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Note I - Leases

9 Months Ended

Sep. 27, 2020

NOTE I – LEASES

The Company accounts for leases under ASC Topic 842, Leases, which was adopted on January 1, 2019. The Company’s leasing activities include roles as both lessee and lessor. As lessee, the Company’s primary leasing activities include buildings and structures to support its manufacturing operations at one location in its Defense segment, and warehouse space and equipment to support its distribution center operations in its Housewares/Small Appliances segment. As lessor, the Company’s primary leasing activity is comprised of manufacturing and office space located adjacent to its corporate offices. All of the Company’s leases are classified as operating leases.

The Company’s leases as lessee in its Defense segment provide for variable lease payments that are based on changes in the Consumer Price Index. As lessor, the Company’s primary lease also provides for variable lease payments that are based on changes in the Consumer Price Index, as well as on increases in costs of insurance, real estate taxes, and utilities related to the leased space. Generally, all of the Company’s lease contracts provide for options to extend and terminate them. The majority of lease terms of the Company’s lease contracts reflect extension options, while none reflect termination options.

The Company has determined that the rates implicit in its leases are not readily determinable and therefore, estimates its incremental borrowing rates utilizing quotes from financial institutions for real estate and equipment, as applicable, over periods of time similar to the terms of its leases. The Company has entered into various short-term (12 months or less) leases as lessee and has elected a non-recognition accounting policy, as permitted by ASC Topic 842.

	*3 Months Ended*		*3 Months Ended*		*9 Months Ended*		*9 Months Ended*
Summary of Lease Cost (in thousands)	*September 27, 2020*		*September 29, 2019*		*September 27, 2020*		*September 29, 2019*
Operating lease cost	$	183	$	178	$	544	$	514
Short-term and variable lease cost		131		64		337		145
Total lease cost	$	314	$	242	$	881	$	659

Operating cash used for operating leases was $314,000 and $881,000 for the three and nine months ended September 27, 2020, respectively. The weighted-average remaining lease term was 7.1 years, and the weighted-average discount rate was 5.6% as of September 27, 2020.

Maturities of operating lease liabilities are as follows:

Years ending December 31:	*(In thousands)*
2020 (remaining three months)	$	177
2021		716
2022		719
2023		574
2024		472
Thereafter		1,452
Total lease payments	$	4,110
Less: future interest expense		737
Lease liabilities	$	3,373

Lease income from operating lease payments was $463,000 and $444,000 for the quarters ended September 27, 2020 and September 29, 2019, respectively. Undiscounted cash flows provided by lease payments are expected as follows:

Years ending December 31:	*(In thousands)*
2020 (remaining three months)	$	463
2021		1,839
2022		1,832
2023		1,832
2024		1,832
Thereafter		14,656
Total lease payments	$	22,454

The Company considers risk associated with the residual value of its leased real property to be low, given the nature of the long-term lease agreement, the Company’s ability to control the maintenance of the property, and the creditworthiness of the lessee. The residual value risk is further mitigated by the long-lived nature of the property, and the propensity of such assets to hold their value or, in some cases, appreciate in value.