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 JULY 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
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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 (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
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(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
commonstock, as of the latest practicable date.
Class Outstanding as of JULY 3, 1999
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Common Stock, No par value 3,658,775
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PART I
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
THE EASTERN COMPANY
ITEM I CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
July 3, 1999 January 2, 1999
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CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 5,318,150 $ 4,789,901
Accounts receivable, less allowance:
1999- $513,000; 1998- $439,000 10,235,182 8,572,700
Inventories 12,298,008 12,778,110
Prepaid expenses and other current assets 2,611,250 2,594,983
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Total Current Assets 30,462,590 28,735,694
Property, plant and equipment 29,324,245 27,341,071
Accumulated depreciation (13,580,526) (12,307,918)
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15,743,719 15,033,153
Prepaid pension cost 4,568,715 4,567,282
Other assets, net 1,656,931 1,735,586
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TOTAL ASSETS $52,431,955 $50,071,715
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt and notes payable $ 217,141 $ 72,878
Accounts payable 3,511,750 3,015,259
Accrued compensation and withholding 1,642,806 2,057,235
Other accrued expenses 2,126,426 2,469,480
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Total Current Liabilites 7,498,123 7,614,852
Deferred federal income taxes 2,546,200 2,546,200
Long-term debt 8,751,680 8,551,512
Accrued postretirement benefits 2,898,249 2,873,249
Shareholders' Equity
Common Stock, No Par Value:
Authorized Shares - 25,000,000
Issued and outstanding shares:
1999-3,658,775; 1998-3,632,663 1,355,008 1,465,360
(Excluding shares in Treasury:
1999-1,602,499; 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 (738,952) (830,267)
Retained earnings 30,481,178 28,210,340
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $52,431,955 $50,071,715
========== ==========
</TABLE>
See accompanying notes.
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<TABLE>
<CAPTION>
THE EASTERN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED THREE MONTHS ENDED
July 3, 1999 July 4, 1998 July 3, 1999 July 4, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 9,413,320 $35,765,163 $20,029,666 $17,353,207
Interest income 146,238 72,376 74,987 48,932
---------- ---------- ---------- ----------
39,559,558 35,837,539 20,104,653 17,402,139
Cost of products sold 28,503,358 26,129,642 14,516,502 12,648,075
---------- ---------- ---------- ----------
11,056,200 9,707,897 5,588,151 4,754,064
Selling and administrative expenses 6,036,214 5,486,435 2,993,536 2,562,066
Interest expense 325,686 239,217 167,304 163,647
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INCOME BEFORE INCOME TAXES 4,694,300 3,982,245 2,427,311 2,028,351
Income taxes 1,653,644 1,387,639 849,402 723,842
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NET INCOME 3,040,656 2,594,606 1,577,909 1,304,509
========== ========== ========== ==========
Net income per share:
Basic $ 0.84 $ 0.70 $ 0.44 $ 0.36
Diluted $ 0.81 $ 0.67 $ 0.42 $ 0.35
Cash dividends per share $ 0.21 $ 0.19 $ 0.11 $ 0.10
</TABLE>
see accompanying notes
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<TABLE>
<CAPTION>
THE EASTERN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
July 3, 1999 July 4, 1998
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,040,656 $ 2,594,606
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,438,783 1,493,379
Loss (gain) on sale of equipment and other assets 254 (90,638)
Postretirement benefits other than pensions 25,000 6,000
Provision for losses on accounts receivable 73,092 62,991
Issuance of Common Stock for directors' fees 38,222 40,323
Changes in operating assets and liabilities:
Accounts receivable (1,709,040) (52,218)
Inventories 550,017 (663,521)
Prepaid expenses (13,883) 694,708
Prepaid pension (1,433) (1,989)
Accounts payable 477,859 (431,505)
Accrued expenses (787,818) (427,853)
Other assets (91,799) (13,747)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 3,039,910 3,210,536
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (1,942,402) (1,833,540)
Other (33) 99,535
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NET CASH USED BY INVESTING ACTIVITIES (1,942,435) (1,734,005)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term and short-term debt and notes payable 2,471,030 5,000,000
Principal payments on long-term and short-term debt and notes payable (2,132,930) (94,100)
Proceeds from sales of Common Stock 333,349 93,750
Purchases of Common Stock for treasury (481,923) (4,673,678)
Dividends paid (769,819) (702,324)
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NET CASH USED BY FINANCING ACTIVITIES (580,293) (376,352)
Effect of exchange rate changes on cash 11,067 (36,196)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 528,249 1,063,983
Cash and Cash Equivalents at Beginning of Period 4,789,901 2,111,289
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,318,150 $ 3,175,272
</TABLE>
see accompanying notes
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<TABLE>
<CAPTION>
THE EASTERN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNADUITED)
SIX MONTHS ENDED THREE MONTHS ENDED
July 3, 1999 July 4, 1998 July 3, 1999 July 4, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income 3,040,656 2,594,606 1,577,909 1,304,509
Other comprehensive income (loss) --
Foreign currency translation 91,315 (136,010) 91,514 (92,152)
--------- --------- --------- ----------
Comprehensive income 3,131,971 2,458,596 1,669,423 1,212,357
========= ========= ========= =========
</TABLE>
See accompanying notes.
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<PAGE>
THE EASTERN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 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 consolidated balance sheet 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 split of the Company's common shares. As a result of the stock
split, shareholders of record on May 28, 1999 received one additional share for
every two shares they owned issued on June 15, 1999. Fractional shares created
as a result of this split were paid in cash. The date on which the shares began
trading at the split price was June 16, 1999. Shareholder's common stock
purchase rights under the Rights Agreement dated August 21, 1998, were also
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
The denominators used in the earnings per share computations follow:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
July 3,1999 July 4, 1998 July 3, 1999 July 4, 1998
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<S> <C> <C> <C> <C>
Basic:
Weighted average shares outstanding 3,651,911 3,763,230 3,651,688 3,638,787
Contingent shares outstanding (30,000) (48,750) (30,000) (48,750)
--------- --------- --------- ---------
Denominator for basic earnings per share 3,621,911 3,714,480 3,621,688 3,590,037
========= ========= ========= =========
Diluted:
Weighted average shares outstanding 3,651,911 3,763,230 3,651,688 3,638,787
Contingent shares outstanding (30,000) (48,750) (30,000) (48,750)
Dilutive stock options 122,923 156,452 117,824 178,091
--------- --------- --------- ---------
Denominator for diluted earnings per share 3,744,834 3,870,932 3,739,512 3,768,128
========= ========= ========= =========
</TABLE>
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THE EASTERN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 3, 1999
Note D - Segment Information
The 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. Segment financial information follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
July 3, 1999 July 4, 1998 July 3, 1999 July 4, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sales to unaffiliated customers:
Industrial Hardware $14,172,968 $13,118,623 $ 7,426,231 $ 6,740,230
Custom Locks 12,082,354 11,548,321 6,248,462 5,054,574
Metal Products 13,157,998 11,098,219 6,354,973 5,558,403
---------- ---------- ---------- ----------
39,413,320 35,765,163 20,029,666 17,353,207
General corporate 146,238 72,376 74,987 48,932
---------- ---------- ---------- ----------
$39,559,558 $35,837,539 $20,104,563 $17,402,139
========== ========== ========== ==========
Income Before Income Taxes:
Industrial Hardware $ 2,370,602 $ 2,173,190 $ 1,270,424 $ 1,224,906
Custom Locks 1,983,029 1,721,804 1,021,954 777,647
Metal Products 1,792,906 1,225,704 855,189 499,870
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Operating Profit 6,146,537 5,120,698 3,147,567 2,502,423
General corporate expenses 1,126,551 837,477 167,304 225,406
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$ 4,694,300 $ 3,982,245 $ 2,427,311 $ 2,028,351
========== ========== ========== ==========
</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 received one additional
share for every two shares they owned issued on June 15, 1999. Fractional shares
created as a result of this split were paid in cash. The date on which the
shares began trading at the split price was June 16, 1999. Shareholder's common
stock purchase rights under the Rights Agreement dated August 21, 1998, was also
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 was paid 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 was
the 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 second quarter of 1999 represented the
tenth consecutive quarter of increased earnings. Net income for the second
quarter was $1.6 million or $.44 per share (basic) on sales of $20.0 million
versus $1.3 million or $.36 per share (basic) on sales of $17.4 million in the
second quarter of 1998. Net income for the first six months of 1999 was $3.0
million or $0.84 per share (basic) on sales of $39.4 million as compared to
the first six months of 1998 of $2.6 million or $0.70 per share (basic) on
sales of $35.8 million.
Sales for the second quarter 1999 were up 15% compared to the same period a
year ago. Volume was up 6%, price increases were up 2% and new product
introductions of 7% accounted for the increase. Sales for the first half of
1999 were up 10% compared to the same period a year ago. Volume was up 3%,
price increases were up 1% and new products were up 6%.
The Industrial Hardware Group second quarter sales were up 10% compared to the
second quarter of 1998. New product sales accounted for the increase. For the
first half of 1999 the Industrial Hardware Group sales were up 8% as compared
to the first half of 1998. New product sales increased 10% offsetting a slight
reduction in other product sales of 2%. A program was established in the first
quarter of 1999 to accelerate new product introduction to effectively compete
with lower cost Asian products entering the market. New products included a
patented integrated paddle handle assembly with a mini rotary latch marketed
to the utility truck body industry, and a patented dual stage mini rotary
latch sold to the automotive accessory market and the fire and rescue
vehicular markets. Eberhard Hardware, Ltd., our Canadian subsidiary,
experienced an 18% increase in sales the first half of 1999 as compared to the
first half of 1998, while sales for the second quarter of 1999 outpaced the
second quarter of 1998 by 17%. The increase is due primarily to the sale of
new products to the tractor trailer industry. Sesamee Mexicana, the Company's
Mexican operation, continued to see strong sales growth in industrial hardware
with second quarter sales increasing 43% as compared to the second quarter of
1998. Sales for the first half were up 37% compared to the first half of 1998.
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<PAGE>
The Custom Locks Group sales were up 12% in the second quarter as compared to
the second quarter of 1998. Volume was up 8% and price and new products
accounted for 2% respectively. Sales for the first six months were up 5% as
compared to the first half of 1998. Volume and new product sales were up 1%
respectively while price increases accounted for 3%. Sales of lock mechanisms
to the computer industry through the first half 1999 were strong and are
expected to continue strong through the second half of 1999. New product sales
included the ignition lock for the Excelsior-Henderson motorcycle and a new
truck handle lock.
The Metal Products Group sales were up 26% in the second quarter as compared
to the second quarter of 1998. Price and new products were up 14% while volume
accounted for 12% of the increase. Sales for the first half increased 19% from
the comparable period of 1998 with volume increasing 11% and price and new
products accounting for 8%. Demand for underground mine expansion shells were
down 4% in the second quarter and were down 3% for the first half of 1999
compared to the same periods in 1998. Demand for underground mine expansion
shells are expected to remain soft through the second half of 1999. The
contract casting business increased 65% in the second quarter and 50% for the
first half from the comparable periods of 1998. This was the result of
acquiring new customers due to a foundry competitor going out of business in
the second quarter of 1998.
Gross margin as a percentage of sales for the three and six months ended July
3, 1999 was approximately 28% compared to 27% for the comparable periods a
year ago. The increase in gross margin is primarily the result of improved
product mix and increased volume.
Selling and administrative expenses were up 17% or $431 thousand and 10% or
$550 thousand for the three and six months ended July 3, 1999 compared to the
same periods a year ago. The second quarter 1999 selling and administrative
expenses were higher than the comparable period in 1998 due to favorable
adjustments for life and health insurance and environmental matters. For the
first half selling and administrative expenses also included increased
advertising and travel expenses and higher payroll and fringe benefit costs.
Interest expense for the second quarter of 1999 was comparable to the second
quarter of 1998.
Earnings before income taxes for the three and six months ended July 3, 1999
were up 20% or $399 thousand and 18% or $712 thousand respectively, as
compared to the same periods of 1998. The Industrial Hardware Group gained 4%
or $46 thousand and 9% or $197 thousand as compared to the same periods a year
ago. The increase was attributable to increased sales of heavy hardware to the
Canadian tractor trailer industry as well as new product introductions with
improved profit margins. The Custom Locks Group earnings before income taxes
for the three and six months ended July 3, 1999 were up 31% or $244 thousand
and 15% or $261 thousand respectively from the comparable periods a year ago.
Improved product mix accounted for the higher profits on lower sales. The
Metal Products Group earnings gained 71% or $355 thousand and 46% or $567
thousand for the second quarter and first half of 1999 over the same periods a
year ago due to higher sales volume, improved product mix and greater
utilization of the production facilities.
Liquidity and Sources of Capital
Cash flows from operations were $3.0 million for the first half of 1999 versus
$3.2 million for the same period in 1998. The change in cash flows resulted
from an increased level of sales and the associated timing differences for
collections of accounts receivable and payments of liabilities and changes in
inventory. Cash flow from operations in the second quarter of 1999 was
sufficient to fund capital expenditures and dividend payments to shareholders.
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<PAGE>
Additions to property, plant and equipment were $1.9 million during the first
six months of 1999 versus $1.8 million 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 at
the Frazer & Jones division to accommodate additional contract casting
business.
Total inventory at the end of the second quarter of 1999 of $12.3 million was
$480 thousand lower than year end 1998. The inventory turnover ratio of 4.6
turns has improved compared to the year end 1998 of 3.9 turns and the end of
the second quarter of 1998 of 4.2 turns. Accounts receivable increased by $1.6
million over the second quarter of 1998 and $1.7 million from year end 1998,
primarily due to increased sales growth. The average day's sales in accounts
receivable for the second quarter of 1999 was 47 days compared to the second
quarter of 1998 of 45 days.
In the second 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%. As a result of improved
cash flow, the Company paid $2 million of its $8.5 million term note, which
carries an interest rate of LIBOR plus 135 basis points or approximately 6.7%.
The Company's strong balance sheet and internal cash flow generation should be
sufficient to cover future working capital requirements.
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 to
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 expects to complete the testing of its information
technology (IT) and other non-IT systems during the third quarter of 1999. The
Company is continually reviewing its contingency plans as more information
becomes available. Estimated costs for Year 2000 compliance are in the range
of $150,000 to $200,000 of which approximately $140,000 has been spent through
the second 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 preceding information is provided under the Year 2000 Information and
Readiness Disclosure Act and is deemed to be a Year 2000 disclosure statement.
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<PAGE>
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 in 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 in 1994 had settled with both Coalitions with respect to liability at
these sites.
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.
-13-
<PAGE>
ITEM 2 CHANGES IN SECURITIES
- ------ ---------------------
The Company has approved a three-for-two stock 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, Stock Split.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES-
- ------ --------------------------------
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE EASTERN COMPANY
(Registrant)
DATE: August 17, 1999 /s/Leonard F. Leganza
--------------- ---------------------
Leonard F. Leganza
President and Chief Executive Officer
DATE: August 17, 1999 /s/John L. Sullivan, III
--------------- ------------------------
John L. Sullivan, III
Treasurer/Controller
-14-
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0
0
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