Contingencies and Commitments

CBD Claims

The Company is a defendant from time to time in proceedings in various state and federal courts brought by plaintiffs alleging that they have contracted chronic beryllium disease (CBD) or related ailments as a result of exposure to beryllium. Plaintiffs in CBD cases seek recovery under theories of negligence and various other legal theories and seek compensatory and punitive damages, in many cases of an unspecified sum. Spouses, if any, often claim loss of consortium.

Employee cases, in which plaintiffs have a high burden of proof, have historically involved relatively small losses to the Company. Third-party plaintiffs (typically employees of customers) face a lower burden of proof than do the Company’s employees, but these cases have generally been covered by varying levels of insurance. Management has vigorously contested the CBD cases brought against the Company.

Claims filed by third-party plaintiffs alleging CBD filed prior to the end of 2022 are covered by insurance if any portion of the alleged exposure period occurred prior to year end 2007. Both defense and indemnity costs are covered subject to an annual $1.0 million deductible and other terms and provisions.

There was one CBD case outstanding as of year-end 2012 with a recorded reserve of $0.1 million. There were no other active CBD cases against the Company during 2012. There were two active cases during 2011, both of which were filed prior to 2011. One of these cases was settled for less than $0.1 million while the other case was dismissed during 2011.

Although it is not possible to predict the outcome of any pending litigation, the Company provides for costs related to litigation matters when a loss is probable and the amount is reasonably estimable. Litigation is subject to many uncertainties, and it is possible that some of the actions could be decided unfavorably in amounts exceeding the Company’s reserves. An unfavorable outcome or settlement of a CBD case or adverse media coverage could encourage the commencement of additional similar litigation. The Company is unable to estimate its potential exposure to unasserted claims.

Based upon currently known facts and assuming collectibility of insurance, the Company does not believe that resolution of the current or future beryllium proceedings will have a material adverse effect on the financial condition or cash flow of the Company. However, the Company’s results of operations could be materially affected by unfavorable results in one or more cases.

Insurance Recoverable

The Company recorded a pre-tax loss of $7.4 million as a result of a physical inventory count taken in the fourth quarter 2012. The Company has reason to believe that this loss, or a portion thereof, may be due to theft. The Company has insurance for theft and the insurance carrier was duly notified. The internal and criminal investigations were still in progress as of early in the first quarter 2013 and an offsetting benefit from an insurance recovery was not determinable and therefore was not recorded as of December 31, 2012. The benefit of any insurance recoverable may be recorded in future periods based upon the ability to determine the amount of the recovery, an assessment of the probability of the recovery and other factors and/or in the period when the cash is received.

Environmental Proceedings

The Company has an active program for environmental compliance that includes the identification of environmental projects and estimating their impact on the Company’s financial performance and available resources. Environmental expenditures that relate to current operations, such as wastewater treatment and control of airborne emissions, are either expensed or capitalized as appropriate. The Company records reserves for the probable costs for identified environmental remediation projects. The Company’s environmental engineers perform routine on-going analyses of the remediation sites and will use outside consultants to assist in their analyses from time to time. Accruals are based upon their analyses and are established at either the best estimate or, absent a best estimate, at the low end of the estimated range of costs. The accruals are revised for the results of on-going studies, changes in strategies, inflation and for differences between actual and projected costs. The accruals may also be affected by rulings and negotiations with regulatory agencies. The timing of payments often lags the accrual, as environmental projects typically require a number of years to complete.

The environmental reserves recorded represent the Company's best estimate of what is reasonably possible and cover existing or currently foreseen projects based upon the current facts and circumstances. The Company does not believe that it is reasonably possible that the cost to resolve environmental matters for sites where the investigative work and work plan development are substantially complete will be materially different than what has been accrued while the ultimate loss contingencies for sites that are in the preliminary stages of investigation cannot be reasonably determined at the present time. As facts and circumstances changes, the ultimate cost may be revised and the recording of additional costs may be material in the period in which the additional costs are accrued. The Company does not believe that the ultimate liability for environmental matters will have a material impact on its financial condition or liquidity due to the extended period of time during which environmental remediation normally takes place.

The undiscounted reserve balance at the beginning of the year, the amounts expensed and paid and the balance at the end of the year for 2012 and 2011 are as follows:



(Thousands)	2012			2011
Reserve balance at beginning of year	$	(5,312	)	$	(5,201	)
Expensed	(316		)	(528		)
Paid	327			417
Reserve balance at end of year	$	(5,301	)	$	(5,312	)
Ending balance recorded in:
Other liabilities and accrued items	$	(903	)	$	(1,000	)
Other long-term liabilities	(4,398		)	(4,312		)

The majority of spending in 2012 and 2011 was for various remediation projects at the Elmore, Ohio, plant site with lesser amounts spent at other locations.

Long-term Obligation

The Company has a long-term supply agreement with Ulba/Kazatomprom of the Republic of Kazakhstan and its marketing representative, Nukem, Inc. of Connecticut for the purchase of approximately 775,000 pounds of beryllium copper master alloy. The pricing for the beryllium content of the material is fixed while the price for the copper content fluctuates based upon the monthly average LME market price. Purchase commitments in 2013, which represent the final shipments to be made under this agreement, total approximately $1.8 million. Purchases made under this agreement totaled $5.2 million in 2012 and $8.8 million in 2011. The material purchased from Nukem is used in the manufacture of beryllium-containing alloy products by the Performance Alloys segment.

Other

The Company is subject to various other legal or other proceedings that relate to the ordinary course of its business. The Company believes that the resolution of these proceedings, individually or in the aggregate, will not have a material adverse impact upon the Company’s consolidated financial statements.

The Company has outstanding letters of credit totaling $26.0 million related to workers’ compensation, consigned precious metal guarantees, environmental remediation issues and other matters that expire in 2013.