EASTERN CO

Previous wording

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 27, 2025. 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 28, 2024 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 28, 2024, which was filed with the Securities and Exchange Commission (the “SEC”) on March 11, 2025 (the “2024 Form 10-K”).

Current wording

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 months ended April 4, 2026. 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 January 3, 2026 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 January 3, 2026, as amended on March 19, 2026 (the “2025 Form 10-K”).

Previous wording

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 27, 2025 (this “Form 10-Q”) to 2024, fiscal year 2024 or fiscal 2024 mean the 52-week period ended on December 28, 2024, and references to 2025, fiscal year 2025 or fiscal 2025 mean the 53-week period ending on January 3, 2026. In a 52-week fiscal year, each quarter has 13 weeks. In a 53-week fiscal year, the first three quarters each have 13 weeks, and the fourth quarter has 14 weeks. 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 third quarter of 2025, the third fiscal quarter of 2025 or the three months ended September 27, 2025 mean the 13-week period from June 29, 2025 to September 27, 2025. 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. References to the first nine months of 2025 or the nine months ended September 27, 2025 mean the period from December 29, 2024 to September 27, 2025.

Current wording

The Company’s fiscal year is a 52- or 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 April 4, 2026 (this “Form 10-Q”) to 2025, fiscal year 2025 or fiscal 2025 mean the 53-week period ended on January 3, 2026, and references to 2026, fiscal year 2026 or fiscal 2026 mean the 52-week period ending on January 2, 2027. In a 53-week fiscal year, the first three quarters each have 13 weeks, and the fourth quarter has 14 weeks. In a 52-week fiscal year, each quarter has 13 weeks. References to the first quarter of 2025, the first fiscal quarter of 2025 or the three months ended March 29, 2025 mean the 13-week period from December 29, 2024 to March 29, 2025. References to the first quarter of 2026, the first fiscal quarter of 2026 or the three months ended April 4, 2026, mean the 13-week period from January 4, 2026 to April 4, 2026.

Previous wording

For the nine months ended September 27, 2025, we incurred approximately $7.0 million in tariff and tariff-related expenses. However, we have been able to mitigate most of the impact of the tariffs implemented through price increases. However, the tariff environment has been dynamic over the last several months, with changes occurring on an ongoing basis, and it is likely that additional developments will occur over the next several months, particularly as the U.S. continues to negotiate with trade partners. While the long-term effects remain uncertain, we continue to closely monitor the evolving tariff environment which presents a mix of impacts, such as higher pricing, as well as higher product and operating costs. See Part I, Item 1A,Risk Factors in the 2024 Form 10-K for a discussion regarding tariff-related risks.

Current wording

For the three months ended April 4, 2026, we incurred approximately $3.1 million in tariff and tariff-related expenses, $2.9 million of which have been mitigated through price increases. On February 20, 2026, the U.S. Supreme Court ruledin Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act (“IEEPA”) does not authorize the executive branch to impose certain tariffs. The U.S. Customs and Border Protection (“CBP”) is developing an administrative process for seeking refunds of tariffs paid pursuant to the IEEPA, and on April 20, 2026, launched the first phase of that administrative process. The Company is in the process of submitting refund claims to the CBP. The amount and timing of any potential refund remain uncertain, and, as of April 4, 2026, we have not recorded a benefit for potential refunds of IEEPA tariffs paid. In response to the U.S. Supreme Court’s decision, the presidential administration implemented a tariff surcharge pursuant to Section 122 of the Trade Act of 1974, establishing a minimum 10% duty on imports, subject to certain exemptions. The tariff environment remains dynamic, and it is likely that additional developments will occur over the next several months, particularly as the U.S. continues to negotiate with trade partners and the CBP further develops and executes on the administrative process for refunds. While the long-term effects remain uncertain, we continue to closely monitor the evolving tariff environment which presents a mix of impacts, such as higher pricing, including higher product and operating costs, and the potential for refunds. See Part I, Item 1A,Risk Factors in the 2025 Form 10-K for a discussion regarding tariff-related risks.

Previous wording

Net sales of existing products decreased 28.3% for the third quarter of 2025 and decreased 13.0% for the first nine months of 2025 compared to the corresponding periods in 2024. Price increases and new products increased net sales by 6.2% in the third quarter of 2025 and 6.2% in the first nine months of 2025 compared to the corresponding periods in 2024. New products included various truck mirror and latch assemblies .

Current wording

Net sales of existing products decreased 10.7% for the first quarter of 2026 compared to the corresponding period in 2025. Price increases and new products increased net sales by 5.0% in the first quarter of 2026 compared to the corresponding period in 2025. New products included various truck mirror and latch assemblies.

Previous wording

Cost of products sold decreased $10.1 million, or 19%, for the third quarter of 2025 and $6.5 million, or 4%, for the first nine months of 2025 compared to the corresponding period in 2024 primarily due to lower sales volume. Additionally, the Company paid tariff costs on China-sourced products of approximately $4.0 million and $7.0 million in the third quarter and first nine months of 2025 respectively, compared to $0.6 million and $1.9 million in the third quarter and first nine months of 2024, respectively. Most tariffs on China-sourced products have been recovered through price increases.

Current wording

Cost of products sold decreased $1.4 million, or 3%, for the first quarter of 2026 due to lower sales volume. Additionally, the Company paid tariff costs on China-sourced products of approximately $3.1 million in the first quarter of 2026, compared to $0.6 million in the first quarter of 2025. A majority of tariffs on China-sourced products have been recovered through price increases.

Previous wording

Product development expensesdecreased $0.1 million for the third quarter of 2025 and decreased $0.6 million for the first nine months of 2025 compared to the corresponding periods in 2024. As a percentage of net sales, product development costs were 1.6% and 1.8% for the first nine months of 2025 and 2024, respectively, as we continue to invest in new products at our businesses.

Current wording

Product development expensesdecreased $0.1 million for the first quarter of 2026 compared to the corresponding period in 2025. As a percentage of net sales, product development costs were 1.7% and 1.8% for the first quarter of 2026 and 2025, respectively, as we continue to invest in new products at our businesses.

Previous wording

Interest expense decreased less than $0.1 million for both the third quarter of 2025 and the first nine months of 2025 compared to the corresponding periods in 2024 due to lower principal balances, offset by higher interest rates.

Current wording

Interest expense decreased less than $0.1 million for the first quarter of 2026 compared to the corresponding period in 2025 due to lower principal balances.

Previous wording

Net incomefor the third quarter of fiscal 2025 was $0.6 million, or $0.10 per diluted share, compared to net income of $4.7 million, or $0.75 per diluted share, for the comparable period in 2024. For the first nine months of 2025, net income was $4.8 million, or $0.78 per diluted share, compared to $11.7 million, or $1.87 per diluted share, for the comparable period in 2024.

Current wording

Net incomefor the first quarter of fiscal 2026 was $0.6 million, or $0.11 per diluted share, compared to net income of $1.9 million, or $0.31 per diluted share, for the comparable period in 2025.

Previous wording

The following table shows the change in net sales and operating profit for the third quarter and first nine months of 2025 compared to the third quarter and first nine months of 2024 (dollars in thousands):

Current wording

The following table shows the change in net sales and operating profit for the first quarter of 2026 compared to the first quarter of 2025 (dollars in thousands):

Previous wording

The Company generated $5.0 million of cash from operations during the first nine months of fiscal 2025 compared to generating $8.3 million during the first nine months of fiscal 2024. Cash flow from operations in the first nine months of 2025 was lower due to lower income from operations and higher payments of accounts payable offset by collections of receivables.

Current wording

The Company generated $3.5 million of cash from operations during the first three months of fiscal 2026 compared to using $1.9 million during the first three months of fiscal 2025. Cash flow from operations in the first three months of 2026 increased due to consumption of inventories held at the end of the prior year and lower accounts payable disbursements offset by lower customer receivable collections.

Previous wording

Additions to property, plant, and equipment were $1.6 million and $7.6 million for the first nine months of 2025 and 2024, respectively. As of September 27, 2025, there were approximately $1.2 million of outstanding commitments for capital expenditures.

Current wording

Purchases of capital equipment were $0.9 million and $0.8 million for the first three months of 2026 and 2025, respectively. As of April 3, 2026, there were approximately $0.1 million of outstanding commitments for capital expenditures.

Previous wording

Inventories of $56.8 million as of September 27, 2025 increased by $1.6 million, or 2.8%, when compared to $55.2 million at the end of fiscal year 2024 and decreased $1.3 million, or 2.2%, when compared to $58.1 million at the end of the third quarter of fiscal 2024. Accounts receivable, less allowances, were $30.0 million at September 27, 2025, as compared to $35.5 million at December 29, 2024 and $46.0 million at September 28, 2024.

Current wording

Inventories of $53.1 million as of April 4, 2026 decreased by $3.2 million, or 5.7%, when compared to $56.3 million at January 3, 2026 and increased $2.3 million, or 4.2%, when compared to $55.4 million at March 29, 2025. Accounts receivable, less allowances, were $32.6 million at April 4, 2026, as compared to $30.1 million at January 3, 2026 and $33.5 million at March 29, 2025.

Previous wording

On October 28, 2025, the Company entered into a credit agreement with the lenders from time to time party thereto, Citizens Bank, N.A., as the administrative agent, as an LC issuer, and as the swing line lender (the “Citizens Credit Agreement”). The Citizens Credit Agreement replaces the Company’s prior credit facility with TD Bank, N.A. ("TD Bank"), which was repaid using borrowings under the Citizens Credit Agreement and terminated on October 28, 2025. See Note H, Debt, for additional information regarding the terms of the prior credit facility with TD Bank. The Citizens Credit Agreement establishes a new $100 million five-year unsecured revolving credit facility and provides for the extension of credit to the Company in the form of revolving loans, swing line loans and letters of credit, at any time and from time to time during the term of the Citizens Credit Agreement. See Note H, Debt, for additional information regarding the terms of the Citizens Credit Agreement, including repayment terms, interest rates, and applicable loan covenants. Under the terms of the Citizens 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 maximum senior net leverage ratio and a minimum interest coverage ratio. These covenants may limit how we conduct our business, and in the event of certain defaults, our repayment obligations may be accelerated.

Current wording

On October 28, 2025, the Company entered into a credit agreement with the lenders from time to time party thereto, Citizens Bank, N.A., as the administrative agent, as an LC issuer, and as the swing line lender (the “Citizens Credit Agreement”). The Citizens Credit Agreement replaces the Company’s prior credit facility with TD Bank, N.A. (“TD Bank”), which was repaid using borrowings under the Citizens Credit Agreement and terminated on October 28, 2025. See Note H, Debt, for additional information regarding the terms of the prior credit facility with TD Bank. The Citizens Credit Agreement establishes a new $100 million five-year senior secured revolving credit facility and provides for the extension of credit to the Company in the form of revolving loans, swing line loans and letters of credit, at any time and from time to time during the term of the Citizens Credit Agreement. See Note H, Debt, for additional information regarding the terms of the Citizens Credit Agreement, including repayment terms, interest rates, and applicable loan covenants. Under the terms of the Citizens 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 maximum senior net leverage ratio and a minimum interest coverage ratio. These covenants may limit how we conduct our business, and in the event of certain defaults, our repayment obligations may be accelerated.

Previous wording

The Company was in compliance with all its covenants under its prior credit facility with TD Bank on September 27, 2025 and through the date of such termination. In addition, the Company was in compliance with all its covenants under the Citizens Credit Agreement at all times from entry into the Citizens Credit Agreement through the date of filing this Form 10-Q. The Company has $64 million available on its line of credit under the Citizens Credit Agreement as of the date of filing this Form 10-Q.

Current wording

The Company was in compliance with all its covenants under the Citizens Credit Agreement at all times from entry into the Citizens Credit Agreement through the date of filing this Form 10-Q. The Company has $67 million available on its line of credit under the Citizens Credit Agreement as of the date of filing this Form 10-Q.

Previous wording

As of the end of the third quarter of 2025, 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.

Current wording

As of the end of the first quarter of 2026, 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.