The Eastern Company

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The Eastern Company

112 Bridge Street
P.O. Box 460
Naugatuck, Connecticut 06770-0460
U.S.A.
Telephone: (203) 729-2255
Fax: (203) 723-8653
Web site: http://www.easterncompany.com

Public Company
Incorporated: 1912
Employees: 634
Sales: $88 million (2001)
Stock Exchanges: American
Ticker Symbol: EML
NAIC: 332510 Hardware Manufacturing

Founded in 1858, the Eastern Company of Naugatuck, Connecticut, manufactures and sells industrial hardware, custom locks and other security products, and metal products from nine locations in the United States, Canada, Mexico, Taiwan, and China. The company’s customers are mainly original equipment manufacturers, distributors, and locksmiths.

Tuttle and Whittemore Team Up in 1858

Bronson Beecher Tuttle had a genius for making things. His friend John Howard Whittemore had a genius for figures. In the summer of 1858, when the hoe shop of Bronson’s father Eben burned to the ground, Bronson talked his father into letting him start a malleable iron business on the site. Together, the younger Tuttle and Whittemore went into business on October 4, 1858, opening a small foundry. In a single small building with a handful of craftsmen, the co-owners pulled in annual salaries of $600, a fair income at the time.

They succeeded because they caught a wave. Their business—making malleable iron castings—was a relatively new process in the 19th century. Malleable iron vastly outperformed the more common material of the day-cast iron. Cast iron could not withstand a heavy blow and often broke when dropped on a hard surface. Malleable iron withstood enormous pressures, sustained severe and repeated shocks, resisted corrosion, and had great flexibility in comparison to cast iron. In the second half of the 19th century, the country’s growth demanded huge quantities of metals for wagons, saddlery hardware, farm implements, railroads, guns, and hundreds of other products that were made with metal parts. In the company’s early years, carriage irons and harness trimmings comprised nearly half the business. Iron farm implements were also a staple.

Production Boost from Civil War Needs

The Civil War required new production peaks to meet the demands for war products—guns, wagons, gun-carriages, railroad train parts, and many other implements. After the war, the company made major sales in castings for “steel-laid” shears, a product that would remain its primary source of revenue for the next 50 years, and the Naugatuck foundry was soon supplying all the chief shear-makers in the United States.

By 1870, Tuttle and Whittemore’s initial capital investment of $10,000 had tripled to $31,000, and the company’s work force of 90 in 1870 more than quadrupled by 1883 to 368. The business expanded by buying malleable iron foundries in Troy, New York, and Bridgeport and New Britain, Connecticut. Later it held interests in plants in at least nine other cities, including one in Denver. By 1887, capitalization reached $100,000. The company name, The Naugatuck Malleable Iron Company, no longer fit its expanding operations. Tuttle and Whittemore renamed it The Eastern Malleable Iron Company.

Over the following decades, Eastern changed its product mix with the changes in the U.S. economy. When transportation shifted from the horse and wagon to the automobile at the turn of the 20th century, Eastern kept right on rolling. Metals that previously would have been crafted into buggies and railroad cars flowed into cars and trucks instead. Eastern produced hundreds of parts for an early car called the Maxwell.

Civic Contributions in the 1890s

Whittemore was still remembered for major contributions to the center of the company’s home town of Naugatuck 144 years after Eastern’s founding. He engaged a leading architectural firm to design many of Naugatuck’s town buildings, including the Naugatuck National Bank (1893), Salem School (1894), the Whittemore Library (1894), the Congregational Church (1903), and Hillside School (1904), all of which were still in use nearly a hundred years later.

Shortly after the deaths of both owners (Tuttle in 1903; Whittemore in 1910) the company began to struggle. Competition increased greatly. The country’s economy became much more complex. And the company had grown overly dependent on a limited product line.

Company Reforms in 1930s–40s

In 1928, Eastern had several plants—three in Connecticut and one each in New York and Delaware. A survey the next year concluded that the company’s plants produced similar products and were so close together that they competed with each other. Company management faced two other major problems. Many of the industries Eastern served had moved to the Midwest, where the company had no plants. As a consequence of these factors, sales at the foundries had dwindled.

Management did not unite behind the need for action until 1935. By then, the decision makers at Eastern agreed that drastic reforms were required as well as a strong leader to implement these changes. They wanted someone from outside the malleable iron industry, so he would not be bound by the iron industry’s traditional methods of operating.

All the company’s problems were not of its own doing. Hanging over Eastern and the entire country at this time was the Great Depression. Combined with company internal problems and industry-wide challenges, the Depression nearly brought Eastern down.

In 1935, Lewis A. Dibble took over the company reins. The company board found Dibble right in Naugatuck. He had been president of the Risdon Tool and Machine Company, an operation he had built into one of the country’s leading producers of precision sheet brass and wire products. Dibble acted quickly. He eliminated four of Eastern’s six plants, keeping only the Naugatuck and Wilmington, Delaware, facilities. Skilled workmen from the closed plants were offered jobs with the remaining operations—an unusual move in those days when the nation was still mired in an economic depression.

Dibble used savings from the plant closings to explore new market niches and make promising acquisitions. In February 1936, Eastern spent about $800,000 to buy Cleveland’s Eberhard Manufacturing Company. Eberhard, formerly one of the strongest foundries in the Midwest, did malleable work, but it also boasted a strong line of proprietary transportation hardware products such as locks and hinges for truck doors. Eberhard had fallen on financial hard times. Dibble sent Charles Brust to Cleveland to turn the new subsidiary around.

In 1944, Eastern bought a company founded in 1845, the Frazer & Jones malleable iron works of Syracuse, New York. Frazer & Jones was one of the oldest foundries in the industry and served a special market niche—the railroad. Three years later Eastern made a third acquisition, the Eastern Castings Corporation of Newburgh, New York. The Newburgh facility made aluminum castings.

By eliminating four plants, then making these three strategic purchases, Dibble met the goal of diversifying operations and expanding the company geographically. These changes meant Eastern could become a leader in heavy malleable castings, light malleable castings, machined castings, steel castings, and aluminum castings. The Naugatuck plant continued to lead the company. It produced a wider variety of metals than any of the other four foundries, plus it housed the central research laboratory and an experimental foundry that all five plants used.

Dibble’s business approach became the company’s philosophy. Eastern sought to be a domineering factor in niche markets rather than one of many players in larger markets. Among his beliefs was the idea that “it is far better for a plant to be too small than to be too large.”

1950s: A Move Into More Modern Markets

Combined, the five foundries had about 2,000 employees and served some 2,800 customers. In the early 1950s, sales reached $15 million. Eastern was considered one of the nation’s dominant firms in sheet metal production and precision wire products.

After World War II, Eastern began moving into more modern markets. Now the chairman of the board, Dibble, along with company president Charlie Brust, put the firm’s future under the microscope again. Eastern was basically a casting company with five non-competing plants with very different capabilities. Its business was highly cyclical. Dibble and Brust led a company pursuit for products it could call its own and at the same time would help reduce its financial ups and downs.

Key Dates:

1858:: B.B. Tuttle and J.H. Whittemore establish Tuttle & Whittemore iron works.
1887:: Encompassing by now several iron works, the company is renamed Naugatauk Malleable Iron Company.
1912:: The company is incorporated as Eastern Malleable Iron Company.
1935:: Lewis A. Dibble becomes company president.
1961:: Company is renamed The Eastern Company.
1970:: Decade is characterized by acquisitions.
1980:: Decade is characterized by sell-offs and reorganization.
2000:: Company sales jump 63 percent to $88 million over a four-year period.

Dibble and Brust studied one of Frazer & Jones’s biggest customers—the Pattin Manufacturing Company of Marietta, Ohio. Pattin had a mine roof support product that largely replaced timbers as a means of preventing underground mine roof collapses. The Eastern executives liked the product. They purchased Pattin in 1955 to help assure Eastern’s production stability and to secure a profitable product. At about the same time, Eastern decided to abandon the foundry jobbing business and become a manufacturer of proprietary products, primarily in the transportation hardware sector.

The company closed its large Wilmington foundry in 1961 because that facility had mainly served the railroad industry, a sector that was drying up. To emphasize the new focus, the company changed names again. Eastern Malleable Iron Company officially adopted the name The Eastern Company on February 22, 1961.

Acquisitions and Divestitures: 1960s–80s

A second surge of acquisitions took place during the 1960s. In 1961, the company spent a total of $1,084,000 to buy Wilfrid O. White & Sons, Inc. of Boston and Thompson Materials Company of Belleville, New Jersey. Other acquisitions that decade included Illinois Lock Company of Wheeling, Illinois (1965); K-S Marine Products, Inc. (1966); and Local Steel & Supply Company of Mineola, New York (1968). Expansion into Canada came in 1968 when Eastern spent about $1 million to build the Eber-East Products, Ltd. plant as a subsidiary of Eberhard in Tillsonburg, Ontario.

In the 1960s, the company faced a major decision—should it upgrade or abandon its remaining foundries? The foundries were old and basically used 19th-century methods. Eastern had increasing difficulty finding workers interested in lugging heavy ladles of metal around from its coal-fired melting furnaces. Management also worried about pollution.

Studies showed a future in Eastern’s specialized area of the foundry business. The company modernized its foundries in Syracuse and Naugatuck in the 1960s at a cost of more than $3 million. It automated operations, added labor-saving equipment, and switched to electric induction furnaces.

The 1970s brought two more additions. In May 1971, Eastern picked up the Digital Depth Indicator line from Lykes Brothers, Inc. of Clearwater, Florida. With 22,000 shares of common stock, Eastern bought Marion Mine Service, Inc. in Marion, Illinois.

While most companies were on buying sprees in the 1980s, Eastern slimmed down its operations. After buying Danforth Anchors in 1969, it sold the firm in 1983. Local Steel & Supply was sold in 1986. A year later, Eastern sold Pattin Manufacturing Division for $6 million. That same year it unloaded Marion Mine Service. From 1940 through approximately 1988, Eastern was one of only a few publicly-traded U.S. corporations to record an unbroken string of paying consecutive quarterly dividends.

1990s and Beyond

By the 1990s, the company hardly resembled its early foundry-based operation. Then, in May 1990, the board approved a plan to discontinue its malleable iron business. A year and a half later, the board voted to end the company’s high alloy stainless steel castings business. Eastern continued to evolve when it sold all the substantial assets of its construction segment in August 1995.

In 1997, sluggish performance caused a major shareholder, New York-based Millbrook Capital Management, to try to gain a foothold on the board of directors. The group also offered to buy the company for $15 per share in cash or $42 million in July of that year. Senior analyst Shirley Westcott, of the Institutional Shareholder Services, called the company’s performance “pretty pathetic,” claiming an investor would have gotten a higher return investing in U.S. Treasury notes. Eastern representatives claimed the company had made a financial turnaround and was far ahead of 1997 targets. Both the purchase and proxy attempts failed, but shortly afterwards the company chief executive left and was replaced by Leonard F. Leganza.

In 2001, Eastern had three major divisions: the industrial hardware group, security products, and metal products. The industrial hardware group supplied latches, locks and other security hardware to the industrial sector, especially transportation companies. This division’s operations, headed up Eberhard, spanned Canada, the United States, and Mexico. Sesamee Mexicana also produced products for this division. Eberhard gear could be found in tractor-trailer trucks, moving vans, off-road construction and farming equipment, school buses, military vehicles, and recreational boats. The industrial hardware group’s fasteners and closure devices were used on equipment such as metal cabinets, machinery housings, and electronic instruments. In 2000, about 39 percent of the company’s sales and 49 percent of its earnings came from this division.

The security products group included the Illinois Lock Division, Greenwald Industries Division, CCL Security Products, World Lock Company, and World Security Industries. This group manufactured products to safeguard property and control access. Illinois Lock made keyed, electric switch, and high-security locks for original equipment manufacturers (OEM’s). CCL Security products included brand-name keyless locks like Sesamee, Presto, and Huski. Business sectors using this group’s products included the computer, electronic, vending, and gaming industries. Eastern’s security products group also supplied product to the luggage, furniture, and laboratory equipment industries. A mid-2000 year addition to the fold, Greenwald Industries, produced coin accepters and metering systems used in self-service laundry facilities. Greenwald also offered Smart Cards for use in parking meters and laundry facilities. This group of Eastern’s operations accounted for 36 percent of sales and 30 percent of earnings in 2000.

Frazer & Jones headed Eastern’s metal products group. Its anchoring devices for supporting underground mine roofs had become an industry-accepted safety standard. The Canadian, Australian, and U.S. mining industries all used Frazer & Jones metal products. Eastern’s metal products group also produced precision, small-size castings used by the construction and electrical industries. In 2000, the company derived 25 percent of its sales and 21 percent of its earnings from this group.

Based on sales, the company’s new direction seemed to work. In 1996, sales were $56 million. Sales grew four consecutive years through 2000, reaching $88.19 million. The company focused on strengthening and expanding its industrial hardware and security product segments. Acquisition of Ashtabula Industrial Hardware Company, a designer and manufacturer of door control hardware for school and courtesy buses, gave Eastern a new market for products from its Canadian Eberhard operation. Eberhard’s product line was expanded when Eastern acquired two latching products from Hansen International in 2000.

Principal Subsidiaries

Eberhard Hardware Manufacturing Ltd. (Canada); Sesamee Mexicana (Mexico); World Lock Co. Ltd. (Taiwan); World Security Industries Co. Ltd. (Hong Kong).