0001654954-23-006022.txt : 20230509 0001654954-23-006022.hdr.sgml : 20230509 20230509163311 ACCESSION NUMBER: 0001654954-23-006022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 59 CONFORMED PERIOD OF REPORT: 20230401 FILED AS OF DATE: 20230509 DATE AS OF CHANGE: 20230509 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: 1230 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-35383 FILM NUMBER: 23902706 BUSINESS ADDRESS: STREET 1: 3 ENTERPRISE DRIVE STREET 2: SUITE 408 CITY: SHELTON STATE: CT ZIP: 06484 BUSINESS PHONE: 203-729-2255 MAIL ADDRESS: STREET 1: 3 ENTERPRISE DRIVE STREET 2: SUITE 408 CITY: SHELTON STATE: CT ZIP: 06484 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 April 1, 2023

 

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.)

 

3 Enterprise Drive, Suite 408, Shelton, Connecticut

 

06484

(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 April 1, 2023, 6,231,612 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 APRIL 1, 2023

 

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

 

16.

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

23.

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

23.

 

 

 

 

 

 

 

PART II

 

OTHER INFORMATION

 

 

 

Item 1.

 

Legal Proceedings

 

24.

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

24.

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

24.

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

24.

 

Item 4.

 

Mine Safety Disclosures

 

24.

 

Item 5.

 

Other Information

 

24.

 

Item 6

 

Exhibits

 

25.

 

 

 

Signatures

 

26.

 

 

 
2

Table of Contents

 

PART 1 – FINANCIAL INFORMATION

 

ITEM 1 – FINANCIAL STATEMENTS

 

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

 

Three Months Ended

 

 

 

April 1, 2023

 

 

April 2, 2022

 

Net sales

 

$72,495,367

 

 

$69,014,648

 

Cost of products sold

 

 

(56,997,668)

 

 

(54,438,968)

Gross margin

 

 

15,497,699

 

 

 

14,575,680

 

 

 

 

 

 

 

 

 

 

Product development expense

 

 

(1,401,199)

 

 

(1,197,008)

Selling and administrative expenses

 

 

(11,937,637)

 

 

(9,865,614)

Operating profit

 

 

2,158,863

 

 

 

3,513,058

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(726,006)

 

 

(434,335)

Other (expense) income

 

 

(630,699)

 

 

488,520

 

Income from continuing operations before income taxes

 

 

802,158

 

 

 

3,567,243

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

(194,845)

 

 

(881,125)

Net income from continuing operations

 

 

607,313

 

 

 

2,686,118

 

 

 

 

 

 

 

 

 

 

Discontinued Operations (see note B)

 

 

 

 

 

 

 

 

Gain from operations of discontinued operations

 

 

-

 

 

 

471,187

 

Income tax expense

 

 

-

 

 

 

(126,867)

Gain from discontinued operations

 

 

-

 

 

 

344,320

 

 

 

 

 

 

 

 

 

 

Net income

 

$607,313

 

 

$3,030,438

 

 

 

 

 

 

 

 

 

 

Earnings per share from continuing operations:

 

 

 

 

 

 

 

 

Basic

 

$0.10

 

 

$0.43

 

 

 

 

 

 

 

 

 

 

Diluted

 

$0.10

 

 

$0.43

 

 

 

 

 

 

 

 

 

 

Earnings per share from discontinued operations:

 

 

 

 

 

 

 

 

Basic

 

$-

 

 

$0.06

 

 

 

 

 

 

 

 

 

 

Diluted

 

$-

 

 

$0.05

 

 

 

 

 

 

 

 

 

 

Total earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$0.10

 

 

$0.49

 

 

 

 

 

 

 

 

 

 

Diluted

 

$0.10

 

 

$0.48

 

 

 

 

 

 

 

 

 

 

Cash dividends per share:

 

$0.11

 

 

$0.11

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 
3

Table of Contents

 

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 

 

 

Three Months Ended

 

 

 

April 1, 2023

 

 

April 2, 2022

 

Net income

 

$607,313

 

 

$3,030,438

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation

 

 

336,585

 

 

 

202,281

 

 

 

 

 

 

 

 

 

 

Change in fair value of interest rate swap, net of tax (benefit) cost of: 2023 - $(87,691); 2022 - $333,635

 

 

(277,687)

 

 

1,056,511

 

 

 

 

 

 

 

 

 

 

Change in pension and postretirement benefit costs, net of taxes of: 2023 - $74,360; 2022 - $92,235

 

 

252,668

 

 

 

313,408

 

Total other comprehensive income

 

 

311,566

 

 

 

1,572,200

 

Comprehensive income

 

$918,879

 

 

$4,602,638

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 
4

Table of Contents

 

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

April 1,

2023

 

 

December 31,

2022

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$13,071,017

 

 

$10,187,522

 

Accounts receivable, less allowances: 2023 - $676,000; 2022 - $677,000

 

 

44,481,853

 

 

 

42,886,250

 

Inventories

 

 

57,652,961

 

 

 

64,636,591

 

Current portion of notes receivable

 

 

214,780

 

 

 

1,006,421

 

Prepaid expenses and other assets

 

 

6,639,228

 

 

 

6,598,774

 

Total Current Assets

 

 

122,059,839

 

 

 

125,315,558

 

 

 

 

 

 

 

 

 

 

Property, Plant and Equipment

 

 

57,318,367

 

 

 

56,112,889

 

Accumulated depreciation

 

 

(30,877,891)

 

 

(30,000,797)

Property, Plant and Equipment, Net

 

 

26,440,476

 

 

 

26,112,092

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

70,788,971

 

 

 

70,777,459

 

Trademarks

 

 

5,514,888

 

 

 

5,514,886

 

Patents and other intangibles net of accumulated amortization

 

 

17,987,968

 

 

 

18,819,897

 

Long term notes receivable, less current portion

 

 

905,851

 

 

 

2,276,631

 

Deferred Income Taxes

 

 

488,989

 

 

 

488,989

 

Right of Use Assets

 

 

11,564,607

 

 

 

12,217,521

 

Total Other Assets

 

 

107,251,274

 

 

 

110,095,383

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$255,751,589

 

 

$261,523,033

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 
5

Table of Contents

 

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

April 1,

2023

 

 

December 31,

2022

 

 

 

(unaudited)

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable

 

$26,643,423

 

 

$27,638,317

 

Accrued compensation

 

 

2,233,923

 

 

 

3,327,832

 

Other accrued expenses

 

 

3,900,764

 

 

 

3,944,964

 

Current portion of operating lease liability

 

 

3,030,116

 

 

 

3,059,547

 

Current portion of finance lease liability

 

 

150,773

 

 

 

-

 

Current portion of long-term debt

 

 

9,375,000

 

 

 

9,010,793

 

Total Current Liabilities

 

 

45,333,999

 

 

 

46,981,453

 

 

 

 

 

 

 

 

 

 

Other long-term liabilities

 

 

754,762

 

 

 

754,762

 

Operating lease liability, less current portion

 

 

8,556,037

 

 

 

9,195,205

 

Finance lease liability, less current portion

 

 

846,547

 

 

 

-

 

Long-term debt, less current portion

 

 

49,661,128

 

 

 

55,136,231

 

Accrued postretirement benefits

 

 

664,293

 

 

 

666,222

 

Accrued pension cost

 

 

23,134,787

 

 

 

22,174,465

 

Total Liabilities

 

 

128,951,553

 

 

 

134,908,338

 

 

 

 

 

 

 

 

 

 

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

 

 

33,536,918

 

 

 

33,586,165

 

Issued: 9,066,057 shares in 2023 and 9,056,421 shares in 2022

 

 

 

 

 

 

 

 

Outstanding: 6,231,612 shares in 2023 and 6,221,976 shares in 2022

 

 

 

 

 

 

 

 

Treasury Stock: 2,834,445 shares in 2023 and 2,834,445 shares in 2022

 

 

(22,544,684)

 

 

(22,544,684)

Retained earnings

 

 

138,908,874

 

 

 

138,985,852

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

(804,393)

 

 

(1,140,978)

Unrealized gain on interest rate swap, net of tax

 

 

1,172,067

 

 

 

1,449,754

 

Unrecognized net pension and postretirement benefit costs, net of tax

 

 

(23,468,746)

 

 

(23,721,414)

Accumulated other comprehensive loss

 

 

(23,101,072)

 

 

(23,412,638)

Total Shareholders’ Equity

 

 

126,800,036

 

 

 

126,614,695

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$255,751,589

 

 

$261,523,033

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 
6

Table of Contents

 

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

Three Months Ended

 

 

 

April 1,

2023

 

 

April 2,

2022

 

Operating Activities

 

 

 

 

 

 

Net income

 

$607,313

 

 

$3,030,438

 

Less: gain from discontinued operations

 

 

-

 

 

 

344,320

 

Income from continuing operations

 

 

607,313

 

 

 

2,686,118

 

Adjustments to reconcile net income to net cash provided

 

 

 

 

 

 

 

 

by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,814,749

 

 

 

1,830,427

 

Unrecognized pension and postretirement benefits

 

 

880,421

 

 

 

247,133

 

Loss on sale of equipment and other assets

 

 

-

 

 

 

268,770

 

Provision for doubtful accounts

 

 

3,269

 

 

 

19,740

 

Stock compensation (benefit) expense

 

 

(49,246)

 

 

221,468

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,585,976)

 

 

(3,951,314)

Inventories

 

 

7,212,179

 

 

 

(4,902,631)

Prepaid expenses and other

 

 

(37,330)

 

 

(1,075,545)

Other assets

 

 

(155,055)

 

 

(89,366)

Accounts payable

 

 

(1,031,704)

 

 

3,526,499

 

Accrued compensation

 

 

(1,104,186)

 

 

(1,858,898)

Other accrued expenses

 

 

305,824

 

 

 

(478,878)

Net cash provided by (used in) operating activities

 

 

6,860,258

 

 

 

(3,556,477)

 

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

 

Payments received from notes receivable

 

 

2,233,192

 

 

 

175,220

 

Proceeds from sale of equipment

 

 

-

 

 

 

1,371,073

 

Purchases of property, plant, and equipment

 

 

(1,151,205)

 

 

(572,047)

Net cash provided by investing activities

 

 

1,081,987

 

 

 

974,246

 

 

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

 

Proceeds from short term borrowings (revolver)

 

 

(268,249)

 

 

5,000,000

 

Principal payments on long-term debt

 

 

(4,858,000)

 

 

(1,852,107)

Financing leases, net

 

 

723,254

 

 

 

(92,111)

Purchase common stock for treasury

 

 

-

 

 

 

(766,889)

Dividends paid

 

 

(684,293)

 

 

(687,180)

Net cash (used in) provided by financing activities

 

 

(5,087,288)

 

 

1,601,713

 

 

 

 

 

 

 

 

 

 

Discontinued Operations

 

 

 

 

 

 

 

 

Cash used in operating activities

 

 

-

 

 

 

(396,936)

Cash used in discontinued operations

 

 

-

 

 

 

(396,936)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

28,538

 

 

 

(22,903)

Net change in cash and cash equivalents

 

 

2,883,495

 

 

 

(1,400,357)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

10,187,522

 

 

 

6,602,429

 

Cash and cash equivalents at end of period ¹

 

$13,071,017

 

 

$5,202,072

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest

 

$716,763

 

 

$463,080

 

Income taxes

 

 

(59,681)

 

 

110,917

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

 

Right of use asset

 

 

(652,914)

 

 

292,097

 

Lease liability

 

 

(328,721)

 

 

(226,903)

          

¹ includes cash from assets held for sale of $0.1 million as of April 2, 2022                 

                  

See accompanying notes                 

 

 
7

Table of Contents

 

THE EASTERN COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

April 1, 2023

 

Note A – Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X and do not include all the information and footnotes required by generally accepted accounting principles in the United States (“GAAP”) for complete financial statements. Refer to the consolidated financial statements of The Eastern Company (together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 14, 2023 (the “2022 Form 10-K”), for additional information.

 

The accompanying condensed consolidated financial statements are unaudited. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for interim periods have been reflected therein. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. All intercompany accounts and transactions are eliminated.

 

The condensed consolidated balance sheet as of December 31, 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 2022 or the 2022 fiscal year mean the 52-week period ended on December 31, 2022, and references to 2023 or the 2023 fiscal year mean the 52-week period ending on December 30, 2023. In a 52-week fiscal year, each quarter has 13 weeks. References to the first quarter of 2022, the first fiscal quarter of 2022 or the three months ended April 2, 2022, mean the period from January 2, 2022 to April 2, 2022. References to the first quarter of 2023, the first fiscal quarter of 2023 or the three months ended April 1, 2023, mean the 13-week period from January 1, 2023 to April 1, 2023.

 

Certain amounts in the 2022 financial statements have been reclassified to conform with the 2023 presentation with no impact or change to previously reported net income or shareholders’ 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 statement of operations as discontinued operations for the prior period presented. The results of the former Diversified Products segment are not reflected in the unaudited condensed consolidated statement of operations for the three months ended April 1, 2023 because dispositions of the businesses that comprised that segment were completed prior to the start of the period.

 

On October 19, 2022, the Company sold its Argo EMS business (“Argo”). Argo supplies printed circuit boards and other electronic assemblies to original equipment manufacturers in various industries, including measurement systems, semiconductor equipment manufacturing, and industrial control, medical, and military products.

 

 
8

Table of Contents

 

Summarized Financial Information of Discontinued Operations

 

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

 

 

 

Three Months Ended

 

 

 

April 1,

2023

 

 

April 2,

2022

 

 

 

(unaudited)

 

 

(unaudited)

 

Net sales

 

$-

 

 

$2,367,226

 

Cost of products sold

 

 

-

 

 

 

(1,603,762)

Gross margin

 

 

-

 

 

 

763,464

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

 

-

 

 

 

(257,060)

Operating income

 

 

-

 

 

 

506,404

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

-

 

 

 

(35,217)

Gain from discontinued operations before income taxes

 

 

-

 

 

 

471,187

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

-

 

 

 

(126,867)

Income from discontinued operations, net of tax

 

$-

 

 

$344,320

 

 

Note C – Earnings Per Share

 

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

 

 

 

Three Months Ended

 

 

 

April 1,

2023

 

 

April 2,

2022

 

Basic:

 

 

 

 

 

 

Weighted average shares outstanding

 

 

6,223,027

 

 

 

6,247,649

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

6,223,027

 

 

 

6,247,649

 

Dilutive stock appreciation rights

 

 

10,962

 

 

 

12,055

 

Denominator for diluted earnings per share

 

 

6,233,989

 

 

 

6,259,704

 

 

Note D – Inventories

 

Inventories from continuing operations consist of the following components:

 

 

 

April 1,

2023

 

 

December 31,

2022

 

 

 

 

 

 

 

 

Raw material and component parts

 

$23,123,674

 

 

$25,924,696

 

Work in process

 

 

8,315,774

 

 

 

9,323,082

 

Finished goods

 

 

26,213,513

 

 

 

29,388,813

 

Total inventories

 

$57,652,961

 

 

$64,636,591

 

 

Note E - Goodwill

 

The aggregate carrying amount of goodwill from continuing operations is approximately $70.8 million as of April 1, 2023. No impairment was recognized in the first quarter of 2023.

 

 
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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.

 

Currently, the Company has twenty-one operating leases with a lease liability of $11.6 million and three finance leases with a lease liability of $1.0 million as of April 1, 2023. 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.

 

Approximate total minimum lease payments for each of the next five fiscal years is estimated to be as follows: remainder of 2023 - $2.4 million; 2024 - $2.8 million; 2025 - $1.9 million; 2026 - $1.5 million; 2027 - $1.2 million; and $2.8 million thereafter. The weighted average remaining lease term is 5.7 years. The implicit interest rate used was 5.0% to 6.4%.

 

Note G - Debt

 

On August 30, 2019, the Company entered into a credit agreement with Santander Bank, N.A., for itself, M&T Bank, and TD Bank, N.A. as lenders (the “Credit Agreement”), that included a $100 million term portion and a $20 million revolving commitment portion. Proceeds of the term loan were used to repay the Company’s remaining outstanding term loan (and to terminate its existing credit facility) with M&T Bank (approximately $19 million) and to acquire certain subsidiaries of Big 3 Holdings, LLC (collectively “Big 3 Precision”). The term portion of the loan required quarterly principal payments of $1,250,000 for an 18-month period beginning December 31, 2019. The repayment amount then increased to $1,875,000 per quarter beginning September 30, 2021 and 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 April 1, 2023, the Company has not borrowed any funds on the revolving commitment portion of the facility. 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 its covenants under the Credit Agreement on April 1, 2023, and through the date of filing this Form 10-Q.

 

 
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On August 30, 2019, the Company entered into an interest rate swap contract with Santander Bank, N.A., with an original notional amount of $50,000,000, which was equal to 50% of the outstanding balance of the term loan on that date. The Company has a fixed interest rate of 1.44% on the swap contract and will pay the difference between the fixed rate and LIBOR when LIBOR is below 1.44% and will receive interest when the LIBOR rate exceeds 1.44%. On April 1, 2023, the interest rate for approximately half ($20.1 million) of the term portion was 6.38%, using a one-month LIBOR rate, and 3.19% on the remaining balance ($39.1 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.

 

The ICE Benchmark Administration (the “IBA”) ceased publication of all settings of non-US dollar LIBOR and the one-week and two-month U.S. dollar LIBOR settings on December 31, 2021, with the publication of the remaining U.S. dollar LIBOR settings scheduled to be discontinued after June 30, 2023. The Adjustable Interest Rate Act (the “LIBOR Act”), which was signed into law on March 15, 2022, provided a replacement framework for outstanding financial contracts tied to LIBOR once LIBOR ceases to be published. The LIBOR Act provides a statutory mechanism and safe harbor that applies on a nationwide basis to replace LIBOR with a benchmark rate, selected by the Federal Reserve Board based on SOFR, for certain contracts that reference LIBOR and contain no or insufficient fallback provisions. The LIBOR Act preempts and supersedes any state or local law, statute, rule, regulation, or standard relating to the selection or use of a benchmark replacement or related changes and allows parties that already have effective fallback provisions to opt out of the legislation. On December 16, 2022, the Federal Reserve adopted a final rule implementing the LIBOR Act that, among other things, identifies the applicable SOFR-based benchmark replacements under the LIBOR Act for various contact types. The difference between LIBOR and SOFR is that LIBOR is a forward-looking rate which means the interest rate is set at the beginning of the period with payment due at the end. SOFR is a backward-looking overnight rate, which has implications for how interest and other payments are based.

 

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.  The Company did not grant any stock awards during the first three months of fiscal 2023. During the first three months of fiscal 2022, the Company granted 36,200 stock awards that were subject to the meeting of performance measurements. For the first three months of fiscal 2022, the Company used fair market value to determine the associated expense with stock awards.

 

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 three months of fiscal 2023 and 2022 the Company did not issue any SARs.

 

Stock-based compensation (income) expense in connection with SARs previously granted to employees was approximately $(184,000) and $113,000 in the first quarter of 2023 and the first quarter of 2022, respectively.

 

As of April 1, 2023, there were 939,398 shares of Company common stock reserved and available for future grant under the 2020 Plan.

 

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

 

 

 

Three Months Ended

 

 

Year Ended

 

 

 

April 1, 2023

 

 

December 31, 2022

 

 

 

Units

 

 

Weighted Average Exercise Price

 

 

Units

 

 

Weighted Average Exercise Price

 

Outstanding at beginning of period

 

 

146,166

 

 

$23.22

 

 

 

180,833

 

 

$22.88

 

Issued

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Expired

 

 

(42,000)

 

 

24.90

 

 

 

-

 

 

 

-

 

Exercised

 

 

(33,333)

 

 

21.10

 

 

 

(16,667)

 

 

21.20

 

Forfeited

 

 

(32,500)

 

 

21.97

 

 

 

(18,000)

 

 

21.74

 

Outstanding at end of period

 

 

38,333

 

 

 

23.58

 

 

 

146,166

 

 

 

23.22

 

 

SARs Outstanding and Exercisable

 

 

 

 

 

 

 

 

 

Range of

Exercise Prices

 

Outstanding as of

April 1, 2023

 

 

Weighted Average Remaining

Contractual Life

 

 

Weighted Average

Exercise Price

 

 

Exercisable as of

April 1, 2023

 

 

Weighted Average Remaining

Contractual Life

 

 

Weighted Average

Exercise Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$19.44 - $26.30

 

 

38,333

 

 

 

0.9

 

 

$23.58

 

 

 

38,333

 

 

 

0.9

 

 

$23.58

 

 

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

 

 

 

Three Months Ended

 

 

Year Ended

 

 

 

April 1, 2023

 

 

December 31, 2022

 

 

 

Shares

 

 

Shares

 

Outstanding at beginning of period

 

 

64,500

 

 

 

27,300

 

Issued

 

 

-

 

 

 

43,300

 

Forfeited

 

 

(33,100)

 

 

(6,100)

Outstanding at end of period

 

 

31,400

 

 

 

64,500

 

 

As of April 1, 2023, outstanding SARs and stock awards had an intrinsic value of $611,672.

 

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 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”). Below is a summary of the Company’s shares repurchased during the first quarter of 2023.

 

 
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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 December 31, 2022

 

 

139,716

 

 

$24.61

 

 

 

139,716

 

 

 

60,284

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1, 2023 - April 1, 2023

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of April 1, 2023

 

 

139,716

 

 

$24.61

 

 

 

139,716

 

 

 

60,284

 

 

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 considerations and are recorded as a reduction of revenue in the same period that the related sales are recorded. The Company has reviewed the overall sales transactions for variable consideration and has determined that these costs are not material.

 

The Company has no future performance obligations and does not capitalize costs to obtain or fulfill contracts.

 

Note 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 2018 and is no longer subject to non-U.S. income tax examinations by foreign tax authorities for years prior to 2016.

 

The total amount of unrecognized tax benefits could increase or decrease within the next 12 months for several reasons, including the closure of federal, state, and foreign tax years by expiration of the statute of limitations and the recognition and measurement considerations under FASB ASC Topic 740, “Income Taxes.” There have been no significant changes to the value of unrecognized tax benefits during the three months ended April 1, 2023. The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits will not increase or decrease significantly over the next twelve months.

 

Note 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 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. 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.

 

 
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Significant disclosures relating to these benefit plans for the first quarter of fiscal years 2023 and 2022 are as follows:

 

 

 

Pension Benefits

 

 

 

Three Months Ended

 

 

 

April 1,

2023

 

 

April 2,

2022

 

Service cost

 

$216,153

 

 

$269,744

 

Interest cost

 

 

990,054

 

 

 

608,189

 

Expected return on plan assets

 

 

(1,049,016)

 

 

(1,460,661)

Amortization of prior service cost

 

 

 

 

 

16,563

 

Amortization of the net loss

 

 

342,865

 

 

 

390,075

 

Net periodic cost (benefit)

 

$500,056

 

 

$(176,090)

 

 

 

Other Postretirement Benefits

 

 

 

Three Months Ended

 

 

 

April 1,

2023

 

 

April 2,

2022

 

Service cost

 

 

6,486

 

 

 

13,323

 

Interest cost

 

 

14,533

 

 

 

10,988

 

Expected return on plan assets

 

 

(4,849)

 

 

(4,400)

Gain on significant event

 

 

 

 

 

 

Amortization of prior service cost

 

 

1,060

 

 

 

1,060

 

Amortization of the net loss

 

 

(16,895)

 

 

(2,054)

Net periodic benefit

 

$335

 

 

$18,917

 

 

The Company’s funding policy with respect to its qualified plans is to contribute at least the minimum amount required by applicable laws and regulations. In fiscal year 2023, the Company expects to contribute approximately $800,000 into its pension plans and approximately $50,000 into its postretirement plan. As of April 1, 2023, the Company has not made any contributions to its pension plans, has contributed $12,000 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

 

 

 

April 1,

2023

 

 

April 2,

2022

 

Regular matching contribution

 

$252,761

 

 

$210,939

 

Transitional credit contribution

 

 

34,320

 

 

 

51,564

 

Non-discretionary contribution

 

 

431,950

 

 

 

343,377

 

Total contributions for the period

 

$719,031

 

 

$605,880

 

 

The non-discretionary contribution of $328,953 made in the three months ended April 1, 2023, was accrued for, and expensed in the prior fiscal year.

 

Effective January 1, 2023, the non-discretionary contributions are being contributed on a weekly basis.

 

 
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Note M - Recent Accounting Pronouncements

 

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 April 1, 2023, 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 14% of the Company’s net accounts receivable as of December 31, 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 $39.0 million on April 1, 2023, to convert a portion of borrowings 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 the transition from LIBOR to alternative benchmark rates, such as SOFR. This transition is discussed in greater detail under Note G - Debt hereof and under Note 6 - Debt in Part II, Item 8 of the 2022 Form 10-K.

 

Currency Exchange Rate Risk

 

The Company’s currency exposure is concentrated in the Canadian dollar, Mexican peso, New Taiwan dollar, Chinese RMB, Hong Kong dollar and United Kingdom pound sterling. Because of the Company’s limited exposure to any single foreign market, any exchange 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

 

On April 25, 2023, the Board of Directors of The Eastern Company (the “Company”) approved a plan to close the Company’s Associated Tool Makers Ltd. facility located in Farndon, United Kingdom, which specializes in the design and manufacture of molds for the plastic injection molding industry. The plan is intended to address long-standing profitability issues at the Farndon facility. The plan would include approximately 10 job reductions at the Farndon facility.

 

The Company expects to substantially complete this plan by the end of the third quarter of 2023 and estimates total pre-tax charges associated with this action to be between $3.5 million and $4.5 million, of which $0.4 million to $0.8 million is expected to be cash charges primarily for associate-related and other exit costs, with the remainder representing non-cash charges primarily for accelerated depreciation and other asset-related charges. The Company expects to record the majority of these pre-tax charges and cash outflows in the second quarter of 2023.

 

 
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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 ended April 1, 2023. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal year ended December 31, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2023 (the “2022 Form 10-K”).

 

The Company’s fiscal year is a 52-53-week fiscal year ending on the Saturday nearest to December 31. References to 2022 or the 2022 fiscal year mean the 52-week period ended on December 31, 2022, and references to 2023 or the 2023 fiscal year mean the 52-week period ending on December 30, 2023. In a 52-week fiscal year, each quarter has 13 weeks. References to the first quarter of 2022, the first fiscal quarter of 2022 or the three months ended April 2, 2022, mean the period from January 2, 2022 to April 2, 2022. References to the first quarter of 2023, the first fiscal quarter of 2023 or the three months ended April 1, 2023, mean the 13-week period from January 1, 2023 to April 1, 2023.

 

Safe Harbor for Forward-Looking Statements

 

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 impact of the COVID-19 pandemic and resulting economic effects, including supply chain disruptions, cost inflation, rising interest rates, delays in delivery of our products to our customers, impact on demand for our products, reductions in production levels, increased costs, including costs of raw materials, the impact on global economic conditions, the availability, terms and cost of financing, including borrowings under credit arrangements or agreements, the potential impact of bank failures on our ability to access financing or capital markets, and the impact of market conditions on pension plan funded status. Other factors include, but are not limited to: restrictions on operating flexibility imposed by the agreement governing our credit facility; the effect on interest rates of the replacement of the London Interbank Offered Rate (LIBOR) with a Secured Overnight Financing Rate (SOFR); risks associated with doing business overseas, including fluctuations in exchange rates and the inability to repatriate foreign cash, the impact on cost structure and on economic conditions as a result of actual and threatened increases in trade tariffs and the impact of political, economic and social instability;  the inability to achieve the savings expected from global sourcing of materials; 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 or updated 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 2022 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.

 

 
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Overview

 

General Overview

 

The following analysis excludes discontinued operations.

 

Net sales in the first quarter of 2023 increased 5% to $72.5 million from $69.0 million in the corresponding period in 2022. Sales increased in the first quarter of 2023 primarily due to increased demand for truck accessories and automotive returnable transport packaging products as well as increased demand from distributors. Our returnable transport packaging sales benefited from the increase in new automotive product launches, including several electric vehicle launches. Our backlog as of April 1, 2023 was down 16% to $72.0 million from $85.8 million as of April 2, 2022 as we optimize our supply chain to reduce past due orders and transition from old to new programs with our commercial vehicle and automotive customers and increased shipments to customers.

 

Net sales of existing products increased 3% in the first quarter of 2023 compared to the corresponding period in 2022. Price increases and new products increased net sales by 2% in the first quarter of 2023 compared to the corresponding period in 2022. New products included various truck mirror assemblies, rotary latches, electronic latches and locks, D-rings, and mirror cams. Price increases primarily reflect our efforts to recover an increase in raw material and freight costs.

 

Cost of products sold increased $2.6 million, or 5%, in the first quarter of 2023 compared to the corresponding period in 2022. The increase is primarily due to higher sales volume. Additionally, the Company paid tariff costs on China-sourced products of approximately $0.6 million in the first quarter of 2023, compared to $0.6 million in the first quarter of fiscal 2022. Most tariffs on China-sourced products have been recovered through price increases.

 

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

 

Product development expense increased $0.2 million, or 17% in the first quarter of 2023 when compared to the corresponding period in 2022 as we continue to invest in new products at Eberhard and Velvac. As a percentage of net sales, product development costs were 1.9% for the first quarter of 2023 and 1.7% for the corresponding period in 2022.

 

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

 

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

 

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

 

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

 

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

 

 
17

Table of Contents

 

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

 

 

 

April 1,

2023

 

 

April 2,

2022

 

 

 

 

 

 

 

 

Net sales

 

 

100.0%

 

 

100.0%

Cost of products sold

 

 

78.6%

 

 

78.9%

Gross margin

 

 

21.4%

 

 

21.1%

Product development expense

 

 

1.9%

 

 

1.7%

Selling and administrative expense

 

 

16.5%

 

 

14.3%

Operating Profit

 

 

3.0%

 

 

5.1%

 

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

 

 

 

Three Months

 

 

 

Ended

 

 

 

April 1, 2023

 

 

 

 

 

Net Sales

 

$3,481

 

 

 

 

 

 

Volume

 

 

3.3%

Price

 

 

0.8%

New products

 

 

0.9%

 

 

 

5.0%

 

 

 

 

 

Operating Profit

 

$(1,355)

 

Liquidity and Sources of Capital

 

The Company generated approximately $6.9 million of cash from continuing operations during the first three months of fiscal 2023 compared to consuming approximately $3.6 million during the first three months of fiscal 2022. Cash flow from operations in the first three months of 2023 was higher when compared to the corresponding period last year primarily due to a decrease in inventory. Cash flow from operations coupled with cash at the beginning of the 2023 fiscal year were sufficient to fund capital expenditures, debt service, and dividend payments for the first three months of 2023. See Note G - Debt for further discussion on the Company’s debt facilities.

 

Additions to property, plant and equipment for continuing operations were approximately $1.2 million for the first three months of 2023 and $0.6 million for the first three months of 2022. As of April 1, 2023, there was approximately $1.2 million of outstanding commitments for capital expenditures.

 

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

 

 

 

First

Quarter

2023

 

 

First

Quarter

2022

 

 

Fiscal

Year

2022

 

Current ratio

 

 

2.7

 

 

 

2.7

 

 

 

2.7

 

Average days’ sales in accounts receivable

 

 

57

 

 

 

63

 

 

 

56

 

Inventory turnover

 

 

4.0

 

 

 

3.2

 

 

 

3.4

 

Total debt to shareholders’ equity

 

 

46.6%

 

 

63.2%

 

 

50.7%

 

 
18

Table of Contents

 

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

 

 

 

First

 

 

First

 

 

Fiscal

 

 

 

Quarter

 

 

Quarter

 

 

Year

 

 

 

2023

 

 

2022

 

 

2022

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

- Held in the United States

 

$9.7

 

 

$2.3

 

 

$7.4

 

- Held by a foreign subsidiary

 

 

3.4

 

 

 

2.9

 

 

 

2.8

 

 

 

 

13.1

 

 

 

5.2

 

 

 

10.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital

 

 

76.7

 

 

 

83.2

 

 

 

78.3

 

Net cash provided by (used in) operating activities

 

 

6.9

 

 

 

(3.6)

 

 

7.4

 

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

 

 

3.6

 

 

 

(8.8)

 

 

(5.2)

Net cash provided by investing activities

 

 

1.1

 

 

 

1.0

 

 

 

5.1

 

Net cash (used in) provided by financing activities

 

 

(5.1)

 

 

1.6

 

 

 

(11.8)

 

Inventories of $57.7 million as of April 1, 2023, represent a decrease of 10.8% as compared to $64.6 million at the end of fiscal year 2022 and a decrease of 14.9% as compared to $67.8 million at the end of the first quarter of fiscal 2022. Accounts receivable, less allowances, were $44.5 million as of April 1, 2023, as compared to $42.9 million at 2022 fiscal year end and $47.0 million at the end of the first quarter of fiscal 2022.

 

Cash, cash flow from operating activities and funds available under the revolving credit portion of the Credit Agreement are expected to be sufficient to cover future foreseeable working capital requirements. 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 April 1, 2023, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Critical Accounting Estimates

 

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 2022 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.

 

 
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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 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 from continuing operations, diluted earnings per share from continuing operations, or other measures prescribed by U.S. GAAP, and there are limitations to using non-GAAP financial measures.

 

Adjusted Net Income from Continuing Operations is defined as net income from continuing operations excluding, when incurred, gains or losses that we do not believe reflect our ongoing operations, including, for example, the impacts of impairment losses, gains/losses on the sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring costs.  Adjusted Net Income from Continuing Operations is a tool that can assist management and investors in comparing our performance on a consistent basis across periods by removing the impact of certain items that management believes do not directly reflect our underlying operating performance.

 

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

 

Adjusted EBITDA from Continuing Operations is defined as net income from continuing operations before interest expense, provision for income taxes, and depreciation and amortization and excluding, when incurred, the impacts of certain losses or gains that we do not believe reflect our ongoing operations, including, for example, impairment losses, gains/losses on sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring expenses.  Adjusted EBITDA from Continuing Operations is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying operations.

 

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.

 

 
20

Table of Contents

 

Reconciliation of Non-GAAP Measures

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

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

($000's)

 

 

 

Three Months Ended

 

 

 

April 1, 2023

 

 

April 2, 2022

 

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

 

$607

 

 

$2,686

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$0.10

 

 

$0.43

 

Diluted

 

$0.10

 

 

$0.43

 

 

 

 

 

 

 

 

 

 

Adjustments:

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

202A

Severance and accrued compensation, net of tax

 

 

1,349B

 

 

-

 

Greenwald final sale adjustment, net of tax

 

 

293C

 

 

-

 

Total adjustments (non-GAAP)

 

$1,642

 

 

$202

 

 

 

 

 

 

 

 

 

 

Adjusted net income from continuing operations

 

$2,249

 

 

$2,888

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$0.36

 

 

$0.46

 

Diluted

 

$0.36

 

 

$0.46

 

 

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

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

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

 

 
21

Table of Contents

 

Reconciliation of Non-GAAP Measures

Adjusted EBITDA from Continuing Operations Calculation

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

($000's)

 

 

 

Three Months Ended

 

 

 

April 1, 2023

 

 

April 2, 2022

 

 

 

 

 

 

 

 

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

 

$607

 

 

$2,686

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

726

 

 

 

434

 

Provision for income taxes

 

 

195

 

 

 

881

 

Depreciation and amortization

 

 

1,815

 

 

 

1,830

 

Loss on sale of Wheeling, IL building

 

 

-

 

 

 

269A

Severance and accrued compensation

 

 

1,799B

 

 

-

 

Greenwald final sale adjustment

 

 

390C

 

 

-

 

Adjusted EBITDA from continuing operations

 

$5,532

 

 

$6,100

 

 

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

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

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

 

 
22

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 April 1, 2023, 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 April 1, 2023.

 

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.

 

 
23

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 April 1, 2023, the Company does not have any material pending legal proceedings, other than as set forth in Part I, Item 3 of the 2022 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 2022 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 April 1, 2023, there have been no material changes to the risk factors disclosed in the 2022 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. During the first fiscal quarter of 2023, the Company had no share repurchases.

 

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4 – MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5 – OTHER INFORMATION

 

None

 

 
24

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).

 

 

 

10.1)

 

Employment Agreement, dated as of January 9, 2023, between the Company and Mark Anthony Hernandez (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 13, 2023.

 

 

 

10.2)

 

Offer Letter, dated February 1, 2023, between the Company and Nicholas Vlahos (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed on February 6, 2023).

 

 

 

10.3)

 

 Severance Agreement, dated as of February 1, 2023, between the Company and Nicholas Vlahos (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K/A filed on February 6, 2023).

 

 

 

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 April 1, 2023, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations (Unaudited) for the three months ended April 1, 2023 and April 2, 2022; (ii) Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three ended April 1, 2023, and April 2, 2022; (iii) Condensed Consolidated Balance Sheets (Unaudited) as of April 1, 2023 and December 31, 2022; (iv) Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended April 1, 2023 and April 2, 2022; 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

 

 
25

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:  May 9, 2023

/s/Mark Hernandez

 

 

Mark Hernandez

President and Chief Executive Officer

 

 

 

 

DATE:  May 9, 2023

/s/Nicholas Vlahos

 

 

Nicholas Vlahos

Vice President and Chief Financial Officer

 

 

 
26

 

 

EX-31 2 eml_ex31.htm CERTIFICATIONS eml_ex31.htm

EXHIBIT 31

 

CERTIFICATIONS

 

I, Nicholas Vlahos, 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, which involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
  Dated: May 9, 2023
     
/s/Nicholas Vlahos

 

Nicholas Vlahos

CFO

 

 

 

 

EX-32 3 eml_ex32.htm CERTIFICATIONS 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, Mark Hernandez, the Chief Executive Officer of The Eastern Company (the “Company”) and Nicholas Vlahos, 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 April 1, 2023, 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 9th day of May 2023.

 

 

By:

/s/Mark Hernandez

 

 

 

Mark Hernandez

CEO

 

 

 

 

 

 

By:

/s/Nicholas Vlahos

 

 

 

Nicholas Vlahos

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.)

 

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