ITEM 1A RISK FACTORS
The Company’s business is subject to a variety of risks and uncertainties. The material risks and uncertainties described below are the currently known risks facing the Company that management deems material to the Company. In addition to the other information contained in this Form 10-K and the Company’s other filings with the SEC, these risk factors should be considered carefully in evaluating the Company’s business. If any of these risks, or any risks not presently known to the Company or currently deemed immaterial by the Company, materialize, the Company’s business, reputation, stock price, financial condition or results of operations could be materially adversely affected, and the Company may not be able to achieve its goals or expectations.
This section should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the consolidated financial statements and accompanying notes in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.
Risks Related to Competition and Global Operations
The Company’s business is subject to risks associated with conducting business overseas.
International operations have been and could in the future be adversely affected by changes in political and economic conditions, trade protection measures, restrictions on repatriation of earnings, differing intellectual property rights and changes in regulatory requirements that restrict the sales of products or increase costs. Changes in exchange rates between the U.S. dollar and foreign currencies could result in increases or decreases in earnings and may adversely affect the value of the Company’s assets outside the United States. Increased pricing in response to fluctuations in foreign currency exchange rates may offset portions of the currency impacts but could also have a negative impact on demand for the Company’s products, which would affect sales and profits. Some of the Company’s competitors import products from Asia and Latin America that benefit from favorable currency exchange rates and lower cost labor, which has created downward pricing pressure with respect to the Company’s products that is likely to continue. Exchange rate fluctuations have at times and could in the future exacerbate this pricing pressure and impair the ability of the Company’s products to compete with products imported from regions with favorable exchange rates.
The Company’s operations are also subject to the effects of international trade agreements and regulations. These trade agreements could impose requirements that adversely affect the Company’s business, such as, but not limited to, setting quotas on products that may be imported from a particular country into the Company’s key markets in North America. The Company’s ability to import products in a timely and cost-effective manner may also be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers, such as port and shipping capacity, labor disputes, severe weather or increased homeland security requirements in the United States or other countries. These issues could delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to customers. These alternatives may not be available on short notice or could result in higher transit costs, which could have an adverse impact on the Company’s business, financial conditions, or results of operations.
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In addition, the Company’s growth strategy involves expanding sales of its products into foreign markets. There is no guarantee that the Company’s products will be accepted by foreign customers or how long it may take to develop sales of the Company’s products in these foreign markets.
Tariffs, trade sanctions and political instability may impact the availability or cost of raw materials, which could adversely affect our margins, ability to meet customer demand, business, results of operations and financial condition.
The Company obtains raw materials used in the production of its products from domestic sources, as well as from Company-affiliated and unaffiliated sources in Asia. Changes in international trade duties and other aspects of international trade policy, both in the United States and abroad, could materially impact the cost of these raw materials. For example, in 2025 the United States increased its Section 232 steel and aluminum measures, eliminating country exemptions and raising aluminum tariffs to 25% effective March 2025, and since June 2025 has imposed 50% tariffs on steel, aluminum and many covered “derivative” products from nearly all trading partners. Such actions could increase steel and aluminum costs and decrease supply availability. In additions, in response to the invasion of Ukraine by the military forces of the Russian Federation, the United States, the European Union, and other jurisdictions have imposed sanctions that, among other things, prohibit the importation of a wide array of commodities and products from Russia, which is a major global supplier of nickel. Any increase in nickel, steel and/or aluminum prices, whether as a result of existing tariffs and trade policy or as a result of new tariffs or policies that may be imposed by the United States or otherwise, that is not offset by an increase in the Company’s prices could have an adverse effect on the Company’s margins, financial position, results of operations or cash flows. In addition, if the Company is unable to acquire timely nickel, steel or aluminum supplies, the Company may need to decline customer orders, which could also have an adverse effect on the business, financial position, results of operations or cash flows of the Company.
Supply chain disruptions, delays in production, and forecast inaccuracies have affected and could continue to affect our ability to meet customer demand, lead to higher costs, result in excess inventory, and could have an adverse effect on our results of operations and financial condition.
Raw materials needed to manufacture the Company’s products are obtained from numerous suppliers. Under normal market conditions, these raw materials are readily available on the open market from a variety of producers. However, from time to time, the prices and availability of these raw materials fluctuate due to changes in existing and expected rates of inflation or the impact of tariffs and tariff actions as discussed above, which could impair the Company’s ability to procure the required raw materials for its operations or increase the cost of manufacturing its products. The Company may be unable to pass all of these price increases on to its customers and could experience reductions in its profit margins. Any decrease in the availability of raw materials could impair the Company’s ability to meet production requirements in a timely manner or at all. Similarly, any prolonged interruption in service by one of our key component suppliers could have a material adverse effect on our business, results of operations and financial condition. Additionally, we may not be able to establish additional or replacement suppliers for such components within a reasonable period of time, or on commercially reasonable terms, if at all, which could result in delays or interruptions in our operations, which in turn would adversely affect our business, results of operations and financial condition.
The Company faces active global competition and if it does not compete effectively, its business may suffer.
The Company encounters competition in all its business operations, and imports from Asia and Latin America with favorable currency exchange rates and low-cost labor have resulted in pricing pressure. The Company competes with other companies that offer comparable products or that produce different products appropriate for the same uses. To remain profitable and defend market share, the Company must continue to offer high quality custom engineered products on a timely basis, develop new products or update existing products to compete with new or updated products introduced by competitors, deploy internal engineering resources, maintain cost-effective manufacturing capabilities through its wholly owned Asian subsidiaries, expand its product lines through product development and acquisitions, and maintain sufficient inventory for fast turnaround of customer orders. Additionally, technological developments and enhancements of products and services offerings in our industry may require an expanded use of artificial intelligence (“AI”) and machine learning; if we are unable to keep pace with the rate of these and other developments, our ability to effectively compete could be adversely affected. We expect the level of competition to remain high in the future, which, if not effectively matched or exceeded, could limit our ability to maintain or increase our profitability. The Company may not be able to compete effectively on all these fronts and with all its competitors, and the failure to do so could have a material adverse effect on our business, results of operations and financial condition.
Furthermore, the Company may have to reduce prices on its products and services, or make other concessions, to stay competitive and retain market share. Price reductions taken by the Company in response to customer and competitive pressures, as well as price reductions and promotional actions taken to drive demand that may not result in anticipated sales levels, could also negatively impact the Company’s business.
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Changes in competition in the markets that the Company services could impact revenues and earnings.
Any change in competition may result in lost market share or reduced prices, which could result in reduced profits and margins. This may impair the ability to grow or even maintain current levels of revenues and earnings. The loss of certain customers could adversely affect the Company’s business, financial condition, or results of operations until such business is replaced, and no assurances can be made that the Company would be able to regain or replace any lost customers.
Risks Related to Acquisitions, Dispositions, and Organic Growth
The inability to develop new or updated products could limit growth.
Demand for new products, or the need to update existing products to compete with new or updated products offered by competitors, could adversely affect the Company’s performance, ability to maintain current levels of revenues and earnings, and prospects for future growth if the Company were unable to develop and introduce new competitive products or updates to existing products at favorable profit margins. The uncertainties associated with developing and introducing new products or updates to existing products, such as the market demands and the costs of development and production, may impede the successful development and introduction of new products or updates to existing products. Acceptance of the new or updated products may not meet sales expectations due to several factors, such as the Company’s potential inability to accurately predict market demand or to resolve technical issues in a timely and cost-effective manner. Additionally, the inability to develop new or updated products on a timely basis could result in the loss of business to competitors.
The inability to identify or complete acquisitions could limit growth.
The Company’s future growth may partly depend on its ability to acquire and successfully integrate new businesses. The Company intends to seek additional acquisition opportunities, both to expand into new markets and to enhance the Company’s position in existing markets. However, there can be no assurances that the Company will be able to successfully identify suitable candidates, negotiate appropriate terms, obtain financing on acceptable terms, complete proposed acquisitions, successfully integrate acquired businesses or expand into new markets. Once acquired, operations may not achieve anticipated levels of revenues or profitability.
Acquisitions involve risk, including difficulties in the integration of the operations, technologies, services, and products of the acquired companies and the diversion of management’s attention from other business concerns. Although the Company’s management will endeavor to evaluate the risks inherent in any particular transaction, there can be no assurances that the Company’s management will properly ascertain all such risks. In addition, prior acquisitions have resulted, and future acquisitions could result in the incurrence of substantial debt and other expenses. Future acquisitions may also result in potentially dilutive issuances of equity securities. Difficulties encountered with acquisitions may have a material adverse effect on our business, financial position, cash flows and results of operations.
We may be unable to successfully execute acquisitions or dispositions or effectively integrate businesses we may acquire in the future.
We regularly review our portfolio of businesses and pursue growth through acquisitions. We also regularly review our operations and results to identify businesses that no longer fit within our core capabilities, offerings, and markets and that we may determine to divest. We may not be able to complete these acquisition or disposition transactions on favorable terms, on a timely basis, or at all, and the success of any such acquisitions depends on our ability to combine the acquired business with our existing business in a manner that does not disrupt our and the acquired business’s ongoing relationships with customers, suppliers, and employees. Our results of operations and cash flows have been and may in the future be adversely impacted by (i) the failure of acquired businesses to meet or exceed expected returns, which could result in the imposition of impairment charges related to goodwill or assets of the acquired business; (ii) the failure to integrate multiple acquired businesses into the Company simultaneously and on schedule or to achieve expected synergies; (iii) the discovery of unanticipated liabilities, cybersecurity and compliance issues, labor relations difficulties or other problems in acquired businesses for which we lack contractual protections, or insurance or indemnities; (iv) the potential disruption of our ongoing operations and distraction of management away from oversight of these activities that may be caused by the pursuit of acquisition or disposition transactions; and (v) failure to realize the anticipated benefits and cost savings of a transaction fully or within the expected time frame, or at all.
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Risks Related to Technology and Information Security
Our technology is important to the Company’s success and the failure to protect this technology could put the Company at a competitive disadvantage.
Some of the Company’s products rely on proprietary technology; therefore, the Company believes that the development and protection of intellectual property rights through patents, copyrights, trade secrets, trademarks, confidentiality agreements and other contractual provisions are important to the future success of its business. Despite the Company’s efforts to protect proprietary rights, unauthorized parties or competitors may copy or otherwise obtain and use the Company’s products or technology. Actions to enforce these rights may result in substantial costs and diversion of resources and the Company makes no assurances that any such actions will be successful.
In addition to the United States, we have applied for intellectual property protection in other jurisdictions with respect to certain innovations and new products, product features, and processes. The laws of certain foreign countries in which we do business, or may contemplate doing business in the future, do not recognize intellectual property rights or protect them to the same extent as U.S. law. As a result, these factors could weaken our competitive advantage with respect to our products, services, and brands in foreign jurisdictions, which could adversely affect our financial performance. We may also encounter significant problems in protecting and defending our licensed and owned intellectual property in foreign jurisdictions. For example, China currently affords less protection to a company’s intellectual property than some other jurisdictions. As such, the lack of strong patent and other intellectual property protection in China may significantly increase our vulnerability regarding unauthorized disclosure or use of our intellectual property and undermine our competitive position. Proceedings to enforce our intellectual property rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.
The Company relies on information and technology for many of its business operations, which could fail and cause disruption to the Company’s business operations.
The Company’s business operations are dependent upon information technology networks and systems to securely transmit, process and store electronic information and to communicate among its locations around the world and with clients and vendors. A shut-down of, or inability to access, one or more of the Company’s facilities, a power outage, a ransomware incident, or a failure of one or more of the Company’s information technology, telecommunications or other systems could significantly impair the Company’s ability to perform such functions on a timely basis. Computer viruses, cyberattacks, other external hazards and human error could result in the misappropriation of assets or sensitive information, corruption of data or operational disruption. If sustained or repeated, such a business interruption, system failure, service denial or data loss and damage could result in a deterioration of the Company’s ability to write and process orders, provide customer service, or perform other necessary business functions.
A breach in the security of the Company’s software or information technology systems could harm its reputation, result in a loss of current and potential customers, and subject the Company to material claims, which could materially harm our operating results and financial condition.
If the Company’s security measures are breached, an unauthorized party may obtain access to the Company’s data or users’ or customers’ data. In addition, cyberattacks and similar acts could lead to interruptions and delays in operations or customer processing or a loss or breach of the Company’s or a customer’s data. Because the techniques used to obtain unauthorized access, disable, or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, the Company may be unable to anticipate these techniques or to implement adequate preventative measures. The risk that these types of events could seriously harm the Company’s business is likely to increase as the Company expands its reliance on technology for its operations and order processing.
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Data breaches and other serious cybersecurity incidents have increased globally, along with the methods, techniques, and complexity of attacks, including use of viruses, ransomware and other malicious software, phishing, and other efforts to discover and exploit any design flaws, bugs, or other security vulnerabilities. Continued geopolitical turmoil, including the ongoing conflict between Russia and Ukraine and relations between the United States and foreign governments, has heightened the risk of cyberattacks. We have been, and likely will continue to be, subject to such cyberattacks, although none has had a material impact on our operations. Also, the same cybersecurity threats exist for the third parties with whom we interact and share information and cyberattacks on third parties that possess or use our customer, personnel and other information could adversely impact us in the same way as would a direct cyberattack on us.
The rapid development and adoption of AI technologies further increases these risks, both because AI can be used to enhance the capabilities of attackers and because of its potential to help those subject to cyberattacks develop more advanced security measures and defenses. As a result, we may need to invest additional resources to protect the security of our systems.
The Company is subject to federal, state, and international laws and regulations relating to the collection, use, retention, security and transfer of personally identifiable information and individual payment data. The information, security and privacy requirements imposed by such laws and regulations are constantly evolving and are becoming increasingly demanding in the United States and other jurisdictions in which the Company operates. In addition, the interpretation and application of consumer and data protection laws in the United States and elsewhere are often uncertain and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with the Company’s data practices. If so, in addition to the possibility of fines or other penalties, this could result in an order requiring that the Company change its data practices, which could be costly, divert management attention, and have an adverse effect on the Company’s business and results of operations. The Company has incurred and may continue to incur significant costs relating to compliance with these laws and regulations, including costs related to updating certain business practices and systems and ensuring continued compliance and any changes to laws, regulations or enforcement could expose the Company to additional costs and liability.
Any security breaches for which the Company is, or is perceived to be, responsible, in whole or in part, or any actual or perceived violations of data privacy laws and regulations, could subject the Company to legal claims or legal proceedings, including regulatory investigations, which could harm the Company’s reputation and result in significant litigation costs and damage awards or settlement amounts. Any imposition of liability, particularly liability that is not covered by insurance or is in excess of insurance coverage, could materially harm our operating results and financial condition. Security breaches also could cause the Company to lose current and potential customers, which could have an adverse effect on the Company’s business. Moreover, the Company may be required to expend significant financial and other resources to further protect against security breaches or to rectify problems caused by any security breach.
Litigation, Compliance and Regulatory Risks
Delays in, or disagreements with the Company’s independent registered public accounting firm regarding, the Company’s evaluation of its internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on the market price of the Company’s stock or its borrowing ability. In addition, future changes in operating conditions could result in inadequate internal control over financial reporting.
The Company is an “accelerated filer” as defined in Rule 12b-2 under the Exchange Act and is thus required to comply with Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires the Company to include in its Annual Report on Form 10-K management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of the end of the fiscal period for which the Company is filing the report. This report must also include disclosure of any material weaknesses in internal control over financial reporting that the Company has identified. Additionally, the Company’s independent registered public accounting firm is required to issue a report on the Company’s internal control over financial reporting and their evaluation of the operating effectiveness of the Company’s internal control over financial reporting. The Company’s assessment requires it to make subjective judgments, and the independent registered public accounting firm may not agree with the Company’s assessment. If the Company or its independent registered public accounting firm were unable to complete the assessments within the period prescribed by Section 404 and thus be unable to conclude that the internal control over financial reporting is effective, investors could lose confidence in the Company’s reported financial information, which could have an adverse effect on the market price of the Company’s common stock or impact the Company’s borrowing ability. In addition, changes in operating conditions and changes in compliance with policies and procedures currently in place may result in inadequate internal control over financial reporting in the future.
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Environmental compliance costs and liabilities could increase the Company’s expenses and adversely affect the Company’s financial condition.
The Company’s operations and properties are subject to laws and regulations relating to environmental protection, including air emissions, water discharges, waste management and workplace safety. These laws and regulations can result in the imposition of substantial fines and sanctions for violations and could require the installation of pollution control equipment or operational changes to limit pollution emissions and/or decrease the likelihood of accidental hazardous substance releases. The Company must conform its operations and properties to these laws and adapt to regulatory requirements in the countries in which the Company’s businesses operate as these requirements change.
The Company uses and generates hazardous substances and wastes in its operations and, as a result, could be subject to potentially material liabilities relating to the investigation and clean-up of contaminated properties and to claims alleging personal injury. The Company has experienced, and expects to continue to experience, costs relating to compliance with environmental laws and regulations. In connection with the Company’s acquisitions, the Company may assume significant environmental liabilities, some of which it may not be aware of at the time of acquisition. In addition, new laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements could require the Company to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, financial position, cash flows and results of operations.
Natural disasters, changes in climate, geo-political events, and public health crises, including pandemics and epidemics, and any related Company or government policies or actions may negatively impact our business.
Natural disasters, changes in climate, geo-political events, and public health crises, including pandemics and epidemics, as well as Company or government policies adopted or actions taken as a result of such events, could materially adversely affect our business and financial performance. The occurrence of one or more natural disasters, such as hurricanes, tropical storms, floods, fires, earthquakes, tsunamis, cyclones, typhoons, weather conditions such as major or extended winter storms, droughts and tornadoes, whether as a result of climate change or otherwise, severe changes in climate, geo-political events, such as war, civil unrest or terrorist attacks, or public health crises in a country in which we operate or in which our suppliers are located could result in loss of human life, significant property and equipment damage, environmental pollution, or reputational harm and could adversely affect our operations and financial performance. Our business and operations may be disrupted if we do not respond, or are perceived not to respond, in an appropriate manner to any of these hazards and risks or any other major crisis or if we are unable to efficiently restore or replace affected operational components and capacity. Countermeasures to address global health crises, epidemics or pandemics may result in reduced demand for our products; disruptions to our supply chain, the global economy or financial or commodity markets; disruptions in our contractual arrangements with our service providers, suppliers and other counterparties; or failures by our suppliers, contract manufacturers, contractors, joint venture partners and external business partners, to meet their obligations to us; or reduced workforce productivity. Any such occurrence could materially and adversely impact our financial condition, results of operations, cash flows or liquidity position. Further, our insurance may not be adequate to compensate us for all resulting losses described above, and the cost to obtain adequate coverage may increase for us in the future or may not be available.
The Company is from time to time subject to litigation, which could have a material impact on the Company’s business, financial condition, or results of operations.
From time to time, the Company’s operations are parties to or targets of lawsuits, claims, investigations, and proceedings, including product liability, personal injury, patent, and intellectual property, commercial, contract, and environmental and employment matters, which are defended and settled in the ordinary course of business. Any litigation to which the Company may be subject could have a material adverse effect on its business, financial condition, or results of operations. See Item 3 – Legal Proceedings of this Form 10-K for a discussion of material pending legal proceedings known to be contemplated by governmental authorities, if any.
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The Company could be subject to additional or unanticipated tax liabilities.
The Company is subject to income tax laws of the United States, its states, and municipalities and those of other foreign jurisdictions in which the Company has business operations. These laws are complex, evolving, and subject to interpretation by the taxpayer and the relevant governmental taxing authorities.
The Company’s future annual and quarterly tax rates could be affected by numerous factors, including changes in the (1) applicable tax laws; (2) composition of earnings in countries with differing tax rates; or (3) recoverability of our deferred tax assets and liabilities. Due to the pace of legislative changes, any substantial changes in tax policies or legislative initiatives may materially and adversely affect our business, the taxes we are required to pay, our financial position, and results of operations. For example, in July 2025, the United States enacted the One Big Beautiful Bill Act (the “OBBA”), which significantly affects federal taxes, credits and deductions applicable to businesses. The OBBA and related guidance could change the timing and amount of deductions (including for domestic research or experimental expenditures and depreciation), alter our current and deferred tax positions, and affect our cash flows and effective tax rate. Further, state and local conformity to OBBA provisions may vary and continue to evolve, which could increase compliance complexity and impact our state tax liabilities. Many countries and organizations such as the Organization for Economic Cooperation and Development (the “OECD”) are also actively considering changes to existing tax laws or have proposed or enacted new laws that could increase our tax obligations in countries where we do business or cause us to change the way we operate our business. Any of these developments or changes in federal, state, or international tax laws or tax rulings could adversely affect our effective tax rate and our results of operations. For example, the OECD has released guidance covering various topics, including country-by-country reporting and an initiative that aims to standardize and modernize global tax policy. The guidance has also established a global minimum tax of 15%, which is being or may be implemented in various jurisdictions. Depending on the final form of legislation and the jurisdictions which enact it, there may be significant tax consequences for us. We continue to monitor the effects of the OBBA, the OECD guidelines and other regulatory developments on our financial conditions, operating results, and income tax rate.
Significant judgment and interpretation are required in determining the Company’s worldwide provision for income taxes. In the ordinary course of business, transactions arise where the ultimate tax determination is uncertain. Although the Company believes that our tax estimates are reasonable, the outcome of tax audits and any related litigation could be materially different from that which is reflected in historical income tax provisions and accruals. Based on the status of a given tax audit or related litigation, a material effect on the Company’s income tax provision or net income may result during the period or periods from the initial recognition of a particular matter in the Company’s reported financial results to the final closure of that tax audit or settlement of related litigation when the ultimate tax and related cash flow is known with certainty.
New or existing U.S. or foreign laws and regulations could subject the Company to claims or otherwise impact the Company’s business, financial condition, or results of operations.
The Company is subject to a variety of laws, regulations, rules, and policies in both the U.S. and foreign countries that are costly to comply with, can result in negative publicity and diversion of management time and effort, and can subject the Company to claims or other remedies. These laws, regulations, rules, and policies could relate to any of an array of issues including, but not limited to, data privacy and security, environmental, tax, intellectual property, trade secrets, product liability, contracts, antitrust, employment, securities, import/export, and unfair competition. These laws and regulations may differ in different jurisdictions and are subject to change, including as a result of changes to regulatory, legislative and enforcement priorities with changes in U.S. policy, and regulatory actions that non-U.S. countries may take in response to such changes. The cost of maintaining compliance under multiple and changing regulatory regimes, and expenditures that may be required to comply with new laws and regulations, may adversely affect the Company’s business, financial condition, and results of operations. In the event that the Company fails to comply with or violates applicable U.S. or foreign laws or regulations or customer policies, the Company could be subject to civil or criminal claims or proceedings that may result in monetary fines, penalties or other costs against the Company or its employees, which may have a material adverse effect on our business, financial position, cash flows and results of operations.
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Risks Related to Our Indebtedness
Indebtedness may affect our business and may restrict our operating flexibility.
As of January 3, 2026, the Company had $33.9 million in total consolidated indebtedness. Subject to restrictions contained in the Credit Agreement, the Company may incur additional indebtedness in the future, including indebtedness incurred to finance acquisitions. The level of indebtedness and servicing costs associated with that indebtedness could have important effects on our operation and business strategy. For example, the indebtedness could:
· Limit the Company’s ability to borrow additional funds;
· Limit the Company’s ability to complete future acquisitions;
· Limit the Company’s ability to pay dividends;
· Limit the Company’s ability to make capital expenditures; and
The Company’s ability to make scheduled principal payments, to pay interest on, or to refinance our indebtedness and to satisfy other debt obligations will depend upon future operating performance, which may be affected by factors beyond the Company’s
control. In addition, there can be no assurance that future borrowings or the issuance of equity would be available to the Company on favorable terms for the payment or refinancing of the Company’s debt. The inability to service our indebtedness would have a material adverse effect on our business, financial position, cash flow and results of operations.
The Credit Agreement contains covenants requiring the Company to achieve certain financial and operational results and maintain compliance with specified financial ratios. The Company’s ability to meet the financial covenants or requirements in the Credit Agreement may be affected by events beyond our control, and the Company may not be able to satisfy such covenants and requirements.
The Credit Agreement also contains several restrictive covenants that could adversely affect the Company’s ability to operate its business. These covenants restrict, among other things, the Company’s ability to:
· Merge with or into another company or sell assets;
· Grant liens;
· Incur additional indebtedness;
· Make investments or guarantee indebtedness of another person or entity;
· Pay dividends, make distributions, or repurchase equity;
· Engage in certain transactions with affiliates; and
· Make certain changes to the Company’s business.
A breach of these covenants or the Company’s inability to comply with the financial ratios, tests or other restrictions contained in our Credit Agreement could result in an event of default under the Credit Agreement. Upon the occurrence of an event of default under the Credit Agreement and/or the expiration of any grace periods, the lenders could elect to declare all amounts outstanding under our credit facility, together with accrued interest, to be immediately due and payable. If this were to occur, the Company’s assets may not be sufficient to fully repay the amounts due under our credit facility or the Company’s other indebtedness.
Risks Related to Global Economic Conditions
Global economic conditions have in the past had and may in the future have a material adverse effect on the Company’s financial condition and operating results.
Global economic conditions have impacted in the past and may in the future impact the Company’s results. For example, volatile economic conditions that resulted from the COVID-19 pandemic led to economic slowdowns that caused contractions in some or all the markets we serve, and these impacts may recur in the future. This has in the past led to, and any recurrence in the future may to lead to, decreased demand for the Company’s products, which in turn has negatively impacted, and may in the future negatively impact, the Company’s financial condition and operating results. Other macroeconomic factors also remain dynamic, and any causes of market size contraction, and overall economic slowdowns could reduce the Company’s sales or erode operating margin, in either case reducing earnings.
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Economic conditions or changes in asset returns interest rates could increase our pension plan funding obligations and reduce our profitability.
In addition, pension plan funded status, the ratio of plan assets over plan liabilities, is largely influenced by current market conditions. To the extent asset returns and interest rates, which are used to discount future plan benefits, change from prior measurement periods, the plan’s funded ratio has the potential to change significantly. Declines in interest rates and projected rates of return could require us to make significant additional contributions to our pension plans in the future.
General Risk Factors
The Company’s goodwill or indefinite-lived intangible assets may become impaired, which has in the past required and could in the future require a significant charge to earnings be recognized.
Under accounting principles generally accepted in the United States, goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment at least annually. Future operating results used in the assumptions, such as sales or profit forecasts, may not materialize, and the Company has been and could in the future be required to record a significant charge to earnings in the financial statements during the period in which any impairment is determined, resulting in a material adverse effect on our business, financial position and results of operations.
The Company may not be able to reach acceptable terms for contracts negotiated with its labor unions and be subject to work stoppages or disruption of production.
During 2025, union contracts covering approximately 36% of the Company’s total workforce were renewed. The Company has been successful in negotiating new contracts over the years but cannot guarantee that will continue and the Company has, in the past experienced, and could in the future experience, temporary work stoppages during negotiation of such contracts. Failure to negotiate new union contracts, or any work stoppage that is prolonged, could result in the disruption of production, inability to deliver product, or several unforeseen circumstances, any of which could have a material adverse effect on our business, financial position, cash flows and results of operations.
The Company may need additional capital in the future, which may not be available on acceptable terms, if at all.
From time to time, the Company has historically relied on outside financing to fund expanded operations, capital expenditure programs and acquisitions. The Company may require additional capital in the future to fund operations or strategic opportunities. The Company cannot be assured that additional financing will be available on favorable terms, or at all. In addition, the terms of available financing may place limits on the Company’s financial and operating flexibility. If the Company is unable to obtain sufficient capital in the future, the Company may not be able to expand or acquire complementary businesses and may not be able to continue to develop new products or otherwise respond to changing business conditions or competitive pressures.
The Company’s stock price may become highly volatile, and investors may not be able to sell their shares at their desired prices, or at all.
The Company’s stock price may change dramatically when buyers seeking to purchase shares of the Company’s common stock exceed the shares available on the market, or when there are no buyers to purchase shares of the Company’s common stock when shareholders are trying to sell their shares. The Company’s common stock has historically been “thinly” traded, meaning that the number of persons interested in purchasing shares of Company common stock at prevailing prices at any given time may be relatively small. This may contribute to price volatility, as the trading of relatively small quantities of shares by our shareholders may disproportionately influence share price and may prevent investors from selling their shares at or above their purchase price if there is not sufficient demand for the shares at the time of sale.
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The Company depends on key management, sales and marketing and technical personnel, the loss of whom could harm its business.
The Company depends on key management and technical personnel. The loss of one or more key employees could materially and adversely affect our business, financial position, cash flows and results of operations.
The Company’s success also depends on its ability to attract and retain highly qualified technical, sales and marketing and management personnel necessary for the maintenance and expansion of its activities. The Company faces strong competition for such personnel and may not be able to attract or retain such personnel. In addition, when the Company experiences periods with little or no profits, a decrease in compensation based on profits may make it difficult to attract and retain highly qualified personnel.
To attract and retain executives and other key employees, the Company must provide a competitive compensation package. If the Company’s profits decrease, or if the Company’s total compensation package is not viewed as competitive, the Company’s ability to attract, retain and motivate executives and key employees could be weakened. The failure to successfully hire and retain executives and key employees or the loss of any executives and key employees could have a significant impact on our operations.
Deterioration in the creditworthiness of several major customers could have a material impact on the Company’s business, financial condition, or results of operations.
Included as a significant asset on the Company’s balance sheet are accounts receivable from our customers. If several large customers become insolvent or are otherwise unable to pay for products or become unwilling or unable to make payments in a timely manner, it could have a material adverse effect on our business, financial position, cash flow and results of operations.
Although the Company is not dependent on any one customer, deterioration in several large customers at the same time could have an unfavorable material impact on the Company’s results of operations or financial condition. One customer exceeded 10% of accounts receivable for each of the fiscal year 2025 and 2024. Foreign sales were not significant for fiscal years 2025 and 2024.
The Company’s operating results may fluctuate, which makes the results of operations difficult to predict and could cause the results to fall short of expectations.
The Company’s operating results may fluctuate because of several factors, including those described above, many of which are outside of our control. As a result, comparing the Company’s operating results on a period-to-period basis may not be meaningful, and past results should not be relied upon as an indication of future performance. Quarterly, year to date, and annual costs and expenses as a percentage of revenues may differ significantly from historical or projected levels. Future operating results may fall below expectations. These types of events could cause the Company’s stock price to drop.
ITEM 1B UNRESOLVED STAFF COMMENTS
None.
ITEM 1C CYBERSECURITY
The Company’s Board recognizes the critical importance of maintaining the trust and confidence of our customers, clients, business partners and employees. The Board is actively involved in oversight of the Company’s risk management program, and cybersecurity represents a key component of the Company’s overall approach to enterprise risk management (“ERM”). The Company’s cybersecurity policies, standards, processes, and practices are fully integrated into the Company’s ERM program and are based on recognized frameworks established by the National Institute of Standards and Technology, the International Organization for Standardization and other applicable industry standards. In general, the Company seeks to address cybersecurity risks through a comprehensive, cross-functional approach that is focused on preserving the confidentiality, security, and availability of the information that the Company collects and stores by identifying, preventing, and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur.
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Risk Management and Strategy
As one of the critical elements of the Company’s overall ERM approach, the Company’s cybersecurity program is focused on the following key areas:
Governance: As discussed in more detail under the heading “Governance,” the Board’s oversight of cybersecurity risk management is supported by the Audit Committee of the Board (the “Audit Committee”), which regularly interacts with the Company’s ERM function, the Company’s Director of Information Technology, and other members of management and relevant management committees and councils, including management’s Cybersecurity Council.
Collaborative Approach: The Company has implemented a comprehensive, cross-functional approach to identifying, preventing and mitigating cybersecurity threats and incidents, while also implementing controls and procedures that are designed to provide for the prompt and appropriate internal reporting of certain cybersecurity incidents, either in the form of a single unauthorized occurrence or a series of unauthorized occurrences, so that decisions regarding the public disclosure and reporting of such incidents can be made by management in a timely manner.
Technical Safeguards: The Company deploys technical safeguards that are designed to protect the Company’s information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls, which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence.
Incident Response and Recovery Planning: The Company has established and maintains comprehensive incident response and recovery plans intended to fully and timely address the Company’s response to a cybersecurity incident, and such plans are tested and evaluated on a regular basis.
Third-Party Risk Management: The Company maintains a comprehensive, risk-based approach to identifying and overseeing cybersecurity risks presented by third parties, including vendors, service providers and other external users of the Company’s systems, as well as the systems of third parties that could adversely impact our business in the event of a cybersecurity incident affecting those third-party systems.
Education and Awareness: The Company provides regular, mandatory training for personnel regarding cybersecurity threats to equip the Company’s personnel with effective tools to proactively address cybersecurity threats and prevent incursions, and to communicate the Company’s evolving information security policies, standards, processes, and practices. Our awareness program includes assessment of our personnel’s preparedness through regular phishing e-mail alerts, highlighted banners that warn about external senders, and tests administered to help the Company’s personnel interrogate, navigate around, and avoid clicking suspicious and unfamiliar links from unknown senders.
The Company engages in the periodic assessment and testing of the Company’s policies, standards, processes, and practices that are designed to address cybersecurity threats and incidents. These efforts include a wide range of activities, including audits, assessments, tabletop exercises, threat modeling, vulnerability testing and other exercises focused on evaluating the effectiveness of our cybersecurity measures and planning. The Company engages third parties to perform assessments on our cybersecurity measures, including information security maturity assessments, audits and independent reviews of our information security control environment and operating effectiveness. The results of such assessments, audits and reviews are reported to the Audit Committee and the Board, and the Company adjusts its cybersecurity policies, standards, processes, and practices as appropriate based on the information provided by these assessments, audits, and reviews.
Governance
The Board, in coordination with the Audit Committee, oversees the Company’s ERM process, including the management of risks arising from cybersecurity threats. The Board and the Audit Committee each receive regular presentations and reports on cybersecurity risks, which address a wide range of topics including recent developments, evolving standards, vulnerability assessments, third-party and independent reviews, the threat environment, technological trends, and information security considerations arising with respect to the Company’s peers and third parties. The Board and the Audit Committee also receive prompt and timely information regarding any cybersecurity incident that meets established reporting thresholds, or that management otherwise deems to be significant, as well as ongoing updates regarding any such incident until it has been fully addressed. On an annual basis, the Board and the Audit Committee discuss the Company’s approach to cybersecurity risk management with the members of management’s Cybersecurity Council, which includes the Company’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Director of Information Technology.
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The Cybersecurity Council, in coordination with the Company’s outside legal counsel, works collaboratively across the Company to implement a program designed to protect the Company’s information systems from cybersecurity threats and to promptly respond to any cybersecurity incidents in accordance with the Company’s incident response and recovery plans. To facilitate the success of the Company’s cybersecurity risk management program, multidisciplinary teams throughout the Company are deployed to address cybersecurity threats and to respond to cybersecurity incidents. Through ongoing communications with these teams, the Director of Information Technology and the Cybersecurity Council monitor the prevention, detection, mitigation and remediation of cybersecurity threats and incidents in real time and report such threats and incidents to the Audit Committee when appropriate.
The Director of Information Technology has served in various roles in information technology and information security for over 10 years, including the design and management of operational and cybersecurity activities. The Director of Information Technology holds an undergraduate degree in computer science. The Company’s CEO and CFO each hold undergraduate and graduate degrees in their respective fields, and each has over 20 years of experience managing risks at the Company and at similar companies, including risks arising from cybersecurity threats.
Cybersecurity threats, including as a result of previous cybersecurity incidents, have not materially affected the Company, including its business strategy, results of operations or financial condition.
ITEM 2 PROPERTIES
The Company leases 3,947 square feet of corporate office space in Shelton, Connecticut. The current lease expires on March 31, 2033.
All the Company’s properties are owned or leased and are adequate to satisfy current requirements. All the Company’s properties have the necessary flexibility to cover any long-term expansion requirements.
Company facilities include the following:
Big 3 Products in Centralia, Illinois owns 156,160 square feet of administrative and manufacturing space located in an industrial park.
Big 3 Products in Centralia, Illinois owns 9,609 square feet of administrative and manufacturing space located in an industrial park.
Big 3 Products in Sterling Heights, Michigan leases 24,400 square feet of administrative and manufacturing space.
Big 3 Products in Chesterfield, Michigan leases 45,000 square feet for a design and manufacturing facility. The current lease expires on February 28, 2026. The Company intends to renew the lease.
Big 3 Mold owns 54,450 square feet of building space in Millville, New Jersey. The building is industrial block.
Hallink Moulds, a wholly owned subsidiary in Cambridge, Ontario, leases 15,000 square feet of building space. The current lease expires on February 1, 2026, with the option to renew for an additional twenty-four months.
Eberhard Manufacturing in Strongsville, Ohio owns 9.6 acres of land and a building containing 157,580 square feet, located in an industrial park.
Eberhard Manufacturing leases 8,551 square feet of office space in Arlington Heights, IL. The current lease expires on September 1, 2026.
Eastern Industrial Ltd., a wholly owned subsidiary in Shanghai, China, leases approximately 47,500 square feet of space in both industrial and commercial areas. In 2025, Eastern Industrial, Ltd. renewed the lease for a three-year term, which expires on March 31, 2028
The World Lock Co. Ltd. Subsidiary leases 5,285 square feet of space in a building located in Taipei, Taiwan. The current lease expires on October 28, 2026.
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The Dongguan Reeworld Security Products Ltd. Subsidiary leases 103,800 square feet of space in concrete buildings that are in an industrial park in Dongguan, China. The current lease expires on May 31, 2027, and is renewable.
Velvac, Inc., a wholly owned subsidiary in New Berlin, Wisconsin, leases a 98,000 square foot building. The building includes 17,000 square feet of office space and 81,000 square feet of warehousing and distribution operations. The current lease expires on May 31, 2029.
Velvac, Inc. leases 100,000 square feet of warehouse space in Pharr, TX. The current lease expires on March 31, 2030.
Velvac de Reynosa, S. De R.L De C.V., a maquiladora wholly owned in Reynosa, Tamaulipas, Mexico, leases 225,000 square feet of building space located in an industrial park identified as Lots 2, 3 and 4. The current lease expires on April 15, 2033.
All owned properties are free and clear of any material encumbrances.
ITEM 3 LEGAL PROCEEDINGS
The Company is party to various legal proceedings from time to time related to its normal business operations. Currently, the Company is not involved in any material pending legal proceedings, and no such material proceedings are known to the Company to be contemplated by governmental authorities.
ITEM 4 MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is quoted on the NASDAQ Global Market under the symbol “EML.” The approximate number of record holders of the Company common stock on January 3, 2026 was 240.
The Company expects to continue its policy of paying regular cash dividends, although there can be no assurance as to future dividends because they are dependent on future earnings, capital requirements and financial conditions.
During fiscal years 2025 and 2024, there were no sales by the Company of its securities that were not registered under the Securities Act of 1933, as amended (the “Securities Act”).
On April 30, 2025, the Board approved a share repurchase program authorizing the Company to repurchase up to 400,000 shares of the Company’s common stock over a five-year term expiring in April 2030. The Company’s 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 Securities Exchange Act of 1934, as amended.
The Company made the following share repurchases during the fourth quarter of 2025, as set forth in the table below:
Issuer Purchases of Equity Securities
(a) (b) (c) (d)
ITEM 6 [RESERVED]
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ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company’s fiscal year ends on the Saturday nearest to December 31. Fiscal year 2025 was 53 weeks in length and fiscal year 2024 was 52 weeks in length. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to results for “2025” or “fiscal year 2025” mean the fiscal year ended January 3, 2026, and references to results for “2024” or “fiscal year 2024” mean the fiscal year ended December 28, 2024. References to the “fourth quarter of 2025” or the “fourth fiscal quarter of 2025” mean the fourteen-week period from September 28, 2025 to January 3, 2026, and references to the “fourth quarter of 2024” or the “fourth fiscal quarter of 2024” mean the thirteen-week period from September 29, 2024 to December 28, 2024.
The following analysis excludes discontinued operations.
Summary
Net sales for 2025 were $249.0 million compared to $272.8 million for 2024. Net income for 2025 was $6.0 million, or $0.98 per diluted share, compared to $13.2 million, or $2.13 per diluted share, for 2024. Sales for the fourth quarter of 2025 were $57.5 million compared to $66.7 million for the same period in 2024. Net income for the fourth quarter of 2025 was $1.2 million, or $0.19 per diluted share compared to $1.6 million, or $0.26 per diluted share, for the comparable 2024 period.
The Company’s backlog was $81.1 million on January 3, 2026, compared to $89.2 million on December 28, 2024, primarily due to decreased orders for returnable transport packaging products
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. Areas of uncertainty that require judgments, estimates and assumptions include items such as the allowance for doubtful accounts; inventory accounting; the testing of goodwill and other intangible assets for impairment; pensions and other postretirement benefits; and gain or loss on held for sale. Management uses historical experience and all available information to make its estimates and assumptions, but actual results will inevitably differ from the estimates and assumptions that are used to prepare the Company’s financial statements at any given time. Despite these inherent limitations, management believes that Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and related footnotes provide a meaningful and fair presentation of the Company’s financial position and results of operations.
Management believes that the application of these estimates and assumptions on a consistent basis enables the Company to provide the users of the financial statements with useful and reliable information about the Company’s operating results and financial condition.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company reviews the collectability of its receivables on an ongoing basis, considering a combination of factors that require judgment and estimates, including among others, our customers’ access to capital, customers’ willingness, or ability to pay, customer payment patterns, general economic conditions and geopolitical trends, and our ongoing relationship with our customers. The Company reviews potential problems, such as past due accounts, a bankruptcy filing or deterioration in the customer’s financial condition, to ensure that the Company has adequately accrued for potential loss. Accounts are considered past due based on when payment was originally due. If a customer’s situation changes, such as a bankruptcy or a change in its creditworthiness, or there is a change in the current economic climate, the Company may modify its estimate of the allowance for doubtful accounts. The Company will write off accounts receivable after reasonable collection efforts have been made and the accounts are deemed uncollectible. If our estimates and assumptions as to collectability were materially incorrect, or if any of our significant customers were to develop unexpected and immediate financial problems that would prevent payment of amounts due to us, and our allowance for doubtful accounts were inadequate, this could result in an unexpected loss in profitability.
As of January 3, 2026 and December 28, 2024, the Company’s allowance for doubtful accounts total was $0.6 million and $0.5 million, respectively. As of January 3, 2026, and December 28, 2024, the Company’s bad debt expense was $0.1 million and $0.1 million, respectively.
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Inventory
Inventories are valued at the lower of cost or net realizable value. Cost is determined by the last-in, first-out (“LIFO”) method at Eberhard while Big 3 Precision and Velvac and inventories outside the United States are valued using a first-in, first-out (“FIFO”) method. Accordingly, a LIFO valuation reserve is calculated using the dollar value link chain method.
We review the net realizable value of inventory in detail on an ongoing basis, considering deterioration, obsolescence, estimated future demand, current market conditions, and other factors. Based on these assessments, we provide for an inventory reserve in the period in which an impairment is identified. The reserve fluctuates with market conditions, design cycles, and other economic factors and could vary significantly, whether favorably or unfavorably, from actual results due to, among other things, unanticipated changes in economic conditions, customer demand, or the competitive landscape.
The inventory reserve for excess or obsolete inventory reduced the Company’s inventory valuation by $1.8 million and $1.9 million as of January 3, 2026 and December 28, 2024, respectively.
Goodwill and Other Intangible Assets
Intangible assets with finite useful lives are generally amortized on a straight-line basis over the periods benefited. Goodwill and other intangible assets with indefinite useful lives are not amortized. The Company performs annual qualitative assessments on goodwill and other intangible assets as of the end of each fiscal year by comparing the estimated fair value of each reporting unit with its carrying amount. Additionally, the Company performs an interim analysis 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 or 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. 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, including (i) macroeconomic conditions, (ii) market and industry conditions, (iii) cost factors, (iv) overall financial performance, (v) other relevant entity-specific events, and (vi) events affecting a reporting unit. 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.
In the third quarter of 2024, a goodwill impairment of approximately $12.1 million was recognized in discontinued operations when classifying Big 3 Mold as held for sale.
The Company performed its annual qualitative assessment as of the end of each of fiscal 2025 and 2024 on the carrying value of goodwill and determined that it is more likely than not that no impairment of goodwill existed as of such dates. See Note 3 – Accounting Policies –Goodwill, in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for more detail.
Pension and Other Postretirement Benefits
The amounts recognized in the consolidated financial statements related to pension and other postretirement benefits are determined from actuarial valuations. Inherent in these valuations are assumptions about such factors as expected return on plan assets, discount rates at which liabilities could be settled, rate of increase in future compensation levels, mortality rates, and trends in health insurance costs. These assumptions are reviewed annually and updated as required. In accordance with U.S. GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, affect the expense recognized and obligations recorded in future periods.
The discount rate used is based on a single equivalent discount rate derived with the assistance of our actuaries by matching expected future benefit payments in each year to the corresponding spot rates from the FTSE Pension Liability Yield Curve, comprised of high quality (rated AA or better) corporate bonds. The Company calculates its service and interest costs in future years by applying the specific spot rates along the selected yield curve to the relevant projected cash flows.
The expected long-term rate of return on assets is also developed with input from the Company’s actuarial firms. We consider the Company’s historical experience with pension fund asset performance, the current and expected allocation of our plan assets and expected long-term rates of return. The long-term rate-of-return assumption used for determining net periodic pension expense was 7.5% for both 2025 and 2024, respectively. The Company reviews the long-term rate of return each year.
Future actual pension income and expenses will depend on future investment performance, changes in future discount rates and various other factors related to the population of participants in the Company’s pension plans.
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The Company expects to make cash contributions of approximately $2,800,000 and $40,000 to our pension and other postretirement plans, respectively, in 2026.
In connection with our pension and other postretirement benefits, the Company reported income of $0.4 million and $3.0 million (net of tax) on its Consolidated Statement of Comprehensive Income for fiscal years 2025 and 2024, respectively. The main factor driving this income was the change in the discount rate during the applicable period.
Assumptions used to determine net periodic pension benefit cost for the fiscal years indicated were as follows:
Expected return on plan assets 7.5 % 7.5 %
Rate of compensation increase 0.0 % 0.0 %
Assumptions used to determine net periodic other postretirement benefit cost for the fiscal years indicated were as follows:
Expected return on plan assets 4.0 % 4.0 %
Rate of compensation increase 4.3 % 4.3 %
The changes in assumptions had the following effect on the net periodic pension and other postretirement costs recorded in Other Comprehensive Income as follows:
Year ended
January 3, December 28,
Additional recognition due to significant event -- --
Amortization of:
Unrecognized prior service cost (3,391 ) 4,241
The Plan has been investing a portion of the assets in long-term bonds to better match the impact of changes in interest rates on its assets and liabilities and thus reduce volatility in Other Comprehensive Income. Please refer to Note 10 – Retirement Benefit Plans in Item 8, Financial Statements and Supplementary Data of this Form 10-K for additional disclosures concerning the Company’s pension and other postretirement benefit plans.
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RESULTS OF OPERATIONS
Fourth Quarter 2025 Compared to Fourth Quarter 2024
The following table shows, for the fourth quarter of 2025 and 2024, selected line items from the consolidated statements of income from continuing operations as a percentage of net sales for the Company’s continuing operations. The Company’s continuing operations include (1) Big 3 Products; (2) Eberhard; and (3) Velvac.
Three Months Ended
Cost of Products Sold 77.2 % 77.0 %
Product Development Expense 1.6 % 1.7 %
Selling and Administrative Expense 17.4 % 16.8 %
Restructuring Costs 1.6 % 1.7 %
Operating Profit 3.8 % 4.5 %
Net sales in the fourth quarter of 2025 decreased 13.7% to $57.5 million from $66.7 million in the fourth quarter of 2024. Sales decreases were due to lower shipments of returnable transport packaging products and truck mirror assemblies. Net sales of existing products decreased 19.9% while price increases and new products increased net sales by 6.2% in the fourth quarter of 2025 when compared to sales in the fourth quarter of 2024. New products included various truck mirror assemblies, rotary latches, and handles.
Cost of products sold in the fourth quarter of 2025 decreased $6.9 million or 13.5% from the corresponding period in 2024. The decrease in cost of products sold is primarily attributable to the lower product shipments.
Gross margin as a percentage of net sales for the fourth quarter of 2025 was 22.8% compared to 23.0% in the prior year fourth quarter. The decrease is primarily due to higher material costs in the fourth quarter of 2025.
Product development expenses decreased $0.2 million, or 19.3%, in the fourth quarter of 2025 compared to the corresponding period in 2024 as we continue to invest in new products at Eberhard, Velvac and Big 3 Products. As a percentage of net sales, product development costs were 1.6% for the fourth quarter of 2025 compared to 1.7% for the corresponding period in 2024.
Selling and administrative expenses in the fourth quarter of 2025 decreased 10.5% compared to the fourth quarter of 2024. As a percentage of net sales, selling and administrative expenses were 17.4% for the fourth quarter of 2025 compared to 16.8% for the corresponding period in 2024. The decrease was primarily the result of decreased commissions, legal fees and personnel-related costs.
Net income from continuing operations for the fourth quarter of 2025 was $1.2 million, or $0.19 per diluted share, from $1.6 million, or $0.26 per diluted share, for the same period in 2024.
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Fiscal Year 2025 Compared to Fiscal Year 2024
The following table shows, for fiscal year 2025 and fiscal year 2024, selected line items from the consolidated statements of income as a percentage of net sales for the Company’s operations. The Company’s continuing operations include (1) Big 3 Products; (2) Eberhard; and (3) Velvac.
Fiscal Year Ended
Cost of Products Sold 77.1 % 75.3 %
Product Development Expense 1.6 % 1.8 %
Selling and Administrative Expense 17.0 % 15.5 %
Operating Profit 4.3 % 7.4 %
Summary
Net sales for 2025 decreased 8.7% to $249.0 million from $272.8 million in 2024. The sales decrease was primarily due to lower shipments for truck mirror assemblies and returnable transport packaging products. Net sales of existing products decreased 14.9% in 2025 compared to 2024 while price increases and new products increased net sales in 2025 by 6.2%. Sales of new products increased 5.9% in 2025 and included various new truck mirror assemblies, rotary latches, D-rings, and mirror cams.
Cost of products sold decreased $13.5 million or 6.6% to $192.0 million in 2025 from $205.5 million in 2024. The decrease in the cost of products sold is primarily attributable to lower sales volumes. Tariffs incurred during 2025 were $10.2 million from China-sourced products as compared to $2.5 million in 2024. Most tariffs were recovered through price increases.
Gross margin as a percentage of sales was 22.9% in 2025 compared to 24.7% in 2024. The decrease primarily reflects the impact of higher material costs on lower sales volumes.
Product development expenses as a percentage of sales were 1.6% and 1.8% in 2025 and 2024, respectively, as the Company continues to invest in new products at Eberhard, Velvac and Big 3 Products to better serve our customers.
Selling and administrative expenses were $42.2 million in 2025 compared to $42.2 million in 2024. As a percentage of net sales, selling and administrative expenses were 17.0% for the fiscal year of 2025 compared to 15.5% for the fiscal year 2024. During 2025, Selling and administrative expenses include a $2.5 million of restructuring charges composed of personnel and facilities related cost. The charges relate to actions completed within the fiscal year 2025.
Other expense increased $0.1 million to $0.5 million of expense in 2025 from $0.3 million of expense in 2024. The increase in other expense is due to costs associated with credit agreement refinancing partially offset by recovery of employment tax credits.
Net income from continuing operations for 2025 decreased 57% to $6.0 million, or $0.98 per diluted share, from $13.2 million, or $2.13 per diluted share, in 2024.
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Other Items
The following table shows the amount of change from the year ended December 28, 2024 to the year ended January 3, 2026 in other items (dollars in thousands):
Amount %
Interest Expense $ (37 ) -1.3 %
Other (Income) Expense $ 146 41.3 %
Income Tax Expense $ (2,336 ) -60.5 %
Interest expense decreased in 2025 from 2024 is primarily due to paydown of principal.
The effective tax rate for 2025 was 20.6% compared to the 2024 effective tax rate of 22.6%. Total income taxes paid were $1.9 million in 2025 and $5.2 million in 2024.
Liquidity and Sources of Capital
The primary source of the Company’s cash is earnings from operating activities adjusted for cash generated from or used for net working capital. The most significant recurring non-cash items included in net income are depreciation and amortization expense. Changes in working capital fluctuate with the changes in operating activities. As sales increase, there generally is an increased need for working capital. The Company closely monitors inventory levels and attempts to match production to expected market demand, keeping tight control over the collection of receivables, and optimizing payment terms on its trade and other payables. The maintenance of appropriate inventory levels considering demand has been and may continue to be challenged by supply chain disruptions, which have led in some cases to a deficiency inventory that has required us to pay expedited freight fees on some of our products to timely fulfill customer orders. Coupled with increased materials costs, this has decreased our margins. If these disruptions persist and we are unable to maintain sufficient inventory on hand, we may need to cancel or decline orders, and we may be unable to offset increased material and freight costs fully by increasing prices on our products, any of which could have a material adverse impact on our liquidity.
The Company is dependent on continued demand for its products and subsequent collection of accounts receivable from its customers. The Company serves a broad base of customers and industries with a variety of products. As a result, any fluctuations
in demand or payment from a particular industry or customer should not have a material impact on the Company’s sales and collection of receivables. Management expects that the Company’s foreseeable cash needs for operations, capital expenditures, debt service and dividend payments will continue to be met in the next 12 months from January 3, 2026 and beyond by the Company’s operating cash flows and available credit facility.
The following table shows key financial ratios at the end of each fiscal year:
Current ratio 3.7 2.6
Average days’ sales in accounts receivable 59 50
Inventory turnover 3.4 3.7
Ratio of working capital to sales 28.8 % 25.1 %
Total debt to shareholders’ equity 27 % 35 %
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The following table shows important liquidity measures as of the fiscal year-end balance sheet date for each of the preceding two years (in millions):
Cash and cash equivalents
- Held in the United States $ 5.2 $ 12.4
- Held by foreign subsidiaries 2.2 1.6
Net cash provided by operating activities 8.9 19.4
Net cash used in investing activities (0.5 ) (7.9 )
Net cash used in financing activities (16.3 ) (4.8 )
All cash held by foreign subsidiaries is readily convertible into other currencies, including the U.S. dollar.
Net cash provided by operating activities was $8.7 million in 2025 compared to $19.4 million net cash provided by operating activities in 2024. In 2025, the Company contributed $3.1 million to its defined benefit retirement plan.
In 2024, cash used to support increases in working capital requirements was $5.4 million, driven primarily by payments of accounts payable. In 2024, reductions in working capital requirements provided $4.9 million, primarily driven by reductions in inventory and prepaid expenses.
The Company used $0.5 million and $7.9 million for investing activities in 2025 and 2024, respectively. In 2025, the Company invested $4.0 million in capital expenditures, sold $2.2 million in marketable securities, and received $1.5 million from the sale of business assets. In 2024, the Company invested $9.7 million in capital expenditures, invested $1.0 million in marketable securities, received $2.3 million on the sale of one of its buildings, and received payments on notes receivable of $0.5 million. Capital expenditures in fiscal year 2026 are expected to be approximately $7.3 million.
In 2025, the Company made total debt payments of $44.8 million, of which $36.0 million were principal payments on the former credit facility and $2.7 million were for payment of dividends. The Company anticipates dividend payments in fiscal 2026 to be approximately $2.8 million. The Company has $66 million available on its revolving line of credit. See Note 6 - Debt in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for further discussion on the Company’s debt facilities.
In 2024, the Company made total debt payments of $4.8 million, of which $1.8 million were principal payments on the revolving commitment portion of the credit facility and $2.7 million were for payment of dividends.
The Company leases certain equipment and buildings under cancelable and non-cancelable operating leases that expire at various dates for up to 8 years. Rent expenses amounted to approximately $4.5 million in 2025 and $4.9 million in 2024.
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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 6 - Debt for additional information regarding the terms of the prior credit facility with TD Bank. The Citizens Credit Agreement established 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 6, 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.
The Company was in compliance with all its covenants under the Citizens Credit Agreement as of January 3, 2026 and through the date of filing this Form 10-K. The Company has $66 million available on its line of credit under the Citizens Credit Agreement as of the date of filing this Form 10-K.
As of the end of the fourth 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.
Non-GAAP Financial Measures
The non-GAAP financial measures we provide in this Form 10-K should be viewed in addition to, and not as an alternative for, results prepared in accordance with U.S. GAAP.
To supplement the 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 and Adjusted EBITDA from Continuing Operations, 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 from continuing operations, diluted earnings per share from continuing operations, 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 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 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.
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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.
Reconciliation of Non-GAAP Measures
For the Three and Twelve Months ended January 3, 2026 and December 28, 2024
Three Months Ended Twelve Months Ended
Adjustments:
Severance and accrued compensation 1,368 a 1,368 a
Personnel and facilities restructuring 350 b 2,522 b
Credit Agreement refinancing 527 c 527 c
Non-GAAP tax impact of adjustments (1) (181 ) (342 ) (628 ) (342 )
Adjusted earnings per share from continuing operations (non-GAAP):
b) Expenses associated with severance and facilities related costs.
c) Writeoff of fees associated with former credit agreement.
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Reconciliation of Non-GAAP Measures
Adjusted EBITDA and Adjusted EBITDA from Operations Calculation
For the Three and Twelve Months ended January 3, 2026 and December 28, 2024
Three Months Ended Twelve Months Ended
Severance and accrued compensation - 1,368 a - 1,368 a
Personnel and facilities restructuring 350 c - 2,522 c -
Credit Agreement refinancing 527 d 527 d
Depreciation and amortization - - - 1,552
(Gain) Loss on classification as held for sale - - (2,017 )b 23,088
Adjusted EBITDA from discontinued operations $ - $ 97 $ (372 ) $ (758 )
Severance and accrued compensation 1,368 a 1,368 a
Personnel and facilities restructuring 350 c 2,522 c
Credit Agreement refinancing 527 d 527 d
(Gain) Loss on classification as held for sale - - (2,017 )b 23,088 b
b) Impact of classifying Big 3 Mold business as held for sale
c) Expenses associated with severance and facilities related costs
d) Writeoff of fees associated with former credit agreement.
ITEM 7A 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 Exchange Act, the Company is not required to provide information under this Item 7A.
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ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Eastern Company
Consolidated Balance Sheets
January 3, December 28,
ASSETS
Current Assets
Inventories:
Current assets held for sale - 5,071,828
Property, Plant and Equipment
Other Assets
Long term note receivable, less current portion 162,102
See accompanying notes.
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The Eastern Company
Consolidated Balance Sheets
January 3, December 28,
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt - 3,603,935
Other current liabilities - 505,376
Current liabilities held for sale - 2,144,573
Long-term liabilities held for sale - -
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
Accumulated other comprehensive loss:
Unrealized gain (loss) on foreign currency swap, net of tax 570,097 (505,376 )
See accompanying notes.
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The Eastern Company
Consolidated Statements of Income
Year Ended
January 3, December 28,
Discontinued Operations (see note 2)
Loss from operations of discontinued units $ (520,006 ) $ (2,821,898 )
Earnings per share from continuing operations:
Earnings (loss) per share from discontinued operations:
Total earnings (loss) per share:
Cash dividends per share: $ 0.44 $ 0.44
See accompanying notes.
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The Eastern Company
Consolidated Statements of Comprehensive Income
Year Ended
January 3, December 28,
Other comprehensive income:
Change in fair value of foreign currency swap 1,075,473 (505,376 )
See accompanying notes.
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The Eastern Company
Consolidated Statements of Shareholders’ Equity
Common Treasury Retained AccumulatedOtherComprehensive Shareholders'
Shares Stock Shares Stock Earnings Income (Loss) Equity
Change in fair value of foreign currency swap (505,376 ) (505,376 )
Stock Options Exercised -
Stock Options Exercised -
See accompanying notes.
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The Eastern Company
Consolidated Statements of Cash Flows
Year Ended
Operating Activities
Unrecognized pension and postretirement benefits (1,197,126 ) (1,613,436 )
Loss on refinancing of credit agreement 526,602 -
Changes in operating assets and liabilities:
Investing Activities
Business acquisition (421,039 ) -
Proceeds from sale of business 1,593,646 -
Proceeds from sale of building and equipment 51,727 2,278,540
Financing Activities
Proceeds from short term borrowings (revolver) - 3,000,000
Principal payments on short-term borrowings (revolver) - (1,750,000 )
Financing fees paid (299,521 ) -
Proceeds from new long-term debt refinancing 36,015,894 -
Discontinued Operations
Cash provided by operating activities - 1,165,057
Cash used in investing activities - (583,242 )
Cash provided by discontinued operations - 581,815
Supplemental disclosure of cash flow information:
Non-cash investing and financing activities
See accompanying notes
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The Eastern Company
Notes to Consolidated Financial Statements
1. DESCRIPTION OF BUSINESS
The Eastern Company, and its subsidiaries (the “Company,” “Eastern,” “we,” “us” or “our”) manage industrial businesses that design, manufacture and sell engineered solutions to industrial markets. Eastern’s businesses operate in industries with long-term macroeconomic growth opportunities. We look to acquire businesses that produce stable and growing earnings and cash flows. Eastern may pursue acquisitions in industries other than those in which its businesses currently operate if an acquisition presents an attractive opportunity.
Eastern manages the financial, operational, and strategic performance of its businesses to increase cash generation, operating earnings, and long-term shareholder value.
Eastern encompasses four operating entities within the United States, one wholly owned Canadian subsidiary located in Cambridge, Ontario, Canada, a wholly owned Taiwanese subsidiary located in Taipei, Taiwan, a wholly owned subsidiary in Hong Kong, two wholly owned Chinese subsidiaries (one located in Shanghai, China, and one located in Dongguan, China), and a wholly owned subsidiary in Reynosa, Mexico.
The Eastern Company has one reportable segment: Engineered Solutions. The Engineered Solutions segment provides engineered solutions to support our customer’s needs primarily in the commercial transportation and logistics markets. The Chief Operating Decision Maker (CODM), who is the Company’s Chief Executive Officer, uses both segment gross profit and segment profit or loss from operations before interest and income taxes to allocate resources (including employees, property, and financial or capital resources) for the Engineered Solutions segment predominantly in the annual budget and forecasting process.
Company Operations
The Engineered Solutions segment consists of Big 3 Precision, including Big 3 Precision Products, Inc. (“Big 3 Products”) and Big 3 Mold Services, Inc. (“Big 3 Mold”) and Hallink Moulds, Inc. (“Hallink Moulds”); Eberhard Manufacturing Company (“Eberhard Manufacturing”), Eastern Industrial Ltd, World Lock Company Ltd., Dongguan Reeworld Security Products Ltd., and World Security Industries (together “Eberhard”); and Velvac Holdings Inc. (“Velvac”). These businesses design, manufacture, and market a diverse product line of custom and standard vehicular and industrial hardware, including turnkey returnable packaging solutions, access and security hardware, mirrors, and mirror-cameras.
Big 3 Products and Big 3 Mold’s turnkey returnable packaging solutions are used in the assembly processes of vehicles, aircraft, and durable goods and in the production processes of plastic packaging products, packaged consumer goods and pharmaceuticals. Big 3 Products works with original equipment manufacturers (“OEMs”) to design and produce custom returnable transport packaging to integrate with OEM assembly processes. Big 3 Mold designs and manufactures blow mold tools. Hallink Moulds is a producer of injection blow mold tooling and is a supplier of blow molds and change parts to the food, beverage, healthcare, and chemical industry. Hallink specializes in the design, development and manufacture of 2-step stretch blow molds, and related components for the stretch blow molding industry, offering integrated turnkey solutions to its customers worldwide.
Eberhard specializes in the engineering and manufacturing of access and security hardware. Eberhard offers a standard product line of rotary latches, compression latches, draw latches, hinges, camlocks, key switches, padlocks, and handles among other products, as well as comprehensive development and program management services for custom electromechanical and mechanical systems designed for specific OEMs and customer applications. Eberhard’s products are found in an expansive range of applications and products globally.
Velvac is a designer and manufacturer of proprietary vision technology for OEMs and aftermarket applications, and a provider of aftermarket components to the heavy-duty truck market in North America. Velvac serves diverse, niche segments within the heavy- and medium-duty truck, motorhome, and bus markets.
Sales are made to customers primarily in North America.
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The Eastern Company
Notes to Consolidated Financial Statements (continued)
2. DISCONTINUED OPERATIONS
In the third quarter of 2024, the Company decided to sell Big 3 Mold and 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 consolidated statements of income as discontinued operations for all periods presented. Additionally, current and non-current assets and liabilities of discontinued operations are reflected in the consolidated balance sheets for all periods presented. 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. From April 30, 2025, the assets and liabilities and results of operations have been included in continuing operations.
Summarized Financial Information of Discontinued Operations
The following table represents income (loss) from discontinued operations, net of tax:
Year Ended
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The Eastern Company
Notes to Consolidated Financial Statements (continued)
The following table represents the assets and liabilities from discontinued operations:
Total assets of discontinued operations $ - $ 5,071,828
Current assets of discontinued operations1 $ - $ 5,071,828
Total assets of discontinued operations $ - $ 5,071,828
Accrued compensation and other accrued expenses - 1,242,812
Current portion of operating lease liability - 121,299
Current portion of financing lease liability - 7,371
Other long-term liabilities - 16,249
Total liabilities of discontinued operations $ - $ 2,144,573
Current liabilities of discontinued operations1 $ - $ 2,144,573
Total liabilities of discontinued operations $ - $ 2,144,573
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The Eastern Company
Notes to Consolidated Financial Statements (continued)
3. ACCOUNTING POLICIES
Fiscal Year
The Company’s year ends on the Saturday nearest to December 31. Based on this policy, fiscal year 2025 was comprised of 53 weeks and fiscal year 2024 was comprised of 52 weeks. References in these Notes to the consolidated financial statements to “2025” or “fiscal year 2025” mean the fiscal year ended January 3. 2026, and references to “2024” or “fiscal year 2024” mean the fiscal year ended December 28, 2024. References to the “fourth quarter of 2025” or the “fourth fiscal quarter of 2025” mean the fourteen-week period from September 28, 2025 to January 3, 2026, and references to the “fourth quarter of 2024” or the “fourth fiscal quarter of 2024” mean the thirteen-week period from September 29, 2024 to December 28, 2024.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions are eliminated.
Reclassification
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. On an ongoing basis the Company evaluates its estimates, including those related to product returns, bad debts, carrying value of inventories, intangible and other long-lived assets, income taxes, pensions, other postretirement benefits, and gain or loss on held for sale. Actual results could differ from those estimates.
Foreign Currency
For foreign operations asset and liability accounts are translated with an exchange rate at the respective balance sheet dates; income statement accounts are translated at the average exchange rate for the years. Resulting translation adjustments are made directly to a separate component of shareholders’ equity – “Accumulated other comprehensive (loss) – Foreign currency translation.” Foreign currency exchange transaction gains and losses are not material in any year.
Cash Equivalents
Highly liquid investments purchased with a maturity of three months or less are considered cash equivalents. The Company has deposits that exceed amounts insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000, but the Company does not consider this a significant concentration of credit risk based on the strength of the financial institution. Approximately 31% of available cash is located outside of the United States in our foreign subsidiaries.
Accounts Receivable
Accounts receivable are stated at their net realizable value. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company reviews the collectability of its receivables on an ongoing basis considering a combination of factors. The Company reviews potential problems, such as past due accounts, a bankruptcy filing or deterioration in the customer’s financial condition, to ensure the Company has adequately accrued for potential loss. Accounts are considered past due based on when payment was originally due. If a customer’s situation changes, such as a bankruptcy or change in creditworthiness, or there is a change in the current economic climate, the Company may modify its estimate of the allowance for doubtful accounts. The Company will write off accounts receivable after reasonable collection efforts have been made and the accounts are deemed uncollectible. As of January 3, 2026 and December 28, 2024, the Company’s allowance for doubtful accounts total was $0.6 million and $0.5 million, respectively. As of January 3, 2026 and December 28, 2024, the Company’s bad debt expense was $0.1 million and $0.1 million, respectively.
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The Eastern Company
Notes to Consolidated Financial Statements (continued)
Inventories
Inventories are valued at the lower of cost or net realizable value. Cost is determined by the last-in, first-out (LIFO) method at Eberhard ($19.1 million on January 3, 2026 and $19.9 million December 28, 2024) and by the first-in, first-out (FIFO) method for inventories at Big 3 Precision, Velvac and outside the U.S. ($37.2 million on January 3, 2026 and $36.1 million on December 28, 2024).
Cost exceeded the LIFO carrying value by approximately $3.8 million on January 3, 2026 and $3.8 million on December 28, 2024. There was no material LIFO quantity liquidation in 2025 or 2024. In addition, as of the balance sheet dates, the Company has recorded reserves for excess/obsolete inventory.
Property, Plant and Equipment and Related Depreciation
Property, plant, and equipment (including equipment under finance lease of $4.0 million) are stated at cost. Depreciation expense ($3.8 million in 2025, $3.8 million in 2024) is computed using the straight-line method based on the following estimated useful lives of the assets: Buildings - 10 to 39.5 years; Machinery and equipment - 3 to 10 years.
Impairment of Long-Lived Assets
In accordance with Accounting Standards Codification (“ASC”) 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company reviews its long-lived assets and certain intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In such an event, the carrying value of long-lived assets is reviewed by management to determine if the value may be impaired. If this review indicates that the carrying amount will not be recoverable, as determined based on the estimated expected future cash flows attributable to the asset over the remaining amortization period, management will reduce the carrying amount to recognize the impairment and recognize an impairment loss. The measurement of the impairment loss to be recognized is to be based on the difference between the fair value and the carrying amount of the asset. Fair value is defined as the amount by which the asset could be bought or sold in a current transaction between willing parties. Where quoted market prices in active markets are not available, management would estimate fair value based on the best information available in the circumstances such as the price of similar assets, a discounted cash flow analysis or other techniques.
Goodwill
The Company tests 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.
In the third quarter of 2024 a goodwill impairment of approximately $12.1 million was recognized in discontinued operations when classifying the disposal group as held for sale. See Note 2 – Discontinued Operations for further discussion of discontinued operations. Less than $0.1 million were recognized as impairment losses for the year ending January 3, 2026.
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The Eastern Company
Notes to Consolidated Financial Statements (continued)
The Company performed qualitative assessments of goodwill as of the end of fiscal 2025 and 2024 and determined that no impairment existed at the end of 2025 and 2024.
The Company will continue to perform annual qualitative assessments as of the end of each fiscal year. Additionally, the Company will perform an interim analysis whenever conditions warrant.
Intangible Assets
Patents are recorded at cost and are amortized using the straight-line method over the lives of the patents. Technology and licenses are recorded at cost and are amortized on a straight-line basis over periods ranging from 1 to 20 years. Non-compete agreements and customer relationships are amortized using the straight-line method over their useful lives. Trademarks are deemed to have indefinite lives. If facts and circumstances indicate that the carrying value of the intangible assets, including definite life intangible assets, may be impaired, an evaluation is performed to determine if a write-down is required.
In the third quarter of 2024 an impairment loss of approximately $4.7 million was recognized in discontinued operations when classifying the disposal group as held for sale. See Note 2 – Discontinued Operations for further discussion of discontinued operations. No impairment losses were recognized for the year ended January 3, 2026.
Fair Value of Financial 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:
The Company’s financial instruments are primarily investments in marketable securities (Level 1) and pension assets, see Note 10 - Retirement Benefit Plans.
The carrying amounts of other financial instruments (cash and cash equivalents, marketable securities, accounts receivable, accounts payable and debt) as of January 3, 2026 and December 28, 2024, approximate fair value because of their short-term nature and market-based interest rates.
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 elected to account 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 as well as finance leases for equipment. The Company determines whether an arrangement is, or contains, a lease at contract inception. An arrangement contains a lease if t
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.
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The Eastern Company
Notes to Consolidated Financial Statements (continued)
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. Many leases include one or more options to renew. The exercise of lease renewal options is at our sole discretion. The Company’s option to extend certain leases ranges from 1–120 months. 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 $16.0 million and 8 finance leases with a lease liability of $4.0 million as of January 3, 2026. The basis, 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 transactions. There are no leases that have not yet commenced that could create significant rights and obligations for the Company. The weighted average remaining lease term is 5.8 years.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company considers several factors in determining that control transfers to the customer upon shipment of products. These factors include that legal title transfers to the customer, the Company has a present right to payment, and the customer has assumed the risk and rewards of ownership at the time of shipment.
Big 3 Mold may employ the efforts expended method for the percentage of completion for revenue recognition for certain transactions. The efforts expended method calculates the proportion of effort expended to date in comparison to the total effort expected to be expended for the contract. The amount of revenue recognized by employing the percentage of completion method was $0.8 million for the year ended January 3, 2026 and $2.3 million for the year ended December 28, 2024.
Based on historical experience, product returns have been immaterial, and the Company does not accrue a reserve for product returns. For the years ended January 3, 2026 and December 28, 2024, the Company recorded sales returns of $0.5 million and $0.8 million, respectively, as a reduction to revenue.
Sales and similar taxes that are imposed on the Company’s sales and collected from the customer are excluded from revenues.
Costs for shipping and handling activities, including those activities that occur after transfer of control to the customer, are recorded as cost of sales and are expensed as incurred.
For the years ended January 3, 2026 and December 28, 2024, the Company recorded no revenues related to performance obligations satisfied in prior periods. The Company has elected to use the practical expedient to exclude disclosure of transaction prices allocated to remaining performance obligations, and when the Company expects to recognize such revenue, for all periods prior to the date of initial application of the standard.
The Company notes that it is impracticable to provide revenues from external customers for each product and service.
See Note 12 – Segment andGeographic Information regarding the Company’s revenue disaggregated by geography.
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The Eastern Company
Notes to Consolidated Financial Statements (continued)
Cost of Goods Sold
Cost of goods sold reflects the cost of purchasing, manufacturing, and preparing a product for sale. These costs generally represent the expenses to acquire or manufacture products for sale (including an allocation of depreciation and amortization) and are primarily comprised of direct materials, direct labor, and overhead, which includes indirect labor, facility and equipment costs, inbound freight, receiving, inspection, purchasing, warehousing, and any other costs related to the purchasing, manufacturing, or preparation of a product for sale.
Shipping and Handling Costs
Shipping and handling costs are included in the cost of goods sold.
Product Development Costs
Product development costs, charged to expense as incurred, were $4.1 million in 2025 and $4.9 million in 2024 and include costs to develop new or enhance existing products to better serve our customers.
Selling and Administrative Expenses
Selling and administrative expenses include all operating costs of the Company that are not directly related to the cost of purchasing, manufacturing, and preparing a product for sale. These expenses represent selling and administrative expenses for support functions and related overhead.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs were $0.5 million in 2025 and $0.6 million in 2024.
Stock - Based Compensation
The Company accounts for its stock-based awards in accordance with ASC 718-10, Compensation-Stock Compensation, which requires a fair value measurement and recognition of compensation expense for all share-based payment awards made to its employees and Directors, including employee stock awards and restricted stock awards. The Company estimates the fair value of granted stock awards at the date of grant. This model requires the Company to make estimates and assumptions including, without limitation, estimates regarding the length of time an employee will retain vested stock awards before exercising them, the estimated volatility of the Company’s common stock price and the number of awards that will be forfeited prior to vesting. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Changes in these estimates and assumptions can materially affect the determination of the fair value of stock-based compensation and consequently, the related amount recognized in the Company’s consolidated statements of operations.
Under the terms of the Director’s Fee Program, the directors receive their director’s fees in shares of Company common stock.
Income Taxes
The Company and its U.S. subsidiaries file a consolidated U.S. federal income tax return.
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The Company accounts for uncertain tax positions pursuant to the provisions of ASC 740, Simplifying the Accounting for Income Taxes (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements. These provisions detail how companies should recognize, measure, present, and disclose uncertain tax positions that have or are expected to be taken. As such, the financial statements will reflect expected future tax consequences of uncertain tax positions presuming the taxing authorities’ full knowledge of the position and all relevant facts. See Note 8 - Income Taxes.
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The Eastern Company
Notes to Consolidated Financial Statements (continued)
4. GOODWILL
The following is a roll-forward of goodwill for 2025 and 2024:
Impairment Charge (73,528 )
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The Eastern Company
Notes to Consolidated Financial Statements (continued)
5. INTANGIBLES
Trademarks are not amortized as their lives are deemed to be indefinite. Amortization expense recognized $2.6 million in 2025 and $4.0 million in 2024. Total amortization expense for each of the next five years is estimated to be as follows: 2026 - $2.6 million; 2027 - $1.8 million; 2028 - $0.2 million; 2029 - $0.1 million and 2029 - $0.1 million.
Weighted-Average
Amortization
Gross Amount
Patents and developed technology $ 7,375,481 4.2
Accumulated Amortization
Patents and developed technology $ 4,331,720
Non-compete agreements 43,103
Gross Amount
Patents and developed technology $ 7,312,228 4.0
Accumulated Amortization
Patents and developed technology $ 4,134,929
Non-compete agreements 18,061
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The Eastern Company
Notes to Consolidated Financial Statements (continued)
6. DEBT
On October 28, 2025, the Company entered into a Credit Agreement with Citizens Bank, N.A. that provides for the extension of credit to the Company in the form of revolving loans, swing line loans and letters of credit (the “Credit Agreement”).
The Credit Agreement provides the Company with a $100 million five-year senior secured revolving credit facility. Under the revolving credit facility, up to $5 million is available for letters of credit and up to $5 million is available for swing line loans. The Company can elect to increase the revolving commitment under the Credit Agreement by up to $75 million, provided that one or more lending institutions (whether or not existing lenders under the Credit Agreement) voluntarily agree to provide the additional commitment.
Revolving loans under the Credit Agreement bear interest at a variable rate based on the term secured overnight financing rate (“SOFR”) plus an applicable margin of 1.375% to 2.125% depending on the Company’s senor net leverage ratio. The Company’s obligations under the Credit Agreement are secured by a lien on substantially all of the Company’s and its subsidiaries’ assets pursuant to a Pledge and Security Agreement dated as of October 28, 2025.
Amounts outstanding under the Credit Agreement are generally due and payable on the expiration date of the Credit Agreement (October 28, 2030) or the earlier termination of the revolving commitments thereunder. The Company can elect to prepay some or all of the outstanding balance from time to time without penalty.
Debt consists of:
Amounts are net of unamortized discounts and debt issuance costs of $113,500 as of January 3, 2026 and $74,500 as of December 28, 2024.
The Company paid interest of $2,458,000 in 2025 and $3,224,798 in 2024.
The Company’s loan covenants under the Credit Agreement require the Company to maintain a senior net leverage ratio not to exceed 3.50 to 1.00, which is to be tested quarterly on a trailing twelve-month basis. In addition, the Company is required to maintain an interest coverage ratio not less than 3.00 to 1.00. The Company was in compliance with all covenants as of January 3, 2026 and December 28, 2024.
As of January 3, 2026, scheduled annual principal maturities of long-term debt, net of deferred financing fees, for each of the next five years follow:
Thereafter —
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The Eastern Company
Notes to Consolidated Financial Statements (continued)
7. STOCK OPTIONS AND AWARDS
Stock Awards
As of January 3, 2026, the Company has one incentive stock award plan, The Eastern Company 2020 Stock Incentive Plan (the “2020 Plan”), for officers, other key employees, and non-employee directors. Restricted stock awards or restricted stock units may be granted to participants under the 2020 Plan with restrictions determined by the Compensation Committee of the Company’s Board of Directors. The Company granted 88,416 and 92,016 restricted stock unit awards during 2025 and 2024, respectively.
The 2020 Plan also permits the issuance of stock options. Stock option awards granted under the 2020 Plan will have exercise prices determined by the Compensation Committee of the Company’s Board of Directors that are not less than 100% of the fair market value of the Company’s common stock on the dates the stock awards are granted. The Company issued 50,688 and 53,568 stock options in 2025 and 2024, respectively. For the year of 2025, the Company used several assumptions which included an expected term of 3 years, volatility deviation of 42.54% and 40.34% and a risk-free rate of 3.73% and 4.34%. For the year of 2024, the Company used several assumptions which included an expected term of 3 years, volatility deviation of 38.30% and a risk-free rate of 4.51%.
Stock-based compensation expense, including forfeitures, in connection with stock awards and stock options previously granted to employees was $254,000 and $1,030,000 for fiscal years 2025 and 2024, respectively. The Company used fair market value to determine the associated expense with stock awards for the 2025 and 2024 fiscal years.
As of January 3, 2026, there were 780,962 shares of common stock reserved and available for future grant under 2020 Plan.
The following tables set forth the outstanding stock options for the period specified:
Stock Options Outstanding and Exercisable
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The Eastern Company
Notes to Consolidated Financial Statements (continued)
The following tables set forth the outstanding stock grants for the period specified:
Shares Shares
As of January 3, 2026, outstanding stock options and awards had an intrinsic value of $951,000.
8. INCOME TAXES
Deferred income taxes are provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and those for income tax reporting purposes. Deferred income tax (assets) liabilities relate to:
Net deferred income tax (assets) liabilities $ (5,528,496 ) $ (6,611,518 )
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The Eastern Company
Notes to Consolidated Financial Statements (continued)
Income before income taxes consists of:
The provision for income taxes follows:
Current
Deferred:
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The Eastern Company
Notes to Consolidated Financial Statements (continued)
The Company adopted ASU 2023-09 "Income Taxes (Topic 740): Improvements To Income Tax Disclosures" on a prospective basis beginning with the year ended January 3, 2026. The following table presents required disclosure pursuant to ASU 2023-09 and reconciles the U.S. federal statutory tax amount and rate to our actual global effective amount and rate for the year ended January 3, 2026.
Amount Percent
State and local income taxes, net of federal income tax effect (1) 303,947 3.4 %
Foreign tax effects:
China
Mexico
Statutory tax rate difference between Mexico and the United States 500,157 5.6 %
Effect of changes in tax laws or rates enacted in the current period - 0.0 %
Effect of cross-border tax laws
Global intangible low-taxed income 292,864 3.3 %
Foreign partnership inclusion 247,104 2.7 %
Tax credits
Research and development tax credits (337,963 ) -3.8 %
Changes in valuation allowances - 0.0 %
Nontaxable or nondeductible items
Meals and entertainment 22,685 0.3 %
Changes in unrecognized tax benefits (64,382 ) -0.7 %
Provision for income taxes and effective tax rate $ 1,853,354 20.6 %