EML 10-K & 10-Q changes, risk factors and insider trading

The Company’s business is subject to a variety of risks and uncertainties,uncertainties. including,The without limitation, thematerial risks and uncertainties described below.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.

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, fromin March 2018 until March 2021,2025 the United States imposedincreased an additional 25% tariff underits Section 232 ofsteel theand Tradealuminum Expansionmeasures, Acteliminating ofcountry 1962,exemptions asand amended,raising aluminum tariffs to 25% effective March 2025, and since June 2025 has imposed 50% tariffs on steelsteel, aluminum and many covered “derivative” products imported into the United States. While these tariffs have mostly been lifted on imports from countries other than China, imports from many jurisdictions are subject to limitations on volume, after which substantial tariffs will be reimposed. The United States also imposed a 10% tariff onnearly all aluminum imports into the United States, with initial exemptions for aluminum imported from certain U.S. 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 newUnited presidential administrationStates or otherwise, that is not offset by an increase in the Company’s prices could have an adverse effect on the Company’s business,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.

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,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 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 itsour salesbusiness, results of operations and profitfinancial margins.condition.

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 condition,position, cash flows and results of operations.

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, includingwhich riskcould 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.

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 condition,position, cash flows and 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 currentmaterial litigation.pending legal proceedings known to be contemplated by governmental authorities, if any.

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, beginning in 2022,July the U.S. Tax Cuts and Jobs Act of 2017 eliminated the existing option to deduct research and development expenditures and requires taxpayers to amortize them over five years pursuant to IRC Section 174. This requirement is expected to reduce our cash flow. Further, in August 2022,2025, the United States enacted the InflationOne ReductionBig Beautiful Bill Act of 2022 (the “IRAOBBA”), which includessignificantly aaffects newfederal 15%taxes, corporatecredits minimumand 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 aspositions, welland asaffect aour 1%cash exciseflows and effective tax onrate. fairFurther, valuestate ofand corporatelocal stockconformity repurchasesto madeOBBA afterprovisions Decembermay 31,vary 2022.and Thecontinue IRAto evolve, which could haveincrease acompliance negativecomplexity and impact onour ourstate tax position.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.] In addition, the U.S. presidential administration has directed the U.S. Department of Treasury to develop options for “protective measures” in response to tax rules imposed by non-U.S. countries that are extraterritorial or disproportionately affect U.S. companies (which may include taxes imposed under the OECD guidance) and legislation has been introduced that would increase U.S. tax rates on non-U.S. companies and investors if their home jurisdictions impose discriminatory or extraterritorial taxes on U.S. companies, but we cannot predict whether such protective measures or legislation will be adopted or what, if any, responsive measures may be adopted by non-U.S. countries. We continue to monitor the effects of the IRA,OBBA, the OECD guidelines and other regulatory developments on our financial conditions, operating results, and income tax rate.

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. presidential administration,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 adverselyhave affecta thematerial Company’sadverse operatingeffect results,on our business, financial condition,position, customercash relationsflows and abilityresults toof conduct its business.operations.

As of DecemberJanuary 28,3, 2024,2026, the Company had $42.2$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:

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. IfThe the Company were unableinability to service itsour indebtedness,indebtedness thewould have a material adverse effect on our business, financial condition,position, cash flow and results of operations would be materially adversely affected.operations.

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 toto, and any recurrence in the future may continue to lead toto, decreased demand for the Company’s products, which in turn has negatively impacted, and may continuein tothe 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.

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 ana unfavorablematerial impactadverse effect on our business, financial position and results of operations.

During 2025, union contracts covering approximately 35%36% of the Company’s total workforce arewere expected to expire.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 an unfavorablea material impactadverse effect on theour Company’sbusiness, financial position, cash flows and results of operations or financial condition.operations.

The Company depends on key management and technical personnel. The loss of one or more key employees could materially and adversely affect theour Company.business, financial position, cash flows and 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 an unfavorablea material impactadverse effect on theour Company’sbusiness, financial position, cash flow and results of operations or financial condition.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 representedexceeded 14%10% of total accounts receivable asfor each of Decemberthe 28,fiscal 2024year 2025 and one2024. customerForeign representedsales 12%were ofnot totalsignificant accountsfor receivablefiscal asyears of2025 Decemberand 30, 2023.2024.

The Company’s fiscal year ends on the Saturday nearest to December 31. Fiscal yearsyear 2025 was 53 weeks in length and fiscal year 2024 and 2023 were eachwas 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, 2024,2024. and referencesReferences to results forthe “2023fourth quarter of 2025” or the “fourth fiscal yearquarter 2023of 2025” mean the fiscalfourteen-week yearperiod endedfrom DecemberSeptember 30,28, 2023.2025 Referencesto 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, and references to the “fourth quarter of 2023” or the “fourth fiscal quarter of 2023” mean the thirteen-week period from October 1, 2023 to December 30, 2023.2024.

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; and pensions and other postretirement benefits.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.

As of January 3, 2026 and December 28, 2024 and December 30, 2023,2024, the Company’s allowance for doubtful accounts total was $0.5$0.6 million and $0.5 million, respectively. As of January 3, 2026, and December 28, 2024, and December 30, 2023, the Company’s bad debt expense was $0.1 million and $0.1 million, respectively.

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.

The inventory reserve for excess or obsolete inventory reduced the Company’s inventory valuation by $1.9$1.8 million and $1.9 million as of DecemberJanuary 28,3, 20242026 and December 30,28, 2023,2024, respectively.

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 20242025 and 2023.2024, respectively. The Company reviews the long-term rate of return each year.

Net sales in the fourth quarter of 20242025 increaseddecreased 4.5%13.7% to $66.7$57.5 million from $63.8$66.7 million in the fourth quarter of 2023.2024. Sales increasesdecreases were due to higherlower demandshipments forof returnable transport packaging products, partially offset by lower demand for truck accessoriesproducts and truck mirror assemblies. Net sales of existing products increaseddecreased 2.8%19.9% while price increases and new products increased net sales by 1.7%6.2% in the fourth quarter of 20242025 when compared to sales in the fourth quarter of 2023.2024. New products included various truck mirror assemblies, rotary latches, and handles.

Cost of products sold in the fourth quarter of 20242025 increaseddecreased $4.6$6.9 million or 10%13.5% from the corresponding period in 2023.2024. The increasedecrease in cost of products sold is primarily attributable to higher sales volume and a favorable adjustment to the LIFOlower reserveproduct in the fourth quarter of 2023 that did not recur in the fourth quarter of 2024.shipments.

Gross margin as a percentage of net sales for the fourth quarter of 20242025 was 23.0%22.8% compared to 26.8%23.0% in the prior year fourth quarter. The decrease is primarily due to higher material costs in the fourth quarter of 2024 and a favorable adjustment to the LIFO reserve in the fourth quarter of 2023 that did not reoccur in the fourth quarter of 2024.2025.

Selling and administrative expenses in the fourth quarter of 20242025 increaseddecreased 11.0%10.5% compared to the fourth quarter of 2023.2024. As a percentage of net sales, selling and administrative costsexpenses were 16.8%17.4% for the fourth quarter of 20242025 compared to 15.8%16.8% for the corresponding period in 2023.2024. The increasedecrease was primarily the result of increaseddecreased payroll-related expenses,commissions, legal and professional expenses,fees and sellingpersonnel-related costs.

Net income from continuing operations for the fourth quarter of 20242025 was $1.2 million, or $0.19 per diluted share, from $1.6 million, or $0.26 per diluted share, fromfor $3.9the million,same or $0.63 per diluted share,period in 2023.2024.

Net sales for 20242025 increaseddecreased 5%8.7% to $249.0 million from $272.8 million from $258.9 million in 2023.2024. The sales increasedecrease was primarily due to higherlower demandshipments for truck mirror assemblies and returnable transport packaging products. Net sales of existing products weredecreased flat14.9% in 20242025 compared to 20232024 while price increases and new products increased net sales in 20242025 by 5%.6.2%. Sales of new products contributedincreased 4% to sales growth5.9% in 20242025 and included various new truck mirror assemblies, rotary latches, D-rings, and mirror cams.

Cost of products sold increaseddecreased $8.4$13.5 million or 4%6.6% to $192.0 million in 2025 from $205.5 million in 2024 from $197.1 million in 2023.2024. The increasedecrease in the cost of products sold is primarily attributable to higherlower sales volumes and a favorable adjustment to the LIFO reserve in the fourth quarter of 2023 that did not reoccur in the fourth quarter of 2024.volumes. Tariffs incurred during 20242025 were $2.5$10.2 million from China-sourced products as compared to $2.2$2.5 million in 2023.2024. Most tariffs were recovered through price increases.

Gross margin as a percentage of sales was 24.7%22.9% in 20242025 compared to 23.9%24.7% in 2023.2024. The increasedecrease primarily reflects the impact of improvedhigher pricingmaterial andcosts variouson cost-savingslower initiatives.sales volumes.

Product development expenses as a percentage of sales waswere 1.6% and 1.8% and 2.2% in 20242025 and 2023,2024, 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 increasedwere $3.1$42.2 million orin 7.9%2025 compared to $42.2 million in 2024 from $39.1 million in 2023.2024. As a percentage of net sales, selling and administrative expenses were 15.5%17.0% for the fiscal year of 20242025 compared to 15.1%15.5% for the correspondingfiscal periodyear in2024. 2023.During 2025, Selling and administrative expenses include a $2.5 million of restructuring charges composed of personnel and facilities related cost. The increasecharges wasrelate primarilyto actions completed within the resultfiscal ofyear increased payroll-related expenses, legal and professional expenses, and travel related expenses.2025.

Net income from continuing operations for 20242025 increaseddecreased 12%57% to $6.0 million, or $0.98 per diluted share, from $13.2 million, or $2.13 per diluted share, from $11.8 million, or $1.88 per diluted share, in 2023.2024.

The following table shows the amount of change from the year ended December 30,28, 20232024 to the year ended DecemberJanuary 28,3, 20242026 in other items (dollars in thousands):

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 DecemberJanuary 28,3, 20242026 and beyond by the Company’s operating cash flows and available credit facility.

The Company used $7.9$0.5 million and $4.6$7.9 million for investing activities in 20242025 and 2023,2024, 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. In 2023, the Company invested $5.5 million in capital expenditures, invested $1.0 million in marketable securities, and received payments on notes receivable of $2.3 million. Capital expenditures in fiscal year 20252026 are expected to be approximately $9.8$7.3 million.

In 2024,2025, the Company made total debt payments of $4.8$44.8 million, of which $1.8$36.0 million were principal payments on the revolving commitment portion of theformer credit facility and used $2.7 million were for payment of dividends. The Company anticipates dividend payments in fiscal 20252026 to be approximately $2.8 million. The Company has $28.3$66 million available on its revolving line of credit. See Note 6 - Debt in Item 8, Financial Statements and Supplementary DataData, of this Form 10-K for further discussion on the Company’s debt facilities.

In 2023,2024, the Company made total debt payments of $79.7$4.8 million, of which $59.3$1.8 million was an acceleratedwere principal paymentpayments on the revolving commitment portion of the credit facility and used $2.8$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 ten8 years. Rent expenses amounted to approximately $4.5 million in 2025 and $4.9 million in 2024 and $4.0 million in 2023.2024.

The non-GAAP financial measures we provide in this reportForm 10-K should be viewed in addition to, and not as an alternative for, results prepared in accordance with U.S. GAAP.

The Company’s business is subject to several risks, some of which are beyond its control. In addition to the other information set forth in this Form 10-Q, the Company’s shareholders should carefully consider the risk factors discussed in Part I, Item 1A, Risk Factors, of the 2025 Form 10-K. These risk factors could have a material adverse effect on the Company’s business, results of operations, financial condition and/or liquidity and could cause our operating results to vary significantly from period to period. As of AprilJuly 4, 2026, there have been no material changes to the risk factors disclosed in the 2025 Form 10-K. The Company may disclose changes to such risk factors or disclose additional risk factors from time to time in its future filings with the SEC. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may materially adversely affect its business, financial condition, or operating results.

The following discussion is intended to highlight significant changes in the financial position and results of operations of The Eastern Company (together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) for the three and six months ended AprilJuly 4, 2026. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal year ended January 3, 2026 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2026, as amended on March 19, 2026 (the “2025 Form 10-K”).

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 AprilJuly 4, 2026 (this “Form 10-Q”) to 2025, fiscal year 2025 or fiscal 2025 mean the 53-week period ended on January 3, 2026, and references to 2026, fiscal year 2026 or fiscal 2026 mean the 52-week period ending on January 2, 2027. In a 53-week fiscal year, the first three quarters each have 13 weeks, and the fourth quarter has 14 weeks. In a 52-week fiscal year, each quarter has 13 weeks. References to the firstsecond quarter of 2025, the firstsecond fiscal quarter of 2025, the second three months of fiscal 2025 or the three months ended MarchJune 29,28, 2025 mean the 13-week period from DecemberMarch 29,30, 20242025 to MarchJune 29,28, 2025. References to the firstsecond quarter of 2026, the firstsecond fiscal quarter of 2026, the second three months of fiscal 2026 or the three months ended AprilJuly 4, 2026, mean the 13-week period from April 5, 2026 to July 4, 2026. References to the first six months of 2025 or the six months ended June 28, 2025 mean the period from December 29, 2024 to June 28, 2025. References to the first six months of 2026 or the six months ended July 4, 2026 mean the period from January 4, 2026 to AprilJuly 4, 2026.

For the three months ended AprilJuly 4, 2026, we incurred approximately $3.1$1.9 million in tariff and tariff-related expenses, $2.9$1.8 million of which have been mitigated through price increases. On February 20, 2026, the U.S. Supreme Court ruled in Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act (“IEEPA”) does not authorize the executive branch to impose certain tariffs. The U.S. Customs and Border Protection (“CBP”) is developing an administrative process for seeking refunds of tariffs paid pursuant to the IEEPA, and on April 20, 2026, launched the first phase of that administrative process. The Company is in the process of submitting refund claims to the CBP. The amount and timing of any potential refund remain uncertain, and, as of AprilJuly 4, 2026, we have not recorded a material benefit for potential refunds of IEEPA tariffs paid. In response to the U.S. Supreme Court’s decision, the presidential administration implemented a tariff surcharge pursuant to Section 122 of the Trade Act of 1974, establishing a minimum 10% duty on imports, subject to certain exemptions.exemptions, for 150 days. The tariff environment remains dynamic, and it is likely that additional developments will occur over the next several months, particularly as the U.S. continues to negotiate with trade partners and the CBP further develops and executes on the administrative process for refunds. While the long-term effects remain uncertain, we continue to closely monitor the evolving tariff environment which presents a mix of impacts, such as higher pricing, including higher product and operating costs, and the potential for refunds. See Part I, Item 1A, Risk Factors in the 2025 Form 10-K for a discussion regarding tariff-related risks.

On February 14, 2025, the Company acquired certain assets under asset and real estate purchase agreements from Centralia Industrial Painting, Inc. and Ronald R. Rainwater, respectively. These assets are held in our Big 3 Precision Products, Inc. (“Big 3”) subsidiary. We expect the acquisitionacquisitions will enable the Company to become more competitive with respect to cost and quality of the products sold by Big 3.

In the third quarter of 2024, we determined that the business of Big 3 Precision Mold Services, Inc. (“Big 3 Mold business”) met the criteria to be held for sale and that the assets held for sale qualified for discontinued operations. As such, the financial results of the Big 3 Mold business are reflected in our unaudited condensed consolidated statements of operations as discontinued operations for all periods presented. Additionally, current and non-current assets and liabilities of discontinued operations are reflected in the unaudited condensed consolidated balance sheets for both periods presented. On April 30, 2025, the Company sold the equipment, workforce and customer list of the ISBM division of Big 3 Mold. The other divisions of Big 3 Mold have been reclassified to continuing operations.

Net sales of existing products decreased 10.7%16.0% for the second quarter of 2026 and 12.0% for the first quartersix months of 2026 compared to the corresponding periodperiods in 2025. Price increases and newNew products increased net sales by 5.0%1.8% in the second quarter of 2026 and 2.7% in the first quartersix months of 2026 compared to the corresponding periodperiods in 2025. New productsproduct sales included various truck mirrorlatch and latchhandle assemblies.

Cost of products sold decreased $1.4$4.7 million,million orfor 3%,the second quarter of 2026 and $7.8 million for the first quartersix months of 2026 compared to the corresponding period in 2025. These decreases were due to lower shipment volume, partially offset by increased cost of sales volume.on acquired aerospace and defense shipments. Additionally, the Company paid tariff costs on China-sourced products of approximately $3.1$1.9 million in the second quarter of 2026 and $5.0 million in the first quartersix months of 2026, compared to $0.6$2.4 million in the second quarter of 2025 and $3.0 million in the first quartersix months of 2025. A majority ofMost tariffs on China-sourced products have been recovered through price increases.

Product development expenses remained consistent with the second quarter of 2025 and decreased less than $0.1 million for the first quartersix months of 2026 compared to the corresponding periodperiods in 2025. As a percentage of net sales, product development costs were 1.7% and 1.8%1.6% forin the first quartersix months of 2026 and 2025, respectively, as we continue to invest in new products at our businesses.

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

Other expenses,income netincreased decreased$6.4 $0.2million for the second quarter of 2026 and $6.6 million for the first quartersix months of 2026 compared to the corresponding periodperiods in 2025. The decreaseincrease infor the second quarter and for the first quartersix months of 2026 wasare the result of lower$6.5 pensionmillion non-serviceof expense.bargain purchase gain recorded on a recent acquisition, offset by $0.2 million of transaction costs incurred to complete that acquisition.

Net income for the firstsecond quarter of fiscal 2026 was $0.6$5.6 million, or $0.11$0.94 per diluted share, compared to net income of $1.9$2.0 million, or $0.31$0.33 per diluted share, for the comparable period in 2025. For the first six months of 2026, net income was $6.3 million, or $1.04 per diluted share, compared to $4.2 million, or $0.69 per diluted share, for the comparable period in 2025.

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

The Company generated $3.5$12.0 million of cash from operations during the first threesix months of fiscal 2026 compared to usinggenerating $1.9 million during the first threesix months of fiscal 2025. Cash flow from operations in the first threesix months of 2026 increased due to consumptiontiming of inventoriesvendor heldpayments atpartially offset by timing of customer receivable collections and the endexclusion of the priornon-cash yearbargain andpurchase lower accounts payable disbursements offset by lower customer receivable collections.gain.

Purchases of capital equipment were $0.9$1.5 million and $0.8$1.6 million for the first threesix months of 2026 and 2025, respectively. As of AprilJuly 3,4, 2026, there were approximately $0.1 million of outstanding commitments for capital expenditures.

Inventories of $53.1$66.0 million asat of AprilJuly 4, 2026 decreasedincreased by $3.2$9.6 million, or 5.7%,17.1%, when compared to $56.3 million at January 3, 2026 and increased $2.3$11.8 million, or 4.2%,21.9%, when compared to $55.4$54.1 million at MarchJune 29,28, 2025. Accounts receivable, less allowances, were $32.6$36.8 million at AprilJuly 4, 2026, as compared to $30.1 million at January 3, 2026 and $33.5$40.2 million at MarchJune 29,28, 2025.

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”),N.A., which was repaid using borrowings under the Citizens Credit Agreement and terminated on October 28, 2025. See Note H, Debt, for additional information regarding the terms of the prior credit facility with TD Bank.2025.. The Citizens Credit Agreement establishesestablished a new $100 million five-year senior secured revolving credit facility and provides for the extension of credit to the Company in the form of revolving loans, swing line loans and letters of credit, at any time and from time to time during the term of the Citizens Credit Agreement. See Note H,I, 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 atas allof timesJuly from4, entry2026 into the Citizens Credit Agreementand through the date of filing this Form 10-Q. The Company has $67$59 million available on its line of credit under the Citizens Credit Agreement as of the date of filing this Form 10-Q.

Cash, cash flow from operating activities and funds available under the revolving credit portion of the Credit Agreement are expected to be sufficient to cover future foreseeable working capital requirements in the short-term (i.e., the next 12 months from AprilJuly 4, 2026) and separately in the long-term (i.e., beyond the next 12 months). However, the Company cannot provide any assurances of the availability of future financing or the terms on which it might be available. In addition, the interest rate on borrowings under the Credit Agreement varies based on our senior net leverage ratio, and the Credit Agreement requires us to maintain a senior net leverage ratio not to exceed 3.50 to 1 and aan fixed chargeinterest coverage ratio to be not less than 1.253.00 to 1. A decrease in earnings due to the impact of current economic conditions and inflationary pressures or the resulting harm to the financial condition of our customers, or an increase in indebtedness incurred to offset such a decrease in earnings, would have a negative impact on our senior net leverage ratio and our fixed chargeinterest coverage ratio, which in turn would increase the cost of borrowing under the Credit Agreement and could cause us to fail to comply with the covenants under ourthe Credit Agreement.

As of the end of the firstsecond quarter of 2026, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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. For a full description of our critical accounting estimates, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of the 2025 Form 10-K. While there have been no material changes to our critical accounting estimates since the filing of the 2025 Form 10-K, we continue to monitor the methodologies and assumptions underlying such critical accounting estimates.

The non-GAAP financial measures we provide in this report should be viewed in addition to, and not as an alternative for, results prepared in accordance with U.S. GAAP.

To supplement the condensed 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, Adjusted EBITDA from Discontinued Operations and Adjusted EBITDA, 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 income from continuing operations, diluted earnings per share from continuing operations, net (loss) income from discontinued operations, net income (loss) 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. This measure also excludes credit agreement refinancing expenses, when applicable, because we do not believe these expenses are reflective of our ongoing operations. Adjusted Net Income from Continuing Operations is a tool that can assist management and investors in comparing our performance on a consistent basis across periods by removing the impact of certain items that management believes do not directly reflect our underlying operating performance.

Adjusted Earnings Per Share from Continuing Operations is defined as earnings per share from continuing operations excluding, when incurred, certain per share gains or losses that we do not believe reflect our ongoing operations, including, for example, the impacts of impairment losses, gains/losses on the sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring costs. This measure also excludes credit agreement refinancing expenses, when applicable, because we do not believe these expenses are reflective of our ongoing operations. We believe that Adjusted Earnings Per Share from Continuing Operations provides important comparability of underlying operational results, allowing investors and management to accessassess operating performance on a consistent basis from period to period.

Adjusted EBITDA from Continuing Operations is defined as net income from continuing operations before interest expense, provision for income taxes, and depreciation and amortization and excluding, when incurred, the impacts of certain losses or gains that we do not believe reflect our ongoing operations, including, for example, impairment losses, gains/losses on sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring expenses. This measure also excludes credit agreement refinancing expenses, when applicable, because we do not believe these expenses are reflective of our ongoing operations. Adjusted EBITDA from Continuing Operations is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believesbelieve do not directly reflect our underlying operations.

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 better understand our operating performance and to evaluate the methodology used by management to evaluate and measure such performance.