-----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, EZpDbojrsNJNAOKUbGlqKQXGx2c94Je2NK9h7X4fhSyEfJK4YDm2Qg3FLKSXH2r2 PE4EfC+u7alYuEvymeRBnA== 0000031107-98-000007.txt : 19981118 0000031107-98-000007.hdr.sgml : 19981118 ACCESSION NUMBER: 0000031107-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981003 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EASTERN CO CENTRAL INDEX KEY: 0000031107 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 060330020 STATE OF INCORPORATION: CT FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-00599 FILM NUMBER: 98750574 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 OCTOBER 3, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ to ___________. Commission File Number 0-599 THE EASTERN COMPANY (Exact Name of Registrant as specified in its charter) Connecticut 06-0330020 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 112 Bridge Street, Naugatuck, Connecticut 06770 (Address of principal executive offices) (Zip Code) (203)729-2255 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of OCTOBER 3, 1998 ----- --------------------------------- Common Stock, No par value 2,392,829 -1- PART I FINANCIAL INFORMATION THE EASTERN COMPANY AND SUBSIDIARIES ITEM I CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED) ASSETS ------
October 3, 1998 January 3, 1998 --------------- --------------- CURRENT ASSETS -------------- Cash and cash equivalents $ 3,320,997 $ 2,111,289 Accounts receivable, less allowance: 9,396,717 8,725,167 1998- $421,000; 1997- $329,000 Inventories 12,502,350 12,414,866 Prepaid expenses and other current assets 2,208,842 2,846,557 ----------- ----------- Total Current Assets 27,428,906 26,097,879 -------------------- Property, plant and equipment 27,929,696 25,434,424 Accumulated depreciation (13,840,818) (11,997,894) ----------- ----------- 14,088,878 13,436,530 Prepaid pension cost 4,439,682 4,217,604 Other assets, net 1,794,191 2,046,148 ----------- ----------- TOTAL ASSETS $ 47,751,657 $ 45,798,161 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES ------------------- Notes payable $ 131,621 $ 3,663,662 Accounts payable 3,403,181 3,499,857 Accrued compensation and withholding 2,060,640 1,413,418 Other accrued expenses 1,670,051 2,662,088 ----------- ----------- Total Current Liabilities 7,265,493 11,239,025 ------------------------- Deferred federal income taxes 2,492,200 2,492,200 Long-term debt 8,500,000 60,000 Accrued postretirement benefits 2,772,795 2,763,795 Shareholders' Equity -------------------- Common Stock, No Par Value: Authorized shares - 25,000,000 Issued and outstanding shares: 884,834 6,078,427 1998-2,392,829; 1997-2,593,089 (Excluding shares in Treasury: 1998-1,047,335; 1997-831,780) Preferred Stock, No Par Value Authorized shares - 2,000,000 (No shares issued) Unearned compensation (548,906) (492,969) Accumulated other comprehensive loss - translation adjustment (727,271) (563,211) Retained earnings 27,112,512 24,220,894 ---------- ---------- Total Shareholders' Equity 26,721,169 29,243,141 -------------------------- ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 47,751,657 $ 45,798,161 ------------------------------------------ =========== ===========
See accompanying notes. -2- THE EASTERN COMPANY CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED Oct. 3, 1998 Sept. 27, 1997 Oct. 3, 1998 Sept. 27, 1997 ------------ -------------- ------------ -------------- Net sales $ 53,760,887 $ 49,517,523 $ 17,995,724 $ 16,663,855 Interest income 101,305 101,570 28,929 31,623 ----------- ----------- ----------- ----------- Total 53,862,192 49,619,093 18,024,653 16,695,478 Cost of products sold 39,238,185 36,380,886 13,170,302 11,967,049 ----------- ----------- ----------- ----------- 14,624,007 13,238,207 4,854,351 4,728,429 Selling and administrative expenses 8,062,883 9,078,659 2,576,448 2,984,304 Interest expense 399,091 215,877 98,115 81,782 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 6,162,033 3,943,671 2,179,788 1,662,343 Income taxes 2,160,126 1,429,311 772,487 595,346 ----------- ----------- ----------- ----------- NET INCOME $ 4,001,907 $ 2,514,360 $ 1,407,301 $ 1,066,997 =========== =========== =========== =========== Net income per share: Basic $ 1.64 $ 0.93 $ 0.59 $ 0.40 Diluted $ 1.57 $ 0.92 $ 0.56 $ 0.40 Cash dividends per share $ 0.430 $ 0.345 $ 0.150 $ 0.115
See accompanying notes. -3- THE EASTERN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED Oct. 3, 1998 Sept. 27, 1997 ------------ -------------- OPERATING ACTIVITIES: Net income $ 4,001,907 $ 2,514,360 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,217,645 2,221,806 (Gain) loss on sale of equipment and other assets (88,736) 2,335 Postretirement benefits other than pensions 9,000 8,830 Provision for losses on accounts receivable 93,324 111,497 Issuance of Common Stock for directors' fees 64,142 43,956 Changes in operating assets and liabilities: Accounts receivable (832,876) (3,267,776) Inventories (192,684) (996,706) Prepaid expenses 631,176 287,512 Prepaid pension (222,078) (153,095) Accounts payable (26,484) 1,211,436 Accrued expenses (324,407) 2,295,191 Other assets (22,649) (300,219) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,307,280 3,979,127 INVESTING ACTIVITIES: Purchases of property, plant, and equipment (2,637,428) (1,527,273) Other 97,468 46,283 ----------- ----------- NET CASH USED BY INVESTING ACTIVITIES (2,539,960) (1,480,990) FINANCING ACTIVITIES: Payment on line of credit - (500,000) Proceeds from line of credit 5,000,000 2,000,000 Principal payments on long-term debt (94,100) (125,777) Proceeds from sales of Common Stock 93,750 594,153 Purchases of Common Stock for treasury (5,427,109) (2,840,226) Dividends paid (1,090,600) (930,986) ----------- ----------- NET CASH USED BY FINANCING ACTIVITIES (1,518,059) (1,802,836) Effect of exchange rate changes on cash (39,553) (3,840) ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,209,708 691,461 Cash and cash equivalents at beginning of year 2,111,289 2,269,031 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,320,997 $ 2,960,492 =========== ===========
See accompanying notes. -4- THE EASTERN COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNADUITED)
NINE MONTHS ENDED THREE MONTHS ENDED Oct. 3, 1998 Sept. 27, 1997 Oct. 3, 1998 Sept. 27, 1997 ------------ -------------- ------------ -------------- Net income 4,001,907 2,514,360 1,407,301 1,066,997 Other comprehensive (loss) income: Foreign currency translation (164,060) 112,524 (28,050) 5,386 ------------- -------------- ------------ --------------- Comprehensive income 3,837,847 2,626,884 1,379,251 1,072,383 ============= ============== ============ ===============
See accompanying notes. -5- THE EASTERN COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) OCTOBER 3, 1998 Note A - Basis of Presentation - ------------------------------ The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying condensed consolidated financial statements are unaudited. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for such interim periods have been reflected therein. The condensed balance sheet as of January 3, 1998 has been derived from the audited financial statements at that date. Note B - Earnings Per Share - --------------------------- The denominators used in the earnings per share computations follow:
NINE MONTHS ENDED Oct. 3,1998 Sept. 27, 1997 Basic: Weighted average shares outstanding 2,476,926 2,724,931 Contingent shares outstanding (32,500) (22,500) --------- --------- Denominator for basic earnings per share 2,444,426 2,702,431 Diluted: Weighted average shares outstanding 2,476,926 2,724,931 Contingent shares outstanding (32,500) (22,500) Dilutive stock options 106,764 33,007 --------- --------- Denominator for diluted earnings per share 2,551,190 2,735,438 THREE MONTHS ENDED Oct. 3,1998 Sept. 27, 1997 Basic: Weighted average shares outstanding 2,413,509 2,646,650 Contingent shares outstanding (32,500) (22,500) --------- --------- Denominator for basic earnings per share 2,381,009 2,624,150 Diluted: Weighted average shares outstanding 2,413,509 2,646,650 Contingent shares outstanding (32,500) (22,500) Dilutive stock options 111,692 37,570 --------- --------- Denominator for diluted earnings per share 2,492,701 2,661,720
-6- THE EASTERN COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) October 3, 1998 Note C - Changes in Accounting Principles - ----------------------------------------- Effective January 4, 1998, The Eastern Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". The adoption of this Statement had no impact on the Company's net income or shareholders' equity. Under SFAS 130 the Company's foreign currency translation adjustments, which are reported separately in shareholders' equity, are also required to be included in the determination of other comprehensive income or loss. The prior year financial statements have been reclassified to conform to the requirements of SFAS 130. Note D - Litigation - ------------------- The Company 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. Note E - Debt Refinancing - ------------------------- On November 2, 1998 the Company refinanced $8.5 million in short-term debt to a seven year term note. As such, $8.5 million of short-term debt has been retroactively reclassified as long-term debt as of October 3, 1998. Under this agreement the Company is required to maintain certain financial covenants. The long-term portion is due in quarterly installment of $425 thousand payable beginning January 1, 2001 with interest at LIBOR plus 135 basis points. Borrowing under the $5 million line of credit is payable in 30, 60 or 90 day periods with interest at LIBOR plus 125 basis points. -7- ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net income per share (basic) for the third quarter of 1998 was the highest level reported in the Company's 140-year history and represented the seventh consecutive quarter of increased earnings. Net income for the third quarter was $1.4 million or $.59 per share (basic) on sales of $18.0 million versus the third quarter of 1997 of $1.1 million or $.40 per share (basic) on sales of $16.7 million. Net income for the first nine months of 1998 was $4.0 million or $1.64 per share (basic) on sales of $53.8 million versus the first nine months of 1997 of $2.5 million or $.93 per share (basic) on sales of $49.5 million. Third quarter sales were up 8% compared to the same period a year ago. Increased volume contributed 4%, price increases contributed 1% and new products contributed 3% over the comparable quarter of 1997. Sales for nine months of 1998 were up 9% compared to the same period a year ago. Volume was up 5%, while prices and new products were both up 2%, respectively over the same period last year. New products include vehicular hardware products designed and produced by the Eberhard Manufacturing division and malleable iron casting products manufactured by the Frazer & Jones division on a contract basis. A major competitor of Frazer & Jones for contract malleable iron castings went out of business in the second quarter of 1998. New customers were obtained and sales increased 28% in the third quarter and were up 8% over the first nine months of 1997. Additional new business is anticipated in the fourth quarter 1998 and early 1999. Sales of expansion shells, used in the underground mining industry, were down 6% in the third quarter and down 4% for the first nine months of 1998 as compared to the same periods of 1997. Sales of expansion shells are expected to be down slightly in the fourth quarter of 1998 as compared to the fourth quarter of 1997 due to lower demand. Demand for heavy hardware, servicing the tractor trailer industry, was up 24% over the third quarter and first nine months of 1997. Sales to independent distributors, original equipment manufacturers of industrial hardware and vehicular accessories remained strong during the first nine months of 1998 and are expected to remain strong for the remainder of the year. Sales of vehicular hardware servicing the Canadian tractor trailer and truck body industries were up 40% over the comparable period a year ago. To accommodate this increased business, the Eberhard Canadian manufacturing operation is expanding its production facility by 10,000 square feet. Sales of custom locks were down 4% in the third quarter and up 6% for the first nine months over the comparable period a year ago. Sales of custom locks are expected to decrease slightly in the fourth quarter 1998 as shipments of computer lock applications decline compared to the same period a year ago. Gross margin as a percentage of sales for the three and nine months ended October 3, 1998 were approximately 27% compared to 28% and 27% for the comparable periods a year ago. The decrease in gross margin for the three month period is attributable to product mix. Selling and administrative expenses were down 14% or $408 thousand and down 11% or $1.0 million for the three and nine months ended October 3, 1998 as compared to the same periods a year ago. Selling and administrative expenses were lower in the third quarter of 1998 as compared to the same periods in 1997 when the Company incurred costs for environmental matters. Year to date expenses were lower than the comparable period a year ago due to favorable reductions in group insurance costs in 1998. In addition, one time charges were experienced in 1997 in connection with the early retirement of the Company's former Chief Executive Officer as well as some higher costs associated with the Beacon Heights and Laurel Park landfill suits discussed under legal proceedings below. Additionally, the first nine months of 1997 included one time charges incurred as a result of a proxy contest. Interest expense through nine months of 1998 was $399 thousand versus $216 thousand for the first nine months of 1997. This increase was due to additional short-term borrowing. -8- Liquidity and Sources of Capital Cash flows from operations were $5.3 million for the first nine months of 1998 versus $4.0 million for the same period in 1997. 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 was sufficient to fund capital expenditures, dividend payments to shareholders and the purchase of 35,000 shares of Common Stock for the treasury. However, the purchase of 178,400 shares of Common Stock at the end of the first quarter was funded by borrowing $5 million against the Company's short-term line of credit at the beginning of the second quarter 1998. Additions to property, plant and equipment were $2.6 million during the first nine months of 1998 versus $1.5 million for the comparable period a year ago. Total 1998 capital expenditures will exceed the expected $2.6 million level of depreciation for the year. A capital expansion program has been approved for the Frazer & Jones division as added manufacturing capacity is required to accommodate additional contract casting business expected in 1999. In addition, the Company's Canadian subsidiary, Eberhard Hardware Manufacturing Ltd., will complete expansion of its manufacturing facility to accommodate new business obtained in the Canadian tractor trailer industries. Inventory balances at the end of the second quarter of 1998 of $12.5 million were $87 thousand higher than year end 1997 and $628 thousand higher than the third quarter of 1997. Inventory turns of 4.2 times at the end of the third quarter of 1998 were comparable to both the previous year end rate and the third quarter of 1997. Accounts receivable at the end of the third quarter 1998 were $9.4 million which was $672 thousand higher than year end and $751 thousand lower than the third quarter of 1997. The average day's sales in accounts receivable were 48 days at the end of the third quarter 1998 versus 55 days for the comparable period a year ago. The decrease in accounts receivable was driven by increased collection activity. Subsequent to the third quarter of 1998, the Company has refinanced its $8.5 million in short-term debt to a seven year term note and reduced its $10 million line of credit to $5 million. The Company's strong balance sheet and internal cash flow generation should be sufficient to cover future working capital requirements, however, the Company will finance the aforementioned capital expansion programs through additional borrowings as required. Other Matters On July 22, 1998, the Board of Directors of The Eastern Company approved a new Rights Agreement and declared a dividend of one common share purchase right for each outstanding share of Common Stock, no par value, of the Company. The dividend was payable on August 21, 1998 to the shareholders of record on August 7, 1998. The description and terms of the Rights are set forth in a Rights Agreement between the Company and BankBoston, NA, as Rights Agent as filed with the Securities and Exchange Commission on Form 8-K on August 6, 1998. On June 24, 1994, the Registrant settled all claims with both the Beacon Heights Coalition and the Laurel Park Coalition and the respective complaints against the Registrant on behalf of the Coalitions were dismissed by stipulation. Claims against the Registrant and certain other defendants filed by the two government agencies as described in Part II, item 1 below were dismissed by the Court. A final judgement was entered by the U. S. District Court in the consolidated proceedings on March 17, 1995. Appeals, however, were filed by the two government agencies as described in Part II, item 1 below. -9- On November 1, 1996, the United States Court of Appeals for the Second Circuit reversed the U.S. District Court's ruling dismissing the government agencies' environmental claims against the Registrant and certain other defendants, and the environmental claims by the Laurel Park and Beacon Heights Coalitions against numerous defendants. See further description in Part II, Item 1 below. In May 1998, the Registrant and its co-defendants entered into a proposed consent decree with the EPA, which, if approved, would resolve the Registrant's remaining liability with respect to the Laurel Park and Beacon Heights landfills. The consent decree is now pending before the United States District Court. 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. The Registrant has completed the assessment phase of its Year 2000 compliance program and is currently implementing changes required to test its systems. Estimated costs for Year 2000 compliance are $150,000 of which approximately $50,000 has been spent through the third quarter. The majority of the remaining expenditures are expected to be incurred prior to the end of 1998. The Registrant expects modifications to internal systems to be completed and tested prior to the end of 1998. The Company does not have any direct interfaces with third party vendors and has not received enough responses from third party vendors to assess Year 2000 issues regarding third party vendors. The Company is not aware of any external sources that will have a material impact on its operating results. Assessment of third party vendors is expected to be completed and contingency plans are expected to be in place by end of the second quarter of 1999 to deal with any risks associated with internal systems or third-party sources. The preceding information is provided under the Year 2000 Information and Readiness Disclosure Act and is deemed to be a Year 2000 disclosure statement. 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 - ------ ---------------------------------------------------------- Not applicable. -10- PART II OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS - - -------------------------- In April 1988, Murtha Enterprises Inc. and related parties (collectively "Murtha"), as the result of a February 1987 suit (docket number N-87-52 PCD) brought by the U. S. Environmental Protection Agency (the "EPA") and others, concerning the Beacon Heights and Laurel Park landfills, instituted third-party actions against approximately 200 companies or individuals including the Registrant. The underlying suit against Murtha was settled with EPA and the other parties and the Consent Decree has been approved by the Court. On September 22, 1988, the EPA filed a complaint against the Registrant and seven other defendants seeking recovery of present and future response costs incurred by the United States in connection with the Beacon Heights landfill. The complaint alleged total damages of approximately $1.8 million ($1.3 million actual and $.5 million future). On October 31, 1988 the court consolidated the EPA action against the Registrant with the other cases under docket number N-87-52 (PCD). By complaint dated September 6, 1990, the Beacon Heights Coalition (the "Beacon Coalition"), a group of parties who have entered into a consent order with EPA, instituted a direct action against the Registrant and approximately 400 other named parties concerning the Beacon Heights landfill. The Beacon Coalition claimed that these defendants generated or transported hazardous substances disposed of at the Beacon Heights landfill, and are therefore responsible for a share of the Beacon Coalition's response costs. The Registrant has filed answers to both the EPA Complaint and the Beacon Coalition Complaint. In March 1991, a Laurel Park Coalition which did not include the Registrant entered into Consent Decree and Administrative Order by Consent with the EPA and the State of Connecticut to remediate the Laurel Park landfill. The Consent Decree has been approved by the Court. In May 1991, EPA and the State of Connecticut ("State") each filed a complaint against the Registrant and three other defendants seeking recovery of present and future response costs incurred in connection with the Laurel Park landfill. The EPA claims costs in excess of $1.8 million and the state claims costs in excess of $2.5 million. On July 1, 1991, the court consolidated these actions against the Registrant with the other cases under docket number N-87-52 (PCD). The Registrant filed answers to both of these complaints. By order dated February 8, 1994, the court granted a motion filed by Registrant for judgment on the pleadings against EPA and the state with respect to each of their claims against Registrant. By motions dated February 22, 1994 and February 23, 1994, EPA and the state respectively moved for reconsideration of the court's order, which motions were denied. By order dated February 8, 1994, the court permitted the Laurel Park Coalition to file a complaint against eight parties including the Registrant, which claims were to be assigned for trial if the Coalition files a complaint. On June 24, 1994 , the Registrant settled all claims with both the Beacon Heights Coalition and the Laurel Park Coalition and the respective complaints against the Registrant on behalf of the Coalitions were dismissed by stipulation. -11- On March 17, 1995, the U.S. District Court entered a final judgement in the consolidated proceedings (docket number N-87-52(PCD)) which included the granting of Registrant's motion for judgement on the pleadings. As a result of this judgement, no complaints were then pending in the U.S. District Court involving the Registrant. On April 17, 1995, the State filed its notice of appeal from this final judgement with the U.S. District Court. On May 10, 1995, EPA filed its notice of appeal from the judgement. On November 1, 1996 the U.S. Court of Appeals for the Second Circuit reversed the District Court ruling dismissing EPA and State of Connecticut environmental claims against the Registrant and environmental claims by the Laurel Park and Beacon Heights Coalitions against numerous defendants. The Court of Appeals remanded the case to the U.S. District Court in Connecticut for further proceedings. The governmental lawsuits, brought after governmental settlements with the Coalitions, seek to recover remediation costs of the governments unreimbursed by the Coalition settlements or the settlement with the owner/operator in connection with the Laurel Park and Beacon Heights landfills. The EPA has claimed that the Registrant and two other corporate defendants are responsible for an aggregate of $3.1 million in remediation costs with respect to the Beacon Heights landfill and that the Registrant and one other corporate defendant are responsible for an aggregate of $2.3 million in remediation costs with respect to the Laurel Park landfill; Connecticut has claimed that the Registrant and one other defendant are responsible for an aggregate of $.8 million in remediation costs with respect to the Laurel Park landfill. The Registrant intends to continue to vigorously contest any liability relating to these governmental claims. The Registrant would also pursue its rights of contribution against the other defendants in the event of any liability, which the Registrant expects would significantly reduce any liability imposed. In addition, it would file claims against its insurance carriers. In its decision, the Second Circuit also reversed the U.S. District Court's dismissal of numerous actions brought by the Beacon Heights and Laurel Park Coalitions against non-settling parties. These Coalitions assumed full responsibility for cleaning up the two landfill sites and, as noted above, the Registrant has settled with both Coalitions with respect to liability at these sites in 1994. After rejecting motions for rehearing, the Court of Appeals returned the cases to the US District Court. On July 21, 1997, the District Court issued an order appointing a Special Master to mediate, find facts if necessary and report back to the court within six months as to all remaining claims for contribution. The Registrant is actively participating in this process as it pertains to the EPA Claims against the Registrant and the Registrant's contribution rights against the United States and third-party defendants. In January 1998, the Registrant entered into a proposed consent decree with the State which was approved by the court. In May 1998, the Registrant and its co-defendants entered into a proposed consent decree with the EPA, which, if approved, would resolve the Registrant's remaining liability with respect to the Laurel Park and Beacon Heights landfills. The consent decree is now pending before the United States District Court. The Registrant will continue to vigorously pursue its legal interest in this matter. The Registrant believes that these actions will not have a materially adverse impact on the Registrant's consolidated financial position, operating results or liquidity. There are no other significant legal proceedings, other than ordinary routine litigation incidental to the business, to which either the Registrant or any of its subsidiaries is a party of or which any of their property is the subject. -12- ITEM 2 CHANGES IN SECURITIES - ------ --------------------- On July 22, 1998, the Board of Directors of the Registrant approved a new Rights Agreement and declared a dividend of one common share purchase right for each outstanding share of common stock, no par value, of the Company. For a description of the rights, see the Form 8-K filed with Securities and Exchange Commission on August 6, 1998. ITEM 3 DEFAULTS UPON SENIOR SECURITIES- - ------ -------------------------------- None ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------ --------------------------------------------------- None ITEM 5 OTHER INFORMATION - ------ ----------------- Any shareholder who intends to present a proposal at the 1999 Annual Meeting of shareholders and desires that it be included in the Company's proxy material must submit to the Company a copy of the proposal on or before November 20, 1998. Any Shareholder who intends to present a proposal at the 1999 Annual Meeting but does not wish that the proposal be included in the Company's proxy material must provide notice of the proposal to the Company, in accordance with the terms of the Company's by-laws, no earlier than January 22, 1999 and no later than February 21, 1999. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K - ------- -------------------------------- On August 6, 1998, the Registrant filed with the Securities and Exchange Commission a Form 8-K describing the new Rights Agreement approved by the Board of Directors on July 22, 1998 and the declaration of a dividend of one common stock purchase right for each outstanding share of common stock held of record on August 7, 1998. See Part I, Item 2, Other Matters and Part II, Item 2, Changes in Securities. 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: November 16, 1998 /s/Leonard F. Leganza ----------------- ------------------------------- Leonard F. Leganza President and Chief Executive Officer DATE: November 16, 1998 /s/Donald E. Whitmore, Jr. - ----- ----------------- ------------------------------- Donald E. Whitmore, Jr., Executive Vice President and Chief Financial Officer -13- EX-27 2 FDS --
5 9-MOS JAN-3-1998 OCT-3-1998 3320997 0 9396717 421000 12502350 27428906 27929696 13840818 47751657 7265493 0 0 0 884834 25836335 47751657 53760887 53862192 39238185 39238185 7969559 93324 399091 6162033 2160126 4001907 0 0 0 4001907 1.64 1.57
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