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 2, 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
-----
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 2, 1999
----- ---------------------------------
Common Stock, No par value 3,651,791
-1-
<PAGE>
PART I
<TABLE>
<CAPTION>
FINANCIAL INFORMATION
THE EASTERN COMPANY
ITEM I CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
October 2, 1999 January 2, 1999
--------------- ---------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 6,611,212 $ 4,789,901
Accounts receivable, less allowance:
1999- $540,000; 1998- $439,000 9,936,024 8,572,700
Inventories 12,375,633 12,778,110
Prepaid expenses and other current assets 2,628,063 2,594,983
---------- ----------
Total Current Assets 31,550,932 28,735,694
Property, plant and equipment 30,515,615 27,341,071
Accumulated depreciation (14,140,069) (12,307,918)
---------- ----------
16,375,546 15,033,153
Prepaid pension cost 4,911,144 4,567,282
Other assets, net 1,619,974 1,735,586
---------- ----------
TOTAL ASSETS $ 54,457,596 $ 50,071,715
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current poriton of long-term debt and notes payable $ 192,108 $ 72,878
Accounts payable 3,856,439 3,015,259
Accrued compensation and withholding 1,956,601 2,057,235
Other accrued expenses 2,362,963 2,469,480
---------- ----------
Total Current Liabilities 8,368,111 7,614,852
Deferred federal income taxes 2,546,200 2,546,200
Long-term debt 8,711,569 8,551,512
Accrued postretirement benefits 2,793,952 2,873,249
Shareholders' Equity
Common Stock, No Par Value:
Authorized shares - 25,000,000
Issued and outstanding shares:
1999-3,651,791; 1998-3,632,663 1,328,308 1,465,360
(Excluding shares in Treasury:
1999-1,608,499; 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 (682,140) (830,267)
Retained earnings 31,751,127 28,210,340
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 54,457,596 $ 50,071,715
========== ==========
</TABLE>
See accompanying notes.
-2-
<PAGE>
THE EASTERN COMPANY
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED
Oct. 2, 1999 Oct. 3, 1998 Oct. 2, 1999 Oct. 3, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 57,654,997 $ 53,760,887 $ 18,241,677 $ 17,995,724
Interest income 217,609 101,305 71,371 28,929
--------------- ---------- ---------- ---------- ----------
57,872,606 53,862,192 18,313,048 18,024,653
Cost of products sold 41,601,188 39,238,185 13,097,830 13,170,302
---------- ---------- ---------- ----------
16,271,418 14,624,007 5,215,218 4,854,351
Selling and administrative expenses 8,755,389 8,062,883 2,719,175 2,576,448
Interest expense 478,215 399,091 152,529 98,115
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 7,037,814 6,162,033 2,343,514 2,179,788
Income taxes 2,325,358 2,160,126 671,714 772,487
---------- ---------- -------- -------
NET INCOME $ 4,712,456 $ 4,001,907 $ 1,671,800 $ 1,407,301
========== ========== ========== ==========
Net income per share:
Basic $ 1.30 $ 1.09 $ 0.46 $ 0.39
Diluted $ 1.26 $ 1.05 $ 0.45 $ 0.38
Cash dividends per share $ 0.32 $ 0.29 $ 0.11 $ 0.10
</TABLE>
See accompanying notes.
-3-
<PAGE>
THE EASTERN COMPANY
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
Oct. 2, 1999 Oct. 3, 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income 4,712,456 4,001,907
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,084,586 2,217,645
Loss (gain) on sale of equipment and other assets 8,280 (88,736)
Postretirement benefits other than pensions (79,297) 9,000
Provision for losses on accounts receivable 99,828 93,324
Issuance of Common Stock for directors' fees 63,145 64,142
Changes in operating assets and liabilities:
Accounts receivable (1,413,628) (832,876)
Inventories 505,991 (192,684)
Prepaid expenses (26,215) 631,176
Prepaid pension (343,862) (222,078)
Accounts payable 803,469 (26,484)
Accrued expenses (242,715) (324,407)
Other assets (137,698) (22,649)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,034,340 5,307,280
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (3,153,847) (2,637,428)
Other (33) 97,468
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (3,153,880) (2,539,960)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term and short-term debt and notes payable 2,470,610 5,000,000
Principal payments on long-term and short-term debt and notes payable (2,198,924) (94,100)
Proceeds from sales of Common Stock 380,224 93,750
Purchases of Common Stock for treasury (580,594) (5,427,109)
Dividends paid (1,171,348) (1,090,600)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (1,100,032) (1,518,059)
Effect of exchange rate changes on cash 40,883 (39,553)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,821,311 1,209,708
Cash and cash equivalents at beginning of period 4,789,901 2,111,289
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 6,611,212 3,320,997
========= =========
</TABLE>
See accompanying notes.
-4-
<PAGE>
<TABLE>
<CAPTION>
THE EASTERN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNADUITED)
NINE MONTHS ENDED THREE MONTHS ENDED
Oct. 2, 1999 Oct. 3, 1998 Oct. 2, 1999 Oct. 3, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income 4,712,456 4,001,907 1,671,800 1,407,301
Other comprehensive income (loss)-
Foreign currency translation 148,127 (164,060) 56,812 (28,050)
--------- --------- --------- ---------
Comprehensive income 4,860,583 3,837,847 1,728,612 1,379,251
========= ========= ========= =========
</TABLE>
See accompanying notes.
-5-
<PAGE>
THE EASTERN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 2, 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 a three-for-two stock split of the
Company's common shares with any fractional shares created payable in cash.
Eastern's common stock purchase rights under its Rights Agreement dated August
21, 1998 have also been adjusted to reflect the stock split. The effect of this
stock split has been applied retroactively and all applicable previously
presented shares and per share amounts have been restated.
Note C - Earnings Per Share
- ---------------------------
The denominators used in the earnings per share computations follow:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
Oct. 2, 1999 Oct. 3, 1998 Oct. 2,1999 Oct. 3, 1998
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Basic:
Weighted average shares outstanding 3,643,974 3,715,389 3,650,595 3,620,264
Contingent shares outstanding (18,750) (48,750) (18,750) (48,750)
--------- --------- --------- ---------
Denominator for basic earnings per share 3,625,224 3,666,639 3,631,845 3,571,514
========= ========= ========= =========
Diluted:
Weighted average shares outstanding 3,643,974 3,715,389 3,650,595 3,620,264
Contingent shares outstanding (18,750) (48,750) (18,750) (48,750)
Dilutive stock options 121,139 160,146 117,573 167,538
--------- --------- --------- ---------
Denominator for diluted earnings per share 3,746,363 3,826,785 3,749,418 3,739,052
========= ========= ========= =========
</TABLE>
-6-
<PAGE>
THE EASTERN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 2, 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 mines. This segment also manufactures
specialty metal castings, which serve the construction, automotive and
electrical industries. Segment financial information follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
Oct. 2, 1999 Oct. 3, 1998 Oct. 2, 1999 Oct. 3, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sales to unaffiliated customers:
Industrial Hardware $21,602,013 $19,577,516 $ 7,429,045 $ 6,458,893
Custom Locks 17,759,447 17,289,995 5,677,094 5,741,674
Metal Products 18,293,537 16,893,376 5,135,538 5,795,157
---------- ---------- ---------- ----------
57,654,997 53,760,887 18,241,677 17,995,724
General corporate 217,609 101,305 71,371 28,929
---------- ---------- ---------- ----------
$57,872,606 $53,862,192 $18,313,048 $18,024,653
========== ========== ========== ==========
Income Before Income Taxes:
Industrial Hardware $ 3,493,210 $ 3,340,091 $ 1,122,608 $ 1,166,901
Custom Locks 2,930,262 2,780,242 947,233 1,058,438
Metal Products 2,445,384 1,873,611 652,478 647,907
---------- ---------- ---------- ----------
Operating Profit 8,868,856 7,993,944 2,722,319 2,873,246
General corporate expenses (1,352,827) (1,432,820) (226,276) (595,343)
Interest expense (478,215) (399,091) (152,529) (98,115)
---------- ---------- ---------- ----------
$ 7,037,814 $ 6,162,033 $ 2,343,514 $ 2,179,788
========== ========== ========== ==========
</TABLE>
Note E - Litigation
- -------------------
All litigation relating to environmental matters was settled on September 28,
1999 without any material impact on financial condition, operating results or
cash flows. See Part II Item 1 Legal Proceedings for further information.
-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 1999 represented the
eleventh consecutive quarter of increased earnings. Net income for the third
quarter was $1.7 million or $.46 per share (basic) on sales of $18.2 million
as compared to $1.4 million or $.39 per share (basic) on sales of $18.0
million in the third quarter of 1998. Net income for the first nine months of
1999 was $4.7 million or $1.30 per share (basic) on sales of $57.7 million as
compared to the first nine months of 1998 of $4.0 million or $1.09 per share
(basic) on sales of $53.8 million.
Sales for the third quarter 1999 were up 1.4% compared to the same period a
year ago. Volume was down 5.8%, however, price increases were up 2% and new
product introductions were up 5.2% which accounted for the increase. Sales for
the first nine months of 1999 were up 7.2% compared to the same period a year
ago. Volume was on pace with the prior year, price increases were up 1.7% and
new products were up 5.5%.
The Industrial Hardware Group third quarter sales were up 15% compared to the
third quarter of 1998. New product sales accounted for 11% of the increase
along with volume increases of 4% over the third quarter of 1998. For the
first nine months of 1999 the Industrial Hardware Group sales were up 10% as
compared to the same period in 1998. New product sales accounted for the
increase. At our Eberhard Manufacturing location, 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 a 20% increase in sales during the first nine months
of 1999 as compared to the first nine months of 1998, while sales for the
third quarter of 1999 outpaced the third quarter of 1998 by 25%. The increase
is due primarily to the sale of new products to the Canadian tractor trailer
industry. Sesamee Mexicana, the Company's Mexican operation, continued to see
strong sales growth in industrial hardware with third quarter sales increasing
24% as compared to the third quarter of 1998. Sales for the first nine months
were up 33% compared to the first nine months of 1998.
The Custom Locks Group sales were down 1% in the third quarter as compared to
the third quarter of 1998. Volume was down 4% and price increases were up 2%
and new products were up 1%. Sales for the first nine months were up 3% as
compared to the first nine months of 1998. Volume was down 1% while new
product sales and price increases were up 2% respectively. New product sales
included a changeable pin and wafer tumbler lock for the computer industry, a
new truck handle lock, and the ignition lock for the Excelsior-Henderson
motorcycle, sales of which have been slower than expected due to management
reorganization at Excelsior-Henderson.
The Metal Products Group sales were down 11% in the third quarter as compared
to the third quarter of 1998. Price increases were up 4%, new products were up
3% and volume was down 18%. Sales for the first nine months increased 8% from
the comparable period of 1998 with volume increasing 1% and price increases
accounting for 3% and new products 4%. Demand for underground mine expansion
shells were down 30% in the third quarter and were down 12% for the first nine
months of 1999 compared to the same periods in 1998. Demand for underground
mine expansion shells are expected to remain soft through the fourth quarter
of 1999. The contract casting business increased 12% in the third quarter and
36% for the first nine months 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.
-8-
<PAGE>
Gross margin as a percentage of sales for the three and nine months ended
October 2, 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, including new product introductions.
Selling and administrative expenses were up 6% or $143 thousand and 9% or $693
thousand for the three and nine months ended October 2, 1999 compared to the
same periods a year ago. The nine month 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 that
occurred during 1998. For the third quarter 1999, selling and administrative
expenses also included increased advertising and travel expenses and higher
payroll and fringe benefit costs as compared to the third quarter of 1998.
Interest expense through nine months of 1999 was $478 thousand versus $399
thousand for the first nine months of 1998. This increase in interest expense
was due to the impact of higher average outstanding borrowing.
Earnings before income taxes for the three and nine months ended October 2,
1999 were up 8% or $164 thousand and 14% or $876 thousand respectively, as
compared to the same periods of 1998. The Industrial Hardware Group was down
4% or $44 thousand for 3 months and gained 5% or $153 thousand for nine months
as compared to the same periods a year ago. The nine month 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
months ended October 2, 1999 were down 11% or $111 thousand as compared to the
third quarter of 1998. This was the result of lower margin product sales and
unfavorable foreign currency exchange from our Asian operations. For the nine
months ending October 2, 1999, earnings before income taxes were up 5% or $150
thousand from the comparable period a year ago. The Metal Products Group
earnings were up 1% compared to the third quarter of 1998 and increased 30% or
$572 thousand though the first nine months of 1999 over the same period a year
ago due to improved product mix and greater utilization of the production
facilities.
Liquidity and Sources of Capital
Cash flows from operations were $6.0 million for the first nine months of 1999
versus $5.3 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 third quarter of
1999 was sufficient to fund capital expenditures and dividend payments.
Additions to property, plant and equipment were $3.2 million during the first
nine months of 1999 versus $2.6 million for the comparable period a year ago.
Total 1999 capital expenditures will exceed the annual expected $2.5 million
level of depreciation. The increase in capital expenditures was the result of
additional manufacturing capacity added at the Frazer & Jones division to
accommodate additional contract casting business.
Total inventory at the end of the third quarter of 1999 of $12.4 million was
$402 thousand lower than year end 1998. The inventory turnover ratio of 4.5
turns has improved compared to the year end 1998 of 3.9 turns and the end of
the third quarter of 1998 of 4.2 turns. Accounts receivable increased by $539
thousand over the third quarter of 1998 and $1.4 million from year end 1998,
primarily due to increased sales growth. The average day's sales in accounts
receivable for the third quarter of 1999 was 50 days compared to the third
quarter of 1998 of 48 days.
The Company's strong balance sheet and internal cash flow generation should be
sufficient to cover future working capital requirements.
-9-
<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. During the third quarter of
1999, the United States District Court approved the agreement with the Federal
EPA. All matters relating to claims made by the United States have been
resolved and did not have any material adverse effect on the Company's
financial condition, cash flows or results of operations.
The Company has completed the assessment, remediation and testing phases of
its Year 2000 compliance program of its information technology (IT) and other
non-IT systems. 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 $180,000 has
been spent through the third 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.
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,
currency exchange gains or losses are generally 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.
-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 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 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 concerning their remaining liability with respect to
the Laurel Park and Beacon Heights landfills. On September 28, 1999, the United
States District Court approved the consent decree. Accordingly, there are no
longer any pending actions or claims involving the Registrant with respect to
these landfills.
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.
-12-
<PAGE>
ITEM 2 CHANGES IN SECURITIES
- ------ ---------------------
None
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: November 12, 1999 /s/Leonard F. Leganza
----------------- ---------------------
Leonard F. Leganza
President and Chief Executive Officer
DATE: November 12, 1999 /s/John L. Sullivan, III
----------------- ------------------------
John L. Sullivan, III
Treasurer/Controller
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-1-2000
<PERIOD-END> OCT-2-1999
<CASH> 6,611,212
<SECURITIES> 0
<RECEIVABLES> 9,936,024
<ALLOWANCES> 540,000
<INVENTORY> 12,375,633
<CURRENT-ASSETS> 31,550,932
<PP&E> 30,515,615
<DEPRECIATION> 14,140,069
<TOTAL-ASSETS> 54,457,596
<CURRENT-LIABILITIES> 8,368,111
<BONDS> 0
0
0
<COMMON> 1,328,308
<OTHER-SE> 30,709,456
<TOTAL-LIABILITY-AND-EQUITY> 54,457,596
<SALES> 57,654,997
<TOTAL-REVENUES> 57,872,606
<CGS> 41,601,188
<TOTAL-COSTS> 41,601,188
<OTHER-EXPENSES> 8,655,561
<LOSS-PROVISION> 99,828
<INTEREST-EXPENSE> 478,215
<INCOME-PRETAX> 7,037,814
<INCOME-TAX> 2,325,358
<INCOME-CONTINUING> 4,712,456
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,712,456
<EPS-BASIC> 1.30
<EPS-DILUTED> 1.26
</TABLE>
