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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-05 · 99 added, 122 removed, 94 unchanged (70% of the section changed)

44 unchanged sentences

IN FINANCIAL CONDITION

the period ended September 30, 2021 vs.

the period ended March 31, 2022 vs.

December 31, 2021

Company’s cash balance of $27,245,000 at September 30, 2021, increased $3,612,000 (15.3%) from the $23,633,000 balance at December

31, 2020 mainly the result of income generated from operations during 2021, less dividends of $8,809,000 paid during the first nine months

The condensed consolidated statement of cash flows is provided on page 8 which provides further details regarding changes in

Receivable was $22,115,000 and $20,077,000 as of September 30, 2021, and December 31, 2020, respectively, increasing $2,038,000 or 10.2%.

This is mostly timing related, associated with higher sales during the current quarter compared to the fourth quarter of last year.

Company’s cash balance of $28,971,000 on March 31, 2022 decreased $3,942,000 (12.0%) from a $32,913,000 balance at December 31,

Consistent with prior years, the Company paid a significant amount of cash during the first quarter for obligations that were accrued

as of the end of the preceding year, such as various incentive related compensation and sales promotional incentive programs.

also purchased additional raw materials because of the challenging supply chain environment.

Those cash outflows were partially offset

by income generated from operations, net cash collections from accounts receivables, and an increase in taxes payable.

See the Company’s

Condensed Consolidated Cash Flow Statements for further details regarding the change in cash.

Receivable was $18,760,000 and $20,726,000 as of March 31, 2022 and December 31, 2021, respectively, decreasing $1,966,000 or 9.5%.

is mostly timing related, associated with greater cash collections resulting from higher sales during the fourth quarter of the year

versus the first quarter.

was $17,820,000 and $15,565,000 as of March 31, 2022 and December 31, 2021, respectively, increasing $2,255,000 or 14.5%.

is mainly the result of the purchase of inventory to ensure enough materials on hand because of the challenging supply chain environment.

Compensation was $1,791,000 on March 31, 2022, compared to $7,008,000 on December 31, 2021, decreasing $5,217,000 or 74.4%.

A significant

portion of the liability that existed at the previous year end related to incentive compensation earned in 2021.

As is customary, the

liability was then paid during the first quarter of the following year, or 2022, thus diminishing the balance.

The liability now represents

amounts earned during the current year.

Commissions and Sales Incentives were $3,589,000 and $7,183,000 as of March 31, 2022 and December 31, 2021, respectively, decreasing

$3,594,000 or 50.0%.

A portion of the decrease relates to a customary trend of a lower level of sales during first quarter of the year

in comparison to the fourth quarter, and the resulting commissions and sales incentives that are earned.

Additionally, a portion of the

sales incentives have an annual component which accumulates during the year and are then paid during the first quarter of the following

Payable were $1,873,000 on March 31, 2022, compared to $1,000 on December 31, 2021, increasing $1,872,000.

The increase is mainly the

result of the timing of the payment of taxes in April 2022 for taxable income recognized for the quarter ending March 31, 2022.

earnings were $52,476,000 and $50,053,000 as of March 31, 2022 and December 31, 2021, respectively, increasing $2,423,000 or 4.8%.

increase was primarily due to net income during the quarter, as provided on the Company’s Condensed Consolidated Statements of

Income, partially offset by dividends declared during 2022, as discussed in detail in Note 8, Shareholders’ Equity, to the condensed

consolidated financial statements included in this report.

OF OPERATIONS

months ended September 30, 2021 vs.

September 30, 2020

Company reported comparative results from continuing operations for the three months ended September 30, 2021 and 2020 as follows:

months ended September 30,

months ended March 31, 2022 vs.

March 31, 2021

Company reported comparative results from operations for the three-month periods ended March 31, 2022 and 2021 as follows:

ended March 31,

(in thousands)

Operating Profit

The Company’s 2021 third quarter sales of $31,725,000 increased $4,638,000 or 17.1% compared to the third quarter of

The Company’s 2022 first quarter sales of $31,293,000 increased $430,000 or 1.4% compared to the first quarter of 2021,

which generated sales of $30,863,000.

1 unchanged sentence

took to offset material cost pressure and to protect margins.

The Company’s gross profit margins were 63.2% and 63.7% for the three months ended September 30, 2021 and 2020, respectively.

The Company’s gross profit margins were 61.1% and 63.4% for the three-months ended March 31, 2022 and 2021, respectively.

The Company experienced higher material prices which largely have been offset by the pricing actions noted above.

2 unchanged sentences

Selling expense was $5,783,000 and $4,821,000

for the three months ended September 30, 2021 and 2020, respectively, representing an increase of $885,000 or 22.2%.

The increase was

primarily related to higher staffing costs, as resources were added, and freight expenses, which move in relation to sales.

for the three-months ended March 31, 2022 and 2021, respectively, representing an increase of $962,000 or 20.0%.

The increases mostly

related to commissions, freight, travel, trade shows, and sales meeting expenses.

Commissions increased partly because of a shift of

shipments from third party warehouses, whose shipments are subject to commission, compared to those directly from the manufacturing facilities,

whose shipments are not subject to commission.

Freight costs increased because of higher fuel costs and constrained availability.

trade shows, and sales meeting expenses were much lower in the previous year because of COVID-19 pandemic restrictions.

Selling expenses

as a percent of net sales were 15.4% and 14.7% for the three months ended September 30, 2021 and 2020, respectively.

increased as a percent of net sales compared to last year, being 18.5% for the three-months ended March 31, 2022, and 15.6% for the three-months

ended March 31, 2021.

and Administrative Expenses .

2 unchanged sentences

General and administrative

expenses were $5,724,000 and $5,951,000 for the three months ended September 30, 2021 and 2020, respectively, thus decreasing by $227,000

The most notable decrease related to a decrease in phantom stock expense of $1,162,000, driven by the change in the Company’s

stock price between periods, as discussed in detail in Note 6, Stock Based Plans, to the condensed consolidated financial statements

included in this report, partially offset by an increase in incentive compensation associated with higher profitability and by higher

legal and product liability related defense costs.

As a percentage of sales, general and administrative expenses decreased to 18.0% for

the three months ended September 30, 2021 from 22.0% for the three months ended September 30, 2020.

expenses were $4,750,000 and $5,418,000 for the three-months ended March 31, 2022 and 2021, respectively, thus decreasing by $668,000

Lower items include legal and product liability related defense costs, incentive compensation, and director fees.

compensation is derived from two notable components.

There was a decrease in the incentive compensation component which is aligned with

profitability;

and there was a reduction in stock based compensation expense which moves in relation to the Company’s stock price,

as detailed in Note 6, Stock Based Compensation Plans, to the condensed consolidated financial statements included in this report.

fees were also lower due to a revised arrangement resulting from an independent study performed to align board compensation with comparable

peers in the previous year.

As a percentage of sales, general and administrative expenses decreased to 15.2% for the three months ended

March 31, 2022 from 17.6% for the three-months ended March 31, 2021.

Engineering expenses consist of development expenses associated with the development of new products and enhancements to

1 unchanged sentence

Engineering expenses were $1,216,000 and $1,001,000 for the three-months ended

September 30, 2021 and 2020, respectively, increasing by $168,000 or 17.8%, partially associated with an increase in staffing and development

and certification related costs required for the progression of various promising applications.

Engineering expenses as a percentage

of sales, were essentially the same at 3.5% for the three months ended September 30, 2021, and 2020.

Reflecting all of the factors mentioned above, operating profits were $8,326,000 and $6,379,000 for the quarters ended September

30, 2021 and 2020, respectively, increasing by $1,947,000 or 30.5%.

As a percentage of sales, operating profits increased, being 26.2%

and 23.6% for the three months ended September 30, 2021 and 2020, respectively.

Income (Expense).

Interest income is recorded on cash investments, and interest expense is recorded at times when the Company has

debt amounts outstanding on its line of credit.

The Company recorded $10,000 and $6,000 of interest income for the quarters ended September

30, 2021 and 2020, respectively.

Income (Expense).

Other Income (Expense) primarily consists of foreign currency exchange gains (losses) on transactions settled in

currencies other than the Company’s local currency, typically related to the Company’s foreign U.K.

subsidiaries.

expense of $19,000 and income of $19,000 recorded for the quarters ended September 30, 2021 and 2020, respectively.

Tax Expense .

Income Tax Expense was $2,160,000 for the third quarter of 2021, compared to $1,576,000 for the same period in 2020,

increasing $584,000 or 37.1%, mostly the result of the increase in income before taxes.

months ended September 30, 2021 vs.

September 30, 2020

Company reported comparative results from operations for the nine month periods ended September 30, 2021 and 2020 as follows:

Nine months ended September 30,

(in thousands)

Operating Profit

The Company’s 2021 sales for the first nine months of 2021 of $94,554,000 increased $20,383,000 or 27.5% compared to

the first nine months of 2020, which generated sales of $74,171,000.

The increase in sales was two-fold, resulting primarily from an

increase in unit volume, and to a lesser extent by pricing actions which the Company took to offset material cost pressure and to protect

Sales during the first nine months of 2020 were partially impeded by the COVID-19 pandemic.

The Company’s gross profit margins were 62.7% and 62.4% for the nine months ended September 30, 2021 and 2020, respectively.

Selling expenses consist primarily of employee salaries and associated overhead costs, commissions, and the cost of marketing

programs such as advertising, trade shows and related communication costs, and freight.

Selling expense was $14,625,000 and $12,045,000

for the nine months ended September 30, 2021 and 2020, respectively, representing an increase of $2,580,000 or 21.4%.

The increases primarily

related to freight and commissions, which are variable costs and thus increased in relation to sales volume.

Other less significant increases

were noted in staffing, as resources were added.

Selling expenses decreased as a percent of net sales compared to last year, being 15.5%

for the nine months ended September 30, 2021, and 16.2% for the nine months ended September 30, 2020.

and Administrative Expenses .

General and administrative expenses consist primarily of employee salaries, benefits for administrative,

executive and finance personnel, legal and accounting, and corporate general and administrative services.

General and administrative

expenses were $16,281,000 and $14,056,000 for the nine months ended September 30, 2021 and 2020, respectively, thus increasing by $2,225,000

Incentive compensation increased $1,561,000 over last year due to higher operating profits.

Additional higher items include

legal and product liability related defense costs and director fees due to a revised arrangement resulting from an independent study

performed to align board compensation with comparable peers.

These higher items were partially offset by a decrease in phantom stock

expense between years, driven by the change in the Company’s stock price between periods, as discussed in detail in Note 6, Stock

Based Plans, to the condensed consolidated financial statements included in this report.

As a percentage of sales, general and administrative

expenses decreased to 17.2% for the nine months ended September 30, 2021 from 19.0% for the nine months ended September 30, 2020.

Engineering expenses consist of development expenses associated with the development of new products and enhancements to

existing products, and manufacturing engineering costs.

Engineering expenses were $3,326,000 and $3,086,000 for the nine months ended

September 30, 2021 and 2020, respectively, increasing by $240,000 or 7.8%.

Engineering expenses decreased as a percentage of sales, being

3.5% for the nine months ended September 30, 2021, and 4.2% for the same period in 2020.

Reflecting all of the factors mentioned above, operating profits were $25,064,000 and $17,110,000 for the nine months ended

September 30, 2021 and 2020, respectively, increasing by $7,954,000 or 46.5%.

Income (Expense).

Interest income is recorded on cash investments, and interest expense is recorded at times when the Company has

debt amounts outstanding on its line of credit.

The Company recorded $27,000 of interest income and $46,000 of interest expense during

the first nine months of 2021 and 2020, respectively.

The Company had borrowed $15,000,000 on its line of credit for a portion of the

second quarter of 2020 to ensure liquidity during the COVID-19 crisis, which created the interest expense during that period.

Income (Expense) .

Other Income (Expense) primarily consists of foreign currency exchange gains (losses) on transactions settled in

currencies other than the Company’s local currency, typically related to the Company’s foreign U.K.

March 31, 2022 and 2021, respectively, increasing by $215,000 or 21.5%, mainly associated with increases in experimental materials, travel,

and staffing related costs.

Engineering expenses increased as a percentage of sales, being 3.9% for the three-months ended March 31,

2022, and 3.2% for the same period in 2021.

Reflecting all of the factors mentioned above, operating profits were $7,366,000 and $8,319,000 for the quarters ending

March 31, 2022 and 2021, respectively, decreasing by $953,000 or 11.5%.

Interest income is recorded on cash investments, and interest expense is recorded at times when the Company has debt amounts

outstanding on its line of credit.

The Company recorded $9,000 of interest income each during the first quarters of 2022 and 2021.

(Loss) Income .

Other (loss) income primarily consists of foreign currency exchange gains (losses) on transactions settled in currencies

other than the Company’s local currency, typically related to the Company’s foreign U.K.

subsidiaries.

income of $6,000 recorded during the first nine months of 2021, but expense of $112,000 during the first nine months of 2020.

Pound had weakened in 2020 as a result of the pandemic impacting the economy.

There was a loss of

$26,000 recorded during the first quarter 2022, but income of $18,000 during the first quarter of 2021.

The British Pound had weakened

during the first quarter of 2022.

Tax Expense .

Income Tax Expense was $6,441,000 for the first nine months of 2021, compared to $4,188,000 for the same period in 2020,

increasing $2,253,000 or 53.8%, mostly the result of the increase in income before taxes.

Income tax expense was $1,879,000 for the first three months of 2022, compared to $2,049,000 for the same period in

2021, decreasing $170,000 or 8.3%, mostly the result of the decrease in income before taxes.

ACCOUNTING POLICIES AND USE OF ESTIMATES

16 unchanged sentences

generated from operations.

of September 30, 2021, the Company had a cash balance of $27,245,000.

of March 31, 2022, the Company had a cash balance of $28,971,000.

Additionally, the Company has a $15,000,000 line of credit available,

as discussed in detail in Note 4, which had no borrowings outstanding upon it as of September 30, 2021.

At December 31, 2020, the Company

had a cash balance of $23,633,000, with no borrowings against the line of credit.

provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities, such

as those included in working capital.

the nine months ended September 30, 2021, the Company’s operating activities provided cash of $13,164,000, compared to the nine

months ended September 30, 2020 which provided cash of $11,341,000, a difference of $1,823,000.

For details of the operating cash flows

refer to the unaudited condensed consolidated statements of cash flows in Part I – Financial Information on page eight.

as discussed in detail in Note 4, which had no borrowings outstanding upon it on March 31, 2022.

On December 31, 2021, the Company had

a cash balance of $32,913,000, with no borrowings against the line of credit.

provided or used by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities,

such as those included in working capital.

the three months ended March 31, 2022, the Company’s operating activities used cash of $3,876,000, compared to the three months

ended March 31, 2021 which provided cash of $2,207,000, a difference of $6,083,000.

For details of the operating cash flows refer to

the Condensed Consolidated Statements of Cash Flows in Part I – Financial Information on page seven.

a general trend, the Company tends to deplete or generate lower amounts of cash early in the year, as significant payments are typically

made for accrued promotional incentives, incentive compensation, and taxes.

Cash has then historically shown a tendency to be restored

and accumulated during the latter portion of the year.

used in investing activities during the nine months ended September 30, 2021 and 2020 was $720,000 and $381,000, respectively for capital

made for accrued promotional incentives and incentive compensation.

Cash has then historically shown a tendency to be restored and accumulated

during the latter portion of the year.

used in investing activities during the three months ended March 31, 2022 and 2021 was $79,000 and $362,000, respectively for capital

expenditures.

financing activities relate to dividend payments, which are detailed in Note 8, Shareholders’ Equity.

Dividend payments through

the first nine months of 2021 and 2020, amounted to $8,809,000 and $8,479,000, respectively.

See Note 4, Line of Credit and Other Borrowings,

for a description of borrowings and repayments during the second quarter of 2020.

A dividend was declared in

both December of 2021 and 2020, amounting to $3,029,000 and $2,826,000 each, with payment due and paid during December 2021 and January

2021, respectively.

There were no dividend payments during the quarter ending March 31, 2022.

believe our existing cash and cash equivalents, along with our borrowing capacity, will be sufficient to meet our anticipated cash needs

1 unchanged sentence

Our future capital requirements will depend upon many factors including our rate of revenue growth,

the timing and extent of any expansion efforts, the potential for investments in, or the acquisition of any complementary products, businesses

or supplementary facilities for additional capacity, and the COVID-19 pandemic.

the timing and extent of any expansion efforts, and the potential for investments in, or the acquisition of any complementary products,

businesses, or supplementary facilities for additional capacity.

LIABILITIES AND GUARANTEES

2 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis