Note H - Leases

6 Months Ended

Jun. 30, 2024

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

NOTE H – 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, buildings and structures to support its Safety 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.

	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
Summary of Lease Cost (in thousands)	June 30, 2024		July 2, 2023		June 30, 2024		July 2, 2023
Operating lease cost	$	305	$	296	$	610	$	591
Short-term and variable lease cost		79		63		139		118
Total lease cost	$	384	$	359	$	749	$	709

Operating cash used for operating leases was $384,000 and $359,000 for the three months ended  June 30, 2024 and July 2, 2023, respectively, and $749,000 and $709,000 for the six months ended June 30, 2024 and July 2, 2023, respectively.  The weighted-average remaining lease term was 19.2 years, and the weighted-average discount rate was 4.7% as of June 30, 2024.

Maturities of operating lease liabilities are as follows:

Years ending December 31:	(In thousands)
2024 (remaining six months)	$	509
2025		902
2026		813
2027		808
2028		814
Thereafter		12,911
Total lease payments	$	16,757
Less: future interest expense		6,397
Lease liabilities	$	10,360

Lease income from operating lease payments was $569,000 and $551,000 for the quarters ended June 30, 2024 and July 2, 2023, respectively, and $1,120,000 and $1,102,000 for the six months then ended, respectively.  Undiscounted cash flows provided by lease payments are expected as follows:

Years ending December 31:	(In thousands)
2024 (remaining six months)	$	1,138
2025		2,257
2026		2,257
2027		2,257
2028		2,257
Thereafter		13,542
Total lease payments	$	23,708

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.