Taylor Devices, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended February 28, 2014; comparisons are to the corresponding 2013 periods. The interim statements are unaudited and were reviewed by the independent accountant, not audited.
Business context and results
The company reported lower revenue and earnings, attributing much of the nine-month revenue shortfall to production disruption during the October–November 2013 move of manufacturing equipment to its new campus. The relocation was completed in autumn 2013.
| Metric | Three months ended Feb. 28 | Nine months ended Feb. 28 |
|---|---|---|
| Net sales | $4.81 million, down 16% | $14.71 million, down 25% |
| Gross profit / margin | $1.32 million / 27%; prior year 36% | $3.90 million / 27%; prior year 37% |
| Operating income | $342,000, down 63% | $1.02 million, down 66% |
| Net income | $222,000, down 64%; EPS $0.07 vs. $0.19 | $730,000, down 63%; EPS $0.22 vs. $0.60 |
For the nine months, long-term construction-project revenue fell 43%, while non-project revenue rose 6%. Construction represented 48% of sales versus 62% a year earlier; aerospace/defense rose to 41% from 29%. U.S. sales declined 16%, and Asian sales declined 36%.
Cash flow, liquidity and balance sheet
- Operating cash flow was $183,000 for the nine months, versus $2.70 million in 2013. Capital expenditures were $1.30 million versus $2.16 million.
- Cash was $1.05 million at February 28, down from $2.00 million at May 31, 2013. Total current assets were $17.30 million and current liabilities $3.35 million; reported covenant working capital was $13.95 million.
- No balance was outstanding on the $6 million demand line of credit. The company reported compliance with its covenants and said the full unused facility was available. Long-term liabilities were $398,000; the filing does not clearly identify their nature in the supplied text.
- Receivables were $2.90 million, up 29% from fiscal year-end, and days sales outstanding rose from 39 to 54. Costs and estimated earnings over billings were $2.94 million; billings over costs and estimated earnings were $736,000.
- Backlog was reported at $18.5 million, including $8.5 million on projects in progress. The company cited 110 open orders, 17% fewer than a year earlier, but 58% higher backlog value than the February 2013 comparison.
Outlook, risks and other notable items
No specific revenue or earnings guidance was provided. Management said operating cash flow and borrowing capacity should fund operations, capital improvements and any share repurchases over the next 12 months. Remaining capital expenditure commitments were $30,000. The company cautioned that interim results are not necessarily indicative of full-year results and that revenue, margins and earnings fluctuate.
Management cited risks including customer capital-budget reductions, changing demand and industry capacity, competition and pricing pressure, technology advances that could reduce product demand, and natural disasters. The filing reported no material legal proceedings beyond routine litigation, no quarter share repurchases, and no provision for profit sharing, dividends or other benefits for the fiscal year. Disclosure controls were judged effective; no material change in internal control was reported.
Important facts for investors to verify
- Whether the production move’s disruption has fully passed and how it affected subsequent-period production and margins.
- Backlog conversion, project timing, customer billing and collection trends, particularly given higher receivables and DSO.
- The filing gives two different prior-period backlog comparisons: $11.7 million at February 28, 2013 and $13.1 million at the prior fiscal year-end. Confirm the applicable comparison when assessing backlog growth.
- Availability and renewal terms of the demand line of credit, which is not an unconditional lending commitment by the bank.