NOTE 23—COMMITMENTS AND CONTINGENCIES

Environmental Matters

Real Alloy’s operations are subject to environmental laws and regulations governing air emissions, wastewater discharges, the handling, disposal and remediation of hazardous substances and wastes, and employee health and safety. These laws can impose joint and several liabilities for releases or threatened releases of hazardous substances upon statutorily defined parties, including us, regardless of fault or the lawfulness of the original activity or disposal. Given the changing nature of environmental legal requirements, we may be required, from time to time, to take environmental control measures at some of our facilities to meet future requirements. Real Alloy is under regulatory consent orders or directives to install environmental control measures by agencies in three states.

The following table provides a summary of changes in accrued environmental liabilities for the years ended December 31, 2017 and 2016:


	Year Ended December 31,
(In millions)	2017		2016		2015
Balance, beginning of period	$	15.6	$	16.0	$	—
Environmental liabilities assumed in business combination		—		—		15.3
Revisions and liabilities incurred		(2.1)		0.1		1.0
Payments		—		(0.4)		—
Currency translation adjustments and other charges		0.2		(0.1)		(0.3)
Balance, end of period		13.7		15.6		16.0
Less amount classified as accrued liabilities		(3.3)		(4.0)		(4.3)
Environmental liabilities	$	10.4	$	11.6	$	11.7

These amounts are in addition to asset retirement obligations discussed in Note 11—Asset Retirement Obligations, and represent the most probable costs of remedial actions. Management estimates that costs related to identified remedial actions will be paid out, primarily, over the next ten years.

Leases

The Company leases various types of property and equipment, primarily office space and equipment used in manufacturing and office equipment. Rent expense during the years ended December 31, 2017, 2016 and 2015 was $5.7 million, $4.3 million and $3.1 million, respectively. The following table provides a summary of future minimum lease payments required under operating leases as of December 31, 2017, which have initial or remaining noncancellable terms in excess of one year, which may also contain renewal options, and scheduled capital lease payments:


	Future Minimum Lease Payments
(In millions)	Operating Leases		Capital Leases
2018	$	3.8	$	3.7
2019		3.2		3.1
2020		2.6		1.0
2021		2.3		0.2
2022		1.4		0.1
Thereafter		4.8		—
	$	18.1	$	8.1

Capital lease obligations are classified as long-term debt in the consolidated balance sheets. See Note 10—Debt and Redeemable Preferred Stock for additional information about capital leases.

Purchase Obligations

The Company’s noncancellable purchase obligations are principally for the purchase of natural gas and services related to waste disposal. The purchase obligations are long-term arrangements to purchase services that are enforceable and legally binding on the Company and specify all significant terms and conditions, including fixed or minimum services to be purchased: fixed, minimum or variable price provisions; and the approximate timing of the transactions. As a result of the variability in pricing the purchase obligations, actual amounts paid may vary from the amounts shown in the following table, which present amounts due under long-term noncancellable purchase obligations.


	Year Ended December 31,
(In millions)	2018		2019		2020		2021		2022		Total
Purchase obligations	$	2.7	$	2.1	$	1.0	$	0.6	$	—	$	6.4

Amounts purchased under long-term purchase obligations during the year ended December 31, 2017 approximated amounts projected for 2018.

Employees

As of December 31, 2017, approximately 22% of our U.S. employees and substantially all of our non-U.S. employees are covered under collective bargaining agreements.

Legal Proceedings

Real Industry, Real Alloy and SGGH have been named as a defendant in or as a party to a number of legal actions or proceedings that arose in the ordinary course of business. In some of these actions and proceedings, claims for monetary damages are asserted. In view of the inherent difficulty of predicting the outcome of such legal actions and proceedings, management generally cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss related to each pending matter may be, if any.

In accordance with applicable accounting guidance, management establishes an accrued liability for litigation when those matters present loss contingencies that are both probable and reasonably estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. The estimated loss is based upon currently available information and is subject to significant judgment, a variety of assumptions, and known and unknown uncertainties. The matters underlying the estimated loss may change from time to time, and actual results may vary significantly from the current estimate. Therefore, an estimate of loss represents what management believes to be an estimate of loss only for certain matters meeting these criteria. It does not represent the Company’s maximum loss exposure.

Based on management’s current understanding of these pending legal actions and proceedings, it does not believe that judgments or settlements arising from pending or threatened legal matters, individually or in the aggregate, would have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. However, in light of the inherent uncertainties involved in these matters, some of which are beyond the Company’s control, and the very large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to the Company’s results of operations or cash flows for any particular reporting period.

RMBS Defense, Indemnity and Contribution Matters. In connection with residential mortgage-backed securities offerings (“RMBS Offerings”) involving loans originated by a subsidiary of Fremont, Fremont Investment & Loans (“FIL”), either or both of FIL and its subsidiary entered into loan purchase agreements, underwriting agreements and indemnification and contribution agreements, which contained or incorporated various representations and warranties relating to the loans. Investment banks involved in these RMBS Offerings have been sued in a number of actions concerning their activities related to subprime mortgages (“RMBS Actions”), where SGGH or its former businesses is not a named defendant. SGGH has received demands for defense, indemnity and contribution from defendants in various RMBS Actions. SGGH has rejected each of these demands on several grounds. There is no assurance that SGGH or its former businesses will not be named as defendants in additional RMBS Actions, be sued to enforce claimed rights to defense, indemnity and contribution, or receive additional demands for defense, indemnity and contribution. It is SGGH’s intention to vigorously defend any such claims, but SGGH cannot presently predict whether such claims will be pursued or what the outcome would be.

Subpoenas for Information and Documents. In addition to the above-described RMBS Actions, SGGH has received and responded to a number of subpoenas for information from federal agencies and other third-parties in civil litigation matters in which SGGH is not a defendant, but which concern home mortgage transactions involving Fremont’s origination and sale of whole loans, and certain RMBS Offerings.

Bankruptcy Proceedings. See Note 3—Liquidity and Bankruptcy Proceedings and Note 24—Debtor-in-Possession Financial Information for additional information about the Bankruptcy Proceedings.