Winland Electronics, Inc. (the “Company”) was incorporated as a Minnesota corporation in October 1972. The Company designs and manufactures custom electronic controls and assemblies primarily for OEM customers. Revenues from OEM customers provided 85% of the Company’s total revenue in 2000. The Company provides controls and assemblies to several OEM customers who market their products to a wide variety of industries. The Company continues to maintain its presence in the security/industrial markets with the sales of its own line of proprietary environmental security products.
The Company designs, produces and distributes products in two product categories defined as “Electronic Controls and Assemblies for OEM Customers” and “Proprietary Products and Services”, primarily for the Security/Industrial markets.
Electronic Controls and Assemblies for OEM Customers: The Company designs and manufactures custom electronic controls and assemblies for several OEM customers. The Company responds to OEM customer needs by providing a mix of value-added services that complement the Company’s contract manufacturing work. The services provided include product design, value engineering, manufacturing engineering, testing, out-of-warranty repair, shipping, and warehousing. These services differentiate the Company from the competition and increase customer satisfaction, confidence, and loyalty. Current OEM customers include Select Comfort Corporation, Johnson Outdoors Inc., CIC Systems, Inc., Scotsman Industries, Inc., and PeopleNet Communications Corporation. Although the Company has in place several purchase orders from OEM customers which are scheduled to be fulfilled in 2001, these customers may terminate their relationship with the Company at any time. There is no assurance that the Company will continue to be engaged by any of these customers. Sales to OEM customers accounted for 85% and 87% of the Company’s total sales during 2000 and 1999, respectively.
Proprietary Products: The Company’s proprietary products include an established family of environmental security products, a line of DC motor controllers that can be customized to meet customer requirements, and the SatSource™ GPS antenna product line that provides both standard and custom solutions for users of global positioning systems technology. The Company’s security/industrial products include simple and sophisticated microprocessor and mechanically controlled sensors and alarms. These products monitor and detect environmental changes, such as changes in temperature or humidity, water leakage and power failures. The Company’s “ALERT” series of products may be hooked up to many burglar or fire alarm panels to monitor and report unfavorable environmental conditions. Proprietary product sales accounted for 15% and 13% of the Company’s total sales for 2000 and 1999, respectively.
Marketing and Distribution:
The Company markets its design and manufacturing services to prospective OEM customers primarily through in-house sales and marketing efforts and referrals from existing customers, suppliers and electronic design firms. One of the Company’s key marketing objectives is to form long-term business relationships with OEM customers by working to develop a degree of technological interdependence between itself and the customer. With this in mind, the Company has worked to identify new OEM customers that need a broad range of services in addition to their manufacturing needs. The Company plans to achieve continued growth in OEM sales by responding to customer needs with exceptional service, technical expertise, and continuing to deliver quality, cost-effective controls and assemblies to its OEM customers.
The Company markets its proprietary, security/industrial products through dealers and wholesalers, in-house direct marketing and sales efforts, instrumentation catalogs, and national and regional trade expositions. Currently, the Company sells these products through a distribution network of over 350 locations in the United States, Canada, Mexico, and Europe.
Source of Materials:
Raw material components and some subassemblies are purchased from outside vendors, qualified through a vendor qualification process and inspected in accordance with Company inspection policies before being incorporated into products. Certain purchased components and subassemblies are manufactured to design specifications furnished by the Company, while others are standard off-the-shelf items. The Company utilizes multiple sources for the off-the-shelf components, but generally maintains only one source for the items manufactured to design specifications. If the Company loses one or more of its major components suppliers and needs to seek alternative suppliers, some delay and possible additional costs may be incurred while obtaining alternative sources.
In addition to manufacturing its own products, the Company has contracted with companies in the United States and foreign countries to provide both finished goods assemblies and component assemblies designed to the Company’s specifications. Although alternative sources for such items may be found, if the Company were to lose one or more of these suppliers, some delay and additional costs may be incurred while obtaining alternative sources.
Patents, Trademarks and Licenses:
The Company holds federal trademark registrations for marks used in the Company’s business as follows: WATERBUG, TEMP ALERT and ENVIRONMENTAL SECURITY.
Seasonality and Working Capital:
Due to the diversity of the Company’s customer mix, the Company’s business and working capital needs are not seasonal. Changes in the types of products produced for significant OEM customers could materially affect the seasonality of the Company’s business in subsequent years.
Significant Customers:
The Company has worked to develop long-term relationships with its OEM customers that are mutually beneficial. Due to the nature of the Company’s contract manufacturing relationships, there is a significant degree of dependence between these customers and the Company. As a group, customers whose individual revenues equaled or exceeded 10% of the Company’s net sales revenues were responsible for net sales of $14.1 million, or 72% of total net sales, in 2000 and net sales of $14.6 million, or 74% of total net sales, in 1999.
Select Comfort Corporation has been one of the Company’s most significant customers during both 2000 and 1999, with sales of 32% and 36% of the Company’s net sales in 2000 and 1999, respectively. Select Comfort is a Minnesota based air-sleep system manufacturer in the bedding industry. The design and manufacturing services provided to Johnson Outdoors Inc. accounted for 17% and 16% of the Company’s net sales during 2000 and 1999, respectively. Johnson Outdoors is a Wisconsin based manufacturer of recreational products. The design and manufacture services provided to PeopleNet Communications Corporation accounted for 23% and 22% of the Company’s net sales during 2000 and 1999, respectively. PeopleNet Communications is a Minnesota based manufacturer of a locating and mobile communications system for the long-haul and short-haul transportation industry.
Competition:
The
Company’s business includes the design and manufacturing of
electronic controls and assemblies for OEM customers and the
development and marketing of proprietary security/industrial
products. Among the security/industrial products, competition has
increased in the last two years as additional companies have
introduced competing products. The Company believes, however, that
its products offer desirable features at competitive prices.
Significant competitive factors in the market for security/industrial products
include product effectiveness and features, price, reliability and
company reputation. The Company believes that it competes favorably
with respect to product effectiveness, features, price and
reliability. However, given the Company’s size and relatively
small presence in this market, many of the Company’s competitors
have an advantage by being larger, better-known and better-financed.
The competition for the contract design and manufacturing services offered by the Company has increased substantially, both domestically and internationally. To enhance its ability to compete effectively, the Company has continued to invest in the development of its work force and technically advanced design production and test equipment. The Company has been working to position itself as a full service solution to its contract design and manufacture customers. Significant competitive factors in this market include development and design expertise, quality of manufacturing, price, capacity, and company reputation. The Company believes that it competes favorably with respect to development and design expertise and quality of manufacturing. The Company’s foreign competitors are often more aggressive in pricing their services, and many of the Company’s competitors have greater capacity, and are better-known and better-financed than the Company.
Research and Development:
Throughout 2000, the Company has continued to position itself as a full-service solution to its OEM customers by offering varied design technologies including, wireless communications, GPS (global positioning systems), and embedded software design for control systems. The Company has a strong research and development department that has the ability to service most of the customers’ engineering requirements, including complete new product design, value engineering, and redesign of existing products. The Company has continued to expand its engineering staff and equipment with advances in wireless communication, design and expansion of its software development and advanced test system design staff. The Company spent $1,045,773 or 5.4% of net sales for research and development expenses for the year ended December 31, 2000, compared to $835,577 or 4.2% of net sales for 1999.
Effect on Environmental Regulations:
The Company is not aware of any federal, state, or local provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment with which compliance by the Company has had, or is expected to have, a material effect upon the capital expenditures, earnings, or competitive position of the Company.
Foreign Operations and Export Sales:
In 2000, the Company derived less than 1% of its revenues from sales outside the United States compared to over 3% for 1999.
Personnel:
At December 31, 2000, the Company had 118 employees (116 full-time and two part-time). The Company also extensively uses temporary labor services for peak production purposes. The Company is not subject to a collective bargaining agreement, and it considers its relations with its employees to be good.
The Company owns its office and manufacturing facility located in Mankato, Minnesota. The 58,000 square foot building consists of 15,500 square feet of office space, 32,500 square feet of manufacturing space and 10,000 square feet of warehouse space, all of which is used by the Company. Management believes that, with the completion of a 5000 square foot addition in mid-year 1999, the facility adequately supports the Company’s present and near future operations. Management believes its property is adequately covered by insurance. The Company’s office and manufacturing facility are subject to mortgages securing an aggregate amount of debt which was equal to $1,702,380 as of December 31, 2000.
The Company is not a party to any material legal proceedings.
None.