Patent protection for the various product lines within the Company is limited, but is sufficient to protect the Company’s competitive positions. Foreign sales and license agreements are not significant.

None of the Company’s business segments are seasonal.

The Company, across all of its business segments, has increased its emphasis on sales and customer service by fulfilling the rapid delivery requirements of our customers. As a result, investments in additional inventories are made on a selective basis.

Customer lists for all business segments are broad-based geographically and by markets, and sales are generally not highly concentrated by customer.  NoOne customer equaled 10% or moreof the Metal Products segment, Jennmar Corporation, accounted for 10.5% of the Company’s consolidated sales for any year presented.in 2014 and 11.5% in 2013.  No other customer exceeded 10% of total consolidated sales in 2014, 2013 or 2012.

The dollar amount of the backlog of orders received by the Company believed to be firm as of the fiscal year end December 29, 2012January 3, 2015 is $20,281,000,$23,143,000, as compared to $22,234,000$21,494,000 at December 31, 2011.28, 2013.  The primary reasons for the decreaseincrease from 20112013 to 20122014 was the timing of orders received from customers.

The Company encounters competition in all of its business segments. The Company has been successful in dealing with this competition by offering high quality diversified products with the flexibility of meeting customer needs on a timely basis. This is accomplished by effectively using internal engineering resources and cost effective manufacturing capabilities, expanding product lines through product development and acquisitions, and maintaining sufficient inventory for fast turnaround of customer orders.  Imports from Asia and Latin America with favorable currency exchange rates and low cost labor have created additional competitive pressures. The Company currently utilizes threefour wholly-owned subsidiaries in Asia to help offset offshore competition.

Research and development expenditures in 20122014 were $814,000$1,080,000 and represented less than 1% of gross revenues.  In 20112013 and 20102012 they were $826,000$991,000 and $739,000,$814,000, respectively.  The research costs are primarily attributable to the Greenwald Industries and Eberhard Mfg. divisions. Greenwald performs ongoing research, in both the mechanical and smart card product lines, which is necessary in order to remain competitive and to continue to provide technologically advanced smart card systems. Eberhard develops new products for the various markets they serve based on changing customer requirements to remain competitive. Other research projects include the development of various locks, and transportation and industrial hardware products.

The Company does not anticipate that compliance with federal, state or local environmental laws or regulations will have a material effect on the Company’s capital expenditures, earnings or competitive position.

The average number of employees in 20122014 was 729.942.

The Company includes foursix separate operating divisions located within the United States, two wholly-owned Canadian subsidiaries (one located in Tillsonburg, Ontario, Canada, and one in Kelowna, British Columbia, Canada), a wholly-owned Taiwanese subsidiary located in Taipei, Taiwan, a wholly-owned subsidiary in Hong Kong, atwo wholly-owned subsidiaryChinese subsidiaries (one located in Shanghai, China, and one located in Dongguan, China) and a wholly-owned subsidiary in Lerma, Mexico.

Individually, the Canadian, Taiwanese, Hong Kong, Chinese and Mexican subsidiaries’ revenue and assets are not significant. Substantially all other revenues are derived from customers located in the United States.

Financial information about foreign and domestic operations’ revenues and identifiable assets is included in Note 1011 to the Company’s financial statements, included at Item 8 of this Annual Report on Form 10-K. Information about risks attendant to the Company’s foreign operations is set forth at Item 1A of this Annual Report on Form 10-K.

The Company makes available, free of charge through its Internet website at http://www.easterncompany.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. The public may read and copy any materials that the Company files with the SEC at the SEC’s Public Reference Room, 450 Fifth100 F Street, N.W.N.E., Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330. The Company’s reports filed with, or furnished to, the SEC are also available on the SEC’s website at www.sec.gov.

In addition to the other information contained in this Form 10-K and the exhibits hereto and the Company’s other filings with the SEC, the following risk factors should be considered carefully in evaluating the Company’s business. The Company’s business, financial condition or results of operation could be materially adversely affected by any of these risks or additional risks not presently known to the Company, or by risks the Company currently deems immaterial which may also adversely affect its business, financial condition, or results of operations, such as: changes in the economy, including changes in inflation, tax rates and interest rates; risk associated with possible disruption in the Company’s operations due to terrorism and other manmade or natural disasters; future regulatory actions, legal issues or environmental matters; loss of, or changes in, executive management; and changes in accounting standards which are adverse to the Company.  Also, there can be no assurance that the Company has correctly identified and appropriately assessed all factors affecting its business or that information publicly available with respect to these matters is complete and correct.

The Company’s business is subject to risks associated with conducting business overseas.

International operations could be adversely affected by changes in political and economic conditions, trade protection measures, restrictions on repatriation of earnings, differing intellectual property rights, and changes in regulatory requirements that restrict the sales of products or increase costs. Changes in exchange rates between the U.S. dollar and other currencies could result in increases or decreases in earnings, and may adversely affect the value of the Company’s assets outside the United States. The Company’s operations are also subject to the effects of international trade agreements and regulations. Although generally these trade agreements have positive effects, they can also impose requirements that adversely affect the Company’s business, such as setting quotas on product that may be imported from a particular country into the Company’s key markets in North America.

The Company’s ability to import products in a timely and cost-effective manner may also be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers, such as port and shipping capacity, labor disputes, severe weather or increased homeland security requirements in the United States or other countries. These issues could delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to customers. These alternatives may not be available on short notice or could result in higher transit costs, which could have an adverse impact on the Company’s business, financial conditions or results of operations.

In addition, the Company’s growth strategy involves expanding sales of its products into foreign markets. There is no guarantee that the Company’s products will be accepted by foreign customers or how long it may take to develop sales of the Company’s products in these foreign markets.

Increases in the price or reduced availability of raw materials.

Raw materials needed to manufacture products are obtained from numerous suppliers. Under normal market conditions, these raw materials are readily available on the open market from a variety of producers. However, from time to time the prices and availability of these raw materials fluctuate, which could impair the Company’s ability to procure the required raw materials for its operations or increase the cost of manufacturing its products. If the price of raw materials increases, the Company may be unable to pass these increases on to its customers and could experience reduction to its profit margins. Also, any decrease in the availability of raw materials could impair the Company’s ability to meet production requirements in a timely manner.

Increased competition in the markets the Company services could impact revenues and earnings.

Any change in competition may result in lost market share or reduced prices, which could result in reduced profit margins. This may impair the ability to grow or even maintain current levels of revenues and earnings.  While the Company has an extensive customer base, loss of certain customers could adversely affect the Company’s business, financial condition or results of operations until such business is replaced, and no assurances can be made that the Company would be able to regain or replace any lost customers.

The Company is required to evaluate its internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002.

The Company is an “accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, and is required to comply with Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires the Company to include in its report management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of the end of the fiscal period for which the Company is filing its Form 10-K. This report must also include disclosure of any material weaknesses in internal control over financial reporting that the Company has identified. Additionally, the Company’s independent registered public accounting firm is required to issue a report on the Company’s internal control over financial reporting and their evaluation of the operating effectiveness of the Company’s internal control over financial reporting. The Company’s assessment requires it to make subjective judgments, and the independent registered public accounting firm may not agree with the Company’s assessment. If the Company or its independent registered public accounting firm were unable to complete the assessments within the period prescribed by Section 404 and thus be unable to conclude that the internal control over financial reporting is effective, investors could lose confidence in the Company’s reported financial information, which

The inability to identify or complete acquisitions could limit future growth.

As part of its growth strategy, the Company continues to pursue acquisitions of complementary products or businesses. The ability to grow through acquisitions depends upon the Company’s ability to identify, negotiate, complete and integrate suitable acquisitions. The Company makes certain assumptions based on the information provided by potential acquisition candidates and also conducts due diligence to ensure the information provided is accurate and based on reasonable assumptions. However, the Company may be unable to realize the anticipated benefits from an acquisition or predict accurately how an acquisition will ultimately affect the business, financial condition or results of operations.

Demand for new products and the inability to develop and introduce new competitive products at favorable profit margins could adversely affect the Company’s performance and prospects for future growth, and the Company would not be positioned to maintain current levels of revenues and earnings.

The uncertainties associated with developing and introducing new products, such as the market demands and the costs of development and production, may impede the successful development and introduction of new products. Acceptance of the new products may not meet sales expectations due to several factors, such as the Company’s failure to accurately predict market demand or its inability to resolve technical issues in a timely and cost-effective manner. Additionally, the inability to develop new products on a timely basis could result in the loss of business to competitors.

The Company could be subject to litigation which could have a material impact on the Company’s business, financial condition or results of operations.

From time to time, the Company’s operations are parties to or targets of lawsuits, claims, investigations and proceedings, including product liability, personal injury, patent and intellectual property, commercial, contract, environmental and employment matters, which are defended and settled in the ordinary course of business. While the Company is unable to predict the outcome of any of these matters, it does not believe, based upon currently available information, that the resolution of any pending matter will have a material adverse effect on its business, financial condition or results of operations. See “ITEM 3 – LEGAL PROCEEDINGS” in this Form 10-K for a discussion of current litigation.

The Company could be subject to additional tax liabilities.

The Company is subject to income tax laws in the United States, its states and municipalities and those of other foreign jurisdictions in which the Company has business operations. These laws are complex and subject to interpretations by the taxpayer and the relevant governmental taxing authorities. Significant judgment and interpretation is required in determining the Company’s worldwide provision for income taxes. In the ordinary course of business, transactions arise where the ultimate tax determination is uncertain. Although the Company believes its tax estimates are reasonable, the final outcome of tax audits and any related litigation could be materially different from that which is reflected in historical income tax provisions and accruals. Based on the status of a given tax audit or related litigation, a material effect on the Company’s income tax provision or net income may result during the period or periods from the initial recognition of a particular matter in the Company’s reported financial results to the final closure of that tax audit or settlement of related litigation when the ultimate tax and related cash flow is known with certainty.

The Company’s goodwill or indefinite-lived intangible assets may become impaired, which could require a significant charge to earnings to be recognized.

Under accounting principles generally accepted in the United States, goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment at least annually. Future operating results used in the assumptions, such as sales or profit forecasts, may not materialize, and the Company could be required to record a significant charge to earnings in the financial statements during the period in which any impairment is determined, resulting in an unfavorable impact on our results of operations. Numerous assumptions are used in the evaluation of impairment, and there is no guarantee that the Company’s

The Company may need additional capital in the future, and it may not be available on acceptable terms, if at all.

From time-to-time, the Company has historically relied on outside financing to fund expanded operations, capital expenditure programs and acquisitions. The Company may require additional capital in the future to fund operations or strategic opportunities. The Company cannot be assured that additional financing will be available on favorable terms, or at all. In addition, the terms of available financing may place limits on the Company’s financial and operating flexibility. If the Company is unable to obtain sufficient capital in the future, the Company may not be able to expand or acquire complementary businesses and may not be able to continue to develop new products or otherwise respond to changing business conditions or competitive pressures.

The Company’s stock price is highly volatile due to low float, which is the number of shares of the Company’s common stock that are outstanding and available for trading by the public.

The Company’s stock price may change dramatically when buyers seeking to purchase shares of the Company’s common stock exceed the shares available on the market, or when there are no buyers to purchase shares of the Company’s common stock when shareholders are trying to sell their shares.

The Company may not be able to reach acceptable terms for contracts negotiated with its labor unions and be subject to work stoppages or disruption of production.

During 2013,2015, none of the union contracts covering approximately 19% of the total workforce of the Company will expire.  The Company has been successful in negotiating new contracts over the years, but cannot guarantee that will continue. Failure to negotiate new union contracts could result in disruption of production, inability to deliver product or a number of unforeseen circumstances, any of which could have an unfavorable material impact on the Company’s results of operations or financial statements.

Deterioration in the creditworthiness of several major customers could have a material impact on the Company’s business, financial condition or results of operations.

Included as a significant asset on the Company’s balance sheet are accounts receivable from our customers.  If several large customers become insolvent or otherwise unable to pay for products, or become unwilling or unable to make payments in a timely manner, it could have an unfavorable material impact on the Company’s results of operations or financial statements.

Although the Company is not dependent on any one customer, deterioration in several large customers at the same time could have an unfavorable material impact on the Company’s results of operations or financial statements.  No customers exceeded 10% of total accounts receivable for 20122014, 2013 or 2010.  At the end of 2011 only one customer had an outstanding accounts receivable balance that exceeded 10% of total accounts receivable.2012.

The Company’s operating results may fluctuate, which makes the results of operations difficult to predict and could cause the results to fall short of expectations.

The Company’s operating results may fluctuate as a result of a number of factors, many outside of our control.  As a result, comparing the Company’s operating results on a period-to-period basis may not be meaningful, and past results should not be relied upon as an indication of future performance.  Quarterly, year to date and annual costs and expenses as a percentage of revenue may differ significantly from historical or projected rates.  Future operating results may fall below expectations.  These types of events could cause the price of the Company’s stock to fall.

New or existing U.S. or foreign laws could subject the Company to claims or otherwise impact the Company’s business, financial condition or results of operations.

The Company is subject to a variety of laws in both the U.S. and foreign countries that are costly to comply with, can result in negative publicity and diversion of management time and effort, and can subject the Company to claims or other remedies.

None.

The corporate office of the Company is located in Naugatuck, Connecticut in a two-story 8,000 square foot administrative building on 3.2 acres of land.

All of the Company’s properties are owned or leased and are adequate to satisfy current requirements. All of the Company’s properties have the necessary flexibility to cover any long-term expansion requirements.

The Industrial Hardware Group includes the following:

The Eberhard Manufacturing Division in Strongsville, Ohio owns 9.6 acres of land and a building containing 138,000157,580 square feet, located in an industrial park. The building is steel frame, one-story, having curtain walls of brick, glass and insulated steel panel. The building has two high bays, one of which houses two units of automated warehousing.  Eberhard is planning an expansion to add an additional 19,680 square feet during 2013 to its existing facility.

The Eberhard Hardware Manufacturing, Ltd., a wholly-owned Canadian subsidiary in Tillsonburg, Ontario, owns 4.4 acres of land and a building containing 31,000 square feet in an industrial park. The building is steel frame, one-story, having curtain walls of brick, glass and insulated steel panel. It is particularly suited for light fabrication, assembly and warehousing and is adequate for long-term expansion requirements.

The Canadian Commercial Vehicles Corporation (“CCV”), a wholly-owned subsidiary in Kelowna, British Columbia, leases 46,385 square feet of building space located in an industrial park. The building is made from brick and concrete, contains approximately 5,400 square feet of office space on two levels and houses a modern paint booth for finishing our products. The building is protected by a F1 rated fire suppression system and alarmed for fire and security. The current lease expires December 31, 2015 and is renewable.  Effective March 1, 2011, CCV is leasing an additional facility containing approximately 32,807

The Composite Panel Technologies Division (“CPT”) in Salisbury, North Carolina, leases 70,000 square feet of building space located in Tillsonburg, Ontario.an industrial park. The building is made from brick and concrete, contains approximately 6,600 square feet of office space on one level and houses a modern paint booth for finishing our products. The building is protected by a water sprinkler fire suppression system and alarmed for fire and security. The current lease on the Tillsonburg facility expires AugustOctober 31, 2013.2019 and is renewable.

The Eastern Industrial Ltd., a wholly-owned subsidiary in Shanghai, China, leases brick and concrete buildings containing approximately 47,500 square feet, located in both industrial and commercial areas. A five-yeartwo year lease was signed in 2009,2014, which expires on March 31, 2014.April 30, 2016 and is renewable.

The Sesamee Mexicana subsidiary leases 42,588 square feet in a facility located in an industrial park in Lerma, Mexico.  The current lease expires November 30, 2015 and is renewable.  The building is steel framed with concrete block and glass curtain walls.

The Security Products Group includes the following:

The Greenwald Industries Division in Chester, Connecticut owns 26 acres of land and a building containing 120,000 square feet. The building is steel frame, one story, having brick over concrete blocks.

The Illinois Lock Company/CCL Security Products/Royal LockProducts Division owns 2.5 acres of land and a building containing 44,000 square feet in Wheeling, Illinois. The building is brick and located in an industrial park.

The World Lock Co. Ltd. subsidiary leases 5,285 square feet located in Taipei, Taiwan. The building is made from brick and concrete and is protected by a fire alarm and sprinklers.

The Metal Products Group consists of:

The Frazer and Jones Division in Solvay, New York owns 17.9 acres of land and buildings containing 205,000 square feet constructed for foundry use. These facilities are well adapted to handle the division’s current and future casting requirements.

All owned properties are free and clear of any encumbrances.

During 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 any potential remediation was available when this Form 10-K was filed with the SEC.

Not applicable.

High and low stock prices and dividends for the last two years were:

# - The Company paid an additional one-time extra dividend of $0.10$0.04 in the fourththird quarter of 2012.2014.

The Company expects to continue its policy of paying regular cash dividends, although there is no assurance as to future dividends because they are dependent on future earnings, capital requirements, and financial conditions. The payment of dividends is subject to the restrictions of the Company’s loan agreement if such payment would result in an event of default. See Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 45 to the Company’s financial statements included at Item 8 of this Annual Report on Form 10-K.

The following table sets forth information regarding securities authorized for issuance under the Company’s equity compensation plans as of December 29, 2012, includingJanuary 3, 2015, consisting of the Company’s 1995 and 2010 plans.plan.

Each director who is not an employee of the Company (“Outside Director”) is paid a director’s fee for his services at the annual rate of $24,600.$30,000. All annual fees paid to non-employee members of the Board of Directors of the Company are paid in common stock of the Company or cash, in accordance with the Directors Fee Program adopted by the shareholders on March 26, 1997 and amended on January 5, 2004. The directors make an annual election, within a reasonable time before their first quarterly payment, to receive their fees in the form of cash, stock or a combination thereof. The election remains in force for one year.

There were no issuer purchasessales of any unregistered securities during fiscal years 2014, 2013 or 2012.

Stock Performance Graph

The following graph sets forth the Company’s cumulative total shareholder return based upon an initial $100 investment made on December 31, 20072009 (i.e., stock appreciation plus dividends during the past five fiscal years) compared to the Wilshire 5000 Index and the S&P Industrial Machinery Index.

The Company manufactures and markets a broad range of locks, latches, fasteners and other security hardware that meets the diverse security and safety needs of industrial and commercial customers. Consequently, while the S&P Industrial Machinery Index being used for comparison is the standard index most closely related to the Company, it does not completely represent the Company’s products or market applications. The Wilshire 5000 is a market index made up of 5,000 publicly-traded companies, including those having both large and small capitalization.

Net sales for 2012 increased 10%2014 decreased 1% to $157.5$140.8 million from $142.9$142.5 million in 2011.2013.  Net income for 20122014 increased 57%11% to $8.6$7.7 million, or $1.38$1.23 per diluted share, from $5.5$6.9 million, or $.89$1.11 per diluted share in 2011.2013.  Net sales in the Industrial Hardware segment increaseddecreased approximately 9%3% in 2012, resulting2014, reflecting a decrease in sales of existing products, primarily from strong demand for lightweight composite panels which were used in the fracking industry, as well as lower sales to our distributors and military markets in 2014 compared to the prior year periods.  The overall decrease in sales of Industrial Hardware products such aswas reduced by an increase compared to the sleeper boxes forsame period in 2013 in sales to several of the markets we sell into, including: the Class 8 truck, markettruck accessory, off-highway, bus, and panels used in the electronic white board market, in addition to new products suchindustrial markets, as well as the vent product line designed for the Class 8 truck market.introduction of new products.  Net sales in the Security Products segment increased approximately 5%1% in 2012,2014, primarily due to increasedthe result of sales of products to the commercial laundry market and the introduction of new lock products into several ofto the many markets we serve.  The Metal Products segment net sales increaseddecreased approximately 22%2% in 2012, resulting primarily from the continued strong2014, reflecting lower demand for our mine roof supportexisting products and sales of new products; a tie plate forprimarily in the railroad industry and kicker clips and rail clamps for a solar panel application.U.S. mining market compared to the prior year period.

14

The following table shows, for the fourth quarter of 20122014 and 2011,2013, selected line items from the consolidated statements of income as a percentage of net sales, by segment.

The following table shows the amount of change from the fourth quarter of 20112013 to the fourth quarter of 20122014 in sales, cost of products sold, gross margin, selling and administrative expenses and operating profit, by segment (dollars in thousands).

Net sales in the fourth quarter of 2012 decreased 6%2014 increased less than 1% to $35.8$34.4 million from $38.1$34.3 million a year earlier.  The decreaseincrease in sales in the fourth quarter from 20112013 to 20122014 is primarily attributable to a drop inhigher sales of our lightweight composite panels for useproducts in the electronic white board industry.  NetIndustrial Hardware segment to the distribution, service body, truck accessory, industrial and Class 8 truck markets, in the Security Products segment to the cash management and distribution markets and in the Metal Products segment to the railway, truck and utility markets in 2014 compared to 2013.  However, net sales in the fourth quarter of 2014 were favorablyunfavorably impacted by lower sales of products in the introduction of new productsIndustrial Hardware segment to the off-highway and selective price increasesmilitary markets, in the Security Products segment to customers.the commercial laundry market and in the Metal Products segment to the U.S. mining market in 2014 compared to 2013.

15

The following table shows the amount of change from 20112013 to 20122014 in sales, cost of products sold, gross margin, selling and administrative expenses, and operating profit, by segment (dollars in thousands):

Industrial Hardware Segment

Metal Products Segment

Other Items

The following table shows the amount of change from 20112012 to 20122013 in other items (dollars in thousands):

Liquidity and Sources of Capital

The Company’s financial position remainedcontinued to be strong in 2012.2014.  The primary source of the Company’s cash is earnings from operating activities adjusted for cash generated from or used for net working capital.  The most significant recurring non-cash items included in net income are depreciation and amortization expense.  Changes in working capital fluctuate with the changes

The Company is dependent on the continued demand for its products and subsequent collection of accounts receivable from its customers. The Company serves a broad base of customers and industries with a variety of products. As a result, any fluctuations in demand or payment from a particular industry or customer should not have a material impact on the Company’s sales and collection of receivables. Management expects that the Company’s foreseeable cash needs for operations, capital expenditures, debt service and dividend payments will continue to be met by the Company’s operating cash flows and available credit facility.

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

The following table shows important liquidity measures as of the fiscal year end balance sheet date for each of the preceding three years (in millions):

U.S. income taxes have not been provided on the undistributed earnings of the Company’s foreign subsidiaries except where required under U.S. tax laws.  The Company would be required to accrue and pay United States income taxes to repatriate the funds held by foreign subsidiaries not otherwise provided. The Company intends to reinvest these earnings outside the United States indefinitely.

All cash held by foreign subsidiaries is readily convertible into other currencies, including the U.S. Dollar.

The $12.2 million increase in netNet cash provided by operating activities is adropped to $9.3 million from $11.3 million in 2013 and $13.6 million in 2012. The $2.0 million difference between 2014 and 2013 was mainly the result of a $2.8 million increase in inventory, offset by increased profitability in 2014.  Management has made the increasedreduction of inventory a priority in 2015.  The $2.3 million decline between 2013 and 2012 is the result of applicable year earnings level and the Company’s ability to control inventory and accountaccounts receivable levels during the year.  The $8.1 million decrease in net cash provided by operating activities from 2010 to 2011 was primarily related to the $5 million discretionary contribution made to the Company’s salaried pension plan in December 2011.  The major reasons for the contribution were to reduce 2011 cash payments for federal income taxes, to reduce future years’ pension expense, and to attempt to take advantage of the spread between borrowing rates and expected investment return.  The remaining changes were related to the reasonable increases in accounts receivable and inventory given the Company’s increase in revenues during the year.

In Fiscal 2014 the impact on cash from the net change in working capital was approximately ($2.2) million, due mainly to the increased inventory levels at the end of the year; in Fiscal 2013 the impact on cash from the net change in working capital was approximately ($0.2) million; in Fiscal 2012, the impact on cash from the net change in working capital was $0.3 million.  In Fiscal 2011, the impact on cash from the net change in working capital was ($9.7) million resulting mainly from the $5 million discretionary pension payment described above as well as the increases in accounts receivable and inventory which were anticipated given the increased revenue.   In Fiscal 2010, the impact on cash from the net change in working capital was ($0.8) million resulting from cash used for changes in accounts receivable, inventory, prepaid expenses, other assets and other accrued expenses of $5.5 million, offset by cash provided by changes in accounts payable, pension and accrued compensation of $4.7 million.

In Fiscal 2012, the Company used approximately $2.3 million of cash for financing activities.  In January 2012, the Company obtained a second term noteloan in the amount of $5 million, and paid off the $3 million revolver that was in place at the end of Fiscal 2011.  In addition, the Company paid approximately $1.3 million of the term balance in regular quarterly payments.  The Company paid dividends during the year totaling approximately $3.1 million.

The Company leases certain equipment and buildings under cancelable and non-cancelable operating leases expiring at various dates up to five years. Rent expense amounted to approximately $1.2 million in 2012 and 2011, respectively and $1.02014; $1.1 million in 2010.

On January 29, 2010, the Company signed a new secured Loan Agreement (the “Loan Agreement”) with People’s United Bank (“People’s”) which included a $5,000,000 term portion and a $10,000,000 revolving credit portion.  The term portion of the loan requires quarterly principal payments of $178,571 for a period of seven (7) years, maturing on January 31, 2017.  The

revolving credit portion hashad a quarterly commitment fee of one quarter of one percent (0.25%), and a maturity date of January 31, 2012.   The proceeds of the term portion along with the Company’s available cash were used to retire the remaining portion of the debt with our former lender, Bank of America, N.A., which on January 29, 2010 totaled $10,714,286.

On January 25, 2012 the Company amended the Loan Agreement by taking an additional $5,000,000 term loan (the “2012 Term Loan”).  The 2012 Term Loan requires quarterly principal payments of $178,571 for a period of seven (7) years, maturing on January 31, 2019.  At the same time the maturity date of the revolving credit portion was extended to January 31, 2014 and continued to have a quarterly commitment fee of one quarter of one percent (0.25%).

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%.  For the period from January 29, 2010 to January 25, 2012, 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,On January 23, 2014, the Company used $3,000,000amended the Loan Agreement with People’s.  The amendment renewed and extended the maturity date of the linerevolving credit portion of credit, the proceedsLoan Agreement to July 1, 2016 and changes the interest rate to LIBOR plus 2.25%, and eliminated the 3.25% floor previously in place.  The quarterly commitment fee of which, along with existing cash, were used to fund a discretionary pension payment made in December, 2011.one quarter of one percent (0.25%) remained unchanged.  The Company did not utilize the revolving credit portion of the Loan Agreement at any other time during 20112013 or 2012.2014.

The Company’s loan covenants under the Loan Agreement require the Company to maintain a fixed charge coverage ratio of at least 1.1 to 1, a leverage ratio of no more than 1.75 to 1, and minimum tangible net worth of $43 million increasing each year by 50% of consolidated net income.  This amount was approximately $48.5 million and $45.8$52.8 million as of December 29, 201228, 2013.  As part of an amendment to the Loan Agreement signed on January 23, 2014, the leverage ratio was eliminated, and December 31, 2011, respectively.the minimum tangible net worth covenant was modified to a fixed minimum amount of $55 million, effective with the end of the Company’s first quarter of 2014.  In addition, the Company has restrictions on, among other things, new capital leases, purchases or redemptions of its capital stock, mergers and divestitures, and new borrowing.  The Company was in compliance with all covenants in 20112013 and 2012.2014.

Tabular Disclosure of Contractual Obligations

The Company’s known contractual obligations as of December 29, 2012,January 3, 2015, are shown below (in thousands):

The amounts shown in the above table for estimated contributions to pension plans and estimated postretirement benefits other than pensions are based on the assumptions in Note 910 to the consolidated financial statements, as well as the assumption that participant counts will remain stable.

The Company does not have any non-cancellable open purchase orders.

In January 2010, the Company used a portion of its cash on hand to pay-down and refinance the balance of its long-term debt.  In December 2011, the Company made a $5 million discretionary contribution to its salaried pension plan.  As a result of this contribution, at the end of 2011 the Company was utilizing $3 million from its revolving credit facility.  This amount was repaid in January 2012 when the Company took an additional $5 million term loan from its lender, People’s United Bank.  The Company believes it has sufficient cash on hand and credit resources available to it to sustain itself though the next fiscal year.