eml_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

	☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended June 28, 2025

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

Commission File Number 001-35383

THE EASTERN COMPANY

(Exact name of registrant as specified in its charter)

Connecticut		06-0330020
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

3 Enterprise Drive, Suite 408, Shelton, Connecticut		06484
(Address of principal executive offices)		(Zip Code)

(203)-729-2255

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, No Par Value	EML	NASDAQ Global Market

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

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

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

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

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

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

As of June 28, 2025, 6,098,163 shares of the registrant’s common stock, no par value per share, were issued and outstanding.

The Eastern Company

Form 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 28, 2025

TABLE OF CONTENTS

		Page


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

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	Mine Safety Disclosures	30

Item 5.	Other Information	30

Item 6	Exhibits	31

SIGNATURES		32

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PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

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

	Three Months Ended						Six Months Ended
	June 28, 2025			June 29, 2024			June 28, 2025			June 29, 2024
Net sales	$	70,164,086		$	72,564,231		$	136,101,298		$	139,798,820
Cost of products sold		(53,801,184	)		(54,108,036	)		(104,642,211	)		(105,103,868	)
Gross margin		16,362,902			18,456,195			31,459,087			34,694,952

Product development expense		(1,031,716	)		(1,301,487	)		(2,140,902	)		(2,661,284	)
Selling and administrative expenses		(12,188,736	)		(11,140,681	)		(22,534,931	)		(22,261,047	)
Operating profit		3,142,450			6,014,027			6,783,254			9,772,621

Interest expense		(636,287	)		(746,941	)		(1,330,941	)		(1,507,472	)
Other income (expense)		75,210			(20,066	)		(124,495	)		(9,712	)
Income from continuing operations before income taxes		2,581,373			5,247,020			5,327,818			8,255,437

Income tax expense		(546,383	)		(1,176,830	)		(1,124,703	)		(1,844,265	)
Net income from continuing operations	$	2,034,990		$	4,070,190		$	4,203,115		$	6,411,172

Discontinued Operations (see note B)
Loss from operations of discontinued unit	$	(234,237	)	$	(724,903	)	$	(520,005	)	$	(1,230,656	)

Income from disposal of discontinued unit		2,016,696			-			2,016,696			-

Income tax (expense) benefit		(377,282	)		162,585			(315,952	)	$	274,929

Income (Loss) from discontinued operations	$	1,405,177		$	(562,318	)	$	1,180,739		$	(955,727	)

Net Income	$	3,440,167		$	3,507,872		$	5,383,854		$	5,455,445

Earnings per share from continuing operations:
Basic	$	0.33		$	0.65		$	0.69		$	1.03

Diluted	$	0.33		$	0.65		$	0.69		$	1.02

Earnings (Loss) per share from discontinued operations:
Basic	$	0.23		$	(0.09	)	$	0.19		$	(0.15	)

Diluted	$	0.23		$	(0.09	)	$	0.19		$	(0.15	)
Total earnings per share:
Basic	$	0.56		$	0.56		$	0.88		$	0.88

Diluted	$	0.56		$	0.56		$	0.88		$	0.87

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

See accompanying notes.

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THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended						Six Months Ended
	June 28, 2025			June 29, 2024			June 28, 2025		June 29, 2024
Net income	$	3,440,167		$	3,507,872		$	5,383,854	$	5,455,445
Other comprehensive income:

Change in foreign currency translation		(317,982	)		(472,078	)		397,593		(629,078	)

Change in fair value of foreign currency swap		550,031			(477,378	)		747,203		(74,362	)

Change in pension and postretirement benefit costs, net of taxes:
2025 - $121,925; 2024 - $71,355		205,728			237,501			411,453		480,837
Total other comprehensive income		437,777			(711,955	)		1,556,249		(222,603	)
Comprehensive income	$	3,877,944		$	2,795,917		$	6,940,103	$	5,232,842

See accompanying notes.

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THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 28, 2025			December 28, 2024
	(unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	9,110,311		$	14,010,388
Marketable Securities		-			2,051,301
Accounts receivable, less allowances: 2025 - $585,993 2024 - $530,560		40,236,949			35,515,632
Inventories		54,140,269			55,209,598
Current portion of notes receivable		51,457			286,287
Prepaid expenses and other assets		4,406,534			3,477,717
Current assets held for sale		-			5,071,828
Total Current Assets		107,945,520			115,622,751

Property, Plant and Equipment		59,637,113			56,320,688
Accumulated depreciation		(32,473,594	)		(28,810,628	)
Property, Plant and Equipment, Net		27,163,519			27,510,060

Goodwill		58,637,593			58,509,384
Trademarks		3,841,579			3,946,455
Patents and other intangibles net of accumulated amortization		7,764,381			8,765,612
Long term notes receivable, less current portion		82,386			162,102
Deferred income taxes		6,611,518			6,611,518
Right of use assets		17,362,814			14,180,865
Total Other Assets		94,300,271			92,175,936

TOTAL ASSETS	$	229,409,310		$	235,308,747

See accompanying notes.

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THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 28, 2025			December 28, 2024
	(unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	23,137,927		$	19,650,970
Accrued compensation		5,157,522			5,478,581
Other accrued expenses		3,222,704			9,577,019
Current portion of operating lease liability		3,906,222			3,072,668
Current portion of finance lease liability		747,340			761,669
Current portion of long-term debt		4,302,654			3,603,935
Other current liabilities		-			505,376
Current liabilities held for sale		-			2,144,573
Total Current Liabilities		40,474,369			44,794,791

Other long-term liabilities		546,398			546,395
Operating lease liability, less current portion		13,456,592			11,108,197
Finance lease liability, less current portion		2,823,438			3,052,073
Long-term debt, less current portion		32,115,881			38,640,576
Accrued postretirement benefits		415,878			410,476
Accrued pension cost		15,127,781			16,064,840
Total Liabilities		104,960,337			114,617,348

Shareholders’ Equity
Voting Preferred Stock, no par value:
Authorized and unissued: 1,000,000 shares
Nonvoting Preferred Stock, no par value:
Authorized and unissued: 1,000,000 shares
Common Stock, no par value, Authorized: 50,000,000 shares		35,732,135			35,443,009
Issued: 9,163,570 shares as of 2025 and 9,146,996 shares as of 2024
Outstanding: 6,098,163 shares as of 2025 and 6,163,138 shares as of 2024
Treasury Stock: 3,065,407 shares as of 2025 and 2,983,858 shares as of 2024		(28,462,013	)		(26,338,309	)
Retained earnings		137,581,573			133,545,670
Accumulated other comprehensive loss:
Foreign currency translation		(1,878,997	)		(2,276,590	)
Unrealized gain (loss) on foreign currency swap, net of tax		241,827			(505,376	)
Unrecognized net pension and postretirement benefit costs, net of tax		(18,765,552	)		(19,177,005	)
Accumulated other comprehensive loss		(20,402,722	)		(21,958,971	)
Total Shareholders’ Equity		124,448,973			120,691,399
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	229,409,310		$	235,308,747

See accompanying notes.

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THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended
	June 28, 2025			June 29, 2024
Operating Activities
Net income	$	5,383,854		$	5,455,445
Less: Income (Loss) from discontinued operations		1,180,739			(955,727	)
Income from continuing operations	$	4,203,115		$	6,411,172
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,178,318			3,741,969
Reduction in carrying amount of ROU assets		1,502,376			1,553,455
Unrecognized pension and postretirement (benefit) expense		(397,676	)		10,219
Loss on sale of equipment and other assets		38,479			40,801
Provision for doubtful accounts		14,000			4,000
Stock compensation expense		289,126			624,320
Changes in operating assets and liabilities:
Accounts receivable		(2,271,343	)		(5,266,259	)
Inventories		1,886,960			2,365,451
Prepaid expenses and other		(314,221	)		1,006,408
Other assets		124,859			28,720
Accounts payable		2,511,193			2,939,089
Accrued compensation		(445,105	)		96,109
Change in operating lease liability		(1,502,376	)		(1,553,455	)
Other accrued expenses		(6,908,197	)		(784,960	)
Net cash provided by operating activities		1,909,508			11,217,039

Investing Activities
Marketable securities		2,222,059			(999,960	)
Acquisition		(421,039	)		-
Payments received from notes receivable		14,545			470,937
Proceeds from sale of discontinued operations		1,593,646			18,000
Purchases of property, plant, and equipment		(1,598,980	)		(2,834,977	)
Net cash provided by (used in) investing activities		1,810,231			(3,346,000	)

Financing Activities
Principal payments on long-term debt		(5,919,065	)		(1,505,952	)
Financing leases, net		(393,352	)		(62,674	)
Purchase common stock for treasury		(2,123,705	)		(482,120	)
Dividends paid		(1,347,951	)		(1,368,924	)
Net cash used in financing activities		(9,784,073	)		(3,419,670	)

Discontinued Operations
Cash used in operating activities		-			(955,727	)
Cash used in discontinued operations		-			(955,727	)

Effect of exchange rate changes on cash		331,115			(88,598	)
Net change in cash and cash equivalents		(5,733,219	)		3,407,044

Cash and cash equivalents at beginning of period		14,843,530			8,299,453
Cash and cash equivalents at end of period	$	9,110,311		$	11,706,497

Supplemental disclosure of cash flow information:
Interest	$	1,683,412		$	1,639,713
Income taxes		1,679,091			1,599,765

Non-cash investing and financing activities
Right of use asset		1,468,961			144,445
Lease liability		(1,468,961	)		(144,445	)

See accompanying notes

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THE EASTERN COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 28, 2025

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 28, 2024, filed with the Securities and Exchange Commission on March 11, 2025 (the “2024 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 28, 2024 has been derived from the audited consolidated balance sheet at that date.

The Company’s fiscal year is a 52-53-week fiscal year ending on the Saturday nearest to December 31. References in this Quarterly Report on Form 10-Q for the quarterly period ended June 28, 2025 (this “Form 10-Q”) to 2024, the 2024 fiscal year or fiscal 2024 mean the 52-week period ended on December 28, 2024, and references to 2025, the 2025 fiscal year or fiscal 2025 mean the 53-week period ending on January 3, 2026. In a 52-week fiscal year, each quarter has 13 weeks. References to the second quarter of 2024, the second fiscal quarter of 2024 or the three months ended June 29, 2024, mean the 13-week period from March 31, 2024 to June 29, 2024. References to the second quarter of 2025, the second fiscal quarter of 2025 or the three months ended June 28, 2025, mean the 13-week period from March 30, 2025 to June 28, 2025. References to the first six months of 2024 or the six months ended June 29, 2024 mean the period from December 31, 2023 to June 29, 2024. References to the first six months of 2025 or the six months ended June 28, 2025 mean the period from December 29, 2024 to June 28, 2025.

Certain amounts in the 2024 financial statements have been reclassified to conform with the 2025 presentation with no impact or change to previously reported net income or shareholders’ equity.

Note B – Discontinued Operations

In the third quarter of 2024, we determined that the business of Big 3 Precision Mold Services, Inc. (“Big 3 Mold”) 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.

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On April 30, 2025, the Company sold the equipment, workforce and customer list of the ISBM division of Big 3 Mold. ISBM, which is located in Centralia, Illinois, is an injection stretch blow mold toolmaker.

	Three Months Ended						Six Months Ended
	June 28, 2025			June 29, 2024			June 28, 2025			June 29, 2024
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Net sales	$	359,046		$	587,658		$	1,670,208		$	1,282,156
Cost of products sold		(421,730	)		(833,300	)		(1,653,484	)		(1,570,456	)
Gross margin		(62,684	)		(245,642	)		16,724			(288,300	)

Selling and administrative expenses		(100,854	)		(396,267	)		(388,847	)		(774,859	)
Income from disposal of discontinued Unit		2,016,696			-			2,016,696			-
Operating Income (Loss)		1,853,158			(641,909	)		1,644,573			(1,063,159	)

Interest expense		(70,699	)		(82,994	)		(147,882	)		(167,497	)
Income (Loss) from discontinued operations before income taxes		1,782,459			(724,903	)		1,496,691			(1,230,656	)

Income tax (expense) benefit		(377,282	)		162,585			(315,952	)		274,929
Income (Loss) from discontinued operations, net of tax	$	1,405,177		$	(562,318	)	$	1,180,739		$	(955,727	)

Note C – Earnings Per Share

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

Three Months Ended

Six Months Ended

June 28, 2025

June 29, 2024

June 28, 2025

June 29, 2024

Basic:

Weighted average shares outstanding

6,113,303

6,233,153

6,126,070

6,224,596

Diluted:

Weighted average shares outstanding

6,113,303

6,233,153

6,126,070

6,224,596

Dilutive stock appreciation rights

7,953

25,626

7,953

25,626

Denominator for diluted earnings per share

6,121,256

6,258,779

6,134,023

6,250,222

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Note D – Fair Value of Derivative Instruments

The following table presents the effect of the Company’s derivative instruments designated as cash flow hedges under Accounting Standards Codification (“ASC”) Topic 815, “Hedge Accounting Improvements,” in its unaudited Condensed Consolidated Statements of Operations for the six months ended June 28, 2025:

Derivative Instruments		Amount of Gain Recognized in Accumulated Other Comprehensive Income				Amount of Loss Reclassified from Accumulated Other Comprehensive Income into Earnings				Location in Condensed Consolidated Statement of Income
Designated foreign currency hedge contracts		$	241,827			$	(425,150	)		Cost of products sold

ASC 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. The Company determines the fair value of its derivative instruments using the framework prescribed by ASC 820, “Fair Value Measurements and Disclosures,” by considering the estimated amount it would receive or pay to sell or transfer these instruments at the reporting date. Generally, the Company uses inputs that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; other observable inputs for the asset or liability; and inputs derived principally from, or corroborated by, observable market data by correlation or other means. As of June 28, 2025, the Company 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.

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.

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The following tables present the fair value of the Company’s derivative instruments as they appear in its Condensed Consolidated Balance Sheets as of June 28, 2025, and December 28, 2024:

	Location in Condensed Consolidated Balance Sheets	As of June 28, 2025		As of December 28, 2024

Derivative Assets:
Designated foreign currency hedge contracts	Other current assets	$	241,827	$	-

Derivative Liabilities:
Designated foreign currency hedge contracts	Other current liabilities	$	-	$	505,376

Note E – Inventories

Inventories consist of the following components:

	June 28, 2025		December 28, 2024

Raw material and component parts	$	20,662,417	$	21,070,522
Work in process		6,982,547		7,120,460
Finished goods		26,495,305		27,018,616
Total inventories	$	54,140,269	$	55,209,598

Note F - Goodwill

The aggregate carrying amount of goodwill is approximately $58.6 million as of June 28, 2025. No impairment was recognized in the second quarter of 2025.

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.

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The Company has operating leases for buildings, warehouses, and office equipment. The Company determines whether an arrangement is, or contains, a lease at contract inception. An arrangement contains a lease if the Company has the right to direct the use of and obtain substantially all the economic benefits of an identified asset. ROU assets and lease liabilities are recognized at lease commencement based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Most leases include one or more options to renew. The exercise of lease renewal options is at our sole discretion. All options to extend, when it is reasonably certain the option will be exercised, have been included in the calculation of the ROU asset and lease liability.

Currently, the Company has 18 operating leases with a lease liability of $17.4 million and 6 finance leases with a lease liability of $3.6 million as of June 28, 2025. The terms and conditions of the leases are determined by the individual agreements. The leases do not contain residual value guarantees, restrictions, or covenants that could cause the Company to incur additional financial obligations. There are no related party lease transactions. There are no leases that have not yet commenced that could create significant rights and obligations for the Company.

The future payments (in millions) due under non-cancelable operating and finance leases as of June 28, 2025 are as follows:

	Operating			Finance
2025	$	2.0		$	0.4
2026		3.7			0.8
2027		3.3			0.8
2028		3.0			0.8
2029		2.6			0.6
thereafter		5.1			1.0
		19.7			4.4
Less effects of discounting		(2.3	)		(0.8	)
Lease liabilities recognized	$	17.4		$	3.6

As of June 28, 2025 the weighted average lease term for all operating and finance leases is 5.8 and 5.8 years, respectively. The weighted average discount rate associated with operating and finance leases was 6.4% and 6.8%, respectively.

Note H - Debt

On June 16, 2023, the Company entered into a credit agreement with the lending institutions named therein (the "Lenders"), TD Bank, N.A., as an LC issuer, the swing line lender and as the administrative agent, TD Securities (USA) LLC, as sole arranger and sole bookrunner, and Bank of America, N.A. and Wells Fargo Bank, National Association, as co-syndication agents (the “Credit Agreement”), that included a $60 million term portion and a $30 million revolving commitment portion. In April 2025, the Company entered into an amendment to the Credit Agreement that increased the revolving commitment portion to $50 million. The term loan portion of the credit facility requires quarterly principal payments of (i) $750,000 beginning on September 30, 2023 through June 30, 2025, (ii) $1,125,000 beginning on September 30, 2025 through June 30, 2027, and (iii) $1,500,000 beginning on September 30, 2027 through March 31, 2028, with the balance of the term loan payable on the maturity date of June 16, 2028. Amounts outstanding under the revolving portion of the credit facility are generally due and payable on the expiration date of the Credit Agreement (June 16, 2028). The Company can elect to prepay some or all of the outstanding balance from time to time without penalty. A commitment fee is payable on the unused portion of the revolving credit facility based on the Company’s consolidated ratio of net debt to adjusted EBITDA from time to time. Currently, the commitment fee is 0.25%. The Company has no borrowings outstanding under the revolving commitment portion of the credit facility as of June 28, 2025.

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

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The Company’s loan covenants under the Credit Agreement require the Company to maintain a senior net leverage ratio not to exceed 3.5 to 1. In addition, the Company is required to maintain a fixed charge coverage ratio to be not less than 1.25 to 1. The Company was in compliance with all its covenants under the Credit Agreement on June 28, 2025, 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.

Restricted stock unit awards may be granted to participants under the 2020 Plan with restrictions determined by the Compensation Committee of the Board. During the first six months of fiscal 2025 and 2024, the Company granted stock awards with respect to 35,856 and 38,448 shares of Company common stock, respectively, that were subject to the meeting of performance measurements or time- based. For the first six months of fiscal years 2025 and 2024, the Company used fair market value to determine the associated expense with stock awards.

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. Under the 2020 Plan, non-qualified stock options granted to participants will have exercise prices determined by the Compensation Committee of the Board. The Company issued 48,240 and 53,568 options during the first six months of fiscal 2025 and 2024, respectively. For the first six months of fiscal 2025, the Company used several assumptions which included an expected term of three years, volatility deviation of 40.34% and a risk-free rate of 4.34% to determine the expense associated with options. For the first six months of fiscal 2024, the Company used several assumptions which included an expected term of three years, volatility deviation of 38.30% and a risk-free rate of 4.51% to determine the expense associated with options.

Stock-based compensation expense (income), including forfeitures, in connection with SARs and stock awards previously granted to employees was approximately $147,000 and $(20,000) in the second quarter of 2025 and the second quarter of 2024, respectively, and was approximately $(6,000) and $414,000 in the first six months of fiscal years 2025 and 2024, respectively.

As of June 28, 2025, there were 874,096 shares of Company common stock reserved and available for future grant under the 2020 Plan.

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

Six Months Ended

Year Ended

June 28, 2025

December 30, 2024

Units

Weighted Average Exercise Price

Units

Weighted Average Exercise Price

Outstanding at beginning of period

25,116

28.18

13,000

24.19

Issued

48,240

27.88

53,568

28.69

Expired

(1,500)

20.20

(9,000)

26.30

Exercised

(2,500)

SEC Form 10-Q filed by Eastern Company