Sales for the six months ended October 31, 2018 were $79,430,000, an increase of 5.4% from sales of
$75,352,000 in the comparable period of the prior year. Domestic sales were $66,692,000, up from $50,686,000 in the comparable period of the prior year. International sales were $12,738,000, down from sales of $24,666,000 in the comparable period of
the prior year due to the impact of a large order being delivered to a customer in the Middle East in the prior year.
The Companys order backlog
was $101 million at October 31, 2018, as compared to $118 million at October 31, 2017, and $102 million at July 31, 2018. The prior years order backlog contained a single large Middle East order that was
delivered in fiscal year 2018, the absence of which primarily accounted for the decline in the order backlog in the current period.
The gross profit
margin for the three months ended October 31, 2018 was 20.9% of sales as compared to 19.1% of sales in the comparable quarter of the prior year. The increase in gross profit margin percent was primarily due to continued execution of the
Companys cost reduction and productivity improvement programs, which were partially offset by a year-over-year decline in sales, as well as continued increases in raw material and freight costs.
The gross profit margin for the six months ended October 31, 2018 was 19.2% of sales, as compared to 19.6% of sales in the comparable period of the prior
year. The decrease in gross profit margin percentage was primarily due to an unfavorable shift in product mix, and year-over-year decline in sales, as well as continued increases in raw material and freight costs which negatively affected margins
compared to the prior period.
Operating expenses for the three months ended October 31, 2018 were $5,963,000, or 16.0% of sales, as compared to
$5,256,000, or 12.7% of sales, in the comparable period of the prior year. The increase in operating expenses for the three months ended October 31, 2018 related primarily to increases in professional fees of $398,000, consulting expenses of
$116,000 and International operating expenses of $295,000, partially offset by a decrease in pension expense of $111,000. The increases in professional and consulting fees were related to the Companys preparations in anticipation of
potentially moving from smaller reporting company status to accelerated filer status for SEC reporting purposes, and increased compliance costs related to implementing the provisions of the Tax Reform Act of 2017. The increase in International
operating expenses related to investments made to expand the Companys presence and capabilities in the Middle East and India.
Operating expenses
for the six months ended October 31, 2018 were $11,726,000 or 14.8% of sales, as compared to $10,389,000, or 13.8% of sales, in the comparable period of the prior year. The increase in operating expenses for the six months ended
October 31, 2018 related primarily to increases in professional fees of $400,000, consulting expenses of $322,000 and International operating expenses of $447,000, partially offset by a decrease in pension expense $200,000. The reasons for the
increases in professional, consulting fees and International operating expenses were substantially the same as those described above with respect to the increases in the most recent quarter.
Interest expense was $91,000 and $182,000 for the three and six months ended October 31, 2018, as compared to $89,000 and $148,000 for the comparable
periods of the prior year. The changes in interest expense in the current three and six month periods were primarily attributable to changes in the borrowing levels.
Income tax expense of $415,000 and $978,000 was recorded for the three months ended October 31, 2018 and 2017, respectively. The effective tax rates were
22.2% and 35.7% for the three months ended October 31, 2018 and 2017, respectively. Income tax expense of $783,000 and $1,583,000 was recorded for the six months ended October 31, 2018 and 2017, respectively. The effective tax rates were
21.4% and 34.9% for the six months ended October 31, 2018 and 2017, respectively. The decreases in the effective tax rates for the three and six month periods reflect the favorable impact of the lower federal 21% statutory rate that was
effective in the current fiscal year as a result of the enactment of the Tax Cuts and Jobs Act, which was signed into law in December 2017.
Noncontrolling interests related to the Companys subsidiary not 100% owned by the Company reduced net earnings by $40,000 and $49,000 for the three and
six months ended October 31, 2018, as compared to $41,000 and $85,000 for the comparable periods of the prior year. The change in the net earnings attributable to the noncontrolling interest in the current period was due to changes in earnings
of the subsidiary in the related period.
Net earnings of $1,414,000, or $0.51 per diluted share, were reported for the three months ended
October 31, 2018, compared to net earnings of $1,724,000, or $0.62 per diluted share, in the prior year period. Net earnings of $2,821,000, or $1.01 per diluted share, were reported for the six months ended October 31, 2018, compared to
net earnings of $2,872,000, or $1.04 per diluted share, in the prior year period.
Liquidity and Capital Resources
Historically, the Companys principal sources of liquidity have been funds generated from operations, supplemented as needed by short-term borrowings
under the Companys revolving credit facility. Additionally, certain machinery and equipment are financed by
non-cancellable
operating leases. The Company believes that these sources will be sufficient to
support ongoing business requirements in the current year, including capital expenditures.
17