SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission file number 1-8277
ACME ELECTRIC CORPORATION
------------------------
(Exact name of Registrant as specified in its charter)
STATE OF NEW YORK 16-0324980
----------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Quaker Road, East Aurora, New York 14052
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(Address of principal corporate offices) (Zip Code)
716/655-3800
-----------
(Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock - Par Value $1.00 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant as of September 11, 1998.
Common Stock, Par Value $1 Per Share, $21,186,906
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of September 11, 1998.
Common Stock, Par Value $1 Per Share, 5,056,541 shares
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended June 30, 1998, are incorporated by reference into Parts I and
II.
Portions of the Registrant's definitive proxy statement for the annual
meeting of shareholders to be held on October 30, 1998, are incorporated by
reference into Part III.
PART I
ITEM 1 - BUSINESS
Business
The Registrant was duly organized and incorporated under the laws of the
State of New York on April 26, 1946, as successor to a business founded
in 1917. Its sole line of business is the design and manufacture of
power conversion equipment for electronic and electrical systems.
Principal markets encompass the computer, test equipment, information
systems, military, aerospace and telecommunications and a variety of
industrial, commercial and residential fields for applications that
require conversion of electrical energy from one useable state to
another. Products are distributed to customers through the Registrant's
sales force, independent sales representatives and wholesale
distributors. The business of the Registrant is not seasonal in nature.
Competition
Competitive conditions within the power conversion industry are intense.
The Registrant competes with many other companies, some of which have
far greater resources than the Registrant. The principal methods of
competition within the industry are price, service and product
performance. To meet this competition, the Registrant attempts to
maintain high standards of engineering, manufacturing and customer
service. Due to the number and variety of competitors, reliable data
relative to the Registrant's competitive position within the power
conversion industry would be difficult to develop and is not known nor
believed to exist.
Customers
Power conversion equipment sales encompass markets wherein the demands
of any one customer may vary greatly due to changes in technology and
market strategy. One customer of the Company accounted for 17.2%,
16.2%, and 14.8%, respectively, of fiscal 1998, 1997, and 1996 sales and
3.7%, 10.0%, and 8.2%, respectively, of June 30, 1998, 1997, and 1996,
accounts receivable. This customer's program is scheduled for
curtailment in January 1999, and, accordingly, the Company is currently
addressing alternatives to replace this business.
Backlog
The backlog of orders believed to be firm totaled approximately
$15,502,000 at June 30, 1998, compared with approximately $16,946,000 at
June 30, 1997. The lower backlog at June 30, 1998, compared with the
backlog at June 30, 1997, reflects a reduced backlog of orders in the
Registrant's aerospace business, as improved production capabilities
supported a return to on-time deliveries on several delinquent customer
programs, thereby reducing the end of the year cumulative backlog.
Backlog orders at June 30, 1998, are generally expected to be filled
during the current fiscal year.
Raw Materials
The Registrant purchases materials in a semi-finished state from other
manufacturers and distributors. Availability of materials is considered
adequate to maintain current production levels.
Patents
The Registrant holds several technical patents and trademarks and is a
party to certain patent applications. The extent of the effect of such
patents and trademarks is, however, in the opinion of management, not
material at this time.
Licenses
The Registrant is a party to several license agreements. The only
material license, providing for the sale and manufacture of a
proprietary fiber nickel cadmium battery (FNC), is an agreement with
Hoppecke Batterie Systeme GmbH (formerly, Daug-Hoppecke Gesellschaft Fur
Batteriesysteme mbH ("DAHO")) of Brilon, Germany. The Company recorded
an impairment loss write-off as of June 30, 1994, assigning zero value
to the FNC license agreement.
Employees
As of June 30, 1998, approximately 630 persons were employed by the
Registrant.
Research and Development
Approximately 7% of the Registrant's employees are engaged in
engineering design and product development. New products are
continuously designed to satisfy specific customer requirements, and the
cost of such development is expensed as incurred. Since satisfaction of
many customers' needs requires advancing applicable technology, applied
research is an integral part of engineering-design and product-
development activities. The cost of such activities during the fiscal
years ended June 30, 1998, 1997 and 1996, was $4,136,000, $4,552,000 and
$4,735,000, respectively.
Environmental Matters
On June 27, 1997, the Registrant settled the claim by the New York State
Department of Environmental Conservation (DEC) for contribution toward
the costs of remediation of a municipal waste landfill site upon payment
of $725,000. The Registrant did have insurance policies in effect
during the period that waste was disposed of at the site, which the
Company is pursuing for possible recovery.
ITEM 2 - PROPERTIES
The Registrant owns one plant in Lumberton, North Carolina, and leases
two plant facilities; one in Cuba, New York (with an option to purchase
in accordance with a $500,000 20-year industrial revenue bond financing,
subject to repayment of $3,400,000 of subordinate financing) and a
second in Tempe, Arizona. The Registrant further leases facility space
at a second location in Cuba, New York, and a warehouse in Tempe,
Arizona.
Square Footage Square Footage Lease Ex-
Location Owned Leased piration Date
-------- -------------- -------------- -------------
Cuba, NY (New Plant) -- 91,000 April 2017
Cuba, NY (Old Plant) -- 72,000 August 1999
East Aurora, NY -- 10,000 April 2004
(Exec. Offices)
Lumberton, NC 128,170 -- N/A
Tempe, AZ -- 40,260 March 2005
ITEM 3 - LEGAL PROCEEDINGS
The Registrant is involved in ordinary routine litigation incidental to
its business, but none is expected to have a material impact upon the
financial condition of the Registrant.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through the
solicitation of proxies or otherwise.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
Information relating to the market and market prices of the Registrant's
common stock, the approximate number of Registrant's shareholders and
its dividend history for the past two fiscal years appears on page 24 of
the Registrant's Annual Report to Shareholders for the fiscal year ended
June 30, 1998, submitted herewith as an exhibit and such information is
incorporated by reference herein.
Information relating to long-term debt for the past two fiscal years
appears on page 19 of the Registrant's Annual Report to Shareholders for
the fiscal year ended June 30, 1998, submitted herewith as an exhibit
and such information is incorporated by reference. The Registrant
suspended its quarterly cash dividend effective the third quarter of
fiscal 1991. The loss in fiscal 1991 resulted in a deficit of retained
earnings. As the Company continues to have a deficit of retained
earnings, it does not expect to reinstate dividends in the foreseeable
future.
ITEM 6 - SELECTED FINANCIAL DATA
A five-year summary of certain financial information relating to the
financial condition and results of operations of the Registrant appears
on page 13 of the Registrant's Annual Report to Shareholders for the
fiscal year ended June 30, 1998, submitted herewith as an exhibit and
such summary is incorporated by reference herein.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations appears on pages 10 through 13 of the Registrant's Annual
Report to Shareholders for the fiscal year ended June 30, 1998,
submitted herewith as an exhibit and such management's discussion and
analysis is incorporated by reference herein.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Registrant and its
subsidiaries, appearing on pages 14 through 23 of the Registrant's
Annual Report to Shareholders for the fiscal year ended June 30, 1998,
submitted herewith as an exhibit, are incorporated by reference herein:
Statements of Operations - Years Ended June 30, 1998, 1997, 1996
Balance Sheets - June 30, 1998 and 1997
Statements of Cash Flows - Years Ended June 30, 1998, 1997, 1996
Statements of Shareholders' Equity - Years Ended June 30, 1998, 1997,
1996
Notes to Financial Statements
ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
There have been no disagreements with accountants on accounting and
financial disclosure matters.
PART III
ITEM 10 - DIRECTORS AND OFFICERS OF THE REGISTRANT
Identification of Directors
--------------------------
Information on directors of the Registrant is contained under the
caption "Election of Directors," presented in the Registrant's
Definitive Proxy Statement filed pursuant to Regulation 14A and used in
conjunction with the Registrant's 1998 Annual Meeting of Shareholders to
be held on October 30, 1998, and is incorporated by reference herein.
Identification of Executive Officers
-----------------------------------
Summary of Business Experience
Name, Age and Position Over the Last Five Years
- ---------------------- ----------------------------------
Robert J. McKenna, 50, Chairman, Prior to assuming the position
President and Chief Executive Officer currently held in October 1994,
served as President and Chief
Executive Officer since October
1993.
John B. Drenning, Esq., 61 Partner, Phillips, Lytle,
Secretary Hitchcock, Blaine,& Huber since
1990.
Michael A. Simon, 41 Prior to assuming the position
Corporate Controller and currently held in August 1997,
Assistant Secretary served as Controller since 1992.
Daniel K. Corwin, 51, Prior to assuming the position
Vice President and General currently held in April 1997,
Manager, Electronics Division served as Vice President and
Chief Financial Officer since
August 1994. Prior thereto,
served as Vice President of
Administration andChief Financial
Officer since February 1992.
Nicola T. Arena, 49 Prior to assuming the position
Vice President and General currently held in February 1996,
Manager, Power Distribution served as Director of Sales and
Products Division Marketing for Aeroquip Cor-
poration since 1991.
John E. Gleason, 51, Prior to assuming the position
Vice President and General currently held in April 1997,
Manager, Aerospace Division served as Acting Manager of the
Aerospace Division and Vice
President and General Manager of
the Electronics Division since
August 1996. Prior thereto, served
as Vice President and General
Manager of the Electronics Division
since May 1993.
ITEM 11 - MANAGEMENT REMUNERATION AND TRANSACTIONS
Information called for in response to this item is contained under the
captions "Compensation of Executive Officers," "Employment Agreements,"
"1981 Incentive Stock Option Plan," "1989 Stock Option Plan," "Pension
Plan," and the "1998 Stock Option Plan" proposal presented in the
Registrant's definitive proxy statement filed pursuant to Regulation 14A
and used in conjunction with the Registrant's 1998 Annual Meeting of
Shareholders to be held on October 30, 1998, and is incorporated by
reference herein.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners
and management is contained under the captions "Voting Securities and
Principal Holders Thereof" and "Nominees For Election As Directors" in
the Registrant's definitive proxy statement filed pursuant to Regulation
14A and used in conjunction with the Registrant's 1998 Annual Meeting of
Shareholders to be held on October 30, 1998, and is incorporated by
reference herein.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain transactions have been referenced under Item 11. There are no
other applicable relationships or related transactions.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
--------------------
See the accompanying Index to Financial Statements and Financial
Statement Schedules on page F-1 of this report.
2. Financial Statement Schedules
-----------------------------
See the accompanying Index to Financial Statements and Financial
Statement Schedules on page F-1 of this report.
3. Exhibits Page Number or Incorporation
-------- by Reference
----------------------------
3a Certificate of Incorporation, Exhibit (3a) to Report on
as amended to date Form 10-K for fiscal year
ended June 30, 1989.
3b Bylaws, as amended to date Exhibit (3b) to Report on
Form 10-K for fiscal year
ended June 30, 1990.
11 Statement re. computation of Note (8) to Financial
per share earnings Statements at page 21 of
1998 Annual Report to
Shareholders.
13 Acme Electric Corporation 1998
Annual Report to Shareholders See Exhibit 13 attached.
22 1998 Proxy Statement Definitive Proxy Statement
filed under Schedule 14A,
September 16, 1998,
File No. 001-08277.
23 a,b, Additional Exhibits - Pages F-4 through F-5 on
c,d Undertakings Report on Form 10-K for
fiscal year ended
June 30, 1998.
27 Financial Data Schedule See Exhibit 27 attached.
99 Additional Exhibits -
News Release, August 5, 1998,
announcing fourth quarter
and year-end results. See Exhibit 99 attached.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K
during the fifty-two-week period ending
June 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature and Title Date
/s/ 09/28/98
Robert D. Batting Director
/s/ 09/28/98
Robert T. Brady Director
/s/ 09/28/98
Randall L. Clark Director
/s/ 09/28/98
G. Wayne Hawk Director
/s/ 09/28/98
Terry M. Manon Director
/s/ 09/28/98
Robert J. McKenna Director
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ACME ELECTRIC CORPORATION
By: /s/ Date: 09/28/98
Robert J. McKenna
Chairman, President and
Chief Executive Officer
By: /s/ Date: 09/28/98
Michael A. Simon
Corporate Controller and
Assistant Secretary
<PAGE>
ACME ELECTRIC CORPORATION
INDEX TO FINANCIAL STATEMENTS
The financial statements together with the report thereon of
PricewaterhouseCoopers LLP dated August 5, 1998, appearing on pages 14
through 24 of the accompanying 1998 Annual Report to Shareholders, are
incorporated by reference in this Form 10-K Annual Report. With the
exception of the aforementioned information and the information
incorporated in Items 5, 6, 7, 8 and 14 of this Form 10-K, the 1998 Annual
Report to Shareholders is not to be deemed filed as part of this report.
The following financial statement schedules should be read in conjunction
with the financial statements in such 1998 Annual Report to Shareholders.
Financial statement schedules not included in this Form 10-K Annual Report
have been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
FINANCIAL STATEMENT SCHEDULES
1998, 1997 AND 1996
Page
Report of independent accountants F-2
Valuation and qualifying accounts and F-3
reserves (Schedule VIII)
Consents of independent accountants F-4 and F-5
F-1
<PAGE>
Report of Independent Accountants
on Financial Statement Schedule
To the Board of Directors of
Acme Electric Corporation
Our audits of the financial statements referred to in our report dated
August 5, 1998 appearing on page 24 of the 1998 Annual Report to
Shareholders of Acme Electric Corporation (which report and financial
statements are incorporated in this Annual Report on Form 10-K) also
included an audit of the Financial Statement Schedule listed in the Index
to Financial Statements and Financial Statement Schedules which appears on
page F-1 of this Form 10-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related financial
statements.
/s/
PRICEWATERHOUSECOOPERS LLP
Buffalo, New York
August 5, 1998
F-2
<PAGE>
<TABLE>
ACME ELECTRIC CORPORATION
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(000's Omitted)
<CAPTION>
Additions Additions
Balance At (Deductions) (Deductions)
Deductions Balance
Beginning Cost and Other
From At End
Of Year Expense Accounts
Reserves Of Year
---------- ------------ ------------ -----
- ----- -------
<S> <C> <C> <C>
<C> <C>
Fiscal year ended June 30, 1998
Reserve deducted from assets:
Allowance for doubtful accounts $ 523 $ 70 $ - $
127 $ 466
Inventory obsolescence and
impairment reserve $ 546 $ 582 $ - $
347 $ 781
Fiscal year ended June 30, 1997
Reserve deducted from assets:
Allowance for doubtful accounts $ 389 $ 464 $ -
$330 $ 523
Inventory obsolescence and
impairment reserve $ 399 $ 147 $ - $
- - $ 546
Restructuring Cost Reserves $ 399 $ - $ -
$399 $ -
Fiscal year ended June 30, 1996
Reserve deducted from assets:
Allowance for doubtful accounts $ 451 $ 493 $ -
$555 $ 389
Inventory obsolescence and
impairment reserve $ 566 $ - $ -
$167 $ 399
Restructuring Cost Reserves $ 399 $ - $ - $
- - $ 399
</TABLE>
F-3
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 2-45985, No. 2-92825, No. 33-79488, No. 33-
59521, No. 33-59523, and No. 333-27243) of Acme Electric Corporation of our
report dated August 5, 1998 appearing on page 24 of the 1998 Annual Report
to Shareholders which is incorporated in this Annual Report on Form 10-K.
We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on page F-2 of this Form 10-K.
/s/
PRICEWATERHOUSECOOPERS LLP
Buffalo, New York
September 28, 1998
F-4
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 2-89587)
of Acme Electric Corporation of our report dated August 5, 1998 appearing
on page 24 of the 1998 Annual Report to Shareholders which is incorporated
in this Annual Report on Form 10-K. We also consent to the incorporation
by reference of our report on the Financial Statement Schedule, which
appears on page F-2 of this Form 10-K.
/s/
PRICEWATERHOUSECOOPERS LLP
Buffalo, New York
September 28, 1998
F-5
EXHIBIT 13
PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS
FOR THE FISCAL YEAR ENDED JUNE 30, 1998.
<PAGE>
PAGES 10-11 OF ANNUAL REPORT
FINANCIAL CONDITION
Capital Resources and Liquidity
The Company has financed its working capital requirements and capital
spending with cash from operating revenues. Total outstanding debt,
including capital lease obligations, was reduced by approximately
$6,170,000 in 1998. Debt reduction was achieved as a result of strong
cash flows generated from improved operational performances, including
margin improvements throughout the Company's businesses. Further
contributing to the positive cash flows, were reduced inventory
positions and receivable balances, as a result of improved
manufacturing processes (Demand Flow Technology) and focused collection
efforts. Total working capital was reduced 9% from the prior year-end
in support of 3% lower sales.
The Company received performance incentive payments in the amount of
$898,000 during the year as a result of meeting certain delivery
schedules on one of its Aerospace customer programs. Income of
$566,000 was recorded within the fiscal year, associated with these
payments. The Company anticipates that the impact on fiscal 1999 cash
flows associated with this program's incentives will approximate
$915,000, after which time the incentive pricing is scheduled to end
with product pricing to be negotiated.
The Company utilized a significant portion of its $3.5 million tax-
loss carry-overs to obtain federal tax refunds of approximately
$250,000 from prior years and reduce the current year tax return
liabilities by approximately $830,000.
Dollars in thousand
Years ended June 30 1998 1997 1996
Working Capital $15,242 $16,719 $21,095
Average Working Capital,
as a percent of sales 17.6% 20.0% 22.6%
Cash provided from Operations $ 7,585 $ 5,748 $ 3,549
Current Ratio 2.3 2.3 2.8
Long-Term Debt to Equity .7 1.2 1.5
Capital expenditures and foreign investment combined were $1,255,000,
$2,531,000 and $3,963,000 for 1998, 1997 and 1996, respectively.
Fiscal year 1998 capital expenditures included less than $125,000 of
new business system costs, compared to $1,200,000 and $3,000,000 in
1997 and 1996, respectively. The Company anticipates capital
expenditures will approximate $2,000,000 in 1999.
The Company expects that operating activities in 1998 will produce
net cash to fund these capital expenditures and any increase in working
capital caused by increased business.
In 1998, the Company secured a new credit agreement which continued
to provide for two secured term loans, with a combined outstanding
balance at June 30 of $3,595,000 with interest terms of the lower of
prime plus .5% to 1.0% range, or the London Interbank Eurodollar rate
plus 2.1% to 2.6% range, as determined by a debt-to-worth threshold
measure. Further included is a secured line of credit allowing for
revolving loans and letters of credit up to $21,000,000, with interest
at the lower of prime plus .25% to .75% range, or the London Interbank
Eurodollar rate plus 1.8% to 2.4% range, with an outstanding balance at
June 30 of $6,088,000. The credit agreement provides for a maturity
date on the line of credit of December 31, 2000, while the $2,362,000
and $1,233,000 term loans have principal payments due through January
2, 2000, and July 1, 2001, respectively. The Company has purchased an
interest-rate protection instrument that provides for a maximum
interest rate of 9.1% on $10,000,000 of notional principal debt,
scheduled to expire January 22, 1999, and is required to be renewed
through the term of the credit agreement. The credit agreement
contains certain restrictive covenants, including, but not limited to,
interest coverage and debt-to-worth ratios and an annual capital
expenditure threshold. At June 30, 1998, the Company was in compliance
with the covenants under the credit agreement. Management believes
that the current financing arrangement will provide adequate liquidity
for the future.
Expectation for Year 2000 Compliance
The Company is reliant on systems which utilize time-based mechanisms
for asset and information management, and management recognizes that
such systems may encounter problems affecting the capability thereof
due to the year 2000 (Y2K) date change. The Company also has business
relationships with vendors, product purchasers and financial
institutions, among others, who are reliant on such systems. It is
possible that, given problems encountered by the Company or these
parties, the Company could send or receive improper billings, produce
products which are unaccounted for, experience production shortages or
delays, encounter collection delays, or report inaccurate data, among
other things.
The Company organized its Year 2000 Task Group during the third
quarter of fiscal 1998, with member participation from all operating
units, as well as the corporate office. Assessment programs have been
developed and implemented at each of the locations. The assessment,
which included an inventory and identification of the Company's mission
critical information technology (IT) systems as well as non-IT systems
(i.e. equipment micro controllers), is nearly completed.
The most significant mission critical elements associated with the IT
system area include the necessity to: (1) transition from the current
AIX operating system version 4.1 to 4.2 and Oracle business application
and data-base software version 10.6.1 and 7.1 to the year 2000
compliant Oracle versions 10.7.1 and 7.3, respectively; and (2) receive
and install third-party software upgrades used in support of certain
manufacturing routines, to include inventory management areas. The
Company completed the installation of its new client-server based
business information system in April 1998. This system, which runs
vendor-provided off-the-shelf business enterprise software (Oracle) in
a client-server environment, was installed by the Company over the past
two years as an enhancement to the business, replacing the legacy
mainframe system. This system provides the basis for a relatively
inexpensive transition to a Y2K-compliant business system through
vendor-provided software upgrades. Other third-party-provided
customized software critical to the business operation has been
identified, with assurances from the software provider that year 2000
compliant modifications are in process and should be available before
calendar 1998 year-end.
The Company has commenced, in a test environment, testing and
implementing of the operating system and Oracle software upgrades.
Anticipated completion of testing is to be no later than December 1998,
with full implementation no later than Spring 1999. The primary risk
factor will be the continuity of the Company's internal IS staffing.
Existing software maintenance contracts cover the cost of the upgrades
being installed.
The Company is also testing its embedded systems used in the
manufacture and distribution of its products for year 2000 compliance.
Equipment manufacturers are being contacted for verification and
solutions, if required, for potential Y2K issues where mission critical
equipment utilizing microcontrollers have been identified. The Company
anticipates completion of testing and solution implementations
(including contingency plans, if applicable) by the middle of calendar
year 1999.
The Company is in the process of assessing the year 2000 readiness on
the part of its supply base, as well as customers utilizing EDI avenues
of commerce. Both vendor and customer letters requesting responses
and/or certifications to their year 2000 readiness have been sent with
scheduled follow-up contact to be pursued with those identified to be
mission critical.
The Company currently has not developed a contingency plan should
aspects of the year 2000 project not be completed or vendors and
customers fail to insure their Y2K readiness. The Company does intend
to create a contingency plan for those areas of the business deemed
critical to business continuance by September 1999.
The Company has budgeted the necessary funds to address the year 2000
project costs. The Company believes that the incremental costs of year
2000 compliance activities will not be material, as the recently
installed $4.4 million new business system supports the extensive use
of packaged software which is now date compliant or will be made date
compliant by installing the vendor-supplied updates. The Company
anticipates that additional costs associated with the year 2000
project, aside from the normal IT annual budget, should not exceed
$300,000.
Risk factors which may affect the Company's ability to meet its year
2000 project plan and the ability of the Company's information systems
to operate properly into the next century include, but are not limited
to, the availability and adequacy of date compliant software from
vendors and the availability of necessary resources, both internal and
external, to install new purchased software and complete the necessary
testing. In addition, the Company cannot predict the outcome of the
year 2000 assessment of its supply base or the ability of its customers
to achieve year 2000 compliance by the end of 1999 nor the impact of
either on the future operating results of the Company.
Portions of the narrative set forth in this Financial Condition and
Results of Operations, which are not historical in nature, are forward-
looking statements, based upon current expectations, all of which are
subject to risk and uncertainties, and are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of
1995. One can identify these forward-looking statements by their use
of words such as "anticipates," "believes," "intends," "budgeted," and
other words of similar meaning. The Company's actual performance may
differ materially from that contemplated by the forward-looking
statements due to a variety of factors, which include, among other
things, inaccurate assumptions, the condition of the economy, the
condition of the markets that the Company serves, and the success of
the Company's strategic plans and contemplated capital investments.
The Company does not assume the obligation to update any forward-
looking statement as a result of development occurring after the date
of these remarks.
<PAGE>
PAGES 12-13 OF ANNUAL REPORT
RESULTS OF OPERATIONS
Acme Electric Corporation reported net income of $2,529,000, or $.50
per share, on net sales of $90,916,000 for the year ended June 30,
1998, compared with net income of $136,000, or $.03 per share, and a
net loss of $280,000, or $.06 per share on sales of $94,062,000 and
$96,551,000 for 1997 and 1996, respectively. Net income from sales to
the military/aerospace market for 1998 was $182,000, compared with
losses of $717,000 and $1,699,000 in 1997 and 1996, respectively.
The Company has continued to improve the effectiveness of its Tempe,
Arizona, manufacturing operation, thereby better supporting customer
product requirements. Sales to the military/aerospace market in 1998
were $11,189,000, compared to sales of $8,645,000 and $7,698,000 in
1997 and 1996, respectively. The Company's ability to generate profits
in its military/aerospace business in the future will be greatly
dependent on its ability to sell new programs and/or secure price
increases on existing programs to replace maturing business and
expiring performance incentives, as well as continuing to improve
efficiencies in the manufacturing processes.
The fourth quarter of fiscal 1998 produced net income of $1,276,000
on quarterly sales of $23,633,000, or net income per share of $.25,
compared with the results of the prior year's quarter of $23,355,000
sales, $178,000 net loss, and a net loss per share of $.03. While
sales increased only slightly ($278,000) over fourth quarter 1997
amounts, manufacturing overheads were reduced substantially ($800,000,
pre-tax) as a result of a resized work force in the Company's
electronics business, combined with a quarter (fiscal 1998 fourth
quarter) free from project disruptions as experienced in prior periods
associated with the implementations of new manufacturing processes
(DFT) and the new Oracle-based business enterprise system. These
projects were fully implemented prior to the commencement of the fourth
quarter 1998.
The pre-tax loss for the prior year quarter ended June 30, 1997, of
$290,000 included a $725,000 landfill settlement charge, a $237,000
contract settlement payment to the McDonnell Douglas Company associated
with the MD-90 aircraft program, and a $60,000 loss incurred on the
sale of the idle facility in West Jordan, Utah.
Quarterly Unaudited Financial Information.
Dollars in thousands
Fiscal Year 1998 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
Net Sales $22,179 $22,752 $22,352 $23,633
Net Income 170 498 585 1,276
Annual sales decreased $3,146,000, or 3.3%, from the previous year,
compared with a decrease of $2,489,000, or 2.6%, from 1996 to 1997.
The decline in net sales is attributable to a declining sales trend
experienced in the Company's electronics business, where sales
decreased $5,700,000 in 1998 and $5,500,000 in 1997. The Company was
informed in July that a major customer in its electronics business will
be accelerating the transfer of its existing program with Acme to a
second supplier as a result of its active vendor reduction initiative
favoring large multinational companies. Where the Company had
anticipated this program to wind down over the next couple of years and
had budgeted accordingly, it now appears that it will occur over the
next four to six months. The earlier than expected curtailment of this
program will further negatively impact 1999 anticipated sales by an
additional $3 million. Management is taking the necessary actions to
support lower break-even thresholds and to accelerate the pace of new
product and market development in all areas of the Company.
Growth in overall sales will be dependent upon several factors,
including the Company's continued ability to grow sales of its
transformer line of products sold through distribution and to OEM
accounts, both domestically and internationally. In addition, sales
growth will be affected by the degree of success achieved with the new
business strategies being introduced in its electronics business.
Cost of sales as a percentage of sales was 72.5% in 1998, 76.2% in
1997, and 77.6% in 1996. The gross margin percentage improved from
23.8% in 1997 to 27.5% in 1998. The improvements are primarily the
result of price increases, as well as significant reductions in
manufacturing costs within the electronics business. Further
contributing to the improved profit margins was the increased sales
volume in the Company's aerospace business, allowing for improved
efficiencies and fixed cost economies to be realized. The Company's
continued improvement in profit margins will be closely tied to the
success of its efforts to grow the sales of its core products
(transformers) sold through distribution and the success of its
strategies to secure new customer programs in both its electronics and
aerospace businesses.
Research and engineering efforts were relatively constant in the
three-year comparison, as expenses as a percent of sales were 4.5% in
1998, compared to 4.8% in 1997 and 4.9% in 1996. Actual 1998
expenditures have been reduced approximately $400,000 from 1997 levels
as a result of the resizing of the electronics business.
Selling and administrative expenses as a percentage of sales were
16.8% in 1998, compared with 16.9% in 1997 and 15.5% in 1996. Included
within the 1998 selling and administrative expense line is an
offsetting income of $566,000 related to performance incentives earned
in the Company's aerospace business, based upon meeting specified
customer delivery schedules. Included in the 1997 expenses are one-
time charges of $725,000 and $237,000 associated with the municipal
landfill settlement and the MD-90 contract modification charge,
respectively. With the exclusion of these income and expense items
from the comparison, 1998 selling and administrative costs increased
approximately $950,000. The 1998 increase includes additional
depreciation expense of approximately $400,000 associated with the new
business system, accrued incentives in excess of 1997 amounts of
$200,000, higher shipping costs in the distribution business of
$400,000, increased commissions and royalties of $100,000, all partly
offset by the Company's reduced investment in international business
development. Selling and administrative expenses in 1997, exclusive of
the one-time charges, were comparable with 1996 levels.
Interest expense decreased nearly $136,000 from 1997 to 1998 and
$570,000 from 1996 to 1997. The lower interest expense is the result
of lower average outstanding debt balances maintained during 1998 and
1997 in support of lower average working capital requirements. Debt
has been reduced $11,000,000 since June 30, 1996. The Company's long-
term debt originates from financing the aerospace business during the
first ten years of operation.
Effective tax (benefit) rates for the most recent three years were
38.2%, 44.6% and (29.7%), respectively. The fluctuations in the
effective rates are generally reflective of the year-to-year variations
in the permanent book-to-tax differences as a percent of pre-tax
earnings (loss) and the Company's estimations as to the probable
realizations of certain deferred state tax assets and minimum tax
effects thereon.
The provisions of Statement of Financial Accounting Standards (SFAS)
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," will become effective for the Company's fiscal year-end
1999. SFAS No. 131 requires that public companies report a measure of
segment profit or loss, certain specific revenue and expense items, and
segment assets. Generally, financial information is required to be
reported on the basis that it is used internally for evaluating segment
performance and resource allocation. The Company will adopt SFAS No.
131 in the fourth quarter of fiscal 1999.
<PAGE>
PAGE 13 OF ANNUAL REPORT
FIVE-YEAR COMPARISON OF SELECTED FINANCIAL DATA
Dollars in thousands (except per share, employee data, and per square-
foot amounts)
Years ended June 30 1998 1997 1996 1995 1994
Net sales $90,916 $94,062 $96,551 $91,127 $76,233
Net income (loss) 2,529 136 (280) 992 (5,659)
Net income (loss) per
common share:
(Basic and Diluted) .50 .03 (.06) .20 (1.17)
At end of year:
Total assets $45,495 $50,144 $54,180 $56,178 $46,505
Working capital 15,242 16,719 21,095 22,599 19,319
Average working capital,
as a percent of sales 17.6% 20.0% 22.6% 23.0% 28.1%
Ratio of current assets
to current liabilities 2.3:1 2.3:1 2.8:1 2.5:1 3.1:1
Investment in property,
plant and equipment--
net 15,115 16,039 16,469 14,657 12,669
Long-term debt 12,833 19,198 24,394 24,419 19,590
Total shareholders'
equity 19,075 16,488 15,684 15,849 14,566
Equity per common share 3.78 3.27 3.18 3.22 3.02
Weighted average number
of shares outstanding
used to compute income
(loss) per common share:
Basic 5,046,011 4,960,137 4,927,344 4,880,838 4,818,773
Diluted 5,060,382 4,974,014 4,927,344 4,928,047 4,818,773
Average number of
hourly employees 434 473 534 505 444
Average number of
salaried employees 211 229 248 251 252
Sales per full-time
employee equivalent
(000's) $ 141 $ 134 $ 123 $ 120 $ 109
<PAGE>
PAGE 14 OF ANNUAL REPORT
STATEMENT OF OPERATIONS
Dollars in thousands (except per share amounts)
Years ended June 30 1998 1997 1996
Net Sales $90,916 $94,062 $96,551
Costs and Expenses
Cost of sales 65,871 71,681 74,964
Research and engineering expenses 4,136 4,552 4,735
Selling and administrative expenses 15,263 15,896 14,992
Interest expense 1,552 1,688 2,258
Total Costs and Expenses 86,822 93,817 96,949
Income (loss) before income taxes 4,094 245 (398)
Income tax expense (benefit) 1,565 109 (118)
Net Income (Loss) 2,529 $ 136 $ (280)
Net Income (Loss) per Common Share:
(Basic and Diluted) $ .50 $ .03 $ (.06)
The accompanying notes are an integral part of these financial
statements.
<PAGE>
PAGE 15 OF ANNUAL REPORT
BALANCE SHEET
Dollars in thousands
JUNE 30, 1998 JUNE 30, 1997
ASSETS
Current Assets
Cash $ 629 $ 398
Accounts receivable, net 12,552 14,019
Inventories, net 11,961 13,540
Deferred income taxes 1,269 1,238
Other current assets 695 499
Total Current Assets 27,106 29,694
Property, plant and equipment, at cost:
Land and buildings 10,406 10,334
Machinery and equipment 27,388 27,169
Total property, plant and equipment 37,794 37,503
Less accumulated depreciation
and amortization (22,679) (21,464)
Property, plant and equipment, net 15,115 16,039
Other assets 3,274 4,411
TOTAL ASSETS $45,495 $50,144
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 4,734 $ 6,495
Accrued compensation and other 4,376 3,918
Current portion of long-term debt 2,754 2,562
Total Current Liabilities 11,864 12,975
Long-term debt 12,833 19,198
Other long-term liabilities 1,723 1,483
TOTAL LIABILITIES 26,420 33,656
SHAREHOLDERS' EQUITY
Common Stock, $1 par value authorized
8,000,000, issued 5,051,444 and
5,040,834 shares 5,051 5,040
Capital in excess of par value 19,061 19,014
Accumulated deficit (5,029) (7,558)
Total capital and accumulated deficit 19,083 16,496
Less treasury stock, at cost:
699 shares (8) (8)
Total shareholders' equity 19,075 16,488
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $45,495 $50,144
The accompanying notes are an integral part of these financial
statements.
<PAGE>
PAGE 16 OF ANNUAL REPORT
STATEMENT OF CASH FLOWS
Dollars in thousands
Years ended June 30 1998 1997 1996
Cash flows from operating activities:
Net income (loss) $ 2,529 $ 136 $ (280)
Adjustments to reconcile net income (loss)
to net cash flows from operating activities:
Depreciation and amortization 2,158 1,979 2,040
Loss on sale/retirement of fixed assets 5 58 --
Deferred income taxes 1,332 93 (134)
Change in assets and liabilities:
Accounts receivable, net 1,467 1,426 1,808
Inventories, net 1,579 1,468 2,344
Deferred taxes and other assets (422) 189 539
Accounts payable (1,761) 450 (3,262)
Accrued compensation and other 698 (51) 494
Net cash provided from
operating activities 7,585 5,748 3,549
Cash flows from investing activities:
Additions to property, plant and equipment (1,255) (2,531) (3,852)
Proceeds from dispositions of fixed assets 16 525 --
Investment in joint-venture -- -- (111)
Net cash used in investing activities (1,239) (2,006) (3,963)
Cash flows from financing activities:
Increase of long-term debt 10,960 9,438 14,984
Reduction of long-term debt (17,133) (14,278) (14,243)
Proceeds from employee stock purchase
and stock option plans 58 124 120
Sale (purchase) of treasury stock -- 544 (5)
Net cash provided from (used in)
financing activities (6,115) (4,172) 856
Net increase (decrease) in cash 231 (430) 442
Cash at beginning of year 398 828 386
Cash at end of year $ 629 $ 398 $ 828
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest $ 1,586 $ 1,943 $ 2,413
Income Taxes $ (220) $ (14) $ (278)
The accompanying notes are an integral part of these financial
statements.
<PAGE>
PAGE 17 OF ANNUAL REPORT
STATEMENT OF SHAREHOLDERS' EQUITY
Dollars in thousands
Capital
Common in
stock excess Treasury
$1 par of par Accumulated stock,
value value deficit at cost
Balance June 30, 1995 $ 5,003 $18,807 $ (7,072) $ 889
Stock options exercised 6 23
Purchase of treasury shares 5
Sales of authorized shares:
Employee Stock Purchase Plan 2 67
Employee Savings Plan (401[K]) 9 13
Net loss (280)
Balance June 30, 1996 $ 5,020 $18,910 $ (7,352) $ 894
Stock options exercised 7 23
Sale of treasury shares (342) (886)
Sales of authorized shares:
Employee Stock Purchase Plan 3 15
Employee Savings Plan (401[K]) 10 66
Net income 136
Balance June 30, 1997 $ 5,040 $19,014 $ (7,558) $ 8
Sales of authorized shares:
Employee Stock Purchase Plan 4 17
Employee Savings Plan (401[K]) 7 30
Net income 2,529
Balance June 30, 1998 $ 5,051 $19,061 $(5,029) $ 8
None of the Company's authorized 500,000 shares of $10 par value
preference stock has been issued.
The accompany notes are an integral part of these financial statement.
<PAGE>
PAGES 18-23 OF ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING
PRINCIPLES AND PRACTICES:
Business
Acme Electric Corporation designs, manufactures and markets power
conversion equipment for electronic and electrical systems. Principal
markets encompass computers, test equipment, information systems,
military, aerospace, telecommunications, and a variety of industrial,
commercial and residential applications requiring conversion of
electrical energy from one useable state to another.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Certain prior year balances
have been reclassified to conform with the current year presentation.
The major areas in which the Company utilizes estimates include
deferred tax assets, reserves for insurance and legal claims,
environmental liabilities, customer receivable and inventory
obsolescence reserves, product warranty reserves, revenue recognition
on long-term contracts, and the net realizable value of certain assets.
The amounts contained within these financial statements represent
management's best estimate of expected outcomes based on available
information. However, the Company realizes that certain events could
occur or fail to occur which would impact the estimates by a material
amount in the future.
Inventories
Inventories are costed at the lower of cost or market and determined
on a FIFO (first in, first out) basis.
Property and Depreciation
Depreciation of property, plant and equipment is computed on the
straight-line and the sum-of-the-year's-digits methods over the
estimated service lives of the assets. At the time of retirement or
other disposition of properties, the cost and accumulated depreciation
are removed from the accounts and any gains or losses are reflected in
income. Maintenance and repairs are charged to expense as incurred;
renewals and betterments are capitalized. The range of lives used as a
basis for calculating depreciation is as follows:
Years
Buildings 20-45
Machinery and equipment 5-12
Furniture and fixtures 8-10
Computers and software 3-5
Revenue Recognition
The Company's operations generally recognize revenue for the sale of
their respective products in the period of delivery. The Company does,
however, utilize the percentage-of-completion method for long-term
contracts in its aerospace business. Revenues or long-term contracts
(primarily engineering or development contracts) are recognized on the
percentage-of-completion basis, measured by the percentage of material,
labor and overhead costs incurred to date to total estimated material,
labor and overhead costs for each long-term contract.
Income Taxes
The Company follows the asset and liability approach in accounting
for income taxes. The asset and liability approach requires the
recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the financial
carrying values and the tax bases of the related assets and liabilities
and operating loss and tax credit carry forwards.
Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards
No. 128 ("SFAS 128"), "Earnings per Share," which modifies the way in
which earnings per share ("EPS") is calculated. Accordingly, all prior
period EPS data presented have been restated. Basic EPS is computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that would occur if securities or
other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then
shared in the earnings of the Company.
2. ACCOUNTS RECEIVABLE:
Dollars in thousands 1998 1997
Billed $12,921 $14,291
Unbilled 97 251
Subtotal $13,018 $14,542
Less allowance for doubtful accounts (466) (523)
Accounts receivable, net $12,552 $14,019
Unbilled receivables are comprised of revenue amounts on long-term
contracts which have been earned, but not yet billed. Management
anticipates that unbilled receivables at June 30, 1998, will be
substantially billed and collected in fiscal year 1999.
3. INVENTORIES:
Dollars in thousands 1998 1997
Raw Material $ 5,875 $ 7,144
Work in Process 1,685 2,365
Finished Goods 4,401 4,031
Total Inventories $11,961 $13,540
Inventories are reported net of the reserves for obsolescence of
$781,000 and $546,000 in 1998 and 1997, respectively.
4. LONG-TERM DEBT:
Dollars in thousands 1998 1997
Secured revolving loan $6,088 $9,788
Secured term loan with quarterly
principal installments of $337,360
each, and interest paid monthly
at the lower of prime plus .5% -
1.0% range, or the Eurodollar
(London Interbank Eurodollar)
rate plus 2.1% - 2.6% range, as
determined by debt-to-worth
ratio thresholds, through January 2,
2000. 2,362 3,711
Secured term loan with monthly
principal installments of $33,333
each, and interest paid monthly
at the lower of prime plus .5% -
1.0% range, or the Eurodollar
(LIBOR) rate plus 2.1% - 2.6%
range, as determined by debt-to-
worth ratio thresholds, through
July 1, 2001. 1,233 1,633
Secured loan on the Cuba facility
payable over 20 years with
monthly payments for the first
four years of interest only of
$6,666, with monthly payments
of $14,120, consisting of
principal and interest at 4%,
commencing September 1, 1997,
and continuing over the remaining
16 years. 1,917 2,000
Secured loan on the Cuba facility
payable, with interest only, at
2% through September 30, 1998,
36 monthly principal and interest
payments of $10,146 at 4%,
commencing October 1, 1998, and 168
monthly principal and interest
payments of $12,193 at 7% due
through September 2015. 1,500 1,500
Capital lease secured by new business
information system equipment and a
$900,000 letter of credit, payable
in monthly installments of $42,662,
consisting of principal and
interest of 10.09%, maturing
December 2001. 1,094 1,474
Capital lease secured by the business
information system equipment with
monthly installments of $20,546,
consisting of principal and interest
at 9.85%, maturing November 1999. 307 528
Capital lease obligation secured by
related building, machinery and
equipment at the Cuba facility,
payable in quarterly principal
installments of $5,208, with
interest paid monthly on the
unpaid balance at the rate of
prime plus 1.5% through April 1,
2017. 406 427
Other debt 680 699
Total debt 15,587 21,760
Current portion (2,754) (2,562)
Long-term portion $12,833 $19,198
The Company has a credit agreement with a banking institution, which
provides for borrowings and letters of credit up to a maximum of
$24,595,000. This credit agreement is comprised of two secured term
loans in the amount of $2,362,000 and $1,233,000 and a $21,000,000
secured revolving loan. The revolving loan carries an interest rate
equal to the lower of prime plus .25% to .75% range, or the London
Interbank Eurodollar rate plus 1.8% to 2.4% range, determined by a debt-
to-worth ratio threshold, with a maturity date of December 31, 2000.
The Company maintains interest rate protection, which allows for a
maximum interest rate of 9.1% on $10,000,000 of notional principal
debt. Outstanding borrowings against the revolving credit facility are
limited by formula to specified amounts of accounts receivable and
inventory, reduced by outstanding term debt. The Company pays a
maximum annual commitment fee of 1/5 of 1% per annum on the unused
portion. Under the terms of the credit agreement, the Company is
required to meet certain restrictive covenants with respect to interest
coverage and debt-to-worth ratios. The covenants further limit the
Company's annual capital expenditure to a maximum of $2,500,000. At
June 30, 1998, the Company was in compliance with the covenants under
the credit agreement.
During the next five years, long-term debt matures as follows: 1999
- - $2,754,000; 2000 - $2,269,000; 2001 - $930,000; 2002 - $222,000; and
2003 - $222,000. These amounts do not include any maturities relating
to the revolving loan.
5. STOCK OPTION PLANS:
Options were granted under the 1981 Incentive Stock Option Plan at
the fair market value on the day preceding the date of the grant and
are exercisable in varying amounts through 1999. The 1981 Plan expired
in October 1992. Options granted under the 1981 Plan expire in
accordance with their respective terms.
Options are granted under the 1989 Stock Option Plan at the fair
market value on the day preceding the date of the grant and are
exercisable in varying amounts through 2007, with vesting at 25% a year
from date of grant. In 1995, the 1989 Stock Option Plan was amended to
apply a formula for the award of further options after each year of
profitable operation and to increase the number of shares subject to
the Plan from 225,000 to 450,000.
The 1996 Directors' Stock Option Plan was adopted on April 29, 1996,
by the Company's Board of Directors and approved by the Company's
shareholders on October 31, 1996. Options are granted quarterly to
each eligible director in lieu of Director Fees and are exercisable six
months after the date of grant. The option price and number of shares
optioned are determined by formula to replace the value of cash
directors' fees otherwise due for the preceding quarter. A total of
50,000 shares are available for grant under the Plan.
1981 1989 1996
Plan Plan Directors'
Shares Shares Plan Shares
Options outstanding
July 1, 1997 11,035 71,000 5,426
Options granted -- 45,000 11,907
Options exercised -- (200) --
Options canceled (2,300) (8,000) --
Options outstanding
June 30, 1998 8,735 107,800 17,333
Options exercisable
at June 30, 1998 8,735 46,300 10,661
Exercise prices
per share $6.63-$7.00 $4.88-$11.25 $1.48-$2.11
Shares available for options
at June 30, 1998 -- 231,004 32,666
The Company applies Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees," and related interpretations
in accounting for the stock option plans. Accordingly, no compensation
expense was recognized in 1998, 1997, or 1996 for stock option awards
made from the 1989 Stock Option Plan, since the exercise price of the
stock options granted under the Stock Option Plan was not less than the
fair market value of the Common Stock at date of grant. Compensation
expense of $50,000 and $25,000 was recognized in 1998 and 1997,
respectively, for stock awards under the 1996 Directors' Stock Option
Plan. Had compensation expense for stock option awards granted in
1998, 1997, and 1996 been determined consistent with SFAS No. 123, net
income and earnings per share would be reduced to the pro forma amounts
indicated below:
Dollars in thousands (except per share amounts)
Years ended June 30 1998 1997 1996
Net income (loss)
As reported $2,529 $136 $(280)
Pro forma 2,420 66 (330)
Net income (loss) per common share
As reported $.50 $.03 $(.06)
Pro forma .48 .01 (.07)
The Company used the Black Scholes pricing model to estimate the
grant date present value of stock options granted in 1998, 1997, and
1996. The estimated value per option averaged approximately $2.64,
$3.80, and $4.60 for options granted in 1998, 1997, and 1996,
respectively. The values were calculated using the following
assumptions: (i) an option term of 5.5 years (representing the
estimated period between grant date and exercise date based on
historical data); (ii) a risk-free interest rate approximating 5.99%,
6.48%, and 6.07% in 1998, 1997, and 1996, respectively (representing
the yield on a U.S. Treasury Security with remaining term equal to the
expected option term); (iii) expected volatility of 52% for 1998 and
58% for 1997 and 1996; (iv) no future dividends paid; and (v) a 30%
forfeiture rate used to reflect the estimate of the probability of
forfeiture prior to vesting.
The pro forma effects presented above are in accordance with the
requirements of SFAS No. 123, however, such effects are not
representative of the effects to be reported in future years due to the
fact that options vest over several years and additional awards
generally are made each year.
6. LEASES:
The Company leases certain manufacturing facilities and equipment,
described in Note 4, under lease agreements which have been
capitalized, and various other equipment under operating leases. Under
the terms of the capital leases, the Company has included $4,436,000 in
the cost of property, plant and equipment June 30, 1998 and 1997.
Accumulated depreciation of such assets was $1,434,000 at June 30,
1998, and $1,074,000 at June 30, 1997. Total rental expense under
operating leases, which includes the headquarters facility, was
$940,000, $829,000 and $1,038,000 in 1998, 1997 and 1996, respectively.
Minimum future rental commitments under non-cancelable operating leases
are approximately $771,000 in 1999, $536,000 in 2000, $441,000 in 2001,
$435,000 in 2002, and $403,000 in 2003.
7. INCOME TAXES:
The provision for income taxes includes the following:
Years Ended June 30
Dollars in thousands 1998 1997 1996
Current Tax Provision
Federal $216 $-- $--
State 17 16 16
Deferred Tax Provision (Benefit)
Federal 1,073 130 (117)
State 259 (37) (17)
Total Provision (Benefit) $1,565 $109 $(118)
The provision for income taxes differs from the federal statutory
rate of 34% due to the following:
1998 1997 1996
Statutory rate (benefit) 34.0% 34.0% (34.0%)
Foreign losses not tax effected -- 5.8% 18.2%
State taxes, net of federal benefit 4.5% (5.6%) (.1%)
Reduction of accumulated reserve -- -- (17.0%)
Other (.3)% 10.4% 3.2%
Effective tax (benefit) rate 38.2% 44.6% (29.7%)
At June 30, the deferred tax assets (liabilities) were comprised of the
following:
Dollars in thousands 1998 1997 1996
Deferred tax assets:
Accounts receivable $264 $ 206 $ 156
Inventory 560 446 376
Property, plant and equipment -- -- 186
Accrued expenses 667 696 744
Restructuring and impairment charges 314 463 779
Supplemental Executive Retirement 427 415 402
Other 51 201 89
Loss and credit carry forwards 542 1,511 1,111
2,825 3,938 3,843
Deferred tax liabilities:
Pensions (1,160) (1,023) (915)
State taxes (119) (207) (195)
Property, plant and equipment (500) (81) --
(1,779) (1,311) (1,110)
Net deferred tax asset $1,046 $2,627 $2,733
The Company has certain federal and state loss carry forwards
available to offset future taxable income. The federal tax loss carry
forward of $285,000 will have portions expire, if unused, in 2011.
Portions of the state loss carry forwards, if not used, will expire in
2001. In addition, the Company has alternative minimum tax credit
carry forwards of approximately $282,000 available to offset future
federal taxes.
8. EARNINGS PER SHARE
In fiscal 1998, the Company adopted Statement No. 128, Earnings Per
Share, which requires presentation in the Statement of Operations of
both basic and diluted earnings per share. Basic earnings per share
measures operating performance assuming no dilution from securities or
contracts to issue common stock. Diluted earnings per share measures
operating performance giving effect to the dilution that would occur
when securities or contracts to issue common stock are exercised or
converted.
The computation of basic earnings per share is reconciled with
diluted earnings per share as follows. All periods presented have been
restated.
Dollars and shares in thousands,
except per share amounts 1998 1997 1996
Income available to common shareholders $2,529 $ 136 $ (280)
Basic earnings per share
Weighted average shares outstanding 5,046 4,960 4,927
Basic earnings per share $ .50 $ .03 $ (.06)
Diluted earnings per share
Weighted average shares outstanding 5,046 4,960 4,927
Dilutive effect of:
Stock options 14 14 --
_____________________________
Adjusted weighted average shares
outstanding 5,060 4,974 4,927
Diluted earnings per share $ .50 $ .03 $ (.06)
_____________________________
9. EMPLOYEE BENEFITS RETIREMENT PLANS:
The Company maintains two non-contributory defined benefit pension
plans covering substantially all employees. The formula covering
salaried employees provides pension benefits based upon the employee's
individual yearly compensation. Formulas covering hourly employees
provide benefits of stated amounts for each year of credited service.
It is the Company's policy to fund for each qualified plan at least
an amount necessary to satisfy the minimum requirements of the Employee
Retirement Income Security Act. The amount to be funded is subject to
annual review by management and its consulting actuary. In recent
years, funding contributions have been restricted due to application of
Internal Revenue Code full-funding limitations to one or more of the
plans. The Company also maintains a non-qualified Supplemental
Executive Retirement Plan (SERP) for certain executive officers of the
Company. The SERP provides benefits based upon an executive's
compensation in the last year of service and is reduced by benefits
received from the salaried plan. Six participants of this plan are
retired and receiving payments under the plan.
Approximately 3% of the plans' assets are invested in cash and
equivalents, 78% are invested in equities, and the remaining 19% are
invested in fixed-income securities and annuities.
Net periodic pension expense for the three years ended June 30, 1998,
included the following components:
Dollars in thousands 1998 1997 1996
Service cost -- Benefits
earned during the period $ 591 $ 630 $ 518
Interest cost on projected
benefit obligation 1,573 1,537 1,521
Actual return on assets (2,282) (2,203) (4,666)
Net amortization, deferral
and curtailment gain 64 46 2,885
Net periodic pension
(income) expense $ (54) $ 10 $ 258
For plans where: June 30, 1998 June 30, 1997
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
Actuarial present value of benefit obligations:
Vested benefit
obligation $(20,903) $(1,329) $(20,233) $(1,121)
Accumulated benefit
obligation (21,094) (1,329) (20,467) (1,376)
Projected benefit
obligation (22,467) (1,337) (21,933) (1,413)
Plan assets at fair
value 33,393 -- 27,511 --
Funded Status: Assets
in excess of (or
less than) projected
benefit obligation 10,926 (1,337) 5,578 (1,413)
Transition (asset)
or obligation (390) 188 (551) 263
Unrecognized prior
service cost 2,509 39 2,809 42
Unrecognized net
(gain) or loss (10,156) 46 (5,272) 74
Prepaid (Accrued)
pension cost $ 2,889 $(1,064) $ 2,564 $(1,034)
Pursuant to the provisions of Statement of Financial Accounting
Standard No. 87, "Employers' Accounting for Pension" (SFAS 87), the
Company has recorded $265,000 of additional unfunded accumulated
benefit obligation attributable to the SERP plan at June 30, 1998.
These unfunded obligations are recorded in other long-term liabilities.
In addition, an intangible asset of the same amount has also been
recorded.
At June 30, 1998, and 1997, the discount rate for the benefit
obligations was 7.0%, the assumed annual rate of increase in future
compensation used in determining the actuarial present value of
projected benefit obligations was 4.5% for plans covering the salaried
employees for both years, and the expected long-term annual rate of
return on plan assets was 8.5% for plan years 1998 and 1997.
OTHER POST-RETIREMENT BENEFITS:
The Company maintains a non-qualified benefits plan to include post-
retirement health care for certain executives of the Company. Six
participants of this plan are retired and receiving payments under the
plan. The Accumulated Post-Retirement Benefit Obligation at June 30,
1998, and 1997, was comprised of $396,000 and $390,000, respectively,
attributable to retirees, and $70,000 and $59,000, respectively,
attributable to eligible and other active plan participants, for
combined totals of $466,000 and $449,000, respectively. At June 30,
1998, and 1997, the unrecognized amount of the Accumulated Post-
Retirement Benefit Obligation was $325,000 and $347,000, respectively.
The Net Periodic Post-Retirement Benefit expenses for years ended June
30, 1998, 1997, and 1996, were $58,000, $57,000, and $66,000,
respectively. The accrued Post-Retirement Benefit Cost recognized in
the balance sheet at June 30, 1998, was $127,000, as compared to June
30, 1997, of $107,000. At June 30, 1998, and 1997, the assumed
discount rate of 7.0% was used in the calculation of the benefit
obligations, assumed annual health-care trend rate is 5.0%, with claim
costs to increase based upon age, ranging from .5% to 6.0% per annum.
10. MAJOR CUSTOMERS:
Power conversion equipment sales encompass markets wherein the
demands of any one customer may vary greatly due to changes in
technology and market strategy. One customer of the Company accounted
for 17.2%, 16.2% and 14.8%, respectively, of fiscal 1998, 1997 and 1996
sales and 3.7%, 10.0% and 8.2%, respectively, of June 30, 1998, 1997
and 1996 accounts receivable.
11. SHAREHOLDERS' RIGHTS PLAN:
The Company's Board of Directors has adopted a shareholders' rights
plan (the "Rights Plan") and declared a dividend of one Right for each
two shares of the Company's Common Stock outstanding at December 6,
1993. Each Right entitles the registered holder to purchase one share
of Common Stock at a purchase price of $50.00 per share.
In the event that, at any time following Distribution of the
Rights, (i) the Company is the surviving corporation in a merger with a
third party and its Common Stock is not changed or exchanged, (ii) a
Person becomes the beneficial owner of more than 20% of the then
outstanding shares of Common Stock ("Acquiring Person"), (iii) an
Acquiring Person engages in one or more "self-dealing" transactions as
set forth in the Rights Agreement between the Company and its transfer
agent, or (iv) during such time as there is an Acquiring Person, an
event occurs which results in such Acquiring Person's ownership
interest being increased by more than 1% (e.g., a reverse stock split),
each holder of the Rights, other than the Acquiring Person, will
thereafter have the right to receive, upon exercise, Common Stock (or,
in certain circumstances, cash, property or other securities of the
Company) having a value equal to two times the exercise price of the
Rights.
12. COMMITMENTS AND CONTINGENCIES
The Company was subject to liability for the cost of site
investigation and remediation of a municipal landfill. This matter was
settled on June 27, 1997, upon payment by the Company of $725,000 to
the New York State Department of Environmental Conservation. The
Company did have insurance policies in effect during the period that
waste was disposed of at the site, which the Company is pursuing for
possible recovery.
13. RELATED PARTY TRANSACTIONS
In 1997, the Retirement Plan for Salaried Employees of Acme Electric
Corporation ("Plan") purchased 80,000 shares of Common Stock of the
Company from its treasury at the then fair market value of $6.81 per
share. The shares are held by the Plan trustee for the exclusive
benefit of the beneficiaries of the Plan. The transaction occurred
pursuant to Regulation D of the U.S. Securities Exchange Commission.
<PAGE>
PAGE 24 OF ANNUAL REPORT
REPORT OF INDEPENDENT
ACCOUNTANTS
To the Board of Directors and
Shareholders of Acme Electric Corporation
In our opinion, the accompanying balance sheet and the related
statements of operations, shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of
Acme Electric Corporation at June 30, 1998 and 1997, and the results of
its operations and it cash flows for each of the three years in the
period ended June 30, 1998, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
/s/
PricewaterhouseCoopers LLP
Buffalo, New York
August 5, 1998
<PAGE>
PAGE 24 OF ANNUAL REPORT
COMMON STOCK PRICES AND DIVIDEND INFORMATION
_________________________________________________________________
Stock price
Year Ended June 30, 1998 High Low Dividends Paid
Fourth Quarter 6 5/16 4 5/8 --
Third Quarter 6 1/2 4 5/8 --
Second Quarter 8 1/8 4 11/16 --
First Quarter 7 7/16 6 1/8 --
_________________________________________________________________
Year Ended June 30, 1997 High Low Dividends Paid
Fourth Quarter 7 5/8 6 1/4 --
Third Quarter 9 7/8 6 3/8 --
Second Quarter 8 1/2 6 3/4 --
First Quarter 8 5/8 6 7/8 --
Acme Electric Corporation's Common Stock is traded on the New York,
Chicago, and Philadelphia Stock Exchanges. The approximate number of
shareholders of record at June 30, 1998, was 1,206.
_________________________________________________________________
SHAREHOLDER INQUIRIES
The Company welcomes comments from shareholders and the opportunity to
answer their questions. Correspondence should be directed to: Richard
P. Becht or Cora M. Martin, Acme Electric Corporation, 400 Quaker Road,
East Aurora, New York 14052, (716) 655-3800. In addition, the Company
will provide to any shareholder, without charge, a copy of the
Company's current form 10-K annual report. Requests for this and any
other Company publication should be directed to Ms. Martin. Company
news is available by FAX: dial 1-800-758-5804, and input extension
0066775; or visit our web site at acmeelec.com
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 629
<SECURITIES> 0
<RECEIVABLES> 13,018
<ALLOWANCES> 466
<INVENTORY> 11,961
<CURRENT-ASSETS> 27,106
<PP&E> 37,794
<DEPRECIATION> 22,679
<TOTAL-ASSETS> 45,495
<CURRENT-LIABILITIES> 11,864
<BONDS> 12,833
0
0
<COMMON> 24,112
<OTHER-SE> (5,029)
<TOTAL-LIABILITY-AND-EQUITY> 45,495
<SALES> 90,916
<TOTAL-REVENUES> 90,916
<CGS> 65,871
<TOTAL-COSTS> 85,270
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,552
<INCOME-PRETAX> 4,094
<INCOME-TAX> 1,565
<INCOME-CONTINUING> 2,529
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,529
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
EXHIBIT 99
Contact:
Dick Becht
716/655-3800
FOR IMMEDIATE RELEASE
ACME ELECTRIC ANNOUNCES YEAR-END RESULTS
EAST AURORA, N.Y., August 5, 1998 -- Acme Electric Corporation (NYSE:
ACE) reported today that, for the year ended June 30, 1998, sales were
$90,916,000 with net income of $2,529,000, or $.50 per share, compared to
sales of $94,062,000 and net income of $136,000, or $.03 per share, for the
prior year.
Robert J. McKenna, Chairman and CEO, stated that, "During the last
four years, we have successfully rebuilt the Company's operational base and
returned to profitability.
Our major manufacturing facilities are now operating under Demand Flow
Technology, which has reduced manufacturing lead times from months to days,
greatly lowered our working capital requirements, and provided us with
tremendous flexibility to better serve our customers.
Several new programs with existing customers are presently in the
design stage, with production scheduled to begin throughout the next twelve
months. In addition, there are a number of new programs underway with new
customers. These programs should yield solid sales and earnings growth
over the coming fiscal year.
A general upgrade in the quality of our product development staff has
been made over the past couple of years, and their efforts have begun to
bear fruit. Several new additions to our standard product offering were
added this past year, and more are under development.
Of some concern is the loss of a major customer in our electronics
power supply business. This customer has had an active vendor reduction
program in place for some time, favoring large multi-national companies,
and we expected our business with them to decline significantly over the
next couple of years, however, it now appears that will occur within four
to six months. We are taking the necessary actions to minimize the impact
of this situation on our business and plan to accelerate the pace of new
product and market development.
We believe that our future growth can be significantly strengthened by
effective partnering with other companies when our combined resources
provide a competitive market advantage. One such relationship was recently
established with Rockwell Automation, which provides for collaborative
marketing efforts with their Allen Bradley line of electrical products. We
intend to pursue similar alliances wherever appropriate.
Much has been accomplished in the last few years, and much needs to be
done, but we continue to view the future with much optimism."
Founded in 1917, Acme Electric Corporation is a leader in the design
and manufacture of power conversion equipment for electronic and electrical
systems for industrial, commercial, residential, military and aerospace
applications. Corporate headquarters are in East Aurora, N.Y., with
operations in Cuba, N.Y., Lumberton, N.C. and Tempe, Ariz.
# # # #
<PAGE>
ACME ELECTRIC CORPORATION
Comparative Analysis
(in thousands, except for per share data)
For the
For the Year Ended 13 Weeks Ended
------------------ ------------------
06/30/98 06/30/97 06/30/98 06/30/97
-------- -------- -------- --------
Net Sales $90,916 $94,062 $23,633 $23,355
Net Income (Loss) 2,529 136 1,276 (178)
Net Income (Loss) Per
Common Share
(Basic and Diluted) $.50 $.03 $.25 $(.04)
Weighted Number of Shares
Outstanding Used to Compute
Net Income (Loss) Per
Common Share:
Basic 5,046,011 4,960,103 5,049,962 4,986,206
Diluted 5,060,382 4,973,146 5,064,885 4,986,206
