Note 12 - Commitments and Contingencies

12 Months Ended

Sep. 28, 2019

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

(

1

2

) Commitments and Contingencies

Insurance recoveries.

We maintain general liability, business interruption and replacement cost property insurance coverage on our facilities.

In

August 2018,

a transformer outage and electrical fire occurred at our Dayton, Texas manufacturing facility, which resulted in the temporary curtailment of operations. Alternative power arrangements for the facility were subsequently made that allowed operations to continue until permanent repairs were completed during the

first

quarter of this year. We reached a final settlement on the property damage and business interruption claim with our insurance carrier in the

third

quarter. During

2019,

we received

$2.2

million of insurance proceeds related to the claim that was partially applied against the beginning receivable balance of

$462,000

with the remainder recorded in other income (

$1.1

million), cost of sales (

$645,000

) and SG&A expense (

$48,000

) on the consolidated statements of operations. During

2018,

we received

$183,000

of insurance proceeds related to the claim and recorded a

$462,000

receivable for the anticipated insurance proceeds associated with the expenses incurred as of the end of the year.

In

August 2017,

operations at our manufacturing facility located in Dayton, Texas were adversely affected by hurricane Harvey. We reached a final settlement on the property damage and business interruption claim with our insurance carrier in the

first

quarter of

2019.

During

2019,

we received

$150,000

of proceeds related to this claim of which

$98,000

was recorded in other income on the consolidated statements of operations. During

2018,

we received

$439,000

of insurance proceeds related to the claim and recorded a

$52,000

receivable for the anticipated insurance proceeds associated with the expenses that were incurred and capital outlays required to replace property and equipment damaged in the storm. The insurance proceeds attributable to the additional expenses incurred were recorded in cost of sales (

$439,000

), SG&A expense (

$26,000

) and other income (

$26,000

) on the consolidated statements of operations.

The insurance proceeds attributable to the property and equipment damaged are reported in cash flows from investing activities and all other insurance proceeds received are reported in cash flows from operating activities on the consolidated statements of cash flows.

Leases

and

p

urchase

c

ommitments

.

We lease a portion of our equipment under operating leases that expire at various dates through

2024.

Additionally, we leased our facility in Houston, Texas through

September 30, 2017

and subsequently exercised the

$4.9

million purchase option under the lease in

October 2017.

Under most lease agreements, we pay insurance, taxes and maintenance. Rental expense for operating leases was

$1.6

million in

2019,

$1.5

million in

2018

and

$1.8

million in

2017.

As of

September 28, 2019,

minimum rental commitments under all non-cancelable leases with an initial term in excess of

one

year are payable as follows:

2020

$1.0

million;

2021,

$666,000;

2022,

$256,000;

2023,

$61,000

and

2024

and beyond,

$47,000.

As of

September 28, 2019,

we had

$23.8

million in non-cancelable purchase commitments for raw material extending as long as approximately

100

days and

$2.8

million of contractual commitments for the purchase of certain equipment that had

not

been fulfilled and are

not

reflected in our consolidated financial statements.

Legal proceedings

. We are involved in lawsuits, claims, investigations and proceedings, including commercial, environmental and employment matters, which arise in the ordinary course of business. We do

not

expect the ultimate outcome or cost to resolve these matters will have a material adverse effect on our financial position, results of operations or cash flows.

Seve

rance

and change of control

a

greements.

We have entered into severance agreements with our Chief Executive Officer and Chief Financial Officer that provide them with certain termination benefits in the event their employment with us is terminated without cause. The initial term of each agreement is

two

years and they automatically renew for successive

one

year terms unless we or the executive provide notice of termination as specified in the agreement. In the event of termination of the executive’s employment without cause, these agreements provide that they would receive termination benefits equal to

one

and

one

-half times their annual base salary in effect on the termination date and the continuation of health and welfare benefits for

eighteen

months. In addition, all of the executive’s stock options and restricted stock would vest immediately, and outplacement services would be provided.

We have also entered into change in control agreements with key members of management, including our executive officers, which specify the terms of separation in the event that termination of their employment followed a change in control. The initial term of each agreement is

two

years and they automatically renew for successive

one

year terms unless we or the executive provide notice of termination as specified in the agreement. The agreements do

not

provide assurances of continued employment or specify the terms of an executive’s termination should

one

occur in the absence of a change in control. The compensation payable under the terms of these agreements differs between the Chief Executive Officer and Chief Financial Officer, and the other covered executives. In the event of termination of the Chief Executive Officer or the Chief Financial Officer within

two

years of a change of control, they would receive severance benefits equal to

two

times base compensation,

two

times the average bonus for the prior

three

years and the continuation of health and welfare benefits for

two

years. In the event of such a termination of the other key members of management, including our other

two

executive officers, within

two

years of a change of control, they would receive severance benefits equal to

one

times base compensation,

one

times the average bonus for the prior

three

years and the continuation of health and welfare benefits for

one

year. In addition, for any covered executive that is terminated within

two

years of a change of control, all of their stock options and restricted stock would vest immediately, and outplacement services would be provided.