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 APRIL 3, 1999
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
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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 April 3, 1999
----- -------------------------------
Common Stock, No par value 3,622,085
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<TABLE>
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PART I
FINANCIAL INFORMATION
THE EASTERN COMPANY AND SUBSIDIARIES
ITEM I CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
------
ASSETS
April 3, 1999 January 2, 1999
------------- ---------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 4,846,620 $ 4,789,901
Accounts receivable, less allowance:
1999- $492,000; 1998- $439,000 9,620,291 8,572,700
Inventories 12,573,976 12,778,110
Prepaid expenses and other current assets 2,702,849 2,594,983
---------- -----------
Total Current Assets 29,743,736 28,735,694
Property, plant and equipment 28,268,665 27,341,071
Accumulated depreciation (12,936,598) (12,307,918)
---------- ----------
15,332,067 15,033,153
Prepaid pension cost 4,597,999 4,567,282
Other assets, net 1,692,101 1,735,586
---------- ----------
TOTAL ASSETS $ 51,365,903 $ 50,071,715
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable 83,288 72,878
Accounts payable 3,125,711 3,015,259
Accrued compensation and withholding 1,827,142 2,057,235
Other accrued expenses 2,500,980 2,469,480
---------- ----------
Total Current Liabilites 7,537,121 7,614,852
Deferred federal income taxes 2,546,200 2,546,200
Long-term debt 8,929,764 8,551,512
Accrued postretirement benefits 2,885,749 2,873,249
Shareholders' Equity
Common Stock, No Par Value:
Authorized Shares - 25,000,000
Issued and outstanding shares:
1999-3,643,979; 1998-3,632,663 1,349,765 1,465,360
(Excluding shares in Treasury:
1999-1,592,966; 1998-1,572,716)
Preferred Stock, No Par Value
Authorized shares - 2,000,000
(No shares issued)
Unearned compensation (359,531) (359,531)
Accumulated other comprehensive loss - translation adjustment (830,466) (830,267)
Retained earnings 29,307,301 28,210,340
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 51,365,903 $ 50,071,715
========== ==========
</TABLE>
See accompanying notes.
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<TABLE>
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THE EASTERN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
April 3, 1999 April 4, 1998
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<S> <C> <C>
Net sales $ 19,383,654 $ 18,411,956
Interest income 71,251 23,444
---------- ----------
Total 19,454,905 18,435,400
Cost of products sold 13,986,856 13,481,567
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5,468,049 4,953,833
Selling and administrative expenses 3,042,678 2,924,369
Interest expense 158,382 75,570
---------- ----------
INCOME BEFORE INCOME TAXES 2,266,989 1,953,894
Income taxes 804,242 663,797
---------- ----------
NET INCOME $ 1,462,747 $ 1,290,097
============ ============
Net income per share:
Basic $ 0.40 $ 0.34
Diluted $ 0.39 $ 0.32
Cash dividends per share $ 0.100 $ 0.086
</TABLE>
See accompanying notes.
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<TABLE>
<CAPTION>
THE EASTERN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
April 3, 1999 April 4, 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,462,747 $ 1,290,097
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 718,479 763,799
Loss on sale of equipment and other assets 256 -
Postretirement benefits other than pensions 12,500 3,000
Provision for losses on accounts receivable 52,409 32,404
Issuance of Common Stock for directors' fees 17,809 17,807
Changes in operating assets and liabilities:
Accounts receivable (1,089,640) (1,218,677)
Inventories 243,249 (191,730)
Prepaid expenses (107,773) 176,140
Prepaid pension (30,717) (926)
Accounts payable 96,572 (36,416)
Accrued expenses (250,785) 447,502
Other assets (41,790) (7,187)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,083,316 1,275,813
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (911,379) (795,462)
Other (33) 3,634
----- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES (911,412) (791,828)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt and notes payable 465,220 -
Principal payments on long-term debt and notes payable (79,938) (60,000)
Proceeds from sales of Common Stock 184,324 93,750
Purchases of Common Stock for treasury (317,728) (46,871)
Dividends paid (365,786) (338,446)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (113,908) (351,567)
Effect of exchange rate changes on cash (1,277) (3,420)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 56,719 128,998
Cash and Cash Equivalents at Beginning of Period 4,789,901 2,111,289
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,846,620 $ 2,240,287
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE>
<TABLE>
<CAPTION>
THE EASTERN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNADUITED)
THREE MONTHS ENDED
April 3, 1999 April 4, 1998
------------- -------------
<S> <C> <C>
Net income $ 1,462,747 $ 1,290,097
Other comprehensive loss -
Foreign currency translation (199) (43,858)
--------- ---------
Comprehensive income $ 1,462,548 $ 1,246,239
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE>
THE EASTERN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 3, 1999
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 2, 1999 has been derived from the
audited financial statements at that date.
Note B - Stock Split
- --------------------
On March 12, 1999 the Company announced that its board of directors had approved
a three-for-two stock split of the Company's common shares. As a result of the
stock split, shareholders of record on May 28, 1999 will be entitled to receive
one additional share for every two shares they own on that date. The Company
will arrange for issuance of these shares on June 15, 1999. Any fractional
shares created as a result of this split will be paid in cash. The date on which
the shares will begin trading at the split price is June 16, 1999. Eastern's
common stock purchase rights under its Rights Agreement dated August 21, 1998,
will also be appropriately adjusted to reflect the stock split. The effect of
this stock split has been applied retroactively and all applicable previously
presented share and per share amounts have been restated.
Note C - Earnings Per Share
- ---------------------------
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<CAPTION>
The denominators used in the earnings per share computations follow:
THREE MONTHS ENDED
April 3,1999 April 4, 1998
------------ -------------
<S> <C> <C>
Basic:
Weighted average shares outstanding 3,652,085 3,887,633
Contingent shares outstanding (30,000) (48,750)
--------- ---------
Denominator for basic earnings per share 3,622,085 3,838,883
========= =========
Diluted:
Weighted average shares outstanding 3,652,085 3,887,633
Contingent shares outstanding (30,000) (48,750)
Dilutive stock options 128,020 134,811
--------- ---------
Denominator for diluted earnings per share 3,750,105 3,973,694
========= =========
</TABLE>
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<PAGE>
THE EASTERN COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
April 3, 1999
Note D - Segment Information
- ----------------------------
The Eastern Company has three business segments. The Industrial Hardware
Group produces latching devices for use on industrial equipment and
instrumentation as well as a broad line of proprietary hardware designed for
truck bodies and other vehicular equipment. The Custom Locks Group manufactures
and markets a broad range of locks for traditional general purpose security
applications. This segment also produces specialized locks for firearms,
coin-operated vending and gaming equipment and electric and computer peripheral
components. The Metal Products Group consists of a foundry which produces
anchoring devices used in supporting the roofs of underground coal mines. This
segment also manufactures specialty metal castings which serve the construction,
automotive and electrical industries.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
April 3, 1999 April 4, 1998
------------- -------------
<S> <C> <C>
Revenue:
Sales to unaffiliated customers:
Industrial Hardware $ 6,746,737 $ 6,378,393
Custom Locks 5,833,892 5,989,918
Metal Products 6,803,025 6,043,645
---------- ----------
19,383,654 18,411,956
General corporate 71,251 23,444
---------- ----------
$19,454,905 $18,435,400
========== ==========
Income Before Income Taxes:
Industrial Hardware $ 1,100,178 $ 948,284
Custom Locks 961,075 944,157
Metal Products 937,718 725,834
---------- ----------
Operating Profit 2,998,971 2,618,275
General corporate expenses 573,600 588,810
Interest expense 158,382 75,570
---------- ----------
$ 2,266,989 $ 1,953,895
========== ==========
</TABLE>
Note E - 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.
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<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Stock Split
On March 12, 1999 the Company announced that its board of directors had approved
a three-for-two stock split of the Company's common shares. As a result of the
stock split, shareholders of record on May 28, 1999 will be entitled to receive
one additional share for every two shares they own on that date. The Company
will arrange for issuance of these shares on June 15, 1999. Any fractional
shares created as a result of this split will be paid in cash. The date on which
the shares will begin trading at the split price is June 16, 1999. Eastern's
common stock purchase rights under its Rights Agreement dated August 21, 1998,
will also be appropriately adjusted to reflect the stock split. The effect of
this stock split has been applied retroactively and all applicable previously
presented share and per share amounts have been restated.
The board of directors also announced a 10 percent increase in its quarterly
dividend, from 15 cents (10 cents after-split) to 16.5 cents (11 cents
after-split) per share. The 11 cent quarterly dividend will be payable on June
15, 1999 to stockholders of record as of May 28, 1999. As a result, the annual
indicated dividend will increase from 40 cents to 44 cents per after-split
share. This will be The Eastern Company's 235th consecutive quarterly dividend
since 1940 and the third dividend increase since December 1997.
Results of Operations
Net income per share (basic) for the first quarter of 1999 represented the ninth
consecutive quarter of increased earnings. Net income for the first quarter was
$1.5 million or $.40 per share (basic) on sales of $19.4 million versus $1.3
million or $.34 per share (basic) on sales of $18.4 million in the first quarter
of 1998.
First quarter sales were up 5% compared to the same period a year ago. Price
increases of 1% and new product introductions of 4% accounted for the increase.
The Industrial Hardware Group sales were up 6% compared to the first quarter of
1998. New product sales contributed 11% to the increased sales in the first
quarter 1999 as compared to the first quarter of 1998 offsetting a slight
reduction in other product categories. An accelerated program of new product
introductions was put in place to help counter lower cost Asian products
entering the market. New products included a patented folding key locking
T-Handle and paddle handles with bracket offered by the Eberhard division. Our
Canadian subsidiary, Eberhard Hardware, Ltd., experienced a 20% increase in
sales as compared to 1998 primarily as the result of supplying heavy hardware to
the Canadian tractor trailer industry. The Company's Mexican operation continues
to grow. Sales of industrial hardware in Mexico increased 32% over the same
period a year ago.
The Custom Locks Group sales were down 3% compared to the first quarter of 1998.
While volume was down slightly in the first quarter of 1999 as compared to the
first quarter of 1998 price increases and new product introductions contributed
2% to offset volume decline. The Company's Asian operation experienced a slight
decline in sales during the first quarter of 1999 versus the first quarter of
1998. The Company has initiated a European marketing program in the first
quarter of 1999 to expand the customer base of our Asian operations. New product
introductions in the first quarter of 1999 among other products included the new
ignition lock for the Excelsior-Henderson motorcycle.
-8-
<PAGE>
Metal Products Group sales were up 13% compared to the first quarter of 1998.
Volume increased 10% and new products contributed 3% to the increase. Demand for
underground mine expansion shells was comparable to the prior year. The
specialty contract casting business increased 36% from the comparable quarter of
1998. This was partly the result of new customers being acquired as a result of
a major foundry competitor going out of business in the second quarter of 1998.
Gross margin as a percentage of sales for the three months ended April 3, 1999
was approximately 28% compared to 27% for the comparable period a year ago. The
increase in gross margin is attributable largely to a more profitable product
mix.
Selling and administrative expenses were up 4% or $118 thousand for the three
months ended April 3, 1999 compared to the same period a year ago. This
increased expense is primarily due to increased payroll and fringe benefit
costs.
Interest expense for the first quarter of 1999 was up 110% or $83 thousand
compared to the first quarter of 1998. This increase was caused by higher
levels of borrowing.
Earnings before income taxes for the first quarter of 1999 were up 16% or $313
thousand compared to the first quarter of 1998. The Industrial Hardware Group
gained 16% or $152 thousand over the comparable period a year ago. The increase
was attributable to increased sales of heavy hardware to the Canadian tractor
trailer industry as well as increased sales to the U.S. government. The Custom
Locks Group earnings before income taxes were up 2% or $17 thousand from the
comparable period a year ago. Improved product mix accounted for the higher
profits on lower sales. The Metal Products Group earnings gained 29% or $212
thousand over the same period a year ago due to higher sales volume and greater
utilization of the production facilities.
Liquidity and Sources of Capital
Cash flows from operations were $1.1 million for the first quarter of 1999
versus $1.3 million for the same period in 1998. The change in cash flows
resulted from timing differences for collections of accounts receivable and
payments of liabilities and changes in inventory. Cash flow from operations in
the first quarter of 1999 was sufficient to fund capital expenditures, dividend
payments to shareholders and the purchase of 20,250 shares of Common Stock for
the treasury. In the first quarter of 1998 the Company purchased $4.6 million in
Common Stock for the treasury which was funded in the second quarter of 1998
with proceeds from borrowings.
Additions to property, plant and equipment were $911 thousand during the first
quarter of 1999 versus $795 thousand for the comparable period a year ago. Total
1999 capital expenditures will exceed the expected $2.5 million level of
depreciation for the year. Additional manufacturing capacity is being added in
1999 at the Frazer & Jones division to accommodate additional contract casting
business.
Total inventory at the end of the first quarter of 1999 of $12.6 million was
$243 thousand lower than year end 1998. The inventory turnover ratio of 4.4
turns has improved compared to the year end 1998 of 3.9 turns and the end of the
first quarter of 1998 of 4.3 turns. Accounts receivable increased by $1.1
million from year end 1998 primarily due to increased sales growth. The average
day's sales in accounts receivable for the first quarter of 1999 was 45 days
compared to the first quarter of 1998 of 51 days. The decrease in accounts
receivable was driven by increased collection activity.
Subsequent to the first quarter of 1999, the Company closed on an agreement to
borrow $2 million to finance a building addition and specific equipment for the
Frazer & Jones expansion project. The related note is payable in equal monthly
installments over ten years with interest at 4.99%.
The Company's strong balance sheet and internal cash flow generation should be
sufficient to cover future working capital requirements.
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<PAGE>
Other Matters
In 1996, the United States Court of Appeals reversed a 1995 District Court
ruling relating to environmental remediation complaints against the Company and
other potentially responsible parties. In 1997, the additional expenses
recognized, net of insurance proceeds, were not material to the Company's
operating results. In 1998, the Company entered into proposed consent decrees
with the State DEP and Federal EPA and paid all claims. The court has approved
the proposed consent decrees with the State DEP. The Company is waiting for
final approval on the agreement with the Federal EPA currently pending before
the United States District Court. All matters relating to claims made by the
United States are expected to be resolved during 1999 and are not expected have
any material adverse effect on the Company's financial condition, cash flows or
results of operations.
The Company has completed the assessment and remediation phases of its Year 2000
compliance program and is currently completing testing of its information
technology (IT) and other non-IT systems and reviewing its contingency plans.
Estimated costs for Year 2000 compliance are in the range of $150,000 to
$200,000 of which approximately $110,000 has been spent through the first
quarter of 1999.
The Company does not have any direct interfaces with third party vendors and
continues to review responses from third party vendors and customers to assess
potential Year 2000 issues. The Company is not aware of any external sources
that will have a material impact on its operating results.
The "most likely worst case scenario" for Year 2000 issues is the failure of
systems or equipment of other parties throughout the world which could result in
the unavailability of global communications, financial resources,
transportation, raw materials, energy and other vital commercial systems. In
case of such a failure, the Company's ability to maintain its operations on
domestic and international levels could be disrupted and could have a material
adverse effect upon the Company's financial condition and results of operations.
The Company's goal is to complete its Year 2000 compliance program and have
contingency plans in place by the 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
- ------
The Company maintains manufacturing facilities in foreign countries which
account for approximately 10% of total sales and total assets. The United
States operations buy and sell to the foreign affiliated companies and export
less than 10% of total sales to non-affiliated companies. This trade activity
could be affected by fluctuations in the foreign currency exchange or weak
economic conditions. The Company's currency exposure is concentrated in four
foreign currencies, Canada dollar, Mexican peso, New Taiwan dollar and the
Hong Kong dollar. With the Company's limited exposure to foreign markets, the
currency exchange gains or loses are not material.
The Company's interest rate, under its term loan agreement, is closely tied to
the U.S. economy. To minimize significant interest rate exposure, the Company
can lock the interest rate on its term note to a fixed rate
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<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 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.
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<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 Company's business, or to which either the
Registrant or any of its subsidiaries is a party to or to which any of their
property is the subject.
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<PAGE>
ITEM 2 CHANGES IN SECURITIES
- ------ ---------------------
The Company has approved a three-for-two shock split of the Company's shares of
Common Stock, no par value, effective with respect to shareholders of record on
May 28, 1999. See Part I, Item 2, Other Matters.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES-
- ------ --------------------------------
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
The Registrant held its Annual Meeting of the Stockholders at The Eastern
Company, Naugatuck, Connecticut on Wednesday, the twenty-eighth day of April,
1999. The matters voted on and the voting results were:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FOR WITHHELD AGAINST ABSTENTION
1a) Election of two directors
for three year terms expiring in
the year 2002.
John W. Everets 2,175,235 30,372
Leonard F. Leganza 2,175,446 30,161
1b) Election of one director
for one year term expiring in
the year 2000.
David C. Robinson 2,173,231 32,375
Continuing Directors:
Charles W. Henry
Donald E. Whitmore, Jr.
Donald S. Tuttle III
2) Approval of Ernst & Young LLP
as independent auditors: 2,199,093 3,074 3,440
</TABLE>
Russell G. McMillen, the retired Chairman of the Board of Directors of the
Company, did not seek re-election at the annual Meeting. However, due to his
long service and experience with the Company, The Board of Directors as
appointed him as Emeritus Director.
ITEM 5 OTHER INFORMATION
- ------ -----------------
None
-13-
<PAGE>
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE EASTERN COMPANY
(Registrant)
DATE: May 18, 1999 /s/Leonard F. Leganza
---------------------
Leonard F. Leganza
President and Chief Executive Officer
DATE: May 18, 1999 /s/Donald E. Whitmore, Jr.
--------------------------
Donald E. Whitmore, Jr.,
Executive Vice President and
Chief Financial Officer
-14-
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