What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2021-03-16 compared with 2020-03-05 · 96 added, 124 removed, 21 unchanged (91% of the section changed)

ITEM 1 BUSINESS

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, 1912, succeeding

a co-partnership established in October, 1858.

The businesses of the Company are the design, manufacture and sale of unique engineered solutions for niche industrial markets.

The Eastern Company was incorporated under the laws of the State of Connecticut in October, 1912, succeeding a co-partnership established in October, 1858.

The businesses of the Company design, manufacture and sell unique engineered solutions for industrial markets.

Today, the Company maintains 21 physical locations across North America, Europe, and Asia.

BUSINESS HIGHLIGHTS

On August 30, 2019, the Company and its newly-formed wholly-owned subsidiary, Eastern Engineered Systems, Inc., a Delaware corporation (“EES”) entered into a

Stock Purchase Agreement (the “Stock Purchase Agreement”) with Big 3 Holdings, LLC, a Delaware limited liability company (“Seller”), Big 3 Precision Mold Services, Inc., a Delaware corporation and wholly-owned subsidiary of Seller

(“Big 3 Mold”), Big 3 Precision Products, Inc., a Delaware corporation and wholly owned subsidiary of Seller (“Big 3 Products”), Industrial Design

Innovations, LLC, a Delaware limited liability company and wholly-owned subsidiary of Big 3 Products (“Design Innovations”), Sur-Form, LLC, a Delaware limited liability company and wholly-owned subsidiary of Big 3 Products (“Sur-Form”), Associated

Toolmakers Limited, a limited company formed under the laws of England and Wales and wholly-owned subsidiary of Big 3 Mold (“Associated” and together with Big 3 Mold, Big 3 Products, Design Innovations and Sur-Form, collectively “Big 3 Precision”), TVV

Capital Partners III, L.P., a Delaware limited partnership, TVV Capital Partners III-A, L.P., a Delaware limited partnership, Alan Scheidt, Todd Riley, Clinton Hyde, and Big 3 Holdings, LLC, a Delaware limited liability company, as the initial Seller

Representative (the “Seller Representative”).

On August 30, 2019, pursuant to the Stock Purchase Agreement, the Company, through EES, acquired all of the outstanding equity interests of Big 3 Precision Products and Big 3 Mold Services, and indirectly

through them, all of the outstanding equity interests in Design Innovations, Sur-Form and Associated, for an adjusted purchase cash price of $81.2 million.

The Big 3 acquisition was financed with a combination of $2.1 million of cash on hand, a credit

agreement (the “Credit Agreement”) with Santander Bank, N.A., for itself and, People’s United Bank, National Association and TD Bank, N.A.

On November 19, 2020 the Company sold its subsidiary Sesamee Mexicana, S.A.

(“Sesamee Mexicana”).

Sesamee Mexicana designs and manufactures composite panels and distributes industrial hardware.

Eastern has exited the composite panels business as part of its strategy to streamline its business.

On August 10, 2020 the Company acquired certain assets, including accounts receivable, inventories, furniture, fixtures and equipment, intellectual property rights and rights existing under all sales and purchase agreements, and assumed certain liabilities, of Hallink, RSB Inc.

These assets are held in our subsidiary, Hallink Moulds, Inc.

(“Hallink Moulds”).

Hallink Moulds is a leader in innovative injection blow mold tooling and is a leading supplier of blow molds and change parts to the food, beverage, healthcare and chemical industries.

Hallink Moulds specializes in the design, development and manufacture of 2-step stretch blow molds, and related components for the stretch blow molding industry offering integrated turnkey solutions to its customers worldwide.

The total consideration for the acquisition of Hallink Moulds was approximately $7.2 million which was paid out of the Company’s cash reserves.

On June 15, 2020 the Company sold its subsidiary, the Canadian Commercial Vehicles Corporation (“CCV”).

CCV designs and manufactures composite panels.

Eastern has exited the composite panels business as part of its strategy to streamline its business.

On August 30, 2019, the Company and its newly-formed wholly-owned subsidiary, Eastern Engineered Systems, Inc., a Delaware corporation (“EES”) entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Big 3 Holdings, LLC, a Delaware limited liability company (“Seller”), Big 3 Precision Mold Services, Inc., a Delaware corporation and wholly-owned subsidiary of Seller (“Big 3 Mold”), Big 3 Precision Products, Inc., a Delaware corporation and wholly owned subsidiary of Seller (“Big 3 Products”), Industrial Design Innovations, LLC, a Delaware limited liability company and wholly-owned subsidiary of Big 3 Products (“Design Innovations”), Sur-Form, LLC, a Delaware limited liability company and wholly-owned subsidiary of Big 3 Products (“Sur-Form”), Associated Toolmakers LTD, a limited company formed under the laws of England and Wales and wholly-owned subsidiary of Big 3 Mold (“Associated Tool” and together with Big 3 Mold, Big 3 Products, Design Innovations and Sur-Form, collectively “Big 3 Precision”), TVV Capital Partners III, L.P., a Delaware limited partnership, TVV Capital Partners III-A, L.P., a Delaware limited partnership, Alan Scheidt, Todd Riley, Clinton Hyde, and Big 3 Holdings, LLC, a Delaware limited liability company, as the initial Seller Representative.

On August 30, 2019, pursuant to the Stock Purchase Agreement, the Company, through EES, acquired all of the outstanding equity interests of Big 3 Products and Big 3 Mold Services, and indirectly through them, all of the outstanding equity interests in Design Innovations, Sur-Form and Associated, for an adjusted purchase cash price of $81.2 million (the “Big 3 Precision Acquisition”).

The Big 3 Precision Acquisition was financed with a combination of $2.1 million of cash on hand, a credit agreement (the “Credit Agreement”) with Santander Bank, N.A., for itself and, People’s United Bank, National Association and TD Bank, N.A.

as lenders, providing for a $100.0 million term loan and a $20.0 million revolving credit line.

In connection

with the Credit Agreement, the Company also used its cash to repay the remaining balance (approximately $19.1 million) of its then outstanding term loan with People’s United Bank National Association.

Through its two divisions, Big 3 Products and Big

3 Mold, Big 3 Precision serves diverse markets including truck, automotive, plastic packaging products, consumer packaged goods and pharmaceuticals.

In particular, Big 3 Precision Products works with leading manufacturers to design and produce custom

returnable packaging to integrate with their assembly processes.

In connection with the Credit Agreement, the Company also used its cash to repay the remaining balance (approximately $19.1 million) of its then outstanding term loan with People’s United Bank National Association.

Through its two divisions, Big 3 Products and Big 3 Mold, Big 3 Precision serves diverse markets including truck, automotive, plastic packaging products, consumer packaged goods and pharmaceuticals.

In particular, Big 3 Products works with leading manufacturers to design and produce custom returnable packaging to integrate with their assembly processes.

Big 3 Mold is a global leader in the design and manufacture of blow mold tools.

Effective June 1, 2018 the Company acquired certain assets of Load N Lock Systems, Inc.

(“Load N Lock”), including accounts receivable, inventories,

furniture, fixtures and equipment, intellectual property rights, and assumed certain liabilities and rights existing under all sales and purchase agreements.

The transaction price was $5 million.

The Load N Lock acquisition was financed with a draw

down on the Company’s $10 million revolving credit facility.

Load N Lock operates as a part of Eastern's Illinois Lock Company ("ILC"), a part of Eastern's Security Products Segment.

On April 3, 2017, the Company completed the acquisition (the “Velvac Acquisition”) of all of the outstanding stock of Velvac Holdings, Inc., a Delaware

corporation (“Velvac”) for $39.5 million and an earnout consideration contingent upon Velvac achieving minimum earnings performance levels and based on sales of Velvac’s new proprietary Road-iQ product line.

The Velvac Acquisition was financed with a

$31 million term loan from People’s United Bank, National Association, a $5 million draw down on the Company's $10 million revolving credit facility with People’s United Bank, National Association 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.

Narrative Description of Business

The Eastern Company manages industrial businesses that design, manufacture and sell unique engineered solutions to niche markets.

We believe Eastern’s

businesses operate in industries with long-term macroeconomic growth opportunities.

Description of Business

The Eastern Company manages industrial businesses that design, manufacture and sell unique engineered solutions to industrial markets.

We believe Eastern’s businesses operate in industries with long-term macroeconomic growth opportunities.

We look to acquire businesses that produce stable and growing earnings and cash flows.

Eastern may pursue acquisitions in industries other than those in which its

businesses currently operate if an acquisition presents an attractive opportunity.

Eastern focuses on proactive financial, operational, and strategic management of its businesses in order to increase cash generation, operating earnings and

long-term shareholder value.

Eastern may pursue acquisitions in industries other than those in which its businesses currently operate if an acquisition presents an attractive opportunity.

Eastern focuses on proactive financial, operational, and strategic management of its businesses in order to increase cash generation, operating earnings and long-term shareholder value.

Among other things, Eastern monitors financial and operational performance of each of its businesses and instills consistent financial discipline.

Eastern’s management analyzes and pursues prudent organic growth strategies

and works to execute attractive external growth and acquisition opportunities.

Eastern’s management analyzes and pursues prudent organic growth strategies and works to execute attractive external growth and acquisition opportunities.

In addition, Eastern recruits and retains talented managers to operate its businesses.

We look for leaders who are accountable, maintain cost discipline,

act quickly, and build strong followership.

The Company reports in three business segments:

Industrial Hardware, Security Products and Metal Products.

Industrial Hardware

The Industrial Hardware segment consists of Big 3 Precision, including Big 3 Products and Big 3 Mold;

Eberhard Manufacturing Company, Eberhard Hardware

Manufacturing Ltd., and Eastern Industrial Ltd;

Velvac Holdings;

Canadian Commercial Vehicles Corporation;

and Sesamee Mexicana, S.A.

These businesses design, manufacture and market a diverse product line of custom and standard vehicular and industrial hardware, including turnkey returnable

packaging solutions;

passenger restraint and vehicular locks, latches, hinges;

mirrors, mirror-

light-weight sleeper boxes;

and truck bodies.

The segment also designs and manufactures a wide selection of fasteners and other closure devices

used to secure access doors on various type of industrial equipment such as metal cabinets, machinery housings and electronic instruments.

Also we invest in the continued introduction of new or improved product designs and we expand into synergistic

product lines in order to maintain and increase market share.

Big 3 Products and Big 3 Mold’s turnkey returnable packaging solution s are used in the assembly process of vehicles, aircraft and durable goods and in the production process of plastic

packaging products, packaged consumer goods and pharmaceuticals.

We look for leaders who are accountable, maintain cost discipline, act quickly, and build strong followership.

The Company reports in two business segments:

Engineered Solutions and Diversified Products.

Engineered Solutions

The Engineered Solutions segment consists of Big 3 Precision, including Big 3 Products and Big 3 Mold, Hallink Moulds, Inc., Associated Toolmakers LTD;

Eberhard Manufacturing Company, Eberhard Hardware Manufacturing Ltd., Eastern Industrial Ltd, Illinois Lock Company/CCL Security Products, World Lock Company Ltd., Dongguan Reeworld Security Products Ltd., and World Security Industries Ltd.

(together “Eberhard”);

and Velvac Holdings (“Velvac”).

These businesses design, manufacture and market a diverse product line of custom and standard vehicular and industrial hardware, including turnkey returnable packaging solutions, access and security hardware, mirrors, and mirror-cameras.

Big 3 Products and Big 3 Mold’s turnkey returnable packaging solutions are used in the assembly processes of vehicles, aircraft and durable goods and in the production processes of plastic packaging products, packaged consumer goods and pharmaceuticals.

Big 3 Products works with leading manufacturers to design and produce custom returnable packaging to integrate with their assembly processes.

Big 3 Mold is a global leader in the design

and manufacture of blow mold tools.

Other products are found on tractor-trailer trucks, specialty commercial vehicles, recreational vehicles, fire and rescue vehicles, school buses, military vehicles and other vehicles.

In addition, through Big 3

Products and Big 3 Mold, Big 3 Precision serves diverse markets including truck, automotive, plastic packaging products, packaged consumer goods and pharmaceuticals.

The segment sells directly to

original equipment manufacturers (“OEM’s”) and to distributors.

Sales, customer engineering and customer service are primarily provided through in-house sales personnel and engineering staff.

We believe that our businesses offer competitive

engineering design, service, quality and price to service these markets.

Security Products

The Security Products segment consists of Illinois Lock Company/CCL Security Products, World Lock Company Ltd., Dongguan Reeworld Security Products Ltd., and

World Security Industries Ltd.;

Big 3 Mold is a global leader in the design and manufacture of blow mold tools.

Hallink Moulds is a leader in innovative injection blow mold tooling and is a leading supplier of blow molds and change parts to the food, beverage, healthcare and chemical industry.

Hallink specializes in the design, development and manufacture of 2-step stretch blow molds, and related components for the stretch blow molding industry offering integrated turnkey solutions to its customers worldwide.

In 2020, we combined all businesses associated with the Eberhard Manufacturing Company and The Illinois Lock Company to create Eberhard, a global leader in the engineering and manufacturing of access and security hardware.

Eberhard offers a standard product line of rotary latches, compression latches, draw latches, hinges, camlocks, key switches, padlocks, and handles among other products, as well as comprehensive development and program management services for custom electromechanical and mechanical systems designed for specific original equipment manufacturers (“OEMs”) and customer applications.

Eberhard’s products are found in an expansive range of applications and products globally.

Velvac is the premier designer and manufacturer of proprietary vision technology for OEMs and aftermarket applications, and a leading provider of aftermarket components to the heavy-duty truck market in North America.

Velvac serves diverse, niche segments within the heavy- and medium-duty truck, motorhome, and bus markets.

Diversified Products

The Diversified Products segment consists of Frazer & Jones;

Greenwald Industries (“Greenwald”);

and Argo EMS (formerly Argo Transdata).

Illinois Lock Company/CCL Security Products, known in the market as ILC, is a global leader in the design and manufacture of engineered

security and access solutions in the form of mechanical, electronic and wireless products.

ILC focuses on the industrial, vehicle accessory, outdoor recreational equipment, medical, and point of sale and vending segments.

These products and solutions

are specified and sold to OEM’s contract equipment manufacturers, and industrial distributors globally.

ILC employs an 80/20 business philosophy to drive focus and efficiency in its end-markets, customers, products and manufacturing processes.

Greenwald designs, manufactures and markets payment systems and coin security products used primarily in the commercial laundry market.

Greenwald’s products include timers, drop meters, coin chutes, money boxes, meter cases, mobile payment apps, smart

cards, value transfer stations, smart card readers, card management software, and access control units.

Argo EMS supplies printed circuit boards and other electronic assemblies to OEMs in various industries, including measurement systems,

semiconductor equipment manufacturing, and industrial controls, medical and military products.

The Security Products segment continuously evaluates markets, technology and customer requests to develop growth strategies for the future.

Metal Products

The Metal Products Segment consists of Frazer & Jones.

The Frazer & Jones Company designs and manufactures high quality ductile and malleable iron

Frazer & Jones designs and manufactures high quality ductile and malleable iron castings.

Products include valves, torque screws, bean clamps and concrete anchors.

1 unchanged sentence

truck/automotive rail, and military/aerospace.

The Company believes

that its Metal Products segment is the largest and most efficient producer of expansion shells for use in supporting the roofs of underground mines in North America.

The Company obtains materials from nonaffiliated domestic, Asian affiliated and Asian nonaffiliated sources.

Raw materials and outside services were readily

available for all of the Company’s segments during 2019 and are expected to be readily available in 2020 and the foreseeable future.

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

Company’s competitive positions.

The Company believes that Frazer & Jones is the largest and most efficient producer of expansion shells for use in supporting the roofs of underground mines in North America.

Greenwald designs, manufactures and markets payment systems and coin security products used primarily in the commercial laundry market.

Greenwald’s products include timers, drop meters, coin chutes, money boxes, meter cases, mobile payment apps, smart cards, value transfer stations, smart card readers, card management software, and access control units.

Argo EMS supplies printed circuit boards and other electronic assemblies to OEMs in various industries, including measurement systems, semiconductor equipment manufacturing, and industrial controls, medical and military products.

Human Capital

We believe our success depends on the skills, experience, and industry knowledge of our key talent.

As such, our management team places significant focus and attention on the attraction, development, and retention of employees, as well as ensuring our corporate culture reflects Eastern’s values, and our Board of Directors (our “Board) provides oversight for various employee initiatives.

Eastern values and Code of Business Conduct and Ethics guide our actions, reflect our culture, and drive our performance.

We have made and continue to make investments in training and we have well-established performance management process.

The health and safety of our employees is also a top priority.

Our focus on the reduction of injuries and illnesses has significantly improved our safety performance.

We have attained these improvements by fostering a global safety culture supported with regular training and education that includes robust systems and philosophies centered on personal responsibility and accountability.

The Board established an Environment, Health and Safety Committee in 2019.

There is a high-level of leadership engagement, ensuring installation and maintenance of appropriate safety equipment at all of our manufacturing sites worldwide combined with vigorous reviews of root causation and systemic corrective actions of any safety incidents that may occur.

In response to the emergence of COVID-19 in early 2020, we implemented a proactive internal procedure and complied with local, federal and international governmental guidance that has enabled us to operate safely.

Each of our facilities continues to adhere to these practices, and we have also adjusted our remote worker safety procedures to ensure that remote employees are better integrated into our safety and health systems.

An engaged, innovative, skilled, and collaborative workforce is critical to our continued leadership in the design and manufacture of unique engineered solutions to industrial markets.

We operate globally under policies and programs that provide competitive wages, benefits, and terms of employment.

We are committed to efforts to increase diversity and foster an inclusive work environment that supports our global workforce through recruiting efforts and equitable compensation policies.

Employee levels are managed to align with business demand and management believes it currently has sufficient human capital to operate its business successfully.

As of January 2, 2021, we employed 1,323 full-time employees;

788 in the United States and 535 in other countries.

Approximately 53% of employees in the United States are represented by collective bargaining agreements.

We believe that our relations with employees, unions and works’ councils are good.

Patent and trademark protection for the various product lines of the Company is limited, but the Company believes patents and trademark protection is sufficient to protect the Company’s competitive positions.

Patent durations are from 3 to 20 years.

No business segment is dependent on any patent nor would the loss of any patent have any material adverse effect on the Company’s business.

None of the Company’s segments are seasonal.

Customers for all segments are broad-based geographically and by markets, and sales are generally not highly concentrated by customer.

During the fourth quarter of 2020, the Company announced certain organizational changes that will impact our future internal reporting and reportable segments.

As a result of these changes, we have combined the Illinois Lock Company and Dongguan Reeworld Security Products, Ltd.

with the former Industrial Hardware segment to form the Engineered Solutions Segment.

We have also combined the Frazer & Jones Company, Greenwald Industries, and Argo EMS to form the Diversified Products segment.

The Engineered Solutions and Diversified Product segments will be the reportable segments in 2020.

These changes are effective for financial reporting purposes from the beginning of fiscal year 2020.

See Note 12, Reportable Segments , in Item 8, Financial Statements and Supplementary Data , for our financial information by segment.

Neither of the Company’s segments is seasonal.

Customers for both segments are broad-based by geography and by market, and sales are generally not highly concentrated by customer.

Foreign sales were not significant.

The Company encounters competition in all of its business segments.

Imports from Asia and Latin America with favorable currency exchange rates and low 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 subsidiaries, expands its product lines through product development and acquisitions, and maintains sufficient inventory for fast turnaround of customer orders.

The Company does not anticipate that compliance with federal, state or local environmental laws or regulations are likely to have a material effect on the

Company’s capital expenditures, earnings or competitive position.

As of February 1, 2020, the Company’s total number of employees is 1,399, all of which are full time employees.

The Company’s ratio of working capital to sales improved to 28.1% in 2019 from 30.3% in 2018.

The improvement in working capital was the result of increased

sales activity and our continued commitment to reducing our working capital.

The Company encounters competition in both its business segments.

Imports from Asia and Latin America with favorable currency exchange rates and low-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 subsidiaries, expands its product lines through product development and acquisitions, and maintains sufficient inventory for fast turnaround of customer orders.

The Company does not anticipate that compliance with federal, state or local environmental laws or regulations are likely to have a material effect on the Company’s capital expenditures, earnings or competitive position.

The Company obtains materials from nonaffiliated domestic, Asian affiliated and Asian nonaffiliated sources.

Raw materials and outside services were affected by COVID-19 for some of the Company’s businesses during the first six months of 2020.

We expect raw materials and outside services to be readily available in 2021 and the foreseeable future, unless resurgence of the COVID-19 pandemic occurs, which could cause further disruptions in our supply chain.

The Company’s ratio of working capital to sales was 29.6% in 2020 and 28.1% in 2019.

Working 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 capital include our average days’ sales in accounts receivable, inventory turnover ratio and payment of vendor accounts

With the passage of 2017 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 needs further.

Other factors affecting working capital 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 customers.

The Company continues to monitor working capital

needs with the goal of reducing our ratio of working capital to sales.

The Company continues to monitor working capital needs with the goal of reducing our ratio of working capital to sales.

Available Information

The Company makes available, free of charge through its Internet website at http://www.easterncompany.com, 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 furnished 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 Company makes available, free of charge through its Internet website at http://www.easterncompany.com , 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 furnished 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 SEC.

The Company’s reports filed with, or furnished to, the SEC are also available on the SEC’s website at www.sec.gov.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business