(

)

Commitments and Contingencies

The Company leases certain of its real property and certain equipment under operating leases with terms ranging from month-to-month to

ten

years and which contain various renewal and rent escalation clauses. Future minimum annual lease commitments under operating leases that have initial or remaining noncancelable lease terms in excess of

one

year as of

December

31,

2016

are as follows (in thousands):

2017	$	789
2018		1,099
2019		1,019
2020		981
2021		997
2022 and thereafter		4,882
Total	$	9,767

Rent expense for the years ended

December

31,

2016

and

2015

totaled approximately

$2,392,000

and

$2,700,000,

respectively.

As of

December

31,

2016,

the Company had outstanding purchase commitments of approximately

$11,711,000

primarily for the acquisition of inventory.

The Company bears insurance risk as a member of a group captive insurance entity for certain general liability, automobile and workers’ compensation insurance programs, a self-insured worker’s compensation program and a self-insured employee health program. The Company records estimated liabilities for its insurance programs based on information provided by the

third

-party plan administrators, historical claims experience, expected costs of claims incurred but not paid, and expected costs to settle unpaid claims. The Company monitors its estimated insurance-related liabilities on a quarterly basis. As facts change, it

may

become necessary to make adjustments that could be material to the Company’s consolidated results of operations and financial condition.

The Company is involved in certain litigation and contract issues arising in the normal course of business. While the outcome of these matters cannot, at this time, be predicted in light of the uncertainties inherent therein, management does not expect that these matters will have a material adverse effect on the consolidated financial position or results of operations of the Company.

The Company accounts for loss contingencies in accordance with U.S. generally accepted accounting principles (GAAP). Estimated loss contingencies are accrued only if the loss is probable and the amount of the loss can be reasonably estimated. With respect to a particular loss contingency, it

may

be probable that a loss has occurred but the estimate of the loss is within a wide range or undeterminable. If the Company deems an amount within the range to be a better estimate than any other amount within the range, that amount will be accrued. However, if no amount within the range is a better estimate than any other amount, the minimum amount of the range is accrued.

During the

fourth

quarter of

2015,

the Company gave notification regarding its intention to not renew the lease for its Tampa, Florida facility, which expired on

December

31,

2016.

During the

first

quarter of

2016,

the Company entered into lease negotiations to extend the current lease for a smaller portion of the facility, but was unable to reach an agreement on the economics of a lease renewal with its current landlord. On

May

2016,

the Company entered a lease for an alternative facility, which it relocated to effective

December

31,

2016.

The Company, Sypris Electronics and the landlord of the Tampa facility are currently involved in litigation over certain terms of the lease (see “Legal Proceedings” in Part I, Item

of this Annual Report on Form

-K.). As such, it is reasonably possible that the Company

may

be required to make certain repairs to the previous facility in connection which the expiration of the lease. The current estimate of the Company’s reasonably possible loss contingency is from

liability to

$4,000,000.

While the Company intends to vigorously dispute these claims, the Company accrued

$500,000

during the year ended

December

31,

2016

related to its estimated potential obligation under the lease. This accrual is included in accrued liabilities in the Company’s consolidated balance sheet as of

December

31,

2016.

The Company has various current and previously-owned facilities subject to a variety of environmental regulations. The Company has received certain indemnifications from either companies previously owning these facilities or from purchasers of those facilities. As of

December

31,

2016

and

2015,

no amounts were accrued for any environmental matters. See “Legal Proceedings” in Part I, Item

of this Annual Report on Form

-K.

December

16,

2016,

the Company received a letter (the “Letter”) from the U.S. Department of Labor (the “DOL”) containing proposed findings related to the DOL’s recent audit of the Company’s

401(k)

Plans for the

five

year period from

2011

through

2015

(collectively, the “Plan”). Among other things, the Letter alleges several potential violations of the Plan documents and ERISA provisions, and requests that the Company take appropriate corrective actions, and to notify the DOL of its responses. On

March

2017,

the Company formally disagreed with all of the DOL’s findings, but has offered a resolution that involves de minimis amounts of additional contributions into the Plan. The Company regards the DOL’s allegations to be without merit and has established a reserve of

$20,000,

which approximates the additional contributions proposed in the Company’s proposed resolution.