-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EbXnp7UUIiDQmC7BZ++i8/wgWWmavtqQcE88A2mHe1IJPf6NNTyrYrE6hgwbwjmK t818J/vYNZJTK7Ixy9RVaw== 0000950134-02-014443.txt : 20021114 0000950134-02-014443.hdr.sgml : 20021114 20021114161611 ACCESSION NUMBER: 0000950134-02-014443 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OILGEAR CO CENTRAL INDEX KEY: 0000074058 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] IRS NUMBER: 390514580 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00822 FILM NUMBER: 02825297 BUSINESS ADDRESS: STREET 1: 2300 S 51ST ST STREET 2: P O BOX 343924 CITY: MILWAUKEE STATE: WI ZIP: 53219 BUSINESS PHONE: 4143271700 MAIL ADDRESS: STREET 1: 2300 S 51ST STREET STREET 2: PO BOX 343924 CITY: MILWAUKEE STATE: WI ZIP: 53234-3924 10-Q 1 c72919e10vq.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- -------------------- Commission file number 000-00822 ------------------------------------------------------ THE OILGEAR COMPANY (Exact name of registrant as specified in its charter) Wisconsin 39-0514580 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2300 South 51st Street, Milwaukee, Wisconsin 53219 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (414) 327-1700 - -------------------------------------------------------------------------------- NOT APPLICABLE - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------ ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding September 30, 2002 - -------------------------------------------------------------------------------- Common Stock, $1.00 Par Value 1,955,398 PAGE 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. THE OILGEAR COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 2002 December 31, 2001 ------------------ ----------------- ASSETS Current assets: Cash and cash equivalents $ 3,682,915 4,996,723 Trade accounts receivable, less allowance for doubtful receivables of $176,000 and $212,000 in 2002 and 2001, respectively 15,006,749 17,002,306 Costs and estimated earnings in excess of billings on uncompleted contracts 2,884,273 545,691 Inventories 22,882,605 23,910,087 Prepaid expenses 752,932 525,056 Other current assets 1,047,985 1,115,213 ------------ ------------ Total current assets 46,257,459 48,095,076 ------------ ------------ Property, plant and equipment, at cost Land 959,552 894,699 Buildings 11,586,034 11,273,523 Machinery and equipment 49,893,796 48,485,065 Drawings, patterns and patents 5,379,069 5,099,234 ------------ ------------ 67,818,451 65,752,521 Less accumulated depreciation and amortization 46,474,795 43,052,001 ------------ ------------ Net property, plant and equipment 21,343,656 22,700,520 Other assets 1,283,658 1,135,937 ------------ ------------ $ 68,884,773 71,931,533 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 9,760,743 5,631,036 Current installments of long-term debt 1,963,564 1,932,328 Accounts payable 5,119,556 5,377,339 Billings in excess of costs and estimated earnings on uncompleted contracts 272,028 1,845,038 Customer deposits 1,806,048 1,378,152 Accrued compensation and employee benefits 1,502,709 1,882,457 Other accrued expenses and income taxes 3,895,169 3,123,705 ------------ ------------ Total current liabilities 24,319,817 21,170,055 ------------ ------------ Long-term debt, less current installments 12,046,162 17,130,335 Unfunded employee retirement plan costs 4,095,945 4,095,945 Unfunded post-retirement health care costs 9,900,000 9,900,000 Other noncurrent liabilities 1,137,122 1,107,365 ------------ ------------ Total liabilities 51,499,046 53,403,700 ------------ ------------ Minority interest in consolidated subsidiaries 858,416 946,455 Shareholders' equity: Common stock, par value $1 per share, authorized 4,000,000 shares; issued 1,990,783 shares 1,990,783 1,990,783 Capital in excess of par value 9,497,906 9,497,906 Retained earnings 19,542,991 22,020,109 ------------ ------------ 31,031,680 33,508,798 Deduct: Treasury stock, 35,385 and 48,561 shares in 2002 and 2001, respectively (305,192) (433,814) Notes receivable from employees for purchase of Company common stock (172,741) (144,956) Accumulated other comprehensive income: Foreign currency translation adjustment (2,979,436) (4,301,650) ------------ ------------ Minimum pension liability adjustment (11,047,000) (11,047,000) ------------ ------------ (14,504,369) (15,348,650) ------------ ------------ Total shareholders' equity 16,527,311 17,581,378 ------------ ------------ $ 68,884,773 71,931,533 ============ ============
See accompanying notes to consolidated financial statements. PAGE 3 THE OILGEAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THREE MONTHS ENDED FOR NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ------------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Net sales $ 18,091,498 20,187,908 57,425,249 63,437,940 Special costs -- 491,463 -- 491,463 Cost of sales 14,873,811 16,535,741 45,645,629 48,985,469 ------------ ------------ ------------ ------------ Gross profit 3,217,687 3,160,704 11,779,620 13,961,008 Special operating expenses -- 225,955 -- 225,955 Selling, general and administrative expenses 4,377,557 4,333,007 13,322,940 13,791,600 ------------ ------------ ------------ ------------ Operating loss (1,159,870) (1,398,258) (1,543,320) (56,547) Interest expense 358,071 433,594 985,882 1,254,152 Other non-operating income, net 93,233 55,001 251,516 56,039 ------------ ------------ ------------ ------------ Loss before income taxes and minority interest (1,424,708) (1,776,851) (2,277,686) (1,254,660) Income tax expense 9,070 46,828 208,299 206,088 ------------ ------------ ------------ ------------ Minority interest in net earnings (loss) (154,496) 10,181 (45,341) 45,056 ------------ ------------ ------------ ------------ Net loss (1,279,282) (1,833,860) (2,440,644) (1,505,804) ============ ============ ============ ============ Basic weighted-average outstanding shares 1,953,061 1,940,669 1,949,699 1,947,857 ============ ============ ============ ============ Diluted weighted-average outstanding shares 1,953,061 1,940,669 1,949,699 1,947,857 ============ ============ ============ ============ Basic loss per share of common stock $ (0.66) (0.94) $ (1.25) (0.77) ============ ============ ============ ============ Diluted loss per share of common stock $ (0.66) (0.94) $ (1.25) (0.77) ============ ============ ============ ============ Dividends per share of common stock $ -- -- $ -- 0.14 ============ ============ ============ ============
See accompanying notes to consolidated financial statements. PAGE 4 THE OILGEAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR NINE MONTHS ENDED SEPTEMBER 30, 2002 2001 ------------ ------------ Cash flows from operating activities: Net loss $ (2,440,644) (1,505,804) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization 2,738,603 2,881,784 Common and treasury stock issued in connection with compensation element of sales to employees and employee savings plan 38,725 33,263 Minority interest in consolidated subsidiaries (45,341) 45,056 Change in assets and liabilities: Trade accounts receivable 2,626,969 (1,149,555) Inventories 1,695,764 (839,131) Billings, costs and estimated earnings on uncompleted contracts (3,794,640) (381,125) Prepaid expenses (188,088) 93,544 Accounts payable (416,433) (968,474) Customer deposits 365,142 (776,953) Accrued compensation (519,797) (1,161,457) Other, net 606,219 640,770 ------------ ------------ Net cash provided (used) by operating activities $ 666,479 (3,088,082) ------------ ------------ Cash flows from investing activities: Additions to property, plant and equipment (981,724) (1,279,500) ------------ ------------ Net cash used by investing activities $ (981,724) $ (1,279,500) ------------ ------------ Cash flows from financing activities: Net borrowings (repayments) under line of credit agreements (487,512) 5,846,827 Repayment of long-term debt (1,248,733) (1,794,633) Proceeds from issuance of long-term debt 743,202 -- Dividends paid -- (271,921) Purchase of treasury stock -- (389,830) Proceeds from sale of treasury stock -- 18,125 Payments received on notes receivable from employees 25,635 46,280 ------------ ------------ Net cash provided (used) by financing activities $ (967,408) 3,454,848 ------------ ------------ Effect of exchange rate changes on cash and cash equivalents (31,155) (152,077) ------------ ------------ Net decrease in cash and cash equivalents $ (1,313,808) (1,064,811) Cash and cash equivalents: At beginning of period 4,996,723 5,101,942 ------------ ------------ At end of period $ 3,682,915 4,037,131 ============ ============ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 908,098 $ 1,227,892 Income taxes $ 97,060 $ 158,694 ============ ============
THE OILGEAR COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
FOR THREE MONTHS ENDED FOR NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ---------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Net loss $ (1,279,282) (1,833,860) $ (2,440,644) (1,505,804) Other comprehensive loss: Foreign currency translation adjustment 863 687,609 1,322,214 (545,927) ------------ ------------ ------------ ------------ Total comprehensive loss $ (1,278,419) (1,146,251) $ (1,118,430) (2,051,731) ============ ============ ============ ============
See accompanying notes to consolidated financial statements. PAGE 5 THE OILGEAR COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Basis of Presentation These interim financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim period in accordance with accounting principles generally accepted in the United States of America. All such adjustments are of a normal recurring nature. Management assumes the reader will have access to the December 31, 2001 Annual Report on Form 10-K, a copy of which is available upon request. These notes should be read in conjunction with the Consolidated Financial Statements and the related notes in the 2001 Annual Report. Business Description and Operations The Company manages its operations in three reportable segments based upon geographic area. Domestic includes the United States and Canada, European includes Europe and International includes Asia, Latin America, Australia and Africa. The individual subsidiaries of the Company operate predominantly in the fluid power industry. The Company provides advanced technology in the design and production of unique fluid power components. Products include piston pumps, motors, valves, controls, manifolds, electrohydraulic components, cylinders, reservoirs, skids and meters. Industries that use these products are primary metals, machine tool, automobile, aerospace, petroleum, construction equipment, chemical, plastic, glass, lumber, rubber and food. Segment information is as follows:
FOR THREE MONTHS ENDED FOR NINE MONTHS ENDED SALES TO UNAFFILIATED CUSTOMERS SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 ------------------ ------------------ ------------------ ------------------ Domestic $ 9,647,677 12,150,249 32,265,112 37,270,097 European 6,030,212 5,305,836 17,920,683 16,605,521 International 2,413,609 2,731,823 7,239,454 9,562,322 ------------ ------------ ------------ ------------ Total $ 18,091,498 20,187,908 57,425,249 63,437,940 ------------ ------------ ------------ ------------ INTERSEGMENT SALES Domestic $ 1,506,271 1,572,675 4,695,941 5,417,636 European 122,896 211,164 307,444 995,747 OPERATING INCOME (LOSS) Domestic $ (358,928) 109,814 (174,501) 1,404,716 European 125,344 (510,946) 297,419 62,826 International (408,587) 241,394 (58,465) 993,612 Special expenses - Domestic -- (717,418) -- (717,418) Corporate expenses, including R&D (517,699) (521,102) (1,607,773) (1,800,283) ------------ ------------ ------------ ------------ Total $ (1,159,870) (1,398,258) (1,543,320) (56,547) ------------ ------------ ------------ ------------ IDENTIFIABLE ASSETS Domestic $ -- -- 35,830,477 51,384,814 European -- -- 25,100,966 24,068,256 International -- -- 6,076,173 6,012,906 Corporate -- -- 1,877,157 1,875,927 ------------ ------------ ------------ ------------ Total $ -- -- 68,884,773 83,341,903 ------------ ------------ ------------ ------------
PAGE 6 Inventories Inventories at September 30, 2002 and December 31, 2001 consist of the following:
SEPTEMBER 30, 2002 December 31, 2001 ------------------ ----------------- Raw materials $ 2,635,363 2,717,478 Work in process 18,344,780 18,631,086 Finished goods 3,352,462 4,179,523 ------------ ------------ 24,332,605 25,528,087 LIFO reserve (1,450,000) (1,618,000) ------------ ------------ Total $ 22,882,605 23,910,087 ============ ============
Inventories stated on the last-in, first-out (LIFO) basis are valued at $14,008,000 and $17,637,000 at September 30, 2002 and December 31, 2001, respectively. Loss per share The following table sets forth the computation of basic and diluted loss per common share:
FOR THREE MONTHS ENDED FOR NINE MONTHS ENDED SEPTEMBER 30, 2002 September 30, 2001 SEPTEMBER 30, 2002 September 30, 2001 ------------------ ------------------ ------------------ ------------------ Net loss for basic and diluted earnings per share $ (1,279,282) (1,833,860) (2,440,644) (1,505,804) Weighted average common shares outstanding 1,953,061 1,940,669 1,949,699 1,947,857 Dilutive average common shares outstanding 1,953,061 1,940,669 1,949,699 1,947,857 Basic loss per common share $ (0.66) (0.94) (1.25) (0.77) Diluted loss per common share $ (0.66) (0.94) (1.25) (0.77)
Options to purchase 88,453 shares of common stock with a weighted average exercise price of $9.29 per share were outstanding at September 30, 2002. Options to purchase 97,624 shares of common stock with a weighted average exercise price of $9.71 per share were outstanding at September 30, 2001. Options to purchase 88,453 and 49,624 shares of common stock were not included in the computations of diluted earnings per share for the quarterly and nine month periods ended September 30, 2002 and 2001, respectively, because the options' exercise prices were greater than the average market price of common stock during the periods then ended. Due to the net losses of the Company, the options would be anti-dilutive and would not be included in the diluted loss per share calculation set forth above. PAGE 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION The Company has reached a summary agreement for a new loan agreement with its principal bank, M&I Marshall and Ilsley Bank ("M&I"). The Company and M&I intend the summary agreement to be binding; however, it does not contain all of the terms to be associated with the lending relationship. The Company and M&I intend to enter into a more fulsome and customary agreement in the fourth quarter of 2002 that will supersede the summary agreement but include its terms. Under the agreement, the long-term revolving loan agreement for $15,500,000 is replaced with a $10,000,000 term loan with a 2 year maturity and 5 year amortization schedule. Principal and interest payments are made monthly and an additional quarterly principal payment is required in the amount of fifty percent of the quarterly excess cash flow. Excess cash flow is defined as consolidated net income plus accrued interest expense, depreciation and amortization and less unfinanced capital expenditures, principal payments on long term debt and capital lease payments. Loan amortization is scheduled as follows: Year 1 at $500,000, Year 2 at $1,500,000, Year 3 at $2,500,000, and Years 4 and 5 at $2,750,000 per year. Also, under the agreement, the existing $6,000,000 line of credit is replaced by a maximum $12,000,000 line of credit, with the actual amount available calculated from domestic trade accounts receivable and domestic inventory monthly balances. The new line of credit matures on April 30, 2003 with annual renewals. The unused amount of the line of credit ($2,500,000 at September 30, 2002) has a fee of .00375% per year. Interest rates are determined using LIBOR plus a basis point margin. The basis point margin is determined by the funded debt to EBITDA ratio and ranges from 125 basis points if the ratio is less than 1.5 to 400 basis points if the ratio is 4.0 or greater. These loans are secured by substantially all the Company's U.S. assets. The new loan agreement contains various covenants that adjust over the term of the agreement. At September 30, 2002, the covenants were as follows: minimum consolidated tangible net worth (defined as consolidated tangible assets minus consolidated liabilities minus adjustments from foreign currency translation, minus net value of certain intangibles and adjustments from minimum pension liability) is equal or greater than $27,000,000, increasing annually by 60% of net income and 75% of other increases in equity; capital expenditures measured annually are limited to net income plus depreciation; funded debt (generally interest bearing debt) to EBITDA ratio of not greater than 9.75:1.00; consolidated debt (total liabilities on the balance sheet) to net worth (adjusted consolidated tangible net worth) ratio is not greater than 2.0:1.0; and consolidated debt service coverage ratio using a rolling four quarter basis (defined as (a) EBITDA over (b) principal payments, interest expense, dividends, repurchase of capital stock of the Company) is 0.60:1.00. As of September 30, 2002, the Company was in compliance with all of these revised covenants. The lower net sales volume and an effort to improve asset utilization have contributed to the lower "trade accounts receivables" balance (reduced by approximately $1,996,000 with the effect of currency changes and by approximately $2,627,000 without the effect of currency changes) and "inventory" balance (reduced by approximately $1,027,000 with the effect of currency changes and by approximately $1,696,000 without the effect of currency changes) at September 30, 2002 compared to December 31, 2001. A net decrease in 2002 of "billings in excess of costs and estimated earnings on uncompleted contracts" and a net increase in "costs and estimated earnings in excess of billings on uncompleted contracts" in 2002 (which together approximate $3,912,000 with the effect of currency changes and approximate $3,795,000 without the effect of currency changes) primarily came from contracts for projects in the European segment. During the first nine months of 2002 cash was provided by operations in the amount of approximately $666,000 compared to a use of cash of approximately $3,088,000 for the same period in 2001. The decrease in trade receivables and inventory in the first nine months of 2002 compared to an increase for the same period in 2001 was the primary reason for the change. The total interest bearing debt decreased by approximately $900,000 during 2002 but the new bank agreement increases the part of total debt that is considered a current liability. The sum of "short term borrowings" and "current installments of long-term debt" increased by approximately $4,200,000 and "long-term debt" decreased by $5,100,000. This was the predominant influence on the decrease in working capital of approximately $5,000,000. "Depreciation and amortization" decreased slightly to approximately $2,739,000 from approximately $2,882,000 after the effect of the currency changes for the nine-month periods ended September 30, 2002 and 2001, respectively. "Additions to property, plant and equipment" decreased to approximately $982,000 from approximately $1,280,000 after the effect of the currency changes for the nine-month periods ended September 30, 2002 and 2001, respectively. The Company's consulting actuaries are working to complete their 2002 valuation of the Company's defined benefit pension plan obligation. While the valuation is incomplete and a reasonable estimate is not yet available, it is anticipated that due to decreased discount rates and the impact of losses on plan investment assets, the unfunded employee retirement plan cost will materially increase and a material minimum pension liability adjustment to equity will be required. The adjustment is not a cash item and will be excluded from the Company's debt covenant measurements described above. The previously announced closing of the Longview facility is progressing and should be completed near the end of the year. The real estate has been put up for sale with a real estate broker and most of the personal property will be sold when the plant is closed. All of the product lines produced in the Longview facility either have been or are in the process of being transferred to the Company's Milwaukee facility. The Company believes its cash on hand, cash flows from operations and available borrowings under the new short-term and long-term bank credit facilities under the summary agreement discussed above will continue to be sufficient to meet its operating needs. RESULTS OF OPERATIONS PAGE 8 Orders increased by 46.6% in the third quarter of 2002 and increased by 8.7% in the first nine months when compared to the same periods in 2001. Backlog of orders at September 30, 2002 increased by 50.9% to approximately $30,860,000 from December 31, 2001. The significant increase in orders in the third quarter was primarily the result of receiving a contract for approximately $11,000,000 for the hydraulic, electric and electronic controls on a forging press being built in France to produce sophisticated forgings for the European aerospace industry and other markets. Orders from the Domestic segment decreased by 16.4% and the International segment decreased by 27.0% in the first nine months of 2002 when compared to the same period in 2001. The European segment orders for the first nine months of 2002 increased by 77.9% from the same period of 2001. Orders for large custom engineered hydraulic and electronic products has been the hardest hit by the global economic slowdown in capital equipment spending in all segments. Although, the activity for quotations on projects to supply custom engineered hydraulic equipment has increased in the third quarter of 2002, the orders for these types of products continues to be depressed. The extended softness in the fluid power market in the United States caused net sales in the Domestic segment to decrease by 20.6% in the third quarter and 13.4% for the first nine months of 2002 when compared to the same periods in 2001. An increase in orders from the defense industry was the primary reason the European segment net sales increased in the third quarter of 2002 by approximately 13.7% and increased by approximately 7.9% for the first nine months of 2002 when compared to the same periods in 2001. A softness in the forging and capital goods markets in the International segment decreased sales in the third quarter of 2002 by 11.7% and in the first nine months of 2002 by 24.3% when compared to the same periods in 2001. Consolidated net sales decreased in the third quarter of 2002 by 10.4% and in the first nine months of 2002 by 9.5% when compared to the same periods in 2001. Our reduced employment level and other cost improvements resulted in a decrease in operating expenses in the third quarter and the first nine months of 2002 compared to the same period in 2001. The decrease in net sales and lower margins due to lower utilization of our production facilities were the primary reasons for the change in operating results in the Domestic segment. Operating results in the Domestic segment changed from an operating income of approximately $110,000 in the third quarter of 2001 to an operating loss of approximately $359,000 in the third quarter of 2002 and operating income of approximately $1,405,000 in the first nine months of 2001 to an operating loss of approximately $175,000 in the first nine months of 2002. The increase in net sales, contracts with higher margins and lower expenses due to a reduced employment level at the Leeds, England factory were the primary reasons for the change in operating results in the European segment. Operating results in the European segment changed from an operating loss of approximately $511,000 in the third quarter of 2001 to operating income of approximately $125,000 in the third quarter of 2002 and operating income of approximately $63,000 in the first nine months of 2001 compared to an operating income of approximately $297,000 in the first nine months of 2002. The lack of construction contracts, a decrease in net sales, lower margins and cost overruns on jobs in new markets were the primary reasons for the change in operating results in the International segment. Operating results in the International segment changed from operating income of approximately $241,000 in the third quarter of 2001 to an operating loss of approximately $409,000 in the third quarter of 2002 and operating income of approximately $994,000 in the first nine months of 2001 to an operating loss of approximately $58,000 in the first nine months of 2002. Interest expense has decreased approximately $76,000 in the third quarter of 2002 and decreased by approximately $268,000 in the first nine months of 2002 compared to the same periods in 2001 primarily from the decline in interest rates. The primary reason for the decrease in net loss per share in the third quarter of 2002 (net loss of $.66) compared to a net loss of $.94 in the third quarter of 2001 was approximately $717,000 of special charges in the third quarter of 2001. The primary reason for the net loss of $1.25 in the first nine months of 2002 compared to a net loss per share of $.77 in the first nine months of 2001 was the decrease in net sales resulting in a lower utilization of production facilities, increased price competition brought on by the long downturn in the industry and a less profitable mix of business. Non-operating income consists of the following:
FOR THREE MONTHS ENDED FOR NINE MONTHS ENDED SEPTEMBER 30, 2002 September 30, 2001 SEPTEMBER 30, 2002 September 30, 2001 ------------------ ------------------ ------------------ ------------------ Interest income $ 38,110 27,519 $ 82,940 59,209 Foreign currency exchange gain (loss) 18,574 (16,710) 59,732 (177,682) Miscellaneous, net 36,549 44,192 108,844 174,512 ------------ ------------ ------------ ------------ Non-operating income $ 93,233 55,001 $ 251,516 56,039 ============ ============ ============ ============
PAGE 9 NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, Business Combinations ("SFAS 141") and SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 requires that the purchase method of accounting be used for all business combinations. SFAS 141 specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported separately from goodwill. SFAS 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS 142. SFAS 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS 121 and, after its adoption, SFAS 144. The Company adopted the provisions of SFAS 141 as of July 1, 2001 and SFAS 142 effective January 1, 2002. As of December 31, 2001, the Company had unamortized goodwill in the amount of $145,113, all of which was subject to the transition provisions of SFAS 142. The impact of the adoption of the Statements did not have a material effect on the financial statements and no transitional impairment losses were recognized in 2002. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). This Statement supersedes SFAS 121 yet retains its fundamental provisions for recognition and measurement of the impairment of long-lived assets to be held and used and for measurement of long-lived assets to be disposed of by sale. In addition, SFAS 144 requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. The Company adopted SFAS 144 on January 1, 2002. The adoption of SFAS 144 did not have a material effect on the financial statements or operations of the Company. In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The Statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Statement 146 replaces EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The Company is required to apply this Statement prospectively to exit or disposal activities initiated after December 31, 2002. SUBSEQUENT EVENTS The Company has elected to freeze benefits in The Oilgear Salaried Retirement Plan and the Oilgear Towler Pension Plan, each a defined benefit plan, effective December 31, 2002. PAGE 10 CAUTIONARY FACTORS The discussions in this section and elsewhere contain various forward-looking statements concerning the Company's prospects that are based on the current expectations and beliefs of management. Forward-looking statements may also be made by the Company from time to time in other reports and documents as well as oral presentations. When used in written documents or oral statements, the words "anticipate", "believe", "estimate", "expect", "objective", and similar expressions are intended to identify forward-looking statements. The statements contained herein and such future statements involve or may involve certain assumptions, risks and uncertainties, many of which are beyond the Company's control, that could cause the Company's actual results and performance to differ materially from what is expected. In addition to the assumptions and other factors referenced specifically in connection with such statements, the following factors could impact the business and financial prospects of the Company: * Continued weakness in the fluid power industry, particularly a reduction in orders of custom products with high value-added features. * Limitations on the Company's ability to further decrease its costs and to spread its fixed costs over diminishing orders for the Company's products. * Factors affecting the Company's international operations, including relevant foreign currency exchange rates, which can affect the cost to produce the Company's products or the ability to sell the Company's products in foreign markets, and the value in United States dollars of sales made in foreign currencies. Other factors include foreign trade, monetary and fiscal policies; laws, regulations and other activities of foreign governments, agencies and similar organizations; and risks associated with having major facilities located in countries which have historically been less stable than the United States in several respects, including fiscal and political stability. * Factors affecting the Company's ability to hire and retain competent employees, including unionization of the Company's non-union employees and changes in relationships with the Company's unionized employees. * The risk of strikes or other labor disputes at those locations that are unionized which could affect the Company's operations. * Factors affecting the economy generally, including the financial and business conditions of the Company's customers and the demand for customers' products and services that utilize Company products and national events including threats of terrorism. * Factors affecting the fair market value of the Company's common stock or other factors that would negatively impact the funding of the Company's employee benefit plans and cause the Company's stock to cease to be listed on the Nasdaq National Market. * Factors affecting the Company's financial performance or condition, including tax legislation, unanticipated restrictions on the Company's ability to transfer funds from its subsidiaries and changes in applicable accounting principles or environmental laws and regulations or the ability of the Company to comply with or obtain waivers for noncompliance with its bank covenants. * The cost and other effects of claims involving the Company's products and other legal and administrative proceedings, including the expense of investigating, litigating and settling any claims. * Factors affecting the Company's ability to produce products on a competitive basis, including the availability of raw materials at reasonable prices and financing with acceptable terms. * Unanticipated technological developments that result in competitive disadvantages and create the potential for impairment of existing assets. PAGE 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is exposed to market risk stemming from changes in foreign exchange rates and interest rates. Changes in these factors could cause fluctuations in earnings and cash flows. The Company has significant foreign operations, for which the functional currencies are denominated primarily in the Euro and British Pound Sterling. As the values of the currencies of the foreign countries in which the Company has operations increase or decrease relative to the U. S. dollar, the sales, expenses, profits, assets and liabilities of the Company's foreign operations, as reported in the Company's Consolidated Financial Statements, increase or decrease accordingly. INTEREST RATE RISK The Company's debt structure and interest rate risk are managed through the use of fixed and floating rate debt. The Company's primary exposure is to United States interest rates on the approximately $21,000,000 of floating debt at September 30, 2002. A 100 basis point movement in interest rates on floating rate debt outstanding at September 30, 2002 would result in a change in earnings before income taxes of approximately $210,000 per year. FOREIGN EXCHANGE RATE RISK The Company has foreign currency exposures related to intercompany buying and selling in currencies other than the local currencies in which it operates. At September 30, 2002, the payables in US dollars from foreign subsidiaries was approximately $300,000. A 10% change in foreign exchange rates would result in a change in earnings before income taxes of approximately $30,000 per year. The Company occasionally uses forward contracts to reduce fluctuations in foreign currency cash flows related to third party material purchases, intercompany product shipments and intercompany loans. At September 30, 2002, we had one forward exchange contract for 500,000 Euros against the British Pound Sterling at a rate of 1.5945 for delivery in October 2002 compared to the 1.5866 rate at maturity on October 31, 2002 which is a 1,600 British Pound Sterling gain in the fourth quarter of 2002. ITEM 4. CONTROLS AND PROCEDURES As of September 30, 2002, an evaluation was performed under the supervision and with the participation of PAGE 12 the Company's management, including the CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation. PAGE 13 Part II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: See Exhibit Index following the last page of this Form 10-Q which Exhibit Index is incorporated herein by reference. (b) Reports on Form 8-K: On August 27, 2002, The Oilgear Company filed a report on Form 8-K dated August 27, 2002, to file as an exhibit the press release reporting the closing of its Longview, Texas facility. On October 4, 2002, The Oilgear Company filed a report on Form 8-K dated September 24, 2002 to report receipt of a 90-day notice from The Nasdaq Stock Market that the Company has not maintained a minimum market value of publicly held shares of $5,000,000 as required for continued listing on the National Market. PAGE 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. November 14, 2002 THE OILGEAR COMPANY Registrant /s/ DAVID A. ZUEGE --------------------------------------------------- David A. Zuege President and CEO (Principal Executive Officer) /s/ THOMAS J. PRICE --------------------------------------------------- Thomas J. Price VP-CFO and Secretary (Principal Financial and Chief Accounting Officer) CEO/CFO CERTIFICATIONS PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER I, David A Zuege, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Oilgear Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ DAVID A. ZUEGE --------------------------------------------------- David A. Zuege President and Chief Executive Officer CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER I, Thomas J. Price, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Oilgear Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ THOMAS J. PRICE --------------------------------------------------- Thomas J. Price Vice President-Chief Financial Officer THE OILGEAR COMPANY COMMISSION FILE NUMBER 000-00822 EXHIBIT INDEX Quarterly Report on Form 10-Q For the Quarter Ended September 30, 2002
EXHIBIT EXHIBIT DESCRIPTION - ------- ------------------- 99.1 Chief Executive Officer's Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Chief Financial Officer's Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-99.1 3 c72919exv99w1.txt CHIEF EXECUTIVE OFFICER'S CERTIFICATION EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of The Oilgear Company (the "Company") on Form 10-Q for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David A. Zuege, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ David A. Zuege - --------------------------------- David A. Zuege Chief Executive Officer November 14, 2002 This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. EX-99.2 4 c72919exv99w2.txt CHIEF FINANCIAL OFFICER'S CERTIFICATION EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of The Oilgear Company (the "Company") on Form 10-Q for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas J. Price, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Thomas J. Price - --------------------------------- Thomas J. Price Chief Financial Officer November 14, 2002 This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----