Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



An overview of the Company's business and segments in which the Company operates and risk factors can be found in Items 1 and 1A of this Form 10-K. Forward-looking statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations, elsewhere in this Form 10-K, in the Company's 2025 Annual Report to Shareholders, in the Proxy Statement for the annual meeting to be held May 19, 2026, and in the Company's press releases and oral statements made with the approval of an authorized executive officer are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are certain important factors that could cause results to differ materially from those anticipated by some of the statements made herein. Investors are cautioned that all forward-looking statements involve risks and uncertainty. In addition to the factors discussed herein and in the notes to Consolidated Financial Statements, among the other factors that could cause actual results to differ materially are the following: consumer spending and debt levels; interest rates; continuity of relationships with and purchases by major customers; product mix; the benefit and risk of business acquisitions; competitive pressure on sales and pricing; development and market acceptance of new products; increases in material, freight/shipping, tariffs, or production cost which cannot be recouped in product pricing; delays or interruptions in shipping or production; shipment of defective product which could result in product liability claims or recalls; work or labor disruptions stemming from a unionized work force; changes in government requirements, military spending, and funding of government contracts which could result, among other things, in the modification or termination of existing contracts; dependence on subcontractors or vendors to perform as required by contract; the ability of startup businesses to ultimately have the potential to be successful; the efficient start-up and utilization of capital and equipment investments; political actions of federal and state governments which could have an impact on everything from the value of the U.S. dollar vis-à-vis other currencies to the availability of affordable labor and energy; and security breaches and disruptions to our information technology system. Additional information concerning these and other factors is contained in the Company's Securities and Exchange Commission filings.



2025 COMPARED TO 2024



Readers are directed to Note L, "Business Segments," to the Company's Consolidated Financial Statements for data on the financial results of the Company's three business segments for the years ended December 31, 2025 and 2024.



On a consolidated basis, sales increased by $115,296,000 (30%), gross profit increased by $1,759,000 (2%), selling and general expense increased by $4,030,000 (13%), impairment of vendor deposit increased $2,701,000, and amortization was consistent. Other income decreased by $3,579,000 (66%), earnings before provision for income taxes decreased by $8,551,000 (17%), and net earnings decreased by $8,376,000 (20%). Details concerning these changes can be found, by segment, in the comments below.



Net sales of the Housewares/Small Appliance segment decreased by $7,195,000 (7%), from $102,799,000 to $95,604,000, primarily attributable to a decrease in units shipped, approximately 47% was offset by an increase in pricing. Net sales of the Defense segment increased by $121,912,000 (43%), from $284,025,000 to $405,937,000, reflecting an increase in shipments from the segment's backlog. Safety segment sales increased $579,000 to $1,983,000, reflecting an increase in shipments.



Gross profit of the Housewares/Small Appliance segment decreased $17,889,000 from $25,478,000 (25% of sales) in 2024 to $7,589,000 (8% of sales) in 2025, primarily reflecting the decrease in sales mentioned above and the Trump administration's tariffs that went into effect on goods deemed to have been shipped from the Orient after January 31, 2025. Those tariffs are generally treated as period costs and expensed as they are incurred, reflecting the segment's LIFO inventory cost valuation method. The relocation costs of the segment's distribution center from Canton to Nettleton, Mississippi also served to reduce gross profit by approximately $1,261,000. Defense gross profit increased $19,471,000 from $58,173,000 (21% of sales) in 2024 to $77,644,000 (19% of sales) in 2025, primarily reflecting the increase in sales mentioned above, as well as differences in mix efficiencies, and material costs. Due to the startup nature of the businesses in the Safety segment and resulting limited revenues, gross margins were negative in both years.



Selling and general expenses for the Housewares/Small Appliance segment increased $1,304,000, primarily reflecting increased personnel costs of $768,000, computers and technology costs of $266,000, and the favorable adjustment to the reserve for bad debts of $285,000 that occurred in the prior year. Defense segment selling and general expenses increased $3,941,000, primarily due to increased personnel costs of $3,012,000, legal and professional expenses of $347,000, repairs and maintenance costs of $334,000, and computers and software expenses of $256,000. Safety segment selling and general expenses decreased $1,215,000, primarily reflecting the sale of OneEvent's refrigeration monitoring business that occurred on July 31, 2025.

During the first quarter of 2025, the Company made deposits totaling $2,701,000 with a vendor in its Housewares/Small Appliances segment. On May 29, 2025, the vendor filed for protection in the U.S. Bankruptcy Court in the Northern District of Texas. As recovery of the deposit is deemed unlikely, the Company recorded an impairment of the full deposit during the second quarter of 2025.

The above items were responsible for the change in operating profit from continuing operations.



The $3,579,000 decrease in other income was attributable to a decrease of $3,009,000 in interest income on marketable securities and an increase in interest expense of $830,000 related to the outstanding balance of the Company's revolving line of credit during 2025. Both stem from the increased investments in inventory required to support augmented Defense segment awards.



Earnings before provision for income taxes decreased $8,551,000 from $50,670,000 to $42,119,000. The provision for income taxes decreased $175,000 from $9,210,000 to $9,035,000, which resulted in an effective income tax rate of 22% and 18% for the years ended December 31, 2025 and 2024, respectively. The increase in the effective income tax rate was primarily attributable to the absence of favorable adjustments recognized in 2024 related to prior year estimates. Net earnings decreased $8,376,000 from $41,460,000 to $33,084,000.



2024 COMPARED TO 2023



Readers are directed to Note L, "Business Segments," to the Company's Consolidated Financial Statements for data on the financial results of the Company's three business segments for the years ended December 31, 2024 and 2023.



On a consolidated basis, sales increased by $47,316,000 (14%), gross profit increased by $11,114,000 (17%), selling and general expense increased by $1,054,000 (3%), and intangibles amortization decreased by $120,000 (7%). Other income decreased by $1,941,000 (26%), earnings before provision for income taxes increased by $8,239,000 (19%), and net earnings increased by $6,901,000 (20%). Details concerning these changes can be found, by segment, in the comments below.



Net sales of the Housewares/Small Appliance segment increased by $5,180,000, from $97,619,000 to $102,799,000, or 5%, primarily attributable to the increase in units shipped. Net sales of the Defense segment increased by $42,322,000, from $241,703,000 to $284,025,000, or 18%, reflecting an increase in units shipped.



Gross profit of the Housewares/Small Appliance segment increased $5,611,000 from $19,867,000 (20% of sales) in 2023 to $25,478,000 (25% of sales) in 2024, primarily reflecting the increase in sales mentioned above, augmented by an improved product mix and a favorable LIFO inventory adjustment. Defense gross profit increased $6,170,000 from $52,003,000 (22% of sales) in 2023 to $58,173,000 (21% of sales) in 2024, primarily reflecting the increase in sales mentioned above. Due to the startup nature of the businesses in the Safety segment, gross margins were negative in both years. The comparative decrease in gross margins of $667,000 were primarily due to increased product development and testing.



Selling and general expenses for the Housewares/Small Appliance segment increased $361,000, primarily reflecting increased personnel costs of $654,000 and accrual levels for self insurance of $339,000, partially offset by changes to accrual levels for bad debt of $571,000. Defense segment selling and general expenses increased $1,530,000, primarily due to increased personnel costs of $1,609,000, partially offset by decreased legal and professional expenses of $156,000. Safety segment selling and general expenses decreased $837,000, primarily reflecting decreased personnel costs of $935,000 and legal and professional expenses of $322,000, partially offset by the absence of the prior year's gain on the sale of Rusoh, Inc. of $351,000. See Notes L to the Company's Consolidated Financial Statements.

Intangibles amortization decreased as a result of the absence of the prior year's amortization of intellectual property intangibles from the acquisition of Knox Safety, Inc.

The above items were responsible for the change in operating profit from continuing operations.



Other income decreased $1,941,000, which was primarily attributable to a reduced portfolio of marketable securities.

Earnings before provision for income taxes increased $8,239,000 from $42,431,000 to $50,670,000. The provision for income taxes increased from $7,872,000 to $9,210,000, which resulted in an effective income tax rate of 18% and 19% for the years ended December 31, 2024 and 2023, respectively. Net earnings increased $6,901,000 from $34,559,000 to $41,460,000.



LIQUIDITY AND CAPITAL RESOURCES

2025 COMPARED TO 2024



Cash used in operating activities was $9,137,000 during 2025 as compared to $53,426,000 during 2024. The principal factors behind the decrease in cash used can be found in the changes in the components of working capital within the Consolidated Statements of Cash Flows. Of particular note during 2025 was net earnings of $33,084,000, which included the non-cash impairment of a vendor deposit of $2,701,000, depreciation and amortization expenses of $5,136,000, deferred income tax of $7,741,000 and retirement plan expense of $1,008,000. The combination of these factors was more than offset by increases in inventory and accounts receivable levels and a net decrease in payables and accrual levels. Of particular note during 2024 was net earnings of $41,460,000, which included total non-cash depreciation and amortization of $5,046,000 and deferred income tax benefit of $4,528,000. This was augmented by decreases in deposits made to vendors (included in other assets and current assets) and a net increase in payable and accrual levels. The combination of these factors was more than offset by increases in inventory and accounts receivable levels.



Net cash used in investing activities was $21,876,000 during 2025 as compared to $14,965,000 provided by investing activities during 2024. The change primarily related to net sales and maturities of marketable securities of $4,477,000 in 2025, as opposed to $21,459,000 in 2024, and purchases of property, plant and equipment of $27,034,000 in 2025, as opposed to $7,531,000 in 2024.



Net cash provided by financing activities was $16,602,000 during 2025 as compared to $31,533,000 of net cash used in financing activities during 2024. The change primarily relates to net proceeds from the Company's line of credit in 2025 of $23,624,000, as well as the annual dividend payments. During both years, the regular dividend was $1.00 per share. In 2024, the extra dividend was $3.50 per share. However, there was no extra dividend payment during 2025. Cash flows for both years also reflected the proceeds from the sale of treasury stock to a Company sponsored retirement plan. During 2025and 2024, the Company incurred interest expense of $832,000 and $2,000 related to its line of credit, respectively.



As a result of the foregoing factors, cash and cash equivalents decreased in 2025 by $14,411,000 to $3,252,000.



Working capital increased by $15,887,000 to $308,112,000 at December 31, 2025 for the reasons stated above. The Company's current ratio was 4.2 to 1.0 at December 31, 2025 and 4.9 to 1.0 at December 31, 2024.



The Company expects to continue to evaluate acquisition opportunities that align with its business segments and will make further acquisitions, as well as continue to make capital investments in these segments per existing authorized projects and for additional projects if the appropriate return on investment is projected. See Item 1-A-2.



The Company has sufficient liquidity in the form of cash and cash equivalents and marketable securities and credit facilities to meet all of its anticipated capital requirements, to make dividend payments, and to fund future growth through acquisitions and other means.

The Company's principal commitments consist of purchase and lease obligations. Purchase obligations include outstanding purchase orders issued to material suppliers and contractors in the Company's Defense segment and those issued to manufacturers located primarily in the Orient for the Housewares/Small Appliance segment and in Mexico for the Safety segment. As of December 31, 2025, the purchase orders amounted to approximately $602,558,000. The Company can cancel or change many of these purchase orders, but may incur costs if its supplier cannot use the material to manufacture the Company's or other customers' products in other applications or return the material to their supplier. As a result, the actual amount the Company is obligated to pay cannot be reasonably estimated. Lease obligations are described in Note M - Leases to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.



2024 COMPARED TO 2023

Cash used in operating activities was $53,426,000 during 2024 as compared to $45,389,000 provided by operating activities during 2023. The principal factors behind the increase in cash used can be found in the changes in the components of working capital within the Consolidated Statements of Cash Flows. Of particular note during 2024 was net earnings of $41,460,000, which included total non-cash depreciation and amortization of $5,046,000 and deferred income tax benefit of $4,528,000. This was augmented by decreases in deposits made to vendors (included in other assets and current assets) and a net increase in payable and accrual levels. The combination of these factors was more than offset by increases in inventory and accounts receivable levels. Of particular note during 2023 were net earnings of $34,559,000, which included total non-cash depreciation and amortization of $6,007,000, decreases in accounts receivable levels and deposits made to vendors (included in other assets and current assets), and a net increase in payable and accrual levels. These were partially offset by non-cash deferred income tax benefit of $1,190,000 and an increase in inventory levels.



Net cash provided by investing activities was $14,965,000 during 2024 as compared to $447,000 used in investing activities during 2023. Of note during 2024 were net sales and maturities of marketable securities of $21,459,000 and proceeds from a note receivable of $1,037,000. These were partially offset by purchases of plant and equipment of $7,531,000. Of note during 2023 were proceeds from sale of subsidiary of $2,000,000, net purchases of marketable securities of $1,466,000 and purchases of plant and equipment of $1,840,000.



Based on the accounting profession's 2005 interpretation of cash equivalents under Financial Accounting Standards Board ("FASB") Accounting Standard Codification ("ASC") 230, the Company's variable rate demand notes have been classified as marketable securities. This interpretation, which is contrary to the interpretation that the Company's representative received directly from the FASB (which indicated it would not object to the Company's classification of variable rate demand notes as cash equivalents), has resulted in a presentation of the Company's Consolidated Balance Sheets that the Company believes understates the true liquidity of the Company's income portfolio. As of December 31, 2024 and 2023, $0 and $5,123,000, respectively, of variable rate demand notes were classified as marketable securities. These notes had structural features that allowed the Company to tender them at par plus interest within any 7-day period for cash to the notes' trustees or remarketers and thus provided the liquidity of cash equivalents.



Cash flows from financing activities for 2024 and 2023 primarily differed as a result of the $0.50 per share increase in the extra dividend paid during these years. Cash flows for both years also reflected the proceeds from the sale of treasury stock to a Company sponsored retirement plan. In addition, the Company drew on and repaid its line of credit during 2024, incurring interest expense of $2,000.



As a result of the foregoing factors, cash and cash equivalents decreased in 2024 by $69,994,000 to $17,663,000.



Working capital increased by $4,134,000 to $292,225,000 at December 31, 2024 for the reasons stated above. The Company's current ratio was 4.9 to 1.0 at December 31, 2024 and 5.0 to 1.0 at December 31, 2023.



DEFENSE SEGMENT BACKLOG



The Company's Defense segment contract backlog was approximately $1,747,809,000 at December 31, 2025, and $1,085,612,000 at December 31, 2024. Backlog is defined as the value of orders from the customer less the amount of sales recognized against the orders. It is anticipated that the backlog will be produced and shipped during an 18- to 42-month period. 

Critical accounting ESTIMATES



The Company's discussion and analysis of financial condition and results of operations are based upon its Consolidated Financial Statements. The preparation of the Company's Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amount of reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and revenues and expenses during the periods reported. The estimates are based on experience and other assumptions that the Company believes are reasonable under the circumstances, and these estimates are evaluated on an ongoing basis. Actual results may differ from those estimates.

The Company's critical accounting policies are those that materially affect its Consolidated Financial Statements and involve difficult, subjective, or complex judgments by management. The Company reviewed the development and selection of the critical accounting policies and believes the following is the most critical accounting policy that could have a material effect on the Company's reported results as it involves the use of significant estimates and assumptions as described above. This critical accounting policy and estimate have been reviewed with the Audit Committee of the Board of Directors. See Note A - Summary of Significant Accounting Policies to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for more detailed information regarding the Company's critical accounting policies.

 

Impairment and Valuation of Long-lived Assets and Goodwill

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Long-lived assets consist of property, plant and equipment and intangible assets, including the value of contracts/customer relationships, trademarks and safety certifications, trade secrets, and technology software. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, the amounts of the cash flows and the asset's residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. The Company uses internal discounted cash flows estimates, quoted market prices when available and independent appraisals, as appropriate, to determine fair value. The Company derives the required cash flow estimates from its historical experience and its internal business plans.

The Company recognizes the excess cost of acquired entities over the net amount assigned to the fair value of assets acquired and liabilities assumed as goodwill. Goodwill, at the reporting unit level, is tested for impairment on an annual basis at the start of the fourth quarter and between annual tests whenever an impairment is indicated. The impairment test for goodwill requires the determination of fair value of the reporting units. The Company uses multiples of earnings before interest, taxes, depreciation, and amortization ("EBITDA"), sales, and discounted cash flow models, which are described above, to determine the reporting unit's fair value, as appropriate. The Company uses internal discounted cash flows estimates, quoted market prices when available and independent appraisals, as appropriate, to determine fair value. A number of assumptions and estimates are involved in the application of the discounted cash flow model including revenue projections, projected operating cash flow margins, and discount rates. The Company derives the required cash flow estimates from its historical experience and its internal business plans. The Company also utilizes qualitative analyses to assess goodwill impairment.



NEW ACCOUNTING PRONOUNCEMENTS



Please refer to Note A(17) to the Company's Consolidated Financial Statements for information related to the effect of adopting new accounting pronouncements on the Company's Consolidated Financial Statements.