What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-11 compared with 2023-03-10 · 113 added, 178 removed, 244 unchanged (54% of the section changed)

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

should read the following discussion and analysis of our financial condition and results of operations together with our consolidated

financial statements and related notes included in this annual report.

This discussion contains forward-looking statements based upon

current expectations that involve risks and uncertainties.

Our actual results may differ materially from those anticipated in these forward-looking

statements as a result of various factors, including those set forth under the section titled “Risk Factors” or in other

parts of this annual report.

See “Cautionary Note Regarding Forward-Looking Statements” in this annual report.

Our historical

results are not necessarily indicative of the results that may be expected for any period in the future.

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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ease of use, the Company’s TracPipe ® and TracPipe ® CounterStrike ® flexible gas piping,

along with its fittings distributed under the trademarks AutoSnap ® and AutoFlare ® , allows users to substantially

cut the time required to install gas piping, as compared to traditional methods.

The Company’s newest product line MediTrac ®

corrugated medical tubing is used for piping medical gases (oxygen, nitrogen, nitrous oxide, carbon dioxide, and medical vacuum)

along with its fittings distributed under the trademark AutoFlare ® , allows users to substantially cut the time required

to install gas piping, as compared to traditional methods.

The Company’s newest product line MediTrac ® corrugated

medical tubing (“CMT”) is used for piping medical gases (oxygen, nitrogen, nitrous oxide, carbon dioxide, and medical vacuum)

in health care facilities.

Building on the recognized strengths and strategies employed in the flexible gas piping market, MediTrac ®

can be used in place of rigid copper pipe, and due to its long continuous lengths and flexibility, it can be installed approximately

CMT can be used in place of rigid copper pipe, and due to its long continuous lengths and flexibility, it can be installed approximately

five times faster than rigid copper pipe, saving on installation labor and construction schedules.

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in Financial Condition

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

Company’s cash balance of $46,356,000 as of December 31, 2023 increased $8,653,000 (23.0%) from a $37,703,000 balance at December

The primary reason for the increase in cash is due to income generated from operations during 2023.

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Statements included in this report.

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

See the Company’s Consolidated Statements of Cash Flows for further details regarding the change

Receivable were $15,361,000 and $17,503,000 as of December 31, 2023 and December 31, 2022, respectively, decreasing $2,142,000 or 12.2%.

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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 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 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.

was $15,597,000 and $17,764,000 as of December 31, 2023 and December 31, 2022, respectively, decreasing $2,167,000 or 12.2%.

is mainly the result of lower inventory required to be on hand as the supply chain environment has recently stabilized and due to lower

raw material costs.

Liabilities were $4,390,000 and $7,530,000 as of December 31, 2023 and December 31, 2022, 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.

The decrease of $3,140,000 or

41.7% mainly relates to the payment of an accrual for legal and product liability matters associated with two cases provided for in the

previous year, which were resolved through settlement.

earnings were $68,493,000 and $60,954,000 as of December 31, 2023 and December 31, 2022, respectively, increasing $7,539,000 or 12.4%.

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

Consolidated Financial Statements included in this report.

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

of Operations, partially offset by dividends declared during 2023, as discussed in detail in Note 12, Shareholders’ Equity, to

the Consolidated Financial Statements included in this report.

of Operations

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Company reported comparative results from operations for the twelve month periods ended December 31, 2023 and 2022 as follows:

Twelve-months

ended December 31,

in thousands)

Twelve-months ended December 31,

(dollars in thousands)

Operating Profit

The Company’s sales for the full year of 2023 were $111,465,000, reflecting a decrease of $14,022,000, or 11.2%, compared

to $125,487,000 in 2022.

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 decrease in sales is mainly due to lower sales unit volumes as a result of the overall market being suppressed

because of, among other factors, a decline in housing starts.

The Company’s gross profit margins were 61.3% and 62.4% for the years ended December 31, 2023, and 2022, 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.

The decline in gross profit margin is mainly due to an increase in the provision for excess inventories for MediTrac ® CMT

Higher amounts of materials for MediTrac ® CMT products were initially purchased for cost considerations and

because of longer required lead times.

Also, lower production, which caused lower absorption of factory labor and overhead costs, contributed

to the lower gross profit margin.

Lower raw material costs, mainly for strip, partly offset the above referenced reasons for the decline

in gross profit margin.

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

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Selling expenses were $20,993,000 and $21,931,000

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

for 2023 and 2022, respectively, representing a decrease of $938,000, or 4.3%.

The decreases are mostly related to commissions and freight.

In the previous year, commissions increased partly because of a shift of more 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.

Freight costs decreased because of lower sales volumes and lower carrier rates.

These decreases were partially offset by higher staffing

related costs and travel.

As a percentage of net sales, selling expenses were 18.8% and 17.5% for the twelve months ended December 31,

2023 and 2022, respectively.

and Administrative Expenses .

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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.

Product liability reserves and expenses were lower by $3,010,000, associated primarily with two cases, which were provided

for in the previous year and subsequently resolved through settlement.

There also was a decrease in the incentive compensation component

which is aligned with profitability.

These were partly offset by increases in staffing related costs, umbrella insurance premiums, and

stock based compensation, which moves in relation to the Company’s stock price, as detailed in Note 8, Stock Based Compensation

As a percentage of net sales, general and administrative expenses were 15.9% and 16.4% for the twelve months ended December 31,

2023 and 2022, 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.

Engineering expenses decreased $865,000 or 18.3% between periods, being

$3,868,000 and $4,733,000 for the years ended December 31, 2023 and 2022, respectively, mainly associated with decreases in staffing

related costs.

As a percentage of net sales for the year, engineering expenses were 3.5% in 2023 and 3.8% in 2022.

Reflecting all the factors mentioned above, operating profits decreased $5,217,000, or 16.8%, between periods, reflecting

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The Company recorded interest income of $1,700,000 for 2023, compared to $174,000 for 2022.

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.

in interest income was mainly due to the increase in interest rates during 2023.

There were no borrowings on its line of credit during

2023 or 2022.

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.

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.

and France subsidiaries.

The Company recognized other income of $46,000 during 2023 and other expense of $211,000 during 2022.

Tax Expense .

Income tax expense was $6,825,000 for 2023, compared to $7,327,000 for 2022.

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 $502,000 or 6.9% decrease in tax expense

was largely the result of the decrease in income before taxes.

The effective tax rate for 2023 and 2022 was at approximately 25% and

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twelve months ended December 31, 2021

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

to $105,796,000 in 2020.

The increase in sales resulted mostly from an increase in unit volume, which was in some measure impacted by

the COVID-19 pandemic in the previous year, as well as increases to selling prices that were necessary to help offset rising material

commodity costs.

The Company’s gross profit margins were 62.7% and 62.9% for the years ended December 31, 2021, and 2020, respectively.

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

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

The most significant increases included commissions

and freight, driven by the increase in sales.

In addition, sales personnel were added in France and advertising, trade shows and travel

returned to more expected levels as these were restricted in the previous year due to the COVID-19 pandemic.

For the same annual periods,

selling expense as a percentage of net sales was consistent at 15.7%.

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 $21,430,000 and $19,117,000 for the years ended December 31, 2021 and 2020, respectively, increasing $2,313,000, or 12.1%

between periods.

Incentive compensation was derived from two notable yet partly offsetting components.

There was an increase in the incentive

compensation component which is aligned with profitability;

however, this was partially offset by 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

Other items increasing from the previous year include legal and product liability expenses and director fees.

As a percentage

of net sales, general and administrative expenses were 16.5% and 18.1% for the twelve months ended December 31, 2021 and 2020, 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 $410,000 or 9.8% between periods, being

$4,610,000 and $4,200,000 for the years ended December 31, 2021 and 2020, respectively.

The increase was primarily attributable to an

increase in staffing, mainly in the U.K., and certification and qualification expenses.

As a percentage of net sales for the year, engineering

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

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.

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 $35,000 for 2021, compared to interest expense of $39,000

The decrease in interest expense and increase in interest income was largely due to the interest expense incurred on the borrowings

of $15,000,000 on its line of credit for a portion of the second quarter of 2020 to ensure liquidity during the COVID-19 pandemic.

were no borrowings on its line of credit during 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 income of $21,000 during 2021 and other expense of $53,000 during 2020.

Tax Expense .

Income tax expense was $8,862,000 for 2021, compared to $6,594,000 for 2020.

The $2,268,000 or 34.4% 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

25% of income before taxes.

a comparison of our results of operations for the twelve months ended December 31, 2022 vs.

twelve months ended December 31, 2021, see

“Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual

Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 10, 2023.

and Contingencies

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of December 31, 2023, the Company had a cash balance of $46,356,000.

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.

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

As of December 31, 2022 and December 31, 2021, the Company had cash balances of $37,703,000 and $32,913,000, 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 $25,149,000 of cash provided during 2021.

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.

This illustrates an increase of $8,176,000 during 2023, versus a decrease during 2022 of

For details of the operating cash flows refer to the Consolidated Statements of Cash Flows in the Company’s Consolidated

Financial Statements.

and Supplementary Data on page 40.

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

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and accumulated during the latter portion of the year.

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.

used in investing activities during 2023, 2022, and 2021 was $1,642,000, $942,000, and $971,000 respectively, all related to various

capital expenditure projects.

financing activities relate to dividend payments, which are detailed in Note 12, Shareholders’ Equity, in the Consolidated Financial

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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.

The Company had no borrowings or payments on its line of credit during 2023, 2022, or 2021 as described in Note 6, Line

of Credit and Other Borrowings.

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

Lease Obligations

Other Liabilities

Contractual Obligations

(in thousands)

Operating Lease Obligations*

Purchase Obligations

Other Liabilities

Total Contractual Obligations

*Includes the estimated current portion of the West Chester, Pennsylvania lease, with a lease commencement date of January 1, 2024.

Note 14, Subsequent Events, in the Consolidated Financial Statements for additional details.

explained in Note 8, Stock Based Compensation Plans, to the Consolidated Financial Statements included in this report, the Company is

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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

retention limits, ranging primarily from $250,000 to $3,000,000 per claim, depending on the terms of the policy and the applicable policy

year, up to an aggregate amount.

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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

details of the Plan are provided in Note 8, Stock Based Compensation Plans, to the Consolidated Financial Statements included in this

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

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

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Accounting Pronouncements

March 2020, the FASB issued ASU No.

March 2020, the FASB issued Accounting Standards Update (“ASU”) No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform

on Financial Reporting .

The ASU applies to all entities that have contracts, hedging relationships, and other transactions that reference

of the Effects of Reference Rate Reform on Financial Reporting, updated in December 2022 by ASU No.

2022-06, Deferral of Sunset

Date of Topic 848 .

The ASUs apply to all entities that have contracts, hedging relationships, and other transactions that reference

LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The ASU provides optional expedients and

The ASUs provide optional expedients and

exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain

criteria are met.

The expedients and exceptions provided by the ASU do not apply to contract modifications made and hedging relationships

The expedients and exceptions provided by the ASUs do not apply to contract modifications made and hedging relationships

entered into or evaluated after December 31, 2024, except for hedging relationships existing as of December 31, 2024, that an entity

has elected certain optional expedients for and that are retained through the end of the hedging relationship.

The ASU is effective for

all entities as of March 12, 2020 through December 31, 2022.

The impact of the adoption of ASU 2020-04 did not have a material impact

on the Company’s Consolidated Financial Statements.

December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

removes certain exceptions for recognizing deferred taxes for equity method investments, performing intraperiod allocation, and calculating

income taxes in interim periods.

The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes

for goodwill and allocating taxes to members of a consolidated group, among others.

The amendments in ASU 2019-12 are effective for public

business entities for fiscal years beginning after December 15, 2020, including interim periods therein.

Early adoption of the standard

is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued.

The Company adopted

this new guidance, and it did not have a material impact on its Consolidated Financial Statements.

ASU 2020-04, as updated

by ASU 2022-06, is effective for all entities as of March 12, 2020, through December 31, 2024.

The impact of the adoption did not have

a material impact on the Company’s Consolidated Financial Statements.

December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

The ASU expands

public entities tax disclosures including improving disclosures surrounding the company’s rate reconciliation, cash taxes paid,

and disaggregation of income tax expense (or benefit) from continuing operations.

The amendment is effective for annual periods beginning

after December 15, 2024.

The Company is in the process of evaluating the impact of ASU No.

2023-09 on its Consolidated Financial Statements.

7A - QUANTITATATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

5 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-K

Item 7. Management’s Discussion and Analysis