15. COMMITMENTS AND CONTINGENT LIABILITIES

Product Liability Claims

The Company is subject to product warranty claims that arise in the ordinary course of its business. For certain manufactured products, the Company maintains a product warranty accrual which is adjusted on a monthly basis as a percentage of cost of sales. The product warranty accrual is periodically adjusted based on the identification or resolution of known individual product warranty claims. The following table sets forth the Company’s continuing operations product warranty accrual:



		Warranty Liability
Balance at December 31, 2013	$	7,483
Additions to warranty liability		207
Warranty liability utilized		(680)
Balance at March 31, 2014	$	7,010

Included within the above table are concrete tie warranty reserves of approximately $6,050 and $6,462 as of March 31, 2014 and December 31, 2013, respectively. The reduction in the reserve balance relates to warranty claims satisfied through the replacement of concrete ties during the three month period ended March 31, 2014.

In July 2012, the Union Pacific Railroad (UPRR) notified the Company and its subsidiary, CXT Incorporated (CXT), of a warranty claim under CXT’s 2005 supply contract relating to the sale of pre-stressed concrete railroad ties to the UPRR. The UPRR asserted that a significant percentage of concrete ties manufactured in 2006 through 2011 at CXT’s former Grand Island, NE facility failed to meet contract specifications, had workmanship defects, and were cracking and failing prematurely. Of the 3.0 million ties manufactured between 1999 and 2011 from the Grand Island, NE facility, approximately 1.6 million relate to concrete ties sold to the UPRR during the period of their claim.

During 2012, as a result of testing the Company conducted on concrete ties manufactured at its former Grand Island, NE facility, the Company recorded pre-tax warranty charges of $22,000 in “Cost of Goods Sold” within its Rail Products segment. The accrual was based on the Company’s estimate of the number of defective concrete ties that will ultimately require replacement during the applicable warranty periods at an average cost of fifty dollars per concrete tie.

The Company continues to work with the UPRR to identify, replace, and reconcile defective ties related to the warranty claim asserted under CXT’s 2005 supply contract. The concrete tie warranty reserve is the best estimate of the expected value of defective ties that will be replaced as a result of our observation and analysis of ties in track. While the Company believes this is a reasonable estimate of these potential warranty claims, these estimates could change due to the receipt of new information and future events.

As of March 31, 2014, the Company and the UPRR have not been able to reconcile the disagreement related to the 2013 warranty replacement activity. The disagreement includes approximately 170,000 ties. The Company provided detailed documentation supporting its position including reasons that detail why these ties were not eligible for a warranty claim. In the event the UPRR continues to replace ties and assert warranty claims on an ongoing basis in the same manner as 2013, the Company is likely to have a disagreement relating to the number of ties eligible for warranty claim in future periods as well. In the event the Company is not able to resolve these claims to the Company’s satisfaction, these past and future claims may have a material impact on the Company’s financial condition and results of operations.

Additionally, the UPRR has claimed that the Company is in breach of the 2012 amended supply agreement for various reasons. The Company has denied the UPRR’s claim that it is in material breach of the 2012 amended supply agreement and intends to continue discussions with the UPRR in an effort to resolve these claims, including reconciling previously replaced ties as well as addressing the future warranty tie replacement process. In the event that the Company is found to be in material breach of the 2012 amended supply agreement, the UPRR may seek damages from the Company and/or terminate the agreement.

The Company will continue to assess the adequacy of its product warranty reserve as additional information becomes available. There can be no assurance at this point that future potential costs pertaining to these claims or other potential future claims will not have a material impact on the Company’s financial condition or results of operations.

Environmental and Legal Proceedings

The Company is subject to national, state, foreign, provincial, and/or local laws and regulations relating to the protection of the environment. The Company’s efforts to comply with environmental regulations may have an adverse effect on its future earnings. In the opinion of management, compliance with the present environmental protection laws will not have a material adverse effect on the financial condition, results of operations, cash flows, competitive position, or capital expenditures of the Company.

The Company is also subject to legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial condition or liquidity of the Company. The resolution, in any reporting period, of one or more of these matters could have a material effect on the Company’s results of operations for that period.

As of March 31, 2014 and December 31, 2013, the Company maintained environmental and litigation reserves approximating $2,173 and $2,190, respectively.