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Notes to Consolidated Financial Statements

May 31, 2003, 2002, 2001 - Page 5

Note H - Contingencies and Loss Reserves

Accrued loss reserves and asbestos-related liabilities consist of the following:

The Company, through its wholly owned insurance subsidiaries, provides certain insurance coverage, primarily product liability, to the Company’s other subsidiaries. Excess coverage is provided by outside carriers. The reserves reflected above provide for these potential losses as well as other uninsured claims. Provision for estimated warranty costs is recorded at the time of sale and periodically adjusted to reflect actual experience. Certain of our wholly owned subsidiaries, principally Bondex International, Inc. (Bondex), along with many other U.S. companies, are and have been involved in a large number of asbestos-related suits filed primarily in state courts during the past two decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products. The alleged claims relate primarily to products that Bondex sold through 1977. In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred resulted from exposure to Bondex products. The rate at which plaintiffs filed asbestos-related suits against Bondex increased in the fourth quarter of 2002 and the first two quarters of 2003, influenced by the bankruptcy filings of numerous other defendants in asbestos-related litigation. Based on the significant increase in asbestos claims activity and inequitable joint and several liability determinations against Bondex, as previously reported, our third-party insurance will be depleted within the first quarter of 2004. Our third-party insurers historically have been responsible, under various cost-sharing arrangements, for the payment of approximately 90% of the indemnity and defense costs associated with our asbestos litigation. Prior to this sudden precipitous increase in loss rates, the combination of book loss reserves and insurance coverage was expected to adequately fund asbestos loss payments for the foreseeable future. We have reserved our rights with respect to various of our third-party insurers’ claims of exhaustion, and in late calendar 2002 commenced reviewing our known insurance policies to determine whether or not other insurance limits may be available to cover our asbestos liabilities. As a result of this examination, in which we were assisted by an archeological insurance investigation firm, on July 3, 2003, the Company filed a complaint in Federal Court against several insurance carriers for declaratory judgment, breach of contract and bad faith. We are unable at the present time to predict whether, or to what extent, any additional insurance may cover our asbestos liabilities. Our wholly owned captive insurance companies have not provided any insurance or re-insurance coverage of any asbestos-related claims. During the last seven months of 2003, new state liability laws were enacted in three states where more than 80% of the claims against Bondex are pending. Effective dates for the last two of the law changes were April 8, 2003 and July 1, 2003. The changes generally provide for liability to be determined on a "proportional cause" basis, thereby limiting Bondex’s responsibility to only its share of the alleged asbestos exposure. The ultimate impacts of these new laws are difficult to predict given the limited time following enactment, because the full influence of these law changes on legal settlement values is not expected to be significantly visible until the latter part of fiscal 2004. At the end of 2002 and through the third quarter of 2003, Bondex had concluded it was not possible to estimate its cost of disposing of asbestos-related claims that might be filed against Bondex in the future due to a number of reasons, including its lack of sufficient comparable loss history from which to assess either the number or value of future asbestos-related claims. During the fourth quarter of 2003, Bondex retained a nationally recognized consulting firm with broad experience in estimating resolution costs associated with mass tort litigation, including asbestos, to assist it in analyzing its loss history data, to evaluate whether it would be possible to estimate the cost of disposing pending claims in light of both past and recent loss history, and to assist in determining whether future asbestos-related claims reasonably expected to be filed against Bondex were measurable, given recent changes of law. Bondex provided the consultants with all relevant data regarding asbestos-related claims filed against Bondex through May 31, 2003. The consultants concluded that it was not possible to currently estimate the full range of the cost of resolving future asbestos-related claims against Bondex because of various uncertainties associated with those potential future claims. These uncertainties, which hindered the consultant’s and Bondex’s ability to project future claim volumes and resolution costs, included the following:   The bankruptcies in the years 2000 through 2002 of other companies facing large asbestos liability were a likely contributing cause of a sharp increase in filings against many defendants, including Bondex.   The recent state law changes in states wherein the vast majority of our claims are pending and have been historically filed are expected to materially affect future losses and future claim filing activity and resolution costs.   The currently proposed federal legislative initiative aimed at establishment of a federal asbestos trust fund has influenced and changed the demand behavior of plaintiffs from that of historic levels, creating further uncertainty in the estimation process. At this time, the Company cannot estimate the liability that will result from all future claims. The Company has established a reserve for those pending cases that have progressed to a stage where the cost to dispose of these cases can reasonably be estimated. The estimation of even pending cases is difficult due to the dynamic nature of asbestos litigation. The reserve was established by taking an asbestos charge to 2003 operations of $140,000,000 for measurable known claims and a provision for the future claims that can presently be estimated. The Company believes this asbestos reserve will be sufficient to cover asbestos-related cash flow requirements for approximately three years. Additionally, Bondex’s share of costs (net of then-available third-party insurance) for asbestos-related product liability were $6,700,000, $2,800,000 and $2,300,000 for the years ended May 31, 2003, 2002 and 2001, respectively. The Company developed the estimates for the $140,000,000 asbestos charge in consultation with its outside consulting firm and defense counsel, taking into account both historical and current settlement values. The Company recognizes that future facts,events and legislation, both state and/or federal, may alter its estimates of both its pending and future claims. The Company cannot estimate possible liabilities in excess of those accrued because it cannot predict the number of additional claims that may be filed in the future, the grounds for such claims, the damages that may be demanded, the probable outcome, or the impact of recent state and pending federal legislation on prospective asbestos claims. The Company,in conjunction with outside advisors, will continue to study its asbestos-related exposure and regularly evaluate the adequacy of this reserve and the related cash flow implications in light of actual claims experience, the impact of state law changes and the evolving nature of federal legislative efforts to address asbestos litigation. In addition, the Company,like others in similar businesses, is involved in several proceedings relating to environmental matters. It is the Company ’s 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 do not take into consideration any possible recoveries of future insurance proceeds or claims against third parties. Due to the uncertainty inherent in the loss reserve estimation process, the Company is unable to estimate an additional range of loss in excess of its accruals. It is at least reasonably possible that actual costs will differ from estimates, but, based upon information presently available, such future costs are not expected to have a material adverse effect on the Company ’s competitive or financial position or its ongoing results of operations. However, such costs could be material to results of operations in a future period.

Note I - Quarterly Information (Unaudited)

The following is a summary of the quarterly results of operations for the years ended May 31,2003 and 2002:

Quarterly earnings per share may not total to the yearly earnings per share due to the weighted average number of shares outstanding in each quarter.

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