Robbins & Myers 10-Q 2002 Q1 Quarterly report

TABLE OF CONTENTS

Exhibit 4.1 -- Credit Agreement

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 EndedNovember 30, 2001 File Number0-288

Robbins & Myers, Inc

(Exact name of registrant as specified in its charter)

Ohio	31-0424220
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1400 Kettering Tower, Dayton, Ohio	45423
(Address of Principal executive offices)	(Zip Code)

Registrant’s telephone number including area code (937) 222-2610

None

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

Common shares, without par value, outstanding as of November 30, 2001:11,827,054

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ROBBINS & MYERS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEET
(In thousands)

				November 30,			August 31,
				2001			2001
ASSETS				(Unaudited)
Current Assets
	Cash and cash equivalents			$	12,097		$	16,122
	Accounts receivable				103,650			105,294
	Inventories:
		Finished products			35,306			35,638
		Work in process			34,794			37,290
		Raw materials			47,747			44,049
					117,847			116,977
	Other current assets				14,785			13,084
	Deferred taxes				16,228			16,336
			Total Current Assets		264,607			267,813
Goodwill					222,511			220,648
Other Intangible Assets					14,424			14,799
Other Assets					7,687			7,603
Property, Plant and Equipment					254,879			252,933
	Less accumulated depreciation				(108,738	)		(103,536	)
					146,141			149,397
				$	655,370		$	660,260
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
	Accounts payable			$	44,331		$	43,018
	Accrued expenses				81,772			88,560
	Current portion of long-term debt				6,669			17,669
			Total Current Liabilities		132,772			149,247
Long-Term Debt—Less Current Portion					249,076			241,225
Deferred Taxes					7,486			7,414
Other Long-Term Liabilities					55,742			56,420
Minority Interest					8,341			8,052
Shareholders’ Equity:
	Common stock				47,836			46,333
	Retained earnings				169,658			164,864
	Accumulated other comprehensive loss				(15,541	)		(13,295	)
					201,953			197,902
				$	655,370		$	660,260

See Notes to Consolidated Condensed Financial Statements

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ROBBINS & MYERS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED INCOME STATEMENT
(In thousands, except per share data)
(Unaudited)

		Three Months Ended
		November 30,
		2001		2000
Net sales		$	139,387	$	96,027
Cost of sales			92,443		62,837
Gross profit			46,944		33,190
SG&A expenses			33,761		21,049
Amortization expense			558		1,912
Other			0		0
			12,625		10,229
Interest expense			4,053		2,904
Income before income taxes and minority interest			8,572		7,325
Income tax expense			2,872		2,489
Minority interest			259		252
Net income		$	5,441	$	4,584
Net income per share:
	Basic	$	0.46	$	0.42
	Diluted	$	0.43	$	0.39
Dividends per share:
	Declared	$	0.055	$	0.055
	Paid	$	0.055	$	0.055

See Notes to Consolidated Condensed Financial Statements

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ROBBINS & MYERS, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)

				Three Months Ended
				November 30,
				2001			2000
Operating Activities:
	Net income			$	5,441		$	4,584
	Adjustments to reconcile net income to net cash and cash equivalents provided (used) by operating activities:
		Depreciation			5,390			4,079
		Amortization			558			1,912
		Performance stock awards			63			0
		Changes in operating assets and liabilities:
			Accounts receivable		915			1,971
			Inventories		(1,752	)		(2,540	)
			Accounts payable		1,631			(2,843	)
			Accrued expenses		(6,348	)		(9,733	)
			Other		(2,700	)		1,761
Net Cash and Cash Equivalents Provided (Used) by Operating Activities					3,198			(809	)
Investing Activities:
	Capital expenditures, net of nominal disposals				(2,802	)		(2,964	)
	Romaco acquisition costs				(2,596	)		0
Net Cash and Cash Equivalents Used by Investing Activities					(5,398	)		(2,964	)
Financing Activities:
	Proceeds from debt borrowings				29,173			10,558
	Payments of long-term debt				(31,787	)		(5,185	)
	Proceeds from sale of common stock				1,436			418
	Dividends paid				(647	)		(603	)
Net Cash and Cash Equivalents (Used) Provided by Financing Activities					(1,825	)		5,188
(Decrease) Increase in Cash and Cash Equivalents					(4,025	)		1,415
Cash and Cash Equivalents at Beginning of Period					16,122			11,244
Cash and Cash Equivalents at End of Period				$	12,097		$	12,659

See Notes to Consolidated Condensed Financial Statements

4

ROBBINS & MYERS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
November 30, 2001
(Unaudited)

NOTE 1—Preparation of Financial Statements
In the opinion of management, the accompanying unaudited consolidated condensed financial statements of Robbins & Myers, Inc. and subsidiaries (“Company”) contain all adjustments, consisting of normally recurring items, necessary to present fairly the financial condition of the Company and its subsidiaries as of November 30, 2001, and August 31, 2001, and the results of their operations and cash flows for the three month periods ended November 30, 2001 and 2000. All intercompany transactions have been eliminated. Certain amounts in the prior period financial statements have been reclassified to conform to the current year presentation.

NOTE 2—Business Acquisitions
On August 31, 2001, the Company purchased the stock of Romaco N.V., a Netherland Antilles corporation (“Romaco”). The results of Romaco are not included in the Company’s Consolidated Condensed Income Statement for the three month period ended November 30, 2000. Following are the unaudited pro-forma consolidated results of operations of the Company assuming the acquisition of Romaco had occurred at the beginning of fiscal year 2001. In preparing the pro-forma data, adjustments have been made to the historical financial information. These are primarily interest costs related to financing the transaction, adjustments to the corporate costs and income taxes. There is no amortization of the Romaco goodwill included in the pro-forma amounts.

	Three Months Ended
	November 30, 2000
	(In thousands, except
	per share data)
Sales	$	133,671
Net income		5,760
Basic net income per share		0.50
Diluted net income per share		0.45

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NOTE 3—New Accounting Pronouncement
As of September 1, 2001, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” which addresses the financial accounting and reporting standards for the acquisition of intangible assets outside of a business combination and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill be separately disclosed from other intangible assets in the statement of financial position, and no longer be amortized but tested for impairment on a periodic basis. The provisions of this accounting standard also require the completion of a transitional impairment test within six months of adoption, with any impairments identified treated as a cumulative effect of a change in accounting principle.

In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill effective September 1, 2001. A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization, net of the related income tax effect follows:

		Three Months Ended
		November 30, 2000
		(In thousands, except per
		share data)
Reported net income		$	4,584
Goodwill amortization, net of tax			842
Adjusted net income		$	5,426
Basic earnings per common share
	Reported net income	$	0.42
	Goodwill amortization, net of tax		0.07
	Adjusted net income	$	0.49
Diluted earnings per common share
	Reported net income	$	0.39
	Goodwill amortization, net of tax		0.06
	Adjusted net income	$	0.45

NOTE 4—Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the quarter ended November 30, 2001, by operating segment, are as follows:

	Pharmaceutical			Energy			Industrial
	Segment			Segment			Segment		Total
				(In thousands)
Balance as of September 1, 2001	$	110,159		$	68,026		$	42,463	$	220,648
Goodwill acquired during the period		2,596			0			0		2,596
Translation adjustments and other		(939	)		(30	)		236		(733	)
Balance as of November 30, 2001	$	111,816		$	67,996		$	42,699	$	222,511

As required by SFAS No. 142, intangible assets that do not meet the criteria for recognition apart from goodwill must be reclassified. As a result of the Company’s analysis, $3,100,000 of acquisition costs were transferred to goodwill as of September 1, 2001.

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Information regarding the Company’s other intangible assets is as follows:

	As of November 30, 2001						As of August 31, 2001
	Carrying		Accumulated				Carrying		Accumulated
	Amount		Amortization		Net		Amount		Amortization		Net
					(In thousands)
Patents and Trademarks	$	6,688	$	881	$	5,807	$	6,662	$	708	$	5,954
Non-compete Agreements		10,712		7,231		3,481		10,655		7,016		3,639
Financing Costs		4,840		2,847		1,993		4,740		2,697		2,043
Pension Intangible		2,592		0		2,592		2,592		0		2,592
Other		1,705		1,154		551		1,705		1,134		571
Total	$	26,537	$	12,113	$	14,424	$	26,354	$	11,555	$	14,799

Prior to February 28, 2002, the Company will complete a preliminary goodwill impairment test as required. This test will involve the use of estimates related to the fair market value of the business with which the goodwill is associated.

NOTE 5—Net Income per Share

				Three Months Ended
				November 30,
				2001		2000
				(In thousands, except per
				share data)
Numerator:
	Basic:
		Net income		$	5,441	$	4,584
		Effect of dilutive securities:
			Convertible debt interest		582		582
	Income attributable to diluted shares			$	6,023	$	5,166
Denominator:
	Basic:
		Weighted average shares			11,773		10,973
		Effect of dilutive securities:
			Convertible debt		2,191		2,191
			Dilutive options and restricted shares		156		208
	Diluted shares				14,120		13,372
Basic net income per share				$	0.46	$	0.42
Diluted net income per share				$	0.43	$	0.39

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NOTE 6—Long-Term Debt

		November 30, 2001
		(In thousands)
Senior debt:
	Revolving credit loan	$	70,944
	Senior notes		100,000
	Other		25,110
6.50% Convertible subordinated notes			59,691
Total debt			255,745
Less current portion			6,669
		$	249,076

The Company entered into a Second Amended and Restated Credit Agreement (“Agreement”) on January 9, 2002. The Agreement provides that the Company may borrow on a revolving credit basis up to a maximum of $180,000,000. All outstanding amounts under the Agreement are due and payable on January 9, 2005. Interest is variable based upon formulas tied to LIBOR or prime, at the Company’s option, and is payable at least quarterly. At November 30, 2001, the weighted average interest rate for amounts outstanding under the Agreement was 3.56%. 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. The Company has available borrowings of approximately $50,000,000 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 of 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 $3,500,000 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 at any time until maturity and the Company may call for redemption at a price ranging from the current price of 101.09% to 100% in fiscal 2003 and thereafter. The Notes are subordinated to all other indebtedness of the Company.

The Company’s other debt primarily consists of unsecured non-U.S. bank lines of credit with interest rates ranging from 4.00% to 8.00%.

NOTE 7—Income Taxes
The estimated annual effective tax rate was 33.5% for the first quarter of fiscal 2002 and 34.0% in the first quarter of fiscal 2001.

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NOTE 8—Comprehensive Income

		Three Months Ended
		November 30,
		2001			2000
		(In thousands)
Net income		$	5,441		$	4,584
Other comprehensive income:
	Foreign currency translation		(2,246	)		(2,152	)
	Recognition of minimum pension liability		0			0
Comprehensive income		$	3,195		$	2,432

NOTE 9—Business Segments
Sales and Income before Interest and Taxes (“EBIT”) by operating segment is presented in the following table. As a result of the acquisition of Romaco on August 31, 2001, the Company reorganized resulting in the Company’s operations being aggregated into three reportable operating segments: Pharmaceutical, Industrial and Energy. The amounts presented for fiscal 2001 have been restated to reflect this reorganization.

		Three Months Ended
		November 30,
		2001			2000
		(In thousands)
Unaffiliated customer sales:
	Pharmaceutical	$	83,205		$	39,576
	Industrial		32,443			30,970
	Energy		23,739			25,481
	Total	$	139,387		$	96,027
EBIT:
	Pharmaceutical	$	8,197		$	4,354
	Industrial		2,270			2,252
	Energy		4,812			5,857
	Corporate and eliminations		(2,654	)		(2,234	)
	Total	$	12,625		$	10,229

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Part I—Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

     The following tables present the components of the Company’s consolidated income statement and segment information for the first quarter of fiscal 2002 and 2001.

	Three Months Ended
	November 30,
Consolidated:	2001			2000
Net Sales		100.0	%		100.0	%
Cost of sales		66.3			65.4
Gross profit		33.7			34.6
SG&A expenses		24.2			21.9
Amortization		0.4			2.0
Other		0.0			0.0
EBIT		9.1	%		10.7	%

		Three Months Ended
		November 30,
Segment:		2001			2000
Pharmaceutical:		(In thousands)
	Sales	$	83,205		$	39,576
	EBIT		8,197			4,354
	%		9.9	%		11.0	%
Industrial:
	Sales	$	32,443		$	30,970
	EBIT		2,270			2,252
	%		7.0	%		7.3	%
Energy systems:
	Sales	$	23,739		$	25,481
	IBIT		4,812			5,857
	%		20.3	%		23.0	%

First quarter of fiscal 2002 and 2001
     On August 31, 2001, the Company purchased the stock of Romaco N.V., a Netherland Antilles corporation (“Romaco”). Romaco is consolidated in the first quarter of fiscal 2002. Romaco is included in the Company’s Pharmaceutical segment.

     Net sales for the first quarter of fiscal 2002 were $139.4 million compared to $96.0 million in the prior year. Pro-forma sales, assuming Romaco was acquired at the beginning of fiscal 2001, increased $5.7 million or 4.3%.

     The Pharmaceutical segment had sales of $83.2 million in the first quarter of fiscal 2002 compared to $39.6 million in fiscal 2001. On a pro-forma basis, the Pharmaceutical segment sales increased $6.0 million, or 7.8%. The increase in pro-forma sales is driven by Romaco’s growth due to the strength of the pharmaceutical and healthcare markets. However, pro-forma orders for this segment decreased from $77.2 million in the first quarter of fiscal 2001 to $74.4 million in fiscal 2002. The decrease in pro-forma orders is in the Company’s Reactor Systems business and is due to the impact of the weak specialty chemical market and slow industrial economy in the U.S. Backlog in this segment decreased to $99.5 million at the end of the first quarter of fiscal 2002 from $108.1 million at August 31, 2001.

     The Industrial segment had sales of $32.4 million in the first quarter of fiscal 2002 compared to $31.0 million in fiscal 2001. This segment is also negatively impacted by the weak specialty chemical market as well as the slow industrial economy in the U.S. Incoming orders in this segment were $27.5

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million in the first quarter of fiscal 2002 compared to $33.4 million in the first quarter of fiscal 2001. Backlog in this segment decreased to $22.5 million at the end of the first quarter of fiscal 2002 from $28.0 million at August 31, 2001.

     The Energy segment had sales of $23.7 million in the first quarter of fiscal 2002 compared to $25.5 million in fiscal 2001, a decrease of $1.8 million or 7.1%. Lower crude oil and natural gas prices have caused a reduction in exploration and production activities versus the first quarter of fiscal 2001. Incoming orders in this segment declined to $21.9 million in the first quarter of fiscal 2002, compared to $28.3 million in the first quarter of fiscal 2001. Backlog decreased to $5.7 million at the end of the first quarter of fiscal 2002 from $7.5 million at August 31, 2001.

     EBIT for the first quarter of fiscal 2002 is $12.6 million compared to $10.2 million in the first quarter of fiscal 2001. In the first quarter of fiscal 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” which requires that goodwill no longer be amortized. The adoption of SFAS No. 142 resulted in a $1.4 million reduction in amortization in the first quarter of fiscal 2002. EBIT before amortization was $13.2 million in the first quarter of fiscal 2002 compared to $12.1 million in the first quarter of fiscal 2001, an increase of $1.1 million, or 9.1%.

     The Pharmaceutical segment had EBIT before amortization of $8.3 million in the first quarter of fiscal 2002 compared to $4.8 million in the first quarter of fiscal 2001. On a pro-forma basis, the Pharmaceutical segment EBIT before amortization increased $.7 million, or 9.2%. The increase in pro-forma EBIT before amortization is driven by Romaco’s sales growth.

     The Industrial segment had EBIT before amortization of $2.5 million in the first quarter of fiscal 2002 compared to $3.1 million in fiscal 2001, a reduction of $.6 million even though sales increased by $1.5 million. This reduction is due to a shift in product mix as lower margin industrial mixer products and corrosion resistant products increased in volume, while sales of higher margin industrial pump aftermarket products declined.

     The Energy segment had EBIT before amortization of $4.9 million in the first quarter of fiscal 2002 compared to $6.3 million in fiscal 2001, a decrease of $1.4 million or 22.2%. The aforementioned decline in Energy segment sales reduced EBIT before amortization by approximately $.8 million. The remaining decrease is due to increased research and development costs, and a change in sales mix from higher margin exploration products to lower margin wellhead products.

     Interest expense increased from $2.9 million in the first quarter of fiscal 2001 to $4.1 million in the first quarter of fiscal 2002. This was due to higher average debt levels resulting from the acquisition of Romaco, offset slightly by lower interest rates on the Company’s variable rate debt.

     The effective tax rate is 33.5% in fiscal 2002 compared to 34.0% in fiscal 2001.

     The increase in net income and diluted net income per share can be attributed to the acquisition of Romaco and lower amortization costs, offset by reduced operating profits in the Energy and Industrial segments due to difficult market conditions.

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Liquidity and Capital Resources

     The Company entered into a Second Amended and Restated Credit Agreement (“Agreement”) on January 9, 2002. The Agreement provides that the Company may borrow on a revolving credit basis up to a maximum of $180.0 million. All outstanding amounts under the Agreement are due and payable on January 9, 2005. Interest is variable based upon formulas tied to LIBOR or prime, at the Company’s option, and is payable at least quarterly.

     Cash uses in the first three months of fiscal 2002 were $5.3 million in semi-annual interest payments due on the Company’s Senior Notes and Convertible Subordinated Notes, $2.8 million for variable pay plans (both included in accrued expenses), $2.8 million for capital expenditures, and $2.6 million in acquisition costs related to the Romaco acquisition. Cash generated from operations funded these cash uses.

     Cash uses in the first three months of fiscal 2001 were $5.3 million in semi-annual interest payments due on the Company’s Senior Notes and Convertible Subordinated Notes, $4.0 for variable pay plans, $2.0 million in income tax payments (all included in accrued expenses) and $3.0 million for capital expenditures. Cash generated from operations and net borrowings under the Company’s revolving credit loan funded these cash uses.

     The Company expects operating cash flow to be adequate for the remainder of fiscal year 2002 operating needs, scheduled debt service and shareholder dividend requirements. The major cash requirement for the remainder of fiscal 2002 is planned capital expenditures of approximately $11.8 million. Capital expenditures are related to additional production capacity, cost reductions and replacement items.

Market Risk

     In its normal operations the Company has market risk exposure to foreign currency exchange rates and interest rates. There has been no significant change in the Company’s exposure to these risks, which has been previously disclosed.

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Forward-looking Statements

     In addition to historical information, this report contains forward-looking statements identified by use of words such as “expects,” “anticipates,” “estimates,” and similar expressions. These statements reflect the Company’s expectations at the time this report was issued. Actual events and results may differ materially from those described in the forward-looking statements. Among the factors that could cause material differences are significant declines in capital expenditures in specialty chemical and pharmaceutical industries, a major decline in oil and natural gas prices, foreign exchange rate fluctuations, continued availability of acceptable acquisition candidates, access to capital and financing and general economic conditions that can affect demand in the process industries. The Company undertakes no obligation to update or revise any forward-looking statement.

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Part II—Other Information

Item 6. Exhibits and Reports on Form 8-K

a)	See Index to Exhibits
b)	Reports on Form 8-K. During the quarter ended November 30, 2001, the Company filed a Report on Form 8-K on September 17, 2001 reporting information concerning the Company’s acquisition of Romaco N.V.

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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.

			ROBBINS & MYERS, INC.
DATE:	January 11, 2002	BY	/s/ Kevin J. Brown      Kevin J. Brown      Vice President and Chief Financial Officer      (Principal Financial Officer)
DATE:	January 11, 2002	BY	/s/ Thomas J. Schockman      Thomas J. Schockman      Corporate Controller      (Principal Accounting Officer)

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INDEX TO EXHIBITS

(4)	INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS INCLUDING INDENTURES:
4.1	Second Amended and Restated Credit Agreement dated January 9, 2002 among Robbins & Myers, Inc., the lenders named therein, Bank One, N.A. as Administrative Agent and Issuing Bank, Harris Trust and Savings Bank, as Co-Syndication Agent, National City Bank, as Co-Syndication Agent, Wachovia Bank, N.A, as Co-Syndication Agent and Bank of Nova Scotia, as Documentation Agent and Issuing Bank. *

•     Filed herewith

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