<PAGE 1>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 30, 1995 Commission File Number 0-599
THE EASTERN COMPANY
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(Exact name of registrant as specified in its charter)
Connecticut 06-0330020
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
112 Bridge Street, Naugatuck, Connecticut 06770
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(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(203)729-2255
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock No Par Value
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(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 24, 1996.
Common Stock, No Par Value - $32,355,408
-----------
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Class Outstanding at February 24, 1996
- -------------------------- --------------------------------
Common Stock, No Par Value 2,696,284
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1995 annual report to shareholders (fiscal year ended
December 30, 1995) are incorporated by reference into Parts I and II.
Portions of the annual proxy statement dated March 22, 1996 are incorporated
by reference into Part III.
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PART I
ITEM 1 BUSINESS
(a) General Development of Business
The business of the Registrant is the manufacturing and/or purchasing
and sale of a diversified line of products from four operations and four
wholly-owned subsidiaries. The Registrant maintains seven physical
locations.
The Registrant has a wide range of security products or items used to
close and fasten, in the electronic and industrial markets, retail,
transportation, and mining industries. Typical items include heavy-duty
hinges, multi-point latching devices, dial combination locks, multi-circuit
switch locks, padlocks, lock cylinders, mine roof fasteners, miscellaneous
castings and keys.
The Registrant is promoting growth by expanding present product lines,
and developing new products. In addition, desirable outside product lines,
similar to those recently purchased, which complement present lines and/or
companies, may be acquired if they generally fit management's expertise in
marketing or manufacturing.
In addition to the normal replacement of equipment 1995 capital
expenditures included projects at the Registrant's Eberhard and Frazer and
Jones facilities to upgrade and recondition equipment, expand capacity,
improve efficiency and satisfy environmental requirements. Planned capital
programs have been and will continue to be focused on increased productivity,
improved product quality and quicker response time through upgraded tools and
equipment.
The sales and distribution channels for all groups are by in-house
salesmen, outside representatives, and from the manufacturing plant or
centralized warehousing. However, the Registrant continues to place more
emphasis on in-house salesmen since they better represent the Registrant's
diversified product lines in a variety of markets. Sales are to original
equipment manufacturers or to distributors.
(b) Narrative Description of Business
The Registrant's operations consist of a single business segment -
security products. Security products are used to close, lock or secure
equipment used in the industrial, transportation, and mining industries.
Competitive conditions follow the national economic trend.
The Registrant's product lines or items are generally in specialized
but diverse security markets. While service and quality are the major
criteria, the Registrant has developed new products to increase market share,
as well as continuing to become more cost efficient and enter new markets.
The Registrant has expanded its customer base in light vehicles, electronics,
luggage and industrial markets through aggressive marketing. The registrant
continues to invest in the development of new products such as the
"Prestolock" line of keyless locks, new malleable casting products, a variety
of vehicular and industrial cabinet hardware and hardware components for the
hardware industry.
The decline for engineered fasteners for use in the underground mining
industry is being replaced by new business being obtained in the
construction, utility and industrial markets. The Registrant purchased a
small Canadian manufacturer of contract stamping hardware servicing the
appliance industry. A new subsidiary was established in Mexico, which
initially will operate as a stocking distributor of the Registrant's security
products. This offers good opportunities for growth.
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The Registrant's facilities have the capability to respond quickly and
efficiently to the changing requirements in the many security products
markets where it competes. Also, the Registrant, through its continued
capital expenditure programs to increase capacity and improve efficiency has
been able to produce within its facilities additional parts and sub-
assemblies formerly provided by suppliers. During the year the Registrant
strengthened its sales, quality control, and manufacturing departments to
provide the flexibility and support to develop new business.
The Registrant's products are sold to distributors, original equipment
manufacturers and consumers through direct sales, salesmen and sales
representative organizations. In the areas involving mine roof fasteners,
locks and hardware, engineering works with sales personnel to provide
technical assistance on the sale.
Raw materials and outside services were readily available from domestic
sources during 1995 and are expected to be readily available in 1996 and the
foreseeable future.
Patent protection for the various product lines is fairly limited, but
is sufficient to enhance competitive positions. Foreign sales and license
agreements are not significant.
The Registrant's business is not seasonal.
Customer lists for all groups are broad-based geographically and by
markets and sales are not highly concentrated by customer. No customer
accounted for 10% or more of the Registrant's consolidated revenue for the
year ended December 30, 1995.
The Registrant continues to maintain a strong balance sheet with working
capital at a stable level through strong management control on receivables
and inventories.
Quick response to customer orders is becoming more important.
Consequently investments in additional inventories are made on a selective
basis to meet the rapid delivery requirements of our customers.
Inventories increased $2,262,330 and inventory turned 5.5 in 1995 versus
7.4 in 1994. The inventory increase was due to the build up of the
Registrant's contract castings business, the slow down in the mine roof
fastener market and the start up of the Sesamee Mexicana subsidiary. Also
affecting the inventory turn comparison was the sale of the Thompson
Materials Division where inventory turns were 14.9 in 1994.
Accounts receivable decreased $1,854,422 primarily because of the sale
of the Thompson Materials division and slow down in the mine roof fastener
market. While collection is more difficult in today's environment it is
under good control. Average days sales in accounts receivable were 53 days
in 1994 and 54 days in 1995. The allowance for doubtful accounts increased
$171,000 in order to provide for potential write offs of retained accounts
receivable from the recently sold Thompson Materials division. The present
$501,000 reserve balance adequately provides for potential uncollectable
accounts.
The dollar amount of the levels of orders in the Registrant's backlog
is believed to be firm as of fiscal year ended December 30, 1995 at
$6,466,000 as against $6,592,000 at December 31, 1994. A softening of
incoming orders within some key markets was experienced in the second half of
1995. An improvement is expected after a slow start in the first quarter of
1996.
The Registrant encounters competition in all of its product areas. The
Registrant has been successful in dealing with this competition by offering
high quality diversified products with the flexibility of meeting customer
needs on a timely basis. This is accomplished by effectively using its
internal engineering resources, cost effective manufacturing capabilities,
expanding product lines, national distributors and in house sales personnel
targeted to niche markets.
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Research and development expenditures in 1995 were $353,425 and
represented less than 1% of gross revenues. In 1994 and 1993 they were
$371,575 and $495,914, respectively. The projects involved mine roof
fasteners, and other malleable iron products, transportation and industrial
hardware, and locking device hardware.
Total lease obligations of the Registrant, including buildings, autos
and trucks and miscellaneous office equipment, for each of the next five
years are $262,307, $265,246, $267,795, $271,564 and $271,683. In 1995,
lease costs were $259,379.
The average number of employees in 1995 was 489.
(d) Financial Information about Foreign and Domestic Operations and
Export Sales
The Registrant includes four separate operating divisions located within
the United States and a wholly-owned Canadian subsidiary located in
Tillsonburg, Ontario, Canada, a wholly-owned Taiwanese subsidiary located in
Taipei, Taiwan, a wholly-owned subsidiary in Hong Kong and a wholly-owned
subsidiary in Mexico.
The Canadian, Taiwanese, Hong Kong and Mexican subsidiaries' revenue and
assets are not significant. Substantially all other revenues are derived
from customers located in the United States.
ITEM 2 PROPERTIES
The executive offices of the Registrant are located in Naugatuck,
Connecticut in the two story 8,000 square foot administrative building. In
mid February 1995, the Registrant sold the former Alloy Foundries' plant
property for $1,000,000 representing the approximate carrying value
(classified as land held for sale on the Balance Sheet).
All of the Registrant's properties are owned or leased and while being
fully utilized are adequate to satisfy current requirements. All of the
Registrant's properties have the necessary flexibility to cover any long-term
expansion requirements.
The Eberhard Manufacturing Division in Strongsville, Ohio owns 9.6 acres
of land and a building containing 95,000 square feet, located in an
industrial park. The building is steel frame, one-story, having curtain
walls of brick, glass and insulated steel panel. The building has one high
bay in which two units of automated warehousing are located. This facility's
plant capacity is adequate to satisfy current requirements. However, the
extensive acreage and plant design provides for flexibility in expansion
requirements.
The Eberhard Hardware Manufacturing, Ltd., a wholly-owned Canadian
subsidiary in Tillsonburg, Ontario, owns land and a building containing
21,000 square feet in an industrial park. The building is steel frame, one-
story, having curtain walls of brick, glass and insulated steel panel. It is
particularly suited for light fabrication, assembly and warehousing and is
adequate for long-term expansion requirements.
The Frazer and Jones Division in Solvay, New York, owns land and
buildings containing 179,000 square feet constructed for foundry use. These
facilities are well adapted to handle the division's current and future
casting requirements.
The Illinois Lock Division leases land and a building containing 44,000
square feet in Wheeling, Illinois. The building is brick and located in an
industrial park. The five year option was exercised and the lease was
extended five years from July 1, 1995 to June 30, 2000 under favorable terms.
The CCL Security Products Division is located in New Britain,
Connecticut where 26,000 square feet of a building is leased. The four
storied building is of brick and stone construction. A monthly lease is in
place.
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The Sesamee Mexicana, subsidiary is leasing 1,950 square feet of a block
building located in an industrial park in Lerma, Mexico on an open-end basis.
The World Lock Co. Ltd., subsidiary leases a brick and concrete building
containing 7,870 square feet and is located in Taipei, Taiwan. The lease was
extended three years from April 15, 1995 to April 15, 1998 under favorable
terms.
All owned properties are free and clear of any encumbrances.
ITEM 3 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.
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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. It is likely, however that the EPA and the state
will appeal the dismissal of their complaints against the Registrant and
other parties.
On May 2, 1995, the U.S. District Court entered a final amended 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.
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 4 SUBMISSION OF MATTERS TO SHAREHOLDERS
None
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The portion of the 1995 Annual Report to Shareholders appearing on page
24 under the heading "Common Stock Market Prices and Dividends" is
incorporated herein by reference.
ITEM 6 SELECTED FINANCIAL DATA
The financial data on page 21 of the 1995 Annual Report to Shareholders,
captioned "1995 - 1986 Summary of Operations" is incorporated herein by
reference.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following portions of the 1995 Annual Report to Shareholders are
incorporated herein by reference:
(a) All of the material in the Chairman's and President's Letter and
the Highlights of Operations
found on pages 2 and 3 of the Annual Report.
(b) All of the material on pages 22 and 23 under the heading
Management's Discussion and Analysis of Financial Condition and Results of
Operations".
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Registrant and its
subsidiaries and report of independent auditors included on pages 10 to 20 of
the Annual Report to Shareholders for the fiscal year ended December 30, 1995
are incorporated herein by reference as follows:
(a) Consolidated Balance Sheets -- December 30, 1995 and December 31,
1994.
(b) Consolidated Statements of Income -- Fiscal years ended December
30, 1995, December 31, 1994 and January 1, 1994.
(c) Consolidated Statements of Shareholders' Equity -- Fiscal years
ended December 30, 1995, December 31, 1994 and January 1, 1994.
(d) Consolidated Statements of Cash Flows -- Fiscal years ended
December 30, 1995, December and January 1, 1994.
(e) Notes to Consolidated Financial Statements -- December 30, 1995,
December 31, 1994 and January 1, 1994.
With respect to Quarterly Results of Operations there are incorporated
herein by reference the following additional portions of the 1995 Annual
Report to Shareholders:
(a) The portion of the 1995 Annual Report to Shareholders appearing on
page 24 under the heading "Quarterly Results of Operations" is
incorporated herein by reference.
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(b) Paragraphs 9 and 18 under the caption "Results of Operations" on
pages 22 and 23.
(c) Five paragraphs on page 23 under the caption "Impact of Inflation
and Changing Prices."
With respect to stock options, the Registrant notes that stock options
did not have a materially dilutive effect on net income per share for the
fiscal years ended December 30, 1995, December 31, 1994 and January 1, 1994.
There are incorporated herein by reference the portions of the
Registrant's definitive proxy statement filed with the Commission pursuant to
Regulation 14A since the close of its fiscal year, which involve Stock
Options, the information appearing on pages 4, 6, 7, 11 and 12.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There are incorporated herein by reference the portions of the
Registrant's definitive proxy statement filed with the Commission pursuant to
regulation 14A since the close of its fiscal year, which involve the election
of Directors, the information appearing on pages 3 through 4 of said proxy
statement, being the portion captioned "1. Election of Four Directors". The
Registrant's only Executive Officers are Russell G. McMillen, Chairman,
Stedman G. Sweet, President and Chief Executive Officer, and Donald E.
Whitmore, Jr., Vice President, Secretary, Treasurer and Principal Financial
Officer.
ITEM 11 EXECUTIVE COMPENSATION
There are incorporated herein by reference the portions of the
Registrant's definitive proxy statement filed with the Commission pursuant to
Regulation 14A since the close of its fiscal year, which involve the election
of Directors, the information appearing on pages 5 through 12 of said proxy
statement.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners - The following
table sets forth, as of February certain information with respect
to any person who is known to the Registrant to be the beneficial
owner of more than five percent of the Registrant's outstanding
securities.
<TABLE>
Amount/Nature Percent
Name/Address of of Beneficial of
Title of Class Beneficial Owner Ownership Class
<S> <C> <C> <C>
Common, No Bank of Boston Connecticut 287,250 (1) 10.1%
par value or one of its nominees
81 West Main Street,
Waterbury, CT 06702
Common, No Dimensional Fund 213,400 (2) 7.5%
par value Advisors, Inc.
1299 Ocean Avenue
Suite 650
Santa Monica, CA 90401
Common, No The First National Bank 150,989 5.3%
par value of Boston or one of its
nominees
Federal Street
Boston, MA 02110
</TABLE>
(1) Bank of Boston Connecticut holds 287,250 of these shares as Trustee
under The Eastern Company pension plans for salaried and for hourly
employees. The Trustee has exclusive authority and discretion to manage and
control the assets of these respective funds and to exercise the right to
vote shares of the Company's common stock held in these funds.
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(2) Dimensional Funds Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 213,400 shares of Eastern
Company stock as of February 24, 1996, all of which are held in portfolios of
DFA Investment Dimensions Group Inc., a registered open-end investment
company, or in the series of the DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust and DFA Participation Group Trust,
investment vehicles for qualified employee benefit plans, all of which
Dimensional Fund Advisors Inc. serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares.
(b) Security ownership of management:
---------------------------------
<TABLE>
Name of Beneficial Amount and Nature of Percent
Title of Class Owner Beneficial Ownership of Class
<S> <C> <C> <C>
Common, No par value John W. Everets 11,250 .4%
Common, No par value Charles W. Henry 13,750 .5%
Common, No par value Ole K. Imset 11,550 .4%
Common, No par value Leonard F. Leganza 14,250 .5%
Common, No par value Russell G. McMillen 119,256 4.2%
Common, No par value David C. Robinson 22,050 .8%
Common, No par value Stedman G. Sweet 80,994 2.9%
Common, No par value Donald S. Tuttle III 11,850 .4%
Common, No par value Donald E. Whitmore, Jr. 38,376 1.3%
Common, No par value Directors and Officers 377,303 13.3%
of the Registrant as a
group
</TABLE>
(c) Changes in Control
Not Applicable.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Not applicable
(b) There are incorporated herein by reference the portions of the
Registrant's definitive proxy statement filed with the Commission
pursuant to Regulation 14A since the close of its fiscal year,
which involve the Election of Directors, the information appearing
on pages 3 and 4 of said proxy Statement, being the portion
captioned "1. Election of Four Directors".
(c) Not applicable.
(d) Not applicable.
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PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
1 and 2. The response to this portion of Item 14 is submitted as a
separate section of this report appearing on page 14.
3. Exhibits
(3) Restated Certificate of Incorporation dated August
14, 1991 and Amended and Restated By-Laws dated February
13, 1991, are incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 28, 1991 and the Registrant's Form 8-K
filed on February 13, 1991.
(4) (a) Letter to all shareholders of the Registrant,
dated September 20, 1991 describing the Registrant's
redemption of shareholders Purchase Rights dated August
29, 1986 and the issuance of a new Purchase Rights
dividend distribution; "Summary of Rights to Purchase
Common Stock," as enclosed with said letter to
shareholders are incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 28, 1991.
(b) Rights Agreement entered into between the Registrant
and The First National Bank of Boston, dated as of
September 16, 1991 incorporated by reference to the
Registrant's Form 8-K filed on September 16, 1991.
(c) The First Amendment dated as of November 11, 1992 to
the Rights Agreement dated as of September 16, 1991
between The Eastern Company and The First National Bank
of Boston is incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended January 2, 1993.
(10) (a) Employment Agreement dated May 1, 1993 with
Stedman G. Sweet is incorporated by reference to
Registrant's Annual Reports on Form 10-K for the fiscal
year ended January 1, 1994.
(b) Employment Agreement dated May 1, 1994 with Donald
E. Whitmore, Jr. is incorporated by reference to
Registrant's Annual Reports on Form 10-K for the fiscal
year ended December 31, 1994.
(c) Amendment to the Deferred Compensation Agreement
with Russell G. McMillen dated May 1, 1988 is
incorporated by reference to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1988.
The Deferred Compensation Agreement with Russell G.
McMillen dated October 28, 1980 and amended on March 27,
1986 is incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
January 3, 1987.
(d) Deferred Compensation Agreement dated August 16,
1994 with Stedman G. Sweet is incorporated by reference
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
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<PAGE 12>
(e) Supplemental Retirement Plan dated August 16, 1994
with Stedman G. Sweet is incorporated by reference to
the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
(11) Statement Re: Computation of Per Share Earnings
is attached on page 25.
(13) Annual Report to Shareholders attached hereto on
page 27.
(21) List of subsidiaries as follows:
Eberhard Hardware Mfg. Ltd., a private
corporation organized under the laws of the
Province of Ontario, Canada.
World Lock Co. Ltd., a private corporation
organized under the laws of Taiwan (The Republic
of China).
Sesamee Mexicana, Subsidiary, a private
corporation organized under the laws of Mexico.
World Security Industries Co. Ltd., a private
corporation organized under the laws of Hong
Kong.
(23) Consent of independent auditors attached hereto
beginning on page 15.
(99) Financial Statements and Supplemental Schedules
and report of independent auditors for the period from
January 1, 1995 to December 30, 1995 of The Eastern
Company Savings and Investment Plan is attached
beginning on page 18.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the last quarter of
the fiscal year ended December 30, 1995.
(c) The required Exhibits are listed in (a) 3. above.
(d) Financial statement schedules.
The response to this portion of Item 14 is submitted as a separate
section of this report beginning on page 17.
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<PAGE 13>
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated March 22, 1996 THE EASTERN COMPANY
By Donald E. Whitmore, Jr.
-----------------------
Donald E. Whitmore, Jr.
Director, Vice President, Treasurer,
Secretary and Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Russell G. McMillen
- -------------------
Russell G. McMillen March 22, 1996
Director and Chairman
Stedman G. Sweet
- ----------------
Stedman G. Sweet March 22, 1996
Director, President
and Chief Executive Officer
Donald E. Whitmore, Jr.
- -------------------------
Donald E. Whitmore, Jr. March 22, 1996
Director, Vice President, Treasurer,
Secretary and Principal Financial Officer
John W. Everets
- ---------------
John W. Everets March 22, 1996
Director
Charles W. Henry
- ----------------
Charles W. Henry March 22, 1996
Director
Ole K. Imset
- ------------
Ole K. Imset March 22, 1996
Director
Leonard F. Leganza
- ------------------
Leonard F. Leganza March 22, 1996
Director
David C. Robinson
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David C. Robinson March 22, 1996
Director
Donald S. Tuttle III
- --------------------
Donald S. Tuttle III March 22, 1996
Director
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<PAGE 14>
The Eastern Company and Subsidiaries
Form 10-K-Item 14 (a) (1) and (2)
Index to Financial Statements and Financial Statement Schedule
The following consolidated financial statements of The Eastern Company and
subsidiaries and report of independent auditors, included in the annual
report of the registrant to its shareholders for the fiscal year ended
December 30, 1995 are incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets - December 30, 1995 and December 31, 1994
Consolidated Statements of Income - Fiscal years ended December 30,
1995, December 31, 1994 and January 1, 1994.
Consolidated Statements of Shareholders' Equity - Fiscal years ended
December 30, 1995, December 31, 1994 and January 1, 1994
Consolidated Statements of Cash Flows - Fiscal years ended December 30,
1995, December 31, 1994 and January 1, 1994
Notes to Consolidate Financial Statements
The following financial statement schedule of The Eastern Company and
subsidiaries is included in Item 14 (d):
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are either not required
under the related instructions or are inapplicable, and therefore have been
omitted.
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<PAGE 15>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Eastern Company of our report dated January 31, 1996, included in the
1995 Annual Report to Shareholders of The Eastern Company.
Our audits also included the financial statement schedule of The Eastern
Company listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-29452) pertaining to The Eastern Company 1983 Stock
Option Plan, the Registration Statement (Form S-8 No. 2-86285) pertaining to
The Eastern Company 1989 Stock Option Plan and the Registration Statement
(Form S-8 No. 33-79324) pertaining to The Eastern Company Savings and
Investment Plan of our report dated January 31, 1996, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (From 10-K) of The Eastern
Company.
ERNST & YOUNG LLP
-----------------
Hartford, Connecticut ERNST & YOUNG LLP
March 27, 1996
-15-
<PAGE 16>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-79324) pertaining to The Eastern Company Savings and
Investment Plan of our report dated February 7, 1996 with respect to the
financial statements and schedule of The Eastern Company Savings and
Investment Plan for the year ended December 31, 1995 included in this Annual
Report (Form 10-K) as Exhibit 99 for the fiscal year ended December 30, 1995.
ERNST & YOUNG LLP
-----------------
Hartford, Connecticut ERNST & YOUNG LLP
March 27, 1996
-16-
<PAGE 17>
<TABLE>
The Eastern Company and Subsidiaries
Schedule II--Valuation and Qualifying Accounts
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
Description Balance at (1) (2) Balance
Beginning Charged to Costs Charged to Other Deductions- at End of
of Period and Expenses Accounts-Describe Describe Period
<S> <C> <C> <C> <C> <C>
Fiscal year ended December 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts $330,000 $261,687 $ 90,687(a) $501,000
======== ======== ======== ========
Fiscal year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $363,320 $120,000 $153,296(a) $330,000
======== ======== ======== ======== ========
Fiscal year ended January 1, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $829,900 $114,988 $581,568(a) $363,320
======== ======== ======== ========
(a) Uncollectible accounts written off, net of recoveries
</TABLE>
-17-
<page 18>
The Eastern Company Savings and Investment Plan
Exhibit (99) to Form 10-K)
Financial Statements
and Supplemental Schedule
Year ended December 31, 1995 and
Period from May 1, 1994 (inception of plan) to December 31, 1994
Contents
Report of Independent Auditors.............................................19
Financial Statements
Statements of Assets Available for Benefits...........................20
Statements of Changes in Assets Available for Benefits................21
Notes to Financial Statements.........................................22
Supplemental Schedule
Schedule of Investments...............................................24
-18-
<page 19>
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
Plan Administrator of
The Eastern Company Savings and Investment Plan
We have audited the accompanying statements of assets available for benefits
of The Eastern Company Savings and Investment Plan (the "Plan") as of December
31, 1995 and 1994, and the related statements of changes in assets available
for benefits for the year ended December 31, 1995 and the period from May 1,
1994 (inception of plan) to December 31, 1994. Our audit also included the
supplemental schedule of investments as of December 31, 1995 and 1994. These
financial statements and supplemental schedule are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets available for benefits of the Plan at
December 31, 1995 and 1994, and the changes in assets available for benefits
for the year ended December 31, 1995 and the period from May 1, 1994
(inception of plan) to December 31, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, the related
supplemental schedule of investments, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects, the information set forth therein.
The fund information in the financial statements is presented for purposes of
additional analysis rather than to present the assets available for benefits
and changes in assets available for benefits of each fund. The fund
information has been subjected to the auditing procedures applied in our
audits of the financial statements and, in our opinion, is fairly stated in
all material respects in relation to the financial statements taken as a
whole.
ERNST & YOUNG LLP
Hartford, Connecticut -----------------
February 7, 1996 ERNST & YOUNG LLP
-19-
<page 20>
<TABLE>
The Eastern Company Savings and Investment Plan
Statements of Assets Available for Benefits
<CAPTION>
Fund Information
Daily Growth and Eastern
Participant Dividend Income Income Common
Loans Fund Trust Fund Fund Fund Stock Fund Total
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995
Assets
Investments:
The Eastern Company
Common Stock $ 83,080 $ 83,080
Mutual funds $ 57,635 $ 92,640 $ 382,333 10,269 542,877
Participant loans
receivable $5,337 5,337
------ --------- --------- --------- --------- ---------
Total investments $5,337 57,635 92,640 382,333 93,349 631,294
Contributions receivable:
Employee 605 1,455 5,127 1,578 8,765
Employer 341 814 2,873 885 4,913
Contribution receivable from
(payable to) other funds (25,293) 3,719 25,109 (3,535) -
Assets available for --------- --------- --------- --------- ---------
benefits $5,337 $ 33,288 $ 98,628 $ 415,442 $ 92,277 $ 644,972
====== ========= ========= ========= ========= =========
December 31, 1994
Assets
Investments:
The Eastern Company
Common Stock $ 31,179 $ 31,179
Mutual funds $ 26,626 $ 30,902 $ 110,674 168,202
--------- --------- --------- --------- ---------
Total investments 26,626 30,902 110,674 31,179 199,381
Contributions receivable:
Employee 1,736 3,228 11,552 3,698 20,214
Employer 330 525 1,880 552 3,287
Contribution receivable from
(payable to) other funds (14,619) 2,776 9,299 2,544 -
Assets available for --------- --------- --------- --------- ---------
benefits $ 14,073 $ 37,431 $ 133,405 $ 37,973 $ 222,882
========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
-20-
<page 21>
<TABLE>
The Eastern Company Savings and Investment Plan
Statements of Changes in Assets available for Benefits
Fund Information
<CAPTION>
Daily Growth and Eastern
Participant Dividend Income Income Common
Loans Fund Trust Fund Fund Fund Stock Fund Total
<S> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1995
Investment income:
Dividends $ 1,860 $ 4,003 $ 20,890 $ 1,547 $ 28,300
Net realized and unrealized
appreciation (depreciation)
in fair value of investments 6,291 50,196 (6,811) 49,676
--------- --------- --------- --------- ---------
1,860 10,294 71,086 (5,264) 77,976
Contributions:
Employee 16,789 56,564 187,704 57,441 318,498
Employer 3,237 8,147 29,655 8,704 49,743
--------- --------- --------- --------- ---------
20,026 64,711 217,359 66,145 368,241
Benefits paid to participants (3,528) (7,621) (11,616) (1,362) (24,127)
Interfund transfers $5,337 857 (6,187) 5,208 (5,215) -
------ --------- ---------- --------- --------- ---------
Net increase $5,337 19,215 61,197 282,037 54,304 422,090
Assets available for benefits
Beginning of year - 14,073 37,431 133,405 37,973 222,882
------ --------- ---------- --------- --------- ---------
End of year $5,337 $ 33,288 $ 98,628 $ 415,442 $ 92,277 $ 644,972
====== ========= ========= ========= ========= =========
Period from May 1, 1994
(inception of plan) to
December 31, 1994
Investment income:
Dividends $ 181 $ 545 $ 3,873 $ 265 $ 4,864
Net realized and unrealized
depreciation in fair value
of investments (563) (5,690) (2,710) (8,963)
--------- --------- --------- --------- ---------
181 (18) (1,817) (2,445) (4,099)
Contributions:
Employee 10,920 32,100 117,788 35,764 196,572
Employer 1,737 5,349 18,069 5,254 30,409
--------- --------- --------- --------- ---------
12,657 37,449 135,857 41,018 226,981
Interfund transfers 1,235 - (635) (600) -
Net increase and assetsavailable --------- --------- --------- --------- ---------
for benefits at end of period $ 14,073 $ 37,431 $ 133,405 $ 37,973 $ 222,882
========= ========= ========= ========= =========
</TABLE>
See accompanying notes.
-21-
<PAGE 22>
The Eastern Company Savings and Investment Plan
Notes to Financial Statements
December 31, 1995
1. Description of Plan
The Eastern Company Savings and Investment Plan (the "Plan") is a defined
contribution plan of The Eastern Company (the "Company"). The following
description of the Plan provides only general information. Participants
should refer to the Plan document for a more complete description of the Plan's
provisions.
General
The Plan was established by the Company effective May 1, 1994. The Plan
covers all full-time United States salaried employees of the Company who have
worked at least 35 hours per week during a consecutive six-month period. The
Plan is subject to the provisions of the Employee Retirement Income Security Act
of 1974 ("ERISA").
Contributions
Participants may contribute between 1% and 18% of their compensation up to
the maximum allowed by the Internal Revenue Code. The Company makes matching
contributions on the first 4% of participant contributions based on the
published annual report after-tax return on investment. The Company's match
was 25% in 1995 and 1994.
Participant Accounts
Each participant's account is credited with the participant's contributions
and allocations of (a) the Company's contributions and (b) Plan earnings.
Allocations are based on participant earnings or account balances, as defined.
Forfeited balances of terminated participants' nonvested accounts are used to
reduce future Company contributions ($1,436 at December 31, 1995).
Vesting
Participants are immediately vested in their voluntary contributions. Vesting
in the Company contribution portion of their accounts plus actual earnings
thereon is based on years of continuous service. A participant is 20% vested
after three years of service, 40% vested after four years and 100% vested
after five years of credited service.
Investment Options
Upon enrollment in the Plan, a participant may direct contributions in 10%
increments to any of four investment options as follows:
<TABLE>
<CAPTION>
Number of Participants
December 31
Name of Fund Description of Fund 1995 1994
<S> <C> <C> <C>
Daily Dividend Trust Fund Funds are invested in money
market instruments 42 41
Income Fund Funds are invested in a diversified
portfolio of fixed-income securities 71 72
Growth and Income Fund Funds are invested primarily in
common stocks 135 132
Eastern Common Stock Fund Funds are invested in Common
Stock of The Eastern Company 71 69
</TABLE>
Participants may elect to change their investment options quarterly.
-22-
<PAGE 23>
Participant Loans
Participants may borrow from their fund accounts a minimum of $1,000 up to a
maximum of $50,000 or 50% of their account balance. Loan transactions are
treated as a transfer from (to) the investment fund to (from) the loan fund.
Loan terms range from 1-5 years or up to 10 years for the purchase of a
primary residence. The loans are secured by the balance in the participant's
account and bear interest at the prime rate (as published in the Wall Street
Journal) plus one percent, or such other rate as may be determined by the
Plan Administrator to be a reasonable rate of interest.
Payment of Benefits
On termination of service, a participant may receive a lump-sum amount equal
to the vested value of his or her account, or upon death, the participant's
beneficiary may elect to receive annual installments over a two-year period.
The amount of assets allocated but not yet paid to participants who have
withdrawn from the Plan as of December 31, 1994 is $4,826 (none as of
December 31, 1995).
Plan Termination
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate
the Plan subject to the provisions of ERISA. In the event of Plan
termination, participants will become 100 percent vested in their accounts.
2. Significant Accounting Policies
The preparation of the accompanying financial statements requires the use of
estimates. Actual results could differ from those estimates.
Investments in mutual funds and the Company's Common Stock are stated at fair
value as estimated by reference to quoted market prices.
Administrative expenses of the Plan are paid by the Company.
3. Investments
Plan investments that represent 5 percent or more of the Plan's assets are as
follows:
<TABLE>
<CAPTION>
December 31
1995 1994
<S> <C> <C>
Mutual funds:
Daily Dividend Trust Fund $ 57,635 $ 6,626
Income Fund 92,640 30,902
Growth and Income Fund 382,333 110,674
The Eastern Company Common Stock 83,080 31,179
--------- ---------
$ 615,688 $ 199,381
========= =========
</TABLE>
The Plan's investments appreciated (depreciated) in value as follows:
<TABLE>
<CAPTION>
December 31
1995 1994
<S> <C> <C>
Mutual funds Stock $ 56,487 $ (6,253)
The Eastern Company Common Stock (6,811) (2,710)
--------- ---------
$ 49,676 $ (8,963)
========= =========
</TABLE>
-23-
<PAGE 24>
4. Income Tax Status
The Plan is qualified under the applicable section of the Internal Revenue
Code and, as such, is not subject to income tax under present tax laws. The
Plan Administrator is not aware of any course of action or series of events
that have occurred which might adversely affect the Plan's qualified status.
5. Transactions with Parties-in-Interest
The Eastern Common Stock Fund is one of the available investment options
within the Plan. This fund invests in the Common Stock of The Eastern
Company. At December 31, 1995 and 1994, the Plan owned 6,782 shares valued at
$83,080 and 2,398 shares valued at $31,179, respectively.
--------------------------------------------------------
<TABLE>
SUPPLEMENTAL SCHEDULE
Schedule of Investments
Balance Held at Close Value of
of Period. Number of Each Item at
Shares-Principal Amount Close of
Name of Issuer and Title of Issue of Bonds and Notes Period
<S> <C> <C>
December 31, 1995
Putnam-Daily Dividend Trust Fund 57,635.190 Units $ 57,635
Putnam-Income Fund 12,866.710 Units 92,640
Putnam-Growth and Income Fund 23,806.547 Units 382,333
New England Securities-Money Market Fund 10,269.000 Units 10,269
The Eastern Company-Common Stock 6,782 Shares 83,080
Participant Loans 5,337
--------
$631,294
========
December 31, 1994
Putnam-Daily Dividend Trust Fund 26,626.010 Units $ 26,626
Putnam-Income Fund 4,791.081 Units 30,902
Putnam-Growth and Income Fund 8,762.786 Units 110,674
The Eastern Company-Common Stock 2,398 Shares 31,179
--------
$199,381
========
</TABLE>
-24-
<PAGE 25>
<TABLE>
Exhibit 11 -- Statement Re: Computation of Per Share Earnings
Fiscal Year Ended
<CAPTION>
December 30 December 31 January 1
1995 1994 1994
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 2,771,840 2,771,842 2,748,312
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 41,737 59,985 44,958
--------- --------- ---------
Total 2,813,577 2,831,827 2,793,270
========= ========= =========
Income From
Continuing Operations $ 2,747,142 $ 2,437,401 $ 2,830,131
============ ============ ============
Net Income $ 2,490,498 $ 2,642,740 $ 2,766,449
============ ============ ============
Income From Continuing
Operations per Share $0.98 $0.86 $1.01
===== ===== =====
Net Income per Share $0.89 $0.93 $0.99
===== ===== =====
Fully Diluted
Average shares outstanding 2,771,840 2,771,842 2,748,312
Net effect of dilutive stock options--
based on the treasury stock method
using the year-end market price, if
higher than average market price 41,737 59,985 44,958
--------- --------- ---------
Total 2,813,577 2,831,827 2,793,270
========= ========= =========
Income From
Continuing Operations $ 2,747,142 $ 2,437,401 $ 2,830,131
============ ============ ============
Net Income $ 2,490,498 $ 2,642,740 $ 2,766,449
============ ============ ============
Income From Continuing
Operations per Share $0.98 $0.86 $1.01
===== ===== =====
Net Income per Share $0.89 $0.93 $0.99
===== ===== =====
</TABLE>
-25-
<PAGE 26>
(THIS PAGE INTENTIONALLY LEFT BLANK)
-26-
<PAGE 27>
The Eastern Company
Annual Report 1995
[FRONT COVER]
The cover illustration depicts the locking hardware used on the rear doors
of tractor trailers that we see every day on our nation's highways. This
locking device is indicative of The Eastern Company's many security product
lines.
The Eastern Company is a 138-year-old manufacturer of locks and security
hardware engineered for use in industry and underground mining.
In 1995, The Eastern Company completed its fifty-fifth year of uninterrupted
dividend payments.
The mission of The Eastern Company is to become a world class leader by
designing, manufacturing, and marketing a wide range of locking devices,
fasteners, and specialty hardware to meet the security needs of industrial
customers.
-27-
<PAGE 28>
[INSIDE FRONT COVER]
<TABLE>
Financial Highlights
1995 1994*
<S> <C> <C>
Sales $59,351,783 $58,380,982
Income Before Tax from Continuing Operation 4,274,623 3,865,383
Net Income (Loss):
Continuing Operations 2,747,142 2,437,401
Discontinued Operations (256,644) 205,339
Total 2,490,498 2,642,740
Income (Loss) Per Share:
Continuing Operations .99 .88
Discontinued Operations (.09) .07
Total .90 .95
Dividends Per Share .46 .46
Book Value Per Share 10.75 10.77
Working Capital Per Share 6.22 6.43
Current Ratio 3.92 to 1 3.54 to 1
Capital Expenditures 3,319,663 2,849,926
Depreciation and Amortization 2,628,319 2,452,598
Return on Shareholders' Equity 8% 9%
Number of Employees 489 485
Number of Stockholders 731 765
Per share data based on the weighted average number of outstanding shares
during each year.
* Resclassified to reflect discontinued operations.
</TABLE>
-28-
<PAGE 29>
Cash Dividends Rates and Stock Splits 1995-1967
1992 - 9.5% increase
1991 - 12.5% increase, 50% stock dividend
1988 - 12% increase, 2 for 1 split
1987 - $1.00 year-end extra
1984 - 43% increase
1982 - 50% decrease
1979 - 11% increase
1977 - 14% increase, 3 for 2 split
1976 - 27% increase, plus 20 cent year-end extra
1975 - 30 cent year-end extra
1974 - 25% increase, plus 11 cent year-end extra
1973 - 10% increase, 5 for 4 split
1972 - 4% increase
1970 - 3% increase, 3 for 2 split
1967 - 17% increase
[GRAPH IN TABULAR FORM]
SALES
(in millions of dollars)
1991 1992 1993* 1994* 1995
------- ------- ------- ------- -------
$56,642 $60,060 $52,546 $58,381 $59,352
*Reclassified to reflect discontinued operation
[GRAPH IN TABULAR FORM]
EARNINGS
(per share)
1991 1992* 1993 1994 1995
---- ---- ---- ---- ----
1.01 1.10 1.01 .95 .90
*Total per share earnings excluding cumulative effects of accounting changes.
[GRAPH IN TABULAR FORM]
ANNUAL DIVIDENDS
(per share)
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
.42 .45 .46 .46 .46
[GRAPH IN TABULAR FORM]
Shareholders' Equity
(per share)
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
9.59 9.77 10.33 10.77 10.75
Page 1 of Annual Report
-29-
<PAGE 30>
The Eastern Company serves the security needs of industrial customers by
designing, manufacturing and marketing a wide range of locking devices,
fasteners and industrial hardware.
Earnings from 1995 were $2,490,000 or $.90 per share on sales of $59,352,000
compared to 1994 earnings of $2,643,000 or $.95 per share on sales of
$58,381,000. Earnings from continuing operations excluding the sale of our
Thompson division were $.99 per share in 1995 versus $.88 per share the
previous year.
Eastern's strong balance sheet enables us to invest for the future. During
the year we invested $3,320,000 to update machinery, tools and introduce new
production equipment to meet the changing requirements of our customers.
We also purchased a small Canadian manufacturer of contract stamping hardware
servicing the appliance industry. These assets were integrated into our
Eberhard Ltd. facility giving this location a broader base for growth. A new
subsidiary in Mexico, which initially will operate as a stocking distributor
for many of our security products, was also opened. Although the fall in the
peso has affected the startup of this operation, we feel this market has good
potential for growth.
Dividend pay-ments of $1,276,000 extended Eastern's uninterrupted quarterly
dividend pay-out to fifty-five years. We purchased 90,000 shares of our own
stock for the treasury during the year which is recognized as a tax effcient
way for passing benefits on to shareholders. Historically, much of Eastern's
stock has been owned by individual shareholders who generally tend to be long-
term investors. To encourage this trend, we introduced an Open Availability
plan that is a cost effective way for potential investors to purchase their
initial shares of Company stock.
Eastern's manufacturing facilities are geared to respond quickly and
effciently to the changing requirements in the many markets where
we compete. Since our primary focus at each operation is mechanical security
products, we capitalize on the transfer of technology between our seven
locations.
Russell G. McMillen, Chairman
Page 2 of Annual Report
-30-
<PAGE 31>
The truck/trailer market is primarily serviced through Eberhard and Eberhard
Ltd. They manufacture a variety of security products designed to withstand
severe operating conditions. This market remained strong for most of the year
but is forecasted to turn down in 1996. To help off-set the cyclical nature
of the business new products continue to be developed for light trucks (both
commercial and governmental), cabinets and other industrial markets. We expect
these businesses to perform well in 1996.
The underground mining industry, a major user for the engineered fasteners
produced at our Frazer & Jones division, continued to erode as more under-
ground coal mines were closed. New contract casting business, obtained from
other areas such as construction, utility and industrial, contributed overall
to a year-to-year improvement. Further deterioration is predicted in the
fastener business. Although additional new business is in the pipeline,
Frazer & Jones' short-term performance will be weak.
Industrial markets are a major outlet for a variety of product offerings from
Illinois Lock, CCL and World Lock. A number of new accounts in cabinets, light
vehicle, electronic, luggage and other industries helped contribute to the
year's improvement. During the year we strengthened our sales, quality control
and manufacturing departments to further support our efforts in the
development of new business.
The first quarter of 1996, as previously announced, is expected to be down.
As more projects become tooled, we anticipate a recovery will begin during
the second quarter. The markets we now serve as well as those which we have
targeted will continue to require engineered solutions to meet these new
customer requirements. Our group of security product companies are positioned
to meet the challenges for profitable growth. Additional growth can be
supported through leveraging our balance sheet. Consistent with this objective,
we have increased our efforts in search of strategic acquisitions to our group
of companies.
Again this year, we wish to thank our employees and directors for their
continued contribution and support.
Stedman G. Sweet, President and Chief Executive Officer
Page 3 of Annual Report
-31-
<PAGE 32>
The Eastern Company 1995
Locks and other security hardware, designed and manufactured at Eastern's
seven plant locations are marketed to industrial end-users. By design, Eastern
targets medium-to-lower quantity users versus large volume and price-sensitive
markets. Even though each division has its own engineering and manufacturing
specialty, certain locks are now produced at more than one location. This
flexibility is increasingly important as the demand for these products becomes
worldwide.
Probably the most well known lock of all time is the padlock. Although used
for centuries without any basic changes, modern day padlocks now come in all
sizes, shapes, degrees of ruggedness and security levels. The traditional
padlock is key activated. A recent variation is the combination (or keyless)
padlock which provides an alternative to the problems of lost or stolen keys.
Eastern makes both keyed and keyless padlocks. Our Sesamee(R) and Prestolock(R)
brand names are well known to the industrial and distributor markets. Eastern
has introduced its combination locks to the growing soft luggage industry and
recently, the first keyless padlock which restricts unauthorized access to the
triggers of rifles and handguns.
Page 4 of Annual Report
-32-
<PAGE 33>
[PHOTO OF KEYLESS COMBINATION PADLOCKS SECURING SOFT LUGGAGE]
Securing soft luggage is a typical end-use example of The Eastern Company's
broad line of combination padlocks. These locks offer an alternative from the
key type which carries with it the age-old problem of lost or stolen keys.
Page 5 of Annual Report
-33-
<PAGE 34>
[PHOTO OF CASINO & SLOT MACHINE]
The Eastern Company supplies many different types of high security locks used
by the gaming industry. A slot machine, roulette or blackjack table can
require up to six locks each.
Page 6 of Annual Report
-34-
<PAGE 35>
In today's society, the need for high security becomes extremely important
wherever vast amounts of cash are stored. Two markets that The Eastern Company
serves are good examples, namely the gaming and the vending machine
industries. Providing security for gaming equipment, as well as for the
cabinets and drawers at these gambling establishments, presents our engineers
with an ongoing challenge. This is due to the constant requirement to re-
evaluate and upgrade security levels to stay one step ahead of the ever-
proficient criminal element.
Today's vending machines are dispensing an ever-growing selection of items.
With this growth comes a need for newer and better locks to provide easier and
more efficient access by the servicing operator. These locks must also
withstand rough handling and tampering while providing different security
levels. A related end-use application for Eastern's locks are the coin boxes
used on public accessed copying machines, juke boxes, and laundromat
equipment. Our unique triple bitted key DUO(R) lock is used in both the gaming
and vending industry.
Another security product Eastern produces is a line of custom fasteners which
serve as the critical anchoring device used with roof support systems in
underground coal mines. Continual product design and testing, as well as a
commitment to automated equipment have all contributed to us being the
dominant producer of these fasteners to this small specialty market. Our
greatly increased production capacity at this facility has recently enabled us
to enter into the contract casting business to produce high-volume parts for
several other customers.
Page 7 of Annual Report
-35-
<PAGE 36>
The requirements for latches and other security hardware by the industrial
sector are so diverse that a broad product line is needed to serve this
market. Some of Eastern's closure devices must be slammed to engage; others
are dead bolt; some are actuated by pulling; others by pushing or twisting;
some latches secure access doors; others clamp two objects together. All of
this security hardware must provide a locking function when required. Typical
industrial applications for these latches, handles, and hinges are electrical,
telecommunications, food service equipment and machinery housings, and medical
and test instrumentation.
For decades The Eastern Company has been a leading designer and producer of
security hardware for the truck body industry. Typical hardware use ranges
from the commonly seen vertical locking bars on the rear doors of tractor
trailers to the custom handles and flush locks for tool compartments on
utility trucks.
In the past decade, the office environment has experienced an increased demand
for newer and better locking functions and levels of security. Most electronic
equipment now requires a broad range of locks from the small postage meter to
a sophisticated piece of peripheral equipment. Eastern produces a wide variety
of cam locks for office furniture such as steel or wood file cabinets and
drawers. Other users of these specialty locks are laboratories, universities,
and hospitals where greater security is needed to deny access to confidential
records and medications.
Page 8 of Annual Report
-36-
<PAGE 37>
[PHOTO OF COMPUTER]
The growing demand for security in the office place is never ending. Whether
it be for locking electronic equipment, cabinets, desks or file drawers, a
broad spectrum of locks are required. The Eastern Company provides all these
locks from the simple key-activated cam lock for a desk drawer to a high-
security DUO(R) lock to deny unauthorized access to computer files.
Page 9 of Annual Report
-37-
<PAGE 38>
Financial Statements
Consolidated Balance Sheets
December 30, 1995 and December 31, 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,521,361 $ 2,610,244
Accounts receivable, less allowances of
$501,000 in 1995 and $330,000 in 1994 7,810,742 9,665,164
Land held for sale 1,018,111
Inventories: Raw materials and component parts 5,467,095 4,286,546
Work in process 2,617,431 1,670,603
Finished goods 3,708,350 3,573,397
---------- ----------
11,792,876 9,530,546
Prepaid expenses 1,311,732 1,357,262
Deferred income taxes 698,600 664,600
---------- ----------
Total Current Assets 23,135,311 24,845,927
Property, Plant and Equipment
Land 228,091 227,787
Buildings 3,743,154 3,700,951
Machinery and equipment 21,119,431 20,021,797
Accumulated depreciation (deduction) (11,405,013) (10,996,773)
---------- ----------
13,685,663 12,953,762
Other Assets
Goodwill, less accumulated amortization of
$35,861 in 1995 and $80,680 in 1994 29,251 79,630
Patents, licenses and trademarks,
less accumulated amortization of
$454,061 in 1995 and $354,396 in 1994 1,012,463 1,045,106
Prepaid pension cost 3,069,066 2,958,362
Other assets 158,345 _
4,269,125 4,083,098
---------- ----------
$41,090,099 $41,882,787
========== ==========
Liabilities and shareholders' equity
Current Liabilities
Accounts payable $ 3,004,297 $ 3,239,241
Accrued compensation and withholdings 908,297 935,417
Accrued expenses 863,749 377,322
Short-term borrowings 1,000,000 1,400,000
Current portion of long-term debt 119,313 1,060,000
Total Current Liabilities 5,895,656 7,011,980
Deferred income taxes 2,237,900 1,939,200
Long-term debt 339,856 240,000
Accrued postretirement benefits 2,810,003 2,848,150
Shareholders' Equity
Voting Preferred Stock, no par value:
Authorized and unissued: 1,000,000 shares
Nonvoting Preferred Stock, no par value:
Authorized and unissued: 1,000,000 shares
Common Stock, no par value:
Authorized: 25,000,000 shares
Issued: 2,696,284 shares in 1995 and
2,775,085 shares in 1994; excluding
610,987 shares in 1995 and 520,936 shares
in 1994 held in treasury 8,017,738 9,009,392
Retained earnings 22,127,407 20,912,486
Accumulated translation adjustments (deduction) (338,461) (78,421)
----------- ----------
Total Shareholders' Equity 29,806,684 29,843,457
----------- ----------
$41,090,099 $41,882,787
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 10 of Annual Report
-38-
<PAGE 39>
Financial Statements
Consolidated Statements of Income
Fiscal Years Ended December 30, 1995, December 31, 1994 and January 1, 1994
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net Sales $ 59,351,783 $ 58,380,982 $ 52,545,779
Other income 274,054 242,472 487,572
----------- ----------- -----------
59,625,837 58,623,454 53,033,351
Costs and expenses:
Cost of products sold 45,236,910 44,739,987 39,242,144
Selling and administrative 10,041,833 9,920,911 9,182,713
Interest 72,471 97,173 144,478
----------- ----------- -----------
55,351,214 54,758,071 48,569,335
Income before income taxes from
continuing operations 4,274,623 3,865,383 4,464,016
Income taxes 1,527,481 1,427,982 1,633,885
----------- ----------- -----------
Income from continuing operations 2,747,142 2,437,401 2,830,131
Discontinued operations:
(Loss) income from operations
of discontinued segment,
net of (income tax credit)
income taxes of $(63,300) in
1995, $108,700 in 1994 and
$(13,500) in 1993 (173,582) 205,339 (63,682)
Loss on disposal of
discontinued segment,
net of (income tax credit)
of $(1,400) (83,062) _ _
----------- ----------- -----------
Net Income $ 2,490,498 $ 2,642,740 $ 2,766,449
=========== =========== ===========
Per Share Data:
Income from continuing
operations $ .99 $ .88 $ 1.03
Discontinued operations (.09) .07 (.02)
------ ------ ------
Net Income $ .90 $ .95 $ 1.01
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
Page 11 of Annual Report
-39-
<PAGE 40>
Financial Statements
Consolidated Statements of Shareholders' Equity
Fiscal Years Ended December 30, 1995, December 31, 1994 and January 1, 1994
<TABLE>
<CAPTION>
Accumulated
Common Retained Translation
Stock Earnings Adjustments
<S> <C> <C> <C>
Balances at January 2, 1993 $8,838,495 $18,043,744 $ 43,911
Net income _ 2,766,449 _
Cash dividends declared, $.46
per share _ (1,264,538) _
Purchase of 5,272 shares of
Common Stock
for treasury (70,172) _ _
Issuance of 11,320 shares of
Common Stock
upon the exercise of stock
options 104,798 _ _
Currency translation adjustment _ _ (79,630)
----------- ----------- -------
Balances at January 1, 1994 8,873,121 19,545,655 (35,719)
Net income _ 2,642,740 _
Cash dividends declared,
$.46 per share _ (1,275,909) _
Purchase of 12,620 shares
of Common Stock
for treasury (202,042) _ _
Issuance of 37,037 shares of
Common Stock upon the exercise
of stock options 338,313 _ _
Currency translation adjustment _ _ (42,702)
----------- ----------- -------
Balances at December 31, 1994 9,009,392 20,912,486 (78,421)
Net income _ 2,490,498 _
Cash dividends declared,
$.46 per share _ (1,275,577) _
Purchase of 90,051 shares
of Common Stock for treasury (1,096,164) _ _
Issuance of 11,250 shares
of Common Stock
upon the exercise of stock
options 104,510 _ _
Currency translation adjustment _ _ (260,040)
----------- ----------- ---------
Balances at December 30, 1995 $8,017,738 $22,127,407 $(338,461)
( ) Deduction.
</TABLE>
See notes to consolidated financial statements.
Page 12 of Annual Report
-40-
<PAGE 41>
Financial Statements
Consolidated Statements of Cash Flows
Fiscal Years Ended December 30, 1995, December 31, 1994 and January 1, 1994
<TABLE>
<CAPTION> 1995 1994 1993
<S> <C> <C> < C>
OPERATING ACTIVITIES
Net Income $ 2,490,498 $ 2,642,740 $ 2,766,449
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,628,319 2,452,598 2,322,396
Loss on sales of equipment and other assets 5,580 21,688 218
Provision for doubtful accounts 261,687 120,000 114,988
Deferred income taxes 264,700 710,000 472,200
Changes in operating assets and liabilities:
Accounts receivable 1,573,707 (1,504,405) (242,542)
Inventories (2,280,056) 1,623,872 (558,764)
Prepaid expenses 1,059,465 (717,224) (162,198)
Prepaid pension cost (110,704) (381,704) (729,376)
Other assets (217,508) (167,758) (213,273)
Accounts payable (208,235) 652,333 (763,065)
Accrued expenses 237,120 (1,671,133) 177,036
---------- ----------- ----------
Net cash provided by operating activities 5,704,573 3,781,007 3,184,069
INVESTING ACTIVITIES
Purchases of property, plant and equipment (3,319,663) (2,849,926) (1,445,765)
Proceeds from sales of equipment and other assets 69,559 3,600 2,504
Net cash used by investing activities (3,250,104) (2,846,326) (1,443,261)
Financing Activities
Proceeds from line of credit 1,000,000 2,000,000 _
Payments on line of credit (1,400,000) (600,000) _
Proceeds from issuance of long-term debt 210,468 _ _
Principal payments on long-term debt (1,060,000) (1,060,000) (1,000,000)
Proceeds from sales of Common Stock 104,510 338,313 104,798
Purchases of Common Stock for treasury (1,096,164) (202,042) (70,172)
Dividends paid (1,275,577) (1,275,909) (1,264,538)
---------- ---------- ----------
Net cash used by financing activities (3,516,763) (799,638) (2,229,912)
Effect of exchange rate changes on cash (26,589) (4,797) (15,635)
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents (1,088,883) 130,246 (504,739)
Cash and cash equivalents at beginning of year 2,610,244 2,479,998 2,984,737
---------- ---------- ----------
Cash and cash equivalents at end of year $ 1,521,361 $ 2,610,244 $ 2,479,998
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
Page 13 of Annual Report
-41-
<PAGE 42>
Financial Statements
Notes to Consolidated Financial Statements
December 30, 1995, December 31,1994 and January 1, 1994
1. Continuing Operations
The continuing operations of The Eastern Company (the Company) consist of a
single business segment security products. Security products are used to
close, lock or support equipment used in the industrial, transportation or
mining industries. Sales are made to customers primarily in North America.
Ongoing credit evaluations are made of customers for which collateral is
generally not required. Allowances for credit losses are provided; such losses
have been within management's expectations.
2. Discontinued Operations
In August 1995, under a plan adopted in July 1995, the Company sold the
business and substantially all assets (customer list, property and
inventories) of its construction segment; the Company retained accounts
receivable. At December 30, 1995 accounts receivable include $582,627 related
to the discontinued construction segment. Statements of income for periods
prior to August 1995 have been reclassified to reflect the discontinuance of
this segment.
The consolidated balance sheet as of December 31, 1994 includes the accounts
of the construction segment. As of that date total assets of the construction
segment were $2,944,000, of which $2,752,000 were classified as current; and
liabilities were $858,000, substantially all of which were classified as
current. Net sales of the construction segment were $3,400,389 in 1995,
$7,640,141 in 1994 and $7,171,645 in 1993.
3. Accounting Policies
Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements,
as well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Fiscal Year
The Company's year ends on the Saturday nearest to December 31.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all wholly owned. All intercompany accounts and transactions
are eliminated.
Foreign Currency Translation
For foreign operations, balance sheet accounts are translated at the current
year-end exchange rate; income statement accounts are translated at the
average exchange rate for the year. Resulting translation adjustments are made
directly to a separate component of shareholders' equity _ "accumulated
translation adjustments". Foreign currency exchange gains and losses are not
material in any year.
Cash Equivalents
Highly liquid investments purchased with a maturity of three months or less
are considered cash equivalents.
Inventories
Inventories are valued generally at the lower of cost, determined by the last-
in, first-out (LIFO) method, or market. Current cost exceeded the LIFO
carrying value by approximately $2,997,656 at December 30, 1995 and $2,783,772
at December 31, 1994.
Property, Plant and Equipment and Related Depreciation
Property, plant and equipment are stated on the basis of cost. Depreciation
($2,358,722 in 1995, $2,211,561 in 1994 and $2,113,112 in 1993) is generally
computed using the straight-line method based on the estimated useful lives
of the assets.
Intangibles
Patents are amortized using the straight-line method over the lives of the
patents. Licenses are generally amortized on a straight-line basis over
periods of five to 17 years. Goodwill is being amortized over periods from
five to 20 years.
Product Development Costs
Product development costs, charged to expense as incurred, were $353,425 in
1995, $371,575 in 1994 and $495,914 in 1993.
Per Share Data
Per share data of Common Stock is based on the weighted average number of
shares outstanding during each year. Common Stock equivalents (stock options)
did not have a materially dilutive effect on net income per share for any year
presented.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs were
$525,850 in 1995, $600,916 in 1994 and $455,768 in 1993.
Page 14 of Annual Report
-42-
<PAGE 43>
4. Contingency
In 1995, the Environmental Protection Agency appealed the 1994 dismissal of
its complaints against the Company relating to environmental matters.
Management believes, based on the available facts and the advice of legal
counsel, that the future cost associated with this matter will not have a
material effect on the Company's financial statements.
5. Dept
<TABLE>
<CAPTION>
Debt consists of: 1995 1994
<S> <C> <C>
Note payable to bank due in quarterly installments of
$250,000 through October 1, 1995 with interest at the
prime rate (8.5% at December 31, 1994) $ _ $ 1,000,000
Non-interest bearing note due in yearly installments of
$60,000 through January 7, 1999 240,000 300,000
Non-interest bearing note due in yearly installments of
$26,673 through June 30, 1997 and a lump-sum
payment of $65,201 due October 15, 1998 118,547 _
Note payable with an installment of $27,332 due June 30,
1996 and yearly installments thereafter of $36,645
due through June 30, 1998 with fixed interest at 11% 100,622 _
-------- -----------
459,169 1,300,000
Less current portion 119,313 1,060,000
-------- -----------
$339,856 $ 240,000
======== ===========
</TABLE>
Interest paid was $107,466 in 1995, $136,128 in 1994 and $160,520 in 1993.
The Company has available a $5,000,000 line of credit. Borrowings against the
line were $1,000,000 at December 30, 1995; such borrowings bear interest at
rates ranging from 7.25% to 7.429%. In connection with this line of credit and
the Company's cash management program, compensating balances (approximately
$500,000 at December 30, 1995) are required to be maintained.
6. Stock Rights
At December 30, 1995 there were 2,696,284 stock rights outstanding. Each right
may be exercised to purchase one share of the Company's Common Stock at an
exercise price of $35, subject to adjustment to prevent dilution. The rights
generally become exercisable ten days after an individual or group acquires
10% of the Company's outstanding common shares or after commencement or
announcement of an offer for 10% or more of the Company's Common Stock. The
stock rights, which do not have voting privileges, expire on October 15, 2001,
and may be redeemed by the Company at a price of $.01 per right at any time
prior to their expiration or the acquisition of 10% of the Company's Common
Stock. In the event that the Company were acquired in a merger or other
business combination transaction, provision shall be made so that each holder
of a right shall have the right to receive, upon exercise thereof at the then
current exercise price, that number of shares of common stock of the surviving
company which at the time of such transaction would have a market value of two
times the exercise price of the right.
7. Stock Options
The Company has three incentive stock option plans for officers and other key
employees, and nonemployee directors: 1983, 1989, and 1995. Under the 1983 and
1989 plans, options may be granted to the participants to purchase shares of
Common Stock at prices not less than 100% of the fair market value of the
stock on the dates the options are granted. Under the 1995 plan, options may
be granted to the participants to purchase shares of Common Stock with
restrictions at prices determined by the Incentive Compensation Committee of
the Company's Board of Directors. The Company accounts for the aforementioned
plans under the provisions of APB Opinion No. 25, Accounting for Stock Issued
to Employees.
Page 15 of Annual Report
-43-
<PAGE 44>
Financial Statements
Notes to Cosolidated Financial Statements
7. Stock Options (continued)
At December 30, 1995, 40,590 shares of the Company's unissued Common Stock
were reserved for options under its 1983 Incentive Stock Option Plan. Changes
in stock options under this plan follow:
<TABLE>
<CAPTION>
Options Purchase Price
1995 1994 1993 Per Share
------- ------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 59,840 87,610 99,750
Exercised (11,250) (19,770) (6,140) $9.08-$9.375
Forfeited (8,000) (8,000) (6,000)
------ ------ ------
Outstanding at end of year 40,590 59,840 87,610
====== ====== ======
Exercisable at end of year:
At $9.08 13,950 17,200 36,150
At $9.375 26,640 34,820 31,820
Unexercisable at end of year:
At $9.375 _ 7,820 19,640
</TABLE>
At December 30, 1995, 180,803 shares of the Company's unissued Common Stock
were reserved for options under its 1989 Incentive Stock Option Plan. Changes
in stock options under this plan follow:
<TABLE>
<CAPTION>
Options Purchase Price
1995 1994 1993 Per Share
------- ------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 124,203 141,470 135,400
Granted _ _ 11,250 $12.50
Exercised _ (17,267) (5,180)
Outstanding at end of year ------- ------- -------
124,203 124,203 141,470
======= ======= =======
Exercisable at end of year:
At $9.08 33,750 33,750 45,000
At $9.375 56,703 42,523 34,360
At $11.00 11,250 11,250 11,250
At $12.25 11,250 11,250 11,250
At $12.50 11,250 11,250 11,250
Unexercisable at end of year:
At $9.375 _ 14,180 28,360
</TABLE>
An option for 11,250 shares was granted in 1993 to a non-employee director at
a price of $12.50 per share.
At December 30, 1995, 250,000 shares of the Company's unissued Common Stock
were reserved for options under its 1995 Incentive Stock Option Plan. At
December 30, 1995, no options had been granted under this plan.
Page 16 of Annual Report
-44-
<PAGE 45>
8. Income Taxes
Deferred income taxes are provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and those for income tax purposes. Deferred income tax liabilities (assets)
relate to:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Property, plant and equipment $ 1,883,200 $ 1,901,900 $ 1,865,300
Pension accruals 1,470,400 1,192,100 1,028,100
Other 146,500 199,800 58,200
----------- ----------- -----------
Total deferred income tax liabilities 3,500,100 3,293,800 2,951,600
Other postretirement benefits (1,104,300) (1,147,800) (1,126,900)
Inventories (208,400) (308,100) (348,200)
Allowance for doubtful accounts (229,700) (121,700) (133,900)
Accrued compensation (253,100) (217,400) (209,700)
Other (165,300) (224,200) (568,300)
----------- ----------- -----------
Total deferred income tax assets (1,960,800) (2,019,200) (2,387,000)
----------- ----------- -----------
Net deferred income tax liabilities $ 1,539,300 $ 1,274,600 $ 564,600
=========== =========== ===========
Income before income taxes
from continuing operations consists of: 1995 1994 1993
Domestic $ 4,089,932 $ 3,636,179 $ 4,194,754
Foreign 184,691 229,204 269,262
----------- ----------- -----------
Total $ 4,274,623 $ 3,865,383 $ 4,464,016
=========== =========== ===========
Income taxes (benefit) follow: 1995 1994 1993
Current:
Federal $ 1,011,900 $ 590,100 $ 1,006,600
Foreign 49,681 5,182 92,385
State 122,600 107,800 132,300
Deferred 343,300 724,900 402,600
----------- ----------- -----------
$ 1,527,481 $ 1,427,982 $ 1,633,885
=========== =========== ===========
</TABLE>
A reconciliation of income taxes computed using the U.S. federal statutory
rates to those reflected in continuing operations follows:
<TABLE>
<CAPTION>
1995 1994 1993
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Income taxes using U.S. federal
statutory rates $ 1,453,400 34% $ 1,314,100 34% $ 1,517,800 34%
State income taxes, net of federal benefit 75,500 2 153,700 4 135,300 3
Other-net (1,419) _ (39,818) (1) (19,215) _
----------- --- ----------- --- ----------- ---
$ 1,527,481 36% $ 1,427,982 37% $ 1,633,885 37%
=========== === =========== === ===========
</TABLE>
Total income taxes paid were $955,398 in 1995, $1,556,664 in 1994 and $987,029
in 1993.
United States income taxes have not been provided on the undistributed
earnings of foreign subsidiaries ($1,752,889 at December 30, 1995) because
such earnings are intended to be reinvested abroad indefinitely or repatriated
only when substantially free of such taxes.
Page 17 of Annual Report
-45-
<PAGE 46>
Financial Statements
Notes to Consolidated Financial Statements
9. Leases
The Company leases certain equipment and buildings under operating lease
arrangements. Certain leases contain renewal options for periods ranging from
one to ten years.
Future minimum payments under operating leases with initial or remaining terms
in excess of one year during each of the next five years follow:
<TABLE>
<S> <C>
1996 $ 262,307
1997 265,246
1998 267,795
1999 271,564
2000 271,683
$ 1,338,595
</TABLE>
Rent expense for all operating leases was $259,379 in 1995, $241,695 in 1994
and $239,002 in 1993.
10. Employee Retirement Benefits
The Company has noncontributory defined benefit pension plans covering most
U.S. employees. Plan benefits are generally based upon age at retirement,
years of service and, for its salaried plan, the level of compensation. The
Company funds the annual contributions required by applicable regulations. The
Company also sponsors an unfunded nonqualified supplemental retirement plan
that provides an officer with benefits in excess of limits imposed by federal
tax law. U.S. salaried employees and most employees of the Company's Canadian
subsidiary are covered by defined contribution plans.
A summary of the components of income under the Company's employee retirement
benefit plans follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost_benefits earned during the period $ 548,618 $ 574,369 $ 488,836
Interest cost on projected benefit obligation 1,603,636 1,599,953 1,517,379
Actual return on plan assets (2,206,195) (1,966,649) (1,684,987)
Net amortization and deferral (152,746) (486,695) (661,885)
Defined contribution plans expense 58,421 31,755 1,822
Supplemental retirement plan expense 46,403 45,038 _
---------- ---------- ----------
$ (101,863) $ (202,229) $ (338,835)
========== ========== ==========
Assumptions used in accounting for pensions were: 1995 1994 1993
Weighted average discount rates 7.5% 7.5% 7.5%
Rates of increase in compensation levels 4.25% 4.25% 4.25%
Expected long-term rate of return on assets 8.5% 8.5% 8.5%
</TABLE>
Page 18 of Annual Report
-46-
<PAGE 47>
Based on the latest actuarial information available, the following table sets
forth the funded status of the Company's defined benefit plans at September 30:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 22,628,034 $ 21,400,700
============ ============
Accumulated benefit obligation $ 22,954,008 $ 21,592,625
============ ============
Projected benefit obligation $ 23,630,844 $ 22,224,202
============ ============
Plan assets at fair value $ 27,833,156 $ 26,856,298
============ ============
Excess of plan assets over projected benefit obligation $ 4,202,312 $ 4,632,096
Unrecognized prior service cost 183,190 171,920
Unrecognized net loss 1,006,400 657,867
Unrecognized transition asset (2,273,250) (2,503,521)
Adjustment required to recognize intangible pension asset (49,586) _
------------ -------------
Prepaid pension cost $ 3,069,066 $ 2,958,362
============ =============
</TABLE>
All of the plans' assets at December 30, 1995 are invested in listed stocks
and bonds and pooled investment funds, including Common Stock of the Company
having a market value of $3,518,813 at that date.
11.Postretirement Health Care and Life Insurance Benefits
The Company provides health care and life insurance for substantially all
retired salaried employees in the United States.
The status of the Company's postretirement health care and life insurance
benefit plans at year-end follows:
<TABLE>
<CAPTION>
1995 1994
Accumulated postretirement benefit obligation:
<S> <C> <C>
Retirees $ 1,757,402 $ 2,145,845
Fully eligible active plan participants 1,168,567 1,174,875
----------- -----------
2,925,969 3,320,720
Plan assets at fair value 635,288 500,300
----------- -----------
Excess of accumulated postretirement benefit obligation
over plan assets 2,290,681 2,820,420
Unrecognized prior service cost 248,856 _
Unrecognized net gain 270,466 27,730
----------- -----------
Accrued postretirement benefits $ 2,810,003 $ 2,848,150
Plan assets are invested in a pooled insurance fund.
</TABLE>
A summary of the components of postretirement health care
and life insurance benefit expense follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost_benefits earned during the period $ 85,932 $ 79,442 $ 52,135
Interest cost 217,668 245,132 224,153
Actual return on plan assets (50,907) (38,505) _
Net amortization and deferral (21,089) _ _
--------- --------- ---------
Net postretirement benefit expense $ 231,604 $ 286,069 $ 276,288
========= ========= =========
</TABLE>
Page 19 of Annual Report
-47-
<PAGE 48>
11. Postretirement Health Care and Life Insurance Benefits (continued)
The life insurance cost trend rate is expected to remain at 4.5%. The health
care cost trend rate for participants retiring after January 1, 1991 is nil;
no increase in that rate is expected because of caps placed on benefits. The
health care cost trend rate for participants who retired prior to January 1,
1991 is also nil; that rate is expected to increase to 4.5% in the year 2000.
A one percentage point increase in the assumed health care cost trend rate
would have increased the accumulated benefit obligation by $225,154 at
December 30, 1995 and increased the net periodic postretirement benefit
expense for 1995 by $29,084.
A weighted average discount rate of 7.5% was used to determine the accumulated
benefit obligation at the end of both 1995 and 1994. A return of 9% on plan
assets was used for both 1995 and 1994.
12. Financial Instruments
The carrying values of financial instruments (cash and cash equivalents,
accounts receivable, accounts payable, and debt) as of December 30, 1995
approximate fair value. Fair value was based on cash flows and current market
conditions.
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
The Eastern Company
We have audited the accompanying consolidated balance sheets of The Eastern
Company as of December 30, 1995 and December 31, 1994, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Eastern
Company at December 30, 1995 and December 31, 1994, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 30, 1995, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
-----------------
ERNST & YOUNG LLP
Hartford, Connecticut
January 31, 1996
Page 20 of Annual Report
-48-
<PAGE 49>
Financial Statements
1995-1986 Summary OF Operations
<TABLE>
Income Statement Items (in thousands)
<CAPTION>
Year 1995 1994a 1993a 1992bc 1991 1990a 1989a 1988a 1987 1986ab
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $59,352 $58,381 $52,546 $60,060 $56,642 $61,967 $63,638 $67,016 $63,012 $52,617
Cost of Products Sold 45,237 44,740 39,242 46,079 41,354 46,500 49,366 52,847 47,783 40,978
Depreciation and
Amortization 2,628 2,453 2,322 2,237 2,208 2,526 2,713 2,549 2,390 2,380
Interest Expense 72 97 144 220 358 485 614 566 577 459
Income Before Taxes 4,275 3,865 4,464 4,955 6,560 6,213 4,624 5,158 6,019 3,674
Taxes on Income 1,528 1,428 1,634 1,918 2,533 2,539 1,837 1,890 2,678 1,777
Income (Loss):
Continuing
Operations 2,747 2,437 2,830 3,037 4,027 3,674 2,787 3,268 3,341 1,897
Discontinued
Operations (257) 206 (64) _ (1,205) (1,958) (1,162) (646) (450) (74)
Total 2,490 2,643 2,766 3,037 2,822 1,716 1,625 2,622 2,891 1,823
Dividends 1,276 1,276 1,265 1,240 1,178 1,038 1,037 1,035 1,940 1,028
Balance Sheet Items (in thousands)
Year 1995 1994a 1993a 1992bc 1991 1990a 1989a 1988a 1987 1986ac
Inventory $11,793 $9,531 $11,193 $10,680 $10,648 $9,744 $9,704 $11,264 $10,935 $7,017
Working Capital 17,240 17,834 17,708 17,126 15,729 15,723 16,542 15,184 15,317 13,315
Plant Assets Net 13,686 12,954 12,416 13,164 13,838 12,439 11,171 13,079 13,029 11,471
Total Assets 41,090 41,883 40,459 40,203 38,965 38,730 38,311 38,610 36,313 34,397
Shareholders' Equity 29,807 29,843 28,383 26,926 26,866 25,477 24,855 24,270 23,302 23,424
Capital Expenditures 3,320 2,850 1,446 1,585 3,647 3,889 1,788 3,745 3,852 2,196
Long-Term Obligations 340 240 1,300 2,000 3,000 4,000 5,108 5,206 5,315 4,233
Per Share Data
Year 1995 1994a 1993a 1992bc 1991 1990a 1989a 1988a 1987 1986ac
Income (Loss)
Continuing
Operations $ .99 $.88 $1.03 $1.10 $1.44 $1.32 $1.01 $1.15 $1.13 $.61
Discontinued
Operations (.09) .07 (.02) _ (.43) (.70) (.42) (.23) (.15) (.02)
Total $ .90 $ .95 $ 1.01 $1.10 $1.01 $ .62 $ .59 $ .92 $ .98 $.59
Dividends .46 .46 .46 .45 . 42 .37 .37 .36 .66 .33
Shareholders' Equity 10.75 10.77 10.33 9.77 9.59 9.16 8.94 8.51 7.87 7.59
Average Shares Outstanding 2,771,840 2,771,842 2,748,312 2,755,507 2,800,635 2,780,036 2,778,644 2,851,302 2,960,037 3,087,378
a Reclassified to reflect discontinued operations _ Thompson Materials 1994
and 1993; Alloy Foundries Steel 1990 and 1989; Alloy Foundries Malleable Iron
1988 and Pattin 1986.
b Fiscal Years 1992 and 1986 comprised 53 weeks _ all other years were 52 weeks.
c 1992 excludes the cumulative effect of accounting changes for postretirement
benefits and income taxes of $1,475,000 or $.53 per share.
</TABLE>
Page 21 of Annual Report
-49-
<PAGE 50>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Income from continuing operations increased 13% in 1995 to $2,747,142 or $.99
per share from $2,437,401 or $.88 per share in 1994. It was down $82,989 or 3%
from the $2,830,131 or $1.03 per share earnings level in 1993. Total 1995 net
income of $2,490,498 or $.90 per share versus $2,642,740 or $.95 per share in
1994 and $2,766,449 or $1.01 per share in 1993 was down $152,242 or 6% and
$275,951 or 10%, respectively.
Other income in 1995 was $274,054 versus $242,472 in 1994 and $487,572 in
1993. Interest income was slightly higher due to increased invested balances
earlier in the year. 1993 income was higher because it was the final year of a
six year agreement on which the Company received commissions as a result of
the 1987 sale of the Pattin Manufacturing Division.
Cash provided by operating activities of $5,704,573 was sufficient to cover
dividends, capital expenditures, payments on debts, the purchase of common
stock for Treasury and normal operating needs.
During the third quarter of 1995 the Company announced the sale of
substantially all the assets (excluding the accounts receivable) of the
construction segment (the Thompson Materials division). The after-tax loss
from the discontinued operations was $256,644 or $.09 per share.
1995 net sales of $59,351,783 increased $970,801 or 2% and $6,806,004 or 13%,
respectively from the 1994 $58,380,982 and 1993 $52,545,779 levels.
New products and price increases contributing 3.0% and 4.3%, respectively, in
increased sales more than offset the 5.8% reduction in volume. New products
include the "Prestolock" line of keyless locks, new malleable castings
products, a variety of vehicular and industrial cabinetry hardware and
hardware components for the appliance industry.
The decline for engineered fasteners for use in the underground mining
industry is being replaced by new business being obtained in the construction,
utility and industrial markets.
The Company's 1995 total income decreased $152,242 or 6% in spite of higher
sales due to the costs of closing the Thompson Materials division and the
product mix of continuing operations. The 1995 total income decreased $275,951
or 10% from the 1993 level primarily because of the reduction in other income
and the higher cost of products sold due to the change in product mix.
Fourth quarter 1995 earnings from continuing operations were $507,201 or $.18
per share on sales of $13,526,535 versus $703,897 or $.25 per share on sales
of $14,744,358 in the fourth quarter of 1994 and $1,248,914 or $.45 per share
on sales of $12,805,743 in 1993. The reduced fourth quarter earnings were
affected by the higher cost of products sold that were 76.5% in the fourth
quarter of 1995 versus 75.0% in the fourth quarter 1994 and 68.8% in the
fourth quarter of 1993. This was due to lower sales for the fourth quarter
1995 versus 1994 and the product mix in the fourth quarter of 1995 versus 1994
and 1993 that included a greater portion of lower margin contract castings.
Higher selling and administrative costs and lower other income also affected
fourth quarter earnings in 1995 versus 1994.
The cost of products sold was 76.2%, 76.6% and 74.7% of net sales for 1995,
1994 and 1993, respectively. The changes in cost of products sold was affected
by product mix. Also affecting cost of products sold in 1994 were higher
tooling and conversion costs associated with the contract casting business.
The Company continues to seek methods of improving margins by concentrating on
profitable products, improving operating efficiencies and broadening product
lines to increase sales volume. The Eastern Company's facilities have the
capability to respond quickly and efficiently to the changing requirements in
the many security products' markets where it competes. For example, despite
the truck/trailer market slow down that started in late 1995 and that is
expected to extend into 1996, the Company continues to invest in the
development of new products. As a result, it has expanded its customer base in
light vehicles, electronics, luggage and industrial markets through aggressive
marketing. Likewise, the Company, through its continued capital expenditure
programs to increase capacity and improve efficiency, has been able to produce
within its facilities additional parts and sub-assemblies formerly provided by
suppliers. Also, the Company is being more competitive in obtaining added
production activity such as increased contract casting business.
During the year, the Company strengthened its sales, quality control and
manufacturing departments to provide the flexibility and support to develop
new business.
A softening of incoming orders within some key markets was experienced in the
second half of 1995. An improvement is expected after a slow start in the
first quarter of 1996. Earnings are expected to recover for the full year
1996.
In 1995, research and development costs were $353,425 versus $371,575 in 1994
and $495,914 in 1993. The Company continues to recognize the importance of
worthwhile research and development projects. The 1995 expenditures were on
projects involving mine roof fasteners and other malleable iron products,
transportation and industrial hardware and locking device hardware.
Page 22 of Annual Report
-50-
<PAGE 51>
The 1995 selling and administrative costs increased $120,922 or 1% from the
1994 level. The 1995 selling and administrative costs increased $859,120 or 9%
from the 1993 level. These increases were also due to higher marketing
expenses associated with new products and normal cost increases.
Interest costs in 1995 were $72,471 versus $97,173 in 1994 and $144,478 in
1993 representing 25% and 50% decreases, respectively, because of reduced
interest rates and lower debt.
The effective income tax rates in 1995, 1994 and 1993 were 36%, 37% and 37%,
respectively.
Each year's fourth quarter earnings are affected by year-end adjustments to
bring estimated accruals to actual. In 1995 such adjustments for continuing
operations had the effect of increasing income by $.15 per share versus $.12
per share in 1994 and $.11 in 1993.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's balance sheet continues to be strong with a ratio of current
assets to current liabilities of 3.9 at the end of 1995 compared to 3.5 at the
end of 1994. The improvement in the current ratio is due to the sale of the
Thompson Materials division and reduction in short-term borrowings. Working
capital continues at a healthy level. Accounts receivable decreased $1,854,422
primarily because of the sale of the Thompson Materials division and a slow
down in the mine roof fastener market. While collection is more difficult in
today's environment, it is under good control. Average day's sales in accounts
receivable were 53 and 54 days, respectively, for 1995 and 1994. The allowance
for doubtful accounts increased $171,000 in order to provide for potential
write offs of retained accounts receivable from the Thompson Materials
division sold during the year. The present $501,000 reserve balance adequately
provides for potential uncollectable accounts. Inventories increased
$2,262,330 and inventory turns in 1995 were 5.5 versus 7.4 in 1994. The
inventory increase was due to the build up of the Company's contract castings
business, the slow down in the mine roof fastener market and the start up of
the Company's Mexican subsidiary, Sesamee Mexicana. Also affecting the
inventory turn comparison was the sale of the Thompson Materials division
where inventory turns were 14.9 in 1994. Continued efforts are being made to
control inventory levels and improve collection of accounts receivable.
During 1995 the Company reduced its short-term line of credit balance to $1
million and made the final payment on the long-term debt to the bank. Also,
over 90,000 shares of Company Common Stock were purchased for the Treasury at
a cost of approximately $1.1 million.
Current financial resources including anticipated funds from operations as
well as the flexibility of short-term borrowing are expected to be adequate to
service operating needs, capital additions, debt service and dividends for the
next year.
Additions to property, plant and equipment totaled $3,319,663 in 1995 versus
$2,849,926 in 1994. In addition to normal replacement of equipment, 1995
capital expenditures included projects at the Company's Eberhard and Frazer
and Jones facilities to upgrade and recondition equipment, expand capacity,
improve efficiency and satisfy environmental requirements. The 1996 capital
expenditures are expected to approximate or be slightly higher than the $2.5
million level of depreciation. Expenditures will be primarily for normal
equipment replacement and some carry-over of the Eberhard and Frazer and Jones
expanded capacity and improved efficiency projects. The Company feels that
funds internally generated and the flexibility of short-term financing should
be sufficient to finance the capital expenditure program.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation continues to only moderately affect operating results. Nevertheless,
the Company is continually seeking ways to cope with its impact. To the extent
permitted by competition, the Company passes on increased costs by increasing
sales prices over time. Price increases were 4% in 1995 and 2% in 1994.
The Company uses the LIFO method of accounting for its U.S. inventories. Under
this method, the cost of products reported in the financial statements
approximates current costs and thus reduces distortion in reporting income due
to increasing costs.
The charges to operations for depreciation represent the allocation of
historical costs incurred over past years, and are significantly less than if
they were based on the current cost of productive capacity being consumed.
Provision for depreciation is generally computed using the straight-line
method based upon estimated useful lives of the assets.
Approximately 55% of the Company's properties have been acquired over the last
five years and have a remaining useful life ranging from two years for
equipment to ten years for buildings.
Assets acquired in prior years will be replaced at higher costs, but this will
take place over many years. Although these new assets will result in higher
depreciation charges, in many cases there will be operating savings due to
technological improvements.
Page 25 of Annual Report
-51-
<PAGE 52>
Financial Statements
Quarterly Results of Operations (unaudited)
<TABLE>
<CAPTION>
------------------------Quarter----------------------
1995 First a Second a Third Fourth Year
<S> <C> <C> <C> <C> <C>
Net Sales $16,415,632 $15,030,421 $14,379,195 $13,526,535 $59,351,783
Gross Profit 4,270,637 3,482,823 3,184,350 3,177,063 14,114,873
Selling and administrative expenses 2,678,023 2,503,518 2,339,522 2,520,770 10,041,833
Income from Continuing Operations $ 1,043,356 $ 595,061 $ 601,524 $ 507,201 $ 2,747,142
Discontinued Operations (83,687) (12,031) (142,506) (18,420) (256,644)
---------- --------- ---------- ---------- ----------
Net Income $ 959,669 $ 583,030 $ 459,018 $ 488,781 $ 2,490,498
========== ========= ========== ========== ==========
Income Per Share:
From Continuing Operations $ 0.38 $ 0.21 $ 0.22 $ 0.18 $ 0.99
Discontinued Operations (0.03) _ (0.06) _ (0.09)
------ ------ ----- ----- -----
Net Income $ 0.35 $ 0.21 $ 0.16 $ 0.18 $ 0.90
-----------------------Quarter-----------------------
1994a First Second Third Fourth Year
Net Sales $14,705,898 $14,333,718 $14,597,008 $14,744,358 $58,380,982
Gross Profit 3,569,485 3,535,507 2,844,255 3,691,748 13,640,995
Selling and administrative expenses 2,602,860 2,630,198 2,148,150 2,539,703 9,920,911
Income from Continuing Operations $ 804,726 $ 440,880 $ 487,898 $ 703,897 $ 2,437,401
Discontinued Operations (80,339) 109,149 92,643 83,886 205,339
---------- ---------- ---------- ---------- ----------
Net Income $ 724,387 $ 550,029 $ 580,541 $ 787,783 $ 2,642,740
========== ========== ========== ========== ==========
Income Per Share:
From Continuing Operations $ 0.29 $ 0.16 $ 0.18 $ 0.25 $ 0.88
Discontinued Operations (0.03) 0.04 0.03 0.03 0.07
----- ----- ----- ----- -----
Net Income $ 0.26 $ 0.20 $ 0.21 $ 0.28 $ 0.95
a Reclassified to reflect discontinued operations in August 1995.
</TABLE>
CORPORATE NOTES
COMMON STOCK MARKET
PRICES AND DIVIDENDS
The Company's Common Stock is traded on the American Stock Exchange (ticker
symbol EML). The approximate number of record holders of the Company's Common
Stock at December 30, 1995 was 731.
High and low stock prices and dividends for the last two years were:
<TABLE>
<CAPTION>
1995 1994
---------------------------------- --------------------------------
Cash Cash
Sales Price Dividends Sales Price Dividends
Quarter High Low Declared High Low Declared
<S> <C> <C> <C> <C> <C> <C>
First $15 3/8 $12 3/4 $.11 1/2 $17 5/8 $11 5/8 $.11 1/2
Second 15 1/2 13 5/8 .11 1/2 16 5/8 14 3/8 .11 1/2
Third 13 5/8 12 1/4 .11 1/2 16 13 3/4 .11 1/2
Fourth 12 7/8 11 .11 1/2 14 1/4 12 5/8 .11 1/2
</TABLE>
The Company expects to continue its policy of paying regular cash dividends.
However, there is no assurance of future divi-dends, because they are
dependent on future earnings, capital requirements, and financial conditions.
At the end of December 1995, 221 consecutive quarterly dividends had been
paid.
ANNUAL MEETING
The Annual Meeting of the stockholders of the Company will be held on April
24, 1996 at 11:00 a.m. local time, in the Company offices in Naugatuck,
Connecticut. Proxies for this meeting will be solicited by the management on
or about March 22, 1996 when a notice of the meeting, a proxy statement, and a
proxy form will be mailed to each holder of Common Stock.
10-K
A copy of the Company's 10-K report is availabe free of charge to stockholders
of record upon written request.
INDEPENDENT AUDITORS
Ernst & Young LLP, Hartford, Connecticut
TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston, Boston, Massachusetts
GENERAL OFFICE
112 Bridge Street, P.O. Box 460 Naugatuck, CT 06770
For financial inquiries, call (203) 729-2255, ext. 241
The Common Stock of The Eastern Company is traded on the American Stock
Exchange. Trading Symbol EML.
The Eastern Company has a new and revised Dividend Reinvesting Program which
enables stockholders to purchase additional shares with no brokerage commision
or service charge. A new feature permits non-shareholders to purchase their
initial shares_also with no commissions or service charges. Interested
investors should phone The Eastern Company's program administrator, The First
National Bank of Boston at 1-800-633-3455 to receive a brochure
Page 24 of Annual Report
-52-
<PAGE 53>
O F F I C E R S A N D E X E C U T I V E S
Russell G. McMillen
Chairman
Stedman G. Sweet
President and Chief Executive Officer
Donald E. Whitmore, Jr.
Vice President, Treasurer and Secretary
Steven G. Sanelli
Vice President,
Managing Director of CCL
Security Products Division
Raymond L. Wright
Vice President,
Managing Director of
Frazer & Jones Division
Frank J. Breker
Group Manager,
Managing Director of
Eberhard Manufacturing Division
Sesamee Mexicana, Subsidiary
Robert G. Alexander
Managing Director of
Eberhard Hardware Manufacturing, Ltd.,
Subsidiary
Roger Chang
Managing Director of
World Lock Co. Ltd.
World Security Industries Co. Ltd.,
Subsidiaries
Brian D. Reed
Managing Director of Illinois Lock Co.
Division
B o a r d o f D i r e c t o r s
John W. Everets#
Chairman of H.P.S.C. Inc.
Boston, Massachusetts
(Financial Services)
Charles W. Henry*&
Partner of Kernan & Henry
Waterbury, Connecticut, attorneys
Ole K. Imset
Director of Manufacturing
Allen Bradley, Rockwell International
Manchester, New Hampshire
(Manufacturing Electronics)
Leonard F. Leganza*&#
Financial and Business Consultant
Farmington, Connecticut
Russell G. McMillen*&
Chairman of the Company
David C. Robinson*&
President of The Robinson Co.
Waterbury, Connecticut
(Employee Benefits Consultants)
Stedman G. Sweet*
President and Chief Executive Officer
of the Company
Donald S. Tuttle, III#
Account Executive and Vice President
Paine Webber
Middlebury, Connecticut
(Stock Broker)
Donald E. Whitmore, Jr.
Vice President, Treasurer and Secretary
of the Company
* Members of the Executive Committee
& Members of the Compensation Committee
# Members of the Audit Committee
[Inside back cover of Annual Report]
-53-
<PAGE 54>
The Eastern
Company
P.O. Box 460
Naugatuck, Connecticut 06770
Security Products Group
CCL Security Products Division
New Britain, Connecticut
Custom locks
Eberhard Manufacturing Division
Cleveland, Ohio
Transportation and industrial hardware
Eberhard Hardware Manufacturing, Ltd., Subsidiary
Tillsonburg, Ontario, Canada
Transportation and industrial hardware
Frazer & Jones Division
Syracuse, New York
Mine roof fasteners; Contract castings
The Illinois Lock Company Division
Wheeling, Illinois
Custom locks
Sesamee Mexicana, Subsidiary
Lerma, Mexico
Industrial hardware
World Lock Co. Ltd., Subsidiary
World Security Industries Co. Ltd., Subsidiary
Taipei, Taiwan, Hong Kong
Custom locks
[Back cover of Annual Report]
-54-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ARTICLE 5 FIN.DATA SCHEDULE FOR FORM 10-K
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 1521361
<SECURITIES> 0
<RECEIVABLES> 7810742
<ALLOWANCES> 501000
<INVENTORY> 11792876
<CURRENT-ASSETS> 23135311
<PP&E> 25090676
<DEPRECIATION> 11405013
<TOTAL-ASSETS> 41090099
<CURRENT-LIABILITIES> 5895656
<BONDS> 0
0
0
<COMMON> 8017738
<OTHER-SE> 21788946
<TOTAL-LIABILITY-AND-EQUITY> 41090099
<SALES> 59351783
<TOTAL-REVENUES> 59625837
<CGS> 45236910
<TOTAL-COSTS> 45236910
<OTHER-EXPENSES> 9780146
<LOSS-PROVISION> 261687
<INTEREST-EXPENSE> 72471
<INCOME-PRETAX> 4274463
<INCOME-TAX> 1527481
<INCOME-CONTINUING> 2747142
<DISCONTINUED> (256645)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2490498
<EPS-PRIMARY> .89
<EPS-DILUTED> .89
</TABLE>
