Eastern Co 10-Q for FY2024 Q3
Eastern Co (EML)
About this 10-Q
Eastern Co filed this 10-Q on November 5, 2024, covering the quarter ended September 28, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 28, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $71.27M
- up 15.0% from $62M a year earlier
- Net loss
- $15.3M
- compared with net income of $3.06M a year earlier
- Diluted EPS
- -$2.46
- compared with $0.49 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended |
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
(Exact name of registrant as specified in its charter) |
| ||
(State or other jurisdiction of |
| (I.R.S. Employer |
incorporation or organization) |
| Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
( |
(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 |
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.
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).
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 | ☐ | ☒ | |
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,
The Eastern Company
Form 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 2024
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Table of Contents |
PART 1 – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
THE EASTERN COMPANY AND SUBSIDIARIES | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) | ||||||||
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| Three Months Ended |
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| September 28, 2024 |
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| September 30, 2023 |
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Net sales |
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Cost of products sold |
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Gross margin |
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Product development expense |
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Selling and administrative expenses |
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Operating profit |
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Interest expense |
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Other (expense) income |
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Income from continuing operations before income taxes |
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Income tax expense |
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Net income from continuing operations |
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Discontinued Operations (see note B) |
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Loss from operations of discontinued unit |
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Loss on classification as held for sale |
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Income tax benefit |
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Loss on discontinued operations |
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Net (loss) income |
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Earnings per share from continuing operations: |
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Basic |
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Diluted |
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Loss per share from discontinued operations: |
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Basic |
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Diluted |
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Total (loss) earnings per share: |
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Basic |
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Diluted |
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Cash dividends per share |
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See accompanying notes. |
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| 3 |
| Table of Contents |
THE EASTERN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
| Three Months Ended |
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| Nine Months Ended |
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| September 28, 2024 |
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| September 30, 2023 |
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| September 28, 2024 |
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| September 30, 2023 |
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Net (loss) income |
| $ | ( | ) |
| $ |
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| $ | ( | ) |
| $ |
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Other comprehensive (loss) income: |
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Change in foreign currency translation |
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Change in fair value of foreign currency swap, net of tax benefit of: |
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2024 - $(106,076) and $(123,179) respectively |
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Change in fair value of interest rate swap, net of tax benefit of: |
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2023 - $0 and $(274,957) respectively |
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Change in pension and postretirement benefit costs, net of taxes of: |
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2024 - $71,355 and $214,065 respectively; 2023 - $74,360 and $223,079 respectively |
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Total other comprehensive (loss) income |
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Comprehensive (loss) income |
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See accompanying notes. |
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| 4 |
| Table of Contents |
THE EASTERN COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
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| September 28, 2024 |
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| December 30, 2023 |
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| (unaudited) |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
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Marketable securities |
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Accounts receivable, less allowances: 2024 - $ |
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Inventories |
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Current portion of notes receivable |
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Prepaid expenses and other assets |
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Current assets held for sale |
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Total Current Assets |
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Property, Plant and Equipment |
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Accumulated depreciation |
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Property, Plant and Equipment, Net |
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Goodwill |
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Trademarks |
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Patents and other intangibles net of accumulated amortization |
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Long-term notes receivable, less current portion |
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Deferred Income Taxes |
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Right of Use Assets |
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Other Long-Term Assets |
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Long-term assets held for sale |
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Total Other Assets |
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TOTAL ASSETS |
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See accompanying notes. |
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| 5 |
| Table of Contents |
THE EASTERN COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
|
| September 28, 2024 |
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| December 30, 2023 |
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| (unaudited) |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current Liabilities |
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Accounts payable |
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Accrued compensation |
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Other accrued expenses |
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Current portion of operating lease liability |
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Current portion of finance lease liability |
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Current portion of long-term debt |
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Other current liabilities |
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Current liabilities held for sale |
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Total Current Liabilities |
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Other long-term liabilities |
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Operating lease liability, less current portion |
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Finance lease liability, less current portion |
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Long-term debt, less current portion |
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Accrued postretirement benefits |
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Accrued pension cost |
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Long-term liabilities held for sale |
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Total Liabilities |
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Shareholders’ Equity |
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Voting Preferred Stock, no par value: |
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Authorized and unissued: |
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Nonvoting Preferred Stock, no par value: |
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Authorized and unissued: |
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Common Stock, no par value, Authorized: |
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Issued: |
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Outstanding: |
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Treasury Stock: |
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Retained earnings |
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Accumulated other comprehensive loss: |
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Foreign currency translation |
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Unrealized loss on foreign currency swap, net of tax |
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Unrecognized net pension and postretirement benefit costs, net of tax |
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Accumulated other comprehensive loss |
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Total Shareholders’ Equity |
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
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See accompanying notes. |
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| 6 |
| Table of Contents |
THE EASTERN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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| Nine Months Ended |
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| September 28, 2024 |
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| September 30, 2023 |
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Operating Activities |
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Net (loss) income |
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Less: Loss from discontinued operations |
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Income from continuing operations |
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Adjustments to reconcile net income to net cash provided |
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by operating activities: |
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Depreciation and amortization |
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Reduction in carrying amount of ROU assets |
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Unrecognized pension and postretirement benefits |
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Loss on sale of equipment and other assets |
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Provision for doubtful accounts |
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Stock compensation expense |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other |
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Other assets |
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Accounts payable |
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Accrued compensation |
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Change in operating lease liability |
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Other accrued expenses |
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Net cash provided by operating activities |
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Investing Activities |
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Marketable securities |
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Business acquisition |
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Payments received from notes receivable |
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Proceeds from sale of equipment |
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Purchases of property, plant, and equipment |
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Net cash used in investing activities |
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Financing Activities |
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Proceeds from new long-term debt financing |
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Principal payments on long-term debt |
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Proceeds (payments) on short term borrowings (revolver) |
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Financing leases, net |
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Purchase common stock for treasury |
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Dividends paid |
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Net cash used in financing activities |
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Discontinued Operations |
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Cash provided by operating activities |
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Cash used in investing activities |
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Cash provided by discontinued operations |
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Effect of exchange rate changes on cash |
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Net change in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period ¹ |
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Supplemental disclosure of cash flow information |
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Interest |
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Income taxes |
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| ||
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|
Non-cash investing and financing activities |
|
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Right of use asset |
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| ||
Lease liability |
|
| ( | ) |
|
| ( | ) |
|
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|
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|
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 |
|
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See accompanying notes |
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| 7 |
| 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.
| 8 |
| Table of Contents |
Summarized Financial Information of Discontinued Operations
The following table represents income from discontinued operations, net of tax:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 28, 2024 |
|
| September 30, 2023 |
|
| September 28, 2024 |
|
| September 30, 2023 |
| ||||
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
| ||||
Net sales |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Cost of products sold |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Gross margin |
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| ||||
|
|
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|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Restructuring costs |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Operating loss |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
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Other expense |
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|
|
|
| ( | ) | |||
Interest expense |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Loss from discontinued operations before income taxes |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
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Income tax benefit |
|
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| ||||
Loss from discontinued operations, net of tax |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
The following table represents the assets and liabilities from discontinued operations:
|
| September 28, 2024 |
|
| December 30, 2023 |
| ||
|
| (unaudited) |
|
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|
| ||
Cash |
| $ |
|
| $ |
| ||
Accounts receivable |
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|
| ||
Inventories |
|
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Prepaid expenses |
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Property, plant and equipment, net |
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| ||
Patents and other intangibles net of accumulated amortization |
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| ||
Goodwill |
|
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|
| ||
Right of use assets |
|
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| ||
Total assets of discontinued operations |
| $ |
|
| $ |
| ||
|
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Current assets of discontinued operations¹ |
| $ |
|
| $ |
| ||
Non-current assets of discontinued operations |
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Total assets of discontinued operations |
| $ |
|
| $ |
| ||
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Accounts payable |
| $ |
|
| $ |
| ||
Accrued compensation and other accrued expenses |
|
|
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| ||
Current portion of lease liability |
|
|
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| ||
Other long-term liabilities |
|
|
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| ||
Total liabilities of discontinued operations |
| $ |
|
| $ |
| ||
|
|
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|
|
Current liabilities of discontinued operations¹ |
| $ |
|
| $ |
| ||
Non-current liabilities of discontinued operations |
|
| - |
|
|
|
| |
Total liabilities of discontinued operations |
| $ |
|
| $ |
| ||
|
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¹ the total assets and liabilities of discontinued operations are presented as current in the September 28, 2024 consolidated balance sheet as we expect to sell the discontinued operations and collect proceeds within one year. |
|
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| 9 |
| Table of Contents |
Note C – Earnings Per Share
The denominators used to calculate earnings per share are as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 28, 2024 |
|
| September 30, 2023 |
|
| September 28, 2024 |
|
| September 30, 2023 |
| ||||
Basic: |
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| ||||
Weighted average shares outstanding |
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| ||||
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Diluted: |
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Weighted average shares outstanding |
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| ||||
Dilutive stock appreciation rights |
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| ||||
Denominator for diluted earnings per share |
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| ||||
Note D – 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 P, Financial Instruments and Fair Value Measurements, and pension assets, see Note M, Retirement Benefit Plans.
The carrying amounts of other financial instruments (cash and cash equivalents, marketable securities, accounts receivable, accounts payable and debt) as of September 28, 2024 and December 30, 2023, approximate fair value because of their short-term nature and market-based interest rates.
| 10 |
| Table of Contents |
Note E – Inventories
Inventories consist of the following components:
|
| September 28, 2024 |
|
| December 30, 2023 |
| ||
|
|
|
|
|
|
| ||
Raw material and component parts |
| $ |
|
| $ |
| ||
Work in process |
|
|
|
|
|
| ||
Finished goods |
|
|
|
|
|
| ||
Total inventories¹ |
| $ |
|
| $ |
| ||
¹ Includes inventory of discontinued operations of $
Note F - Goodwill
The aggregate carrying amount of goodwill from continuing operations is approximately $
The Company evaluates its reporting units for impairment annually in December, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Such events and circumstances could include, among other things, increased competition or unexpected loss of market share, significant adverse changes in the markets in which the Company operates, or unexpected business disruptions. The Company tests reporting units for impairment by comparing the estimated fair value of each reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its estimated fair value, the Company records an impairment loss based on the difference between fair value and carrying amount not to exceed the associated carrying amount of goodwill. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The values assigned to the key assumptions represent management’s assessment of future trends in the relevant industry and have been based on historical data from both external and internal sources.
Note G – Leases
The Company presents right-of-use (ROU) assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months, in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases. The Company accounts for non-lease components as part of the lease component to which they relate. Lease accounting involves significant judgements, including making estimates related to the lease term, lease payments, and discount rate.
The Company has operating leases for buildings, warehouses, and office equipment. The Company determines whether an arrangement is, or contains, a lease at contract inception. An arrangement contains a lease if the Company has the right to direct the use of and obtain substantially all the economic benefits of an identified asset. ROU assets and lease liabilities are recognized at lease commencement based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Most leases include one or more options to renew. The exercise of lease renewal options is at our sole discretion. All options to extend, when it is reasonably certain the option will be exercised, have been included in the calculation of the ROU asset and lease liability.
Currently, the Company has 17 operating leases with a lease liability of $
| 11 |
| Table of Contents |
The future payments (in millions) due under non-cancelable operating and finance leases as of September 28, 2024 are as follows:
|
| Operating |
|
| Finance |
| ||
2024 |
| $ |
|
| $ |
| ||
2025 |
|
|
|
|
|
| ||
2026 |
|
|
|
|
|
| ||
2027 |
|
|
|
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|
| ||
2028 |
|
|
|
|
|
| ||
thereafter |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Less effects of discounting |
|
| ( | ) |
|
| ( | ) |
Lease liabilities recognized |
| $ |
|
| $ |
| ||
As of September 28, 2024, the weighted average lease term for all operating and finance leases was
Note H - 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 $
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
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 September 28, 2024, and through the date of filing this Form 10-Q.
Note I - Stock Options and Awards
On February 19, 2020, the Board of Directors of the Company (the “Board”) adopted The Eastern Company 2020 Stock Incentive Plan (the “2020 Plan”). On April 29, 2020, at the Company’s 2020 Annual Meeting of Shareholders, the shareholders of the Company approved and adopted the 2020 Plan. The Company has no other existing plan pursuant to which equity awards may be granted.
Incentive stock options granted under the 2020 Plan must have exercise prices that are not less than 100% of the fair market value of the Company’s common stock on the dates the stock options are granted. Restricted stock awards may also be granted to participants under the 2020 Plan with restrictions determined by the Compensation Committee of the Board. Under the 2020 Plan, non-qualified stock options granted to participants will have exercise prices determined by the Compensation Committee of the Board. During the first nine months of fiscal 2024 and 2023, the Company granted stock awards with respect to
| 12 |
| Table of Contents |
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 nine 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 $
As of September 28, 2024, there were
The following tables set forth the outstanding SARs for the period specified:
|
| Nine Months Ended |
|
| Year Ended |
| ||||||||||
|
| September 28, 2024 |
|
| December 30, 2023 |
| ||||||||||
|
| Units |
|
| Weighted Average Exercise Price |
|
| Units |
|
| Weighted Average Exercise Price |
| ||||
Outstanding at beginning of period |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Expired |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Exercised |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Forfeited |
|
| - |
|
|
|
|
|
| ( | ) |
|
|
| ||
Outstanding at end of period |
|
|
|
|
|
|
|
|
|
|
|
| ||||
SARs Outstanding and Exercisable |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Range of Exercise Prices |
|
| Outstanding as of September 28, 2024 |
|
| Weighted Average Remaining Contractual Life |
|
| Weighted Average Exercise Price |
|
| Exercisable as of September 28, 2024 |
|
| Weighted Average Remaining Contractual Life |
|
| Weighted Average Exercise Price |
| |||||||
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
| |||||||
| $ |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
| $ |
| |||||||
The following tables set forth the outstanding stock awards for the period specified:
|
| Nine Months Ended |
|
| Year Ended |
| ||
|
| September 28, 2024 |
|
| December 30, 2023 |
| ||
|
| Shares |
|
| Shares |
| ||
Outstanding at beginning of period |
|
|
|
|
|
| ||
Issued |
|
|
|
|
|
| ||
Exercised |
|
| ( | ) |
|
| ( | ) |
Forfeited |
|
| ( | ) |
|
| ( | ) |
Outstanding at end of period |
|
|
|
|
|
| ||
As of September 28, 2024, outstanding SARs and stock awards had an intrinsic value of $
Note J – 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
| 13 |
| Table of Contents |
Below is a summary of the Company’s shares repurchased during the third quarter of 2024 under the new 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 June 29, 2024 |
|
|
|
| $ |
|
|
|
|
|
|
| ||||
June 30, 2024 – September 28, 2024 |
|
|
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|
| ||||
|
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|
|
|
|
|
Balance as of September 28, 2024 |
|
|
|
| $ |
|
|
|
|
|
|
| ||||
Note K – Revenue Recognition
The Company’s revenues result from the sale of goods and services and reflect the consideration to which the Company expects to be entitled. The Company records revenues in accordance with FASB Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers.” The Company has defined purchase orders as contracts in accordance with ASC Topic 606. For its customer contracts, the Company identifies its performance obligations, which are delivering goods or services, determines the transaction price, allocates the contract transaction price to the performance obligations (when applicable), and recognizes the revenue when (or as) the performance obligation is transferred to the customer. A good or service is transferred when the customer obtains control of that good or service. The Company’s revenues are recorded at a point in time from the sale of tangible products. Revenues are recognized when products are shipped.
Customer volume rebates, product returns, discount and allowance are variable considerations and are recorded as a reduction of revenue in the same period that the related sales are recorded. The Company has reviewed the overall sales transactions for variable consideration and has determined that these costs are not material.
The Company has no future performance obligations and does not capitalize costs to obtain or fulfill contracts.
Note L - Income Taxes
The Company files income tax returns in the U.S. at the federal and state levels, and in foreign jurisdictions. With limited exceptions, the Company is no longer subject to U.S. federal, state, and local income tax examinations by tax authorities for years before 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 nine months ended September 28, 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.
| 14 |
| Table of Contents |
Note M - Retirement Benefit Plans
The Company has four non-contributory defined benefit pension plans covering most U.S. employees. All of these pension plans are frozen and participants in these plans have not accrued benefits since the date on which these plans were frozen. Plan benefits are generally based upon age at retirement, years of service and, for the plan covering salaried employees, the level of compensation. The Company also sponsors unfunded non-qualified supplemental retirement plans that provide certain former officers with benefits in excess of limits imposed by federal tax law.
The Company also provides health care and life insurance for retired salaried employees in the United States who meet specific eligibility requirements.
Significant disclosures relating to these benefit plans for the third quarter and first nine months of fiscal years 2024 and 2023 are as follows:
|
| Pension Benefits |
| |||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 28, 2024 |
|
| September 30, 2023 |
|
| September 28, 2024 |
|
| September 30, 2023 |
| ||||
Service cost |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Expected return on plan assets |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Amortization of prior service cost |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amortization of the net loss |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net periodic benefit cost |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
| Other Postretirement Benefits |
| |||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 28, 2024 |
|
| September 30, 2023 |
|
| September 28, 2024 |
|
| September 30, 2023 |
| ||||
Service cost |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Expected return on plan assets |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Amortization of prior service cost |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amortization of the net loss |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Net periodic (benefit) cost |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| ||
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 $
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.
| 15 |
| Table of Contents |
The Company made contributions to the 401(k) Plan as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 28, 2024 |
|
| September 30, 2023 |
|
| September 28, 2024 |
|
| September 30, 2023 |
| ||||
Regular matching contribution |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Transitional credit contribution |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Non-discretionary contribution |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total contributions for the period |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
The non-discretionary contribution of $
Effective January 1, 2023, the non-discretionary contributions are being contributed on a weekly basis.
Note N - 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 O - Concentration of Risk
Credit Risk
Credit risk is the potential financial loss resulting from the failure of a customer or counterparty to settle its financial and contractual obligations to the Company, as and when they become due. The primary credit risk for the Company is its accounts receivable due from customers. The Company has established credit limits for customers and monitors their balances to mitigate the risk of loss. As of September 28, 2024, there were two significant concentrations of credit risk with customers, who had receivables representing
The Company has deposits that exceed amounts up to $
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
| 16 |
| Table of Contents |
Note P – 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 September 28, 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 $
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 nine months ended September 28, 2024:
Derivative Instruments |
| Amount of Loss Recognized in Accumulated Other Comprehensive Income |
|
| Amount of Loss Reclassified from Accumulated Other Comprehensive Income into Earnings |
|
| Location in Condensed Consolidated Statement of Operations | |||
Designated foreign currency hedge contracts, net of tax |
| $ | ( | ) |
| $ | ( | ) |
| 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 September 28, 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.
The following tables present the fair value of the Company’s derivative instruments as they appear in its Condensed Consolidated Balance Sheets as of September 28, 2024 and December 30, 2023:
|
| Location in Condensed Consolidated Balance Sheets |
| As of September 28, 2024 |
|
| As of December 30, 2023 |
| ||
Derivative Assets: |
|
|
|
|
|
|
|
| ||
Designated foreign currency hedge contracts |
| Other long-term assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities: |
|
|
|
|
|
|
|
|
|
|
Designated foreign currency hedge contracts |
| Other current liabilities |
| $ |
|
| $ |
| ||
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| Table of Contents |
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to highlight significant changes in the financial position and results of operations of The Eastern Company (together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) for the three and nine months ended September 28, 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 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.
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 elections, including a change in administration from the upcoming U.S. presidential election, and public health crises, including pandemics (such as COVID-19) and epidemics, and any related Company or government policies or actions; |
| 18 |
| Table of Contents |
| · | military conflict (including the Russia/Ukraine conflict, the conflict in the Middle East, the possible expansion of such conflicts and geopolitical consequences) or terrorist threats and the possible responses by the U.S. and foreign governments; |
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|
|
| · | failure to protect our intellectual property; |
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|
| · | cyberattacks; and |
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|
|
| · | materially adverse or unanticipated legal judgments, fines, penalties, or settlements. |
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.
Recent Development
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 other 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 met 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.
The loss recognized in the write-down of the Big 3 Mold business to fair value in the third quarter of 2024 was $19.2 million, net of tax.
The following analysis excludes discontinued operations.
Net sales in the third quarter of 2024 increased 15% to $71.3 million from $62.0 million in the corresponding period in 2023. Net sales for the first nine months of 2024 increased 6% to $206.1 million from $195.1 million in the corresponding period last year. Sales increased in the third quarter of 2024 primarily due to increased demand for returnable transport packaging products, truck mirror assemblies, and truck accessories of $7.4 million, $1.2 million, and $0.7 million, respectively. Sales increases in the first nine months of 2024 were driven by increased demand for truck mirror assemblies and returnable transport packaging products of $13.3 million and $4.6 million respectively, offset by lower demand for truck accessories of $6.9 million. Our backlog as of September 28, 2024 increased 13% to $97.2 million from $86.2 million as of September 30, 2023, primarily driven by increased orders for various truck mirror assemblies of $11.6 million and returnable transport packaging products of $3.2 million.
Net sales of existing products increased 9% in the third quarter of 2024 and decreased 2% for the first nine months of 2024 compared to the corresponding periods in 2023. Price increases and new products increased net sales by 5% in the third quarter of 2024 and 6% in the first nine months of 2024, compared to the corresponding periods in 2023. New products included various truck mirror assemblies, rotary latches, D-rings, handles, and mirror cams.
| 19 |
| Table of Contents |
Cost of products sold increased $6.5 million, or 14%, in the third quarter of 2024 and increased $3.8 million, or 3% in the first nine months of 2024 compared to the corresponding period in 2023 primarily due to higher sales volume, partially offset by other cost savings initiatives. Additionally, the Company paid tariff costs on China-sourced products of approximately $0.6 million and $1.9 million in the third quarter of 2024 and first nine months of 2024 respectively, compared to $0.6 million and $1.7 million in the third quarter of 2023 and first nine months of 2023, respectively. Most tariffs on China-sourced products have been recovered through price increases.
Gross margin as a percentage of sales was 25.5% in the third quarter of 2024 and 25.2% in the first nine months of 2024 compared to 24.9% in the third quarter of 2023 and 22.9% in the first nine months of 2023. Our gross margins in the third 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 $0.3 million in the third quarter of 2024 and decreased $0.5 million in the first nine 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 1.5% for the third quarter of 2024 and 1.8% for the first nine months of 2024, compared to 2.3% and 2.2% for the corresponding periods in 2023.
Selling, general and administrative expenses increased $1.9 million, or 22.1%, in the third quarter of 2024 when compared to the third quarter of 2023 primarily due to higher payroll-related expenses of $1.2 million, legal and professional expenses of $0.3 million, travel expenses of $0.1 million, and other selling and administrative expenses of $0.3 million. Selling and administrative expenses increased $2.0 million, or 6.8%, in the first nine months of 2024 when compared to the corresponding period in 2023 primarily due to higher payroll-related expenses of $1.7 million and other administrative costs.
Interest expense decreased $0.1 million in the third quarter of 2024 and was flat in the first nine months of 2024 compared to the corresponding periods in 2023 due to lower principal balances, partially offset by higher interest rates.
Other income and expense increased $0.1 million in the third quarter of 2024 and decreased $1.1 million in the first nine months of 2024 when compared to the corresponding periods in 2023. The increase in other income and expense of $0.1 million in the third quarter of 2024 was primarily driven by lower pension expense of $0.1 million when compared to the third quarter of 2023. The decrease in other income and expense of $1.1 million for the first nine months of 2024 when compared to the corresponding period in 2023 was primarily driven by $0.3 million lower pension expense in the second quarter of 2023, and 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 third quarter of fiscal 2024 was $4.7 million, or $0.75 per diluted share compared to net income of $3.5 million, or $0.55 per diluted share, for the comparable period in 2023. In the first nine months of 2024 net income was $11.7 million, or $1.87 per diluted share compared to net income of $7.8 million, or $1.24 per diluted share for the comparable period in 2023.
A more detailed analysis of the Company’s results of operations and financial condition follows.
| 20 |
| 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 |
|
| Nine Months Ended |
| ||||||||||
|
| September 28, 2024 |
|
| September 30, 2023 |
|
| September 28, 2024 |
|
| September 30, 2023 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net sales |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of products sold |
|
| 74.5 | % |
|
| 75.1 | % |
|
| 74.8 | % |
|
| 77.1 | % |
Gross margin |
|
| 25.5 | % |
|
| 24.9 | % |
|
| 25.2 | % |
|
| 22.9 | % |
Product development expense |
|
| 1.5 | % |
|
| 2.3 | % |
|
| 1.8 | % |
|
| 2.2 | % |
Selling and administrative expense |
|
| 14.5 | % |
|
| 13.6 | % |
|
| 15.1 | % |
|
| 14.9 | % |
Operating Profit |
|
| 9.5 | % |
|
| 9.0 | % |
|
| 8.3 | % |
|
| 5.8 | % |
The following table shows the change in sales and operating profit for the third quarter and first nine months of 2024 compared to the third quarter and first nine months of 2023 (dollars in thousands):
|
| Three Months |
|
| Nine Months |
| ||
|
| Ended |
|
| Ended |
| ||
|
| September 28, 2024 |
|
| September 28, 2024 |
| ||
|
|
|
|
|
|
| ||
Net Sales |
| $ | 9,273 |
|
| $ | 11,006 |
|
|
|
|
|
|
|
|
|
|
Volume |
|
| 9.3 | % |
|
| -1.6 | % |
Price |
|
| 0.1 | % |
|
| 1.4 | % |
New products |
|
| 4.3 | % |
|
| 4.7 | % |
|
|
| 13.7 | % |
|
| 4.5 | % |
|
|
|
|
|
|
|
|
|
Operating Profit |
| $ | 1,227 |
|
| $ | 5,772 |
|
Liquidity and Sources of Capital
The Company generated $8.3 million of cash from operations during the first nine months of fiscal 2024 compared to generating $18.2 million during the first nine months of fiscal 2023. Cash flow from operations in the first nine months of 2024 was lower when compared to the corresponding period in 2023 primarily due to increases in accounts receivable of $11.7 million due to increases in revenue in the third quarter of 2024 when compared to the corresponding period in 2023 and approximately $3.0 million in accounts receivable due to the pre-billing to cover material costs on a specific job.
Additions to property, plant, and equipment were $7.6 million and $4.1 million for the first nine months of 2024 and 2023, respectively. As of September 28, 2024, there were approximately $4.0 million of outstanding commitments for capital expenditures.
| 21 |
| Table of Contents |
The following table shows key financial ratios at the end of each specified period:
|
| Third Quarter 2024 |
|
| Third Quarter 2023 |
|
| Fiscal Year 2023 |
| |||
Current ratio |
|
| 2.6 |
|
|
| 2.6 |
|
|
| 2.6 |
|
Average days’ sales in accounts receivable |
|
| 62 |
|
|
| 53 |
|
|
| 48 |
|
Inventory turnover |
|
| 3.8 |
|
|
| 3.4 |
|
|
| 3.5 |
|
Total debt to shareholders’ equity |
|
| 37.5 | % |
|
| 37.8 | % |
|
| 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):
|
| Third |
|
| Third |
|
| Fiscal |
| |||
|
| Quarter |
|
| Quarter |
|
| Year |
| |||
|
| 2024 |
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| 2023 |
|
| 2023 |
| |||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
| |||
- Held in the United States |
| $ | 5.9 |
|
| $ | 6.9 |
|
| $ | 6.9 |
|
- Held by a foreign subsidiary |
|
| 1.7 |
|
|
| 2.0 |
|
|
| 1.1 |
|
|
|
| 7.6 |
|
|
| 8.9 |
|
|
| 8.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
| 78.2 |
|
|
| 73.5 |
|
|
| 69.5 |
|
Net cash provided by operating activities |
|
| 8.3 |
|
|
| 5.4 |
|
|
| 9.7 |
|
Change in working capital impact on net cash used in operating activities |
|
| (8.2 | ) |
|
| 7.0 |
|
|
| 9.7 |
|
Net cash used in investing activities |
|
| (8.1 | ) |
|
| (2.4 | ) |
|
| (5.4 | ) |
Net cash used in financing activities |
|
| (0.5 | ) |
|
| (16.9 | ) |
|
| (22.9 | ) |
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Inventories of $58.1 million as of September 28, 2024 declined by $0.3 million, or 0.5%, when compared to $59.3 million at the end of fiscal year 2023 and declined $1.9 million, or 3.2%, when compared to $60.0 million at the end of the third quarter of fiscal 2023. Accounts receivable, less allowances, were $46.0 million as of September 28, 2024, as compared to $34.2 million at 2023 fiscal year end and $40.0 million at the end of the third quarter of fiscal 2023. Accounts receivable as of September 28, 2024 included approximately $3.0 million for pre-billing to cover material costs on a specific job and adversely impacted average days sales in accounts receivable by 4 days.
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 H 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 September 28, 2024 and had no outstanding borrowings under the revolving commitment portion of the credit facility as of such date. On September 6, 2024, the Company drew down $3.0 million on its revolving credit facility to support ongoing working capital requirements. The Company has $27.0 million available on its revolving line of credit.
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 September 28, 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 third 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 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 estimates, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of the 2023 Form 10-K. While there have been no material changes to our critical accounting estimates since the filing of the 2023 Form 10-K, 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 condensed 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, Adjusted EBITDA from Continuing Operations, Adjusted EBITDA from Discontinued Operations and Adjusted EBITDA, which are considered non-GAAP financial measures. The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way. These measures are not substitutes for their comparable U.S. GAAP financial measures, such as net sales, net income, diluted earnings per share, or other measures prescribed by U.S. GAAP, and there are limitations to using non-GAAP financial measures.
Adjusted Net Income from Continuing Operations is defined as net income from continuing operations excluding, when incurred, 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 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.
Adjusted EBITDA from Discontinued Operations is defined as net income from discontinued 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 Discontinued 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.
Adjusted EBITDA is defined as net income 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 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.
24 |
| Table of Contents |
Reconciliation of Non-GAAP Measures | ||||||||||||||||
Adjusted Net Income from Continuing Operations and Adjusted Earnings per Share | ||||||||||||||||
from Continuing Operations Calculation | ||||||||||||||||
For the Three and Nine Months ended September 28, 2024 and September 30, 2023 | ||||||||||||||||
($000's) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 28, 2024 |
|
| September 30, 2023 |
|
| September 28, 2024 |
|
| September 30, 2023 |
| ||||
Net income from continuing operations as reported per generally accepted accounting principles (GAAP) |
| $ | 4,669 |
|
| $ | 3,463 |
|
| $ | 11,676 |
|
| $ | 7,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations as reported under generally accepted accounting principles (GAAP): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.75 |
|
| $ | 0.55 |
|
| $ | 1.88 |
|
| $ | 1.25 |
|
Diluted |
| $ | 0.75 |
|
| $ | 0.55 |
|
| $ | 1.87 |
|
| $ | 1.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and accrued compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,799 | a |
Greenwald final sale adjustment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 390 | b |
Non-GAAP tax impact of adjustments (1) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (909 | ) |
Total adjustments (non-GAAP) |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 1,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income from continuing operations (non-GAAP) |
| $ | 4,669 |
|
| $ | 3,463 |
|
| $ | 11,676 |
|
| $ | 9,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings per share from continuing operations (non-GAAP): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.75 |
|
| $ | 0.56 |
|
| $ | 1.88 |
|
| $ | 1.45 |
|
Diluted |
| $ | 0.75 |
|
| $ | 0.55 |
|
| $ | 1.87 |
|
| $ | 1.44 |
|
(1) We estimate the tax effect of the items identified to determine a non-GAAP annual effective tax rate applied to the pre-tax amount in order to calculate the non-GAAP provision for income taxes |
|
a) 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 |
|
b) Final settlement of working capital adjustment associated with Greenwald sale |
| 25 |
| Table of Contents |
Reconciliation of Non-GAAP Measures | ||||||||||||||||
Calculations of Adjusted EBITDA from Continuing Operations, Adjusted EBITDA from Discontinued Operations and Adjusted EBITDA | ||||||||||||||||
For the Three and Nine Months ended September 28, 2024 and September 30, 2023 | ||||||||||||||||
($000's) | ||||||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 28, 2024 |
|
| September 30, 2023 |
|
| September 28, 2024 |
|
| September 30, 2023 |
| ||||
Net income from continuing operations as reported per generally accepted accounting principles (GAAP) |
| $ | 4,669 |
|
| $ | 3,463 |
|
| $ | 11,676 |
|
| $ | 7,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 710 |
|
|
| 854 |
|
|
| 2,050 |
|
|
| 2,060 |
|
Provision for income taxes |
|
| 1,334 |
|
|
| 1,114 |
|
|
| 3,335 |
|
|
| 2,574 |
|
Depreciation and amortization |
|
| 2,033 |
|
|
| 1,317 |
|
|
| 4,266 |
|
|
| 3,914 |
|
Severance and accrued compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,799 | a |
Greenwald final sale adjustment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 390 | b |
Adjusted EBITDA from continuing operations (non-GAAP) |
| $ | 8,745 |
|
| $ | 6,748 |
|
| $ | 21,327 |
|
| $ | 18,510 |
|
Net income from discontinued operations as reported per generally accepted accounting principles (GAAP) |
| $ | (19,966 | ) |
| $ | (401 | ) |
| $ | (21,518 | ) |
| $ | (2,704 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 177 |
|
|
| 214 |
|
|
| 512 |
|
|
| 515 |
|
Provision for income taxes |
|
| (3,889 | ) |
|
| (129 | ) |
|
| (4,321 | ) |
|
| (896 | ) |
Depreciation and amortization |
|
| 546 |
|
|
| 534 |
|
|
| 1,595 |
|
|
| 1,558 |
|
Loss on classification as held for sale |
|
| 23,088 | c |
|
| - |
|
|
| 23,088 | c |
|
| - |
|
Adjusted EBITDA from discontinued operations (non-GAAP) |
| $ | (44 | ) |
| $ | 217 |
|
| $ | (644 | ) |
| $ | (1,527 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income as reported per generally accepted accounting principles (GAAP) |
| $ | (15,297 | ) |
| $ | 3,062 |
|
| $ | (9,842 | ) |
| $ | 5,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 887 |
|
|
| 1,068 |
|
|
| 2,562 |
|
|
| 2,575 |
|
Provision for income taxes |
|
| (2,555 | ) |
|
| 984 |
|
|
| (985 | ) |
|
| 1,679 |
|
Depreciation and amortization |
|
| 2,579 |
|
|
| 1,851 |
|
|
| 5,861 |
|
|
| 5,472 |
|
Severance and accrued compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,799 | a |
Greenwald final sale adjustment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 390 | b |
Loss on classification as held for sale |
|
| 23,088 | c |
|
| - |
|
|
| 23,088 | c |
|
| - |
|
Adjusted EBITDA (non-GAAP) |
| $ | 8,701 |
|
| $ | 6,965 |
|
| $ | 20,683 |
|
| $ | 16,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a) 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 | ||||||||||||||||
| ||||||||||||||||
b) Final settlement of working capital adjustment associated with Greenwald sale | ||||||||||||||||
| ||||||||||||||||
c) Impact of classifying Big 3 Mold business as held for sale | ||||||||||||||||
| 26 |
| 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 September 28, 2024, 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 13a-15(e) and 15d-15(e)) pursuant to Exchange Act Rule 13a-15. As defined in Exchange Act Rules 13a-15(e) and 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 September 28, 2024.
Changes in Internal Control Over Financial Reporting:
During the period covered by this 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.
| 27 |
| 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 September 28, 2024, the Company does not have any material pending legal proceedings, other than as set forth in Part I, Item 3, Legal Proceedings, of the 2023 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 2023 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 September 28, 2024, there have been no material changes to the risk factors disclosed in the 2023 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 August 21, 2023, the Company announced that the Board of Directors of the Company 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 new share repurchase program does not obligate it to acquire the Company’s common stock at any specific cost per share. Under this program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. Below is a summary of the Company’s share repurchases during the third quarter of 2024 under the new 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 |
| ||||
June 30, 2024 - August 3, 2024 |
|
| 17,081 |
|
| $ | 27.45 |
|
|
| 17,081 |
|
|
| 122,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 4, 2024 - August 31, 2024 |
|
| 12,919 |
|
|
| 28.77 |
|
|
| 12,919 |
|
|
| 109,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 1, 2024 - September 28, 2024 |
|
| 20,000 |
|
|
| 29.68 |
|
|
| 20,000 |
|
|
| 89,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| 50,000 |
|
| $ | 28.68 |
|
|
| 50,000 |
|
|
| 89,924 |
|
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 – OTHER INFORMATION
(a) None.
(b) None.
(c) During the third quarter of 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1trading arrangement” or “non-Rule 10b5-1trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
| 28 |
| Table of Contents |
ITEM 6 – EXHIBITS
|
|
|
|
|
|
|
|
101) | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 28, 2024, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 28, 2024 and September 30, 2023; (ii) Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 28, 2024, and September 30, 2023; (iii) Condensed Consolidated Balance Sheets (Unaudited) as of September 28, 2024 and December 30, 2023; (iv) Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 28, 2024 and September 30, 2023; and (iv) Notes to Condensed Consolidated Financial Statements (Unaudited).** |
|
|
104) | Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101). ** |
* Filed herewith.
** Furnished herewith
| 29 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THE EASTERN COMPANY |
| |
(Registrant)
|
| |
DATE: November 5, 2024 | /s/James Mitarotonda |
|
James Mitarotonda Chairman of the Board |
| |
| ||
DATE: November 5, 2024 | /s/Nicholas Vlahos |
|
Nicholas Vlahos Vice President and Chief Financial Officer |
|
| 30 |
EXHIBIT 31
CERTIFICATIONS
I, James Mitarotonda, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of The Eastern Company. |
|
|
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
|
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
|
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
|
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
|
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
|
|
|
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
| Dated: November 5, 2024 |
|
|
|
|
|
|
| /s/James Mitarotonda |
|
|
| James Mitarotonda |
|
|
| Chairman of the Board (principal executive officer) |
|
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: |
|
| e) | 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; |
|
|
|
|
|
| f) | 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; |
|
|
|
|
|
| g) | 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 |
|
|
|
|
|
| h) | 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): |
|
| c) | 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 |
|
|
|
|
|
| d) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
| Dated: November 5, 2024 |
|
|
|
|
|
|
| /s/Nicholas Vlahos |
|
|
| Nicholas Vlahos |
|
|
| Chief Financial Officer |
|
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, James Mitarotonda, the Chairman of the Board (principal 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 September 28, 2024, 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, as amended; and |
|
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| 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 5th day of November 2024.
| By: | /s/James Mitarotonda |
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| James Mitarotonda Chairman of the Board (principal executive officer) |
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| By: | /s/Nicholas Vlahos |
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| Nicholas Vlahos Chief Financial Officer |
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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).