COMMITMENTS AND CONTINGENCIES

Leases: As of July 1, 2017, July 2, 2016 and June 27, 2015, the Company did not have any property and equipment financed under capital leases. As of July 1, 2017, the Company has operating leases for certain equipment and production facilities, which expire at various dates during the next eight years.

Future minimum payments under non-cancelable operating leases at July 1, 2017, are summarized as follows (in thousands):



Fiscal Years Ending	Operating Leases
2018	$	6,747
2019	3,979
2020	1,873
2021	1,114
2022	325
Thereafter	854
Total minimum lease payments	$	14,892

Rental expense under operating leases was approximately $7.8 million, $6.6 million, and $3.8 million during fiscal years 2017, 2016 and 2015, 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 July 1, 2017 and July 2, 2016, the reserve for warranty costs was approximately $32,000 and $30,000, 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 2017, 2016 and 2015 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 million in inventory purchased, cancellation fees, and other carrying costs we believe should be reimbursed by this former customer based on the terms of the manufacturing agreement. The Company is actively working through the arbitration process and expects further clarity on the resolution of this matter, whether through negotiations or a scheduled hearing by the end of the calendar year. The Company has not accrued for any potential gains or losses related to this claim and legal costs are being expensed as incurred. The ultimate disposition of these matters could have a material effect on 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.