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. Avco also sued Arconic, Inc. (“Arconic”), which was the raw material supplier. No specific amount of damages was claimed by Avco and discovery has only recently begun.

Orange disagrees with the allegations made by Avco and has made cross claims against Arconic. 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 charge, 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. A settlement has been reached and the Company received preliminary court approval on July 13, 2020, following a brief COVID-19 delay. The Company previously recorded adequate reserves to cover the settlement.

During the quarter, the Company received notice from the International Association of Machinists and Aerospace Workers Union that they were disclaiming all interest in representing certain hourly employees at the Company’s Cleveland facility. Also, during the quarter, the International Brotherhood of Boilermakers Union filed a petition to represent this same group of hourly employees. A mail ballot election took place in June and the National Labor Relations Board has certified the International Brotherhood of Boilermakers as the elected representative of the Company’s hourly production employees. The Company’s obligations will be more fully understood following the ratification of a collective bargaining agreement.

Recovery on the insurance claim related to the fire on December 26, 2018 at the Orange location continues in fiscal 2020. The Company continues to work diligently to restore the site back to full service as safely and quickly as possible. The 2500 ton press from storage that was placed in service in fiscal 2019 continues to run and the press located in Michigan was taken off-line at the end of November 2019, relocated to Orange and was placed into service in March 2020. Restoration is nearly complete for the structure of the manufacturing building and the presses damaged in the fire. The Company began running one restored press at the end of December 2019, while another restored press began running at the end of July 2020, allowing Orange to have 6 out of 8 presses in production going into the fourth quarter. Two of the six presses damaged in the fire are still in the restoration process. The Company anticipates having those restored at the end of fourth quarter of fiscal 2020.

During the first nine months of fiscal 2020, the Company received cash proceeds from insurance of $8,787 and, separately, the insurance carrier provided $713 of proceeds directly to the landlord for the continued restoration of the damaged building as prescribed under the lease arrangement. The table below reflects the receipt of proceeds and how they were expended as of June 30, 2020. 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, of which $915 was realized in the first nine months of fiscal 2020.



Balance sheet (Other receivables):

September 30, 2019		$	3,500
	Cash proceeds	(8,787		)
	Capital expenditures (equipment)	2,683
	Other expenses	1,689
	Business interruption	915
June 30, 2020		$	—

The tables below reflect how the proceeds received impacted the consolidated condensed statements of operations for the nine months ended and three months ended June 30,2020.



	Nine Months Ended June 30, 2020
	Balance without insurance proceeds			Insurance recoveries		Balance with insurance proceeds
Cost of goods sold	$	73,374		(2,603	)	$	70,771
Gain on insurance proceeds received	$	—		(2,683	)	$	(2,683	)
Income (loss) before income tax (benefit) expense	$	(1,219	)	(5,286	)	$	4,067



	Three Months Ended June 30, 2020
	Balance without insurance proceeds		Insurance recoveries		Balance with insurance proceeds
Cost of goods sold	$	23,944	(316	)	$	23,628
Gain on insurance proceeds received	$	—	(1,683	)	$	(1,683	)
Income (loss) before income tax (benefit) expense	$	284	(1,999	)	$	2,283