|2.||We, together with our subsidiaries, are subject to various
claims which have arisen in the normal course of business. We provide for costs related to contingencies when a loss from such
claims is probable and the amount is reasonably determinable. In determining whether it is possible to provide an estimate of
loss, or range of possible loss, we review and evaluate our litigation and regulatory matters on a quarterly basis in light of
potentially relevant factual and legal developments. If we determine an unfavorable outcome is not probable or reasonably estimable,
we do not accrue for a potential litigation loss. While we have determined that there is a reasonable possibility that a loss
has been incurred, no amounts have been recognized in the financial statements, other than what has been discussed below, because
the amount of the liability cannot be reasonably estimated at this time.
|3.||The Company has environmental remediation obligations in
connection with Arsynco, Inc. (“Arsynco”), a subsidiary formerly involved in manufacturing chemicals located in Carlstadt,
New Jersey, which was closed in 1993 and is currently held for sale. Based on continued monitoring of the contamination at the
site and the approved plan of remediation, Arsynco received an estimate from an environmental consultant stating that the costs
of remediation could be between $21,500 and $23,300. Remediation commenced in fiscal 2010, and as of June 30, 2017 and June 30,
2016, a liability of $8,451 and $12,532, respectively, is included in the accompanying consolidated balance sheets for this matter.
For the year ended June 30, 2017, the Company recorded environmental remediation charges of $903, which is included in selling,
general and administrative expenses in the accompanying consolidated statements of income for the year ended June 30. In accordance
with GAAP, management believes that the majority of costs incurred to remediate the site will be capitalized in preparing the
property which is currently classified as held for sale. An appraisal of the fair value of the property by a third-party appraiser
supports the assumption that the expected fair value after the remediation is in excess of the amount required to be capitalized.
However, these matters, if resolved in a manner different from those assumed in current estimates, could have a material adverse
effect on the Company’s financial condition, operating results and cash flows when resolved in a future reporting period.
In connection with the environmental
remediation obligation for Arsynco, in July 2009, Arsynco entered into a settlement agreement with BASF Corporation (“BASF”),
the former owners of the Arsynco property. In accordance with the settlement agreement, BASF paid for a portion of the prior remediation
costs and going forward, will co-remediate the property with the Company. The contract requires that BASF pay $550 related to past
response costs and pay a proportionate share of the future remediation costs. Accordingly, the Company had recorded a gain of $550
in fiscal 2009. This $550 gain relates to the partial reimbursement of costs of approximately $1,200 that the Company had previously
expensed. The Company also recorded an additional receivable from BASF, with an offset against property held for sale, representing
its estimated portion of the future remediation costs. The balance of this receivable for future remediation costs as of June 30,
2017 and 2016 is $3,803 and $5,639, respectively, which is included in the accompanying consolidated balance sheets.
|4.||In March 2006, Arsynco received notice from the EPA of
its status as a PRP under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) for a site described
as the Berry’s Creek Study Area (“BCSA”). Arsynco is one of over 150 PRPs which have potential liability for
the required investigation and remediation of the site. The estimate of the potential liability is not quantifiable for a number
of reasons, including the difficulty in determining the extent of contamination and the length of time remediation may require.
In addition, any estimate of liability must also consider the number of other PRPs and their financial strength. In July 2014,
Arsynco received notice from the U.S. Department of Interior (“USDOI”) regarding the USDOI’s intent to perform
a Natural Resource Damage (NRD) Assessment at the BCSA. Arsynco has to date declined to participate in the development and performance
of the NRD assessment process. Based on prior practice in similar situations, it is possible that the State may assert a claim
for natural resource damages with respect to the Arsynco site itself, and either the federal government or the State (or both)
may assert claims against Arsynco for natural resource damages in connection with Berry's Creek; any such claim with respect to
Berry's Creek could also be asserted against the approximately 150 PRPs which the EPA has identified in connection with that site.
Any claim for natural resource damages with respect to the Arsynco site itself may also be asserted against BASF, the former owners
of the Arsynco property. In September 2012, Arsynco entered into an agreement with three of the other PRPs that had previously
been impleaded into New Jersey Department of Environmental Protection, et al. v. Occidental Chemical Corporation, et al., Docket
No. ESX-L-9868-05 (the "NJDEP Litigation") and were considering impleading Arsynco into the same proceeding. Arsynco
entered into an agreement to avoid impleader. Pursuant to the agreement, Arsynco agreed to (1) a tolling period that would not
be included when computing the running of any statute of limitations that might provide a defense to the NJDEP Litigation; (2)
the waiver of certain issue preclusion defenses in the NJDEP Litigation; and (3) arbitration of certain potential future liability
allocation claims if the other parties to the agreement are barred by a court of competent jurisdiction from proceeding against
Arsynco. In July 2015, Arsynco was contacted by an allocation consultant retained by a group of the named PRPs, inviting Arsynco
to participate in the allocation among the PRPs’ investigation and remediation costs relating to the BCSA. Arsynco declined
that invitation. Since an amount of the liability cannot be reasonably estimated at this time, no accrual is recorded for these
potential future costs. The impact of the resolution of this matter on the Company’s results of operations in a particular
reporting period is not currently known.