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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Commission
Ended August 31, 2000 File Number 0-288
--------------------- -----------------
ROBBINS & MYERS, INC.
(Exact name of Registrant as specified in its charter)
OHIO 31-0424220
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(State of incorporation) (I.R.S. employer
identification number)
1400 Kettering Tower, Dayton, Ohio 45423
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Registrant's telephone number, including area code:
(937) 222-2610
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
--------------------------- ------------------------
(1) Common Shares, without par value New York
(2) 6 1/2% Convertible Subordinated Notes, Due 2003 New York
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirement for at least the past 90 days.
Yes [x] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ x ]
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At the close of business on October 20, 2000
Number of Common Shares, without
par value, outstanding ............................10,975,798
Aggregate market value of Common
Shares, without par value, held
by non-affiliates of the Company.................$183,099,824
DOCUMENT INCORPORATED BY REFERENCE
Robbins & Myers, Inc., Proxy Statement, dated November 8, 2000, for its
Annual Meeting of Shareholders on December 13, 2000, definitive copies of the
foregoing have been filed with the Commission. Only such portions of the Proxy
Statement as are specifically incorporated by reference under Part III of this
Report shall be deemed filed as part of this Report.
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ITEM 1. BUSINESS
BACKGROUND
Robbins & Myers, Inc., an Ohio corporation (the "Company"), designs,
manufactures and markets on a global basis high-performance, specialized fluids
management products for the process industries. The Company has two business
segments: Process Systems and Energy Systems. Within the Process Systems segment
the Company's primary product platforms are Reactor Systems, Industrial Mixers,
Industrial Pump Products and Corrosion-Resistant Products. The following table
presents the percentages of total sales for each segment and product platform:
2000 1999
------------ ------------
Reactor Systems 45.2% 46.4%
Industrial Mixers 12.7 16.9
Industrial Pump Products 15.5 15.1
Corrosion Resistant Products 4.9 5.4
----- -----
Total Process Systems Segment 78.3 83.8
Energy Systems Segment 21.7 16.2
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100.0% 100.0%
===== =====
The Company has achieved a leading market share in each of its segments
and product platforms. The Company believes that it is first worldwide in
Reactor Systems and in progressing cavity Industrial Pump Products, and second
worldwide in Industrial Mixers. In addition the Company's Energy Systems segment
has leading market positions in power sections, wellhead equipment and rod
guides and strong market positions in down-hole pump and closure products. The
Company can provide customers with a wide array of products and systems in its
Energy Systems segment. The Company also believes that its principal brand
names, such as - Pfaudler(R), Moyno(R), Chemineer(R), Edlon(R) Hercules(R),
Patco(R), Resun(R) and Yale(R), are well-known in the marketplace and are
associated with quality products and extensive customer support, including
product application engineering, state-of-the-art customer test facilities and
strong aftermarket service and support.
The Company markets its products globally to end users where the
pumping, mixing, treatment, chemical processing, measurement and containment of
gases, fluids and particulates are important elements in their production
processes. The diverse industries with fluids management needs served by the
Company's products are specialty chemical, pharmaceutical, oil and gas
exploration and production, wastewater treatment, food and beverage and pulp and
paper.
The Company primarily markets specialty products which are technically
engineered. Individual projects are typically custom designed and bid to the
customer's specifications. Therefore, price is one basis of competition along
with technical specifications and solutions, as well as quality, aftermarket
support and delivery leadtime.
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The Company seeks to balance its mix of products and services and
maintain overall stability in its operating results principally through
increased levels of higher margin aftermarket sales, broad international
presence with manufacturing facilities in twelve countries, and end user market
diversification. Aftermarket sales accounted for 33% of total company sales in
fiscal 2000 and 34% in fiscal 1999. Sales to non-U.S. customers were 48% in
fiscal 2000 and 46% in fiscal 1999
The Company seeks to continue to grow by (i) internal growth from the
inherent growth of its end user markets, particularly longer-term, high-growth
markets such as pharmaceutical, wastewater treatment, and oil and gas
exploration and production, as well as new product introductions; (ii)
exploiting acquisition opportunities for industry consolidation within existing
markets, specifically the highly fragmented positive displacement pump and
industrial mixer industries; (iii) expanding geographically, both internally and
through acquisitions, into emerging markets such as the Asia-Pacific Rim, South
America and Western Canada oilfields; and (iv) establishing new product lines
through acquisitions of related fluids management businesses such as valves,
seals, filters and grinders.
The Company operates in two industry segments. Information concerning
the Company's sales, IBIT and identifiable assets by segment and sales and
identifiable assets by geographic area for the years ended August 31, 2000, 1999
and 1998 is set forth in Note 11 to the Consolidated Financial Statements
included at Item 8 and is incorporated herein by reference.
PROCESS SYSTEMS
REACTOR SYSTEMS
The Company's Reactor Systems business, consisting of its Pfaudler,
Tycon and Technoglass brands, manufactures and sells glass-lined reactor and
storage vessels, mixing systems and accessories, including instrumentation and
piping. These products are principally used in the pharmaceutical, specialty
chemical and agri-chemical end user markets. A reactor system performs critical
functions in batch production processes by providing a temperature, agitation
and pressure controlled environment for often complex chemical reactions. The
glass-lined vessel is made by lining a specially constructed steel vessel with
glass bonded to the inside steel surface. Substantial knowledge is required to
properly manufacture a glass-lined vessel. Special glasses are used to both bond
with the steel surface and provide an inert, corrosion-resistant surface that
will not contaminate the chemicals in the vessel.
Reactor systems have vessels with capacities between one and 15,000
gallons, are generally custom-ordered and designed, and are often equipped with
various accessories such as drives, glass-lined agitators and baffles, and
instruments. A fully equipped reactor can sell for up to $300,000. The Reactor
Systems business also manufactures and sells glass-lined storage vessels with
capacities up to 25,000 gallons to mostly the same customers that use
glass-lined reactor systems. A complete system can consist of a complete
processing plant, installed or skid mounted, including a process guarantee.
Complete systems that the Company provides can sell for several million dollars.
In 2000, Pfaudler introduced Prosol which is a next generation mixing
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system. This new product opens up processing applications where a glass-lined
solution may not always have been considered the first option. A summary of the
Company's Reactor Systems business is as follows:
<TABLE>
<CAPTION>
End User Markets
-------------------------------------------------
Market % of Major Principal
Position Markets 2000 Sales Competitors Brands
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
#1 Specialty Chemicals 48% DeDietrich Pfaudler(R)
Pharmaceutical 42% Thale Tycon(R)
Agri-chemicals 5% Technoglass(R)
Other 5% GPS(R)
CRS(R)
UGE(R)
</TABLE>
The Company believes that Pfaudler is the largest supplier of
glass-lined reactor systems with DeDietrich of France being the next largest
supplier. The Japanese suppliers largely supply only the Japanese market.
Pfaudler manufactures its glass-lined reactor systems in seven countries, the
U.S., the U.K., Germany, India, Brazil, Mexico and China. Tycon and Technoglass
("Tycon") glass-lined reactor systems are manufactured in Italy.
While the Company has a global market share of over 50% in glass-lined
reactors and storage vessels, it has a global market share of less than 10% in
Reactor Systems. Expanding the market from vessels to reactor systems provides
growth opportunities in products related to reactors in providing a complete
system for customers.
SALES, MARKETING AND DISTRIBUTION -- Pfaudler, Tycon and Technoglass glass-lined
reactor systems, storage vessels and accessories are sold directly to customers
by a Company-employed direct sales force of approximately 30 persons,
approximately 20 of whom are based outside the United States, and more than 30
manufacturers' representatives. Pfaudler and Tycon are particularly focused on
continuing to develop preferred supplier relationships with major pharmaceutical
and specialty chemical companies, as these companies continue to expand their
production operations in emerging markets.
AFTERMARKET SALES -- Pfaudler has a large installed base of glass-lined reactor
systems since it has been the leading supplier of these systems for more than 50
years. Aftermarket products and services are an important part of Pfaudler's
sales and include field service, replacement parts, accessories and
reconditioning used vessels. Glass-lined vessels require regular maintenance and
care because of their harsh operating environments and strict purity
requirements. The Company has expanded the aftermarket capabilities of Pfaudler
to better meet the needs of its customers, as many customers are reducing their
internal engineering staffs and outsourcing maintenance activities. Pfaudler has
a joint venture with Universal Process Equipment Inc. called Universal Glasteel
Equipment ("UGE") to refurbish and sell used, glass-lined vessels. For many
customers, used vessels are a cost effective alternative to new vessels. They
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are more affordable, warranted with the same quality specifications and can
often be delivered to a customer faster than a new vessel.
Pfaudler acquired Pharaoh in 1995 to strengthen its U.S. aftermarket
business by combining Pharaoh with Pfaudler's aftermarket business to create a
new aftermarket organization, Glasteel Parts & Service ("GPS"). Pfaudler also
acquired Cannon in 1995 to strengthen the U.K. aftermarket business by combining
Cannon with Chemical Reactor Services ("CRS"), Pfaudler's U.K. aftermarket
business. GPS and CRS are the largest providers of aftermarket services to the
U.S. and U.K. installed base of glass-lined vessels, including the installed
base of competitors.
COMPETITION -- Pfaudler and Tycon compete principally with DeDietrich in all
world markets except Japan, China and India. Pfaudler has the leading market
share in glass lined reactors and vessels and installed base in all the
countries in which it operates facilities. Tycon has the leading share in Italy
and has a significant presence in Switzerland and Germany. DeDietrich has a
dominant position in France, where its main facility is located, and a
significant presence in other continental European markets and the U.S. With the
establishment of a direct sales and service organization in France in 1999,
Pfaudler is increasing its market share in France.
Pfaudler is the market leader in Mexico, South America and India. In
China, the Company is the 70% owner of a joint venture with a Chinese
glass-lined equipment manufacturer. The joint venture has a small market share
of a fragmented Chinese market, but is upgrading its products to supply Western
quality glass-lined vessels to customers in China. The markets in Japan, Taiwan
and Korea are largely supplied by Japanese manufacturers that sell few products
to markets outside the region.
The Company believes that it will benefit from the continued trend of
high levels of capital expenditures within the pharmaceutical industry. This
trend is driven by the significant industry growth rates from globalization of
manufacturing facilities to service emerging markets, development of innovative
drugs which often require new process facilities or retrofit of existing
facilities, and expiration of patents on certain drugs which will result in
greater production of generic equivalents.
INDUSTRIAL MIXERS
Chemineer manufactures industrial mixers that range from fractional
horsepower sizes to over 1,000 horsepower. Prices for mixers and agitators range
from hundreds of dollars for small portable mixers to more than $1 million for
large, customized mixers. A summary of the Company's Industrial Mixers business
is as follows:
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<TABLE>
<CAPTION>
End User Markets
--------------------------------------------
Market % of Major Principal
Position Markets 2000 Sales Competitors Brands
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
#2 Specialty Chemicals 56% Lightnin' Chemineer(R)
Pharmaceutical 12% Ekato Kenics(R)
Wastewater treatment 8% Satake Greerco(R)
Pulp & Paper 7% Philadelphia Mixer Prochem(R)
Other 17%
</TABLE>
Chemineer's product line consists of top-entry, side-entry,
gear-driven, belt-driven, high shear and static mixers. The Company's Industrial
Mixers are used in a variety of applications, ranging from simple storage tank
agitation to critical applications in polymerization and fermentation processes.
Chemineer products include a line of high-quality turbine agitators.
These gear-driven agitators are available in various sizes, a wide selection of
mounting methods, and drive ranges from one to 1,000 horsepower. The Chemineer
line also includes a line of fixed mounted small mixers with drive ranges from
one-half to five horsepower, designed for less demanding applications, and a
line of portable gear-driven and direct drive mixers, which can be clamp mounted
to tanks to handle batch mixing needs. In 1999, Chemineer introduced two new
agitation drive systems, the QED Plus worm gear mixer and the GT parallel shaft
agitator. Chemineer also introduced the BTNS, a new mixer for the biotech market
to keep pace in this growth market.
Prochem industrial mixers are belt-driven, side-entry mixers used
primarily in the pulp and paper and mineral process industries. Kenics mixers
are continuous mixing and processing devices, with no moving parts, which are
used in specialized static mixing and heat transfer applications. Static mixers
in heat exchangers greatly increase the heat transfer process in certain
applications. Greerco(R) mixers are high-shear mixers used primarily for paint,
cosmetics, plastics and adhesive applications. Mixers are manufactured in
Dayton, Ohio, North Andover, Massachusetts and Haverhill, Massachusetts in the
U.S. and Derby, England and Mexico City, Mexico.
SALES, MARKETING AND DISTRIBUTION -- Chemineer industrial mixers are sold
through regional sales offices and through a network of approximately 30 U.S.
and 30 non-U.S. manufacturers' representatives. Chemineer maintains regional
sales offices for such equipment in Ohio, Texas, Mexico, Canada, the U.K.,
Singapore, Taiwan, China and Korea.
COMPETITION -- The mixer equipment industry is highly competitive. Three
companies account for a significant portion of U.S. sales, but compete with
numerous smaller manufacturers. The Company believes that Chemineer's
application engineering know-how, diverse products, product quality and customer
support allow it to compete effectively in the market place. Chemineer is
expanding its presence internationally, especially in Asia. To that end,
Chemineer operates a sales office in Shanghai to establish contacts and
relationships in China. Chemineer also has a majority-owned joint venture with
General Resources Company of Taipei, Taiwan operating in
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Singapore, Taiwan and Korea to provide sales, marketing and product engineering
for the entire line of Chemineer mixers and agitators throughout East Asia.
INDUSTRIAL PUMP PRODUCTS
Moyno manufactures and sells progressing cavity pumps and related
products into the wastewater treatment, specialty chemicals, mining, oil, food
and beverage, pulp and paper and general industrial end user markets. Prices
range from several hundred dollars for small pumps to up to $200,000 for large
pumps such as those used in wastewater treatment applications. A summary of the
Company's progressing cavity Industrial Pump Products business is as follows:
<TABLE>
<CAPTION>
End User Markets
-------------------------------------------------
Market % of Major Principal
Position Markets 2000 Sales Competitors Brands
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
#1 Wastewater Treatment 30% Netzsch Moyno(R)
Specialty Chemicals 14% Mono R&M(R)
Mining & Minerals 10% Tri-Phaze(R)
Food & Beverage 10%
Pulp & Paper 9%
Oil & Gas 9%
Other 18%
</TABLE>
Progressing cavity technology involves utilizing a motor-driven,
high-strength, single or multi-helix rotor within an elastomer-lined stator. The
spaces between the helixes create continual cavities which enable the fluid to
move from the suction end to the discharge end. The continuous seal creates
positive displacement and an even flow regardless of the speed of the
application. Progressing cavity pumps are versatile, as they can be positioned
at any angle and can deliver flow in either direction without modification or
accessories. As progressing cavity pumps have no valves, they are able to
efficiently handle fluids ranging from high pressure water and shear sensitive
materials to heavy, viscous, abrasive, solid-laden slurries and sludges. In
2000, Moyno introduced the Ultra Flex RM320 elastomer lining which is made of a
special compound used for specific chemical resistance, has increased
temperature capability and is abrasion resistant, a new pump for the fish
processing industry which is specially designed to reduce fish damage, and the
Moyno Tailings pump used to pump flocculated clay tailings in mining
applications. Pumps are manufactured in Springfield, Ohio and there are pump
assembly, sales and service centers in the U.K., Mexico and Singapore.
SALES, MARKETING AND DISTRIBUTION -- Industrial Pump Products are sold worldwide
through approximately 35 U.S. and 30 non-U.S. distributors and 25 U.S. and 15
non-U.S. manufacturers' representatives. These networks are managed by five
regional sales offices in the U.S., one office in the U.K., one office in Mexico
and one office in Singapore.
COMPETITION -- Moyno has a large installed base and a dominant market share in
the U.S., and a smaller presence in Europe and Asia. While the Company believes
Moyno
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is the world leader in the manufacture of progressing cavity pumps, the market
is competitive and includes many different types of similar equipment and
several competitors, none of which is dominant. In addition, there are several
other types of positive displacement pumps including gear, lobe and air-operated
diaphragm pumps that compete with progressing cavity pumps in certain
applications.
CORROSION-RESISTANT PRODUCTS
Edlon-PSI manufactures and sells lined pipe and fittings, fluoropolymer
coated and lined vessels for process equipment, fluoropolymer roll covers for
paper machines and glass-lined reactor systems accessories. Edlon-PSI's products
are used principally in the specialty chemicals, pharmaceutical and
semiconductor end user markets to provide corrosion protection and high purity
fluid assurance, and in the paper industry for release applications. A summary
of the Company's Corrosion-Resistant Products business is as follows:
<TABLE>
<CAPTION>
End User Markets
-------------------------------------------------
Market % of Major Principal
Position Markets 2000 Sales Competitors Brands
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
N/A Specialty Chemicals 65% Resistoflex Edlon(R)
Electronics 13% 3P PSI(R)
Pulp & Paper 9%
Pharmaceutical 6%
Other 7%
</TABLE>
Edlon-PSI primarily competes by offering highly engineered products and
products made for special needs that are not readily supplied by competitors.
Edlon-PSI is able to compete effectively based on its extensive knowledge and
application experience with fluoropolymers. In 2000, Edlon-PSI introduced newly
designed storage tanks for de-ionized water and ultra pure chemicals, and
expanded its range of products sold to the chip producers and wafer
manufacturers in the high growth semiconductor industry. Products are made in
Avondale, Pennsylvania, Charleston, West Virginia and Leven, Scotland.
SALES, MARKETING AND DISTRIBUTION -- Edlon(R) and PSI(R) products in the U.S.
are sold through both a distributor network for higher volume items such as
lined pipe and fittings, and a direct sales force and sales representatives for
lower volume products. Outside the U.S., products are sold through sales
representatives except for the U.K., where products are sold through a direct
sales force.
AFTERMARKET SALES -- Edlon-PSI products do not typically have parts or
components that routinely wear out or need replacement, and therefore
aftermarket sales are insignificant.
ENERGY SYSTEMS
R&M Energy Systems ("Energy Systems") manufactures and sells a variety
of specialized products to the oil and gas exploration and production markets.
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These products are principally used either down a well hole or at a wellhead. A
summary of the Company's Energy Systems business is as follows:
<TABLE>
<CAPTION>
End User Markets
--------------------------------
Market % of Major Principal
Position Markets 2000 Sales Competitors Brands
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
N/A Oil & Gas 91% Halliburton Moyno(R)
Other 9% Baker-Hughes New Era(R)
Weatherford Patco(R)
Telford Hamer(R)
Hercules(R)
Magnum(R)
Resun(R)
Staytite(R)
Yale(R)
</TABLE>
Energy Systems sells a line of power sections and down-hole progressing
cavity pumps, rod guides, wellhead products and closure products. Moyno power
sections are used to drive the drill bit in horizontal and directional drilling
applications, often with multiple wells drilled from a single location. Power
sections utilize the same technology as is used in progressing cavity pumps.
Down-hole pumps are used primarily to lift crude oil to the surface where there
is not enough natural pressure and for dewatering gas wells. The largest
oilfields that benefit from using downhole pumps are in Canada, the U.S.,
Venezuela and the Commonwealth of Independent States ("CIS"). Rod guides are
placed on downhole rods used to pump oil to protect the rods and the well
casings from damage during operation and to enhance the flow of fluid to the
surface. Wellhead products are used at the wellhead to control the flow of oil,
gas and other material from the well. Closure products are used in oil and gas
pipelines to allow access to a pipeline at selected intervals. These products
are manufactured in three plants in Texas and several rod guide service centers
located in the U.S. and Canadian oilfields. In addition, the Company operates a
facility in Belgium that relines power section stators for the European
aftermarket.
SALES, MARKETING AND DISTRIBUTION -- Power sections are sold directly to
oilfield service companies through a sales office in Houston, Texas. Rod guides
and certain wellhead equipment in the U.S. and Canada are sold through Company
service centers in key oilfield locations. Energy Systems currently operates
seven service centers in the U.S. and six service centers in Alberta, Canada.
Down-hole pumps in the U.S. are sold through three distributors, and several
other distributors have been established in South America, the CIS and Asia.
Down-hole pumps in Canada are sold through the service centers. Wellhead
products and closure products are also sold through a distributor network in the
U.S.
AFTERMARKET SALES -- Aftermarket sales are principally the relining of stators,
a key component of power sections and down-hole pumps. Power section and
down-hole pump rotors and rod guides wear out after regular usage, but
replacement sales of these items are not identifiable and are not classified as
aftermarket sales.
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COMPETITION -- Energy Systems is the leading manufacturer of power sections. A
few potential customers have backward integrated and produce their own power
sections. Energy Systems is also the leading supplier of rod guides, wellhead
components and pipeline closure products and is the second leading supplier of
down-hole progressing cavity pumps. While the oil and gas exploration and
production marketplace is highly fragmented, Energy Systems believes that with
its leading positions in these products, and with the introduction of new well
drivehead products, it is positioned to be a full line supplier with the
capability to provide customers with complete system sourcing.
Oil service companies, our customers, use the most advanced
technologies available in the exploration and recovery of oil and gas.
Therefore, new product innovation is critical to suppliers to this market. The
Company continually develops new elastomer compounds for use in power sections
and down-hole pumps in deeper wells and more adverse conditions. In addition,
advanced wellhead equipment is being introduced that will improve the efficiency
of well production.
BACKLOG
At August 31, 2000 and 1999, the Company's order backlog was $80.5
million and $74.3 million respectively. Within the next twelve months the
Company expects to ship all of its backlog. Sales of the Company's products are
not subject to material seasonal fluctuations.
CUSTOMERS
Sales are not concentrated with any customer, as no customer
represented more than 5% of sales in fiscal years 2000, 1999 or 1998.
RAW MATERIALS
Raw materials are purchased from various vendors that generally are
located in the same country as the Company facility using the raw materials. The
supply of raw materials and components has been adequate and available without
significant delivery delays. No events are known or anticipated that would
change the sources and availability of raw materials. No supplier provides more
than 5% of the Company's raw materials.
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GENERAL
The Company owns a number of patents relating to the design and
manufacture of its products. While the Company considers these patents important
to its operations, it believes that the successful manufacture and sale of its
products depend more upon technological know-how and manufacturing skills. The
Company is committed to maintaining high quality manufacturing standards and has
completed ISO certification at several facilities.
During fiscal 2000, the Company spent approximately $1.8 million on
research and development activities compared to $2.2 million in fiscal 1999 and
$2.0 million in fiscal 1998.
Compliance with federal, state and local laws regulating the discharge
of materials into the environment is not anticipated to have any material effect
upon the capital expenditures, earnings or competitive position of the Company.
At August 31, 2000, the Company had 3,284 employees, which included
approximately 700 at majority-owned joint ventures. Approximately 900 of these
employees were covered by collective bargaining agreements at various locations.
In fiscal year 2001, the company has no labor contracts expiring. A labor
agreement was reached with the employees of the Chemineer facility in
October 2000 and extends to March of 2004. The Company considers labor
relations at each of its locations to be good.
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ITEM 2. PROPERTIES
FACILITIES
The Company's executive offices are located in Dayton, Ohio. The
executive offices are leased and occupy approximately 10,000 square feet. Set
forth below is certain information relating to the Company's principal operating
facilities.
<TABLE>
<CAPTION>
SQUARE PRODUCTS MANUFACTURED OR
LOCATION FOOTAGE OTHER USE OF FACILITY
-------------------------------------------------------------------------------------------------------------------
NORTH AND SOUTH AMERICA:
<S> <C> <C>
Rochester, New York 500,000 Reactor Systems
Springfield, Ohio 275,000 Industrial Pump Products
Dayton, Ohio 160,000 Industrial Mixers
Borger, Texas 115,000 Wellhead products for Energy Systems
Willis, Texas 110,000 Down-hole pumps and power sections for Energy Systems
Mexico City, Mexico 110,000 Reactor Systems
Taubate, Brazil 100,000 Reactor Systems
Charleston, West Virginia 100,000 Corrosion-Resistant Products
Tomball, Texas 75,000 Valves and closures for Energy Systems
Avondale, Pennsylvania 50,000 Corrosion-Resistant Products
North Andover, Massachusetts 30,000 (1) Industrial Mixers
Sao Jose Dos Campos, Brazil 30,000 Reactor Systems
Edmonton, Alberta, Canada 25,000 to (2) Energy Systems, including two service centers
2 plants 30,000 each (1)
Mexico City, Mexico 20,000 (1) (3) Industrial Mixers
Haverhill, Massachusetts 10,000 (1) Industrial Mixers
Rochester, New York 10,000 (1) Reactor Systems
EUROPE:
Schwetzingen, Germany 400,000 Reactor Systems
Leven, Scotland 240,000 Reactor Systems and Corrosion-Resistant Products
Quarto D'Altino, Italy 120,000 Reactor Systems
San Dona di Piave, Italy 90,000 Reactor Systems
Bilston, England 50,000 Reactor Systems
Derby, England 20,000 (1) Industrial Mixers
Petit-Rechain, Belgium 15,000 Power sections for Energy Systems
Kearsley, England 15,000 Reactor Systems
Bolton, England 15,000 Reactor Systems
Southampton, England 10,000 (1) Industrial Pump Products
ASIA:
Gujurat, India 350,000 (4) Reactor Systems
Suzhou, China 150,000 (5) Reactor Systems
Singapore 5,000 (1) Industrial Pump Products
</TABLE>
(1) Leased facility.
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(2) R&M Energy Systems also operates an additional 13 (7 U.S., 6 Canada)
Service Centers, primarily in leased facilities between 5,000 and
10,000 square feet each. These locations are in the oil producing
regions of the U.S. and Canada and manufacture rod guides and
distribute other of the Company's Energy Systems products. Locations
are: Bakersfield, California, Oklahoma City, Oklahoma, Odessa, Texas,
Casper, Wyoming, Mt. Pleasant, Michigan, Williston, North Dakota,
Wooster, Ohio and in Alberta, Canada - Bonnyville, Brooks, Elk Point,
Provost, Sedgewick, and Taber.
(3) Facility of a 67%-owned subsidiary.
(4) Facility of a 51%-owned subsidiary.
(5) Facility of a 70%-owned subsidiary.
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ITEM 3. LEGAL PROCEEDINGS
The Company is presently not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Maynard H. Murch IV, age 56, has been Chairman of the Board of the
Company since July, 1979 and a director of the Company since 1977. Mr. Murch is
also President and Chief Executive Officer of Maynard H. Murch Co., Inc.
(investments), which is managing general partner of M.H.M. & Co., Ltd.
(investments). Mr. Murch is also Vice President (since June, 1976) of
Parker/Hunter Incorporated (dealer in securities), a successor firm to Murch and
Co., Inc., a securities firm which Mr. Murch had been associated with since
1968.
Gerald L. Connelly, age 59, has been President and Chief Executive
Officer of the Company since January 1, 1999. Previously he was Executive Vice
President and Chief Operating Officer of the Company, having been elected to
that position on May 1, 1996. He is also President of Pfaudler, Inc. He was
President of the Process Industries Group of Eagle Industries, Inc. from 1993
until joining the Company. Previously, he served as President of Pulsafeeder,
Inc. (metering pumps) for ten years.
Kevin J. Brown, age 42, has been Vice-President and Chief Financial
Officer of the Company since January 1, 2000. Previously he was Controller and
Chief Accounting Officer of the Company since December 12, 1995. Prior to
joining the Company he was employed by the accounting firm of Ernst & Young LLP
for fifteen years.
Hugh E. Becker, age 62, has been Vice President, Investor Relations and
Human Resources of the Company since December 9, 1998. From 1996 to 1998 he was
Senior Director, Investor Relations and Human Resources. Previously he held
various investor relations and human resource positions for the Company since
1980.
Milton M. Hernandez, age 44, has been Vice-President, Business
Development of the Company since April 4, 2000. Most recently he was Managing
Director-Argentina and Bolivia, Mobil Oil Corporation. Prior to that he was
Vice-President, Business Development Latin America, Spain and Portugal and he
also held a variety of positions in Corporate Planning and Marketing for Mobil
Chemical as well as Mobil Oil.
Thomas J. Schockman, age 36, has been Corporate Controller and Chief
Accounting Officer of the Company since March 22, 2000. Prior to joining the
Company, he was employed as Controller at Spinnaker Coating, Inc. for three
years and the accounting firm of Ernst & Young LLP for ten years.
Albert L. Raiteri, age 59, has been Treasurer of the Company since
December 9, 1998. He has held various positions in finance and accounting for
the Company since 1972.
16
<PAGE> 17
Joseph M. Rigot, age 57, has been Secretary and General Counsel of the
Company since 1990. He is a partner with the law firm of Thompson Hine & Flory
LLP Dayton, Ohio.
The term of office of all executive officers of the Company is until
the next Annual Meeting of Directors (December 13, 2000) or until their
respective successors are elected.
17
<PAGE> 18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(A) The Company's common shares trade on the New York Stock Exchange
under the symbol RBN. The prices presented in the following table are the high
and low sales prices for the common shares for the periods presented.
<TABLE>
<CAPTION>
Dividends
High Low Paid
------------------------------------------------------
<S> <C> <C> <C>
Fiscal 2000
-----------
1st Quarter $23.06 $15.19 $.055
2nd Quarter 23.50 18.88 .055
3rd Quarter 24.50 19.38 .055
4th Quarter 23.88 20.25 .055
Fiscal 1999
-----------
1st Quarter $25.25 $17.63 $.055
2nd Quarter 23.13 16.50 .055
3rd Quarter 25.25 15.69 .055
4th Quarter 25.88 20.75 .055
</TABLE>
(B) As of October 20, 2000, the Company had approximately 529
shareholders of record. Based on requests from brokers and other nominees, the
Company estimates there are approximately an additional 2,403 shareholders.
(C) Dividends paid on common shares are presented in the table in Item
5(A). The Company's credit agreements include certain covenants which restrict
the Company's payment of dividends. The amount of cash dividends plus stock
repurchases the Company may incur in each fiscal year is restricted to the
greater of $2,500,000 or 50% of the Company's net income for the immediately
preceding fiscal year, plus a portion of any unused amounts from the preceding
fiscal year. For purposes of this test, stock repurchases related to stock
option exercises or in connection with withholding taxes due under any stock
plan in which employees or directors participate are not included. Under this
formula, such cash dividends and treasury stock purchases in fiscal 2001 are
limited to $7,478,000.
18
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA (1)
Robbins & Myers, Inc. and Subsidiaries
(In thousands, except per share, shareholder and employee data)
<TABLE>
<CAPTION>
5 Year Average Growth 2000 1999 1998 1997 1996 1995
--------------------- ---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results
Orders 4.3% $412,948 $373,135 $416,989 $375,042 $353,462 $334,931
Ending backlog 80,484 74,330 96,022 110,078 109,921 107,423
Sales 6.1 406,714 400,142 436,474 385,663 350,964 302,952
Gross profit 6.7 140,234 136,166 158,713 138,781 119,030 101,304
IBITDA (2, 3) 11.9 67,942 57,809 83,658 65,484 53,332 38,721
IBIT (2) 10.6 43,572 33,288 60,142 49,521 39,455 26,320
Net income (2) 6.5 18,056 11,849 31,230 28,866 19,525 13,157
Amortization 8,077 7,660 7,670 5,170 4,495 3,852
Depreciation 16,293 16,861 15,846 10,793 9,382 8,549
Capital expenditures, net 19,842 11,612 23,020 22,071 16,453 10,133
Financial Condition
Total assets $495,679 $493,852 $501,008 $372,354 $300,340 $270,407
Total debt 177,864 191,272 206,242 116,083 73,533 67,901
Shareholders' equity 167,182 154,226 150,763 124,475 91,437 69,939
Total capitalization 345,046 345,498 357,005 240,558 164,970 137,840
Performance Statistics
Percent of sales:
Gross profit 34.5% 34.0% 36.4% 36.0% 33.9% 33.4%
IBIT (2) 10.7 8.3 13.8 12.8 11.2 8.7
Debt as a % of total
capitalization 51.5 55.4 57.8 48.3 44.6 49.3
IBIT return on average net assets 12.6 9.3 16.7 21.7 24.7 18.5
Net income return on avg. equity 11.2 7.8 22.7 26.7 25.2 18.6
Per Share Data
Net income per share, diluted (2) 4.5% $ 1.53 $ 1.06 $ 2.43 $ 2.29 $ 1.77 $ 1.23
Dividends declared 8.0 0.22 0.22 0.215 0.194 0.169 0.15
Market price of common stock:
High $ 24.50 $ 25.88 $ 40.50 $ 36.75 $ 26.50 $ 14.38
Low 15.19 15.69 23.00 20.00 13.63 8.25
Close 11.7% 23.88 23.50 23.75 32.63 22.00 13.72
P/E ratio at August 31, diluted 15.6 22.2 9.8 14.4 12.5 11.3
Other Data
Free cash flow (4) $ 16,198 $ 27,851 $ 25,554 $ 13,175 $ 15,607 $ 22,844
Enterprise value (5) 16.3% 439,493 448,385 468,015 472,989 306,667 206,925
Shares outstanding at year end 10,956 10,941 11,022 10,938 10,597 10,133
Average diluted shares (6) 13,416 13,535 13,906 13,625 11,046 10,738
Number of shareholders (7) 2,932 3,256 3,326 2,723 1,632 1,520
Number of employees 3,284 3,244 3,071 2,947 2,459 2,337
</TABLE>
Notes to Selected Financial Data
(1) 1999 reflects the acquisitions of a controlling interest in Universal
Glasteel Equipment, Chemineer de Mexico and GMM Pfaudler Limited, 1998
reflects the acquisitions of Flow Control Equipment, Inc. and
Technoglass S.r.L. and 1997 reflects the acquisitions of Process Supply
Inc., Spectrum Products, Inc., Greerco and Industrie Tycon, S.p.A., as
discussed in the Business Acquisitions note. 1995 reflects the
acquisition of Pharaoh and Cannon.
(2) Fiscal 1999, includes charges of $4,769,000 primarily for the closure
of the Company's Fairfield California Manufacturing Facility, and one
time severance and early retirement costs of $1,600,000. Fiscal 2000,
includes charges of $409,000 relating to the closure of the Fairfield
Facility, a gain of $918,000 relating to the sale of the Fairfield
Facility and a charge of $500,000 related to Universal Glasteel
Equipment, Inc. These special items increased fiscal 2000 net income by
$6,000 ($0.00 per share) and reduced fiscal 1999 net income by
$4,204,000 ($0.31 per share).
(3) IBITDA represents the sum of income before interest and taxes and
depreciation and amortization. IBITDA is not a measure of performance
calculated in accordance with accounting principles generally accepted
in the United States and should not be considered as an alternative to
net income as a measure of the Company's operating results.
(4) Free Cash Flow represents net cash and cash equivalents provided by
operating activities less capital expenditures. Free Cash Flow is not a
measure of performance calculated in accordance with accounting
principles generally accepted in the United States, and should not be
considered as an alternative to cash flows as a measure of the
Company's liquidity.
(5) Market capitalization of shares outstanding at year end plus total
debt.
(6) 2000 reflects an additional 2,297,000 shares and 1999, 1998 and 1997
reflect an additional 2,385,000 shares related to the convertible note
issuance. 1995 is adjusted to reflect the 2 for 1 Stock split effective
July 31, 1996.
(7) As of September 1, 2000, the Company had 529 shareholders of record.
Based on requests from brokers and other nominees, the Company
estimates there are an additional 2,403 shareholders.
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company seeks to balance its mix of products and services and maintain
overall stability in its operating results principally through increased levels
of aftermarket sales, increased non-U.S. sales and end market diversification.
Aftermarket sales accounted for 33% of total Company sales in fiscal 2000, 34%
in fiscal 1999 and 32% in fiscal 1998. Sales to non-U.S. customers were 48% in
fiscal 2000, 46% in fiscal 1999 and 47% in fiscal 1998 of total Company sales.
The Company's primary markets are specialty chemicals, pharmaceuticals, oil and
gas exploration and production, wastewater treatment and food and beverage.
In fiscal 1999, the Company acquired a controlling interest in
Universal Glasteel Equipment in December 1998, Chemineer de Mexico in June 1999
and GMM Pfaudler Limited in July 1999. These acquisitions are in the Company's
Process Systems business segment. The total cost of the fiscal 1999 acquisitions
was $5.3 million in cash. These acquisitions accounted for $2.3 million of sales
and $0.3 million of IBIT in fiscal 1999. In fiscal 1998, the Company purchased
Flow Control Equipment, Inc. ("FCE") and Technoglass, S.r.L. ("Technoglass") in
December 1997. FCE is in the Energy Systems segment and Technoglass is in the
Process Systems segment. The total cost of the fiscal 1998 acquisitions was
$117.4 million in cash, notes and assumed debt ($114.1 million after application
of available FCE cash at closing). These acquisitions accounted for $41.0
million of sales and $6.6 million of IBIT in fiscal 1998.
The Company recorded special items in fiscal 2000 and 1999 which impact
the comparability of certain information. The special items in fiscal 2000 and
1999 were as follows:
<TABLE>
<CAPTION>
IBIT Impact
--------------------------------------------
Process Energy Net Net Income
Systems Systems Total Income Per Share
------- ------- ------- -------- ----------
(In thousands except per share)
<S> <C> <C> <C> <C> <C>
2000
----
Plant closure costs $ 0 $ (409) $ (409) $ (266) $ (.02)
Gain on sale of building 0 918 918 597 .04
UGE long-term receivable write-down (500) 0 (500) (325) (.02)
------- ------- ------- ------- --------
$ (500) $ 509 $ 9 $ 6 $ .00
======= ======= ======= ======= ========
1999
----
Plant closure costs $ 0 $(4,769) $(4,769) $(3,148) $ (.23)
Termination costs (1,200) 0 (1,600) (1,056) (.08)
------- ------- ------- ------- --------
$(1,200) $(4,769) $(6,369) $(4,204) $ (.31)
======= ======= ======= ======= ========
</TABLE>
20
<PAGE> 21
In the fourth quarter of fiscal 2000, the Company recorded a charge of
$.5 million to reduce a long-term receivable related to Universal Glasteel
Equipment ("UGE"), which is 50% owned by the Company and 50% owned by Universal
Process Equipment, Inc. ("UPE"). The charge is due to weakness in the used
glass-lined reactor and storage vessel markets served by UGE.
In fiscal 1999, due to the downturn in the Company's Energy Systems
business segment the Company analyzed its capacity requirements for these
products. As a result, on February 10, 1999, the Company recorded a charge of
$4.2 million for the closure and relocation of the Company's Fairfield,
California, manufacturing operations. The facility manufactured power sections
and down-hole pumps. Production was transferred to the Company's manufacturing
facility near Houston, Texas, which manufactures similar products. The closure
and relocation consolidated all power section and down-hole pump manufacturing
into one facility and is expected to result in annual savings of approximately
$1.5 million when fully complete. The transfer of manufacturing was completed by
March 31, 2000. The Fairfield facility was sold in July 2000 resulting in a
pretax gain of $.9 million. Certain machinery and equipment was also sold in
fiscal 2000 at amounts approximating the written down estimated fair values. The
$4.2 million charge was composed of the following:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Asset write-downs:
Land and building to be sold, $800 estimated fair value $ 600
Machinery and equipment to be scrapped, $200 estimated fair value 800
------
Total asset write-downs 1,400
Exit costs:
Employee related costs:
Severance, 50 Fairfield employees 300
Pay to stay costs and other employee costs 500
Environmental costs related to closure of facility 1,300
Holding costs of land and building until sold and other 700
------
Total exit costs 2,800
------
$4,200
======
</TABLE>
The asset write-downs were determined based on recent sales of similar assets.
Following is a progression of the exit cost liabilities related to the Fairfield
plant closure:
<TABLE>
<CAPTION>
Employee Holding
related Environmental and other Total
--------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Liability recorded Feb 1999 $ 800 $ 1,300 $ 700 $ 2,800
Payments made (72) (53) (402) (527)
------- ------- ------- -------
Liability at August 31, 1999 728 1,247 298 2,273
Payments made (780) (411) (246) (1,437)
Change in estimate 52 0 (52) 0
------- ------- ------- -------
Liability at August 31, 2000 $ 0 $ 836 $ 0 $ 836
======= ======= ======= =======
</TABLE>
21
<PAGE> 22
Due to the ongoing monitoring requirements, the remaining liability for
environmental costs is expected to be paid over a period of five to ten years.
The Company incurred additional expenses relating to the Fairfield
plant closure of $.4 million in fiscal 2000 and $.6 million in fiscal 1999.
These costs were for employee transfers, equipment relocation and training of
new employees at the Texas facility.
In the second quarter of fiscal 1999 the Company recorded termination
costs of $.4 million unrelated to the closure of the Fairfield facility. In the
fourth quarter of fiscal 1999 the Company recorded an additional $1.2 million in
severance and early retirement benefit costs to reduce its overhead cost
structure, primarily at its Moyno and Chemineer business units. The reduction in
employment levels at Chemineer was due to lower sales resulting from lower
capital spending within the specialty chemical market served by Chemineer. The
reduction in employment at Moyno was due to process changes within the
manufacturing operations and a reduction in the overhead cost structure. These
changes will reduce operating costs by approximately $1.2 million annually and
position these business units to achieve long-term profitability targets. All of
these benefits have been paid as of August 31, 2000 with no changes in estimates
made.
Results of Operations
The following tables present components of the Company's consolidated income
statement and segment information.
<TABLE>
<CAPTION>
CONSOLIDATED 2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Sales 100.0 % 100.0 % 100.0 %
Cost of sales 65.5 66.0 63.6
----- ----- -----
Gross profit 34.5 34.0 36.4
SG&A expenses 21.8 22.3 21.4
Amortization 2.0 1.9 1.8
Other 0.0 1.5 (0.6)
----- ----- -----
IBIT 10.7 % 8.3 % 13.8 %
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
BY SEGMENT 2000 1999 1998
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Process Systems
Sales $318,569 $335,648 $355,411
IBIT 36,455 42,001 49,502
IBIT % 11.4 % 12.5 % 13.9 %
Energy Systems
Sales $ 88,145 $ 64,494 $ 81,063
IBIT 16,130 1,097 20,089
IBIT % 18.3 % 1.7 % 24.8 %
Total
Sales $406,714 $400,142 $436,474
IBIT 43,572 33,288 60,142
</TABLE>
22
<PAGE> 23
FISCAL 2000 COMPARED TO FISCAL 1999 - Sales of $406.7 million for fiscal 2000
were $6.6 million higher than fiscal 1999, a 1.6% increase. Pro forma sales,
assuming all of the businesses owned at August 31, 2000, were owned for all of
fiscal 2000 and fiscal 1999 decreased by $6.1 million or 1.5%.
The Process Systems segment had sales of $318.6 million in fiscal 2000
compared to $335.6 million in fiscal 1999. On a pro forma basis, the Process
Systems segment sales decreased by $28.3 million, an 8.1% decrease. The
weakening of the euro and to a lesser extent the British pound, had a negative
translation effect on sales for the year of $10.1 million. The remaining decline
in sales is attributed to low levels of profitability and capital spending in
the chemical process industry, and the weak euro causing selling price pressures
in the Company's UK operations which have continental European competitors.
Order levels have been slightly higher than sales resulting in backlog
increasing to $72.8 million from $70.9 million at the beginning of fiscal 2000.
The Process Systems segment is a long lead time business, and this low level of
opening backlog signals a slower first half of fiscal 2001 than the last half of
fiscal 2000 for this segment.
The Energy Systems segment sales were $88.1 million in fiscal 2000
compared to $64.5 million in fiscal 1999. The increase in fiscal 2000 sales is
$23.6 million, or 36.7%. The increase in oil prices has spurred an increase in
oil exploration and production activities. Incoming orders in this segment have
also been strong increasing the backlog to $7.6 million from $3.4 million at the
beginning of fiscal 2000.
Gross profit margins have increased to 34.5% in fiscal 2000 from 34.0%
in fiscal 1999. Gross profit margins increased 2% due to higher sales volumes in
the Energy Systems segment, which has higher gross margin products. Offsetting
this is lower gross margins in the Process Systems segment due to the lower
sales and production volumes and a change in sales mix.
IBIT for fiscal 2000 is $43.6 million compared to $33.3 million in
fiscal 1999, an increase of $10.3 million or 30.9%. Excluding the effects of the
special items previously mentioned, the 2000 IBIT would be $43.6 million and the
1999 IBIT would be $39.7 million. This increase is primarily in the Company's
Energy Systems segment. Excluding the effects of special items, the Energy
Systems fiscal 2000 IBIT was $15.6 million compared to $5.9 million in fiscal
1999, an increase of $9.7 million or 164.4%. The increase in IBIT is due to the
sales volume increase. The benefit of the cost reductions from closing the
Fairfield facility will not be realized until fiscal 2001. In the Process
Systems segment IBIT before special items was $37.0 million in fiscal 2000 and
$43.2 million in fiscal 1999, a decrease of $6.2 million or 14.4%. The weakening
European currencies against the dollar resulted in decreased IBIT of $1.2
million in fiscal 2000. Approximately $3.0 million of the decline can be
attributed to large system projects in the Reactor Systems product platform with
lower than historical margins. The remaining decline is due to lower sales
volumes in the Industrial Mixers product platform.
23
<PAGE> 24
Interest expense decreased to $13.5 million in fiscal 2000 from $13.8
million in fiscal 1999. The decrease is from lower average debt levels in fiscal
2000 offset slightly by higher interest rates during fiscal 2000. The Company's
effective interest rate was 7.2% in fiscal 2000 and 6.7% in fiscal 1999.
The effective tax rate was 35.0% in fiscal 2000 and 34.0% in fiscal
1999. The fiscal 2000 tax rate is higher due to a higher proportion of taxable
income in higher tax rate countries, and some tax carryforward benefits utilized
outside the U.S. in fiscal 1999. Additionally, the Company generates a tax
benefit from its Foreign Sales Corporation. Net deferred income tax assets of
$8.9 million at August 31, 2000 primarily relate to U.S. operations. Available
carrybacks and future pretax income at current levels would be sufficient to
realize these assets.
Net income and net income per share in fiscal 2000 are $18.1 million
and $1.53 compared to $11.8 million and $1.06 in fiscal 1999. Excluding the
effect of the special items mentioned previously, the fiscal 1999 net income and
net income per share would have been higher by $4.2 million and $0.31
respectively. The remaining increase was primarily from the sales increase in
the Energy Systems segment.
FISCAL 1999 COMPARED TO FISCAL 1998 - Sales of $400.1 million for fiscal 1999
were $36.3 million lower than fiscal 1998, an 8.3% decrease. Pro forma sales,
assuming all of the businesses owned at August 31, 1999, were owned for all of
fiscal 1999 and fiscal 1998 decreased by $66.8 million or 13.8%.
The Process Systems segment had sales of $335.6 million in fiscal 1999
compared to $355.4 million in fiscal 1998. On a pro forma basis, the Process
Systems segment sales decreased by $31.6 million, an 8.3% decrease. This
decrease was primarily driven by weak market demand in the specialty chemical
market. Capital spending in this market has been reduced as operating rates and
profitability levels have been weak. Order levels have declined faster than
sales resulting in backlog decreasing to $70.9 million from $93.0 million at the
beginning of fiscal 1999.
The Energy Systems segment was dramatically influenced by the decrease
in crude oil prices in fiscal 1998 and 1999, reaching a low of $10.35 a barrel
in early fiscal 1999 from price levels that were $18.00 - $22.00 per barrel for
several years. Oil exploration was significantly reduced and marginal wells were
shut down. As a result, the Company's Energy Systems segment sales were $64.5
million in fiscal 1999 compared to $81.1 million in fiscal 1998. On a pro forma
basis sales decreased by $35.2 million, a 35.3% decrease. Late in fiscal 1999
crude oil prices recovered to the $22.00 per barrel level and the Company has
seen a modest increase in order levels. Longer term stability in crude oil
prices is needed before there is a full recovery in this market. This segment is
a short lead time business and backlog levels have increased slightly to $3.4
million from $3.0 million at the beginning of fiscal 1999.
Gross profit margins have declined to 34.0% in fiscal 1999 from 36.4%
in fiscal 1998. This decrease is primarily due to the change in product mix. The
Company's Energy Systems segment is a higher gross margin business and the
significant decline in sales has caused total gross margin to decline.
Secondarily, the lower volume in the Process Systems segment has also reduced
gross margin levels slightly.
24
<PAGE> 25
IBIT before special items for fiscal 1999 was $39.7 million compared to
$60.1 million in fiscal 1998, a decrease of $20.4 million or 33.9%. This
decrease is primarily in the Company's Energy Systems segment which declined
from $20.1 million in fiscal 1998 to $5.9 million in fiscal 1999, on a sales
decline of $16.6 million. Costs to support products in this segment are of a
high fixed cost nature. Therefore, the cost structure cannot be adjusted quickly
when sales decline rapidly. As previously mentioned, the Company closed its
Fairfield, California, manufacturing facility and consolidated management.
However, these actions did not significantly benefit fiscal 1999. Fiscal 2000
saw some of the cost benefits with the full impact coming in fiscal 2001. The
anticipated benefits of approximately $1.5 million annually will not be fully
realized until 2001 because the Fairfield plant continued to operate until March
2000. In the Process Systems segment IBIT before special items decreased $6.3
million on a sales decline of $19.8 million and as a percent of sales decreased
from 13.9% to 12.9%. This level of volume decrease is more manageable and
variable costs, primarily employment levels and variable pay plans, were
adjusted to the lower volume levels minimizing the effect on IBIT before special
items.
Interest expense increased to $13.8 million in fiscal 1999 from $12.8
million in fiscal 1998. The increase was from higher average debt levels in
fiscal 1999 primarily because the $106.0 million spent for FCE was outstanding
all of fiscal 1999 and only a portion of fiscal 1998. The Company's effective
interest rate was 6.7% for both fiscal 1999 and fiscal 1998.
The effective tax rate was 34.0% for both fiscal 1999 and fiscal 1998.
The fiscal 1999 rate was lower than the statutory rate because of a reduction in
valuation allowances for deferred tax assets in countries outside the U.S.
Taxable income was generated in these countries justifying the reduction of
these allowances. Additionally, the Company generated a tax benefit from its
Foreign Sales Corporation. Net deferred income tax assets of $5.4 million at
August 31, 1999 primarily relate to U.S. operations. Available carrybacks and
future pretax income at current levels would be sufficient to realize these
assets.
Net income and net income per share for fiscal 1999 are $11.8 million
and $1.06 compared to $31.2 million and $2.43 in fiscal 1998. Excluding the
effect of the special items, net income and net income per share would have been
higher by $4.2 million and $0.31 respectively. The remaining decrease was
primarily from the decline in the Energy Systems segment and to a lesser degree
the decline in the Process Systems segment and slightly higher interest costs,
as discussed above.
Liquidity and Capital Resources
The Company's significant cash needs expected for fiscal 2001 are planned
capital expenditures of $18.2 million. The Company expects cash flow from
operating activities to be adequate for these needs. At August 31, 2000, the
Company has available borrowings of $95.0 million under it's Bank Credit
Agreement ("the Agreement"). The Company's long-term liquidity requirements will
be satisfied by cash flow from current operations and acquisitions, available
borrowings under the existing Agreement or a new Bank Credit facility negotiated
at the expiration of the current Agreement in November 2002, or additional funds
raised through capital markets. There are no significant restrictions on the
Company's ability to transfer funds from its non-U.S. subsidiaries to the
Company.
25
<PAGE> 26
The Company started a program in October 1999 to purchase up to 3%, or
approximately 350,000 shares or share equivalents in Convertible Subordinated
Notes for an amount not to exceed $6.5 million. As of August 31, 2000 the
program has been completed with the Company having purchased 77,085 shares for
$1.3 million and Convertible Subordinated Notes (194,826 equivalent shares) for
$4.9 million.
In fiscal 2000 cash flow from operating activities was $36.0 million.
This cash was primarily used for $5.6 million of net debt repayments, $19.8
million for capital expenditures, $6.2 million for the 1999 share and
Convertible Subordinated Notes repurchase program and $2.4 million for the
dividends.
In fiscal 2000 free cash flow, cash provided by operations less capital
expenditures, was $16.2 million, a decrease of $11.7 million from fiscal 1999.
Capital expenditures were $8.2 million higher in fiscal 2000. Capital
expenditures are related to additional production capacity, cost reductions and
replacement items. The remaining decrease in free cash flow is due to higher
working capital requirements caused by higher fiscal year 2000 fourth quarter
sales, and higher sales backlog levels at year end.
Forward-looking Statements
This Annual Report contains "Forward-looking Statements". All statements which
address operating performance, events or developments that we expect or
anticipate will occur in the future including statements related to growth,
operating margin performance, earnings per share or statements expressing
general opinions about future operating results, are forward-looking statements.
These forward-looking statements and performance trends are subject to
certain risks and uncertainties that could cause actual results to differ
materially from these statements and trends. Such factors include, but are not
limited to, a significant decline in capital expenditure levels in the Company's
served markets, a major decline in oil and gas prices, foreign exchange rate
fluctuations, continued availability of acceptable acquisition candidates and
general economic conditions that can affect the demand in the process
industries. Any forward-looking statements are made based on known events and
circumstances at the time. The Company undertakes no obligation to update or
publicly revise these forward-looking statements to reflect events or
circumstances that arise after the date of this report.
26
<PAGE> 27
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
The Company maintains operations in the United States, Canada, Mexico, Brazil,
Belgium, Germany, Italy, the United Kingdom, Singapore and joint ventures in
China, India and Taiwan. In its normal operations the Company has market risk
exposure to foreign exchange rates. As a result of the Company's global
operations, it has assets, liabilities and cash flows in currencies other than
U.S. dollars. The Company's significant non-U.S. operations have their local
currencies as their functional currency and primarily buy and sell using that
same currency. The Company manages its exposure to its net assets and cash flows
in currencies other than U.S. dollars by minimizing its non-U.S. dollar net
asset positions. The Company also enters into hedging transactions, primarily
currency swaps under established policies and guidelines, that enable it to
mitigate the potential adverse impact of foreign exchange rate risk. The Company
does not engage in trading or other speculative activities with these
transactions, as established policies require that such hedging transactions
relate to specific currency exposures.
The Company's main foreign exchange rate exposures relate to assets,
liabilities and cash flows denominated in British pounds, European euro and
Canadian dollars and the general economic exposure that fluctuations in these
currencies could have on the dollar value of future non-U.S. cash flows. To
illustrate the potential impact of changes in foreign currency exchange rates on
the Company as of August 31, 2000, the Company's net unhedged exposures in each
currency were remeasured assuming a 10% decrease in foreign exchange rates
compared to the U.S. dollar. Using this method the Company's IBIT and cash flow
from operations for fiscal 2000 would have decreased by $1.5 million and $1.0
million, respectively. This calculation assumes that each exchange rate would
change in the same direction relative to the U.S. dollar. In addition to the
direct effects of changes in exchange rates, such changes may also affect the
volume of sales or the foreign currency sales prices as competitor's products
become more or less attractive. The Company's sensitivity analysis of the
effects of changes in foreign currency exchange rates does not include any
effects of such potential changes in sales levels or local currency prices.
The Company also has market risk exposure to interest rates. At August
31, 2000, the Company has $177.9 million in interest bearing debt obligations
that are subject to market risk exposure due to changes in interest rates. To
manage its exposure to changes in interest rates, the Company attempts to
maintain a balance between fixed and variable rate debt. Such a balance in the
debt profile is expected to moderate the Company's financing cost over time. If
long-term corporate interest rates were to drop substantially, the Company is
limited in its ability to refinance its fixed rate debt. However, the Company
does have the ability to change the characteristics of its fixed rate debt to
variable rate debt through interest rate swaps to achieve its objective of
balance. No such interest rate swaps are outstanding at August 31, 2000.
27
<PAGE> 28
At August 31, 2000, $164.8 million of the outstanding debt is at fixed
rates with a weighted average interest rate of 6.78% and $13.1 million is at
variable rates with a weighted average interest rate of 5.62%. The estimated
fair value of the Company's total debt at August 31, 2000, is approximately
$173.0 million. The following table presents the aggregate maturities and
related weighted average interest rates of the Company's debt obligations at
August 31, 2000, by maturity dates ($ in thousands):
<TABLE>
<CAPTION>
U. S. Dollar U. S. Dollar Italian Lira
Fixed Rate Variable Rate Variable Rate
------------------------- ------------------------- --------------------------
Maturity
Date Amount Rate Amount Rate Amount Rate
------------- ---------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
2001 $ 181 9.50 % $1,160 8.25 %
2002 472 12.76
2003 1,164 12.76 $11,925 5.36 %
2004 60,834 6.52
2005 728 8.94
Thereafter 101,400 6.82
-------- ----- ------ ------ ------- ------
Total $164,779 6.78 % $1,160 8.25 % $11,925 5.36 %
======== ===== ====== ====== ======= ======
Fair value $159,915 $1,160 $11,925
======== ====== =======
</TABLE>
The Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities and The Securities
Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue
Recognition. These pronouncements are not required to be adopted by the Company
until its fiscal year 2001. The Company anticipates no material impact from
adopting these pronouncements.
28
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEET
Robbins & Myers, Inc. and Subsidiaries
($ in thousands)
<TABLE>
<CAPTION>
August 31,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 11,244 $ 8,901
Accounts receivable 80,872 74,900
Inventories 60,096 53,747
Other current assets 7,189 12,824
Deferred taxes 7,482 5,470
--------- ---------
Total Current Assets 166,883 155,842
Goodwill 187,382 195,294
Other Intangible Assets 16,937 18,806
Deferred Taxes 1,398 0
Other Assets 7,675 6,641
Property, Plant and Equipment 115,404 117,269
--------- ---------
$ 495,679 $ 493,852
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 33,467 $ 27,949
Accrued expenses 56,481 54,935
Current portion of long-term debt 1,341 121
--------- ---------
Total Current Liabilities 91,289 83,005
Long-Term Debt - Less Current Portion 176,523 191,151
Other Long-Term Liabilities 53,134 58,518
Minority Interest 7,551 6,952
Shareholders' Equity:
Common stock-without par value:
Authorized shares-40,000,000
Issued shares-11,225,950 in 2000 and 1999 33,586 33,968
Treasury shares-269,499 (284,746 in 1999) (5,792) (6,500)
Retained earnings 147,664 132,015
Accumulated other comprehensive (loss):
Foreign currency translation (8,145) (2,946)
Minimum pension liability (131) (2,311)
--------- ---------
Total (8,276) (5,257)
--------- ---------
167,182 154,226
--------- ---------
$ 495,679 $ 493,852
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
29
<PAGE> 30
CONSOLIDATED SHAREHOLDERS' EQUITY STATEMENT
Robbins & Myers, Inc. and Subsidiaries
($ in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Other
Common Treasury Retained Comprehensive
Shares Shares Earnings Income (Loss) Total
------------- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at September 1, 1997 $ 32,020 $ (2,211) $ 93,735 $ 931 $124,475
Net income 31,230 31,230
Change in foreign currency translation (3,041) (3,041)
Change in minimum pension liability (570) (570)
--------
Comprehensive income 27,619
Cash dividends declared, $0.215 per share (2,385) (2,385)
Stock options exercised, 165,800 shares 774 787 1,561
Proceeds from share sales, 34,632 shares 635 532 1,167
Performance stock award expense 581 581
Performance stock issuances, 15,313 shares
Stock repurchase program, 96,600 shares (2,774) (2,774)
Other stock purchases, 35,182 shares (1,220) (1,220)
Tax benefit of stock options exercised 1,739 1,739
-------- -------- -------- -------- --------
Balance at August 31, 1998 35,749 (4,886) 122,580 (2,680) 150,763
Net income 11,849 11,849
Change in foreign currency translation (1,167) (1,167)
Change in minimum pension liability (1,410) (1,410)
--------
Comprehensive income 9,272
Cash dividends declared, $0.22 per share (2,414) (2,414)
Stock options exercised, 95,400 shares (1,480) 2,188 708
Proceeds from share sales, 39,579 shares (523) 1,343 820
Performance stock award expense (243) (243)
Performance stock issuances, 19,427
Stock repurchase program, 231,153 shares (5,061) (5,061)
Other stock purchases, 3,563 shares (84) (84)
Tax benefit of stock options exercised 465 465
-------- -------- -------- -------- --------
Balance at August 31, 1999 33,968 (6,500) 132,015 (5,257) 154,226
Net income 18,056 18,056
Change in foreign currency translation (5,199) (5,199)
Change in minimum pension liability 2,180 2,180
--------
Comprehensive income 15,037
Cash dividends declared, $0.22 per share (2,407) (2,407)
Stock options exercised, 21,500 shares (199) 463 264
Proceeds from share sales, 70,832 shares (271) 1,582 1,311
Stock repurchase program, 77,085 shares (1,337) (1,337)
Tax benefit of stock options exercised 88 88
-------- -------- -------- -------- --------
Balance at August 31, 2000 $ 33,586 $ (5,792) $147,664 $ (8,276) $167,182
======== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
30
<PAGE> 31
CONSOLIDATED INCOME STATEMENT
Robbins & Myers, Inc. and Subsidiaries
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended August 31,
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Sales $ 406,714 $ 400,142 $ 436,474
Cost of sales 266,480 263,976 277,761
--------- --------- ---------
Gross profit 140,234 136,166 158,713
SG&A expenses 88,594 89,403 93,148
Amortization 8,077 7,660 7,670
Other (9) 5,815 (2,247)
--------- --------- ---------
Income before interest and income taxes 43,572 33,288 60,142
Interest expense 13,531 13,752 12,821
--------- --------- ---------
Income before income taxes and minority interest 30,041 19,536 47,321
Income tax expense 10,513 6,647 16,091
Minority interest 1,472 1,040 0
--------- --------- ---------
Net income $ 18,056 $ 11,849 $ 31,230
========= ========= =========
Net income per share:
Basic $ 1.65 $ 1.08 $ 2.83
========= ========= =========
Diluted $ 1.53 $ 1.06 $ 2.43
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
31
<PAGE> 32
CONSOLIDATED CASH FLOW STATEMENT
Robbins & Myers, Inc. and Subsidiaries
($ in thousands)
<TABLE>
<CAPTION>
Years Ended August 31,
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 18,056 $ 11,849 $ 31,230
Adjustments to reconcile net income to net cash
and cash equivalents provided by operating activities:
Depreciation 16,293 16,861 15,846
Amortization 8,077 7,660 7,670
Deferred taxes (3,434) (2,447) 3,493
Asset impairment charges 0 1,400 0
Performance stock awards 0 (243) 581
Changes in operating assets and liabilities - excluding the effects of
acquisitions:
Accounts receivable (10,212) (310) (320)
Inventories (9,054) 11,067 (495)
Other current assets 5,675 (7,844) (1,164)
Other assets 4,895 1,138 (1,902)
Accounts payable 7,500 (3,640) (985)
Accrued expenses and other liabilities (1,756) 3,972 (5,380)
--------- --------- ---------
Net cash and cash equivalents provided by operating activities 36,040 39,463 48,574
INVESTING ACTIVITIES:
Capital expenditures, net of nominal disposals (19,842) (11,612) (23,020)
Purchase of GMM Pfaudler and Chemineer de Mexico (261) (5,344) 0
Purchase of Flow Control Equipment and Technoglass 0 0 (112,306)
--------- --------- ---------
Net cash and cash equivalents used by investing activities (20,103) (16,956) (135,326)
FINANCING ACTIVITIES:
Proceeds from debt borrowings 12,731 25,599 248,382
Payments of long-term debt (18,347) (39,996) (160,102)
Retirement of SAR's and other financing costs 0 0 (1,359)
Proceeds from sale of common stock 1,075 1,528 2,728
Purchase of common stock and convertible subordinated notes (6,646) (5,145) (3,994)
Dividends paid (2,407) (2,414) (2,385)
--------- --------- ---------
Net cash and cash equivalents (used) provided by financing activities (13,594) (20,428) 83,270
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 2,343 2,079 (3,482)
Cash and cash equivalents at beginning of year 8,901 6,822 10,304
--------- --------- ---------
Cash and cash equivalents at end of year $ 11,244 $ 8,901 $ 6,822
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
32
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Robbins & Myers, Inc. and Subsidiaries
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated upon consolidation. All of the Company's operations are conducted in
the fluids management industry.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Accounts Receivable
Accounts receivable relate primarily to customers located in North America and
Western Europe and are concentrated in the specialty chemical, pharmaceutical
and oil and gas markets. To reduce credit risk, the Company performs credit
investigations prior to accepting an order and, when necessary, requires letters
of credit to insure payment.
Inventories
Inventories are stated at the lower of cost or market determined by the last-in,
first-out ("LIFO") method in the U.S. and the first-in, first-out ("FIFO")
method outside the U.S.
Goodwill and Other Intangible Assets
Goodwill is the excess of the purchase price paid over the value of net assets
of businesses acquired. The carrying value of goodwill is reviewed quarterly if
the facts and circumstances suggest that it may be impaired. If the review
indicates that goodwill is impaired, as determined by the undiscounted cash flow
method, it will be reduced to its estimated recoverable value.
Amortization is calculated on the straight-line basis using the
following lives:
Patents 14 to 17 years
Non-compete agreements 3 to 5 years
Financing costs 5 years
Acquisition costs 20 to 40 years
Goodwill 20 to 40 years
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation expense is
recorded over the estimated useful life of the asset on the straight-line method
using the following lives:
Land improvements 20 years
Buildings 45 years
Machinery and equipment 3 to 15 years
33
<PAGE> 34
The Company's normal policy is to expense repairs and improvements made
to capital assets as incurred. In limited circumstances, betterments are
capitalized and amortized over the estimated life of the new asset and any
remaining value of the old asset is written off. Repairs to machinery and
equipment must result in an addition to the useful life of the asset before the
costs are capitalized.
Foreign Currency Accounting
Gains and losses resulting from the settlement of a transaction in a currency
different from that used to record the transaction are charged or credited to
net income when incurred. Adjustments resulting from the translation of non-U.S.
financial statements into U.S. dollars are recognized in accumulated other
comprehensive income or loss for all non-U.S. units.
Product Warranties
The Company recognizes a product warranty liability based on the historical
relationship of warranty claims to net sales.
Revenue Recognition
The Company recognizes revenue at the time of title passage to the Company's
customer.
Income Taxes
Income taxes are provided for all items included in the Consolidated Income
Statement regardless of the period when such items are reported for income tax
purposes. Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
The Company's policy is to provide U.S. income taxes on non-U.S. income
when remitted to the U.S. The Company does not provide U.S. income taxes on the
remaining undistributed non-U.S. income, as it is the Company's intention to
maintain its investments in these operations.
Consolidated Cash Flow Statement
Cash and cash equivalents consist of working cash balances and temporary
investments having an original maturity of 90 days or less.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating the
fair value of financial instruments:
Cash and cash equivalents - The amounts reported approximate market
value.
Long-term debt - The market value of the Company's debt is $173,000,000
at August 31, 2000 and $187,000,000 at August 31, 1999. These amounts
are based on the terms, interest rates and maturities currently
available to the Company for similar debt instruments.
Foreign exchange contracts - The amounts reported are estimated using
quoted market prices for similar instruments.
34
<PAGE> 35
Common Stock Plans
Common stock plans involving the issuance of stock options are accounted for as
noncompensatory plans. Common stock plans involving the issuance of a variable
number of shares based on performance are accounted for as compensatory plans.
New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities and The Securities Exchange
Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition. These
pronouncements are not required to be adopted by the Company until its fiscal
year 2001. The Company anticipates no material impact from adopting these
pronouncements.
Reclassifications
Certain prior year amounts are reclassified to conform with the current year
presentation.
NOTE 2 - BUSINESS ACQUISITIONS
On July 19, 1999, the Company purchased additional shares of GMM Pfaudler
Limited, an Indian Corporation, ("GMM") for $3,744,000. These additional shares
increased the Company's ownership from 40% to 51% and results in the Company
controlling GMM. Therefore, the Company consolidated GMM into its financial
statements from that date and recorded a minority interest for the remaining 49%
owners' share of GMM. The Company's interest in GMM was previously recorded
under the equity method.
On June 30, 1999, the Company purchased 51% of Chemineer de Mexico,
S.A. de C.V. ("Chemineer de Mexico"), a Mexican corporation and its licensee in
Mexico for $1,600,000. On December 31, 1999, the Company purchased an additional
16.3% of Chemineer de Mexico for $261,000. The Company consolidates the results
of Chemineer de Mexico and records a minority interest for the remaining owners'
share. The remaining 32.7% of Chemineer de Mexico will be purchased in 2 equal
increments on December 31, 2000 and 2001 at prices based upon the earnings of
Chemineer de Mexico.
On December 1, 1998, the Universal Glasteel Equipment ("UGE")
partnership agreement with Universal Process Equipment, Inc. ("UPE") was amended
so that the Company appoints the President, approves budgets, and approves major
decisions with respect to UGE. The amendment results in the Company controlling
UGE. Therefore, the Company consolidated UGE into its financial statements from
that date and recorded a minority interest for UPE's share of UGE. The Company's
interest in UGE was previously recorded under the equity method. The Company's
ownership share of UGE did not change as a result of the amendments.
35
<PAGE> 36
On December 19, 1997, the Company acquired all of the outstanding
capital stock of Flow Control Equipment, Inc. ("FCE") for $109,300,000 in cash
(or approximately $106,030,000 after application of available FCE cash at
closing). FCE supplies a broad line of products for use in artificial lift
applications in the oil and gas exploration and production markets, including
rod guides, wellhead equipment and valves. FCE also supplies closures and valves
for gas transmission and distribution applications.
Following are the unaudited pro forma consolidated results of
operations of the Company assuming the acquisition of FCE had occurred at the
beginning of the respective period. In preparing the pro forma data adjustments
have been made to the historical financial information. These are primarily
amortization and depreciation relating to the purchase price allocation,
interest cost related to financing the transaction and adjustments to the
corporate cost allocations from FCE's former parent.
<TABLE>
<CAPTION>
1998
--------
(In thousands, except per share amounts)
<S> <C>
Sales $451,481
Net income 31,754
Basic net income per share 2.88
Diluted net income per share 2.47
</TABLE>
On December 5, 1997, the Company acquired all of the outstanding
capital stock of Technoglass S.r.L. ("Technoglass") for $8,058,000 in cash and
notes. Technoglass supplies glass-lined storage and reactor vessels and related
equipment and is located near Venice, Italy.
The operating results of the acquired businesses are included in
consolidated operating results since the dates of each acquisition.
36
<PAGE> 37
NOTE 3 - BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE 2000 1999
--------- ---------
(In thousands)
<S> <C> <C>
Allowances for doubtful accounts $ 1,726 $ 1,688
========= =========
</TABLE>
<TABLE>
<CAPTION>
INVENTORIES
2000 1999
--------- ---------
(In thousands)
<S> <C> <C>
FIFO:
Finished products $ 20,366 $ 18,586
Work in process 15,965 12,292
Raw materials 29,275 28,154
--------- ---------
65,606 59,032
LIFO reserve, U. S. Inventories (5,510) (5,285)
--------- ---------
$ 60,096 $ 53,747
========= =========
Non-U.S. inventories at FIFO $ 30,759 $ 27,783
========= =========
</TABLE>
<TABLE>
<CAPTION>
OTHER INTANGIBLE ASSETS
2000 1999
--------- ---------
(In thousands)
<S> <C> <C>
Patents and trademarks $ 2,071 $ 2,392
Non-compete agreements 5,382 5,538
Financing costs 2,721 3,243
Acquisition costs 2,869 3,304
Pension intangible 2,734 2,570
Other 1,160 1,759
---------- ----------
$ 16,937 $ 18,806
========= =========
Accumulated amortization of goodwill and other
intangible assets $ 36,083 $ 28,195
========= =========
</TABLE>
<TABLE>
<CAPTION>
PROPERTY, PLANT AND EQUIPMENT
2000 1999
--------- ---------
(In thousands)
<S> <C> <C>
Land and improvements $ 10,584 $ 11,709
Buildings 44,168 42,724
Machinery and equipment 152,371 142,387
--------- ---------
207,123 196,820
Less accumulated depreciation 91,719 79,551
--------- ---------
$ 115,404 $ 117,269
========= =========
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
ACCRUED EXPENSES
2000 1999
-------- --------
(In thousands)
<S> <C> <C>
Salaries, wages and payroll taxes $ 9,386 $ 8,233
Customer advances 6,154 3,972
Pension benefits 4,900 4,794
U.S. other post retirement benefits 2,000 2,000
Warranty costs 8,332 9,863
Accrued interest 4,408 4,615
Income taxes 4,406 2,783
Plant closure 836 2,530
Other 16,059 16,145
-------- --------
$ 56,481 $ 54,935
======== ========
</TABLE>
<TABLE>
<CAPTION>
OTHER LONG-TERM LIABILITIES
2000 1999
-------- --------
(In thousands)
<S> <C> <C>
German pension liability $ 23,511 $ 28,448
U.S. other postretirement benefits 12,478 13,640
U.S. pension liability 4,158 8,689
Italy long term tax liability 3,458 0
Casualty insurance reserves 1,241 1,008
Deferred research grants 1,405 1,631
Other 6,883 5,102
-------- --------
$ 53,134 $ 58,518
======== ========
</TABLE>
NOTE 4 - INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
OTHER
2000 1999 1998
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Plant closure costs $ 409 $ 4,769 $ 0
Other termination costs 0 1,600 0
Equity income 0 (554) (2,247)
Gain on sale of building (918) 0 0
UGE long-term receivable write-down 500 0 0
-------- -------- --------
$ (9) $ 5,815 $ (2,247)
======== ======== ========
</TABLE>
In the fourth quarter of fiscal 2000, the Company recorded a charge of
$500,000 to reduce a long-term receivable related to Universal Glasteel
Equipment ("UGE"), which is 50% owned by the Company and 50% owned by Universal
Process Equipment, Inc ("UPE"). The charge is due to weakness in the used
glass-lined reactor and storage vessel markets served by UGE.
In fiscal 1999, due to the downturn in the Company's Energy Systems
business segment, the Company analyzed its capacity requirements for these
products. As a result, on February 10, 1999, the Company recorded a charge of
$4,200,000 for the closure and relocation of the Company's Fairfield,
California, manufacturing operations. The facility manufactured power sections
and down-hole pumps. Production was
38
<PAGE> 39
transferred to the Company's manufacturing facility near Houston, Texas, which
manufactures similar products. The closure and relocation consolidated all power
section and down-hole pump manufacturing into one facility. The transfer of
manufacturing was completed by March 31, 2000. The Fairfield facility was sold
in July 2000 resulting in a pretax gain of $918,000. Certain machinery and
equipment was also sold in fiscal year 2000 at amounts approximating the written
down estimated fair values. The $4,200,000 charge was composed of the following:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Asset write-downs:
Land and building to be sold, $800 estimated fair value $ 600
Machinery and equipment to be scrapped, $200 estimated fair value 800
------
Total asset write-downs 1,400
Exit costs:
Employee related costs:
Severance, 50 Fairfield employees 300
Pay to stay costs and other employee costs 500
Environmental costs related to closure of facility 1,300
Holding costs of land and building until sold and other 700
------
Total exit costs 2,800
------
$4,200
======
</TABLE>
The asset write-downs were determined based on recent sales of similar
assets.
Following is a progression of the exit cost liabilities related to the
Fairfield plant closure:
<TABLE>
<CAPTION>
Holding
Employee Environmental costs and
related costs costs other Total
-------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Liability recorded Feb 1999 $ 800 $ 1,300 $ 700 $ 2,800
Payments made (72) (53) (402) (527)
------- ------- ------- -------
Liability at August 31, 1999 728 1,247 298 2,273
Payments made (780) (411) (246) (1,437)
Change in estimate 52 0 (52) 0
------- ------- ------- -------
Liability at August 31, 2000 $ 0 $ 836 $ 0 $ 836
======= ======= ======= =======
</TABLE>
Due to ongoing monitoring requirements, the remaining liability for
environmental costs is expected to be paid over a period of five to ten years.
The Company incurred additional expenses relating to the Fairfield
plant closure of $409,000 in fiscal 2000 and $569,000 in fiscal 1999. These
costs were for employee transfers, equipment relocation and training of new
employees at the Texas facility.
39
<PAGE> 40
In the second quarter of fiscal 1999, the Company recorded termination
costs of $400,000 unrelated to the closure of the Fairfield facility. In the
fourth quarter of fiscal, 1999 the Company recorded an additional $1,200,000 in
severance and early retirement benefit costs to reduce its overhead cost
structure, primarily at its Moyno and Chemineer business units. The reduction in
employment levels at Chemineer was due to lower sales resulting from lower
capital spending within the specialty chemical markets served by Chemineer. The
reduction in employment at Moyno was due to process changes within the
manufacturing operations and a reduction in the overhead cost structure. These
changes will reduce operating costs by approximately $1,200,000 annually and
position these business units to achieve long-term profitability targets. All of
these benefits have been paid as of August 31, 2000 with no changes in estimates
made.
MINIMUM LEASE PAYMENTS
Future minimum payments, by year and in the aggregate, under non-cancellable
operating leases with initial or remaining terms of one year or more consisted
of the following at August 31, 2000:
(In thousands)
--------------
2001 $ 2,192
2002 1,652
2003 1,086
2004 254
2005 152
Thereafter 102
-------
$ 5,438
=======
Rental expense for all operating leases in 2000, 1999 and 1998 was
approximately $2,914,000, $3,347,000 and $3,289,000, respectively.
NOTE 5 - CASH FLOW STATEMENT INFORMATION
In 2000, the Company recorded the following non-cash investing and financing
transactions: $500,000 increase in other intangibles and common stock,
$6,500,000 increase in deferred tax assets, $1,500,000 increase in accrued
liabilities and $5,000,000 increase in other long term liabilities related to a
tax election made in Italy to allow for the tax deductibility of goodwill and
$88,000 increase in common stock and decrease in income tax payable related to
the tax benefits of stock options exercised.
In 1999, the Company recorded the following non-cash investing and
financing transactions: $1,400,000 asset impairment charges, $700,000 increase
in goodwill, $2,800,000 increase in deferred tax assets and $3,500,000 increase
in accrued liabilities related to the acquisition of FCE and $465,000 increase
in common stock and decrease in income tax payable related to the tax benefits
of stock options exercised.
In 1998, the Company recorded the following non-cash investing and financing
transactions: $1,782,000 increase in goodwill and long-term debt related to the
acquisition of Technoglass S.r.L. and $1,739,000 increase in common stock and
decrease in income tax payable related to the tax benefits of stock options
exercised.
40
<PAGE> 41
Supplemental cash flow information consisted of the following:
<TABLE>
<CAPTION>
2000 1999 1998
--------- -------- ---------
(in thousands)
<S> <C> <C> <C>
Interest paid $ 13,738 $ 14,723 $ 10,650
Taxes paid 8,456 8,812 12,366
</TABLE>
NOTE 6 - LONG-TERM DEBT
<TABLE>
<CAPTION>
2000 1999
-------- --------
(in thousands)
<S> <C> <C>
Senior debt:
Revolving credit loan $ 13,085 $ 21,198
Senior notes 100,000 100,000
Other 5,088 5,074
6.50% Convertible subordinated notes 59,691 65,000
-------- --------
Total debt 177,864 191,272
Less current portion 1,341 121
-------- --------
$176,523 $191,151
======== ========
</TABLE>
The Company's Bank Credit Agreement ("Agreement") provides that the
Company may borrow on a revolving credit basis up to a maximum of $150,000,000.
All outstanding amounts under the Agreement are due and payable on November 25,
2002. Interest is variable based upon formulas tied to LIBOR or prime, at the
Company's option, and is payable at least quarterly. At August 31, 2000, the
interest rate for all amounts outstanding was 5.45%. The outstanding amount is
primarily an Italian Lira based borrowing in Italy. Indebtedness under the
Agreement is unsecured, except for guarantees by the Company's U.S.
subsidiaries, the pledge of the stock of the Company's U.S. subsidiaries and the
pledge of the stock of certain non-U.S. subsidiaries. At August 31, 2000, the
Company has available borrowings of $95,000,000 under the Agreement.
The Company has $100,000,000 of Senior Notes ("Senior Notes") issued in
two series. Series A in the principal amount of $70,000,000 has an interest rate
of 6.76% and is due May 1, 2008, and Series B in the principal amount of
$30,000,000 has an interest rate 6.84% and is due May 1, 2010. Interest is
payable semi-annually on May 1 and November 1.
The above agreements have certain restrictive covenants including
limitations on cash dividends, treasury stock purchases and capital expenditures
and minimum requirements for interest coverage and leverage ratios. The amount
of cash dividends and treasury stock purchases, other than in relation to stock
option exercises, the Company may incur in each fiscal year is restricted to the
greater of $2,500,000 or 50% of the Company's consolidated net income for the
immediately preceding fiscal year, plus a portion of any unused amounts from the
preceding fiscal year.
The Company has $59,691,000 of 6.50% Convertible Subordinated Notes due
2003 ("Subordinated Notes"). The Subordinated Notes are due on September 1,
2003, and bear interest at 6.50%, payable semi-annually on March 1 and September
1 and are convertible into common stock at a rate of $27.25 per share. Holders
may convert
41
<PAGE> 42
at any time until maturity and the Company may call for redemption at a price
ranging from the current price of 102.17% to 100% in fiscal 2003 and thereafter.
The Notes are subordinated to all other indebtedness of the Company.
Aggregate principal payments of long-term debt, for the five years
subsequent to August 31, 2000, are as follows:
(In thousands)
--------------
2001 $ 1,341
2002 472
2003 13,089
2004 60,834
2005 728
2006 and thereafter 101,400
--------
Total $177,864
========
NOTE 7 - RETIREMENT BENEFITS
The Company sponsors two defined contribution plans covering most U.S. salaried
employees and certain U.S. hourly employees. Contributions are made to the plans
based on a percentage of eligible amounts contributed by participating
employees. The Company also sponsors several defined benefit plans covering all
U.S. employees and certain non-U.S. employees. Benefits are based on years of
service and employees' compensation or stated amounts for each year of service.
The Company's funding policy is consistent with the funding requirements of
applicable regulations. At August 31, 2000 and 1999, pension investments
included 311,700 shares of the Company's common stock.
In addition to pension benefits, the Company provides health care and
life insurance benefits for certain of its retired U.S. employees. The Company's
policy is to fund the cost of these benefits as claims are paid.
Retirement and other post-retirement plan costs are as follows:
<TABLE>
<CAPTION>
Pension Benefits
-----------------------------------------------
2000 1999 1998
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Service cost $ 3,547 $ 3,733 $ 3,854
Interest cost 7,165 7,415 7,060
Expected return on plan assets (6,388) (6,214) (6,367)
Amortization of prior service cost 557 552 521
Amortization of transition obligation (118) (137) (138)
Recognized net actuarial (gains)losses (126) 545 (72)
------- ------- -------
Net periodic benefit cost $ 4,637 $ 5,894 $ 4,858
======= ======= =======
Defined contribution cost $ 950 $ 917 $ 1,011
======= ======= =======
</TABLE>
42
<PAGE> 43
<TABLE>
<CAPTION>
Other Benefits
-------------------------------------------
2000 1999 1998
------ ------ -------
(In thousands)
<S> <C> <C> <C>
Service cost $ 220 $ 250 $ 99
Interest cost 1,533 1,456 1,238
Net amortization 330 253 419
------ ------ ------
Net periodic benefit cost $2,083 $1,959 $1,756
====== ====== ======
</TABLE>
The funded status and amounts recorded in the balance sheet are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------------- -------------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Beginning of year $ 119,736 $ 115,683 $ 20,401 $ 17,103
Service cost 3,547 3,733 220 250
Interest cost 7,165 7,415 1,533 1,456
Plan amendments 0 2,022 0 3,093
Currency exchange rate impact (6,480) (82) 0 0
Settlements/curtailments 0 (4,122) 0 0
Actuarial (gains)losses (2,268) 3,912 1,731 1,078
Benefit payments (9,140) (8,825) (2,762) (2,579)
--------- --------- --------- ---------
End of year $ 112,560 $ 119,736 $ 21,123 $ 20,401
========= ========= ========= =========
Change in plan assets:
Beginning of year $ 77,912 $ 77,440 $ 0 $ 0
Actual return 10,488 9,026 0 0
Company contributions 6,562 3,021 2,762 2,579
Settlements/curtailments 0 (2,750) 0 0
Benefit payments (9,140) (8,825) (2,762) (2,579)
--------- --------- --------- ---------
End of year $ 85,822 $ 77,912 $ 0 $ 0
========= ========= ========= =========
Funded status $ (26,738) $ (41,824) $ (21,123) $ (20,401)
Unrecognized net actuarial losses(gains) (4,601) 1,758 4,117 2,043
Unrecognized transition obligation (1,016) 1,016 0 0
Unamortized prior service cost 2,721 2,686 2,528 2,718
--------- --------- --------- ---------
Amount recognized $ (29,634) $ (36,364) $ (14,478) $ (15,640)
========= ========= ========= =========
Recorded as follows:
Accrued expenses $ (4,900) $ (4,794) $ (2,000) $ (2,000)
Accrued liabilities (27,669) (37,137) (12,478) (13,640)
Intangible assets 2,734 2,570 0 0
Accumulated other comprehensive loss 201 2,997 0 0
--------- --------- --------- ---------
$ (29,634) $ (36,364) $ (14,478) $ (15,640)
========= ========= ========= =========
Deferred tax liability on accumulated other
comprehensive loss $ (70) $ (686) $ 0 $ 0
========= ========= ========= =========
</TABLE>
43
<PAGE> 44
Pension plans with accumulated ("ABO") and projected ("PBO") benefit
obligations in excess of plan assets:
2000 1999
-------- --------
(In thousands)
Accumulated benefit obligations $ 64,623 $ 98,941
Projected benefit obligation 66,228 104,395
Plan assets 35,408 61,116
In 2000 and 1999, $24,180,000 and $29,962,000, respectively, of the
unfunded ABO and $25,785,000 and $32,272,000, respectively, of the unfunded PBO
relate to the Company's pension plan for its German operation. Funding of
pension obligations is not required in Germany.
Actuarial weighted average assumptions used to determine plan costs and
liabilities are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-------------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average assumptions:
Discount rate 7.00 % 7.00 % 7.00 % 7.00 %
Expected return on plan assets 9.00 9.00 N/A N/A
Rate of compensation increase 5.50 5.50 N/A N/A
Health care cost Increase N/A N/A 6.00 6.00
</TABLE>
The assumed health care trend rate has a significant effect on the
amounts reported for health care benefits. A one percentage point change in
assumed health care rate would have the following effects:
Increase Decrease
-------- --------
(in thousands)
Service and interest cost $ 91 $ (85)
Postretirement benefit obligation 1,097 (1,032)
44
<PAGE> 45
NOTE 8 - INCOME TAXES
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
<TABLE>
<CAPTION>
DEFERRED ASSETS AND LIABILITIES 2000 1999
------- -------
(In thousands)
<S> <C> <C>
Assets:
Postretirement benefit obligations $ 5,781 $ 6,073
Advance payments 5,000 0
U.S. credit carryforward 1,084 1,800
Book depreciation in excess of tax depreciation 723 883
Other liabilities 827 1,792
Inventory allowances 1,538 1,989
Warranty reserve 2,952 3,416
Insurance reserve 1,012 912
Pension benefits 1,149 2,997
Other items 4,348 3,483
------- -------
24,414 23,345
Less valuation allowance 1,084 1,468
------- -------
23,330 21,877
Liabilities:
Tax depreciation in excess of book depreciation 7,050 6,708
Goodwill and purchased asset basis differences 4,933 6,840
Other items 2,467 2,883
------- -------
14,450 16,431
------- -------
Net deferred tax benefit $ 8,880 $ 5,446
======= =======
</TABLE>
<TABLE>
<CAPTION>
EXPENSE 2000 1999 1998
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Current:
U.S. federal $ 4,002 $ (536) $ 6,186
Non-U.S 9,570 6,244 6,348
U.S. state 375 (193) 64
-------- -------- --------
13,947 5,515 12,598
Deferred:
U.S. federal 1,028 522 3,214
Non-U.S (4,558) 355 (257)
U.S. state 96 255 536
-------- -------- --------
(3,434) 1,132 3,493
-------- -------- --------
$ 10,513 $ 6,647 $ 16,091
======== ======== ========
Tax included in minority interest $ 838 $ 535 $ 0
======== ======== ========
Non U.S. pretax income $ 14,946 $ 18,361 $ 18,449
======== ======== ========
</TABLE>
45
<PAGE> 46
A summary of the differences between the effective income tax rate
attributable to operations and the statutory rate is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
U.S. statutory rate 35.0% 35.0% 35.0%
U.S. state income taxes, net of U.S. federal tax benefit 1.9 2.8 2.0
Benefit of realization of non-U.S. loss carryforwards 0 (3.7) (3.0)
Foreign Sales Corporation (1.5) (2.4) (1.4)
Non U.S. taxes .5 1.1 0.0
Other items - net (.9) 1.2 1.4
----- ----- -----
35.0% 34.0% 34.0%
===== ===== =====
</TABLE>
NOTE 9 - COMMON STOCK
The Company sponsors a long-term incentive stock plan to provide for the
granting of stock based compensation to officers and other key employees. In
addition, the Company sponsors stock option and stock compensation plans for
non-employee directors. Under the plans, the stock option price per share may
not be less than the fair market value as of the date of grant. For officers and
other key employees outstanding grants become exercisable over a three year
period, while options for non-employee directors are immediately vested.
Proceeds from the sale of stock issued under option arrangements are credited to
common stock. The Company makes no charges or credits against earnings with
respect to options.
Summaries of amounts issued under the stock option plans are presented
in the following tables.
STOCK OPTION ACTIVITY
<TABLE>
<CAPTION>
Weighted-Average
Stock Option Price Per
Options Share
---------- ----------------
<S> <C> <C>
Outstanding at September 1, 1997 858,800 $ 15.85
Granted 170,000 26.32
Exercised (165,800) 9.41
Canceled (23,333) 32.51
---------- ---------
Outstanding at August 31, 1998 839,667 18.85
Granted 165,500 25.16
Exercised (95,400) 7.41
Canceled (5,500) 37.50
---------- ---------
Outstanding at August 31, 1999 904,267 21.11
Granted 192,800 21.04
Exercised (21,500) 12.24
Canceled (61,667) 25.76
---------- ---------
Outstanding at August 31, 2000 1,013,900 $ 20.81
========== =========
</TABLE>
46
<PAGE> 47
EXERCISABLE STOCK OPTIONS AT YEAR-END
1998 534,389
1999 577,434
2000 669,933
SHARES AVAILABLE FOR GRANT AT YEAR-END
1998 1,499,500
1999 1,334,000
2000 1,141,700
COMPONENTS OF OUTSTANDING STOCK OPTIONS AT AUGUST 31, 2000
<TABLE>
<CAPTION>
Weighted-
Range of Average Weighted-
Exercise Number Contract Life Average
Price Outstanding in Years Exercise Price
------------- ----------- ------------- --------------
<S> <C> <C> <C>
$ 4.63-$17.50 322,600 3.06 $10.02
20.88- 39.50 691,300 8.19 25.65
------------- ----------- ---------------- --------------
$ 4.63-$39.50 1,013,900 6.55 $20.81
============= =========== ================ ==============
</TABLE>
COMPONENTS OF EXERCISABLE STOCK OPTIONS AT AUGUST 31, 2000
<TABLE>
<CAPTION>
Range of Weighted-
Exercise Number Average
Price Exercisable Exercise Price
------------- ----------- --------------
<S> <C> <C>
$ 4.63-$17.50 322,600 $10.02
20.88- 39.50 347,333 28.66
------------- ----------- --------------
$ 4.63-$39.50 669,933 $19.68
============= =========== ==============
</TABLE>
The Company also sponsors a long-term incentive stock plan. Under this
plan selected participants receive performance units which convert into a
variable number of restricted shares based on a three year measurement of how
favorably the total return on Company shares compares to the total shareholder
return of the Russell 2000 Company Group ("Group"). The restricted shares earned
range from 75% to 200% of the performance units awarded. The 75% threshold is
earned when the Company's return is at the 50th percentile of total shareholder
return of the Group and 200% is earned when the Company's return is at the 80th
percentile or greater. No restricted shares are earned if the Company's return
is less than the median return of the Group. Restricted shares earned under the
program are issued to the participants at the end of the three year measurement
period and are subject to forfeit if the participant leaves the employment of
the Company within the following two years.
For the three year performance period ended August 31, 1996, restricted
shares of 19,427 and 15,313 were issued in 1999 and 1998, respectively. For the
three year performance period ended August 31, 1999 no shares were earned. In
fiscal year 2000, 62,000 performance units were awarded for the performance
period ending August 31, 2002 with a weighted average fair value at the date of
grant of $23.50. No units have been earned as of August 31, 2000, and no expense
has been recorded.
47
<PAGE> 48
Total compensation expense recognized in the income statement for all
stock based awards was $0, ($243,000) and $646,000 for the years ended August
31, 2000, 1999, and 1998, respectively.
For purposes of pro forma disclosure as required by Statement of
Financial Accounting Standard No. 123, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C>
Pro forma net income $ 17,194 $ 10,808 $ 30,367
Pro forma net income per share:
Basic 1.57 0.99 2.75
Diluted 1.46 0.99 2.37
</TABLE>
The effects of providing pro forma disclosure are not indicative of the
value of future options until the new rules are applied to all outstanding
nonvested awards.
Pro forma information regarding net income and net income per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its stock options granted subsequent to August 31, 1995 under the
fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- ------------
<S> <C> <C> <C>
Expected volatility of common stock 34.70 % 35.60 % 32.80 %
Risk free interest rate 6.00 6.25 5.61
Dividend yield .75 .75 .75
Expected life of option 6.90 yrs 6.90 yrs 6.90 yrs
Fair value at grant date $10.49 $11.45 $11.10
</TABLE>
Option valuation models, such as the Black-Scholes model, were
developed for use in estimating the fair value of traded options which have no
vesting restrictions and are freely transferable. In addition, option valuation
models require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, existing models do not provide a reliable single measure
of the fair value of its stock options.
48
<PAGE> 49
NOTE 10 - NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income
per share:
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Numerator:
Basic:
Net income $18,056 $11,849 $31,230
Effect of dilutive securities:
Convertible debt interest 2,438 2,535 2,535
------- ------- -------
Income attributable to diluted shares $20,494 $14,384 $33,765
======= ======= =======
Denominator:
Basic:
Weighted average shares 10,946 10,930 11,032
Effect of dilutive securities:
Convertible debt 2,297 2,385 2,385
Dilutive options and
restricted shares 173 220 489
------- ------- -------
Diluted 13,416 13,535 13,906
======= ======= =======
Net income per share:
Basic: $ 1.65 $ 1.08 $ 2.83
Diluted: $ 1.53 $ 1.06 $ 2.43
</TABLE>
NOTE 11 - BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
The Company's operations are aggregated into two reportable business segments:
Process Systems and Energy Systems. The Process Systems segment provides a wide
range of systems, parts and services for process applications in the specialty
chemical, pharmaceutical, agri-chemical, wastewater treatment, food and beverage
and pulp and paper industries. The products and services relate to glass-lined
reactor systems and storage vessels, fluoropolymer products and accessories,
mixing and turbine agitation equipment and progressing cavity pump products. The
Energy Systems segment provides products and services for oil and gas
exploration and production applications. The products and services relate to
power sections for directional drilling applications, progressing cavity pumps
used in artificial lift applications, wellhead equipment, pipeline closures, rod
guides and valves.
The Company evaluates performance and allocates resources based on
Income before Interest and Taxes ("IBIT"). Identifiable assets by business
segment include all assets directly identified with those operations. Corporate
assets consist mostly of cash and intangible assets. The accounting policies of
the reportable segments are the same as those described in the summary of
significant accounting policies except that the Company accounts for U.S.
inventory on a First-In, First-Out (FIFO) basis at the segment level compared to
a Last In, First-Out (LIFO) basis at the consolidated level.
49
<PAGE> 50
The following tables provide information about the reportable segments.
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Unaffiliated Customer Sales:
Process Systems (1) $ 318,569 $ 335,648 $ 355,411
Energy Systems (2) 88,145 64,494 81,063
--------- --------- ---------
Total $ 406,714 $ 400,142 $ 436,474
========= ========= =========
Intersegment Sales:
Process Systems (1) $ 1,954 $ 1,515 $ 523
Energy Systems (2) 0 0 0
Corporate and Eliminations (1,954) (1,515) (523)
--------- --------- ---------
Total $ 0 $ 0 $ 0
========= ========= =========
Depreciation and Amortization:
Process Systems (1) $ 16,481 $ 16,223 $ 17,318
Energy Systems (2) 7,005 7,233 5,416
Corporate and Eliminations 884 1,065 782
--------- --------- ---------
Total $ 24,370 $ 24,521 $ 23,516
========= ========= =========
IBIT:
Process Systems (1) $ 36,455 (3) $ 42,001 (3) $ 49,502
Energy Systems (2) 16,130 (4) 1,097 (4) 20,089
Corporate and Eliminations (9,013) (9,810) (9,449)
--------- --------- ---------
Total $ 43,572 $ 33,288 $ 60,142
========= ========= =========
Identifiable Assets:
Process Systems (1) $ 337,953 $ 337,037 $ 335,654
Energy Systems (2) 135,278 130,479 140,435
Corporate and Eliminations 22,448 26,336 24,919
--------- --------- ---------
Total $ 495,679 $ 493,852 $ 501,008
========= ========= =========
Capital Expenditures:
Process Systems (1) $ 15,102 $ 8,011 $ 15,647
Energy Systems (2) 4,660 3,462 7,345
Corporate and Eliminations 80 139 28
--------- --------- ---------
Total $ 19,842 $ 11,612 $ 23,020
========= ========= =========
</TABLE>
50
<PAGE> 51
Information about the Company's operations in different geographical
regions is presented below. The Company's primary operations are in the U.S. and
Europe. Sales are attributed to countries based on the location of the customer.
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Sales (1) and (2):
United States $211,329 $214,624 $230,587
Europe 101,548 116,120 126,534
Other North America 48,916 33,385 47,014
South America 13,508 16,961 15,133
Asia 31,413 19,052 17,206
-------- -------- --------
$406,714 $400,142 $436,474
======== ======== ========
Identifiable Assets:
United States $310,798 $309,258
Europe 106,060 107,011
Other North America 31,983 27,020
South America 4,077 4,184
Asia 20,313 20,154
Corporate 22,448 26,225
-------- --------
$495,679 $493,852
======== ========
</TABLE>
(1) Includes the operations of acquisitions from the respective dates of
their acquisition: GMM-July 19, 1999, Chemineer de Mexico-June 30,
1999, UGE-December 1, 1998, Technoglass, S.r.L.-December 5, 1997, and
Tycon, S.p.A.-May 2, 1997.
(2) Includes the operations of Flow Control Equipment, Inc. from the date
of its acquisition - December 19, 1997.
(3) Fiscal year 2000 includes a $500,000 charge related to Universal
Glasteel Equipment, Inc., and fiscal year 1999 includes $1,200,000 of
one-time severance and early retirement costs for fixed cost reductions
at Moyno and Chemineer.
(4) Includes charges of $409,000 and $4,769,000 in fiscal year 2000 and
1999, respectively, for the closure of the Fairfield, California
manufacturing facility. Fiscal year 2000 includes a $918,000 gain on
the sale of the Fairfield facility.
51
<PAGE> 52
NOTE 12 - QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERLY DATA (UNAUDITED)
2000 Quarters
----------------------------------------------------------
1st 2nd 3rd 4th (1) Total
------- ------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Sales $93,499 $95,770 $104,303 $113,142 $406,714
Gross profit 31,452 33,806 37,085 37,891 140,234
IBIT 8,465 9,310 12,277 13,520 43,572
Income before income taxes
and minority interest 5,218 5,991 8,799 10,033 30,041
Net income 3,066 3,431 5,374 6,185 18,056
Net income per share:
Basic $0.28 $0.31 $0.49 $0.56 $1.65
Diluted 0.27 0.30 0.45 0.51 1.53
Weighted average common shares:
Basic 10,945 10,938 10,948 10,951 10,946
Diluted 13,519 13,451 13,424 13,326 13,416
</TABLE>
<TABLE>
<CAPTION>
1999 Quarters
----------------------------------------------------------
1st 2nd (3) 3rd 4th (4) Total
------- ------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Sales $98,266 $94,876 $103,829 $103,171 $400,142
Gross profit 33,502 31,683 34,850 36,131 136,166
IBIT 9,675 3,771 10,283 9,559 33,288
Income before income taxes
and minority interest 6,135 157 7,108 6,136 19,536
Net income 4,049 (302) 4,416 3,686 11,849
Net income per share:
Basic $ 0.37 $(0.03) $ 0.40 $ 0.34 $ 1.08
Diluted 0.34 (0.03) (2) 0.37 0.32 1.06
Weighted average common shares:
Basic 10,935 10,914 10,938 10,934 10,930
Diluted 13,593 10,914 (2) 13,521 13,521 13,535
</TABLE>
(1) The fourth quarter includes a $918,000 gain on the sale of the
Company's Fairfield, CA facility, and a one time charge of $500,000
related to Universal Glasteel Equipment, Inc.
(2) The effect of diluted securities was antidilutive; therefore, they were
excluded. This causes the sum of quarters not to total the year.
(3) The second quarter includes a one-time charge of $4,600,000, primarily
for closing the Company's Fairfield, CA plant and transferring
production to a similar plant near Houston, TX.
(4) The fourth quarter includes severance and early retirement benefits of
$1,200,000 at Moyno and Chemineer.
52
<PAGE> 53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
53
<PAGE> 54
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated herein by
reference to the Company's Proxy Statement for its Annual Meeting of
Shareholders on December 13, 2000, except for certain information concerning the
executive officers of the Company which is set forth in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by
reference to the Company's Proxy Statement for its Annual Meeting of
Shareholders on December 13, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated herein by
reference to the Company's Proxy Statement for its Annual Meeting of
Shareholders on December 13, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated herein by
reference to the Company's Proxy Statement for its Annual Meeting of
Shareholders on December 13, 2000.
54
<PAGE> 55
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The following consolidated financial statements of Robbins &
Myers, Inc. and its subsidiaries are at Item 8 hereof.
Consolidated Balance Sheet - August 31, 2000 and 1999.
Consolidated Income Statement -
Years ended August 31, 2000, 1999, and 1998.
Consolidated Shareholders' Equity Statement -
Years ended August 31, 2000, 1999, and 1998.
Consolidated Cash Flow Statement -
Years ended August 31, 2000, 1999, and 1998
Notes to Consolidated Financial Statements.
(a) (2) FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
(a) (3) EXHIBITS. See INDEX to EXHIBITS.
(b) REPORTS ON FORM 8-K. During the quarter ended August 31, 2000,
the Company did not file any reports on Form 8-K.
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<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Robbins & Myers, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on this 21st
day of November, 2000.
ROBBINS & MYERS, INC.
BY /s/ Gerald L. Connelly
------------------------------
Gerald L. Connelly
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of Robbins
& Myers, Inc. and in the capacities and on the date indicated:
<TABLE>
<CAPTION>
------------------------------------------------- ------------------------------------- -------------------------------
NAME TITLE DATE
------------------------------------------------- ------------------------------------- -------------------------------
<S> <C> <C>
/s/ Gerald L. Connelly Director, President and November 21, 2000
------------------------------------ Chief Executive Officer
Gerald L. Connelly
/s/ Kevin J. Brown Vice President and Chief November 21, 2000
------------------------------------ Financial Officer
Kevin J. Brown (Principal Financial Officer)
/s/ Thomas J. Schockman Corporate Controller November 21, 2000
------------------------------------ (Principal Accounting
Thomas J. Schockman Officer)
*Maynard H. Murch, IV Chairman Of Board November 21, 2000
*Robert J. Kegerreis Director November 21, 2000
*Thomas P. Loftis Director November 21, 2000
*William D. Manning, Jr. Director November 21, 2000
*Jerome F. Tatar Director November 21, 2000
*John N. Taylor, Jr. Director November 21, 2000
</TABLE>
*The undersigned, by signing his name hereto, executes this Report on
Form 10-K for the year ended August 31, 2000 pursuant to powers of attorney
executed by the above-named persons and filed with the Securities and Exchange
Commission.
/s/ Gerald L. Connelly
-------------------------------
Gerald L. Connelly
Their Attorney-in-fact
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<PAGE> 57
Report of Independent Auditors
Shareholders and Board of Directors
Robbins & Myers, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Robbins & Myers,
Inc. and Subsidiaries as of August 31, 2000 and 1999, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended August 31, 2000. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Robbins & Myers,
Inc. and Subsidiaries at August 31, 2000 and 1999, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended August 31, 2000, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Dayton, Ohio
October 2, 2000
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<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
--------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
----------------------------
ADDITIONS
--------------------------------------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Balance
DESCRIPTION Beginning Costs and Other Accounts- Deductions - at End
of Period Expenses Describe Describe of Period
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended August 31, 2000:
Allowances and reserves deducted from assets:
Uncollectable accounts receivable $1,688 $498 $0 $460 (1) $1,726
Inventory obsolescence 10,273 1,304 0 2,512 (2) 9,065
Other reserves:
Warranty claims 9,863 749 (450)(4) 1,830 (3) 8,332
Restructuring liabilities 2,273 0 0 1,437 (5) 836
Current & L-T insurance reserves 2,355 2,007 1,564 (6) 2,798
Year Ended August 31, 1999:
Allowances and reserves deducted from assets:
Uncollectable accounts receivable $1,539 $578 $0 $429 (1) $1,688
Inventory obsolescence 10,832 979 0 1,538 (2) 10,273
Other reserves:
Warranty claims 6,888 1,245 3,500 (7) 1,770 (3) 9,863
Restructuring liabilities 0 2,800 0 527 (5) 2,273
Current & L-T insurance reserves 2,693 1,396 352 (8) 2,086 (6) 2,355
Year Ended August 31, 1998:
Allowances and reserves deducted from assets:
uncollectable accounts receivable $1,097 $901 $291 (7) $750 (1) $1,539
Inventory obsolescence 7,096 1,822 2,484 (7) 570 (2) 10,832
Other reserves:
Warranty claims 3,301 2,058 3,500 (7) 1,971 (3) 6,888
Restructuring liabilities 807 0 0 807 (5) 0
L-T insurance reserves 3,628 2,771 0 3,706 (6) 2,693
</TABLE>
Note (1) Represents accounts receivable written off against the reserve.
Note (2) Inventory items scrapped and written off against the reserve.
Note (3) Warranty cost incurred applied against the reserve.
Note (4) Reduction of warranty accrual due to warranty claim settlement.
Note (5) Spending against restructuring reserve.
Note (6) Spending against casualty reserve.
Note (7) Amount due to acquisition of Flow Control Equipment, Inc. and
Technoglass S.r.L.
Note (8) In 1999 reclassified to include current and long-term portions.
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<TABLE>
<S> <C> <C>
(3) ARTICLES OF INCORPORATION AND BY-LAWS:
3.1 Amended Articles of Incorporation of Robbins
& Myers, Inc. were filed as Exhibit 3.1 to
the Company's Report on Form 10-Q for the
quarter ended February 28, 1998 *
3.2 Code of Regulations of Robbins & Myers, Inc.
was filed as Exhibit 3.2 to the Company's
Report on Form 10-Q for the quarter ended
February 28, 1995 *
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY
HOLDERS, INCLUDING INDENTURES:
4.1 Indenture relating to $65,000,000 Convertible
Subordinated Notes due 2003, with Star Bank, N.A. ,
as Trustee, dated September 1, 1996 was filed as
Exhibit 4.1 to the Company's Annual Report on Form
10-K dated August 31, 1996 *
4.2 $200,000,000 Amended and Restated Credit Agreement dated
January 8, 1999 among Robbins & Myers, Inc.,
the lenders named herein, Bank One, Dayton, N.A. as
Administrative Agent, NationsBank, N.A. as Documentation
and Syndication Agent, The Bank of Nova Scotia, as
Issuing Bank and ABN Amro N.V., as Issuing Bank
was filed as Exhibit 4.1 to the Company's Report on
Form 10-Q for the Quarter Ended February 28, 1999 *
4.3 First Amendment dated as of February 24, 1999 (the "First
Amendment") to the Amended and Restated Credit
Agreement dated January 8, 1999 was filed as Exhibit 4.2
to the Company's Report of Form 10-Q for the Quarter
Ended February 28, 1999 *
4.4 Pledge and Security Agreement between Robbins & Myers, Inc.
and Bank One, Dayton, N.A., dated November 26, 1996
was filed as Exhibit 4.3 to the Company's Annual Report
on Form 10-K for the year ended August 31, 1996 *
4.5 Form of $100 million senior note agreement dated May
1, 1998 was filed as exhibit 4.1 to the Company's
Annual Report on Form 10-Q for the quarter ended May
31, 1998 *
</TABLE>
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<TABLE>
<S> <C> <C>
(10) MATERIAL CONTRACTS:
10.1 Robbins & Myers, Inc. Pension Plan (As
Amended and Restated Effective as of
October 1, 1989) was filed as Exhibit 10.3
to the Company's Annual Report on Form 10-K
for year ended August 31, 1990 *
10.2 First Amendment to Supplement One to the
Robbins & Myers, Inc. Pension Plan dated
October 22, 1990 was filed as Exhibit 10.4 to
the Company's Annual Report on Form 10-K for
the year ended August 31, 1990 *
10.3 Amendments to the Robbins & Myers, Inc. Pension
Plan dated March 5, 1991, December 16, 1992, and
two additional amendments both dated
September 30, 1993 were filed as Exhibit 10.4
to the Company's Annual Report on Form 10-K for
the year ended August 31, 1993 *
10.4 Robbins & Myers, Inc. Employee Savings
Plan as amended through August 31, 2000 +
10.5 Robbins & Myers, Inc. Executive Supplemental Retirement Plan
adopted February 2000 and Amendment No. 1 to such
Plan adopted August 2000 +
10.6 Robbins & Myers, Inc. Executive Supplemental Pension Plan
adopted July 2000 +
10.7 Form of Indemnification Agreement between
Robbins & Myers, Inc., and each director of
the Company was filed as Exhibit 10.11 to the
Company's Report on Form 10-K for the
year ended August 31, 1993 *
</TABLE>
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<TABLE>
<S> <C> <C>
10.8 Robbins & Myers, Inc. 1994 Directors Stock
Compensation Plan was filed as Exhibit 10.13
to the Company's Report on Form 10-K for the
year ended August 31, 1994 *
10.9 Robbins & Myers, Inc. 1994 Long-Term Incentive
Stock Plan as amended was filed as Exhibit 10.11
to the Company's Report on Form 10-K for the
year ended August 31, 1996 *
10.10 Robbins & Myers, Inc. 1995 Stock Option Plan for
Non-Employee Directors was filed as
Exhibit 10.12 to the Company's Report on
Form 10-K for the year ended August 31, 1996 *
10.11 Robbins & Myers, Inc. Senior Executive Annual Cash
Bonus Plan was filed as Exhibit 10.13 to the
Company's Report on Form 10-K for the year
ended August 31, 1996 *
10.12 Salary Continuation Agreement between Robbins &
Myers, Inc. and Gerald L. Connelly, dated
February 19, 1999 was filed as Exhibit 10.1 to
the Company's Report on Form 10-Q for the
Quarter Ended February 28, 1999 *
10.13 Robbins & Myers, Inc. 1999 Long-Term Incentive Stock Plan
was filed as Exhibit 4.3 to the Company's
Registration Statement on Form S-8
(No. 333-35856) *
</TABLE>
<TABLE>
<S> <C>
(21) SUBSIDIARIES OF THE REGISTRANT:
21.1 Subsidiaries of Robbins & Myers, Inc. +
</TABLE>
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<TABLE>
<S> <C> <C>
(23) CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of Ernst & Young LLP +
(24) POWER OF ATTORNEY
24.1 Powers of Attorney of any person who
signed this Report on Form 10-K on
behalf of another pursuant to a
Power of attorney +
(27) 27.1 Financial Data Schedule -- Year ended August 31, 2000 +
</TABLE>
"+" Indicates Exhibit is being filed with this Report.
"*" Indicates that Exhibit is incorporated by reference in this Report
from a previous filing with the Commission.
62
