The following discussion is intended to highlight significant changes in the Company's financial position and results of operations for the twenty-six weeks ended July 4, 2009. The interim financial statements and this Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal year ended January 3, 2009 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 2009.

Certain statements set forth in this discussion and analysis of financial condition and results of operations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They use such words as "may," "will," "expect," "believe," "plan" and other similar terminology. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this release. These forward-looking statements involve a number of risks and uncertainties, and actual future results and trends may differ materially depending on a variety of factors, including 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, changes within our industry segments and in the overall economy, litigation and legislation. In addition, terrorist threats and the possible responses by the U.S. government, the effects on consumer demand, the financial markets, the travel industry, the trucking industry and other conditions increase the uncertainty inherent in forward-looking statements. Forward-looking statements reflect the expectations of the Company at the time they are made, and investors should rely on them only as expressions of opinion about what may happen in the future and only at the time they are made. The Company undertakes no obligation to update any forward-looking statement. Although the Company believes it has an appropriate business strategy and the resources necessary for its operations, future revenue and margin trends cannot be reliably predicted and the Company may alter its business strategies to address changing conditions.

In addition, the Company makes estimates and assumptions that may materially affect reported amounts and disclosures. These relate to valuation allowances for accounts receivable and for excess and obsolete inventories, accruals for pensions and other postretirement benefits (including forecasted future cost increases and returns on plan assets), provisions for depreciation (estimating useful lives), uncertain tax positions, and, on occasion, accruals for contingent losses.

Overview

Sales in the second quarter of 2009 decreased 22% compared to the second quarter of 2008, as a result of the overall weaker economy in the 2009 period. In the second quarter of 2009 Industrial Hardware sales decreased

Gross margin as a percentage of sales for the three months ended July 4, 2009 was 20% compared to 19% in the comparable period a year ago. The increase in the gross margin was primarily the result of price increases to customers, the mix of products produced and sales of new products.

Sales in the first six months of 2009 decreased 18% compared to the prior year period as a result of weakness in the general economy. Sales decreased in the first six months of 2009 in the Industrial Hardware segment by 18% and by 28% in the Security Products segment compared to the prior year period. The decreases were primarily due to reduced demand for our current products in many of the markets we serve as a result of the continuing soft worldwide economic conditions. Sales increased in the first six months of 2009 in the Metal Products segment by 14% compared to the prior year period, primarily a result of increased sales volume of our existing mine roof products to the U.S. mining industry during the first quarter of 2009.

Gross margin as a percentage of sales for the six months ended July 4, 2009 was 16% compared to 20% in the comparable period a year ago. Higher sales volume in the first six months of 2008 resulted in greater utilization of our production capacity and was the primary reason for the higher gross margin in the 2008 period.

Raw material prices have rolled back from the dramatic increases experienced during 2008. We believe this is a result of the worldwide economic decline. Currently, there is no indication that the Company will be unable to obtain supplies of all the materials that it requires. Raw material costs could negatively impact future gross margins if raw material prices rise faster than the Company can recover those increases through either price increase to our customers or cost reductions.

Cash flow from operations in the first six months of 2009 has improved compared to the same period in 2008. Cash flow from operations along with controlling discretionary expenditures, should be sufficient to enable the Company to meet all its existing obligations and continue its quarterly dividend payments.

A more detailed analysis of the Company's results of operations and financial condition follows:

Results of Operations



The following table shows, for the periods indicated, selected line items from
the condensed consolidated statements of operations as a percentage of net
sales, by segment:



                                     Three Months Ended July 4, 2009
                                   Industrial Security    Metal
                                     Hardware Products Products  Total
Net sales                              100.0%   100.0%   100.0% 100.0%
Cost of products sold                   76.4%    78.2%    93.0%  79.8%
Gross margin                            23.6%    21.8%     7.0%  20.2%

Selling and administrative expense      15.0%    16.4%     9.3%  14.6%
Operating profit/(loss)                  8.6%     5.4%    -2.3%   5.6%


                                    Three Months Ended June 28, 2008
                                   Industrial Security    Metal
                                     Hardware Products Products  Total
Net sales                              100.0%   100.0%   100.0% 100.0%
Cost of products sold                   77.7%    77.7%   100.4%  81.0%
Gross margin                            22.3%    22.3%    -0.4%  19.0%

Selling and administrative expense      12.7%    14.4%     6.8%  12.5%
Operating profit/(loss)                  9.6%     7.9%    -7.2%   6.5%

The following table shows the amount of change for the second quarter of 2009 compared to the second quarter of 2008 in sales, cost of products sold, gross margin, selling and administrative expenses and operating results, by segment (dollars in thousands):

                                    Industrial  Security    Metal
                                      Hardware  Products Products     Total
Net sales                            $ (3,407) $ (3,963)  $ (641) $ (8,011)

Volume                                  -38.2%    -28.5%   -15.5%    -30.9%
Prices                                    1.0%      1.4%     3.2%      1.5%
New products                             15.7%      0.8%     0.0%      7.2%
                                        -21.5%    -26.3%   -12.3%    -22.2%

Cost of products sold                $ (2,815) $ (3,021)  $ (980) $ (6,816)
                                        -22.9%    -25.8%   -18.7%    -23.3%

Gross margin                           $ (592)   $ (942)    $ 339  $(1,195)
                                        -16.8%    -27.9% 1,720.5%    -17.4%

Selling and administrative expenses    $ (143)   $ (354)     $ 65   $ (432)
                                         -7.2%    -16.3%    18.3%     -9.5%

Operating results                      $ (449)   $ (588)    $ 274   $ (763)
                                        -29.5%    -49.2%    72.5%    -32.7%

The following table shows, for the periods indicated, selected line items from the condensed consolidated statements of income as a percentage of net sales, by segment:

                                      Six Months Ended July 4, 2009
                                   Industrial Security    Metal
                                     Hardware Products Products  Total
Net sales                              100.0%   100.0%   100.0% 100.0%
Cost of products sold                   77.7%    81.4%   103.1%  83.9%
Gross margin                            22.3%    18.6%    -3.1%  16.1%

Selling and administrative expense      15.2%    18.4%     8.1%  15.0%
Operating profit                         7.1%     0.2%   -11.2%   1.1%


                                     Six Months Ended June 28, 2008
                                   Industrial Security    Metal
                                     Hardware Products Products  Total
Net sales                              100.0%   100.0%   100.0% 100.0%
Cost of products sold                   78.2%    77.1%    96.2%  80.2%
Gross margin                            21.8%    22.9%     3.8%  19.8%

Selling and administrative expense      13.4%    15.1%     8.1%  13.4%
Operating profit                         8.4%     7.8%    -4.3%   6.4%

The following table shows the amount of change for the first six months of 2009 compared to the first six months of 2008 in sales, cost of products sold, gross margin, selling and administrative expenses and operating profit, by segment (dollars in thousands):

                                    Industrial  Security    Metal
                                      Hardware  Products Products      Total
Net sales                            $ (5,600) $ (8,213)  $ 1,315 $ (12,498)

Volume                                  -37.4%    -31.1%     4.7%     -29.0%
Prices                                    1.2%      2.2%     4.1%       2.0%
New products                             17.8%      0.7%     5.0%       8.9%
                                        -18.4%    -28.2%    13.8%     -18.1%

Cost of products sold                $ (4,532) $ (5,445)  $ 2,018  $ (7,959)
                                        -19.1%    -24.2%    22.0%     -14.4%

Gross margin                         $ (1,068) $ (2,768)  $ (703)  $ (4,539)
                                        -16.2%    -41.5%  -194.4%     -33.3%

Selling and administrative expenses    $ (283)   $ (552)     $ 99    $ (736)
                                         -7.0%    -12.6%    12.8%      -8.0%

Operating profit                       $ (785) $ (2,216)  $ (802)  $ (3,803)
                                        -30.8%    -97.6%   194.0%     -86.3%

Industrial Hardware Segment

Net sales in the Industrial Hardware segment were down 22% in the second quarter of 2009 and down 18% in the first half compared to the prior year periods. The reduced sales in both the second quarter and six month period reflected a decrease in sales of existing products to the vehicular markets in 2009 compared to the same period in 2008. The reductions in both periods were decreased by sales increases from new product introductions primarily to the military market. All of the new products were developed internally and included an inside handle assembly, a roof center case assembly, a slam bolt assembly, a turret hatch kit, and a crawler door. The Industrial Hardware segment continues to develop new latching systems for the military and has experienced an increase in orders for military projects. Sales to the Class 8 truck market are predicted not to improve until the end of 2009.

Cost of products sold for the Industrial Hardware segment decreased 23% in the second quarter and 19% in the first half of 2009 compared to the prior year periods. The primary reason for this reduction was due to lower volume of sales in the 2009 periods.

Gross margin as a percent of net sales increased slightly to 24% in the second quarter of 2009 from 22% in the 2008 quarter. Gross margin in the first half of 2009 and 2008 was comparable at 22%.

Selling and administrative expenses decreased 7% for the second quarter and first half of 2009 compared to the prior year periods primarily due to reductions in payroll and payroll related charges.

Security Products Segment

Net sales in the Security Products segment decreased 26% in the second quarter and 28% in the first half of 2009 compared to the 2008 periods. The decrease in sales in both the first quarter and first six months of 2009 in the Security Products segment is primarily the result of lower sales volume of existing products across many of our markets as a result of soft economic conditions. Sales of new products are reflected across most of the markets we service and included a variety of new locks.

Cost of products sold for the Security Products segment was down 26% in the second quarter and 24% in the first half of 2009 compared to the same periods in 2008. The decrease in cost of products sold was due to the decrease in sales volume and the mix of products sold compared to the prior year periods. This segment experienced increases in engineering expenses.

Gross margin as a percentage of sales in the second quarter was 22% and was comparable for both 2009 and 2008, while gross margin in the first half decreased from 23% in 2008 to 19% in the 2009 period. The decrease in the first half of 2009 was primarily the result of higher engineering and research and development costs and the mix of products sold as compared to the prior year period.

Selling and administrative expenses decreased 16% in the second quarter and 13% in the first half of 2009 from 2008 levels. The decreases in both periods were primarily due to decreased payroll and payroll related charges and lower sales commission payments in the 2009 period based on the lower sales volume.

Metal Products Segment

Net sales in the Metal Products segment were down 12% in the second quarter and up 14% in the first half of 2009 as compared to the prior year periods. Sales of mining products were down 5% in the second quarter and up 20% in the first half of 2009 compared to the prior year periods. The increase in sales of mining products in the first half of 2009 was driven by increased demand in the U.S. mining market that occurred in the first quarter of 2009. Sales of contract castings decreased 34% in the second quarter and 20% in the first half of 2009 from the prior year levels. The decrease in sales of contract casting products was the result of the continued soft economic conditions. New product sales included a crater head used in underground mining.

Cost of products sold decreased 19% in the second quarter and increased 22% in the first half of 2009 compared to the same periods in 2008. The second quarter decrease was due to lower cost for utilities, payroll and payroll related charges and supplies and tools, in addition to the costs associated with the lower volume of sales in the 2009 period. The increase in the first six months of 2009 compared to the prior year period is attributable to the product mix and the higher raw material cost associated with the manufacturing of ductile iron products, increased costs for payroll and payroll related charges, as well as production difficulties experienced in the first quarter of 2009.

Gross margin as a percentage of net sales improved from 0% to 7% in the second quarter of 2009 and decreased from 4% to -3% for the first half of 2009 compared to the 2008 periods. The improvement in the second quarter is primarily due to the mix of products produced and price increases to our customers. The decrease in the first half of 2009 compared to the prior year period is due to higher manufacturing costs in 2009 and production difficulties experienced primarily in the first quarter of 2009.

Selling and administrative expenses were up 18% in the second quarter and 13% in the first half of 2009 compared to the same periods in 2008. The increases were due to increases in payroll and payroll related charges.

Other Items

Interest expense decreased 18% in both the second quarter and first six months of 2009 compared to the prior year period primarily due to the decreased level of debt.

Other income was not material to the financial statements.

Income taxes reflected the change in the earnings level. The effective tax rate in the second quarter of 2009 was 38.4% compared to 34.7% in the second quarter of 2008. The increase in the effective tax rate in the second quarter is the result of the mix of U.S. and foreign income, as well as a change in the mix of U.S. earnings in states with lower income tax rates. The effective tax rate for the first six months of 2009 was 221.7% compared to 34.1% in the first six months of 2008. The higher effective rate in the first six months of 2009 was the result of the mix of U.S. and foreign income, as well as the repatriation of earnings without an offsetting foreign tax credit.

The Company generated $9.2 million from operations during the first six months of 2009 compared to $2.0 million during the same period in 2008. The increase in cash flows was primarily the result of the associated timing differences for collections of accounts receivable and payments of liabilities and changes in inventories. Cash flow from operations coupled with cash on hand at the beginning of the year were sufficient to fund capital expenditures, debt service, incentive payments, contributions to the Company's pension plans, and dividend payments. The Company did not utilize its revolving line of credit during the first six months of 2009 or 2008.

Additions to property, plant and equipment were $1.3 million during both the first six months of 2009 and 2008. Total capital expenditures for 2009 are expected to be in the range of $2 million to $3 million. There are no outstanding commitments for these estimated capital expenditures.

Total inventories as of July 4, 2009 were $25.7 million, compared to $30.8 million at year-end 2008. The inventory turnover ratio of 3.7 turns at the end of the second quarter was comparable to both the year-end 2008 ratio of 3.6 turns and the 3.5 turns in the second quarter of 2008. Accounts receivable decreased by $1.5 million from year end and decreased $5.7 million from the second quarter of Fiscal 2008. The decrease is related to lower revenues in the first half of the current year. The average days sales in accounts receivable for the second quarter of 2009 at 50 days was slightly higher than the 46 days at the end of Fiscal 2008, and slightly lower than the 53 days at the end of the second quarter of Fiscal 2008.

Cash flow from operating activities and funds available under the revolving credit portion of the Company's loan agreement are expected to be sufficient to cover future foreseeable working capital requirements. See also Note F - Debt, included at Item 1 of this Form 10-Q.