SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended January 1, 2000 Commission File Number 0-599
THE EASTERN COMPANY
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(Exact name of registrant as specified in its charter)
Connecticut 06-0330020
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
112 Bridge Street, Naugatuck, Connecticut 06770
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(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203)729-2255
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock No Par Value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [ x ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 26, 2000.
Common Stock, No Par Value - $55,766,459
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Class Outstanding at February 26, 2000
------------------------ ----------------------------------
Common Stock, No Par Value 3,656,817
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 annual report to shareholders (fiscal year ended January
1, 2000) are incorporated by reference into Parts I and II.
Portions of the annual proxy statement dated March 15, 2000 are incorporated
by reference into Part III.
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PART I
ITEM 1 BUSINESS
(a) General Development of Business
The Eastern Company (the Company) was incorporated under the laws of
the State of Connecticut in October, 1912, succeeding a co-partnership
established in October, 1858.
The business of the Company is the manufacture and sale of industrial
hardware, custom locks and metal products from four U.S. operations and four
wholly-owned foreign subsidiaries. The Company maintains seven physical
locations.
RECENT DEVELOPMENT
Effective February 1, 2000, the Company acquired all the issued and
outstanding Common Stock of Ashtabula Industrial Hardware Co. (Ashtabula),
which will be integrated into the Company's Industrial Hardware Group.
Ashtabula produces proprietary hardware for school and courtesy bus doors. The
cost of the acquisition, which is being accounted for by the purchase method,
was approximately $1.7 million. The operating results of Ashtabula will be
included in the Company's consolidated operating results from the date of
acquisition. The effect of this acquisition on the Company's consolidated
financial position and operating results is not material.
(b) Business Segment Information
Financial Information about business segments is incorporated
herein by reference from pages 19 and 20 of the Company's 1999 Annual
Report to Shareholders captioned "Reportable Segments".
(c) Narrative Description of Business
The Company operates in three business segments: The Industrial
Hardware Group, The Custom Locks Group and The Metal Products Group.
The Industrial Hardware Group, which includes Eberhard
Manufacturing, Eberhard Hardware Manufacturing Ltd. and Sesamee
Mexicana, S.A. de C.V., designs, manufactures and markets a diverse
product line of locking bars and hinges for use in the truck trailer
industry and a variety of latches, handles and hinges for use on sport
utility vehicles, pickup trucks, utility and service vehicle bodies. In
addition, the Industrial Hardware Group produces a wide selection of
latching mechanisms, fasteners and other closure devices which are used
to secure the doors and access panels in various industries including
the industrial and commercial-electronic cabinetry markets. The
recently acquired Ashtabula Industrial Hardware Co. will be
consolidated into our Eberhard Division within this segment.
Typical products include passenger restraint locks, slam and draw
latches, dead bolt latches, compression latches, cam-type vehicular
locks and hinges. The products are sold to original equipment
manufacturers or distributors through a distribution channel consisting
of in-house salesmen, outside sales representatives and distributors.
Sales efforts are concentrated through in-house sales personnel where
greater representation of our diverse product lines can be promoted
across a variety of markets.
The Industrial Hardware Group sells its products to many diverse
markets. During 1999, several new vehicular hardware products were
introduced for the truck body and industrial equipment markets through
an aggressive product development program. The acquisition of Ashtabula
will enable this group to enter into the school and courtesy bus
hardware markets during 2000. Although service, quality and price are
major criteria for servicing these markets, the continued introduction
of new and improved product designs and acquisition of synergistic
product lines is vital for maintaining and increasing market share.
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The Custom Locks Group, consisting of Illinois Lock, CCL Security
Products, World Lock Co. Ltd. and World Security Industries Co. Ltd.,
produces a broad line of mechanical and electrical-switch locks which
operate either by key or combination. Locks are manufactured and
marketed to a broad range of industries, including: the computer
industry, gaming industry, businesses that manufacture coin operated
machinery and high end office furniture, laboratory equipment industry,
firearms industry and soft-sided luggage industry.
The products sold include cabinet locks, cam locks, electric
switch locks, tubular key locks and combination padlocks. Many of the
locks are sold under the names DUO, X-STATIC(R), EXCALIBUR(TM),
WARLOCK(TM), LITE LOCK(TM), SESAMEE(R), PRESTOLOCK(R), GUN BLOK(R),
TRIGGER BLOK(TM) and CABLELOCK(TM). These products are sold to original
equipment manufacturers, distributors and locksmiths through a
distribution channel consisting of in-house salesmen, outside sales
representatives and distributors. Sales efforts are concentrated
through in-house sales personnel where greater representation of our
diverse product lines can be promoted across a variety of markets.
This Custom Locks Group continuously seeks new markets where it
can offer competitive pricing and provide customers with engineered
solutions to their security application needs.
The Metal Products Group, based at the Company's Frazer & Jones
facility, is the largest and most efficient producer of expansion
shells for use in supporting the roofs of underground mines. This
segment also manufactures specialty castings, which serve the
construction, automotive and electrical industries.
Typical products include mine roof support anchors, steering
column yokes, couplers for braking systems, adjustable clamps for
construction and fittings for electrical installations. Mine roof
support anchors are sold to distributors and directly to mines, while
specialty castings are sold to original equipment manufacturers.
Although there continues to be a need for the highly engineered
proprietary mine roof support products produced by this segment of the
Company, changes in mining technology continue to decrease demand for
mechanical anchoring systems. While mine roof supports continue to be a
significant portion of this segment's business, additional business is
being obtained in the contract castings market to offset further
declines.
Raw materials and outside services were readily available from domestic
sources for all of the Company's segments during 1999 and are expected to be
readily available in 2000 and the foreseeable future.
Patent protection for the various product lines within the Company is
limited, but is sufficient to enhance competitive positions. Foreign sales and
license agreements are not significant.
None of the Company's business segments are seasonal.
The Company, across all its business segments, has increased its
emphasis on customer service by fulfilling the rapid delivery requirements of
our customers. As a result, investments in additional inventories are made on
a selective basis.
Customer lists for all business segments are broad-based geographically
and by markets and sales are not highly concentrated by customer. No customer
accounted for 10% or more of the Company's consolidated revenue for the year
ended January 1, 2000.
The dollar amount of the level of orders in the Company is believed to
be firm as of fiscal year ended January 1, 2000 at $9,031,000, as compared to
$8,355,000 at January 2, 1999.
The Company encounters competition in all of its business segments. The
Company has been successful in dealing with this competition by offering high
quality diversified products with the flexibility of meeting customer needs on
a timely basis. This is accomplished by effectively using internal engineering
resources, cost effective manufacturing capabilities, expanding product lines
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through product development and acquisitions, national distributors and
in-house sales personnel targeted to niche markets.
Research and development expenditures in 1999 were $72,000 and
represented less than 1% of gross revenues. In 1998 and 1997 they were
$132,000 and $84,000, respectively. The projects involved mine roof fasteners
and other malleable iron products, transportation and industrial hardware and
locking device hardware.
The average number of employees in 1999 was 525.
(d) Financial Information about Foreign and Domestic Operations and
Export Sales
The Company includes four separate operating divisions located within
the United States, a wholly-owned Canadian subsidiary located in Tillsonburg,
Ontario, Canada, a wholly-owned Taiwanese subsidiary located in Taipei,
Taiwan, a wholly-owned subsidiary in Hong Kong and a wholly-owned subsidiary
in Mexico.
The Canadian, Taiwanese, Hong Kong and Mexican subsidiaries' revenue
and assets are not significant. Substantially all other revenues are derived
from customers located in the United States.
Financial information about foreign and domestic operations' net sales
and identifiable assets found on page 20 of the Annual Report to Shareholders
for the year ended January 1, 2000 is incorporated herein by reference.
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ITEM 2 PROPERTIES
The corporate office of the Registrant is located in Naugatuck,
Connecticut in a two story 8,000 square foot administrative building on 3.2
acres of land.
All of the Company's properties are owned or leased and are adequate to
satisfy current requirements. All of the Registrant's properties have the
necessary flexibility to cover any long-term expansion requirements.
The Industrial Hardware Group includes the following:
The Eberhard Manufacturing Division in Strongsville, Ohio owns 9.6
acres of land and a building containing 95,000 square feet, located in an
industrial park. The building is steel frame, one-story, having curtain walls
of brick, glass and insulated steel panel. The building has one high bay in
which two units of automated warehousing are located. This facility will be
expanded during 2000 to provide additional capacity for the Ashtabula
acquisition and to accommodate additional business in the transportation and
industrial hardware industries.
The Eberhard Hardware Manufacturing, Ltd., a wholly-owned Canadian
subsidiary in Tillsonburg, Ontario, owns 4.4 acres of land and a building
containing 31,000 square feet in an industrial park. The building is steel
frame, one-story, having curtain walls of brick, glass and insulated steel
panel. It is particularly suited for light fabrication, assembly and
warehousing and is adequate for long-term expansion requirements.
The Sesamee Mexicana subsidiary is leasing 1,950 square feet of a block
building located in an industrial park in Lerma, Mexico on an open-end basis.
The Custom Locks Group includes the following:
The Illinois Lock Division leases land and a building containing 44,000
square feet in Wheeling, Illinois. The building is brick and located in an
industrial park. A five-year lease option was exercised under favorable terms,
effective July 1, 1995 and expiring June 30, 2000, with an option to renew for
an additional five-year period under similar terms.
The CCL Security Products Division is located in New Britain,
Connecticut where 26,000 square feet of a building is leased. The four storied
building is of brick and stone construction. A monthly lease is in place.
The World Lock Co. Ltd. subsidiary leases a brick and concrete building
containing 7,870 square feet and is located in Taipei, Taiwan.
The Metal Products Group consists of:
The Frazer and Jones Division in Solvay, New York, owns 17.9 acres of
land and buildings containing 205,000 square feet constructed for foundry use.
These facilities are well adapted to handle the division's current and future
casting requirements.
All owned properties are free and clear of any encumbrances.
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ITEM 3 LEGAL PROCEEDINGS
The Registrant was a party to litigation concerning certain
environmental claims relating to the Beacon Heights and Laurel Park landfills.
On September 28, 1999, the United States District Court approved a consent
decree relating to the landfills. Accordingly, there are no longer any pending
actions or claims involving the Registrant with respect to these landfills. For
information about the litigation, see Part II, Item 1 "Legal Proceedings" of the
Registrants Form 10-Q for the quarterly period ended October 2, 1999.
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.
ITEM 4 SUBMISSION OF MATTERS TO SHAREHOLDERS
None
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The portion of the 1999 Annual Report to Shareholders appearing on the
inside cover under the heading "Common Stock Market Prices and Dividends" and
on page 1 under the heading "Financial Highlights" is incorporated herein
by reference.
ITEM 6 SELECTED FINANCIAL DATA
The financial data on page 24 of the 1999 Annual Report to
Shareholders, captioned "1999 - 1995 Summary of Operations" is incorporated
herein by reference.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following portions of the 1999 Annual Report to Shareholders are
incorporated herein by reference:
(a) All of the material in the President's Letter found on pages 2
and 3 of the Annual Report.
(b) All of the material on pages 21 through 23 under the heading
"Management's Discussion and Analysis of Financial Condition and
Results of Operations".
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This portion of the 1999 Annual Report to Shareholders appearing on
page 23 under the heading "Market Risk Disclosures" is incorporated herein
by reference.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Registrant and its
subsidiaries and report of independent auditors included on pages 7 through 20
of the Annual Report to Shareholders for the fiscal year ended January 1, 2000
are incorporated herein by reference as follows:
(a) Consolidated Balance Sheets - January 1, 2000 and January 2, 1999
(b) Consolidated Statements of Income -- Fiscal years ended
January 1, 2000, January 2, 1999 and January 3, 1998.
(c) Consolidated Statements of Comprehensive Income -- Fiscal years
ended January 1, 2000, January 2, 1999, and January 3, 1998.
(d) Consolidated Statements of Shareholders' Equity -- Fiscal years
ended January 1, 2000, January 2, 1999 and January 3, 1998.
(e) Consolidated Statements of Cash Flows -- Fiscal years ended
January 1, 2000, January 2, 1999 and January 3, 1998.
(f) Notes to Consolidated Financial Statements.
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(g) Report of Ernst & Young LLP, Independent Auditors.
Quarterly Results of Operations are incorporated herein by reference
from the following portions of the 1999 Annual Report to Shareholders:
(a) The portion of the 1999 Annual Report to Shareholders appearing
on page 24 under the heading "Quarterly Results of Operations
(unaudited)" is incorporated herein by reference.
(b) Paragraphs 2, 3 and 4 under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations"
on page 21.
(c) Paragraphs on page 23 under the caption "Impact of Inflation and
Changing Prices."
There are incorporated herein by reference, the portions of the
Registrant's definitive proxy statement filed with the Commission pursuant to
Regulation 14A since the close of its fiscal year, which involve Stock
Options. This information appears on page 7, pages 9 and 10 and pages 12
through 14.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE>
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There are incorporated herein by reference the portions of the
Registrant's definitive proxy statement filed with the Commission pursuant to
Regulation 14A since the close of its fiscal year, which involve the election
of Directors, the information appearing on pages 3 and 4 of said proxy
statement, being the portion captioned "Item No. 1. Election of Directors" and
the information appearing on page 8 of said proxy statement, being the portion
captioned "Section 16(A) Beneficial Ownership reporting compliance." The
Registrant's only Executive Officers are Leonard F. Leganza, President and
Chief Executive Officer and John L. Sullivan III, Vice President and
Treasurer.
ITEM 11 EXECUTIVE COMPENSATION
There are incorporated herein by reference the portions of the
Registrant's definitive proxy statement filed with the Commission pursuant to
Regulation 14A since the close of its fiscal year, which involve executive
compensation, the information appearing on pages 9 through 14 of said proxy
statement.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) There are incorporated herein by reference the portions of the
Registrant's definitive proxy statement filed with the Commission
pursuant to Regulation 14A since the close of its fiscal year,
which involve the security ownership of certain beneficial
shareholders, the information appearing on pages 6 and 7 of said
proxy statement.
(b) There are incorporated herein by reference the portions of the
Registrant's definitive proxy statement filed with the
Commission pursuant to Regulation 14A since the close of its fiscal
year, which involve the security ownership of management, the
information appearing on pages 6 and 7, 9 and 10 and 12 and 13 of
said proxy statement.
(c) Changes in Control
Not Applicable.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Not applicable
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
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PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
1 and 2. The response to this portion of Item 14 is
submitted as a separate section of this report
appearing on pages 13 and 14.
3. Exhibits
(3) Restated Certificate of Incorporation
dated August 14, 1991 is incorporated by
reference to the Registrant's Annual Report
on Form 10-K for the fiscal year ended
December 28, 1991 and the Registrant's Form
8-K filed on February 13, 1991. Amended and
restated bylaws dated July 29, 1996 is
incorporated by reference to the
Registrant's Form 8-K filed on July 29,
1996.
(4) Rights Agreement entered into between
the Registrant and BankBoston N.A. dated as
of August 6, 1998 and Letter to all
shareholders of the Registrant, dated July
22, 1998 together with Press Release dated
July 22, 1998 describing the Registrant's
redemption of shareholders Purchase Rights
dated September 16, 1991 and the issuance of
a new Purchase Rights dividend distribution
are incorporated by reference to the
Registrant's Form 8-K filed on August 6,
1998.
(10)(a) Amendment to the Deferred
Compensation Agreement with Russell G.
McMillen dated May 1, 1988 is incorporated
by reference to Registrant's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1988. The Deferred Compensation
Agreement with Russell G. McMillen dated
October 28, 1980 and amended on March 27,
1986 is incorporated by reference to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended January 3, 1987.
(b) The Eastern Company 1989 Executive Stock
Incentive Plan effective as of April 26,
1989 incorporated by reference to the
Registrant's Form S-8 filed on June 21,
1989.
(c) The Eastern Company 1995 Executive Stock
Incentive Plan effective as of April 26,
1995 incorporated by reference to the
Registrant's Form S-8 filed on February 7,
1997.
(d) The Eastern Company Directors Fee
Program effective as of October 1, 1996
incorporated by reference to the
Registrant's Form S-8 filed on February 7,
1997, as amended by Amendment No.1 attached
hereto on page 16 and Amendment No. 2
attached hereto on page 17.
(e) The Eastern Company 1997 Directors Stock
Option Plan effective as of September 17,
1997 incorporated by reference to the
Registrant's Form S-8 filed on January 30,
1998, and Post-Effective Amendment No.1 to
the Registrants Form S-8 filed on March 2,
2000.
(f) Deferred Compensation Agreement dated
September 9, 1998 with Leonard F. Leganza is
incorporated by reference to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended January 2, 1999.
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(g) Supplemental Retirement Plan dated
September 9, 1998 with Leonard F. Leganza is
incorporated by reference to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended January 2, 1999.
(11) Statements re computation of per share
earnings are incorporated by reference on
pages 9 and 13 of the 1999 Annual Report to
Shareholders.
(13) 1999 Annual Report to Shareholders
attached hereto on page 18.
(21) List of subsidiaries as follows:
Eberhard Hardware Mfg. Ltd., a
private corporation organized under
the laws of the Province of Ontario,
Canada.
World Lock Co. Ltd., a private
corporation organized under the laws
of Taiwan (The Republic of China).
Sesamee Mexicana, Subsidiary, a
private corporation organized under
the laws of Mexico.
World Security Industries Co. Ltd.,
a private corporation organized
under the laws of Hong Kong.
(23) Consent of independent auditors
attached hereto on page 15.
(27) Financial Data Schedule attached
hereto beginning on page 46.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the last
quarter of the fiscal year ended January 1, 2000.
(c) The required Exhibits are listed in (a) 3. above.
(d) Financial statement schedules.
The response to this portion of Item 14 is submitted as a
separate section of this report beginning on page 14.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated March 29, 2000 THE EASTERN COMPANY
By /s/John L. Sullivan III
-----------------------
John L. Sullivan III
Vice President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Leonard F. Leganza March 29, 2000
-------------------------
Leonard F. Leganza
Director, President
and Chief Executive Officer
/s/ John W. Everets March 29, 2000
-------------------------
John W. Everets
Director
/s/ Charles W. Henry March 29, 2000
-------------------------
Charles W. Henry
Director
/s/ David C. Robinson March 29, 2000
-------------------------
David C. Robinson
Director
/s/ Donald S. Tuttle, III March 29, 2000
-------------------------
Donald S. Tuttle III
Director
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The Eastern Company and Subsidiaries
Form 10-K-Item 14 (a) (1) and (2)
Index to Financial Statements and Financial Statement Schedule
The following consolidated financial statements of The Eastern Company and
subsidiaries and report of independent auditors, included in the annual report
of the Registrant to its shareholders for the fiscal year ended January 1,
2000 are incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets - January 1, 2000 and January 2, 1999
Consolidated Statements of Income - Fiscal years ended January 1, 2000,
January 2, 1999 and January 3, 1998
Consolidated Statements of Comprehensive Income - Fiscal years ended
January 1, 2000, January 2, 1999 and January 3, 1998
Consolidated Statements of Shareholders' Equity - Fiscal years ended
January 1, 2000, January 2, 1999 and January 3, 1998
Consolidated Statements of Cash Flows - Fiscal years ended January 1,
2000, January 2, 1999 and January 3, 1998
Notes to Consolidated Financial Statements
The following financial statement schedule of The Eastern Company and
subsidiaries is included in Item 14 (d):
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are either not required
under the related instructions or are inapplicable, and therefore have been
omitted.
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The Eastern Company and Subsidiaries
Schedule II - Valuation and Qualifying accounts
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
Balance at Beginning ADDITIONS
Description of Period (1) (2)
Charged to Costs Charged to Other Deductions - Balance at End
and Expenses Accounts-Describe Describe of Period
---------------------------------- -------------------- ---------------- ----------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Fiscal year ended January 1, 2000:
Deducted from asset accounts:
Allowance for doubtful accounts $439,000 $88,212 $1,212 (a) $526,000
======== ======= ======== ========
Fiscal year ended January 2, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts $329,000 $136,304 $26,304 (a) $439,000
======== ======== ======= ========
Fiscal year ended January 3, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts $567,000 $365,779 $603,779 (a) $329,000
======== ======== ======== ========
<FN>
(a) Uncollectible accounts written off, net of recoveries
</FN>
</TABLE>
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Exhibit 23 (a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Eastern Company of our report dated February 1, 2000, included in the
1999 Annual Report to Shareholders of The Eastern Company.
Our audits also included the financial statement schedule of The Eastern
Company listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-29452) pertaining to The Eastern Company 1983 Stock
Option Plan, the Registration Statement (Form S-8 No. 2-86285) pertaining to
The Eastern Company 1989 Stock Option Plan, the Registration Statement (Form
S-8 No. 333-21349) pertaining to The Eastern Company 1995 Executive Stock
Incentive Plan, the Registration Statement (Form S-8 No. 333-21351) pertaining
to The Eastern Company Directors Fee Program, and the Registration Statement
(Form S-8 No. 333-45315) pertaining to The Eastern Company 1997 Directors
Stock Option Plan of our report dated February 1, 2000, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of The Eastern
Company.
Hartford, Connecticut /s/ERNST & YOUNG LLP
March 29, 2000
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AMENDMENT NO. 1 TO
THE EASTERN COMPANY DIRECTORS FEE PROGRAM
The Eastern Company Directors Fee Program (the "Program") is hereby
amended as follows, effective as of the date of adoption of this Amendment
No.1:
(1) Section 2(f) of the Program is amended to read as follows:
(f) Non-employee Director shall mean a director of The Eastern Company
who is not an employee of the Company or any affiliate of the
Company, and an emeritus director of The Eastern Company who is
not an employee of the Company or any affiliate of the Company.
(2) All section numbers and cross references thereto are appropriately
amended to effectuate the intention of the foregoing amendment.
Dated at Naugatuck, Connecticut this 28th day of April, 1999.
ATTEST: THE EASTERN COMPANY
/s/ Donald E. Whitmore, Jr. By /s/ Leonard F. Leganza
-------------------------- ----------------------
Donald E. Whitmore, Jr. Leonard F. Leganza
Its Secretary Its President
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AMENDMENT NO. 2 TO
THE EASTERN COMPANY DIRECTORS FEE PROGRAM
The Eastern Company Directors Fee Program (the "Program") is hereby
amended as follows:
(1) Effective as of January 1, 1998, Section 5(a) of the Program is
amended to read as follows:
(a) On or about the last day of each calendar year quarter, the
Company shall issue to each Non-employee Director a number of shares of
Eastern Common Stock equal to the Directors' Fees payable to the Non-employee
Director for services performed on or after the date of the last previous
issuance of shares of Eastern Common Stock under the Program and prior to the
fifteenth (15th) day of the last month of the calendar year quarter, divided
by the Fair Market Value of Eastern Common Stock as of the fifteenth (15th)
day of the last month of the calendar year quarter.
In addition, in the event a Non-employee Director becomes entitled to
Directors' Fees for services performed on or after the fifteenth (15th)day of
the last month of a calendar year quarter and on or prior to the last day of
such calendar year quarter, the number of shares of Eastern Common Stock
issuable to the Non-employee Director as a result of such services shall be
calculated on the basis of the Fair Market Value of Eastern Common Stock as
of the fifteenth (15th) day of the last month of such calendar year quarter,
but such shares shall be issued on or about the last day of the following
calendar year quarter.
(2) Effective as of January 1, 1998, Section 5(c) of the Program is
amended to read as follows:
(b) Fractional shares of Eastern Common Stock shall not be issued to a
Non-employee Director under the Program. In lieu of the issuance of a
fractional share of Eastern Common Stock, such fractional share will be
carried over and will be valued based on the Fair Market Value of Eastern
Common Stock as of the next succeeding date as of which shares of Eastern
Common Stock are valued under the Program. The value of such fractional share,
as so determined, will then be added to the Directors' Fees otherwise payable
on the basis of such Fair Market Value, and will be paid in shares of Eastern
Common Stock in accordance with the provisions of this Section 5.
(3) All section numbers and cross references thereto are appropriately
amended to effectuate the Intention of the foregoing amendments.
Dated at Naugatuck, Connecticut this 2nd day of February, 2000.
ATTEST: THE EASTERN COMPANY
/s/ Amanda Gordon By /s/ Leonard F. Leganza
----------------- ----------------------
Amanda Gordon Leonard F. Leganza
Its Assistant Secretary Its President
-17-
<PAGE>
The Eastern Company
ANNUAL REPORT
1999
[FRONT COVER]
-18-
<PAGE>
[INSIDE FRONT COVER]
The Eastern Company
The Eastern Company is a 142 year old manufacturer of industrial hardware,
custom locks and metal products--with seven operating locations in the USA,
Canada, Mexico, Taiwan and China. 1999 marked 59 years of uninterrupted dividend
payments and twelve consecutive quarters of increased earnings.
[PIE CHARTS USED TO ILLUSTRATE SALES AND EARNINGS]
SALES
38% Industrial hardware
31% Metal products
31% Custom locks
EARNINGS
43% Industrial hardware
25% Metal products
32% Custom locks
CASH DIVIDEND RATES
AND STOCK SPLITS
1999 -- 10% increase,
3 for 2 split
1998 -- 15% increase
1997 -- 13% increase
1992 -- 9.5% increase
1991 -- 12.5% increase,
50% stock dividend
1988 -- 12% increase,
2 for 1 split
COMMON STOCK MARKET PRICES AND DIVIDENDS
The Company's Common Stock is traded on the American Stock Exchange (ticker
symbol EML). High and low stock prices and dividends for the last two years
were:
<TABLE>
<CAPTION>
1999 1998
------------------------------------- ---------------------------------------
Sales Price Cash Dividends Sales Price Cash Dividends
Quarter High Low Declared High Low Declared
------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First $17 1/4 $14 11/16 $.10 $16 15/16 12 1/2 $.09
Second 18 1/4 14 .11 19 15 15/16 .10
Third 19 1/2 15 3/4 .11 18 15/16 13 7/16 .10
Fourth 16 7/16 14 3/4 .11 17 3/4 13 11/16 .10
The above figures are adjusted to reflect a 3-for-2 stock split effective May
1999.
</TABLE>
-19-
<PAGE>
FINANCIAL HIGHLIGHTS
1999 1998*
Sales $74,678,420 $70,749,529
Income Before Income Taxes 9,894,011 8,723,467
Net Income 6,537,932 5,443,187
Income Per Share (basic) 1.80 1.49
Dividends Per Share .43 .39
Book Value Per Share 9.21 7.81
Working Capital Per Share 6.82 5.79
Capital Expenditures 3,690,157 4,396,641
Depreciation and Amortization 2,722,885 2,911,850
Number of Employees 525 511
Number of Stockholders 787 802
Average Shares Outstanding (basic) 3,626,001 3,645,360
*Per share data retroactively adjusted to reflect a 3-for-2 stock split
effective May 1999.
FINANCIAL RATIOS
1999 1998
Return on Investment 23% 19%
Income Before Taxes as a % of Sales 13% 12%
Net Income as a % of Sales 9% 8%
Sales per Employee $ 142,245 $ 138,453
Net Income per Employee $ 12,453 $ 10,652
Current Ratio 4.4 to 1 3.8 to 1
PAGE 1 OF ANNUAL REPORT
-20-
<PAGE>
The Eastern Company
To our Shareholders
Our company turned in another strong financial performance in 1999. We achieved
record sales and net income for the third year in a row, and improved a number
of key financial ratios. Sales increased by 6 percent to $74.7 million from
$70.7 million in 1998, while net earnings grew 20 percent to $6.5 million ($1.80
per basic share) from $5.4 million ($1.49 per basic share) in the previous year.
We also did well on two measurements of importance to shareholders. Our return
on shareholders' equity increased to 23 percent from 19 percent in 1998. And for
the three-year period ending with 1999, total return to shareholders averaged a
solid 24 percent per year--a figure that exceeds the total return for the Dow
Jones Industrial Index for the same period.
[EARNINGS PER SHARE CHART HERE]
1996 1997 1998 1999
---- ---- ---- ----
1st QTR ($0.05) $0.15 $0.34 $0.40
2nd QTR 0.09 0.20 0.36 0.44
3rd QTR 0.12 0.27 0.39 0.46
4th QTR 0.06 0.31 0.40 0.50
Last year's solid results were partly due to the strength of the diverse
industries we serve. Our key markets are in the transportation, security,
energy, electrical and electronics sectors, many of which have been--and are
expected to remain-- growth areas of our economy.
An important factor contributing to our favorable results was the performance of
the Eberhard Division, which is included in our Industrial Hardware Group.
Besides having a vigorous product development program that introduced several
new vehicular hardware products for the truck body and industrial equipment
markets, Eberhard also benefited in 1999 from productivity improvements and cost
cutting projects initiated over the past two years. We expect this division to
play an increasingly important role in Eastern's future growth as it takes
advantage of untapped opportunities in a broad range of new markets. Some of the
hardware products that we will pursue for these new markets will be similar to
our current core product lines while other products will represent a somewhat
different direction for us. We envision more substantial growth opportunities in
these new areas than in some of the more traditional markets we currently serve.
While our 1999 financial results reflect our short-term success in achieving
various financial goals, they are not the only criteria that should be used to
evaluate our company, for numbers often mean different things to different
people. A more important consideration is the progress we have made--and
continue to make--toward strengthening our position in industries and markets
that are fundamental to the current and future needs of our society.
PAGE 2 OF ANNUAL REPORT
-21-
<PAGE>
Our three business segments all design, manufacture and market products for
original equipment manufacturers in a variety of industries. And our product
lines--which range from specialty locks and latches to couplings, clamps and
fittings to proprietary metal products--all have broad applications in machinery
and equipment used throughout the economy. In many of these product areas, we
are the low-cost producer. We also put a high priority on being able to provide
our customers with product design and engineering services--something that
customers desire but is not usually offered by our industry. Because of all
these factors, we believe that Eastern remains favorably positioned for
continuing growth. Moreover, Eastern is a sound company with a solid earnings
record and a strong balance sheet. This will enable us to take advantage of
growth opportunities, both through internal expansion and through acquisitions.
For example, Eastern recently acquired the Ashtabula Industrial Hardware Co. in
Ashtabula, OH, the leading producer of proprietary hardware and activating
mechanisms for school and courtesy bus doors. These new products are a natural
adjunct to Eberhard's line of vehicular hardware, and we expect them to be a
source of increasing revenue as this niche market grows. All three goals will
contribute to maximizing shareholder value, which continues to be our foremost
long-term priority. I am optimistic that the year 2000 will be another solid
year for our company. I thank our shareholders for their support and confidence,
and our employees and directors for their dedication and hard work.
/s/Leonard F. Leganza
Leonard F. Leganza
President and Chief Executive Officer
Year 2000 Goals
Management will focus on the following basic objectives in the coming year:
Continue to improve on financial and operating fundamentals-- particularly sales
and earnings, return on investment, cash flow and new product development.
Sustain internal growth by developing new products for our traditional markets
and using our strong product design abilities to enter allied markets.
Pursue strategic acquisitions, which often lead to faster growth than does
internal expansion. Such initiatives must fit with the company's overall
marketing and manufacturing plans besides being accretive to earnings.
[PHOTO OF SCHOOL BUS HERE]
A recent acquisition by Eastern will enable our Eberhard division to enter into
the school bus hardware market.
PAGE 3 OF ANNUAL REPORT
-22-
<PAGE>
The Eastern Company
The vast majority of goods, both consumer and industrial, are now transported by
trucks along our highways. Eastern Company's Eberhard Division (located in
Cleveland, OH, and Ontario, Canada) is one of the country's leading designers
and producers of latches, locking devices, hinges and other security hardware
for the trucking industry. Whether it be for a giant trailer truck, a moving
van, a hospital van or a school bus, Eberhard custom security hardware is
usually specified. Eberhard also manufactures locks, latches and hardware for
off-road construction and farming vehicles; for other types of heavy equipment;
and for pickup trucks and sport utility vehicles, a market that has been growing
rapidly.
Eberhard's broad line of security hardware also is used throughout the rest of
the country's industrial sector. Eberhard latches and locking mechanisms secure
the housings, access panels and doors of numerous types of equipment and
controls. Many of these security products have considerable growth potential in
other market areas that we have targeted, such as bus and boat manufacturing.
INDUSTRIAL HARDWARE
- --------------------
passenger restraint locks
slam & draw latches
dead bolt latches
compression latches
cam-type vehicular locks
hinges
Sales 38%
PAGE 4 OF ANNUAL REPORT
-23-
<PAGE>
In recent years, growing concern about the security and privacy of individuals
and businesses has significantly increased the demand for specialty locks. It is
this niche market that Eastern Company addresses through its Illinois Lock
(Wheeling, IL) and CCL Security Products (New Britain, CT) divisions as well as
through its two operating locations in China and Taiwan.
To meet the ever-changing demand for new and better locking solutions, these
four operations design and produce a broad line of mechanical and electrical-
switch locks -- both combination and key-activated. Our custom locks have
hundreds of diverse applications -- on vending and gaming machines, on computers
and other electronic equipment, on office and laboratory cabinets, on coin boxes
at laundromates, in luggage, on motorcycles and in many other types of equipment
we encounter every day.
CUSTOM LOCKS
- ------------
cabinet locks
cam locks
electric switch locks
tubular key locks
combination padlocks
Sales 31%
PAGE 5 OF ANNUAL REPORT
-24-
<PAGE>
The Eastern Company
Our Frazer & Jones Division has become one of the country's most efficient and
automated producers of small-size castings. For decades, this operation, which
is located in Syracuse, NY, has been the dominant producer of proprietary metal
anchoring devices that help support the roofs of underground coal mines in North
America. Coal constitutes by far the largest portion of the fossil fuel reserves
in the United States and is currently being consumed at a record rate. Although
underground coal mining activity can fluctuate due to weather patterns and
environmental issues as well as the effect of alternate mining processes, it
remains a vital part of the economy. We expect it to continue to account for an
important part of Frazer & Jones's revenue.
A growing share of the division's output consists of metal castings produced for
industrial companies that represent major sectors of the economy. Typical
applications are couplers for brake systems on railroad cars, adjustable clamps
and gas fittings used in the construction industry, guy hooks and beam clamps
for the electrical industry and steering column parts for automobiles.
METAL PRODUCTS
- --------------
mine roof support anchors
steering column yokes
couplers for braking systems
adjustable clamps for construction
fittings for electrical installations
Sales 31%
PAGE 6 OF ANNUAL REPORT
-25-
<PAGE>
REPORT OF ERNST & YOUNG LLP,
Independent Auditors
THE BOARD OF DIRECTORS
THE EASTERN COMPANY
We have audited the accompanying consolidated balance sheets of The Eastern
Company as of January 1, 2000 and January 2, 1999, and the related consolidated
statements of income, comprehensive income, shareholders' equity, and cash flows
for each of the three years in the period ended January 1, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Eastern
Company at January 1, 2000 and January 2, 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended January 1, 2000, in conformity with accounting principles generally
accepted in the United States.
/s/Ernst & Young LLP
Hartford, Connecticut
February 1, 2000
PAGE 7 OF ANNUAL REPORT
-26-
<PAGE>
The Eastern Company
CONSOLIDATED BALANCE SHEETS
January 1, 2000 and January 2, 1999
<TABLE>
<CAPTION>
ASSETS 1999 1998
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 5,940,190 $ 4,789,901
Accounts receivable, less allowances of $526,000 in 1999 and $439,000 in 1998 9,321,653 8,572,700
Inventories:
Raw materials and component parts 5,292,595 4,902,822
Work in process 4,595,132 3,762,179
Finished goods 4,152,536 4,113,109
---------- ----------
14,040,263 12,778,110
Prepaid expenses and other 1,465,606 1,412,683
Deferred income taxes 1,179,900 1,182,300
---------- ----------
Total Current Assets 31,947,612 28,735,694
Property, Plant and Equipment
Land 215,925 221,854
Building 5,653,078 4,402,340
Machinery and equipment 23,255,830 22,716,877
Accumulated depreciation (12,759,995) (12,307,918)
----------- -----------
16,364,838 15,033,153
Other Assets
Goodwill, less accumulated amortization of $38,088 in 1999 and $35,166 in 1998 7,023 9,945
Patents, technology, licenses and trademarks, less accumulated amortization
of $1,688,861 in 1999 and $1,397,648 in 1998 1,585,513 1,704,369
Prepaid pension cost 4,980,689 4,567,282
Other assets 8,717 21,272
---------- ----------
6,581,942 6,302,868
---------- ----------
$ 54,894,392 $ 50,071,715
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 3,467,058 $ 3,015,259
Accrued compensation 1,903,804 2,057,235
Other accrued expenses 1,570,009 2,469,480
Current portion of long-term debt 272,367 72,878
---------- ----------
Total Current Liabilities 7,213,238 7,614,852
Deferred income taxes 2,927,000 2,546,200
Long-term debt 8,565,027 8,551,512
Accrued postretirement benefits 2,789,314 2,873,249
Shareholders' Equity
Voting Preferred Stock, no par value: Authorized and unissued: 1,000,000 shares
Nonvoting Preferred Stock, no par value: Authorized and unissued: 1,000,000 shares
Common Stock, no par value:
Authorized: 25,000,000 shares
Issued: 3,647,942 shares in 1999 and 3,632,663 shares in 1998;
excluding shares held in treasury of 1,621,572 in 1999 and 1,572,716 in 1998 1,154,147 1,465,360
Retained earnings 33,175,227 28,210,340
Unearned compensation (211,406) (359,531)
Accumulated other comprehensive loss-currency translation (718,155) (830,267)
---------- ----------
Total Shareholders' Equity 33,399,813 28,485,902
---------- ----------
$ 54,894,392 $ 50,071,715
============== ==============
</TABLE>
See notes to consolidated financial statements.
PAGE 8 OF ANNUAL REPORT
-27-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Years Ended January 1, 2000, January 2, 1999 and January 3, 1998
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net sales $ 74,678,420 $ 70,749,529 $ 67,331,422
Other income 296,985 181,466 139,116
---------- ---------- ----------
74,975,405 70,930,995 67,470,538
Costs and expenses
Cost of products sold 52,459,895 49,469,844 48,779,527
Selling and administrative 11,975,508 12,188,613 12,586,893
Interest 645,991 549,071 296,592
---------- ---------- ----------
65,081,394 62,207,528 61,663,012
---------- ---------- ----------
Income before income taxes 9,894,011 8,723,467 5,807,526
Income taxes 3,356,079 3,280,280 2,084,996
---------- ---------- ----------
Net income $ 6,537,932 $ 5,443,187 $ 3,722,530
============= ============= ==============
Earnings per Share
Basic $ 1.80 $ 1.49 $ .93
Diluted $ 1.75 $ 1.43 $ .92
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
Fiscal Years Ended January 1, 2000, January 2, 1999 and January 3, 1998
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net income $ 6,537,932 $ 5,443,187 $ 3,722,530
Other comprehensive gain/(loss) - Currency translation 112,112 (267,056) (80,148)
---------- ----------
Comprehensive income $ 6,650,044 $ 5,176,131 $ 3,642,382
============= =============
</TABLE>
See notes to consolidated financial statements.
PAGE 9 OF ANNUAL REPORT
-28-
<PAGE>
The Eastern Company
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Fiscal Years Ended January 1, 2000, January 2, 1999 and January 3, 1998
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Common Retained Unearned Loss - Currency
Stock Earnings Compensation Translation
<S> <C> <C> <C> <C>
Balances at December 28, 1996 $ 8,272,614 $ 21,765,893 $ (200,938) $ (483,063)
Net income -- 3,722,530 -- --
Cash dividends declared, $.32 per share -- (1,267,529) -- --
Purchase of 331,190 shares of Common Stock
for treasury (3,421,825) -- -- --
Issuance of 105,439 shares of Common Stock
upon the exercise of stock options 721,656 -- -- --
Issuance of 7,313 shares of Common Stock
for director fees 75,201 -- -- --
Issuance of 33,750 shares of Common Stock
for restricted stock awards 405,469 -- (405,469) --
11,250 shares of Common Stock earned under
restricted stock award program 25,312 -- 113,438 --
Currency translation adjustment -- -- -- (80,148)
---------- ---------- ---------- ----------
Balances at January 3, 1998 6,078,427 24,220,894 (492,969) (563,211)
Net income -- 5,443,187 -- --
Cash dividends declared, $.39 per share -- (1,429,474)
Redemption of stock rights -- (24,267) -- --
Purchase of 325,046 shares of Common Stock
for treasury (5,455,231) -- -- --
Issuance of 58,875 shares of Common Stock
upon the exercise of stock options 570,591 -- -- --
Issuance of 5,449 shares of Common Stock
for director fees 85,817 -- -- --
Issuance of 3,750 shares of Common Stock
for restricted stock awards 55,937 -- (55,937) --
18,750 shares of Common Stock earned
under restricted stock award program 129,819 -- 189,375 --
Currency translation adjustment -- -- -- (267,056)
---------- ---------- ---------- ----------
Balances at January 2, 1999 1,465,360 28,210,340 (359,531) (830,267)
Net income -- 6,537,932 -- --
Cash dividends declared, $.43 per share -- (1,573,045) -- --
Purchase of 48,857 shares of Common Stock
for treasury (783,260) -- -- --
Issuance of 69,825 shares of Common Stock
upon the exercise of stock options 538,705 -- -- --
Issuance of 5,561 shares of Common Stock
for director fees 81,467 -- -- --
11,250 shares of Common Stock cancelled under
restricted stock award program (148,125) -- 148,125 --
Currency translation adjustment -- -- -- 112,112
---------- ---------- ---------- ----------
Balances at January 1, 2000 $ 1,154,147 $ 33,175,227 $ (211,406) $ (718,155)
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
PAGE 10 OF ANNUAL REPORT
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<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended January 1, 2000, January 2, 1999 and January 3, 1998
<TABLE>
<CAPTION>
1999 1998 1997
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income $ 6,537,932 $ 5,443,187 $ 3,722,530
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,722,885 2,911,850 2,978,250
Loss (gain) on sales of equipment and other assets 1,129 (86,872) (4,618)
Provision for doubtful accounts 87,808 136,304 370,755
Deferred income taxes 383,200 (101,600) (106,300)
Issuance of Common Stock for directors' fees 81,467 85,817 75,201
Compensation related to earned contingent
shares of Common Stock -- 319,194 138,750
Changes in operating assets and liabilities:
Accounts receivable (782,864) 375,957 (2,181,557)
Inventories (1,153,634) (548,041) (1,612,166)
Prepaid expenses and other (47,657) (28,788) (358,019)
Prepaid pension cost (413,407) (349,677) (200,206)
Other assets (200,028) (69,144) (313,827)
Accounts payable 415,737 (460,777) 1,557,083
Accrued compensation (162,928) 649,745 576,064
Other accrued expenses (1,064,785) (26,104) 1,546,392
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,404,855 8,251,051 6,188,332
INVESTING ACTIVITIES
Purchases of property, plant and equipment (3,690,157) (4,396,641) (2,230,113)
Proceeds from sales of equipment and other assets 7,538 301,996 54,497
---------- ---------- ----------
Net cash used by investing activities (3,682,619) (4,094,645) (2,175,616)
FINANCING ACTIVITIES
Proceeds from line of credit -- 5,000,000 2,000,000
Payments on line of credit -- -- (2,000,000)
Proceeds from issuance of long-term debt 2,471,870 67,120 --
Principal payments on long-term debt (2,265,721) (159,114) (116,831)
Proceeds from sales of Common Stock 538,705 570,591 721,656
Purchases of Common Stock for treasury (783,260) (5,455,231) (3,421,825)
Redemption of stock rights -- (24,267) --
Dividends paid (1,573,045) (1,429,474) (1,267,529)
---------- ---------- ----------
NET CASH USED BY FINANCING ACTIVITIEs (1,611,451) (1,430,375) (4,084,529)
Effect of exchange rate changes on cash $ 39,504 $ (47,419) $ (85,929)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,150,289 2,678,612 (157,742)
Cash and cash equivalents at beginning of year 4,789,901 2,111,289 2,269,031
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,940,190 $ 4,789,901 $ 2,111,289
============== ============== =============
</TABLE>
See notes to consolidated financial statements.
PAGE 11 OF ANNUAL REPORT
-30-
<PAGE>
The Eastern Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS
The operations of The Eastern Company (the Company) consist of three business
segments. The industrial hardware segment 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 type equipment. The
custom locks segment manufactures and markets a broad range of locks for
traditional general purpose security applications. This segment also produces
specialized locks for firearms, soft luggage, coin-operated vending and gaming
equipment and electric and computer peripheral components. The metal products
segment consists of a foundry which produces anchoring devices used in
supporting the roofs of underground coal mines. This segment also manufactures
specialty products which serve the construction, automotive and electrical
industries.
Sales are made to customers primarily in North America. Revenue from sales
transactions is recognized at the point of shipment. Ongoing credit evaluations
are made of customers for which collateral is generally not required. Allowances
for credit losses are provided; such losses have been within management's
expectations.
2. ACCOUNTING POLICIES
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FISCAL YEAR
The Company's year ends on the Saturday nearest to December 31.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All intercompany accounts and
transactions are eliminated.
FOREIGN CURRENCY TRANSLATION
For foreign operations, balance sheet accounts are translated at the current
year-end exchange rate; income statement accounts are translated at the average
exchange rate for the year. Resulting translation adjustments are made directly
to a separate component of shareholders' equity--"Accumulated other
comprehensive loss-currency translation". Foreign currency exchange gains and
losses are not material in any year.
CASH EQUIVALENTS
Highly liquid investments purchased with a maturity of three months or less are
considered cash equivalents.
INVENTORIES
Inventories are valued generally at the lower of cost, determined by the last-
in, first-out (LIFO) method, or market. Current cost exceeded the LIFO carrying
value by approximately $2,827,000 at January 1, 2000 and $2,769,000 at January
2, 1999.
PROPERTY, PLANT AND EQUIPMENT AND RELATED DEPRECIATION
Property, plant and equipment (including equipment under a capital lease) are
stated on the basis of cost. Depreciation ($2,387,077 in 1999, $2,539,547 in
1998 and $2,597,806 in 1997) is computed generally using the straight-line
method based on the estimated useful lives of the assets.
INTANGIBLES
Patents are amortized using the straight-line method over the lives of the
patents. Technology and licenses are generally amortized on a straight-line
basis over periods ranging from five to 17 years. Goodwill is being amortized
over periods ranging from five to 20 years.
IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the carrying value of
long-lived assets, including intangible assets, may be impaired, an evaluation
is performed to determine if a write-down is required. No events or changes in
circumstances have occurred that indicate that the carrying amount of long-lived
assets held and used may not be recovered.
PAGE 12 OF ANNUAL REPORT
-31-
<PAGE>
PRODUCT DEVELOPMENT COSTS
Product development costs, charged to expense as incurred, were $71,867 in 1999;
$131,857 in 1998 and $84,290 in 1997.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising costs were
$491,008 in 1999, $421,018 in 1998 and $442,965 in 1997.
STOCK SPLIT AND EARNINGS PER SHARE
On March 12, 1999, the Company announced a three-for-two stock split of the
Company's shares of Common Stock with any fractional shares created payable
in cash. In connection therewith the Company's Common Stock purchase rights
(see note 5) 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.
The denominators used in the earnings per share computations follow:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
BASIC:
Weighted average shares outstanding 3,644,751 3,675,360 4,032,272
Contingent shares outstanding (18,750) (30,000) (45,000)
------- ------- -------
Denominator for basic earnings per share 3,626,001 3,645,360 3,987,272
========= ========= =========
DILUTED:
Weighted average shares outstanding 3,644,751 3,675,360 4,032,272
Contingent shares outstanding (18,750) (30,000) (45,000)
Dilutive stock options 112,898 153,942 59,730
------- ------- ------
Denominator for diluted earnings per share 3,738,899 3,799,302 4,047,002
========= ========= =========
</TABLE>
3. CONTINGENCIES
In 1999, all litigation relating to environmental matters was settled without
any material impact on financial condition, operating results or cash flows. The
aggregate provision for losses related to these and other contingencies arising
in the ordinary course of business was not material to operating results for any
year presented. The aggregate liability for all contingencies is approximately
$100,000 and $450,000 as of January 1, 2000 and January 2, 1999, respectively,
and is included in current liabilities under the caption, "Other accrued
expenses". Although possible, no significant change in these estimated
liabilities is contemplated.
4. DEBT
<TABLE>
<CAPTION>
Debt consists of: 1999 1998
<S> <C> <C>
Note payable with interest at the LIBOR rate plus one and thirty-five hundredths
percentage points and payable in quarterly installments of $425,000
through December 2005 (In 1999 the Company paid $2,000,000 of principal
on this note prior to its scheduled maturity.) $ 6,500,000 $ 8,500,000
Capital lease obligation with interest at 4.99% and payable in monthly installments
of $21,203 through April 2009 1,895,394 --
Other 442,000 124,390
---------- ----------
8,837,394 8,624,390
Less current portion 272,367 72,878
---------- ----------
$ 8,565,027 $ 8,551,512
============= ==============
</TABLE>
The Company paid interest of $642,330 in 1999; $485,621 in 1998 and $248,314 in
1997.
The Company has a loan agreement (the Loan Agreement) with a bank; outstanding
borrowing thereunder as of January 1, 2000 was $6,500,000. The Loan Agreement
also provides for a line of credit of $5,000,000 with a quarterly commitment fee
of 1 1/48% on the unused portion. The line of credit expires July 1, 2001 but
may be renewed annually thereafter. Interest on amounts borrowed under the line
of credit bear interest at either the "base rate", as defined or LIBOR plus 1 1
1/44 percentage points. There were no borrowings under the line of credit
portion of the Loan Agreement as of January 1, 2000.
In 1999, the Company borrowed $2,000,000 to finance specific building
improvements and equipment acquisitions. The borrowing was structured in the
form of a lease classified as a capital lease obligation. The lease obligation
is collateralized by a security interest in the equipment referred to above and
a $900,000 letter of credit.
PAGE 13 OF ANNUAL REPORT
-32-
<PAGE>
The Eastern Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. DEBT (continued)
Collectively, under the covenants of the Loan Agreement and capital lease
obligation, the Company is, among other things, prohibited from disposing of
substantially all its assets and from merging or consolidating, and is required
to maintain certain financial ratios.
As of January 1, 2000 scheduled annual principal maturities of long-term debt,
including capital lease obligations, for each of the next five years follow:
2000 - $272,367; 2001 - $1,980,718; 2002 - $1,989,496; 2003 - $1,998,722; and
2004 - $1,906,419.
In connection with the Company's cash management program,compensating balances
(approximately $440,000 as of January 1, 2000) are required to be maintained.
5. STOCK RIGHTS
The Company has a rights plan. At January 1, 2000 there were 3,647,942 stock
rights outstanding under the plan. Each right may be exercised to purchase one
share of the Company's Common Stock at an exercise price of $80, subject to
adjustment to prevent dilution.
The rights generally become exercisable ten days after an individual or group
acquires 10% of the Company's outstanding common shares or after commencement
or announcement of an offer for 10% or more of the Company's Common Stock. The
stock rights, which do not have voting privileges, expire on July 22, 2008, and
may be redeemed by the Company at a price of $.01 per right at any time prior to
their expiration. In the event that the Company was to be acquired in a merger
or other business combination transaction, provision shall be made so that each
holder of a right shall have the right to receive, upon exercise thereof at the
then current exercise price, that number of shares of common stock of the
surviving company which at the time of such transaction would have a market
value of two times the exercise price of the right.
6. STOCK OPTIONS AND AWARDS
The Company has four incentive stock option plans for officers, other key
employees, and nonemployee directors: 1983, 1989, 1995, and 1997. Under the
1983, 1989, and 1995 plans, options may be granted to the participants to
purchase shares of Common Stock at prices not less than 100% of the fair market
value of the stock on the dates the options are granted. Restricted stock awards
may also be granted to participants under the 1995 plan with restrictions
determined by the Incentive Compensation Committee of the Company's Board of
Directors. Under the 1997 plan, options may be granted to the participants to
purchase shares of Common Stock at prices determined by the Compensation
Committee of the Company's Board of Directors. All options under the 1997 plan
were granted at prices equal to the fair market value of the stock on those
dates.
At January 1, 2000, 3,750 shares of the Company's unissued Common Stock were
reserved for options under its 1983 Incentive Stock Option Plan. Changes in
stock options under this plan follow:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 18,750 $6.25 33,750 $6.25 44,460 $6.23
Exercised (15,000) $6.25 (15,000) $6.25 (10,710) $6.17
------- ------- -------
Outstanding, end of year 3,750 $6.25 18,750 $6.25 33,750 $6.25
======= ======= =======
Exercisable, end of year:
At $6.25 3,750 18,750 33,750
</TABLE>
PAGE 14 OF ANNUAL REPORT
-33-
<PAGE>
At January 1, 2000, 70,517 shares of the Company's unissued Common Stock were
reserved for options under its 1989 Incentive Stock Option Plan. In 1999, 25,258
options, which had not been granted, expired. Changes in stock options under
this plan follow:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- --------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------------------- --------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 125,342 $ 8.63 139,575 $ 8.13 181,805 $ 6.67
Granted -- -- 7,142 $ 14.00 52,500 $10.77
Exercised (54,825) $ 6.08 (21,375) $ 7.11 (94,730) $ 6.79
------- ------- -------
Outstanding, end of year 70,517 $ 10.62 125,342 $ 8.63 139,575 $ 8.13
======= ======= =======
Exercisable, end of year:
At $6.05 -- 47,325 47,325
At $6.25 3,000 10,500 15,000
At $7.33 -- -- 16,875
At $8.17 7,875 7,875 7,875
At $9.92 30,000 30,000 30,000
At $11.92 22,500 22,500 22,500
At $14.00 7,142 7,142 --
</TABLE>
At January 1, 2000, 345,000 shares of the Company's unissued Common Stock were
reserved for options and awards under its 1995 Incentive Stock Option Plan.
Changes in stock options and restricted stock awards under this plan follow:
<TABLE>
<CAPTION>
Stock Options
1999 1998 1997
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 75,358 $12.96 37,500 $11.92 -- --
Granted 132,500 $15.56 37,858 $14.00 37,500 $11.92
Outstanding, end of year 207,858 $14.62 75,358 $12.96 37,500 $11.92
Exercisable, end of year:
At $11.92 37,500 37,500 37,500
At $14.00 37,858 37,858 --
At $15.25 120,000 -- --
At $18.50 12,500 -- --
</TABLE>
<TABLE>
<CAPTION>
Stock Awards
1999 1998 1997
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Fair Value Fair Value Fair Value
at Date of at Date of at Date of
Awards Grant Awards Grant Awards Grant
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 30,000 $11.99 45,000 $10.95 22,500 $ 8.93
Granted -- -- 3,750 $14.92 33,750 $12.01
Cancelled (11,250) $13.17 -- -- -- --
Earned -- -- (18,750) $10.10 (11,250) $10.09
------- ------- -------
Outstanding, end of year 18,750 $11.28 30,000 $11.99 45,000 $10.95
======= ======= =======
</TABLE>
PAGE 15 OF ANNUAL REPORT
-34-
<PAGE>
The Eastern Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. STOCK OPTIONS AND AWARDS (continued)
At January 2, 2000, 302,500 shares of the Company's unissued Common Stock were
reserved for options under its 1997 Incentive Stock Option Plan. In 1999 this
plan was amended to increase the number of options which may be granted by
100,000. Changes in stock options under this plan follow:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 187,500 $11.55 135,000 $9.92 -- --
Granted 62,500 $15.25 75,000 $14.00 135,000 $9.92
Exercised -- -- (22,500) $9.92 -- --
------- ------- -------
Outstanding, end of year 250,000 $12.48 187,500 $11.55 135,000 9.92
======= ======= =======
Exercisable, end of year:
At $9.92 112,500 112,500 135,000
At $14.00 75,000 75,000 --
At $15.25 62,500 -- --
</TABLE>
Compensation expense for stock options is recognized under the provisions of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. As such, no expense is recognized if, at the date of grant, the
exercise price of the option is at least equal to the fair market value of the
Company's Common Stock. Compensation expense for restricted stock awards granted
is recognized when earned based on the achievement of targeted annual operating
results through December 31, 2000. Compensation expense related to stock awards
of $319,194 in 1998 and $138,750 in 1997 was required to be recognized. No
expense was required to be recognized in 1999.
If stock options were accounted for using the fair value method under FASB
Statement No. 123, Accounting for Stock Based Compensation, net income, basic
earnings per share and diluted earnings per share would have been $5,857,372,
$1.62, and $1.57, respectively in 1999; $5,247,825, $1.44, and $1.38,
respectively in 1998 and $3,454,430, $.87 and $.85, respectively in 1997. In
connection therewith, fair value was estimated using the "Black Scholes" method
referred to in FASB Statement No. 123 with the following weighted-average
assumptions:
1999 1998 1997
---- ---- ----
Risk free interest rate 6.50% 4.65% 5.62%
Expected volatility 0.322 0.223 0.164
Expected option life 5 years 5 years 5 years
Weighted-average dividend yield 2.6% 2.9% 3.34%
7. INCOME TAXES
Deferred income taxes are provided on temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and those for
income tax reporting purposes. Deferred income tax liabilities (assets) relate
to:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Property, plant and equipment $ 2,239,000 $ 2,105,100 $ 2,054,700
Pension accruals 1,942,400 1,781,100 1,640,600
Other 125,600 56,600 275,100
--------- --------- ---------
Total deferred income tax liabilities 4,307,000 3,942,800 3,970,400
Other postretirement benefits (1,087,900) (1,120,600) (1,075,100)
Inventories (516,300) (422,900) (288,800)
Allowance for doubtful accounts (189,900) (160,800) (120,000)
Accrued compensation (340,900) (364,700) (304,700)
Accrual for contingencies (39,000) (112,500) (408,500)
Other (385,900) (397,400) (307,800)
--------- --------- ---------
Total deferred income tax assets (2,559,900) (2,578,900) (2,504,900)
--------- --------- ---------
Net deferred income tax liabilities $ 1,747,100 $ 1,363,900 $ 1,465,500
============= ============= ============
</TABLE>
PAGE 16 OF ANNUAL REPORT
-35-
<PAGE>
Income before income taxes consists of:
1999 1998 1997
Domestic $ 8,646,360 $ 7,520,617 $ 5,107,701
Foreign 1,247,651 1,202,850 699,825
--------- --------- ---------
$ 9,894,011 $ 8,723,467 $ 5,807,526
============= ============= ============
Income taxes follow: 1999 1998 1997
Current:
Federal $ 2,392,200 $ 2,526,414 $ 1,749,800
Foreign 220,879 411,166 170,996
State 359,800 444,300 270,500
Deferred 383,200 (101,600) (106,300)
--------- --------- ---------
$ 3,356,079 $ 3,280,280 $ 2,084,996
============= ============= ============
A reconciliation of income taxes computed using the U.S. federal statutory rate
to those reflected in operations follows:
<TABLE>
<CAPTION>
1999 1998 1997
Amount Percent Amount Percent Amount Percent
Income taxes using
<S> <C> <C> <C> <C> <C> <C>
U.S. federal statutory rate $ 3,364,000 34% $ 2,966,000 34% $ 1,974,600 34%
State income taxes, net of federal benefit 271,400 3 286,600 3 166,100 3
U.S. tax on foreign income (203,300) (2) (203,400) (2) (66,900) (1)
Other--net (76,021) (1) 231,080 3 11,196 --
--------- -- --------- -- --------- --
$ 3,356,079 34% $ 3,280,280 38% $ 2,084,996 36%
============= == ============ == ============= ==
</TABLE>
Total income taxes paid were $3,560,889 in 1999, $2,911,595 in 1998 and
$1,872,699 in 1997.
United States income taxes have not been provided on the undistributed earnings
of foreign subsidiaries ($3,523,548 at January 1, 2000) because such earnings
are intended to be reinvested abroad indefinitely or repatriated only when
substantially free of such taxes.
8. LEASES
The Company leases certain equipment and buildings under operating lease
arrangements. Certain leases contain renewal options for periods ranging from
one to ten years.
Future minimum payments under operating leases with initial or remaining terms
in excess of one year during each of the next five years follow:
2000 $ 304,007
2001 304,007
2002 304,007
2003 304,007
2004 304,007
---------
$ 1,520,035
=============
Rent expense for all operating leases was $301,330 in 1999, $290,892 in 1998 and
$288,178 in 1997.
9. RETIREMENT BENEFIT PLANS
The Company has noncontributory defined benefit pension plans covering most U.S.
employees. Plan benefits are generally based upon age at retirement, years of
service and, for its salaried plan, the level of compensation. The Company also
sponsors unfunded nonqualified supplemental retirement plans that provide
certain officers with benefits in excess of limits imposed by federal tax law.
U.S. salaried employees and most employees of the Company's Canadian subsidiary
are covered by defined contribution plans.
The Company also provides health care and life insurance for substantially all
retired salaried employees in the United States.
PAGE 17 OF ANNUAL REPORT
-36-
<PAGE>
The Eastern Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. RETIREMENT BENEFIT PLANS (continued)
Significant disclosures relating to these benefit plans follow:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
1999 1998 1999 1998
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ (29,561,475) $ (25,004,296) $ (2,593,502) $ (2,829,786)
Change due to availability of final
actual assets and census data (37,248) 13,568 (107,779) 90,422
Plan amendment (a) -- (853,130) -- --
Service cost (785,095) (707,063) (70,970) (89,536)
Interest cost (1,993,294) (1,860,284) (182,370) (202,790)
Actuarial (loss) gain (505,348) (3,091,609) -- 368,756
Benefits paid 2,000,406 1,941,339 191,990 69,432
--------- --------- --------- ---------
Benefit obligation at end of year $ (30,882,054) $ (29,561,475) $ (2,762,631) $ (2,593,502)
============= ============= ============ ============
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 34,218,707 $ 32,528,335 $ 812,339 $ 819,179
Change due to availability of final
actual assets and census data -- -- (16,156) (66,215)
Actual return on plan assets 3,405,582 3,631,711 71,467 67,405
Employer contributions 87,120 -- -- --
Benefits paid (2,000,406) (1,941,339) (4,208) (8,030)
---------- ---------- --------- ------
Fair value of plan assets at end of year $ 35,711,003 $ 34,218,707 $ 863,442 $ 812,339
============= ============= ============ ============
Funded status-over (under) $ 4,828,949 $ 4,657,232 $ (1,899,189) $ (1,781,163)
Unrecognized prior service cost 854,245 979,865 (164,500) (185,589)
Unrecognized net actuarial loss (gain) 675,402 476,975 (725,625) (906,497)
Unrecognized net asset at transition (1,377,907) (1,546,790) -- --
---------- ---------- ---------- ----------
Prepaid (accrued) benefit costs $ 4,980,689 $ 4,567,282 $ (2,789,314) $ (2,873,249)
============= ============= ============ ============
(a) A plan was amended to increase benefits for specified retired participants.
</TABLE>
All of the plans' assets at January 1, 2000 and January 2, 1999 are invested in
listed stocks and bonds and pooled investment funds, including 430,874 shares of
the Common Stock of the Company having a market value of $6,732,406 and
$7,288,969 at those dates, respectively. Dividends received during 1999 and 1998
on the Common Stock of the Company were $185,276 and $166,603, respectively.
PENSION BENEFITS
1999 1998 1997
---- ---- ----
ASSUMPTIONS
Discount rate 7.0% 7.0% 7.5%
Expected return on plan assets 9.0% 9.0% 8.5%
Rate of compensation increase 4.25% 4.25% 4.25%
COMPONENTS OF NET BENEFIT INCOME
Service cost $ 785,095 $ 707,063 $ 601,528
Interest cost 1,993,294 1,860,284 1,735,777
Actual return on plan assets (3,387,907) (3,614,036) (4,863,796)
Net amortization and deferral 306,030 801,806 2,326,279
Defined contribution plans expense 129,771 125,399 61,128
------- ------- -------
Net benefit income $ (173,717) $ (119,484) $ (139,084)
========== ========== ==========
PAGE 18 OF ANNUAL REPORT
-37-
<PAGE>
POSTRETIREMENT BENEFITS
1999 1998 1997
---- ---- ----
ASSUMPTIONS
Discount rate 7% 7% 7.5%
Expected return on plan assets 9% 9% 9%
Components of Net Benefit Cost
Service cost $ 70,970 $ 89,536 $ 103,449
Interest cost 182,370 202,790 196,877
Actual return on plan assets (71,467) (67,405) (66,130)
Net amortization and deferral (78,026) (54,065) (55,395)
------- ------- -------
Net benefit cost $ 103,847 $ 170,856 $ 178,801
========== ========== ==========
For measurement purposes relating to the postretirement benefit plan, the life
insurance cost trend rate is 1%. The health care cost trend rate for
participants retiring after January 1, 1991 is nil; no increase in that rate is
expected because of caps placed on benefits. The health care cost trend rate for
participants who retired prior to January 1, 1991 is also nil; that rate is
expected to increase to 4.5% in the year 2000.
A one-percentage-point change in assumed health care cost trend rates would have
the following effects on the postretirement benefit plan:
<TABLE>
<CAPTION>
1-Percentage Point
Increase Decrease
-------- --------
<S> <C> <C>
Effect on total of service and interest cost components $ 29,100 $ (23,286)
Effect on postretirement benefit obligation $ 248,058 $ (205,854)
</TABLE>
10. FINANCIAL INSTRUMENTS
The carrying values of financial instruments (cash and cash equivalents,
accounts receivable, accounts payable, and debt) as of January 1, 2000 and
January 2, 1999 approximate fair value. Fair value was based on expected cash
flows and current market conditions.
11. REPORTABLE SEGMENTS
The accounting policies of the segments are substantially the same as those
described in Note 2. Operating profit is total revenue less operating expenses,
excluding interest and general corporate expenses. Intersegment revenue, which
is eliminated, is recorded on the same basis as sales to unaffiliated customers.
Identifiable assets by reportable segment consist of those directly identified
with the segment's operations. Corporate assets consist primarily of cash and
cash equivalents, notes and other investments.
1999 1998 1997
REVENUE:
Sales to unaffiliated customers:
Industrial Hardware $28,272,937 $25,376,277 $ 21,932,971
Custom Locks 22,892,284 22,988,887 23,053,175
Metal Products 23,513,199 22,384,365 22,345,276
---------- ---------- ----------
74,678,420 70,749,529 67,331,422
General corporate 296,985 181,466 139,116
---------- ---------- ----------
$74,975,405 $70,930,995 $ 67,470,538
=========== =========== ============
INTERSEGMENT REVENUE:
Industrial Hardware $ 98,523 $ 217,981 $ 134,512
Custom Locks 378,931 262,642 407,497
---------- ---------- ----------
$ 477,454 $ 480,623 $ 542,009
=========== =========== ============
PAGE 19 OF ANNUAL REPORT
-38-
<PAGE>
The Eastern Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. REPORTABLE SEGMENTS (continued)
<TABLE>
<CAPTION>
1999 1998 1997
INCOME BEFORE INCOME TAXES:
<S> <C> <C> <C>
Industrial Hardware $ 5,122,149 $ 3,644,711 $ 3,159,121
Custom Locks 3,816,595 3,435,259 2,976,220
Metal Products 3,032,282 3,462,808 3,099,724
---------- ---------- ----------
Operating Profit 11,971,026 10,542,778 9,235,065
General corporate expenses (1,431,024) (1,270,240) (3,130,947)
Interest expense (645,991) (549,071) (296,592)
---------- ---------- ----------
$ 9,894,011 $ 8,723,467 $ 5,807,526
=========== =========== ===========
GEOGRAPHIC INFORMATION:
Net Sales:
United States $66,124,407 $63,505,315 $60,570,871
Foreign 8,554,013 7,244,214 6,760,551
---------- ---------- ----------
$74,678,420 $70,749,529 $67,331,422
=========== =========== ===========
IDENTIFIABLE ASSETS:
United States $48,512,143 $45,340,817 $41,248,231
Foreign 6,382,249 4,730,898 4,549,930
---------- ---------- ----------
$54,894,392 $50,071,715 $45,798,161
=========== =========== ===========
IDENTIFIABLE ASSETS:
Industrial Hardware $14,415,840 $11,426,221 $10,782,403
Custom Locks 9,437,909 8,996,052 9,987,092
Metal Products 20,546,949 20,966,751 18,367,646
---------- ---------- ----------
44,400,698 41,389,024 39,137,141
General corporate 10,493,694 8,682,691 6,661,020
---------- ---------- ----------
$54,894,392 $50,071,715 $45,798,161
=========== =========== ===========
DEPRECIATION AND AMORTIZATION
Industrial Hardware $ 550,275 $ 632,185 $ 710,109
Custom Locks 341,568 417,115 444,571
Metal Products 1,812,449 1,837,000 1,805,135
---------- ---------- ----------
2,704,292 2,886,300 2,959,815
General corporate 18,593 25,550 18,435
---------- ---------- ----------
$ 2,722,885 $ 2,911,850 $ 2,978,250
=========== =========== ===========
CAPITAL EXPENDITURES
Industrial Hardware $ 1,374,651 $ 914,486 $ 481,512
Custom Locks 261,370 366,036 315,246
Metal Products 1,999,929 3,094,435 1,374,172
---------- ---------- ----------
3,635,950 4,374,957 2,170,930
Currency translation adjustment (5,225) 16,640 3,771
General corporate 59,432 5,044 55,412
---------- ---------- ----------
$ 3,690,157 $ 4,396,641 $ 2,230,113
=========== =========== ===========
</TABLE>
12. SUBSEQUENT EVENT - BUSINESS ACQUISITION
Effective February 1, 2000 the Company acquired all the issued and outstanding
Common Stock of Ashtabula Industrial Hardware Co. (Ashtabula). Ashtabula
produces proprietary hardware for school bus doors. The cost of the acquisition,
which is being accounted for by the purchase method, was approximately $1.7
million. The operating results of Ashtabula will be included in the Company's
consolidated operating results from the date of acquisition. The effect of this
acquisition on the Company's consolidated financial position and operating
results is not material.
PAGE 20 OF ANNUAL REPORT
-39-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net income for 1999 totaled a record $6.5 million, or $1.80 per basic share, on
record sales of $74.7 million. These results represent a 20% increase in net
income from 1998 and a 6% increase in sales. Net income for 1998 totaled $5.4
million, or $1.49 per basic share, on sales of $70.7 million. The improved
earnings performance was the direct result of better utilization of our
production facilities, continued emphasis on cost control, increased sales of
products with higher profit margins, and a lower effective tax rate. The
Company's backlog remains strong, having increased to $9.0 million at the end of
1999, or 8% above the 1998 year-end level.
The fourth quarter of 1999 marked the twelfth consecutive quarter of increased
earnings. Net income totaled $1.8 million, or $.50 per basic share, compared
with $1.4 million, or $.40 per share, in the 1998 fourth quarter. Fourth-quarter
sales in both years totaled $17.0 million.
The gross margin for the fourth quarter of 1999 was 36% of net sales as compared
to 40% for the fourth quarter of 1998. Product mix accounted for the reduction
in the gross margin percentage.
Selling and administrative expenses in the 1999 fourth quarter totaled $3.2
million, a 22% drop from the 1998 level. This decrease was the result of a
favorable settlement regarding product warranty claims, lower environmental
expenses and lower compensation expenses associated with stock-based
compensation.
RESULTS OF OPERATIONS
The following table shows, for 1997-1999, each line item from the consolidated
statements of income as a percentage of net sales.
1999 1998 1997
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of products sold 70.2% 69.9% 72.4%
Gross margin 29.8% 30.1% 27.6%
Selling and administrative 16.0% 17.2% 18.7%
Other income 0.4% 0.3% 0.2%
Interest expense 0.9% 0.8% 0.4%
Income before income taxes 13.3% 12.3% 8.6%
Income taxes 4.5% 4.6% 3.1%
Net income 8.8% 7.7% 5.5%
Fiscal 1999 Compared to Fiscal 1998
Total net sales for 1999 increased 6% ($4.0 million) to $74.7 million from $70.7
million for 1998. New product introductions were up 5% and prices were up 2%,
more than offsetting a slight 2% reduction in volume. The volume reduction was
the direct result of new product introductions which replace some former
products.
In the Industrial Hardware Group, sales rose 11% from 1998. During 1999, our
Eberhard Manufacturing Division initiated an aggressive program to develop and
introduce new products for the truck accessory, industrial and
commercial-electronic-cabinetry markets. This program was responsible for 10% of
the sales increase in 1999. Demand for our core products in the truck body and
truck trailer markets remains strong. Sales of heavy hardware products to the
tractor trailer industry increased 9% over 1998.
At the Company's Canadian facility, Eberhard Hardware Manufacturing, Ltd., sales
increased 20% from 1998, primarily as a result of increased demand for heavy
hardware products used by the Canadian tractor trailer industry. The Company's
Mexican operation experienced a 37% growth in sales in 1999 as demand increased
for the high-quality industrial and vehicular products offered to the Mexican
markets. In addition, the Company continued to expand its product offerings
with the addition of ergonomic drawer slides, and to broaden its geographical
markets outside of Mexico City.
At the Custom Locks Group, 1999 sales were comparable to those in 1998. Sales of
locks to the computer industry increased 10% from 1998 levels and are expected
to remain strong in 2000. The Illinois Lock Division continued to develop
replacement lock applications to meet the changing demands of the computer
industry. Sales of PrestoLock(R) padlocks for soft-sided luggage (made by the
Company's CCL Security Products Division) gained market share in 1999 and are
expected to grow again in 2000. In addition, CCL continued to position itself as
the exclusive lock supplier to upscale luggage manufacturers by offering to
incorporate the manufacturers' brand names into the case of each padlock and by
offering exclusive designs for high-volume manufacturers. Retail sales of
trigger locks were up 25% over 1998 as media attention on gun safety helped
increase product demand. The Company plans to expand its product offerings in
2000 with a keyed-disc-tumbler trigger lock to more effectively compete with
products offered by competitors. Increased sales of the luggage locks and
trigger locks were offset by a decline in the catch and handle products sold
through distributors.
In the Metal Products Group, sales were up 5% from the previous year. The
contract casting business increased 34% from 1998 due to the addition of several
new customers and increased demand from existing customers. Products offered by
this business include construction beam clamps, industrial hydraulic pipe
fittings, railroad pneumatic brake couplers, residential gas fittings,
residential and commercial electrical fittings, and automotive steering column
yokes. The increase in the contract casting business has helped to offset the
decline in the mine roof support business. Sales of mine roof support products
were down 15% from 1998 due to decreased demand resulting from mine closures and
changes in mining technology. Although the new technology has negatively
affected sales, there continues to be a need for the highly engineered
proprietary products produced by Frazer & Jones. Frazer & Jones has long been
recognized as the industry leader in mine roof safety and continues to develop
its domestic market as well as markets in Canada, Australia, South Africa,
Norway and Peru.
All three of the Company's business segments introduced new products in 1999.
These included a latch system for tonneau covers used in the truck accessory
market (from Eberhard Manufacturing); a four-dial PrestoLock(R) providing up to
10,000 user-settable combinations (from CCL Security Products); and various
malleable iron casting products (from Frazer & Jones).
PAGE 21 OF ANNUAL REPORT
-40-
<PAGE>
The Eastern Company
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Total gross margin for 1999 increased $939,000, or 4%, from 1998. The increase
resulted from higher sales, better product mix, greater utilization of our
productive capacity and ongoing cost reduction programs.
Total selling and administrative expenses in 1999 were down $213,000, or 2%,
from 1998. This decrease was due to a reduction in compensation expense related
to stock awards earned.
Interest expense was higher in 1999 by $97,000, or 18%, than in 1998. This was
due to higher levels of borrowings in 1999 than in the prior year.
Earnings before income taxes in 1999 increased $1.2 million, or 13%, over 1998.
The Industrial Hardware Group realized a $1.5 million, or 41%, gain over 1998.
The increase was directly attributable to greater sales volume, full utilization
of production facilities and sales of products with higher profit margins. The
Custom Locks Group experienced a gain of $381,000, or 11%, over 1998 pretax
earnings. This increase was the result of lower product costs from foreign
sources and a more favorable product mix. In the Metal Products Group, earnings
were down $431,000, or 12%, due to a reduction in mine roof anchor sales.
Corporate expenses were up $161,000, or 13%, as the result of higher
compensation expenses and higher group insurance costs.
The effective tax rate in 1999 was 34% versus 38% in 1998.The decrease was
directly attributable to a favorable tax benefit received on a contribution of
land to a qualified land trust. In addition, the effective tax rate in 1998
was higher due to higher foreign taxes associated with the repatriation of
foreign earnings through a dividend distribution.
Fiscal 1998 Compared to Fiscal 1997
Total net sales for 1998 increased 5% (or $3.4 million) to $70.7 million from
$67.3 million for 1997. Volume accounted for 1% of the increase, prices for 2%
and new products for another 2%. At year-end, the Company had a strong backlog
totaling $8.4 million, or 13% more than at the end of 1997.
Sales in the Industrial Hardware Group were up 15% from 1997. Fueling this
growth was a 17% increase in demand by the tractor trailer industry for heavy
hardware made by our Eberhard Manufacturing Division. This unit also increased
its sales to the U.S. government and the auto accessories and truck body
markets. The Company's Canadian facility, Eberhard Hardware Manufacturing, Ltd.,
increased its production capacity in 1998 to accommodate increased business from
the Canadian markets. The Company's Mexican operation, which markets industrial
hardware, also achieved sales growth.
In the Custom Locks Group, sales were comparable to the 1997 level. Sales of
locks to the computer industry were again strong in 1998. The PrestoLock(R),
offered by CCL Security Products, gained market share among original equipment
manufacturers of soft luggage and in the premium/promotional markets, where
customers can have their own company logo or trademark placed on the lock. Sales
were essentially unchanged in the Metal Products Group as well.
Sales of expansion bolts, used in securing roofs in underground mines, were down
5% from 1997 due to lower demand. Sales of contract castings, however, were up
8% over 1997, offsetting the decline in the mine roof support business.
During the second quarter of 1998, Frazer & Jones acquired new contract casting
customers when a major foundry competitor went out of business.
All three segments introduced new products in 1998. Among the new offerings were
vehicular products designed and produced by Eberhard Manufacturing; a new keyed
gun lock for securing firearms from CCL Security Products; and malleable
castings manufactured by Frazer & Jones.
Total gross profit for 1998 increased by $2.7 million, or 15%, from 1997. The
gross profit margin was 30.1% compared with 27.6% for 1997. Increased sales,
more effective use of our operating facilities and ongoing cost reductions
contributed to the improved margin.
Total selling and administrative expenses were down $398,000, or 3%, from 1997.
This decrease was due to the elimination of one-time costs in 1997 associated
with a proxy contest and with environmental matters. The elimination of these
one-time costs more than offset an increase in incentive compensation costs in
1998 that were directly related to the improved level of profitability.
Interest expense increased by $252,000, or 85%, from 1997 due to additional
borrowing required for corporate programs.
Earnings before income taxes were up $2.9 million, or 50%, over 1997. Earnings
grew across all industry segments. Industrial Hardware recorded a $486,000, or
15%, increase. The increase was directly attributable to higher sales volume
and reduced material costs. Custom Locks also achieved a 15%, or $459,000,
increase over 1997 through cost reductions and a more favorable product mix. At
Metal Products, earnings grew $363,000, or 12%, due to more efficient use of the
operating facilities. Corporate expenses declined $1.9 million, or 59%, as the
result of lower environmental expenses, lower retiree medical insurance costs,
reduced legal and professional expenses and the elimination of the one-time
charges incurred in the 1997 proxy contest.
The effective tax rate in 1998 was 38% versus 36% in 1997.The increase in the
1998 rate was directly attributable to higher foreign taxes associated with the
repatriation of foreign earnings through a dividend distribution in the fourth
quarter of 1998.
LIQUIDITY AND SOURCES OF CAPITAL
1999 1998 1997
---- ---- ----
Current ratio 4.4 3.8 2.3
Average day's sales
in accounts receivable 48 46 47
Inventory turnover 3.7 3.9 3.9
Ratio of working capital to sales 33.1% 29.9% 22.1%
Total debt to market capitalization 15.5% 14.0% 7.3%
Total debt to equity 26.5% 30.3% 12.7%
Cash provided by operating activities in 1999 was $6.4 million as compared to
$8.3 million in 1998 and $6.2 million in 1997. Cash generated internally in 1999
was sufficient to fund capital expenditures of $3.7 million and the payment of
$1.6 million in dividends.
PAGE 22 OF ANNUAL REPORT
-41-
<PAGE>
In 1999, the Company borrowed $2.0 million structured as a capital lease
obligation. The borrowing was accomplished through an industrial development
bond to assist in the financing of an expansion project at the Frazer & Jones
Division. The proceeds from the industrial development bond allowed the Company
to retire $2.0 million of its higher-rate term loan (with a year-end rate of
7.46%) and replace it with the capital lease obligation (with a more favorable
interest rate of 4.99%). The capital lease obligation is collateralized by a
security interest in certain equipment and a $900,000 letter of credit.
The ratio of working capital to sales was 33.1% in 1999, 29.9% in 1998 and 22.1%
in 1997. The higher ratios for 1999 and 1998 were due to higher cash balances
and lower levels of short-term debt in those years than in 1997. The higher cash
balance in 1999 was maintained to finance the purchase of Ashtabula Industrial
Hardware Co., the leading producer of proprietary hardware for school bus doors,
in February 2000. (This acquisition is not material to the Company's financial
position or operations.)
Accounts receivable increased $783,000, or 9%, from the 1998 level. This
increase was the direct result of increased sales in 1999. The average days'
sales in accounts receivable increased to 48 days in 1999 from 46 in 1998 and 47
in 1997.
Inventories increased in 1999 by $1.2 million, or 10%, from 1998, while
inventory turnover remained substantially unchanged at approximately 4 times.
Inventories were increased slightly at the end of 1999 as a hedge against
potential Y2K problems.
Capital expenditures in 1999, 1998 and 1997 were $3.7 million, $4.4 million and
$2.2 million, respectively. The Company continuously upgrades and replaces
existing equipment to expand capacity, improve efficiency and satisfy safety and
environmental requirements. During 1999, the Company completed its expansion
project at the Frazer & Jones plant. For 2000, capital expenditures are expected
to exceed the projected 2000 depreciation of $2.4 million. A plant expansion
project is under way at our Cleveland facility, where an additional 50,000
square feet of manufacturing and office space is being added to allow for the
continued growth of our Eberhard Manufacturing Division. The plant expansion
will be financed through additional borrowing.
The present financial strength of the Company's balance sheet--demonstrated by a
current ratio of 4.4 to 1, a low debt-to-equity ratio of 26.5%, and positive
cash flow from operating activities--will enable the Company to meet its current
obligations and continue to grow in 2000 without financial constraints.
Impact of Inflation and Changing Prices
The impact of inflation on the Company's operations has not been significant, as
the Company has generally been able to adjust its prices to reflect higher
manufacturing costs, or has been able to improve its manufacturing processes to
achieve increased productivity.
Historical data as presented in the financial statements reasonably reflect
current costs, except for depreciation, to revenues generated in the period.
Depreciation expense based on the current replacement cost of plant and
equipment would be higher than depreciation expense reported in historical
financial statements.
The Company uses the LIFO method of accounting for its U.S. inventories. Under
this method, the cost of products sold reported in the financial statements
approximates current cost and thus reduces the distortion in reported income
caused by inflation.
OTHER MATTERS
Environmental
In May 1998, the Company and its co-defendants entered into a proposed consent
decree with the federal Environmental Protection Agency regarding the Company's
and the co-defendants' 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 Company with respect to these landfills.
Impact of Year 2000
In late 1999, the Company completed its remediation and testing of systems for
Year 2000 issues. As a result of its planning and implementation efforts, the
Company experienced no significant disruptions in its mission-critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company spent
approximately $190,000 during 1999 to remediate its systems. The Company is not
aware of any material problems resulting from Year 2000 issues, with respect to
either its own products and internal systems or the products and services of
third parties. The Company will continue to monitor its mission-critical
computer applications and those of its suppliers and vendors throughout the year
to ensure that any latent Year 2000 matters that may arise are addressed
promptly.
Market Risk Disclosures
The Company's foreign manufacturing facilities account for approximately 13% of
total sales and total assets. Its U.S. operations buy from and sell to these
foreign affiliates, and also make limited sales (less than 12% of total sales)
to nonaffiliated foreign customers. This trade activity could be affected by
fluctuations in foreign currency exchange or by weak economic conditions. The
Company's currency exposure is concentrated in the Canadian dollar, Mexican
peso, New Taiwan dollar and Hong Kong dollar. Because of the Company's limited
exposure to foreign markets, any currency exchange gains or losses are not
material.
The interest rate paid by the Company under its term loan agreement is closely
linked to the U.S. economy. To minimize significant interest rate exposure, the
Company can fix the interest rate on its term debt.
Forward-Looking Statements
This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements reflect the
Company's current expectations regarding its products, its markets and its
future financial and operating performance. These statements, however, are
subject to risks and uncertainties that may cause the Company's actual results
in future periods to differ materially from those expected. Such risks and
uncertainties include changing customer preferences, lack of success of new
products, loss of customers, competition, increased raw material prices,
problems associated with foreign sourcing of parts and products, and other
factors discussed from time to time in the Company's filings with the Securities
and Exchange Commission. The Company is not obligated to update or revise the
aforementioned statements for those new developments.
PAGE 23 OF ANNUAL REPORT
-42-
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY RESULTS OF OPERATIONS (unaudited)
1999 First Quarter Second Quarter Third Quarter Fourth Quarter Year
<S> <C> <C> <C> <C> <C>
Net Sales $19,383,654 $20,029,666 $18,241,677 $17,023,423 $74,678,420
Gross Profit 5,396,798 5,513,164 5,143,847 6,164,716 22,218,525
Selling and Administrative Expenses 3,042,678 2,993,536 2,719,175 3,220,119 11,975,508
Net Income 1,462,747 1,577,909 1,671,800 1,825,476 6,537,932
Net Income Per Share:
Basic $ .40 $ .44 $ .46 $ .50 $1.80
Diluted $ .39 $ .42 $ .45 $ .49 $1.75
</TABLE>
<TABLE>
<CAPTION>
1998* First Quarter Second Quarter Third Quarter Fourth Quarter Year
<S> <C> <C> <C> <C> <C>
Net Sales $18,411,956 $17,353,207 $17,995,724 $16,988,642 $70,749,529
Gross Profit 4,930,389 4,766,891 4,825,422 6,756,983 21,279,685
Selling and Administrative Expenses 2,924,369 2,562,066 2,576,448 4,125,730 12,188,613
Net Income 1,290,097 1,304,509 1,407,304 1,441,277 5,443,187
Net Income Per Share:
Basic $ .34 $ .36 $ .39 $ .40 $1.49
Diluted $ .32 $ .35 $ .38 $ .39 $1.43
</TABLE>
1999-1995 SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
INCOME STATEMENT ITEMS (in thousands) 1999 1998 1997+ 1996 1995
<S> <C> <C> <C> <C> <C>
Net Sales $74,678 $70,750 $67,331 $57,854 $59,352
Cost of Products Sold 52,460 49,470 48,780 45,173 45,237
Depreciation and Amortization 2,723 2,912 2,978 2,953 2,628
Interest Expense 646 549 297 215 72
Income Before Income Taxes 9,894 8,723 5,808 1,527 4,275
Income Taxes 3,356 3,280 2,085 647 1,528
Income (Loss):
Continuing Operations 6,538 5,443 3,723 880 2,747
Discontinued Operations -- -- -- -- (257)
Net Income 6,538 5,443 3,723 880 2,490
Dividends 1,573 1,429 1,268 1,241 1,276
BALANCE SHEET ITEMS (in thousands)
1999 1998 1997+ 1996 1995
Inventories $14,040 $12,778 $12,415 $10,898 $11,793
Working Capital 24,734 21,121 14,859 14,762 17,240
Property, Plant and Equipment, Net 16,365 15,033 13,437 13,887 13,686
Total Assets 54,894 50,072 45,798 42,492 41,090
Shareholders' Equity 33,400 28,486 29,243 29,355 29,807
Capital Expenditures 3,690 4,397 2,230 2,915 3,320
Long-Term Obligations, Less Current Portion 8,565 8,552 60 224 340
PER SHARE DATA
1999 1998* 1997*+ 1996* 1995*
Basic Earnings Per Share:
Income From Continuing Operations $ 1.80 $ 1.49 $ .93 $ .22 $ .66
Discontinued Operations -- -- -- -- (.06)
------- ------- ------ -------
Net Income $ 1.80 $ 1.49 $ .93 $ .22 $ .60
Diluted Earnings Per Share:
Income From Continuing Operations $ 1.75 $ 1.43 $ .92 $ .21 $ .65
Discontinued Operations -- -- -- -- (.06)
------- ------- ------ -------
Net Income $ 1.75 $ 1.43 $ .92 $ .21 $ .59
Dividends .43 .39 .32 .31 .31
Shareholders' Equity 9.21 7.81 7.33 7.25 7.17
Average Shares Outstanding (Basic) 3,626,001 3,645,360 3,987,272 4,047,286 4,157,760
<FN>
* Per share data retroactively adjusted to reflect a 3-for-2 stock split
effective May 1999.
+ Fiscal Year 1997 comprised 53 weeks--all other years were 52 weeks.
</FN>
</TABLE>
PAGE 24 OF ANNUAL REPORT
-43-
<PAGE>
[INSIDE BACK COVER]
The Eastern Company
BOARD OF DIRECTORS
John W. Everets(2,3,4,5)
Chairman of H.P.S.C. Inc.
Boston, Massachusetts
Charles W. Henry(1,2,3,4,5)
Partner of Kernan & Henry
Waterbury, Connecticut
Leonard F. Leganza(1,4)
President and Chief Executive Officer
of the Company
David C. Robinson(1,2,3,4,5)
President of The Robinson Co.
Waterbury, Connecticut
Donald S. Tuttle, III(1,2,3,4,5)
Vice President and Account Executive
Paine Webber
Middlebury, Connecticut
- -------------------------------------
Russell G. McMillen
Director Emeritus
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
(4) Member of the Nominating Committee
(5) Member of the Pension Trust Committee
CORPORATE NOTES
Independent Auditors
Ernst & Young LLP,
Hartford, Connecticut
Transfer Agent and Registrar
American Stock Transfer & Trust Co.
40 Wall Street, New York, NY 10005
Phone: 1-800-937-5449
Dividend Reinvestment & Stock Purchase Plan
The Eastern Company offers a Dividend Reinvestment Plan (DRP) which also
features a no-load stock purchase program. It is available to all interested
investors who would like to initiate or increase their holdings in Eastern
Company Stock. To receive a brochure and application form for this plan, contact
The Eastern Company directly at (203) 729-2255, ext. 102, or phone the program
administrator, American Stock Transfer & Trust Co. at 1-800-278-4353.
10-K A copy of the Company's 10-K report is available free of charge to
stockholders of record upon written request.
<PAGE>
OFFICERS AND EXECUTIVES
Leonard F. Leganza
President and Chief Executive Officer
John L. Sullivan III
Vice President and Treasurer
Amanda Gordon
Assistant Secretary
- -------------------------------------
Frank J. Breker
Vice President
Eberhard Manufacturing Division
Eberhard Hardware Manufacturing, Ltd.
Sesamee Mexicana, S.A. de C.V.
Steven G. Sanelli
Vice President
Illinois Lock Division
CCL Security Products Division
World Lock Co. Ltd.
World Security Industries Co. Ltd.
Raymond L. Wright
Vice President
Frazer & Jones Division
- -------------------------------------
Robert G. Alexander
Managing Director
Eberhard Hardware Manufacturing, Ltd.
Roger Chang
Managing Director
World Lock Co. Ltd.
World Security Industries Co. Ltd.
Thomas D. Melkus
Managing Director
CCL Security Products Division
Brian D. Reed
Managing Director
Illinois Lock Division
-44-
<PAGE>
[BACK COVER]
The Eastern Company
P.O. Box 460, Naugatuck, CT 06770-0460
Phone: (203) 729-2255 Fax: (203) 723-8653
E-mail: [email protected] Homepage: www.easterncompany.com
INDUSTRIAL HARDWARE GROUP
Eberhard Manufacturing Division
Cleveland, Ohio
Eberhard Hardware Manufacturing, Ltd.
Tillsonburg, Ontario, Canada
Sesamee Mexicana, S.A. de C.V.
Lerma, Mexico
-------------------------------------
CUSTOM LOCKS GROUP
CCL Security Products Division
New Britain, Connecticut
The Illinois Lock Company Division
Wheeling, Illinois
World Lock Co. Ltd.
World Security Industries Co. Ltd.
Taipei, Taiwan; China
-------------------------------------
METAL PRODUCTS GROUP
Frazer & Jones Division
Syracuse, New York
-45-
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