Trojan Technologies Reports Net Loss Of $3.3 Million In 1999 And Restated 1998 Net Profit Of $2.8 Million
- Revenues increase by 29% -
LONDON, ONTARIO, Canada--(BUSINESS WIRE)--Nov. 23, 1999-- - Restructuring and financial accountability program launched to restore company's profitability -
Trojan Technologies Inc. (TSE:TUV - news) today reported a net loss of $3.3 million or ($0.39) per common share for the fiscal year ended August 31, 1999. Adjusted for the stock split which occurred September 8th, the net loss per common share was $0.195.
The 1999 net loss of $3.3 million compares to a restated net income of $2.8 million, after tax and special charge, or $0.37 per common share for the 12 month period ended August 31, 1998 ($0.185 per share on a split basis). At August 31, 1998, the company under estimated its provision for warranty costs by approximately $2.5 million and did not recognize an unrealized loss of $1.3 million on certain foreign currency forward exchange contracts. Accordingly, the company has restated its 1998 financial statements.
Sales in the year ended August 1999 increased by 29% to $89.9 million due principally to increased sales of UV4000( and UV3000( wastewater treatment units, mainly in North America. Clean Water Systems sales increased in all markets showing particular strength internationally due to increased sales in Europe.
During fiscal 1999, gross margins declined to 29% from 38% (after restatement) primarily as a result of increases in personnel, material and warranty costs, and a write-off of scrap/obsolete inventory.
Sales and administrative costs increased to $24.4 million from $14.9 million partially as a result of the 29% sales growth. Litigation costs of $1.3 million were incurred in asserting and enhancing the Company's intellectual property rights. Personnel and systems costs also rose. Research and Development costs increased to $5.1 million from $3.3 million reflecting ongoing investments in new product development.
In October 1999, Trojan announced that it had engaged PricewaterhouseCoopers to complete a diagnostic assessment of the company's operational and reporting controls. The ensuing report has identified opportunities for Trojan to significantly improve its margins, its internal control environment, and cash flow management. Management and the Board have endorsed this report and implemented an action plan to capture the benefits identified through the PwC assessment. The company has dedicated a team of people with a mandate to implement these recommendations over the next 120 days.
In order to better align the organization with the company's strategic objectives and to ensure the complete implementation of this program during fiscal 2000, Trojan is undertaking a number of important management changes. Effective November 23rd, Marvin DeVries, currently Executive Vice-President, becomes Chief Operating Officer with responsibility for the company's two principal business units, Municipal and Clean Water.
Mr. DeVries will also be responsible for Manufacturing
Operations, Research and Development and Human Resources. Doug Alexander, currently acting Chief Financial Officer, has been appointed Chief Financial Officer with effect November 23rd and will be responsible for identifying opportunities to improve financial performance, financial reporting and analysis, management information systems, and investor relations. Mr. DeVries and Mr. Alexander will both report to Hank Vander Laan, President and Chief Executive Officer
``While our sales and customer relationships remain very strong, and we enjoy important technological advantages, our levels of profitability are clearly unacceptable to me, the management team, and our shareholders,' said Marvin DeVries, Chief Operating Officer. ``Building on the recommendations of the PricewaterhouseCoopers report, we have developed a program of gross margin improvement and other cost reductions for fiscal 2000 totaling approximately $10 million.
The key elements of this cost reduction program are:
A net reduction in overhead through the immediate elimination of 45 staff positions (10 through attrition) and a temporary lay-off of a further 12 employees to realign production with customer delivery requirements.
A reduction in product costs achieved through improved product design, increased vendor discounts and reduced manufacturing costs.
-- A reduction in marketing and sales costs.
A quality improvement program which will result in a reduction in warranty, scrap and obsolescence costs.
-- A refocused Research and Development program.
-- A reduction in general administrative expenses.
In order to implement these measures, a restructuring charge of approximately $2.5 million will be taken in the first quarter of fiscal 2000.
``The company's goals in FY2000 are to maintain its leadership in the marketplace, realign production to more closely match customer delivery requirements and aggressively reduce its cost base to a level which will provide satisfactory profits,' said Hank Vander Laan. ``We very much regret the requirement to reduce our workforce as part of this process; however, it is clearly a critical element in our recovery plan. We will treat the affected employees fairly and provide assistance to them in finding new opportunities. Having taken these difficult decisions, we believe the company is well-positioned to be successful in a market that continues to grow rapidly.'
Doug Alexander, Chief Financial Officer said, `` I am excited to be joining an organization with a very strong presence in a rapidly growing marketplace. This company has a solid financial base with approximately $12 million in cash and over $30 million in working capital. I look forward to supporting the business and to contributing to renewed financial and operating disciplines.' Outlook
While Trojan expects that the realignment of production with customer delivery requirements will mean relatively flat revenues for fiscal 2000, the company anticipates a return to profitability in the second half of this year. A buoyant market, growing at the rate of approximately 30% per annum, should create strong positive momentum for a return to healthy profitability and growth for FY2001.
Fiscal 1999 financial statements follow this news release.
The investment community and the media are invited to join a conference call at 10:00 a.m. eastern time on the morning of November 23rd by dialing 1-800-273-9672 or 416-695-5806. A PostView will be available by dialing 416-695-5800 and dialing passcode number 352924.
TROJAN TECHNOLOGIES INC.
Fiscal 1998
Year Ended August 31, 1999
Financial Highlights
For the twelve months ended August 31 %
1999 1998 Change
restated
Sales $89,925,344 $69,852,321 28.7%
Net income (loss) $(3,330,283) $ 2,827,750 -217.8%
Earnings per share
Basic and fully diluted $ (0.39) $ 0.37 -205.4%
Earnings per share before special charge
Basic and fully diluted $ (0.39) $ 0.58 -167.2%
Weighted average number of shares
Basic 8,529,687 7,733,336
Fully diluted 8,908,112 7,998,721
TROJAN TECHNOLOGIES INC.
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND RETAINED EARNINGS
Years ended August 31 1999 1998
$ $
------------------------------------------------------------------
Restated
SALES 89,925,344 69,852,321
Cost of goods sold 63,668,455 43,085,698
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Gross margin 26,256,889 26,766,623
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EXPENSES
Administrative and selling
expenses 24,358,197 14,859,766
Research and
development, net 5,055,843 3,317,944
Interest on long-term debt 364,119 277,354
Interest and bank charges 1,706,860 905,207
Amortization 2,564,626 1,806,718
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34,049,645 21,166,989
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Operating income (loss) (7,792,756) 5,599,634
Other income
Interest income 1,101,788 51,264
Income from equity investment 784,685 934,852
------------------------------------------------------------------
Income (loss) before
special charge and
income taxes (5,906,283) 6,585,750
Special charge - 2,650,000
Income tax provision
(recovery) (2,576,000) 1,108,000
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Net income (loss) (3,330,283 2,827,750
------------------------------------------------------------------
Retained earnings, beginning
of year, as previously stated17,075,028 12,621,901
Retroactive adjustment (2,337,000) -
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Retained earnings, restated 14,738,028 12,621,901
Share issue costs, net of
taxes - (711,623)
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Retained earnings, end of
year 11,407,745 14,738,028
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Earnings (loss) per share
Basic and fully diluted (0.39) 0.37
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Earnings (loss) per share
before special charge
Basic and fully diluted (0.39) 0.58
Weighted average number of
shares
Basic 8,529,687 7,733,336
Fully diluted 8,908,112 7,998,721
TROJAN TECHNOLOGIES INC.
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
As at August 31
(audited)
1999 1998
$ $
------------------------------------------------------------------
Restated
ASSETS
Current
Temporary investments 11,985,600 21,729,516
Accounts receivable 35,973,579 32,266,117
Accrued revenue on
contracts in progress 19,174,827 18,964,696
Inventory 12,555,898 12,116,567
Prepaid expenses 344,082 320,231
Income taxes receivable 1,951,042 852,609
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Total current assets 81,985,028 86,249,736
Investments in other
companies 1,779,365 2,191,114
Investment tax credits
recoverable 2,378,000 -
Corporate minimum taxes
recoverable 900,000 -
Capital assets 22,749,606 16,367,437
Patents, trademarks and
licenses 1,713,988 1,512,165
Goodwill 883,082 984,006
------------------------------------------------------------------
112,389,069 107,304,458
------------------------------------------------------------------
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness 26,186,301 23,296,498
Accounts payable and
accrued charges 22,713,361 18,058,121
Deferred income taxes 1,549,000 1,220,000
Current portion of
long-term debt 1,142,660 1,194,744
------------------------------------------------------------------
Total current liabilities 51,591,322 43,769,363
------------------------------------------------------------------
Long-term debt 5,247,043 6,406,735
------------------------------------------------------------------
Deferred income taxes 1,134,000 282,000
------------------------------------------------------------------
Shareholders' equity
Share capital 43,008,959 42,108,332
Retained earnings 11,407,745 14,738,028
------------------------------------------------------------------
54,416,704 56,846,360
------------------------------------------------------------------
112,389,069 107,304,458
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TROJAN TECHNOLOGIES INC.
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended August 31
(audited)
1999 1998
$ $
------------------------------------------------------------------
Restated
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income (loss) (3,330,283) 2,827,750
Add (deduct) charges (credits) to operations not
involving cash
Amortization 2,564,626 1,806,718
Income from equity
investment (784,685) (934,852)
Special charge - 2,650,000
Deferred income taxes 1,181,000 220,000
Investment tax credits
recoverable (2,378,000) -
Corporate minimum taxes
recoverable (900,000) -
Write-off of investment 370,434 -
Net change in non-cash working capital
balances related
to operations (823,968) (22,024,209)
------------------------------------------------------------------
(4,100,876) (15,454,593)
------------------------------------------------------------------
INVESTMENT ACTIVITIES
Additions to capital
assets (8,611,150) (4,709,169)
Additions to patents,
trademarks and licenses (436,544) (957,937)
Dividend received from
equity investment 826,000 980,000
Acquisitions - (4,599,920)
------------------------------------------------------------------
(8,221,694) (9,287,026)
------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of common shares 900,627 23,038,433
Share issue costs - (1,157,110)
Advances of long-term debt - 7,968,143
Repayment of long-term debt (1,211,776) (366,664)
------------------------------------------------------------------
(311,149) 29,482,802
------------------------------------------------------------------
Net increase (decrease)
in cash during year (12,633,719) 4,741,183
Bank indebtedness,
beginning of year (1,566,982) (6,308,165)
------------------------------------------------------------------
Bank indebtedness,
end of year (14,200,701) (1,566,982)
------------------------------------------------------------------
Bank indebtedness consists of
Temporary investments 11,985,600 21,729,516
Bank indebtedness (26,186,301) (23,296,498)
------------------------------------------------------------------
(14,200,701) (1,566,982)
------------------------------------------------------------------
Notes to the financial statements
2. Restatement of 1998 financial statements
(a) Warranty provision
At August 31, 1998, the Company under estimated its provision for warranty costs by approximately $2.5 million due to a misinterpretation of data used at that time to determine the provision. Accordingly, the Company has restated its 1998 financial statements. As a result of this restatement, cost of sales has increased and operating income has decreased by $2.5 million for the year ended August 31, 1998; cost of sales has decreased and operating income has increased by $2.5 million for the year ended August 31, 1999; net income, after providing for the related tax effect, has decreased by $1,537,500 in 1998 and increased by the same amount in 1999, earnings per share has decreased in 1998 by $0.20 and increased in 1999 by $0.18, and retained earnings as at August 31, 1998 has decreased by $1,537,500.
(b) Forward contracts
The Company has in place hedging programs to protect it from fluctuations in the Canadian dollar, primarily through the use of foreign currency forward contracts.
At August 31, 1998, the Company had outstanding $98 million U.S. in forward exchange contracts. Of these foreign exchange contracts, $16 million were no longer effective as hedges as of August 31, 1998 and the unrealized loss should have been recognized in the financial statements for the year ended August 31, 1998. Accordingly, the Company has restated its 1998 financial statements to recognize the $1.3 million loss.
As a result of this restatement, administrative and selling expenses have increased and operating income has decreased by $1.3 million for the year ended August 31, 1998; revenue, where the loss had previously been recorded as a revenue hedge, and operating income have increased by $1.3 million for the year ended August 31, 1999; net income, after providing for the related tax effect, has decreased by $799,500 in 1998 and increased by the same amount in 1999; earnings per share has decreased in 1998 by $0.10 and increased in 1999 by $0.09, and retained earnings as at August 31, 1998 has decreased by $799,500.
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