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Item 2. Management’s Discussion and Analysis

2021-08-12 compared with 2021-05-11 · 84 added, 91 removed, 99 unchanged (64% of the section changed)

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to highlight significant changes in the financial position and results of operations of The Eastern Company (together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) for the quarter ended April 3, 2021.

The interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal year ended January 2, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2021, which was filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2021 (the “2020 Form 10-K”).

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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 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.

References to the second quarter of 2020, the second fiscal quarter of 2020 or the three months ended June 27, 2020 mean the period from March 29, 2020 to June 27, 2020.

References to the second quarter of 2021, the second fiscal quarter of 2021 or the three months ended July 3, 2021 mean the 13-week period from April 4, 2021 to July 3, 2021.

Safe Harbor for Forward-Looking Statements

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These factors include, but are not limited to:

effects of the COVID-19 pandemic and the measures being taken to limit the spread and resurgence of COVID-19, including supply chain disruptions, delays in delivery of our products to our customers, impact on demand for our products, reductions in production levels, increased costs, including costs of raw materials, the impact on global economic conditions, the availability, terms and cost of financing, including borrowings under credit arrangements or agreements, and risks associated with employees working remotely or operating with reduced workforce;

the scope and duration of the COVID-19 pandemic, including the extent of resurgences and how quickly and to what extent normal economic activity can resume;

the timing of the development and distribution of effective vaccine or treatment of COVID-19;

effects of the COVID-19 pandemic, vaccination rates, the emergence of virus variants and the measures being taken to limit the spread and resurgence of COVID-19, including supply chain disruptions, delays in delivery of our products to our customers, impact on demand for our products, reductions in production levels, increased costs, including costs of raw materials, the impact on global economic conditions, the availability, terms and cost of financing, including borrowings under credit arrangements or agreements, and risks associated with employees working remotely or operating with reduced workforce;

the scope and duration of the COVID-19 pandemic, including the extent of resurgences, the development of variants and how quickly and to what extent normal economic activity can resume;

the timing of the distribution of COVID-19 vaccines and rates of vaccination;

risks associated with doing business overseas, including fluctuations in exchange rates and the inability to repatriate foreign cash, the impact on cost structure and on economic conditions as a result of actual and threatened increases in trade tariffs and the impact of political, economic and social instability;

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COVID-19 Update

The direct impact of the COVID-19 pandemic has been minimal at most of our operations through the first quarter of 2021.

The direct impact of the COVID-19 pandemic has been minimal at most of our operations through the second quarter of 2021.

We continue to follow CDC guidelines, including the use of proper personal protection equipment, social distancing and sanitizing work areas.

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Steps that we have taken to reduce the risk of COVID-19 to our employees include, among others:

protecting employee health by instructing employees stay home if they exhibit symptoms of COVID-19;

protecting employee health by instructing employees to stay home if they exhibit symptoms of COVID-19;

requiring employees to wear masks upon entry into the workplace;

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We have minimized in-person contact between employees and with visitors;

required essential employees who are able to work effectively from home, to work from home;

required essential employees to work from home if they are able to do so effectively;

developed and implemented practices for social distancing in our facilities;

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We continue to seek and implement additional methods to further reduce the risk of COVID-19 to our employees.

Although we sustained delays and disruptions in 2020 to our supply chain and operations, the majority of our facilities have returned to normal operations.

Currently, we do not anticipate further disruption in our operations unless a resurgence of the COVID-19 pandemic occurs, which could cause further disruptions in our business and could adversely affect our financial condition, results of operations and cash flow.

The future extent of the effect of the COVID-19 pandemic on our operational and financial performance will depend in large part on the effectiveness of the vaccines, continued mask wearing, social distancing and other developments, that cannot be predicted with confidence at this time.

Although we sustained delays and disruptions in 2020 to our supply chain and operations, the majority of our facilities have returned to normal operations however, one facility experienced an outbreak of COVID-19 among several employees resulting in closure of the factory for a few days at the end of June 2021.

Currently, we do not anticipate further interruption of our operations unless a resurgence of the COVID-19 pandemic (including variants) occurs, which could cause further disruptions in our business and could adversely affect our financial condition, results of operations and cash flow.

The future extent of the effect of the COVID-19 pandemic on our operational and financial performance will depend in large part on the emergence of virus variants, vaccination rates, continued mask wearing, social distancing and other developments, that cannot be predicted with confidence at this time.

With the inherent uncertainty of the COVID-19 pandemic it is difficult to predict with any confidence the likely impact of the COVID-19 pandemic on our future operations and the extent it could have on our consolidated business, results of operations and financial condition.

For a discussion of certain COVID-19-related risks, see Item 1A, Risk Factors, of Part II of this Form 10-Q.

For a discussion of certain COVID-19-related risks, see Part I, Item 1A, “Risk Factors”, of the 2020 Form 10-K.

General Overview

Net sales in the first quarter of 2021 increased 12% to $73.1 million from $65.3 million in the corresponding period in 2020.

Sales increased in the Engineered Solutions segment in the first quarter of 2021 by 19% to $61.8 million from $51.8 million in the first quarter of 2020 due to increased demand for truck accessories, automotive returnable packaging, blow mold tooling, and distribution products.

First quarter 2021 sales in the Diversified Products segment of $11.3 million decreased 16% when compared to the first quarter of 2020 sales of $13.5 million primarily due to the sale of Canadian Commercial Vehicles and Sesamee Mexicana in June and November 2020 respectively, and lower demand for commercial laundry products, partially offset by increased demand for mining products and industrial castings.

Net sales of existing products increased 5% in the first quarter of 2021 compared to the corresponding period in 2020.

Price increases and new products increased net sales by 7% in the first quarter of 2021.

We have determined that the companies included in our Diversified Products segment no longer fit with our long-term strategy, and we have initiated the process of divesting the companies within the Diversified Products segment.

Selling the companies within this segment will allow management to focus on our core capabilities and offerings.

The Diversified Products segment meets the criteria to be held for sale and, furthermore, we determined that the assets held for sale qualify as discontinued operations.

As such, the financial results of the Diversified Products segment are reflected in our unaudited condensed consolidated statements of operations as discontinued operations for all periods presented.

Additionally, current and non-current assets and liabilities of discontinued operations are reflected in the unaudited condensed consolidated balance sheets for both periods presented.

The loss recognized in the write-down of the Diversified Products segment to fair value in the second quarter of 2021 was $8.1 million, net of tax with anticipated cash flow over the next twelve months of approximately $25.0 million.

The majority of this cash will be used to pay down debt.

The following analysis excludes discontinued operations.

Net sales in the second quarter of 2021 increased 55% to $61.2 million from $39.5 million in the corresponding period in 2020 and net sales for the first six months of 2021 increased 35% to $123 million from $91.4 million in the same period last year.

Sales increased for both the second quarter and six-month periods due to increased demand for truck accessories, automotive returnable packaging, blow mold tooling, and distribution products.

Backlog as of July 3, 2021 was up 61% to $89.2 million from $55.3 million in 2020.

Net sales of existing products increased 44% in the second quarter of 2021 and 26% for the first six months of 2021 compared to the corresponding periods in 2020.

Price increases and new products increased net sales by 11% in the second quarter of 2021 and 9% for the first six months of 2021, compared to the corresponding periods in 2020.

New products included various truck mirror assemblies, truck compression latches, a cable lock, and a mirror cam.

Cost of products sold increased $5.2 million, or 10%, in the first quarter of 2021 primarily due to increased sales volume and increases in material costs.

Raw material costs have increased year-over-year:

hot-rolled steel increased 147%, cold-rolled steel increased 103%, nickel increased 38%, scrap iron increased 168% while copper and zinc increased 51% and 29% respectively, in the first quarter of 2021 compared to the first quarter of 2020.

Additionally, the Company paid tariff costs on China-sourced products of approximately $0.7 million in the first quarter of 2021 compared to $1.4 million incurred in the first quarter of 2020, all of which have been recovered through price increases.

Gross margin as a percent of sales was 24% in the first quarter of 2021 compared to 22% in the first quarter of 2020.

Product development expense of $0.8 million increased $0.1 million, or 8% in the first quarter of 2021 compared to the first quarter of 2020.

As a percentage of net sales, product development costs were 1.1% and 1.2% for the first quarter of 2021 and 2020 respectively.

Selling and administrative expense increased 5% in the first quarter of 2021 compared to the corresponding period in 2020 primarily due to increased amortization expense, and increased incentive costs, which were suspended in the first quarter of fiscal 2020, offset by reduced travel and other payroll related expenses.

Interest expense of $0.7 million decreased $0.1 million in the first quarter of 2021 compared to the same period in 2020.

Other income of $2.3 million in the first quarter of 2021 was the result of a gain on sale of the Eberhard Hardware Ltd.

building of $1.8 million and a $0.5 million favorable return on pension plan assets.

Other income of $0.7 million in the first quarter of 2020 was comprised of a favorable return on our pension plan assets and a one-time sale-leaseback transaction gain in the first quarter of fiscal 2020.

Net income for the first quarter of fiscal 2021 was $5.8 million, or $0.93 per diluted share compared to income of $2.9 million, or $0.46 per diluted share, for the comparable period in 2020.

Cost of products sold increased $18.1 million, or 62%, in the second quarter of 2021 and increased $25.4 million, or 37% for the first six months of 2021 compared to the corresponding periods in 2020.

The increases are primarily due to higher sales volume, increases in the prices of material, and increases in freight rates.

The prices of several frequently used raw materials prices have increased significantly, year-over-year.

For example, the price of most common forms of hot-rolled steel increased 236% between Q2 2020 and Q2 2021;

cold-rolled steel increased 174%;

nickel increased 42%;

scrap iron increased 178%;

and copper and zinc increased 81% and 49% respectively.

Additionally, our freight costs increased $1.4 million, or 148%, in the second quarter of 2021 and increased $2.1 million, or 97%, in the first six months of 2021 when compared to the corresponding periods in 2020.

This increase is due to increased sales volume and freight rates as shipping demand has exceeded available carriers.

Price increases to our customers recovered a portion of the increase in raw material prices and freight rates.

Finally, the Company paid tariff costs on China-sourced products of approximately $0.8 million and $1.4 million in the second quarter and first six months of 2021 respectively, compared to $0.5 million and $1.7 million in the second quarter and first six months of fiscal 2020 respectively.

All tariffs on China-sourced products have been recovered through price increases.

Gross margin as a percent of sales was 23% in the second quarter and 24% in the first six months of fiscal 2021 compared to 26% in the second quarter and 25% in the first six months of fiscal 2020.

Product development expense increased $0.2 million, or 19% in the second quarter of 2021 and increased $0.3 million, or 15%, in the first six months of 2021 compared to the corresponding periods in 2020.

As a percentage of net sales, product development costs were 1.8% and 1.7% for the second quarter and first six months of 2021, respectively, and 2.3%, and 2.0% for the corresponding periods in 2020, respectively.

Selling and administrative expense increased $2.8 million, or 43%, in the second quarter of 2021 and increased $3.6 million, or 24% in the first six months of 2021 compared to the corresponding period in 2020 primarily due to increased commissions and other selling costs, amortization expense, payroll-related expenses, and incentive costs, which were suspended in the first quarter of fiscal 2020.

Interest expense was flat in the second quarter and decreased $0.1 million for the first six months of 2021 compared to the corresponding periods in 2020.

Other income increased $0.2 million in the second quarter and increased $2.3 million in the first six months of 2021 compared to the corresponding periods in 2020.

The increase in the second quarter was due to an increase in the favorable return in our pension plan assets of $0.2 million.

The increase in other income of $2.3 million in the first six months was driven by a gain on the sale of the Eberhard Hardware Ltd.

Building of $1.8 million, a favorable return on pension plan assets of $1.0 million less offset by a one-time sale-leaseback transaction gain in the first quarter of 2020.

Net income for the second quarter of fiscal 2021 was $2.8 million, or $0.44 per diluted share compared to net income of $2.1 million, or $0.33 per diluted share, for the comparable period in 2020.

In the first six months of 2021 net income was $8.5 million, or $1.34 per diluted share compared to net income of $4.8 million, or $0.76 per diluted share for the comparable period in 2020.

A more detailed analysis of the Company’s results of operations and financial condition follows:

Results of Operations

The following table shows, for the periods indicated, selected line items from the condensed consolidated statements of operations as a percentage of net sales, by segment for the period indicated:

2021 First Quarter

The following table shows, for the periods indicated, selected line items from the condensed consolidated statements of operations as a percentage of net sales:

Three Months Ended

Six Months Ended

Cost of products sold

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Operating Profit

2020 First Quarter

Cost of Products Sold

Product Development Expense

Selling and Administrative Expense

The following table shows the change in sales and operating profit for the second quarter and first six months of fiscal 2021 compared to the second quarter and first six months of fiscal 2020 (dollars in thousands):

Operating Profit

The following table shows the change in sales and operating profit by segment for the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 (dollars in thousands):

Operating profit (loss)

Engineered Solutions

Net sales in the Engineered Solutions segment of $61.8 million increased $9.9 million or 19% in the first quarter of 2021 compared to the corresponding period of 2020 primarily due to increased demand for truck accessories, automotive returnable packaging, blow mold tooling, and distribution of industrial hardware products.

Sales of new products contributed 8% in the first quarter of fiscal 2021.

New products include numerous mirror assemblies, compression latches, a cable lock, and a mirror cam.

Cost of products sold increased $6.9 million or 18% in the first quarter of 2021 compared to the corresponding period of 2020.

Material costs in the first quarter of 2021 increased 15% or $4.1 million to $31.4 million from $27.3 million in the first quarter of 2020, primarily due to increased sales volume and higher material costs.

Also impacting the first quarter of 2021 were higher freight costs, which were up 44% or $1.4 million in the first quarter of 2021 compared to the corresponding period of 2020 due to increased volume and non-recurring expedited shipping costs related to port congestion at all U.S.

Finally, we paid tariffs on China-sourced products of approximately $0.6 million in the first quarter of 2021 compared to $0.8 million in the first quarter of 2020, all of which have been recovered through price increases.

Gross margin as a percentage of net sales in the first quarter of 2021 was 25% as compared to the corresponding period of 2020 of 24%.

Product development expense increased $0.1 million first quarter of 2021 compared to the corresponding period of 2020.

Selling and administrative expense increased $0.7 million or 9% in the first quarter of 2021 compared to the corresponding period of fiscal 2020 due primarily to increased amortization expense, increased incentive costs, which were suspended in the first quarter of fiscal 2020, offset by reduced travel and other payroll related expenses.

Diversified Products

Net sales in the Diversified Products segment decreased $2.2 million or 16% in the first quarter of 2021 compared to the corresponding period in 2020.

The sales decline was due to the sale of the Canadian Commercial Vehicles Corporation and Sesamee Mexicana in June and November 2020 respectively, and lower demand for commercial laundry products, partially offset by increased demand for mining products and industrial castings.

Net sales of existing products decreased 17%, while price increases contributed 1% in the first quarter of fiscal 2021.

Cost of products sold decreased $1.7 million or 15% in the first quarter of 2021 compared to the corresponding period of 2020, primarily as a result of lower sales volume and the mix of products sold.

Raw materials decreased $1.6 million or 32% in the first quarter of 2021 compared to the corresponding period of 2020.

Payroll and payroll related expenses decreased $0.2 million or 7% in the first quarter of fiscal 2021 compared to the corresponding period of fiscal 2020.

We paid minimal tariffs on China-sourced products in the first quarter of 2021 compared to $0.6 million in the first quarter of 2020, all of which have been recovered through price increases.

Gross margin as a percentage of net sales was 14% in the first quarter of 2021 compared to 15% in the first quarter of fiscal 2020.

Product development expense as a percentage of net sales was 3% in the first quarter of fiscal 2021 compared to 3% in the corresponding period of fiscal 2020.

This increase reflects a continuation in the development of GPay, a multi-pay reader and an electronic drop.

Selling and administrative expenses decreased $0.3 million or 16% in the first quarter of 2021 compared to the corresponding period of 2020, primarily due to lower payroll and payroll related expenses and reduced travel expenses.

Liquidity and Sources of Capital

The Company generated approximately $2.1 million of cash from operations during the first three months of fiscal 2021 compared to approximately $1.5 million during the first three months of fiscal 2020.

Cash flow from operations coupled with cash at the beginning of the 2021 fiscal year was sufficient to fund capital expenditures, debt service, and dividend payments for the first quarter of fiscal 2021.

Additions to property, plant and equipment were approximately $0.9 million for the first three months of fiscal 2021 and $0.8 million for the first three months of fiscal 2020.

Additionally, in the first three months of 2021 the company received proceeds of $2.0 million from the sale of one of its facilities in Canada.

As of April 3, 2021, there were approximately $0.3 million of outstanding commitments for capital expenditures.

The Company generated approximately $4.3 million of cash from operations during the first six months of fiscal 2021 compared to approximately $6.6 million during the first six months of fiscal 2020.

The cash flows in the first six months of fiscal 2021 were lower when compared to the corresponding period last year due to an increase in inventory and accounts receivable partially offset by an increase in accounts payable.

Additions to property, plant and equipment were approximately $1.8 million for the first six months of fiscal 2021 and $0.8 million for the first six months of fiscal 2020.

Additionally, in the first six months of 2021 the company received proceeds of $2.0 million from the sale of one of its facilities in Canada.

As of July 3, 2021, there were approximately $0.4 million of outstanding commitments for capital expenditures.

The following table shows key financial ratios at the end of each specified period:

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Net cash used in financing activities

Inventories of $54.0 million represent an increase of 1.6% as of April 3, 2021 as compared to $53.1 million at the end of fiscal year 2020.

Inventories decreased 2.3% in the first three months of fiscal 2021, as compared to $55.3 million at the end of the first quarter of fiscal 2020.

Accounts receivable, less allowances, were $42.2 million as of April 3, 2021, as compared to $37.7 million at 2020 fiscal year end and $39.9 million at the end of the first quarter of fiscal 2020.

Inventories of $48.8 million as of July 3, 2021 represent an increase of 13.0% as compared to $43.1 million at the end of fiscal year 2020 and an increase of 12.0% as compared to $43.7 million at the end of the second quarter of fiscal 2020.

Accounts receivable, less allowances, were $35.1 million as of July 3, 2021, as compared to $31.8 million at 2020 fiscal year end and $28.4 million at the end of the second quarter of fiscal 2020.

Cash, cash flow from operating activities and funds available under the revolving credit portion of the Credit Agreement are expected to be sufficient to cover future foreseeable working capital requirements.

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In addition, the interest rate on borrowings under the Credit Agreement varies based on our senior net leverage ratio, and the Credit Agreement requires us to maintain a senior net leverage ratio not to exceed 4.25 to 1 and a fixed charge coverage ratio to be not less than 1.25 to 1.

A decrease in earnings due to responses to contain the spread of COVID-19 or the resulting harm to the financial condition of our customers or economic conditions generally, or an increase in indebtedness incurred to offset such a decrease in earnings, would have a negative impact on our senior net leverage ratio and our fixed charge coverage ratio, which in turn would increase the cost of borrowing under the Credit Agreement and could cause us to fail to comply with the covenants under our Credit Agreement.

A decrease in earnings due to the impact of COVID-19 or the resulting harm to the financial condition of our customers or economic conditions generally, or an increase in indebtedness incurred to offset such a decrease in earnings, would have a negative impact on our senior net leverage ratio and our fixed charge coverage ratio, which in turn would increase the cost of borrowing under the Credit Agreement and could cause us to fail to comply with the covenants under our Credit Agreement.

Off-Balance Sheet Arrangements

As of the end of the fiscal quarter ended April 3, 2021, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

As of the end of the fiscal quarter ended July 3, 2021, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Non-GAAP Financial Measures

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

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

GAAP, we have presented Adjusted Net Income from Continuing Operations, Adjusted Earnings Per Share from Continuing Operations and Adjusted EBITDA from Continuing Operations, 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.

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

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 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 EBITDA is defined as net income before interest expense, provision for income taxes, and depreciation and amortization and excluding, when they occur, the impacts of impairment losses, losses on sale of subsidiaries, transaction expenses, gain on sale of building, 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.

Adjusted Net Income from Continuing Operations is defined as net income from continuing operations 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 from Continuing Operations 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 Earnings Per Share from Continuing Operations is defined as diluted earnings per share from continuing operations excluding, when they occur, the impacts of impairment losses, losses on sale of subsidiaries, transaction expenses, gain on sale of building, factory relocation expenses and restructuring costs.

We believe that Adjusted Earnings Per Share from Continuing Operations provides important comparability of underlying operational results, allowing investors and management to access operating performance on a consistent basis.

Adjusted EBITDA from Continuing Operations is defined as net income from continuing operations before interest expense, provision for income taxes, and depreciation and amortization and excluding, when they occur, the impacts of impairment losses, losses on sale of subsidiaries, transaction expenses, gain on sale of building, factory relocation expenses and restructuring expenses.

Adjusted EBITDA from Continuing Operations 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.

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 our competitors, and to establish operational goals and forecasts that are used in allocating resources.

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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 Net Income to Adjusted Net Income - EPS Calculation

For the Three Months ended April 3, 2021 and March 28, 2020

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 items:

Reconciliation of Net Income from Continuing Operations to Adjusted Net Income from Continuing Operations and Adjusted Earnings Per Share from Continuing Operations Calculation For the Three and Six Months ended July 3, 2021 and June 27, 2020

Three Months Ended

Six Months Ended

Net income from continuing operations as reported per generally accepted accounting principles (GAAP)

Earnings per share from continuing operations as reported under generally accepted accounting principles (GAAP):

Gain on sale of Eberhard Hardware Ltd building, net of tax

Total adjustments for one-time items (Non-GAAP)

Adjusted Net Income (related for one-time items);

Adjusted earnings per share (related to one-time items);

Total adjustments (Non-GAAP)

Adjusted net income from continuing operations

Adjusted earnings per share from continuing operations ;

A) Gain on sale of Eberhard Hardware Ltd building

Reconciliation of one-time items from GAAP to Non-GAAP EBITDA calculation

For the Three Months ended April 3, 2021 and March 28, 2020

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

Reconciliation of Net Income from Continuing Operations to Adjusted EBITDA from Continuing Operations calculation For the Three and Six Months ended July 3, 2021 and June 27, 2020

Three Months Ended

Six Months Ended

Net income from continuing operations as reported per generally accepted accounting principles (GAAP)

Interest expense

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Gain on sale of Eberhard Hardware Ltd Building

Adjusted EBITDA

Adjusted EBITDA from continuing operations

A) Gain on sale of Eberhard Hardware Ltd building

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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 2. Management’s Discussion and Analysis