0001654954-22-014781.txt : 20221107 0001654954-22-014781.hdr.sgml : 20221107 20221107163102 ACCESSION NUMBER: 0001654954-22-014781 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 61 CONFORMED PERIOD OF REPORT: 20221001 FILED AS OF DATE: 20221107 DATE AS OF CHANGE: 20221107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EASTERN CO CENTRAL INDEX KEY: 0000031107 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 060330020 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-35383 FILM NUMBER: 221365891 BUSINESS ADDRESS: STREET 1: 112 BRIDGE ST STREET 2: P O BOX 460 CITY: NAUGATUCK STATE: CT ZIP: 06770 BUSINESS PHONE: 2037292255 MAIL ADDRESS: STREET 1: 112 BRIDGE STREET STREET 2: P O BOX 460 CITY: NAUGATUCK STATE: CT ZIP: 06770 10-Q 1 eml_10q.htm FORM 10-Q eml_10q.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended October 1, 2022

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ________________ to _______________

 

Commission File Number 001-35383

 

THE EASTERN COMPANY

(Exact name of registrant as specified in its charter)

 

Connecticut

 

06-0330020

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

112 Bridge Street, Naugatuck, Connecticut

 

06770

(Address of principal executive offices)

 

(Zip Code)

 

(203)-729-2255

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, No Par Value

EML

NASDAQ Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated Filer

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

As of October 1, 2022, 6,215,123 shares of the registrant’s common stock, no par value per share, were issued and outstanding.

 

 

 

 

The Eastern Company

Form 10-Q

 

FOR THE QUARTERLY PERIOD ENDED OCTOBER 1, 2022

 

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART I

FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

 

 3.

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

17.

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

25.

 

 

 

 

 

 

Item 4.

Controls and Procedures

 

25.

 

 

 

 

 

 

PART II

OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

 

26.

 

 

 

 

 

 

Item 1A.

Risk Factors

 

26.

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

26.

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

26.

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

 

26.

 

 

 

 

 

 

Item 5.

Other Information

 

26.

 

 

 

 

 

 

Item 6

Exhibits

 

27.

 

 

 

 

 

 

 

Signatures

 

28.

 

 

 
2

Table of Contents

 

PART 1 – FINANCIAL INFORMATION

 

ITEM 1 – FINANCIAL STATEMENTS

 

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 1, 2022

 

 

October 2, 2021

 

 

October 1, 2022

 

 

October 2, 2021

 

Net sales

 

$71,636,746

 

 

$63,876,906

 

 

$210,191,448

 

 

$186,897,930

 

Cost of products sold

 

 

(55,056,160)

 

 

(48,661,374)

 

 

(163,047,360)

 

 

(142,196,527)

Gross margin

 

 

16,580,586

 

 

 

15,215,532

 

 

 

47,144,088

 

 

 

44,701,403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product development expense

 

 

(1,011,961)

 

 

(962,924)

 

 

(3,168,333)

 

 

(3,068,866)

Selling general and administrative expenses

 

 

(10,121,683)

 

 

(9,440,583)

 

 

(30,129,112)

 

 

(27,760,514)

Operating profit

 

 

5,446,942

 

 

 

4,812,025

 

 

 

13,846,643

 

 

 

13,872,023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(645,773)

 

 

(427,222)

 

 

(1,583,894)

 

 

(1,388,512)

Other income

 

 

1,118,453

 

 

 

407,192

 

 

 

2,118,783

 

 

 

3,359,065

 

Income from continuing operations before income taxes

 

 

5,919,622

 

 

 

4,791,995

 

 

 

14,381,532

 

 

 

15,842,576

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(1,423,363)

 

 

(971,884)

 

 

(3,498,365)

 

 

(3,573,308)

Net income from continuing operations

 

 

4,496,259

 

 

 

3,820,111

 

 

 

10,883,167

 

 

 

12,269,268

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued Operations (see Note B)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations of discontinued operations

 

 

495,820

 

 

 

1,492,063

 

 

 

1,426,569

 

 

 

2,831,530

 

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

 

 

 

 

 

1,308,639

 

 

 

 

 

 

(9,274,439)

Income tax (expense) benefit

 

 

(133,500)

 

 

(659,285)

 

 

(384,104)

 

 

1,516,661

 

Gain (loss) from discontinued operations

 

 

362,320

 

 

 

2,141,417

 

 

 

1,042,465

 

 

 

(4,926,248)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$4,858,579

 

 

$5,961,528

 

 

$11,925,632

 

 

$7,343,020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share from continuing operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$0.72

 

 

$0.61

 

 

$1.75

 

 

$1.96

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$0.72

 

 

$0.61

 

 

$1.74

 

 

$1.96

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share from discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$0.06

 

 

$0.34

 

 

$0.17

 

 

$(0.79)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$0.06

 

 

$0.34

 

 

$0.17

 

 

$(0.79)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$0.78

 

 

$0.95

 

 

$1.92

 

 

$1.17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$0.78

 

 

$0.95

 

 

$1.91

 

 

$1.17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends per share:

 

$0.11

 

 

$0.11

 

 

$0.33

 

 

$0.33

 

 

See accompanying notes

 

 
3

Table of Contents

 

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 1, 2022

 

 

October 2, 2021

 

 

October 1, 2022

 

 

October 2, 2021

 

Net income

 

$4,858,579

 

 

$5,961,528

 

 

$11,925,632

 

 

$7,343,020

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation

 

 

(1,387,274)

 

 

(523,632)

 

 

(2,358,170)

 

 

(238,837)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022 - $163,533 and $590,827 respectively; 2021 - $31,759 and $188,753 respectively

 

 

517,855

 

 

 

104,949

 

 

 

1,870,954

 

 

 

602,224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2022 - $92,235 and $276,705 respectively; 2021 - $107,962 and $308,117 respectively

 

 

313,408

 

 

 

346,328

 

 

 

940,225

 

 

 

988,401

 

Total other comprehensive (loss) income

 

 

(556,011)

 

 

(72,355)

 

 

453,009

 

 

 

1,351,788

 

Comprehensive income

 

$4,302,568

 

 

$5,889,173

 

 

$12,378,641

 

 

$8,694,808

 

 

See accompanying notes.

 

 
4

Table of Contents

 

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

October 1, 2022

 

 

January 1, 2022

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$5,275,472

 

 

$6,168,304

 

Accounts receivable, less allowances: 2022 - $577,820; 2021 - $515,000

 

 

50,854,523

 

 

 

43,151,500

 

Inventories

 

 

67,502,778

 

 

 

62,862,342

 

Current portion of notes receivable

 

 

1,006,421

 

 

 

1,027,125

 

Prepaid expenses and other assets

 

 

8,110,917

 

 

 

6,943,691

 

Current assets held for sale

 

 

5,071,203

 

 

 

3,521,899

 

Total Current Assets

 

 

137,821,314

 

 

 

123,674,861

 

 

 

 

 

 

 

 

 

 

Property, Plant and Equipment

 

 

55,079,978

 

 

 

56,935,080

 

Accumulated depreciation

 

 

(29,512,038)

 

 

(28,631,329)

Property, Plant and Equipment, Net

 

 

25,567,940

 

 

 

28,303,751

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

71,938,360

 

 

 

72,211,873

 

Trademarks

 

 

5,489,068

 

 

 

5,409,720

 

Patents and other intangibles net of accumulated amortization

 

 

19,748,225

 

 

 

22,863,497

 

Long term notes receivable, less current portion

 

 

2,499,254

 

 

 

2,726,698

 

Right of Use Assets

 

 

12,882,053

 

 

 

11,138,535

 

Total Other Assets

 

 

112,556,960

 

 

 

114,350,323

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$275,946,214

 

 

$266,328,935

 

 

See accompanying notes.

 

 
5

Table of Contents

 

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

October 1, 2022

 

 

January 1, 2022

 

 

 

(unaudited)

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable

 

$29,035,147

 

 

$29,633,974

 

Accrued compensation

 

 

3,397,417

 

 

 

4,375,867

 

Other accrued expenses

 

 

3,126,494

 

 

 

4,808,000

 

Current portion of lease liability

 

 

2,993,652

 

 

 

2,664,895

 

Current portion of long-term debt

 

 

8,125,000

 

 

 

7,500,000

 

Current liabilities held for sale

 

 

577,118

 

 

 

580,990

 

Total Current Liabilities

 

 

47,254,828

 

 

 

49,563,726

 

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

1,151,759

 

 

 

1,151,759

 

Other long-term liabilities

 

 

668,355

 

 

 

668,354

 

Lease liability

 

 

9,919,112

 

 

 

8,639,339

 

Long-term debt, less current portion

 

 

66,619,231

 

 

 

63,813,522

 

Accrued postretirement benefits

 

 

1,342,537

 

 

 

1,284,589

 

Accrued pension cost

 

 

25,001,982

 

 

 

26,605,382

 

Total Liabilities

 

 

151,957,804

 

 

 

151,726,671

 

 

 

 

 

 

 

 

 

 

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

 

 

33,319,461

 

 

 

32,620,008

 

Issued: 9,049,568 shares in 2022 and 9,029,852 shares in 2021

 

 

 

 

 

 

 

 

Outstanding: 6,215,123 shares in 2022 and 6,265,527 shares in 2021

 

 

 

 

 

 

 

 

Treasury Stock: 2,834,445 shares in 2022 and 2,764,325 shares in 2021

 

 

(22,544,685)

 

 

(20,907,613)

Retained earnings

 

 

139,293,381

 

 

 

129,422,625

 

Accumulated other comprehensive (loss):

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

(1,539,724)

 

 

818,446

 

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

 

 

1,514,966

 

 

 

(355,988)

Unrecognized net pension and postretirement benefit costs, net of tax

 

 

(26,054,989)

 

 

(26,995,214)

Accumulated other comprehensive loss

 

 

(26,079,747)

 

 

(26,532,756)

Total Shareholders’ Equity

 

 

123,988,410

 

 

 

114,602,264

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$275,946,214

 

 

$266,328,935

 

 

See accompanying notes.

 

 
6

Table of Contents

 

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

Nine Months Ended

 

 

 

October 1, 2022

 

 

October 2, 2021

 

Operating Activities

 

 

 

 

 

 

Net income

 

$11,925,632

 

 

$7,343,020

 

Less: gain (loss) from discontinued operations

 

 

1,042,465

 

 

 

(4,926,248)

Income from continuing operations

 

10,883,167

 

 

12,269,268

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,389,394

 

 

 

5,188,863

 

Unrecognized pension and postretirement benefits

 

 

(477,560)

 

 

(3,056,642)

Gain on sale of equipment and other assets

 

 

(345,718)

 

 

(1,469,218)

Provision for doubtful accounts

 

 

35,000

 

 

 

73,097

 

Stock compensation expense

 

 

699,454

 

 

 

1,090,946

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(8,008,687)

 

 

(9,553,337)

Inventories

 

 

(5,217,395)

 

 

(13,686,268)

Prepaid expenses and other

 

 

(1,082,483)

 

 

(3,903,388)

Other assets

 

 

340,925

 

 

 

47,534

 

Accounts payable

 

 

(537,072)

 

 

11,156,105

 

Accrued compensation

 

 

(957,022)

 

 

697,735

 

Other accrued expenses

 

 

(1,046,094)

 

 

(2,173,142)

Net cash used in operating activities

 

 

(324,091)

 

 

(3,318,448)

 

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

 

Marketable securities

 

 

 

 

 

28,951

 

Issuance of Notes Receivable

 

 

(400,000)

 

 

 

Payments received from notes receivable

 

 

748,148

 

 

 

694,962

 

Proceeds from sale of equipment

 

 

2,171,073

 

 

 

1,980,729

 

Purchases of property, plant and equipment

 

 

(1,734,553)

 

 

(2,112,990)

Net cash provided by investing activities

 

 

784,668

 

 

 

591,652

 

 

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

 

Payments on short term borrowings (revolver)

 

 

(1,000,000)

 

 

 

Proceeds from short term borrowings (revolver)

 

 

10,000,000

 

 

 

 

Principal payments on long-term debt

 

 

(5,688,866)

 

 

(4,424,757)

Financing leases, net

 

 

(161,906)

 

 

132,221

 

Purchase common stock for treasury

 

 

(1,637,072)

 

 

 

Dividends paid

 

 

(2,054,875)

 

 

(2,062,492)

Net cash used in financing activities

 

 

(542,719)

 

 

(6,355,028)

 

 

 

 

 

 

 

 

 

Discontinued Operations

 

 

 

 

 

 

 

 

Cash (used in) provided by operating activities

 

 

(610,887)

 

 

3,546,530

 

Cash used in investing activities

 

 

 

 

 

(794,519)

Cash (used in) provided by discontinued operations

 

 

(610,887)

 

 

2,752,011

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(257,093)

 

 

239,561

 

Net change in cash and cash equivalents

 

 

(950,122)

 

 

(6,090,252)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

6,602,429

 

 

 

16,101,635

 

Cash and cash equivalents at end of period ¹

 

$5,652,307

 

 

$10,011,384

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest

 

$1,753,699

 

 

$1,839,729

 

Income taxes

 

 

3,197,375

 

 

 

866,850

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

 

Right of use asset

 

$1,743,518

 

 

$(820,561)

Lease liability

 

 

(1,608,530)

 

 

688,341

 

 

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

 

 
7

Table of Contents

 

THE EASTERN COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

October 1, 2022

 

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 January 1, 2022, filed with the Securities and Exchange Commission on March 17, 2022 (the “2021 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 January 1, 2022 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 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. 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.

 

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

 

Note B – Discontinued Operations

 

In the second quarter of 2021, the Company determined that the companies included in our former Diversified Products segment no longer fit with our long-term strategy and the Company initiated the process of selling the companies within the Diversified Products segment. We believe that selling the companies within this segment will 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 qualify for discontinued operations. As such, the financial results of the Diversified Products segment 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 November 3, 2021, the Company sold its Greenwald Industries, Inc. division (“Greenwald”). Greenwald, located in Chester, CT, is an OEM manufacturer offering a range of payment solutions from coin-vending products to smart card systems and payment applications.

 

On November 22, 2021, the Company sold its Frazer & Jones Company division (“Frazer & Jones”). Frazer & Jones is a ductile and malleable iron foundry located in Syracuse, NY. Eastern has exited the mining business to focus on our three core businesses.

 

 
8

Table of Contents

 

Summarized Financial Information of Discontinued Operations

 

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 1, 2022

 

 

October 2, 2021

 

 

October 1, 2022

 

 

October 2, 2021

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

Net sales

 

$2,516,064

 

 

$11,477,553

 

 

$7,356,491

 

 

$36,495,452

 

Cost of products sold

 

 

(1,656,694)

 

 

(8,749,365)

 

 

(4,943,751)

 

 

(29,793,971)

Gross margin

 

 

859,370

 

 

 

2,728,188

 

 

 

2,412,740

 

 

 

6,701,481

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

(311,190)

 

 

(1,093,716)

 

 

(857,747)

 

 

(3,407,113)

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

 

 

 

 

 

 

1,308,639

 

 

 

 

 

 

 

(9,274,439)

Operating income (loss)

 

 

548,180

 

 

 

2,943,111

 

 

 

1,554,993

 

 

 

(5,980,071)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(52,360)

 

 

(142,409)

 

 

(128,424)

 

 

(462,838)

Gain (loss) from discontinued operations before income taxes

 

 

495,820

 

 

 

2,800,702

 

 

 

1,426,569

 

 

 

(6,442,909)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax (expense) benefit

 

 

(133,500)

 

 

(659,285)

 

 

(384,104)

 

 

1,516,661

 

Income (loss) from discontinued operations, net of tax

 

$362,320

 

 

$2,141,417

 

 

$1,042,465

 

 

$(4,926,248)

 

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

 

 

 

October 1, 2022

 

 

January 1, 2022

 

 

 

(unaudited)

 

 

 

 

Cash

 

$376,835

 

 

$434,126

 

Accounts receivable

 

 

963,659

 

 

 

1,153,274

 

Inventory

 

 

2,905,947

 

 

 

1,258,032

 

Prepaid expenses

 

 

61,183

 

 

 

59,850

 

Property, plant and equipment, net

 

 

529,941

 

 

 

591,920

 

Right of use assets

 

 

233,638

 

 

 

24,697

 

Total assets of discontinued operations¹

 

$5,071,203

 

 

$3,521,899

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$79,711

 

 

$167,794

 

Accrued compensation and other accrued expenses

 

 

263,769

 

 

 

388,499

 

Current portion of lease liability

 

 

93,455

 

 

 

24,697

 

Other long-term liabilities

 

 

140,183

 

 

 

-

 

Total liabilities of discontinued operations¹

 

$577,118

 

 

$580,990

 

 

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

 

 
9

Table of Contents

 

Note C – Earnings Per Share

 

The denominators used to calculate earnings per share are as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 1, 2022

 

 

October 2, 2021

 

 

October 1, 2022

 

 

October 2, 2021

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

6,209,014

 

 

 

6,270,147

 

 

 

6,226,493

 

 

 

6,259,380

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

6,209,014

 

 

 

6,270,147

 

 

 

6,226,493

 

 

 

6,259,380

 

Dilutive stock appreciation rights

 

 

14,102

 

 

 

2,140

 

 

 

14,102

 

 

 

2,140

 

Denominator for diluted earnings per share

 

 

6,223,116

 

 

 

6,272,287

 

 

 

6,240,595

 

 

 

6,261,520

 

 

Note D – Inventories

 

Inventories from continuing operations consist of the following components:

 

 

 

October 1, 2022

 

 

January 1, 2022

 

 

 

 

 

 

 

 

Raw material and component parts

 

$26,967,340

 

 

$25,113,487

 

Work in process

 

 

10,347,330

 

 

 

9,636,009

 

Finished goods

 

 

30,188,108

 

 

 

28,112,846

 

Total inventories

 

$67,502,778

 

 

$62,862,342

 

 

Note E - Goodwill

 

The aggregate carrying amount of goodwill from continuing operations is approximately $71.9 million as of October 1, 2022 and $72.2 million as of January 1, 2022. No impairment was recognized in the third quarter of 2022.

 

The Company tests its reporting units for impairment annually in December, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. 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 F – 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.

 

 
10

Table of Contents

 

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

 

Total lease expense for each of the next five fiscal years is estimated to be as follows: remainder of 2022 - $0.8 million; 2023 - $3.1 million; 2024 - $2.6 million; 2025 - $1.7 million; 2026 - $1.3 million; and $3.7 million thereafter. The weighted average remaining lease term is 6.2 years. The implicit interest rate used was 5.0%.

 

Note G - Debt

 

On August 30, 2019, the Company entered into a credit agreement with Santander Bank, N.A., for itself, People’s United 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 People’s United Bank, N.A. (approximately $19 million) and to acquire certain subsidiaries of Big 3 Holdings, LLC. The term portion of the loan required quarterly principal payments of $1,250,000 for an 18-month period beginning December 31, 2019. The repayment amount then increased to $1,875,000 per quarter beginning September 30, 2021 and continuing through June 30, 2023. The repayment amount then increases to $2,500,000 per quarter beginning September 30, 2023 and continuing 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. As of October 1, 2022, the Company has borrowed $9,000,000 on the revolving commitment portion of the facility at an interest rate of 4.51%. The term loan bears interest at a variable rate based on the LIBOR rate plus an applicable margin of 1.25% to 2.25%, depending on the Company’s senior net leverage ratio. 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 0.25% to 1.25% or the LIBOR rate plus an applicable margin of 1.25% to 2.25%, 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 August 30, 2019, with Santander 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 4.25 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 of its covenants under the Credit Agreement on October 1, 2022, and through the date of filing this Form 10-Q.

 

On August 30, 2019, the Company entered an interest rate swap contract with Santander Bank, N.A., with an original notional amount of $50,000,000, which was equal to 50% of the outstanding balance of the term loan on that date. The Company has a fixed interest rate of 1.44% on the swap contract and will pay the difference between the fixed rate and LIBOR when LIBOR is below 1.44% and will receive interest when the LIBOR rate exceeds 1.44%. On October 1, 2022, the interest rate for approximately half ($24.9 million) of the term portion was 4.28%, using a one-month LIBOR rate, and 3.19% on the remaining balance ($40.9 million) of the term loan based on a one-month LIBOR rate.

 

The interest rates under the Credit Agreement and the interest rate swap contract are susceptible to changes to the method of determining LIBOR rates and to the phasing out of LIBOR. Information regarding the phasing out of LIBOR is provided below.

 

On July 27, 2017, the Financial Conduct Authority (the “FCA”) (the authority that regulates LIBOR) announced that it would phase out LIBOR by the end of 2021. In December 2020, the ICE Benchmark Administration (the “IBA”) announced a market consultation regarding the extension of US dollar LIBOR tenors through June 30, 2023, which the FCA supports. On March 5, 2021, the IBA released its feedback statement reporting the results of the market consultation. Pursuant to its feedback statement, the IBA ceased publication of all settings of non-US dollar LIBOR and only 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 Alternative Reference Rates Committee (ARRC), a financial industry group convened by the Federal Reserve Board, has recommended the use of a secured overnight financing rate (“SOFR”) to replace LIBOR. In addition, on March 15, 2022, the Adjustable Interest Rate Act (the “LIBOR Act”) was signed into law, which 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. 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. Although the Federal Reserve has proposed a regulation implementing the LIBOR Act, including the basis for calculation of the alternative benchmark rate thereunder, this regulation has not been finalized and changes in the method of calculating the alternative rate or benchmark are still in flux, and once an alternate rate is adopted, may adversely affect interest rates and result in higher borrowing costs. This could materially and adversely affect the Company’s results of operations, cash flows and liquidity. We cannot predict the effect of the potential changes to LIBOR or the establishment and use of alternative rates or benchmarks at this time.

 

 
11

Table of Contents

 

Note H - Stock Options and Awards

 

The Eastern Company 2010 Executive Stock Incentive Plan (the “2010 Plan”), for officers, other key employees, and non-employee directors expired in February 2020. 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 2020 Plan replaced the 2010 Plan. The Company has no other existing plan pursuant to which equity awards may be granted.

 

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. Restricted stock awards may also be granted to participants under the 2020 Plan with restrictions determined by the Compensation Committee of the Board. Under the 2020 Plan, non-qualified stock options granted to participants will have exercise prices determined by the Compensation Committee of the Board. During the first nine months of fiscal 2022, the Company granted 43,300 stock awards that were subject to the meeting of performance measurements. The Company granted 27,300 stock awards in the first nine months of fiscal 2021 that were subject to the meeting of performance measurements. For the first nine months of fiscal 2022, the Company used assumptions which included an expected term of 4.0 years, volatility deviation between 47.15% to 47.70% and a risk-free rate between 2.04% to 2.66% for the purposes of measuring compensation under the Black Scholes Method. For the first nine months of fiscal 2021, the Company used several assumptions which included an expected term of 4.0 years, volatility deviation between 47.25% to 48.55% and a risk-free rate between 0.18% to 0.35% for the purposes of measuring compensation under the Black Scholes Method.

 

The 2020 Plan also permits the issuance of Stock Appreciation Rights (“SARs”). The SARs are in the form of an option with a cashless exercise price equal to the difference between the fair value of the Company’s common stock at the date of grant and the fair value as of the exercise date resulting in the issuance of the Company’s common stock. During the first nine months of fiscal 2022 and 2021 the Company did not issue any SARs.

 

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

 

As of October 1, 2022, there were 812,954 shares of Company common stock reserved and available for future grant under the 2020 Plan.

 

 
12

Table of Contents

 

The following tables set forth the outstanding SARs for the period specified:

 

 

 

Nine Months Ended

 

 

Year Ended

 

 

 

October 1, 2022

 

 

January 1, 2022

 

 

 

Units

 

 

Weighted Average Exercise Price

 

 

Units

 

 

Weighted Average Exercise Price

 

Outstanding at beginning of period

 

 

180,833

 

 

$22.88

 

 

 

244,001

 

 

$21.87

 

Issued

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

(16,667)

 

 

21.20

 

 

 

(55,668)

 

 

19.31

 

Forfeited

 

 

(16,000)

 

 

21.34

 

 

 

(7,500)

 

 

21.20

 

Outstanding at end of period

 

 

148,166

 

 

 

23.24

 

 

 

180,833

 

 

 

22.88

 

 

SARs Outstanding and Exercisable

 

 

 

 

 

 

 

 

 

Range of Exercise Prices

 

Outstanding as of October 1, 2022

 

 

Weighted Average Remaining Contractual Life

 

 

Weighted Average Exercise Price

 

 

Exercisable as of October 1, 2022

 

 

Weighted Average Remaining Contractual Life

 

 

Weighted Average Exercise Price

 

$20.20 - $26.30

 

 

148,166

 

 

 

1.3

 

 

$23.24

 

 

 

120,166

 

 

 

0.8

 

 

$23.52

 

 

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

 

 

 

Nine Months Ended

 

 

Year Ended

 

 

 

October 1, 2022

 

 

January 1, 2022

 

 

 

Units

 

 

Units

 

Outstanding at beginning of period

 

 

27,300

 

 

 

25,000

 

Issued

 

 

43,300

 

 

 

27,300

 

Exercised

 

 

-

 

 

 

-

 

Forfeited

 

 

(6,100)

 

 

(25,000)

Outstanding at end of period

 

 

64,500

 

 

 

27,300

 

 

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

 

Note I – Share Repurchase Program

 

On May 2, 2018, the Company announced that the Board of Directors of the Company had authorized a new program to repurchase up to 200,000 shares of the Company’s common stock. The Company’s share repurchase program does not obligate it to acquire the Company’s common stock at any specific price per share. Under this program, shares of common stock may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. Below is a summary of the Company’s share repurchases during the third quarter of 2022.

 

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

 

Balance as of July 2, 2022

 

 

129,596

 

 

$24.89

 

 

 

129,596

 

 

 

70,404

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

July 3, 2022 - October 1, 2022

 

 

10,120

 

 

 

21.12

 

 

 

10,120

 

 

 

(10,120)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of October 1, 2022

 

 

139,716

 

 

$24.62

 

 

 

139,716

 

 

 

60,284

 

 

 
13

Table of Contents

 

Note J – Revenue Recognition

 

The Company’s revenues result from the sale of goods and services and reflect the consideration to which the Company expects to be entitled. The Company records revenues in accordance with FASB Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers.” The Company has defined purchase orders as contracts in accordance with ASC Topic 606. 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 consideration 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 K - Income Taxes

 

The Company files income tax returns in the U.S. federal jurisdiction, and in various states and 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 2017 and is no longer subject to non-U.S. income tax examinations by foreign tax authorities for years prior to 2015.

 

The total amount of unrecognized tax benefits could increase or decrease within the next 12 months following October 1, 2022 for several reasons, including the closure of federal, state, and foreign tax years by expiration of the statute of limitations and the recognition and measurement considerations under FASB ASC Topic 740, “Income Taxes.” There have been no significant changes to the value of unrecognized tax benefits during the nine months ended October 1, 2022. The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits will not increase or decrease significantly over the next twelve months following October 1, 2022.

 

Note L - Retirement Benefit Plans

 

The Company has four non-contributory defined benefit pension plans covering most U.S. employees. Three of these pension plans are frozen and participants in these three plans have not accrued benefits since the date on which these plans were frozen. A fourth pension plan, The Eastern Company Pension Plan for Hourly-Rated Employees of the Eberhard Division, does not permit new participants but existing participants in this fourth pension plan continue to accrue benefits. Plan benefits are generally based upon age at retirement, years of service and, for the plan covering salaried employees, the level of compensation. On August 29, 2022, in agreement with the International Association of Machinist and Aerospace Workers Union AFL-CIO District #54, Local #439 the Company agreed to freeze The Eastern Company Pension Plan for Hourly-Rated Employees of the Eberhard Division effective December 31, 2022. As a result, no benefits will accrue under this plan after December 31, 2022. The Company also sponsors unfunded non-qualified supplemental retirement plans that provide certain former officers with benefits in excess of limits imposed by federal tax law.

 

The Company also provides health care and life insurance for retired salaried employees in the United States who meet specific eligibility requirements.

 

 
14

Table of Contents

 

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

 

 

 

Pension Benefits

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 1, 2022

 

 

October 2, 2021

 

 

October 1, 2022

 

 

October 2, 2021

 

Service cost

 

$269,744

 

 

$271,832

 

 

$809,231

 

 

$815,500

 

Interest cost

 

 

608,188

 

 

 

504,252

 

 

 

1,824,568

 

 

 

1,512,761

 

Expected return on plan assets

 

 

(1,460,658)

 

 

(1,448,671)

 

 

(4,381,980)

 

 

(4,346,020)

Amortization of prior service cost

 

 

16,563

 

 

 

24,845

 

 

 

49,689

 

 

 

74,535

 

Amortization of the net loss

 

 

390,075

 

 

 

432,539

 

 

 

1,170,225

 

 

 

1,297,614

 

Net periodic benefit

 

$(176,088)

 

$(215,203)

 

$(528,267)

 

$(645,610)

 

 

 

Other Postretirement Benefits

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 1, 2022

 

 

October 2, 2021

 

 

October 1, 2022

 

 

October 2, 2021

 

Service cost

 

 

13,323

 

 

 

13,626

 

 

 

39,969

 

 

 

40,878

 

Interest cost

 

 

10,988

 

 

 

9,842

 

 

 

32,964

 

 

 

29,526

 

Expected return on plan assets

 

 

(4,400)

 

 

(6,420)

 

 

(13,200)

 

 

(19,260)

Amortization of prior service cost

 

 

1,060

 

 

 

 

 

 

3,180

 

 

 

 

Amortization of the net loss

 

 

(2,054)

 

 

(3,094)

 

 

(6,162)

 

 

(9,282)

Net periodic benefit cost

 

$18,917

 

 

$13,954

 

 

$56,751

 

 

$41,862

 

 

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 2022, the Company expects to contribute $300,000 into its pension plans and $50,000 into its postretirement plan. As of October 1, 2022, the Company has contributed $15,000 into its pension plans, has contributed $18,000 to its postretirement plan, and expects to make the remaining contributions as required during the remainder of the fiscal year.

 

The Company has a contributory savings plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”) covering substantially all U.S. 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.

 

The Company made contributions to the plan as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 1, 2022

 

 

October 2, 2021

 

 

October 1, 2022

 

 

October 2, 2021

 

Regular matching contribution

 

$149,673

 

 

$135,664

 

 

$522,327

 

 

$433,061

 

Transitional credit contribution

 

 

28,144

 

 

 

32,468

 

 

 

107,886

 

 

 

108,337

 

Non-discretionary contribution

 

 

16,715

 

 

 

15,001

 

 

 

376,861

 

 

 

377,486

 

Total contributions for the period

 

$194,532

 

 

$183,133

 

 

$1,007,074

 

 

$918,884

 

 

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

 

 
15

Table of Contents

 

Note M - Recent Accounting Pronouncements

 

Adopted

 

In December 2019, FASB issued ASU 2019-12, Simplifying the Accounting for Income Tax. The changes implemented in ASU 2019-12 include removing exceptions to incremental intraperiod tax allocation of losses and gains from different financial statement components, exceptions to the method of recognizing income taxes on interim period losses and exceptions to deferred tax liability recognition related to foreign subsidiary investments. In addition, ASU 2019-12 requires that entities recognize franchise tax based on an incremental method, requires an entity to evaluate the accounting for step-ups in the tax basis of goodwill as inside or outside of a business combination, and removes the requirement to allocate the current and deferred tax provision among entities in standalone financial statement reporting. The ASU also now requires that an entity reflect enacted changes in tax laws in the annual effective rate, and other codification adjustments have been made to employee stock ownership plans. The Company adopted ASU 2019-12 as of January 3, 2021. The adoption of this guidance did not have a material impact on the consolidated financial statements of the Company.

 

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 N - 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 October 1, 2022, there was one significant concentration of credit risk with a customer, who has receivables representing 15% of our total accounts receivable. One single customer represented more than 11% of the Company’s net accounts receivable as of January 1, 2022. 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, which bears interest at variable rates based on the LIBOR rate plus a margin spread of 1.25% to 2.25%. The Company has an interest rate swap with a notional amount of $40.9 million on October 1, 2022, to convert a portion of the borrowing under the Credit Agreement from variable to fixed rates. The valuation of this swap is determined using the one-month LIBOR rate index and mitigates the Company’s exposure to interest rate risk. Additionally, interest rates on the Company’s debt are susceptible to changes to the method that LIBOR rates are determined and to the potential phasing out of LIBOR after 2021. The potential phasing out of LIBOR is discussed in greater detail in Note G — Debt hereof and under the heading “The phaseout of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different reference rate, may adversely affect interest rates” in Part I, Item 1A of the 2021 Form 10-K.

 

Currency Exchange Rate Risk

 

The Company’s currency exposure is concentrated in the British pound, Canadian dollar, Mexican peso, New Taiwan dollar, Chinese RMB and the Hong Kong dollar. Because of the Company’s limited exposure to any single foreign market, any currency gains or losses have not been material and are not expected to be material in the future. As a result, the Company does not attempt to mitigate its foreign currency exposure through the acquisition of any speculative or leveraged financial instruments.

 

Note O – Subsequent Events

 

Subsequent to the end of the third quarter of 2022, on October 14, 2022, the Company closed on the sale of the assets of Argo to CCK Automation, LLC. The proceeds will be used to pay down debt and fund the operations of the Company. The strategic decision to divest of the Argo business reflects our strategy of focusing on our core capabilities and offerings.

 

 
16

Table of Contents

 

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”).

 

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. 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.

 

Safe Harbor for Forward-Looking Statements

 

Statements contained in this Quarterly Report on Form 10-Q of the Company that are not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking terminology such as “would,” “should,” “could,” “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” “plan,” “potential,” “opportunities,” or similar terms or variations of those terms or the negative of those terms. 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; restrictions on operating flexibility imposed by the agreement governing our credit facility; the inability to achieve the savings expected from global sourcing of materials; the impact of higher raw material and component costs, including the impact of supply chain shortages and inflation, particularly steel, plastics, scrap iron, zinc, copper and electronic components; lower-cost competition; our ability to design, introduce and sell new products and related components; market acceptance of our products; the inability to attain expected benefits from acquisitions or the inability to effectively integrate such acquisitions and achieve expected synergies; domestic and international economic conditions, including the impact, length and degree of economic downturns on the customers and markets we serve and more specifically conditions in the automotive, construction, aerospace, energy, oil and gas, transportation, electronic, and general industrial markets; costs and liabilities associated with environmental compliance; the impact of climate change or terrorist threats and the possible responses by the U.S. and foreign governments; failure to protect our intellectual property; cyberattacks; materially adverse or unanticipated legal judgments, fines, penalties or settlements; and other risks identified and discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 1A, Risk Factors, and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the 2021 Form 10-K and that may be identified from time to time in our quarterly reports on Form 10-Q, current reports on Form 8-K and other filings we make with the SEC. Although the Company believes it has an appropriate business strategy and the resources necessary for its operations, future revenue and margin trends cannot be reliably predicted and the Company may alter its business strategies to address changing conditions. Also, the Company makes estimates and assumptions that may materially affect reported amounts and disclosures. These relate to valuation allowances for accounts receivable and excess and obsolete inventories, accruals for pensions and other postretirement benefits (including forecasted future cost increases and returns on plan assets), provisions for depreciation (estimating useful lives), uncertain tax positions, and, on occasion, accruals for contingent losses. 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.

 

 
17

Table of Contents

 

Overview

 

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.

 

 
18

Table of Contents

 

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.

 

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

 

Results of Operations

 

The following table shows, for the periods indicated, selected line items from the condensed consolidated statements of operations as a percentage of net sales:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 1, 2022

 

 

October 2, 2021

 

 

October 1, 2022

 

 

October 2, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

100.0%

 

 

100.0%

 

 

100.0%

 

 

100.0%

Cost of products sold

 

 

76.9%

 

 

76.2%

 

 

77.6%

 

 

76.1%

Gross margin

 

 

23.1%

 

 

23.8%

 

 

22.4%

 

 

23.9%

Product development expense

 

 

1.4%

 

 

1.5%

 

 

1.5%

 

 

1.6%

Selling and administrative expense

 

 

14.1%

 

 

14.8%

 

 

14.3%

 

 

14.9%

Operating Profit

 

 

7.6%

 

 

7.5%

 

 

6.6%

 

 

7.4%

 

 
19

Table of Contents

 

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):

 

 

 

Three Months

 

 

Nine Months

 

 

 

Ended

 

 

Ended

 

 

 

October 1, 2022

 

 

October 1, 2022

 

 

 

 

 

 

 

 

Net Sales

 

$7,760

 

 

$23,294

 

 

 

 

 

 

 

 

 

 

Volume

 

 

5.0%

 

 

5.9%

Price

 

 

5.3%

 

 

3.5%

New products

 

 

1.8%

 

 

3.0%

 

 

 

12.1%

 

 

12.4%

 

 

 

 

 

 

 

 

 

Operating Profit

 

$635

 

 

$(25)

 

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. 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.

 

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

 

 

 

Third

Quarter

2022

 

 

Third

Quarter

2021

 

 

Fiscal

Year

2021

 

Current ratio

 

 

2.9

 

 

 

2.7

 

 

 

2.5

 

Average days’ sales in accounts receivable

 

 

67

 

 

 

61

 

 

 

64

 

Inventory turnover

 

 

3.2

 

 

 

3.3

 

 

 

3.0

 

Total debt to shareholders’ equity

 

 

60.3%

 

 

75.0%

 

 

62.2%

 

 
20

Table of Contents

 

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):

 

 

 

Third

 

 

Third

 

 

Fiscal

 

 

 

Quarter

 

 

Quarter

 

 

Year

 

 

 

2022

 

 

2021

 

 

2021

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 - Held in the United States

 

$3.2

 

 

$7.0

 

 

$4.3

 

 - Held by a foreign subsidiary

 

 

2.5

 

 

 

3.0

 

 

 

2.3

 

 

 

 

5.7

 

 

 

10.0

 

 

 

6.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital

 

 

90.6

 

 

 

95.0

 

 

 

74.1

 

Net cash (used in) provided by operating activities

 

 

(0.3)

 

 

(3.3)

 

 

(7.8)

Change in working capital impact on net cash

 used in operating activities

 

 

(16.5)

 

 

(17.4)

 

 

(22.9)

Net cash provided by investing activities

 

 

0.8

 

 

 

0.6

 

 

 

13.6

 

Net cash used in financing activities

 

 

(0.5)

 

 

(6.4)

 

 

(20.3)

 

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.

 

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. However, the Company cannot provide any assurances of the availability of future financing or the terms on which it might be available. In addition, the interest rate on borrowings under the Credit Agreement varies based on our senior net leverage ratio, and the Credit Agreement requires us to maintain a senior net leverage ratio not to exceed 4.25 to 1 and a fixed charge coverage ratio to be not less than 1.25 to 1. 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.

 

Critical Accounting Estimates

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. For a full description of our critical accounting policies, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the 2021 Form 10-K. While there have been no material changes to our critical accounting estimates, we continue to monitor the methodologies and assumptions underlying such critical accounting estimates.

 

 
21

Table of Contents

 

Non-GAAP Financial Measures

 

The non-GAAP financial measures we provide in this report should be viewed in addition to, and not as an alternative for, results prepared in accordance with U.S. GAAP.

 

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. 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, 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 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.

 

Management uses such measures to evaluate performance period over period, to analyze the underlying trends in our business, to assess our performance relative to our competitors, and to establish operational goals and forecasts that are used in allocating resources. These financial measures should not be considered in isolation from, or as a replacement for, U.S. GAAP financial measures.

 

We believe that presenting non-GAAP financial measures in addition to U.S. GAAP financial measures provides investors greater transparency to the information used by our management for its financial and operational decision-making. We further believe that providing this information better enables our investors to understand our operating performance and to evaluate the methodology used by management to evaluate and measure such performance.

 

 
22

Table of Contents

 

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

($000’s)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 1, 2022

 

 

October 2, 2021

 

 

October 1, 2022

 

 

October 2, 2021

 

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

 

$4,496

 

 

$3,820

 

 

$10,883

 

 

$12,269

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$0.72

 

 

$0.61

 

 

$1.75

 

 

$1.96

 

Diluted

 

$0.72

 

 

$0.61

 

 

$1.74

 

 

$1.96

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

(1,353

)A

Factory relocation, net of tax

 

 

 

 

 

45B

 

 

 

 

 

105

B

Factory start-up costs, net of tax

 

 

 

 

 

155C

 

 

 

 

 

187

C

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

 

 

 

 

 

 

 

 

202D

 

 

 

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

 

 

(474)E

 

 

 

 

 

(474)E

 

 

 

Total adjustments (Non-GAAP)

 

$(474)

 

$200

 

 

$(272)

 

$(1,061)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net income from continuing operations

 

$4,022

 

 

$4,020

 

 

$10,611

 

 

$11,208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$0.65

 

 

$0.64

 

 

$1.70

 

 

$1.79

 

Diluted

 

$0.65

 

 

$0.64

 

 

$1.70

 

 

$1.79

 

 

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

 

 
23

Table of Contents

 

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

($000’s)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 1, 2022

 

 

October 2, 2021

 

 

October 1, 2022

 

 

October 2, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$4,496

 

 

$3,820

 

 

$10,883

 

 

$12,269

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

646

 

 

 

427

 

 

 

1,584

 

 

 

1,389

 

Provision for income taxes

 

 

1,423

 

 

 

972

 

 

 

3,498

 

 

 

3,573

 

Depreciation and amortization

 

 

1,756

 

 

 

1,658

 

 

 

5,389

 

 

 

5,189

 

Gain on sale of Eberhard Hardware Ltd Building

 

 

 

 

 

 

 

 

 

 

 

(1,841)A

Factory relocation

 

 

 

 

 

59B

 

 

 

 

 

139

B

Factory start-up costs

 

 

 

 

 

207C

 

 

 

 

 

250

C

Loss on sale of Wheeling, IL building

 

 

 

 

 

 

 

 

269D

 

 

 

Gain on sale of Eastern corporate office building

 

 

(624)E

 

 

 

 

 

(624)E

 

 

 

Adjusted EBITDA from continuing operations

 

$7,697

 

 

$7,143

 

 

$20,999

 

 

$20,968

 

 

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

 

 
24

Table of Contents

 

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a result of the Company’s status as a smaller reporting company pursuant to Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is not required to provide information under this Item 3.

 

ITEM 4 – CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures:

 

As of October 1, 2022, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-15(e) and 240.15d-15(e)) pursuant to Exchange Act Rule 13a-15. As defined in Exchange Act Rules 240.13a-15(e) and 240.15d-15(e), “the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure”.

 

The Company believes that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and the CEO and CFO have concluded that these controls and procedures are effective at the “reasonable assurance” level as of October 1, 2022.

 

Changes in Internal Control Over Financial Reporting:

 

During the period covered by this Quarterly Report on Form 10-Q, there were no changes in the Company’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 
25

Table of Contents

 

PART II – OTHER INFORMATION

 

ITEM 1 – LEGAL PROCEEDINGS

 

The Company is a party to various legal proceedings from time to time related to its normal business operations. As of the end of the quarter ended October 1, 2022, the Company does not have any material pending legal proceedings, other than as set forth in Part I, Item 3 of the 2021 Form 10-K, or any material legal proceedings known to be contemplated by governmental authorities.

 

ITEM 1A – RISK FACTORS

 

The Company’s business is subject to several risks, some of which are beyond its control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, the Company’s shareholders should carefully consider the risk factors discussed in Part I, Item 1A Risk Factors of the 2021 Form 10-K. These risk factors could have a material adverse effect on the Company’s business, results of operations, financial condition and/or liquidity and could cause our operating results to vary significantly from period to period. As of October 1, 2022, there have been no material changes to the risk factors disclosed in the 2021 Form 10-K. The Company may disclose changes to such risk factors or disclose additional risk factors from time to time in its future filings with the SEC. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may materially adversely affect its business, financial condition, or operating results.

 

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On May 2, 2018, the Company announced that the Board had authorized a new program to repurchase up to 200,000 shares of the Company’s common stock. 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, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. Below is a summary of the Company’s share repurchases during the third quarter of 2022.

 

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

 

July 3, 2022 – July 30, 2022

 

 

10,000

 

 

$21.11

 

 

 

10,000

 

 

 

60,404

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

July 31, 2022 – August 27, 2022

 

 

120

 

 

 

21.62

 

 

 

120

 

 

 

60,284

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

August 28, 2022 – October 1, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

10,120

 

 

$21.12

 

 

 

10,120

 

 

 

60,284

 

 

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4 – MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5 – OTHER INFORMATION

 

None

 

 
26

Table of Contents

 

ITEM 6 – EXHIBITS

 

3.1)

 

Restated Certificate of Incorporation of the Company, as amended (conformed copy) (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2020).

 

 

 

3.2)

 

Amended and Restated By-Laws of the Company, as amended through March 11, 2022 (incorporated by reference to Exhibit 3(ii) to the Company’s Current Report on Form 8-K filed on March 11, 2022).

 

 

 

31)

 

Certifications required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 

 

 

32)

 

Certifications pursuant to Rule 13a-14(b) and 18 USC 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

 

 

 

101)

 

The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 1, 2022, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations (Unaudited) for the three months ended October 1, 2022 and October 2, 2021; (ii) Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three ended October 1, 2022, and October 2, 2021; (iii) Condensed Consolidated Balance Sheets (Unaudited) as of October 1, 2022 and January 1, 2022; (iv) Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended October 1, 2022 and October 2, 2021; and (iv) Notes to the Condensed Consolidated Financial Statements (Unaudited).**

 

 

 

104)

 

Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101). **

 

* Filed herewith.

** Furnished herewith

 

 
27

Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

THE EASTERN COMPANY

 

 

 

(Registrant)

 

 

 

 

 

DATE: November 7, 2022

 

/s/August M. Vlak

 

 

 

August M. Vlak

President and Chief Executive Officer

 

 

 

 

 

DATE: November 7, 2022

 

/s/Peter O’Hara

 

 

 

Peter O’Hara

Chief Financial Officer

 

 

 
28

 

EX-31.1 2 eml_ex311.htm CERTIFICATION CEO eml_ex311.htm

EXHIBIT 31

 

CERTIFICATIONS

 

I, August M. Vlak, certify that:

 

 

1.

I have reviewed this Quarterly Report on Form 10-Q of The Eastern Company.

 

 

 

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 

 

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

 

 

b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

 

 

c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

 

 

d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

 

 

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

 

 

Dated: November 7, 2022

       
/s/August M. Vlak

 

 

August M. Vlak  
    CEO  

 

EX-31.2 3 eml_ex312.htm CERTIFICATION CFO eml_ex312.htm

EXHIBIT 31

 

CERTIFICATIONS

 

I, Peter O’Hara, certify that:

 

 

1.

I have reviewed this Quarterly Report on Form 10-Q of The Eastern Company.

 

 

 

 

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 

 

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 

 

 

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

 

 

 

 

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

 

 

 

 

b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

 

 

 

 

c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

 

 

 

 

d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

 

 

 

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

 

 

 

 

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

 

 

 

 

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 

Dated: November 7, 2022

       
/s/Peter O’Hara

 

 

Peter O’Hara  
    CFO  

 

EX-32 4 eml_ex32.htm CERTIFICATION eml_ex32.htm

EXHIBIT 32

 

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND

CHIEF FINANCIAL OFFICER

Pursuant to 18 United States Code Section 1350,

as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002

 

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, August M. Vlak, the Chief Executive Officer of The Eastern Company (the “Company”) and Peter O’Hara, the Chief Financial Officer of the Company, hereby certify that, to the best of their knowledge:

 

1)

The Company’s Quarterly Report on Form 10-Q for the Period ended October 1, 2022, and to which this certification is attached as Exhibit 32 (the “Periodic Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

 

 

2)

The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

In Witness Whereof, the undersigned have set their hands hereto as of the 7th day of November 2022.

 

By:

/s/August M. Vlak

 

August M. Vlak

 

 

CEO

 

 

 

By:

/s/Peter O’Hara

 

Peter O’Hara

 

 

CFO

 

 

A signed original of this written statement required by Section 906 has been provided to The Eastern Company and will be retained by The Eastern Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

This certification “accompanies” the Form 10-Q to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q, irrespective of any general incorporation language contained in such filing.)

EX-101.SCH 5 eml-20221001.xsd XBRL TAXONOMY EXTENSION SCHEMA 000001 - Document - Cover link:presentationLink link:calculationLink link:definitionLink 000002 - Statement - Condensed Consolidated Statements of Operations (Unaudited) link:presentationLink link:calculationLink link:definitionLink 000003 - Statement - Condensed Consolidated Statements of Comprehensive Income (Unaudited) link:presentationLink link:calculationLink link:definitionLink 000004 - Statement - Condensed Consolidated Statements of Comprehensive Income (Parenthetical) link:presentationLink link:calculationLink link:definitionLink 000005 - Statement - Condensed Consolidated Balance Sheets link:presentationLink link:calculationLink link:definitionLink 000006 - Statement - Condensed Consolidated Balance Sheets (Parenthetical) link:presentationLink link:calculationLink link:definitionLink 000007 - Statement - Condensed Consolidated Statements Of Cash Flows (Unaudited) link:presentationLink link:calculationLink link:definitionLink 000008 - Disclosure - Basis of Presentation link:presentationLink link:calculationLink link:definitionLink 000009 - Disclosure - Discontinued Operations link:presentationLink link:calculationLink link:definitionLink 000010 - Disclosure - Earnings Per Share link:presentationLink link:calculationLink link:definitionLink 000011 - Disclosure - Inventories link:presentationLink link:calculationLink link:definitionLink 000012 - Disclosure - Goodwill link:presentationLink link:calculationLink link:definitionLink 000013 - Disclosure - Leases link:presentationLink link:calculationLink link:definitionLink 000014 - Disclosure - Debt link:presentationLink link:calculationLink link:definitionLink 000015 - Disclosure - Stock Options and Awards link:presentationLink link:calculationLink link:definitionLink 000016 - Disclosure - Share Repurchase Program link:presentationLink link:calculationLink link:definitionLink 000017 - Disclosure - Revenue Recognition link:presentationLink link:calculationLink link:definitionLink 000018 - Disclosure - Income Taxes link:presentationLink link:calculationLink link:definitionLink 000019 - Disclosure - Retirement Benefit Plans link:presentationLink link:calculationLink link:definitionLink 000020 - Disclosure - Recent Accounting Pronouncements link:presentationLink link:calculationLink link:definitionLink 000021 - Disclosure - Concentration of Risk link:presentationLink link:calculationLink link:definitionLink 000022 - Disclosure - Subsequent Events link:presentationLink link:calculationLink link:definitionLink 000023 - Disclosure - Discontinued Operations (Tables) link:presentationLink link:calculationLink link:definitionLink 000024 - Disclosure - Earnings Per Share (Tables) link:presentationLink link:calculationLink link:definitionLink 000025 - Disclosure - Inventories (Tables) link:presentationLink link:calculationLink link:definitionLink 000026 - Disclosure - Stock Options and Awards (Tables) link:presentationLink link:calculationLink link:definitionLink 000027 - Disclosure - Share Repurchase Program (Tables) link:presentationLink link:calculationLink link:definitionLink 000028 - Disclosure - Retirement Benefit Plans (Tables) link:presentationLink link:calculationLink link:definitionLink 000029 - Disclosure - Discontinued Operations (Details) link:presentationLink link:calculationLink link:definitionLink 000030 - Disclosure - Discontinued Operations (Details 1) link:presentationLink link:calculationLink link:definitionLink 000031 - Disclosure - Earnings Per Share (Details) link:presentationLink link:calculationLink link:definitionLink 000032 - Disclosure - Inventories (Details) link:presentationLink link:calculationLink link:definitionLink 000033 - Disclosure - Goodwill (Details Narrative ) link:presentationLink link:calculationLink link:definitionLink 000034 - Disclosure - Leases (Details Narrative) link:presentationLink link:calculationLink link:definitionLink 000035 - Disclosure - Debt (Details Narrative) link:presentationLink link:calculationLink link:definitionLink 000036 - Disclosure - Stock Options and Awards (Details) link:presentationLink link:calculationLink link:definitionLink 000037 - Disclosure - Stock Options and Awards (Details 1) link:presentationLink link:calculationLink link:definitionLink 000038 - Disclosure - Stock Options and Awards (Details 2) link:presentationLink link:calculationLink link:definitionLink 000039 - Disclosure - Stock Options and Awards (Details Narrative) link:presentationLink link:calculationLink link:definitionLink 000040 - Disclosure - Share Repurchase Program (Details) link:presentationLink link:calculationLink link:definitionLink 000041 - Disclosure - Share Repurchase Program (Details Narrative) link:presentationLink link:calculationLink link:definitionLink 000042 - Disclosure - Retirement Benefit Plans (Details) link:presentationLink link:calculationLink link:definitionLink 000043 - Disclosure - Retirement Benefit Plans (Details 1) link:presentationLink link:calculationLink link:definitionLink 000044 - Disclosure - Retirement Benefit Plans (Details Narrative) link:presentationLink link:calculationLink link:definitionLink 000045 - Disclosure - Concentration of Risk (Details Narrative) link:presentationLink link:calculationLink link:definitionLink EX-101.LAB 6 eml-20221001_lab.xml XBRL TAXONOMY EXTENSION LABEL LINKBASE Cover [Abstract] Entity Registrant Name Entity Central Index Key Document Type Amendment Flag Current Fiscal Year End Date Entity Small Business Entity Shell Company Entity Emerging Growth Company Entity Current Reporting Status Document Period End Date Entity Filer Category Document Fiscal Period Focus Document Fiscal Year Focus Entity Common Stock Shares Outstanding Document Quarterly Report Document Transition Report Entity File Number Entity Incorporation State Country Code Entity Tax Identification Number Entity Interactive Data Current Entity Address Address Line 1 Entity Address City Or Town Entity Address State Or Province Entity Address Postal Zip Code City Area Code Local Phone Number Security 12b Title Trading Symbol Security Exchange Name Condensed Consolidated Statements of Operations (Unaudited) Net sales Cost of products sold [Cost of Goods and Services Sold] Gross margin [Gross Profit] Product development expense [Research and Development Expense] Selling general and administrative expenses [Selling, General and Administrative Expense] Operating profit [Operating Income (Loss)] Interest expense [Interest Expense] Other income Income from continuing operations before income taxes [Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest] Income tax expense [Income Tax Expense (Benefit)] Net income from continuing operations [Income (Loss) from Continuing Operations, Net of Tax, Attributable to Parent] Discontinued Operations (see note B) Income from operations of discontinued operations Gain (loss) on classification of assets as held for sale Income tax (expense) benefit [Income Tax Refunds, Discontinued Operations] Gain (loss) from discontinued operations Net income (loss) Earnings per share from continuing operations: Basic Diluted Earnings (loss) per share from discontinued operations: Basic1 Diluted1 Total earnings (loss) per share: Basic2 Diluted2 Cash dividends per share: Condensed Consolidated Statements of Comprehensive Income (Unaudited) Net income Other comprehensive (loss) income: Change in foreign currency translation Change in fair value of interest rate swap, net of tax cost of: 2022 - $163,533 and $590,827 respectively; 2021 - $31,759 and $188,753 respectively Change in pension and postretirement benefit costs, net of taxes of: 2022 - $92,235 and $276,705 respectively; 2021 - $107,962 and $308,117 respectively Total other comprehensive (loss) income [Other Comprehensive Income (Loss), before Tax] Comprehensive income [Comprehensive Income (Loss), Net of Tax, Attributable to Parent] Other Comprehensive Income/(loss) Change In Fair Value Of Interest Rate Swap, Taxes Benefit Change In Pension And Postretirement Benefit Costs, Income Taxes (expense)/ Benefit Condensed Consolidated Balance Sheets ASSETS Current Assets Cash and cash equivalents Accounts receivable, less allowances: 2022 - $577,820; 2021 - $515,000 Inventories [Inventory, Net] Current portion of notes receivable Prepaid expenses and other assets Current assets held for sale Total Current Assets [Assets, Current] Property, Plant and Equipment Accumulated depreciation [Property, Plant and Equipment, Other, Accumulated Depreciation] Property, Plant and Equipment, Net [Property, Plant and Equipment, Net] Goodwill [Goodwill] Trademarks Patents and other intangibles net of accumulated amortization Long term notes receivable, less current portion Right of Use Assets Total Other Assets [Other Assets] TOTAL ASSETS [Assets] LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable Accrued compensation Other accrued expenses Current portion of lease liability Current portion of long-term debt Current liabilities held for sale Total Current Liabilities [Liabilities, Current] Deferred income taxes Other long-term liabilities Lease liability Long-term debt, less current portion Accrued postretirement benefits Accrued pension cost Total Liabilities [Liabilities] 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 shares1 Common Stock, no par value, Authorized: 50,000,000 shares Issued: 9,049,568 shares in 2022 and 9,029,852 shares in 2021 Outstanding: 6,215,123 shares in 2022 and 6,265,527 shares in 2021 Treasury Stock: 2,834,445 shares in 2022 and 2,764,325 shares in 2021 [Treasury Stock, Value] Retained earnings Accumulated other comprehensive income (loss): Foreign currency translation Unrealized gain (loss) on interest rate swap, net of tax Unrecognized net pension and postretirement benefit costs, net of tax Accumulated other comprehensive loss [Accumulated Other Comprehensive Income (Loss), Net of Tax] Total Shareholders' Equity [Stockholders' Equity Attributable to Parent] TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY [Liabilities and Equity] Statement [Table] Statement [Line Items] Class of Stock [Axis] Voting Preferred Stock (Member) Nonvoting Preferred Stock [Member] Accounts Receivable, Allowance For Doubtful Accounts Common Stock, Par Value (in Dollars Per Share) Common Stock, Shares Authorized (in Shares) Common Stock, Shares Issued (in Shares) Common Stock, Shares Outstanding (in Shares) Treasury Stock, Shares (in Shares) Voting Preferred Stock, Par Value (in Dollars Per Share) <