What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-16 compared with 2020-03-05 · 326 added, 282 removed, 97 unchanged (86% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company’s fiscal year ends on the Saturday nearest to December 31.

Fiscal Years, 2019 and 2018 were each 52 weeks in length.

References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to results for “2019” or “fiscal year 2019” mean the fiscal year ended December 28, 2019, and references to results for “2018” or “fiscal year

2018” mean the fiscal year ended December 29, 2018.

Fiscal year 2020 was 53 weeks in length and fiscal year 2019 was 52 weeks in length.

References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to results for “2020” or “fiscal year 2020” mean the fiscal year ended January 2, 2021, and references to results for “2019” or “fiscal year 2019” mean the fiscal year ended December 28, 2019.

References to the “fourth quarter of 2020” or the “fourth fiscal quarter of 2020” mean the thirteen-week period from October 4, 2020 to January 2, 2021, and references to the “fourth quarter of 2019” or the “fourth fiscal quarter of 2019” mean the thirteen-week period from September 29, 2019 to December 28, 2019.

Sales for 2020 were $240.4 million compared to $251.7 million for 2019.

Net income for 2019 was $13.3 million, or $2.12 per diluted share, compared to $14.5

million, or $2.31 per diluted share, for 2018.

Net income for 2020 was $5.4 million, or $0.86 per diluted share, compared to $13.3 million, or $2.12 per diluted share, for 2019.

Sales for the fourth quarter of 2020 were $60.4 million compared to $68.7 million for the same period in 2019.

Net income for the fourth quarter of 2019 was $5.0 million, or $0.79 per diluted share

compared to $4.4 million, or $0.70 per diluted share, for the comparable 2018 period.

The fourth quarter 2019 operating results include three months of Big 3 Precision sales and earnings while the full fiscal year includes four months of sales and

Net income for the fourth quarter of 2020 was $1.4 million, or $0.23 per diluted share compared to $5.0 million, or $0.79 per diluted share, for the comparable 2019 period.

Fourth quarter 2019 operating results included three months of Big 3 Precision sales and earnings while the full fiscal year included four months of Big 3 Precision sales and earnings.

Big 3 Precision was acquired on August 30, 2019.

The dollar amount of the backlog of orders received by the Company increased as of the fiscal year ended December 28, 2019.

Such backlogs were $71,200,000 at

December 28, 2019, as compared to $46,888,000 at December 29, 2018.

The primary reasons for the change from 2018 to 2019 were significant backlog increases as the result of the acquisition of Big 3 Precision, stronger sales and a delay of year-end

orders at Eberhard Manufacturing, and the timing of orders received from customers.

The Company anticipates continued growth in sales and earnings in fiscal 2020 primarily as a result of the acquisition of Big 3 Precision, new mirror program for Class

8 trucks being awarded to our Velvac subsidiary, and new products launches at the Eberhard Manufacturing and Illinois Lock businesses.

The Company believes that as new programs and products launch, these will offset the impact from a forecasted 25-30%

decline in Class 8 truck production and continued softening in the recreational vehicle market in 2020.

During 2019 and the last half of 2018, the Company experienced price decreases for many of the raw materials used in producing its products, including:

iron, stainless steel, hot and cold rolled steel, zinc, copper and aluminum while nickel prices increased.

Raw material prices were beginning to increase in the latter half of the fourth quarter.

These increases could negatively impact the Company’s

gross margin if raw material prices increase too rapidly for the Company to recover those cost increases through either price increases to our customers or cost reductions in other areas of the business.

On January 15, 2020 the United States and China signed the U.S.-China Phase One trade deal which among other things rolls back tariffs on $120

billion worth of Chinese products from 15% to 7.5% effective February 14, 2020 and the U.S.

agreed to not to proceed with the 15% tariffs on $160 billion worth of consumer goods which was scheduled to take effect December 15, 2019.

However, the 25%

tariffs on $250 billion of Chinese imports will remain in effect subject to further reductions depending on the progress of future negotiations.

If China does not follow through their agreed upon commitments and tariffs are reinstated on $550 billion

of Chinese products at the 25% rate, it could result in a loss of business and possible reduced margins if the tariffs cannot be recovered in higher selling prices.

The value of the backlog of orders received by the Company increased as of January 2, 2021, compared to December 28, 2019.

The Company’s backlog was $85.0 million on January 2, 2021, as compared to $71.2 million on December 28, 2019.

The primary reasons for growth from 2019 to 2020 were an increase of $4.6 million in blow mold tooling backlog at our Big 3 Mold subsidiary including $0.8 million in backlog from the acquisition of Hallink Moulds;

an increase of $ 3.2 million in backlog for locks and hardware at Eberhard due to new product launches;

an increase of $3.8 million in backlog related to launch of new mirror program for Class 8 trucks being awarded to our Velvac subsidiary;

and new orders received by Frazer & Jones, which added $10.9 million in backlog for mining products.

Backlog declined at Big 3 Products for returnable packaging by $0.8 million and at Argo EMS for printed circuit boards by $2.0 million.

During the fourth quarter of 2020 the Company experienced price increases for many of the raw materials used in producing its products, including:

scrap iron, stainless steel, hot and cold rolled steel, zinc, copper, aluminum and nickel.

These increases could negatively impact the Company’s gross margin if raw material prices increase too rapidly for the Company to recover those cost increases through either price increases to our customers or cost reductions in other areas of the business.

On January 15, 2020 the United States and China signed the U.S.-China Phase One trade deal, which among other things rolled back tariffs on $120 billion worth of Chinese products from 15% to 7.5% effective February 14, 2020 and the U.S.

agreed not to proceed with the 15% tariffs on $160 billion worth of consumer goods which was scheduled to take effect December 15, 2019.

However, the 25% tariffs on $250 billion of Chinese imports will remain in effect subject to further reductions depending on the progress of future negotiations.

If China does not follow through their agreed upon commitments and tariffs are reinstated on $550 billion of Chinese products at the 25% rate, it could result in a loss of business and possible reduced margins if the tariffs cannot be offset by higher selling prices.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States (“U.S.

GAAP”) requires management to

make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses.

Areas of uncertainty

that require judgments, estimates and assumptions include items such as the accounting for derivatives;

GAAP”) requires management to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses.

Areas of uncertainty that require judgments, estimates and assumptions include items such as the accounting for derivatives;

environmental matters;

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proceeds on assets to be sold;

pensions and other

postretirement benefits;

pensions and other postretirement benefits;

and tax matters.

Management uses historical experience and all available information to make its estimates and assumptions, but actual results will inevitably differ from the estimates and assumptions that are used to

prepare the Company’s financial statements at any given time.

Despite these inherent limitations, management believes that Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and related

footnotes provide a meaningful and fair presentation of the Company.

Management believes that the application of these estimates and assumptions on a consistent basis enables the Company to provide the users of the financial

statements with useful and reliable information about the Company’s operating results and financial condition.

Despite these inherent limitations, management believes that Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and related footnotes provide a meaningful and fair presentation of the Company’s financial position and results of operations.

Management believes that the application of these estimates and assumptions on a consistent basis enables the Company to provide the users of the financial statements with useful and reliable information about the Company’s operating results and financial condition.

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.

Company reviews the collectability of its receivables on an ongoing basis, taking into account a combination of factors.

The Company reviews potential problems, such as past due accounts, a bankruptcy filing or deterioration in the customer’s financial

condition, to ensure that the Company has adequately accrued for potential loss.

The Company reviews the collectability of its receivables on an ongoing basis, taking into account a combination of factors.

The Company reviews potential problems, such as past due accounts, a bankruptcy filing or deterioration in the customer’s financial condition, to ensure that the Company has adequately accrued for potential loss.

Accounts are considered past due based on when payment was originally due.

If a customer’s situation changes, such as a bankruptcy or its creditworthiness, or there is a

change in the current economic climate, the Company may modify its estimate of the allowance for doubtful accounts.

The Company will write off accounts receivable after reasonable collection efforts have been made and the accounts are deemed

uncollectible.

If a customer’s situation changes, such as a bankruptcy or a change in its creditworthiness, or there is a change in the current economic climate, the Company may modify its estimate of the allowance for doubtful accounts.

The Company will write off accounts receivable after reasonable collection efforts have been made and the accounts are deemed uncollectible.

Inventories are valued at the lower of cost or net realizable value.

Cost is determined by the last-in, first-out (“LIFO”) method at the Company’s U.S.

facilities, with the exception of Big 3 Precision and Velvac, which are valued on a first-in, first-out (“FIFO”) method.

Accordingly, a LIFO valuation reserve is calculated using the dollar value link chain method.

We review the net realizable value of inventory in detail on an ongoing basis, giving consideration to deterioration, obsolescence and other factors.

on these assessments, we provide for an inventory reserve in the period in which an impairment is identified.

Based on these assessments, we provide for an inventory reserve in the period in which an impairment is identified.

The reserve fluctuates with market conditions, design cycles and other economic factors.

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Intangible assets with finite useful lives are generally amortized on a straight-line basis over the periods benefited.

Goodwill and other intangible assets

with indefinite useful lives are not amortized.

The Company performed its most recent qualitative assessment as of the end of fiscal 2019 and determined that it is more likely than not that no impairment of goodwill existed at the end of 2019.

Company will perform annual qualitative assessments in subsequent years as of the end of each fiscal year.

Additionally, the Company will perform interim analysis whenever conditions warrant.

Goodwill and other intangible assets with indefinite useful lives are not amortized.

In December, 2020 the Company announced that the Eberhard Hardware Manufacturing Ltd.

subsidiary in Ontario, Canada would be closed and all tangible assets would be moved to Eberhard Manufacturing division in Cleveland, Ohio.

As a result, approximately $1.0 million of goodwill associated with Eberhard Hardware Manufacturing Ltd.

was impaired and written off the books in December 2020.

The Company performed its qualitative assessment as of the end of fiscal 2020 on the remainder of its companies and determined that it is more likely than not that no impairment of goodwill existed at the end of 2020 on those companies holding goodwill at the entity level.

See Note 3 – Accounting Policies – Goodwill , in Item 8, Financial Statements and Supplementary Data for more detail.

The Company will perform annual qualitative assessments in subsequent years as of the end of each fiscal year.

Additionally, the Company will perform an interim analysis whenever conditions warrant.

Pension and Other Postretirement Benefits

The amounts recognized in the consolidated financial statements related to pension and other postretirement benefits are determined from actuarial

Inherent in these valuations are assumptions about such factors as expected return on plan assets, discount rates at which liabilities could be settled, rate of increase in future compensation levels, mortality rates, and trends in health

insurance costs.

The amounts recognized in the consolidated financial statements related to pension and other postretirement benefits are determined from actuarial valuations.

These assumptions are reviewed annually and updated as required.

In accordance with GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, affect the expense recognized

and obligations recorded in future periods.

The discount rate used is based on a single equivalent discount rate derived with the assistance of our actuaries by matching expected future benefit

payments in each year to the corresponding spot rates from the FTSE Pension Liability Yield Curve, comprised of high quality (rated AA or better) corporate bonds.

Effective January 1, 2017, the Company elected to refine its approach for calculating

its service and interest costs in future years by applying the specific spot rates along the selected yield curve to the relevant projected cash flows.

The Company believes this method more precisely measures its obligations.

In accordance with U.S.

GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, affect the expense recognized and obligations recorded in future periods.

The discount rate used is based on a single equivalent discount rate derived with the assistance of our actuaries by matching expected future benefit payments in each year to the corresponding spot rates from the FTSE Pension Liability Yield Curve, comprised of high quality (rated AA or better) corporate bonds.

The Company calculates its service and interest costs in future years by applying the specific spot rates along the selected yield curve to the relevant projected cash flows.

The expected long-term rate of return on assets is also developed with input from the Company’s actuarial firms.

We consider the Company’s historical

experience with pension fund asset performance, the current and expected allocation of our plan assets and expected long-term rates of return.

The long-term rate-of-return assumption used for determining net periodic pension expense was 7.5% for 2019

We consider the Company’s historical experience with pension fund asset performance, the current and expected allocation of our plan assets and expected long-term rates of return.

The long-term rate-of-return assumption used for determining net periodic pension expense was 7.5% for 2020 and 2019.

The Company reviews the long-term rate of return each year.

Future actual pension income and expense will depend on future investment performance, changes in future discount rates and various other factors related to

the population of participants in the Company’s pension plans.

Future actual pension income and expense will depend on future investment performance, changes in future discount rates and various other factors related to the population of participants in the Company’s pension plans.

The Company expects to make cash contributions of approximately $3,100,000 and $50,000 to our pension plans and other postretirement plan, respectively, in 2021.

In connection with our pension and other postretirement benefits, the Company reported an expense of $2.7 million and $0.2 million expense (net of tax) on

its Consolidated Statement of Comprehensive Income for Fiscal Years 2019 and 2018, respectively.

In connection with our pension and other postretirement benefits, the Company reported an expense of $5.7 million and $2.7 million (net of tax) on its Consolidated Statement of Comprehensive Income for fiscal years 2020 and 2019, respectively.

The main factor driving this expense was the change in the discount rate during the applicable period.

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Discount rate

3.18% - 3.23%

4.20% - 4.22%

Expected return on plan assets

Rate of compensation increase

Assumptions used to determine net periodic other postretirement benefit cost are the same as those assumptions used for the pension benefit cost, except that

the rate of compensation is not applicable for other postretirement benefit cost.

The changes in assumptions had the following effect on the net periodic pension and other postretirement costs recorded in Other Comprehensive Income as

Assumptions used to determine net periodic other postretirement benefit cost are the same as those assumptions used for the pension benefit cost, except that the rate of compensation is not applicable for other postretirement benefit cost.

The changes in assumptions had the following effect on the net periodic pension and other postretirement costs recorded in Other Comprehensive Income as follows:

Discount rate

Mortality table

$ (10,824,709 )

$ (12,552,989 )

Additional recognition due to significant event

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Comprehensive income, net of tax

The Plan has been investing a portion of the assets in long-term bonds in an effort to better match the impact of changes in interest rates on its assets and

liabilities and thus reduce some of the volatility in Other Comprehensive Income.

Please refer to Note 11 – Retirement Benefit Plans in Item 8 of this Form 10-K for additional disclosures concerning the

Company’s pension and other postretirement benefit plans.

Software Development Costs

Software development costs, including costs to develop software sold, leased, or otherwise marketed, that are incurred subsequent to the establishment of

technological feasibility are capitalized if significant.

Costs incurred during the application development stage for internal-use software are capitalized if significant.

Capitalized software development costs are amortized using the straight-line

amortization method over the estimated useful life of the applicable software.

Such software development costs required to be capitalized have not been material to date.

$ (5,695,386 )

$ (2,675,007 )

The Plan has been investing a portion of the assets in long-term bonds in an effort to better match the impact of changes in interest rates on its assets and liabilities and thus reduce some of the volatility in Other Comprehensive Income.

Please refer to Note 10 – Retirement Benefit Plans in in Item 8, Financial Statements and Supplementary Data of this Form 10-K for additional disclosures concerning the Company’s pension and other postretirement benefit plans.

RESULTS OF OPERATIONS

Fourth Quarter 2020 Compared to Fourth Quarter 2019

The following table shows, for the fourth quarter of 2019 and 2018, selected line items from the consolidated statements of income as a percentage of net

sales, by segment.

The following table shows, for the fourth quarter of 2020 and 2019, selected line items from the consolidated statements of income as a percentage of net sales, by segment.

The Company now reports under two segments:

Engineered Solutions and Diversified Products.

The Engineered Solutions segment includes (1) Big 3 Precision, including Big 3 Products and Big 3 Mold, Hallink Moulds, and Associated Toolmakers Ltd.;

(2) Eberhard Manufacturing Company, Eberhard Hardware Manufacturing Ltd., Eastern Industrial Ltd., Illinois Lock Company/CCL Security Products, World Lock Company Ltd., Dongguan Reeworld Security Products Ltd., and World Security Industries Ltd.;

and (3) Velvac Holdings.

The Diversified Products segment consists of Frazer & Jones;

Greenwald Industries;

and Sesamee Mexicana.

In the fourth quarter of 2019, the Diversified segment includes the CCV.

2020 Fourth Quarter

2 unchanged sentences

Selling and Administrative Expense

Goodwill Impairment Loss

Loss on Disposition of Subsidiary

Restructuring Costs

Operating Profit

3 unchanged sentences

Selling and Administrative Expense

Goodwill Impairment Loss

Loss on Disposition of Subsidiary

Restructuring Costs

Operating Profit

Net sales in the fourth quarter of 2019 increased 21% to $68.7 million from $56.6 million a year earlier.

growth reflects the Big 3 Precision acquisition which the Company acquired on August 30, 2019.

Sales increased in the Industrial Hardware segment by 46% to $49.2 million in the fourth quarter of 2019 from $33.7 million in the fourth quarter of 2018.

Excluding Big 3 Precision, sales decreased 3% in the fourth quarter of 2019 as compared to sales in the fourth quarter of 2018 due to lower sales to Class 8 trucks and specialty vehicles partly offset by the impact of new program launches and stronger

sales to military customers.

Sales in the Security Products segment decreased 13% in the fourth quarter of 2019 compared to the fourth quarter of 2018 as late year product launches were insufficient to offset lower demand for commercial laundry

payment products and point of sale security products, as well the loss of supply contracts for mechatronic padlock systems and recreational vehicles door latches.

Sales in the Metal Products segment decreased 18% in the fourth quarter of 2019 from

sales in the fourth quarter of 2018.

Sales of mining products decreased 11% while sales of industrial casting products decreased 30% in the fourth quarter of 2019 compared to the fourth quarter of 2018.

Mining sales in the fourth quarter were

affected by a business combination between two customers and the filing for bankruptcy protection from one of the largest coal mines in the U.S.

Industrial castings in the fourth quarter were negatively affected by the loss of a customer who suffered

a foundry fire in 2018 and temporarily sourced its products from our facility.

Net sales in the fourth quarter of 2020 decreased 12% to $60.4 million from $68.7 million a year earlier.

Sales decreased in the Engineered Solutions segment by 8% to $50.6 million in the fourth quarter of 2020 from $54.7 million in the fourth quarter of 2019 due to lower demand for trucks accessories, distribution products and automotive returnable packaging as a result of the delay in new automotive launches, partly offset by the impact of new program launches and stronger sales of blow mold tooling and related services.

Sales in the Diversified Products segment decreased 30% to $9.9 million in the fourth quarter of 2020 compared to $14.0 million in fourth quarter of 2019 as the result of the sale of Canadian Commercial Vehicles in June 2020 and lower demand for mining products, industrial castings, commercial laundry products, and printed circuit boards.

Sales of new products contributed 4% to sales growth in the fourth quarter compared to 5% of sales growth from new products in the fourth quarter of 2019.

New products in the fourth quarter included a new hood mount truck mirror, line haul truck mirror a modular toolbox latching system, and electronic activated latching system.

Cost of products sold in the fourth quarter of 2019 increased by $8.8 million or 21% from the corresponding period in

The increase in cost of products sold is attributable to the Big 3 Precision acquisition.

Without Big 3 Precision cost of products sold would have decreased by 10% reflecting the decrease in core business sales volume.

Gross margin as a percentage of net sales for the fourth quarter of 2019 remained comparable to 26% for the fourth

quarter of 2018 at 26%.

Product development expenses as a percentage of sales in the fourth quarter of 2019 decreased by 58% as compared to

the fourth quarter in 2018.

The decrease relates to the closure of the Velvac Road-iQ development operations in Bellingham, Washington in the second quarter of 2019 as the Company adopted a leaner approach to the development of new vision products.

Selling and administrative expenses in the fourth quarter of 2019 increased 31% as compared to the fourth quarter of

The increase is primarily due to the acquisition Big 3 Precision acquisition.

RESULTS OF OPERATIONS

New products in the fourth quarter included various new truck mirrors, a truck compression latch, a cable lock, a mirror cam and a mobile payment app.

Cost of products sold in the fourth quarter of 2020 decreased $3.3 million or 7% from the corresponding period in 2019.

The decrease in cost of products sold is primarily attributable to the reduced sales volume.

During the fourth quarter of 2020, material costs have increased substantially over the third quarter of 2020 for hot rolled steel by 81%;

cold rolled steel by 53%;

aluminum by 16%;

copper and nickel by 23%;

zinc by 17% and scrap iron by 30%.

Gross margin as a percentage of net sales for the fourth quarter of 2020 was 22% compared to 26% in the prior year fourth quarter.

The decrease reflects the combination of higher raw material cost and a decline in facility utilization due to lower sales in the fourth quarter of 2020.

Product development expenses in the fourth quarter of 2020 of $0.7 million were down 11% when compared to the fourth quarter of 2019.

As a percentage of net sales, product development costs were 1.2% and 1.1% for the fourth quarter of 2020 and 2019 respectively.

Selling and administrative expenses in the fourth quarter of 2020 decreased 26% compared to the fourth quarter of 2019.

The decrease was primarily the result of the Company’s initiatives to reduce payroll and payroll related expenses, reduce travel expenses, and other expense reduction initiatives.

Goodwill impairment expense of $1.0 million was incurred in the fourth quarter of 2020 as the Company announced the closure of Eberhard Hardware Manufacturing Ltd.

in Ontario, Canada.

Restructuring expenses of $0.7 million for severance expenses were incurred in the fourth quarter of 2020 due to the closure of Eberhard Hardware Manufacturing Ltd.

Loss on disposal of subsidiary of $2.2 million was incurred in the fourth quarter of 2020 in recognizing the cumulative effects for foreign currency translation on Sesamee Mexicana and CCV.

Net income for the fourth quarter of 2020 decreased 72% to $1.4 million, or $0.23 per diluted share, from $5.0 million, or $0.79 per diluted share, in 2019.

In the fourth quarter of 2020, net income was negatively impacted by non-cash goodwill impairment charges of $0.7 million net of tax, non-recurring restructuring, factory relocation, and transaction costs of $0.9 million net of tax, and a loss on disposition of Sesamee Mexicana and CCV of $1.6 million net of tax.

Fiscal Year 2020 Compared to Fiscal Year 2019

The following table shows, for fiscal year 2019 and fiscal year 2018, selected line items from the consolidated statements of income as a percentage of net

sales, by segment.

The following table shows, for fiscal year 2020 and fiscal year 2019, selected line items from the consolidated statements of income as a percentage of net sales, by segment.

The Company now reports under two segments:

Engineered Solutions and Diversified Products.

The Engineered Solutions segment includes (1) Big 3 Precision, including Big 3 Products and Big 3 Mold, Hallink Moulds and Associated Toolmakers Ltd.;

(2) Eberhard Manufacturing Company, Eberhard Hardware Manufacturing Ltd., Eastern Industrial Ltd., Illinois Lock Company/CCL Security Products, World Lock Company Ltd.

and Dongguan Reeworld Security Products Ltd.;

World Security Industries Ltd.;

and (3) Velvac Holdings.

The Diversified Products segment consists of Frazer & Jones ;

Greenwald Industries;

Sesamee Mexicana;

Financial measures presented below as “excluding Big 3 Precision” are non-GAAP financial measures.

Fiscal Year 2020

2 unchanged sentences

Selling and Administrative Expense

Goodwill Impairment Loss

Loss on Disposition of Subsidiary

Restructuring Costs

4 unchanged sentences

Selling and Administrative Expense

Goodwill Impairment Loss

Loss on Disposition of Subsidiary

Restructuring Costs

Operating Profit

Net sales for 2019 increased 8% to $251.7 million from $234.3 million in 2018.

Sales growth in 2019 reflects four

months of sales from the Big 3 Precision acquisition, which the Company closed on August 30, 2019.

Excluding the effects of Big 3 Precision, sales would have been comparable to 2018.

Sales volume of existing products grew by 10% in 2019 primarily as

the result of the Big 3 acquisition and increased sales to our existing Class 8 truck and distribution customers.

Net sales in the Security Products segment decreased approximately 10% in 2019 due to lower demand for commercial laundry payment

products and point of sale security products, as well the loss of supply contract for mechatronic padlock systems and recreational vehicle door latches.

The Metal Products segment’s net sales decreased 1% in 2019 as compared to 2018 primary due to a

slowdown in the coal mining industry and the loss of a customer, whose foundry was down due to a fire in 2018 but has since recovered.

The last shipment to that customer was in July of 2019.

Net income for 2019 decreased 9% to $13.3 million, or $2.12 per diluted share, from $14.5 million, or $2.31 per

diluted share, in 2018.

In 2019, net income was adversely affected by non-recurring restructuring cost of $3.9 million net of tax, associated with the discontinuation of Road-iQ, a subsidiary of Velvac, and the consolidation of our Composite Panel

Technologies facility, as well as an increase in M&A related expense incurred in the twelve months of 2019.

Industrial Hardware Segment

Net sales in the Industrial Hardware segment increased 17% in 2019 from net sales for 2018.

Without Big 3 Precision

sales increased $2.9 million or 2% from 2018 level.

Sales volume of products increased 10% due to the acquisition of Big 3 Precision.

Without Big 3 Precision sales volume of legacy products decreased by 5% as we are replacing these products with new

products, which contributed 7% to the sales increase.

New product sales include a new hood mount truck mirror, line haul truck mirror, modular toolbox latching system, an electronic activated latching system and various composite panels.

Cost of products sold in the Industrial Hardware segment increased $18.8 million or 18% from cost of products sold

The increase in the cost of products sold primarily reflects the Big 3 acquisition in August of 2019.

Without the effects of Big 3 acquisition, material cost increased $3.0 million or 3.9% reflecting a higher percentage of material consumed

relative to sale from producing a new Class 8 truck mirror that was awarded in 2018.

This mirror required the resourcing of components to lower cost suppliers which took longer than was originally anticipated due to the requirement that the components

must go through a Production Parts Approval Process (PPAP) which requires customer approval prior to implementation.

This product PPAP has been completed and components resourced to our lower cost vendors during the fourth quarter.

increased $1.0 million or 16% over 2018 level due to expedited shipment resulting from a slowdown, earlier in the year, at the Port of Long Beach, California.

Tariffs incurred during the year were $2.0 million from China-sourced products.

of the tariffs were recovered through price increases.

The cost increases were partially offset through cost reduction initiatives of $2.0 million in labor reductions, supplies and tools, manufacturing and engineering salaries, consulting and other

administrative expenses.

During 2019, metal prices decreased, hot rolled steel was down 30%, cold rolled steel was down 18%, aluminum down 12% and zinc down 14% which had a favorable effect on our overall material cost.

However, during the fourth

quarter of 2019 metal prices have started to increase which could have a negative impact on our margins in 2020 if they continue to rise.

Gross margin as a percentage of sales decreased from 25% in 2018 to 24% in 2019.

The decrease reflects the

combination of product mix and the startup cost incurred in the launch of the aforementioned truck mirror program in 2019.

Net sales for 2020 decreased 5% to $240.4 million from $251.7 million in 2019.

The sales decline is primarily due to the decision by many of our industrial and consumer goods customers to close operations as a result of the COVID-19 pandemic and the divestiture of CCV.

Sales in 2020 reflect a full year of sales from the Big 3 Precision Acquisition, as compared to four months of sales in 2019.

Excluding the effects of Big 3 Precision, which closed on August 30, 2019, sales would have been $186.8 million in 2020 compared to $230.4 million in 2019, a decrease of 18.9%.

Sales volume of existing products decreased by 9% in 2020 compared to 2019 while price increases and new products increased sales in 2020 by 4%.

Net income for 2020 decreased 59% to $5.4 million, or $0.86 per diluted share, from $13.3 million, or $2.12 per diluted share, in 2019.

In 2020, net income was negatively impacted by $6.8 million in non-recurring costs, net of tax, including goodwill impairment charges of $3.7 million net of tax, one-time restructuring, factory relocation, and transaction costs of $1.5 million net of tax, and a loss on disposition of Sesamee Mexicana and CCV of $1.6 million net of tax.

Net income for 2019 was adversely affected by non-recurring restructuring costs of $3.9 million net of tax associated with the discontinuation of Road-iQ, a subsidiary of Velvac, and the consolidation of our Composite Panel Technologies facility, as well as an increase in M&A related expense incurred in 2019.

Engineered Solutions

Net sales in the Engineered Solutions segment increased 6% in 2020 to $197.6 million from $186.8 million when compared to 2019.

Without Big 3 Precision sales would have been $144.0 million or a decrease of 13% from $165.4 million in 2019.

Sales volume of existing products increased 1% due to the acquisition of Big 3 Precision.

Excluding Big 3 Precision, sales volume of existing products decreased by 17%, partially offset by price increases and new products which contributed 5% to increased sales.

New product sales include various new truck mirrors, a truck compression latch, a cable lock and a mirror cam.

Cost of products sold in the Engineered Solutions segment increased $14.3 million or 11% to $149.4 million from $135.1 million in 2019.

In 2020 cost of products sold include twelve months of Big 3 Precision expenses whereas 2019 only included 4 months of Big 3 Precision expenses.

Excluding the Big 3 Precision Acquisition, cost of products sold would have been $108.6 million in 2020 compared to $118.7 million in 2019, a decrease of $10.1 million or 9%.

Freight costs are down due to lower sales but freight costs are increasing and ports backlogged in processing container ships are causing delays in meeting scheduled shipping dates.

Metal prices have increased year over year for hot rolled steel by 86%;

cold rolled steel by 44%;

copper by 35%;

nickel by 18% and zinc by 16%.

Much of the increase came in the fourth quarter of 2020.

Many of our supply contracts contain price adjustment clauses when material cost increase by a certain percentage.

Tariffs incurred during 2020 were $2.6 million from China-sourced products as compared to $2.7 million in 2019.

A majority of the tariffs were recovered through price increases.

Excluding the Big 3 Precision Acquisition, costs are down primarily due to lower volume and cost initiatives in cutting payroll and payroll-related expenses by $3.6 million, freight by $2.5 million, shipping expenses by $0.7 million and other expenses by $0.3 million.

However, during 2020 our factories’ productive capacity was underutilized, resulting in $2.1 million in unabsorbed overhead cost which negatively impacted our gross margin in 2020.

Gross margin as a percentage of sales was 24% in 2020 as compared to 28% in 2019.

The decrease reflects the combination of higher raw material costs and a decline in facility utilization due to lower sales in 2020.

Product development expenses as a percentage of sales decreased to 1% in 2020 from 3% in 2019.

The decrease relates

to the closure of the Velvac Road-iQ development operations in Bellingham Washington in the second quarter of 2019 as the Company adopted a leaner approach to the development of new vision products.

Selling and administrative expenses in the Industrial Hardware segment increased $3.7 million or 18% in 2019 from the

The increase in selling and administrative expenses in 2019 reflect the Big 3 Precision acquisition in August 2019.

Security Products Segment

Net sales in the Security Products segment decreased 10% in 2019 from the 2018 level.

volume of existing products decreased 13% while price and new products contributed 3%.

Sales growth from the Load N Lock business which was acquired in June 2018 partially offset the impact of lower demand for commercial laundry payment products and

point of sale security products, as well the loss of supply contracts for mechatronic padlock systems and recreational vehicles market door latches.

New product sales include a vehicular power lock module, an electronic switch lock for the mass transit

industry, a key lock for the storage industry, a canopy lock assembly for the vehicle industry and a mobile payment app for the commercial laundry industry.

Cost of products sold in the Security Products Segment decreased by $4.7 million or 11% in 2019 from 2018.

decrease in cost of products sold was primarily attributable to the decrease in sales volume which resulted in lower material cost of $2.9 million and lower factory payroll cost of $1.3 million.

The cost of zinc decreased by 14% and the cost of copper

decreased by 1% year over year.

The Company experienced tariff costs on China-sourced products of $0.9 million in 2019, which were not incurred in the comparable periods of 2018.

The majority of the tariffs have been recovered through price

Gross margin as a percentage of sales in the Security Products segment increased to 32% compared to the 2018 level of

Product development expenses increased $0.5 million or 27% to $2.6 million from the 2018 level of $2.0 million.

Company continues to invest in the development of new products for our customers to replace legacy product being phased out.

Selling and administrative expenses in the Security Products segment decreased by $1.7 million or 15% in 2019 from

The most significant factors resulting in changes in selling and administrative expenses were decrease in bad debt expense of $0.2

million, decrease of $0.7 million in payroll and payroll related expenses and a decrease in other administrative expenses of $0.2 million

Metal Products Segment

Net sales in the Metal Products segment decreased 0.6% or $0.2 million in 2019 compared to the prior year period.

In 2019, sales volume decreased 9% while price and new products were up 2% and 6% respectively.

Sales of mining and industrial casting products each declined 1% year over year from 2018 level.

The mix of mining related products and industrial casting

products remained comparable in 2019 and 2018 at 66% and 34% respectively.

In 2019 and 2018 the Company received orders from a foundry that experienced a fire in its operations and utilized our open capacity at our foundry to fulfill their industrial

casting needs which ended in July 2019.

Sales from that business in 2019 and 2018 were $1 million and $0.8 million respectively.

Cost of products sold for the Metal Products segment increased by $0.2 million or 1% from 2018 level.

prices for scrap iron decreased by 30% but higher production cost and lower productive capacity being consumed more than offset the favorable metal market.

Gross margin as a percentage of sales in the Metal Products segment decreased to 11% in 2019 from 12% in 2018.

lower metal cost could not offset the higher production cost in 2019.

Selling and administrative expenses in the Metal Products segment decreased $0.2 million or 9% from 2018.

significant factors, resulting in the decrease in selling and administrative expenses was a reduction in payroll and payroll related charges.

The following table shows the amount of change from the year ended December 29,2018 as compared to the year ended December 28, 2019 in other items (dollars

in thousands):

The decrease relates to the closure of the Velvac Road-iQ development operations in Bellingham Washington in the second quarter of 2019 as the Company adopted a leaner approach to the development of new vision products.

Selling and administrative expenses increased $1.3 million or 5% to $30.2 million in 2020 from $28.9 million in 2019.

The increase relates to the Big 3 Precision Acquisition in August 2019.

Excluding Big 3 Precision, selling and administrative expenses would have decreased $3.4 million or 14% from $24.5 million in 2019 to $21.1 million in 2020.

Diversified Products

Net sales in the Diversified Products segment decreased by 22.2 million or 34% in 2020 from the 2019 level.

Sales volume of existing products decreased 36% while price increases and new products contributed a 2% increase.

The sales decrease is partially due to the sale of CCV in the second quarter of 2020.

Sales of our mining products were down from 2019 levels by $6.9 million and industrial casting sales were down $2.9 million.

Sales of commercial laundry products were also down from 2019 levels by $2.5 million while printed circuit board sales were down from 2019 levels by $0.8 million.

New product sales include a mobile payment app for the commercial laundry industry and various industrial castings.

Cost of products sold in the Diversified Products segment decreased by $17.5 million or 32% in 2020 from 2019.

The decrease in cost of products sold was primarily attributable to the decrease in sales volume.

Cost reduction initiatives lowered factory payroll and payroll related cost by $3.8 million through various state workshare programs and layoffs where necessary.

The cost of scrap iron increased year over year by 34%.

The cost of scrap iron has increased another 16% in the first quarter of 2021 to $575 per ton.

The Company incurred tariff costs on China-sourced products of $0.2 million in 2020 which was comparable to 2019.

The majority of the tariffs have been offset by price increases.

Gross margin as a percentage of sales in the Diversified Products segment for 2020 decreased to 13% compared to the 2019 level of 16%.

Product development expenses decreased $0.1 million or 5% to $1.3 million for 2020 from $1.4 million for 2019.

The Company continues to invest in the development of new products for our customers to replace legacy products being phased out.

Selling and administrative expenses in the Diversified Products segment decreased by $1.6 million or 23% in 2020 from 2019.

The most significant factors resulting in changes in selling and administrative expenses were a decrease in amortization expense of $0.2 million, a decrease of $0.4 million in payroll and payroll related expenses, a decrease in travel expenses of $0.2 million, a decrease in other administrative expenses of $0.2 million and the sale of CCV, which resulted a decrease in selling and administrative expenses of $0.5 million in 2020 as compared to 2019.

Goodwill impairment loss of $5.0 million was incurred in 2020.

In the second quarter of 2020, the Company determined that the estimated fair value of Greenwald Industries was likely below its carrying amount.

The factors that led to this determination included additional competition, industry movement away from legacy products and intense competition in new mobile payment apps.

This fundamental shift in lower cost payment systems away from the higher cost electronic smart card payment systems resulted in the carrying value of Greenwald exceeding its fair value.

As a result, an independent valuation was conducted which estimated that the carrying value exceeded the fair value by approximately $4.0 million.

During the fourth quarter of 2020 the Company announced that its subsidiary Eberhard Hardware Manufacturing Ltd.

in Ontario Canada would be closed and all assets would be moved to Eberhard Manufacturing division in Cleveland, Ohio.

As a result, the amount of goodwill of approximately $1.0 million at this entity level was impaired and written off in December 2020.

Loss on disposal of subsidiary of $2.2 million in non-cash charges were incurred in fiscal year 2020 in recognizing the cumulative effects for foreign currency translation on Sesamee Mexicana and CCV.

Restructuring expenses of $1.0 million incurred in 2020 related to the divestiture of CCV in the second quarter of 2020 and the announced closure of Eberhard Hardware Manufacturing Ltd.

In Ontario, Canada in the fourth quarter of 2020.

2019 restructuring costs of $2.7 million were related to the discontinuation of our Road iQ development operations based in Bellingham, Washington and the relocation costs of Composite Panels Technologies in Salisbury, North Carolina to CCV in Kelowna, British Columbia.

The following table shows the amount of change from the year ended December 28, 2019 as compared to the year ended January 2, 2021 in other items (dollars in thousands):

Interest expense

Interest expense increased in 2019 from 2018 due to the increased level of debt in 2019 that was incurred in

connection with the Big 3 Precision acquisition.

Other income in 2019 decreased from the 2018 level.

Other income in 2019 included a gain of $597,000 on the sale of

land at the Company’s headquarters location.

Other income in 2018 included a $887,000 gain on pension assets due to the implementation of ASU 2017-07, Compensation — Retirement Benefits (Topic 715):

Improving the Presentation of Net Periodic Pension

Cost and Net Periodic Postretirement Benefit Cost, and a gain on marketable securities of $44,000.

The effective tax rate for 2019 was 18% compared to the 2018 effective tax rate, which was 18%.

Total income taxes

paid were $3,197,984 in 2019 and $3,741,021 in 2018.

Interest expense increased in 2020 from 2019 due to the increased level of debt incurred in connection with the acquisitions of Hallink Moulds in the third quarter of 2020 and Big 3 Precision in the third quarter of 2019.

Other income in 2020 increased $1.2 million over 2019.

Other income in 2020 included a favorable $1.2 million pension cost adjustment and a $0.4 million gain on a sale/leaseback transaction.

In 2019, other income included a gain of $0.6 million on the sale of land at the Company headquarters location.

The effective tax rate for 2020 was 10% compared to the 2019 effective tax rate of 18%.

The effective tax rate for 2020 was reduced due to the expiration of statute of limitations for uncertain tax positions.

Total income taxes paid were $3.8 million in 2020 and $3.2 million in 2019.

Liquidity and Sources of Capital

The Company’s financial position strengthened in 2019.

The primary source of the Company’s cash is earnings from operating activities adjusted for cash

generated from or used for net working capital and the new credit agreement with Santander Bank, N.A.

The primary source of the Company’s cash is earnings from operating activities adjusted for cash generated from or used for net working capital.

The most significant recurring non-cash items included in net income are depreciation and amortization expense.

Changes in working capital fluctuate

with the changes in operating activities.

Changes in working capital fluctuate with the changes in operating activities.

As sales increase, there generally is an increased need for working capital.

Since increases in working capital reduce the Company’s cash, management attempts to keep the Company’s investment in net working

capital at a reasonable level by closely monitoring inventory levels and matching production to expected market demand, keeping tight control over the collection of receivables and optimizing payment terms on its trade and other payables.

The Company is dependent on continued demand for our products and subsequent collection of accounts receivable from our customers.

The Company serves a broad

base of customers and industries with a variety of products.

Since increases in working capital reduce the Company’s cash, management attempts to keep the Company’s investment in net working capital at a reasonable level by closely monitoring inventory levels and matching production to expected market demand, keeping tight control over the collection of receivables and optimizing payment terms on its trade and other payables.

The Company is dependent on continued demand for its products and subsequent collection of accounts receivable from its customers.

The Company serves a broad base of customers and industries with a variety of products.

As a result, any fluctuations in demand or payment from a particular industry or customer should not have a material impact on the Company’s sales and collection of receivables.

expects that the Company’s foreseeable cash needs for operations, capital expenditures, debt service and dividend payments will continue to be met by the Company’s operating cash flows and available credit facility.

Management expects that the Company’s foreseeable cash needs for operations, capital expenditures, debt service and dividend payments will continue to be met by the Company’s operating cash flows and available credit facility.

The following table shows key financial ratios at the end of each fiscal year:

7 unchanged sentences

- Held in the United States

- Held by foreign subsidiary

- Held by foreign subsidiaries

Working capital

Net cash provided by operating activities

Change in working capital impact on net cash

(used)/provided by operating activities

Change in working capital impact on net cash provided by (used in) operating activities

Net cash used in investing activities

2 unchanged sentences

Net cash provided by operating activities was $20.7 million in 2020 compared to $23.0 million in 2019.

In 2018 the Company contributed an excess

contribution of $2.0 million into its defined benefit retirement plan.

In 2020 the Company contributed $2.7 million into its defined benefit retirement plan.

In 2020 cash provided by the net change in working capital was $2.0 million which was primarily due to management’s focus on reducing inventories during the pandemic.

In 2019, cash used in the net change in working capital was $0.3 million.

In 2018 cash used in the net change in working capital was $6.0 million, which was

primarily due to increased sales activities that drove up the associated inventory and accounts receivable balances in order to manage the sales activities

The Company used $9.1 million and $85.8 million for investing activities in 2020 and 2019, respectively.

Included in the 2019 amount is approximately $81.2

million for the Big 3 acquisition.

Included in the 2018 amount is approximately $5 million for the acquisition of Load N Lock.

These transactions are more fully discussed in Note 2 to the 2018 Consolidated Financial Statements located in Item 8 of

this Form 10-K.

In 2020 the Company invested $7.2 million to acquire Hallink Moulds, and received $3.2 million for divestures of subsidiaries and equipment.

The Company issued notes receivable of $2.2 million as part of the sale of its subsidiaries.

In 2019, the Company invested approximately $81.2 million to acquire Big 3 Precision.

These transactions are more fully discussed in Note 2 to the 2020 Consolidated Financial Statements located in Item 8 of this Form 10-K.

The balance of $3.1 million and $5.4 million in 2020 and 2019, respectively, was used to purchase fixed assets.

Capital expenditures in fiscal year 2020 are expected to be in the range of $4 million.

Capital expenditures in fiscal year 2021 are expected to be approximately $5.0 million.

In 2020, the Company made total debt payments of $10.0 million, of which $5.0 million was an accelerated principal payment and used $2.8 million for payment of dividends.

The Company did not draw down on its $20.0 million revolving credit facility in 2020.

In 2019, the Company received approximately $67.0 million from financing activities.

The Company refinanced an existing note for $19.1 million, used

approximately $10.8 million for debt repayments and $2.8 million for payment of dividends.

The Company entered into a new credit agreement for $120.0 million, of which the company received $100.0 million for the term loan portion.

The Company did not

draw down on the $20.0 million revolving credit portion.

In 2018, the Company paid approximately $10.4 million in cash for financing activities.

The Company paid $1.1 million for repurchasing its common stock and

used approximately $6.6 million for debt repayments and $2.8 million for the payment of dividends.

See Note 6 – Debt to the accompanying Consolidated Financial Statement for additional details on the debt that was issued.

The Company refinanced an existing note for $19.1 million and used approximately $10.8 million for debt repayments and $2.8 million for payment of dividends.

The Company entered into the Credit Agreement for $120.0 million, of which the Company received $100.0 million for the term loan portion.

The Company did not draw down on the $20.0 million revolving credit portion.

The Company leases certain equipment and buildings under cancelable and non-cancelable operating leases that expire at various dates up to five years.

expense amounted to approximately $2.2 million in 2019 and $2.6 million in 2018.

Rent expense amounted to approximately $2.1 million in 2020 and $2.2 million in 2019.

On August 30, 2019, the Company entered into the Credit Agreement with Santander Bank, N.A., for itself, People’s United Bank, National Association.

and TD Bank, N.A.

as lenders, that included a $100.0 million term portion and a $20.0 million revolving commitment portion.

Proceeds of the term loan were used to repay the Company’s remaining outstanding term loan (and to terminate its existing credit facility)

with People’s United Bank, N.A.

Proceeds of the term loan were used to repay the Company’s remaining outstanding term loan (and to terminate its existing credit facility) with People’s United Bank, N.A.

(approximately $19.0 million) and to acquire Big 3 Precision.

The term portion of the loan requires quarterly principal payments of $1,250,000 for an 18-month period beginning December 31, 2019.

The repayment amount then

increases to $1,875,000 per quarter beginning September 30, 2021 and continues through June 30, 2023.

The repayment amount then increases to $2,500,000 per quarter beginning September 30, 2023 and continues through June 30, 2024.

The term loan is a

5-year loan with the remaining balance due on August 30, 2024.

The term portion of the loan requires quarterly principal payments of $1.25 million for an 18-month period beginning December 31, 2019.

The repayment amount then increases to $1.875 million per quarter beginning September 30, 2021 and continues through June 30, 2023.

The repayment amount then increases to $2.5 million per quarter beginning September 30, 2023 and continues through June 30, 2024.

The term loan is a five-year loan with the remaining balance due on August 30, 2024.

The revolving commitment portion has an annual commitment fee of 0.25% based on the unused portion of the revolver.

The revolving commitment portion has a maturity date of August 30, 2024.

During 2019, the Company did not borrow any funds on the revolving commitment portion of the facility.

During 2020 and 2019, the Company did not borrow any funds on the revolving commitment portion of the facility.

The interest rates on the term and revolving credit portion of the Credit Agreement vary.

The interest rates may vary based on the LIBOR rate plus a

margin spread of 1.25% to 2.25%.

The Company’s obligations under the Credit Agreement are secured by a lien on certain of the Company’s and its subsidiaries’ assets pursuant to a Pledge and Security Agreement, dated as of August 30, 2019 with

Santander Bank, N.A., as administrative agent.

The interest rates may vary based on the LIBOR rate plus a margin spread of 1.25% to 2.25%.

The Company’s loan covenants under the Credit Agreement require the Company to maintain a senior net leverage ratio not to exceed 4.25 to 1.

the Company will be required to maintain a fixed charge coverage ratio to be not less than 1.25 to 1.

On August 30, 2019, the Company entered into an interest rate swap contract with Santander Bank, N.A., with an original notational amount of $50,000,000,

which was equal to 50% of the outstanding balance of the term loan on that date.

The Company has a fixed interest rate of 1.44% on the swap contract and will pay the difference between the fixed rate and LIBOR when LIBOR is below 1.44% and will

receive interest when the LIBOR rate exceeds 1.44%.

On December 28, 2019, the interest rate for half ($50 million) of the term portion was 3.44%, using a one month LIBOR rate, and 3.19% on the remaining balance ($50 million) of the term loan based on

a one month LIBOR rate.

The interest rates on the Credit Agreement, and interest rate swap contract are susceptible to changes to the method that LIBOR rates are determined and to

the potential phasing out of LIBOR after 2021.

In addition, the Company will be required to maintain a fixed charge coverage ratio to be not less than 1.25 to 1.

On August 30, 2019, the Company entered into an interest rate swap contract with Santander Bank, N.A., with an original notional amount of $50.0 million, which was equal to 50% of the outstanding balance of the term loan on that date.

The Company has a fixed interest rate of 1.44% on the swap contract and will pay the difference between the fixed rate and LIBOR when LIBOR is below 1.44% and will receive interest when the LIBOR rate exceeds 1.44%.

On January 2, 2021, the interest rate for half ($41.9 million) of the term portion was 1.9%, using a one-month LIBOR rate, and 3.19% on the remaining balance ($46.9 million) of the term loan based on a one-month LIBOR rate.

The interest rates on the Credit Agreement, and interest rate swap contract are susceptible to changes to the method that LIBOR rates are determined and to the potential phasing out of LIBOR after 2021.

Information regarding the potential phasing out of LIBOR is provided below.

On July 27, 2017, the U.K.

Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021.

the United States, efforts to identify a set of alternative U.S.

Dollar reference interest rates have been initiated by the Alternative Reference Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New York.

At this time, it is

not possible to predict whether any such changes will occur, whether LIBOR will be phased out or any such alternative reference rates or other reforms to LIBOR will be enacted in the United Kingdom, the United States or elsewhere or the effect that any

such changes, phase-out, alternative reference rates or other reforms, if they occur, would have on the amount of interest paid on the Company’s LIBOR-based borrowings.

Uncertainty as to the nature of such potential changes, phase-out, alternative

reference rates or other reforms may materially adversely affect interest rates paid by the Company on its borrowings.

Reform of, or the replacement or phasing out of, LIBOR and proposed regulation of LIBOR and other “benchmarks” may materially

adversely affect the amount of interest paid on the Company’s LIBOR-based borrowings and could have a material adverse effect on the Company’s business, financial condition and results of operations.

On July 27, 2017, the FCA (the authority that regulates LIBOR) announced that it would phase out LIBOR by the end of 2021.

The IBA recently announced market consultation regarding the extension of US dollar LIBOR tenors through June 30, 2023 which the FCA supports.

The ARRC, a financial industry group convened by the Federal Reserve Board has recommended the use of SOFR to replace LIBOR.

The difference between LIBOR and SOFR is that LIBOR is a forward-looking rate which means the interest rate is set at the beginning of the period with payment due at the end.

SOFR is a backward-looking overnight rate which have implications for how interest and other payments are based.

Changes in the method of calculating the replacement of LIBOR with an alternative rate or benchmark are still in flux, and once an alternate rate is adopted, may adversely affect interest rates and result in higher borrowing costs.

This could materially and adversely affect the Company’s results of operations, cash flows and liquidity.

We cannot predict the effect of the potential changes to LIBOR or the establishment and use of alternative rates or benchmarks at this time.

We are working with our senior lender and may need to renegotiate our credit facilities as LIBOR phases out in June 2023.

Off-Balance Sheet Arrangements

As of the end of the fiscal year ended December 28, 2019, the Company does not have any material transactions, arrangements, obligations (including

contingent obligations), or other relationships with unconsolidated entities or other persons, as described by Item 303(a)(4) of Regulation S-K, that have or are reasonably likely to have a material current or future impact on the Company’s financial

condition, results of operations, liquidity, capital expenditures, capital resources or significant components of revenues or expenses.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a result of the Company’s status as a smaller reporting company pursuant to Rule 12b-2 of the Exchange Act, the Company is no longer required to provide

information under this Item 7A.

As of the end of the fiscal year ended January 2, 2021, the Company does not have any material transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons, as described by Item 303(a)(4) of Regulation S-K, that have or are reasonably likely to have a material current or future impact on the Company’s financial condition, results of operations, liquidity, capital expenditures, capital resources or significant components of revenues or expenses.

Non-GAAP Financial Measures

The non-GAAP financial measures we provide in this report should be viewed in addition to, and not as an alternative for, results prepared in accordance U.S.

To supplement the consolidated financial statements prepared in accordance with U.S.

GAAP, we have presented Adjusted Earnings Per Share, Adjusted Net Income and Adjusted EBITDA, which are considered non-GAAP financial measures.

The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way.

These measures are not substitutes for their comparable GAAP financial measures, such as net sales, net income, diluted earnings per share, or other measures prescribed by U.S.

GAAP, and there are limitations to using non-GAAP financial measures.

Adjusted Earnings Per Share is defined as diluted earnings per share excluding, when they occur, the impacts of impairment losses, losses on sale of subsidiaries, transaction expenses, factory relocation expenses and restructuring costs.

We believe that Adjusted EPS provides important comparability of underlying operational results, allowing investors and management to access operating performance on a consistent basis.

Adjusted Net Income is defined as net income excluding, when they occur, the impacts of impairment losses, losses on sale of subsidiaries, transaction expenses, factory relocation expenses and restructuring costs.

Adjusted Net Income is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying operations.

Adjusted EBITDA is defined as net income from continuing operations before interest expense, provision for income taxes, and depreciation and amortization.

In addition to these adjustments, we exclude, when they occur, the impacts of impairment losses, losses on sale of subsidiaries, transaction expenses, factory relocation expenses and restructuring expenses.

Adjusted EBITDA is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying operations.

We also present certain results “excluding Big 3 Precision” because we believe this allows for more effective comparability to the corresponding prior year period.

Management uses such measures to evaluate performance period over period, to analyze the underlying trends in our business, including our business segments, to assess our performance relative to that of our competitors, and to establish operational goals and forecasts that are used in allocating resources.

We believe that presenting non-GAAP financial measures in addition to GAAP financial measures provides investors greater transparency to the information used by our management for its financial and operational decision-making.

We further believe that providing this information better enables our investors to understand our operating performance and to evaluate the methodology used by management to evaluate and measure such performance.

Reconciliation of expenses from GAAP to Non-GAAP EPS calculation

For the Three and Twelve Months ended January 2, 2021 and December 28, 2019

Three Months Ended

Twelve Months Ended

January 2, 2021

December 28, 2019

January 2, 2021

December 28, 2019

Net Income as reported per

generally accepted accounting principles (GAAP)

Earnings Per Share as reported under generally accepted

accounting principles (GAAP):

Adjustments for one-time expenses:

Goodwill impairment loss, net of tax

Loss on sale of Subsidiary, net of tax

Transaction expenses

Factory relocation, net of tax

Restructuring costs, net of tax

2,181,550 D,F

Total adjustments for one-time expenses

Adjusted Net Income (related to one time expenses);

Adjusted Earnings per share

(related to one time expenses);

Goodwill impairment

Cost incurred on disposition of Canadian Commercial Vehicles

Cost incurred on relocation of factory in Reynosa, Mexico

Cost incurred on the relocation of Composite Panels Technology

Cost incurred in the acquisition of Hallink RSB, Inc.

Costs incurred in the closure of Road IQ in Bellingham, WA

Costs incurred on the acquisition of Big 3 Precision

Costs incurred on announced reorganization of Eberhard Hardware Ltd

Loss on disposition of subsidiaries

Use of Non-GAAP Financial Measures

To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we disclose certain non-GAAP financial measures including adjusted net income and adjusted earnings per diluted share.

Adjusted net income and adjusted earnings per diluted share exclude one time related expenses.

These measures are not in accordance with GAAP.

Reconciliation of expenses from GAAP to Non-GAAP EBITDA calculation

For the Three and Twelve Months ended January 2, 2021 and December 28, 2019

Three Months Ended

Twelve Months Ended

January 2, 2021

December 28, 2019

January 2, 2021

December 28, 2019

Net Income/(loss) as reported per generally accepted accounting principles (GAAP)

Interest expense

Provision for/(benefit from) income taxes

Depreciation and amortization

Goodwill impairment loss

Loss on Sale of Subsidiary

Factory relocation

Restructuring costs

2,664,651 D,F

Transaction costs

Adjusted EBITDA

Goodwill impairment

Cost incurred on disposition of Canadian Commercial Vehicles

Cost incurred on relocation of factory in Reynosa, Mexico

Cost incurred on the relocation of Composite Panels Technology

Cost incurred in the acquisition of Hallink RSB, Inc.

Costs incurred in the closure of Road IQ in Bellingham, WA

Costs incurred in the acquisition of Big 3 Precision

Costs incurred on announced reorganization of Eberhard Hardware Ltd

Loss on disposition of subsidiaries

Use of Non-GAAP Financial Measures

Adjusted net income and adjusted earnings per diluted share exclude one time related expenses.

These measures are not in accordance with GAAP.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a result of the Company’s status as a smaller reporting company pursuant to Rule 12b-2 of the Exchange Act, the Company is not required to provide information under this Item 7A.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis