-----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, DhR7N4+bXkDNLahtKu8qAqauVBu/UyB6O1Go1V8V/Ho4b9j9cxnqVYK2h9em6q9p pJpO53RIngJVvTTct12lVQ== 0000031107-00-000005.txt : 20000516 0000031107-00-000005.hdr.sgml : 20000516 ACCESSION NUMBER: 0000031107-00-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000401 FILED AS OF DATE: 20000515 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: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-00599 FILM NUMBER: 636104 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 1, 2000 ------------- 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 orginization) 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 1, 2000 ----- ------------------------------- Common Stock, No par value 3,652,373 -1- PART I
FINANCIAL INFORMATION THE EASTERN COMPANY AND SUBSIDIARIES ITEM I CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) ------ ASSETS April 1, 2000 January 1, 2000 ------------- --------------- CURRENT ASSETS Cash and cash equivalents $ 5,691,755 $ 5,940,190 Accounts receivable, less allowance: 2000- $532,000; 1999- $526,000 10,930,556 9,321,653 Inventories 13,760,133 14,040,263 Prepaid expenses and other current assets 2,817,451 2,645,506 ---------- ----------- Total Current Assets 33,199,895 31,947,612 -------------------- Property, plant and equipment 29,908,472 29,124,833 Accumulated depreciation (13,408,463) (12,759,995) ---------- ----------- 16,500,009 16,364,838 Prepaid pension cost 4,981,438 4,980,689 Other assets, net 2,851,889 1,601,253 ---------- ----------- TOTAL ASSETS $57,533,231 $54,894,392 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 251,616 $ 272,367 Accounts payable 4,083,843 3,467,058 Accrued compensation and withholding 2,236,738 1,903,804 Other accrued expenses 2,179,198 1,570,009 ---------- ----------- Total Current Liabilites 8,751,395 7,213,238 Deferred federal income taxes 2,927,000 2,927,000 Long-term debt 8,523,326 8,565,027 Accrued postretirement benefits 2,789,314 2,789,314 Shareholders' Equity Common Stock, No Par Value: Authorized Shares - 25,000,000 Issued and outstanding shares: 2000-3,652,373; 1999-3,647,942 1,220,014 1,154,147 (Excluding shares in Treasury: 2000-1,630,726; 1999-1,621,572) Preferred Stock, No Par Value Authorized shares - 2,000,000 (No shares issued) Unearned compensation (211,406) (211,406) Accumulated other comprehensive loss - translation adjustment (748,952) (718,155) Retained earnings 34,282,540 33,175,227 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $57,533,231 $54,894,392 ========== ==========
See accompanying notes. -2- THE EASTERN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED April 1, 2000 April 3, 1999 ------------- ------------- Net sales $20,214,419 $19,383,654 Interest income 63,208 71,251 ----------- ----------- Total 20,277,627 19,454,905 Cost of products sold 14,508,754 13,986,856 ----------- ----------- 5,768,873 5,468,049 Selling and administrative expenses 3,315,844 3,042,678 Interest expense 177,300 158,382 ----------- ----------- INCOME BEFORE INCOME TAXES 2,275,729 2,266,989 Income taxes 767,267 804,242 ----------- ----------- NET INCOME $ 1,508,462 $ 1,462,747 =========== =========== Net income per share: Basic $ 0.42 $ 0.40 Diluted $ 0.41 $ 0.39 Cash dividends per share $ 0.11 $ 0.10 See accompanying notes. -3-
THE EASTERN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED April 1, 2000 April 3, 1999 ------------- ------------- OPERATING ACTIVITIES: Net income $ 1,508,462 $ 1,462,747 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 744,417 718,479 Loss on sale of equipment and other assets - 256 Postretirement benefits other than pensions - 12,500 Provision for losses on accounts receivable 5,027 52,409 Issuance of Common Stock for directors' fees 26,077 17,809 Changes in operating assets and liabilities: Accounts receivable (1,591,008) (1,089,640) Inventories 294,512 243,249 Prepaid expenses (169,888) (107,773) Prepaid pension (749) (30,717) Accounts payable 594,170 96,572 Accrued expenses 874,848 (250,785) Other assets (1,349,883) (41,790) ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 935,985 1,083,316 INVESTING ACTIVITIES: Purchases of property, plant, and equipment (767,427) (911,379) Other - (33) ---------- ---------- NET CASH USED BY INVESTING ACTIVITIES (767,427) (911,412) FINANCING ACTIVITIES: Proceeds from issuance of long-term debt and notes payable - 465,220 Principal payments on long-term debt and notes payable (67,612) (79,938) Proceeds from sales of Common Stock 93,009 184,324 Purchases of Common Stock for treasury (53,219) (317,728) Dividends paid (401,150) (365,786) ---------- ---------- NET CASH USED BY FINANCING ACTIVITIES (428,972) (113,908) Effect of exchange rate changes on cash 11,979 (1,277) ---------- ---------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (248,435) 56,719 Cash and Cash Equivalents at Beginning of Period 5,940,190 4,789,901 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,691,755 $ 4,846,620 =========== ===========
See accompanying notes. -4- THE EASTERN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNADUITED) THREE MONTHS ENDED April 1, 2000 April 3, 1999 ------------- ------------- Net income $ 1,508,462 $ 1,462,747 Other comprehensive loss - Foreign currency translation (30,797) (199) ----------- ----------- Comprehensive income $ 1,477,665 $ 1,462,548 =========== =========== See accompanying notes. -5- THE EASTERN COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) APRIL 1, 2000 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 1, 2000 has been derived from the audited consolidated balance sheet at that date. Note B - Earnings Per Share - --------------------------- The denominators used in the earnings per share computations follow: THREE MONTHS ENDED April 1,2000 April 3,1999 ------------ ------------ Basic: Weighted average shares outstanding 3,653,106 3,652,085 Contingent shares outstanding (18,750) (30,000) --------- --------- Denominator for basic earnings per share 3,634,356 3,622,085 ========= ========= Diluted: Weighted average shares outstanding 3,653,106 3,652,085 Contingent shares outstanding (18,750) (30,000) Dilutive stock options 83,092 128,020 --------- --------- Denominator for diluted earnings per share 3,717,448 3,750,105 ========= ========= -6- THE EASTERN COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) APRIL 1, 2000 Note C - Segment Information - ---------------------------- The Company has three business segments. The Industrial Hardware Group produces latching devices for use on industrial equipment and instrumentation as well as a broad line of proprietary hardware designed for truck bodies and other vehicular equipment. The Custom Locks Group manufactures and markets a broad range of locks for traditional general purpose security applications. This segment also produces specialized locks for firearms, coin-operated vending and gaming equipment and electric and computer peripheral components. The Metal Products Group consists of a foundry which produces anchoring devices used in supporting the roofs of underground mines. This segment also manufactures specialty metal castings, which serve the construction, automotive and electrical industries. Segment financial information follows: THREE MONTHS ENDED April 1, 2000 April 3, 1999 ------------- ------------- Revenues: Sales to unaffiliated customers: Industrial Hardware $ 8,342,726 $ 6,746,737 Custom Locks 5,543,594 5,833,892 Metal Products 6,328,099 6,803,025 ---------- ---------- 20,214,419 19,383,654 General corporate 63,208 71,251 ---------- ---------- $20,277,627 $19,454,905 Income Before Income Taxes: Industrial Hardware $ 1,406,745 $ 1,100,178 Custom Locks 670,627 961,075 Metal Products 988,187 937,718 ---------- ---------- Operating Profit 3,065,559 2,998,971 General corporate expenses (612,530) (573,600) Interest expense (177,300) (158,382) ---------- ---------- $ 2,275,729 $ 2,266,989 -7- ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Recent Developments Effective February 1, 2000, the Company acquired all the issued and outstanding Common Stock of Ashtabula Industrial Hardware Co. (Ashtabula), which has been integrated into the Company's Eberhard facility in Strongsville, Ohio. The cost of the acquisition, which is being accounted for by the purchase method, was approximately $1.7 million. The operating results of Ashtabula, which produces proprietary hardware for school and courtesy bus doors, have been included in the Company's consolidated operating results from the date of the acquisition. This acquisition will allow our industrial hardware group to introduce its other vehicular products into the bus market, one that we have not been in. Neither the actual results nor the pro forma effects of this acquisition are material to the Company's financial statements. The Company's Eberhard division has started construction of a 40,000 sq. ft. addition to accommodate the additional activity generated by the Ashtabula acquisition and allow for future growth opportunities. The cost of this addition is expected to be approximately $2.5 million. Subsequent to the close of the first quarter, the company acquired two product lines from Hansen International Inc., used to produce proprietary locks to secure the lids of tool boxes that are installed in the beds of pickup trucks and other service vehicles. The cost of the acquisition, which is being accounted for by the purchase method, was approximately $2.4 million. These product lines will be moved into our Canadian manufacturing facility in Tillsonburg, Ontario and will make our industrial hardware group the leading supplier of locks to secure the lids of toolboxes used in the beds of pickup trucks and similar vehicles. The effects of this acquisition on the Company's consolidated financial position and operation results is not material. Results of Operations Net income per share (basic) for the first quarter of 2000 represented the thirteenth consecutive quarter of increased earnings over the comparable quarter in the prior year. Net income for the first quarter was $1,508,000 or $.42 per share (basic) on sales of $20.2 million as compared to $1,462,000 or $.40 per share (basic) on sales of $19.4 million in the first quarter of 1999. Sales for the first quarter 2000 were up 4.3% compared to the same period a year ago. New product introductions were up 9.8% and price increases were up 1.4%, which more than offset a volume reduction of 6.9%. The Industrial Hardware Group first quarter sales were up 24% compared to the first quarter of 1999. New product sales accounted for 9% of the increase along with volume increases of 15% over the first quarter of 1999. New products included a push button lock assembly, foot strap with resistant pad, bus hardware, and a spring-loaded hinge. Eberhard Manufacturing, in Strongsville, Ohio, experienced a 24% increase in sales over the first quarter of 1999. This increase was attributable to new products, including the bus hardware line resulting from the Ashtabula acquisition, as well as an overall increase in its industrial and transportation hardware lines. Eberhard Hardware, Ltd., our Canadian subsidiary, sales for the first quarter of 2000 outpaced the first quarter of 1999 by 15%. Sesamee Mexicana, the Company's Mexican operation, continued to see strong sales growth in industrial hardware with first quarter sales increasing 52% as compared to the first quarter of 1999. -8- The Custom Locks Group sales were down 5% in the first quarter as compared to the first quarter of 1999. Price increases were up 1% and volume was down 6%. The major portion of the volume decrease was experienced at our Illinois Lock Division, due to modifications and re-scheduling of shipments to several of the customers we serve. Sales to some of are major accounts were down in the first quarter compared to the same period in the prior year, a trend that management anticipates will start to reverse later in the year. While our current product line offers many unique features and good quality, lower cost Asian products are changing the competitive landscape of the lock business. The Company has its own Asian operations, which experienced an increase in sales volume of 45% in the first quarter of the current year compared to the first quarter of 1999. The Metal Products Group sales were down 7% in the first quarter as compared to the first quarter of 1999. Price increases were up 3%, new products were up 19% while volume was down 29%. The new product increase was mainly due to an influx of orders from a competitor that is temporarily shut down for renovations. Current year sales for jobbing were up 23%, while mining was down 33% from the comparable period in 1999. As a result of changes in the way coal is mined, there has for several years been a reduction in the requirements for underground roof support systems which use our expansion bolts. This trend appears to be ongoing. In response to the changing business climate in the mining industry, we have shifted the utilization of our Frazer & Jones facility toward the manufacture of a wide variety of contract casting products used by a number of original equipment manufacturers. But even these markets are now being affected negatively by the increased importation of castings from China and Mexico. With their extremely low labor costs, the competition in the contract casting market is becoming increasingly difficult. The Company continues to look at new manufacturing methods and alternative products to remain competitive. Gross margin as a percentage of sales for the three months ended April 1, 2000 was approximately 29% compared to 28% for the comparable period a year ago. The increase in gross margin is primarily the result of improved product mix, including new product introductions. Selling and administrative expenses were up 9% or $273 thousand for the three months ended April 1, 2000 compared to the same period a year ago. The higher selling and administrative expenses are due to increased spending on advertising, travel expense and consulting fees and higher payroll and fringe benefit costs. Interest expense for the first quarter of 2000 was $177 thousand versus $158 thousand for the first quarter of 1999. This increase in interest expense was due to the impact of higher average outstanding borrowing. Earnings before income taxes for the first quarter of 2000 were up 0.4% or $9 thousand compared to the first quarter of 1999. The Industrial Hardware Group was up 28% or $306 thousand for 3 months as compared to the same period a year ago. The increase was attributable to increased sales of industrial and transportation hardware as well as new product introductions with improved profit margins. The Custom Locks Group earnings before income taxes for the three months ended April 1, 2000 were down 30% or $290 thousand as compared to the first quarter of 1999. This was the result of lower margin product sales and lower sales to many key customers. The Metal Products Group earnings were up 5% or $50 thousand compared to the first quarter of 1999. The increase was due to improved product mix. -9- Liquidity and Sources of Capital Cash flows from operations were $936 thousand for the first quarter of 2000 versus $1.1 million for the same period in 1999. The change in cash flows resulted from an increased level of sales and the associated timing differences for collections of accounts receivable and payments of liabilities and changes in inventory. Cash flow from operations in the first quarter of 2000 was sufficient to fund capital expenditures, dividend payments and the purchase of 9,154 shares of Common Stock for the treasury. Additions to property, plant and equipment were $767 thousand during the first quarter of 2000 versus $911 thousand for the comparable period a year ago. Total 2000 capital expenditures, including the 40,000 square foot addition to Eberhard in Cleveland, will exceed the annual expected $2.5 million level of depreciation. Total inventory for the period ending April 1, 2000 was $13.8 million or $280 thousand lower than year end 1999. The inventory turnover ratio of 4.2 turns at the end of the first quarter was slightly better than the year end ratio of 3.7 turns, however, it was slightly lower than the 4.4 turns experienced in the first quarter of 1999. Accounts receivable increased by $1.6 million from year end 1999, primarily due to increased sales growth. The average day's sales in accounts receivable for the first quarter of 2000 was 49 days compared to the first quarter of 1999 of 45 days. The Company's strong balance sheet and internal cash flow generation should be sufficient to cover future working capital requirements. Other Matters No other matters are currently pending. Note: The preceding information contains statements which reflect the Registrant's current expectations regarding its future operating performance and achievements and are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in such statements. The Registrant is not obligated to update or revise the aforementioned statements for new developments ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company maintains manufacturing facilities in foreign countries, which account for approximately 13% of total sales and total assets. The United States operations buy and sell to the foreign affiliated companies and export less than 12% of total sales to non-affiliated companies. This trade activity could be affected by fluctuations in the foreign currency exchange or weak economic conditions. The Company's currency exposure is concentrated in four foreign currencies, Canada dollar, Mexican peso, New Taiwan dollar and the Hong Kong dollar. Because of the Company's limited exposure to foreign markets, currency exchange gains or losses are generally not material. The interest rate paid by the company under its term loan agreement is closely tied to the U.S. economy. To minimize significant interest rate exposure, the Company can fix the interest rate on its term debt. -10- PART II OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS - - ------ ------------------- There are no significant pending legal proceedings, other than ordinary routine litigation incidental to the Company's business, to which either the Registrant or any of its subsidiaries is a party or of which any of their property is the subject. ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS - ------ ----------------------------------------- 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-sixth day of April, 2000. The matters voted on and the voting results were: FOR WITHHELD AGAINST ABSTENTION 1a) Election of two directors for three year terms expiring in the year 2003. Donald S. Tuttle III 3,244,136 38,081 David C. Robinson 3,244,162 38,055 Continuing Directors: John W. Everets Leonard F. Leganza Charles W. Henry 2) Approval of Ernst & Young LLP as independent auditors: 3,275,884 2,460 3,873 ITEM 5 OTHER INFORMATION - ------ ----------------- None ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K - ------- -------------------------------- None -11- 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 15, 2000 /s/Leonad F. Leganza ------------ -------------------- Leonard F. Leganza President and Chief Executive Officer DATE: May 15, 2000 /s/John L. Sullivan III ------------ ----------------------- John L. Sullivan, III Vice President, Secretary and Treasurer -12- EX-27 2 FDS --
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