SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM to .
Commission File Number 0-599
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THE EASTERN COMPANY
-------------------
(Exact Name of Registrant as specified in its charter)
Connecticut 06-0330020
----------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
112 Bridge Street, Naugatuck, Connecticut 06770
----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(203) 729-2255
--------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No__
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of September 30, 2000
----- ------------------------------------
Common Stock, No par value 3,636,757
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<PAGE>
PART I
FINANCIAL INFORMATION
THE EASTERN COMPANY
ITEM I CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
------
<TABLE>
<CAPTION>
ASSETS
September 30, 2000 January 1, 2000
------------------ ---------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 4,247,815 $ 5,940,190
Accounts receivable, less allowances:
2000 - $344,000; 1999 - $526,000 15,037,910 9,321,653
Inventories 16,779,914 14,040,263
Prepaid expenses and other 2,938,314 2,645,506
------------ -------------
Total Current Assets 39,003,953 31,947,612
--------------------
Property, plant and equipment 41,658,886 29,124,833
Accumulated depreciation and amortization (14,754,344) (12,759,995)
------------ -------------
26,904,542 16,364,838
Prepaid pension cost 5,208,405 4,980,689
Goodwill, less accumulated amortization 11,573,136 7,023
Other assets, less accumulated amortization 2,788,429 1,594,230
------------ -------------
$ 85,478,465 $ 54,894,392
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 5,016,195 $ 3,467,058
Accrued compensation 2,405,811 1,903,804
Other accrued expenses 2,713,176 1,570,009
Current portion of long-term debt 3,020,413 272,367
------------ -------------
Total Current Liabilites 13,155,595 7,213,238
------------------------
Deferred federal income taxes 2,927,000 2,927,000
Long-term debt 29,435,234 8,565,027
Accrued postretirement benefits 2,789,314 2,789,314
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: 3,636,757 shares in 2000 and 3,647,942
shares in 1999;
excluding shares held in treasury of
1,650,726 in 2000 and 1,621,572 in 1999 913,705 1,154,147
Retained earnings 37,190,244 33,175,227
Unearned compensation (211,406) (211,406)
Accumulated other comprehensive loss - translation adjustment (721,221) (718,155)
------------ -------------
TOTAL SHAREHOLDERS' EQUITY 37,171,322 33,399,813
------------ -------------
$ 85,478,465 $ 54,894,392
============ =============
</TABLE>
See accompanying notes.
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<PAGE>
THE EASTERN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
Sept. 30, 2000 Oct. 2, 1999 Sept. 30, 2000 Oct. 2, 1999
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Net sales $ 65,234,247 $ 57,654,997 $ 24,695,211 $ 18,241,677
Other income 180,041 217,609 62,217 71,371
----------- ------------ ------------ ------------
65,414,288 57,872,606 24,757,428 18,313,048
Cost of products sold 46,680,470 41,598,705 17,563,511 13,097,236
------------ ------------- ------------ ------------
18,733,818 16,273,901 7,193,917 5,215,812
Selling and administrative expenses
9,611,656 8,755,389 3,277,717 2,719,175
Interest expense
1,082,463 478,215 714,754 152,529
Goodwill amortization
211,597 2,483 185,311 594
------------ ------------- ------------ ------------
INCOME BEFORE INCOME TAXES
7,828,102 7,037,814 3,016,135 2,343,514
Income taxes 2,612,617 2,325,358 1,004,580 671,714
------------ ------------- ------------ ------------
NET INCOME $ 5,215,485 $ 4,712,456 $ 2,011,555 $ 1,671,800
============ ============= ============ ============
Net income per share:
Basic $ 1.44 $ 1.30 $ 0.56 $ 0.46
Diluted $ 1.42 $ 1.26 $ 0.56 $ 0.45
Cash dividends per share $ 0.33 $ 0.32 $ 0.11 $ 0.11
</TABLE>
See accompanying notes.
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<PAGE>
THE EASTERN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
Sept. 30, 2000 Oct. 2, 1999
-------------- ------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 5,215,485 $ 4,712,456
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,602,809 2,084,586
(Gain) loss on sales of equipment and other assets (231) 8,280
Postretirement benefits other than pensions -- (79,297)
Provision for doubtful accounts (182,414) 99,828
Issuance of Common Stock for directors' fees 82,988 63,145
Changes in operating assets and liabilities:
Accounts receivable (2,331,772) (1,413,628)
Inventories 422,659 505,991
Prepaid expenses and other (290,994) (26,215)
Prepaid pension cost (227,716) (343,862)
Other assets (142,239) (137,698)
Accounts payable 873,418 803,469
Accrued compensation and other expenses 1,524,704 (242,715)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,546,697 6,034,340
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (3,834,512) (3,153,847)
Business acquisitions (27,547,304) --
Other 12,837 (33)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (31,368,979) (3,153,880)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 30,330,453 2,470,610
Principal payments on long-term debt (6,703,197) (2,198,924)
Proceeds from sales of Common Stock 93,009 380,224
Purchases of Common Stock for treasury (416,439) (580,594)
Dividends paid (1,200,467) (1,171,348)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 22,103,359 (1,100,032)
Effect of exchange rate changes on cash 26,548 40,883
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,692,375) 1,821,311
Cash and Cash Equivalents at Beginning of Period 5,940,190 4,789,901
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,247,815 $ 6,611,212
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE>
THE EASTERN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNADUITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
Oct. 2, 1999 Oct. 2, 1999 Oct. 2, 1999 Oct. 2, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income 5,215,485 4,712,456 2,011,555 1,671,800
Other comprehensive income (loss) --
Foreign currency translation (3,066) 148,127 (101,790) 56,812
--------- --------- --------- ---------
Comprehensive income 5,212,419 4,860,583 1,909,765 1,728,612
========= ========= ========= =========
</TABLE>
See accompanying notes.
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<PAGE>
THE EASTERN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. Refer to the Company's
consolidated financial statements and notes thereto included in its Form 10-K
for the year ended January 1, 2000 for additional information.
The accompanying condensed consolidated financial statements are unaudited.
However, in the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results of
operations for such interim periods have been reflected therein. Operating
results for interim periods are not necessarily indicative of the results that
may be expected for the full year.
The condensed balance sheet as of January 1, 2000 has been derived from the
audited consolidated balance sheet at that date.
Note B - Earnings Per Share
The denominators used in the earnings per share computations follow:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
Sept. 30, 2000 Oct. 2, 1999 Sept.30, 2000 Oct. 2, 1999
-------------- ------------ ------------- ------------
Basic:
<S> <C> <C> <C> <C>
Weighted average shares outstanding 3,641,344 3,643,974 3,634,306 3,650,595
Contingent shares outstanding (18,750) (18,750) (18,750) (18,750)
--------- --------- --------- ---------
Denominator for basic earnings per share 3,622,594 3,625,224 3,615,556 3,631,845
========= ========= ========= =========
Diluted:
Weighted average shares outstanding 3,641,344 3,643,974 3,634,306 3,650,595
Contingent shares outstanding (18,750) (18,750) (18,750) (18,750)
Dilutive stock options 37,809 121,139 1,912 117,573
--------- --------- --------- ---------
Denominator for diluted earnings per share 3,660,403 3,746,363 3,617,468 3,749,418
========= ========= ========= =========
</TABLE>
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<PAGE>
THE EASTERN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
Note C - Segment Information
Starting with this current reporting period, the Greenwald acquisition has been
included in our Custom Locks Group.
Segment financial information follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
Sept. 30, 2000 Oct. 2, 1999 Sept. 30, 2000 Oct. 2, 1999
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Sales to unaffiliated customers:
Industrial Hardware $26,314,248 $21,602,013 $ 8,543,023 $ 7,429,045
Custom Locks 22,095,158 17,759,447 10,638,022 5,677,094
Metal Products 16,824,841 18,293,537 5,514,166 5,135,538
----------- ----------- ----------- -----------
65,234,247 57,654,997 24,695,211 18,241,677
General corporate 180,041 217,609 62,217 71,371
----------- ----------- ----------- -----------
$65,414,288 $57,872,606 $24,757,428 $18,313,048
=========== =========== =========== ===========
Income Before Income Taxes:
Industrial Hardware $ 4,531,372 $ 3,493,210 $ 1,642,691 $ 1,122,608
Custom Locks 3,289,977 2,930,262 1,861,418 947,233
Metal Products 2,465,458 2,445,384 701,213 652,478
----------- ----------- ----------- -----------
Operating Profit 10,286,807 8,868,856 4,205,322 2,722,319
General corporate expense (1,376,242) (1,352,827) (474,433) (226,276)
Interest expense (1,082,463) (478,215) (714,754) (152,529)
----------- ----------- ----------- -----------
$ 7,828,102 $ 7,037,814 $ 3,016,135 $ 2,343,514
=========== =========== =========== ===========
</TABLE>
Note D - Business Acquisitions
Effective June 29, 2000 the Company acquired the assets and businesses and
assumed certain liabilities of Greenwald Industries, Inc. and Greenwald
Intellicard, Inc (the Greenwald businesses). The Greenwald businesses design,
manufacture and market coin acceptance systems and provide smart cards, smart
card readers, value transfer stations, card management software and interface
boards primarily for the commercial laundry industry. The cost of the
acquisition of the Greenwald businesses was $23,137,000, plus the assumption
of approximately $749,000 of current liabilities.
Effective February 1, 2000 and April 6, 2000 the Company also acquired all the
issued and outstanding Common Stock of Ashtabula Industrial Hardware Co.
(Ashtabula) and two product lines from Hansen International Inc. (Hansen),
respectively. Ashtabula produces proprietary hardware for school and courtesy
bus doors. The Hansen product lines produce proprietary locks to secure the
lids of toolboxes that are installed in the beds of pickup trucks and other
vehicles. The cost of these two acquisitions was approximately $4,000,000.
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<PAGE>
The above acquisitions have been accounted for using the purchase method. The
acquired businesses are included in the consolidated operating results of the
Company from their date of acquisition. The excess of the cost of the acquired
businesses over the fair market value of the net assets acquired has been
allocated to goodwill that is being amortized using the straight-line method
over 15 years.
Neither the actual results nor the pro forma effects of the acquisitions of
Ashtabula or Hansen are material to the Company's financial statements. Pro
forma results for the Greenwald businesses, which assume the Greenwald
businesses were acquired January 2, 1999, follow:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, 2000 October 2, 1999 September 30, 2000 October 2, 1999
------------------ --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Net sales $74,027,250 $70,789,282 $24,695,211 $22,827,186
Net income 5,130,860 5,038,511 2,011,555 1,830,729
Per share:
Basic $1.42 $1.39 $0.56 $0.50
Diluted $1.40 $1.34 $0.56 $0.49
</TABLE>
Note E - Debt
In the second quarter of fiscal 2000, the Company entered into an unsecured
loan agreement (the Loan Agreement) with a financial institution. Under the
term portion of the Loan Agreement the Company borrowed $25,000,000 which is
payable in quarterly principal payments of $625,000 beginning on October 2,
2000. The quarterly principal payments increase annually up to $1,000,000 with
a final principal payment due at maturity on July 1, 2005 of $9,000,000. The
Company maintains an interest rate swap contract as required, with the lender,
for $15,000,000 reduced on a quarterly basis beginning October 2, 2000 in
accordance with the principal repayment schedule of the term portion of the
Loan Agreement. The interest rate on the swap contract is fixed at 9.095%. The
Company may borrow up to $20,000,000 to July 2, 2003 under the revolving
credit portion of the Loan Agreement with a quarterly commitment fee of 1/4%
on the unused portion. As of September 30, 2000, $5,009,694 was outstanding
under the revolving credit portion of the Loan Agreement; the Company does not
anticipate any repayments thereof prior to September 29, 2001.
The interest rates on the term and the revolving credit portions of the Loan
Agreement may vary. The margin rate spread is based on operating results
calculated on a rolling-four-quarter basis. The interest rates may vary based
on LIBOR rate plus a margin spread of 1.50% to 2.0% for the term portion and
1.25% to 1.75% for the revolving credit portion.
Under the Loan Agreement, the Company is required to maintain specified
financial ratios and amounts. In addition, the Company is restricted to, among
other things, capital leases, purchases or redemption of its capital stock,
mergers and divestitures, and new borrowing.
-8-
<PAGE>
Debt consists of:
<TABLE>
<CAPTION>
September 30, 2000 January 1, 2000
------------------ ---------------
<S> <C> <C>
Note payable (Paid prior to maturity June 29,2000.) $ 6,500,000
Term loan $25,000,000
Revolving credit loan 5,009,694
Capital lease obligation with interest at 4.99% and
payable in monthly installments of $21,203
through April 2009. 1,773,485 1,895,394
Other 672,468 442,000
----------- -----------
32,455,647 8,551,512
Less current portion 3,020,413 272,367
----------- -----------
$29,435,234 $ 8,565,027
=========== ===========
</TABLE>
As of September 30, 2000 scheduled annual principal maturities of long-term
debt, including the capital lease obligation, for each on the next five years
ending September 30 follow: 2001 - $3,020,413; 2002 - $3,286,844; 2003 -
$3,795,956; 2004 - $9,240,713; 2005 - $12,207,215.
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<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
------ FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Recent Developments
Effective June 29, 2000, the company acquired Greenwald Industries, Inc. and
Greenwald Intellicard, Inc. (Greenwald) from PubliCARD, Inc. The cost of the
acquisition, which is being accounted for by the purchase method, was
approximately $23,137,000, plus the assumption of certain liabilities of
approximately $749,000 consisting of trade accounts payable, accrued
liabilities and operating lease obligation. The assets were valued at actual
or appraised fair market values with the balance of the purchase price
allocated to goodwill. At the closing $20,750,000 was paid to the Sellers and
$1,750,000 was paid to an escrow account and a final net worth adjustment was
paid September 20, 2000 in the amount of $637,000. The assets acquired from
the Sellers included personal property leases, real property leases and all
leasehold improvements and structures on the real property leases, contracts,
real property, prepaid expenses and deposits, accounts receivable,
inventories, machinery, equipment, tools and dies, computer hardware and
software, goodwill, Know-How, and Intellectual Property Rights as more fully
set forth in Section 2 of the Asset Purchase Agreement (See Exhibit 2). The
business in which the acquired assets are used is in the design, manufacturing
and marketing of coin acceptance systems used primarily in the commercial
laundry industry, providing smart cards, smart card readers, value transfer
stations, card management software and interface boards. The Company intends
to continue these businesses and the assets acquired will remain in use in the
facility located in Chester, Connecticut. Starting with this current reporting
period, Greenwald has been included in our Custom Locks Group.
Effective February 1, 2000 and April 6, 2000 the Company also acquired all the
issued and outstanding Common Stock of Ashtabula Industrial Hardware Co.
(Ashtabula) and two product lines from Hansen International Inc. (Hansen),
respectively. Ashtabula produces proprietary hardware for school and courtesy
bus doors. The Hansen product lines produce proprietary locks to secure the
lids of toolboxes that are installed in the beds of pickup trucks and other
vehicles. The cost of these two acquisitions was approximately $4,000,000. The
effects of these acquisitions on the Company's consolidated financial position
and operation results are not material.
Results of Operations
Net income per share (basic) for the third quarter of 2000 represented the
fifteenth consecutive quarterly earnings per share increase as compared to the
same quarter of the previous year. Net income for the third quarter was $2.0
million or $.56 per share (basic) on sales of $24.7 million as compared to
$1.7 million or $.46 per share (basic) on sales of $18.2 million in the third
quarter of 1999. Net income for the first nine months of 2000 was $5.2 million
or $1.44 per share (basic) on sales of $65.2 million as compared to the first
nine months of 1999 of $4.7 million or $1.30 per share (basic) on sales of
$57.7 million.
Sales for the third quarter 2000 were up 35.4% compared to the same period a
year ago. Volume increased 17.2%, price increases were up 1.3% and new product
introductions were up 16.9%. The major portion of the volume increase in the
third quarter was due to the addition of Greenwald results. Sales for the
first nine months of 2000 were up 13.2% compared to the same period a year
ago. Volume was down slightly over the prior year 1.6%, however, price
increases were up 1.7% and new products were up 13.1%. The decrease in volume
in the metal product segment offset the increased volume from Greenwald.
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<PAGE>
The Industrial Hardware Group third quarter sales were up 15.0% compared to
the third quarter of 1999. New product sales accounted for 26.2% of the
increase, which was partially offset by a volume decrease of 11.2% over the
third quarter of 1999. The reduction in volume is primarily the result of the
discontinuance of mature products and their replacement with new products with
improved margins. For the first nine months of 2000 the Industrial Hardware
Group sales were up 21.8% as compared to the same period in 1999. New product
sales accounted for 20.2% of the increase along with a 1.6% increase in
volume. New products included lock rods for truck trailers, PSL toolbox locks,
bus hardware, a foot step, a paddle rotary, mini rotary, slam latch, and
t-handles.
The Custom Locks Group sales were up 87.4% in the third quarter as compared to
the third quarter of 1999. Volume was up 86.1% and price increases were up
1.3%. Sales for the first nine months were up 24.4% as compared to the first
nine months of 1999. Volume was up 23.2% and price increases were up 1.2%.
Volume for this group was up as the result of consolidating Greenwald, which
was acquired June 29, 2000.
The Metal Products Group sales were up 7.4% in the third quarter as compared
to the third quarter of 1999. Price increases were up 3.0%, new products were
up 22.3% and volume was down 17.9%. Sales for the first nine months decreased
8.0% from the comparable period of 1999 with volume decreasing 29.6% and
increases in both prices of 4.3% and new products of 17.3%. Demand for
underground mine expansion shells were up 2% in the third quarter and were
down 20% for the first nine months of 2000 as compared to the same periods in
1999. While demand for underground mine expansion shells increased slightly in
the third quarter, this does not appear to be an ongoing trend. The contract
casting business increased 11% in the third quarter and 3% for the first nine
months from the comparable periods of 1999. This increase in contract casting
business during the third quarter was due primarily to business acquired to
accommodate a foundry competitor who had experienced manufacturing problems
during the year 2000. This temporary customer representing approximately 14%
of the Metal Product Group sales for the year 2000 and is expected to end
during the fourth quarter of 2000. Competition from China and Mexico continue
to have an adverse impact on our contract casting business.
Gross margin as a percentage of sales for the three and nine months ended
September 30, 2000 was approximately 29% compared to 28% for the comparable
periods a year ago. The increase in gross margin is primarily the result of
improved product mix, including new product introductions.
Selling and administrative expenses were up 21% or $559 thousand and 10% or
$856 thousand for the three and nine months ended September 30, 2000 compared
to the same periods a year ago. The nine month 2000 selling and administrative
expenses were higher than the comparable period in 1999 due to higher legal
and professional fees, payroll costs, fringe benefit costs and the inclusion
of Greenwald in 2000. For the third quarter 2000, selling and administrative
expenses increased mainly as the result of Greenwald and higher legal and
professional cost related to a supplier dispute.
Interest expense through nine months of 2000 was $1.1 million versus $478
thousand for the first nine months of 1999. This increase in interest expense
was due to the impact of higher average outstanding borrowing in the current
year and higher interest rates.
Earnings before income taxes for the three and nine months ended September 30,
2000 were up 30% or $695 thousand and 12% or $813 thousand respectively, as
compared to the same periods of 1999. The Industrial Hardware Group was up 46%
or $520 thousand for 3 months and gained 30% or $1.0 million for nine months
as compared to the same periods a year ago. The nine month increase was
attributable to increased sales of heavy hardware to the Canadian tractor
trailer industry, sales of bus hardware and toolbox locks from our
acquisitions earlier in the year, and new product introductions with improved
profit margins. The Custom Locks Group earnings before income taxes for the
three months ended September 30, 2000 were up 97% or $914 thousand as compared
to the third quarter of 1999. The increase is this group was due to the
acquisition of Greenwald. Earnings at our core lock operations were down $40
thousand or 4% for the 3 month period compared to 1999. For the nine
-11-
<PAGE>
months ending September 30, 2000, earnings before income taxes were up 12% or
$360 thousand from the comparable period a year ago. The nine month increase
in the lock group reflects the Greenwald acquisition and a decrease in our
core lock operation of 20% or $595 thousand. The Metal Products Group earnings
were up 7% or $49 thousand compared to the third quarter of 1999 and increased
1% or $20 thousand through the first nine months of 2000 over the same period
a year ago due to improved product mix and greater utilization of the
production facilities.
Liquidity and Sources of Capital
Cash flows from operations were $7.5 million for the first nine months of 2000
versus $6.0 million for the same period in 1999. The change in cash flows
resulted from an increased level of sales and the associated timing
differences for collections of accounts receivable and payments of liabilities
and changes in inventory. Cash flow from operations in the third quarter of
2000 was sufficient to fund capital expenditures and dividend payments. The
Company drew down an additional $500 thousand under its revolving credit
facility to cover the final payment for the Greenwald acquisition.
Additions to property, plant and equipment were $3.8 million during the first
nine months of 2000 versus $3.2 million for the comparable period a year ago.
Total 2000 capital expenditures, including the 40,000 square foot building
addition to our Eberhard Division in Cleveland, will exceed the annual
expected $2.5 million level of depreciation.
Total inventory at the end of the third quarter of 2000 of $16.8 million
increased by $2.7 million from year end 1999. Our core business units showed a
combined decrease of $300 thousand which was offset by the acquisition of
Greenwald. The inventory turnover ratio of 3.7 turns is comparable to the year
end 1999 of 3.7 turns and slightly lower than the end of the third quarter of
1999 of 4.5 turns. Accounts receivable increased by $5.1 million over the
third quarter of 1999 and $5.7 million from year end 1999, primarily due to
increased sales growth as a result of the three acquisitions made during 2000.
The average day's sales in accounts receivable for the third quarter of 2000
of 55 days increased slightly compared to the third quarter of 1999 of 50
days.
Cash flow from operating activities and funds available under the revolving
credit portion of the Company's Loan Agreement should be sufficient to cover
future working capital requirements.
Other Matters
No other matters are currently pending.
Note: The preceding information contains forward looking statements which
reflect the Company's current expectations regarding its future operating
performance and achievements and is subject to certain risks and uncertainties
that could cause actual results to differ materially from those set forth in
such statements. Such risks and uncertainties include changing customer
preferences, lack of success of new products, loss of customers, competition,
increased raw material prices and problems associated with foreign sourcing of
parts and products. The Company is not obligated to update or revise the
aforementioned statements for new developments
-12-
<PAGE>
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------ ----------------------------------------------------------
The Company maintains manufacturing facilities in foreign countries, which
account for approximately 13% of total sales and total assets. The United
States operations buy and sell to foreign affiliated companies and export less
than 12% of total sales to non-affiliated companies. This trade activity could
be affected by fluctuations in the foreign currency exchange or weak economic
conditions. The Company's currency exposure is concentrated in four foreign
currencies, Canada dollar, Mexican peso, New Taiwan dollar and the Hong Kong
dollar. Because the Company has limited exposure to foreign markets, related
currency exchange gains or loses are not material.
The Company is exposed to interest rate change market risk with respect to its
unsecured $45,000,000 Loan Agreement with interest based on LIBOR plus a
spread of up to 2%. The spread is determined based on the Company's operating
performance compared to agreed upon financial targets. The current interest
rate spread is 1.75% on the term loan portion and 1.50% on the revolving
credit line portion of the Loan Agreement. Changes in LIBOR rates during
fiscal 2000 will effect the Company's interest expense. The Company has a swap
agreement on the first $15,000,000 of the term loan portion of the Loan
Agreement with an all in rate of 9.095% to hedge against future LIBOR rate
increases. As of September 30, 2000, $30,010,000 was outstanding under the
credit facility.
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<PAGE>
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS -
------ -------------------
There are no significant pending legal proceedings, other than ordinary
routine litigation incidental to the Company's business, to which either the
Registrant or any of its subsidiaries is a party or of which any of their
property is the subject.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
------ -----------------------------------------
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES-
------ -------------------------------
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------ ---------------------------------------------------
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
------- --------------------------------
(a) Exhibits
(2) Form of Asset Purchase Agreement dated as of June
20, 2000 between the Registrant and Greenwald
Industries, Inc., Greenwald Intellicard, Inc.,
and PubliCARD, Inc., incorporated herein by
reference to exhibit (2) filed with the Company's
current report on Form 8-K dated July 14, 2000.
(10) Forms of Loan Agreement, Term Note, Revolving
Credit Note, and related documents between the
Registrant and Fleet National Bank dated as of
June 28, 2000, incorporated herein by reference
to exhibit (10) filed with the Company's current
report on Form 8-K dated July 14, 2000.
(b) Reports on Form 8-K
(i) Current report on Form 8-K dated July 14, 2000 re:
Item 2 - Acquisition or Disposition of Assets.
(ii) Amendment No. 1 on Form 8-K dated September 12,
2000 re: Item 7 - Financial Statements and Exhibits.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE EASTERN COMPANY
-------------------
(Registrant)
DATE: November 13, 2000 /s/Leonard F. Leganza
----------------- -----------------------
Leonard F. Leganza
President and Chief Executive Officer
DATE: November 13, 2000 /s/John L. Sullivan III
----------------- -----------------------
John L. Sullivan, III
Vice President, Secretary and Treasurer
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