(

)

Commitments and Contingencies

The provision for estimated warranty costs is recorded at the time of sale and periodically adjusted to reflect actual experience. The Company’s warranty liability, which is included in accrued liabilities in the accompanying condensed consolidated balance sheets as of

July

2017

and

December 31, 2016

was

$581,000

and

$856,000,

respectively. The Company’s warranty expense for the

three

and

six

months ended

July

2017

and

July 3, 2016

was

not

material.

Additionally, prior to the sale of the CSS product lines (see Note

) the Company sold

three

- and

five

-year extended warranties for certain link encryption products. The revenue from the extended warranties is deferred and recognized ratably over the contractual term. As of

July 2,

2017

and

December

31,

2016,

the Company had deferred

$46,000

and

$162,000,

respectively, related to extended warranties.

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. 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

amount within the range is a better estimate than any other amount, the minimum amount of the range is accrued.

May 3, 2016,

the Company entered into a lease for a manufacturing facility, effective

December

31,

2016.

The Company, Sypris Electronics and the landlord of the previous Tampa facility were involved in litigation over certain terms of the previous lease (see Part II, Item

“Legal Proceedings”). As such, the Company accrued an estimated

$500,000

during the

six

months ended

July

2016,

related to its estimated obligation under the lease and repairs required to be made to the facility. During the

first

six

months of

2017,

the Company had spent

$52,000

in repairs to the facility as part of the dispute. On

April 7, 2017,

the Company entered a settlement agreement, whereby the Company’s net cash outlay was

$448,000

to resolve the disputes and the legal proceeding was dismissed.

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

July

2017

and

December

31,

2016,

amounts were accrued for any environmental matters.

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 notify the DOL of its responses. On

March 3, 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 remaining allegations to be without merit and plans to vigorously defend any potential enforcement action in the future.

As of

July

2017,

the Company had outstanding purchase commitments of approximately

$9,601,000,

primarily for the acquisition of inventory and manufacturing equipment.