-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CtzdL4Q/5iWPp6KKhjwi1CZ/Sjg6R3TfTBjgKQ5oR/aa7jdjqAJG82x6zRn0OfaM p9TxcRTPxZGRW7tLAw9QTw== 0000950152-99-009334.txt : 19991124 0000950152-99-009334.hdr.sgml : 19991124 ACCESSION NUMBER: 0000950152-99-009334 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991123 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROBBINS & MYERS INC CENTRAL INDEX KEY: 0000084290 STANDARD INDUSTRIAL CLASSIFICATION: PUMPS & PUMPING EQUIPMENT [3561] IRS NUMBER: 310424220 STATE OF INCORPORATION: OH FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-00288 FILM NUMBER: 99762892 BUSINESS ADDRESS: STREET 1: 1400 KETTERING TWR CITY: DAYTON STATE: OH ZIP: 45423 BUSINESS PHONE: 9372222610 MAIL ADDRESS: STREET 1: 1400 KETTERING TOWER CITY: DAYTON STATE: OH ZIP: 45423 10-K 1 ROBBINS & MYERS, INC. 10-K 1 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 - --------------------- ----------------- 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 - ---------------------------------- -------------------------- 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 - ------------------- ---------------- (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. [ ] 1 2 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. 2 3 ITEM 1. BUSINESS. - ------------------ 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 3 4 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. 4 5 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 -------------------------------------------------- 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. 5 6 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 6 7 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 --------------------------------------------------- Market % of Major Principal Position Markets 1999 Sales Competitors Brands --------------------------------------------------------------------------------------------------------------- #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. 7 8 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 -------------------------------------------------- Market % of Major Principal Position Markets 1999 Sales Competitors Brands - ---------------- -------------------------------- ----------------- ------------------- ------------------------ #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 8 9 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 -------------------------------------------------- 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. 9 10 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 -------------------------------------- Market % of Major Principal Position Markets 1999 Sales Competitors Brands - ----------------------- ------------------- ------------------ ----------------------- ------------------------- 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 10 11 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. 11 12 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. 12 13 ITEM 2. PROPERTIES - ------------------- 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 - ------------------------------------ -------------- --------- ------------------------------------------------------------ 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
13 14 (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. 14 15 ITEM 3. LEGAL PROCEEDINGS - -------------------------- The Company is presently not a party to any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ None. 15 16 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. 18 19
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.
19 20 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% $17,477 2.85% --------------------------------------------------------
23 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - --------------------------------------------------- CONSOLIDATED BALANCE SHEET Robbins & Myers, Inc. and Subsidiaries August 31, ($ 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 to pension benefits, the Company provides health care and life insurance benefits for certain of its retired U.S. employees. The Company's policy is to fund the cost of these benefits as claims are paid. Retirement and other post-retirement plan costs are as follows:
Pension Benefits (In thousands) 1999 1998 1997 - ------------------------------------------------------------- Service cost $ 3,733 $ 3,854 $ 3,703 Interest cost 7,415 7,060 6,751 Expected return on plan assets (6,214) (6,367) (5,193) Amortization of prior service cost 552 521 581 Amortization of transition obligation (137) (138) (138) Recognized net actuarial (gains) losses 545 (72) 22 ------------------------------- Net periodic benefit cost $ 5,894 $ 4,858 $ 5,226 ------------------------------- Defined contribution cost $ 917 $ 1,011 $ 1,426 ------------------------------- Other Benefits (In thousands) 1999 1998 1997 - ------------------------------------------------------------- Service cost $ 250 $ 99 $ 146 Interest cost 1,456 1,238 1,361 Net amortization 253 419 490 ------------------------------- Net periodic benefit cost $ 1,959 $ 1,756 $ 1,997 -------------------------------
The funded status and amounts recorded in the balance sheet are as follows:
Pension Benefits Other Benefits (In thousands) 1999 1998 1999 1998 - ----------------------------------------------------------------------------- Change in benefit obligation: Beginning of year $ 115,683 $ 102,841 $ 17,103 $ 19,525 Service cost 3,733 3,854 250 99 Interest cost 7,415 7,060 1,456 1,238 Plan amendments 2,022 145 3,093 0 Liability transfer 0 8,748 0 0 Settlements/ curtailments (4,122) 0 0 0 Actuarial (gain) loss 3,830 769 1,078 (1,455) Benefit payments (8,825) (7,734) (2,579) (2,304) --------------------------------------------------- End of year $ 119,736 $ 115,683 $ 20,401 $ 17,103 --------------------------------------------------- Change in plan assets: Beginning of year $ 77,440 $ 69,422 $ 0 $ 0 Actual return 9,026 1,358 0 0 Company contributions 3,021 4,356 2,579 2,304 Asset transfer 0 10,038 0 0 Settlements/ curtailments (2,750) 0 0 0 Benefit payments (8,825) (7,734) (2,579) (2,304) --------------------------------------------------- End of year $ 77,912 $ 77,440 $ 0 $ 0 --------------------------------------------------- Funded status $ (41,824) $ (38,243) $ (20,401) $ (17,103) Unrecognized net actuarial losses (gains) 1,758 (94) 2,043 1,104 Unrecognized transition obligation 1,016 1,286 0 0 Unamortized prior service cost 2,686 2,333 2,718 (166) --------------------------------------------------- Amount recognized $ (36,364) $ (34,718) $ (15,640) $ (16,165) --------------------------------------------------- Recorded as follows: Accrued expenses $ (4,794) $ (3,864) $ (2,000) $ (2,000) Other long-term liabilities (37,137) (34,927) (13,640) (14,165) Intangible assets 2,570 2,572 0 0 Accumulated other comprehensive loss 2,997 1,501 0 0 --------------------------------------------------- $ (36,364) $ (34,718) $ (15,640) $ (16,165) --------------------------------------------------- Deferred tax liability on accumulated other comprehensive loss $ (686) $ (600) $ 0 $ 0 ---------------------------------------------------
33 34 Pension plans with accumulated ("ABO") and projected ("PBO") benefit obligations in excess of plan assets:
(In thousands) 1999 1998 - ------------------------------------------------------- Accumulated benefit obligations $ 98,941 $ 95,283 Projected benefit obligation 104,395 101,089 Plan assets 61,116 61,257
In 1999 and 1998 $29,962,000 and $28,534,000, respectively, of the unfunded ABO and $32,272,000 and $30,576,000, respectively, of the unfunded PBO relate to the Company's pension fund for its German operation. Funding of pension obligations is not required in Germany. Actuarial weighted average assumptions used to determine plan costs and liabilities are as follows:
Pension Benefits Other Benefits (In thousands) 1999 1998 1999 1998 - -------------------------------------------------------- Discount rate 7.00% 7.00% 7.00% 7.00% Expected return on plan assets 9.00% 9.00% N/A N/A Rate of compensation increase 5.50% 5.50% N/A N/A Health care cost increase N/A N/A 6.00% 6.00%
The assumed health care trend rate has a significant effect on the amounts reported for health care benefits. A one percentage point change in assumed health care rate would have the following effects:
(In thousands) Increase Decrease - ---------------------------------------------------------- Service and interest cost $ 95 $ (88) Postretirement benefit obligation $ 1,140 $ (1,077)
NOTE 8 - INCOME TAXES 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.
Deferred assets and liabilities (In thousands) 1999 1998 - ---------------------------------------------------- Assets: Postretirement benefit obligations $ 6,073 $ 6,560 Capital loss carryforward 0 332 Other U.S. credit carryforward 1,800 0 Book depreciation in excess of tax depreciation 883 843 Plant closure reserve 1,012 0 Inventory allowances 1,989 2,221 Warranty reserve 3,416 693 Insurance reserve 912 1,150 Pension benefits 2,997 4,242 Other items 4,263 2,805 ------------------ 23,345 18,846 Less valuation allowance 1,468 1,889 ------------------ 21,877 16,957 Liabilities: Tax depreciation in excess of book depreciation 6,708 5,855 Goodwill and purchased asset basis differences 6,840 4,658 Other items 2,883 2,356 ------------------ 16,431 12,869 ------------------ Net deferred tax benefit $ 5,446 $ 4,088 ------------------
Expense (In thousands) 1999 1998 1997 - ------------------------------------------------------------ Current: U.S. federal $ (536) $ 6,186 $ 7,128 Non-U.S. 6,244 6,348 4,730 U.S. state (193) 64 1,518 ---------------------------------- 5,515 12,598 13,376 Deferred: U.S. federal (13) 3,214 1,039 Non-U.S. 355 (257) (345) U.S. state 255 536 148 ---------------------------------- 597 3,493 842 ---------------------------------- 6,112 16,091 14,218 Tax included in minority interest 535 0 0 ---------------------------------- Tax expense $ 6,647 $ 16,091 $ 14,218 ---------------------------------- Non-U.S. pretax income $ 18,361 $ 18,449 $ 14,296 ----------------------------------
34 35 A summary of the differences between the effective income tax rate attributable to operations and the statutory rate is as follows:
1999 1998 1997 - ---------------------------------------------------------- U.S. statutory rate 35.0% 35.0% 35.0% U.S. state income taxes, net of U.S. federal tax benefit 2.8 2.0 3.5 Benefit of realization of non-U.S. loss carryforwards (3.7) (3.0) (4.1) Foreign Sales Corporation (2.4) (1.4) (0.8) Non-U.S. taxes 1.1 0.0 0.0 Other items - net 1.2 1.4 (0.6) -------------------------- 34.0% 34.0% 33.0% --------------------------
NOTE 9 - COMMON STOCK The Company sponsors a long-term incentive stock plan to provide for the granting of stock based compensation to officers and other key employees. In addition, the Company sponsors stock option and stock compensation plans for non-employee directors. Under the plans, the stock option price per share may not be less than the fair market value as of the date of grant. For officers and other key employees outstanding grants become exercisable over a three year period, while options for non-employee directors are immediately vested. Proceeds from the sale of stock issued under option arrangements are credited to common stock. The Company makes no charges or credits against earnings with respect to options. Summaries of amounts issued under the stock option plans are presented in the following tables.
Stock Option Activity - ---------------------------------------------------------- Weighted- Average Option Stock Price Per Options Share - ---------------------------------------------------------- Outstanding at September 1, 1996 779,700 $ 10.45 Granted 180,000 34.53 Exercised (91,750) 6.99 Canceled (9,150) 12.20 ---------------------- Outstanding at August 31, 1997 858,800 15.85 Granted 170,000 26.32 Exercised (165,800) 9.41 Canceled (23,333) 32.51 ---------------------- Outstanding at August 31, 1998 839,667 18.85 Granted 165,500 25.16 Exercised (95,400) 7.41 Canceled (5,500) 37.50 ---------------------- Outstanding at August 31, 1999 904,267 $ 21.11 ----------------------
Exercisable Stock Options at Year-End - -------------------------------------------------- 1997 568,745 1998 534,389 1999 577,434
Shares Available for Grant at Year-End - -------------------------------------------------- 1997 1,669,500 1998 1,499,500 1999 1,334,000
Components of Outstanding Stock Options at August 31,1999: - --------------------------------------------------------- Weighted- Weighted- Range of Average Average Exercise Number Contract Life Exercise Price Outstanding in Years Price - --------------------------------------------------------- $ 4.63 - $17.50 344,100 4.14 $10.16 21.38 - 39.50 560,167 8.54 27.83 - --------------------------------------------------------- $ 4.63 - $39.50 904,267 6.87 $21.11 - ---------------------------------------------------------
35 36
Components of Exercisable Stock Options at August 31,1999: - --------------------------------------------------------- Weighted- Range of Average Exercise Number Exercise Price Exercisable Price - --------------------------------------------------------- $ 4.63 - $17.50 344,100 $10.16 21.38 - 39.50 233,334 29.00 - --------------------------------------------------------- $ 4.63 - $39.50 577,434 $17.77 - ---------------------------------------------------------
Under the Company's long-term incentive stock plan, selected participants receive performance units which convert into a variable number of restricted shares based on a three year measurement of how favorably the total return on Company shares compares to the total shareholder return of the Russell 2000 Company Group ("Group"). The restricted shares earned range from 75% to 200% of the performance units awarded. The 75% threshold is earned when the Company's return is at the 50th percentile of total shareholder return of the Group and 200% is earned when the Company's return is at the 80th percentile or greater. No restricted shares are earned if the Company's return is less than the median return of the Group. Restricted shares earned under the program are issued to the participants at the end of the three year measurement period and are subject to forfeit if the participant leaves the employment of the Company within the following two years. For the three year performance period ended August 31, 1996, 146,000 restricted shares had been earned under the program. Restricted shares of 19,427, 15,313 and 111,260 were issued in 1999, 1998 and 1997, respectively. In 1997, 47,200 performance units were awarded for the three year performance period ending August 31, 1999. The weighted average fair value of the 1997 performance units at the date of grant was $22.00. No shares were earned for the performance period ending August 31, 1999, and therefore, no cost has been recognized for the performance period ending August 31, 1999. Total compensation expense recognized in the income statement for all stock based awards was ($243,000), $646,000, and $1,360,000 for the years ended August 31, 1999, 1998, and 1997, respectively. For purposes of pro forma disclosure as required by Statement of Financial Accounting Standard No. 123, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information is as follows:
(In thousands, except per share data) 1999 1998 1997 - ------------------------------------------------------------------------------- Pro forma net income $10,808 $30,367 $28,676 Pro forma net income per share: Basic 0.99 2.75 2.65 Diluted 0.99 2.37 2.28
The effects of providing pro forma disclosure are not indicative of the value of future options until the new rules are applied to all outstanding nonvested awards. Pro forma information regarding net income and net income per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its stock options granted subsequent to August 31, 1995 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes model with the following weighted-average assumptions:
1999 1998 1997 - --------------------------------------------------------- Expected volatility of common stock 35.6% 32.8% 31.6% Risk free interest rate 6.25% 5.61% 6.35% Dividend yield .75% .75% .75% Option life 6.90yrs 6.90yrs 6.90yrs Fair value at grant date $11.45 $11.10 $14.93
36 37 Option valuation models, such as the Black-Scholes model, were developed for use in estimating the fair value of traded options which have no vesting restrictions and are freely transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, existing models do not provide a reliable single measure of the fair value of its stock options. NOTE 10 - NET INCOME PER SHARE The following table sets forth the computation of basic and diluted net income per share:
(In thousands, except per share amounts) 1999 1998 1997 - -------------------------------------------------------------------------- Numerator: Basic: Net income $11,849 $31,230 $28,866 Effect of dilutive securities: Convertible debt interest 2,535 2,535 2,375 --------------------------------- Income attributable to diluted shares $14,384 $33,765 $31,241 --------------------------------- Denominator: Basic: Weighted average shares 10,930 11,032 10,806 Effect of dilutive securities: Convertible debt 2,385 2,385 2,234 Dilutive options and restricted shares 220 489 585 --------------------------------- Diluted 13,535 13,906 13,625 --------------------------------- Net income per share: Basic: $ 1.08 $ 2.83 $ 2.67 Diluted: $ 1.06 $ 2.43 $ 2.29
NOTE 11 - BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION The Company's operations are aggregated into two reportable business segments: Process Systems and Energy Systems. The Process Systems segment provides a wide range of systems, parts and services for process applications in the specialty chemical, pharmaceutical, agri-chemical, wastewater treatment, food and beverage and pulp and paper industries. The products and services relate to glass-lined reactor systems and storage vessels, flouropolymer products and accessories, mixing and turbine agitation equipment and progressing cavity pump products. The Energy Systems segment provides products and services for oil and gas exploration and production applications. The products and services relate to power sections for directional drilling applications, progressing cavity pumps used in artificial lift applications, wellhead equipment, pipeline closures, rod guides and valves. The Company evaluates performance and allocates resources based on Income before Interest and Taxes ("IBIT"). Identifiable assets by business segment include all assets directly identified with those operations. Corporate assets consist mostly of cash and intangible assets. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies except that the Company accounts for U.S. inventory on a First-In,First-Out (FIFO) basis at the segment level compared to a Last In, First-Out (LIFO) basis at the consolidated level. The following tables provide information about the reportable segments. 37 38
(In thousands) 1999 1998 1997 - -------------------------------------------------------------------- Unaffiliated Customer Sales Process Systems (1) $ 335,648 $ 355,411 $ 331,571 Energy Systems (2) 64,494 81,063 54,092 ---------------------------------------- Total $ 400,142 $ 436,474 $ 385,663 ---------------------------------------- Intersegment Sales Process Systems (1) $ 1,515 $ 523 $ 1,759 Energy Systems (2) 0 0 0 Corporate and Eliminations (1,515) (523) (1,759) ---------------------------------------- Total $ 0 $ 0 $ 0 ---------------------------------------- Depreciation and Amortization Process Systems (1) $ 16,223 $ 17,318 $ 13,660 Energy Systems (2) 7,233 5,416 1,492 Corporate and Eliminations 1,065 782 811 ---------------------------------------- Total $ 24,521 $ 23,516 $ 15,963 ---------------------------------------- IBIT Process Systems (1) $ 42,001(3) $ 49,502 $ 43,308 Energy Systems (2) 1,097(4) 20,089 19,640 Corporate and Eliminations (9,810) (9,449) (13,427) ---------------------------------------- Total $ 33,288 $ 60,142 $ 49,521 ---------------------------------------- Identifiable Assets Process Systems (1) $ 337,037 $ 335,654 $ 322,307 Energy Systems (2) 130,479 140,435 30,413 Corporate and Eliminations 26,336 24,919 19,634 ---------------------------------------- Total $ 493,852 $ 501,008 $ 372,354 ---------------------------------------- Capital Expenditures Process Systems (1) $ 8,011 $ 15,647 $ 14,888 Energy Systems (2) 3,462 7,345 7,000 Corporate and Eliminations 139 28 183 ---------------------------------------- Total $ 11,612 $ 23,020 $ 22,071 ----------------------------------------
Information about the Company's operations in different geographic regions is presented below. The Company's primary operations are in the U.S. and Europe. Sales are attributed to countries based on the location of the customer.
Years ended August 31, (In thousands) 1999 1998 1997 - --------------------------------------------------------- Sales (1) and (2): United States $214,624 $230,587 $208,629 Europe 116,120 126,534 110,299 Other North America 33,385 47,014 36,522 South America 16,961 15,133 14,274 Asia 19,052 17,206 15,939 -------------------------------- $400,142 $436,474 $385,663 -------------------------------- Identifiable Assets: United States $309,258 $320,018 Europe 107,011 113,710 Other North America 27,020 27,371 South America 4,184 6,301 Asia 20,154 8,689 Corporate 26,225 24,919 -------------------- $493,852 $501,008 --------------------
(1) Includes the operations of acquisitions from the respective dates of their acquisition: GMM--July 19, 1999, Chemineer de Mexico--June 30, 1999, UGE--December 1,1998, Technoglass, S.r.L.--December 5, 1997, Tycon, S.p.A.--May 2, 1997, Process Supply, Inc.--February 3, 1997, and Greerco Corp.--January 31, 1997. (2) Includes the operations of Flow Control Equipment, Inc. from the date of its acquisition--December 19, 1997. (3) Includes $1,200,000 of one-time severance and early retirement costs for fixed cost reductions at Moyno and Chemineer. (4) Includes $4,769,000 charge for the closure of the Fairfield, California manufacturing facility. 38 39
NOTE 12 - QUARTERLY DATA (UNAUDITED) Robbins & Myers, Inc. 1999 Quarters ---------------------------------------------------- (In thousands, except per share data) 1st 2nd(2) 3rd 4th(3) Total - ---------------------------------------------------------------------------------------------------- Sales $ 98,266 $ 94,876 $ 103,829 $ 103,171 $ 400,142 Gross profit 33,502 31,683 34,850 36,131 136,166 IBIT 9,675 3,771 10,283 9,559 33,288 Income before income taxes and minority interest 6,135 157 7,108 6,136 19,536 Net income 4,049 (302) 4,416 3,686 11,849 Net income per share: Basic 0.37 (0.03) 0.40 0.34 1.08 Diluted 0.34 (0.03)(1) 0.37 0.32 1.06 Weighted average common shares: Basic 10,935 10,914 10,938 10,934 10,930 Diluted 13,593 10,914(1) 13,521 13,521 13,535 1998 Quarters ---------------------------------------------------- (In thousands, except per share data) 1st 2nd 3rd 4th Total - ---------------------------------------------------------------------------------------------------- Sales $ 104,158 $ 108,372 $ 112,708 $ 111,236 $ 436,474 Gross profit 38,478 39,575 41,202 39,458 158,713 IBIT 14,624 15,684 16,310 13,524 60,142 Income before income taxes and minority interest 12,406 12,020 12,271 10,624 47,321 Net income 8,188 7,934 8,098 7,010 31,230 Net income per share: Basic 0.75 0.72 0.73 0.63 2.83 Diluted 0.63 0.61 0.63 0.56 2.43 Weighted average common shares: Basic 10,966 11,025 11,064 11,072 11,032 Diluted 13,944 13,985 13,900 13,770 13,906
(1) The effect of diluted securities was antidilutive; therefore, they were excluded. This causes the sum of the quarters not to total the year. (2) The second quarter includes a one-time charge of $5,000,000, primarily for closing the Company's Fairfield, California plant and transferring production to a similar plant near Houston, Texas. (3) The fourth quarter includes severance and early retirement benefits of $1,200,000 at the Company's Moyno and Chemineer business units as the Company reduced its overhead cost structure at these businesses. 39 40 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------ FINANCIAL DISCLOSURE -------------------- None. 40 41 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ----------------------------------------------------------- The information required by this Item 10 is incorporated herein by reference to the Company's Proxy Statement for its Annual Meeting of Shareholders on December 8, 1999, except for certain information concerning the executive officers of the Company which is set forth in Part I of this Report. ITEM 11. EXECUTIVE COMPENSATION - ------------------------------- The information required by this Item 11 is set forth in the Company's Proxy Statement for its Annual Meeting of Shareholders on December 8, 1999 and is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ----------------------------------------------------------------------- The information required by this Item 12 is incorporated herein by reference to the Company's Proxy Statement for its Annual Meeting of Shareholders on December 8, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------------------------------------------------------- The information required by this Item 13 is incorporated herein by reference to the Company's Proxy Statement for its Annual Meeting of Shareholders on December 8, 1999. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- (a) (1) FINANCIAL STATEMENTS The following consolidated financial statements of Robbins & Myers, Inc. and its subsidiaries are at Item 8 hereof. Consolidated Balance Sheet - August 31, 1999 and 1998. Consolidated Income Statement - Years ended August 31, 1999, 1998, and 1997. Consolidated Shareholders' Equity Statement - Years ended August 31, 1999, 1998, and 1997. Consolidated Cash Flow Statement - Years ended August 31, 1999, 1998, and 1997 41 42 Notes to Consolidated Financial Statements. (a) (2) FINANCIAL STATEMENT SCHEDULE Schedule II - Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. (a) (3) EXHIBITS. See INDEX to EXHIBITS. (b) REPORTS ON FORM 8-K. During the quarter ended August 31, 1999, the Company did not file any reports on Form 8-K. 42 43 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Robbins & Myers, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 23rd day of November, 1999. ROBBINS & MYERS, INC. BY /s/ Gerald L. Connelly ---------------------- Gerald L. Connelly President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of Robbins & Myers, Inc. and in the capacities and on the date indicated:
- ------------------------------------------------- ------------------------------------- ------------------------------- NAME TITLE DATE - ------------------------------------------------- ------------------------------------- ------------------------------- /s/ Gerald L. Connelly Director, President and November 23, 1999 - ------------------------------------ Chief Executive Officer Gerald L. Connelly /s/ Stephen R. Ley Vice President, Finance and Chief November 23, 1999 - ------------------------------------ Financial Officer Stephen R. Ley (Principal Financial Officer) /s/ Kevin J. Brown Controller November 23, 1999 - ------------------------------------ (Principal Accounting Officer) Kevin J. Brown *Maynard H. Murch, IV Chairman Of Board November 23, 1999 *Daniel W. Duval Vice Chairman of Board November 23, 1999 *Robert J. Kegerreis Director November 23, 1999 *Thomas P. Loftis Director November 23, 1999 *William D. Manning, Jr. Director November 23, 1999 *Jerome F. Tatar Director November 23, 1999 *John N. Taylor, Jr. Director November 23, 1999
*The undersigned, by signing his name hereto, executes this Report on Form 10-K for the year ended August 31, 1999 pursuant to powers of attorney executed by the above-named persons and filed with the Securities and Exchange Commission. /s/ Gerald L. Connelly ------------------------- Gerald L. Connelly Their Attorney-in-fact 43 44 Report of Independent Auditors Shareholders and Board of Directors Robbins & Myers, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheet of Robbins & Myers, Inc. and Subsidiaries as of August 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended August 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Robbins & Myers, Inc. and Subsidiaries at August 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended August 31, 1999, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Dayton, Ohio October 4, 1999 44 45 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C -------------------------------------------- ADDITIONS - -------------------------------------------------------------------------------------------------------------------------- (1) (2) DESCRIPTION BALANCE AT BEGINNING CHARGED TO COSTS CHARGED TO OTHER OF PERIOD AND EXPENSES ACCOUNTS-DESCRIBE - -------------------------------------------------------------------------------------------------------------------------- Year Ended August 31, 1999: Allowances and reserves deducted from assets: Uncollectable accounts receivable $ 1,539 $ 578 0 Inventory obsolescence 10,832 979 0 Restructuring reserve for property, plant & equipment held for sale 0 1,400 0 Other reserves: Warranty claims 6,888 1,245 3,500 (7) Restructuring liabilities 0 2,800 0 Current & L-T insurance reserves 2,693 1,396 352 (8) Year Ended August 31, 1998: ALLOWANCES AND RESERVES DEDUCTED FROM ASSETS: UNCOLLECTABLE ACCOUNTS RECEIVABLE $ 1,097 $ 901 $ 291 (7) Inventory obsolescence 7,096 1,822 2,484 (7) Other reserves: Warranty claims 3,301 2,058 3,500 (7) Restructuring liabilities 807 0 0 L-T insurance reserves 3,628 2,771 0 YEAR ENDED AUGUST 31, 1997: Allowances and reserves deducted from assets: Uncollectable accounts receivable $ 1,195 $ 311 $ 108 (6) Inventory obsolescence 5,677 1,958 1,092 (6) Other reserves: Warranty claims 3,642 2,909 0 Restructuring liabilities 1,624 0 0 L-T insurance reserves 4,358 2,889 0
COL. A COL. D COL. E - ----------------------------------------------------------------------------------------- DESCRIPTION DEDUCTIONS - BALANCE AT END DESCRIBE OF PERIOD - ----------------------------------------------------------------------------------------- Year Ended August 31, 1999: Allowances and reserves deducted from assets: Uncollectable accounts receivable $429 (1) $ 1,688 Inventory obsolescence 1,538 (2) 10,273 Restructuring reserve for property, plant & equipment held for sale 0 1,400 Other reserves: Warranty claims 1,770 (3) 9,863 Restructuring liabilities 270 2,530 Current & L-T insurance reserves 2,086 (5) 2,355 Year Ended August 31, 1998: ALLOWANCES AND RESERVES DEDUCTED FROM ASSETS: UNCOLLECTABLE ACCOUNTS RECEIVABLE $750 (1) $ 1,539 Inventory obsolescence 570 (2) 10,832 Other reserves: Warranty claims 1,971 (3) 6,888 Restructuring liabilities 807 (4) 0 L-T insurance reserves 3,706 (5) 2,693 YEAR ENDED AUGUST 31, 1997: Allowances and reserves deducted from assets: Uncollectable accounts receivable $517 (1) $ 1,097 Inventory obsolescence 1,631 (2) 7,096 Other reserves: Warranty claims 3,250 (3) 3,301 Restructuring liabilities 817 (4) 807 L-T insurance reserves 3,619 (5) 3,628
Note (1) Represents accounts receivable written off against the reserve. Note (2) Inventory items scrapped and written off against the reserve. Note (3) Warranty cost incurred applied against the reserve. Note (4) Spending against restructing reserve. Note (5) Spending against casualty reserve. Note (6) Amount due to acquisition of Tycon. Note (7) Amount due to acquisition of Flow Control Equipment, Inc. and Technoglass S.r.L. NOTE (8) In 1999 reclassified to include current and long-term portions. 45 46 (3) ARTICLES OF INCORPORATION AND BY-LAWS: 3.1 Amended Articles of Incorporation of Robbins & Myers, Inc. were filed as Exhibit 3.1 to the Company's Report on Form 10-Q for the quarter ended February 28, 1998 * 3.2 Code of Regulations of Robbins & Myers, Inc. was filed as Exhibit 3.2 to the Company's Report on Form 10-Q for the quarter ended February 28, 1995 * (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES: 4.1 Indenture relating to $65,000,000 Convertible Subordinated Notes due 2003, with Star Bank, N.A. , as Trustee, dated September 1, 1996 was filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K dated August 31, 1996 * 4.2 $200,000,000 Amended and Restated Credit Agreement dated January 8, 1999 among Robbins & Myers, Inc., the lenders named herein, Bank One, Dayton, N.A. as Administrative Agent, NationsBank, N.A. as Documentation and Syndication Agent, The Bank of Nova Scotia, as Issuing Bank and ABN Amro N.V., as Issuing Bank was filed as Exhibit 4.1 to the Company's Report on Form 10-Q for the Quarter Ended February 28, 1999 * 4.3 First Amendment dated as of February 24, 1999 (this "First Amendment") to the Amended and Restated Credit Agreement dated January 8, 1999 was filed as Exhibit 4.2 to the Company's Report of Form 10-Q for the Quarter Ended February 28, 1999 * 4.4 Pledge and Security Agreement between Robbins & Myers, Inc. and Bank One, Dayton, N.A., dated November 26, 1996 was filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K dated August 31, 1996 * 4.5 Form of $100 million senior note agreement dated May 1, 1998 was filed as exhibit 4.1 to the Company's Annual Report on Form 10-Q for the quarter ended May 31, 1998 *
46 47 (10) MATERIAL CONTRACTS: 10.1 Robbins & Myers, Inc. Pension Plan (As Amended and Restated Effective as of October 1, 1989) was filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for year ended August 31, 1990 * 10.2 First Amendment to Supplement One to the Robbins & Myers, Inc. Pension Plan dated October 22, 1990 was filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended August 31, 1990 * 10.3 Amendments to the Robbins & Myers, Inc. Pension Plan dated March 5, 1991, December 16, 1992, and two additional amendments both dated September 30, 1993 were filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended August 31, 1993 * 10.4 Robbins & Myers, Inc. Employee Savings Plan was filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended August 31, 1990 * 10.5 First Amendment, dated April 30, 1991, and Second Amendment, dated May 28, 1992, to Robbins & Myers, Inc. Employee Savings Plan was filed as Exhibit 10.7 to the Company's Report on Form 10-K for the year ended August 31, 1993 * 10.6 Robbins & Myers, Inc. 1984 Stock Option Plan was filed as Exhibit 10.7 to the Company's Report on Form 10-K for the year ended August 31, 1996 * 10.7 Robbins & Myers, Inc. Supplemental Retirement Plan adopted July 15, 1997 was filed as Exhibit 10.1 to the Company's Report on Form 10-Q for the Quarter ended November 30, 1997 *
47 48 10.8 Form of Indemnification Agreement between Robbins & Myers, Inc., and each director of the Company was filed as Exhibit 10.11 to the Company's Report on Form 10-K for the year ended August 31, 1993 * 10.9 Robbins & Myers, Inc. 1994 Directors Stock Compensation Plan was filed as Exhibit 10.13 to the Company's Report on Form 10-K for the year ended August 31, 1994 * 10.10 Robbins & Myers, Inc. 1994 Long-Term Incentive Stock Plan as amended was filed as Exhibit 10.11 to the Company's Report on Form 10-K for the year ended August 31, 1996 * 10.11 Robbins & Myers, Inc. 1995 Stock Option Plan for Non-Employee Directors was filed as Exhibit 10.12 to the Company's Report on Form 10-K for the year ended August 31, 1996 * 10.12 Robbins & Myers, Inc. Senior Executive Annual Cash Bonus Plan was filed as Exhibit 10.13 to the Company's Report on Form 10-K for the year ended August 31, 1996 * 10.13 Salary Continuation Agreement between Robbins & Myers, Inc. and Gerald L. Connelly, dated February 19, 1999 was filed as Exhibit 10.1 to the Company's Report on Form 10-Q for the Quarter Ended February 28, 1999 *
48 49 (21) SUBSIDIARIES OF THE REGISTRANT: Robbins & Myers, Inc. has the following subsidiaries all of which (i) do business under the name under which they are organized and (ii) are included in the consolidated financial statements of the Company. The names of such subsidiaries are set forth below.
Jurisdiction Percentage of in which Incorporated Ownership - ------------------------------------------------------------------ ------------------------------ -------------------- Chemineer, Asia, Ptd. Ltd. Singapore 51 Chemineer, Inc. Delaware 100 Edlon, Inc. Delaware 100 Glasteel Parts and Services, Inc. Delaware 100 GMM Pfaudler Limited India 51 Moyno, Inc. Delaware 100 Pfaudler Equipamentos Industrias Ltda. Brazil 100 Pfaudler, Inc. Delaware 100 Pfaudler S.A. de C.V. Mexico 100 Pfaudler-Werke GmbH Germany 100 R&M Italia S.p.A. Italy 100 Robbins & Myers Canada, Ltd. Canada 100 Robbins & Myers Energy Systems, Inc. Delaware 100 Robbins & Myers GmbH Germany 100 Robbins & Myers Energy Systems L.P. Texas 100 Robbins & Myers Holdings, Inc. Delaware 100 Robbins & Myers International Sales Co., Inc. U.S. Virgin Islands 100 Robbins & Myers, Limited England 100 Robbins & Myers de Mexico, S.A. Mexico 100 Chemineer de Mexico, S.A. Mexico 51 Moyno de Mexico, S.A. Mexico 51 Universal Glasteel Partnership Delaware 50 Robbins & Myers U.K. Limited England 100 Suzhou Pfaudler Co., Ltd. China 70
49 50 (23) CONSENTS OF EXPERTS AND COUNSEL 23.1 Consent of Ernst & Young LLP + (24) POWER OF ATTORNEY 24.1 Powers of Attorney of any person who signed this Report on Form 10-K on behalf of another pursuant to a Power of attorney + (27) 27.1 Financial Data Schedule -- Year ended August 31, 1999 + "+" Indicates Exhibit is being filed with this Report. "*" Indicates that Exhibit is incorporated by reference in this Report from a previous filing with the Commission. 50 EX-23.1 2 EXHIBIT 23.1 1 Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-8's) pertaining to the 1984 Stock Option Plan (No. 2-98841, Post Effective Amendment No. 1, dated November 23, 1988), Stock Option Plan for Non-Employee Directors (No. 33-43625, dated November 1, 1991), 1994 Directors' Stock Compensation Plan (No. 33-84032, dated September 13, 1994), Robbins & Myers, Inc. Employee Savings Plan (No. 33-61893, dated August 17, 1995), Robbins & Myers, Inc. 1994 Long-term Incentive Plan (No. 333-00291, dated January 19, 1996), Robbins & Myers, Inc. 1995 Stock Option Plan for Non-employee Directors (No. 333-00293, dated January 19, 1996), Robbins & Myers, Inc. Savings Plan for Union Employees (No. 333-00289 dated February 7, 1996) and the Registration Statement (Form S-3) pertaining to Investor Stock Purchase Plan (No. 333-31235, dated July 14, 1997) of our report dated October 4, 1999, with respect to the consolidated financial statements and schedule of Robbins & Myers, Inc. and Subsidiaries, included in this Annual Report (Form 10-K) for the year ended August 31, 1999. /s/ Ernst & Young LLP Dayton, Ohio November 19, 1999 EX-24.1 3 EXHIBIT 24.1 1 Exhibit 24.1 ROBBINS & MYERS, INC. LIMITED POWER OF ATTORNEY WHEREAS, Robbins & Myers, Inc. (the "Company") intends to file with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended August 31, 1999: NOW, THEREFORE, each of the undersigned in his capacity as a director of the Company hereby appoints Gerald L. Connelly his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to execute in his name, place and stead, the Company's Annual Report on Form 10-K for the year ended August 31, 1999, (including any amendment to such report) and any and all other instruments necessary or incidental in connection therewith, and to file the same with the Securities and Exchange Commission. Said attorney shall have full power and authority to do and perform in the name and on behalf of the undersigned, in the aforesaid capacity, every act whatsoever necessary or desirable to be done, as fully to all intents and purposes as the undersigned might or could do in person. The undersigned hereby ratifies and approves the act of said attorney. IN WITNESS WHEREOF, the undersigned has executed this instrument this 23rd day of November, 1999. /s/ Maynard H. Murch, IV -------------------------------- Maynard H. Murch, IV /s/ Daniel W. Duval -------------------------------- Daniel W. Duval /s/ Robert J. Kegerreis -------------------------------- Robert J. Kegerreis /s/ Thomas P. Loftis -------------------------------- Thomas P. Loftis /s/ William D. Manning, Jr. -------------------------------- William D. Manning, Jr. /s/ Jerome F. Tatar -------------------------------- Jerome F. Tatar /s/John N. Taylor, Jr. -------------------------------- John N. Taylor, Jr. EX-27.1 4 EXHIBIT 27.1
5 1,000 YEAR AUG-31-1999 SEP-01-1998 AUG-31-1999 8,901 0 76,588 (1,688) 53,747 155,842 196,820 (79,551) 493,852 83,005 191,151 0 0 27,468 126,758 493,852 400,142 400,142 263,976 102,878 0 578 13,752 19,536 6,647 11,849 0 0 0 11,849 1.08 1.06
-----END PRIVACY-ENHANCED MESSAGE-----