Taylor Devices(TAYD) - 2023 Q4 - Annual Report

PART I Business Taylor Devices, Inc. designs, manufactures, and markets shock absorption, rate control, and energy storage devices for diverse sectors - The company's main business is the design, manufacture, and marketing of shock absorption, rate control, and energy storage devices for various industries[13] - Principal product categories include Seismic Dampers, Fluidicshoks®, Crane and Industrial Buffers, Self-Adjusting Shock Absorbers, Liquid Die Springs, Vibration Dampers, Machined Springs, and Custom Actuators[14][15] - In fiscal year 2023, sales to five customers accounted for approximately 30% of net sales[21] R&D Expense | R&D Expense | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Company-funded | $1,097,000 | $999,000 | | Defense-sponsored | $581,000 | $334,000 | Risk Factors As a smaller reporting company, Taylor Devices, Inc. is not required to provide this information - The company is not required to provide risk factor information as it qualifies as a smaller reporting company[30] Unresolved Staff Comments There are no unresolved staff comments - Not applicable[31] Properties The company's North Tonawanda facilities, over 100,000 sq ft, are pledged to M&T Bank, restricting sale or lease - The company owns production facilities totaling more than 54,000 square feet on Tonawanda Island and two additional industrial buildings totaling 46,000 square feet in North Tonawanda, New York[32] - The company's real properties are subject to a negative pledge agreement with its lender, M&T Bank, preventing their sale, lease, or mortgage as long as credit facilities are outstanding[33] Legal Proceedings The company is a Third-Party Defendant in a lawsuit concerning 432 Park Condominium defects, which it disputes - The company has been named as a Third-Party Defendant in a lawsuit related to the 432 Park Condominium in New York City[34] - The lawsuit alleges over 1,500 construction and design defects. The company supplied 16 Viscous Damping Devices (VDDs) for the building's Tuned Mass Damper (TMD) system[35][38] - Management disputes the allegations and believes the company met all contractual requirements. Due to limited discovery, it is not practical to quantify likely damages[42][43][44] Mine Safety Disclosures This item is not applicable to the company - Not applicable[45] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under TAYD; no dividends were paid, and the share repurchase program is terminated - The company's common stock trades on the NASDAQ Capital Market under the symbol TAYD[48] - No cash or stock dividends have been declared during the last two fiscal years[51] - A shareholder rights plan was adopted in 2018 to deter coercive takeover tactics and will expire in 2028[52][53] - The company's share repurchase agreement has been terminated, with no shares purchased since August 2011[54] Selected Financial Data As a smaller reporting company, Taylor Devices, Inc. is not required to provide this information - The company qualifies as a smaller reporting company and is not required to provide selected financial data[58] Management's Discussion and Analysis of Financial Condition and Results of Operations FY2023 net revenue rose 30% to $40.2M, net income 181%, with gross margin at 40% and backlog at $32.5M Application of Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment in accounts receivable, inventory, revenue recognition, and deferred tax assets - For long-term contracts, revenue is recognized over time using costs incurred relative to total estimated costs. In FY2023, 61% of revenue was recognized this way, compared to 60% in FY2022[67] - The company recorded a provision for potential inventory obsolescence of $295,000 in FY2023, compared to zero in FY2022. Inventory disposals were $322,000 in FY2023[63] - Management believes it is more likely than not that the deferred tax assets of $1,583,000 will be realized, which requires generating approximately $7.5 million of future taxable income[70] Results of Operations FY2023 net revenue grew 30% to $40.2M, net income 181%, with gross margin at 40% and backlog reaching $32.5M Key Financial Metrics | Financial Metric | FY 2023 | FY 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $40,199,000 | $30,867,000 | $9,332,000 | 30% | | Gross Profit | $16,066,000 | $9,627,000 | $6,439,000 | 67% | | Gross Margin | 40% | 31% | +9 pts | - | | Net Income | $6,287,358 | $2,239,423 | $4,048,000 | 181% | Sales by Customer Group | Sales by Customer Group (% of Total) | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Industrial | 10% | 7% | | Structural | 51% | 53% | | Aerospace / Defense | 39% | 40% | - The sales order backlog increased to $32.5 million at May 31, 2023, from $23.7 million at May 31, 2022. Aerospace/defense orders constitute 81% of the current backlog, up from 41% in the prior year[79] - Selling, general and administrative (SG&A) expenses increased 33% to $8.16 million, primarily due to higher personnel costs[82] Capital Resources, Line of Credit and Long-Term Debt Primary liquidity is cash from operations; FY2023 capital expenditures doubled to $3.36M, with a $10M credit line unused - Capital expenditures were $3,359,000 in FY2023, a significant increase from $1,392,000 in FY2022[91] - The company has a $10,000,000 bank demand line of credit with no outstanding balance at May 31, 2023. The interest rate benchmark will switch from LIBOR to SOFR effective July 1, 2023[92] Balance Sheet Metrics | Balance Sheet Metrics | May 31, 2023 | May 31, 2022 | Change % | | :--- | :--- | :--- | :--- | | Accounts receivable | $5,554,000 | $4,467,000 | 24% | | CIEB (Asset) | $4,124,000 | $3,336,000 | 24% | | BIEC (Liability) | $1,992,000 | $1,123,000 | 77% | | DSO (Days) | 47 | 42 | +5 days | Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Taylor Devices, Inc. is not required to provide this information - The company is not required to provide this information as it qualifies as a smaller reporting company[105] Financial Statements and Supplementary Data This section states that the required financial statements and supplementary data are included in the report, commencing on page 26 - The financial statements and supplementary data are included in the Form 10-K, starting on page 26[106] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reported no disagreements with its accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure - There have been no disagreements with the company's accountants that require disclosure[107] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of May 31, 2023, with no material changes - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of May 31, 2023[108] - Management assessed internal control over financial reporting using the 2013 COSO framework and concluded it was effective as of May 31, 2023[109] - No changes in internal controls over financial reporting occurred during the fiscal year that materially affected, or are reasonably likely to materially affect, the company's control over financial reporting[110] Other Information There is no other information to report - None[111] PART III Directors, Executive Officers, Corporate Governance, Compensation, Security Ownership, and Related Transactions Information for Items 10-14 is incorporated by reference from the company's Proxy Statement for the Annual Meeting on October 20, 2023 - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Company's Proxy Statement, which will be filed within 120 days of the fiscal year end[113] PART IV Exhibits and Financial Statement Schedules This section lists all documents filed as part of the 10-K report, including financial statements and various exhibits - Lists the financial statements and various exhibits filed with the report, including corporate governance documents, material contracts, and officer certifications[116][117][119] Form 10-K Summary No summary is provided under this item - None[123] Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Lumsden & McCormick, LLP issued an unqualified opinion, highlighting critical audit matters in long-term contract revenue and inventory valuation - The auditors, Lumsden & McCormick, LLP, issued an unqualified opinion, stating the financial statements are presented fairly in all material respects[134] - A Critical Audit Matter was identified related to revenue recognition for long-term contracts due to the significant variability and judgment involved in estimating costs to completion[140] - A second Critical Audit Matter was identified related to the valuation of inventory, given the significant judgments required to estimate potential obsolescence[142][143] Consolidated Balance Sheets Total assets grew to $57.9M, driven by short-term investments; liabilities and equity also increased reflecting profitability Consolidated Balance Sheet Highlights (In thousands) | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $3,575 | $22,517 | | Short-term investments | $24,515 | $1,097 | | Total current assets | $44,378 | $37,977 | | Total assets | $57,881 | $49,219 | | Liabilities & Equity | | | | Total current liabilities | $7,788 | $5,964 | | Total stockholders' equity | $50,093 | $43,255 | Consolidated Statements of Income FY2023 net sales increased 30% to $40.2M, with net income surging 181% to $6.3M, or $1.79 per share Consolidated Income Statement Highlights (In thousands, except per share data) | :--- | :--- | :--- | | Sales, net | $40,199 | $30,867 | | Gross profit | $16,066 | $9,627 | | Operating income | $6,809 | $2,473 | | Net income | $6,287 | $2,239 | | Basic EPS | $1.79 | $0.64 | | Diluted EPS | $1.77 | $0.64 | Consolidated Statements of Cash Flows FY2023 operating cash flow was $7.7M, but investing activities, mainly short-term investments, reduced cash by $18.9M Consolidated Cash Flow Highlights (In thousands) | :--- | :--- | :--- | | Net cash from operating activities | $7,707 | $3,309 | | Net cash from investing activities | ($26,782) | ($1,389) | | Net cash from financing activities | $133 | $16 | | Net change in cash and cash equivalents | ($18,942) | $1,935 | | Cash and cash equivalents - ending | $3,575 | $22,517 | Notes to Consolidated Financial Statements Notes detail operations, revenue streams, asset/liability composition, credit line terms, employee benefits, and legal proceedings - 81% of FY2023 revenue was from customers in the United States, with 11% from Asia[153] - At year-end, there were 22 projects in progress with an aggregate remaining contract value of $18.1 million, which is expected to be recognized mostly in fiscal 2024[182] - The company has a $10 million bank demand line of credit, secured by a negative pledge on property, with no amount outstanding at year-end[187] - The company maintains a 401(k) retirement plan, with expenses of $371,881 in FY2023 and $313,269 in FY2022[205]