The effective income tax rate for fiscal 2018 was 15.6% versus 30.9% in fiscal 2017 due primarily to
lowering of the corporate income tax rate under the Tax Reform Act.
As of September 30, 2017, the Company had no federal research and development
tax credits (R&D Credits) carryforwards. In fiscal 2018, $249,000 of new credits were generated, all of which were used. There are no R&D Credits carryforwards as of September 30, 2018.
As of September 30, 2017, the Company had $155,000 in Florida state research and development tax credits (Florida R&D Credits)
carryforwards. The Company received additional Florida R&D Credits of $25,000 in fiscal 2018 and used $93,000, leaving $87,000 of Florida R&D Credits carryforwards as of September 30, 2018. The $87,000 of Florida R&D Credits, which
are included in net deferred and other income tax liabilities of $(2,358,000) at September 30, 2018, expire in fiscal 2022.
Net income for the year
ended September 30, 2018 was $12,564,000 or $0.85 per diluted share versus net income of $8,418,000 or $0.57 per diluted share for the year ended September 30, 2017. The increase in net income was primarily due to the improved net revenue
and higher gross profit margins.
Liquidity and Capital Resources
The Company generates capital resources through operations and returns on its investments.
The Company had no long-term debt outstanding at September 30, 2018 or 2017. As of September 30, 2018, the Company has funded $135,000 in cash
deposits at insurance companies to cover collateral needs.
As of September 30, 2018, the Company had $8.0 million in cash and cash equivalents,
and $104.1 million in marketable securities. The marketable securities are invested through professional investment management firms. The securities may be liquidated at any time into cash and cash equivalents.
The Companys backlog, which includes orders received through the date of this filing, was $43.8 million at September 30, 2018 versus
$61.3 million at September 30, 2017. The Companys working capital was $136.6 million at September 30, 2018 versus $124.7 million at September 30, 2017.
The significant purchases, sales and maturities of marketable securities shown on the consolidated statements of cash flows reflect the frequent purchase and
sale of United States treasury bills.
Year ended September 30, 2018 compared with the year ended September 30, 2017
Cash used in operations in fiscal 2018 of $(11,995,000) was primarily due to investing an additional $15.0 million of operating cash in marketable equity
securities. The increase in costs and estimated earnings in excess of billings of $5.1 million reflects significant progress on large
percentage-of-completion
jobs
prior to final billing and payment of amounts due in advance of shipment. Similarly, customer deposits decreased $4.1 million, reflecting the application of down payments on these jobs.
Cash provided by operations in fiscal 2017 of $6,108,000 was primarily from increases in net revenue. The increase in inventories of $5.1 million reflected
the ongoing need for additional equipment to meet the increased demand for the Companys products. Similarly, customer deposits increased $4.1 million, reflecting the down payments related to increased backlog of orders.
Cash used in investing activities during the year ended September 30, 2018 of $3,550,000 and $1,617,000 for the year ended September 30, 2017, related
primarily to capital expenditures for manufacturing equipment. Cash provided by financing activities of $624,000 in fiscal 2018 and $223,000 in fiscal 2017 related to proceeds from the exercise of stock options.
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
Companys financial condition and results of operations and require managements 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 Consolidated Financial Statements, Accounting Policies.
Estimates and Assumptions
In preparing the 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 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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