<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 June 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM _________________ to ________________.
Commission File Number 0-599
THE EASTERN COMPANY
(Exact Name of Registrant as specified in its charter)
Connecticut 06-0330020
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
112 Bridge Street, Naugatuck, Connecticut 06770
(Address of principal executive offices) (Zip Code)
(203) 729-2255
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of June 29, 1996
Common Stock, No par value 2,699,284
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<PAGE> 2
PART I
FINANCIAL INFORMATION
THE EASTERN COMPANY AND SUBSIDIARIES
ITEM I CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
- ------ -------------------------------------
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS June 29, 1996 Dec. 30, 1995
- -------------- ------------ -----------
<S> <C> <C>
Cash and cash equivalents $ 2,164,201 $ 1,521,361
Accounts receivable, less allowance: 8,207,961 7,810,742
1996- $537,895; 1995- $501,000
Inventories 11,300,362 11,792,876
Prepaid expenses and other current assets 1,999,503 2,010,332
----------- -----------
Total Current Assets 23,672,027 23,135,311
Property, plant and equipment 26,857,950 25,090,676
Less accumulated depreciation (12,821,977) (11,405,013)
---------- ----------
14,035,973 13,685,663
Prepaid pension cost 3,802,332 3,069,066
Other assets, net 1,147,797 1,200,059
----------- -----------
TOTAL ASSETS $ 42,658,129 $ 41,090,099
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable current $ 2,619,313 $ 1,119,313
Accounts payable 2,479,739 3,004,297
Accrued compensation and withholding 1,542,546 908,297
Accrued expenses 1,158,384 863,749
----------- -----------
TOTAL CURRENT LIABILITIES 7,799,982 5,895,656
Deferred federal income taxes 2,237,900 2,237,900
Long-term debt 280,125 339,856
Accrued postretirement benefits 2,816,003 2,810,003
SHAREHOLDERS' EQUITY
Common Stock, no par value:
Authorized shares - 25,000,000
Issued and outstanding shares: 8,045,863 8,017,738
1996-2,699,284; 1995-2,696,284
(Excluding Shares in Treasury:
1996-610,987; 1995-610,987)
Preferred Stock, no par value
Authorized shares - 2,000,000
(No shares issued)
Retained earnings 21,478,256 21,788,946
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 42,658,129 $ 41,090,099
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE> 3
<TABLE>
THE EASTERN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
June 29, 1996 July 1, 1995 June 29, 1996 July 1, 1995
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net Sales $29,892,588 $31,446,053 $15,351,036 $15,030,421
Interest Income 70,530 70,623 33,821 30,553
----------- ---------- ---------- ----------
Total 29,963,118 31,516,676 15,384,857 15,060,974
Cost of Products Sold 24,233,990 23,692,593 12,116,441 11,547,598
----------- ----------- ---------- ----------
5,729,128 7,824,083 3,268,416 3,513,376
Selling and Admin. Expenses 5,349,975 5,181,541 2,658,140 2,503,518
Interest Expense 73,666 60,248 22,827 16,603
Other Income - (29,087) - -
----------- ----------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS 305,487 2,611,381 587,449 993,255
Income Taxes 130,945 972,964 210,746 398,194
----------- ----------- ---------- ----------
INCOME FROM CONTINUING
OPERATIONS $ 174,542 $ 1,638,417 $ 376,703 $ 595,061
Discontinued operations - (95,718) - (12,031)
----------- ----------- ---------- ----------
NET INCOME $ 174,542 $ 1,542,699 $ 376,703 $ 583,030
=========== =========== ========== ==========
Income per share from
continuing operations $ 0.06 $ 0.59 $ 0.13 $ 0.21
Net income per share $ 0.06 $ 0.56 $ 0.13 $ 0.21
Cash Dividends Per Share $ 0 .23 $ 0.23 $ 0.115 $ 0.115
Average Shares Outstanding 2,696,820 2,775,357 2,696,820 2,775,357
</TABLE>
See accompanying notes.
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<PAGE> 4
<TABLE>
THE EASTERN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
June 29, 1996 July 1, 1995
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 174,542 $ 1,542,699
Adjustments to reconcile net income to net
cash provided from operations:
Depreciation and amortization 1,524,080 1,356,092
Loss (gain) on sale of equipment and other assets 335 (15,212)
Postretirement benefits other than pensions 6,000 5,797
Provision for losses on accounts receivable 35,242 66,110
Changes in Operating Assets and Liabilities:
Accounts receivable (432,808) 557,586
Inventories 499,270 (1,985,937)
Prepaid expenses 12,023 98,877
Prepaid pension (733,267) (191,705)
Accounts payable (520,783) 34,483
Accrued expenses 1,044,110 829,113
Other assets (44,421) (335,226)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,564,323 1,962,677
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (1,787,962) (1,272,369)
Proceeds from sale of equipment and other assets 13,600 1,034,717
----------- -----------
NET CASH PROVIDED (USED) FOR INVESTING ACTIVITIES (1,774,362) (237,652) 048,045)
FINANCING ACTIVITIES:
Payment on line of credit (1,400,000)
Proceeds from line of credit 1,500,000 -
Principal payments on long-term debt (60,000) (560,000)
Proceeds from sales of Common Stock 28,125 29,510
Purchases of Common Stock for the treasury - (29,509)
Dividends paid (620,493) (638,421)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 847,632 (2,598,420)
Effect of exchange rate changes on cash 5,247 5,152
----------- -----------
NET DECREASE (DECREASE)IN CASH AND CASH EQUIVALENTS 642,840 (868,243)
Cash and Cash Equivalents at Beginning of Year 1,521,361 2,610,244
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,164,201 $ 1,742,001
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE> 5
<TABLE>
THE EASTERN COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
June 29, 1996 July 1, 1995 June 29, 1996 July 1, 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Primary:
Average Shares Outstanding 2,696,820 2,775,357 2,696,820 2,775,357
Net effect of dilutive stock
options -- based on the
treasury stock method
using average market price
29,582 53,788 29,582 53,788
----------- --------- ---------- ---------
Total 2,726,402 2,829,145 2,726,402 2,829,145
=========== ========= ========== =========
Income from continuing
operations per share $ 174,542 $1,638,417 $ 376,703 $ 595,061
=========== ========== ========== =========
Net Income $ 174,542 $1,542,699 $ 376,703 $ 583,030
=========== ========== ========== =========
Income from continuing
operations per share $0.06 $0.58 $0.13 $0.21
===== ===== ===== =====
Net income per share $0.06 $0.55 $0.13 $0.21
===== ===== ===== =====
Fully Diluted:
Average Shares Outstanding 2,696,820 2,775,357 2,696,820 2,775,357
Net effect of dilutive stock
options -- based on the
treasury stock method
using quarter-end market
price, if higher than average
market price 29,582 53,788 29,582 53,788
--------- --------- -------- ---------
Total 2,726,402 2,829,145 2,726,402 2,829,145
========= ========= ========= =========
Income from continuing
operations per share $ 174,542 $1,638,417 $ 376,703 $ 595,061
=========== ========== ========== =========
Net Income $ 174,542 $1,542,699 $ 376,703 $ 583,030
=========== ========== ========== =========
Income from continuing
operations per share $0.06 $0.58 $0.13 $0.21
===== ===== ===== =====
Net income per share $0.06 $0.55 $0.13 $0.21
===== ===== ===== =====
</TABLE>
See accompanying notes.
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<PAGE> 6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 29, 1996
Note A - Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
The accompanying consolidated condensed financial statements are unaudited.
However, in the opinion of the Registrant's management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation of the results of operations for such interim periods have been
reflected therein.
Certain 1995 amounts have been reclassified to conform to 1996 presentation.
Note B - Net Income Per Share
Net income per share of common stock is based on the weighted average number
of shares outstanding during each period (1996- 2,696,820 shares; 1995 -
2,775,357 shares). Common stock equivalents (Stock Options) did not have a
material dilutive effect on net income per share. The computation of net
income per share of common stock on a fully diluted basis did not result in
any material dilution in 1996 or 1995.
Note C - Discontinued Operation
In August 1995, the Company sold the business and substantially all assets of
its construction segment retaining accounts receivable. At June 29, 1996 and
December 30, 1995 accounts receivable include $504,192 and $582,627
respectively applicable to the discontinued construction segment. The
statement of income for the three and six months ended July 1, 1995 has been
reclassified to reflect the discontinuance of this segment.
-6-
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Income from continuing operations for the second quarter 1996 was $376,703 or
$.13 per share on sales of $15,351,036 versus income from continuing
operations for the second quarter of 1995 of $595,061 or $.21 per share on
sales of $15,030,421. Income from continuing operations for the first six
months of 1996 was $174,542 or $.06 per share on sales of $29,892,588 versus
income from continuing operations for the first six months of 1995 of
$1,638,417 or $.59 per share on sales of $31,446,053. Net income for the
first six months of 1995 was $1,542,699 or $.56 per share after the loss from
the discontinued construction segment of $95,718 or $.03 per share.
Second quarter sales were up 2% compared to the same period a year ago. A
volume decrease of 3% was offset by price increases of 1% and new products of
4% during the second quarter. Sales for the first six months of 1996 were
down 5% compared to the same period a year ago. Price and new products
increased 4% while volume was down 8% for the first half. New products
include vehicular hardware produced and designed by Eberhard Manufacturing
division; the "Gun Blok", a patented keyless trigger lock for securing most
hand guns and rifles, offered by the Registrant's CCL Security Products
division; new malleable castings products manufactured by the Frazer & Jones
division; and hardware components for the appliance industry offered by the
Registrant's Canadian subsidiary, Eberhard Hardware Manufacturing, Ltd. Weak
demand for the Registrant's expansion shells, used in the mining industry,
resulted in reduced production throughout the second quarter. Although the
overall underground coal mining industry is expected to be soft for the
foreseeable future, the Registrant is in final negotiations for additional
work which will help to significantly improve the operating capacity
utilization at this division. Contract malleable casting sales were
comparable to the six month period a year ago. Increased sales and production
is expected during the third quarter. Demand for the Registrant's heavy
hardware servicing the tractor trailer industry continues to be on the down
cycle with sales off 29% for the six months 1996 as compared to the comparable
period of 1995. Aggressive marketing and product development has increased
business in the utility body and vehicular accessories markets helping to
offset a significant portion of the temporary decline in the tractor trailer
markets. Sales of custom locks were up 8% in the second quarter and up 5% for
the first half over the comparable period a year ago. The Registrant's
overall results are expected to be improved in the second half of 1996.
The Registrant's gross margin as a percentage of sales for the three and six
months ended June 29, 1996 was 21% and 19%, respectively, compared to 23% and
25% for the comparable periods a year ago. Gross margin improved
significantly in the second quarter over the first quarter of 1996 as the
result of increased sales of new products and production problems being
resolved at the Registrant's Frazer and Jones division. Although the gross
margin is down from the comparable periods a year ago, improvements are
expected in the second half of 1996 as increased production is anticipated to
meet demand for new and existing products.
Selling and administrative expenses were up 6% or $155 thousand and up 3% or
$168 thousand for the three and six months ended June 29, 1996 as compared to
the same periods a year ago. Overall selling and administrative expenses
expressed as a percentage of sales
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<PAGE> 8
were up slightly for the three and six month periods ended June 29, 1996 at
17% and 18% respectively, versus a year ago of approximately 17% for the
comparable periods. Increases in selling and administrative expenses were
experienced in administrative payroll and fringe benefits, sales commission
expenses and professional services.
Other income for the six months ended June 29, 1996, was down $29 thousand as
compared to the same periods a year ago. An agreement under which the
Registrant received commission income expired in August 1995.
The effective income tax rate for the second quarter and first half of 1996
from continuing operations was 36% and 43%, respectively, versus 40% and 37%
for the comparable periods a year ago. The reduction in the effective income
tax rates in the second quarter of 1996 was due to lower effective U.S. rates
versus higher effective foreign rates. For the first half of 1996 the
effective tax was higher than the comparable period a year ago due to higher
foreign tax rates.
Liquidity and Sources of Capital
Cash flows from operations were $1.564 million for the first half of 1996
versus $1.963 million in the first half of 1995. The change in cash flows
resulted from timing differences for collections of accounts receivable,
payments of liabilities and reductions in inventory. The Registrant drew down
$1.5 million under its short-term line of credit in the first half of 1996 to
fund normal capital expenditure.
Additions to property, plant and equipment were $1.8 million during the first
half of 1996 versus $1.3 million for the comparable period a year ago. Total
1996 capital expenditures are expected to approximate the $2.5 million level
of depreciation for the year.
Inventory decreased from the 1995 year-end level by $500 thousand with
inventory turns remaining comparable at 6 times per year. The average day's
sales in accounts receivable decreased to 52 days versus 53 at days the end of
1995. The balance of uncollected accounts receivable from the discontinued
segment was $504 thousand at the end of the first half of 1996; the
Registrant continues to pursue collection.
The Registrant does not anticipates it will be drawing down on its short-term
line of credit for funding working capital or additional capital expenditures.
Other Matters
On June 24, 1994, the Registrant settled all claims with both the Beacon
Heights Coalition and the Laurel Park Coalition and the respective complaints
against the Registrant on behalf of the Coalitions were dismissed by
stipulation. No complaints are now pending in the US District Court involving
the Registrant and a final judgement was entered by the U.S. District Court in
the consolidated proceedings on March 17, 1995. Appeals, however, have been
filed by two government agencies as described in Part II, Item 1 below.
The Registrant continues to actively monitor the situation. It is
management's opinion that the resolution of these matters will not have a
material adverse effect on the Registrant's financial position, operating
results or liquidity.
-8-
<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.
In March 1991, a Laurel Park Coalition which did not include the Registrant
entered into Consent Decree and Administrative Order by Consent with the EPA
and the State of Connecticut to remediate the Laurel Park landfill. The
Consent Decree has been approved by the Court.
In May 1991, EPA and the State of Connecticut ("State") each filed a
complaint against the Registrant and three other defendants seeking recovery
of present and future response costs incurred in connection with the Laurel
Park landfill. The EPA claims costs in excess of $1.8 million and the state
claims costs in excess of $2.5 million. On July 1, 1991, the court
consolidated these actions against the Registrant with the other cases under
docket number N-87-52 (PCD).
By order dated February 8, 1994, the court granted a motion filed by
Registrant for judgement on the pleadings against EPA and the state with
respect to each of their claims against Registrant. By motions dated
February 22, 1994 and February 23, 1994, EPA and the State respectively moved
for reconsideration of the court's order, which motions were denied.
By order dated February 8, 1994, the court permitted the Laurel Park
Coalition to file a complaint against eight parties including the Registrant,
which claims were to be assigned for trial if the Coalition filed a
complaint.
On June 24, 1994 , the Registrant settled all claims with both the Beacon
Heights Coalition and the Laurel Park Coalition and the respective complaints
against the Registrant on behalf of the Coalitions were dismissed by
stipulation.
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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-forth day of April, 1996. The
purpose of the meeting was to:
1. To elect four (4) directors.
2. To approve the appointment by the Board of Directors of Ernst &
Young LLP as independent auditors to audit the books and accounts for the
current fiscal year.
Nominated for election at the 1996 annual meeting for a three year term
expiring 1999.
Votes cast FOR WITHHELD
John W. Everets 2,401,203 39,447
Leonard F. Leganza 2,401,105 39,545
Russell G. McMillen 2,401,622 39,028
David C. Robinson 2,402,480 38,170
Continuing Directors:
Charles W. Henry Ole K. Imset
Stedman G. Sweet Donald S. Tuttle III
Donald E. Whitmore, Jr.
Appointment of independent auditors:
Votes cast FOR AGAINST ABSTENTION
Ernst & Young LLP 2,453,660 3,288 2,268
-10-
<PAGE> 11
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
B. Reports on form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE EASTERN COMPANY
(Registrant)
DATE: August 12, 1996 By /s/ STEDMAN G. SWEET
---------------------
Stedman G. Sweet
President and Chief Executive Officer
DATE: August 12, 1996 By /s/ DONALD E. WHITMORE, JR.
---------------------------
Donald E. Whitmore, Jr., Vice
President and Chief Financial Officer
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> JUN-29-1996
<CASH> 2,164,201
<SECURITIES> 0
<RECEIVABLES> 8,207,961
<ALLOWANCES> 537,895
<INVENTORY> 11,300,362
<CURRENT-ASSETS> 23,672,027
<PP&E> 26,857,950
<DEPRECIATION> 12,821,977
<TOTAL-ASSETS> 42,658,129
<CURRENT-LIABILITIES> 7,799,982
<BONDS> 0
<COMMON> 8,045,863
0
0
<OTHER-SE> 21,478,256
<TOTAL-LIABILITY-AND-EQUITY> 42,658,129
<SALES> 29,892,588
<TOTAL-REVENUES> 29,963,118
<CGS> 24,233,990
<TOTAL-COSTS> 24,233,990
<OTHER-EXPENSES> 5,314,733
<LOSS-PROVISION> 35,242
<INTEREST-EXPENSE> 73,666
<INCOME-PRETAX> 305,487
<INCOME-TAX> 130,945
<INCOME-CONTINUING> 174,542
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 174,542
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
