COMMITMENTS AND CONTINGENCIES

Fuel Tech is subject to various claims and contingencies related to, among other things, workers compensation, general liability (including product liability), and lawsuits. The Company records liabilities where a contingent loss is probable and can be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount when

amount within the range is a better estimate than any other amount. The Company discloses a contingent liability even if the liability is

not

probable or the amount is

not

estimable, or both, if there is a reasonable possibility that a material loss

may

have been incurred.

From time to time we are involved in litigation with respect to matters arising from the ordinary conduct of our business. In the opinion of management, based upon presently available information, either adequate provision for anticipated costs have been accrued or the ultimate anticipated costs will

not

materially affect our consolidated financial position, results of operations, or cash flows. We do

not

believe we have any pending loss contingencies that are probable or reasonably possible of having a material impact on our consolidated financial position, results of operations or cash flows.

During the

third

quarter of

2020,

the Company was notified of an equipment component failure at a foreign customer location. The failure will be remedied under the warranty provision of the contracts that are in place with the customer and supplier. As of

December 31, 2020

a charge of

$176

was recorded in the accounts payable line of the Consolidated Balance Sheets. In

2018,

the Company was notified of a certain non-conformance issues with a U.S. customer associated with equipment that requires remedy under the warranty provision of the contract. During the

second

quarter of

2020

a charge of

$1,150

to remedy this non-conformance issue was incurred. Offsetting this amount was a reversal of

$499

of expense to reduce the allowance of doubtful accounts that had been previously reserved. The Company has completed all work associated with this issue. As of

December 31, 2020

and

December 31, 2019,

we have

$176

and

$146

of accrued liability associated with the completion of the non-conformance issues in the other accrued liabilities line of the Consolidated Balance Sheets. During the

third

quarter of

2020,

the Company settled an outstanding claim with our insurance provider for these remediation efforts and recorded a receivable in the amount of

$2,589.

The settlement is recorded in the cost of sales line on the Consolidated Statement of Operations. Collection of the funds was completed in

October 2020.

Performance Guarantees

The majority of Fuel Tech's long-term equipment construction contracts contain language guaranteeing that the performance of the system that is being sold to the customer will meet specific criteria. On occasion, performance surety bonds and bank performance guarantees/letters of credit are issued to the customer in support of the construction contracts as follows:

•

in support of the warranty period defined in the contract; or

•

in support of the system performance criteria that are defined in the contract.

As of

December 31, 2020

, we had outstanding bank performance guarantees and letters of credit in the amount of

$1,873

in support of equipment construction contracts that have

not

completed their final acceptance test or that are still operating under a warranty period. The performance guarantees and letters of credit expire in dates ranging from

December 2020

through

February 2023.

Due to the timing of expiration and the actual release of commitment from our bank, as of

December 31, 2020,

$1,134

of performance guarantees have expired and are currently reflected in outstanding balance. The expiration dates

may

be extended if the project completion dates are extended. Our management believes it is probable that these projects will be successfully completed and that there will

not

be a material adverse impact on our operations from these bank performance guarantees and letters of credit. As a result,

liability has been recorded for these performance guarantees.

Product Warranties

We issue a standard product warranty with the sale of our products to customers. Our recognition of warranty liability is based primarily on analyses of warranty claims experience in the preceding years as the nature of our historical product sales for which we offer a warranty are substantially unchanged. This approach provides an aggregate warranty accrual that is historically aligned with actual warranty claims experienced. There were

changes in the warranty liability from continuing operations in

2020

and

2019

. The warranty balance was

$159

December 31, 2020

and

2019