February 28, 2000
ADVANCED MATERIALS GROUP INC (ADMG)
Annual Report (SEC form 10-K)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS FOR FISCAL 1999 COMPARED WITH 1998 AND 1998 COMPARED WITH
The Company's revenue from continuing operations for the fiscal year ended November 30, 1999 was $34.8 million, an increase of 20.3% compared to fiscal 1998. Revenues from the Singapore strategic manufacturing venture grew to $8,409,000 in fiscal 1999 from $2,035,000 in 1998. Revenues in Ireland grew to $3,313,000 in fiscal 1999 from $423,000 in 1998. Revenues from U.S. operations declined to $23,076,000 in fiscal 1999 from $26,458,000 in 1998. The shift in revenues from U.S.-based plants to overseas operations is due to local sourcing requirements of a major customer. This shift first began in mid-1998. Revenues in 1998 were essentially flat compared to fiscal 1997. Revenues from the Singapore strategic manufacturing venture grew to $2,035,000 in fiscal 1998 from $0 in 1997. Revenues in Ireland grew to $423,000 in fiscal 1998 from $0 in 1997. Revenues from U.S. operations declined to $26,458,000 in fiscal 1998 from $28,898,000 in 1997.
Cost of sales in fiscal 1999 increased by 34.4% to $30,257,000, from $22,513,000 in 1998. Lower volumes at the Company's domestic locations has led to lower capacity utilization and negatively impacted labor and overhead absorption. The Company has responded to declining U.S. volumes by announcing closures of plants in Portland, Oregon and Denver, Colorado. AMG's expansion in Ireland added fixed cost. Profit sharing in the Singapore strategic manufacturing venture also added significantly to cost of sales. The Company also experienced pricing pressures during the year. Cost of sales increased 4.9% in 1998 from 1997. AMG added manufacturing capacity with expansions in Ireland and a strategic manufacturing relationship with a company in Singapore. Lower volumes at the Company's domestic locations led to lower capacity utilization and negatively impacted labor and overhead absorption. The Company also experienced pricing pressures and larger than expected start-up costs on certain new products in the second half of the year.
AMG's gross profit percentage was 13.1% in 1999, compared to 22.1% in 1998 and 25.7% in 1997.
Selling, general and administrative expense increased in 1999 to $4,528,000, versus $4,027,000, excluding $608,000 of Ireland start-up expenses and a $158,000 write-off of a capitalized license. The increase is due primarily to the expansion of the U.S. sales force and as a result of the manufacturing expansion at the Company's subsidiary in Ireland. Selling, general and administrative expense increased 13% to $4,027,000 in 1998 due to the manufacturing expansion at the Company's subsidiary in Ireland.
Interest expense in fiscal 1999 was $504,000 compared to $298,000 in fiscal 1998. The increase was due to a change in the discount factor used for deferred compensation, higher borrowing levels to support the Company's expansion in Ireland and Singapore and higher interest rates. In 1998 interest expense increased by $87,000 as a result of the Company's expansion in Ireland and Singapore.
The Company has no income tax expense in fiscal 1999 due primarily to the 1999 net loss and an increase in the valuation allowance relative to deferred tax assets. The Company recorded a tax provision of $538,000 in fiscal 1998 due to foreign losses without tax benefit and an increase in the valuation allowance relative to deferred tax assets. This resulted in an effective tax rate of 35.7% in 1998.
Net loss from continuing operations for fiscal 1999 was $874,000 compared to a net loss from continuing operations in 1998 of $704,000. Fiscal 1998 results included several non-recurring items including start-up costs incurred of approximately $608,000 related to the Company's Ireland facility, a write-off of $158,000 for license rights relative to technology which has been discontinued and an impairment charge of $909,000 on goodwill associated with the discontinuance of product sales relative to the purchase of certain assets of Wilshire Technologies Inc.'s OEM Medical Products Division in 1993. Exclusive of these items, fiscal 1998 net income from continuing operations would have been $971,000.
Fiscal 1997 results included a one-time transaction relating to the sale of 50,000 shares of IT stock in January 1997. Excluding this one-time transaction the Company would have reported net income from continuing operations of $3.2 million. |
