UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| [X] | QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004 |
OR
| [_] | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________ |
THE OILGEAR COMPANY
(Exact name of registrant as specified in its charter)
| Wisconsin | 39-0514580 | ||
| (State or other jurisdiction of | (I.R.S. Employer | ||
| incorporation or organization) | Identification No.) | ||
2300 South 51st Street, | |||
| Post Office Box 343924, | |||
| Milwaukee, Wisconsin | 53234-3924 | ||
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (414) 327-1700
| Not Applicable | |
| (Former name, former address and former fiscal year, if changed since last report.) |
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)
YES ______ NO__X___
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding as of May 11, 2004 | ||
| Common Stock, $1.00 Par Value | 1,959,798 | ||
Page 1
| ASSETS | March 31, 2004 | December 31, 2003 | ||||||
|---|---|---|---|---|---|---|---|---|
Current assets: |
||||||||
| Cash and cash equivalents | $ | 4,953,540 | 6,235,975 | |||||
| Trade accounts receivable, less allowance for doubtful | ||||||||
| receivables of $249,000 and $250,000 in 2004 and 2003, respectively | 15,851,718 | 15,475,564 | ||||||
| Costs and estimated earnings in excess of billings on uncompleted contracts | 2,482,310 | 1,317,695 | ||||||
| Inventories | 24,315,268 | 23,646,649 | ||||||
| Prepaid expenses | 1,220,716 | 930,918 | ||||||
| Other current assets | 939,338 | 740,075 | ||||||
| Total current assets | 49,762,890 | 48,346,876 | ||||||
| Property, plant and equipment, at cost | ||||||||
| Land | 1,128,072 | 1,144,305 | ||||||
| Buildings | 12,473,387 | 12,500,053 | ||||||
| Machinery and equipment | 50,991,560 | 50,674,237 | ||||||
| Drawings, patterns and patents | 5,945,984 | 5,867,277 | ||||||
| 70,539,003 | 70,185,872 | |||||||
| Less accumulated depreciation and amortization | 51,115,276 | 50,290,460 | ||||||
| Net property, plant and equipment | 19,423,727 | 19,895,412 | ||||||
| Other assets | 2,145,814 | 2,196,449 | ||||||
| $ | 71,332,431 | 70,438,737 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
| Short-term borrowings | $ | 2,161,023 | 2,182,892 | |||||
| Current installments of long-term debt | 2,035,685 | 2,067,019 | ||||||
| Accounts payable | 9,349,344 | 8,248,978 | ||||||
| Billings in excess of costs and estimated earnings on uncompleted contracts | 249,505 | 933,905 | ||||||
| Customer deposits | 2,149,017 | 1,424,442 | ||||||
| Accrued compensation and employee benefits | 3,443,187 | 2,917,263 | ||||||
| Other accrued expenses and income taxes | 3,183,553 | 3,154,743 | ||||||
| Total current liabilities | 22,571,314 | 20,929,242 | ||||||
| Long-term debt, less current installments | 19,035,369 | 19,586,095 | ||||||
| Unfunded employee retirement plan costs | 15,989,156 | 15,844,771 | ||||||
| Unfunded post-retirement health care costs | 8,065,000 | 8,200,000 | ||||||
| Other noncurrent liabilities | 813,472 | 916,158 | ||||||
| Total liabilities | 66,474,311 | 65,476,266 | ||||||
| Minority interest in consolidated subsidiaries | 958,136 | 937,148 | ||||||
| Shareholders’ equity: | ||||||||
| Common stock, par value $1 per share, authorized 4,000,000 shares; | ||||||||
| issued 1,990,783 shares | 1,990,783 | 1,990,783 | ||||||
| Capital in excess of par value | 9,497,906 | 9,497,906 | ||||||
| Retained earnings | 14,711,089 | 14,701,484 | ||||||
| 26,199,778 | 26,190,173 | |||||||
| Deduct: | ||||||||
| Treasury stock, 32,885 shares | (285,087 | ) | (285,087 | ) | ||||
| Notes receivable from employees for purchase of Company | ||||||||
| common stock | (77,920 | ) | (96,236 | ) | ||||
| Accumulated other comprehensive income (loss): | ||||||||
| Foreign currency translation adjustment | 229,397 | 245,902 | ||||||
| Minimum pension liablility adjustment | (22,166,184 | ) | (22,029,429 | ) | ||||
| (22,299,794 | ) | (21,783,527 | ) | |||||
| Total shareholders’ equity | 3,899,984 | 4,025,323 | ||||||
| $ | 71,332,431 | 70,438,737 | ||||||
See accompanying notes to consolidated financial statements.
Page 2
| FOR THREE MONTHS ENDED MARCH 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | |||||||
| Net sales | $ | 21,291,300 | 20,213,673 | |||||
| Cost of sales | 16,101,467 | 15,989,387 | ||||||
| Gross profit | 5,189,833 | 4,224,286 | ||||||
| Selling, general and administrative expenses | 4,670,284 | 4,897,097 | ||||||
| Operating income (loss) | 519,549 | (672,811 | ) | |||||
| Interest expense | 330,431 | 327,994 | ||||||
| Other non-operating income (loss), net | (45,640 | ) | 168,628 | |||||
| Earnings (loss) before income taxes | ||||||||
| and minority interest | 143,478 | (832,177 | ) | |||||
| Income tax expense | 112,888 | 121,360 | ||||||
| Minority interest in net earnings | 20,988 | 15,516 | ||||||
| Net earnings (loss) | $ | 9,602 | (969,053 | ) | ||||
| Basic weighted-average outstanding shares | 1,957,898 | 1,955,398 | ||||||
| Diluted weighted-average outstanding shares | 1,982,016 | 1,955,398 | ||||||
| Basic earnings (loss) per share of common stock | $ | 0.00 | (0.50 | ) | ||||
| Diluted earnings (loss) per share of common stock | $ | 0.00 | (0.50 | ) | ||||
See accompanying notes to consolidated financial statements.
Page 3
| FOR THREE MONTHS ENDED MARCH 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | |||||||
| Cash flows from operating activities: | ||||||||
| Net earnings (loss) | $ | 9,602 | (969,053 | ) | ||||
| Adjustments to reconcile net earnings (loss) to net cash | ||||||||
| provided (used) by operating activities: | ||||||||
| Depreciation and amortization | 758,219 | 796,033 | ||||||
| Common and treasury stock issued in connection with | ||||||||
| compensation element of sales to employees | ||||||||
| and employee savings plan | 6,414 | 8,126 | ||||||
| Minority interest in consolidated subsidiaries | 20,988 | 15,516 | ||||||
| Change in assets and liabilities: | ||||||||
| Trade accounts receivable | (359,370 | ) | 732,248 | |||||
| Inventories | (503,135 | ) | 696,494 | |||||
| Billings, costs and estimated earnings on uncompleted contracts | (1,828,575 | ) | (329,588 | ) | ||||
| Prepaid expenses | (286,426 | ) | (489,326 | ) | ||||
| Accounts payable | 1,104,345 | 424,271 | ||||||
| Customer deposits | 723,121 | (1,710,518 | ) | |||||
| Accrued compensation | 565,871 | 172,833 | ||||||
| Other, net | (379,669 | ) | 25,278 | |||||
| Net cash used by operating activities | $ | (168,615 | ) | (627,686 | ) | |||
| Cash flows from investing activities: | ||||||||
| Additions to property, plant and equipment | (274,997 | ) | (277,595 | ) | ||||
| Net cash used by investing activities | $ | (274,997 | ) | (277,595 | ) | |||
| Cash flows from financing activities: | ||||||||
| Net borrowings (repayments) under line of credit agreements | (100,225 | ) | (10,314 | ) | ||||
| Repayment of long-term debt | (589,297 | ) | (371,991 | ) | ||||
| Proceeds from issuance of long-term debt | — | 1,062,700 | ||||||
| Payments received on notes receivable from employees | 11,901 | 15,626 | ||||||
| Net cash provided (used) by financing activities | $ | (677,621 | ) | 696,021 | ||||
| Effect of exchange rate changes on cash and cash equivalents | (161,201 | ) | 151,126 | |||||
| Net decrease in cash and cash equivalents | (1,282,434 | ) | (58,133 | ) | ||||
| Cash and cash equivalents: | ||||||||
| At beginning of period | 6,235,975 | 4,126,006 | ||||||
| At end of period | 4,953,540 | 4,067,873 | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 323,087 | 285,270 | |||||
| Income taxes | 8,965 | 7,255 | ||||||
See accompanying notes to consolidated financial statements.
Page 4
| FOR THREE MONTHS ENDED MARCH 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2003 | |||||||
| Net income (loss) | $ | 9,602 | (969,053 | ) | ||||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation adjustment | (16,505 | ) | 317,997 | |||||
| Minimum pension liability adjustment | (136,755 | ) | 55,860 | |||||
| Total comprehensive loss | $ | (143,658 | ) | (595,196 | ) | |||
See accompanying notes to consolidated financial statements.
Page 5
These unaudited interim financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods in accordance with accounting principles generally accepted in the United States of America. All such adjustments are of a normal recurring nature. Management assumes the reader will have access to the December 31, 2003 Annual Report on Form 10-K, a copy of which is available upon request, and these notes should be read in conjunction with the Consolidated Financial Statements and the related notes in the Form 10-K.
The Company manages its operations in three reportable segments based upon geographic area. Domestic includes the United States and Canada, European includes Europe and International includes Asia, Latin America, Australia and Africa.
The individual subsidiaries of the Company operate predominantly in the fluid power industry. The Company provides advanced technology in the design and production of unique fluid power components. Products include piston pumps, motors, valves, controls, manifolds, electrohydraulic components, cylinders, reservoirs, skids and meters. Industries that use these products are primary metals, machine tool, automobile, aerospace, petroleum, construction equipment, chemical, plastic, glass, lumber, rubber and food. The products are sold as individual components or integrated into high performance applications.
Segment information is as follows:
| FOR THREE MONTHS ENDED | ||||||||
|---|---|---|---|---|---|---|---|---|
| SALES TO UNAFFILIATED CUSTOMERS | March 31, 2004 | March 31, 2003 | ||||||
| Domestic | $ | 10,789,606 | 9,409,193 | |||||
| European | 7,627,764 | 8,446,322 | ||||||
| International | 2,873,930 | 2,358,158 | ||||||
| Total | $ | 21,291,300 | 20,213,673 | |||||
INTERSEGMENT SALES | ||||||||
| Domestic | $ | 1,627,916 | 2,105,102 | |||||
| European | 200,371 | 290,290 | ||||||
OPERATING INCOME (LOSS) | ||||||||
| Domestic | $ | 391,551 | (611,731 | ) | ||||
| European | 360,984 | 288,692 | ||||||
| International | 322,516 | 189,869 | ||||||
| Corporate expenses, including R&D | (555,502 | ) | (539,641 | ) | ||||
| Total | $ | 519,549 | (672,811 | ) | ||||
AS OF | ||||||||
| IDENTIFIABLE ASSETS | March 31, 2004 | March 31, 2003 | ||||||
| Domestic | $ | 33,692,413 | 33,156,800 | |||||
| European | 28,698,404 | 24,812,635 | ||||||
| International | 7,147,607 | 6,656,886 | ||||||
| Corporate | 1,794,007 | 1,897,955 | ||||||
| Total | 71,332,431 | 66,524,276 | ||||||
Page 6
Inventories at March 31, 2004 and December 31, 2003 consisted of the following:
| March 31, 2004 | December 31, 2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| Raw materials | $ | 2,903,374 | 2,850,348 | |||||
| Work in process | 17,960,172 | 17,414,515 | ||||||
| Finished goods | 4,470,722 | 4,420,786 | ||||||
| 25,334,268 | 24,685,649 | |||||||
| LIFO reserve | (1,019,000 | ) | (1,039,000 | ) | ||||
| Total | $ | 24,315,268 | 23,646,649 | |||||
Inventories stated on the last-in, first-out (LIFO) basis, including amounts allocated to contracts that have not been completed, are valued at $15,132,000 and $14,192,000 at March 31, 2004 and December 31, 2003, respectively. The remaining inventory is stated on the first-in, first-out (FIFO) or average cost basis.
EMPLOYEE BENEFIT PLANS
(A) PENSION PLANS
The Company has non-contributory defined benefit retirement plans covering substantially all domestic employees. The plan covering salaried and management employees provides pension benefits that are based on years of service and the employee’s compensation during the last ten years prior to retirement. This plan was frozen on December 31, 2002. Benefits payable under this plan may be reduced by benefits payable under The Oilgear Stock Retirement Plan (Stock Retirement Plan). The plan covering hourly employees and union members generally provides benefits of stated amounts for each year of service. The Company’s policy is to fund pension costs to conform to the Employee Retirement Income Security Act of 1974. The minimum required contributions for 2004 for these defined benefit reti