FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended August 2, 1997
Commission file number: 0-3947
HACH COMPANY
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(Exact name of Registrant as specified in its charter)
Delaware 42-0704420
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5600 Lindbergh Drive, Loveland, CO 80537
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(Address of principal executive offices) (Zip code)
(970) 669-3050
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(Registrant's telephone number including area code)
Not applicable
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(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ___ No X
At September 16, 1997, the Registrant had 8,223,408 shares of its common
stock outstanding.
Part I. Financial Information
Item 1. Financial Statements
Summarized Financial Statements
The accompanying Consolidated Balance Sheet as of August 2, 1997 and the
Consolidated Statements of Income and Retained Earnings for the quarters ended
August 2, 1997 and July 27, 1996 and the Consolidated Statements of Cash Flows
for the quarters ended August 2, 1997 and July 27, 1996 are unaudited; however,
in the opinion of management all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation of the results
of such periods have been made. The results of operations for the quarters ended
August 2, 1997 and July 27, 1996 are not necessarily indicative of the results
of operations to be expected for the full year.
The financial data included herein pursuant to Rule 10-01 of Regulation S-X
has been subjected to a review by Coopers & Lybrand L.L.P. , the Registrant's
independent accountants.
HACH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Thousands of Dollars Except Share Data)
(Unaudited)
QUARTER ENDED QUARTER ENDED
August 2, 1997 July 27, 1996
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Net sales $ 32,414 $ 28,910
Cost of sales 16,551 14,747
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Gross profit 15,863 14,163
Selling, general and administrative expense 8,886 8,009
Research and development expense 2,167 1,954
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Income from operations 4,810 4,200
Interest income 480 350
Interest expense (140) -
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Income before income taxes 5,150 4,550
Income tax expense 1,830 1,590
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Net income 3,320 2,960
Retained earnings, beginning of period $ 76,944 $ 67,177
Cash dividends (493) (682)
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Retained earnings, end of period $ 79,771 $ 69,455
========== ==========
Net income per common share $ 0.32 $ 0.26
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Dividends per common share $ 0.06 $ 0.06
========== ==========
Weighted average shares outstanding 10,499,230 11,356,140
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
HACH COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
August 2, 1997 April 30, 1997
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 9,626 $ 14,575
Marketable securities, held to maturity 1,488 19,100
Accounts receivable, less reserves
of $256 and $249, respectively 17,505 17,829
Inventories 12,006 11,798
Deferred taxes and other current assets 3,820 4,416
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Total current assets 44,445 67,718
Property, plant and equipment at cost:
Buildings and improvements 23,476 23,404
Machinery and equipment 49,094 46,555
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72,570 69,959
Less allowance for depreciation
and amortization 43,621 42,141
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28,949 27,818
Land 984 986
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Net property, plant and equipment 29,933 28,804
Marketable securities, held to maturity 1,638 7,406
Other assets 1,910 1,652
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Total Assets $ 77,926 $ 105,580
========== =========
The accompanying notes are an integral part of the consolidated financial
statements.
HACH COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
August 2, 1997 April 30, 1997
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(Unaudited)
LIABILITIES
Current liabilities:
Accounts payable $ 3,380 $ 4,044
Accrued liabilities:
Compensation 882 1,082
Compensated absences 3,737 3,655
Profit sharing 1,731 3,473
Income taxes payable 2,553 753
Other 1,767 1,379
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Total current liabilities 14,050 14,386
Long term debt 30,000 -
Other long term liabilities 2,096 1,726
Deferred income taxes 2,037 2,179
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Total liabilities 48,183 18,291
STOCKHOLDERS' EQUITY
Common stock, $1 par value; authorized
25,000,000 shares; issued 8,223,408 shares 11,623 11,623
Capital contributed in excess of par value 519 453
Retained earnings 79,771 76,944
Cumulative currency translation adjustment 54 338
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91,967 89,358
Less: Shares held in treasury at cost:
(3,399,545 at August 2, 1997 and
254,356 at April 30, 1997) (62,224) (2,069)
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Total Stockholders' Equity 29,743 87,289
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Total Liabilities and Stockholders' Equity $ 77,926 $ 105,580
========== =========
The accompanying notes are an integral part of the consolidated financial
statements.
HACH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
QUARTER ENDED QUARTER ENDED
AUGUST 2, 1997 JULY 27, 1996
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Cash flows from operating activities:
Net income $ 3,320 $ 2,960
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation & amortization 1,573 1,462
Provision for deferred income taxes (142) 30
Loss on disposal of property, plant & equipment 3 4
(Increase) decrease in accounts receivable 324 (1,181)
(Increase) decrease in inventories (208) 273
Decrease in prepaid expenses & other assets 596 2,052
(Decrease) in accounts payable (664) (287)
Increase (decrease) in accrued liabilities 698 (1,269)
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Net cash provided by operating activities 5,500 4,044
Cash flows from investing activities:
Capital expenditures (2,749) (1,310)
Purchases of investments held-to-maturity (2,079) (2,496)
Proceeds from the sale of short-term investments 25,459 3,440
(Increase) in long-term assets (258) (13)
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Net cash used by investing activities 20,373 (379)
Cash flows from financing activities:
Dividends paid (493) (682)
Proceeds from long-term borrowings 30,000 -
Purchases of treasury stock (60,257) (206)
Exercise of stock options 168 156
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Net cash used by financing activities (30,582) (732)
Effects of exchange rate changes (240) (316)
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Net increase (decrease) in cash & cash equivalents (4,949) 2,617
Cash & cash equivalents at the beginning of the period 14,575 8,487
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Cash & cash equivalents at the end of the period $ 9,626 $ 11,104
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
HACH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statements
The consolidated balance sheet at August 2, 1997 and the consolidated
statements of income and retained earnings, and consolidated statements of cash
flows for the interim periods ended August 2, 1997 and July 27, 1996, have been
prepared by the Company, without audit. The April 30, 1997 balance sheet was
derived from audited financial statements and as presented does not include all
the disclosures required by generally accepted accounting principles. In the
opinion of management, all adjustments, consisting only of normal recurring
accruals, necessary to present fairly the consolidated financial position,
results of operations and cash flows have been made. These financial statements
include forward looking information as defined by the Private Securities
Litigation Reform Act of 1995 and therefore results of operations for the
interim periods are not necessarily indicative of the operating results for a
full year or of future operations.
Certain amounts in the financial statements for April 30, 1997 have been
reclassified to conform with the current periods presentation.
2. Inventories
The components of inventories are:
(Thousands of Dollars)
August 2, 1997 April 30, 1997
Raw materials and purchased parts $ 3,166 $ 2,811
Work-in-progress 1,531 1,534
Finished goods 6,964 7,031
Resale 345 422
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$ 12,006 $ 11,798
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3. Income Taxes
For both periods presented, the provision for income taxes is based upon an
expected annual effective income tax rate. The rates utilized for the quarter
ended August 2, 1997 and July 27, 1996 were 35.5% and 34.9% respectively.
4. Net Income Per Common Share
Net income per common share is based on the weighted average number of
shares outstanding during the period. Common stock equivalents do not have a
dilutive effect on the net income per common share.
5. Capital Stock
On July 8, 1997, the Company repurchased the entire block of Hach Company
common stock which was owned by Lawter International. This stock represented
approximately 28% ownership in Hach Company. The purchase of the 3,157,223
shares at $19.00 per share was financed with $30 million of cash on hand and $30
million in bank financing.
On May 19, 1997, the Board of Directors approved a proposal to amend the
Company's Certificate of Incorporation. The amendment, which was approved by the
Company's stockholders at its annual meeting on September 9, 1997, creates a new
class of stock designated as Class A Common Stock. The Class A stock is
non-voting except under certain limited circumstances. As a result of the new
class of stock, earnings per share would be $.16 and $.13 for the quarters ended
August 2, 1997 and July 27, 1996, respectively.
6. Long-Term Debt
During the first quarter of 1998, the Company entered into a revolving
credit agreement with Colorado National Bank. Under the Revolving Credit
Agreement, the Company may borrow up to $40,000,000 under a five-year unsecured
revolving credit facility, which matures on July 1, 2002. The Agreement has
restrictions on amounts outstanding which consist of (i) $40,000,000 to June 30,
2000; (ii) $32,500,000 from July 1, 2000 to June 30, 2001; and (iii) $22,500,000
from July 1, 2001 to the Revolving Credit Maturity Date of July 1, 2002. At
August 2, 1997 the Company had $30 million outstanding. The Revolving Credit
Agreement allows the Company to borrow at interest rates that vary based on the
Banks Reference Rate or the London Interbank Offered Rate (LIBOR), at the option
of the Company. The interest rate as of August 2, 1997, on the $30 million was
6.77%. The interest period for the loan is 90 days, which began on July 8, 1997.
The Company is also required to pay a nonuse fee of 12.5 or 25.0 basis points
per annum, depending on certain financial ratios, on the average daily amount of
unused funds.
The Revolving Credit Agreement contains covenants and provisions that
restrict among other things, the ability of the Company and its material
subsidiaries to: (i) create liens on any of its property or assets or assign any
rights to security interests in future revenues; (ii) engage in sale and
leaseback transactions; (iii) engage in mergers, consolidations and sales of all
or substantially all of their assets on a consolidated basis; (iv) enter into
agreements restricting dividends and advances by the subsidiaries; and, (v)
engage in transactions with affiliates other than those based on arm's-length
negotiations. The Revolving Credit Agreement also limits the ability of the
Company and or subsidiaries to purchase capital items, incur indebtedness or
issue preferred stock. The Revolving Credit Agreement also requires the Company
to satisfy certain financial performance criteria.
7. Recently Issued Financial Accounting Standards
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," in February 1997.
This statement, which is required to be adopted in the third quarter of fiscal
year 1998, establishes standards for computing and presenting earnings per
share. The FASB issued Statement of Financial Accounting Standards No. 129,
"Information about Capital Structure," also in February 1997. This statement,
which is required to be adopted in the third quarter of fiscal year 1998,
establishes standards for disclosing information about an entity's capital
structure. The FASB also issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," in June 1997. This statement, which is
also required to be adopted in the third quarter of fiscal year 1998,
establishes standards for reporting of comprehensive income and its components
(such as revenues, expenses, gains and losses). The FASB also issued Statement
of Financial Accounting Standards No. 131, "Segments of an Enterprise and
Related Information," in June 1997. This statement, which is required to be
adopted in the third quarter of fiscal year 1998, establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. The Company believes that these statements will have no
material effect on the Company's financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation
Analysis of Financial Condition:
The Company experienced substantial change in its capital structure during
the quarter ended August 2, 1997. On July 8, 1997, the Company purchased
3,157,223 shares of its common stock from Lawter International. The purchase
price was approximately $60 million. The Company used $30 million of existing
cash and $30 million of bank borrowings to finance the stock purchase. The bank
borrowings provide for a revolving line of credit of up to $40 million.
The Company monitors cash flow and capital expenditures in great detail as
part of its total budgeting process. During fiscal year 1998, the Company
expects to spend approximately $10,000,000 on capital items. These expenditures
include the construction of a 66,000 square foot building at the Loveland,
Colorado site, in addition to expenditures made for production equipment as well
as computer hardware and software to support distribution, research and
development and administration.
The Company intends to finance its capital projects and dividend payments
through existing cash and cash equivalents, short-term investments, projected
cash flow from operations, and bank borrowings.
Results of Operations: Quarter ended August 2, 1997 compared to quarter ended
July 27, 1996.
The quarter ended August 2, 1997 contained four additional business days as
compared to the quarter ended July 27, 1996.
Net sales increased 12.1% to $32,414,000 from $28,910,000. The Company's
domestic sales increased 12.5% while its international net sales increased
11.5%. Both the domestic and international net sales increases were due
primarily to unit volume increases in most of the Company's major product lines
and the additional business days in the current quarter. Sales for the Company's
European subsidiary were adversely effected by a stronger U.S. dollar.
Cost of sales increased 12.2% to $16,551,000 from $14,747,000. This item,
composed of material, labor and product overhead, increased primarily because of
unit volume increases. The gross profit percent decreased to 48.9% from 49.0%
due to the mix of products sold and the additional business days in the current
quarter.
Selling, general and administrative expense increased 11.0% to $8,886,000
from $8,009,000. The increase was due to higher payroll and related expenses and
the additional business days in the current quarter.
Research and development expense increased 10.9% to $2,167,000 from
$1,954,000. The increase was due to an increased emphasis on research and
development efforts and the additional business days in the current quarter.
This increased research and development spending will result in a number of new
products being introduced in fiscal year 1998.
Interest income increased to $480,000 from $350,000. The increase was due
to higher average investment balances and higher interest rates in the current
period.
Interest expense increased to $140,000. The increase was due to interest on
a long-term loan used to repurchase Hach Company common stock owned by Lawter
International.
The effective income tax rate was 35.5% in the current period compared to
34.9% in the prior year's first quarter.
Part II. Other Information
Item 1. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
On September 9, 1997, Hach Company held its annual meeting of stockholders.
At this meeting, the stock holders were asked to consider and vote upon a
proposal to amend Article Fourth of the Company's Restated Certificate of
Incorporation to: (i) authorize a new class of common stock designated as Class
A Common Stock, $1.00 par value which would be non-voting (except in certain
limited circumstances); (ii) increase the number of authorized shares of capital
stock from 25,000,000 to 45,000,000 consisting of 25,000,000 shares of common
Stock and 20,000,000 Shares of Class A Common Stock; and (iii) establish the
rights, powers and limitations of the Class A Common Stock. A total of 7,614,652
votes were cast of which 7,351,060 were affirmative, 251,995 were negative and
11,597 abstained.
Item 6. Exhibits and Reports on Form 8-K
(a) 1. Report of Independent Accountants.
2. Awareness Letter of Independent Accountants.
3. Financial Data Schedule.
(b) During the quarter ended August 2, 1997, the Registrant filed no report on
Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HACH COMPANY
September 16, 1997
Date
By: /s/ Bruce J. Hach
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Bruce J. Hach, President and Chief Operating Officer
September 16, 1997
Date
By: /s/ Gary R. Dreher
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Gary R. Dreher, Vice President and Chief Financial Officer