We account for litigation and claims losses in accordance ASC Topic 450, Contingencies, or ASC
450. ASC 450 loss contingency provisions are recorded for probable and estimable losses at our best estimate of a loss, or when a best estimate cannot be made, the minimum potential loss contingency is recorded. They are often developed prior
to knowing the amount of the ultimate loss. These estimates require the application of considerable judgment, and are refined each accounting period as additional information becomes known. Accordingly, we are often initially unable to develop a
best estimate of loss and therefore the minimum amount, which could be zero, is recorded. As information becomes known, the minimum loss amount can be increased, resulting in additional loss provisions, or a best estimate can be made also resulting
in additional loss provisions. Occasionally, a best estimate amount is changed to a lower amount when events result in an expectation of a more favorable outcome than previously expected. There can be no assurances that our recorded reserves will be
sufficient to cover the extent of our costs and potential liability.
We believe inflation
has not had a material effect on our financial condition or results of operations in recent years.
Because of the diverse nature of the markets in which we compete, revenue is only moderately impacted by seasonality. However, our controls business has some seasonal elements, specifically in the
air-conditioning and refrigeration products which tend to peak in the first two quarters of the year as end-market inventory is built up for spring and summer sales.
In December 2006, we acquired First Technology Automotive. As part of the integration of this business, we closed several manufacturing
facilities and business centers, and terminated 143 employees. In accordance with ASC Topic 805, Business Combinations, or ASC 805, we recognized restructuring liabilities of $9.9 million in purchase accounting and recognized
other charges in the consolidated statement of operations totaling $0.9 million related to these actions. The total charges of $0.9 million are comprised of charges of $1.1 million recognized during fiscal year 2008 and a credit of $0.2 million
recognized during fiscal year 2009. The activities associated with the acquisition of First Technology Automotive were completed in fiscal year 2008, and we anticipate the remaining payments associated with contractual lease obligations to be paid
through 2014 due primarily to contractual lease obligations.
In July 2007, we acquired Airpax. As part of the integration of this business, we closed several manufacturing facilities and business centers, and terminated 331 employees. In accordance with ASC 805, we
recognized restructuring liabilities of $6.5 million in purchase accounting. The activities associated with the Airpax acquisition were completed in fiscal year 2009 and we anticipate remaining payments to be paid through 2010.
During fiscal years 2008 and 2009, in response to global
economic conditions, we announced various actions to reduce the workforce in several business centers and manufacturing facilities throughout the world and to move certain manufacturing operations to low-cost countries. During fiscal year 2008, we
recognized charges totaling $23.0 million, primarily related to severance, pension curtailment and settlement charges and other exit costs. During fiscal year 2009, we recognized charges totaling $18.3 million, of which $12.9 million relates to
severance, $4.8 million relates to pension and $0.6 million relates to other exit costs. The total cost of these actions is expected to be $41.6 million, excluding the impact of changes in foreign currency exchange rates, and affect 1,979 employees.
We anticipate the actions described above to be completed during 2010 and the remaining payments to be paid through 2014 due primarily to contractual obligations.
For a reconciliation of the restructuring reserves referenced above, refer to Note 9 to our audited
consolidated financial statements included elsewhere in this prospectus.