What changed in this filing

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Item 1. Financial Statements

2021-11-10 compared with 2021-08-12 · 107 added, 109 removed, 447 unchanged (33% of the section changed)

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

$ 186,897,930

$ 147,059,497

Cost of products sold

6 unchanged sentences

( 2,395,932 )

( 1,839,464 )

Selling and administrative expenses

6 unchanged sentences

( 1,388,512 )

( 1,560,962 )

Income from continuing operations before income taxes

1 unchanged sentence

( 3,573,308 )

( 2,476,640 )

Net income from continuing operations

2 unchanged sentences

( 5,054,259 )

( 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 )

Gain (loss) on classification as held for sale

( 9,274,439 )

Net (loss) income

Income tax (expense) benefit

Gain (loss) on discontinued operations

( 4,926,248 )

1 unchanged sentence

Earnings per share from continuing operations:

Loss per share from discontinued operations:

Total (loss) earnings per share:

Earnings (loss) per share from discontinued operations:

Total earnings per share:

Cash dividends per share:

3 unchanged sentences

Three Months Ended

Six Months Ended

Net (loss) income

$ ( 4,473,774 )

$ ( 1,888,781 )

Other comprehensive income/(loss):

Nine Months Ended

Other comprehensive (loss) income:

Change in foreign currency translation

Change in marketable securities, net of taxes of:

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:

5 unchanged sentences

2020 - $ 81,144 and $ 243,429 respectively

Total other comprehensive income (loss)

( 1,859,435 )

Comprehensive (loss) income

$ ( 3,679,567 )

$ ( 1,013,727 )

Total other comprehensive (loss) income

( 1,208,342 )

Comprehensive income

See accompanying notes.

3 unchanged sentences

Cash and cash equivalents

Marketable securities

Accounts receivable, less allowances:

14 unchanged sentences

Long-term assets held for sale

Total Other Assets

$ 287,302,811

38 unchanged sentences

Foreign currency translation

Unrealized loss on marketable securities, net of tax

Unrealized loss on interest rate swap, net of tax

13 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended

Nine Months Ended

Operating Activities

3 unchanged sentences

Income from continuing operations

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

Adjustments to reconcile net income to net cash provided

by (used in) operating activities:

Depreciation and amortization

1 unchanged sentence

( 3,056,642 )

( 1,066,777 )

Gain on sale of equipment and other assets

6 unchanged sentences

( 13,686,268 )

( 2,379,330 )

Prepaid expenses and other

5 unchanged sentences

( 2,173,142 )

Net cash provided by operating activities

( 1,587,475 )

Net cash (used in) provided by operating activities

( 3,318,447 )

Investing Activities

1 unchanged sentence

Business disposition

( 5,994,267 )

Issuance of notes receivable

4 unchanged sentences

( 2,112,990 )

( 1,531,082 )

Net cash provided by (used in) investing activities

( 8,270,270 )

Financing Activities

11 unchanged sentences

Discontinued Operations

Cash provided by operating activities

Cash provided by (used in) operating activities

( 2,744,115 )

Cash used in investing activities

Cash provided by discontinued operations

Cash provided by (used in) discontinued operations

( 2,989,403 )

Effect of exchange rate changes on cash

Net change in cash and cash equivalents

( 6,090,251 )

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

¹ includes cash from assets held for sale of $1.3 million as of October 2, 2021 and $1.8 million as of October 3, 2020

See accompanying notes

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

October 2, 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 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.

References to the third quarter of 2020, the third fiscal quarter of 2020 or the three months ended October 3, 2020 mean the period from June 28, 2020 to October 3, 2020.

References to the third quarter of 2021, the third fiscal quarter of 2021 or the three months ended October 2, 2021 mean the 13-week period from July 4, 2021 to October 2, 2021.

References to the nine months ended October 3, 2020 or the first nine months of fiscal 2020 mean the period from December 29, 2019 to October 3, 2020, and references to the nine months ended October 2, 2021 or the first nine months of fiscal 2021 mean the period from January 3, 2021 to October 2, 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.

6 unchanged sentences

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

On November 3, 2021 the Company sold its Greenwald Industries, Inc.

division (“Greenwald”) for a sales price of $8.0 million, subject to a final working capital adjustment.

Greenwald, which is located in Chester, CT, is an OEM manufacturer offering a range of payment solutions from coin-vending products to smart card systems and payment applications.

Summarized Financial Information of Discontinued Operations

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of products sold

10 unchanged sentences

( 9,274,439 )

( 10,583,078 )

Operating loss

( 9,310,077 )

( 4,985,610 )

Operating income (loss)

( 5,980,071 )

1 unchanged sentence

Interest expense

Loss from discontinued operations before income taxes

( 9,454,792 )

( 5,137,249 )

( 9,243,611 )

Gain (Loss) from discontinued operations before income taxes

( 6,442,909 )

Income tax benefit

Loss from discontinued operations, net of tax

( 5,054,259 )

Income tax (expense) benefit

Income (loss) from discontinued operations, net of tax

$ ( 170,940 )

12 unchanged sentences

Accounts payable

Accrued compensation

Accrued compensation and other accrued expenses

Current portion of lease liability

4 unchanged sentences

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.

¹ The total assets and liabilities of discontinued operations are presented as current in the October 2, 2021 balance sheet

as we expect to sell the discontinued operations and collect proceeds within one year.

Note C – Earnings Per Share

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

Weighted average shares outstanding

9 unchanged sentences

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.

The aggregate carrying amount of goodwill from continuing operations is approximately $ 71.0 million as of October 2, 2021.

A goodwill write-off of approximately $ 5.9 million was recognized in discontinued operations in the second quarter of 2021 when classifying the disposal group as held for sale.

See Note B – Discontinued Operations for further discussion.

7 unchanged sentences

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.

The Company elected to account for non-lease components as part of the lease component to which they relate.

The Company accounts for non-lease components as part of the lease component to which they relate.

Lease accounting involves significant judgements, including making estimates related to the lease term, lease payments, and discount rate.

9 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 27 operating leases and three finance leases with a lease liability of $ 12.3 million as of July 3, 2021.

Currently, the Company has 28 operating leases and three finance leases with a lease liability of $ 11.9 million as of October 2, 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.

There are no related party transactions.

There are no related party lease transactions.

There are no leases that have not yet commenced that could create significant rights and obligations for the Company.

13 unchanged sentences

(approximately $ 19 million) and to acquire certain subsidiaries of Big 3 Holdings, LLC (collectively “Big 3 Precision”).

The term portion of the loan requires quarterly principal payments of $ 1,250,000 for an 18-month period beginning December 31, 2019.

The repayment amount then increases to $ 1,875,000 per quarter beginning September 30, 2021 and continues through June 30, 2023.

The repayment amount then increases to $ 2,500,000 per quarter beginning September 30, 2023 and continues through June 30, 2024.

The term portion of the loan required quarterly principal payments of $ 1,250,000 for an 18-month period beginning December 31, 2019.

The repayment amount then increased to $ 1,875,000 per quarter beginning September 30, 2021 and continuing through June 30, 2023.

The repayment amount then increases to $ 2,500,000 per quarter beginning September 30, 2023 and continuing through June 30, 2024.

The term loan is a 5 -year loan with the remaining balance due on August 30, 2024.

1 unchanged sentence

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

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

As of October 2, 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 July 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 October 2, 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 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.

Information regarding the potential phasing out of LIBOR is provided below.

On October 2, 2021, the interest rate for approximately half ($39.7 million) of the term portion was 1.83%, using a one-month LIBOR rate, and 3.19% on the remaining balance ($44.7 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 phasing out of LIBOR.

Information regarding the phasing out of LIBOR is provided below.

On July 27, 2017, the Financial Conduct Authority (the “FCA”) (the authority that regulates LIBOR) announced that it would phase out LIBOR by the end of 2021.

13 unchanged sentences

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

On February 19, 2020, the board of directors of the Company adopted the Eastern Company 2020 Stock Incentive Plan (the “2020 Plan”).

On February 19, 2020, the Board of Directors of the Company (the “Board”) adopted the Eastern Company 2020 Stock Incentive Plan (the “2020 Plan”).

On April 29, 2020, at the Company’s 2020 Annual Meeting of Shareholders, the shareholders of the Company approved and adopted the 2020 Plan.

2 unchanged sentences

Incentive stock options granted under the 2020 Plan must have exercise prices that are not less than 100% of the fair market value of the Company’s common stock on the dates the stock options are granted.

Restricted stock awards may also be granted to participants under the 2020 Plan with restrictions determined by the Compensation Committee of the Company’s Board of Directors.

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 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.

Restricted stock awards may also be granted to participants under the 2020 Plan with restrictions determined by the Compensation Committee of the Board.

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

During the first nine months of fiscal 2021, the Company granted 27,300 stock options that were subject to the meeting of performance measurements.

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

For the first nine 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 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.

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

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

For the first nine 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 $ 102,000 and $ 85,000 in the third quarter of 2021 and the third quarter of 2020, respectively and was approximately $ 316,000 and $ 279,000 in the first nine months of fiscal years 2021 and 2020, respectively.

As of October 2, 2021, there were 804,646 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:

Six Months Ended

Nine Months Ended

October 2, 2021

January 2, 2021

Exercise Price

Weighted Average Exercise Price

Outstanding at beginning of period

1 unchanged sentence

SARs Outstanding and Exercisable

Exercise Prices

as of July 3,

Contractual Life

Exercise Price

as of July 3,

Remaining Contractual Life

Exercise Price

Range of Exercise Prices

Outstanding as of October 2, 2021

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price

Exercisable as of October 2, 2021

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price

19.10 - $ 26.30

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

Six Months Ended

Nine Months Ended

October 2, 2021

January 2, 2021

Weighted Average Exercise Price

Outstanding at beginning of period

Outstanding at end of period

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

As of October 2, 2021, outstanding SARs and grants had an intrinsic value of $ 1,764,000 .

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.

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

The Company’s share repurchase program does not obligate it to acquire the Company’s common stock at any specific cost per share.

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 second quarter of 2021.

of Publicly Announced

Balance as of April 3, 2021

April 4, 2021 - July 3, 2021

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

Total Number of Shares Purchased

Average Price Paid Per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Maximum Number of Shares that may yet be Purchased Under the Plans or Programs

Balance as of July 3, 2021

July 4, 2021 - October 2, 2021

Balance as of October 2, 2021

Note J – Revenue Recognition

8 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 M for revenues reported by segment.

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

9 unchanged sentences

The ASU also now requires that an entity reflect enacted changes in tax laws in the annual effective rate, and other codification adjustments have been made to employee stock ownership plans.

For public business entities, the amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

Early adoption of ASU 2019-12 is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued.

The Company adopted ASU 2019-12 in the first quarter of 2021.

3 unchanged sentences

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 six months ended July 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.

6 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 six months of fiscal years 2021 and 2020 are as follows:

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

Pension Benefits

Three Months Ended

Six Months Ended

Nine Months Ended

Interest cost

9 unchanged sentences

$ ( 645,610 )

$ ( 104,415 )

Postretirement Benefits

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

Interest cost

6 unchanged sentences

In fiscal year 2021, the Company expects to contribute $ 2,300,000 into its pension plans and $ 50,000 into its postretirement plan.

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 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 reviewed the American Rescue Plan Act(ARPA) for applicable pension funding relief for the minimum required contributions and has adjusted accordingly, ARPA will continue to provide cashflow relief to pension for future years.

As of October 2, 2021, the Company has made contributions of approximately $ 1,856,000 into its pension plans, has contributed $ 11,000 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

Nine Months Ended

Regular matching contribution

2 unchanged sentences

Total contributions for the period

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.

The non-discretionary contribution of $ 332,092 made in the nine months ended October 2, 2021 was accrued for and expensed in the prior fiscal year.

Note M - Recent Accounting Pronouncements

3 unchanged sentences

The ASU also now requires that an entity reflect enacted changes in tax laws in the annual effective rate, and other codification adjustments have been made to employee stock ownership plans.

For public business entities, the amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

Early adoption of ASU 2019-12 is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued.

The Company adopted ASU 2019-12 as of January 3, 2021.

5 unchanged sentences

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

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.

As of October 2, 2021, there was one significant concentration of credit risk with a customer, who has receivables representing 10 % 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 $ 45.6 million on July 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 $ 44.7 million on October 2, 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.

19 unchanged sentences

Asset Class/Description

Period in Years

Weighted-Average Period in Years

Patents, technology, and licenses

Customer relationships

4 unchanged sentences

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