<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 MARCH 30,1996
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 March 30, 1996
Common Stock, No par value 2,696,284
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<PAGE> 2
PART I
FINANCIAL INFORMATION
THE EASTERN COMPANY AND SUBSIDIARIES
ITEM I CONSOLIDATED CONDENSED BALANCE SHEETS (UNADITED)
- ------ -------------------------------------
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS March 30, 1996 Dec. 30, 1995
------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 1,843,861 $ 1,521,361
Accounts receivable,less allowance of:
1996- $519,720 1995- $501,000 8,300,234 7,810,742
Inventories 11,795,823 11,792,876
Prepaid expenses and other current assets 1,980,657 2,010,332
----------- -----------
Total Current Assets 23,920,575 23,135,311
Property, plant and equipment 26,265,843 25,090,676
Accumulated depreciation (12,116,778) (11,405,013)
----------- -----------
14,149,065 13,685,663
Prepaid pension cost 3,705,130 3,069,066
Other assets, net 1,161,830 1,200,059
------------ ------------
TOTAL ASSETS $ 42,936,600 $ 41,090,099
============ ============
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Current Liabilities
<S> <C> <C>
Notes payable $ 2,119,313 $ 1,119,313
Accounts payable 3,710,029 3,004,297
Accrued compensation and withholding 1,662,829 908,297
Accrued expenses 759,303 863,749
------------ -----------
Total Current Liabilities 8,251,474 5,895,656
Deferred federal income taxes 2,237,900 2,237,900
Long-term debt 280,065 339,856
Accrued postretirement benefits 2,813,003 2,810,003
Shareholders' Equity
Common Stock No Par Value:
Authorized Shares - 25,000,000
Issued & outstanding shares: 8,017,738 8,017,738
1996-2,696,284 1995-2,696,284
(Excluding Shares in Treasury:
1996-610,987 1995-610,987)
Preferred Stock, No Par Value
Authorized Share - 2,000,000
(No shares issued)
Retained earnings 21,336,420 21,788,946
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 42,936,600 $ 41,090,099
============ ============
</TABLE>
See accompanying notes.
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<PAGE> 3
<TABLE>
THE EASTERN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
MARCH 30, 1996 APRIL 1, 1995
<S> <C> <C>
Net sales $14,541,552 $16,415,632
Interest income 36,709 40,070
----------- -----------
Total 14,578,261 16,455,702
Cost of products sold 12,117,549 12,114,995
----------- -----------
2,460,712 4,310,707
Selling and admin. expenses 2,691,835 2,678,023
Interest expense 50,839 43,645
Other income net - (29,087)
----------- -----------
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (281,962) 1,618,126
Income taxes (79,801) 574,770
----------- -----------
(LOSS) INCOME FROM CONTINUING
OPERATIONS (202,161) 1,043,356
Discontinued operations - (83,687)
----------- -----------
NET (LOSS) INCOME $ (202,161) $ 959,669
=========== ===========
(Loss) income per share from continuing
operations $ (0.07) $ 0.38
Net (loss) income per share $ (0.07) $ 0.35
Cash dividends per share $ 0.115 $ 0.115
Average shares outstanding 2,696,284 2,775,085
</TABLE>
See accompanying notes.
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<PAGE> 4
<TABLE>
THE EASTERN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
<CAPTION>
MARCH 30, 1996 APRIAL 1, 1995
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (202,161) $ 959,669
Adjustments to reconcile net (loss) income to
net cash provided from operations:
Depreciation and amortization 763,246 687,515
Gain on sale of equipment and other assets - (16,606)
Postretirement benefits other than pensions 3,000 20,750
Provision for losses on accounts receivable 17,500 30,035
Changes in operating assets and liabilities:
Accounts receivable (503,836) 8,785
Inventories 2,987 (1,058,958)
Prepaid expenses 30,364 264,554
Prepaid pension (636,064) (88,913)
Accounts payable 700,253 459,421
Accrued expenses 698,265 1,318,753
Other assets (12,569) (321,104)
---------- ----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 860,985 2,263,901
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (1,172,221) (690,276)
Proceeds from sale of equipment and other assets - 1,034,717
Other - -
--------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (1,172,221) 344,441
FINANCING ACTIVITIES:
Payment on line of credit - (1,400,000)
Proceeds from line of credit 1,000,000 -
Principal payments on long-term debt 60,000 (310,000)
Dividends paid (310,074) (319,136)
---------- ----------
NET CASH USED FOR FINANCING ACTIVITIES 629,926 (2,029,136)
Effect of exchange rate changes on cash 3,810 (2,106)
---------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 322,500 577,100
Cash and Cash Equivalents at Beginning of Year 1,521,361 2,610,244
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,843,861 $ 3,187,344
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE> 5
<TABLE>
THE EASTERN COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
As reported: MARCH 30, 1996 APRIL 1, 1995
-------------- -------------
<S> <C> <C>
Primary:
Average shares outstanding 2,696,284 2,775,085
Net effect of dilutive stock
options -- based on the treasury
stock method using average market
price - 64,299
--------- ---------
Total 2,696,284 2,839,384
========= =========
(Loss) income from continuing
operations $ (202,161) $1,043,356
========== ==========
Net (loss) income $ (202,161) $ 959,669
========== ==========
(Loss) income per share from
continuing operations ($0.07) $0.37
===== =====
Net (loss) Income Per Share ($0.07) $0.34
===== =====
Fully diluted:
Average shares outstanding 2,696,284 2,775,085
Net effect of dilutive stock
options -- based on the treasury
stock method using quarter-end
market price, if higher than average
market price - 64,299
--------- ---------
Total 2,696,284 2,839,384
========= =========
(Loss) income from continuing
operations $ (202,161) $1,043,356
========== ==========
Net (loss) income $ (202,161) $ 959,669
========== ==========
(Loss) income per share from
continuing operations ($0.07) $0.37
===== ====
Net (loss) Income Per Share ($0.07) $0.34
===== =====
</TABLE>
See accompanying notes.
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<Page 6>
THE EASTERN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
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.
Certain 1995 amounts have been reclassified to conform to 1996 presentation.
The condensed balance sheet as of December 30, 1995 has been derived from the
audited financial statements at that date.
Note B - Net (Loss) Income Per Share
Net (loss) income per share of common stock is based on the weighted average
number of shares outstanding during each period (1996 - 2,696,284 shares; 1995
- - 2,775,085 shares). Common stock equivalents (stock options) did not have a
material dilutive effect on net income per share in 1995. The computation of
net income per share of common stock on a fully diluted basis did not result
in any material dilution in 1995. Stock options were anti-dilutive in 1996
and were excluded from the per share calculations.
Note C - Discontinued Operations
In August 1995, the Company sold the business and substantially all assets of
its construction segment and retained accounts receivable. At March 30, 1996
and December 30, 1995 accounts receivable include $555,397 and $582,627
respectively. The statement of income for the three months ended April 1,
1995 has been reclassified to reflect the discontinuance of this segment.
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<Page 7>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
A loss for the first quarter of 1996 resulted from continuing operations of
$202 thousand or $.07 per share on sales of $14.5 million versus income from
continuing operations for the first quarter 1995 of $1.0 million or $.38 per
share on sales of $16.4 million. Net income for the first quarter of 1995 was
$960 thousand or $.35 per share after the loss from the discontinued
construction segment of $84 thousand or $.03 per share.
The first quarter 1996 net sales were down 11% or $1.9 million from the first
quarter of 1995. Sales volume declined 13% due to the continued softness in
the coal mining industry which began in the second quarter of 1995 and the
down turn in the transportation industry which began in the fourth quarter of
1995. New products and price increases contributed 2% in increased sales
helping to offset a portion of the decline in volume. New products include
the "Gun Blok", a patented keyless trigger lock for securing most hand guns
and rifles, introduced 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. As previously
forecast, demand for the Registrant's heavy hardware for the tractor trailer
industry was down from the first quarter of 1995. Demand for other locking
and latching devices used in the transportation and industrial hardware
markets remain strong. Sales to the underground coal mining industry were
down 31% from the comparable period a year ago. This industry continues to be
soft and is not expected to improve in the near-term. Sales of custom locks
were up slightly from the comparable period a year ago and improved sales are
expected for the second and third quarters.
Gross margin as a percentage of sales for the three months ended March 30,
1996 was 17% compared to the same period a year ago of 26%. The decrease in
gross margin was attributable to a decrease in sales, curtailed production
resulting in an under utilization of productive capacity and production
problems incurred in the contract malleable casting business.
Selling and administrative expenses of $2.7 million were comparable to 1995
levels. Expressed as a percent of sales, selling and administrative expenses
were 19% versus 16% for the comparable period a year ago. This percentage
increase is all due to a temporary decline in sales during the first quarter
of 1996 as compared to the same period a year ago.
Other income for the three months ended March 30, 1996, was down $29 thousand
from the comparable period a year ago. An agreement by which the Registrant
received commission income expired in August 1995.
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<Page 8>
Liquidity and Sources of Capital
Cash flows from operations were $861 thousand for the first quarter of 1996
versus $2.264 million in the first quarter of 1995. Cash generated from
operations was not sufficient to fund the Registrant's capital expenditure
program or the company paid contribution to its salary pension plan. As a
result, the Registrant drew down an additional $1 million from its short-term
line of credit in the first quarter 1996.
Early in the second quarter the Registrant drew down an additional $500
thousand from its short-term line of credit to fund on going capital
expenditure programs.
Inventory balances at the end of the first quarter of 1996 of $11.8 million
were comparable to year end 1995 levels. Inventory turns of 5.5 times at the
end of the first quarter of 1996 was comparable to the year end rate. The
Registrant believes inventory levels are adequate to meet customer
requirements and anticipated increased sales activity. The average day's
sales in accounts receivable remained at the year-end level of 53 days. The
balance of uncollected accounts receivable from the discontinued segment was
$555 thousand at the end of the first quarter of 1996. The Registrant
continues to pursue collection of this outstanding balance.
Additions to property plant and equipment were $1.2 million during the first
three months of 1996 versus $690 thousand for the comparable period a year
ago. Total 1996 capital expenditures will approximate or be slightly higher
than the expected $2.5 million level of depreciation for the year.
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 judgment was entered by the U.S. District
Court in the consolidated proceedings on May 2, 1995. Appeals have been filed
by the State and the EPA 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-
<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 conjunction 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 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 May 2, 1995, the U.S. District Count entered a final judgment in the
consolidated proceedings (docket number N-87-52(PCD)) which included the
granting of Registrant's motion for judgment on the pleadings. As a result
of this judgment, no complaints are now pending in the U.S. District Court
involving the Registrant.
On May 10, 1995, the State and the EPA filed their notices of appeal from
this final judgment with the U.S. District Court. Briefs have been filed and
the matter was argued before the U.S. Court of Appeals for the Second Circuit
in New York and the parties are awaiting a decision.
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 -
None
ITEM 5 OTHER INFORMATION -
None
ITEM 6 EXHIBITS AND 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: May 14, 1996 STEDMAN G. SWEET
----------------
Stedman G. Sweet
President and Chief Executive Officer
DATE: May 14, 1996 DONALD E. WHITMORE, JR.
-----------------------
Donald E. Whitmore, Jr., Vice
President and Chief Financial Officer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> MAR-30-1996
<CASH> 1843861
<SECURITIES> 0
<RECEIVABLES> 8300234
<ALLOWANCES> 519720
<INVENTORY> 11795823
<CURRENT-ASSETS> 23920575
<PP&E> 26265843
<DEPRECIATION> 12116778
<TOTAL-ASSETS> 42936600
<CURRENT-LIABILITIES> 8251474
<BONDS> 0
0
0
<COMMON> 8017738
<OTHER-SE> 21336420
<TOTAL-LIABILITY-AND-EQUITY> 42936600
<SALES> 14541552
<TOTAL-REVENUES> 14578261
<CGS> 12117549
<TOTAL-COSTS> 12117549
<OTHER-EXPENSES> 2674335
<LOSS-PROVISION> 17500
<INTEREST-EXPENSE> 50839
<INCOME-PRETAX> (281962)
<INCOME-TAX> (79801)
<INCOME-CONTINUING> (202161)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (202161)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
