-----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, N+UywKc5uzOkSQ3tXzxBRbXDjT6nZHjrWXF+z66GTt92mmWmsh5ybae9axsjjCtU u3pdLI8/DYA4a6K1FxjHww== 0000031107-97-000005.txt : 19970812 0000031107-97-000005.hdr.sgml : 19970812 ACCESSION NUMBER: 0000031107-97-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970811 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: 97655275 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 June 28, 1997 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 28, 1997 ----- ------------------------------- Common Stock, No par value 2,737,135 -1- PART I
FINANCIAL INFORMATION THE EASTERN COMPANY AND SUBSIDIARIES ITEM I CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED) - ------ ASSETS June 28, 1997 December 28, 1996 ------------- ----------------- CURRENT ASSETS Cash and cash equivalents $ 1,464,789 $ 2,269,031 Accounts receivable, less allowance: 9,014,446 7,018,961 1997-$633,000; 1996-$567,000 Inventories 12,306,246 10,897,827 Prepaid expenses and other current assets 1,733,413 2,287,155 ----------- ------------- Total Current Assets 24,518,894 22,472,974 Property, plant and equipment 26,924,469 25,961,043 Accumulated depreciation (13,400,712) (12,074,420) ----------- ------------ 13,523,757 13,886,623 Prepaid pension cost 4,053,199 4,017,397 Other assets, net 2,204,452 2,115,240 ----------- ------------ TOTAL ASSETS $44,300,302 $ 42,492,234 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 3,130,980 $ 3,630,980 Accounts payable 2,881,741 2,396,582 Accrued compensation and withholding 1,491,392 859,701 Accrued expenses 1,112,222 823,560 ----------- ------------ Total Current Liabilities 8,616,335 7,710,823 Deferred federal income taxes 2,389,800 2,389,800 Long-term debt 91,631 224,415 Accrued postretirement benefits 2,818,577 2,812,690 SHAREHOLDERS' EQUITY Common Stock, No Par Value: Authorized Shares - 25,000,000 Issued and outstanding shares: 8,445,842 8,272,614 1997-2,737,135; 1996-2,696,284 (Excluding Shares in Treasury: 1997-639,760; 1996-610,987) Preferred Stock, No Par Value Authorized Shares - 2,000,000 (No shares issued) Unearned compensation (266,563) (200,938) Retained earnings 22,204,680 21,282,830 ----------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $44,300,302 $42,492,234 =========== ============
See accompanying notes. -2-
THE EASTERN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) SIX MONTHS ENDED THREE MONTHS ENDED June 28, 1997 June 29, 1996 June 28, 1997 June 29, 1996 ------------- ------------- ------------- ------------- Net sales $32,853,668 $29,892,588 $16,919,070 $15,351,036 Interest income 69,947 70,530 33,970 33,821 ----------- ----------- ----------- ----------- Total 32,923,615 29,963,118 16,953,040 15,384,857 Cost of products sold 24,413,837 24,233,990 12,464,078 12,116,441 ----------- ----------- ----------- ----------- 8,509,778 5,729,128 4,488,962 3,268,416 Selling and administrative expenses 6,094,355 5,349,975 3,112,386 2,658,140 Interest expense 134,095 73,666 67,788 22,827 ----------- ----------- --------- ---------- INCOME BEFORE INCOME TAXES 2,281,328 305,487 1,308,788 587,449 Income taxes 833,965 130,945 475,848 210,746 ----------- ----------- --------- ---------- NET INCOME 1,447,363 174,542 832,940 376,703 =========== =========== ========= ========== Net income per share $ 0.53 $ 0.06 $ 0.30 $ 0.13 Cash dividends per share $ 0.23 $ 0.23 $ 0.115 $ 0.115 Average shares outstanding 2,737,570 2,696,820 2,737,570 2,696,820 See accompanying notes. -3-
THE EASTERN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED June 28, 1997 June 29, 1996 ------------- ------------- OPERATING ACTIVITIES: Net income $ 1,447,363 $ 174,542 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,524,692 1,524,080 Loss (gain) on sale of equipment and other assets 2,335 335 Postretirement benefits other than pensions 5,887 6,000 Provision for losses on accounts receivable 66,047 35,242 Issuance of Common Stock for directors' fees 25,814 -- Changes in operating assets and liabilities: Accounts receivable (2,071,798) (432,808) Inventories (1,421,504) 499,270 Prepaid expenses 552,897 12,023 Prepaid pension (35,801) (733,267) Accounts payable 739,302 (520,783) Accrued expenses 801,187 1,044,110 Other assets (281,494) (44,421) ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,354,927 1,564,323 INVESTING ACTIVITIES: Purchases of property, plant, and equipment (1,028,524) (1,787,962) Other 46,429 13,600 ---------- ---------- NET CASH USED BY INVESTING ACTIVITIES (982,095) (1,774,362) FINANCING ACTIVITIES: Payment on line of credit (500,000) -- Proceeds from line of credit -- 1,500,000 Principal payments on long-term debt (128,556) (60,000) Proceeds from sales of Common Stock 453,529 28,125 Purchases of Common Stock for treasury (371,740) -- Dividends paid (632,651) (620,493) ---------- ---------- NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (1,179,418) 847,632 Effect of exchange rate changes on cash 2,344 5,247 ---------- ---------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (804,242) 642,840 Cash and Cash Equivalents at Beginning of Year 2,269,031 1,521,361 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,464,789 $ 2,164,201 =========== ===========
See accompanying notes. -4-
THE EASTERN COMPANY AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (UNAUDITED) SIX MONTHS ENDED THREE MONTHS ENDED June 28, 1997 June 29, 1996 June 28, 1997 June 29, 1996 ------------- ------------- ------------- ------------- Primary: Average shares outstanding 2,737,570 2,696,820 2,737,570 2,696,820 Net effect of dilutive stock options -- based on the treasury stock method using average market price 30,792 29,582 30,792 29,582 --------- --------- --------- --------- Total 2,768,362 2,726,402 2,768,362 2,726,402 ========= ========= ========= ========= Net income 1,447,363 174,542 832,940 376,703 ========= ========= ========= ========= Net income per share $0.52 $0.06 $0.30 $0.13 ========= ========= ========= ========= Fully diluted: Average shares outstanding 2,737,570 2,696,820 2,737,570 2,696,820 Net effect of dilutive stock options -- based on the treasury stock method using quarter-end market price, if higher than average market price 38,091 29,582 38,091 29,582 --------- --------- --------- --------- Total 2,775,661 2,726,402 2,775,661 2,726,402 ========= ========= ========= ========= Net income 1,447,363 174,542 832,940 376,703 ========= ========= ========= ========= Net income per share $0.52 $0.06 $0.30 $0.13 ========= ========= ========= =========
See accompanying notes. -5- NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS June 28, 1997 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. The condensed balance sheet as of December 28, 1996 has been derived from the audited financial statements at that date. 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 (1997- 2,737,570 shares; 1996 - 2,696,820 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 1997 or 1996. For the year ending January 3, 1998 and periods thereafter the Registrant will be required to adopt FASB Statement No. 128 "Earnings Per Share". The adoption of this standard in not expected to have a significant impact on earnings per share. Note C - 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 Net income for the second quarter of 1997 continued its upward trend with $833 thousand or $.30 per share on sales of $16.9 million versus the second quarter of 1996 of $377 thousand or $.13 per share on sales of $15.4 million. Net income for the first six months of 1997 was $1.4 million or $.53 per share on sales of $32.9 million versus the first six months of 1996 of $175 thousand or $.06 per share on sales of $29.9 million. Net income for the first half 1997 would have been 18% higher without expenses incurred in the first quarter of 1997 associated with this year's proxy contest. Second quarter sales were up 10% compared to the same period a year ago. Volume was up 6%, while price increases and new products each contributed 2% over the comparable quarter of 1996. Sales for the first half of 1997 were also up 10% compared to the same period a year ago. Volume was up 5%, prices were up 3% and new products were up 2%. New products include vehicular hardware products produced and designed by Eberhard Manufacturing division and malleable castings products manufactured by the Frazer & Jones division. Demand for the Registrant's expansion shells, used in the mining industry, was up 14% for the first half of 1997 vs the first half of 1996 primarily due to increased business with Excel Mining Systems, the Country's leading producer of mine roof bolts. Contract malleable casting sales were up 26% from the comparable six month period a year ago. Demand for the Registrant's heavy hardware, servicing the tractor trailer industry, was down 3% from the first half of 1996 with no significant erosion anticipated for the second half of 1997. Increased business with independent distributors and original equipment manufacturers of industrial hardware and vehicular accessories has helped offset the decline in the tractor trailer industry. Sales of custom locks were up 4% in the second quarter and up 6% for the first half over the comparable period a year ago, and are expected to increase in the second half as shipments commence on computer lock applications. Two new PrestoLocks are being offered by our CCL Security division in the second half of 1997 to the soft luggage markets to further enhance our position in that market. The Registrant's overall results are expected to show futher improvment in the second half of 1997. The Registrant's gross margin as a percentage of sales for the three and six months ended June 28, 1997 was approximately 26% compared to 21% and 19% for the comparable periods a year ago. The improvement in gross margin in 1997 for both the three and six month periods versus the comparable period a year ago is mainly due to increased sales volume and more efficient utilization of production facilities. Selling and administrative expenses were up 17.1% or $454 thousand and up 13.9% or $744 thousand for the three and six months ended June 28, 1997 as compared to the same periods a year ago. Selling and administrative expenses expressed as a percentage of sales for the three and six month periods ended June 28, 1997 were 19% and 18% respectively, versus a year ago of 18% and 17% respectively. Increases in selling and administrative expenses in the second quarter of 1997 were attributable to increased sales commissions incurred for increased sales activity by our outside sales representatives, one time charges in connection with the early retirement of the Company's former Chief Executive Officer and some increased legal expenses incurred by the Registrant in connection with the Beacon Heights and Laurel Park landfill suits discussed under legal proceedings below. Additionally, first half selling and administrative expenses were up due to defense costs incurred in the first quarter proxy contest. -7- Liquidity and Sources of Capital Cash flows from operations were $1.355 million for the first half of 1997 versus $1.564 million in the first half of 1996. The change in cash flows resulted from timing differences for collections of accounts receivable and payments of liabilities and an increase in inventory. Cash flow from operations along with cash generated from the exercise of stock options was sufficient to fund the Registrant's capital expenditure program, dividend payments and the purchase of 28,773 shares of common stock for treasury. Additions to property, plant and equipment were $1.0 million during the first half of 1997 versus $1.8 million for the comparable period a year ago. Total 1997 capital expenditures are expected to be lower than the expected $2.6 million level of depreciation for the year. Inventory balances at the end of the second quarter of 1997 of $12.3 million were $1.4 million higher than year end 1996, and $1.0 million higher than the second quarter of 1996. Inventory turns of 4.0 times at the end of the second quarter of 1997 was comparable to both the previous year end rate and also the second quarter of 1996. Accounts receivable at the end of the second quarter 1997 were $9.0 million which was $2.0 million higher than year end and $800 thousand higher than the second quarter of 1996. The average day's sales in accounts receivable was 48 days at the end of the second quarter 1997 versus 49 days for the comparable period a year ago. The increase in accounts receivable was driven by growth in sales volume. During the third quarter of 1997 the Registrant drew down an additional $2.0 million under its short-term line of credit to help fund the purchase of 149,118 shares of common stock for treasury. In addition, the Registrant has extended its unsecured line of credit from $5 million to $7 million to accommodate 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. A final judgement was entered by the US District Court in the consolidated proceedings on March 17, 1995. Appeals, however, were filed by 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 US District Court's ruling dismissing government agencies environmental claims against the Registrant and certain other defendants, and the environmental claims by Laurel Park and Beacon Heights Coalitions against numerous defendants. The Court of Appeals, is expected to remand the case to the U.S. District Court in Connecticut for further proceedings. 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. 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. -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 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 files a complaint. -9- 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 U.S. District Court involving the Registrant. 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 five other defendants (two corporate and three individual) are responsible for an aggregate of $3.0 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 $800,000 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 and State claims and if necessary bring these other persons into the action to share the costs of reimbursements to the governments 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 and State Claims against the Registrant and the Registrant's contribution rights against third-party defendants. -10- 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 of or 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 - ------ --------------------------------------------------- None ITEM 5 OTHER INFORMATION None ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K - ------- -------------------------------- B. 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: August 11, 1997 /s/ Leonard F. Leganza ---------------------------------------- Leonard F. Leganza President and Chief Executive Officer DATE: August 11, 1997 /s/ Donald E. Whitmore, Jr. ---------------------------------------- Donald E. Whitmore, Jr., Executive Vice President and Chief Financial Officer -12- EX-27 2 FDS --
5 6-MOS DEC-28-1996 JUN-28-1997 1464789 0 9014446 633000 12306246 24518894 26924469 13400712 44300302 8616335 0 0 0 8445842 21938117 44300302 32853668 32923615 24413837 24413837 6048765 66047 134095 2281328 833965 1447363 0 0 0 1447363 .52 .52
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