Commitments and Contingencies

In the normal course of business, the Company may be involved in ordinary, routine legal actions. The Company cannot reasonably estimate future costs, if any, related to these matters; however, it does not believe any such matters are material to its financial condition or results of operations. The Company maintains various liability insurance coverages to protect its assets from losses arising out of or involving activities associated with ongoing and normal business operations; however, it is possible that the Company’s future operating results could be affected by future costs of litigation.

A subsidiary of the Company, Quality Aluminum Forge, LLC ("Orange"), is currently a defendant in a lawsuit filed by Avco Corporation (“Avco”) in the Pennsylvania State Court, which was filed in August 2019, alleging that certain forged pistons delivered by the Orange plant failed to meet material specifications required by Avco. No specific amount of damages was claimed by Avco and no discovery has occurred at this time and Orange disagrees with the allegations made by Avco. Previously, Orange was a defendant with respect to the same action in the United States District Court for the District of Rhode Island, which action was dismissed in connection with the movement of the matter to Pennsylvania State Court. Although the Company records reserves for legal disputes and other matters in accordance with GAAP, the ultimate outcomes of these types of matters are inherently uncertain. Actual results may differ significantly from current estimates. Given the current status of this matter, the Company has not recorded a loss, as the Company does not have a reasonable basis on which to establish an estimate.

The Company is a defendant in a purported class action lawsuit filed in the Superior Court of California, County of Orange, which was filed in August 2017, arising from employee wage-and-hour claims under California law for alleged meal period, rest break, hourly and overtime wage calculation, timely wage payment and necessary expenditure indemnification violations; failure to maintain required wage records and furnish accurate wage statements; and unfair competition, which is similar to the one previously settled in fiscal 2018. As mentioned previously, the Company records reserves for legal disputes and other matters in accordance with GAAP, the ultimate outcomes of these types of matters are inherently uncertain. Actual results may differ significantly from current estimates. Given the current status of this matter, the Company recorded an estimated loss of $250 as of September 30, 2019.

The Company was a defendant in a different class action lawsuit filed in the Superior Court of California, County of Orange, arising from employee wage-and-hour claims under California law for alleged meal period, rest break, hourly and overtime wage calculation, timely wage payment and necessary expenditure indemnification violations; and unfair competition related to fiscal 2017. The Company had previously recorded an estimate and settled the case in fiscal 2018. In fiscal 2018, an additional $11 was incurred and $391 was paid during the second quarter of fiscal 2018.

On December 26, 2018, the Orange location experienced a fire at its manufacturing facility, causing damage to one of three manufacturing buildings. The building that was damaged housed six of the eight presses on site. The Company is fully insured and actively working with its insurance carrier to restore the site to full service as safely and quickly as possible. As of September 30, 2019, the Company has recorded insurance proceeds of $11,986, of which $8,486 has been received. The fire also destroyed a leased building, which in accordance with its lease agreement, the Company is responsible to restore the property to full replacement value. With the Company being fully insured, the restoration of the property is covered and the insurance carrier has separately funded a partial payment of insurance proceeds as of September 30, 2019 to the landlord for the restoration of the damaged building as prescribed under the lease arrangement in the amount of $2,878. The table below reflects the receipt of proceeds and how they were expended as of September 30, 2019. Any additional recoveries in excess of recognized losses are treated as gain contingencies and will be recognized when the gain is realized or realizable. The Company also maintains business interruption insurance coverage and continues to work with the insurance company to reach an agreement on the recoverable amounts of business interruption expenses. As noted within the table below, payments totaling $1,168 were made towards this coverage as of September 30, 2019 and is reflected within the cost of goods sold line within the consolidated financial statements as of September 30, 2019.



Balance sheet (Other receivables):

September 30, 2018		$	—
	Cash received	(8,486		)
	Capital expenditures (equipment)	8,355
	Other expenses	2,463
	Business interruption	1,168
September 30, 2019		$	3,500

The following table reflects how the proceeds received impacted the consolidated statements of operations as of September 30, 2019.



	Years Ended September 30, 2019
	Balance without insurance proceeds			Insurance recoveries			Balance with insurance proceeds
Cost of goods sold	$	105,448		$	(3,631	)	$	101,817
Loss (gain) on disposal and impairment of assets	820			(8,355		)	(7,535		)
Net loss	(19,492		)	(11,986		)	(7,506		)

Included within the gain on disposal and impairment of assets in the consolidated statements of operations is approximately $1,107 in impairment charges for the equipment damaged by the fire offset by insurance proceeds received. For the long-lived assets that were not damaged as a result of the fire, the Company performed a separate evaluation of these assets. In accordance with Topic 360, the fire resulted in a triggering event as of December 31, 2018, requiring an interim assessment to determine if the carrying amount of long-lived assets are recoverable. As noted within Topic 360, an impairment loss shall be recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. The results of management's analysis indicated that the remaining long-lived assets as of December 31, 2018 were recoverable and continue to be as of September 30, 2019.

The Company leases certain facilities, machinery and equipment, and office buildings under long-term leases. The leases generally provide renewal options and require the Company to pay for utilities, insurance, taxes and maintenance. The Company recorded rent expense of $2,391 and $2,522 in fiscal 2019 and 2018, respectively. Included in rent expense are lease payments related to the Company's Orange facility for which the lease payments commenced in December 2016 and expire in 2036.

At September 30, 2019, minimum rental commitments under non-cancelable leases are as follows:



Year ending September 30,	Finance Leases			Operating Leases
2020	$	61		$	2,172
2021	61			1,865
2022	21			1,583
2023	6			1,502
2024	—			1,498
Thereafter	—			16,711
Total minimum lease payments	$	149		$	25,331
Less: Amount representing interest	(11		)
Present value of minimum lease payments	$	138

Amortization of the cost of equipment under capital leases is included in depreciation expense. At September 30, assets recorded under capital leases consist of the following:



	2019			2018
Machinery and equipment	$	380		$	638
Accumulated depreciation	(117		)	(278		)