-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OkkVh7M0vSP72ozwWxF8vxsAyrV3vq7DoCg/pqTuXDgjanQpJi1p1A6cm8FunHfJ TOA3QfcVZz4CCLadHK044w== 0000002070-98-000034.txt : 19980929 0000002070-98-000034.hdr.sgml : 19980929 ACCESSION NUMBER: 0000002070-98-000034 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980928 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACME ELECTRIC CORP CENTRAL INDEX KEY: 0000002070 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 160324980 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08277 FILM NUMBER: 98716385 BUSINESS ADDRESS: STREET 1: 400 QUAKER RD CITY: EAST AURORA STATE: NY ZIP: 14052 BUSINESS PHONE: 7166553800 MAIL ADDRESS: STREET 1: 400 QUAKER ROAD CITY: EAST AURORA STATE: NY ZIP: 14052 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the fiscal year ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ________ to ________ Commission file number 1-8277 ACME ELECTRIC CORPORATION ------------------------ (Exact name of Registrant as specified in its charter) STATE OF NEW YORK 16-0324980 ----------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 Quaker Road, East Aurora, New York 14052 --------------------------------------- ----- (Address of principal corporate offices) (Zip Code) 716/655-3800 ----------- (Telephone Number) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Common Stock - Par Value $1.00 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non-affiliates of the Registrant as of September 11, 1998. Common Stock, Par Value $1 Per Share, $21,186,906 Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of September 11, 1998. Common Stock, Par Value $1 Per Share, 5,056,541 shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended June 30, 1998, are incorporated by reference into Parts I and II. Portions of the Registrant's definitive proxy statement for the annual meeting of shareholders to be held on October 30, 1998, are incorporated by reference into Part III. PART I ITEM 1 - BUSINESS Business The Registrant was duly organized and incorporated under the laws of the State of New York on April 26, 1946, as successor to a business founded in 1917. Its sole line of business is the design and manufacture of power conversion equipment for electronic and electrical systems. Principal markets encompass the computer, test equipment, information systems, military, aerospace and telecommunications and a variety of industrial, commercial and residential fields for applications that require conversion of electrical energy from one useable state to another. Products are distributed to customers through the Registrant's sales force, independent sales representatives and wholesale distributors. The business of the Registrant is not seasonal in nature. Competition Competitive conditions within the power conversion industry are intense. The Registrant competes with many other companies, some of which have far greater resources than the Registrant. The principal methods of competition within the industry are price, service and product performance. To meet this competition, the Registrant attempts to maintain high standards of engineering, manufacturing and customer service. Due to the number and variety of competitors, reliable data relative to the Registrant's competitive position within the power conversion industry would be difficult to develop and is not known nor believed to exist. Customers Power conversion equipment sales encompass markets wherein the demands of any one customer may vary greatly due to changes in technology and market strategy. One customer of the Company accounted for 17.2%, 16.2%, and 14.8%, respectively, of fiscal 1998, 1997, and 1996 sales and 3.7%, 10.0%, and 8.2%, respectively, of June 30, 1998, 1997, and 1996, accounts receivable. This customer's program is scheduled for curtailment in January 1999, and, accordingly, the Company is currently addressing alternatives to replace this business. Backlog The backlog of orders believed to be firm totaled approximately $15,502,000 at June 30, 1998, compared with approximately $16,946,000 at June 30, 1997. The lower backlog at June 30, 1998, compared with the backlog at June 30, 1997, reflects a reduced backlog of orders in the Registrant's aerospace business, as improved production capabilities supported a return to on-time deliveries on several delinquent customer programs, thereby reducing the end of the year cumulative backlog. Backlog orders at June 30, 1998, are generally expected to be filled during the current fiscal year. Raw Materials The Registrant purchases materials in a semi-finished state from other manufacturers and distributors. Availability of materials is considered adequate to maintain current production levels. Patents The Registrant holds several technical patents and trademarks and is a party to certain patent applications. The extent of the effect of such patents and trademarks is, however, in the opinion of management, not material at this time. Licenses The Registrant is a party to several license agreements. The only material license, providing for the sale and manufacture of a proprietary fiber nickel cadmium battery (FNC), is an agreement with Hoppecke Batterie Systeme GmbH (formerly, Daug-Hoppecke Gesellschaft Fur Batteriesysteme mbH ("DAHO")) of Brilon, Germany. The Company recorded an impairment loss write-off as of June 30, 1994, assigning zero value to the FNC license agreement. Employees As of June 30, 1998, approximately 630 persons were employed by the Registrant. Research and Development Approximately 7% of the Registrant's employees are engaged in engineering design and product development. New products are continuously designed to satisfy specific customer requirements, and the cost of such development is expensed as incurred. Since satisfaction of many customers' needs requires advancing applicable technology, applied research is an integral part of engineering-design and product- development activities. The cost of such activities during the fiscal years ended June 30, 1998, 1997 and 1996, was $4,136,000, $4,552,000 and $4,735,000, respectively. Environmental Matters On June 27, 1997, the Registrant settled the claim by the New York State Department of Environmental Conservation (DEC) for contribution toward the costs of remediation of a municipal waste landfill site upon payment of $725,000. The Registrant did have insurance policies in effect during the period that waste was disposed of at the site, which the Company is pursuing for possible recovery. ITEM 2 - PROPERTIES The Registrant owns one plant in Lumberton, North Carolina, and leases two plant facilities; one in Cuba, New York (with an option to purchase in accordance with a $500,000 20-year industrial revenue bond financing, subject to repayment of $3,400,000 of subordinate financing) and a second in Tempe, Arizona. The Registrant further leases facility space at a second location in Cuba, New York, and a warehouse in Tempe, Arizona. Square Footage Square Footage Lease Ex- Location Owned Leased piration Date -------- -------------- -------------- ------------- Cuba, NY (New Plant) -- 91,000 April 2017 Cuba, NY (Old Plant) -- 72,000 August 1999 East Aurora, NY -- 10,000 April 2004 (Exec. Offices) Lumberton, NC 128,170 -- N/A Tempe, AZ -- 40,260 March 2005 ITEM 3 - LEGAL PROCEEDINGS The Registrant is involved in ordinary routine litigation incidental to its business, but none is expected to have a material impact upon the financial condition of the Registrant. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders through the solicitation of proxies or otherwise. PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Information relating to the market and market prices of the Registrant's common stock, the approximate number of Registrant's shareholders and its dividend history for the past two fiscal years appears on page 24 of the Registrant's Annual Report to Shareholders for the fiscal year ended June 30, 1998, submitted herewith as an exhibit and such information is incorporated by reference herein. Information relating to long-term debt for the past two fiscal years appears on page 19 of the Registrant's Annual Report to Shareholders for the fiscal year ended June 30, 1998, submitted herewith as an exhibit and such information is incorporated by reference. The Registrant suspended its quarterly cash dividend effective the third quarter of fiscal 1991. The loss in fiscal 1991 resulted in a deficit of retained earnings. As the Company continues to have a deficit of retained earnings, it does not expect to reinstate dividends in the foreseeable future. ITEM 6 - SELECTED FINANCIAL DATA A five-year summary of certain financial information relating to the financial condition and results of operations of the Registrant appears on page 13 of the Registrant's Annual Report to Shareholders for the fiscal year ended June 30, 1998, submitted herewith as an exhibit and such summary is incorporated by reference herein. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations appears on pages 10 through 13 of the Registrant's Annual Report to Shareholders for the fiscal year ended June 30, 1998, submitted herewith as an exhibit and such management's discussion and analysis is incorporated by reference herein. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements of the Registrant and its subsidiaries, appearing on pages 14 through 23 of the Registrant's Annual Report to Shareholders for the fiscal year ended June 30, 1998, submitted herewith as an exhibit, are incorporated by reference herein: Statements of Operations - Years Ended June 30, 1998, 1997, 1996 Balance Sheets - June 30, 1998 and 1997 Statements of Cash Flows - Years Ended June 30, 1998, 1997, 1996 Statements of Shareholders' Equity - Years Ended June 30, 1998, 1997, 1996 Notes to Financial Statements ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES There have been no disagreements with accountants on accounting and financial disclosure matters. PART III ITEM 10 - DIRECTORS AND OFFICERS OF THE REGISTRANT Identification of Directors -------------------------- Information on directors of the Registrant is contained under the caption "Election of Directors," presented in the Registrant's Definitive Proxy Statement filed pursuant to Regulation 14A and used in conjunction with the Registrant's 1998 Annual Meeting of Shareholders to be held on October 30, 1998, and is incorporated by reference herein. Identification of Executive Officers ----------------------------------- Summary of Business Experience Name, Age and Position Over the Last Five Years - ---------------------- ---------------------------------- Robert J. McKenna, 50, Chairman, Prior to assuming the position President and Chief Executive Officer currently held in October 1994, served as President and Chief Executive Officer since October 1993. John B. Drenning, Esq., 61 Partner, Phillips, Lytle, Secretary Hitchcock, Blaine,& Huber since 1990. Michael A. Simon, 41 Prior to assuming the position Corporate Controller and currently held in August 1997, Assistant Secretary served as Controller since 1992. Daniel K. Corwin, 51, Prior to assuming the position Vice President and General currently held in April 1997, Manager, Electronics Division served as Vice President and Chief Financial Officer since August 1994. Prior thereto, served as Vice President of Administration andChief Financial Officer since February 1992. Nicola T. Arena, 49 Prior to assuming the position Vice President and General currently held in February 1996, Manager, Power Distribution served as Director of Sales and Products Division Marketing for Aeroquip Cor- poration since 1991. John E. Gleason, 51, Prior to assuming the position Vice President and General currently held in April 1997, Manager, Aerospace Division served as Acting Manager of the Aerospace Division and Vice President and General Manager of the Electronics Division since August 1996. Prior thereto, served as Vice President and General Manager of the Electronics Division since May 1993. ITEM 11 - MANAGEMENT REMUNERATION AND TRANSACTIONS Information called for in response to this item is contained under the captions "Compensation of Executive Officers," "Employment Agreements," "1981 Incentive Stock Option Plan," "1989 Stock Option Plan," "Pension Plan," and the "1998 Stock Option Plan" proposal presented in the Registrant's definitive proxy statement filed pursuant to Regulation 14A and used in conjunction with the Registrant's 1998 Annual Meeting of Shareholders to be held on October 30, 1998, and is incorporated by reference herein. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information relating to security ownership of certain beneficial owners and management is contained under the captions "Voting Securities and Principal Holders Thereof" and "Nominees For Election As Directors" in the Registrant's definitive proxy statement filed pursuant to Regulation 14A and used in conjunction with the Registrant's 1998 Annual Meeting of Shareholders to be held on October 30, 1998, and is incorporated by reference herein. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain transactions have been referenced under Item 11. There are no other applicable relationships or related transactions. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements -------------------- See the accompanying Index to Financial Statements and Financial Statement Schedules on page F-1 of this report. 2. Financial Statement Schedules ----------------------------- See the accompanying Index to Financial Statements and Financial Statement Schedules on page F-1 of this report. 3. Exhibits Page Number or Incorporation -------- by Reference ---------------------------- 3a Certificate of Incorporation, Exhibit (3a) to Report on as amended to date Form 10-K for fiscal year ended June 30, 1989. 3b Bylaws, as amended to date Exhibit (3b) to Report on Form 10-K for fiscal year ended June 30, 1990. 11 Statement re. computation of Note (8) to Financial per share earnings Statements at page 21 of 1998 Annual Report to Shareholders. 13 Acme Electric Corporation 1998 Annual Report to Shareholders See Exhibit 13 attached. 22 1998 Proxy Statement Definitive Proxy Statement filed under Schedule 14A, September 16, 1998, File No. 001-08277. 23 a,b, Additional Exhibits - Pages F-4 through F-5 on c,d Undertakings Report on Form 10-K for fiscal year ended June 30, 1998. 27 Financial Data Schedule See Exhibit 27 attached. 99 Additional Exhibits - News Release, August 5, 1998, announcing fourth quarter and year-end results. See Exhibit 99 attached. (b) Reports on Form 8-K There were no reports filed on Form 8-K during the fifty-two-week period ending June 30, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature and Title Date /s/ 09/28/98 Robert D. Batting Director /s/ 09/28/98 Robert T. Brady Director /s/ 09/28/98 Randall L. Clark Director /s/ 09/28/98 G. Wayne Hawk Director /s/ 09/28/98 Terry M. Manon Director /s/ 09/28/98 Robert J. McKenna Director SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ACME ELECTRIC CORPORATION By: /s/ Date: 09/28/98 Robert J. McKenna Chairman, President and Chief Executive Officer By: /s/ Date: 09/28/98 Michael A. Simon Corporate Controller and Assistant Secretary ACME ELECTRIC CORPORATION INDEX TO FINANCIAL STATEMENTS The financial statements together with the report thereon of PricewaterhouseCoopers LLP dated August 5, 1998, appearing on pages 14 through 24 of the accompanying 1998 Annual Report to Shareholders, are incorporated by reference in this Form 10-K Annual Report. With the exception of the aforementioned information and the information incorporated in Items 5, 6, 7, 8 and 14 of this Form 10-K, the 1998 Annual Report to Shareholders is not to be deemed filed as part of this report. The following financial statement schedules should be read in conjunction with the financial statements in such 1998 Annual Report to Shareholders. Financial statement schedules not included in this Form 10-K Annual Report have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. FINANCIAL STATEMENT SCHEDULES 1998, 1997 AND 1996 Page Report of independent accountants F-2 Valuation and qualifying accounts and F-3 reserves (Schedule VIII) Consents of independent accountants F-4 and F-5 F-1 Report of Independent Accountants on Financial Statement Schedule To the Board of Directors of Acme Electric Corporation Our audits of the financial statements referred to in our report dated August 5, 1998 appearing on page 24 of the 1998 Annual Report to Shareholders of Acme Electric Corporation (which report and financial statements are incorporated in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in the Index to Financial Statements and Financial Statement Schedules which appears on page F-1 of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. /s/ PRICEWATERHOUSECOOPERS LLP Buffalo, New York August 5, 1998 F-2 ACME ELECTRIC CORPORATION SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (000's Omitted)
Additions Additions Balance At (Deductions) (Deductions) Deductions Balance Beginning Cost and Other From At End Of Year Expense Accounts Reserves Of Year ---------- ------------ ------------ ----- - ----- ------- Fiscal year ended June 30, 1998 Reserve deducted from assets: Allowance for doubtful accounts $ 523 $ 70 $ - $ 127 $ 466 Inventory obsolescence and impairment reserve $ 546 $ 582 $ - $ 347 $ 781 Fiscal year ended June 30, 1997 Reserve deducted from assets: Allowance for doubtful accounts $ 389 $ 464 $ - $330 $ 523 Inventory obsolescence and impairment reserve $ 399 $ 147 $ - $ - - $ 546 Restructuring Cost Reserves $ 399 $ - $ - $399 $ - Fiscal year ended June 30, 1996 Reserve deducted from assets: Allowance for doubtful accounts $ 451 $ 493 $ - $555 $ 389 Inventory obsolescence and impairment reserve $ 566 $ - $ - $167 $ 399 Restructuring Cost Reserves $ 399 $ - $ - $ - - $ 399
F-3 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (No. 2-45985, No. 2-92825, No. 33-79488, No. 33- 59521, No. 33-59523, and No. 333-27243) of Acme Electric Corporation of our report dated August 5, 1998 appearing on page 24 of the 1998 Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page F-2 of this Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLP Buffalo, New York September 28, 1998 F-4 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 2-89587) of Acme Electric Corporation of our report dated August 5, 1998 appearing on page 24 of the 1998 Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page F-2 of this Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLP Buffalo, New York September 28, 1998 F-5 EX-13 2 EXHIBIT 13 PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED JUNE 30, 1998. PAGES 10-11 OF ANNUAL REPORT FINANCIAL CONDITION Capital Resources and Liquidity The Company has financed its working capital requirements and capital spending with cash from operating revenues. Total outstanding debt, including capital lease obligations, was reduced by approximately $6,170,000 in 1998. Debt reduction was achieved as a result of strong cash flows generated from improved operational performances, including margin improvements throughout the Company's businesses. Further contributing to the positive cash flows, were reduced inventory positions and receivable balances, as a result of improved manufacturing processes (Demand Flow Technology) and focused collection efforts. Total working capital was reduced 9% from the prior year-end in support of 3% lower sales. The Company received performance incentive payments in the amount of $898,000 during the year as a result of meeting certain delivery schedules on one of its Aerospace customer programs. Income of $566,000 was recorded within the fiscal year, associated with these payments. The Company anticipates that the impact on fiscal 1999 cash flows associated with this program's incentives will approximate $915,000, after which time the incentive pricing is scheduled to end with product pricing to be negotiated. The Company utilized a significant portion of its $3.5 million tax- loss carry-overs to obtain federal tax refunds of approximately $250,000 from prior years and reduce the current year tax return liabilities by approximately $830,000. Dollars in thousand Years ended June 30 1998 1997 1996 Working Capital $15,242 $16,719 $21,095 Average Working Capital, as a percent of sales 17.6% 20.0% 22.6% Cash provided from Operations $ 7,585 $ 5,748 $ 3,549 Current Ratio 2.3 2.3 2.8 Long-Term Debt to Equity .7 1.2 1.5 Capital expenditures and foreign investment combined were $1,255,000, $2,531,000 and $3,963,000 for 1998, 1997 and 1996, respectively. Fiscal year 1998 capital expenditures included less than $125,000 of new business system costs, compared to $1,200,000 and $3,000,000 in 1997 and 1996, respectively. The Company anticipates capital expenditures will approximate $2,000,000 in 1999. The Company expects that operating activities in 1998 will produce net cash to fund these capital expenditures and any increase in working capital caused by increased business. In 1998, the Company secured a new credit agreement which continued to provide for two secured term loans, with a combined outstanding balance at June 30 of $3,595,000 with interest terms of the lower of prime plus .5% to 1.0% range, or the London Interbank Eurodollar rate plus 2.1% to 2.6% range, as determined by a debt-to-worth threshold measure. Further included is a secured line of credit allowing for revolving loans and letters of credit up to $21,000,000, with interest at the lower of prime plus .25% to .75% range, or the London Interbank Eurodollar rate plus 1.8% to 2.4% range, with an outstanding balance at June 30 of $6,088,000. The credit agreement provides for a maturity date on the line of credit of December 31, 2000, while the $2,362,000 and $1,233,000 term loans have principal payments due through January 2, 2000, and July 1, 2001, respectively. The Company has purchased an interest-rate protection instrument that provides for a maximum interest rate of 9.1% on $10,000,000 of notional principal debt, scheduled to expire January 22, 1999, and is required to be renewed through the term of the credit agreement. The credit agreement contains certain restrictive covenants, including, but not limited to, interest coverage and debt-to-worth ratios and an annual capital expenditure threshold. At June 30, 1998, the Company was in compliance with the covenants under the credit agreement. Management believes that the current financing arrangement will provide adequate liquidity for the future. Expectation for Year 2000 Compliance The Company is reliant on systems which utilize time-based mechanisms for asset and information management, and management recognizes that such systems may encounter problems affecting the capability thereof due to the year 2000 (Y2K) date change. The Company also has business relationships with vendors, product purchasers and financial institutions, among others, who are reliant on such systems. It is possible that, given problems encountered by the Company or these parties, the Company could send or receive improper billings, produce products which are unaccounted for, experience production shortages or delays, encounter collection delays, or report inaccurate data, among other things. The Company organized its Year 2000 Task Group during the third quarter of fiscal 1998, with member participation from all operating units, as well as the corporate office. Assessment programs have been developed and implemented at each of the locations. The assessment, which included an inventory and identification of the Company's mission critical information technology (IT) systems as well as non-IT systems (i.e. equipment micro controllers), is nearly completed. The most significant mission critical elements associated with the IT system area include the necessity to: (1) transition from the current AIX operating system version 4.1 to 4.2 and Oracle business application and data-base software version 10.6.1 and 7.1 to the year 2000 compliant Oracle versions 10.7.1 and 7.3, respectively; and (2) receive and install third-party software upgrades used in support of certain manufacturing routines, to include inventory management areas. The Company completed the installation of its new client-server based business information system in April 1998. This system, which runs vendor-provided off-the-shelf business enterprise software (Oracle) in a client-server environment, was installed by the Company over the past two years as an enhancement to the business, replacing the legacy mainframe system. This system provides the basis for a relatively inexpensive transition to a Y2K-compliant business system through vendor-provided software upgrades. Other third-party-provided customized software critical to the business operation has been identified, with assurances from the software provider that year 2000 compliant modifications are in process and should be available before calendar 1998 year-end. The Company has commenced, in a test environment, testing and implementing of the operating system and Oracle software upgrades. Anticipated completion of testing is to be no later than December 1998, with full implementation no later than Spring 1999. The primary risk factor will be the continuity of the Company's internal IS staffing. Existing software maintenance contracts cover the cost of the upgrades being installed. The Company is also testing its embedded systems used in the manufacture and distribution of its products for year 2000 compliance. Equipment manufacturers are being contacted for verification and solutions, if required, for potential Y2K issues where mission critical equipment utilizing microcontrollers have been identified. The Company anticipates completion of testing and solution implementations (including contingency plans, if applicable) by the middle of calendar year 1999. The Company is in the process of assessing the year 2000 readiness on the part of its supply base, as well as customers utilizing EDI avenues of commerce. Both vendor and customer letters requesting responses and/or certifications to their year 2000 readiness have been sent with scheduled follow-up contact to be pursued with those identified to be mission critical. The Company currently has not developed a contingency plan should aspects of the year 2000 project not be completed or vendors and customers fail to insure their Y2K readiness. The Company does intend to create a contingency plan for those areas of the business deemed critical to business continuance by September 1999. The Company has budgeted the necessary funds to address the year 2000 project costs. The Company believes that the incremental costs of year 2000 compliance activities will not be material, as the recently installed $4.4 million new business system supports the extensive use of packaged software which is now date compliant or will be made date compliant by installing the vendor-supplied updates. The Company anticipates that additional costs associated with the year 2000 project, aside from the normal IT annual budget, should not exceed $300,000. Risk factors which may affect the Company's ability to meet its year 2000 project plan and the ability of the Company's information systems to operate properly into the next century include, but are not limited to, the availability and adequacy of date compliant software from vendors and the availability of necessary resources, both internal and external, to install new purchased software and complete the necessary testing. In addition, the Company cannot predict the outcome of the year 2000 assessment of its supply base or the ability of its customers to achieve year 2000 compliance by the end of 1999 nor the impact of either on the future operating results of the Company. Portions of the narrative set forth in this Financial Condition and Results of Operations, which are not historical in nature, are forward- looking statements, based upon current expectations, all of which are subject to risk and uncertainties, and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. One can identify these forward-looking statements by their use of words such as "anticipates," "believes," "intends," "budgeted," and other words of similar meaning. The Company's actual performance may differ materially from that contemplated by the forward-looking statements due to a variety of factors, which include, among other things, inaccurate assumptions, the condition of the economy, the condition of the markets that the Company serves, and the success of the Company's strategic plans and contemplated capital investments. The Company does not assume the obligation to update any forward- looking statement as a result of development occurring after the date of these remarks. PAGES 12-13 OF ANNUAL REPORT RESULTS OF OPERATIONS Acme Electric Corporation reported net income of $2,529,000, or $.50 per share, on net sales of $90,916,000 for the year ended June 30, 1998, compared with net income of $136,000, or $.03 per share, and a net loss of $280,000, or $.06 per share on sales of $94,062,000 and $96,551,000 for 1997 and 1996, respectively. Net income from sales to the military/aerospace market for 1998 was $182,000, compared with losses of $717,000 and $1,699,000 in 1997 and 1996, respectively. The Company has continued to improve the effectiveness of its Tempe, Arizona, manufacturing operation, thereby better supporting customer product requirements. Sales to the military/aerospace market in 1998 were $11,189,000, compared to sales of $8,645,000 and $7,698,000 in 1997 and 1996, respectively. The Company's ability to generate profits in its military/aerospace business in the future will be greatly dependent on its ability to sell new programs and/or secure price increases on existing programs to replace maturing business and expiring performance incentives, as well as continuing to improve efficiencies in the manufacturing processes. The fourth quarter of fiscal 1998 produced net income of $1,276,000 on quarterly sales of $23,633,000, or net income per share of $.25, compared with the results of the prior year's quarter of $23,355,000 sales, $178,000 net loss, and a net loss per share of $.03. While sales increased only slightly ($278,000) over fourth quarter 1997 amounts, manufacturing overheads were reduced substantially ($800,000, pre-tax) as a result of a resized work force in the Company's electronics business, combined with a quarter (fiscal 1998 fourth quarter) free from project disruptions as experienced in prior periods associated with the implementations of new manufacturing processes (DFT) and the new Oracle-based business enterprise system. These projects were fully implemented prior to the commencement of the fourth quarter 1998. The pre-tax loss for the prior year quarter ended June 30, 1997, of $290,000 included a $725,000 landfill settlement charge, a $237,000 contract settlement payment to the McDonnell Douglas Company associated with the MD-90 aircraft program, and a $60,000 loss incurred on the sale of the idle facility in West Jordan, Utah. Quarterly Unaudited Financial Information. Dollars in thousands Fiscal Year 1998 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Net Sales $22,179 $22,752 $22,352 $23,633 Net Income 170 498 585 1,276 Annual sales decreased $3,146,000, or 3.3%, from the previous year, compared with a decrease of $2,489,000, or 2.6%, from 1996 to 1997. The decline in net sales is attributable to a declining sales trend experienced in the Company's electronics business, where sales decreased $5,700,000 in 1998 and $5,500,000 in 1997. The Company was informed in July that a major customer in its electronics business will be accelerating the transfer of its existing program with Acme to a second supplier as a result of its active vendor reduction initiative favoring large multinational companies. Where the Company had anticipated this program to wind down over the next couple of years and had budgeted accordingly, it now appears that it will occur over the next four to six months. The earlier than expected curtailment of this program will further negatively impact 1999 anticipated sales by an additional $3 million. Management is taking the necessary actions to support lower break-even thresholds and to accelerate the pace of new product and market development in all areas of the Company. Growth in overall sales will be dependent upon several factors, including the Company's continued ability to grow sales of its transformer line of products sold through distribution and to OEM accounts, both domestically and internationally. In addition, sales growth will be affected by the degree of success achieved with the new business strategies being introduced in its electronics business. Cost of sales as a percentage of sales was 72.5% in 1998, 76.2% in 1997, and 77.6% in 1996. The gross margin percentage improved from 23.8% in 1997 to 27.5% in 1998. The improvements are primarily the result of price increases, as well as significant reductions in manufacturing costs within the electronics business. Further contributing to the improved profit margins was the increased sales volume in the Company's aerospace business, allowing for improved efficiencies and fixed cost economies to be realized. The Company's continued improvement in profit margins will be closely tied to the success of its efforts to grow the sales of its core products (transformers) sold through distribution and the success of its strategies to secure new customer programs in both its electronics and aerospace businesses. Research and engineering efforts were relatively constant in the three-year comparison, as expenses as a percent of sales were 4.5% in 1998, compared to 4.8% in 1997 and 4.9% in 1996. Actual 1998 expenditures have been reduced approximately $400,000 from 1997 levels as a result of the resizing of the electronics business. Selling and administrative expenses as a percentage of sales were 16.8% in 1998, compared with 16.9% in 1997 and 15.5% in 1996. Included within the 1998 selling and administrative expense line is an offsetting income of $566,000 related to performance incentives earned in the Company's aerospace business, based upon meeting specified customer delivery schedules. Included in the 1997 expenses are one- time charges of $725,000 and $237,000 associated with the municipal landfill settlement and the MD-90 contract modification charge, respectively. With the exclusion of these income and expense items from the comparison, 1998 selling and administrative costs increased approximately $950,000. The 1998 increase includes additional depreciation expense of approximately $400,000 associated with the new business system, accrued incentives in excess of 1997 amounts of $200,000, higher shipping costs in the distribution business of $400,000, increased commissions and royalties of $100,000, all partly offset by the Company's reduced investment in international business development. Selling and administrative expenses in 1997, exclusive of the one-time charges, were comparable with 1996 levels. Interest expense decreased nearly $136,000 from 1997 to 1998 and $570,000 from 1996 to 1997. The lower interest expense is the result of lower average outstanding debt balances maintained during 1998 and 1997 in support of lower average working capital requirements. Debt has been reduced $11,000,000 since June 30, 1996. The Company's long- term debt originates from financing the aerospace business during the first ten years of operation. Effective tax (benefit) rates for the most recent three years were 38.2%, 44.6% and (29.7%), respectively. The fluctuations in the effective rates are generally reflective of the year-to-year variations in the permanent book-to-tax differences as a percent of pre-tax earnings (loss) and the Company's estimations as to the probable realizations of certain deferred state tax assets and minimum tax effects thereon. The provisions of Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information," will become effective for the Company's fiscal year-end 1999. SFAS No. 131 requires that public companies report a measure of segment profit or loss, certain specific revenue and expense items, and segment assets. Generally, financial information is required to be reported on the basis that it is used internally for evaluating segment performance and resource allocation. The Company will adopt SFAS No. 131 in the fourth quarter of fiscal 1999. PAGE 13 OF ANNUAL REPORT FIVE-YEAR COMPARISON OF SELECTED FINANCIAL DATA Dollars in thousands (except per share, employee data, and per square- foot amounts) Years ended June 30 1998 1997 1996 1995 1994 Net sales $90,916 $94,062 $96,551 $91,127 $76,233 Net income (loss) 2,529 136 (280) 992 (5,659) Net income (loss) per common share: (Basic and Diluted) .50 .03 (.06) .20 (1.17) At end of year: Total assets $45,495 $50,144 $54,180 $56,178 $46,505 Working capital 15,242 16,719 21,095 22,599 19,319 Average working capital, as a percent of sales 17.6% 20.0% 22.6% 23.0% 28.1% Ratio of current assets to current liabilities 2.3:1 2.3:1 2.8:1 2.5:1 3.1:1 Investment in property, plant and equipment-- net 15,115 16,039 16,469 14,657 12,669 Long-term debt 12,833 19,198 24,394 24,419 19,590 Total shareholders' equity 19,075 16,488 15,684 15,849 14,566 Equity per common share 3.78 3.27 3.18 3.22 3.02 Weighted average number of shares outstanding used to compute income (loss) per common share: Basic 5,046,011 4,960,137 4,927,344 4,880,838 4,818,773 Diluted 5,060,382 4,974,014 4,927,344 4,928,047 4,818,773 Average number of hourly employees 434 473 534 505 444 Average number of salaried employees 211 229 248 251 252 Sales per full-time employee equivalent (000's) $ 141 $ 134 $ 123 $ 120 $ 109 PAGE 14 OF ANNUAL REPORT STATEMENT OF OPERATIONS Dollars in thousands (except per share amounts) Years ended June 30 1998 1997 1996 Net Sales $90,916 $94,062 $96,551 Costs and Expenses Cost of sales 65,871 71,681 74,964 Research and engineering expenses 4,136 4,552 4,735 Selling and administrative expenses 15,263 15,896 14,992 Interest expense 1,552 1,688 2,258 Total Costs and Expenses 86,822 93,817 96,949 Income (loss) before income taxes 4,094 245 (398) Income tax expense (benefit) 1,565 109 (118) Net Income (Loss) 2,529 $ 136 $ (280) Net Income (Loss) per Common Share: (Basic and Diluted) $ .50 $ .03 $ (.06) The accompanying notes are an integral part of these financial statements. PAGE 15 OF ANNUAL REPORT BALANCE SHEET Dollars in thousands JUNE 30, 1998 JUNE 30, 1997 ASSETS Current Assets Cash $ 629 $ 398 Accounts receivable, net 12,552 14,019 Inventories, net 11,961 13,540 Deferred income taxes 1,269 1,238 Other current assets 695 499 Total Current Assets 27,106 29,694 Property, plant and equipment, at cost: Land and buildings 10,406 10,334 Machinery and equipment 27,388 27,169 Total property, plant and equipment 37,794 37,503 Less accumulated depreciation and amortization (22,679) (21,464) Property, plant and equipment, net 15,115 16,039 Other assets 3,274 4,411 TOTAL ASSETS $45,495 $50,144 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 4,734 $ 6,495 Accrued compensation and other 4,376 3,918 Current portion of long-term debt 2,754 2,562 Total Current Liabilities 11,864 12,975 Long-term debt 12,833 19,198 Other long-term liabilities 1,723 1,483 TOTAL LIABILITIES 26,420 33,656 SHAREHOLDERS' EQUITY Common Stock, $1 par value authorized 8,000,000, issued 5,051,444 and 5,040,834 shares 5,051 5,040 Capital in excess of par value 19,061 19,014 Accumulated deficit (5,029) (7,558) Total capital and accumulated deficit 19,083 16,496 Less treasury stock, at cost: 699 shares (8) (8) Total shareholders' equity 19,075 16,488 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $45,495 $50,144 The accompanying notes are an integral part of these financial statements. PAGE 16 OF ANNUAL REPORT STATEMENT OF CASH FLOWS Dollars in thousands Years ended June 30 1998 1997 1996 Cash flows from operating activities: Net income (loss) $ 2,529 $ 136 $ (280) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation and amortization 2,158 1,979 2,040 Loss on sale/retirement of fixed assets 5 58 -- Deferred income taxes 1,332 93 (134) Change in assets and liabilities: Accounts receivable, net 1,467 1,426 1,808 Inventories, net 1,579 1,468 2,344 Deferred taxes and other assets (422) 189 539 Accounts payable (1,761) 450 (3,262) Accrued compensation and other 698 (51) 494 Net cash provided from operating activities 7,585 5,748 3,549 Cash flows from investing activities: Additions to property, plant and equipment (1,255) (2,531) (3,852) Proceeds from dispositions of fixed assets 16 525 -- Investment in joint-venture -- -- (111) Net cash used in investing activities (1,239) (2,006) (3,963) Cash flows from financing activities: Increase of long-term debt 10,960 9,438 14,984 Reduction of long-term debt (17,133) (14,278) (14,243) Proceeds from employee stock purchase and stock option plans 58 124 120 Sale (purchase) of treasury stock -- 544 (5) Net cash provided from (used in) financing activities (6,115) (4,172) 856 Net increase (decrease) in cash 231 (430) 442 Cash at beginning of year 398 828 386 Cash at end of year $ 629 $ 398 $ 828 Supplemental disclosures of cash flow information: Cash paid (received) during the year for: Interest $ 1,586 $ 1,943 $ 2,413 Income Taxes $ (220) $ (14) $ (278) The accompanying notes are an integral part of these financial statements. PAGE 17 OF ANNUAL REPORT STATEMENT OF SHAREHOLDERS' EQUITY Dollars in thousands Capital Common in stock excess Treasury $1 par of par Accumulated stock, value value deficit at cost Balance June 30, 1995 $ 5,003 $18,807 $ (7,072) $ 889 Stock options exercised 6 23 Purchase of treasury shares 5 Sales of authorized shares: Employee Stock Purchase Plan 2 67 Employee Savings Plan (401[K]) 9 13 Net loss (280) Balance June 30, 1996 $ 5,020 $18,910 $ (7,352) $ 894 Stock options exercised 7 23 Sale of treasury shares (342) (886) Sales of authorized shares: Employee Stock Purchase Plan 3 15 Employee Savings Plan (401[K]) 10 66 Net income 136 Balance June 30, 1997 $ 5,040 $19,014 $ (7,558) $ 8 Sales of authorized shares: Employee Stock Purchase Plan 4 17 Employee Savings Plan (401[K]) 7 30 Net income 2,529 Balance June 30, 1998 $ 5,051 $19,061 $(5,029) $ 8 None of the Company's authorized 500,000 shares of $10 par value preference stock has been issued. The accompany notes are an integral part of these financial statement. PAGES 18-23 OF ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND PRACTICES: Business Acme Electric Corporation designs, manufactures and markets power conversion equipment for electronic and electrical systems. Principal markets encompass computers, test equipment, information systems, military, aerospace, telecommunications, and a variety of industrial, commercial and residential applications requiring conversion of electrical energy from one useable state to another. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Certain prior year balances have been reclassified to conform with the current year presentation. The major areas in which the Company utilizes estimates include deferred tax assets, reserves for insurance and legal claims, environmental liabilities, customer receivable and inventory obsolescence reserves, product warranty reserves, revenue recognition on long-term contracts, and the net realizable value of certain assets. The amounts contained within these financial statements represent management's best estimate of expected outcomes based on available information. However, the Company realizes that certain events could occur or fail to occur which would impact the estimates by a material amount in the future. Inventories Inventories are costed at the lower of cost or market and determined on a FIFO (first in, first out) basis. Property and Depreciation Depreciation of property, plant and equipment is computed on the straight-line and the sum-of-the-year's-digits methods over the estimated service lives of the assets. At the time of retirement or other disposition of properties, the cost and accumulated depreciation are removed from the accounts and any gains or losses are reflected in income. Maintenance and repairs are charged to expense as incurred; renewals and betterments are capitalized. The range of lives used as a basis for calculating depreciation is as follows: Years Buildings 20-45 Machinery and equipment 5-12 Furniture and fixtures 8-10 Computers and software 3-5 Revenue Recognition The Company's operations generally recognize revenue for the sale of their respective products in the period of delivery. The Company does, however, utilize the percentage-of-completion method for long-term contracts in its aerospace business. Revenues or long-term contracts (primarily engineering or development contracts) are recognized on the percentage-of-completion basis, measured by the percentage of material, labor and overhead costs incurred to date to total estimated material, labor and overhead costs for each long-term contract. Income Taxes The Company follows the asset and liability approach in accounting for income taxes. The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial carrying values and the tax bases of the related assets and liabilities and operating loss and tax credit carry forwards. Earnings Per Share The Company has adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share," which modifies the way in which earnings per share ("EPS") is calculated. Accordingly, all prior period EPS data presented have been restated. Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. 2. ACCOUNTS RECEIVABLE: Dollars in thousands 1998 1997 Billed $12,921 $14,291 Unbilled 97 251 Subtotal $13,018 $14,542 Less allowance for doubtful accounts (466) (523) Accounts receivable, net $12,552 $14,019 Unbilled receivables are comprised of revenue amounts on long-term contracts which have been earned, but not yet billed. Management anticipates that unbilled receivables at June 30, 1998, will be substantially billed and collected in fiscal year 1999. 3. INVENTORIES: Dollars in thousands 1998 1997 Raw Material $ 5,875 $ 7,144 Work in Process 1,685 2,365 Finished Goods 4,401 4,031 Total Inventories $11,961 $13,540 Inventories are reported net of the reserves for obsolescence of $781,000 and $546,000 in 1998 and 1997, respectively. 4. LONG-TERM DEBT: Dollars in thousands 1998 1997 Secured revolving loan $6,088 $9,788 Secured term loan with quarterly principal installments of $337,360 each, and interest paid monthly at the lower of prime plus .5% - 1.0% range, or the Eurodollar (London Interbank Eurodollar) rate plus 2.1% - 2.6% range, as determined by debt-to-worth ratio thresholds, through January 2, 2000. 2,362 3,711 Secured term loan with monthly principal installments of $33,333 each, and interest paid monthly at the lower of prime plus .5% - 1.0% range, or the Eurodollar (LIBOR) rate plus 2.1% - 2.6% range, as determined by debt-to- worth ratio thresholds, through July 1, 2001. 1,233 1,633 Secured loan on the Cuba facility payable over 20 years with monthly payments for the first four years of interest only of $6,666, with monthly payments of $14,120, consisting of principal and interest at 4%, commencing September 1, 1997, and continuing over the remaining 16 years. 1,917 2,000 Secured loan on the Cuba facility payable, with interest only, at 2% through September 30, 1998, 36 monthly principal and interest payments of $10,146 at 4%, commencing October 1, 1998, and 168 monthly principal and interest payments of $12,193 at 7% due through September 2015. 1,500 1,500 Capital lease secured by new business information system equipment and a $900,000 letter of credit, payable in monthly installments of $42,662, consisting of principal and interest of 10.09%, maturing December 2001. 1,094 1,474 Capital lease secured by the business information system equipment with monthly installments of $20,546, consisting of principal and interest at 9.85%, maturing November 1999. 307 528 Capital lease obligation secured by related building, machinery and equipment at the Cuba facility, payable in quarterly principal installments of $5,208, with interest paid monthly on the unpaid balance at the rate of prime plus 1.5% through April 1, 2017. 406 427 Other debt 680 699 Total debt 15,587 21,760 Current portion (2,754) (2,562) Long-term portion $12,833 $19,198 The Company has a credit agreement with a banking institution, which provides for borrowings and letters of credit up to a maximum of $24,595,000. This credit agreement is comprised of two secured term loans in the amount of $2,362,000 and $1,233,000 and a $21,000,000 secured revolving loan. The revolving loan carries an interest rate equal to the lower of prime plus .25% to .75% range, or the London Interbank Eurodollar rate plus 1.8% to 2.4% range, determined by a debt- to-worth ratio threshold, with a maturity date of December 31, 2000. The Company maintains interest rate protection, which allows for a maximum interest rate of 9.1% on $10,000,000 of notional principal debt. Outstanding borrowings against the revolving credit facility are limited by formula to specified amounts of accounts receivable and inventory, reduced by outstanding term debt. The Company pays a maximum annual commitment fee of 1/5 of 1% per annum on the unused portion. Under the terms of the credit agreement, the Company is required to meet certain restrictive covenants with respect to interest coverage and debt-to-worth ratios. The covenants further limit the Company's annual capital expenditure to a maximum of $2,500,000. At June 30, 1998, the Company was in compliance with the covenants under the credit agreement. During the next five years, long-term debt matures as follows: 1999 - - $2,754,000; 2000 - $2,269,000; 2001 - $930,000; 2002 - $222,000; and 2003 - $222,000. These amounts do not include any maturities relating to the revolving loan. 5. STOCK OPTION PLANS: Options were granted under the 1981 Incentive Stock Option Plan at the fair market value on the day preceding the date of the grant and are exercisable in varying amounts through 1999. The 1981 Plan expired in October 1992. Options granted under the 1981 Plan expire in accordance with their respective terms. Options are granted under the 1989 Stock Option Plan at the fair market value on the day preceding the date of the grant and are exercisable in varying amounts through 2007, with vesting at 25% a year from date of grant. In 1995, the 1989 Stock Option Plan was amended to apply a formula for the award of further options after each year of profitable operation and to increase the number of shares subject to the Plan from 225,000 to 450,000. The 1996 Directors' Stock Option Plan was adopted on April 29, 1996, by the Company's Board of Directors and approved by the Company's shareholders on October 31, 1996. Options are granted quarterly to each eligible director in lieu of Director Fees and are exercisable six months after the date of grant. The option price and number of shares optioned are determined by formula to replace the value of cash directors' fees otherwise due for the preceding quarter. A total of 50,000 shares are available for grant under the Plan. 1981 1989 1996 Plan Plan Directors' Shares Shares Plan Shares Options outstanding July 1, 1997 11,035 71,000 5,426 Options granted -- 45,000 11,907 Options exercised -- (200) -- Options canceled (2,300) (8,000) -- Options outstanding June 30, 1998 8,735 107,800 17,333 Options exercisable at June 30, 1998 8,735 46,300 10,661 Exercise prices per share $6.63-$7.00 $4.88-$11.25 $1.48-$2.11 Shares available for options at June 30, 1998 -- 231,004 32,666 The Company applies Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees," and related interpretations in accounting for the stock option plans. Accordingly, no compensation expense was recognized in 1998, 1997, or 1996 for stock option awards made from the 1989 Stock Option Plan, since the exercise price of the stock options granted under the Stock Option Plan was not less than the fair market value of the Common Stock at date of grant. Compensation expense of $50,000 and $25,000 was recognized in 1998 and 1997, respectively, for stock awards under the 1996 Directors' Stock Option Plan. Had compensation expense for stock option awards granted in 1998, 1997, and 1996 been determined consistent with SFAS No. 123, net income and earnings per share would be reduced to the pro forma amounts indicated below: Dollars in thousands (except per share amounts) Years ended June 30 1998 1997 1996 Net income (loss) As reported $2,529 $136 $(280) Pro forma 2,420 66 (330) Net income (loss) per common share As reported $.50 $.03 $(.06) Pro forma .48 .01 (.07) The Company used the Black Scholes pricing model to estimate the grant date present value of stock options granted in 1998, 1997, and 1996. The estimated value per option averaged approximately $2.64, $3.80, and $4.60 for options granted in 1998, 1997, and 1996, respectively. The values were calculated using the following assumptions: (i) an option term of 5.5 years (representing the estimated period between grant date and exercise date based on historical data); (ii) a risk-free interest rate approximating 5.99%, 6.48%, and 6.07% in 1998, 1997, and 1996, respectively (representing the yield on a U.S. Treasury Security with remaining term equal to the expected option term); (iii) expected volatility of 52% for 1998 and 58% for 1997 and 1996; (iv) no future dividends paid; and (v) a 30% forfeiture rate used to reflect the estimate of the probability of forfeiture prior to vesting. The pro forma effects presented above are in accordance with the requirements of SFAS No. 123, however, such effects are not representative of the effects to be reported in future years due to the fact that options vest over several years and additional awards generally are made each year. 6. LEASES: The Company leases certain manufacturing facilities and equipment, described in Note 4, under lease agreements which have been capitalized, and various other equipment under operating leases. Under the terms of the capital leases, the Company has included $4,436,000 in the cost of property, plant and equipment June 30, 1998 and 1997. Accumulated depreciation of such assets was $1,434,000 at June 30, 1998, and $1,074,000 at June 30, 1997. Total rental expense under operating leases, which includes the headquarters facility, was $940,000, $829,000 and $1,038,000 in 1998, 1997 and 1996, respectively. Minimum future rental commitments under non-cancelable operating leases are approximately $771,000 in 1999, $536,000 in 2000, $441,000 in 2001, $435,000 in 2002, and $403,000 in 2003. 7. INCOME TAXES: The provision for income taxes includes the following: Years Ended June 30 Dollars in thousands 1998 1997 1996 Current Tax Provision Federal $216 $-- $-- State 17 16 16 Deferred Tax Provision (Benefit) Federal 1,073 130 (117) State 259 (37) (17) Total Provision (Benefit) $1,565 $109 $(118) The provision for income taxes differs from the federal statutory rate of 34% due to the following: 1998 1997 1996 Statutory rate (benefit) 34.0% 34.0% (34.0%) Foreign losses not tax effected -- 5.8% 18.2% State taxes, net of federal benefit 4.5% (5.6%) (.1%) Reduction of accumulated reserve -- -- (17.0%) Other (.3)% 10.4% 3.2% Effective tax (benefit) rate 38.2% 44.6% (29.7%) At June 30, the deferred tax assets (liabilities) were comprised of the following: Dollars in thousands 1998 1997 1996 Deferred tax assets: Accounts receivable $264 $ 206 $ 156 Inventory 560 446 376 Property, plant and equipment -- -- 186 Accrued expenses 667 696 744 Restructuring and impairment charges 314 463 779 Supplemental Executive Retirement 427 415 402 Other 51 201 89 Loss and credit carry forwards 542 1,511 1,111 2,825 3,938 3,843 Deferred tax liabilities: Pensions (1,160) (1,023) (915) State taxes (119) (207) (195) Property, plant and equipment (500) (81) -- (1,779) (1,311) (1,110) Net deferred tax asset $1,046 $2,627 $2,733 The Company has certain federal and state loss carry forwards available to offset future taxable income. The federal tax loss carry forward of $285,000 will have portions expire, if unused, in 2011. Portions of the state loss carry forwards, if not used, will expire in 2001. In addition, the Company has alternative minimum tax credit carry forwards of approximately $282,000 available to offset future federal taxes. 8. EARNINGS PER SHARE In fiscal 1998, the Company adopted Statement No. 128, Earnings Per Share, which requires presentation in the Statement of Operations of both basic and diluted earnings per share. Basic earnings per share measures operating performance assuming no dilution from securities or contracts to issue common stock. Diluted earnings per share measures operating performance giving effect to the dilution that would occur when securities or contracts to issue common stock are exercised or converted. The computation of basic earnings per share is reconciled with diluted earnings per share as follows. All periods presented have been restated. Dollars and shares in thousands, except per share amounts 1998 1997 1996 Income available to common shareholders $2,529 $ 136 $ (280) Basic earnings per share Weighted average shares outstanding 5,046 4,960 4,927 Basic earnings per share $ .50 $ .03 $ (.06) Diluted earnings per share Weighted average shares outstanding 5,046 4,960 4,927 Dilutive effect of: Stock options 14 14 -- _____________________________ Adjusted weighted average shares outstanding 5,060 4,974 4,927 Diluted earnings per share $ .50 $ .03 $ (.06) _____________________________ 9. EMPLOYEE BENEFITS RETIREMENT PLANS: The Company maintains two non-contributory defined benefit pension plans covering substantially all employees. The formula covering salaried employees provides pension benefits based upon the employee's individual yearly compensation. Formulas covering hourly employees provide benefits of stated amounts for each year of credited service. It is the Company's policy to fund for each qualified plan at least an amount necessary to satisfy the minimum requirements of the Employee Retirement Income Security Act. The amount to be funded is subject to annual review by management and its consulting actuary. In recent years, funding contributions have been restricted due to application of Internal Revenue Code full-funding limitations to one or more of the plans. The Company also maintains a non-qualified Supplemental Executive Retirement Plan (SERP) for certain executive officers of the Company. The SERP provides benefits based upon an executive's compensation in the last year of service and is reduced by benefits received from the salaried plan. Six participants of this plan are retired and receiving payments under the plan. Approximately 3% of the plans' assets are invested in cash and equivalents, 78% are invested in equities, and the remaining 19% are invested in fixed-income securities and annuities. Net periodic pension expense for the three years ended June 30, 1998, included the following components: Dollars in thousands 1998 1997 1996 Service cost -- Benefits earned during the period $ 591 $ 630 $ 518 Interest cost on projected benefit obligation 1,573 1,537 1,521 Actual return on assets (2,282) (2,203) (4,666) Net amortization, deferral and curtailment gain 64 46 2,885 Net periodic pension (income) expense $ (54) $ 10 $ 258 For plans where: June 30, 1998 June 30, 1997 Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets Actuarial present value of benefit obligations: Vested benefit obligation $(20,903) $(1,329) $(20,233) $(1,121) Accumulated benefit obligation (21,094) (1,329) (20,467) (1,376) Projected benefit obligation (22,467) (1,337) (21,933) (1,413) Plan assets at fair value 33,393 -- 27,511 -- Funded Status: Assets in excess of (or less than) projected benefit obligation 10,926 (1,337) 5,578 (1,413) Transition (asset) or obligation (390) 188 (551) 263 Unrecognized prior service cost 2,509 39 2,809 42 Unrecognized net (gain) or loss (10,156) 46 (5,272) 74 Prepaid (Accrued) pension cost $ 2,889 $(1,064) $ 2,564 $(1,034) Pursuant to the provisions of Statement of Financial Accounting Standard No. 87, "Employers' Accounting for Pension" (SFAS 87), the Company has recorded $265,000 of additional unfunded accumulated benefit obligation attributable to the SERP plan at June 30, 1998. These unfunded obligations are recorded in other long-term liabilities. In addition, an intangible asset of the same amount has also been recorded. At June 30, 1998, and 1997, the discount rate for the benefit obligations was 7.0%, the assumed annual rate of increase in future compensation used in determining the actuarial present value of projected benefit obligations was 4.5% for plans covering the salaried employees for both years, and the expected long-term annual rate of return on plan assets was 8.5% for plan years 1998 and 1997. OTHER POST-RETIREMENT BENEFITS: The Company maintains a non-qualified benefits plan to include post- retirement health care for certain executives of the Company. Six participants of this plan are retired and receiving payments under the plan. The Accumulated Post-Retirement Benefit Obligation at June 30, 1998, and 1997, was comprised of $396,000 and $390,000, respectively, attributable to retirees, and $70,000 and $59,000, respectively, attributable to eligible and other active plan participants, for combined totals of $466,000 and $449,000, respectively. At June 30, 1998, and 1997, the unrecognized amount of the Accumulated Post- Retirement Benefit Obligation was $325,000 and $347,000, respectively. The Net Periodic Post-Retirement Benefit expenses for years ended June 30, 1998, 1997, and 1996, were $58,000, $57,000, and $66,000, respectively. The accrued Post-Retirement Benefit Cost recognized in the balance sheet at June 30, 1998, was $127,000, as compared to June 30, 1997, of $107,000. At June 30, 1998, and 1997, the assumed discount rate of 7.0% was used in the calculation of the benefit obligations, assumed annual health-care trend rate is 5.0%, with claim costs to increase based upon age, ranging from .5% to 6.0% per annum. 10. MAJOR CUSTOMERS: Power conversion equipment sales encompass markets wherein the demands of any one customer may vary greatly due to changes in technology and market strategy. One customer of the Company accounted for 17.2%, 16.2% and 14.8%, respectively, of fiscal 1998, 1997 and 1996 sales and 3.7%, 10.0% and 8.2%, respectively, of June 30, 1998, 1997 and 1996 accounts receivable. 11. SHAREHOLDERS' RIGHTS PLAN: The Company's Board of Directors has adopted a shareholders' rights plan (the "Rights Plan") and declared a dividend of one Right for each two shares of the Company's Common Stock outstanding at December 6, 1993. Each Right entitles the registered holder to purchase one share of Common Stock at a purchase price of $50.00 per share. In the event that, at any time following Distribution of the Rights, (i) the Company is the surviving corporation in a merger with a third party and its Common Stock is not changed or exchanged, (ii) a Person becomes the beneficial owner of more than 20% of the then outstanding shares of Common Stock ("Acquiring Person"), (iii) an Acquiring Person engages in one or more "self-dealing" transactions as set forth in the Rights Agreement between the Company and its transfer agent, or (iv) during such time as there is an Acquiring Person, an event occurs which results in such Acquiring Person's ownership interest being increased by more than 1% (e.g., a reverse stock split), each holder of the Rights, other than the Acquiring Person, will thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the exercise price of the Rights. 12. COMMITMENTS AND CONTINGENCIES The Company was subject to liability for the cost of site investigation and remediation of a municipal landfill. This matter was settled on June 27, 1997, upon payment by the Company of $725,000 to the New York State Department of Environmental Conservation. The Company did have insurance policies in effect during the period that waste was disposed of at the site, which the Company is pursuing for possible recovery. 13. RELATED PARTY TRANSACTIONS In 1997, the Retirement Plan for Salaried Employees of Acme Electric Corporation ("Plan") purchased 80,000 shares of Common Stock of the Company from its treasury at the then fair market value of $6.81 per share. The shares are held by the Plan trustee for the exclusive benefit of the beneficiaries of the Plan. The transaction occurred pursuant to Regulation D of the U.S. Securities Exchange Commission. PAGE 24 OF ANNUAL REPORT REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Acme Electric Corporation In our opinion, the accompanying balance sheet and the related statements of operations, shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Acme Electric Corporation at June 30, 1998 and 1997, and the results of its operations and it cash flows for each of the three years in the period ended June 30, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP Buffalo, New York August 5, 1998 PAGE 24 OF ANNUAL REPORT COMMON STOCK PRICES AND DIVIDEND INFORMATION _________________________________________________________________ Stock price Year Ended June 30, 1998 High Low Dividends Paid Fourth Quarter 6 5/16 4 5/8 -- Third Quarter 6 1/2 4 5/8 -- Second Quarter 8 1/8 4 11/16 -- First Quarter 7 7/16 6 1/8 -- _________________________________________________________________ Year Ended June 30, 1997 High Low Dividends Paid Fourth Quarter 7 5/8 6 1/4 -- Third Quarter 9 7/8 6 3/8 -- Second Quarter 8 1/2 6 3/4 -- First Quarter 8 5/8 6 7/8 -- Acme Electric Corporation's Common Stock is traded on the New York, Chicago, and Philadelphia Stock Exchanges. The approximate number of shareholders of record at June 30, 1998, was 1,206. _________________________________________________________________ SHAREHOLDER INQUIRIES The Company welcomes comments from shareholders and the opportunity to answer their questions. Correspondence should be directed to: Richard P. Becht or Cora M. Martin, Acme Electric Corporation, 400 Quaker Road, East Aurora, New York 14052, (716) 655-3800. In addition, the Company will provide to any shareholder, without charge, a copy of the Company's current form 10-K annual report. Requests for this and any other Company publication should be directed to Ms. Martin. Company news is available by FAX: dial 1-800-758-5804, and input extension 0066775; or visit our web site at acmeelec.com EX-27 3
5 YEAR JUN-30-1998 JUN-30-1998 629 0 13,018 466 11,961 27,106 37,794 22,679 45,495 11,864 12,833 0 0 24,112 (5,029) 45,495 90,916 90,916 65,871 85,270 0 0 1,552 4,094 1,565 2,529 0 0 0 2,529 .50 .50
EX-99 4 EXHIBIT 99 Contact: Dick Becht 716/655-3800 FOR IMMEDIATE RELEASE ACME ELECTRIC ANNOUNCES YEAR-END RESULTS EAST AURORA, N.Y., August 5, 1998 -- Acme Electric Corporation (NYSE: ACE) reported today that, for the year ended June 30, 1998, sales were $90,916,000 with net income of $2,529,000, or $.50 per share, compared to sales of $94,062,000 and net income of $136,000, or $.03 per share, for the prior year. Robert J. McKenna, Chairman and CEO, stated that, "During the last four years, we have successfully rebuilt the Company's operational base and returned to profitability. Our major manufacturing facilities are now operating under Demand Flow Technology, which has reduced manufacturing lead times from months to days, greatly lowered our working capital requirements, and provided us with tremendous flexibility to better serve our customers. Several new programs with existing customers are presently in the design stage, with production scheduled to begin throughout the next twelve months. In addition, there are a number of new programs underway with new customers. These programs should yield solid sales and earnings growth over the coming fiscal year. A general upgrade in the quality of our product development staff has been made over the past couple of years, and their efforts have begun to bear fruit. Several new additions to our standard product offering were added this past year, and more are under development. Of some concern is the loss of a major customer in our electronics power supply business. This customer has had an active vendor reduction program in place for some time, favoring large multi-national companies, and we expected our business with them to decline significantly over the next couple of years, however, it now appears that will occur within four to six months. We are taking the necessary actions to minimize the impact of this situation on our business and plan to accelerate the pace of new product and market development. We believe that our future growth can be significantly strengthened by effective partnering with other companies when our combined resources provide a competitive market advantage. One such relationship was recently established with Rockwell Automation, which provides for collaborative marketing efforts with their Allen Bradley line of electrical products. We intend to pursue similar alliances wherever appropriate. Much has been accomplished in the last few years, and much needs to be done, but we continue to view the future with much optimism." Founded in 1917, Acme Electric Corporation is a leader in the design and manufacture of power conversion equipment for electronic and electrical systems for industrial, commercial, residential, military and aerospace applications. Corporate headquarters are in East Aurora, N.Y., with operations in Cuba, N.Y., Lumberton, N.C. and Tempe, Ariz. # # # # ACME ELECTRIC CORPORATION Comparative Analysis (in thousands, except for per share data) For the For the Year Ended 13 Weeks Ended ------------------ ------------------ 06/30/98 06/30/97 06/30/98 06/30/97 -------- -------- -------- -------- Net Sales $90,916 $94,062 $23,633 $23,355 Net Income (Loss) 2,529 136 1,276 (178) Net Income (Loss) Per Common Share (Basic and Diluted) $.50 $.03 $.25 $(.04) Weighted Number of Shares Outstanding Used to Compute Net Income (Loss) Per Common Share: Basic 5,046,011 4,960,103 5,049,962 4,986,206 Diluted 5,060,382 4,973,146 5,064,885 4,986,206 -----END PRIVACY-ENHANCED MESSAGE-----