Eastern Co. (EML) 2017年年度報告「AMEX」.pdf

《Eastern Co. (EML) 2017年年度報告「AMEX」.pdf》由會員分享，可在線閱讀，更多相關《Eastern Co. (EML) 2017年年度報告「AMEX」.pdf（84頁珍藏版）》請在三個皮匠報告上搜索。

1、 The Eastern Company Annual Report Fiscal 2017 190682_Form 10k.indd 13/20/18 10:24 AM 2018 LETTER TO SHAREHOLDERS Dear Fellow Eastern Shareholders:We made significant progress on our commitment to creating long-term value for our shareholders in 2017.Eastern generated a total return to shareholders

2、of 27%in 2017,outperforming the Russell 2000 Index by 12 percentage points.After paying of$2.8 million in dividends to our shareholders,Easterns book value reached$86.9 million at the end of the year.This was a new high and an increase of 5%over the prior year.Our progress was highlighted by Eastern

3、s addition to the Russell 3000 Index on June 23,2017.Our strategy for creating long-term shareholder value includes strengthening our portfolio of businesses,maximizing the performance of our best businesses and using our balance sheet to drive growth.In 2017,we were successful in each of those area

4、s.On April 3,2017,we acquired Velvac Holdings,Inc.,a Tier 1 supplier of mirrors and camera-enabled vision systems to leading heavy truck,recreational and specialty vehicle OEMs.Velvac works closely with its customers to provide uniquely engineered products that meet their design and product specific

5、ations.Velvac also sells aftermarket components and vision systems through its dealer channels and OEM parts distributors.We believe that the acquisition of Velvac strengthens our portfolio of businesses by building scale in attractive end markets and increasing access to new markets for some of our

6、 other businesses.At the same time,we invested in the long-term growth of our best businesses by,for example,adding new sales and engineering capabilities at Illinois Lock to expand our market and product coverage.We also invested in new-technology vision products at Road-iQ,a division of Velvac.Roa

7、d-iQ provides connected vehicle technology that offers both active and passive safety to drivers of recreational vehicles,trucks and other specialty vehicles.We also took advantage of our strong cash flow and a strong balance sheet to add leverage,borrowing$36.0 million to finance the acquisition of

8、 Velvac.While we used$4.1 million of cash for the acquisition,we still ended 2017 with$22.3 million in cash,close to the$22.7 million in cash with which we started the year.We are fortunate to work with an outstanding team of associates and business leaders at Eastern who share a passion for results

9、.Our team includes both leaders who have a long history with Eastern and those who are new to the Company.The senior leaders at each of our largest businesses,Eberhard,Illinois Lock and now Velvac,all joined Eastern in 2017.Together,they delivered a solid performance in 2017 and are building for a s

10、trong future.2017 Results Sales for 2017 totaled$204.2 million,an increase of 48%from$137.6 million in 2016.This sales growth reflects the acquisition of Velvac as well as organic growth of 13%in 2017.All three of our business segments recorded higher sales than in 2016.Our Industrial Hardware segme

11、nt benefitted from strong growth in sales to heavy duty truck and truck service body customers.According to ACT Research,sales of trucks in the heaviest,Class 8 weight segment climbed 59%to 296,440 vehicles in 2017.In our Security Products segment,sales grew as a result of our investments at Illinoi

12、s Lock and Argo EMS.In both segments,we improved execution and margins by more closely integrating our domestic sales and engineering teams with our China-based manufacturing operations.Our Metal Products segments 2017 sales were up 45%over 2016.This segment continues to benefit from a resurgence in

13、 sales to mining customers and diversification to other industrial markets,including infrastructure.According to the U.S.Energy Information Administration(EIA),coal production in 2017 rose 6%in 2017 to 773 million standard tons,primarily as a result of higher natural gas prices and greater electrici

14、ty generation.However,the EIA projects that coal production in the United States through 2040 could range from staying flat to resuming a decline.Net income for 2017 was$5.0 million compared to$7.8 million for 2016.The change in earnings was largely attributable to the acquisition of Velvac and one-

15、time charges related to the new Tax Cuts and Jobs Act,which was enacted in December 2017.In the fourth quarter of 2017,we incurred an incremental one-time tax charge of$2.5 million,which consisted of a$2.0 million charge on undistributed earnings of foreign subsidiaries and a charge of$0.5 million r

16、elated to the impact of 190682_Form 10k.indd 23/19/18 2:00 PM the tax legislation on our deferred tax asset.Excluding total one-time charges of$4.3 million,we generated adjusted net earnings of$9.3 million.Adjusted net earnings is a non-GAAP measure.A reconciliation of this non-GAAP measure to net i

17、ncome is provided on page 20 of Form 10-K.We returned 9.3%on invested capital,1 adjusting for one-time expenses associated with the Velvac acquisition and the Tax Cuts and Jobs Act.2018 Outlook We anticipate solid growth in sales and earnings in 2018 as a result of the acquisition of Velvac and our

18、investments in Illinois Lock and new product development.We expect to start seeing returns on our investments in Road-iQ in the second half of the year.We believe that sales and earnings will also benefit from strong demand in several of our core markets,including Class 8 trucks and recreational veh

19、icles.A reduction in the Companys taxes will contribute to net earnings growth as well.We intend to fund the growth of our highest-return businesses by investing in new product development at Eberhard and Illinois Lock and by making targeted acquisitions.We will again look for acquisition opportunit

20、ies that have strong economics and help us build scale and create differentiation in attractive end markets.As a result of the Tax Cuts and Jobs Act,we intend to repatriate approximately$6.0$8.0 million in cash from foreign operations.We expect to use this cash to pay down debt and fund our pension

21、and retirement plan obligations.We are proud of our companys 160-year history and are confident that our focus on allocating capital in a disciplined,patient manner and growing the cash flows of our subsidiary companies will create meaningful long-term value for our shareholders.August M.Vlak Presid

22、ent and Chief Executive Officer James A.Mitarotonda Chairman of the Board Cautionary Language Concerning Forward-Looking Statements Statements in this document about The Eastern Companys future expectations,beliefs,goals,plans or prospects constitute forward-looking statements within the meaning of

23、the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and the rules,regulations and releases of the Securities and Exchange Commission.Any statements that are not statements of historical fact,including statements containing the words“believes,”“intends,”“continues,”“ref

24、lects,”“plans,”“anticipates,”“expects,”and similar expressions,should also be considered to be forward-looking statements.Readers should not place undue reliance on these forward-looking statements,which are based upon the current beliefs and expectations of the management of The Eastern Company.The

25、se forward-looking statements are subject to risks and uncertainties,and actual results might differ materially from those discussed in,or implied by,the forward-looking statements.Among the risks and uncertainties that could cause actual results or events to differ materially from those indicated b

26、y such forward-looking statements include,but are not limited to changing customer preferences,lack of success of new products,loss of customers and increased prices for raw materials.There are important,additional factors that could cause actual results or events to differ materially from those ind

27、icated by such forward-looking statements,including those set forth in The Eastern Companys reports and filings with the Securities and Exchange Commission.The Eastern Company undertakes no obligation to update,alter,or otherwise revise any forward-looking statements,whether written or oral,that may

28、 be made from time to time,whether as a result of new information,future events,or otherwise.1 We define return on invested capital as tax adjusted EBIT/fixed assets+intangible assets+current assets current liabilities cash 190682_Form 10k.indd 33/19/18 2:00 PM BOARD OF DIRECTORS LEADERSHIP TEAM Jam

29、es A.Mitarotonda Chairman of the Board;James P.Woidke Chairman,President and CEO of Managing Director Barington Capital Group,L.P.Eberhard Manufacturing Eberhard Hardware Manufacturing,Ltd.Fredrick D.DiSanto Eastern Industrial Ltd.Chief Executive Officer of The Ancora Group Jeffrey Porter President

30、of Velvac Holdings,Inc.John W.Everets a Subsidiary of The Eastern Company Partner of Velvac de Reynosa S de RL de CV Acturus Capital,LLC Jeffrey D.Fleming Charles W.Henry Managing Director Partner of Henry&Federer,LLP The Illinois Lock Company/CCL Security Products Michael A.McManus,Jr.Dongguan Reew

31、orld Security Products Ltd.Former Chairman,President and World Lock Company Ltd.CEO of Misonix,Inc.World Security Industries Co.Ltd.OFFICERS AND EXECUTIVES Richard E.Luehr August M.Vlak Managing Director President and Chief Executive Officer Canadian Commercial Vehicles Corporation Composite Panel T

32、echnologies John L.Sullivan III Vice President and Chief Financial Officer Allen Stanwix General Manager Angelo Labbadia Greenwald Industries Division Group Vice President Dane Wentworth Nicholas Vlahos General Manager Treasurer Argo EMS Theresa P.Dews Sadmir Brkanovic Secretary General Manager Fraz

33、er&Jones Erika Ocaa Murgua General Manager Sesamee Mexicana,S.A.de C.V.190682_Form 10k.indd 43/20/18 10:29 AM UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington,D.C.20549 FORM 10-K (Mark One)X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal

34、 Year ended December 30,2017 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _ to _ Commission File Number 001-35383 THE EASTERN COMPANY(Exact name of registrant as specified in its charter)Connecticut 06-0330020(State or othe

35、r jurisdiction of(I.R.S.Employer incorporation or organization)Identification No.)112 Bridge Street,Naugatuck,Connecticut 06770(Address of principal executive offices)(Zip Code)Registrants telephone number,including area code:(203)729-2255 Securities registered pursuant to Section 12(b)of the Act:Co

36、mmon Stock No Par Value The NASDAQ Stock Market LLC (Title of each class)(Name of each exchange on which registered)Securities registered pursuant to Section 12(g)of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Yes

37、 X No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)of the Act.Yes No X Indicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the

38、 preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements for the past 90 days.Yes X No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website,if an

39、y,every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months(or for such shorter period that the registrant was required to submit and post such files).Yes X No Indicate by check mark if disclosure of delinquent filers pursua

40、nt to Item 405 of Regulation S-K is not contained herein,and will not be contained,to the best of registrants knowledge,in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.Indicate by check mark whether the registra

41、nt is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or an emerging growth company.See definitions of“large accelerated filer,”“accelerated filer,”“smaller reporting company,”and“emerging growth company”in Rule 12b-2 of the Exchange Act.Large accel

42、erated filer Accelerated filer X Non-accelerated filer (Do not check if a smaller reporting company)Smaller reporting company Emerging growth company If an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for complying with any ne

43、w or revised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Act).Yes No X As of July 1,2017,the last day of registrants most recently completed second fiscal quarter

44、,the aggregate market value of the voting stock held by non-affiliates of the registrant was$155,324,724(based on the closing sales price of the registrants common stock on the last trading date prior to that date).Shares of the registrants common stock held by each officer and director and shares h

45、eld in trust by the pension plans of the Company have been excluded in that such persons may be deemed to be affiliates.This determination of affiliate status is not necessarily a conclusive determination for other purposes.190682_Form 10k.indd 53/19/18 2:00 PM As of February 27,2018,6,263,245 share

46、s of the registrants common stock,no par value per share,were issued and outstanding.DOCUMENTS INCORPORATED BY REFERENCE Certain information required for Part II of this report is incorporated herein by reference to the proxy statement for the 2018 annual meeting of the Companys shareholders,which w

47、ill be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after December 30,2017.190682_Form 10k.indd 63/19/18 2:00 PM3 The Eastern Company Form 10-K FOR THE FISCAL YEAR ENDED DECEMBER 30,2017 TABLE OF CONTENTS Page Table of Contents 3.Safe Harbor St

48、atement 4.PART I Item 1.Business 4.Item 1A.Risk Factors 7.Item 1B.Unresolved Staff Comments 12.Item 2.Properties 12.Item 3.Legal Proceedings 14.Item 4.Mine Safety Disclosures 14.PART II Item 5.Market for Registrants Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities

49、15.Item 6.Selected Financial Data 17.Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations 21.Item 7A.Quantitative and Qualitative Disclosures About Market Risk 33.Item 8.Financial Statements and Supplementary Data 35.Item 9.Changes in and Disagreements with Acc

50、ountants on Accounting and Financial Disclosure 70.Item 9A.Controls and Procedures 70.Item 9B.Other Information 72.PART III Item 10.Directors,Executive Officers and Corporate Governance 72.Item 11.Executive Compensation 72.Item 12.Security Ownership of Certain Beneficial Owners and Management and Re

51、lated Stockholder Matters 73.Item 13.Certain Relationships and Related Transactions,and Director Independence 73.Item 14.Principal Accounting Fees and Services 73.PART IV Item 15.Exhibits,Financial Statement Schedules 73.Exhibit Index 74.Signatures 77.190682_Form 10k.indd 33/19/18 2:00 PM4 SAFE HARB

52、OR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Annual Report on Form 10-K(this“Form 10-K”)contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.Such statements reflect the Companys current expectations regarding i

53、ts products,its markets and its future financial and operating performance.These statements,however,are subject to risks and uncertainties that may cause the Companys actual results in future periods to differ materially from those expected.Such risks and uncertainties include,but are not limited to

54、,unanticipated slowdowns in the Companys major markets,changing customer preferences,lack of success of new products,loss of customers,competition,increased raw material prices,problems associated with foreign sourcing of parts and products,worldwide conditions and foreign currency fluctuations that

55、 may affect results of operations,and other factors discussed in Item 1A of this Form 10-K and,from time to time,in the Companys filings with the Securities and Exchange Commission.The Company undertakes no obligation to update,alter,or otherwise revise any forward-looking statements,whether written

56、 or oral,that may be made from time to time,whether as a result of new information,future events,or otherwise.PART I ITEM 1 BUSINESS (a)General Development of Business The Eastern Company(the“Company,”“Eastern,”“we,”“us,”or“our”)was incorporated under the laws of the State of Connecticut in October,

57、1912,succeeding a co-partnership established in October,1858.The business of the Company is the design,manufacture and sale of industrial hardware,security products and metal products.Today,the Company maintains sixteen physical locations across North America and Asia.RECENT DEVELOPMENTS On April 3,

58、2017,the Company completed a Securities Purchase Agreement(the“Securities Purchase Agreement”)with Velvac Holdings,Inc.,a Delaware corporation(“Velvac”),Jeffery R.Porter,W.Greg Bland,John Backovitch,Dave Otto,Bob Otto,Timothy Rintelman,Robert Brester,Dan Mcgrew,Mark Moeller,and Prospect Partners II,

59、L.P.(collectively,the“Sellers”).Pursuant to the Securities Purchase Agreement,the Company acquired 100%of the issued and outstanding stock of Velvac from the Sellers(the“Velvac Acquisition”)for$39.5 million and an earnout consideration contingent upon Velvac achieving minimum earnings performance le

60、vels and based on sales of Velvacs new proprietary Road-iQ product line(the“Earnout Consideration”).The Velvac Acquisition was financed with a$31 million term loan from Peoples United Bank,National Association(“Peoples”),a$5 million draw down on the Companys$10 million revolving credit facility with

61、 Peoples and$3.5 million in cash.In addition,the Company paid a working capital adjustment of$0.6 million by which working capital exceeded a pre-determined target amount.Please refer to the Companys Current Report on Form 8-K filed on April 7,2017 and the amendment thereto filed on June 19,2017 for

62、 further details.(b)Financial Information about Industry Segments Financial information about industry segments is included in Note 10 to the Companys financial statements,included in Item 8 of this Form 10-K.(c)Narrative Description of Business The Eastern Company actively manages niche industrial

63、divisions that focus on the design,manufacture and sale of particular products and industrial services and are leaders in their specific market sector.We believe Easterns divisions operate in industries with long-term macroeconomic growth opportunities,have positive and stable cash flows,face minima

64、l threats of technological or competitive obsolescence,and have strong management teams largely in place.Eastern focuses on proactive financial and operational management of its divisions in order to increase earnings and increase long-term shareholder value.Among other things,Eastern regularly moni

65、tors financial and operational performance,instilling consistent financial discipline and assisting management in their analysis and pursuit of prudent organic growth strategies.190682_Form 10k.indd 43/19/18 2:00 PM5 Eastern also identifies and works with division management to execute attractive ex

66、ternal growth and acquisition opportunities.In addition,Eastern recruits and retains talented managers to operate its divisions.Eastern continuously reviews acquisitions of businesses that have the potential for significant long-term value creation and periodically evaluates the retention and dispos

67、ition of its existing divisions and investments.We seek to acquire businesses that produce stable and growing earnings and cash flows.Eastern may pursue acquisitions in industries other than those in which its divisions currently operate if an acquisition presents an attractive opportunity.The Compa

68、ny operates in three business segments:Industrial Hardware,Security Products and Metal Products.Industrial Hardware The Industrial Hardware business segment consists of Eberhard Manufacturing,Eberhard Hardware Manufacturing Ltd.,Eastern Industrial Ltd,Velvac,Canadian Commercial Vehicles Corporation,

69、Composite Panel Technologies and Sesamee Mexicana,S.A.de C.V.These divisions design,manufacture and market a diverse product line of custom and standard vehicular and industrial hardware,including passenger restraint and vehicular locks,latches,hinges,mirrors,mirror-cameras,light-weight sleeper boxe

70、s and truck bodies.These products can be found on tractor-trailer trucks,specialty commercial vehicles,recreational vehicles,fire and rescue vehicles,school buses,military vehicles and other vehicles.In addition,the segment designs and manufactures a wide selection of fasteners and other closure dev

71、ices used to secure access doors on various types of industrial equipment such as metal cabinets,machinery housings and electronic instruments.The segment sells directly to original equipment manufacturers and to distributors through in-house salesmen and outside sales representatives.Sales,customer

72、 engineering and customer service are provided through in-house sales personnel and engineering staff.We believe that in order to service these markets,our divisions offer competitive engineering design,service,quality and price.In addition,we invest in the continued introduction of new or improved

73、product designs and we expand into synergistic product lines in order to maintain and increase market share.Security Products The Security Products business segment consists of Illinois Lock Company/CCL Security Products,World Lock Company Ltd.,Dongguan Reeworld Security Products Ltd.,World Security

74、 Industries Ltd.,Greenwald Industries(“Greenwald”),and Argo EMS(formerly Argo Transdata).Illinois Lock Company/CCL Security Products designs,manufactures and distributes custom engineered and standard closing and locking systems,including vehicular accessory locks,cabinet locks,cam locks,electric sw

75、itch locks,tubular key locks and combination padlocks.Some of its products are sold under the names SESAMEE,PRESTOLOCK and SEARCHALERT.These products are sold to original equipment manufacturers,distributors,route operators,and locksmiths through in-house salesmen and outside sales representatives.G

76、reenwald manufactures and markets coin acceptors and other coin security products used primarily in the commercial laundry markets.Greenwalds products include timers,drop meters,coin chutes,money boxes,meter cases,smart cards,value transfer stations,smart card readers,card management software,and ac

77、cess control units.Argo EMS supplies printed circuit boards and other electronic assemblies to original equipment manufacturers in various industries,including measurement systems,semiconductor equipment manufacturing,and industrial controls,medical and military products.The Security Products segmen

78、t continuously seeks new markets where it can offer competitive engineered solutions that meet manufacturers security needs.Metal Products The Company believes that its Metal Products business segment,based at the Companys Frazer&Jones facility,is the largest and most efficient producer of expansion

79、 shells for use in supporting the roofs of underground mines.This segment also manufactures specialty malleable and ductile iron castings.Typical products include mine roof support anchors,couplers for railroad braking systems,support anchoring for construction and couplers/fittings for utility(oil,

80、water and gas)industries.Mine roof support anchors are sold to bolt manufacturers while specialty castings are sold to original equipment manufacturers or machine houses.Frazer&Jones will not be effected by the new metals tariff since all metals are purchased domestically.General The Company obtains

81、 materials from domestic,Asian affiliated and nonaffiliated sources.Raw materials and outside services were readily available for all of the Companys segments during 2017 and are expected to be readily available in 2018 and the foreseeable future.In 2017,the Company experienced price increases for m

82、any of the raw materials used in producing its products,including:scrap iron,zinc,brass and stainless steel.In 2016,the Company experienced a price decline for many of these same materials.At this time,the Company expects raw material prices to continue to increase as demand for raw materials increa

83、ses 190682_Form 10k.indd 53/19/18 2:00 PM6 as the global economy grows.These raw material cost increases could negatively impact the Companys gross margin if raw material prices increase too rapidly for the Company to recover those cost increases through either price increases to our customers or co

84、st reductions in other areas of the business.Patent and trademark protection for the various product lines within the Company is limited,but believed by the Company to be sufficient to protect the Companys competitive positions.No business segment is dependent on any patent nor would the loss of any

85、 patent have any material adverse effect on the Companys business.Foreign sales are not significant.None of the Companys division segments are seasonal.Customers for all business segments are broad-based geographically and by markets,and sales are generally not highly concentrated by customer.No one

86、 customer exceeded 10%of total consolidated sales in 2017,2016 or 2015.The dollar amount of the backlog of orders received by the Company is believed to be firm as of the fiscal year ended December 30,2017.Such backlogs was$34,991,000 at December 30,2017,as compared to$26,993,000 at December 31,2016

87、.The primary reasons for the change from 2016 to 2017 were the acquisition of Velvac on April 3,2017 and the timing of orders received from customers.The Company encounters competition in all of its business segments.Imports from Asia and Latin America with favorable currency exchange rates and low

88、cost labor have created additional pricing pressure.The Company competes successfully by offering high quality custom engineered products on a timely basis.To compete,the Company deploys internal engineering resources,maintains cost effective manufacturing capabilities through its wholly-owned Asian

89、 subsidiaries,expands its product lines through product development and acquisitions,and maintains sufficient inventory for fast turnaround of customer orders.Research and development expenditures in 2017 were$3,678,000 and represented 1.8%of gross revenues.In 2016 and 2015,such expenditures were$1,

90、526,000 and$1,219,000,respectively.The research and developments costs are primarily attributable to the Velvac and Eberhard Manufacturing divisions.Velvac performs ongoing research,in both the mechanical and electronic product lines,and in RoadIQ.This research is necessary for the Company to remain

91、 competitive and to continue to provide technologically advanced electronic systems.Eberhard Manufacturing develops new products for the various markets it serves based on changing customer requirements to remain competitive.Other research projects include the development of various latches and rota

92、ries and various transportation and industrial hardware products.The Company does not anticipate that compliance with federal,state or local environmental laws or regulations is likely to have a material effect on the Companys capital expenditures,earnings or competitive position.The average number

93、of employees in 2017 was 1,189.The Companys ratio of working capital to sales improved in 2017 to 33.7%from 47.1%in 2016 and 41.6%in 2015.The improvement in working capital was the result of a reduction in inventory in the Metal business segment and partially the result of the Velvac acquisition.Wor

94、king capital includes cash held in various foreign subsidiaries.With the passage of recent tax legislation cash previously held in foreign countries can be repatriated back to the United States and used for other business needs thus reducing working capital further.Other factors affecting working ca

95、pital include our average days sales in accounts receivable,inventory turnover ratio and payment of vendor accounts payable.In some cases,the company must hold extra inventory due to extended lead time in receiving products ordered from our foreign subsidiaries to ensure product is available for our

96、 customers.The Company continues to monitor its working capital needs with the goal of reducing our ratio of working capital to sales to 25%.(d)Financial Information about Geographic Areas The Company includes six operating divisions located within the United States,two wholly-owned Canadian subsidi

97、aries(one located in Tillsonburg,Ontario,Canada,and one in Kelowna,British Columbia,Canada),a wholly-owned Taiwanese subsidiary located in Taipei,Taiwan,a wholly-owned subsidiary located in Hong Kong,two wholly-owned Chinese subsidiaries(one located in Shanghai,China,and one located in Dongguan,Chin

98、a),a wholly-owned subsidiary located in Reynosa,Mexico,and a wholly-owned subsidiary located in Lerma,Mexico.Individually,the Canadian,Taiwanese,Hong Kong,Chinese and Mexican subsidiaries revenues and assets are not significant.Substantially all other revenues are derived from customers located in t

99、he United States.190682_Form 10k.indd 63/19/18 2:00 PM7 Financial information about foreign and domestic operations revenues and identifiable assets is included in Note 10 to the Companys financial statements,included in Item 8 of this Form 10-K.Information about risks attendant to the Companys fore

100、ign operations is set forth in Item 1A of this Form 10-K.(e)Available Information The Company makes available,free of charge through its Internet website at http:/,its annual report on Form 10-K,quarterly reports on Form 10-Q,current reports on Form 8-K and amendments to those reports filed or furni

101、shed pursuant to Section 13(a)or 15(d)of the Securities Exchange Act of 1934,as amended(the“Exchange Act”),as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission(the“SEC”).The public may read and copy any materials th

102、at the Company files with the SEC at the SECs Public Reference Room,100 F Street,N.E.,Washington,DC 20549 or by calling the SEC at 1-800-SEC-0330.The Companys reports filed with,or furnished to,the SEC are also available on the SECs website at www.sec.gov.ITEM 1A RISK FACTORS In addition to the othe

103、r information contained in this Form 10-K and the exhibits hereto and the Companys other filings with the SEC,the following risk factors should be considered carefully in evaluating the Companys business.The Companys business,financial condition or results of operation could be materially adversely

104、affected by any of these risks or additional risks not presently known to the Company,or by risks the Company currently deems immaterial.which may also adversely affect its business,financial condition or results of operations,such as:changes in the economy,including changes in inflation,tax rates,i

105、nterest rates and currency exchange rates;risk associated with possible disruption in the Companys operations due to terrorism,cybersecurity threats and other manmade or natural disasters;future regulatory actions,legal issues or environmental matters;loss of,or changes in,executive management;and c

106、hanges in accounting standards that are adverse to the Company.Additionally,there can be no assurance that the Company has correctly identified and appropriately assessed all factors affecting its business or that information publicly available with respect to these matters is complete and correct.T

107、he Companys business is subject to risks associated with conducting business overseas.International operations could be adversely affected by changes in political and economic conditions,trade protection measures,restrictions on repatriation of earnings,differing intellectual property rights and cha

108、nges in regulatory requirements that restrict the sales of products or increase costs.Changes in exchange rates between the U.S.dollar and foreign currencies could result in increases or decreases in earnings and may adversely affect the value of the Companys assets outside the United States.The Com

109、panys operations are also subject to the effects of international trade agreements and regulations.These trade agreements could impose requirements that adversely affect the Companys business,such as,but not limited to,setting quotas on products that may be imported from a particular country into th

110、e Companys key markets in North America.The Companys ability to import products in a timely and cost-effective manner may also be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers,such as port and shipping capacity,labor disputes,severe weather

111、or increased homeland security requirements in the United States or other countries.These issues could delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to customers.These alternatives may not be available on short notice or

112、 could result in higher transit costs,which could have an adverse impact on the Companys business,financial conditions or results of operations.Indebtedness may affect our business and may restrict our operating flexibility.As of December,31,2017,the Company had$35,225,000 in total consolidated inde

113、btedness.Subject to restrictions contained in our credit facility,the Company may incur additional indebtedness in the future,including indebtedness incurred to finance acquisitions.The level of indebtedness and servicing costs associated with that indebtedness could have important effects on our op

114、eration and business strategy.For example,the indebtedness could:Place the Company at a competitive disadvantage relative to the Companys competitors,some of which have lower debt service obligations and greater financial resources;Limit our ability to borrow additional funds;190682_Form 10k.indd 73

115、/19/18 2:00 PM8 Limit our ability to complete future acquisitions;Limit our ability to pay dividends;Limit our ability to make capital expenditures;and Increase the Companys vulnerability to general adverse economic and industry conditions.The Companys ability to make scheduled principal payments,to

116、 pay interest on,or to refinance our indebtedness and to satisfy other debt obligations will depend upon future operating performance,which may be affected by factors beyond the Companys control.In addition,there can be no assurance that future borrowings or the issuance of equity would be available

117、 to the Company on favorable terms for the payment or refinancing of the Companys debt.If the Company is unable to service its indebtedness,the business,financial condition and results of operation would be materially adversely affected.The Companys credit facility contains covenants requiring the C

118、ompany to achieve certain financial and operations results and maintain compliance with specified financial ratios.The Companys ability to meet the financial covenants or requirements in its credit facility may be affected by events beyond our control,and the Company may not be able to satisfy such

119、covenants and requirements.A breach of these covenants or the Companys inability to comply with the financial ratios,tests or other restrictions contained in our credit facility could result in an event of default under such credit facility.Upon the occurrence of an event of default under our credit

120、 facility and/or the expiration of any grace periods,the lenders could elect to declare all amounts outstanding under our credit facility,together with accrued interest,to be immediately due and payable.If this were to occur,the Companys assets may not be sufficient to fully repay the amounts due un

121、der our credit facility or the Companys other indebtedness.See also“ITEM 7A-QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK”of this Form 10-K.In addition,the Companys growth strategy involves expanding sales of its products into foreign markets.There is no guarantee that the Companys prod

122、ucts will be accepted by foreign customers or how long it may take to develop sales of the Companys products in these foreign markets.Increases in the price or reduced availability of raw materials.Raw materials needed to manufacture products are obtained from numerous suppliers.Under normal market

123、conditions,these raw materials are readily available on the open market from a variety of producers.However,from time to time,the prices and availability of these raw materials fluctuate,which could impair the Companys ability to procure the required raw materials for its operations or increase the

124、cost of manufacturing its products.If the price of raw materials increases,the Company may be unable to pass these increases on to its customers and could experience reductions to its profit margins.Also,any decrease in the availability of raw materials could impair the Companys ability to meet prod

125、uction requirements in a timely manner.If tariffs on imported steel and aluminum,such as those recently proposed by the President of the United States,are implemented,our cost of raw materials may increase,which could adversely affect our business,results of operations and financial condition.The Co

126、mpany obtains raw materials,including stainless steel used in the production of its products from domestic,Asian affiliated and nonaffiliated sources.The President of the United States recently announced a proposal to impose tariffs of 25 percent on imported steel and 10 percent on imported aluminum

127、 through the issuance of an executive order.If implemented,such tariffs may cause an increase in costs for all domestic entities,including the Company,that purchase imported steel or aluminum.Because steel are raw materials used in a wide-range of the Companys products,a broad-based cost increase wo

128、uld result in an increase in the Companys cost of goods sold,which may require us to increase prices for some of our products.However,our inability to pass along such price increases to our customers,or an inability of our suppliers to meet our raw material requirements,may have a material adverse i

129、mpact on our business,results of operations or financial condition.Changes in competition in the markets that the Company services could impact revenues and earnings.Any change in competition may result in lost market share or reduced prices,which could result in reduced profits and margins.This may

130、 impair the ability to grow or even maintain current levels of revenues and earnings.While the Company has an extensive customer base,loss of certain customers could adversely affect the Companys business,financial condition or results of operations until such business is replaced,and no assurances

131、can be made that the Company would be able to regain or replace any lost customers.190682_Form 10k.indd 83/19/18 2:00 PM9 The Company is required to evaluate its internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002.The Company is an“accelerated filer”as defin

132、ed in Rule 12b-2 under the Exchange Act and is thus required to comply with Section 404 of the Sarbanes-Oxley Act of 2002.Section 404 requires the Company to include in its report managements assessment of the effectiveness of the Companys internal control over financial reporting as of the end of t

133、he fiscal period for which the Company is filing its Annual Report on Form 10-K.This report must also include disclosure of any material weaknesses in internal control over financial reporting that the Company has identified.Additionally,the Companys independent registered public accounting firm is

134、required to issue a report on the Companys internal control over financial reporting and their evaluation of the operating effectiveness of the Companys internal control over financial reporting.The Companys assessment requires it to make subjective judgments,and the independent registered public ac

135、counting firm may not agree with the Companys assessment.If the Company or its independent registered public accounting firm were unable to complete the assessments within the period prescribed by Section 404 and thus be unable to conclude that the internal control over financial reporting is effect

136、ive,investors could lose confidence in the Companys reported financial information,which could have an adverse effect on the market price of the Companys common stock or impact the Companys borrowing ability.In addition,changes in operating conditions and changes in compliance with policies and proc

137、edures currently in place may result in inadequate internal control over financial reporting in the future.The inability to develop new products could limit growth.Demand for new products and the inability to develop and introduce new competitive products at favorable profit margins could adversely

138、affect the Companys performance and prospects for future growth,and the Company would not be positioned to maintain current levels of revenues and earnings.The uncertainties associated with developing and introducing new products,such as the market demands and the costs of development and production

139、,may impede the successful development and introduction of new products.Acceptance of the new products may not meet sales expectations due to several factors,such as the Companys potential inability to accurately predict market demand or to resolve technical issues in a timely and cost effective man

140、ner.Additionally,the inability to develop new products on a timely basis could result in the loss of business to competitors.The inability to identify or complete acquisitions could limit growth.The Companys future growth may partly depend on its ability to acquire and successfully integrate new bus

141、inesses.The Company intends to seek additional acquisition opportunities,both to expend into new markets and to enhance the Companys position in existing markets.However,there can be no assurances that the Company will be able to successfully identify suitable candidates,negotiate appropriate terms,

142、obtain financing on acceptable terms,complete proposed acquisitions,successfully integrate acquired businesses or expand into new markets.Once acquired,operations may not achieve anticipated levels of revenues or profitability.Acquisitions involve risk,including difficulties in the integration of th

143、e operations,technologies,services and products of the acquired companies and the diversion of managements attention from other business concerns.Although the Companys management will endeavor to evaluate the risks inherent in any particular transaction,there can be no assurances that the Companys m

144、anagement will properly ascertain all such risks.In addition,prior acquisitions have resulted,and future acquisitions could result in the incurrence of substantial debt and other expenses.Future acquisitions may also result in potentially dilutive issuances of equity securities.Difficulties encounte

145、red with acquisitions may have a material adverse effect on our business,financial condition and results of operations.Environmental compliance costs and liabilities could increase the Companys expenses and adversely affect the Companys financial condition.The Companys operations and properties are

146、subject to laws and regulations relating to environmental protection,including air emissions,water discharges,waste management and workplace safety.These laws and regulations can result in the imposition of substantial fines and sanctions for violations and could require the installation of pollutio

147、n control equipment or operational changes to limit pollution emissions and/or decrease the likelihood of accidental hazardous substance releases.The Company must conform its operations and properties to these laws and adapt to regulatory requirements in the countries in which the Companys divisions

148、 operate as these requirements change.190682_Form 10k.indd 93/19/18 2:00 PM10 The Company uses and generates hazardous substances and wastes in its operations and,as a result,could be subject to potentially material liabilities relating to the investigation and clean-up of contaminated properties an

149、d to claims alleging personal injury.The Company has experienced,and expects to continue to experience,costs relating to compliance with environmental laws and regulations.In connection with the Companys acquisitions,the Company may assume significant environmental liabilities,some of which it may n

150、ot be aware of at the time of acquisition.In addition,new laws and regulations,stricter enforcement of existing laws and regulations,the discovery of previously unknown contamination or the imposition of new clean-up requirements could require the Company to incur costs or become the basis for new o

151、r increased liabilities that could have a material adverse effect on our business,financial condition and results of operations.Our technology is important to the Companys success and the failure to protect this technology could put the Company at a competitive disadvantage.Some of the Companys prod

152、ucts rely on proprietary technology;therefore,the Company believes that the development and protection of intellectual property rights through patents,copyrights,trade secrets,trademarks,confidentiality agreements and other contractual provisions are important to the future success of its business.D

153、espite the Companys efforts to protect proprietary rights,unauthorized parties or competitors may copy or otherwise obtain and use the Companys products or technology.Actions to enforce these rights may result in substantial costs and diversion of resources and the Company make no assurances that an

154、y such actions will be successful.The Company relies on information and technology for many of its business operations,which could fail and cause disruption to the Companys business operations.The Companys business operations are dependent upon information technology networks and systems to securely

155、 transmit,process and store electronic information and to communicate among its locations around the world and with clients and vendors.A shut-down of,or inability to access,one or more of the Companys facilities,a power outage or a failure of one or more of the Companys information technology,telec

156、ommunications or other systems could significantly impair the Companys ability to perform such functions on a timely basis.Computer viruses,cyberattacks,other external hazards and human error could result in the misappropriation of assets or sensitive information,corruption of data or operational di

157、sruption.If sustained or repeated,such a business interruption,system failure,service denial or data loss and damage could result in a deterioration of the Companys ability to write and process orders,provide customer service or perform other necessary business functions.A breach in the security of

158、the Companys software could harm its reputation,result in a loss of current and potential customers and subject the Company to material claims,which could materially harm our operating results and financial condition.If the Companys security measures are breached,an unauthorized party may obtain acc

159、ess to the Companys data or users or customers data.In addition,cyber-attacks and similar acts could lead to interruptions and delays in customer processing or a loss or breach of a customers data.Because the techniques used to obtain unauthorized access,disable or degrade service,or sabotage system

160、s change frequently and often are not recognized until launched against a target,the Company may be unable to anticipate these techniques or to implement adequate preventative measures.The risk that these types of events could seriously harm the Companys business is likely to increase as the Company

161、 expands the number of web-based products we offer,the services we provide,and our global operations.Regulatory authorities around the world are considering a number of legislative and regulatory proposals concerning data protection.In addition,the interpretation and application of consumer and data

162、 protection laws in the United States and elsewhere are often uncertain and in flux.It is possible that these laws may be interpreted and applied in a manner that is inconsistent with the Companys data practices.If so,in addition to the possibility of fines,this could result in an order requiring th

163、at the Company change its data practices,which could have an adverse effect on its business and results of operations.Any security breaches for which the Company is,or is perceived to be,responsible,in whole or in part,could subject us to legal claims or legal proceedings,including regulatory invest

164、igations,which could harm the Companys reputation and result in significant litigation costs and damage awards or settlement amounts.Any imposition of liability,particularly liability that is not covered by insurance or is in excess of insurance coverage,could materially harm our operating results a

165、nd financial condition.Security breaches also could cause the Company to lose current and potential customers,which could have an adverse effect on 190682_Form 10k.indd 103/19/18 2:00 PM11 our business.Moreover,the Company might be required to expend significant financial and other resources to furt

166、her protect against security breaches or to rectify problems caused by any security breach.The Company could be subject to litigation,which could have a material impact on the Companys business,financial condition or results of operations.From time to time,the Companys operations are parties to or t

167、argets of lawsuits,claims,investigations and proceedings,including product liability,personal injury,patent and intellectual property,commercial,contract,and environmental and employment matters,which are defended and settled in the ordinary course of business.While the Company is unable to predict

168、the outcome of any of these matters,it does not believe,based upon currently available information,that the resolution of any pending matter will have a material adverse effect on its business,financial condition or results of operations.See“ITEM 3 LEGAL PROCEEDINGS”in this Form 10-K for a discussio

169、n of current litigation.The Company could be subject to additional tax liabilities.The Company is subject to income tax laws of the United States,its states and municipalities and those of other foreign jurisdictions in which the Company has business operations.These laws are complex and subject to

170、interpretations by the taxpayer and the relevant governmental taxing authorities.Significant judgment and interpretation is required in determining the Companys worldwide provision for income taxes.In the ordinary course of business,transactions arise where the ultimate tax determination is uncertai

171、n.Although the Company believes that our tax estimates are reasonable,the final outcome of tax audits and any related litigation could be materially different from that which is reflected in historical income tax provisions and accruals.Based on the status of a given tax audit or related litigation,

172、a material effect on the Companys income tax provision or net income may result during the period or periods from the initial recognition of a particular matter in the Companys reported financial results to the final closure of that tax audit or settlement of related litigation when the ultimate tax

173、 and related cash flow is known with certainty.The Companys goodwill or indefinite-lived intangible assets may become impaired,which could require a significant charge to earnings to be recognized.Under accounting principles generally accepted in the United States,goodwill and indefinite-lived intan

174、gible assets are not amortized but are reviewed for impairment at least annually.Future operating results used in the assumptions,such as sales or profit forecasts,may not materialize,and the Company could be required to record a significant charge to earnings in the financial statements during the

175、period in which any impairment is determined,resulting in an unfavorable impact on our results of operations.Numerous assumptions are used in the evaluation of impairment,and there is no guarantee that the Companys independent registered public accounting firm would reach the same conclusion as the

176、Company or an independent valuation firm,which could result in a disagreement between management and the Companys independent registered public accounting firm.The Company may need additional capital in the future,which may not be available on acceptable terms,if at all.From time-to-time,the Company

177、 has historically relied on outside financing to fund expanded operations,capital expenditure programs and acquisitions.The Company may require additional capital in the future to fund operations or strategic opportunities.The Company cannot be assured that additional financing will be available on

178、favorable terms,or at all.In addition,the terms of available financing may place limits on the Companys financial and operating flexibility.If the Company is unable to obtain sufficient capital in the future,the Company may not be able to expand or acquire complementary businesses and may not be abl

179、e to continue to develop new products or otherwise respond to changing business conditions or competitive pressures.The Companys stock price may become highly volatile.The Companys stock price may change dramatically when buyers seeking to purchase shares of the Companys common stock exceed the shar

180、es available on the market,or when there are no buyers to purchase shares of the Companys common stock when shareholders are trying to sell their shares.190682_Form 10k.indd 113/19/18 2:00 PM12 The Company may not be able to reach acceptable terms for contracts negotiated with its labor unions and b

181、e subject to work stoppages or disruption of production.During 2018,union contracts covering approximately 9%of the Companys total workforce will expire.The Company has been successful in negotiating new contracts over the years,but cannot guarantee that will continue.Failure to negotiate new union

182、contracts could result in the disruption of production,inability to deliver product or a number of unforeseen circumstances,any of which could have an unfavorable material impact on the Companys results of operations or financial condition.Deterioration in the creditworthiness of several major custo

183、mers could have a material impact on the Companys business,financial condition or results of operations.Included as a significant asset on the Companys balance sheet are accounts receivable from our customers.If several large customers become insolvent or are otherwise unable to pay for products,or

184、become unwilling or unable to make payments in a timely manner,it could have an unfavorable material impact on the Companys results of operations or financial condition.Although the Company is not dependent on any one customer,deterioration in several large customers at the same time could have an u

185、nfavorable material impact on the Companys results of operations or financial condition.No one customer exceeded 10%of total accounts receivable for 2017,2016 or 2015.The Companys operating results may fluctuate,which makes the results of operations difficult to predict and could cause the results t

186、o fall short of expectations.The Companys operating results may fluctuate as a result of a number of factors,many of which are outside of our control.As a result,comparing the Companys operating results on a period-to-period basis may not be meaningful,and past results should not be relied upon as a

187、n indication of future performance.Quarterly,year to date and annual costs and expenses as a percentage of revenues may differ significantly from historical or projected levels.Future operating results may fall below expectations.These types of events could cause the price of the Companys stock to f

188、all.New or existing U.S.or foreign laws could subject the Company to claims or otherwise impact the Companys business,financial condition or results of operations.The Company is subject to a variety of laws in both the U.S.and foreign countries that are costly to comply with,can result in negative p

189、ublicity and diversion of management time and effort and can subject the Company to claims or other remedies.ITEM 1B UNRESOLVED STAFF COMMENTS None.ITEM 2 PROPERTIES The corporate office of the Company is located in Naugatuck,Connecticut in a two-story,8,000 square foot administrative building on 3.

190、2 acres of land.All of the Companys properties are owned or leased and are adequate to satisfy current requirements.All of the Companys properties have the necessary flexibility to cover any long-term expansion requirements.The Industrial Hardware Group includes the following:The Eberhard Manufactur

191、ing Division in Strongsville,Ohio owns 9.6 acres of land and a building containing 157,580 square feet,located in an industrial park.The building is steel frame,is one-story and has curtain walls of brick,glass and insulated steel panels.The building has two high bays,one of which houses two units o

192、f automated warehousing.190682_Form 10k.indd 123/19/18 2:00 PM13 Eberhard Hardware Manufacturing,Ltd.,a wholly-owned Canadian subsidiary in Tillsonburg,Ontario,owns 4.4 acres of land and a building containing 31,000 square feet in an industrial park.The building is steel frame,is one-story,and has c

193、urtain walls of brick,glass and insulated steel panels.It is particularly suited for light fabrication,assembly and warehousing and is adequate for long-term expansion requirements.Canadian Commercial Vehicles Corporation(“CCV”),a wholly-owned subsidiary in Kelowna,British Columbia,leases 46,385 squ

194、are feet of building space located in an industrial park.The building is made from brick and concrete,contains approximately 5,400 square feet of office space on two levels and houses a modern paint booth for finishing our products.The building is protected by a F1 rated fire suppression system and

195、alarmed for fire and security.CCVs lease expires on December 31,2018 and is renewable.The Composite Panel Technologies Division(“CPT”)in Salisbury,North Carolina,leases 70,000 square feet of building space located in an industrial park.The building is made from brick and concrete,contains approximat

196、ely 6,600 square feet of office space on one level and houses a modern paint booth for finishing our products.The building is protected by a water sprinkler fire suppression system and is alarmed for fire and security.The current lease expires on October 31,2019 and is renewable.Eastern Industrial L

197、td.,a wholly-owned subsidiary in Shanghai,China,leases brick and concrete buildings containing approximately 47,500 square feet of space that are located in both industrial and commercial areas.In 2016,Eastern Industrial,Ltd.entered into a six-year lease,which expires on March 31,2022 and is renewab

198、le.The Sesamee Mexicana subsidiary leases 42,588 square feet in a facility located in an industrial park in Lerma,Mexico.The current lease expires on November 30,2020 and is renewable.The building is steel frame with concrete block and glass curtain walls.Velvac,Inc.,a wholly-owned subsidiary in New

199、 Berlin,Wisconsin,leases a 98,000 square foot building.The building includes 17,000 square feet of office space and 81,000 square feet of warehousing and distribution operations.The current lease expires on May 31,2021.Velvac de Reynosa,S.De R.L De C.V.,a maquiladora wholly-owned in Reynosa,Tamaulip

200、as,Mexico,leases 90,000 square feet of building space located in an industrial park identified as Buildings 19,20 and 21 and on a tract of land with an area of 165,507 square feet.The building is one level and is made from brick and concrete.The building is protected by a 24 hour security system and

201、 onsite security.The current lease expires on August 31,2021.Velvac,Inc.also leases a 9,300 square foot building in Bellingham,Washington.The premises are used solely for software development and research and development.The current lease expires on September 30,2021.The Security Products Group incl

202、udes the following:The Greenwald Industries Division in Chester,Connecticut owns 26 acres of land and a building containing 120,000 square feet.The building is steel frame,is one-story,and has brick over concrete blocks.The Illinois Lock Company/CCL Security Products Division owns 2.5 acres of land

203、and a building containing 44,000 square feet in Wheeling,Illinois.The building is brick and is located in an industrial park.The Argo EMS Division leases approximately 17,000 square feet of space in a building located in an industrial park in Clinton,Connecticut.The building is a two-story steel fra

204、me structure and is situated on 2.9 acres of land.The current lease expires on March 31,2019.The World Lock Co.Ltd.subsidiary leases 5,285 square feet of space in a building located in Taipei,Taiwan.The building is made from brick and concrete and is protected by a fire alarm and sprinklers.A two-ye

205、ar lease was signed in 2016,which expires on July 31,2018 and is renewable.190682_Form 10k.indd 133/19/18 2:00 PM14 The Dongguan Reeworld Security Products Company Ltd.subsidiary was established in July 2013 to manufacture locks and hardware and leases 118,000 square feet of space in concrete buildi

206、ngs that are located in an industrial park in Dongguan,China.A five-year lease was signed in 2013,which expires on June 30,2018 and is renewable.The Metal Products Group consists of:The Frazer and Jones Division in Solvay,New York owns 17.9 acres of land and buildings containing 205,000 square feet

207、constructed for foundry use.These facilities are well adapted to handle the divisions current and future casting requirements.All owned properties are free and clear of any encumbrances.ITEM 3 LEGAL PROCEEDINGS The Company is party to various legal proceedings and claims related to its normal busine

208、ss operations.In the opinion of management,the Company has substantial and meritorious defenses for these claims and proceedings in which it is a defendant,and believes these matters will ultimately be resolved without a material adverse effect on the consolidated financial position,results of opera

209、tions or liquidity of the Company.The aggregate provision for losses related to contingencies arising in the ordinary course of business was not material to operating results for any year presented.In 2010,the Company was contacted by the State of Illinois regarding potential ground contamination at

210、 its plant in Wheeling,Illinois.The Company entered into a voluntary remediation program in Illinois and has engaged an environmental clean-up company to perform testing and develop a remediation plan.Since 2010,the environmental company has completed a number of tests and the design of a final reme

211、diation system is currently being reviewed and is expected to be approved in the first quarter of 2018.The total estimated cost for the proposed remediation system is anticipated to be approximately$50,000.In 2016,the Company created a plan to remediate a landfill of spent foundry sand maintained at

212、 the Companys Metal Casting facility in New York.This plan was presented to the New York Department of Environmental Conservation(the“DEC”)for approval in the first quarter of 2018.The Company is in final negotiations with the DEC,and,based on estimates provided by the Companys environmental enginee

213、rs,the anticipated cost to remediate and monitor the landfill is$380,000.The Company accrued for and expensed such estimated cost in the second and third quarters of 2017.There are no other legal proceedings,other than ordinary routine litigation incidental to the Companys business,to which either t

214、he Company or any of its subsidiaries is a party or of which any property of the Company or any subsidiary is the subject.ITEM 4 MINE SAFETY DISCLOSURES Not applicable.190682_Form 10k.indd 143/19/18 2:00 PM15 PART II ITEM 5 MARKET FOR REGISTRANTS COMMON EQUITY,RELATED STOCKHOLDER MATTERS AND ISSUER

215、PURCHASES OF EQUITY SECURITIES The Companys common stock is quoted on the NASDAQ Global Market under the symbol“EML”.The approximate number of record holders of the Company common stock on December 30,2017 was 354.The following table sets forth the high and low per share sales prices of the Companys

216、 common stock,and the per share quarterly dividend declared on the Companys common stock,for each quarter of the immediately preceding two years as reported on the NASDAQ Global Market.2017 2016 Market Price Market Price Quarter High Low Dividend Quarter High Low Dividend First$21.50$18.85$0.11 Firs

217、t$19.04$15.01$0.11 Second 31.50 21.06 0.11 Second 17.21 15.74 0.11 Third 31.15 24.35 0.11 Third 20.12 16.39 0.11 Fourth 30.85 25.10 0.11 Fourth 21.50 18.90 0.11 The Company expects to continue its policy of paying regular cash dividends,although there can be no assurance as to future dividends becau

218、se they are dependent on future earnings,capital requirements and financial condition.The payment of dividends is subject to the restrictions of the Companys loan agreement if such payment would result in an event of default.See Item 7 Managements Discussion and Analysis of Financial Condition and R

219、esults of Operations,and Note 5 to the Companys financial statements included in Item 8 of this Form 10-K.The following table sets forth information regarding securities authorized for issuance under the Companys equity compensation plans as of December 30,2017,consisting of the Companys 2010 Execut

220、ive Stock Incentive Plan(the“2010 Plan”).Equity Compensation Plan Information Plan category Number of securities to be issued upon exercise of outstanding options,warrants and rights Weighted-average exercise price of outstanding options,warrants and rights Number of securities remaining available f

221、or future issuance under equity compensation plans(excluding securities reflected in column(a)(a)(b)(c)Equity compensation plans approved by security holders 56,330 20.36 333,5001 Equity compensation plans not approved by security holders-Total 56,330 20.36 333,500 1 Includes shares available for fu

222、ture issuance under the 2010 Plan.Each director who is not an employee of the Company(“Outside Director”)is paid a directors fee for his services at the annual rate of$30,000.Effective August 1,2017,the chairman of the board will receive an annual fee of$60,000 for his services and all chairs of the

223、 varying committees will receive additional compensation.All annual fees paid to non-employee members of the Board of Directors of the Company are paid in common stock of the Company or cash,in accordance with the Directors Fee Program adopted by the shareholders on March 26,1997 and amended on Janu

224、ary 5,2004.The directors make an annual election,within a reasonable time before their first quarterly payment,to receive their fees in the form of cash,stock or a combination thereof.The election remains in force for one year.190682_Form 10k.indd 153/19/18 2:00 PM16 During fiscal years 2017,2016 or

225、 2015,there were no sales by the Company of its securities that were not registered under the Securities Act of 1933,as amended(the“Securities Act”).The Company did not have any share repurchase plans or programs in effect during fiscal year 2017.Stock Performance Graph The following graph sets fort

226、h the Companys cumulative total shareholder return based upon an initial$100 investment made on December 31,2012(i.e.,stock appreciation plus dividends during the past five fiscal years)compared to the Russell 2000 Index and the S&P Industrial Machinery Index.The Company manufactures and markets a b

227、road range of locks,latches,fasteners and other security hardware that meets the diverse security and safety needs of industrial and commercial customers.Consequently,while the S&P Industrial Machinery Index used for comparison is the standard index most closely related to the Company,it does not co

228、mpletely represent the Companys products or market applications.The Russell 2000 is a small cap market index of the smallest 2,000 stocks in the Russell 3000 Index.Dec.12 Dec.13 Dec.14 Dec.15 Dec.16 Dec.17 The Eastern Company$100$103$114$129$147$187 Russell 2000$100$139$146$139$169$194 S&P Industria

229、l Machinery$100$146$153$147$187$249 Copyright 2018 Standard&Poors,a division of S&P Global.All rights reserved.Copyright 2018 Russell Investment Group.All rights reserved.190682_Form 10k.indd 163/19/18 2:00 PM17 ITEM 6 SELECTED FINANCIAL DATA 2017 2016 2015 2014 2013 INCOME STATEMENT ITEMS(in thousa

230、nds)Net sales$204,240$137,608$144,568$140,825$142,458 Cost of products sold 154,189 103,315 112,187 108,339 112,311 Depreciation and amortization 4,719 3,814 3,921 3,486 3,825 Interest expense 977 122 185 255 323 Income before income taxes 11,455 11,223 8,021 11,529 10,114 Income taxes 6,410 3,438 2

231、,294 3,867 3,212 Net income 5,045 7,785 5,727 7,661 6,902 Dividends#2,755 2,751 2,811 2,987 2,613 BALANCE SHEET ITEMS(in thousands)Inventories$47,269$34,030$36,842$34,402$30,658 Working capital 68,751 64,831 60,105 57,845 57,379 Property,plant and equipment,net 29,192 26,166 26,801 28,051 27,392 Tot

232、al assets 176,458 124,198 121,739 121,271 113,858 Shareholders equity 86,931 82,468 79,405 74,975 81,505 Capital expenditures 2,763 2,863 2,538 3,633 5,524 Long-term obligations,less current portion 28,675 893 1,786 3,214 4,286 PER SHARE DATA Net income per share Basic$.81$1.25$0.92$1.23$1.11 Dilute

233、d 0.80 1.25 0.92 1.23 1.11 Dividends#0.44 0.44 0.45 0.48 0.42 Shareholders equity(Basic)13.89 13.19 12.71 12.04 13.10 Average shares outstanding:Basic 6,259,139 6,251,535 6,245,057 6,225,068 6,220,928 Diluted 6,294,773 6,251,535 6,245,057 6,237,914 6,237,758#-Dividends for 2015 include a$0.01 per sh

234、are redemption for the termination of the 2008 Shareholder Rights Agreement.Dividends for 2014 include a one-time extra payment of$0.04 per share distributed on September 15,2014.Critical Accounting Policies and Estimates The preparation of financial statements in accordance with accounting principl

235、es generally accepted in the United States(“U.S.GAAP”)requires management to make judgments,estimates and assumptions regarding uncertainties that affect the reported amounts of assets and liabilities,the disclosure of contingent assets and liabilities and the reported amounts of revenues and expens

236、es.Areas of uncertainty that require judgments,estimates and assumptions include items such as the accounting for derivatives;environmental matters;the testing of goodwill and other intangible assets for impairment;proceeds on assets to be sold;pensions and other postretirement benefits;and tax matt

237、ers.Management uses historical experience and all available information to make its estimates and assumptions,but actual results will inevitably differ from the estimates and assumptions that are used to prepare the Companys financial statements at any given time.Despite these inherent limitations,m

238、anagement believes that Managements Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and related footnotes provide a meaningful and fair presentation of the Company.Management believes that the application of these estimates and assumptions on a c

239、onsistent basis enables the Company to provide the users of the financial statements with useful and reliable information about the Companys operating results and financial condition.Allowance for Doubtful Accounts The Company maintains an allowance for doubtful accounts for estimated losses resulti

240、ng from the inability of its customers to make required payments.The Company reviews the collectability of its receivables on an ongoing basis,taking into account a 190682_Form 10k.indd 173/19/18 2:00 PM18 combination of factors.The Company reviews potential problems,such as past due accounts,a bank

241、ruptcy filing or deterioration in the customers financial condition,to ensure that the Company has adequately accrued for potential loss.Accounts are considered past due based on when payment was originally due.If a customers situation changes,such as a bankruptcy or its creditworthiness,or there is

242、 a change in the current economic climate,the Company may modify its estimate of the allowance for doubtful accounts.The Company will write off accounts receivable after reasonable collection efforts have been made and the accounts are deemed uncollectible.Inventory Reserve Inventories are valued at

243、 the lower of cost or market and or net realizable value.Cost is determined by the last-in,first-out(“LIFO”)method at the Companys U.S.facilities.Accordingly,a LIFO valuation reserve is calculated using the dollar value link chain method.We review the net realizable value of inventory in detail on a

244、n ongoing basis,giving consideration to deterioration,obsolescence and other factors.Based on these assessments,we provide for an inventory reserve in the period in which an impairment is identified.The reserve fluctuates with market conditions,design cycles and other economic factors.Goodwill and O

245、ther Intangible Assets Intangible assets with finite useful lives are generally amortized on a straight-line basis over the periods benefited.Goodwill and other intangible assets with indefinite useful lives are not amortized.The Company performed its most recent qualitative assessment as of the end

246、 of fiscal 2017 and determined that it is more likely than not that no impairment of goodwill existed at the end of 2017.The Company will perform annual qualitative assessments in subsequent years as of the end of each fiscal year.Additionally,the Company will perform interim analysis whenever condi

247、tions warrant.Pension and Other Postretirement Benefits The amounts recognized in the consolidated financial statements related to pension and other postretirement benefits are determined from actuarial valuations.Inherent in these valuations are assumptions about such factors as expected return on

248、plan assets,discount rates at which liabilities could be settled,rate of increase in future compensation levels,mortality rates,and trends in health insurance costs.These assumptions are reviewed annually and updated as required.In accordance with GAAP,actual results that differ from the assumptions

249、 are accumulated and amortized over future periods and,therefore,affect the expense recognized and obligations recorded in future periods.The discount rate used is based on a single equivalent discount rate derived with the assistance of our actuaries by matching expected future benefit payments in

250、each year to the corresponding spot rates from the Citigroup Pension Liability Yield Curve,comprised of high quality(rated AA or better)corporate bonds.Effective January 1,2017,the Company elected to refine its approach for calculating its service and interest costs in future years by applying the s

251、pecific spot rates along the selected yield curve to the relevant projected cash flows.The Company believes this method more precisely measures its obligations.The expected long-term rate of return on assets is also developed with input from the Companys actuarial firms.We consider the Companys hist

252、orical experience with pension fund asset performance,the current and expected allocation of our plan assets and expected long-term rates of return.The long-term rate-of-return assumption used for determining net periodic pension expense was 7.5%for 2017 and 8.0%for 2016.The Company reviews the long

253、-term rate of return each year.Effective January 1,2017,the Company lowered the long-term rate-of-return assumption to 7.5%to better reflect the expected returns of its current investment portfolio.Future actual pension income and expense will depend on future investment performance,changes in futur

254、e discount rates and various other factors related to the population of participants in the Companys pension plans.The Company expects to make cash contributions of approximately$510,000 and$105,000 to our pension plans and other postretirement plan,respectively,in 2018.The Company may contribute$1,

255、000,000 to$2,000,000 in 2018 to take advantage of the 34%corporate tax rate that would be applied to its 2017 federal tax return.The Company has until September 15,2018,or until the Company files its 2017 federal tax return to make that determination and contribution.In connection with our pension a

256、nd other postretirement benefits,the Company reported a$0.6 million,($1.1)million,and$3.5 million gain/(loss)(net of tax)on its Consolidated Statement of Comprehensive Income for Fiscal Years 2017,2016 and 2015,respectively.While the main factor driving this gain/(loss)was the change in the discount

257、 rate during the applicable period,the Company froze the benefits of our salaried pension plan effective May 31,2016,resulting in an approximate$2.5 million gain for this significant event.190682_Form 10k.indd 183/19/18 2:00 PM19 Assumptions used to determine net periodic pension benefit cost for th

258、e fiscal years indicated were as follows:2017 2016 2015 Discount rate 4.04%-4.08%4.24%-4.28%3.90%Expected return on plan assets 7.5%8.0%8.0%Rate of compensation increase 0.0%3.25%3.25%Assumptions used to determine net periodic other postretirement benefit cost are the same as those assumptions used

259、for the pension benefit cost,except that the rate of compensation is not applicable for other postretirement benefit cost.The changes in assumptions had the following effect on the net periodic pension and other postretirement costs recorded in Other Comprehensive Income as follows:Year ended Decemb

260、er 30 December 31 January 2 2017 2016 2016 Discount rate$(6,382,182)$(2,394,216)$4,208,918 Mortality table -Additional recognition due to significant event (496,899)2,534,589-Asset gain or loss 6,043,672(4,358,254)(577,892)Amortization of:Unrecognized gain or loss 1,153,885 1,610,942 1,947,102 Unrec

261、ognized prior service cost 157,430 176,678 194,696 Other 140,969 776,658(415,479)Comprehensive income,before tax 616,875(1,653,603)5,357,345 Income tax 62,632(543,297)1,899,285 Comprehensive income,net of tax$554,243$(1,110,306)$3,458,060 The Plan has been investing a portion of the assets in long-t

262、erm bonds in an effort to better match the impact of changes in interest rates on its assets and liabilities and thus reduce some of the volatility in Other Comprehensive Income.Please refer to Note 9 Retirement Benefit Plans in Item 8 of this Form 10-K for additional disclosures concerning the Comp

263、anys pension and other postretirement benefit plans.Software Development Costs Software development costs,including costs to develop software sold,leased,or otherwise marketed,that are incurred subsequent to the establishment of technological feasibility are capitalized if significant.Costs incurred

264、 during the application development stage for internal-use software are capitalized if significant.Capitalized software development costs are amortized using the straight-line amortization method over the estimated useful life of the applicable software.Such software development costs required to be

265、 capitalized have not been material to date.Items Impacting Earnings To supplement our consolidated financial statements presented in accordance with GAAP,we disclose certain non-GAAP financial measures,including adjusted net income and adjusted earnings per diluted share.Adjusted net income and adj

266、usted earnings per diluted share exclude transaction-related expenses,a charge to costs of goods sold as a result of the impact of purchase accounting and environmental remediation costs.In addition,reported growth in the Industrial Hardware business segment excludes the results of the Velvac divisi

267、on,which was acquired on April 3,2017.Furthermore,we show the impact of the one-time charge related to the Tax Cuts and Jobs Act of 2017.These measures are not in accordance with GAAP.Management uses such measures to evaluate performance period over period,to analyze the underlying trends in our bus

268、iness,including our business segments,to assess our performance relative to our competitors and to establish operational goals and 190682_Form 10k.indd 193/19/18 2:00 PM20 forecasts that are used in allocating resources.These financial measures should not be considered in isolation from,or as a repl

269、acement for,GAAP financial measures.We believe that presenting non-GAAP financial measures in addition to GAAP financial measures provides investors greater transparency to the information used by our management for its financial and operational decision-making.We further believe that providing this

270、 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 expenses from GAAP to Non-GAAP financial measures For the Three and Twelve Months ended December 30,2017 Thr

271、ee Months Ended Twelve Months Ended December 30,2017 December 30,2017 Net Income as reported per generally accepted accounting principles(GAAP)$(168,769)$5,045,255 Earnings Per Share as reported under generally accepted accounting principles(GAAP):Basic$(0.03)$0.81 Diluted$(0.03)$0.80 Adjustments fo

272、r one-time expenses Charge to cost of goods sold relating to purchase accounting for the Velvac acquisition.$0$1,187,668 Transaction expenses related to the Velvac acquisition$0$869,000 Environmental remediation expense related to the Metal Products Segment$0$380,000 Personnel expenses related to th

273、e Security Products Segment$0$205,000$0$2,641,668 Income Taxes Related to Expense Adjustment$0$887,600 Income Taxes Related to Tax Cuts and Jobs Act$2,565,375$2,565,372 Adjustment to Net Income(related to expenses and Tax Cuts and Jobs Act);(Non-GAAP)$2,396,606$9,364,695 Adjustment to Earnings per s

274、hare(related to expenses and Tax Cuts and Jobs Act);(Non-GAAP)Basic$0.38$1.50 Diluted$0.38$1.49 190682_Form 10k.indd 203/19/18 2:00 PM21 Reconciliation of Industrial Hardware Segment net sales from GAAP to Non-GAAP financial measurer For the Three and Twelve Months ended December 30,2017 and Decembe

275、r 31,2016 Three Months Ended Three Months Ended Twelve Months Ended Twelve Months Ended December 30,2017 December 31,2016 December 30,2017 December 30,2016 Net sales Industrial Hardware Segment(GAAP)$31,772,577$15,369,767$115,273,233$61,058,871 Percent change(GAAP)107%89%Net sales Velvac$15,487,191$

276、0$47,313,216$0 Net sales Industrial Hardware Segment(excluding Velvac);(Non-GAAP)$16,285,386$15,369,767$67,960,017$61,058,871 Percent change(excluding Velvac);(Non-GAAP)6%11%Use of Non-GAAP Financial Measures ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

277、 Summary Sales for fiscal year 2017 were$204.2 million compared to$137.6 million for fiscal year 2016.Net income for fiscal year 2017 was$5.0 million,or$0.80 per diluted share,compared to$7.8 million,or$1.25 per diluted share,for fiscal year 2016.Sales for the fourth quarter of 2017 were$54.1 millio

278、n compared to$34.1 million for the same period in 2016.Net income for the fourth quarter of 2017 was($0.2)million,or($0.03)per diluted share compared to$2.6 million,or$0.42 per diluted share,for the comparable 2016 period.The Company anticipates solid growth in sales and earnings in fiscal 2018 as a

279、 result of the acquisition of Velvac and our investments in Illinois Lock and new product development.We expect to start seeing returns on our investments in Road-iQ in the second half of the year.We believe that sales and earnings will also benefit from strong demand in several of our core markets,

280、including Class 8 trucks and recreational vehicles.A reduction in the Companys taxes will also contribute to earnings growth.190682_Form 10k.indd 213/19/18 2:00 PM22 Fourth Quarter 2017 Compared to Fourth Quarter 2016 The following table shows,for the fourth quarter of 2017 and 2016,selected line it

281、ems from the consolidated statements of income as a percentage of net sales,by segment.2017 Fourth Quarter Industrial Security Metal Hardware Products Products Total Net sales 100.0%100.0%100.0%100.0%Cost of products sold 73.2%67.3%93.2%74.4%Gross margin 26.8%32.7%6.8%25.6%Engineering expense 3.1%3.

282、1%-%2.7%Selling and administrative expense 16.6%17.3%7.8%15.5%Operating profit 7.1%12.3%-1.0%7.4%2016 Fourth Quarter Industrial Security Metal Hardware Products Products Total Net sales 100.0%100.0%100.0%100.0%Cost of products sold 67.3%66.2%76.0%68.2%Gross margin 32.7%33.8%24.0%31.8%Engineering exp

283、ense 0.9%3.2%-%1.7%Selling and administrative expense 19.3%22.1%9.8%19.0%Operating profit 12.5%8.5%14.2%11.1%The following table shows the amount of change from the fourth quarter of 2016 to the fourth quarter of 2017 in sales,cost of products sold,gross margin,selling and administrative expenses an

284、d operating profit,by segment(dollars in thousands).Industrial Security Metal Hardware Products Products Total Net sales$16,403$1,212$2,383$19,998 Volume 101.5%6.6%30.2%53.0%Prices -0.7%0.3%2.4%0.2%New Products 5.9%2.0%12.9%5.4%106.7%8.9%45.5%58.6%Cost of products sold$12,918$969$3,127$17,014 124.8%

285、10.8%78.5%73.1%Gross margin$3,485$243$(744)$2,984 69.4%5.3%-59.0%27.5%Engineering expense$863$20$-$883 654.2%4.5%153.1%Selling and administrative expenses$2,287$(448)$81$1,920 77.0%-15.0%16.1%29.6%Operating profit$335$671$(825)$181 17.5%58.9%-110.4%4.7%190682_Form 10k.indd 223/19/18 2:00 PM23 Net sa

286、les in the fourth quarter of 2017 increased 59%to$54.1 million from$34.1 million a year earlier.Sales growth reflects the acquisition of Velvac,which closed on April 3,2017,as well as organic growth of approximately 13%in the fourth quarter of 2017,compared to the same period in 2016.Sales increased

287、 in the Industrial Hardware business segment by 107%and,excluding Velvac,increased 6%as compared to the fourth quarter sales in 2016 a result of strong sales growth to Class 8 Trucks,service bodies and bus customers.Sales of new products contributed 6%and included tumbler paddles,handle assemblies,l

288、atch brackets and lightweight composite panels for the class 8 trucking,off highway and industrial customers.Sales for the Security Products business segment for the fourth quarter of 2017 increased by 9%compared to the fourth quarter of 2016 as the result of increased sales volume from our investme

289、nt in growth in Illinois Lock and Argo EMS.Sales for the Metal Products business segment increased 45%from sales in the fourth quarter of 2016 as a result of a resurgence in sales to mining customers and diversification to other industrial casting markets.Cost of products sold in the fourth quarter

290、increased$17.0 million or 73%from 2016 to 2017.The increase in the cost of products sold in the four quarter of 2017 when compared to the respective corresponding prior year period primarily reflects cost of products sold attributable to the Velvac Acquisition.The most significant factors resulting

291、in changes in cost of products sold in the fourth quarter of 2017 compared to 2016 fourth quarter included:an increase of$9.0 million or 68%in costs for raw materials,with Velvac representing the increase;an increase of$3.6 million or 54%in payroll and payroll related costs,with Velvac representing$

292、1.7 million of the increase;an increase of$2.8 million in freight expenses,with Velvac representing the total increase;an increase of$0.9 million or 100%in supplies and tools costs;an increase of$0.6 million in rent expense,with Velvac representing the total increase;and an increase of$0.4 million o

293、r 107%in maintenance and repair costs.Gross margin as a percentage of net sales for the fourth quarter of 2017 was 26%compared to 32%in the fourth quarter of 2016.The decrease is primarily the result of product mix,material cost increases and the Velvac Acquisition noted above.Engineering expenses a

294、s a percentage of sales increased in the fourth quarter of 2017 to 3%from 2%in the fourth quarter of 2016.This increase was primarily the result of the Velvac Acquisition.Selling and administrative expenses for the fourth quarter of 2017 increased$1.9 million or 30%compared to the prior year quarter

295、.The most significant factor resulting in changes in selling and administrative expenses in the fourth quarter of 2017 compared to 2016 fourth quarter was:an increase of$1.5 million or 31%in costs for payroll and payroll related charges;an increase of$0.2 million or 99%in business travel costs;and a

296、 decrease of$0.2 million or 108%in commissions and royalties.Net income(loss)for the fourth quarter of 2017 decreased to($0.2)million or($0.03)per diluted share from$2.6 million or$.42 per diluted share for the comparable period in 2016.In the fourth quarter of 2017,we incurred an incremental one-ti

297、me charge of$2.5 million,or$0.41 per fully diluted share,consisting of a$2.0 million charge on undistributed earnings of foreign subsidiaries as well as a charge of$0.5 million related to the impact of the tax reform on our deferred tax asset.190682_Form 10k.indd 233/19/18 2:00 PM24 RESULTS OF OPERA

298、TIONS Fiscal Year 2017 Compared to Fiscal Year 2016 The following table shows,for fiscal year 2017 and fiscal year 2016,selected line items from the consolidated statements of income as a percentage of net sales,by segment.Industrial Security Metal Hardware Products Products Total Fiscal Year 2017 N

299、et sales 100.0%100.0%100.0%100.0%Cost of products sold 76.0%69.2%87.1%75.5%Gross margin 24.0%30.8%12.9%24.5%Engineering 3.3%3.0%-%2.8%Selling and administrative expense 16.3%17.8%9.1%15.7%Operating profit 4.4%10.0%3.8%6.0%Fiscal Year 2016 Net sales 100.0%100.0%100.0%100.0%Cost of products sold 72.8%

300、68.5%91.4%73.6%Gross margin 27.2%31.5%8.6%26.4%Engineering 0.8%3.6%-%1.9%Selling and administrative expense 17.1%18.0%9.8%16.4%Operating profit 9.3%9.9%-1.2%8.1%The following table shows the amount of change from fiscal year 2016 to fiscal year 2017 in sales,cost of products sold,gross margin,sellin

301、g and administrative expenses,and operating profit,by segment(dollars in thousands):Industrial Security Metal Hardware Products Products Total Net sales$54,214$3,722$8,695$66,631 Volume 83.5%4.8%29.8%43.2%Prices -0.4%-%2.7%0.2%New Products 5.7%1.7%12.6%5.1%88.8%6.5%45.1%48.5%Cost of products sold$43

302、,183$2,975$6,749$52,907 97.1%7.6%38.3%52.2%Gross margin$11,031$747$1,946$13,724 66.5%4.1%116.7%37.8%Engineering expenses$3,264$(209)$-$3,055 633.9%-10.2%118.9%Selling and administrative expenses$8,325$514$670$9,509 80.0%5.0%35.4%42.0%Operating profit$(558)$442$1,276$1,160 -9.8%7.8%566.8%10.4%190682_

303、Form 10k.indd 243/19/18 2:00 PM25 Summary Net sales for 2017 increased 48%to$204.2 million from$137.6 million in 2016.Sales growth reflects the acquisition of Velvac,which closed on April 3,2017,as well as organic growth of approximately 14%in 2017.Net sales in the Industrial Hardware segment increa

304、sed approximately 89%in 2017,and excluding Velvac,sales increased 11%as compared to the same period in 2016.Sales of existing products increased 83%in 2017 primarily as the result of the Velvac Acquisition,as well as strong sales growth from our existing Class 8 truck,service bodies and bus customer

305、s.Net sales in the Security Products segment increased approximately 7%in 2017 primary a result of increased sales volume from our investment in growth at our Illinois Lock and Argo EMS divisions.The Metal Products business segments net sales increased approximately 45%in 2017 compared to the prior

306、year period.Sales volume increased 34%in mine roof products sold to our customers as a result of a resurgence in the coal mining industry due to higher natural gas prices and an easing of regulatory restriction in the coal mining industry.Net sales also increased 127%in industrial casting products t

307、hrough our continued efforts to diversify away from mining products.Net income for 2017 decreased 35%to$5.0 million,or$0.80 per diluted share,from$7.8 million,or$1.25 per diluted share,in 2016.The decrease in net income was primarily the result of the recognition of one-time charges of$2.5 million r

308、elated to the enactment of the Tax Cuts and Jobs Act in 2017 and$1.8 million,net of tax expenses,related to the Velvac Acquisition,environmental remediation expenses and personnel related expenses.Excluding these one-time charges,we generated adjusted earnings of$1.49 per fully diluted share in 2017

309、.Adjusted earnings per share is a non-GAAP measure.Industrial Hardware Business Segment Net sales in the Industrial Hardware business segment increased 89%in 2017 from the 2016 level.Sales of existing products increased 83%in 2017 as the result of the Velvac Acquisition.Excluding Velvac,the Industri

310、al Hardware business segment had strong organic sales growth in Class 8 trucks,service bodies and bus customers,which contributed 11%in increased sales volume in 2017,whereas new product sales of tumbler paddles,handle assemblies,latch brackets and composite panels contributed 6%in 2017,each as comp

311、ared to 2016.From the date on which the acquisition of Velvac closed,April 3,2017,to December 30,2017,Velvac sales were$47.3 million and earnings were$(0.1)million.Cost of products sold for the Industrial Hardware segment increased$43.2 million or 97%from 2016 to 2017.The increase in the cost of pro

312、ducts sold in the annual period of 2017 when compared to the annual period of 2016 primarily reflects cost of products sold attributable to the Velvac Acquisition.The most significant factors resulting in changes in cost of products sold in 2017 compared to 2016 included:an increase of$30.6 million

313、or 119%in raw materials,with Velvac representing$26.0 million of such increase;an increase of$4.8 million or 38%in costs for payroll and payroll related charges,with Velvac representing$4.3 million of such increase;an increase of$4.3 million in freight costs,with Velvac representing the total increa

314、se;an increase of$0.9 million or 183%in rent expense,with Velvac representing the total increase;an increase of$0.5 million or 205%in foreign currency translation costs;an increase of$0.3 million or 127%in scrap costs,with Velvac representing the total increase;an increase of$0.3 million or 29%in de

315、preciation charges,with Velvac representing the total increase;an increase of$0.3 million or 38%in supplies and tools expense,with Velvac representing$0.2 million of the increase;an increase of$0.2 million or 53%for repairs and maintenance;an increase of$0.2 million or 42%in utilities expenses,with

316、Velvac representing the total increase;an increase of$0.2 million in freight on supplies,with Velvac representing the total increase;and an increase of$0.6 million in other expenses.Gross margin as a percentage of sales in the Industrial Hardware business segment decreased to 24%in 2017 from 27%in 2

317、016.The decrease reflects the mix of products produced and the changes in cost of products sold.Also affecting gross margin in fiscal 2017 was a one-time change to cost of goods sold,for$1.2 million,as a result of the impact of the purchase accounting in connection with the Velvac acquisition.In add

318、ition,rising prices in raw material such as stainless steel,cold roll steel,hot rolled steel and zinc increased from 10%on stainless steel to 37%on zinc materials used in our products during 2017.As a result of these cost increases,our margins were negatively affected and could not be fully recovere

319、d in price increases to customers or offset through operational improvements.Engineering expenses as a percentage of sales increased in 2017 to 3%from 0.8%in 2016.This increase was primarily the result of the Velvac Acquisition.190682_Form 10k.indd 253/19/18 2:00 PM26 Selling and administrative expe

320、nses in the Industrial Hardware business segment increased$8.3 million or 80%in 2017 from the 2016 level.The increase in selling and administrative expenses in the annual period of 2017 when compared to the prior year primarily reflects expenses attributable to the Velvac Acquisition.The most signif

321、icant factors resulting in changes in selling and administrative expenses in the Industrial Hardware business segment in 2017 compared to 2016 included:an increase of$5.8 million or 74%in payroll and payroll related charges,with Velvac representing$3.4 million of the increase;an increase of$1.0 mill

322、ion in commissions and royalty costs,with Velvac representing the total increase;an increase of$0.6 million or 154%in business travel costs,with Velvac representing the total increase;an increase of$0.7 million in depreciation and amortization expenses,with Velvac representing$0.4 million of the inc

323、rease;and an increase of$0.2 million in advertising expenses,with Velvac representing the total increase.Security Products Business Segment Net sales in the Security Products business segment increased 7%in 2017 from the 2016 level.The increase in sales in 2017 in the Security Products segment compa

324、red to the prior year period was a result of our investment in growth in Illinois Lock and Argo EMS.New product sales included a zinc branded puck lock,a spring return lock,a push button lock and a mini cam lock.Cost of products sold for the Security Products business segment increased$3.0 million o

325、r 8%from 2016 to 2017.The most significant factors resulting in changes in cost of products sold in 2017 compared to 2016 included:an increase of$1.7 million or 7%in raw materials;an increase of$0.4 million or 4%in payroll and payroll related charges;an increase of$0.5 million in foreign exchange co

326、sts;an increase of$0.2 million or 12%in other shipping expenses;and an increase of$0.1 million or 11%in supplies and tools.Gross margin as a percentage of sales in the Security Products business segment increased to 31%in 2017 from 28%in 2016.The increase reflects the mix of products sold and higher

327、 utilization of fixed charges on increased volume.Our margins were negatively impacted by higher material costs,primarily in zinc,which was up 37%,and brass,which was up 23%,from the prior year.Engineering expenses as a percentage of sales decreased to 3%in 2017 from 4%in 2016.Selling and administra

328、tive expenses in the Security Products business segment increased by$0.5 million or 5%in 2017 from the 2016 level.The most significant factors resulting in changes in selling and administrative expenses in the Security Products segment in 2017 compared to 2016 included:an increase of$0.3 million or

329、4%in payroll and payroll related charges;and an increase of$0.2 million or 12%in other administration expenses.Metal Products Business Segment Net sales in the Metal Products business segment increased 45%in 2017 compared to the prior year period.Sales volume increased 34%in mine roof products sold

330、to our customers a result of a resurgence in the coal mining industry due to higher natural gas prices and an easing of regulatory restriction in the coal mining industry.Net sales also increased 127%in industrial casting products through our continued efforts to diversify away from mining products.

331、Cost of products sold for the Metal Products segment increased$6.8 million or 38%from 2016 to 2017.The most significant factors resulting in changes in cost of products sold in 2017 compared to 2016 included:an increase of$2.1 million or 33%in costs for payroll and payroll related charges;an increas

332、e of$1.5 million or 29%in raw materials;an increase of$1.8 million or 103%for supplies and tools;190682_Form 10k.indd 263/19/18 2:00 PM27 an increase of$0.5 million or 44%for utility costs;an increase of$0.2 million in other expenses;and an increase of$0.1 million or 41%in other shipping expenses.Gr

333、oss margin as a percentage of sales in the Metal Products business segment increased to 13%in 2017 from 9%in 2016.The increase reflects the mix of products produced and the utilization of productive capacity.Our margins were negatively impacted by a 48%increase in raw material scrap iron prices.Not all increases in the prices of raw materials could be recovered from price increases to customers.Se