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 six months ended July 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”).

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 and nine months ended October 3, 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- 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 July 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 second quarter of 2025, the second fiscal quarter of 2025, the second three months of fiscal 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 second quarter of 2026, the second fiscal quarter of 2026, the second three months of fiscal 2026 or the three months ended July 4, 2026, mean the 13-week period from April 5, 2026 to July 4, 2026. 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. References to the first six months of 2026 or the six months ended July 4, 2026 mean the period from January 4, 2026 to July 4, 2026.

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 October 3, 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 third quarter of 2025, the third fiscal quarter of 2025, the third three months of fiscal 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 third quarter of 2026, the third fiscal quarter of 2026, the third three months of fiscal 2026 or the three months ended October 3, 2026, mean the 13-week period from July 5, 2026 to October 3, 2026. 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. References to the first nine months of 2026 or the nine months ended October 3, 2026 mean the period from January 4, 2026 to October 3, 2026.

Previous wording

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) became law. Among other provisions, the OBBBA extends permanently, with modifications, tax provisions enacted as part of the 2017 Tax Cuts and Jobs Act and restores and makes permanent many business provisions, such as full expensing for research and development and capital investments. In addition, the OBBBA contains other new tax relief measures and various revenue raising measures. We are currently assessing the potential impact of the OBBBA on our business and financial results.

Current wording

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) became law. Among other provisions, the OBBBA extends permanently, with modifications, tax provisions enacted as part of the 2017 Tax Cuts and Jobs Act and restores and makes permanent many business provisions, such as full expensing for research and development and capital investments. In addition, the OBBBA contains other new tax relief measures and various revenue raising measures. The impacts of the OBBBA that we believe will affect our 2026 tax provision are described in Note M, Income Taxes, and we continue to assess the impact of the OBBBA on our business and financial results.

Previous wording

For the three months ended July 4, 2026, we incurred approximately $1.9 million in tariff and tariff-related expenses, $1.8 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 July 4, 2026, we have not recorded a material 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, for 150 days. 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.

Current wording

For the three and nine months ended October 3, 2026, we incurred approximately $2.3 and $7.3 million, respectively, in tariff and tariff-related expenses, $2.3 and $6.9 million, respectively, 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 October 3, 2026, we have not recorded a material 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, which expired on July 24, 2026. 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

In the third quarter of 2024, we determined that the business of Big 3 Precision Mold Services, Inc. (“Big 3 Mold”) met the criteria to be held for sale and that the assets held for sale qualified 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. On April 30, 2025, the Company sold the equipment, workforce and customer list of the ISBM division of Big 3 Mold. The other divisions of Big 3 Mold have been reclassified to continuing operations.

Current wording

In the third quarter of 2024, we determined that the business of Big 3 Precision Mold Services, Inc. (“Big 3 Mold”) met the criteria to be held for sale and that the assets held for sale qualified for discontinued operations. On April 30, 2025, the Company sold the equipment, workforce and customer list of the ISBM division of Big 3 Mold. The results of operations of the ISBM division through the date of sale, together with the gain on its disposal, are reflected as discontinued operations in our unaudited condensed consolidated statements of operations for the nine months ended September 27, 2025. There were no discontinued operations in the three or nine months ended October 3, 2026 or the three months ended September 27, 2025. The other divisions of Big 3 Mold have been reclassified to, and their results are included in, continuing operations for all periods presented.

Previous wording

Net sales for the second quarter of 2026 decreased 12% to $61.8 million from $70.2 million for the corresponding period in 2025. The decrease in sales was due to lower shipments of truck mirror assemblies, returnable transport packaging and latch and handle assemblies of $5.7 million, $3.4 million, $0.9 million, respectively, partially offset by $1.7 million in aerospace and defense sales from the acquisition of Sungear and Crown Precision. Net sales for the first six months of 2026 decreased 11% to $121.5 million from $136.1 million for the corresponding period in 2025. Sales decreased in the first six months of 2026 due to lower shipments of returnable transport packaging, truck mirror assemblies and latch and handle assemblies of $10.9 million, $4.5 million, $0.8 million, respectively, partially offset by $1.7 million in aerospace and defense sales from the acquisition of Sungear and Crown Precision.

Current wording

Net sales for the third quarter of 2026 increased 36% to $75.0 million from $55.3 million for the corresponding period in 2025. The increase in sales was due to higher shipments of truck mirror assemblies, returnable transport packaging and latch and handle assemblies of $7.4 million, $5.7 million, $1.1 million, respectively, and the acquisition of $5.4 million in aerospace and defense sales. Net sales for the first nine months of 2026 increased 3% to $196.5 million from $191.4 million for the corresponding period in 2025. Sales increased in the first nine months of 2026 due to higher shipments of truck mirror assemblies of $2.8 million and latch and handle assemblies of $0.4 million and the acquisition of $7.1 million in aerospace and defense sales, offset by lower shipments of returnable transport packaging of $5.2 million.

Previous wording

Our backlog as of July 4, 2026 increased $39.0 million, or 45%, to $126.2 million from $87.1 million as of June 28, 2025, driven by acquired aerospace and defense orders of $19.0 million, increased orders for truck mirror assemblies of $11.7 million, returnable transport packaging products of $4.7 million, latch and handle assemblies of $3.6 million.

Current wording

Our backlog as of October 3, 2026 increased $51.8 million, or 70%, to $126.1 million from $74.3 million as of September 27, 2025, driven by acquired aerospace and defense orders of $19.0 million, increased orders for truck mirror assemblies of $19.6 million, returnable transport packaging products of $8.4 million, latch and handle assemblies of $8.4 million, offset by lower aerospace and defense orders of $3.6 million.

Previous wording

Net sales of existing products decreased 16.0% for the second quarter of 2026 and 12.0% for the first six months of 2026 compared to the corresponding periods in 2025. New products increased net sales by 1.8% in the second quarter of 2026 and 2.7% in the first six months of 2026 compared to the corresponding periods in 2025. New product sales included various latch and handle assemblies.

Current wording

Net sales of existing products increased 14.2% for the third quarter of 2026 and decreased 5.8% for the first nine months of 2026 compared to the corresponding periods in 2025. New products increased net sales by 2.3% in the third quarter of 2026 and 2.6% in the first nine months of 2026 compared to the corresponding periods in 2025. New product sales included various latch and handle assemblies.

Previous wording

Cost of products sold decreased $4.7 million for the second quarter of 2026 and $7.8 million for the first six months of 2026 compared to the corresponding period in 2025. These decreases were due to lower shipment volume, partially offset by increased cost of sales on acquired aerospace and defense shipments. Additionally, the Company paid tariff costs on China-sourced products of approximately $1.9 million in the second quarter of 2026 and $5.0 million in the first six months of 2026, compared to $2.4 million in the second quarter of 2025 and $3.0 million in the first six months of 2025. Most tariffs on China-sourced products have been recovered through price increases.

Current wording

Cost of products sold increased $14.1 million for the third quarter of 2026 and $6.3 million for the first nine months of 2026 compared to the corresponding period in 2025. These changes were due to shipment volumes in the period, cost of sales on acquired aerospace and defense shipments. Additionally, the Company paid tariff costs on China-sourced products of approximately $2.3 million in the third quarter of 2026 and $7.3 million in the first nine months of 2026, compared to $4.0 million in the third quarter of 2025 and $7.0 million in the first nine months of 2025. Most tariffs on China-sourced products have been recovered through price increases.

Previous wording

Gross margin as a percentage of sales was 20.6% for the second quarter of 2026 and 20.3% for the first six months of 2026 compared to 23.3% and 23.1%, respectively, for the corresponding periods in 2025.

Current wording

Gross margin as a percentage of sales was 23.9% for the third quarter of 2026 and 21.7% for the first nine months of 2026 compared to 22.3% and 22.9%, respectively, for the corresponding periods in 2025.

Previous wording

Product development expensesremained consistent with the second quarter of 2025 and decreased less than $0.1 million for the first six months of 2026 compared to the corresponding periods in 2025. As a percentage of net sales, product development costs were 1.7% and 1.6% in the first six months of 2026 and 2025, respectively, as we continue to invest in new products at our businesses.

Current wording

Product development expensesincreased $0.1 million for the third quarter of 2026 and less than $0.1 million for the first nine months of 2026 compared to the corresponding periods in 2025. As a percentage of net sales, product development costs were 1.6% in the first nine months of each of 2026 and 2025, as we continue to invest in new products at our businesses.

Previous wording

Interest expense decreased $0.1 million for the second quarter of 2026 and $0.2 million for the first six months of 2026 compared to the corresponding periods in 2025 due to lower principal balances, offset by higher interest rates.

Current wording

Interest expense decreased less than $0.1 million for the third quarter of 2026 and $0.2 million for the first nine months of 2026 compared to the corresponding periods in 2025 due to lower principal balances, offset by higher interest rates.

Previous wording

Other incomeincreased $6.4 million for the second quarter of 2026 and $6.6 million for the first six months of 2026 compared to the corresponding periods in 2025. The increase for the second quarter and for the first six months of 2026 are the result of $6.5 million of bargain purchase gain recorded on a recent acquisition, offset by $0.2 million of transaction costs incurred to complete that acquisition.

Current wording

We recognized $6.5 million of bargain purchase gain recorded on a recent acquisition, offset by $0.2 million of transaction costs incurred to complete that acquisition during the first nine months of 2026.

Previous wording

Net incomefor the second quarter of fiscal 2026 was $5.6 million, or $0.94 per diluted share, compared to net income of $2.0 million, or $0.33 per diluted share, for the comparable period in 2025. For the first six months of 2026, net income was $6.3 million, or $1.04 per diluted share, compared to $4.2 million, or $0.69 per diluted share, for the comparable period in 2025.

Current wording

Net income from continuing operationsfor the third quarter of fiscal 2026 was $3.4 million, or $0.57 per diluted share, compared to net income of $0.6 million, or $0.10 per diluted share, for the comparable period in 2025. For the first nine months of 2026, net income from continuing operations was $9.7 million, or $1.61 per diluted share, compared to $4.8 million, or $0.78 per diluted share, for the comparable period in 2025.

Previous wording

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

Current wording

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

Previous wording

The Company generated $12.0 million of cash from operations during the first six months of fiscal 2026 compared to generating $1.9 million during the first six months of fiscal 2025. Cash flow from operations in the first six months of 2026 increased due to timing of vendor payments partially offset by timing of customer receivable collections and the exclusion of the non-cash bargain purchase gain.

Current wording

The Company generated $8.9 million of cash from operations during the first nine months of fiscal 2026 compared to generating $5.0 million during the first nine months of fiscal 2025. Cash flow from operations in the first nine months of 2026 increased due to timing of vendor payments partially offset by timing of customer receivable collections and the exclusion of the non-cash bargain purchase gain.

Previous wording

Purchases of capital equipment were $1.5 million and $1.6 million for the first six months of 2026 and 2025, respectively. As of July 4, 2026, there were approximately $0.1 million of outstanding commitments for capital expenditures.

Current wording

Purchases of capital equipment were $2.4 million and $1.6 million for the first nine months of 2026 and 2025, respectively. As of October 3, 2026, there were approximately $0.1 million of outstanding commitments for capital expenditures.

Previous wording

Inventories of $66.0 million at July 4, 2026 increased by $9.6 million, or 17.1%, when compared to $56.3 million at January 3, 2026 and increased $11.8 million, or 21.9%, when compared to $54.1 million at June 28, 2025. Accounts receivable, less allowances, were $36.8 million at July 4, 2026, as compared to $30.1 million at January 3, 2026 and $40.2 million at June 28, 2025.

Current wording

Inventories of $66.7 million at October 3, 2026 increased by $10.4 million, or 18.5%, when compared to $56.3 million at January 3, 2026 and increased $9.9 million, or 17.4%, when compared to $56.8 million at September 27, 2025. Accounts receivable, less allowances, were $42.5 million at October 3, 2026, as compared to $30.1 million at January 3, 2026 and $30.0 million at September 27, 2025.

Previous wording

The Company was in compliance with all its covenants under the Credit Agreement as of July 4, 2026 and through the date of filing this Form 10-Q. The Company has $59 million available on its line of credit under the 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 Credit Agreement as of October 3, 2026 and through the date of filing this Form 10-Q. The Company has $61 million available on its line of credit under the Credit Agreement as of October 3, 2026.

Previous wording

As of the end of the second 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.

Current wording

As of the end of the third 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.

Previous wording

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. This measure also excludes credit agreement refinancing expenses, when applicable, because we do not believe these expenses are reflective of our ongoing operations. 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.

Current wording

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, bargain purchase gains, acquired inventory step-up adjustments, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring costs. This measure also excludes credit agreement refinancing expenses, when applicable, because we do not believe these expenses are reflective of our ongoing operations. 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.

Previous wording

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. This measure also excludes credit agreement refinancing expenses, when applicable, because we do not believe these expenses are reflective of our ongoing operations. We believe that Adjusted Earnings Per Share from Continuing Operations provides important comparability of underlying operational results, allowing investors and management to assess operating performance on a consistent basis from period to period.

Current wording

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, bargain purchase gains, acquired inventory step-up adjustments, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring costs. This measure also excludes credit agreement refinancing expenses, when applicable, because we do not believe these expenses are reflective of our ongoing operations. We believe that Adjusted Earnings Per Share from Continuing Operations provides important comparability of underlying operational results, allowing investors and management to assess operating performance on a consistent basis from period to period.

Previous wording

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. This measure also excludes credit agreement refinancing expenses, when applicable, because we do not believe these expenses are reflective of our ongoing operations. 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 believe do not directly reflect our underlying operations.

Current wording

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, bargain purchase gains, acquired inventory step-up adjustments, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring expenses. This measure also excludes credit agreement refinancing expenses, when applicable, because we do not believe these expenses are reflective of our ongoing operations. 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.