TOROTEL, INC. Overview
? aircraft navigational equipment;
? digital control devices;
? airport runway lighting devices;
? medical equipment; ? avionics systems; ? radar systems; ? down-hole drilling;
? conventional missile guidance systems; and
? other aerospace and defense applications.
We believe the primary factors that drive our gross profit and net earnings are sales volume and product mix. The gross profits on mature products/programs and complex transformer devices tend to be higher than those that are still in the prototyping or early production stages and simpler inductor devices. As a result, in any given accounting period the mix of product shipments between higher and lower margin products has a significant impact on our gross profit and net earnings. Our operating plan continues to focus on expanding the product base beyond electronic components.
The industry mix of the customers that accounted for
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to rapid technological change,
COVID-19 Impact
The COVID-19 pandemic, first identified in
Business and Industry Considerations
Defense Markets
During the first three months of fiscal years 2021 and 2020 the amount of
consolidated revenues derived from contracts with prime contractors of the
Despite ongoing uncertainty associated with the
We provide magnetic components and electro-mechanical assemblies for a variety
of applications in the commercial aerospace and industrial markets. The primary
demand drivers for these markets include commercial aircraft production orders,
oil and gas drilling exploration activity, and general economic growth. Each of
these could have an ongoing impact due to the effects of the pandemic on
commercial aircraft production, oil prices and general economic turmoil and
uncertainty. Producers of commercial aircraft have announced a decrease in the
production of multiple models of aircraft. This reduction has adversely
impacted our commercial aerospace backlog and is expected to further impact our
commercial aerospace business throughout fiscal year 2021. Other threats to our
near-term and long-term market outlook include delays on the development and
production of new commercial aircraft and competition from international
suppliers. As of
Business Outlook
Our backlog as of
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fiscal year 2021 will remain consistent with fiscal year 2020 primarily due to an expectation that a reduction of net sales within the commercial aerospace industry; may be partially offset by sales growth within the defense industry.
We anticipate that 67% of our
Consolidated Results of Operations
The following management comments regarding
This discussion and analysis of the results of operations include the operations
of
Net Sales Three Months Ended July 31, 2020 July 31, 2019 Magnetic components$ 3,963,000 $ 3,254,000 Potted coil assembly 1,735,000 1,519,000 Electro-mechanical assemblies 321,000 1,573,000 Total$ 6,019,000 $ 6,346,000
Consolidated net sales in the three months ended
Gross Profit
Three Months Ended
July 31, 2020 July 31, 2019
Gross profit $ 2,339,000 $ 2,393,000
Gross profit % of net sales 39 % 38 %
Consolidated gross profit decreased by 2%, or
Operating Expenses
Three Months Ended
July 31, 2020 July 31, 2019
Engineering $ 351,000 $ 388,000
Selling, general and administrative 1,363,000 1,423,000
Total $ 1,714,000 $ 1,811,000 Engineering expenses decreased 10%, or
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Selling, general and administrative expenses decreased 4%, or
Earnings (loss) from Operations
Three Months Ended
July 31, 2020 July 31, 2019
Torotel Products $ 790,000 $ 765,000
Torotel (165,000) (183,000)
Total $ 625,000 $ 582,000
For the reasons discussed under each of the Gross Profit and Operating Expenses
headings above, consolidated earnings from operations increased by $43,000 , for
the three months ended July 31, 2020 when compared to the three months ended
July 31, 2019 .
Other Earnings Items
Three Months Ended
July 31, 2020 July 31, 2019
Income from operations $ 625,000 $ 582,000
Interest expense 23,000 27,000
Income before income taxes 602,000 555,000
Income tax expense (benefit) (128,000) 111,000
Net income $ 730,000 $ 444,000 We anticipate that our effective income tax rate for fiscal year ending
Financial Condition and Liquidity
Cash generated by operations together with the borrowing under our lines of credit are our primary sources of liquidity. The following table highlights the sources of liquidity available to us as ofJuly 31, 2020 compared toJuly 31, 2019 . July 31, 2020 2019 Cash$ 2,017,000 $ 353,000 Amount available under our 5.00% asset-based revolving line of credit 1,101,000 864,000 Total funds available$ 3,118,000 $ 1,217,000 Operating Activities The following table compares net cash provided by (used in) operating activities during the three months endedJuly 31, 2020 compared to the three months endedJuly 31, 2019 . Three Months Ended July 31, 2020 July 31, 2019
Net cash provided by (used in) operating activities
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Net cash provided by operating activities decreased by
Investing Activities
Three Months Ended
July 31, 2020 July 31, 2019
Net cash used in investing activities $ (41,000) $ (116,000) The decrease of
Financing Activities
Three Months Ended
July 31, 2020 July 31, 2019
Net cash provided by (used in) financing activities
The increase of
Liquidity and Capital Resources
Due to the above-mentioned pandemic-related challenges, we are proactively
managing costs and finding new sources of revenue to offset the impact of the
anticipated commercial aerospace downturn. We believe that maintaining our
skilled workforce of production employees and engineers is vital to our
continued success. Without the combination of the PPP loan and the expansion of
our line of credit, we would have had to make significant cost structure changes
to our operations beginning near the end of fiscal year 2020. We believe that
the projected cash flow from operations, additional proceeds from PPP funding
and available borrowings under existing financing arrangements that supplement
our working capital needs, will enable us to meet our anticipated funding
requirements for the foreseeable future, based on historical levels. Our
asset-based revolving line of credit and guidance line of credit are scheduled
to mature on
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements.
Critical Accounting Policies
We discuss our critical accounting policies and estimates in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," in our Annual Report on Form 10-K for the year ended
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