SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED OCTOBER 3, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM ___________ to ___________.
Commission File Number 0-599
THE EASTERN COMPANY
(Exact Name of Registrant as specified in its charter)
Connecticut 06-0330020
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
112 Bridge Street, Naugatuck, Connecticut 06770
(Address of principal executive offices) (Zip Code)
(203)729-2255
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of OCTOBER 3, 1998
----- ---------------------------------
Common Stock, No par value 2,392,829
-1-
<PAGE>
PART I
<TABLE>
FINANCIAL INFORMATION
THE EASTERN COMPANY AND SUBSIDIARIES
ITEM I CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
ASSETS
------
<CAPTION>
October 3, 1998 January 3, 1998
--------------- ---------------
CURRENT ASSETS
--------------
<S> <C> <C>
Cash and cash equivalents $ 3,320,997 $ 2,111,289
Accounts receivable, less allowance: 9,396,717 8,725,167
1998- $421,000; 1997- $329,000
Inventories 12,502,350 12,414,866
Prepaid expenses and other current assets 2,208,842 2,846,557
----------- -----------
Total Current Assets 27,428,906 26,097,879
--------------------
Property, plant and equipment 27,929,696 25,434,424
Accumulated depreciation (13,840,818) (11,997,894)
----------- -----------
14,088,878 13,436,530
Prepaid pension cost 4,439,682 4,217,604
Other assets, net 1,794,191 2,046,148
----------- -----------
TOTAL ASSETS $ 47,751,657 $ 45,798,161
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
-------------------
Notes payable $ 131,621 $ 3,663,662
Accounts payable 3,403,181 3,499,857
Accrued compensation and withholding 2,060,640 1,413,418
Other accrued expenses 1,670,051 2,662,088
----------- -----------
Total Current Liabilities 7,265,493 11,239,025
-------------------------
Deferred federal income taxes 2,492,200 2,492,200
Long-term debt 8,500,000 60,000
Accrued postretirement benefits 2,772,795 2,763,795
Shareholders' Equity
--------------------
Common Stock, No Par Value:
Authorized shares - 25,000,000
Issued and outstanding shares: 884,834 6,078,427
1998-2,392,829; 1997-2,593,089
(Excluding shares in Treasury:
1998-1,047,335; 1997-831,780)
Preferred Stock, No Par Value
Authorized shares - 2,000,000
(No shares issued)
Unearned compensation (548,906) (492,969)
Accumulated other comprehensive loss - translation adjustment (727,271) (563,211)
Retained earnings 27,112,512 24,220,894
---------- ----------
Total Shareholders' Equity 26,721,169 29,243,141
-------------------------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 47,751,657 $ 45,798,161
------------------------------------------ =========== ===========
</TABLE>
See accompanying notes.
-2-
<PAGE>
<TABLE>
THE EASTERN COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
Oct. 3, 1998 Sept. 27, 1997 Oct. 3, 1998 Sept. 27, 1997
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Net sales $ 53,760,887 $ 49,517,523 $ 17,995,724 $ 16,663,855
Interest income 101,305 101,570 28,929 31,623
----------- ----------- ----------- -----------
Total 53,862,192 49,619,093 18,024,653 16,695,478
Cost of products sold 39,238,185 36,380,886 13,170,302 11,967,049
----------- ----------- ----------- -----------
14,624,007 13,238,207 4,854,351 4,728,429
Selling and administrative expenses 8,062,883 9,078,659 2,576,448 2,984,304
Interest expense 399,091 215,877 98,115 81,782
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 6,162,033 3,943,671 2,179,788 1,662,343
Income taxes 2,160,126 1,429,311 772,487 595,346
----------- ----------- ----------- -----------
NET INCOME $ 4,001,907 $ 2,514,360 $ 1,407,301 $ 1,066,997
=========== =========== =========== ===========
Net income per share:
Basic $ 1.64 $ 0.93 $ 0.59 $ 0.40
Diluted $ 1.57 $ 0.92 $ 0.56 $ 0.40
Cash dividends per share $ 0.430 $ 0.345 $ 0.150 $ 0.115
</TABLE>
See accompanying notes.
-3-
<PAGE>
<TABLE>
THE EASTERN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
NINE MONTHS ENDED
Oct. 3, 1998 Sept. 27, 1997
------------ --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 4,001,907 $ 2,514,360
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,217,645 2,221,806
(Gain) loss on sale of equipment and other assets (88,736) 2,335
Postretirement benefits other than pensions 9,000 8,830
Provision for losses on accounts receivable 93,324 111,497
Issuance of Common Stock for directors' fees 64,142 43,956
Changes in operating assets and liabilities:
Accounts receivable (832,876) (3,267,776)
Inventories (192,684) (996,706)
Prepaid expenses 631,176 287,512
Prepaid pension (222,078) (153,095)
Accounts payable (26,484) 1,211,436
Accrued expenses (324,407) 2,295,191
Other assets (22,649) (300,219)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,307,280 3,979,127
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (2,637,428) (1,527,273)
Other 97,468 46,283
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (2,539,960) (1,480,990)
FINANCING ACTIVITIES:
Payment on line of credit - (500,000)
Proceeds from line of credit 5,000,000 2,000,000
Principal payments on long-term debt (94,100) (125,777)
Proceeds from sales of Common Stock 93,750 594,153
Purchases of Common Stock for treasury (5,427,109) (2,840,226)
Dividends paid (1,090,600) (930,986)
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (1,518,059) (1,802,836)
Effect of exchange rate changes on cash (39,553) (3,840)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,209,708 691,461
Cash and cash equivalents at beginning of year 2,111,289 2,269,031
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,320,997 $ 2,960,492
=========== ===========
</TABLE>
See accompanying notes.
-4-
<PAGE>
<TABLE>
THE EASTERN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNADUITED)
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
Oct. 3, 1998 Sept. 27, 1997 Oct. 3, 1998 Sept. 27, 1997
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Net income 4,001,907 2,514,360 1,407,301 1,066,997
Other comprehensive (loss) income:
Foreign currency translation (164,060) 112,524 (28,050) 5,386
------------- -------------- ------------ ---------------
Comprehensive income 3,837,847 2,626,884 1,379,251 1,072,383
============= ============== ============ ===============
</TABLE>
See accompanying notes.
-5-
<PAGE>
THE EASTERN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 3, 1998
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
The accompanying condensed consolidated financial statements are unaudited.
However, in the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results of
operations for such interim periods have been reflected therein.
The condensed balance sheet as of January 3, 1998 has been derived from the
audited financial statements at that date.
<TABLE>
Note B - Earnings Per Share
- ---------------------------
The denominators used in the earnings per share computations follow:
<CAPTION>
NINE MONTHS ENDED
Oct. 3,1998 Sept. 27, 1997
<S> <C> <C>
Basic:
Weighted average shares outstanding 2,476,926 2,724,931
Contingent shares outstanding (32,500) (22,500)
--------- ---------
Denominator for basic earnings per share 2,444,426 2,702,431
Diluted:
Weighted average shares outstanding 2,476,926 2,724,931
Contingent shares outstanding (32,500) (22,500)
Dilutive stock options 106,764 33,007
--------- ---------
Denominator for diluted earnings per share 2,551,190 2,735,438
THREE MONTHS ENDED
Oct. 3,1998 Sept. 27, 1997
Basic:
Weighted average shares outstanding 2,413,509 2,646,650
Contingent shares outstanding (32,500) (22,500)
--------- ---------
Denominator for basic earnings per share 2,381,009 2,624,150
Diluted:
Weighted average shares outstanding 2,413,509 2,646,650
Contingent shares outstanding (32,500) (22,500)
Dilutive stock options 111,692 37,570
--------- ---------
Denominator for diluted earnings per share 2,492,701 2,661,720
</TABLE>
-6-
<PAGE>
THE EASTERN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
October 3, 1998
Note C - Changes in Accounting Principles
- -----------------------------------------
Effective January 4, 1998, The Eastern Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". The adoption of
this Statement had no impact on the Company's net income or shareholders'
equity. Under SFAS 130 the Company's foreign currency translation adjustments,
which are reported separately in shareholders' equity, are also required to be
included in the determination of other comprehensive income or loss. The prior
year financial statements have been reclassified to conform to the requirements
of SFAS 130.
Note D - Litigation
- -------------------
The Company is involved in litigation relating to environmental matters for
which the ultimate outcome is not expected to have any material adverse impact
on financial position, operating results or liquidity. See Part II Item 1 Legal
Proceedings for further information.
Note E - Debt Refinancing
- -------------------------
On November 2, 1998 the Company refinanced $8.5 million in short-term debt to a
seven year term note. As such, $8.5 million of short-term debt has been
retroactively reclassified as long-term debt as of October 3, 1998. Under this
agreement the Company is required to maintain certain financial covenants. The
long-term portion is due in quarterly installment of $425 thousand payable
beginning January 1, 2001 with interest at LIBOR plus 135 basis points.
Borrowing under the $5 million line of credit is payable in 30, 60 or 90 day
periods with interest at LIBOR plus 125 basis points.
-7-
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Net income per share (basic) for the third quarter of 1998 was the highest level
reported in the Company's 140-year history and represented the seventh
consecutive quarter of increased earnings. Net income for the third quarter was
$1.4 million or $.59 per share (basic) on sales of $18.0 million versus the
third quarter of 1997 of $1.1 million or $.40 per share (basic) on sales of
$16.7 million. Net income for the first nine months of 1998 was $4.0 million or
$1.64 per share (basic) on sales of $53.8 million versus the first nine months
of 1997 of $2.5 million or $.93 per share (basic) on sales of $49.5 million.
Third quarter sales were up 8% compared to the same period a year ago. Increased
volume contributed 4%, price increases contributed 1% and new products
contributed 3% over the comparable quarter of 1997. Sales for nine months of
1998 were up 9% compared to the same period a year ago. Volume was up 5%, while
prices and new products were both up 2%, respectively over the same period last
year. New products include vehicular hardware products designed and produced by
the Eberhard Manufacturing division and malleable iron casting products
manufactured by the Frazer & Jones division on a contract basis. A major
competitor of Frazer & Jones for contract malleable iron castings went out of
business in the second quarter of 1998. New customers were obtained and sales
increased 28% in the third quarter and were up 8% over the first nine months of
1997. Additional new business is anticipated in the fourth quarter 1998 and
early 1999. Sales of expansion shells, used in the underground mining industry,
were down 6% in the third quarter and down 4% for the first nine months of 1998
as compared to the same periods of 1997. Sales of expansion shells are expected
to be down slightly in the fourth quarter of 1998 as compared to the fourth
quarter of 1997 due to lower demand. Demand for heavy hardware, servicing the
tractor trailer industry, was up 24% over the third quarter and first nine
months of 1997. Sales to independent distributors, original equipment
manufacturers of industrial hardware and vehicular accessories remained strong
during the first nine months of 1998 and are expected to remain strong for the
remainder of the year. Sales of vehicular hardware servicing the Canadian
tractor trailer and truck body industries were up 40% over the comparable period
a year ago. To accommodate this increased business, the Eberhard Canadian
manufacturing operation is expanding its production facility by 10,000 square
feet. Sales of custom locks were down 4% in the third quarter and up 6% for the
first nine months over the comparable period a year ago. Sales of custom locks
are expected to decrease slightly in the fourth quarter 1998 as shipments of
computer lock applications decline compared to the same period a year ago.
Gross margin as a percentage of sales for the three and nine months ended
October 3, 1998 were approximately 27% compared to 28% and 27% for the
comparable periods a year ago. The decrease in gross margin for the three month
period is attributable to product mix.
Selling and administrative expenses were down 14% or $408 thousand and down 11%
or $1.0 million for the three and nine months ended October 3, 1998 as compared
to the same periods a year ago. Selling and administrative expenses were lower
in the third quarter of 1998 as compared to the same periods in 1997 when the
Company incurred costs for environmental matters. Year to date expenses were
lower than the comparable period a year ago due to favorable reductions in group
insurance costs in 1998. In addition, one time charges were experienced in 1997
in connection with the early retirement of the Company's former Chief Executive
Officer as well as some higher costs associated with the Beacon Heights and
Laurel Park landfill suits discussed under legal proceedings below.
Additionally, the first nine months of 1997 included one time charges incurred
as a result of a proxy contest.
Interest expense through nine months of 1998 was $399 thousand versus $216
thousand for the first nine months of 1997. This increase was due to additional
short-term borrowing.
-8-
<PAGE>
Liquidity and Sources of Capital
Cash flows from operations were $5.3 million for the first nine months of 1998
versus $4.0 million for the same period in 1997. The change in cash flows
resulted from timing differences for collections of accounts receivable and
payments of liabilities and an increase in inventory. Cash flow from operations
was sufficient to fund capital expenditures, dividend payments to shareholders
and the purchase of 35,000 shares of Common Stock for the treasury. However, the
purchase of 178,400 shares of Common Stock at the end of the first quarter was
funded by borrowing $5 million against the Company's short-term line of credit
at the beginning of the second quarter 1998.
Additions to property, plant and equipment were $2.6 million during the first
nine months of 1998 versus $1.5 million for the comparable period a year ago.
Total 1998 capital expenditures will exceed the expected $2.6 million level of
depreciation for the year. A capital expansion program has been approved for the
Frazer & Jones division as added manufacturing capacity is required to
accommodate additional contract casting business expected in 1999. In addition,
the Company's Canadian subsidiary, Eberhard Hardware Manufacturing Ltd., will
complete expansion of its manufacturing facility to accommodate new business
obtained in the Canadian tractor trailer industries.
Inventory balances at the end of the second quarter of 1998 of $12.5 million
were $87 thousand higher than year end 1997 and $628 thousand higher than the
third quarter of 1997. Inventory turns of 4.2 times at the end of the third
quarter of 1998 were comparable to both the previous year end rate and the third
quarter of 1997. Accounts receivable at the end of the third quarter 1998 were
$9.4 million which was $672 thousand higher than year end and $751 thousand
lower than the third quarter of 1997. The average day's sales in accounts
receivable were 48 days at the end of the third quarter 1998 versus 55 days for
the comparable period a year ago. The decrease in accounts receivable was driven
by increased collection activity.
Subsequent to the third quarter of 1998, the Company has refinanced its $8.5
million in short-term debt to a seven year term note and reduced its $10 million
line of credit to $5 million. The Company's strong balance sheet and internal
cash flow generation should be sufficient to cover future working capital
requirements, however, the Company will finance the aforementioned capital
expansion programs through additional borrowings as required.
Other Matters
On July 22, 1998, the Board of Directors of The Eastern Company approved a new
Rights Agreement and declared a dividend of one common share purchase right for
each outstanding share of Common Stock, no par value, of the Company. The
dividend was payable on August 21, 1998 to the shareholders of record on August
7, 1998. The description and terms of the Rights are set forth in a Rights
Agreement between the Company and BankBoston, NA, as Rights Agent as filed with
the Securities and Exchange Commission on Form 8-K on August 6, 1998.
On June 24, 1994, the Registrant settled all claims with both the Beacon Heights
Coalition and the Laurel Park Coalition and the respective complaints against
the Registrant on behalf of the Coalitions were dismissed by stipulation. Claims
against the Registrant and certain other defendants filed by the two government
agencies as described in Part II, item 1 below were dismissed by the Court. A
final judgement was entered by the U. S. District Court in the consolidated
proceedings on March 17, 1995. Appeals, however, were filed by the two
government agencies as described in Part II, item 1 below.
-9-
<PAGE>
On November 1, 1996, the United States Court of Appeals for the Second Circuit
reversed the U.S. District Court's ruling dismissing the government agencies'
environmental claims against the Registrant and certain other defendants, and
the environmental claims by the Laurel Park and Beacon Heights Coalitions
against numerous defendants. See further description in Part II, Item 1 below.
In May 1998, the Registrant and its co-defendants entered into a proposed
consent decree with the EPA, which, if approved, would resolve the Registrant's
remaining liability with respect to the Laurel Park and Beacon Heights
landfills. The consent decree is now pending before the United States District
Court.
The Registrant continues to actively monitor the situation. It is management's
opinion that the resolution of these matters will not have a material adverse
effect on the Registrant's financial position, operating results or liquidity.
The Registrant has completed the assessment phase of its Year 2000 compliance
program and is currently implementing changes required to test its systems.
Estimated costs for Year 2000 compliance are $150,000 of which approximately
$50,000 has been spent through the third quarter. The majority of the remaining
expenditures are expected to be incurred prior to the end of 1998. The
Registrant expects modifications to internal systems to be completed and tested
prior to the end of 1998. The Company does not have any direct interfaces with
third party vendors and has not received enough responses from third party
vendors to assess Year 2000 issues regarding third party vendors. The Company is
not aware of any external sources that will have a material impact on its
operating results. Assessment of third party vendors is expected to be completed
and contingency plans are expected to be in place by end of the second quarter
of 1999 to deal with any risks associated with internal systems or third-party
sources. The preceding information is provided under the Year 2000 Information
and Readiness Disclosure Act and is deemed to be a Year 2000 disclosure
statement.
Note: The preceding information contains statements which reflect the
Registrant's current expectations regarding its future operating performance and
achievements and are subject to certain risks and uncertainties that could cause
actual results to differ materially from those set forth in such statements. The
Registrant is not obligated to update or revise the aforementioned statements
for new developments.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------ ----------------------------------------------------------
Not applicable.
-10-
<PAGE>
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS -
- --------------------------
In April 1988, Murtha Enterprises Inc. and related parties (collectively
"Murtha"), as the result of a February 1987 suit (docket number N-87-52 PCD)
brought by the U. S. Environmental Protection Agency (the "EPA") and others,
concerning the Beacon Heights and Laurel Park landfills, instituted
third-party actions against approximately 200 companies or individuals
including the Registrant. The underlying suit against Murtha was settled with
EPA and the other parties and the Consent Decree has been approved by the
Court.
On September 22, 1988, the EPA filed a complaint against the Registrant and
seven other defendants seeking recovery of present and future response costs
incurred by the United States in connection with the Beacon Heights landfill.
The complaint alleged total damages of approximately $1.8 million ($1.3
million actual and $.5 million future). On October 31, 1988 the court
consolidated the EPA action against the Registrant with the other cases under
docket number N-87-52 (PCD).
By complaint dated September 6, 1990, the Beacon Heights Coalition (the
"Beacon Coalition"), a group of parties who have entered into a consent order
with EPA, instituted a direct action against the Registrant and approximately
400 other named parties concerning the Beacon Heights landfill. The Beacon
Coalition claimed that these defendants generated or transported hazardous
substances disposed of at the Beacon Heights landfill, and are therefore
responsible for a share of the Beacon Coalition's response costs.
The Registrant has filed answers to both the EPA Complaint and the Beacon
Coalition Complaint.
In March 1991, a Laurel Park Coalition which did not include the Registrant
entered into Consent Decree and Administrative Order by Consent with the EPA
and the State of Connecticut to remediate the Laurel Park landfill. The
Consent Decree has been approved by the Court.
In May 1991, EPA and the State of Connecticut ("State") each filed a
complaint against the Registrant and three other defendants seeking recovery
of present and future response costs incurred in connection with the Laurel
Park landfill. The EPA claims costs in excess of $1.8 million and the state
claims costs in excess of $2.5 million. On July 1, 1991, the court
consolidated these actions against the Registrant with the other cases under
docket number N-87-52 (PCD). The Registrant filed answers to both of these
complaints.
By order dated February 8, 1994, the court granted a motion filed by
Registrant for judgment on the pleadings against EPA and the state with
respect to each of their claims against Registrant. By motions dated February
22, 1994 and February 23, 1994, EPA and the state respectively moved for
reconsideration of the court's order, which motions were denied.
By order dated February 8, 1994, the court permitted the Laurel Park
Coalition to file a complaint against eight parties including the Registrant,
which claims were to be assigned for trial if the Coalition files a complaint.
On June 24, 1994 , the Registrant settled all claims with both the Beacon
Heights Coalition and the Laurel Park Coalition and the respective complaints
against the Registrant on behalf of the Coalitions were dismissed by
stipulation.
-11-
<PAGE>
On March 17, 1995, the U.S. District Court entered a final judgement in the
consolidated proceedings (docket number N-87-52(PCD)) which included the
granting of Registrant's motion for judgement on the pleadings. As a result of
this judgement, no complaints were then pending in the U.S. District Court
involving the Registrant.
On April 17, 1995, the State filed its notice of appeal from this final
judgement with the U.S. District Court. On May 10, 1995, EPA filed its notice of
appeal from the judgement.
On November 1, 1996 the U.S. Court of Appeals for the Second Circuit
reversed the District Court ruling dismissing EPA and State of Connecticut
environmental claims against the Registrant and environmental claims by the
Laurel Park and Beacon Heights Coalitions against numerous defendants. The Court
of Appeals remanded the case to the U.S. District Court in Connecticut for
further proceedings. The governmental lawsuits, brought after governmental
settlements with the Coalitions, seek to recover remediation costs of the
governments unreimbursed by the Coalition settlements or the settlement with the
owner/operator in connection with the Laurel Park and Beacon Heights landfills.
The EPA has claimed that the Registrant and two other corporate defendants are
responsible for an aggregate of $3.1 million in remediation costs with respect
to the Beacon Heights landfill and that the Registrant and one other corporate
defendant are responsible for an aggregate of $2.3 million in remediation costs
with respect to the Laurel Park landfill; Connecticut has claimed that the
Registrant and one other defendant are responsible for an aggregate of $.8
million in remediation costs with respect to the Laurel Park landfill. The
Registrant intends to continue to vigorously contest any liability relating to
these governmental claims. The Registrant would also pursue its rights of
contribution against the other defendants in the event of any liability, which
the Registrant expects would significantly reduce any liability imposed. In
addition, it would file claims against its insurance carriers.
In its decision, the Second Circuit also reversed the U.S. District Court's
dismissal of numerous actions brought by the Beacon Heights and Laurel Park
Coalitions against non-settling parties. These Coalitions assumed full
responsibility for cleaning up the two landfill sites and, as noted above, the
Registrant has settled with both Coalitions with respect to liability at these
sites in 1994.
After rejecting motions for rehearing, the Court of Appeals returned the
cases to the US District Court. On July 21, 1997, the District Court issued an
order appointing a Special Master to mediate, find facts if necessary and report
back to the court within six months as to all remaining claims for contribution.
The Registrant is actively participating in this process as it pertains to the
EPA Claims against the Registrant and the Registrant's contribution rights
against the United States and third-party defendants. In January 1998, the
Registrant entered into a proposed consent decree with the State which was
approved by the court.
In May 1998, the Registrant and its co-defendants entered into a proposed
consent decree with the EPA, which, if approved, would resolve the Registrant's
remaining liability with respect to the Laurel Park and Beacon Heights
landfills.
The consent decree is now pending before the United States District Court.
The Registrant will continue to vigorously pursue its legal interest in this
matter. The Registrant believes that these actions will not have a materially
adverse impact on the Registrant's consolidated financial position, operating
results or liquidity.
There are no other significant legal proceedings, other than ordinary
routine litigation incidental to the business, to which either the Registrant or
any of its subsidiaries is a party of or which any of their property is the
subject.
-12-
<PAGE>
ITEM 2 CHANGES IN SECURITIES
- ------ ---------------------
On July 22, 1998, the Board of Directors of the Registrant
approved a new Rights Agreement and declared a dividend of one
common share purchase right for each outstanding share of
common stock, no par value, of the Company. For a description
of the rights, see the Form 8-K filed with Securities and
Exchange Commission on August 6, 1998.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES-
- ------ --------------------------------
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
None
ITEM 5 OTHER INFORMATION
- ------ -----------------
Any shareholder who intends to present a proposal at the 1999
Annual Meeting of shareholders and desires that it be included
in the Company's proxy material must submit to the Company a
copy of the proposal on or before November 20, 1998. Any
Shareholder who intends to present a proposal at the 1999
Annual Meeting but does not wish that the proposal be included
in the Company's proxy material must provide notice of the
proposal to the Company, in accordance with the terms of the
Company's by-laws, no earlier than January 22, 1999 and no
later than February 21, 1999.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
On August 6, 1998, the Registrant filed with the Securities
and Exchange Commission a Form 8-K describing the new Rights
Agreement approved by the Board of Directors on July 22, 1998
and the declaration of a dividend of one common stock purchase
right for each outstanding share of common stock held of
record on August 7, 1998. See Part I, Item 2, Other Matters
and Part II, Item 2, Changes in Securities.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE EASTERN COMPANY
-------------------
(Registrant)
DATE: November 16, 1998 /s/Leonard F. Leganza
----------------- -------------------------------
Leonard F. Leganza
President and Chief Executive Officer
DATE: November 16, 1998 /s/Donald E. Whitmore, Jr.
- ----- ----------------- -------------------------------
Donald E. Whitmore, Jr.,
Executive Vice President and
Chief Financial Officer
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-3-1998
<PERIOD-END> OCT-3-1998
<CASH> 3320997
<SECURITIES> 0
<RECEIVABLES> 9396717
<ALLOWANCES> 421000
<INVENTORY> 12502350
<CURRENT-ASSETS> 27428906
<PP&E> 27929696
<DEPRECIATION> 13840818
<TOTAL-ASSETS> 47751657
<CURRENT-LIABILITIES> 7265493
<BONDS> 0
0
0
<COMMON> 884834
<OTHER-SE> 25836335
<TOTAL-LIABILITY-AND-EQUITY> 47751657
<SALES> 53760887
<TOTAL-REVENUES> 53862192
<CGS> 39238185
<TOTAL-COSTS> 39238185
<OTHER-EXPENSES> 7969559
<LOSS-PROVISION> 93324
<INTEREST-EXPENSE> 399091
<INCOME-PRETAX> 6162033
<INCOME-TAX> 2160126
<INCOME-CONTINUING> 4001907
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4001907
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.57
</TABLE>
