-----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, OEd4lfMBSH8Q11s8+3imeVsawHJHk8XFt8gG3C3wAemmgOAM4F2wkQPQhmgK7UeW W+Z1yhecVguIw5Ph9x6RsA== 0000031107-96-000005.txt : 19960813 0000031107-96-000005.hdr.sgml : 19960813 ACCESSION NUMBER: 0000031107-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960629 FILED AS OF DATE: 19960812 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: 1934 Act SEC FILE NUMBER: 000-00599 FILM NUMBER: 96608976 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 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 June 29, 1996 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 June 29, 1996 Common Stock, No par value 2,699,284 -1- 2 PART I FINANCIAL INFORMATION THE EASTERN COMPANY AND SUBSIDIARIES ITEM I CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) - ------ -------------------------------------
ASSETS CURRENT ASSETS June 29, 1996 Dec. 30, 1995 - -------------- ------------ ----------- Cash and cash equivalents $ 2,164,201 $ 1,521,361 Accounts receivable, less allowance: 8,207,961 7,810,742 1996- $537,895; 1995- $501,000 Inventories 11,300,362 11,792,876 Prepaid expenses and other current assets 1,999,503 2,010,332 ----------- ----------- Total Current Assets 23,672,027 23,135,311 Property, plant and equipment 26,857,950 25,090,676 Less accumulated depreciation (12,821,977) (11,405,013) ---------- ---------- 14,035,973 13,685,663 Prepaid pension cost 3,802,332 3,069,066 Other assets, net 1,147,797 1,200,059 ----------- ----------- TOTAL ASSETS $ 42,658,129 $ 41,090,099 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable current $ 2,619,313 $ 1,119,313 Accounts payable 2,479,739 3,004,297 Accrued compensation and withholding 1,542,546 908,297 Accrued expenses 1,158,384 863,749 ----------- ----------- TOTAL CURRENT LIABILITIES 7,799,982 5,895,656 Deferred federal income taxes 2,237,900 2,237,900 Long-term debt 280,125 339,856 Accrued postretirement benefits 2,816,003 2,810,003 SHAREHOLDERS' EQUITY Common Stock, no par value: Authorized shares - 25,000,000 Issued and outstanding shares: 8,045,863 8,017,738 1996-2,699,284; 1995-2,696,284 (Excluding Shares in Treasury: 1996-610,987; 1995-610,987) Preferred Stock, no par value Authorized shares - 2,000,000 (No shares issued) Retained earnings 21,478,256 21,788,946 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 42,658,129 $ 41,090,099 =========== ===========
See accompanying notes. -2- 3 THE EASTERN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED THREE MONTHS ENDED June 29, 1996 July 1, 1995 June 29, 1996 July 1, 1995 ----------- ----------- ----------- ---------- Net Sales $29,892,588 $31,446,053 $15,351,036 $15,030,421 Interest Income 70,530 70,623 33,821 30,553 ----------- ---------- ---------- ---------- Total 29,963,118 31,516,676 15,384,857 15,060,974 Cost of Products Sold 24,233,990 23,692,593 12,116,441 11,547,598 ----------- ----------- ---------- ---------- 5,729,128 7,824,083 3,268,416 3,513,376 Selling and Admin. Expenses 5,349,975 5,181,541 2,658,140 2,503,518 Interest Expense 73,666 60,248 22,827 16,603 Other Income - (29,087) - - ----------- ----------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS 305,487 2,611,381 587,449 993,255 Income Taxes 130,945 972,964 210,746 398,194 ----------- ----------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS $ 174,542 $ 1,638,417 $ 376,703 $ 595,061 Discontinued operations - (95,718) - (12,031) ----------- ----------- ---------- ---------- NET INCOME $ 174,542 $ 1,542,699 $ 376,703 $ 583,030 =========== =========== ========== ========== Income per share from continuing operations $ 0.06 $ 0.59 $ 0.13 $ 0.21 Net income per share $ 0.06 $ 0.56 $ 0.13 $ 0.21 Cash Dividends Per Share $ 0 .23 $ 0.23 $ 0.115 $ 0.115 Average Shares Outstanding 2,696,820 2,775,357 2,696,820 2,775,357
See accompanying notes. -3- 4 THE EASTERN COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED June 29, 1996 July 1, 1995 ----------- ------------ OPERATING ACTIVITIES: Net income $ 174,542 $ 1,542,699 Adjustments to reconcile net income to net cash provided from operations: Depreciation and amortization 1,524,080 1,356,092 Loss (gain) on sale of equipment and other assets 335 (15,212) Postretirement benefits other than pensions 6,000 5,797 Provision for losses on accounts receivable 35,242 66,110 Changes in Operating Assets and Liabilities: Accounts receivable (432,808) 557,586 Inventories 499,270 (1,985,937) Prepaid expenses 12,023 98,877 Prepaid pension (733,267) (191,705) Accounts payable (520,783) 34,483 Accrued expenses 1,044,110 829,113 Other assets (44,421) (335,226) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,564,323 1,962,677 INVESTING ACTIVITIES: Purchases of property, plant, and equipment (1,787,962) (1,272,369) Proceeds from sale of equipment and other assets 13,600 1,034,717 ----------- ----------- NET CASH PROVIDED (USED) FOR INVESTING ACTIVITIES (1,774,362) (237,652) 048,045) FINANCING ACTIVITIES: Payment on line of credit (1,400,000) Proceeds from line of credit 1,500,000 - Principal payments on long-term debt (60,000) (560,000) Proceeds from sales of Common Stock 28,125 29,510 Purchases of Common Stock for the treasury - (29,509) Dividends paid (620,493) (638,421) ----------- ----------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 847,632 (2,598,420) Effect of exchange rate changes on cash 5,247 5,152 ----------- ----------- NET DECREASE (DECREASE)IN CASH AND CASH EQUIVALENTS 642,840 (868,243) Cash and Cash Equivalents at Beginning of Year 1,521,361 2,610,244 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,164,201 $ 1,742,001 =========== ===========
See accompanying notes. -4- 5 THE EASTERN COMPANY AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
SIX MONTHS ENDED THREE MONTHS ENDED June 29, 1996 July 1, 1995 June 29, 1996 July 1, 1995 ------------- ------------ ------------- ------------ Primary: Average Shares Outstanding 2,696,820 2,775,357 2,696,820 2,775,357 Net effect of dilutive stock options -- based on the treasury stock method using average market price 29,582 53,788 29,582 53,788 ----------- --------- ---------- --------- Total 2,726,402 2,829,145 2,726,402 2,829,145 =========== ========= ========== ========= Income from continuing operations per share $ 174,542 $1,638,417 $ 376,703 $ 595,061 =========== ========== ========== ========= Net Income $ 174,542 $1,542,699 $ 376,703 $ 583,030 =========== ========== ========== ========= Income from continuing operations per share $0.06 $0.58 $0.13 $0.21 ===== ===== ===== ===== Net income per share $0.06 $0.55 $0.13 $0.21 ===== ===== ===== ===== Fully Diluted: Average Shares Outstanding 2,696,820 2,775,357 2,696,820 2,775,357 Net effect of dilutive stock options -- based on the treasury stock method using quarter-end market price, if higher than average market price 29,582 53,788 29,582 53,788 --------- --------- -------- --------- Total 2,726,402 2,829,145 2,726,402 2,829,145 ========= ========= ========= ========= Income from continuing operations per share $ 174,542 $1,638,417 $ 376,703 $ 595,061 =========== ========== ========== ========= Net Income $ 174,542 $1,542,699 $ 376,703 $ 583,030 =========== ========== ========== ========= Income from continuing operations per share $0.06 $0.58 $0.13 $0.21 ===== ===== ===== ===== Net income per share $0.06 $0.55 $0.13 $0.21 ===== ===== ===== =====
See accompanying notes. -5- 6 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS June 29, 1996 Note A - Basis of Presentation The accompanying unaudited consolidated condensed 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 consolidated condensed financial statements are unaudited. However, in the opinion of the Registrant's 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. Certain 1995 amounts have been reclassified to conform to 1996 presentation. Note B - Net Income Per Share Net income per share of common stock is based on the weighted average number of shares outstanding during each period (1996- 2,696,820 shares; 1995 - 2,775,357 shares). Common stock equivalents (Stock Options) did not have a material dilutive effect on net income per share. The computation of net income per share of common stock on a fully diluted basis did not result in any material dilution in 1996 or 1995. Note C - Discontinued Operation In August 1995, the Company sold the business and substantially all assets of its construction segment retaining accounts receivable. At June 29, 1996 and December 30, 1995 accounts receivable include $504,192 and $582,627 respectively applicable to the discontinued construction segment. The statement of income for the three and six months ended July 1, 1995 has been reclassified to reflect the discontinuance of this segment. -6- ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Income from continuing operations for the second quarter 1996 was $376,703 or $.13 per share on sales of $15,351,036 versus income from continuing operations for the second quarter of 1995 of $595,061 or $.21 per share on sales of $15,030,421. Income from continuing operations for the first six months of 1996 was $174,542 or $.06 per share on sales of $29,892,588 versus income from continuing operations for the first six months of 1995 of $1,638,417 or $.59 per share on sales of $31,446,053. Net income for the first six months of 1995 was $1,542,699 or $.56 per share after the loss from the discontinued construction segment of $95,718 or $.03 per share. Second quarter sales were up 2% compared to the same period a year ago. A volume decrease of 3% was offset by price increases of 1% and new products of 4% during the second quarter. Sales for the first six months of 1996 were down 5% compared to the same period a year ago. Price and new products increased 4% while volume was down 8% for the first half. New products include vehicular hardware produced and designed by Eberhard Manufacturing division; the "Gun Blok", a patented keyless trigger lock for securing most hand guns and rifles, offered by the Registrant's CCL Security Products division; new malleable castings products manufactured by the Frazer & Jones division; and hardware components for the appliance industry offered by the Registrant's Canadian subsidiary, Eberhard Hardware Manufacturing, Ltd. Weak demand for the Registrant's expansion shells, used in the mining industry, resulted in reduced production throughout the second quarter. Although the overall underground coal mining industry is expected to be soft for the foreseeable future, the Registrant is in final negotiations for additional work which will help to significantly improve the operating capacity utilization at this division. Contract malleable casting sales were comparable to the six month period a year ago. Increased sales and production is expected during the third quarter. Demand for the Registrant's heavy hardware servicing the tractor trailer industry continues to be on the down cycle with sales off 29% for the six months 1996 as compared to the comparable period of 1995. Aggressive marketing and product development has increased business in the utility body and vehicular accessories markets helping to offset a significant portion of the temporary decline in the tractor trailer markets. Sales of custom locks were up 8% in the second quarter and up 5% for the first half over the comparable period a year ago. The Registrant's overall results are expected to be improved in the second half of 1996. The Registrant's gross margin as a percentage of sales for the three and six months ended June 29, 1996 was 21% and 19%, respectively, compared to 23% and 25% for the comparable periods a year ago. Gross margin improved significantly in the second quarter over the first quarter of 1996 as the result of increased sales of new products and production problems being resolved at the Registrant's Frazer and Jones division. Although the gross margin is down from the comparable periods a year ago, improvements are expected in the second half of 1996 as increased production is anticipated to meet demand for new and existing products. Selling and administrative expenses were up 6% or $155 thousand and up 3% or $168 thousand for the three and six months ended June 29, 1996 as compared to the same periods a year ago. Overall selling and administrative expenses expressed as a percentage of sales -7- 8 were up slightly for the three and six month periods ended June 29, 1996 at 17% and 18% respectively, versus a year ago of approximately 17% for the comparable periods. Increases in selling and administrative expenses were experienced in administrative payroll and fringe benefits, sales commission expenses and professional services. Other income for the six months ended June 29, 1996, was down $29 thousand as compared to the same periods a year ago. An agreement under which the Registrant received commission income expired in August 1995. The effective income tax rate for the second quarter and first half of 1996 from continuing operations was 36% and 43%, respectively, versus 40% and 37% for the comparable periods a year ago. The reduction in the effective income tax rates in the second quarter of 1996 was due to lower effective U.S. rates versus higher effective foreign rates. For the first half of 1996 the effective tax was higher than the comparable period a year ago due to higher foreign tax rates. Liquidity and Sources of Capital Cash flows from operations were $1.564 million for the first half of 1996 versus $1.963 million in the first half of 1995. The change in cash flows resulted from timing differences for collections of accounts receivable, payments of liabilities and reductions in inventory. The Registrant drew down $1.5 million under its short-term line of credit in the first half of 1996 to fund normal capital expenditure. Additions to property, plant and equipment were $1.8 million during the first half of 1996 versus $1.3 million for the comparable period a year ago. Total 1996 capital expenditures are expected to approximate the $2.5 million level of depreciation for the year. Inventory decreased from the 1995 year-end level by $500 thousand with inventory turns remaining comparable at 6 times per year. The average day's sales in accounts receivable decreased to 52 days versus 53 at days the end of 1995. The balance of uncollected accounts receivable from the discontinued segment was $504 thousand at the end of the first half of 1996; the Registrant continues to pursue collection. The Registrant does not anticipates it will be drawing down on its short-term line of credit for funding working capital or additional capital expenditures. 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. No complaints are now pending in the US District Court involving the Registrant and a final judgement was entered by the U.S. District Court in the consolidated proceedings on March 17, 1995. Appeals, however, have been filed by two government agencies as described 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- 9 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. 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). By order dated February 8, 1994, the court granted a motion filed by Registrant for judgement 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 filed 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- 10 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 are now 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. 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 material legal proceedings, other than ordinary routine litigation incidental to the business, to which either the Registrant or any of its subsidiaries is a party to or by which any of their property is the subject. 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 Registrant's corporate office on Wednesday the twenty-forth day of April, 1996. The purpose of the meeting was to: 1. To elect four (4) directors. 2. To approve the appointment by the Board of Directors of Ernst & Young LLP as independent auditors to audit the books and accounts for the current fiscal year. Nominated for election at the 1996 annual meeting for a three year term expiring 1999. Votes cast FOR WITHHELD John W. Everets 2,401,203 39,447 Leonard F. Leganza 2,401,105 39,545 Russell G. McMillen 2,401,622 39,028 David C. Robinson 2,402,480 38,170 Continuing Directors: Charles W. Henry Ole K. Imset Stedman G. Sweet Donald S. Tuttle III Donald E. Whitmore, Jr. Appointment of independent auditors: Votes cast FOR AGAINST ABSTENTION Ernst & Young LLP 2,453,660 3,288 2,268 -10- 11 ITEM 5 OTHER INFORMATION None ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K B. 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: August 12, 1996 By /s/ STEDMAN G. SWEET --------------------- Stedman G. Sweet President and Chief Executive Officer DATE: August 12, 1996 By /s/ DONALD E. WHITMORE, JR. --------------------------- Donald E. Whitmore, Jr., Vice President and Chief Financial Officer -11- EX-27 2
5 6-MOS DEC-30-1995 JUN-29-1996 2,164,201 0 8,207,961 537,895 11,300,362 23,672,027 26,857,950 12,821,977 42,658,129 7,799,982 0 8,045,863 0 0 21,478,256 42,658,129 29,892,588 29,963,118 24,233,990 24,233,990 5,314,733 35,242 73,666 305,487 130,945 174,542 0 0 0 174,542 .06 .06
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