Robbins & Myers 10Q 2006 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended February 28, 2006 File Number 0-288

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. YESþ NOo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one): Large accelerated filero Accelerated filerþ Non-accelerated filero

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) YESo NOþ

Common shares, without par value, outstanding as of February 28, 2006: 14,765,668

TABLE OF CONTENTS


	Item 2 —Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
Part II—Other Information
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits
SIGNATURES
INDEX TO EXHIBITS
EX-31.1 Certification 302 - CEO
EX-31.2 Certification 302 - CFO
EX-32.1 Certification 906 - CEO
EX-32.2 Certification 906 - CFO

ROBBINS & MYERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(In thousands)


	February 28,			August 31,
	2006			2005
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	14,360		$	23,043
Accounts receivable		124,653			128,676
Inventories:
Finished products		34,736			35,538
Work in process		33,580			30,201
Raw materials		36,530			36,913

		104,846			102,652
Other current assets		6,556			7,121
Deferred taxes		10,844			10,216

Total Current Assets		261,259			271,708
Goodwill		276,552			309,281
Other Intangible Assets		13,476			14,927
Other Assets		14,027			13,807
Property, Plant and Equipment		276,846			274,439
Less accumulated depreciation		(148,060	)		(143,827	)

		128,786			130,612

TOTAL ASSETS	$	694,100		$	740,335


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	53,892		$	67,183
Accrued expenses		94,891			97,090
Current portion of long-term debt		17,842			8,616

Total Current Liabilities		166,625			172,889
Long-Term Debt—Less Current Portion		160,564			166,792
Deferred Taxes		4,168			3,721
Other Long-Term Liabilities		82,802			86,149
Minority Interest		11,500			9,939
Shareholders’ Equity
Common stock		111,809			110,281
Retained earnings		163,825			193,968
Accumulated other comprehensive loss		(7,193	)		(3,404	)

Total Shareholders’ Equity		268,441			300,845

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	694,100		$	740,335

See Notes to Consolidated Condensed Financial Statements

ROBBINS & MYERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)


	Three Months Ended				Six Months Ended
	February 28,				February 28,
	2006		2005		2006			2005
			(restated)					(restated)
Net sales	$	149,997	$	145,630	$	288,956		$	278,085
Cost of sales		100,168		98,965		192,385			188,413

Gross profit		49,829		46,665		96,571			89,672
SG&A expenses		41,195		38,619		81,939			76,889
Amortization expense		702		609		1,141			1,204
Goodwill impairment charge		0		0		30,000			0
Other		422		1,574		1,240			5,799

Loss before interest and income taxes		7,510		5,863		(17,749	)		5,780
Interest expense		3,676		3,689		7,199			7,228

Income (loss) before income taxes and minority interest		3,834		2,174		(24,948	)		(1,448	)
Income tax expense (benefit)		1,832		1,809		2,519			(1,205	)
Minority interest		800		314		1,065			577

Net income (loss)	$	1,202	$	51	$	(28,532	)	$	(820	)


Net income (loss) per share:
Basic	$	0.08	$	0.00	$	(1.94	)	$	(0.06	)


Diluted	$	0.08	$	0.00	$	(1.94	)	$	(0.06	)


Dividends per share:
Declared	$	0.055	$	0.055	$	0.11		$	0.11


Paid	$	0.055	$	0.055	$	0.11		$	0.11

See Notes to Consolidated Condensed Financial Statements

ROBBINS & MYERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)


	Six Months Ended
	February 28,
	2006			2005
				(restated)
Operating Activities:
Net loss	$	(28,532	)	$	(820	)
Adjustments to reconcile net loss to net cash and cash equivalents used by operating activities:
Depreciation		8,049			8,812
Amortization		1,141			1,204
Goodwill impairment charge		30,000			0
Gain on sale of buildings		(1,368	)		(146	)
Stock compensation expense		609			152
Changes in operating assets and liabilities:
Accounts receivable		9,651			10,843
Inventories		(2,995	)		(9,594	)
Accounts payable		(12,772	)		(6,540	)
Accrued expenses		(2,244	)		(7,735	)
Other		(4,665	)		(1,670	)

Net Cash and Cash Equivalents Used by Operating Activities		(3,126	)		(5,494	)

Investing Activities:
Capital expenditures, net of nominal disposals		(8,130	)		(9,052	)
Proceeds from sale of buildings		0			3,650

Net Cash and Cash Equivalents Used by Investing Activities		(8,130	)		(5,402	)

Financing Activities:
Proceeds from debt borrowings		28,035			34,046
Payments of long-term debt		(24,383	)		(23,138	)
Amended credit agreement fees		(506	)		(262	)
Proceeds from sale of common stock		1,038			2,368
Dividends paid		(1,611	)		(1,601	)

Net Cash and Cash Equivalents Provided by Financing Activities		2,573			11,413

(Decrease) Increase in Cash and Cash Equivalents		(8,683	)		517
Cash and Cash Equivalents at Beginning of Period		23,043			8,640

Cash and Cash Equivalents at End of Period	$	14,360		$	9,157

See Notes to Consolidated Condensed Financial Statements

ROBBINS & MYERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
February 28, 2006
(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 (“we” “our”) contain all adjustments, consisting of normally recurring items, necessary to present fairly our financial condition as of February 28, 2006 and August 31, 2005, and the results of our operations for the three and six months periods ended February 28, 2006 and February 28, 2005 and cash flows for the six month periods ended February 28, 2006 and 2005. All intercompany transactions have been eliminated. Certain amounts in the prior period financial statements have been reclassified to conform to the current year presentation. Beginning in the first quarter of fiscal 2006, we are reporting realigned segments. The amounts presented for fiscal 2005 have been restated to reflect this realignment.

While we believe that the disclosures are adequately presented, it is suggested that these consolidated condensed financial statements be read in conjunction with the financial statements and notes included in our most recent Annual Report on Form 10-K for the fiscal year ended August 31, 2005. A summary of our significant accounting policies is presented therein on page 36. Other than the adoption of FASB Statement123(R),Share Based Payments, which is described in Note 11, there have been no material changes in the accounting policies followed by us during fiscal year 2006.

NOTE 2 – Restatement of Prior Financial Information

The following table presents the effects of the restatement on the Consolidated Condensed Statement of Operations of the previously reported quarters of fiscal 2005 (in thousands, except per share amounts):


	Fiscal 2005
	First			Second			Third
	Quarter			Quarter			Quarter
Decrease (Increase) in income tax expense from adjustments	$	1,674		($	1,004	)	($	1,891	)

Net (loss) income as previously reported		(2,545	)		1,055			2,114


Net (loss) income as restated	($	871	)	$	51		$	223


Net (loss) income per share as previously reported:
Basic	($	0.18	)	$	0.07		$	0.14

Diluted	($	0.18	)	$	0.07		$	0.14


Net (loss) income per share as restated:
Basic	($	0.06	)	$	0.00		$	0.02

Diluted	($	0.06	)	$	0.00		$	0.02

NOTE 3 – Statement of Operations Information

Beginning with the first quarter of fiscal 2006, we reported realigned segments. The new segment structure is a result of a significant reorganization of management, operations and reporting that occurred during the first quarter of fiscal 2006. The Fluid Management segment is comprised of the R&M Energy Systems, Moyno and Tarby product lines. The Process Solutions segment is comprised of the Pfaudler, Tycon Technoglass, Chemineer and Edlon product lines. The Romaco segment includes the Hapa, Laetus, FrymaKoruma, Noack, Siebler, Macofar, Promatic, Unipac, IPM, Zanchetta and Bosspak product lines.

As a result of the segment realignment, the goodwill recorded as of August 31, 2005 was allocated to the aforementioned product lines based on their relative fair value in accordance with Statement of Financial Accounting Standard No. 142 “Goodwill and Other Intangible Assets” (“FAS 142”). The aggregate goodwill for each new segment is the sum of the reallocated goodwill for the product lines comprising the segment. In addition, during the first quarter and subsequent to the end of the first quarter, discussions about the sale of Romaco progressed and provided additional information regarding the fair value of Romaco. After considering the fair value of the Romaco segment, management determined there was an indicator of goodwill impairment under the rules of FAS 142. Management estimated the fair value of the Romaco segment using current prices that the Company may receive in the potential disposition of all or parts of Romaco. Based on these estimates, management estimated that goodwill in the Romaco segment should be written down by $30,000,000. This charge was included in our first quarter earnings. A formal appraisal will be completed in the third quarter to determine the final goodwill write-down, and the results of the appraisal could differ from management’s current estimate.

Unless otherwise noted the recorded costs mentioned below in this note were included on the “other” expense line of our Consolidated Condensed Statement of Operations in the period indicated.

During fiscal 2006 and 2005, we incurred costs related to a restructuring program of our Process Solutions and Romaco segments. The restructuring plan was initiated to improve the profitability of these segments in light of their current worldwide economic conditions. The restructuring plan included the following:

	•		Plant closures (one of two Reactor Systems facilities in Italy, a Reactor Systems facility in Mexico and the Unipac facility of Romaco in Italy).

	•		Headcount reductions to support the Reactor Systems business reorganization and to bring the personnel costs in line with the current level of business.

	•		Headcount reductions at Romaco with the Unipac integration into the Macofar facility and removal of duplicate administrative costs at other locations.

The fiscal 2005 restructuring activities were as follows:

	•		The Unipac facility and the Reactor Systems facility in Italy were sold.

	•		The Reactor Systems headcount was reduced by 134.

	•		The Romaco headcount was reduced by 108.

The restructuring of our Romaco and Reactor Systems product lines will continue in fiscal 2006 as we continue to consolidate facilities. The consolidation of production facilities will reduce excess production capacity and redundant operating and administrative costs. We expect the fiscal 2006 restructuring costs to be approximately $7,000,000. These costs primarily relate to severance, equipment relocation and costs to exit the facilities. In addition, with the sale of the Hapa and Laetus businesses completed, we are reviewing the most cost effective methods to deliver our Romaco products to market. This review could result in additional personnel termination and facility closure costs.

As a result of the restructuring activities, we recorded costs in fiscal 2005 totaling $3,623,000 in the Process Solutions segment and $4,279,000 in the Romaco segment. The costs in fiscal 2005 were comprised of the following:

	•		$5,677,000 of termination benefits related to the aforementioned headcount reductions.

	•		$1,130,000 to write-down inventory and $355,000 to write-off intangibles related to discontinued product lines. The inventory charge is included in cost of sales.

	•		$332,000 to write-down to estimated net realizable value the facilities that we exited and prepare the facilities for sale.

	•		$408,000 to write down equipment to net realizable value, relocate equipment, relocate employees and other costs.

In the first six months of fiscal 2005, the costs recorded in the Process Solutions segment were $3,802,000 and the costs recorded in the Romaco segment were $2,735,000. The recorded costs in the first six months were comprised of the following:

	•		$5,278,000 of termination benefits related to the aforementioned headcount reductions.

	•		$738,000 to write-down inventory and $175,000 to write-off intangibles related to a discontinued product line. The inventory charge is included in cost of sales.

	•		$323,000 to write-down to estimated net realizable value the Reactor Systems facility in Italy that we exited.

	•		$169,000 for equipment relocation and other costs.

	•		$146,000 gain on the sale of the Unipac facility.

In the first six months of fiscal 2006, the costs recorded in the Process Solutions segment were $777,000 and the costs recorded in the Romaco segment were $1,903,000. The recorded costs in the first six months were comprised of the following:

	•		$1,740,000 of termination benefits related to headcount reductions primarily in Germany where we combined two operations into a single facility and removed redundant costs.

	•		$370,000 to write-off inventory related to a discontinued product line. The inventory charge is included in cost of sales.

	•		$570,000 for equipment relocation and other costs to exit facilities, and costs related to business dispositions.

In February 2006, we announced a further headcount reduction at our Reactor Systems facility in Italy. The severance payments are being negotiated in accordance with local laws and have not been finally determined. Therefore, the liability for severance payments has not been recorded as of February 28, 2006. We estimate the severance liability will be approximately $2,000,000 to $2,500,000.

Following is a progression of the liability for termination benefits:


	(In thousands)
Liability as of August 31, 2005	$	1,074
Payments made		(2,171	)
Costs incurred		1,740
Change in estimate		0


Liability at February 28, 2006	$	643

The Mexico facility is owned by us and will be sold. We expect that facility sale to generate approximately $5,500,000 to $6,000,000 of additional pretax cash proceeds, which exceeds the recorded book value of this facility by approximately $5,400,000 to $5,900,000. We had negotiated a contract for the sale of the Mexico facility but it expired before certain government approvals were obtained. We expect to successfully negotiate an extension of this sale contract but are unable to predict the final transaction sale date because of the pending government approvals.

During the fourth quarter of fiscal 2005, we also sold the inventory and equipment related to our lined-pipe and fittings product line of our Process Solutions segment to Crane, Inc. In addition, in our second quarter, we sold another underutilized facility of our Process Solutions segment. The cash proceeds received from these asset sales were $9,732,000. The loss recognized in 2005 as a result of these asset sales was $2,114,000. The loss is primarily a result of the write-down of the land and building in Charleston, West Virginia to net realizable value. The facility in Charleston, West Virginia is where the lined-pipe and fittings product line was located. Based on the results of a third-party appraisal, we expect the facility sale to generate approximately $1,000,000 of pretax cash proceeds. The facility is in good condition and is believed to be readily marketable, but we are unable to predict the specific timing of the sale of the facility.

We incurred additional costs of $345,000 in the first quarter of fiscal 2006 related to the sale of the lined-pipe and fittings product line. These costs were personnel and facility related costs that we incurred in

connection with our obligation to provide lined-pipe and fittings manufacturing operations to Crane, Inc. during the first quarter.

In the second quarter of fiscal 2006 we recorded a $1,800,000 gain (before minority interest of 24%) on the sale of land and buildings in China. We have signed a contract transferring title of the land and buildings to the buyer. The cash proceeds of $3,300,000 from the sale are expected to be received within six to nine months. We have moved our production operations to a newly constructed facility. We also recorded a liability of $385,000 for costs expected to be incurred when we exit a leased facility in the United Kingdom.

NOTE 4—Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the six month period ended February 28, 2006, by operating segment, are as follows:


	Process			Fluid
	Solutions			Mgmt.		Romaco
	Segment			Segment		Segment			Total
	(In thousands)
Balance as of September 1, 2005	$	141,970		$	104,653	$	62,658		$	309,281
Goodwill acquired during the period		0			0		0			0
Goodwill written off during the period		0			0		(30,000	)		(30,000	)
Translation adjustments and other		(757	)		505		(2,477	)		(2,729	)

Balance as of February 28, 2006	$	141,213		$	105,158	$	30,181		$	276,552

Information regarding our other intangible assets is as follows:


	As of February 28, 2006						As of August 31, 2005
	Carrying		Accumulated				Carrying		Accumulated
	Amount		Amortization		Net		Amount		Amortization		Net
	(In thousands)
Patents and Trademarks	$	8,864	$	6,251	$	2,613	$	9,678	$	6,027	$	3,651
Non-compete Agreements		8,800		5,989		2,811		8,800		5,739		3,061
Financing Costs		9,359		7,120		2,239		8,855		6,495		2,360
Pension Intangible		5,148		0		5,148		5,148		0		5,148
Other		5,939		5,274		665		5,939		5,232		707

Total	$	38,110	$	24,634	$	13,476	$	38,420	$	23,493	$	14,927

NOTE 5—Net Income (Loss) per Share


	Three Months Ended				Six Months Ended
	February 28,				February 28,
	2006		2005		2006			2005
	(In thousands, except per share amounts)
			(restated)					(restated)
Numerator:
Basic:
Net income (loss)	$	1,202	$	51	$	(28,532	)	$	(820	)
Effect of dilutive securities:
Convertible debt interest		480		480		960			960

Income (Loss) attributable to diluted shares	$	1,682	$	531	$	(27,572	)	$	140

Denominator:
Basic:
Weighted average shares		14,744		14,589		14,722			14,560
Effect of dilutive securities:
Convertible debt		1,778		1,778		1,778			1,778
Dilutive options		15		65		17			45

Diluted shares		16,537		16,432		16,517			16,383


Basic net income (loss) per share	$	0.08	$	0.00	$	(1.94	)	$	(0.06	)

Diluted net income (loss) per share	$	0.08	$	0.00	$	(1.94	)	$	(0.06	)

NOTE 6—Product Warranties

Warranty obligations are contingent upon product failure rates, material required for the repairs and service delivery costs. We estimate the warranty accrual based on specific product failures that are known to us plus an additional amount based on the historical relationship of warranty claims to sales.

Changes in our product warranty liability during the period are as follows:


	Six Months Ended
	February 28, 2006
	(In thousands)
Balance at beginning of the period	$	9,176
Warranties issued during the period		1,156
Settlements made during the period		(881	)
Translation adjustment impact		(69	)

Balance at end of the period	$	9,382

NOTE 7—Long-Term Debt


	February 28, 2006
	(In thousands)
Senior debt:
Revolving credit loan	$	15,600
Senior notes		100,000
Other		10,683
10.00% subordinated notes		12,123
8.00% convertible subordinated notes		40,000

Total debt		178,406
Less current portion		17,842

Long-term debt	$	160,564

On December 23, 2005, we amended our Bank Credit Agreement (“Agreement”). Refer to our Annual Report on Form 10-K for the year ended August 31, 2005 for a description of the former Agreement. The Agreement provides that we may borrow on a revolving credit basis up to a maximum of $50,000,000. All outstanding amounts under the Agreement are due and payable on November 30, 2007. Interest is variable based upon formulas tied to LIBOR or prime, at our option, and is payable at least quarterly. Indebtedness under the Agreement is secured by accounts receivable, inventory, equipment and fixtures of our U.S. subsidiaries, the pledge of the stock of our U.S. subsidiaries and the pledge of the stock of certain non-U.S. subsidiaries. Under this Agreement and other lines of credit, we have $34,400,000 of unused borrowing capacity. However, due to our financial covenants and outstanding standby letters of credit, we could only incur additional indebtedness of $16,100,000 at February 28, 2006. We have $18,301,000 of standby letters of credit outstanding at February 28, 2006. These standby letters of credit are used as security for advance payments received from customers and future payments to our vendors.

We have $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. Security for the Senior Notes is shared with our Bank Credit Agreement noted above.

The above agreements have certain restrictive covenants including limitations on cash dividends, treasury stock purchases and capital expenditures and thresholds for interest coverage and leverage ratios. The amount of cash dividends and treasury stock purchases, other than in relation to stock option exercises, we may incur in each fiscal year is restricted to the greater of $3,500,000 or 50% of our consolidated net income for the immediately preceding fiscal year, plus a portion of any unused amounts from the preceding fiscal year.

We have $12,123,000 of 10.00% Subordinated Notes (“Subordinated Notes”) denominated in euro with the former owner of Romaco. The Subordinated Notes are due in 2007 and interest is payable quarterly.

We have $40,000,000 of 8.00% Convertible Subordinated Notes Due 2008 (“8.00% Convertible Subordinated Notes”). The 8.00% Convertible Subordinated Notes are due on January 31, 2008, bear interest at 8.00%, payable semi-annually on March 1 and September 1 and are convertible into common stock at a rate of $22.50 per share. Holders may convert at any time until maturity. The 8.00% Convertible Subordinated Notes are currently redeemable at our option at a redemption price equal to 100% of the principal amount.

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

We have entered into an interest rate swap agreement. The interest rate swap agreement utilized by us effectively modifies our exposure to interest rate risk by converting our fixed rate debt to floating rate debt. This agreement involves the receipt of fixed rate amounts in exchange for floating rate interest payments over the life of the agreement without an exchange of underlying principal amounts. The mark-to-market values of both the fair value hedging instrument and the underlying debt obligation were equal and recorded as offsetting gains and losses in current period earnings. The fair value hedge qualifies for treatment under the short-cut method of measuring effectiveness. As a result, there is no impact on earnings due to hedge ineffectiveness. The interest rate swap agreement totals $30,000,000, expires in 2008 and allows us to receive an interest rate of 6.76% and pay an interest rate based on LIBOR.

NOTE 8 — Retirement Benefits

Retirement and other postretirement plan costs are as follows:

Pension Benefits


	Three Months Ended						Six Months Ended
	February 28,						February 28,
	2006			2005			2006			2005
	(In thousands)						(In thousands)
Service cost	$	888		$	1,058		$	1,775		$	2,116
Interest cost		1,854			2,276			3,709			4,552
Expected return on plan assets		(1,415	)		(1,819	)		(2,829	)		(3,638	)
Amortization of prior service cost		157			130			644			260
Amortization of unrecognized losses		322			285			314			570


Net periodic benefit cost	$	1,806		$	1,930		$	3,613		$	3,860

Other Postretirement Benefits


	Three Months Ended				Six Months Ended
	February 28,				February 28,
	2006		2005		2006		2005
	(In thousands)				(In thousands)
Service cost	$	87	$	83	$	173	$	166
Interest cost		457		435		914		870
Amortization of prior service cost		55		53		110		106
Amortization of unrecognized losses		189		180		378		360


Net periodic benefit cost	$	788	$	751	$	1,575	$	1,502

NOTE 9—Income Taxes

The estimated annual effective tax rate was 49.9% for the six month period of fiscal 2006 after considering the impact of the goodwill impairment charge for which there was no tax benefit. The tax rate for the comparable six month period of fiscal 2005 was 83.2%. The effective tax rate is higher than the statutory U.S. tax rate due to losses in Italy and Germany where the tax benefits were not recognized because of uncertainty about our ability to utilize these tax losses against future taxable income.

NOTE 10—Comprehensive Income


	Three Months Ended					Six Months Ended
	February 28,					February 28,
	2006		2005			2006			2005
	(In thousands)					(In thousands)
			(restated)						(restated)
Net income (loss)	$	1,202	$	51		$	(28,532	)	$	(820	)
Other comprehensive income (loss):
Fair value of interest rate swap		0		0			(345	)		0
Foreign currency translation		2,127		(4,665	)		(3,444	)		13,267


Comprehensive income (loss)	$	3,329	$	4,614		$	(32,321	)	$	12,447

NOTE 11 – New Accounting Pronouncement

We sponsor a long-term incentive stock plan to provide for the granting of stock-based compensation to officers and other key employees. In addition, we sponsor stock option and stock compensation plans for non-employee directors. Under the plans, the stock option price per share may not be less than the fair market value per share as of the date of grant. For officers and other key employees, outstanding grants become exercisable over a three-year period, while options for non-employee directors are immediately exercisable. Prior to September 1, 2005, we accounted for those plans under the recognition and measurement provisions of APB Opinion No. 25,Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB Statement No. 123,Accounting for Stock-Based Compensation. No stock-based employee compensation cost was recognized in the Statement of Operations for years ended August 31, 2005 and 2004, or in the three and six month periods ended February 28, 2005, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective September 1, 2005, we adopted the fair value recognition provisions of FASB Statement No. 123(R),Share-Based Payments, using the modified-prospective-transition method. Under that transition method, compensation cost recognized in the first half of fiscal 2006 included: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of September 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of Statement 123, and (b) compensation cost for all share-based payments granted subsequent to September 1, 2005, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). Results for the prior period have not been restated.

As a result of adopting Statement 123(R) on September 1, 2005, our income before income taxes and net income for the quarter ended February 28, 2006 are $225,000 and $118,000 lower, respectively, than if we had continued to account for share-based compensation under APB Opinion No. 25. Basic and diluted income per share for the quarter ended February 28, 2006 would have been $0.09 if we had not adopted Statement 123(R), compared with reported basic and diluted income per share of $0.08. Our loss before income taxes and net loss for the six month period ended February 28, 2006 are $466,000 and $233,000 higher, respectively, than if we had continued to account for share-based compensation under APB Opinion No. 25. Basic and diluted loss per share for the six month period ended February 28, 2006 would have been $1.92 if we had not adopted Statement 123(R), compared with reported basic and diluted loss per share of $1.94.

The following table illustrates the effect on net income and net income per share if we had applied the fair value recognition provisions of Statement 123 to options granted under our stock option plans in all periods presented. For purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes-Merton option-pricing formula and amortized to expense over the options’ vesting periods.


	Three Months			Six Months			Twelve Months
	Ended			Ended			Ended
	February 28,						August 31,
	2005			2005			2005			2004
	(In thousands, except per share amounts)
	(restated)			(restated)						(restated)
Net income (loss), as reported	$	51		$	(820	)	$	(262	)	$	11,648

Deduct: Total Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		262			523			1,005			1,089

Pro forma net (loss) income	$	(211	)	$	(1,343	)	$	(1,267	)	$	10,559

(Loss) Income per share:
Basic—as reported	$	(0.00	)	$	(0.06	)	$	(0.02	)	$	0.80

Basic—pro forma	$	(0.01	)	$	(0.09	)	$	(0.09	)	$	0.73

Diluted—as reported	$	(0.00	)	$	(0.06	)	$	(0.02	)	$	0.80

Diluted—pro forma	$	(0.01	)	$	(0.09	)	$	(0.09	)	$	0.73

NOTE 12—Business Segments

Beginning with the first quarter of fiscal 2006, we reported realigned segments (see Note 3 – Statement of Operations Information). The amounts presented for fiscal 2005 have been restated to reflect this realignment. The following tables present information about our reportable business segments.


	Three Months Ended						Six Months Ended
	February 28,						February 28,
	2006			2005			2006			2005
							(In thousands)
Unaffiliated customer sales:
Fluid Management	$	57,803		$	47,342		$	110,259		$	92,273
Process Solutions		53,904			57,123			107,034			113,946
Romaco		38,290			41,165			71,663			71,866


Total	$	149,997		$	145,630		$	288,956		$	278,085


Income (loss) before Interest and Taxes (“EBIT”)
Fluid Management	$	12,660		$	9,415		$	24,185		$	18,458
Process Solutions		1,398			1,344			3,307			1,236
Romaco		(2,419	)		(1,480	)		(36,069	)		(6,952	)
Corporate and eliminations		(4,129	)		(3,416	)		(9,172	)		(6,962	)


Total	$	7,510		$	5,863		$	(17,749	)	$	5,780


	February 28,		Aug. 31,
	2006		2005
	(In thousands)
Identifiable Assets
Fluid Management	$	223,590	$	215,176
Process Solutions		308,600		326,709
Romaco		154,766		186,464
Corporate and eliminations		7,144		11,986

Total	$	694,100	$	740,335

Note 13—Subsequent Event—Business Dispositions

On March 31, 2006 we completed the sale of two of our Romaco business units – Hapa and Laetus – for approximately $31,000,000. We received cash proceeds of $26,900,000 with the remaining purchase price paid into an escrow account. The purchase price is subject to a final adjustment to reflect the net asset on March 31, 2006. Hapa designs, manufactures and sells printing systems used in the packaging of pharmaceutical products. Laetus designs, manufactures and sells packaging security systems, including bar code reading and vision inspection systems, for use in the pharmaceutical and cosmetic industries. Hapa and Laetus had combined sales of approximately $42,000,000 in our fiscal year ended August 31, 2005. The cash proceeds were used to pay off the $12,123,000 balance of our 10.00% Subordinated Notes and reduce our revolving credit loan.

Item 2 —Management’s Discussion and Analysis of Financial Condition and Results of Operations

Restatement of Prior Financial Information

We have restated our historical Consolidated Financial Statements for the cumulative impact of errors in income tax expense. For more information with respect to the restatement, see “Note 2” to the Consolidated Financial Statements contained in our Annual Report on Form 10-K for our fiscal year ended August 31, 2005. We did not amend our previously filed Quarterly Reports on Form 10-Q for the restatement. Therefore the financial statements and related financial information contained in such reports should no longer be relied upon. The first quarter of fiscal 2005 results of operations in this report have been restated. Throughout “Managements Discussion and Analysis of Financial Condition and Results of Operations,” all referenced amounts for the affected prior periods and prior period comparisons reflect the balances and amounts on a restated basis.

Business Dispositions

On March 31, 2006 we completed the sale of two of our Romaco business units – Hapa and Laetus – for $31.0 million. We received cash proceeds of $26.9 million with the remaining purchase price paid into an escrow account. The purchase price is subject to a final adjustment to reflect the net asset on March 31, 2006. Hapa designs, manufactures and sells printing systems used in the packaging of pharmaceutical products. Laetus designs, manufactures and sells packaging security systems, including bar code reading and vision inspection systems, for use in the pharmaceutical and cosmetic industries. Hapa and Laetus had combined sales of approximately $42.0 million in our fiscal year ended August 31, 2005. The cash proceeds were used to pay off the $12.1 million balance of our 10.00% Subordinated Notes and reduce our revolving credit loan.

Results of Operations

Overview

We are a leading designer, manufacturer and marketer of highly engineered, application-critical equipment and systems for the global energy, chemical, pharmaceutical, municipal wastewater and industrial markets. In our estimation, our principal brand names – Pfaudler^®, Moyno^®, Chemineer^®, FrymaKoruma^®, Siebler^®, and Hercules^® – hold the number one or two market share position in the niche markets they serve. We operate with three market-focused business segments: Fluid Management, Process Solutions and Romaco.

Fluid Management.Our Fluid Management business segment includes our Energy Systems, Moyno and Tarby product lines serving oil and gas exploration and recovery, wastewater treatment, chemical processing and other industrial markets. Our Energy Systems product line designs, manufactures and markets equipment and systems used in oil and gas exploration and recovery. Our equipment and systems include hydraulic drilling power sections, down-hole pumps and a broad line of ancillary equipment, such as rod guides, rod and tubing rotators, wellhead systems, pipeline closure products and valves. These products and systems are used at the wellhead and in subsurface drilling and production. Our Moyno and Tarby products are pumps that utilize progressing cavity technology to provide fluids-handling solutions for a wide range of applications involving the flow of viscous, abrasive and solid-laden slurries and sludges.

Process Solutions.Our Process Solutions business segment includes our Reactor Systems, Chemineer and Edlon product lines and is focused primarily on the chemical processing and pharmaceutical markets. Our Reactor Systems product line designs, manufacturers and markets primary processing equipment and engineered systems and we believe has the leading worldwide position in glass-lined reactors and storage vessels. Our Chemineer products are high-quality standard and customized fluid-agitation equipment and systems. Our Edlon products are customized fluoropolymer-lined fittings, vessels and accessories.

RomacoOur Romaco product line designs, manufacturers and markets secondary processing and packaging equipment to the pharmaceutical and cosmetics markets. The product lines include dosing, filling and packaging equipment.

We have manufacturing facilities in 15 countries and approximately 63% of our sales are international sales.

For our second quarter of fiscal 2006, ended February 28, 2006, our consolidated net sales were $150.0 million which was $4.4 million higher than the second quarter of fiscal 2005. For the fiscal 2006 second quarter, we recorded net income of $1.2 million versus a net income of $0.1 million in the comparable prior year quarter. The primary reason for the profit increase is higher sales volumes in our Fluid Management segment.

The following tables present the components of our consolidated statement of operations and segment information for the three and six month periods of fiscal 2006 and 2005.


	Three Months Ended						Six Months Ended
	February 28,						February 28,
	2006			2005			2006			2005
Net Sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		66.8			68.0			66.6			68.0

Gross profit		33.2			32.0			33.4			32.0
SG&A expenses		27.5			26.5			28.4			27.4
Amortization		0.4			0.4			0.3			0.4
Goodwill impairment charge		0.0			0.0			10.4			0.0
Other		0.3			1.1			0.4			2.1

EBIT		5.0	%		4.0	%		(6.1	)%		2.1	%


	Three Months Ended						Six Months Ended
	February 28,						February 28,
	2006			2005			2006			2005
	(In thousands, except %’s)
Segment
Fluid Management:
Sales	$	57,803		$	47,342		$	110,259		$	92,273
EBIT		12,660			9,415			24,185			18,458
EBIT %		21.9	%		19.9	%		21.9	%		20.0	%
Process Solutions:
Sales	$	53,904		$	57,123		$	107,034		$	113,946
EBIT		1,398			1,344			3,307			1,236
EBIT %		2.6	%		2.4	%		3.1	%		1.1	%
Romaco:
Sales	$	38,290		$	41,165		$	71,663		$	71,866
EBIT		(2,419	)		(1,480	)		(36,069	)		(6,952	)
EBIT %		(6.3	)%		(3.6	)%		(50.3	)%		(9.7	)%

Impact of Goodwill Impairment and Restructuring Charges

Beginning with the first quarter of fiscal 2006, we are reporting realigned segments as set forth above. The new segment structure is a result of a significant reorganization of management, operations and reporting that occurred during the first quarter of fiscal 2006. The Fluid Management segment is comprised of the R&M Energy Systems, Moyno and Tarby product lines. The Process Solutions segment is comprised of the Pfaudler, Tycon Technoglass, Chemineer and Edlon product lines. The Romaco segment includes for the periods presented the Hapa, Laetus, FrymaKoruma, Noack, Siebler, Macofar, Promatic, Unipac, IPM, Zanchetta and Bosspak product lines.

the fair value of Romaco. After considering the fair value of the Romaco segment, management determined there was an indicator of goodwill impairment under the rules of FAS 142. Management estimated the fair value of the Romaco segment using current prices that the Company may receive in the potential disposition of all or parts of Romaco. Based on these estimates, management estimated that goodwill in the Romaco segment should be written down by $30.0 million. This charge was included in the first quarter earnings. A formal appraisal will be completed in the third quarter to determine the final goodwill write-down, and the results of the appraisal could differ from management’s current estimate.

During fiscal 2005 we incurred costs related to a restructuring program of our Process Solutions and Romaco segments. The restructuring plan was initiated to improve the profitability of these segments in light of current worldwide economic conditions. The restructuring plan included the following:

	•		Plant closures (one of two Reactor Systems facilities in Italy, a Reactor Systems facility in Mexico and the Unipac facility of Romaco in Italy).

	•		Headcount reductions to support the Reactor Systems business reorganization and to bring the personnel costs in line with the current level of business.

	•		Headcount reductions at Romaco with the Unipac integration into the Macofar facility and removal of duplicate administrative costs at other locations.

The fiscal 2005 restructuring activities were as follows:

	•		The Unipac facility and the Reactor Systems facility in Italy were sold.

	•		The Reactor Systems headcount was reduced by 134.

	•		The Romaco headcount was reduced by 108.

The restructuring of our Romaco and Reactor Systems product lines will continue in fiscal 2006 as we continue to consolidate facilities. The consolidation of production facilities will reduce excess production capacity and redundant operating and administrative costs. We expect the fiscal 2006 restructuring costs to be approximately $7.0 million. These costs primarily relate to severance, equipment relocation and costs to exit the facilities. In addition, with the sale of the Hapa and Laetus businesses completed, we are reviewing the most cost effective methods to deliver our Romaco products to market. This review could result in additional personnel termination and facility closure costs.

As a result of the restructuring activities, we recorded costs in fiscal 2005 totaling $3.6 million in the Process Solutions segment and $4.3 million in the Romaco segment. The costs in fiscal 2005 were comprised of the following:

	•		$5.7 million of termination benefits related to the aforementioned headcount reductions.

	•		$1.1 million to write-down inventory and $0.4 to write-off intangibles related to discontinued product lines. The inventory charge was included in cost of sales.

	•		$0.3 million to write-down to estimated net realizable value the facilities that we exited and prepare the facilities for sale.

	•		$0.4 million to write down equipment to net realizable value, relocate equipment, relocate employees and other costs.

The Mexico facility is owned by us and will be sold. We expect that facility sale to generate approximately $5.5 million to $6.0 million of additional pretax cash proceeds, which exceeds the recorded book value of this facility by approximately $5.4 million to $5.9 million. We had negotiated a contract for the sale of the Mexico facility but it expired before certain government approvals were obtained. We expect to successfully negotiate an extension of this sale contract but are unable to predict the final transaction sale date because of the pending government approvals.

In the first six months of fiscal 2005, the costs recorded in the Process Solutions segment were $3.8 million and the costs recorded in the Romaco segment were $2.7 million. The recorded costs in the first six months

were comprised of the following:

	•		$5.3 million of termination benefits related to the aforementioned headcount reductions.

	•		$0.7 million to write-down inventory and $0.2 million to write-off intangibles related to a discontinued product line. The inventory charge is included in cost of sales.

	•		$0.3 million to write-down to estimated net realizable value the Reactor Systems facility in Italy that we exited.

	•		$0.2 million for equipment relocation and other costs.

	•		$0.2 million gain on the sale of the Unipac facility.

In the first six months of fiscal 2006, the costs recorded in the Process Solutions segment were $0.8 million and the costs recorded in the Romaco segment were $1.9 million. The recorded costs in the first six months were comprised of the following:

	•		$1.7 million of termination benefits related to headcount reductions primarily in Germany where we combined two operations into a single facility and removed redundant costs.

	•		$0.4 million to write-off inventory related to a discontinued product line. The inventory charge is included in cost of sales.

	•		$0.6 million for equipment relocation and other costs to exit facilities, and costs related to business dispositions.

During the fourth quarter of fiscal 2005, we also sold the inventory and equipment related to our lined pipe and fittings product line of our Process Solutions segment to Crane, Inc. In addition, in our second quarter, we sold another underutilized facility of our Process Solutions segment. The cash proceeds received from these asset sales were $9.7 million. The loss recognized in 2005 as a result of these asset sales was $2.1 million. The loss is primarily a result of the write-down of the land and building in Charleston, West Virginia to net realizable value. The facility in Charleston, West Virginia is where the lined-pipe and fittings product line was located. Based on the results of a third-party appraisal, we expect the facility sale to generate approximately $1.0 million of pretax cash proceeds. The facility is in good condition and is believed to be readily marketable, but we are unable to predict the specific timing of the sale of the facility.

We incurred additional costs of $0.3 million in the first quarter of fiscal 2006 related to the sale of the lined-pipe and fittings product line. These costs were personnel and facility related costs that we incurred in connection with our obligation to provide lined-pipe and fittings manufacturing operations to Crane, Inc. during the first quarter.

In the second quarter of fiscal 2006 we recorded a $1.8 million gain (before minority interest of 24%) on the sale of land and buildings in China. We have signed a contract transferring title of the land and buildings to the buyer. The cash proceeds of $3.3 million from the sale are expected to be received within six to nine months. We have moved our production operations to a newly constructed facility. We also recorded a liability of $0.4 million for costs expected to be incurred when we exit a leased facility in the United Kingdom.

Three months ended February 28, 2006

Net Sales

Consolidated net sales for the second quarter of fiscal 2006 were $150.0 million which were $4.4 million

higher than net sales for the second quarter of fiscal 2005.

The Fluid Management segment had sales of $57.8 million in the second quarter of fiscal 2006 compared with $47.3 million in the second quarter of fiscal 2005. The sales increase is from strong demand for oilfield equipment products due to high levels of oil and gas exploration and recovery activity as well as improved chemical processing and general industrial markets. Orders for this segment increased from $48.2 million in the second quarter of fiscal 2005 to $63.8 million in the second quarter of fiscal 2006. The increase in orders in this segment reflects the strong demand from the oil and gas exploration and recovery markets.

The Process Solutions segment had sales of $53.9 million in the second quarter of fiscal 2006 compared with $57.1 million in the second quarter of fiscal 2005. Excluding the impact of exchange rates, sales declined $2.3 million. The decline is a result of the sale of the lined-pipe and fittings product line in August 2005 and lower Pfaudler product line sales in the U.S. and Europe to pharmaceutical customers. Incoming orders in this segment were $61.0 million in the second quarter of fiscal 2006 compared with $57.3 million in the second quarter of fiscal 2005. The increase in orders is in our Chemineer product line from the public utility market for flue gas desulphurization projects.

The Romaco segment had sales of $38.3 million in the second quarter of fiscal 2006 compared with $41.2 million in the second quarter of fiscal 2005. Excluding the impact of exchange rates, the second quarter of fiscal 2006 sales were consistent with the second quarter of fiscal 2005. The overall market conditions in Europe remain difficult. Consolidation within the pharmaceutical industry and weak economic conditions in Europe have caused excess production capacity in the pharmaceutical industry. The purchase of capital equipment by these pharmaceutical companies has declined and new projects are being delayed, which has negatively impacted sales of our products. Incoming orders in this segment decreased to $42.0 million in the second quarter of fiscal 2006 compared with $45.3 million in the second quarter of fiscal 2005. Again, excluding the impact of changes in exchange rates, the second quarter of fiscal 2006 orders are consistent with the second quarter of fiscal 2005.

Earnings Before Interest and Income Taxes (EBIT)

The Company’s operating performance is evaluated using several measures. One of those measures, EBIT is income before interest and income taxes and is reconciled to net loss on our Consolidated Condensed Statement of Operations. We evaluate performance of our business segments and allocate resources based on EBIT. EBIT is not, however, a measure of performance calculated in accordance with accounting principles generally accepted in the United States and should not be considered as an alternative to net income as a measure of our operating results. EBIT is not a measure of cash available for use by management.

Consolidated EBIT for the second quarter of fiscal 2006 was $7.5 million compared with $5.9 million in the second quarter of fiscal 2005. Included in the current quarter’s EBIT are the aforementioned $2.2 million of costs related to the restructuring of our Romaco and Process Solutions segments compared with restructuring costs of $1.6 million in prior year. Our gross margin has increased in fiscal 2006 due to the sales growth in our Fluid Management segment which has higher product margins. SG&A costs have increased due to higher costs related to Sarbanes-Oxley compliance, expensing of stock options and higher costs to support the growing Fluid Management segment.

The Fluid Management segment had EBIT of $12.7 million in the second quarter of fiscal 2006 compared with $9.4 million in the second quarter of fiscal 2005. The increase in EBIT is due to the increase in sales volumes described above.

The Process Solutions segment had EBIT of $1.4 million in the second quarter of fiscal 2006 compared with $1.3 million in the second quarter of fiscal 2005. The restructuring costs were $0.3 million lower in the second quarter of fiscal 2006 than the comparable prior year period. In addition, sales declined by $3.2 million which resulted in a decrease in EBIT of $1.0 million. EBIT was further reduced by under absorption of production costs in our European plants. Offsetting these items was a gain of $1.8 million on the sale of land and buildings in China that were vacated when we moved our operations to a new facility. Finally, we recorded a liability of $0.4 million for costs expected to be incurred when we exit a leased facility in the United Kingdom.

The Romaco segment had EBIT of negative $2.4 million in the second quarter of fiscal 2006 compared with negative $1.5 million in the second quarter of fiscal 2005. Included in the second quarter of fiscal 2006 EBIT is restructuring charges of $1.4 million compared with restructuring charges of $0.5 million in the second quarter of fiscal 2005. After considering the restructuring charges, Romaco’s EBIT in the second quarter of fiscal 2006 is consistent with the second quarter of fiscal 2005.

Interest Expense

Interest expense was $3.7 million in the second quarter of fiscal 2006 and 2005. Our average debt levels were lower in fiscal 2006; however, this was offset by higher interest rates.

Income Taxes

The effective tax rate was 47.8% for the three month period of fiscal 2006. The tax rate for the comparable three month period of fiscal 2005 was 83.2%. The effective tax rate is higher than the statutory U.S. tax rate due to losses in Italy and Germany where no tax benefit can be recognized because of uncertainty about our ability to utilize these tax losses against future taxable income.

Six months ended February 28, 2006

Net Sales

Consolidated net sales for the first half of fiscal 2006 were $289.0 million which were $10.9 million higher than net sales for the first half of fiscal 2005.

The Fluid Management segment had sales of $110.3 million in the first half of fiscal 2006 compared with $92.3 million in the first half of fiscal 2005. The sales increase is from strong demand for oilfield equipment products due to high levels of oil and gas exploration and recovery activity as well as improved chemical processing and general industrial markets. Orders for this segment increased from $96.4 million in the first half of fiscal 2005 to $113.7 million in the first half of fiscal 2006. The increase in orders in this segment reflects the strong demand from the oil and gas exploration and recovery markets.

The Process Solutions segment had sales of $107.0 million in the first half of fiscal 2006 compared with $113.9 million in the first half of fiscal 2005. Excluding the impact of exchange rates, sales declined $5.8 million. The decline is a result of the sale of the lined-pipe and fittings product line in August 2005 and lower Pfaudler product line sales in the U.S. and Europe to pharmaceutical customers. Incoming orders in this segment were $120.0 million in the first half of fiscal 2006 compared with $123.5 million in the first half of fiscal 2005. Excluding the impact of exchange rates, the first half orders decreased by $2.5 million.

The Romaco segment had sales of $71.7 million in the first half of fiscal 2006 compared with $71.9 million in the first half of fiscal 2005. Excluding the impact of exchange rates, the first half of fiscal 2006 sales were $2.0 million higher than the first half of fiscal 2005. The overall market conditions in Europe remain difficult. Consolidations within the pharmaceutical industry and weak economic conditions in Europe have caused excess production capacity in the pharmaceutical industry. The purchase of capital equipment by these pharmaceutical companies has declined and new projects are being delayed, which has negatively impacted sales of our products. Incoming orders in this segment decreased to $79.5 million in the first half of fiscal 2006 compared with $87.0 million in the first half of fiscal 2005. Approximately $4.0 million of the decline is a result of changes in exchange rates. The remaining decline is due to lower orders in the pharmaceutical packaging market.

Earnings Before Interest and Income Taxes (EBIT)

Consolidated EBIT for the first half of fiscal 2006 was adversely affected by a $30.0 million non-cash goodwill impairment charge taken in the first quarter of fiscal 2006. This resulted in EBIT being a negative $17.7 million in the first half of fiscal 2006 compared with $5.8 million in the first half of fiscal 2005. Included in the current six month’s EBIT are the aforementioned goodwill impairment charge of $30.0 million and $3.0 million of costs related to the restructuring of our Romaco and Process Solutions segments compared with restructuring costs of $6.5 million in the prior year. Our gross margin has increased in the

first half of fiscal 2006 due to the sales growth in our Fluid Management segment which has higher product margins. SG&A costs have increased due to higher costs related to Sarbanes-Oxley compliance, expensing of stock options and higher costs to support the growing Fluid Management segment.

The Fluid Management segment had EBIT of $24.2 million in the first half of fiscal 2006 compared with $18.5 million in the first half of fiscal 2005. The increase in EBIT is due to the increase in sales volumes described above.

The Process Solutions segment had EBIT of $3.3 million in the first half of fiscal 2006 compared with $1.2 million in the first half of fiscal 2005. The restructuring costs were $2.7 million lower in the first half of fiscal 2006 than the comparable prior year period. In addition, sales declined by $6.9 million which resulted in a decrease in EBIT of $1.8 million. EBIT was further reduced by under absorption of production costs in our European plants. Offsetting these items was a gain of $1.8 million on the sale of land and buildings in China that were vacated when we moved our operations to a new facility. Finally we recorded a liability of $0.4 million for costs expected to be incurred when we exit a leased facility in the United Kingdom.

The Romaco segment had EBIT of negative $36.1 million in the first half of fiscal 2006 compared with negative $7.0 million in the first half of fiscal 2005. Included in the first half of fiscal 2006 EBIT is a goodwill impairment charge of $30.0 million and restructuring charges of $1.9 million compared with restructuring charges of $2.7 million in the first half of fiscal 2005. After considering the goodwill impairment charge and restructuring charges, Romaco’s EBIT in the first half of fiscal 2006 is consistent with the first half of fiscal 2005.

Interest Expense

Interest expense was $7.2 million in the first half of fiscal 2006 and 2005. Our average debt levels were lower in fiscal 2006; however, this was offset by higher interest rates.

Income Taxes

The estimated annual effective tax rate was 49.9% for the six month period of fiscal 2006. The tax rate for the comparable six month period of fiscal 2005 was 83.2%. The effective tax rate is higher than the statutory U.S. tax rate due to losses in Italy and Germany where no tax benefit can be recognized because of uncertainty about our ability to utilize these tax losses against future taxable income.

Liquidity and Capital Resources

Operating Activities

In the first half of fiscal 2006, our cash flow used by operations was $3.1 million compared with cash flow used by operations of $5.5 million in the first half of fiscal 2005. The negative cash flow from operating activities in the first half is due to inventory purchases to support order backlog, semi-annual interest payments and pension contributions.

We expect our fiscal 2006 operating cash flow to be adequate to fund the fiscal year 2006 operating needs, scheduled debt service, shareholder dividend requirements and planned capital expenditures of approximately $20.0 million. Our planned capital expenditures are related to information system upgrades, support of new products, cost reductions and replacement items.

Investing Activities

Our capital expenditures were $8.1 million in the first half of fiscal 2006 compared with $9.1 million in the first half of fiscal 2005. The majority of our capital expenditures were for replacement of equipment and additional production capacity in China.

Credit Agreement

On December 23, 2005, we amended our Bank Credit Agreement (“Agreement”). Refer to our Annual Report on Form 10-K for the year ended August 31, 2005 for a description of the former Agreement. The Agreement provides that we may borrow on a revolving credit basis up to a maximum of $50.0 million. All outstanding amounts under the Agreement are due and payable on November 30, 2007. Interest is variable based upon formulas tied to LIBOR or prime, at our option, and is payable at least quarterly. Indebtedness under the Agreement is secured by accounts receivable, inventory, equipment and fixtures of our U.S. subsidiaries, the pledge of the stock of our U.S. subsidiaries and the pledge of the stock of certain non-U.S. subsidiaries. Under this Agreement and other lines of credit, we have $34.4 million of unused borrowing capacity. However, due to our financial covenants and outstanding standby letters of credit, we could only incur additional indebtedness of $16.1 million at February 28, 2006. We have $18.3 million of standby letters of credit outstanding at February 28, 2006. These standby letters of credit are used as security for advance payments received from customers and future payments to our vendors.

Following is information regarding our long-term contractual obligations and other commitments outstanding as of February 28, 2006:


	Payments Due by Period
					Two to
Long-term contractual			One year		three		Four to		After five
obligations	Total		or less		years		five years		years
	(In thousands)
Long-term debt	$	178,406	$	17,842	$	128,939	$	31,200	$	425
Capital lease obligations		0		0		0		0		0
Operating leases (1)		20,000		5,000		7,600		4,700		2,700
Unconditional purchase obligations		0		0		0		0		0

Total contractual cash obligations	$	198,406	$	22,842	$	136,539	$	35,900	$	3,125


(1)		Operating leases are estimated as of February 28, 2006 and consist primarily of building and equipment leases.


	Amount of Commitment Expiration Per Period
					Two to
Other commercial			One year		three		Four to		After five
commitments	Total		or less		years		five years		years
	(In thousands)
Lines of credit	$	0	$	0	$	0	$	0	$	0
Standby letters of credit		18,301		18,301		0		0		0
Guarantees		0		0		0		0		0
Standby repurchase obligations		0		0		0		0		0
Other commercial commitments		106		106		0		0		0

Total commercial commitments	$	18,407	$	18,407	$	0	$	0	$	0

Critical Accounting Policies

In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States of America, which in many cases require us to make assumptions, estimates and judgments that affect the amounts reported. Many of these policies are straightforward. There are, however, some policies that are critical because they are important in determining the financial condition and results of operations and some may involve management judgments due to the sensitivity of the methods, assumptions and estimates necessary in determining the related income statement, asset and/or liability amounts. These policies are described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Report on Form 10-K for the year ended August 31, 2005.

Other than the adoption of FASB Statement 123(R),Share Based Payments,there have been no material changes in the accounting policies followed by us during fiscal 2006.

Safe Harbor Statement

In addition to historical information, this Form 10-Q 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 Form 10-Q was filed. Actual events and results may differ materially from those described in the forward-looking statements. Among the factors that could cause material differences are a significant decline in capital expenditures in specialty chemical and pharmaceutical industries, a major decline in oil and natural gas prices, foreign exchange rate fluctuations, the impacts of Sarbanes-Oxley section 404 procedures, work stoppages related to union negotiations, customer order cancellations, the ability of the Company to comply with the financial covenants and other provisions of its financing arrangements, the ability of the Company to realize the benefits of its restructuring program in its Romaco and Process Solutions Segments, including the receipt of cash proceeds from the sale of excess facilities, results of business unit appraisals, and general economic conditions that can affect demand in the markets served by the Company. The Company undertakes no obligation to update or revise any forward-looking statement.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

In our normal operations, we have market risk exposure to foreign currency exchange rates and interest rates. There has been no significant change in our market risk exposure with respect to these items during the quarter ended February 28, 2006. For additional information see “Qualitative and Quantitative Disclosures About Market Risk” at Item 7A of our Annual Report on Form 10-K for the year ended August 31, 2005.

Item 4. Controls and Procedures

(A) Evaluation of Disclosure Controls and Procedures

Management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), conducted an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (Disclosure Controls) as of February 28, 2006. Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s (SEC) rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our quarterly evaluation of Disclosure Controls includes an evaluation of some components of our internal control over financial reporting, and internal control over financial reporting is also separately evaluated on an annual basis.

During the first half of fiscal 2006, we took steps toward remediating the identified material weaknesses relating to income tax matters and the financial statement close process discussed in detail in our Form 10-K for the year ended August 31, 2005. With regard to income tax matters, these steps included engaging additional external advisors to assist and review on a quarterly basis our income tax calculations for financial accounting purposes and to review on a contemporaneous basis transactions that involve complex tax calculations. With regard to the financial statement close process, we have initiated additional corporate reviews of inventory and employee related liabilities, implemented new accounting policies, and provided employee training. However, as of February 28, 2006 we had not yet completed the remediation of these material weaknesses. Therefore, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of that date. Our current plan anticipates the remediation of these material weaknesses prior to the end of our fiscal year.

(B) Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to

materially affect, our internal control over financial reporting, except as described in the preceding paragraph.

Part II—Other Information

Item 4. Submission of Matters to a Vote of Security Holders.

	a)		The Annual Meeting of Shareholders of Robbins & Myers, Inc. was held on January 11, 2006.

	b)		Our Board of Directors is divided into two classes, with one class of directors elected at each annual meeting of shareholders. At the Annual Meeting on January 11, 2006 the following persons were elected directors of Robbins & Myers, Inc. for a term of office expiring at the annual meeting of shareholders to be held in 2008: David T. Gibbons, William D. Manning and Peter C. Wallace. The other directors whose terms of office continued after the Annual Meeting are: Daniel W. Duval, Thomas P. Loftis, Dale L. Medford and Jerome F. Tatar.

	c)		At the Annual Meeting on January 11, 2006, two items were voted on by shareholders, namely:

The election of directors in which, as noted above, Messrs. Gibbons, Manning and Wallace were elected:


	Votes For		Votes Withheld
David T. Gibbons		13,780,114		110,896
William D. Manning		13,596,430		294,580
Peter C. Wallace		13,613,946		277,064

Ratification of the appointment of Ernst & Young LLP as our independent auditors for the fiscal year ending August 31, 2006 was approved with 13,795,788 votes cast for approval, 70,586 against approval and 24,636 abstentions.

Item 6. Exhibits

Exhibits – see INDEX TO EXHIBITS

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: April 10, 2006	BY	/s/ Kevin J. Brown

		Kevin J. Brown
		Vice President and Chief Financial Officer
		(Principal Financial Officer)

DATE: April 10, 2006	BY	/s/ Thomas J. Schockman

		Thomas J. Schockman
		Corporate Controller
		(Principal Accounting Officer)

INDEX TO EXHIBITS


(2)	PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION

	2.1	Asset and Shares Purchase Agreement, dated February 28, 2006 among Robbins & Myers, Inc., Romaco International B.V. and Romaco Pharmatetechnik GmbH and Coesia, S.p.A. was filed in the Company’s Report on Form 8-K filed March 3, 2006	(I)

(10)	MATERIAL CONTRACT

	10.1	Fourth Amended and Restated Credit Agreement dated December 23, 2005 among Robbins & Myers, Inc., Robbins & Myers Finance Europe B.V., the Lenders named in the Amended Agreement and JP Morgan Chase Bank N.A, as Administrative Agent and Issuing Bank was filed in the Company’s Report on Form 8-K dated December 28, 2005.	(I)

(31)	RULE 13A-14(A) CERTIFICATIONS

	31.1	Rule 13a-14(a) CEO Certification	(F)

	31.2	Rule 13a-14(a) CFO Certification	(F)

(32)	SECTION 1350 CERTIFICATIONS

	32.1	Section 1350 CEO Certification	(F)

	32.2	Section 1350 CFO Certification	(F)


“F”		Filed herewith

“I”		Incorporated by reference

“M”		Indicates management contracts or compensatory agreement

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Good

Robbins & Myers Inactive 10-Q2006 Q2 Quarterly report

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