Commitments and Contingencies

Lease Commitments

Total rental expense for the years ended December 31, 2013, 2012 and 2011 amounted to $2.2 million, $2.5 million and $0.8 million, respectively. Of the $12.5 million future minimum operating lease commitments outstanding at December 31, 2013, $10.5 million relates to a lease for the Company's headquarters which expires in March 2023. The lease commitment is partially offset by a portion of the headquarters that has been sub-leased through March of 2023 and includes total future minimum lease proceeds of $0.8 million. The Company has a financing lease for the McCook Facility which expires in June 2022 and includes future minimum lease payments, related to the building, of $11.1 million. Non-cash increases in assets and liabilities of $8.0 million and $4.0 million in 2012 and 2011, respectively, related to the construction of the McCook Facility were not reflected in the Consolidated Statements of Cash Flows.

The Company’s future minimum lease commitments, principally for facilities and equipment, as of December 31, 2013, were as follows:



	(Dollars in thousands)
Year ended December 31,	Operating Leases		Financing Lease		Capital Leases
2014	$	1,293	$	1,085	$	96
2015	1,229		1,124		8
2016	1,261		1,165		4
2017	1,305		1,255		—
2018	1,348		1,348		—
Thereafter	6,046		5,092		—
Total	$	12,482	$	11,069	$	108

At December 31, 2013, the cost and accumulated depreciation of the asset related to the financing obligation were $13.0 million and $2.0 million, respectively, and the cost and accumulated amortization of the assets related to capital leases were $1.0 million and $0.9 million, respectively.

Litigation, regulatory and tax matters

The Company is involved in legal actions that arise in the ordinary course of business. It is the opinion of management that the resolution of any currently pending litigation will not have a material adverse effect on the Company’s financial position or results of operations.

Employment tax matter

One of the Company's subsidiaries, Drummond American LLC (“Drummond”), was under an employment tax examination for the years 2007 and 2008 regarding the long-standing treatment of its sales representatives as independent contractors. In January 2012, the Company received a Notice of Proposed Adjustment in the amount of $9.5 million, including penalties, from the IRS challenging Drummond's position that the sales representatives were independent contractors rather than employees. The Company disagreed with the IRS position and filed an administrative appeal with the IRS Appeals Office and established a liability of $1.2 million during 2011 as its best estimate of the cost to resolve the matter with the IRS. The tax matter was settled with the IRS in December, 2013 for $0.8 million and the Company believes that it has no further liability related to this matter.

Environmental matter

In 2012, the Company identified that a site it owns in Decatur, Alabama contains hazardous substances in the soil and groundwater as a result of historical operations prior to the Company's ownership. The Company has retained an environmental consulting firm to further investigate the contamination including the measurement and monitoring of the site. On August 13, 2013, the site was enrolled in the state of Alabama's voluntary cleanup program. At this time insufficient data regarding the situation has been collected to reasonably estimate the extent of the contamination or the cost, if any, of remedying this situation. Accordingly, the Company has not established a reserve for any remediation costs.