What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2026-03-12 compared with 2025-03-07 · 102 added, 90 removed, 239 unchanged (45% of the section changed)

45 unchanged sentences

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 2024, as discussed in detail in Note 12, Shareholders’ Equity, to

the Consolidated Financial Statements included in this report.

of Income, partially offset by dividends declared during 2025, as discussed in detail in Note 12, Shareholders’ Equity, to the

Consolidated Financial Statements included in this report.

of Operations

2 unchanged sentences

Company reported comparative results from operations for the twelve month periods ended December 31, 2025 and 2024 as follows:

Twelve-months

ended December 31,

in thousands)

Twelve-months ended December 31,

(dollars in thousands)

Operating Profit

7 unchanged sentences

Selling expenses were $20,730,000 and $20,539,000

for 2024 and 2023, respectively, representing a decrease of $454,000, or 2.2%.

The decrease is mostly related to commissions due to the

lower net sales, which were partially offset by higher travel.

As a percentage of net sales, selling expenses were 20.2% and 18.8% for

the twelve months ended December 31, 2024 and 2023, respectively.

for 2025 and 2024, respectively, representing an increase of $191,000, or 0.9%.

The increase is mostly related to higher sales incentive

compensation.

As a percentage of net sales, selling expenses were 21.1% and 20.2% for the twelve months ended December 31, 2025 and 2024,

respectively.

and Administrative Expenses .

2 unchanged sentences

General and administrative

expenses were $16,085,000 and $17,705,000 for the years ended December 31, 2024 and 2023, respectively, decreasing $1,620,000, or 9.1%

expenses were $16,300,000 and $16,085,000 for the years ended December 31, 2025 and 2024, respectively, increasing $215,000, or 1.3%

between periods.

The incentive compensation component which is aligned with profitability decreased due to lower operating profit and

due to changes in the executive management team at the beginning of the year.

In addition, product liability reserves and expenses and

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

Plans, were lower.

These were partly offset by increases in staffing related costs, computer and information technology related expenses,

and umbrella insurance premiums.

As a percentage of net sales, general and administrative expenses were 15.8% and 15.9% for the twelve

months ended December 31, 2024 and 2023, respectively.

The increase is due to higher staffing related costs, mainly employee benefits, celebration activities associated with

the Company’s fifty-year anniversary, and stock based compensation, which moves in relation to the Company’s stock price,

as detailed in Note 8, Stock Based Compensation Plans.

These were partly offset by lower product liability reserves and expenses and

the incentive compensation component, which is aligned with profitability, due to lower operating profits.

As a percentage of net sales,

general and administrative expenses were 16.6% and 15.8% for the twelve months ended December 31, 2025 and 2024, respectively.

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

1 unchanged sentence

Engineering expenses increased $973,000 or 23.9% between periods, being

$4,068,000 and $3,868,000 for the years ended December 31, 2024 and 2023, respectively, mainly associated with increases in consulting

and staffing related costs.

As a percentage of net sales for the year, engineering expenses were 4.0% in 2024 and 3.5% in 2023.

$5,041,000 and $4,068,000 for the years ended December 31, 2025 and 2024, respectively, mainly associated with increases in product development

and certification related expenses, staffing related costs, and consulting.

As a percentage of net sales for the year, engineering expenses

were 5.1% in 2025 and 4.0% in 2024.

Reflecting all the factors mentioned above, operating profits decreased $4,640,000, or 21.5%, between periods, reflecting

3 unchanged sentences

The Company recorded interest income of $1,989,000 for 2025, compared to $2,278,000

The increase in interest income was mainly due to higher invested cash equivalent balances during 2024.

There were no borrowings

on its line of credit during 2024 or 2023.

The decrease in interest income was mainly due to lower interest rates.

There were no borrowings on its line of credit during

2025 or 2024.

Income (Expense) .

2 unchanged sentences

and France subsidiaries

The Company recognized other expense of $227,000 during 2024 and other income of $46,000 during 2023.

The Company recognized other income of $331,000 during 2025 and other expense of $227,000 during 2024.

Tax Expense .

2 unchanged sentences

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

The effective tax rate for 2024 and 2023 was approximately 24%

and 25% of income before taxes respectively.

The effective tax rate for 2025 and 2024 was 24.2% of income before

taxes respectively.

and Contingencies

110 unchanged sentences

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 7, 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 $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.

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 financial magnitude

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

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.

for most product liability claims made for its yellow-jacketed TracPipe ® CSST on or after September 1, 2025, for which

the Company decided to self-insure (the “Self-Insured Claims”), product 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 7, 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 $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.

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 financial magnitude 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.

There are no open Self-Insured Claims as of December 31, 2025.

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.

2006, the Company adopted a Phantom Stock Plan (the “Phantom 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.

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.

Phantom 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

2 unchanged sentences

The amended and restated plan did not have a material impact upon compensation expense.

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

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

in this report.

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

Incentive Plan

2024, the Flex-Trac, Inc.

2025 Equity Incentive Plan (the “Equity Incentive Plan”) was adopted to provide directors, officers,

employees, contractors and consultants of Flex-Trac, Inc.

or its affiliates an equity-based incentive to maintain and enhance the performance

and profitability of Flex-Trac, Inc.

Subject to adjustment as provided in the Equity Incentive Plan, up to 818,458 shares of the common

stock, par value $0.01 per share, of Flex-Trac, Inc.

(“FTI Common Stock”), or 7.5% of the fully-diluted shares of FTI Common

Stock, may be issued pursuant to the Equity Incentive Plan with respect to awards.

January 2, 2025, 420,000 shares of restricted stock in the aggregate, or 4% of the shares of FTI Common Stock, were granted and issued

to certain eligible participants under the Equity Incentive Plan (the “Awards”).

The Awards cliff vest after eight years

of continuous service or earlier upon the grantee’s death, disability or retirement, or a change of control, as defined and further

described in the Equity Incentive Plan.

accordance with FASB ASC Topic 718, Compensation - Stock Compensation , the Company values the Awards at fair value at grant date

and recognizes compensation expense over the vesting period.

The Company recognizes the reversal of any previously recognized compensation

expense on forfeited nonvested Awards in the period the Awards are forfeited.

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

included in this report.

Any significant changes in the performance and profitability of Flex-Trac, Inc.

may have a material impact upon

the valuation of the Awards.

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

11 unchanged sentences

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.

The Company recognizes interest and penalties related

to any uncertain tax positions in income tax expense.

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

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

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

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 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 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.

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.

November 2023, the FASB issued ASU No.

15 unchanged sentences

after December 15, 2024.

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

2023-09 on its Consolidated Financial Statements.

In 2025, the Company adopted ASU No.

2023-09 retrospectively and reflected these improvements in Note 9.

Taxes of the Consolidated Financial Statements.

November 2024, the FASB issued ASU No.

9 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