Where Industry and Security Intersect
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Financing & InvestmentThe lifeblood of any industry is investment capital, a resource that is vital to building manufacturing facilities, creating and commercializing new products, and underwriting research and development. Access to capital is essential for starting new firms as well as for sustaining existing operations. In the U.S. AT industry, there are great disparities in the availability of capital -- with smaller firms typically having fewer resources to work with than larger firms.
The largest company participating in the survey had sales of about $800 million in 1999 and capital expenditures26 of $32.2 million. For most larger27 firms in the U.S. AT industry, however, capital expenditures were significantly lower — ranging from $1.2 million to $6 million for 1999. Across medium-size companies (annual sales of $10 million to $60 million) capital expenditures ranged from $25,000 to $2.1 million.
The largest single capital expenditure by a small AT company responding to the survey (annual sales of less than $10 million) in 1999 was $732,000 on sales of $3 million. Spending the equivalent of 24.4 percent of gross sales on capital expenditures in a given year is far beyond the norm for U.S. manufacturers. But for small companies, many of which may be bringing new production facilities online for the first time, higher than average capital investment is not unusual. In some instances, AT firms’ capital expenditures far exceeded sales revenues. One firm, for example, reported sales revenues of $250,000, but capital expenditures of $600,000.28
U.S. AT companies participating in the survey reported sales revenue in 1999 of $2.87 billion and had capital spending of $85 million29 (3 percent). This compares to capital spending of $82.1 million (3.1 percent) in 1998 on sales revenues of $2.66 billion and $88.7 (3.8 percent) million in 1997 on sales revenues of $2.35 billion.
Capital expenditures for the AT industry as a percentage of sales in 1999, 1998, and 1997 trailed the U.S. average30 for manufacturing. As a percentage of sales, capital investment by the manufacturing sector as a whole is estimated at 3.7 percent in 1999, 3.9 percent in 1998, and nearly 4 percent in 1997. Although the largest U.S. AT manufacturers have substantial revenues, their capital expenditures as a percentage of sales generally were below the national average for U.S. manufacturers — and less than that of medium- and small-size AT companies.
Eleven large AT companies, each having sales in excess of $60 million, accounted for $1.97 billion of the $2.87 billion in 1999 revenue reported by U.S. AT manufacturers participating in the survey. Capital expenditures by these AT firms amounted to about 3.1 percent of sales. Ten companies qualified as "large" firms in 1998 — and collectively their sales totaled $1.81 billion. Capital expenditures were about 3.1 percent. In 1997, seven large companies logged sales of $1.43 billion and allocated $57.7 million — 4 percent — to capital expenditures.
Medium-size AT companies responding to the survey on average had capital expenditure rates that were below that of their larger counterparts and under the national average for the entire U.S. manufacturing sector for the 1997-99 period. Twenty-five companies reported 1999 sales revenue of $526.6 million. After correcting for statistical aberrations, data indicate this group of companies invested about 2.6 percent of sales revenue into capital expenditures, which exceeded $12.2 million.
Spending on capital investment by this group of companies dropped significantly in 1999 — both in actual dollars and on a percentage basis — relative to 1997 and 1998. A part of this decline is attributed to the movement of one company into the "large company" category, but this does not fully explain the decline of investment in the face of sharply higher revenues.
In 1998, 23 mid-size companies participating in BIS’ survey posted sales revenues of $466.8 million; capital expenditures were at least $14.2 million — or about 3.6 percent of sales revenue. For 1997, 24 companies with sales of $10 million to $59 million generated total revenues of $569.2 million. This group of companies invested about 3.7 percent of sales revenue into capital expenditures, which exceeded $17.3 million.
Most respondent AT companies operating in the United States are enterprises with revenues under $10 million. Approximately 324 small firms participated in BIS’ survey and many of these firms did not provide useable revenue and capital expenditure data. Total revenues for small companies that did provide useable data exceeded $374.4 million in 1999 and capital expenditures were at least $12.9 million.
This segment of the industry experienced slow growth between 1997 and 1999 with revenues climbing 5.8 percent over the period. In contrast, revenues for the large-company segment grew by a strong 38 percent over these three years.
Medium-size companies, as a group, showed a decline in sales from $569 million in 1997 to $526.6 million in 1999. This slide appears to be partly driven by the movement of one AT manufacturer into the large-company category. Overall capital expenditures by medium-size companies, as a percent of sales, also showed some decline, especially in 1999.
After correcting for statistical aberrations, data indicate that small AT firms responding to the survey put the equivalent of 4.2 percent of sales revenues of $374 million into capital expenditures in 1999. The higher rate of investment relative to the 3.7 percent rate for large companies and 2.6 percent level for medium-size firms may be explained by several factors. First, smaller firms, as mentioned earlier, often spend a larger percentage of revenues on capital investment in their start-up phase. Also, it is not unusual for small firms to allocate more of their revenues to capital expenditures simply because of their small scale.
Small companies participating in the survey reported revenues of $378 million for 1998 with capital expenditures in excess of $13 million. Capital expenditures are estimated at 4.3 percent of sales revenues, after statistical corrections. For 1997, capital expenditures came to $13.6 million, or about 4.5 percent of sales revenues of $354 million.
26 For the purpose of this study, capital expenditures were defined as costs associated with the purchase of assistive technology-related capital plant and equipment. Respondents were asked to provide the dollar amounts for the expenditures their firms incurred (whether paid in the year or in a subsequent year) in dollars for 1997 through 1999, indicating the source (internal or external) of the capital funding.
27 Large assistive technology firms are defined as having sales of $60 million or more; medium-size AT companies of $10 million to less than $60 million; and small firms have sales under $10 million.
28 The data were obtained with a telephone call to the company.
29 These figures are approximations. Not all companies provided both sales revenue and capital spending data. Sales revenues and capital spending figures cited in this report understate actual sales revenue and capital spending by survey participants. Capital spending expressed as a percentage of sales revenues are estimates based on incomplete data as described above.
30 See Annual
Survey of Manufactures, U.S. Census Bureau, May 30, 2001.