What changed in this filing

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Item 1. Financial Statements

2022-11-07 compared with 2022-08-08 · 112 added, 72 removed, 432 unchanged (30% of the section changed)

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

$ 210,191,448

16 unchanged sentences

Interest expense

( 1,583,894 )

( 1,388,512 )

Income from continuing operations before income taxes

5 unchanged sentences

Discontinued Operations (see Note B)

Gain from operations of discontinued operations

Loss on classification as held for sale

( 10,583,078 )

Income from operations of discontinued operations

Gain (loss) on classification of assets as held for sale

( 9,274,439 )

2 unchanged sentences

( 4,926,248 )

( 7,067,665 )

Net income (loss)

$ ( 4,473,774 )

Earnings per share from continuing operations:

Earnings (loss) per share from discontinued operations:

Total earnings (loss) per share:

Total earnings per share:

Cash dividends per share:

3 unchanged sentences

Three Months Ended

Six Months Ended

Net income (loss)

$ ( 4,473,774 )

Other comprehensive income (loss):

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Other comprehensive (loss) income:

Change in foreign currency translation

( 1,387,274 )

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

( 2,358,170 )

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

2022 - $ 163,533 and $ 590,827 respectively;

3 unchanged sentences

2021 - $ 107,962 and $ 308,117 respectively

Total other comprehensive income (loss)

Comprehensive income (loss)

$ ( 3,679,567 )

Total other comprehensive (loss) income

Comprehensive income

See accompanying notes.

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

October 1, 2022

January 1, 2022

22 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

October 1, 2022

January 1, 2022

31 unchanged sentences

Retained earnings

Accumulated other comprehensive income (loss):

Accumulated other comprehensive (loss):

Foreign currency translation

( 1,539,724 )

Unrealized gain (loss) on interest rate swap, net of tax

12 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

Operating Activities

2 unchanged sentences

Income from continuing operations

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization

1 unchanged sentence

( 3,056,642 )

Loss (gain) on sale of equipment and other assets

Gain on sale of equipment and other assets

( 1,469,218 )

12 unchanged sentences

Accrued compensation

( 1,711,069 )

Other accrued expenses

( 1,046,094 )

Net cash (used in) provided by operating activities

( 2,173,142 )

Net cash used in operating activities

( 3,318,448 )

Investing Activities

Marketable securities

Issuance of Notes Receivable

Payments received from notes receivable

5 unchanged sentences

Financing Activities

Payments on short term borrowings (revolver)

( 1,000,000 )

Proceeds from short term borrowings (revolver)

8 unchanged sentences

( 2,062,492 )

Net cash provided by (used in) financing activities

Net cash used in financing activities

( 6,355,028 )

5 unchanged sentences

Net change in cash and cash equivalents

( 6,090,252 )

Cash and cash equivalents at beginning of period

3 unchanged sentences

Right of use asset

$ ( 820,561 )

Lease liability

( 1,608,530 )

¹ includes cash from assets held for sale of $0.1 million as of July 2, 2022 and $1.6 million as of July 3, 2021

See accompanying notes

¹ includes cash from assets held for sale of $0.4 million as of October 1, 2022 and $1.3 million as of October 2, 2021

THE EASTERN COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

October 1, 2022

Note A – Basis of Presentation

9 unchanged sentences

In a 52-week fiscal year, each quarter has 13 weeks.

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

References to the second quarter of 2022, the second fiscal quarter of 2022 or the three months ended July 2, 2022, mean the 13-week period from April 3, 2022 to July 2, 2022.

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

References to the third quarter of 2022, the third fiscal quarter of 2022 or the three months ended October 1, 2022 mean the 13-week period from July 3, 2022 to October 1, 2022.

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

14 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Cost of products sold

6 unchanged sentences

( 3,407,113 )

Restructuring costs

( 10,583,078 )

Gain (loss) on classification of assets as held for sale

( 9,274,439 )

1 unchanged sentence

( 5,980,071 )

( 8,923,182 )

Interest expense

1 unchanged sentence

( 6,442,909 )

( 9,243,611 )

Income tax (expense) benefit

1 unchanged sentence

$ ( 4,926,248 )

$ ( 7,067,665 )

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

October 1, 2022

January 1, 2022

9 unchanged sentences

Total liabilities of discontinued operations¹

¹ The total assets and liabilities of discontinued operations are presented as current in the July 2, 2022 and January 1, 2022 balance sheets as we expect to sell the discontinued operations and collect proceeds within one year of the applicable balance sheet date.

¹ The total assets and liabilities of discontinued operations are presented as current in the October 1, 2022 and January 1, 2022 balance sheets as we sold the discontinued operations and collected proceeds within one year of the applicable balance sheet date.

Note C – Earnings Per Share

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Weighted average shares outstanding

4 unchanged sentences

Inventories from continuing operations consist of the following components:

October 1, 2022

January 1, 2022

4 unchanged sentences

Note E - Goodwill

The aggregate carrying amount of goodwill from continuing operations is approximately $ 72.1 million as of July 2, 2022.

No impairment was recognized in the second quarter of 2022.

The aggregate carrying amount of goodwill from continuing operations is approximately $ 71.9 million as of October 1, 2022 and $ 72.2 million as of January 1, 2022.

No impairment was recognized in the third quarter of 2022.

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.

17 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 25 operating leases and three finance leases with a lease liability of $ 13.2 million as of July 2, 2022.

Currently, the Company has 24 operating leases and two finance leases with a lease liability of $ 13.1 million as of October 1, 2022 and $ 11.3 million as of January 1, 2022.

The finance lease arrangements are immaterial.

16 unchanged sentences

Proceeds of the term loan were used to repay the Company’s remaining outstanding term loan (and to terminate its existing credit facility) with People’s United Bank, N.A.

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

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

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

4 unchanged sentences

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

As of July 2, 2022, the Company has borrowed $ 10,000,000 on the revolving commitment portion of the facility at an interest rate of 2.59 %.

As of October 1, 2022, the Company has borrowed $ 9,000,000 on the revolving commitment portion of the facility at an interest rate of 4.51 %.

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 on July 2, 2022, and through the date of filing this Form 10-Q.

The Company was in compliance with all of its covenants under the Credit Agreement on October 1, 2022, and through the date of filing this Form 10-Q.

On August 30, 2019, the Company entered 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 2, 2022, the interest rate for approximately half ($ 25.9 million) of the term portion was 2.81%, using a one-month LIBOR rate, and 3.19 % on the remaining balance ($ 41.9 million) of the term loan based on a one-month LIBOR rate.

On October 1, 2022, the interest rate for approximately half ($ 24.9 million) of the term portion was 4.28%, using a one-month LIBOR rate, and 3 .19 % on the remaining balance ($ 40.9 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.

12 unchanged sentences

SOFR is a backward-looking overnight rate which has implications for how interest and other payments are based.

Changes in the method of calculating the replacement of LIBOR with an alternative rate or benchmark are still in flux, and once an alternate rate is adopted, may adversely affect interest rates and result in higher borrowing costs.

Although the Federal Reserve has proposed a regulation implementing the LIBOR Act, including the basis for calculation of the alternative benchmark rate thereunder, this regulation has not been finalized and changes in the method of calculating the alternative rate or benchmark are still in flux, and once an alternate rate is adopted, may adversely affect interest rates and result in higher borrowing costs.

This could materially and adversely affect the Company’s results of operations, cash flows and liquidity.

9 unchanged sentences

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 six months of fiscal 2022, the Company granted 43,300 stock awards that were subject to the meeting of performance measurements.

The Company granted 27,300 stock awards in the first six months of fiscal 2021 that were subject to the meeting of performance measurements.

For the first six months of fiscal 2022, the Company used assumptions which included an expected term of 4.0 years, volatility deviation between 47.15 % to 47.70 % and a risk-free rate between 2.04 % to 2.66 % for the purposes of measuring compensation under the Black Scholes Method.

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.

During the first nine months of fiscal 2022, the Company granted 43,300 stock awards that were subject to the meeting of performance measurements.

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

For the first nine months of fiscal 2022, the Company used assumptions which included an expected term of 4 .0 years, volatility deviation between 47.15 % to 47.70 % and a risk-free rate between 2.04 % to 2.66 % for the purposes of measuring compensation under the Black Scholes Method.

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 2022 and 2021 the Company did not issue any SARs.

Stock-based compensation expense in connection with SARs previously granted to employees was approximately $ 136,000 and $ 100,000 in the second quarter of 2022 and the second quarter of 2021, respectively and was approximately $ 250,000 and $ 214,000 in the first six months of fiscal years 2022 and 2021, respectively.

As of July 2, 2022, there were 766,433 shares of Company common stock reserved and available for future grant under the 2020 Plan.

During the first nine months of fiscal 2022 and 2021 the Company did not issue any SARs.

Stock-based compensation expense in connection with SARs previously granted to employees was approximately $ 131,000 and $ 102,000 in the third quarter of 2022 and the third quarter of 2021, respectively and was approximately $ 381,000 and $ 316,000 in the first nine months of fiscal years 2022 and 2021, respectively.

As of October 1, 2022, there were 812,954 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 1, 2022

January 1, 2022

5 unchanged sentences

Range of Exercise Prices

Outstanding as of July 2, 2022

Outstanding as of October 1, 2022

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price

Exercisable as of July 2, 2022

Exercisable as of October 1, 2022

Weighted Average Remaining Contractual Life

2 unchanged sentences

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

Six Months Ended

Nine Months Ended

October 1, 2022

January 1, 2022

1 unchanged sentence

Outstanding at end of period

As of July 2, 2022, outstanding SARs and stock awards had an intrinsic value of $ 1,337,000 .

As of October 1, 2022, outstanding SARs and stock awards had an intrinsic value of $ 1,119,000 .

Note I – Share Repurchase Program

1 unchanged sentence

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

Under this program, shares of common stock 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”).

Below is a summary of the Company’s share repurchases during the second quarter of 2022.

Below is a summary of the Company’s share repurchases during the third quarter of 2022.

Total Number of Shares Purchased

2 unchanged sentences

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

Balance as of April 2, 2022

April 3, 2022 - July 2, 2022

Balance as of July 2, 2022

July 3, 2022 - October 1, 2022

Balance as of October 1, 2022

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.

The Company records revenues in accordance with FASB Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”.

The Company has defined purchase orders as contracts in accordance with ASC Topic 606.

The Company records revenues in accordance with FASB Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers.” The Company has defined purchase orders as contracts in accordance with ASC Topic 606.

For its customer contracts, the Company identifies its performance obligations, which are delivering goods or services, determines the transaction price, allocates the contract transaction price to the performance obligations (when applicable), and recognizes the revenue when (or as) the performance obligation is transferred to the customer.

11 unchanged sentences

income tax examinations by foreign tax authorities for years prior to 2015.

The total amount of unrecognized tax benefits could increase or decrease within the next 12 months following July 2, 2022 for several 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 value of unrecognized tax benefits during the six months ended July 2, 2022.

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 following July 2, 2022.

The total amount of unrecognized tax benefits could increase or decrease within the next 12 months following October 1, 2022 for several 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 value of unrecognized tax benefits during the nine months ended October 1, 2022.

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 following October 1, 2022.

Note L - Retirement Benefit Plans

1 unchanged sentence

Three of these pension plans are frozen and participants in these three plans have not accrued benefits since the date on which these plans were frozen.

A fourth pension plan does not permit new participants but existing participants in this fourth pension plan continue to accrue benefits.

A fourth pension plan, The Eastern Company Pension Plan for Hourly-Rated Employees of the Eberhard Division, does not permit new participants but existing participants in this fourth pension plan continue to accrue benefits.

Plan benefits are generally based upon age at retirement, years of service and, for the plan covering salaried employees, the level of compensation.

On August 29, 2022, in agreement with the International Association of Machinist and Aerospace Workers Union AFL-CIO District #54, Local #439 the Company agreed to freeze The Eastern Company Pension Plan for Hourly-Rated Employees of the Eberhard Division effective December 31, 2022.

As a result, no benefits will accrue under this plan after December 31, 2022.

The Company also sponsors unfunded non-qualified supplemental retirement plans that provide certain former officers with benefits in excess of limits imposed by federal tax law.

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 and first six months 2022 and 2021 are as follows:

Significant disclosures relating to these benefit plans for the first three months and first nine months 2022 and 2021 are as follows:

Pension Benefits

Three Months Ended

Six Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Interest cost

13 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Interest cost

5 unchanged sentences

In 2022, the Company expects to contribute $ 300,000 into its pension plans and $ 50,000 into its postretirement plan.

As of July 2, 2022, the Company has not made any contributions into its pension plans, has contributed $ 13,000 to its postretirement plan, and expects to make the remaining contributions as required during the remainder of the fiscal year.

As of October 1, 2022, the Company has contributed $ 15,000 into its pension plans, has contributed $ 18,000 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

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Regular matching contribution

2 unchanged sentences

Total contributions for the period

The non-discretionary contribution of $ 323,082 made in the six months ended July 2, 2022, was accrued for and expensed in the prior fiscal year.

The non-discretionary contribution of $ 323,082 made in the nine months ended October 1, 2022, was accrued and expensed in the prior fiscal year.

Note M - Recent Accounting Pronouncements

10 unchanged sentences

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

As of July 2, 2022, there was one significant concentration of credit risk with a customer, who has receivables representing 11 % of our total accounts receivable.

As of October 1, 2022, 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 11 % of the Company’s net accounts receivable as of January 1, 2022.

3 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 $ 41.9 million on July 2, 2022, 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 $ 40.9 million on October 1, 2022, 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.

5 unchanged sentences

As a result, the Company does not attempt to mitigate its foreign currency exposure through the acquisition of any speculative or leveraged financial instruments.

Note O – Subsequent Events

Subsequent to the end of the third quarter of 2022, on October 14, 2022, the Company closed on the sale of the assets of Argo to CCK Automation, LLC.

The proceeds will be used to pay down debt and fund the operations of the Company.

The strategic decision to divest of the Argo business reflects our strategy of focusing on our core capabilities and offerings.

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