What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-10 compared with 2022-03-14 · 259 added, 144 removed, 163 unchanged (71% of the section changed)

7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

report contains forward-looking statements, which are subject to inherent uncertainties.

These uncertainties include, but are not limited

to, variations in weather, changes in the regulatory environment, customer preferences, general economic conditions, increased competition,

the outcome of outstanding litigation, and future developments affecting environmental matters.

All of these are difficult to predict,

and many are beyond the ability of the Company to control.

statements in this Annual Report on Form 10-K that are not historical facts, but rather reflect the Company’s current expectations

concerning future results and events, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform

The words “believes”, “expects”, “intends”, “plans”, “anticipates”,

“hopes”, “likely”, “will”, and similar expressions identify such forward-looking statements.

forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results,

performance or achievements of the Company, or industry results, to differ materially from future results, performance or achievements

expressed or implied by such forward-looking statements.

are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s view only as of the date

of this Form 10-K.

The Company undertakes no obligation to update the result of any revisions to these forward-looking statements which

may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, conditions,

or circumstances.

Company is a leading manufacturer of flexible metal hose and is currently engaged in a number of different markets, including construction,

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in Financial Condition

Company’s cash balance of $32,913,000 at December 31, 2021 increased $9,280,000 (39.3%) from a $23,633,000 balance at December

The primary reason for the increase in cash related to income generated from operations during 2021.

Company’s cash balance of $37,703,000 on December 31, 2022 increased $4,790,000 (14.6%) from a $32,913,000 balance at December

The primary reason for the increase in cash is due to income generated from operations during 2022.

This was partially offset

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See the Company’s Consolidated Cash Flow Statement for further details regarding the change

Receivable were $17,503,000 and $20,726,000 as of December 31, 2022 and December 31, 2021, respectively, decreasing $3,223,000 or 15.6%.

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

previous year versus the current quarter.

was $17,764,000 and $15,565,000 as of December 31, 2022 and December 31, 2021, respectively, increasing $2,199,000 or 14.1%.

is mainly the result of the purchase of inventory in anticipation of stronger customer demand and to ensure enough materials on hand

because of sporadic supply chain issues.

Commissions and Sales Incentives were $7,183,000 and $4,348,000 as of December 31, 2021 and December 31, 2020, respectively, increasing

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

and significantly increased costs.

Long Term Assets were $5,871,000 and $1,702,000 as of December 31, 2022 and December 31, 2021, respectively, increasing $4,169,000 or

The increase is due to higher inventories, which are estimated to be used beyond the next twelve months, mainly for the new corrugated

medical tubing (“CMT”) products.

Higher amounts of materials for the new CMT products were initially purchased for cost considerations

and because of longer required lead times.

As the market for these new products continues to develop the composition of the related inventories

is expected to become more current.

Compensation was $3,782,000 on December 31, 2022, compared to $7,008,000 on December 31, 2021, decreasing $3,226,000 or 46.0%.

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.

In 2022, there was a decrease

in the incentive compensation liability to align with the changes in the executive management team.

The liability now represents amounts

earned during the current year.

Commissions and Sales Incentives were $4,996,000 and $7,183,000 as of December 31, 2022 and December 31, 2021, respectively, decreasing

$2,187,000 or 30.4%.

The increase is the result of higher sales which allowed for many of our customers to achieve growth tiers as defined

The decrease is the result of lower sales which did not allow most of our customers to achieve growth tiers as defined

within their sales incentive agreements.

Liabilities were $7,530,000 and $4,864,000 as of December 31, 2022 and December 31, 2021, respectively.

The increase of $2,666,000 or

54.8% mainly relates to accruals for legal and product liability matters associated mainly with two cases, one which was resolved through

settlement and the other is pending which the Company continues to vigorously defend.

earnings were $60,954,000 and $50,053,000 as of December 31, 2022 and December 31, 2021, respectively, increasing $10,901,000 or 21.8%.

The increase was primarily due to an increase in net income during the year, as provided on the Company’s Consolidated Statement

The increase was primarily due to an increase from net income during the year, as provided on the Company’s Consolidated Statement

of Operations, partially offset by dividends declared during 2022, as discussed in detail in Note 7, Shareholders’ Equity, to the

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of Operations

Twelve-months

ended December 31, 2021 vs.

months ended December 31, 2022 vs.

twelve months ended December 31, 2021

Company reported comparative results from operations for the twelve month periods ended December 31, 2022 and 2021 as follows:

Twelve-months

ended December 31,

in thousands)

The Company’s sales for the full year of 2022 were $125,487,000, reflecting a decrease of $4,524,000, or 3.5%, compared

to $130,011,000 in 2021.

The decrease in sales resulted mostly from a decrease in unit volume.

The effect of the lower sales volumes

was mostly offset by pricing actions to offset material cost pressure and to protect margins.

The Company’s gross profit margins were 62.4% and 62.7% for the years ended December 31, 2022, and 2021, respectively.

Similar to the previous year, the Company was able to maintain margins similar to prior year levels despite rising material commodity

costs which were mainly offset by increases in selling prices.

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 expenses were $21,931,000 and $20,429,000

for 2022 and 2021, respectively, representing an increase of $1,502,000, or 7.4%.

The increases primarily related to costs for resumption

of travel and other marketing efforts, which were lower in the 2021 period mainly due to the COVID-19 pandemic.

Staffing related expenses

and commissions were also higher.

Commissions increased 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 was lower mainly because of the lower sales.

As a percentage of net sales, selling expenses were 17.5% and 15.7% for the twelve

months ended December 31, 2022 and 2021, respectively.

and Administrative Expenses .

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

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

General and administrative

expenses were $20,625,000 and $21,430,000 for the years ended December 31, 2022 and 2021, respectively, decreasing $805,000, or 3.8%

between periods.

There was a decrease in the incentive compensation component, which is aligned with profitability of $3,189,000, mainly

because of the changes in the executive management team, and there was a reduction in expense pertaining to stock based compensation

which moves in relation to the Company’s stock price, as detailed in Note 12, Stock Based Compensation Plans.

Items which increased

from the previous year include legal and product liability expenses, associated mainly with two cases, one which was resolved through

settlement and the other is pending, and salary related expenses.

As a percentage of net sales, general and administrative expenses were

16.4% and 16.5% for the twelve months ended December 31, 2022 and 2021, respectively.

Engineering expenses consist of development expenses associated with the development of new products, and costs related

to enhancements of existing products and manufacturing processes.

Engineering expenses increased $123,000 or 2.7% between periods, being

$4,733,000 and $4,610,000 for the years ended December 31, 2022 and 2021, respectively.

As a percentage of net sales for the year, engineering

expenses were 3.8% in 2022 and 3.6% in 2021.

Reflecting all the factors mentioned above, operating profits decreased $4,046,000, or 11.5%, between periods, reflecting

a profit of $31,016,000 in 2022, as compared to $35,062,000 in 2021.

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 interest income of $174,000 for 2022, compared to $35,000 for 2021.

in interest income was because of the increase in interest rates during the last six months of 2022.

There were no borrowings on its

line of credit during 2022 and 2021.

Income (Expense) .

Other income (expense) primarily consists of foreign currency exchange gains (losses) on transactions within our

foreign subsidiaries, and therefore tends to fluctuate with the strengthening and or weakening of the British Pound.

The Company recognized

other expense of $211,000 during 2022 and other income of $21,000 during 2021.

Tax Expense .

Income tax expense was $7,327,000 for 2022, compared to $8,862,000 for 2021.

The $1,535,000 or 17.3% decrease in tax

expense was largely the result of the decrease in income before taxes and from the reduction of non-deductible incentive compensation

to align with the changes in the executive management team.

The effective tax rate for 2022 and 2021 was at approximately 24% and 25%

of income before taxes, respectively.

months ended December 31, 2021 vs.

twelve months ended December 31, 2020

(dollars in thousands)

Operating Profit

Company reported comparative results from operations for the twelve month periods ended December 31, 2021 and 2020 as follows:

Twelve-months

ended December 31,

in thousands)

The Company’s sales for the full year of 2021 were $130,011,000, reflecting an increase of $24,215,000, or 22.9%, compared

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The Company was able to maintain margins similar to prior year levels despite rising material commodity costs, which were mainly offset

by increases to selling prices.

by increases in selling prices.

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 $20,429,000 and $16,580,000

Selling expenses were $20,429,000 and $16,580,000

for 2021 and 2020, respectively, representing an increase of $3,849,000, or 23.2%.

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expenses were 3.6% in 2021 and 4.0% in 2020.

Reflecting all of the factors mentioned above, operating profits increased $8,409,000, or 31.6%, between periods, reflecting

Reflecting all the factors mentioned above, operating profits increased $8,409,000, or 31.6%, between periods, reflecting

a profit of $35,062,000 in 2021, as compared to $26,653,000 in 2020.

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25% of income before taxes.

Twelve-months

ended December 31, 2020 vs.

twelve months ended December 31, 2019

Company reported comparative results from operations for the twelve-month periods ended December 31, 2020 and 2019 as follows:

Twelve-months

ended December 31,

(dollars in thousands)

Operating Profit

The Company’s sales for the full year of 2020 were $105,796,000, reflecting a decrease of $5,564,000, or 5.0%, compared

to $111,360,000 in 2019.

The decrease in sales resulted mostly from a decrease in unit volume, which was in some measure impacted by

the COVID-19 pandemic, partially offset by a mild increase to selling prices that was necessary to help offset a rise in material commodity

The Company’s gross profit margins were 62.9% and 63.3% for the twelve-months ended December 31, 2020 and 2019, respectively.

The Company was able to maintain margins like prior year levels despite COVID-19 disruptions, such as increased costs to sanitize the

factory and equipment, inefficiencies from staggered work shifts and overtime costs due to employees being quarantined, as well as unabsorbed

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 $16,580,000 and $19,032,000

for 2020 and 2019, respectively, representing a decrease of $2,452,000, or 12.9%.

The most significant reduction relates to atypical

consulting costs identified during 2019, attributable to the Company’s new product, MediTrac ® flexible medical gas

The Company also experienced decreases in travel and advertising during 2020, mostly related to restrictions stemming from the

Commissions were also down due to the decrease in sales.

Conversely, the Company expanded its sales related staffing resources.

For the same periods, selling expense as a percentage of net sales was 15.7% and 17.1%, respectively.

and Administrative Expenses .

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

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

General and administrative

expenses were $19,117,000 and $24,818,000 for the years ended December 31, 2020 and 2019, respectively, decreasing $5,701,000, or 23%

between periods.

Legal and product liability defense costs decreased $5,158,000, associated primarily with one class action case which

was dismissed during 2020, as explained in detail in Note 10, Commitments and Contingencies, of the Consolidated Financial Statements

to this report.

Professional fees and director related fees were also lower.

Those items were softened by an increase to incentive compensation,

which although not significant in total, was derived from two notable yet mostly offsetting components.

There was an increase in the

incentive compensation component which is aligned with profitability;

however, there was a reduction in stock based compensation expense

which moves in relation to the Company’s stock price, as detailed in Note 11, Stock Based Compensation Plans.

As a percentage of

net sales, general and administrative expenses were 18.1% and 22.3% for the twelve-months ended December 31, 2020 and 2019, respectively.

Engineering expenses consist of development expenses associated with the development of new products, and costs related

to enhancements of existing products and manufacturing processes.

Engineering expenses decreased $515,000 or 10.9% between periods, being

$4,200,000 and $4,715,000 for the years ended December 31, 2020 and 2019, respectively.

The decrease was primarily attributable to a

reduction in experimental materials that diminished after the work was completed on various promising applications during 2019, and to

a lesser extent travel.

As a percentage of net sales for the year, engineering expenses were 4.0% in 2020 and 4.2% in 2019.

Reflecting all of the factors mentioned above, operating profits increased $4,731,000, or 21.6%, between periods, reflecting

a profit of $26,653,000 in 2020, as compared to $21,922,000 in 2019.

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 interest expense of $39,000 for 2020, compared to interest income of $876,000

The reduction in interest income was largely due to the lower cash balance and thus reduced investment, mostly resulting from

the $35,330,000 special dividend paid in December 2019.

Additionally, 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.

Earning potential on short-term liquid investments

has also diminished in comparison to this time last year.

Income (Expense) .

Other income (expense) primarily consists of foreign currency exchange gains (losses) on transactions within our

foreign subsidiaries, and therefore tends to fluctuate with the strengthening and or weakening of the British Pound.

The Company recognized

other expense of $53,000 during 2020 and other income of $56,000 during 2019.

Tax Expense .

Income tax expense was $6,594,000 for 2020, compared to $5,429,000 for 2019.

The $1,165,000 or 21.5% increase in tax

expense was largely the result of the increase in income before taxes.

The effective tax rate for both periods was similar at approximately

24% to 25% of income before taxes.

and Contingencies

Note 11, to the Consolidated Financial Statements included in this report for a detailed description of commitments and contingencies.

IMPACT OF KNOWN TRENDS OR UNCERTAINTIES

Company’s operations are sensitive to a number of market and extrinsic factors, any one of which could materially adversely affect

the Company’s business, competitive position, results of operations or financial condition in any given year.

See Item 1A, Risk

Factors, for a detailed description.

and Capital Resources

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of December 31, 2022, the Company had a cash balance of $37,703,000.

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

as discussed in detail in Note 5, which had no borrowings outstanding against it as of December 31, 2021.

On December 31, 2020, the Company

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

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

available, as discussed in detail in Note 6, Line of Credit and Other Borrowings, which had no borrowings outstanding against it as

of December 31, 2022.

On December 31, 2021 and December 31, 2020, the Company had cash balances of $32,913,000 and $23,633,000,

respectively, 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

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and $19,310,000 of cash provided during 2020.

This illustrates an increase of $5,839,000 during 2021, versus an increase during 2020

of $3,269,000.

This illustrates a decrease of $9,903,000 during 2022, versus an increase during 2021 of

For details of the operating cash flows refer to the consolidated statements of cash flows in Item 8.

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and accumulated during the latter portion of the year.

However, as previously disclosed, during December 2019, the Company liquidated

its investments to support the payment of a special dividend to shareholders totaling $35,330,000.

used in investing activities during 2021 and 2020 was $971,000 and $564,000 respectively, all related to various capital expenditure

provided by investing activities during 2019 was $13,719,000, with most of the transactions related to the purchase and/or sale of short-term

During December 2019, the Company liquidated all its existing short-term investments to support the payment of a special

dividend to shareholders.

In total, cash proceeds from the sale of short-term investments during 2019 was $70,882,000.

Inversely, cash

used for the purchase of the short-term investments during 2019 was $55,938,000.

Cash was also used to purchase capital expenditures

of $1,225,000, mostly related to the new MediTrac ® products.

financing activities relate to dividend payments, which are detailed in Note 6, Shareholders’ Equity.

Dividend payments for 2021,

2020, and 2019 amounted to $14,867,000, $11,306,000, and $46,028,000, respectively.

2019 included the payment of a special dividend,

which is primarily why the cash outflow in that year is higher.

Dividend payments are outlined in Note 6, Shareholders’ Equity,

to the Consolidated Financial Statements included in this report.

Also, see Note 5, Line of Credit and Other Borrowings, for a description

of borrowings and repayments during the second quarter of 2020.

The Company had no borrowings or payments on its line of credit during

2021 or 2019.

used in investing activities during 2022, 2021, and 2020 was $942,000, $971,000, and $564,000 respectively, all related to various capital

expenditure projects.

financing activities relate to dividend payments, which are detailed in Note 7, Shareholders’ Equity, in the Consolidated Financial

Statements included in this report.

Dividend payments for 2022, 2021, and 2020 amounted to $9,489,000, $14,867,000, and $11,306,000,

respectively.

Also, see Note 6, Line of Credit and Other Borrowings, for a description of borrowings and repayments during the second

quarter of 2020.

The Company had no borrowings or payments on its line of credit during 2022 or 2021.

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

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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.

or supplementary facilities for additional capacity.

Company’s primary contractual obligations as of December 31, 2022, which are due over the next twelve months, are summarized in

the following table and are more fully explained in Notes to the Consolidated Financial Statements.

Contractual Obligations (in thousands)

Operating Lease Obligations

Purchase Obligations

Other Long-Term Liabilities

Total Contractual Cash Obligations

Lease Obligations

Other Liabilities

Contractual Obligations

explained in Note 12, Stock Based Compensation Plans, to the Consolidated Financial Statements included in this report, the Company is

5 unchanged sentences

year, is $665,000.

Impact of Known Trends or Uncertainties

Company’s operations are sensitive to a number of market and extrinsic factors, any one of which could materially adversely affect

the Company’s business, competitive position, results of operations or financial condition in any given year.

See Item 1A, Risk

Factors, for a detailed description.

Accounting Policies and Estimates

2, Significant Accounting Policies, to the Consolidated Financial Statements included in this report, includes a summary of the significant

accounting policies and methods used in the preparation of our Consolidated Financial Statements.

discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which

have been prepared in accordance with U.S.

generally accepted accounting principles.

The preparation of these financial statements requires

us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure

of contingent assets and liabilities.

We evaluate our estimates on an on-going basis.

Estimates are used for, but not limited to, revenue

recognition and related sales incentives, provisions for credit losses, inventory reserves, valuation of goodwill, product liability

reserves, valuation of phantom stock, and accounting for income taxes.

We base our estimates on historical experience and on various

other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments

about the carrying values of assets and liabilities that are not readily apparent from other sources.

We believe our judgments related

to these accounting estimates are appropriate.

Actual results may differ from these estimates under different assumptions or conditions.

Company’s accounting policy relating to revenue recognition reflects the impact of the adoption of Accounting Standards Codification

(“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), which is discussed further in the Notes

to the Consolidated Financial Statements.

As a result of the adoption of ASC 606, the Company records revenue based upon a five-step

The Company sells goods on typical, unmodified free on board (FOB) shipping point terms.

As the seller, it can be determined

that the shipped goods meet the agreed-upon specifications in the contract or customer purchase order (e.g., items, quantities, and prices)

with the buyer, so customer acceptance would be deemed a formality, as noted in ASC 606-10-55-86.

As a result, the Company has a legal

right to payment upon shipment of the goods.

Based upon the above, the Company has concluded that transfer of control substantively transfers

to the customer upon shipment.

Other than standard product warranty provisions, the sales arrangements provide for no other post-shipment

The Company offers rebates and other sales incentives, promotional allowances, or discounts to certain customers, typically

related to purchase volume, and are classified as a reduction of revenue and recorded at the time of sale.

The Company periodically evaluates

whether an allowance for sales returns is necessary.

Historically, the Company has experienced minimal sales returns.

If it is believed

there are to be material potential sales returns, the Company will provide the necessary provision against sales.

for Credit Losses

Company maintains allowances for credit losses, which represent an estimate of expected losses over the remaining contractual life of

its receivables considering current market conditions and estimates for supportable forecasts when appropriate.

The estimate is a result

of the Company’s ongoing assessments and evaluations of collectability, historical loss experience, and future expectations in

estimating credit losses in its receivable portfolio.

For accounts receivable, the Company uses historical loss experience rates and

applies them to a related aging analysis while also considering customer and/or economic risk where appropriate.

Determination of the

proper amount of allowances requires management to exercise judgment about the timing, frequency and severity of credit losses that could

materially affect the provision for credit losses and, as a result, net earnings.

The allowances consider numerous quantitative and qualitative

factors that include receivable type, historical loss experience, delinquency trends, collection experience, current economic conditions,

estimates for supportable forecasts, when appropriate, and credit risk characteristics.

Changes in allowances may occur in the future

as the above referenced quantitative and qualitative factors change.

are valued at the lower of cost or net realizable value.

The cost of inventories is determined by the first-in, first-out (FIFO) method.

The Company generally considers inventory quantities beyond two years of usage, measured on a historical usage basis, to be excess inventory

and reduces the carrying value of inventory accordingly.

These reductions to the inventory carrying values are estimates, which could

vary significantly, either favorably or unfavorably, from actual amounts if future economic conditions, sales levels, or competitive

conditions change.

accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 350, Intangibles – Goodwill and Other (ASU

2017-04) , using the simplified method as adopted, the Company performed an annual impairment test as of December 31, 2022.

did not indicate any impairment of goodwill as the Company’s estimated fair value of the reporting unit exceeded carrying value.

The test may be performed more frequently if we believe indicators of impairment might exist.

These indicators may include changes in

macroeconomic and industry conditions, overall financial performance, and other relevant entity-specific events.

Liability Reserves

liability reserves represent the estimated unpaid amounts under the Company’s insurance policies with respect to existing claims.

The Company uses the most current available data to estimate claims.

As explained more fully under Note 11, Commitments and Contingencies,

to the Consolidated Financial Statements included in this report for various product liability claims covered under the Company’s

general liability insurance policies, the Company must pay certain defense and settlement costs within its deductible or self-insured

retention limits, ranging primarily from $25,000 to $3,000,000 per claim, depending on the terms of the policy in the applicable policy

year, up to an aggregate amount.

The Company is vigorously defending against all known claims.

It is possible that the Company may incur

increased litigation costs in the future due to a variety of factors, including a higher number of claims, higher legal costs, and higher

insurance deductibles or retentions.

Litigation is subject to many uncertainties and management is unable to predict the outcome of the

pending suits and claims.

From time to time, depending upon the nature of a particular case, the Company may decide to spend more than

a deductible or retention to enable more discretion regarding the defense, although this is not common.

It is possible that the results

of operations or liquidity of the Company, as well as the Company’s ability to procure reasonably priced insurance, could be adversely

affected by the pending litigation, potentially materially.

The Company is currently unable to estimate the ultimate liability, if any,

that may result from the pending litigation, or potential litigation from future claims or claims that have not yet come to our attention,

and accordingly, the liability in the Consolidated Financial Statements primarily represents an accrual for legal costs for services

previously rendered, settlements for Claims not yet paid, and anticipated settlements for claims within the Company’s remaining

retention under its insurance policies.

Based Compensation Plans

2006, the Company adopted a Phantom Stock Plan (the “Plan”), which allows the Company to grant phantom stock units (“Units”)

to certain key employees, officers, or directors.

The Units each represent a contractual right to payment of compensation in the future

based upon the market value of the Company’s common stock and are accordingly recorded as liabilities.

The Units follow a vesting

schedule over three years from the grant date and are then paid upon maturity.

In accordance with FASB ASC Topic 718, Compensation

- Stock Compensation (“Topic 718”), the Company uses the Black-Scholes option pricing model as its method for determining

the fair value of the Units.

The liabilities for the Units are adjusted to market value over time from the grant dates to the related

maturity dates.

The Company recognizes the reversal of any previously recognized compensation expense on forfeited nonvested Units in

the period the Units are forfeited.

Plan has been amended and restated, for all grants made starting January 1, 2023, to set the vesting method to three-year cliff vesting

following the grant date, with full value paid upon maturity.

Additionally, for grants made starting January 1, 2023, upon retirement

at age 67 or greater, and with one year of continuous service prior to retirement, vesting of the issued grant(s) would accelerate on

a pro-rata basis, 1/3 per year from the grant date.

The Company does not believe the amended and restated plan will have a material impact

upon compensation expense.

details of the Plan are provided in Note 12, Stock Based Compensation Plans, to the Consolidated Financial Statements included in

Any significant changes in the Company’s stock price may have a material impact upon the valuation of the

Company accounts for tax liabilities in accordance with the FASB ASC Topic 740, Income Taxes .

Under this method the Company recorded

tax expense and related deferred taxes and tax benefits.

tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement

carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured

using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered

The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes

the enactment date.

A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either

expire before the Company is able to realize the benefit, or that future deductibility is uncertain.

The Company’s accounting for

deferred tax consequences represents the best estimate of those future events.

Changes in estimates, due to unanticipated events or otherwise,

could have a material effect on the financial condition and results of operations of the Company.

The Company continually evaluates its

deferred tax assets to determine if a valuation allowance is required.

Accounting Pronouncements

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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