Note 13 – Commitments and Contingencies

Leases

Our principal non-cancelable operating lease obligations are for building space and vehicles. The leases generally provide that we pay maintenance costs. The lease periods typically range from one to five years and include purchase or renewal provisions. We have leases that are cancelable with minimal notice. Additionally, we have capital leases for our manufacturing facility in Eschenbach, Germany as well as office related equipment in various worldwide locations.

The following table includes future minimum lease payments under capital leases together with the present value of the net future minimum lease payments as of December 31, 2018:



(Dollars in thousands)
Year Ending December 31,
2019	$	543
2020	525
2021	4,276
2022	—
2023	—
Thereafter	—
Total	5,344
Less: Interest	(295		)
Present Value of Net Future Minimum Lease Payments	$	5,049

The following table includes future minimum lease payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2018:



(Dollars in thousands)
Year Ending December 31,
2019	$	3,951
2020	3,052
2021	2,216
2022	1,507
2023	491
Thereafter	—
Total	$	11,217

The following table includes lease expense for each of the three years ended December 31, 2018:



	For the Year Ended December 31,
(Dollars in thousands)	2018		2017		2016
Operating Leases	$	3,850	$	3,819	$	3,567
Capital Leases	$	472	$	608	$	564

Environmental & Legal

We are currently engaged in the following environmental and legal proceedings:

Voluntary Corrective Action Program

Our location in Rogers, Connecticut is part of the Connecticut Voluntary Corrective Action Program (VCAP). As part of this program, we partnered with the Connecticut Department of Energy and Environmental Protection (CT DEEP) to determine the corrective actions to be taken at the site related to contamination issues. We evaluated this matter and completed internal due diligence work related to the site in the fourth quarter of 2015. Remediation activities on the site are ongoing and are recorded as reductions to the accrual as they are incurred. We have incurred aggregate remediation costs of $0.7 million through December 31, 2018, and the accrual for future remediation efforts is $1.7 million.

Asbestos

Overview

We, like many other industrial companies, have been named as a defendant in a number of lawsuits filed in courts across the country by persons alleging personal injury from exposure to products containing asbestos. We have never mined, milled, manufactured or marketed asbestos; rather, we made and provided to industrial users a limited number of products that contained encapsulated asbestos, but we stopped manufacturing these products in the late 1980s. Most of the claims filed against us involve numerous defendants, sometimes as many as several hundred.

The following table summarizes the change in number of asbestos claims outstanding during 2018 and 2017:



	2018		2017
Claims outstanding at beginning of year	687		605
New claims filed	275		362
Pending claims concluded*	(217	)	(280	)
Claims outstanding at end of year	745		687

* For the year ended December 31, 2018, 192 claims were dismissed and 25 claims were settled. For the year ended December 31, 2017, 258 claims were dismissed and 22 claims were settled. Settlements totaled approximately $7.1 million for the year ended December 31, 2018, compared to $5.0 million for the year ended December 31, 2017.

Impacts on Financial Statements

We recognize a liability for asbestos-related contingencies that are probable of occurrence and reasonably estimable. In connection with the recognition of liabilities for asbestos-related matters, we record asbestos-related insurance receivables that are deemed probable.

The liability projection period covers all current and future claims through 2058, which represents the expected end of our asbestos liability exposure with no further ongoing claims expected beyond that date. This conclusion was based on our history and experience with the claims data, the diminished volatility and consistency of observable claims data, the period of time that has elapsed since we stopped manufacturing products that contained encapsulated asbestos and an expected downward trend in claims due to the average age of our claimants, which is approaching the average life expectancy.

To date, the defense and settlement costs of our asbestos-related product liability litigation have been substantially covered by insurance. We have identified continuous coverage for primary, excess and umbrella insurance from the 1950s through the mid-1980s, except for a period in the early 1960s, with respect to which we have entered into an agreement for primary, but not excess or umbrella, coverage. In addition, we have entered into a cost sharing agreement with most of our primary, excess and umbrella insurance carriers to facilitate the ongoing administration and payment of claims by the carriers. The cost sharing agreement may be terminated by any party, but will continue until a party elects to terminate it. As of the filing date for this report, the agreement has not been terminated, and no carrier had informed us it intended to terminate the agreement. During 2018, we received notices that primary coverage for a period of eight years and excess coverage for a period of three years had been exhausted. In 2018, we incurred indemnity and defense costs of $1.2 million for the year ended December 31, 2018, primarily related to the periods referenced above. We expect to exhaust individual primary, excess and umbrella coverages over time, and there is no assurance that such exhaustion will not accelerate due to additional claims, damages and settlements or that coverage will be available as expected.

The amounts recorded for the asbestos-related liability and the related insurance receivables are based on facts known at the time and a number of assumptions. However, projecting future events, such as the number of new claims to be filed each year, the average cost of disposing of such claims, the length of time it takes to dispose of such claims, coverage issues among insurers and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual liability and insurance recoveries for us to be higher or lower than those projected or recorded.

Changes recorded in the estimated liability and estimated insurance recovery based on the projections of asbestos litigation and corresponding insurance coverage, result in the recognition of expense or income. For the years ended December 31, 2018, 2017 and 2016, we recognized expense of $0.7 million, $3.4 million and $0.3 million, respectively. The increase in expense recognized in 2017 compared to 2016 was primarily attributable to the change in the forecast period from 10 years to 40 years.

For the years ended December 31, 2018 and 2017, our projected asbestos-related claims and insurance receivables were as follows:



(Dollars in millions)	2018		2017
Asbestos-related claims	$	70.3	$	76.2
Asbestos-related insurance receivables	$	63.8	$	69.2

General

In addition to the above issues, the nature and scope of our business brings us in regular contact with the general public and a variety of businesses and government agencies. Such activities inherently subject us to the possibility of litigation, including environmental and product liability matters that are defended and handled in the ordinary course of business. We have established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation will have a material adverse impact on our results of operations, financial position or cash flows.