(

)

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 consolidated balance sheets as of

September 30,

2018

and

December 31, 2017

was

$570,000

and

$666,000,

respectively. The Company’s warranty expense for the

three

and

nine

months ended

September 30,

2018

and

October

2017

was

not

material.

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.

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

September 30,

2018

and

December

31,

2017,

amounts were accrued for any environmental matters.

December 27, 2017,

the U.S. Department of Labor (the “DOL”) filed a lawsuit alleging that the Company had misinterpreted the language of the Company’s

401

(k) Plans (collectively, the “Plan”). The DOL does

not

appear to dispute that the Company reached such interpretation in good faith and after consulting with independent ERISA counsel. If the DOL’s allegations were upheld by a court, the Company could be required to make additional contributions into the accounts of its Plan participants. The Company regards the DOL’s allegations to be without merit and plans to vigorously defend the matter.

During the year ended

December

31,

2017,

the Company became aware of a lawsuit involving

one

of Sypris Electronics’ customers and its primary distributor. This customer informed the Company that, as a result of the lawsuit, the customer would

longer operate its business, and that it has transferred this business to a designated successor. The Company holds

$969,000

of inventory related specifically to this customer as of

September

30,

2018.

December 21, 2017,

the Company entered into a new supply agreement with the designated successor, which provides for purchases of the aforementioned inventory and additional purchases in excess of our inventories on hand and for prices in excess of our cost. As of

September

30,

2018,

the Company has recognized revenue of

$68,000

under the new supply agreement and has received purchase orders in compliance with the new supply agreement.

assurances can be given that the successor customer will be successful or will continue to comply with the terms of the new agreement, which could adversely affect our ability to recoup any or all of our investment in these inventories. Given the uncertainties described above,

estimate currently can be made of a range of amounts of loss that are reasonably possible should the program with the successor

not

be successful.

As of

September 30, 2018,

the Company had outstanding purchase commitments of approximately

$15,417,000,

primarily for the acquisition of inventory and manufacturing equipment.