What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-12 compared with 2023-03-14 · 292 added, 371 removed, 795 unchanged (45% of the section changed)

4 unchanged sentences

Cash and cash equivalents

Marketable Securities

Accounts receivable, less allowances:

6 unchanged sentences

Prepaid expenses and other assets

Current assets held for sale

Total Current Assets

18 unchanged sentences

Other accrued expenses

Current portion of lease liability

Current portion of operating lease liability

Current portion of financing lease liability

Current portion of long-term debt

Current liabilities held for sale

Total Current Liabilities

Deferred income taxes

Other long-term liabilities

Lease liability

Operating lease liability, less current portion

Financing lease liability, less current portion

Long-term debt, less current portion

10 unchanged sentences

Common Stock, no par value, Authorized:

50,000,000 shares Issued:

50,000,000 shares

9,091,815 shares in 2023 and 9,056,421 shares in 2022

8 unchanged sentences

( 1,140,978 )

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

Unrealized gain on interest rate swap, net of tax

Unrecognized net pension and postretirement benefit costs, net of tax

27 unchanged sentences

( 2,275,612 )

Other (expense) income

Income from continuing operations before income taxes

5 unchanged sentences

Gain (loss) on sale of businesses

( 11,807,512 )

Income tax (expense) benefit

Net gain (loss) on discontinued operations

$ ( 6,833,172 )

Earnings per share from continuing operations:

10 unchanged sentences

$(426,659) in 2023 and $531,425 in 2022

( 1,449,754 )

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

14 unchanged sentences

$ 114,602,264

Cash dividends declared,

$0.44 per share

Cash dividends declared, $0.44 per share

( 2,738,691 )

1 unchanged sentence

Currency translation adjustment

Change in fair value of interest

Change in pension and other

postretirement benefit costs,

( 1,959,424 )

Change in fair value of interest rate swap

Change in pension and other postretirement benefit costs, net of tax

Stock Options Exercised

Treasury Stock Purchase

Issuance of SARS

Issuance of Common Stock

for directors' fees

Balances at January 1, 2022

( 1,637,071 )

Issuance of SARS

Issuance of Common Stock for directors' fees

Balances at December 31, 2022

( 2,834,445 )

1 unchanged sentence

$ 138,985,852

Cash dividends declared,

$0.44 per share

$ ( 23,412,638 )

$ 126,614,695

Cash dividends declared, $0.44 per share

Currency translation adjustment

Change in fair value of interest rate swap

( 1,449,754 )

Change in fair value of interest

Change in pension and other

postretirement benefit costs,

Change in pension and other postretirement benefit costs, net of tax

Stock Options Exercised

Treasury Stock Purchase

( 1,637,071 )

Issuance of SARS

Issuance of Common Stock

for directors' fees

Issuance of stock awards, net

Issuance of Common Stock for directors' fees

Balances at December 30, 2023

5 unchanged sentences

See accompanying notes.

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

The Eastern Company

Consolidated Statements of Cash Flows

December 30, 2023

January 1, 2022

December 31, 2022

Operating Activities

Gain (loss) from discontinued operations

( 6,833,172 )

Gain from discontinued operations

Income from continuing operations

Adjustments to reconcile net income to net cash provided

by (used in) operating activities:

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

Depreciation and amortization

Unrecognized pension and postretirement benefits

Reduction in carrying amount of ROU assets

( 3,522,981 )

( 2,918,468 )

Gain on sale of equipment and other assets

Change in operating lease liability

Unrecognized pension and postretirement benefits

( 3,575,749 )

Loss (gain) on sale of equipment and other assets

Provision for doubtful accounts

7 unchanged sentences

( 5,298,977 )

( 19,608,565 )

Prepaid expenses and other

( 3,527,171 )

Accounts payable

( 2,186,244 )

( 1,741,258 )

Accrued compensation

Other accrued expenses

Net cash provided by (used in) operating activities

( 1,298,663 )

Net cash provided by operating activities

Investing Activities

Marketable securities

Business disposition

Business acquisition

Issuance of notes receivable

( 2,500,000 )

Payments received from notes receivable

4 unchanged sentences

( 3,365,594 )

Net cash provided by investing activities

Net cash (used in) provided by investing activities

( 5,430,298 )

Financing Activities

1 unchanged sentence

Proceeds from short term borrowings (revolver)

Principal payments on short-term borrowings (revolver)

Proceeds from new long-term debt refinancing

Principal payments on long-term debt

11 unchanged sentences

Discontinued Operations

Cash provided by (used in) operating activities

Cash used in investing activities

( 1,022,256 )

Cash provided by operating activities

Cash provided by discontinued operations

2 unchanged sentences

( 1,888,069 )

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period ¹

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental disclosure of cash flow information:

1 unchanged sentence

Right of use asset

( 1,456,128 )

Lease liability

¹ includes cash from assets held for sale of $0.4 million as of January 1, 2022

( 4,981,697 )

See accompanying notes

2 unchanged sentences

DESCRIPTION OF BUSINESS

The Eastern Company, and its subsidiaries (the “Company,” “Eastern,” “we,” “us” or “our”) manages industrial businesses that design, manufacture and sell engineered solutions to industrial markets.

The Eastern Company, and its subsidiaries (the “Company,” “Eastern,” “we,” “us” or “our”) manage industrial businesses that design, manufacture and sell engineered solutions to industrial markets.

Eastern’s businesses operate in industries with long-term macroeconomic growth opportunities.

2 unchanged sentences

Eastern manages the financial, operational, and strategic performance of its businesses to increase cash generation, operating earnings, and long-term shareholder value.

Eastern encompasses four operating entities within the United States, one wholly owned Canadian subsidiary located in Cambridge, Ontario, Canada, a wholly owned Taiwanese subsidiary located in Taipei, Taiwan, a wholly owned subsidiary in Hong Kong, two wholly owned Chinese subsidiaries (one located in Shanghai, China, and one located in Dongguan, China), a wholly owned subsidiary in Reynosa, Mexico and a wholly owned subsidiary in Wrexham, United Kingdom.

The Eastern Company has one reportable segment:

Engineered Solutions.

The Engineered Solutions segment provides engineered solutions to support our customer’s needs primarily in the commercial transportation and logistics markets.

The Chief Operating Decision Maker (CODM) uses both segment gross profit and segment profit or loss from operations before interest and income taxes to allocate resources (including employees, property, and financial or capital resources) for the Engineered Solutions segment predominantly in the annual budget and forecasting process.

Company Operations

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

The Engineered Solutions segment consists 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”), and Associated Toolmakers Ltd.

(“Associated Toolmakers”);

(“Big 3 Mold”) and Hallink Moulds, Inc.

(“Hallink Moulds”);

Eberhard Manufacturing Company (“Eberhard Manufacturing”), Eberhard Hardware Manufacturing Ltd.

16 unchanged sentences

DISCONTINUED OPERATIONS

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

Selling these companies will allow management to focus on our core capabilities and offerings.

In the second quarter of 2021, we determined that the companies previously included in our former Diversified Products segment no longer fit with our long-term strategy and initiated the process of selling the companies within the former Diversified Products segment to allow management to focus on our core capabilities and offerings.

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

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

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

As such, the financial results of Argo EMS are reflected in our condensed consolidated statements of operations as discontinued operations for 2022.

On October 19, 2022, the Company sold its Argo EMS business (“Argo”).

Argo supplies printed circuit boards and other electronic assemblies to original equipment manufacturers in various industries, including measurement systems, semiconductor equipment manufacturing, and industrial control, medical, and military products.

Argo supplied printed circuit boards and other electronic assemblies to original equipment manufacturers in various industries, including measurement systems, semiconductor equipment manufacturing, and industrial control, medical, and military products.

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

8 unchanged sentences

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

December 31, 2022

January 1, 2022

$ 7,574,181 $ 44,289,411

Cost of products sold

( 5,137,380 )

2,436,801 19,415,694

Selling and administrative expenses

( 891,519 ) ( 15,962,532 )

Restructuring benefit (costs)

305,539 ( 11,807,512 )

Operating income (loss)

1,850,821 ( 8,354,350 )

Interest expense

( 184,509 ) ( 582,574 )

Income (loss) from discontinued operations before income taxes

1,666,312 ( 8,936,924 )

Income tax (expense) benefit

( 414,855 ) 2,103,752

Gain (loss) from discontinued operations, net of tax

$ 1,251,457 $ ( 6,833,172 )

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

Eastern Company

Notes to Consolidated Financial Statements (continued)

December 31, 2022

January 1, 2022

$ - $ 434,126

Accounts receivable

Prepaid expenses

Property, plant and equipment, net

Right of use assets

Total assets of discontinued operations

$ - $ 3,521,899

Current assets of discontinued operations

$ - $ 3,521,899

Non-current assets of discontinued operations

Total assets of discontinued operations

$ - $ 3,521,899

Accounts payable

$ - $ 167,794

Accrued compensation and other accrued expenses

Current portion of lease liability

Total liabilities of discontinued operations

$ - $ 580,990

Current liabilities of discontinued operations

$ - $ 580,990

Non-current liabilities of discontinued operations

Total liabilities of discontinued operations

$ - $ 580,990

ACCOUNTING POLICIES

1 unchanged sentence

Based on this policy, fiscal years 2023 and 2022 were each comprised of 52 weeks.

References in these Notes to the consolidated financial statements to “2022” or “fiscal year 2022” mean the fiscal year ended December 31, 2022, and references to “2021” or “fiscal year 2021” mean the fiscal year ended January 1, 2022.

References to the “fourth quarter of 2022” or the “fourth fiscal quarter of 2022” mean the thirteen-week period from October 2, 2022 to December 31, 2022, and references to the “fourth quarter of 2021” or the “fourth fiscal quarter of 2021” mean the thirteen-week period from October 3, 2021 to January 1, 2022.

Eastern Company

Notes to Consolidated Financial Statements (continued)

References in these Notes to the consolidated financial statements to “2023” or “fiscal year 2023” mean the fiscal year ended December 30, 2023, and references to “2022” or “fiscal year 2022” mean the fiscal year ended December 31, 2022.

References to the “fourth quarter of 2023” or the “fourth fiscal quarter of 2023” mean the thirteen-week period from October 1, 2023 to December 30, 2023, and references to the “fourth quarter of 2022” or the “fourth fiscal quarter of 2022” mean the thirteen-week period from October 2, 2022 to December 31, 2022.

Principles of Consolidation

7 unchanged sentences

These reclassifications had no effect on the reported results of operations.

Eastern Company

Notes to Consolidated Financial Statements (continued)

Use of Estimates

6 unchanged sentences

income statement accounts are translated at the average exchange rate for the years.

Resulting translation adjustments are made directly to a separate component of shareholders’ equity – “Accumulated other comprehensive (loss) – Foreign currency translation”.

Foreign currency exchange transaction gains and losses are not material in any year.

Resulting translation adjustments are made directly to a separate component of shareholders’ equity – “Accumulated other comprehensive (loss) – Foreign currency translation.” Foreign currency exchange transaction gains and losses are not material in any year.

Cash Equivalents

10 unchanged sentences

The Company will write off accounts receivable after reasonable collection efforts have been made and the accounts are deemed uncollectible.

As of December 31, 2022 and January 1, 2022, the Company’s allowance for doubtful accounts total was $ 677,000 and $ 515,000 , respectively.

As of December 31, 2022, and January 1, 2022, the Company’s bad debt expense was $ 208,000 and $ 48,000 respectively.

As of December 30, 2023 and December 31, 2022, the Company’s allowance for doubtful accounts total was $ 0.6 million and $ 0.7 million, respectively.

As of December 30, 2023, and December 31, 2022, the Company’s bad debt expense was $ 0.1 million and $ 0.2 million, respectively.

Inventories are valued at the lower of cost or net realizable value.

1 unchanged sentence

($ 41.0 million on December 30, 2023).

Eastern Company

Notes to Consolidated Financial Statements (continued)

Cost exceeds the LIFO carrying value by approximately $ 4.2 million on December 31, 2022 and $ 3.6 million on January 1, 2022.

Cost exceeded the LIFO carrying value by approximately $ 3.7 million on December 30, 2023 and $ 4.2 million on December 31, 2022.

There was no material LIFO quantity liquidation in 2023 or 2022.

1 unchanged sentence

Property, Plant and Equipment and Related Depreciation

Property, plant, and equipment (including equipment under capital lease) are stated at cost.

Depreciation expense ($ 3,257,519 in 2022, $ 3,255,894 in 2021) is computed using the straight-line method based on the following estimated useful lives of the assets:

Property, plant, and equipment (including equipment under finance lease of $ 0.9 million) are stated at cost.

Depreciation expense ($ 3.5 million in 2023, $ 3.3 million in 2022) is computed using the straight-line method based on the following estimated useful lives of the assets:

Buildings - 10 to 39.5 years;

Machinery and equipment - 3 to 10 years.

Eastern Company

Notes to Consolidated Financial Statements (continued)

Impairment of Long-Lived Assets

3 unchanged sentences

The measurement of the impairment loss to be recognized is to be based on the difference between the fair value and the carrying amount of the asset.

Fair value is defined as the amount of which the asset could be bought or sold in a current transaction between willing parties.

Fair value is defined as the amount by which the asset could be bought or sold in a current transaction between willing parties.

Where quoted market prices in active markets are not available, management would estimate fair value based on the best information available in the circumstances such as the price of similar assets, a discounted cash flow analysis or other techniques.

No impairment losses were recognized for the years ended December 31, 2022 and January 1, 2022.

No impairment losses were recognized for the years ended December 30, 2023 and December 31, 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.

4 unchanged sentences

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

The Company performed qualitative assessments of goodwill as of the end of fiscal 2022 and determined that no impairment existed at the end of 2022.

The Company performed qualitative assessments of goodwill as of the end of fiscal 2023 and 2022 and determined that no impairment existed at the end of 2023 and 2022.

The Company will continue to perform annual qualitative assessments as of the end of each fiscal year.

8 unchanged sentences

If facts and circumstances indicate that the carrying value of the intangible assets, including definite life intangible assets, may be impaired, an evaluation is performed to determine if a write-down is required.

No impairment losses were recognized for the periods ended December 31, 2022 and January 1, 2022.

No impairment losses were recognized for the years ended December 30, 2023 and December 31, 2022.

Fair Value of Financial Instruments

6 unchanged sentences

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.

The Company’s financial instruments are primarily investments in pension assets, see Note 10, Retirement Benefit Plans , and an interest rate swap.

The Company’s interest rate swap is not an exchange-traded instrument.

However, it is valued based on observable inputs for similar liabilities and accordingly is classified as Level 2.

The amount of the interest rate swap is included in other accrued liabilities.

The carrying amounts of other financial instruments (cash and cash equivalents, accounts receivable, accounts payable and debt) as of December 31, 2022 and January 1, 2022, approximate fair value because of their short-term nature and market based interest rates.

The Company’s financial instruments are primarily investments in marketable securities (Level 1) and pension assets, see Note 10, Retirement Benefit Plans .

The carrying amounts of other financial instruments (cash and cash equivalents, marketable securities, accounts receivable, accounts payable and debt) as of December 30, 2023 and December 31, 2022, approximate fair value because of their short-term nature and market-based interest rates.

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.

1 unchanged sentence

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

The Company has operating leases for buildings, warehouse, and office equipment.

The Company has operating leases for buildings, warehouses, and office equipment as well as finance leases for equipment.

The Company determines whether an arrangement is, or contains, a lease at contract inception.

3 unchanged sentences

we recognize lease expense for these leases on a straight-line basis over the lease term.

Most leases include one or more options to renew.

Many leases include one or more options to renew.

The exercise of lease renewal options is at our sole discretion.

3 unchanged sentences

Notes to Consolidated Financial Statements (continued)

Currently, the Company has 22 operating leases and two finance leases with a lease liability of $ 12.3 million as of December 31, 2022.

The finance lease arrangements are immaterial.

Currently, the Company has 22 operating leases with a lease liability of $ 17.2 million and two finance leases with a lease liability of $ 0.9 million as of December 30, 2023.

The basis, terms, and conditions of the leases are determined by the individual agreements.

4 unchanged sentences

The weighted average remaining lease term is 7.0 years.

The weighted average discount rate used was 5.0 %.

Revenue Recognition

4 unchanged sentences

The efforts expended method calculates the proportion of effort expended to date in comparison to the total effort expected to be expended for the contract.

The amount of revenue recognized employing the percentage of completion method was $ 1,385,000 for the year ended December 31, 2022 and $ 795,000 for the year ended January 1, 2022.

The amount of revenue recognized by employing the percentage of completion method was $ 1.1 million for the year ended December 30, 2023 and $ 1.4 million for the year ended December 31, 2022.

Based on historical experience, product returns have been immaterial, and the Company does not accrue a reserve for product returns.

For the years ended December 31, 2022 and January 1, 2022, the Company recorded sales returns of $ 580,000 and $ 395,000 , respectively, as a reduction to revenue.

For the years ended December 30, 2023 and December 31, 2022, the Company recorded sales returns of $ 0.9 million and $ 0.6 million, respectively, as a reduction to revenue.

Sales and similar taxes that are imposed on the Company’s sales and collected from the customer are excluded from revenues.

Costs for shipping and handling activities, including those activities that occur after transfer of control to the customer, are recorded as cost of sales and are expensed as incurred.

For the years ended December 31, 2022 and January 1, 2022, the Company recorded no revenues related to performance obligations satisfied in prior periods.

For the years ended December 30, 2023 and December 31, 2022, the Company recorded no revenues related to performance obligations satisfied in prior periods.

The Company has elected to use the practical expedient to exclude disclosure of transaction prices allocated to remaining performance obligations, and when the Company expects to recognize such revenue, for all periods prior to the date of initial application of the standard.

The Company notes that it is impracticable to provide revenues from external customers for each product and service.

See Note 12 – Geographic Information regarding the Company’s revenue disaggregated by geography.

3 unchanged sentences

Shipping and Handling Costs

Shipping and handling costs are included in cost of goods sold.

Shipping and handling costs are included in the cost of goods sold.

Eastern Company

1 unchanged sentence

Product Development Costs

Product development costs, charged to expense as incurred, were $ 4,241,211 in 2022 and $ 4,101,399 in 2021 and include costs to develop new or enhance existing products to better serve our customers.

Product development costs, charged to expense as incurred, were $ 5.6 million in 2023 and $ 4.2 million in 2022 and include costs to develop new or enhance existing products to better serve our customers.

Selling and Administrative Expenses

3 unchanged sentences

The Company expenses advertising costs as incurred.

Advertising costs were $ 269,659 in 2022 and $ 200,482 in 2021.

Advertising costs were $ 0.4 million in 2023 and $ 0.3 million in 2022.

Stock - Based Compensation

The Company accounts for its stock-based awards in accordance with ASC 718-10, Compensation, which requires a fair value measurement and recognition of compensation expense for all share-based payment awards made to its employees and Directors, including employee stock awards and restricted stock awards.

The Company estimates the fair value of granted stock awards using the Black-Scholes valuation model at the date of grant.

The Company estimates the fair value of granted stock awards at the date of grant.

This model requires the Company to make estimates and assumptions including, without limitation, estimates regarding the length of time an employee will retain vested stock awards before exercising them, the estimated volatility of the Company’s common stock price and the number of awards that will be forfeited prior to vesting.

3 unchanged sentences

The Company and its U.S.

subsidiaries file a consolidated federal income tax return.

subsidiaries file a consolidated U.S.

federal income tax return.

Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

7 unchanged sentences

Beginning Balance

( 1,225,226 )

Foreign Exchange

1 unchanged sentence

Beginning Balance

( 1,225,226 )

Foreign Exchange

3 unchanged sentences

Trademarks are not amortized as their lives are deemed to be indefinite.

Amortization expense recognized in 2022 and 2021 was $ 3,953,838 and $ 3,985,179 , respectively.

Amortization expense recognized in 2023 and 2022 was $ 4.0 million.

Total amortization expense for each of the next five years is estimated to be as follows:

6 unchanged sentences

Patents and developed technology

$ 7,412,101 4.8

Customer relationships

25,883,709 4.8

Non-compete agreements

1,040,714 2.4

Total Gross Intangibles

$ 34,340,524 4.7

Accumulated Amortization

5 unchanged sentences

Patents and developed technology

$ 6,749,169 6.5

Customer relationships

26,040,691 5.9

Non-compete agreements

1,111,756 3.3

Total Gross Intangibles

$ 33,901,616 5.9

Accumulated Amortization

6 unchanged sentences

Notes to Consolidated Financial Statements (continued)

On August 30, 2019, the Company entered into the Credit Agreement with Santander Bank, N.A., for itself, M&T Bank, National Association.

and TD Bank, N.A.

as lenders (the “Credit Agreement”), that included a $ 100 million term portion and a $ 20 million revolving commitment portion.

Proceeds of the term loan were used to repay the Company’s remaining outstanding term loan (and to terminate its existing credit facility) with M&T Bank, N.A.

(approximately $ 19 million) and to acquire Big 3 Precision.

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

The revolving commitment portion has an annual commitment fee of 0.25 % based on the unused portion of the revolver.

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

The Company borrowed $ 10,000,000 on the revolving credit facility and subsequently paid it back during 2022 and did not borrow any funds on the revolving commitment portion of the facility during 2021.

The interest rates on the term and revolving credit portion of the Credit Agreement vary.

The interest rates may vary based on the LIBOR rate plus a margin spread of 1.25 % to 2.25 %.

The Company’s obligations under the Credit Agreement are secured by a lien on certain of the Company’s and its U.S.

subsidiaries’ assets pursuant to a Pledge and Security Agreement, dated August 30, 2019 with Santander Bank, N.A., as administrative agent.

On June 16, 2023, the Company entered into a Credit Agreement with TD Bank, N.A., Wells Fargo Bank, Bank of America, and M&T Bank as lenders (the “Credit Agreement”), that included a $ 60 million term portion and a $ 30 million revolving commitment portion.

The proceeds of the term loan were used to repay the Company’s remaining outstanding term loan and to terminate its existing credit facility with Santander Bank, N.A.

(approximately $ 59 million).

The term loan portion of the credit facility requires quarterly principal payments of (i) $ 750,000 beginning on September 30, 2023 through June 30, 2025, (ii) $ 1,125,000 beginning on September 30, 2025 through June 30, 2027, and (iii) $ 1,500,000 beginning on September 30, 2027 through March 31, 2028, with the balance of the term loan payable on the maturity date of June 16, 2028 .

Amounts outstanding under the revolving portion of the credit facility are generally due and payable on the expiration date of the Credit Agreement (June 16, 2028).

The Company can elect to prepay some or all the outstanding balance from time to time without penalty.

A commitment fee is payable on the unused portion of the revolving credit facility based on the Company’s consolidated ratio of net debt to adjusted EBITDA from time to time.

Currently, the commitment fee is 0.30%.

As of September 30, 2023, the Company has not borrowed any funds on the revolving commitment portion of the credit facility.

The term loan bears interest at a variable rate based on the term secured overnight financing rate (“SOFR”), plus an adjustment of ten basis points, plus an applicable margin of 1.875 % to 2.625 %, depending on the Company’s senior net leverage ratio.

Borrowings under the revolving portion bear interest at a variable rate based on, at the Company’s election, a base rate plus an applicable margin of 0.87 5% to 1.62 5% or term SOFR, plus an adjustment of ten basis points, plus an applicable margin of 1.875% to 2.625%, with such margins determined based on the Company’s senior net leverage ratio.

The Company’s obligations under the Credit Agreement are secured by a lien on certain of the Company’s and its subsidiaries’ assets pursuant to a Pledge and Security Agreement, dated as of June 16, 2023, with TD Bank, N.A., as administrative agent.

The Company’s loan covenants under the Credit Agreement require the Company to maintain a senior net leverage ratio not to exceed 3.5 to 1.

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

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 December 31, 2022, the interest rate for half ($24.0 million) of the term portion was 6.1%, using a one-month LIBOR rate, and 3.19% on the remaining balance ($40.0 million) of the term loan based on a one-month LIBOR rate .

The interest rates on the Credit Agreement and the interest rate swap contract are susceptible to that the transition from LIBOR to alternative benchmark rates such as SOFR.

Information regarding this transition is provided below.

The ICE Benchmark Administration (the “IBA”) ceased publication of all settings of non-US dollar LIBOR and the one-week and two-month U.S.

dollar LIBOR settings on December 31, 2021, with the publication of the remaining U.S.

dollar LIBOR settings scheduled to be discontinued after June 30, 2023.

The Adjustable Interest Rate Act (the “LIBOR Act”), which was signed into law on March 15, 2022, provided a replacement framework for outstanding financial contracts tied to LIBOR once LIBOR ceases to be published.

The LIBOR Act provides a statutory mechanism and safe harbor that applies on a nationwide basis to replace LIBOR with a benchmark rate, selected by the Federal Reserve Board based on SOFR, for certain contracts that reference LIBOR and contain no or insufficient fallback provisions.

The LIBOR Act preempts and supersedes any state or local law, statute, rule, regulation, or standard relating to the selection or use of a benchmark replacement or related changes and allows parties that already have effective fallback provisions to opt out of the legislation.

On December 16, 2022, the Federal Reserve adopted a final rule implementing the LIBOR Act that, among other things, identifies the applicable SOFR-based benchmark replacements under the LIBOR Act for various contact types.

The difference between LIBOR and SOFR is that LIBOR is a forward-looking rate which means the interest rate is set at the beginning of the period with payment due at the end.

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

The Eastern Company

Notes to Consolidated Financial Statements (continued)

D ebt (continued)

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

Debt consists of:

$ 64,147,028 $ 71,313,522

Revolving credit loan

64,147,028 71,313,522

Less current portion

9,010,793 7,500,000

$ 55,136,231 $ 63,813,522

Amounts are net of unamortized discounts and debt issuance costs of $ 113,769 as of December 31, 2022 and $ 186,478 as of January 1, 2022.

Amounts are net of unamortized discounts and debt issuance costs of $ 564,265 as of December 30, 2023 and $ 113,769 as of December 31, 2022.

The Company paid interest of $ 3,388,347 in 2023 and $ 2,502,883 in 2022.

1 unchanged sentence

In addition, the Company is required to show a senior net leverage ratio not to exceed 3.5 to 1 .

The Company was in compliance with all covenants as of December 31, 2022.

In addition, the Company has restrictions on, among other things, new capital leases, purchases or redemptions of its capital stock, mergers and divestitures, and new borrowing.

The Company was in compliance with all covenants as of December 31, 2022 and January 1, 2022.

As of December 31, 2022, scheduled annual principal maturities of long-term debt for each of the next five years follow:

Additionally, the Company has restrictions on, among other things, new capital leases, purchases or redemptions of its capital stock, mergers and divestitures, and new borrowings.

The Company was in compliance with all covenants as of December 30, 2023 and December 31, 2022.

The Eastern Company

Notes to Consolidated Financial Statements (continued)

DEBT (continued)

As of December 30, 2023, scheduled annual principal maturities of long-term debt, net of deferred financing fees, for each of the next five years follow:

STOCK OPTIONS AND AWARDS

7 unchanged sentences

The Company did not issue SARs in 2023 or 2022.

The Eastern Company

Notes to Consolidated Financial Statements (continued)

Stock options and awards (continued)

Stock-based compensation expense in connection with stock awards and SARs was $ 504,694 for awards granted to employees during fiscal year 2022 and $ 418,000 for awards granted to employees during fiscal year 2021.

For the 2022 fiscal year, the Company used several assumptions which included an expected term of 3 years, volatility deviation of 47.15 % to 47.70 % and a risk-free rate of 2.04 % to 2.66 %.

For the 2021 fiscal year, the Company used several assumptions which included an expected term of 4 years, volatility deviation of 47.25 % to 48.55 % and a risk-free rate of 0.18 to 0.35 %.

Stock-based compensation (income)/expense, including forfeitures, in connection with stock awards and SARs previously granted to employees was $( 74,277 ) and $ 504,694 for fiscal years 2023 and 2022, respectively.

The Company used fair market value to determine the associated expense with stock awards for the 2023 and 2022 fiscal years.

As of December 31, 2023, there were 880,973 shares of common stock reserved and available for future grant under 2020 Plan.

1 unchanged sentence

December 30, 2023

January 1, 2022

December 31, 2022

Weighted - Average Exercise Price

1 unchanged sentence

Outstanding at beginning of period

180,833 $ 22.88 244,001 $ 21.87

( 16,667 ) 21.20 ( 55,668 ) 19.31

( 18,000 ) 21.74 ( 7,500 ) 21.20

Outstanding at end of period

146,166 23.22 180,833 22.88

The Eastern Company

Notes to Consolidated Financial Statements (continued)

STOCK OPTIONS AND AWARDS (continued)

SARs Outstanding and Exercisable

Range of Exercise Prices

Outstanding as of

December 30, 2023

Remaining Contractual

Weighted- Average Remaining Contractual Life

Weighted- Average Exercise Price

Exercisable as of

December 30, 2023

Remaining Contractual

$ 20.20 -$ 26.30

Weighted- Average Remaining Contractual Life

Weighted- Average Exercise Price

$ 19.44 -$ 26.30

1 unchanged sentence

December 30, 2023

January 1, 2022

December 31, 2022

Outstanding at beginning of period

27,300 25,000

43,300 27,300

( 6,100 ) ( 25,000 )

Outstanding at end of period

64,500 27,300

As of December 30, 2023, outstanding SARs and awards had an intrinsic value of $ 2,289,440 .

4 unchanged sentences

Property, plant, and equipment

$ 3,568,209 $ 3,586,257

Right of Use Asset

2,786,486 2,564,741

Intangible assets

3,374,192 6,364,038

876,731 495,881

Foreign Withholding Tax

60,462 60,462

Total deferred income tax liabilities

10,666,080 13,071,379

What changed 10-K

Item 8. Financial Statements and Supplementary Data