0000031107-12-000015.txt : 20120430 0000031107-12-000015.hdr.sgml : 20120430 20120430161335 ACCESSION NUMBER: 0000031107-12-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20120331 FILED AS OF DATE: 20120430 DATE AS OF CHANGE: 20120430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EASTERN CO CENTRAL INDEX KEY: 0000031107 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 060330020 STATE OF INCORPORATION: CT FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-35383 FILM NUMBER: 12795221 BUSINESS ADDRESS: STREET 1: 112 BRIDGE ST STREET 2: P O BOX 460 CITY: NAUGATUCK STATE: CT ZIP: 06770 BUSINESS PHONE: 2037292255 MAIL ADDRESS: STREET 1: 112 BRIDGE STREET STREET 2: P O BOX 460 CITY: NAUGATUCK STATE: CT ZIP: 06770 10-Q 1 form10q1st12.htm FIRST QTR 2012 FORM 10-Q form10q1st12.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
FORM 10-Q


(Mark One)
 
 
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2012
 

 
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:    0599

 
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)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes   [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]
Accelerated filer [X]
Non-accelerated filer [  ] (Do not check if a smaller reporting company)
Smaller reporting company [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   [  ] No [X]

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 25, 2012
Common Stock, No par value
6,214,199


 
 

 

PART 1 – FINANCIAL INFORMATION




ITEM 1 – FINANCIAL STATEMENTS



THE EASTERN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)



ASSETS
 
March 31, 2012
 
December 31, 2011
 
Current Assets
             
Cash and cash equivalents
 
$
12,958,901
 
$
11,147,297
 
Accounts receivable, less allowances: $464,000 - 2012; $423,000 - 2011
   
20,737,911
   
18,633,088
 
Inventories
   
30,159,095
   
29,793,434
 
Prepaid expenses and other assets
   
3,066,304
   
3,313,186
 
Recoverable income taxes receivable
   
-
   
647,950
 
Deferred income taxes
   
1,881,775
   
1,881,775
 
Total Current Assets
   
68,803,986
   
65,416,730
 
               
               
Property, Plant and Equipment
   
56,510,908
   
54,863,020
 
Accumulated depreciation
   
(31,053,139
)
 
(30,228,924
)
     
25,457,769
   
24,634,096
 
               
               
Goodwill
   
13,928,130
   
13,905,209
 
Trademarks
   
155,342
   
152,446
 
Patents, technology, and other intangibles net of accumulated amortization
   
1,737,668
   
1,770,008
 
Deferred income taxes
   
723,400
   
821,485
 
     
16,544,540
   
16,649,148
 
TOTAL ASSETS
 
$
110,806,295
 
$
106,699,974
 















 












-2-



 
 

 






LIABILITIES AND SHAREHOLDERS’ EQUITY
 
March 31, 2012
 
December 31, 2011
 
Current Liabilities
             
Accounts payable
 
$
8,793,999
 
$
8,412,245
 
Accrued compensation
   
1,900,032
   
2,999,478
 
Other accrued expenses
   
2,067,230
   
1,060,143
 
Current portion of long-term debt
   
1,428,571
   
3,714,286
 
Total Current Liabilities
   
14,189,832
   
16,186,152
 
               
               
Other long-term liabilities
   
655,001
   
655,001
 
Long-term debt, less current portion
   
7,142,857
   
3,035,714
 
Accrued postretirement benefits
   
1,872,875
   
1,853,157
 
Accrued pension cost
   
15,713,972
   
15,811,622
 
               
               
               
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: 50,000,000 shares
             
Issued: 8,908,928 shares in 2012 and 8,908,607 shares in 2011
   
28,505,933
   
28,499,779
 
Treasury Stock: 2,694,729 shares in 2012 and 2011
   
(19,105,723
)
 
(19,105,723
)
Retained earnings
   
74,624,582
   
73,200,362
 
               
Accumulated other comprehensive income (loss):
             
Foreign currency translation
   
2,570,072
   
2,107,187
 
Unrecognized net pension and postretirement benefit costs, net of tax
   
(15,363,106
)
 
(15,543,277
)
   Accumulated other comprehensive loss
   
(12,793,034
)
 
(13,436,090
)
Total Shareholders’ Equity
   
71,231,758
   
69,158,328
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
110,806,295
 
$
106,699,974
 

See accompanying notes.
 
-3-

 
 

 



THE EASTERN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

     
Three Months Ended
 
     
March 31, 2012
   
April 2, 2011
   
Net sales
 
$
40,495,894
 
$
33,188,612
   
Cost of products sold
   
(32,311,428
)
 
(26,872,271
)
 
Gross margin
   
8,184,466
   
6,316,341
   
                 
Selling and administrative expenses
   
(5,015,052
)
 
(4,597,285
)
 
Operating profit
   
3,169,414
   
1,719,056
   
                 
Interest expense
   
(89,237
)
 
(67,003
)
 
Other income
   
6,136
   
6,445
   
Income before income taxes
   
3,086,313
   
1,658,498
   
                 
Income taxes
   
1,040,705
   
560,324
   
Net income
 
$
2,045,608
 
$
1,098,174
   
                 
Earnings per share:
               
Basic
 
$
.33
 
$
.18
   
                 
Diluted
 
$
.33
 
$
.18
   
                 
Cash dividends per share:
 
$
.10
 
$
.09
   

See accompanying notes.




THE EASTERN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 
Three Months Ended
 
   
March 31, 2012
   
April 2, 2011
 
Net income
$
2,045,608
 
$
1,098,174
 
Other comprehensive income:
           
Change in foreign currency translation
 
462,885
   
303,187
 
Change in pension and postretirement benefit costs, net of taxes of:
2012 – $98,085
2011 – $93,381
 
180,171
   
172,772
 
Total other comprehensive income
 
643,056
   
475,959
 
Comprehensive income
$
2,688,664
 
$
1,574,133
 

See accompanying notes.
 
-4-
 
 

 


THE EASTERN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


   
Three Months Ended
 
   
March 31, 2012
 
April 2, 2011
 
Operating Activities
             
Net income
 
$
2,045,608
 
$
1,098,174
 
Adjustments to reconcile net income to net cash provided (used)  by operating activities:
             
Depreciation and amortization
   
817,557
   
907,729
 
Loss on sale of equipment and other assets
   
14,055
   
-
 
Provision for doubtful accounts
   
37,862
   
6,228
 
Issuance of Common Stock for directors’ fees
   
6,154
   
6,155
 
Changes in operating assets and liabilities:
             
Accounts receivable
   
(1,982,498
)
 
(1,793,524
)
Inventories
   
(161,271
)
 
(651,036
)
Prepaid expenses and other
   
(374,207
)
 
(425,502
)
Prepaid pension cost
   
186,606
   
261,201
 
Recoverable taxes receivable
   
647,949
   
-
 
Other assets
   
(21,003
)
 
(16,258
)
Accounts payable
   
300,851
   
188,895
 
Accrued compensation
   
(1,102,499
)
 
(1,533,351
)
Other accrued expenses
   
1,638,442
   
477,814
 
Net cash provided (used) by operating activities
   
2,053,606
   
(1,473,475
)
               
Investing Activities
             
Purchases of property, plant and equipment
   
(1,537,971
)
 
(813,664
)
Net cash used in investing activities
   
(1,537,971
)
 
(813,664
)
               
Financing Activities
             
Principal payments on long-term debt
   
(178,571
)
 
(357,143
)
Principal payments on revolving credit loan
   
(3,000,000
)
 
-
 
Proceeds from issuance of long-term debt
   
5,000,000
   
-
 
Proceeds from sales of Common Stock
   
-
   
52,590
 
Tax Benefit from disqualifying disposition of incentive stock options
   
-
   
16,453
 
Dividends paid
   
(621,387
)
 
(554,718
)
Net cash provided by (used) in financing activities
   
1,200,042
   
(842,818
)
               
Effect of exchange rate changes on cash
   
95,927
   
(14,268
)
Net change in cash and cash equivalents
   
1,811,604
   
(3,144,225
)
               
Cash and cash equivalents at beginning of period
   
11,147,297
   
12,224,608
 
Cash and cash equivalents at end of period
 
$
12,958,901
 
$
9,080,383
 

See accompanying notes.


-5-


 
 

 

THE EASTERN COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2012


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 in the United States 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 December 31, 2011 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 interim periods have been reflected therein. All intercompany accounts and transactions are eliminated. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.

The condensed consolidated balance sheet as of December 31, 2011 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:

 
Three Months Ended
 
March 31, 2012
 
April 2, 2011
Basic:
     
Weighted average shares outstanding
6,213,913
 
6,162,711
       
Diluted:
     
Weighted average shares outstanding
6,213,913
 
6,162,711
Dilutive stock options
17,826
 
50,358
Denominator for diluted earnings per share
6,231,739
 
6,213,069


Note C – Inventories

The components of inventories follow:

 
March 31, 2012
 
December 31, 2011
       
Raw material and component parts
$  12,003,319
 
$  11,863,199
Work in process
6,514,365
 
6,425,914
Finished goods
11,641,411
 
11,504,321
 
$  30,159,095
 
$  29,793,434

-6-

 
 

 



Note D – Segment Information

Segment financial information follows:

     
Three Months Ended
 
     
March 31, 2012
     
April 2, 2011
 
Revenues:
                   
Sales to unaffiliated customers:
                   
Industrial Hardware
   
$
19,207,700
     
$
14,600,276
 
Security Products
     
12,114,823
       
11,619,738
 
Metal Products
     
9,173,371
       
6,968,598
 
     
$
40,495,894
     
$
33,188,612
 
                     
Income before income taxes:
                   
Industrial Hardware
   
$
1,964,557
     
$
933,884
 
Security Products
     
795,568
       
555,878
 
Metal Products
     
409,289
       
229,294
 
Operating Profit
     
3,169,414
       
1,719,056
 
Interest expense
     
(89,237
)
     
(67,003
)
Other income
     
6,136
       
6,445
 
      Income before income taxes
   
$
3,086,313
     
$
1,658,498
 


Note E – Recent Accounting Pronouncements
 
In May 2011, the FASB issued authoritative guidance which clarifies the concepts related to highest and best use and valuation premise, blockage factors and other premiums and discounts, the fair value measurement of financial instruments held in a portfolio and of those instruments classified as a component of shareowners’ equity. The guidance includes enhanced disclosure requirements about recurring Level 3 fair value measurements, the use of nonfinancial assets, and the level in the fair value hierarchy of assets and liabilities not recorded at fair value.  This guidance became effective for the Company on January 1, 2012. This guidance did not have an impact on our consolidated financial statements or disclosures as there are presently no recurring Level 3 fair value measurements.

In June 2011, the FASB issued authoritative guidance aimed at increasing the prominence of items reported in other comprehensive income in the financial statements. In December 2011, the FASB also issued an accounting standards update that indefinitely deferred certain financial statement presentation provisions contained in its original June 2011 guidance. The guidance requires companies to present comprehensive income in a single statement below net income or in a separate statement of comprehensive income immediately following the income statement. Companies will no longer be allowed to present comprehensive income on the statement of changes in shareholders' equity. In both options, companies must present the components of net income, total net income, the components of other comprehensive income, total other comprehensive income and total comprehensive income. This update does not change which items are reported in other comprehensive income or the requirement to report reclassifications of items from other comprehensive income to net income. This guidance became effective for the Company on January 1, 2012 and required retrospective application for all periods presented.  The adoption of this guidance did not impact the presentation of the consolidated financial statements of the Company.

In September 2011, the FASB issued authoritative guidance on testing goodwill for impairment.  This guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that the fair value of a reporting unit is less than its carrying amount, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to
 
-7-
 
 
 

 
be recognized for that reporting unit, if any.  The Company adopted this guidance effective January 1, 2012 and it had no impact on the consolidated financial statements of the Company.

The Company has implemented all new accounting pronouncements that are in effect and that could impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued, but are not yet effective, that might have a material impact on the consolidated financial statements of the Company.


Note F – Debt

On January 25, 2012, the Company signed an amendment to its secured Loan Agreement with People’s United Bank (“People’s”) which included an additional $5,000,000 term portion (the “2012 Term Loan”).  The 2012 Term Loan requires quarterly payments of $178,571 for a period of seven (7) years, maturing on January 31, 2019.

Interest on the original term portion of the Loan Agreement is fixed at 4.98%.  Interest on the 2012 Term Loan is fixed at 3.90%   Prior to the amendment, the interest rate on the revolving credit portion of the Loan Agreement varied based on the LIBOR rate or People’s Prime rate plus a margin spread of 2.25%, with a floor rate of 4.0%.  As part of the amendment signed on January 25, 2012, this was changed to the LIBOR rate or People’s Prime rate plus 2.25%, with a floor of 3.25%; additionally the maturity date was extended to January 31, 2014.  During December 2011, the Company used $3,000,000 of the line of credit, the proceeds of which, along with existing cash, were used to fund a discretionary pension payment made in December, 2011.  This amount was repaid in January 2012.
 
 

Note G – Goodwill

The following is a roll-forward of goodwill from year-end 2011 to the end of the first quarter 2012:

   
Industrial
Hardware
Segment
 
Security
Products
Segment
 
Metal
Products
Segment
 
 
 
Total
 
                           
Beginning balance
 
$
2,071,393
 
$
11,833,816
 
$
 
$
13,905,209
 
Foreign exchange
   
 22,921
   
 —
   
   
 22,921
 
Ending balance
 
$
2,094,314
 
$
11,833,816
 
$
 
$
13,928,130
 



Note H – Intangibles

Patents are recorded at cost and are amortized using the straight-line method over the lives of the patents. Technology and licenses are recorded at cost and are generally amortized on a straight-line basis over periods ranging from 5 to 17 years. Non-compete agreements and customer relationships are being amortized using the straight-line method over a period of 5 years. Trademarks are not amortized as their lives are deemed to be indefinite.
 
-8-
 
 

 

The gross carrying amount and accumulated amortization of amortizable intangible assets:

   
 
Industrial
Hardware
Segment
 
 
Security
Products
Segment
 
 
Metal
Products
Segment
 
 
 
 
Total
 
Weighted-Average
Amortization Period (Years)
 
2012 Gross Amount:
                             
Patents and developed
technology
 
$
2,737,693
 
$
985,548
 
$
5,839
 
$
3,729,080
 
15.8
 
Customer relationships
   
45,825
   
   
   
45,825
 
  5.0
 
Non-compete agreements
   
30,000
   
   
   
30,000
 
  5.0
 
Total Gross Intangibles
 
$
2,813,518
 
$
985,548
 
$
5,839
 
$
3,804,905
 
15.6
 
                               
2012 Accumulated
Amortization:
                             
Patents and developed
technology
 
$
1,574,012
 
$
423,365
 
$
5,409
 
$
2,002,786
     
Customer relationships
   
38,951
   
   
   
38,951
     
Non-compete agreements
   
25,500
   
   
   
25,500
     
Total Gross Amortization
 
$
1,638,463
 
$
423,365
 
$
5,409
 
$
2,067,237
     
                               
Net March 31, 2012 per Balance Sheet
 
$
1,175,055
 
$
562,183
 
$
430
 
$
1,737,668
     




   
 
Industrial
Hardware
Segment
 
 
Security
Products
Segment
 
 
Metal
Products
Segment
 
 
 
 
Total
 
Weighted-Average
Amortization Period (Years)
 
2011 Gross Amount:
                             
Patents and developed
technology
 
$
2,714,900
 
$
1,062,652
 
$
5,839
 
$
3,783,391
 
15.5
 
Customer relationships
   
45,825
   
1,921,811
   
   
1,967,636
 
  5.0
 
Non-compete agreements
   
30,000
   
90,735
   
   
120,735
 
  5.0
 
Total Gross Intangibles
 
$
2,790,725
 
$
3,075,198
 
$
5,839
 
$
5,871,762
 
11.7
 
                               
2011 Accumulated
Amortization:
                             
Patents and developed
technology
 
$
1,528,007
 
$
495,218
 
$
5,323
 
$
2,028,548
     
Customer relationships
   
36,660
   
1,921,811
   
   
1,958,471
     
Non-compete agreements
   
24,000
   
90,735
   
   
114,735
     
Total Gross Amortization
 
$
1,588,667
 
$
2,507,764
 
$
5,323
 
$
4,101,754
     
                               
Net December 31, 2011 per Balance Sheet
 
$
1,202,058
 
$
567,434
 
$
516
 
$
1,770,008
     


 
-9-
 
 
 

 

 
Note I – Retirement Benefit Plans

The Company has non-contributory defined benefit pension plans covering certain 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 current and former officers with benefits in excess of limits imposed by federal tax law.

The Company also provides health care and life insurance for retired salaried employees in the United States who meet specific eligibility requirements.

Significant disclosures relating to these benefit plans for the first quarter of fiscal 2012 and 2011 follow:

   
Pension Benefits
 
Postretirement Benefits
 
   
Three Months Ended
 
Three Months Ended
 
   
March 31,
2012
 
April 2,
2011
 
March 31,
2012
 
April 2,
2011
 
Service cost
 
$
672,647
 
$
530,252
 
$
37,500
 
$
31,616
 
Interest cost
   
713,980
   
737,418
   
34,000
   
34,188
 
Expected return on plan assets
   
(982,747
)
 
(912,571
)
 
(24,250
)
 
(24,825
)
Amortization of prior service cost
   
41,409
   
48,537
   
(6,000
)
 
(5,972
)
Amortization of the net loss
   
242,847
   
224,264
   
-
   
-
 
Net periodic benefit cost
 
$
688,136
 
$
627,900
 
$
41,250
 
$
35,007
 


The Company’s funding policy with respect to its qualified plans is to contribute at least the minimum amount required by applicable laws and regulations. In 2012, the Company is required to contribute $3,472,000 into its pension plans and $155,000 into its postretirement plan. As of March 31, 2012, the Company has made contributions totaling $414,000 into its pension plans and $40,000 to its postretirement plan and will make the remaining contributions as required during the remainder of the year.

The Company has a contributory savings plan under Section 401(k) of the Internal Revenue Code covering substantially all U.S. non-union employees. The plan allows participants to make voluntary contributions of up to 100% of their annual compensation on a pretax basis, subject to IRS limitations. The plan provides for contributions by the Company at its discretion. The Company made contributions of $49,456 and $48,130 in the first quarter of 2012 and 2011, respectively.


Note J – Stock Based Compensation and Stock Options

The Company has stock option plans for officers, other key employees, and non-employee directors. As of March 31, 2012 two plans have shares reserved for future issuance, the 1995 and 2010 plans.  Incentive stock options granted under the 1995 and 2010 plans must have exercise prices that are 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 2010 plan with restrictions determined by the Compensation Committee of the Company’s Board of Directors. Under the 1995 and 2010 plans, nonqualified stock options granted to participants will have exercise prices determined by the Compensation Committee of the Company’s Board of Directors. No options or restricted stock were granted in the first quarter of 2012 or 2011.

As of March 31, 2012, there were 500,000 shares available for future grant under the above noted 2010 plan and there were no shares available for grant under the 1995 plan.  As of March 31, 2012, there were 525,500 shares of common stock reserved under all option plans for future issuance.


-10-

 
 
 

 


   
Three Months Ended
March 31, 2012
 
Year Ended
December 31, 2011
   
Shares
 
Weighted - Average Exercise Price
 
Shares
 
Weighted - Average Exercise Price
Outstanding at beginning of period
 
25,500
 
$
13.580
 
80,000
 
$
12.471
Exercised
 
   
 
(54,500
)
 
11.952
Outstanding at end of period
 
25,500
   
13.580
 
25,500
   
13.580



Options Outstanding and Exercisable
 
 
 
Range of Exercise Prices
 
 
 
Outstanding as of March 31, 2012
Weighted- Average Remaining Contractual Life
 
 
Weighted- Average Exercise Price
$13.58
 
25,500
2.7
 13.580

At March 31, 2012, outstanding and exercisable options had an intrinsic value of $163,710.


Note K – Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions.  With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2008 and non-U.S. income tax examinations by tax authorities prior to 2005.

The total amount of unrecognized tax benefits could increase or decrease within the next twelve months for a number of reasons, including the closure of federal, state and foreign tax years by expiration of the statute of limitations and the recognition and measurement considerations under FASB Accounting Standards Codification (“ASC”) 740.  There have been no significant changes to the amount of unrecognized tax benefits during the three months ended March 31, 2012.  The Company believes that it is reasonably possible that the total amount of unrecognized tax benefits will not increase or decrease significantly over the next twelve months.


Note L - Financial Instruments and Fair Value Measurements
 
Financial Risk Management Objectives and Policies

The Company is exposed primarily to credit, interest rate and currency exchange rate risks which arise in the normal course of business.
 
Credit Risk
 
Credit risk is the potential financial loss resulting from the failure of a customer or counterparty to settle its financial and contractual obligations to the Company, as and when they become due. The primary credit risk for the Company is its receivable accounts with customers. The Company has established credit limits for customers and monitors their balances to mitigate the risk of loss. At March 31, 2012 and December 31, 2011, there were no significant concentrations of credit risk. No one customer represented more than 10% of the Company’s net trade receivables at March 31, 2012.  At year end 2011 only one customer exceeded 10% of total receivables. The maximum exposure to credit risk is primarily represented by the carrying amount of the Company’s accounts receivable.
 
-11-

 
 

 

Interest Rate Risk
 
On March 31, 2012, the Company has no exposure to the risk of changes in market interest rates as the interest rate on the outstanding debt is fixed at 4.98% and 3.90%.

Fair Value Measurements

Assets and liabilities that require fair value measurement are recorded at fair value using market and income valuation approaches and considering the Company’s and counterparty’s credit risk. The Company uses the market approach and the income approach to value assets and liabilities as appropriate. There are no assets or liabilities requiring fair value measurements on March 31, 2012 or December 31, 2011.


ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to highlight significant changes in the Company’s financial position and results of operations for the thirteen weeks ended March 31, 2012. The interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal year ended December 31, 2011 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Certain statements set forth in this discussion and analysis of financial condition and results of operations are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They use such words as “may,” “will,” “expect,” “believe,” “plan” and other similar terminology. These statements reflect management’s current expectations regarding future events and operating performance and speak only as of the date of this release. These forward-looking statements involve a number of risks and uncertainties, and actual future results and trends may differ materially depending on a variety of factors, including 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, changes within our industry segments and in the overall economy, litigation and legislation. In addition, terrorist threats and the possible responses by the U.S. government, the effects on consumer demand, the financial markets, the travel industry, the trucking industry and other conditions increase the uncertainty inherent in forward-looking statements. Forward-looking statements reflect the expectations of the Company at the time they are made, and investors should rely on them only as expressions of opinion about what may happen in the future and only at the time they are made. The Company undertakes no obligation to update any forward-looking statement. Although the Company believes it has an appropriate business strategy and the resources necessary for its operations, future revenue and margin trends cannot be reliably predicted and the Company may alter its business strategies to address changing conditions.

In addition, the Company makes estimates and assumptions that may materially affect reported amounts and disclosures. These relate to valuation allowances for accounts receivable and for excess and obsolete inventories, accruals for pensions and other postretirement benefits (including forecasted future cost increases and returns on plan assets), provisions for depreciation (estimating useful lives), uncertain tax positions, and, on occasion, accruals for contingent losses.

Overview

Sales in the first quarter of 2012 increased 22% compared to the prior year, as a result of an increase in sales of existing products in many of the markets we serve, selective price increases to customers and the introduction of new products.  Sales in the first quarter of 2012 increased in each of the Company’s business segments when compared to the first quarter of 2011: the Industrial Hardware segment sales increased approximately 32%, the Security Products segment sales increased approximately 4% and the Metal Products segment sales increased approximately 32%.
 
-12-
 
 

 

For the three months ended March 31, 2012, gross margin as a percentage of sales was 20% compared to 19% in the comparable period of 2011.  This increase was the result of higher sales volume, selective price increases to customers, the mix of products produced and the introduction of new products.

Raw material prices have increased from the prior year period.  The Company, through price increases, is recovering these additional costs from our customers, wherever possible.  The Company expects raw material prices to continue to increase as worldwide economic conditions improve, which may have a negative impact on future operating margins.  Currently, there is no indication that the Company will be unable to obtain supplies of all the raw materials that it requires.

Cash flow from operations in the first quarter of 2012 increased compared to the same period in 2011. This increase is primarily due to the higher level of earnings in the 2012 period and the associated timing differences in the collections of accounts receivable, payments of liabilities, and changes in inventories.  Cash on hand and cash flow from operations, along with the result of controlling discretionary expenditures, should be sufficient to enable the Company to meet all its existing obligations and continue its quarterly dividend payments.

A more detailed analysis of the Company’s results of operations and financial condition follows:

Results of Operations

The following table shows, for the periods indicated, selected line items from the condensed consolidated statements of operations as a percentage of net sales, by segment:

 
 
Three Months Ended March 31, 2012
 
 
Industrial
Security
Metal
 
 
Hardware
Products
Products
Total
Net sales
100.0%
100.0%
100.0%
100.0%
Cost of products sold
76.8%
77.6%
89.1%
79.8%
Gross margin
23.2%
22.4%
10.9%
20.2%
         
Selling and administrative expense
13.0%
15.8%
6.4%
12.4%
Operating profit
10.2%
6.6%
4.5%
7.8%
         
 
 
Three Months Ended April 2, 2011
 
 
Industrial
Security
Metal
 
 
Hardware
Products
Products
Total
Net sales
100.0%
100.0%
100.0%
100.0%
Cost of products sold
79.1%
78.1%
89.6%
81.0%
Gross margin
20.9%
21.9%
10.4%
19.0%
         
Selling and administrative expense
14.5%
17.1%
7.1%
13.8%
Operating profit
6.4%
4.8%
3.3%
5.2%


-13-

 
 

 

The following table shows the amount of change for the first quarter of 2012 compared to the first quarter of 2011 in sales, cost of products sold, gross margin, selling and administrative expenses and operating results, by segment (dollars in thousands):

 
Industrial
Security
Metal
 
 
Hardware
Products
Products
Total
Net sales
         $ 4,607
       $  495
          $ 2,205
        $ 7,307
         
         Volume
28.1%
2.5%
13.0%
16.0%
         Prices
0.4%
0.6%
2.3%
0.8%
         New products
   3.1%
   1.2%
   16.3%
   5.2%
 
31.6%
4.3%
31.6%
22.0%
         
Cost of products sold
        $ 3,194
       $  318
  $ 1,927
        $ 5,439
 
27.6%
3.5%
30.9%
20.2%
         
Gross margin
      $ 1,413
    $  177
       $    278
      $ 1,868
 
46.4%
7.0%
38.2%
29.6%
         
Selling and administrative expenses
      $    383
    $  (63)
        $      98
      $    418
 
18.1%
-3.2%
19.6%
9.1%
         
Operating profit
      $ 1,030
     $  240
       $    180
      $ 1,450
 
110.4%
43.1%
78.5%
84.4%


Industrial Hardware Segment

Net sales in the Industrial Hardware segment were up 32% in the first quarter of 2012 compared to the prior year quarter. The higher sales in the first quarter of 2012 reflected an increase in sales of existing products, primarily lightweight composite panels used in an interactive electronic board product, as well as higher sales to the distribution, military and Class 8 truck markets in 2012 compared to the same period in 2011, selective price increases to customers and the introduction of new products.  All of the new products were developed internally and included a rotary latch and a venting line of products for the Class 8 truck market; an escape hatch for the military market; and a door latch for the recreational vehicle market.

Cost of products sold for the Industrial Hardware segment increased 28% from the first quarter of 2011 to the first quarter of 2012. The increase is due to increased costs for payroll and payroll related charges, supplies and tools, equipment maintenance, utilities and shipping.

Gross margin as a percent of net sales increased from 21% to 23% in the first quarter of 2012, due to the mix of products produced.

Selling and administrative expenses increased 18% for the first quarter of 2012 compared to the prior year period due to increases in payroll and payroll related charges, advertising, commission payments resulting from the higher sales volume in 2012, bad debt expense and an increase in the allocation of corporate expenses based on the sales volume in 2012.


Security Products Segment

Net sales in the Security Products segment increased 4% in the first quarter of 2012 compared to the first quarter of 2011.  The increase in sales in the first quarter of 2012 in the Security Products segment is primarily the result of sales of existing products to the many markets served by this segment, including: computer, storage, cash management and commercial laundry.  Sales of new products included new lock products for the storage and cash
 
-14-
 
 

 

management markets and Digicoin, “Flash Cash”, a contactless and wireless cash payment system, and Pinmate products for the commercial laundry market.

Cost of products sold for the Security Products segment increased 4% in 2012 compared to the first quarter of 2011. The increase in cost of products sold was primarily due to increased costs for raw materials.

Gross margin as a percentage of sales was comparable at 22% for the first quarter of both 2012 and 2011.

Selling and administrative expenses decreased 3% from 2011 levels primarily due to decreases in travel expenses, a reduction in amortization expense in 2012 resulting from acquisition costs related to Royal Lock which were fully amortized in 2011, and a decrease in the allocation of corporate expenses based on the sales volume in 2012.


Metal Products Segment

Net sales in the Metal Products segment increased 32% in the first quarter of 2012 as compared to the prior year period. The higher sales in the first quarter of 2012 reflected an increase in sales of existing products, selective price increases to customers and the introduction of new products.   Sales of mining products were up 27% in 2012 compared to the first quarter of 2011 and sales of contract castings increased 58% from the prior year levels. The increase in sales of mining products was driven by continued strong demand in 2012 in both the U.S. and Canadian mining markets compared to the prior year first quarter and the introduction of new mining products.  New mining products included hexnuts, square cableheads, truss shoes, splice tubes, bearing blocks and steel mine anchor shells. The increase in sales of contract casting was primarily the result of new products: a tie plate for the railroad industry and kicker clips and rail clamps for a solar panel application.

Cost of products sold increased 31% in the first quarter of 2012 compared to the same period in 2011. The increase resulted from the mix of products produced, manufacturing costs associated with the higher volume of sales in 2012, and increases in raw material costs.

Gross margin as a percentage of net sales improved from 10% in the first quarter of 2011 to 11% for the 2012 quarter. The increase is due to the mix of products produced and elimination of products with unacceptable profit margins.

Selling and administrative expenses increased 20% in 2012 compared to the same period in 2011. The increase was primarily the result of an increase in the allocation of corporate expenses based on the sales volume in 2012.


Other Items

Interest expense increased 33% in the first quarter of 2012 compared to the prior year period due to the increased level of debt.

Other income for both periods presented was not material to the financial statements.

Income taxes reflected the change in the operating results.  The effective tax rate in the first quarter of 2012 and 2011 were comparable at 34%.


Liquidity and Sources of Capital

The Company provided $2.1 million from its operations during the first three months of 2012 compared to having used $1.5 million during the same period in 2011.  The increase in cash flows in the quarter was primarily the result of the associated timing differences in the collections of accounts receivable, payments of liabilities, and changes in inventories, as well as the increase in earnings over the comparable period in 2011.  Cash flow from operations coupled with cash on hand at the beginning of the year was sufficient to fund capital expenditures, debt service, and dividend payments.
 
-15-
 
 

 

Additions to property, plant and equipment were $1,538,000 for the first three months of 2012 compared to $814,000 for the same period in 2011.  Total capital expenditures for 2012 are expected to be approximately $4 million.  As of March 31, 2012, there is approximately $350,000 of outstanding commitments for these capital expenditures.

The following table shows key financial ratios at the end of each period:

   
First
Quarter
2012
 
First
Quarter
2011
 
Year
End
2011
 
Current ratio
 
4.8
 
5.2
 
4.0
 
Average days’ sales in accounts receivable
 
47
 
51
 
45
 
Inventory turnover
 
4.3
 
3.7
 
3.9
 
Total debt to shareholders’ equity
 
12.0
%
5.8
%
9.8
%


The following table shows important liquidity measures as of the balance sheet date for each period below (in millions):
   
First
Quarter
2012
 
First
Quarter
2011
 
Year
End
2011
 
Cash and cash equivalents
 
$  13.0
 
   $   9.1
 
$  11.1
 
Working capital
 
 54.6
 
 49.0
 
 49.2
 
Net cash provided/(used) by operating activities
 
 2.1
 
 (1.5
)
 1.4
 
Change in working capital impact on net cash
    used by operating activities
 
 
(0.8
)
 
(3.5
)
 
(9.7
)
Net cash used in investing activities
 
(1.5
)
(0.8
)
(3.4
)
Net cash provided/(used) in financing activities
 
1.2
 
(0.8
)
0.8
 

Total inventories as of March 31, 2012 were $30.2 million, compared to $29.8 million at year end 2011 and $29.0 million at the end of the first quarter of 2011.  Accounts receivable increased to $20.7 million from $18.6 million at year end 2011 and $18.3 million at the end of the first quarter of fiscal 2011.  The increases are related to higher revenues in the first three months of the current year.

Cash on hand, cash flow from operating activities and funds available under the revolving credit portion of the Company’s Loan Agreement are expected to be sufficient to cover future foreseeable working capital requirements.


ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in market risk from what was reported in the 2011 Annual Report on Form 10-K.


ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures:

As of the end of the fiscal quarter ended March 31, 2012, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 240.13a-15.  As defined in Exchange Act Rules 240.13a-15(e) and 240.15d-15(e), “the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer
 
-16-
 
 

 

in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.”  Based upon that evaluation, the CEO and CFO concluded that the Company’s current disclosure controls and procedures were effective as of the March 31, 2012 evaluation date.

The Company believes that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and the CEO and CFO have concluded that these controls and procedures are effective at the “reasonable assurance” level.

Changes in Internal Controls:

During the period covered by this report, there have been no significant changes in the Company’s internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

During the fourth quarter of 2010, the Company was contacted by the State of Illinois regarding potential ground contamination at our plant in Wheeling, Illinois.  The Company enlisted into a voluntary remediation program in Illinois and has engaged an environmental clean-up company to perform testing and develop a remediation plan, if needed.  No estimate for the cost of remediation was available when this Form 10-Q was filed with the SEC.

During 2008, the U.S. Environmental Protection Agency identified the Company as a potentially responsible party in connection with a site in Cleveland, Ohio based on the ownership of the site by a division of the Company in the 1960’s.  According to the Agency, the current occupant of the site filed bankruptcy, leaving behind plating operations which required remedial action.  The Company declined to participate in the remedial action, and intends to defend against any efforts of the Agency to impose any liability against the Company for environmental conditions on this site which may have occurred in the years since its ownership.

There are no other legal proceedings, other than ordinary routine litigation incidental to the Company’s business, to which either the Company or any of its subsidiaries is a party or to which any of their property is the subject.


ITEM 1A – RISK FACTORS

There have been no material changes in risk factors from what was reported in the 2011 Annual Report on Form 10-K.


ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There have been no sales of unregistered securities by the Company or purchases of registered equity securities by the Company during the period covered by this report.
 
-17-

 
 

 

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES
 

None


ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5 – OTHER INFORMATION

None


ITEM 6 – EXHIBITS

31) Certifications required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32) Certifications pursuant to Rule 13a-14(b) and 18 USC 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99(1)) The Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 is incorporated herein by reference.

99(2)) Form 8-K filed on April 25, 2012 setting forth the press release reporting the Company’s earnings for the quarter ended April 25, 2012 is incorporated herein by reference.

99(3)) Form 8-K filed on April 26, 2012 setting forth the results of the vote at the annual meeting of shareholders of the Company which was held on April 25, 2012 is incorporated herein by reference.




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:  April 30, 2012
/s/Leonard F. Leganza
 
Leonard F. Leganza
Chairman, President and Chief Executive Officer
   
DATE:  April 30, 2012
/s/John L. Sullivan III
 
John L. Sullivan III
Vice President and Chief Financial Officer

-18-
EX-31 2 ex31first.htm CERTIFICATION 31 ex31first.htm
EXHIBIT 31

CERTIFICATIONS

I, Leonard F. Leganza, certify that:

1.  
I have reviewed this quarterly report on Form 10-Q of The Eastern Company;

2.  
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.  
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.  
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)  
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)  
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)  
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)  
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)  
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:  April 30, 2012                                

/s/ Leonard F. Leganza
Leonard F. Leganza
CEO

 
 

 

EXHIBIT 31

CERTIFICATIONS

I, John L. Sullivan III, certify that:

1.  
I have reviewed this quarterly report on Form 10-Q of The Eastern Company;

2.  
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.  
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.  
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)  
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)  
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)  
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)  
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)  
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:   April 30, 2012                                
/s/ John L. Sullivan III
John L. Sullivan III
CFO
EX-32 3 ex32first.htm CERTIFICATION 32 ex32first.htm

EXHIBIT 32


CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
Pursuant to 18 United States Code Section 1350,
as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002


Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Leonard F. Leganza, the Chief Executive Officer of The Eastern Company (the “Company”) and John L. Sullivan III, the Chief Financial Officer of the Company, hereby certify that, to the best of their knowledge:

 
1)
The Company’s Quarterly Report on Form 10-Q for the Period ended March 31, 2012, and to which this certification is attached as Exhibit 32 (the “Periodic Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

 
2)
The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


In Witness Whereof, the undersigned have set their hands hereto as of the 30th day of April, 2012.

 
/s/ Leonard F. Leganza
 
Leonard F. Leganza
CEO
   
 
/s/ John L. Sullivan III
 
John L. Sullivan III
CFO


A signed original of this written statement required by Section 906 has been provided to The Eastern Company and will be retained by The Eastern Company and furnished to the Securities and Exchange Commission or its staff upon request.

This certification “accompanies” the Form 10-Q to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q, irrespective of any general incorporation language contained in such filing.)









EX-101.INS 4 eml-20120331.xml XBRL INSTANCE DOCUMENT 0000031107 2012-01-01 2012-03-31 0000031107 2012-04-25 0000031107 2012-03-31 0000031107 2011-12-31 0000031107 2011-01-02 2011-04-02 0000031107 2011-01-01 0000031107 2011-04-02 xbrli:shares iso4217:USD iso4217:USD xbrli:shares <div><div style="text-align: left; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; font-weight: bold; margin-right: 0pt; text-decoration: underline;">Note E - Recent Accounting Pronouncements</div><div style="text-align: justify; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">&#160;</div><div style="text-align: justify; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">In May&#160;2011, the FASB issued authoritative guidance which clarifies the concepts related to highest and best use and valuation premise, blockage factors and other premiums and discounts, the fair value measurement of financial instruments held in a portfolio and of those instruments classified as a component of shareowners' equity. The guidance includes enhanced disclosure requirements about recurring Level 3 fair value measurements, the use of nonfinancial assets, and the level in the fair value hierarchy of assets and liabilities not recorded at fair value.&#160;&#160;This guidance became effective for the Company on January&#160;1, 2012. This guidance did not have an impact on our consolidated financial statements or disclosures as there are presently no recurring Level 3 fair value measurements.</div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-align: justify; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">In June 2011, the FASB issued authoritative guidance aimed at increasing the prominence of items reported in other comprehensive income in the financial statements. In December 2011, the FASB also issued an accounting standards update that indefinitely deferred certain financial statement presentation provisions contained in its original June 2011 guidance. The guidance requires companies to present comprehensive income in a single statement below net income or in a separate statement of comprehensive income immediately following the income statement. Companies will no longer be allowed to present comprehensive income on the statement of changes in shareholders' equity. In both options, companies must present the components of net income, total net income, the components of other comprehensive income, total other comprehensive income and total comprehensive income. This update does not change which items are reported in other comprehensive income or the requirement to report reclassifications of items from other comprehensive income to net income. This guidance became effective for the Company on January&#160;1, 2012 and required retrospective application for all periods presented.&#160;&#160;The adoption of this guidance did not impact the presentation of the consolidated financial statements of the Company.</div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-align: justify; text-indent: 0pt; display: block; margin-left: 0pt; margin-right: 0pt;"><font style="display: inline; font-family: Times New Roman; font-size: 10pt;">In September 2011, the FASB issued authoritative guidance on testing goodwill for impairment.&#160;&#160;This guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. 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display: block; font-family: Times New Roman; font-size: 10pt; font-weight: bold; text-decoration: underline;">Note F - Debt</div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-align: justify; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">On January 25, 2012, the Company signed an amendment to its secured Loan Agreement with People's United Bank ("People's") which included an additional $5,000,000 term portion (the "2012 Term Loan").&#160;&#160;The 2012 Term Loan requires quarterly payments of $178,571 for a period of seven (7) years, maturing on January 31, 2019.</div><div style="text-indent: 0pt; display: block;"><br /></div><div style="text-align: justify; text-indent: 0pt; display: block; font-family: Times New Roman; margin-left: 0pt; font-size: 10pt; margin-right: 0pt;">Interest on the original term portion of the Loan Agreement is fixed at 4.98%.&#160;&#160;Interest on the 2012 Term Loan is fixed at 3.90%&#160;&#160;&#160;Prior to the amendment, the interest rate on the revolving credit portion of the Loan Agreement varied based on the LIBOR rate or People's Prime rate plus a margin spread of 2.25%, with a floor rate of 4.0%.&#160;&#160;As part of the amendment signed on January 25, 2012, this was changed to the LIBOR rate or People's Prime rate plus 2.25%, with a floor of 3.25%; 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