What changed in this filing

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Item 1. Financial Statements

2021-05-11 compared with 2020-11-09 · 128 added, 209 removed, 336 unchanged (50% of the section changed)

1 unchanged sentence

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Nine Months Ended

September 28,

$ 179,964,582

$ 183,015,723

Cost of products sold

1 unchanged sentence

( 50,663,943 )

( 139,374,508 )

( 139,243,164 )

Product development expense

( 2,434,638 )

( 5,240,004 )

Selling and administrative expenses

1 unchanged sentence

( 10,024,958 )

( 27,452,391 )

( 24,866,665 )

Goodwill impairment loss

( 4,002,548 )

Restructuring costs

( 2,651,877 )

Operating profit

Interest expense

( 2,081,283 )

Income before income taxes

( 1,817,264 )

Earnings per share:

2 unchanged sentences

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended

Nine Months Ended

September 28,

Other comprehensive income/(loss):

Change in foreign currency translation

Change in marketable securities, net of tax benefit (cost) of:

2020 – $159 and $(1,904) respectively

2019 – $176 and $(288) respectively

Change in fair value of interest rate swap, net of tax benefit (cost) of:

2020 – $(35,587) and $547,087 respectively

2019 – $15,720 and $85,537 respectively

( 1,304,447 )

Change in marketable securities, net of taxes of:

2021 - $67 and 2020 - $2,897

Change in fair value of interest rate swap, net of tax cost (benefit) of:

2021 - $130,434 and 2020 - $(535,029)

( 1,697,793 )

Change in pension and postretirement benefit costs, net of taxes of:

2020 – $81,144 and $243,429 respectively

2019 – $75,138 and $217,014 respectively

2021 - $92,194 and 2020 - $81,143

Total other comprehensive income (loss)

9 unchanged sentences

2021 - $ 618,000 ;

Current portion of note receivable

2020 - $ 545,000

Current portion of notes receivable

Prepaid expenses and other assets

6 unchanged sentences

Patents and other intangibles, net of accumulated amortization

Long term note receivable, less current portion

Long term notes receivable, less current portion

Right of Use Assets

2 unchanged sentences

See accompanying notes.

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS’ EQUITY

12 unchanged sentences

Accrued pension cost

Total Liabilities

Shareholders’ Equity

2 unchanged sentences

1,000,000 shares

Nonvoting Preferred Stock, no par value:

Authorized and unissued:

Nonvoting Preferred Stock, no par value:Authorized and unissued:

1,000,000 shares

Common Stock, no par value, Authorized:

50,000,000 shares

8,992,641 shares in 2020 and 8,975,434 shares in 2019

50,000,000 shares Issued:

9,003,230 shares in 2021 and 8,996,625 shares in 2020 Outstanding:

6,253,501 shares in 2021 and 6,246,896 shares in 2020

4 unchanged sentences

Retained earnings

Accumulated other comprehensive loss:

Accumulated other comprehensive income (loss):

Foreign currency translation

( 2,286,738 )

( 2,037,952 )

Unrealized gain on marketable securities, net of tax

Unrealized gain (loss) on interest rate swap, net of tax

Unrealized loss on marketable securities, net of tax

Unrealized loss on interest rate swap, net of tax

( 1,387,085 )

11 unchanged sentences

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended

September 28,

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Operating Activities

2 unchanged sentences

Unrecognized pension and postretirement benefits

( 1,066,777 )

Goodwill impairment loss

(Gain) loss on sale of equipment and other assets

( 1,600,288 )

Provision for doubtful accounts

2 unchanged sentences

Accounts receivable

Prepaid expenses and other

Accounts payable

( 4,551,399 )

( 2,273,864 )

( 1,015,663 )

Prepaid expenses and other

Accounts payable

Accrued compensation

2 unchanged sentences

Other accrued expenses

( 1,511,729 )

( 2,202,622 )

Net cash provided by operating activities

1 unchanged sentence

Marketable securities

Business disposition

Business acquisition, net of cash acquired

( 7,172,868 )

( 81,155,753 )

Payments received from notes receivable

Proceeds from sale of equipment

Purchases of property, plant and equipment

( 1,976,370 )

( 1,896,128 )

Net cash provided by/used in investing activities

( 7,317,684 )

( 83,085,640 )

Financing Activities

Proceeds from long-term borrowings

Principal payments on long-term debt

1 unchanged sentence

( 1,221,423 )

Issuance of Note Receivable

( 1,251,943 )

Payments Received from Note Receivable

Lease payments

Purchase common stock for treasury

Dividends paid

( 2,058,943 )

( 2,058,697 )

Net cash used in financing activities

( 1,856,622 )

( 2,276,901 )

Effect of exchange rate changes on cash

3 unchanged sentences

Cash and cash equivalents at end of period

Supplemental disclosure of cash flow information:

Non-cash investing and financing activities

1 unchanged sentence

Lease liability

( 10,280,814 )

See accompanying notes

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

October 3, 2020

April 3, 2021

Note A - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X and do not include all of the information and footnotes required by generally accepted accounting principles in the United States (“GAAP”) for complete financial statements.

Refer to the consolidated financial statements of The Eastern Company (together with its consolidated subsidiaries, the “Company,” “we,” “us” or our”) and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 28, 2019, filed with the Securities and Exchange Commission on March 5, 2020 (the “2019 Form 10-K”), for additional information.

Refer to the consolidated financial statements of The Eastern Company (together with its consolidated subsidiaries, the “Company,” “we,” “us” or our”) and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 2, 2021, filed with the Securities and Exchange Commission on March 16, 2021 (the “2020 Form 10-K”), for additional information.

The accompanying condensed consolidated financial statements are unaudited.

2 unchanged sentences

All intercompany accounts and transactions are eliminated.

The condensed consolidated balance sheet as of December 28, 2019 has been derived from the audited consolidated balance sheet at that date.

The condensed consolidated balance sheet as of January 2, 2021 has been derived from the audited consolidated balance sheet at that date.

The Company’s fiscal year is a 52-53-week fiscal year ending on the Saturday nearest to December 31.

References to 2019 or the 2019 fiscal year mean the 52-week period ended on December 28, 2019 and references to 2020 or the 2020 fiscal year mean the 53-week period ending on January 2, 2021.

References to 2020 or the 2020 fiscal year mean the 53-week period ended on January 2, 2021 and references to 2021 or the 2021 fiscal year mean the 52-week period ending on January 1, 2022.

In a 52-week fiscal year, each quarter is 13 weeks long.

In a 53-week fiscal year, each of the first two fiscal quarters and the fourth quarter are 13 weeks long, and the third fiscal quarter is 14 weeks long.

References to the third quarter of 2019, the third fiscal quarter of 2019 or the three months ended September 28, 2019 mean the period from June 30, 2019 to September 28, 2019.

References to the third quarter of 2020, the third fiscal quarter of 2020 or the three months ended October 3, 2020 mean the 14-week period from June 28, 2020 to October 3, 2020.

References to the nine months ended September 28, 2019 or the first nine months of fiscal 2019 mean the 39-week period from December 30, 2018 to September 28, 2019.

References to the nine months ended October 3, 2020 or the first nine months of 2020 mean the 40-week period from December 29, 2019 to October 3, 2020.

References to the first quarter of 2020, the first fiscal quarter of 2020 or the three months ended March 28, 2020 mean the period from December 29, 2019 to March 28, 2020.

References to the first quarter of 2021, the first fiscal quarter of 2021 or the three months ended April 3, 2021 mean the 13-week period from January 3, 2021 to April 3, 2021.

Certain amounts in the 2020 financial statements have been reclassified to conform with the 2021 presentation with no impact or change to previously reported net income or shareholder’s equity.

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 28,

Weighted average shares outstanding

4 unchanged sentences

Inventories consist of the following components:

December 28, 2019

Raw material and component parts

3 unchanged sentences

Note D - Goodwill

The Company maintains 12 reporting units, seven of which comprise the goodwill balance.

These seven units have an aggregate carrying amount of goodwill of approximately $ 77.8 million as of October 3, 2020.

The Company maintains 11 reporting units, five of which comprise the goodwill balance.

These six units have an aggregate carrying amount of goodwill of approximately $ 76.9 million as of April 3, 2021.

The Company tests its reporting units for impairment annually in December, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

4 unchanged sentences

The values assigned to the key assumptions represent management’s assessment of future trends in the relevant industry and have been based on historical data from both external and internal sources.

In the second quarter of 2020, management determined that it was more likely than not that the estimated fair value of Greenwald Industries was 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 mobile payment systems away from the higher cost electronic smart card payment systems resulted in our belief that the carrying value of Greenwald exceeded 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.

Management recognized this impairment charge in the second quarter.

In the third quarter of 2020, management performed assessments to determine if there were any events, circumstances or indicators of impairment among the Company’s reporting units as a result of the operating conditions resulting from the COVID-19 pandemic.

Management concluded that the Company has not experienced any specific indicators of impairment for goodwill among its reporting units that would require additional impairment tests.

There were no goodwill impairments in the third quarter of 2020.

Note E - Leases

2 unchanged sentences

Lease accounting involves significant judgements, including making estimates related to the lease term, lease payments, and discount rate.

The Company has operating leases for buildings, warehouse and office equipment.

The Company has operating leases for buildings, warehouses and office equipment.

The Company determines whether an arrangement is, or contains, a lease at contract inception.

7 unchanged sentences

All options to extend, when it is reasonably certain the option will be exercised, have been included in the calculation of the ROU asset and lease liability.

Currently, the Company has 36 operating leases and four finance leases with a lease liability of $ 11,248,144 as of October 3, 2020.

Currently, the Company has 32 operating leases and two finance leases with a lease liability of $ 12.9 million as of April 3, 2021.

The finance lease arrangements are immaterial.

The basis, terms and conditions of the leases are determined by the individual agreements.

The terms and conditions of the leases are determined by the individual agreements.

The leases do not contain residual value guarantees, restrictions, or covenants that could cause the Company to incur additional financial obligations.

3 unchanged sentences

Total lease expense for each of the next five fiscal years is estimated to be as follows:

remainder of 2020 - $ 824,251 ;

2021 - $ 3,011,067 ;

2022 - $ 2,067,173 ;

2023 - $ 1,699,249 ;

2024 - $ 1,223,651 and $ 2,422,753 thereafter.

remainder of 2021 - $ 2.3 million;

2022 - $ 2.4 million;

2023 - $ 2.0 million;

2024 - $ 1.6 million;

2025 - $ 0.9 million;

and $ 3.7 million thereafter.

The weighted average remaining lease term is 6.7 years.

11 unchanged sentences

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

As of October 3, 2020, the Company has not borrowed any funds on the revolving commitment portion of the facility.

As of April 3, 2021, the Company has not borrowed any funds on the revolving commitment portion of the facility.

The term loan bears interest at a variable rate based on the LIBOR rate plus an applicable margin of 1.25 % to 2.25 %, depending on the Company’s senior net leverage ratio.

Borrowings under the revolving portion bear interest at a variable rate based on, at the Company’s election, a base rate plus an applicable margin of 0.25% to 1.25% or the LIBOR rate plus an applicable margin of 1.25% to 2.25%, with such margins determined based on the Company’s senior net leverage ratio.

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

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 August 30, 2019 with Santander Bank, N.A., as administrative agent.

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.

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

The Company was in compliance with all of its covenants under the Credit Agreement at October 3, 2020 and through the date of filing this Form 10-Q.

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 was in compliance with all of its covenants under the Credit Agreement at April 3, 2021 and through the date of filing this Form 10-Q.

On August 30, 2019, the Company entered into an interest rate swap contract with Santander Bank, N.A., with an original notional amount of $ 50,000,000 , 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 October 3, 2020, the interest rate for half ($47.5 million) of the term portion was 1.66 %, using a one month LIBOR rate, and 2.94 % on the remaining balance ($ 47.5 million) of the term loan based on a one month LIBOR rate.

On April 3, 2021, the interest rate for half ($ 41.3 million) of the term portion was 2.36 %, using a one-month LIBOR rate, and 3.69 % on the remaining balance ($ 46.3 million) of the term loan based on a one-month LIBOR rate.

The interest rates under the Credit Agreement and the interest rate swap contract are susceptible to changes to the method of determining LIBOR rates 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.

In the United States, the Federal Reserve Board and the Federal Reserve Bank of New York, in conjunction with the Alternative Reference Rates Committee, identified the Secured Overnight Financing Rate (“SOFR”) as its preferred benchmark alternative to U.S.

dollar LIBOR.

SOFR represents a measure of the cost of borrowing cash overnight, collateralized by U.S.

Treasury securities, and is calculated based on directly observable U.S.

Treasury-backed repurchase transactions.

In March 2020, in response to this transition, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financing Reporting, which provides optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued by reference rate reform, and addresses operational issues likely to arise in modifying contracts to replace discontinued reference rates with new rates.

ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022.

The Company is evaluating the potential impact of the replacement of LIBOR, which ultimately may or may not be SOFR, from both a risk management and financial reporting perspective, as well as the guidance under ASU 2020-04.

At this time, it is not possible to predict whether any such changes to LIBOR will occur, whether SOFR will attain market traction as a LIBOR replacement, whether LIBOR will be phased out or any such alternative reference rates, other than SOFR, 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, SOFR or other 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, SOFR or other 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”, including SOFR, 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 Financial Conduct Authority (the “FCA”) (the authority that regulates LIBOR) announced that it would phase out LIBOR by the end of 2021.

In December 2020, the ICE Benchmark Administration (the “IBA”) announced a market consultation regarding the extension of US dollar LIBOR tenors through June 30, 2023 which the FCA supports.

On March 5, 2021, the IBA released its feedback statement reporting the results of the market consultation.

Pursuant to its feedback statement, the IBA intends to cease publication of all settings of non-US dollar LIBOR and only the one-week and two-month U.S.

dollar LIBOR settings on December 31, 2021, with the publication of the remaining U.S.

dollar LIBOR settings being discontinued after June 30, 2023.

The Alternative Reference Rates Committee (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 has 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.

Note G - Stock Options and Awards

4 unchanged sentences

The Company has no other existing plan pursuant to which equity awards may be granted.

Incentive stock options granted under the 2010 Plan and the 2020 Plan must have exercise prices that are not less than 100% of the fair market value of the Company’s common stock on the dates the stock options are granted.

Restricted stock awards may also be granted to participants under the 2010 Plan and the 2020 Plan with restrictions determined by the Compensation Committee of the Company’s Board of Directors.

Under the 2010 Plan and the 2020 Plan, non-qualified stock options granted to participants will have exercise prices determined by the Compensation Committee of the Company’s Board of Directors.

During the first nine months of fiscal 2020 and 2019, no stock options or restricted stock were granted that were subject to the meeting of performance measurements.

For the first nine months of fiscal 2019, the Company used several assumptions which included an expected term of 3.5 to 4 years, volatility deviation of 28.88% to 32.33 % and a risk free rate of 1.42% to 2.48 %.

For the first nine months of fiscal 2020, the Company used several assumptions which included an expected term of 4.0 years, volatility deviation of 38.62 % and a risk free rate of 0.26 % for the purposes of measuring compensation under the Black Scholes Method.

The 2010 Plan and the 2020 Plan also permit the issuance of Stock Appreciation Rights (“SARs”).

Incentive stock options granted under the 2020 Plan must have exercise prices that are not less than 100% of the fair market value of the Company’s common stock on the dates the stock options are granted.

Restricted stock awards may also be granted to participants under the 2020 Plan with restrictions determined by the Compensation Committee of the Company’s Board of Directors.

Under the 2020 Plan, non-qualified stock options granted to participants will have exercise prices determined by the Compensation Committee of the Company’s Board of Directors.

During the first three months of fiscal 2021, the company issued 24,600 stock options that were granted that were subject to the meeting of performance measurements.

The Company did not issue any stock options or restricted stock in the first 3 months of fiscal 2020.

For the first three months of fiscal 2021, the Company used several assumptions which included an expected term of 4.0 years, volatility deviation between 47.25 % to 47.54 % and a risk-free rate between 0.18 % to 0.20 % for the purposes of measuring compensation under the Black Scholes Method.

The 2020 Plan also permit the issuance of Stock Appreciation Rights (“SARs”).

The SARs are in the form of an option with a cashless exercise price equal to the difference between the fair value of the Company’s common stock at the date of grant and the fair value as of the exercise date resulting in the issuance of the Company’s common stock.

During the first nine months of fiscal 2020, the Company issued 44,000 SARs under the 2020 Plan, and during the first nine months of fiscal 2019, 96,000 SARs were issued under the 2010 Plan.

Stock-based compensation expense in connection with SARs previously granted to employees was approximately $ 85,000 and $ 108,000 in the third quarter of 2020 and 2019 respectively and was approximately $ 279,000 and $ 281,000 in the first nine months of fiscal years 2020 and 2019 respectively.

As of October 3, 2020, there were 818,864 shares of Company common stock reserved and available for future grant under the 2020 Plan.

During the first three months of fiscal 2021 and the first three months of fiscal 2020, the Company did not issue any SARs.

Stock-based compensation expense in connection with SARs previously granted to employees was approximately $ 113,000 and $ 110,000 in the first quarter of 2021 and 2020, respectively.

As of April 3, 2021, there were 788,358 shares of Company common stock reserved and available for future grant under the 2020 Plan.

The following tables set forth the outstanding SARs for the period specified:

Nine Months Ended

October 3, 2020

December 28, 2019

Three Months Ended

April 3, 2021

January 2, 2021

Weighted - Average Exercise Price

3 unchanged sentences

SARs Outstanding and Exercisable

Range of Exercise Prices

Exercise Prices

Outstanding as of

October 3, 2020

April 3, 2021

Weighted- Average Remaining Contractual Life

1 unchanged sentence

Exercisable as of

October 3, 2020

April 3, 2021

Weighted- Average Remaining Contractual Life

2 unchanged sentences

The following tables set forth the outstanding stock grants for the period specified:

Nine Months Ended

October 3, 2020

December 28, 2019

Three Months Ended

April 3, 2021

January 2, 2021

Weighted - Average Exercise Price

5 unchanged sentences

Outstanding as of

October 3, 2020

April 3, 2021

Weighted- Average Remaining Contractual Life

1 unchanged sentence

Exercisable as of

October 3, 2020

April 3, 2021

Weighted- Average Remaining Contractual Life

Weighted- Average Exercise Price

As of October 3, 2020, outstanding SARs and grants had an intrinsic value of $ 558,000 .

As of April 3, 2021, outstanding SARs and grants had an intrinsic value of $ 1,776,000 .

Note H - Share Repurchase Program

2 unchanged sentences

Under this program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The Company did not repurchase any shares under its share repurchase program during the third quarter of 2020.

The Company did not repurchase any shares under its share repurchase program during the first quarter of 2021.

Total Number of

5 unchanged sentences

Under the Plans or

Balance as of June 27, 2020

June 28, 2020 – October 3, 2020

Balance as of October 3, 2020

Balance as of January 2, 2021

January 3, 2021 - April 3, 2021

Balance as of April 3, 2021

Note I - Revenue Recognition

The Company’s revenues result from the sale of goods and services and reflect the consideration to which the Company expects to be entitled.

The Company records revenues based on a five-step model in accordance with FASB Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers.” The Company has defined purchase orders as contracts in accordance with ASC Topic 606.

The Company records revenues based on a five-step model in accordance with FASB Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”.

The Company has defined purchase orders as contracts in accordance with ASC Topic 606.

For its customer contracts, the Company identifies its performance obligations, which are delivering goods or services, determines the transaction price, allocates the contract transaction price to the performance obligations (when applicable), and recognizes the revenue when (or as) the performance obligation is transferred to the customer.

5 unchanged sentences

Refer to Note L for revenues reported by segment.

Refer to Note D for a discussion of goodwill impairment.

The Company has no future performance obligations and does not capitalize costs to obtain or fulfill contracts.

11 unchanged sentences

Early adoption of ASU 2019-12 is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued.

The Company will adopt ASU 2019-12 in 2021.

The Company adopted ASU 2019-12 in the first quarter of 2021.

On March 27, 2020, the $ 2 trillion bipartisan Coronavirus Aid, Relief, and Economic Security Act (H.R.

748) (“the CARES Act” became law).

The CARES Act includes a variety of economic and tax relief measures intended to stimulate the economy, including loans for small businesses, payroll tax credits/deferrals, and corporate income tax relief.

We are analyzing the following components of the CARES Act to determine their effect on our income tax provision:

Net operating losses arising in 2018, 2019, and 2020 taxable years may be carried back to each of the preceding five years, which may result in refunds of prior period corporate income tax.

The Company had taxable income in 2018 and 2019, thus we would only benefit from this item of CARES Act relief to the extent we incur a tax net operating loss in 2020 that can be carried back.

As of October 3, 2020, a tax net operating loss is not expected for taxable year 2020.

In addition, this item of CARES Act relief increased the positive evidence supporting utilization of our gross deferred tax assets due to available income in carryback years;

this did not change our overall assessment as we do not have a valuation allowance recorded against our deferred tax assets.

Furthermore, for taxable years beginning before 2021, net operating loss carryforwards and carrybacks to that year may offset 100% of taxable income in the year.

Previously, net operating losses generated through 2017 could offset 100% of taxable income, while losses generated after 2017 could only offset 80% of taxable income.

The Company had taxable income in 2018 and 2019 and would carry back a loss generated in 2020 if applicable, leaving minimal opportunity to benefit from this item of CARES Act relief.

For taxable years beginning in 2019 and 2020, the interest deduction limitation is increased from 30% to 50% of “adjusted taxable income” (taxable income without interest, tax depreciation and tax amortization) plus interest income.

Furthermore, the Company may choose to use the 2019 adjusted taxable income (instead of 2020) in determining the 2020 interest expense limitation.

The Company was not subject to an interest limitation in 2019 and therefore expects to use the 2019 adjusted taxable income if needed to avoid or reduce an interest expense limitation in 2020.

A technical correction to the Tax Cuts and Jobs Act permits bonus depreciation and a 15-year straight-line recovery period on qualified improvement property placed in service after December 31, 2017.

Prior to this technical correction, such property placed in service after 2017 was subject to the 39-year straight-line recovery period and was ineligible for bonus depreciation.

To the extent the Company has eligible improvements in 2020, the Company can claim bonus depreciation which would reduce taxes payable and increase the deferred tax liability for fixed assets.

Other CARES Act corporate income tax provisions will not significantly impact the company, including alternative minimum tax refunds and increases in the charitable contributions deduction limitation.

For additional information on the Company’s CARES ACT impact see Note 8 - Income Taxes in the 2020 Form 10-K.

The Company will also continue to assess the effect of state level tax relief provisions as enacted, such as state net operating loss rule changes and conformity to the federal interest, depreciation and charitable contribution deduction changes.

The total amount of unrecognized tax benefits could increase or decrease within the next 12 months for a number of reasons, including the closure of federal, state and foreign tax years by expiration of the statute of limitations and the recognition and measurement considerations under FASB ASC Topic 740, “Income Taxes.” There have been no significant changes to the amount of unrecognized tax benefits during the three months ended October 3, 2020.

The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits will not increase or decrease significantly over the next twelve months.

Note K - Retirement Benefit Plans

The Company has non-contributory defined benefit pension plans covering most U.S.

The Company has four non-contributory defined benefit pension plans covering most U.S.

Three of these pension plans are frozen and participants in these three plans have not accrued benefits since the date on which these plans were frozen.

A fourth pension plan does not permit new participants but existing participants in this fourth pension plan continue to accrue benefits.

Plan benefits are generally based upon age at retirement, years of service and, for the plan covering salaried employees, the level of compensation.

1 unchanged sentence

The Company also provides health care and life insurance for retired salaried employees in the United States who meet specific eligibility requirements.

Significant disclosures relating to these benefit plans for the first nine months of fiscal years 2020 and 2019 are as follows:

Significant disclosures relating to these benefit plans for the first three months of fiscal years 2021 and 2020 are as follows:

Pension Benefits

Three Months Ended

Nine Months Ended

September 28,

Interest cost

2 unchanged sentences

( 1,365,261 )

( 4,095,784 )

( 3,570,990 )

Amortization of prior service cost

Amortization of the net loss

Net periodic benefit cost (benefit)

Net periodic benefit

$ ( 215,202 )

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 28,

Interest cost

3 unchanged sentences

Amortization of the net loss

Net periodic benefit cost (benefit)

$ ( 204,434 )

$ ( 219,823 )

Net periodic benefit cost

The Company’s funding policy with respect to its qualified plans is to contribute at least the minimum amount required by applicable laws and regulations.

In fiscal year 2021, the Company expects to contribute $ 3,100,000 into its pension plans and $ 50,000 into its postretirement plan.

As of October 3, 2020, the Company has made contributions of approximately $ 400,000 into its pension plans, has contributed $ 10,000 to its postretirement plan and will make the remaining contributions as required during the remainder of fiscal the year.

The Company delayed its required pensions payments, as permitted, under the CARES Act until the fourth quarter of 2020.

The Company is currently reviewing the American Rescue Plan Act for applicable pension funding relief for the minimum required contributions and will adjust accordingly.

As of April 3, 2021, the Company has made contributions of approximately $ 521,000 into its pension plans, has contributed $ 5,000 to its postretirement plan and expects to make the remaining contributions as required during the remainder of the fiscal year.

The Company has a contributory savings plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”) covering substantially all U.S.

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Three Months Ended

Nine Months Ended

September 28,

Regular matching contribution

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Total contributions for the period

The non-discretionary contribution of $ 550,286 made in the nine months ended October 3, 2020 was accrued for and expensed in the prior fiscal year.

The non-discretionary contribution of $ 519,177 made in the three months ended April 3, 2021 was accrued for and expensed in the prior fiscal year.

Note L - Segment Information

For the third quarter of 2020, financial information by segment is as follows:

For the first quarter of 2021, financial information by segment is as follows:

Three Months Ended

Nine Months Ended

September 28,

Sales to unaffiliated customers:

Industrial Hardware

$ 128,249,908

$ 115,321,597

Security Products

Metal Products

$ 179,964,582

$ 183,015,723

Engineered Solutions

Diversified Products

Income (loss) before income taxes:

Industrial Hardware

Security Products

Metal Products

( 2,030,942 )

Engineered Solutions

Diversified Products

Operating Profit (loss)

Interest expense

Income before income taxes

Segment income (loss) before income taxes include the allocation of corporate expenses to the Engineered Solutions and Diversified Products segments.

Note M - Recent Accounting Pronouncements

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Early adoption of ASU 2019-12 is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued.

The Company will adopt ASU 2019-12 as of January 1, 2021.

The adoption of this guidance is not expected to have a material impact on the consolidated financial statements of the Company.

The Company adopted ASU 2019-12 as of January 3, 2021.

The adoption of this guidance did not have a material impact on the consolidated financial statements of the Company.

The Company has implemented all new accounting pronouncements that are in effect and that could impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued, but are not yet effective, that might have a material impact on the consolidated financial statements of the Company.

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The Company has established credit limits for customers and monitors their balances to mitigate the risk of loss.

As of October 3, 2020, there was one significant concentration of credit risk with a customer, who has receivables representing 13 % of our total accounts receivable.

One single customer represented more than 10 % of the Company’s net accounts receivable as of December 28, 2019.

As of April 3, 2021, there was one significant concentration of credit risk with a customer, who has receivables representing 12 % of our total accounts receivable.

One single customer represented more than 10 % of the Company’s net accounts receivable as of January 2, 2021.

The maximum exposure to credit risk is primarily represented by the carrying amount of the Company’s accounts receivable.

1 unchanged sentence

The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s debt, which bears interest at variable rates based on the LIBOR rate plus a margin spread of 1.25 % to 2.25 %.

The Company has an interest rate swap with a notional amount of $ 47,500,000 on October 3, 2020, to convert a portion the borrowing under the Credit Agreement from variable to fixed rates.

The Company has an interest rate swap with a notional amount of $ 46.3 million on April 3, 2021, to convert a portion of the borrowing under the Credit Agreement from variable to fixed rates.

The valuation of this swap is determined using the one-month LIBOR rate index and mitigates the Company's exposure to interest rate risk.

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Note O - Business Acquisition

Effective August 10, 2020 the Company acquired certain assets of Hallink, RSB Inc.

(“Hallink”) including accounts receivable, inventories, furniture, fixtures and equipment, intellectual property rights, assumption of certain liabilities and rights existing under all sales and purchase agreements.

Hallink is a leader in innovative injection blow mold tooling and is a leading supplier of blow molds and change parts to the food, beverage, healthcare and chemical industry.

Hallink specializes in the design, development and manufacture of 2-step stretch blow molds, and related components for the stretch blow molding industry offering integrated turnkey solutions to its customers worldwide.

Hallink is included in the Industrial Hardware segment of the Company from the date of the acquisition.

The cost of the acquisition of Hallink was approximately $ 7,173,000 .

Effective August 10, 2020 the Company acquired certain assets, including accounts receivable, inventories, furniture, fixtures and equipment, intellectual property rights and rights existing under all sales and purchase agreements, and assumed certain liabilities, of Hallink, RSB Inc.

These assets are held in our subsidiary, Hallink Moulds, Inc.

(“Hallink Moulds”).

Hallink Moulds produces injection blow mold tooling and is a supplier of blow molds and change parts to the food, beverage, healthcare and chemical industry.

Hallink Moulds specializes in the design, development and manufacture of 2-step stretch blow molds, and related components for the stretch blow molding industry offering integrated turnkey solutions to its customers worldwide.

Hallink Moulds is included in the Engineered Solutions segment of the Company from the date of the acquisition.

The cost of the acquisition of Hallink Moulds was approximately $ 7,173,000 .

The above acquisition was accounted for under ASU 2014-18, Business Combinations (Topic 805).

The acquired business is included in the consolidated operating results of the Company from the effective date of the acquisition.

The excess of the cost of Hallink over the fair market value of the net assets acquired of $ 2,302,000 has been recorded as goodwill.

The excess of the cost of Hallink Moulds over the fair market value of the net assets acquired of $ 2,302,000 has been recorded as goodwill.

An independent third party was utilized to establish the fair market value of net assets acquired.

In connection with the above acquisition, the Company recorded the following intangible assets:

1 unchanged sentence

Weighted-Average Period in Years

Patents, technology, and licenses

Customer relationships

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Note P - Subsequent Events

The Company evaluated its October 3, 2020 unaudited condensed consolidated financial statements for subsequent events through the date the financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements.

The Company evaluated its April 3, 2021 unaudited condensed consolidated financial statements for subsequent events through the date the financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements.

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-Q

Item 1. Financial Statements