What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-12 compared with 2021-05-11 · 201 added, 109 removed, 355 unchanged (47% of the section changed)

1 unchanged sentence

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Three Months Ended

Six Months Ended

$ 123,021,025

Cost of products sold

1 unchanged sentence

( 29,188,182 )

( 93,535,153 )

( 68,111,738 )

Product development expense

( 1,088,380 )

( 2,105,942 )

( 1,839,464 )

Selling and administrative expenses

1 unchanged sentence

( 6,545,525 )

( 18,319,931 )

( 14,752,316 )

Operating profit

Interest expense

Income before income taxes

( 1,075,663 )

Earnings per share:

Income from continuing operations before income taxes

( 2,601,424 )

( 1,455,033 )

Net income from continuing operations

Discontinued Operations (see note B )

Gain (loss) from operations of discontinued units

( 5,137,249 )

( 4,831,485 )

Loss on classification as held for sale

( 10,583,078 )

Income tax benefit

Loss on discontinued operations

( 7,229,134 )

( 3,969,238 )

( 7,067,665 )

( 3,715,973 )

Net (loss) income

$ ( 4,473,774 )

$ ( 1,888,781 )

Earnings per share from continuing operations:

Loss per share from discontinued operations:

Total (loss) earnings per share:

Cash dividends per share:

1 unchanged sentence

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three Months Ended

Six Months Ended

Net (loss) income

$ ( 4,473,774 )

$ ( 1,888,781 )

Other comprehensive income/(loss):

Change in foreign currency translation

( 1,304,447 )

Change in marketable securities, net of taxes of:

2021 - $67 and 2020 - $2,897

2021 - $( 25 ) and $ 42 respectively;

2020 - $ 679 and $( 2,063 ) respectively

Change in fair value of interest rate swap, net of tax cost (benefit) of:

2021 - $130,434 and 2020 - $(535,029)

2021 - $ 26,560 and $ 156,994 respectively;

2020 - $ 48,169 and $ 582,673 respectively

( 1,847,297 )

Change in pension and postretirement benefit costs, net of taxes of:

2021 - $92,194 and 2020 - $81,143

2021 - $ 107,961 and $ 200,155 respectively;

2020 - $ 81,142 and $ 162,285 respectively

Total other comprehensive income (loss)

( 1,859,435 )

Comprehensive income

Comprehensive (loss) income

$ ( 3,679,567 )

$ ( 1,013,727 )

$ ( 852,399 )

See accompanying notes.

9 unchanged sentences

Prepaid expenses and other assets

Current assets held for sale

Total Current Assets

7 unchanged sentences

Right of Use Assets

Long-term assets held for sale

$ 281,542,035

10 unchanged sentences

Current portion of long-term debt

Current liabilities held for sale

Total Current Liabilities

5 unchanged sentences

Accrued pension cost

Long-term liabilities held for sale

Total Liabilities

3 unchanged sentences

1,000,000 shares

Nonvoting Preferred Stock, no par value:Authorized and unissued:

Nonvoting Preferred Stock, no par value:

Authorized and unissued:

1,000,000 shares

Common Stock, no par value, Authorized:

50,000,000 shares Issued:

9,003,230 shares in 2021 and 8,996,625 shares in 2020 Outstanding:

50,000,000 shares

9,018,483 shares in 2021 and 8,996,625 shares in 2020

6,268,754 shares in 2021 and 6,246,896 shares in 2020

Treasury Stock:

20 unchanged sentences

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended

Operating Activities

Loss from discontinued operations

( 7,067,665 )

( 3,715,973 )

Income from continuing operations

Adjustments to reconcile net income to net cash provided by operating activities:

1 unchanged sentence

Unrecognized pension and postretirement benefits

(Gain) loss on sale of equipment and other assets

( 1,722,275 )

(Gain) on sale of equipment and other assets

( 1,555,983 )

Provision for doubtful accounts

6 unchanged sentences

Prepaid expenses and other

( 3,057,099 )

Accounts payable

1 unchanged sentence

( 1,527,149 )

( 1,585,976 )

Other accrued expenses

( 1,057,698 )

Net cash provided by operating activities

1 unchanged sentence

Marketable securities

Business disposition

Issuance of notes receivable

( 1,251,943 )

Payments received from notes receivable

1 unchanged sentence

Purchases of property, plant and equipment

( 1,810,434 )

Net cash provided by/used in investing activities

3 unchanged sentences

( 2,622,745 )

Lease payments

Financing leases, net

Purchase common stock for treasury

Dividends paid

( 1,375,509 )

( 1,372,673 )

Net cash used in financing activities

1 unchanged sentence

( 4,364,282 )

Discontinued Operations

Cash provided by operating activities

Cash used in investing activities

Cash provided by discontinued operations

Effect of exchange rate changes on cash

Net change in cash and cash equivalents

( 1,487,624 )

Cash and cash equivalents at beginning of period

4 unchanged sentences

Lease liability

¹ includes cash from assets held for sale of $1.6 million as of July 3, 2021 and $1.7 million as of June 27, 2020

See accompanying notes

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

April 3, 2021

Note A – Basis of Presentation

10 unchanged sentences

In a 53-week fiscal year, each of the first two fiscal quarters and the fourth quarter are 13 weeks long, and the third fiscal quarter is 14 weeks long.

References to the first quarter of 2020, the first fiscal quarter of 2020 or the three months ended March 28, 2020 mean the period from December 29, 2019 to March 28, 2020.

References to the first quarter of 2021, the first fiscal quarter of 2021 or the three months ended April 3, 2021 mean the 13-week period from January 3, 2021 to April 3, 2021.

References to the second quarter of 2020, the second fiscal quarter of 2020 or the three months ended June 27, 2020 mean the period from March 29, 2020 to June 27, 2020.

References to the second quarter of 2021, the second fiscal quarter of 2021 or the three months ended July 3, 2021 mean the 13-week period from April 4, 2021 to July 3, 2021.

Certain amounts in the 2020 financial statements have been reclassified to conform with the 2021 presentation with no impact or change to previously reported net income or shareholder’s equity.

Note B - Earnings Per Share

The Company now reports continuing operations as one segment – Engineered Solutions.

Note B – Discontinued Operations

We have determined that the companies included in our Diversified Products segment no longer fit with our long-term strategy and we have initiated the process of selling the companies within the Diversified Products segment.

Selling the companies within this segment will allow management to focus on our core capabilities and offerings.

The Diversified Products segment met the criteria to be held for sale and furthermore, we determined that the assets held for sale qualify for discontinued operations.

As such, the financial results of the Diversified Products segment are reflected in our unaudited condensed consolidated statements of operations as discontinued operations for all periods presented.

Additionally, current and non-current assets and liabilities of discontinued operations are reflected in the unaudited condensed consolidated balance sheets for both periods presented.

Summarized Financial Information of Discontinued Operations

The following table represents income from discontinued operations, net of tax:

Three Months Ended

Six Months Ended

Cost of products sold

( 11,139,886 )

( 9,179,960 )

( 21,044,606 )

( 20,833,343 )

Selling and administrative expenses

( 1,280,570 )

( 5,131,259 )

( 2,313,397 )

( 6,444,713 )

Restructuring costs

( 10,583,078 )

Operating loss

( 9,310,077 )

( 4,985,610 )

( 8,923,182 )

( 4,472,932 )

Interest expense

Loss from discontinued operations before income taxes

( 9,454,792 )

( 5,137,249 )

( 9,243,611 )

( 4,831,485 )

Income tax benefit

Loss from discontinued operations, net of tax

$ ( 7,229,134 )

$ ( 3,969,238 )

$ ( 7,067,665 )

$ ( 3,715,973 )

The following table represents the assets and liabilities from discontinued operations:

Accounts receivable

Prepaid expenses

Property, plant and equipment, net

Patents and other intangibles net of accumulated amortization

Right of use assets

Total assets of discontinued operations

Current assets of discontinued operations¹

Non-current assets of discontinued operations

Total assets of discontinued operations

Accounts payable

Accrued compensation

Current portion of lease liability

Other long-term liabilities

Total liabilities of discontinued operations

Current liabilities of discontinued operations¹

Non-current liabilities of discontinued operations

Total liabilities of discontinued operations

¹ The total assets and liabilities of discontinued operations are presented as current in the July 3, 2021 balance sheet as we expect to sell the discontinued operations and collect proceeds within one year.

Note C – Earnings Per Share

The denominators used to calculate earnings per share are as follow:

Three Months Ended

Six Months Ended

Weighted average shares outstanding

2 unchanged sentences

Denominator for diluted earnings per share

Note C - Inventories

Inventories consist of the following components:

Note D – Inventories

Inventories from continuing operations consist of the following components:

Raw material and component parts

2 unchanged sentences

Total inventories

Note D - Goodwill

The Company maintains 11 reporting units, five of which comprise the goodwill balance.

These six units have an aggregate carrying amount of goodwill of approximately $ 76.9 million as of April 3, 2021.

Note E - Goodwill

The aggregate carrying amount of goodwill from continuing operations is approximately $ 71.1 million as of July 3, 2021.

A goodwill write-off of approximately $ 5.9 million was recognized in discontinued operations when classifying the disposal group as held for sale.

See Note B – Discontinued Operations for further discussion.

The Company tests its reporting units for impairment annually in December, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

4 unchanged sentences

The values assigned to the key assumptions represent management’s assessment of future trends in the relevant industry and have been based on historical data from both external and internal sources.

Note E - Leases

Note F – Leases

The Company presents right-of-use (ROU) assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months, in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases.

11 unchanged sentences

All options to extend, when it is reasonably certain the option will be exercised, have been included in the calculation of the ROU asset and lease liability.

Currently, the Company has 32 operating leases and two finance leases with a lease liability of $ 12.9 million as of April 3, 2021.

Currently, the Company has 27 operating leases and three finance leases with a lease liability of $ 12.3 million as of July 3, 2021.

The finance lease arrangements are immaterial.

1 unchanged sentence

The leases do not contain residual value guarantees, restrictions, or covenants that could cause the Company to incur additional financial obligations.

We rent or sublease a part of one real estate property to a third party.

There are no related party transactions.

8 unchanged sentences

The weighted average remaining lease term is 6.5 years.

The interest rate used was 5.0 %.

Note F - Debt

The implicit interest rate used was 5.0 %.

Note G - Debt

On August 30, 2019, the Company entered into a credit agreement with Santander Bank, N.A., for itself, People’s United Bank, National Association and TD Bank, N.A.

8 unchanged sentences

The revolving commitment portion has a maturity date of August 30, 2024.

As of April 3, 2021, the Company has not borrowed any funds on the revolving commitment portion of the facility.

As of July 3, 2021, the Company has not borrowed any funds on the revolving commitment portion of the facility.

The term loan bears interest at a variable rate based on the LIBOR rate plus an applicable margin of 1.25 % to 2.25 %, depending on the Company’s senior net leverage ratio.

3 unchanged sentences

In addition, the Company is required to maintain a fixed charge coverage ratio to be not less than 1.25 to 1 .

The Company was in compliance with all of its covenants under the Credit Agreement at April 3, 2021 and through the date of filing this Form 10-Q.

The Company was in compliance with all of its covenants under the Credit Agreement at July 3, 2021 and through the date of filing this Form 10-Q.

On August 30, 2019, the Company entered into an interest rate swap contract with Santander Bank, N.A., with an original notional amount of $ 50,000,000 , which was equal to 50% of the outstanding balance of the term loan on that date.

The Company has a fixed interest rate of 1.44 % on the swap contract and will pay the difference between the fixed rate and LIBOR when LIBOR is below 1.44% and will receive interest when the LIBOR rate exceeds 1.44 %.

On April 3, 2021, the interest rate for half ($ 41.3 million) of the term portion was 2.36 %, using a one-month LIBOR rate, and 3.69 % on the remaining balance ($ 46.3 million) of the term loan based on a one-month LIBOR rate.

On July 3, 2021, the interest rate for half ($40.6 million) of the term portion was 1.84%, using a one-month LIBOR rate, and 3.19% on the remaining balance ($45.6 million) of the term loan based on a one-month LIBOR rate.

The interest rates under the Credit Agreement and the interest rate swap contract are susceptible to changes to the method of determining LIBOR rates and to the potential phasing out of LIBOR after 2021.

13 unchanged sentences

We are working with our senior lender and may need to renegotiate our credit facilities as LIBOR phases out in June 2023.

Note G - Stock Options and Awards

Note H - Stock Options and Awards

The Eastern Company 2010 Executive Stock Incentive Plan (the “2010 Plan”), for officers, other key employees, and non-employee Directors expired in February 2020.

6 unchanged sentences

Under the 2020 Plan, non-qualified stock options granted to participants will have exercise prices determined by the Compensation Committee of the Company’s Board of Directors.

During the first three months of fiscal 2021, the company issued 24,600 stock options that were granted that were subject to the meeting of performance measurements.

The Company did not issue any stock options or restricted stock in the first 3 months of fiscal 2020.

For the first three months of fiscal 2021, the Company used several assumptions which included an expected term of 4.0 years, volatility deviation between 47.25 % to 47.54 % and a risk-free rate between 0.18 % to 0.20 % for the purposes of measuring compensation under the Black Scholes Method.

The 2020 Plan also permit the issuance of Stock Appreciation Rights (“SARs”).

During the first six months of fiscal 2021, the Company issued 24,600 stock options that were granted that were subject to the meeting of performance measurements.

The Company did not issue any stock options or restricted stock in the first six months of fiscal 2020.

For the first six months of fiscal 2021, the Company used several assumptions which included an expected term of 4.0 years, volatility deviation between 47.25 % to 48.55 % and a risk-free rate between 0.18 % to 0.35 % for the purposes of measuring compensation under the Black Scholes Method.

The 2020 Plan also permits the issuance of Stock Appreciation Rights (“SARs”).

The SARs are in the form of an option with a cashless exercise price equal to the difference between the fair value of the Company’s common stock at the date of grant and the fair value as of the exercise date resulting in the issuance of the Company’s common stock.

During the first three months of fiscal 2021 and the first three months of fiscal 2020, the Company did not issue any SARs.

Stock-based compensation expense in connection with SARs previously granted to employees was approximately $ 113,000 and $ 110,000 in the first quarter of 2021 and 2020, respectively.

As of April 3, 2021, there were 788,358 shares of Company common stock reserved and available for future grant under the 2020 Plan.

During the first six months of fiscal 2021 the Company did not issue any SARs.

During the first six months of fiscal 2020 the company issued 44,000 SARs.

For the first six months of fiscal 2020, the Company used several assumptions which included an expected term of 4.0 years, volatility deviation of 38.62 % and a risk-free rate of 0.26 % for the purposes of measuring compensation under the Black Scholes Method.

Stock-based compensation expense in connection with SARs previously granted to employees was approximately $ 100,000 and $ 85,000 in the second quarter of 2021 and the second quarter of 2020, respectively and was approximately $ 214,000 and $ 195,000 in the first six months of fiscal years 2021 and 2020, respectively.

As of July 3, 2021, there were 811,072 shares of Company common stock reserved and available for future grant under the 2020 Plan.

The following tables set forth the outstanding SARs for the period specified:

Three Months Ended

April 3, 2021

Six Months Ended

January 2, 2021

Weighted - Average Exercise Price

Exercise Price

Outstanding at beginning of period

2 unchanged sentences

Exercise Prices

Outstanding as of

April 3, 2021

Weighted- Average Remaining Contractual Life

Weighted- Average Exercise Price

Exercisable as of

April 3, 2021

Weighted- Average Remaining Contractual Life

Weighted- Average Exercise Price

as of July 3,

Contractual Life

Exercise Price

as of July 3,

Remaining Contractual Life

Exercise Price

19.10 - $ 26.30

The following tables set forth the outstanding stock grants for the period specified:

Three Months Ended

April 3, 2021

Six Months Ended

January 2, 2021

Weighted - Average Exercise Price

Outstanding at beginning of period

Outstanding at end of period

Stock Grants Outstanding and Exercisable

Range of Exercise Prices

Outstanding as of

April 3, 2021

Weighted- Average Remaining Contractual Life

Weighted- Average Exercise Price

Exercisable as of

April 3, 2021

Weighted- Average Remaining Contractual Life

Weighted- Average Exercise Price

As of April 3, 2021, outstanding SARs and grants had an intrinsic value of $ 1,776,000 .

Note H - Share Repurchase Program

As of July 3, 2021, outstanding SARs and grants had an intrinsic value of $ 3,105,000 .

Note I – Share Repurchase Program

On May 2, 2018, the Company announced that its Board of Directors had authorized a new program to repurchase up to 200,000 shares of the Company’s common stock.

1 unchanged sentence

Under this program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The Company did not repurchase any shares under its share repurchase program during the first quarter of 2021.

Total Number of

Part of Publicly

Announced Plans

Maximum Number

of Shares That May

Yet be Purchased

Under the Plans or

Balance as of January 2, 2021

January 3, 2021 - April 3, 2021

The Company did not repurchase any shares under its share repurchase program during the second quarter of 2021.

of Publicly Announced

Balance as of April 3, 2021

Note I - Revenue Recognition

April 4, 2021 - July 3, 2021

Balance as of July 3, 2021

Note J – Revenue Recognition

The Company’s revenues result from the sale of goods and services and reflect the consideration to which the Company expects to be entitled.

7 unchanged sentences

The Company has reviewed the overall sales transactions for variable consideration and has determined that these costs are not material.

Refer to Note L for revenues reported by segment.

Refer to Note M for revenues reported by segment.

The Company has no future performance obligations and does not capitalize costs to obtain or fulfill contracts.

Note J - Income Taxes

Note K - Income Taxes

The Company files income tax returns in the U.S.

12 unchanged sentences

748) (the “CARES Act”) became law.

For additional information on the Company’s CARES ACT impact see Note 8 - Income Taxes in the 2020 Form 10-K.

For additional information on the impact of the CARES Act on the Company see Note 8 – Income Taxes in the 2020 Form 10-K.

The Company will also continue to assess the effect of state level tax relief provisions as enacted, such as state net operating loss rule changes and conformity to the federal interest, depreciation and charitable contribution deduction changes.

The total amount of unrecognized tax benefits could increase or decrease within the next 12 months for a number of reasons, including the closure of federal, state and foreign tax years by expiration of the statute of limitations and the recognition and measurement considerations under FASB ASC Topic 740, “Income Taxes.” There have been no significant changes to the amount of unrecognized tax benefits during the three months ended April 3, 2021.

The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits will not increase or decrease significantly over the next twelve months.

Note K - Retirement Benefit Plans

Note L - Retirement Benefit Plans

The Company has four non-contributory defined benefit pension plans covering most U.S.

4 unchanged sentences

The Company also provides health care and life insurance for retired salaried employees in the United States who meet specific eligibility requirements.

Significant disclosures relating to these benefit plans for the first three months of fiscal years 2021 and 2020 are as follows:

Significant disclosures relating to these benefit plans for the first six months of fiscal years 2021 and 2020 are as follows:

Pension Benefits

Three Months Ended

Six Months Ended

Interest cost

2 unchanged sentences

( 1,365,262 )

( 2,897,349 )

( 2,730,523 )

Amortization of prior service cost

2 unchanged sentences

$ ( 215,205 )

$ ( 430,407 )

Postretirement Benefits

Three Months Ended

Six Months Ended

Interest cost

7 unchanged sentences

The Company is currently reviewing the American Rescue Plan Act for applicable pension funding relief for the minimum required contributions and will adjust accordingly.

As of April 3, 2021, the Company has made contributions of approximately $ 521,000 into its pension plans, has contributed $ 5,000 to its postretirement plan and expects to make the remaining contributions as required during the remainder of the fiscal year.

As of July 3, 2021, the Company has made contributions of approximately $ 1,171,000 into its pension plans, has contributed $ 8,000 to its postretirement plan and expects to make the remaining contributions as required during the remainder of the fiscal year.

The Company has a contributory savings plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”) covering substantially all U.S.

4 unchanged sentences

Three Months Ended

Six Months Ended

Regular matching contribution

2 unchanged sentences

Total contributions for the period

The non-discretionary contribution of $ 519,177 made in the three months ended April 3, 2021 was accrued for and expensed in the prior fiscal year.

Note L - Segment Information

For the first quarter of 2021, financial information by segment is as follows:

Three Months Ended

Sales to unaffiliated customers:

Engineered Solutions

Diversified Products

Income (loss) before income taxes:

Engineered Solutions

Diversified Products

Operating Profit (loss)

Interest expense

Income before income taxes

Segment income (loss) before income taxes include the allocation of corporate expenses to the Engineered Solutions and Diversified Products segments.

The non-discretionary contribution of $ 332,092 made in the six months ended July 3, 2021 was accrued for and expensed in the prior fiscal year.

Note M - Recent Accounting Pronouncements

12 unchanged sentences

The Company has established credit limits for customers and monitors their balances to mitigate the risk of loss.

As of April 3, 2021, there was one significant concentration of credit risk with a customer, who has receivables representing 12 % of our total accounts receivable.

As of July 3, 2021, there was one significant concentration of credit risk with a customer, who has receivables representing 15 % of our total accounts receivable.

One single customer represented more than 10 % of the Company’s net accounts receivable as of January 2, 2021.

2 unchanged sentences

The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s debt, which bears interest at variable rates based on the LIBOR rate plus a margin spread of 1.25 % to 2.25 %.

The Company has an interest rate swap with a notional amount of $ 46.3 million on April 3, 2021, to convert a portion of the borrowing under the Credit Agreement from variable to fixed rates.

The Company has an interest rate swap with a notional amount of $ 45.6 million on July 3, 2021, to convert a portion of the borrowing under the Credit Agreement from variable to fixed rates.

The valuation of this swap is determined using the one-month LIBOR rate index and mitigates the Company's exposure to interest rate risk.

Additionally, interest rates on the Company's debt are susceptible to changes to the method that LIBOR rates are determined and to the potential phasing out of LIBOR after 2021.

The potential phasing out of LIBOR is discussed in greater detail in Note F - Debt hereof and under the heading “The phase out of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different reference rate, may adversely affect interest rates” in Part I, Item 1A of the 2020 Form 10-K.

The potential phasing out of LIBOR is discussed in greater detail in Note G — Debt hereof and under the heading “The phaseout of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different reference rate, may adversely affect interest rates” in Part I, Item 8of the 2020 Form 10-K.

Currency Exchange Rate Risk

16 unchanged sentences

Asset Class/Description

Weighted-Average Period in Years

Period in Years

Customer relationships

3 unchanged sentences

Neither the actual results nor the pro forma effects of the acquisition of Hallink are material to the Company's financial statements.

Note P - Subsequent Events

The Company evaluated its April 3, 2021 unaudited condensed consolidated financial statements for subsequent events through the date the financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements.

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-Q

Item 1. Financial Statements