Omega Flex Inc

Previous wording

The Company’s business is managed as a single operating segment that consists of the manufacture and sale of flexible metal hose, fittings, and accessories. The Company’s products are concentrated in residential and commercial construction, and general industrial markets, with a comprehensive portfolio of intellectual property and patents issued in various countries around the world. The Company’s primary product, flexible gas piping, is used for gas piping within residential and commercial buildings. Through its flexibility and ease of use, the Company’s TracPipe® and TracPipe®CounterStrike® flexible gas piping, 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®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. The Company’s products are manufactured at its Exton, Pennsylvania and Houston, Texas facilities in the U.S., and in Banbury, Oxfordshire in the U.K. A majority of the Company’s sales across all industries are generated through independent outside sales organizations such as sales representatives, wholesalers and distributors, or a combination of both. The Company has a broad distribution network in North America and to a lesser extent in other global markets.

Current wording

The Company’s business is managed as a single operating segment that consists of the manufacture and sale of flexible metal hose, fittings, and accessories. The Company’s products are concentrated in residential and commercial construction within buildings, and general industrial markets, with a comprehensive portfolio of intellectual property and patents issued in various countries around the world. The residential and commercial construction market also utilizes corrugated stainless steel tubing (“CSST”) primarily for flexible gas piping. Through its flexibility and ease of use, the Company’s TracPipe® CSST and TracPipe®CounterStrike® CSST, 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® 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. The Company’s products are manufactured at its Exton, Pennsylvania and Houston, Texas facilities in the U.S., and in Banbury, Oxfordshire in the U.K. A majority of the Company’s sales across all industries are generated through independent outside sales organizations such as sales representatives, wholesalers and distributors, or a combination of both. The Company has a broad distribution network in North America and to a lesser extent in other global markets.

Previous wording

The 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 31, 2022. The primary reason for the increase in cash is due to income generated from operations during 2023. This was partially offset by dividend payments during 2023 totaling $13,124,000, as detailed in Note 12, Shareholders’ Equity, to the Consolidated Financial Statements included in this report. See the Company’s Consolidated Statements of Cash Flows for further details regarding the change in cash.

Current wording

The Company’s cash and cash equivalents balance of $51,699,000 as of December 31, 2024 increased $5,343,000 or 11.5% from a $46,356,000 balance at December 31, 2023. The primary reason for the increase is due to income generated from operations during 2024. This was partially offset by dividend payments during 2024 totaling $13,527,000, as detailed in Note 12, Shareholders’ Equity, to the Consolidated Financial Statements included in this report. See the Company’s Consolidated Statements of Cash Flows for further details regarding the change in cash and cash equivalents.

Previous wording

Retained 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 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.

Current wording

Retained earnings were $72,880,000 and $68,493,000 as of December 31, 2024 and December 31, 2023, respectively, increasing $4,387,000 or 6.4%. 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.

Previous wording

Net Sales. 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 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.

Current wording

Net Sales. The Company’s sales for the year were $101,681,000, reflecting a decrease of $9,784,000, or 8.8%, compared to $111,465,000 in the previous year. 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.

Previous wording

Gross Profit. The Company’s gross profit margins were 61.3% and 62.4% for the years ended December 31, 2023, and 2022, respectively. The decline in gross profit margin is mainly due to an increase in the provision for excess inventories for MediTrac®CMT products. 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.

Current wording

Gross Profit. The Company’s gross profit margins were 61.2% and 61.3% for the years ended December 31, 2024, and 2023, respectively.

Previous wording

Selling Expenses. 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 $20,993,000 and $21,931,000 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 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.

Current wording

Selling Expenses. 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 $20,539,000 and $20,993,000 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.

Previous wording

General 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 $17,705,000 and $20,625,000 for the years ended December 31, 2023 and 2022, respectively, decreasing $2,920,000, or 14.2% between periods. 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 Plans. 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.

Current wording

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

Previous wording

Engineering Expenses. 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 $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.

Current wording

Engineering Expenses. 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 $200,000 or 5.2% 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.

Previous wording

Operating Profit. Reflecting all the factors mentioned above, operating profits decreased $5,217,000, or 16.8%, between periods, reflecting a profit of $25,799,000 in 2023, as compared to $31,016,000 in 2022.

Current wording

Operating Profit. Reflecting all the factors mentioned above, operating profits decreased $4,228,000, or 16.4%, between periods, reflecting a profit of $21,571,000 in 2024, as compared to $25,799,000 in 2023.

Previous wording

Interest Income. 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 $1,700,000 for 2023, compared to $174,000 for 2022. The increase 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.

Current wording

Interest Income. Interest income is recorded on investments in cash equivalents, 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 $2,278,000 for 2024, compared to $1,700,000 for 2023. 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.

Previous wording

Other Income (Expense). Other income (expense) primarily consists of foreign currency exchange gains (losses) on transactions settled in currencies other than the Company’s local currency, typically related to the Company’s foreign U.K. and France subsidiaries. The Company recognized other income of $46,000 during 2023 and other expense of $211,000 during 2022.

Current wording

Other Income (Expense). Other income (expense) primarily consists of foreign currency exchange gains (losses) on transactions settled in currencies other than the Company’s local currency, typically related to the Company’s foreign U.K. and France subsidiaries and Canada. The Company recognized other expense of $227,000 during 2024 and other income of $46,000 during 2023.

Previous wording

Income Tax Expense. Income tax expense was $6,825,000 for 2023, compared to $7,327,000 for 2022. 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 24% of income before taxes, respectively.

Current wording

Income Tax Expense. Income tax expense was $5,707,000 for 2024, compared to $6,825,000 for 2023. The $1,118,000 or 16.4% decrease in tax 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.

Previous wording

As 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, 2023. 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.

Current wording

As of December 31, 2024, the Company had a cash and cash equivalents balance of $51,699,000. 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, 2024. As of December 31, 2023, the Company had a cash and cash equivalents balance of $46,356,000, with no borrowings against the line of credit.

Previous wording

For 2023, the Company’s cash provided from operating activities was $23,422,000, compared to $15,246,000 of cash provided during 2022, and $25,149,000 of cash provided during 2021. This illustrates an increase of $8,176,000 during 2023, versus a decrease during 2022 of $9,903,000. For details of the operating cash flows refer to the Consolidated Statements of Cash Flows in the Company’s Consolidated Financial Statements.

Current wording

For 2024, the Company’s cash provided from operating activities was $20,857,000, compared to $23,422,000 of cash provided during 2023. This illustrates a decrease of $2,565,000 during 2024. For details of the operating cash flows refer to the Consolidated Statements of Cash Flows in the Company’s Consolidated Financial Statements.

Previous wording

Cash 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.

Current wording

Cash used in investing activities during 2024 and 2023 was $2,006,000 and $1,642,000, respectively, all related to various capital expenditure projects.

Previous wording

All financing activities relate to dividend payments, which are detailed in Note 12, Shareholders’ Equity, in the Consolidated Financial Statements included in this report. Dividend payments for 2023, 2022, and 2021 amounted to $13,124,000, $9,489,000, and $14,867,000, respectively. 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.

Current wording

All financing activities relate to dividend payments, which are detailed in Note 12, Shareholders’ Equity, in the Consolidated Financial Statements included in this report. Dividend payments for 2024 and 2023 amounted to $13,527,000 and $13,124,000, respectively. The Company had no borrowings or payments on its line of credit during 2024 or 2023 as described in Note 6, Line of Credit and Other Borrowings.

Previous wording

The 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 approach. 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 obligations. 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.

Current wording

The Company applies the requirements of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606,Revenue from Contracts with Customers (“Topic 606”). The standard requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The principle of Topic 606 is achieved through applying a five-step approach, which is discussed further in the Notes to the Consolidated Financial Statements. 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 obligations. 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.

Previous wording

In 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, 2023. This test 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.

Current wording

In accordance with 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, 2024. This test 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.

Previous wording

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. 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.

Current wording

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. 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 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.

Previous wording

The 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.

Current wording

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