UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2014
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-3498
TAYLOR DEVICES, INC.
(Exact name of registrant as specified in its charter)
| New York | 16-0797789 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 90 Taylor Drive, P.O. Box 748, North Tonawanda, New York | 14120-0748 |
| (Address of principal executive offices) | (Zip Code) |
| Registrant's telephone number, including area code (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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
[ ] Yes [X] No
Indicate by check mark whether the registrant (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 12 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.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] |
| Non-accelerated filer [ ] (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [X] No
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter on November 30, 2013 is $27,368,000.
The number of shares outstanding of each of the registrant's classes of common stock as of August 27, 2014: 3,343,289.
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TAYLOR DEVICES, INC.
DOCUMENTS INCORPORATED BY REFERENCE
| Documents | Form 10-K Reference |
| Proxy Statement | Part III, Items 10-14 |
FORM 10-K INDEX
| PART I | PAGE | ||
| Item 1. |
Business.
|
4 | |
| Item 1A. | Risk Factors. | 6 | |
| Item 1B. | Unresolved Staff Comments. | 6 | |
| Item 2. |
Properties.
|
6 | |
| Item 3. |
Legal Proceedings.
|
6 | |
| Item 4. | Mine Safety Disclosures. | 6 | |
| PART II | |||
| Item 5. |
Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
|
7 | |
| Item 6. | Selected Financial Data. | 8 | |
| Item 7. |
Management's Discussion and Analysis of Financial Condition and Results of Operations.
|
8 | |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. | 16 | |
| Item 8. |
Financial Statements and Supplementary Data.
|
16 | |
| Item 9. |
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
|
16 | |
| Item 9A. |
Controls and Procedures.
|
16 | |
| Item 9B. | Other Information. | 16 | |
| PART III | |||
| Item 10. |
Directors, Executive Officers and Corporate Governance.
|
16 | |
| Item 11. |
Executive Compensation.
|
16 | |
| Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|
16 | |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence. | 16 | |
| Item 14. | Principal Accounting Fees and Services. | 16 | |
| PART IV | |||
| Item 15 | Exhibits and Financial Statement Schedules | 17 | |
| SIGNATURES | 21 | ||
| 3 |
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.
Principal Products
The Company manufactures and sells a single group of very similar products that have many different applications for customers. These similar products are included in one of six categories; namely, Seismic Dampers, Fluidicshoks®, Crane and Industrial Buffers, Self-Adjusting Shock Absorbers, Liquid Die Springs, and Vibration Dampers. Management does not track or otherwise account for sales broken down by these categories. The following is a summary of the capabilities and applications for these products.
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 uses the services of more than 50 sales representatives and distributors in the United States and Canada along with more than 20 representatives and distributors throughout the rest of the world. Specialized technical sales in aerospace and custom marketing activities are serviced by three sales agents, under the direction and with the assistance 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 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 competitor for the manufacture of products in the aerospace and commercial aerospace industries field is UTC Aerospace Systems Division of United Technologies in Ft. Worth, Texas. While the Company is competitive with this company 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. and foreign suppliers. The loss of any one of these would not materially affect the Company's operations.
| 4 |
Dependence Upon Major Customers
Sales to one customer, Sinodynamics Enterprise Co., Ltd., approximated 20% of net sales for 2014. Sinodynamics purchases Company products for the Taiwan market. The loss of this customer, unless the business is replaced by the Company, could result in an adverse effect on the results for the Company.
Patents, Trademarks and Licenses
The Company holds approximately 13 patents expiring at different times until the year 2031.
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. The Company has no inventory out on consignment and no consignment sales for the years ended May 31, 2014 and 2013. No extended payment terms are offered. During the year ended May 31, 2014, delivery time after receipt of orders averaged 8 to 10 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 using custom designed components of the Company.
Need for Government Approval of Principal Products or Services
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. If the federal government should limit defense spending, these contracts could be reduced or terminated, which management believes would have a materially adverse effect on the Company.
Research and Development
The Company does not generally engage in major product research and development activities in connection with the design of its products, except when funded by aerospace customers or the federal government. The Company, however, engages in research testing of its products. For the fiscal years ended May 31, 2014 and 2013, the Company expended $317,000 and $300,000, respectively, on manufacturing research. For the years ended May 31, 2014 and 2013, defense sponsored research and development totaled $77,000 and $163,000, 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 currently incurring only moderate costs with respect to disposal of hazardous waste and compliance with OSHA regulations.
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.
Employees
Exclusive of Company sales representatives and distributors, as of May 31, 2014, the Company had 98 employees, including three executive officers, and six part time employees. The Company has good relations with its employees.
| 5 |
Smaller reporting companies are not required to provide the information required by this item.
Item 1B. Unresolved Staff Comments.
Not applicable.
The Company's production facilities occupy approximately six acres on Tonawanda Island in North Tonawanda, New York and are comprised of four interconnected buildings and two adjacent buildings. The production facilities consist of a small parts plant (approximately 4,400 square feet), a large parts plant (approximately 13,500 square feet), and include a facility of approximately 7,000 square feet comprised of a test facility, storage area, pump area and the Company's general offices. One adjacent building is a 17,000 square foot seismic assembly test facility. Another adjacent building (approximately 2,000 square feet) is used as a training facility. These facilities total more than 45,000 square feet. Adjacent to these facilities, the Company has a remote test facility used for shock testing. This state-of-the-art test facility is 1,200 square feet. The small parts plant consists of a complete small machine shop and tool room that 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.
The Company owns three additional industrial buildings on nine acres of land in the City of North Tonawanda located 1.4 miles from the Company’s headquarters on Tonawanda Island. Total area of the three buildings is 46,000 square feet. The Company’s production machinery was relocated from the Company’s Tonawanda Island site in the autumn of 2013 and overhead cranes have been installed to move large parts from machine to machine. This allowed the former machining areas at the Tonawanda Island site to house greatly expanded assembly and product testing areas. All corporate and engineering offices were unaffected by the change and remain on Tonawanda Island.
The Company's real properties are subject to a negative pledge agreement with its lender, First Niagara Bank. The Company has agreed with the lender that, for so long as the credit facilities with the lender are outstanding, the Company will not sell, lease or mortgage any of its real properties. Additional information regarding the Company's agreement with First Niagara Bank is contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, at "Capital Resources, Line of Credit and Long-Term Debt."
The Company leases a separate warehouse for storage from an unrelated third party, consisting of approximately 3,600 square feet at $975 per month. The warehouse is located approximately one-quarter mile from the above-referenced production facilities and office space. The total rental expense incurred by the Company for this facility in fiscal 2014 was $11,700.
The Company believes it is carrying adequate insurance coverage on its facilities and their contents.
There are no legal proceedings at present.
Item 4. Mine Safety Disclosures.
Not applicable.
| 6 |
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity Securities.
Market Information
The Company's Common Stock trades on the NASDAQ Capital Market of the National Association of Securities Dealers Automated Quotation ("NASDAQ") stock market under the symbol TAYD. The high and low sales information noted below for the quarters of fiscal year 2014 and fiscal year 2013 were obtained from NASDAQ.
| Fiscal 2014 | Fiscal 2013 | |||||||
| High | Low | High | Low | |||||
| First Quarter | $9.58 | $7.94 | $9.58 | $7.81 | ||||
| Second Quarter | $9.00 | $7.82 | $9.10 | $7.24 | ||||
| Third Quarter | $8.69 | $7.60 | $9.73 | $7.69 | ||||
| Fourth Quarter | $9.30 | $8.27 | $9.00 | $7.58 | ||||
Holders
As of August 13, 2014, the number of issued and outstanding shares of Common Stock was 3,343,289 and the approximate number of record holders of the Company's Common Stock was 705. 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. The Company plans to retain cash in the foreseeable future to fund working capital needs.
As of September 15, 2008, 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 (one Right for each share of Common Stock) held as of the close of business on October 3, 2008. 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 2008 Junior Participating Preferred Stock ("Series 2008 Preferred Stock") at a purchase price of $5.00 per unit of one two-thousandths of a share. 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 2008 Preferred Stock.
The Rights become exercisable to purchase shares of Preferred Stock (or, in certain circumstances, Common Stock) only if (i) a person acquired 15% or more of the Company's Common Stock, or (ii) a person commenced a tender or exchange offer for 10% or more of the Company's Common Stock, or (iii) the Board of Directors determined that the beneficial owner of at least 10% of the Company's Common Stock intended to cause the Company to take certain actions adverse to it and its shareholders or that such ownership would have a material adverse effect on the Company. The Rights Plan will expire on October 5, 2018.
Issuer Purchases of Equity Securities
The Company did not repurchase any shares of its common stock during the year ended May 31, 2014. On November 1, 2013, the Board of Directors of the Registrant voted unanimously to continue the share repurchase agreement, authorized by the Board in 2010, with Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") under which the Company repurchases shares of its common stock. The Company has designated $419,815 of cash on hand as available for open-market purchases. Since Board authorization in 2010, a total of 15,600 shares have been purchased at an average price per share of $5.14. Repurchases are made by MLPF&S for the benefit of the Registrant.
| 7 |
Equity Compensation Plan Information
The following table sets forth information regarding equity compensation plans of the Company as of May 31, 2014.
| Equity Compensation Plan Information | |||||||
|
Plan Category
|
Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a) |
Weighted-average exercise price of outstanding options, warrants and rights (b) |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | ||||
|
Equity compensation plans approved by security holders:
|
|||||||
|
2001 Stock Option Plan 2005 Stock Option Plan 2008 Stock Option Plan 2012 Stock Option Plan
|
5,750 62,000 87,000 64,750
|
$3.27 $5.27 $8.13 $8.52
|
- - - 95,250
| ||||
| Equity compensation plans not approved by security holders: |
|
||||||
| 2004 Employee Stock Purchase Plan (1) |
- |
- |
229,599 | ||||
|
Total
|
219,500 | 324,849 | |||||
| (1) | The Company's 2004 Employee Stock Purchase Plan (the "Employee Plan") permits eligible employees to purchase shares of the Company's common stock at fair market value through payroll deductions and without brokers' fees. Such purchases are without any contribution on the part of the Company. As of May 31, 2014, 229,599 shares were available for issuance. | ||||||
Item 6. Selected Financial Data
The Company qualifies as a smaller reporting company, as defined by 17 CFR §229.10(f)(1), and is not required to provide the information required by this Item.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Information in this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this 10-K that does not consist of historical facts are "forward-looking statements." Statements accompanied or qualified by, or containing, words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," "assume" and "optimistic" constitute forward-looking statements and, as such, are not a guarantee of future performance. The statements involve factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; variations in timing and amount of customer orders; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company's products, as well as other factors, many or all of which may be beyond the Company's control. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results. The Company disclaims any obligation to release publicly any updates or revisions to the forward-looking statements herein to reflect any change in the Company's expectations with regard thereto, or any changes in events, conditions or circumstances on which any such statement is based.
| 8 |
Application of Critical Accounting Policies and Estimates
The Company's consolidated financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. The preparation of the Company's financial statements requires management to make estimates, assumptions and judgments that affect the amounts reported. These estimates, assumptions and judgments are affected by management's application of accounting policies, which are discussed in Note 1. "Summary of Significant Accounting Policies" and elsewhere in the accompanying consolidated financial statements. As discussed below, our financial position or results of operations may be materially affected when reported under different conditions or when using different assumptions in the application of such policies. In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information. Management believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company's financial statements.
Accounts Receivable
Our ability to collect outstanding receivables from our customers is critical to our operating performance and cash flows. Accounts receivable are stated at an amount management expects to collect from outstanding balances. Management provides for probable uncollectible accounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts after considering the age of each receivable and communications with the customers involved. Balances that are collected, for which a credit to a valuation allowance had previously been recorded, result in a current-period reversal of the earlier transaction charging earnings and crediting a valuation allowance. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable in the current period. The actual amount of accounts written off over the five year period ended May 31, 2014 equaled less than 0.1% of sales for that period. The balance of the valuation allowance has decreased since May 31, 2013 to the current level of $10,000. Management does not expect the valuation allowance to materially change in the next twelve months for the current accounts receivable balance.
Inventory
Inventory is stated at the lower of average cost or market. Average cost approximates first-in, first-out cost.
Maintenance and other inventory represent stock that is estimated to have a product life-cycle in excess of twelve-months. This stock represents certain items the Company is required to maintain for service of products sold, and items that are generally subject to spontaneous ordering.
This inventory is particularly sensitive to technical 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. Based on certain assumptions and judgments made from the information available at that time, we determine the amount in the inventory allowance. If these estimates and related assumptions or the market changes, we may be required to record additional reserves. Historically, actual results have not varied materially from the Company's estimates.
The provision for potential inventory obsolescence was $180,000 for each of the years ended May 31, 2014 and 2013.
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. Total estimated costs for each of the contracts are estimated based on a combination of historical costs of manufacturing similar products and estimates or quotes from vendors for supplying parts or services towards the completion of the manufacturing process. Adjustments to cost and profit estimates are made periodically due to changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements. These changes may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Any losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined. If total costs calculated upon completion of the manufacturing process in the current period for a contract are more than the estimated total costs at completion used to calculate revenue in a prior period, then the revenue and profits in the current period will be lower than if the estimated costs used in the prior period calculation were equal to the actual total costs upon completion.
| 9 |
Historically, actual results have not varied materially from the Company's estimates. In the fiscal year ended May 31, 2014, 47% of total revenue recognized was accounted for using the percentage-of-completion method of accounting while the remaining 53% of revenue was recorded as deliveries were made to our customers. In the fiscal year ended May 31, 2013, 58% of total revenue recognized was accounted for using the percentage-of-completion method of accounting while the remaining 42% of revenue was recorded as deliveries were made to our customers.
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 provides for the tax effects of transactions reported in the financial statements regardless of when such taxes are payable. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax and financial statement basis of assets and liabilities. The deferred tax assets relate principally to asset valuation allowances such as inventory obsolescence reserves and bad debt reserves and also to liabilities including warranty reserves, accrued vacation, accrued commissions and others. The deferred tax liabilities relate primarily to differences between financial statement and tax depreciation. Deferred taxes are based on tax laws currently enacted with tax rates expected to be in effect when the taxes are actually paid or recovered.
Realization of the deferred tax assets is dependent on generating sufficient taxable income at the time temporary differences become deductible. The Company provides a valuation allowance to the extent that deferred tax assets may not be realized. A valuation allowance has not been recorded against the deferred tax assets since management believes it is more likely than not that the deferred tax assets are recoverable. The Company considers future taxable income and potential tax planning strategies in assessing the need for a potential valuation allowance. In future years the Company will need to generate approximately $3.2 million of taxable income in order to realize our deferred tax assets recorded as of May 31, 2014 of $1,099,000. This deferred tax asset balance is 3% ($36,000) higher than at the end of the prior year. The amount of the deferred tax assets considered realizable however, could be reduced in the near term if estimates of future taxable income are reduced. If actual results differ from estimated results or if the Company adjusts these assumptions, the Company may need to adjust its deferred tax assets or liabilities, which could impact its effective tax rate. Historically, actual results have not varied materially from the Company's estimates.
The Company's practice is to recognize interest related to income tax matters in interest income / expense and to recognize penalties in selling, general and administrative expenses.
The Company and its subsidiary file consolidated Federal and State income tax returns. As of May 31, 2014, the Company had State investment tax credit carryforwards of approximately $145,000 expiring through May 2020.
Results of Operations
A summary of the period to period changes in the principal items included in the consolidated statements of income is shown below:
| Summary comparison of the years ended May 31, 2014 and 2013 | |||
| Increase / | |||
| (Decrease) | |||
| Sales, net | $ (4,718,000) | ||
| Cost of goods sold | $ (1,419,000) | ||
| Selling, general and administrative expenses | $ (1,378,000) | ||
| Income before provision for income taxes | $ (1,892,000) | ||
| Provision for income taxes | $ (475,000) | ||
| Net income | $ (1,417,000) | ||
| 10 |
For the year ended May 31, 2014 (All figures being discussed are for the year ended May 31, 2014 as compared to the year ended May 31, 2013.)
| Year ended May 31 | Change | |||||
| 2014 | 2013 | Amount | Percent | |||
| Net Revenue | $ 20,011,000 | $ 24,729,000 | $ (4,718,000 | ) | -19% | |
| Cost of sales | 14,546,000 | 15,965,000 | (1,419,000 | ) | -9% | |
| Gross profit | $ 5,465,000 | $ 8,764,000 | $ (3,299,000 | ) | -38% | |
| … as a percentage of net revenues | 27% | 35% | ||||
The Company's consolidated results of operations showed a 19% decrease in net revenues and a decrease in net income of 56%. Gross profit decreased by 38%. After record high sales levels two years ago and above average sales levels last year, the sales level dropped in the middle of the current fiscal year at a time when movement of all of the Company’s production equipment from its original location at the Company headquarters to the new Buffalo Bolt Way campus in North Tonawanda during October and November resulted in an interruption of production with extensive lost time involved in installation, leveling and set-up of the machines. In the current period, revenues accounted for under the percentage-of-completion method of accounting decreased by 35% from the level recorded in the prior year. This decrease is primarily due to fewer projects in process in the current year (51 in fiscal 2014; 59 in fiscal 2013). Of the 51 projects in process during this year, 25 were still in process at 5/31/14 compared with the prior year when 16 of the 59 projects worked on were still in process at 5/31/13. The average value of these projects in-process at the end of the current fiscal year ($710,000) increased by 71% from the projects in-process at the end of the prior fiscal year ($415,000). The projects in the current year are 31% complete in the aggregate as compared with 52% for those in process at 5/31/13. Revenues recorded for all other product sales increased by 3% from last year. The gross profit as a percentage of net revenues for the current and prior year periods was 27% and 35%, respectively.
The number of projects in-process fluctuates from period to period, as does the average value of projects in-process. The changes from the prior period to the current period are not necessarily representative of future results.
The mix of customers buying our products changed from last year. Sales of the Company's products are made to three general groups of customers: industrial, construction and aerospace / defense. A 35% decrease from last year’s level in sales to construction customers who were seeking seismic / wind protection for either building new buildings and bridges or retrofitting existing buildings and bridges, and a 19% decrease in sales to customers using our products in industrial applications, was offset somewhat by a 9% increase in sales to aerospace / defense customers. A breakdown of sales to these three general groups of customers is as follows:
| Year ended May 31 | ||
| 2014 | 2013 | |
| Industrial | 10% | 10% |
| Construction | 46% | 57% |
| Aerospace / Defense | 44% | 33% |
At May 31, 2013, we had 108 open sales orders in our backlog with a total sales value of $13.1 million. At May 31, 2014, we had 107 open sales orders in our backlog and the total sales value is $24.6 million. $12.4 million of the current backlog is on projects already in progress. $3.2 million of the $13.1 million sales order backlog at May 31, 2013 was in progress at that date. 40% of the sales value in the backlog is for aerospace / defense customers compared to 59% at the end of fiscal 2013. As a percentage of the total sales order backlog, orders from customers in construction accounted for 58% at May 31, 2014 and 38% at May 31, 2013.
The Company's backlog, revenues, commission expense, gross margins, gross profits, and net income fluctuate from period to period. The changes in the current period, compared to the prior period, are not necessarily representative of future results.
| 11 |
Net revenue by geographic region, as a percentage of total net revenue for fiscal years ended May 31, 2014 and 2013 is as follows:
| Year ended May 31 | ||
| 2014 | 2013 | |
| North America | 63% | 55% |
| Asia | 33% | 41% |
| Other | 4% | 4% |
Selling, General and Administrative Expenses
| Year ended May 31 | Change | |||||
| 2014 | 2013 | Amount | Percent | |||
| Outside Commissions | $ 794,000 | $ 858,000 | $ (64,000 | ) | -7% | |
| Other SG&A | 3,126,000 | 4,440,000 | (1,314,000 | ) | -30% | |
| Total SG&A | $ 3,920,000 | $ 5,298,000 | $ (1,378,000 | ) | -26% | |
| … as a percentage of net revenues | 20% | 21% | ||||
Selling, general and administrative expenses decreased by 26% from the prior year. Outside commission expense decreased 7% from last year's level. This fluctuation was primarily due to the decrease in the level of sales from last year to this. Other selling, general and administrative expenses decreased by 30% from last year. This decrease is primarily due to a decrease in air-freight charges incurred last year in order to meet contractual obligations to deliver products on schedule along with a decrease in estimated incentive compensation expense from the prior period related to the lower level of sales and operating results.
The above factors resulted in operating income of $1,546,000 for the year ended May 31, 2014, down 55% from the $3,467,000 in the prior year.
The Company's effective tax rate (ETR) is calculated based upon current assumptions relating to the year's operating results and various tax related items. The ETR for the fiscal year ended May 31, 2014 is 27.9%, slightly more than the ETR for the prior year of 26.4%. A reconciliation of provision for income taxes at the statutory rate to income tax provision at the Company's effective rate is as follows:
| 2014 | 2013 | ||||||
| Computed tax provision at the expected statutory rate | $ 533,000 | $1,176,000 | |||||
| State income tax - net of Federal tax benefit | 1,000 | (3,000 | ) | ||||
| Tax effect of permanent differences: | |||||||
| Research tax credits | (99,000 | ) | (213,000 | ) | |||
| Other permanent differences | (17,000 | ) | (30,000 | ) | |||
| Other | 19,000 | (18,000 | ) | ||||
| $ 437,000 | $ 912,000 | ||||||
Stock Options
The Company has stock option plans which provide for the granting of nonqualified or incentive stock options to officers, key employees and non-employee directors. Options granted under the plans are exercisable over a ten year term. Options not exercised by the end of the term expire.
The Company measures compensation cost arising from the grant of share-based payments to employees at fair value and recognizes such cost in income over the period during which the employee is required to provide service in exchange for the award. The Company recognized $112,000 and $110,000 of compensation cost for the years ended May 31, 2014 and 2013.
The fair value of each stock option grant has been determined using the Black-Scholes model. The model considers assumptions related to exercise price, expected volatility, risk-free interest rate, and the weighted average expected term of the stock option grants. The Company used a weighted average expected term. Expected volatility assumptions utilized in the model were based on volatility of the Company's stock price for the thirty month period immediately preceding the granting of the options. The Company issued stock options in August 2013 and April 2014. The risk-free interest rate is derived from the U.S. treasury yield.
| 12 |
The following assumptions were used in the Black-Scholes model in estimating the fair market value of the Company's stock option grants:
| August 2013 | April 2014 | |||
| Risk-free interest rate: | 3.25% | 3.25% | ||
| Expected life of the options: | 3 years | 3 years | ||
| Expected share price volatility: | 36% | 32% | ||
| Expected dividends: | zero | zero | ||
| These assumptions resulted in estimated fair-market value per stock option: | $2.41 | $2.30 |
The ultimate value of the options will depend on the future price of the Company's common stock, which cannot be forecast with reasonable accuracy. A summary of changes in the stock options outstanding during the year ended May 31, 2014 is presented below.
| Weighted- | ||||
| Number of | Average | |||
| Options | Exercise Price | |||
| Options outstanding and exercisable at May 31, 2013: | 206,750 | $6.63 | ||
| Options granted: | 48,000 | $8.80 | ||
| Less: Options exercised: | 30,000 | $5.26 | ||
| Less: Options expired: | 5,250 | |||
| Options outstanding and exercisable at May 31, 2014: | 219,500 | $7.31 | ||
| Closing value per share on NASDAQ at May 31, 2014: | $8.83 |
Capital Resources, Line of Credit and Long-Term Debt
The Company's primary liquidity is dependent upon its working capital needs. These are primarily inventory, accounts receivable, costs and estimated earnings in excess of billings, accounts payable, accrued commissions, billings in excess of costs and estimated earnings, and debt service. The Company's primary sources of liquidity have been operations and bank financing.
Capital expenditures for the year ended May 31, 2014 were $1,356,000 compared to $3,293,000 in the prior year. The Company has no commitments to make capital expenditures as of May 31, 2014.
The Company has a $6,000,000 demand line of credit from a bank, with interest payable at the Company's option of 30, 60, 90 or 180 day LIBOR rate plus 2.5% or the bank's prime rate less .25%. There is no outstanding balance at May 31, 2014. There was no outstanding balance as of May 31, 2013. The outstanding balance on the line of credit fluctuates as the Company's various long-term projects progress. The line is secured by accounts receivable, equipment, inventory, and general intangibles, and a negative pledge of the Company's real property. This line of credit is subject to the usual terms and conditions applied by the bank and is subject to renewal annually. In conjunction with this line of credit, the Company agreed to the following covenants:
| Covenant | Minimum per Covenant | Current Actual | When Measured | |||
| Minimum level of working capital | $3 million | $14.8 million | Quarterly | |||
| Minimum debt service coverage ratio | 1.5:1 | No debt service | Fiscal Year-end |
The bank is not committed to make loans under this line of credit and no commitment fee is charged.
| 13 |
Inventory and Maintenance Inventory
| May 31, 2014 | May 31, 2013 | Increase /(Decrease) | |||||
| Raw materials | $ 571,000 | $ 583,000 | $ (12,000 | ) | -2% | ||
| Work in process | 8,149,000 | 7,876,000 | 273,000 | 3% | |||
| Finished goods | 258,000 | 665,000 | (407,000 | ) | -61% | ||
| Inventory | 8,978,000 | 91% | 9,124,000 | 91% | (146,000 | ) | -2% |
| Maintenance and other inventory | 837,000 | 9% | 904,000 | 9% | (67,000 | ) | -7% |
| Total | $ 9,815,000 | 100% | $ 10,028,000 | 100% | $ (213,000 | ) | -2% |
| Inventory turnover | 1.5 | 1.7 | |||||
Inventory, at $8,978,000 as of May 31, 2014, is 2% lower than the prior year-end. Of this, approximately 91% is work in process, 3% is finished goods, and 6% is raw materials. All of the current inventory is expected to be consumed or sold within twelve months. The level of inventory will fluctuate from time to time due to the stage of completion of the non-project sales orders in progress at the time.
The Company continues to rework slow-moving inventory, where applicable, to convert it to product to be used on customer orders. There was approximately $183,000 of slow-moving inventory used during the year ended May 31, 2014. The Company disposed of approximately $153,000 and $268,000 of obsolete inventory during the years ended May 31, 2014 and 2013, respectively.
Accounts Receivable, Costs and Estimated Earnings in Excess of Billings (“CIEB) and Billings in Excess of Costs and Estimated Earnings (BIEC”)
| May 31, 2014 | May 31, 2013 | Increase /(Decrease) | ||||||||
| Accounts receivable | $ 2,894,000 | $ 2,245,000 | $ 649,000 | 29% | ||||||
| CIEB | 2,374,000 | 2,458,000 | (84,000 | ) | -3% | |||||
| Less: BIEC | 851,000 | 172,000 | 679,000 | 395% | ||||||
| Net | $ 4,417,000 | $ 4,531,000 | $ (114,000 | ) | -3% | |||||
| Number of an average day’s sales outstanding in accounts receivable (DSO) | 49 | 39 | ||||||||
The Company combines the totals of accounts receivable, the asset CIEB, and the liability BIEC, to determine how much cash the Company will eventually realize from revenue recorded to date. As the accounts receivable figure rises in relation to the other two figures, the Company can anticipate increased cash receipts within the ensuing 30-60 days.
Accounts receivable of $2,894,000 as of May 31, 2014 includes approximately $556,000 of amounts retained by customers on long-term construction projects. The Company expects to collect all of these amounts, including the retained amounts, during the next twelve months. The number of an average day's sales outstanding in accounts receivable (DSO) increased from 39 days at May 31, 2013 to 49 days at May 31, 2014. The DSO is a function of 1.) the level of sales for an average day (for example, total sales for the past three months divided by 90 days) and 2.) the level of accounts receivable at the balance sheet date. The level of sales for an average day in the fourth quarter of the current year is only 3% more than the level in the fourth quarter of the prior year. The level of accounts receivable at the end of the current year is 29% more than at the end of the prior year. The combination of these two factors caused the DSO to increase from last year end to this. The increase in the level of accounts receivable was due to: a.) the increase in retained amounts on projects, as discussed above and b.) a significant increase (114%) in the amount of billings to customers on projects in May 2014 over May 2013.
| 14 |
The status of the projects in-progress at the end of the current and prior fiscal years have changed in the factors affecting the year-end balances in the asset CIEB, and the liability BIEC:
| 2014 | 2013 | |
| Number of projects in progress at year-end | 25 | 16 |
| Aggregate percent complete at year-end | 31% | 52% |
| Average total value of projects in progress at year-end | $710,000 | $415,000 |
| Percentage of total value invoiced to customer | 22% | 18% |
There are 56% more projects in-process at the end of the current fiscal year as compared with the prior year end and the average value of those projects has increased by 71% between those two dates.
As noted above, CIEB represents revenues recognized in excess of amounts billed. Whenever possible, the Company negotiates a provision in sales contracts to allow the Company to bill, and collect from the customer, payments in advance of shipments. Unfortunately, provisions such as this are often not possible. The $2,374,000 balance in this account at May 31, 2014 is a 3% decrease from the prior year-end. Generally, if progress billings are permitted under the terms of a project sales agreement, then the more complete the project is, the more progress billings will be permitted. The Company expects to bill the entire amount during the next twelve months. 61% of the CIEB balance as of the end of the last fiscal quarter, February 28, 2014, was billed to those customers in the current fiscal quarter ended May 31, 2014. The remainder will be billed as the projects progress, in accordance with the terms specified in the various contracts.
As of May 31, 2014, there are sales orders for eight projects that are not yet in progress. These projects average $730,000 each in value upon completion. This compares to nine such projects as of the prior year end with an average value of $253,000.
The year-end balances in the CIEB account are comprised of the following components:
| May 31, 2014 | May 31, 2013 | ||
| Costs | $ 3,055,000 | $ 2,752,000 | |
| Estimated earnings | 929,000 | 640,000 | |
| Less: Billings to customers | 1,610,000 | 934,000 | |
| CIEB | $ 2,374,000 | $ 2,458,000 | |
| Number of projects in progress | 17 | 13 |
As noted above, BIEC represents billings to customers in excess of revenues recognized. The $851,000 balance in this account at May 31, 2014 is in comparison to a $172,000 balance at the end of the prior year. The balance in this account fluctuates in the same manner and for the same reasons as the account "costs and estimated earnings in excess of billings", discussed above. Final delivery of product under these contracts is expected to occur during the next twelve months.
The year-end balances in this account are comprised of the following components:
| May 31, 2014 | May 31, 2013 | ||
| Billings to customers | $ 2,236,000 | $ 256,000 | |
| Less: Costs | 1,072,000 | 71,000 | |
| Less: Estimated earnings | 313,000 | 13,000 | |
| BIEC | $ 851,000 | $ 172,000 | |
| Number of projects in progress | 8 | 3 |
The Company's backlog of sales orders at May 31, 2014 is $24.6 million, up 88% from the backlog at the end of the prior year of $13.1 million. $12.4 million of the current backlog is on projects already in progress.
Accounts payable, at $1,166,000 as of May 31, 2014, is only slightly less than the prior year-end. The Company expects the current accounts payable amount to be paid during the next twelve months.
Commission expense on applicable sales orders is recognized at the time revenue is recognized. The commission is paid following receipt of payment from the customers. Accrued commissions as of May 31, 2014 are $430,000. This is only slightly less than the $437,000 accrued at the prior year-end. The Company expects the current accrued amount to be paid during the next twelve months.
| 15 |
Other accrued expenses of $1,259,000 decreased by 28% from the prior year of $1,736,000. This decrease is primarily due to a decrease in estimated incentive compensation expense from the prior period related to the lower level of operating results.
Management believes that the Company's cash on hand, cash flows from operations and borrowing capacity under the bank line of credit will be sufficient to fund ongoing operations, capital improvements and share repurchases (if any) for the next twelve months.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Smaller reporting companies are not required to provide the information required by this item.
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data required pursuant to this Item 8 are included in this Form 10-K as a separate section commencing on page 23 and are incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
There have been no disagreements between the Company and its accountants as to matters which require disclosure.
Item 9A. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
The Company's principal executive officer and principal financial officer have evaluated the Company's disclosure controls and procedures as of May 31, 2014 and have concluded that, as of the evaluation date, the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms and that information required to be disclosed in the reports the Company files or submits under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.
(b) Management's report on internal control over financial reporting.
The Company's management, with the participation of the Company's principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's management has assessed the effectiveness of the Company's internal control over financial reporting as of May 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -- Integrated Framework. Based on this assessment management has concluded that, as of May 31, 2014, the Company's internal control over financial reporting is effective based on those criteria.
(c) Changes in internal control over financial reporting.
There have been no changes in the Company's internal controls over financial reporting that occurred during the fiscal quarter ended May 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company's control over financial reporting.
None.
The information required by Items 10, 11, 12, 13 and 14 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 7, 2014, which information is hereby incorporated by reference into this Annual Report. The proxy materials, including the Proxy Statement and form of proxy, will be filed within 120 days after the Company's fiscal year end.
| 16 |
Item 15. Exhibits and Financial Statement Schedules.
| DOCUMENTS FILED AS PART OF THIS REPORT: | ||||||
|
Index to Financial Statements:
| ||||||
| (i) |
Report of Independent Registered Public Accounting Firm
| |||||
| (ii) |
Consolidated Balance Sheets as of May 31, 2014 and 2013
| |||||
| (iii) | Consolidated Statements of Income for the years ended May 31, 2014 and 2013 | |||||
| (iv) |
Consolidated Statements of Stockholders' Equity for the years ended May 31, 2014 and 2013
| |||||
| (v) |
Consolidated Statements of Cash Flows for the years ended May 31, 2014 and 2013
| |||||
| (vi) | Notes to Consolidated Financial Statements - May 31, 2014 and 2013 | |||||
| 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 eliminating and re-designating the Series A Junior Preferred Stock and creating 5,000 Series 2008 Junior Participating Preferred Stock, at $.05 par value, as filed by the Secretary of State of the State of New York on September 16, 2008, and incorporated by reference to Exhibit (3)(i) of Form 8-K, dated as of September 15, 2008 and filed September 18, 2008.
| |||||
| (iv) |
Certificate of Change incorporated by reference to Exhibit (3)(i) to Quarterly Report on Form 10-QSB for the period ending November 30, 2002.
| |||||
| (v) |
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.
| |||||
| (vi) |
By-laws incorporated by reference to Exhibit (3)(i) to Quarterly Report on Form 10-QSB for the period ending February 28, 2004, dated April 14, 2004.
| |||||
| (vii) | Amendment to By-laws incorporated by reference to Exhibit (3)(ii) of Form 8-K, dated as of September 15, 2008 and filed September 18, 2008. | |||||
| 4 |
Instruments defining rights of security holders, including indentures
| |||||
| (i) |
Rights Agreement by and between registrant and Regan & Associates, Inc, dated as of October 5, 2008 and letter to shareholders (including Summary of Rights), dated October 5, 2008, attached as Exhibits 4 and 20, respectively to Registration Statement on Form 8-A 12G, filed with the Securities and Exchange Commission on October 3, 2008.
| |||||
| 10 |
Material Contracts
| |||||
| (i) |
2001 Taylor Devices, Inc. Stock Option Plan attached as Exhibit A to Definitive Proxy Statement, filed with the Securities and Exchange Commission on September 24, 2001.
| |||||
| 17 |
| (ii) |
2005 Taylor Devices, Inc. Stock Option Plan attached as Appendix B to Definitive Proxy Statement, filed with the Securities and Exchange Commission on September 27, 2005.
| ||
| (iii) |
2008 Taylor Devices, Inc. Stock Option Plan attached as Appendix C to Definitive Proxy Statement, filed with the Securities and Exchange Commission on September 26, 2008.
| ||
| (iv) |
2012 Taylor Devices, Inc. Stock Option Plan attached as Appendix C to Definitive Proxy Statement, filed with the Securities and Exchange Commission on September 21, 2012.
| ||
| (v) |
The 2004 Taylor Devices, Inc. Employee Stock Purchase Plan, incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-8, File No. 333-114085, filed with the Securities and Exchange Commission on March 31, 2004.
| ||
| (vi) |
Post-Effective Amendment No. 1 to Registration Statement on Form S-8, File No. 333-114085, for the 2004 Taylor Devices, Inc. Employee Stock Purchase Plan, filed with the Securities and Exchange Commission on August 24, 2006.
| ||
| (vii) |
Form of Indemnification Agreement between registrant and directors and executive officers, attached as Appendix A to Definitive Proxy Statement, filed with the Securities and Exchange Commission on September 27, 2007.
| ||
| (viii) |
Consent Agreement by and between Taylor Devices, Inc. and HSBC Bank USA, National Association, dated November 30, 2008, incorporated by reference to Exhibit 10(xv) to Annual Report on Form 10-KSB, dated August 21, 2008.
| ||
| (ix) |
General Security Agreement dated August 7, 2009 by the Registrant in favor of First Niagara Bank, incorporated by reference to Exhibit 10(xiii) to Annual Report on Form 10-K filed August 28, 2009.
| ||
| (x) |
Negative Pledge Agreement dated August 7, 2009 by the Registrant in favor of First Niagara Bank, incorporated by reference to Exhibit 10(xiv) to Annual Report on Form 10-K filed August 28, 2009.
| ||
| (xi) |
Management Bonus Policy dated as of March 4, 2011 between the Registrant and executive officers, incorporated by reference to Exhibit 10(i) to Quarterly Report on Form 10-Q for the period ending February 28, 2011.
| ||
| (xii) |
Employment Agreement dated as of August 26, 2014 between the Registrant and Douglas P. Taylor.
| ||
| (xiii) |
Employment Agreement dated as of August 26, 2014 between the Registrant and Richard G. Hill.
| ||
| (xiv) |
Employment Agreement dated as of August 26, 2014 between the Registrant and Mark V. McDonough.
| ||
| 18 |
| 11 | Statement regarding computation of per share earnings | ||||||||
| REG. 228.601(A)(11) Statement regarding computation of per share earnings | |||||||||
| Weighted average of common stock/equivalents outstanding - fiscal year ended May 31, 2014 | |||||||||
| Weighted average common stock outstanding | 3,341,975 | ||||||||
| Common shares issuable under stock option plans using treasury stock method | 30,830 | ||||||||
| Weighted average common stock outstanding assuming dilution | 3,372,805 | ||||||||
| Net income fiscal year ended May 31, 2014 | (1) | $ 1,131,212 | |||||||
| Weighted average common stock | (2) | 3,341,975 | |||||||
| Basic income per common share (1) divided by (2) | $ .34 | ||||||||
| Net income fiscal year ended May 31, 2014 | (3) | $ 1,131,212 | |||||||
| Weighted average common stock outstanding assuming dilution | (4) | 3,372,805 | |||||||
| Diluted income per common share (3) divided by (4) | $ .34 | ||||||||
| Weighted average of common stock/equivalents outstanding - fiscal year ended May 31, 2013 | |||||||||
| Weighted average common stock outstanding | 3,310,514 | ||||||||
| Common shares issuable under stock option plans using treasury stock method | 46,778 | ||||||||
| Weighted average common stock outstanding assuming dilution | 3,357,292 | ||||||||
| Net income fiscal year ended May 31, 2013 | (1) | $ 2,547,794 | |||||||
| Weighted average common stock | (2) | 3,310,514 | |||||||
| Basic income per common share (1) divided by (2) | $ .77 | ||||||||
| Net income fiscal year ended May 31, 2013 | (3) | $ 2,547,794 | |||||||
| Weighted average common stock outstanding assuming dilution | (4) | 3,357,292 | |||||||
| Diluted income per common share (3) divided by (4) | $ .76 | ||||||||
| 13 | The Annual Report to Security Holders for the fiscal year ended May 31, 2014, attached to this Annual Report on Form 10-K. | ||||||||
| 14 | Code of Ethics, incorporated by reference to Exhibit 14 to Annual Report on Form 10-KSB for the period ending May 31, 2004. | ||||||||
| 20 | Other documents or statements to security holders | ||||||||
| (i) | News from Taylor Devices, Inc. Shareholder Letter, Summer 2014. | ||||||||
| 21 | Subsidiaries of the registrant | ||||||||
| Tayco Realty Corporation is a New York corporation organized on September 8, 1977, owned by the Company. | |||||||||
| 23 | The Consent of Independent Registered Public Accounting Firm precedes the Consolidated Financial Statements. | ||||||||
| 31 | Officer Certifications | ||||||||
| (i) | Rule 13a-14(a) Certification of Chief Executive Officer. | ||||||||
| (ii) | Rule 13a-14(a) Certification of Chief Financial Officer. | ||||||||
| 32 | Officer Certifications | ||||||||
| (i) | Section 1350 Certification of Chief Executive Officer. | ||||||||
| 19 |
| (ii) | Section 1350 Certification of Chief Financial Officer. | |||
| 101 | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements. | |||
| 101.INS** | XBRL Instance Document | |||
| 101.SCH** | XBRL Taxonomy Extension Schema Document | |||
| 101.CAL** | XBRL Taxonomy Extension Calculation Linkbase Document | |||
| 101.DEF** | XBRL Taxonomy Extension Definition Linkbase Document | |||
| 101.LAB** | XBRL Taxonomy Extension Label Linkbase Document | |||
| 101.PRE** | XBRL Taxonomy Extension Presentation Linkbase Document | |||
| ** | In accordance with Rule 406T(b)(2) of Regulation S-T, the interactive data files in this Report shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liability of that section and shall not be part of any registration statement or other document filed under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such filing. | |||
| 20 |
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 14, 2014 |
| Douglas P. Taylor | |||
| President and Director | |||
| (Principal Executive Officer) |
and
| By: | /s/Mark V. McDonough | Date: | August 14, 2014 |
| Mark V. McDonough | |||
| Chief Financial 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/Reginald B. Newman II | By: | /s/Richard G. Hill |
| Reginald B. Newman II, Director | Richard G. Hill, Director | ||
| August 14, 2014 | August 14, 2014 |
| By: | /s/John Burgess | By: | /s/Randall L. Clark |
| John Burgess, Director | Randall L. Clark, Director | ||
| August 14, 2014 | August 14, 2014 |
| 21 |
[Lumsden & McCormick, LLP Letterhead]
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors of
Taylor Devices, Inc.
Gentlemen:
We hereby consent to the incorporation by reference in this Annual Report on Form 10-K (Commission File Number 0-3498) of Taylor Devices, Inc. of our report dated August 21, 2014 and any reference thereto in the Annual Report to Shareholders for the fiscal year ended May 31, 2014.
We also consent to such incorporation by reference in Registration Statement Nos. 333-75662, 333-114085, 333-133340, 333-155284 and 333-184809 of Taylor Devices, Inc. on Form S-8 of our report dated August 21, 2014.
/s/Lumsden & McCormick, LLP
Lumsden & McCormick, LLP
Buffalo, New York
August 21, 2014
| 22 |
TAYLOR DEVICES, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2014
| 23 |
[Lumsden & McCormick, LLP Letterhead]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2014 and 2013, and the related consolidated statements of income, stockholders' equity, and cash flows for the years then ended. The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/Lumsden & McCormick, LLP
Lumsden & McCormick, LLP
Buffalo, New York
August 21, 2014
| 24 |
| 25 |
| 26 |
| TAYLOR DEVICES, INC. AND SUBSIDIARY | ||||||
| Consolidated Statements of Stockholders' Equity | ||||||
| For the years ended May 31, 2014 and 2013 | ||||||
| Common | Paid-In | Retained | Treasury | |||
| Stock | Capital | Earnings | Stock | |||
| Balance, May 31, 2012 | $ 95,995 | $ 7,276,694 | $ 14,122,954 | $ (2,498,983) | ||
| Net income for the year ended May 31, 2013 | - | - | 2,547,794 | - | ||
| Common stock issued for employee stock | ||||||
| purchase plan (Note 13) | 34 | 11,683 | - | - | ||
| Stock options issued for services | - | 109,586 | - | - | ||
| Balance, May 31, 2013 | 96,029 | 7,397,963 | 16,670,748 | (2,498,983) | ||
| Net income for the year ended May 31, 2014 | - | - | 1,131,212 | - | ||
| Common stock issued for employee stock | ||||||
| Option plan (Note 14) | 750 | 156,900 | - | - | ||
| Common stock issued for employee stock | ||||||
| purchase plan (Note 13) | 45 | 15,136 | - | - | ||
| Stock options issued for services | - | 112,171 | - | - | ||
| Balance, May 31, 2014 | $ 96,824 | $ 7,682,170 | $ 17,801,960 | $ (2,498,983) | ||
| See notes to consolidated financial statements. | ||||||
| 27 |
| 28 |
| TAYLOR DEVICES, INC. AND SUBSIDIARY |
| Notes to Consolidated Financial Statements |
1. Summary of Significant Accounting Policies:
Nature of Operations:
Taylor Devices, Inc. (the Company) manufactures and sells a single group of very similar products that have many different applications for customers. These similar products are included in one of six categories; namely, Seismic Dampers, Fluidicshoks®, Crane and Industrial Buffers, Self-Adjusting Shock Absorbers, Liquid Die Springs, and Vibration Dampers for use in various types of machinery, equipment and structures, primarily to customers which are located throughout the United States and several foreign countries. The products are manufactured at the Company's sole operating facility in the United States where all of the Company's long-lived assets reside. Management does not track or otherwise account for sales broken down by these categories.
62% of the Company's 2014 revenue was generated from sales to customers in the United States and 33% was from sales to customers in Asia. Remaining sales were to customers in other countries in North America, Europe and South.
54% of the Company's 2013 revenue was generated from sales to customers in the United States and 41% was from sales to customers in Asia. Remaining sales were to customers in other countries in North America, Europe, and South America.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Tayco Realty Corporation (Realty). All inter-company transactions and balances have been eliminated in consolidation.
Subsequent Events:
The Company has evaluated events and transactions for potential recognition or disclosure in the financial statements through the date the financial statements were issued.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
Cash and Cash Equivalents:
The Company includes all highly liquid investments in money market funds in cash and cash equivalents on the accompanying balance sheets.
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.
Accounts Receivable:
Accounts receivable are stated at an amount management expects to collect from outstanding balances. Management provides for probable uncollectible accounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.
Inventory:
Inventory is stated at the lower of average cost or market. Average cost approximates first-in, first-out cost.
| 29 |
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. 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.
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. Total estimated costs for each of the contracts are estimated based on a combination of historical costs of manufacturing similar products and estimates or quotes from vendors for supplying parts or services towards the completion of the manufacturing process. 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. If total costs calculated upon completion of the manufacturing process in the current period for a contract are more than the estimated total costs at completion used to calculate revenue in a prior period, then the revenue and profits in the current period will be lower than if the estimated costs used in the prior period calculation were equal to the actual total costs upon completion. In the fiscal year ended May 31, 2014, 47% of total revenue recognized was accounted for using the percentage-of-completion method of accounting while the remaining 53% of revenue was recorded as deliveries were made to our customers. In the fiscal year ended May 31, 2013, 58% of total revenue recognized was accounted for using the percentage-of-completion method of accounting while the remaining 42% of revenue was recorded as deliveries were made to our customers.
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.
Shipping and Handling Costs:
Shipping and handling costs are classified as a component of selling, general and administrative expenses.
Income Taxes:
The provision for income taxes provides for the tax effects of transactions reported in the financial statements regardless of when such taxes are payable. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax and financial statement basis of assets and liabilities. Deferred taxes are based on tax laws currently enacted with tax rates expected to be in effect when the taxes are actually paid or recovered.
The Company's practice is to recognize interest related to income tax matters in interest income / expense and to recognize penalties in selling, general and administrative expenses. The Company did not have any accrued interest or penalties included in its consolidated balance sheets at May 31, 2014 or 2013. The Company recorded no interest expense or penalties in its consolidated statements of income during the years ended May 31, 2014 and 2013.
Sales Taxes:
Certain jurisdictions impose a sales tax on Company sales to nonexempt customers. The Company collects these taxes from customers and remits the entire amount as required by the applicable law. The Company excludes from revenues and expenses the tax collected and remitted.
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Stock-Based Compensation:
The Company measures compensation cost arising from the grant of share-based payments to employees at fair value and recognizes such cost in income over the period during which the employee is required to provide service in exchange for the award. The stock-based compensation expense for the years ended May 31, 2014 and 2013 was $112,171 and $109,586.
New Accounting Standards:
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for annual reporting periods, and interim periods within that period, beginning after December 15, 2016 (fiscal year 2018 for the Company) and early adoption is not permitted. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company has not yet determined the potential effects of the adoption of ASU 2014-09 on its Consolidated Financial Statements.
Other recently issued Accounting Standards Codification (ASC) guidance has either been implemented or are not significant to the Company.
2. Accounts Receivable:
| 2014 | 2013 | ||
| Customers | $ 2,348,113 | $ 1,931,178 | |
| Customers - retention | 556,231 | 355,421 | |
| 2,904,344 | 2,286,599 | ||
| Less allowance for doubtful accounts | 10,000 | 42,024 | |
| $ 2,894,344 | $ 2,244,575 |
3. Inventory:
| 2014 | 2013 | ||
| Raw materials | $ 571,491 | $ 582,591 | |
| Work-in-process | 8,149,015 | 7,876,272 | |
| Finished goods | 357,796 | 765,323 | |
| 9,078,302 | 9,224,186 | ||
| Less allowance for obsolescence | 100,000 | 100,000 | |
| $ 8,978,302 | $ 9,124,186 |
4. Costs and Estimated Earnings on Uncompleted Contracts:
| 2014 | 2013 | ||
| Costs incurred on uncompleted contracts | $ 4,126,406 | $ 2,822,541 | |
| Estimated earnings | 1,242,594 | 653,458 | |
| 5,369,000 | 3,475,999 | ||
| Less billings to date | 3,845,740 | 1,190,058 | |
| $ 1,523,260 | $ 2,285,941 |
Amounts are included in the accompanying balance sheets under the following captions:
| 2014 | 2013 | ||
| Costs and estimated earnings in excess of billings | $ 2,373,791 | $ 2,457,822 | |
| Billings in excess of costs and estimated earnings | 850,531 | 171,881 | |
| $ 1,523,260 | $ 2,285,941 |
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5. Maintenance and Other Inventory:
| 2014 | 2013 | ||
| Maintenance and other inventory | $ 2,128,710 | $ 2,169,148 | |
| Less allowance for obsolescence | 1,292,141 | 1,264,849 | |
| $ 836,569 | $ 904,299 |
Maintenance and other inventory represent stock that is estimated to have a product life-cycle in excess of twelve-months. This stock represents certain items the Company is required to maintain for service of products sold, and items that are generally subject to spontaneous ordering.
This inventory is particularly sensitive to technical 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.
The provision for potential inventory obsolescence was $180,000 for each of the years ended May 31, 2014 and 2013.
6. Property and Equipment:
| 2014 | 2013 | ||
| Land | $ 195,220 | $ 195,220 | |
| Buildings and improvements | 7,752,647 | 7,214,445 | |
| Machinery and equipment | 7,089,831 | 6,711,011 | |
| Office furniture and equipment | 1,222,222 | 1,091,929 | |
| Autos and trucks | 73,331 | 73,331 | |
| Land improvements | 371,590 | 63,300 | |
| 16,704,841 | 15,349,236 | ||
| Less accumulated depreciation | 8,837,113 | 8,138,074 | |
| $ 7,867,728 | $ 7,211,162 |
Depreciation expense was $699,039 and $564,262 for the years ended May 31, 2014 and 2013.
7. Short-Term Borrowings:
The Company has a credit facility with a $6,000,000 demand line of credit from a bank, with interest payable at the Company's option of 30, 60, 90 or 180 day LIBOR rate plus 2.5% or the bank's prime rate less .25%. The line is secured by accounts receivable, equipment, inventory, general intangibles, and a negative pledge of the Company's real property. This line of credit is subject to the usual terms and conditions applied by the bank and subject to renewal annually.
There is no amount outstanding under the line of credit at May 31, 2014 or May 31, 2013.
The Company uses a cash management facility under which the bank draws against the available line of credit to cover checks presented for payment on a daily basis. Outstanding checks under this arrangement totaled $264,146 and $113,095 as of May 31, 2014 and 2013. These amounts are included in accounts payable.
8. Legal Proceedings:
There are no legal proceedings except for routine litigation incidental to the business.
9. Sales:
The Company manufactures and sells a single group of very similar products that have many different applications for customers. These similar products are included in one of six categories; namely, Seismic Dampers, Fluidicshoks®, Crane and Industrial Buffers, Self-Adjusting Shock Absorbers, Liquid Die Springs, and Vibration Dampers. Management does not track or otherwise account for sales broken down by these categories. Sales of the Company's products are made to three general groups of
| 32 |
customers: industrial, construction and aerospace / defense. A breakdown of sales to these three general groups of customers is as follows:
| 2014 | 2013 | ||
| Construction | $ 9,110,853 | $14,105,072 | |
| Aerospace / Defense | 8,879,443 | 8,132,008 | |
| Industrial | 2,020,932 | 2,492,505 | |
| $20,011,228 | $24,729,585 |
Sales to five customers approximated 50% (20%, 10%, 9%, 6% and 5%, respectively) of net sales for 2014. Sales to five customers approximated 52% (29%, 7%, 6%, 5% and 5%, respectively) of net sales for 2013.
10. Income Taxes:
| 2014 | 2013 | ||||
| Current tax provision (benefit): | |||||
| Federal | $ 311,000 | $ 911,000 | |||
| State | 1,700 | (1,000 | ) | ||
| 312,700 | 910,000 | ||||
| Deferred tax provision (benefit): | |||||
| Federal | 122,900 | 2,000 | |||
| State | 1,400 | - | |||
| 124,300 | 2,000 | ||||
| $ 437,000 | $ 912,000 | ||||
A reconciliation of provision for income taxes at the statutory rate to income tax provision at the Company's effective rate is as follows:
| 2014 | 2013 | |||
| Computed tax provision at the expected statutory rate | $ 533,200 | $1,176,400 | ||
| State income tax - net of Federal tax benefit | 1,000 | (2,900 | ) | |
| Tax effect of permanent differences: | ||||
| Research tax credits | (99,000 | ) | (213,000 | ) |
| Other permanent differences | (17,200 | ) | (29,800 | ) |
| Other | 19,000 | (18,700 | ) | |
| $ 437,000 | $ 912,000 | |||
| Effective income tax rate | 27.9% | 26.4% |
Significant components of the Company's deferred tax assets and liabilities consist of the following:
| 2014 | 2013 | |||
| Deferred tax assets: | ||||
| Allowance for doubtful receivables | $ 3,400 | $ 14,400 | ||
| Tax inventory adjustment | 254,600 | 209,500 | ||
| Allowance for obsolete inventory | 474,800 | 465,400 | ||
| Accrued vacation | 59,800 | 60,200 | ||
| Accrued commissions | 8,900 | 4,000 | ||
| Warranty reserve | 89,900 | 126,300 | ||
| Stock options issued for services | 207,200 | 182,800 | ||
| 1,098,600 | 1,062,600 | |||
| Deferred tax liabilities: | ||||
| Excess tax depreciation | (558,485 | ) | (398,185 | ) |
| Net deferred tax assets | $ 540,115 | $ 664,415 |
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Realization of the deferred tax assets is dependent on generating sufficient taxable income at the time temporary differences become deductible. The Company provides a valuation allowance to the extent that deferred tax assets may not be realized. A valuation allowance has not been recorded against the deferred tax assets since management believes it is more likely than not that the deferred tax assets are recoverable. The Company considers future taxable income and potential tax planning strategies in assessing the need for a potential valuation allowance. The amount of the deferred tax assets considered realizable however, could be reduced in the near term if estimates of future taxable income are reduced. The Company will need to generate approximately $3.2 million in taxable income in future years in order to realize the deferred tax assets recorded as of May 31, 2014 of $1,098,600.
The Company and its subsidiary file consolidated Federal and State income tax returns. As of May 31, 2014, the Company had State investment tax credit carryforwards of approximately $145,000 expiring through May 2020.
11. Earnings Per Common Share:
Basic earnings per common share is computed by dividing income available to common stockholders 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:
| 2014 | 2013 | ||
| Average common shares outstanding | 3,341,975 | 3,310,514 | |
| Common shares issuable under stock option plans | 30,830 | 46,778 | |
| Average common shares outstanding assuming dilution | 3,372,805 | 3,357,292 |
12. Related Party Transactions:
The Company had no related party transactions for the years ended May 31, 2014 and 2013.
13. Employee Stock Purchase Plan:
In March 2004, the Company reserved 295,000 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 eligible employees of the Company. Purchase of common shares can be made by employee contributions through payroll deductions. At the end of each calendar quarter, the employee contributions will be applied to the purchase of common shares using a share value equal to the mean between the closing bid and ask prices of the stock on that date. These shares are distributed to the employees at the end of each calendar quarter or upon withdrawal from the plan. During the years ended May 31, 2014 and 2013, 1,781 ($8.22 to $8.935 price per share) and 1,359 ($8.39 to $8.98 price per share) common shares, respectively, were issued to employees. As of May 31, 2014, 229,599 shares were reserved for further issue.
14. Stock Option Plans:
In 2012, the Company adopted a stock option plan which permits the Company to grant both incentive stock options and non-qualified stock options. The incentive stock options qualify for preferential treatment under the Internal Revenue Code. Under this plan, 160,000 shares of common stock have been reserved for grant to key employees and directors of the Company and 64,750 shares have been granted as of May 31, 2014. Under the plan, the option price may not be less than the fair market value of the stock at the time the options are granted. Options vest immediately and expire ten years from the date of grant.
Using the Black-Scholes option pricing model, the weighted average estimated fair value of each option granted under the plan was $2.34 during 2014 and $2.46 during 2013. The pricing model uses the assumptions noted in the following table. Expected volatility is based on the historical volatility of the Company's stock. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life of options granted is derived from previous history of stock exercises from the grant date and represents the period of time that options granted are expected to be outstanding. The Company uses historical data to estimate option exercise and employee termination assumptions under the valuation model. The Company has never paid dividends on its common stock and does not anticipate doing so in the foreseeable future.
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| 2014 | 2013 | ||
| Risk-free interest rate | 3.25% | 2.21% | |
| Expected life in years | 3.0 | 2.9 | |
| Expected volatility | 33% | 44% | |
| Expected dividend yield | 0% | 0% |
The following is a summary of stock option activity:
| Shares | Weighted Average Exercise Price | Intrinsic Value | ||
| Outstanding - May 31, 2012 | 163,750 | $ 6.30 | $ 336,604 | |
| Options granted | 44,500 | $ 7.84 | ||
| Less: options expired | 1,500 | - | ||
| Outstanding - May 31, 2013 | 206,750 | $ 6.63 | $ 377,891 | |
| Options granted | 48,000 | $ 8.80 | ||
| Less: options exercised | 30,000 | $ 5.26 | ||
| Less: options expired | 5,250 | - | ||
| Outstanding - May 31, 2014 | 219,500 | $ 7.31 | $ 398,954 |
We calculated intrinsic value for those options that had an exercise price lower than the market price of our common shares as of the balance sheet dates. The aggregate intrinsic value of outstanding options as of the end of each fiscal year is calculated as the difference between the exercise price of the underlying options and the market price of our common shares for the options that were in-the money at that date (164,500 at May 31, 2014 and 181,750 at May 31, 2013.) The Company's closing stock price was $8.83 and $8.07 as of May 31, 2014 and 2013. As of May 31, 2014, there are 95,250 options available for future grants under the 2012 stock option plan. $157,650 was received from the exercise of share options during the fiscal year ended May 31, 2014.
The following table summarizes information about stock options outstanding at May 31, 2014:
| Outstanding and Exercisable | ||||
| Range of | Number | Weighted Average | Weighted | |
| Exercise | of | Remaining Years | Average | |
| Prices | Options | of Contractual Life | Exercise Price | |
| $2.00-$3.00 | 15,000 | 3.6 | $2.85 | |
| $5.01-$6.00 | 50,000 | 4.1 | $5.60 | |
| $6.01-$7.00 | 37,750 | 4.8 | $6.24 | |
| $7.01-$8.00 | 30,000 | 8.9 | $7.74 | |
| $8.01-$9.00 | 61,750 | 8.8 | $8.63 | |
| $11.01-$12.00 | 25,000 | 7.9 | $11.29 | |
| $2.00-$12.00 | 219,500 | 6.6 | $7.31 | |
The following table summarizes information about stock options outstanding at May 31, 2013:
| Outstanding and Exercisable | ||||
| Range of | Number | Weighted Average | Weighted | |
| Exercise | of | Remaining Years | Average | |
| Prices | Options | of Contractual Life | Exercise Price | |
| $2.00-$3.00 | 20,000 | 4.9 | $2.84 | |
| $3.01-$4.00 | 750 | 6.2 | $3.51 | |
| $5.01-$6.00 | 71,500 | 5.1 | $5.59 | |
| $6.01-$7.00 | 45,000 | 5.8 | $6.25 | |
| $7.01-$8.00 | 30,000 | 9.9 | $7.74 | |
| $8.01-$9.00 | 14,500 | 8.9 | $8.06 | |
| $11.01-$12.00 | 25,000 | 8.9 | $11.29 | |
| $2.00-$12.00 | 206,750 | 6.6 | $6.63 | |
| 35 |
15. 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.
16. Treasury Stock:
There was no change in the amount of treasury stock during the years ended May 31, 2014 and 2013.
17. Retirement Plan:
The Company maintains a retirement plan for essentially all employees pursuant to Section 401(k) of the Internal Revenue Code. The Company matches a percentage of employee voluntary salary deferrals subject to limitations. The Company may also make discretionary contributions as determined annually by the Company's Board of Directors. The amount expensed under the plan was $64,282 and $72,655 for the years ended May 31, 2014 and 2013.
18. Fair Value of Financial Instruments:
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and short-term borrowings approximate fair value because of the short maturity of these instruments.
19. Cash Flows Information:
| 2014 | 2013 | |||
| Interest paid | $ 831 | $ 45,885 | ||
| Income taxes paid | $ 70,540 | $ 1,208,114 |
TAYLOR DEVICES, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of the 26th day of August, 2014 by and between TAYLOR DEVICES, INC. (the “Company”), a New York corporation having an office located at 90 Taylor Drive, North Tonawanda, New York 14120-0748 and RICHARD G. HILL, an individual residing at 204 Seabrook Drive, Williamsville, New York 14221 (the “Executive”).
WHEREAS, the Company acknowledges that Executive is recognized world-wide as an expert in the development and manufacture of shock absorption, rate control and energy storage devices, including particularly seismic protection and isolation of wind-induced vibration; and
WHEREAS, the Company wishes to assure itself of the continuing services of Executive for the term set forth in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the Company on a full-time basis for the term and pursuant to the provisions of this Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive’s employment with the Company pursuant to this Agreement (the “Term”), Executive agrees to serve as Executive Vice President of the Company. During the Term, Executive also agrees to serve, if elected, as a director of the Company and/or an officer and/or director of any subsidiary or affiliate of the Company. Failure to reelect Executive as Executive Vice President of the Company without the consent of the Executive during the Term shall constitute a breach of this Agreement.
2. TERM; TERMS AND DUTIES.
(a) Unless earlier terminated, as provided in this Agreement, the Term shall commence on its effective date and shall on expire on December 31, 2017 (the “Expiration Date”); provided, however, that, upon written notice give by either party to the other at least 30 days prior to the Expiration Date, this Agreement may be renewed by mutual agreement of the parties. Prior any renewal of this Agreement, the Board of Directors of the Company (the “Board”), acting by a majority of its disinterested members, shall conduct a comprehensive evaluation and review of the performance of the Executive for purposes of determining whether to renew the Agreement and the results thereof shall be included in the minutes of meeting for the Board. Henceforward, “Term” shall include any and all extensions or renewals of this Agreement.
(b) During the Term, except for periods of absence occasioned by illness, reasonable vacation periods and reasonable leaves of absence, Executive shall devote substantially all of his business time, attention, skill, and efforts to the faithful performance of his duties as Chief Executive Officer of the Company, including activities and services related to the organization, operation and management of the Company and its affiliates; provided, however, that, with the approval of the Board, as evidenced by a resolution of the Board, from time to time Executive may serve or continue to serve on the boards of directors of, and hold any other offices or positions in, companies or organizations, which, in the Board’s judgment, will not present any conflict of interest with the Company, or materially affect the performance of Executive’s duties pursuant to this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the salary and benefits paid for the duties described in Section 2(b). The Company shall pay Executive as compensation a salary of not less than $166,781.00 per year (“Base Salary”). The Base Salary shall be payable weekly. During the Term, Executive’s Base Salary shall be reviewed at least annually; and the first such review will be made not later than May 31, 2015. The review shall be conducted by a Committee designated by the Board, and the Board may increase Executive’s Base Salary. In addition to the Base Salary provided in this Section 3(a), the Company shall provide Executive, at no cost to Executive, with all such other benefits as are provided uniformly to permanent full-time employees of the Company.
(b) The Company will provide Executive with employee benefit plans, arrangements and perquisites substantially equivalent to those in which Executive was participating or otherwise deriving benefit from immediately prior to the beginning of the Term, and the Company will not, without Executive’s prior written consent, make any changes in such plans, arrangements or perquisites which would adversely affect Executive’s rights or benefits thereunder. Without limiting the generality of the foregoing provisions of this Section 3(b), Executive will be entitled to participate in or receive benefits under any employee benefit plans including, but not limited to, retirement plans, supplemental retirement plans, pension plans, profit-sharing plans, health-and-accident plans, medical coverage or any other employee benefit plan or arrangement made available by the Company in the future to its senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Executive will be entitled to incentive compensation and bonuses as provided in any plan of the Company in which Executive is eligible to participate. Nothing paid to the Executive under any such plan or arrangement will be deemed to be in lieu of other compensation to which the Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by Section 3(a), the Company shall pay or reimburse Executive for all reasonable travel and other reasonable expenses incurred by Executive in performing his obligations under this Agreement and may provide such additional compensation and perquisites in such form and such amounts as the Board may from time to time determine.
4. PAYMENTS UPON AN EVENT OF TERMINATION.
The provisions of this Section shall in all respects be subject to the terms and conditions stated in Sections 8 and 10.
(a) The provisions of Section (b) shall apply upon the occurrence of an Event of Termination during the Term. As used in this Agreement, an “Event of Termination” shall mean and include any one or more of the following:
(i) the termination by the Company of Executive’s full-time employment hereunder for any reason (including termination without cause) other than (A) Disability or Retirement, as defined in Section 6 below, or (B) a Change in Control, as defined in Section 5(a) below; or
(ii) Executive’s resignation from the Company’s employ upon any (A) failure to elect or reelect or to appoint or reappoint Executive as Executive Vice President, (B) material change in Executive’s function, duties, or responsibilities, which change would cause Executive’s position to become one of lesser responsibility, importance, or scope from the position and attributes thereof described in Section 1 of this Agreement, (C) a relocation of Executive’s principal place of employment by more than 30 miles from its location at the effective date of this Agreement, or a material reduction in the benefits and perquisites to the Executive from those being provided as of the effective date of this Agreement, (D) liquidation or dissolution of the Company other than liquidations or dissolutions that are caused by reorganizations that do not affect the status of Executive, or (E) breach of this Agreement by the Company.
Upon the occurrence of any event described in clauses (ii)(A), (B), (C), (D) or (E), above, Executive shall have the right to elect to terminate his employment under this Agreement by resignation upon 60 days’ prior written notice given within four months after the initial event giving rise to said right to elect. Notwithstanding the preceding sentence, in the event of a continuing breach of this Agreement by the Company, the Executive, after giving due notice of an initial event specified above, shall not waive any of his rights solely under this Agreement and this Section 4 by virtue of the fact that Executive has submitted his resignation, but has remained in the employment of the Company and is engaged in good faith discussions to resolve any occurrence of an event described in clauses (ii)(A), (B), (C), (D) and (E) above.
(b) Upon the occurrence of an Event of Termination, on the Date of Termination, as defined in Section 8 below, the Company shall pay Executive (or, in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be), as severance pay or liquidated damages, or both, a sum equal to the greater of the payments due for the remaining term of the Agreement or 1.20 times the average of the three preceding years’ Base Salary, plus bonuses and any other cash compensation paid to the Executive during such years, and the amount of any contributions made pursuant to any employee benefit plans on behalf of the Executive maintained by the Company during such years; provided, however, that in no event shall total severance compensation from all sources cause an “excess parachute payment” referred to at subsection 5(f) below. At the election of the Executive, such payments shall be made in a lump sum or paid monthly during the remaining term of the Agreement following the Termination Date. In the event that no election is made, payment to the Executive will be made on a monthly basis during the remaining term of the Agreement. Such payments shall not be reduced in the event the Executive obtains other employment following termination of employment.
(c) In the event that there has not been a Change in Control as defined in Section 5(a), upon the voluntary termination by Executive (upon giving 60 days’ written notice to the Company and which shall not be deemed to constitute an “Event of Termination” as defined herein), the Company, at the discretion of the Board, shall pay Executive (or in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be), a severance payment in an amount to be determined by the Board at the time of such voluntary termination by the Executive.
(d) Upon the occurrence of an Event of Termination, the Company will cause to be continued, for a period of twelve calendar months thereafter, life, medical, dental and disability coverage substantially identical to the coverage maintained by the Company for Executive prior to the Event of Termination. Such coverage shall cease upon the expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall have been a Change in Control of the Company, as set forth below. For purposes of this Agreement, a “Change in Control” of the Company shall mean any of the following:
(1) a reorganization, merger, merger conversion, consolidation or sale of all or substantially all of the assets of the Company, or a similar transaction in which the Company is not the resulting entity and that is not approved by a majority of the Incumbent Board (as herein defined) of the Company; or
(2) individuals who constitute the Incumbent Board of the Company cease for any reason to constitute a majority thereof; provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least 80% of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s shareholders was approved by the nominating committee, if any, serving under the Incumbent Board, shall be, for purposes of this Section 5, deemed to be a member of the Incumbent Board; or
(3) the occurrence of an event, the nature of which would be required to be reported in response to Item 1 of the Current Report on Form 8-K, as such form is in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); or
(4) any “person” (as the term is used in Section 13(d) and 14(d) of the Exchange Act of 1934) is or becomes an Acquiring Person, as more particularly defined in the Rights Agreement dated October 5, 2008 by and between the Company and Regan & Associates, Inc., as Rights Agent; or
(5) a proxy statement soliciting proxies from shareholders of the Company, by someone other than the current management of the Company, seeking shareholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations, as a result of which the outstanding shares of the class of securities then subject to the plan or transaction are exchanged or converted into cash or property or securities not issued by the Company; or
(6) a tender offer or exchange offer is made by any person which would result in a person or group beneficially owning 10% or more of the voting securities of the Company, and shareholders owning beneficially or of record 10% or more of the outstanding securities of the Company have tendered or offered to sell their shares pursuant to such tender offer.
“Incumbent Board” means the Board of the Company on the date hereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least 80% of the directors comprising the Incumbent Board, or whose nomination for election by shareholders was approved by the nominating committee, if any, serving under an Incumbent Board, shall be considered to be a member of the Incumbent Board.
(b) If any of the events described in Section 5(a) hereof constituting a Change in Control have occurred, Executive shall be entitled to the benefits provided in Sections 5(c), (d), (e) and (g) upon his subsequent termination of employment at any time during the term of this Agreement, regardless of whether such termination results from his resignation or his dismissal upon the Change in Control.
(c) Upon the occurrence of a Change in Control followed by the Executive’s termination of employment, the Company shall pay Executive (or in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be), as severance pay or liquidated damages or both, a sum equal to the greater of the payments due for the remaining Term or 2.99 times the average of the five preceding years’ Base Salary, plus bonuses and any other cash compensation paid to the Executive during such years, and the amount of any contributions made to any employee benefit plans, on behalf of the Executive, maintained by the Company during such years. Such payment shall be made by the Company on the Date of Termination. At the election of the Executive, which election shall be made on an annual basis following the Annual Meeting of Shareholders of the Company, and which election is irrevocable for the year in which made, such payment may be made in a lump sum or paid in equal monthly installments during the 36 months following the Executive’s termination. In the event that no election is made, payment to the Executive will be made on a monthly basis during the remaining term of the Agreement.
(d) Upon the occurrence of a Change in Control followed by the Executive’s termination of employment, the Company will cause to be continued life, medical, dental and disability coverage substantially identical to the coverage maintained by the Company for Executive prior to his severance. Such coverage and payments shall cease upon the expiration of 36 months.
(e) Upon the occurrence of a Change in Control, Executive will be entitled to any benefits granted to him pursuant to any stock option plan of the Company.
(f) Notwithstanding the preceding paragraphs of this Section 5, in the event that the aggregate payments or benefits to be made or afforded to Executive under the preceding paragraphs (the “Termination Benefits”) would be deemed to include an “excess parachute payment” under Section 280G of the Internal Revenue Code of 1986, as amended and from time to time in effect (the “Code”), then the Termination Benefits shall be reduced to an amount which would not be deemed to include an “excess parachute payment” under Section 280G of the Code.
(g) If, during the Term, Executive is incapable of performing his duties hereunder by reason of temporary disability, the Company shall not reduce the compensation otherwise payable to Executive during the period of disability.
6. TERMINATION UPON RETIREMENT OR DISABILITY.
Termination by the Company of Executive’s employment based on “Retirement” shall mean termination of employment in accordance with the Company’s retirement policy or in accordance with any retirement arrangement established with Executive’s consent with respect to him. Upon termination of employment of Executive upon Retirement, Executive shall be entitled to all benefits under any retirement plan of the Company and any other plans to which Executive is a party. Termination by the Company of Executive’s employment based on “Disability” shall mean termination due to any physical or mental impairment which qualifies the Executive for disability benefits under the applicable long-term disability plan maintained by the Company or, if no such plan exists or applies, a disability which would qualify the Executive for disability benefits under the federal social security system.
7. TERMINATION FOR CAUSE.
“Termination for Cause” shall mean termination due to Executive’s personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses), or final cease-and-desist order, or willful material breach of any provision of this Agreement. For purposes of this paragraph 7, no act or failure to act on the part of Executive shall be considered “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive’s action or omission was in the best interest of the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than 80% of the members of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to Executive and an opportunity for him, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of conduct justifying Termination for Cause and specifying the particulars thereof in detail.
8. NOTICE.
(a) Any purported termination of this Agreement by the Company or by Executive shall be communicated by Notice of Termination to the other party to this Agreement at the addresses set forth above or from time to time, as provided by one party to the other. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated.
(b) “Date of Termination” shall mean the date specified in the Notice of Termination (which, in the case of a Termination for Cause, shall not be less than 30 days from the date that the Notice of Termination is given).
(c) If, within 30 days after any Notice of Termination is given, the party receiving the Notice of Termination notifies the other party that a dispute exists concerning the termination (except upon the occurrence of a Change in Control or voluntary termination by the Executive in which case the Date of Termination shall be the date specified in the Notice), the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal having expired and no appeal having been perfected); and provided further, that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving the notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay Executive his full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, Base Salary) and continue Executive as a participant in all compensation, benefit and insurance plans in which he was participating when the notice of dispute was given, until the dispute is finally resolved in accordance with this Agreement, provided such dispute is resolved within nine months after the Date of Termination specified in the Notice of Termination; notwithstanding the foregoing, no compensation or benefits shall be paid to Executive in the event the Executive is Terminated for Cause. In the event that any Termination for Cause is found to have been wrongful or any dispute in connection therewith is otherwise decided in Executive’s favor, the Executive shall be entitled to receive all compensation and benefits which accrued for up to a period of nine months after the Termination for Cause. If such dispute is not resolved within the nine-month period, the Company shall not be obligated, upon final resolution of such dispute, to pay Executive compensation and other payments accruing more than nine months from the Date of the Termination specified in the Notice of Termination. Amounts paid under this Section are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to Executive under this Agreement shall be subject to Executive’s compliance with paragraph (b) of this Section 9 during the Term and for one full year after the expiration or termination of this Agreement.
(b) Executive shall, upon reasonable notice, furnish such information and assistance to the Company as may reasonably be required by the Company in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION.
(a) Upon any termination of Executive’s employment hereunder pursuant to Section 4(c) above, Executive agrees not to compete with the Company for a period of two years following such termination in any location where the Company has made sales within the five years preceding such termination, except as agreed to pursuant to a resolution duly adopted by the Board. Executive agrees that during such period, Executive shall not work for or advise, consult or otherwise serve with, directly or indirectly, any entity whose business materially competes with the business activities of the Company. The parties hereto, recognizing that irreparable injury will result to the Company, its business and property in the event of Executive’s breach of this Section 10(a), agree that in the event of any such breach by Executive, the Company will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by Executive, Executive’s partners, agents, servants, employers, employees and all persons acting for or with Executive. Nothing herein will be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the business activities and plans for business activities of the Company and affiliates thereof, as it may exist from time to time, is a valuable, special and unique asset of the business of the Company. Executive will not, during or after the term of his employment, disclose any knowledge of the past, present, planned or considered business activities of the Company or affiliates thereof to any person, firm, corporation, or other entity for any reason or purpose whatsoever. Notwithstanding the foregoing, Executive may disclose any knowledge of financial and/or economic principles, concepts or ideas which are not solely and exclusively derived from the business plans and activities of the Company, and Executive may disclose any information regarding the Company which is otherwise publicly available. In the event of a breach or threatened breach by the Executive of the Provisions of this Section 10, the Company will be entitled to an injunction restraining Executive from disclosing, in whole or in part, the knowledge of the past, present, planned or considered business activities of the Company or affiliates thereof, or from rendering any services to any person, firm, corporation, other entity to whom such knowledge, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing herein will be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach, including the recovery of damages from Executive.
| 11. | EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS. |
This Agreement contains the entire understanding between the parties hereto regarding its subject matter and supersedes any prior employment agreement between the Company and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to the Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to him without reference to this Agreement.
12. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of, Executive and the Company and their respective successors and assigns.
13. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived.
14. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect.
15. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.
16. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New York, without reference to conflict-of-law principles.
17. COUNTERPART COPIES.
This Agreement may be executed in one or more counterparts, each of which when executed and delivered shall be an original, but such counterparts shall together constitute one and the same instrument.
18. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Company, provided that the dispute or interpretation has been settled by Executive and the Company or resolved in the Executive’s favor.
19. INDEMNIFICATION.
The Company shall, at its expense (a) provide Executive (including his heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy; and (b) shall indemnify Executive (and his heirs, executors and administrators) to the fullest extent permitted by law in accordance with the terms of the Indemnity Agreement by and between the Company and the Executive dated as of September 15, 1996 (a copy of which is attached hereto as Exhibit A to this Agreement).
20. SUCCESSOR TO THE COMPANY.
The Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise to all or substantially all the business or assets of the Company, expressly and unconditionally to assume and agree to perform the Company’s obligations under this Agreement, in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place.
21. POSTPONEMENT OF CERTAIN PAYMENTS.
Notwithstanding any other provision of this Agreement, distributions to Executive due to his “separation from service,” within the meaning of § 409A of the Internal Revenue Code of 1986, as amended, and the Regulations of the Internal Revenue Service thereunder, may not be made before the date that is six months following the date of Executive’s “separation from service,” or, if earlier, the date of death of Executive.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and its seal to be affixed hereunto by its duly authorized officer, and Executive has signed this Agreement, on the day and date first above written.
TAYLOR DEVICES, INC.
By: ____________________________________
Name: Douglas P. Taylor
| Title: | President and Chief Executive Officer |
EXECUTIVE
__________________________________________
Richard G. Hill
EXHIBIT A
Indemnity Agreement
TAYLOR DEVICES, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of the 26th day of August, 2014 by and between TAYLOR DEVICES, INC. (the “Company”), a New York corporation having an office located at 90 Taylor Drive, North Tonawanda, New York 14120-0748 and MARK V. MCDONOUGH, an individual residing at 71 Leicester Road, Kenmore, New York 14217-2111 (the “Executive”).
WHEREAS, the Company acknowledges that Executive is a highly competent and experienced financial officer who contributes significantly to the profitability and success of the Company; and
WHEREAS, the Company wishes to assure itself of the continuing services of Executive for the term set forth in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the Company on a full-time basis for the term and pursuant to the provisions of this Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive’s employment with the Company pursuant to this Agreement (the “Term”), Executive agrees to serve as Chief Financial Officer and Treasurer of the Company. During the Term, Executive also agrees to serve, if elected, as an officer of any subsidiary or affiliate of the Company. Failure to reelect Executive as Chief Financial Officer and Treasurer of the Company without the consent of the Executive during the Term shall constitute a breach of this Agreement.
2. TERM; TERMS AND DUTIES.
(a) Unless earlier terminated, as provided in this Agreement, the Term shall commence on its effective date and shall expire on December 31, 2017 (the “Expiration Date”); provided, however, that, upon written notice give by either party to the other at least 30 days prior to the Expiration Date, this Agreement may be renewed by mutual agreement of the parties. Prior to any renewal of this Agreement, the Board of Directors of the Company (the “Board”), shall conduct a comprehensive evaluation and review of the performance of the Executive for purposes of determining whether to renew the Agreement and the results thereof shall be included in the minutes of meeting for the Board. Henceforward, “Term” shall include any and all extensions or renewals of this Agreement
(b) During the Term, except for periods of absence occasioned by illness, reasonable vacation periods and reasonable leaves of absence, Executive shall devote substantially all of his business time, attention, skill, and efforts to the faithful performance of his duties as Chief Financial Officer and Treasurer of the Company, including activities and services related to the organization, operation and management of the Company and its affiliates; provided, however, that, with the approval of the Board, as evidenced by a resolution of the Board, from time to time Executive may serve or continue to serve on the boards of directors of, and hold any other offices or positions in, companies or organizations, which, in the Board’s judgment, will not present any conflict of interest with the Company, or materially affect the performance of Executive’s duties pursuant to this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the salary and benefits paid for the duties described in Section 2(b). The Company shall pay Executive as compensation a salary of not less than $144,941.00 per year (“Base Salary”). The Base Salary shall be payable weekly. During the Term, Executive’s Base Salary shall be reviewed at least annually; and the first such review will be made not later than May 31, 2015. The review shall be conducted by a Committee designated by the Board, and the Board may increase Executive’s Base Salary. In addition to the Base Salary provided in this Section 3(a), the Company shall provide Executive, at no cost to Executive, with all such other benefits as are provided uniformly to permanent full-time employees of the Company.
(b) The Company will provide Executive with employee benefit plans, arrangements and perquisites substantially equivalent to those in which Executive was participating or otherwise deriving benefit from immediately prior to the beginning of the Term, and the Company will not, without prior notice to Executive, make any changes in such plans, arrangements or perquisites which would adversely affect Executive’s rights or benefits thereunder. Without limiting the generality of the foregoing provisions of this Section 3(b), Executive will be entitled to participate in or receive benefits under any employee benefit plans including, but not limited to, retirement plans, supplemental retirement plans, pension plans, profit-sharing plans, health-and-accident plans, medical coverage or any other employee benefit plan or arrangement made available by the Company in the future to its senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Executive will be entitled to incentive compensation and bonuses as provided in any plan of the Company in which Executive is eligible to participate. Nothing paid to the Executive under any such plan or arrangement will be deemed to be in lieu of other compensation to which the Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by Section 3(a), the Company shall pay or reimburse Executive for all reasonable travel and other reasonable expenses incurred by Executive in performing his obligations under this Agreement and may provide such additional compensation and perquisites in such form and such amounts as the Board may from time to time determine.
4. PAYMENTS UPON AN EVENT OF TERMINATION.
The provisions of this Section shall in all respects be subject to the terms and conditions stated in Sections 8 and 10.
(a) The provisions of Section (b) shall apply upon the occurrence of an Event of Termination during the Term. As used in this Agreement, an “Event of Termination” shall mean and include any one or more of the following:
(i) the termination by the Company of Executive’s full-time employment hereunder for any reason (including termination without cause) other than (A) Disability or Retirement, as defined in Section 6 below, or (B) a Change in Control, as defined in Section 5(a) below; or
(ii) Executive’s resignation from the Company’s employ upon any (A) failure to elect or reelect or to appoint or reappoint Executive as Chief Financial Officer and Treasurer, (B) material change in Executive’s function, duties, or responsibilities, which change would cause Executive’s position to become one of lesser responsibility, importance, or scope from the position and attributes thereof described in Section 1 of this Agreement, (C) a relocation of Executive’s principal place of employment by more than 30 miles from its location at the effective date of this Agreement, or a material reduction in the benefits and perquisites to the Executive from those being provided as of the effective date of this Agreement, (D) liquidation or dissolution of the Company other than liquidations or dissolutions that are caused by reorganizations that do not affect the status of Executive, or (E) breach of this Agreement by the Company.
Upon the occurrence of any event described in clauses (ii)(A), (B), (C), (D) or (E), above, Executive shall have the right to elect to terminate his employment under this Agreement by resignation upon 60 days’ prior written notice given within four months after the initial event giving rise to said right to elect. Notwithstanding the preceding sentence, in the event of a continuing breach of this Agreement by the Company, the Executive, after giving due notice of an initial event specified above, shall not waive any of his rights solely under this Agreement and this Section 4 by virtue of the fact that Executive has submitted his resignation, but has remained in the employment of the Company and is engaged in good faith discussions to resolve any occurrence of an event described in clauses (ii)(A), (B), (C), (D) and (E) above. An Event of Termination shall not include Termination for Cause, as defined in Section 7.
(b) Upon the occurrence of an Event of Termination, on the Date of Termination, as defined in Section 8 below, the Company shall pay Executive (or, in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be), as severance pay or liquidated damages, or both, a sum equal to the greater of the payments due for the remaining term of the Agreement or 1.20 times the average of the three preceding years’ Base Salary, plus bonuses and any other cash compensation paid to the Executive during such years, and the amount of any contributions made pursuant to any employee benefit plans on behalf of the Executive maintained by the Company during such years; provided, however, that in no event shall total severance compensation from all sources cause an “excess parachute payment” referred to at subsection 5(f) below. At the election of the Executive, such payments shall be made in a lump sum or paid monthly during the remaining term of the Agreement following the Termination Date. In the event that no election is made, payment to the Executive will be made on a monthly basis during the remaining term of the Agreement. Such payments shall not be reduced in the event the Executive obtains other employment following termination of employment.
(c) In the event that there has not been a Change in Control as defined in Section 5(a), upon the voluntary termination by Executive (upon giving 60 days’ written notice to the Company and which shall not be deemed to constitute an “Event of Termination” as defined herein), the Company, at the discretion of the Board, shall pay Executive (or in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be), a severance payment in an amount to be determined by the Board at the time of such voluntary termination by the Executive.
(d) Upon the occurrence of an Event of Termination, the Company will cause to be continued, for a period of twelve calendar months thereafter, life, medical, dental and disability coverage substantially identical to the coverage maintained by the Company for Executive prior to the Event of Termination. Such coverage shall cease upon the expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall have been a Change in Control of the Company, as set forth below. For purposes of this Agreement, a “Change in Control” of the Company shall mean any of the following:
(1) a reorganization, merger, merger conversion, consolidation or sale of all or substantially all of the assets of the Company, or a similar transaction in which the Company is not the resulting entity and that is not approved by a majority of the Incumbent Board (as herein defined) of the Company; or
(2) individuals who constitute the Incumbent Board of the Company cease for any reason to constitute a majority thereof; provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least 80% of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s shareholders was approved by the nominating committee, if any, serving under the Incumbent Board, shall be, for purposes of this Section 5, deemed to be a member of the Incumbent Board; or
(3) the occurrence of an event, the nature of which would be required to be reported in response to Item 1 of the Current Report on Form 8-K, as such form is in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); or
(4) any “person” (as the term is used in Section 13(d) and 14(d) of the Exchange Act of 1934) is or becomes an Acquiring Person, as more particularly defined in the Rights Agreement dated October 5, 2008 by and between the Company and Regan & Associates, Inc., as Rights Agent; or
(5) a proxy statement soliciting proxies from shareholders of the Company, by someone other than the current management of the Company, seeking shareholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations, as a result of which the outstanding shares of the class of securities then subject to the plan or transaction are exchanged or converted into cash or property or securities not issued by the Company; or
(6) a tender offer or exchange offer is made by any person which would result in a person or group beneficially owning 10% or more of the voting securities of the Company, and shareholders owning beneficially or of record 10% or more of the outstanding securities of the Company have tendered or offered to sell their shares pursuant to such tender offer.
“Incumbent Board” means the Board of the Company on the date hereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least 80% of the directors comprising the Incumbent Board, or whose nomination for election by shareholders was approved by the nominating committee, if any, serving under an Incumbent Board, shall be considered to be a member of the Incumbent Board.
(b) If any of the events described in Section 5(a) hereof constituting a Change in Control have occurred, Executive shall be entitled to the benefits provided in Sections 5(c), (d), (e) and (g) upon his subsequent termination of employment at any time during the term of this Agreement, regardless of whether such termination results from his resignation or his dismissal upon the Change in Control.
(c) Upon the occurrence of a Change in Control followed by the Executive’s termination of employment, the Company shall pay Executive (or in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be), as severance pay or liquidated damages or both, a sum equal to the greater of the payments due for the remaining Term or 2.99 times the average of the five preceding years’ Base Salary, plus bonuses and any other cash compensation paid to the Executive during such years, and the amount of any contributions made to any employee benefit plans, on behalf of the Executive, maintained by the Company during such years. Such payment shall be made by the Company on the Date of Termination. At the election of the Executive, which election shall be made on an annual basis following the Annual Meeting of Shareholders of the Company, and which election is irrevocable for the year in which made, such payment may be made in a lump sum or paid in equal monthly installments during the 36 months following the Executive’s termination. In the event that no election is made, payment to the Executive will be made on a monthly basis during the remaining term of the Agreement.
(d) Upon the occurrence of a Change in Control followed by the Executive’s termination of employment, the Company will cause to be continued life, medical, dental and disability coverage substantially identical to the coverage maintained by the Company for Executive prior to his severance. Such coverage and payments shall cease upon the expiration of 36 months.
(e) Upon the occurrence of a Change in Control, Executive will be entitled to any benefits granted to him pursuant to any stock option plan of the Company.
(f) Notwithstanding the preceding paragraphs of this Section 5, in the event that the aggregate payments or benefits to be made or afforded to Executive under the preceding paragraphs (the “Termination Benefits”) would be deemed to include an “excess parachute payment” under Section 280G of the Internal Revenue Code of 1986, as amended and from time to time in effect (the “Code”), then the Termination Benefits shall be reduced to an amount which would not be deemed to include an “excess parachute payment” under Section 280G of the Code.
(g) If, during the Term, Executive is incapable of performing his duties hereunder by reason of temporary disability, the Company shall not reduce the compensation otherwise payable to Executive during the period of disability.
6. TERMINATION UPON RETIREMENT OR DISABILITY.
Termination by the Company of Executive’s employment based on “Retirement” shall mean termination of employment in accordance with the Company’s retirement policy or in accordance with any retirement arrangement established with Executive’s consent with respect to him. Upon termination of employment of Executive upon Retirement, Executive shall be entitled to all benefits under any retirement plan of the Company and any other plans to which Executive is a party. Termination by the Company of Executive’s employment based on “Disability” shall mean termination due to any physical or mental impairment which qualifies the Executive for disability benefits under the applicable long-term disability plan maintained by the Company or, if no such plan exists or applies, a disability which would qualify the Executive for disability benefits under the federal social security system.
7. TERMINATION FOR CAUSE.
The Company retains the right to terminate the Executive for "Cause," without compensation. “Termination for Cause” shall mean termination due to Executive’s personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses), or final cease-and-desist order, or willful material breach of any provision of this Agreement. For purposes of this paragraph 7, no act or failure to act on the part of Executive shall be considered “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive’s action or omission was in the best interest of the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than 80% of the members of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to Executive and an opportunity for him, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of conduct justifying Termination for Cause and specifying the particulars thereof in detail.
8. NOTICE.
(a) Any purported termination of this Agreement by the Company or by Executive shall be communicated by Notice of Termination to the other party to this Agreement at the addresses set forth above or from time to time, as provided by one party to the other. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated.
(b) “Date of Termination” shall mean the date specified in the Notice of Termination (which, in the case of a Termination for Cause, shall not be less than 30 days from the date that the Notice of Termination is given).
(c) If, within 30 days after any Notice of Termination is given, the party receiving the Notice of Termination notifies the other party that a dispute exists concerning the termination (except upon the occurrence of a Change in Control or voluntary termination by the Executive in which case the Date of Termination shall be the date specified in the Notice), the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal having expired and no appeal having been perfected); and provided further, that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving the notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay Executive his full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, Base Salary) and continue Executive as a participant in all compensation, benefit and insurance plans in which he was participating when the notice of dispute was given, until the dispute is finally resolved in accordance with this Agreement, provided such dispute is resolved within nine months after the Date of Termination specified in the Notice of Termination; notwithstanding the foregoing, no compensation or benefits shall be paid to Executive in the event the Executive is Terminated for Cause. In the event that any Termination for Cause is found to have been wrongful or any dispute in connection therewith is otherwise decided in Executive’s favor, the Executive shall be entitled to receive all compensation and benefits which accrued for up to a period of nine months after the Termination for Cause. If such dispute is not resolved within the nine-month period, the Company shall not be obligated, upon final resolution of such dispute, to pay Executive compensation and other payments accruing more than nine months from the Date of the Termination specified in the Notice of Termination. Amounts paid under this Section are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to Executive under this Agreement shall be subject to Executive’s compliance with paragraph (b) of this Section 9 during the Term and for one full year after the expiration or termination of this Agreement.
(b) Executive shall, upon reasonable notice, furnish such information and assistance to the Company as may reasonably be required by the Company in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION.
(a) Upon any termination of Executive’s employment hereunder pursuant to Section 4(c) above, Executive agrees not to compete with the Company for a period of two years following such termination in any location where the Company has made sales within the five years preceding such termination, except as agreed to pursuant to a resolution duly adopted by the Board. Executive agrees that during such period, Executive shall not work for or advise, consult or otherwise serve with, directly or indirectly, any entity whose business materially competes with the business activities of the Company. The parties hereto, recognizing that irreparable injury will result to the Company, its business and property in the event of Executive’s breach of this Section 10(a), agree that in the event of any such breach by Executive, the Company will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by Executive, Executive’s partners, agents, servants, employers, employees and all persons acting for or with Executive. Nothing herein will be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the business activities and plans for business activities of the Company and affiliates thereof, as it may exist from time to time, is a valuable, special and unique asset of the business of the Company. Executive will not, during or after the term of his employment, disclose any knowledge of the past, present, planned or considered business activities of the Company or affiliates thereof to any person, firm, corporation, or other entity for any reason or purpose whatsoever. Notwithstanding the foregoing, Executive may disclose any knowledge of financial and/or economic principles, concepts or ideas which are not solely and exclusively derived from the business plans and activities of the Company, and Executive may disclose any information regarding the Company which is otherwise publicly available. In the event of a breach or threatened breach by the Executive of the Provisions of this Section 10, the Company will be entitled to an injunction restraining Executive from disclosing, in whole or in part, the knowledge of the past, present, planned or considered business activities of the Company or affiliates thereof, or from rendering any services to any person, firm, corporation, other entity to whom such knowledge, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing herein will be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach, including the recovery of damages from Executive.
| 11. | EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS. |
This Agreement contains the entire understanding between the parties hereto regarding its subject matter and supersedes any prior change in control agreement between the Company and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to the Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to him without reference to this Agreement.
12. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of, Executive and the Company and their respective successors and assigns.
13. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived.
14. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect.
15. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.
16. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New York, without reference to conflict-of-law principles.
17. COUNTERPART COPIES.
This Agreement may be executed in one or more counterparts, each of which when executed and delivered shall be an original, but such counterparts shall together constitute one and the same instrument.
18. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Company, provided that the dispute or interpretation has been settled by Executive and the Company or resolved in the Executive’s favor.
19. INDEMNIFICATION.
The Company shall, at its expense (a) provide Executive (including his heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy; and (b) shall indemnify Executive (and his heirs, executors and administrators) to the fullest extent permitted by law in accordance with the terms of the Indemnity Agreement by and between the Company and the Executive dated as of August 5, 2008 (a copy of which is attached hereto as Exhibit A to this Agreement).
20. SUCCESSOR TO THE COMPANY.
The Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise to all or substantially all the business or assets of the Company, expressly and unconditionally to assume and agree to perform the Company’s obligations under this Agreement, in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place.
21. POSTPONEMENT OF CERTAIN PAYMENTS.
Notwithstanding any other provision of this Agreement, distributions to Executive due to his “separation from service,” within the meaning of § 409A of the Internal Revenue Code of 1986, as amended, and the Regulations of the Internal Revenue Service thereunder, may not be made before the date that is six months following the date of Executive’s “separation from service,” or, if earlier, the date of death of Executive.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and its seal to be affixed hereunto by its
duly authorized officer, and Executive has signed this Agreement, on the day and date first above written.
TAYLOR DEVICES, INC.
By: ____________________________________
Name: Douglas P. Taylor,
Title: President and CEO
EXECUTIVE
__________________________________________
Mark V. McDonough
EXHIBIT A
Indemnity Agreement
TAYLOR DEVICES, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of the 26th day of August, 2014 by and between TAYLOR DEVICES, INC. (the “Company”), a New York corporation having an office located at 90 Taylor Drive, North Tonawanda, New York 14120-0748 and DOUGLAS P. TAYLOR, an individual residing at 375 Belmont Court, East, North Tonawanda, New York 14120 (the “Executive”).
WHEREAS, the Company acknowledges that Executive is recognized world-wide as an expert in the development and manufacture of shock absorption, rate control and energy storage devices, including particularly seismic protection and isolation of wind-induced vibration; and
WHEREAS, the Company wishes to assure itself of the continuing services of Executive for the term set forth in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the Company on a full-time basis for the term and pursuant to the provisions of this Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive’s employment with the Company pursuant to this Agreement (the “Term”), Executive agrees to serve as President and Chief Executive Officer of the Company. During the Term, Executive also agrees to serve, if elected, as a director of the Company and/or an officer and/or director of any subsidiary or affiliate of the Company. Failure to reelect Executive as President and Chief Executive Officer of the Company without the consent of the Executive during the Term shall constitute a breach of this Agreement.
2. TERM; TERMS AND DUTIES.
(a) Unless earlier terminated, as provided in this Agreement, the Term shall commence on its effective date and shall on expire on December 31, 2017 (the “Expiration Date”); provided, however, that, upon written notice give by either party to the other at least 30 days prior to the Expiration Date, this Agreement may be renewed by mutual agreement of the parties. Prior any renewal of this Agreement, the Board of Directors of the Company (the “Board”), acting by a majority of its disinterested members, shall conduct a comprehensive evaluation and review of the performance of the Executive for purposes of determining whether to renew the Agreement and the results thereof shall be included in the minutes of meeting for the Board. Henceforward, “Term” shall include any and all extensions or renewals of this Agreement.
(b) During the Term, except for periods of absence occasioned by illness, reasonable vacation periods and reasonable leaves of absence, Executive shall devote substantially all of his business time, attention, skill, and efforts to the faithful performance of his duties as President and Chief Executive Officer of the Company, including activities and services related to the organization, operation and management of the Company and its affiliates; provided, however, that, with the approval of the Board, as evidenced by a resolution of the Board, from time to time Executive may serve or continue to serve on the boards of directors of, and hold any other offices or positions in, companies or organizations, which, in the Board’s judgment, will not present any conflict of interest with the Company, or materially affect the performance of Executive’s duties pursuant to this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the salary and benefits paid for the duties described in Section 2(b). The Company shall pay Executive as compensation a salary of not less than $212,034.00 per year (“Base Salary”). The Base Salary shall be payable weekly. During the Term, Executive’s Base Salary shall be reviewed at least annually; and the first such review will be made not later than May 31, 2015. The review shall be conducted by a Committee designated by the Board, and the Board may increase Executive’s Base Salary. In addition to the Base Salary provided in this Section 3(a), the Company shall provide Executive, at no cost to Executive, with all such other benefits as are provided uniformly to permanent full-time employees of the Company.
(b) The Company will provide Executive with employee benefit plans, arrangements and perquisites substantially equivalent to those in which Executive was participating or otherwise deriving benefit from immediately prior to the beginning of the Term, and the Company will not, without Executive’s prior written consent, make any changes in such plans, arrangements or perquisites which would adversely affect Executive’s rights or benefits thereunder. Without limiting the generality of the foregoing provisions of this Section 3(b), Executive will be entitled to participate in or receive benefits under any employee benefit plans including, but not limited to, retirement plans, supplemental retirement plans, pension plans, profit-sharing plans, health-and-accident plans, medical coverage or any other employee benefit plan or arrangement made available by the Company in the future to its senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Executive will be entitled to incentive compensation and bonuses as provided in any plan of the Company in which Executive is eligible to participate. Nothing paid to the Executive under any such plan or arrangement will be deemed to be in lieu of other compensation to which the Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by Section 3(a), the Company shall pay or reimburse Executive for all reasonable travel and other reasonable expenses incurred by Executive in performing his obligations under this Agreement and may provide such additional compensation and perquisites in such form and such amounts as the Board may from time to time determine.
4. PAYMENTS UPON AN EVENT OF TERMINATION.
The provisions of this Section shall in all respects be subject to the terms and conditions stated in Sections 8 and 10.
(a) The provisions of Section (b) shall apply upon the occurrence of an Event of Termination during the Term. As used in this Agreement, an “Event of Termination” shall mean and include any one or more of the following:
(i) the termination by the Company of Executive’s full-time employment hereunder for any reason (including termination without cause) other than (A) Disability or Retirement, as defined in Section 6 below, or (B) a Change in Control, as defined in Section 5(a) below; or
(ii) Executive’s resignation from the Company’s employ upon any (A) failure to elect or reelect or to appoint or reappoint Executive as President and Chief Executive Officer, (B) material change in Executive’s function, duties, or responsibilities, which change would cause Executive’s position to become one of lesser responsibility, importance, or scope from the position and attributes thereof described in Section 1 of this Agreement, (C) a relocation of Executive’s principal place of employment by more than 30 miles from its location at the effective date of this Agreement, or a material reduction in the benefits and perquisites to the Executive from those being provided as of the effective date of this Agreement, (D) liquidation or dissolution of the Company other than liquidations or dissolutions that are caused by reorganizations that do not affect the status of Executive, or (E) breach of this Agreement by the Company.
Upon the occurrence of any event described in clauses (ii)(A), (B), (C), (D) or (E), above, Executive shall have the right to elect to terminate his employment under this Agreement by resignation upon 60 days’ prior written notice given within four months after the initial event giving rise to said right to elect. Notwithstanding the preceding sentence, in the event of a continuing breach of this Agreement by the Company, the Executive, after giving due notice of an initial event specified above, shall not waive any of his rights solely under this Agreement and this Section 4 by virtue of the fact that Executive has submitted his resignation, but has remained in the employment of the Company and is engaged in good faith discussions to resolve any occurrence of an event described in clauses (ii)(A), (B), (C), (D) and (E) above.
(b) Upon the occurrence of an Event of Termination, on the Date of Termination, as defined in Section 8 below, the Company shall pay Executive (or, in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be), as severance pay or liquidated damages, or both, a sum equal to the greater of the payments due for the remaining term of the Agreement or 1.20 times the average of the three preceding years’ Base Salary, plus bonuses and any other cash compensation paid to the Executive during such years, and the amount of any contributions made pursuant to any employee benefit plans on behalf of the Executive maintained by the Company during such years; provided, however, that in no event shall total severance compensation from all sources cause an “excess parachute payment” referred to at subsection 5(f) below. At the election of the Executive, such payments shall be made in a lump sum or paid monthly during the remaining term of the Agreement following the Termination Date. In the event that no election is made, payment to the Executive will be made on a monthly basis during the remaining term of the Agreement. Such payments shall not be reduced in the event the Executive obtains other employment following termination of employment.
(c) In the event that there has not been a Change in Control as defined in Section 5(a), upon the voluntary termination by Executive (upon giving 60 days’ written notice to the Company and which shall not be deemed to constitute an “Event of Termination” as defined herein), the Company, at the discretion of the Board, shall pay Executive (or in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be), a severance payment in an amount to be determined by the Board at the time of such voluntary termination by the Executive.
(d) Upon the occurrence of an Event of Termination, the Company will cause to be continued, for a period of twelve calendar months thereafter, life, medical, dental and disability coverage substantially identical to the coverage maintained by the Company for Executive prior to the Event of Termination. Such coverage shall cease upon the expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall have been a Change in Control of the Company, as set forth below. For purposes of this Agreement, a “Change in Control” of the Company shall mean any of the following:
(1) a reorganization, merger, merger conversion, consolidation or sale of all or substantially all of the assets of the Company, or a similar transaction in which the Company is not the resulting entity and that is not approved by a majority of the Incumbent Board (as herein defined) of the Company; or
(2) individuals who constitute the Incumbent Board of the Company cease for any reason to constitute a majority thereof; provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least 80% of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s shareholders was approved by the nominating committee, if any, serving under the Incumbent Board, shall be, for purposes of this Section 5, deemed to be a member of the Incumbent Board; or
(3) the occurrence of an event, the nature of which would be required to be reported in response to Item 1 of the Current Report on Form 8-K, as such form is in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); or
(4) any “person” (as the term is used in Section 13(d) and 14(d) of the Exchange Act of 1934) is or becomes an Acquiring Person, as more particularly defined in the Rights Agreement dated October 5, 2008 by and between the Company and Regan & Associates, Inc., as Rights Agent; or
(5) a proxy statement soliciting proxies from shareholders of the Company, by someone other than the current management of the Company, seeking shareholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations, as a result of which the outstanding shares of the class of securities then subject to the plan or transaction are exchanged or converted into cash or property or securities not issued by the Company; or
(6) a tender offer or exchange offer is made by any person which would result in a person or group beneficially owning 10% or more of the voting securities of the Company, and shareholders owning beneficially or of record 10% or more of the outstanding securities of the Company have tendered or offered to sell their shares pursuant to such tender offer.
“Incumbent Board” means the Board of the Company on the date hereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least 80% of the directors comprising the Incumbent Board, or whose nomination for election by shareholders was approved by the nominating committee, if any, serving under an Incumbent Board, shall be considered to be a member of the Incumbent Board.
(b) If any of the events described in Section 5(a) hereof constituting a Change in Control have occurred, Executive shall be entitled to the benefits provided in Sections 5(c), (d), (e) and (g) upon his subsequent termination of employment at any time during the term of this Agreement, regardless of whether such termination results from his resignation or his dismissal upon the Change in Control.
(c) Upon the occurrence of a Change in Control followed by the Executive’s termination of employment, the Company shall pay Executive (or in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be), as severance pay or liquidated damages or both, a sum equal to the greater of the payments due for the remaining Term or 2.99 times the average of the five preceding years’ Base Salary, plus bonuses and any other cash compensation paid to the Executive during such years, and the amount of any contributions made to any employee benefit plans, on behalf of the Executive, maintained by the Company during such years. Such payment shall be made by the Company on the Date of Termination. At the election of the Executive, which election shall be made on an annual basis following the Annual Meeting of Shareholders of the Company, and which election is irrevocable for the year in which made, such payment may be made in a lump sum or paid in equal monthly installments during the 36 months following the Executive’s termination. In the event that no election is made, payment to the Executive will be made on a monthly basis during the remaining term of the Agreement.
(d) Upon the occurrence of a Change in Control followed by the Executive’s termination of employment, the Company will cause to be continued life, medical, dental and disability coverage substantially identical to the coverage maintained by the Company for Executive prior to his severance. Such coverage and payments shall cease upon the expiration of 36 months.
(e) Upon the occurrence of a Change in Control, Executive will be entitled to any benefits granted to him pursuant to any stock option plan of the Company.
(f) Notwithstanding the preceding paragraphs of this Section 5, in the event that the aggregate payments or benefits to be made or afforded to Executive under the preceding paragraphs (the “Termination Benefits”) would be deemed to include an “excess parachute payment” under Section 280G of the Internal Revenue Code of 1986, as amended and from time to time in effect (the “Code”), then the Termination Benefits shall be reduced to an amount which would not be deemed to include an “excess parachute payment” under Section 280G of the Code.
(g) If, during the Term, Executive is incapable of performing his duties hereunder by reason of temporary disability, the Company shall not reduce the compensation otherwise payable to Executive during the period of disability.
6. TERMINATION UPON RETIREMENT OR DISABILITY.
Termination by the Company of Executive’s employment based on “Retirement” shall mean termination of employment in accordance with the Company’s retirement policy or in accordance with any retirement arrangement established with Executive’s consent with respect to him. Upon termination of employment of Executive upon Retirement, Executive shall be entitled to all benefits under any retirement plan of the Company and any other plans to which Executive is a party. Termination by the Company of Executive’s employment based on “Disability” shall mean termination due to any physical or mental impairment which qualifies the Executive for disability benefits under the applicable long-term disability plan maintained by the Company or, if no such plan exists or applies, a disability which would qualify the Executive for disability benefits under the federal social security system.
7. TERMINATION FOR CAUSE.
“Termination for Cause” shall mean termination due to Executive’s personal dishonesty, incompetence, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses), or final cease-and-desist order, or willful material breach of any provision of this Agreement. For purposes of this paragraph 7, no act or failure to act on the part of Executive shall be considered “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive’s action or omission was in the best interest of the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been Terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than 80% of the members of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to Executive and an opportunity for him, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board, Executive was guilty of conduct justifying Termination for Cause and specifying the particulars thereof in detail.
8. NOTICE.
(a) Any purported termination of this Agreement by the Company or by Executive shall be communicated by Notice of Termination to the other party to this Agreement at the addresses set forth above or from time to time, as provided by one party to the other. For purposes of this Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated.
(b) “Date of Termination” shall mean the date specified in the Notice of Termination (which, in the case of a Termination for Cause, shall not be less than 30 days from the date that the Notice of Termination is given).
(c) If, within 30 days after any Notice of Termination is given, the party receiving the Notice of Termination notifies the other party that a dispute exists concerning the termination (except upon the occurrence of a Change in Control or voluntary termination by the Executive in which case the Date of Termination shall be the date specified in the Notice), the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal having expired and no appeal having been perfected); and provided further, that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving the notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay Executive his full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, Base Salary) and continue Executive as a participant in all compensation, benefit and insurance plans in which he was participating when the notice of dispute was given, until the dispute is finally resolved in accordance with this Agreement, provided such dispute is resolved within nine months after the Date of Termination specified in the Notice of Termination; notwithstanding the foregoing, no compensation or benefits shall be paid to Executive in the event the Executive is Terminated for Cause. In the event that any Termination for Cause is found to have been wrongful or any dispute in connection therewith is otherwise decided in Executive’s favor, the Executive shall be entitled to receive all compensation and benefits which accrued for up to a period of nine months after the Termination for Cause. If such dispute is not resolved within the nine-month period, the Company shall not be obligated, upon final resolution of such dispute, to pay Executive compensation and other payments accruing more than nine months from the Date of the Termination specified in the Notice of Termination. Amounts paid under this Section are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to Executive under this Agreement shall be subject to Executive’s compliance with paragraph (b) of this Section 9 during the Term and for one full year after the expiration or termination of this Agreement.
(b) Executive shall, upon reasonable notice, furnish such information and assistance to the Company as may reasonably be required by the Company in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION.
(a) Upon any termination of Executive’s employment hereunder pursuant to Section 4(c) above, Executive agrees not to compete with the Company for a period of two years following such termination in any location where the Company has made sales within the five years preceding such termination, except as agreed to pursuant to a resolution duly adopted by the Board. Executive agrees that during such period, Executive shall not work for or advise, consult or otherwise serve with, directly or indirectly, any entity whose business materially competes with the business activities of the Company. The parties hereto, recognizing that irreparable injury will result to the Company, its business and property in the event of Executive’s breach of this Section 10(a), agree that in the event of any such breach by Executive, the Company will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by Executive, Executive’s partners, agents, servants, employers, employees and all persons acting for or with Executive. Nothing herein will be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the business activities and plans for business activities of the Company and affiliates thereof, as it may exist from time to time, is a valuable, special and unique asset of the business of the Company. Executive will not, during or after the term of his employment, disclose any knowledge of the past, present, planned or considered business activities of the Company or affiliates thereof to any person, firm, corporation, or other entity for any reason or purpose whatsoever. Notwithstanding the foregoing, Executive may disclose any knowledge of financial and/or economic principles, concepts or ideas which are not solely and exclusively derived from the business plans and activities of the Company, and Executive may disclose any information regarding the Company which is otherwise publicly available. In the event of a breach or threatened breach by the Executive of the Provisions of this Section 10, the Company will be entitled to an injunction restraining Executive from disclosing, in whole or in part, the knowledge of the past, present, planned or considered business activities of the Company or affiliates thereof, or from rendering any services to any person, firm, corporation, other entity to whom such knowledge, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing herein will be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach, including the recovery of damages from Executive.
| 11. | EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS. |
This Agreement contains the entire understanding between the parties hereto regarding its subject matter and supersedes any prior employment agreement between the Company and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to the Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to him without reference to this Agreement.
12. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of, Executive and the Company and their respective successors and assigns.
13. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived.
14. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect.
15. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.
16. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New York, without reference to conflict-of-law principles.
17. COUNTERPART COPIES.
This Agreement may be executed in one or more counterparts, each of which when executed and delivered shall be an original, but such counterparts shall together constitute one and the same instrument.
18. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Company, provided that the dispute or interpretation has been settled by Executive and the Company or resolved in the Executive’s favor.
19. INDEMNIFICATION.
The Company shall, at its expense (a) provide Executive (including his heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy; and (b) shall indemnify Executive (and his heirs, executors and administrators) to the fullest extent permitted by law in accordance with the terms of the Indemnity Agreement by and between the Company and the Executive dated as of September 15, 1996 (a copy of which is attached hereto as Exhibit A to this Agreement).
20. SUCCESSOR TO THE COMPANY.
The Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise to all or substantially all the business or assets of the Company, expressly and unconditionally to assume and agree to perform the Company’s obligations under this Agreement, in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place.
21. POSTPONEMENT OF CERTAIN PAYMENTS.
Notwithstanding any other provision of this Agreement, distributions to Executive due to his “separation from service,” within the meaning of § 409A of the Internal Revenue Code of 1986, as amended, and the Regulations of the Internal Revenue Service thereunder, may not be made before the date that is six months following the date of Executive’s “separation from service,” or, if earlier, the date of death of Executive.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and its seal to be affixed hereunto by its duly authorized officer, and Executive has signed this Agreement, on the day and date first above written.
TAYLOR DEVICES, INC.
By: ____________________________________
Name: Richard G. Hill,
Title: Executive Vice President
EXECUTIVE
__________________________________________
Douglas P. Taylor
EXHIBIT A
Indemnity Agreement
Exhibit 13
Taylor Devices, Inc, 2014 Annual Report
President's Letter
Dear Shareholder,
Fiscal year 2014 proved to be a year of challenges for Taylor Devices. The first of these was to complete construction on our new manufacturing campus in North Tonawanda located roughly 1.7 miles from our existing facilities on Tonawanda Island. This was completed in late summer of 2013. The second challenge was moving all production machinery to the new site, along with machine installation and set-up at the new campus. This process proved to be more difficult than expected, and substantial machine downtime resulted in reduced shipment levels for several months. As a result, sales for fiscal year 2014 dropped to $20,011,228, from $24,729,585 in 2013, operating income was reduced to $1,545,752, compared to 2013’s record income of $3,466,662. Net income fell to $1,131,212, compared to the record $2,547,794 reached in 2013.
The reduced shipment levels for 2014 gave the Company a third challenge, which was to manage our order backlog at a period when productivity was down and demand for Taylor Devices’ products was high. Our order backlog at the end of the previous F/Y 2013 was $13.1 million. The backlog of orders increased throughout 2014, and at the end of F/Y 14 has increased to $24.6 million. By negotiating deliveries with customers, and with some adroit scheduling and subcontracting, the Company managed to get through the facilities upgrade without losing orders. With the high order backlog, and with all machinery online, better performance is expected in 2015. Thus far, and as expected, the new manufacturing campus has increased Taylor Devices’ productivity and decreased the time necessary to process parts.
Our featured project in this year’s Annual Report is the record-setting X47-B unmanned strike fighter which has demonstrated that remote piloted aircraft can now take off and land on aircraft carriers. The Company designed and manufactured the arresting shock spring-dampers and upstop shock absorbers that helped to make this landing possible. The advantage of a remotely piloted combat aircraft is that there are no fragile humans on it – hence it can maneuver in combat at G-loading far beyond what the human body can tolerate, even when equipped with the latest pilot G-suits. If the X-47B loses in combat, only the aircraft is lost, since it has no humans onboard. Some controversy surrounds this program, with discussions within the DoD on the use of drones in combat, or whether they should be limited to their more traditional use for reconnaissance and surgical strikers on land-based targets.
Also featured is the new San Bernardino Justice Center building, slated to be a new Southern California landmark structure and seismically protected with 184 Taylor Devices’ Seismic Dampers, each of 440 tons output force. The new 11-story building includes the latest in high-tech security, plus includes a drought resistant “green roof” on the third floor. This building recently received the 2014 Excellence in Structural Engineering Award from the Structural Engineers Association of California. The new Justice Center is expected to serve as a model for future court facilities in California and other states.
This year’s report back cover highlights a museum exhibition of the Company’s seismic and wind damping products at the National Building Museum in Washington, DC. We hope that the increased exposure of our technology to Government officials will benefit the Company with increased demand for our earthquake protection products. This is especially true when considering that repair work is still being done in Washington on buildings damaged by the unexpected April 2011 Virginia earthquake of 5.8 magnitude. From discussions with people at the exhibition opening, this quake is still very much on their minds, and this is the place where National Seismic Code changes begin. This long-term exhibition runs through August of 2015.
All of us at Taylor Devices look forward to successful and profitable upcoming year with our new expanded facilities capable of achieving ever increasing sales levels.
Sincerely,
TAYLOR DEVICES, INC.
/s/Douglas P. Taylor
Douglas P, Taylor
President
Status Report from the Vice President
Richard G. Hill
This past year saw the completion of a two-year expansion project at Taylor Devices. In the fall of 2011, the Company purchased eight acres of land at One Buffalo Bolt Way from the city of North Tonawanda. At the same time, the Company also purchased two additional acres with three buildings from a private seller. The two sites were contiguous. The Company then petitioned the City of North Tonawanda to “sew” the two sites into one. The buildings went through an engineering design upgrade that included input from both the State University of New York at Buffalo and the international engineering firm, Parsons Brinckerhoff, engineer of record for the project.
Manufacturing of the Company’s products requires numerous special processes and associated specialty equipment. The intent of developing the site at One Buffalo Bolt Way was to build a manufacturing space that would incorporate this equipment and be specifically designed for the production of the Company’s products. This would also give the Company the opportunity to modernize the original facility on Tonawanda Island for expanded assembly and test operations.
In the spring of 2012, contracts were issued for the refurbishment and modification of the three buildings per the engineering designs. Construction at the site was scheduled so that the buildings would be completed and come into service in successive order. This would allow manufacturing to begin at the site as soon as possible, sequentially moving the manufacturing processes to the designated buildings at One Buffalo Bolt Way. The expansion at One Buffalo Bolt Way was finished in the late fall of 2013, when management accepted the buildings from the contractors. At this point, the move of the balance of the manufacturing equipment to the new facility began.
The move required eight weeks as machines were taken offline, moved to the Buffalo Bolt site, installed on new foundations, and restarted in the manufacturing process. This was done in a sequential process to minimize the amount of time the machines were down. When the move was completed and manufacturing began, it began to immediately yield returns. Several processes that were previously limited in throughput due to lack of space began to produce at two to three times their previous rate.
The Company has been growing continuously over the past 30 years and the need for additional manufacturing space has often been a limiting factor. The site on Tonawanda Island goes back to 1960 when the original plant was built. The site on the Island does not allow for any further expansion and as we grew, the need for the site at One Buffalo Bolt Way became apparent.
The future of the Company lies in our ability to effectively support our customers. Their demands have driven us in our decisions on when and where to expand. We are now in a position to support their requests and to do that in an effective and economical way.
The future lies before us and we are prepared to meet the demands it brings.
Status Report from the Chief Financial Officer
Mark V. McDonough
After nine quarters during which we averaged $6.8 million of revenue per quarter, it was disappointing in fiscal 2014 to have four quarters averaging only $5 million in revenue. Our net income for the year of $1.1 million was the lowest it has been in the last five years. After two years during which sales to customers involved in the construction and retro-fitting of buildings and bridges accounted for the majority of sales, in fiscal 2014, sales to this group of customers fell to almost even with sales to customers in aerospace/defense.
During this slow period, however, we were not idle. We restructured our manufacturing process in our new facilities to enable us to more efficiently manufacture, assemble and test our products. We designed and engineered our products into new applications to solve our customers’ problems. We worked with new customers, all over the world, to finish the year with a sales backlog of almost $25 million. Taylor Devices is primed and ready for a strong comeback in fiscal 2015.
Efforts in recent years to converge U.S. accounting practices with those of the rest of the world seemed to have stalled. One area of convergence with international standards is in the recognition of revenue. This new standard, which will not affect our financial reporting until fiscal 2018, will require a change in the way in which we record revenue. Companies like Taylor Devices will no longer record revenue using a percentage of completion method of accounting for long-term construction contracts. While we have a few years before we implement this change, we have not yet determined the effect it will have on our financial statements. We will continue to work with our advisors to keep abreast of changes in the regulations and to remain in compliance with them in order to ensure that accurate, reliable financial and business information is provided to investors and other users of this annual report and our interim reports.
Aerospace / Defense Products Report
Paul L. Tuttobene
Once again, Taylor Devices’ 2014 Military/Aerospace Sales exceeded expectation with a 9.2% increase over 2013 and now account for 44% of total company sales. Even with continued cutbacks in defense spending, Taylor Devices technology is still able to generate new business in the US and in foreign military markets.
While Taylor Devices existing programs, like the .50 Caliber Machine Gun Mount Recoil Buffer (with a new 550 system order) and the Spade Damper for the M777 Light Weight Howitzer continue adding to our backlog of orders, Taylor Devices emphasis is on selecting new programs that will likely generate the greatest future sales potential. Also, given the recent tensions in Europe, Asia and the Middle East, Taylor Devices is well positioned to participate in future foreign Missile Defense System sales.
To highlight a few of the new programs: Taylor Devices secured a development contract for a new Gimbal System Damper to be used on a large, gas-filled military airship. Another new program is the Navy Standard Missile Canister Program, which ordered Taylor Devices Shock Isolators for 150 new Surface to Air Missiles. We also received significant follow-on orders for the European Commercial Aircraft Actuator and another for a Military Aircraft Machined Spring.
Of all the new Military/Aerospace programs that Taylor Devices has been fortunate enough to participate in this year, a new Navy Ship Isolation System was the most significant new program of 2014. Taylor Devices designed, developed, tested and is the manufacturer of this new large weapon systems isolator that mounts directly to the hull foundations of the warship. The company has received a multi-million dollar, multi-year contract for the isolators.
As I stated last year, the US Military, the world’s biggest military/aerospace customer will continue to downsize for the foreseeable future. That said, Taylor Devices is confident that our strategy of careful program selection, technological advantage and legendary product quality will keep our Military/Aerospace sales robust for years to come.
Industrial Products Report
Craig W. Winters
Bob H. Schneider
As the world economy continues to struggle, Fiscal Year 2014 was a solid year for Taylor Devices’ Industrial Product Lines. Although sales decreased slightly for our Fluid Viscous Dampers and specialized devices used for structural protection against earthquake shaking, wind buffeting, and pedestrian vibrations, the volume of new project orders increased substantially as the year came to a close. While the US economy continues to slowly improve, several domestic projects reached the bidding phase and became orders for Taylor Devices. Additionally, we continue to obtain new orders from our traditional European, South American and Asian clients. Crane buffer sales improved slightly as a result of the construction of a few new steel production facilities. Our industrial product diversity, mixed with our other product lines, keeps us going strong when the economy is poor.
Although we are faced with increased competition from emerging and existing manufacturers of fluid dampers and other types of energy dissipation technologies, our new manufacturing facilities and improved supply chain helps make us more efficient so we can continue to compete in an evolving market. With over 600 completed projects and a performance track record that is second to none, we are well positioned to continue as the preferred source while we work to control our costs and submit competitive, yet profitable proposals.
During FY14, Taylor Devices was awarded 42 new orders for our seismic and wind damping technology. This represents a 20% increase from FY13. With the majority of these new orders scheduled to ship after the end of FY14, FY15 is off to a good start and looks promising.
Several notable building projects were won during FY14 including 16 huge dampers to be used as part of the tuned mass damper for a new building located at 432 Park Avenue in New York City. The dampers will be used to control an 1100 ton pendulum made from steel and concrete that will reduce the wind induced vibrations in the building. Once complete, 432 Park Avenue will be the tallest residential building in the Western Hemisphere and will change the skyline of Manhattan.
Other projects worth mentioning include dampers for the seismic protection of Santa Clarita City Hall and the new San Diego Central Courthouse, both located in California. Offshore projects include dampers for the second phase of the Jorge Chavez Airport in Peru, a huge mixed use building in Tokyo and an office building for a cellular phone company in Turkey.
Taylor Devices was also awarded new contracts to supply 34 large and custom Fluid Viscous Dampers for the new Gerald Desmond Bridge in California and Lock-Up Devices for another section of the Haramain High Speed Railway located in Saudi Arabia. Additionally, we continue to receive many new seismic device orders for bridges from various countries in Asia.
A very strong backlog of existing orders at the end of FY14 as well as new and retrofit construction projects in current development throughout the World provide a good outlook for our FY15 expectations. Our recognized ability to suit the customer’s needs with special products and the flexibility to continually adapt to the requirements of the market, remain our most valuable assets. Additional manufacturing space plus a healthy amount of raw materials and components needed to build dampers help us reduce our lead times, more easily handle the surges in product need, and to generally meet the delivery demands of the construction industry.
Corporate Data
OFFICERS AND DIRECTORS
Douglas P. Taylor, President and Director
Richard G. Hill, Vice President and Director
Reginald B. Newman II, Secretary and Director
Randall L. Clark, Director
John Burgess, Director
Mark V. McDonough, Chief Financial Officer
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Lumsden & McCormick, LLP
Cyclorama Building
369 Franklin Street
Buffalo, NY 14202-1702
GENERAL COUNSEL
Hiscock and Barclay, LLP
1100 M&T Center
3 Fountain Plaza
Buffalo, NY 14203-1486
MANAGERS
Lorrie Battaglia, Human Resources Manager
Daniel Grosskopf, Purchasing Manager
Greg Hanson, Small Machine Shop Supervisor
Charles Ketchum III, Quality Assurance Manager
Alan Klembczyk, Chief Engineer
Benjamin Kujawinski, Operations Manager
David Lee, Western Technical Liaison
John Metzger, Engineering Manager Special Projects
David Mooney, Quality Control Manager
Kathleen Nicosia, Shareholder Relations Manager
Robert Schneider, Industrial/Seismic Products Sales Manager
Thomas Struzik Jr., Large Machine Shop Supervisor
Alan Taylor, Government Contracts Manager
Paul Tuttobene, Aerospace/Defense Products Sales Manager
Craig Winters, Industrial/Seismic Products Sales Manager
TRANSFER AGENT AND REGISTRAR
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
800-368-5948
www.rtco.com
| · | A copy of the financial report on form 10-K can be obtained by written request to the attention of Kathleen Nicosia, IR, at Taylor Devices, Inc., 90 Taylor Drive, North Tonawanda, NY 14120-0748. |
MARKET INFORMATION
The Company's Common Stock trades on the NASDAQ Capital Market of the National Association of Securities Dealers Automated Quotation (NASDAQ) stock market under the symbol TAYD.
The high and low sales information noted below for the quarters of fiscal year 2014 and fiscal year 2013 were obtained from NASDAQ.
| Fiscal 2014 | Fiscal 2013 | |||||||
| High | Low | High | Low | |||||
| First Quarter | $9.58 | $7.94 | $9.58 | $7.81 | ||||
| Second Quarter | $9.00 | $7.82 | $9.10 | $7.24 | ||||
| Third Quarter | $8.69 | $7.60 | $9.73 | $7.69 | ||||
| Fourth Quarter | $9.30 | $8.27 | $9.00 | $7.58 | ||||
As of May 31, 2014, the number of issued and outstanding shares of Common Stock was 3,342,816 and the approximate number of record holders of the Company's Common Stock was 705. 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. No cash or stock dividends have been declared during the fiscal year ended May 31, 2014.
Notice of Annual Meeting
The annual meeting of the shareholders of the Company will be held on Friday, November 7, 2014 at 11:00 a.m. This year's meeting will be held at the Buffalo Marriott Niagara, 1340 Millersport Highway, Amherst, New York. Shareholders desiring accommodations may call the Buffalo Marriott Niagara at 716-689-6900.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
Douglas P. Taylor
Board Member and President
Mr. Taylor holds a B.S. degree in Mechanical Engineering from the State University of New York at Buffalo, awarded in 1971. He has been employed by Taylor Devices, Inc. since 1971, and was appointed President in April 1991. Mr. Taylor previously was President of Tayco Developments, Inc., an affiliate of Taylor Devices, Inc. that was subsequently acquired by merger in 2008, where he had been employed since 1966, and was appointed President in 1991. He is inventor or co-inventor on 32 patents in the fields of energy management, hydraulics and shock isolation.
Mr. Taylor is widely published within the shock and vibration community. His technical papers have been published by the American Society of Civil Engineers, the Applied Technology Council, the Association of Iron and Steel Engineers, the Journal of Shock and Vibration, the National Fluid Power Foundation, the National Science Foundation, the New York State Science and Technology Foundation, the Shock and Vibration Symposium, the Society of Automotive Engineers, the U.S. Air Force and the U.S. Marine Corps. Since 1988, Mr. Taylor has hosted internship programs for engineering students, affiliated as an industrial sponsor with the State University of New York at Buffalo, the Erie County State of New York Board of Co-operative Educational Services, and the North Tonawanda, New York Public School System.
Since 1991, Mr. Taylor has participated in research projects in the field of earthquake protection, in association with the University at Buffalo’s Civil, Structural and Environmental Engineering Department and the Multidisciplinary Center for Extreme Events Research. As a result of this research, military technology from the Cold War era is now being used worldwide for seismic and high wind protection of commercial building and bridge structures.
In 1994, Mr. Taylor was named to the American Society of Civil Engineers’ Subcommittee on the Seismic Performance of Bridges. In 1998, Mr. Taylor was appointed to an Oversight Committee of the U.S. Department of Commerce, developing guidelines for the implementation of damping technology into buildings and other structures, as part of the U.S. National Earthquake Hazard Reduction Program. In 1998, Mr. Taylor was awarded the Franklin and Jefferson Medal for his commercialization of defense technology developed under the U.S. Government’s Small Business Innovation Research Program. In 1999, Mr. Taylor was awarded the Clifford C. Furnas Memorial Award by the Alumni Association of the University at Buffalo for his accomplishments in the field of engineering. In 2006, Mr. Taylor was named to the American Society of Civil Engineers’ Blast Protection of Buildings Standards Committee. In 2006, Mr. Taylor was the recipient of the Dean’s Award for Engineering Achievement by the School of Engineering and Applied Sciences at the State University of New York at Buffalo. Also in 2006, Mr. Taylor was named Structural Engineer of the Year (2006) by the Engineering Journal, “The Structural Design of Tall and Special Buildings.” Mr. Taylor is a founding member of the International Association on Structural Control and Monitoring. Since 2004, Mr. Taylor has also served as Chairman of the Lumber City Development Corporation, a Type C not-for-profit corporation under Section 501c(3) of the Internal Revenue Code. This corporation’s purpose is planning and implementation of programs, projects and activities designed to create or stimulate economic and community development in the city of North Tonawanda, NY.
Richard G. Hill
Board Member and Vice President
Mr. Hill holds a B.S. degree in Electrical Engineering from the Rochester Institute of Technology, awarded in 1973. In November 1991, Mr. Hill was appointed Vice President of Taylor Devices, Inc. by the Board of Directors. He had been employed previously by Taylor Devices, Inc. since 1978 as Vice President of Production. In addition, he has held key project management positions with the Company on major aerospace and defense contracts. In April of 1991, Mr. Hill was appointed to the Board of Directors of Taylor Devices, Inc. From 1973 to 1978, Mr. Hill was employed by the Alliance Tool and Die Company of Rochester, New York as a Project Leader and Design Engineer. From 1970 to 1973, he was employed by the same firm as an Engineer in Training, through a co-op program with the Rochester Institute of Technology.
Mr. Hill has served on the Founding Board of Directors of the Center for Competitiveness of the Niagara Region and the Advisory Board to The Center for Industrial Effectiveness. Mr. Hill served as Chairman for the Manufacturers Council of the Buffalo Niagara Partnership, and served on the State University of New York at Buffalo’s UB Business Alliance Advisory Board, as well as holding the seat of Secretary.
Reginald B. Newman II
Board Member and Secretary
Mr. Newman received his B.S. degree in Business Administration from Northwestern University in 1959. He was employed by NOCO Energy Corp., a diversified terminal operators, distributor, and retailer of petroleum and other energy related products from 1960, retiring as Chairman and CEO in 2003. Mr. Newman is also Chairman of Prior Aviation Service, Inc., Buffalo, New York.
From 1959 to 1960, Mr. Newman was employed by the Ford Motor company of Dearborn, Michigan, in the product planning department.
Mr. Newman is currently a Director of Dunn Tire LLC and a Director and Chairman of Rand Capital Corporation. He was the Chair of the Board of Trustees of the University at Buffalo Foundation, Inc. from 1996-2008.
Mr. Newman received the 1997 Executive of the Year, awarded by the State University of New York at Buffalo. In 1998 Mr. Newman received the Walter P. Cooke Award for Notable and Meritorious Service to the University presented by the University at Buffalo Alumni Association. He received the President’s Medal from the University in 2003, as well as their highest honor, the Norton Medal in 2006. He is a former member of the Buffalo Niagara Partnership and was Chairman from 1996 through 1998. Mr. Newman was awarded an Honorary Degree from Canisius College in 1997.
Randall L. Clark
Board Member
Mr. Clark holds a B.A. degree from the University of Pennsylvania, and earned his M.B.A. from the Wharton School of Finance and Commerce. He is and has been the Chairman of Dunn Tire LLC since 1996. From 1992 to 1996, Mr. Clark was Executive Vice President and Chief Operating Officer of Pratt & Lambert, until it was purchased by Sherwin-Williams.
Mr. Clark has been employed in the tire industry for many years. He was named President of the Dunlop Tire Corporation in 1980, was appointed to the Board of Directors in 1983, and named President and Chief Executive Officer in 1984. He was one of seven chief executives of operating companies appointed to the Group Management Board of Dunlop Holdings, plc., and was Chairman of the Board and Chief Executive Officer of Dunlop Tire Corporation in North America from 1985 to 1991. In 2012 he was inducted into the Tire Industry Association Hall of Fame.
From 1977 to 1980, Mr. Clark was Vice President of Marketing for the Dunlop Tire Division. From 1973 to 1977, he was employed by Dunlop as Director of Marketing at the company’s Buffalo, NY headquarters. From 1968 to 1973, Mr. Clark was employed by the B.F. Goodrich Company.
Mr. Clark is currently a Director of Computer Task Group, a publicly traded company and Director and former Chairman of Merchants Mutual Insurance Company. He is also a Director of Curtis Screw and The Ten Eleven Group. He is a past President of the International Trade Council of Western New York, past Chairman of the Buffalo Chamber of Commerce, and a Chairman of the Buffalo Niagara Enterprise. He is also a past Chairman of AAA of Western and Central New York. Mr. Clark was appointed by Governor George Pataki and served on the Council for the State University of New York at Buffalo. Recently he was appointed to the Board of Trustees of the University at Buffalo Foundation.
John Burgess
Board Member
Mr. Burgess gained his international strategy,
manufacturing operations and organizational development expertise from his more than 35 years experience with middle market public
and privately-owned companies. Mr. Burgess served as President and CEO of Reichert, Inc. a leading provider of ophthalmic instruments,
and spearheaded the acquisition of the company from Leica Microsystems in 2002, leading the company until its sale in January 2007.
Prior to the acquisition, Mr. Burgess served as President of Leica’s Ophthalmic and Educational Divisions before leading
the buyout of the Ophthalmic Division and formation of Reichert, Inc.
From 1996 to 1999, Mr. Burgess was COO of International Motion Controls (IMC), a $200 million diversified manufacturing firm. During
his tenure there, he led a significant acquisition strategy that resulted in seven completed acquisitions and sixteen worldwide
businesses in the motion control market. Previously, Mr. Burgess operated a number of companies for Moog, Inc. and Carleton Technologies,
including six years as President of Moog’s Japanese subsidiary, Nihon Moog K.K. located in Hiratsuka, Japan. Moog, Inc. is
the global leader in electro-hydraulic servo control technology with focus on the aerospace and defense sectors and was recognized
as one of The 100 Best Companies to Work For in America by Fortune Magazine.
Mr. Burgess earned a BS in Engineering from Bath University in England, and an M.B.A. from Canisius College.
Currently Mr. Burgess is an Operating Partner of Summer Street Capital LLC and Director of Bird Technologies Corporation of Solon, Ohio.
Mark V. McDonough
Chief Financial Officer
Mr. McDonough, who joined Taylor Devices in June 2003, is a Certified Public Accountant in New York State and holds a BBA degree from Niagara University, awarded in 1982. He has been involved in financial management of various Western New York manufacturing organizations for over twenty-five years. He has extensive experience in international operations coupled with a long history of implementing systems of internal controls. From 1986 to 1989 he was an auditor with the Buffalo office of Ernst & Young, LLP.
Mr. McDonough is a member of the New York State Society of Certified Public Accountants and the American Institute of Certified Public Accountants.
Exhibit 20(i)
NEWS FROM TAYLOR DEVICES, INC.
SHAREHOLDER LETTER, SUMMER 2014
THIS NEWSLETTER IS DIRECTED TO ALL SHAREHOLDERS OF TAYLOR DEVICES. WE HOPE THAT IT WILL GENERATE INTEREST IN THE COMPANY, PLUS PROVIDE CURRENT FINANCIAL AND PROJECT INFORMATION. COPIES OF THIS NEWSLETTER WILL ALSO BE CIRCULATED TO SHAREHOLDERS WHO HAVE SHARES IN BROKERAGE ACCOUNTS.
ITEM: FINANCIAL RESULTS
Taylor Devices completed its 2013-2014 fiscal year on May 31, 2014. Sales for 2014 were $20,011,228, compare to $24,729,585 in 2013. Net income was $1,131,212 for 2014, down from the previous year's record net income of $2,547,794.
Sales and income reflect the lost production hours from start-up of Taylor Devices new facilities during this fiscal year. Fourth quarter shipments exceeded 2013 by a modest amount, indicating that the Company is now back on track for continued growth.
Taylor Devices' firm backorder backlog at year's end was $24.6 million, compared to $13.1 million at the end of our 2013 fiscal year, and $18.5 million at the end of the third quarter of 2014.
|
FOURTH QUARTER |
F/Y 13-14 |
|
F/Y 12-13 |
|
SALES |
$5,303,755 |
|
$5,151,806 |
|
NET INCOME |
$401,290 |
|
$548,101 |
|
EARNINGS PER SHARE |
124 |
|
164 |
|
FISCAL YEAR |
F/Y 13-14 |
|
F/Y 12-13 |
|
SALES |
$20,011,228 |
|
$24,729,585 |
|
NET INCOME |
$1,131,212 |
|
$2,547,794 |
|
EARNINGS PER SHARE |
344 |
|
764 |
|
SHARES OUTSTANDING |
3,342,816 |
|
3,311,035 |
ITEM: NEW ORDERS - SEISMIC / WIND
The following new orders for seismic and wind dampers were received during the last quarter:
| n | 351 California Street -- San Francisco, CA |
| n | San Diego Central Court Building -- San Diego, CA |
| n | Rio Tinto Plant 5 -- Boron, CA |
| n | Kentucky Lake Bridge -- Aurora, KY |
| n | Costa Del Sol Building -- Lima, Peru |
| n | Huaku Hi Oasis Building -- Taiwan, ROC |
| n | Uni-President Xin-Zhuang Building -- Taiwan, ROC |
| n | Farglory H88 Building -- Taiwan, ROC |
| n | Farglory H105 Building -- Taiwan, ROC |
| n | Farglory H113 Building -- Taiwan, ROC |
| n | Weihe Railroad Bridge -- China |
| n | KIOI Project Building -- Japan |
ITEM: NEW ORDERS -- AEROSPACE / DEFENSE
| n | Missile Canister Isolators -- The U.S. Navy and some of our allies have purchased Taylor Devices' Tension-Compression Shock Isolators for an additional 140 shipboard missile launch canisters for the SM2 and SM3 family of missiles, known generally as the Standard Missile. This is for an on-going production program. The isolators protect the missile against damage from underwater explosions if the ship is attacked. |
| n | Equipment Raft Isolation System -- The current production U.S. attack submarines are of the Virginia Class. Taylor Devices' manufactures shock isolators used on large equipment platforms within the submarine hull. The Company has recently received orders for the next two submarines of this class. The isolators protect the platforms against underwater explosions if the submarine is attacked. |
| n | Shipboard Cabinet Isolators -- The Company has received orders for isolators for 32 large equipment cabinets used on surface warships to protect electronics packages within the cabinets from shock damage if the ship is attacked from land, sea, or air. |
| n | Machined Springs for Military Aircraft -- The Company has received an additional follow-on order to the order announced in the Spring 2014 newsletter. |
| n | C-17 Aircraft Engine Service Trailers -- Taylor Devices has manufactured suspension system struts for this military cargo aircraft program since its inception. An order has recently been received for an additional ten sets of suspension struts. |
| n | Aircraft Carrier Catapult Shuttle Shock Absorbers -- The current Nimitz Class Aircraft Carriers of the U.S. Navy utilize a very special shock absorber inside the cylinders of their four steam catapults which launch aircraft from the ship. The shock absorber catches the catapult shuttle which is attached to the aircraft's landing gear and which literally pushes the aircraft off the carrier at speeds typically in the range of 150+ mph. Taylor Devices is the only manufacturer to qualify shock absorbers to the rigid Navy specifications. An order was recently received for an additional 54 pieces of this long-term production part. |
ITEM: TAYLOR DEVICES' SEISMIC DAMPERS FEATURED IN EXHIBITION
The National Building Museum in Washington, DC has opened a new year-long exhibition, "Designing for Disaster." The exhibits deal with building design hazards, including earthquakes, hurricanes, floods, and fire, and portrays how policies, plans and designs can be augmented or created to provide safer and more resilient communities. Taylor Devices' Seismic Dampers were selected to be featured at the exhibition, and after some discussions, a specific project was selected to be portrayed. This was the seismic retrofit and modernization of the California Memorial Stadium at UC Berkeley, a 63,000 seat stadium originally built in 1923. This project used 16 dampers, each rated at 225 tons of force for seismic protection. The upgrade and modernization was completed in 2012. For the exhibition, the Company provided a fully operational damper of the size used at the stadium, which is incorporated into a modeled building frame section. The exhibition is being well received, with excellent reviews published by The Washington Post, the Science Channel, the Weather Channel, and Landscape Architecture Magazine.
The exhibition runs through August of 2015 at:
The National Building Museum
401 F Street NW
Washington, DC 20001
http://www.nbm.org
ITEM: NEXT SHAREHOLDER MAILING
Our next Shareholder mailing will be the Notice of Annual Meeting of Shareholders. You should be receiving your mailing in September.
By: /s/Douglas P. Taylor
Douglas P. Taylor
President
Exhibit 31(i)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a - 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
| I, Douglas P. Taylor, certify that: |
1. I have reviewed this annual report on Form 10-K of Taylor Devices, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 28, 2014 | /s/Douglas P. Taylor |
|
Douglas P. Taylor Chief Executive Officer
|
Exhibit 31(ii)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a - 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
| I, Mark V. McDonough, certify that: |
1. I have reviewed this annual report on Form 10-K of Taylor Devices, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: August 28, 2014 | /s/ Mark V. McDonough |
|
Mark V. McDonough Chief Financial Officer
|
Exhibit 32(i)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connect with the annual
report of Taylor Devices, Inc. ("the Company") on Form 10-K for the fiscal year ended May 31, 2014 to be filed with Securities
and Exchange Commission on or about the date hereof (the
"Report"), I, Douglas P. Taylor, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.
It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934.
| Date: August 28, 2014 | By: | /s/ Douglas P. Taylor |
|
Douglas P. Taylor, Chief Executive Officer
|
Exhibit 32(ii)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connect with the annual report of Taylor Devices, Inc. (the "Company") on Form 10-K for the fiscal year ended May 31, 2014 to be filed with Securities and Exchange Commission on or about the date hereof (the "Report"), I, Mark V. McDonough, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.
It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934.
| Date: August 28, 2014 | By: | /s/ Mark V. McDonough |
|
Mark V. McDonough, Chief Financial Officer
|
|
Inventory - Inventory (Details) (USD $)
|
May 31, 2014
|
May 31, 2013
|
|---|---|---|
| Inventory, net | ||
| Raw materials | $ 571,491 | $ 582,591 |
| Work-in-process | 8,149,015 | 7,876,272 |
| Finished goods | 357,796 | 765,323 |
| Gross inventory | 9,078,302 | 9,224,186 |
| Less allowance for obsolescence | (100,000) | (100,000) |
| Net inventory | $ 8,978,302 | $ 9,124,186 |
|
Employee Stock Purchase Plan (Details Narrative)
|
12 Months Ended | |
|---|---|---|
|
May 31, 2014
|
May 31, 2013
|
|
| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
| Common shares issued employee stock purchase plan | 1,781 | 1,359 |
|
Sales (Details Narrative)
|
12 Months Ended | |
|---|---|---|
|
May 31, 2014
|
May 31, 2013
|
|
| Notes to Financial Statements | ||
| Percentage of total sales to significant individual customers | 0.5 | 0.52 |
| Percentage of total sales to significant individual customer1 | 0.2 | 0.29 |
| Percentage of total sales to significant individual customer2 | 0.1 | 0.07 |
| Percentage of total sales to significant individual customer3 | 0.09 | 0.06 |
| Percentage of total sales to significant individual customer4 | 0.06 | 0.05 |
| Percentage of total sales to significant individual customer5 | 0.05 | 0.05 |