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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Commission
Ended August 31, 1999 File Number 0-288
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ROBBINS & MYERS, INC.
(Exact name of Registrant as specified in its charter)
OHIO 31-0424220
(State of incorporation) (I.R.S. employer
identification number)
1400 Kettering Tower, Dayton, Ohio 45423
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Registrant's telephone number, including area code:
(937) 222-2610
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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(1) Common Shares, without par value New York
(2) 6-1/2% Convertible Subordinated Notes, Due 2003 New York
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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirement for at least 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. [ ]
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At the close of business on October 22, 1999
Number of Common Shares, without
par value, outstanding ...........................10,938,945
Aggregate market value of Common
Shares, without par value, held
by non-affiliates of the Company................$118,473,360
DOCUMENT INCORPORATED BY REFERENCE
Robbins & Myers, Inc., Proxy Statement, dated November 10, 1999, for
its Annual Meeting of Shareholders on December 8, 1999, definitive copies of the
foregoing have been filed with the Commission. Only such portions of the Proxy
Statement as are specifically incorporated by reference under Part III of this
Report shall be deemed filed as part of this Report.
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ITEM 1. BUSINESS.
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BACKGROUND
Robbins & Myers, Inc., an Ohio corporation (the "Company"), designs,
manufactures and markets on a global basis high-performance, specialized fluids
management products for the process industries. The Company has two business
segments: Process Systems and Energy Systems. Within the Process Systems segment
the Company's primary product platforms are Reactor Systems (46.4% and 43.9% of
fiscal 1999 and 1998 sales, respectively), Industrial Mixers (16.9% and 17.8% of
fiscal 1999 and 1998 sales, respectively), Industrial Pump Products (15.1% and
15.5% of fiscal 1999 and 1998 sales, respectively) and Corrosion-Resistant
Products (5.4% and 4.2% of fiscal 1999 and 1998 sales, respectively). The
Company's Energy Systems segment had 16.2% and 18.6% of fiscal 1999 and 1998
sales, respectively.
The Company has achieved a leading market share in each of its segments
and product platforms. The Company believes that it is first worldwide in
Reactor Systems and in progressing cavity Industrial Pump Products, and second
worldwide in Industrial Mixers. In addition the Company's Energy Systems segment
has a leading market position in power sections, wellhead equipment and rod
guides and a strong market position in down-hole pump and closure products. The
Company can provide customers with a wide array of products and systems in its
Energy Systems segment. The Company also believes that its principal brand
names, such as -Pfaudler(R), Moyno(R), Chemineer(R), Edlon(R) Hercules(R),
Patco(R), Resun(R) and Yale(R), are well-known in the marketplace and are
associated with quality products and extensive customer support, including
product application engineering, state-of-the-art customer test facilities and
strong aftermarket service and support.
The Company markets its products globally to end users where the
pumping, mixing, treatment, chemical processing, measurement and containment of
gases, fluids and particulates are important elements in their production
processes. The diverse industries with fluids management needs served by the
Company's products are specialty chemical, agri-chemical, pharmaceutical, oil
and gas exploration and production, wastewater treatment, food and beverage and
pulp and paper.
The Company seeks to balance its mix of products and services and
maintain overall stability in its operating results principally through
increased levels of higher margin aftermarket sales, broad international
presence with manufacturing facilities in twelve countries, and end user market
diversification. In fiscal 1999 aftermarket sales to the Company's customers, as
well as customers of its competitors, accounted for 34% of total sales and sales
to non-U.S. customers accounted for 46% of total sales.
The Company seeks to continue to grow by (i) internal growth from the
inherent growth of its end user markets, particularly longer-term, high-growth
markets such as pharmaceutical, wastewater treatment, agri-chemical and oil and
gas exploration and production, as well as new product introductions; (ii)
exploiting acquisition opportunities for industry consolidation within existing
markets, specifically the highly fragmented
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positive displacement pump and industrial mixer industries; (iii) expanding
geographically, both internally and through acquisitions, into emerging markets
such as the Asia-Pacific Rim, South America and Western Canada oilfields; and
(iv) establishing new product lines through acquisitions of related fluids
management businesses such as valves, seals, filters and grinders.
The Company's business related to oil and gas exploration and
production activities has been adversely impacted by the decline in crude oil
prices in fiscal 1998 and 1999. The recovery in crude oil prices near the end of
fiscal 1999 has resulted in modest increases in order levels; however, longer
term stability in crude oil prices is needed before there is a full recovery in
this market. In addition, geographic expansion into the Asia-Pacific Rim area
has been slowed by the general economic uncertainties in that region. In the
long-term the Company believes these areas will recover and be a source of
growth for the Company.
The Company operates in two industry segments. Information concerning
the Company's sales, IBIT and identifiable assets by segment and sales and
identifiable assets by geographic area for the years ended August 31, 1999, 1998
and 1997 is set forth in Note 11 to the Consolidated Financial Statements
included at Item 8 and is incorporated herein by reference.
ACQUISITIONS
On July 19, 1999, the Company purchased additional shares of GMM
Pfaudler Limited, an Indian Corporation ("GMM"), for $3,744,000. These
additional shares increased the Company's ownership from 40% to 51% and results
in the Company controlling GMM. Therefore, the Company consolidated GMM into its
financial statements from that date and recorded a minority interest for the
remaining 49% owners' share of GMM. The Company's interest in GMM was previously
recorded under the equity method.
On June 30, 1999, the Company purchased 51% of Chemineer de Mexico,
S.A. de C.V. ("Chemineer de Mexico"), a Mexican corporation and its licensee in
Mexico for $1,600,000. The Company consolidated the results of Chemineer de
Mexico from that date and recorded a minority interest for the remaining 49%
owners' share of Chemineer de Mexico. The remaining 49% of Chemineer de Mexico
will be purchased in 3 equal increments on December 31, 1999, 2000 and 2001 at
prices based upon the earnings of Chemineer de Mexico.
On December 1, 1998, the Company amended the Universal Glasteel
Equipment ("UGE") partnership agreement with Universal Process Equipment, Inc.
("UPE"). The amendment results in the Company controlling UGE. Therefore, the
Company consolidated UGE into its financial statements from that date and
recorded a minority interest for UPE's share of UGE. The Company's interest in
UGE was previously recorded under the equity method. The Company's ownership
share of UGE did not change as a result of the amendments.
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PROCESS SYSTEMS
Reactor Systems
The Company's Reactor Systems business, consisting of its Pfaudler,
Tycon and Technoglass brands, manufactures and sells glass-lined reactor and
storage vessels, mixing systems and accessories, including instrumentation and
piping. These products are principally used in the pharmaceutical, specialty
chemical and agri-chemical end user markets. A reactor system performs critical
functions in batch production processes by providing a temperature, agitation
and pressure controlled environment for often complex chemical reactions. The
glass-lined vessel is made by lining a specially constructed steel vessel with
glass bonded to the inside steel surface. Substantial knowledge is required to
properly manufacture a glass-lined vessel. Special glasses are used to both bond
with the steel surface and provide an inert, corrosion-resistant surface that
will not contaminate the chemicals in the vessel. Reactor systems have vessels
with capacities between one and 15,000 gallons, are generally custom-ordered and
designed, and are often equipped with various accessories such as drives,
glass-lined agitators and baffles, and instruments. A fully equipped reactor
system can sell for up to $300,000. The Reactor Systems business also
manufactures and sells glass-lined storage vessels with capacities up to 25,000
gallons to mostly the same customers that use glass-lined reactor systems. A
summary of the Company's Reactor Systems business is as follows:
End User Markets
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Market % of Major Principal
Position Markets 1999 Sales Competitors Brands
- ---------------- ------------------------------- ------------------ -------------------- -----------------------
#1 Specialty Chemicals 44% DeDietrich Pfaudler(R)
Pharmaceutical 44% Tycon(R)
Agri-chemicals 5% Technoglass(R)
Other 7% GPS(R)
CRS(R)
UGE(R)
The Company believes that Pfaudler is the largest supplier of
glass-lined reactor systems with DeDietrich of France being the next largest
supplier. The Japanese suppliers largely supply only the Japanese market.
Pfaudler manufactures its glass-lined reactor systems in seven countries, the
U.S., the U.K., Germany, India, Brazil, Mexico and China. Tycon and Technoglass
glass-lined reactor systems are manufactured in Italy.
While the Company has a global market share of over 50% in glass-lined
reactors and storage vessels, it has a global market share of less than 10% in
Reactor Systems. Expanding the market to reactor systems provides growth
opportunities in products related to reactors in providing a complete system for
customers.
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Sales, Marketing And Distribution -- Pfaudler, Tycon and Technoglass glass-lined
reactor systems, storage vessels and accessories are sold directly to customers
by a Company-employed direct sales force of approximately 30 persons,
approximately 20 of whom are based outside the United States and manufacturers'
representatives. Pfaudler and Tycon are particularly focused on continuing to
develop preferred supplier relationships with major pharmaceutical and specialty
chemical companies, as these companies continue to expand their production
operations in emerging markets.
Aftermarket Sales -- Pfaudler has a large installed base of glass-lined reactor
systems since it has been the leading supplier of these systems for more than 50
years. Aftermarket products and services are an important part of Pfaudler's
sales and include field service, replacement parts, accessories and
reconditioning used vessels. Glass-lined vessels require regular maintenance and
care because of their harsh operating environments and strict purity
requirements. The Company has expanded the aftermarket capabilities of Pfaudler
to better meet the needs of its customers, as many customers are reducing their
internal engineering staffs and outsourcing maintenance activities. Pfaudler has
a joint venture with Universal Process Equipment Inc. called Universal Glasteel
Equipment ("UGE") to refurbish and sell used, glass-lined vessels. For many
customers, used vessels are a cost effective alternative to new vessels. They
are more affordable, warranted with the same quality specifications and can
often be delivered to a customer faster than a new vessel.
Pfaudler acquired Pharaoh in 1995 to strengthen its U.S. aftermarket
business by combining Pharaoh with Pfaudler's aftermarket business to create a
new aftermarket organization, Glasteel Parts & Service ("GPS"). Pfaudler also
acquired Cannon in 1995 to strengthen the U.K. aftermarket business by combining
Cannon with Chemical Reactor Services ("CRS"), Pfaudler's U.K. aftermarket
business. GPS and CRS are the largest providers of aftermarket services to the
U.S. and U.K. installed base of glass-lined vessels, including the installed
base of competitors.
Competition -- Pfaudler and Tycon compete principally with DeDietrich in all
world markets except Japan, China and India. Pfaudler has the leading market
share and installed base in all the countries in which it operates facilities.
Tycon has the leading share in Italy and has a significant presence in
Switzerland and Germany. DeDietrich has a dominant position in France, where its
main facility is located, and a significant presence in other continental
European markets and the U.S.
Pfaudler is the market leader in Mexico, South America and India. In
April 1996, the Company announced a 60% owned joint venture agreement with a
Chinese glass-lined equipment manufacturer. In 1999, the Company increased its
ownership percentage to 70%. The joint venture has a small market share of a
fragmented Chinese market, but is upgrading its products to supply Western
quality glass-lined vessels to customers in China. The markets in Japan, Taiwan
and Korea are largely supplied by Japanese manufacturers that sell few products
to markets outside the region.
The Company believes that it will benefit from the long-term trend of
high levels of capital expenditures within the pharmaceutical industry. This
trend is driven by the
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significant industry growth rates from globalization of manufacturing facilities
to service emerging markets, development of innovative drugs which often require
new process facilities or retrofit of existing facilities, and expiration of
patents on certain drugs which will result in greater production of generic
equivalents.
Industrial Mixers
Chemineer manufactures industrial mixers that range from fractional
horsepower sizes to over 1,000 horsepower. Prices for mixers and agitators range
from hundreds of dollars for small portable mixers to more than $1 million for
large, customized mixers. A summary of the Company's Industrial Mixers business
is as follows:
End User Markets
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Market % of Major Principal
Position Markets 1999 Sales Competitors Brands
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#2 Specialty Chemicals 49% Lightnin' Chemineer(R)
Wastewater treatment 9% Ekato Valchem(R)
Pulp & Paper 8% Satake Kenics(R)
Agri-chemicals 4% Philadelphia Mixer Greerco(R)
Other 30% Prochem(R)
Chemineer's product line consists of top-entry, side-entry,
gear-driven, belt-driven, and static mixers. The Company's Industrial Mixers are
used in a variety of applications, ranging from simple storage tank agitation to
critical applications in polymerization and fermentation processes.
Chemineer products include a line of high-quality turbine agitators.
These gear-driven agitators are available in various sizes, a wide selection of
mounting methods, and drive ranges from one to 1,000 horsepower. The Chemineer
line also includes top-entry turbine agitators with drive ranges from one-half
to five horsepower, designed for less demanding applications, and a line of
portable gear-driven and direct drive mixers, which can be clamp mounted to
tanks to handle batch mixing needs. In 1999, Chemineer introduced two totally
new agitation drive systems, the QED Plus worm gear mixer and the GT parallel
shaft agitator. Chemineer also introduced the BTNS, a new mixer for the biotech
market to keep pace in this growth market.
Prochem industrial mixers are principally belt-driven, side-entry
mixers used primarily in the pulp and paper and mineral process industries.
Kenics mixers are continuous mixing and processing devices, with no moving
parts, which are used in specialized static mixing and heat transfer
applications. Static mixers in heat exchangers greatly increase the heat
transfer process in certain applications. Greerco(R) mixers are high-shear
mixers used primarily for paint, cosmetics, plastics and adhesive applications.
Mixers are manufactured in Dayton, Ohio, North Andover, Massachusetts and
Haverhill, Massachusetts in the U.S. and Derby, England.
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Sales, Marketing And Distribution -- Chemineer industrial mixers are sold
through regional sales offices and through a network of approximately 125 U.S.
and 30 non-U.S. manufacturers' representatives. Chemineer maintains regional
sales offices for such equipment in Ohio, Texas, Mexico, Canada, the U.K.,
Singapore, Taiwan and China.
Competition -- The mixer equipment industry is highly competitive. Three
companies account for a significant portion of U.S. sales, but compete with
numerous smaller manufacturers. The Company believes that Chemineer's
application engineering know-how, diverse products, product quality and customer
support allow it to compete effectively in the market place. Chemineer is
expanding its presence internationally, especially in Asia. To that end,
Chemineer operates a liaison office in Shanghai to establish contacts and
relationships in China. Chemineer also has a majority-owned joint venture with
General Resources Company of Taipei, Taiwan operating in Singapore and Taiwan to
provide sales, marketing and product engineering for the entire line of
Chemineer mixers and agitators throughout East Asia.
Industrial Pump Products
Moyno manufactures and sells progressing cavity pumps and related
products into the wastewater treatment, specialty chemicals, oil, food and
beverage, and pulp and paper end user markets. Prices range from several hundred
dollars for small pumps to up to $200,000 for large pumps such as those used in
wastewater treatment applications. A summary of the Company's progressing cavity
Industrial Pump Products business is as follows:
End User Markets
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Market % of Major Principal
Position Markets 1999 Sales Competitors Brands
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#1 Wastewater Treatment 33% Netzsch Moyno(R)
Specialty Chemicals 14% Mono R&M(R)
Food & Beverage 13% Seepex Tri-Phaze(R)
Pulp & Paper 11% PCM
Oil & Gas 7%
Other 22%
Progressing cavity technology involves utilizing a motor-driven,
high-strength, single or multi-helix rod as a rotor within an elastomer-lined
stator. The spaces between the helixes create continual cavities which enable
the fluid to move from the suction end to the discharge end. The continuous seal
creates positive displacement and an even flow regardless of the speed of the
application. Progressing cavity pumps are versatile, as they can be positioned
at any angle and can deliver flow in either direction without modification or
accessories. These pumps are able to handle fluids ranging from high pressure
water and shear sensitive materials to heavy, viscous, abrasive, solid-laden
slurries and sludges. In 1999 Moyno introduced the new Ultra Pro 23 rotor and
stator design which generates higher flow and pressure capabilities from a more
compact design, the world's largest progressing cavity pump, a new line of
wastewater treatment
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screens and a line of high pressure sanitary pumps. Pumps are manufactured in
Springfield, Ohio and there are pump assembly and service centers in the U.K.,
Mexico and Singapore.
Sales, Marketing And Distribution -- Industrial Pump Products are sold worldwide
through approximately 50 U.S. and 30 non-U.S. distributors and 40 U.S. and 15
non-U.S. manufacturers' representatives. These networks are managed by 5
regional sales offices in the U.S., one office in the U.K., one office in Mexico
and one office in Singapore.
Competition -- Moyno has a large installed base and the leading market share in
the U.S., and a smaller presence in Europe and Asia. While the Company believes
Moyno is the world leader in the manufacture of progressing cavity pumps, the
market is competitive and includes many different types of similar equipment and
several competitors, none of which is dominant. In addition, there are several
other types of positive displacement pumps including gear, lobe and air-operated
diaphragm pumps that compete with progressing cavity pumps in certain
applications.
Corrosion-Resistant Products
Edlon-PSI manufactures and sells lined pipe and fittings, coatings and
liners for process equipment, fluoropolymer roll covers for paper machines and
glass-lined reactor systems accessories. Edlon-PSI's products are used
principally in the specialty chemicals, pharmaceutical and semiconductor end
user markets to provide corrosion-resistant environments and in the paper
industry for release applications. A summary of the Company's
Corrosion-Resistant Products business is as follows:
End User Markets
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Market % of Major Principal
Position Markets 1999 Sales Competitors Brands
- --------------------- ------------------------------ ------------------- ------------------------ --------------
N/A Specialty Chemicals 64% Dow-Resistoflex Edlon(R)
Electronics 13% 3P PSI(R)
Pharmaceutical 8%
Pulp & Paper 8%
Other 7%
Edlon-PSI primarily competes by offering highly engineered products and
products made for special needs that are not readily supplied by competitors.
Edlon-PSI is able to compete effectively based on its extensive knowledge and
application experience with fluoropolymers. Products are made in Avondale,
Pennsylvania, Charleston, West Virginia and Leven, Scotland.
Sales, Marketing And Distribution -- Edlon and PSI products in the U.S. are sold
through both a distributor network for higher volume items such as lined pipe
and pipe liners, and a direct sales force and sales representatives for lower
volume products.
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Outside the U.S., products are sold through sales representatives except for the
U.K., where products are sold through a direct sales force.
Aftermarket Sales -- Edlon-PSI products do not typically have parts or
components that routinely wear out or need replacement, and therefore
aftermarket sales are insignificant.
ENERGY SYSTEMS
R&M Energy Systems ("Energy Systems") manufactures and sells a variety
of specialized products to the oil and gas exploration and production markets.
These products are principally used either down a well hole or at a wellhead. A
summary of the Company's Energy Systems business is as follows:
End User Markets
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Market % of Major Principal
Position Markets 1999 Sales Competitors Brands
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N/A Oil & Gas 91% Halliburton Moyno(R)
Other 9% Baker-Hughes New Era(R)
Weatherford Patco(R)
Telford Hamer(R)
Hercules(R)
Magnum(R)
Resun(R)
Staytite(R)
Yale(R)
Energy Systems sells a line of power sections and down-hole progressing
cavity pumps, rod guides, wellhead products and closure products. Moyno power
sections are used to drive the drill bit in horizontal and directional drilling
applications, often with multiple wells drilled from a single location. Power
sections utilize the same technology as is used in progressing cavity pumps.
Down-hole pumps are used primarily to lift crude oil to the surface where there
is not enough natural pressure and for dewatering gas wells. The largest
oilfields that benefit from using downhole pumps are in Canada, the U.S.,
Venezuela and the Commonwealth of Independent States ("CIS"). Rod guides are
placed on downhole rods used to pump oil to protect the rods and the well
casings from damage during operation and to enhance the flow of fluid to the
surface. Wellhead products are used at the wellhead to control the flow of oil,
gas and other material from the well. Closure products are used in oil and gas
pipelines to allow access to a pipeline at selected intervals. These products
are manufactured in Fairfield, California three plants in Texas and several rod
guide service centers located in the U.S. and Canadian oilfields. In addition,
the Company operates a facility in Belgium that relines power section stators
for the European aftermarket.
Sales, Marketing And Distribution -- Power sections are sold directly to
oilfield service companies through a sales office in Houston, Texas. Rod guides
and certain wellhead
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equipment in the U.S. and Canada are sold through Company service centers in key
oilfield locations. Energy Systems currently operates seven service centers in
the U.S. and six service centers in Alberta, Canada. Down-hole pumps in the U.S.
are sold through three distributors, and several other distributors have been
established in South America, the CIS and Asia. Down-hole pumps in Canada are
sold through the service centers. Wellhead products and closure products are
also sold through a distributor network in the U.S.
Aftermarket Sales -- Aftermarket sales are principally the relining of stators,
a key component of power sections and down-hole pumps. Power section and
down-hole pump rotors and rod guides wear out after regular usage, but
replacement sales of these items are not identifiable and are not classified as
aftermarket sales.
Competition -- Energy Systems is the leading manufacturer of power sections. A
few potential customers have backward integrated and produce their own power
sections. Energy Systems is also the leading supplier of rod guides, wellhead
components and pipeline closure products and is the second leading supplier of
down-hole progressing cavity pumps. While the oil and gas exploration and
production marketplace is highly fragmented, Energy Systems believes that with
its leading positions in these products, as well as the introduction of its well
drivehead product in fiscal 1998, it is positioned to be a full line supplier
with the capability to provide customers with complete system sourcing.
Oil service companies, our customers, use the most advanced
technologies available in the exploration and recovery of oil and gas.
Therefore, new product innovation is critical to suppliers to this market. The
Company continually develops new elastomer compounds for use in power sections
and down-hole pumps in deeper wells and more adverse conditions. In addition,
advanced wellhead equipment is being introduced that will improve the efficiency
of well production.
BACKLOG
At August 31, 1999 and 1998, the Company's order backlog was $74.3
million and $96.0 respectively. Within the next twelve months the Company
expects to ship all of its backlog. Sales of the Company's products are not
subject to material seasonal fluctuations.
CUSTOMERS
Sales are not concentrated with any customer, as no customer
represented more than 5% of sales in fiscal years 1999, 1998 or 1997.
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RAW MATERIALS
Raw materials are purchased from various vendors that generally are
located in the same country as the Company facility using the raw materials. The
supply of raw materials and components has been adequate and available without
significant delivery delays. No events are known or anticipated that would
change the sources and availability of raw materials. No supplier provides more
than 5% of the Company's raw materials.
GENERAL
The Company owns a number of patents relating to the design and
manufacture of its products. While the Company considers these patents important
to its operations, it believes that the successful manufacture and sale of its
products depend more upon technological know-how and manufacturing skills. The
Company is committed to maintaining high quality manufacturing standards and has
completed ISO certification at several facilities.
During 1999, the Company spent approximately $2.2 million on research
and development activities compared to $2.0 million in both 1998 and 1997.
Compliance with federal, state and local laws regulating the discharge
of materials into the environment is not anticipated to have any material effect
upon the capital expenditures, earnings or competitive position of the Company.
At August 31, 1999, the Company had 3,244 employees, which included
approximately 700 at majority-owned joint ventures. Approximately 900 of these
employees were covered by collective bargaining agreements at various locations.
In fiscal year 2000 the Company has no labor contracts expiring. Three year
labor agreements were reached with the employees of the Pfaudler facility in
September 1998 and Moyno in April 1999. The Company considers labor relations at
each of its locations to be good.
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ITEM 2. PROPERTIES
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FACILITIES
The Company's executive offices are located in Dayton, Ohio. The
executive offices are leased and occupy approximately 10,000 square feet. Set
forth below is certain information relating to the Company's principal operating
facilities.
SQUARE PRODUCTS MANUFACTURED OR
LOCATION FOOTAGE OTHER USE OF FACILITY
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NORTH AND SOUTH AMERICA:
Rochester, New York 500,000 Reactor Systems
Springfield, Ohio 275,000 Industrial Pump Products
Dayton, Ohio 160,000 (1) Industrial Mixers
Borger, Texas 115,000 Wellhead products for Energy Systems
Willis, Texas 110,000 Down-hole pumps and power sections for Energy Systems
Mexico City, Mexico 110,000 Reactor Systems
Taubate, Brazil 100,000 Reactor Systems
Charleston, West Virginia 75,000 Corrosion-Resistant Products
Tomball, Texas 75,000 Valves and closures for Energy Systems
Fairfield, California 60,000 Down-hole pumps and power sections for Energy Systems
Avondale, Pennsylvania 50,000 Corrosion-Resistant Products
North Andover, Massachusetts 30,000 (1) Industrial Mixers
Sao Jose Dos Campos, Brazil 30,000 Reactor Systems
Edmonton, Alberta, Canada 25,000 to (2) Energy Systems, including two service centers
2 plants 30,000 each (1)
Mexico City, Mexico 20,000 (1) (3) Industrial Mixers
Haverhill, Massachusetts 10,000 (1) Industrial Mixers
Rochester, New York 10,000 (1) Reactor Systems
EUROPE:
Schwetzingen, Germany 400,000 Reactor Systems
Leven, Scotland 240,000 Reactor Systems and Corrosion-Resistant Products
Quarto D'Altino, Italy 120,000 Reactor Systems
San Dona di Piave, Italy 90,000 Reactor Systems
Bilston, England 50,000 Reactor Systems
Derby, England 20,000 (1) Industrial Mixers
Petit-Rechain, Belgium 15,000 Power sections for Energy Systems
Kearsley, England 15,000 Reactor Systems
Bolton, England 15,000 Reactor Systems
Southampton, England 10,000 (1) Industrial Pump Products
ASIA:
Gujurat, India 350,000 (3) Reactor Systems
Suzhou, China 150,000 (4) Reactor Systems
Singapore 5,000 (1) Industrial Pump Products
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(1) Leased facility.
(2) R&M Energy Systems also operates an additional 13 (7 U.S., 6 Canada)
Service Centers, primarily in leased facilities between 5,000 and 10,000
square feet each. These locations are in the oil producing regions of the
U.S. and Canada and manufacture rod guides and distribute other of the
Company's Energy Systems products. Locations are: Bakersfield, California,
Oklahoma City, Oklahoma, Odessa, Texas, Casper, Wyoming, Mt. Pleasant,
Michigan, Williston, North Dakota, Wooster, Ohio and in Alberta, Canada -
Bonnyville, Brooks, Elk Point, Provost, Sedgewick, and Taber.
(3) Facility of a 51%-owned subsidiary.
(4) Facility of a 70%-owned subsidiary.
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ITEM 3. LEGAL PROCEEDINGS
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The Company is presently not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Maynard H. Murch IV, age 55, has been Chairman of the Board of the
Company since July, 1979 and a director of the Company since 1977. Mr. Murch is
also President and Chief Executive Officer of Maynard H. Murch Co., Inc.
(investments), which is managing general partner of M.H.M. & Co., Ltd.
(investments). Mr. Murch is also Vice President (since June, 1976) of
Parker/Hunter Incorporated (dealer in securities), a successor firm to Murch and
Co., Inc., a securities firm which Mr. Murch had been associated with since
1968.
Daniel W. Duval, age 63, has been Vice Chairman of the Board of the
Company since January 1, 1999. Previously he was President and Chief Executive
Officer of the Company and has been a director of the Company since December 3,
1986. Prior to joining the Company, he was President and Chief Operating Officer
of Midland-Ross Corporation (a manufacturer of electrical, electronic and
aerospace products and thermal systems) having held various positions with that
company since 1960.
Gerald L. Connelly, age 58, has been President and Chief Executive
Officer of the Company since January 1, 1999. Previously he was Executive Vice
President and Chief Operating Officer of the Company, having been elected to
that position on May 1, 1996. He is also President of Pfaudler, Inc. He was
President of the Process Industries Group of Eagle Industries, Inc. from 1993
until joining the Company. Previously, he served as President of Pulsafeeder,
Inc. (metering pumps) for ten years.
Stephen R. Ley, age 43, has been Vice President, Finance and Chief
Financial Officer of the Company since December 10, 1997. Since joining the
Company in 1994, he has held the positions of Treasurer and Director, Financial
Planning and Accounting at Corporate and Vice President, Finance and Chief
Financial Officer at Pfaudler, Inc. From 1987 to 1994 he held various positions
with Eagle Industries in the areas of finance and accounting. Prior to joining
Eagle Industries, he was employed by the accounting firm of Arthur Andersen LLP
for nine years.
Hugh E. Becker, age 61, has been Vice President, Investor Relations and
Human Resources since December 9, 1998. From 1996 to 1998 he was Senior
Director, Investor Relations and Human Resources. Previously he held various
investor relations and human resource positions for the Company since 1980.
Kevin J. Brown, age 41, has been Controller and Chief Accounting
Officer of the Company since December 12, 1995. Prior to joining the Company, he
was employed by the accounting firm of Ernst & Young LLP for fifteen years.
16
17
Albert L. Raiteri, age 58, has been Treasurer of the Company since
December 9, 1998. He has held various positions in finance and accounting for
the Company since 1972.
Joseph M. Rigot, age 56, has been Secretary and General Counsel of the
Company since 1990. He has been a partner with the law firm of Thompson Hine &
Flory L.L.P. Dayton, Ohio, for more than five years.
The term of office of all executive officers of the Company is until
the next Annual Meeting of Directors (December 8, 1999) or until their
respective successors are elected.
17
18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- --------------------------------------------------------------------------
MATTERS
-------
(A) The Company's common shares trade on the New York Stock Exchange
under the symbol RBN. The prices presented in the following table are the high
and low sales prices for the common shares for the periods presented.
Dividends
High Low Paid
------------- --------------------- ------------------------
Fiscal 1999
- ----------------------
1st Quarter $25.25 $17.63 $.055
2nd Quarter 23.13 16.50 .055
3rd Quarter 25.25 15.69 .055
4th Quarter 25.88 20.75 .055
Fiscal 1998
- ----------------------
1st Quarter $39.50 $32.00 .050
2nd Quarter 40.50 31.25 .055
3rd Quarter 39.63 29.50 .055
4th Quarter 30.38 23.00 .055
(B) As of October 22, 1999, the Company had approximately 595
shareholders of record. Based on requests from brokers and other nominees, the
Company estimates there are approximately an additional 2,661 shareholders.
(C) Dividends paid on common shares are presented in the table in Item
5(A). The Company's credit agreements include certain covenants which restrict
the Company's payment of dividends. The amount of cash dividends plus stock
repurchases the Company may incur in each fiscal year is restricted to the
greater of $2,500,000 or 50% of the Company's net income for the immediately
preceding fiscal year, plus a portion of any unused amounts from the preceding
fiscal year. For purposes of this test, stock repurchases related to stock
option exercises or in connection with withholding taxes due under any stock
plan in which employees or directors participate are not included. Under this
formula, such cash dividends and treasury stock purchases in fiscal 2000 are
limited to $13,860,000.
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ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
SELECTED FINANCIAL DATA(1)
Robbins & Myers, Inc. and Subsidiaries
5 Year
Average
Growth 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Results (In thousands)
Orders 24.3% $373,135 $416,989 $375,042 $353,462 $334,931 $125,743
Ending backlog 74,330 96,022 110,078 109,921 107,423 73,944
Sales 26.9 400,142 436,474 385,663 350,964 302,952 121,647
Gross profit 24.8 136,166 158,713 138,781 119,030 101,304 44,981
IBIT before amortization and other 24.9 46,763 65,565 52,638 41,889 30,128 15,360
IBIT 22.4 33,288 60,142 49,521 39,455 26,320 12,102
Net income 13.3 11,849 31,230 28,866 19,525 13,157 6,355
Amortization 7,660 7,670 5,170 4,495 3,852 833
Depreciation 16,861 15,846 10,793 9,382 8,549 3,761
Capital expenditures, net (11,612) (23,020) (22,071) (16,453) (10,133) (6,798)
Other cash items, net 3,093 (6,172) (9,583) (1,342) 7,419 3,652
-------------------------------------------------------------------------------
Free cash flow 29.0 $ 27,851 $ 25,554 $ 13,175 $ 15,607 $ 22,844 $ 7,803
===============================================================================
Financial Condition (In thousands)
Total assets $493,852 $501,008 $372,354 $300,340 $270,407 $258,130
Total debt 191,272 206,242 116,083 73,533 67,901 83,790
Shareholders' equity 154,226 150,763 124,475 91,437 69,939 57,039
Total capitalization 345,498 357,005 240,558 164,970 137,840 140,829
Enterprise value (2) 20.4% 448,385 468,015 472,989 306,667 206,925 $177,515
Performance Statistics
Percent of sales
Gross profit 34.0% 36.4% 36.0% 33.9% 33.4% 37.0%
IBIT before amortization and other 11.7 15.0 13.6 11.9 9.91 2.6
IBIT 8.3 13.8 12.8 11.2 8.7 9.9
Debt as a % of total capitalization 55.4 57.8 48.3 44.6 49.3 59.5
IBIT return on average net assets 9.3 16.7 21.7 24.7 18.5 16.7
Net income return on average equity 7.8 22.7 26.7 25.2 18.6 11.6
Per Share Data (4)
Net income per share, diluted 12.1% $ 1.06 $ 2.43 $ 2.29 $ 1.77 $ 1.23 $ 0.60
Dividends declared 8.8 0.22 0.215 0.194 0.169 0.150 0.144
Market price of common stock
High 25.88 40.50 36.75 26.50 14.38 10.38
Low 15.69 23.00 20.00 13.63 8.25 7.75
Close 20.2 23.50 23.75 32.63 22.00 13.72 9.38
P/E ratio at August 31, diluted 22.2 9.8 14.4 12.5 11.3 15.5
Other Data (Shares in thousands)
Shares outstanding at year end 10,941 11,022 10,938 10,597 10,133 9,992
Average diluted shares (3) 13,535 13,906 13,625 11,046 10,738 10,522
Number of shareholders (4) 3,256 3,326 2,723 1,632 1,520 1,098
Number of employees 3,244 3,071 2,947 2,459 2,337 2,226
Notes to Selected Financial Data
(1) 1999 reflects the acquisition of a controlling interest in Universal
Glasteel Equipment, Chemineer de Mexico and GMM Pfaudler Limited, 1998
reflects the acquisitions of Flow Control Equipment, Inc. and Technoglass
S.r.L. and 1997 reflects the acquisitions of Process Supply, Inc., Spectrum
Products, Inc., Greerco and Industrie Tycon, S.p.A., as discussed in the
Business Acquisitions note. 1995 reflects the acquisition of Pharaoh and
Cannon and 1994 reflects the acquisition of Pfaudler, Chemineer and Edlon.
(2) Market capitalization of shares outstanding at year end plus total debt.
(3) 1999, 1998 and 1997 reflect an additional 2,385,000 shares related to the
convertible note issuance and 1995 and 1994 are adjusted to reflect the 2
for 1 stock split effective July 31, 1996.
(4) As of September 1, 1999, the Company had 595 shareholders of record. Based
on requests from brokers and other nominees, the company estimates there
are an additional 2,661 shareholders.
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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
OVERVIEW
The Company seeks to balance its mix of products and services and maintain
overall stability in its operating results principally through increased levels
of aftermarket sales, increased non-U.S. sales and end market diversification.
Aftermarket sales accounted for 34% of total company sales in fiscal 1999, 32%
in fiscal 1998 and 34% in fiscal 1997. Sales to non-U.S. customers were 46% in
fiscal 1999, 47% in fiscal 1998 and 46% in fiscal 1997 of total Company sales.
The Company's primary markets are specialty chemicals, agri-chemicals,
pharmaceuticals, oil and gas exploration and production, wastewater treatment
and food and beverage.
In fiscal 1999, the Company acquired a controlling interest in Universal
Glasteel Equipment in December 1998, Chemineer de Mexico in June 1999 and GMM
Pfaudler Limited in July 1999. These acquisitions are in the Company's Process
Systems business segment. The total cost of the 1999 acquisitions was $5.3
million in cash. These acquisitions accounted for $2.3 million of sales and $0.3
million of IBIT in fiscal 1999. In fiscal 1998, the Company purchased Flow
Control Equipment, Inc. ("FCE") and Technoglass, S.r.L. ("Technoglass") in
December 1997. FCE is in the Energy Systems segment and Technoglass is in the
Process Systems segment. The total cost of the 1998 acquisitions was $117.4
million in cash, notes and assumed debt ($114.1 million after application of
available FCE cash at closing). These acquisitions accounted for $41.0 million
of sales and $6.6 million of IBIT in fiscal 1998. In fiscal 1997, the Company
purchased Process Supply, Inc., Spectrum Products, Inc. and the high shear mixer
business of Greerco in February 1997 and Industrie Tycon S.p.A. ("Tycon") in May
1997. These acquisitions are in the Process Systems segment. The total cost of
the 1997 acquisitions was $48.3 million in cash, Company stock, notes and debt
assumed. These acquisitions accounted for $12.6 million of sales and $3.1
million of IBIT in fiscal 1997.
RESULTS OF OPERATIONS
The following tables present components of the Company's consolidated income
statement and segment information.
Consolidated 1999 1998 1997
- ---------------------------------------------------------------
Sales 100.0% 100.0% 100.0%
Cost of sales 66.0 63.6 64.0
------------------------------------
Gross profit 34.0 36.4 36.0
Operating expenses 22.3 21.4 22.4
------------------------------------
IBIT before
amortization
and other 11.7 15.0 13.6
Amortization 1.9 1.8 1.3
Other 1.5 (0.6) (0.5)
------------------------------------
IBIT 8.3% 13.8% 12.8%
------------------------------------
Segment 1999 1998 1997
- ---------------------------------------------------------------
Process Systems
Sales $335,648 $355,411 $331,571
IBIT before
amortization
and other 47,317 52,995 45,717
% 14.1% 14.9% 13.8%
IBIT 42,001 49,502 43,308
% 12.5% 13.9% 13.1%
Energy Systems
Sales $ 64,494 $ 81,063 $ 54,092
IBIT before
amortization
and other 7,904 21,368 19,640
% 12.3% 26.4% 36.3%
IBIT 1,097 20,089 19,640
% 1.7% 24.8% 36.3%
Total
Sales $400,142 $436,474 $385,663
IBIT before
amortization
and other 46,763 65,565 52,638
IBIT 33,288 60,142 49,521
FISCAL 1999 COMPARED TO FISCAL 1998 - Sales of $400.1 million for fiscal 1999
were $36.3 million lower than fiscal 1998, an 8.3% decrease. Pro forma sales,
assuming all of the businesses owned at August 31, 1999, were owned for all of
fiscal 1999 and fiscal 1998 decreased by $66.8 million or 13.8%.
The Process Systems segment had sales of $335.6 million in fiscal 1999
compared to $355.4 million in fiscal 1998. On a pro forma basis, the Process
Systems segment sales decreased by $31.6 million, an 8.3% decrease. This
decrease was primarily driven by weak market demand in the specialty chemical
market. Capital spending in this market has been reduced as operating rates and
profitability levels have been weak. Order levels have declined faster than
sales resulting in backlog decreasing to $70.9 million from $93.0 million at the
beginning of the year. The Process Systems segment is a long lead time business
and this low level of opening backlog signals a slow first half of fiscal 2000
for this segment.
The Energy Systems segment was dramatically influenced by the decrease in
crude oil prices in fiscal 1998 and 1999, reaching a low of $10.35 a barrel in
early fiscal 1999 from price levels that were $18.00 - $22.00 per barrel for
several years. Oil exploration was significantly reduced and marginal wells were
shut down. As a result, our Energy Systems segment sales were $64.5 million in
fiscal 1999 compared to $81.1 million in fiscal 1998. On a pro forma basis sales
decreased by $35.2 million, a 35.3% decrease. Late in fiscal 1999 crude oil
prices recovered to the $22.00 per barrel level
20
21
and the Company has seen a modest increase in order levels. Longer term
stability in crude oil prices is needed before there is a full recovery in this
market. This segment is a short lead time business and backlog levels have
increased slightly to $3.4 million from $3.0 million at the beginning of the
year.
Gross profit margins have declined to 34.0% in fiscal 1999 from 36.4% in
fiscal 1998. This decrease is primarily due to the change in product mix. The
Company's Energy Systems segment is a higher gross margin business and the
significant decline in sales has caused total gross margin to decline.
Secondarily, the lower volume in the Process Systems segment has also reduced
gross margin levels slightly.
IBIT before amortization and other for fiscal 1999 is $46.8 million compared
to $65.6 million in fiscal 1998, a decrease of $18.8 million or 28.7%. This
decrease is primarily in the Company's Energy Systems segment which declined
from $21.4 million in fiscal 1998 to $7.9 million in fiscal 1999, on a sales
decline of $16.6 million. Costs to support products in this segment are of a
high fixed cost nature. Therefore, the cost structure cannot be adjusted quickly
when sales decline rapidly. The Company is closing its Fairfield, California
manufacturing facility and has consolidated management. However, these actions
did not significantly benefit fiscal 1999. Fiscal 2000 will see some of the cost
benefit with the full impact coming in fiscal 2001. The benefits will not be
fully realized until 2001 because the Fairfield plant is expected to continue
operating into the second quarter of fiscal 2000. In the Process Systems segment
IBIT before amortization and other decreased $5.7 million on a sales decline of
$19.8 million and as a percent of sales decreased from 14.9% to 14.1%. This
level of volume decrease is more manageable and variable costs, primarily
employment levels and variable pay plans, were adjusted to the lower volume
levels minimizing the effect on IBIT before amortization and other.
Other has increased $8.1 million. This increase is primarily from the $4.2
million charge in the second quarter of fiscal 1999 for closing and relocating
the Fairfield manufacturing plant and $0.6 million of additional costs for
relocation, transfer and training costs related to the Fairfield plant which
could not be accrued in the second quarter. Additionally, termination costs of
$1.6 million were recorded during the year, primarily related to employment
reductions at Moyno and Chemineer. Lastly, equity income decreased by $1.7
million because controlling interests were acquired in UGE and GMM, the
Company's only equity investees, in December 1998 and July 1999, respectively.
These businesses were consolidated and equity income was no longer recorded from
those dates.
Interest expense increased to $13.8 million in fiscal 1999 from $12.8 million
in fiscal 1998. The increase is from higher average debt levels in fiscal 1999
primarily because the $106.0 million spent for FCE was outstanding all of fiscal
1999 and only a portion of fiscal 1998. The Company's effective interest rate
was 6.7% for both fiscal 1999 and fiscal 1998.
The effective tax rate was 34.0% for both fiscal 1999 and fiscal 1998. The
fiscal 1999 rate is lower than the statutory rate because of a reduction in
valuation allowances for deferred tax assets in countries outside the U.S.
Taxable income was generated in these countries justifying the reduction of
these allowances. Additionally, the Company generates a tax benefit from its
Foreign Sales Corporation. Net deferred income tax assets of $5.4 million at
August 31, 1999 primarily relate to U.S. operations. Available carrybacks and
future pretax income at recent levels would be sufficient to realize these
assets.
Net income and earnings per share for fiscal 1999 are $11.8 million and $1.06
compared to $31.2 million and $2.43 in fiscal 1998. Excluding the effect of the
charge from the Fairfield closure and one-time severance costs, net income would
have been higher by $4.2 million and $0.31 respectively. The remaining decrease
was primarily from the decline in the Energy Systems business and to a lesser
degree the decline in the Process Systems segment and slightly higher interest
costs, as discussed above.
FISCAL 1998 COMPARED TO FISCAL 1997 - Sales of $436.5 million for fiscal 1998
were $50.8 million, or 13.2% higher than for fiscal 1997. This increase was
primarily attributable to the acquired businesses. Pro forma sales, assuming all
of the businesses owned at August 31, 1998 were owned for all of fiscal 1998 and
fiscal 1997, decreased by $10.6 million or 2.3%.
The Process Systems segment had sales of $355.4 million in fiscal 1998
compared to $331.6 million in fiscal 1997. The increase was all from acquired
businesses. On a pro forma basis sales were the same as fiscal 1997. Sales were
fiat in this segment as large project orders were cancelled or delayed due to
the economic uncertainty of 1998. Orders declined by more than sales in fiscal
1998 because of this uncertainty, resulting in backlog declining by $11.0
million.
The Energy Systems segment had sales of $81.1 million in fiscal 1998 compared
to $54.1 million in fiscal 1997. This increase was all from acquired businesses.
On a pro forma basis sales actually declined $10.2 million or 9.3%. This decline
was because of the steady drop in crude oil prices from $20.00 per barrel in
early fiscal 1998 to under $15.00 per barrel by the end of fiscal 1998. Backlog
levels also dropped to $3.0 million at the end of fiscal 1998 from $6.0 million
at the end of fiscal 1997.
The gross margin percent increased from 36.0% for fiscal 1997 to 36.4% for
fiscal 1998 due to cost containment and positive contribution from the 1998
acquisitions.
IBIT before amortization and other for fiscal 1998 was $65.6 million compared
to $52.6 million in fiscal 1997, an increase of $13.0 million or 24.7%. The
increase was primarily from the acquired businesses, improved operating margins
in the Process Systems segment and corporate cost reductions. IBIT before
amortization and other as a percent of sales increased in the Process Systems
segment to 14.9% in fiscal 1998 from 13.8% in fiscal 1997 primarily from cost
containment programs and reductions in variable pay. IBIT before amortization
and
21
22
other as a percent of sales decreased in the Energy Systems segment to 26.4% in
fiscal 1998 from 36.3% in fiscal 1997. This decrease was from the overall lower
sales volumes and lower operating margins in the acquired FCE business.
Amortization expense increased to $7.7 million from $5.2 million in fiscal
1997. This increase is from the 1998 acquired businesses, primarily FCE, and a
full year of expense from the 1997 acquisitions.
Interest expense increased to $12.8 million for fiscal 1998 from $6.4 million
for fiscal 1997. This was due to higher average debt levels related to the
acquisition costs of the acquired businesses, as the effective interest rate
remained stable.
The effective income tax rate was 34.0% for fiscal 1998 compared to 33.0% for
fiscal 1997. This increase was due to a reduced benefit in fiscal 1998 from the
utilization of loss carryforwards outside the U.S. as these loss carryforwards
were fully realized in 1997 and 1998 in certain countries. Net deferred income
tax assets of $4.1 million at August 31, 1998 primarily relate to U.S.
operations. Available carrybacks and future pretax income at recent levels would
be sufficient to realize these assets.
Net income of $31.2 million was 8.2% higher than for fiscal 1997. Diluted
income per share rose 6.1% to $2.43 compared to $2.29 for fiscal 1997. The
increases were from the acquisitions and higher operating margins in the Process
Systems segment.
LIQUIDITY AND CAPITAL RESOURCES
The Company's significant cash needs expected for fiscal 2000 are planned
capital expenditures of $20.0 million, cash needed for a share repurchase
program announced in October 1999 and shareholder dividends. The share epurchase
program is a twelve month program to repurchase up to 3% or 350,000 shares or
share equivalents in the convertible notes. The Company expects cash flow from
operating activities to be adequate for these needs. There are no significant
restrictions on the Company's ability to transfer funds from its non-U.S.
subsidiaries to the Company.
In the fourth quarter of fiscal 1999 the Company completed the 1998 share
repurchase program to purchase up to 5% of the Company's outstanding shares, or
about 550,000 shares. In 1999, 231,153 shares were purchased by the Company for
$5.1 million and 110,000 shares were purchased by the Company's U.S. defined
benefit pension plan Master Trust ("Master Trust") for $2.2 million. In fiscal
1998, 96,600 shares were purchased by the Company for $2.8 million and 101,700
shares were purchased by the Master Trust for $2.8 million. Total purchases
under this program were 539,453 shares for $12.9 million.
In fiscal 1999 cash flow from operating activities was $39.5 million. This
cash was primarily used for $14.4 million of net debt repayments, $11.6 million
for capital expenditures, $5.3 million for acquisitions and $5.1 million to
complete the 1998 share repurchase program.
In fiscal 1999 free cash flow, cash provided by operations less capital
expenditures, was $27.9 million, an increase of $2.3 over fiscal 1998 despite
lower income levels. The Company was able to react to the lower income levels
and preserve free cash flow through working capital reductions and reduced
capital spending
In fiscal 1998, cash flow from operating activities of $48.6 million and net
debt borrowings of $88.3 million generated $136.9 million of cash. Significant
cash uses in fiscal 1998 were $112.3 million for acquisitions, capital
expenditures of $23.0 million, $2.8 million to fund the purchase of 96,600
shares through the share repurchase program and dividend payments of $2.4
million
YEAR 2000 AND EURO
Certain software and hardware systems are time sensitive. Older time sensitive
systems often use a two digit dating convention ("00" rather than "2000") that
could result in system failure and disruption of operations as the Year 2000
approaches. This is referred to as the Year 2000 issue. The Year 2000 issue will
impact the Company, its suppliers, customers and other third parties that
transact business with the Company.
Each business unit within the Company has a Year 2000 team. These teams
identified issues related to substantially all hardware and software systems
within the Company, products sold by the Company, and significant suppliers and
other third parties that transact business with the Company. Projects were
established to address all significant Year 2000 issues. Each Year 2000 team
reports regularly to senior management on the progress of significant Year 2000
projects. Senior management reports to the Board of Directors quarterly on the
Company's progress with Year 2000 projects.
Most Year 2000 activities were to test hardware and software systems,
including non-information technology systems such as telephones and CNC
machines. The Company determined that it needed to replace or modify some of its
software and hardware systems. The Company replaced most of the systems with
Year 2000 issues and reprogrammed only a few software systems.
The Company believes it has no material exposure to contingencies related to
the Year 2000 issue for products sold as few Company products contain time
sensitive hardware or software systems.
The Company initiated communications with significant suppliers, customers and
other relevant third parties to identify and minimize disruptions to the
Company's operations from Year 2000 issues. However, there can be no certainty
that the impacted systems and products of other parties on which the Company
relies will be Year 2000 compliant.
The costs for resolving Year 2000 issues were approximately $1.8 million for
fiscal 1999 and $1.6 million for fiscal 1998. Most of these costs were to
replace existing software and hardware systems.
The Company believes it has diligently addressed the Year 2000 issues and that
it has satisfactorily resolved significant Year 2000 problems.
22
23
The Company believes it has no significant exposure to the introduction of the
new Euro currency.
FORWARD-LOOKING STATEMENTS
This Annual Report in sections "Letter to Shareholders", "Internal Growth",
"External Growth", and "Management's Discussion and Analysis of Financial
Condition and Results of Operations", contain "Forward-looking Statements". All
statements which address operating performance, events or developments that we
expect or anticipate will occur in the future including statements related to
growth, operating margin performance, earnings per share or statements
expressing general opinions about future operating results, are forward-looking
statements.
These forward-looking statements and performance trends are subject to certain
risks and uncertainties that could cause actual results to differ materially
from these statements and trends. Such factors include, but are not limited to,
a significant decline in capital expenditure levels in the Company's served
markets, a major decline in oil and gas prices, foreign exchange rate
fluctuations, uncertainties surrounding the Year 2000 issues and the new Euro
currency, continued availability of acceptable acquisition candidates and
general economic conditions that can affect the demand in the process
industries. Any forward-looking statements are made based on known events and
circumstances at the time. The Company undertakes no obligation to update or
publicly revise these forward-looking statements to reflect events or
circumstances that arise after the date of this report.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
MARKET RISK
In its normal operations the Company has market risk exposure to foreign
exchange rates. As a result of the Company's global operations, it has assets,
liabilities and cash flows in currencies other than U.S. dollars. The Company's
significant non-U.S. operations have their local currencies as their functional
currency and primarily buy and sell using that same currency. The Company
manages its exposure to its net assets and cash flows in currencies other than
U.S. dollars by minimizing its non-U.S. dollar net asset positions through
maintaining a portion of its bank debt in Italian Lira and matching net asset
positions in certain currencies with net liability positions in other currencies
that move in similar directions in relation to the U.S. dollar (for example the
Italian lira and the German mark). The Company also enters into hedging
transactions, primarily currency swaps under established policies and
guidelines, that enable it to mitigate the potential adverse impact of foreign
exchange rate risk. The Company does not engage in trading or other speculative
activities with these transactions, as established policies require that such
hedging transactions relate to specific currency exposures.
The Company's main foreign exchange rate exposures relate to assets,
liabilities and cash flows denominated in British pounds, German marks, Italian
lira and Canadian dollars and the general economic exposure that fluctuations in
these currencies could have on the dollar value of future non- U.S. cash flows.
To illustrate the potential impact of changes in foreign currency exchange rates
on the Company as of August 31, 1999, the Company's net unhedged exposures in
each currency were remeasured assuming a 10% decrease in foreign exchange rates
compared to the U.S. dollar. Using this method the Company's IBIT and cash flow
from operations for fiscal 1999 would have decreased by $1.7 million and $1.9
million, respectively. This calculation assumes that each exchange rate would
change in the same direction relative to the U.S. dollar. In addition to the
direct effects of changes in exchange rates, such changes may also affect the
volume of sales or the foreign currency sales prices as competitor's products
become more or less attractive. The Company's sensitivity analysis of the
effects of changes in foreign currency exchange rates does not include any
effects of such potential changes in sales levels or local currency prices.
The Company also has market risk exposure to interest rates. At August 31,
1999, the Company has $191.3 million in interest bearing debt obligations that
are subject to market risk exposure due to changes in interest rates. To manage
its exposure to changes in interest rates, the Company attempts to maintain a
balance between fixed and variable rate debt. Such a balance in the debt profile
is expected to moderate the Company's financing cost over time. If long-term
corporate interest rates were to drop substantially, the Company is limited in
its ability to refinance its fixed rate debt. However, the Company does have the
ability to change the characteristics of its fixed rate debt to variable rate
debt through interest rate swaps to achieve its objective of balance. No such
interest rate swaps are outstanding at August 31, 1999.
At August 31, 1999, $170.1 million of the outstanding debt is at fixed rates
with a weighted average interest rate of 6.72% and $21.2 million is at variable
rates with a weighted average interest rate of 3.80%. The estimated fair value
of the Company's total debt at August 31, 1999, is approximately $187.0 million.
The following table presents the aggregate maturities and related weighted
average interest rates of the Company's debt obligations at August 31, 1999, by
maturity dates ($ in thousands):
Maturity U.S. Dollar U.S. Dollar Italian Lira
Date Fixed Rate Variable Rate Variable Rate
--------------------------------------------------------
Amount Rate Amount Rate Amount Rate
--------------------------------------------------------
2000 $ 121 13.00%
2001 231 13.00
2002 819 8.94
2003 1,663 7.34 $3,721 8.25% $17,477 2.85%
2004 65,700 6.52
Thereafter 101,540 6.80
--------------------------------------------------------
Total $170,074 6.72% $3,721 8.25% $17,477 2.85%
--------------------------------------------------------
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
CONSOLIDATED BALANCE SHEET
Robbins & Myers, Inc. and Subsidiaries August 31,
($ in thousands) 1999 1998
- ----------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 8,901 $ 6,822
Accounts receivable 74,900 72,266
Inventories 53,747 61,894
Other current assets 12,824 4,669
Deferred taxes 5,470 6,966
----------------------
Total Current Assets 155,842 152,617
Goodwill 195,294 202,153
Other Intangible Assets 18,806 18,959
Other Assets 6,641 4,958
Property, Plant and Equipment 117,269 122,321
----------------------
$ 493,852 $ 501,008
----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 27,949 $ 31,051
Accrued expenses 54,935 52,603
Current portion of long-term debt 121 4,139
----------------------
Total Current Liabilities 83,005 87,793
Long-Term Debt - Less Current Portion 191,151 202,103
Deferred Taxes 24 2,878
Other Long-Term Liabilities 58,494 55,848
Minority Interest 6,952 1,623
Shareholders' Equity:
Common stock-without par value:
Authorized shares-40,000,000
Issued shares-11,225,950 in 1999 and 1998 33,968 35,749
Treasury shares-284,746 (204,436 in 1998) (6,500) (4,886)
Retained earnings 132,015 122,580
Accumulated other comprehensive loss:
Foreign currency translation (2,946) (1,779)
Minimum pension liability (2,311) (901)
----------------------
Total (5,257) (2,680)
----------------------
154,226 150,763
----------------------
$ 493,852 $ 501,008
----------------------
See Notes to Consolidated Financial Statements
24
25
CONSOLIDATED SHAREHOLDERS' EQUITY STATEMENT
Accumulated
Other
Robbins & Myers, Inc. and Subsidiaries Common Treasury Retained Comprehensive
($ in thousands, except per share data) Shares Shares Earnings Income (Loss) Total
- --------------------------------------------------------------------------------------------------------------------------
Balance at September 1, 1996 $26,617 $(2,481) $66,996 $ 305 $ 91,437
Net income 28,866 28,866
Change in foreign currency translation 607 607
Change in minimum pension liability 19 19
--------
Comprehensive income 29,492
Cash dividends declared, $0.194 per share (2,127) (2,127)
Stock options exercised, 91,750 shares 641 641
Proceeds from share sales, 48,770 shares 446 627 1,073
Value of 238,000 shares used for purchase of
Process Supply, Inc. 2,751 3,706 6,457
Performance stock awards 1,300 1,300
Performance stock issuances, 111,260 shares
Stock purchases, 149,621 shares (4,063) (4,063)
Tax benefits of stock options exercised 265 265
-------------------------------------------------------------------
Balance at August 31, 1997 32,020 (2,211) 93,735 931 124,475
Net income 31,230 31,230
Change in foreign currency translation (3,041) (3,041)
Change in minimum pension liability (570) (570)
--------
Comprehensive income 27,619
Cash dividends declared, $0.215 per share (2,385) (2,385)
Stock options exercised, 165,800 shares 774 787 1,561
Proceeds from share sales, 34,632 shares 635 532 1,167
Performance stock awards 581 581
Performance stock issuances, 15,313 shares
Stock repurchase program, 96,600 shares (2,774) (2,774)
Other stock purchases, 35,182 shares (1,220) (1,220)
Tax benefits of stock options exercised 1,739 1,739
-------------------------------------------------------------------
Balance at August 31, 1998 35,749 (4,886) 122,580 (2,680) 150,763
Net income 11,849 11,849
Change in foreign currency translation (1,167) (1,167)
Change in minimum pension liability (1,410) (1,410)
--------
Comprehensive income 9,272
Cash dividends declared, $0.22 per share (2,414) (2,414)
Stock options exercised, 95,400 shares (1,480) 2,188 708
Proceeds from share sales, 39,579 shares (523) 1,343 820
Performance stock awards (243) (243)
Performance stock issuances, 19,427 shares
Stock repurchase program, 231,153 shares (5,061) (5,061)
Other stock purchases, 3,563 shares (84) (84)
Tax benefits of stock options exercised 465 465
-------------------------------------------------------------------
Balance at August 31, 1999 $33,968 $(6,500) $132,015 $(5,257) $154,226
-------------------------------------------------------------------
See Notes to Consolidated Financial Statements
25
26
CONSOLIDATED INCOME STATEMENT
Robbins & Myers, Inc. and Subsidiaries Years ended August 31,
($ in thousands, except per share data) 1999 1998 1997
- -------------------------------------------------------------------------------------
Sales $ 400,142 $ 436,474 $ 385,663
Cost of sales 263,976 277,761 246,882
----------------------------------
Gross profit 136,166 158,713 138,781
Operating expenses 89,403 93,148 86,143
----------------------------------
46,763 65,565 52,638
Amortization 7,660 7,670 5,170
Other 5,815 (2,247) (2,053)
----------------------------------
Income before interest and income taxes 33,288 60,142 49,521
Interest expense 13,752 12,821 6,437
----------------------------------
Income before income taxes and minority interest 19,536 47,321 43,084
Income tax expense 6,647 16,091 14,218
Minority interest 1,040 0 0
----------------------------------
Net income $ 11,849 $ 31,230 $ 28,866
----------------------------------
Net income per share:
Basic $ 1.08 $ 2.83 $ 2.67
----------------------------------
Diluted $ 1.06 $ 2.43 $ 2.29
----------------------------------
See Notes to Consolidated Financial Statements
26
27
CONSOLIDATED CASH FLOW STATEMENT
Robbins & Myers, Inc. and Subsidiaries Years ended August 31,
($ in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 11,849 $ 31,230 $ 28,866
Adjustment required to reconcile net income to net cash
and cash equivalents provided by operating activities:
Depreciation 16,861 15,846 10,793
Amortization 7,660 7,670 5,170
Deferred taxes (2,447) 3,493 889
Performance stock awards (243) 581 1,300
Changes in operating assets and liabilities - excluding the effects of
acquisitions:
Accounts receivable (310) (320) (6,610)
Inventories 11,067 (495) 1,446
Other current assets (7,844) (1,164) 551
Other assets 2,538 (1,902) (1,710)
Accounts payable (3,640) (985) (2,350)
Accrued expenses and other liabilities 3,972 (5,380) (3,099)
--------------------------------------
Net cash and cash equivalents provided by operating activities 39,463 48,574 35,246
Investing Activities:
Capital expenditures, net of nominal disposals (11,612) (23,020) (22,071)
Purchase of GMM Pfaudler and Chemineer de Mexico (5,344) 0 0
Purchase of Flow Control Equipment and Technoglass 0 (112,306) 0
Purchase of Process Supply, Spectrum Products, Greerco and Tycon 0 0 (36,422)
--------------------------------------
Net cash and cash equivalents used by investing activities (16,956) (135,326) (58,493)
Financing Activities:
Proceeds from debt borrowings 25,599 248,382 148,939
Payments of long-term debt (39,996) (160,102) (117,461)
Other financing costs 0 (1,359) (837)
Proceeds from sale of common stock 1,528 2,728 1,979
Purchase of common stock (5,145) (3,994) (4,063)
Dividends paid (2,414) (2,385) (2,127)
--------------------------------------
Net cash and cash equivalents (used) provided by financing activities (20,428) 83,270 26,430
--------------------------------------
Increase (decrease) in cash and cash equivalents 2,079 (3,482) 3,183
--------------------------------------
Cash and cash equivalents at beginning of year 6,822 10,304 7,121
--------------------------------------
Cash and cash equivalents at end of year $ 8,901 $ 6,822 $ 10,304
--------------------------------------
See Notes to Consolidated Financial Statements
27
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Robbins & Myers, Inc. and Subsidiaries
NOTE 1- SUMMARY OF ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated upon consolidation. All of the Company's operations are conducted in
the fluids management industry.
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 amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Accounts Receivable
Accounts receivable relate primarily to customers located in North America and
Western Europe and are concentrated in the specialty chemical, pharmaceutical
and oil and gas markets. To reduce credit risk, the Company performs credit
investigations prior to accepting an order and, when necessary, requires letters
of credit to insure payment.
Inventories
Inventories are stated at the lower of cost or market determined by the last-in,
first-out ("LIFO") method in the U.S. and the first-in, first-out ("FIFO")
method outside the U.S.
Goodwill and Other Intangible Assets
Goodwill is the excess of the purchase price paid over the value of net assets
of businesses acquired. The carrying value of goodwill is reviewed quarterly if
the facts and circumstances suggest that it may be impaired. If the review
indicates that goodwill is impaired, as determined by the undiscounted cash flow
method, it will be reduced to its estimated recoverable value.
Amortization is calculated on the straight-line basis using the following
lives:
Patents 14 to 17 years
Non-compete agreements 3 to 5 years
Financing costs 5 years
Acquisition costs 20 to 40 years
Goodwill 20 to 40 years
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation expense is
recorded over the estimated useful life of the asset on the straight-line method
using the following lives:
Land improvements 20 years
Buildings 45 years
Machinery and equipment 3 to 15 years
The Company's normal policy is to expense as incurred repairs and improvements
made to capital assets. In limited circumstances, betterments are capitalized
and amortized over the estimated life of the new asset and any remaining value
of the old asset is written off. Repairs to machinery and equipment must result
in an addition to the useful life of the asset before the costs are capitalized.
Foreign Currency Accounting
Gains and losses resulting from the settlement of a transaction in a currency
different from that used to record the transaction are charged or credited to
net income when incurred. Adjustments resulting from the translation of non-U.S.
financial statements into U.S. dollars are recognized in accumulated other
comprehensive loss for all non-U.S. units.
Income Taxes
Income taxes are provided for all items included in the Consolidated Income
Statement regardless of the period when such items are reported for income tax
purposes. Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
The Company's policy is to provide U.S. income taxes on non-U.S. income when
remitted to the U.S. The Company does not provide U.S. income taxes on the
remaining undistributed non-U.S. income, as it is the Company's intention to
maintain its investments in these operations.
Consolidated Cash Flow Statement
Cash and cash equivalents consist of working cash balances and temporary
investments having an original maturity of 90 days or less.
28
29
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating the
fair value of financial instruments:
Cash and cash equivalents - The amounts reported approximate market value.
Long-term debt - The amounts reported are consistent with the terms,
interest rates and maturities currently available to the Company for
similar debt instruments.
Foreign exchange contracts - The amounts reported are estimated using
quoted market prices for similar instruments.
New Accounting Standards
The Financial Accounting Standards Board issued Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities. This statement is not
required to be adopted by the Company until its fiscal year 2001. The Company
makes minimal use of derivative instruments and anticipates no material impact
from adopting this standard.
Reclassifications
Certain prior year amounts are reclassified to conform with the current year
presentation.
NOTE 2 - BUSINESS ACQUISITIONS
On July 19, 1999, the Company purchased additional shares of GMM Pfaudler
Limited, an Indian Corporation, ("GMM") for $3,744,000. These additional shares
increased the Company's ownership from 40% to 51% and results in the Company
controlling GMM. Therefore, the Company consolidated GMM into its financial
statements from that date and recorded a minority interest for the remaining 49%
owners' share of GMM. The Company's interest in GMM was previously recorded
under the equity method.
On June 30, 1999, the Company purchased 51% of Chemineer de Mexico, S.A. de
C.V. ("Chemineer de Mexico"), a Mexican corporation and its licensee in Mexico
for $1,600,000. The Company consolidated the results of Chemineer de Mexico from
that date and recorded a minority interest for the remaining 49% owners' share
of Chemineer de Mexico. The remaining 49% of Chemineer de Mexico will be
purchased in 3 equal increments on December 31, 1999, 2000 and 2001 at prices
based upon the earnings of Chemineer de Mexico.
On December 1, 1998, the Company amended the Universal Glasteel Equipment
("UGE") partnership agreement with Universal Process Equipment, Inc. ("UPE").
The amendment results in the Company controlling UGE. Therefore, the Company
consolidated UGE into its financial statements from that date and recorded a
minority interest for UPE's share of UGE. The Company's interest in UGE was
previously recorded under the equity method. The Company's ownership share of
UGE did not change as a result of the amendments.
On December 19, 1997, the Company acquired all of the outstanding capital
stock of Flow Control Equipment, Inc. ("FCE") for $109,300,000 in cash (or
approximately $106,030,000 after application of available FCE cash at closing).
FCE supplies a broad line of products for use in artificial lift applications in
the oil and gas exploration and production markets, including rod guides,
wellhead equipment and valves. FCE also supplies closures and valves for gas
transmission and distribution applications.
Following are the unaudited pro forma consolidated results of operations of
the Company assuming the acquisition of FCE had occurred at the beginning of
each respective period. In preparing the pro forma data adjustments have been
made to the historical financial information. These are primarily amortization
and depreciation relating to the purchase price allocation, interest cost
related to financing the transaction and adjustments to the corporate cost
allocations from FCE's former parent.
(In thousands, except per share amounts) 1998 1997
- --------------------------------------------------------------------
Sales $451,481 $441,517
Net income 31,754 28,007
Basic income per share 2.88 2.59
Diluted income per share 2.47 2.22
On December 5, 1997, the Company acquired all of the outstanding capital stock
of Technoglass S.r.L. ("Technoglass") for $8,058,000 in cash and notes.
Technoglass supplies glass- lined storage and reactor vessels and related
equipment and is located near Venice, Italy.
On May 2, 1997, the Company acquired Industrie Tycon, S.p.A., ("Tycon") a
manufacturer of glass-lined storage and reactor vessels and related equipment.
Tycon was purchased for $27,100,000 in cash and debt assumed of $2,600,000.
29
30
On February 3, 1997, the Company acquired Process Supply, Inc., a manufacturer
of fluoropolymer products and accessories for glass-lined equipment, and
Spectrum Products, Inc., an affiliated sales company, and on January 31, 1997,
the high shear industrial mixer business of Greerco Corp. These businesses were
purchased for a total of $18,557,000. The purchase price consisted of common
stock valued at $6,457,000, obligations directly payable to the seller of
$3,500,000, long-term debt assumed of $800,000 and cash borrowed under the
Company's existing senior debt agreement of $7,800,000. The common stock was
issued from treasury shares.
The operating results of the acquired businesses are included in consolidated
operating results since the dates of each acquisition.
NOTE 3 - BALANCE SHEET INFORMATION
Accounts receivable
(In thousands) 1999 1998
- --------------------------------------------------------------
Allowances for doubtful accounts $ 1,688 $ 1,539
-----------------------
Inventories
(In thousands) 1999 1998
- --------------------------------------------------------------
FIFO:
Finished products $ 18,586 $ 24,425
Work in process 12,292 15,998
Raw materials 28,154 26,034
-----------------------
59,032 66,457
LIFO reserve, U.S. inventories (5,285) (4,563)
-----------------------
$ 53,747 $ 61,894
-----------------------
Non-U.S. inventories at FIFO $ 27,783 $ 33,393
-----------------------
Other intangible assets
(In thousands) 1999 1998
- --------------------------------------------------------------
Patents and trademarks $ 2,392 $ 2,539
Non-compete agreements 5,538 5,757
Financing costs 3,243 3,667
Acquisition costs 3,304 4,116
Pension intangible 2,570 2,572
Other 1,759 308
-----------------------
$ 18,806 $ 18,959
-----------------------
(In thousands) 1999 1998
- --------------------------------------------------------------
Accumulated amortization
of goodwill and other
intangible assets $ 28,195 $ 20,564
-----------------------
Property, plant and equipment
(In thousands) 1999 1998
- --------------------------------------------------------------
Land and improvements $ 11,709 $ 11,594
Buildings 42,724 42,590
Machinery and equipment 142,387 132,146
-----------------------
196,820 186,330
Less accumulated depreciation 79,551 64,009
-----------------------
$ 117,269 $ 122,321
-----------------------
Accrued expenses
(In thousands) 1999 1998
- --------------------------------------------------------------
Salaries, wages and payroll taxes $ 8,233 $ 10,833
Customer advances 3,972 4,580
Pension benefits 4,794 3,864
U.S. other post-retirement benefits 2,000 2,000
Warranty costs 9,863 6,888
Accrued interest 4,615 5,016
Income taxes 2,783 5,711
Plant closure 2,530 0
Other 16,145 13,711
-----------------------
$ 54,935 $ 52,603
-----------------------
Other long-term liabilities
(In thousands) 1999 1998
- --------------------------------------------------------------
German pension liability $ 28,448 $ 28,393
U.S. other postretirement benefits 13,640 14,165
U.S. pension liability 8,689 6,534
Casualty insurance reserves 1,008 2,693
Deferred research grants 1,631 0
Other 5,078 4,063
-----------------------
$ 58,494 $ 55,848
-----------------------
NOTE 4 - INCOME STATEMENT
Other
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------
Plant closure costs $ 4,769 $ 0 $ 0
Other termination
costs 1,600 0 0
Equity income (554) (2,247) (2,053)
-----------------------------------
$ 5,815 $(2,247) $(2,053)
-----------------------------------
30
31
In response to the downturn in the Company's R&M Energy Systems business segment
the Company analyzed its capacity requirements for these products. As a result,
on February 10, 1999, the Company recorded a charge of $4,200,000 for the
closure and relocation of the Company's Fairfield, California, manufacturing
operations. The facility manufactures power sections and down-hole pumps.
Production will be transferred to the Company's manufacturing facility near
Houston, Texas, which manufactures similar products. The closure and relocation
will consolidate all power section and down-hole pump manufacturing into one
facility. The transfer of manufacturing is expected to be completed by the
second quarter of fiscal year 2000. The Fairfield facility and certain machinery
and equipment will then be sold. It is expected that the sale of the facility
will be completed by December 31, 2003. The assets to be sold have been written
down to their estimated net realizable value upon sale. The $4,200,000 charge
was composed of the following:
(In thousands)
- --------------------------------------------------------------
Asset write-downs:
Land and building to be sold,
$800 estimated net realizable value $ 600
Machinery and equipment to be
scrapped, $200 estimated net
realizable value 800
Holding costs of land and
building until sold 400
Environmental costs related to
closure of facility 1,300
Employee related costs:
Severance, 50 Fairfield employees 300
Pay to stay costs and other
employee costs 500
Other 300
------
$4,200
------
The Company incurred additional costs of $569,000 in the third and fourth
quarters of fiscal year 1999 related to the closure and movement of the
Fairfield facility. These costs were primarily relocation, transfer and training
costs that could not be accrued at February 1999.
As of August 31, 1999, approximately $300,000 has been spent against the
$4,200,000 accrued, primarily for severance and environmental costs.
Also, as a result of decreased demand for the Company's down-hole pump
products for heavy oil applications in western Canada, the Company has excess
down-hole pump inventory in Canada. Therefore, a write-down of $400,000 for this
inventory has been recorded in cost of sales in the second quarter of fiscal
1999.
The Company has also recorded other one-time termination costs of $400,000 in
the second quarter of fiscal 1999, unrelated to the closure of the Fairfield
facility.
In the fourth quarter of 1999 the Company took action to reduce employment
levels by 80 people at Moyno and Chemineer. The actions resulted in
approximately $1,200,000 in severance and early retirement benefits.
MINIMUM LEASE PAYMENTS
Future minimum payments, by year and in the aggregate, under non-cancellable
operating leases with initial or remaining terms of one year or more consisted
of the following at August 31, 1999:
(In thousands)
- --------------------------------------------------
2000 $1,966
2001 1,433
2002 922
2003 374
2004 157
Thereafter 135
------
$4,987
------
Rental expense for all operating leases in 1999, 1998 and 1997 was
approximately $3,347,000, $3,289,000 and $2,447,000, respectively.
NOTE 5 - CASH FLOW STATEMENT INFORMATION
In 1999 the Company recorded the following non-cash investing and financing
transactions: $700,000 increase in goodwill, $2,800,000 increase in deferred tax
assets and $3,500,000 increase in accrued liabilities related to the acquisition
of Flow Control Equipment, Inc. and $465,000 increase in common stock and
decrease in income tax payable related to the tax benefits of stock options.
31
32
In 1998 the Company recorded the following non-cash investing and financing
transactions: $1,782,000 increase in goodwill and long-term debt related to the
acquisition of Technoglass S.r.L. and $1,739,000 increase in common stock and
decrease in income tax payable related to the tax benefits of stock options
exercised.
In 1997 the Company recorded the following non-cash investing and financing
transactions: $2,050,000 increase in other intangible assets and long-term debt
related to the underwriter's discount on the issuance of the convertible notes,
$2,952,000 increase in goodwill and long-term debt related to earn-out
provisions of the Pharoah acquisition in 1995, an increase in tangible and
intangible assets of $9,957,000, long-term debt of $3,500,000 and common stock
of $6,457,000 related to the acquisition of Process Supply, Inc. (see Business
Acquisitions note) and $265,000 increase in common stock and decrease in income
taxes payable related to the tax benefit of stock options exercised.
Supplemental cash flow information consisted of the following:
(In thousands) 1999 1998 1997
- ------------------------------------------------------
Interest paid $14,723 $10,650 $ 5,032
Taxes paid 8,812 12,366 14,820
NOTE 6 - LONG-TERM DEBT
(In thousands) 1999 1998
- ------------------------------------------------------
Senior debt:
Revolving credit loan $ 21,198 $ 26,846
Senior notes 100,000 100,000
Other 5,074 8,062
6.50% Convertible subordinated
notes 65,000 65,000
Other subordinated debt 0 6,334
--------------------
Total debt 191,272 206,242
Less current portion 121 4,139
--------------------
$191,151 $202,103
--------------------
The Company's Bank Credit Agreement ("Agreement") provides that the Company
may borrow on a revolving credit basis up to a maximum of $200,000,000. All
outstanding amounts under the agreement are due and payable on November 25,
2002. Interest is variable based upon formulas tied to LIBOR or prime, at the
Company's option, and is payable at least quarterly. At August 31, 1999, the
interest rate for all amounts outstanding was 3.80%. The outstanding amount is
primarily an Italian Lira based borrowing in Italy. Indebtedness under the Bank
Credit Agreement is unsecured, except for guarantees by the Company's U.S.
subsidiaries, the pledge of the stock of the Company's U.S. subsidiaries and the
pledge of stock of certain non-U.S. subsidiaries.
The Company has $100,000,000 of Senior Notes ("Senior Notes") issued in two
series. Series A in the principal amount of $70,000,000 has an interest rate of
6.76% and are due May 1, 2008 and Series B in the principal amount of
$30,000,000 has an interest rate 6.84% and are due May 1, 2010. Interest is
payable semi-annually on May 1 and November 1.
The above agreements have certain restrictive covenants including limitations
on cash dividends, treasury stock purchases and capital expenditures and minimum
requirements for interest coverage and leverage ratios. The amount of cash
dividends and treasury stock purchases, other than in relation to stock option
exercises, the Company may incur in each fiscal year is restricted to the
greater of $2,500,000 or 50% of the Company's consolidated net income for the
immediately preceding fiscal year, plus a portion of any unused amounts from the
preceding fiscal year.
The Company has $65,000,000 of 6.50% Convertible Subordinated Notes Due 2003
("Subordinated Notes"). The Subordinated Notes are due on September 1, 2003, and
bear interest at 6.50%, payable semi-annually on March 1 and September 1 and are
convertible into common stock at a rate of $27.25 per share. Holders may convert
at any time until maturity and the Company may call for redemption at any time
on or after September 1, 1999, at a price ranging from 103.25% in 1999 to 100%
in 2001 and thereafter. The Notes are subordinated to all other indebtedness of
the Company.
Aggregate principal payments of long-term debt, for the five years subsequent
to August 31, 1999, are as follows:
(In thousands)
- -------------------------------------------------
2000 $ 121
2001 231
2002 819
2003 22,861
2004 65,700
2005 and thereafter 101,540
Total $191,272
32
33
NOTE 7 - RETIREMENT BENEFITS
The Company sponsors two defined contribution plans covering most U.S. salaried
employees and certain U.S. hourly employees. Contributions are made to the plans
based on a percentage of eligible amounts contributed by participating
employees. The Company also sponsors several defined benefit plans covering all
U.S. employees and certain non-U.S. employees. Benefits are based on years of
service and employees' compensation or stated amounts for each year of service.
The Company's funding policy is consistent with the funding requirements of
applicable regulations. At August 31, 1999 and 1998 pension investments included
311,700 and 201,700 shares of the Company's common stock, respectively.
In addition