EASTERN CO 10-Q

ITEM 1 – FINANCIAL STATEMENTS THE EASTERN COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended March 29, 2025 March 30, 2024 Net sales $ 63,312,774 $ 64,624,238 Cost of products sold ( 49,125,302 ) ( 49,170,711 ) Gross margin 14,187,472 15,453,527 Product development expense ( 1,109,186 ) ( 1,359,797 ) Selling and administrative expenses ( 9,847,121 ) ( 10,683,652 ) Operating profit 3,231,165 3,410,078 Interest expense ( 617,470 ) ( 676,028 ) Other (expense) income ( 199,705 ) 9,996 Income before income taxes from continuing operations 2,413,990 2,744,046 Income tax expense ( 507,179 ) ( 608,629 ) Net income from continuing operations $ 1,906,811 $ 2,135,417 Discontinued Operations (see note B) Income (Loss) from operations of discontinued unit $ 46,687 $ ( 241,382 ) Income tax benefit (expense) ( 9,809 ) 53,537 Income (Loss) on discontinued operations $ 36,878 $ ( 187,845 ) Net Income $ 1,943,689 $ 1,947,572 Earnings per share from continuing operations: Basic $ 0.31 $ 0.34 Diluted $ 0.31 $ 0.34 Earnings (Loss) per share from discontinued operations: Basic $ 0.01 $ ( 0.03 ) Diluted $ 0.01 $ ( 0.03 ) Total earnings per share: Basic $ 0.32 $ 0.31 Diluted $ 0.32 $ 0.31 Cash dividends per share: $ 0.11 $ 0.11 See accompanying notes. 3 Table of Contents THE EASTERN COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended March 29, 2025 March 30, 2024 Net income $ 1,943,689 $ 1,947,572 Other comprehensive income: Change in foreign currency translation 715,575 ( 157,000 ) Change in fair value of foreign currency swap 197,172 403,016 Change in pension and postretirement benefit costs, net of taxes: 2025 - $60,963 ; 2024 - $71,355 205,725 243,336 Total other comprehensive income 1,118,472 489,352 Comprehensive income $ 3,062,161 $ 2,436,924 See accompanying notes. 4 Table of Contents THE EASTERN COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS March 29, 2025 December 28, 2024 (unaudited) ASSETS Current Assets Cash and cash equivalents $ 7,902,956 $ 14,010,388 Marketable Securities 2,333,000 2,051,301 Accounts receivable, less allowances: 2025 - $ 535,583 ; 2024 - $ 530,560 33,489,814 35,515,632 Inventories 55,360,286 55,209,598 Current portion of notes receivable 19,621 286,287 Prepaid expenses and other assets 4,172,486 3,477,717 Current assets held for sale 6,346,332 5,071,828 Total Current Assets 109,624,495 115,622,751 Property, Plant and Equipment 57,319,191 56,320,688 Accumulated depreciation ( 29,642,523 ) ( 28,810,628 ) Property, Plant and Equipment, Net 27,676,668 27,510,060 Goodwill 58,615,176 58,509,384 Trademarks 3,769,036 3,946,455 Patents and other intangibles net of accumulated amortization 8,357,673 8,765,612 Long term notes receivable, less current portion 114,223 162,102 Deferred income taxes 6,207,128 6,611,518 Right of use assets 17,965,279 14,180,865 Total Other Assets 95,028,515 92,175,936 TOTAL ASSETS $ 232,329,678 $ 235,308,747 See accompanying notes. 5 Table of Contents THE EASTERN COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS March 29, 2025 December 28, 2024 (unaudited) LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Accounts payable $ 20,432,183 $ 19,650,970 Accrued compensation 4,158,549 5,478,581 Other accrued expenses 3,732,614 9,577,019 Current portion of operating lease liability 3,840,835 3,072,668 Current portion of finance lease liability 757,403 761,669 Current portion of long-term debt 3,978,246 3,603,935 Other current liabilities 308,204 505,376 Current liabilities held for sale 2,368,166 2,144,573 Total Current Liabilities 39,576,200 44,794,791 Other long-term liabilities 550,099 546,395 Operating lease liability, less current portion 14,119,143 11,108,197 Finance lease liability, less current portion 2,929,287 3,052,073 Long-term debt, less current portion 37,553,030 38,640,576 Accrued postretirement benefits 409,404 410,476 Accrued pension cost 16,192,871 16,064,840 Total Liabilities 111,330,034 114,617,348 Shareholders’ Equity Voting Preferred Stock, no par value: Authorized and unissued: 1,000,000 shares Nonvoting Preferred Stock, no par value: Authorized and unissued: 1,000,000 shares Common Stock, no par value, Authorized: 50,000,000 shares 35,419,931 35,443,009 Issued: 9,156,500 shares as of 2025 and 9,146,996 shares as of 2024 Outstanding: 6,122,055 shares as of 2025 and 6,163,138 shares as of 2024 Treasury Stock: 3,034,445 shares as of 2025 and 2,983,858 shares as of 2024 ( 27,739,112 ) ( 26,338,309 ) Retained earnings 134,159,324 133,545,670 Accumulated other comprehensive loss: Foreign currency translation ( 1,561,015 ) ( 2,276,590 ) Unrealized gain on foreign currency swap, net of tax ( 308,204 ) ( 505,376 ) Unrecognized net pension and postretirement benefit costs, net of tax ( 18,971,280 ) ( 19,177,005 ) Accumulated other comprehensive loss ( 20,840,499 ) ( 21,958,971 ) Total Shareholders’ Equity 120,999,644 120,691,399 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 232,329,678 $ 235,308,747 See accompanying notes. 6 Table of Contents THE EASTERN COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended March 29, 2025 March 30, 2024 Operating Activities Net income $ 1,943,689 $ 1,947,572 Less: Income (Loss) from discontinued operations 36,878 ( 187,845 ) Income from continuing operations $ 1,906,811 $ 2,135,417 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 1,513,054 1,876,125 Acquisition related expenses 21,039 - Reduction in carrying amount of ROU assets 3,784,982 ( 775,502 ) Unrecognized pension and postretirement (benefit) expense ( 13,898 ) 445,218 Loss on sale of equipment and other assets - 37,330 Provision for doubtful accounts 11,000 ( 23,000 ) Stock compensation (benefit) expense ( 23,078 ) 513,737 Changes in operating assets and liabilities: Accounts receivable 2,015,269 ( 6,383,857 ) Inventories ( 137,403 ) 3,262,289 Prepaid expenses and other ( 695,563 ) ( 8,763 ) Other assets 171,271 21,711 Accounts payable 560,951 2,278,476 Accrued compensation ( 1,256,224 ) ( 803,709 ) Change in operating lease liability ( 3,784,982 ) 775,502 Other accrued expenses ( 5,921,413 ) ( 568,247 ) Net cash (used in) provided by operating activities ( 1,848,184 ) 2,782,727 Investing Activities Marketable securities ( 309,385 ) ( 999,960 ) Acquisition ( 421,039 ) - Payments received from notes receivable 14,545 - Proceeds from sale of equipment - 18,000 Purchases of property, plant, and equipment ( 849,396 ) ( 1,711,560 ) Net cash used in investing activities ( 1,565,275 ) ( 2,693,520 ) Financing Activities Payments on short term borrowings (revolver) - ( 7,662 ) Principal payments on long-term debt ( 750,000 ) ( 792,467 ) Financing leases, net ( 126,990 ) ( 26,618 ) Purchase common stock for treasury ( 1,400,804 ) ( 234,800 ) Dividends paid ( 675,053 ) ( 683,065 ) Net cash used in financing activities ( 2,952,847 ) ( 1,744,612 ) Discontinued Operations Cash provided by operating activities 389,947 803,130 Cash used in investing activities - ( 65,395 ) Cash used in financing activities ( 6,347 ) ( 4,619 ) Cash provided by discontinued operations 383,600 733,116 Effect of exchange rate changes on cash 218,620 ( 20,720 ) Net change in cash and cash equivalents ( 5,764,086 ) ( 943,009 ) Cash and cash equivalents at beginning of period 14,843,530 8,299,453 Cash and cash equivalents at end of period 1 $ 9,079,444 $ 7,356,444 Supplemental disclosure of cash flow information: Interest $ 671,762 $ 831,462 Income taxes 427,318 230,523 Non-cash investing and financing activities Right of use asset 3,784,982 ( 715,323 ) Lease liability 224,769 215,690 See accompanying notes 1 includes cash from assets held for sale of $1.2 million as of March 29, 2025 and $0.4 million as of March 30, 2024 See accompanying notes 7 Table of Contents Note A – Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X and do not include all the information and footnotes required by generally accepted accounting principles in the United States (“GAAP”) for complete financial statements. Refer to the consolidated financial statements of The Eastern Company (together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 28, 2024, filed with the Securities and Exchange Commission on March 11, 2025 (the “2024 Form 10-K”), for additional information. The accompanying condensed consolidated financial statements are unaudited. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for interim periods have been reflected therein. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. All intercompany accounts and transactions are eliminated. The condensed consolidated balance sheet as of December 28, 2024 has been derived from the audited consolidated balance sheet at that date. The Company’s fiscal year is a 52-53-week fiscal year ending on the Saturday nearest to December 31. References in this Quarterly Report on Form 10-Q for the quarterly period ended March 29, 2025 (this “Form 10-Q”) to 2024, the 2024 fiscal year or fiscal 2024 mean the 52-week period ended on December 28, 2024, and references to 2025, the 2025 fiscal year or fiscal 2025 mean the 53-week period ending on January 3, 2026. In a 52-week fiscal year, each quarter has 13 weeks. References to the first quarter of 2024, the first fiscal quarter of 2024, the first three months of 2024 or the three months ended March 30, 2024 mean the 13-week period from December 31, 2023 to March 30, 2024. References to the first quarter of 2025, the first fiscal quarter of 2025, the first three months of 2025 or the three months ended March 29, 2025, mean the 13-week period from December 29, 2024 to March 29, 2025. Certain amounts in the 2024 financial statements have been reclassified to conform with the 2025 presentation with no impact or change to previously reported net income or shareholders’ equity. See Note B, Discontinued Operations , for additional information. Note B – Discontinued Operations In the third quarter of 2024, we determined that the business of Big 3 Mold Services, Inc. (“Big 3 Mold”) meets the criteria to be held for sale and that the assets held for sale qualify for discontinued operations. As such, the financial results of the Big 3 Mold business are reflected in our unaudited condensed consolidated statements of operations as discontinued operations for all periods presented. Additionally, current and non-current assets and liabilities of discontinued operations are reflected in the unaudited condensed consolidated balance sheets for both periods presented. On April 30, 2025, the Company sold the equipment, workforce and customer list of the ISBM division of Big 3 Precision Mold Service, Inc. ISBM, which is located in Centralia, Illinois, is an injection stretch blow mold toolmaker. 8 Table of Contents Summarized Financial Information of Discontinued Operations The following table represents income (loss) from discontinued operations, net of tax: Three Months Ended March 29, 2025 March 30, 2024 (unaudited) (unaudited) Net sales $ 3,935,599 $ 3,304,849 Cost of products sold ( 2,947,478 ) ( 2,562,277 ) Gross margin 988,121 742,572 Selling and administrative expenses ( 787,067 ) ( 815,305 ) Operating Income (Loss) 201,054 ( 72,733 ) Other income - 358 Interest expense ( 154,367 ) ( 169,007 ) Income (Loss) from discontinued operations before income taxes 46,687 ( 241,382 ) Income tax (expense) benefit ( 9,809 ) 53,537 Income (Loss) from discontinued operations, net of tax $ 36,878 $ ( 187,845 ) 9 Table of Contents The following table represents the assets and liabilities from discontinued operations: March 29, 2025 December 28, 2024 (unaudited) Cash $ 1,176,488 $ 833,141 Accounts receivable 3,706,345 2,533,357 Inventory 768,968 784,485 Prepaid expenses 592,044 789,438 Right of use assets 102,487 131,407 Total assets of discontinued operations $ 6,346,332 $ 5,071,828 Current assets of discontinued operations¹ $ 6,346,332 $ 5,071,828 Non-current assets of discontinued operations - - Total assets of discontinued operations $ 6,346,332 $ 5,071,828 Accounts payable $ 711,952 $ 756,842 Accrued compensation and other accrued expenses 1,541,199 1,242,812 Current portion of lease liability 107,849 128,670 Other long-term liabilities 7,166 16,249 Total liabilities of discontinued operations $ 2,368,166 $ 2,144,573 Current liabilities of discontinued operations¹ $ 2,368,166 $ 2,144,573 Non-current liabilities of discontinued operations - - Total liabilities of discontinued operations $ 2,368,166 $ 2,144,573 1 The total assets and liabilities of discontinued operations are presented as current in the March 29, 2025 and December 28, 2024 balance sheet as we expect to sell the discontinued operations and collect proceeds within one year of such dates. 10 Table of Contents Note C – Earnings Per Share The denominators used to calculate earnings per share are as follows: Three Months Ended March 29, 2025 March 30, 2024 Basic: Weighted average shares outstanding 6,138,832 6,215,673 Diluted: Weighted average shares outstanding 6,138,832 6,215,673 Dilutive stock appreciation rights 7,953 39,727 Denominator for diluted earnings per share 6,146,785 6,255,400 Note D – Fair Value of Instruments and Fair Value Measurements The Company incurs certain manufacturing, marketing, and selling costs in international markets in local currency. Accordingly, earnings and cash flows are exposed to market risk from changes in foreign currency exchange rates relative to the U.S. dollar, the Company’s reporting currency. The Company has a program in place that is designed to mitigate the exposure to changes in foreign currency exchange rates. The program includes the use of derivative financial instruments to minimize, for a period of time, the impact on its financial results from changes in foreign exchange rates. The Company utilizes foreign currency forward contracts to hedge the anticipated cash flows from transactions denominated in foreign currencies, namely Mexican pesos. This does not eliminate the impact of the volatility of foreign exchange rates. However, because the Company generally enters into forward contracts twelve to eighteen months out, rates are fixed for a twelve-to-eighteen-month period, thereby facilitating financial planning and resource allocation. Designated Foreign Currency Hedge Contracts All of the Company’s designated foreign currency hedge contracts as of March 29, 2025 were cash flow hedges under ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The Company records the effective portion of any change in the fair value of designated foreign currency hedge contracts in other comprehensive income until the related third-party transaction occurs. Once the related third-party transaction occurs, the Company reclassifies the effective portion of any related gain or loss on the designated foreign currency hedge contracts to earnings. In the event the hedged forecasted transaction does not occur, or it becomes probable that it will not occur, the Company will reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time. The Company had designated foreign currency hedge contracts outstanding in the contract amount of $ 7.2 million as of March 29, 2025 and $ 9.6 million as of December 28, 2024. As of March 29, 2025 a loss of $ 0.3 million is expected to be reclassified to earnings within the next nine months. All currency cash flow hedges outstanding as of March 29, 2025 mature within nine months. 11 Table of Contents Fair Value of Derivative Instruments The following table presents the effect of the Company’s derivative instruments designated as cash flow hedges under ASC 815 in its unaudited Condensed Consolidated Statements of Operations for the three months ended March 29, 2025: Derivative Instruments Amount of Loss Recognized in Accumulated Other Comprehensive Income Amount of Loss Reclassified from Accumulated Other Comprehensive Income into Earnings Location in Condensed Consolidated Statement of Income Designated foreign currency hedge contracts $ ( 308,204 ) $ ( 291,128 ) Cost of products sold ASC 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. The Company determines the fair value of its derivative instruments using the framework prescribed by ASC 820, “Fair Value Measurements and Disclosures,” by considering the estimated amount it would receive or pay to sell or transfer these instruments at the reporting date. Generally, the Company uses inputs that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; other observable inputs for the asset or liability; and inputs derived principally from, or corroborated by, observable market data by correlation or other means. As of March 29, 2025, the Company has classified its derivative assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC 815, as discussed below, because these observable inputs are available for substantially the full term of its derivative instruments. Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 Quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable. The following tables present the fair value of the Company’s derivative instruments as they appear in its Condensed Consolidated Balance Sheets as of March 29, 2025 and December 28, 2024: Location in Condensed Consolidated Balance Sheets As of March 29, 2025 As of December 28, 2024 Derivative Liabilities: Designated foreign currency hedge contracts Other current liabilities $ 308,204 $ 505,376 12 Table of Contents Note E – Inventories Inventories consist of the following components: March 29, 2025 December 28, 2024 Raw material and component parts $ 21,316,556 $ 21,265,221 Work in process 7,547,495 7,529,319 Finished goods 27,265,203 27,199,543 Total inventories 1 $ 56,129,254 $ 55,994,083 1 Includes inventory of discontinued operations of $ 0.8 million and $ 0.8 million as of March 29, 2025 and December 28, 2024, respectively. Note F – Goodwill The aggregate carrying amount of goodwill from continuing operations is approximately $ 58.6 million as of March 29, 2025. In the first quarter of 2025, there was no write-off of goodwill. See Note B – Discontinued Operations for further discussion. The Company evaluates 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. Such events and circumstances could include, among other things, increased competition or unexpected loss of market share, significant adverse changes in the markets in which the Company operates, or unexpected business disruptions. The Company tests reporting units for impairment by comparing the estimated fair value of each reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its estimated fair value, the Company records an impairment loss based on the difference between fair value and carrying amount not to exceed the associated carrying amount of goodwill. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. 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. Note G – Leases The Company presents right-of-use (ROU) assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months, in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases. The Company accounts for non-lease components as part of the lease component to which they relate. Lease accounting involves significant judgements, including making estimates related to the lease term, lease payments, and discount rate. The Company has operating leases for buildings, warehouses, and office equipment. The Company determines whether an arrangement is, or contains, a lease at contract inception. An arrangement contains a lease if the Company has the right to direct the use of and obtain substantially all the economic benefits of an identified asset. ROU assets and lease liabilities are recognized at lease commencement based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet; 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. The exercise of lease renewal options is at our sole discretion. 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. 13 Table of Contents Currently, the Company has 19 operating leases with a lease liability of $ 18.1 million and 6 finance leases with a lease liability of $ 3.7 million as of March 29, 2025. The terms and conditions of the leases are determined by the individual agreements. The leases do not contain residual value guarantees, restrictions, or covenants that could cause the Company to incur additional financial obligations. There are no related party lease transactions. There are no leases that have not yet commenced that could create significant rights and obligations for the Company. The future payments (in millions) due under non-cancelable operating and finance leases as of March 29, 2025 are as follows: Operating Finance 2025 $ 3.0 $ 0.6 2026 3.7 0.8 2027 3.3 0.8 2028 2.9 0.7 2029 2.6 0.7 thereafter 5.0 1.0 20.5 4.6 Less effects of discounting ( 2.4 ) ( 0.9 ) Lease liabilities recognized 1 $ 18.1 $ 3.7 1 includes 0.1 million operating lease payments attributable to discontinued operations. As of March 29, 2025, the weighted average lease term for all operating and finance leases was 5.9 and 6 .0 years, respectively. As of March 29, 2025, the weighted average discount rate associated with operating and finance leases was 6.8 % and 6.4 %, respectively, as of such date. Note H – Debt On June 16, 2023, the Company entered into a credit agreement with the lending institutions named therein (the "Lenders"), TD Bank, N.A., as an LC issuer, the swing line lender and as the administrative agent, TD Securities (USA) LLC, as sole arranger and sole bookrunner, and Bank of America, N.A. and Wells Fargo Bank, National Association, as co-syndication agents (the “Credit Agreement”), that included a $ 60 million term portion and a $ 30 million revolving commitment portion. In April 2025, the Company entered into an amendment to the Credit Agreement that increased the revolving commitment portion to $ 50 million. The proceeds of the term loan were used to repay the Company’s remaining outstanding term loan and to terminate its 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 of 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 0.25 %. The Company has $ 1.3 million of outstanding borrowings under the revolving commitment portion of the credit facility as of March 29, 2025. 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 0.875 % to 1.625 % or 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. 14 Table of Contents 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 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 its covenants under the Credit Agreement on March 29, 2025, and through the date of filing this Form 10-Q. Note I - Stock Options and Awards On February 19, 2020, the Board of Directors of the Company (the “Board”) adopted The Eastern Company 2020 Stock Incentive Plan (the “2020 Plan”). On April 29, 2020, at the Company’s 2020 Annual Meeting of Shareholders, the shareholders of the Company approved and adopted the 2020 Plan. The Company has no other existing plan pursuant to which equity awards may be granted. Restricted stock unit awards may be granted to participants under the 2020 Plan with restrictions determined by the Compensation Committee of the Board. During the first three months of 2025 and 2024, the Company granted stock awards with respect to 35,856 and 0 shares of Company common stock, respectively, that were subject to the meeting of performance measurements or time-based. For the first three months of 2025, the Company used fair market value to determine the associated expense with stock awards. Incentive stock options granted under the 2020 Plan must have exercise prices that are not less than 100% of the fair market value of the Company’s common stock on the dates the stock options are granted. Under the 2020 Plan, non-qualified stock options granted to participants will have exercise prices determined by the Compensation Committee of the Board. The Company issued 48,240 and 0 options during the first three months of 2025 and 2024, respectively. For the first three months of 2025, the Company used several assumptions which included an expected term of 3 years, volatility deviation of 40.34 % and a risk-free rate of 4.34 % to determine the expense associated with options. Stock-based compensation (income) expense, including forfeitures, in connection with options and stock awards previously granted to employees was approximately $( 153,000 ) and $ 434,000 in the first quarter of 2025 and the first quarter of 2024, respectively. As of March 29, 2025, there were 873,631 shares of Company common stock reserved and available for future grant under the 2020 Plan. The following tables set forth the outstanding options for the period specified: Three Months Ended Year Ended March 29, 2025 December 28, 2024 Units Weighted Average Exercise Price Units Weighted Average Exercise Price Outstanding at beginning of period 25,116 $ 28.18 13,000 $ 24.19 Issued 48,240 27.88 53,568 28.69 Expired - - ( 9,000 ) 26.30 Exercised - - ( 2,500 ) 20.20 Forfeited ( 8,600 ) 28.69 ( 29,952 ) 28.69 Outstanding at end of period 64,756 27.89 25,116 28.18 15 Table of Contents Stock Options Outstanding and Exercisable Range of Exercise Prices Outstanding as of March 29, 2025 Weighted Average Remaining Contractual Life Weighted Average Exercise Price Exercisable as of March 29, 2025 Weighted Average Remaining Contractual Life Weighted Average Exercise Price $ 20.20 - $ 28.69 64,756 4.6 $ 27.89 1,500 0.1 $ 20.20 The following tables set forth the outstanding stock awards for the period specified: Three Months Ended Year Ended March 29, 2025 December 28, 2024 Shares Shares Outstanding at beginning of period 39,592 89,400 Issued 35,856 38,448 Exercised ( 4,579 ) ( 38,534 ) Forfeited ( 15,474 ) ( 49,722 ) Outstanding at end of period 55,395 39,592 As of March 29, 2025, outstanding SARs and stock awards had an intrinsic value of $ 1,450,000 . Note J – Share Repurchase Program On August 21, 2023, the Company announced that the Board of Directors of the Company had approved a share repurchase program authorizing the Company to repurchase up to 200,000 shares of the Company’s common stock through August 20, 2028. The Company’s share repurchase program does not obligate it to acquire the Company’s common stock at any specific cost per share. Under this program, the Company was authorized to repurchase shares 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. Below is a summary of the Company’s share repurchases during the first quarter of 2025 under the share repurchase program. As of March 29, 2025, no shares remained available for repurchase under the authorization. Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that may yet be Purchased Under the Plans or Programs December 29, 2024 – February 1, 2025 20,000 $ 27.81 20,000 30,587 February 2, 2025 – March 1, 2025 14,843 27.95 14,843 15,744 March 2, 2025 – March 29, 2025 15,744 27.30 15,744 0 Total 50,587 $ 27.69 50,587 0 16 Table of Contents Note K – 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. 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. A good or service is transferred when the customer obtains control of that good or service. The Company’s revenues are recorded at a point in time from the sale of tangible products. Revenues are recognized when products are shipped. Customer volume rebates, product returns, discount and allowance are variable considerations and are recorded as a reduction of revenue in the same period that the related sales are recorded. The Company has reviewed the overall sales transactions for variable consideration and has determined that these costs are not material. The Company has no future performance obligations and does not capitalize costs to obtain or fulfill contracts. Note L - Income Taxes The Company files income tax returns in the U.S. at the federal and state levels, and in foreign jurisdictions. With limited exceptions, the Company is no longer subject to U.S. federal, state, and local income tax examinations by tax authorities for years before 2020 and is no longer subject to non-U.S. income tax examinations by foreign tax authorities for years prior to 2018. The total amount of unrecognized tax benefits could increase or decrease within the next 12 months 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 three months ended March 29, 2025. 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. Note M - Retirement Benefit Plans The Company has four non-contributory defined benefit pension plans covering most U.S. employees. All of these pension plans are frozen and participants in these plans have not accrued benefits since the date on which these plans were frozen. Plan benefits are generally based upon age at retirement, years of service and, for the plan covering salaried employees, the level of compensation. 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. 17 Table of Contents Significant disclosures relating to these benefit plans for the first quarter of fiscal years 2025 and 2024 are as follows: Pension Benefits Three Months Ended March 29, 2025 March 30, 2024 Service cost $ 177,462 $ 178,003 Interest cost 951,097 966,702 Expected return on plan assets ( 1,059,936 ) ( 1,099,035 ) Amortization of the net loss 290,615 327,365 Net periodic benefit cost $ 359,238 $ 373,035 Other Postretirement Benefits Three Months Ended March 29, 2025 March 30, 2024 Service cost $ 2,125 $ 3,574 Interest cost 11,683 12,951 Expected return on plan assets ( 4,780 ) ( 4,684 ) Amortization of prior service cost ( 832 ) 1,060 Amortization of the net loss ( 23,093 ) ( 19,567 ) Net periodic benefit (gain) $ ( 14,897 ) $ ( 6,666 ) The Company’s funding policy with respect to its qualified plans is to contribute at least the minimum amount required by applicable laws and regulations. In fiscal year 2025, the Company expects to make cash contributions to its qualified pension plans of approximately $ 2,900,000 and approximately $ 42,000 into its other postretirement plan. As of March 29, 2025, the Company has contributed $ 1,016,000 to its pension plans and $ 7,000 to its postretirement plan in fiscal year 2025 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. non-union employees. The 401(k) Plan allows participants to make voluntary contributions from their annual compensation on a pre-tax basis, subject to limitations under the Internal Revenue Code. The 401(k) Plan provides for contributions by the Company at its discretion. 18 Table of Contents The Company made contributions to the 401(k) Plan as follows: Three Months Ended March 29, 2025 March 30, 2024 Regular matching contribution $ 306,639 $ 285,563 Transitional credit contribution 23,865 28,906 Non-discretionary contribution 108,492 110,890 Total contributions for the period $ 438,996 $ 425,359 Note N - Recent Accounting Pronouncements In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit disaggregated between domestic and foreign and (3) income tax expense or benefit from continuing operations disaggregated by federal, state, and foreign. The update also requires entities to disclose their income tax payments to various jurisdictions. This standard is effective for fiscal years beginning after December 15, 2024. We do not expect this new standard to have a significant impact on our disclosures. The Company has implemented all new accounting pronouncements that are in effect and that could impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued, but are not yet effective, that might have a material impact on the consolidated financial statements of the Company. Note O - Concentration of Risk Credit Risk Credit risk is the potential financial loss resulting from the failure of a customer or counterparty to settle its financial and contractual obligations to the Company, as and when they become due. The primary credit risk for the Company is its accounts receivable due from customers. The Company has established credit limits for customers and monitors their balances to mitigate the risk of loss. As of March 29, 2025, there was one significant concentration of credit risk with a customer, that represented 13 % of our net accounts receivable. As of December 28, 2024, there was one customer that represented 14 % of the Company’s net accounts receivable. The maximum exposure to credit risk is primarily represented by the carrying amount of the Company’s accounts receivable. The Company has deposits that exceed amounts up to $ 250,000 that are insured by the Federal Deposit Insurance Corporation (FDIC), but the Company does not consider this a significant concentration of credit risk based on the strength of the financial institution. Interest Rate Risk The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s debt under the Credit Agreement, which bears interest at variable rates based on 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. 19 Table of Contents Note P - Segment Information The Company has one reportable segment, and the Chief Executive Officer is the Company’s chief operating decision maker (CODM). The CODM uses the following reported measures to assess performance and make decisions on resource allocation throughout the Company. Engineered Solutions Segment March 29. 2025 March 30, 2024 Net Sales $ 63,312,774 $ 64,624,238 Less: Material cost ( 33,418,246 ) ( 34,121,028 ) Labor cost ( 3,125,986 ) ( 2,922,443 ) Other variable and fixed overhead¹ ( 12,581,070 ) ( 12,127,240 ) Gross Margin 14,187,472 15,453,527 Product development expense ( 1,109,186 ) ( 1,359,797 ) Selling and administrative expenses ( 9,847,121 ) ( 10,683,652 ) Operating Profit $ 3,231,165 $ 3,410,078 1 Other variable and fixed overhead items included in segment operating profit include manufacturing salaries, indirect labor, insurance, lease expense, depreciation, and other overhead expenses Note Q– Business Acquisition On February 14, 2025, the Company acquired certain assets under asset and real estate purchase agreements from Centralia Industrial Painting, Inc. and Ronald R. Rainwater, respectively. These assets are held in our Big 3 Precision Products, Inc. (“Big 3”) subsidiary. We expect the acquisition will enable the Company to become more competitive with respect to cost and quality of the products sold by Big 3. The acquisition was accounted as a business combination (ASC Topic 805). The acquired assets are included in the consolidated financial statements of the Company from the effective date of the acquisition. The excess of the purchase price paid over the fair market value of the net assets acquired of $ 0.1 million has been recorded as goodwill. 20 Table of Contents