Forward-looking statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, elsewhere in this Form 10-Q, in
the Company's 2020 Annual Report to Shareholders, in the Proxy Statement for the
2021 annual meeting, and in the Company's press releases and oral statements
made with the approval of an authorized executive officer are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. There are certain important factors that could cause results to differ
materially from those anticipated by some of the statements made
herein. Investors are cautioned that all forward-looking statements involve
risks and uncertainty. In addition to the factors discussed herein and in the
Notes to Consolidated Financial Statements, among the other factors that could
cause actual results to differ materially are the following: consumer spending
and debt levels; interest rates; continuity of relationships with and purchases
by major customers; product mix; the benefit and risk of business acquisitions;
competitive pressure on sales and pricing; development and market acceptance of
new products; increases in material, freight/shipping, tariffs, or production
cost which cannot be recouped in product pricing; delays or interruptions in
shipping or production; reliance on third-party suppliers in
COVID-19 Disclosure
At the inception of the state COVID-19-related shutdowns, all of the Company's businesses were deemed essential and as a result, did not shutdown. Although the state shutdowns are largely over, CDC guidelines remain in effect resulting in ongoing concerns about the government responses to the COVID-19 virus and in particular, to the Delta and other possible variants. Those guidelines typically require social distancing for the unvaccinated and the wearing of masks. Government payments have ensured that demand for goods is high while removing the incentive to work, which has in turn affected supply and the cost of materials, components, finished goods, labor, and transportation. Those shortages have in turn led to congestion throughout the supply chain that has impacted all of the Company's businesses. As a result of ongoing uncertainties, many external contacts continue to be managed through internet tools like "Zoom." Due to the Company's historical conservative practices, it has no debt and has adequate balances to fund its operations.
The Company has complied with the applicable COVID-19 regulations and CDC guidelines. For individuals not fully vaccinated, both masks and the six-foot social distancing rule continue to be observed in the offices and where practicable in the factories. Where not practicable, barriers are in place between workers. Surfaces are regularly cleaned and disinfected in accordance with guidelines.
The ongoing COVID-19 regulations and guidelines have affected each segment in a
variety of ways, which include increased absenteeism; the cancellation of
planned trade shows and customer/supplier visits; inefficiencies inherent from
working at home; as well as challenges in securing material, components,
finished goods, and labor. See "Item 1A. Risk Factors" titled "The COVID-19 or
Other Pandemics, Epidemics or Similar Public Health Crises Risks" included in
the Company's Annual Report on Form 10-K for year ended
Comparison of Second Quarter 2021 and 2020
Readers are directed to Note E to the Consolidated Financial Statements,
"Business Segments," for data on the financial results of the Company's three
business segments for the quarters ended
On a consolidated basis, net sales were relatively flat decreasing by
Details concerning these changes can be found in the comments by segment below.
Housewares/Small Appliance net sales decreased by
Housewares/Small Appliance gross profit decreased
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Selling and general expenses for the Housewares/Small Appliance segment
decreased
The above items were responsible for the change in operating profit.
The
Earnings before provision for income taxes decreased
Comparison of First Six Months 2021 and 2020
Readers are directed to Note E to the Consolidated Financial Statements,
"Business Segments," for data on the financial results of the Company's three
business segments for the first six months ended
The Company reports its operations on a fiscal quarter basis in which each
quarter contains approximately thirteen weeks and ends on a Sunday, with the
exception of the fourth quarter, which ends on
On a consolidated basis, sales increased by
Housewares/Small Appliance net sales increased by
Housewares/Small Appliance gross profit decreased
Selling and general expenses for the Housewares/Small Appliance segment
increased
The above items were responsible for the change in operating profit.
The
Earnings before provision for income taxes decreased
Liquidity and Capital Resources
Net cash provided by operating activities was
Net cash provided by investing activities was
Net cash used in financing activities was
Working capital decreased by
The Company expects to continue to evaluate acquisition opportunities that align with its business segments and will make further acquisitions, as well as continue to make capital investments in its business segments per existing authorized projects and for additional projects, if the appropriate return on investment is projected.
The Company has substantial liquidity in the form of cash and cash equivalents and marketable securities to meet all of its anticipated capital requirements, to make dividend payments, and to fund future growth through acquisitions and other means. The bulk of its marketable securities are invested in the tax exempt variable rate demand notes described above and in fixed rate municipal notes and bonds. The Company intends to continue its investment strategy of safety and short-term liquidity throughout its investment holdings.
Critical Accounting Policies
The preparation of the Company's Consolidated Financial Statements in accordance
with accounting principles generally accepted in
Inventories
New Housewares/Small Appliance product introductions are an important part of the Company's sales to offset the morbidity rate of other Housewares/Small Appliance products. New products entail unusual risks and have occasionally in the past resulted in losses related to obsolete or excess inventory as a result of low or diminishing demand for a product. There were no such obsolescence issues that had a material effect during the current period in the Housewares/Small Appliance and Safety segments, and accordingly, the Company did not record a reserve for obsolete product. In the future should product demand issues arise, the Company may incur losses related to the obsolescence of the related inventory. Inventory risk for the Company's Defense segment is not deemed to be significant, as products are largely built pursuant to customers' specific orders.
The Company is subject to product liability claims in the normal course of business and is self-insured for health care costs, although it does carry stop loss and other insurance to cover claims once a health care claim reaches a specified threshold. The Company's insurance coverage varies from policy year to policy year, and there are typically limits on all types of insurance coverage, which also vary from policy year to policy year. Accordingly, the Company records an accrual for known claims and incurred but not reported claims, including an estimate for related legal fees in the Company's Consolidated Financial Statements. The Company utilizes historical trends and other analysis to assist in determining the appropriate accrual. There are no known claims that would have a material adverse impact on the Company beyond the reserve levels that have been accrued and recorded on the Company's books and records. An increase in the number or magnitude of claims could have a material impact on the Company's financial condition and results of operations.
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Sales are recorded net of discounts and returns for the Housewares/Small Appliance segment. Sales discounts and returns are key aspects of variable consideration, which is a significant estimate utilized in revenue recognition. Sales returns pertain primarily to warranty returns, returns of seasonal items, and returns of those newly introduced products sold with a return privilege. The calculation of warranty returns is based in large part on historical data, while seasonal and new product returns are primarily developed using customer provided information.
Impairment and Valuation of Long-lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Long-lived assets consist of property, plant and equipment and intangible assets. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, the amounts of the cash flows and the asset's residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. The Company uses internal discounted cash flows estimates, quoted market prices when available and independent appraisals, as appropriate, to determine fair value. The Company derives the required cash flow estimates from its historical experience and its internal business plans.
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