ITEM 1. BUSINESS.
The primary business of The Oilgear Company ("Oilgear" or the "Registrant"; together with its subsidiaries, the "Company") and its subsidiaries is the manufacture and distribution of systems and value engineered components for a broad range of industrial machinery and industrial processes. Oilgear was incorporated under the laws of Wisconsin in 1921. A business description is also provided in Note 2 of "Notes to Consolidated Financial Statements" on page 14 of the Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1998 ("1998 Annual Report") and is hereby incorporated by reference.
Principal Products, Markets and Methods of Distribution
The Company's products primarily involve the flow, pressure, condition, control and measurement of liquids, which the Company refers to as Fluid Power. The Company provides advanced technology in the design and production of Fluid Power components, systems and electronic controls. Its product line includes hydraulic pumps, high pressure intensifier pumps, valves, controls, cylinders, motors, and fluid meters. The Company manufactures both radial and axial piston type hydraulic pumps in sizes delivering from approximately 4 gallons per minute to approximately 230 gallons per minute at pressures ranging up to 15,000 pounds per square inch. The intensifier pumps are reciprocating pumps operating at pressures up to 120,000 pounds per square inch. The valves manufactured are pressure control, directional control, servo valves and prefill valves for pressures up to 15,000 pounds per square inch. The Company's pumps and valves are controlled through the actions of manual, hydraulic, pneumatic, electric, and electrohydraulic controls or control systems. The cylinders manufactured are heavy duty special purpose cylinders operating at up to 3,500 pounds per square inch. The Company's bent axis and axial piston motors are produced in sizes ranging from .85 cubic inch per revolution to 44 cubic inches per revolution.
The Company offers an engineering and manufacturing team capable of providing advanced technology in the design and production of unique fluid power components, systems and electronic controls. The Company's global involvement focuses its expertise on markets in which customers demand top quality, prompt delivery, high performance and responsive aftermarket support. Its piston pumps, motors, valves, controls, manifolds, electronic systems and components, cylinders, reservoirs, skids, meters and other products are utilized in many industries such as the primary metals, machine tool, automobile, petroleum, construction equipment, chemical, plastic, glass, lumber, rubber and food industries. The Company strives to serve those markets requiring high technology and expertise where reliability, top performance and longer service life are needed. The products are sold as individual components or integrated into high performance systems. A portion of the Company's business comes from responsive, high quality aftermarket sales and flexible rebuilding services which include exchange, factory rebuild and field repair service, along with customer education.
The Company's products are sold in the United States directly through 14 district sales offices and by a network of approximately 65 distributors. Sales offices are located in Milwaukee, Wisconsin; Hot Springs Village, Arkansas; Novi, Michigan; Cleveland, Ohio; Dallas and Longview, Texas; Laguna Hills, California; Lynnwood and Point Roberts, Washington; Atlanta, Georgia; Kansas City, Missouri; St. George, Utah; Doylestown, Pennsylvania; and Piqua, Ohio. The Company's international sales are generated directly by employees located in Milwaukee, Wisconsin; Ajax, Ontario, Canada; Bedford and Leeds, England; Paris, France; Hernani, Spain; Hattersheim-Eddersheim and Cologne, Germany; Montirone, Italy; Taren Point, Australia; Belgaum and Bangalore, India; Taejon City, South Korea; Sao Paulo, Brazil; and Pachuca, Mexico; and by a worldwide network of approximately 20 distributors. An Oilgear licensee, Oilgear Japan, is responsible for sales of all equipment sold in Japan. The Company owns 51% of two joint venture companies in India, Oilgear Towler Polyhydron Pvt. Ltd., which distributes products manufactured in the United States, as well as repairs and manufactures designated Oilgear products for the Indian market, and Towler Automation Pvt. Ltd. whose name was changed in 1998 from Oilgear Harman Pvt. Ltd., which designs and manufactures a wide array of process automation systems for global distribution. In 1998, the Company obtained a 58% ownership interest in a joint venture company in Taiwan, Oilgear Towler Taiwan Co. Ltd., which distributes and services Oilgear products to customers in the Taiwanese market.
Competition
The Company is a supplier of components for the capital goods industry. Vigorous competition exists in this industry. The Company's products compete worldwide against the products of a number of domestic and foreign firms currently engaged in the industry, most of which are of greater overall size and resources than the Company. The principal methods of competition include price, product performance, product availability, service, and warranty.
Customers
No material part of the Company's business is dependent upon a single customer or a very few customers.
Backlog
The Company's backlog of orders believed to be firm as of December 31, 1998 was approximately $22,214,000, a decrease of approximately $1,800,000 from the backlog of orders as of December 31, 1997, which was approximately $24,019,000. The Company expects that substantially all such orders will be filled in 1999. The Company's backlog is significant to its operations but is not seasonal in any significant respect. Backlog is generally dependent upon economic cycles affecting capital spending in the industries which utilize the Company's products.
Raw Materials
During the year, iron and steel castings, bearings, steel and other raw materials were generally available from a number of sources, and the Company is generally not dependent on any one supplier.
Patents, Licenses, Franchises
The Company has a number of United States and foreign patents. It does not consider its business to be materially dependent upon any patent, patent application or patent license agreement.
Research and Development
The Company's research and development activities are conducted by members of the engineering staff at its Milwaukee, Wisconsin and Leeds, England plants, who spend a substantial amount of their time on research and development. During 1998, the Company expended $2,500,000, and during 1997 and 1996, $2,543,000 and $2,315,000, respectively, on the research and development activities of its engineering staff. The emphasis of the Company's product development efforts continues to be the expansion of its line of axial piston pumps and the customizing of products to suit specific customer applications.
Environmental Matters
To date, compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had any material effect on the capital expenditures, earnings and competitive position of the Company. The Company does not currently anticipate that compliance with such provisions will have any material effect on its capital expenditures, earnings and competitive position in the future.
Employees
At December 31, 1998, the Company had 1,094 employees.
Seasonal Aspects of Business
The Company's business is not seasonal to any significant extent.
Industry Segments and Principal Products
The Company is engaged in one industry, the manufacture and distribution of fluid power systems and components for industrial machinery and industrial processes. The Company also provides repair parts and service for most of the products it manufactures. See "Principal Products, Markets and Methods of Distribution" above.
Foreign and Domestic Operations and Export Sales
Incorporated by reference to Note 2 of "Notes To Consolidated Financial Statements" on page 14 of the 1998 Annual Report.
ITEM 2.
ITEM 2. PROPERTIES.
Oilgear owns a one-story general office and factory building located on 20 acres of land at 2300 South 51st Street in Milwaukee, Wisconsin. This building is constructed of concrete, steel and brick and contains approximately 276,000 square feet of floor space.
A 132,000 square foot manufacturing facility owned by the Company and subject to a mortgage, is located in Fremont, Nebraska. The facility has steel and brick walls and a concrete floor. To manage the increased demand for the Company's new products, the Company expanded its Fremont, Nebraska facility in 1997 by 33,000 square feet. This expansion was financed through an industrial revenue bond issue. See Note 5 of "Notes to Consolidated Financial Statements" on page 15 of the 1998 Annual Report.
Oilgear owns a manufacturing plant in Longview, Texas, constructed of concrete block and steel, which contains approximately 44,000 square feet.
The Company's Oilgear Towler Ltd. subsidiary owns a one-story manufacturing plant and two office buildings constructed of concrete, steel and brick totaling approximately 62,000 square feet on six acres of land in Leeds, England, and an additional prefabricated facility being used by the electrical engineering department. It also owns a small service and sales facility in Bedford, England.
The Company's Oilgear Towler S.A. Spanish subsidiary owns a two-story manufacturing plant and office constructed of concrete and brick totaling approximately 35,000 square feet on approximately one acre of land in Hernani, Spain.
The Company's Oilgear GmbH subsidiary owns an approximately 25,000 square foot concrete block and steel manufacturing facility in Hattersheim-Eddersheim, Germany, subject to a mortgage.
The Oilgear Towler Polyhydron Pvt. Ltd. joint venture owns two prefabricated concrete buildings in Belgaum, India, an office building consisting of 6,500 square feet and a manufacturing plan consisting of 11,000 square feet.
The Company's Oilgear Towler S.A. French subsidiary owns, subject to a mortgage, a 9,000 square foot office building constructed of prefabricated steel materials located on approximately one-half acre of land in Paris, France.
The Company's Oilgear Towler S.r.l. Italian subsidiary owns a two-story prefabricated concrete building on .6 acre of land in Montirone, Italy. The facility is used to repair and assemble customer equipment, as well as house sales and service functions.
These properties are maintained in good condition and are adequate for present operations.
Borrowings under the Company's domestic and foreign loan agreements are collateralized by substantially all domestic property, plant and equipment and by substantially all assets of the applicable foreign subsidiaries, respectively. See Notes 4 and 5 of "Notes To Consolidated Financial Statements" on pages 14 - 15 of the 1998 Annual Report.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in several product liability actions which it believes are adequately covered by insurance, and certain other litigation incidental to its business.
The U.S. Environmental Protection Agency ("EPA") has identified the Company as a potentially responsible party ("PRP") for response costs incurred under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund"), pertaining to the Osage Metals site in Kansas City, Kansas. Oilgear was identified based upon a shipment made by it of 660 pounds of waste capacitors in 1985 (the "Shipment").
The Shipment was originally sent to a facility owned by PCB Treatment, Inc. in Kansas City. PCB Treatment is also a Superfund site in Kansas City, Kansas and Missouri. By letter dated September 16, 1997, the EPA identified the Company as a PRP for costs incurred under CERCLA at the PCB Treatment site as well. Over 1,500 parties were identified as PRPs at the PCB Treatment site. (The Osage Metal site and the PCB Treatment site are referred to collectively as the "Sites.")
A de micromis settlement was offered to parties who contributed only a very small amount of waste to the Sites. In order to qualify, a company must have been responsible for not more than 2,000 pounds of material. Since the Company was identified as a generator of 660 pounds, it qualified for the de micromis settlement and paid $4,640 in settlement of the claim in 1998.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth quarter of 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, offices and positions held, and periods of service in their present offices, of all executive officers of the Registrant are listed below. Except in the case of mid-term vacancies, officers are elected for one-year terms at the Board of Directors meeting following the annual meeting of shareholders each year.
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(1) Mr. Zuege was Secretary - Treasurer from 1972 to 1978, Vice President - Finance and Secretary from 1979 to 1993, Senior Vice President and Secretary for a portion of 1993, and Executive Vice President and Chief Operating Officer during the remainder of 1993 through 1995. He has been a member of the Board of Directors since 1982.
(2) Mr. Bahner has been employed with the Company in the engineering department since 1973. He has served as Director of Engineering from 1987 to 1991 and Managing Director of Oilgear's subsidiary, Oilgear Towler Ltd., from 1989 to 1991. He has been a member of the Board of Directors since 1992.
(3) Mr. Price has been employed in various positions with the Company since 1966. He served as Controller of the Company from 1977 to 1986, as Treasurer/Controller from 1987 to 1993, and as Treasurer/Controller and Secretary from 1993 to 1994.
(4) Mr. Bursch has been employed in various positions with the Company's European operations since 1966. He served as Geschaftsfuhrer of Oilgear GmbH (now Oilgear Towler GmbH) before his appointment as Chairman of the Board of Management - Europe in 1991, which office he held until January 1, 1994. He has been a member of the Board of Directors since 1997.
(5) Mr. Boyke has been employed in various positions with the Company since 1973. He served as General Sales Manager for the United States and Canadian region from 1989 to 1996. Mr. Boyke has been a member of the Board of Directors since 1998.
(6) Mr. Drake has been employed in various positions with the Company since 1982. He served as Director of International Sales from 1988 to 1996.
CAUTIONARY FACTORS
This report contains various forward-looking statements concerning the Company's prospects that are based on the current expectations and beliefs of management. Forward-looking statements may also be made by the Company from time to time in other reports and documents as well as oral presentations. When used in written documents or oral statements, the words "anticipate," "believe," "estimate," "expect," "objective," and similar expressions are intended to identify forward-looking statements. The statements contained herein and such future statements involve or may involve certain assumptions, risks and uncertainties, many of which are beyond the Company's control, that could cause the Company's actual results and performance to differ materially from what is expected. In addition to the assumptions and other factors referenced specifically in connection with such statements, the following factors could impact the business and financial prospects of the Company:
- - Factors affecting the Company's international operations, including relevant foreign currency exchange rates, which can affect the cost to produce the Company's products or the ability to sell the Company's products in foreign markets, and the value in United States dollars of sales made in foreign currencies. Other factors include foreign trade, monetary and fiscal policies; laws, regulations and other activities of foreign governments, agencies and similar organizations; and risks associated with having major facilities located in countries, such as India, Spain and Italy, which have historically been less stable than the United States in several respects, including fiscal and political stability.
- - Factors affecting the Company's ability to hire and retain competent employees, including unionization of the Company's non-union employees and changes in relationships with the Company's unionized employees.
- - The risk of strikes or other labor disputes at those locations which are unionized which could affect the Company's operations.
- - Factors affecting the economy generally, including the financial and business conditions of the Company's customers and the demand for customers' products and services that utilize Company products.
- - Factors affecting the Company's financial performance or condition, including tax legislation, unanticipated restrictions on the Company's ability to transfer funds from its subsidiaries and changes in applicable accounting principles or environmental laws and regulations.
- - The cost and other effects of claims involving the Company's products and other legal and administrative proceedings, including the expense of investigating, litigating and settling any claims.
- - Factors affecting the Company's ability to produce products on a competitive basis, including the availability of raw materials at reasonable prices.
- - Unanticipated technological developments that result in competitive disadvantages and create the potential for impairment of existing assets.
- - Financial and information system problems resulting with the advent of the twenty-first century and affecting the Company, its suppliers or its customers.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on The Nasdaq Stock Market National Market under the symbol OLGR. The number of record holders of the Company's common stock is 546.
Incorporated by reference to "Quarterly Financial Information" and "Equity" on page 7 of the 1998 Annual Report.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference to "5 Year Summary" on page 9 of the 1998 Annual Report.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Incorporated by reference to "Management's Discussion" on pages 6 through 9 of the 1998 Annual Report. The second, third and fourth paragraphs under "Legal Proceedings" in Item 3 hereof are also incorporated herein in response to this item.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Incorporated by reference to "Market Risk Management" on Page 8 of the 1998 Annual Report.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary financial information required by this item are set forth on pages 10 through 20 and under the heading "Quarterly Financial Information (Unaudited)" on page 7, respectively, of the 1998 Annual Report and are incorporated by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference to "Election of Directors" on pages 2 and 3 of the Registrant's Proxy Statement, dated March 26, 1999, for its Annual Meeting of Shareholders on April 20, 1999 ("1999 Annual Meeting Proxy Statement"), and "Executive Officers of the Registrant" in Part I hereof.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to "Executive Compensation" and "Compensation Committee Interlocks and Insider Participation" on pages 6 through 9 and page 13, respectively, of the 1999 Annual Meeting Proxy Statement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to "Security Ownership of Certain Beneficial Owners and Management" on pages 4 and 5 of the 1999 Annual Meeting Proxy Statement.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed:
1. and 2. Financial Statements and Financial Statement Schedules. See following "Index to Consolidated Financial Statements and Schedule," which is incorporated herein by reference.
3. Exhibits. See Exhibit Index included as last part of this report, which index is incorporated herein by reference. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report is identified in the Exhibit Index by two asterisks preceding its exhibit number.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of 1998. THE OILGEAR COMPANY AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
The consolidated financial statements of The Oilgear Company and subsidiaries together with the report thereon of KPMG LLP dated March 3, 1999, appearing on pages 10 through 20 of the 1998 Annual Report, are incorporated by reference into this Annual Report on Form 10-K. The following additional financial data should be read in conjunction with the consolidated financial statements in the 1998 Annual Report.
ADDITIONAL FINANCIAL DATA
Independent Auditors' Report
Submitted:
II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or because the required information is given in the consolidated financial statements and the notes thereto.
INDEPENDENT AUDITORS' REPORT
Shareholders and the Board of Directors The Oilgear Company:
Under date of March 3, 1999, we reported on the consolidated balance sheets of The Oilgear Company and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations and shareholders' equity, comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1998, which are incorporated by reference in the Company's annual report on Form 10-K for the year ended December 31, 1998. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP KPMG LLP
Milwaukee, Wisconsin March 3, 1999
THE OILGEAR COMPANY AND SUBSIDIARIES Schedule II - Valuation and Qualifying Accounts Years ended December 31, 1998, 1997 and 1996
(1) Includes adjustments due to foreign currency translation.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
THE OILGEAR COMPANY (Registrant)
By /s/ Thomas J. Price March 30, 1999 ----------------------------------- Thomas J. Price, Vice President of Finance and Corporate Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David A. Zuege and Thomas J. Price, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.*
/s/ David A. Zuege - ----------------------------- David A. Zuege, President and Chief Executive Officer (Principal Executive Officer) and Director
/s/ Thomas J. Price - ----------------------------- -------------------------- Thomas J. Price, Vice President -Finance and Roger G. DeLong, Director Corporate Secretary (Principal Financial Officer and Principal Accounting Officer)
/s/ Dale C. Boyke - ----------------------------- -------------------------- Dale C. Boyke, Director Thomas L. Misiak, Director
/s/ Gerhard W. Bahner /s/ Frank L. Schmit - ----------------------------- -------------------------- Gerhard W. Bahner, Director Frank L. Schmit, Director
/s/ Hubert Bursch /s/ Michael C. Sipek - ----------------------------- -------------------------- Hubert Bursch, Director Michael C. Sipek, Director
- -------------- * Each of these signatures is affixed as of March 30, 1999.
THE OILGEAR COMPANY (THE "REGISTRANT") (COMMISSION FILE NO. 0-822)
* * * * * EXHIBIT INDEX
1998 ANNUAL REPORT ON FORM 10-K
- ---------- * Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant agrees to furnish to the Securities and Exchange Commission, upon request, a copy of any unfiled instrument with respect to long-term debt.
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** Management contracts and executive compensation plans or arrangements required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.