What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-07 · 69 added, 121 removed, 89 unchanged (68% of the section changed)

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to highlight significant changes in the financial position and results of operations of The Eastern Company (together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) for the quarter and nine months ended October 1, 2022.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal year ended January 1, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022, which was filed with the Securities and Exchange Commission (the “SEC”) on March 17, 2022 (the “2021 Form 10-K”).

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal year ended December 31, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2023 (the “2022 Form 10-K”).

The Company’s fiscal year is a 52-53-week fiscal year ending on the Saturday nearest to December 31.

References to 2021 or the 2021 fiscal year mean the 52-week period ended on January 1, 2022, and references to 2022 or the 2022 fiscal year mean the 52-week period ending on December 31, 2022.

References to 2022 or the 2022 fiscal year mean the 52-week period ended on December 31, 2022, and references to 2023 or the 2023 fiscal year mean the 52-week period ending on December 30, 2023.

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

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.

References to the first nine months of 2021 or the nine months ended October 2, 2021 mean the period from January 3, 2021 to October 2, 2021.

References to the first nine months of 2022 or the nine months ended October 1, 2022 mean the period from January 2, 2022 to October 1, 2022.

References to the first quarter of 2022, the first fiscal quarter of 2022 or the three months ended April 2, 2022, mean the period from January 2, 2022 to April 2, 2022.

References to the first quarter of 2023, the first fiscal quarter of 2023 or the three months ended April 1, 2023, mean the 13-week period from January 1, 2023 to April 1, 2023.

Safe Harbor for Forward-Looking Statements

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There are many factors that affect the Company’s business and the results of its operations and that may cause the actual results of operations in future periods to differ materially from those currently expected or anticipated.

These factors include the scope and duration of the COVID-19 pandemic and economic effects of the COVID-19 pandemic, including supply chain disruptions, cost inflation, rising interest rates, delays in delivery of our products to our customers, impact on demand for our products, reductions in production levels, increased costs, including costs of raw materials, the impact on global economic conditions, and the availability, terms and cost of financing, including borrowings under credit arrangements or agreements.

Other factors include, but are not limited to risks associated with doing business overseas, including fluctuations in exchange rates and the inability to repatriate foreign cash, the impact on cost structure and on economic conditions as a result of actual and threatened increases in trade tariffs and the impact of political, economic and social instability;

These factors include the impact of the COVID-19 pandemic and resulting economic effects, including supply chain disruptions, cost inflation, rising interest rates, delays in delivery of our products to our customers, impact on demand for our products, reductions in production levels, increased costs, including costs of raw materials, the impact on global economic conditions, the availability, terms and cost of financing, including borrowings under credit arrangements or agreements, the potential impact of bank failures on our ability to access financing or capital markets, and the impact of market conditions on pension plan funded status.

Other factors include, but are not limited to:

restrictions on operating flexibility imposed by the agreement governing our credit facility;

the effect on interest rates of the replacement of the London Interbank Offered Rate (LIBOR) with a Secured Overnight Financing Rate (SOFR);

risks associated with doing business overseas, including fluctuations in exchange rates and the inability to repatriate foreign cash, the impact on cost structure and on economic conditions as a result of actual and threatened increases in trade tariffs and the impact of political, economic and social instability;

the inability to achieve the savings expected from global sourcing of materials;

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lower-cost competition;

our ability to design, introduce and sell new products and related components;

our ability to design, introduce and sell new or updated products and related components;

market acceptance of our products;

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The Company undertakes no obligation to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events, or otherwise, except as required by law.

COVID-19 Update

The COVID-19 pandemic has affected our businesses, including our supply chain, our operations, the labor force, costs and interest rates throughout 2021 and the first nine months of 2022.

We continue to follow CDC guidelines, including the use of proper personal protection equipment, social distancing, and sanitizing work areas.

As a result of these measures, the COVID pandemic had minimal impact on our North American capacity utilization at most of our production facilities in the third quarter of 2022.

Many of the Company’s employees have received COVID-19 vaccinations, and we will continue to encourage our workforce to get vaccinated.

In the second quarter of 2022, we experienced interruptions in China of our operations and supply base as a result of a new variant of COVID-19 and the response to minimize its spread.

A more significant resurgence of the COVID-19 pandemic or development of additional severe or highly contagious variants could cause further disruptions in our business and could adversely affect our financial condition, results of operations and cash flow.

During the past two years and continuing through the first nine months of 2022, the Company implemented a broad range of policies and procedures to ensure that employees at all our locations remain healthy.

Steps that we have taken to reduce the risk of COVID-19 to our employees include, among others:

protecting employee health by instructing employees to stay home if they exhibit symptoms of COVID-19;

providing standard surgical masks and educating employees on hand hygiene to help stop the spread.

We maintain a clean work environment by frequently cleaning all touch points with products that meet EPA criteria for use against COVID-19;

educating employees to clean their personal workspace at the beginning and the end of every shift;

and providing hand sanitizer and disposable wipes.

We encourage social distancing, limit in-person meetings, reduced all non-essential workplace travel and continue to seek and implement additional methods to reduce the risk of COVID-19 to our employees.

The extent to which our operations will be further affected by COVID-19 and its lasting economic impact, including supply chain disruptions, cost inflation and rising interest rates, in the fourth quarter of 2022 and fiscal year 2023 is dependent on future developments including new COVID variants, effectiveness of vaccines, new medication, and governmental restrictions.

All these factors could result in further supply chain shortages and resulting cost inflation, increased operating cost, difficulty in finding workers, continued port congestion, and higher shipping costs.

With the inherent uncertainty of the COVID-19 pandemic it is difficult to predict with any confidence the likely impact of the COVID-19 pandemic on our future operations and the extent of the effects it could have on our consolidated business, results of operations and financial condition.

For a discussion of certain COVID-19-related risks, see Part I, Item 1A, Risk Factors , of the 2021 Form 10-K.

General Overview

The following analysis excludes discontinued operations.

Net sales in the third quarter of 2022 increased by 12% to $71.6 million from $63.9 million in the corresponding period in 2021.

Net sales for the first nine months of 2022 increased 12% to $210.2 million from $186.9 million in the same period last year.

Sales rose for both the third quarter and nine-month periods due to greater demand for truck accessories and returnable transport packaging products as well as from distributors.

Our returnable transport packaging sales continue to benefit from the increase in new automotive product launches, including several electric vehicle launches.

Our backlog as of October 1, 2022 increased 3% to $85.7 million from $83.1 million as of October 2, 2021.

Net sales of existing products grew by 5% in the third quarter of 2022 and 6% for the first nine months of 2022 compared to the corresponding periods in 2021.

Price increases and new products increased net sales by 7% in the third quarter and 6% in the first nine months of 2022, compared to the corresponding periods in 2021.

New products included various truck mirror assemblies, rotary latches, D-rings, and mirror cams.

Price increases primarily reflect our efforts to recover increases in raw material and freight costs.

Cost of products sold increased by $6.4 million, or 13%, in the third quarter of 2022 and increased by $20.9 million, or 15% in the first nine months of 2022 compared to the corresponding periods in 2021.

The increases are primarily due to higher sales volume and increases in the cost of materials.

The cost of several frequently used raw materials have increased significantly, year-over-year.

For example, the cost of nickel and zinc increased 30% and 17% respectively between the third quarter of 2021 and the third quarter of 2022.

Price increases to our customers recovered a portion of the increase in raw material costs.

Finally, the Company paid tariff costs on China-sourced products of approximately $0.8 million and $2.5 million in the third quarter and first nine months of 2022 respectively, compared to $0.6 million and $2.0 million in the third quarter and first nine months of 2021 respectively.

A significant portion of tariffs on China-sourced products have been recovered through price increases.

Gross margin as a percent of sales was 23% in the third quarter and 22% in the first nine months of 2022 compared to 24% in the third quarter and 24% in the first nine months of fiscal 2021.

Our gross margins in the third quarter and first nine months of 2022 reflect the impact of price increases to customers to recover increases in raw material costs.

Product development expense increased $0.1 million, or 5%, in the third quarter of 2022 and increased $0.1 million, or 3%, in the first nine months of 2022 compared to the corresponding periods in 2021.

As a percentage of net sales, product development costs were 1.4% and 1.5% for the third quarter and first nine months of 2022, respectively, compared to 1.5% and 1.6% for the corresponding periods in 2021.

Selling, general and administrative expense increased $0.7 million, or 7%, in the third quarter of 2022 and increased $2.4 million, or 9% in the first nine months of 2022 when compared to the corresponding periods in 2021 primarily due to increased commissions and other selling costs, payroll-related expenses, and travel costs.

This increase in selling expenses reflect both the increase in sales as well as our investments in sales capabilities.

Interest expense increased $0.2 million in the third quarter of 2022 and $0.2 million in the first nine months of 2022 compared to the corresponding periods in 2021.

Other income increased $0.7 million in the third quarter and decreased $1.2 million in the first nine months of 2022 compared to the corresponding periods in 2021.

The increase in other income of $0.7 million in the third quarter of 2022 was primarily driven by a $0.6 million gain on the sale of the Eastern Company corporate office building.

The $1.2 million decrease in other income for the first nine months of 2022 was primarily driven by a gain on the sale of the Eberhard Hardware Ltd.

building of $1.8 million in the first quarter of 2021, partially offset by increased gains in pension cost adjustments in 2022.

Net income from continuing operations for the third quarter of fiscal 2022 was $4.5 million, or $0.72 per diluted share compared to net income from continuing operations of $3.8 million, or $0.61 per diluted share, for the comparable period in 2021.

In the first nine months of 2022 net income from continuing operations was $10.9 million, or $1.74 per diluted share, compared to net income from continuing operations of $12.3 million, or $1.96 per diluted share, for the comparable period in 2021.

Net sales in the first quarter of 2023 increased 5% to $72.5 million from $69.0 million in the corresponding period in 2022.

Sales increased in the first quarter of 2023 primarily due to increased demand for truck accessories and automotive returnable transport packaging products as well as increased demand from distributors.

Our returnable transport packaging sales benefited from the increase in new automotive product launches, including several electric vehicle launches.

Our backlog as of April 1, 2023 was down 16% to $72.0 million from $85.8 million as of April 2, 2022 as we optimize our supply chain to reduce past due orders and transition from old to new programs with our commercial vehicle and automotive customers and increased shipments to customers.

Net sales of existing products increased 3% in the first quarter of 2023 compared to the corresponding period in 2022.

Price increases and new products increased net sales by 2% in the first quarter of 2023 compared to the corresponding period in 2022.

New products included various truck mirror assemblies, rotary latches, electronic latches and locks, D-rings, and mirror cams.

Price increases primarily reflect our efforts to recover an increase in raw material and freight costs.

Cost of products sold increased $2.6 million, or 5%, in the first quarter of 2023 compared to the corresponding period in 2022.

The increase is primarily due to higher sales volume.

Additionally, the Company paid tariff costs on China-sourced products of approximately $0.6 million in the first quarter of 2023, compared to $0.6 million in the first quarter of fiscal 2022.

Most tariffs on China-sourced products have been recovered through price increases.

Gross margin as a percentage of sales was 21% in the first quarter of fiscal 2023 compared to 21% in the first quarter of fiscal 2022.

Product development expense increased $0.2 million, or 17% in the first quarter of 2023 when compared to the corresponding period in 2022 as we continue to invest in new products at Eberhard and Velvac.

As a percentage of net sales, product development costs were 1.9% for the first quarter of 2023 and 1.7% for the corresponding period in 2022.

Selling and administrative expense increased $2.1 million, or 21%, in the first quarter of 2023 when compared to the corresponding period in 2022 primarily due to severance and other accrued compensation expenses of $1.8 million related to the elimination of the Chief Operating Officer position and the departure of our previous Chief Executive Officer and other selling costs and payroll-related expenses.

The increase in selling expenses reflects both the increase in sales as well as our investments in sales capabilities.

Interest expense increased $0.3 million in the first quarter of 2023 compared to the corresponding period in 2022.

Other income was down $1.1 million in the first quarter of 2023 compared to the corresponding period in 2022.

The decrease in other income of $1.1 million in the first quarter was primarily driven by an unfavorable final working capital adjustment of $0.4 million related to the sale of the Greenwald business and pension cost of $0.3 million in the first quarter of 2023, while in the first quarter of 2022 the Company had a favorable pension cost adjustment of $0.4 million, partially offset by a loss on the sale of the Wheeling, IL building of $0.2 million.

Net income from continuing operations for the first quarter of fiscal 2023 was $0.6 million, or $0.10 per diluted share, compared to net income from continuing operations of $2.7 million, or $0.43 per diluted share, for the comparable period in 2022.

A more detailed analysis of the Company’s results of operations and financial condition follows:

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Three Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Cost of products sold

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Operating Profit

The following table shows the change in sales and operating profit for the third quarter and first nine months of 2022 compared to the third quarter and first nine months of 2021 (dollars in thousands):

October 1, 2022

The following table shows the change in sales and operating profit for the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022 (dollars in thousands):

April 1, 2023

Operating Profit

Liquidity and Sources of Capital

The Company consumed approximately $0.3 million of cash from continuing operations during the first nine months of fiscal 2022 compared to consuming approximately $3.3 million during the first nine months of fiscal 2021.

Cash flow from operations in the first nine months of 2022 was higher when compared to the corresponding period last year primarily due to a smaller increase in inventory and accounts receivable.

The effects of the COVID-19 pandemic are continuing to impact the supply chain and as a result inventories have increased due to increased shipping time, port congestion, and selective pre-buying of raw materials to ensure availability and mitigate the impact of likely future inflationary price increases.

Cash flow from operations coupled with cash at the beginning of the 2022 fiscal year and the proceeds from the line of credit were sufficient to fund capital expenditures, debt service, and dividend payments for the first nine months of 2022.

The Company has $11.0 million available on its revolving line of credit as of October 1, 2022.

On October 21, 2022 the Company used the proceeds from the sale of assets of Argo EMS to pay down an additional $5 million on the revolving line of credit.

The Company generated approximately $6.9 million of cash from continuing operations during the first three months of fiscal 2023 compared to consuming approximately $3.6 million during the first three months of fiscal 2022.

Cash flow from operations in the first three months of 2023 was higher when compared to the corresponding period last year primarily due to a decrease in inventory.

Cash flow from operations coupled with cash at the beginning of the 2023 fiscal year were sufficient to fund capital expenditures, debt service, and dividend payments for the first three months of 2023.

See Note G - Debt for further discussion on the Company’s debt facilities.

Additions to property, plant and equipment for continuing operations were approximately $1.7 million for the first nine months of 2022 and $2.1 million for the first nine months of 2021.

Additionally, in the first nine months of 2022 the Company received proceeds of $2.1 million from the sale of two of its properties compared to $2.0 million from the sale of one of its facilities in Canada during the first nine months of 2021.

As of October 1, 2022, there were approximately $1.1 million of outstanding commitments for capital expenditures.

Additions to property, plant and equipment for continuing operations were approximately $1.2 million for the first three months of 2023 and $0.6 million for the first three months of 2022.

As of April 1, 2023, there was approximately $1.2 million of outstanding commitments for capital expenditures.

The following table shows key financial ratios at the end of each specified period:

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Total debt to shareholders’ equity

The following table shows important liquidity measures as of the balance sheet date for each specified period or for the period, as applicable (in millions):

The following table shows important liquidity measures as of the balance sheet date for each specified period (in millions):

Cash and cash equivalents

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Working capital

Net cash (used in) provided by operating activities

Change in working capital impact on net cash

used in operating activities

Net cash provided by (used in) operating activities

Change in working capital impact on net cash Provided by (used in) operating activities

Net cash provided by investing activities

Net cash used in financing activities

Inventories of $67.5 million as of October 1, 2022, represent an increase of 7.4% as compared to $62.9 million at the end of fiscal year 2021 and an increase of 19.1% as compared to $56.7 million at the end of the third quarter of fiscal 2021.

Accounts receivable, less allowances, were $50.9 million as of October 1, 2022, as compared to $43.2 million at 2021 fiscal year end and $41.3 million at the end of the third quarter of fiscal 2021.

Net cash (used in) provided by financing activities

Inventories of $57.7 million as of April 1, 2023, represent a decrease of 10.8% as compared to $64.6 million at the end of fiscal year 2022 and a decrease of 14.9% as compared to $67.8 million at the end of the first quarter of fiscal 2022.

Accounts receivable, less allowances, were $44.5 million as of April 1, 2023, as compared to $42.9 million at 2022 fiscal year end and $47.0 million at the end of the first quarter of fiscal 2022.

Cash, cash flow from operating activities and funds available under the revolving credit portion of the Credit Agreement are expected to be sufficient to cover future foreseeable working capital requirements.

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A decrease in earnings due to the impact of COVID-19 or the resulting harm to the financial condition of our customers or economic conditions generally, or an increase in indebtedness incurred to offset such a decrease in earnings, would have a negative impact on our senior net leverage ratio and our fixed charge coverage ratio, which in turn would increase the cost of borrowing under the Credit Agreement and could cause us to fail to comply with the covenants under our Credit Agreement.

As of the end of the fiscal quarter ended October 1, 2022, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

As of the end of the fiscal quarter ended April 1, 2023, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Estimates

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To supplement the consolidated financial statements prepared in accordance with U.S.

GAAP, we have presented Adjusted Net Income from Continuing Operations, Adjusted Earnings Per Diluted Share from Continuing Operations and Adjusted EBITDA from Continuing Operations, which are considered non-GAAP financial measures.

GAAP, we have presented Adjusted Net Income from Continuing Operations, Adjusted Earnings Per Share from Continuing Operations and Adjusted EBITDA from Continuing Operations, which are considered non-GAAP financial measures.

The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way.

These measures are not substitutes for their comparable U.S.

GAAP financial measures, such as net sales, net income, diluted earnings per share, or other measures prescribed by U.S.

GAAP financial measures, such as net sales, net income from continuing operations, diluted earnings per share from continuing operations, or other measures prescribed by U.S.

GAAP, and there are limitations to using non-GAAP financial measures.

Adjusted Net Income from Continuing Operations is defined as net income from continuing operations excluding, when incurred, certain one-time costs arising from the impacts of impairment losses, gains/losses on the sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses and restructuring costs.

Adjusted Net Income from Continuing Operations is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying operating performance.

Adjusted Earnings Per Diluted Share from Continuing Operations is defined as earnings per diluted share from continuing operations excluding, when incurred, certain per share one-time costs arising from, for example, the impacts of impairment losses, gains/losses on the sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses and restructuring costs.

We believe that Adjusted Earnings Per Diluted Share from Continuing Operations provides important comparability of underlying operational results, allowing investors and management to access operating performance on a consistent basis.

Adjusted EBITDA from Continuing Operations is defined as net income from continuing operations before interest expense, provision for income taxes, and depreciation and amortization and excluding, when incurred, the impacts of certain one-time costs arising from impairment losses, gains/losses on sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses and restructuring expenses.

Adjusted Net Income from Continuing Operations is defined as net income from continuing operations excluding, when incurred, gains or losses that we do not believe reflect our ongoing operations, including, for example, the impacts of impairment losses, gains/losses on the sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring costs.

Adjusted Net Income from Continuing Operations is a tool that can assist management and investors in comparing our performance on a consistent basis across periods by removing the impact of certain items that management believes do not directly reflect our underlying operating performance.

Adjusted Earnings Per Share from Continuing Operations is defined as earnings per share from continuing operations excluding, when incurred, certain per share gains or losses that we do not believe reflect our ongoing operations, including, for example, the impacts of impairment losses, gains/losses on the sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring costs.

Adjusted EBITDA from Continuing Operations is defined as net income from continuing operations before interest expense, provision for income taxes, and depreciation and amortization and excluding, when incurred, the impacts of certain losses or gains that we do not believe reflect our ongoing operations, including, for example, impairment losses, gains/losses on sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring expenses.

Adjusted EBITDA from Continuing Operations is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying operations.

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Reconciliation of Non-GAAP Measures

Adjusted Net Income and EPS from Continuing Operations Calculation

For the Three and Nine Months ended October 1, 2022 and October 2, 2021

Adjusted Net Income and Adjusted Earnings per Share from Continuing Operations Calculation

For the Three Months ended April 1, 2023 and April 2, 2022

Three Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

April 1, 2023

April 2, 2022

Net income from continuing operations as reported per generally accepted accounting principles (GAAP)

Earnings per share from continuing operations as reported under generally accepted accounting principles (GAAP):

Gain on sale of Eberhard Hardware Ltd building, net of tax

Factory relocation, net of tax

Factory start-up costs, net of tax

Loss on sale of Wheeling, IL building, net of tax

Gain on sale of Eastern corporate office building, net of tax

Severance and accrued compensation, net of tax

Greenwald final sale adjustment, net of tax

Total adjustments (non-GAAP)

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Adjusted earnings per share from continuing operations (non-GAAP):

A) Gain on sale of Eberhard Hardware Ltd building

B) Costs incurred on relocation of ILC facility in Wheeling, IL

C) Costs incurred on start-up of Eberhard factory in Reynosa, MX

D) Loss on sale of ILC building in Wheeling, IL

E) Gain on sale of Eastern corporate office building

A) Loss on sale of ILC building in Wheeling, IL

B) Severance expenses associated with accrued compensation and severance related to the elimination of the Chief Operating Officer position and the departure of the Chief Executive Officer

C) Final settlement of working capital adjustment associated with Greenwald sale

Reconciliation of Non-GAAP Measures

Adjusted EBITDA from Continuing Operations Calculation

For the Three and Nine Months ended October 1, 2022 and October 2, 2021

For the Three Months ended April 1, 2023 and April 2, 2022

Three Months Ended

Nine Months Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

April 1, 2023

April 2, 2022

Net income from continuing operations as reported per generally accepted accounting principles (GAAP)

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Depreciation and amortization

Gain on sale of Eberhard Hardware Ltd Building

Factory relocation

Factory start-up costs

Loss on sale of Wheeling, IL building

Gain on sale of Eastern corporate office building

Severance and accrued compensation

Greenwald final sale adjustment

Adjusted EBITDA from continuing operations

A) Gain on sale of Eberhard Hardware Ltd building

B) Costs incurred on relocation of ILC facility in Wheeling, IL

C) Costs incurred on start-up of Eberhard factory in Reynosa, MX

D) Loss on sale of ILC building in Wheeling, IL

E) Gain on sale of Eastern corporate office building

A) Loss on sale of ILC building in Wheeling, IL

B) Severance expenses associated accrued compensation and severance related to the elimination of the Chief Operating Officer position and the departure of the Chief Executive Officer

C) Final settlement of working capital adjustment associated with Greenwald sale

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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-Q

Item 2. Management’s Discussion and Analysis