What changed in this filing

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Item 1. Business

2022-03-17 compared with 2021-03-16 · 35 added, 55 removed, 62 unchanged (59% of the section changed)

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BUSINESS HIGHLIGHTS

On November 3, 2021, the Company sold its Greenwald Industries division (“Greenwald”).

Greenwald is an original equipment manufacturer (“OEM”) offering a range of payment solutions from coin-vending products to smart card systems and payment applications.

On November 22, 2021, the Company sold its Frazer & Jones Company division (“Frazer & Jones”).

Frazer & Jones is a high quality ductile and malleable iron foundry located in Syracuse, NY.

In the second fiscal quarter of 2021 the Company determined that the companies included in its Diversified Products segment, including Greenwald, Frazer & Jones, and Argo EMS, no longer fit with our long-term strategy and met the criteria to be treated as held for sale, and that the assets held for sale qualify for discontinued operations.

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

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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 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.

Description of Business

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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 focuses on acquisitions that further strengthen its core business but may pursue acquisitions in industries other than those in which its businesses currently operate if an acquisition presents an attractive opportunity.

Eastern manages the financial, operational, and strategic performance of its businesses 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.

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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”).

Company Operations

The Company’s operations consist of Big 3 Precision, including Big 3 Precision Products Inc.

(“Big 3 Products”) and Big 3 Mold Services, Inc.

(“Big 3 Mold”), Hallink Moulds, Inc.

(“Hallink Moulds” or “Hallink”), and Associated Toolmakers Ltd.

(“Associated Toolmakers”);

Eberhard Manufacturing Company (“Eberhard Manufacturing”), Eastern Industrial Ltd, World Lock Company Ltd., Dongguan Reeworld Security Products Ltd., and World Security Industries (together “Eberhard”);

and Velvac Holdings Inc.

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 Products works with leading OEMs to design and produce custom returnable transport packaging to integrate with OEM assembly processes.

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

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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.

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

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 is a 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).

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

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

These products are sold to a wide range of industrial markets, including the oil, water and gas;

truck/automotive rail, and military/aerospace.

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

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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.

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

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.

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

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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.

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Approximately 20% 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.

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

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

Patent durations are from 2 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.

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.

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

During the second fiscal quarter of 2021, the Company announced plans to sell the companies included in our Diversified Products segment, these assets met the criteria to be treated as held for sale and reported as discontinued operations.

Subsequently, in the fourth quarter of fiscal 2021, the Company sold its Greenwald Industries and Frazer & Jones divisions.

The Company’s businesses are not subject to seasonal variations.

Customers for the Company are broad-based by geography and by market, and sales are not highly concentrated by customer.

Foreign sales were not significant.

The Company encounters competition in both its business segments.

The Company encounters competition in its businesses.

Imports from Asia and Latin America with favorable currency exchange rates and low-cost labor have created additional pricing pressure.

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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 does not anticipate that compliance with federal, state, or local environmental laws or regulations is 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.

Availability and prices of raw materials and outside services were affected by measures taken in response to the COVID-19 pandemic for some of the Company’s businesses during 2020 and 2021.

We expect raw materials and outside services to be more readily available in 2022 unless resurgence of the COVID-19 pandemic occurs.

The Company’s ratio of working capital (current assets less current liabilities) to sales was 27.2% in 2021 and 36.0% in 2020.

Working capital includes cash held in various foreign subsidiaries.

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.

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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