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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.05pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.04pp
Flat
Net-tone change vs last year's 10-K.
MD&A
-0.06pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adverse+1
adversely+1
suspend+1
loses+1
difficulty+1
Positive rising
favorable+1
Risk Factors (Item 1A)
2,098 words
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
late+1
Positive rising
favorable+2
improved+1
able+1
MD&A (Item 7)
5,586 words
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Overview
We are a leading manufacturer of engineered components utilized in a variety of applications and industries. Through our Security Products segment we manufacture mechanical and electrical cabinet locks and other locking mechanisms used in postal, recreational transportation, office and institutional furniture, cabinetry, tool storage, healthcare applications and a variety of other industries. We also manufacture wake systems, stainless steel exhaust systems, gauges, throttle controls, trim tabs and related hardware and accessories for the recreational marine and other industries through our Marine Components segment.
Listed below are certain risk factors associated with us and our businesses. In addition to the potential effect of these risk factors discussed below, any risk factor which could result in reduced earnings, operating losses, or reduced liquidity, could in turn adversely affect our ability to service our liabilities or pay dividends on our common stock or adversely affect the quoted market prices for our securities.
Operational Risk Factors
We operate in mature and highly competitive markets, resulting in pricing pressure and the need to continuously reduce costs.
Many of the markets we serve are highly competitive, with a number of competitors offering similar products. We focus our efforts on the middle and high-end segment of the market where we feel that we can compete due to the importance of product design, quality and durability to the customer. However, our ability to effectively compete is impacted by a number of factors. The occurrence of any of these factors could result in reduced earnings or operating losses.
Competitors may be able to drive down prices for our products beyond our ability to adjust costs because their costs are lower than ours, especially products sourced from Asia.
Competitors’ financial, technological and other resources may be greater than our resources, which may enable them to more effectively withstand changes in market conditions.
Competitors may be able to respond more quickly than we can to new or emerging technologies and changes in customer requirements.
Consolidation of our competitors or customers in any of the markets in which we compete may result in reduced demand for our products.
New competitors could emerge by modifying their existing production facilities to manufacture products that compete with our products.
We may not be able to sustain a cost structure that enables us to be competitive.
Customers may no longer value our product design, quality or durability over the lower cost products of our competitors.
Our development of innovative features for current products is critical to sustaining and growing our sales.
Historically, our ability to provide value-added custom engineered products that address requirements of technology and space utilization has been a key element of our success. We spend a significant amount of time and effort to refine, improve and adapt our existing products for new customers and applications. Since expenditures for these types of activities are not considered research and development expense under accounting principles generally accepted in the United States of America (“GAAP”), the amount of our research and development expenditures, which is not significant, is not indicative of the overall effort involved in the development of new product features. The introduction of new product features requires the coordination of the design, manufacturing and marketing of the new product features with current and potential customers. The ability to coordinate these activities with current and potential customers may be affected by factors beyond our control. While we will continue to emphasize the introduction of innovative new product features that target customer-specific opportunities, we do not know if any new product features we introduce will achieve the same
degree of success that we have achieved with our existing products. At times we work with new and existing customers on specific product innovations. Sometimes we have a cost sharing arrangement for development efforts although we may also fully bear the development costs. If a customer were to ultimately reject or abandon custom product innovation efforts, we may not be able to recover our development costs.
Higher costs or limited availability of our raw materials could negatively impact our financial results.
Certain raw materials used in our products are commodities that are subject to significant fluctuations in price in response to world-wide supply and demand as well as speculative investor activity. Zinc and brass are the principal raw materials used in the manufacture of security products. Stainless steel and aluminum are the major raw materials used in the manufacture of marine components. These raw materials are purchased from several suppliers and are generally readily available from numerous sources. We occasionally enter into short-term raw material supply arrangements to mitigate the impact of future increases in commodity-related raw material costs and ensure supply. Materials purchased outside of these arrangements are sometimes subject to unanticipated and sudden price increases.
Certain components used in our products are manufactured by foreign suppliers located in China and elsewhere. Global economic and political conditions, including natural disasters, terrorist acts, transportation disruptions, global conflicts or trade wars and public health crises such as pandemics, could prevent our vendors from being able to supply these components. Should our vendors not be able to meet their supply obligations or should we be otherwise unable to obtain necessary raw materials or components, we may incur higher supply costs or may be required to reduce or suspend production. In addition, the imposition of new tariffs or increases in existing tariffs by the U.S. government on imports from China, Mexico or other countries from which we import raw materials and other components could increase our supply costs. Increases in our supply costs may decrease our liquidity or negatively impact our financial condition or results of operations as we may be unable to offset the higher costs with increases in our selling prices or reductions in other operating costs.
Dependence on significant customers could adversely affect our business and results of operations.
For the year ended December 31, 2025, our ten largest customers accounted for approximately 52% of our consolidated net sales, with a single customer accounting for 26% of our consolidated net sales. Because our customers’ purchases are made through purchase orders rather than long-term contracts or minimum purchase commitments, order levels can fluctuate significantly from period to period based on customer needs. In addition, significant customers may negotiate more favorable pricing or terms, which may pressure our operating margins. If any significant customer reduces its purchases, loses market share for its end-use products, experiences financial difficulty, changes suppliers, or otherwise alters its relationship with us, demand for our products could decline. Any such reduction in sales could potentially have a material adverse effect on our revenues and results of operations.
Legal, Compliance and Regulatory Risk Factors
We may be subject to litigation, the disposition of which could have a material adverse effect on our results of operations.
The nature of our operations exposes us to possible litigationclaims, including disputes with customers and suppliers and matters relating to, among other things, product liability, intellectual property, employment and environmental claims. It is possible that judgments could be rendered against us in these or other types of cases for which we could be uninsured or not covered by indemnity, or which may be beyond the amounts that we currently have reserved or anticipate incurring for such matters. In addition, litigation can be costly, and the costs associated with defendinglitigation matters could potentially have a material adverse effect on our results of operations.
Failure to protect our intellectual property rights or claims by others that we infringe their intellectual property rights could substantially harm our business.
We rely on patent, trademark and trade secret laws in the United States and similar laws in other countries to establish and maintain our intellectual property rights in our technology and designs. Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented or misappropriated. Third parties may
independently discover our trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties. Further, we do not know if any of our pending trademark or patent applications will be approved. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our intellectual property rights. In addition, the laws of certain countries do not protect intellectual property rights to the same extent as the laws of the United States. Therefore, in certain jurisdictions, we may be unable to protect our technology and designs adequatelyagainstunauthorized third party use, which could adversely affect our competitive position.
Third parties may claim that we or our customers are infringing upon their intellectual property rights. Even if we believe that such claims are without merit, they can be time-consuming and costly to defend and distract our management’s and technical staff’s attention and resources. Claims of intellectual property infringement might also require us to redesign affected technology, enter into costly settlement or license agreements or pay costlydamage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our technology. If we cannot or do not license the infringed technology on reasonable pricing terms or at all, or substitute similar technology from another source, our business could be adversely impacted.
Climate change laws and regulations could negatively impact our financial results or limit our ability to operate our businesses.
All of our production facilities are located in the United States and each requires energy, including electricity and natural gas in order to conduct operations. The U.S. government has determined that the consumption of energy derived from fossil fuels is a major contributor to climate change and is contemplating regulatory changes in response to the potential impact of climate change, including laws and regulations regarding carbon emission costs, Green House Gas (“GHG”) emissions and renewable energy targets. To date, laws and regulatory actions related to climate change have not had a material adverse effect on our financial results. Until the timing, scope and extent of any new or future regulation becomes known, we cannot predict the effect on our business, results of operations or financial condition. However, if new laws or regulations or regulatory actions related to climate change were to be enacted or implemented, it could negatively impact our future results from operations through increased costs of production, particularly as it relates to our energy requirements. If such increased costs of production were to materialize, we may be unable to pass price increases on to our customers to compensate for increased production costs, which may decrease our liquidity, operating income and results of operations. In addition, any adopted future climate change laws and regulations could negatively impact our ability (or that of our customers and suppliers) to compete with companies situated in areas not subject to such .
General Risk Factors
Technology failures or cybersecurity breaches could have a material adverse effect on our operations.
We rely on information technology systems to manage, process and analyze data, as well as to facilitate the manufacture and distribution of our products to and from our facilities. We receive, process and ship orders, manage the billing of and collections from our customers, and manage the accounting for and payment to our vendors. Although we have systems and procedures in place to protect our information technology systems, there can be no assurance that such systems and procedures will be sufficiently effective. Therefore, any of our information technology systems may be susceptible to outages, disruptions or destruction from power outages, telecommunications failures, employee error, cybersecurity breaches or attacks and other similar events. This could result in a disruption of our business operations, injury to people, harm to the environment or our assets, and/or the to access our information technology systems and could affect our results of operations and financial condition. We have in the past experienced, and we expect to continue to experience, cyber-attacks, including phishing, and other attempts to or access to our systems. To date we have not in our systems, either directly or through a trusted third-party vendor, which have led to material . Due to the increase in global cybersecurity it has become increasingly to obtain insurance coverage on reasonable pricing terms to mitigate some risks associated with technology or cybersecurity , and we are experiencing such in obtaining insurance coverage.
Physical impacts of climate change could have a material adverse effect on our costs and operations.
Climate change may increase both the frequency and severity of extreme weather conditions and natural disasters such as hurricanes, thunderstorms, tornadoes, drought and snow or ice storms. Extreme weather conditions may increase our costs or cause damage to our facilities, and any damage resulting from extreme weather may not be fully insured. Furthermore, periods of extended inclement weather may inhibit our facility operations and delay or hinder shipments of our products to customers. Any such events could have a material adverse effect on our costs or results of operations.
enhancement
Operating Income Overview
We reported operating income of $22.6 million in 2025 compared to $17.0 million in 2024 and $25.4 million in 2023. The increase in operating income in 2025 compared to 2024 was driven by higher sales and improved gross margin at each of the Security Products and Marine Components segments. In contrast, the decline in operating income in 2024 compared to 2023 resulted from lower sales and reduced gross margin across both segments. See results of operations discussion below.
Our product offerings consist of a large number of products that have a wide variation in selling price and manufacturing cost, which results in certain practical limitations on our ability to quantify the impact of changes in individual product sales quantities and selling prices on our net sales, cost of sales and gross margin. In addition, small variations in period-to-period net sales, cost of sales and gross margin can result from changes in the relative mix of our products sold.
Results of Operations - 2025 Compared to 2024 and 2024 Compared to 2023
Years ended December 31,
% Change
(In millions)
Net sales
Cost of sales
Gross margin
Operating costs and expenses
Operating income
Percent of net sales:
Cost of sales
Gross margin
Operating costs and expenses
Operating income
Net Sales. Net sales in creased $12.4 million in 2025 compared to 2024 primarily due to higher Security Products sales to the government security market and higher Marine Components sales to various markets including the towboat, government and industrial markets. See segment results discussion below.
Net sales de creased $15.4 million in 2024 compared to 2023 primarily due to lower Marine Components sales to the towboat market and lower Security Products sales to the government security market as a result of sales related to a pilot project that shipped in the third and fourth quarters of 2023 and for which there were no related sales in 2024. See segment results discussion below.
Cost of Sales and Gross Margin. Cost of sales increased in 2025 compared to 2024 primarily due to the effects of higher sales at both Security Products and Marine Components as well as increased production costs across both business segments. However, cost of sales as a percentage of net sales declined over the same period driven by a more favorable customer and product mix, particularly within Security Products, and increased coverage of fixed costs due to higher sales across both segments. As a result, gross margin as a percentage of net sales increased in 2025 compared to 2024. See segment results discussion below.
Cost of sales decreased in 2024 compared to 2023 primarily due to the effects of lower sales at both Security Products and Marine Components partially offset by higher production costs across both business segments. As a result, cost of sales as a percentage of net sales increased over the same period. Gross margin as a percentage of net sales decreased in 2024 compared to 2023 primarily due to the factors affecting cost of sales and decreased coverage of fixed costs due to lower sales. See segment results discussion below.
Operating Costs and Expenses . Operating costs and expenses consist primarily of sales and administrative-related personnel costs, sales commissions and advertising expenses directly related to product sales and administrative costs relating to business unit and corporate management activities, as well as gains and losses on sales of property and equipment. Operating costs and expenses increased $1.3 million in 2025 compared to 2024 predominantly due to higher employee-related costs including salaries, benefits, and medical expenses at both segments. As a percentage of net sales, operating costs and expenses decreased in 2025 compared to 2024 primarily due to higher coverage of operating cost and expenses as a result of higher sales, partially offset by the increased employee-related costs discussed above. See segment results discussion below.
Operating costs and expenses increased $.5 million in 2024 compared to 2023 predominantly due to higher employee salary and benefit costs at Security Products. As a percentage of net sales, operating costs and expenses increased in 2024 compared to 2023 primarily due to increased operating costs and expenses and decreased coverage of operating cost and expenses due to lower sales. See segment results discussion below.
Operating Income. As a percentage of net sales, operating income increased in 2025 compared to 2024 and decreased in 2024 compared to 2023. Operating income margins were primarily impacted by the factors affecting net sales, cost of sales, gross margin and operating costs discussed above. See segment results discussion below.
General . Our profitability primarily depends on our ability to utilize our production capacity effectively, which is affected by, among other things, the demand for our products and our ability to control our manufacturing costs, primarily comprised of labor costs and materials. The materials used in our products consist of purchased components and raw materials some of which are subject to fluctuations in the commodity markets such as zinc, brass, aluminum and stainless steel. Total material costs represented approximately 43% of our cost of sales in 2025, with commodity-related raw materials representing approximately 14% of our cost of sales. During 2025, we experienced increases in the cost of certain raw materials. Throughout the year, market prices for brass and aluminum experienced a general upward trend. Stainless steel prices were relatively stable in the first part of 2025 but began increasing during the latter half of the year. Zinc pricing was relatively stable in 2025, and we were able to mitigate increases through strategic spot buy purchases. In most cases, commodity raw materials we purchase include processing and conversion costs, such as alloying, extrusion and rolling, which remain elevated due to costs of labor, transportation and energy. Processing and conversion costs are not expected to decrease. Based on current economic conditions, we expect the prices for zinc, brass, aluminum, stainless steel and other manufacturing materials in 2026 to be more volatile compared to 2025. In addition to supply and demand, governmental actions such as tariffs may impact raw material markets.
We occasionally enter into short-term commodity-related raw material supply arrangements to mitigate the impact of future increases in commodity related raw material costs. See Item 1 - “Business- Raw Materials.”
Interest Income. Interest income decreased in 2025 compared to 2024 primarily due to lower average interest rates and decreased average investment balances. Interest income increased in 2024 compared to 2023 primarily due to higher interest rates and higher average investment balances, somewhat offset by lower average loan balances on our loan to an affiliate. See Note 9 to our Consolidated Financial Statements.
Income tax expense. A tabular reconciliation of our actual tax provision to the U.S. federal statutory income tax rate of 21% is included in Note 7 to the Consolidated Financial Statements. As a member of the group of companies consolidated for U.S. federal income tax purposes with Contran, the parent of our consolidated U.S. federal income tax group, we compute our provision for income taxes on a separate company basis, using the tax elections made by Contran.
Our effective income tax rate was 24% in each of 2023 and 2024 and 25% in 2025. See Notes 7 and 10 to our Consolidated Financial Statements. We currently expect our effective income tax rate for 2026 to be comparable to our effective income tax rate for 2025.
Segment Results
The key performance indicator for our segments is operating income (see discussion below). For additional information regarding our segments refer to Note 2 to our Consolidated Financial Statements.
Years ended December 31,
% Change
(In millions)
Security Products:
Net sales
Cost of sales
Gross margin
Operating costs and expenses
Operating income
Gross margin
Operating income margin
Security Products. Security Products net sales increased 5% to $120.7 million in 2025 compared to $115.2 million in 2024. Relative to prior year, the increase in sales was primarily due to $9.9 million higher sales to the government security market and $.6 million higher sales to the gas station security market, partially offset by lower sales to a variety of other markets including $2.3 million lower sales to the healthcare market, $1.3 million lower sales to the transportation market and $.5 million lower sales to the tool storage market. Gross margin as a percentage of net sales increased in 2025 as compared to 2024 primarily due to increased coverage of fixed costs due to higher sales and a more favorable customer and product mix. These factors were partially offset by higher cost associated with inventory sold during the second half of the year and increased employee-related expenses including salaries, benefits and medical costs, of $2.6 million. Operating income margin increased for 2025 compared to 2024 primarily due to the factors impacting gross margin, as well as increased coverage of operating costs and expenses from higher sales partially offset by higher operating costs and expenses, including increased employee-related expenses of $.5 million.
Security Products net sales decreased 5% to $115.2 million in 2024 compared to $121.2 million in 2023 primarily due to lower sales to the government security market as a result of sales related to a pilot project for a government security customer that shipped in the third and fourth quarters of 2023 and for which there were no related sales in 2024. Relative to prior year, sales were $8.3 million lower to the government security market, $2.0 million lower to the transportation market and $.9 million lower to distributors, partially offset by $4.1 million higher sales to the healthcare market and $.7 million higher sales to the tool storage market. Gross margin as a percentage of net sales for 2024 decreased as compared to 2023 primarily due to lower sales, a less favorable customer and product mix, higher employee related costs (primarily increased medical costs), higher materials costs (primarily brass and electronics) in the latter half of the year and decreased coverage of fixed costs due to lower sales. Operating income margin decreased for 2024 compared to 2023 primarily due to the factors impacting gross margin, as well as decreased coverage of operating costs and expenses from lower sales and
increased operating costs and expenses, including higher employee salaries and benefit costs of $.5 million, primarily in the first half of the year.
Years ended December 31,
% Change
(In millions)
Marine Components:
Net sales
Cost of sales
Gross margin
Operating costs and expenses
Operating income
Gross margin
Operating income margin
Marine Components. Marine Components net sales increased 22% in 2025 as compared to 2024 primarily due to $2.7 million higher sales to the towboat market (including a one-time stocking event for a towboat OEM customer), $2.5 million higher sales to the government market and $2.2 million higher sales to the industrial market, partially offset by $1.1 million lower sales to the center console market. Gross margin as a percentage of sales increased in 2025 compared to 2024 primarily due to increased coverage of fixed costs as a result of higher sales partially offset by higher employee-related expenses including salaries, benefits and medical costs of $1.7 million. Operating income as a percentage of net sales increased in 2025 compared to 2024 due to the factors impacting gross margin, as well as increased coverage of operating costs and expenses on higher sales, partially offset by higher operating costs and expenses, including increased employee-related expenses of $.4 million.
Marine Components net sales decreased 23% in 2024 as compared to 2023 primarily due to $8.7 million lower sales to the towboat market through the first three quarters of 2024, partially offset by higher sales in the fourth quarter of 2024, including $1.1 million higher sales to the towboat market and $1.0 million higher sales to the government market. Relative to the full year of 2023, sales were $7.6 million lower to the towboat market (primarily to original equipment boat manufacturers), $1.4 million lower to the industrial market and $.6 million lower to each of the engine builder market and distributors, partially offset by $1.4 million higher sales to the government market. Gross margin as a percentage of sales decreased in 2024 compared to 2023 primarily due to higher cost inventory produced during the fourth quarter of 2023 and sold in the first quarter of 2024 and decreased coverage of fixed costs as a result of lower sales, partially offset by a more favorable customer and product mix, lower employee salaries and benefits of approximately $1.8 million primarily related to headcount reductions and decreased labor costs of $1.2 million due to lower production volumes. Operating income as a percentage of net sales decreased in 2024 compared to 2023 due to the factors impacting gross margin, as well as decreased coverage of operating costs and expenses on lower sales, partially offset by reduced operating costs and expenses, including lower employee related expenses of $.2 million.
Outlook. Sales for 2025 were strong across both operating segments, exceeding 2024 levels. At Marine Components, improved demand in the government and industrial markets—combined with the one-time stocking event noted above—drove sales and operating income significantly above prior-year levels. At Security Products, sales increased compared to 2024 primarily due to higher demand from the government security market, partially offset by continued softness across a variety of markets including transportation, healthcare, and tool storage.
We expect modest growth in both Security Products and Marine Components net sales in 2026 as we align pricing, product features, and service levels with market conditions and customer requirements. At Security Products, we anticipate sales increases in most markets, partially offset by ongoing softness in the transportation market. At Marine Components, net sales growth in 2026 is expected to come primarily from the industrial market. Recreational marine sales appear to have largely stabilized, and (excluding the one-time restocking event noted above) sales to the towboat market in 2026 are expected to be comparable to 2025.
We expect gross margin and operating income percentages across both segments in 2026 to remain generally comparable to 2025, as price increases are planned to largely offset higher raw material costs and tariff-related surcharges on certain raw materials, as discussed below. During 2025, inventory levels increased across both segments, driven by higher raw material and production costs as well as actions taken to support anticipated customer demand. These actions included an insourcing initiative at Security Products and a shift in customer mix at Marine Components. As a result, we expect inventory levels in 2026 to remain approximately at current levels, consistent with ongoing operating requirements.
We manufacture substantially all of our products in the U.S. and source a substantial majority of our raw materials from U.S. suppliers. We also source certain components, primarily electronic components, from suppliers located in Asia, including China. Early in the first quarter of 2025, in anticipation of the U.S. federal government tariffs announcements, we increased purchases of certain electronic and other components to mitigate the potential near-term tariff impacts. Late in the second quarter we began incurring tariff-related surcharges on certain raw materials, primarily electronic components. In addition, some of our U.S.-based suppliers have recently started applying tariff-related surcharges on certain U.S.-based purchases. Where possible, we are increasing selling prices to our customers to recover these higher raw material costs, although the extent to which we can fully recover such costs will depend on a variety of factors including the ultimate tariff rate, the length of time tariffs are in effect, and the ability of our customers to substitute alternative products. We will continue to monitor current and anticipated near-term customer demand levels to ensure our production capabilities and inventories are aligned accordingly.
Our expectations for our operations and the markets we serve are based on a number of factors outside our control. Currently, our supply chains are stable and transportation and logistical delays are minimal. We have experienced global and domestic supply chain challenges in the past, and any future impacts on our operations will depend on, among other things, any future disruption in our operations or our suppliers’ operations, the effect of tariffs, and the impact of economic conditions, consumer confidence, and geopolitical events on demand for our products or our customers’ and suppliers’ operations, all of which remain uncertain and cannot be predicted.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in Note 1 to our Consolidated Financial Statements. Our Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. On an ongoing basis we evaluate our estimates, including those related to the recoverability of long-lived assets, the realization of deferred income tax assets, income tax and other contingencies. We base our estimates on historical experience and on various other assumptions which we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ significantly from previously-estimated amounts under different assumptions or conditions.
We believe the most critical accounting policies and estimates involving significant judgment primarily relate to the considerations in the impairment assessments for goodwill and certain long-lived assets. We have discussed the development, selection and disclosure of our critical accounting estimates with the audit committee of our board of directors.
Goodwill – Our net goodwill totaled $23.7 million at December 31, 2025, all relating to our Security Products reporting unit, which corresponds to our Security Products operating segment. Goodwill is required to be tested annually or at other times whenever an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. We perform our annual goodwill impairment test in the third quarter of each year, or at other times whenever an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. Such events or circumstances may include: adverse industry or economic trends, lower projections of profitability, or a sustained decline in our market capitalization. These events or circumstances, among other items, may be indications of potential impairment issues which are triggering events requiring the testing of an asset’s carrying value for recoverability. An entity may first assess qualitative factors to determine whether it is necessary to complete a
quantitative impairment test using a more-likely-than-not criteria. If an entity believes it is more-likely-than-not the fair value of a reporting unit is greater than its carrying value, including goodwill, the quantitative impairment test can be bypassed. Alternatively, an entity has an unconditional option to bypass the qualitative assessment and proceed directly to performing the quantitative impairment test.
When performing a qualitative assessment, considerable management judgment is necessary to evaluate the qualitative impact of events and circumstances on the fair value of a reporting unit. Events and circumstances considered in our impairment evaluations, such as historical profits and stability of the markets served, are consistent with factors utilized with our internal projections and operating plan. However, future events and circumstances could result in materially different findings which could result in the recognition of a material goodwill impairment.
In 2025, we used the qualitative assessment for our annual impairment test and determined it was not necessary to perform the quantitative goodwill impairment test, as we concluded it is more-likely-than-not the fair value of the Security Products reporting unit exceeded its carrying amount. See Notes 1 and 5 to our Consolidated Financial Statements.
Long-lived assets – The net book value of our property and equipment totaled $23.7 million at December 31, 2025. We assess property and equipment for impairment only when circumstances indicate an impairment may exist. Our determination is based upon, among other things, our estimates of the amount of future net cash flows to be generated by the long-lived asset (Level 3 inputs) and our estimates of the current fair value of the asset.
Significant judgment is required in estimating such cash flows. Adverse changes in such estimates of future net cash flows or estimates of fair value could result in an inability to recover the carrying value of the long-lived asset, thereby possibly requiring an impairment charge to be recognized in the future. We do not assess our property and equipment for impairment unless certain impairment indicators are present. We did not evaluate any long-lived assets for impairment during 2025 because no such impairment indicators were present.
Liquidity and Capital Resources
Summary
Our primary source of liquidity on an on-going basis is our cash flow from operating activities, which is generally used to (i) fund capital expenditures, (ii) repay short-term or long-term indebtedness incurred primarily for capital expenditures, business combinations or buying back shares of our outstanding stock and (iii) provide for the payment of dividends (if declared). From time-to-time, we may incur indebtedness to fund capital expenditures, business combinations or other investment activities. In addition, from time-to-time, we may also sell assets outside the ordinary course of business, the proceeds of which are generally used to repay indebtedness (including indebtedness which may have been collateralized by the assets sold) or to fund capital expenditures or business combinations.
Consolidated cash flows
Operating activities. Trends in cash flows from operating activities, excluding changes in assets and liabilities, for the last three years have generally been similar to the trends in our earnings. Depreciation and amortization in 2025 was comparable to 2024. Depreciation and amortization decreased in 2024 compared to 2023 primarily due to reductions in capital spending in 2023 and 2024 as a result of generally reduced demand levels. See Note 1 to our Consolidated Financial Statements.
Changes in assets and liabilities result primarily from the timing of production, sales and purchases. Such changes in assets and liabilities generally tend to even out over time. However, year-to-year relative changes in assets and liabilities can significantly affect the comparability of cash flows from operating activities. Cash provided by operating activities of $22.9 million in 2025 was comparable to 2024 primarily due to the net result of:
A $5.6 million increase in operating income in 2025,
A lower amount of net cash provided by relative changes in inventories, receivables, payables and non-tax accruals in 2025 of $4.9 million, and
A $.8 million decrease in interest received in 2025 due to lower interest rates and decreased cash balances.
Cash provided by operating activities was $22.9 million in 2024 compared to $25.8 million in 2023. The $2.9 million decrease in cash provided by operating activities was primarily the net result of:
A $8.4 million decrease in operating income in 2024,
A higher amount of net cash provided by relative changes in inventories, receivables, payables and non-tax accruals in 2024 of $3.0 million,
A $1.8 million increase in interest received in 2024 due to higher interest rates and increased investment balances, partially offset by lower average loan balances on our loan to an affiliate,
A $1.1 million decrease in cash paid for taxes in 2024 due to decreased earnings and the relative timing of payments, and
A $.3 million decrease in depreciation and amortization.
Relative changes in working capital can have a significant effect on cash flows from operating activities and is primarily impacted by the timing of sales and collections in the last month of the year. As shown below, the total average days sales outstanding at December 31, 2025 was comparable to December 31, 2024. For comparative purposes, we have provided 2023 numbers below.
December 31,
December 31,
December 31,
Days Sales Outstanding:
Security Products
37 Days
36 Days
35 Days
Marine Components
31 Days
23 Days
26 Days
Consolidated CompX
36 Days
33 Days
33 Days
As shown below, our average number of days in inventory increased from December 31, 2024 to December 31, 2025 primarily due to increased inventory at both Security Products and Marine Components as a result of higher raw material and production costs and to meet expected customer demand. For comparative purposes, we have provided 2023 numbers below.
December 31,
December 31,
December 31,
Days in Inventory:
Security Products
77 Days
85 Days
98 Days
Marine Components
175 Days
130 Days
141 Days
Consolidated CompX
95 Days
94 Days
108 Days
Investing activities . Capital expenditures in 2025 were focused primarily on improving our manufacturing facilities and investing in manufacturing equipment, including utilizing new technologies and increased automation. These investments were made to improve productivity and operational efficiency, support expected customer demand and ensure the ongoing maintenance and reliability of our facilities and technology infrastructure. Capital expenditures were $1.1 million in 2023, $1.4 million in 2024 and $3.7 million in 2025. In 2023 and 2024, we limited investments primarily to those expenditures required to support our existing customer demand and to properly maintain our facilities and technology infrastructure.
We expect our capital expenditures in 2026 to total approximately $4.3 million, primarily to support expected customer demand and to maintain and improve our facilities and technology infrastructure. Capital spending for 2026 is expected to be funded through cash on hand and cash generated from operations.
We have entered into an unsecured revolving demand promissory note with Valhi under which, as amended, we have agreed to loan Valhi up to $25 million. Our loan to Valhi, as amended, bears interest at prime rate plus 1.00%, payable quarterly, with all principal due on demand, but in any event no earlier than December 31, 2027. Loans made to Valhi at any time under the agreement are at our discretion. Under the promissory note, Valhi repaid a net $2.6 million in 2023 ($27.9 million of gross borrowings and $30.5 million of gross repayments), repaid a net $1.3 million in 2024 ($25.0 million
of gross borrowings and $26.3 million of gross repayments) and repaid a net $1.3 million in 2025 ($15.7 million of gross borrowings and $17.0 million of gross repayments). See Note 9 to our Consolidated Financial Statements.
During 2023, we had gross purchases of U.S. treasury marketable securities aggregating $36.3 million and received gross proceeds totaling $36.0 million related to U.S. treasury bill maturities. During 2024, we received gross proceeds totaling $36.0 million related to U.S. treasury bill maturities.
Financing activities. Regular quarterly dividends paid totaled $12.3 million ($1.00 per share, or $.25 per share per quarter) in 2023 and $14.8 million ($1.20 per share, or $.30 per share per quarter) in each of 2024 and 2025. In addition, our board of directors declared special dividends on our Class A common stock which totaled $24.6 million ($2.00 per share) paid in August 2024 and $12.3 million ($1.00 per share) paid in August 2025. On March 4, 2026 our board of directors declared a first quarter 2026 dividend of $.30 per share, to be paid on March 24, 2026 to CompX stockholders of record as of March 16, 2026. The declaration and payment of future dividends and the amount thereof, if any, is discretionary and is dependent upon our results of operations, financial condition, cash requirements for our businesses, contractual requirements and restrictions and other factors deemed relevant by our board of directors. The amount and timing of past dividends is not necessarily indicative of the amount or timing of any future dividends which we might pay.
Future Cash Requirements
We believe cash generated from operations together with cash on hand will be sufficient to meet our liquidity needs for working capital, capital expenditures, debt service and dividends (if declared) for the next twelve months and our long term obligations for the next five years. To the extent that actual operating results or other developments differ materially from our expectations, our liquidity could be adversely affected.
All of our $54.1 million aggregate cash and cash equivalents at December 31, 2025 were held in the U.S.
We periodically evaluate our liquidity requirements, alternative uses of capital, capital needs and available resources in view of, among other things, our capital expenditure requirements, dividend policy and estimated future operating cash flows. As a result of this process, we have in the past and may in the future seek to raise additional capital, refinance or restructure indebtedness, issue additional securities, repurchase shares of our common stock, modify our dividend policy or take a combination of such steps to manage our liquidity and capital resources. In the normal course of business, we may review opportunities for acquisitions, joint ventures or other business combinations in the component products industry. In the event of any such transaction, we may consider using available cash, issuing additional equity securities or increasing our indebtedness or that of our subsidiaries.
Commitments and contingencies
As more fully described in the Notes to the Consolidated Financial Statements, we are a party to various agreements that contractually and unconditionally commit us to pay certain amounts in the future. See Note 10 to our Consolidated Financial Statements. Additionally, we have purchase obligations of $13.9 million ($13.4 million payable in 2026 and $.5 million payable in 2027/2028) which consists of open purchase orders and contractual obligations, primarily commitments to purchase raw materials and for capital projects in process at December 31, 2025. The timing and amount for purchase obligations are based on the contractual payment amount and the contractual payment date for those commitments.
See Note 10 to our Consolidated Financial Statements for legal proceedings and other commitments.
Recent accounting pronouncements
See Note 12 to our Consolidated Financial Statements.
