**Exhibit13**

 

Welcome to the future of floor care.

 

BRILLIANT DESIGN.

EXCEPTIONAL PERFORMANCE.

DYNAMIC TECHNOLOGY.

 

2002 ANNUAL REPORT

Minuteman International, Inc.

 

WISDOM. IMAGINATION.

VISION. A TRUSTED FRIEND.

THANK YOU.

 

FREDERICK W. HOHAGE

Board of Directors, Minuteman International

Board Member of BSH Home Appliances

Past President and Director of The Robert Bosch Corporation

Frederick W. Hohage, a director of Minuteman International sinceDecember of 1988, officially retired from the Board of Directors thisyear.  As past president and director ofThe Robert Bosch Corporation, Sales Group, headquartered in Broadview,Illinois, Mr. Hohage has been a friend, a trusted colleague and an exceptionallong-term strategist.  Mr. Hohage hasbeen consistent in his unwavering dedication to the Company, his willingness tolisten and his skilled intuitive commentary. Always available, he was a sounding board and was always there with afresh perspective.  He has offered toassist the Board even after he retires. We thank him for his years of wisdom, insight, vision and loyalty to theCompany and the management team.

Minuteman International

Board of Directors

 

Minuteman’s continued success, despite a turbulent economicenvironment, is driven by attention to detail, quality, integrity, value,performance, and leadership. Sales are the result of a management team thatrecognizes the importance of dedicated employees, satisfied customers,brilliant design, exceptional performance,and dynamic technology.  This unified effort enables Minuteman toreach a focused goal and provide the best floor cleaning equipment andchemicals.

 

Minuteman International, headquartered in the Chicago suburb ofAddison, Illinois, is a full line manufacturer of maintenance productsincluding industrial and commercial vacuums, critical filter vacuums, sweepers,scrubbers, floor and carpet machines, Minuteman PowerBoss® sweepers andscrubbers, Minuteman Parker® Litter Vacs and Multi-Clean® chemicals forindustrial, commercial and institutional facilities.

 

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| CONTENTS                                                                   |
|----------------------------------------------------------------------------|
|                                                                       |
| FROM THE PRESIDENT                                                         |
|                                                                       |
|                                                                       |
| GLOBAL POSITIONING                                                         |
| Setting a Strategic Course                                                 |
|                                                                       |
|                                                                       |
| NEW PRODUCTS POSITION                                                      |
| MINUTEMAN TO LEAD THE FUTURE OF  FLOOR CARE, TODAY                         |
|                                                                       |
|                                                                       |
| STAYING THE COURSE                                                         |
| Minuteman’s  Full Line of Unrivaled Customer Floor Care Products      |
|                                                                       |
|                                                                       |
| MINUTEMAN POWERBOSS                                                        |
| Dynamic Products Drive  PowerBoss                                          |
|                                                                       |
|                                                                       |
| MINUTEMAN EUROPE                                                           |
| Worldwide Opportunities  Expand                                            |
|                                                                       |
|                                                                       |
| ISSA INTERCLEAN AMSTERDAM                                                  |
| A Showplace for  Minuteman’s Leadership                               |
|                                                                       |
|                                                                       |
| MINUTEMAN POPULAR WEBSITE                                                  |
| www.minutemanintl.com                                                      |
|                                                                       |
|                                                                       |
| MULTI-CLEAN®                                                          |
| Dependable,  Aggressive, New Products Fuel Chemical Powerhouse Multi-Clean |
|                                                                       |
|                                                                       |
| FINANCIAL REPORT                                                           |
|                                                                       |
|                                                                       |
| LOCATIONS AND CORPORATE  INFORMATION                                       |

 

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Welcome to the future of floor care.

 

GUIDING PRINCIPALS

 

Mission Statement

 

Minuteman Internationalwill deliver global cleaning solutions that provide exceptional value with asingle-minded focus to anticipate and exceed customer expectations.

 

Partnerships

 

Minuteman will partnerwith its customers, employees and suppliers to continue to provide the bestcleaning solutions and equipment in the industry.

 

Technology

 

Minuteman will continueto invest in new technology and bring innovative solutions to the market in atimely and cost effective manner.  Indoing so, the company will remain ahead of the competition and create productsthat are the future of floor care.

 

Employees

 

Minuteman will continueto encourage and foster an environment of trust and mutual respect whereemployees are valued and understand the expectations, rewards and results oftheir performance.  These principals arethe key to the company’s success.

 

Quality Statement

 

Minuteman will delivercleaning solutions to the market that exceed customer expectations, whilecontinually improving our process.

 

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FROM THE PRESIDENT

 

To our shareholders,

 

The year 2002 presented a challenging environment for all businessesworldwide.  I am encouraged by thesuccess Minuteman International’s staff achieved in responding to that test.

 

Shareholders may gain insight into the future of Minuteman by lookingbehind the numbers reported for 2002. Let me help you do that.  It istrue that we did not fully escape the impact of a weakened global economy,characterized by excessive inventories, reduced capital spending, a looming warwith Iraq, and wide fluctuations in the dollar versus foreign currencies.  But when non-recurring events are factoredout of our results, the fundamental operations of our Company emergedimpressively.

 

Sales were off by only 5.5 percent for the recent year, but thiscondition was largely accounted for by substantial orders in the fourth quarterof 2001 from the U.S. Postal Service (USPS) that were not repeated in the finalquarter of 2002.  At the request of theUSPS, Minuteman designed a biohazard vacuum for the remediation, removal andcontainment of hazardous molds, particularly anthrax dust.  The creation of this critical filter vacuumled to multiple orders in the wake of the events of September 11, 2001.  Subtracting those one-time orders from ourtotal sales comparison greatly improves the contrast of 2002’s revenues withthe prior year.

 

All of the Company’s divisions experienced some decline in orders,again reflecting the continued effect of the economic slowdown.  Particularly affected were internationalsales, accounting for nearly 20 percent of Minuteman’s business, andcleaning-chemical sales, both of which felt the adverse effect of reduceddemand from commercial and industrial customers.  For the fourth quarter of 2002, total sales fell 13 percentcompared to the prior year quarter, some of this attributable to last year’sUSPS orders.

 

Several new products introduced in the latter half of 2002, along withaggressive promotional campaigns, helped sustain sales against the reduceddemand occasioned by the weak economy. Many of these innovative offerings are described in the following pagesof this report.  In addition to boostingour sales, they often helped our dealers compete for business and generatesales dollars for their own firms.  Asevidenced by our investment in 2002 of more than $1.5 million in research anddevelopment, we remain committed to investing in this area for our futuregrowth in spite of the difficult economic times.  Experience has shown that, by thus strengthening Minuteman’srelationships with this critical network of dealers during difficult times, wewill be remembered when more robust demand returns to the sanitation suppliesindustry, which typically lags the general economy.

 

With lower sales came lower earnings. But our ongoing initiative tocontrol expenses limited the reduction in net income, with gross profitdecreasing only 8 percent due mainly to the reduced sales volume, unfavorableproduct mix and competitive market conditions. However, a slight rise in selling and administrative expenses, primarilyfor higher payroll and benefit costs, promotional expenses and professionalfees, was enough to create a disproportionate effect on net income. For theyear 2002, net income fell 49 percent from the 12 months of 2001.

 

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The Company has submitted an Offer of Settlement to the Securities andExchange Commission for its consideration in connection with the previouslyreported formal order of investigation issued to the Company in November 2001.

 

The investigation and information requests relate to the recognition ofrevenue for certain interim periods that was not consistent with Minuteman’ssales recognition policy. The Company is in discussion with the Securities andExchange Commission with regards to this Offer of Settlement.

 

In spite of general business conditions, Minuteman is maintaining astrong financial position, with $35.5 million of working capital and a currentratio as of December 31, 2002, of 6.3 to 1, up from last year’s 5.4 to 1.  Shareholders’ equity rose to $40.1 millioncompared with $39.6 million a year ago, producing a book value of  $11.22 per share. Minuteman’s capitalresources are sufficient to meet business and liquidity needs as theyarise.  An unsecured line of credit alsois available for meeting any unexpected requirements.

 

Minuteman was fortunate this year to have added two prominent membersto its Board of Directors and Audit Committee. Roger B. Parsons was President of the Environmental Products Group ofFederal Signal Corporation from 1994 until his retirement in 2000.  His 30-year tenure with Federal Signal alsoincluded service as President and Chief Executive Officer of Elgin SweeperCompany, a subsidiary of Federal Signal involved in the manufacture and salesof municipal street sweepers worldwide. Minuteman is currently conducting a joint venture with Elgin.  Roger’s knowledge and experience in relatedindustries brings added vision, insight and direction to Minuteman’s aggressivegrowth initiatives.  Also joining ourBoard was Richard J. Wood.  He wasaffiliated with the public accounting firm of Ernst & Young for 32 years,retiring as a Partner in 1996.  Dick’scomprehension of accounting and auditing procedures, his sensitivities topublic-company responsibilities, his familiarity with the workings of boards ofdirectors and their audit committees as well as his general knowledge oftaxation and business matters will add an important dimension to our team ofdirectors.

 

Even in a difficult year, our dividend record continues unbroken.  The Board of Directors approved the 58thconsecutive quarterly dividend in the amount of $.09 per share, payable March25, 2003 to shareholders of record as of March 11, 2003.

 

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The longer-range outlook encourages me, although my view for the monthsimmediately ahead is tempered with some caution.  A number of near-term uncertainties remain, including thesituation in Iraq and the skittishness of businesses to invest in capitalequipment until the course of the economy is clearer.  Another factor that will affect Minuteman’s first quarter of 2003is that the initial quarter of 2002 was the second largest revenue quarter of lastyear, bolstered by the remaining orders from the USPS for the biohazardvacuums.  Beyond the first quarter,however, and assuming there is improvement in the general economy during thesecond half of the year, our perception is more optimistic for favorableyear-end comparisons, based on:

 

                • continuing focus on expense controls andcost-reduction programs;

                • efficiencies from new productionequipment installed last year;

                • a portfolio of new product introductionsin recent months, and;

                • heightened marketing efforts to enhancethe Company’s profile with dealers.

 

Sincerely,

 

Gregory J. Rau

President and Chief Executive Officer

March 14, 2003

 

17” Front Runner—Electric Floor Machine

20” 1500 RPM—Electric Burnisher

20” Front Runner—Electric Floor Machine

2 Speed With Solution Tank

 

Mirage® Propane BurnisherS:

17hp Air Cooled Twin Cylinder Kawasaki Engine or 20hp Twin CylinderOnan Engine

 

M2700—ABS

2700 RPM Battery Powered With Automatic Burnishing System 20”Burnishing Width

 

Welcome to the future of floor care.

 

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At Minuteman, we evaluate the needs of our customers and strategicallycombine their needs with Minuteman’s unrivaled research, design and provensuccess. The outcome is truly unique products that are the future of floorcare, today.

 

GLOBALPOSITIONING.

 

Setting aStrategic Course

 

Minuteman Initiates a Strategic Course Designed to Carefully BudgetResources, Gain Efficiencies From New Production Equipment, Introduce SeveralNew Products and Increase Marketing Efforts to Bolster the Company’s Brand WithDealers.

 

Continued weakness in many sectors of the global economy and the floorcare industry, escalating global political tensions, and wide fluctuations inthe dollar vs. foreign currency led to all of the Company’s divisionsexperiencing some decline in orders. While this decline is noteworthy, when anomalles are factored out, thefundamental operations of Minuteman International remain firm.  Net income in 2002 for the Company was$1,781,000, or $.50 per share, compared with $3,505,000, or $.98 per share for2001, a decrease of 49.2%.  Sales in2002 were $71,951,000 versus $76,122,000 for 2001, a 5.5% decrease.  Adhering to a well-planned strategic courseand utilizing Minuteman’s long-term industry knowledge, we are confident thatMinuteman International will weather the current economic storm with grace andfinesse.  Part of that plan includes,brilliant design, exceptional performance, dynamic technology and unheraldedcustomer service.  These are thecornerstones of Minuteman International.

 

Dynamic Technology and Manufacturing Know-How

 

Rotational Molding Machines Deliver Timely, High Quality, CostEffective, Components and Machines.

 

Taking aim on a succinct strategy for growth means that managementcarefully budgets resources for major investments.  Minuteman’s state-of-the-art rotational molding department,located in Minuteman’s  Hampshire,Illinois facility, includes two 3-station rotational molding machines: one hasbeen in operation since April 2001 and the second, since December 2002.  Supported by the skilled leadership of asupervisor with over 32 years of experience, the department has already grownto 62 molds and includes everything produced in the Hampshire facility, as wellas the 170, 200, 260 and 320 automatic scrubber parts used on machinesmanufactured in Minuteman’s Addison, Illinois facility.  As many of our competitors increasingly moveto third party manufacturing of components and machines, Minuteman’s investmentin its production facilities will allow for better control over cost, deliveryand quality as compared to competitors. These additions will create new opportunities that will aide the Companytoday and in the future.

 

New Product Development

 

Brilliant Design

 

New product development continues to be researched, refined and tested.One of the performance measurements of which we are most proud is theintroduction in 2002 of several new products, the MPV® 31, 240X, SCVTM28/32, andLuminaTM20. These products have been refined utilizing Minuteman’s exclusivepatents such as the SCVTM28/32 off-aisle scrub wand, which makes the equipmentmore versatile and cost effective due to labor saving attributes. ExclusiveMinuteman patents keep the Company a frontrunner in the industry and protectthe Minuteman brand well into the future. Additionally, research anddevelopment of new products answers customer needs and strengthens theCompany’s philosophy to keep our customers on the leading edge of floor caretechnology and sustain customer loyalty.

 

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Exceptional Performance Testing

 

New product development is only successful when products are fullytested to ensure the highest quality possible. For example, prior to the introduction of the SCVTM28/32 Rider Scrubber,Minuteman implemented a 3-stage testing protocol.  First, a “field” test was performed with selected users.  These users were asked to focus on the easeof use, performance and operator comforts. Their feedback offered valuable information to enhance the SCVTM28/32before introducing it to the market. Second, static testing, which determines system reliability and offersinsight at the component level, was initiated. Third, a dynamic test was run, which includes results from operatorfeedback based on ergonomic, real-world runtime and observations based onmachine performance.  This informationis used to determine additional enhancements before machines are sold tocustomers.  Extensive testing of newproducts prior to delivery creates greater reliability to end users and ourvalued distributors, widening the distance between Minuteman and itscompetitors.

 

Savvy Marketing

 

Outstanding Customer Service

 

Finally, maintaining solid relationships with our distributors andend-users is a key element in the success of the Company.  When distributors are successful, so isMinuteman.  Outstanding marketing savvyincludes creative promotional efforts such as the 2002 Minuteman “Stars andStripes” sales promotion.  This year’scontest offered several prizes for the first time including two grand prizeluxury cruise vacations, golf shirts, jackets and more!  Many dealers enjoyed a significant upswingin business during the promotion.

 

Targeted end-user advertising campaigns, and direct sales opportunitiesin conjunction with national advertising campaigns, each bolster distributorand Minuteman profits.  Minuteman’sproven relationship building skills and support network for distributors isenhanced by training and innovative, cost-effective products.

 

Foresight

 

Continued Growth and Opportunity

 

Minuteman is confident that by continuing to adhere to a strategicplan, these types of continued efforts — manufacturing investments, researchand development of new products, testing protocols, and relationship-buildingmarketing tools — will make the Company more profitable and open new doors ofopportunity in the future.

 

Minuteman’s attractive MPV®31 Wide Area Carpet Vacuum features powerfulsuction, versatility and labor-saving, effortless operation.

 

Welcome to the future of floor care.

 

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BPV — Back Pack Vac

With High Performance Vac Motor Option

 

MPV® — 18

Two Motor Upright With 18” Sweeping Width

 

747 Wide Area Vacuum

Battery Powered With 29.5” Sweeping Width

 

Gotcha®

Portable Spot Removal System With GFCI And Transport Cart

 

Ambassador®

Carpet Extractor With 17” Scrub Path

 

ACS

Automatic Carpet Scrubber With 20” Scrub Path

 

ET®

Motorized Carpet Tool For Use With Gotcha® And AmbassadorTM

 

RAPIDAIR®

Carpet/Floor Dryer

 

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BRILLIANT DESIGN.

EXCEPTIONAL PERFORMANCE.

DYNAMIC TECHNOLOGY.

THE CORE OF MINUTEMAN INTERNATIONAL.

 

NEW PRODUCTSPOSITIONMINUTEMAN TO LEAD THE FUTURE OF FLOOR CARE, TODAY.

 

 

Double Scrubbers

 

4000 Rider from Minuteman PowerBoss

 

Raw Power, Speed and Ease of Use Drive New PowerBoss Series.

 

Minuteman PowerBoss recently expanded its product line with the new4000 Rider Sweeper/Scrubber and the new 9000 Series Double Scrubbers.

 

Rugged, powerful and maneuverable, Minuteman PowerBoss’ updated andinnovative 4000 Rider Sweeper/Scrubber combines the convenience of batterypower with an industrial midsized total sweeper/scrubber.  This exciting product features a 50” dust controlledsweeping path and a 6 cubic foot hopper. The 4000 is also a full capacity scrubber with a 40” scrub path thatincludes edge scrub capability.  The4000 also includes a 600 amp-hour industrial battery for full-shift runtime.

 

9000 Series Double Scrubbers

 

Launched in 2002, two popular models, the 9082 and 9090, efficientlyand aggressively scrub floors twice in one pass.  Cleaning up to 77,500 sq. ft. per hour, the 9000 Series tacklestough jobs with ease and speed.  Thecompact size of these units makes them ideal for congested and high-trafficareas where maneuverability is difficult. The direct-throw cylindrical sweeper/scrubber brush provides aggressivescrubbing and debris pickup as it controls dust with wet sweeping.  Easy access doors and “no-tools required”quick-change brooms, brushes and squeegees make daily maintenance simple andfast.

 

320 Cylindrical Scrubbers

 

Total Scrub Deck Flexibility

 

By utilizing the same cylindrical scrub deck used on the SCVTM28/32rider, Minuteman has revolutionized “total scrub deck flexibility” in its newline of products.  The new 320 walkbehind scrubber with cylindrical scrub deck is a marriage between the tried andtrue reliability and ruggedness of the 320 scrubber and the latest Minutemancylindrical scrub deck system used on the SCVTM.  This deck system features 3/4 HP motors, quick-connect solutionand power connectors and the 5-spray jet system to ensure even distribution ofcleaning solution to the floor.

 

3880 Cylindrical Scrubber

 

Aggressive Battery Rider Scrubber with Dust Free Sweeping

Minuteman’s new 3880 Cylindrical Scrubber provides the benefits of abattery rider scrubber with dust free sweeping capabilities.  The two cylindrical scrubbing brushesdeliver 900 rpm and up to 600 pounds of down pressure for aggressive scrubbingin the worst environments.  The 3880Cylindrical Scrubbing system provides sweeping, scrubbing, and floor drying inone pass without the added length of an optional pre-sweep for excellentmaneuverability in congested areas.

 

The 66 gallon solution/recovery tanks and off-aisle scrub wand make the3880 the most productive machine in its class. The future is here today atMinuteman!

 

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LuminaTM24 Battery Burnisher

 

Technological Superiority, Optimum Airflow Performance

 

Using one of the most technologically advanced DC motors on the market,the new traction driven LuminaTM24 battery burnisher is capable of spinning a24” diameter pad at 2,600 rpm.  Thisstate-of-the-art DC motor is rated at 16 HP peak and 8 HP continuous-duty.  Based on the success of the LuminaTM20Burnisher, Minuteman engineers have utilized a similar pad pressurecompensation mechanism that controls the pad to floor contact to efficientlymake floors sparkle.  Minuteman’spatented PAMS® system comes as a standard feature and three 12 volt 210 AHbatteries supply the power.  TheLuminaTM24 is a sleek, powerful burnisher in a class by itself.

 

BPV Back Pack Vacuum with H.E.P.A. Filter

 

Lightweight, Powerful Performance in a H.E.P.A. Vacuum

 

A new addition to Minuteman’s critical filter vacuum line is the newBPV Back Pack Vacuum with H.E.P.A. (High Efficiency Particulate Air)filtration.  This lightweight H.E.P.A.vacuum is constructed of durable injection-molded plastic and featuresfiltering capabilities of 99.97% efficiency at .3 microns.  Featuring four levels of filtration: atop-fill paper collection bag; a polyester cloth filter that provides 99%efficiency at 3 microns; 8” filter disc and the H.E.P.A. filter that provides99.97% efficiency at .3 microns, the BPV Back Pack Vacuum exhaust air isdiffused and directed away from cleaning areas.  For operator comfort, the vacuum features a reversible lid whichpositions the hose to accommodate right or left-handed operators.  The weight of the vacuum rests on theoperator’s hips to reduce fatigue.  Thevacuum comes with a 5’ x 1 1/2” crush proof hose, telescopic wand, combinationhard floor tool, crevice tool and a round dust brush. Minuteman’s new BPV BackPack Vacuum with H.E.P.A. filter safely cleans the most difficult applicationswith ease.

 

Kleen Sweep®40

 

Rides in Comfort, Sweeps with Speed

 

The Kleen Sweep® 40 offers the features of a ride-on for a walk-behindsweeper price.  A self-adjusting,chevron-style main broom with a front flap overthrow door allows pickup oflarge and small debris such as pop cans and sawdust.  The Kleen Sweep® 40 has a large 2.2 cubic foot hopper with wheelsand a handle for ease of dumping.  It isalso equipped with two large side brooms so the operator can sweep from eitherside without any visual obstructions. This compact sweeper can drive through any 36-inch doorway with ease andoperate up to four hours of continuous duty run time on one battery charge. TheKleen Sweep® 40 comes standard with a fine dust control system that operatesoff of a large turbine fan.  Thewashable polyethylene dust filter provides 99% efficiency for fine dustcontrol.

 

Minuteman Research, Design and Proven Success

 

Technologically savvy and dedicated engineers work on specificcategories of machines which are used for distinct product applications suchas: carpet, hard floors, concrete and turf. These highly trained, specialized engineers work with one goal inmind—to design a product in the most efficient way that performs at Minuteman’shigh quality standards and meets customer needs.

 

Minuteman’s team combines field data with Pro-Engineer Softwaretechnology, over 21 individual U.S. patents and 10 international patents,  ISO 9001 Certification and newcost-effective methods of manufacturing.

 

Kleen Sweep® 40

Compact Rider Sweeper

 

Welcome  to the future of  floor care.

 

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170 Traction Drive

17” Scrub Path

 

200 Traction Drive

20” Scrub Path

 

200X AUTOMATIC FLOOR Scrubber

Wide 20” deep cleaning path

 

240X SERIES AUTOMATIC SCRUBBER

Wide 24” cleaning path

 

260 Traction Drive

26” Scrub Path

 

320 CYLINDRICAL

32” Scrub Path

 

320 Traction Drive

32” Scrub Path

 

3200 Rider Scrubber

Powerful performance in a tight 32” scrub path

 

3800 Rider Scrubber

66 Gallon Solution/Recovery Tank

38” Scrub Path

 

3880 CYLINDRICAL Rider Scrubber

66 Gallon Solution/Recovery Tank

38” Scrub Path

 

SCVTM28/32 RIDER SCRUBBER

Compact & versatile performer

 

The future of floor care is here today at Minuteman.

 

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STAYING THE COURSE

 

Minuteman’s Full Line of Unrivaled Floor CareProducts.

 

Automatic Scrubbers

 

Minuteman Expands One of the Largest Lines of Dynamic Scrubbers in theIndustry with Revolutionary Design.

 

Minuteman’s new compact, agile SCVTM28/32 Rider Scrubber and the 240XWalk-Behind Scrubber add two new powerful models to an existing product linedefined by unmatched product breadth and depth.  Minuteman’s ingenuity and ability to listen and respond tocustomer needs consistently challenges the competition by offering a widevariety of cleaning paths ranging from 17” to 40” with coverage from 18,000 to44,000 sq. ft. per hour. Minuteman’s scrubbers are designed to fill a varietyof customer floor cleaning needs.  The170 and 200 compact walk-behind scrubbers clean small to mid-sized floors witheasy operation, increased maneuverability and high performance. The 260, 320and 380 automatic scrubbers maneuver at the touch of a hand and offersimplified, user-friendly controls. All Minuteman automatic scrubbers areergonomically designed to allow for greater operator comfort and control andcontinue to provide a solid foundation for Minuteman.

 

Recent additions to the scrubber line, such as the 240X, SCVTM28/32Rider Scrubber, the 3800 Rider Scrubber, the PowerBoss 4000 Sweeper Scrubberand the 9000 Series Double Scrubbers, all support Minuteman’s dedication tofocus on customer needs and provide a wide variety of solutions for every floorcleaning application.  The addition in2003 of the new 320 Cylindrical and 3880 Cylindrical Scrubbers to the Minutemanproduct line further accents that dedication.

 

Burnishers and Floor Machines

 

Sleek Design and Unique, Patented PAMS® Dust Control Keep Minuteman’sPopular Burnishers Leading the Market.

 

Minuteman burnishers feature a non-fatigue design and offer a patentedPassive Air Management System (PAMS®) for dust control.  Unlike any other burnishers in the industry,PAMS® keeps Minuteman’s 1500, 2400, 2600 and 2700 burnishers leading the market,year after year.  In addition to highproductivity and increased labor savings, Mirage® propane burnishers offerdimension and added depth to the Minuteman product line.  Minuteman’s 17” or 20” Front Runner Seriesfloor machines combine high durability and operator safety with a competitivepricing structure and complete one the largest floor machine and burnisherlines in the industry.  Recent additionsto the burnisher line, such as the LuminaTM20 and LuminaTM24 battery burnisherscontinue to brand Minuteman with the most exceptional performance andengineering in burnishers on the market today.

 

Carpet Care Machines

 

Dependable, Aggressive, Reliable Carpet Care Machines Deliver High QualityMinuteman Results.

 

Minuteman’s carpet care equipment is a powerful choice for carpetmaintenance and is designed to minimize operator fatigue while offering a widevariety of machines.  New to Minuteman’scarpet care products in 2002 is the Multi-Purpose Vacuum (MPV®31) Wide AreaVacuum designed to clean large carpeted spaces with efficiency, speed andeffortless maneuverability.  The newaddition compliments the daily dependability of the MPV® upright, to the totalcare approach of the Ambassador® Series extractors and the RapidAir® Carpet andFloor Dryer.  All of Minuteman’sdependable carpet care workhorses feature excellent operator visibility andreliable results, every time.

 

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Outdoor Cleaning Market

 

Professional Sweepers Bolster Minuteman’s Position as a Front Runner.

 

PowerBoss’ LitterBoss® is just one example of the strength and depth ofthe Company’s product line and its commitment to outpace the competition.  The LitterBoss®, which sweeps and vacuumslitter anywhere it collects, compliments the Minuteman PowerBoss line. TheLitterBoss® features a wide 68” sweep path which includes two side brushes andfront mounted spray jets designed to keep dust to a minimum.  Engineered as a high quality, efficientperformer, LitterBoss® comfortably joins Minuteman’s outstanding performers,PowerBoss Armadillo Sweepers and Parker outdoor lawn sweepers and littervacuums.  Minuteman’s Kleen Sweep® 27 isideal for machine shops, stock rooms, parks, small yards, and is a costeffective option for cleaning up to 31,000 sq. ft. per hour.  The Kleen Sweep® 40 is the newest additionto the Minuteman sweeper line and offers the features of a ride-on for awalk-behind sweeper price.  The KleenSweep® 45 is a compact Rider Sweeper designed for sweeping narrow spaces andreducing maintenance costs and cleaning time. Sweeping a big 84,000 square feet per hour, Kleen Sweep® 45 is anotherpowerful example of a front runner — Minuteman.

 

Critical Filter Vacuums

 

Absolute Filtration in Innovative, Safe and Powerful Vacuums.

 

The recent introduction of Minuteman’s BPV Back pack Vacuum withH.E.P.A. filter, and the Bio-Haz Vac, designed especially for the United StatesPostal Service for the removal and containment of anthrax, hazardous molds andviral particulates, demonstrates Minuteman’s unique experience in CriticalFilter Vacuums.  With over 100variations of Critical Filter Vacuums, Minuteman is one of the leading expertsin the nation for the design, development and manufacturing of Critical FilterVacuums. Because Critical Filter Vacuums require both safety and efficiency,Minuteman engineers designed each vacuum to be easy to use, available in a widevariety of sizes and created each piece of equipment for specific hazardouswaste applications.  For example, the 55Gallon Explosion-Proof Vacuum is designed for use where flammable gases, vaporsor finely pulverized dust may be present. The CRVTM Clean Room Vacuum is specifically applicable to Class 1 throughClass 100,000 cleanrooms, pharmaceutical labs, gowning areas, air showers,biological labs and computer rooms.  TheMercury Vacuum series is designed for the handling and disposing ofmercury-based residue.

 

Minuteman Parker®

 

Parker Adds Depth to Minuteman’s Full Line of Customer FocusedProducts.

 

The professional landscapers choice for quality and performance,Minuteman Parker® adds depth to Minuteman’s wide variety of floor care optionsin addition to providing a wide variety of lawn, turf and industrialmaintenance equipment.  MinutemanParker® products include high quality lawn sweepers, Vac 35 litter vacuums,dethatchers, Hurricane wheeled blowers and portable truck loaders.  Consistent with the Minuteman commitment tosatisfying customer demand, the next generation walk-behind lawn vacuum wasvery well received when introduced to the buying public at the 2002 GreenIndustry Expo (GIE), in Nashville, TN. Minuteman Parker continues to be an industry leader in the production ofhigh-power reliable lawn and litter vacuums. In addition, Minuteman Parker®’s distinguished reputation in the marketis well known and adds substantial value to the Minuteman brand.

 

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Minuteman’s compact powerhouse, the new SCVTM28/32 Rider Scrubber

 

55 Gallon Explosion—Proof Vac

55 Gallon Unit With Stainless Steel Tank

 

290 Series Vac

15 Gallon Unit With Wide Area Squeegee

 

705 Series Air Vac

15 Gallon Unit With Painted Tank

 

Flammable Liquid Recovery Vac

55 Gallon Air Operated Unit

 

290 Series Vac

4 Gallon Unit With Electric Powerhead

 

390 Series Vac

15 Gallon Unit With Stainless Steel Tank

 

705 Series Air Vac

55 Gallon Unit With Wheeled Dolly Cart

 

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MINUTEMANPOWERBOSS

 

Dynamic Products Drive PowerBoss

 

Minuteman PowerBoss continues to bolster a growing product line thanksto a number of strategic efforts set into place by a keen and visionarymanagement team.

 

Marketing — aggressive marketing kept distributors current on all newproducts and developments.

 

New Products — thanks to joint engineering and prototype resources onthe LitterBoss® project, two new exclusive PowerBoss projects have beenintroduced: the 4000 Rider Sweeper/Scrubber and the 9000 Series DoubleScrubbers.

 

Cost Containment — PowerBoss continues to emphasize lowered spending,and a fixed cost structure both of which increases the Company’s potential forstronger earnings and continued successful growth.  PowerBoss continues its commitment to quality and to invest inmanufacturing efficiencies.  In 2003,the business software, Oracle enhances business planning and cost containment,and ISO 9001 Certification procedures have been implemented.

 

MINUTEMAN EUROPE

 

Worldwide Opportunities Expand

 

Minuteman Europe, still under the constraints of a strong dollar versusforeign currencies, expanded product offerings through its continually growingdistribution network.  A new warehousedistribution facility is scheduled to open in early 2003 in Holland, nearMinuteman Europe’s existing facility, just outside of Amsterdam.  With over 16,000 sq. ft. and higherceilings, the new warehouse nearly triples the amount of cubic space andfurther establishes Minuteman Europe as a solid supplier amongdistributors.  Additionally, the newfacility allows Minuteman sales representatives to build and enhance existingrelationships with Minuteman’s European distributors and customers by providingmore timely service and efficient distribution.

 

ISSA INTERCLEANAMSTERDAM

 

A Showplace for Minuteman’s Leadership

 

Minuteman Europe’s dedicated focus on establishing and building soliddistributor relationships and penetrating the market with new products, provengrowth strategies, aggressive marketing efforts, direct customer service, costcontainment and more efficient distribution was exemplified at the 2002ISSA/Interclean Show in Amsterdam.

 

The 2002 ISSA/Interclean Show in Amsterdam in May, 2002, kept Minutemanrepresentatives busy all four days with potential and existing customers fromEurope, the Mideast and Asia.  Manyleads and productive meetings were held with international dealers excited aboutMinuteman’s new products (MPV®31, 240X, SCVTM28/32, and LuminaTM20) which weredisplayed at the booth. Minuteman’s innovative new equipment, despite achallenging economy, solidified the Company’s frontrunner position.

 

16

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MINUTEMAN’S POPULAR WEBSITE

 

www.minutemanintl.com

 

Minuteman’s updated website offers visitors and shareholders completeinformation about Minuteman Floor Cleaning Equipment, PowerBoss, Multi-CleanChemicals, Minuteman Parker as well as product releases, Company history,financial information, international news, and employment opportunities.  The Dealer Webpage offers dealers apassword-secured ability to download photos and receive PDF files of Minuteman’sliterature and How to Demonstrate Guides.

 

Dealers can also order refurbished equipment directly off the site andreceive current information about ongoing sales promotions, upcoming sales andservice schools, as well as technical tips. Minuteman will continue to utilize the site to generate newbusiness  by offering immediate accessto Minuteman and acting as a vehicle to help customers access the best productfor their individual cleaning application.

 

Oracle

 

Forecasts, Analyzes and Aids Management Insight

 

Oracle, one of the finest operating software programs formanufacturers, has been live for it’s first full year.  With initial implementation completed,management can fully recognize the value Oracle brings to strategic planning.  For example, analysis, comprehensive salesdata, customer information, manufacturing and production output informationprovided by the system can be quickly accessed. Such easy retrieval anddelivery of critical information enhances Minuteman’s strategic plan toaccommodate changing needs and marketplace fluctuations.

 

Superior People

 

Robust Performance is Sustained Through Talented People.

 

Minuteman prides itself on a talented and creative group of superiorpeople who envision success through the eyes of their customers.  Worldwide leadership is only possible withfocused, dedicated teams who are measured by its commitment to deliver theright product, every time, for the customer. Each team at Minuteman brings an understanding of its uniquemanufacturing and marketing capabilities to each product and is a motivatedplayer in helping customers receive the best product for their individual floorcleaning needs.  These superior peopleare the key to Minuteman’s success and a cornerstone of our future.

 

MULTI-CLEAN®

 

Dependable, Aggressive,New Products Fuel Chemical Powerhouse Multi-Clean

 

The continued strength of the Multi-Clean brand is a direct reflectionof a dynamic team of professionals working together to develop, create andmarket some of the most effective and efficient chemical products for all floortypes including resilient tile, hard floors, carpet, concrete and wood.  In addition, the Company’s dedication tomeeting changing customer needs, through the development of new products,continues to be bolstered by a strong, traditional product line of floorfinishes and chemicals which remain the stable back bone of Multi-Clean.

 

Explosion/Dust Ignition Proof Vac

15 Gallon Unit With H.E.P.A. Filter

 

X829 Series Vac

15 Gallon Wet/Dry Unit With H.E.P.A. Filter

 

Welcome to the future of  floorcare.

 

17

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EXCITING NEW MULTI-CLEAN PRODUCTS DEBUT AT THE ISSA SHOW

 

UVi-Finish — Ultra-Violet Floor Finish

 

UVi-Finish, a new Ultra-Violet Floor Finish dries in the speed oflight, eliminates burnishing, delivers outstanding performance and can beremoved from a floor by using a conventional high performance stripper.  The new UVinfusion System combines theuser-friendliness of traditional acrylic floor finishes with the provendurability and performance characteristic only a UV cured finish can provide.

 

The system includes: Ultra-Primer:  Fast drying,mop-on basecoat; UVi-Finish:  Ultradurable, UV cured finish;  Ultra70:  Neutral, high strengthcleaner.  The UVi-Infusion Maintenanceprogram offers easy removal from a floor using a conventional high performancestripper and recoating with a deep scrub and a coat of Ultra-Primer andUVi-Finish.

 

Multi-Scrub Creme Cleanser

 

Removes Stubborn Spots, Soap Scum, Grease and Grime from all Restroomand Kitchen Surfaces.

 

Also introduced at the ISSA Show was the Multi-Scrub Creme Cleanser, anadvanced cleaner formulated with a unique blend of surfactants, brighteners andmild abrasives that work together to achieve superior cleaning performance.  Multi-Scrub Creme Cleanser is exceptionalfor the cleaning of ceramic tiles, grout, drinking fountains, steam tables,sinks, counter tops, wash basins, shower stalls, bathtubs, toilet bowls,urinals and any surfaces not harmed by mild abrasives.

 

TCS-1

 

Terrazzo and Concrete Sealer

 

TCS-1 Terrazzo and Concrete Sealer, a special waterbased primer/sealerdesigned to adhere to conventional terrazzo floors bases on portland cement,has become a popular choice for customers. The exceptional adhesion to a substrate created with the application ofTCS-1, continues to drive the product’s popularity.  Recommended as a primer prior to applying Multi-Cleanconventional floor finishes, or as a stand alone dust-proofing sealer forconcrete floors, the sealer can also be used as a single coat sealer for use onconcrete floors prior to the application of UV floor coating systems.

 

Back to 7

 

Carpet and Hard Floor Conditioner

 

Back to 7, a new product developed in response to customer comments,neutralizes any excess alkalinity in carpet caused by shampoo and/or hard waterresidues.  Carpet is left feeling softand conditioned.  Back to 7 also cleansde-icing salt residues found on carpets and/or hard surface floors during thewinter months.  Effective forneutralizing excess alkalinity after stripping traditional floor finishes, Backto 7 can also remove browning or yellow discoloration from carpet.

 

Foaming Carpet Spotting Kit

 

Chemical Stays On Top of the Carpet, Not Wicking into the Pad

 

Multi-Clean’s Foaming Carpet Spotting Kit is ideal for carrying acarpet spotting tool kit while cleaning. The unique system allows the spotting chemical to stay on top of thecarpet, not wicking into the pad.  Theunit is lightweight (10 ounces) and is easily attachable to a belt forconvenient spot removal as cleaning progresses.  Additionally, the unique foam keeps chemical use down whileallowing carpets to dry more quickly.

 

18

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Kleen Sweep® 27

Manual Sweeper

 

Kleen Sweep® 35

Battery Powered Sweeper

 

Hurricane® Plus Series

Leaf & Litter Blower

 

Vac-35®

Litter Vacuum

 

Scavenger®

Litter Vacuum

 

Trailette

Lawn Sweeper

 

Truck Loader

Debris Handler

 

CRV — Clean Room Vac

4 Gallon Unit With U.L.P.A. Filter

 

Mercury Recovery Vacuum System

15 Gallon Unit With Mercury Separator

 

BPV BACKPACK VACUUM WITH H.E.P.A. FILTER

Lightweight H.E.P.A Vacuum

 

19

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2002

 

MANAGEMENT'S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

General

 

The Company’s discussion and analysis of its financial condition andresults of operations are based upon its consolidated financialstatements.  The preparation of thesefinancial statements are based upon the selection and application ofsignificant accounting policies (see note B of the Notes to ConsolidatedFinancial Statements for additional information), which requires management tomake significant estimates and judgments that affect the amounts reported inthese financial statements.  Actualresults may differ from these estimates under different assumptions orconditions.

 

Accounting Policies and Critical Accounting Estimates

 

The Company believes the following are the actual accounting policiesthat affect its more significant judgments and estimates used in the preparationof consolidated financial statements.

 

Revenue Recognition

 

The Company recognizes revenue when persuasive evidence of anarrangement exists, when title and risk of ownership passes, the sales price isfixed or determinable, and collectibility is reasonably assured.  Generally, these criteria are met at thetime product is shipped.  Provision ismade at the time the related revenue is recognized for discounts andallowances, estimated cost of product warranties, bad debts and rebates.

 

Accounts Receivable

 

The Company performs ongoing credit evaluations of its customer baseand maintains allowances for doubtful accounts related to estimated lossesresulting from the inability of its customers to make required payments.  If the financial condition of its customerswere to deteriorate, resulting in an impairment of their ability to makepayments, additional allowances may be required.

 

Inventory

 

The Company is required to state its inventories at lower of cost ormarket.  The Company writes down itsinventory 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 actual market conditions are lessfavorable than those projected by management, additional inventory write-downsmay be required.

 

Warranties

 

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

 

Income Taxes

 

The Company currently has significant deferred tax assets, which aresubject to periodic recoverability assessments.  Realization of our deferred tax assets is principally dependentupon our achievement of projected future taxable income.  Judgments regarding future profitability maychange due to future market conditions and other factors.  These changes, if any, may require possiblematerial adjustments to these deferred tax asset balances.

 

20

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Intangible Assets

 

Intangible assets represent 9.4% and 9.1% of total assets and 13.0% and13.1% of shareholders’ equity at December 31, 2002 and 2001, respectively.  These intangible assets were primarilyrecorded as the result of the November 1998 PowerBoss acquisition.  The Company has concluded that these assetsare not impaired at December 31, 2002 in accordance with Statement of FinancialAccounting Standards No. 142 “Goodwill and Other Intangible Assets”.

 

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

 

Inflation

 

Although the Company cannot accurately determine the precise effect ofinflation on operations, the Company does not believe inflation has had amaterial effect on sales or results of operations.

 

New Accounting Pronouncements Adopted

 

The Company adopted Statement of Financial Accounting Standards (SFAS)No. 142 effective January 1, 2002. 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. As of January 1, 2002, the Company concluded there was noimpairment. The Company performed its annual test of impairment as of October1, 2002 and found no impairment.

 

In November 2002, the Financial Accounting Standards Board issuedInterpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness of Others” (theInterpretation). The Interpretation elaborates on the disclosures to be made bya guarantor in its interim and annual financial statements about itsobligations under certain guarantees that it has issued. The Interpretationclarifies that a guarantor is required to disclose (a) the nature of theguarantee, including the approximate term of the guarantee, how the guaranteearose, and the events or circumstances that would require the guarantor toperform under the guarantee; (b) the maximum potential amount of futurepayments under the guarantee; (c) the carrying amount of the liability, if any,for the guarantor’s obligations under the guarantee; and (d) the nature andextent of any recourse provisions or available collateral that would enable theguarantor to recover the amounts paid under the guarantee.  For product warranties, instead of disclosingthe maximum potential amount of future payments under the guarantee, aguarantor is required to disclose its accounting policy and methodology used indetermining its liability for product warranties as well as a tabularreconciliation of the changes in the guarantor’s product warranty liability forthe reporting period. The Interpretation also clarifies that a guarantor isrequired to recognize, at the inception of a guarantee, a liability for thefair value of the obligation undertaken in issuing the guarantee. The initialrecognition and initial measurement provisions of the Interpretation areapplicable on a prospective basis to guarantees issued or modified afterDecember 31, 2002. The disclosure requirements in the Interpretation areeffective for financial statements of interim or annual periods ending afterDecember 15, 2002.

 

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Issues and Uncertainties

 

In the summer of 2001, the United States Securities and ExchangeCommission (the “SEC”) commenced an informal investigation of the Company andon November 13, 2001 issued a formal order of investigation.  The Company has been cooperating with theSEC and has produced documents requested by the SEC.  In addition, testimony of officers and employees requested by theSEC has been provided.

 

In December 2001, the Company was requested by The NASDAQ Stock Market(“NASDAQ”) to supply information in connection with NASDAQ’s responsibilitiesto ensure ongoing compliance of issuers with the requirements for inclusion onThe NASDAQ Stock Market.  The Companyhas provided the requested documents and is cooperating with the NASDAQ.

 

The Company believes that the investigations by the SEC and by NASDAQare related to the recognition of revenue in the Company’s results ofoperations for its interim periods. Based on the Company’s review of the timing of the recording of certainsales transactions, which were not consistent with the Company’s revenuerecognition policy, it was necessary to restate interim results and the Companyrestated its financial statements for the interim periods ended March 31, June30 and September 30 in each of 1999 and 2000 and for March 31, 2001.  Amended Form 10-Qs and amended Form 10-Ksreflecting the restatements for the interim periods were filed with the SEC in2001. In November 2002, the Company submitted an Offer of Settlement to theSecurities and Exchange Commission for its consideration.  The Company is in discussion with theSecurities and Exchange Commission with regards to the Offer of Settlement. TheCompany is not able to predict the outcome of the investigations or to assesstheir ultimate impact on the Company.

 

The Company is subject to various proceedings, lawsuits and otherclaims related to labor, product and other 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 theplaintiff’s claims and intends to defend the lawsuits vigorously. Adetermination of the amount of reserves required, if any, for each of thesecontingencies is made after careful analysis by the Company. The reserves maychange in the future due to new developments in each matter or changes inapproach in resolving these claims. While the Company believes that thesecontingencies will not have a material adverse effect on the financialcondition of the Company, there can be no assurance that they will be resolvedin a manner that does not materially adversely affect the Company.

 

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RESULTS OF OPERATIONS FOR 2002, 2001 AND 2000

 

Net Sales and Earnings

 

Net sales in 2002 decreased to $71,951,000 from $76,122,000 in2001.  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 (see note B of the Notes to Consolidated Financial Statements foradditional information). Net income for 2002 was $1,781,000 or $0.50 per share,a decrease of 49.2% from the prior year.

 

Net sales in 2001 decreased to $76,122,000 from $84,310,000 in 2000.  The entire Company experienced a decline inorders, reflecting the effect of the economic slowdown in 2001. A reduction ininternational sales, which were down 11.9% in 2001, continued to be exacerbatedby strength in the dollar versus the currencies of foreign countries. Grossprofit decreased 11.6% in 2001 from 2000 on the reduced demand from commercialand industrial customers.  In 2001,gross profit as a percent of net sales was 30.2%, down from 30.8% in 2000 (seenote B of the Notes to Consolidated Financial Statements for additionalinformation). Net income for 2001 decreased 28.5% to $3,505,000 or $0.98 pershare, compared to $4,899,000 or $1.37 per share for 2000.

 

Operating Expenses

 

Selling expenses, as a percentage of net sales, increased to 18.4% in2002 from 16.5% in 2001. Higher payroll and benefit costs, increasedpromotional costs and vehicle lease costs contributed to the increase inselling expenses year over year. General and administrative expenses in 2002increased 3.0% from 2001, due primarily to higher payroll and benefits costs,increased professional fees and casualty insurance costs. The increases in 2002were partially offset by a decrease in goodwill amortization as a result of theadoption of SFAS No. 142.

 

Selling expenses, as a percent to net sales, increased to 16.5% in 2001from 15.8% in 2000. Increased costs associated with rising group insurance andadditional reserves resulting from higher uncollectible accounts contributed tothe total increase in selling expenses year over year. General andadministrative expenses decreased 3.0% in 2001, compared with 2000, dueprimarily to lower payroll costs, offset in part by higher professional feesassociated with litigation and casualty insurance costs in 2001.

 

Other Income/Expense

 

In 2002 interest income decreased $96,000 from 2001, as a result ofdeclining interest rates.

 

In 2001, interest income decreased $35,000 from 2000, as a result ofdeclining interest rates.

 

The Company incurred interest expense, related principally to debtobligations, of $1,030,000, $1,186,000 and $810,000 in 2002, 2001 and 2000,respectively.  Included in the interestexpense is $347,000 in 2002 and $463,000 in 2001 of expense related to thechange in the fair market value of derivative financial instruments (see note Bof the Notes to Consolidated Financial Statements for additional information).

 

Other income in 2002 decreased $43,000 from 2001 primarily due adecrease in gain on sale of fixed assets.

 

23

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Income Taxes

 

The effective tax rate was 28.9%, 31.8% and 37.0% for 2002, 2001 and2000, respectively. The decrease in the 2002 rate is primarily due to increasedbenefits from research and development credits and Extraterritorial Income(ETI) benefit, offset in part by higher state income taxes. The decrease in the2001 rate, from the 2000 rate, was primarily due to increased benefits fromresearch and development credits and the Company’s Foreign Sales Corporation.

 

Liquidity, Capital Resources and Financial Condition

 

The Company had working capital of $35.5 million at December 31, 2002and 2001.  This represented a currentratio of 6.3 for 2002 and 5.4 for 2001.

 

Cash, cash equivalents and short-term investments represented 17.5% and18.6% of this working capital at December 31, 2002 and 2001, respectively.  The decrease in 2002, from 2001, was dueprimarily to payment of long-term debt, income taxes and purchases of property,plant and equipment.

 

At December 31, 2002 and 2001, the Company had shareholders’ equity of$40.1 million and $39.6 million, respectively, which when compared to totalliabilities represented an equity to liability ratio of 2.7 and 2.3,respectively.

 

During fiscal year 2002, 2001 and 2000, the Company generated $3.3million, $6.6 million and $4.2 million, respectively in cash flows fromoperating activities, which represents the Company’s principal source of cash.Cash flows from operating activities resulted primarily from the Company’s netincome and changes in operating working capital.

 

Cash provided by investing activities was $0.4 million in 2002, anincrease of $4.8 million from the prior year. Capital expenditures remainedrelatively constant year over year. The improvement was related to maturitiesof short-term investments in 2002 compared with purchases of short-terminvestments in 2001. Cash used by investing activities was $4.4 million in2001, an increase of $3.6 million from the prior year. The increase primarilyreflects the purchase of short-term investments and a decrease in maturities ofshort-term investments, partially offset by a decrease in capital expenditures.

 

Cash used in financing activities was $2.8 million, $2.7 million and$2.7 million in 2002, 2001and 2000, respectively.  Financing activities consist of long-term debt payments anddividend payments.

 

The Company has sufficient capital resources and is in a strongfinancial position to meet business and liquidity needs as they arise.  The Company has an unsecured line of creditarrangement for a short-term debt facility with a financial institution, whichexpires May 31, 2003. Under the terms of this facility the Company may borrowup to $5 million on terms mutually agreeable to the Company and financialinstitution. There are no requirements for compensating balances orrestrictions of any kind involved in this arrangement.  At December 31, 2002 there were noborrowings outstanding. The Company foresees no unusual future events that willmaterially change the aforementioned summarization.

 

The Company also had the following contractual cashobligations at December 31, 2002.

 
|                                |   | **Total** |       | **Less than  one year** |   | **1-3 years** |   | **4 years  and after** |      |
|-------------------------------------|--------|-----------|------------|-------------------------|--------|---------------|--------|------------------------|-----------|
| Long term debt                      |   | $         | 9,000,000  |                    | $      | 1,500,000     |   | $                      | 7,500,000 |   | $ | — |   |
| Operating leases                    |   | 2,476,000 |       | 913,000                 |   | 1,365,000     |   | 198,000                |      |
| Total  contractual cash obligations |   | $         | 11,476,000 |                    | $      | 2,413,000     |   | $                      | 8,865,000 |   | $ | 198,000 |   |

 

24

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Market Risk

 

The Company’s earnings and cash flow are subject to fluctuations due tochanges in foreign currency exchange rates. Currently these earnings and foreign currency translation adjustmentshave not been material to the overall financial results of the Company.

 

The Company has also entered into an interest rate swap agreement toobtain a fixed interest rate on variable rate debt to reduce certain exposuresto interest rate fluctuations.  In theevent that a counter party fails to meet the terms of the interest rate swapagreement, the Company’s exposure is limited to the interest rate differential. The Company manages the credit risk ofcounter parties by dealing only with institutions that the Company considersfinancially sound.  The Companyconsiders the risk of nonperformance to be remote.

 

Forward-Looking Statements

 

SAFE HARBOR STATEMENT. This Annual Report contains not only historicalinformation, but also forward-looking statements which are subject to the safeharbor provisions of the Private Securities Litigation Reform Act of 1995, asamended.  Statements that are nothistorical are forward-looking and reflect expectations about the Company’sfuture performance. In addition, forward-looking statements may be made orallyor in press releases, conferences, reports, on the Company’s  worldwide web site, or otherwise, in thefuture by the Company or on our behalf. The Company has tried to identify suchstatements by using words such as “expect”, “foresee”, “looking ahead”,“anticipate”, “estimate”, “believe”, “should”, “intend”, and similarexpressions to identify forward-looking statements.

 

Forward-looking statements involve risks and uncertainties and are notguarantees of future performance. Actual future results may differ materiallyfrom those discussed in forward looking statements. These uncertainties includefactors that affect all businesses operating in a global market as well asmatters specific to the Company. The following are some of the factors thatcould cause the Company’s financial condition to differ materially from whatthe Company has anticipated in forward-looking statements: the effectiveness ofoperating and technology initiatives and advertising and promotional efforts,as well as changes in: global and local business and economic conditions;currency exchange and  interest rates; laborand other operating costs; political or economic instability in local markets;disruptions from outbreak of hostilities, war or terrorists’ attacks;competition; customer preferences; effects of unanticipated materially adverselitigation or product claims; unexpected product failures or non acceptance ofnew products by the market; legislation and governmental regulation; andaccounting policies and practices. The foregoing list of important factors isnot exclusive.

 

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2002

 

MINUTEMAN INTERNATIONAL FINANCIAL REPORT

 

**CONSOLIDATED BALANCE SHEETS**

 
|                                                                                                                                                          |   | **December  31,** |       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|------------|
|                                                                                                                                                          |   | **2002**          |       | **2001** |   |
| **ASSETS**                                                                                                                                                    |   |              |       |   |   |
| **Current  assets**                                                                                                                                           |   |              |       |   |   |
| Cash and cash  equivalents                                                                                                                                    |   | $                 | 1,307,000  |   | $ | 416,000 |   |
| Short-term  investments                                                                                                                                       |   | 4,900,000         |       | 6,200,000 |   |
| Accounts  receivable, less allowances of $987,000 in 2002 and $720,000 in 2001                                                                                |   | 15,165,000        |       | 17,483,000 |   |
| Due from  affiliates                                                                                                                                          |   | 291,000           |       | 170,000 |   |
| Inventories                                                                                                                                                   |   | 18,856,000        |       | 18,364,000 |   |
| Prepaid expenses                                                                                                                                              |   | 467,000           |       | 435,000 |   |
| Refundable  income taxes                                                                                                                                      |   | 456,000           |       | — |   |
| Deferred income taxes                                                                                                                                         |   | 672,000           |       | 479,000 |   |
| **Total  current assets**                                                                                                                                     |   | 42,114,000        |       | 43,547,000 |   |
| **Property,  Plant and Equipment**                                                                                                                            |   |              |       |   |   |
| Land                                                                                                                                                          |   | 820,000           |       | 820,000 |   |
| Building and  improvements                                                                                                                                    |   | 6,316,000         |       | 6,304,000 |   |
| Machinery and  equipment                                                                                                                                      |   | 12,851,000        |       | 12,306,000 |   |
| Office furniture  and equipment                                                                                                                               |   | 4,060,000         |       | 3,703,000 |   |
| Transportation  equipment                                                                                                                                     |   | 661,000           |       | 808,000 |   |
| Construction in  progress                                                                                                                                     |   | 8,000             |       | 171,000 |   |
|                                                                                                                                                          |   | 24,716,000        |       | 24,112,000 |   |
| Accumulated  depreciation                                                                                                                                     |   | (16,831,000       | )          | (15,632,000 | ) |
|                                                                                                                                                          |   | 7,885,000         |       | 8,480,000 |   |
| **Intangible   assets** — Net of  amortization of $1,066,000 in 2002 and 2001                                                                       |   | 5,201,000         |       | 5,201,000 |   |
| **Total  assets**                                                                                                                                             |   | $                 | 55,200,000 |   | $ | 57,228,000 |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                |   |              |       |   |   |
|                                                                                                                                                          |   |              |       |   |   |
| **Current  liabilities**                                                                                                                                      |   |              |       |   |   |
| Current  maturities of long term debt                                                                                                                         |   | $                 | 1,500,000  |   | $ | 1,500,000 |   |
| Accounts payable                                                                                                                                              |   | 2,037,000         |       | 2,479,000 |   |
| Accrued expenses                                                                                                                                              |   | 3,107,000         |       | 3,106,000 |   |
| Income taxes  payable                                                                                                                                         |   | —            |       | 976,000 |   |
| **Total  current liabilities**                                                                                                                                |   | 6,644,000         |       | 8,061,000 |   |
|                                                                                                                                                          |   |              |       |   |   |
| Long-Term Debt,  less current maturities                                                                                                                      |   | 7,500,000         |       | 9,000,000 |   |
| Derivative  financial instrument                                                                                                                              |   | 684,000           |       | 294,000 |   |
| Deferred income  taxes                                                                                                                                        |   | 256,000           |       | 243,000 |   |
| **Total  liabilities**                                                                                                                                        |   | 15,084,000        |       | 17,598,000 |   |
| Commitments and  contingencies (Note K)                                                                                                                       |   |              |       |   |   |
| **SHAREHOLDERS’  EQUITY**                                                                                                                                |   |              |       |   |   |
| Common stock, no  par value; 10,000,000 shares authorized; 3,574,279 and 3,568,385 shares  issued and outstanding at December 31, 2002 and 2001, respectively |   | 6,596,000         |       | 6,596,000 |   |
| Retained  earnings                                                                                                                                            |   | 33,868,000        |       | 33,372,000 |   |
| Unearned  restricted stock                                                                                                                                    |   | (83,000           | )          | (150,000 | ) |
| Accumulated  other comprehensive loss                                                                                                                         |   | (265,000          | )          | (188,000 | ) |
| **Total  shareholders’ equity**                                                                                                                          |   | 40,116,000        |       | 39,630,000 |   |
| **Total  liabilities and shareholders’ equity**                                                                                                          |   | $                 | 55,200,000 |   | $ | 57,228,000 |   |

 

See notes to consolidated financial statements

 

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**CONSOLIDATEDSTATEMENTS OF INCOME**

 
|                                                                 |   | **Year Ended  December 31,** |       |
|----------------------------------------------------------------------|--------|------------------------------|------------|
|                                                                 |   | **2002**                     |       | **2001** |   | **2000** |   |
| Net sales                                                            |   | $                            | 71,951,000 |   | $ | 76,122,000 |   | $ | 84,310,000 |   |
| Cost of sales                                                        |   | 50,888,000                   |       | 53,146,000 |   | 58,309,000 |   |
| Gross profit                                                         |   | 21,063,000                   |       | 22,976,000 |   | 26,001,000 |   |
| Operating  expenses:                                                 |   |                         |       |   |   |   |   |
| Selling                                                              |   | 13,207,000                   |       | 12,595,000 |   | 13,317,000 |   |
| General and  administrative                                          |   | 4,423,000                    |       | 4,294,000 |   | 4,426,000 |   |
| Operating  expenses                                                  |   | 17,630,000                   |       | 16,889,000 |   | 17,743,000 |   |
| **Income  From Operations**                                          |   | 3,433,000                    |       | 6,087,000 |   | 8,258,000 |   |
| Other income  (expense)                                              |   |                         |       |   |   |   |   |
| Interest income                                                      |   | 71,000                       |       | 167,000 |   | 202,000 |   |
| Interest expense                                                     |   | (1,030,000                   | )          | (1,186,000 | ) | (810,000 | ) |
| Other   —  net                                        |   | 32,000                       |       | 75,000 |   | 129,000 |   |
| Other expense                                                        |   | (927,000                     | )          | (944,000 | ) | (479,000 | ) |
| **Income  Before Income Taxes**                                      |   | 2,506,000                    |       | 5,143,000 |   | 7,779,000 |   |
| Provision  (benefit) for income taxes                                |   |                         |       |   |   |   |   |
| Current                                                              |   | 905,000                      |       | 1,619,000 |   | 2,980,000 |   |
| Deferred                                                             |   | (180,000                     | )          | 19,000 |   | (100,000 | ) |
| Provision for  Income Taxes                                          |   | 725,000                      |       | 1,638,000 |   | 2,880,000 |   |
| **Net  Income**                                                      |   | $                            | 1,781,000  |   | $ | 3,505,000 |   | $ | 4,899,000 |   |
|                                                                 |   |                         |       |   |   |   |   |
| Net income per  common share — basic and diluted                |   | $                            | 0.50       |   | $ | 0.98 |   | $ | 1.37 |   |
| .                                                                    |   |                         |       |   |   |   |   |
|                                                                 |   |                         |       |   |   |   |   |
| Weighted average  number of common shares outstanding — basic   |   | 3,576,521                    |       | 3,570,365 |   | 3,568,385 |   |
| Weighted average  number of common shares outstanding — diluted |   | 3,587,245                    |       | 3,582,698 |   | 3,568,385 |   |

 

See notes to consolidated financial statements

 

27

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### **CONSOLIDATED STATEMENTSOF SHAREHOLDERS’ EQUITY**

### ** **

|                                                                                                                                  |   | **Common  Stock**     |   |       |      |                       |   | **Accumulated  Other** |   |                             |       |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|------------|-----------|----------------------------|--------|------------------------|--------|----------------------------------|------------|
|                                                                                                                                  |   | **Number of  Shares** |   | **Amount** |      | **Unearned  Compensation** |   | **Retained  Earnings** |   | **Comprehensive  Income (Loss)** |       | **Total** |   |
| **Balance  at December 31, 1999**                                                                                                     |   | 3,568,385             |   | $          | 6,396,000 |                       | $      | ——           |   | $                                | 27,395,000 |   | $ | (192,000 | ) | $ | 33,599,000 |   |
| Dividends ($.33  per share)                                                                                                           |   |                  |   |       |      |                       |   | (1,178,000             | )      |                             |       | (1,178,000 | ) |
| Comprehensive  income:                                                                                                                |   |                  |   |       |      |                       |   |                   |   |                             |       |   |   |
| Net income                                                                                                                            |   |                  |   |       |      |                       |   | 4,899,000              |   |                             |       | 4,899,000 |   |
| Foreign currency  translation adjustments                                                                                             |   |                  |   |       |      |                       |   |                   |   | (36,000                          | )          | (36,000 | ) |
| Total comprehensive income 2000                                                                                                       |   |                  |   |       |      |                       |   |                   |   | 4,863,000                        |       |
| **Balance  at December 31, 2000**                                                                                                     |   | 3,568,385             |   | 6,396,000  |      | ——               |   | 31,116,000             |   | (228,000                         | )          | 37,284,000 |   |
| Dividends ($.35  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 inaccounting 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 $17,000 |   |                  |   |       |      |                       |   |                   |   | (26,000                          | )          | (26,000 | ) |
| Total comprehensive income 2001                                                                                                       |   |                  |   |       |      |                       |   |                   |   | 3,545,000                        |       |
| **Balance  at December 31, 2001**                                                                                                     |   | 3,568,385             |   | 6,596,000  |      | (150,000                   | )      | 33,372,000             |   | (188,000                         | )          | 39,630,000 |   |
| Dividends ($.36  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 |   |

 

See notes to consolidated financial statements.

 

28

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**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 
|                                                                               |   | **Year Ended  December 31,** |      |
|------------------------------------------------------------------------------------|--------|------------------------------|-----------|
|                                                                               |   | **2002**                     |      | **2001** |   | **2000** |   |
| **OPERATING  ACTIVITIES**                                                          |   |                         |      |   |   |   |   |
| Net income                                                                         |   | $                            | 1,781,000 |   | $ | 3,505,000 |   | $ | 4,899,000 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |   |                         |      |   |   |   |   |
| Depreciation                                                                       |   | 1,480,000                    |      | 1,609,000 |   | 1,666,000 |   |
| Amortization                                                                       |   | —                       |      | 312,000 |   | 312,000 |   |
| Compensation  earned under restricted stock plan                                   |   | 67,000                       |      | 50,000 |   | — |   |
| Deferred income  taxes                                                             |   | (180,000                     | )         | 19,000 |   | (100,000 | ) |
| Derivative  financial instrument                                                   |   | 390,000                      |      | 294,000 |   | — |   |
| Other                                                                              |   | (26,000                      | )         | 101,000 |   | — |   |
| Changes in  operating assets and liabilities:                                      |   |                         |      |   |   |   |   |
| Accounts  receivable and due from affiliates                                       |   | 2,197,000                    |      | (1,152,000 | ) | (1,212,000 | ) |
| Inventories                                                                        |   | (492,000                     | )         | 1,611,000 |   | (908,000 | ) |
| Prepaid expenses  and refundable income taxes                                      |   | (488,000                     | )         | (211,000 | ) | 66,000 |   |
| Accounts  payable, accrued expenses and income taxes payable                       |   | (1,417,000                   | )         | 497,000 |   | (530,000 | ) |
| **Net  Cash Provided by Operating Activities**                                     |   | 3,312,000                    |      | 6,635,000 |   | 4,193,000 |   |
| **INVESTING  ACTIVITIES**                                                          |   |                         |      |   |   |   |   |
| Purchases of  property, plant and equipment, net                                   |   | (885,000                     | )         | (880,000 | ) | (1,462,000 | ) |
| Purchases of  short-term investments                                               |   | —                       |      | (3,504,000 | ) | — |   |
| Maturities of  short-term investments                                              |   | 1,300,000                    |      | — |   | 636,000 |   |
| **Net  Cash Provided by (Used in) Investing Activities**                           |   | 415,000                      |      | (4,384,000 | ) | (826,000 | ) |
| **FINANCING  ACTIVITIES**                                                          |   |                         |      |   |   |   |   |
| Payment of  long-term debt                                                         |   | (1,500,000                   | )         | (1,500,000 | ) | (1,500,000 | ) |
| Dividends paid                                                                     |   | (1,285,000                   | )         | (1,249,000 | ) | (1,178,000 | ) |
| **Net  Cash Used in Financing Activities**                                         |   | (2,785,000                   | )         | (2,749,000 | ) | (2,678,000 | ) |
| **Effect  of Foreign Exchange Rate Changes**                                       |   | (51,000                      | )         | (61,000 | ) | (36,000 | ) |
| **Increase  (Decrease) in Cash and Cash Equivalents**                              |   | 891,000                      |      | (559,000 | ) | 653,000 |   |
|                                                                               |   |                         |      |   |   |   |   |
| **Cash  and Cash Equivalents at Beginning of Year**                                |   | 416,000                      |      | 975,000 |   | 322,000 |   |
| **Cash  and Cash Equivalents at End of Year**                                      |   | $                            | 1,307,000 |   | $ | 416,000 |   | $ | 975,000 |   |

 

See notes to consolidated financial statements.

 

29

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2002

 

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, primarilywithin the sanitary supply industry.  Nosingle customer accounted for more than ten percent of net sales in 2002, 2001or 2000.

 

The Company sells to affiliated (see note G of the Notes toConsolidated Financial Statements for additional information) and unaffiliatedcustomers in foreign countries.  For2002, 2001, and 2000, these sales aggregated $14,064,000, $15,918,000 and$18,078,000, respectively, and were principally to customers in Canada, thePacific Rim, the Middle East, Europe, and Latin America.

 

 

NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principals of Consolidation

 

The consolidated financial statements include the accounts of theCompany (an Illinois corporation) and its wholly — owned subsidiaries,Multi-Clean, Minuteman PowerBoss, Inc., Minuteman Canada, Inc. and MinutemanEuropean B.V. Significant intercompany accounts and transactions have beeneliminated in consolidation.

 

Revenue Recognition

 

The Company recognizes revenue when persuasive evidence of anarrangement exists, when title and risk of ownership passes, the sales price isfixed or determinable, and collectibility is reasonably assured. Generally,these criteria are met at 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.

 

Inventories

 

Inventories at December 31, 2002 and 2001 are stated at the lower ofcost or market using the last—in, first-out (LIFO) method for 49% and 53% ofinventories, respectively.  Thefirst—in, first—out (FIFO) method is used for the remainder.  Inventories at December 31, 2002 and 2001consist of the following:

 
|                       |   | **2002**   |       | **2001**   |   |
|----------------------------|--------|------------|------------|------------|--------|
| Inventories at  FIFO cost: |   |       |       |       |   |
| Finished goods             |   | $          | 6,227,000  |       | $      | 7,418,000 |   |
|                       |   |       |       |       |   |
| Work in process            |   | 9,306,000  |       | 7,975,000  |   |
|                       |   |       |       |       |   |
| Raw materials              |   | 5,442,000  |       | 4,947,000  |   |
|                       |   | 20,975,000 |       | 20,340,000 |   |
| Less LIFO  reserve         |   | (2,119,000 | )          | (1,976,000 | )      |
| Total  Inventories         |   | $          | 18,856,000 |       | $      | 18,364,000 |   |

 

30

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Property, Plant and Equipment

 

Property, plant and equipment are stated on the basis of cost.  Depreciation is computed by both thestraight line and accelerated methods for financial reporting purposes and bythe accelerated method for tax purposes. Estimated useful lives for buildings and improvements range from 15 to40 years.  All other property, plant andequipment lives range from 3 to 7 years.

 

Goodwill and Other Intangible Assets

 

The Company has classified as goodwill the cost in excess of the fairvalue of net assets of businesses acquired. The Company adopted Statement ofFinancial Accounting Standards (SFAS) No. 142 effective January 1, 2002. SFAS142 requires that goodwill and intangible assets with indefinite useful livesno longer be amortized but instead tested for impairment annually at thereporting unit level using a two-step impairment test. If the first stepindicates goodwill is impaired, the second step must be completed to determinethe amount of the impairment. During 2002 the Company, utilizing an independentthird party firm, completed its initial test of goodwill by comparing fairvalue to carrying value. Fair value was determined using a discounted cash flowand market methodology for the reporting unit. As of January 1, 2002, theCompany concluded there was no impairment. The Company performed its annualtest of impairment as of October 1, 2002 and found no impairment.

 

Income Taxes

 

Deferred income tax assets and liabilities are determined based ondifferences between financial reporting and tax bases of assets andliabilities, and are measured using the enacted tax rates and laws that will bein effect when the differences are expected to reverse.

 

Earnings Per Share

 

Basic earnings per share is computed by dividing income available tocommon stockholders (the numerator) by the weighted-average number of commonshares outstanding (the denominator) for the period.  The computation of the diluted earnings per share is similar tobasic earnings per share, except that the denominator is increased to includethe number of additional common shares that would have been outstanding if thepotentially dilutive common shares had been issued.

 

Foreign Currency Translation

 

The functional currency of the Company’s foreign subsidiaries is thelocal currency.  Accordingly, thebalance sheet accounts of the foreign subsidiaries have been translated intoUnited States dollars using the current exchange rate at the balance sheet dateand income statement amounts have been translated using the average exchangerate for the year.  Foreign currencytranslation adjustments resulting from the change in exchange rates have beenclassified as a separate component of shareholders’ equity.

 

Cash Equivalents

 

The Company considers all bank certificates of deposit and Eurodollarcertificate investments with a maturity of three months or less when purchasedto be cash equivalents.

 

Short-Term Investments

 

Short-term investments have been categorized as available for sale andare stated at cost, which approximates fair value.  Investments, all of which are with domestic commercial banks,include certificates of deposit and Eurodollar and treasury certificates.

 

31

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2002

 

MINUTEMAN INTERNATIONAL FINANCIAL REPORT

 

Research and Development Expenses

 

Research and development expenses for 2002, 2001 and 2000, approximated$1,512,000, $1,587,000 and $1,459,000, respectively.

 

Shipping and Handling Costs

 

The Company classifies shipping and handling costs it incurs as sellingexpenses in the accompanying consolidated statements of income.  Shipping and handling costs in 2002, 2001and 2000 were $788,000, $779,000 and $907,000, respectively.  All shipping and handling amounts billed tocustomers are classified as net sales and the associated costs are recorded ascost of sales.

 

Advertising Costs

 

Advertising costs are expensed as incurred and were $640,000, $797,000and $841,000 in 2002, 2001 and 2000, respectively.

 

Derivative Financial Instruments

 

As of January 1, 2001, the Company adopted SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities”, which was issued in June1998 and its amendments, SFAS No. 137, “Accounting for Derivative Instrumentsand Hedging Activities — Deferral of the Effective Date of FASB Statement No.133”, and SFAS 138, “Accounting for Derivative Instruments and Certain HedgingActivities”, issued in June 1999 and June 2000, respectively (collectivelyreferred to as SFAS No. 133).

 

As a result of adoption of SFAS No. 133, the Company recognizes allderivative financial instruments, such as interest rate swap contracts in theconsolidated financial statements at fair value regardless of the purpose orintent for holding the instrument. Changes in the fair value of derivative financial instruments are eitherrecognized periodically in income or in shareholders’ equity as a component ofcomprehensive income depending on whether the derivative financial instrumentqualifies for hedge accounting, and if so, whether it qualifies as a fair valuehedge or cash flow hedge. Generally, changes in fair values of derivativesaccounted for as fair value hedges are recorded in income along with theportions of the changes in the fair values of the hedged items that relate tothe hedged risks.  Changes in fairvalues of derivatives accounted for as cash flow hedges, to the extent they areeffective and designated as hedges, are recorded in other comprehensive incomenet of tax. Changes in fair values of derivatives not qualifying as hedges arereported as interest expense. The fair market value of the interest rate swapat December 31, 2002 and 2001 is classified as a non-current liability on theconsolidated balance sheets.

 

The Company accounted for the accounting changes as a cumulative effectof a change in accounting principle. The adoption of  SFAS No. 133, onJanuary 1, 2001 resulted in an increase of $127,000, net of applicable income taxesof $85,000, to other comprehensive income.

 

In 2001, the Company determined that the interest rate swap did notqualify for hedge accounting in accordance with the applicable provisionsof  SFAS No. 133, and therefore, theeffect of 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 Company continued to record the change in the fair marketvalue of its swap as interest expense. The effect of adjusting the swap tomarket was $347,000 (net of tax benefit of $139,000), resulting in a $208,000charge to net income.

 

Prior to January 1, 2001, the Company also used interest rate swapcontracts for hedging purposes.  Forinterest rate swaps, the net amounts paid or received and net amounts accruedthrough the end of the accounting period were included in interest expense.Unrealized gains or losses on interest swap contracts were not recognized inincome.  Gains or losses on any contractsterminated early were deferred and amortized to income over the remainingaverage life of the terminated contracts.

 

In 1998, the Company entered into an interest rate swap agreement toobtain a fixed interest rate on variable rate debt and reduce certain exposuresto interest rate fluctuations.  AtDecember 31, 2002 and 2001 the Company had interest rate swaps with notionalamounts of $9,000,000 and $10,500,000, respectively.  The swaps will terminate on the same basis as the long-term debtrepayment schedule ending November, 2005 (see note D of the Notes toConsolidated Financial Statements for additional information).  The swaps for 2002 and 2001 resulted infixed rate payments at an effective interest rate of 6.1%. Variable ratepayments are based on LIBOR interest rate plus an applicable margin (see note Dof the Notes to Consolidated Financial Statements for additional information).

 

32

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Customer Rebates

 

The cost of customer rebate programs is classified as a reduction ofnet sales. Rebate expense for 2002, 2001 and 2000 was $1,227,000, $1,171,000and $885,000, respectively.

 

Warranties

 

The Company provides for the estimated cost of product warranties atthe time revenue is recognized. The Company’s warranty liability is affected byproduct failure rates, material usage and costs incurred in correcting aproduct failure. Should actual product failure rates, material usage or costsdiffer from the Company’s estimates, revisions to the estimated warrantyliability may be required.

 

Changes in the Company’s warranty liability during the period are asfollows:

 
| **Description**               |   | **Balance at  Beginning of Period** |    | **Charged to  Costs and Expenses (1)** |   | **Deductions****(2)** |   | **Balance at  End of Period** |    |
|-------------------------------|--------|-------------------------------------|---------|----------------------------------------|--------|-----------------------|--------|-------------------------------|---------|
| Year Ended  December 31, 2002 |   |                                |    |                                   |   |                  |   |                          |    |
| Accrued  warranties           |   | $                                   | 711,000 |                                   | $      | 522,000               |   | $                             | 416,000 |   | $ | 817,000 |   |
| Year Ended  December 1, 2001  |   |                                |    |                                   |   |                  |   |                          |    |
| Accrued  warranties           |   | $                                   | 832,000 |                                   | $      | 501,000               |   | $                             | 622,000 |   | $ | 711,000 |   |
| Year Ended  December 31, 2000 |   |                                |    |                                   |   |                  |   |                          |    |
| Accrued  warranties           |   | $                                   | 675,000 |                                   | $      | 689,000               |   | $                             | 532,000 |   | $ | 832,000 |   |
|                               |        |                                     |         |                                        |        |                       |        |                               |         |  |  |  |  |  |

----

(1) —Provision for warranty liability.

(2) —Warranty claims processed.

 

Use of Estimates

 

The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States requires management to makeestimates and assumptions that affect the amounts reported in the financialstatements and accompanying notes. Actual results could differ from thoseestimates.

 

Reclassifications

 

Certain amounts from prior years’ financial statements have beenreclassified to conform with the current year presentation. Per Emerging IssuesTask Force (EITF) issue 00-22 “Accounting for “Points” and Certain OtherTime-Based or Volume-Based Sales Incentive Offers, and Offers for Free Productsor Services to Be Delivered in the Future” and EITF issue 01-9, “Accounting forConsideration Given by a Vendor to a Customer or a Reseller of the Vendor’sProducts”, net sales and selling expense have been reduced to reflect thereclassification of customer rebate expense. These reclasses resulted in areduction in net sales and selling expense of $1,171,000 and $885,000 for theyears ended 2001 and 2000, respectively. These reclasses also resulted in agross profit decrease as a percent on net sales for the years ended 2001 and2000 of 1.0% and 0.8%, respectively.

 

33

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NOTE C — GOODWILL

 

On January 1, 2002 the Company applied the provisions of  SFAS No. 142, “Goodwill and Other IntangibleAssets”. SFAS No. 142 requires that goodwill and certain intangible assets nolonger be amortized, but instead tested for impairment at least annually.

 

Net income and earnings per share for fiscal 2001 and fiscal 2000adjusted to exclude amortization expense (net of taxes) is as follows:

 
|                                   |   | **Year Ended  December 31,** |      |
|----------------------------------------|--------|------------------------------|-----------|
|                                   |   | **2002**                     |      | **2001** |   | **2000** |   |
| Reported net  income                   |   | $                            | 1,781,000 |   | $ | 3,505,000 |   | $ | 4,899,000 |   |
| Goodwill  amortization                 |   | ——                 |      | 213,000 |   | 197,000 |   |
| Adjusted net  income                   |   | $                            | 1,781,000 |   | $ | 3,718,000 |   | $ | 5,096,000 |   |
| Basic and  diluted earnings per share: |   |                         |      |   |   |   |   |
| Reported net  income                   |   | $                            | 0.50      |   | $ | 0.98 |   | $ | 1.37 |   |
| Goodwill  amortization                 |   | ——                 |      | 0.06 |   | 0.06 |   |
| Adjusted net  income                   |   | $                            | 0.50      |   | $ | 1.04 |   | $ | 1.43 |   |

 

NOTE D — DEBT

 

Short Term Debt

 

The Company has an unsecured Line of Credit arrangement for ashort-term debt facility with a financial institution which expires May 31,2003.  Under the terms of this facilitythe Company may borrow up to $5 million on terms mutually agreeable to theCompany and the financial institution. There are no requirements for compensating balances or restrictions ofany kind involved in this arrangement. At December 31, 2002 and 2001 there were no borrowings outstanding.

 

Long Term Debt

 

The Company has a term loan agreement with a financialinstitution.  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%.  The margin rate on this debt at December 31,2002 and 2001 was .80% and .70%, respectively (see note F of the Notes toConsolidated Financial Statements for additional information). The effectiveinterest rate on this debt at December 31, 2002 was 6.1%.  The Company agreed to maintain certain minimumfinancial ratios.

 

Maturities of long-term debt are as follows:

 

| 2003                                     |   | $          | 1,500,000 |   |
|------------------------------------------|--------|------------|-----------|--------|
| 2004                                     |   | 1,500,000  |      |
| 2005                                     |   | 6,000,000  |      |
|                                     |   | 9,000,000  |      |
| Less: current  maturities                |   | (1,500,000 | )         |
| Long-term debt,  less current maturities |   | $          | 7,500,000 |   |

 

Interest paid for short-term and long-term debt obligations in 2002,2001 and 2000 was $615,000, $708,000 and $798,000 respectively.

 

34

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NOTE E — INCOME TAXES

 

Deferred income taxes primarily relate to temporarydifferences in the recognition of depreciation expense and otheraccrued expenses for financial reportingand income tax purposes.  The temporary differences between the financialstatement carrying amounts and the taxbases of assets and liabilities that result in significant amounts of deferredtaxesin theconsolidated balance sheets at December 31, 2002 and 2001 are as follows:

 
|                                                              |   | **Deferred  Tax Assets (Liabilities)** |    |
|-------------------------------------------------------------------|--------|----------------------------------------|---------|
|                                                              |   | **2002**                               |    | **2001** |   |
| Accounts  receivable allowance                                    |   | $                                      | 276,000 |   | $ | 187,000 |   |
| Property, plant  and equipment tax depreciation in excess of book |   | (291,000                               | )       | (272,000 | ) |
| Accrued expenses  and other                                       |   | 157,000                                |    | 186,000 |   |
| Derivative  financial instruments                                 |   | 274,000                                |    | 135,000 |   |
| Deferred income  tax assets                                       |   | $                                      | 416,000 |   | $ | 236,000 |   |

 

The effective income tax rate differed from theFederal statutory rate as follows:

 
|                                            |   | **Year Ended  December 31,** |   |
|-------------------------------------------------|--------|------------------------------|--------|
|                                            |   | **2002**                     |   | **2001** |   | **2000** |   |
| Federal  statutory rate                         |   | 34.0                         | %      | 34.0 | % | 34.0 | % |
| State income  taxes, net of federal tax benefit |   | 6.8                          |   | 4.0 |   | 4.6 |   |
| Extraterritorial  Income benefit                |   | (3.2                         | )      | (2.5 | ) | (1.9 | ) |
| Research and  development tax credits           |   | (3.6                         | )      | (1.9 | ) | (.6 | ) |
| Other, net                                      |   | (5.1                         | )      | (1.8 | ) | .9 |   |
| Effective income  tax rates                     |   | 28.9                         | %      | 31.8 | % | 37.0 | % |

 

The components of the provision (benefit) for incometaxes are:

 
|                        |   | **Year Ended  December 31,** |    |
|-----------------------------|--------|------------------------------|---------|
|                        |   | **2002**                     |    | **2001** |   | **2000** |   |
| Federal                     |   | $                            | 478,000 |   | $ | 1,337,000 |   | $ | 2,277,000 |   |
| State                       |   | 260,000                      |    | 320,000 |   | 530,000 |   |
| Foreign                     |   | (13,000                      | )       | (19,000 | ) | 73,000 |   |
| Provision for  income taxes |   | $                            | 725,000 |   | $ | 1,638,000 |   | $ | 2,880,000 |   |

 

The Company paid income taxes, net of refunds received,of $2,306,000, $987,000 and $2,763,000 in 2002, 2001 and 2000, respectively.

 

35

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NOTE F — FINANCIAL INSTRUMENTS

 

Financial instruments which potentially subject the Company toconcentrations of credit risk consist principally of cash equivalents andaccounts receivables.  The Companyplaces its cash equivalents with high credit quality financial institutions,which are Federally insured up to prescribed limits.  However, the amount of cash equivalents at any one institutionmay exceed the Federally insured prescribed limits.  Concentrations of credit risks with regard to trade receivablesare limited due to the large number of customers comprising the Company’s customerbase.  The Company performs ongoingcredit evaluations of its customers and maintains allowances for potentialcredit losses which, when incurred, have been within the range of managementexpectations.

 

In 1998, the Company entered into an interest rate swap agreement toobtain a fixed interest rate on variable rate debt and reduce certain exposuresto interest rate fluctuations.  AtDecember 31, 2002 and 2001 the Company had interest rate swaps with notionalamounts of $9,000,000 and $10,500,000, respectively.  The swaps will terminate on the same basis as the long-term debtrepayment schedule ending November, 2005 (see note D of the Notes toConsolidated Financial Statements for additional information).  The swaps for 2002 and 2001 resulted in fixedrate payments at an effective interest rate of 6.1%.  Variable rate payments are based on LIBOR interest rate plus anapplicable margin (see note D of the Notes to Consolidated Financial Statementsfor additional information).

 

Interest rate differentials paid or received under this agreement arerecognized as an adjustment to interest expense.  The Company does not hold or issue interest rate swap agreementsfor trading purposes.

 

In the event that a counterpart fails to meet the terms of the interestrate swap agreement, the Company’s exposure is limited to the interest ratedifferential.  The Company manages thecredit risk of counter parties by dealing only with institutions that theCompany considers financially sound. The Company considers the risk of nonperformance to be remote. The net carryingamounts and fair values of the Company’s financial instruments areapproximately the same.

 

NOTE G — RELATED PARTY TRANSACTIONS

 

Hako–Werke International GmbH & Co. (a German corporation) owns68.1% of the outstanding common stock of the Company through a subsidiary.

 

The Company sold approximately $497,000, $715,000 and $1,482,000 ofmerchandise to Hako–Werke and certain of its subsidiaries during 2002, 2001 and2000, respectively.  Amounts due fromaffiliates, which relate to these sales, are due within 90 days from the dateof sale.

 

NOTE H — EMPLOYEE BENEFIT PLANS

 

The Company maintains a participatory defined contribution plan forsubstantially all employees under Section 401(k) of the Internal RevenueCode.  In addition to a discretionarycontribution, the Company also matches employee contributions based upon aformula up to a specified maximum. Contributions to the plan and related expense were $365,000, $365,000and $400,000 for the years ended 2002, 2001 and 2000 respectively.

 

36

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NOTE I — RESTRICTED STOCK PLAN

 

On April 18, 2000 the shareholders approved the Minuteman 2000Restricted Stock Plan, (“Restricted Stock Plan”), which is designed to attractand retain the services of key management employees by providing such personswith a proprietary interest in the Company through the granting of Minutemancommon stock. The maximum number of shares of Minuteman common stock availablefor issuance is 150,000 shares.  AtDecember 31, 2002 and 2001 there were 131,140 shares available to begranted.  As of December 31, 2002 andDecember 31, 2001, 18,860 shares have been granted.  Stock is issued under the Restricted Stock Plan through December31, 2009, subject to the vesting periods not to exceed three years.  At the sole discretion of the Company, anaward of restricted stock may be awarded to an eligible employee based uponcertain conditions and restrictions including, but not limited to, past andcontinued service with the Company, achievement of specific businessobjectives, superior work performance, and other measurements of individual orCompany performance.  In the event thatan employee is terminated (except due to death or total disability) prior to theend of the vesting period, the non-vested portion of the award will beforfeited.  However, in the event of anemployee’s death or total disability, or a change in control of the Company,the award shall immediately become fully vested.  Shares granted under the plan are recorded at fair market valueon the date of grant with a corresponding charge to shareholders’ equityrepresenting the unearned portion of the award.  The unearned portion is amortized as compensation expense($67,000 in 2002 and $50,000 in 2001) on a straight-line basis over the relatedvesting period. At December 31, 2002, 5,894 shares were issued as they werefully vested.

 

NOTE J — COMPREHENSIVE INCOME (LOSS)

 

Thecomponents of accumulated other comprehensive income (loss) for the years endedDecember 31, 2002, 2001 and 2000 are as follows:
|                                                                                                                                         |   | **Year Ended  December 31,** |     |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|----------|
|                                                                                                                                         |   | **2002**                     |     | **2001** |   | **2000** |   |
| Foreign currency  translation adjustments                                                                                                    |   | $                            | (340,000 | ) | $ | (289,000 | ) | $ | (228,000 | ) |
| Cumulative  effect of change in accounting for derivatives net of applicable taxes of  $85,000                                               |   | 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 2002 and 2001 |   | (52,000                      | )        | (26,000 | ) | — |   |
| Total  accumulated other comprehensive loss                                                                                                  |   | $                            | (265,000 | ) | $ | (188,000 | ) | $ | (228,000 | ) |

 

37

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NOTE K — COMMITMENTS AND CONTINGENCIES

 

Legal Matters

 

In the summer of 2001, the United States Securities and ExchangeCommission (the “SEC”) commenced an informal investigation of the Company andon November 13, 2001 issued a formal order of investigation.  The Company has been cooperating with theSEC and has produced documents requested by the SEC.  In addition, testimony of officers and employees requested by theSEC has been provided.

 

In December 2001, the Company was requested by The NASDAQ Stock Market(“NASDAQ”) to supply information in connection with NASDAQ’s responsibilitiesto ensure ongoing compliance of issuers with the requirements for inclusion onThe NASDAQ Stock Market.  The Companyhas provided the requested documents and is cooperating with the NASDAQ.

 

The Company believes that the investigations by the SEC and by NASDAQare related to the recognition of revenue in the Company’s results ofoperations for its interim periods.  Basedon the Company’s review of the timing of the recording of certain salestransactions, which were not consistent with the Company’s revenue recognitionpolicy, it was necessary to restate interim results and the Company restatedits financial statements for the interim periods ended March 31, June 30 andSeptember 30 in each of 1999 and 2000 and for March 31, 2001. Amended Form10-Qs and amended Form 10-Ks reflecting the restatements for the interimperiods were filed with the SEC in 2001. In November 2002, the Companysubmitted an Offer of Settlement to the Securities and Exchange Commission forits consideration. The Company is in discussion with the Securities andExchange Commission with regards to the Offer of Settlement.

 

The Company is not able to predict the outcome of the investigations orto assess their ultimate impact on the Company.

 

The Company is subject to various proceedings, lawsuits and otherclaims related to labor, product and other 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 theplaintiff’s claims and intends to defend the lawsuits vigorously. Adetermination of the amount of reserves required, if any, for each of thesecontingencies is made after careful analysis by the Company. The reserves maychange in the future due to new developments in each matter or changes inapproach in resolving these claims. While the Company believes that thesecontingencies will not have a material adverse effect on the financialcondition of the Company, there can be no assurance that they will be resolvedin a manner that does not materially adversely affect the Company.

 

Lease Commitments

 

The Company and its subsidiaries lease certain manufacturing,warehousing, other facilities, equipment and autos.  The leases generally provide for the lessee to pay taxes,maintenance, insurance and certain other operating costs of the leasedproperty. The leases on most of the properties contain renewal provisions.  The following is a summary of future minimumpayments under operating leases that have initial or remaining noncancelablelease terms in excess of one year at December 31, 2002:

 

| 2003  |   | $       | 913,000   |   |
|-------|--------|---------|-----------|--------|
| 2004  |   | 658,000 |      |
| 2005  |   | 449,000 |      |
| 2006  |   | 258,000 |      |
| 2007  |   | 198,000 |      |
| Total |   | $       | 2,476,000 |   |

 

Rental expense for operating leases amounted to $842,000, $753,000 and$708,000, in 2002, 2001 and 2000, respectively.

 

38

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Performance Guarantees

 

The Company is party to financing agreements between leasing companiesand distributors.  The agreementscontain repurchase provisions, whereby the Company will, upon default of thecustomer, repurchase the equipment from the leasing companies. The terms of theguarantees are related to the standard equipment lease terms. The maximumpotential amount of future payments the Company could be required to make underthese guarantees at December 31, 2002 is $40,000.

 

The Company issued a letter of credit during the normal course ofbusiness, as required by a customer contract. The letter of credit expires onMay 1, 2003, but will be automatically extended for additional consecutiveone-year terms if it is not cancelled. The maximum potential amount of future payments the Company could berequired to make under this guarantee at December 31, 2002 is $50,000.

 

NOTE L — QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

 

The following is a summary of the quarterly results ofoperations for the years ended December 31, 2002 and 2001.

 
|                                                    |   | **Three  Months Ended** |       |
|---------------------------------------------------------|--------|-------------------------|------------|
| **2002**                                                |   | **March 31**            |       | **June 30** |   | **September  30** |   | **December  31** |   |
| Net sales(1)                                            |   | $                       | 19,261,000 |   | $ | 19,918,000 |   | $ | 17,356,000 |   | $ | 15,416,000 |   |
| Gross profit(1)                                         |   | 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 share information does not equal annualper share information due to rounding.

 
|                                                    |   | **Three  Months Ended** |       |
|---------------------------------------------------------|--------|-------------------------|------------|
| **2001**                                                |   | **March 31**            |       | **June 30** |   | **September  30** |   | **December  31** |   |
| Net sales(2)                                            |   | $                       | 21,145,000 |   | $ | 19,729,000 |   | $ | 17,487,000 |   | $ | 17,761,000 |   |
| Gross profit(2)                                         |   | 6,054,000               |       | 5,643,000 |   | 5,179,000 |   | 6,100,000 |   |
| Net income                                              |   | 742,000                 |       | 832,000 |   | 245,000 |   | 1,686,000 |   |
| Net income per  common share — basic & diluted |   | $                       | .21        |   | $ | .23 |   | $ | .07 |   | $ | .47 |   |

----

(1)           The reclassification of customer rebate expenseresulted in a decrease of net sales for the first, second and third quarters by$499,000, $417,000 and $140,000, respectively. The reclassification alsoresulted in a gross profit percent decrease as a percentage of net sales forthe first, second and third quarters by 1.8%, 1.4% and 0.6%, respectively. (SeeNote B in the Notes to Consolidated Financial Statements for further details.)

 

(2)           The reclassification of customer rebate expenseresulted in a decrease of net sales for the first, second, third and fourthquarters by $513,000, $206,000, $106,000 and $346,000, respectively. Thereclassification also resulted in a gross profit percent decrease as apercentage of net sales for the first, second, third, and fourth quarters by1.7%, 0.7%, 0.4%, and 1.3%, respectively. (See Note B in the Notes toConsolidated Financial Statements for further details.)

 

Results in the fourthquarter of 2001 were affected by certain year end adjustments includinginventory adjustments aggregating $560,000 and adjustments of $230,000 toreduce various accruals.  Suchadjustments increased net income by $593,000 ($0.17 per share) in the fourthquarter.  The Company believes it is notpracticable to determine what impact such adjustments would have had on each ofthe first three quarters of 2001.

 

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Markets for the Company’s Securities and Related Matters

 

On March 7, 2003 the last reported sales price of the common stock onThe NASDAQ Stock Market (“NASDAQ”) system was $8.39.  The approximate number of record holders of common stock was 400.

 

Since 1988 the Board of Directors has declared regular quarterlydividends and the fourth quarter dividend in 2002 represents the fifty-seventhconsecutive dividend paid to shareholders. Future dividend policy will be determined by the Board of Directors inlight of prevailing financial needs, earnings of the Company, cash flow,working capital and other relevant factors.

 

The common stock of Minuteman International, Inc. is quoted on TheNASDAQ Stock Market and its trading symbol is “MMAN”.  The following tables set forth for 2002 and 2001 the range of bidprices for the Company’s common stock as reported in the NASDAQ systems for theperiod indicated:

 

|         |   | **High** |   | **Low** |   | **Dividends  Per Share** |   |
|--------------|--------|----------|--------|---------|--------|--------------------------|--------|
| 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                      |   |
|         |   |     |   |    |   |                     |   |
| 2001         |   |     |   |    |   |                     |   |
|         |   |     |   |    |   |                     |   |
| 1st  Quarter |   | $        | 12.13  |    | $      | 8.63                     |   | $ | .08 |   |
| 2nd  Quarter |   | 10.50    |   | 9.44    |   | .09                      |   |
| 3rd  Quarter |   | 10.00    |   | 9.00    |   | .09                      |   |
| 4th  Quarter |   | 9.32     |   | 7.75    |   | .09                      |   |

 

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**SELECTEDCONSOLIDATED FINANCIAL DATA**

 

See “Management’s Discussion and Analysis of FinancialCondition and Results of Operations”, and “Notes toConsolidated Financial Statements”.
|                                                        |   | **Year Ended  December 31,**                        |       |
|-------------------------------------------------------------|--------|-----------------------------------------------------|------------|
|                                                        |   | **2002**                                            |       | **2001** |   | **2000** |   | **1999** |   | **1998** |   |
|                                                        |   | **(In thousands, except share and per share data)** | ** ** |
| **Income  Statement Data**                                  |   |                                                |       |   |   |   |   |   |   |   |   |
| Net sales(1)                                                |   | $                                                   | 71,951     |   | $ | 76,122 |   | $ | 84,310 |   | $ | 76,786 |   | $ | 56,714 |   |
| Cost of sales                                               |   | 50,888                                              |       | 53,146 |   | 58,309 |   | 53,494 |   | 39,333 |   |
| Gross profit(1)                                             |   | 21,063                                              |       | 22,976 |   | 26,001 |   | 23,292 |   | 17,381 |   |
| Selling  expenses(1)                                        |   | 13,207                                              |       | 12,595 |   | 13,317 |   | 12,000 |   | 9,882 |   |
| General and  administrative expenses                        |   | 4,423                                               |       | 4,294 |   | 4,426 |   | 3,989 |   | 2,482 |   |
| Income from  operations                                     |   | 3,433                                               |       | 6,087 |   | 8,258 |   | 7,303 |   | 5,017 |   |
| Interest income  (expense), net                             |   | (1,030                                              | )          | (1,019 | ) | (608 | ) | (791 | ) | (164 | ) |
| Other, net                                                  |   | 103                                                 |       | 75 |   | 129 |   | 316 |   | 400 |   |
| Income before  income taxes                                 |   | 2,506                                               |       | 5,143 |   | 7,779 |   | 6,828 |   | 5,253 |   |
| Income tax  expense                                         |   | 725                                                 |       | 1,638 |   | 2,880 |   | 2,486 |   | 1,921 |   |
| Net income                                                  |   | $                                                   | 1,781      |   | $ | 3,505 |   | $ | 4,899 |   | $ | 4,342 |   | $ | 3,332 |   |
|                                                        |   |                                                |       |   |   |   |   |   |   |   |   |
| **Per  Share Data**                                         |   |                                                |       |   |   |   |   |   |   |   |   |
| Cash dividends                                              |   | $                                                   | .36        |   | $ | .35 |   | $ | .33 |   | $ | .44 |   | $ | .44 |   |
| Net income per  common share — basic and diluted       |   | $                                                   | .50        |   | $ | .98 |   | $ | 1.37 |   | $ | 1.22 |   | $ | .93 |   |
| Weighted average  number of  common shares outstanding |   |                                                |       |   |   |   |   |   |   |   |   |
| — basic                                                |   | 3,576,521                                           |       | 3,570,365 |   | 3,568,385 |   | 3,568,385 |   | 3,568,385 |   |
| — diluted                                              |   | 3,587,245                                           |       | 3,582,698 |   | 3,568,385 |   | 3,568,385 |   | 3,568,385 |   |
| **Balance  Sheet Data**                                     |   |                                                |       |   |   |   |   |   |   |   |   |
| Working capital                                             |   | $                                                   | 35,470     |   | $ | 35,486 |   | $ | 33,372 |   | $ | 30,626 |   | $ | 28,360 |   |
| Total assets                                                |   | 55,200                                              |       | 57,228 |   | 55,658 |   | 53,958 |   | 50,670 |   |
| Long-term debt                                              |   | 7,500                                               |       | 9,000 |   | 10,500 |   | 12,000 |   | 13,500 |   |
| Shareholders’  equity                                  |   | 40,116                                              |       | 39,630 |   | 37,284 |   | 33,599 |   | 30,774 |   |

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(1) The reclassification ofcustomer rebate expense resulted in a decrease of net sales and selling expensefor 2001, 2000, 1999 and 1998 by $1,171, $885, $896, and $666 respectively. Thereclassification also resulted in a gross profit percent decrease as apercentage of net sales for 2001, 2000, 1999 and 1998 by 1.0%, 0.8%, 0.8% and0.9% respectively. (See Note B in the Notes to Consolidated FinancialStatements for further details).

 

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REPORT OF INDEPENDENT AUDITORS

 

To The Shareholders of Minuteman International, Inc.

 

We have audited the accompanying consolidated balance sheets ofMinuteman International, Inc. and subsidiaries as of December 31, 2002 and 2001and the related consolidated statements of income, shareholders’ equity andcash flows for each of the three years in the period ended December 31, 2002.These financial statements are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with auditing standards generallyaccepted in the United States.  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that ouraudits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above presentfairly, in all material respects, the consolidated financial position ofMinuteman International, Inc. and subsidiaries at December 31, 2002 and 2001and the consolidated results of their operations and their cash flows for eachof the three years in the period ended December 31, 2002, in conformity withaccounting principles generally accepted in the United States.

 

As discussed in Note C to the consolidated financial statements, in2002 the Company changed its method of accounting for goodwill. As discussed inNote B to the consolidated financial statements, in 2001 the Company changedits method of accounting for derivative financial instruments.

 

Chicago, Illinois

February 12, 2003

 

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REPORT OF MANAGEMENT

 

The management of Minuteman International, Inc. is responsible for theintegrity of the information presented in this Annual Report, including theCompany’s financial statements.  Thesestatements have been prepared in conformity with accounting principlesgenerally accepted  in the United Statesand include, where necessary, informed estimates and judgments by management.The Company maintains systems of accounting and internal controls designed toprovide assurance that assets are properly accounted for, as well as to insurethat the financial records are reliable for preparing financialstatements.  The systems are augmentedby qualified personnel and are reviewed on a periodic basis. The Companymaintains high standards when selecting, training, and developing personnel, toensure that management’s objectives of maintaining strong, effective internalaccounting controls and unbiased, uniform reporting standards areattained.  The Company believes itspolicies and procedures provide reasonable assurance that operations areconducted in conformity with law and with the Company’s commitment to a highstandard of business conduct. Our independent auditors, Ernst & Young LLP,conduct annual audits of our financial statements in accordance with auditingstandards generally accepted in the United States which include the review ofinternal controls for the purpose of establishing their audit scope, and issuean opinion of the fairness of such financial statements. The Board of Directorspursues its responsibility for the quality of the Company’s financial reportingprimarily through its Audit Committee, which is composed of outsidedirectors.  The Audit Committee meetsperiodically with management and the independent auditors to review the mannerin which they are performing their responsibilities and to discuss auditing,internal accounting controls, and financial reporting matters. The independentauditors periodically meet alone with the Audit Committee and have full andfree access to the Audit Committee at any time.

 
|                     |                           |
|---------------------|---------------------------|
| Gregory J. Rau      | Thomas J. Nolan           |
| President and Chief | Chief Financial Officer,  |
| Executive Officer   | Secretary & Treasurer |

 

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BOARD OF DIRECTORS

 

Gregory J. Rau

President & Chief Executive Officer

Minuteman International, Inc.

 

Thomas J. Nolan

Chief Financial Officer, Secretary & Treasurer

Minuteman International, Inc.

 

Eckart Kottkamp

Chief Executive Officer

Hako Holding

GmbH and Co.

 

James C. Schrader, Jr.

President

Precision Enterprises, Ltd.

 

Frank R. Reynolds

Attorney

Law Offices of Reynolds & Reynolds, Ltd.

 

Richard J. Wood

Board of Directors

 

Roger B. Parsons

Board of Directors

 

Minuteman will consider an acquisition only if, in the opinion of itsmanagement and Board of Directors, it would be in the best interest of thecompany.

 

Operating Officers

 

Gregory J. Rau

President & Chief Executive Officer

 

James A. Berg

Chief Accounting & Reporting Director

 

Thomas J. Nolan

Chief Financial Officer, Secretary & Treasurer

 

Michael A. Rau

Vice President, Multi-Clean Division

 

Stephen A. Schroeder

Vice President, Sales

 

Dean W. Theobold

Vice President, Manufacturing

 

44

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CorporateInformation

 

General Counsel

Law Offices of Reynolds & Reynolds, Ltd.

Chicago, Illinois

 

Independent Auditors

Ernst & Young LLP

Chicago, Illinois

 

Transfer Agent

Mellon Investor Services, L.L.C.

85 Challenger Road, Overpeck Centre

Ridgefield Park, New Jersey 07660

1-888-213-0965 Shareholders Information

1-800-231-5469 TDD (Telecommunications Device for the Deaf)

1-201-329-8660 Foreign Shareholders

1-201-329-8354 Foreign Shareholders (TDD)

 

Stock Listing

Traded over-the-counter on The Nasdaq Stock Market under the symbol“MMAN”

 

Annual Meeting

May 1, 2003 at 10:00 a.m.

at LaSalle National Bank

135 South LaSalle Street

Forty-third Floor

Board Room

Chicago, Illinois 60603

 

Form 10-K

 

Minuteman International, Inc. will send a copy of its Form 10-K reportfor fiscal 2002 as filed with the Securities and Exchange Commission uponwritten request to Thomas J. Nolan, Chief Financial Officer, at the corporateoffice.

 

45

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Locations

 

Corporate Offices and World Headquarters

Minuteman International, Inc.

111 South Rohlwing Road

Addison, Illinois 60101

(630) 627-6900

 

Manufacturing Facilities

Minuteman International, Inc.

111 South Rohlwing Road

Addison, Illinois 60101

(630) 627-6900

 

Minuteman International, Inc.

14N845 U.S. Route 20

Hampshire, Illinois 60140

(847) 683-5210

 

Minuteman PowerBoss, Inc.

175 Anderson Street

Aberdeen, North Carolina 28315

(910) 944-2105

 

Multi-Clean,

Division of Minuteman International, Inc.

600 Cardigan Road

Shoreview, Minnesota 55126

(651) 481-1900

 

Sales Offices

United States

Minuteman International, Inc.

111 South Rohlwing Road

Addison, Illinois 60101

(630) 627-6900

 

Minuteman Parker

111 South Rohlwing Road

Addison, Illinois 60101

(630) 627-6900

 

Minuteman PowerBoss

1190 North Villa Avenue

Villa Park, Illinois 60181

(630) 530-0007

 

46

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Minuteman PowerBoss

25920 Northline Commerce Drive

Suite 400

Taylor, Michigan 48180

(734) 946-2903

 

Canada

Minuteman Canada, Inc.

2210 Drew Road

Mississauga, Ontario

Canada L5S 1B1

(905) 673-3222

FAX: (905) 673-5161

 

Europe

Minuteman European B.V.

Haver Straat 31

2153 GB Nieuw-Vennep

The Netherlands

(31) 252-623000

FAX: (31) 252-623001

 

Minuteman International, Inc.

111 South Rohlwing Road • Addison, IL 60101

Telephone (630) 627-6900

www.minutemanintl.com

 

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