ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Summary Critical Accounting Policies and Estimates The Company’s fiscal year ends on the Saturday nearest to December 31. Fiscal Years, 2019 and 2018 were each 52 weeks in length. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to results for “2019” or “fiscal year 2019” mean the fiscal year ended December 28, 2019, and references to results for “2018” or “fiscal year 2018” mean the fiscal year ended December 29, 2018. Sales for 2019 were $251.7 million compared to $234.3 million for 2018. Net income for 2019 was $13.3 million, or $2.12 per diluted share, compared to $14.5 million, or $2.31 per diluted share, for 2018. Sales for the fourth quarter of 2019 were $68.7 million compared to $56.6 million for the same period in 2018. Net income for the fourth quarter of 2019 was $5.0 million, or $0.79 per diluted share compared to $4.4 million, or $0.70 per diluted share, for the comparable 2018 period. The fourth quarter 2019 operating results include three months of Big 3 Precision sales and earnings while the full fiscal year includes four months of sales and earnings. Big 3 Precision was acquired on August 30, 2019. The dollar amount of the backlog of orders received by the Company increased as of the fiscal year ended December 28, 2019. Such backlogs were $71,200,000 at December 28, 2019, as compared to $46,888,000 at December 29, 2018. The primary reasons for the change from 2018 to 2019 were significant backlog increases as the result of the acquisition of Big 3 Precision, stronger sales and a delay of year-end orders at Eberhard Manufacturing, and the timing of orders received from customers. The Company anticipates continued growth in sales and earnings in fiscal 2020 primarily as a result of the acquisition of Big 3 Precision, new mirror program for Class 8 trucks being awarded to our Velvac subsidiary, and new products launches at the Eberhard Manufacturing and Illinois Lock businesses. The Company believes that as new programs and products launch, these will offset the impact from a forecasted 25-30% decline in Class 8 truck production and continued softening in the recreational vehicle market in 2020. During 2019 and the last half of 2018, the Company experienced price decreases for many of the raw materials used in producing its products, including: scrap iron, stainless steel, hot and cold rolled steel, zinc, copper and aluminum while nickel prices increased. Raw material prices were beginning to increase in the latter half of the fourth quarter. These increases could negatively impact the Company’s gross margin if raw material prices increase too rapidly for the Company to recover those cost increases through either price increases to our customers or cost reductions in other areas of the business. On January 15,$^{ }$2020 the United States and China signed the U.S.-China Phase One trade deal which among other things rolls back tariffs on $120 billion worth of Chinese products from 15% to 7.5% effective February 14, 2020 and the U.S. agreed to not to proceed with the 15% tariffs on $160 billion worth of consumer goods which was scheduled to take effect December 15, 2019. However, the 25% tariffs on $250 billion of Chinese imports will remain in effect subject to further reductions depending on the progress of future negotiations. If China does not follow through their agreed upon commitments and tariffs are reinstated on $550 billion of Chinese products at the 25% rate, it could result in a loss of business and possible reduced margins if the tariffs cannot be recovered in higher selling prices. The preparation of financial statements in accordance with accounting principles 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 expenses. 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; leases; and tax matters. 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 Company’s financial statements at any given time. Despite these inherent limitations, management believes that Management’s 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 consistent basis enables the Company to provide the users of the financial statements with useful and reliable information about the Company’s operating results and financial condition. 18