Forward-Looking Information
This Quarterly Report contains certain "forward-looking statements" within the meaning of the Exchange Act, which represent the Company's expectations and beliefs, including, but not limited to, statements concerning gross margins, sales of the Company's products and future financing plans, income from investees and litigation. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company's control. Actual results may differ materially depending on a variety of important factors, including the financial condition of the Company's customers, changes in the economic and competitive environments, the performance of the investment portfolio and the demand for the Company's products.
For information concerning these factors and related matters, see the following sections of the Company's Annual Report on Form 10-K for the year endedSeptember 30, 2021 : (a) Part I, Item 1A, "Risk Factors" and (b) Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations". However, other factors besides those referenced could adversely affect the Company's results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by the Company herein speak as of the date of this Quarterly Report. The Company does not undertake to update any forward-looking statement, except as required by law.
Overview
Because the Company's products are sold primarily to the highway construction industry, the business is seasonal in nature. Traditionally, the Company's customers reduce their purchases of new equipment for shipment during the summer and fall months to avoid disrupting their peak season for highway construction and related repair work. The majority of orders for the Company's products are thus received between October and February, with a significant volume of shipments occurring in the late winter and spring. The principal factors driving demand for the Company's products are the overall economic conditions, the level of government funding for domestic highway construction and repair, Canadian infrastructure spending, the need for spare parts, fluctuations in the price of liquid asphalt, and a trend towards larger more efficient asphalt plants.
On
Fluctuations in the price of carbon steel, which is a significant cost and material used in the manufacturing of the Company's equipment, may affect the Company's financial performance. 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, 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. Increases in oil prices also drive up the cost of gasoline and diesel, which results in increased freight costs. 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, such higher costs could have a negative impact on the Company's financial performance.
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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. The Company continues to review its internal processes to identify inefficiencies and cost-reduction opportunities. 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.
COVID-19
Pandemic
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. As of the date of issuance of this Quarterly Report, 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 endedJune 30, 2022 and as of the date this Quarterly Report is 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 continues to monitor the Company's financial condition, operations, suppliers, industry, customers, and workforce. As the spread of COVID-19 and its variants 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 and its variants. Reduced demand for products or ability to meet customer demand (including as a result of disruptions at the Company's suppliers) could have a material adverse effect on its business operations and financial performance.
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. Our business may be adversely affected by any such
economic instability or unpredictability.
Results of Operations
Quarter Ended
Net revenues for the quarters ended
As a percent of sales, gross profit margins were 19.2% in the quarter endedJune 30, 2022 , compared to 22.5% in the quarter endedJune 30, 2021 . Higher manufacturing costs associated with wages, steel, and purchased parts continued to impact the Company's operating results for the quarter endedJune 30, 2022 .
Product engineering and development expenses decreased
Operating income increased from
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For the quarter ended
The effective income tax rate for the quarter ended
Net loss for the quarter ended
Nine Months Ended
Net sales for the nine months ended
Gross profit margins decreased to 19.4% for the nine months ended
Product engineering and development expenses increased$130,000 in the nine months endedJune 30, 2022 , compared to the nine months endedJune 30, 2021 due primarily to salary increases in the first quarter of fiscal 2022 partially offset by reduced payroll in the current quarter endedJune 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 endedJune 30, 2022 , compared to the nine months endedJune 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
For the nine months ended
The effective income tax rates for the nine months ended
Net loss for the nine months ended
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
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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
As of
The Company's backlog was
Cash flows used in investing activities for the nine months ended
Seasonality
The Company's primary business is the manufacture of asphalt plants and related
components and asphalt pavers. These products typically experience a seasonal
slowdown during the third and fourth quarters of the calendar year. This
slowdown often results in lower reported sales and operating results during the
first and fourth quarters of the fiscal year ended
Critical Accounting Policies, Estimates and Assumptions
The Company believes the following discussion addresses its most critical
accounting policies, which are those that are most important to the portrayal of
the financial condition and results of operations and require management's most
difficult, subjective, or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain.
Accounting policies, in addition to the critical accounting policies referenced
below, are presented in Note 1 to the Company's consolidated financial
statements included in the Company's Annual Report on Form
10-K
for the year ended
Estimates and Assumptions
In preparing the condensed consolidated financial statements, the Company uses certain estimates and assumptions that may affect reported amounts and disclosures. Estimates and assumptions are used, among other places, when accounting for certain revenue (e.g., contract accounting), expense, and asset and liability valuations. The Company believes that the estimates and assumptions made in preparing the condensed consolidated financial statements are reasonable, but are inherently uncertain. Assumptions may be incomplete or inaccurate and unanticipated events may occur. The Company is subject to risks and uncertainties that may cause actual results to differ from estimated results.
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Revenues & Expenses
The Company recognizes revenue under ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Revenues from contracts with customers for the design, manufacture and sale of custom equipment are recognized over time when the performance obligation is satisfied by transferring control of the equipment. Control of the equipment transfers over time, as the equipment is unique to the specific contract and thus does not create an asset with an alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs incurred, as compared with total estimated labor costs expected to be incurred, during the entire contract. All incremental costs related to obtaining a contract are expensed as incurred, as the amortization period is less than one year. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined.
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
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. Control of the goods or service typically transfers at time of shipment or upon completion of the service.
Payment for equipment under contract with customers is typically due prior to
shipment. Payment for services under contract with customers is due as services
are completed. Accounts receivable related to contracts with customers for
equipment sales were
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
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. The cost of shipping and handling is classified as cost of goods sold concurrently with the revenue recognition.
All product engineering and development costs, and selling, general and administrative expenses are charged to operations as incurred. Provision is made for any anticipated contract losses in the period that the loss becomes evident.
The allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability, and also adjusting for any known customer payment issues with account balances in the less-than-90-day past due aging category. Account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectible. Any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts. The allowance for doubtful accounts also includes an estimate for returns and allowances. Provisions for estimated returns and allowances and other adjustments, are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using known issues and historical experience.
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Inventories
Inventories are valued at the lower of cost or net realizable value, with cost being determined under the first in, first out method and net realizable value defined as the estimated selling price of goods less reasonable costs of completion and delivery. Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw material, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company on trade-in from customers is carried at estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory obsolescence, an allowance is established to reduce the cost basis of inventories three to four years old by 50%, the cost basis of inventories four to five years old by 75%, and the cost basis of inventories greater than five years old to zero. Inventory is typically reviewed for obsolescence on an annual basis computed as ofSeptember 30 , the Company's fiscal year end. If significant known changes in trends, technology or other specific circumstances that warrant consideration occur during the year, then the impact on obsolescence is considered at that time.
Marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value. Fair value is determined using the quoted closing or latest bid prices for Level 1 investments and market standard valuation methodologies for Level 2 investments. Realized gains and (losses) on investment transactions are determined by specific identification and are recognized as incurred in the condensed consolidated statements of income. Net unrealized gains and (losses) are reported in the condensed consolidated statements of income in the current period and represent the change in the fair value of investment holdings during the period.
Long-Lived Asset Impairment
Property and equipment and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess over its fair value of the asset's carrying value. Fair value is generally determined using a discounted cash flow analysis.
Off-Balance Sheet Arrangements None 20
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