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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER 0-15582
MINUTEMAN INTERNATIONAL, INC.
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(Exact Name of Registrant as Specified in its Articles of Incorporation)
ILLINOIS 36-2262931
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(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
111 SOUTH ROHLWING ROAD, ADDISON, ILLINOIS 60101
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 630-627-6900
Securities registered pursuant to Section 12(g) of the Act:
Common stock, no par value
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(Title of each class)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
----- -----
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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.
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 1, 1999:
Common stock, no par value, $10,949,000
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The number of shares outstanding of the issuer's class of common stock as of
March 1, 1999:
Common stock, no par value, 3,568,385 shares
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report for the year ended December 31, 1998, are
incorporated by reference into Parts I and II.
Portions of the Proxy Statement for the Annual Shareholders Meeting to be
held April 20, 1999, are incorporated by reference into Part III.
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PART I
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Item 1. BUSINESS
General Development of Business
Minuteman International, Inc. an Illinois corporation incorporated in 1951 as
American Cleaning Equipment Corporation, manufactures and distributes one of the
most complete lines of commercial and industrial vacuums, floor and carpet care,
chemical cleaning and coating products and complementary accessories in the
United States and Canada. Its products are exported to countries around the
world.
On November 23, 1998 the Company entered into an Asset Purchase Agreement with
AAR PowerBoss, Inc. (PowerBoss) for the acquisition of substantially all of the
net assets and the assumption of certain liabilities of PowerBoss. Additional
information pertaining to this acquisition is incorporated by reference on page
20, Note C of the 1998 Annual Report and included in the Form 8-K and 8-K/A
previously filed.
Products
The Company's product line consists of hard surface floor care equipment, carpet
care and maintenance products, sweepers, scrubbers, commercial and industrial
specialized vacuums, and complementary accessories. Included in the specialized
vacuum area are the hazardous location/explosive environment vacuums and the
clean/room nuclear vacuums.
Minuteman PowerBoss, Inc. (PowerBoss), acquired in 1998, is a wholly-owned
subsidiary of Minuteman International, Inc. that designs, manufactures and
distributes ride-on and walk-behind sweepers and scrubbers for hard-surface
floor and carpet care for use in industrial applications.
Multi-Clean, the chemical division of Minuteman International, Inc. formulates,
manufactures and distributes over 65 chemical cleaning and floor coating
products including multi-surface cleaners and degreasers, finishes and waxes,
carpet care products, concrete and wood coatings and finishes, plus a full array
of specialized chemicals.
Parker Sweeper Company, acquired in 1992, manufactures a full line of litter
vacuums as well as an extensive array of lawn and turf debris handling
equipment. Effective December 30, 1994, Parker Sweeper Company, formerly a
wholly-owned subsidiary, was merged into the Company and operates as a division.
Additional information pertaining to new products is incorporated herein by
reference on pages 8 through 14 of the 1998 Annual Report for the year ended
December 31, 1998.
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Marketing and Distribution
The Company manufactures and distributes its products throughout the world. The
distribution process in the United States is primarily through the more than 450
active dealers and its two sales branches. The Company distributes its products
in Canada through Minuteman Canada, Inc. and in Europe through Minuteman
European, B.V., both of which are wholly owned subsidiaries. The Company sells
its products to Hako-Werke subsidiaries in Japan, Australia and certain European
countries. Export of other products is conducted through the headquarter office
in Addison, Illinois. Sales to affiliated and unaffiliated customers in foreign
countries aggregated to $10,642,000, $12,062,000 and $11,173,000 in 1998, 1997
and 1996, respectively.
The Company's equipment is sold under Minuteman International, Minuteman,
Minuteman PowerBoss and Parker Sweeper trade names. The chemical cleaning and
coating products are manufactured by Minuteman International, Inc. and sold
under Multi-Clean trade name. Substantially all of the Company's commercial
equipment is manufactured at its Illinois production facilities in Addison and
Hampshire. Substantially all of the Company's industrial equipment is
manufactured at its Aberdeen, North Carolina production facilities. The
remainder of the Company's industrial equipment is imported from Germany. All of
the Company's chemical cleaning and coating products are produced at its
Shoreview, Minnesota facility.
The manufacture, production and demand for the Company's products and services
are not considered to be seasonal in nature. No part of the Company business
depends on any one single customer, the loss of which would adversely affect the
Company. The Company does not believe any material portion of its business to be
subject to renegotiation of profits or termination of contracts at the election
of the Government.
Raw Materials
The Company purchases castings, electric motors, cord sets, switches, brushes,
wheels, injection molded plastics, sheet steel, paint pigment, chemicals and
other raw materials from a number of suppliers. The Company considers its
ability to obtain raw materials and supplies to be readily available. It does
not believe that the loss of any supplier would adversely affect the Company's
business.
Competition
Minuteman International, Inc. competes with many regional, national and
international manufacturers throughout the industry. These competitive markets
include industrial and plant maintenance, sanitation supply, critical filter,
floor coating and chemical fields. The principal competitive factors within each
of these markets are product quality, reliability, service and fair price. The
Company believes it will continue to compete effectively in the marketplace and
continue its sales growth in the future.
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Patents and Trademarks
Currently, the Company has 29 United States and 22 international patents.
Although the Company generally seeks to obtain patents where appropriate, it
does not consider the successful conduct of its business in general to be
dependent on any of its patents or patent applications. By agreement dated March
1, 1994, with Hako-Werke, the Company agreed to discontinue the use of the
"Hako" trademark on any products intended for sale in any country. It was
further agreed that the Company and Hako-Werke would be free to market and
distribute each of their products throughout the world.
Minuteman International, Inc. is owner of the United States and Canadian
registrations for the Multi-Clean and Parker Sweeper trade names. The Minuteman
trademark is registered in the United States and Canada. The Parker trademark is
registered in the United States and Canada.
Working Capital
The Company had working capital of $28.4 million at December 31, 1998. Cash,
cash equivalents and short term investments represented 5.6% of the working
capital which when not in use, is invested in bank certificates of deposit,
Eurodollar certificate investments, a managed portfolio of high quality,
variable rate notes and tax exempt seven day bonds.
Backlog
The Company's backlog of orders was approximately $2.7 million at December 31,
1998 and $2.6 million at December 31, 1997. The Company anticipates that
substantially all of the 1998 backlog will be delivered during 1999. In the
opinion of Management, fluctuations in the amount of its backlog are not
necessarily indicative of intermediate or long-term trends in the Company's
business.
Research and Development
The Company expended approximately $1,118,000, $1,102,000 and $1,146,000 in
research and development activities during 1998, 1997 and 1996, respectively.
Employees
The Company has 384 full time employees. The facilities in Addison, Illinois and
Shoreview, Minnesota, have approximately 101 hourly paid employees who are
covered by local collective bargaining agreements. These agreements expire in
May, 2003 and October, 2003, respectively. The Company believes that the current
employee relations are excellent. The Company plans to hire additional employees
during 1999 as are justified by the needs of the business.
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Environmental Matters
The Company's operations are subject to various federal, state and local laws
and regulations regarding the environmental aspects of the manufacture and
distribution of chemical components. The Company believes that it is currently
in compliance in all material respects with the environmental laws and
regulations affecting its operations. Capital expenditures for the purpose of
environmental protection are not expected to be material in amount for 1999 or
thereafter.
Item 2. PROPERTIES
The Company owns or leases the following properties in its operations:
Owned
Location Size (sq. ft.) Use or Leased
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Aberdeen, NC 135,000 (Bldg.) Office, manufacturing, Leased
Warehouse, sales, service
Addison, IL 112,230 (Bldg.) Office, manufacturing,
254,300 (Land) Warehouse, sales, service Owned
Villa Park, IL 6,135 (Bldg.) Warehouse, sales, service Leased
Taylor, MI 4,800 (Bldg.) Warehouse, sales, service Leased
Hampshire, IL 100,000 (Bldg.) Manufacturing, warehouse
871,200 (Land) Owned
Shoreview, MN 34,952 (Bldg.) Office, manufacturing,
133,830 (Land) Warehouse, sales, service Owned
Nieuw-Vennep 9,957 (Bldg.) Warehouse, sales, service Leased
The Netherlands
Mississauga, 18,486 (Bldg.) Warehouse, sales, service Leased
Ontario, Canada
Approximately 90% of the Company's Addison and Hampshire, Illinois facilities
and 85% of the Company's Aberdeen, North Carolina and Shoreview, Minnesota
facilities are devoted to manufacturing.
The Villa Park, Illinois lease term expires December 31, 2000. The Taylor,
Michigan lease term expires February 28, 2002. The Nieuw-Vennep, Netherlands
lease term expires January 31, 2003. The Mississauga, Ontario lease term expires
on November 30, 2002. The Aberdeen, North Carolina lease term expires November
30, 2001. The Company believes that failure to obtain the renewal of any lease
would not have a material adverse effect on its business.
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Item 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings arising in the ordinary
course of its business. The outcome of these matters will not, in the opinion of
Management, have a material adverse effect on the business or financial
condition of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 31, 1998, the
Company did not submit any matter to a vote of shareholders through the
solicitation of proxies or otherwise.
Part II
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Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Common stock market prices and dividends on page 23 of the Annual Report for the
year ended December 31, 1998, are incorporated herein by reference.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data on page 23 and the Notes to
Consolidated Financial Statements on pages 19 through 22 of the Annual Report
for the year ended December 31, 1998, are incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" on pages 15 and 16 and related comments in the President's letter on
Page 2 of the Annual Report for the year ended December 31, 1998, are
incorporated herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information appearing under the caption "Market Risk" appearing on page 16 of
the Annual Report for the year ended December 31, 1998 is incorporated herein by
reference (See Item 7. Management's Discussion and Analysis.)
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Auditors and the Consolidated Financial Statements,
including the Notes to the Consolidated Financial Statements, included on pages
17 through 24 of the Annual Report for the year ended December 31, 1998, are
incorporated herein by reference.
Quarterly Results of Operations on page 22 of the Annual Report for the year
ended December 31, 1998, is incorporated herein by reference.
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with the Company's auditors on
accounting and financial disclosure.
Part III
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Item 10. DIRECTORS AND OFFICERS OF THE COMPANY
The information contained on pages 2 through 6 of Minuteman International,
Inc.'s Proxy Statement dated March 15, 1999, with respect to directors and
executive officers of the Company is incorporated herein by reference in
response to this item.
Item 11. EXECUTIVE COMPENSATION
The information contained on pages 4 through 6 of Minuteman International Inc.'s
Proxy Statement dated March 15, 1999, with respect to Executive Compensation and
transactions, is incorporated herein by reference in response to this item.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained on page 2 of Minuteman International Inc.'s Proxy
Statement dated March 15, 1999, with respect to security ownership of certain
beneficial owners and management, is incorporated herein by reference in
response to this item.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained on pages 2 through 6 of Minuteman International Inc.'s
Proxy Statement dated March 15, 1999, with respect to certain relationships and
related transactions, are incorporated herein by reference in response to this
item.
Part IV.
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Item 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULE AND REPORTS ON FORM 8-K
(a) (1. and 2.) Financial Statements
The financial statements listed in the accompanying index to financial
statements are filed herewith.
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(a) (3) and (c) Exhibits
The Exhibits required by Item 601 of Regulation S-K and filed herewith
are listed in the Exhibit Index which follows the financial statements
and immediately precedes the exhibits filed.
(b) Reports on Form 8-K and 8-K/A
A Report on Form 8-K was filed on December 8, 1998.
A Report on Form 8-K/A was filed on February 8, 1999.
(d) Financial Statement Schedule
The financial statement schedule listed in the accompanying index to
financial statements is filed herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Minuteman International, Inc.
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(Registrant)
Date: March 15, 1999 By:
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Jerome E. Rau, President and
Chief Executive Officer
By:
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Thomas J. Nolan,
Chief Financial Officer,
Secretary and Treasurer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
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Jerome E. Rau
President, Chief Executive Officer,
and Director
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Tyll Necker, Director
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Frederick W. Hohage, Director
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Frank Reynolds, Director
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James C. Schrader, Jr. Director
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ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (1) AND (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULE
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 1998
MINUTEMAN INTERNATIONAL, INC.
ADDISON, ILLINOIS
11
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ITEM 14(a) (1) AND (2)
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
MINUTEMAN INTERNATIONAL, INC. AND SUBSIDIARIES
December 31, 1998
The following consolidated financial statements of Minuteman International, Inc.
and subsidiaries, included in the Annual Report of the Registrant to its
shareholders for the year ended December 31, 1998, are incorporated by reference
in Item 8:
Consolidated Balance Sheets - December 31, 1998
and 1997
Consolidated Statements of Income - Years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity -
Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows -
Years Ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
The following consolidated financial statement schedule of Minuteman
International, Inc. and subsidiaries are included in Item 14(d):
Schedule II -- Valuation and Qualifying Accounts 14
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
12
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REPORT OF INDEPENDENT AUDITORS
------------------------------
Shareholders and Board of Directors
Minuteman International, Inc.
We have audited the accompanying consolidated balance sheets of Minuteman
International, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. Our audits
also include 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Minuteman International, Inc. and subsidiaries at December 31, 1998 and 1997,
and consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statements schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
Ernst & Young LLP
Chicago, Illinois
February 12, 1999
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SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
MINUTEMAN INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
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Additions Deductions
--------------------------- ------------
(2)
Charged to
Balance at Charged to Other Balance
Beginning of Costs and Accounts - at End of
Description Period Expenses Describe Describe(1) Period
- ----------- ------------ -------- -------- ----------- ------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998
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Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts $328,000 203,000 310,000 120,000 $721,000
Year Ended December 31, 1997
- ----------------------------
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts $351,000 98,000 ---------- 121,000 $328,000
Year Ended December 31, 1996
- ----------------------------
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts $372,000 104,000 ---------- 125,000 $351,000
Note 1 -- Uncollectible accounts written off, net of recoveries.
Note 2 - Beginning balance of AAR PowerBoss, acquired during 1998.
</TABLE>
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MINUTEMAN INTERNATIONAL, INC.
EXHIBIT INDEX
-----------------------------
(Pursuant to Item 601 of Regulations S-K)
NO. DESCRIPTION AND PAGE OR INCORPORATION REFERENCE
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Certificate of Incorporation and By-Laws
3 (a) Certificate of Incorporation (incorporated herein by reference to
Exhibit 3 (a) of the Registrant's Form S-18 Registration Statement,
Registration Number 33-11858).
3 (b) By-laws (incorporated herein by reference to Exhibit 3 (b) of
the Registrant's Form S-18 Registration Statement, Registration Number
33-11858).
Instruments Defining the Rights of Security Holders,
Including Indentures
--------------------
4 (a) Specimen Certificate for Common Stock, no par value (incorporated
herein by reference to Exhibit 4 of the Registrant's For S-18
Registration Statement, Registration Number 33-11858).
Material Contracts
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10 (a) Employment Agreement dated as of January 20, 1987, between the
Company and Jerome E. Rau (incorporated herein by reference to Exhibit
10 (a) of the Registrant's Form S-18 Registration Statement,
Registration Number 33-11858).
10 (b) Amendment to Employment Agreement dated as of February 27, 1990,
between the Company and Jerome E. Rau (incorporated herein by
reference to Exhibit 10 (h) at Page 20 of Form 10K Annual Report for
fiscal year ended December 31, 1989).
10 (c) Specimen form of Employment Agreement between the Company and its
executive officers (with the exception of the president) (incorporated
herein by reference to Exhibit 10 (c) at Page 18 of Form 10K Annual
Report for fiscal year ended December 31, 1991).
10 (d) Employment Agreement dated as of March 22, 1990, between the Company
and Michael Gravelle (incorporated herein by reference to Exhibit 10
(d) at Page 22 of Form 10K Annual Report for fiscal year ended
December 31, 1991).
15
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10 (e) Agreement dated as of February 9, 1987, with respect to trademark
between the Company and Hako-Werke International GmbH (incorporated
herein by reference to Exhibit 10 (c) of the Registrant's Form S-18
Registration Statement, Registration Number 33-11858).
10 (f) Agreement dated March 1, 1994 with respect to worldwide
distribution/marketing and trademarks between the Company and
Hako-Werke International GmbH. Incorporated herein by reference to
Exhibit 10 (f) at Page 18 of Form 10-K Annual Report for fiscal year
ended December 31, 1994.
11 Statement re. Computation of Per Share Earnings
-----------------------------------------------
Statement re. computation of per share earnings. See Note B of the
Notes to Consolidated Financial Statements on Page 20 of the Annual
Report for the year ended December 31, 1998 (incorporated herein by
reference).
13 Annual Report to Security Holders
---------------------------------
The Company's Annual Report to Shareholders for the year ended
December 31, 1998, is incorporated herein by reference.
Subsidiaries of the Registrant
------------------------------
22 (a) Subsidiaries of the Registrant (included herein at Page 17).
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Minuteman International, Inc. will furnish any of the aforementioned exhibits
indicated above to requesting security holders upon written request.
16
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EXHIBIT 13
MINUTEMAN INTERNATIONAL, INC.
1998 ANNUAL REPORT
MISSION STATEMENT.
A COMMITMENT TO OUR CUSTOMERS.
The core of Minuteman International is anchored by a single, straightforward
vision -- to deliver exceptional floor cleaning equipment and chemicals combined
with a single-minded focus to anticipate and answer our customers' needs.
Answering those needs is just the beginning of a performance-driven philosophy
to help our distributors maximize profit and to provide outstanding service,
products and training to each Minuteman customer. That philosophy is combined
with the ongoing development of new and more cost effective methods of
manufacturing and product design to keep our customers on the leading edge of
floor care technology into the next century.
Minutemen International, headquartered in the Chicago suburb of Addison,
Illinois, is a full-line manufacturer of commercial and industrial vacuums and
floor and carpet care equipment, Multi-Clean brand chemical cleaning and coating
products, litter pick-up machines, and lawn sweeping equipment under the
Minuteman Parker label, and rider-operated floor surface maintenance equipment
under PowerBoss.
18-YEAR SUMMARY NET SALES
Exceptional, high quality products with a broad and deep line, long-held stable
relationships, focused marketing and aggressive promotions, distributor loyalty,
unequaled customer service, state-of-art technology and visionary management,
continue to drive Minuteman International sales to unprecedented levels.
STAR OF THE ISSA SHOW
MULTI-CLEAN'S UV-20 A SHOW-STOPPER
A Revolutionary Ultra Violet Single Floor Coat System for Tile, Wood and
Concrete. Introduced at the ISSA Show, Multi-Clean's revolutionary,
one-of-a-kind UV-20, Ultra Violet Curing Unit was the "talk of the show".
Representing the first time this unique technology has been introduced to the
floor cleaning industry outside of a controlled factory environment, the UV-20
ultra violet chemical is easily laid down and cured instantly with a special
floor machine designed by Minuteman engineers. This new concept far surpasses
the performance of conventional floor care products. Consider that the Ultra
Floor Coating System is delivered by Multi-Clean's unique UV-20 curing machine
which covers a wide 20" curing path and instantly polymerizes a blend of resins
by exposure to an ultra violet light located under the frame of the UV-20
machine. The UV-20 curing machine dries and completely cures the coating system
in a fraction of a second, instantly making the floor ready for traffic. This
unique one coat, low maintenance system delivers a long time wet-look appearance
and dramatically reduces maintenance costs.
CONTENTS
From the President 2
Minuteman Unfurls Domestic Strength 4
Minuteman International 6
Stunning, Inventive New Products 8
Minuteman's Full Line 10
Multi-Clean(R) Breaking Old Barriers 12
<PAGE> 2
Minuteman(R) Parker(R) 14
Financial Report 15
MINUTEMAN FACTS...MINUTEMAN IS ONE OF THE LARGEST FLOOR CLEANING MANUFACTURERS
IN THE WORLD.
FROM THE PRESIDENT
Dear Shareholders:
New dimensions might be a fitting characterization for 1998, our 18th year of
offering front-running products to users of commercial and industrial floor,
carpet and lawn-care equipment.
- - Our sales and our profits each reached record levels,
- - Purchase of the PowerBoss line of industrial floor-care equipment gave
Minuteman an immediate and prominent presence in the realm of larger machines,
- - Multi-Clean's ultra violet system, ready to debut in June, may be the
most revolutionary advance in floor-cleaning chemicals in the past 15 years, and
- - Our new warehouse in the Netherlands has greatly increased our access to
more customers in both Western and Eastern Europe.
Sales for the year rose 5.9%; PowerBoss, purchased in late November, contributed
only about one month of revenue to 1998's total. Our cost of sales was
proportionately less, causing our gross profit margin for the year to increase.
Our operating profit margin and net profit margin also expanded despite some
expenses connected with the acquisition, producing a 17.0% growth in net income.
Demand for our products was strong worldwide, with the exception of Asia, but
the order flow was particularly robust from our dealers in North America. New
product introductions are the leading stimulant to sales because customers
welcome dealers with something different to demonstrate and because this
innovative equipment answers previously unfilled needs. This is why our
participation in the International Sanitary Supply Association's trade show in
October received the best response I can remember.
The dealers were very excited about a 38" riding floor scrubber, our widest
model ever, and a new floor-finishing machine, developed by our Multi-Clean
cleaning chemicals division, that uses ultra violet light for instant drying by
curing the chemicals immediately following application. The earlier introduction
of a battery-operated burnisher and a new line of propane burnishers also
contributed importantly to 1998's sales increase. Our traditional products were
supported by a variety of promotional activities that are gradually winning
greater market share for our complete line.
The biggest news on the subject of products, however, was our November 23rd
acquisition of AAR PowerBoss Corp. of Aberdeen, NC. This extends our line of
floor-care equipment into larger machines for industrial floor care, where
PowerBoss, with $22 million in annual revenues, has been one of the dominant
participants; its products are sold in more than 30 countries. PowerBoss's
rider-operated industrial floor/surface maintenance equipment differs from
Minuteman's machines, which are largely walk-behind commercial units.
Because PowerBoss aims at different markets with different equipment, there is
virtually no overlap that otherwise could create redundancies. On the contrary,
certain efficiencies in purchasing and other areas should benefit our margins of
profit.
Greater profitability was another highlight of the year, with gross margins
increasing to 32.0% from 30.8% for 1997. Some of this improvement is
attributable to the full-year benefit of selective price increases that went
into effect in late 1997, but the bulk of it reflects cost-containment measures
instituted a couple of years ago, leveraged further by the higher volume.
Operating margins also rose,
<PAGE> 3
to 8.9% from 8.0% a year ago, with only small gains in selling, general and
administrative expenditures.
Despite our resolve to monitor spending carefully, we have never feared
committing funds to worthwhile projects, such as the sales recruitment and
training expenditures to realign Multi-Clean's marketing efforts over the past
couple of years. It is particularly satisfying to us and rewarding to you when
our judgement is confirmed by such excellent operating results as we achieved in
1998.
On the international front, our centralized distribution center in the
Netherlands, opened in early 1998, has greatly enhanced our performance in
Europe and given us a definite advantage with dealers on the continent, who are
now relying on us to a far greater extent than ever before. The Pacific Rim is
weak, with economies and currencies there continuing under pressure. But we
remain firmly committed to this region as an area of potentially explosive
growth for us because the customers we serve keep on building facilities in
Asia.
Even after we spent approximately $12 million on the PowerBoss purchase, our
strong financial condition is represented by ample working capital of $28
million and retained earnings of $25 million. This gives us the resources to
make judicious investments to stimulate our growth or operate more efficiently,
including other acquisitions that fit our criteria, like PowerBoss, by giving us
equipment we don't offer presently, allowing us to compete more effectively or
leveraging our fixed costs to produce higher profitability.
To share our good fortune with our investors, the Board of Directors declared
Minuteman's 42nd consecutive quarterly dividend in the amount of 11 cents per
share, payable February 15, 1999 to shareholders of record February 1, 1999.
I am encouraged as I look ahead in the new year because I see Minuteman
capitalizing on:
- - Sales gains in North America and Europe (but continuing weakness in Asia),
- - An effective integration of PowerBoss as a wholly owned subsidiary of
Minuteman,
- - Broader acceptance of the new products we introduced in 1998,
- - More additions to the product line in 1999,
- - Further emphasis on controlling expenses, and
- - A vigilance for possible alliances.
Sincerely,
Jerome E. Rau,
President and Chief Executive Officer
March 15, 1999
MINUTEMAN FACTS...MINUTEMAN EMPLOYS OVER 440 PEOPLE WORLDWIDE INCLUDING 123 AT
POWERBOSS.(R)
MINUTEMAN UNFURLS DOMESTIC STRENGTH
DOMESTIC SALES INCREASE 11%
In a global year marked by collapsing economies which subsequently caused
weakened demand for US goods and services, Minuteman International unfurled an
11% increase in net domestic sales. This substantial increase was possible for
several key reasons:
<PAGE> 4
INDUSTRY CONSOLIDATION. LONG HELD, STABLE RELATIONSHIPS.
Rapid consolidation in the floor cleaning industry has forced distributors and
manufacturers to increase in size, but lessen in number. The result is fewer
customers and more keen competition for those who hold a larger share of the
market. Minuteman's longtime, exceptional relationships with each of their
customers has been rewarded during this period of consolidation with loyalty and
outstanding domestic sales.
NATIONAL ACCOUNTS. FOCUSED MARKETING AND SERVICE.
In 1998, Minuteman focused on identifying and aggressively servicing over 200
major national accounts. Because national accounts require a greater volume of
products throughout large regions or for the entire United States, and require
installation, warranties, servicing and quick delivery, Minuteman's unique
network of distributors is able to provide an exceptional service structure and
deliver high quality, timely products to each of these accounts.
AGGRESSIVE PROMOTIONS. DISTRIBUTOR PROFIT.
Creative promotional efforts that help Minuteman distributors flourish, are the
hallmark of Minuteman's outstanding marketing savvy. Activities such as sales
incentives and targeted end-user advertising campaigns, solidify and enhance
long term relationships with customers. Successful marketing also includes
direct sales opportunities for distributors in conjunction with national
advertising support that bolsters the Minuteman product line through extended
market visibility and by direct response leads directly from industry
publications and end-users.
STABLE, SEASONED MANAGEMENT TEAM. OLD-FASHIONED INTEGRITY LEADS THE WAY.
"At Minuteman, We view our word as our bond."
Jerry Rau, President,
Minuteman International
Apparently So! Over 600 loyal customers continue to depend on it everyday.
Minuteman maintains and fosters an exceptional, long term management team. Each
member of the team brings years of individual experience, integrity and long
held commitment to the industry and to each Minuteman policy, product and
customer relationship. The success of Minuteman is possible because of an
aggressive, straightforward management position to deliver high quality
products, maintain cost structures, design and retool innovative products with
cutting-edge engineering and technology.
MINUTEMAN INTERNATIONAL ACQUIRES AAR POWERBOSS(R)
NEW PURCHASE SOLIDIFIES MINUTEMAN'S POSITION AS ONE OF THE TOP MANUFACTURERS IN
THE CLEANING EQUIPMENT INDUSTRY.
In a bold and aggressive move, Minuteman International acquired AAR PowerBoss
Corporation of Aberdeen, North Carolina, a wholly owned subsidiary of AAR
Corporation of Wood Dale, Illinois. The purchase of PowerBoss, for approximately
$12 million in cash, solidifies Minuteman's position as one of the top cleaning
equipment manufacturers in the industry with combined annual revenues
approaching $75 million.
PowerBoss will extend the Minuteman product line into larger machines with
a fast-growing line of rider-operated floor/surface maintenance equipment
distributed in over 30 countries. The new equipment will compliment Minuteman's
commercial machines as well as strengthen their market position in the industry
- -- especially with the growing building contractor segment which requires
larger, more productive products.
Both companies employ skilled workforces and deliver successful products,
however in different markets. By utilizing the combined strengths of the two
companies in areas such as new product development, management focus on the
cleaning industry, strong brand-name awareness, worldwide distributors and
manufacturing synergies, Minuteman will continue to build and lead the industry
from a preeminent and strategic position in the global marketplace.
<PAGE> 5
CAPTIONS Page 5:
PowerBoss(R)
Minuteman's purchase of PowerBoss extends their product line into larger
machines such as this PowerBoss Badger well known for its rugged, compact design
and maximum productivity.
The deluxe, PowerBoss Armadillo delivers high productivity and the widest sweep
path in its class.
MINUTEMAN FACTS... MINUTEMAN MANUFACTURES 100% OF ITS FLOOR CLEANING EQUIPMENT
IN WHOLLY OWNED MANUFACTURING FACILITIES -- ALL IN THE USA.
MINUTEMAN INTERNATIONAL
GLOBAL PROWESS AND EXPERTISE WEATHERS AN INTERNATIONAL ECONOMIC STORM
STRONG DISTRIBUTION CENTERS. SOPHISTICATED PRODUCTS.
Minuteman continues to build and expand their international presence while
working directly with dealers to maintain an atmosphere of trust and support.
This worldclass relationship building skill and support network is enhanced by a
distribution channel supported by on-site product training, direct follow-up for
progress checks and consistent distribution of new product information and
innovative, cost-effective products.
MINUTEMAN EUROPE.
GROWING THE COMPANY.
Minuteman Europe, a fully operational company providing European customers with
Minuteman's exceptional focus on proven growth strategies, aggressive marketing
efforts, direct customer service, cost containment and the efficient
distribution channels of a world-wide marketer, marked its second year of
operation. Headed by General Manager, Scott Anderson, the corporation has
enhanced its dedication to the international community through the maintenance
and success of a Netherlands warehouse especially designed to stock CE-approved
machines to allow for more timely delivery to European customers as well as to
solidify a growing strong presence in the market.
MAKING THINGS HAPPEN.
MINUTEMAN INNOVATION AND EXCEPTIONAL MANAGEMENT.
Minuteman's renowned leadership and stunning foresight begins with exceptional
management insight. In addition to a team of dedicated engineers and
professional product designers who work on specific categories of machines in
select product areas such as carpet, hard floors, concrete, specialty vacuums
and propane, Minuteman's creative management is continuously looking for better
ways to analyze business direction and progress. This includes designing methods
to produce better, more durable, long-lasting products while increasing
manufacturing efficiencies, delivering new product information to customers on a
timely basis in a format that is interesting and easy to access, and
understanding the scope and long term ramifications of business and product
alterations and decisions.
MINUTEMAN'S WEB SITE.
WWW.MINUTEMANINTL.COM
LIVE. FUN. FULL OF INFORMATION.
Minuteman's new web site is boasting an average of 600 visits per day and offers
shareholders and visitors complete information about Minuteman Floor Cleaning
Equipment, Multi-Clean Chemicals, Parker Sweeper as well as international news,
site locations, company history, financial reports and current tidbits from
across the floor cleaning industry. Shareholders will appreciate the web site's
focus on directly generating new business by increasing product knowledge and
offering immediate access to Minuteman through the site. Customers, prospects
and vendors may access the site and simply pull down convenient menus to view
equipment, review specifications, learn what's new or even contact Minuteman
directly with questions and comments. The new web site is proving to be a
popular spot for matching the right product to the right floor cleaning
application.
<PAGE> 6
ORACLE.(R)
USHERING IN A NEW ERA OF INFORMATION.
"Oracle", Minuteman's new operational software, will allow the company to
forecast and analyze the business more clearly and therefore improve the overall
business decision process. The new software will offer top management quicker
access to more comprehensive sales data, customer information, manufacturing and
production output, as well as enabling the company to comfortably grow with this
system for many years to come.
TWO NEW TURNING CENTERS ADD EFFICIENCY AND PRECISION.
Minuteman's commitment to efficiency and quality is keenly demonstrated by the
addition of two new turning centers. The new turning centers are designed for
aluminum casting and operate both horizontally and vertically. The machines are
unique in their ability to mill, drill and tap a single piece while the next
component is loaded onto a stand-by platform for machining. The efficient use
and design of the turning centers is representative of Minuteman's custom
manufacturing finesse, detail and flexibility in design and production of custom
parts for floor cleaning equipment.
CAPTIONS PAGE 7:
380
Minuteman's labor-saving 380 Walk-Behind Scrubber wet scrubs and dry vacuums in
one pass for maximum efficiency and productivity and maneuvers at the touch of
a hand.
Scott Anderson
General Manager of Minuteman Europe brings over 14 years of direct experience in
the floor cleaning and floor chemical industry to the European marketplace.
Bringing experience in all areas of the business from Division and Sales Manager
to a variety of hands-on positions with the company, Scott delivers real product
"know-how" to the European frontier.
www.minutemanintl.com
www.multi-clean.com
www.parkersweeper.com
All hot-linked to Minuteman's newly purchased PowerBoss at www.powerboss.com
MINUTEMAN FACTS...MINUTEMAN IS ONE OF THE LARGEST FLOOR CLEANING MANUFACTURERS
IN THE WORLD WITH DEALERS IN OVER 40 COUNTRIES.
STUNNING, INVENTIVE NEW PRODUCTS
OPENING NEW MARKETS AND CHALLENGING THE STATUS QUO
3800 RIDER SCRUBBER.
HIGH PERFORMANCE WITH A WIDER SCRUB PATH.
Compact and dependable, the power-ful 3800 Rider Scrubber is designed to clean a
wider 38" scrub path and sweep, scrub and dry vacuum in a single pass.
Maneuverable and operator-friendly, the large 66 gallon solution/recovery tank
is constructed of high impact polyethylene and provides longer scrubbing time,
easy tank filling/flushing and automatic vacuum shut off. Single front wheel
drive provides optimum traction allowing the machine to turn 360o on its own
axis. The operator station provides maximum visibility and is equipped with a
tilt wheel for operator comfort and a convenient control panel which constantly
monitors operation. Minuteman's dependable 3800 rider scrubber digs down deep to
clean even the most difficult and demanding floor.
380 WALK-BEHIND SCRUBBER.
DEEP CLEANING AT THE TOUCH OF A HAND. BUILT TO LAST.
This labor-saving, walk-behind scrubber is a durable, highly maneuverable and
user-friendly 38" automatic floor scrubber available in commercial and
industrial models. Minuteman's 380 Scrubber wet scrubs and dry vacuums in one
pass for maximum efficiency and productivity and maneuvers at
<PAGE> 7
the touch of a hand. Built to last, the 380 walk-behind scrubber is constructed
of durable polyethylene and steel to provide years of reliable service. In
addition, large solution/ recovery tanks and heavy-duty battery packs provide
extended running time and increased productivity. Ergonomically designed, the
380's user-friendly control panel and individual forward and reverse handles are
convenient, easy and safe. The popular 380 is exceptionally cost-effective
because the wide 38" path covers more area in less time with just one pass --
ideal for large, high traffic areas.
55 GALLON EXPLOSION-PROOF VACUUM.
NEW VACUUM IDEAL FOR HAZARDOUS MATERIALS.
Minuteman's new 55 gallon Explosion- Proof Vacuum is ideal for pick-up of
hazardous material such as flammable liquids, finely pulverized dust and more.
This heavy-duty, electric vacuum operates wet or dry in Class I, Group D and
Class II, Group F & G atmospheres and is available in 15 gallon or 55 gallon
stainless steel tanks to prevent corrosion and insure safety. All models are
equipped with a 4 wheel dolly to allow limited mobility and a 50 foot power
cable which can be wired into facilities. Simple to maintain, the new Explosion-
Proof Vacuums are UL Listed and available with a patented H.E.P.A. filter which
is 99.99% efficient at 0.12 microns. The 55 Gallon Explosion-Proof Vacuum is
perfect for petroleum refining and dispensing facilities, manufacturers of
organic coating, spray finishing areas, utility gas plants, operations involving
storage and handling of petroleum or natural gas, aircraft hangers, grain
elevators and more.
INNOVATIONS FOR 1998
BACK PACK VACUUM.
TWO NEW MODELS BRING HIGH PERFORMANCE IN A LIGHTWEIGHT, PORTABLE AND CONVENIENT
VACUUM.
Minuteman's popular BPV -- Back Pack Vacuum, now includes the added option of
greater performance with two new models, a 1.4 or a 1.6 hp motor, which offers
greater airflow and higher waterlift. The Back Pack Vacuum is easy to use and
can go just about anywhere -- ideal for large carpeted areas where upright
vacuums are too cumbersome and high productivity is demanded; and for small
tight areas where precision cleaning is required. Comfortable to use, the BPV
features wide padded shoulder and waist straps that adjust to any size user and
evenly distributes weight over hips, away from shoulders and back, for a
comfortable, light carriage. To further aid movement, the BPV includes a 50 foot
power cord, five-foot hose, a telescoping wand and an easy-roll floor tool. Safe
for all locations,the Back Pack Vacuum can be used anywhere and is especially
useful for offices, schools, hotels, hospitals-- anywhere an operator can walk,
the Back Pack Vac can go.
MIRAGE(R) PROPANE BURNISHERS.
TWO NEW ENGINES DELIVER MAXIMUM POWER FOR THE DEEPEST SHINE.
Introduced in the Fall of 1997, the Mirage Propane Burnishers have been so
popular that Minuteman has further enhanced these outstanding performers with
two new engines to increase power and add greater efficiencies. Minuteman's
Mirage Onan Propane Burnishers feature powerful Onan engines and deliver
high-speed performances in less time with greater results than any other
electric or battery powered burnisher. All Onan models are equipped with
catalytic converters and the 14hp model is equipped with an emission control
device. Minuteman's Mirage Kawasaki Propane Burnishers feature powerful Kawasaki
air cooled and liquid cooled engine packages. The liquid cooled engines offer
superior performance, less maintenance, lower sound decibels, a cleaner running
engine and up to double the life of any air cooled engine in its class. Plus,
these powerful burnishers are equipped with the Minuteman Certified Emission
Control System (MCECS) and catalytic converters which exceed current EPA and
CARB emissions standards making the Mirage Kawasaki Propane Burnisher one of the
safest and most reliable propane burnisher in the industry. All Minuteman
propane burnishers are EPA and CARB certified.
CAPTIONS PAGE 9:
Powerful Kawasaki liquid cooled engines last twice as long as any engine in
their class.
Minuteman's Parts Express, a CD-ROM electronic catalog system, offers complete
and instant access to parts and service infor-mation at the touch of a finger.
<PAGE> 8
3800
Minuteman's powerful 3800 Rider Scrubber cleans a wide 38" scrub path and
sweeps, scrubs and dry vacuums in a single pass.
MINUTEMAN FACTS...MINUTEMAN HOLDS 29 U.S. AND 22 FOREIGN PATENTS.
MINUTEMAN'S FULL LINE
POWER-PACKED FLOOR CARE PRODUCTS SWEEP THE GLOBE
Minuteman continues to drive the global market with a full line of exceptional
maintenance products for industrial, commercial and institutional facilities.
Direct control over design, production, product updates, manufacturing
technologies, distribution and quality control, allows Minuteman to continue as
a frontrunner in a challenging, competitive marketplace.
AUTOMATIC SCRUBBERS.
Minuteman Offers One Of The Largest Varieties Of Dynamic Scrubbers On The
Market. Minuteman offers a wide variety of scrubbers with cleaning paths ranging
from 17" to 38" and coverage from 18,000 to 41,000 sq. ft. per hour. The 170 and
200 compact walk-behind scrubbers clean small to mid-sized floors with easy
operation, increased maneuverability and high performance. The 260 and 320
Automatic Scrubbers maneuver at the touch of a hand and offer simplified,
user-friendly controls. All Minuteman automatic scrubbers are ergonomically
designed to allow for greater operator comfort and easier serviceability. Recent
additions to the automatic scrubber line, the 380 and 3800 support Minuteman's
commitment to outpace the competition and promise to lead the way to continued
leadership in a competitive field.
FLOOR CARE MACHINES AND BURNISHERS.
Competitively Priced And Uniquely Designed.
Designed to be high quality and competitively priced, Minuteman's 17" or 20"
Front Runner Series floor care machines retain the same high quality and
durability, as well as operator safety, found in all Minuteman machines. In
addition, Minuteman burnishers feature a non-fatigue design and offer a patented
Passive Air Management System (PAMS). PAMS keeps Minuteman's popular 1500, 2400,
and 2600 burnishers leading the market, year after year. New additions to
Minuteman's Propane Burnishers offer added depth and greater efficiencies. In
1998, new, more powerful and dynamic engines combined with Minuteman's
exceptional performance and engineering to deliver one of the most powerful
propane burnishers on the market.
CARPET CARE MACHINES.
DEPENDABLE, RELIABLE RESULTS -- EVERY TIME.
Minuteman's carpet care equipment is designed to be user-friendly as well as a
powerful choice for carpet maintenance that requires excellent cleaning power
and minimum operator fatigue. From the total care approach of the Rugmaster and
Ambassador Series to the daily dependability of the Multi- Purpose Vacuum
(MPV(R)) upright, each of these dependable workhorses feature excellent
visibility and reliable results, every time.
INDOOR/OUTDOOR SWEEPERS.
SWEEPERS ADD TO DEPTH OF MINUTEMAN'S PRODUCT LINE WITH HIGH QUALITY, EFFICIENT
PERFORMANCE.
Minuteman's Kleen Sweep(R) 27 and Kleen Sweep(R) 35 sweepers are just two
examples of the strength and depth of the Minuteman product line. The Kleen
Sweep 27 is ideal for machine shops, stock rooms, parks, small yards, parking
areas and loading ramps as well as indoors on large carpet areas. The Kleen
Sweep 27 is a cost-effective option cleaning up to 31,000 sq. ft. per hour.
Kleen Sweep 35 covers an area of 55,440 sq. ft. per hour offering easy
maintenance, exceptional performance, a dust filter system and efficient
ergonomic design. Constructed of durable, noncorrosive polyethylene, these
<PAGE> 9
two efficient sweepers sweep five to seven times faster than manual sweeping,
offering substantial labor savings.
CRITICAL FILTER VACUUMS.
ABSOLUTE FILTRATION IN SAFE AND POWERFUL VACUUMS.
Critical Filter Vacuums require both safety and efficiency. To guarantee
efficiency, Critical Filter Vacuums are designed to be easy to use, are
available in a wide variety of sizes and are created for specific hazardous
waste applications. For example, the 55 Gallon Explosion-Proof Vacuum is
designed for use where flammable gases, vapors or finely pulverized dust may be
present. The CRV(TM) Clean Room Vacuum is specifically designed for Class 1
through Class 100,000 cleanrooms, pharmaceutical labs, gowning areas, air
showers, biological labs and computer rooms. The Mercury Vacuum series is
designed for the handling and disposing of mercury-based residue.
CAPTIONS PAGE 11:
M2700 -- ABS Automatic Burnishing System
Minuteman's ET (Extraction Tool) features an optional 32" extension wand for
stand-up cleaning which increases operator comfort.
BPV
Two NEW models bring high performance in a lightweight, portable and convenient
vacuum especially useful for offices, schools, hospitals, hotels, and anywhere
an operator can walk.
MINUTEMAN FACTS... MINUTEMAN OFFERS OVER 400 INDIVIDUAL FLOOR CLEANING EQUIPMENT
MODELS.
MULTI-CLEAN(R) BREAKING OLD BARRIERS
INFUSING THE INDUSTRY WITH NEW FLOOR CARE PRODUCTS THAT STUN THE INDUSTRY
TEAMWORK, CREATIVE INGENUITY & TECHNICAL SKILL DEFINE FIRST-RATE MULTI-CLEAN.
Tapping into the deep and lucrative chemical sales market is no easy task --
unless your team is composed of talented and innovative chemists, professional
and highly experienced engineers and a sales staff that is backed by a senior
management team dedicated to delivering new products that break old floor care
barriers.
Multi-Clean's introduction of the UV-20, a revolutionary, "first-on-the-market"
Ultra Violet Single Floor Coat System, at the 1998 ISSA Show, is an example of
the uncommon teamwork and synergy that occurs when two industry giants work
together to design a product that is unlike any other on the market. The
development of this unique product, which embodies a unique chemical/ floor
equipment marriage, was possible because of the close working relationship
between exceptional chemists at Multi-Clean and sophisticated equipment
engineers at Minuteman. Innovative products like the UV-20 will pave the way for
Multi-Clean to enter new distribution channels and break into new territories.
In 1998, Multi-Clean's domestic sales increased by 18% as a result of the
introduction of new products, an increasingly sophisticated and seasoned sales
force as well as the strengthening residual sales of products introduced late in
1997 such as the Dilution Control System. Multi-Clean's Dilution Control System
is an example of a growing target market segment -- customers who re-order
replacement chemicals for dispensing systems.
ADDITIONAL NEW PRODUCTS CONTINUE TO BOLSTER PROFITS AT MULTI-CLEAN.
- - Multi-Fresh, is a new skin care line of hand cleaners that is mild to the
skin. Packaged in the bag-in-box dispensing system, which eliminates any chance
of contamination to the hand soap, as well as avoiding direct handling or
exposure to chemicals, Multi-Fresh products are easy to use and simple to
refill. The new hand cleaner line includes an Antimicrobial Hand Soap with
soothing
<PAGE> 10
Vitamin E, a Gel Hand Sanitizer with a no rinse alcohol gel that kills
over 99% of germs and bacteria on hands, an Antibacterial Hand Cleanser with 1%
PCMX for use in hospitals, etc., Lotionized Hand Soaps, Total Body Shampoos,
Industrial Hand Cleaners with pumice and more.
- - Multi-Stat ESD, is an anti-static control floor care system used for
controlling static electricity discharge in critical facilities such as medical
device manufacturing areas, computer rooms, switching stations, hospital labs
and critical care areas, clean rooms, circuit board assembly and virtually any
location where computers and sophisticated microelectronics are made or used.
- - Multi-Clean's new Bio-Pump dispenses Bio-Power Plus, a chemical for trap and
drain maintenance and misting dumpsters to prevent odors. Bio-Power Plus
accelerates the biological decomposition of wastes with an optimized blend of
living microbes that readily consume a wide variety of organic wastes. It is a
completely natural and odorless method of breaking down grease and other organic
wastes.
- - Multi-Clean's new Side Strip was introduced for fast and easy removal of floor
finish buildup on baseboards and on hard-to-reach floor surfaces.
DYNAMIC FOCUS FOR THE MILLENNIUM.
Multi-Clean is clearly focused on delivering tremendous returns while answering
customer needs with innovative products and services in the new Millennium. As
the group continues to build an even stronger independent profile in the
industry, substantial growth will become commonplace.
CAPTIONS PAGE 13:
Multi-Clean's Dilution Control System dispenses chemicals accurately without
cross-contamination
The development of the unique UV-20 Ultra Violet Single Floor Coat System was
possible because of the close working relationship between exceptional chemists
at Multi-Clean and sophisticated equipment engineers at Minuteman.
UV-20
Multi-Clean's revolutionary, one-of-a-kind Ultra Violet Curing Machine delivers
Multi-Clean's Ultra Floor Coating System in a wide 20" path and instantly cures
the coating system making the floor ready for traffic in seconds.
MINUTEMAN FACTS... MULTI-CLEAN MANUFACTURES AND DISTRIBUTES OVER 120 INDIVIDUAL
FLOOR CHEMICALS.
MINUTEMAN(R) PARKER(R)
A DISTINGUISHED LEADER FOR OVER A CENTURY
Minuteman Parker offers a wide variety of lawn, turf and industrial maintenance
equipment. Located at Minuteman's facility in Hampshire, Illinois, Parker
products include high quality lawn sweepers, litter vacuums, dethatchers,
wheeled blowers, chipper/shredder vacuums and portable truck loaders. This
exciting product line continues to bring diversity and strength to Minuteman by
selling its products through, but not limited to, the janitorial and cleaning
industries. Parker products are also offered to customers through lawn and
garden, roofing and paving distribution channels. Parker products have been the
choice of professional landscapers and discriminating consumers for well over a
century. Parker's distinguished reputation in the market is well known and
continues to add substantial value to Minuteman.
<PAGE> 11
CAPTIONS PAGE 14:
Parker(R)
This year we're proud to announce that Minuteman Parker will update their colors
to Minuteman International's elegant burgundy and gray.
1998 MINUTEMAN INTERNATIONAL FINANCIAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION RESULTS OF OPERATIONS EARNINGS
Net Income for the year 1998 was $3,332,000 or $.93 per share compared with
$2,847,000 or $.80 per share for the year 1997.
Record net sales for 1998 represented an increase of 5.9% as compared to 1997
and was fueled by strong domestic dealer demand, as domestic sales increased 11%
over the comparable period. Gross profit during 1998 increased as a percent to
net sales to 32.0% from 30.8% in 1997. The positive effects of higher volume,
combined with cost containment efforts and selective price increases made at the
end of 1997 to compensate for vendor price increases, accounted primarily for
this increase but were partially offset by the negative impact of product mix
changes. Operating profits increased 18% due to these cost containment efforts
in spite of increases in the cost of new product introductions and marketing
initiatives aimed at gaining market share. The benefits received in other income
in 1998 due to the gain recognized on the sale of our former Glendale,
California warehouse facility during 1998, offset in part by interest expense
incurred relative to the net asset purchase of AAR PowerBoss, accounted for the
increase in other income compared to 1997.
The 1997 sales increase of 8.6%, as compared to 1996, was fueled by strong
dealer demand both domestically and internationally. Response to our product
introductions was strong as were sales across most product lines. 1997 margin as
a percent to sales was approximately the same as 1996 in spite of the Company
not having raised prices since early 1996, while having absorbed vendor price
increases. Operating profits were adversely affected due to higher promotional
expenses aimed at gaining market share and the costs associated with our
establishing Multi-Clean as a separate division to handle our entire line of
chemical cleaning products. The reorganization should improve profitability in
the years to come. The benefits received in other income in 1996 due to the sale
of the remaining portion of our former St. Paul manufacturing facility likewise
contributed to this earnings decline, primarily accounting for the decrease in
earnings per share from 1996.
SALES
Net sales increased 5.9% or $3,139,000 in 1998 compared to 1997. The Company's
commercial product line, substantially all of which is domestically
manufactured, increased $836,000 or 1.6% compared to 1997. This increase is due
primarily to the favorable response to our product introductions, strong sales
across most product lines and by strong sales to our North American dealer
organization. These results were hampered by a decline in international business
due primarily to the economic and currency turmoil experienced in the Pacific
Rim. Sales of industrial products increased $ 2,303,000 in 1998 compared to
1997.
Net sales increased 8.6% or $4,226,000 in 1997 compared to 1996. The Company's
commercial product line, substantially all of which is domestically
manufactured, increased $4,532,000 or 9.5% compared to 1996. This increase is
due primarily to the sales of new products, our continued expansion in overseas
markets and by strong sales to our North American dealer organization.
GROSS PROFIT
Gross profit percentage for 1998 increased to 32.0% as compared with 30.8% in
1997 as the result of increased sales volume combined with the positive effects
of selective price increases made at the end of 1997.
<PAGE> 12
As a percent to net sales, 1997 gross profit was approximately the same as in
1996. The effects of higher volume were offset in part by the Company not having
raised prices since early 1996 and absorbing vendor price increases.
SELLING EXPENSES
Selling expenses, as a percent to net sales, increased from 18.5% in 1997 to
18.7% in 1998. The increase resulted primarily from higher promotional expenses
aimed at gaining market share and increased personnel expenses.
Selling expenses, as a percent to net sales, increased from 17.4% in 1996 to
18.5% in 1997. The increase resulted primarily from higher promotional expenses
aimed at gaining market share, increased personnel expenses and the costs
associated with our establishing Multi-Clean as a separate division to handle
our entire line of chemical cleaning products.
GENERAL AND ADMINISTRATIVE EXPENSES
For 1998 these expenses increased 7.4% from 1997 due primarily to higher
personnel expenses.
For 1997 these expenses increased 4.7% from 1996 due primarily to higher
personnel expenses and professional fees.
OTHER INCOME
The Company's interest income decreased $21,000 in 1998 and $1,000 in 1997 due
to lower investable funds.
In 1998 the Company incurred interest expense of $196,000 on short-term debt
resulting primarily from purchases of inventory and capital expenditures as well
as long-term debt resulting from the purchase of the net assets of AAR
PowerBoss. In 1997 the Company incurred interest expense of $57,000 on
short-term debt resulting primarily from purchases of inventory and capital
expenditures.
In 1998 other income increased $293,000 due primarily to the gain recognized on
the sale of our former Glendale, California warehouse facility in 1998. In 1997
other income decreased $379,000 due primarily to the gain recognized on the sale
of the remaining portion of our former St. Paul manufacturing facility in 1996.
INCOME TAXES
The effective tax rate was 36.7%, 34.6% and 36.4% for 1998, 1997 and 1996,
respectively. The increase in the 1998 rate is caused principally by reduced
benefits received from our Foreign Sales Corporation during 1998. The decrease
in the 1997 tax rate from 1996 is caused principally by lower state income
taxes.
INFLATION
Inflation has not had a significant impact on the Company's business during the
past three years.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES AND FINANCIAL POSITION
The Company had working capital of $28.4 million and $19.9 million at December
31, 1998 and 1997, respectively. This represented a current ratio of 5.6 and 7.2
for those years respectively.
Cash, cash equivalents and short-term investments represented 5.6% and 3.6% of
this working capital at December 31, 1998 and 1997, respectively. This increase
in 1998 was due to receipts of cash relative to the newly acquired receivables
from AAR PowerBoss.
At December 31, 1998 and 1997, the Company had shareholders' equity of $30.8
million and $29.1 million, respectively, which when compared to total
liabilities represented an equity to liability ratio of 1.5 and 8.5,
respectively.
<PAGE> 13
The Company has more than sufficient capital resources and is in a strong
financial position to meet business and liquidity needs as they arise. The
Company foresees no unusual future events that will materially change the
aforementioned summarization.
MARKET RISK
The Company's earnings and cash flow are subject to fluctuations due to changes
in foreign currency exchange rates. Currently these earnings and foreign
currency translation adjustments have not been material to the overall financial
results of the Company.
The Company has also entered into an interest rate swap agreement to obtain a
fixed interest rate on variable rate debt to reduce certain exposures to
interest rate fluctuations. In the event that a counterparty fails to meet the
terms of the interest rate swap agreement, the Company's exposure is limited to
the interest rate differential. The Company manages the credit risk of
counterparties by dealing only with institutions that the Company considers
financially sound. The Company considers the risk of nonperformance to be
remote.
YEAR 2000 READINESS DISCLOSURE
The Company is preparing for the impact of the arrival of the Year 2000 on its
business, as well as on the businesses of its customers, suppliers and business
partners. The "Year 2000 Issue" is a term used to describe the problems created
by systems that are unable to accurately interpret dates after December 31,
1999. These problems are derived predominantly from the fact that many software
programs have historically categorized the "year" in a two-digit format. The
Year 2000 Issue creates potential risks for the Company, including potential
problems in the Company's products as well as in the Information Technology
("IT") and non-IT systems that the Company uses in its business operation. The
Company may also be exposed to risks from third parties with whom the Company
interacts who fail to adequately address their own Year 2000 Issues.
THE COMPANY'S STATE OF READINESS
Beginning in late 1997, the Company began the process of reviewing all IT and
non-IT systems, including Company products and internal operating systems for
potential Year 2000 Issues. This assessment was completed in the second quarter
of 1998. The Company determined that it would be required to modify or replace
significant portions of its software so that its IT systems will function
properly with respect to dates in the year 2000 and thereafter. The Company is
utilizing both internal and external resources to reprogram, replace and test
the software for Year 2000 modifications and anticipates completing the Year
2000 project no later than July 31, 1999, which is prior to any anticipated
impact on its IT systems. The Company presently believes that with modifications
to existing software and conversions to new software, the Year 2000 Issue will
not pose significant operations problems for its IT systems. The Company has
determined it has little, if any, exposure to contingencies related to the Year
2000 Issue for non-IT systems and products it has sold.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remediate
their own Year 2000 Issues. The Company's total Year 2000 project cost and
estimates to complete include the estimated costs and time associated with the
impact of third party Year 2000 Issues based on presently available information.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted and would not have an
adverse effect on the Company's systems.
THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUE
The total costs associated with the Company's Year 2000 remediation is not
expected to be material to the Company's financial position or results of
operations. These estimated total costs will be funded through operating cash
flows.
THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES
There can be no assurance that the Company will be completely successful in its
efforts to address Year 2000 Issues. If some of the Company's IT systems or
products are not Year 2000 compliant, the Company could suffer lost sales or
other negative consequences, including, but not limited to,
<PAGE> 14
diversion of resources, damage to the Company's reputation, increased service
and warranty costs and litigation, any of which could materially adversely
affect the Company's business operations or financial statements.
The Company is also dependent on third parties such as its customers, suppliers,
service providers and other business partners. If these or other third parties
fail to adequately address Year 2000 Issues, the Company could experience a
negative impact on its business operations or financial statements. For example,
the failure of certain of the Company's principal suppliers to have Year 2000
compliant internal systems could impact the Company's ability to manufacture
and/or ship its products or to maintain adequate inventory levels for
production.
THE COMPANY'S CONTINGENCY PLANS
Although the Company has not yet developed a comprehensive contingency plan to
address situations that may result if the Company or any of the third parties
upon which the Company is dependent is unable to achieve Year 2000 readiness,
the Company's Year 2000 compliance program is ongoing and its ultimate scope, as
well as the consideration of contingency plans, will continue to be evaluated as
new information becomes available.
<PAGE> 15
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 1,590,000 $ 564,000
Short-term investments 1,000 158,000
Accounts receivable, less allowances of
$721,000 in 1998 and $328,000 in 1997 14,725,000 9,961,000
Due from affiliates 308,000 447,000
Inventories 17,339,000 11,396,000
Prepaid expenses 187,000 86,000
Refundable income taxes 111,000
Deferred income taxes 320,000 500,000
------------ ------------
Total Current Assets 34,581,000 23,112,000
Property, Plant and Equipment
Land 820,000 867,000
Building and improvements 5,983,000 6,112,000
Machinery and equipment 10,548,000 9,270,000
Office furniture and equipment 2,833,000 2,012,000
Transportation equipment 1,191,000 1,092,000
------------ ------------
21,375,000 19,353,000
Accumulated depreciation (11,423,000) (10,179,000)
------------ ------------
9,952,000 9,174,000
Intangible Assets - Net of Amortization 6,137,000 207,000
------------ ------------
$ 50,670,000 $ 32,493,000
============ ============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 3,269,000 $ 1,312,000
Accrued expenses 2,952,000 1,802,000
Income taxes payable 97,000
------------ ------------
Total Current Liabilities 6,221,000 3,211,000
Long-Term Debt 13,500,000
Deferred Income Taxes 175,000 200,000
Shareholders' Equity
Common stock, no-par value
Authorized shares - 10,000,000
Issued and outstanding shares -
3,568,385 in 1998 and 1997 6,396,000 6,396,000
Retained earnings 24,624,000 22,862,000
Cumulative foreign currency translation adjustments (246,000) (176,000)
------------ ------------
30,774,000 29,082,000
------------ ------------
$ 50,670,000 $ 32,493,000
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 16
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Net sales $ 56,485,000 $ 53,346,000 $ 49,120,000
Cost of sales 38,438,000 36,917,000 33,932,000
------------ ------------ ------------
Gross profit 18,047,000 16,429,000 15,188,000
Operating expenses
Selling 10,548,000 9,869,000 8,548,000
General and administrative 2,482,000 2,310,000 2,207,000
------------ ------------ ------------
Operating expenses 13,030,000 12,179,000 10,755,000
------------ ------------ ------------
Income From Operations 5,017,000 4,250,000 4,433,000
Other income
Interest income 32,000 53,000 54,000
Interest expense (196,000) (57,000)
Other - net 400,000 107,000 486,000
------------ ------------ ------------
Other income 236,000 103,000 540,000
------------ ------------ ------------
Income Before Income Taxes 5,253,000 4,353,000 4,973,000
Provision (credit) for income taxes
Current 1,766,000 1,566,000 1,882,000
Deferred 155,000 (60,000) (70,000)
------------ ------------ ------------
Provision For Income Taxes 1,921,000 1,506,000 1,812,000
------------ ------------ ------------
Net Income $ 3,332,000 $ 2,847,000 $ 3,161,000
============ ============ ============
Net income per common share - basic and diluted $ .93 $ .80 $ .89
============ ============ ============
</TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended December 31, 1996, 1997 and 1998
---------------------------------------------------------------------
Cumulative
Common Stock Foreign
------------------------- Currency
Number of Retained Translation
Shares Amount Earnings Adjustments Total
---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 3,568,385 $ 6,396,000 $19,851,000 $ (122,000) $26,125,000
Dividends (.40 per share) (1,427,000) (1,427,000)
Net income 3,161,000 3,161,000
Translation adjustment (5,000) (5,000)
-----------
Comprehensive income 3,156,000
---------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 3,568,385 6,396,000 21,585,000 (127,000) 27,854,000
Dividends (.44 per share) (1,570,000) (1,570,000)
Net income 2,847,000 2,847,000
Translation adjustment (49,000) (49,000)
-----------
Comprehensive income 2,798,000
---------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 3,568,385 6,396,000 22,862,000 (176,000) 29,082,000
Dividends (.44 per share) (1,570,000) (1,570,000)
Net income 3,332,000 3,332,000
Translation adjustment (70,000) (70,000)
-----------
Comprehensive income 3,262,000
---------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 3,568,385 $ 6,396,000 $24,624,000 $ (246,000) $30,774,000
========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 17
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Operating Activities
Net income $ 3,332,000 $ 2,847,000 $ 3,161,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,586,000 1,435,000 1,317,000
Deferred income taxes (credit) 155,000 (60,000) (70,000)
Other (70,000) (49,000) (5,000)
Changes in operating assets and liabilities,
net of effect of AAR PowerBoss acquisition:
Accounts receivable and due from affiliates (2,691,000) (1,095,000) (1,093,000)
Inventories (1,056,000) (2,805,000) 1,966,000
Prepaid expenses and refundable income taxes (142,000) 52,000 (38,000)
Accounts payable, accrued expenses and income taxes 1,126,000 297,000 (261,000)
------------ ------------ ------------
Net Cash Provided by Operating Activities 2,240,000 622,000 4,977,000
Investing Activities
Purchase of AAR PowerBoss (11,631,000)
Purchases of property, plant and equipment, net (1,670,000) (1,946,000) (1,004,000)
Purchases of short-term investments (1,883,000)
Maturities of short-term investments 157,000 1,983,000
------------ ------------ ------------
Net Cash Provided by (used in) Investing Activities (13,144,000) 37,000 (2,887,000)
Financing Activities
Proceeds from long-term debt 13,500,000
Dividends paid (1,570,000) (1,570,000) (1,427,000)
------------ ------------ ------------
Net Cash Provided by (used in) Financing Activities 11,930,000 (1,570,000) (1,427,000)
------------ ------------ ------------
Increase (Decrease) in Cash and Cash Equivalents 1,026,000 (911,000) 663,000
Cash and Cash Equivalents at Beginning of Year 564,000 1,475,000 812,000
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $ 1,590,000 $ 564,000 $ 1,475,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BUSINESS INFORMATION
Minuteman International, Inc. (the "Company") operates primarily in one business
segment, which consists of the development, manufacture and marketing of
commercial and industrial floor maintenance equipment and related products. The
Company sells to a multitude of regional, national and international customers,
primarily within the sanitary supply industry. No single customer accounted for
more than ten percent of net sales in 1998, 1997 or 1996.
The Company sells to affiliated (see Note H) and unaffiliated customers in
foreign countries. For 1998, 1997, and 1996, these sales aggregated $10,642,000,
$12,062,000 and $11,173,000, respectively, and were principally to customers in
Canada, the Pacific Rim, the Middle East, Europe, and Latin America.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company (an
Illinois corporation) and its wholly-owned subsidiaries, Multi-Clean, Minuteman
PowerBoss, Inc., Minuteman Canada, Inc., Minuteman European B.V. and Minuteman
International Foreign Sales Corporation. Significant intercompany accounts and
transactions have been eliminated in consolidation.
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 financial statements and accompanying notes.
Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost or market using the last-in,
first-out (LIFO) method for a majority (1998-56%, 1997-77%) of inventories and
the first-in, first-out (FIFO) method for the remainder. Inventories at December
31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Inventories at FIFO cost:
Finished goods $ 7,539,000 $ 4,361,000
Work in process 8,257,000 7,983,000
Raw materials 4,552,000 1,079,000
------------ ------------
20,348,000 13,423,000
Less LIFO & other reserves (3,009,000) (2,027,000)
------------ ------------
Total Inventories $ 17,339,000 $ 11,396,000
============ ============
</TABLE>
<PAGE> 19
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost. Depreciation is
computed by both the straight line and accelerated methods for financial
reporting purposes and by the accelerated method for tax purposes.
INTANGIBLE ASSETS
The Company has classified as intangible assets the cost in excess of the fair
value of net assets of businesses acquired. Amortization is computed on a
straight line basis over twenty years.
INCOME TAXES
Income taxes have been provided using the liability method. Under this method
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities, and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
NET INCOME PER COMMON SHARE
Net income per common share is based on the weighted average number of common
shares outstanding during each year (3,568,385 in 1998, 1997 and 1996). Basic
and fully diluted earnings per share are the same amounts.
FOREIGN CURRENCY TRANSLATION
The balance sheet accounts of the foreign subsidiary have been translated into
United States dollars using the current exchange rate at the balance sheet date.
Income statement amounts have been translated using the average exchange rate
for the year. Gains and losses resulting from the change in exchange rates have
been classified as a separate component of shareholders' equity.
CASH EQUIVALENTS
The Company considers all bank certificates of deposit and Eurodollar
certificate investments with a maturity of three months or less when purchased
to be cash equivalents.
SHORT-TERM INVESTMENTS
Short-term investments have been categorized as available for sale and are
stated at cost, which approximates fair value. Investments include certificates
of deposit, Eurodollar and treasury certificates, and a managed portfolio of
high quality liquid variable rate notes and tax exempt seven day bonds all with
domestic commercial banks.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for 1998, 1997 and 1996, approximated
$1,118,000, $1,102,000 and $1,146,000 respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
is required to be adopted in years beginning after June 15, 1999. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" in 1998
which changes the way companies report
<PAGE> 20
information about its operating segments. As mentioned in Note A, the Company
operates as one business segment so the effect of this adoption is minimal.
Effective October 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption had no impact on the Company's net income
or shareholders' equity. SFAS 130 requires currency translation adjustments,
which prior to adoption were reported separately in shareholders' equity, to be
included in comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130.
NOTE C - ACQUISITION
On November 23, 1998, the Company entered into an Asset Purchase Agreement with
AAR PowerBoss Inc. ("PowerBoss"), for the acquisition of substantially all of
the net assets and assumption of certain liabilities of PowerBoss. PowerBoss
designs, manufactures, and repairs ride-on and walk-behind sweepers and
scrubbers for floor and carpet care for use in industrial applications. The cash
purchase price, (subject to a purchase price adjustment), including related
acquisition costs, was $11,631,000. The acquisition was accounted for as a
purchase. Accordingly, the assets and liabilities of the acquired business are
included in the Consolidated Balance Sheet at December 31, 1998. The results of
PowerBoss's operations are included in the Consolidated Statements of Income
from the date of acquisition until December 31, 1998, but were not significant.
The acquisition was financed with borrowed funds from the long-term debt
agreement entered into on November 18, 1998 (see Note D). The aggregate
consideration has been allocated to the assets of PowerBoss based upon their
respective fair market values. The excess of the purchase price over the fair
value of the net assets acquired (intangible assets) in 1998 approximated
$5,950,000 and is being amortized over 20 years. The unaudited pro forma
combined historical results, as if PowerBoss had been acquired at the beginning
of the years 1998 and 1997 respectively, are estimated to be:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net sales $74,891,000 $76,105,000
Net income 2,687,000 2,526,000
Net income per
common share $ .75 $ .71
</TABLE>
These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the acquisition occurred on the date
indicated or which may result in the future.
NOTE D - DEBT
SHORT TERM DEBT
The Company entered into unsecured Line of Credit arrangements for short-term
debt with financial institutions which expire in May, 1999 and November, 1999.
Under the terms of these agreements the Company may borrow up to $10 million on
terms mutually agreeable to the Company and each financial institution. There
are no requirements for compensating balances or restrictions of any kind
involved in this arrangement. At December 31, 1998 and 1997 there were no
borrowings outstanding.
LONG TERM DEBT
The Company financed the PowerBoss acquisition (See Note C) by entering into a
term loan agreement with a financial institution on November 18, 1998 for
$13,500,000. This unsecured credit facility provides for an interest rate at
LIBOR plus an applicable margin based upon the ratio of debt outstanding to the
Company's earnings before interest, taxes, depreciation and amortization and
ranges from .70% to 1.15%. The margin rate on this debt at December 31, 1998 was
.80% (see Note F). The Company agreed to maintain certain minimum financial
ratios. Maturities of long term debt are as follows:
<PAGE> 21
<TABLE>
<S> <C>
Due 1999 $ --
2000 1,500,000
2001 1,500,000
2002 1,500,000
2003 1,500,000
2004 and thereafter 7,500,000
-----------
Total $13,500,000
===========
</TABLE>
Interest paid for short-term and long-term debt obligations in 1998, 1997 and
1996 was $110,000, $57,000 and $0, respectively.
NOTE E - INCOME TAXES
Deferred income taxes primarily relate to temporary differences in the
recognition of depreciation expense and other accrued expenses for financial
reporting and income tax purposes. The temporary differences between the
financial statement carrying amounts and the tax bases of assets and liabilities
that result in significant amounts of deferred taxes in the consolidated balance
sheets at December 31, 1998 and 1997 are as follows:
Deferred Tax Asset (Liability)
<TABLE>
<CAPTION>
December 31
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Accounts receivable allowance $ 108,000 $ 108,000
Property, plant & equipment tax
depreciation in excess of book (175,000) (200,000)
Accrued expenses & other 212,000 392,000
--------- ---------
$ 145,000 $ 300,000
========= =========
</TABLE>
The effective income tax rate on income taxes differed from the Federal
statutory rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net
of Federal tax benefit 3.1 3.7 4.6
Foreign Sales
Corporation benefit (1.5) (2.4) (2.1)
Research and Development Tax Credits (.3) (.6) (.6)
Other, net 1.4 (.1) .5
---- ---- ----
36.7% 34.6% 36.4%
==== ==== ====
</TABLE>
The Company paid income taxes of $1,975,000, $1,592,000 and $1,933,000 in 1998,
1997 and 1996, respectively. State income taxes amounted to $315,000, $294,000
and $344,000 for 1998, 1997 and 1996, respectively. Foreign income taxes
amounted to ($100,000), $21,000 and $22,000 for 1998, 1997 and 1996,
respectively.
NOTE F - FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash equivalents and trade receivables. The
Company places its cash equivalents with high credit quality financial
institutions, which are Federally insured up to prescribed limits. However, the
amount of cash equivalents at any one institution may exceed the Federally
insured prescribed limits. Concentrations of credit risks with regard to trade
receivables are limited due to the large number of customers comprising the
Company's customer base. The Company performs ongoing credit evaluations of its
customers and maintains allowances for potential credit losses which, when
incurred, have been within the range of management expectations.
In 1998, the Company entered into an interest rate swap agreement to obtain a
fixed interest rate on variable rate debt and reduce certain exposures to
interest rate fluctuations. At December 31, 1998, the Company had interest rate
swaps with a notional amount of $13,500,000. The swaps will terminate
<PAGE> 22
on the same basis as the long-term debt repayment schedule ending November, 2005
(See Note D). The swaps result in fixed rate payments at an effective interest
rate of 6.20%. Variable rate payments are based on LIBOR interest rate plus an
applicable margin (See Note D).
Interest rate differentials paid or received under this agreement are recognized
as an adjustment to interest expense. The Company does not hold or issue
interest rate swap agreements for trading purposes.
In the event that a counterparty fails to meet the terms of the interest rate
swap agreement, the Company's exposure is limited to the interest rate
differential. The Company manages the credit risk of counterparties by dealing
only with institutions that the Company considers financially sound. The Company
considers the risk of nonperformance to be remote. The net carrying amounts and
fair values of the Company's financial instruments are approximately the same.
NOTE G - LEASE COMMITMENTS
The Company and its subsidiaries lease certain manufacturing, warehousing and
other facilities and equipment. The leases generally provide for the lessee to
pay taxes, maintenance, insurance and certain other operating costs of the
leased property. The leases on most of the properties contain renewal
provisions. The following is a summary of future minimum payments under
operating leases that have initial or remaining noncancelable lease terms in
excess of one year at December 31, 1998:
<TABLE>
<S> <C>
1999 $ 486,000
2000 445,000
2001 322,000
2002 124,000
2003 5,000
----------
$1,382,000
==========
</TABLE>
Rental expense for operating leases amounted to $219,000, $128,000 and $105,000,
in 1998, 1997 and 1996, respectively.
NOTE H - RELATED PARTY TRANSACTIONS
Hako-Werke GmbH & Co. (a German corporation) owns 69.0% of the outstanding
common stock of the Company through a subsidiary.
The Company purchased inventories of approximately $46,000, $58,000 and $198,000
from Hako-Werke in 1998, 1997 and 1996, respectively. Amounts due to
Hako-Werke, which relate to these purchases, are due within 90 days from the
date of shipment.
The Company sold approximately $1,403,000, $1,968,000 and $1,807,000 of
merchandise to Hako-Werke and certain of its subsidiaries during 1998, 1997 and
1996, respectively. Amounts due from affiliates, which relate to these sales,
are due within 90 days from the date of sale.
NOTE I - EMPLOYEE BENEFIT PLANS
The Company maintains a participatory defined contribution plan for
substantially all employees under Section 401(a) of the Internal Revenue Code.
In addition to a discretionary contribution, the Company also matches employee
contributions based upon a formula up to a specified maximum. Contributions to
the plan and related expense were $284,000, $268,000 and $237,000 for the years
ended 1998, 1997 and 1996 respectively.
NOTE J - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1998 and 1997:
<PAGE> 23
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March June September December
31 30 30 31
------- ------- ------- --------
(Thousands of dollars, except per share data)
<S> <C> <C> <C> <C>
1998
Net Sales $15,101 $14,485 $13,962 $12,937
Gross profit 4,941 4,753 4,350 4,003
Net income 901 930 954 547
Net income per common share $ .25 $ .26 $ .27 $ .15
1997
Net sales $14,094 $14,003 $13,316 $11,933
Gross profit 4,362 4,568 4,015 3,484
Net income 748 858 640 601
Net income per common share $ .21 $ .24 $ .18 $ .17
</TABLE>
Fourth quarter adjustments, primarily related to inventories, resulted in an
increase in net income and net income per common share of $55,000 or $.02 per
share, respectively in 1998 and $53,000 or $.01 per share, respectively in 1997.
MARKETS FOR THE COMPANY'S SECURITIES AND RELATED MATTERS
On March 1, 1999 the last reported sales price of the common stock on the NASDAQ
systems was $12 15/16. The approximate number of holders of common stock was
1100.
Since 1988 the Board of Directors has declared regular quarterly dividends and
the fourth quarter dividend in 1998 represents the forty-first consecutive
dividend paid to shareholders. Future dividend policy will be determined by the
Board of Directors in light of prevailing financial needs and earnings of the
Company and other relevant factors.
The common stock of Minuteman International, Inc. is quoted on The Nasdaq Stock
Market and its trading symbol is "MMAN". The following tables set forth for 1998
and 1997 the range of bid prices for the Company's common stock as reported in
the NASDAQ systems for the period indicated:
<TABLE>
<CAPTION>
Dividends
High Low Per Share
------ ------ ---------
<S> <C> <C> <C>
1998
1st Quarter 10 3/4 9 7/8 $ .11
2nd Quarter 11 3/4 10 $ .11
3rd Quarter 11 3/4 10 3/8 $ .11
4th Quarter 12 3/4 9 5/8 $ .11
1997
1st Quarter 10 1/4 8 $ .11
2nd Quarter 9 1/4 8 1/4 $ .11
3rd Quarter 11 8 3/4 $ .11
4th Quarter 11 3/4 10 $ .11
</TABLE>
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
See "Management's Discussion and Analysis of Results of Operations and Financial
Condition", and "Notes to Consolidated Financial Statements"
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(In thousands, except share and per share data)
Income Statement Data
<S> <C> <C> <C> <C> <C>
Net sales $ 56,485 $ 53,346 $ 49,120 $ 46,300 $ 41,518
Cost of sales 38,438 36,917 33,932 31,957 27,540
----------- ----------- ----------- ----------- -----------
Gross profit 18,047 16,429 15,188 14,343 13,978
Selling expenses 10,548 9,869 8,548 8,431 7,675
General and administrative expenses 2,482 2,310 2,207 1,920 2,024
----------- ----------- ----------- ----------- -----------
Income from operations 5,017 4,250 4,433 3,992 4,279
Interest income (expense), net (164) (4) 54 30 99
Other, net 400 107 486 82 737
----------- ----------- ----------- ----------- -----------
Income before income taxes 5,253 4,353 4,973 4,104 5,115
Income tax expense 1,921 1,506 1,812 1,280 1,912
----------- ----------- ----------- ----------- -----------
Net income $ 3,332 $ 2,847 $ 3,161 $ 2,824 $ 3,203
=========== =========== =========== =========== ===========
Per Share Data
Cash dividends $ .44 $ .44 $ .40 $ .40 $ .34
Net income per common share .93 .80 .89 .79 .90
Weighted average number of shares
outstanding 3,568,385 3,568,385 3,568,385 3,568,385 3,568,385
Balance Sheet Data
Working capital $ 28,360 $ 19,901 $ 19,184 $ 17,142 $ 17,207
Total assets 50,670 32,493 30,968 29,500 28,067
Shareholders' equity 30,774 29,082 27,854 26,125 24,699
</TABLE>
<PAGE> 25
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of Minuteman International, Inc.
We have audited the accompanying consolidated balance sheets of Minuteman
International, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 Minuteman
International, Inc. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
<PAGE> 26
ERNST & YOUNG LLP
Chicago, Illinois
February 12, 1999
REPORT OF MANAGEMENT
The management of Minuteman International, Inc. is responsible for the integrity
of the information presented in this Annual Report, including the Company's
financial statements. These statements have been prepared in conformity with
generally accepted accounting principles and include, where necessary, informed
estimates and judgments by management.
The Company maintains systems of accounting and internal controls designed to
provide assurance that assets are properly accounted for, as well as to insure
that the financial records are reliable for preparing financial statements. The
systems are augmented by qualified personnel and are reviewed on a periodic
basis.
The Company maintains high standards when selecting, training, and developing
personnel, to ensure that management's objectives of maintaining strong,
effective internal accounting controls and unbiased, uniform reporting standards
are attained. The Company believes its policies and procedures provide
reasonable assurance that operations are conducted in conformity with law and
with the Company's commitment to a high standard of business conduct.
Our independent auditors, Ernst & Young LLP, conduct annual audits of our
financial statements in accordance with generally accepted auditing standards
which include the review of internal controls for the purpose of establishing
their audit scope, and issue an opinion of the fairness of such financial
statements.
The Board of Directors pursues its responsibility for the quality of the
Company's financial reporting primarily through its Audit Committee which is
composed of three outside directors. The Audit Committee meets periodically with
management and the independent auditors to review the manner in which they are
performing their responsibilities and to discuss auditing, internal accounting
controls, and financial reporting matters. The independent auditors periodically
meet alone with the Audit Committee and have full and free access to the Audit
Committee at any time.
Thomas J. Nolan
Chief Financial Officer,
Secretary & Treasurer
Jerome E. Rau
President, Chief Executive Officer
<PAGE> 27
OPERATING OFFICERS
Jerome E. Rau
President & Chief Executive Officer
Gregory J. Rau
Executive Vice President
Thomas J. Nolan
Chief Financial Officer,
Secretary & Treasurer
Michael A. Rau
Vice President
Multi-Clean Division
Dean W. Theobold
Vice President
Manufacturing
CORPORATE INFORMATION GENERAL COUNSEL
Law Offices of Reynolds &
Reynolds, Ltd.
Chicago, Illinois
INDEPENDENT AUDITORS
Ernst & Young LLP
Chicago, Illinois
TRANSFER AGENT
ChaseMellon Shareholder
Services, L.L.C.
85 Challenger Road, Overpeck Centre
Ridgefield Park, New Jersey 07660
1-800-288-9541 Shareholders Information
1-800-231-5469 TDD (Telecommunications Device for the Deaf)
STOCK LISTING
Traded over-the-counter on The Nasdaq Stock Market under the symbol "MMAN"
ANNUAL MEETING
April 20, 1999 at 10:00 a.m.
at LaSalle National Bank
135 South LaSalle Street
Forty-third Floor
Conference Room ABC
Chicago, Illinois 60603
FORM 10-K
Minuteman International, Inc. will send
a copy of its Form 10-K report for fiscal
1998 as filed with the Securities and
Exchange Commission upon written
request to Thomas J. Nolan, Chief
Financial Officer, at the corporate office.
LOCATIONS
CORPORATE OFFICES AND WORLD HEADQUARTERS
Minuteman International, Inc.
111 South Rohlwing Road
Addison, Illinois 60101
(630) 627-6900
MANUFACTURING FACILITIES
Minuteman International, Inc.
111 South Rohlwing Road
Addison, Illinois 60101
(630) 627-6900
<PAGE> 28
Minuteman International, Inc.
14N845 U.S. Route 20
Hampshire, Illinois 60140
(847) 683-5210
Minuteman/PowerBoss, Inc.
175 Anderson Street
Aberdeen, North Carolina 28315
(910) 944-2105
Multi-Clean,
Division of Minuteman
International, Inc.
600 Cardigan Road
Shoreview, Minnesota 55126
(651) 481-1900
SALES OFFICES
UNITED STATES
Minuteman International, Inc.
111 South Rohlwing Road
Addison, Illinois 60101
(630) 627-6900
Parker Sweeper
111 South Rohlwing Road
Addison, Illinois 60101
(630) 627-6900
Minuteman/PowerBoss
1190 North Villa Avenue
Villa Park, Illinois 60181
(630) 530-0007
Minuteman/PowerBoss
27223 North Line
Taylor, Michigan 48180
(734) 941-5662
CANADA
Minuteman Canada, Inc.
2210 Drew Road
Mississauga, Ontario
Canada L5S 1B1
(905) 673-3222
FAX: (905) 673-5161
EUROPE
Minuteman European B.V.
Haver Straat 31
2153 GB Nieuw-Vennep
The Netherlands
(31) 252-623000
FAX: (31) 252-623001
<PAGE> 29
BOARD OF DIRECTORS
Jerome E. Rau
President &
Chief Executive Officer Minuteman International, Inc.
Tyll Necker
Chief Executive Officer
Hako-Werke International
GmbH & Co.
Frederick W. Hohage
President
BSH Home Appliances
A Subsidiary of
Robert Bosch Corporation,
Sales Group
James C. Schrader, Jr.
President
Precision Enterprises, Ltd.
Frank R. Reynolds
Attorney
Law Offices of Reynolds
& Reynolds, Ltd.
MINUTEMAN FACTS... MINUTEMAN MAINTAINS AN EXCEPTIONAL, SEASONED MANAGEMENT TEAM.
MINUTEMAN INTERNATIONAL, INC.
111 SOUTH ROHLWING ROAD
ADDISON, ILLINOIS 60101
TELEPHONE: (630) 627-6900
WWW.MINUTEMANINTL.COM
<PAGE> 1
EXHIBIT 22 (a)
SUBSIDIARIES
OF
MINUTEMAN INTERNATIONAL, INC.
Multi-Clean Division of Minuteman International, Inc.
600 Cardigan Road
Shoreview, Minnesota 55126
Minuteman Canada, Inc.
2210 Drew Road
Mississauga
Ontario L5S 1B1 Canada
Minuteman International Foreign Sales Corporation
c/o Ernst & Young Services, Ltd.
P.O. Box 261 Bay Street
Bridgetown, Barbados
Minuteman European B.V.
Haverstraat 31
2153 GB Nieuw-Vennep
The Netherlands
Minuteman PowerBoss, Inc.
175 Anderson Street
Aberdeen, North Carolina 28315
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
LOSS PROVISION FOR DOUBTFUL ACCOUNTS IS INCLUDED IN TOTAL COSTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> SEP-30-1998 JAN-01-1998
<PERIOD-END> DEC-31-1998 DEC-31-1998
<CASH> 1,590 1,590
<SECURITIES> 1 1
<RECEIVABLES> 15,033 15,033
<ALLOWANCES> 721 721
<INVENTORY> 17,339 17,339
<CURRENT-ASSETS> 34,581 34,581
<PP&E> 21,375 21,375
<DEPRECIATION> 11,423 11,423
<TOTAL-ASSETS> 50,670 50,670
<CURRENT-LIABILITIES> 6,221 6,221
<BONDS> 0 0
0 0
0 0
<COMMON> 6,396 6,396
<OTHER-SE> 24,378 24,378
<TOTAL-LIABILITY-AND-EQUITY> 50,670 50,670
<SALES> 12,937 56,485
<TOTAL-REVENUES> 12,937 56,485
<CGS> 8,934 38,438
<TOTAL-COSTS> 12,095 51,468
<OTHER-EXPENSES> 18 (400)
<LOSS-PROVISION> 64 202
<INTEREST-EXPENSE> 108 164
<INCOME-PRETAX> 716 5,253
<INCOME-TAX> 169 1,921
<INCOME-CONTINUING> 547 3,332
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 547 3,332
<EPS-PRIMARY> .15 .93
<EPS-DILUTED> .15 .93
</TABLE>
