Taylor Devices, Inc. — Form 10-Q Summary
Period: Fiscal third quarter ended February 29, 2012, with year-to-date results for the nine months ended that date. The filing describes a quarter ended February 29, 2012; this differs from the “2011 Q3” period in the request metadata. Amounts are in U.S. dollars.
Business context and results
Taylor Devices supplies products for industrial, construction, and aerospace/defense customers. Management attributed stronger results primarily to growth in long-term construction projects, amid increased demand for products protecting buildings and bridges from wind and seismic events.
| Metric | Three months ended Feb. 29, 2012 | Three months ended Feb. 28, 2011 | Nine months ended Feb. 29, 2012 | Nine months ended Feb. 28, 2011 |
|---|---|---|---|---|
| Sales | $8.01 million | $4.98 million | $19.36 million | $13.78 million |
| Gross profit | $2.12 million | $1.34 million | $5.50 million | $3.52 million |
| Gross margin | 26% | 27% | 28% | 26% |
| Operating income | $754,373 | $396,751 | $1.92 million | $818,507 |
| Net income | $514,213 | $386,100 | $1.34 million | $693,713 |
| Diluted earnings per share | $0.16 | $0.12 | $0.41 | $0.21 |
Financial position and cash flow
- For the nine months, operating cash flow was negative $784,268, versus positive $1.60 million a year earlier. Investment in working capital included $2.64 million of inventory growth, $1.31 million of higher receivables, and $1.30 million more costs and estimated earnings in excess of billings.
- Capital expenditures were $940,391, compared with $268,034 in the prior-year period. Cash declined from $2.19 million at May 31, 2011 to $641,429 at February 29, 2012.
- Current assets were $19.05 million and current liabilities $5.77 million at quarter-end. The balance sheet reports $5,028 of current debt and $278,485 of long-term liabilities. No balance was outstanding on the $6 million bank line of credit.
- The company reported covenant working capital of $13.569 million against a $3 million minimum and said the full line of credit was available without violating covenants. The line is a demand facility, renewable annually, and the bank has no express obligation to lend.
- Inventory was $8.03 million, up 50% from May 31, 2011; approximately 84% was work in process. Accounts receivable rose 61% to $3.45 million, and days sales outstanding increased to 39 from 27. Costs and estimated earnings in excess of billings were $5.49 million; billings in excess were $789,000.
Changes versus the prior comparable period
- Third-quarter sales rose 61% and net income increased 33%. Nine-month sales increased 41% and net income 93%. Nine-month operating income rose 135%.
- Long-term project revenue increased 95% in the quarter and 77% year to date; non-project revenue declined 6% in the quarter and 13% year to date. Projects in process numbered 44 in the quarter versus 26 a year earlier; year-to-date project activity was 66 versus 34.
- Year-to-date construction sales rose to 69% of revenue from 60%; aerospace/defense declined to 24% from 32%. Asia represented 53% of nine-month revenue versus 35% a year earlier.
- Gross margin improved year to date but edged down in the quarter. SG&A increased 45% in the quarter and 32% year to date, mainly from commissions on higher sales and increased estimated incentive compensation.
Outlook, risks, and notable items
- Backlog was $23 million at February 29, 2012, up 69% from $13.6 million a year earlier; 140 open orders were reported versus 110. Management cautioned that backlog and results fluctuate and are not necessarily indicative of future performance.
- The company purchased three industrial buildings and adjacent land for approximately $323,000. Renovation and related work bring the project budget, including purchase cost, to $2.5 million. Management planned the first building’s service for summer 2012 and the remaining two by December 2013, and expected cash and credit resources to fund the project.
- Management believed operating cash flow and borrowing capacity would be sufficient for operations, capital improvements, and share repurchases over the next 12 months. The filing provides no quantified earnings or revenue guidance.
- Disclosed risks include economic weakness, customer capital-budget reductions, shifting demand and industry capacity, competition and pricing pressure, and technology changes that could reduce product demand. Management also noted maintenance inventory’s exposure to technological obsolescence.
- Receivables included approximately $1.10 million of project retainage; management expected net receivables and the $5.49 million unbilled balance to be collected or billed within 12 months. A single order with a large advance payment drove the increase in billings in excess of costs.
- The interim statements were reviewed, not audited; the independent accountant reported no material modifications identified from its review. The company reported effective disclosure controls, no material control changes, and no legal proceedings other than routine litigation incidental to the business.
Important facts for investors to verify
- Whether project execution, customer billing, and collections convert the expanded backlog and work in process into cash on schedule.
- Whether receivables, retainage, and costs in excess of billings remain collectible and billable within management’s stated 12-month horizon.
- Actual renovation spending and completion timing for the new manufacturing facilities, relative to the $2.5 million budget.
- Whether the demand credit line remains available when needed, given its annual renewal and the lender’s lack of an express lending obligation.
- Whether project mix, margins, and the higher tax provision persist; the filing does not provide formal forward earnings guidance.