-----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, QMi0YJmXJAojTRTQhXXezkdyNuZOPg7oCJGReOtQVIpFXAWwqLjP57dYAVl09QVq 3Thj7dFClWM5mz2jy4smOw== 0000031107-03-000012.txt : 20030811 0000031107-03-000012.hdr.sgml : 20030811 20030811115942 ACCESSION NUMBER: 0000031107-03-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030628 FILED AS OF DATE: 20030811 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: 1934 Act SEC FILE NUMBER: 000-00599 FILM NUMBER: 03833678 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 tenq2nd03.txt SECOND QUARTER 10-Q 2003 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 JUNE 28, 2003 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 by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes -- No X . 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 June 28, 2003 ----- ------------------------------- Common Stock, No par value 3,612,746 -1- PART I FINANCIAL INFORMATION THE EASTERN COMPANY AND SUBSIDIARIES ITEM I CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) ------ -------------------------------------------------
ASSETS June 28, 2003 December 28, 2002 ------------- ----------------- CURRENT ASSETS Cash and cash equivalents $ 5,058,728 $ 5,939,232 Investment in common stock, at market 872,209 807,438 Accounts receivable, less allowances: 2003 - $373,000; 2002 - $304,000 11,289,161 10,824,807 Inventories 16,925,297 16,534,657 Prepaid expenses and other 1,249,199 1,336,383 Deferred income taxes 564,000 564,000 ------------- ------------- Total Current Assets 35,958,594 36,006,517 -------------------- Property, plant and equipment 41,418,387 40,442,628 Accumulated depreciation (17,055,417) (15,392,659) ------------- ------------- 24,362,970 25,049,969 Goodwill and trademarks 10,635,032 10,514,047 Patents, technology and licenses, less accumulated amortization 2,033,752 2,111,865 Intangible pension asset 1,112,129 1,112,129 Prepaid pension cost 1,021,160 1,338,010 ------------- ------------- TOTAL ASSETS $ 75,123,637 $ 76,132,537 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 4,232,941 $ 3,838,412 Accrued compensation 1,177,347 1,923,463 Other accrued expenses 1,634,261 2,015,979 Current portion of long-term debt 2,624,254 2,628,664 ------------- ------------- Total Current Liabilities 9,668,803 10,406,518 ------------------------- Deferred federal income taxes 841,687 737,987 Long-term debt, less current portion 17,615,723 18,920,747 Accrued postretirement benefits 2,614,948 2,578,156 Accrued rate swap obligation 943,690 1,138,086 Accrued pension obligation 3,848,197 4,448,197 Shareholders' Equity Preferred Stock, no par value Authorized shares - 2,000,000 (No shares issued) Common Stock, no par value: Authorized Shares - 25,000,000 Issued and outstanding shares: 2003-3,612,746; 2002-3,631,869 excluding 1,680,320 in 2003 and 1,657,320 shares held in treasury 615,489 883,695 Accumulated other comprehensive (loss)/income: Foreign currency translation (189,535) (898,137) Additional minimum pension liability, net of taxes (4,073,870) (4,073,870) Derivative financial instruments, net of taxes (566,690) (683,086) Unrealized holding gain on investment in common stock, net of taxes 74,964 35,893 ------------- ------------- (4,755,131) (5,619,200) Retained earnings 43,730,231 42,638,351 ------------- ------------- TOTAL SHAREHOLDERS' EQUITY 39,590,589 37,902,846 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 75,123,637 $ 76,132,537 ============= ============= See accompanying notes. -2-
THE EASTERN COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Six Months Ended Three Months Ended June 28, 2003 June 29, 2002 June 28, 2003 June 29, 2002 ------------- ------------- ------------- ------------- Net sales $43,181,825 $41,612,262 $21,591,111 $21,291,745 Other income 25,818 40,400 13,249 27,185 ----------- ----------- ----------- ----------- 43,207,643 41,652,662 21,604,360 21,318,930 Cost of products sold 32,409,625 31,689,505 16,318,446 16,478,547 ----------- ----------- ----------- ----------- 10,798,018 9,963,157 5,285,914 4,840,383 Selling and administrative expenses 7,293,196 6,911,464 3,473,743 3,269,684 Interest expense 669,091 884,582 322,572 437,867 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 2,835,731 2,167,111 1,489,599 1,132,832 Income taxes 945,666 731,486 552,911 374,314 ----------- ----------- ----------- ----------- NET INCOME $ 1,890,065 $ 1,435,625 $ 936,688 $ 758,518 =========== =========== =========== =========== Net income per share: Basic $ 0.52 $ 0.40 $ 0.26 $ 0.21 Diluted $ 0.52 $ 0.38 $ 0.26 $ 0.20 Cash dividends per share $ 0.22 $ 0.22 $ 0.11 $ 0.11
-3- THE EASTERN COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 28, 2003 June 29, 2002 ------------- ------------- OPERATING ACTIVITIES: Net income $ 1,890,065 $ 1,435,625 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,840,656 1,811,709 Loss on sales of equipment and other assets - - Postretirement benefits other than pensions 36,792 37,500 Provision for losses on accounts receivable 66,315 4,836 Issuance of Common Stock for directors' fees 49,189 42,785 Changes in operating assets and liabilities: Accounts receivable (391,352) (1,242,184) Inventories (752,313) 2,313,644 Prepaid expenses 471,293 139,483 Prepaid pension (24,062) 148,360 Accounts payable (413,884) (34,521) Accrued expenses (460,712) (113,501) Other Assets (72,502) (272,200) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 2,239,485 4,271,536 INVESTING ACTIVITIES: Purchases of property, plant, and equipment (742,674) (752,733) Other 33,307 3,177 ----------- ----------- NET CASH USED BY INVESTING ACTIVITIES (709,367) (749,556) FINANCING ACTIVITIES: Principal payments on long-term debt (1,307,505) (1,608,384) Purchases of Common Stock for treasury (317,395) - Dividends paid (798,185) (797,568) ----------- ----------- NET CASH USED BY FINANCING ACTIVITIES (2,423,085) (2,405,952) Effect of exchange rate changes on cash 12,463 11,204 ----------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS (880,504) 1,127,232 Cash and Cash Equivalents at Beginning of Period 5,939,232 4,955,020 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,058,728 $ 6,082,252 =========== ============
-4- THE EASTERN COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Six Months Ended Three Months Ended June 28, 2003 June 29, 2002 June 28, 2003 June 29, 2002 ------------- ------------- ------------- ------------- Net income $ 1,890,065 $ 1,435,625 $ 936,688 $ 758,518 Other comprehensive income -- Foreign currency translation 708,602 386,061 531,344 137,717 Change in fair value of derivative financial instruments, net of income tax (expense)/benefit: 2003 - ($78,000) and ($38,000) respectively; 116,396 55,829 2002 - ($13,000) and $61,000 respectively 18,304 (92,274) Unrealized holding gain on investment in common stock, net of income tax expense 2003 - ($25,700) and ($40,000)respectively; 39,071 60,639 2002 - ($4,500) and ($24,000) respectively 6,338 35,610 ----------- ----------- ----------- ----------- Comprehensive income $ 2,754,134 $ 1,846,328 $ 1,584,500 $ 839,571 =========== =========== =========== ===========
-5- THE EASTERN COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 28, 2003 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 in the United States for complete financial statements. Refer to the Company's consolidated financial statements and notes thereto included in its Form 10-K for the year ended December 28, 2002 for additional information. The accompanying condensed consolidated financial statements are unaudited. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for interim periods have been reflected therein. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. Certain prior year amounts have been reclassified to conform to the 2003 presentation. The condensed balance sheet as of December 28, 2002 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:
Six Months Ended Three Months Ended June 28, 2003 June 29, 2002 June 28, 2003 June 29, 2002 ------------- ------------- ------------- -------------- Basic: Weighted average shares outstanding 3,627,807 3,629,931 3,625,310 3,630,586 Contingent shares outstanding -- -- -- -- --------- --------- --------- --------- Denominator for basic earnings per share 3,627,807 3,629,931 3,625,310 3,630,586 ========= ========= ========= ========= Diluted: Weighted average shares outstanding 3,627,807 3,629,931 3,625,310 3,630,586 Contingent shares outstanding -- -- -- -- Dilutive stock options 2,602 99,611 5,204 86,445 --------- --------- --------- --------- Denominator for diluted earnings per share 3,630,409 3,729,542 3,630,514 3,717,031 ========= ========= ========= =========
Note C - Inventories - -------------------- The components of inventories follow:
June 28, 2003 December 28, 2002 ------------- ----------------- Raw materials and component parts $ 7,836,413 $ 7,658,722 Work in process 4,332,876 4,226,858 Finished goods 4,756,008 4,649,077 ------------ ------------ $ 16,925,297 $ 16,534,657 ============ ============
-6- THE EASTERN COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 28, 2003 Note D - Segment Information - ---------------------------- Segment financial information follows:
SIX MONTHS ENDED THREE MONTHS ENDED June 28, 2003 June 29, 2002 June 28, 2003 June 29, 2002 ------------- ------------- ------------- ------------- Revenues: Sales to unaffiliated customers: Industrial Hardware $17,066,514 $14,902,415 $ 8,461,310 $ 8,005,345 Security Products 18,861,109 18,494,321 9,379,421 9,438,508 Metal Products 7,254,202 8,215,526 3,750,380 3,847,892 ----------- ----------- ----------- ----------- 43,181,825 41,612,262 21,591,111 21,291,745 General corporate 25,818 40,400 13,249 27,185 ----------- ----------- ----------- ----------- $43,207,643 $41,652,662 $21,604,360 $21,318,930 =========== =========== =========== =========== Income Before Income Taxes: Industrial Hardware $ 2,197,375 $ 1,799,473 $ 1,073,507 $ 1,062,078 Security Products 2,160,267 1,973,095 1,090,493 1,169,217 Metal Products 270,842 211,834 126,267 (35,530) ----------- ----------- ----------- ----------- Operating Profit 4,628,484 3,984,402 2,290,267 2,195,765 General corporate expenses (1,123,662) (932,707) (478,096) (625,066) Interest expense (669,091) (884,584) (322,572) (437,867) ----------- ----------- ----------- ----------- $ 2,835,731 $ 2,167,111 $ 1,489,599 $ 1,132,832 =========== =========== =========== ===========
Note E - Stock-Based Compensation - --------------------------------- In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" which addressed financial accounting and reporting for recording expenses for the fair value of stock options. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation as originally provided by SFAS No. 123, "Accounting for Stock-Based Compensation." Additionally, SFAS 148 amends the disclosure requirements of SFAS No.123 in both annual and interim financial statements. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company has elected to continue to account for stock options in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. As such, it does not recognize compensation expense for stock options granted under its stock option plans if the exercise price is at least equal to the fair market value of the Company's common stock on the date granted. Stock-based compensation costs for stock awards are reflected in net income over the awards' vesting period. Pro forma information regarding net income and earnings per share, as required by Statement No. 123 "Accounting for Stock-Based Compensation", has been determined as if the Company had accounted for its employee stock options under the fair value method. The fair value of the stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: -7-
June 28, 2003 June 29, 2002 ------------- ------------- Risk free interest rate 2.27 4.19 Expected volatility 3.07 3.10 Expected option life 5 years 5 years Weighted-average dividend yield 3.1% 3.1%
THREE MONTHS ENDED SIX MONTHS ENDED June 28, 2003 June 29, 2002 June 28, 2003 June 29, 2002 ------------- ------------- ------------- ------------- Net (loss) income, as reported $936,688 $758,518 $1,890,065 $1,435,625 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards granted since July 19, 2000, net of related tax effects (12,873) (14,505) (25,746) (29,010) Pro forma net income $923,815 $744,013 $1,864,319 $1,406,615 Earnings per share: Basic-as reported $0.26 $0.21 $0.52 $0.40 Basic-pro forma $0.25 $0.20 $0.51 $0.39 Diluted-as reported $0.26 $0.20 $0.52 $0.38 Diluted-pro forma $0.25 $0.20 $0.51 $0.38
For the purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the stock options' vesting period ranging from 1 to 5 years. The pro forma effect on net income and related earnings per share may not be representative of future years' impact since the terms and conditions of new grants may vary from the current terms. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------ --------------------------------------- The Company makes estimates and assumptions that may materially affect reported amounts and disclosures. These relate to valuation allowances for the collectibility of accounts receivable and for 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), and, on occasion, accruals for contingent losses. The Company is also subject to various risks and uncertainties that may cause actual results to differ from estimated results, such as changes within our industry segments, in the overall economy, competition, litigation and legislation. Results of Operations Net income per share for the second quarter of 2003 was $937,000 or $.26 per diluted share on sales of $21.6 million compared to $759,000 or $.20 per diluted share on sales of $21.3 million in the second quarter of 2002. Net income for the first six months of 2003 was $1.9 million or $.52 per diluted share on sales of $43.2 million as compared to the first six months of 2002 of $1.4 million or $.38 per diluted share on sales of $41.6 million. Sales for the second quarter 2003 were up 1% compared to the same period a year ago. New product sales contributed 8%, volume of existing products decreased 8% and prices increased 1%. Sales for the first half of 2003 were up 4% compared to the same period a year ago. Volume of existing products was down 5% while new product sales were up 8% and prices were up 1%. -8- The Industrial Hardware segment's second quarter sales were up 6% compared to the second quarter of 2002. New product sales increased 21% and volume of existing products decreased 15%. Sales for the first six months of 2003 were up 15% compared to the same period a year ago. New product sales increased 22% while sales volume of existing products was down 7%. New products include pushbutton locking systems for use on utility truck bodies, rotary locks for the truck accessories market and "sleeper boxes" for use on class 8 trucks. Without the additional sales of "sleeper boxes" resulting from the acquisition of Canadian Commercial Vehicles Corporation, sales would have decreased by 9% in the three month period and would have been flat for the 6 month period compared to the same periods in the prior year. Sales of heavy hardware to the tractor-trailer industry were up 13% for the first six months of 2003 as compared to the same period a year ago. While sales of heavy hardware dipped in the second quarter, management believes 2003 will continue to show improvement over the prior year. Sales of our school and courtesy bus products were up 6% for the first half of the year as compared to the first half of 2002. Sales of industrial hardware are up 4% from prior year levels. Sales of automotive accessories decreased 7% for six months compared to the same period in 2002. Our presence in China has recently been expanded with the establishment of Eastern Industries (Shanghai) Ltd., a manufacturing facility located in Shanghai, China. This subsidiary will be instrumental in helping us remain price competitive in North America and will open up the possibility to more effectively pursue markets in Asia and elsewhere. In addition to producing fabricated metal products, it will include plastic injection molding capability. It will also serve as a sourcing center for non-competitive products. The Company anticipates continued sales improvement in the Industrial Hardware segment throughout 2003. The Security Products segment's sales were comparable in the second quarter 2003 as compared to the second quarter of 2002. Sales for the first half of 2003 were up 2% compared to the first half of 2002. Volume of existing products was up 1% and new product sales increased 1%. Sales of new products consisted of electronic drop meters for commercial laundry applications. Sales of locks to the computer industry decreased 12% in the second quarter of 2003 as compared to the comparable quarter of 2002 while sales for the first half of 2003 increased 8% as compared to the first half of 2002. Sales of locks to the electronic industries were up 19% for the first half of 2003 as compared to the first half of 2002. Sales of locks to the travel industry continue to be below prior year levels. While the TSA (Transportation Security Administration) has announced not to lock baggage, the Company has introduced the PrestoSeal product line to prevent surreptitious entry into baggage and has been working with Travel Sentry in developing a new lock that would meet TSA requirements. Sales of security products to the commercial laundry industry increased 2% as compared to the first half of 2002. The Company continues to pursue new business opportunities through aggressive pricing, improved customer service, intense marketing and a commitment to new product development. The Metal Products segment's sales were down 3% in the second quarter 2003 as compared to the second quarter of 2002. Volume of existing products was down 11% and prices increased 8%. Sales for the first half were down 12% compared to the first half of 2002. Volume of existing products was down 16% and prices increased 4%. Sales of our contract casting products for use in the commercial and industrial construction industry decreased 32% for the first half of 2003 as compared to the first half of 2002. Foreign competition from China and Mexico with low labor rates and favorable foreign exchange rates has created pricing pressure and reduced demand for our contract casting products. Sales of our mine roof anchors were up 2% for the first half of 2003 as compared to 2002. The Company continues to look at new manufacturing methods and alternative products to remain competitive in this industry. Sales for 2003 will be lower than those reported in 2002 as the Company continues to move away from the production and sale of low margin contract castings. Gross margin as a percentage of sales for the three and six months ended June 28, 2003 were approximately 24% and 25% respectively compared to 23% and 24% in the comparable periods a year ago. The increase in gross margin is primarily the result of product mix and increased sales volume causing higher plant utilization at some of our production facilities. -9- Selling and administrative expenses were up 6% or $207,000 and 6% or $382,000 respectively for the three and six months ended June 28, 2003 compared to the same periods a year ago. The increase in selling and administrative expenses for both the three and six month periods are due to the addition of Canadian Commercial Vehicles in the 2003 periods and favorable insurance premium refunds received in the second quarter of 2002. Interest expense decreased by $115,000 or 26% for the second quarter of 2003 and $215,000 or 24% for six months as compared to the same periods in 2003. This decrease in interest expense was due to lower debt and lower interest rates. Earnings before income taxes for the three months ended June 28, 2003 were up $357,000 or 32% and for six months ended June 28, 2003 were up 31% or $669,000 as compared to the same periods of 2002. The Industrial Hardware segment was comparable to the prior year for the three month period and up 22% or $398,000 for the six month period as compared to the same periods a year ago. The increase in the six months was primarily the result of increased sales over the prior year period, which included the additional sales generated in 2003 from the acquisition of Canadian Commercial Vehicles in October 2002. The Security Products segment earnings before income taxes for the three and six month periods ended June 28, 2003 were down 6% or $69,000 and up 9% or $187,000 respectively compared to the comparable periods a year ago. The decrease in the three month period was due to lower sales volume in 2003 and the increase in the six month period was the result of increased sales volume and efficiency gains achieved through the consolidation of the manufacturing operations of CCL Security Products into the Illinois Lock facility in Wheeling Illinois during 2002. The Metal Products segment earnings were up 455% or $162,000 and 28% or $59,000 for the second quarter and first half of 2003 over the same periods a year ago. This increase was mainly due to increased prices and elimination of some lower margin contract casting products. The effective tax rate of 37% for the 3 months ended June 28, 2003 was higher than the comparable period in 2002 of 33% due to higher foreign taxes. Liquidity and Sources of Capital Cash flows from operations were $2.2 million for the first half of 2003 versus $4.3 million for the same period in 2002. The change in cash flows resulted from changes in the level of sales at all locations and the associated timing differences for collections of accounts receivable and payments of liabilities and changes in inventories. Cash flow from operations coupled with cash on hand at the beginning of the year was sufficient to fund capital expenditures, debt service, contributions to the companies pension plans, purchases of Common Stock for the treasury and dividend payments. Additions to property, plant and equipment were $709,000 during the first half of 2003 versus $750,000 for the comparable period a year ago. Total capital expenditures for 2003 are expected to be in the range of $1.5 million to $2.5 million. Total inventories as of June 28, 2003 were $16.9 million or $391,000 higher than year end 2002. The inventory turnover ratio of 3.8 turns at the end of the second quarter was comparable to both the prior year second quarter of 3.9 turns and the year end ratio of 3.7 turns. Accounts receivable increased by $464,000 from year end 2002, primarily due to increased sales volume compared to the fourth quarter of 2002. The average days sales in accounts receivable for the second quarter of 2003 was 48 days compared to 52 days in the second quarter of 2002 and 48 days at year end 2002. Cash flow from operating activities and funds available under the revolving credit portion of the Company's loan agreement should be sufficient to cover future foreseeable working capital requirements. -10- Note: The preceding information contains forward looking statements which reflect the Company's current expectations regarding its future operating performance and achievements and is subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in such statements. Such risks and uncertainties include changing customer preferences, lack of success of new products, loss of customers, competition, increased raw material prices and problems associated with foreign sourcing of parts and products. The Company is not obligated to update or revise the aforementioned statements for new developments. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------ ---------------------------------------------------------- There have been no material changes in market risk from what was reported in the 2003 Annual Report on Form 10-K. ITEM 4 CONTROLS AND PROCEDURES - ------ ----------------------- Evaluation of Disclosure Controls and Procedures Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in its periodic SEC filings is recorded, processed and reported within the time periods specified in the SEC's rules and forms. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings. Changes in Internal Controls There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. 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 -11- ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------ --------------------------------------------------- See the information set forth in Item 4 of the Form 10-Q of the Company for the quarterly period ended March 29, 2003. ITEM 5 OTHER INFORMATION - ------ ----------------- None ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K - ------- -------------------------------- (a) 99(1) The Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 2002 is incorporated herein by reference. 99(2) The Registrant's Quarterly Report on Form 10-Q for the quarterly period ended March 29, 2003 is incorporated herein by reference. 99(3) Certifications pursuant to Rule 13a-14 or Rule 15d-14 and 18 USC 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002. (b) 99(4) Form 8-K filed on April 23, 2003 setting forth the press release reporting the Company's earnings for the quarter ended March 29, 2003. 99(5) Form 8-K filed on July 30, 2003 setting forth the press release reporting the Company's earnings for the quarter ended June 28, 2003. 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: August 11, 2003 /s/Leonard F. Leganza --------------- --------------------- Leonard F. Leganza President and Chief Executive Officer DATE: August 11, 2003 /s/John L. Sullivan III --------------- ------------------------ John L. Sullivan III Vice President, Secretary and Treasurer -12- EX-99 4 ex99-10q2nd03.txt CERTIFICATIONS CERTIFICATIONS Exhibit 99(3) I, Leonard F. Leganza, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Eastern Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 11, 2003 /s/ Leonard F. Leganza ---------------------- Leonard F. Leganza CEO -13- CERTIFICATIONS I, John L. Sullivan III, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Eastern Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 11, 2003 /s/ John L. Sullivan III ------------------------ John L. Sullivan III CFO -14- CERTIFICATION Pursuant to 18 United States Code Section 1350 The undersigned hereby certifies that to his knowledge the quarterly report of The Eastern Company filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Leonard F. Leganza ---------------------- Leonard F. Leganza CEO CERTIFICATION Pursuant to 18 United States Code Section 1350 The undersigned hereby certifies that to his knowledge the quarterly report of The Eastern Company filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ John L. Sullivan III ------------------------ John L. Sullivan III CFO -15- -----END PRIVACY-ENHANCED MESSAGE-----