<PAGE> 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 JULY 1, 1995
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 July 1, 1995
Common Stock, No par value 2,776,384
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<PAGE> 2
PART I
FINANCIAL INFORMATION
THE EASTERN COMPANY AND SUBSIDIARIES
ITEM I CONSOLIDATED CONDENSED BALANCE SHEETS
------ -------------------------------------
<TABLE>
<CAPTION>
ASSETS
July 1, 1995 Dec. 31, 1994
CURRENT ASSETS (Unaudited) (Audited)
-------------- ------------ -----------
<S> <C> <C>
Cash and cash equivalents $ 1,742,001 $ 2,610,244
Accounts receivable, less allowance: 9,059,778 9,665,164
1995- $396,724 1994- $330,024
Land held for sale 0 1,018,111
Inventories 11,542,342 9,530,546
Prepaid expenses and other current assets 1,926,500 2,021,862
----------- -----------
Total Current Assets 24,270,621 24,845,927
Property, plant & equipment 25,230,414 23,950,535
Less accumulated depreciation (12,253,420) (10,996,773)
---------- ----------
12,976,994 12,953,762
Prepaid pension cost 3,195,105 2,958,362
Other assets, net 1,353,099 1,124,736
----------- -----------
TOTAL ASSETS $ 41,795,819 $ 41,882,787
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 3,295,296 $ 3,239,241
Notes payable current 560,000 2,460,000
Accrued compensation and withholding 1,541,894 935,417
Accrued expenses 597,137 377,322
----------- -----------
TOTAL CURRENT LIABILITIES 5,994,327 7,011,980
Deferred federal income taxes 1,939,200 1,939,200
Long-term debt 180,000 240,000
Accrued postretirement benefits 2,853,947 2,848,150
SHAREHOLDERS' EQUITY
Common Stock No Par Value:
Authorized Shares - 25,000,000
Issued & outstanding shares: 9,009,393 9,009,392
1995-2,775,357 1994-2,775,085
(Excluding Shares in Treasury:
1995-522,887 1994-520,085)
Preferred Stock No Par Value
Authorized Shares - 2,000,000
(No shares issued)
Retained earnings 21,818,952 20,834,065
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 41,795,819 $ 41,882,787
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE> 3
<TABLE>
THE EASTERN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
7/1/95 7/2/94 7/1/95 7/2/94
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net Sales $34,369,410 $32,296,219 $16,684,748 $16,611,948
Interest Income 70,623 36,446 30,551 22,992
----------- ---------- ---------- ----------
Total 34,440,033 32,332,665 16,715,299 16,634,940
Cost of Products Sold 26,284,351 24,842,751 13,007,552 12,979,986
----------- ----------- ---------- ----------
8,155,682 7,489,914 3,707,747 3,654,954
Selling and Admin. Expenses 5,636,217 5,520,382 2,694,169 2,772,902
Interest Expense 60,248 54,699 16,603 28,116
Other Income Net (29,087) (93,379) 0 (31,262)
----------- ----------- ---------- ----------
INCOME BEFORE INCOME TAXES 2,488,304 2,008,212 996,975 885,198
Income Taxes 945,605 733,796 413,945 335,169
----------- ----------- ---------- ----------
NET INCOME $ 1,542,699 $ 1,274,416 $ 583,030 $ 550,029
=========== =========== ========== ==========
Net Income Per Share $ 0.56 $ 0.46 $ 0.21 $ 0.20
Cash Dividends Per Share $ 0.23 $ 0.23 $ 0.115 $ 0.115
Average Shares Outstanding 2,775,357 2,765,893 2,775,357 2,765,893
</TABLE>
See accompanying notes.
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<PAGE> 4
<TABLE>
THE EASTERN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
SIX MONTHS ENDED
7/1/95 7/2/94
(Unaudited) (Unaudited)
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 1,542,699 $ 1,274,416
Adjustments to reconcile net income to net
cash provided from operations:
Depreciation & amortization 1,356,092 1,290,263
Pension plan income (191,705) (221,880)
Gain on sale of equipment and other assets (15,212) 0
Postretirement benefits other than pensions 5,797 28,000
Provision for losses on accounts receivable 66,110 60,703
Provision for deferred income taxes 0 43,619
Changes in Operating Assets and Liabilities:
Accounts receivable 557,586 (585,826)
Inventories (1,985,937) (905,457)
Prepaid expenses 98,877 (123,819)
Accounts payable 34,483 1,278,398
Accrued expenses 829,113 (989,353)
Other assets (335,226) (71,126)
----------- -----------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 1,962,677 1,077,938
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (1,272,369) (1,069,315)
Proceeds from sale of equipment and other assets 1,034,717 0
Other 0 21,270
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES (237,652) (1,048,045)
FINANCING ACTIVITIES:
Payment on line of credit (1,400,000) 0
Proceeds from issuance of short-term debt 0 1,000,000
Principal payments on long-term debt (560,000) (810,000)
Proceeds from sales of Common Stock (Stock Options) 29,510 338,313
Purchases of Common Stock for the Treasury (29,509) (202,042)
Dividends paid (638,421) (637,636)
----------- -----------
NET CASH USED FOR FINANCING ACTIVITIES (2,598,420) (311,365)
Effect of exchange rate changes on cash 5,152 (9,941)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (868,243) (291,413)
Cash and Cash Equivalents at Beginning of Year 2,610,244 2,479,998
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 1,742,001 $ 2,188,585
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE> 5
<TABLE>
THE EASTERN COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
SIX MONTHS ENDED THREE MONTHS ENDED
7/1/95 7/2/94 7/1/95 7/2/94
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Primary:
Average Shares Outstanding 2,775,357 2,765,893 2,775,357 2,765,893
Net effect of dilutive stock
options -- based on the
treasury stock method
using average market price
53,788 68,614 53,788 68,614
----------- --------- ---------- ---------
Total 2,829,145 2,834,507 2,829,145 2,834,507
=========== ========= ========== =========
Net Income $1,542,699 $1,274,416 $583,030 $550,029
=========== ========== ========== =========
Net Income Per Share $0.55 $0.45 $0.21 $0.19
===== ===== ===== =====
Fully Diluted:
Average Shares Outstanding 2,775,357 2,765,893 2,775,357 2,765,893
Net effect of dilutive stock
options -- based on the
treasury stock method
using quarter-end market
price, if higher than average
market price 53,788 68,998 53,788 68,998
--------- --------- --------- ---------
Total 2,829,145 2,834,891 2,829,145 2,834,891
========= ========= ========= =========
Net Income $1,542,699 $1,274,416 $583,030 $550,029
========== ========== ========= =========
Net Income per Share $0.55 $0.45 $0.21 $0.19
===== ===== ===== =====
</TABLE>
See accompanying notes.
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<PAGE> 6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 1, 1995
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 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 1994 amounts have been reclassified to conform to 1995 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 (1995 - 2,775,357 shares; 1994 -
2,765,893 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 1995 or 1994.
Note C - Discontinued Operation
On July 17, 1995 the Company's Board of Directors approved a plan to
discontinue its Thompson Material Construction Segment and sell the equipment
and inventory with a carrying value of approximately $625,000. The disposal
is expected to take place in August and based on preliminary information the
Registrant does not expect any significant loss. Net sales for the six months
ended July 1, 1995 were $2,923,358.
Note D - Litigations
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.
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<PAGE> 7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net income for the second quarter 1995 was up 6% to $583,030 or $.21 per share
on sales of $16,684,748 versus second quarter 1994 net income of $550,029 or
$.20 per share on sales of $16,611,948. Net income for the first six months
of 1995 increased 21% to $1,542,699 on a 6% increase in sales to $34,369,410
versus the first six months of 1994 net income of $1,274,416 on sales of
$32,296,219.
Second quarter sales were up slightly compared to the same period a year ago.
As expected, volume declined 7% in the second quarter due to an anticipated
slow down in the coal mining industry and an overall softness in the economy.
However, new product sales increases of 3.5% and price increases of 4% offset
the decline in volume during the second quarter. For the first six months of
1995 volume was down one half of one percent while price increases and new
products were up 4% and 3% respectively. New products include the recently
acquired "Prestolock" line of keyless locks, being offered by the Registrant's
CCL Security Products division and new malleable castings products
manufactured by the Registrant's Frazer & Jones division. Demand for the
Registrant's transportation and industrial hardware product lines, served by
the Registrant's Eberhard Manufacturing division and the Registrant's Canadian
Eberhard Hardware Manufacturing, Ltd. subsidiary, should remain strong through
the year. At the close of the second quarter the Registrant's Canadian
subsidiary, Eberhard Hardware Manufacturing, Ltd. acquired a small Canadian
company, Precision Components, Ltd., a manufacturer of hardware components for
the appliance industry. This acquisition will help to diversify our Canadian
product line and help to ensure growth for this subsidiary. Sales for the
first six months of 1995 to the underground coal mining industry, serviced by
the Frazer & Jones division, were down from the comparable period a year ago.
The overall underground coal mining industry is expected to be soft for the
remainder of the year. However, contract malleable casting sales more than
doubled from the comparable six month period a year ago and was up 80% for the
comparable quarter a year ago. Sales of custom locks were up slightly from
the comparable period a year ago, however a number of new projects in our
engineering and development departments for new locking and security
mechanisms are a key component for developing new business and growth in this
market.
On July 17, 1995 the Company's Board of Directors approved a plan to
discontinue its Thompson Material Construction Segment and sell the equipment
and inventory with a carrying value of approximately $625 thousand. The
disposal is expected to take place in August and based on preliminary
information the Registrant does not expect any significant loss. Net sales
for the six months ended July 1, 1995 was $2.923 million.
The Registrant's gross margin as a percentage of sales for the three and six
months ended July 1, 1995 was 22% and 24% ,respectively, compared to 22% and
23% for comparable periods a year ago. Price increases of approximately 4% in
the first and second quarter of 1995 helped to maintain the gross margin and
offset curtailed production in the second quarter at the Registrant's Frazer &
Jones division.
Selling and administrative expenses were down 3% or $79 thousand and up 2% or
$116 thousand for the three and six months ended July 1, 1995 as compared to
the same period a year ago. Overall selling and administrative expenses
expressed as a percentage of sales were down slightly for the three and six
month periods ended July 1, 1995 at 16% versus a year ago of approximately 17%
for the comparable periods.
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<PAGE> 8
Other income for the three months ended July 1, 1995, was down $31 thousand
and down $64 thousand for the six months ended July 1, 1995 as compared to the
same periods a year ago. The fluctuation in commission income relates to
commission earned. The agreement where the Registrant receives commission
income as the result of the sale of the Alloy Foundries malleable business
expires in August 1995.
The effective tax rate for the second quarter and first half of 1995 was 42%
and 38%, respectively, versus the comparable periods a year ago of 38% and
37%, respectively. The increase in the effective tax rate in the second
quarter of 1995 was due to non-deductible startup losses sustained at the
newly opened distribution facility "Sesamee Mexicana S.A. DE C.V." in Lerma,
Mexico.
Liquidity and Sources of Capital
Cash flows from operations were $1.963 million for the first half of 1995
versus $1.078 million in the first half of 1994. The change in cash flows
resulted from the timing differences in collections of accounts receivable,
the payments of liabilities and the build up of inventory. The Registrant
repaid $1.4 million on its short-term line of credit from proceeds received on
the sale of land primarily from the discontinued Alloy Foundries operation in
the first quarter of 1995.
Inventory increased from the 1994 year-end level by $1.986 million, however,
inventory turns remain comparable at 7 times per year as the result of the
increased sales activity. The Registrant believes inventory levels are
adequate to meet customer requirements and anticipated increased sales
activity. The average day sales in accounts receivable increased to 57 days
for collection versus the end of 1994 collection average of 55 days. The
prime reason for the increase in collection days comes from the Construction
Segment where collections are historically slow. The Registrant will continue
to be responsible for the collection of outstanding receivables from this
segment once this operation is closed.
Additions to property plant and equipment were $1.272 million during the first
half of 1995 versus $1.069 million for the comparable period a year ago.
Total 1995 capital expenditures are expected to exceed the $2.3 million level
of depreciation for the year due the normal replacement of equipment, capital
tooling and the possibility of an improvement to the sand system at the
Registrant's Frazer & Jones division.
The Registrant anticipates it will be drawing down on its short-term line of
credit for funding the acquisition of Precision Components in Canada and to
provide for additional operating capital. The total draw down is not expected
to exceed $1 million.
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 U.S. 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.
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<PAGE> 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.
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 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.
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<PAGE> 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-six day of April, 1995. The purpose of the
meeting was to:
1. To elect two (2) directors.
2. To adopt the 1995 Executive Stock Incentive Plan.
3. 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 1995 annual meeting for a three year term
expiring 1998.
Votes cast FOR WITHHELD
Charles W. Henry 2,540,510 16,102
Donald E. Whitmore, Jr. 2,539,085 17,527
Continuing Directors:
John Everets, Jr. Ole K. Imset
Leonard F. Leganza Russell G. McMillen
David C. Robinson Stedman G. Sweet
Donald S. Tuttle III
Adoption of executive stock incentive plan
Votes Cast FOR AGAINST ABSTENTION BROKER NON-VOTES
1,950,550 221,450 137,736 246,876
Appointment of independent auditors:
Votes Cast FOR AGAINST ABSTENTION
Ernst & Young LLP 2,544,818 7,556 4,238
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<PAGE> 11
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
A. The Eastern Company 1995 Executive Stock Incentive Plan
incorporates herein by reference those portions of the Registrant's definitive
proxy statement filed with the Commission pursuant to Regulation 14A on
March 20, 1995 beginning on page 20 captioned "Adoption of Executive Stock
Incentive Plan."
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)
Stedman G. Sweet
DATE: August 8, 1995 _____________________________
Stedman G. Sweet
President and Chief Executive Officer
Donald E. Whitmore, Jr.
DATE: August 8, 1995 _______________________________
Donald E. Whitmore, Jr., Vice
President and Principal Financial Officer
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUL-01-1995
<CASH> 1,742,001
<SECURITIES> 0
<RECEIVABLES> 9,456,502
<ALLOWANCES> 396,724
<INVENTORY> 11,542,342
<CURRENT-ASSETS> 24,270,621
<PP&E> 25,230,414
<DEPRECIATION> 12,253,420
<TOTAL-ASSETS> 41,795,819
<CURRENT-LIABILITIES> 5,994,327
<BONDS> 0
<COMMON> 9,009,393
0
0
<OTHER-SE> 21,818,952
<TOTAL-LIABILITY-AND-EQUITY> 41,795,819
<SALES> 34,369,410
<TOTAL-REVENUES> 34,469,120
<CGS> 26,284,351
<TOTAL-COSTS> 26,284,351
<OTHER-EXPENSES> 5,571,217
<LOSS-PROVISION> 65,000
<INTEREST-EXPENSE> 60,248
<INCOME-PRETAX> 2,488,304
<INCOME-TAX> 945,605
<INCOME-CONTINUING> 1,542,699
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,542,699
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
