15.) COMMITMENTS AND CONTINGENCIES

Litigation

In April 2013, the Company commenced an action against AVX Corporation and AVX Filters Corporation (collectively “AVX”) alleging that AVX had infringed on the Company’s patents by manufacturing and selling filtered feedthrough assemblies used in implantable pacemakers and cardioverter defibrillators that incorporate the Company’s patented technology. On January 26, 2016, a jury in the U.S. District Court for the District of Delaware returned a verdict finding that AVX infringed on two of the Company’s patents and awarded the Company $37.5 million in damages. The finding is subject to post-trial proceedings currently scheduled to be held in August 2017, as well as a possible appeal by AVX. The Company has recorded no gains in connection with this litigation as no cash has been received.

The Company is a party to various other legal actions arising in the normal course of business. The Company does not expect that the ultimate resolution of any other pending legal actions will have a material effect on its consolidated results of operations, financial position, or cash flows. However, litigation is subject to inherent uncertainties. As such, there can be no assurance that any pending legal action, which the Company currently believes to be immaterial, will not become material in the future.

Environmental Matters

The Company’s Collegeville, PA facility, which was acquired as part of the Lake Region Medical acquisition, is subject to one administrative consent order entered into with the U.S. Environmental Protection Agency (the “EPA”), which require ongoing groundwater treatment and monitoring at the site as a result of leaks from underground storage tanks. Upon approval by the EPA of the Company’s proposed post remediation care plan, which requires a continuation of the groundwater treatment and monitoring process at the site, the Company expects that the consent orders will be terminated. The Company expects a decision from the EPA on whether the Company’s post remediation care plan has been approved in early 2017. The groundwater treatment process at the Collegeville facility consists of a groundwater extraction and treatment system and the performance of annual sampling of a defined set of groundwater wells as a means to monitor containment within approved boundaries. The Company does not expect this environmental matter will have a material effect on its consolidated results of operations, financial position or cash flows.

In January 2015, Lake Region Medical was notified by the New Jersey Department of Environmental Protection (“NJDEP”) of the NJDEP’s intent to revoke a no further action determination made by the NJDEP in favor of Lake Region Medical in 2002 pertaining to a property on which a subsidiary of Lake Region Medical operated a manufacturing facility in South Plainfield, New Jersey beginning in 1971. Lake Region Medical sold the property in 2004 and vacated the facility in 2007. In response to the NJDEP’s notice, the Company further investigated the matter and submitted a technical report to the NJDEP in August of 2015 that concluded that the NJDEP’s notice of intent to revoke was unwarranted. After reviewing the Company’s technical report, the NJDEP issued a draft response in May 2016, stating that the NJDEP would not revoke the no further action determination at that time, but would require some additional site investigation to support the Company’s conclusion. The Company is cooperating with the NJDEP and has met with NJDEP representatives to discuss the appropriate scope of the requested additional investigation. The Company does not expect this environmental matter will have a material effect on its consolidated results of operations, financial position or cash flows.

As of December 30, 2016 and January 1, 2016, there was $1.0 million and $1.1 million, respectively, recorded in Other Long-Term Liabilities in the Consolidated Balance Sheets in connection with these environmental matters.

License Agreements

The Company is a party to various license agreements for technology that is utilized in certain of its products. The most significant of these agreements are the licenses for basic technology used in the production of wet tantalum capacitors, filtered feedthroughs and MRI compatible lead systems. Expenses related to license agreements were $2.0 million, $2.4 million, and $3.3 million, for 2016, 2015 and 2014, respectively, and are primarily included in Cost of Sales.

(15.) COMMITMENTS AND CONTINGENCIES (Continued)

Product Warranties

The Company generally warrants that its products will meet customer specifications and will be free from defects in materials and workmanship. The change in product warranty liability for fiscal years 2016 and 2015 was comprised of the following (in thousands):



	2016			2015
Beginning balance	$	3,316		$	660
Provision for warranty reserve	3,238			1,274
Liabilities assumed from acquisition	—			2,521
Warranty claims paid	(2,643		)	(1,139		)
Ending balance	$	3,911		$	3,316

Operating Leases

The Company is a party to various operating lease agreements for buildings, machinery, equipment and software. The Company primarily leases buildings, which accounts for the majority of the future lease payments. Lease expense includes the effect of escalation clauses and leasehold improvement incentives which are accounted for ratably over the lease term. Operating lease expense for fiscal years 2016, 2015 and 2014 was as follows (in thousands):



	2016		2015		2014
Operating lease expense	$	15,357	$	6,516	$	4,281

At December 30, 2016, the Company had the following future minimum lease payments under non-cancelable operating leases (in thousands):



	2017		2018	2019	2020	2021	After 2021
Future minimum lease payments	$	13,486	12,235	11,105	8,810	7,826	23,838

Self-Insurance Liabilities

As of December 30, 2016, and at various times in the past, the Company self-funded its workers' compensation and employee medical and dental expenses. The Company has established reserves to cover these self-insured liabilities and also maintains stop-loss insurance to limit its exposures under these programs. Claims reserves represent accruals for the estimated uninsured portion of reported claims, including adverse development of reported claims, as well as estimates of incurred but not reported claims. Claims incurred but not reported are estimated based on the Company’s historical experience, which is continually monitored, and accruals are adjusted when warranted by changes in facts and circumstances. The Company’s actual experience may be different than its estimates, sometimes significantly. Changes in assumptions, as well as changes in actual experience could cause these estimates to change. Insurance and claims expense will vary from period to period based on the severity and frequency of claims incurred in a given period. The Company’s self-insurance reserves totaled $7.7 million and $7.9 million as of December 30, 2016 and January 1, 2016, respectively. These accruals are recorded in Accrued Expenses and Other Long-Term Liabilities in the Consolidated Balance Sheets.

Foreign Currency Contracts

Historically, the Company has entered into forward contracts to purchase Mexican pesos in order to hedge the risk of peso-denominated payments associated with its operations in Mexico. In connection with the Lake Region Medical acquisition, the Company terminated its outstanding forward contracts resulting in a $2.4 million payment to the foreign currency contract counterparty during 2015. As of the date the contracts were terminated, the Company had $1.6 million recorded in Accumulated Other Comprehensive Income (Loss) related to these contracts. This amount was fully amortized to Cost of Sales during 2016 as the inventory, which the contracts were hedging the cash flows to produce, was sold.

(15.) COMMITMENTS AND CONTINGENCIES (Continued)

The impact to the Company’s results of operations from its forward contracts for fiscal years 2016, 2015 and 2014 was as follows (in thousands):



	2016		2015		2014
Increase (reduction) in Cost of Sales	$	3,516	$	1,948	$	(168	)
Ineffective portion of change in fair value	—		—		—

Information regarding outstanding foreign currency contracts designated as cash flow hedges as of December 30, 2016 is as follows (dollars in thousands):



Aggregate Notional Amount		Start Date	End Date	$/Peso	Fair Value			Balance Sheet Location
$	24,654	Jan 2017	Dec 2017	0.0514	$	(2,063	)	Accrued Expenses