What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-14 compared with 2021-02-12 · 67 added, 32 removed, 113 unchanged (47% of the section changed)

39 unchanged sentences

The Company will continue to scrutinize its relationships with suppliers to ensure it is achieving the highest quality materials and services at the most competitive cost.

Impact of COVID-19

The Company continues to monitor and evaluate the risks related to the COVID-19

pandemic, including impacts on its employees, customers, suppliers and financial results.

As of the date of issuance of these Condensed Consolidated Financial Statements, the Company’s operations have not been significantly impacted.

However, the full impact of the COVID-19

pandemic continues to evolve subsequent to the quarter ended March 31, 2021 and as of the date these Condensed Consolidated Financial Statements are issued.

As such, the full magnitude that the COVID-19

pandemic will have on the Company’s financial condition and future results of operations is uncertain.

Management is actively monitoring the Company’s financial condition, operations, suppliers, industry, customers, and workforce.

As the COVID-19

pandemic continues, the Company’s ability to meet customer demands for products may be impacted or its customers may experience adverse business consequences due to COVID-19.

Reduced demand for products or ability to meet customer demand (including as a result of disruptions from the Company’s suppliers) could have a material adverse effect on its business operations and financial performance.

Results of Operations

Quarter Ended December 31, 2020 versus December 31, 2019

Net revenues for the quarters ended December 31, 2020 and December 31, 2019 were $18,964,000 and $18,030,000, respectively, an increase of $934,000.

The improved revenues reflect an increase in parts and component sales over the comparative quarter in the prior year.

There were no revenues generated by Blaw-Knox during the quarter ended December 31, 2020, as the facility is being readied to begin production.

As a percent of sales, gross profit margins were 15.7% in the quarter ended December 31, 2020, compared to 24.0% in the quarter ended December 31, 2019.

The gross profit margins for the quarter ended December 31, 2020 were impacted by approximately $1.5 million of unabsorbed manufacturing labor and overhead expenses related to the Blaw-Knox paver product line.

Excluding these expenses, the gross profit margin for the quarter ended December 31, 2020, would have been 23.5%, with increases in steel prices contributing to the lower overall gross margins.

Product engineering and development expenses increased $79,000 to $845,000 for the quarter ended December 31, 2020, as compared to $766,000 for the quarter ended December 31, 2019, due primarily to engineering wages related to the Blaw-Knox paver product line.

Selling, general and administrative (“SG&A”) expenses increased by $812,000 to $3,194,000 for the quarter ended December 31, 2020, compared to the quarter ended December 31, 2019.

The increase in SG&A expenses was primarily due to professional fees, salaries, travel and other general expenses of approximately $0.5 million related to the acquisition.

In addition, increased advertising expenses contributed to the higher SG&A expenses during the first quarter of fiscal 2021.

Operating income decreased from $1,172,000 for the quarter ended December 31, 2019 to an operating loss of $(1,058,000) for the quarter ended December 31, 2020, due primarily to the operational start-up

costs related to the acquisition.

For the quarter ended December 31, 2020, interest and dividend income, net of fees, was $804,000 as compared to $632,000 in the quarter ended December 31, 2019.

Interest income for the quarter ended December 31, 2020, included $456,000 collected from a customer due to permitting delays.

The net realized and unrealized gains on marketable securities were $2,193,000 for the quarter ended December 31, 2020 versus $1,317,000 for the quarter ended December 31, 2019, due to a strong domestic stock market during the quarter ended December 31, 2020.

The effective income tax rate for the quarters ended December 31, 2020 and December 31, 2019, was 20.0% based on the expected annual effective income tax rate.

Net income for the quarter ended December 31, 2020 was $1,551,000 or $0.11 basic and diluted earnings per share versus net income of $2,489,000 or $0.17 basic and diluted earnings per share for the quarter ended December 31, 2019.

Quarter Ended March 31, 2021 versus March 31, 2020

Net revenues for the quarters ended March 31, 2021 and March 31, 2020 were $21,352,000 and $25,993,000, respectively, a decrease of $4,641,000.

The reduced revenues reflect a decrease in equipment sales recognized over time over the comparative quarter in the prior year.

During the quarter ended March 31, 2021, the Company generated approximately $1.6 million in paver parts sales.

As a percent of sales, gross profit margins were 28.8% in the quarter ended March 31, 2021, compared to 28.2% in the quarter ended March 31, 2020.

During the quarter ended March 31, 2021, the Company continued to experience higher manufacturing costs associated with steel and OEM parts pricing, as well as unabsorbed manufacturing labor and overhead expenses related to the paver line.

The negative effect of these higher manufacturing costs on the quarter ended March 31, 2021, was offset by improved margins on certain equipment sales recognized over time and increased parts sales, in dollars and as a percentage of total net revenues, at higher margins.

Product engineering and development expenses increased $380,000 to $1,069,000 for the quarter ended March 31, 2021, as compared to $689,000 for the quarter ended March 31, 2020, due primarily to engineering wages related to the paver line.

Selling, general and administrative (“SG&A”) expenses increased by $1,277,000 to $3,838,000 for the quarter ended March 31, 2021, compared to the quarter ended March 31, 2020.

The increase in SG&A expenses was primarily due to expenses related to the paver line and professional fees to support business development efforts.

Operating income decreased from $4,088,000 for the quarter ended March 31, 2020 to $1,239,000 for the quarter ended March 31, 2021, due primarily to the operational and start-up

costs related to the Blaw-Knox acquisition and professional fees to support business development efforts.

For the quarter ended March 31, 2021, interest and dividend income, net of fees, was $327,000 as compared to $763,000 in the quarter ended March 31, 2020.

The higher income in fiscal 2020 reflects the impact from a larger investment in corporate bonds and a higher average yield to maturity.

The fiscal 2021 corporate investment bonds were reduced as the related investments were partially liquidated to fund the Blaw-Knox acquisition.

The net realized and unrealized gains on marketable securities were $1,294,000 for the quarter ended March 31, 2021 versus net realized and unrealized losses of $(5,670,000) for the quarter ended March 31, 2020.

The fiscal 2020 investment losses reflect the decline in the domestic equity markets from the impact of the COVID-19

The effective income tax rate for the quarter ended March 31, 2021, and benefit for the quarter ended March 31, 2020, was 20.0% based on the expected annual effective income tax rate.

Net income for the quarter ended March 31, 2021 was $2,288,000 or $0.16 basic and diluted earnings per share versus a net loss of $(655,000) or $(0.04) basic and diluted loss per share for the quarter ended March 31, 2020.

Six Months Ended March 31, 2021 versus March 31, 2020

Net sales for the six months ended March 31, 2021 and 2020 were $40,316,000 and $44,023,000, respectively, a decrease of $3,707,000.

The reduced revenues reflect a decrease in equipment sales recognized over time over the comparative period in the prior year partially offset by improved parts and component sales, including $1.6 million in paver parts sales.

Gross profit margins decreased to 22.6% in the six months ended March 31, 2021 from 26.5% in the six months ended March 31, 2020.

The gross profit margins for the six months ended March 31, 2021 were negatively impacted by approximately $2.6 million of unabsorbed manufacturing labor and overhead expenses related to the paver line.

In addition, increases in steel and OEM parts prices contributed to the lower overall gross margins during the six months ended March 31, 2021.

Product engineering and development expenses increased $459,000 in the six months ended March 31, 2021, compared to the six months ended March 31, 2020 due primarily to engineering wages related to the paver line.

SG&A expenses increased $2,089,000 in the six months ended March 31, 2021, compared to the six months ended March 31, 2020.

The increase in SG&A expenses was primarily due to expenses related to the paver line and professional fees to support business development efforts.

The Company had operating income of $181,000 for the six months ended March 31, 2021 versus $5,260,000 for the six months ended March 31, 2020, due primarily to the operational and start-up

costs related to the Blaw-Knox acquisition and professional fees to support business development efforts.

For the six months ended March 31, 2021, interest and dividend income, net of fees, from the investment portfolio was $641,000, as compared to $1,395,000 for the six months ended March 31, 2020.

Interest income for the six months ended March 31, 2021, also included $456,000 of interest collected from a customer.

The higher income from the investment portfolio in fiscal 2020 reflects the impact from a larger investment in corporate bonds and a higher average yield to maturity.

The fiscal 2021 corporate bonds were reduced as the related investments were partially liquidated to fund the Blaw-Knox acquisition.

Net realized and unrealized income on marketable securities was $3,488,000 for the six months ended March 31, 2021 versus net realized and unrealized losses of $(4,353,000) for the six months ended March 31, 2020.

The fiscal 2020 investment losses reflect the decline in the domestic equity markets from the impact of the COVID-19

The effective income tax rate for the six months ended March 31, 2021 and March 31, 2020 was 20.0%.

Net income for the six months ended March 31, 2021 was $3,839,000, or $0.26 per diluted share, versus $1,834,000, or $0.12 per diluted share for the six months ended March 31, 2020.

Liquidity and Capital Resources

The Company generates capital resources through operations and returns on its investments.

The Company had no long-term or short-term debt outstanding at December 31, 2020 or September 30, 2020.

As of December 31, 2020, the Company has funded $85,000 in cash deposits at insurance companies to cover related collateral needs.

The Company had no long-term or short-term debt outstanding at March 31, 2021 or September 30, 2020.

As of March 31, 2021, the Company has funded $85,000 in cash deposits at insurance companies to cover related collateral needs.

In April 2020, a financial institution issued an irrevocable standby letter of credit (“letter of credit”) on behalf of the Company for the benefit of one of the Company’s insurance carriers.

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To date, no amounts have been drawn under the letter of credit.

As of December 31, 2020, the Company had $23,957,000 in cash and cash equivalents, and $92,049,000 in marketable securities, including $27,392,000 in corporate bonds, $15,129,000 in equities, $13,260,000 in mutual funds, $15,775,000 in exchange-traded funds, $16,056,000 in government securities, and $4,437,000 in cash and money funds.

As of March 31, 2021, the Company had $29,417,000 in cash and cash equivalents, and $93,646,000 in marketable securities, including $25,169,000 in corporate bonds, $20,423,000 in equities, $13,238,000 in mutual funds, $16,552,000 in exchange-traded funds, $16,000,000 in government securities, and $2,264,000 in cash and money funds.

The marketable securities are invested through a professional investment management firm.

These securities may be liquidated at any time into cash and cash equivalents.

The Company’s backlog was $32.1 million at December 31, 2020 compared to $30.9 million at December 31, 2019.

The Company’s working capital (defined as current assets less current liabilities) was $151.3 million at December 31, 2020 and $153.2 million at September 30, 2020.

Cash provided by operations during the quarter ended December 31, 2020 was $3,705,000.

The significant purchases, sales and maturities of marketable securities shown on the condensed consolidated statements of cash flows reflect the recurring purchases and sales of United States treasury bills.

Costs and estimated earnings in excess of billings decreased by $1.7 million, inventories decreased by $2.6 million (excluding the $11.0 million of inventory acquired with the Blaw-Knox paver product line) and customer deposits decreased by $1.2 million reflecting the completion and shipment of several large contract jobs during the quarter ended December 31, 2020.

Cash flows used in investing activities for the quarter ended December 31, 2020 of $15,332,000 were related to the acquisition of the Blaw-Know paver product line and subsequent capital expenditures, primarily for systems software and leasehold improvements for the Blaw-Knox manufacturing facility.

The Company’s backlog was $42.6 million at March 31, 2021 compared to $24.5 million at March 31, 2020 due to an increase in equipment orders in the most recent quarter.

The Company’s working capital (defined as current assets less current liabilities) was $153.6 million at March 31, 2021 and $153.2 million at September 30, 2020.

Cash provided by operations during the six months ended March 31, 2021 was $9,283,000.

The significant purchases, sales and maturities of marketable securities shown on the condensed consolidated statements of cash flows typically reflect the recurring purchases and sales of United States treasury bills.

Costs and estimated earnings in excess of billings decreased by $6.5 million reflecting the completion and shipment of several large contract jobs during the six months ended March 31, 2021.

Customer deposits increased by $2.2 million from down payments on point-in-time

contract jobs booked but not shipped during the six months ended March 31, 2021.

Cash flows used in investing activities for the six months ended March 31, 2021 of $15,506,000 were related to the acquisition of Blaw-Know assets and subsequent capital expenditures, primarily for systems software and leasehold improvements for the paver line’s manufacturing facility.

Cash provided by financing activities of $56,000 for the six months ended March 31, 2021, related to proceeds from the exercise of stock options.

The Company’s primary business is the manufacture of asphalt plants and related components and asphalt pavers.

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Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed on equipment sales recognized over time.

These contract assets were $4,709,000 and $6,405,000 at December 31, 2020 and September 30, 2020, respectively, and are included in current assets as costs and estimated earnings in excess of billings on the Company’s condensed consolidated balance sheets.

The Company anticipates that all of the contract assets at December 31, 2020, will be billed and collected within one year.

There were no contract assets at March 31, 2021 and $6,405,000 in contract assets at September 30, 2020.

These contract assets are included in current assets as costs and estimated earnings in excess of billings on the Company’s condensed consolidated balance sheets.

Revenues from all other contracts for the design and manufacture of equipment, for service and for parts sales, net of any discounts and return allowances, are recorded at a point in time when control of the goods or services has been transferred.

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Payment for services under contract with customers is due as services are completed.

Accounts receivable related to contracts with customers for equipment sales were $346,000 at December 31, 2020 and $223,000 at September 30, 2020.

Accounts receivable related to contracts with customers for equipment sales were $298,000 at March 31, 2021 and $223,000 at September 30, 2020.

Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized.

Under certain contracts with customers, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation assistance.

There were no contract liabilities other than customer deposits at December 31, 2020 and September 30, 2020.

Customer deposits related to contracts with customers were $2,697,000 at December 31, 2020 and $3,853,000 at September 30, 2020 and are included in current liabilities on the Company’s condensed consolidated balance sheets.

There were no contract liabilities other than customer deposits at March 31, 2021 and September 30, 2020.

Customer deposits related to contracts with customers were $6,026,000 at March 31, 2021 and $3,853,000 at September 30, 2020 and are included in current liabilities on the Company’s condensed consolidated balance sheets.

The Company records revenues earned for shipping and handling as freight revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation.

33 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis