Taylor Devices, Inc. — Form 10-Q Summary
Business and reporting period: The filing covers the quarter and six months ended November 30, 2011. Taylor Devices sells products to industrial, construction, and aerospace/defense customers, including products used to protect buildings and bridges from wind and seismic events. Its results include long-term construction projects accounted for using percentage of completion.
Financial performance
| Metric | Three months ended Nov. 30, 2011 | Six months ended Nov. 30, 2011 | Comparable-period change |
|---|---|---|---|
| Net sales | $6.782 million | $11.354 million | Up 50% and 29%, respectively |
| Gross profit / margin | $1.847 million / 27% | $3.381 million / 30% | Margins were 23% and 25% in 2010 |
| Operating income | $615,000 | $1.167 million | Up 284% and 177%, respectively |
| Net income | $414,000 | $822,000 | Up 236% and 167%, respectively |
| Basic and diluted EPS | $0.13 | $0.25 | Compared with $0.04 and $0.10 |
For the six-month period, SG&A was $2.214 million, or 19% of sales, versus $1.757 million, or 20%, a year earlier. Higher estimated incentive compensation and outside commissions contributed to the increase.
Cash flow, liquidity, and debt
- Six-month operating cash flow was $109,000, down from $2.114 million in the prior-year period. Higher receivables, inventory, and costs and estimated earnings in excess of billings absorbed cash.
- Capital expenditures were $461,000, versus $132,000. Cash declined from $2.194 million at May 31, 2011 to $1.928 million at November 30, 2011.
- At November 30, current assets were $18.505 million and current liabilities $5.467 million; working capital was $13.038 million and the current ratio was approximately 3.4.
- The company had no balance drawn on its $6 million demand line of credit. It reported compliance with covenants and said the full undrawn amount was available without violating them. Long-term debt principal due was minimal: $2,000 in the remainder of fiscal 2012 and $4,000 in 2013.
- Inventory was $7.286 million, up 36% from May 31, mainly reflecting work in process. Accounts receivable rose 52% to $3.254 million; days sales outstanding increased from 27 to 43.
Material changes and management commentary
- Construction-project revenue increased 64% for the six months and 81% for the quarter; non-project revenue fell 16% for the six months and was up 1% for the quarter. The company attributed demand growth to improving construction markets and demand for wind- and seismic-protection products.
- There were 52 projects in process during the six-month period versus 23 a year earlier. Backlog at November 30 was $25.5 million across 108 open orders, compared with $13 million across 100 orders a year earlier. The filing says $11.3 million of current backlog was on projects already in progress.
- Construction represented 64% of six-month sales, aerospace/defense 28%, and industrial 8%. Asia accounted for 50% of sales, up from 35%; the U.S. accounted for 41% and other regions 9%.
- After quarter-end, the company closed on three North Tonawanda industrial buildings totaling 46,000 square feet and had an accepted offer for adjacent vacant lots. The renovation and relocation project budget, including purchase cost, was $2.5 million. Management expected the first building to be in service by summer 2012 and the other two by December 2013, and said cash and the bank line should be sufficient.
Outlook, risks, and other items
The filing provides no specific financial guidance. Management cautioned that backlog, revenue, commissions, margins, and earnings fluctuate and that current-period changes may not indicate future results. Risks cited include persistent or worsening recession, customer capital-budget reductions, changing demand and industry capacity, competition and pricing pressure, and technology reducing demand for products. Inventory obsolescence is also a concern; the company recorded a $90,000 obsolescence provision in each six-month period presented.
Management expects to bill the $4.671 million balance of costs and estimated earnings in excess of billings within 12 months. A $1.274 million excess-billings balance was largely associated with one order for which the company received 67% of the order value upon receipt. Routine litigation incidental to the business was reported; no other legal proceedings were identified. The interim financial statements were reviewed, not audited, by the independent accountant.
Important facts for investors to verify
- Whether the $25.5 million backlog converts to revenue and cash on expected schedules, and whether project costs and margins remain on estimate.
- Collection and billing progress for receivables, retainage, and unbilled project balances, given the increase in DSO and working-capital demands.
- Whether operating cash generation improves as inventory and project balances convert to cash.
- The final renovation, equipment, and relocation costs and timing for the new manufacturing facilities, and the effect on capacity and cash needs.
- The filing’s balance-sheet comparison heading appears to say “May 31, 2010”; elsewhere the filing identifies the comparative date as May 31, 2011. Verify the original filing presentation.