SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED APRIL 1, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM______to______.
Commission File Number 0-599
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THE EASTERN COMPANY
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(Exact Name of Registrant as specified in its charter)
Connecticut 06-0330020
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(State or other jurisdiction of (I.R.S. Employer
incorporation or orginization) Identification No.)
112 Bridge Street, Naugatuck,Connecticut 06770
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(Address of principal executive offices) (Zip Code)
(203)729-2255
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of April 1, 2000
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Common Stock, No par value 3,652,373
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PART I
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FINANCIAL INFORMATION
THE EASTERN COMPANY AND SUBSIDIARIES
ITEM I CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
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ASSETS
April 1, 2000 January 1, 2000
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<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,691,755 $ 5,940,190
Accounts receivable, less allowance:
2000- $532,000; 1999- $526,000 10,930,556 9,321,653
Inventories 13,760,133 14,040,263
Prepaid expenses and other current assets 2,817,451 2,645,506
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Total Current Assets 33,199,895 31,947,612
--------------------
Property, plant and equipment 29,908,472 29,124,833
Accumulated depreciation (13,408,463) (12,759,995)
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16,500,009 16,364,838
Prepaid pension cost 4,981,438 4,980,689
Other assets, net 2,851,889 1,601,253
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TOTAL ASSETS $57,533,231 $54,894,392
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 251,616 $ 272,367
Accounts payable 4,083,843 3,467,058
Accrued compensation and withholding 2,236,738 1,903,804
Other accrued expenses 2,179,198 1,570,009
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Total Current Liabilites 8,751,395 7,213,238
Deferred federal income taxes 2,927,000 2,927,000
Long-term debt 8,523,326 8,565,027
Accrued postretirement benefits 2,789,314 2,789,314
Shareholders' Equity
Common Stock, No Par Value:
Authorized Shares - 25,000,000
Issued and outstanding shares:
2000-3,652,373; 1999-3,647,942 1,220,014 1,154,147
(Excluding shares in Treasury:
2000-1,630,726; 1999-1,621,572)
Preferred Stock, No Par Value
Authorized shares - 2,000,000
(No shares issued)
Unearned compensation (211,406) (211,406)
Accumulated other comprehensive loss - translation adjustment (748,952) (718,155)
Retained earnings 34,282,540 33,175,227
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $57,533,231 $54,894,392
========== ==========
</TABLE>
See accompanying notes.
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<PAGE>
THE EASTERN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
April 1, 2000 April 3, 1999
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Net sales $20,214,419 $19,383,654
Interest income 63,208 71,251
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Total 20,277,627 19,454,905
Cost of products sold 14,508,754 13,986,856
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5,768,873 5,468,049
Selling and administrative expenses 3,315,844 3,042,678
Interest expense 177,300 158,382
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INCOME BEFORE INCOME TAXES 2,275,729 2,266,989
Income taxes 767,267 804,242
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NET INCOME $ 1,508,462 $ 1,462,747
=========== ===========
Net income per share:
Basic $ 0.42 $ 0.40
Diluted $ 0.41 $ 0.39
Cash dividends per share $ 0.11 $ 0.10
See accompanying notes.
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<PAGE>
<TABLE>
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THE EASTERN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
April 1, 2000 April 3, 1999
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,508,462 $ 1,462,747
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 744,417 718,479
Loss on sale of equipment and other assets - 256
Postretirement benefits other than pensions - 12,500
Provision for losses on accounts receivable 5,027 52,409
Issuance of Common Stock for directors' fees 26,077 17,809
Changes in operating assets and liabilities:
Accounts receivable (1,591,008) (1,089,640)
Inventories 294,512 243,249
Prepaid expenses (169,888) (107,773)
Prepaid pension (749) (30,717)
Accounts payable 594,170 96,572
Accrued expenses 874,848 (250,785)
Other assets (1,349,883) (41,790)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 935,985 1,083,316
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (767,427) (911,379)
Other - (33)
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NET CASH USED BY INVESTING ACTIVITIES (767,427) (911,412)
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt and notes payable - 465,220
Principal payments on long-term debt and notes payable (67,612) (79,938)
Proceeds from sales of Common Stock 93,009 184,324
Purchases of Common Stock for treasury (53,219) (317,728)
Dividends paid (401,150) (365,786)
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NET CASH USED BY FINANCING ACTIVITIES (428,972) (113,908)
Effect of exchange rate changes on cash 11,979 (1,277)
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (248,435) 56,719
Cash and Cash Equivalents at Beginning of Period 5,940,190 4,789,901
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,691,755 $ 4,846,620
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</TABLE>
See accompanying notes.
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<PAGE>
THE EASTERN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNADUITED)
THREE MONTHS ENDED
April 1, 2000 April 3, 1999
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Net income $ 1,508,462 $ 1,462,747
Other comprehensive loss -
Foreign currency translation (30,797) (199)
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Comprehensive income $ 1,477,665 $ 1,462,548
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See accompanying notes.
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THE EASTERN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 1, 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.
The accompanying condensed consolidated financial statements are unaudited.
However, in the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results of
operations for such interim periods have been reflected therein.
The condensed balance sheet as of January 1, 2000 has been derived from the
audited consolidated balance sheet at that date.
Note B - Earnings Per Share
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The denominators used in the earnings per share computations follow:
THREE MONTHS ENDED
April 1,2000 April 3,1999
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Basic:
Weighted average shares outstanding 3,653,106 3,652,085
Contingent shares outstanding (18,750) (30,000)
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Denominator for basic earnings per share 3,634,356 3,622,085
========= =========
Diluted:
Weighted average shares outstanding 3,653,106 3,652,085
Contingent shares outstanding (18,750) (30,000)
Dilutive stock options 83,092 128,020
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Denominator for diluted earnings per share 3,717,448 3,750,105
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THE EASTERN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
APRIL 1, 2000
Note C - Segment Information
- ----------------------------
The Company has three business segments. The Industrial Hardware Group produces
latching devices for use on industrial equipment and instrumentation as well as
a broad line of proprietary hardware designed for truck bodies and other
vehicular equipment. The Custom Locks Group manufactures and markets a broad
range of locks for traditional general purpose security applications. This
segment also produces specialized locks for firearms, coin-operated vending and
gaming equipment and electric and computer peripheral components. The Metal
Products Group consists of a foundry which produces anchoring devices used in
supporting the roofs of underground mines. This segment also manufactures
specialty metal castings, which serve the construction, automotive and
electrical industries. Segment financial information follows:
THREE MONTHS ENDED
April 1, 2000 April 3, 1999
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Revenues:
Sales to unaffiliated customers:
Industrial Hardware $ 8,342,726 $ 6,746,737
Custom Locks 5,543,594 5,833,892
Metal Products 6,328,099 6,803,025
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20,214,419 19,383,654
General corporate 63,208 71,251
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$20,277,627 $19,454,905
Income Before Income Taxes:
Industrial Hardware $ 1,406,745 $ 1,100,178
Custom Locks 670,627 961,075
Metal Products 988,187 937,718
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Operating Profit 3,065,559 2,998,971
General corporate expenses (612,530) (573,600)
Interest expense (177,300) (158,382)
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$ 2,275,729 $ 2,266,989
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<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Recent Developments
Effective February 1, 2000, the Company acquired all the issued and outstanding
Common Stock of Ashtabula Industrial Hardware Co. (Ashtabula), which has been
integrated into the Company's Eberhard facility in Strongsville, Ohio. The cost
of the acquisition, which is being accounted for by the purchase method, was
approximately $1.7 million. The operating results of Ashtabula, which produces
proprietary hardware for school and courtesy bus doors, have been included in
the Company's consolidated operating results from the date of the acquisition.
This acquisition will allow our industrial hardware group to introduce its other
vehicular products into the bus market, one that we have not been in. Neither
the actual results nor the pro forma effects of this acquisition are material to
the Company's financial statements.
The Company's Eberhard division has started construction of a 40,000 sq. ft.
addition to accommodate the additional activity generated by the Ashtabula
acquisition and allow for future growth opportunities. The cost of this
addition is expected to be approximately $2.5 million.
Subsequent to the close of the first quarter, the company acquired two product
lines from Hansen International Inc., used to produce proprietary locks to
secure the lids of tool boxes that are installed in the beds of pickup trucks
and other service vehicles. The cost of the acquisition, which is being
accounted for by the purchase method, was approximately $2.4 million. These
product lines will be moved into our Canadian manufacturing facility in
Tillsonburg, Ontario and will make our industrial hardware group the leading
supplier of locks to secure the lids of toolboxes used in the beds of pickup
trucks and similar vehicles. The effects of this acquisition on the Company's
consolidated financial position and operation results is not material.
Results of Operations
Net income per share (basic) for the first quarter of 2000 represented the
thirteenth consecutive quarter of increased earnings over the comparable
quarter in the prior year. Net income for the first quarter was $1,508,000 or
$.42 per share (basic) on sales of $20.2 million as compared to $1,462,000 or
$.40 per share (basic) on sales of $19.4 million in the first quarter of 1999.
Sales for the first quarter 2000 were up 4.3% compared to the same period a
year ago. New product introductions were up 9.8% and price increases were up
1.4%, which more than offset a volume reduction of 6.9%.
The Industrial Hardware Group first quarter sales were up 24% compared to the
first quarter of 1999. New product sales accounted for 9% of the increase
along with volume increases of 15% over the first quarter of 1999. New
products included a push button lock assembly, foot strap with resistant pad,
bus hardware, and a spring-loaded hinge. Eberhard Manufacturing, in
Strongsville, Ohio, experienced a 24% increase in sales over the first quarter
of 1999. This increase was attributable to new products, including the bus
hardware line resulting from the Ashtabula acquisition, as well as an overall
increase in its industrial and transportation hardware lines. Eberhard
Hardware, Ltd., our Canadian subsidiary, sales for the first quarter of 2000
outpaced the first quarter of 1999 by 15%. Sesamee Mexicana, the Company's
Mexican operation, continued to see strong sales growth in industrial hardware
with first quarter sales increasing 52% as compared to the first quarter of
1999.
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<PAGE>
The Custom Locks Group sales were down 5% in the first quarter as compared to
the first quarter of 1999. Price increases were up 1% and volume was down 6%.
The major portion of the volume decrease was experienced at our Illinois Lock
Division, due to modifications and re-scheduling of shipments to several of
the customers we serve. Sales to some of are major accounts were down in the
first quarter compared to the same period in the prior year, a trend that
management anticipates will start to reverse later in the year. While our
current product line offers many unique features and good quality, lower cost
Asian products are changing the competitive landscape of the lock business.
The Company has its own Asian operations, which experienced an increase in
sales volume of 45% in the first quarter of the current year compared to the
first quarter of 1999.
The Metal Products Group sales were down 7% in the first quarter as compared
to the first quarter of 1999. Price increases were up 3%, new products were up
19% while volume was down 29%. The new product increase was mainly due to an
influx of orders from a competitor that is temporarily shut down for
renovations. Current year sales for jobbing were up 23%, while mining was down
33% from the comparable period in 1999. As a result of changes in the way coal
is mined, there has for several years been a reduction in the requirements for
underground roof support systems which use our expansion bolts. This trend
appears to be ongoing. In response to the changing business climate in the
mining industry, we have shifted the utilization of our Frazer & Jones
facility toward the manufacture of a wide variety of contract casting products
used by a number of original equipment manufacturers. But even these markets
are now being affected negatively by the increased importation of castings
from China and Mexico. With their extremely low labor costs, the competition
in the contract casting market is becoming increasingly difficult. The Company
continues to look at new manufacturing methods and alternative products to
remain competitive.
Gross margin as a percentage of sales for the three months ended April 1, 2000
was approximately 29% compared to 28% for the comparable period 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 9% or $273 thousand for the three
months ended April 1, 2000 compared to the same period a year ago. The higher
selling and administrative expenses are due to increased spending on
advertising, travel expense and consulting fees and higher payroll and fringe
benefit costs.
Interest expense for the first quarter of 2000 was $177 thousand versus $158
thousand for the first quarter of 1999. This increase in interest expense was
due to the impact of higher average outstanding borrowing.
Earnings before income taxes for the first quarter of 2000 were up 0.4% or $9
thousand compared to the first quarter of 1999. The Industrial Hardware Group
was up 28% or $306 thousand for 3 months as compared to the same period a year
ago. The increase was attributable to increased sales of industrial and
transportation hardware as well as new product introductions with improved
profit margins. The Custom Locks Group earnings before income taxes for the
three months ended April 1, 2000 were down 30% or $290 thousand as compared to
the first quarter of 1999. This was the result of lower margin product sales
and lower sales to many key customers. The Metal Products Group earnings were
up 5% or $50 thousand compared to the first quarter of 1999. The increase was
due to improved product mix.
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<PAGE>
Liquidity and Sources of Capital
Cash flows from operations were $936 thousand for the first quarter of 2000
versus $1.1 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 first quarter of
2000 was sufficient to fund capital expenditures, dividend payments and the
purchase of 9,154 shares of Common Stock for the treasury.
Additions to property, plant and equipment were $767 thousand during the first
quarter of 2000 versus $911 thousand for the comparable period a year ago.
Total 2000 capital expenditures, including the 40,000 square foot addition to
Eberhard in Cleveland, will exceed the annual expected $2.5 million level of
depreciation.
Total inventory for the period ending April 1, 2000 was $13.8 million or $280
thousand lower than year end 1999. The inventory turnover ratio of 4.2 turns
at the end of the first quarter was slightly better than the year end ratio of
3.7 turns, however, it was slightly lower than the 4.4 turns experienced in
the first quarter of 1999. Accounts receivable increased by $1.6 million from
year end 1999, primarily due to increased sales growth. The average day's
sales in accounts receivable for the first quarter of 2000 was 49 days
compared to the first quarter of 1999 of 45 days.
The Company's strong balance sheet and internal cash flow generation should be
sufficient to cover future working capital requirements.
Other Matters
No other matters are currently pending.
Note: The preceding information contains statements which reflect the
Registrant's current expectations regarding its future operating performance
and achievements and are subject to certain risks and uncertainties that could
cause actual results to differ materially from those set forth in such
statements. The Registrant is not obligated to update or revise the
aforementioned statements for new developments
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company maintains manufacturing facilities in foreign countries, which
account for approximately 13% of total sales and total assets. The United
States operations buy and sell to the 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 of the Company's limited exposure to foreign
markets, currency exchange gains or losses are generally not material.
The interest rate paid by the company under its term loan agreement is closely
tied to the U.S. economy. To minimize significant interest rate exposure, the
Company can fix the interest rate on its term debt.
-10-
<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
- ------ ---------------------------------------------------
The Registrant held its Annual Meeting of the Stockholders at
The Eastern Company, Naugatuck, Connecticut on Wednesday, the twenty-sixth day
of April, 2000. The matters voted on and the voting results were:
FOR WITHHELD AGAINST ABSTENTION
1a) Election of two directors
for three year terms expiring in
the year 2003.
Donald S. Tuttle III 3,244,136 38,081
David C. Robinson 3,244,162 38,055
Continuing Directors:
John W. Everets
Leonard F. Leganza
Charles W. Henry
2) Approval of Ernst & Young
LLP as independent auditors: 3,275,884 2,460 3,873
ITEM 5 OTHER INFORMATION
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None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
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None
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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: May 15, 2000 /s/Leonad F. Leganza
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Leonard F. Leganza
President and Chief Executive Officer
DATE: May 15, 2000 /s/John L. Sullivan III
------------ -----------------------
John L. Sullivan, III
Vice President, Secretary and Treasurer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-END> APR-1-2000
<CASH> 5691755
<SECURITIES> 0
<RECEIVABLES> 10930556
<ALLOWANCES> 532000
<INVENTORY> 13760133
<CURRENT-ASSETS> 33199895
<PP&E> 29908472
<DEPRECIATION> 13408463
<TOTAL-ASSETS> 57533231
<CURRENT-LIABILITIES> 8751395
<BONDS> 0
0
0
<COMMON> 1220014
<OTHER-SE> 33322182
<TOTAL-LIABILITY-AND-EQUITY> 57533231
<SALES> 20214419
<TOTAL-REVENUES> 20277627
<CGS> 14508754
<TOTAL-COSTS> 14508754
<OTHER-EXPENSES> 3310817
<LOSS-PROVISION> 5027
<INTEREST-EXPENSE> 177300
<INCOME-PRETAX> 2275729
<INCOME-TAX> 767267
<INCOME-CONTINUING> 1508462
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1508462
<EPS-BASIC> .42
<EPS-DILUTED> .41
</TABLE>
