 of affected inventory.

A progression of the liabilities recorded in connection with this matter during fiscal 2012 is summarized in the following table:

(in thousands)	Beginning Balance		Reserves Used			Changes in Estimates			Ending Balance
Product returns	$	4,737	$	(3,650	)	$	(809	)	$	278
Recall-related costs		3,883		(4,692	)		809			-
Total	$	8,620	$	(8,342	)	$	-		$	278

We believe these liabilities are sufficient to absorb our remaining direct costs related to the recall, which we expect to be paid during the first quarter of fiscal 2013. Recoveries, if any, will not be recorded until an agreement is reached with the supplier.

Purchase Commitments

To secure access to a facility used to regenerate acid used in certain Steel Processing locations, we have entered into unconditional purchase obligations with a third party under which three of our Steel Processing facilities deliver their spent acid for processing annually through the fiscal year ending May 31, 2019. In addition, we are required to pay for freight and utilities used in regenerating the spent acid. Total net payments to this third party were $4,353,000, $4,347,000 and $4,270,000 for fiscal 2012, fiscal 2011 and fiscal 2010, respectively. At May 31, 2012, the aggregate amount of future payments required under this arrangement for the next five fiscal years and thereafter was as follows:

(in thousands)
2013	$	2,367
2014		2,367
2015		2,367
2016		2,367
2017		2,367
Thereafter		4,734
Total	$	16,569

We may terminate the unconditional purchase obligations at any time by purchasing this facility at its then fair market value.

Royalty Agreements

In connection with the acquisition of the propane fuel cylinders business of The Coleman Company, Inc. (“Coleman Cylinders”), we executed a trademark license agreement whereby we are required to make minimum annual royalty payments of $2,000,000 in exchange for the exclusive right to use certain Coleman trademarks within the United States and Canada in connection with our operation of the acquired business. For additional information regarding the acquisition of Coleman Cylinders, refer to “Note N – Acquisitions.”