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 June 29, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	for the transition period from ________________ to _______________

Commission File Number001-35383

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 June 29, 2024, 6,228,432 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 JUNE 29, 2024

TABLE OF CONTENTS

		Page



PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8

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

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PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

THE EASTERN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended						Six Months Ended
	June 29, 2024			July 1, 2023			June 29, 2024			July 1, 2023
Net sales	$	73,151,889		$	68,337,790		$	141,080,976		$	140,833,158
Cost of products sold		(54,941,336	)		(53,189,948	)		(106,674,324	)		(110,187,615	)
Gross margin		18,210,553			15,147,842			34,406,652			30,645,543

Product development expense		(1,301,487	)		(1,431,110	)		(2,661,284	)		(2,832,309	)
Selling and administrative expenses		(11,536,949	)		(11,289,037	)		(23,035,906	)		(23,226,674	)
Operating profit		5,372,117			2,427,695			8,709,462			4,586,560

Interest expense		(829,934	)		(781,104	)		(1,674,969	)		(1,507,110	)
Other (expense) income		(20,066	)		252,180			(9,712	)		(378,520	)
Income before income taxes		4,522,117			1,898,771			7,024,781			2,700,930

Income tax expense		(1,014,245	)		(499,564	)		(1,569,336	)		(694,409	)
Net income	$	3,507,872		$	1,399,207		$	5,455,445		$	2,006,521

Earnings per share:
Basic	$	0.56		$	0.22		$	0.88		$	0.32

Diluted	$	0.56		$	0.22		$	0.87		$	0.32

Cash dividends per share:	$	0.11		$	0.11		$	0.22		$	0.22

See accompanying notes.

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THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended						Six Months Ended
	June 29, 2024			July 1, 2023			June 29, 2024			July 1, 2023
Net income	$	3,507,872		$	1,399,207		$	5,455,445		$	2,006,521
Other comprehensive income:

Change in foreign currency translation		(472,078	)		(431,042	)		(629,078	)		(94,457	)

Change in fair value of foreign currency swap, net of tax benefit of:
2024 - $(109,797) and $(17,103) respectively		(477,378	)		-			(74,362	)		-

Change in fair value of interest rate swap, net of tax benefit of:
2023 - $(274,957) and $(362,648) respectively		-			(1,172,067	)		-			(1,449,754	)

Change in pension and postretirement benefit costs, net of taxes of:
2024 - $71,355 and $142,710 respectively; 2023 - $74,359 and $148,719 respectively		237,501			252,670			480,837			505,338
Total other comprehensive loss		(711,955	)		(1,350,439	)		(222,603	)		(1,038,873	)
Comprehensive income	$	2,795,917		$	48,768		$	5,232,842		$	967,648

See accompanying notes.

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THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 29, 2024			December 30, 2023
	(unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	11,706,497		$	8,299,453
Marketable securities		2,034,602			986,477
Accounts receivable, less allowances: 2024 - $562,498; 2023 - $564,816		42,327,344			37,057,488
Inventories		56,879,677			59,272,207
Current portion of notes receivable		192,933			573,269
Prepaid expenses and other assets		5,127,614			6,047,814
Total Current Assets		118,268,667			112,236,708

Property, Plant and Equipment		62,804,268			60,270,096
Accumulated depreciation		(33,485,314	)		(31,980,335	)
Property, Plant and Equipment, Net		29,318,954			28,289,761

Goodwill		70,700,912			70,776,893
Trademarks		5,514,853			5,514,960
Patents and other intangibles net of accumulated amortization		13,372,930			15,325,927
Long term notes receivable, less current portion		284,330			374,932
Deferred Income Taxes		2,536,357			2,283,571
Right of Use Assets		15,682,994			17,236,449
Other Long-Term Assets		222,504			-
Total Other Assets		108,314,880			111,512,732

TOTAL ASSETS	$	255,902,501		$	252,039,201

See accompanying notes.

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THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 29, 2024			December 30, 2023
	(unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	27,683,500		$	25,319,473
Accrued compensation		5,493,325			5,379,381
Other accrued expenses		5,098,540			4,556,623
Current portion of operating lease liability		3,846,537			4,424,369
Current portion of finance lease liability		182,219			182,010
Current portion of long-term debt		2,853,935			2,871,870
Other current liabilities		296,866			-
Total Current Liabilities		45,454,922			42,733,726

Other long-term liabilities		640,724			640,724
Operating lease liability, less current portion		11,836,457			12,812,079
Finance lease liability, less current portion		665,217			728,100
Long-term debt, less current portion		39,575,849			41,063,865
Accrued postretirement benefits		579,832			554,758
Accrued pension cost		20,662,798			21,025,365
Total Liabilities		119,415,799			119,558,617

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		34,575,179			33,950,859
Issued: 9,122,953 shares as of 2024 and 9,091,815 shares as of 2023
Outstanding: 6,228,432 shares as of 2024 and 6,217,370 shares as of 2023
Treasury Stock: 2,894,521 shares as of 2024 and 2,874,445 shares as of 2023		(23,762,587	)		(23,280,467	)
Retained earnings		148,891,689			144,805,168
Accumulated other comprehensive loss:
Foreign currency translation		(1,495,677	)		(866,599	)
Unrealized loss on foreign currency swap, net of tax		(74,362	)		-
Unrecognized net pension and postretirement benefit costs, net of tax		(21,647,540	)		(22,128,377	)
Accumulated other comprehensive loss		(23,217,579	)		(22,994,976	)
Total Shareholders’ Equity		136,486,702			132,480,584
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	255,902,501		$	252,039,201

See accompanying notes.

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THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended
	June 29, 2024			July 1, 2023
Operating Activities
Net income	$	5,455,445		$	2,006,521
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,741,969			3,621,126
Reduction in carrying amount of ROU assets		1,553,455			4,404,043
Unrecognized pension and postretirement benefits		10,219			656,655
Loss on sale of equipment and other assets		40,801			318,775
Provision for doubtful accounts		4,000			(16,731	)
Stock compensation expense		624,320			10,185
Changes in operating assets and liabilities:
Accounts receivable		(5,266,258	)		918,871
Inventories		2,365,449			7,711,536
Prepaid expenses and other		1,006,407			562,548
Other assets		28,721			163,077
Accounts payable		2,939,089			(953,660	)
Accrued compensation		96,109			(165,590	)
Operating lease liability		(1,553,455	)		(4,395,424	)
Other accrued expenses		(784,960	)		(1,283,477	)
Net cash provided by operating activities		10,261,311			13,558,455

Investing Activities
Marketable securities		(999,960	)		-
Business acquisition		-			(547,638	)
Payments received from notes receivable		470,937			2,309,236
Proceeds from sale of equipment		18,000			-
Purchases of property, plant, and equipment		(2,834,977	)		(1,978,784	)
Net cash used in investing activities		(3,346,000	)		(217,186	)

Financing Activities
Proceeds from new long-term debt financing		-			60,000,000
Principal payments on long-term debt		(1,505,952	)		(69,248,743	)
Payments on short term borrowings (revolver)		-			(252,025	)
Financing leases, net		(62,674	)		674,558
Purchase common stock for treasury		(482,120	)		-
Dividends paid		(1,368,924	)		(1,369,941	)
Net cash used in financing activities		(3,419,670	)		(10,196,151	)

Effect of exchange rate changes on cash		(88,597	)		(127,966	)
Net change in cash and cash equivalents		3,407,044			3,017,152

Cash and cash equivalents at beginning of period		8,299,453			10,187,522
Cash and cash equivalents at end of period	$	11,706,497		$	13,204,674

Supplemental disclosure of cash flow information:
Interest	$	1,639,713		$	1,364,527
Income taxes		1,599,765			315,120

Non-cash investing and financing activities
Right of use asset		144,445			4,404,043
Lease liability		(144,445	)		(5,355,510	)

See accompanying notes

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THE EASTERN COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 29, 2024

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 30, 2023, filed with the Securities and Exchange Commission on March 12, 2024 (the “2023 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 30, 2023 has been derived from the audited consolidated balance sheet at that date.

The Company’s fiscal year is a 52-53-week fiscal year ending on the Saturday nearest to December 31. References in this Quarterly Report on Form 10-Q for the quarterly period ended June 29, 2024 (this “Form 10-Q”) to 2023, the 2023 fiscal year or fiscal 2023 mean the 52-week period ended on December 30, 2023, and references to 2024, the 2024 fiscal year or fiscal 2024 mean the 52-week period ending on December 28, 2024. In a 52-week fiscal year, each quarter has 13 weeks. References to the second quarter of 2023, the second fiscal quarter of 2023 or the three months ended July 1, 2023, mean the 13-week period from April 2, 2023 to July 1, 2023. References to the second quarter of 2024, the second fiscal quarter of 2024 or the three months ended June 29, 2024, mean the 13-week period from March 31, 2023 to June 29, 2024. References to the first six months of 2023 or the six months ended July 1, 2023 mean the period from January 1, 2023 to July 1, 2023. References to the first six months of 2024 or the six months ended June 29, 2024 mean the period from December 31, 2023 to June 29, 2024.

Certain amounts in the 2023 financial statements have been reclassified to conform with the 2024 presentation with no impact or change to previously reported net income or shareholders’ equity.

Note B – Earnings Per Share

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

Three Months Ended

Six Months Ended

June 29, 2024

July 1, 2023

June 29, 2024

July 1, 2023

Basic:

Weighted average shares outstanding

6,233,153

6,232,717

6,224,596

6,227,873

Diluted:

Weighted average shares outstanding

6,233,153

6,232,717

6,224,596

6,227,873

Dilutive stock appreciation rights

25,626

32,462

25,626

32,462

Denominator for diluted earnings per share

6,258,779

6,265,179

6,250,222

6,260,335

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Note C – Fair Value of Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The company utilizes a fair value hierarchy, which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The fair value hierarchy has three levels of inputs that may be used to measure fair value:

Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2	Quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.

The Company’s financial instruments are primarily investments in marketable securities (Level 1), designated foreign currency hedge contracts – see Note O, Financial Instruments and Fair Value Measurements, and pension assets, see Note L, Retirement Benefit Plans.

The carrying amounts of other financial instruments (cash and cash equivalents, marketable securities, accounts receivable, accounts payable and debt) as of June 29, 2024 and December 30, 2023, approximate fair value because of their short-term nature and market-based interest rates.

Note D – Inventories

Inventories consist of the following components:

	June 29, 2024		December 30, 2023

Raw material and component parts	$	23,511,138	$	24,500,087
Work in process		9,555,150		9,957,068
Finished goods		23,813,389		24,815,052
Total inventories	$	56,879,677	$	59,272,207

Note E - Goodwill

The aggregate carrying amount of goodwill is approximately $70.7 million as of June 29, 2024. No impairment was recognized in the second quarter of 2024.

The Company evaluates its reporting units for impairment annually in December, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Such events and circumstances could include, among other things, increased competition or unexpected loss of market share, significant adverse changes in the markets in which the Company operates, or unexpected business disruptions. The Company tests reporting units for impairment by comparing the estimated fair value of each reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its estimated fair value, the Company records an impairment loss based on the difference between fair value and carrying amount not to exceed the associated carrying amount of goodwill. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The values assigned to the key assumptions represent management’s assessment of future trends in the relevant industry and have been based on historical data from both external and internal sources.

Note 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.

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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 nineteen operating leases with a lease liability of $15.7 million and two finance leases with a lease liability of $0.8 million as of June 29, 2024. The terms and conditions of the leases are determined by the individual agreements. The leases do not contain residual value guarantees, restrictions, or covenants that could cause the Company to incur additional financial obligations. There are no related party lease transactions. There are no leases that have not yet commenced that could create significant rights and obligations for the Company.

The future payments (in millions) due under non-cancelable operating and finance leases as of June 29, 2024 are as follows:

	Operating			Finance
2024	$	2.1		$	0.1
2025		3.2			0.2
2026		2.5			0.2
2027		2.1			0.2
2028		1.9			0.2
thereafter		6.4			0.2
		18.3			1.0
Less effects of discounting		(2.6	)		(0.2	)
Lease liabilities recognized	$	15.7		$	0.8

As of June 29, 2024, the weighted average lease term for all operating and finance leases is 7.0 and 5.6 years, respectively. The weighted average discount rate associated with operating and finance leases was 6.4% and 6.3%, respectively.

Note G - Debt

On June 16, 2023, the Company entered into a credit agreement with TD Bank, N.A., Wells Fargo Bank, Bank of America, and M&T Bank as lenders (the “Credit Agreement”), that included a $60 million term portion and a $30 million revolving commitment portion. The proceeds of the term loan were used to repay the Company’s remaining outstanding term loan and to terminate its existing credit facility with Santander Bank, N.A. (approximately $59 million). The term loan portion of the credit facility requires quarterly principal payments of (i) $750,000 beginning on September 30, 2023 through June 30, 2025, (ii) $1,125,000 beginning on September 30, 2025 through June 30, 2027, and (iii) $1,500,000 beginning on September 30, 2027 through March 31, 2028, with the balance of the term loan payable on the maturity date of June 16, 2028. Amounts outstanding under the revolving portion of the credit facility are generally due and payable on the expiration date of the Credit Agreement (June 16, 2028). The Company can elect to prepay some or all of the outstanding balance from time to time without penalty. A commitment fee is payable on the unused portion of the revolving credit facility based on the Company’s consolidated ratio of net debt to adjusted EBITDA from time to time. Currently, the commitment fee is 0.30%. The Company has no borrowings outstanding under the revolving commitment portion of the credit facility as of June 29, 2024.

The term loan bears interest at a variable rate based on the Term Secured Overnight Financing Rate (“SOFR”), plus an adjustment of ten basis points, plus an applicable margin of 1.875% to 2.625%, depending on the Company’s senior net leverage ratio. Borrowings under the revolving portion bear interest at a variable rate based on, at the Company’s election, a base rate plus an applicable margin of 0.875% to 1.625% or SOFR, plus an adjustment of ten basis points, plus an applicable margin of 1.875% to 2.625%, with such margins determined based on the Company’s senior net leverage ratio. The Company’s obligations under the Credit Agreement are secured by a lien on certain of the Company’s and its subsidiaries’ assets pursuant to a Pledge and Security Agreement, dated as of June 16, 2023, with TD Bank N.A., as administrative agent.

The Company’s loan covenants under the Credit Agreement require the Company to maintain a senior net leverage ratio not to exceed 3.5 to 1. In addition, the Company is required to maintain a fixed charge coverage ratio to be not less than 1.25 to 1. The Company was in compliance with all its covenants under the Credit Agreement on June 29, 2024, and through the date of filing this Form 10-Q.

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Note H - Stock Options and Awards

On February 19, 2020, the Board of Directors of the Company (the “Board”) adopted The Eastern Company 2020 Stock Incentive Plan (the “2020 Plan”), which replaced The Eastern Company 2010 Executive Stock Incentive Plan after its expiration in February 2020. On April 29, 2020, at the Company’s 2020 Annual Meeting of Shareholders, the shareholders of the Company approved and adopted the 2020 Plan. The Company has no other existing plan pursuant to which equity awards may be granted.

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 six months of fiscal 2024 and 2023, the Company granted stock awards with respect to 92,016 and 64,500 shares of Company common stock, respectively, that were subject to the meeting of performance measurements or time based. For the first six months of fiscal years 2024 and 2023, 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. The Company did not issue any SARs during the first six months of fiscal 2024 and 2023.

Stock-based compensation (income) expense, including forfeitures, in connection with SARs and stock awards previously granted to employees was approximately $(20,000) and $21,000 in the second quarter of 2024 and the second quarter of 2023, respectively, and was approximately $414,000 and $(163,000) in the first six months of fiscal years 2024 and 2023, respectively.

As of June 29, 2024, there were 792,819 shares of Company common stock reserved and available for future grant under the 2020 Plan.

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

	Six Months Ended					Year Ended
	June 29, 2024					December 30, 2023
	Units			Weighted Average Exercise Price		Units			Weighted Average Exercise Price
Outstanding at beginning of period		13,000		$	24.19		146,166		$	23.22
Expired		(9,000	)		26.30		(50,833	)		24.24
Exercised		-			-		(33,333	)		21.10
Forfeited		-			-		(49,000	)		22.80
Outstanding at end of period		4,000			20.20		13,000			24.19

SARs Outstanding and Exercisable
Range of Exercise Prices		Outstanding as of June 29, 2024		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Exercisable as of June 29, 2024		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price

$	20.20		4,000		0.8	$	20.20		4,000		0.8	$	20.20

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

	Six Months Ended			Year Ended
	June 29, 2024			December 30, 2023
	Shares			Shares
Outstanding at beginning of period		89,400			64,500
Issued		92,016			82,800
Exercised		(23,734	)		(10,600	)
Forfeited		(11,266	)		(47,300	)
Outstanding at end of period		146,416			89,400

As of June 29, 2024, outstanding SARs and stock awards had an intrinsic value of $3,750,304.

Note I – Share Repurchase Program

On August 21, 2023, the Company announced that the Board had approved a new share repurchase program authorizing the Company to repurchase up to 200,000 shares of the Company’s common stock through August 20, 2028. The Company’s share repurchase program does not obligate it to acquire the Company’s common stock at any specific cost per share. Under this program, 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.

Below is a summary of the Company’s shares repurchased during the second quarter of 2024 under the share repurchase program.

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 March 30, 2024

50,076

19.38

50,076

149,924

March 31, 2024 – June 29, 2024

10,000

24.73

10,000

139,924

Balance as of June 29, 2024

60,076

20.27

60,076

139,924

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.

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Note K - Income Taxes

The Company files income tax returns in the U.S. at the federal and state levels, and in foreign jurisdictions. With limited exceptions, the Company is no longer subject to U.S. federal, state, and local income tax examinations by tax authorities for years before 2019 and is no longer subject to non-U.S. income tax examinations by foreign tax authorities for years prior to 2017.

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 six months ended June 29, 2024. 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. All of these pension plans are frozen and participants in these plans have not accrued benefits since the date on which these plans were frozen. Plan benefits are generally based upon age at retirement, years of service and, for the plan covering salaried employees, the level of compensation. The Company also sponsors unfunded non-qualified supplemental retirement plans that provide certain former officers with benefits in excess of limits imposed by federal tax law.

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

Significant disclosures relating to these benefit plans for the first three months and first six months 2024 and 2023 are as follows:

	Pension Benefits
	Three Months Ended						Six Months Ended
	June 29, 2024			July 1, 2023			June 29, 2024			July 1, 2023
Service cost	$	178,004		$	216,153		$	356,007		$	432,306
Interest cost		966,704			990,053			1,933,406			1,980,107
Expected return on plan assets		(1,099,034	)		(1,049,014	)		(2,198,069	)		(2,098,030	)
Amortization of prior service cost		-			-			-			-
Amortization of the net loss		327,363			342,865			654,728			685,730
Net periodic benefit cost (benefit)	$	373,037		$	500,057		$	746,072		$	1,000,113

	Other Postretirement Benefits
	Three Months Ended						Six Months Ended
	June 29, 2024			July 1, 2023			June 29, 2024			July 1, 2023
Service cost	$	3,574		$	6,486		$	7,148		$	12,972
Interest cost		12,951			14,533			25,902			29,066
Expected return on plan assets		(4,684	)		(4,849	)		(9,368	)		(9,698	)
Amortization of prior service cost		1,060			1,060			2,120			2,120
Amortization of the net loss		(19,567	)		(16,895	)		(39,134	)		(33,790	)
Net periodic benefit cost	$	(6,666	)	$	335		$	(13,332	)	$	670

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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 2024, the Company expects to make cash contributions to its qualified pension plans of approximately $2,100,000 and approximately $50,000 into its other postretirement plan. As of June 29, 2024, the Company has contributed $979,000 to its pension plans and $14,000 to its postretirement plan in fiscal year 2024 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 401(k) Plan as follows:

	Three Months Ended				Six Months Ended
	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Regular matching contribution	$	261,993	$	253,665	$	547,556	$	506,426
Transitional credit contribution		21,964		26,344		50,870		60,663
Non-discretionary contribution		102,873		89,163		213,763		521,112
Total contributions for the period	$	386,830	$	369,172	$	812,189	$	1,088,201

The non-discretionary contribution of $328,953 made in the six months ended July 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.

Note M - Recent Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which amends the reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. We do not expect this new standard to have a significant impact on our disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit disaggregated between domestic and foreign and (3) income tax expense or benefit from continuing operations disaggregated by federal, state, and foreign. The update also requires entities to disclose their income tax payments to various jurisdictions. This standard is effective for fiscal years beginning after December 15, 2024. We do not expect this new standard to have a significant impact on our disclosures.

The Company has implemented all new accounting pronouncements that are in effect and that could impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued, but are not yet effective, that might have a material impact on the consolidated financial statements of the Company.

Note 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 June 29, 2024, there was one significant concentration of credit risk with a customer, who had receivables representing 13% of our net accounts receivable. This same customer represented 12% of the Company’s net accounts receivable as of December 30, 2023. 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.

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Interest Rate Risk

The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s debt under the credit agreement, which bears interest at variable rates based on term SOFR, plus an adjustment of ten basis points, plus an applicable margin of 1.875% to 2.625%, depending on the Company’s senior net leverage ratio.

Note O – Financial Instruments and Fair Value Measurements

The Company incurs certain manufacturing, marketing, and selling costs in international markets in local currency. Accordingly, earnings and cash flows are exposed to market risk from changes in foreign currency exchange rates relative to the U.S. dollar, the Company’s reporting currency. The Company has a program in place that is designed to mitigate the exposure to changes in foreign currency exchange rates. The program includes the use of derivative financial instruments to minimize, for a period of time, the impact on its financial results from changes in foreign exchange rates. The Company utilizes foreign currency forward contracts to hedge the anticipated cash flows from transactions denominated in foreign currencies, namely Mexican pesos. This does not eliminate the impact of the volatility of foreign exchange rates. However, because the Company generally enters into forward contracts twelve to eighteen months out, rates are fixed for a twelve-to-eighteen-month period, thereby facilitating financial planning and resource allocation.

Designated Foreign Currency Hedge Contracts

All of the Company’s designated foreign currency hedge contracts as of June 29, 2024 were cash flow hedges under ASC 815, “Derivatives and Hedging” (“ASC 815”). The Company records the effective portion of any change in the fair value of designated foreign currency hedge contracts in other comprehensive income until the related third-party transaction occurs. Once the related third-party transaction occurs, the Company reclassifies the effective portion of any related gain or loss on the designated foreign currency hedge contracts to earnings. In the event the hedged forecasted transaction does not occur, or it becomes probable that it will not occur, the Company will reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time. The Company had designated foreign currency hedge contracts outstanding in the contract amount of $14.4 million as of June 29, 2024 and $0.0 million as of December 30, 2023. As of June 29, 2024 a loss of $0.1 million, net of tax, will be reclassified to earnings within the next eighteen months. All currency cash flow hedges outstanding as of June 29, 2024 mature within eighteen months.

Fair Value of Derivative Instruments

The following table presents the effect of the Company’s derivative instruments designated as cash flow hedges under ASC 815 in its unaudited Condensed Consolidated Statements of Operations for the six months ended June 29, 2024:

Derivative Instruments

Amount of Loss Recognized in Accumulated Other Comprehensive Income

Amount of Gain Reclassified from Accumulated Other Comprehensive Income

into Earnings

Location in Condensed Consolidated Statement of Operations

Designated foreign currency hedge contracts, net of tax

(57,259

)

18,891

Cost of products sold

ASC 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. The Company determines the fair value of its derivative instruments using the framework prescribed by ASC 820, “Fair Value Measurements and Disclosures”, by considering the estimated amount it would receive or pay to sell or transfer these instruments at the reporting date. Generally, the Company uses inputs that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; other observable inputs for the asset or liability; and inputs derived principally from, or corroborated by, observable market data by correlation or other means. As of June 29, 2024, the Company has classified its derivative assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC 815, as discussed below, because these observable inputs are available for substantially the full term of its derivative instruments.

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The following tables present the fair value of the Company’s derivative instruments as they appear in its Condensed Consolidated Balance Sheets as of June 29, 2024 and December 30, 2023:

	Location in Condensed Consolidated Balance Sheets	As of June 29, 2024		As of December 30, 2023
Derivative Assets:
Designated foreign currency hedge contracts	Other long-term assets	$	222,504	$	-

Derivative Liabilities:
Designated foreign currency hedge contracts	Other current liabilities	$	296,866	$	-

Note P – Business Acquisition

On June 29, 2023, the Company acquired certain assets, including accounts receivable, inventories, furniture, fixtures and equipment, intellectual property rights, and rights existing under all sales and purchase agreements, and assumed certain liabilities of Sureflex, Inc. (“Sureflex”). These assets are held in our Velvac, Inc. (“Velvac”) subsidiary. We expect that Sureflex, which manufactures tractor-trailer electrical connection cable assemblies, will enable the Company to manufacture electrical products and become more competitive with respect to cost and quality.

The acquisition of Sureflex was accounted for under ASC Topic 805, “Business Combinations”. The acquired business is included in the consolidated operating results of the Company from the effective date of the acquisition. The excess of the cost of Sureflex over the fair market value of the net assets acquired of $0.5 million has been recorded as goodwill.

Neither the actual results nor the pro forma effects of the Sureflex acquisition are material to the Company’s financial statements.

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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 three and six months ended June 29, 2024. 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 30, 2023 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 30, 2023, which was filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2024 (the “2023 Form 10-K”).

The Company’s fiscal year is a 52-53-week fiscal year ending on the Saturday nearest to December 31. References in this Quarterly Report on Form 10-Q for the quarterly period ended June 29, 2024 (this “Form 10-Q”) to 2023, the 2023 fiscal year or fiscal 2023 mean the 52-week period ended on December 30, 2023, and references to 2024, the 2024 fiscal year or fiscal 2024 mean the 52-week period ending on December 28, 2024. In a 52-week fiscal year, each quarter has 13 weeks. References to the second quarter of 2023, the second fiscal quarter of 2023 or the three months ended July 1, 2023, mean the 13-week period from April 1, 2023 to July 1, 2023. References to the second quarter of 2024, the second fiscal quarter of 2024 or the three months ended June 29, 2024 mean the 13-week period from March 31, 2024 to June 29, 2024. References to the first six months of 2023 or the six months ended July 1, 2023 mean the period from January 1, 2023 to July 1, 2023. References to the first six months of 2024 or the six months ended June 29, 2024 mean the period from December 31, 2023 to June 29, 2024.

Safe Harbor for Forward-Looking Statements

Statements contained in this Form 10-Q 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 higher raw material and component costs and cost inflation, supply chain disruptions and shortages, particularly with respect to steel, plastics, scrap iron, zinc, copper, and electronic components;
	·	delays in delivery of our products to our customers;
	·	the impact of global economic conditions and rising interest rates, and more specifically conditions in the automotive, construction, aerospace, energy, oil and gas, transportation, electronic, and general industrial markets, including the impact, length and degree of economic downturns on the customers and markets we serve and demand for our products, reductions in production levels, 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;
	·	restrictions on operating flexibility imposed by the agreement governing our credit facility;
	·	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;
	·	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 acquired businesses and achieve expected synergies;
	·	costs and liabilities associated with environmental compliance;
	·	the impact of climate change, natural disasters, geopolitical events, and public health crises, including pandemics (such as COVID-19) and epidemics, and any related Company or government policies or actions;
	·	military conflict (including the Russia/Ukraine conflict, the conflict in Israel and surrounding areas, the possible expansion of such conflicts and geopolitical consequences) or terrorist threats and the possible responses by the U.S. and foreign governments;
	·	failure to protect our intellectual property;
	·	cyberattacks; and
	·	materially adverse or unanticipated legal judgments, fines, penalties, or settlements.

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The Company is also subject to other risks identified and discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, in Part I, Item 1A, Risk Factors, and in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the 2023 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.

General Overview

Net sales in the second quarter of 2024 increased 7% to $73.2 million from $68.3 million in the corresponding period in 2023. Net sales for the first six months of 2024 increased 0.2% to $141.1 million from $140.8 million in the corresponding period last year. Sales increased in the second quarter of 2024 primarily due to increased demand for truck mirror assemblies of $8.0 million and returnable transport packaging products of $0.4 million, offset by lower demand for truck accessories of $3.6 million. In the second quarter of 2024, truck mirror assemblies volume was favorably impacted by additional orders of approximately $5.0 million from two key customers due to our operational flexibility and competitive advantages. Sales were relatively flat for the first six months of 2024 compared to the first six months of 2023 with increased demand for truck mirror assemblies of $12.2 million offset by lower demand for truck accessories of $7.6 million and returnable transport packaging products of $4.3 million. Our backlog as of June 29, 2024 increased 43% to $107.3 million from $75.3 million as of July 1, 2023, driven by increased orders for various truck mirror assemblies and returnable transport packaging products.

Net sales of existing products declined 2% in the second quarter of 2024 and 7% for the first six months of 2024 compared to the corresponding periods in 2023. Price increases and new products increased net sales by 9% in the second quarter of 2024 and 7% in the first six months of 2024, compared to the corresponding periods in 2023. New products included various truck mirror assemblies, rotary latches, D-rings, and mirror cams.

Cost of products sold increased $1.8 million, or 3%, in the second quarter of 2024 and decreased by $3.5 million, or 3% in the first six months of 2024 compared to the corresponding period in 2023. The increase in cost of products sold in the second quarter of 2024 are primarily due to higher sales volume. The decrease in cost of products sold in the first six months of 2024 when compared to the same period last year is primarily due to lower production volumes and other cost savings initiatives. Additionally, the Company paid tariff costs on China-sourced products of approximately $0.6 million and $1.2 million in the second quarter of 2024 and first six months of 2024 respectively, compared to $0.5 million and $1.1 million in the second quarter of 2023 and first six months of 2023, respectively. Most tariffs on China-sourced products have been recovered through price increases.

Gross margin as a percentage of sales was 25% in the second quarter of 2024 and 24% in the first six months of 2024 compared to 22% in both the second quarter and first six months of 2023. Our gross margins in the second quarter of 2024 primarily reflect the impact of price increases to customers to recover increases in raw material costs and other cost savings initiatives.

Product development expenses decreased $0.1 million in the second quarter of 2024 and decreased $0.2 million in the first six months of 2024 compared to the corresponding periods in 2023 as we continue to invest in new products at our Eberhard, Velvac, and Big 3 businesses. As a percentage of net sales, product development costs were 1.8% for the second quarter of 2024 and 1.9% for the first six months of 2024, compared to 2.1% and 2.0% for the corresponding periods in 2023.

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Selling, general and administrative expenses increased $0.2 million, or 2%, in the second quarter of 2024 when compared to the second quarter of 2023 primarily due to higher payroll-related expense of $0.4 million and higher travel expenses of $0.1 million, partially offset by lower legal and professional expenses of $0.1 million, and lower selling costs of $0.2 million. Selling and administrative expenses decreased $0.2 million, or 1% in the first six months of 2024 when compared to the corresponding period in 2023 primarily due to lower payroll-related expenses of $0.1 million, lower legal and professional expenses of $0.3 million, and lower selling expenses of $0.1 million, partially offset by higher travel and other expenses of $0.3 million.

Interest expense increased $0.1 million in the second quarter of 2024 and $0.2 million in the first six months of 2024 compared to the corresponding period in 2023 due to higher interest rates, partially offset by lower principal balances.

Other income and expense decreased $0.3 million in the second quarter of 2024 and increased $0.4 million in the first six months of 2024 when compared to the corresponding periods in 2023. The decrease in other income of $0.3 million in the second quarter of 2024 was primarily driven by a $1.6 million favorable adjustment for the final settlement of our swap agreement with Santander Bank, N.A. (“Santander”) in the second quarter of 2023, partially offset by $1.4 million expense associated with the closure of Associated Toolmakers, Ltd. in the second quarter of 2023. The increase in other income of $0.4 million for the first six months of 2024 when compared to the corresponding period in 2023 was primarily driven by $1.4 million of expense associated with the closure of Associated Toolmakers, Ltd. in the second quarter of 2023, an unfavorable final working capital adjustment of $0.4 million related to the sale of the Greenwald business in the first quarter of 2023, partially offset by a $1.6 million favorable adjustment for the final settlement of our swap agreement with Santander in the second quarter of 2023.

Net income for the second quarter of fiscal 2024 was $3.5 million, or $0.56 per diluted share compared to net income of $1.4 million, or $0.22 per diluted share, for the comparable period in 2023. In the first six months of 2024 net income was $5.5 million, or $0.87 per diluted share compared to net income of $2.0 million, or $0.32 per diluted share for the comparable period in 2023.

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						Six Months Ended
	June 29, 2024			July 1, 2023			June 29, 2024			July 1, 2023

Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of products sold		75.1	%		77.8	%		75.6	%		78.2	%
Gross margin		24.9	%		22.2	%		24.4	%		21.8	%
Product development expense		1.8	%		2.1	%		1.9	%		2.0	%
Selling and administrative expense		15.8	%		16.5	%		16.3	%		16.5	%
Operating Profit		7.3	%		3.6	%		6.2	%		3.3	%

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The following table shows the change in sales and operating profit for the second quarter and first six months of 2024 compared to the second quarter and first six months of 2023 (dollars in thousands):

	Three Months			Six Months
	Ended			Ended
	June 29, 2024			June 29, 2024

Net Sales	$	4,814		$	248

Volume		(2.0	)%		(6.6	)%
Price		2.0	%		2.0	%
New products		7.0	%		4.8	%
		7.0	%		0.2	%

Operating Profit	$	2,944		$	4,123

Liquidity and Sources of Capital

The Company generated $10.3 million of cash from operations during the first six months of fiscal 2024 compared to generating $13.6 million during the first six months of fiscal 2023. Cash flow from operations in the first six months of 2024 was lower when compared to the corresponding period in 2023 primarily due to increases in accounts receivable and lower reductions in inventory, partially offset by increases in accounts payable.

Additions to property, plant, and equipment were $2.8 million and $2.0 million for the first six months of 2024 and 2023, respectively. As of June 29, 2024, there was approximately $3.0 million of outstanding commitments for capital expenditures.

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

	Second Quarter 2024			Second Quarter 2023			Fiscal Year 2023
Current ratio		2.6			2.9			2.6
Average days’ sales in accounts receivable		55			55			48
Inventory turnover		3.8			3.8			3.5
Total debt to shareholders’ equity		31.1	%		43.1	%		33.2	%

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):

	Second			Second			Fiscal
	Quarter			Quarter			Year
	2024			2023			2023
Cash and cash equivalents
- Held in the United States	$	10.3		$	8.8		$	7.0
- Held by a foreign subsidiary		1.4			4.4			1.3
		11.7			13.2			8.3

Working capital		72.8			77.8			69.5
Net cash provided by operating activities		10.3			13.6			26.5
Change in working capital impact on net cash used in operating activities		0.4			7.0			9.7
Net cash used in investing activities		(3.3	)		(0.2	)		(5.4	)
Net cash used in financing activities		(3.4	)		(10.2	)		(22.9	)

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Inventories of $56.9 million as of June 29, 2024 declined by $2.4 million, or 4.0%, when compared to $59.3 million at the end of fiscal year 2023 and declined $0.6 million, or 1.0%, when compared to $57.5 million at the end of the second quarter of fiscal 2023. Accounts receivable, less allowances, were $42.3 million as of June 29, 2024, as compared to $37.1 million at 2023 fiscal year end and $42.0 million at the end of the second quarter of fiscal 2023.

On June 16, 2023, the Company entered into a credit agreement with TD Bank, N.A., Wells Fargo Bank, Bank of America, and M&T Bank as lenders (the “Credit Agreement”), and incurred indebtedness under the Credit Agreement in the aggregate principal amount of $60 million in the form of a term loan, the proceeds of which were used to repay the Company’s remaining outstanding term loan and to terminate its existing credit facility with Santander. See Note G Debt, for additional information regarding the terms of the Credit Agreement, including repayment terms, interest rates and applicable loan covenants. Under the terms of the Credit Agreement, the Company is subject to restrictive covenants that limit our ability to, among other things, incur additional indebtedness, pay dividends, or make other distributions, and consolidate, merge, sell or otherwise dispose of assets, as well as financial covenants that require us to maintain a fixed charge coverage ratio and a maximum senior net leverage ratio. These covenants may limit how we conduct our business, and in the event of certain defaults, our repayment obligations may be accelerated. We were in compliance with all of our covenants as of June 29, 2024 and had no outstanding borrowings under the revolving commitment portion of the credit facility as of such date.

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 in the short-term (i.e., the next 12 months from June 29, 2024) and separately in the long-term (i.e., beyond the next 12 months). 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 3.50 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 current economic conditions and inflationary pressures or the resulting harm to the financial condition of our customers, 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.

In addition to funding capital requirements, we may use available cash to pay down our indebtedness, to make investments, which may include investments in publicly traded securities, or to make acquisitions that we believe will complement or expand our existing businesses.

As of the end of the second quarter of 2024, 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 r

SEC Form 10-Q filed by Eastern Company