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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 June 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
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Commission file number 000-00822
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THE OILGEAR COMPANY
(Exact name of registrant as specified in its charter)
Wisconsin 39-0514580
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2300 South 51st Street, Milwaukee, Wisconsin 53219
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 327-1700
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NOT APPLICABLE
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(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
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding June 30, 2002
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Common Stock, $1.00 Par Value 1,952,898
PAGE 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE OILGEAR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS JUNE 30, 2002 December 31, 2001
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Current assets:
Cash and cash equivalents $ 5,293,797 4,996,723
Trade accounts receivable, less allowance for doubtful
receivables of $175,000 and $212,000 in 2002 and 2001, respectively 15,703,575 17,002,306
Costs and estimated earnings in excess of billings on uncompleted contracts 2,700,909 545,691
Inventories 23,409,936 23,910,087
Prepaid expenses 873,307 525,056
Other current assets 1,057,800 1,115,213
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Total current assets 49,039,324 48,095,076
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Property, plant and equipment, at cost
Land 961,613 894,699
Buildings 11,597,162 11,273,523
Machinery and equipment 49,590,061 48,485,065
Drawings, patterns and patents 5,298,262 5,099,234
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67,447,098 65,752,521
Less accumulated depreciation and amortization 45,515,089 43,052,001
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Net property, plant and equipment 21,932,009 22,700,520
Other assets 1,283,180 1,135,937
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$ 72,254,513 71,931,533
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Short-term borrowings $ 5,023,439 5,631,036
Current installments of long-term debt 1,790,142 1,932,328
Accounts payable 6,021,205 5,377,339
Billings in excess of costs and estimated earnings on uncompleted contracts 164,859 1,845,038
Customer deposits 1,224,104 1,378,152
Accrued compensation and employee benefits 2,046,146 1,882,457
Other accrued expenses and income taxes 4,024,484 3,123,705
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Total current liabilities 20,294,379 21,170,055
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Long-term debt, less current installments 17,975,291 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 1,191,707 1,107,365
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Total liabilities 53,457,322 53,403,700
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Minority interest in consolidated subsidiaries 1,012,912 946,455
Shareholders' equity:
Common stock, par value $1 per share, authorized 4,000,000 shares;
issued 1,990,783 shares 1,990,783 1,990,783
Capital in excess of par value 9,497,906 9,497,906
Retained earnings 20,835,272 22,020,109
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32,323,961 33,508,798
Deduct:
Treasury stock, 37,885 and 48,561 shares in 2002 and 2001, respectively (328,166) (433,814)
Notes receivable from employees for purchase of Company
common stock (184,217) (144,956)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (2,980,299) (4,301,650)
Minimum pension liability adjustment (11,047,000) (11,047,000)
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(14,027,299) (15,348,650)
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Total shareholders' equity 17,784,279 17,581,378
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$ 72,254,513 71,931,533
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See accompanying notes to consolidated financial statements.
PAGE 3
THE OILGEAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THREE MONTHS ENDED FOR SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
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Net sales $ 18,737,528 21,708,661 $ 39,333,751 43,250,033
Cost of sales 14,945,806 16,508,229 30,541,360 32,269,877
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Gross profit 3,791,722 5,200,432 8,792,391 10,980,156
Selling, general and
administrative expenses 4,579,002 4,628,218 9,175,840 9,638,445
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Operating income (loss) (787,280) 572,214 (383,449) 1,341,711
Interest expense 342,497 410,465 627,812 818,558
Other non-operating income, net 153,776 82,010 158,283 1,038
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Earnings before income (loss) taxes and minority interest (976,001) 243,759 (852,978) 524,191
Income tax expense 152,754 83,756 199,229 161,261
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Minority interest 56,965 19,327 109,155 34,876
- ---------------------------------------------------------------=====================================================================
Net earnings (loss) $ (1,185,720) 140,676 $ (1,161,362) 328,054
- ---------------------------------------------------------------=====================================================================
Basic weighted-average outstanding shares 1,952,949 1,943,429 1,947,991 1,951,512
- ---------------------------------------------------------------=====================================================================
Diluted weighted-average outstanding shares 1,952,949 1,945,088 1,947,991 1,957,906
- ---------------------------------------------------------------=====================================================================
Basic earnings (loss) per share of common stock $ (0.61) 0.07 $ (0.60) 0.17
- ---------------------------------------------------------------=====================================================================
Diluted earnings (loss) per share of common stock $ (0.61) 0.07 $ (0.60) 0.17
- ---------------------------------------------------------------=====================================================================
Dividends per share of common stock $ -- 0.07 $ -- 0.14
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See accompanying notes to consolidated financial statements.
PAGE 4
THE OILGEAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR SIX MONTHS ENDED
JUNE 30,
2002 2001
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Cash flows from operating activities:
Net earnings (loss) $(1,161,362) 328,054
Adjustments to reconcile net earnings (loss) to net cash
used by operating activities:
Depreciation and amortization 1,846,937 1,891,874
Common and treasury stock issued in connection with:
Compensation element of sales to employees
and employee savings plan 19,596 21,688
Minority interest 109,155 34,876
Change in assets and liabilities:
Trade accounts receivable 1,965,820 (484,114)
Inventories 1,064,863 (1,152,785)
Billings, costs and estimated earnings on uncompleted contracts (3,699,166) (1,122,555)
Prepaid expenses (307,997) (293,915)
Accounts payable 447,066 (362,551)
Customer deposits (197,457) (945,460)
Accrued compensation 9,645 (554,504)
Other, net 762,230 751,722
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Net cash provided (used) by operating activities $ 859,330 $(1,887,670)
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Cash flows from investing activities:
Additions to property, plant and equipment (701,490) (1,273,454)
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Net cash used by investing activities $ (701,490) $(1,273,454)
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Cash flows from financing activities:
Net borrowings (repayments) under line of credit agreements (631,639) 3,877,567
Repayment of long-term debt (824,598) (1,145,880)
Proceeds from issuance of long-term debt 1,491,574 286,819
Dividends paid -- (271,921)
Purchase of treasury stock -- (388,380)
Payments received on notes receivable from employees 23,313 37,595
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Net cash provided by financing activities $ 58,650 $ 2,395,800
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Effect of exchange rate changes on cash and cash equivalents 80,584 53,121
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Net increase (decrease) in cash and cash equivalents $ 297,076 $ (712,203)
Cash and cash equivalents:
At beginning of period 4,996,723 5,101,942
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At end of period 5,293,797 4,389,739
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 597,415 $ 827,176
Income taxes $ 78,965 $ 119,022
================================
THE OILGEAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
FOR THREE MONTHS ENDED FOR SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
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Net earnings (loss) $(1,185,720) 140,676 $(1,161,362) 328,054
Other comprehensive income (loss)
Foreign currency translation adjustment 1,720,821 (427,932) 1,321,351 (1,233,536)
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Total comprehensive income (loss) $ 535,101 (287,256) $ 159,989 (905,482)
- ---------------------------------------------------------------=====================================================================
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 periods 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, 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
most of 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 SIX MONTHS ENDED
Sales to unaffiliated customers June 30, 2002 June 30, 2001 JUNE 30, 2002 June 30, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Domestic 10,787,314 12,450,827 22,617,435 25,119,848
European 5,933,866 5,367,915 11,890,471 11,299,685
International 2,016,348 3,889,919 4,825,845 6,830,500
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Total 18,737,528 21,708,661 39,333,751 43,250,033
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INTERSEGMENT SALES
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Domestic 1,791,227 2,138,150 3,189,670 3,844,961
European 76,122 283,435 184,548 784,583
OPERATING INCOME (LOSS)
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Domestic (259,483) 646,520 184,427 1,294,901
European 9,033 157,071 172,075 573,772
International 15,386 388,047 350,122 752,218
Corporate expenses, including R&D (552,214) (619,424) (1,090,073) (1,279,180)
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Total (787,280) 572,214 (383,449) 1,341,711
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IDENTIFIABLE ASSETS
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Domestic -- -- 38,072,159 52,024,880
European -- -- 25,590,913 24,025,950
International -- -- 6,709,496 5,955,633
Corporate -- -- 1,881,945 1,843,726
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Total -- -- 72,254,513 83,850,189
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Inventories
Inventories at June 30, 2002 and December 31, 2001 consist of the following:
June 30, 2002 December 31, 2001
----------------------------------------
Raw materials 2,735,137 2,717,478
Work in process 18,573,137 18,631,086
Finished goods 3,551,662 4,179,523
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24,859,936 25,528,087
LIFO reserve (1,450,000) (1,618,000)
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Total 23,409,936 23,910,087
===========================================================================
Inventories stated on the last-in, first-out (LIFO) basis are valued at
$14,710,000 and $17,637,000 at June 30, 2002 and December 31, 2001,
respectively.
Earnings per share
The following table sets forth the computation of basic and diluted earnings per
common share:
FOR THREE MONTHS ENDED FOR SIX MONTHS ENDED
June 30, 2002 June 30, 2001 JUNE 30, 2002 June 30, 2001
------------------------------------------------------------------------
Net income for basic and diluted earnings per share $(1,185,720) 140,676 $(1,161,362) 328,054
Weighted average common shares outstanding 1,952,949 1,943,429 1,947,991 1,951,512
Dilutive stock options - 1,659 - 6,394
Dilutive average common shares outstanding 1,952,949 1,945,088 1,947,991 1,957,906
Basic earnings per common share $ (0.61) 0.07 $ (0.60) 0.17
Diluted earnings per common share $ (0.61) 0.07 $ (0.60) 0.17
Options to purchase 94,900 shares of common stock with a weighted average
exercise price of $9.47 per share were outstanding at June 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 June 30, 2001.
Options to purchase 89,000 and 49,624 shares of common stock were not included
in the quarterly and six month periods ended June 30, 2002 and 2001,
respectively, computations of diluted earnings per share because the options'
exercise prices were greater than the average market price of common stock
during the periods then ended.
Other
At the end of 2001, the Company recorded special charges related to:
(I) an early retirement program, (ii) a downsizing of the corporate staff, (iii)
a closing of the Novi, Mi facility and (iv) a write-off of non-strategic assets
and downsizing at the Leeds, England facility. The amount recorded includes
$480,000 of employee early retirement and termination benefits for 28 notified
employees, $120,000 for abandoned leased facility expenses and $374,000 of
equipment, inventory and other assets write-offs.
EMPLOYEE
TERMINATION
BENEFITS OTHER COSTS TOTAL
Balance on December 31, 2001 $ 100,000 $ 155,000 $ 255,000
Non-cash charges $ - $ - $ -
Cash expenditures $ 100,000 $ 155,000 $ 255,000
------------------------------------------------------------------------
Balance on March 31, 2002 $ - $ - $ -
========================================================================
PAGE 7
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The 4.1% decrease in total current liabilities along with a 2.0% increase in
total current assets caused working capital to increase by approximately
$1,820,000 at June 30, 2002 when compared to December 31, 2001. The net change
in "Costs and estimated earnings in excess of billings on uncompleted contracts"
and "Billings in excess of costs and estimated earnings on uncompleted
contracts" increased working capital by approximately $3,835,000. The change in
"Short-term borrowings" and "Current installments of long-term debt" increased
working capital by approximately $750,000. Increases in "Prepaid expenses" of
approximately $348,000, "Cash and cash equivalents" of approximately $297,000
and "Customer deposits" of approximately $154,000 also increased working
capital. Decreases in "Trade receivables" of approximately $1,299,000,
"Inventory" of approximately $500,000, and "Other current assets" of
approximately $57,000 and increases in "Accounts payable" of approximately
$644,000, "Other accrued expenses and income taxes" of approximately $901,000
and "Accrued compensation and employee benefits" of approximately $164,000 all
decreased working capital.
Despite a net loss of approximately $1,161,000 in the first six months of 2002
compared to net income of approximately $328,000 in the same period in 2001,
"Net cash provided by operating activities" was approximately $859,000 for the
six months ended June 30, 2002, as compared to approximately $1,888,000 of cash
used by operating activities for the same period in 2001. The change from using
cash in 2001 to providing cash in 2002 from operations was the result of the
activity in the following working capital items: trade accounts receivable,
inventories, prepaid expenses, accounts payable, customer deposits, accrued
compensation and pension expense. These line items provided cash in 2002 of
approximately $2,982,000 compared to using cash in 2001 of approximately
$3,793,000. However, these items were offset by "Billings, costs and estimated
earnings on uncompleted contracts" which used approximately $3,699,000 in cash
in 2002 compared to using cash of approximately $1,123,000 in 2001. All other
items in cash flows from operating activities provided cash of approximately
$2,738,000 in 2002 compared to providing cash of approximately $2,700,000 in
2001.
A decrease in the amount spent on capital expenditures of $572,000 caused the
decrease in "Net cash used by investing activities" in 2002 compared to 2001.
Net cash provided by financing activities in the first six months of 2002
compared to the same period in 2001 came from an increase in interest bearing
debt of approximately $35,000 and $3,019,000 in 2002 and 2001, respectively.
Payments received on employee notes were approximately $23,000 and $38,000 in
2002 and 2001, respectively. No dividends were declared and no treasury stock
was purchased in the first and second quarters of 2002. In the first and second
quarters of 2001 dividends of approximately $272,000 were declared and
approximately $388,000 of treasury stock was purchased.
The net loss in the second quarter of 2002 caused the Company to fail certain
bank covenants. The bank issued a letter waiving the deficiency and the Company
expects to renegotiate the covenants with the bank in the third quarter. The
Company believes its cash on hand, cash flows from operations and available
borrowings under short-term and long-term bank credit facilities will continue
to be sufficient to meet its operating needs.
RESULTS OF OPERATIONS
Orders decreased by 9.3% in the second quarter of 2002 and decreased by 8.6% in
the first six months when compared to the same periods in 2001. Backlog of
orders at June 30, 2002 decreased by 1% from December 31, 2001. Although orders
from the Domestic and International segments decreased in the first six months
of 2002 when compared to the same period in 2001, the European segment orders
for
the first six months of 2002 increased from the first six months of 2001. The
global economic slow down in capital equipment spending in all segments is
having a disproportionate affect by causing the greatest decrease in orders for
large custom engineered hydraulic and electronic products. However, the activity
for quotations on projects with the potential of future orders to supply custom
engineered hydraulic and electronic products is stronger in the European and
International segments than in the Domestic segment. The Domestic segment for
this type of product continues to be depressed. Despite the increase in the
European orders, consolidated backlog decreased slightly to approximately
$20,249,000 at June 30, 2002 from approximately $20,445,000 at December 31,
2001. In the third quarter of 2002 the Company received a letter of intent and
a down payment for a major hydraulic, electric and electronic controls project
in the amount of $10 million Euros. This project will be accounted for in the
Company's European segment.
The extended softness in the fluid power market in the United States economy
caused net sales in the Domestic segment to decrease by 13.4% in the second
quarter and by 10.0% in the first six months of 2002 when compared to the same
periods in 2001. At June 30, 2002, the US dollar weakened by approximately 17%
against the Euro and by approximately 8.8% against the UK Pound Sterling when
compared with June 30, 2001. This change helped the European segment's net sales
increase in the second quarter of 2002 by approximately 10.5% and increase by
approximfately 5.2% for the first six months of 2002 when compared to the same
periods in 2001. A softness in the forging and extrusion capital goods markets
in the International segment decreased sales in the second quarter of 2002 by
48.2% and in the first six months of 2002 by 29.3% when compared to the same
periods in 2001. Consolidated net sales decreased in the second quarter of 2002
by 13.7% and in the first six months of 2002 by 9.1% when compared to the same
periods in 2001.
Our reduced employment level and other cost improvements resulted in the
decrease in operating expenses in the second quarter and the first six months of
2002 compared to the same period in 2001.
The decrease in sales and lower margins from lower utilization of our production
facilities were the primary reasons for the change from a consolidated operating
income of approximately $572,000 in the second quarter of 2001 and approximately
$1,342,000 in the first six months of 2001 to a consolidated operating loss of
approximately $787,000 in the second quarter of 2002 and approximately $383,000
loss in the first six months of 2002.
Interest expense decreased by approximately $68,000 in the second quarter of
2002 and by approximately $191,000 in the first six 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 earnings per share in 2002 (net loss
of $.61 in the second quarter of 2002 and a net loss of $.60 in the first six
months of 2002 compared to net earnings per share of $.07 in the second quarter
of 2001 and $.17 in the first six 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 Six Months Ended
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2002
------------- ------------- ------------- -------------
Interest Income $ 38,524 $ 13,134 $ 44,830 31,690
Foreign currency exchange
gain (loss) 73,587 (16,621) 41,158 (160,973)
Miscellaneous, net 41,665 85,497 72,295 130,321
-------- -------- -------- --------
Non-operating income $153,776 82,010 $158,283 1,038
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 ("Statement 146"). Statement 146 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. Management is currently evaluating the impact of
adoption of this Statement on the consolidated financial statements.
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:
* 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 the Company's products and national events including those
of September 11, 2001 and 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.
* 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 UK
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 $22,000,000 of floating debt at June
30, 2002. A 100 basis point movement in interest rates on floating rate debt
outstanding at June 30, 2002 would result in a change in earnings before income
taxes of approximately $220,000 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
June 30, 2002, the payables in US dollars from foreign subsidiaries was
approximately $1,400,000. A 10% change in foreign exchange rates would result in
a change in earnings before income taxes of approximately $140,000 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 June 30, 2002, we had
one forward exchange contract for 500,000 Euros against the UK Pound Sterling at
a rate of 1.5945 for delivery in October 2002 compared to the June 30, 2002 rate
of 1.5454. The total value of this contract and any risk to the Company as a
result of this arrangement as well as market risk of changes in near term
currency rates is not material to the Company's financial position, liquidity or
results of operations.
PAGE 12
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
At the annual meeting of shareholders on May 14, 2002 management's nominees
named below were elected as directors of the class whose term expires in 2005 by
the indicated votes cast for and withheld with respect to each nominee. Of the
1,953,558 shares of Common Stock which were entitled to vote at the meeting,
1,771,878 shares were represented in person or by proxy and not less than
1,597,846 shares (90% of the shares represented) were voted for the election of
all of management's nominees. There were no abstentions or broker non-votes with
respect to the election of directors.
Name of Nominee For Withheld
- --------------- --- --------
Robert D. Drake 1,597,846 174,032
Michael H. Joyce 1,675,415 96,463
Thomas L. Misiak 1,675,415 96,463
Further information concerning this matter, including the name of each
other director whose term of office as a director continued after the meeting,
is contained in the registrant's Proxy Statement dated April 13, 2001 with
respect to the registrant's 2001 annual meeting of shareholders.
Item 5. Other Information
Deadlines for Shareholder Proposals
Shareholder proposals must be received by the Secretary of Oilgear no later
than December 12, 2002 in order to be considered for inclusion in next year's
annual meeting proxy materials pursuant to Commission Rule 14a-8. Shareholders
wishing to propose any floor nominations for director or floor proposals at the
2003 annual meeting without inclusion of such proposals in Oilgear's proxy
materials must provide notice thereof to the Secretary of Oilgear no later than
February 25, 2003 in order for such notice to be considered timely under the
Commission's proxy rules.
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:
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
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.
August 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)
The Oilgear Company
Commission File Number 000-00822
Exhibit Index
Quarterly Report on Form 10-Q
For the Quarter Ended June 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