Contingencies and Other Accrued Losses

9 Months Ended

Feb. 28, 2013

Contingencies and Other Accrued Losses

NOTE 9 — CONTINGENCIES AND OTHER ACCRUED LOSSES

We provide, through our wholly owned insurance subsidiaries, certain insurance coverage, primarily product liability coverage, to our other subsidiaries. Excess coverage is provided by third-party insurers. Our reserves provide for these potential losses as well as other uninsured claims. Product liability reserves are established based upon actuarial calculations of potential liability using industry experience, actual historical experience and actuarial assumptions developed for similar types of product liability claims, including development factors and lag times. While it is reasonably possible that excess liabilities, if they were to occur, could be material to operating results in any given quarter or year of their recognition, we do not believe that it is reasonably possible that excess liabilities would have a material adverse effect on our long-term results of operations, liquidity or consolidated financial position.

We also offer warranty programs at several of our industrial businesses and have established a product warranty liability. We review this liability for adequacy on a quarterly basis and adjust it as necessary. The primary factors that could affect this liability may include changes in the historical system performance rate as well as the costs of replacement. Provision for estimated warranty costs is recorded at the time of sale and periodically adjusted, as required, to reflect actual experience. It is probable that we will incur future losses related to warranty claims we have received but that have not been fully investigated and related to claims not yet received. While our warranty liability represents our best estimate at February 28, 2013, we can provide no assurances that we will not experience material claims in the future or that we will not incur significant costs to resolve such claims beyond the amounts accrued or beyond what we may recover from our suppliers. Product warranty expense is recorded within selling, general and administrative expense.

The following table includes the changes in our accrued warranty balances:

	Three Months Ended						Nine Months Ended
	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
	(In thousands)
Beginning Balance	$	15,138		$	16,330		$	14,751		$	17,196
Deductions (1)		(4,908	)		(4,497	)		(12,895	)		(13,402	)
Provision charged to SG&A expense		3,407			3,295			11,781			11,334
Ending Balance	$	13,637		$	15,128		$	13,637		$	15,128

(1) Primarily claims paid during the year.

In addition, like other companies participating in similar lines of business, some of our subsidiaries are involved in several proceedings relating to environmental matters. It is our policy to accrue remediation costs when it is probable that such efforts will be required and the related costs can be reasonably estimated. These liabilities are undiscounted and are not material to our financial statements during any of the periods presented.

As of February 28, 2013, based on discussions that occurred on March 29, 2013, we recorded a $68.8 million accrual associated with an investigation of our Building Solutions Group roofing contracts with the U.S. General Services Administration (the “GSA”). The substantial majority of the accrual relates to the sale of products and services from 2002 to 2008. Our Building Solutions Group is in ongoing settlement discussions with the U.S. Department of Justice (the “DOJ”) and the GSA aimed at resolving the investigation. We are cooperating with the investigation, which involves compliance with certain pricing terms and conditions of GSA contracts under which our Building Solutions Group roofing division sold products and services to the federal government. The accrual for this contingency represents our assessment of the amount of probable loss that may result from this matter. In assessing our probable loss, we have considered the potentially disputed amounts under the relevant contracts, together with our understanding of policies for resolving such matters. The actual amount of our loss, which remains subject to approval by the DOJ, may vary from the amount of the accrual. The accrual for this contingency is classified in other accrued liabilities in our Consolidated Balance Sheets and the loss is classified as estimated loss contingency in our Consolidated Statements of income as of and for the period ended February 28, 2013.