10-Q

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 October 3, 2015

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 October 30, 2015
Common Stock, No par value	6,246,412

PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

ASSETS	October 3, 2015			January 3, 2015
Current Assets
Cash and cash equivalents	$	13,611,066		$	15,834,444
Accounts receivable, less allowances: $438,000 - 2015; $414,000 - 2014		19,747,618			17,064,245
Inventories		36,475,448			34,402,197
Prepaid expenses and other assets		2,079,150			2,659,737
Recoverable income taxes receivable		-			380,000
Deferred income taxes		950,024			950,024
Total Current Assets		72,863,306			71,290,647
Property, Plant and Equipment		64,230,401			62,970,497
Accumulated depreciation		(36,924,239	)		(34,919,067	)
		27,306,162			28,051,430
Goodwill		14,747,158			14,960,354
Trademarks		168,688			174,662
Patents, technology, and other intangibles net of accumulated amortization		2,218,016			2,498,570
Deferred income taxes		3,735,353			4,294,893
		20,869,215			21,928,479
TOTAL ASSETS	$	121,038,683		$	121,270,556

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LIABILITIES AND SHAREHOLDERS’ EQUITY	October 3, 2015			January 3, 2015
Current Liabilities
Accounts payable	$	8,286,337		$	8,256,600
Accrued compensation		2,674,247			2,916,832
Other accrued expenses		1,167,641			1,201,114
Current portion of long-term debt		1,071,429			1,071,429
Total Current Liabilities		13,199,654			13,445,975
Other long-term liabilities		564,669			564,669
Long-term debt, less current portion		2,142,857			3,214,285
Accrued postretirement benefits		3,029,305			2,905,908
Accrued pension cost		25,819,339			26,164,812
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: 8,941,141 shares in 2015 and 8,938,742 shares in 2014		28,974,545			28,932,058
Treasury Stock: 2,694,729 shares in 2015 and 2014		(19,105,723	)		(19,105,723	)
Retained earnings		89,543,612			87,680,667
Accumulated other comprehensive income (loss):
Foreign currency translation		(761,069	)		855,179
Unrecognized net pension and postretirement benefit costs, net of tax		(22,368,506	)		(23,387,274	)
Accumulated other comprehensive loss		(23,129,575	)		(22,532,095	)
Total Shareholders’ Equity		76,282,859			74,974,907
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	121,038,683		$	121,270,556

See accompanying notes.

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THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Nine Months Ended						Three Months Ended
		October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014
Net sales	$	110,154,039		$	106,432,304		$	36,239,500		$	35,803,405
Cost of products sold		(85,872,857	)		(82,501,121	)		(27,205,657	)		(27,161,932	)
Gross margin		24,281,182			23,931,183			9,033,843			8,641,473
Selling and administrative expenses		(18,604,056	)		(15,097,253	)		(5,584,222	)		(4,892,600	)
Operating profit		5,677,126			8,833,930			3,449,621			3,748,873
Interest expense		(145,773	)		(193,875	)		(45,203	)		(60,680	)
Other income		33,540			37,996			6,573			14,030
Income before income taxes		5,564,893			8,678,051			3,410,991			3,702,223
Income taxes		1,578,626			3,049,846			883,269			1,270,406
Net income	$	3,986,267		$	5,628,205		$	2,527,722		$	2,431,817
Earnings per Share:
Basic	$	.64		$	.90		$	.41		$	.39
Diluted	$	.64		$	.90		$	.41		$	.39
Cash dividends per share:	$	.34	*	$	.37	#	$	.12	*	$	.15	#

* - Includes $0.01 per share redemption for the termination of the 2008 Shareholder Rights Agreement.

# - The Company paid an additional one-time dividend of $0.04 per share in the third quarter of 2014.

See accompanying notes.

THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Nine Months Ended						Three Months Ended
		October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014
Net income	$	3,986,267		$	5,628,205		$	2,527,722		$	2,431,817
Other comprehensive income/(loss):
Change in foreign currency translation		(1,616,248	)		(497,620	)		(994,325	)		(444,848	)
Change in pension and postretirement benefit costs, net of taxes of: 2015 – $559,542 and $186,513, respectively 2014 – $301,078 and $100,360, respectively		1,018,768			553,043			339,590			184,348
Total other comprehensive (loss)/income		(597,480	)		55,423			(654,735	)		(260,500	)
Comprehensive income	$	3,388,787		$	5,683,628		$	1,872,987		$	2,171,317

See accompanying notes.

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THE EASTERN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended
	October 3, 2015			September 27, 2014
Operating Activities
Net income	$	3,986,267		$	5,628,205
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,885,560			2,506,785
Unrecognized pension and postretirement benefits		1,356,233			982,195
Loss on sale of equipment and other assets		62,254			105,511
Provision for doubtful accounts		44,126			71,229
Issuance of Common Stock for directors’ fees		42,487			22,491
Changes in operating assets and liabilities:
Accounts receivable		(2,991,497	)		(2,448,174	)
Inventories		(2,602,651	)		(207,873	)
Prepaid expenses and other		532,981			56,064
Recoverable income taxes receivable		380,000			-
Other assets		(4,616	)		(141,478	)
Accounts payable		269,696			1,357,742
Accrued compensation		(186,096	)		(672,074	)
Other accrued expenses		(125,439	)		(247,024	)
Net cash provided by operating activities		3,649,305			7,013,599
Investing Activities
Purchases of property, plant and equipment		(2,044,712	)		(2,292,872	)
Proceeds from sales of equipment and other assets		--			19,000
Net cash used in investing activities		(2,044,712	)		(2,273,872	)
Financing Activities
Principal payments on long-term debt		(1,071,428	)		(1,071,428	)
Dividends paid		(2,123,322	)		(2,302,391	)
Net cash used in financing activities		(3,194,750	)		(3,373,819	)
Effect of exchange rate changes on cash		(633,221	)		(155,480	)
Net change in cash and cash equivalents		(2,223,378	)		1,210,428
Cash and cash equivalents at beginning of period		15,834,444			19,988,361
Cash and cash equivalents at end of period	$	13,611,066		$	21,198,789

See accompanying notes.

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THE EASTERN COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

October 3, 2015

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 January 3, 2015 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 January 3, 2015 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:

	Nine Months Ended		Three Months Ended
	October 3, 2015	September 27, 2014	October 3, 2015	September 27, 2014
Basic:
Weighted average shares outstanding	6,244,534	6,222,678	6,245,099	6,223,140
Diluted:
Weighted average shares outstanding	6,244,534	6,222,678	6,245,099	6,223,140
Dilutive stock options	-	17,127	-	17,256
Denominator for diluted earnings per share	6,244,534	6,239,805	6,245,099	6,240,396

Note C – Inventories

The components of inventories follow:

	October 3, 2015	January 3, 2015
Raw material and component parts	$    9,775,420	$    9,219,341
Work in process	7,513,942	7,074,950
Finished goods	19,186,086	18,107,906
	$  36,475,448	$  34,402,197

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Note D – Segment Information

Segment financial information follows:

	Nine Months Ended						Three Months Ended
	October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014
Revenues:
Sales to unaffiliated customers:
Industrial Hardware	$	46,234,468		$	44,202,346		$	16,327,856		$	15,006,948
Security Products		43,463,335			37,748,241			13,927,096			12,780,359
Metal Products		20,456,236			24,481,717			5,984,548			8,016,098
	$	110,154,039		$	106,432,304		$	36,239,500		$	35,803,405
Income before income taxes:
Industrial Hardware	$	3,112,008		$	3,994,443		$	1,742,917		$	1,428,040
Security Products		2,672,875			3,088,610			1,236,581			1,643,159
Metal Products		(107,757	)		1,750,877			470,123			677,674
Operating Profit		5,677,126			8,833,930			3,449,621			3,748,873
Interest expense		(145,773	)		(193,875	)		(45,203	)		(60,680	)
Other income		33,540			37,996			6,573			14,030
	$	5,564,893		$	8,678,051		$	3,410,991		$	3,702,223

Note E – Recent Accounting Pronouncements

In January 2015, the FASB issued authoritative guidance that modifies reporting of extraordinary items in the income statement.  The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.  The adoption of the new guidance is not expected to have a material impact on the consolidated financial statements of the Company.

In February 2015, the FASB issued authoritative guidance which amends certain requirements for determining whether a variable interest entity must be consolidated.  The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.  The adoption of the new guidance is not expected to have a material impact on the consolidated financial statements of the Company.

In April 2015, the FASB issued authoritative guidance which simplifies the presentation of debt issuance costs. The amendments in this accounting standard update require debt issuance costs to be presented on the balance sheet as a direct reduction from the carrying amount of the related debt liability.  The amendments in this accounting standard update are to be applied retrospectively and are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.  The adoption of the new guidance is not expected to have a material impact on the consolidated financial statements of the Company.

In July 2015, the FASB issued authoritative guidance which requires a company to change its valuation method of inventory from the lower of cost or market (market being replacement cost, net realizable value or net realizable value less an approximate profit margin) to the lower of cost or net realizable value.  The amendment is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.  The amendment should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period.  The adoption of this amendment is not expected to have a material impact on the consolidated financial statements of the Company.

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In September 2015, the FASB issued authoritative guidance which will simplify the accounting for adjustments made to provisional amounts recognized in a business combination.   U.S. GAPP currently requires that during the measurement period, the acquirer retrospectively adjust the provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill.  The amendments require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.  The amendments are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years.  The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not yet been issued.  The adoption of this amendment is not expected to have a material 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 29, 2010, the Company signed a secured Loan Agreement (the “Loan Agreement”) with People’s United Bank which included a $5,000,000 term portion (the “Original Term Loan”) and a $10,000,000 revolving credit portion.  On January 25, 2012, the Company amended the loan agreement by taking an additional $5,000,000 term loan (the “2012 Term Loan”).  Interest on the Original Term Loan portion of the Loan Agreement is fixed at 4.98%.  Interest on the 2012 Term Loan is fixed at 3.90%.  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 3.25% and a maturity date of January 31, 2014.  On January 23, 2014, the Company signed an amendment to its secured Loan Agreement with People’s United Bank (“People’s”) which extended the maturity date of the $10,000,000 revolver portion of the Loan Agreement to July 1, 2016 and changed the interest rate to LIBOR plus 2.25%, eliminating the floor previously in place.  The Company did not utilize the revolving credit facility during Fiscal 2014 or during the first nine months of 2015.

The Company has loan covenants under the Loan Agreement which required 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 as of the end of Fiscal 2010 increasing each year by 50% of consolidated net income.  As part of the amendment signed on January 23, 2014, the leverage ratio was eliminated and the minimum tangible net worth covenant was modified to a fixed $55 million, effective as of March 29, 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 2014 and for the nine month period ended October 3, 2015.

Note G – Goodwill

The following is a roll-forward of goodwill from year-end 2014 to the end of the third quarter 2015:

	Industrial Hardware Segment			Security Products Segment		Metal Products Segment		Total
Beginning balance	$	1,901,312		$	13,059,042	$	—	$	14,960,354
Foreign exchange		(213,196	)		—		—		(213,196	)
Ending balance	$	1,688,116		$	13,059,042	$	—	$	14,747,158

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. Customer relationships, non-compete agreements and intellectual property are being

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amortized using the straight-line method over a period of 5 years. Trademarks are not amortized as their lives are deemed to be indefinite.

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)
2015 Gross Amount
Patents and developed technology	$	2,344,481	$	1,049,677	$	--	$	3,394,158	15.5
Customer relationships		--		449,706		--		449,706	5.0
Non-compete agreements		--		407,000		--		407,000	5.0
Intellectual property		--		307,370		--		307,370	5.0
Total Gross Intangibles	$	2,344,481	$	2,213,753	$	--	$	4,558,234	12.4
2015 Accumulated Amortization
Patents and developed technology	$	1,583,356	$	582,250	$	--	$	2,165,606
Customer relationships		--		67,456		--		67,456
Non-compete agreements		--		61,050		--		61,050
Intellectual property		--		46,106		--		46,106
Accumulated Amortization	$	1,583,356	$	756,862	$	--	$	2,340,218
Net October 3, 2015 per Balance Sheet	$	761,125	$	1,456,891	$	--	$	2,218,016

2014 Gross Amount
Patents and developed technology	$	2,494,261	$	1,025,303	$	--	$	3,519,564	15.7
Customer relationships		--		449,706		--		449,706	5.0
Non-compete agreements		--		407,000		--		407,000	5.0
Intellectual property		--		307,370		--		307,370	5.0
Total Gross Intangibles	$	2,494,261	$	2,189,379	$	--	$	4,683,640	12.7
2014 Accumulated Amortization
Patents and developed technology	$	1,649,655	$	535,415	$	--	$	2,185,070
Customer relationships		--		--		--		--
Non-compete agreements		--		--		--		--
Intellectual property		--		--		--		--
Accumulated Amortization	$	1,649,655	$	535,415	$	--	$	2,185,070
Net January 3, 2015 per Balance Sheet	$	844,606	$	1,653,964	$	--	$	2,498,570

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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 third quarter and first nine months of fiscal 2015 and 2014 follow:

	Pension Benefits
	Nine Months Ended						Three Months Ended
	October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014
Service cost	$	2,894,960		$	2,095,271		$	964,985		$	698,423
Interest cost		2,577,715			2,487,835			859,239			829,278
Expected return on plan assets		(3,863,742	)		(3,607,894	)		(1,287,914	)		(1,202,632	)
Amortization of prior service cost		163,940			163,940			54,647			54,647
Amortization of the net loss		1,418,182			708,098			472,726			236,033
Net periodic benefit cost	$	3,191,055		$	1,847,250		$	1,063,683		$	615,749

	Postretirement Benefits
	Nine Months Ended						Three Months Ended
	October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014
Service cost	$	163,178		$	130,427		$	54,393		$	43,476
Interest cost		116,186			118,112			38,728			39,371
Expected return on plan assets		(68,952	)		(71,109	)		(22,984	)		(23,703	)
Amortization of prior service cost		(17,916	)		(17,917	)		(5,972	)		(5,972	)
Amortization of the net loss		14,103			--			4,701			--
Net periodic benefit cost	$	206,599		$	159,513		$	68,866		$	53,172

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 2015, the Company expects to contribute $3.0 million into its pension plans and $150,000 into its postretirement plan. As of October 3, 2015, the Company has made contributions totaling approximately $1.9 million into its pension plans and $90,000 to its postretirement plan and will make the remaining contributions as required during the fourth quarter 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 $49,207 and $157,133 in the third quarter and first nine months of 2015, respectively and $49,975 and $153,431 in the third quarter and first nine months of 2014, respectively.

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Note J – Stock Based Compensation and Stock Options

The Company has a stock option plan for officers, other key employees, and non-employee directors.  As of October 3, 2015 the 2010 plan had 500,000 shares reserved for future grant and issuance.  Incentive stock options granted under the 2010 plan 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 2010 plan, 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 nine months of 2015 or 2014.

At October 3, 2015, there were no outstanding or exercisable options.

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 2012 and non-U.S. income tax examinations by tax authorities prior to 2010.

The Company repatriated approximately $3.1 million and $2.8 million in cash from its foreign subsidiaries in the first nine months of 2015 and 2014, respectively.  The impact on the effective tax rate was a reduction in the rate by approximately 2.5% in 2015 and an approximate 1.4% increase in the rate in 2014.  The reason for the reduction in 2015 relates to differences in exchange rates from the time the earnings were reported to the date of the dividend.

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 nine months ended October 3, 2015.  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 October 3, 2015 and January 3, 2015, there were no significant concentrations of credit risk. No one customer represented more than 10% of the Company’s net trade receivables at October 3, 2015 or at January 3, 2015.  The maximum exposure to credit risk is primarily represented by the carrying amount of the Company’s accounts receivable.

Interest Rate Risk

On October 3, 2015, 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 October 3, 2015 or January 3, 2015.

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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 thirty-nine weeks ended October 3, 2015. 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 January 3, 2015 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 January 3, 2015.

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 third quarter of 2015 increased 1% compared to the third quarter of 2014, and was primarily the result of a sales increase of 14% in new products to the many diverse markets we serve.  The increase in new product sales was offset by a decrease of 13% in sales of existing products.  In the third quarter of 2015 Industrial Hardware sales increased 9%, Security Products sales increased 9% and Metal Products sales decreased 25% compared to the prior year period.

Gross margin as a percentage of sales for the three months ended October 3, 2015 was 25% compared to the 24% in the prior year period. This increase was primarily due to the lower commodity prices experienced in the third quarter  as world metal prices continue to fall, and the favorable impact of the Argo acquisition which is included in 2015 but not in 2014, and the mix of products produced and sold.

Sales in the first nine months of 2015 increased 4% compared to the prior year period, and was primarily the result of a sales increase of 10% in new products to the many diverse markets we serve.  The increase was offset in part by a decrease of 7% in sales of existing products.  Compared to the prior year period, sales increased in the first nine months of 2015 by 5% in the Industrial Hardware segment and by 15% in the Security Products segment, while sales decreased by 16% in the Metal Products segment resulting in an overall increase of 4%.

Gross margin as a percentage of sales for the nine months ended October 3, 2015 was 22% compared to 23% in the prior year period. This decrease was primarily the result of decreased sales volume of mining products in the Metal Products segment causing lower utilization of the Company’s production capacity in the 2015 period.  The favorable impact of the Argo acquisition which is included in 2015 but not in 2014, and the mix of products produced and sold were insufficient to offset the volume decline in the Metal Products segment.

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Selling and administration costs increased $691,000 or 14% in the third quarter and $3.5 million or 23% in the first nine months of 2015 compared to the prior year period. The increase is primarily the result of legal and administrative costs totaling approximately $2.0 million related to the proxy contest initiated by Barington Companies Equity Partners, L.P. and certain of its affiliates (“Barington”), reimbursement of Barington Companies Management, LLC costs for winning the proxy contest,and the legal and settlement costs associated with the settlement of a lawsuit initiated by Barington Companies Equity Partners, L.P.  All of these costs were recorded by the Company in the first half of this fiscal year.

Raw material prices have generally decreased compared to the prior year periods.  The Company expects that raw material prices will remain soft for the rest of this year and into 2016.  Worldwide commodity prices are lower due to excess supplies in the marketplace.  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 nine months of 2015 decreased compared to the same period in 2014. This decrease was primarily impacted by the Company’s legal and administrative expenses associated with the proxy contest initiated by Barington, reimbursement of proxy contest costs to Barington Companies Management, LLC for winning the proxy contest, and the legal and settlement costs associated with the settlement of the lawsuit initiated by Barington Companies Equity Partners, L.P.  The decrease was also impacted by timing differences in the collection of accounts receivable, payments of liabilities, and changes in inventories.  Cash on hand and cash flow from operations, along with controlling discretionary expenditures, should 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 October 3, 2015
	Industrial	Security	Metal
	Hardware	Products	Products	Total
Net sales	100.0%	100.0%	100.0%	100.0%
Cost of products sold	73.1%	73.6%	83.7%	75.1%
Gross margin	26.9%	26.4%	16.3%	24.9%
Selling and administrative expense	16.2%	17.5%	8.4%	15.4%
Operating profit	10.7%	8.9%	7.9%	9.5%
	Three Months Ended September 27, 2014
	Industrial	Security	Metal
	Hardware	Products	Products	Total
Net sales	100.0%	100.0%	100.0%	100.0%
Cost of products sold	74.4%	71.8%	85.1%	75.9%
Gross margin	25.6%	28.2%	14.9%	24.1%
Selling and administrative expense	16.1%	15.3%	6.5%	13.6%
Operating profit	9.5%	12.9%	8.4%	10.5%

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The following table shows the amount of change for the third quarter of 2015 compared to the third quarter of 2014 in sales, cost of products sold, gross margin, selling and administrative expenses and operating profit, by segment (dollars in thousands):

	Industrial	Security	Metal
	Hardware	Products	Products	Total
Net sales	$  1,321	$   1,147	$ (2,032)	$     436
Volume	-10.5%	-6.1%	-27.2%	-12.7%
Prices	0.1%	0.8%	0.1%	0.3%
New products	19.2%	14.3%	1.8%	13.6%
	8.8%	9.0%	-25.3%	1.2%
Cost of products sold	$     773	$   1,078	$ (1,807)	$       44
	6.9%	11.7%	-26.5%	0.2%
Gross margin	$     548	$        69	$    (225)	$     392
	14.3%	1.9%	-18.7%	4.5%
Selling and administrative expenses	$     233	$      476	$      (18)	$     691
	9.7%	24.2%	-3.3%	14.1%
Operating profit	$     315	$   (407)	$   (207)	$  (299)
	22.0%	-24.7%	-30.6%	-8.0%

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

	Nine Months Ended October 3, 2015
	Industrial	Security	Metal
	Hardware	Products	Products	Total
Net sales	100.0%	100.0%	100.0%	100.0%
Cost of products sold	74.7%	75.3%	90.9%	78.0%
Gross margin	25.3%	24.7%	9.1%	22.0%
Selling and administrative expense	18.6%	18.5%	9.6%	16.9%
Operating profit	6.7%	6.2%	-0.5%	5.1%
	Nine Months Ended September 27, 2014
	Industrial	Security	Metal
	Hardware	Products	Products	Total
Net sales	100.0%	100.0%	100.0%	100.0%
Cost of products sold	74.5%	75.6%	85.8%	77.5%
Gross margin	25.5%	24.4%	14.2%	22.5%
Selling and administrative expense	16.5%	16.2%	7.0%	14.2%
Operating profit	9.0%	8.2%	7.2%	8.3%

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The following table shows the amount of change for the first nine months of 2015 compared to the first nine months of 2014 in sales, cost of products sold, gross margin, selling and administrative expenses and operating profit, by segment (dollars in thousands):

	Industrial	Security	Metal
	Hardware	Products	Products	Total
Net sales	$   2,032	$  5,715	$ (4,025)	$   3,722
Volume	-6.7%	0.7%	-18.4%	-6.8%
Prices	0.2%	0.1%	0.0%	0.1%
New products	11.1%	14.3%	2.0%	10.2%
	4.6%	15.1%	-16.4%	3.5%
Cost of products sold	$   1,602	$  4,190	$ (2,420)	$   3,372
	4.9%	14.7%	-11.5%	4.1%
Gross margin	$      430	$  1,525	$ (1,605)	$      350
	3.8%	16.6%	-46.2%	1.5%
Selling and administrative expenses	$   1,312	$  1,940	$       255	$  3,507
	18.1%	31.8%	14.7%	23.2%
Operating profit	$   (882)	$  (415)	$ (1,860)	$(3,157)
	-22.1%	-13.5%	-106.2%	-35.7%

Industrial Hardware Segment

Net sales in the Industrial Hardware segment were up 9% in the third quarter and 5% in the first nine months of 2015 compared to the prior year periods.  The increase in sales in both the third quarter and first nine months of 2015 primarily reflect sales from the introduction of new products which was reduced by lower sales of our lightweight composite panels to the Class 8 truck market and the Mexican market compared to the prior year periods.

Sales of existing products increased in both the third quarter and first nine months of 2015 to the trailer, service body, military and Class 8 truck markets.  This increase was reduced by lower sales to the distribution and bus markets as well as lower sales of our lightweight composite panels to the Class 8 truck market and the Mexican market in 2015 compared to the prior year periods, both of which are the result of scheduling changes by customers.  Our new lightweight composite panel facility in North Carolina made its initial shipments of sleeper cabs in March 2015 and continues to increase its daily build rate for the new lightweight composite sleeper cabs for the Class 8 truck market to meet customer demand.  At the end of the third quarter, the North Carolina facility was accretive to earnings for fiscal year 2015 and is expected to open new opportunities for its products now that Eastern has four panel making facilities in North America.

All of the new products were developed internally and included a cab door handle, a paddle assembly, a trigger latch, a rod assembly and a new sleeper, manufactured from our lightweight composite panel material in our new North Carolina facility, for the Class 8 truck market; a two-stage rotary, a handle latch and a gate latch for the off-highway market; a rear door lock for the bus market; a locking handle assembly, an adjustable draw latch and a heavy duty t-handle for the distribution market; a latch and an ergonomic t-handle for the service body market; as well as a variety of locking and latching products for the many markets we serve.

Cost of products sold for the Industrial Hardware segment increased $0.8 million or 7% in the third quarter and $1.6 million or 5% in the first nine months of 2015 compared to the same periods in 2014.

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The most significant factors resulting in changes to the cost of products sold in the third quarter of 2015 compared to the 2014 third quarter included:

§   an increase of $0.2 million or 7% in costs for payroll and payroll related charges;

§   an increase of $0.3 million or 5% in raw materials;

§   an increase of $0.1 million or 32% in supplies & tools;

§   an increase of $0.1 million or 48% in other expense;

§   an increase of $0.1 million or 57% from the sale of scrap;

§   a decrease of $0.2 million or 37,115% in foreign exchange;

§   and an increase of $0.1 million or 87% in miscellaneous expense.

The most significant factors resulting in changes to the cost of products sold in the first nine months of 2015 compared to the same period in 2014 included:

§   an increase of $0.8 million or 8% in costs for payroll and payroll related charges;

§   an increase of $0.1 million or 1% in raw materials;

§   an increase of $0.1 million or 14% in supplies & tool costs

§   an increase of $0.1 million or 15% in shipping expenses;

§   an increase of $0.1 million or 21% from other costs;

§   an increase of $0.1 million or 38% in rent expense;

§   an increase of $0.1 million or 48% for property taxes;

§   a decrease of $0.1 million or 49% in engineering expenses;

§   an increase of $0.2 million or 44% from the sale of scrap;

§   an increase of $0.4 million or 78% in miscellaneous expense;

§   and a decrease of $0.3 million or 3,535% in foreign exchange.

Gross margin as a percentage of sales for the Industrial Hardware segment increased in the third quarter to 27% in 2015 from 26% in the prior year period, and decreased in the first nine months to 25% from 26% in the prior year period.  The changes in both the third quarter and first nine months of 2015 reflect the mix of products produced and the changes to cost of products sold discussed above.

Selling and administrative expenses in the Industrial Hardware segment increased $0.2 million or 10% in the third quarter of 2015 and $1.3 million or 18% in the first nine months of 2015 as compared to the 2014 periods.

The most significant factor resulting in changes in selling and administrative expenses in the Industrial Hardware segment in the third quarter of 2015 compared to the 2014 third quarter included:

§   an increase of $0.1 million or 9% in costs for payroll and payroll related charges

§   and an increase of $0.1 million or 32% in costs for other administrative expenses.

The most significant factors resulting in changes in selling and administrative expenses in the Industrial Hardware segment in the first nine months of 2015 compared to the 2014 first nine months included:

§   an increase of $0.8 million in allocated charges resulting from the proxy contest initiated by Barington in the first quarter of 2015;

§   an increase of $0.4 million or 7% in costs for payroll and payroll related charges;

§   and an increase of $0.1 million or 31% in other administrative expenses.

Security Products Segment

Net sales in the Security Products segment increased 9% in the third quarter and increased 15% in the first nine months of 2015 compared to the 2014 periods.  The increase in sales in both the third quarter and first nine months of 2015 was the result of the Argo acquisition which was not in the 2014 results; an increase in sales of existing products including money boxes and card systems to the commercial laundry market, and lock products to the travel, OEM, vehicle, furniture and cash management markets; as well as the introduction of new products.

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Sales of new products included printed circuit board assemblies resulting from the Argo acquisition; a detach latch and a mini tubular cam lock for the vehicular markets; a passive keyless entry system for truck saddle boxes, and a short length cam lock with stainless steel tumblers for the storage market; a mini tubular self-retaining lock for the computer market; and a carded cable luggage lock.

Cost of products sold for the Security Products segment increased $1.1 million or 12% in the third quarter and $4.2 million or 15% in the first nine months of 2015 compared to the same periods in 2014. The changes in dollars and percentages identified below primarily reflect the acquisition of Argo which was included in the 2015 periods but was not included in the comparable periods for 2014.

The most significant factors resulting in changes in cost of products sold in the third quarter of 2015 compared to the 2014 third quarter included:

§   an increase of $0.6 million or 30% in costs for payroll and payroll related charges;

§   an increase of $0.5 million or 10% in raw materials;

§   an increase of  $0.1 million or 103% in miscellaneous expenses;

§   an increase of $0.1 million or 53% in depreciation expense;

§   and a decrease of $0.2 million or 2,491% in foreign exchange.

The most significant factors resulting in changes in cost of products sold in the first nine months of 2015 compared to the 2014 first nine months included:

§   an increase of $1.6 million or 29% in costs for payroll and payroll related charges;

§   an increase of $2.3 million or 13% in raw materials;

§   an increase of $0.1 million or 66% in maintenance and repair costs;

§   a decrease of $0.3 million or 29% in costs for supplies and tools;

§   a decrease of $0.1 million or 54% in miscellaneous taxes;

§   an increase of $0.2 million or 29% in freight and shipping expenses;

§   a decrease of $0.1 million or 29% in fire and liability insurance;

§   an increase of $0.1 million or 55% in rental equipment;

§   an increase of $0.1 million or 71% in miscellaneous expense;

§   an increase of $0.1 million or 14% in engineering expense;

§   an increase of $0.1 million or 43% in depreciation expense;

§   and an increase of $0.2 million or 1,070% in foreign exchange.

Gross margin as a percentage of sales for the Security Products segment in the third quarter was 26% in 2015 as compared to 28% in the third quarter of 2014.  For the first nine months the gross margin as a percentage of sales increased to 25% in 2015 from 24% in the prior year period.  The decrease in the third quarter was the result of material and labor increases that could not immediately be passed on to the customer.  The increase in the first nine months of 2015 was primarily due to the gross margin contribution from the Argo acquisition which is included in the 2015 period when compared to the same period in 2014 which was prior to the acquisition.

Selling and administrative expenses in the Security Products segment increased $0.5 million or 24% in the third quarter and $1.9 million or 32% in the first nine months of 2015 as compared to the 2014 periods.

The most significant factors resulting in changes in selling and administrative expenses in the Security Products segment in the third quarter of 2015 compared to the 2014 third quarter included:

§   an increase of $0.3 million or 22% in costs for payroll and payroll related charges;

§   an increase of $0.1 million or 37% in other administrative expenses;

§   and an increase of $0.1 million or 366% for amortization costs primarily resulting from the acquisition of Argo in December 2014.

The most significant factors resulting in changes in selling and administrative expenses in the Security Products segment in the first nine months of 2015 compared to the 2014 first nine months included:

§   an increase of $0.8 million in allocated charges resulting from the proxy contest initiated by Barington in the first quarter of 2015;

§   an increase of $0.7 million or 18% in costs for payroll and payroll related charges;

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§   an increase of $0.1 million or 19% in other administrative expenses;

§   an increase of $0.1 million or 95% in insurance costs;

§   and an increase of $0.2 million or 298% in amortization costs primarily resulting from the acquisition of Argo in December 2014.

Metal Products Segment

Net sales in the Metal Products segment decreased 25% in the third quarter and 16% in the first nine months of 2015 as compared to the prior year periods.  Sales of mining products were down 24% in the third quarter and 17% in the first nine months of 2015 compared to the prior year levels.  The lower sales in both the third quarter and first nine months of 2015 primarily reflect significant sales reductions of 33% during the third quarter and first nine months of 2015 to our largest customers who sell significant volumes into the Eastern (Appalachian) region thermal and U.S. metallurgical coal mining market. Sales in the Canadian market increased in both the third quarter and first nine months of 2015 over the same periods in 2014.

While the mining industry continues to be impacted by lower natural gas prices, excess coal inventories and stricter EPA regulations, it still represents approximately 30-35% of U.S. energy consumption and has historically fluctuated depending on natural gas prices.

The introduction of new products, including a shell and a small hole flange nut, helped offset some of the decrease in sales of mining products.  In addition, sales of contract castings increased 8% in the second quarter and 4% in the first half of 2015 from the prior year levels.  The increase in sales of contract castings was primarily due to new products, including nuts produced for gas fittings used in the utility industry.  Sales of existing products used in the Class 8 truck market increased but were offset by timing issues of other products, principally in relation to a solar panel producer who sells through contract on major solar installations.  We are working with several new customers in the contract casting markets, which should have a positive impact on the second half of 2015 and future.

Cost of products sold for the Metal Products segment decreased $1.8 million or 27% in the third quarter and $2.4 million or 12% in the first nine months of 2015 compared to the same periods in 2014.

The most significant factors resulting in changes in cost of products sold in the third quarter of 2015 compared to the 2014 third quarter included:

§   an increase of $0.6 million or 23% in costs for payroll and payroll related charges;

§   and a decrease of $2.4 million or 99% in raw materials.

The most significant factors resulting in changes in cost of products sold in the first nine months of 2015 compared to the 2014 first nine months included:

§   a decrease of $0.2 million or 2% in costs for payroll and payroll related charges;

§   a decrease of $1.6 million or 32% in raw materials;

§   a decrease of $0.3 million or 20% related to costs for maintenance and repairs;

§   a decrease of $0.2 million or 6% in costs for supplies and tools;

§   a decrease of $0.1 million or 9% in utility costs;

§   a decrease of $0.2 million or 100% for pattern costs;

§   and an increase of $0.1 million or 63% from the sale of scrap.

Gross margin as a percentage of net sales for the Metal Products segment increased from 15% to 16% in the third quarter of 2015 and decreased from 14% to 9% in the first nine months of 2015 as compared to the 2014 periods. The increase in the third quarter of 2015 is primarily due to the reduction in commodity prices during the period, and the decrease in first nine months of 2015 is primarily due to the lower sales volume causing lower utilization of the Company’s production capacity in 2015 as compared to the 2014 period.

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Selling and administrative expenses in the Metal Products segment decreased less than $0.1 million or 3% in the third quarter and increased $0.3 million or 15% in the first nine months of 2015 as compared to the 2014 periods.

There were no significant factors resulting in any changes in selling and administrative for the Metal Products segment in the third quarter as compared to the third quarter of 2014.

The most significant factors resulting in changes in selling and administrative expenses in the Metal Products segment in the first nine months of 2015 compared to the first nine months of 2014 included:

§   an increase of $0.4 million in allocated charges resulting from the proxy contest initiated by Barington in the first quarter of 2015;

§   and a decrease of $0.1 million or 11% in costs for payroll and payroll related charges.

Other Items

Interest expense decreased 26% in the third quarter and 25% in the first nine months of 2015 compared to the prior year period due to the decreased level of debt in 2015.

Other income was not material to the financial statements.

Income taxes reflected the change in operating results. The effective tax rates in the third quarter and first nine months of 2015 were 26% and 28%, respectively, compared to 34% and 35%, respectively in the 2014 periods. The lower than expected effective rates are the result of decreased earnings estimates from our US sources (primarily related to the costs of the proxy contest during the first half of the year) compared to earnings estimates from foreign sources that have lower overall tax rates. The lower rates in 2015 were also the result of exchange rate differences on foreign tax credits realized on cash repatriated from foreign operations.

Liquidity and Sources of Capital

The Company generated $3.6 million of cash from its operations during the first nine months of 2015 compared to $7.0 million during the same period in 2014.  The decrease in cash flows in the 2015 quarter compared to the prior year period was primarily the result of lower earnings during the period related to the cash expended for the proxy contest as well as the associated timing differences in the collections of accounts receivable, payments of liabilities, and changes in inventories.  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.

Additions to property, plant and equipment were $2.0 million for the first nine months of 2015 and $2.3 million for the same period in 2014.  Total capital expenditures for 2015 are expected to be approximately $3.0 million.  As of October 3, 2015, there is approximately $250,000 of outstanding commitments for these capital expenditures.

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

	Third Quarter 2015		Third Quarter 2014		Year End 2014
Current ratio	5.5		5.3		5.3
Average days’ sales in accounts receivable	50		48		49
Inventory turnover	3.1		3.6		3.1
Total debt to shareholders’ equity	4.2	%	5.9	%	5.7	%

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The following table shows important liquidity measures as of the balance sheet date for each period below (in millions):

	Third   Quarter 2015		Third   Quarter 2014		Year  End  2014
Cash and cash equivalents
- Held in the United States	$  3.8		$  11.3		$  5.6
- Held by a foreign subsidiary	9.8		9.9		10.2
	13.6		21.2		15.8
Working capital	59.7		60.5		57.8
Net cash provided by operating activities	3.6		7.0		9.3
Change in working capital impact on net cash     used in operating activities	(4.7	)	(2.3	)	(2.2	)
Net cash used in investing activities	(2.0	)	(2.3	)	(8.6	)
Net cash used in financing activities	(3.2	)	(3.4	)	(4.5	)

As a result of the cash used in the proxy contest during the first half of the year, the Company decided to repatriate approximately $3.1 million in cash from its foreign subsidiaries during the first nine months of 2015.

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.

Total inventories were $36.5 million on October 3, 2015 compared to $34.4 million at year end 2014, a 6% increase, and $30.7 million, a 19% increase compared to the end of the third quarter of 2014.  Inventory has increased in all of our segments.  In the Industrial Hardware segment, inventory increased due to the opening of the new panel facility in North Carolina during 2015 and higher sales volume.  In the Security Products segment, inventory increased as a result of the Argo acquisition in December 2014 and increased safety stock levels established to protect against lengthening transit times from our Asian affiliates.  In the Metal Products segment, inventory increased because production was slow to react to the reduced demands from the mining industry.   Accounts receivable were $19.8 million compared to $17.1 million at year end 2014 and $18.5 million at the end of the third quarter of 2014.  The increase from year end is related to higher revenues in the first nine 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 2014 Annual Report on Form 10-K.

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ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures:

As of the end of the quarter ended October 3, 2015, 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 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 October 3, 2015 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

On April 17, 2015, Barington Companies Equity Partners, L.P. (“Barington”) filed a purported class action lawsuit against the Company and its board of directors (the “Board”) in the Superior Court of Waterbury, Connecticut (the “Action”).  The Action alleged, among other things, that the Eastern Board breached its fiduciary duties by amending the Company’s bylaws to allow the Board to fill vacancies resulting from an expansion of the number of Board seats.  The Action also challenged the Board’s announced intention to increase the size of the Board and appoint a new director after the May 20, 2015 Annual Meeting, and sought, among other things, injunctive relief preventing the Board from nominating a new director that is the result of an expansion of the number of Board seats without Shareholders voting on the appointment.  On April 17, 2015, Barington filed a motion for expedited proceedings and discovery prior to the May 20, 2015 Annual Meeting.  On April 29, 2015, the Court issued an Order holding that the Action is derivative, and staying the case until July 11, 2015 pursuant to Connecticut law. On July 13, 2015, the Court approved a Stipulation and Order of Dismissal (the “Stipulation”) entered into by the parties in connection with the Action.  The Stipulation provides for, among other things, the dismissal of the Action after the requisite notice period to shareholders has expired.  The Company expensed $320,500 in legal fees and settlement costs during the second quarter of 2015 resulting from this lawsuit.  All costs and fees related to this matter in excess of this amount have been paid by the Company’s insurance carrier.

-21-

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 enrolled in a voluntary remediation program in Illinois and engaged an environmental engineering company to perform testing and develop a remediation plan.  In late July, 2015, the Illinois EPA granted conditional approval of a remediation plan which basically states that institutional controls would be implemented on the site for venting gasses trapped in the soil under the slab on which the building is situated.  Test borings are to be performed to determine the optimal location to place piping for a simple exhaust system to be installed.  This study will be completed during the 4th quarter of this year.  Once completed, it is expected that the Illinois EPA will issue a letter stating that no further remediation is needed, and that there is a restriction limiting the future use to an industrial/commercial property.  The Company does not expect any remediation cost to have a material impact on the consolidated financial statements.  While no final estimate for the cost of remediation was available, it is expected that the cost will be approximately $30,000.  As of the end of the third quarter, the Company had provided for about $26,000.

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 2014 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.

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 January 3, 2015 is incorporated herein by reference.

-22-

99(2)) Form 8-K filed on March 20, 2015 setting forth an amendment to the Company’s bylaws and the press release reporting the Company’s (i) director nominees for election at the Company’s 2015 annual meeting of shareholders, (ii) intention to expand the size of the Board by one and appoint a new director to the resulting vacancy and (iii) filing of its preliminary proxy statement is incorporated herein by reference.

99(3)) Form 8-K filed on March 30, 2015 setting forth the press release reporting the engagement of Wells Fargo Securities as the Company’s financial advisor is incorporated herein by reference.

99(4)) Form 8-K filed on April 13, 2015 setting forth the press release reporting the release of the President’s Letter from the Annual Report to Shareholders is incorporated herein by reference.

99(5)) Form 8-K filed on April 29, 2015 setting forth the press release reporting the Company’s earnings for the quarter ended April 4, 2015 is incorporated herein by reference.

99(6)) Form 8-K filed on May 1, 2015 setting forth the promotion of Angelo Labbadia as the Company’s Vice President and Chief Operating Officer is incorporated herein by reference.

99(7)) Form 8-K filed on May 26, 2015 setting forth the results of the vote at the annual meeting of shareholders of the Company which was held on May 20, 2015 is incorporated herein by reference.

99(8)) Form 8-K filed on May 29, 2015 setting forth the press release reporting the Company’s intention to not appoint a sixth director to its Board of Directors without shareholder approval.

99(9)) Form 8-K filed on July 17, 2015 setting forth the Court approved Stipulation and Order of Dismissal (the “Stipulation”) entered into by the parties in connection with a purported class action lawsuit filed on April 17, 2015 by the Barington Companies Equity Partners, L.P.The Stipulation required that notice of its terms be given to shareholders of the Company in the form of this Current Report on Form 8-K.

99(10)) Form 8-K filed on July 29, 2015 setting forth the press release reporting the Company’s earnings for the quarter ended July 4, 2015 is incorporated herein by reference.

99(11)) Form 8-K filed on July 30, 2015 setting forth a letter issued from the Company’s Chairman, President & CEO terminating the engagement of Wells Fargo Securities as the Company’s financial advisor.

99(12)) Form 8-K filed on August 7, 2015 setting forth the termination of the 2008 Shareholders’ Rights Agreement and ordering the redemption of the rights at the $0.01 per share redemption price.

99(13)) Form 8-K filed on October 28, 2015 setting forth the press release reporting the Company’s earnings for the quarter ended October 3, 2015 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:  October 30, 2015	/s/Leonard F. Leganza
	Leonard F. Leganza Chairman, President and Chief Executive Officer
DATE:  October 30, 2015	/s/John L. Sullivan III
	John L. Sullivan III Vice President and Chief Financial Officer

-23-

EX-31

EXHIBIT 31

CERTIFICATIONS

I, Leonard F. Leganza, certify that:

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

2.   Based on my knowledge, this 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 report;

3.   Based on my knowledge, the financial statements, and other financial information included in this 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 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 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:  October 30, 2015

/s/Leonard F. Leganza

Leonard F. Leganza

CEO

-24-

EXHIBIT 31

CERTIFICATIONS

I, John L. Sullivan III, certify that:

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

2.   Based on my knowledge, this 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 report;

3.   Based on my knowledge, the financial statements, and other financial information included in this 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 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 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:  October 30, 2015

/s/John L. Sullivan III

John L. Sullivan III

CFO

 -25-

EX-32

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 October 3, 2015, 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 October, 2015.

/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.)

-26-

XML

Retirement Benefit Plans (Details) - USD ($)	3 Months Ended		9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014	Oct. 03, 2015	Sep. 27, 2014
Significant disclosures relating to benefit plans [Abstract]
Percentage of voluntary contributions allowed to participants, maximum			100.00%
Contributions made by the Company under Section 401(k)	$ 49,207	$ 49,975	$ 157,133	$ 153,431
Pension Benefits [Member]
Significant disclosures relating to benefit plans [Abstract]
Service cost	964,985	698,423	2,894,960	2,095,271
Interest cost	859,239	829,278	2,577,715	2,487,835
Expected return on plan assets	(1,287,914)	(1,202,632)	(3,863,742)	(3,607,894)
Amortization of prior service cost	54,647	54,647	163,940	163,940
Amortization of the net loss	472,726	236,033	1,418,182	708,098
Net periodic benefit cost	1,063,683	615,749	3,191,055	1,847,250
Contributions required by the Company in defined benefit plan			3,000,000
Contributions made by Company			1,900,000
Postretirement Benefits [Member]
Significant disclosures relating to benefit plans [Abstract]
Service cost	54,393	43,476	163,178	130,427
Interest cost	38,728	39,371	116,186	118,112
Expected return on plan assets	(22,984)	(23,703)	(68,952)	(71,109)
Amortization of prior service cost	(5,972)	(5,972)	(17,916)	(17,917)
Amortization of the net loss	4,701	0	14,103	0
Net periodic benefit cost	$ 68,866	$ 53,172	206,599	$ 159,513
Contributions required by the Company in defined benefit plan			150,000
Contributions made by Company			$ 90,000

XML

Intangibles (Tables)

9 Months Ended

Oct. 03, 2015

Intangibles [Abstract]

Gross carrying amount and accumulated amortization of amortizable intangible assets

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)
2015 Gross Amount
Patents and developed technology	$	2,344,481	$	1,049,677	$	--	$	3,394,158		15.5
Customer relationships		--		449,706		--		449,706		5.0
Non-compete agreements		--		407,000		--		407,000		5.0
Intellectual property		--		307,370		--		307,370		5.0
Total Gross Intangibles	$	2,344,481	$	2,213,753	$	--	$	4,558,234		12.4
2015 Accumulated Amortization
Patents and developed technology	$	1,583,356	$	582,250	$	--	$	2,165,606
Customer relationships		--		67,456		--		67,456
Non-compete agreements		--		61,050		--		61,050
Intellectual property		--		46,106		--		46,106
Accumulated Amortization	$	1,583,356	$	756,862	$	--	$	2,340,218
Net October 3,2015 per Balance Sheet	$	761,125	$	1,456,891	$	--	$	2,218,016

2014 Gross Amount
Patents and developed technology	$	2,494,261	$	1,025,303	$	--	$	3,519,564	15.7
Customer relationships		--		449,706		--		449,706	5.0
Non-compete agreements		--		407,000		--		407,000	5.0
Intellectual property		--		307,370		--		307,370	5.0
Total Gross Intangibles	$	2,494,261	$	2,189,379	$	--	$	4,683,640	12.7
2014 Accumulated Amortization
Patents and developed technology	$	1,649,655	$	535,415	$	--	$	2,185,070
Customer relationships		--		--		--		--
Non-compete agreements		--		--		--		--
Intellectual property		--		--		--		--
Accumulated Amortization	$	1,649,655	$	535,415	$	--	$	2,185,070
Net January 3,2015 per Balance Sheet	$	844,606	$	1,653,964	$	--	$	2,498,570

XML

Basis of Presentation

9 Months Ended

Oct. 03, 2015

Basis of Presentation [Abstract]

Basis of Presentation

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 January 3, 2015 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 January 3, 2015 has been derived from the audited consolidated balance sheet at that date.

XML

Segment Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014	Oct. 03, 2015	Sep. 27, 2014
Segment Reporting Information [Line Items]
Revenues, sales to unaffiliated customers	$ 36,239,500	$ 35,803,405	$ 110,154,039	$ 106,432,304
Operating Profit	3,449,621	3,748,873	5,677,126	8,833,930
Interest expense	(45,203)	(60,680)	(145,773)	(193,875)
Other income	6,573	14,030	33,540	37,996
Income before income taxes	3,410,991	3,702,223	5,564,893	8,678,051
Industrial Hardware [Member] | Operating Segments [Member]
Segment Reporting Information [Line Items]
Revenues, sales to unaffiliated customers	16,327,856	15,006,948	46,234,468	44,202,346
Operating Profit	1,742,917	1,428,040	3,112,008	3,994,443
Security Products [Member] | Operating Segments [Member]
Segment Reporting Information [Line Items]
Revenues, sales to unaffiliated customers	13,927,096	12,780,359	43,463,335	37,748,241
Operating Profit	1,236,581	1,643,159	2,672,875	3,088,610
Metal Products [Member] | Operating Segments [Member]
Segment Reporting Information [Line Items]
Revenues, sales to unaffiliated customers	5,984,548	8,016,098	20,456,236	24,481,717
Operating Profit	$ 470,123	$ 677,674	$ (107,757)	$ 1,750,877

XML

Inventories (Details) - USD ($)	Oct. 03, 2015	Jan. 03, 2015
Components of inventories [Abstract]
Raw material and component parts	$ 9,775,420	$ 9,219,341
Work in process	7,513,942	7,074,950
Finished goods	19,186,086	18,107,906
Inventories	$ 36,475,448	$ 34,402,197

XML

Debt (Details) - USD ($)		9 Months Ended
	Jan. 25, 2012	Oct. 03, 2015	Jan. 01, 2011	Jan. 29, 2010
Debt Instrument [Line Items]
Minimum tangible net worth		$ 55,000,000	$ 43,000,000
Tangible net worth			50.00%
Revolving Credit Line [Member]
Debt Instrument [Line Items]
Maximum borrowing capacity		$ 10,000,000		$ 10,000,000
Maturity date of loan		Jul. 01, 2016
Revolving Credit Line [Member] | LIBOR [Member]
Debt Instrument [Line Items]
Basis spread on variable rate	2.25%	2.25%
Revolving Credit Line [Member] | People's Prime Rate [Member]
Debt Instrument [Line Items]
Basis spread on variable rate	2.25%
Revolving Credit Line [Member] | Floor Rate [Member]
Debt Instrument [Line Items]
Floor rate of loan	3.25%
Loan Agreement [Member]
Debt Instrument [Line Items]
Fixed charge coverage ratio as multiple, minimum		1.1
Leverage ratio as multiple, maximum		1.75
Term Loan [Member]
Debt Instrument [Line Items]
Maximum borrowing capacity				$ 5,000,000
Fixed rate of interest		4.98%
2012 Term Loan [Member]
Debt Instrument [Line Items]
Maximum borrowing capacity	$ 5,000,000	$ 5,000,000
Fixed rate of interest		3.90%

XML

Goodwill (Details)	9 Months Ended
	Oct. 03, 2015 USD ($)
Goodwill [Roll Forward]
Beginning balance	$ 14,960,354
Foreign exchange	(213,196)
Ending balance	14,747,158
Industrial Hardware Segment [Member]
Goodwill [Roll Forward]
Beginning balance	1,901,312
Foreign exchange	(213,196)
Ending balance	1,688,116
Security Products Segment [Member]
Goodwill [Roll Forward]
Beginning balance	13,059,042
Foreign exchange	0
Ending balance	13,059,042
Metal Products Segment [Member]
Goodwill [Roll Forward]
Beginning balance	0
Foreign exchange	0
Ending balance	$ 0

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)	9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014
Operating Activities
Net income	$ 3,986,267	$ 5,628,205
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,885,560	2,506,785
Unrecognized pension and postretirement benefits	1,356,233	982,195
Loss on sale of equipment and other assets	62,254	105,511
Provision for doubtful accounts	44,126	71,229
Issuance of Common Stock for directors' fees	42,487	22,491
Changes in operating assets and liabilities:
Accounts receivable	(2,991,497)	(2,448,174)
Inventories	(2,602,651)	(207,873)
Prepaid expenses and other	532,981	56,064
Recoverable income taxes receivable	380,000	0
Other assets	(4,616)	(141,478)
Accounts payable	269,696	1,357,742
Accrued compensation	(186,096)	(672,074)
Other accrued expenses	(125,439)	(247,024)
Net cash provided by operating activities	3,649,305	7,013,599
Investing Activities
Purchases of property, plant and equipment	(2,044,712)	(2,292,872)
Proceeds from sales of equipment and other assets	0	19,000
Net cash used in investing activities	(2,044,712)	(2,273,872)
Financing Activities
Principal payments on long-term debt	(1,071,428)	(1,071,428)
Dividends paid	(2,123,322)	(2,302,391)
Net cash used in financing activities	(3,194,750)	(3,373,819)
Effect of exchange rate changes on cash	(633,221)	(155,480)
Net change in cash and cash equivalents	(2,223,378)	1,210,428
Cash and cash equivalents at beginning of period	15,834,444	19,988,361
Cash and cash equivalents at end of period	$ 13,611,066	$ 21,198,789

XML

Intangibles (Details) - USD ($)	9 Months Ended	12 Months Ended
	Oct. 03, 2015	Jan. 03, 2015
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	$ 4,558,234	$ 4,683,640
Accumulated Amortization	2,340,218	2,185,070
Net as per Balance Sheet	$ 2,218,016	$ 2,498,570
Weighted Average Amortization Period	12 years 4 months 24 days	12 years 8 months 12 days
Industrial Hardware Segment [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	$ 2,344,481	$ 2,494,261
Accumulated Amortization	1,583,356	1,649,655
Net as per Balance Sheet	761,125	844,606
Security Products Segment [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	2,213,753	2,189,379
Accumulated Amortization	756,862	535,415
Net as per Balance Sheet	1,456,891	1,653,964
Metal Products Segment [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	0	0
Accumulated Amortization	0	0
Net as per Balance Sheet	$ 0	0
Technology and Licenses [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Useful lives of intangible assets	5 years
Technology and Licenses [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Useful lives of intangible assets	17 years
Patents and Developed Technology [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	$ 3,394,158	3,519,564
Accumulated Amortization	$ 2,165,606	$ 2,185,070
Weighted Average Amortization Period	15 years 6 months	15 years 8 months 12 days
Patents and Developed Technology [Member] | Industrial Hardware Segment [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	$ 2,344,481	$ 2,494,261
Accumulated Amortization	1,583,356	1,649,655
Patents and Developed Technology [Member] | Security Products Segment [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	1,049,677	1,025,303
Accumulated Amortization	582,250	535,415
Patents and Developed Technology [Member] | Metal Products Segment [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	0	0
Accumulated Amortization	0	0
Customer Relationships [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	449,706	449,706
Accumulated Amortization	$ 67,456	$ 0
Weighted Average Amortization Period	5 years	5 years
Customer Relationships [Member] | Industrial Hardware Segment [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	$ 0	$ 0
Accumulated Amortization	0	0
Customer Relationships [Member] | Security Products Segment [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	449,706	449,706
Accumulated Amortization	67,456	0
Customer Relationships [Member] | Metal Products Segment [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	0	0
Accumulated Amortization	0	0
Non-compete Agreements [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	407,000	407,000
Accumulated Amortization	$ 61,050	$ 0
Weighted Average Amortization Period	5 years	5 years
Non-compete Agreements [Member] | Industrial Hardware Segment [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	$ 0	$ 0
Accumulated Amortization	0	0
Non-compete Agreements [Member] | Security Products Segment [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	407,000	407,000
Accumulated Amortization	61,050	0
Non-compete Agreements [Member] | Metal Products Segment [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	0	0
Accumulated Amortization	0	0
Intellectual Property [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	307,370	307,370
Accumulated Amortization	$ 46,106	$ 0
Weighted Average Amortization Period	5 years	5 years
Intellectual Property [Member] | Industrial Hardware Segment [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	$ 0	$ 0
Accumulated Amortization	0	0
Intellectual Property [Member] | Security Products Segment [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	307,370	307,370
Accumulated Amortization	46,106	0
Intellectual Property [Member] | Metal Products Segment [Member]
Gross carrying amount and accumulated amortization of amortizable intangible assets [Abstract]
Gross Amount	0	0
Accumulated Amortization	$ 0	$ 0

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($)	Oct. 03, 2015	Jan. 03, 2015
Current Assets
Cash and cash equivalents	$ 13,611,066	$ 15,834,444
Accounts receivable, less allowances: $438,000 - 2015; $414,000 - 2014	19,747,618	17,064,245
Inventories	36,475,448	34,402,197
Prepaid expenses and other assets	2,079,150	2,659,737
Recoverable income taxes receivable	0	380,000
Deferred income taxes	950,024	950,024
Total Current Assets	72,863,306	71,290,647
Property, Plant and Equipment	64,230,401	62,970,497
Accumulated depreciation	(36,924,239)	(34,919,067)
Net Property, Plant and Equipment	27,306,162	28,051,430
Goodwill	14,747,158	14,960,354
Trademarks	168,688	174,662
Patents, technology and other intangibles net of accumulated amortization	2,218,016	2,498,570
Deferred income taxes	3,735,353	4,294,893
Total Other Assets	20,869,215	21,928,479
TOTAL ASSETS	121,038,683	121,270,556
Current Liabilities
Accounts payable	8,286,337	8,256,600
Accrued compensation	2,674,247	2,916,832
Other accrued expenses	1,167,641	1,201,114
Current portion of long-term debt	1,071,429	1,071,429
Total Current Liabilities	13,199,654	13,445,975
Other long-term liabilities	564,669	564,669
Long-term debt, less current portion	2,142,857	3,214,285
Accrued postretirement benefits	3,029,305	2,905,908
Accrued pension cost	$ 25,819,339	$ 26,164,812
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: 8,941,141 shares in 2015 and 8,938,742 shares in 2014	$ 28,974,545	$ 28,932,058
Treasury Stock: 2,694,729 shares in 2015 and 2014	(19,105,723)	(19,105,723)
Retained earnings	89,543,612	87,680,667
Accumulated other comprehensive income (loss):
Foreign currency translation	(761,069)	855,179
Unrecognized net pension and postretirement benefit costs, net of tax	(22,368,506)	(23,387,274)
Accumulated other comprehensive loss	(23,129,575)	(22,532,095)
Total Shareholders' Equity	76,282,859	74,974,907
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 121,038,683	$ 121,270,556

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($)	3 Months Ended		9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014	Oct. 03, 2015	Sep. 27, 2014
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Net income	$ 2,527,722	$ 2,431,817	$ 3,986,267	$ 5,628,205
Other comprehensive income/(loss):
Change in foreign currency translation	(994,325)	(444,848)	(1,616,248)	(497,620)
Change in pension and postretirement benefit costs, net of taxes of: 2015 - $559,542 and $186,513, respectively 2014 - $301,078 and $100,360, respectively	339,590	184,348	1,018,768	553,043
Total other comprehensive (loss)/income	(654,735)	(260,500)	(597,480)	55,423
Comprehensive income	$ 1,872,987	$ 2,171,317	$ 3,388,787	$ 5,683,628

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Income Taxes (Details) - USD ($)	9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014
Income Tax Examination [Line Items]
Repatriated amount from its foreign subsidiaries	$ 3,100,000	$ 2,800,000
Impact on the effective tax rate	(2.50%)	1.40%
Significant changes to the amount of unrecognized tax benefits	$ 0

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Inventories (Tables)

9 Months Ended

Oct. 03, 2015

Inventories [Abstract]

Components of inventories

The components of inventories follow:

	October 3,2015		January 3,2015
Raw material and component parts	$	9,775,420	$	9,219,341
Work in process		7,513,942		7,074,950
Finished goods		19,186,086		18,107,906
	$	36,475,448	$	34,402,197

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Financial Instruments and Fair Value Measurements (Details) - Customer	Oct. 03, 2015	Jan. 03, 2015
Credit Risk [Abstract]
Number of customers that represented more than 10% of trade receivables	0	0
Term Loan [Member]
Interest Rate Risk [Abstract]
Fixed rate of interest	4.98%
2012 Term Loan [Member]
Interest Rate Risk [Abstract]
Fixed rate of interest	3.90%

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Goodwill (Tables)

9 Months Ended

Oct. 03, 2015

Goodwill [Abstract]

Roll-forward of goodwill

The following is a roll-forward of goodwill from year-end 2014 to the end of the third quarter 2015:

	Industrial Hardware Segment			Security Products Segment		Metal Products Segment		Total
Beginning balance	$	1,901,312		$	13,059,042	$	—	$	14,960,354
Foreign exchange		(213,196	)		—		—		(213,196	)
Ending balance	$	1,688,116		$	13,059,042	$	—	$	14,747,158

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (Parenthetical) - USD ($)	3 Months Ended		9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014	Oct. 03, 2015	Sep. 27, 2014
Other comprehensive income/(loss):
Change in pension and postretirement benefit costs, taxes	$ 186,513	$ 100,360	$ 559,542	$ 301,078

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - USD ($)	Oct. 03, 2015	Jan. 03, 2015
Current Assets
Accounts receivable, allowances	$ 438,000	$ 414,000
Shareholders' Equity
Voting Preferred Stock, no par value (in dollars per share)	$ 0	$ 0
Voting Preferred Stock, shares authorized (in shares)	1,000,000	1,000,000
Nonvoting Preferred Stock, no par value (in dollars per share)	$ 0	$ 0
Nonvoting Preferred Stock, shares authorized (in shares)	1,000,000	1,000,000
Common Stock, no par value (in dollars per share)	$ 0	$ 0
Common Stock, shares authorized (in shares)	50,000,000	50,000,000
Common Stock, shares issued (in shares)	8,941,141	8,938,742
Treasury Stock, shares (in shares)	2,694,729	2,694,729

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Retirement Benefit Plans

9 Months Ended

Oct. 03, 2015

Retirement Benefit Plans [Abstract]

Retirement Benefit Plans

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 third quarter and first nine months of fiscal 2015 and 2014 follow:

	Pension Benefits
	Nine Months Ended						Three Months Ended
	October 3,2015			September 27,2014			October 3,2015			September 27,2014
Service cost	$	2,894,960		$	2,095,271		$	964,985		$	698,423
Interest cost		2,577,715			2,487,835			859,239			829,278
Expected return on plan assets		(3,863,742	)		(3,607,894	)		(1,287,914	)		(1,202,632	)
Amortization of prior service cost		163,940			163,940			54,647			54,647
Amortization of the net loss		1,418,182			708,098			472,726			236,033
Net periodic benefit cost	$	3,191,055		$	1,847,250		$	1,063,683		$	615,749

	Postretirement Benefits
	Nine Months Ended						Three Months Ended
	October 3,2015			September 27,2014			October 3,2015			September 27,2014
Service cost	$	163,178		$	130,427		$	54,393		$	43,476
Interest cost		116,186			118,112			38,728			39,371
Expected return on plan assets		(68,952	)		(71,109	)		(22,984	)		(23,703	)
Amortization of prior service cost		(17,916	)		(17,917	)		(5,972	)		(5,972	)
Amortization of the net loss		14,103			--			4,701			--
Net periodic benefit cost	$	206,599		$	159,513		$	68,866		$	53,172

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 2015, the Company expects to contribute $3.0 million into its pension plans and $150,000 into its postretirement plan. As of October 3, 2015, the Company has made contributions totaling approximately $1.9 million into its pension plans and $90,000 to its postretirement plan and will make the remaining contributions as required during the fourth quarter 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 $49,207 and $157,133 in the third quarter and first nine months of 2015, respectively and $49,975 and $153,431 in the third quarter and first nine months of 2014, respectively.

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Document and Entity Information - shares	9 Months Ended
	Oct. 03, 2015	Oct. 30, 2015
Document and Entity Information [Abstract]
Entity Registrant Name	EASTERN CO
Entity Central Index Key	0000031107
Current Fiscal Year End Date	--01-02
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		6,246,412
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Oct. 03, 2015

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Stock Based Compensation and Stock Options

9 Months Ended

Oct. 03, 2015

Stock Based Compensation and Stock Options [Abstract]

Stock Based Compensation and Stock Options

Note J – Stock Based Compensation and Stock Options

The Company has a stock option plan for officers, other key employees, and non-employee directors.  As of October 3, 2015 the 2010 plan had 500,000 shares reserved for future grant and issuance.  Incentive stock options granted under the 2010 plan 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 2010 plan, 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 nine months of 2015 or 2014.

At October 3, 2015, there were no outstanding or exercisable options.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)	3 Months Ended				9 Months Ended
	Oct. 03, 2015		Sep. 27, 2014		Oct. 03, 2015		Sep. 27, 2014
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) [Abstract]
Net sales	$ 36,239,500		$ 35,803,405		$ 110,154,039		$ 106,432,304
Cost of products sold	(27,205,657)		(27,161,932)		(85,872,857)		(82,501,121)
Gross margin	9,033,843		8,641,473		24,281,182		23,931,183
Selling and administrative expenses	(5,584,222)		(4,892,600)		(18,604,056)		(15,097,253)
Operating profit	3,449,621		3,748,873		5,677,126		8,833,930
Interest expense	(45,203)		(60,680)		(145,773)		(193,875)
Other income	6,573		14,030		33,540		37,996
Income before income taxes	3,410,991		3,702,223		5,564,893		8,678,051
Income taxes	883,269		1,270,406		1,578,626		3,049,846
Net income	$ 2,527,722		$ 2,431,817		$ 3,986,267		$ 5,628,205
Earnings per Share:
Basic (in dollars per share)	$ 0.41		$ 0.39		$ 0.64		$ 0.90
Diluted (in dollars per share)	0.41		0.39		0.64		0.90
Cash dividends per share: (in dollars per share)	$ 0.12	[1]	$ 0.15	[2]	$ 0.34	[1]	$ 0.37	[2]

[1] Includes $ 0.01 per share redemption for the termination of the 2008 Shareholder Rights Agreement.

[2] The Company paid an additional one-time dividend of $0.04 per share in the third quarter of 2014.

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Segment Information

9 Months Ended

Oct. 03, 2015

Segment Information [Abstract]

Segment Information

Note D – Segment Information

Segment financial information follows:

	Nine Months Ended						Three Months Ended
	October 3,2015			September 27,2014			October 3,2015			September 27,2014
Revenues:
Sales to unaffiliated customers:
Industrial Hardware	$	46,234,468		$	44,202,346		$	16,327,856		$	15,006,948
Security Products		43,463,335			37,748,241			13,927,096			12,780,359
Metal Products		20,456,236			24,481,717			5,984,548			8,016,098
	$	110,154,039		$	106,432,304		$	36,239,500		$	35,803,405
Income before income taxes:
Industrial Hardware	$	3,112,008		$	3,994,443		$	1,742,917		$	1,428,040
Security Products		2,672,875			3,088,610			1,236,581			1,643,159
Metal Products		(107,757	)		1,750,877			470,123			677,674
Operating Profit		5,677,126			8,833,930			3,449,621			3,748,873
Interest expense		(145,773	)		(193,875	)		(45,203	)		(60,680	)
Other income		33,540			37,996			6,573			14,030
	$	5,564,893		$	8,678,051		$	3,410,991		$	3,702,223

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Inventories

9 Months Ended

Oct. 03, 2015

Inventories [Abstract]

Inventories

Note C – Inventories

The components of inventories follow:

	October 3,2015		January 3,2015
Raw material and component parts	$	9,775,420	$	9,219,341
Work in process		7,513,942		7,074,950
Finished goods		19,186,086		18,107,906
	$	36,475,448	$	34,402,197

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Segment Information (Tables)

9 Months Ended

Oct. 03, 2015

Segment Information [Abstract]

Segment financial information

Segment financial information follows:

	Nine Months Ended						Three Months Ended
	October 3,2015			September 27,2014			October 3,2015			September 27,2014
Revenues:
Sales to unaffiliated customers:
Industrial Hardware	$	46,234,468		$	44,202,346		$	16,327,856		$	15,006,948
Security Products		43,463,335			37,748,241			13,927,096			12,780,359
Metal Products		20,456,236			24,481,717			5,984,548			8,016,098
	$	110,154,039		$	106,432,304		$	36,239,500		$	35,803,405
Income before income taxes:
Industrial Hardware	$	3,112,008		$	3,994,443		$	1,742,917		$	1,428,040
Security Products		2,672,875			3,088,610			1,236,581			1,643,159
Metal Products		(107,757	)		1,750,877			470,123			677,674
Operating Profit		5,677,126			8,833,930			3,449,621			3,748,873
Interest expense		(145,773	)		(193,875	)		(45,203	)		(60,680	)
Other income		33,540			37,996			6,573			14,030
	$	5,564,893		$	8,678,051		$	3,410,991		$	3,702,223

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Income Taxes

9 Months Ended

Oct. 03, 2015

Income Tax [Abstract]

Income Taxes

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 2012 and non-U.S. income tax examinations by tax authorities prior to 2010.

The Company repatriated approximately $3.1 million and $2.8 million in cash from its foreign subsidiaries in the first nine months of 2015 and 2014, respectively.  The impact on the effective tax rate was a reduction in the rate by approximately 2.5% in 2015 and an approximate 1.4% increase in the rate in 2014.  The reason for the reduction in 2015 relates to differences in exchange rates from the time the earnings were reported to the date of the dividend.

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 nine months ended October 3, 2015.  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.

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Goodwill

9 Months Ended

Oct. 03, 2015

Goodwill [Abstract]

Goodwill

Note G – Goodwill

The following is a roll-forward of goodwill from year-end 2014 to the end of the third quarter 2015:

	Industrial Hardware Segment			Security Products Segment		Metal Products Segment		Total
Beginning balance	$	1,901,312		$	13,059,042	$	—	$	14,960,354
Foreign exchange		(213,196	)		—		—		(213,196	)
Ending balance	$	1,688,116		$	13,059,042	$	—	$	14,747,158

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Recent Accounting Pronouncements

9 Months Ended

Oct. 03, 2015

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note E – Recent Accounting Pronouncements

In January 2015, the FASB issued authoritative guidance that modifies reporting of extraordinary items in the income statement.  The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.  The adoption of the new guidance is not expected to have a material impact on the consolidated financial statements of the Company.

In February 2015, the FASB issued authoritative guidance which amends certain requirements for determining whether a variable interest entity must be consolidated.  The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.  The adoption of the new guidance is not expected to have a material impact on the consolidated financial statements of the Company.

In April 2015, the FASB issued authoritative guidance which simplifies the presentation of debt issuance costs. The amendments in this accounting standard update require debt issuance costs to be presented on the balance sheet as a direct reduction from the carrying amount of the related debt liability.  The amendments in this accounting standard update are to be applied retrospectively and are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.  The adoption of the new guidance is not expected to have a material impact on the consolidated financial statements of the Company.

In July 2015, the FASB issued authoritative guidance which requires a company to change its valuation method of inventory from the lower of cost or market (market being replacement cost, net realizable value or net realizable value less an approximate profit margin) to the lower of cost or net realizable value.  The amendment is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.  The amendment should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period.  The adoption of this amendment is not expected to have a material impact on the consolidated financial statements of the Company.

In September 2015, the FASB issued authoritative guidance which will simplify the accounting for adjustments made to provisional amounts recognized in a business combination.   U.S. GAPP currently requires that during the measurement period, the acquirer retrospectively adjust the provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill.  The amendments require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.  The amendments are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years.  The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not yet been issued.  The adoption of this amendment is not expected to have a material 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.

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Debt

9 Months Ended

Oct. 03, 2015

Debt [Abstract]

Debt

Note F – Debt

On January 29, 2010, the Company signed a secured Loan Agreement (the “Loan Agreement”) with People’s United Bank which included a $5,000,000 term portion (the “Original Term Loan”) and a $10,000,000 revolving credit portion.  On January 25, 2012, the Company amended the loan agreement by taking an additional $5,000,000 term loan (the “2012 Term Loan”).  Interest on the Original Term Loan portion of the Loan Agreement is fixed at 4.98%.  Interest on the 2012 Term Loan is fixed at 3.90%.  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 3.25% and a maturity date of January 31, 2014.  On January 23, 2014, the Company signed an amendment to its secured Loan Agreement with People’s United Bank (“People’s”) which extended the maturity date of the $10,000,000 revolver portion of the Loan Agreement to July 1, 2016 and changed the interest rate to LIBOR plus 2.25%, eliminating the floor previously in place.  The Company did not utilize the revolving credit facility during Fiscal 2014 or during the first nine months of 2015.

The Company has loan covenants under the Loan Agreement which required 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 as of the end of Fiscal 2010 increasing each year by 50% of consolidated net income.  As part of the amendment signed on January 23, 2014, the leverage ratio was eliminated and the minimum tangible net worth covenant was modified to a fixed $55 million, effective as of March 29, 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 2014 and for the nine month period ended October 3, 2015.

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Intangibles

9 Months Ended

Oct. 03, 2015

Intangibles [Abstract]

Intangibles

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. Customer relationships, non-compete agreements and intellectual property 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.

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)
2015 Gross Amount
Patents and developed technology	$	2,344,481	$	1,049,677	$	--	$	3,394,158		15.5
Customer relationships		--		449,706		--		449,706		5.0
Non-compete agreements		--		407,000		--		407,000		5.0
Intellectual property		--		307,370		--		307,370		5.0
Total Gross Intangibles	$	2,344,481	$	2,213,753	$	--	$	4,558,234		12.4
2015 Accumulated Amortization
Patents and developed technology	$	1,583,356	$	582,250	$	--	$	2,165,606
Customer relationships		--		67,456		--		67,456
Non-compete agreements		--		61,050		--		61,050
Intellectual property		--		46,106		--		46,106
Accumulated Amortization	$	1,583,356	$	756,862	$	--	$	2,340,218
Net October 3,2015 per Balance Sheet	$	761,125	$	1,456,891	$	--	$	2,218,016

2014 Gross Amount
Patents and developed technology	$	2,494,261	$	1,025,303	$	--	$	3,519,564	15.7
Customer relationships		--		449,706		--		449,706	5.0
Non-compete agreements		--		407,000		--		407,000	5.0
Intellectual property		--		307,370		--		307,370	5.0
Total Gross Intangibles	$	2,494,261	$	2,189,379	$	--	$	4,683,640	12.7
2014 Accumulated Amortization
Patents and developed technology	$	1,649,655	$	535,415	$	--	$	2,185,070
Customer relationships		--		--		--		--
Non-compete agreements		--		--		--		--
Intellectual property		--		--		--		--
Accumulated Amortization	$	1,649,655	$	535,415	$	--	$	2,185,070
Net January 3,2015 per Balance Sheet	$	844,606	$	1,653,964	$	--	$	2,498,570

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Stock Based Compensation and Stock Options (Details) - shares	9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock granted (in shares)	0	0
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of fair market value of stock on grant date for exercise price, minimum	100.00%
Options granted (in shares)	0	0
Outstanding at end of period (in shares)	0
Options exercisable (in shares)	0
2010 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available for future grant (in shares)	500,000

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Earnings Per Share (Tables)

9 Months Ended

Oct. 03, 2015

Earnings Per Share [Abstract]

Denominators used in the earnings per share computations

The denominators used in the earnings per share computations follow:

	Nine Months Ended				Three Months Ended
	October 3,2015		September 27,2014		October 3,2015		September 27,2014
Basic:
Weighted average shares outstanding		6,244,534		6,222,678		6,245,099		6,223,140
Diluted:
Weighted average shares outstanding		6,244,534		6,222,678		6,245,099		6,223,140
Dilutive stock options		-		17,127		-		17,256
Denominator for diluted earnings per share		6,244,534		6,239,805		6,245,099		6,240,396

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Retirement Benefit Plans (Tables)

9 Months Ended

Oct. 03, 2015

Retirement Benefit Plans [Abstract]

Significant disclosures relating to benefit plans

Significant disclosures relating to these benefit plans for the third quarter and first nine months of fiscal 2015 and 2014 follow:

	Pension Benefits
	Nine Months Ended						Three Months Ended
	October 3,2015			September 27,2014			October 3,2015			September 27,2014
Service cost	$	2,894,960		$	2,095,271		$	964,985		$	698,423
Interest cost		2,577,715			2,487,835			859,239			829,278
Expected return on plan assets		(3,863,742	)		(3,607,894	)		(1,287,914	)		(1,202,632	)
Amortization of prior service cost		163,940			163,940			54,647			54,647
Amortization of the net loss		1,418,182			708,098			472,726			236,033
Net periodic benefit cost	$	3,191,055		$	1,847,250		$	1,063,683		$	615,749

	Postretirement Benefits
	Nine Months Ended						Three Months Ended
	October 3,2015			September 27,2014			October 3,2015			September 27,2014
Service cost	$	163,178		$	130,427		$	54,393		$	43,476
Interest cost		116,186			118,112			38,728			39,371
Expected return on plan assets		(68,952	)		(71,109	)		(22,984	)		(23,703	)
Amortization of prior service cost		(17,916	)		(17,917	)		(5,972	)		(5,972	)
Amortization of the net loss		14,103			--			4,701			--
Net periodic benefit cost	$	206,599		$	159,513		$	68,866		$	53,172

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Parenthetical) - $ / shares	3 Months Ended
	Sep. 27, 2014	Oct. 03, 2015
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) [Abstract]
Redemption price per share (in dollars per share)		$ 0.01
Additional dividend (in dollars per share)	$ 0.04

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Earnings Per Share

9 Months Ended

Oct. 03, 2015

Earnings Per Share [Abstract]

Earnings Per Share

Note B – Earnings Per Share

The denominators used in the earnings per share computations follow:

	Nine Months Ended				Three Months Ended
	October 3,2015		September 27,2014		October 3,2015		September 27,2014
Basic:
Weighted average shares outstanding		6,244,534		6,222,678		6,245,099		6,223,140
Diluted:
Weighted average shares outstanding		6,244,534		6,222,678		6,245,099		6,223,140
Dilutive stock options		-		17,127		-		17,256
Denominator for diluted earnings per share		6,244,534		6,239,805		6,245,099		6,240,396

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Earnings Per Share (Details) - shares	3 Months Ended		9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014	Oct. 03, 2015	Sep. 27, 2014
Basic [Abstract]
Weighted average shares outstanding (in shares)	6,245,099	6,223,140	6,244,534	6,222,678
Diluted [Abstract]
Weighted average shares outstanding (in shares)	6,245,099	6,223,140	6,244,534	6,222,678
Dilutive stock options (in shares)	0	17,256	0	17,127
Denominator for diluted earnings per share (in shares)	6,245,099	6,240,396	6,244,534	6,239,805

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Financial Instruments and Fair Value Measurements

9 Months Ended

Oct. 03, 2015

Financial Instruments and Fair Value Measurements [Abstract]

Financial Instruments and Fair Value Measurements

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 October 3, 2015 and January 3, 2015, there were no significant concentrations of credit risk. No one customer represented more than 10% of the Company’s net trade receivables at October 3, 2015 or at January 3, 2015.  The maximum exposure to credit risk is primarily represented by the carrying amount of the Company’s accounts receivable.

Interest Rate Risk

On October 3, 2015, 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 October 3, 2015 or January 3, 2015.