The following table summarizes the consideration paid for Big 3 Precision and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date, as well as the fair value at the acquisition date.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended ~~September~~March 28, ~~2019~~2020

[ ]

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.)

112 Bridge Street, Naugatuck, Connecticut	06770
(Address of principal executive offices)	(Zip Code)

(203)-729-2255

Registrant’s telephone number

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

Title of each class	Tra~~Trading~~ding 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 [X] 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 [X] 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 [X]
Non-accelerated filer [ ]	Smaller reporting company [X]
	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 Act). Yes [ ] No [X]

As of ~~September~~March 28, ~~2019, 6,238,317~~2020, 6,230,731 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 ~~SEPTEMBER~~MARCH 28, ~~2019~~2020

TABLE OF CONTENTS

		Page




PART I
Item 1.	Financial Statements	3.

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~18.~~17.

Item 33..	Quantitative and Qualitative Disclosures About Market Risk	~~26.~~25.

Item 44..	Controls and Procedures	~~26.~~25.

PART II
Item 1.	Legal Proceedings	~~27.~~26.

Item 1A1A..	Risk Factors	~~27.~~26.

Item 22..	Unregistered Sales of Equity Securities and Use of Proceeds	~~27.~~28.

Item 33..	Defaults Upon Senior Securities	~~27.~~28.
Item 44..	Mine Safety Disclosures	~~27.~~
~~Item 5~~.	~~Other Information~~	28.

Item 65..	~~Exhibits~~Other Information	28.

Item 6.	Exhibits	28.

	Signatures	29.

PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended						Nine Months Ended						Three Months Ended
	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018			March 28, 2020			March 30, 2019
Net sales	$	60,692,645		$	57,357,442		$	183,015,723		$	177,663,291		$	65,325,616		$	60,883,148
Cost of products sold		(45,754,911	)		(43,139,780	)		(139,243,164	)		(133,670,797	)		(50,663,943	)		(47,074,105	)
Gross margin		14,937,734			14,217,662			43,772,559			43,992,494			14,661,673			13,809,043

Product development expenses		(825,425	)		(2,004,919	)		(5,240,004	)		(5,089,178	)
Selling and administrative expenses		(8,391,898	)		(7,472,335	)		(24,866,665	)		(25,602,515	)
Product development expense														(775,444	)		(2,239,776	)
Selling and administrative expense														(10,024,958	)		(8,398,265	)
Restructuring costs		—			—			(2,651,877	)		—			—			(836,694	)
Operating profit		5,720,411			4,740,408			11,014,013			13,300,801			3,861,271			2,334,308

Interest expense		(420,377	)		(310,507	)		(974,536	)		(918,897	)		(827,664	)		(292,540	)
Other income		188,623			228,787			789,371			673,287			744,793			13,925
Income before income taxes		5,488,657			4,658,688			10,828,848			13,055,191			3,778,400			2,055,693

Income taxes		1,295,575			892,027			2,535,033			2,929,858			882,583			484,733
Net income	$	4,193,082		$	3,766,661		$	8,293,815		$	10,125,333		$	2,895,817		$	1,570,960

Earnings per Share:
Earnings per share:
Basic	$	.67		$	.60		$	1.33		$	1.62		$	.46		$	.25

Diluted	$	.67		$	.60		$	1.33		$	1.61		$	.46		$	.25

Cash dividends per share:	$	.11		$	.11		$	.33		$	.33		$	.11		$	.11

See accompanying notes.

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three Months Ended Nine Months Ended
September 28, 2019 September 29, 2018 September 28, 2019 September 29, 2018
Net income
$ 4,193,082
$
3,766,661
$ 8,293,815
$
10,125,333

Other comprehensive income/(loss):

Change in foreign currency translation (537,751 )
(540,998
)
(346,657 )
(815,314
)
Change in marketable securities, net of
tax benefit/(cost) of:
2019 – $176 and $(288) respectively
2018 - $5,853 and $5,435 respectively
538
19,801
(882 )
18,383

Change in fair value of interest rate swap, net of tax benefit/(cost) of:
2019 – $15,720 and $85,537 respectively
2018 – $12,263 and $71,428 respectively
(49,780 )
38,833
(270,866 )
265,480

Change in pension and postretirement benefit costs, net of taxes of:
2019 – $75,138 and $217,014 respectively
2018 – $65,842 and $197,527 respectively
235,859
222,725
681,221
668,174

Total other comprehensive income/(loss)
(351,134 )
(259,639
)
62,816
136,723

Comprehensive income
$ 3,841,948
$
3,507,022
$ 8,356,631
$
10,262,056

	Three Months Ended
	March 28, 2020			March 30, 2019
Net income	$	2,895,817		$	1,570,960
Other comprehensive income (loss):
Change in foreign currency translation		(1,304,447	)		412,624
Change in pension and postretirement benefit costs, net of tax expense of: 2020 – $81,143 and 2019 - $70,938		260,295			222,681
Change in fair value of marketable securities, net of tax benefit of: 2020 - $2,897 and 2019 - $3,471		8,878			(10,639	)
Change in fair value of interest rate swap and marketable securities, net of tax benefit of: 2020 – $535,029 and 2019 – $24,619		(1,697,793	)		(77,961	)
Total other comprehensive income (loss)		(2,733,067	)		546,705
Comprehensive income	$	162,750		$	2,117,665

See accompanying notes.

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS	September 28, 2019			December 29, 2018			March 28, 2020			December 28, 2019
	(Unaudited)						(unaudited)
Current Assets
Cash and cash equivalents	$	11,983,328		$	13,925,765		$	16,508,881		$	17,996,505
Marketable securities		33,759			—			23,154			34,305
Accounts receivable, less allowances: $546,000 - 2019; $680,000 -2018		43,536,854			30,285,316
Accounts receivable, less allowances: 2020 - $699,000;2019 - $556,000								39,873,177			37,941,900
Inventories		52,761,230			52,773,209			55,274,876			54,599,266
Prepaid expenses and other assets		4,421,384			3,071,888			3,955,872			4,343,507
Refundable taxes		1,081,011			1,133,847
Total Current Assets		113,817,566			101,190,025			115,635,960			114,915,483

Property, Plant and Equipment		87,406,814			73,768,615			88,409,321			88,336,243
Accumulated depreciation		(46,563,361	)		(43,915,238	)		(46,482,754	)		(46,313,630	)
		40,843,453			29,853,377			41,926,567			42,022,613

Goodwill		78,965,485			34,840,376			79,418,533			79,518,012
Trademarks		5,479,063			3,686,063			5,404,283			5,404,283
Patents and other intangibles net of accumulated amortization		28,454,738			10,281,720			25,699,680			26,460,110
Right of Use Assets		10,280,814			—			11,852,653			12,342,475
Deferred income taxes		1,396,006			1,396,006
		124,576,105			50,204,165			122,375,149			123,724,880
TOTAL ASSETS	$	279,237,125		$	181,247,567		$	279,937,676		$	280,662,976

See accompanying notes.

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS ~~(CONTINUED)~~

LIABILITIES AND SHAREHOLDERS’ EQUITY	September 28, 2019			December 29, 2018			March 28, 2020			December 28, 2019
	(Unaudited)						(unaudited)
Current Liabilities
Accounts payable	$	20,457,927		$	18,497,626		$	22,629,076		$	19,960,507
Accrued compensation		3,579,677			4,159,808			2,216,765			3,815,186
Other accrued expenses		6,134,991			3,095,666			3,797,178			2,967,961
Contingent liability		—			2,070,000
Current portion of long-term debt		5,187,689			2,325,000			5,187,689			5,187,689
Total Current Liabilities		35,360,284			30,148,100			33,830,708			31,931,343

Deferred income taxes		8,630,744			1,516,012			5,270,465			5,270,465
Other long-term liabilities		1,703,535			353,856			2,465,260			2,465,261
Lease Liability		10,280,814			—
Lease liability								11,852,653			12,342,475
Long-term debt, less current portion		94,852,921			26,350,000			92,356,121			93,577,544
Accrued postretirement benefits		326,489			648,635			1,001,509			1,007,146
Accrued pension cost		24,470,438			25,362,325			28,052,482			28,631,485

Shareholders’ Equity
Preferred Stock, no par value:
Authorized and unissued: 2,000,000 shares

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		30,440,228			29,994,890			30,890,108			30,651,815
Issued: 8,973,046 shares in 2019 and 8,965,987 shares in 2018
Outstanding: 6,238,317 in 2019 and 6,231,258 in 2018
Treasury Stock: 2,734,729 shares in 2019 and 2,734,729 shares in 2018		(20,169,098	)		(20,169,098	)
Issued: 8,980,460 shares in 2020 and 8,975,434 shares in 2019
Outstanding: 6,230,731 shares in 2020 and 6,240,705 shares in 2019
Treasury Stock: 2,749,729 shares in 2020 and 2,734,729 shares in 2019								(20,537,962	)		(20,169,098	)
Retained earnings		115,906,469			109,671,362			122,723,970			120,189,111
Accumulated other comprehensive income (loss):
Foreign currency translation		(2,452,986	)		(2,106,329	)		(3,342,399	)		(2,037,952	)
Unrealized loss on marketable securities, net of tax		(882	)		—
Unrealized gain on marketable securities, net of tax								8,878			—
Unrealized gain (loss) on interest rate swap, net of tax		(104,422	)		166,444			(1,530,775	)		167,018
Unrecognized net pension and postretirement benefit costs, net of tax		(20,007,409	)		(20,688,630	)		(23,103,342	)		(23,363,637	)
Accumulated other comprehensive loss		(22,565,699	)		(22,628,515	)		(27,967,638	)		(25,234,571	)
Total Shareholders’ Equity		103,611,900			96,868,639			105,108,478			105,437,257
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	279,237,125		$	181,247,567		$	279,937,676		$	280,662,976

See accompanying notes.

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended						Three Months Ended
	September 28, 2019			September 29, 2018			March 28, 2020			March 30, 2019
Operating Activities
Net income	$	8,293,815		$	10,125,333		$	2,895,817		$	1,570,960
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,807,479			3,483,035			2,055,782			1,438,799
Unrecognized pension and postretirement benefits		134,199			(2,197,580	)		(678,305	)		207,816
Loss on restructuring, equipment and other assets		1,727,788			55,823
(Gain)/loss on sale of equipment and other assets								(437,446	)		671,138
Provision for doubtful accounts		51,711			211,292			156,286			25,711
Stock compensation expense		445,338			268,412			238,293			104,992
Changes in operating assets and liabilities:
Accounts receivable		359,606			(4,116,321	)		(2,273,864	)		(2,123,227	)
Inventories		3,217,736			(4,730,310	)		(994,546	)		1,313,875
Prepaid expenses and other		762,646			(158,549	)		341,582			(81,231	)
Other assets		(589,448	)		(6,864	)		(415,415	)		101,919
Accounts payable		(1,815,309	)		2,614,554			2,766,829			(27,186	)
Accrued compensation		(1,680,668	)		(200,967	)		(1,585,976	)		(1,724,968	)
Other accrued expenses		(2,202,622	)		1,747,682			(564,572	)		11,718
Net cash provided by operating activities		12,512,271			7,095,540			1,504,465			1,490,316

Investing Activities
Marketable securities		(33,759	)		(174,145	)		11,151			(91,400	)
Business acquisition, net of cash acquired		(81,155,753	)		(4,994,685	)
Capitalized software		—			(1,311,567	)		—			(104,484	)
Proceeds from sale of equipment								445,212			—
Purchases of property, plant and equipment		(1,896,128	)		(2,850,365	)		(828,115	)		(743,622	)
Net cash used in investing activities		(83,085,640	)		(9,330,762	)		(371,752	)		(939,506	)

Financing Activities
Proceeds from short term borrowings		—			7,000,000
Payments on revolving credit note		—			(12,000,000	)
Proceeds from long-term borrowings		100,000,000			—
Principal payments on long-term debt		(29,009,769	)		(1,162,500	)		(1,221,423	)		(387,500	)
Purchase common stock for the Treasury		—			(315,061	)
Purchase common stock for treasury								(368,864	)		—
Dividends paid		(2,058,697	)		(2,067,957	)		(686,614	)		(686,740	)
Net cash provided by (used) in financing activities		68,931,534			(8,545,518	)
Net cash used in financing activities								(2,276,901	)		(1,074,240	)

Effect of exchange rate changes on cash		(300,602	)		(323,034	)		(343,436	)		144,954
Net change in cash and cash equivalents		(1,942,437	)		(11,103,774	)		(1,487,624	)		(378,476	)

Cash and cash equivalents at beginning of period		13,925,765			22,275,477			17,996,505			13,925,765
Cash and cash equivalents at end of period	$	11,983,328		$	11,171,703		$	16,508,881		$	13,547,289


Non-cash investing and financing activities								(489,822	)
Right of use asset		10,280,814						489,822
Lease liability		(10,280,814	)

See accompanying notes.

THE EASTERN COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~SEPTEMBER~~March 28, ~~2019~~2020

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 10-01 of~~ Regulation S-X 10-01 and do not include all of 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 ~~of the Eastern Company (the “Company”)~~ included in the Company’s Annual Report on Form 10-K for the year ended December ~~29, 2018, as~~28, 2019, filed with the Securities and Exchange Commission ~~(the “SEC”)~~ on March ~~14, 2019~~5, 2020 (the ~~“2018~~“2019 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. All intercompany accounts and transactions are eliminated. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.

The condensed consolidated balance sheet atas of December ~~29, 2018~~28, 2019 has been derived from the audited consolidated balance sheet at that date.

~~Business Combination~~

~~On August 30,~~The Company’s fiscal year is a 52-53-week fiscal year ending on the Saturday nearest to December 31. References to fiscal 2019 or the 2019 fiscal year mean the 52-week period ended on December 28, 2019 and references to fiscal 2020 or the 2020 fiscal year mean the 53-week period ending on January 2, 2021. In a 52-week fiscal year, each quarter is 13 weeks long. In a 53 week fiscal year, each of the first three fiscal quarters is a 13 weeks long, and the fourth fiscal quarter is 14 weeks long. References to the first quarter of fiscal 2019, the ~~Company and its newly-formed wholly-owned subsidiary, Eastern Engineered Systems, Inc., a Delaware corporation (“EES” and with~~first quarter of 2020 or the Company, the “Company Parties”) entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Big 3 Holdings, LLC, a Delaware limited liability company (“Seller”), Big 3 Precision Mold Services, Inc., a Delaware corporation and wholly-owned Subsidiary of Seller (“Big 3 Mold”), and Big 3 Precision Products, Inc., a Delaware corporation and wholly owned Subsidiary of Seller (“Big 3 Products”), Industrial Design Innovations, LLC, a Delaware limited liability company and wholly-owned Subsidiary of Big 3 Products (“Design Innovations”), Sur-Form, LLC, a Delaware limited liability company and wholly-owned Subsidiary of Big 3 Products (“Sur-Form”), Associated Toolmakers Limited, a limited company formed under the laws of England and Wales and wholly-owned Subsidiary of Big 3 Mold (“Associated” and together with Big 3 Mold, Big 3 Products, Design Innovations and Sur-Form, collectively “Big 3 Precision”), TVV Capital Partners III, L.P., a Delaware limited partnership (“TVV III”), TVV Capital Partners III-A, L.P., a Delaware limited partnership (“TVV IIIA”), Alan Scheidt, (“Scheidt”), Todd Riley (“Riley”), Clinton Hyde (“Hyde,” and together with TVV-III, TVV-IIIA, Scheidt and Riley, the “Seller Owners”), and Big 3 Holdings, LLC, a Delaware limited liability company, as the initial Seller Representative (the “Seller Representative”). The Seller and the Seller Owners are collectively the “Selling Parties”. On August 30, 2019, pursuant to the Stock Purchase Agreement, the Company, through EES, acquired all of the outstanding equity interests of Big 3 Precision Products and Big 3 Mold Services, and indirectly through them, all of the outstanding equity interests in Design Innovation, Sur-Form and Associated, for an adjusted purchase cash price of $81.2 million. The acquisition was financed with a combination of $2.1 million of cash on hand, and a $100.0 million credit agreement (the “Credit Agreement”) with Santander Bank, N.A., for itself, People’s United Bank, N. A. and TD Bank, N.A. as lenders and a $20 million revolving credit line with lenders through a credit agreement (the “Credit Agreement”). In connection with the Credit Agreement, the Company also used its cash to repay the remaining balance (approximately $19.1 million) of its then outstanding term loan with People’s United N.A.

~~Leases~~

~~Commencing with the financial statements contained in the Quarterly Report on Form 10-Q for the period~~three months ended March 30, 2019 ~~in accordance with ASU No. 2016-02, Leases (“Topic 842”), right~~mean the period from December 30, 2018 to March 30, 2019. References to the first quarter of ~~use assets and lease liabilities have been separately identified on~~fiscal 2020, the ~~balance sheet for~~first fiscal quarter of 2020 or the ~~current period. See Note D – Right of Use Assets.~~

three months ended March 28, 2020 mean the 13-week period from December 29, 2019 to March 28, 2020.

Note B – ~~Earning~~Earnings Per Share

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

	Three Months Ended				Nine Months Ended				Three Months Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018		March 28, 2020		March 30, 2019
Basic:
Weighted average shares outstanding		6,236,225		6,262,332		6,233,894		6,263,733		6,237,921		6,231,713

Diluted:
Weighted average shares outstanding		6,236,225		6,262,332		6,233,894		6,263,733		6,237,921		6,231,713
Dilutive stock options		17,996		27,916		17,996		27,916
Dilutive stock appreciation rights										3,131		33,116
Denominator for diluted earnings per share		6,254,221		6,290,248		6,251,890		6,291,649		6,241,052		6,264,829

Note C – Inventories

Inventories consist of the following components:

	September 28, 2019		December 29, 2018		March 28, 2020		December 28, 2019

Raw material and component parts	$	17,837,116	$	17,841,166	$	17,438,617	$	17,225,469
Work in process		8,958,168		8,960,202		11,145,881		11,009,648
Finished goods		25,965,946		25,971,841		26,690,378		26,364,149
Total inventories	$	52,761,230	$	52,773,209	$	55,274,876	$	54,599,266

Note D – ~~Right-of-Use Assets~~Leases

~~In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (“Topic 842”). ASU 2016-02 requires lessees to present~~The Company presents right-of-use ~~(“ROU”)~~(ROU) assets and lease liabilities on the balance sheet for all leases with terms longer than 12 ~~months. See Note M – Recent~~months, in accordance with the Financial Accounting ~~Pronouncements.~~

~~In calculating the effect of ASU~~Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, ~~the~~Leases. The Company elected the transition method thereby not restating comparable periods. The Company elected to account for non-lease components as part of the lease component to which they relate. Lease accounting involves significant ~~judgments,~~judgements, including making estimates related to the lease term, lease payments, and discount rate. ~~In accordance with the guidance, the Company recognized ROU assets and lease liabilities for all leases with a term greater than 12 months.~~

The Company has operating leases for buildings, ~~warehouses~~warehouse and office equipment. ~~Currently,~~The Company determines whether an arrangement is, or contains, a lease at contract inception. An arrangement contains a lease if the Company has ~~31 operating leases with a~~the right to direct the use of and obtain substantially all of the economic benefits of an identified asset. ROU ~~asset~~assets and lease ~~liability totaling $10,280,814 as~~liabilities are recognized at lease commencement based on the present value of ~~September 28, 2019.~~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 ~~basis, terms and conditions~~exercise of ~~the leases are determined by the individual agreements.~~lease renewal options is at our sole discretion. The Company’s option to extend certain leases ranges from 12 – 120 months. All options to extend, when it is reasonably certain the option will be exercised, have been included in the calculation of the ROU asset and lease liability.

Currently, the Company has 42 operating leases and one finance lease with an ROU asset and lease liability of $11,852,653 as of March 28, 2020. The finance lease arrangement is immaterial. The basis, terms and conditions of the leases are determined by the individual agreements. The leases do not contain residual value guarantees, restrictions, or covenants that could that could cause the Company to incur additional financial ~~obligations~~obligations. We rent or sublease a part of one real estate property to ~~the Company.~~a third party. There are no ~~subleases, sale-leaseback, or~~ related party transactions. There are no leases that have not yet commenced that could create significant rights and obligations for the Company.

Note E - Debt

On August 30, 2019, the Company entered into ~~the Credit Agreement~~a credit agreement with Santander Bank, N.A., for itself, People’s United Bank, National ~~Association.~~Association and TD Bank, N.A. as lenders (the “Credit Agreement”), that included a $100 million term portion and a $20 million revolving commitment portion. Proceeds of the term loan were used to repay the Company’s remaining

outstanding term loan (and to terminate its existing credit facility) with People’s United Bank, N.A. (approximately $19 million) and to acquire certain subsidiaries of Big 3 ~~Precision.~~Holdings, LLC (collectively “Big 3 Precision”). The term portion of the loan requires quarterly principal payments of $1,250,000 for an 18-month period beginning December 31, 2019. The repayment amount then increases to $1,875,000 per quarter beginning September 30, 2021 and continues through June 30, 2023. The repayment amount then increases to $2,500,000 per quarter beginning September 30, 2023 and continues through June 30, 2024. The term loan is a 5-year loan with the remaining balance due on August 30, 2024. The revolving commitment portion has an annual commitment fee of 0.25% based on the unused portion of the revolver. The revolving commitment portion has a maturity date of August 30, 2024. ~~On August 30, 2019,~~As of March 28, 2020, the Company ~~did~~has not ~~borrow~~borrowed any funds on the revolving commitment portion of the facility. The term loan bears interest ~~rates on the term and revolving credit portion of the Credit Agreement vary. The interest rates may vary~~at a variable rate based on the LIBOR rate plus aan applicable margin ~~spread~~ of 1.25% to 2.25%., depending on the Company’s senior net leverage ratio. Borrowings under the revolving portion bear interest at a variable rate based on, at the Company’s election, a base rate plus an applicable margin of 0.25% to 1.25% or the LIBOR rate plus an applicable margin of 1.25% to 2.25%, with such margins determined based on the Company’s senior net leverage ratio. The Company’s obligations under the Credit Agreement are secured by a lien on certain of ~~the~~

Company’s and its subsidiaries’ assets pursuant to a Pledge and Security Agreement, dated August 30, 2019 with Santander Bank, N.A., as administrative agent.

The Company’s loan covenants under the Credit Agreement require the Company to maintain a senior net leverage ratio not to exceed 4.25 to 1. In addition, the Company is required to maintain a fixed charge coverage ratio to be not less than 1.25 to 1.

On August 30, 2019, the Company entered into an interest rate swap contract with Santander Bank, N.A., with an original notational amount of $50,000,000, which was equal to 50% of the outstanding balance of the term loan on that date. The Company has a fixed interest rate of 1.44% on the swap contract and will pay the difference between the fixed rate and LIBOR when LIBOR is below 1.44% and will receive interest when the LIBOR rate exceeds 1.44%. On ~~September~~March 28, ~~2019,~~2020, the interest rate for half ($5049.4 million) of the term portion was ~~3.86%~~3.35%, using a one month LIBOR rate, and 3.19% ~~one~~on the remaining balance ($5049.4 million) of the term loan based on a one month LIBOR rate.

The Company’s loan covenants under the Credit Agreement require the Company to maintain a senior net leverage ratio not to exceed 4.25 to 1. In addition, the Company will be required to maintain a fixed charge coverage ratio to be not less than 1.25 to 1.

~~The~~ interest rates on the Credit Agreement and the interest rate swap contract are susceptible to changes to the method ~~that~~of determining LIBOR rates ~~are determined~~ and to the potential phasing out of LIBOR after 2021. Information regarding the potential phasing out of LIBOR is provided below.

On July 27, 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. In the United States, efforts to identify a set of alternative U.S. Dollar reference interest rates have been initiated by the Alternative Reference Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New York. At this time, it is not possible to predict whether any such changes will occur, whether LIBOR will be phased out or any such alternative reference rates or other reforms to LIBOR will be enacted in the United Kingdom, the United States or elsewhere or the effect that any such changes, phase-out, alternative reference rates or other reforms, if they occur, would have on the amount of interest paid on the Company’s LIBOR-based borrowings. Uncertainty as to the nature of such potential changes, phase-out, alternative reference rates or other reforms may materially adversely affect interest rates paid by the Company on its borrowings. Reform of, or the replacement or phasing out of, LIBOR and proposed regulation of LIBOR and other “benchmarks” may materially adversely affect the amount of interest paid on the Company’s LIBOR-based borrowings and could have a material adverse effect on the Company’s business, financial condition and results of operations.

Note F - Stock Options and ~~awards~~Awards

~~Stock Options~~

~~As of September 28, 2019, the Company had one stock option plan,~~ The Eastern Company 2010 Executive Stock Incentive Plan (the “2010 Plan”), for officers, other key employees, and non-employee ~~Directors.~~ Directors expired in February 2020. On February 19, 2020, the board of directors of the Company adopted, subject to shareholder approval at the 2020 Annual Meeting of Shareholders, The Eastern Company 2020 Stock Incentive Plan (the “2020 Plan”), which is intended to replace the 2010 Plan. The Company has no other exiting plan pursuant to which equity awards may be granted.

Incentive stock options granted under the 2010 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. Restricted stock awards may also be granted to participants under the 2010 Plan with restrictions determined by the Compensation Committee of the Company’s Board of ~~Directors (the “Compensation Committee”).~~Directors. Under the 2010 Plan, non-qualified stock options granted to participants will have exercise prices determined by the Compensation ~~Committee.~~Committee of the Company’s Board of Directors. During the ~~third quarters~~first quarter of ~~2019~~2020 and ~~2018,~~2019, no stock ~~option~~options or restricted stock ~~grants~~ were ~~issued~~granted that were subject to the meeting of performance measurements. For the ~~nine months~~first quarter of 2019, ~~the Company used several assumptions, which included an expected term of 3.5 to 4 years, volatility deviation of 28.88% to 32.33% and a risk-free rate of 1.42% to 2.48%. For the nine months of 2018,~~ the Company used several assumptions which included an expected term of 3.5 years, volatility deviation of ~~29.5%~~28.88% and a ~~risk-free~~risk free rate of ~~2.33%~~2.48%.

The 2010 Plan also permits the issuance of Stock Appreciation Rights (“SARs”). The SARs are in the form of an option with a cashless exercise price equal to the difference between the fair value of the Company’s common stock at the date

of grant and the fair value as of the exercise date resulting in the issuance of the Company’s common stock. During ~~the third quarter of 2019,~~2020, the Company ~~issued 60,000~~did not issue any SARs, ~~in relation to the acquisition of Big 3 Precision.~~and during 2019 36,000 SARs were issued.

Stock-based compensation expense in connection with SARs ~~previously~~ granted to employees in the ~~third~~first quarter of ~~2019 and 2018~~2020 was ~~approximately $108,000 and $74,000, respectively,~~$110,000, and for ~~the first nine months of fiscal years~~ 2019 ~~and 2018~~ was ~~approximately $281,000 and $203,000, respectively.~~$80,000.

As of ~~September~~March 28, ~~2019,~~2020, there were ~~178,500~~no shares of Company common stock reserved and available for future grant under the ~~above noted~~ 2010 ~~Plan.~~Plan, as it has expired.

The following tables set forth the outstanding SARs for the period specified:

	Nine Months Ended September 28, 2019					Year Ended December 29, 2018					Three Months Ended March 28, 2020					Year Ended December 28, 2019
	Units			Weighted - Average Exercise Price		Units			Weighted - Average Exercise Price		Units			Weighted - Average Exercise Price		Units			Weighted - Average Exercise Price
Outstanding at beginning of period		189,167		$	21.46		141,500		$	20.36		276,000		$	22.30		189,167		$	21.46
Issued		96,000			23.99		51,000			24.90		--			--		96,000			23.65
Exercised		(1,667	)		19.10		--			--		--			--		(1,667	)		19.10
Forfeited		--			--		(3,333	)		19.10		(6,999	)		19.10		(7,500	)		21.20
Outstanding at end of period		283,500			22.36		189,167			21.46		269,001			22.39		276,000			22.30

SARs Outstanding and Exercisable

Range of Exercise Prices
Outstanding as of
September 28, 2019
Weighted- Average Remaining Contractual Life Weighted- Average Exercise Price
Exercisable as of
September 28, 2019
Weighted- Average Remaining Contractual Life Weighted- Average Exercise Price
$ 19.10-26.30 283,500 3.5 $ 22.36 38,003 2.5 19.10

SARs Outstanding and Exercisable
Range of Exercise Prices		Outstanding as of March 28, 2020		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price		Exercisable as of March 28, 2020		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price
$	19.10-26.30		269,001		3.0	$	22.39		50,001		2.0		19.10

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

	Nine Months Ended September 28, 2019				Year Ended December 29, 2018				Three Months Ended March 28, 2020				Year Ended December 28, 2019
	Shares		Weighted - Average Exercise Price		Shares		Weighted - Average Exercise Price		Shares		Weighted - Average Exercise Price		Shares		Weighted - Average Exercise Price
Outstanding at beginning of period		25,000	$	—		25,000	$	—		25,000	$	—		25,000	$	—
Issued		—		—		—		—		—		—		—		—
Forfeited		—		—		—		—		—		—		—		—
Outstanding at end of period		25,000		—		25,000		—		25,000		—		25,000		—

Stock Grants Outstanding and Exercisable	Stock Grants Outstanding and Exercisable													Stock Grants Outstanding and Exercisable
Range of Exercise Prices	Range of Exercise Prices	Outstanding as of September 28, 2019		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price		Exercisable as of September 28, 2019		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price		Range of Exercise Prices	Outstanding as of March 28, 2020		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price		Exercisable as of March 28, 2020		Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price
$	0.00		25,000		2.6		—		—		—		—	0.00		25,000		2.0		—		—		—		—

As of ~~September~~March 28, ~~2019,~~2020, outstanding SARs and ~~options~~grants had an intrinsic value of ~~$1,180,600.~~$561,000.

Note G – ~~Shareholder’s Equity~~ Share Repurchase Program

On May 2,3, 2018, the Company announced that its Board of Directors had authorized a new program to repurchase up to 200,000 shares of the Company’s common stock. The Company’s share repurchase program does not obligate it to acquire the Company’s common stock at any specific cost per share. During the ~~third~~first quarter ~~and first nine months~~ of ~~2019,~~2020, the Company ~~did not repurchase any~~repurchased 15,000 shares of its common stock in connection with the share repurchase program. Under this program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

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

Balance as of December 29, 2019
40,000

$
26.58

40,000

160,000

December 29, 2019 – September 28, 2019

—

—

—

—

Balance as of September 28, 2019
40,000

$
26.58

40,000

160,000

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
Balance as of December 28, 2019		40,000	$	26.58		40,000		160,000
December 29, 2019 – March 28, 2020		15,000		24.59		15,000		145,000
Balance as of March 28, 2020		55,000	$	26.04		55,000		145,000

Note H – 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 based on a five-step model in accordance with ~~ASU No. 2016-10, Revenue~~FASB Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with ~~Customers (“Topic 606”).~~Customers." The Company has defined purchase orders as contracts in accordance with ~~ASU 2016-10.~~ASC Topic 606. For its customer contracts, the Company identifies its performance obligations, which ~~are~~is delivering goods or services, determining the transaction price, allocating the contract transaction price to the performance obligations (when applicable), and ~~recognizing~~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.

The Company elected the Modified Retrospective Method (the “Cumulative Effect Method”) to comply with ASU 2016-10. ASU 2016-10 was adopted on December 31, 2017, which was the first day of the Company’s 2018 fiscal year. The financial effect of ASU 2016-10 on the September 28, 2019 financial statements was not significant.

Customer volume rebates, product returns, discount and allowance are variable consideration 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.

Refer to Note LK for revenues reported by segment. The Company has not experienced any impairment losses, has no future performance obligations and does not capitalize costs to obtain or fulfill contracts.

Note I ~~– Restructuring Costs~~

The Company has consolidated the Composites Group by relocating the Composite Panels Technologies division based in Salisbury, North Carolina to the Canadian Commercial Vehicle division located in Kelowna, British Columbia. There were no costs incurred related to the consolidation in the third quarter of 2019. Non-recurring costs for the third quarter and first nine months of 2019 were $1.0 million, which included the write off of inventory in the amount of $0.5 million, fixed assets in the amount of $0.3 million, moving costs in the amount of $0.1 million, severance in the amount of $0.1 million and lease termination costs. The Composites Group facility was closed in April of 2019.

During the second quarter of 2019, the Company discontinued the Velvac Road IQ development operations based in Bellingham, Washington. There were no costs related to the discontinuation in the third quarter of 2019. Non-recurring costs related to the discontinuation of this operation in the first nine months of 2019 were $3.7 million, which included the write-off of fixed assets in the amount of $0.2 million, inventory $0.6 million, intangible assets $2.4 million, severance $0.2 million, lease termination costs $0.3 million, and other non-recurring operating expenses. These costs were partially offset by the reversal of a $2.1 million contingent liability the Company established with the acquisition of Velvac in April of 2017 which was no longer applicable at September 28, 2019, resulting in a net charge to earnings of $1.6 million.

~~Note J~~ - Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction, and in various states and 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 ~~2014~~2015 and is no longer subject to non-U.S. income tax examinations by foreign tax authorities for years prior to ~~2012.~~2013.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The changes implemented in ASU 2019-12 include removing exceptions to incremental intraperiod tax allocation of losses and gains from different financial statement components, exceptions to the method of recognizing income taxes on interim period losses and exceptions to deferred tax liability recognition related to foreign subsidiary investments. In addition, ASU 2019-12 requires that entities recognize franchise tax based on an incremental method, requires an entity to evaluate the accounting for step-ups in the tax basis of goodwill as inside or outside of a business combination, and removes the requirement to allocate the current and deferred tax provision among entities in standalone financial statement reporting. The ASU also now requires that an entity reflect enacted changes in tax laws in the annual effective rate, and other codification adjustments have been made to employee stock ownership plans. For public business entities, the amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of ASU 2019-12 is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. The Company will adopt ASU 2019-12 in 2021.

On March 27, 2020, President Trump signed into law the $2 trillion bipartisan Coronavirus Aid, Relief, and Economic Security Act (H.R. 748) (“The CARES Act”). The CARES Act includes a variety of economic and tax relief measures intended to stimulate the economy, including loans for small businesses, payroll tax credits/deferrals, and corporate

income tax relief. We are analyzing the following components of the CARES Act to determine their effect on our income tax provision:

Net operating losses arising in 2018, 2019, and 2020 taxable years may be carried back to each of the preceding five years, which may result in refunds of prior period corporate income tax. The Company had taxable income in 2018 and 2019, thus we would only benefit from this item of CARES Act relief to the extent we incur a tax net operating loss in 2020 that can be carried back. As of March 28, 2020, a tax net operating loss is not expected for taxable year 2020. In addition, this item of CARES Act relief increased the positive evidence supporting utilization of our gross deferred tax assets due to available income in carryback years; this did not change our overall assessment as we do not have a valuation allowance recorded against our deferred tax assets.

Furthermore, for taxable years beginning before 2021, net operating loss carryforwards and carrybacks to that year may offset 100% of taxable income in the year. Previously, net operating losses generated through 2017 could offset 100% of taxable income, while losses generated after 2017 could only offset 80% of taxable income. The Company had taxable income in 2018 and 2019 and would carry back a loss generated in 2020 if applicable, leaving minimal opportunity to benefit from this item of CARES Act relief.

For taxable years beginning in 2019 and 2020, the interest deduction limitation is increased from 30% to 50% of “adjusted taxable income” (taxable income without interest, tax depreciation and tax amortization) plus interest income. Furthermore, the Company may choose to use the 2019 adjusted taxable income (instead of 2020) in determining the 2020 interest expense limitation. The Company was not subject to an interest limitation in 2019 and therefore expects to use the 2019 adjusted taxable income if needed to avoid or reduce an interest expense limitation in 2020.

A technical correction to the Tax Cuts and Jobs Act ~~(the “2017 Tax Act”)~~permits bonus depreciation and a 15-year straight-line recovery period on qualified improvement property placed in service after December 31, 2017. Prior to this technical correction, such property placed in service after 2017 was ~~enacted into law on December 22, 2017. The 2017 Tax~~subject to the 39-year straight-line recovery period and was ineligible for bonus depreciation. To the extent the Company has eligible improvements in 2020, the Company can claim bonus depreciation which would reduce taxes payable and increase the deferred tax liability for fixed assets.

Other CARES Act ~~significantly changed U.S.~~ corporate income tax ~~laws by, among other~~ provisions ~~reducing~~will not significantly impact the ~~maximum U.S. corporate income~~company, including alternative minimum tax ~~rate from 35% to 21%, effective~~refunds and increases in ~~2018, and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries. Pursuant to SAB118,~~ the ~~Company is allowed a measurement period of up to one year after the enactment date of the 2017 Tax Act to finalize the recording of the related tax impacts.~~ charitable contributions deduction limitation.

The Company ~~finalized its accounting for~~will also continue to assess the ~~2017 Tax Act during the fourth quarter~~effect of ~~2018, resulting in a deferred income~~state level tax ~~benefit of $507,847 related~~relief provisions as enacted, such as state net operating loss rule changes and conformity to the ~~re-measurement of deferred tax assets~~federal interest, depreciation and ~~liabilities to the new lower statutory rate of 21%.~~charitable contribution deduction changes.

The total amount of unrecognized tax benefits could increase or decrease within the next 12 months for ~~several~~a number of reasons, including the closure of federal, state and foreign tax years by ~~the~~ expiration of the statute of limitations and the recognition and measurement considerations under ~~ASU No. 2018-05, Income Taxes (“~~FASB ASC Topic ~~740”).~~740, “Income Taxes.” There have been no significant changes to the amount of unrecognized tax benefits during the ~~nine~~three months ended ~~September~~March 28, ~~2019.~~2020. The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits will not increase or decrease significantly over the next twelve months.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (“Topic 220”). ASU 2018-02 allows a company to elect a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 Tax Act. ASU 2018-02 is effective for periods beginning after December 15, 2018. Upon adoption of ASU 2018-02, the Company did not elect to reclassify the tax effects of the 2017 Tax Act from accumulated other comprehensive income to retained earnings.

Note KJ - Retirement Benefit Plans

The Company has non-contributory defined benefit pension plans covering most U.S. employees. Plan benefits are generally based upon age at retirement, years of service and, for ~~its~~the plan covering salaried ~~plan,~~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 ~~three~~first quarter of fiscal years 2020 and ~~nine months periods ended September 28,~~ 2019 ~~and September 29, 2018~~ are as follows:

	Pension Benefits																Pension Benefits						Postretirement Benefits
	Three Months Ended								Nine Months Ended								Three Months Ended						Three Months Ended
	September 28, 2019				September 29, 2018				September 28, 2019				September 29, 2018				March 28, 2020			March 30, 2019			March 28, 2020			March 30, 2019
Service cost		$	263,852			$	329,959			$	791,558			$	989,881		$	266,436		$	263,852		$	10,855		$	8,216
Interest cost			879,080				776,790				2,637,240				2,330,373			714,143			879,080			11,667			20,346
Expected return on plan assets			(1,190,329	)			(1,304,879	)			(3,570,990	)			(3,914,637	)		(1,365,261	)		(1,190,330	)		(5,589	)		(14,481	)
Amortization of prior service cost			24,845				32,691				74,535				98,072			24,845			24,845			(2,063	)		(1,268	)
Amortization of the net loss			290,548				277,528				871,647				832,584			325,034			290,549			(6,377	)		(20,507	)
Net periodic benefit cost		$	267,996			$	112,089			$	803,990			$	336,273

	Postretirement Benefits
	Three Months Ended								Nine Months Ended
	September 28, 2019				September 29, 2018				September 28, 2019				September 29, 2018
Service cost		$	8,533			$	9,256			$	24,965			$	27,768
Interest cost			1,874				19,290				42,566				57,871
Expected return on plan assets			7,938				(13,913	)			(21,025	)			(41,738	)
Gain on Significant Event			(227,071	)			--				(227,071	)			--
Amortization of prior service cost			(1,268	)			(1,268	)			(3,804	)			(3,804	)
Amortization of the net loss			5,560				(16,397	)			(35,454	)			(49,193	)
Net periodic benefit cost		$	(204,434	)		$	(3,032	)		$	(219,823	)		$	(9,096	)
Net periodic benefit cost (benefit)																	$	(34,803	)	$	267,996		$	8,493		$	(7,694	)

During 2019 the Company caused a significant event on its postretirement benefits which was derived from using proceeds of its insurance continuance fund to buy out life insurance contracts on its current retiree group as of June 30, 2019.

The ~~Company's~~Company’s funding policy ~~for~~with respect to its qualified plans is to contribute at least the minimum amount required by applicable laws and regulations. In ~~the~~ fiscal year ~~2019,~~2020, the Company expects to contribute ~~$600,000~~$2,690,000 into its pension plans and ~~$105,000~~$50,000 into its postretirement ~~plans.~~plan. As of ~~September 28, 2019,~~March 20, 2020, the Company has made contributions of ~~$286,000 to~~approximately $400,000 into its pension plans, ~~and~~ has contributed ~~$45,000~~$11,000 to its postretirement plan and will make the remaining contributions as required during the remainder of fiscal the ~~fiscal~~ year.

The Company has a contributory savings plan under Section 401(k) of the Internal Revenue Code (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 plan as follows:

	Three Months Ended				Nine Months Ended				For the Three Months Ended
	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018		March 28, 2020		March 30, 2019
Regular matching contribution	$	125,266	$	129,968	$	418,329	$	436,088	$	204,992	$	156,267
Transitional credit contribution		62,464		68,128		240,840		273,742		82,127		103,524
Non-discretionary contribution		17,390		17,715		622,519		558,547		567,657		587,041
Total contributions for the period	$	205,120	$	215,811	$	1,281,688	$	1,268,377
Total contributions made for the period									$	854,776	$	846,832

The non-discretionary contribution of ~~$565,748~~$550,286 made in the ~~nine~~three months ended ~~September~~March 28, ~~2019,~~2020 was accrued for and expensed in the prior fiscal year.

Note LK – Segment Information

Financial information by segment is as follows:

	Three Months Ended						Nine Months Ended						Three Months Ended
	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018			March 28, 2020			March 30, 2019
Revenues:
Sales to unaffiliated customers:
Industrial Hardware	$	39,427,301		$	34,210,857		$	115,321,597		$	106,621,484		$	47,236,605		$	38,403,343
Security Products		14,169,694			16,918,909			45,355,397			49,926,265			12,384,484			14,683,004
Metal Products		7,095,650			6,227,676			22,338,729			21,115,542			5,704,527			7,796,801
	$	60,692,645		$	57,357,442		$	183,015,723		$	177,663,291		$	65,325,616		$	60,883,148

Income before income taxes:
Industrial Hardware	$	3,419,052		$	1,832,203		$	6,369,647		$	7,116,732		$	3,458,893		$	1,268,140
Security Products		1,762,703			2,406,390			3,703,098			5,055,569			817,401			972,887
Metal Products		538,656			501,815			941,268			1,128,500			(415,023	)		93,281
Operating Profit		5,720,411			4,740,408			11,014,013			13,300,801			3,861,271			2,334,308
Interest expense		(420,377	)		(310,507	)		(974,536	)		(918,897	)		(827,664	)		(292,540	)
Other income		188,623			228,787			789,371			673,287			744,793			13,925
	$	5,488,657		$	4,658,688		$	10,828,848		$	13,055,191		$	3,778,400		$	2,055,693

Note ML - Recent Accounting Pronouncements

~~Adopted~~Upcoming

In ~~February 2016, the~~December 2019, FASB issued ASU ~~No. 2016-02, Leases (“Topic 842”).~~2019-12, Simplifying the Accounting for Income Tax. The changes implemented in ASU ~~2016-02~~2019-12 include removing exceptions to incremental intraperiod tax allocation of losses and gains from different financial statement components, exceptions to the method of recognizing income taxes on interim period losses and exceptions to deferred tax liability recognition related to foreign subsidiary investments. In addition, ASU 2019-12 requires ~~lessees~~that entities recognize franchise tax based on an incremental method, requires an entity to ~~present right-of-use assets and lease liabilities on~~evaluate the ~~balance sheet~~accounting for ~~all leases with terms longer than 12 months. The guidance is to be applied at the beginning of the earliest comparative period~~step-ups in the tax basis of goodwill as inside or outside of a business combination, and removes the requirement to allocate the current and deferred tax provision among entities in standalone financial ~~statements~~statement reporting. The ASU also now requires that an entity reflect enacted changes in tax laws in the annual effective rate, and isother codification adjustments have been made to employee stock ownership plans. For public business entities, the amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2018.~~2020. Early adoption ~~was permitted. In July 2018, the FASB issued~~of ASU ~~No. 2018-10, Codification Improvements~~2019-12 is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. The Company will adopt ASU 2019-12 in 2021. The adoption of this guidance is not expected to ~~Topic 842 - Leases. ASU 2018-10 clarifies and increases transparency and comparability among organizations by recognizing lease assets and lease liabilities~~have a material impact on the balance sheet and disclosing key information about leasing transactions. The guidance is to be applied upon adoption of Topic 842 and is effective for years beginning after December 15, 2018. Also in July 2018, the FASB issued ASU No. 2018-11, Leases. ASU 2018-11 provides clarification and an additional (and optional) transition method to adopt the new leases standard. The guidance is to be

applied upon adoption of Topic 842 and is effective for years beginning after December 15, 2018. In March 2019, the FASB issued ASU No. 2019-01, Leases (Topic 842): Codification Improvements. ASU No. 2019-01 aligns the new leases guidance with existing guidance for the fair valueconsolidated financial statements of the underlying asset by lessors that are not manufacturers or dealers and clarifies an exemption for lessors and lessees from a certain interim disclosure requirement associated with adopting the FASB’s new lease accounting standard. The guidance is to be applied upon adoption of Topic 842 and is effective for years beginning after December 15, 2018. See Note D – Right-of-Use Assets.Company.

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 NM - 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 ~~September~~March 28, ~~2019,~~2020, there was one significant concentration of credit risk with a customer ~~Ford Motor Company who~~that has receivables due of ~~$6,315,000~~$4,205,000 representing ~~14%~~11% of our total accounts receivable. As of December ~~29, 2018,~~28, 2019, there were no significant concentrations of credit risk. No single customer represented more than 10% of the Company’s net accounts receivable as of December ~~29, 2018.~~28, 2019. The maximum exposure to credit risk is primarily represented by the carrying amount of the Company’s accounts receivable.

Interest Rate Risk

The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s debt, which bears interest at variable rates based on the LIBOR rate plus a margin spread of 1.25% to 2.25%. The Company has an interest rate swap with a notional amount of ~~$50,000,000~~$49,375,000 on ~~September~~March 28, ~~2019,~~2020, to convert a portion ~~of its 2019~~the borrowing under the Credit Agreement from variable to fixed rates. The valuation of this swap is determined using the one month LIBOR rate index and mitigates the Company's exposure to interest rate risk. Additionally, interest rates on the Company's debt are susceptible to changes to the method that LIBOR rates are determined and to the potential phasing out of LIBOR after 2021. ~~More information regarding the~~The potential phasing out of LIBOR is discussed in greater detail in Note E—Debt hereof and under ~~Item 7~~the heading “The phase out of the ~~Company’s 2018 Form 10-K.~~London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different reference rate, may adversely affect interest rates” in Part I, Item 1A of the 2019 Annual Report.

Currency Exchange Rate Risk

The Company’s currency exposure is concentrated in the Canadian dollar, Mexican peso, New Taiwan dollar, Chinese RMB and the Hong Kong dollar. Because of the Company’s limited exposure to any single foreign market, any currency gains or losses have not been material and are not expected to be material in the future. As a result, the Company does not attempt to mitigate its foreign currency exposure through the acquisition of any speculative or leveraged financial instruments.

~~Note O – Business Combination~~

On August 30, 2019, the Company and its newly-formed wholly-owned subsidiary, Eastern Engineered Systems, Inc., a Delaware corporation (��EES” and with the Company, the “Company Parties”) entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Big 3 Holdings, LLC, a Delaware limited liability company (“Seller”), Big 3 Precision Mold Services, Inc., a Delaware corporation and wholly-owned Subsidiary of Seller (“Big 3 Mold”), and Big 3 Precision Products, Inc., a Delaware corporation and wholly owned Subsidiary of Seller (“Big 3 Products”), Industrial Design Innovations, LLC, a Delaware limited liability company and wholly-owned Subsidiary of Big 3 Products (“Design Innovations”), Sur-Form, LLC, a Delaware limited liability company and wholly-owned Subsidiary of Big 3 Products (“Sur-Form”), Associated Toolmakers Limited, a limited company formed under the laws of England and Wales and wholly-owned Subsidiary of Big 3 Mold (“Associated” and together with Big 3 Mold, Big 3 Products, Design Innovations and Sur-Form, collectively “Big 3 Precision”), TVV Capital Partners III, L.P., a Delaware limited partnership (“TVV III”), TVV Capital Partners III-A, L.P., a Delaware limited partnership (“TVV IIIA”), Alan Scheidt, (“Scheidt”), Todd Riley (“Riley”), Clinton Hyde (“Hyde,” and together with TVV-III, TVV-IIIA, Scheidt and Riley, the “Seller Owners”), and Big 3 Holdings, LLC, a Delaware limited liability company, as the initial Seller Representative (the “Seller Representative”). The Seller and the Seller Owners are collectively the “Selling Parties”. On August 30, 2019, pursuant to the Stock Purchase Agreement, the Company, through EES, acquired all of the outstanding equity interests of Big 3 Precision Products and Big 3 Mold Services, and indirectly through them, all of the outstanding equity interests in Design Innovation, Sur-Form and Associated, for an adjusted purchase cash price of $81.2 million. The acquisition was financed with a combination of $2.1 million of cash on hand, and a $100.0 million credit agreement (the “Credit Agreement”) with Santander Bank, N.A., for itself, People’s United Bank, N. A. and TD Bank, N.A. as lenders and a $20 million revolving credit line with lenders through a credit agreement (the “Credit Agreement”). In connection with the Credit Agreement, the Company also used its cash to repay the remaining balance (approximately $19.1 million) of its then outstanding term loan with People’s United N.A.

Through its two divisions, Big 3 Precision Products and Big 3 Precision Mold Services, Big 3 Precision serves diverse markets including truck, automotive, plastic packaging products, packaged consumer goods and pharmaceuticals. In particular, Big 3 Precision Products works with leading manufacturers to design and produce custom returnable packaging to integrate with their assembly processes. Big 3 Precision Mold Services is a global leader in the design and manufacture of blow mold tools.

~~At August 30, 2019:~~

Consideration
Cash
$
338,714

Debt
80,817,039

$
81,155,753

Recognized amounts of identifiable assets acquired and liabilities assumed
Accounts receivable
$
13,649,937

Inventory
3,240,382

Prepaid and other assets
32,268

Property plant and equipment
13,770,170

Other noncurrent assets
1,337,337

Other intangible assets
21,054,000

Current liabilities
(4,910,384
)
Deferred revenue
(1,585,709
)
Income tax payable
(2,039,117
)
Note payable
(375,379
)
Deferred tax liabilities
(7,114,732
)
Total identifiable net assets
37,058,773

Goodwill
44,096,980

$
81,155,753

~~Accounts Receivable~~

~~Acquired receivables are amounts due from customers, and are stated at net realizable value.~~

~~Inventories~~

~~The estimated fair value of inventories acquired, which is at net realizable value.~~

~~Property, Plant and Equipment~~

~~The property plant and equipment are estimated at net realizable value at the time of the acquisition.~~

~~Intangible Assets~~

The estimated fair value of identifiable intangible assets is determined primarily using the Income Approach method which is a valuation technique that provides an estimate of the fair value of an asset based on the market participant’s expectations of the cash flows that an asset would generate over its remaining useful life. Some of the more significant assumption inherent in the development of the identifiable intangible assets valuation, from the perspective of a market participant, include the estimate net cash flows for each year for each project or product, the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, competitive trends impacting the asset and each cash flow stream as well as other factors.

~~Goodwill Allocation~~

Goodwill of $44,096,980 arising from the acquisition consists of the difference between the consideration paid and the fair value of the assets and liabilities acquired. None of the goodwill recognized is expected to be deductible for income tax purposes.

~~Current Liabilities~~

~~Acquired current liabilities are amounts owed to vendors or accrued expenses.~~

~~Deferred Revenue~~

~~Deferred revenue is the amount of customers deposits at the time of the acquisition.~~

~~Income taxes~~

~~Income taxes are the estimated amount of state and federal taxes to settle certain tax positions prior to the acquisition.~~

~~Deferred Tax Liability~~

~~The deferred tax liability is stated at estimated tax liability due to the difference in the book basis of assets compared to the tax basis of those assets at the time of acquisition.~~

~~Acquisition Related Expenses~~

Included in general and administrative expenses in the consolidated statements of operations for the three and nine month periods ended September 28, 2019 were $765,000 and $1,184,000, respectively, for acquisition expenses.

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to highlight significant changes in the ~~Company’s~~ financial position and results of operations of The Eastern Company (together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) for the quarter ~~and nine months~~ ended ~~September~~March 28, ~~2019.~~2020. The interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal year ended December ~~29, 2018~~28, 2019 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company’s ~~2018~~2019 Form 10-K, which was filed with the SEC on March ~~14, 2019~~5, 2020 (the ~~“2018~~“2019 Form 10-K”).

The Company’s fiscal year is a 52-53-week fiscal year ending on the Saturday nearest to December 31. References to fiscal 2019 or the 2019 fiscal year mean the 52-week period ended on December 28, 2019 and references to fiscal 2020 or the 2020 fiscal year mean the 53-week period ending on January 2, 2021. In a 52-week fiscal year, each quarter is 13 weeks long. In a 53 week fiscal year, each of the first two fiscal quarters and the fourth quarter are 13 weeks long, and the third fiscal quarter is 14 weeks long. References to the first quarter of fiscal 2019, the first fiscal quarter of 2020 or the three months ended March 30, 2019 mean the 13-week period from December 30, 2018 to March 30, 2019. References to the first quarter of fiscal 2020, the first fiscal quarter of 2020 or the three months ended March 28, 2020 mean the 13-week period from December 29, 2019 to March 28, 2020.

Safe Harbor for Forward-Looking Statements

~~Certain statements set forth~~Statements contained in this ~~discussion and analysis of financial condition and results of operations~~Quarterly Report on Form 10-Q that are ~~forward-looking statements~~not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of ~~1995~~1995. Forward-looking statements may be identified by the use of forward-looking terminology such as “should,” “could,” “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or similar terms or variations of those terms or the negative of those terms. There are many factors that affect the Company’s business and the ~~rules, regulation~~results of its operations and ~~releases~~that may cause the actual results of the Securities and Exchange Commission (the "SEC"). Any statement that is not historical fact, including statements containing such words as "may," "will," "could," "expects," "intends," "believes," "plans," "anticipates," "estimated," or similar expressions should be considered forward-looking statements. Readers should not place undue influence on these statements which, reflect management's current expectations regardingoperations in future ~~events and operating performance and are made only as of the date of this Quarterly Report on Form 10-Q. These forward-looking statements are subject~~periods to ~~risks and uncertainties, and actual future results and trends might~~ differ materially from those ~~discussed~~currently expected or anticipated. These factors include, but are not limited to: effects of the COVID-19 pandemic and the measures being taken to limit the spread of COVID-19, including supply chain disruptions, delays in ~~or implied by,~~delivery of our products to our customers, impact on demand for our products, reductions in production levels, increased costs, including costs of raw materials, the ~~forward-looking statements.~~

~~The~~impact on global economic conditions, and the availability, terms and cost of financing, including borrowings under the Credit Agreement; risks and uncertainties that could cause actual results to differ from those described in the forward-looking statements depend on a variety of factors, including changing customer preferences, lack of success of new products, loss of customers, competition, increased raw material prices, tariffs, including the anticipated tariff on Chinese products in 2019 as proposed by the U.S. Trade Representative, problems associated with doing business overseas, including fluctuations in exchange rates and the inability to repatriate foreign ~~sourcing~~cash, the impact on cost structure and on economic conditions as a result of ~~parts~~actual and ~~products, changes within the Company’s industry segments and~~threatened increases in ~~the overall economy, litigation, legislation~~trade tariffs and the impact of political, economic and social instability; restrictions on operating flexibility imposed by the agreement governing our credit facility; the inability to achieve the savings expected from global sourcing of materials; the impact of higher raw material and component costs, particularly steel, plastics, scrap iron, zinc, copper and electronic components; lower-cost competition; our ability to design, introduce and sell new products and related components; market acceptance of our products; the inability to attain expected benefits from acquisitions or the inability to effectively integrate such acquisitions and ~~related integration. In addition,~~achieve expected synergies; domestic and international economic conditions, including the impact, length and degree of economic downturns on the customers and markets we serve and more specifically conditions in the automotive, construction, aerospace, energy, oil and gas, transportation, electronic, commercial laundry, mining and general industrial markets; costs and liabilities associated with environmental compliance; the impact of climate change or terrorist threats and the possible responses by the U.S. and foreign ~~governments, the effects on consumer demand, the financial markets, the travel industry, the trucking industry~~governments; failure to protect our intellectual property; cyberattacks; and ~~other conditions increase the uncertainty inherent in forward-looking statements.~~

~~There are important, additional factors that could cause actual results~~materially adverse or ~~events to differ materially from those indicated by such forward-looking statements, including the factors described in the 2018 Form 10-K.~~unanticipated legal judgments, fines, penalties or settlements. Although the Company believes it has an appropriate business strategy and the resources necessary for its operations, future revenue and margin trends cannot be reliably predicted and the Company may alter its business strategies to address changing conditions.

The Company undertakes no obligation to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events, or otherwise.

~~In addition,~~ Also, the Company makes estimates and assumptions that may materially affect reported amounts and disclosures. These relate to valuation allowances for accounts receivable and excess and obsolete inventories, accruals for pensions and other postretirement benefits (including forecasted future cost increases and returns on plan assets), provisions for depreciation (estimating useful lives), uncertain tax positions, and, on occasion, accruals for contingent losses. The Company undertakes no obligation to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events, or otherwise.

Overview

~~On August 30,~~COVID-19 update

As of March 2020, there have been significant impacts to the Company’s operations due to the COVID-19 pandemic and actions taken to slow the spread of COVID-19, and we expect those impacts to continue for some time.

Across the Company, we have implemented a broad range of policies and procedures to ensure that employees at all of our locations remain healthy. We listened to and learned a great deal from our colleagues in China, who began feeling the impact of COVID-19 in late 2019, and took early-on decisive action across our North American operations, accordingly. Steps that we have taken to reduce COVID-19 risk to our employees include, among others: implementing social distancing measures, staggering staff and shifts, enabling work from home for as many employees as possible, and implementing an enhanced cleaning program across all sites. We are advising our employees on the importance of wearing facemasks to reduce the spread COVID-19. As government authorities implement restrictions on commercial operations, we continue to ensure compliance with these directives in order to maintaining business continuity for our essential operations. We continue to seek and implement additional methods to further reduce COVID-19 risk to our employees.

The Company has operations in Shanghai and Dongguan China that have been impacted by COVID-19. The virus led to a chain of events that interfered with our ability, and the ability of certain suppliers of ours, to conduct business. We source approximately 15% of our products and components from China. As a result of government mandated shutdowns at our facilities, and those of certain suppliers, in China, many of the products that we have ordered have been delayed by approximately four to six weeks, which has resulted in and is likely to continue to result in a comparable delay in our product shipments to our customers through May 2020. By mid-March 2020, COVID-19 had begun to spread across the United States, which precipitated the closure by government authorities of non-essential businesses. The majority of our businesses are deemed essential and have accordingly remained open, albeit at reduced levels. Many of our customers operating in both automotive/transportation and non-automotive/transportation markets experienced varying degrees of shutdowns beginning in the last week of March, and are, on a case-by-case basis, tentatively expected to begin reopening as soon as May 4, 2020. We estimate the adverse financial impact of COVID-19 on our first quarter operating profit to be an approximate $0.6 million reduction net of tax. The broader economic fallout caused by COVID-19 may result in unfavorable operating earnings and cash flow generation in the months to follow.

Any sustained delays or disruptions in our supply chain and operations in China, and any ongoing shutdowns of the operations of our customers would continue to have a negative effect on demand for our products and our ability to fulfill orders on a timely basis or at all, which in turn would adversely affect our financial condition, results of operations and cash flow. In addition, the broader economic fallout caused by COVID-19 may result in unfavorable operating earnings and cash flow generation in the months to follow, including as a result of decreased consumer demand for our and our customers’ products. The extent of the pandemic’s effect on our operational and financial performance will depend in large part on future developments, which cannot be predicted with confidence at this time. Future developments include the duration, scope and severity of the pandemic, actions that may continue to be taken to contain or mitigate its impact, such as the extent of restrictions on gatherings and travel, the impact on governmental programs and budgets, the development of treatments or vaccines, and the resumption of widespread economic activity. Although the inherent uncertainty of the unprecedented and rapidly evolving crisis makes it difficult to predict with any confidence the likely impact of the COVID-19 pandemic on our future operations, the COVID-19 pandemic could have a material adverse impact on our consolidated business, results of operations and financial condition. For a discussion of certain COVID-19-related risks, see Part II, Item 1A – Risk Factors of this Form 10-Q.

Net sales in the first quarter of 2020 increased 7% to $65.3 million from $60.9 million in the prior year period. Sales growth includes the impact of the acquisition of certain subsidiaries of Big 3 Holdings LLC (collectively, Big 3 Precision), which the Company acquired 100% of the outstanding shares of Big 3 Precision for an adjusted purchase price of $81.2 million. Among the primary reasons why the Company entered into the acquisition with Big 3 Precision, and the factors that contributed to a purchase price resulting in the recognition of goodwill, were Big 3 Precision’s history of operating margins and profitability, cash flow, and sales growth over the past 5 years. Big 3 Precision Products and Big 3 Precision Mold Services, Big 3 Precision serves diverse markets including truck, automotive, plastic packaging products, packaged consumer goods and pharmaceuticals. In particular, Big 3 Products works with leading manufacturers to design and produce custom returnable packaging to integrate with their assembly processes. Big 3 Mold is a global leader in the design and manufacture of blow mold tools. The acquisition was financed with a combination of $2.1 million of cash on hand and a $100.0 million credit agreement with Santander Bank, N.A., for itself, People’s United Bank, N.A. and TD Bank, N.A. as lenders that included a $20 million revolving credit line with lenders through a credit the Credit Agreement. In connection with the Credit Agreement, the Company also used its cash to repay the remaining balance (approximately $19.1 million) of its then outstanding term loan with People’s United Bank, N.A.

~~Net sales in the third quarter of 2019 increased 6% to $60.7 million as compared to $57.4 million in the third quarter of 2018. Net sales~~August 30, 2019. Sales increased in the Industrial Hardware ~~Segment~~segment by ~~15%~~23% to $47.2 million in the ~~third~~first quarter of 2020 from $38.4 million in the first quarter of 2019. Excluding Big 3 Precision, sales decreased 11% in the Industrial Hardware segment first quarter of 2020 compared to sales in the first quarter of 2019, ~~as compared~~due to ~~net~~lower sales to distribution, Class 8 truck, recreational vehicles, and aftermarket truck replacement part. Increased sales into the specialty vehicle, off-highway and military markets were insufficient to offset declines in the ~~third quarter of 2018 as a result of strong sales growth in Class 8 trucks, distribution and specialty vehicle~~aforementioned markets in ~~addition~~the second half of March when certain of our customers closed their operations due to actions taken to help stop the ~~acquisition~~spread of ~~Big 3 Precision. Net sales decreased~~COVID-19. Sales in the Security Products ~~Segment by~~segment decreased 16% in the ~~third~~first quarter of 2020 compared to the first quarter of 2019, due to lower demand across the majority of the markets we serve including distribution, industrial, vehicular accessories and commercial laundry, as ~~compared to net~~well as a loss of supply contracts for

mechatronic padlock systems and recreational vehicles door latches, which generated sales in the ~~third~~first quarter of ~~2018.~~2019, that did not recur in 2020. Sales ~~from~~in the ~~Load N Lock business~~Metal Products segment decreased 27% in the first quarter of 2020, compared to sales in the first quarter of 2019. Sales of mining products decreased 21%, and sales of industrial casting products decreased 35%, in the first quarter of 2020 compared to the first quarter of 2019. Mining sales in the first quarter were impacted by a combination of growing renewable energy capacity, extremely low natural gas prices and unusually warm weather in the first quarter, which ~~was acquired~~led utilities to cut back on coal usage. Sales of industrial castings in ~~June 2018 partially offset~~ the impact of lower demand for commercial laundry products, a decline in our point of sale security products, the termination of a supply contract with a customer to manufacture mechatronic padlock systems for cellphone tower security access applications andfirst quarter were negatively impacted by the loss of a customer ~~servicing~~who temporarily sourced products from us due to a fire at its facility in 2018, which temporarily shut down production of products that would otherwise have been sourced internally. In addition, sales were negatively impacted due to the ~~recreational vehicles market.~~ completion of contract from a customer serving the transit industry.

Net sales of existing products increased in the ~~Metal Products Segment~~first quarter by ~~14%~~5% and price increases and new products effected 2% increase in ~~the third quarter of 2019 as compared to~~ net sales in the third quarter of 2018 as a result of a 20% increase in sales to mining product customers and an increase of 3% in sales to industrial casting customers, as compared to sales to these customers in the third quarter of 2018.

Total sales volume in the third quarter of 2019 decreased by 2%, while new products contributed 6%, as compared to the third quarter of 2018. A net sales volume decline in the Security Products Segment, a decline in the Recreational Vehicle market, in addition to a decline in our composite panels business more than offset the addition of one month of sales related to the acquisition of Big 3 Precision.2020 period. New products included a ~~hood~~handle and finger pull assembly, emergency door latch, mount ~~truck mirror, a molded toolbox latching system for pickup trucks, an electronic switch~~plate latch, top mount power lock ~~a key~~module, crossbar lock ~~for the storage industry and a canopy lock~~ assembly ~~for the vehicle industry~~ and various industrial castings for the ~~agricultural market.~~water and gas industries.

~~Net sales~~Cost of products sold in the first ~~nine months~~quarter of ~~2019~~2020 increased ~~$5.4~~$3.6 million, or ~~3% compared to net sales in the first nine months of 2018. Sales volume of existing products decreased by 3% while sales of new products increased by 5% in the first nine months of 2019 as~~8% compared to the first ~~nine months~~quarter of ~~2018. Net sales increased in~~2019. The primary reason for the ~~Industrial Hardware Segment and~~increase is due to the ~~Metal Products Segment by 8% and 6% respectively and decreased in the Security Product Segment by 9%~~inclusion of Big 3 Precision in the first ~~nine months of 2019 as compared to the corresponding period in 2018.~~

~~Cost of products sold in the third~~ quarter of ~~2019 increased by $2.6 million or 6% as compared to the third quarter of 2018. The increase in~~2020. Excluding Big 3 Precision, cost of products sold ~~for~~would have decreased by 14%, reflecting the ~~third quarter of 2019 reflects the mix of products sold, increased~~decrease in sales. Material costs ~~due to additional~~decreased by $6.3 million on lower sales volume and lower material costs incurred in producing ~~the~~a new Class 8 truck mirror program that was awarded to us in 2018. The Company has been actively re-sourcing higher components cost items to more cost competitive suppliers and working through the Production Part Approval Process (“PPAP”), which was completed at the end of October2019. Not all required components for the truck mirror programWe have been ~~approved for alternate suppliers who offer~~successful in securing more favorable ~~pricing. The increase in cost~~pricing from new suppliers on all of ~~products sold in~~ the ~~third quarter of 2019 was partially offset by a decrease in raw material prices. The Company experienced $0.9 million in tariff-related costs~~components related to this program, which has enabled us to realize comparatively higher margins on China-sourced products in the third quarter of 2019 which were not incurred in the third quarter of 2018. Raw material pricing declined by 13% for hot rolled steel, 3% for cold-rolled steel, 24% for scrap iron, 5% for copper and 18% for zinc in the third quarter of 2019 as compared to the third quarter of 2018.

~~Cost of~~ products sold in the first ~~nine months~~quarter of ~~2019 increased by $5.6 million or 4% as~~2020 compared to those sold in the first nine months of 2018. Material costs increased by $2.2 million reflecting higher sales volume and higher material costs incurred in producing the new Class 8 truck mirror that was awarded in 2018. We expect to see improved margins on the product during the fourth quarter of 2019. ~~Further~~In addition, raw material costs have decreased year-over-year, hot-rolled steel decreased 16%, cold-rolled steel decreased 7%, aluminum decreased 11%, and copper and zinc and scrap iron decreased 7%, 17%, and 17%, respectively. Also, favorably impacting the first ~~nine months of 2019 were increase~~quarter was lower freight ~~costs~~cost of $0.6 million, ~~or 12% compared~~a 33% reduction over the first quarter of 2019, due to the ~~first nine months~~elimination of ~~2018 due to slow down at the Port of Long Beach, California,~~certain supplier quality issues and expedited shipping ~~expenses.~~costs. Lower production levels resulted in the under-absorption of operating ~~cost~~costs in the amount of ~~$0.5~~$0.3 million ~~not being fully absorbed~~ during the first ~~nine months~~quarter of ~~2019 as~~2020 compared to the first ~~nine months of 2018. The Company~~quarter in 2019.

Finally, the company experienced tariff costs ~~of $1.5 million~~ on China-sourced products of approximately $1.4 million in the first ~~nine months~~quarter of ~~2019 that were not~~2020 compared to $0.2 million incurred in the ~~comparable period~~first quarter of ~~2018. The majority~~2019, all of ~~the tariff costs~~which have been recovered through price increases. ~~Raw material prices decreased by 16% for hot rolled steel, 13% for zinc, 6% for copper and 14% for scrap iron during~~

Gross margin as a percent of sales was 22% in the first ~~nine months 2019 as~~quarter of 2020 compared to 23% in the first quarter of 2019.

Product development expense decreased $1.5 million, or 65%, in the first quarter of 2020 compared to the first ~~nine months of 2018.~~

~~Gross margin as a percent of net sales in the third~~ quarter of ~~2019 and the third quarter of 2018 was 25%. Gross margin as a percent of net sales~~2019. The reduction in ~~the first nine months of 2019 and the first nine months of 2018 was 24%.~~

~~Product development expenses decreased by $1.2 million or 59% in the third quarter of 2019 as compared to the third quarter of 2018. The majority of the decrease~~this expense relates to the closure of the Velvac ~~Road IQ~~Road-iQ development ~~operations. Product~~operation in Bellingham, Washington, which took place in the second quarter of 2019, a strategic decision that we made to adopt a leaner approach to the development ~~expenses~~of new vision products.

Selling and administrative expense increased $1.6 million, or 19%, in the first ~~nine months~~quarter of ~~2019 increased by $0.2 million or 3%~~2020 compared to the first nine months of 2018. The increase relates to several Class 8 truck mirror programs, a mobile app payment system for commercial laundry, a blue tooth lock and various new product launches in our Security Products Segment.

~~Selling and administration expenses increased by $0.9 million or 12% in the third~~ quarter of 2019, ~~compared to the third quarter of 2018,~~ primarily as a result of ~~an increase in payroll and payroll-related expenses, acquisition expenses of $0.8 million and increased amortization expense related to~~ the ~~acquisition~~inclusion of Big 3 ~~Precision. Selling~~Precision in the 2020 period. Excluding Big 3 Precision, selling and ~~administration expenses~~administrative expense in the first ~~nine months~~quarter of ~~2019~~2020 would have decreased by ~~$0.7~~$0.5 million, or ~~3% as compared to~~6%, from the first ~~nine months~~quarter of ~~2018 as a result of~~2019. The most significant factor contributing to this reduction was a decrease in payroll and ~~payroll-related expenses. Offsetting~~payroll related costs of $0.3 million.

We incurred no restructuring costs during the ~~decrease was acquisition expenses~~first quarter of ~~$1.2~~2020 compared to restructuring costs of $0.8 million ~~an increase in amortization expenses~~during the first quarter of 2019, which were related to the consolidation of our Salisbury, North Carolina composite panel business into our Canadian composite panel business in Kelowna, British Columbia. Costs incurred related to the write off of inventory and fixed assets, moving, severance and the termination of a lease.

Interest expense increased $0.5 million in the first quarter of 2020 compared to the first quarter of 2019 as a result of increased debt related to our acquisition of Big 3 Precision ~~and the inclusion of~~
~~Big 3 Precision selling and administration expenses.~~

~~The Company has consolidated the Composites Group by relocating the Composite Panels Technologies division based~~ in Salisbury, North Carolina to the Canadian Commercial Vehicle division located in Kelowna, British Columbia. There were no costs incurred related to the consolidation in the third quarter of 2019. Non-recurring costs for the third quarter and first nine months of 2019 were $1.0 million, which included the write off of inventory in the amount of $0.5 million, fixed assets in the amount of $0.3 million, moving costs in the amount of $0.1 million, severance in the amount of $0.1 million and lease termination costs. The Composites Group facility was closed in AprilAugust of 2019.

Other income increased $0.7 million in the first quarter of 2020 compared to the first quarter of 2019 due to a favorable return on our pension plan assets and a onetime sale-leaseback transaction gain.

Net income for the first quarter of 2020 increased to $2.9 million, or $0.46 per diluted share, from $1.6 million, or $0.25 per diluted share, for the comparable period in 2019. During the ~~second~~first quarter of 2019, the Company ~~discontinued the Velvac Road IQ development operations based in Bellingham, Washington. There were no~~had significant non-recurring restructuring costs of $0.8 million, as well as project startup costs related to the ~~discontinuation in the third quarter of 2019. Non-recurring costs related~~new Class 8 truck mirror program awarded to the discontinuation of this operation in the first nine months of 2019 were $3.7 million, which included the write-off of fixed assets in the amount of $0.2 million, inventory $0.6 million, intangible assets $2.4 million, severance $0.2 million, lease termination costs $0.3 million, and other non-recurring operating expenses. These costs were partially offset by the reversal of a $2.1 million contingent liability the Company established with the acquisition ofour Velvac ~~in April of 2017 which was no longer applicable at September 28, 2019, resulting in a net charge to earnings of $1.6 million.~~

Interest expense increased by $0.1 million or 35% in the third quarter of 2019 as compared to the third quarter of 2018 and increased $0.1 million or 6% in the first nine months of 2019 as compared to the first nine months of 2018. The increase is the result of new debt incurred for the acquisition of Big 3 Precision.

Other income decreased by 18% in the third quarter of 2019 compared to the third quarter of 2018 primarily due to a decrease in postretirement benefits of $0.2 million caused by a gain from the buyout of retiree life insurance policies. Other income increased by 17% in the first nine months of 2019 compared to the first nine months of 2018 primarily due to the sale of land at the Company’s headquarters location, which resulted in a gain of $0.6 million.

Net Income for the third quarter of 2019 increased to $4.2 million, or $0.67 per diluted share, from $3.8 million, or $0.60 per diluted share, for the third quarter of 2018. Net Income for the first nine months of 2019 decreased to $8.3 million, or $1.33 per diluted share, from $10.1 million, or $1.61 per diluted share, for the first nine months of 2018. Net income for the nine months ended September 28, 2019, was affected by non-recurring restructuring costs of $2.0 million, net of tax, incurred in the nine months of 2019.subsidiary.

A more detailed analysis of the Company’s results of operations and financial condition ~~is provided below.~~follows:

Results of Operations

The following table ~~displays~~shows, for the periods indicated, selected line items from the condensed consolidated statements of operations as a percentage of net sales, by segment for the ~~periods~~period indicated:

Three Months Ended September 28, 2019

Industrial Security Metal
Hardware Products Products Total
Net sales
100.0
%

100.0
%

100.0
%

100.0
%
Cost of products sold
76.1
%

67.8
%

86.6
%

75.4
%
Gross margin
23.9
%

32.2
%

13.4
%

24.6
%

Product development expense
0.4
%

4.7
%

—

1.4
%
Selling and administrative expense
14.8
%

15.2
%

5.8
%

13.8
%

Operating profit
8.7
%

12.3
%

7.6
%

9.4
%

	Three Months Ended March 28, 2020
	Industrial			Security			Metal
	Hardware			Products			Products			Total
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of products sold		77.4	%		68.9	%		97.6	%		77.6	%
Gross margin		22.6	%		31.1	%		2.4	%		22.4	%

Product development expense	0.2	%	5.5	%	—		1.2	%
Selling and administrative expense	15.1	%	19.0	%	9.7	%	15.3	%
Restructuring cost	—		—		—		—
Operating profit	7.3	%	6.6	%	-7.3	%	5.9	%

	Three Months Ended September 29, 2018												Three Months Ended March 30, 2019
	Industrial			Security			Metal						Industrial			Security			Metal
	Hardware			Products			Products			Total			Hardware			Products			Products			Total
Net sales		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of products sold		77.4	%		68.0	%		83.1	%		75.2	%		76.9	%		70.9	%		91.3	%		78.7	%
Gross margin		22.6	%		32.0	%		16.9	%		24.8	%		23.1	%		29.1	%		8.7	%		22.7	%

Product development expense		4.3	%		3.0	%		—			3.5	%		4.2	%		4.3	%		—			3.7	%
Selling and administrative expense		12.9	%		14.8	%		8.8	%		13.0	%		13.4	%		18.1	%		7.5	%		13.8	%
Restructuring cost														2.2	%								1.4	%
Operating profit		5.4	%		14.2	%		8.1	%		8.3	%		3.3	%		6.7	%		1.2	%		3.8	%

The following table ~~displays~~shows the change in ~~net sales and operating profit by segment for the third quarter of 2019 compared to the third quarter of 2018 (dollars in thousands):~~

Industrial Security Metal
Hardware Products Products Total
Net sales $ 5,216 $ (2,749 ) $ 868 $ 3,335

         Volume
5.8
%

-20.2
%

3.9
%

-2.0
%
         Prices
1.8
%

2.5
%

2.3
%

2.1
%
         New products
7.6
%

1.5
%

7.7
%

5.8
%

15.2
%

-16.2
%

13.9
%

5.9
%

Operating profit $ 1,586 $ (643 ) $ 37 $ 980

86.6
%

-26.7
%

7.3
%

20.7
%

~~The following table displays selected line items from the condensed consolidated statements of operations as a percentage of net sales, by segment, for the periods indicated:~~

Nine Months Ended September 28, 2019
Industrial Security Metal
Hardware Products Products Total
Net sales
100.0
%

100.0
%

100.0
%

100.0
%
Cost of products sold
76.4
%

69.0
%

88.7
%

76.1
%
Gross margin
23.6
%

31.0
%

11.3
%

23.9
%

Product development expense
2.9
%

4.2
%

—

2.9
%
Selling and administrative expense
13.7
%

16.6
%

7.1
%

13.6
%
Restructuring costs
1.5
%

2.0
%

1.4
%
Operating profit
5.5
%

8.2
%

4.2
%

6.0
%

Nine Months Ended September 29, 2018
Industrial Security Metal
Hardware Products Products Total
Net sales
100.0
%

100.0
%

100.0
%

100.0
%
Cost of products sold
75.8
%

69.7
%

85.5
%

75.2
%
Gross margin
24.2
%

30.3
%

14.5
%

24.8
%

Product development expense
3.4
%

3.0
%

—

2.9
%
Selling and administrative expense
14.1
%

17.2
%

9.1
%

14.4
%
Operating profit
6.7
%

10.1
%

5.4
%

7.5
%

~~The following table displays the change in net~~ sales and operating profit by segment for the first ~~nine months~~quarter of ~~2019~~2020 compared to the first ~~nine months~~quarter of ~~2018~~2019 (dollars in thousands):

	Industrial			Security			Metal						Industrial			Security			Metal
	Hardware			Products			Products			Total			Hardware			Products			Products			Total
Net sales	$	8,700		$	(4,571	)	$	1,223		$	5,352		$	8,833		$	(2,299	)	$	(2,092	)	$	4,442

Volume		1.5	%		-11.4	%		-4.4	%		-2.9	%		20.9	%		-17.0	%		-30.2	%		5.2	%
Prices		0.5	%		1.2	%		2.1	%		0.9	%		1.1	%		1.0	%		0.7	%		1.0	%
New products		6.2	%		1.0	%		8.1	%		5.0	%		1.0	%		0.4	%		2.6	%		1.1	%
		8.2	%		-9.2	%		5.8	%		3.0	%		23.0	%		-15.6	%		-26.9	%		7.3	%

Operating profit	$	(747	)	$	(1,353	)	$	(187	)	$	(2,287	)	$	2,191		$	(156	)	$	(508	)	$	1,527
		-1.2	%		-2.0	%		-1.1	%		-17.3	%		172.7	%		-16.0	%		-544.9	%		65.4	%

2221

Industrial Hardware Segment

Net sales in the Industrial Hardware ~~Segment~~segment increased ~~by 15% in the third quarter and 8%~~23% in the first ~~nine months~~quarter of ~~2019 as~~2020 compared to the ~~corresponding periods~~first quarter of ~~2018. The acquisition~~2019. Sales increased due to the inclusion of Big 3 Precision ~~accounted for an increase in net sales of 14%~~ in the ~~third quarter and 4%~~2020 period. Excluding Big 3 Precision, sales would have decreased 11%. Increased sales in the ~~first nine months of 2019 as compared~~specialty vehicle, military, and off-highway markets were not sufficient to ~~the corresponding periods of 2018. Net~~offset sales ~~increased~~reduction in the distribution, Class 8 truck, ~~distribution~~recreational vehicle, and ~~specialty vehicles markets.~~aftermarket truck parts markets in the second half of March when certain of our customers closed operations due to actions taken to help stop the spread of COVID-19. Excluding Big 3 Precision, net sales decreased 13%, which was offset by price increases and sales of new products contributing 2% in the 2020 period. New products ~~sales contributed 8% in the third quarter~~include a handle and ~~6% in the first nine months of 2019 as compared to the corresponding periods of 2018. New products included a Class 8 hood mount mirror, mini rotary with adapter, a vent~~finger pull assembly, ~~for Class 8 trucks,~~emergency door latch and a ~~molded toolbox latching system for pickup trucks.~~mount plate latch.

Cost of products sold increased ~~by 13% in the third quarter and 9%~~23% in the first ~~nine months of 2019, as compared to the corresponding periods of 2018. Material costs increased by $1.7 million or 9% in the third~~ quarter of ~~2019 as compared to the third quarter of 2019 and increased by $4.7 million or 8% in the first nine months of 2019~~2020 as compared to the first ~~nine months~~quarter of ~~2018. The increase is~~2019. Excluding Big 3 Precision, cost of products sold would have decreased by 11% compared to the ~~result~~first quarter of ~~higher~~2019. Material costs decreased $3.4 million due to lower sales volume and ~~higher~~lower material costs incurred in producing ~~the~~a new Class 8 truck mirror that was awarded in 2018. ~~The Company has~~Many of the components sourced during the first quarter of 2019 were at higher than normal material costs. As of the first quarter of 2020, all components have been ~~actively re-sourcing higher components cost items~~sourced to more ~~cost–competitive~~favorable suppliers and ~~working through~~costs have normalized. Also impacting the ~~Production Part Approval Process (“PPAP”)~~first quarter were more favorable freight costs, which ~~will be completed by~~were down $0.6 million in the ~~end of October 2019. We expect to see improved margins on the new Class 8 truck mirror during the fourth~~first quarter of ~~2019. Further impacting the third quarter and first nine months of 2019 was an increase in freight costs of $0.2 million or 17% and $0.5 million or 12%, respectively, as~~2020 compared to the ~~third~~first quarter and the first nine months of 2018 due to slow down at the Port of Long Beach, California. The Company experienced tariff costs of $0.5 and $1.0 million for the third quarter and first nine months of 2019, respectively, on China-sourced products that were not incurred in the comparable periods of 2018. The majority of the tariff costs have been recovered through price increases. Costs of products sold also increased for the third quarter and first nine months of 2019 due to ~~the inclusion of~~non-recurring expedited shipping costs. Payroll and payroll-related costs ~~related~~decreased $0.3 million offset by $0.3 million due to the ~~acquisition~~under absorption of ~~Big 3 Precision, which were not included~~operating costs. Finally, we experienced tariff costs on China-sourced products of approximately $0.8 million compared to $0.2 million in the ~~comparable periods~~first quarter of ~~2018.~~2019.

Gross margin as a percentage of net sales ~~was 24%~~ in the ~~third~~first quarter of 2020 was comparable to the first quarter of 2019 ~~as compared to~~of 23% ~~in the third quarter of 2018. Gross margin as a percentage of net sales was 24% in the first nine months of 2019 and in the first nine months of 2018.~~.

Product development expense ~~as a percentage of net sales was less than 1% in the third quarter of 2019 and 3%~~decreased by $1.5 million in the first ~~nine months of 2019 as~~quarter 2020 compared to 4%the first quarter in ~~the corresponding periods of 2018. The decrease in the~~ 2019 ~~periods~~due primarily ~~reflects~~to the closure of the Velvac ~~Road IQ~~Road-iQ development ~~operations.~~

~~Restructuring costs~~ ~~incurred~~operation in Bellingham, Washington in the second quarter of 2019, as we adopted a leaner approach to the development of new vision products.

We incurred no restructuring costs during the first quarter of 2020 compared to restructuring costs of $0.8 million during the first quarter of 2019, which were related to the ~~discontinuation~~consolidation of our Salisbury, North Carolina composite panel business into our Canadian composite panel business in Kelowna, British Columbia. Costs incurred related to the ~~Velvac Road IQ development operations based in Bellingham, Washington. There were no costs recorded in the third quarter~~write off of ~~2019. Non-recurring costs recorded in the first nine months of 2019 were $3.7 million in total, which included the write-off of~~inventory and fixed assets, ~~inventory, intangible assets,~~moving, severance ~~lease~~and the termination ~~costs, and other non-recurring operating expenses. These costs were partially offset by the reversal~~ of a ~~$2.1 million contingent liability the Company established with the acquisition of Velvac in April of 2017, resulting in a net write-off of $1.6 million in the second quarter of 2019.~~lease.

Selling and administrative ~~expenses~~expense increased by 32% in the third quarter of 2019 as compared to the third quarter of 2018, primarily as a result of an increase in payroll and payroll-related expenses and the acquisition of Big 3 Precision. Selling and administrative expenses increased by 5%38% in the first ~~nine months~~quarter of ~~2019~~2020 compared to the first ~~nine months~~quarter of ~~2018~~2019 due primarily to ~~lower payroll and payroll related cost offset by~~ the inclusion of Big 3 Precision. Excluding Big 3 Precision, selling and administrative expenses ~~higher amortization cost~~decreased 2% compared to the first quarter of 2019. Payroll and ~~acquisition expenses.~~payroll-related expenses decreased by $0.3 million, or 8%, compared to the first quarter of 2019.

Security Products Segment

Net sales in the Security Products ~~Segment~~segment decreased by 16% in the ~~third~~first quarter ~~and 9% in the first nine months~~ of ~~2019 as~~2020 compared to the ~~corresponding periods~~first quarter of ~~2018.~~2019. Sales ~~from the~~growth attributable to Load N Lock, ~~business~~ which ~~was~~we acquired in June of 2018, partially offset the impact of lower demand ~~for~~across the majority of the markets we serve including distribution, industrial, vehicular accessories and commercial laundry, ~~products,~~as well as a ~~decline in our point~~loss of ~~sale security products, the termination of a~~ supply ~~contract with a customer to manufacture~~contracts for mechatronic padlock systems ~~for cellphone tower security access applications~~ and ~~the loss of a customer servicing the~~ recreational vehicles ~~market. New product~~door latches, which generated sales in the first quarter of 2019, that did not recur in 2020. Net sales of existing products decreased 17%, while price increases and sales of new products contributed 1% in the ~~first nine months of 2019 as compared to the first nine months of 2018 and~~2020 period. New product sales included ~~sales of an electronic switch~~a top mount power lock ~~for the mass transit industry, a key lock for the storage industry~~module and a ~~canopy~~crossbar lock ~~assembly for the vehicle industry.~~

assembly.

Cost of products sold decreased ~~by 17% in the third quarter and 10%~~18% in the first ~~nine months~~quarter of ~~2019 as~~2020 compared to the ~~corresponding periods~~first quarter of ~~2018,~~2019, primarily as a result of ~~decreased~~lower sales volume, reduced payroll and ~~reduction in raw material costs. The cost~~payroll-related costs of ~~zinc decreased by 18%~~$0.2 million, or 8%, and the ~~cost~~mix of ~~copper decreased by 5% year over year. The Company experienced tariff costs on China-sourced~~ products of $0.4 million in the third quarter and $0.5 million in the first nine months of 2019, which were not incurred in the comparable periods of 2018. The majority of the tariffs have been recovered through price increases.sold.

Gross margin as a percentage of net sales was ~~32% in the third quarter and~~ 31% in the first ~~nine months~~quarter of ~~2019, as~~2020 compared to ~~32% and~~ 29% in the ~~corresponding periods~~first quarter of ~~2018. The increase in gross margin in the first nine months of 2019 reflects the mix of products produced and a reduction in raw materials costs.~~2019.

Product development expense as a percentage of net sales was 5%6% in the ~~third~~first quarter ~~and~~2020 compared to 4% in the first ~~nine months~~quarter of ~~2019, as compared to 3% for both of the corresponding periods of 2018. The~~2019. This increase reflects a continuation in the ~~continued~~ development of a ~~blue tooth~~Bluetooth locking system and a new cable lock ~~a blade key core and various development of new customer products.~~system.

Selling and administrative expenses decreased ~~by 14% in the third quarter and 13%~~11% in the first ~~nine months~~quarter of ~~2019, as~~2020, compared to the ~~corresponding periods~~first quarter of ~~2018, primarily as a result of a decline~~2019. The most significant driver in this reduction was due to decreased payroll and ~~payroll-related expenses.~~payroll related costs offset by an increase in our bad debt reserve in the amount of $152,000 related to a customer that filed for chapter 11 bankruptcy during the first quarter of 2020.

Metal Products Segment

Net sales in the Metal Products ~~Segment increased by 14% in the third quarter and 6%~~segment decreased 27% to $5.7 million in the first ~~nine months of 2019 as compared to the corresponding periods of 2018. Sales to mining customers increased by 20% while sales to industrial casting customers increased by 3% in the third~~ quarter of ~~2019 as compared to the third quarter of 2018. Sales to mining customers increased by 3% while sales to industrial casting customers increased by 11% in the first nine months of 2019 as~~2020 compared to the first ~~nine months of 2018. Sales volume increased by 4% with new product sales and price increases accounting for 10% of such increase during the third~~ quarter of ~~2019 as compared~~2019. Sales of our mining products decreased by 21%, while sales of industrial casting products decreased by 35%. Mining sales in the first quarter of 2020 were impacted by a combination of growing renewable energy capacity, extremely low natural gas prices and unusually warm weather in the first quarter, which led utilities to cut back on coal usage. Sales of industrial castings in the first quarter were negatively impacted by the loss of a customer who temporarily sourced products from us due to a fire at its facility in 2018, which temporarily shut down production of product that would otherwise have been sourced internally. In addition, sales were negatively impacted due to the ~~third quarter~~completion of ~~2018. New product sales included various industrial castings~~contracts from a customer serving the ~~agriculture market.~~transit industry.

Cost of products sold ~~increased by 19% in the third quarter and 10%~~decreased 22% in the first ~~nine months~~quarter of ~~2019, as~~2020, compared to the ~~corresponding periods in 2018 primarily~~first quarter of 2019, as a result of ~~increased~~lower sales volume.

Gross margin as a percentage of net sales was ~~13% in the third quarter of 2019 as compared to 17% in the third quarter of 2018. Gross margin as a percentage of net sales was 11%~~2% in the first ~~nine months~~quarter of ~~2019 as~~2020 compared to ~~15%~~9% in the first ~~nine months~~quarter of ~~2018.~~2019.

Selling and administrative expenses decreased ~~by 25% in the third quarter of 2019 and 18%~~6% in the first ~~nine months~~quarter of ~~2019 as~~2020 compared to the ~~corresponding periods~~first quarter of ~~2018, primarily as a result~~2019. The most significant drivers of ~~a decrease in~~this reduction were payroll and payroll-related ~~expenses.~~costs.

Impact of Inflation

As of the end of the first quarter of 2020, we do not believe that inflation has had a material impact on the Company’s business, revenues or operating results during the periods presented.

Liquidity and Sources of Capital

The Company generated approximately ~~$12.2~~$1.5 million of cash from operations during the first ~~nine months~~quarter of ~~2019~~2020 compared to approximately ~~$7.1~~$1.5 million during the same period in 2018. The Company allocated $9.5 million of its cash towards the pay down of its long-term debt, of which $8.0 million was an accelerated payment, and subsequently entered into a new credit agreement which refinanced the outstanding $19.1 in principle and provided $81 million for the acquisition of Big 3 Precision during the thirdfirst quarter of 2019. The ~~Company also repatriated $0.7 million from its Canadian operations, $1.5 million from its Chinese operations and $0.5 million from its Mexican operations during~~cash flows in the first ~~nine months of 2019. The Company subsequently repatriated $1.0 million from its Chinese operations in the fourth~~ quarter of ~~2019.~~2020 period were comparable to the first quarter of 2019 period. Cash flow from operations coupled with cash at the ~~new credit agreement were~~beginning of the 2020 fiscal year was sufficient ~~to acquire Big 3 Precision and cover related expenses and~~ to fund capital expenditures, debt service, and dividend payments.

Additions to property, plant and equipment were approximately ~~$1.9~~$0.8 million for the first ~~nine months~~quarter of ~~2019~~2020 and ~~$4.2~~$0.7 million for the ~~corresponding period~~first quarter of ~~2018.~~2019. As of ~~September~~March 28, ~~2019,~~2020, there ~~were~~was approximately ~~$0.3~~$0.1 million inof outstanding commitments for capital expenditures.

The following table shows key financial ratios at the end of each specified period:

	Third Quarter 2019			Third Quarter 2018			Year End 2018			First Quarter 2020			First Quarter 2019			Year End 2019
Current ratio		3.2			3.3			3.4			3.4			3.6			3.6
Average days’ sales in accounts receivable		54			48			44			57			49			51
Inventory turnover		4.3			3.5			3.4			3.6			3.7			4.2
Total debt to shareholders’ equity		96.6	%		30.5	%		29.6	%		92.8	%		28.8	%		93.7	%

The following table shows important liquidity measures as of the balance sheet date for each specified period (in millions):

	Third			Third			Year			First			First			Year
	Quarter			Quarter			End			Quarter			Quarter			End
	2019			2018			2018			2020			2019			2019
Cash and cash equivalents
- Held in the United States	$	4.5		$	3.4		$	5.6		$	9.6		$	4.1		$	9.0
- Held by a foreign subsidiary		7.5			7.8			8.3			6.9			9.5			9.0
		12.0			11.2			13.9			16.5			13.6			18.0

Working capital		78.8			67.0			71.0			81.8			72.8			83.0
Net cash provided by operating activities		12.5			7.1			12.9			1.5			1.5			23.0
Change in working capital impact on net cash (used) in operating activities		(2.0	)		(6.4	)		(5.9	)		(2.7	)		(2.5	)		(0.3	)
Net cash (used) in investing activities		(83.1	)		(9.3	)		(10.4	)		(0.4	)		(0.9	)		(85.8	)
Net cash (used) in financing activities		68.9			(8.5	)		(10.4	)		(2.3	)		(1.1	)		(67.0	)

Inventories of ~~$52.8~~$55.3 million asrepresent an increase of ~~September~~1% at March 28, ~~2019, are approximately flat~~2020 as compared to ~~$52.7~~$54.6 million at the end of fiscal year 2019. Inventories increased 7% in the first quarter of 2020, as compared to $51.6 at the end of the first fiscal quarter of 2019. Accounts receivable, less allowances were $39.9 million at March 28, 2020, as compared to $37.9 million at 2019 fiscal year end and $32.4 million at the end of the fiscal year 2018. Inventories as of September 28, 2019, included $3.2 million, or 6%, of inventory acquired in the Big 3 Precision transaction. Inventories increased by 3% in the third quarter of 2019, as compared to $51.2 million at the end of the thirdfirst fiscal quarter of 2018. Accounts receivable, less allowances were $43.5 million on September 28, 2019, as compared to $30.3 million at the 2018 fiscal year-end and $30.5 million at the end of the third fiscal quarter of 2018.2019.

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.

~~On August 30, 2019,~~ However, based on current macroeconomic conditions resulting from the uncertainty caused by COVID-19, the Company ~~incurred indebtedness~~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 in the aggregate principal amount of $100 million in the form of a term loan, the proceeds of which were used to repay the remaining outstanding balances of the Restated Loan Agreement, as previously disclosed in the Company’s Quarterly Reportvaries based on ~~Form 10-Q for the period ended June 29, 2019, (approximately $19,125,000)~~our senior net leverage ratio, and ~~to acquire 100% of the common stock of Big 3 Precision (see Note O). See Note E for additional information regarding the terms of~~ the Credit Agreement including repayment terms, interest rates and applicable loan covenants. Under the terms of the 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 financial covenants that requirerequires us to maintain a ~~minimum fixed charge ratio and a maximum~~ senior net leverage ~~ratio. These covenants may limit how we conduct our business,~~ratio not to exceed 4.25 to 1 and a fixed charge coverage ratio to be not less than 1.25 to 1. A decrease in earnings due to responses to contain the ~~event~~spread of ~~certain defaults, our repayment obligations may be accelerated. We were in compliance with all~~COVID-19 or resulting harm to the financial condition of our customers or economic conditions generally, 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 charge coverage ratio, which in turn would increase the cost of borrowing under the Credit Agreement and to cause us to fail to comply with the covenants ~~at September 28, 2019.~~

On July 27, 2017, the Financial Conduct Authority (FCA), a regulator of financial services firms in the United Kingdom, announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. The FCA and submitting LIBOR banks have indicated they will support the LIBOR indices through 2021 to allow for an orderly transition to an alternative reference rate. In the United States, efforts to identify a set of alternative U.S. dollar referenceunder our Credit Agreement.

2524

interest rates include proposals by the Alternative Reference Rates Committee of the Federal Reserve Board. Other financial services regulators and industry groups are evaluating the possible phase-out of LIBOR and the development of alternate reference rate indices or reference rates. Some of our assets and liabilities are indexed to LIBOR. We are evaluating the potential impact of the possible replacement of the LIBOR benchmark interest rate, but are not able to predict whether LIBOR will cease to be available after 2021, whether the alternative rates the Federal Reserve Board proposes to publish will become market benchmarks in place of LIBOR, or what the impact of such a transition will have

on our business, financial condition, or results of operations. Reform of, or the replacement or phasing out of, LIBOR and proposed regulation of LIBOR and other “benchmarks” may materially adversely affect the amount of interest paid on any LIBOR-based loans, investment securities and borrowings of the Company and the Company’s business, financial condition and results of operations.”

Off-Balance Sheet Arrangements

As of the end of the fiscal quarter ended ~~September~~March 28, ~~2019,~~2020, the Company does not have any material transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons, as described by Item 303(a)(4) of Regulation S-K, that have or are reasonably likely to have a material current or future impact on the Company’s financial condition, results of operations, liquidity, capital expenditures, capital resources or significant components of revenues or expenses.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a result of the Company’s status as a smaller reporting company pursuant to Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is ~~no longer~~not required to provide the information under this Item 3, of Form 10-Q pursuant to Item 305 of Regulation S-K.

ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures:

As of ~~the end of the quarter ended September~~March 28, ~~2019,~~2020, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 240.13a-15. As defined in Exchange Act Rules 240.13a-15(e) and 240.15d-15(e), “the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.”

The Company believes that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their ~~objectives. Based upon their evaluation,~~objectives, and the CEO and CFO have concluded that these controls and procedures are effective at the ~~reasonable assurance~~“reasonable assurance” level as of ~~September~~March 28, ~~2019.~~2020.

Changes in Internal Control Over Financial ~~Reporting:~~Reporting:

During the period covered by this Quarterly Report on Form 10-Q, there have been no changes in the Company's internal control over financial reporting that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

The Company is a party to various legal proceedings from time to ~~time-related~~time related to its normal business operations. As of the end of the quarter ended ~~September~~March 28, ~~2019,~~2020, the Company isdoes not ~~involved in~~have any material pending legal proceedings.

In 2010, the Company was contacted by the State of Illinois regarding potential ground contamination at its plant in Wheeling, Illinois. The Company entered into a voluntary remediation program in Illinois and engaged an environmental clean-up company to perform testing and develop a remediation plan. Since 2010, the environmental company completed a number of tests and the design of a final remediation system was approved in the second quarter of 2018. As of the end of the third quarter of 2018, the remediation plan was completed. The State of Illinois has received the documentation related to the remediation and is in the process of approving the final documentation. The total estimated cost for the remediation system is anticipated to be approximately $50,000, which the Company previously accrued for and expensed in prior years.

In 2016, the Company created a plan to remediate a landfill of spent foundry sand maintained at the Company’s metal casting facility in New York. This plan was agreed to by the New York Department of Environmental Conservation (the “DEC”) on March 27, 2018. Based on estimates provided by the Company’s environmental engineers, the anticipated cost to remediate and monitor the landfill was $430,000. The Company accrued for and expensed the entire $430,000 in the first quarter of 2018 and fiscal 2017. In the ~~Fall~~fall of 2018, detailed construction drawings were prepared by an outside consultant in conjunction with informal progress reviews by the New York State Department of Environmental Conservation (the “NYSDEC”). Long-term groundwater monitoring commenced in April of 2019. Verbal approval for the closure plan was received from the NYSDEC in May of 2019. Written approval is anticipated in the first quarter of 2020. Construction of the closure remedies, including improved drainage system, regrading, and installation of a low permeability cap, is anticipated in ~~October~~the spring of ~~2019.~~2020. In the ~~Summer~~summer of 2020, following the completion of construction work, a closure report and maintenance plan ~~will~~is expected to be prepared for the NYSDEC. This closure report and maintenance plan will document the work done and request acknowledgment of satisfactory completion of the Order on Consent between Frazer and Jones, and the NYSDEC.

ITEM 1A – RISK FACTORS

The Company’s business is subject to a number of risks, some of which are beyond its control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, the Company’s shareholders should carefully consider the factors discussed in Item 1A. “Risk Factors” of the Company’s ~~2018~~2019 Form ~~10-K, as filed with the SEC on March 14, 2019.~~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 ~~its~~our operating results to vary significantly from period to period. AsIn light of ~~September 28, 2019, there have been no material changes~~recent developments relating to the COVID-19 pandemic, the Company is supplementing the risk factors previously disclosed in Part I, Item 1A, “Risk Factors” in our 2019 Form 10-K to include the following risk factor:

The Company’s business has been and is expected to continue to be negatively impacted by the ongoing coronavirus (COVID-19) pandemic.

As a result of the COVID-19 pandemic, the Company has experienced and can be expected to continue to experience disruptions to its business, its operations, the delivery of its products and customer demand for its products, including the following:

The Company has operations in Shanghai and Dongguan, China that have been adversely affected by the impact of COVID-19. The virus interfered with the ability of Company employees and suppliers to conduct business. We source approximately 15% of our products and components from China. As a result of government mandated shutdowns at the Company’s ~~2018~~and its suppliers’ factories in China, many of the products ordered have been delayed by approximately 4 to 6 weeks, which has resulted and will continue to result in corresponding delays in delivery of the Company’s products to its customers. These delays have had and are likely to continue to have an adverse impact on our business, operations, fulfillment of production requirements and operating results,

On March 11, 2020, the World Health Organization declared the rapidly spreading COVID-19 outbreak to be a global pandemic, and shortly thereafter government authorities in the United States began closing non-essential business. The majority of the Company’s businesses are considered essential and have remained open but are operating at reduced levels. This reduction in operations has exacerbated delays in delivery of customer orders and, to the extent we continue to operate at reduced levels, is likely to cause further delays. Any sustained reduction in operations could impair the Company’s ability to meet production requirements in a timely manner or at all. These effects have had and are likely to continue to have an adverse impact on the Company’s business, financial condition and operating results.

Many of the Company’s customers in both automotive and non-automotive industries experienced varying degrees of shutdowns beginning in the last week of March 2020, with some of these customers tentatively expected to begin reopening as soon as May 4, 2020. These temporary shutdowns have had and, for so long as they remain in place, are likely to continue to have, an adverse impact on demand for our products. A sustained decrease in demand would negatively impact our business, financial condition and operating results. In addition, the COVID-19 pandemic has had and may continue to have an adverse impact on the operations, financial results and finances of many of our customers, which has impacted and could continue to impact customer payment cycles and payments due from customers.

The broader economic impact of the COVID-19 may result in unfavorable operating earnings and cash flow generation in the months to follow. Current global economic conditions are highly volatile due to the COVID-19 pandemic, resulting in economic slowdowns that [have caused and] [may]/[are likely to] [continue to] cause contractions in some or all of the markets we serve, which [has led to]/[may lead to]/[is likely to lead to] decreased demand for the Company’s products, which in turn is expected to negatively impact the Company’s financial condition and operating results. Other macroeconomic factors also remain dynamic, and any causes of market size contraction, including economic uncertainty related to the United Kingdom's exit from the European Union, and overall economic slowdowns, could reduce the Company’s sales or erode operating margin, in either case reducing earnings. In addition, volatile global economic conditions may cause foreign exchange rate fluctuations, which could result in increases or decreases in earnings and may adversely affect the value of the Company’s assets outside the United States. Increased pricing in response to fluctuations in foreign currency exchange rates may offset portions of the currency impacts but could also have a negative impact on demand for the Company’s products, which would affect sales and profits. Exchange rate fluctuations could also increase pricing pressure and impair the ability of the Company’s products to compete with products imported from regions with favorable exchange rates.

Shutdowns or other restrictions imposed to slow the spread of COVID-19 have impacted and may continue to impact the prices and availability of certain of the raw materials used in the production of the Company’s products, which could impair the Company’s ability to procure the required raw materials for its operations or increase the cost of manufacturing its products. If the price of raw materials increases, the Company may be unable to pass these increases on to its customers and could experience reductions to its profit margins. Also, 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.

The Company’s management has been focused on mitigating the impact of the COVID-19 pandemic on our employees and operations, which has required and will continue to require a substantial investment of time and resources. This has resulted and can be expected to continue to result in a diversion of management attention and resources away from strategic, initiatives, new business opportunities, potential acquisitions, and the overall profitability of our business, and the Company cannot predict how long this may continue.

The economic downturn could also result in the carrying value of goodwill or other intangible assets exceeding their fair value, which could require the Company to recognize asset impairment.

To the extent the Company draws under the revolving portion of the Credit Agreement, debt of the Company would increase. Such an increase in indebtedness could adversely affect the Company’s financial results or ability to incur additional debt and could negatively impact credit ratings. The continuing impact of the COVID-19 pandemic could also negatively impact the Company’s compliance with the financial covenants under the Credit Agreement or the interest rate of borrowings under the Credit Agreement. In addition, as a result of the risks described above, the Company may in the future be required to raise additional debt or equity financing, and the availability, terms and cost of such financing would depend on, among other things, global economic conditions, conditions in the global financing markets, trading prices of the Company’s common stock, the credit ratings of the Company, and the outlook for the industries in which the Company operates, all of which could be negatively impacted by the COVID-19 pandemic. There can be no assurance that such financing would be available on acceptable terms, in sufficient quantities, or at all.

The COVID-19 pandemic continues to evolve rapidly, and additional material impacts and disruptions are likely to occur. The factors described above, which may worsen, and other factors that the Company cannot predict, can be expected to have a material adverse impact on the business, operations, financial results and capital resources of the

Company. The ultimate impact of the COVID-19 pandemic on the Company is highly uncertain and subject to change and will depend on future developments, which cannot be accurately predicted, including the duration of the pandemic, additional or modified government actions, new information that may emerge concerning the severity and impact of the COVID-19 and the actions taken to contain COVID-19 or address its impact in the short and long term, among others. We do not yet know and cannot predict the full extent of potential impacts on the business, operations, financial results and capital resources of the Company.

In addition, any of the risks and uncertainties set forth in Part I, Item 1A of the 2019 Form ~~10-K.~~ 10-K can be expected to be further heightened by the COVID-19 pandemic and have a material adverse effect on the Company’s business, prospects, financial condition, results of operations and capital resources.

The Company may also 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.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 – OTHER INFORMATION

~~Financial Statements and Exhibits~~

~~Explanatory Note~~

As previously disclosed in the Company’s Form 8-K as filed with the SEC on September 3, 2019 (the “Original Form 8-K”), on August 30, 2019, the Company entered into a definitive agreement to acquire Big 3 Precision for an adjusted purchase price of $81.2 million.

For purposes of amending the Original Form 8-K to provide the financial information related to the acquisition of Big 3 Precision, The Company is disclosing the following information, attached as Exhibit 99.5 hereto, under this Item 5 in lieu of disclosing the information under Items 2.01and Item 9.01, of a Current Report on Form 8-K/A with a due date on or after the date hereof.

~~Financial Statements and Exhibits.~~

~~(a)~~

~~Financial Statements of Business Acquired.~~

~~Big 3 Unaudited Financial Statements~~

~~Audited Consolidated Financial Statements and Supplementary Information as of December 31, 2018 and December 31, 2017~~

~~(b)~~

~~Unaudited Pro-forma Condensed Combined Financial Information.~~

~~Unaudited Pro-forma Condensed Combined Balance Sheet for the year ended December 31, 2018~~

~~Unaudited Pro-forma Condensed Combined Statement of Operations for the year ended December 31, 2018~~

~~Unaudited Pro-forma Condensed Combined Statement of Operations for the six months ended June 30, 2019~~

None

ITEM 6 – EXHIBITS

31)3.1) Restated Certificate of Incorporation of the Company, as amended (conformed copy).*

3.2) Amended and Restated By-Laws of the Company, as amended through April 27, 2016 (conformed copy).*

4) Description of Securities.*

31) Certifications required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32)32) Certifications pursuant to Rule 13a-14(b) and 18 USC 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~99.5~~) Unaudited pro-forma condensed combined financial statements as of and for the year ended December 31, 2018 and for the six months ended June 30, 2019, which give effect to the acquisition of Big 3 Holdings, LLC.

~~99.6) Audited Consolidated Financial Statements and Supplementary Information as of December 31, 2018 and December 31, 2017~~

~~99.7) Unaudited Consolidated Balance Sheet and Statement of Income as of June 30, 2019~~

101) The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~March 28, ~~2019,~~2020, formatted in XBRL (eXtensible Business Reporting Language); (i) Condensed Consolidated Statements of Operations ~~and Comprehensive Income~~(Unaudited) for the three ~~and nine~~ months ended ~~September~~March 28, 2020 and March 30, 2019 (2) Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 28, 2020, and ~~September 29, 2018;~~March 30, 2019; (ii) Condensed Consolidated ~~Statement~~ Balance Sheet ~~at September~~(Unaudited) as of March 28, ~~2019~~2020 and ~~September 29, 2018;~~December 28, 2019; (iii) Condensed Consolidated ~~Statement~~Statements of Cash Flows (Unaudited) for the ~~nine~~three months ended ~~September~~March 28, ~~2019~~2020 and ~~September 29, 2018;~~March 30, 2019; and (iv) Notes to the ~~(Unaudited)~~ Condensed Consolidated Financial Statements*Statements (Unaudited)**.

* Filed herewith.

* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.*Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	THE EASTERN COMPANY
	(Registrant)
DATE: ~~November 7, 2019~~May 6, 2020	/s/August M. Vlak
	August M. Vlak President and Chief Executive Officer

DATE: ~~November 7, 2019~~May 6, 2020	/s/John L. Sullivan III
	John L. Sullivan III Vice President and Chief Financial Officer

Consideration
Cash	$	338,714
Debt		80,817,039
	$	81,155,753
Recognized amounts of identifiable assets acquired and liabilities assumed
Accounts receivable	$	13,649,937
Inventory		3,240,382
Prepaid and other assets		32,268
Property plant and equipment		13,770,170
Other noncurrent assets		1,337,337
Other intangible assets		21,054,000
Current liabilities		(4,910,384	)
Deferred revenue		(1,585,709	)
Income tax payable		(2,039,117	)
Note payable		(375,379	)
Deferred tax liabilities		(7,114,732	)
Total identifiable net assets		37,058,773
Goodwill		44,096,980
	$	81,155,753

	Three Months Ended September 28, 2019
	Industrial			Security			Metal
	Hardware			Products			Products			Total
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of products sold		76.1	%		67.8	%		86.6	%		75.4	%
Gross margin		23.9	%		32.2	%		13.4	%		24.6	%

Product development expense		0.4	%		4.7	%		—			1.4	%
Selling and administrative expense		14.8	%		15.2	%		5.8	%		13.8	%

Operating profit		8.7	%		12.3	%		7.6	%		9.4	%

	Nine Months Ended September 28, 2019
	Industrial			Security			Metal
	Hardware			Products			Products			Total
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of products sold		76.4	%		69.0	%		88.7	%		76.1	%
Gross margin		23.6	%		31.0	%		11.3	%		23.9	%

Product development expense		2.9	%		4.2	%		—			2.9	%
Selling and administrative expense		13.7	%		16.6	%		7.1	%		13.6	%
Restructuring costs		1.5	%		2.0	%					1.4	%
Operating profit		5.5	%		8.2	%		4.2	%		6.0	%


	Nine Months Ended September 29, 2018
	Industrial			Security			Metal
	Hardware			Products			Products			Total
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of products sold		75.8	%		69.7	%		85.5	%		75.2	%
Gross margin		24.2	%		30.3	%		14.5	%		24.8	%

Product development expense		3.4	%		3.0	%		—			2.9	%
Selling and administrative expense		14.1	%		17.2	%		9.1	%		14.4	%
Operating profit		6.7	%		10.1	%		5.4	%		7.5	%