Taylor Devices, Inc. — FY2013 Form 10-K
Reporting period: Fiscal year ended May 31, 2013, compared with the year ended May 31, 2012. The filing also reports fourth-quarter revenue comparisons. Taylor Devices designs and manufactures shock absorption, rate control, and energy storage products, including seismic dampers and aerospace and industrial components.
Financial performance
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Net sales | $24.730 million | $29.007 million | -15% |
| Gross profit / margin | $8.764 million / 35% | $8.866 million / 31% | Profit -1%; margin improved |
| Operating income / margin | $3.467 million / 14% | $2.887 million / 10% | +20% |
| Net income | $2.548 million | $2.199 million | +16% |
| Basic / diluted EPS | $0.77 / $0.76 | $0.67 / $0.67 | Higher |
| Cash from operating activities | $5.473 million | $(1.114) million | Improved |
| Capital expenditures | $3.293 million | $1.551 million | More than doubled |
Operating cash flow less capital expenditures was approximately $2.179 million in FY2013. Cash and equivalents rose to $1.998 million from $74,000. The company reported no balance on its $6 million demand line of credit at year-end, compared with $258,000 outstanding a year earlier, and no long-term debt. The line is subject to annual renewal and the bank is not committed to lend.
Year-end current assets were $17.344 million and current liabilities $3.555 million, or approximately $13.789 million of working capital and a 4.9 current ratio. Inventory increased 9% to $10.028 million, while accounts receivable fell 60% to $2.245 million. Property and equipment, net, rose to $7.211 million from $4.482 million.
Changes versus the prior year
- Lower seismic and construction-related project activity drove the sales decline. Construction sales fell 32%; aerospace and defense sales rose 24%, and industrial sales rose 33%.
- Gross margin increased from 31% to 35%, while lower sales reduced gross profit slightly. Reduced commission and incentive-compensation expenses helped lift operating income.
- Revenue recognized using percentage-of-completion accounting fell 35%; that method accounted for 58% of FY2013 revenue, versus 77% in FY2012.
- Sales backlog declined 25% to $13.1 million from $17.5 million. Aerospace and defense represented 59% of the current backlog; $3.2 million was on projects already in progress.
- Fourth-quarter revenue was $5.152 million, compared with $9.643 million in the prior-year quarter. The filing does not provide a clear fourth-quarter profit value in the supplied text.
Outlook, risks, and other notable items
- Management said cash, operating cash flows, and borrowing capacity should fund operations and planned improvements for the next 12 months. It anticipated $496,000 of additional capital expenditures at year-end and estimated total renovation costs for the new facilities at $2.9 million. Management expected the remaining building work to finish in summer 2013 and machining operations to move in autumn 2013.
- Sales are volatile and depend on construction, aerospace/defense, and industrial demand; backlog and period-to-period results are not necessarily indicative of future performance. The federal government may terminate its contracts, and defense-spending reductions could materially affect the company.
- One customer, Sinodynamics Enterprise Co., represented approximately 29% of FY2013 sales. Five customers together represented 52% of sales.
- Management reported effective disclosure controls and internal control over financial reporting. The independent auditor gave an unqualified opinion on the financial statements; it was not engaged to audit internal controls.
- The company paid no dividends in the last two fiscal years and said it planned to retain cash for working capital. It did not repurchase shares in FY2013, though a repurchase authorization remained in place.
- The company recorded a $1.063 million deferred tax asset and said realization depends on generating approximately $3.1 million of future taxable income. Inventory-obsolescence provisions were $180,000 in each year.
Important facts for investors to verify
- Whether the $13.1 million backlog converts to revenue on schedule, particularly given the lower project count and percentage-completion revenue.
- Customer concentration and the status of Sinodynamics-related business, as well as the company’s ability to diversify demand.
- Completion, cost, and operational benefits of the facility renovations and planned production move.
- Availability and renewal terms of the noncommitted $6 million credit line; the filing reports a year-end debt-service coverage ratio of 64:1 against a 1.5:1 minimum covenant.
- Whether future taxable income supports realization of the deferred tax asset and whether inventory obsolescence estimates remain adequate.