eml_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended April 4, 2026

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

Commission File Number 001-35383

THE EASTERN COMPANY

(Exact name of registrant as specified in its charter)

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

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

(203) 729-2255

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

As of April 4, 2026, 6,030,914 shares of the registrant’s common stock, no par value per share, were issued and outstanding.

The Eastern Company

Form 10-Q

FOR THE QUARTERLY PERIOD ENDED APRIL 4, 2026

TABLE OF CONTENTS

		Page

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3.
	Condensed Consolidated Statements of Operations	3.
	Condensed Consolidated Statements of Comprehensive Income	4.
	Condensed Consolidated Balance Sheets	5.
	Condensed Consolidated Statements of Cash Flows	7.
	Condensed Consolidated Statements of Shareholders’ Equity	8.
	Notes to Condensed Consolidated Financial Statements	9.

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28.

Item 4.	Controls and Procedures	28.

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	29.

Item 1A.	Risk Factors	29.

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29.

Item 3.	Defaults Upon Senior Securities	29.

Item 4.	Mine Safety Disclosures	29.

Item 5.	Other Information	29.

Item 6.	Exhibits	30.

SIGNATURES		31.

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PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

THE EASTERN COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended
	April 4, 2026			March 29, 2025
Net sales	$	59,676,538		$	63,312,774
Cost of products sold		(47,746,857	)		(49,125,302	)
Gross margin		11,929,681			14,187,472

Product development expense		(1,035,312	)		(1,109,186	)
Selling and administrative expenses		(9,569,647	)		(9,847,121	)
Operating profit		1,324,722			3,231,165

Interest expense		(527,513	)		(617,470	)
Other income (expense)		13,185			(199,705	)
Income before income taxes from continuing operations		810,394			2,413,990

Income tax expense		(170,264	)		(507,179	)
Net income from continuing operations	$	640,130		$	1,906,811

Discontinued Operations (see note B)
Income from operations of discontinued unit	$	-		$	46,687

Income tax expense		-			(9,809	)

Income from discontinued operations	$	-		$	36,878

Net Income	$	640,130		$	1,943,689

Earnings per share from continuing operations:
Basic	$	0.11		$	0.31

Diluted	$	0.11		$	0.31

Earnings per share from discontinued operations:
Basic	$	-		$	0.01

Diluted	$	-		$	0.01
Total earnings per share:
Basic	$	0.11		$	0.32

Diluted	$	0.11		$	0.32

Cash dividends per share:	$	0.11		$	0.11

See accompanying notes.

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THE EASTERN COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended
	April 4, 2026		March 29, 2025
Net income	$	640,130	$	1,943,689
Other comprehensive income:

Change in foreign currency translation		161,186		715,575

Change in fair value of foreign currency swap		99,151		197,172

Change in pension and postretirement benefit costs, net of taxes:
2026 - $62,136; 2025 - $60,963		211,301		205,725
Total other comprehensive income		471,638		1,118,472
Comprehensive income	$	1,111,768	$	3,062,161

See accompanying notes.

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THE EASTERN COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

	April 4, 2026			January 3, 2026
	(unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	7,616,721		$	7,412,019
Accounts receivable, less allowances: 2026 - $654,901; 2025 - $633,391		32,552,064			30,128,669
Inventories		53,070,606			56,343,756
Current portion of notes receivable		28,844			33,844
Prepaid expenses and other current assets		6,327,063			5,349,486
Total Current Assets		99,595,298			99,267,774

Property, Plant and Equipment		61,946,747			60,163,556
Accumulated depreciation		(35,168,354	)		(33,246,213	)
Property, Plant and Equipment, Net		26,778,393			26,917,343

Goodwill		58,595,819			58,631,336
Trademarks		5,082,717			5,082,767
Patents and other intangibles, net of accumulated amortization		4,662,779			5,269,204
Deferred income taxes		5,528,496			5,528,496
Right of use assets		16,730,406			15,979,696
Other Long-term assets		119,206			-
Total Other Assets		90,719,423			90,491,499

TOTAL ASSETS	$	217,093,114		$	216,676,616

See accompanying notes.

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THE EASTERN COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

	April 4, 2026			January 3, 2026
	(unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	17,515,661		$	16,426,259
Accrued compensation		4,522,283			4,203,720
Other accrued expenses		2,510,018			2,349,400
Current portion of operating lease liability		3,055,121			3,729,769
Current portion of finance lease liability		710,099			908,332
Total Current Liabilities		28,313,182			27,617,480

Other long-term liabilities		464,902			464,902
Operating lease liability, less current portion		13,675,376			12,235,188
Finance lease liability, less current portion		3,124,561			3,080,446
Long-term debt, less current portion		32,892,335			33,902,353
Accrued postretirement benefits		329,608			332,165
Accrued pension cost		13,765,021			14,398,753
Total Liabilities		92,564,985			92,031,287

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		36,195,242			36,337,100
Issued: 9,189,555 shares as of April 4, 2026 and 9,179,288 shares as of January 3, 2026
Outstanding: 6,030,914 shares as of April 4, 2026 and 6,041,767 shares as of January 3, 2026
Treasury Stock: 3,158,641 shares as of April 4, 2026 and 3,137,521 shares as of January 3, 2026		(30,490,132	)		(30,067,777	)
Retained earnings		137,972,757			137,997,382
Accumulated other comprehensive loss:
Foreign currency translation		(1,276,177	)		(1,437,363	)
Unrealized gain on foreign currency swap, net of tax		669,248			570,097
Unrecognized net pension and postretirement benefit costs, net of tax		(18,542,809	)		(18,754,110	)
Accumulated other comprehensive loss		(19,149,738	)		(19,621,376	)
Total Shareholders’ Equity		124,528,129			124,645,329
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	217,093,114		$	216,676,616

See accompanying notes.

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THE EASTERN COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended
	April 4, 2026			March 29, 2025
Operating Activities
Net income	$	640,130		$	1,943,689
Less: Income from discontinued operations		-			36,878
Income from continuing operations	$	640,130		$	1,906,811
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization		1,651,228			1,513,054
Acquisition related expenses		-			21,039
Reduction in carrying amount of ROU assets		728,742			718,693
Unrecognized pension and postretirement benefit		(362,852	)		(13,898	)
Loss on sale of equipment and other assets		14,145			-
Provision for doubtful accounts		20,228			11,000
Stock compensation benefit		(141,858	)		(23,078	)
Changes in operating assets and liabilities:
Accounts receivable		(2,422,752	)		2,015,269
Inventories		3,333,609			(137,403	)
Prepaid expenses and other		(993,363	)		(695,563	)
Other assets		(8,524	)		171,271
Accounts payable		1,040,932			560,951
Accrued compensation		310,638			(1,256,224	)
Change in operating lease liability		(728,742	)		(718,693	)
Other accrued expenses		397,772			(5,921,413	)
Net cash provided by (used in) operating activities		3,479,333			(1,848,184	)

Investing Activities
Marketable securities		-			(309,385	)
Acquisition		-			(421,039	)
Payments received from notes receivable		5,000			14,545
Proceeds from sale of equipment		3,500			-
Purchases of property, plant, and equipment		(867,330	)		(849,396	)
Net cash used in investing activities		(858,830	)		(1,565,275	)

Financing Activities
Payments on short term borrowings (revolver)		-			-
Principal payments on long-term debt		(1,015,894	)		(750,000	)
Financing leases, net		(236,277	)		(126,990	)
Purchase common stock for treasury		(422,355	)		(1,400,804	)
Dividends paid		(664,755	)		(675,053	)
Net cash used in financing activities		(2,339,281	)		(2,952,847	)

Discontinued Operations
Cash provided by operating activities		-			389,947
Cash used in financing activities		-			(6,347	)
Cash provided by discontinued operations		-			383,600

Effect of exchange rate changes on cash		(76,520	)		218,620
Net change in cash and cash equivalents		204,702			(5,764,086	)

Cash and cash equivalents at beginning of period		7,412,019			14,843,530
Cash and cash equivalents at end of period¹	$	7,616,721		$	9,079,444

Supplemental disclosure of cash flow information:
Interest	$	511,863		$	671,762
Income taxes		184,573			427,318

Non-cash investing and financing activities
Right of use asset		765,544			3,784,982
Lease liability		581,034			3,650,676

See accompanying notes

¹ Includes cash from assets held for sale of $1.2 million as of March 29, 2025

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THE EASTERN COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

															Accumulated
															Other
	Common					Treasury						Retained			Comprehensive		Shareholder's
	Shares		Stock			Shares			Stock			Earnings			Income (Loss)		Equity

Balances at December 28, 2024		9,146,996	$	35,443,009			(2,983,858	)	($26,338,309)			$	133,545,670		($21,958,971)		$	120,691,399
Net Income													1,943,689					1,943,689
Cash dividends declared, $0.44 per share													(675,053	)				(675,053	)
Currency translation adjustment																60,593		60,593
Change in fair value of foreign currency swap																197,172		197,172
Change in pension and other postretirement benefit costs, net of tax																205,727		205,727
Treasury Stock Purchase							(50,587	)		(1,400,804	)							(1,400,804	)
Issuance of stock awards, net		3,502		(182,851	)													(182,851	)
Issuance of Common Stock for directors' fees		6,002		159,773														159,773
Balances at March 29, 2025		9,156,500	$	35,419,931			(3,034,445	)	($27,739,113)			$	134,814,306		($21,495,479)		$	120,999,645

Balances at January 3, 2026		9,179,288	$	36,337,100			(3,137,521	)	($30,067,777)			$	137,997,382		($19,621,376)		$	124,645,329
Net Income													640,130					640,130
Cash dividends declared, $0.44 per share													(664,755	)				(664,755	)
Currency translation adjustment																161,186		161,186
Change in fair value of foreign currency swap																99,151		99,151
Change in pension and other postretirement benefit costs, net of tax																211,301		211,301
Treasury Stock Purchase							(21,120	)		(422,355	)							(422,355	)
Issuance of stock awards, net		2,032		(314,216	)													(314,216	)
Issuance of Common Stock for directors' fees		8,235		172,358														172,358
Balances at April 4, 2026		9,189,555	$	36,195,242			(3,158,641	)	($30,490,132)			$	137,972,757		($19,149,738)		$	124,528,129

See accompanying notes.

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THE EASTERN COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

April 4, 2026

Note A – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X and do not include all the information and footnotes required by generally accepted accounting principles in the United States (“GAAP”) for complete financial statements. Refer to the consolidated financial statements of The Eastern Company (together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 3, 2026, as amended on March 19, 2026 (the “2025 Form 10-K”), for additional information.

The accompanying condensed consolidated financial statements are unaudited. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for interim periods have been reflected therein. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. All intercompany accounts and transactions are eliminated.

The condensed consolidated balance sheet as of January 3, 2026 has been derived from the audited consolidated balance sheet at that date.

The Company’s fiscal year is a 52- or 53-week fiscal year ending on the Saturday nearest to December 31. References in this Quarterly Report on Form 10-Q for the quarterly period ended April 4, 2026 (this “Form 10-Q”) to 2025, the fiscal year 2025 or fiscal 2025 mean the 53-week period ended on January 3, 2026, and references to 2026, fiscal year 2026 or fiscal 2026 mean the 52-week period ending on January 2, 2027. In a 53-week fiscal year, the first three quarters each have 13 weeks, and the fourth quarter has 14 weeks. In a 52-week fiscal year, each quarter has 13 weeks. References to the first quarter of 2025, the first fiscal quarter of 2025, the first three months of fiscal 2025 or the three months ended March 29, 2025 mean the 13-week period from December 29, 2024 to March 29, 2025. References to the first quarter of 2026, the first fiscal quarter of 2026, the first three months of fiscal 2026 or the three months ended April 4, 2026, mean the 13-week period from January 4, 2026 to April 4, 2026.

Certain amounts in the 2025 financial statements have been reclassified to conform with the 2026 presentation with no impact or change to previously reported net income or shareholders’ equity.

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Note B – Discontinued Operations

In the third quarter of 2024, we determined that the business of Big 3 Precision Mold Services, Inc. (“Big 3 Mold”) met the criteria to be held for sale and that the assets held for sale qualified for discontinued operations. As such, the financial results of the Big 3 Mold business are reflected in our unaudited condensed consolidated statements of operations as discontinued operations for all periods presented. Additionally, current and non-current assets and liabilities of discontinued operations are reflected in the unaudited condensed consolidated balance sheets for both periods presented.

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

Summarized Financial Information of Discontinued Operations

The following table represents income from discontinued operations, net of tax, for the periods presented:

	Three Months Ended
	April 4, 2026		March 29, 2025
	(unaudited)		(unaudited)
Net sales	$	-	$	3,935,599
Cost of products sold		-		(2,947,478	)
Gross margin		-		988,121

Selling and administrative expenses		-		(787,067	)
Operating Income		-		201,054

Interest expense		-		(154,367	)
Income from discontinued operations before income taxes		-		46,687

Income tax expense		-		(9,809	)
Income from discontinued operations, net of tax	$	-	$	36,878

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Note C – Earnings Per Share

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

	Three Months Ended
	April 4, 2026		March 29, 2025
Basic:
Weighted average shares outstanding		6,038,707		6,138,832

Diluted:
Weighted average shares outstanding		6,038,707		6,138,832
Dilutive stock appreciation rights		10,308		7,953
Denominator for diluted earnings per share		6,049,015		6,146,785

Note D – Fair Value of Instruments

The Company incurs certain manufacturing, marketing, and selling costs in international markets in local currency. Accordingly, earnings and cash flows are exposed to market risk from changes in foreign currency exchange rates relative to the U.S. dollar, the Company’s reporting currency. The Company has a program in place that is designed to mitigate the exposure to changes in foreign currency exchange rates. The program includes the use of derivative financial instruments to minimize, for a period of time, the impact on its financial results from changes in foreign exchange rates. The Company utilizes foreign currency forward contracts to hedge the anticipated cash flows from transactions denominated in foreign currencies, namely Mexican pesos. This does not eliminate the impact of the volatility of foreign exchange rates. However, because the Company generally enters into forward contracts twelve to eighteen months out, rates are fixed for a twelve-to-eighteen-month period, thereby facilitating financial planning and resource allocation.

Designated Foreign Currency Hedge Contracts

All of the Company’s designated foreign currency hedge contracts as of April 4, 2026 were cash flow hedges under ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The Company records the effective portion of any change in the fair value of designated foreign currency hedge contracts in other comprehensive income until the related third-party transaction occurs. Once the related third-party transaction occurs, the Company reclassifies the effective portion of any related gain or loss on the designated foreign currency hedge contracts to earnings. In the event the hedged forecasted transaction does not occur, or it becomes probable that it will not occur, the Company will reclassify the amount of any gain or loss on the related cash flow hedge to earnings at that time. The Company had designated foreign currency hedge contracts outstanding in the contract amount of $12.6 million as of April 4, 2026 and $8.4 million as of January 3, 2026. As of April 4, 2026 a gain of $0.5 million is expected to be reclassified to earnings within the next nine months.

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The following table presents the effect of the Company’s derivative instruments designated as cash flow hedges under Accounting Standards Codification (“ASC”) Topic 815, “Hedge Accounting Improvements,” in its unaudited Condensed Consolidated Statements of Operations for the three months ended April 4, 2026:

Derivative Instruments		Amount of Gain Recognized in Accumulated Other Comprehensive Income				Amount of Gain Reclassified from Accumulated Other Comprehensive Income into Earnings				Location in Condensed Consolidated Statement of Income
Designated foreign currency hedge contracts		$	669,248			$	186,680			Cost of products sold

ASC 815 requires all derivative instruments to be recognized at their fair values as either assets or liabilities on the balance sheet. The Company determines the fair value of its derivative instruments using the framework prescribed by ASC 820, “Fair Value Measurements and Disclosures,” by considering the estimated amount it would receive or pay to sell or transfer these instruments at the reporting date. Generally, the Company uses inputs that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; other observable inputs for the asset or liability; and inputs derived principally from, or corroborated by, observable market data by correlation or other means. As of April 4, 2026, the Company classified its derivative assets and liabilities within Level 2 of the fair value hierarchy prescribed by ASC 815, as discussed below, because these observable inputs are available for substantially the full term of its derivative instruments.

Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2	Quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.

The following tables present the fair value of the Company’s derivative instruments as they appear in its Condensed Consolidated Balance Sheets as of April 4, 2026, and January 3, 2026:

	Location in Condensed Consolidated Balance Sheets	As of April 4, 2026		As of January 3, 2026

Derivative Assets:
Designated foreign currency hedge contracts	Other current assets	$	550,042	$	570,097

Designated foreign currency hedge contracts	Other Long-term assets	$	119,206	$	-

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Note E – Inventories

Inventories consist of the following components:

	April 4, 2026		January 3, 2026

Raw material and component parts	$	20,276,128	$	21,526,667
Work in process		6,721,018		7,135,539
Finished goods		26,073,460		27,681,550
Total inventories	$	53,070,606	$	56,343,756

Note F – Goodwill

The aggregate carrying amount of goodwill is approximately $58.6 million as of April 4, 2026. No impairment was recognized in the first quarter of 2026.

The Company evaluates its reporting units for impairment annually in December, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Such events and circumstances could include, among other things, increased competition or unexpected loss of market share, significant adverse changes in the markets in which the Company operates, or unexpected business disruptions. The Company tests reporting units for impairment by comparing the estimated fair value of each reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its estimated fair value, the Company records an impairment loss based on the difference between fair value and carrying amount not to exceed the associated carrying amount of goodwill. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The values assigned to the key assumptions represent management’s assessment of future trends in the relevant industry and have been based on historical data from both external and internal sources.

Note G – Leases

The Company presents right-of-use (“ROU”) assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months, in accordance with the Financial Accounting Standard (“FASB”) Accounting Standards Update (“ASU”) 2016-02, “Leases”. The Company accounts for non-lease components as part of the lease component to which they relate. Lease accounting involves significant judgements, including making estimates related to the lease term, lease payments, and discount rate.

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

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Currently, the Company has 18 operating leases with lease liabilities of $16.7 million and 8 finance leases with lease liabilities of $3.8 million as of April 4, 2026. The terms and conditions of the leases are determined by the individual agreements. The leases do not contain residual value guarantees, restrictions, or covenants that could cause the Company to incur additional financial obligations. There are no related party lease transactions. There are no leases that have not yet commenced that could create significant rights and obligations for the Company.

The future payments (in millions) due under non-cancelable operating and finance leases as of April 4, 2026 are as follows:

	Operating			Finance
2026	$	3.1		$	0.7
2027		3.8			0.9
2028		3.4			0.9
2029		3.0			0.9
2030		2.1			0.7
Thereafter		3.5			0.4
		18.9			4.5
Less effects of discounting		(2.2	)		(0.7	)
Lease liabilities recognized	$	16.7		$	3.8

As of April 4, 2026, the weighted average lease term for all operating and finance leases is 5.4 and 5.0 years, respectively. The weighted average discount rate associated with operating and finance leases was 7.0% and 7.2%, respectively.

Note H – 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 senior net leverage ratio. The Company’s obligations under the Credit Agreement are secured by a lien on substantially all of the Company’s assets pursuant to a Pledge and Security Agreement dated as of October 28, 2025. The Company has $67 million available on its line of credit under the Credit Agreement as of the date of filing this Form 10-Q.

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.

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 its covenants under the Credit Agreement as of April 4, 2026 and through the date of filing this Form 10-Q.

Note I – Stock Options and Awards

On February 19, 2020, the Board of Directors of the Company (the “Board”) adopted The Eastern Company 2020 Stock Incentive Plan (the “2020 Plan”). On April 29, 2020, at the Company’s 2020 Annual Meeting of Shareholders, the shareholders of the Company approved and adopted the 2020 Plan. The Company has no other existing plan pursuant to which equity awards may be granted.

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Restricted stock unit awards may be granted to participants under the 2020 Plan with restrictions determined by the Compensation Committee of the Board. During the first three months of fiscal 2026 and 2025, the Company granted stock awards with respect to 52,992 and 35,856 shares of Company common stock, respectively, that were subject to the satisfaction of performance measurements or time-based requirements. For the first three months of fiscal years 2026 and 2025, the Company used fair market value to determine the associated expense with stock awards.

Incentive stock options granted under the 2020 Plan must have exercise prices that are not less than 100% of the fair market value of the Company’s common stock on the dates the stock options are granted. Under the 2020 Plan, non-qualified stock options granted to participants will have exercise prices determined by the Compensation Committee of the Board. The Company issued 69,264 and 48,240 options during the first three months of fiscal 2026 and 2025, respectively. For the first three months of fiscal 2026, the Company used several assumptions which included an expected term of three years, volatility deviation of 43.08%, and a risk-free rate of 3.63% to determine the expense associated with options. For the first three months of fiscal 2025, the Company used several assumptions which included an expected term of three years, volatility deviation of 40.34% and a risk-free rate of 4.34% to determine the expense associated with options.

Stock-based compensation income, including forfeitures, in connection with stock options and stock awards previously granted to employees was approximately $(307,000) and $(153,000) in the first quarter of 2026 and the first quarter of 2025, respectively.

As of April 4, 2026, there were 691,997 shares of Company common stock reserved and available for future grant under the 2020 Plan.

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

	Three Months Ended					Year Ended
	April 4, 2026					January 3, 2026
	Units			Weighted Average Exercise Price		Units			Weighted Average Exercise Price
Outstanding at beginning of period		57,480		$	27.77		25,116		$	28.18
Issued		69,264			18.55		50,688			27.57
Expired		-			-		(1,500	)		20.20
Exercised		-			-		-			-
Forfeited		(21,415	)		27.85		(16,824	)		28.45
Outstanding at end of period		105,329		$	21.69		57,480		$	27.77

Stock Options Outstanding and Exercisable
Range of Exercise Prices	Outstanding as of April 4, 2026		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Exercisable as of April 4, 2026		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price

$18.55 - $28.69		105,329		4.4	$	21.69		-		-		-

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The following table sets forth the outstanding stock awards for the period specified:

	Three Months Ended			Year Ended
	April 4, 2026			January 3, 2026
	Shares			Shares
Outstanding at beginning of period		48,456			39,592
Issued		52,992			37,728
Exercised		(2,032	)		(4,579	)
Forfeited		(19,719	)		(24,285	)
Outstanding at end of period		79,697			48,456

As of April 4, 2026, outstanding stock options and stock awards had an intrinsic value of $1,794,000.

Note J – Share Repurchase Program

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. Below is a summary of the Company’s share repurchases during the first quarter of 2026 under the share repurchase program.

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that may yet be Purchased Under the Plans or Programs
January 4, 2026 - February 1, 2026		-		-		-		296,924

February 2, 2026 - February 28, 2026		-		-		-		296,924

March 1, 2026 - April 4, 2026		21,120		20.00		21,120		275,804

Total		21,120	$	20.00		21,120		275,804

Note K – Revenue Recognition

The Company’s revenues result from the sale of goods and services and reflect the consideration to which the Company expects to be entitled. The Company records revenues in accordance with ASC Topic 606, “Revenue from Contracts with Customers.” The Company has defined purchase orders as contracts in accordance with ASC Topic 606. For its customer contracts, the Company identifies its performance obligations, which are delivering goods or services, determines the transaction price, allocates the contract transaction price to the performance obligations (when applicable), and recognizes the revenue when (or as) the performance obligation is transferred to the customer. A good or service is transferred when the customer obtains control of that good or service. The Company’s revenues are recorded at a point in time from the sale of tangible products. Revenues are recognized when products are shipped.

Customer volume rebates, product returns, discount and allowance are variable considerations and are recorded as a reduction of revenue in the same period that the related sales are recorded. The Company has reviewed the overall sales transactions for variable consideration and has determined that these costs are not material.

The Company has no future performance obligations and does not capitalize costs to obtain or fulfill contracts.

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Note L – Income Taxes

The Company files income tax returns in the U.S. at the federal and state levels, and in foreign jurisdictions. With limited exceptions, the Company is no longer subject to U.S. federal, state, and local income tax examinations by tax authorities for years before 2021 and is no longer subject to non-U.S. income tax examinations by foreign tax authorities for years prior to 2019.

There have been no significant changes to the value of unrecognized tax benefits during the three months ended April 4, 2026.

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (“OBBBA”), which resulted in many tax extensions and other rule changes, including the following which we believe will have an effect on our tax provision in 2026:

	1.	Return of the Section 163(j) taxable income base excluding the deductions for depreciation and amortization in 2025 and 2026 (change from “Tax EBIT” to “Tax EBITDA”);
	2.	Decrease in the Section 250 deduction for Net CFC Tested Income (formerly GILTI) to 40% (from 50%), instead of the scheduled decrease to 37.5% prior to the OBBBA;
	3.	Decrease in the Section 250 deduction for foreign-derived income to 33.34% (from 37.5%), instead of the scheduled decrease to 21.875% prior to the OBBBA; and
	4.	Increase in the foreign tax credit rate on Net CFC Tested Income (formerly GILTI) to 90% (from 80%), and a 10% disallowance on repatriation.

The Company has elected to change its method of accounting for domestic research or experimental expenditures to the deduction method on a cut-off basis under §174A(a) of the Internal Revenue Code (“IRC”), pursuant to Section 7.02(3)(a) of Rev Proc 2025-28 and will continue to amortize research and development costs capitalized between 2022 and 2024 over a 5 or 15 year period for U.S and foreign §174 costs, respectively.

Note M – Retirement Benefit Plans

The Company has four non-contributory defined benefit pension plans covering most U.S. employees. All of these pension plans are frozen and participants in these plans have not accrued benefits since the date on which these plans were frozen. Plan benefits are generally based upon age at retirement, years of service and, for the plan covering salaried employees, the level of compensation. The Company also sponsors unfunded non-qualified supplemental retirement plans that provide certain former officers with benefits in excess of limits imposed by federal tax law.

The Company also provides health care and life insurance for retired salaried employees in the United States who meet specific eligibility requirements.

Significant disclosures relating to these benefit plans for the first quarter of fiscal years 2026 and 2025 are as follows:

	Pension Benefits
	Three Months Ended
	April 4, 2026			March 29, 2025
Service cost	$	181,207		$	177,462
Interest cost		876,829			951,097
Expected return on plan assets		(1,107,068	)		(1,059,936	)
Amortization of the net loss		298,781			290,615
Net periodic benefit cost	$	249,749		$	359,238

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	Other Postretirement Benefits
	Three Months Ended
	April 4, 2026			March 29, 2025
Service cost	$	1,641		$	2,125
Interest cost		10,394			11,683
Expected return on plan assets		(5,000	)		(4,780	)
Amortization of prior service cost		(848	)		(832	)
Amortization of the net loss		(24,497	)		(23,093	)
Net periodic benefit gain	$	(18,310	)	$	(14,897	)

The Company’s funding policy with respect to its qualified plans is to contribute at least the minimum amount required by applicable laws and regulations. In fiscal year 2026, the Company expects to make cash contributions to its qualified pension plans of approximately $2,800,000 and approximately $40,000 into its other postretirement plan. As of April 4, 2026, the Company has contributed $578,000 to its pension plans and $7,000 to its postretirement plan in fiscal year 2026 and expects to make the remaining contributions as required during the remainder of the fiscal year.

The Company has a contributory savings plan under Section 401(k) of the IRC (the “401(k) Plan”) covering substantially all U.S. non-union employees. The 401(k) Plan allows participants to make voluntary contributions from their annual compensation on a pre-tax basis, subject to limitations under the Internal Revenue Code. The 401(k) Plan provides for contributions by the Company at its discretion.

The Company made contributions to the 401(k) Plan as follows:

	Three Months Ended
	April 4, 2026		March 29, 2025
Regular matching contribution	$	220,402	$	306,639
Transitional credit contribution		18,938		23,865
Non-discretionary contribution		83,952		108,492
Total contributions for the period	$	323,292	$	438,996

Note N – Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that could impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued, but are not yet effective, that might have a material impact on the consolidated financial statements of the Company.

Note O – Concentration of Risk

Credit Risk

Credit risk is the potential financial loss resulting from the failure of a customer or counterparty to settle its financial and contractual obligations to the Company, as and when they become due. The primary credit risk for the Company is its accounts receivable due from customers. The Company has established credit limits for customers and monitors their balances to mitigate the risk of loss. As of April 4, 2026, there were significant concentrations of credit risk with 2 customers that had receivables representing greater than 10% of our net accounts receivable. As of January 3, 2026, there was one customer representing 13% of the Company’s net accounts receivable. The maximum exposure to credit risk is primarily represented by the carrying amount of the Company’s accounts receivable.

The Company has deposits that exceed amounts up to $250,000 that are insured by the Federal Deposit Insurance Corporation (FDIC), but the Company does not consider this a significant concentration of credit risk based on the strength of the financial institution.

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Interest Rate Risk

The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s debt under the Credit Agreement, which bears interest at variable rates based on term SOFR, plus an adjustment of ten basis points, plus an applicable margin of 1.375% to 2.125%, depending on the Company’s senior net leverage ratio.

Note P – Segment Information

The Company has one reportable segment, its Engineering Solutions Segment, and the Chief Executive Officer is the Company’s chief operating decision maker (CODM). The CODM uses the following reported measures to assess performance and make decisions on resource allocation throughout the Company.

SEC Form 10-Q filed by Eastern Company