**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,  D.C.  20549**

 

**FORM10-K**

 

ý                                  **ANNUAL REPORT pursuantto Section 13 or 15 (d) of the Securities Exchange Act of 1934**

 

**For the fiscal year ended December 31, 2003**

 

**Commission file number  0-15582**

 

| **Minuteman  International, Inc.**                                           |
|------------------------------------------------------------------------------|
| (Exact  name of registrant as specified in its charter)                      |
|                                                                         |   |   |
| **Illinois**                                                                 |   | **36-2262931** |
| (State  or other jurisdiction of  incorporation or organization)             |   | (I.R.S.  Employer  Identification No.) |
|                                                                         |   |   |
| **111 South Rohlwing Road, Addison, Illinois**                               |   | **60101** |
| (Address  of principal executive offices)                                    |   | (Zip  Code) |
|                                                                         |   |   |
| Registrant’s  telephone number, including area code **(630)  627-6900** |

 

Securitiesregistered pursuant to Section 12(g) of the Act:

**Common stock, no par value**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. ý  Yes    o  No

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’s knowledge,in definitive proxy or information statements incorporated by reference in PartIII of this Form 10-K or any amendment to this Form 10-K. o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theAct). Yes  o      No  ý

 

The aggregate market valueof the voting stock held by non-affiliates of the registrant, based on theclosing price of the Common Stock on June 30, 2003, the last business dayof the registrant’s most recently completed second fiscal quarter, as reportedby the NASDAQ Stock Market (“NASDAQ”), was approximately $7,362,670.

 

The number of sharesoutstanding of the registrant’s class of common stock as of March 5, 2004 was3,580,173.

 

DOCUMENTSINCORPORATED BY REFERENCE

 

Portions of the ProxyStatement for the 2004 Annual Shareholders Meeting to be filed with theSecurities and Exchange Commission within 120 days after the close of theRegistrant’s fiscal year (the “2004 Proxy Statement”) are incorporated byreference into Part III.

 

 

----

 

**MINUTEMAN INTERNATIONAL, INC.**

 

**FORM 10-K**

 

**For the Fiscal Year Ended December 31, 2003**

 

**TABLE OF CONTENTS**

 
| **PART I**    |                                                                                        |
|---------------|---------------------------------------------------------------------------------------------|
|          |                                                                                        |   |
| Item 1.  | Business                                                                                    |   |
| Item 2.  | Properties                                                                                  |   |
| Item 3.  | Legal Proceedings                                                                           |   |
| Item 4.  | Submission of Matters to a Vote of Security  Holders                                        |   |
|          |                                                                                        |   |
| **PART  II**  |                                                                                        |
|          |                                                                                        |   |
| Item 5.  | Market for Registrant’s Common Equity and  Related Stockholder Matters                 |   |
| Item 6.  | Selected Financial Data                                                                     |   |
| Item 7.  | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |   |
| Item 7A. | Quantitative and Qualitative Disclosures About  Market Risk                                 |   |
| Item 8.  | Financial Statements and Supplementary Data                                                 |   |
| Item 9.  | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure       |   |
| Item 9A. | Controls and Procedures                                                                     |   |
|          |                                                                                        |   |
| **PART  III** |                                                                                        |
|          |                                                                                        |   |
| Item 10. | Directors and Executive Officers of the  Registrant                                         |   |
| Item 11. | Executive Compensation                                                                      |   |
| Item 12. | Security Ownership of Certain Beneficial  Owners and Management                             |   |
| Item 13. | Certain Relationships and Related  Transactions                                             |   |
| Item 14.      | Principal Accounting Fees and Services                                                      |   |
|          |                                                                                        |   |
| **PART  IV**  |                                                                                        |
|          |                                                                                        |   |
| Item 15. | Exhibits, Financial Statement Schedules, and  Reports on Form 8-K                      |   |
| Exhibit Index |                                                                                        |
| Signatures    |                                                                                        |

 

----

 

**PART I**

 

**Item 1.****    Business**

 

**General Development of Business**

 

Minuteman International,Inc.,(sometimes referred to herein as the “Company”) an Illinois corporationincorporated in 1951 as American Cleaning Equipment Corporation, manufacturesand distributes one of the most complete lines of commercial and industrialvacuums, floor and carpet care, chemical cleaning and coating products andcomplementary accessories in the United States and Canada.  Its productsare exported to more than sixty countries around the world.

 

**Products**

 

The Company’s product lineconsists of hard surface floor care equipment, carpet care and maintenanceproducts, sweepers, scrubbers, commercial and industrial specialized vacuums,and complementary accessories.  Included in the specialized vacuum areaare the hazardous location/explosive environment vacuums and the clean/roomnuclear vacuums.

 

Minuteman PowerBoss, Inc.(PowerBoss) is a wholly-owned subsidiary of Minuteman International, Inc., thatdesigns, manufactures and distributes ride-on and walk-behind sweepers andscrubbers for hard-surface floor and carpet care for use in industrialapplications.

 

Multi-Clean, the chemicaldivision of Minuteman International, Inc. formulates, manufactures anddistributes chemical cleaning and floor coating products includingmulti-surface cleaners and degreasers, finishes and waxes, carpet careproducts, concrete and wood coatings and finishes, plus a full array ofspecialized chemicals.

 

Parker Sweeper Companymanufactures a full line of litter vacuums as well as an extensive array oflawn and turf debris handling equipment.

 

**Marketing and Distribution**

 

The Company markets anddistributes its products throughout the world.  The distribution processin the United States is primarily through the more than 450 active dealers andits two sales branches.  The Company distributes its products in Canadathrough Minuteman Canada, Inc. and in Europe through Minuteman European, B.V.,both of which are wholly- owned subsidiaries.  The Company sells itsproducts to Hako-Werke International GmbH subsidiaries in Japan, Australia andcertain European countries. Hako-Werke International GmbH is awholly-owned subsidiary of Hako Holding GmbH & Co., a German company.Export of other products is conducted through the headquarter office inAddison, Illinois. Sales to affiliated and unaffiliated customers in foreigncountries aggregated to $17,141,000 $14,064,000, $15,918,000 in 2003, 2002 and2001, respectively.

 

The Company’s equipment issold under Minuteman International, Minuteman, Minuteman PowerBoss and ParkerSweeper trade names.  The chemical cleaning and coating productsare manufactured by Minuteman International, Inc. and sold under the Multi-Cleantrade name.  Substantially all of the Company’s commercial equipment ismanufactured at its Illinois production facilities in Addison andHampshire.  Substantially all of the Company’s industrial equipment ismanufactured at its Aberdeen, North Carolina production facilities.  Theremainder of the Company’s industrial equipment is imported from Germany. All of the Company’s chemical cleaning and coating products are produced at itsShoreview, Minnesota facility.

 

2

----

 

The manufacture, productionand demand for the Company’s products and services are not considered to beseasonal in nature.  No part of the Company business depends on any onesingle customer, the loss of which would adversely affect the Company. The Company does not believe any material portion of its business to be subjectto renegotiation of profits or termination of contracts at the election of thegovernment.

 

3

----

 

**Raw Materials**

 

The Company purchasescastings, electric motors, cord sets, switches, brushes, wheels, injectionmolded plastics, sheet steel, paint pigment, chemicals and other raw materialsfrom a number of suppliers.  The Company considers its raw materials andsupplies to be readily available from alternate sources.  It does notbelieve that the loss of any one supplier would adversely affect the Company’sbusiness.

 

**Competition**

 

Minuteman International,Inc. competes with many regional, national and international manufacturers throughoutthe industry, which includes the industrial and plant maintenance, sanitationsupply, critical filter, floor coating and chemical fields.  The principalcompetitive factors within each of these markets are product quality,reliability, service and fair price.  The Company believes it willcontinue to compete effectively in the marketplace and continue its salesgrowth in the future.

 

**Patents and Trademarks**

 

Currently, the Company has21 United States and 9 international patents.  Although the Companygenerally seeks to obtain patents where appropriate, it does not consider thesuccessful conduct of its business in general to be dependent on any of itspatents or patent applications.

 

Minuteman International,Inc. is the owner of the United States and Canadian registrations for theMulti-Clean and Parker Sweeper trade names.  The Minuteman trademark isregistered in the United States and Canada.  The Parker trademark isregistered in the United States and Canada.

 

**Working Capital**

 

The Company had workingcapital of $35.6 million at December 31, 2003. Cash, cash equivalents andshort-term investments represented 18.6% of the working capital at December 31,2003. Excess cash is generally invested in bank certificates of deposit andEurodollar certificate investments.

 

**Backlog of Orders**

 

The Company’s backlog oforders was approximately $2.4 million and $3.0 million at December 31, 2003 and2002, respectively.  The Company anticipates that substantially all of the2003 backlog will be delivered during 2004.  In the opinion of Management,fluctuations in the amount of the Company’s backlog are not necessarilyindicative of intermediate or long-term trends in its business.

 

**Research and Development**

 

The Company expendedapproximately $1,453,000, $1,512,000, and $1,587,000 on research anddevelopment activities during 2003, 2002 and 2001, respectively.

 

**Employees**

 

The Company hasapproximately 390 full time employees.  The facilities in Addison,Illinois and Shoreview, Minnesota, have approximately 90 hourly paid employeeswho are covered by local collective bargaining agreements.  Theseagreements expire in May, 2008 and October, 2008, respectively.  TheCompany believes that current employee relations are excellent.  TheCompany may hire additional employees during 2004 depending on the needs of thebusiness.

 

4

----

 

**Environmental Matters**

 

The Company’s operations aresubject to various federal, state and local laws and regulations regarding theenvironmental aspects of the manufacture and distribution of chemicalcomponents.  The Company believes that it is currently in compliance inall material respects with the environmental laws and regulations affecting itsoperations. Capital expenditures for the purpose of environmental protectionare not expected to be material in amount for 2004 or thereafter.

 

**Forward-Looking Statements**

 

SAFE HARBOR STATEMENT. ThisAnnual Report contains not only historical information, but alsoforward-looking statements which are subject to the safe harbor provisions ofthe Private Securities Litigation Reform Act of 1995, as amended. Statements that are not historical are forward-looking and reflect expectationsabout the Company’s future performance. In addition, forward-looking statementsmay be made orally or in press releases, conferences, reports, on theCompany’s  worldwide web site, or otherwise, in the future by the Companyor on our behalf. The Company has tried to identify such statements by usingwords such as “expect”, “foresee”, “looking ahead”, “anticipate”, “estimate”,“believe”, “should”, “intend”, and similar expressions to identifyforward-looking statements.

 

Forward-looking statementsinvolve risks and uncertainties and are not guarantees of future performance.Actual future results may differ materially from those discussed in forwardlooking statements. These uncertainties include factors that affect allbusinesses operating in a global market as well as matters specific to theCompany. The following are some of the factors that could cause the Company’sfinancial condition to differ materially from what the Company has anticipatedin forward-looking statements: the effectiveness of operating and technologyinitiatives and advertising and promotional efforts, as well as changes in:global and local business and economic conditions; currency exchange and interest rates; labor and other operating costs; political or economicinstability in local markets; disruptions from outbreak of hostilities, war orterrorists’ attacks; competition; customer preferences; effects ofunanticipated materially adverse litigation or product claims; unexpectedproduct failures or non acceptance of new products by the market; legislationand governmental regulation; and accounting policies and practices. Theforegoing list of important factors is not exclusive.

 

5

----

 

**Item 2.****    Properties**

 

The Company owns or leasesthe following properties in its operations:

 
| **Location**    |   | **Size (sq.  ft.)** |   | **Use** |   | **Owned  or Leased**      |   |
|-----------------|--------|---------------------|--------|---------|--------|---------------------------|--------|
|            |   |                |   |    |   |                      |   |   |   |
| Aberdeen, NC    |   | 135,000             |   | (Bldg.) |   | Office, manufacturing,    |   | Leased |   |
|            |   |                |   |    |   | warehouse, sales, service |   |   |   |
|            |   |                |   |    |   |                      |   |   |   |
| Addison, IL     |   | 112,230             |   | (Bldg.) |   | Office, manufacturing,    |   |   |   |
|            |   | 254,300             |   | (Land)  |   | warehouse, sales, service |   | Owned |   |
|            |   |                |   |    |   |                      |   |   |   |
| Villa Park, IL  |   | 18,000              |   | (Bldg.) |   | Warehouse, sales, service |   | Leased |   |
|            |   |                |   |    |   |                      |   |   |   |
| Taylor, MI      |   | 8,000               |   | (Bldg.) |   | Warehouse, sales, service |   | Leased |   |
|            |   |                |   |    |   |                      |   |   |   |
| Hampshire, IL   |   | 100,000             |   | (Bldg.) |   | Manufacturing, warehouse  |   | Owned |   |
|            |   | 871,200             |   | (Land)  |   |                      |   |   |   |
|            |   |                |   |    |   |                      |   |   |   |
| Shoreview, MN   |   | 34,952              |   | (Bldg.) |   | Office, manufacturing,    |   |   |   |
|            |   | 133,830             |   | (Land)  |   | warehouse, sales, service |   | Owned |   |
|            |   |                |   |    |   |                      |   |   |   |
| Amsterdam,      |   | 16,469              |   | (Bldg.) |   | Warehouse, sales, service |   | Leased |   |
| The Netherlands |   |                |   |    |   |                      |   |   |   |
|            |   |                |   |    |   |                      |   |   |   |
| Mississauga,    |   | 18,486              |   | (Bldg.) |   | Warehouse, sales, service |   | Leased |   |
| Ontario, Canada |   |                |   |    |   |                      |   |   |   |

 

Approximately 90% of theCompany’s Addison, Illinois facility, 95% of the Company’s Hampshire, Illinoisfacility and 85% of the Company’s Aberdeen, North Carolina and Shoreview,Minnesota facilities are devoted to manufacturing.

 

The Villa Park, Illinoislease term expires December 31, 2008. The Taylor, Michigan lease term expiresDecember 31, 2008.  The Mississauga, Ontario lease term expires onNovember 30, 2007.  The Aberdeen, North Carolina lease term expires May23, 2005. The Amsterdam, Netherlands lease term expires November 14,2007.  The Company believes that failure to obtain the renewal of anylease would not have a material adverse effect on its business.

 

**Item 3****.****   ****Legal Proceedings**

 

The Company is subject tovarious proceedings, lawsuits and other claims related to labor, product andother matters.  Included among these lawsuits are product liability claimsseeking compensation for property damage, lost profits or other relief,including, in some cases, punitive damages. The Company disputes these claimsand intends to defend the lawsuits vigorously. A determination of the amount ofreserves required, if any, for each of these contingencies is made aftercareful analysis by the Company. The reserves may change in the future due tonew developments in each matter or changes in approach in resolving theseclaims. While the Company believes that these contingencies will not have amaterial

 

6

----

 

adverse effect on thefinancial condition of the Company, there can be no assurance that they will beresolved in a manner that does not materially adversely affect the Company.

 

**Item 4**.    **Submission of Matters to aVote of Security Holders**

 

During the fourth quarter ofthe fiscal year ended December 31, 2003, the Company did not submit any matterto a vote of shareholders through the solicitation of proxies or otherwise.

 

7

----

 

**PART II**

 

**Item 5****.    Market forRegistrant’s Common Equity and Related Stockholder Matters**

 

**Markets for the Company’s Securities and RelatedMatters**

 

As of March 5, 2004, therewere approximately 400 registered holders of record of Minuteman International,Inc. common stock.

 

Since 1988 the Board ofDirectors has declared regular quarterly dividends and the fourth quarterdividend in 2003 represents the sixty-second consecutive dividend paid toshareholders.  Future dividend policy will be determined by the Board ofDirectors in light of prevailing financial needs, earnings of the Company, cashflow, working capital and other relevant factors.

 

The common stock ofMinuteman International, Inc. is quoted on the NASDAQ Stock Market and itstrading symbol is “MMAN”.  The following tables set forth for 2003 and2002 the range of bid prices for the Company’s common stock as reported on theNASDAQ Stock Market for the period indicated:

 

|        |   | **High** |   | **Low** |   | **Dividends  Per  Share** |   |
|-------------|--------|----------|--------|---------|--------|---------------------------|--------|
| 2003        |   |     |   |    |   |                      |   |
|        |   |     |   |    |   |                      |   |
| 1st Quarter |   | $        | 8.94   |    | $      | 8.00                      |   | $ | .09 |   |
| 2nd Quarter |   | 9.85     |   | 7.83    |   | .09                       |   |
| 3rd Quarter |   | 9.80     |   | 8.97    |   | .09                       |   |
| 4th Quarter |   | 9.65     |   | 8.97    |   | .09                       |   |
|        |   |     |   |    |   |                      |   |
| 2002        |   |     |   |    |   |                      |   |
|        |   |     |   |    |   |                      |   |
| 1st Quarter |   | $        | 10.21  |    | $      | 8.31                      |   | $ | .09 |   |
| 2nd Quarter |   | 11.27    |   | 9.65    |   | .09                       |   |
| 3rd Quarter |   | 10.14    |   | 9.28    |   | .09                       |   |
| 4th Quarter |   | 9.49     |   | 8.83    |   | .09                       |   |

 

**Item 6**.    **Selected Financial Data**

 
|                                                 |   | **Year Ended  December 31,**                         |   |
|------------------------------------------------------|--------|------------------------------------------------------|--------|
|                                                 |   | **2003**                                             |   | **2002** |   | **2001** |   | **2000** |   | **1999** |   |
|                                                 |   | **(In  thousands, except share and per share data)** |   |
| **Income Statement Data**                            |   |                                                 |   |   |   |   |   |   |   |   |   |
| Net sales                                            |   | $                                                    | 74,348 |   | $ | 71,951 |   | $ | 76,122 |   | $ | 84,310 |   | $ | 76,786 |   |
| Cost of sales                                        |   | 52,034                                               |   | 50,888 |   | 53,146 |   | 58,309 |   | 53,494 |   |
| Gross profit                                         |   | 22,314                                               |   | 21,063 |   | 22,976 |   | 26,001 |   | 23,292 |   |
| Selling expenses                                     |   | 13,795                                               |   | 13,207 |   | 12,595 |   | 13,317 |   | 12,000 |   |
| General and administrative expenses                  |   | 5,165                                                |   | 4,423 |   | 4,294 |   | 4,426 |   | 3,989 |   |
| Income from operations                               |   | 3,354                                                |   | 3,433 |   | 6,087 |   | 8,258 |   | 7,303 |   |
| Interest income (expense), net                       |   | (254                                                 | )      | (959 | ) | (1,019 | ) | (608 | ) | (791 | ) |
| Other, net                                           |   | 1                                                    |   | 32 |   | 75 |   | 129 |   | 316 |   |
| Income before income taxes                           |   | 3,101                                                |   | 2,506 |   | 5,143 |   | 7,779 |   | 6,828 |   |
| Income tax expense                                   |   | 1,088                                                |   | 725 |   | 1,638 |   | 2,880 |   | 2,486 |   |
| Net income                                           |   | $                                                    | 2,013  |   | $ | 1,781 |   | $ | 3,505 |   | $ | 4,899 |   | $ | 4,342 |   |
|                                                 |   |                                                 |   |   |   |   |   |   |   |   |   |
| **Per Share Data**                                   |   |                                                 |   |   |   |   |   |   |   |   |   |
| Cash dividends                                       |   | $                                                    | .36    |   | $ | .35 |   | $ | .33 |   | $ | .33 |   | $ | .44 |   |
| Net income per common share — basic and diluted |   | $                                                    | .56    |   | $ | .50 |   | $ | .98 |   | $ | 1.37 |   | $ | 1.22 |   |
| Weighted average number of common shares outstanding |   |                                                 |   |   |   |   |   |   |   |   |   |
| — basic                                         |   | 3,582,809                                            |   | 3,576,521 |   | 3,570,365 |   | 3,568,385 |   | 3,568,385 |   |
| — diluted                                       |   | 3,587,245                                            |   | 3,587,245 |   | 3,582,698 |   | 3,568,385 |   | 3,568,385 |   |
| **Balance Sheet Data**                               |   |                                                 |   |   |   |   |   |   |   |   |   |
| Working capital                                      |   | $                                                    | 35,618 |   | $ | 35,470 |   | $ | 35,486 |   | $ | 33,372 |   | $ | 30,626 |   |
| Total assets                                         |   | 55,584                                               |   | 55,200 |   | 57,228 |   | 55,658 |   | 53,958 |   |
| Long-term debt, less current maturities              |   | 6,000                                                |   | 7,500 |   | 9,000 |   | 10,500 |   | 12,000 |   |
| Shareholders’ equity                            |   | 40,993                                               |   | 40,116 |   | 39,630 |   | 37,284 |   | 33,599 |   |

 

8

----

 

**Item 7****.**    **Management’s Discussion and Analysis of FinancialCondition and Results of Operations**

 

**General**

 

The Company’s discussion andanalysis of its financial condition and results of operations are based uponits consolidated financial statements.  The preparation of these financialstatements are based upon the selection and application of significantaccounting policies (see note B of the Notes to Consolidated FinancialStatements for additional information), which requires management to makesignificant estimates and judgments that affect the amounts reported in theCompany’s financial statements.  Actual results may differ from theseestimates under different assumptions or conditions.

 

**Accounting Policies and Critical Accounting Estimates**

 

The Company believes thefollowing are the actual accounting policies that affect its more significantjudgments and estimates used in the preparation of its consolidated financialstatements.

 

**Revenue Recognition**

 

The Company recognizesrevenue when persuasive evidence of an arrangement exists, when title and riskof ownership passes, the sales price is fixed or determinable, andcollectibility is reasonably assured.  Generally, these criteria are metat the time product is shipped.  Provision is made at the time the relatedrevenue is recognized for discounts and allowances, estimated cost of productwarranties, bad debts and rebates.

 

**Accounts Receivable**

 

The Company performs ongoingcredit evaluations of its customer base and maintains allowances for doubtfulaccounts related to estimated losses resulting from the inability of itscustomers to make required payments.  If the financial condition of itscustomers were to deteriorate, resulting in an impairment of their ability tomake payments, additional allowances may be required.

 

9

----

 

**Inventory**

 

The Company is required tostate its inventories at lower of cost or market.  The Company writes downits inventory for estimated obsolescence or unmarketable inventory equal to thedifference between the cost of inventory and the estimated market value basedupon assumptions about future demand and market conditions.  If actualmarket conditions are less favorable than those projected by management,additional inventory write-downs may be required.

 

**Warranties**

 

The Company provides for theestimated cost of product warranties at the time revenue is recognized. The Company’s warranty obligation is affected by product failure rates,material usage and costs incurred in correcting a product failure.  Shouldactual product failure rates, material usage or costs differ from the Company’sestimates, revisions to the estimated warranty liability may be required.

 

**Income Taxes**

 

The Company currently hassignificant deferred tax assets, which are subject to periodic recoverabilityassessments.  Realization of our deferred tax assets is principallydependent upon our achievement of projected future taxable income. Judgments regarding future profitability may change due to future marketconditions and other factors.  These changes, if any, may require possiblematerial adjustments to these deferred tax asset balances.

 

**Intangible Assets**

 

Intangible assets represent9.4% of total assets at December 31, 2003 and 2002. As a percentage ofshareholders’ equity intangible assets represent 12.7% and 13.0% at December31, 2003 and 2002, respectively.  These intangible assets were primarilyrecorded as the result of the November 1998 PowerBoss acquisition.  TheCompany has concluded that these assets are not impaired at December 31, 2003in accordance with Statement of Financial Accounting Standards No. 142“Goodwill and Other Intangible Assets”.

 

The determination of whetherthese assets are impaired involves significant judgments.  Changes instrategy and/or market conditions could significantly impact these judgmentsand require adjustments to recorded asset balances.

 

**Inflation**

 

Although the Company cannotaccurately determine the precise effect of inflation on operations, the Companydoes not believe inflation has had a material effect on sales or results ofoperations.

 

**Issues and Uncertainties**

 

The Company is subject tovarious proceedings, lawsuits and other claims related to labor, product andother matters.  Included among these lawsuits are product liability claimsseeking compensation for property damage, lost profits or other relief,including, in some cases, punitive damages. The Company disputes these claimsand intends to defend the lawsuits vigorously. A determination of the amount ofreserves required, if any, for each of these contingencies is made aftercareful analysis by the Company. The reserves may change in the future due tonew developments in each matter or changes in approach in resolving theseclaims. While the Company believes that these contingencies will not have amaterial

 

10

----

 

adverse effect on thefinancial condition of the Company, there can be no assurance that they will beresolved in a manner that does not materially adversely affect the Company.

 

**RESULTS OF OPERATIONS FOR 2003, 2002 AND 2001**

 

**Net Sales and Earnings**

 

Net sales in 2003 increasedto $74,348,000 from $71,951,000 in 2002.  Domestic sales overall were down1.0% due to a 2.8% decline in sales of domestic commercial equipment, partiallyoffset by a 1.5% increase in domestic industrial equipment sales and a 9.1%increase in domestic chemical product sales.  Total international salesfor  fiscal 2003 were $17,141,000, anincrease of 21.9% over fiscal 2002. Excluding foreign currency exchange effects,total international sales increased 15.1%. International sales of  commercial, industrial and chemical productlines for  fiscal 2003 increased by19.2%, 27.9% and 8.7%, respectively compared to fiscal 2002. Excluding foreigncurrency exchange effects, international commercial product sales increased7.4%. Gross profit dollars increased 5.9% in 2003 from the comparable prioryear period due to the increase in net sales and a favorable product mixrelated to commercial products.  Net income for 2003 was $2,013,000 or$0.56 per common share, an increase of $232,000 or 13.0% from the prior year.The increase in net income was primarily due to a reduction in 2003 interestexpense of $174,000 after-tax, related to the change in fair market value ofthe derivative financial instrument compared with 2002 where interest expenseincluded a charge of $208,000 after-tax, related to the change in fair marketvalue of the derivative financial instrument, a  $382,000 after-tax year over year benefit.

 

Net sales in 2002 decreasedto $71,951,000 from $76,122,000 in 2001. All of the Company’s divisionsexperienced a decline in orders, reflecting the continued effect of theeconomic slowdown. International sales, which were down 11.6% in 2002 continuedto suffer from weakness in economic conditions. The Company’s chemical saleswere down 29.5%, declining across all product lines. Gross profit decreased8.3% in 2002 from 2001, due to the effects of reduced volume and unfavorableproduct mix from commercial and industrial customers and competitive marketconditions. In 2002 gross profit as a percent of net sales was 29.3%, down from30.2% in 2001. Net income for 2002 was $1,781,000 or $0.50 per share, adecrease of 49.2% from the prior year.

 

**Operating Expenses**

 

Selling expenses for fiscal2003 were $13,795,000 an increase of 4.5% from fiscal 2002. Higher healthinsurance costs, bad debt expense, auto lease costs, expenses related to theNetherlands warehouse relocation, sales promotion expense and temporary servicefees contributed to the increase in selling expenses during the period,partially offset by a reduction in advertising expense. General andadministrative expenses in 2003 were $5,165,000 an increase of 16.8% from 2002.The increase is primarily due to higher cost related to payroll, healthinsurance, casualty insurance and professional fees.

 

Selling expenses for fiscal2002 were $13,207,000 an increase of 4.8% from fiscal 2001. Higher payroll andbenefit costs, increased promotional costs and vehicle lease costs contributedto the increase in selling expenses year over year. General and administrativeexpenses in 2002 were $4,423,000 an increase of 3.0% from 2001. The increase isprimarily due to higher payroll and benefits costs, increased professional feesand casualty insurance costs. The increases in 2002 were partially offset by adecrease in goodwill amortization as a result of the adoption of SFAS No. 142.

 

**Other Income/Expense**

 

In 2003 interest incomedecreased $60,000 from 2002, primarily as a result of lower  levels of investable cash throughout fiscal2003.

 

11

----

 

In 2002, interest incomedecreased $96,000 from 2001, as a result of declining interest rates.

 

The Company incurredinterest expense, related principally to debt obligations, of $265,000,$1,030,000 and $1,186,000 in 2003, 2002 and 2001, respectively.  Includedin the interest expense is a reduction of $283,000 in 2003 and expense of$347,000 in 2002 and $463,000 in 2001 related to the change in the fair marketvalue of derivative financial instruments (see note B of the Notes toConsolidated Financial Statements for additional information).

 

Other income, net in 2003decreased $31,000 from 2002 primarily due to a decrease in gain on sale offixed assets.

 

Other income, net in 2002decreased $43,000 from 2001 primarily due a decrease in gain on sale of fixedassets.

 

**Income Taxes**

 

Theeffective tax rate was 35.1% in 2003, 28.9% in 2002 and 31.8% in 2001. Theincrease in the effective tax rate in 2003 compared with 2002 was primarilyattributed to higher taxes on Minuteman Canada’s higher 2003 earnings. Thedecrease in the 2002 rate, from the 2001 rate, was primarily due to increasedbenefits from research and development credits and Extraterritorial Income (ETI)benefit, offset in part by higher state income taxes.

 

**Liquidity, Capital Resources and Financial Condition**

 

At December 31, 2003 cashand cash equivalents and short-term investments totaled $6.6 million, up from$6.2 million at December 31, 2002. The Company had working capital of $35.6million at December 31, 2003 and $35.5 million at December 31, 2002. Thisrepresented a current ratio of 5.7 for 2003 and 6.3 for 2002 At December 31, 2003, total short-term andlong-term debt was $7.5 million and represented 18.3% of stockholders’ equity.At December 31, 2002, total short-term and long-term debt was $9.0 million andrepresented 22.4% of stockholders’ equity. At December 31, 2003 and 2002, theCompany had shareholders’ equity of $41.0 million and $40.1 million,respectively, which when compared to total liabilities represented an equity toliability ratio of 2.8 and 2.7, respectively.

 

During fiscal year 2003,2002 and 2001, the Company generated $3.8 million, $3.3 million and $6.6million, respectively, in cash flows from operating activities, whichrepresents the Company’s principal source of cash. Cash flows from operatingactivities resulted primarily from the Company’s net income and changes inoperating working capital.

 

Cash used in investing activitieswas $1.6 million in 2003, a decrease of $2.1 million from the prior year.Capital expenditures were $0.7 million in 2003 a decrease of $0.2 million fromthe prior year. The decrease in cash used in investing activities was relatedto purchases of short-term investments in 2003 compared with maturities ofshort-term investments in 2002. Cash provided by investing activities was $0.4million in 2002, an increase of $4.8 million from the prior year. Capitalexpenditures remained relatively constant in 2002 compared to 2001. Theincrease in cash provided by investing activities was related to maturities ofshort-term investments in 2002 compared with purchases of short-terminvestments in 2001.

 

Cash used in financingactivities was $2.8 million, $2.8 million and $2.7 million in 2003, 2002 and2001, respectively.  Financing activities consist of long-term debtpayments and dividend payments.

 

The Company has sufficientcapital resources and is in a strong financial position to meet business andliquidity needs as they arise.  The Company has an unsecured line ofcredit arrangement for a short-term debt facility with a financial institution,which expires May 31, 2004. Under the terms of this facility the Company mayborrow up to $5 million on terms mutually agreeable to the Company andfinancial

 

12

----

 

institution. There are norequirements for compensating balances or restrictions of any kind involved inthis arrangement.  At December 31, 2003 there were no borrowingsoutstanding. The Company foresees no unusual future events that will materiallychange the aforementioned summarization.

 

**Purchase Commitments**

 

The Company has purchasecommitments with some suppliers for materials and supplies as part of thenormal course of business. There are a limited number of supply contracts thatcontain penalty provisions for either early termination or failure to purchasecontracted quantities. The Company does not expect potential payments underthese provisions to materially affect results of operations or financialcondition. This conclusion is based upon reasonably likely outcomes assumed byreference to historical experience and current business plans.

 

The Company had thefollowing contractual cash obligations at December 31, 2003.

 
|                               |   | **Total** |       | **Less than  1  year** |   | **1-3 years** |   | **3-5 years** |      | **More  than  5  years** |   |
|------------------------------------|--------|-----------|------------|------------------------|--------|---------------|--------|---------------|-----------|--------------------------|--------|
| Long term debt                     |   | $         | 7,500,000  |                   | $      | 1,500,000     |   | $             | 6,000,000 |                     | $      | — |   | $ | — |   |
| Operating leases                   |   | 2,659,000 |       | 871,000                |   | 1,597,000     |   | 191,000       |      | —                   |   |
| Purchase obligations               |   | 984,000   |       | 984,000                |   | —        |   | —        |      | —                   |   |
| Total contractual cash obligations |   | $         | 11,143,000 |                   | $      | 3,355,000     |   | $             | 7,597,000 |                     | $      | 191,000 |   | $ | — |   |

 

**Item 7A.****Quantitative andQualitative Disclosures About Market Risk**

 

The Company’s earnings andcash flow are subject to fluctuations due to changes in foreign currencyexchange rates.  Currently these earnings and foreign currency translationadjustments have not been material to the overall financial results of theCompany.

 

The Company has also enteredinto an interest rate swap agreement to obtain a fixed interest rate onvariable rate debt to reduce certain exposures to interest ratefluctuations.  In the event that a counterparty fails to meet the terms ofthe interest rate swap agreement, the Company’s exposure is limited to the interestrate differential.  The Company manages the credit risk of counterpartiesby dealing only with institutions that the Company considers financiallysound.  The Company considers the risk of nonperformance to be remote.

 

**Item 8****.**    **Financial Statements and Supplementary Data**

 

**REPORT OF INDEPENDENT AUDITORS**

 

Shareholders and Board ofDirectors

Minuteman International,Inc.

 

We have audited theaccompanying consolidated balance sheets of Minuteman International, Inc. andsubsidiaries as of December 31, 2003 and 2002 and the related consolidatedstatements of income, shareholders’ equity and cash flows for each of the threeyears in the period ended December 31, 2003. Our audits also include thefinancial statement schedule listed in the Index at Item 15(a) (2). Thesefinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements andschedule based on our audits.

 

We conducted our audits inaccordance with auditing standards generally accepted in the UnitedStates.  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether

 

13

----

 

the financial statements arefree of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements.  An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the consolidated financial position of Minuteman International, Inc.and subsidiaries at December 31, 2003 and 2002 and the consolidated results oftheir operations and their cash flows for each of the three years in the periodended December 31, 2003, in conformity with accounting principles generallyaccepted in the United States. Also, in our opinion, the related financialstatement schedule, when considered in relation to the basic financialstatements taken as a whole, presents fairly in all material respects theinformation set forth therein.

 

As discussed in Note C tothe consolidated financial statements, in 2002 the Company changed its methodof accounting for goodwill. As discussed in Note B to the consolidatedfinancial statements, in 2001 the Company changed its method of accounting forderivative financial instruments.

 
| /s/ Ernst  & Young LLP |
|----------------------------|

 

Chicago, Illinois

February 12, 2004

 

**CONSOLIDATEDBALANCE SHEETS**

 
|                                                                                                                                                          |   | **December  31,** |       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|------------|
|                                                                                                                                                          |   | **2003**          |       | **2002** |   |
| **ASSETS**                                                                                                                                                    |   |              |       |   |   |
| **Current assets**                                                                                                                                            |   |              |       |   |   |
| Cash and cash equivalents                                                                                                                                     |   | $                 | 836,000    |   | $ | 1,307,000 |   |
| Short-term investments                                                                                                                                        |   | 5,800,000         |       | 4,900,000 |   |
| Accounts receivable, less allowances of $1,339,000 in 2003 and  $987,000 in 2002                                                                              |   | 18,136,000        |       | 15,165,000 |   |
| Due from affiliates                                                                                                                                           |   | 19,000            |       | 291,000 |   |
| Inventories                                                                                                                                                   |   | 17,190,000        |       | 18,856,000 |   |
| Prepaid expenses                                                                                                                                              |   | 403,000           |       | 467,000 |   |
| Refundable income taxes                                                                                                                                       |   | —            |       | 456,000 |   |
| Deferred income taxes                                                                                                                                         |   | 778,000           |       | 672,000 |   |
| **Total current assets**                                                                                                                                      |   | 43,162,000        |       | 42,114,000 |   |
| **Property, plant and equipment**                                                                                                                             |   |              |       |   |   |
| Land                                                                                                                                                          |   | 820,000           |       | 820,000 |   |
| Building and improvements                                                                                                                                     |   | 6,408,000         |       | 6,316,000 |   |
| Machinery and equipment                                                                                                                                       |   | 13,174,000        |       | 12,851,000 |   |
| Office furniture and equipment                                                                                                                                |   | 4,244,000         |       | 4,060,000 |   |
| Transportation equipment                                                                                                                                      |   | 596,000           |       | 661,000 |   |
| Construction in progress                                                                                                                                      |   | 137,000           |       | 8,000 |   |
|                                                                                                                                                          |   | 25,379,000        |       | 24,716,000 |   |
| Accumulated depreciation                                                                                                                                      |   | (18,158,000       | )          | (16,831,000 | ) |
|                                                                                                                                                          |   | 7,221,000         |       | 7,885,000 |   |
| **Intangible  assets**— Net of amortization of $1,066,000 in 2003  and 2002                                                                         |   | 5,201,000         |       | 5,201,000 |   |
| **Total assets**                                                                                                                                              |   | $                 | 55,584,000 |   | $ | 55,200,000 |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                 |   |              |       |   |   |
|                                                                                                                                                          |   |              |       |   |   |
| **Current liabilities**                                                                                                                                       |   |              |       |   |   |
| Current maturities of long-term debt                                                                                                                          |   | $                 | 1,500,000  |   | $ | 1,500,000 |   |
| Accounts payable                                                                                                                                              |   | 2,552,000         |       | 2,037,000 |   |
| Accrued expenses                                                                                                                                              |   | 3,384,000         |       | 3,107,000 |   |
| Income taxes payable                                                                                                                                          |   | 108,000           |       | — |   |
| **Total current liabilities**                                                                                                                                 |   | 7,544,000         |       | 6,644,000 |   |
|                                                                                                                                                          |   |              |       |   |   |
| Long-term debt, less current maturities                                                                                                                       |   | 6,000,000         |       | 7,500,000 |   |
| Derivative financial instrument                                                                                                                               |   | 444,000           |       | 684,000 |   |
| Deferred income taxes                                                                                                                                         |   | 603,000           |       | 256,000 |   |
| **Total liabilities**                                                                                                                                         |   | 14,591,000        |       | 15,084,000 |   |
| Commitments and contingencies (Note K)                                                                                                                        |   |              |       |   |   |
| **SHAREHOLDERS’ EQUITY**                                                                                                                                 |   |              |       |   |   |
| Common stock, no par value; 10,000,000 shares authorized; 3,580,173  and 3,574,279 shares issued and outstanding at December 31, 2003 and 2002,  respectively |   | 6,596,000         |       | 6,596,000 |   |
| Retained earnings                                                                                                                                             |   | 34,594,000        |       | 33,868,000 |   |
| Unearned restricted stock                                                                                                                                     |   | (16,000           | )          | (83,000 | ) |
| Accumulated other comprehensive loss                                                                                                                          |   | (181,000          | )          | (265,000 | ) |
| **Total shareholders’ equity**                                                                                                                           |   | 40,993,000        |       | 40,116,000 |   |
| **Total liabilities and shareholders’ equity**                                                                                                           |   | $                 | 55,584,000 |   | $ | 55,200,000 |   |

 

See notes to consolidatedfinancial statements.

 

14

----

 

**CONSOLIDATEDSTATEMENTS OF INCOME**

 
|                                                                |   | **Year  Ended December 31,** |       |
|---------------------------------------------------------------------|--------|------------------------------|------------|
|                                                                |   | **2003**                     |       | **2002** | ** ** | **2001** | ** ** |
| Net sales                                                           |   | $                            | 74,348,000 |   | $ | 71,951,000 |   | $ | 76,122,000 |   |
| Cost of sales                                                       |   | 52,034,000                   |       | 50,888,000 |   | 53,146,000 |   |
| Gross profit                                                        |   | 22,314,000                   |       | 21,063,000 |   | 22,976,000 |   |
| Operating expenses:                                                 |   |                         |       |   |   |   |   |
| Selling                                                             |   | 13,795,000                   |       | 13,207,000 |   | 12,595,000 |   |
| General and administrative                                          |   | 5,165,000                    |       | 4,423,000 |   | 4,294,000 |   |
| Operating expenses                                                  |   | 18,960,000                   |       | 17,630,000 |   | 16,889,000 |   |
| **Income From Operations**                                          |   | 3,354,000                    |       | 3,433,000 |   | 6,087,000 |   |
| Other income (expense)                                              |   |                         |       |   |   |   |   |
| Interest income                                                     |   | 11,000                       |       | 71,000 |   | 167,000 |   |
| Interest expense                                                    |   | (265,000                     | )          | (1,030,000 | ) | (1,186,000 | ) |
| Other income, net                                                   |   | 1,000                        |       | 32,000 |   | 75,000 |   |
| Other expense                                                       |   | (253,000                     | )          | (927,000 | ) | (944,000 | ) |
| **Income Before Income Taxes**                                      |   | 3,101,000                    |       | 2,506,000 |   | 5,143,000 |   |
| Provision (benefit) for income taxes                                |   |                         |       |   |   |   |   |
| Current                                                             |   | 847,000                      |       | 905,000 |   | 1,619,000 |   |
| Deferred                                                            |   | 241,000                      |       | (180,000 | ) | 19,000 |   |
| Provision for Income Taxes                                          |   | 1,088,000                    |       | 725,000 |   | 1,638,000 |   |
| **Net Income**                                                      |   | $                            | 2,013,000  |   | $ | 1,781,000 |   | $ | 3,505,000 |   |
|                                                                |   |                         |       |   |   |   |   |
| Net income per common share — basic and diluted                |   | $                            | 0.56       |   | $ | 0.50 |   | $ | 0.98 |   |
|                                                                |   |                         |       |   |   |   |   |
| Weighted average number of common shares outstanding — basic   |   | 3,582,809                    |       | 3,576,521 |   | 3,570,365 |   |
| Weighted average number of common shares outstanding — diluted |   | 3,587,245                    |       | 3,587,245 |   | 3,582,698 |   |

 

See notes to consolidatedfinancial statements.

 

15

----

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 
|                                                                               |   | **Year  Ended December 31,** |      |
|------------------------------------------------------------------------------------|--------|------------------------------|-----------|
|                                                                               |   | **2003**                     |      | **2002** |   | **2001** |   |
| **OPERATING ACTIVITIES**                                                           |   |                         |      |   |   |   |   |
| Net income                                                                         |   | $                            | 2,013,000 |   | $ | 1,781,000 |   | $ | 3,505,000 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |   |                         |      |   |   |   |   |
| Depreciation                                                                       |   | 1,406,000                    |      | 1,480,000 |   | 1,609,000 |   |
| Amortization                                                                       |   | —                       |      | — |   | 312,000 |   |
| Compensation earned under restricted stock plan                                    |   | 67,000                       |      | 67,000 |   | 50,000 |   |
| Deferred income taxes                                                              |   | 241,000                      |      | (180,000 | ) | 19,000 |   |
| Derivative financial instrument                                                    |   | (240,000                     | )         | 390,000 |   | 294,000 |   |
| Other                                                                              |   | (26,000                      | )         | (26,000 | ) | 101,000 |   |
| Changes in operating assets and liabilities:                                       |   |                         |      |   |   |   |   |
| Accounts receivable and due from affiliates                                        |   | (2,699,000                   | )         | 2,197,000 |   | (1,152,000 | ) |
| Inventories                                                                        |   | 1,666,000                    |      | (492,000 | ) | 1,611,000 |   |
| Prepaid expenses and refundable income taxes                                       |   | 520,000                      |      | (488,000 | ) | (211,000 | ) |
| Accounts payable, accrued expenses and income taxes payable                        |   | 900,000                      |      | (1,417,000 | ) | 497,000 |   |
| **Net Cash Provided by Operating Activities**                                      |   | 3,848,000                    |      | 3,312,000 |   | 6,635,000 |   |
| **INVESTING ACTIVITIES**                                                           |   |                         |      |   |   |   |   |
| Purchases of property, plant and equipment, net                                    |   | (742,000                     | )         | (885,000 | ) | (880,000 | ) |
| Purchases of short-term investments                                                |   | (900,000                     | )         | — |   | (3,504,000 | ) |
| Maturities of short-term investments                                               |   | —                       |      | 1,300,000 |   | — |   |
| **Net Cash Provided by (Used in) Investing Activities**                            |   | (1,642,000                   | )         | 415,000 |   | (4,384,000 | ) |
| **FINANCING ACTIVITIES**                                                           |   |                         |      |   |   |   |   |
| Payment of long-term debt                                                          |   | (1,500,000                   | )         | (1,500,000 | ) | (1,500,000 | ) |
| Dividends paid                                                                     |   | (1,287,000                   | )         | (1,285,000 | ) | (1,249,000 | ) |
| **Net Cash Used in Financing Activities**                                          |   | (2,787,000                   | )         | (2,785,000 | ) | (2,749,000 | ) |
| **Effect of Foreign Exchange Rate Changes**                                        |   | 110,000                      |      | (51,000 | ) | (61,000 | ) |
| **Increase (Decrease) in Cash and Cash Equivalents**                               |   | (471,000                     | )         | 891,000 |   | (559,000 | ) |
|                                                                               |   |                         |      |   |   |   |   |
| **Cash and Cash Equivalents at Beginning of Year**                                 |   | 1,307,000                    |      | 416,000 |   | 975,000 |   |
| **Cash and Cash Equivalents at End of Year**                                       |   | $                            | 836,000   |   | $ | 1,307,000 |   | $ | 416,000 |   |

 

See notes to consolidatedfinancial statements.

 

16

----

 

### **CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY**

### ** **

|                                                                                                                                 |   | **Common Stock** |   | **Unearned  Compensation** |      | **Retained  Earnings** |   | **Accumulated  Other  Comprehensive  Income (Loss)** |   | **Total** |       |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|----------------------------|-----------|------------------------|--------|------------------------------------------------------|--------|-----------|------------|
| **Number  of  Shares**                                                                                                               |   | **Amount**       |
| **Balance at December 31, 2000**                                                                                                     |   | 3,568,385        |   | $                          | 6,396,000 |                   | $      | —                                               |   | $         | 31,116,000 |   | $ | (228,000 | ) | $ | 37,284,000 |   |
| Dividends ($.33 per share)                                                                                                           |   | —           |   | —                     |      | —                 |   | (1,249,000                                           | )      | —    |       | (1,249,000 | ) |
| Grant of restricted stock                                                                                                            |   | —           |   | 200,000                    |      | (200,000               | )      | —                                               |   | —    |       | — |   |
| Amortization of unearned compensation                                                                                                |   | —           |   | —                     |      | 50,000                 |   | —                                               |   | —    |       | 50,000 |   |
| Comprehensive income:                                                                                                                |   |             |   |                       |      |                   |   |                                                 |   |      |       |   |   |
| Net income                                                                                                                           |   | —           |   | —                     |      | —                 |   | 3,505,000                                            |   | —    |       | 3,505,000 |   |
| Foreign currency translation adjustments                                                                                             |   | —           |   | —                     |      | —                 |   | —                                               |   | (61,000   | )          | (61,000 | ) |
| Cumulative effect of change in accounting for derivatives net of  applicable income taxes of $85,000                            |   | —           |   | —                     |      | —                 |   | —                                               |   | 127,000   |       | 127,000 |   |
| Amortization to income of cumulative effect of change in accounting  for derivatives net of applicable income tax benefit of $17,000 |   | —           |   | —                     |      | —                 |   | —                                               |   | (26,000   | )          | (26,000 | ) |
| Total comprehensive income 2001                                                                                                      |   |             |   |                       |      |                   |   |                                                 |   |      |       | 3,545,000 |   |
| **Balance at December 31, 2001**                                                                                                     |   | 3,568,385        |   | 6,596,000                  |      | (150,000               | )      | 33,372,000                                           |   | (188,000  | )          | 39,630,000 |   |
| Dividends ($.35 per share)                                                                                                           |   |             |   |                       |      |                   |   | (1,285,000                                           | )      |      |       | (1,285,000 | ) |
| Issuance of restricted stock                                                                                                         |   | 5,894            |   | —                     |      | —                 |   | —                                               |   | —    |       | — |   |
| Amortization of unearned compensation                                                                                                |   | —           |   | —                     |      | 67,000                 |   | —                                               |   | —    |       | 67,000 |   |
| Comprehensive income:                                                                                                                |   |             |   |                       |      |                   |   |                                                 |   |      |       |   |   |
| Net income                                                                                                                           |   | —           |   | —                     |      | —                 |   | 1,781,000                                            |   | —    |       | 1,781,000 |   |
| Foreign currency translation adjustments                                                                                             |   | —           |   | —                     |      | —                 |   | —                                               |   | (51,000   | )          | (51,000 | ) |
| Amortization to income of cumulative effect of change in accounting  for derivatives net of applicable income tax benefit of $17,000 |   | —           |   | —                     |      | —                 |   | —                                               |   | (26,000   | )          | (26,000 | ) |
| Total comprehensive income 2002                                                                                                      |   |             |   |                       |      |                   |   |                                                 |   |      |       | 1,704,000 |   |
| **Balance at December 31, 2002**                                                                                                     |   | 3,574,279        |   | 6,596,000                  |      | (83,000                | )      | 33,868,000                                           |   | (265,000  | )          | 40,116,000 |   |
| Dividends ($.36 per share)                                                                                                           |   | —           |   | —                     |      | —                 |   | (1,287,000                                           | )      | —    |       | (1,287,000 | ) |
| Issuance of restricted stock                                                                                                         |   | 5,894            |   | —                     |      | —                 |   | —                                               |   | —    |       | — |   |
| Amortization of unearned compensation                                                                                                |   | —           |   | —                     |      | 67,000                 |   | —                                               |   | —    |       | 67,000 |   |
| Comprehensive income:                                                                                                                |   |             |   |                       |      |                   |   |                                                 |   |      |       |   |   |
| Net income                                                                                                                           |   | —           |   | —                     |      | —                 |   | 2,013,000                                            |   | —    |       | 2,013,000 |   |
| Foreign currency translation adjustments                                                                                             |   | —           |   | —                     |      | —                 |   | —                                               |   | 110,000   |       | 110,000 |   |
| Amortization to income of cumulative effect of change in accounting  for derivatives net of applicable income tax benefit of $17,000 |   | —           |   | —                     |      | —                 |   | —                                               |   | (26,000   | )          | (26,000 | ) |
| Total comprehensive income 2003                                                                                                      |   |             |   |                       |      |                   |   |                                                 |   |      |       | 2,097,000 |   |
| **Balance at December 31, 2003**                                                                                                     |   | 3,580,173        |   | $                          | 6,596,000 |                   | $      | (16,000                                              | )      | $         | 34,594,000 |   | $ | (181,000 | ) | $ | 40,993,000 |   |

 

See notes to consolidatedfinancial statements.

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**NOTE A — BUSINESS INFORMATION**

 

Minuteman International,Inc.  (the “Company”) operates primarily in one business segment, whichconsists of the development, manufacture and marketing of commercial andindustrial floor maintenance equipment and related products. The Company sellsto a multitude of regional, national and international customers, primarily withinthe sanitary supply industry.  No single customer accounted for more thanten percent of net sales in 2003, 2002 or 2001.

 

17

----

 

The Company sells toaffiliated (see note G of the Notes to Consolidated Financial Statements foradditional information) and unaffiliated customers in foreign countries. For 2003, 2002, and 2001, these sales aggregated $17,141,000, $14,064,000 and$15,918,000, respectively, and were principally to customers in Canada, thePacific Rim, the Middle East, Europe, and Latin America.

 

**NOTE B — SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

**Principles of Consolidation**

 

The consolidatedfinancial statements include the accounts of the Company (an Illinoiscorporation) and its wholly-owned subsidiaries, Multi-Clean, MinutemanPowerBoss, Inc., Minuteman Canada, Inc. and Minuteman European B.V. Significantintercompany accounts and transactions have been eliminated in consolidation.

 

**Revenue Recognition**

 

The Company recognizesrevenue when persuasive evidence of an arrangement exists, when title and riskof ownership passes, the sales price is fixed or determinable, andcollectibility is reasonably assured. Generally, these criteria are met at thetime product is shipped.  Provision is made at the time the relatedrevenue is recognized for discounts and allowances, estimated cost of productwarranties, bad debts and rebates.

 

**Use of Estimates**

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the amounts reported in the financial statements andaccompanying notes. Actual results could differ from those estimates.

 

**Accounts Receivable and Allowance forDoubtful Accounts**

 

The Company carries itsaccounts receivable at their face amounts less an allowance for doubtfulaccounts. On a periodic basis, the Company evaluates its accounts receivableand establishes the allowance for doubtful accounts based on a combination ofspecific customer circumstances and credit conditions and based on a history ofwrite-offs and collections. The Company’s policy is to generally not chargeinterest on trade receivables after the invoice becomes past due. A receivableis considered past due if payments have not been received within agreed uponinvoice terms.

 

**Inventories**

 

Inventories at December31, 2003 and 2002 are stated at the lower of cost or market using the last-in,first-out (LIFO) method for 42% and 49% of inventories, respectively.  Thefirst-in, first-out (FIFO) method is used for the remainder.  Inventoriesat December 31, 2003 and 2002 consist of the following:

 
|                      |   | **2003**   |       | **2002**   |   |
|---------------------------|--------|------------|------------|------------|--------|
| Inventories at FIFO cost: |   |       |       |       |   |
| Finished goods            |   | $          | 7,116,000  |       | $      | 6,227,000 |   |
|                      |   |       |       |       |   |
| Work in process           |   | 7,219,000  |       | 9,306,000  |   |
|                      |   |       |       |       |   |
| Raw materials             |   | 4,935,000  |       | 5,442,000  |   |
|                      |   | 19,270,000 |       | 20,975,000 |   |
| Less: LIFO reserve        |   | (2,080,000 | )          | (2,119,000 | )      |
| Total Inventories         |   | $          | 17,190,000 |       | $      | 18,856,000 |   |

 

18

----

 

**Property, Plant and Equipment**

 

Property, plant andequipment are stated on the basis of cost.  Depreciation is computed byboth the straight line and accelerated methods for financial reporting purposesand by the accelerated method for tax purposes.  Estimated useful livesfor buildings and improvements range from 15 to 40 years. All other property,plant and equipment lives range from 3 to 7 years.

 

**Goodwill and Other Intangible Assets**

 

The Company hasclassified as goodwill the cost in excess of the fair value of net assets ofbusinesses acquired. The Company adopted Statement of Financial AccountingStandards (SFAS) No. 142 effective January 1, 2002. SFAS 142 requires thatgoodwill and intangible assets with indefinite useful lives no longer beamortized but instead tested for impairment annually at the reporting unitlevel using a two-step impairment test. If the first step indicates goodwill isimpaired, the second step must be completed to determine the amount of theimpairment. During 2002 the Company, utilizing an independent third party firm,completed its initial test of goodwill by comparing fair value to carryingvalue. Fair value was determined using a discounted cash flow and marketmethodology for the reporting unit. As of January 1, 2002, the Companyconcluded there was no impairment. The Company performed its annual test ofimpairment as of October 1, 2003 and found no impairment.

 

**Income Taxes**

 

Deferred income taxassets and liabilities are determined based on differences between financialreporting and tax bases of assets and liabilities, and are measured using theenacted tax rates and laws that will be in effect when the differences areexpected to reverse.

 

**Earnings Per Share**

 

Basic earnings per shareis computed by dividing income available to common stockholders (the numerator)by the weighted-average number of common shares outstanding (the denominator)for the period.  The computation of the diluted earnings per share issimilar to basic earnings per share, except that the denominator is increasedto include the number of additional common shares that would have beenoutstanding if the potentially dilutive common shares had been issued.

 

**Foreign Currency Translation**

 

The functional currencyof the Company’s foreign subsidiaries is the local currency.  Accordingly,the balance sheet accounts of the foreign subsidiaries have been translatedinto United States dollars using the current exchange rate at the balance sheetdate and income statement amounts have been translated using the averageexchange rate for the year.  Foreign currency translation adjustmentsresulting from the change in exchange rates have been classified as a separatecomponent of shareholders’ equity.

 

**Cash Equivalents**

 

The Company considers allbank certificates of deposit and Eurodollar certificate investments with amaturity of three months or less when purchased to be cash equivalents.

 

19

----

 

**Short-Term Investments**

 

Short-term investmentshave been categorized as available for sale and are stated at cost, whichapproximates fair value.  Investments, all of which are with domesticcommercial banks, include certificates of deposit and Eurodollar and treasurycertificates.

 

**Research and Development Expenses**

 

Research and developmentexpenses for 2003, 2002 and 2001, approximated $1,453,000, $1,512,000 and$1,587,000, respectively.

 

**Shipping and Handling Costs**

 

The Company classifiesshipping and handling costs it incurs as selling expenses in the accompanyingconsolidated statements of income.  Shipping and handling costs in 2003,2002 and 2001 were $929,000, $788,000 and $779,000, respectively.  Allshipping and handling amounts billed to customers are classified as net salesand the associated costs are recorded as cost of sales.

 

**Advertising Costs**

 

Advertising costs areexpensed as incurred and were $574,000, $640,000 and $797,000 in 2003, 2002 and2001, respectively.

 

**Derivative Financial Instruments**

 

As of January 1, 2001,the Company adopted SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities”, which was issued in June 1998 and its amendments, SFAS No.137, “Accounting for Derivative Instruments and Hedging Activities — Deferralof the Effective Date of FASB Statement No. 133”, and SFAS 138, “Accounting forDerivative Instruments and Certain Hedging Activities”, issued in June 1999 andJune 2000, respectively (collectively referred to as SFAS No. 133).

 

As a result of adoptionof SFAS No. 133, the Company recognizes all derivative financial instruments,such as interest rate swap contracts in the consolidated financial statementsat fair value regardless of the purpose or intent for holding theinstrument.  Changes in the fair value of derivative financial instrumentsare either recognized periodically in income or in shareholders’ equity as acomponent of comprehensive income depending on whether the derivative financialinstrument qualifies for hedge accounting, and if so, whether it qualifies as afair value hedge or cash flow hedge. Generally, changes in fair values ofderivatives accounted for as fair value hedges are recorded in income alongwith the portions of the changes in the fair values of the hedged items thatrelate to the hedged risks.  Changes in fair values of derivativesaccounted for as cash flow hedges, to the extent they are effective anddesignated as hedges, are recorded in other comprehensive income net of tax.Changes in fair values of derivatives not qualifying as hedges are reported asinterest expense. The fair market value of the interest rate swap at December31, 2003 and 2002 is classified as a non-current liability on the consolidatedbalance sheets.

 

The Company accounted forthe accounting changes as a cumulative effect of a change in accountingprinciple.  The adoption of  SFAS No. 133, on January 1, 2001resulted in an increase of $127,000, net of applicable income taxes of $85,000,to other comprehensive income.

 

In 2001, the Company determinedthat the interest rate swap did not qualify for hedge accounting in accordancewith the applicable provisions of  SFAS No. 133, and therefore, the effectof adjusting the swap to market was $463,000 (net of tax benefit of $185,000),resulting in a $278,000 charge to net income.

 

In 2002, the Companycontinued to record the change in the fair market value of its swap as interestexpense. The effect of adjusting the swap to market was $347,000 (net of taxbenefit of $139,000), resulting in a $208,000 charge to net income.

 

20

----

 

In 2003, the Companycontinued to record the change in the fair market value of its swap as interestexpense. The effect of adjusting the swap to market was a reduction of $283,000(net of tax of $109,000), resulting in a $174,000 benefit to net income.

 

Prior to January 1, 2001,the Company also used interest rate swap contracts for hedging purposes. For interest rate swaps, the net amounts paid or received and net amountsaccrued through the end of the accounting period were included in interestexpense. Unrealized gains or losses on interest swap contracts were notrecognized in income.  Gains or losses on any contracts terminated earlywere deferred and amortized to income over the remaining average life of theterminated contracts.

 

In 1998, the Companyentered into an interest rate swap agreement to obtain a fixed interest rate onvariable rate debt and reduce certain exposures to interest ratefluctuations.  At December 31, 2003 and 2002 the Company had interest rateswaps with notional amounts of $7,500,000 and $9,000,000, respectively. The swaps will terminate on the same basis as the long-term debt repaymentschedule ending November, 2005 (see note D of the Notes to ConsolidatedFinancial Statements for additional information).  The swaps for 2003 and2002 resulted in fixed rate payments at an effective interest rate of 6.2% and6.1%, respectively. Variable rate payments are based on LIBOR interest rateplus an applicable margin (see note D of the Notes to Consolidated FinancialStatements for additional information).

 

**Customer Rebates**

 

The cost of customerrebate programs is classified as a reduction of net sales. Rebate expense for2003, 2002 and 2001 was $1,263,000, $1,227,000 and $1,171,000, respectively.

 

**Warranties**

 

The Company provides forthe estimated cost of product warranties at the time revenue is recognized. TheCompany’s warranty liability is affected by product failure rates, materialusage and costs incurred in correcting a product failure. Should actual productfailure rates, material usage or costs differ from the Company’s estimates,revisions to the estimated warranty liability may be required.

 

Changes in the Company’swarranty liability during the period are as follows:

 
| **Description**               |   | **Balance at  Beginning of  Period** |    | **Charged to  Costs and  Expenses (1)** |   | **Deductions (2)** |   | **Balance at  End of Period** |    |
|-------------------------------|--------|--------------------------------------|---------|-----------------------------------------|--------|--------------------|--------|-------------------------------|---------|
| Year Ended  December 31, 2003 |   |                                 |    |                                    |   |               |   |                          |    |
| Accrued warranties            |   | $                                    | 817,000 |                                    | $      | 383,000            |   | $                             | 590,000 |   | $ | 610,000 |   |
| Year Ended  December 1, 2002  |   |                                 |    |                                    |   |               |   |                          |    |
| Accrued warranties            |   | $                                    | 711,000 |                                    | $      | 522,000            |   | $                             | 416,000 |   | $ | 817,000 |   |
| Year Ended  December 31, 2001 |   |                                 |    |                                    |   |               |   |                          |    |
| Accrued warranties            |   | $                                    | 832,000 |                                    | $      | 501,000            |   | $                             | 622,000 |   | $ | 711,000 |   |

 

----

(1) — Provision forwarranty liability.

(2) — Warranty claimsprocessed.

 

**NOTE C — GOODWILL**

 

On January 1, 2002 theCompany applied the provisions of  SFAS No. 142, “Goodwill and OtherIntangible Assets”. SFAS No. 142 requires that goodwill and certain intangibleassets no longer be amortized, but instead tested for impairment at leastannually.

 

21

----

 

Net income and earningsper share adjusted to exclude amortization expense (net of taxes) is asfollows:

 
|                                  |   | **Year Ended  December 31,** |      |
|---------------------------------------|--------|------------------------------|-----------|
|                                  |   | **2003**                     |      | **2002** |   | **2001** |   |
| Reported net income                   |   | $                            | 2,013,000 |   | $ | 1,781,000 |   | $ | 3,505,000 |   |
| Goodwill amortization                 |   | —                       |      | — |   | 213,000 |   |
| Adjusted net income                   |   | $                            | 2,013,000 |   | $ | 1,718,000 |   | $ | 3,718,000 |   |
| Basic and diluted earnings per share: |   |                         |      |   |   |   |   |
| Reported net income                   |   | $                            | 0.56      |   | $ | 0.50 |   | $ | 0.98 |   |
| Goodwill amortization                 |   | —                       |      | — |   | 0.06 |   |
| Adjusted net income                   |   | $                            | 0.56      |   | $ | 0.50 |   | $ | 1.04 |   |

 

**NOTE D — DEBT**

 

**Short Term Debt**

 

The Company has anunsecured line of credit arrangement for a short-term debt facility with afinancial institution which expires May 31, 2004.  Under the terms of thisfacility the Company may borrow up to $5 million on terms mutually agreeable tothe Company and the financial institution.  There are no requirements forcompensating balances or restrictions of any kind involved in thisarrangement.  At December 31, 2003 and 2002 there were no borrowingsoutstanding.

 

**Long Term Debt**

 

The Company has a termloan agreement with a financial institution.  This unsecured creditfacility provides for an interest rate at LIBOR plus an applicable margin basedupon the ratio of debt outstanding to the Company’s earnings before interest,taxes, depreciation and amortization and ranges from .70% to 1.15%.  Themargin rate on this debt at December 31, 2003 and 2002 was .80% (see note F ofthe Notes to Consolidated Financial Statements for additional information). Theeffective interest rate on this debt at December 31, 2003 was 6.2%.  TheCompany agreed to maintain certain minimum financial ratios required by theloan agreement. At December 31, 2003 the Company was in compliance with theminimum financial ratios.

 

Maturities of long-termdebt are as follows:

 

| 2004                                    |   | $          | 1,500,000 |   |
|-----------------------------------------|--------|------------|-----------|--------|
| 2005                                    |   | 6,000,000  |      |
| 2006                                    |   | —     |      |
|                                    |   | 7,500,000  |      |
| Less: current maturities                |   | (1,500,000 | )         |
| Long-term debt, less current maturities |   | $          | 6,000,000 |   |

 

Interest paid forshort-term and long-term debt obligations in 2003, 2002 and 2001 was $531,000,$615,000 and $708,000, respectively.

 

**NOTE E — INCOME TAXES**

 

Deferred income taxesreflect the net tax effects of temporary differences between the carryingamount of assets and liabilities for financial reporting purposes and theamounts used for income tax purposes.

 

22

----

 

Significant components ofthe Company’s deferred tax assets and liabilities at December 31, 2003 and 2002are as follows:

 
|                                                             |   | **Deferred  Tax Assets (Liabilities)** |    |
|------------------------------------------------------------------|--------|----------------------------------------|---------|
|                                                             |   | **2003**                               |    | **2002** |   |
| Accounts receivable allowance                                    |   | $                                      | 413,000 |   | $ | 276,000 |   |
| Inventory capitalization and reserves                            |   | 45,000                                 |    | 76,000 |   |
| Property, plant and equipment tax depreciation in excess of book |   | (334,000                               | )       | (291,000 | ) |
| Goodwill                                                         |   | (423,000                               | )       | (239,000 | ) |
| Derivative financial instrument                                  |   | 154,000                                |    | 274,000 |   |
| Vacation accrual                                                 |   | 180,000                                |    | 125,000 |   |
| Product warranty accrual                                         |   | 125,000                                |    | 181,000 |   |
| Health insurance accrual                                         |   | 15,000                                 |    | 14,000 |   |
| Deferred income tax assets                                       |   | $                                      | 175,000 |   | $ | 416,000 |   |

 

The effective income taxrate differed from the Federal statutory rate as follows:

 
|                                           |   | **Year Ended  December 31,** |   |
|------------------------------------------------|--------|------------------------------|--------|
|                                           |   | **2003**                     |   | **2002** |   | **2001** |   |
| Federal statutory rate                         |   | 34.0                         | %      | 34.0 | % | 34.0 | % |
| State income taxes, net of federal tax benefit |   | 5.3                          |   | 6.8 |   | 4.0 |   |
| Extraterritorial Income benefit                |   | (4.2                         | )      | (3.2 | ) | (2.5 | ) |
| Research and development tax credits           |   | (3.5                         | )      | (3.6 | ) | (1.9 | ) |
| Other, net                                     |   | 3.5                          |   | (5.1 | ) | (1.8 | ) |
| Effective income tax rates                     |   | 35.1                         | %      | 28.9 | % | 31.8 | % |

 

The components of theprovision (benefit) for income taxes are:

 
|                       |   | **Year Ended  December 31,** |      |
|----------------------------|--------|------------------------------|-----------|
|                       |   | **2003**                     |      | **2002** |   | **2001** |   |
| Federal                    |   | $                            | 745,000   |   | $ | 478,000 |   | $ | 1,337,000 |   |
| State                      |   | 200,000                      |      | 260,000 |   | 320,000 |   |
| Foreign                    |   | 143,000                      |      | (13,000 | ) | (19,000 | ) |
| Provision for income taxes |   | $                            | 1,088,000 |   | $ | 725,000 |   | $ | 1,638,000 |   |

 

The Company paid incometaxes, net of refunds received, of $231,000, $2,306,000 and $987,000 in 2003,2002 and 2001, respectively.

 

**NOTE F — FINANCIAL INSTRUMENTS**

 

Financial instrumentswhich potentially subject the Company to concentrations of credit risk consistprincipally of cash equivalents and accounts receivable.  The Companyplaces its cash equivalents with high credit quality financial institutions,which are federally insured up to prescribed limits.  However, the amountof cash equivalents at any one institution may exceed the federally insuredprescribed limits.  Concentrations of credit risks with regard to accountsreceivable are limited due to the large number of customers comprising theCompany’s customer base.  The Company performs ongoing credit evaluationsof its customers and maintains allowances for potential credit losses which,when incurred, have been within the range of management expectations.

 

23

----

 

In 1998, the Companyentered into an interest rate swap agreement to obtain a fixed interest rate onvariable rate debt and reduce certain exposures to interest ratefluctuations.  At December 31, 2003 and 2002 the Company had interest rateswaps with notional amounts of $7,500,000 and $9,000,000, respectively. The swaps will terminate on the same basis as the long-term debt repaymentschedule ending November, 2005 (see note D of the Notes to Consolidated FinancialStatements for additional information).  The swaps for 2003 and 2002resulted in fixed rate payments at an effective interest rate of 6.2% and 6.1%,respectively.  Variable rate payments are based on LIBOR interest rateplus an applicable margin (see note D of the Notes to Consolidated FinancialStatements for additional information).

 

Interest ratedifferentials paid or received under this agreement are recognized as anadjustment to interest expense.  The Company does not hold or issueinterest rate swap agreements for trading purposes.

 

In the event that acounterparty fails to meet the terms of the interest rate swap agreement, theCompany’s exposure is limited to the interest rate differential.  TheCompany manages the credit risk of counterparties by dealing only withinstitutions that the Company considers financially sound.  The Companyconsiders the risk of nonperformance to be remote. The net carrying amounts andfair values of the Company’s financial instruments are approximately the same.

 

**NOTE G — RELATED PARTY TRANSACTIONS**

 

Hako–Werke InternationalGmbH & Co. (a German corporation) owns 68.1% of the outstanding commonstock of the Company through a subsidiary.

 

The Company soldapproximately $226,000, $497,000 and $715,000 of merchandise to Hako-Werke andcertain of its subsidiaries during 2003, 2002 and 2001, respectively. Amounts due from affiliates, which relate to these sales, are due within 90days from the date of sale.

 

**NOTE H — EMPLOYEE BENEFIT PLANS**

 

The Company maintains aparticipatory defined contribution plan for substantially all employees underSection 401(k) of the Internal Revenue Code.  In addition to adiscretionary contribution, the Company also matches employee contributionsbased upon a formula up to a specified maximum.  Contributions to the planand related expense were $268,000, $365,000 and $365,000 for the years ended2003, 2002 and 2001 respectively.

 

**NOTE I — RESTRICTED STOCK PLAN**

 

On April 18, 2000 theshareholders approved the Minuteman 2000 Restricted Stock Plan, (“RestrictedStock Plan”), which is designed to attract and retain the services of keymanagement employees by providing such persons with a proprietary interest inthe Company through the granting of Company common stock. The maximum number ofCompany common stock available for issuance is 150,000 shares. At December31, 2003 and 2002 there were 131,140 shares available to be granted.  Asof December 31, 2003 and December 31, 2002, 18,860 shares have been granted.

 

On May 1, 2003 theshareholders approved an amendment to the Restricted Stock Plan changing thevesting period for any future award to a period not to exceed two years. At the sole discretion of the Company, an award of restricted stock may beawarded to an eligible employee based upon certain conditions and restrictionsincluding, but not limited to, past and continued service with the Company,achievement of specific business objectives, superior work performance, andother measurements of individual or Company performance.  In the eventthat an employee is terminated (except due to retirement, death or totaldisability) prior to the end of the vesting period, the non-vested portion ofthe award will be forfeited.  However, in the event of an employee’sretirement, death or total disability, or a change in control of the Company,the award shall immediately become fully vested.  Shares granted under theplan

 

24

----

 

are recorded at fairmarket value on the date of grant with a corresponding charge to shareholders’equity. The unearned portion is amortized as compensation expense ($67,000 in2003 and 2002) on a straight-line basis over the related vesting period. AtDecember 31, 2003, 11,788 shares were issued as they were fully vested.

 

**NOTE J — COMPREHENSIVE INCOME (LOSS)**

 

Thecomponents of accumulated other comprehensive income (loss) for the years endedDecember 31, 2003, 2002 and 2001 are as follows:
|                                                                                                                                              |   | **Year Ended  December 31,** |     |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|----------|
|                                                                                                                                              |   | **2003**                     |     | **2002** |   | **2001** |   |
| Foreign currency translation adjustments                                                                                                          |   | $                            | (230,000 | ) | $ | (340,000 | ) | $ | (289,000 | ) |
| Cumulative effect of change in accounting for derivatives net of  applicable taxes of $85,000                                                     |   | 127,000                      |     | 127,000 |   | 127,000 |   |
| Amortization to income of cumulative effect of change in accounting  for derivatives, net of income tax benefit of $17,000 in 2003, 2002 and 2001 |   | (78,000                      | )        | (52,000 | ) | (26,000 | ) |
| Total accumulated other comprehensive loss                                                                                                        |   | $                            | (181,000 | ) | $ | (265,000 | ) | $ | (188,000 | ) |

 

**NOTE K — COMMITMENTS ANDCONTINGENCIES**

 

**Legal Matters**

 

The Company is subject tovarious proceedings, lawsuits and other claims related to labor, product andother matters.  Included among these lawsuits are product liability claimsseeking compensation for property damage, lost profits or other relief,including, in some cases, punitive damages. The Company disputes these claimsand intends to defend the lawsuits vigorously. A determination of the amount ofreserves required, if any, for each of these contingencies is made aftercareful analysis by the Company. The reserves may change in the future due tonew developments in each matter or changes in approach in resolving theseclaims. While the Company believes that these contingencies will not have amaterial adverse effect on the financial condition of the Company, there can beno assurance that they will be resolved in a manner that does not materiallyadversely affect the Company.

 

**Lease Commitments**

 

The Company and itssubsidiaries lease certain manufacturing, warehousing, other facilities,equipment and autos.  The leases generally provide for the lessee to paytaxes, maintenance, insurance and certain other operating costs of the leasedproperty. The leases on most of the properties contain renewalprovisions.  The following is a summary of future minimum payments underoperating leases that have initial or remaining noncancelable lease terms inexcess of one year at December 31, 2003:

 

| 2004  |   | $       | 871,000   |   |
|-------|--------|---------|-----------|--------|
| 2005  |   | 685,000 |      |
| 2006  |   | 498,000 |      |
| 2007  |   | 414,000 |      |
| 2008  |   | 191,000 |      |
| Total |   | $       | 2,659,000 |   |

 

25

----

 

Rental expense foroperating leases amounted to $987,000, $842,000 and $753,000, in 2003, 2002 and2001, respectively.

 

**PurchaseCommitments**

 

Asof December 31, 2003, the company had approximately $984,000 of purchasecommitments with some suppliers for materials and supplies as part of thenormal course of business. There are a limited number of supply contracts thatcontain penalty provisions for either early termination or failure to purchasecontracted quantities. The company does not expect potential payments underthese provisions to materially affect its results of operations or financialcondition.

 

**Performance Guarantees**

 

The Company is party tofinancing agreements between leasing companies and distributors.  Theagreements contain repurchase provisions, whereby the Company will, upondefault of the customer, repurchase the equipment from the leasing companies.The terms of the guarantees are related to the standard equipment lease terms.The maximum potential amount of future payments the Company could be requiredto make under these guarantees at December 31, 2003 is $40,000.

 

The Company issued aletter of credit during the normal course of business, as required by acustomer contract. The letter of credit has an expiration date of May 1, 2004, but may be automatically extended foradditional consecutive one-year terms. The maximum potential amount of futurepayments the Company could be required to make under this guarantee at December31, 2003 is $50,000. As of January 30, 2004 the letter of credit has beencancelled.

 

**NOTE L — QUARTERLY RESULTS OFOPERATIONS (UNAUDITED)**

 

The following is asummary of the quarterly results of operations for the years ended December 31,2003 and 2002.

 
|                                                   |   | **Three  Months Ended** |       |
|--------------------------------------------------------|--------|-------------------------|------------|
| **2003**                                               |   | **March 31**            |       | **June 30** |   | **September  30** |   | **December  31** |   |
| Net sales                                              |   | $                       | 18,634,000 |   | $ | 19,258,000 |   | $ | 18,228,000 |   | $ | 18,228,000 |   |
| Gross profit                                           |   | 5,554,000               |       | 5,876,000 |   | 5,419,000 |   | 5,465,000 |   |
| Net income                                             |   | 473,000                 |       | 654,000 |   | 387,000 |   | 499,000 |   |
| Net income per common share — basic & diluted |   | $                       | .13        |   | $ | .18 |   | $ | .11 |   | $ | .14 |   |

 

 
|                                                   |   | **Three  Months Ended** |       |
|--------------------------------------------------------|--------|-------------------------|------------|
| **2002**                                               |   | **March 31**            |       | **June 30** |   | **September  30** |   | **December  31** |   |
| Net sales                                              |   | $                       | 19,261,000 |   | $ | 19,918,000 |   | $ | 17,356,000 |   | $ | 15,416,000 |   |
| Gross profit                                           |   | 5,569,000               |       | 6,046,000 |   | 5,138,000 |   | 4,310,000 |   |
| Net income                                             |   | 609,000                 |       | 652,000 |   | 156,000 |   | 364,000 |   |
| Net income per common share — basic & diluted |   | $                       | .17        |   | $ | .18 |   | $ | .04 |   | $ | .10 |   |

 

Quarterly per shareinformation does not equal annual per share information due to rounding.

 

**Item 9****.    Changesin and Disagreements With Accountants on Accounting and Financial Disclosure**

 

None

 

26

----

 

**Item 9A.****    Controls and Procedures**

 

The company maintainsdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e)under the Securities Exchange act of 1934, as amended (the “ExchangeAct”)) that are designed to ensure that information required to be disclosed bythe company in the reports it files or submits under the Exchange Act isrecorded, processed, summarized, and reported within the time periods specifiedin the Securities and Exchange Commission’s rules and forms and that suchinformation is accumulated and communicated to the Company’s management,including its principal executive and principal financial officers, or personsperforming similar functions, as appropriate to allow timely decisionsregarding required disclosure. The Company’s management evaluated, with theparticipation of the Company’s Chief Executive Officer, Chief Financial Officerand Chief Accounting Officer, the effectiveness of the design and operation ofthe Company’s disclosure controls and procedures as of the end of the periodcovered in this Annual Report on Form 10-K. Based on that evaluation, theCompany’s Chief Executive Officer, Chief Financial Officer and Chief AccountingOfficer concluded that the Company’s disclosure controls and procedures wereeffective as of the end of such period. There was no change in the Company’sinternal control over financial reporting that occurred during the Company’sfiscal fourth quarter ended December 31, 2003 that has materiallyaffected, or is reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

27

----

 

**PART III**

 

**Item 10. ****Directors and ExecutiveOfficers of the Registrant**

 

The information requiredto be set forth herein is contained under “Election of Directors” and “Section16(a) Beneficial Ownership Reporting Compliance” in the 2004 Proxy Statement,with respect to directors and executive officers of the Company and isincorporated herein by reference in response to this item. In addition theinformation included under the heading “Corporate Governance” in the 2004 ProxyStatement regarding the company’s Code of Business Conduct and Ethics and information identifying the financialexpert who serves on the Audit Committee of the Company’s Board of Directors is incorporated herein by reference.

 

**Item 11**. **Executive Compensation**

 

The information requiredto be set forth herein is under “Election of Directors—Executive ManagementCompensation” and “Performance Graph” in the 2004 Proxy Statement isincorporated herein by reference in response to this item.

 

**Item 12**. **SecurityOwnership of Certain Beneficial Owners and Management**

 

The information requiredto be set forth herein is contained under “Security Ownership of CertainBeneficial Owners and Management” in the 2004 Proxy Statement and isincorporated herein by reference in response to this item.

 

**Item 13. ****Certain Relationshipsand Related Transactions**

 

The information requiredto be set forth herein is contained under “Board of Director Interlocks,Insider Participation and Related Transactions” in the 2004 Proxy Statement andis incorporated herein by reference in response to this item.

 

**Item 14. ****Principal AccountingFees and Services**

 

The information requiredto be set forth herein is contained under “Independent Auditor Fee Information”in the 2004 Proxy Statement and is incorporated herein by reference in responseto this item.

 

28

----

 

**PART IV**

 

**Item 15****.**  **Exhibits, FinancialStatement Schedules, and Reports on Form 8-K**

 

(a) (1) and (2) FinancialStatements and Financial Statement Schedules

 

The Report of Independent Auditors, the financialstatements and the financial statement schedule listed in the accompanyingindex to financial statements are filed herewith.

 

(a) (3) and (c) Exhibits

 

The Exhibits required by Item 601 of Regulation S-Kand filed herewith are listed in the Exhibit Index which follows the financialstatement schedule.

 

(b)                                 Reports on Form 8-K:

 

The Company filed one report on Form 8-K for thequarter ended December 31, 2003. Information regarding the items reported on isas follows: On November 4, 2003 the Company issued a press release announcingthird quarter 2003 earnings and a quarterly dividend.

 

29

----

 

ITEM 15(a) (1) AND (2)

 

LIST OF FINANCIALSTATEMENTS ANDFINANCIAL STATEMENT SCHEDULE

 

MINUTEMAN INTERNATIONAL, INC.AND SUBSIDIARIES

 

December 31, 2003

 
| The following  consolidated financial statements of Minuteman International, Inc. and  subsidiaries are included in Item 8 of Part II:               |                                                                                                                                    |
|------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                 |                                                                                                                                    |
|                                                                                                                                                 | Consolidated Balance Sheets  -December 31, 2003 and 2002                                                                                |   |
|                                                                                                                                                 |                                                                                                                                    |   |
|                                                                                                                                                 | Consolidated  Statements of Income - Years ended December 31, 2003, 2002 and 2001                                                       |   |
|                                                                                                                                                 |                                                                                                                                    |   |
|                                                                                                                                                 | Consolidated  Statements of Shareholders’ Equity -Years Ended December 31, 2003, 2002 and  2001                                    |   |
|                                                                                                                                                 |                                                                                                                                    |   |
|                                                                                                                                                 | Consolidated  Statements of Cash Flows -Years Ended December 31, 2003, 2002 and 2001                                                    |   |
|                                                                                                                                                 |                                                                                                                                    |   |
|                                                                                                                                                 | Notes to  Consolidated Financial Statements                                                                                             |   |
|                                                                                                                                                 |                                                                                                                                    |
| The following  consolidated financial statement schedule of Minuteman International, Inc.  and subsidiaries is included in Item 15(a) (2): |                                                                                                                                    |
|                                                                                                                                                 |                                                                                                                                    |
|                                                                                                                                                 | Schedule   II —           Valuation  and Qualifying Accounts |   |

 

All other schedules forwhich provision is made in the applicable accounting regulation of theSecurities and Exchange Commission are not required under the relatedinstructions or are inapplicable, and therefore have been omitted.

 

30

----

 

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

 

MINUTEMAN INTERNATIONAL, INC. AND SUBSIDIARIES

 
| **Description**                                       |   | **Balance at  Beginning of  Period** |    | **Charged to  Costs and  Expenses** |   | **Deductions** |   | **Balance  at End of  Period** |   |
|-------------------------------------------------------|--------|--------------------------------------|---------|-------------------------------------|--------|----------------|--------|--------------------------------|--------|
| Year Ended December 31, 2003                          |   |                                 |    |                                |   |           |   |                           |   |
| Reserves and allowances deducted from asset accounts: |   |                                 |    |                                |   |           |   |                           |   |
| Allowance for uncollectible accounts                  |   | $                                    | 987,000 |                                | $      | 413,000        |   | $                              | 61,000 | (1) | $ | 1,339,000 |   |
| Reserve for obsolete inventory                        |   | 1,011,000                            |    | 153,000                             |   | 101,000        | (2)    | 1,063,000                      |   |
|                                                  |   |                                 |    |                                |   |           |   |                           |   |
| Year Ended December 31, 2002                          |   |                                 |    |                                |   |           |   |                           |   |
| Reserves and allowances deducted from asset accounts: |   |                                 |    |                                |   |           |   |                           |   |
| Allowance for uncollectible accounts                  |   | 720,000                              |    | 370,000                             |   | 103,000        | (1)    | 987,000                        |   |
| Reserve for obsolete inventory                        |   | 1,122,000                            |    | (111,000                            | )      | —         | (2)    | 1,011,000                      |   |
|                                                  |   |                                 |    |                                |   |           |   |                           |   |
| Year Ended December 31, 2001                          |   |                                 |    |                                |   |           |   |                           |   |
| Reserves and allowances deducted from asset accounts: |   |                                 |    |                                |   |           |   |                           |   |
| Allowance for uncollectible accounts                  |   | 562,000                              |    | 379,000                             |   | 221,000        | (1)    | 720,000                        |   |
| Reserve for obsolete inventory                        |   | 1,120,000                            |    | 43,000                              |   | 41,000         | (2)    | 1,122,000                      |   |
|                                                       |        |                                      |         |                                     |        |                |        |                                |        |  |  |  |  |

 

----

(1) — Uncollectibleaccounts written off, net of recoveries.

(2) — Inventorydisposals.

 

31

----

 

MINUTEMAN INTERNATIONAL, INC.

 

EXHIBIT INDEX

 

(Pursuant to Item 601 of Regulation S-K)

 
| **NO.** |   | **DESCRIPTION  AND PAGE OR INCORPORATION REFERENCE**                                                                                                                                                                                                                                        |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                        |
| 3.1(a)  |   | Articles of  Incorporation (incorporated herein by reference to Exhibit 3 (a) of the  Registrant’s Form S-18 Registration Statement, Registration Number 33-11858).                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                                        |
| 3.1(b)  |   | Amendment to the  Articles of Incorporation (incorporated herein by reference to Registrant’s  Form 10-Q and Form 10-Q/A for the quarter ended June 30, 2000).                                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                        |
| 3.2     |   | By-laws (incorporated  herein by reference to Registrant’s Form 10-Q and Form 10-Q/A for the quarter  ended March 31, 2000).                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                        |
| 4       |   | Specimen Certificate  for Common Stock, no par value (incorporated herein by reference to Exhibit 4  of the Registrant’s For S-18 Registration Statement, Registration Number  33-11858).                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                        |
| 10.1    |   | Agreement dated as of  February 9, 1987, with respect to trademark between the Company and  Hako-Werke International GmbH (incorporated herein by reference to Exhibit 10  (c) of the Registrant’s Form S-18 Registration Statement, Registration Number  33-11858).                   |
|    |   |                                                                                                                                                                                                                                                                                        |
| 10.2    |   | Agreement dated March  1, 1994 with respect to worldwide distribution/marketing and trademarks  between the Company and Hako-Werke International GmbH (incorporated herein by  reference to Exhibit 10 (f) at Page 18 of Form 10-K Annual Report for fiscal  year ended December 31, 1994). |
|    |   |                                                                                                                                                                                                                                                                                        |
| 10.3*   |   | Specimen form of  Employment Agreement between the Company and its executive officers (with the  exception of the president) (incorporated herein by reference to Exhibit 10  (c) at Page 18 of Form 10K Annual Report for fiscal year ended December 31,  1991).                           |
|    |   |                                                                                                                                                                                                                                                                                        |
| 10.4*   |   | Employment Agreement dated  as of July 13, 2001, between the Company and Gregory J. Rau (incorporated  herein by reference to Exhibit 99.1 on Form 10-Q for the quarter ended June  30, 2001).                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                        |
| 10.5*   |   | First amendment to  employment agreement between Minuteman International, Inc. and Gregory J.  Rau, dated as of July 31, 2003, effective January 1, 2003 (incorporated  herein by reference to Exhibit 10.2 on Form 10-Q for the quarter ended June  30, 2003).                             |
|    |   |                                                                                                                                                                                                                                                                                        |
| 10.6*   |   | Minuteman  International, Inc. 2000 Restricted Stock Plan (incorporated herein by  reference to  Exhibit 4.1 on  Form S-8, No. 333-36324 filed on May 4, 2000).                                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                        |
| 10.7*   |   | Amendment No. 1 to the  Minuteman International, Inc. 2000 Restricted Stock Plan (incorporated herein  by reference to Exhibit 10.1 on Form 10-Q for the quarter ended June 30,  2003).                                                                                                     |
|    |   |                                                                                                                                                                                                                                                                                        |
| 14      |   | Code of Ethics                                                                                                                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                        |
| 21      |   | Subsidiaries of the  Registrant                                                                                                                                                                                                                                                             |
|    |   |                                                                                                                                                                                                                                                                                        |
| 23      |   | Consent of Ernst &  Young LLP                                                                                                                                                                                                                                                           |

 

32

----

 
| 31.1   |   | Certification of the  Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002  |
|--------|--------|----------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                           |
| 31.2   |   | Certification of the  Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002  |
|   |   |                                                                                                           |
| 31.3   |   | Certification of the  Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 |
|   |   |                                                                                                           |
| 32.1   |   | Certification of the  Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002  |
|   |   |                                                                                                           |
| 32.2   |   | Certification of the  Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002  |
|   |   |                                                                                                           |
| 32.3   |   | Certification of the  Chief Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 |

 

----

* Indicates a managementcontract or compensatory plan or arrangement required to be filed pursuant toItem 15(a) (3) of Form 10-K.

 

Minuteman International,Inc. will furnish any of the aforementioned exhibits indicated above torequesting security holders upon written request.

 

**Signatures**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized on March 12, 2004.

 
|   | Minuteman International, Inc. |
|--------|-------------------------------|
|   |                          |
|   |                          |   |
|   | By:                           | /s/ Gregory J. Rau |
|   |                          | Gregory J. Rau,  President and Chief Executive Officer |
|   |                          |   |
|   |                          |   |
|   | By:                           | /s/ Thomas J. Nolan |
|   |                          | Thomas J. Nolan,  Vice President, Chief Financial Officer,  Secretary and Treasurer |
|   |                          |   |
|   |                          |   |
|   | By:                           | /s/ James A. Berg |
|   |                          | James A. Berg,  Chief Accounting Officer |

 

Pursuant to therequirements of the Securities and Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the Registrant and in thecapacities indicated on March 12, 2004.

 

33

----

 
| **Signature**               |   | **Title**                                                                   |
|-----------------------------|--------|-----------------------------------------------------------------------------|
|                        |   |                                                                        |
| /s/ Gregory J. Rau          |   |                                                                        |
| Gregory J. Rau              |   | President, Chief Executive Officer and Director                             |
|                        |   |                                                                        |
| /s/ Thomas J. Nolan         |   |                                                                        |
| Thomas J. Nolan             |   | Vice President, Chief Financial Officer,  Secretary, Treasurer and Director |
|                        |   |                                                                        |
| /s/ Eckart Kottkamp         |   |                                                                        |
| Eckart Kottkamp             |   | Director                                                                    |
|                        |   |                                                                        |
| /s/ Roger B. Parsons        |   |                                                                        |
| Roger B. Parsons            |   | Director                                                                    |
|                        |   |                                                                        |
| /s/ Frank R. Reynolds       |   |                                                                        |
| Frank R. Reynolds           |   | Director                                                                    |
|                        |   |                                                                        |
| /s/ James C. Schrader,  Jr. |   |                                                                        |
| James C. Schrader Jr.       |   | Director                                                                    |
|                        |   |                                                                        |
| /s/ Richard J. Wood         |   |                                                                        |
| Richard J. Wood             |   | Director                                                                    |

 

34

----