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Note I - Leases

3 Months Ended

Apr. 03, 2022

NOTE I – LEASES

The Company accounts for leases under ASC Topic 842, Leases. 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 include options for extensions and early terminations. The majority of lease terms of the Company’s lease contracts recognized on the balance sheet reflect extension options, while none reflect early 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 Ending*		*3 Months Ending*
Summary of Lease Cost (in thousands)	*April 3, 2022*		*April 4, 2021*
Operating lease cost	$	250	$	185
Short-term and variable lease cost		35		110
Total lease cost	$	285	$	295

Operating cash used for operating leases was $285,000 and $295,000 for the three months ended April 3, 2022 and April 4, 2021, respectively. The weighted-average remaining lease term was 22.5 years, and the weighted-average discount rate was 4.6% as of April 3, 2022.

Maturities of operating lease liabilities are as follows:

Years ending December 31:	*(In thousands)*
2022 (remaining nine months)	$	607
2023		682
2024		631
2025		625
2026		605
Thereafter		13,922
Total lease payments	$	17,072
Less: future interest expense		7,045
Lease liabilities	$	10,027

Lease income from operating lease payments was $519,000 and $464,000 for the quarters ended April 3, 2022 and April 4, 2021, respectively. Undiscounted cash flows provided by lease payments are expected as follows:

Years ending December 31:	*(In thousands)*
2022 (remaining nine months)	$	1,543
2023		2,055
2024		2,055
2025		2,055
2026		2,055
Thereafter		16,440
Total lease payments	$	26,203

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.