CONTINGENCIES AND COMMITMENTS

6 Months Ended

Jun. 29, 2013

Commitments and Contingencies Disclosure [Abstract]

CONTINGENCIES AND COMMITMENTS

CONTINGENCIES AND COMMITMENTS

In August 2010, the California Air Resources Board (“CARB”) and South Coast Air Quality Management District (“SCAQMD”) filed civil complaints in the Los Angeles Superior Court against the Company and Franklin Fueling Systems, Inc.  The complaints related to a third-party-supplied component part of the Company's Healy 900 Series nozzle, which is part of the Company's Enhanced Vapor Recovery (“EVR”) Systems installed in California gasoline filling stations.  This part, a diaphragm, was the subject of a retrofit during the first half of 2008.  As the Company previously reported, in October 2008 CARB issued a Notice of Violation to the Company alleging that the circumstances leading to the retrofit program violated California statutes and regulations.

The claims in the complaints mirrored those that CARB presented to the Company in the Notice of Violation, and included claims that the Company negligently and intentionally sold nozzles with a modified diaphragm without required CARB certification. Those complaints were consolidated into one case in the Superior Court of California, County of Los Angeles (People of the State of California vs. Franklin Fueling Systems, Inc. et al.) which was tried in the later part of December 2012 and early part of January 2013 (“CARB Case”).

On July 25, 2013, the Court issued a Final Statement of Decision (“Decision”) in the CARB Case.  In its Decision, the Court found on behalf of the Company and issued a complete defense verdict.

CARB and SCAQMD will have 60 days from service of the Notice of Entry of Judgment (which has not yet been entered by the Court in the CARB Case) in which to file a notice of appeal.

In addition, as the Company has previously reported, the Sacramento Metropolitan Air Quality Management District (“SMAQMD”) issued a Notice of Violation to the Company concerning the diaphragm matter in March 2008.  In November 2010, SMAQMD filed a civil complaint in the Sacramento Superior Court, mirroring the claims brought in the CARB Case. In May 2013, the Company and SMAQMD entered into a settlement agreement whereby the Company and SMAQMD agreed to dismiss the suit with prejudice and the Company agreed to pay SCAQMD a percent of any award made in the CARB Case. Because the CARB Case has thus far resulted in a complete defense verdict, no payments are due under the settlement with SMAQMD.

None of these suits have had any effect on CARB's certification of the Company's EVR System or any other products of the Company or its subsidiaries, and did not interfere with continuing sales.  CARB has never decertified the Company's EVR System and has never proposed to do so.

The Company is defending various other claims and legal actions, including environmental matters, which have arisen in the ordinary course of business. In the opinion of management, based on current knowledge of the facts and after discussion with counsel, these claims and legal actions can be successfully defended or resolved without a material adverse effect on the Company’s financial position, results of operations, and net cash flows.

At June 29, 2013, the Company had $21.6 million of commitments primarily for conditional agreements related to building expansions and the purchase of machinery and equipment.

The Company provides warranties on most of its products. The warranty terms vary but are generally two years from date of manufacture or one year from date of installation. In 2007, the Company began offering an extended warranty program to certain Water Systems customers which provides warranty coverage up to five years from the date of manufacture. Provisions for estimated expenses related to product warranty are made at the time products are sold or when specific warranty issues are identified. These estimates are established using historical information about the nature, frequency, and average cost of warranty claims. The Company actively studies trends of warranty claims and takes action to improve product quality and minimize warranty claims. The Company believes that the warranty reserve is appropriate; however, actual claims incurred could differ from the original estimates, requiring adjustments to the reserve.

The changes in the carrying amount of the warranty accrual, as recorded in "Accrued expenses" in the Company's condensed consolidated balance sheet for the six months ended June 29, 2013, are as follows:

(In millions)
Beginning balance, December 29, 2012	$	9.7
Accruals related to product warranties	4.4
Additions related to acquisitions	—
Reductions for payments made	(4.3		)
Ending balance, June 29, 2013	$	9.8