What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-12 compared with 2022-05-13 · 57 added, 49 removed, 123 unchanged (46% of the section changed)

25 unchanged sentences

The Company is subject to fluctuations in market prices for raw materials, such as steel.

If the Company is unable to purchase materials it requires or is unable to pass on price increases to its customers or otherwise reduce its cost of goods sold, its business results of operations and financial condition may be adversely affected.

If the Company is unable to purchase materials it requires or is unable to pass on price increases to its customers or otherwise reduce its cost of goods sold, then its business results of operations and financial condition may be adversely affected.

As discussed under the heading “Results of Operations,” the recent increases in steel prices contributed to reduced gross profit margins during the current quarter.

Also, a significant increase in the price of liquid asphalt could decrease demand for hot mix asphalt paving materials and certain of the Company’s products.

1 unchanged sentence

Where possible, the Company will pass increased freight costs on to its customers.

However, the Company may not be able to recapture all of the higher costs and thus could have a negative impact on the Company’s financial performance.

However, the Company may not be able to recapture all of the higher costs and, thus, such higher costs could have a negative impact on the Company’s financial performance.

The Company believes its strategy of continuing to invest in product engineering and development and its focus on delivering the highest quality products and superior service will strengthen the Company’s market position.

1 unchanged sentence

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.

The Company continues to monitor and evaluate the risks to public health and the slowdown in overall business activity related to the coronavirus (“COVID-19”)

The Company continues to monitor and evaluate the risks to public health and the overall business activity related to the coronavirus (“COVID-19”)

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

1 unchanged sentence

However, the full impact of the COVID-19

pandemic continues to evolve subsequent to the quarter ended March 31, 2022 and as of the date this Quarterly Report is issued.

pandemic continues to evolve subsequent to the quarter ended June 30, 2022 and as of the date this Quarterly Report is issued.

As such, the full magnitude that the COVID-19

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Global, market and economic conditions may negatively impact our business, financial condition and share price

Concerns over inflation, geopolitical issues, global financial markets and the COVID-19 pandemic have led to increased economic instability and expectations of slower global economic growth.

Concerns over inflation, geopolitical issues, global financial markets and the COVID-19

pandemic have led to increased economic instability and expectations of slower global economic growth.

Our business may be adversely affected by any such economic instability or unpredictability.

4 unchanged sentences

Results of Operations

Quarter Ended March 31, 2022 versus March 31, 2021

Net revenues for the quarters ended March 31, 2022 and March 31, 2021 were $30,654,000 and $21,352,000, respectively, an increase of $9,302,000.

The increased revenues reflect the impact of the new five year, $1.2 trillion infrastructure bill, the IIJ Act, signed into law in November 2021.

As a percent of sales, gross profit margins were 20.2% in the quarter ended March 31, 2022, compared to 28.8% in the quarter ended March 31, 2021.

During the quarter ended March 31, 2022, the Company continued to experience higher manufacturing costs associated with wages, steel and OEM parts pricing.

Product engineering and development expenses decreased $149,000 to $920,000 for the quarter ended March 31, 2022, as compared to $1,069,000 for the quarter ended March 31, 2021 due primarily to reduced headcount.

Selling, general and administrative (“SG&A”) expenses decreased by $474,000 to $3,364,000 for the quarter ended March 31, 2022, compared to $3,838,000 for the quarter ended March 31, 2021.

The higher fiscal 2021 SG&A expenses were primarily due to professional fees to support business development efforts.

Operating income increased from $1,239,000 for the quarter ended March 31, 2021 to $1,908,000 for the quarter ended March 31, 2022, due primarily to increased sales and reduced professional fees.

For the quarter ended March 31, 2022, interest and dividend income, net of fees, was $296,000 as compared to $327,000 in the quarter ended March 31, 2021.

The net realized and unrealized losses on marketable securities were $(1,488,000) for the quarter ended March 31, 2022 versus net realized and unrealized gains of $1,294,000 for the quarter ended March 31, 2021.

The fiscal 2022 investment losses reflect the decline in equity markets due to higher interest rates, inflation, and the Federal Reserve’s recent monetary tightening policy.

The effective income tax rates for the quarters ended March 31, 2022 and March 31, 2021, were 24.2% and 20.0%, respectively, based on the expected annual effective income tax rate.

Net income for the quarter ended March 31, 2022 was $439,000, or $0.03 basic and diluted earnings per share, versus $2,288,000, or $0.16 basic and diluted earnings per share, for the quarter ended March 31, 2021.

Six Months Ended March 31, 2022 versus March 31, 2021

Net sales for the six months ended March 31, 2022 and 2021 were $50,760,000 and $40,316,000, respectively, an increase of $10,444,000.

The increased revenues reflect the impact of the new five year, $1.2 trillion infrastructure bill, the IIJ Act, signed into law in November 2021.

Quarter Ended June 30, 2022 versus June 30, 2021

Net revenues for the quarters ended June 30, 2022 and June 30, 2021 were $29,647,000 and $24,919,000, respectively, an increase of $4,728,000 or 19.0%.

The higher revenues reflect increased bookings in anticipation of funding of the new five year, $1.2 trillion infrastructure bill, the IIJ Act, signed into law in November 2021.

As a percent of sales, gross profit margins were 19.2% in the quarter ended June 30, 2022, compared to 22.5% in the quarter

ended June 30, 2021.

Higher manufacturing costs associated with wages, steel, and purchased parts continued to impact the Company’s operating results for the quarter ended June 30, 2022.

Product engineering and development expenses decreased $225,000 to $951,000 for the quarter ended June 30, 2022, as compared to $1,176,000 for the quarter ended June 30, 2021 due primarily to reduced payroll.

Selling, general and administrative (“SG&A”) expenses decreased by $625,000 to $2,577,000 for the quarter ended June 30, 2022, compared to $3,202,000 for the quarter ended June 30, 2021.

The decrease in SG&A expenses was due to reduced headcount and lower professional fees.

Operating income increased from $1,227,000 for the quarter ended June 30, 2021 to $2,151,000 for the quarter ended June 30, 2022, due primarily to increased sales and reduced SG&A and product engineering and development expenses.

For the quarter ended June 30, 2022, interest and dividend income, net of fees, was $304,000 as compared to $306,000 in the quarter ended June 30, 2021.

The net realized and unrealized losses on marketable securities were $(3,693,000) for the quarter ended June 30, 2022 versus net realized and unrealized gains of $1,386,000 for the quarter ended June 30, 2021.

The fiscal 2022 investment losses reflect the decline in equity markets due primarily to higher interest rates, inflation, and the Federal Reserve’s recent monetary tightening policy.

The effective income tax rate for the quarter ended June 30, 2022 was a benefit of 18.0% versus expense of 20.0% for the quarter ended June 30, 2021, based on the expected annual effective income tax rate.

Net loss for the quarter ended June 30, 2022 was $(1,015,000), or $(0.07) per basic and diluted share, versus net income of $2,335,000, or $0.16 per basic and diluted share, for the quarter ended June 30, 2021.

The net loss for the current quarter ended June 30, 2022, was due primarily to the net investment losses on marketable securities partially offset by the impact of increased sales and reduced SG&A and product engineering and development expenses.

Nine Months Ended June 30, 2022 versus June 30, 2021

Net sales for the nine months ended June 30, 2022 and 2021 were $80,407,000 and $65,235,000, respectively, an increase of $15,172,000 or 23.3%.

The higher revenues reflect increased bookings in anticipation of funding of the new five year, $1.2 trillion infrastructure bill, the IIJ Act, signed into law in November 2021.

There were no revenues generated by Blaw-Knox during the first quarter of fiscal 2021, as the facility was being readied to begin production.

Gross profit margins decreased to 19.5% for the six months ended March 31, 2022 from 22.6% for the six months ended March 31, 2021.

Increases in wages, steel and OEM parts prices contributed to the lower overall gross margins during the six months ended March 31, 2022.

Product engineering and development expenses increased $355,000 in the six months ended March 31, 2022, compared to the six months ended March 31, 2021 due primarily to salary increases as well as a full six months of engineering wages and benefits related to Blaw-Knox.

SG&A expenses decreased $269,000 in the six months ended March 31, 2022, compared to the six months ended March 31, 2021.

The increase in SG&A expenses from a full six months of SG&A wages and benefits related to Blaw-Knox employees was offset by reduced professional fees to support business development efforts.

The Company had operating income of $865,000 for the six months ended March 31, 2022 versus $181,000 for the six months ended March 31, 2021.

The improved operating income was due primarily to the improved revenues.

For the six months ended March 31, 2022, interest and dividend income, net of fees, from the investment portfolio was $573,000, as compared to $1,130,000 for the six months ended March 31, 2021.

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

Net realized and unrealized losses on marketable securities was $(1,065,000) for the six months ended March 31, 2022 versus net realized and unrealized gains of $3,488,000 for the six months ended March 31, 2021.

Gross profit margins decreased to 19.4% for the nine months ended June 30, 2022 from 22.6% for the nine months ended June 30, 2021.

Increases in wages, steel and purchased parts prices contributed to the lower overall gross margins during the nine months ended June 30, 2022.

Product engineering and development expenses increased $130,000 in the nine months ended June 30, 2022, compared

to the nine months ended June 30, 2021 due primarily to salary increases in the first quarter of fiscal 2022 partially offset by reduced payroll in the current quarter ended June 30, 2022, as well as a full nine months of engineering wages and benefits related to Blaw-Knox.

SG&A expenses decreased $895,000 in the nine months ended June 30, 2022, compared to the nine months ended June 30, 2021.

The decrease in SG&A expenses from a full nine months of wages and benefits related to Blaw-Knox employees was offset by reduced headcount and lower professional fees.

The Company had operating income of $3,017,000 for the nine months ended June 30, 2022 versus $1,407,000 for the nine months ended June 30, 2021.

The improved operating income was due primarily to the improved revenues and reduced SG&A expenses.

For the nine months ended June 30, 2022, interest and dividend income, net of fees, from the investment portfolio was $877,000, as compared to $1,437,000 for the nine months ended June 30, 2021.

Interest income for the nine months ended June 30, 2021, included $456,000 of interest collected from a customer.

Net realized and unrealized losses on marketable securities was $(4,758,000) for the nine months ended June 30, 2022 versus net realized and unrealized gains of $4,873,000 for the nine months ended June 30, 2021.

The fiscal 2022 investment losses reflect the decline in equity markets due to higher interest rates, inflation, and the Federal Reserve’s recent monetary tightening policy.

The effective income tax rates for the six months ended March 31, 2022 and March 31, 2021, were 30.0% and 20.0%, respectively, based on the expected annual effective income tax rate.

Net income for the six months ended March 31, 2022 was $165,000, or $0.01 basic and diluted earnings per share, versus $3,839,000, or $0.26 basic and diluted earnings per share for the six months ended March 31, 2021.

The effective income tax rates for the nine months ended June 30, 2022 was a benefit of 15.3% compared to expense of 20.0% for the nine months ended June 30, 2021, based on the expected annual effective income tax rate.

Net loss for the nine months ended June 30, 2022 was $(850,000), or $(0.06) per basic and diluted share, versus $6,174,000, or $0.42 per basic and diluted share for the nine months ended June 30, 2021.

The net loss for the nine months ended June 30, 2022, was due primarily to the net investment losses on marketable securities partially offset by the impact of increased sales and reduced SG&A expenses.

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 March 31, 2022 or September 30, 2021.

As of March 31, 2022, 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.

The Company had no long-term or short-term debt outstanding at June 30, 2022 or September 30, 2021.

As of June 30, 2022, 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.

The maximum amount that can be drawn by the beneficiary under the letter of credit is $150,000.

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

As of March 31, 2022, the Company had $22,571,000 in cash and cash equivalents, and $94,501,000 in marketable securities, including $24,022,000 in corporate bonds, $19,998,000 in equities, $10,130,000 in mutual funds, $9,849,000 in exchange-traded funds, $27,960,000 in government securities, and $2,542,000 in cash and money funds.

As of June 30, 2022, the Company had $19,474,000 in cash and cash equivalents, and $91,116,000 in marketable securities, including $28,669,000 in corporate bonds, $15,457,000 in equities, $10,767,000 in mutual funds, $5,450,000 in exchange-traded funds, $27,949,000 in government securities, and $2,824,000 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 $44.9 million at March 31, 2022 compared to $42.6 million at March 31, 2021.

The Company’s working capital (defined as current assets less current liabilities) was $154.7 million at March 31, 2022 and $155.4 million at September 30, 2021.

Cash provided by operations during the six months ended March 31, 2022 was $1,045,000.

The Company’s backlog was $40.2 million at June 30, 2022 compared to $28.5 million at June 30, 2021.

The Company’s working capital (defined as current assets less current liabilities) was $153.3 million at June 30, 2022 and $155.4 million at September 30, 2021.

Cash used in operating activities during the nine months ended June 30, 2022 was $1,574,000.

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.

Inventories increased by $5.3 million due to progress on several large contract orders where revenue is recognized at a point in time and some stock build to compensate for the increasing lead times from suppliers.

Inventories increased by $6.4 million due to progress on several large contract orders where revenue is recognized at a point in time, raw material and wage price increases and some stock build to adjust for the increasing lead times from suppliers.

Prepaid expenses increased $1.5 million due to estimated income tax deposits in excess of accrued income taxes, annual insurance contract renewals as well as deposits made on new equipment.

Customer deposits increased by $5.0 million reflecting down payments on contract jobs, including several recent orders where revenues are recognized over time but work is yet to begin.

Cash flows used in investing activities for the six months ended March 31, 2022 of $1,706,000 were related to capital expenditures, primarily for manufacturing processing and finishing equipment.

Accounts payable increased $1.9 million with increased raw material purchases.

Customer deposits increased by $2.2 million reflecting down payments on contract projects, including recent orders where revenues are recognized over time but work is yet to begin.

Cash flows used in investing activities for the nine months ended June 30, 2022 of $2,184,000 were related to capital expenditures, primarily for manufacturing processing and finishing equipment.

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 $1,629,000 and $1,903,000 at March 31, 2022 and September 30, 2021, 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 March 31, 2022, will be billed and collected within one year.

These contract assets were $1,366,000 and $1,903,000 at June 30, 2022 and September 30, 2021, 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 June 30, 2022, will be billed and collected within one year.

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.

2 unchanged sentences

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

Accounts receivable related to contracts with customers for equipment sales were $130,000 and $210,000 at March 31, 2022 and September 30, 2021, respectively.

Accounts receivable related to contracts with customers for equipment sales were $79,000 and $210,000 at June 30, 2022 and September 30, 2021, respectively.

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 March 31, 2022 and September 30, 2021.

Customer deposits related to contracts with customers were $10,286,000 and $5,244,000 at March 31, 2022 and September 30, 2021, respectively, and are included in current liabilities on the Company’s condensed consolidated balance sheets.

There were no contract liabilities other than customer deposits at June 30, 2022 and September 30, 2021.

Customer deposits related to contracts with customers were $7,436,000 and $5,244,000 at June 30, 2022 and September 30, 2021, respectively, 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.

32 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