Taylor Devices, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended May 31, 2021, compared with the year ended May 31, 2020. The request metadata says “2020 Q4,” but the filing is an annual report for FY2021; it does not present a standalone Q4 income statement.
Business context
Taylor Devices designs and manufactures shock absorption, rate-control and energy-storage products, including seismic dampers, industrial buffers and aerospace/defense components. It reports one product group and serves structural, aerospace/defense and industrial customers. Structural and aerospace/defense sales together represented about 90% of FY2021 revenue.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net revenue | $22.51 million | $28.38 million |
| Gross profit / margin | $3.17 million / 14% | $9.24 million / 33% |
| Operating income (loss) | $(2.35) million | $3.30 million |
| Net income | $1.06 million | $3.03 million |
| Diluted earnings per share | $0.30 | $0.87 |
| Cash from operating activities | $7.03 million | $9.83 million |
| Capital expenditures | $1.62 million | $1.23 million |
Revenue fell 21%, while cost of goods sold edged up 1%, sharply compressing gross margin. FY2021 net income included $2.97 million of federal assistance: $1.46 million from PPP loan forgiveness and $1.51 million of Employee Retention Credits. Excluding this assistance, the company reported an operating loss; the filing does not provide a company-defined adjusted earnings measure.
Cash and cash equivalents were $20.58 million, with $1.10 million in short-term investments, at May 31, 2021. Current assets were $34.11 million and current liabilities $5.13 million. The company had no balance outstanding on its $10 million demand line of credit at year-end; the bank is not committed to lend and the facility is subject to annual renewal. The $1.46 million PPP borrowing outstanding in FY2020 was forgiven in FY2021.
Backlog increased to $22.0 million across 132 open orders from $9.8 million and 102 orders a year earlier. The filing says $9.3 million of FY2021 year-end backlog was on projects already in progress and expects remaining revenue on open projects to be recognized during FY2022.
Material changes and management commentary
- Structural-customer sales fell 35%, primarily reflecting delayed domestic construction orders amid COVID-19 uncertainty. Aerospace/defense sales declined 5%; industrial sales rose 10%. Long-term project revenue was 41% lower, while non-project revenue increased 7%.
- North American sales declined 34%; sales to Asia increased 52%. Structural customers’ share of revenue decreased to 45% from 55%, while aerospace/defense increased to 45% from 38%.
- Research and development spending rose to $924,000 from $585,000, including defense-sponsored R&D of $243,000 versus $26,000.
- The company reviewed inventory and disposed of $1.10 million of obsolete inventory. The inventory-obsolescence provision was $1.50 million, versus $180,000 in FY2020. Net inventory declined 42% to $5.84 million.
- Management said late-year structural orders provided a stronger base for FY2022, with more than half of structural bookings received in the final four months and $6.4 million booked in Q4 for FY2022 delivery. It offered no formal revenue or earnings guidance.
- Management described liquidity as strong and said cash, operating cash flow and borrowing capacity should support operations and planned capital improvements over the next 12 months. It also cited COVID-19 uncertainty, customer purchasing plans, and rising material costs and longer supply lead times.
Risks, contingencies and unusual items
- Results are exposed to timing and volume of project orders, competition, pricing pressure, technology changes, and economic cycles. Federal government contracts may be terminated at the government’s election; management said a defense-spending reduction could materially affect the company.
- Long-term contract revenue depends on estimates of costs to complete. The auditor identified contract-cost estimates and inventory valuation as critical audit matters, involving significant judgment.
- Inventory obsolescence is a notable estimation risk; maintenance and other inventory was $1.61 million net of a $2.00 million obsolescence allowance. Management said deferred tax assets of about $815,000 require approximately $3.9 million of future taxable income to realize.
- Four customers reportedly represented approximately 33% of FY2021 net sales in the business discussion. The notes separately state that two customers represented 21%; the filing text does not reconcile these disclosures.
- No cash or stock dividends were declared in the last two fiscal years; management expects to retain cash for working capital. The filing reports no legal proceedings in the business section, while the financial-statement note refers to routine litigation incidental to the business.
Important facts for investors to verify
- How much FY2021 earnings and operating cash generation depended on the nonrecurring PPP forgiveness and Employee Retention Credit, and whether structural demand and margins recovered in FY2022.
- Backlog conversion, timing of the $9.3 million of in-progress project revenue, and the accuracy of contract cost-to-complete estimates.
- Whether inventory reserves and the inventory cleanup are sufficient, given the large obsolescence provision and ongoing risk of technical obsolescence.
- The customer-concentration disclosure: the business section’s four-customer 33% figure versus the notes’ two-customer 21% figure.
- Renewal and availability of the uncommitted $10 million demand credit line, and exposure to continued material-cost increases and supply delays.