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Previous: STRATTON GROWTH FUND INC, NSAR-A/A, 2000-08-30 |
Next: TAYLOR DEVICES INC, 10KSB, EX-27, 2000-08-30 |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
| For the fiscal year
ended May 31, 2000 |
Commission file number 0-3498 |
TAYLOR DEVICES, INC.
(Exact name of small business issuer as specified in its charter)
| New York | 16-0797789 |
| (State of other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
| 90 Taylor Drive, P.O. Box 748, N. Tonawanda, New York | 14120-0748 |
| (Address of principal executive offices) | (Zip Code) |
| Registrant's telephone number | (716) 694-0800 |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on
which registered | ||
| None | None |
Securities registered pursuant to Section 12(g) of the Act:
| Common Stock ($.025 par value) | ||
| (Title of class) |
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| Yes | X | No | _____ |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendments to Form 10-KSB [ ].
Issuer's revenues for its most recent fiscal year are $11,482,340.
The aggregate market value of the Common Stock held by non-affiliates (as affiliates are defined in Rule 12b-2 of the Exchange Act) of the issuer, computed by reference to the average of the bid and asked price on August 25, 2000 was: $3,840,221. In addition to shares held by affiliates, this calculation also excludes shares of the issuer's common stock that are held by Schedule 13D filers.
The number of shares outstanding of each of the registrant's classes of Common Stock, as of the latest practicable date.
| Class | Outstanding at August 25, 2000 |
| Common Stock, $.025 par value | 2,785,674 |
====END OF PAGE 1====
TAYLOR DEVICES, INC.
DOCUMENTS INCORPORATED BY REFERENCE
| Documents | Form 10-KSB Reference |
| Form 10-KSB | Part I, Items 1-4 |
| Part II, Items 5-8 and | |
| Part III, Item 13 | |
| Proxy Statement | Part III, Items 9-12 |
FORM 10-KSB INDEX
| PAGE | ||||
| PART I | 3 | |||
| ITEM 1. | DESCRIPTION OF BUSINESS | 3 | ||
| ITEM 2. | DESCRIPTION OF PROPERTY | 6 | ||
| ITEM 3. | LEGAL PROCEEDINGS | 9 | ||
| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 10 | ||
| PART II | 10 | |||
| ITEM 5. | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS | 10 | ||
| ITEM 6. | MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION | 11 | ||
| ITEM 7. | FINANCIAL STATEMENTS | 13 | ||
| ITEM 8. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 13 | ||
| PART III | 13 | |||
| ITEM 9. | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a)OF THE EXCHANGE ACT | 13 | ||
| ITEM 10. | EXECUTIVE COMPENSATION | 13 | ||
| ITEM 11. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 13 | ||
| ITEM 12. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS | 13 | ||
| ITEM 13. | EXHIBITS AND REPORTS ON FORM 8-K | 13 | ||
| SIGNATURES | 18 | |||
====END OF PAGE 2====
PART I
| ITEM 1. DESCRIPTION OF BUSINESS |
The Company was incorporated in the State of New York on July 22, 1955 and is engaged in the design, development, manufacture and marketing of shock absorption, rate control, and energy storage devices for use in various types of machinery, equipment and structures. In addition to manufacturing and selling existing product lines, the Company continues to develop new and advanced technology products. The Company continues to achieve excellent growth in the rapidly developing seismic protection field and in the isolation of wind-induced vibrations.
Principal Products
The Company has six major product lines; namely, (1) Seismic Dampers, (2) Fluidicshoks, (3) Crane and Industrial Buffers, (4) Self-Adjusting Shock Absorbers, (5) Liquid Die Springs, and (6) Vibration Dampers. The following is a summary of the capabilities and applications for these product lines.
Seismic Dampers are designed to ameliorate the effects of earthquake tremors on structures, and represent a substantial part of the business of the Company. Fluidicshoks are small, extremely compact shock absorbers with up to 19,200 inch-pound capacities, produced in 15 standard sizes for primary use in the defense, aerospace and commercial industry. Crane and industrial buffers are larger versions of the Fluidicshoks with up to 60,000,000 inch-pound capacities, produced in more than 60 standard sizes for industrial application on cranes, ships, container ships, railroad cars, truck docks, ladle and ingot cars, ore trolleys and car stops. Self-adjusting shock absorbers, which include versions of Fluidicshoks and crane and industrial buffers, automatically adjust to different impact conditions, and are designed for high cycle application primarily in heavy industry. Liquid die springs are used as component parts of machinery and equipment used in the manufacture of tools and dies. Vibration dampers are used primarily by the aerospace and defense industries to control the response of electronics and optical systems subjected to air, ship, or spacecraft vibration.
Distribution
The Company utilizes the services of more than 50 sales representatives and distributors in the United States and Canada. Specialized technical sales in aerospace and custom marketing activities are serviced by three sales agents, with the assistance and under the direction of Douglas P. Taylor, the Company's President. Sales representatives typically have non-exclusive, yearly agreements with the Company, which, in most instances, provide for payment of commissions on sales at 10% of the product's net aggregate selling price. Distributors also have non-exclusive, yearly agreements with the Company to purchase the Company's products for resale purposes.
Competition
The Company faces no significant competition with respect to most of its products, many of which are patented. The Company, however, faces greater competition on mature aerospace and defense programs which may use more conventional products manufactured under less stringent government specifications. Two foreign companies are the Company's competitors in the production of crane buffers.
The Company's principal competitors for the manufacture of products in the aerospace and commercial aerospace industries field are Cleveland Pneumatic Tool Company in Cleveland, Ohio, and Menasco
====END OF PAGE 3====
Manufacturing Company in Burbank, California. While the Company is competitive with these companies in the areas of pricing, warranty and product performance, due to limited financing and manufacturing facilities, the Company cannot compete in the area of volume production.
The Company competes directly against two other firms supplying seismic damping devices, as well as numerous other firms which supply alternative seismic protection technologies.
Raw Materials and Supplies
The principal raw materials and supplies used by the Company in the manufacture of its products are provided by numerous U.S. suppliers, the loss of any one of which would not materially affect the Company's operations.
Patents, Trademarks and Licenses
Under a License Agreement ("License Agreement") dated November 1, 1959, between the Company and Tayco Developments, Inc. ("Developments"), the Company was granted preferential rights to market, in the United States and Canada, all existing and future inventions and patents developed by Developments. The term of this License Agreement is the life of the last-to-expire patent on which the Company is paying royalties, which is the year 2018. During the life of the patent, the Company pays Developments a 5% royalty on sales of items sold and shipped. During FY00, the Company incurred royalties to Developments of $227,678. Payments are required to be made quarterly without interest. Payments are current.
The License Agreement also provides for Developments to pay the Company 10% of the gross royalties received from third parties who are permitted to make, use and sell machinery and equipment under patents not subject to the License Agreement, as well as on apparatus and equipment subject to the License Agreement but modified by the Company, with rights to such modification having been assigned to Developments. No royalties were received in FY00. Royalties, if any, are paid quarterly.
Although the Company and Developments share common management and a close business relationship, as separate corporations responsible to their own shareholders, interests may diverge regarding development and licensing of future inventions and patents. In that case, Developments would be permitted to license future inventions and patents to parties other than the Company, rendering the Company's option on future inventions and patents under its License Agreement only minimally beneficial.
Terms of Sale
The Company does not carry significant inventory for rapid delivery to customers, and goods are not normally sold with return rights such as are available for consignment sales. No extended payment terms are offered. During FY00, delivery time after receipt of orders averaged 12 to 14 weeks for the Company's standard products. Due to the volatility of construction and aerospace/defense programs, progress payments are usually required for larger projects utilizing custom designed components of the Company.
====END OF PAGE 4====
Dependence Upon Customers\Government Contracts
The Company is not dependent on any one or a few major customers.
Contracts between the Company and the federal government or its independent contractors are subject to termination at the election of the federal government. Contracts are generally entered into on a fixed price basis. From time to time, the Company has also entered into a cost plus defense contract. If the federal government should further limit defense spending, these contracts could be reduced or terminated, which could have a materially adverse effect on the Company.
Research and Development
The Company does not normally engage in any major product research and development activities in connection with the design of its products, except when funded by aerospace customers or the government. See Item 1. Description of Business, "Patents, Trademarks and Licenses". The Company, however, engages in research testing of its products. For the fiscal years ended May 31, 2000 and May 31, 1999, the Company expended $221,672 and $167,078 respectively, on manufacturing research through its affiliate, Developments. The Company spent $221,822 and $185,400 on research and development in FY00 and FY99, respectively. For FY00 and FY99, defense sponsored research and development totaled $249,396 and $62,845, respectively.
Government Regulation
Compliance with federal, state and local laws and regulations which have been enacted or adopted regulating the discharge of materials into the environment has had no material effect on the Company, and the Company believes that it is in substantial compliance with such provisions.
The Company is subject to the Occupational Safety and Health Act ("OSHA") and the rules and regulations promulgated thereunder, which establish strict standards for the protection of employees, and impose fines for violations of such standards. The Company believes that it is in substantial compliance with OSHA provisions and does not anticipate any material corrective expenditures in the near future.
The Company is also subject to regulations relating to production of products for the federal government. These regulations allow for frequent governmental audits of the Company's operations and fairly extensive testing of Company products. The Company believes that it is in substantial compliance with these regulations and does not anticipate corrective expenditures in the future. The Company is currently incurring only moderate costs with respect to disposal of hazardous waste and compliance with OSHA regulations.
Employees
Exclusive of Company sales representatives and distributors, as of May 31, 2000, the Company had 88 full time employees, including 3 executive officers, and 3 part time employees. The Company has good relations with its employees.
====END OF PAGE 5====
| ITEM 2. DESCRIPTION OF PROPERTY |
The Company's production facilities are comprised of four interconnected buildings and one adjacent building located on approximately six acres on Tonawanda Island, New York. Production facilities consist of a small parts plant (approximately 4400 square feet), large parts plant (approximately 10,000 square feet), including a facility of approximately 7,000 square feet constructed in 1995 (see below), a testing facility, storage area, pumping area and the Company's general offices. The adjacent building is an 8,500 square foot seismic assembly test facility constructed in 1998. Total square footage of these facilities is more than 33,000 square feet. The Company has two separate remote testing facilities used for shock testing. One facility is 800 square feet and a newer state-of-the-art test facility is of 1,225 square feet. The small parts plant consists of a complete small machine shop and tool room and produces all of the Company's product items which are less than two inches in diameter. The large parts plant consists of a complete large machine shop and tool room. Both plants contain custom-built machinery for boring, deep hole drilling and turning of parts.
In November 1994, as part of certain tax-exempt bond financing arrangements, the Company and the Niagara County Industrial Development Agency ("NCIDA") entered into a 15 year Series Lease by the Company of approximately 7,000 square feet of manufacturing space adjacent to the Company's existing large machine shop. The expansion partially accommodated the Company's increased need for additional manufacturing space for its seismic damper devices.
Rental payments, equivalent to payments of principal and interest due, are made quarterly by the Company over the term of the Lease, and are sufficient to amortize the $1,250,000 tax-exempt industrial development revenue Series A Bonds (the "Bond") issued by the NCIDA. The payments reimburse Marine Midland Bank, N.A. (now HSBC Bank, N.A.) ("HSBC"), as issuer of the five year direct-pay irrevocable letter of credit, which is drawn upon by Bankers Trust Company, as Trustee, for the benefit of the bondholders. The letter of credit was renewed by HSBC on January 3, 2000 for another five-year period. The Bond bears interest at the HSBC Adjustable Rate Service ("MMARS") rate, plus an incremental amount designated by HSBC Securities, Inc. (the "Remarketing Agent"). The MMARS rate reflects the current bid-side yield of the highest rate short-term, federally tax exempt obligations currently being traded, announced weekly by the Remarketing Agent, not to exceed 15% per annum, and is the minimum rate of interest necessary to enable the Remarketing Agent to remarket the Bond at par. Annual principal payments by the Company in June of each year range from $25,000 to $150,000, including a final principal payment of $45,000 upon maturity on June 1, 2009. The Bond may be redeemed in whole, or in part, on any quarterly interest payment date, without penalty or premium. The principal amount outstanding on the Bond as of May 31, 2000 is $615,000.
Rental payments are secured by the liens of the Master Indenture between the NCIDA and the Trustee, the Series Supplemental Indenture between the NCIDA and the Trustee, and the Series Mortgage from the NCIDA, the Company, and Tayco Realty Corporation ("Tayco Realty"), to HSBC, as well as by other collateral security arrangements. When the Bond matures on June 1, 2009, the Company must purchase the Facility from the NCIDA for $1.00.
A renewal note dated June 1, 1998 due June 1, 2008 in the face amount of $174,778 is held by HSBC, secured by property located at 90 Taylor Drive, North Tonawanda.
A mortgage note dated January 1998, due January 1, 2013 in the face amount of $400,000 is also held by HSBC on property located at 90 Taylor Drive, North Tonawanda, with an interest rate equal to the bank's
private interest rate plus 1%. A monthly payment of $2,222.22 is due on the first of each month. The principal balance at May 31, 2000 is $340,000. All payments on the above obligations are current.
====END OF PAGE 6====
Except for the premises leased from the NCIDA, the Company leases portions of both the building and the property on which it is located from Tayco Realty, an affiliate. Pursuant to the Lease Agreement between the Company and Tayco Realty, rental payments from June 1, 1999 to May 31, 2000 totaled $159,600. The Lease Agreement, which contains standard terms and conditions, was renewed on November 1, 1995 for a term of ten years. Annual rentals are renegotiated by management of the two companies. The total rent paid by the Company is determined by a base rate, subject to adjustment for increases in taxes, maintenance costs and for utilization of additional space by the Company. The Company also pays for certain expenses incurred for the operation of the facilities. In addition, the Company leases a separate warehouse for storage from an unrelated third party, consisting of approximately 3,600 square feet at $825 per month. The warehouse is located approximately one-half mile from the above-referenced production facilities and office space. In January 2000, the Company began leasing 4,450 sq. ft. in a warehouse located approximately 10 miles from the main production facilities. This warehouse is used to store completed units awaiting delivery instructions from customers. The total rental expense incurred by the Company for fiscal 2000 was $191,604.
The following tables provide information regarding the properties discussed in this Item 2. Description of Property.
DISCLOSURE FOR REG. 228.012©FOR FILING 10-KSB
05/31/00
| Reg. 228.102(c)-Real Estate | ||||
| PROPERTY LOCATION | COST | ACCUM.
DEPRECIATION 05/31/00 (BOOK) |
NET BOOK
VALUE 05/31/00 | |
| 90 & 100 Taylor Drive | ||||
| N. Tonawanda, NY 14120 | ||||
| (see below) | ||||
| Land | $ 141,483 | N/A | $ 141,483 | |
| Buildings | 1,154,353 | $ 571,709 | 582,644 | |
| Improvements | 1,674,531 | 391,660 | 1,282,871 | |
| TOTAL | $ 2,970,367 | $ 963,369 | $ 2,006,998 | |
====END OF PAGE 7====
| PROPERTY LOCATION | COST |
ACCUM. DEPRECIATION 05/31/00 (BOOK) |
NET BOOK VALUE 05/31/00 |
PERCENTAGE OF TOTAL ASSETS |
| 90 Taylor Drive | ||||
| N. Tonawanda, NY 14120 | ||||
| Land | $ 107,363 | N/A | $ 107,363 | |
| Building | 428,506 | 392,391 | 36,115 | |
| Building Improve-Realty | 91,476 | 15,721 | 75,755 | |
| Building Improve-Devices | 1,583,055 | 375,939 | 1,207,116 | |
| TOTAL | $ 2,210,400 | $ 784,051 | $ 1,426,349 | 12.9% |
| PROPERTY LOCATION | COST | ACCUM.
DEPRECIATION
05/31/00 (BOOK) |
NET BOOK
VALUE
05/31/00 |
PERCENTAGE OF TOTAL ASSETS |
| 100 Taylor Drive
N. Tonawanda, NY 14120 |
||||
| Land | $ 34,120 | N/A | $ 34,120 | |
| Building | 725,847 | 179,318 | 546,529 | |
| TOTAL | $ 759,967 | $ 179,318 | $ 580,649 | 5.2% |
| Taylor Devices, Inc. & Subsidiary
Total Assets as of May 31, 2000 |
$11,081,021 |
| Reg.228.102(c)(7)(vi)(A-D) | |||||
| FEDERAL | FEDERAL | FEDERAL | FEDERAL | NET TAX | |
| DEPREC. | LIFE | TAX | ACCUM. | BASIS | |
| PROPERTY LOCATION | METHODS | CLAIM | COST | DEPREC. | 05/31/00 |
| 90 & 100 Taylor Drive | |||||
| N. Tonawanda, NY 14120 | |||||
| (see below) | |||||
| STR. | |||||
| LINE, | |||||
| ACRS, | 15-40 | ||||
| Building | MACRS | Yrs. | $ 1,154,353 | $ 613,399 | $ 540,954 |
| STR. | |||||
| LINE, | |||||
| Building | ACRS, | 7-40 | |||
| Improvements | MACRS | Yrs. | 1,674,531 | 343,052 | 1,331,479 |
| $ 2,828,884 | $ 956,451 | $ 1,872,433 | |||
====END OF PAGE 8====
| SUPPORTING SCHEDULE | |||||
| Reg.228.102(c)(7)(vi)(A-D) | |||||
| FEDERAL | FEDERAL | FEDERAL | FEDERAL | NET TAX | |
| DEPREC. | LIFE | TAX | ACCUM. | BASIS | |
| PROPERTY LOCATION | METHODS | CLAIM | COST | DEPREC. | 05/31/00 |
| 90 Taylor Drive | |||||
| N. Tonawanda, NY 14120 | |||||
| STR. | |||||
| LINE, | |||||
| ACRS, | 15-25 | ||||
| Building | MACRS | Yrs. | $ 428,506 | $ 392,391 | $ 36,115 |
| STR. | |||||
| LINE, | |||||
| Building | ACRS, | 7-39.0 | |||
| Improve-Realty | MACRS | Yrs. | 91,476 | 16,857 | 74,619 |
| STR. | |||||
| LINE, | |||||
| Building | ACRS, | 15-40 | |||
| Improve-Devices | MACRS | Yrs. | 1,583,055 | 326,195 | 1,256,860 |
| TOTAL | $ 2,103,037 | $ 735,443 | $ 1,367,594 | ||
| 100 Taylor Drive | |||||
| N. Tonawanda, NY | |||||
| 14120 | |||||
| STR. | |||||
| LINE, | |||||
| ACRS, | 19-40 | ||||
| Building | MACRS | Yrs. | $ 725,847 | $ 221,008 | $ 504,839 |
Reg. 228.102(c)(2)
The Company leases approximately 800 square feet of office and research and development space to Developments pursuant to a three year Lease Agreement that expired July 1, 2000. Rental payments under this agreement for fiscal 2000 totaled $10,000. A new Lease Agreement has been entered into between the Company and Developments, effective July 1, 2000, at a base annual rental of $12,000 annually. The Lease will automatically be renewed unless either party gives three months notice, in writing, to the other of termination. On April 1st of each year, management of both companies will review the agreement for any increases in expenses such as increased taxes, maintenance costs or for additional space utilized by Developments. The rate of any rental increase may not exceed 10% annually and can be waived by both parties in writing.
| ITEM 3. LEGAL PROCEEDINGS |
None except for routine litigation incidental to the business.
====END OF PAGE 9====
| ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
None.
PART II
| ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS |
Market Information
The Company's Common Stock trades on the Small Cap Market tier of the National Association of Securities Dealers Automated Quotation System ("NASDAQ") under the symbol TAYD. The high and low market prices noted below for the quarters of FY00 and FY99 are obtained from NASDAQ.
| Fiscal 2000 | Fiscal 1999 | |||||||
| High | Low | High | Low | |||||
| First Quarter | 2.781 | 2.375 | 3.6876 | 3.3336 | ||||
| Second Quarter | 2.875 | 2.594 | 3.1876 | 2.667 | ||||
| Third Quarter | 2.969 | 2.531 | 2.7823 | 2.028 | ||||
| Fourth Quarter | 3.250 | 2.688 | 2.419 | 2.214 | ||||
Holders
As of May 31, 2000, the number of issued and outstanding shares of Common Stock was 2,775,260, and the approximate number of record holders of the Company's Common Stock was 1,112. Due to a substantial number of shares of the Company's Common Stock held in street name, the Company believes that the total number of beneficial owners of its Common Stock exceeds 2,000.
Dividends
No cash or stock dividends have been declared during the last two fiscal years. Except as herein described, under the terms of the Company's credit arrangement with its major lender, the Company is prohibited from issuing cash dividends.
On October 5, 1998, the Company's Board of Directors adopted a shareholder rights plan designed to deter coercive or unfair takeover tactics and prevent an acquirer from gaining control of the Company without offering a fair price to shareholders. Under the plan, certain rights ("Rights") were distributed as a dividend on each share of Common Stock (1 Right for each share of Common Stock) held as of the close of business on or after October 19, 1998. Each whole Right entitles the holder, under certain defined conditions, to buy one two-thousandths (1/2000) of a newly issued share of the Company's Series A Junior Participating Preferred Stock ("Series A Preferred Stock") at an exercise price of $5.00. Rights attach to and trade with the shares of Common Stock, without being evidenced by a separate certificate.
No separate Rights certificates will be issued unless and until the Rights detach from Common Stock and become exercisable for shares of the Series A Preferred Stock.
Such an event will occur if (1) a person or group acquires beneficial ownership of 30% or more of the Company's Common Stock (except through a tender or exchange offer for all shares which the Board
====END OF PAGE 10====
determines is fair and in the best interests of the Company and its shareholders); or (2) a person or group commences a tender or exchange offer which will result in the person or group beneficially owning 24% or more of the Common Stock; or (3) the Board determines that a person or group holding at least 24% of the Common Stock intends to cause or pressure the Company into taking actions adverse to its or its shareholders' interests, or that the person or group is causing or is likely to cause a material adverse impact on the business or prospects of the Company. The Rights expire on October 5, 2008.
Other Information
On January 5, 1999, by filing a current report on Form 8-K with the Securities and Exchange Commission (the "Commission"), the Board of Directors of the Company announced that it would continue to make open market repurchases of its outstanding Common Stock from selling shareholders through December 31, 2000. The Company has purchased a total of 73,424 shares from January 12, 1999 through May 31, 2000 at an average price of $2.70 per share.
According to a current report on Form 8-K, filed with the Commission on May 10, 1999, the Company offered to purchase shares from its shareholders of record holding less than 100 shares of the Company's Common Stock at $3.30 per share. The offer commenced on June 11, 1999 and ended on July 12, 1999. A total of 5,309 shares were purchased by the Company.
| ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS |
Cautionary Statement
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain matters discussed in this section and elsewhere in this report, which are not historical facts, are forward-looking statements. Words such as "expects," "intends," "believes," "anticipates," "estimates," "assumes," and analogous expressions are intended to identify forward-looking statements. As such, these statements involve risks and uncertainties including, but not limited to, economic conditions, product demand and industry capacity, competition, pricing pressures, the need for the Company to keep pace with customer needs and technological developments, and other factors, many or all of which may be beyond the control of the Company. The following is management's discussion and analysis of certain significant factors which have affected the Company's earnings during the periods included in the accompanying consolidated condensed statements of income.
In Fiscal Year 2000, the Company enjoyed its seventh consecutive year of record revenues, and ninth consecutive year of record gross margin dollars. The Company also produced record-level results in the key performance areas of Operating Income, Net Income and Earnings Per Share. Although all three of the Company's product areas - Commercial, Defense/Aerospace and Seismic performed well, the predominant reason for these results is attributable to the Seismic products sector.
Net Shipments for FY00 of $11,482,340 is a new record and an improvement of 3.0% over the FY99 figure of $11,145,309. For the year, the Company maintained its desired proportion of approximately
50% of shipments attributable to seismic product sales and approximately 50% attributable to commercial/defense market sales.
The Gross Margin for FY00 was recorded at $4,832,347 (42.1% of Net Sales) as compared to $4,277,521 (38.4%) for the previous year. Major contributing factors to the improved performance were the continuing benefits of seismic parts standardization and better-than-projected results for certain seismic
====END OF PAGE 11====
projects begun in FY99 and completed in FY00. The Company's production control staff continued implementation of the manufacturing software, producing improvements in production scheduling and inventory control that are reflected in the Gross Margin figures.
Selling, General and Administrative expenses were $3,406,315 and 29.7% of sales, as compared to $3,065,932 and 27.5% in FY99. The increase in SG&A costs is indicative of the Company's primary objective to increase revenues and dominate market share in the sectors where it competes. Increased travel, promotional, communications, outside commission and Royalty expenses comprised the majority of the increased SG&A expense figure.
In FY00, the Company's Operating Income figure achieved a record level of $1,426,032 and 12.42% of Net Sales as compared to FY99 results of $1,211,589 and 10.9% so that improved revenues and gross margins more than offset the change in administrative costs. Total Other Expenses decreased slightly as Interest Expense remained stable - the net result of decreasing balances and increasing rates - and the Company recorded a small increase in Other Income items.
Taxes for FY00 were $487,400, which is an effective rate of 36.3%, and almost identical to the 36.5%, which represents taxes of $407,900 paid in FY99. After provision for taxes, Income Before Equity in the Earnings of Affiliates/Minority Interest was $853,236 in FY00 as compared to $708,448 in FY99. In FY00, the net impact of the Equity Income and Minority Shareholder Interest was income of $11,996, up from income of $3,224 recorded in FY99.
For FY00, the Company's Net Income was a record-high $865,232 or 7.54% of Net Sales and $.31 per share, representing a 21.6% improvement over the previous year when Net Income was a record $711,672, or 6.4% of Net Sales and $.26 per share.
The Company's balance sheet continues to reflect the Company's strong, steady performance. Inventories and Accounts Payable figures changed only moderately, reflecting continued stability in those areas. The key areas of change in the balance sheet occurred in the inter-related areas of Cash, Accounts Receivable, Costs in Excess of Billings, and Billings in Excess of Costs. The Company's increasing participation (in both the seismic and defense sectors) in projects with long-range delivery or development schedules has resulted, in FY00, in an increasing amount of the Company's monthly efforts being booked as progress shipments. Significant portions of these progress shipments are reflected in the Balance Sheet categories identified as Costs in Excess of Billings and Billings in Excess of Costs. Management believes that the combined total for Trade Receivables, Costs in Excess of Billings and Billings in Excess of Costs, $3,425,097 in FY00 as compared to $2,287,614 in F99, is a better indicator of the true value of the funds due the Company for completed and progress billings. This increase of $1,137,483 in funds due the Company between the two years is the primary factor in the $696,036 change in the cash position from FY99 to FY00.
The Company is increasingly using progress shipments to accurately reflect its monthly and quarterly performance, driven in large part by the Company's participation in its current primary growth sector - the civil engineering market. Management has addressed these changing conditions in two primary ways: The Company has obtained significantly increased lines of credit, both general and directed, from its
bank; and has increased its requirements for Letters of Credit particularly with respect to foreign sales or sales in the domestic private sector.
The Company's record results in FY00 were attributable to its prior and continuing efforts to expand its markets and product lines and to strive for standardization in its seismic products. Based on the product mix and anticipated profitability of the Company's current backlog, Management anticipates another strong year in Fiscal Year 2001, subject as always to a continuing influx of repetitive type orders, a reasonable success rate on defense and seismic orders of significant value, and favorable delivery
====END OF PAGE 12====
schedules for those significant orders. Continued emphasis will be placed on developing foreign markets, an area where the Company enjoyed some success in FY00 and has several current opportunities pending final disposition.
At this time, Management believes that its internal cash flows and improved bank lines of credit will be adequate to handle its funding requirements, and that it will not be necessary to seek outside sources of funds.
Year 2000
Transition into Year 2000 for the information systems of the Company was without problems that were globally anticipated. The Company experienced no inconveniences with its vendors nor other third parties through the Year 2000 transition, nor does the Company anticipate major risks with these systems in the future.
| ITEM 7. FINANCIAL STATEMENTS |
For information concerning this Item, see the Company's balance sheet and related financial statements at Item 13.
| ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON | |
| ACCOUNTING AND FINANCIAL DISCLOSURES | |
There have been no disagreements between the Company and its accountants as to matters which require disclosure.
PART III
The information required by Items 9, 10, 11 and 12 of this part will be presented in the Company's Proxy Statement to be issued in connection with the Annual Meeting of Shareholders to be held on November 10, 2000, which information is hereby incorporated by reference into this Annual Report. The proxy materials, including the Proxy Statement, will be filed within 120 days after the Company's fiscal year end.
| ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K |
| DOCUMENTS FILED AS PART OF THIS REPORT: |
| Index to Financial Statements: |
| (i) | Independent Auditor's Report |
| ====END OF PAGE 13==== |
| (ii) | Consolidated Balance Sheets May 31, 2000 and 1999 | |
| (iii) | Consolidated Statements of Income for the years ended May 31, 2000 and 1999 | |
| (iv) | Consolidated Statements of Stockholders' Equity for the years ended May 31, 2000 and 1999 | |
| (v) | Consolidated Statements of Cash Flows for the years ended May 31, 2000 and 1999 | |
| (vi) | Notes to Consolidated Financial Statements May 31, 2000 | |
| EXHIBITS: |
| (3) | Articles of incorporation and by-laws | |
| (i) | Restated Certificate of Incorporation incorporated by reference to Exhibit (3)(I) of Annual Report on Form 10-K, dated August 24, 1983. | |
| (ii) | Amendment to Certificate of Incorporation incorporated by reference to Exhibit (3)(iv) to Form 8 [Amendment to Application or Report], dated September 24, 1993. | |
| (iii) | Amendment to Certificate of Incorporation creating Series A Junior Participating Preferred Stock, $.05 par value, incorporated as Exhibit (3)(i)(viii) to Quarterly Report on Form 10-QSB for the period ending November 30, 1998, dated January 12, 1999. | |
| (iv) | By-laws incorporated by reference to Exhibit (3)(ii) to Annual Report on Form 10-K, dated August 24, 1983. | |
| (v) | Amendment to Article I, Section 1 of By-laws (time of annual meeting), incorporated by reference to Current Report on Form 8-K, dated October 21, 1988. | |
| (vi) | Amendment to Article V, Section 1 of By-laws (indemnification), incorporated by reference to Exhibit (3)(i) to Quarterly Report on Form 10-QSB for the period ending February 28, 1998, dated April 10, 1998. | |
| (vii) | Amendment to Article I, adding Sections 11 through 13 of By-laws (advance notice) incorporated by reference to Exhibit (3)(ii) to Quarterly Report on Form 10-QSB for the period ending February 28, 1998, dated April 10, 1998. | |
| (viii) | Proxy Review Guidelines incorporated by reference to Exhibit (3)(ii) to Quarterly Report on Form 10-QSB for the period ending February 28, 1998, dated April 10, 1998. | |
| (ix) | Amendment to Article II, Sections 3 and 6 of By-laws (classified board of directors), incorporated by reference to Exhibit (3)(ii)(ix) to Quarterly Report on Form 10-QSB for the period ending November 30, 1998, dated January 12, 1999. | |
| (4) | Instruments defining rights of security holders, including indentures | |
| (i) | Mortgage to Marine Midland Bank dated May 28, 1993 incorporated by reference to Exhibit (10)(vii) to Annual Report on Form 10-KSB, dated September 10, 1993. | |
| (ii) | Master Indenture between Niagara County Industrial Development Agency and Bankers Trust Company, as Trustee, dated as of November 1, 1994 ($1,250,000 Niagara County Industrial Development Agency, 1994 Adjustable Rate Demand, Industrial Development Revenue Bonds, Series A [MMARS Second Program]), incorporated by reference to Exhibit (4)(iv) to Annual Report on Form 10-KSB, dated August 21, 1995. | |
| ====END OF PAGE 14==== | ||
| (iii) | Series Supplemental Indenture between Niagara County Industrial Development Agency and Bankers Trust Company, as Trustee, ($1,250,000 Niagara County Industrial Development Agency, 1994 Adjustable Rate Demand, Industrial Development Revenue Bonds, Series A [MMARS Second Program]), incorporated by reference to Exhibit (4)(v) to Annual Report on Form 10-KSB, dated August 21, 1995. | |
| (iv) | Series Mortgage from Niagara County Industrial Development Agency, Tayco Realty, Inc. and registrant to Marine Midland Bank, as Letter of Credit Bank, dated as of November 1, 1994, incorporated by reference to Exhibit (4)(vi) to Annual Report on Form 10-KSB, dated August 21, 1995. | |
| (v) | Mortgage from Niagara County Industrial Development Agency, Tayco Realty, Inc. and registrant to Marine Midland Bank, dated January 3, 1998, incorporated by reference to Exhibit (4)(v) to Annual Report on Form 10-KSB, dated August 25, 1998. | |
| (vi) | Rights Agreement by and between registrant and Regan & Associates, Inc, dated as of October 5, 1998 and letter to shareholders (including Summary of Rights), dated October 5, 1998, attached as Exhibits 4 and 20, respectively to Registration Statement on Form 8-A 12G, filed with the Securities and Exchange Commission on October 6, 1998. | |
| Material Contracts | |
| (i) | Incentive Stock Option Plan incorporated by reference to Exhibit (10)(ii) to Annual Report on Form 10-K, dated August 24, 1983. |
| (ii) | Non-Statutory Stock Option Plan incorporated by reference to Exhibit (10)(iii) to Annual Report on Form 10-K, dated August 24, 1983. |
| (iii) | 1994 Taylor Devices, Inc. Stock Option Plan incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-8, File No. 33-88152, as filed with the Securities and Exchange Commission on December 30, 1994. |
| (iv) | 1998 Taylor Devices, Inc. Stock Option Plan attached as Exhibit 4.1 to Registration Statement on Form S-8, File No. 33-6905, filed with the Securities and Exchange Commission on December 24, 1998. |
| ====END OF PAGE 15==== |
| (v) | License Agreement between the registrant and Tayco Developments, Inc., dated November 1, 1959, incorporated by reference to Exhibit (10)(i) to Annual Report on Form 10-K, dated August 27, 1982. |
| (vi) | Employee Stock Purchase Plan incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-8, File No. 2-94754, filed with the Securities and Exchange Commission on December 11, 1984. |
| (vii) | The 1999 Taylor Devices Inc. Employee Stock Purchase Plan incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-8, filed with the Securities and Exchange Commission on October 28, 1999. |
| ====END OF PAGE 15==== | |
| (viii) | Loan Agreements between the registrant and Marine Midland Bank, dated December 2, 1992, incorporated by reference to Exhibit (10)(viii) to Annual Report on Form 10-K, dated September 10, 1993. |
| (ix) | Series Lease between Niagara County Industrial Development Agency and registrant, dated as of November 1, 1994 ($1,250,000 Niagara County Industrial Development Agency, 1994 Adjustable Rate Demand, Industrial Development Revenue Bonds, Series A [MMARS Second Program]), incorporated by reference to Exhibit (10)(ix) to the Annual Report on Form 10-KSB, dated August 21, 1995. |
| (x) | Lease Agreement between registrant and Tayco Realty Corporation, dated November 1, 1995, incorporated by reference to Exhibit (10)(ix) to Annual Report on Form 10-KSB, dated August 22, 1996. |
| (xi) | Form of Indemnity Agreement between registrant and certain officers and directors, incorporated by reference to Exhibit (10)(i) to Quarterly Report on Form 10-QSB for the period ending February 28, 1997, dated April 11, 1997. |
| (xii) | Lease Agreement dated July 1, 2000 between the Registrant and Tayco Developments, Inc., attached to and incorporated into this Annual Report on Form 10-KSB, dated August 25, 2000. |
| (11) | Statement re: Computation of per share earnings | |
| REG.228.601(A)(11)STATEMENT RE: COMPUTATION OF PER SHARE |
| WEIGHTED AVERAGE OF COMMON STOCK/EQUIVALENTS O/S
- F/Y/E 5/31/00 |
| WEIGHTED AVERAGE COMMON STOCK OUTSTANDING | 2,753,518 | ||
| COMMON SHARES ISSUABLE UNDER STOCK OPTION
PLANS USING TREASURY STOCK METHOD |
7,794 | ||
| WEIGHTED AVERAGE COMMON STOCK OUTSTANDING
ASSUMING DILUTION |
2,761,312 | ||
| NET INCOME F/Y/E 5/31/00 | (1) | $ 865,232 | |
| WEIGHTED AVERAGE COMMON STOCK | (2) | 2,753,518 | |
| BASIC EARNINGS PER COMMON SHARE | |||
| (1) DIVIDED BY (2) | $ 0.31 | ||
| NET INCOME F/Y/E 5/31/00 | (3) | $ 865,232 | |
| WEIGHTED AVERAGE COMMON STOCK OUTSTANDING
ASSUMING DILUTION |
(4) | 2,761,312 | |
| DILUTED EARNINGS PER COMMON SHARE | |||
| (3) DIVIDED BY (4) | $ 0.31 | ||
====END OF PAGE 16====
| WEIGHTED AVERAGE OF COMMON STOCK OUTSTANDING
- F/Y/E 5/31/00 |
| WEIGHTED AVERAGE COMMON STOCK OUTSTANDING | 2,745,772 | ||
| COMMON SHARES ISSUABLE UNDER STOCK OPTION
PLANS USING TREASURY STOCK METHOD |
9.134 | ||
| WEIGHTED AVERAGE COMMON STOCK OUTSTANDING
ASSUMING DILUTION |
2,754,906 | ||
| NET INCOME F/Y/E 5/31/00 | (1) | $ 711,672 | |
| WEIGHTED AVERAGE COMMON STOCK | (2) | 2,745,772 | |
| BASIC EARNINGS PER COMMON SHARE | |||
| (1) DIVIDED BY (2) | $ 0.26 | ||
| NET INCOME F/Y/E 5/31/00 | (3) | $ 711,672 | |
| WEIGHTED AVERAGE COMMON STOCK OUTSTANDING
ASSUMING DILUTION |
(4) | 2,754,906 | |
| DILUTED EARNINGS PER COMMON SHARE | |||
| (3) DIVIDED BY (4) | $ 0.26 | ||
| (21) | Subsidiaries of the registrant | |
| Tayco Realty Corporation is a New York corporation organized on September 8, 1977, 58% owned by the Company and 42% owned by Tayco Developments, Inc. | ||
| (23) | Report and Consent of Independent Certified Public Accountants | |
| (27) | Financial Data Schedule |
| REPORTS ON FORM 8-K: | ||
| None | ||
====END OF PAGE 17====
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TAYLOR DEVICES, INC. |
| (Registrant) |
| By | /s/Douglas P. Taylor | Date | August 23, 2000 | |
| Douglas P. Taylor | ||||
| President and Director | ||||
| (Principal Executive Officer) |
and
| By | /s/Kenneth G. Bernstein | Date | August 23, 2000 | |
| Kenneth G. Bernstein | ||||
| Treasurer | ||||
| (Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| By: | /s/Joseph P. Gastel | By: | /s/Richard G. Hill | |
| Joseph P. Gastel, Director | Richard G. Hill, Director | |||
| August 23, 2000 | August 23, 2000 | |||
| By: | /s/Donald B. Hofmar | By: | /s/Randall L. Clark | |
| Donald B. Hofmar, Director | Randall L. Clark, Director | |||
| August 23, 2000 | August 23, 2000 |
====END OF PAGE 18====
CONSENT OF INDEPENDENT AUDITORS
Board of Directors of Taylor Devices Inc.
We consent to the incorporation by reference in this Annual Report on Form 10-KSB (Commission File Number 0-3498) of Taylor Devices Inc. of our report dated August 4, 2000, included in the May 31, 2000 Annual Report of Stockholders of Taylor Devices, Inc.
/s/ Lumsden & McCormick, LLP
LUMSDEN & McCORMICK, LLP
Buffalo, New York
August 28, 2000
====END OF PAGE 19====
TAYLOR DEVICES INC.
CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2000
====END OF PAGE 20====
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Taylor Devices, Inc.
We have audited the accompanying consolidated balance sheets of Taylor Devices, Inc. and Subsidiary as of May 31, 2000 and 1999 and the related consolidated statements of income, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Taylor Devices, Inc. and Subsidiary as of May 31, 2000 and 1999 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
Lumsden & McCormick, LLP
Buffalo, New York
August 4, 2000
====END OF PAGE 21====
TAYLOR DEVICES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
| May 31, | 2000 | 1999 |
| Assets | ||
| Current assets: |
| Cash and cash equivalents | $314,273 | $1,021,674 | |
| Short-term investments | 238,531 | 226,966 | |
| Restricted funds held by Trustee (Note 7) | 113,438 | 112,575 | |
| Accounts receivable, net of allowance for
doubtful accounts of $130,000 and $72,000 |
2,120,486 | 1,933,599 | |
| Inventory (Note 2) | 3,099,460 | 3,041,014 | |
| Prepaid expenses | 80,406 | 76,185 | |
| Costs and estimated earnings in excess of
billings (Note 3) |
1,554,309 | 493,181 | |
| Deferred income taxes | 218,200 | 130,300 | |
| 7,739,103 | 7,035,494 |
| Property and equipment, net (Note 4) | 2,679,016 | 2,705,563 |
| Investment in affiliate, at equity (Note 5) | 296,980 | 253,584 |
| Other: | |||
| Cash value of life insurance, net | 233,132 | 208,548 | |
| Deferred financing costs, net | 77,879 | 86,577 | |
| Goodwill, net | 54,911 | 60,959 | |
| 365,922 | 356,084 | ||
| $11,081,021 | $10,350,725 |
| Liabilities and Stockholders' Equity | ||
| Current liabilities: |
| Current portion of long-term debt (Note 7) | $328,347 | $336,612 | |
| Payables - trade | 688,908 | 746,900 | |
| Payables - affiliate | 331,713 | 183,700 | |
| Accrued income taxes | 163,935 | 373,127 | |
| Accrued expenses | 815,424 | 560,226 | |
| Deferred revenue | 383,828 | 452,340 | |
| Billings in excess of costs and estimated
earnings (Note 3) |
249,698 | 139,166 | |
| 2,961,853 | 2,792,071 | ||
| Long-term debt (Note 7) | 1,301,752 | 1,629,022 |
| Deferred income taxes | 79,300 | 53,700 |
| Minority stockholder's interest | 323,804 | 292,404 |
====END OF PAGE 22====
| Stockholders' Equity: |
| Common stock, $.025 par value, authorized
8,000,000 shares, issued 2,882,425 and 2,836,879 shares |
72,061 | 70,922 | |
| Paid-in capital | 2,800,465 | 2,678,017 | |
| Retained earnings | 3,840,223 | 2,974,991 | |
| 6,712,749 | 5,723,930 | ||
| Treasury stock - 107,165 and 52,203
shares at cost |
(298,437) | (140,402) | |
| 6,414,312 | 5,583,528 | ||
| $11,081,021 | $10,350,725 |
See accompanying notes.
====END OF PAGE 23====
TAYLOR DEVICES, INC. AND SUBSIDIARY
| Consolidated Statements of Income |
| For the years ended May 31, | 2000 | 1999 |
| Sales, net (Note 8) | $11,482,340 | $11,145,309 |
| Cost of sales | 6,649,993 | 6,867,788 |
| Gross profit | 4,832,347 | 4,277,521 |
| Selling, general and administrative expenses | 3,406,315 | 3,065,932 |
| Operating income | 1,426,032 | 1,211,589 |
| Other income (expense): |
| Rental income - affiliate (Note 11) | 10,000 | 10,000 | |
| Interest, net | (111,571) | (112,494) | |
| Miscellaneous | 16,175 | 7,253 | |
| (85,396) | (95,241) | ||
| Income before provision for income taxes, equity in
net income of affiliate and minority stockholder's interest |
1,340,636 | 1,116,348 |
| Provision for income taxes (Note 9) | 487,400 | 407,900 |
| Income before equity in net income of affiliate
and minority stockholder's interest |
853,236 | 708,448 |
| Equity in net income of affiliate (Note 5) | 43,396 | 31,192 |
| Income before minority stockholder's interest | 896,632 | 739,640 |
| Minority stockholder's interest | (31,400) | (27,968) |
| Net income | $865,232 | $711,672 |
| Basic and diluted earnings per common share (Note 10) | $0.31 | $0.26 |
See accompanying notes.
====END OF PAGE 24====
TAYLOR DEVICES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
For the years ended May 31, 2000 and 1999
| Common
Stock |
Paid-In
Capital |
Retained
Earnings |
Treasury
Stock | ||
| Balance, May 31, 1998 | $69,129 | $2,562,654 | $2,263,319 | $(83,153) |
| Net income for the year ended May 31, 1999 | - | - | 711,672 | - |
| Common stock issued for employee stock |
| purchase plan (Note 13) | 1,018 | 96,388 | - | - |
| Stock options exercised (Note 14) | 775 | 18,975 | - | - |
| Treasury stock acquired (Note 15) | - | - | - | (57,249) |
| Balance, May 31, 1999 | 70,922 | 2,678,017 | 2,974,991 | (140,402) |
| Net income for the year ended May 31, 2000 | - | - | 865,232 | - |
| Common stock issued for employee stock |
| purchase plan (Note 13) | 1,139 | 122,448 | - | - |
| Treasury stock acquired (Note 15) | - | - | - | (158,035) |
| Balance, May 31, 2000 | $72,061 | $2,800,465 | $3,840,223 | $(298,437) |
See accompanying notes.
====END OF PAGE 25====
TAYLOR DEVICES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
| For the years end May 31, | 2000 | 1999 |
| Cash flows from operating activities: |
| Net income | $865,232 | $711,672 | |
| Adjustments to reconcile net income to net cash
flows from operating activities: |
| Depreciation and amortization | 267,100 | 274,894 | ||
| Gain on sale of equipment | (660) | - | ||
| Provision for losses on accounts receivable | 58,000 | 40,175 | ||
| Equity in net income of affiliate | (43,396) | (31,192) | ||
| Deferred income taxes | (62,300) | 13,900 | ||
| Minority stockholder's interest | 31,400 | 27,968 | ||
| Interest income - funds held by trustee | (938) | (1,326) | ||
| Changes in other current assets and current liabilities: |
| Receivables | (244,887) | (360,687) | ||
| Inventory | (58,446) | (8,775) | ||
| Prepaid expenses | (4,221) | (10,877) | ||
| Costs and estimated earnings in excess |
| of billings | (1,061,128) | (493,181) |
| Payables - trade | (57,992) | (479,135) | ||
| Payables - affiliate | 148,013 | 66,351 | ||
| Accrued income taxes | (209,192) | 207,646 | ||
| Accrued expenses | 255,198 | 83,369 | ||
| Deferred revenue | (68,512) | (100,264) | ||
| Billings in excess of costs and estimated |
| earnings | 110,532 | (64,889) |
| Net cash flows for operating activities | (76,197) | (124,351) | ||
| Cash flows from investing activities: |
| Increase in short-term investments | (11,565) | (11,019) | |
| Proceeds from sale of tax free money fund held |
| by trustee | 112,575 | 113,193 |
| Cash received from trustee | 37,424 | 31,808 | |
| Cash remitted to trustee | (149,924) | (143,057) | |
| Proceeds from sale of property and equipment | 660 | - | |
| Acquisition of property and equipment | (225,807) | (37,538) | |
| Increase in cash value of life insurance | (24,584) | (23,051) |
| Net cash flows for investing activities | (261,221) | (69,664) |
====END OF PAGE 26====
| Cash flows from financing activities: |
| Repayments - long-term debt | (335,535) | (324,777) | |
| Proceeds from issuance of common stock |
| - employee stock purchase plan | 123,587 | 97,406 | ||
| - exercise of stock options | - | 19,750 |
| Acquisition of treasury stock | (158,035) | (57,249) |
| Net cash flows for financing activities | (369,983) | (264,870) | ||
| Net decrease in cash and cash equivalents | (707,401) | (458,885) |
| Cash and cash equivalents - beginning | 1,021,674 | 1,480,559 |
| Cash and cash equivalents - ending | $314,273 | $1,021,674 |
See accompanying notes.
====END OF PAGE 27====
TAYLOR DEVICES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
| 1. | Summary of Significant Accounting Policies: |
Nature of Operations:
Taylor Devices, Inc. (the Company) is primarily engaged in the manufacture and sale of tension control, energy storage and shock absorption devices for use in various types of machinery, equipment and structures, primarily to customers which are located throughout the United States and several foreign countries.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of the Company and its 58% owned subsidiary, Tayco Realty Corporation (Realty). Minority stockholder's interest represents Tayco Developments, Inc.'s (Developments) 42% ownership interest in Realty. All intercompany transactions and balances have been eliminated.
The Company's investment in its minority-owned affiliate, Developments, is reported on the equity method (see Note 5).
Cash Equivalents and Short Term Investments:
The Company includes all highly liquid investments in money market funds and certificates of deposit with original maturities of three months or less in cash and cash equivalents on the accompanying balance sheets. Certificates of deposit with original maturities of over three months are considered short-term investments.
Cash and cash equivalents in financial institutions may exceed insured limits at various times during the year and subject the Company to concentrations of credit risk.
Inventory:
Inventory is stated at the lower of first-in, first-out cost or market.
Property and Equipment:
Property and equipment is stated at cost net of accumulated depreciation. Deprecation is provided primarily using the straight-line method for financial reporting purposes, and accelerated methods for income tax reporting purposes. Estimated useful lives range from 3 to 39 years. Maintenance and repairs are charged to operations as incurred; significant improvements are capitalized.
Cash Value of Life Insurance:
Cash value of life insurance is stated at the surrender value of the contracts less outstanding policy loans.
====END OF PAGE 28====
Financing Costs:
Costs associated with obtaining new financing are capitalized and amortized over the repayment terms of the related debt obligations.
Goodwill:
Goodwill represents the excess of the cost to obtain ownership interests in a merged subsidiary over its net assets at acquisition, and is amortized on a straight-line basis over 15 years.
Revenue Recognition:
Sales are recognized when units are delivered or services are performed. Sales under fixed-price contracts are recorded as deliveries are made at the contract sales price of the units delivered. Sales under certain fixed-price contracts requiring substantial performance over several periods prior to commencement of deliveries, are accounted for under the percentage-of-completion method of accounting whereby revenues are recognized based on estimates of completion prepared on a ratio of cost to total estimated cost basis. Costs include all material and direct and indirect charges related to specific contracts. Other expenses are charged to operations as incurred. Adjustments to cost estimates are made periodically, and losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined.
For financial statement presentation purposes, the Company nets progress billings against the total costs incurred on uncompleted contracts. The asset, "costs and estimated earnings in excess of billings," represents revenues recognized in excess of amounts billed. The liability, "billings in excess of costs and estimated earnings," represents billings in excess of revenues recognized.
Income Taxes:
The provision for income taxes is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax and financial statements bases of assets and liabilities.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
| 2. | Inventory: |
| 2000 | 1999 | |
| Raw materials | $ 340,194 | $ 392,737 |
| Work-in-process | 398,189 | 432,964 |
| Finished goods | 2,361,077 | 2,215,313 |
| $ 3,099,460 | $ 3,041,014 |
The Company's inventory is particularly sensitive to technological obsolescence in the near term due to its use in industries characterized by the continuous introduction of new product lines, rapid technological advances and product obsolescence. Therefore, management of the Company has recorded an allowance for potential inventory obsolescence of $432,000 and $245,000 at May 31, 2000 and 1999.
====END OF PAGE 29====
| 3. | Costs and Estimated Earnings on Uncompleted Contracts: |
| 2000 | 1999 | |
| Costs incurred on uncompleted
Contracts |
$3,820,852 |
$2,295,825 |
| Estimated earnings | 3,423,470 | 1,832,390 |
| 7,244,322 | 4,128,215 | |
| Less billings to date | 5,939,711 | 3,774,200 |
| $1,304,611 | $ 354,015 |
Included in the accompanying balance sheets under the following captions:
| 2000 | 1999 | |
| Costs and estimated earnings in
excess of billings |
$1,554,309 |
$ 493,181 |
| Billings in excess of costs and
estimated earnings |
(249,698) |
(139,166) |
| $1,304,611 | $ 354,015 |
| 4. | Property and Equipment: |
| 2000 | 1999 | |
| Land | $ 141,483 | $ 141,483 |
| Buildings and improvements | 2,851,188 | 2,724,780 |
| Machinery and equipment | 2,748,181 | 2,644,884 |
| Office furniture and equipment | 460,939 | 462,636 |
| Autos and trucks | 60,761 | 68,346 |
| 6,262,552 | 6,042,129 | |
| Less accumulated depreciation | 3,583,536 | 3,336,566 |
| $2,679,016 | $ 2,705,563 |
Depreciation expense was $254,556 and $260,183 for the years ended May 31, 2000 and 1999.
The following is a summary of property and equipment included above which is held under capital leases:
| 2000 | 1999 | |
| Buildings and improvements | $ 806,707 | $ 806,707 |
| Machinery and equipment | 591,915 | 591,915 |
| Office furniture and equipment | 102,985 | 102,985 |
| 1,501,607 | 1,501,607 | |
| Less accumulated amortization | 539,795 | 458,634 |
| $ 961,812 | $1,042,973 |
Minimum future lease payments under capital leases as of May 31, 2000 for each of the next five years and in the aggregate are included in long-term debt (see Note 7).
Amortization of property and equipment under the capital leases included in depreciation expense is $81,161 and $78,309 for the years ended May 31, 2000 and 1999.
====END OF PAGE 30====
| 5. | Investment in Affiliate: |
Investment in affiliate consists of the Company's 23% ownership interest in common shares of Developments acquired at a cost of $85,619, plus the Company's cumulative equity in the net income of Developments of $211,361 and $167,965 through the years ended May 31, 2000 and 1999.
The Company's share of the underlying book value of net assets of Developments at the date of original purchase exceeded the amount paid for these shares by $79,018. This excess ($62,556 at May 31, 2000) is being amortized to income on the straight-line method over 40 years and is recorded as an addition to equity in net income of the affiliate.
| 6. | Short-Term Borrowings: |
The Company has available a $2,000,000 bank demand line of credit with interest payable at prime plus 1/4%. The line is secured by accounts receivable, equipment, inventory, and general intangibles. As of May 31, 2000 and 1999, no amounts were outstanding under this line.
| 7. | Long-Term Debt: |
| 2000 | 1999 | |
| Industrial Revenue Development
Bonds, annual principal pay- ments ranging from $45,000 to $150,000 through June 2009 plus interest at variable rates based on the highest rated short-term, federally tax exempt obligations (4.4% at May 31, 2000). |
(1) $615,000 |
$765,000 |
| Bank term note, monthly
principal payments of $8,512 plus interest at the bank's prime rate plus 1% (10.5% at May 31, 2000 ), secured by substantially all assets of the Company, with the remaining unpaid principal balance payable in February 2005. |
(2) 485,179 |
$587,321 |
| Bank mortgage note, monthly
principal payments of $1,444 plus interest at the bank's prime rate plus 1% (10.5% at May 31, 2000 ), secured by related property, with the remaining unpaid principal balance payable in June 2008. |
(2) 143,000 |
160,334 |
====END OF PAGE 31====
| Bank mortgage, monthly
principal payments of $2,222 plus interest at the bank's prime rate plus 1% (10.5% at May 31, 2000 ), secured by substantially all assets of the Company, due February 2013. |
(2) 340,000 |
366,667 |
| Capital lease and other
obligations with varying maturities and interest rates, secured by related assets. |
46,920 |
86,312 |
| 1,630,099 | 1,965,634 | |
| Less current portion | 328,347 | 336,612 |
| $1,301,752 | $1,629,022 |
| (1) | In November 1994, the Company entered into a capital lease agreement with the Niagara County |
| Industrial Development Agency (NCIDA) to finance certain construction costs for additions to its
manufacturing/testing facilities and for the acquisition of machinery and equipment. To finance the project,
NCIDA authorized the sale of its Industrial Revenue Development Bonds, in the aggregate principal
amount of $1,250,000, under a trust indenture with Bankers Trust Company as trustee. The capital lease
obligation is secured by a first mortgage on real estate, project machinery and equipment, and guaranteed
by an irrevocable bank letter of credit in the amount of $465,000 as of May 31, 2000.
As of May 31, 2000, $113,438 of funds were held by a trustee, representing an interest bearing tax free money fund restricted for principal reduction payments of the Industrial Revenue Development Bond during fiscal year ending May 31, 2001. |
| (2) | The term note and mortgage note are subject to certain restrictive covenants relating to net working |
| capital, tangible net worth and capital expenditures. As of May 31, 2000 the Company was in compliance
with all such covenants.
The aggregate maturities of long-term debt subsequent to May 31, 2000 are: |
| 2001 | $ 328,347 |
| 2002 | 306,575 |
| 2003 | 233,713 |
| 2004 | 172,856 |
| 2005 | 150,607 |
| Thereafter | 438,001 |
| $1,630,099 | |
| 8. | Sales: |
Net sales consist of the following industry segments:
| 2000 | 1999 | |
| Commercial and other industries | $ 7,102,659 | $ 6,590,170 |
| Aerospace and defense industries | 4,127,176 | 4,313,292 |
| Government agencies | 252,505 | 241,847 |
| $11,482,340 | $11,145,309 |
====END OF PAGE 32====
Sales to aerospace and defense industries include sales to one and two customers totaling $1,042,644 and $3,076,738 for the years ended May 31, 2000 and 1999.
| 9. | Income Taxes: |
| 2000 | 1999 | |
| Current tax provision: | ||
| Federal | $516,900 | $360,200 |
| State | 32,800 | 33,800 |
| 549,700 | 394,000 | |
| Deferred tax provision: | ||
| Federal | (56,300) | 12,600 |
| State | (6,000) | 1,300 |
| (62,300) | 13,900 | |
| $487,400 | $407,900 |
A reconciliation of provision for income taxes at the statutory rate to income tax provision at the Company's effective rate is as follows:
| 2000 | 1999 | |
| Computed tax provision at the |
| expected statutory rate | $455,816 | $379,558 |
| State income tax - net of Federal |
| tax benefit | 21,600 | 23,200 |
| Internal Revenue Service audit - |
| year ended May 31, 1996 | 5,891 | - |
| Other | 4,093 | 5,142 |
| $487,400 | $407,900 |
Significant components of the Company's deferred tax assets and liabilities consist of the following:
| 2000 | 1999 | |
| Deferred tax assets | ||
| Allowance for doubtful receivables | $ 47,200 | $ 26,100 |
| Tax inventory adjustment | 12,700 | 19,700 |
| Allowance for obsolete inventory | 137,800 | 70,000 |
| Accrued vacation | 20,500 | 14,500 |
| 218,200 | 130,300 | |
| Deferred tax liabilities | ||
| Excess tax depreciation | (79,300) | (53,700) |
| Net deferred tax assets | $138,900 | $76,600 |
The Company and its subsidiary file separate Federal and State income tax returns. As of May 31, 2000, the Company had State investment tax credit carryforwards of approximately $117,000 expiring through May 2009.
====END OF PAGE 33====
| 10. | Earnings Per Common Share: |
In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS No. 128) Earnings per Share, which is effective for financial statements for periods ending after December 15, 1997 and requires that all prior period earnings per share data be restated. The new standard eliminates primary and fully diluted earnings per common share and requires presentation of basic and, if applicable, diluted earnings per common share. Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average common shares outstanding for the period. Diluted earnings per common share reflects the weighted-average common shares outstanding and dilutive potential common shares, such as stock options.
A reconciliation of weighted-average common shares outstanding to weighted-average common shares outstanding assuming dilution is as follows:
| 2000 | 1999 | |
| Average common shares outstanding | 2,753,518 | 2,745,772 |
| Common shares issuable under |
| stock option plans | 7,794 | 9,134 |
| Average common shares |
| outstanding assuming dilution | 2,761,312 | 2,754,906 |
| 11. | Related Party Transactions: |
Included in cost of sales are research and development expenses charged by Developments for services performed by its research engineers in the amount of $319,714 and $251,173 for the years ended May 31, 2000 and 1999.
Included in selling, general and administrative expenses is royalty expense charged by Developments for the use of patents in the Company's manufacturing operations in the amount of $227,678 and $174,964 for the years ended May 31, 2000 and 1999.
The Company leases certain office and laboratory facilities to Developments for a current annual rental of $10,000.
| 12. | Preferred Stock: |
The Company has 2,000,000 authorized but unissued shares of preferred stock which may be issued in series. The shares of each series shall have such rights, preferences, and limitations as shall be fixed by the Board of Directors.
| 13. | Employee Stock Purchase Plan: |
The Company has reserved 200,000 shares of common stock for issuance pursuant to a non-qualified employee stock purchase plan. Participation in the employee stock purchase plan is voluntary for all employees of the Company. Purchase of common shares can be made by employee contributions through payroll deductions with a matching contribution by the Company of a specified percentage of the employees' contributions based on length of continuous participation in the stock purchase plan. At the end of each calendar quarter, the employer/employee contributions will be applied to the purchase of common shares at fair market value which are then held in the name of the Company as custodian for the employees' shares. These shares are distributed to the employees at the end of each calendar year or upon withdrawal from the plan. During the years ended May 31, 2000 and 1999, 45,546 ($2.53 to $2.98 price per share) and 40,749 ($1.91 to $3.66 price per share) common shares, respectively, were issued to
====END OF PAGE 34====
employees. As of May 31, 2000, there were 93,875 shares reserved for further issue. The amount of Company matching expense was $34,702 and $27,938 for the years ended May 31, 2000 and 1999.
| 14. | Stock Option Plans: |
In 1998, the Company established both a non-qualified and incentive stock option plan. The incentive stock option plan qualifies for preferential treatment under the Internal Revenue Code. Under these plans, 125,000 shares of common stock have been reserved for grant to key employees and directors of the Company. Under both plans the option price may not be less than the fair market value of the stock at the time the options are granted. Options expire ten years from the date of grant.
Options granted under the Company's previous non-qualified and incentive stock option plans expire five to ten years from the date of grant and are exercisable over the period stated in each option.
The Company applies APB Opinion 25 Accounting for Stock Issued to Employees and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its stock option plans. The Company has adopted the disclosure method of SFAS No. 123 Accounting for Stock-Based Compensation. The Black-Scholes Option valuation model was used in estimating the fair value of traded options which have no vesting restrictions.
SFAS No. 123 is effective for options granted by the Company during fiscal years ended May 31, 2000 and 1999. Using the Black-Scholes option valuation model, the estimated fair value of each option granted under the Company's previous non-qualified and incentive stock option plans during 1999 was $1.46. The estimated fair value of each option granted under the 1998 plans was $2.22 and $2.12 during 2000 and $1.63 during 1999. Principal assumptions used in applying the Black-Scholes model to options at date of grant were as follows:
| 2000 | 1999 | |
| Risk-free interest rate | 6.26% and 6.27% | 5.79% and 6.07% |
| Expected life in years | 10.0 | 8.0 |
| Expected volatility | .74 | .53 |
| Expected dividend yield | 0% | 0% |
Had compensation cost for the Company's stock options plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the proforma amounts indicated below:
| 2000 | 1999 | ||
| Net income: | |||
| As reported | $865,232 | $711,672 | |
| Proforma | $816,382 | $675,967 | |
| Basic and diluted earnings per |
| common share: |
| As reported | $ .31 | $ .26 | |
| Proforma | $ .30 | $ .25 |
====END OF PAGE 35====
The following is a summary of stock option activity:
| 2000 | 1999 | |
| Outstanding, beginning of year | 144,000 | 138,002 |
| Options granted | 35,000 | 37,000 |
| Options exercised or expired | (28,224) | (31,002) |
| Outstanding, end of year (at prices ranging |
| from $2.06 to $5.56 per share) | 150,776 | 144,000 |
No options were exercised during the year ended May 31, 2000. The option holders exercised 31,000 options and received 31,000 shares (ranging from $1.68 to $2.66 per share) of the Company's common stock in lieu of cash for the year ended May 31, 1999.
| 15. | Treasury Stock: |
The Company purchased 54,962 shares of its common stock for a total of $158,035 (ranging from $2.56 to $3.30 per share) during the year ended May 31, 2000.
The Company purchased 23,771 shares of its common stock for a total of $57,249 (ranging from $1.94 to $2.81 per share) during the year ended May 31, 1999.
| 16. | Retirement Plan: |
The Company maintains a retirement plan for essentially all full-time employees pursuant to Section 401(k) of the Internal Revenue Code. The Company matches 10% of employee voluntary salary deferrals up to a maximum of 1% of each participant's eligible compensation. The Company may also make discretionary contributions as determined annually by the Company's Board of Directors. The amount expensed under the plan was $30,362 and $12,731 for the years ended May 31, 2000 and 1999.
| 17. | Fair Value of Financial Instruments: |
The carrying amounts of cash and cash equivalents, restricted funds held by trustee, accounts receivable, accounts payable, and other accrued liabilities approximate fair value because of the short maturity of these instruments.
The carrying amount of debt approximates fair value because the interest rates on these instruments fluctuate with market interest rates and are based on current rates offered to the Company for debt with similar terms and maturities.
| 18. | Cash Flows Information: |
| 2000 | 1999 | |
| Cash paid during the year for: |
| Interest | $142,506 | $167,172 | |
| Income taxes | $739,857 | $186,354 |
Non-cash investing and financing activities during 1999 consist of the acquisition of equipment through the issuance of a capital lease agreement of $10,400.
====END OF PAGE 36====
| 19. | Contingencies: |
The Company is a respondent in an administrative proceeding filed by one of its former employees for alleged discrimination. At this stage in the proceeding an opinion as to the probable outcome cannot be offered by management. The Company, after considering information provided by legal counsel, believes the claimant's allegations are without merit and is vigorously defending its position.
The Company has filed a suit against one of its customers to collect $54,000 owed for the purchase of motion control devices from the Company. The defendant has asserted counterclaims against the Company for alleged failure of his equipment. The Company is vigorously prosecuting its claim and defending against the defendant's counterclaim. The ultimate outcome cannot be determined at this time, however, it will not have a material effect on the financial position or condition of the Company.
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