Net Sales. Net sales, which are derived solely from the operations of CTL, decreased 9.6% in 1996 to $3,405,000 from $3,768,000 in 1995. This decrease in sales is generally due to a combination of a change in the Company's product mix and the delayed timing of significant orders which were originally planned for the fourth quarter of 1996, but were not placed until the end of the 1996 calendar year.
In the 1996 fiscal year, net sales of new magnetrons totaled $1,436,000, accounting for 42% of sales, compared with $1,455,000 or 39% of net sales in 1995. Net revenues from rebuilding of magnetrons decreased from $1,848,000 or 49% of net sales in 1995 to $1,403,000 or 41% of net sales in 1996. This shift in sales mix was due primarily to the Company's focus on new and more complex tube types such as certain Pulse magnetrons in an attempt to broaden the Company's product line and a slow down in orders for rebuilt magnetrons for the food processing industry in the last two quarters of 1996. It is anticipated that the sales mix experienced in the final six months of fiscal 1996 will continue for the foreseeable future.
The Company obtained a significant contract for the manufacture of new and rebuilt Pulse magnetrons in June of 1996. However, the initial order under this contract was not placed until September, 1996. As a result, sales were not recorded under this contract until the first quarter of fiscal 1997, resulting in a significant increase in sales in the first quarter of 1997 over the final quarter of 1996.
In conjunction with the changes in sales mix noted above, the Company experienced a decrease in gross margins to 17% in the 1996 fiscal year from 23% in 1995. This decrease was due to the increased development time and costs associated with the new and more complex tube types now being constructed by the Company. In particular, direct labor costs increased to 34% of net sales in 1996 compared to 30% in 1995, while direct materials costs increased to 26% in 1996 from 25% in 1995. The Company anticipates that gross margins will improve in the 1997 fiscal year as development of these new tube types is now complete and production should therefore become more efficient.
In addition to the above, the Company's current electron tube manufacturing facility is operating at maximum capacity. The Company believes that its move to the new Watsonville manufacturing facility in February, 1997 should satisfy the Company's production needs for the foreseeable future. The Company anticipates that it may experience minor disruptions in production due to the movement of equipment and the familiarization of employees with the new manufacturing facility, which disruptions are not expected to have a material impact on the Company's operations. |
