Basis of Presentation (Policies)

3 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). With adoption of this standard, lessees are required 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. ASU 2016-02 must be applied on a modified retrospective basis and was 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 three-year operating lease for property related to the manufacturing and warehousing of the Blaw-Knox paver product line which resulted in reporting a right-of-use (“ROU”) asset and related lease liabilities of approximately $970,000. On October 9, 2020, the Company entered into a second operating lease for additional warehousing space for the Blaw-Knox inventory. The lease term is for one year beginning November 2020 with automatic one-year renewals. In accordance with ASU 2016-02, the Company recorded a ROU asset totaling $254,000 and related lease liabilities at inception (see Note 9 – Leases).

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement—Disclosure Framework (Topic 820) (ASU 2018-13). The updated guidance improves the disclosure requirements on fair value measurements, including, among other things, addition of certain disclosures related to level 3 fair value measurements, and removal of disclosure requirements for (i) the amount and reasons for transfers between level 1 and level 2 of the fair value hierarchy, and (ii) policy and timing of transfers between fair value hierarchy levels. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU 2018-13 for the quarter ended December 31, 2020. The application of this guidance did not have a material effect on our disclosures.

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.

COVID-19 Pandemic

COVID-19 Pandemic

The Company continues to monitor and evaluate the risks to public health and the slowdown in overall business activity related to the COVID-19 pandemic, including impacts on its employees, customers, suppliers and financial results. As of the date of issuance of these Condensed Consolidated Financial Statements, the Company’s operations have not been significantly impacted. However, the full impact of the COVID-19 pandemic continues to evolve subsequent to the quarter ended December 31, 2020 and as of the date these Condensed Consolidated Financial Statements are issued. As such, the full magnitude that the COVID-19 pandemic will have on the Company’s financial condition and future results of operations is uncertain. Management is actively monitoring the situation on the Company’s financial condition, operations, suppliers, industry, customers, and workforce. As the spread of COVID-19 continues, the Company’s ability to meet customer demands for products may be impacted or its customers may experience adverse business consequences due to COVID-19. Reduced demand for products or ability to meet customer demand (including as a result of disruptions at the Company’s suppliers) could have a material adverse effect on its business operations and financial performance.

Marketable Securities

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

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 marketable securities measured at fair value as of December 31, 2020:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Equities	$	15,129,000	$	—	$	—	$	15,129,000
Mutual Funds		13,260,000		—		—		13,260,000
Exchange-Traded Funds		15,775,000		—		—		15,775,000
Corporate Bonds		—		27,392,000		—		27,392,000
Government Securities		16,056,000		—		—		16,056,000
Cash and Money Funds		4,437,000		—		—		4,437,000
Total	$	64,657,000	$	27,392,000	$	—	$	92,049,000

Net unrealized gains recognized during the quarter ended December 31, 2020 on trading securities still held as of December 31, 2020 were $1,908,000.

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 gains recognized during the quarter ended December 31, 2019 on trading securities still held as of December 31, 2019 were $1,190,000.

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 product line and associated assets, including inventory, fixed assets and related intellectual property, from Volvo CE, as well as pay for capital expenditures and other startup costs to get the leased manufacturing facility ready for production.

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.

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. 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.

Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share for the quarters ended December 31, 2020 and 2019:

	Quarter Ended December 31,
	2020		2019
Net Income	$	1,551,000	$	2,489,000
Common Shares:
Weighted average common shares outstanding		14,606,000		14,586,000
Effect of dilutive stock options		123,000		134,000
Diluted shares outstanding		14,729,000		14,720,000
Basic:
Net earnings per share	$	0.11	$	0.17
Diluted:
Net earnings per share	$	0.11	$	0.17

Basic earnings per share are based on the weighted-average number of shares outstanding. Diluted earnings per share are 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 earnings per share calculation for the quarter ended December 31, 2020 were 252,000, which equates to 123,000 dilutive common stock equivalents. The weighted-average shares issuable upon the exercise of stock options included in the diluted earnings per share calculation for the quarter ended December 31, 2019 were 272,000, which equates to 134,000 dilutive common stock equivalents. There were no anti-dilutive shares for the quarters ended December 31, 2020 and December 31, 2019.

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.

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 December 31, 2020 and September 30, 2020.

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 the quarters ended December 31, 2020 and December 31, 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.

Revenue Recognition and Related Costs

The Company recognizes revenue under ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The following table disaggregates the Company’s net revenue by major source for the quarters ended December 31, 2020 and 2019:

	Quarter Ended December 31,
	2020		2019
Equipment sales recognized over time	$	4,132,000	$	12,090,000
Equipment sales recognized at a point in time		10,136,000		1,907,000
Parts and component sales		3,931,000		3,146,000
Freight revenue		745,000		903,000
Other		20,000		(16,000	)
Net revenue	$	18,964,000	$	18,030,000

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 $4,709,000 and $6,405,000 at December 31, 2020 and September 30, 2020, respectively, and are included in current assets as costs and estimated earnings in excess of billings on the Company’s condensed consolidated balance sheets. The Company anticipates that all of the contract assets at December 31, 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 services are completed. Accounts receivable related to contracts with customers for equipment sales were $346,000 and $223,000 at December 31, 2020 and September 30, 2020, respectively.

Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized. 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 December 31, 2020 and September 30, 2020. Customer deposits related to contracts with customers were $2,697,000 and $3,853,000 at December 31, 2020 and September 30, 2020, respectively, and are included in current liabilities on the Company’s condensed 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 cost of goods sold 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.