What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-08-30 compared with 2023-08-25 · 88 added, 94 removed, 144 unchanged (56% of the section changed)

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In addition, the economic sanctions imposed as a result of the Russia/Ukraine conflict have impacted certain of our customers in those markets and the surrounding regions.

The impacts of COVID-19 have moderated since it was declared a global pandemic by the World Health Organization in March 2020.

The Company continues to monitor any changes regarding the pandemic and any future impacts of COVID-19 on our business, operations, and financial results.

Fiscal Year 2024 Summary

 Net sales declined 26.0% to $13,099,651 due predominantly to weaker consumer demand led by constraints on consumer spending brought on by higher inflation and, as a result, lower disposable income.

Over inventory positions at some U.S.

distributors also contributed to the decline.

Export sales fell 29% while domestic sales fell 25%.

 Gross profit as a percentage of sales decreased 3.9 percentage points to 34.0%.

The decrease was primarily due to fixed manufacturing expenses that do not flex with the lower sales volume.

The favorable mix of higher margin direct-to-consumer (“DTC”) sales offset the year over year decline in higher margin domestic distributors.

 Selling, general and administrative expenses increased significantly as a result of legal fees and expenses incurred in support of the Company’s patent defense litigation.

Excluding the effect of these legal fees and expenses, selling, general and administrative expenses increased by approximately $1.3 million, or 24.9%.

Bonus and profit-sharing expense as a consequence of the net income from licensing proceeds during the year also contributed to the increase.

 Other income for the year ended June 30, 2023 consisted entirely of $33,000,000 in licensing proceeds received in the first quarter of the year.

 Tax expense for the year ended June 30, 2023 was $317,377 as a direct impact of the licensing income earned during the year.

 Net sales declined 6.4% to $12,265,069 due predominantly to the timing of inventory replenishment by the Company’s largest European distributor in addition to a slowdown in Direct-to-Consumer (DTC) sales.

Export sales fell 24% while domestic sales fell minimally at less than 1%.

 Gross profit as a percentage of sales increased slightly by 0.1 percentage points to 34.1%.

The favorable mix of higher margin domestic distributor sales and lower volume of lower margin export sales were offset by the adverse impact of the continued sell-through of inventory brought in at higher freight rates.

 Selling, general and administrative expenses decreased significantly from the prior fiscal year due primarily to legal fees and expenses incurred in support of the Company’s patent defense litigation, coupled with bonus and profit-sharing expense related to the net income from licensing proceeds in the prior year.

Excluding the effect of these fees and expenses, selling, general and administrative expenses decreased by approximately 3.7%, mainly attributable to lower payroll expense as a result of personnel attrition.

 No other income was reported for the year ended June 30, 2024, however, $33,000,000 in licensing proceeds received in the first quarter of the prior year was recorded as other income during the year ended June 30, 2023.

 A tax benefit of $73,604 was recorded for the year ended June 30, 2024 as a result of the return-to-provision adjustment identified during the third quarter.

Income tax expense of $317,377 was incurred during the previous fiscal year as a direct result of the licensing income earned during the year.

Consolidated Results

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Consolidated Performance Summary

Net sales decrease

Net sales (decrease) % from prior year period

Gross profit as % of net sales

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Interest income

Income before income tax provision

Income before income tax provision as % of net sales

Income tax provision

Income tax provision as % of income before taxes

(Loss) income before income tax (benefit) provision

(Loss) income before income tax (benefit) provision as % of net sales

Income tax (benefit) provision

Income tax (benefit) provision as % of (loss) income before income tax (benefit) provision

2024 Results of Operations Compared with 2023

Net sales for the fiscal year 2023 declined by 26.0% mainly as a result of lower sales to U.S.

distributors coupled with a 28.9% drop in sales to the Company’s export markets.

For the year ended June 30, 2023, domestic net sales decreased $3,284,378, or 25.0% to $9,848,521.

Sales to U.S.

distributors were impacted by an oversupply of inventory as a consequence of higher-level purchases during the pandemic followed by recent weakened consumer demand for our product due to inflation.

While DTC sales, believed to be a significant approach to driving growth, remained stable year over year, it continued to represent the Company’s largest market class, growing from approximately 19% of total net sales during the twelve months ended June 30, 2022 to approximately 25% during the current fiscal year.

Export net sales also saw a downturn during the current fiscal year, decreasing $1,321,490 or 28.9% to $3,251,130.

The adverse impacts from the war between Russia and Ukraine, along with increasing inflation and higher energy costs, drove an approximately 27% decline in sales to export distributors in Europe by nearly $1,000,000 versus fiscal year 2022.

Lost sales of approximately $600,000 to Russia and Ukraine made up the majority of the drop.

A decrease in sales to distributors in Asia also contributed to the decline mainly behind a lack of sales to one of the Company’s non-retail original equipment manufacturers that utilizes Koss headphones in one of their products.

Sales to this market were over $350,000 during the year ended June 30, 2022.

Gross profit as a percentage of net sales decreased to 34.0% for the year ended June 30, 2023, compared to 37.9% for the prior fiscal year.

Net sales for the year ending June 30, 2024 declined by 6.4% to $12,265,069 primarily due to a 24.0% drop in sales to the Company’s export markets as well as a 19.7% decrease in DTC sales.

The downturn in export net sales of $781,499 for the fiscal year 2024 is almost entirely due to a shortfall in sales to the Company’s largest European distributor as they delayed replenishment of their inventory, as well as a 19.6% decline in sales to Asia behind lower sales to an original equipment manufacturer of metal detectors.

A revival of orders from the Ukrainian distributor slightly offset the decline.

Domestic sales for the year ended June 30, 2024 decreased by less than 1%, or $53,083, to $9,795,438.

DTC sales, which represent nearly 30% of the Company’s total sales, were down almost 20%.

We believe this decline is driven by softer discretionary spending as consumers react to higher inflation and other spending commitments.

A near 50% increase in sales to E-tailers, a sizable custom headphone order during the current fiscal year and a slight improvement in sales to certain of the Company’s U.S.

distributors mostly offset the decline in DTC sales.

Gross profit as a percentage of net sales for the year ended June 30, 2024 was 34.1% versus 34.0% for the prior fiscal year.

Gross margins vary by customer, product, and markets and, as a result, any shifts in the mix can impact the overall gross margin.

While the mix of higher margin DTC sales was favorable compared to the prior fiscal year, fixed manufacturing overhead expenses that don’t flex with sales negatively impacted the margins for the year.

And while freight costs improved during the first half of the year and then stabilized in the back half, the movement of inventory received at the higher freight costs will continue to offset the reduced shipping costs.

The Company renewed its contract with the freight forwarder, stabilizing contract rates and bringing them in line with market rates.

UPS reached a tentative agreement for a new five-year national contract with the Teamsters on July 25, 2023, averting a potential crisis in small package shipping.

The new agreement is likely to increase the Company’s future freight costs.

Selling, general and administrative expenses for the year ended June 30, 2023 increased by approximately $23,545,000 to $29,358,000 compared to the prior year period.

The significant change was predominantly a result of the increase of approximately $22,276,000 in legal fees and expenses incurred in support of the Company’s patent defense litigation.

Excluding the effect of these legal fees and expenses, selling, general and administrative expenses increased by approximately $1.3 million, or 24.9%.

Also, a bonus accrual of $334,000 and a second quarter profit-sharing payout of $576,000 were recorded as a result of the increased net income before income taxes for the fiscal year 2023 due mainly to the licensing proceeds received during the first quarter of 2023, partially offset by the aforementioned legal fees and expenses.

During the year ended June 30, 2023, deferred compensation expense of $60,000 was recorded related to the change in the net present value of the future expected payments to a current officer as a result of an additional vesting year, which increased the future annual payments.

This compares to $633,000 of income recorded in the prior fiscal year as a result of income of $473,000 recognized with the reversal of the deferred compensation liability for the Company’s founder who passed away in December 2021, offset by $71,250 of payments accrued and made to the former officer prior to his passing, and deferred compensation income of $231,000 recognized under the arrangement for the current officer as a result of increasing interest rates.

Employer taxes on stock option exercises of approximately $28,000 were recorded in the current year compared to $134,000 in the prior year, a decrease of $106,000.

Other income for the year ended June 30, 2023 consisted entirely of $33,000,000 in licensing proceeds received in the first quarter.

The Company received licensing proceeds of $100,000, which was also recorded as other income, in the first quarter of the prior year.

Also, in December 2021, the Company recognized other income on the proceeds from a company-owned life insurance policy on its founder, who passed away on December 21, 2021.

Total other income for the fiscal year 2022 was $362,390.

Interest income of $520,809 was recorded during the year ended June 30, 2023 for interest earned on U.S.

Treasury securities that were purchased midyear to better secure the Company’s excess cash while earning a return.

Interest income of $11,513 was earned on a money market account in the prior fiscal year.

While the mix of higher margin U.S.

distributor sales coupled with fewer lower margin export sales was favorable compared to the prior fiscal year, the impact of an increase in the reserve for excess and obsolete inventory and continued sell-off of inventory received at higher freight costs in prior years continued to adversely impact gross margins.

The Company was able to maintain fairly consistent freight rates throughout the fiscal year 2024 because of the renewal of their partnership agreement with a dedicated freight forwarder, which provided access to lower freight rates even though market rates increased near the end of the fiscal year.

The impact of broader economic factors such as inflation and shifts in consumer behavior could result in overcapacity in the market and rising freight costs.

The Company continues to monitor the situation.

Selling, general and administrative expenses for the fiscal year ended June 30, 2024 declined approximately 80% from $29,342,000 to $6,058,000.

In addition to the legal fees and expenses of $22,141,000 incurred during the prior fiscal year to support the Company’s patent defense and litigation resolution, a bonus accrual of $334,000 and a profit-sharing payout of $576,000 were recorded in expense as a result of the increased net income for the year ended June 30, 2023.

Excluding the effect of these legal fees and related expenses, selling, general and administrative expenses still decreased by approximately $233,000, or 3.1%.

The decrease is predominantly driven by a decrease in payroll expense due to personnel departures in the prior fiscal year whose job responsibilities were absorbed internally.

There was no other income reported for the year ended June 30, 2024.

Other income for the year ended June 30, 2023 consisted entirely of $33,000,000 in licensing proceeds received in the first quarter of that year.

Interest income of $847,644 was recorded during the year ended June 30, 2024 mainly due to interest earned on the U.S.

Treasury investments held during the year in order to earn a return on the Company’s excess cash while maintaining a low risk profile.

This compares to $520,809 of interest income earned in the prior fiscal year from these securities.

A net income tax benefit of $73,604 was reported for the year ended June 30, 2024 and included a federal income tax benefit of $81,278 recorded as a result of the return-to-provision (RTP) adjustments recorded in the period identified.

The RTP adjustments were identified as part of the preparation and submission of the fiscal year 2023 tax returns during the third quarter.

State income tax expense of $7,674, which represented only the required minimum estimated tax payments due, partially offset the benefit.

Income tax expense of $317,377 for the year ended June 30, 2023 was comprised of the U.S.

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The utilization of net operating loss carryforwards significantly reduced the taxable income, resulting in federal and state tax provisions of $230,139 and $87,237, respectively.

For the year ended June 30, 2022, there was no federal tax provision and a state tax provision of $7,517 was recorded.

The effective tax rate was 3.7% for the fiscal year ended June 30, 2023 compared to less than 1% for the previous fiscal year.

During the twelve months ended June 30, 2023, stock option exercises resulted in tax deductible compensation expense of approximately $368,000 and will offset some of the taxable income generated by the net licensing proceeds.

Net operating loss carryforwards were also utilized to reduce the taxable income and, as such, th e remaining expected federal tax loss carryforward is expected to approximate $31,800,000 by the end of the fiscal year.

The current fiscal year adjustment to the estimated tax loss carryforward decreased the deferred tax asset to approximately $8,200,000 as of June 30, 2023, and the future realization of this continues to be uncertain.

The valuation allowance was also increased to fully offset the deferred tax asset as there is sufficient negative evidence to support the maintaining of a full valuation allowance as, excluding unusual, infrequent items, a three-year cumulative tax loss occurred.

The effective tax rate was 7.2% for the fiscal year ended June 30, 2024 compared to 3.7% for the previous fiscal year.

The Company’s taxable loss for the year ended June 30, 2024 increased the federal tax loss carryforward by $1,270,000, resulting in an expected carryforward of approximately $32,800,000 by the end of the fiscal year.

The current fiscal year adjustment to the net operating loss carryforward increased the deferred tax asset to approximately $8,500,000 as of June 30, 2024, and the future realization of this continues to be uncertain.

The valuation allowance was increased to fully offset the net deferred tax asset as there is sufficient negative evidence to support the maintaining of a full valuation allowance as, excluding unusual, infrequent items, a three-year cumulative tax loss occurred.

As previously reported, the Company maintains a program focused on enforcing its intellectual property and, in particular, certain of its patent portfolio.

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The Company has recovered certain of the fees and costs that were involved with the underlying efforts to enforce this portfolio, as further described in the notes to the financial statements included in this Annual Report on Form 10-K.

Part of the litigation related to this enforcement has been recently dismissed and the Company received non-recurring net proceeds of nearly $11,000,000 from the granting of licenses to certain of its patents.

Part of the litigation related to this enforcement has been dismissed and the Company received non-recurring net proceeds of nearly $11,000,000 in the 2023 fiscal year from the granting of licenses to certain of its patents.

If the program continues to be successful with the remaining complaints, the Company may receive additional royalties, offers to purchase its intellectual property, or other remedies advantageous to its competitive position;

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The Company had $2.8 million of cash and cash equivalents, $12.1 million of short-term investments and available credit facilities of $5.0 million on June 30, 2024.

During fiscal 2023, inflation, rising interest rates and higher energy costs have impacted consumers’ discretionary spending and, as a result, the Company’s sales volumes.

Inflationary cost increases have also had an impact on our commodities, packaging materials, labor costs, and transportation costs.

Pricing actions implemented in the third quarter of fiscal year 2023 partially mitigated these increases and working with a dedicated freight forwarding partner has helped to minimize freight rate increases.

The Company’s supply chain is primarily in southern China.

While some issues related to the availability of containers and routings have subsided, the Company continues to monitor the situation closely and the supply chain team will modify business plans as necessary.

During fiscal year 2024, inflation, increased interest rates and higher energy costs continue to impact consumers’ discretionary spending, and in turn, the Company’s sales volumes.

Inflation may impact customer demand for our products resulting from a slowdown in consumers’ willingness to spend as disposable income decreases due to rising prices of essential items, spend through of excess savings from earlier in the pandemic and leading indicators pointing to a softening in the labor market.

Inflationary cost increases have resulted in higher costs of commodities, packaging materials, and wages, along with higher energy and transportation costs.

These increases have been partially mitigated by pricing actions implemented in the prior fiscal year and the Company continues to work with a dedicated freight forwarding partner to minimize freight rate increases.

Other risk factors further exacerbated by inflation include supply chain disruptions, increased oil and energy costs, risks of international operations and the recruitment and retention of talent.

The Company relies on our third-party supply chain, primarily in southern China, and distribution networks and the availability of necessary components to produce a considerable number of our products.

A reduction or interruption in supply, including interruptions due to pandemic related restrictions, geopolitical unrest, labor shortages or strikes, or a failure to procure adequate components, may lead to delays in manufacturing or increases in costs.

The global supply chain remains fragile, even while there is some stabilization and improved predictability.

Freight rates continue to rise based on strong U.S.

import demand and ongoing challenges shipping through the Red Sea and Suez Canal.

The Company rarely uses this route so no material adverse impacts are expected, but the conflict has impacted freight traffic for the Company’s resellers.

The Company continues to monitor ongoing tensions in Eastern Europe and the Middle East and the supply chain team will react as necessary should supply chain disruptions occur.

This could include increasing the investment in inventory, being alert to potential short supply situations, assisting suppliers with acquisition of critical components and utilizing alternative sources and/or air freight.

The invasion of Ukraine by Russia in February 2022 and the broad economic sanctions imposed in response to this conflict have increased global economic and political uncertainty.

In accordance with Executive Order 14071 declared on April 6, 2022, the Company suspended sales into Russia.

Given the humanitarian crisis in Ukraine and the population seeking refuge in other countries as a result of the ongoing conflict, sales to Ukraine were also impacted.

Prior to the war, neither Russia nor Ukraine constituted a significant portion of the business, making up less than 3.4% of total net sales of the Company for the year ended June 30, 2022.

There were no sales to Russia or Ukraine in the current fiscal year.

We are uncertain, however, of the impact it will have on future operating results.

Financial and credit markets around the world experienced volatility following the invasion of Ukraine by Russia in February 2022.

In response to the invasion, the United States, United Kingdom, and European Union, along with others, imposed significant sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future.

In accordance with Executive Order 14071 signed on April 6, 2022, the Company suspended sales to Russia.

While there is a humanitarian crisis in Ukraine created by the war and the population continues to seek refuge in other countries, the Company did receive a sizable order from their Ukrainian distributor in the first quarter of fiscal year 2024 with potential for more orders in the new year.

During the years ended June 30, 2024 and 2023, there were no sales to Russia.

Liquidity and Capital Resources

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Financing activities

Net (decrease) increase in cash and cash equivalents

Net (decrease) in cash and cash equivalents

Operating Activities

Cash provided by operating activities of the Company during the year ended June 30, 2023 was the result of the licensing proceeds received, partially offset by the payment of related legal fees and expenses, along with a second quarter profit-sharing payout.

Additionally, the Company’s discipline around and the management of inventory purchases has led to a continued decline in inventory balances during the year.

For the year ended June 30, 2022, the Company used cash of $942,530 for operating activities related to the

deliberate investment in inventory to ensure adequate stock levels of critical products were available in case of potential supply chain disruption and delays.

Cash used in operating activities of the Company during the year ended June 30, 2024 included bonus payouts of $403,000 and funding of $362,000 relating to employee payroll taxes on the gains from the disqualifying dispositions of incentive stock options.

Cash outflow was partially offset by tighter inventory buying practices and interest received on investments.

During the previous year, cash provided by operating activities of the Company included the licensing proceeds received, partially offset by the payment of related legal fees and expenses and the profit-sharing payout.

Investing Activities

Cash used by investing activities for year ended June 30, 2023 was almost entirely related to the purchase of approximately $18,860,000 of U.S.

Treasury securities at a discount.

Purchases of equipment and leasehold improvements by the Company during the year ended June 30, 2023 was $98,441 compared to $108,158 spent for tooling and leasehold improvements in the prior year.

Cash provided by investing activities for the year ended June 30, 2022 was the result of proceeds of a company-owned life insurance policy on the Company’s founder upon his passing on December 21, 2021, slightly offset by the fixed asset purchases.

Capital expenditures for fiscal year 2024 are expected to be approximately $400,000 related to leasehold improvements.

Net cash used by investing activities for year ended June 30, 2024 was related to capital expenditures, including the replacement of a roof section of the building and HVAC upgrades for approximately $330,000 and premiums on company-owned life insurance policies for two of its executives.

Proceeds of $14,331,000 were received during the year ended June 30, 2024 from the maturity of U.S.

Treasury securities and were mostly reinvested to purchase $14,286,000 of similar securities at a $300,000 discount.

In the prior year, cash used for investing activities was almost entirely related to the purchase of $19,334,000 of U.S.

Treasury securities at a discount of $474,000, offset slightly by proceeds of $2,022,000 from the maturity of one of the Company’s U.S.

Treasury notes.

Purchases of equipment and leasehold improvements by the Company of $98,441 and the payment of premiums on Company-owned life insurance policies for two of its executives also contributed to the overall use of cash during the year ended June 30, 2023.

Financing Activities

The cash generated from financing activities in the years ended June 30, 2024 and 2023 was solely driven by stock option exercises.

As of June 30, 2023, the Company had no outstanding borrowings on its bank line of credit facility under the Credit Agreement (described below under “Credit Facility").

There were no purchases of common stock in 2023 or 2022 under the stock repurchase program.

In the year ended June 30, 2023, there were stock option exercises of 87,000 shares generating $171,350 of cash.

In the fiscal year ended 2024, there were stock option exercises of 65,000 shares generating $134,975 of cash.

This compares to the exercise of 87,000 options during the year ended June 30, 2023, which generated cash of $171,350.

There were no purchases of common stock in 2024 or 2023 under the stock repurchase program.

As of June 30, 2024 and 2023, the Company had no outstanding borrowings on its bank line of credit facility under the Credit Agreement (described below under “Credit Facility").

Short Term Liquidity

The Company anticipates funding its normal recurring trade payables, accrued expenses, ongoing R&D costs, and any potential interest payments, if it utilizes its line of credit facility, through existing working capital and funds provided by operating activities.

The majority of the Company’s purchase obligations are pursuant to funded contractual arrangements with its customers.

The Company anticipates funding its normal recurring trade payables, accrued expenses, ongoing R&D costs, inventory purchases and any potential interest payments, if it utilizes its line of credit facility, through existing working capital, funds provided by operating activities and interest earned on investments.

Payment terms for the majority of the Company’s international customers, as well as custom and OEM customers, are cash in advance whereby funds are received before a shipment is even made.

The Company believes its existing cash, cash equivalents, investments in short-term U.S.

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The Company’s future capital requirements, to a certain extent, are also subject to general conditions in or affecting the electronics industry and are subject to general economic, political, financial, competitive, legislative, and regulatory factors that are beyond its control.

Moreover, to the extent that existing cash, cash equivalents, cash from operations, and cash from its credit facilities are

insufficient to fund its future activities, the Company may need to raise additional funds through public or private equity or debt financing, subject to the limitations specified in the Credit Agreement (as defined below).

Moreover, to the extent that existing cash, cash equivalents, cash from operations, and cash from its credit facilities are insufficient to fund its future activities, the Company may need to raise additional funds through public or private equity or debt financing, subject to the limitations specified in the Credit Agreement (as defined below).

In addition, the Company may also need to seek additional equity funding or debt financing if it becomes a party to any agreement or letter of intent for potential investments in, or acquisitions of, businesses, services, or technologies.

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The Company is currently in compliance with all covenants related to the Credit Agreement.

As of June 30, 2023, and June 30, 2022, there were no outstanding borrowings on the facility.

As of June 30, 2024 and 2023, there were no outstanding borrowings on the facility.

Stock Repurchase Program

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As of June 30, 2024, the Board had authorized the repurchase of an aggregate of $45,500,000 of common stock under the stock repurchase program, of which $43,360,247 had been expended.

No purchases were made during the years ended June 30, 2023 or 2022.

There were no stock repurchases under the program in fiscal year 2023 or 2022.

As such, as of June 30, 2023, the amount of common stock subject to repurchase by the Company under the Board of Director’s prior authorization remained $2,139,753 at the discretion of the Chief Executive Officer of the Company.

No stock repurchases were made under the program during the years ended June 30, 2024 or 2023.

As of June 30, 2024, the amount of common stock subject to repurchase by the Company under the Board of Director’s prior authorization remained $2,139,753 at the discretion of the Chief Executive Officer of the Company.

Future stock purchases under this program are dependent on management’s assessment of value versus market price, may occur either on the open market or through privately negotiated transactions and may be financed through the Company’s cash flow or by borrowing.

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We have made estimates and we continually evaluate our estimates and judgments, including those related to doubtful accounts, product returns, excess inventories, warranties, impairment of long-lived assets, deferred compensation, income taxes and other contingencies.

We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances, taking into consideration certain possible adverse impacts from inflation, the economic sanctions imposed on the international community as a result of the continued conflict between Russia and Ukraine, and any changes to the global economic situation as a consequence of the COVID-19 pandemic.

We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances, taking into consideration certain possible adverse impacts from inflation, the economic sanctions imposed on the international community as a result of the continued conflicts in Eastern Europe and the Middle East, and any changes to the global economic situation as a consequence of future pandemics.

Actual results may differ from these estimates.

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Accounts receivable are stated net of an allowance for doubtful accounts.

The allowance is calculated based upon the Company’s evaluation of specific customer accounts where the Company has information that the customer may have an inability to meet its financial obligations.

In these cases, management uses its judgment, based on the best available facts and circumstances, and records a specific reserve for that customer against amounts due to reduce the receivable to the amount that is expected to be collected.

The Company establishes an allowance based upon the current expected credit loss impairment model.

The Company applies a historical loss rate based upon historic write-offs, adjusted for current conditions and reasonable and supportable forecasts of future losses as necessary.

The Company may also record a specific reserve for individual accounts if they become aware of specific customer circumstances such as bankruptcy or deterioration in operation results or financial position.

These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved.

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In addition, management estimates the expected retirement date for the current officer as that impacts the timing for expected future payments.

See Note 10 for additional information on deferred compensation.

See Note 10 to the Consolidated Financial Statements for additional information on deferred compensation.

Stock-Based Compensation

The Company has a stock-based employee compensation plan, which is described more fully in Note 12 to the Consolidated Financial Statements.

The Company accounts for stock-based compensation in accordance with ASC 718 "Compensation - Stock Compensation".

Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis