UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 ------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- ---------- Commission File Number 0-9010 -------------------------------- ROBINSON NUGENT, INC. - ----------------------------------------------------------------- (Exact name of registrant as specified in its charter) INDIANA 35-0957603 - ----------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 800 East Eighth Street, New Albany, Indiana 47151-1208 - ------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (812) 945-0211 -------------- 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 ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: As of October 31, 1999, the registrant had outstanding 4,931,911 common shares without par value. The Index to Exhibits is located at page 14 in the sequential numbering system. Total pages: 15. ROBINSON NUGENT, INC. AND SUBSIDIARIES INDEX Page No. -------- PART I. Financial Information: Item 1. Financial Statements Consolidated balance sheets at September 30, 1999, September 30, 1998 and June 30, 1999 3 Consolidated statements of operations and comprehensive income for the three months ended September 30, 1999 and September 30, 1998 5 Consolidated statements of cash flows for the three months ended September 30, 1999 and September 30,1998 6 Notes to consolidated financial statements 7 Item 2. Management's discussion and analysis of financial condition and results of operations 8 PART II. Other Information 13 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ROBINSON NUGENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) September 30 June 30 ---------------------- ------- ASSETS 1999 1998 1999 ------- ------- ------- (Unaudited) Current assets: Cash and cash equivalents $ 1,147 $ 1,035 $ 845 Accounts receivable, net 14,373 8,472 13,159 Inventories: Raw materials 1,039 990 971 Work in process 6,490 5,818 5,569 Finished goods 3,858 4,224 4,092 ------- ------- ------- Total inventories 11,387 11,032 10,632 Other current assets 1,791 2,069 3,313 ------- ------- ------- Total current assets 28,698 22,608 27,949 Property, plant & equipment, net 17,968 20,200 18,539 Other assets 152 517 138 ------- ------- ------- Total assets $46,818 $43,325 $46,626 ======= ======= ======= See accompanying notes to the consolidated financial statements. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (CONTINUED) ROBINSON NUGENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) September 30 June 30 ----------------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998 1999 ------- ------- ------- (Unaudited) Current liabilities: Current installments of long-term debt $ 462 $ 379 $ 449 Accounts payable 7,164 5,294 7,441 Accrued expenses 4,771 5,268 5,369 ------- ------- ------- Total current liabilities 12,397 10,941 13,259 Long-term debt, excluding current installments 8,667 9,228 9,016 Other liabilities 985 980 901 ------- ------- ------- Total liabilities 22,049 21,149 23,176 ------- ------- ------- Shareholders' equity: Common shares without par value Authorized shares 15,000,000; issued 6,851,250 shares 20,950 20,950 20,950 Retained earnings 15,614 13,246 14,847 Equity adjustment from foreign currency translation 990 1,067 492 Employee stock purchase plan loans and deferred compensation (65) (95) (77) Less cost of common shares in treasury; 1,919,339 shares at September 30, 1999, 1,959,485 shares at September 30, 1998 and 1,925,668 shares at June 30, 1999 (12,720) (12,992) (12,762) ------- ------- ------- Total shareholders' equity 24,769 22,176 23,450 ------- ------- ------- Total liabilities and shareholders' equity $46,818 $43,325 $46,626 ======= ======= ======= See accompanying notes to the consolidated financial statements. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (CONTINUED) ROBINSON NUGENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) Three Months Ended September 30 -------------------- 1999 1998 --------------- (Unaudited) Net sales $20,950 $14,914 Cost of sales 15,388 12,086 ------- ------- Gross profit 5,562 2,828 Selling, general and administrative expenses 3,998 3,418 Special and unusual expenses 230 798 ------- ------- Operating income (loss) 1,334 (1,388) ------- ------- Other income (expense): Interest income 14 13 Interest expense (176) (164) Currency loss (75) (67) ------- ------- (237) (218) ------- ------- Income (loss) before income taxes 1,097 (1,606) Income taxes 313 (289) ------- ------- Net income (loss) $ 784 $(1,317) ------- ------- Other comprehensive income: Foreign currency translation 498 355 ------- ------- Comprehensive income (loss) $ 1,282 $ (962) ======= ======= Per Share Data: Basic net income (loss) per common share $ .16 $ (.27) ======= ======= Weighted average number of common shares outstanding 4,931 4,892 ======= ======= Diluted net income (loss) per common share $ .16 $ (.27) ======= ======= Adjusted weighted average number of common shares, assuming dilution 4,985 4,892 ======= ======= Dividends per common share $ -- $ -- ======= ======= See accompanying notes to the consolidated financial statements. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (CONTINUED) ROBINSON NUGENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) Three Months Ended September 30 -------------------- 1999 1998 ------- ------- (Unaudited) Cash flows from operating activities: Net income (loss) $ 784 $(1,317) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,120 1,035 Disposal of capital assets 93 8 Issuance of treasury shares as compensation 27 -- Changes in assets and liabilities Receivables (1,549) 802 Inventories (755) (970) Other assets 861 (256) Accounts payable and accrued expenses (791) 912 Income taxes 972 (321) Deferred income taxes (2) (9) ------- ------- Net cash provided by (used in) operating activities 760 (116) ------- ------- Cash flows from investing activities: Capital expenditures (927) (1,351) Proceeds from sale of fixed assets 326 -- ------- ------- Net cash used in investing activities (601) (1,351) ------- ------- Cash flows from financing activities: Proceeds from long-term debt 500 1,500 Repayments of long-term debt (884) (41) Repayments of employee stock purchase plan loans 9 10 ------- ------- Net cash provided by (used in) financing activities (375) 1,469 ------- ------- Effect of exchange rate changes on cash 518 74 ------- ------- Increase in cash and cash equivalents 302 76 Cash and cash equivalents at beginning of period 845 959 ------- ------- Cash and cash equivalents at end of period $ 1,147 $ 1,035 ======= ======= See accompanying notes to the consolidated financial statements. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (CONTINUED) ROBINSON NUGENT, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 1999 AND 1998, AND JUNE 30, 1999 1. In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments necessary (all of which are normal and recurring) to present fairly the financial position of the Company and its subsidiaries, results of operations, and cash flows in conformity with generally accepted accounting principles. The results of operations for the interim period are not necessarily an indication of results to be expected for the entire year. 2. Reference is directed to the Company's consolidated financial statements (Form 10-K), including references to the Annual Report, for the year ended June 30, 1999, and management's discussion and analysis included in Part I, Item 2 in this report. 3. The Company recorded special and unusual expenses of $230,000, before taxes, in the quarter ending September 30, 1999. This is presented separately as a component of the operating income (loss) in the consolidated statements of operations. These expenses are personnel costs incurred to design and implement a new information and enterprise resource planning system for North American and European operations. This new system is being designed and implemented to satisfy year 2000 requirements, enhance management and control systems, improve customer service and vendor communications. 4. The Financial Accounting Standards Board has issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which 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. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Customer orders for the first quarter ended September 30, 1999, amounted to $27.2 million, up 62% from orders of $16.8 million in the same quarter of the prior year. This increase reflected a 34% increase in the United States, a 156% increase in Europe and a 33% increase in Asia. In addition, the Company's backlog of unshipped orders increased in the current quarter to $19.2 million, an increase of 56% compared to $12.3 million at September 30, 1998. The Company's backlog in the United States increased 28% due primarily to increased orders of connectors for Internet related applications such as servers, routers, hubs and other telecommunication equipment. The European backlog increased 182% due to the receipt of several large orders of next-generation, value added smart card reader connectors from the Company's largest European customer. Worldwide customer orders were $17.9 million in the fourth quarter of the prior year, and the backlog of unshipped orders at June 30, 1999, was $13 million. Based on the improved incoming order activity and a higher backlog of unshipped orders, management anticipates a continuation of the Company's improved performance as the year progresses. Net sales increased 40% in the quarter to $20.9 million compared to $14.9 million in the first quarter of the prior year, and 11% compared to $18.9 million in the fourth quarter of the prior year. Customer sales in the United States increased 42% to $14.4 million compared to $10.1 million in the first quarter of the prior year, and 16% compared to $12.5 million in the prior quarter. The Company continues to experience higher levels of incoming orders and sales activity on its more profitable backplane connectors, and its high-density, surface mount, fine pitch board-to- board interconnect systems. These types of connectors are used in communication and networking components utilized to support the infrastructure of the Internet. European customer sales increased 41% to $4.9 million compared to $3.5 million in the first quarter of the prior year, and increased by 4% from $4.7 million in quarter ended June 30, 1999. This sales increase is due primarily to an increase in customer orders and sales of smart card reader connectors. These connectors are currently in demand by major communication and digital satellite receiver manufacturing companies in Europe. The European sales team will continue to focus its sales effort on this profitable business niche. Based on higher incoming order activity and an increase in the backlog of unshipped orders in these product categories, management anticipates improved performance in this region as the year progresses. Customer sales in Asia, which includes sales generated from operations in Japan, Malaysia and Singapore, were $1.6 million in the quarter compared to $1.3 million in the first quarter of the prior year, and $1.8 million in the prior quarter. The economic conditions have stabilized in the region and the strengthening of the Japanese yen and other Asian currencies had some favorable impact on sales in the quarter. The weakening of the dollar and the pound sterling against these currencies has lowered the relative cost of products produced in North America and Europe, compared to products produced in Asia. If the Japanese yen continues to remain strong, it will facilitate higher sales and improve the profitability of products manufactured in North America, Europe and Malaysia, and sold in Japan. Comparative sales by geographic territory for the respective periods follows: Three Months Ended ($000 omitted) September 30 ------------------- 1999 1998 ------- ------- United States: Domestic $13,909 $ 9,800 Export to rest of world 532 339 ------- ------- Total sales to customers 14,441 10,139 Intercompany 1,536 872 ------- ------- Total United States 15,977 11,011 ------- ------- Europe: Domestic sales to customers 4,894 3,475 Intercompany 1,158 558 ------- ------- Total Europe 6,052 4,033 ------- ------- Asia: Domestic sales to customers 1,615 1,300 Intercompany 1,100 891 ------- ------- Total Asia 2,715 2,191 ------- ------- Eliminations (3,794) (2,321) ------- ------- Consolidated $20,950 $14,914 ======= ======= Gross profits in the quarter ended September 30, 1999, amounted to $5.6 million or 26.5 percent of net sales, compared to $2.8 million or 19.0 percent of net sales in the prior year. Gross profits are net of engineering charges associated with new product development, which amounted to $1.2 million or 5.8 percent of net sales in the current quarter compared to $0.8 million or 5.3 percent of net sales in the prior year. The increase in gross profits in the quarter compared to the prior year reflects higher gross margins on sales and improved manufacturing efficiencies and plant utilization. Gross profits continue to be favorably impacted by the effect of manufacturing cost reduction programs. Selling, general and administrative expenses of $4.0 million for the three months ended September 30, 1999 increased 17.6% compared to expenses of $3.4 million in the first quarter of the prior year. This increase was due primarily to higher sales commission expenses in the United States and Europe, and expenses related to the new information system in Europe and the United States. The Company recorded special and unusual expenses of $0.2 million before taxes, in the quarter. These expenses include personnel costs incurred to design and implement the new information and enterprise resource planning system in Europe and the Company's cable assembly operations in North America. This system is currently operational for connector and cable assembly operations in the United States and Mexico. European operations are scheduled to complete the implementation of this system in December 1999. Other income and expense for the three months ended September 30, 1999, reflect expenses of $237,000 compared to $218,000 for the comparable three-month period in the prior year. Other income and expense reflected currency losses in the current and first quarter of the prior year, combined with a slight increase in interest expense. Interest expense increased from $164,000 in the prior period to $176,000 in the current period due primarily to an increase in short-term borrowing rates. Currency losses in the quarter were generated primarily in Europe and the United States, but were partially offset by currency gains in Japan. The provision for income taxes was provided using the appropriate effective tax rates for each of the tax jurisdictions in which the Company operates. The Company maintains a valuation allowance for tax benefits of prior period net operating losses in various 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. The net income in the quarter ended September 30, 1999, amounted to $0.8 million or 16 cents per share, compared to a net loss of $1.3 million or 27 cents per share in the first quarter of the prior year. Operations in the United States, Europe and Asia generated net income in the current quarter of $544,000, $201,000 and $4,000 respectively. The Company has steadily improved its performance quarter by quarter since the start of the prior fiscal year. This performance improved from one cent per share in the second quarter of last year, to ten cents in the third quarter, fifteen cents in the fourth quarter (excluding the one-time tax benefit recognized in the fourth quarter), to sixteen cents in the current quarter. FINANCIAL CONDITION AND LIQUIDITY Working capital at September 30, 1999, amounted to $16.3 million compared to $11.7 million at September 30, 1998 and $14.7 million at June 30, 1999. The current ratio was 2.3 to 1 at September 30, 1999 compared to 2.1 to 1 at September 30, 1998. The increase in working capital, compared to the prior year, primarily reflects a $5.9 million increase in accounts receivable, partially offset by increases in accounts payable. Long-term debt excluding current installments was $8.7 million as of September 30, 1999, and represented 35 percent of shareholders' equity at September 30, 1999, compared to $9.2 million or 42 percent of shareholders' equity at September 30, 1998. The Company believes future working capital and capital expenditure requirements can be met from cash provided by operating activities, existing cash balances, and borrowings available under the existing credit facilities. INFORMATION SYSTEMS AND YEAR 2000 ISSUES The Company is currently in the process of replacing the management information systems of its operations in the United States and Europe including order management, manufacturing resource planning, finance and accounting. These systems are scheduled to be operational by December 1999 at a total estimated cost of $6.8 million. All operations in the United States have been converted to the new system. European operations are scheduled to convert to the new system in December 1999. The Company has incurred costs in the current and prior periods of approximately $6.1 million. Expenditures in the current quarter include $0.2 million of personnel costs reflected in the special and unusual expense category of the statement of operations, and $0.3 million of capital expenditures. Funding for these expenditures has been provided by operating activities, existing cash balances and borrowings available under the existing credit facilities. The Company expects that this new integrated system will increase operational efficiencies, support future growth, and address the impact of the year 2000 on current information systems. While the Company's future operating results and financial condition could be adversely affected by functional or performance difficulties with the new system during the transition period in Europe, management does not expect significant adverse difficulties to occur. The Company does not presently have an acceptable contingency plan in the event of failure of the new management information system in Europe. There is uncertainty as to the effects of any such failure on the Company's results of operation, liquidity and financial conditions. The Company intends to continue to review and consider contingency plans for this region as preparations continue to convert to the new system in Europe in December 1999. In addition, other information and operational systems have been assessed related to the impact of the year 2000. Plans have been developed to address system modifications required by December 31, 1999. The Company has considered the potential effect of Year 2000 issues on the Company's business, results of operations, and financial condition if key suppliers and vendors do not become year 2000 compliant in a timely manner. Management has taken reasonable steps to verify the year 2000 readiness of its suppliers, vendors and customers. DIVIDEND ACTION On November 4, 1999 the Board of Directors voted not to declare a cash dividend in the quarter. CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR In addition to statements of historical fact, this quarterly report contains forward-looking statements which are inherently subject to change, based on known and unknown risks, including but not limited to changes in the market and industry. Please refer to documents filed with the Securities and Exchange Commission for additional information on factors that could materially affect the Company's financial results. PART II. OTHER INFORMATION Item 1. Not applicable. Item 2. Not applicable. Item 3. Not applicable. Item 4. Not applicable. Item 5. Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) See Index to Exhibits. (b) No reports on Form 8-K were filed during the quarter ended September 30, 1999. SIGNATURES Pursuant to the requirements 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. ---------------------------- (Registrant) Date 11/8/99 /s/ Larry W. Burke ------------------- ------------------------ Larry W. Burke President and Chief Executive Officer Date 11/8/99 /s/ Robert L. Knabel -------------------- ------------------------ Robert L. Knabel Vice President, Treasurer and Chief Financial Officer FORM 10-Q INDEX TO EXHIBITS Number of Sequential Item Numbering Assigned in System Regulation S-K Page Number Item 601 Description of Exhibit of Exhibit - ------------- ------------------------------------ ------------- (2) Not applicable. (4) 4.1 Specimen certificate for Common Shares, without par value. (Incorporated by reference to Exhibit 4 to Form S-1 Registration Statement No. 2-62521.) 4.2 Rights Agreement dated April 21, 1988 between Robinson Nugent, Inc. and Bank One, Indianapolis, N.A. (Incorporated by reference to Exhibit I to Form 8-A Registration Statement dated May 2, 1988.) 4.3 Amendment No. 1 to Rights Agreement dated September 26, (Incorporated by reference to Exhibit 4.3 to Form 10-K Report for year ended June 30, 1991.) 4.4 Amendment No. 2 to Rights Agreement dated June 11, 1992. (Incorporated by reference to Exhibit 4.4 to Form 8-K Report dated July 6, 1992.) 4.5 Amendment No. 3 to Rights Agreement dated February 11, 1998 (Incorporated by reference To Exhibit 4.5 to Form 10-Q Report for the Period ended December 31, 1998.) (10) 10.1 Robinson Nugent, Inc. 1983 Tax-Qualified Incentive Stock Option Plan. (Incorporated by reference to Exhibit 10.1 to Form 10-K Report for year ended June 30, 1983.) 10.2 Robinson Nugent, Inc. 1983 Non Tax- Qualified Incentive Stock Option Plan. (Incorporated by reference to Exhibit 10.2 to Form 10-K Report for year ended June 30, 1983.) 10.3 1993 Robinson Nugent, Inc. Employee and Non-Employee Director Stock Option Plan. (Incorporated by reference to Exhibit 19.1 to Form 10-K Report for year ended June 30, 1993.) 10.4 Summary of the Robinson Nugent, Inc. Employee Stock Purchase Plan (Incorporated by reference to Exhibit 19.2 to Form 10-K Report for year ended June 30, 1993.) 10.5 Deferred compensation agreement dated May 10, 1990 between Robinson Nugent, Inc. and Larry W. Burke, President and Chief Executive Officer. (Incorporated by reference to Exhibit 19.1 to Form 10-K Report for year ended June 30, 1990.) 10.6 Rabbi Trust Agreement dated July 1, 1996 between Robinson Nugent, Inc. and Dean Witter Trust Company, related to the deferred compensation agreement between Robinson Nugent, Inc. and Larry W. Burke President and Chief Executive Officer. (Incorporated by reference to Exhibit 10.6 to Form 10-K Report for year ended June 30, 1997.) 10.7 Amendment of the 1993 Robinson Nugent, Inc. Employee and Non-Employee Director Stock Option Plan. (Incorporated by reference to Exhibit 10.7 to Form 10-K Report for year ended June 30, 1998.) 10.8 Summary of the 1993 Robinson Nugent, Inc. Employee and Non-Employee Director Stock Option Plan, as amended. (Incorporated by Reference to Exhibit 10.8 to Form 10-K Report for year ended June 30, 1998.) 10.9 Summary of Robinson Nugent, Inc. Bonus Plan for the fiscal year ended June 30, 1999. (Incorporated by reference to Exhibit 10.9 to Form 10-K Report for year ended June 30, 1998.) (11) Not applicable. (15) Not applicable. (18) Not applicable. (19) Not applicable. (22) Not applicable. (23) Not applicable. (24) Not applicable. (27) Financial Data Schedule (99) Not applicable.