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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EX-CHANGE ACT OF 1934
For the transition period from______________to____________________
Commission file number 0-9010
ROBINSON NUGENT, INC.
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(Exact name of registrant as specified in its charter)
Indiana 35-0957603
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(State or other jurisdiction of (I.R.S. Employer
organization or incorporation) Identification Number)
800 East Eighth Street, New Albany, Indiana 47151-1208
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (812) 945-0211
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, Common Share
Without Par Value Purchase Rights
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 (or for such shorter
period that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days:
Yes X No
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The aggregate market value of Common Shares held by nonaffiliates of
the registrant, based on the closing price of the Common Shares of $5.25, as
of August 12, 1999, was approximately $11,300,000.
As of September 15, 1999, the registrant had outstanding 4,932,687
Common Shares, without par value.
1
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(FIVE-YEAR FINANCIAL SUMMARY)
IN THOUSANDS EXCEPT PER SHARE DATA
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<TABLE>
<CAPTION>
Years ended June 30
OPERATING RESULTS: 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
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Net Sales $69,992 74,146 84,840 80,964 80,679
Cost of sales 53,654 62,557 65,769 65,604 59,329
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Gross profit 16,338 11,589 19,071 15,360 21,350
Selling, general and administrative expenses 13,796 14,565 15,598 16,749 15,586
Special and unusual charges 1,663 5,063 -- -- --
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Operating income (loss) 879 (8,039) 3,473 (1,389) 5,764
Other income (expense) (791) (403) 376 (305) (170)
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Income (loss) before income tax expense (benefit) 88 (8,442) 3,849 (1,694) 5,594
Income tax expense (benefit) (302) (2,261) 1,494 465 1,855
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Net income (loss) $ 390 (6,181) 2,355 (2,159) 3,739
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Return on net sales 0.6% (8.3%) 2.8% (2.7%) 4.6%
PER SHARE INFORMATION:
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Net income (loss) basic and dilutive $ 0.08 (1.26) .48 (.40) .69
Cash dividends $ -- .12 .12 .12 .12
Basic weighted average shares outstanding 4,904 4,892 4,892 5,333 5,337
Dilutive weighted average shares outstanding 4,905 4,892 4,911 5,333 5,383
Book value at year-end* $ 4.76 4.73 6.37 6.13 6.79
BALANCE SHEET:
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Working capital $14,690 10,740 16,581 10,328 15,875
Property, plant and equipment - net 18,539 19,424 21,188 23,618 24,609
Total assets 46,626 42,302 49,696 51,466 54,169
Long-term debt 9,016 7,607 5,926 3,036 4,143
Shareholders' equity 23,450 23,128 31,140 29,968 36,480
OTHER DATA:
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Current ratio to 1.0 2.1 1.9 2.4 1.6 2.3
Return on shareholders' average equity 1.7% (22.8%) 7.8% (6.0%) 11.0%
Capital expenditures $ 5,766 7,818 4,202 7,474 5,929
Depreciation and amortization $ 4,452 8,557 5,451 6,135 3,714
</TABLE>
*On the basis of year-end outstanding common shares.
SEE NOTE 18 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR SELECTED
QUARTERLY FINANCIAL DATA, INCLUDING DIVIDEND PAYMENTS ON COMMON SHARES.
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5 Robinson Nugent Inc. and Subsidiaries
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
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Statements made in this annual report with respect to Robinson Nugent's (RN)
current plans, estimates, strategies and beliefs and other statements that
are not historical facts are forward-looking statements about the future
performance of RN. These statements are based on management's assumptions and
beliefs in light of the information currently available to it and therefore
you should not place undue reliance on them. RN cautions you that a number of
important factors could cause actual results to differ materially from those
discussed in the forward-looking statements.
GENERAL. Robinson Nugent designs manufactures and markets electronic
connectors, integrated circuit sockets and cable assemblies. These products
are used to interconnect various types of components of a wide array of
electronic systems. RN's principal products are sockets used on electronic
printed circuit boards, connectors used to connect printed circuit boards and
connectors used to connect cables to circuit boards. These products are used
in high-powered computers and peripheral equipment, industrial controls and
electronic data-communication and telecommunication equipment. Applications
include switching and networking equipment such as servers, routers, modems
and other equipment used in local area networks, multi-site wide area
networks and a variety of equipment that supports the Internet. The company
also manufactures custom electronic cable assemblies. RN sells its products
in all the major markets of the world, including the United States, Europe,
Asia and Japan.
RN reported net income of $0.4 million on sales of $70.0 million for the year
ended June 30, 1999, compared to a loss of $6.2 million on sales of $74.1
million in the prior year. Net income was $2.4 million on sales of $84.8
million in the year ended June 30, 1997.
Customer orders for the year increased four percent to $72.8 million compared
to $69.9 million in the prior year and $83.5 million in the year ended June
30, 1997.
Revenues declined by 5.5% in 1999 compared to 1998. This decline was due
primarily to a broad decline in prices in all markets, not accepting customer
orders with low gross profit margins and a decline in sales of older,
lower-gross margin sockets, screw machine and PC board connector products.
Gross profit margins increased to 23.3% compared to 15.6% in 1998 due to the
improved profit margins resulting from the increased sales of higher-margin
connectors sold in the United States to companies that produce hardware for
the Internet and connectors sold in Europe to be used in digital satellite
receivers.
Research, development and engineering expenses, which are included as a
component of gross profit, were $3.5 million or 5% of sales in 1999 compared
$4.0 million or 5.4% of sales in 1998 and $3.4 million or 4.0% of sales in
1997. RN intends to increase its engineering effort in the United States and
Europe in the coming year. U.S. engineers will focus primarily on
higher-margin connectors for applications in electronic data communication
and telecommunication backplanes, particularly high speed applications.
European engineers will focus primarily on new applications for its custom,
enhanced, double smart card reader connectors for applications such as
digital satellite receivers and set top boxes.
The results of operations include special and unusual charges of $1.6 million
in the current year and $5.1 million in the prior year. The current year
results include $1.1 million of expenses that relate to the implementation of
a new worldwide information and enterprise resource planning system, and $0.5
million to complete the relocation of the Company's cable assembly operations
from North Carolina to Mexico. The new information system, which is being
implemented in the United States, Mexico and Europe, will satisfy Year 2000
requirements and enhance RN's management and control systems. The $5.1
million of special and unusual charges in the prior year includes $3.1
million of restructuring and reorganization expenses, as well as $2.0 million
of charges related to the reduction in the carrying value of various assets.
SALES. Customer sales in the United States were $46.3 million in 1999
compared to $48.7 million in 1998 and $55.2 million in 1997. RN experienced
price decay of approximately 6% as well as a decrease in the sales of
lower-margin, more mature products. The reductions in connector sales were
partially offset by an increase in sales of higher-margin PC board and
telecom/data-com connectors. These backplane connectors are used in high
speed, high-end computer network servers and other network and communication
equipment used in corporate internal networks and the Internet. It is
estimated that the amount of data flowing over the Internet is doubling every
100 days. This explosive growth will require the expansion of the Internet's
speed and capacity, and thereby an increase in its hardware infrastructure.
RN is positioning itself to provide high performance, high-density connectors
for the electronic components and hardware used in that infrastructure.
Cable assembly sales in the United States were also lower for the second
consecutive year. This decline is primarily due to management's focus on the
relocation of the cable assembly facility from North Carolina to Mexico. RN
expects that the operations in this new facility will provide the platform
for sales growth in this product category in the coming year. This modern
facility allows RN access to high-quality, efficient manufacturing at a lower
labor cost, plus it is a location that is closer, geographically, to a major
portion of Cablelink's customer base.
European customer sales were $17.5 million in 1999 compared to $18.5 million
in 1998 and $22.0 million in 1997, measured in U.S. dollars. 1999 sales
declined 5.4% when measured in U.S. dollars, and 8% when measured in local
currencies such as the pound sterling, Swiss franc and German mark. This
multi-year decline was due primarily to price decay and a reduction in sales
of older screw machine connectors, stamped sockets and other low-margin
connectors. Helping to counter this decline, RN Europe increased its sales of
newer designs, developed at the European design center, of smart card reader
connectors and PCMCIA connectors used in electronic memory applications such
as digital satellite receivers. RN Europe expects the demand for these types
of products to continue to grow, and will augment the sales generated by
these products with sales of a new enhanced double smart card reader
connector. This connector was recently developed in cooperation with RN
Europe's largest customer, and sales are expected to increase significantly
in the coming year.
Asian customer sales were $6.2 million in 1999 compared to $7.0 million in
1998 and $7.6 million in 1997. The recent currency and economic crisis in
Southeast Asia have had a slight negative impact on RN's operations in that
region in recent years. Sales in Japan have been unfavorably impacted by the
strength of the U.S. dollar against the Japanese Yen. The total effect of
this crisis' on the operations in Southeast Asia, while significant, has been
less than management expected. This was due primarily to the fact that most
of the Company's sales to customers in Southeast Asia are transacted in U.S.
dollars. Additionally, the devaluation of the Malaysian ringgit in 1997
reduced the relative cost of sales and operating expenses for operations in
this country. RN intends to capitalize on this situation by increasing the
amount of production generated in its manufacturing facilities in Malaysia,
and exporting these products to customers in Europe, Japan and America.
GROSS PROFITS. Gross profits were $16.3 million in 1999 compared to $11.6
million in 1998 and $19.1 million in 1997. Gross profit margins improved in
all three geographic regions. An increase in the sales volume of higher
margin telecom/data-com connectors increased U.S. gross profits over the
prior years. European gross profit margins improved significantly over 1998
in spite of the negative impact of European currency exchange rate
fluctuations. Operations in Asia have shown steady gross profit margin
improvement over the past several years.
SPECIAL AND UNUSUAL EXPENSES. RN reported special and unusual expenses of
$1.6 million in 1999. These expenses included $1.1 million of expenses
related to the implementation of a new information and enterprise resource
planning system for the U.S. and Europe, and $0.5 million required to
relocate the cable assembly operations to Reynosa, Mexico. Special and
unusual expenses were $5.1 million in 1998.
RN is in the process of implementing the PeopleSoft enterprise resource
optimization software system in its operations in the U.S., Mexico and
Europe. This system is being designed and implemented to satisfy Year 2000
requirements, enhance management and control systems, improve customer
service and vendor communications. This software system includes accounting,
cost and inventory control, order processing, enterprise planning, production
planning and engineering management. It is a powerful, user-friendly system
that has been installed on a Windows based client-server architecture laid
over a Windows NT backbone. Software systems in Asia are currently Y2K
compliant.
RN will invest a total of approximately $6.8 million to design and implement
this new information system. Approximately $0.9 million was spent in 1998,
$4.6 million in 1999 and RN anticipates it will spend an additional $1.3
million in FY 2000 to complete the implementation. U.S. connector operations
successfully implemented the system for day-to-day operations on May 1, 1999.
The U.S. and Mexican cable assembly operations, as well as European
operations, will implement the system in the second quarter of FY 2000.
Included in the project cost is approximately $2.0 million of expenditures
for computer hardware and the PeopleSoft software. RN is leasing these
information system assets under a long term operating lease. Approximately
$3.0 million of the project costs, related to outside consulting support, are
being capitalized and depreciated over a ten year life. RN is expensing
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6
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in the respective accounting periods the costs of using internal personnel on
this project, as well as training and travel expenses. The company expensed
approximately $0.3 million of these types of costs in 1998, $1.1 million in
1999 and it expects to incur an additional $0.4 million in FY 2000.
Over the past two years RN has recorded $2.1 million of expenses related to
the relocation of its primary custom cable assembly operations to Mexico.
Approximately $1.6 million of this cost was recorded in 1998 and is primarily
related to the closure of the North Carolina facility. An additional $0.5
million was expensed in the first quarter of 1999 to complete the move.
RN recorded $5.1 million of special and unusual charges in 1998. These
charges included $3.1 million of restructuring expenses related to the
reorganization of the sales, management and manufacturing organizations in
Europe and North America, the closure and move of the cable assembly
facility, and the cost to discontinue several product lines. The additional
$2.0 million of unusual charges reflect a reduction in the carrying value of
various pieces of assembly equipment, mold tools and dies. These charges
resulted from management's evaluation of RN's ability to generate sufficient
cash flow to recover these asset costs given the existing market conditions.
There were no special and unusual charges in 1997.
SELLING GENERAL AND ADMINISTRATIVE EXPENSES. Selling general and
administrative expenses were $13.8 million in 1999 compared to $14.6 million
in 1998 and $15.6 million in 1997. This decline is due primarily to a
reduction in selling expenses in the U.S. and Europe in 1999 and the
reorganization of these sales organizations in the prior year. Administrative
expenses in Asia declined for the second consecutive year.
OTHER INCOME AND EXPENSES. RN recorded a net other expense of $0.8 million in
1999, $0.4 million in 1998 and a net other income of $0.4 million in 1997.
Other income and expense for 1999 and 1998 were comprised primarily of three
components; interest expense, currency exchange gains and losses, and royalty
income. Interest expense increased from $0.6 million in 1998 to $0.8 million
in 1999. This increase was due primarily to a higher level of long term debt
in the current year. Interest rates have been relatively stable during these
two years.
RN recorded currency exchange losses of $0.3 million in 1999 compared to
currency exchange gains of $0.1 million in 1998 and $0.4 million in 1997. The
current year losses were incurred primarily by the European operations in the
final quarter of the fiscal year. These losses were driven by the
deterioration in the relative value of the Euro, compared to the pound
sterling and U.S. dollar in the fourth quarter of the fiscal year. This trend
appears to be reversing in the first quarter of FY 2000. Prior year currency
exchange gains were primarily related to intercompany accounts receivable and
accounts payable positions between RN's various operating subsidiaries.
Management has evaluated various methods of using derivatives to protect the
company from currency exchange losses in prior years. Based on the counsel of
qualified experts in the field, RN has not entered into any significant
currency exchange based derivative contracts in the last three years. The
recent introduction of the Euro in Europe, and the resulting consolidation of
multiple European currencies in the marketplace, may make it economically
feasible to enter into these contracts in the future. Currency exchange gains
in 1997 were generated primarily in Europe, on the strengthening of the pound
sterling against other European currencies, and were primarily related to
intercompany receivable and payable accounts.
RN received $0.2 million of royalty income in 1999 from agreements to license
the use of certain of its patent rights to several of its competitors. A $0.5
million settlement of a patent infringement charge RN had filed against a
competitor was collected in 1997.
TAXES. The provision for income taxes was provided using the appropriate
effective tax rates on the pretax income of each of the tax jurisdictions in
which RN operates. RN recorded a tax benefit of $0.3 million in 1999,
including a tax benefit of $0.5 million related to the value of accumulated
Scotland net operating loss carryforwards. The decision to recognize the
value of these benefits in the fourth quarter of the year was based upon the
earnings that have been generated in recent quarters by the Scottish
operations, and the anticipation of additional taxable earnings in this
operating division in the future. RN recorded an income tax benefit of $2.3
million on pretax losses of $8.4 million in 1998. This tax benefit includes
the recognition of a $0.5 million benefit for deferred tax assets related to
the U. S. operations. No tax benefit has been recognized on the recent pretax
losses incurred in Belgium, Malaysia and Japan. RN maintains a valuation
allowance of approximately $0.9 million, at June 30, 1999, for tax benefits
of prior period net operating losses in these jurisdictions. At such time as
management is able to project the probable utilization of all or part of
these net operating loss carryforward provisions, the valuation allowances
for these deferred tax assets will be reversed, resulting in a tax benefit in
that respective period.
NET INCOME AND EARNINGS PER SHARE. RN generated a net income of $0.4 million
or 8 cents per share in 1999 compared to a loss of $6.2 million or $1.26 per
share in 1998. Net income was $2.4 million or 48 cents per share in 1997.
Operations in the U.S. generated $0.4 million of pretax profits in 1999
compared to a loss of $6.3 million in 1998 and pretax profits of $3.9 million
in 1997. European operations lost $0.2 million on a pretax basis in 1999
compared to a loss of $2.2 million in 1998. Changes in foreign currency
exchange rates contributed significantly to the current year currency loss in
Europe. These changes occurred primarily in the fourth quarter of the fiscal
year as the Euro weakened relative to the pound sterling, and both the Euro
and the pound weakened relative to the U.S. dollar. The net effect of these
changes reduced European gross profits by approximately $0.2 million and
generated an additional $0.2 million of currency transaction losses in the
year. Lower sales volume in Asia resulted in a pretax loss of $0.1 million in
this region in 1999.
LIQUIDITY AND CAPITAL RESOURCES. Working capital as of June 30, 1999 was at
$14.7 million compared to $10.7 million at June 30, 1998. The Company's
current ratio at June 30, 1999 was 2.1 to 1 compared to 1.9 to 1 at June 30,
1998. Cash balances at June 30, 1999 were $0.8 million compared to $0.9
million at year-end June 30, 1998. The Company's long-term debt as a
percentage of stockholders' equity was 38.4% at year-end 1999 compared to
32.9% at year-end 1998.
Capital expenditures in 1999 were primarily for new mold tools, contact dies
and assembly equipment, and expenditures related to the new management
information systems. Total capital expenditures were $5.8 million in the
fiscal year 1999 compared to $7.8 million in 1998.
The Company believes future cash requirements for capital expenditures and
working capital can be funded from operations, supplemented by proceeds from
the existing long-term credit agreement.
RN has a $8.0 million revolving credit facility with its primary bank, which
is currently secured by a lien on U.S. inventories and receivables. Interest
rates under this revolver are dependent on the type of loan advance selected.
The first type of basic advance rate is equal to the London Interbank Offered
Rate (LIBOR) plus 2.25%, (approximately 7.25% as of June 30, 1999). Second
interest rate utilizing the bank's prime interest rate minus 1/2 of 1%, 7.27%
as of June 30th is also available. As of June 30, 1999, RN had borrowings of
$6.8 million under this revolver, plus an additional $0.6 million of standby
letters of credits. This revolving credit agreement includes various
operating and financial covenants including minimum current ratio, a maximum
ratio of indebtedness to tangible net worth, a minimum fixed charge coverage
ratio and a funded debt ratio. This agreement expires in December 2001 and
can be extended by mutual consent of RN and the bank. RN entered into a
multi-year interest rate swap agreement with its primary lending institution
in 1999. This agreement covers $3.0 million of floating rate long-term debt,
and effectively fixes the interest rate on these borrowings at 7.59%.
The Company currently has $0.6 million in unused and available credit under
the existing credit agreement at June 30, 1999.
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RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
NEW PRODUCTS AND TECHNOLOGICAL CHANGE. RN's results from operations and
competitive strength depend upon the successful and rapid development of new
products and enhancements to existing products. The market for the Company's
products is characterized by rapid technological advances and changes in
customer demand, which necessitate frequent product introductions and
enhancements. These factors can result in unpredictable product transition
and shortened product life cycles, and can render existing products obsolete
or unmarketable. The Company must make significant investments in research
and product development and successfully introduce competitive new products
and enhancements on a timely basis. The success of new product introductions
is dependent on a number of factors, including the rate at which a new
product gains acceptance and RN's ability to effectively manage product
transitions. The development of new technology, products, and enhancements is
complex and involves uncertainties, which increases
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7 Robinson Nugent, Inc. and Subsidiaries
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
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the risk of delays in the introduction of new products and enhancements. From
time to time RN has encountered delays that have adversely affected the
Company's financial results and competitive position in the market. There can
be no assurances that RN will not encounter development or production delays,
or that despite intensive testing by the Company, flaws in design or
production will not occur in the future. Design flaws could result in delays
of shipment or of product sales, could trigger substantial repair or
replacement costs, could damage RN's reputation and cause material adverse
effect upon RN's financial results.
RN has historically generated its revenue and operating profits primarily
from the sale of products to the computer, network equipment and
communications industries. RN is focusing resources on expanding further into
these markets, as well as taking a more aggressive posture towards Internet
related equipment. There can be no assurances that the Company will be
successful in expanding these markets.
DEPENDENCE ON KEY CUSTOMERS. Some of RN's products are designed specifically
for individual customers. Future revenue from these products is therefore
dependent on the customer's continued need and acceptance of these products.
COMPETITION. The market for RN's products is intensely competitive and
subject to continuous, rapid technological change, frequent product
performance improvements and price reductions. In the connector marketplace,
competition comes from companies that have substantially greater resources,
as well as several other similarly sized companies. RN expects that the
markets for its products will continue to change as customer buying patterns
continue to migrate to emerging products and technologies. The Company's
ability to compete will depend to a considerable extent on its ability to
continuously develop and introduce new products and enhancements to existing
products. Increased competition may result in price reductions, reduced
margins and declining market share, which may have a material adverse effect
on RN's business and financial results.
INTELLECTUAL PROPERTY. RN's intellectual property rights are material assets
and key to its business and competitive strength. Robinson Nugent protects
its intellectual property rights through a combination of patents,
trademarks, copyrights, confidentiality procedures, trade secret laws and
licensing arrangements. The Company's policy is to apply for patents, or
other appropriate proprietary or statutory protection, when it develops new
or improved technology that is important to its business. Such protection,
however, may not preclude competitors from developing similar products. In
addition, competitors may attempt to restrict the Company's ability to
compete by advancing various intellectual property legal theories which
could, if enforced by the courts, restrict the Company's ability to develop
and manufacture products. Also, the laws of certain foreign countries do not
protect the Company's intellectual property rights to the same extent as the
laws of the United States. RN also relies on certain technology that is
licensed from others. RN is unable to predict whether its license
arrangements can be renewed on acceptable terms. The failure to successfully
protect its intellectual property rights or obtain licenses from others as
needed could have a material adverse effect on RN's business and financial
results.
The connector industry is characterized by vigorous pursuit and protection of
intellectual property rights or positions, which in some instances has
resulted in significant litigation that is often protracted and expensive.
From time to time, Robinson Nugent has commenced actions against other
companies to protect or enforce its intellectual property rights. Similarly,
from time to time, RN has been notified that it may be infringing certain
patent or other intellectual property rights of others. Licenses or royalty
agreements are generally offered in such situations. Litigation by or against
the Company may result in significant expense and divert the efforts of RN's
technical and management personnel, whether or not such litigation results in
any determination unfavorable to RN. In the event of an adverse result, RN
could be required to pay substantial damages; cease the manufacture, use and
sale of infringing products; expend significant resources to develop
non-infringing technology; or discontinue the use of certain processes if it
is unable to enter into royalty arrangements. There can be no assurances that
litigation will not be commenced in the future regarding patents, copyrights,
trademarks or trade secrets or that any license, royalty or other rights can
be obtained on acceptable terms, or at all.
INFORMATION SYSTEMS TRANSITION. RN is currently in the process of replacing
its primary internal information systems in the U.S., Mexico and Europe with
a new integrated information system that is complex and that affects numerous
operational, transactional, financial and reporting processes. U.S. connector
operations converted to the new PeopleSoft software based system in May 1999.
European operations and cable assembly operations in the U.S. are scheduled
for implementation in the second quarter of fiscal 2000. In order to
successfully complete the implementation of this system, RN must successfully
manage: the transfer of critical information to the new system, the
implementation of associated process changes, and employee training programs.
RN intends to conduct extensive tests on these new systems and processes
prior to their implementation in Europe and cable assembly operations in the
U.S.; however, these tests may not be able to fully simulate the transition
phase and day-to-day operating environment of these operations. There can be
no assurance that the transition to the PeopleSoft information system will
cause no interruptions in the Company's critical business processes. Failure
to successfully manage the transition could adversely affect RN's operating
and financial results. The new system is being implemented at a estimated
total cost of $6.8 million. As of June 30, 1999 RN has incurred costs of
approximately $5.5 million.
RISKS ASSOCIATED WITH THE YEAR 2000. RN is currently in the process of
replacing its primary internal information systems with a new integrated
information system. This new system is believed to be Year 2000 ready, and
will be fully implemented by December 31, 1999. The company has also
completed its assessment on its other critical information systems and
non-information systems to determine if they are Year 2000 ready. The
remediation programs for its information and non-information systems that are
not Year 2000 ready are expected to be substantially completed and tested by
December 31, 1999. Asian operations implemented a Year 2000 ready information
system in 1998. The company is currently formulating contingency plans in the
event of a system failure in the U.S., or a delay in the implementation of
the new information system in Europe. RN has considered the potential effect
on the Company's business, results of operations, and financial condition if
key suppliers and vendors do not become compliant in a timely manner. RN has
taken reasonable steps to verify the Year 2000 readiness of its suppliers and
customers. Based on the results of this assessment, RN has identified
alternative suppliers and vendors.
MANUFACTURING RISKS; DEPENDENCE ON SUPPLIERS The Company uses standard
molding compounds and pin sockets for many of its products and believes that,
in most cases, there are a number of alternative, competent vendors for these
components. In addition, RN designs its own custom stamped and formed
connector contacts. Robinson Nugent enters into agreements with custom
stamping manufacturers to design and build stamping dies to produce
proprietary stamped and formed contacts for RN. The Company believes that
these stamping operations are currently the only suppliers of these
particular components that meet RN's specifications and design requirements.
Alternative sources are not readily available. An unanticipated failure of
any sole source supplier to meet the Company's requirements for an extended
period, or an interruption of the Company's ability to secure comparable
components, could have a material adverse effect on its revenue and results
of operations. In the event a sole source supplier was unable or unwilling to
continue to supply components, RN would have to identify and qualify other
acceptable suppliers. This process could take an extended period, and no
assurance can be given that any additional source would become available or
would be able to satisfy RN's production requirements on a timely basis.
EURO CONVERSION. Effective January 1, 1999, 11 of the 15 member countries of
the European Union adopted a single European currency, the Euro, as their
common legal currency. Like many companies that operate in Europe, various
aspects of RN's business and financial accounting will be affected by the
Euro conversion and the transitions in the business environment resulting
from the convergence of these currencies. RN continues to evaluate the
European pricing strategies for its products and the implications of the Euro
conversion on its contractual agreements, tax strategy and foreign currency
risk management strategy. The Company does not believe that the transition in
the European market resulting from the Euro conversion will impact the
competitiveness of its products in the short-term, as significant price
transparency already exists. There can be no assurances, however, that the
conversion will not adversely affect the Company's pricing, tax, currency
hedging strategies, or business systems and processes in the future.
EARNINGS FLUCTUATIONS. The RN's reported earnings have fluctuated
significantly in the past and may continue to fluctuate significantly in the
future from quarter to quarter due to a variety of factors, including, among
others, the effects of (i) customers' historical tendencies to make purchase
decisions in the second half of the fiscal year, (ii) the timing of the
announcement and availability of products and product enhancements by the
Company and its competitors, (iii) fluctuating foreign currency exchange
rates, (iv) changes in the mix of products sold, (v) variations in customer
acceptance periods for the Company's products, and (vi) global economic
conditions.
- -------------------------------------------------------------------------------
8
<PAGE>
VOLATILITY OF STOCK PRICE. The trading price of the Company's common stock
has fluctuated and in the future may fluctuate substantially in response to
anticipated or reported operating results, industry conditions, new product
or product development announcements by the Company or its competitors,
announced acquisitions and joint ventures by the Company or its competitors,
broad market trends unrelated to the Company's performance, general market
and economic conditions, international currency fluctuations and other events
or factors. Further, the volatility of the stock markets in recent years has
caused wide fluctuations in trading prices of stocks of companies independent
of their individual operating results. In the future, the Company's reported
operating results may be below the expectations of stock market analysts and
investors, and in such events, there could be an immediate and significant
adverse effect on the trading price of the company's common stock.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS. The Company adopted Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" in 1998.
SFAS No. 128 specifies the computation, presentation, and disclosure
requirements for earnings per share. This statement's objective is to
simplify the computation of earnings per share (EPS) and to make the U.S.
standard for computing earnings per share more compatible with the EPS
standards of other countries.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. The Company adopted this standard in fiscal 1999.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," specifies the way that public business enterprises report
information about operating segments in annual financial statements and
requires that enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company adopted this standard in
fiscal 1999.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for hedging activities and for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives). It requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
RN will adopt the new standard in fiscal 2001. RN does not expect adoption of
this standard will have a material impact on its financial statements.
....................................
OPERATING RESULTS AS A PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Net Sales 100.0% 100.0% 100.0%
Cost of sales 76.7 84.4 77.5
- -------------------------------------------------------------------------------------------------
Gross profit 23.3 15.6 22.5
Selling, general and administration expenses 19.7 19.6 18.4
Special and unusual expenses 2.4 6.8 --
- -------------------------------------------------------------------------------------------------
Operating income (loss) 1.2 (10.8) 4.1
Other income (expense) (1.1) ( .5) .4
- -------------------------------------------------------------------------------------------------
Income (loss) before income tax expense (benefit) 0.1 (11.3) 4.5
Income tax expense (benefit) (0.5) (3.0) 1.7
- -------------------------------------------------------------------------------------------------
Net income (loss) 0.6% (8.3%) 2.8%
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
....................................
PRICE RANGE AND DIVIDEND INFORMATION
The following table sets forth the high and low closing price of the Company's
common shares, which are traded over the Nasdaq National Market under the
symbol: RNIC, and the cash dividends declared per share in each of the quarters
during the past three fiscal years.
<TABLE>
<CAPTION>
Cash
Price Range Dividends
High Low
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
FISCAL 1999
First quarter ended September 30 $5 3 1/8 $ --
Second quarter ended December 31 4 3 --
Third quarter ended March 31 4 1/2 3 1/2 --
Fourth quarter ended June 30 4 5/8 2 9/16 --
FISCAL 1998
First quarter ended September 30 $7 3/4 5 1/32 $ .03
Second quarter ended December 31 6 1/8 3 7/8 .03
Third quarter ended March 31 5 3/4 3 5/8 .03
Fourth quarter ended June 30 6 1/8 3 3/4 .03
FISCAL 1997
First quarter ended September 30 $6 1/8 4 3/8 $ .03
Second quarter ended December 31 5 3/8 4 1/4 .03
Third quarter ended March 31 5 1/4 4 1/4 .03
Fourth quarter ended June 30 6 4 5/8 .03
</TABLE>
As of June 30, 1999, the Company had approximately 750 holders of record of
its common shares.
- -------------------------------------------------------------------------------
9 Robinson Nugent, Inc. and Subsidiaries
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
In Thousands
JUNE 30
ASSETS 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 845 959 4,118
Receivables, less allowance for doubtful receivables of $581 in 1999,
$571 in 1998 and $564 in 1997 13,159 9,274 11,784
Inventories 10,632 10,062 11,100
Other current assets 3,313 2,012 1,371
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 27,949 22,307 28,373
Property, plant and equipment, at cost less accumulated
depreciation and amortization 18,539 19,424 21,188
Other assets 138 571 135
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 46,626 42,302 49,696
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Current installments of long-term debt $ 449 367 386
Short-term bank borrowings -- 570 --
Accounts payable 7,441 5,147 4,265
Accrued expenses 5,369 5,483 5,560
Income taxes payable -- -- 1,581
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 13,259 11,567 11,792
Long-term debt, excluding current installments 9,016 7,607 5,926
Other liabilities 901 -- --
Deferred income taxes -- -- 838
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 23,176 19,174 18,556
- ---------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Common shares without par value
Authorized 15,000 shares 20,950 20,950 20,950
Retained earnings 14,847 14,563 21,290
Equity adjustment from foreign currency translation 492 713 2,073
Employee stock purchase plan loans and deferred compensation (77) (106) (177)
Less cost of common shares in treasury (12,762) (12,992) (12,996)
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 23,450 23,128 31,140
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 46,626 42,302 49,696
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
In Thousands Except Per Share Data
YEARS ENDED JUNE 30
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 69,992 74,146 84,840
Cost of sales 53,654 62,557 65,769
- ---------------------------------------------------------------------------------------------------------------
Gross profit 16,338 11,589 19,071
Selling, general and administrative expenses 13,796 14,565 15,598
Special and unusual expenses 1,663 5,063 --
- ---------------------------------------------------------------------------------------------------------------
Operating income (loss) 879 (8,039) 3,473
- ---------------------------------------------------------------------------------------------------------------
Other Income (expense):
Interest income 55 84 124
Interest expense (756) (592) (678)
Currency exchange gain (loss) (258) 105 393
Settlement of patent infringement claim -- -- 500
Royalty income 168 -- 37
- ---------------------------------------------------------------------------------------------------------------
Total other income (expense) (791) (403) 376
- ---------------------------------------------------------------------------------------------------------------
Income (loss) before income tax expense (benefit) 88 (8,442) 3,849
Income tax expense (benefit) (302) (2,261) 1,494
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) 390 (6,181) 2,355
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) per common share, basic and dilutive 0.08 (1.26) 0.48
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Other comprehensive income:
Foreign currency translation (221) (1,360) (774)
- ---------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ 169 (7,541) 1,581
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
11 Robinson Nugent, Inc. and Subsidiaries
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
In Thousands Except Per Share Data
Employee
Stock Purchase
Foreign Plan Loans
Common Shares Retained Currency and Deferred Treasury Shares
Years ended June 30, 1999, 1998 and 1997 Shares Amount Earnings Translation Compensation Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1996 6,851 $ 20,950 $ 19,521 $ 2,847 $ (354) (1,959) $(12,996)
Net income -- -- 2,355 -- -- -- --
Dividends ($.12 per share) -- -- (586) -- -- -- --
Equity adjustments from foreign
currency translation -- -- -- (774) -- -- --
Stock purchase plan repayments -- -- -- -- 93 -- --
Amortization of deferred compensation -- -- -- -- 51 -- --
Stock purchase plan terminations -- -- -- -- 33 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1997 6,851 $ 20,950 21,290 2,073 (177) (1,959) $(12,996)
Net loss -- -- (6,181) -- -- -- --
Dividends ($.12 per share) -- -- (587) -- -- -- --
Equity adjustments from foreign
currency translation -- -- -- (1,360) -- -- --
Stock purchase plan repayments -- -- -- -- 60 -- --
Amortization of deferred compensation -- -- -- -- 11 -- --
Stock purchase plan forfeitures -- -- 38 -- -- (7) (38)
Stock options exercised -- -- -- -- -- 5 32
Treasury shares sold -- -- 3 -- -- 2 10
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 6,851 $ 20,950 14,563 713 (106) (1,959) $(12,992)
Net income -- -- 390 -- -- -- --
Equity adjustments from foreign
currency translation -- -- -- (221) -- -- --
Stock purchase plan repayments -- -- -- -- 26 -- --
Amortization of deferred compensation -- -- -- -- 3 -- --
Treasury shares -- -- (106) -- -- 33 230
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 6,851 $ 20,950 $ 14,847 $ 492 $ (77) (1,926) $(12,762)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
In Thousands
YEARS ENDED JUNE 30
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 390 (6,181) 2,355
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 4,452 8,557 5,451
Issuance of treasury shares as compensation 124 -- --
Reduction and disposal of property plant and equipment (76) 360 233
(Increase) decrease in receivables (3,885) 2,510 (1,351)
(Increase) decrease in inventories (570) 1,038 2,346
(Increase) decrease in other current assets (1,861) (498) 67
(Increase) decrease in deferred income tax assets 560 (1,409) (79)
Increase (decrease) in accounts payable and accrued expenses 2,180 805 (424)
Increase (decrease) in other liabilities 901 -- --
Increase (decrease) in income taxes payable -- (1,581) 1,492
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,215 3,601 10,090
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,766) (7,818) (4,202)
Proceeds from the sale of property plant and equipment 2,126 -- 117
(Increase) decrease in other assets 397 (47) (83)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,243) (7,865) (4,168)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term bank borrowings 250 570 --
Repayment of short-term bank borrowings (820) -- (300)
Proceeds from long-term debt 5,220 3,250 --
Repayment of long-term debt (3,738) (1,426) (3,189)
Cash dividends -- (587) (586)
Sale of treasury shares -- 13 --
Repayment of employee stock purchase plan loans 26 60 93
Proceeds from stock purchase plan terminations -- -- 33
Proceeds from exercised stock options -- 32 --
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 938 1,912 (3,949)
- ----------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (24) (807) (223)
- ----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (114) (3,159) 1,750
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 959 4,118 2,368
- ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 845 959 4,118
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
13 Robinson Nugent, Inc. and Subsidiaries
<PAGE>
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In Thousands Except Per Share Data
- -------------------------------------------------------------------------------
....................................
NOTE 1 NATURE OF OPERATIONS AND ORGANIZATIONS
Robinson Nugent, Inc. designs, manufactures, and markets electronic
connectors, integrated circuit sockets and cable assemblies. Its products are
sold throughout the world for use by manufacturers of computers, networks and
telecommunications equipment, industrial controls, and a wide variety of
other products to interconnect components of electronic systems.
....................................
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents are defined as cash in
banks and investment instruments having maturities of ninety-one days or less on
their acquisition date.
INVENTORIES. Inventories are stated at the lower of cost (first-in, first-out
method) or market (net realizable value).
PROPERTY, PLANT AND EQUIPMENT. Depreciation is provided by the straight-line
method over the estimated useful lives of buildings, ranging from 30 to 45
years, and machinery and equipment, ranging from 3 to 12 years, for financial
reporting purposes. Depreciation expense includes the amortization of buildings
capitalized under lease obligations in accordance with Statement of Financial
Accounting Standards No. 13 - "Accounting for Leases." Depreciation expense was
$4,405 in 1999, $8,507 in 1998, and $5,383 in 1997.
INCOME TAXES. The Company follows SFAS No. 109 - "Accounting for Income Taxes,"
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
financial statements or the income tax returns. In estimating future tax
consequences, SFAS No. 109 generally considers all expected future events other
than enactments of changes in the tax laws or rates.
RESEARCH, DEVELOPMENT AND ENGINEERING. Research, development, and engineering
expenditures for the creation and application of new and improved products and
manufacturing processes were approximately $3,500 in 1999, $3,950 in 1998 and
$3,400 in 1997. Research, development and engineering costs are charged to
operations as incurred.
GOVERNMENT INCENTIVE GRANTS. The Company has received an incentive grant, from
the government in Scotland related to capital expenditures for equipment and
machinery over the period of 1995-1999. The Company's policy is to recognize
this capital expenditure grant over the estimated useful life of the equipment
and machinery. The financial statements include grant income of approximately
$291 in 1999, $254 in 1998 and $272 in 1997.
DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make certain estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates. The Company's periodic
filings with the Securities and Exchange Commission include, where
applicable, disclosures of estimates, assumptions, uncertainties and
concentrations in products, sources of supply and markets that could affect
the financial statements and future operations of the Company.
CONCENTRATION OF CREDIT RISK. Financial instruments that potentially subject the
Company to concentrations of credit risk consist principally of cash investments
and trade receivables. The Company has cash investment policies that limit the
amount of credit exposure to any one issuer and restrict placement of these
investments to issuers evaluated as credit worthy. Concentrations of credit risk
with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base and their dispersion across
many different industries and geographies.
FOREIGN CURRENCY. The accounts of foreign subsidiaries are measured using local
currency as the functional currency. For these operations, assets and
liabilities are translated into U.S. dollars at period-end exchange rates, and
income and expense accounts are translated at average monthly exchange rates.
Net exchange gains or losses resulting from such translation are excluded from
net income and accumulated in a separate component of shareholders' equity.
Gains and losses from completed foreign currency transactions are included as a
separate component of other income (expense) in the consolidated statements of
operations.
SEGMENT REPORTING. The Company operates in one industry. The Company identifies
operating segments by geographical location.
NEW ACCOUNTING STANDARDS. The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share" in 1998. SFAS No. 128 specifies
the computation, presentation, and disclosure requirements for earnings per
share (EPS). This Statement's objective is to simplify the computation of
earnings per share and to make the U.S. standard for computing earnings per
share more comparable with EPS standards of other countries.
SFAS No. 130, "Reporting Comprehensive Income", establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. The Company adopted this standard in fiscal 1999.
SPAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", specifies the way that public business enterprises report
information about operating segments in annual financial statements and requires
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company adopted this standard in fiscal 1999.
14
<PAGE>
....................................
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for hedging activities and for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives). It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Company will adopt the new standard in fiscal 2001. The Company does not expect
adoption of this standard will have a material impact on its financial
statements.
INTERNATIONAL OPERATIONS. In connection with its international operations, the
Company is subject to various risks inherent in foreign activities. These risks
may include unstable economic and political conditions, changes in trade
policies and regulations of countries involved, fluctuations in currency
exchange rates and requirements for letters of credit or bank guarantees. Most
of the Company's international operations are in western European countries,
mainly Great Britain, Belgium and the Netherlands, and to a lesser degree in the
Asian countries of Japan, Singapore and Malaysia. The Company is exposed to
risks associated with fluctuations in exchange rates, including the Euro, Swiss
franc, pound sterling, Deutsche mark, Malaysian ringgit and the Netherlands
guilder. The Company limits its exposure to these risks by incurring and paying
for its expenses in the same currencies as those of its revenue. It is the
Company's policy not to enter into derivative financial instruments for
speculative purposes. There were no significant derivative foreign currency
instruments outstanding as of June 30, 1999.
COMMON SHARE DATA. Per common share data for 1999, 1998 and 1997 is presented
using basic and dilutive weighted average number of common shares outstanding.
The following is the reconciliation of the numerators and denominators used to
compute the net income (loss) per common share, basic and dilutive:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMERATOR
Income (loss) available to common shareholders $ 390 (6,181) 2,355
DENOMINATOR
Basic-weighted shares outstanding (in thousands) 4,904 4,892 4,892
Stock options 1 -- 19
- ------------------------------------------------------------------------------------------------------------------------
Dilutive-weighted shares outstanding (in thousands) 4,905 4,892 4.911
Net income (loss) per common share, basic and dilutive $ .08 (1.26) .48
- ------------------------------------------------------------------------------------------------------------------------
....................................
NOTE 3 INVENTORIES
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Inventories consist of the following:
Finished goods $ 4,092 2,970 3,873
Work in process 5,569 5,595 5,933
Raw material and supplies 971 1,497 1,294
- -------------------------------------------------------------------------------------------------------------------------
Total $10,632 10,062 11,100
....................................
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
A summary of property, plant and equipment follows:
Land $ 737 732 808
Buildings 9,481 12,942 12,464
Machinery and equipment 51,361 49,416 46,778
- -------------------------------------------------------------------------------------------------------------------------
61,579 63,090 60,050
Less accumulated depreciation and amortization 43,040 43,666 38,862
- -------------------------------------------------------------------------------------------------------------------------
Total $18,539 19,424 21,188
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
15 Robinson Nugent, Inc. and Subsidiaries
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In Thousands Except Per Share Data
....................................
NOTE 5 ACCRUED EXPENSES
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A summary of accrued expenses follows:
Compensation $1,195 955 1,560
Commissions 1,012 721 741
Distributor allowances 441 447 885
Deferred grant income 617 -- 217
Provision for plant relocation 119 1,432 --
Other 1,985 1,928 2,157
- -------------------------------------------------------------------------------------------------------
Total $5,369 5,483 5,560
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
In November of 1998, the Company moved its cable assembly operations in Kings
Mountain, North Carolina, to a leased facility in Reynosa, Mexico. The 1998
provision for the relocation of this facility included the present value of the
remaining future lease payments on the vacated building, plus accruals for
severance payments and other costs related to this relocation. In 1999,
management determined that $901 of the future lease payments were long-term in
nature.
....................................
NOTE 6 DEBT
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long-term debt consists of the following:
United States' obligation:
Loans under a long-term credit agreement $6,800 6,180 4,000
7.75% fixed rate real estate mortgage, payable
in monthly installments through October 2005, with interest 1,242 -- --
Foreign obligations:
6.938% fixed-rate real estate mortgage, payable in annual installments
through 2004, with interest 1,122 1,335 1,594
Other long-term debt 301 459 718
- ----------------------------------------------------------------------------------------------------------------------------------
Total 9,465 7,974 6,312
Less current installments of long-term debt 449 367 386
- ----------------------------------------------------------------------------------------------------------------------------------
Long-term debt $9,016 7,607 5,926
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In September 1998, the Company agreed to amend the long-term credit agreement
with its primary lending institution. This agreement provides for up to $8
million in revolving credit loans and is secured by a lien on U.S.
inventories and receivables. The Company had $.6 million in unused and
available credit under this agreement and $.6 million in additional standby
letters of credit at June 30, 1999. Interest rates under this revolver are
dependent on the type of loan advance selected. The first type of basic
advance rate is equal to the London Interbank Offered Rate (LIBOR) plus
2.25%, (approximately 7.25% as of June 30, 1999). Second interest rate
utilizing the bank's prime interest rate minus 1/2 of 1%, 7.27% as of June
30th is also available. This agreement includes various operating and
financial covenants, including a minimum current ratio, a maximum ratio of
indebtedness to tangible net worth, a minimum fixed charge coverage ratio and
a funded debt ratio. The agreement terminates in December 2001, and can be
extended by mutual consent of the Company and the bank.
The aggregate maturities of long-term debt for the five years ending June 30,
2004, amount to $449 in 2000, $379 in 2001, $7,112 in 2002, $274 in 2003 and
$1,251 in 2004 and thereafter.
During 1999, the Company entered into a multi-year interest rate swap agreement
with its primary lending institution. This agreement covers $3.0 million of
floating rate long-term debt, and effectively fixes the interest rate on these
borrowings at 7.59%. Total interest paid, including the interest rate swap
agreement, under the long-term debt agreements was $710 in 1999, $539 in 1998,
and $363 in 1997.
Total interest paid under the short-term bank borrowings was $8 in 1999, $3 in
1998 and $315 in 1997.
In addition, the Company has short-term lines of credit available in Malaysia
and Belgium at interest rates of 13.80% and 8.75%, respectively. Total unused
and available credit under these agreements was approximately $132, as of June
30, 1999.
The weighted average interest rate on short-term debt was 8.5% in 1999 and 1998.
There was no outstanding short-term debt as of June 30, 1997.
Property, plant and equipment with an approximate net book value of $3,463 is
pledged as collateral under the various long-term debt agreements.
- --------------------------------------------------------
16
<PAGE>
....................................
NOTE 7 FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's noncurrent financial liabilities are shown
below. The fair values of current assets and current liabilities are assumed to
be equal to their reported carrying amounts.
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair Carrying Fair
AMOUNT VALUE Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt $9,465 $9,372 7,974 7,872 6,312 6,190
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The valuations for long-term debt, including $44 reduction in fair value for the
interest rate swap agreement, are determined based on the expected future
payments discounted at risk-adjusted rates.
....................................
NOTE 8 INCOME TAXES
The provision (benefit) for income taxes follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ (959) (1,132) 1,098
State (154) (38) 172
Foreign 251 318 303
- ----------------------------------------------------------------------------------------------------------
Total current (862) (852) 1,573
Deferred:
Federal 897 (1,149) (44)
State 190 (173) (2)
Foreign (527) (87) (33)
- ----------------------------------------------------------------------------------------------------------
Total deferred 560 (1,409) (79)
- ----------------------------------------------------------------------------------------------------------
Total $ (302) (2,261) 1,494
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The following reconciles income taxes computed at the U.S. Federal statutory
rate to income taxes reported for financial reporting purposes:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rate $ 30 (2,870) (1,309)
Non-U.S. tax-exempt (earnings) losses 2 729 (146)
Foreign loss carryforward (483) -- --
Tax-exempt earnings of FSC -- -- (89)
Foreign taxes, net of U.S. tax credit 118 197 293
State and local taxes, net of U.S. Federal income tax 24 (139) 112
Research and experimentation credit (58) (59) (44)
Other 65 (119) 59
- ------------------------------------------------------------------------------------------------------------
Income taxes as reported $(302) (2,261) 1,494
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
No U.S. Federal income taxes have been provided at June 30, 1999, on
approximately $6,923 of accumulated earnings of certain foreign subsidiaries
since the Company plans to reinvest such amounts for an indefinite future
period.
The Company made income tax payments, net of tax refunds received, of $265 in
1999, $770 in 1998 and $1 in 1997.
The net current and non-current components of deferred income taxes recognized
in the balance sheet at June 30 follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net current assets $609 745 602
Net non-current assets (liabilities) 4 428 (838)
- ------------------------------------------------------------------------------------------------------------
Net assets (liabilities) $613 1,173 (236)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------------------------
17 Robinson Nugent, Inc. and Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In Thousands Except Per Share Data
....................................
NOTE 8 INCOME TAXES (CONTINUED)
The tax effect of the significant temporary differences that comprise the
deferred tax assets and liabilities at June 30 follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards $1,263 1,504 815
Tax credits carryforward 248 -- --
Employee compensation and benefits 311 355 322
Inventories and other current assets 363 247 258
State and local income taxes,
net of U.S. Federal income tax benefit 28 141 23
Plant closing settlement costs 333 541 --
Other accrued expenses 400 68 42
- -------------------------------------------------------------------------------------------------------------------
Total deferred tax assets $2,946 2,856 1,460
DEFERRED TAX LIABILITIES:
Depreciation and amortization $(1,468) (179) (881)
- -------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (1,468) (179) (881)
Net deferred tax assets before valuation allowance 1,478 2,677 579
Deferred tax assets valuation allowance (865) (1,504) (815)
- -------------------------------------------------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 613 1,173 (236)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
During 1999, the Company recognized tax benefits of approximately $44 related to
net operating loss carryforward and approximately $248 related to tax credit
carryforwards in the U.S. operations. Certain carryforwards begin to expire
after June 30, 2004. Management anticipates future taxable income from U.S.
operations will utilize these tax assets before their expiration.
At June 30, 1999, certain foreign subsidiaries have accumulated foreign net
operating loss carryforwards of $2,570 (tax benefit of $865). Under foreign
jurisdictions, these loss carryforwards do not expire. Management is unable at
this time to project future taxable income that will utilize the deferred
benefit of these loss carryforwards. As a result, a valuation allowance has been
established of $865. The tax benefit of the remaining carryforwards will be
recognized when management is able to project future taxable income of these
foreign subsidiaries.
At June 30, 1999, management projected taxable income in Scotland which will
utilize the deferred benefit of correlative foreign net operating loss
carryforwards. As a result the valuation allowance was reduced by approximately
$483. Approximately $85 of this valuation allowance was used in 1997.
The change in the deferred income tax expense (benefit) represents the effect of
changes in the amounts of temporary differences. The tax effect of changes in
those temporary differences is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Depreciation and amortization $1,289 (702) (63)
State and local income taxes, net of U.S. Federal income tax benefit 126 (118) 20
Employee compensation and benefits 45 (33) --
Plant closing settlement costs 208 (541) --
Accrued expenses (361) (26) (63)
Net operating loss (382) -- --
Tax credits (248) -- 10
Inventories and other current assets (117) 11 17
- -----------------------------------------------------------------------------------------------------------------------
Total $ 560 (1,409) (79)
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
....................................
NOTE 9 LEASED ASSETS AND LEASE COMMITMENTS
The consolidated financial statements include land and buildings under a capital
lease as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land and buildings $ 542 497 802
Less accumulated amortization 121 89 118
- -----------------------------------------------------------------------------------------------------------
Net assets under a capitalized lease $ 421 408 684
</TABLE>
The Company leases office and plant facilities, automobiles, computer systems,
and certain other equipment under noncancelable operating leases, which expire
at various dates. Taxes, insurance, and maintenance expenses are normally
obligations of the Company. Rental expenses charged to operations under
operating leases amounted to $1,538 in 1999, $1,359 in 1998 and $1,312 in 1997.
- ---------------------------------------
18
<PAGE>
....................................
NOTE 9 LEASED ASSETS AND LEASE COMMITMENTS (CONTINUED)
A summary of future minimum lease payments follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30
CAPITAL OPERATING
LEASE LEASES
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 41 $ 1,703
2001 41 1,349
2002 38 1,036
2003 -- 940
2004 -- 470
Later Years -- 752
- ----------------------------------------------------------------------------------------------
Total minimum lease payments 120 6,250
Less amount representing interest 15
- ----------------------------------------------------------------------------------------------
Present value of net minimum lease payments
(included in long-term debt) $ 105
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
....................................
NOTE 10 EMPLOYEE BENEFITS
The Company has a defined contribution pension plan and a defined contribution
401(k) plan for eligible employees in the United States. Annual contributions by
the Company to the defined contribution pension plan are based upon specified
percentages of the annual compensation of participants. Under the terms of the
401(k) plan, employees may contribute a portion of their compensation to the
plan and the Company makes matching contributions up to a specified level. The
contributions charged to expense under the defined contribution plans were $463
in 1999, $524 in 1998 and $488 in 1997.
Personnel in Europe and Asia are provided retirement benefits under various
programs that are regulated by foreign law. Annual contributions are generally
regulated in amount and shared equally by the Company and its employees. The
Company's share of annual contributions to the aforementioned foreign defined
contribution plans was $121 in 1999, $254 in 1998 and $380 in 1997.
....................................
NOTE 11 STOCK OPTION PLANS
In September 1993, a stock option plan for eligible employees and nonemployee
directors was adopted by the Board of Directors and subsequently approved, in
November 1993, by the shareholders of the Company. The new plan replaced plans
that expired in April 1993. Under the terms of the new plan, the Board of
Directors is authorized to grant options in the aggregate of 500 common shares
of the Company to eligible employees and a predetermined annual number of shares
to nonemployee directors at prices not less than the market value at the date of
grant. In 1998, the Board of Directors authorized an additional 500 common
shares to the pool of shares available for option grants under the terms of the
plan. Fifty percent of the options are exercisable after the first anniversary
of the date of grant. One hundred percent of the options are exercisable after
the second anniversary date of the grant. All options expire ten years after the
date of the grant. Terms and conditions of the new plan are similar to those of
the expired plans.
The following is a summary of the option transactions under the expired plans
and the plan adopted in 1993.
<TABLE>
<CAPTION>
1999 SHARES WEIGHTED AVERAGE OPTION PRICE PER SHARE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares under option at beginning of year 577 $6.30
Granted 120 4.13
Expired (28) 7.00
Cancelled (110) 5.33
- ------------------------------------------------------------------------------------------------------------
Shares under option at end of year 559 $5.99
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
1998 SHARES WEIGHTED AVERAGE OPTION PRICE PER SHARE
- ---------------------------------------------------------------------------------------------------------------------
Shares under option at beginning of year 500 $ 6.56
Granted 144 6.25
Expired (19) 10.88
Cancelled (43) 7.09
Exercised (5) 6.17
- -------------------------------------------------------------------------------------------------------------
Shares under option at end of year 577 $ 6.30
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------
19 Robinson Nugent, Inc. and Subsidiaries
<PAGE>
- ----------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In Thousands Except Per Share Data
....................................
NOTE 11 STOCK OPTION PLANS (CONTINUED)
<TABLE>
<CAPTION>
1997 SHARES WEIGHTED AVERAGE OPTION PRICE PER SHARE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares under option at beginning of year 385 $ 7.62
Granted 204 5.19
Expired (3) 11.50
Cancelled (86) 7.92
- -------------------------------------------------------------------------------------------------------------
Shares under option at end of year 500 $ 6.56
</TABLE>
A total of 386, 360 and 282 shares at an average option price per share of
$6.52, $6.59 and $7.34 were exercisable and 441, 532 and 130 shares were
available for future grants at June 30, 1999, 1998 and 1997 respectively.
The following table summarizes information about stock options outstanding at
June 30, 1999;
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISED
EXERCISE PRICES AT 6/30/99 CONTRACTUAL LIFE PRICE AT 6/30/99 PRICE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$4.00 to 5.875 292 6.36 $4.41 169 $ 4.62
$6.00 to 7.375 123 5.80 $6.39 72 $ 6.33
$8.625 to 9.25 144 5.35 $8.85 145 $ 8.85
$4.00 to 9.25 559 5.98 $5.99 386 $ 6.52
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of options granted during 1999, 1998 and 1997
were $1.91, $2.19 and $1.64, respectively.
The fair value of each stock option granted in 1999, 1998 and 1997 was estimated
as of the date of the grant using the Black-Scholes option-pricing model with
the following assumptions for 1999, 1998 and 1997 respectively: dividend yield
of 0%, 1.6% to 2.8% and 1.3% to 2.6%; volatility factor of 45%, 37% and 32%; a
range of risk-free interest rates of 4.7% to 5.1%, 5.5% to 6.0% and 5.9% to
6.7%; and expected lives of 5 years for all years.
In accordance with APB 25, the Company has not recognized any compensation cost
for the stock option plan. Had compensation cost for the Company's stock option
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) As reported $390 (6,181) 2,355
Pro forma 164 (6,471) 2,183
Earnings (loss) per share As reported 0.08 (1.26) .48
Pro forma 0.03 (1.32) .45
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts.
....................................
NOTE 12 STOCK PURCHASE PLAN
In 1993, the Company adopted an employee stock purchase plan for key employees
that provided for participants of the plan to purchase common shares of the
Company on the open market through an independent trustee. The plan permitted
the Board of Directors to authorize interest-free loans to the participants for
the purchase of stock. Shares are held in trust as collateral for the loans,
which are payable by the participants of the plan over a period not to exceed
ten years. The plan also provided for participants to receive from the Company a
matching number of common shares of the Company, based upon a vesting schedule
and the participants' level of purchased shares. The plan terminated in 1994
with respect to new participation. The loans ($72 in 1999, $98 in 1998 and $158
in 1997) and deferred compensation charges ($5 in 1999, $8 in 1998 and $19 in
1997) associated with the plan are classified as a reduction of shareholders'
equity. The amortization of the deferred compensation charged to expense was $3
in 1999, $11 in 1998 and $51 in 1997.
- --------------------------------------
20
<PAGE>
....................................
NOTE 13 SHAREHOLDER RIGHTS PLAN
The Company adopted a shareholder rights plan in April 1988 for the purpose of
deterring coercive or unfair takeover tactics and encouraging a potential
acquirer to negotiate with the Board of Directors before attempting to gain
control of the Company. Under the terms of the plan, rights to purchase
additional common shares were distributed as a dividend to shareholders of
record on May 6, 1988, and will be distributed with respect to shares which are
issued after May 6, 1988. The rights are attached to each issued and outstanding
share and were to expire on April 15, 1998. The Plan was amended in January 1998
to extend the expiration date to April 15, 2008. At issuance, the rights are not
exercisable and are not detachable from common shares. Accordingly, the rights
do not provide any immediate value to shareholders. The Company may redeem the
rights for one cent per right at any time prior to becoming exercisable. The
rights become exercisable ten days after public disclosure that a person
acquired 20% or more, or commenced a tender offer or exchange offer for 30% or
more, of the issued and outstanding common shares, unless such acquisition or
tender offer was approved in advance by the disinterested directors of the
Company. Thereafter, the rights will trade separately from the common shares,
and separate certificates representing the rights will be issued. Each right
grants an eligible holder the right to purchase for $40.00 additional common
shares of the Company, or in the event of certain mergers or business
combinations, additional shares of the survivor's common shares. The number of
common shares to be issued upon exercise of a right is based upon the then
current market value of the common shares, subject to certain adjustments.
....................................
NOTE 14 SETTLEMENT OF PATENT INFRINGEMENT CLAIM
In April 1997, the Company accepted a lump sum payment and recognized pretax
income of $500 ($315 after related income taxes) from a settlement of a patent
infringement claim against a competitor.
....................................
NOTE 15 SIGNIFICANT CUSTOMER
During 1999, the Company had sales of approximately $8,400 to a single customer,
which was in excess of 10% of total net sales for that year. No sales to a
single customer exceeded 10% of total sales in 1998 or 1997.
....................................
NOTE 16 EMPLOYEE HEALTH INSURANCE PLAN
The Company maintains a self-insurance program for that portion of health care
costs not covered by insurance. The Company's costs are limited to $100 a person
each calendar year, with an aggregate annual limitation, for the plan year
ending December 31, 1999, of $804.
....................................
NOTE 17 BUSINESS SEGMENT AND FOREIGN SALES
The Company operates within the electronic connectors segment of the electronics
industry. Products are sold throughout the world for use by manufacturers of
computers, telecommunications equipment, automobiles, industrial controls,
medical instrumentation, and a wide variety of other products to interconnect
components of electronic systems. The sales and marketing operations outside the
United States are conducted in Japan, Singapore, the Netherlands and Sweden.
During 1999, the Company had manufacturing operations located in the United
States, Mexico, Scotland, Belgium, and Malaysia.
- --------------------------------------
21 Robinson Nugent, Inc. and Subsidiaries
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In Thousands Except Per Share Data
....................................
<TABLE>
<CAPTION>
NOTE 17 BUSINESS SEGMENT AND FOREIGN SALES (CONTINUED)
SALES 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States
Domestic $44,042 46,955 52,849
Export:
Europe -- 78 57
Asia -- 7 194
Rest of World 2,296 1,653 2,128
- ---------------------------------------------------------------------------------------------------------------
Total sales to customers 46,338 48,693 55,228
Intercompany 4,950 7,342 8,447
- ---------------------------------------------------------------------------------------------------------------
Total United States 51,288 56,035 63,675
Europe
Domestic 17,486 18,472 21,552
Export:
Asia -- -- 422
- ---------------------------------------------------------------------------------------------------------------
Total sales to customers 17,486 18,472 21,974
Intercompany 3,024 3,806 4,293
- ---------------------------------------------------------------------------------------------------------------
Total Europe 20,510 22,278 26,267
Asia
Domestic 6,168 6,981 7,543
Export to rest of world -- -- 95
- ---------------------------------------------------------------------------------------------------------------
Total sales to customers 6,168 6,981 7,638
Intercompany 3,763 4,128 2,883
- ---------------------------------------------------------------------------------------------------------------
Total Asia 9,931 11,109 10,521
Eliminations (11,737) (15,276) (15,623)
- ---------------------------------------------------------------------------------------------------------------
Consolidated $69,992 74,146 84,840
- ---------------------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
- ---------------------------------------------------------------------------------------------------------------
United States $39,990 36,274 39,310
Europe 14,568 14,544 16,891
Asia 3,843 3,417 5,739
Eliminations (11,775) (11,933) (12,244)
- ---------------------------------------------------------------------------------------------------------------
Consolidated $46,626 42,302 49,696
- ---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
- ---------------------------------------------------------------------------------------------------------------
United States $ 422 (6,298) 3,939
Europe (249) (2,217) 205
Asia (85) 73 (295)
- ---------------------------------------------------------------------------------------------------------------
Consolidated $ 88 (8,442) 3,849
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Intercompany sales of finished products were generally priced to "share"
profits based upon current market conditions. Items requiring further
processing were priced at cost plus a fixed percentage.
....................................
NOTE 18 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEAR ENDED JUNE 30, 1999 SEPT. 30, 1998 DEC. 31, 1998 MAR. 31, 1999 JUNE 30, 1999 TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 14,914 17,502 18,657 18,919 69,992
Gross profit $ 2,828 3,877 4,808 4,825 16,338
Net income (loss) $ (1,317) 39 508 1,160 390
Net income (loss) per common share, basic and dilutive $ (0.27) 0.01 0.10 0.24 0.08
Dividends per common share $ -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
...............
22
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEAR ENDED JUNE 30, 1998 SEPT. 30, 1997 DEC. 31, 1997 MAR. 31, 1998 JUNE 30, 1998 TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 18,543 19,576 19,658 16,369 74,146
Gross profit $ 3,386 3,524 2,929 1,750 11,589
Net loss $ (132) (232) (3,288) (2,529) (6,181)
Net loss per common share, basic and dilutive $ (.03) (.05) (.67) (.52) (1.26)
Dividends per common share $ .03 .03 .03 .03 .12
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) per share amounts are calculated independently for each of
the periods presented. The sum of the quarters may not equal the full year
net income (loss) per share amounts.
Customer orders in the fourth quarter ended, June 30, 1999 were at $17.9
million, up 37 percent from orders of $13.1 million in the same quarter a
year ago. For the year ended June 30, 1999, orders were $72.8 million,
compared to $69.9 million in the prior year, an increase of $2.9 million or 4
percent. The backlog of unshipped orders at June 30, 1999 was $13.0 million,
compared to $10.2 million at June 30, 1998. Sales were $18.9 million,
compared to $16.4 million in the fourth quarter of the prior year. Robinson
Nugent increased its sales of higher margin telecom/data-com equipment
connectors in the U.S. and smart card reader connector and memory card
connector products in Europe.
The Company reported net income of $1.2 million (24 cents per common share)
for the fourth quarter ending June 30, 1999. These results reflect a
turnaround in the profitability of the Company when compared to a net loss of
$2.5 million (a loss of 52 cents per common share, including $2.0 million of
special and unusual charges) in the same quarter of the prior year. The
operating results for the quarter include $0.4 million of expenses due to
changes in foreign currency exchange rates. These unfavorable changes in
currency exchange rates were experienced primarily in the Company's European
operations. The Euro weakened relative to the British pound and both the Euro
and British pound weakened relative to the U.S. dollar. The net effect of
these changes reduced European gross profits by approximately $0.2 million
and generated an additional $0.2 million of currency transaction losses in
this period. Earnings in the fourth quarter also include a $0.5 million tax
benefit related to the value of accumulated net operating loss carryforwards
of the Company's operations in Scotland. The decision to recognize the value
of these benefits in the quarter was based upon the earnings that have been
generated in recent quarters by the Scottish operations and the anticipation
of future taxable earnings in this operating division.
The results of operations for the year include special and unusual costs of
$1.6 million. These costs include $1.1 million related to the implementation
of a new worldwide information and enterprise resource planning system, for
the U.S., Mexico and Europe, and $0.5 million spent in the first quarter to
complete the move of the cable assembly operations from North Carolina to
Mexico. The Company expensed approximately $0.2 million of the costs related
to this new system in the current quarter.
.....................................
INDEPENDENT AUDITORS' REPORT
.....................................
To the Board of Directors and Shareholders of Robinson Nugent, Inc.:
We have audited the accompanying consolidated balance sheets of Robinson
Nugent, Inc. and subsidiaries, as of June 30, 1999 and 1998, and the related
consolidated statements of operations and comprehensive income, shareholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The consolidated financial statements of the
Company as of and for the year ended June 30, 1997 were audited by other
auditors, whose report dated August 5, 1997, expressed an unqualified
opinion on those consolidated statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Robinson Nugent, Inc. and
subsidiaries as of June 30, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Louisville, Kentucky
August 3, 1999
Robinson Nugent, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
...........................
23
<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.
ROBINSON NUGENT, INC.
Date: 9/24/99 By: /s/ Larry W. Burke
---------------- -----------------------------------
Larry W. Burke, President and Chief
Executive Officer
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.
Date: 9/24/99 By: /s/ Samuel C. Robinson
---------------- -----------------------------------
Samuel C. Robinson, Director
Date: 9/24/99 By: /s/ Larry W. Burke
---------------- -----------------------------------
Larry W. Burke, Director,
President and Chief Executive Officer
(Principal Executive Officer)
Date: 9/24/99 By: /s/ Patrick C. Duffy
---------------- -----------------------------------
Patrick C. Duffy, Director
Date: 9/24/99 By: /s/ Richard L. Mattox
---------------- -----------------------------------
Richard L. Mattox, Director
Date: 9/24/99 By: /s/ Jerrol Z. Miles
---------------- -----------------------------------
Jerrol Z. Miles, Director
Date: 9/24/99 By: /s/ James W. Robinson
---------------- -----------------------------------
James W. Robinson, Director
17
<PAGE>
Date: 9/24/99 By: /s/ Richard W. Strain
---------------- -----------------------------------
Richard W. Strain, Director
Date: 9/24/99 By: /s/ Ben M. Streepey
---------------- -----------------------------------
Ben M. Streepey, Director
Date: 9/24/99 By: /s/ Donald C. Neel
----------------- -----------------------------------
Donald C. Neel, Director
Date: 9/24/99 By: /s/ Robert L. Knabel
----------------- -----------------------------------
Robert L. Knabel, Vice President,
Treasurer and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
18
