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 September 28, 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 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 September 28, 2024, 6,183,179 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 SEPTEMBER 28, 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	18.

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27.

Item 4.	Controls and Procedures	27.

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	28.

Item 1A.	Risk Factors	28.

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28.

Item 3.	Defaults Upon Senior Securities	28.

Item 4.	Mine Safety Disclosures	28.

Item 5.	Other Information	28.

Item 6	Exhibits	29.

SIGNATURES		30.

Table of Contents

PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

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

	Three Months Ended						Nine Months Ended
	September 28, 2024			September 30, 2023			September 28, 2024			September 30, 2023
Net sales	$	71,274,757		$	62,001,347		$	206,068,490		$	195,062,061
Cost of products sold		(53,085,087	)		(46,556,952	)		(154,161,980	)		(150,371,589	)
Gross margin		18,189,670			15,444,395			51,906,510			44,690,472

Product development expense		(1,077,930	)		(1,425,159	)		(3,739,214	)		(4,257,468	)
Selling and administrative expenses		(10,316,788	)		(8,452,163	)		(31,014,022	)		(29,051,436	)
Operating profit		6,794,952			5,567,073			17,153,274			11,381,568

Interest expense		(709,680	)		(854,223	)		(2,049,655	)		(2,059,912	)
Other (expense) income		(82,703	)		(135,839	)		(92,415	)		1,025,582
Income from continuing operations before income taxes		6,002,569			4,577,011			15,011,204			10,347,238

Income tax expense		(1,333,771	)		(1,113,587	)		(3,335,489	)		(2,574,393	)
Net income from continuing operations	$	4,668,798		$	3,463,424		$	11,675,715		$	7,772,845

Discontinued Operations (see note B)
Loss from operations of discontinued unit	$	(766,990	)	$	(530,764	)	$	(2,750,844	)	$	(3,600,060	)
Loss on classification as held for sale		(23,087,775	)		-			(23,087,775	)		-
Income tax benefit		3,888,522			129,298			4,320,904			895,695
Loss on discontinued operations	$	(19,966,243	)	$	(401,466	)	$	(21,517,715	)	$	(2,704,365	)

Net (loss) income	$	(15,297,445	)	$	3,061,958		$	(9,842,000	)	$	5,068,480

Earnings per share from continuing operations:
Basic	$	0.75		$	0.55		$	1.88		$	1.25

Diluted	$	0.75		$	0.55		$	1.87		$	1.24

Loss per share from discontinued operations:
Basic	$	(3.22	)	$	(0.06	)	$	(3.46	)	$	(0.43	)

Diluted	$	(3.21	)	$	(0.06	)	$	(3.45	)	$	(0.43	)

Total (loss) earnings per share:
Basic	$	(2.47	)	$	0.49		$	(1.58	)	$	0.82

Diluted	$	(2.46	)	$	0.49		$	(1.58	)	$	0.81

Cash dividends per share	$	0.11		$	0.11		$	0.33		$	0.33

See accompanying notes.

Table of Contents

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 28, 2024			September 30, 2023			September 28, 2024			September 30, 2023
Net (loss) income	$	(15,297,445	)	$	3,061,958		$	(9,842,000	)	$	5,068,480
Other comprehensive (loss) income:

Change in foreign currency translation		(120,191	)		(87,572	)		(527,862	)		(182,029	)

Change in fair value of foreign currency swap, net of tax benefit of:
2024 - $(106,076) and $(123,179) respectively		(355,123	)		-			(412,382	)		-

Change in fair value of interest rate swap, net of tax benefit of:
2023 - $0 and $(274,957) respectively		-			-			-			(1,449,754	)

Change in pension and postretirement benefit costs, net of taxes of:
2024 - $71,355 and $214,065 respectively; 2023 - $74,360 and $223,079 respectively		237,501			252,668			718,338			758,006
Total other comprehensive (loss) income		(237,813	)		165,096			(221,906	)		(873,777	)
Comprehensive (loss) income	$	(15,535,258	)	$	3,227,054		$	(10,063,906	)	$	4,194,703

See accompanying notes.

Table of Contents

THE EASTERN COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 28, 2024			December 30, 2023
	(unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	7,670,541		$	8,048,127
Marketable securities		2,034,602			986,477
Accounts receivable, less allowances: 2024 - $470,870; 2023 - $534,476		45,999,803			34,204,581
Inventories		58,125,362			58,396,679
Current portion of notes receivable		239,261			573,269
Prepaid expenses and other assets		2,356,524			5,443,778
Current assets held for sale		9,643,534			4,583,797
Total Current Assets		126,069,627			112,236,708

Property, Plant and Equipment		59,890,704			52,684,476
Accumulated depreciation		(31,095,676	)		(29,162,438	)
Property, Plant and Equipment, Net		28,795,028			23,522,038

Goodwill		58,576,197			58,576,198
Trademarks		3,946,651			3,914,409
Patents and other intangibles net of accumulated amortization		9,373,296			11,182,167
Long-term notes receivable, less current portion		238,002			374,932
Deferred Income Taxes		2,536,357			2,283,571
Right of Use Assets		14,645,336			17,064,137
Other Long-Term Assets		42,510			-
Long-term assets held for sale		-			22,885,041
Total Other Assets		89,358,349			116,280,455

TOTAL ASSETS	$	244,223,004		$	252,039,201

See accompanying notes.

Table of Contents

THE EASTERN COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 28, 2024			December 30, 2023
	(unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	23,988,401		$	24,554,117
Accrued compensation		5,142,966			5,194,830
Other accrued expenses		8,252,803			3,965,335
Current portion of operating lease liability		3,373,500			4,336,794
Current portion of finance lease liability		721,178			175,231
Current portion of long-term debt		3,228,935			2,871,870
Other current liabilities		578,071			-
Current liabilities held for sale		2,541,189			1,635,549
Total Current Liabilities		47,827,043			42,733,726

Other long-term liabilities		640,724			730,970
Operating lease liability, less current portion		11,271,835			12,727,344
Finance lease liability, less current portion		3,050,529			715,669
Long-term debt, less current portion		41,487,366			41,063,865
Accrued postretirement benefits		594,167			554,758
Accrued pension cost		20,111,130			21,025,365
Long-term liabilities held for sale		-			6,920
Total Liabilities		124,982,794			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		34,864,634			33,950,859
Issued: 9,127,700 shares as of 2024 and 9,091,815 shares as of 2023
Outstanding: 6,183,179 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		(25,196,598	)		(23,280,467	)
Retained earnings		132,912,235			144,805,168
Accumulated other comprehensive loss:
Foreign currency translation		(1,394,461	)		(866,599	)
Unrealized loss on foreign currency swap, net of tax		(535,561	)		-
Unrecognized net pension and postretirement benefit costs, net of tax		(21,410,039	)		(22,128,377	)
Accumulated other comprehensive loss		(23,340,061	)		(22,994,976	)
Total Shareholders’ Equity		119,240,210			132,480,584
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	244,223,004		$	252,039,201

See accompanying notes.

Table of Contents

THE EASTERN COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended
	September 28, 2024			September 30, 2023
Operating Activities
Net (loss) income	$	(9,842,000	)	$	5,068,480
Less: Loss from discontinued operations		(21,517,715	)		(2,704,365	)
Income from continuing operations	$	11,675,715		$	7,772,845
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization		4,266,038			3,914,160
Reduction in carrying amount of ROU assets		2,418,801			3,579,223
Unrecognized pension and postretirement benefits		(353,257	)		635,677
Loss on sale of equipment and other assets		53,311			331,474
Provision for doubtful accounts		(24,570	)		(88,353	)
Stock compensation expense		913,775			151,300
Changes in operating assets and liabilities:
Accounts receivable		(11,739,823	)		1,069,630
Inventories		300,720			4,501,969
Prepaid expenses and other		2,874,825			1,108,094
Other assets		(236,934	)		(262,212	)
Accounts payable		693,653			1,821,223
Accrued compensation		(190,904	)		353,773
Change in operating lease liability		(2,418,801	)		(3,579,223	)
Other accrued expenses		115,403			(3,152,809	)
Net cash provided by operating activities		8,347,952			18,156,771

Investing Activities
Marketable securities		(999,960	)		-
Business acquisition		-			(547,638	)
Payments received from notes receivable		470,937			2,265,730
Proceeds from sale of equipment		18,925			-
Purchases of property, plant, and equipment		(7,634,265	)		(4,089,705	)
Net cash used in investing activities		(8,144,363	)		(2,371,613	)

Financing Activities
Proceeds from new long-term debt financing		-			60,000,000
Principal payments on long-term debt		(2,365,500	)		(74,919,004	)
Proceeds (payments) on short term borrowings (revolver)		3,000,000			(300,029	)
Financing leases, net		2,819,262			674,558
Purchase common stock for treasury		(1,916,130	)		(245,546	)
Dividends paid		(2,050,933	)		(2,069,043	)
Net cash used in financing activities		(513,301	)		(16,859,064	)

Discontinued Operations
Cash provided by operating activities		411,778			1,092,876
Cash used in investing activities		(217,101	)		(628,968	)
Cash provided by discontinued operations		194,677			463,908

Effect of exchange rate changes on cash		(67,874	)		(36,737	)
Net change in cash and cash equivalents		(182,909	)		(646,735	)

Cash and cash equivalents at beginning of period		8,299,453			10,187,521
Cash and cash equivalents at end of period ¹	$	8,116,544		$	9,540,786

Supplemental disclosure of cash flow information
Interest	$	2,443,448		$	2,574,890
Income taxes		3,945,295			1,321,170

Non-cash investing and financing activities
Right of use asset		2,418,801			3,579,222
Lease liability		(462,004	)		(4,484,838	)

¹ includes cash from assets held for sale of $0.4 million as of September 28, 2024 and $0.7 million as of September 30, 2023

See accompanying notes

Table of Contents

THE EASTERN COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 28, 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 September 28, 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 third quarter of 2023, the third fiscal quarter of 2023 or the three months ended September 30, 2023 mean the 13-week period from July 2, 2023 to September 30, 2023. References to the third quarter of 2024, the third fiscal quarter of 2024 or the three months ended September 28, 2024, mean the 13-week period from June 30, 2024 to September 28, 2024. References to the first nine months of 2023 or the nine months ended September 30, 2023 mean the period from January 1, 2023 to September 30, 2023. References to the first nine months of 2024 or the nine months ended September 28, 2024 mean the period from December 31, 2023 to September 28, 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. See Note B, Discontinued Operations, for additional information.

Note B – Discontinued Operations

In the third quarter of 2024 we determined that the Big 3 Mold business no longer fits with our long-term strategy, and we have initiated the process of selling the business. The Mold business is cyclical in nature, requires significant capital investment to remain competitive, and serves different markets than our core businesses. Selling the Big 3 Mold business will allow management to focus on our core capabilities, offerings, and markets served.

In the third quarter of 2024, we determined that the Big 3 Mold business meets the criteria to be held for sale and that the assets held for sale qualify for discontinued operations. As such, the financial results of the Big 3 Mold business are reflected in our unaudited condensed consolidated statements of operations as discontinued operations for all periods presented. Additionally, current and non-current assets and liabilities of discontinued operations are reflected in the unaudited condensed consolidated balance sheets for both periods presented.

Table of Contents

Summarized Financial Information of Discontinued Operations

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

	Three Months Ended						Nine Months Ended
	September 28, 2024			September 30, 2023			September 28, 2024			September 30, 2023
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Net sales	$	3,360,405		$	3,634,333		$	9,647,649		$	11,406,778
Cost of products sold		(2,804,743	)		(2,703,362	)		(8,402,175	)		(9,076,341	)
Gross margin		555,662			930,971			1,245,474			2,330,437

Selling and administrative expenses		(1,145,232	)		(1,248,179	)		(3,483,904	)		(3,875,579	)
Restructuring costs		(23,087,775	)		-			(23,087,775	)		-
Operating loss		(23,677,345	)		(317,208	)		(25,326,205	)		(1,545,142	)

Other expense		-			-			-			(1,539,940	)
Interest expense		(177,420	)		(213,556	)		(512,414	)		(514,978	)
Loss from discontinued operations before income taxes		(23,854,765	)		(530,764	)		(25,838,619	)		(3,600,060	)

Income tax benefit		3,888,522			129,298			4,320,904			895,695
Loss from discontinued operations, net of tax	$	(19,966,243	)	$	(401,466	)	$	(21,517,715	)	$	(2,704,365	)

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