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Nature of Operations and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Accounting Pronouncements and Policies

In May 2014, the FASB issued ASU

No. 2014-09,

Revenue from Contracts with Customers

(Topic 606) (“ASU

2014-09”),

amending its accounting guidance related to revenue recognition. Under this ASU and subsequently issued amendments, revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide 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. The standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company adopted ASU

2014-09

in the first quarter of fiscal 2019. The Company elected to adopt the standard using the modified retrospective method. The adoption of ASU

2014-09

did not have a significant impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No.

2016-02,

Leases

(Topic 842) (“ASU

2016-02”).

With adoption of this standard, lessees will have to recognize most leases as a

right-of-use

asset and a lease liability on their balance sheet. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are similar to those applied in current lease accounting. ASU

2016-02

must be applied on a modified retrospective basis and is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted.

The Company adopted ASU 2016-02 in the first quarter of fiscal 2020. The initial adoption of ASU 2016-02 did not have a significant impact on its consolidated financial statements. During the fourth quarter of fiscal 2020, the Company entered into a new operating lease which resulted in reporting a right-of-use (“ROU”) asset and related lease liabilities of approximately $970,000 (see Note 9 – Leases)

In May 2017, the FASB issued ASU

2017-09,

Compensation - Stock Compensation

(Topic 718):

Scope of Modification Accounting

(“ASU

2017-09”).

The new guidance clarifies when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. ASU

2017-09

is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company adopted ASU

2017-09

in the first quarter of fiscal 2019. The adoption of ASU

2017-09

did not have a significant impact on its consolidated financial statements.

No other accounting pronouncements recently issued or newly effective have had, or are expected to have, a material impact on the Company’s consolidated financial statements.

Use of Estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Earnings per Share

The consolidated financial statements include basic and diluted earnings per share (“EPS”) information. Basic EPS is based on the weighted-average number of shares outstanding. Diluted EPS is based on the sum of the weighted-average number of shares outstanding plus common stock equivalents.

The weighted-average shares issuable upon the exercise of stock options included in the diluted EPS calculation at September 30, 2020 were 256,000, which equates to 125,000 dilutive common stock equivalents. For the year ended September 30, 2019, the weighted-average shares issuable upon the exercise of stock options included in the diluted EPS calculation were 307,000, which equates to 157,000 dilutive common stock equivalents. Weighted-average shares issuable upon the exercise of stock options, which were not included in the diluted EPS calculation because they were anti-dilutive, were 7,000 in 2020 and zero in 2019.

The following presents the calculation of the basic and diluted EPS for the years ended September 30, 2020 and 2019:


	2020						2019
	Net Income		Shares		EPS		Net Income		Shares		EPS
Basic EPS	$	5,531,000		14,595,000	$	0.38	$	10,196,000		14,551,000	$	0.70
Common stock equivalents				125,000						157,000

Diluted EPS	$	5,531,000		14,720,000	$	0.38	$	10,196,000		14,708,000	$	0.69

Cash Equivalents

Cash equivalents consist of short-term certificates of deposit and deposits in money market accounts with original maturities of three months or less.

Marketable Securities and Fair Value Measurements

Marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value. Fair value is determined using the quoted closing or latest bid prices for Level 1 investments and market standard valuation methodologies for Level 2 investments. Realized gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the consolidated income statements. Net changes in unrealized gains and losses are reported in the consolidated income statements in the current period.

Fair Value Measurements

The fair value of financial instruments is presented based upon a hierarchy of levels that prioritizes the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The fair value of marketable equity securities (stocks), mutual funds, exchange-traded funds, government securities, and cash and money funds, are substantially based on quoted market prices (Level 1). Corporate bonds are valued using market standard valuation methodologies, including: discounted cash flow methodologies, and matrix pricing or other similar techniques. The inputs to these market standard valuation methodologies include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, maturity, estimated duration and assumptions regarding liquidity and estimated future cash flows. In addition to bond characteristics, the valuation methodologies incorporate market data, such as actual trades completed, bids and actual dealer quotes, where such information is available. Accordingly, the estimated fair values are based on available market information and judgments about financial instruments (Level 2). Fair values of the Level 2 investments are provided by the Company’s professional investment management firms.

From time to time the Company may transfer cash between its marketable securities portfolio and operating cash and cash equivalents.

The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30, 2020:


	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Equities	$	11,949,000	$	—	$	—	$	11,949,000
Mutual Funds		9,595,000		—		—		9,595,000
Exchange-Traded Funds		10,344,000		—		—		10,344,000
Corporate Bonds		—		27,877,000		—		27,877,000
Government Securities		16,147,000		—		—		16,147,000
Cash and Money Funds		13,586,000		—		—		13,586,000

Total	$	61,621,000	$	27,877,000	$	—	$	89,498,000

Net unrealized losses reported during fiscal 2020 on trading securities still held as of September 30, 2020, were $(1,091,000). There were no transfers of investments between Level 1 and Level 2 during the year ended September 30, 2020.

In the fourth quarter of fiscal 2020, the Company liquidated approximately $17.0 million of its

investments.

The cash was used to fund the acquisition of the Blaw-Knox paver business and associated assets, including inventory, fixed assets and related intellectual property, from Volvo CE (see Note 12 - Subsequent Events for additional information).

The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30, 2019:


	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Equities	$	10,412,000	$	—	$	—	$	10,412,000
Mutual Funds		3,987,000		—		—		3,987,000
Exchange-Traded Funds		5,163,000		—		—		5,163,000
Corporate Bonds		—		38,690,000		—		38,690,000
Government Securities		45,171,000		—		—		45,171,000
Cash and Money Funds		1,899,000		—		—		1,899,000

Total	$	66,632,000	$	38,690,000	$	—	$	105,322,000

Net unrealized gains reported during fiscal 2019 on trading securities still held as of September 30, 2019, were $737,000. There were no transfers of investments between Level 1 and Level 2 during the year ended September 30, 2019.

In fiscal 2019, the Company transferred a net $2.0 million from the marketable securities portfolio to operating cash and cash equivalents.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, customer deposits and accrued expenses approximate fair value because of the short-term nature of these items.

Foreign Currency Transactions

Gains and losses resulting from foreign currency transactions are included in income and were not significant during the years ended September 30, 2020 and 2019.

Risk Management

Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash and cash equivalents, marketable securities, and accounts receivable. The Company maintains its cash accounts in various domestic financial institutions which may from time to time exceed federally insured limits. Operating cash is retained overnight in non-interest-bearing accounts which allow for offsets to treasury service charges. The marketable securities include investments in cash and money funds, mutual funds, exchange traded funds (“ETF’s”), corporate bonds, government securities and stocks through professional investment management firms. Investment securities are exposed to various risks, such as interest rate, market and credit risks.

The Company’s customers are not concentrated in any specific geographic region, but are concentrated in the road and highway construction industry. The Company extends limited credit on parts sales to its customers based upon their credit-worthiness. Generally, the Company requires a significant up-front deposit before beginning manufacturing on complete asphalt plant and component orders, and requires full payment subject to hold-back provisions prior to shipment. The Company establishes an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends and other pertinent information.

Inventories

Inventories are valued at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price of goods less reasonable costs of completion and delivery. During the fourth quarter of fiscal 2019, the Company changed its method for accounting for cost of inventories from the

last-in,

first-out

(“LIFO”) method to the

first-in,

first-out

(“FIFO”) method. As required by accounting principles generally accepted in the United States of America (“GAAP”), the Company reflected this change in accounting principle on a retrospective basis, resulting in changes to the historical periods presented.

Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw material, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company on

trade-in

from customers is carried at estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory obsolescence,

an allowance is established to reduce

the cost basis of inventories three to four years old by 50%,

the cost basis of inventories four to five years old by 75%, and the cost basis of inventories greater than five years old to zero. Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30, the Company’s fiscal year end. If significant known changes in trends, technology or other specific circumstances that warrant consideration occur during the year, then the impact on obsolescence is considered at that time.

Changes in the allowance for slow-moving and obsolete inventories are as follows:


	2020			2019
Balance, beginning of year	$	4,700,000		$	4,543,000
Charged to cost of sales		401,000			304,000
Disposal of inventory, net of recoveries		(484,000	)		(147,000	)

Balance, end of year	$	4,617,000		$	4,700,000

Property and Equipment

Property and equipment are stated at cost (see Note 4). Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the related assets, as follows:


		Years
Land improvements		15
Buildings & improvements		6-40
Equipment		2-10

Impairments

Property and equipment, and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be

recorded is calculated by the excess of the asset’s carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis. No such impairment losses were recorded during the years ended September 30, 2020 and 2019.

Revenues and Expenses

The Company adopted the provisions of ASU

No. 2014-09

and related amendments effective for the quarter ended December 31, 2018 using the modified retrospective method. The adoption of this standard did not have a material impact on the timing or amounts of revenues recognized by the Company, and, as such, no cumulative effect adjustment was recorded with the adoption of the standard.

The following table disaggregates the Company’s net revenue by major source for the years ended September 30, 2020 and 2019:


	2020		2019
Equipment sales recognized over time	$	35,579,000	$	43,489,000
Equipment sales recognized at a point in time		23,642,000		19,987,000
Parts and component sales		13,896,000		13,356,000
Freight revenue		3,983,000		4,130,000
Other		320,000		367,000

Net revenue	$	77,420,000	$	81,329,000

Revenues from contracts with customers for the design, manufacture and sale of custom equipment are recognized over time when the performance obligation is satisfied by transferring control of the equipment. Control of the equipment transfers over time, as the equipment is unique to the specific contract and thus does not create an asset with an alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs incurred, as compared with total estimated labor costs expected to be incurred, during the entire contract. All incremental costs related to obtaining a contract are expensed as incurred, as the amortization period is less than one year. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined.

Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed on equipment sales recognized over time. These contract assets were $6,405,000 and $13,838,000 at September 30, 2020 and 2019, respectively, and are included in current assets as costs and estimated earnings in excess of billings on the Company’s consolidated balance sheets. The Company anticipates that all of the contract assets at September 30, 2020, will be billed and collected within one year.

Revenues from all other contracts for the design and manufacture of equipment, for service and for parts sales, net of any discounts and return allowances, are recorded at a point in time when control of the goods or services has been transferred. Control of the goods or service typically transfers at time of shipment or upon completion of the service.

Payment for equipment under contract with customers is typically due prior to shipment. Payment for services under contract with customers is due as

ervices

are completed. Accounts receivable related to contracts with customers for equipment sales were $223,000 and $301,000 at September 30, 2020 and September 30, 2019, respectively.

Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized.

Changes in the accrual for warranty and related costs are composed of the following:


	2020			2019
Balance, beginning of year	$	277,000		$	400,000
Warranties issued		375,000			140,000
Warranties settled		(353,000	)		(263,000	)

Balance, end of year	$	299,000		$	277,000

Provisions for estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using historical experience.

Under certain contracts with customers, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation assistance. There were no contract liabilities other than customer deposits at September 30, 2020 and September 30, 2019. Customer deposits related to contracts with customers were $3,853,000 and $1,918,000 at September 30, 2020 and 2019, respectively, and are included in current liabilities on the Company’s consolidated balance sheets.

The Company records revenues earned for shipping and handling as freight revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified as production costs concurrently with the revenue recognition.

All product engineering and development costs, and selling, general and administrative expenses are charged to operations as incurred. Provision is made for any anticipated contract losses in the period that the loss becomes evident.

The allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability, and also adjusting for any known customer payment issues with account balances in the

less-than-90-day

past due aging category. Account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectible. Any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts. The allowance for doubtful accounts also includes an estimate for returns and allowances. Provisions for estimated returns and allowances and other adjustments, are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using known issues and historical experience.

Changes in the allowance for doubtful accounts are composed of the following:


	2020			2019
Balance, beginning of year	$	459,000		$	313,000
Provision for doubtful accounts		50,000			175,000
Provision for estimated returns and allowances		205,000			315,000
Uncollectible accounts written off		(5,000	)		(71,000	)
Returns and allowances issued		(267,000	)		(273,000	)

Balance, end of year	$	442,000		$	459,000

Shipping and Handling Costs

Shipping and handling costs are included in production costs in the consolidated income statements.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and primarily consist of taxes currently due, plus deferred taxes

(see Note 6 – Income Taxes).

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns using current tax rates. The Company and its domestic subsidiaries file a consolidated federal income tax return.

Deferred tax assets and liabilities are measured using the rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse and the credits are expected to be used. The effect on deferred tax assets and liabilities of the change in tax rates is recognized in income in the period that includes the enactment date. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, the Company is more likely than not to realize the benefit of a deferred tax asset and whether a valuation allowance is needed for some portion or all of a deferred tax asset. No such valuation allowances were recorded as of September 30, 2020 and 2019.

The Company’s income tax provision is based on management’s estimate of the effective tax rate for the full year. The tax provision in any period will be affected by, among other things, permanent, as well as temporary differences in the deductibility of certain items, in addition to changes in tax legislation. As a result, the Company may experience significant fluctuations in the effective book tax rate (that is, its tax expense divided by

pre-tax

book income) from period to period. The Company’s effective tax rates for fiscal 2020 and 2019 reflect the impact of the reduced rates under the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act) which was signed into law on December 22, 2017.

Comprehensive Income

For the years ended September 30, 2020 and 2019, other comprehensive income is equal to net income.

Reporting Segments and Geographic Areas

The Company has one reportable segment. For fiscal 2020 and 2019, total revenues of $77,420,000 and $81,329,000, and total long-term assets of $9,336,000 and $8,442,000, respectively, were attributed to the United States. Revenues are attributed to geographic areas based on the location of the assets producing the revenues.

Customers with 10% (or greater) of Net Revenues

No customer accounted for 10% or more of fiscal 2020 or 2019 net revenues.

Subsequent Events

Management has evaluated events occurring from September 30, 2020 through the date these consolidated financial statements were filed with the Securities and Exchange Commission for proper recording and disclosure herein.

On October 1, 2020, the Company acquired the Blaw-Knox

paver business and associated assets, including inventory, fixed assets and related intellectual property,

from Volvo CE. The acquisition was accounted for as a business combination under ASC 805, “Business Combinations.” The purchase price of approximately $14.4 million was funded by cash on hand

(see Note 12 - Subsequent Events for additional information).