COMMITMENTS AND CONTINGENCIES

Leases: As of June 30, 2018, July 1, 2017 and July 2, 2016, the Company did not have any property and equipment financed under capital leases. As of June 30, 2018, the Company has operating leases for certain equipment and production facilities, which expire at various dates during the next ten years.

Future minimum payments under non-cancelable operating leases at June 30, 2018, are summarized as follows (in thousands):



Fiscal Years Ending	Operating Leases
2019	$	6,387
2020	3,128
2021	2,119
2022	1,385
2023	1,308
Thereafter	4,173
Total minimum lease payments	$	18,500

Rental expense under operating leases was approximately $7.1 million, $7.8 million, and $6.6 million during fiscal years 2018, 2017 and 2016, respectively.

Warranty Costs: The Company provides warranties on certain product sales, and allowances for estimated warranty costs are recorded during the period of sale. The determination of such allowances requires the Company to make estimates of product return rates and expected costs to repair or to replace the products under warranty. The Company establishes warranty reserves based on historical warranty costs for each product line combined with liability estimates based on the prior twelve months’ sales activities. As of June 30, 2018 and July 1, 2017, the reserve for warranty costs was approximately $20,000 and $32,000, respectively.

If actual return rates and/or repair and replacement costs differ significantly from estimates, adjustments to recognize additional cost of sales may be required in future periods. Warranty expense for fiscal years 2018, 2017 and 2016 was related to workmanship claims on keyboards and certain EMS products.

Litigation: During the second quarter of fiscal year 2017, the Company commenced the arbitration process with a former customer related to approximately $9.3 million in inventory purchased and approximately $1.9 million in outstanding receivables that we believed should be reimbursed by this former customer based on the terms of the manufacturing agreement. On September 5, 2018, the Company was awarded $6.7 million following the conclusion of the arbitration proceeding. This event, including all related disposal fees, resulted in an approximately $4.5 million before tax one-time loss to fiscal year 2018. The adverse impact net of taxes on net loss was $3.4 million. The effects of the arbitration proceeding has been included in our consolidated financial position, results of operations or cash flows.

Indemnification Rights: Under the Company’s bylaws, the Company’s directors and officers have certain rights to indemnification by the Company against certain liabilities that may arise by reason of their status or service as directors or officers. The Company maintains director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify its directors and officers and former directors in certain circumstances.