-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ku9GOAlWkRdqM9xL20ySe+SN3ZfKGgXwZD14yWpcvoDgWHYF3MbmsU20uI6NsASX Wv8nG7ZuHOgWyTYvd2I6Kg== 0000031107-98-000004.txt : 19980520 0000031107-98-000004.hdr.sgml : 19980520 ACCESSION NUMBER: 0000031107-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980403 FILED AS OF DATE: 19980519 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: EASTERN CO CENTRAL INDEX KEY: 0000031107 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 060330020 STATE OF INCORPORATION: CT FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-00599 FILM NUMBER: 98628091 BUSINESS ADDRESS: STREET 1: 112 BRIDGE ST STREET 2: P O BOX 460 CITY: NAUGATUCK STATE: CT ZIP: 06770 BUSINESS PHONE: 2037292255 MAIL ADDRESS: STREET 1: 112 BRIDGE STREET STREET 2: P O BOX 460 CITY: NAUGATUCK STATE: CT ZIP: 06770 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 4, 1998 OR [ ] 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 0-599 ----- 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, Including Area Code) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of APRIL 4, 1998 ----- ------------------------------- Common Stock, No par value 2,425,849 -1- PART I
FINANCIAL INFORMATION THE EASTERN COMPANY AND SUBSIDIARIES ITEM I CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) ASSETS April 4, 1998 January 3, 1998 ------------- --------------- CURRENT ASSETS Cash and cash equivalents $ 2,240,287 $ 2,111,289 Accounts receivable, less allowance: 1998- $362,000; 1997- $329,000 10,333,697 8,725,167 Inventories 12,588,746 12,414,866 Prepaid expenses and other current assets 2,243,807 2,846,557 ------------ ------------ Total Current Assets 27,406,537 26,097,879 Property, plant and equipment 26,170,017 25,434,424 Accumulated depreciation (12,614,629) (11,997,894) ------------ ------------ 13,555,388 13,436,530 Prepaid pension cost 4,218,530 4,217,604 Other assets, net 1,960,659 2,046,148 ------------ ------------ TOTAL ASSETS $ 47,141,114 $ 45,798,161 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 3,608,268 $ 3,663,662 Accounts payable 8,092,327 3,499,857 Accrued compensation and withholding 1,806,117 1,413,418 Other accrued expenses 2,709,594 2,662,088 ------------ ------------ Total Current Liabilites 16,216,306 11,239,025 Deferred federal income taxes 2,492,200 2,492,200 Long-term debt 60,000 60,000 Accrued postretirement benefits 2,766,795 2,763,795 Shareholders' Equity Common Stock, No Par Value: Authorized Shares - 25,000,000 Issued and outstanding shares: 1998-2,425,849; 1997-2,593,089 1,591,930 6,078,427 (Excluding shares in Treasury: 1998-1,012,335; 1997-831,780) Preferred Stock, No Par Value Authorized shares - 2,000,000 (No shares issued) Unearned compensation (548,906) (492,969) Accumulated translation adjustment (607,069) (563,211) Retained earnings 25,169,858 24,220,894 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 47,141,114 $ 45,798,161 ============ ============
See accompanying notes. -2-
THE EASTERN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED April 4, 1998 March 29, 1997 ------------- -------------- Net sales $ 18,411,956 $ 15,934,598 Interest income 23,444 35,977 ------------ ------------ Total 18,435,400 15,970,575 Cost of products sold 13,481,567 11,949,759 ------------ ------------ 4,953,833 4,020,816 Selling and administrative expenses 2,924,369 2,981,969 Interest expense 75,570 66,307 ------------ ------------ INCOME BEFORE INCOME TAXES 1,953,894 972,540 Income taxes 663,797 358,117 ------------ ------------ NET INCOME $ 1,290,097 $ 614,423 ============ ============ Net income per share: Basic $ 0.50 $ 0.23 Diluted $ 0.49 $ 0.22 Cash dividends per share $ 0.130 $ 0.115
See accompanying notes. -3-
THE EASTERN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED April 4, 1998 March 29, 1997 ------------- -------------- OPERATING ACTIVITIES: Net income $ 1,290,097 $ 614,423 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 763,799 659,864 Postretirement benefits other than pensions 3,000 2,943 Provision for losses on accounts receivable 32,404 17,500 Issuance of Common Stock for directors' fees 17,807 - Changes in operating assets and liabilities: Accounts receivable (1,218,677) (1,627,285) Inventories (191,730) (587,000) Prepaid expenses 176,140 370,489 Prepaid pension (926) (38,534) Accounts payable 4,590,391 686,337 Accrued expenses 447,502 638,191 Other assets (7,187) 84,033 ------------ ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,902,620 820,961 INVESTING ACTIVITIES: Purchases of property, plant, and equipment (795,462) (538,062) Other 3,634 38,256 ------------ ------------ NET CASH USED BY INVESTING ACTIVITIES (791,828) (499,806) FINANCING ACTIVITIES: Payment on short term debt - (500,000) Principal payments on long-term debt and notes payable (60,000) (60,000) Proceeds from sales of Common Stock 93,750 453,528 Purchases of Common Stock for treasury (4,673,678) - Dividends paid (338,446) (317,880) ------------ ------------ NET CASH USED BY FINANCING ACTIVITIES (4,978,374) (424,352) Effect of exchange rate changes on cash (3,420) 1,942 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 128,998 (101,255) Cash and Cash Equivalents at Beginning of Year 2,111,289 2,269,031 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,240,287 $ 2,167,776 ============ ============
See accompanying notes. -4-
THE EASTERN COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNADUITED) THREE MONTHS ENDED April 4, 1998 March 29, 1997 ------------- -------------- Net income 1,290,097 614,423 Other comprehensive (loss) income: Foreign currency translation (43,858) 15,737 --------- ------- Comprehensive income 1,246,239 630,160 ========= =======
See accompanying notes. -5- THE EASTERN COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) April 4, 1998 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 do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 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 such interim periods have been reflected therein. The condensed balance sheet as of January 3, 1998 has been derived from the audited financial statements at that date. Note B - Earnings Per Share - ---------------------------
The denominators used in the earnings per share computations follow: April 4,1998 March 29, 1997 ------------ -------------- Basic: Weighted average shares outstanding 2,591,755 2,754,888 Contingent shares outstanding (32,500) (22,500) ----------- ----------- Denominator for basic earnings per share 2,559,255 2,732,388 Diluted: Weighted average shares outstanding 2,591,755 2,754,888 Contingent shares outstanding (32,500) (22,500) Dilutive stock options 89,874 29,349 ---------- ----------- Denominator for diluted earnings per share 2,649,129 2,761,737
Note C - Changes in Accounting Principles - ----------------------------------------- Effective January 4, 1998, The Eastern Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". The adoption of this Statement had no impact on the Company's net income or shareholders' equity. Under SFAS 130 the Company's foreign currency translation adjustments, which are reported separately in shareholders' equity, are also required to be included in the determination of other comprehensive income or loss. The prior year financial statements have been reclassified to conform to the requirements of SFAS 130. Note D - Litigation - ------------------- The Registrant is involved in litigation relating to environmental matters for which the ultimate outcome is not expected to have any material adverse impact on financial position, operating results or liquidity. See Part II Item 1 Legal Proceedings for further information. -6- ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Eastern's first quarter 1998 net income more than doubled to a record $1.3 million or $.50 per share on sales of $18.4 million as compared to net income in the first quarter of 1997 of $614 thousand or $.23 per share on sales of $15.9 million. This represents the fifth consecutive quarter of improved earnings reaffirming Eastern's continued strength in its core businesses and improved manufacturing efficiency. Management's belief in Eastern's continued growth is evidenced by the positive first quarter performance and resulted in the Board of Directors increasing the Company's quarterly dividend payout 15% from $.13 to $.15 payable June 15, 1998 to stockholders of record as of May 29, 1998. This represents the second dividend increase to shareholders in the past six months and also reaffirms Eastern's primary goal of increasing shareholder value. The first quarter 1998 net sales increased 16% or $2.5 million compard to the first quarter of 1997. Sales volume was up 11% while price increases and new products contributed 2% and 3% respectively. Sales growth was up across all product lines. Sales of custom locks were up 22% over the prior year. Increased business in the automotive accessories market where the Registrant's Eberhard Manufacturing division produces several key-locking devices used to secure access to toolboxes, typically seen located in the front of the cargo bed of pick-up trucks, were up significantly over the same period a year ago. Heavy locks sold to the tractor trailer industry were up 15% over the comparable period a year ago. Sales volume to the mining industry also increased 10% over the comparable period a year ago as the Registrant fulfills its long-term supply agreement entered into in August 1996 with Excel Mining System, the country's largest manufacturer of mine roof bolts. New products include contract castings offered by the Frazer & Jones Division as well as various custom engineered vehicular accessory products offered by the Eberhard Manufacturing Division. Gross margin as a percentage of sales for the three months ended April 4, 1998 was 27% compared to 25% for the same period a year ago. Despite increased payroll costs associated with higher employment levels, all of Eastern's divisions and subsidiaries reported improved gross margins. The improved gross margin is attributable to fuller use of productive and capacity and improved sales prices. Selling and administrative expenses were down $58 thousand as compared to the same period a year ago. Expressed as a percent of sales, selling and administrative expenses were 15.9% versus 18.7% for the comparable period a year ago. However, prior year selling and administrative expenses included one time charges incurred as the result of proxy contest. Without those charges, first quarter 1998 selling and administrative expenses would have been up 9% or $280 thousand over the comparable period in 1997. This increase is attributable to increased selling commission expenses and incentive compensation payments both directly related to increased sales and profitability. -7- Liquidity and Sources of Capital Cash flows from operations were $5.9 million for the first quarter of 1998 versus $821 thousand in the first quarter of 1997. Changes in cash flow from operations in the first quarter of 1998 includes $4.6 million accounts payable for the purchase of 178,400 shares of the Registrant's common stock for the treasury. Subsequent to the close of the first quarter, the Registrant borrowed $5 million against its short-term line of credit for the aforementioned stock purchase and other working capital requirements. Cash generated from operations of $1.3 million was sufficient to fund the Registrant's capital expenditure program and make its 230th consecutive quarterly dividend payment to shareholders. Inventory balances at the end of the first quarter of 1998 of $12.6 million were $174 thousand higher than year end 1997, and $1.1 million higher than the first quarter of 1997. Inventory turns of 4.3 times at the end of the first quarter of 1998 was slightly higher than the previous year end rate and also the first quarter of 1997. Current inventory levels are adequate to meet customer requirements. However the Registrant anticipates some increase in inventory levels because of increased sales activity. Accounts receivable increased by $1.6 million, compared to year end 1997; this increase was driven by the growth in sales volume. The average day's sales in accounts receivable for the first quarter of 1998 was 51 days; this compares to a level of 49 days for the comparable period a year ago. Additions to property, plant and equipment were $792 thousand during the first three months of 1998 versus $500 thousand for the comparable period a year ago. Total 1998 capital expenditures are expected to exceed the $2.6 million level of depreciation for the year. The Registrant has a $10 million line of credit of which $8.5 million has been utilized. The Registrant's strong balance sheet and internal cash flow generation should be sufficient to cover future working capital requirements. Other Matters On June 24, 1994, the Registrant settled all claims with both the Beacon Heights Coalition and the Laurel Park Coalition and the respective complaints against the Registrant on behalf of the Coalitions were dismissed by stipulation. Claims against the Registrant and certain other defendants filed by the two government agencies as described in Part II, item 1 below were dismissed by the Court. A final judgement was entered by the U. S. District Court in the consolidated proceedings on March 17, 1995. Appeals, however, were filed by the two government agencies as described in Part II, item 1 below. On November 1, 1996, the United States Court of Appeals for the Second Circuit reversed the U.S. District Court's ruling dismissing the government agencies' environmental claims against the Registrant and certain other defendants, and the environmental claims by the Laurel Park and Beacon Heights Coalitions against numerous defendants See further description in Part II, Item 1 below. The Registrant continues to actively monitor the situation. It is management's opinion that the resolution of these matters will not have a material adverse effect on the Registrant's financial position, operating results or liquidity. -8- PART II OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS - - -------------------------- In April 1988, Murtha Enterprises Inc. and related parties (collectively "Murtha"), as the result of a February 1987 suit (docket number N-87-52 PCD) brought by the U. S. Environmental Protection Agency (the "EPA") and others, concerning the Beacon Heights and Laurel Park landfills, instituted third-party actions against approximately 200 companies or individuals including the Registrant. The underlying suit against Murtha was settled with EPA and the other parties and the Consent Decree has been approved by the Court. On September 22, 1988, the EPA filed a complaint against the Registrant and seven other defendants seeking recovery of present and future response costs incurred by the United States in connection with the Beacon Heights landfill. The complaint alleged total damages of approximately $1.8 million ($1.3 million actual and $.5 million future). On October 31, 1988 the court consolidated the EPA action against the Registrant with the other cases under docket number N-87-52 (PCD). By complaint dated September 6, 1990, the Beacon Heights Coalition (the "Beacon Coalition"), a group of parties who have entered into a consent order with EPA, instituted a direct action against the Registrant and approximately 400 other named parties concerning the Beacon Heights landfill. The Beacon Coalition claimed that these defendants generated or transported hazardous substances disposed of at the Beacon Heights landfill, and are therefore responsible for a share of the Beacon Coalition's response costs. The Registrant has filed answers to both the EPA Complaint and the Beacon Coalition Complaint. In March 1991, a Laurel Park Coalition which did not include the Registrant entered into Consent Decree and Administrative Order by Consent with the EPA and the State of Connecticut to remediate the Laurel Park landfill. The Consent Decree has been approved by the Court. In May 1991, EPA and the State of Connecticut ("State") each filed a complaint against the Registrant and three other defendants seeking recovery of present and future response costs incurred in connection with the Laurel Park landfill. The EPA claims costs in excess of $1.8 million and the state claims costs in excess of $2.5 million. On July 1, 1991, the court consolidated these actions against the Registrant with the other cases under docket number N-87-52 (PCD). The Registrant filed answers to both of these complaints. By order dated February 8, 1994, the court granted a motion filed by Registrant for judgment on the pleadings against EPA and the state with respect to each of their claims against Registrant. By motions dated February 22, 1994 and February 23, 1994, EPA and the state respectively moved for reconsideration of the court's order, which motions were denied. By order dated February 8, 1994, the court permitted the Laurel Park Coalition to file a complaint against eight parties including the Registrant, which claims were to be assigned for trial if the Coalition files a complaint. On June 24, 1994 , the Registrant settled all claims with both the Beacon Heights Coalition and the Laurel Park Coalition and the respective complaints against the Registrant on behalf of the Coalitions were dismissed by stipulation. -9- On March 17, 1995, the U.S. District Court entered a final judgement in the consolidated proceedings (docket number N-87-52(PCD)) which included the granting of Registrant's motion for judgement on the pleadings. As a result of this judgement, no complaints were then pending in the U.S. District Court involving the Registrant. On April 17, 1995, the State filed its notice of appeal from this final judgement with the U.S. District Court. On May 10, 1995, EPA filed its notice of appeal from the judgement. On November 1, 1996 the U.S. Court of Appeals for the Second Circuit reversed the District Court ruling dismissing EPA and State of Connecticut environmental claims against the Registrant and environmental claims by the Laurel Park and Beacon Heights Coalitions against numerous defendants. The Court of Appeals remanded the case to the U.S. District Court in Connecticut for further proceedings. The governmental lawsuits, brought after governmental settlements with the Coalitions, seek to recover remediation costs of the governments unreimbursed by the Coalition settlements or the settlement with the owner/operator in connection with the Laurel Park and Beacon Heights landfills. The EPA has claimed that the Registrant and two other corporate defendants are responsible for an aggregate of $3.1 million in remediation costs with respect to the Beacon Heights landfill and that the Registrant and one other corporate defendant are responsible for an aggregate of $2.3 million in remediation costs with respect to the Laurel Park landfill; Connecticut has claimed that the Registrant and one other defendant are responsible for an aggregate of $.8 million in remediation costs with respect to the Laurel Park landfill. The Registrant intends to continue to vigorously contest any liability relating to these governmental claims. The Registrant would also pursue its rights of contribution against the other defendants in the event of any liability, which the Registrant expects would significantly reduce any liability imposed. In addition, it would file claims against its insurance carriers. In its decision, the Second Circuit also reversed the U.S. District Court's dismissal of numerous actions brought by the Beacon Heights and Laurel Park Coalitions against non-settling parties. These Coalitions assumed full responsibility for cleaning up the two landfill sites and, as noted above, the Registrant has settled with both Coalitions with respect to liability at these sites in 1994. It is believed that many of the defendants in the pending Coalition actions and certain other persons who have not been sued by the governments have a responsibility for remediation cost and may be brought into these actions as co-defendants with the Registrant. The Registrant intends to resist the EPA claims and if necessary bring these other persons into the action to share the costs of reimbursements to the government if ultimately imposed. After rejecting motions for rehearing, the Court of Appeals returned the cases to the US District Court. On July 21, 1997, the District Court issued an order appointing a Special Master to mediate, find facts if necessary and report back to the court within six months as to all remaining claims for contribution. The Registrant is actively participating in this process as it pertains to the EPA Claims against the Registrant and the Registrant's contribution rights against the United States and third-party defendants. In January 1998, the Registrant entered into a proposed consent decree with the State which was approved by the court. The Registrant will continue to vigorously pursue its legal interest in this matter. The Registrant believes that these actions will not have a materially adverse impact on the Registrant's consolidated financial position, operating results or liquidity. There are no other significant legal proceedings, other than ordinary routine litigation incidental to the business, to which either the Registrant or any of its subsidiaries is a party of or which any of their property is the subject. -10- ITEM 2 CHANGES IN SECURITIES - ------ --------------------- None ITEM 3 DEFAULTS UPON SENIOR SECURITIES - - ------ ------------------------------- None ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------ --------------------------------------------------- The Registrant held its Annual Meeting of the Stockholders at The Eastern Company, Naugatuck, Connecticut on Wednesday, the twenty-second day of April, 1998. The matters voted on and the voting results were:
FOR WITHHELD AGAINST ABSTENTION 1) Election of two directors for three year terms expiring in the year 2001. Charles W. Henry 2,365,449 45,326 Donald E. Whitmore, Jr, 2,395,535 15,240 Continuing Directors: John W. Everets Leonard F. Leganza Russell G. McMillen David C. Robinson Donald S. Tuttle III 2) Approval of Ernst & Young LLP as independent auditors: 2,406,859 1,070 2,846
-11- ITEM 5 OTHER INFORMATION - - ------- ----------------- None ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K - ------- -------------------------------- None SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE EASTERN COMPANY ------------------- (Registrant) DATE: May 19, 1998 /s/Leonard F. Leganza ------------ --------------------- Leonard F. Leganza President and Chief Executive Officer DATE: May 19, 1998 /s/ Donald E. Whitmore, Jr. ------------ --------------------------- Donald E. Whitmore, Jr., Executive Vice President and Chief Financial Officer -12- EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR FORM 10-Q
5 3-MOS JAN-3-1998 APR-4-1998 2240287 0 10333697 362000 12588746 27406537 26170017 12614629 47141114 16216306 0 0 0 1591930 24013883 47141114 18411956 18435400 13481567 13481567 2891965 32404 75570 1953894 663797 1290097 0 0 0 1290097 .50 .49
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