Exhibit (13)1.
(Item 601(13))
TO OUR FELLOW SHAREHOLDERS
Fiscal year 1995, a successful period for Hach Company, reflected both
challenge and change. Water analysis, the industry we serve, remained in a
relatively slow growth mode. Many of our customers, faced with reduced budgets
and cost control programs, either eliminated or delayed major spending programs.
Thus, sales of our more expensive instruments were sluggish. We believe this is
a temporary situation. With worldwide demand for quality water continuing to
grow, future emphasis on efficiency in water analysis and water management is
certain. We feel confident we can serve these needs and capitalize on the many
opportunities before us.
During the year we announced our intent to discontinue the design and
manufacture of our electrochemical product line, the reason being the line no
longer fits with our long-term strategic intent. To continue to serve our
customers' needs for electrochemical products, we have entered into a
private-label agreement with a well-known manufacturer. This manufacturer will
provide us with a wider range of electrochemical products than we could
reasonably develop ourselves. In addition, this company will manufacture the
Hach One-TM- Electrode, thus assuring continuation of this unique Hach
technology.
The decision to discontinue the design and manufacture of electrochemical
products resulted in a one-time pretax charge of $775,000, related to the
write-down of certain assets associated with this product line. Over the years
we have tried consistently to maintain a high level of expertise throughout our
broad product offerings. Now it is clear to us we can no longer afford to be
experts in all areas. Our plan will be to place greater emphasis on our core
technologies and form alliances with well-established companies in areas where
we are not strong.
FINANCIAL POSITION
Figures for both net sales and net income before the cumulative effect of an
accounting change were all-time record highs for fiscal year 1995. Net sales
increased 5% while net income before the cumulative effect of an accounting
change increased 2%. Had it not been for the electrochemical write-off, net
income before the cumulative effect of an accounting change would have increased
8% and, as a percent of sales, net income would have been 9.3%. While we were
not satisfied with our overall sales increase, we were pleased with the chemical
sales increase of 11% and the international sales increase of 13%. These
increases were due primarily to volume increases. In recognition of the
international theme of this year's Annual Report, we are pleased to announce
fiscal year 1995 sales to customers outside the United States increased to 34%
of total sales.
[GRAPH]
2
During fiscal year 1995 we continued to concentrate on controlling costs
throughout the organization. We have done this by making investments that help
our employees become more efficient. By the end of the fiscal year, through
normal attrition, our work force had decreased by 2%. This decrease is
noteworthy given our increase in sales volume. Sales per employee increased to
$120,000 for the year, compared to $111,800 for the previous year.
To further reduce costs, we have closed chemical operations in Casper, Wyoming.
All chemical manufacturing is now confined to our Ames plant where a new
chemical pre-treatment waste facility has been constructed. The construction of
this plant demonstrates our ongoing commitment to and concern for the
environment.
In September 1994, the Board of Directors authorized the Company to repurchase
up to $2,000,000 in value of Hach Company common stock. At the end of fiscal
year 1995, we had repurchased approximately 31,000 shares at an average cost of
$14.40 per share. We continue to believe the repurchase of our own shares is
one of the best investments we can make.
In February 1995, the Board of Directors approved a 25% increase in the
Company's regular quarterly cash dividend. This is the 14th consecutive year
dividends have increased.
[PHOTOGRAPH]
[GRAPH]
3
MEASURING PERFORMANCE
We are committed to maximizing the market value of the capital contributed by
our shareholders. We believe two performance measurement tools -- Economic
Profit and Economic Value Added -- will provide an accurate determination of the
value we are creating. Economic Profit is defined as net operating profit after
taxes in excess of a computed capital charge for average operating capital
employed. Economic Value Added represents the growth in Economic Profit from
year to year. We plan to use both during fiscal 1996. We believe focusing our
efforts on the components of Economic Profit will translate into increased
shareholder value.
FUTURE OUTLOOK
We are not satisfied with our sales growth rate for this past year. Given our
strengths, the potential in the markets we serve and the expectations we have
placed upon ourselves, we believe our growth rate should be higher. To help us
plan this future growth, we have engaged the services of a nationally known
strategic analysis firm. Every area of the Hach organization is involved in
this all-encompassing effort. When the study is completed in the latter part of
calendar year 1995, we expect some changes will be made in order to place a
stronger emphasis on our greatest areas of opportunity.
IN APPRECIATION
Your Company is grateful for the dedicated service of the Board of Directors.
Special recognition should be given to two members, Richard D. Vanous and Jerry
M. Churchill, who will not be standing for re-election. They have served as
Board members for approximately five years. Both were elected to the Board at a
difficult time following the death of the Company founder, the late Clifford C.
Hach. Rick and Jerry are chemists by background. Their contributions to the
work of the Board are greatly appreciated.
We salute the hard-working, dedicated employees of Hach Company. The success we
have experienced would not have been possible without their support and
cooperation. We are confident their continued efforts will bring increased
value to our loyal shareholders.
Sincerely,
/s/ Kathryn Hach-Darrow
Kathryn Hach-Darrow
Chairman of the Board
and Chief Executive Officer
/s/ Bruce J. Hach
Bruce J. Hach
President
and Chief Operating Officer
Hach One is a Hach Company trademark.
4
HACH COMPANY AND SUBSIDIARIES
COMPARATIVE FINANCIAL DATA--10-YEAR SUMMARY
(THOUSANDS OF DOLLARS EXCEPT RATIO AND SHARE DATA)
SUMMARY OF OPERATIONS YEARS ENDED APRIL 30, 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales:
United States . . . . . . . . . . . . . . . . . . . . . . . . $ 69,867 $ 69,100 $ 62,497 $ 57,148
International . . . . . . . . . . . . . . . . . . . . . . . . 35,402 31,269 31,504 27,591
- -----------------------------------------------------------------------------------------------------------------------------------
Worldwide . . . . . . . . . . . . . . . . . . . . . . . . . . 105,269 100,369 94,001 84,739
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . 51,994 49,534 46,623 41,938
Selling, general and administrative expense. . . . . . . . . . 32,240 30,802 28,685 25,936
Research and development expense . . . . . . . . . . . . . . . 6,875 6,586 5,752 --
Provision to reduce carrying value of electrochemical assets . 775 -- -- 4,951
Interest income. . . . . . . . . . . . . . . . . . . . . . . . 661 467 427 312
Interest expense . . . . . . . . . . . . . . . . . . . . . . . 1 12 48 119
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 4,775 4,842 4,700 4,357
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . 9,270* 9,508+ 8,620 7,750
Per share data:++
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . 0.81* 0.84+ 0.76 0.68
Cash dividends. . . . . . . . . . . . . . . . . . . . . . . . 0.170 0.136 0.128 0.106
OTHER DATA
Current ratio. . . . . . . . . . . . . . . . . . . . . . . . . 4.55 4.14 3.49 2.72
Working capital. . . . . . . . . . . . . . . . . . . . . . . . $ 38,596 $ 30,699 $ 25,124 $ 20,977
Property, plant and equipment, net . . . . . . . . . . . . . . 29,128 28,903 29,270 28,094
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 84,258 74,358 66,971 61,619
Long-term liabilities. . . . . . . . . . . . . . . . . . . . . 2,070 2,081 2,246 2,104
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . 71,328 62,497 54,651 47,301
Equity per share at year end++ . . . . . . . . . . . . . . . . 6.27 5.49 4.81 4.17
Sales per employee . . . . . . . . . . . . . . . . . . . . . . 120 112 105 98
Weighted average shares outstanding++. . . . . . . . . . . . . 11,385,355 11,385,793 11,361,958 11,348,444
<FN>
*Net income for 1995 includes a one-time pretax charge of $775,000 or $.05 per
share after tax for the provision to reduce carrying value of electrochemical
assets.
+Net income for 1994 includes a benefit of $448,000 or $.04 per share for the
cumulative effect of a change in accounting for income taxes.
++All share and per share amounts have been restated to give effect to the
five-for-four stock split in April 1994, the three-for-two stock split in June
1992, the five-for-four stock splits in fiscal 1991, 1990 and 1989, and the
two-for-one stock split in fiscal 1986. (See Note 4 to the consolidated
financial statements.)
14
SUMMARY OF OPERATIONS Years ended
April 30, 1991 1990 1989 1988 1987 1986
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales:
United States . . . . . . . . . . . . . . . $ 50,476 $ 45,645 $ 40,598 $ 36,056 $ 32,046 $ 28,812
International . . . . . . . . . . . . . . . 21,844 17,456 15,253 11,579 9,860 8,566
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide . . . . . . . . . . . . . . . . . 72,320 63,101 55,851 47,635 41,906 37,378
Cost of sales. . . . . . . . . . . . . . . . 36,094 32,193 27,392 23,698 21,444 19,444
Selling, general and administrative expenses 22,360 18,912 17,619 15,564 13,848 12,583
Research and development expense . . . . . . -- -- -- -- -- --
Provision to reduce carrying value of
electrochemical assets . . . . . . . . . . 4,372 3,991 3,519 2,984 2,648 2,333
Interest income. . . . . . . . . . . . . . . 296 311 332 313 250 258
Interest expense . . . . . . . . . . . . . . 177 244 283 322 367 404
Income taxes . . . . . . . . . . . . . . . . 3,648 3,007 2,815 2,250 1,799 1,092
Net income . . . . . . . . . . . . . . . . . 5,965 5,065 4,555 3,130 2,050 1,780
Per share data:++
Net income. . . . . . . . . . . . . . . . . 0.53 0.45 0.40 0.28 0.18 0.16
Cash dividends. . . . . . . . . . . . . . . 0.090 0.077 0.065 0.052 0.044 0.038
OTHER DATA
Current ratio. . . . . . . . . . . . . . . . 2.79 2.89 2.76 3.57 3.19 3.26
Working capital. . . . . . . . . . . . . . . $ 17,631 $ 16,546 $ 14,555 $ 15,293 $ 12,773 $ 11,748
Property, plant and equipment, net . . . . . 25,024 21,678 18,221 14,493 13,698 13,142
Total assets . . . . . . . . . . . . . . . . 52,849 47,217 42,530 37,201 33,826 31,635
Long-term liabilities. . . . . . . . . . . . 2,593 3,131 3,629 4,259 4,078 4,599
Stockholders' equity . . . . . . . . . . . . 40,401 35,328 30,610 27,001 23,922 21,833
Equity per share at year end++ . . . . . . . 3.56 3.12 2.71 2.40 2.13 1.93
Sales per employee . . . . . . . . . . . . . 90 85 82 78 71 64
Weighted average shares outstanding++. . . . 11,319,723 11,311,315 11,304,776 11,259,349 11,215,338 11,286,458
15
HACH COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS:
1995 COMPARED TO 1994
Net sales were a record $105,269,000, an increase of 4.9% over 1994 net sales of
$100,369,000. The Company's domestic net sales increased 1.1% while
international net sales increased 13.2%. The domestic sales increase, due to
strong demand for the Company's chemical products, was offset by weak demand for
the Company's more expensive process instruments. The international sales
increase was due primarily to unit volume increases in most of the Company's
major product lines and, to a lesser degree, a weak U.S. dollar.
Cost of sales increased 5.0% to $51,994,000 from $49,534,000. This cost item,
composed of material, labor and product overhead, increased because of unit
volume increases. The gross margin was 50.6% of net sales for both 1995 and
1994.
Selling, general and administrative expense increased 4.7% to $32,240,000
from $30,802,000. Selling, general and administration expense for fiscal year
1994 included a one-time charge of approximately $500,000 for costs associated
with the terminated merger with Lawter International, Inc. Without these costs,
selling, general and administrative expense increased 6.4% from the prior year.
The increase was due primarily to normal wage and salary increases, costs
associated with the increased sales volume, and foreign exchange losses of
$401,000 in fiscal year 1995, compared to losses of $13,000 in fiscal year 1994.
The foreign exchange loss in 1995 was due to a weaker U.S. dollar.
Research and development expense increased 4.4% to $6,875,000 from $6,586,000.
The increase was due primarily to normal wage and salary increases.
During the fourth quarter of fiscal year 1995, the Company's management decided
to begin out-sourcing the design and manufacture of the Company's
electrochemical products. Accordingly, the Company recorded a one-time pretax
charge of $775,000 for the provision to reduce carrying value of electrochemical
assets.
Interest income increased to $661,000 from $467,000. The increase was the result
of higher average investments and higher interest rates in the current period,
along with interest received on federal income tax refunds. The refunds were
attributable to research and experimentation tax credits.
The effective income tax rate was 34.0%, compared to 34.8% in 1994. The
decrease in the effective income tax rate was due primarily to an increase in
the research and experimentation tax credit.
Net dollar sales for the Company's European subsidiary increased 6.5% to
$14,989,000 from $14,078,000, due primarily to a weaker U.S. dollar. The actual
unit sales volume was approximately the same as that of the prior year. The
operating income increased 70% to $1,619,000 from $952,000. The increase was due
primarily to lower costs for U.S. goods, brought about by the weaker U.S.
dollar.
RESULTS OF OPERATIONS:
1994 COMPARED TO 1993
Net sales were a record $100,369,000, an increase of 6.8% over 1993 net sales of
$94,001,000. The Company's domestic net sales increased 10.6% due primarily to
unit volume increases in most of the Company's major product lines.
International net sales decreased 0.8%. The decrease was due primarily to
adverse foreign exchange rate changes. Actual international unit sales volume
increased 3.3% from the prior year.
Cost of sales increased 6.2% to $49,534,000 from $46,623,000. This cost item,
composed of material, labor and product overhead, increased primarily because of
unit volume increases. The gross margin was 50.6% of net sales in 1994, compared
to 50.4% of net sales in 1993.
Selling, general and administrative expense increased 7.4% to $30,802,000 from
$28,685,000. The primary reasons for the increase were higher payroll and
payroll-related costs due to normal salary and wage increases, the recognition
of approximately $500,000 in costs associated with the previously planned merger
with Lawter International, Inc., and costs associated with the increased sales
volume. Selling, general and administrative expense as a percent of net sales
was 30.7% in 1994 compared to 30.5% in 1993. Without the merger-related costs,
selling, general and administrative expense as a percent of net sales for 1994
would have been 30.2%.
Research and development expense increased 14.5% to $6,586,000 from $5,752,000.
The increase was due to the Company's ongoing commitment to increase the number
of new products it has to offer.
Interest income increased to $467,000 from $427,000. The increase was the result
of higher average investments in the current period. Interest expense decreased
to $12,000 from $48,000. The decrease was due to the payoff of the debt. The
effective income tax rate was 34.8%, compared to 35.3% in 1993. The decrease in
the effective income tax rate was due primarily to an increase in the research
and experimentation tax credit.
Net dollar sales for the Company's European subsidiary decreased 7% to
$14,078,000 from $15,099,000 due primarily to adverse foreign exchange rate
changes. Actual unit sales volume increased 2% from the prior year. Operating
income fell 55% to $952,000 from $2,139,000. The decrease was primarily due to
higher costs for U.S. goods brought about by the stronger U.S. dollar.
CAPITAL RESOURCES AND LIQUIDITY
The Company's liquidity showed continued improvement as reflected by an increase
of $7,897,000 or 26% in working capital. Capital resources were strengthened
further as reflected by an increase of $8,831,000 or 14% in stockholders'
equity. The Company expects to continue to pay cash dividends in the future.
Company cash dividends paid in 1995, 1994 and 1993 were $1,935,000, $1,548,000,
and $1,454,000, respectively. The Company intends to continue to increase cash
dividend payments, provided long-term growth is not jeopardized.
The Company monitors cash flow and capital expenditures in great detail as part
of its total budgeting process. During fiscal year 1995 the Company spent
approximately $6,450,000 on capital equipment. During fiscal year 1996, the
Company expects to spend approximately $6,500,000 on capital equipment--
consisting primarily of production equipment and computer and peripheral
equipment to support production, research and development, and administration.
Throughout most of the world, the Company transacts business in U.S. dollars.
In Europe, the Company's foreign subsidiary, Hach Europe, transacts business
primarily in Belgium Francs. The change in the cumulative currency translation
adjustment in 1995 was due primarily to the weakening of the U.S. dollar against
the Belgium Franc.
During the year the Company's Board of Directors authorized the Company to
repurchase up to $2,000,000 in value of the Company's common stock. As of April
30, 1995, the Company has repurchased approximately 31,000 shares at an average
cost of $14.40 per share. The Company intends to finance its capital projects,
working capital needs and stock buy-back through existing cash and cash
equivalents, short-term investments and projected cash flow from operations.
16
HACH COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
EFFECTS OF INFLATION ON THE COMPANY
The Company is affected by inflation to about the same degree as other American
companies. The Company sells a great variety of products and has a relatively
small order size and short production runs. This causes a higher ratio of
support or overhead personnel in the factory, research and selling functions.
Thus, the impact of wage increases is somewhat greater than what would be
typical. As the rate of inflation has declined in recent years, the impact of
inflation on the Company has lessened. However, inflation continues to increase
costs to the Company, including the costs of material, labor and overhead.
HACH COMPANY AND SUBSIDIARIES
DESCRIPTION OF BUSINESS
GENERAL NATURE AND SCOPE OF BUSINESS
Hach Company is engaged predominantly in a single industry segment encompassing
laboratory instruments, process analyzers and test kits which are used to
analyze the chemical content and other properties of water and other aqueous
solutions. This segment encompasses the analytical reagents and chemicals
manufactured and sold by the Company. The Company manufactures and sells a small
amount of chemicals for uses not associated with the Company's analytical
systems for water analysis.
Sales by Principal Product Group
(PERCENT OF NET SALES) 1995 1994 1993
- --------------------------------------------------------------------------------
Analytical Reagents and Chemicals 31.3% 30.5% 30.4%
Laboratory and Portable Instruments 29.1% 28.9% 29.6%
Continuous Reading Process Analyzers 16.6% 19.3% 17.8%
Portable Test Kits and Replacements 13.7% 12.2% 12.2%
Other 9.3% 9.1% 10.0%
- --------------------------------------------------------------------------------
Total 100% 100% 100%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Analytical reagents and chemicals are manufactured and sold to support the Hach
testing systems of laboratory and portable instruments, process analyzers and
portable test kits. More stringent water quality standards and a worldwide
direction toward better control of processes--exhibited by ISO (International
Organization for Standardization) 9000 registration of many industrial
companies--drive the demand for the Company's products and their continued use.
Laboratory and portable instruments consist of Hach-manufactured analytical
instruments in the following categories: spectrophotometers and colorimeters,
turbidimeters, pH and ISE meters, pH electrodes, Ion Selective Electrodes, DO
(dissolved oxygen) meters, COD (chemical oxygen demand) apparatus, digestion
apparatus, conductivity meters, and precision reagent-dispensing devices. These
products are sold to municipal water and wastewater utilities, chemical
manufacturers, industrial water conditioning firms and organizations, power
utilities, commercial analytical laboratories, and government agencies for the
testing and monitoring of controlled impurities in water systems.
Continuous-reading process analyzers consist of Hach-manufactured products in
the following categories: colorimetric analyzers, process turbidimeters, pH
controllers, and analyzer accessories. These products are sold to municipalities
for monitoring and controlling drinking water quality and to ensure that
wastewater treatment procedures comply with government regulations.
Steam-generating plants, including operations at electrical utilities,
petrochemical processors, heavy industry installations, and pulp and paper
factories, use the Company's continuous-reading process analyzers for on-line
monitoring of cooling-tower and boiler-feedwater quality. The micro-electronics
industry uses the Company's trace silica analyzers to monitor ultrapure water
systems used in processing electronic components.
Hach offers more than 200 different test kits for 12 different application areas
ranging from agriculture to water quality. These portable test kits are
recognized worldwide for ease of use, innovative chemistry, field-oriented
design and rugged construction. Test kits are sold to municipalities for use in
monitoring drinking water distribution systems; to conservation groups to
monitor for influences impacting the environment; to educators for use in
teaching environmental awareness; to customers monitoring industrial processes;
to the water-conditioning industry to use in testing water quality; and to
environmental regulatory authorities for use in checking compliance
requirements.
No material part of the business of the Company is dependent upon a single
product or any customer or a small group of customers.
DISTRIBUTION
Hach Company sells its analytical systems throughout the United States by direct
marketing. The Company has Regional Sales Managers located across the country
and responsive telemarketing Customer Service Representatives in the Loveland
facility selling its products. The Company directly distributes products to
customers in the United States through a modern distribution facility in Ames,
Iowa.
Independent distributors and sales representatives, who frequently handle
complementary and/or competitive product lines, are used to sell and distribute
the Company's products to international customers. Customers in Canada are
supported directly by a sales and service office in Winnipeg, Manitoba.
Hach Company operates a facility in Namur, Belgium, for marketing and the
distribution of its products to the European market. The Namur facility
primarily services the Company's European independent distributors and, to a
lesser extent, distributors and sales agents in Mediterranean Africa, and the
Middle East.
AVAILABILITY OF MATERIALS
The Company has developed close working relationships with many of its key
vendors to assure an adequate and continuous supply of materials for the
Company's products. There are some unique components that would cause temporary
stoppage of specific products if these components were not available. However,
since the Company could obtain alternate sources of supply after a reasonable
period of time, the temporary stoppage would not have a material adverse effect
on the Company.
17
HACH COMPANY AND SUBSIDIARIES
DESCRIPTION OF BUSINESS (CONTINUED)
COMPETITION
The Company competes domestically with a fairly large number of companies. These
companies range in size from a few which are larger than Hach and sell,
primarily, laboratory and portable instruments, to numerous smaller companies
which sell products competitive with only a few of Hach's products. The Company
is not aware of any company which competes with it across the full range of
products sold by it or which competes with it in all major product lines.
Different competitive factors are of greater or lesser importance with respect
to each of the Company's product lines although, overall, technical
sophistication, reliability, quality, relative ease of operation and price
probably are most important. The Company believes that it has no competitive
disadvantages with respect to any of these factors. In many instances the
Company has a competitive advantage due to the relative ease with which
individuals without technical backgrounds can use the Company's products to
perform analyses. Hach Company's competition in international markets is
comparable to its competition in domestic markets. However, the international
competition, particularly from Europe, appears to be growing more aggressive and
competes across a broader range of products.
RESEARCH
During fiscal 1995, 1994 and 1993, the Company spent $6,875,000, $6,586,000 and
$5,752,000, respectively, on Company-sponsored research and development
activities.
PATENTS
The Company owns a number of patents. While the company regards its patents as
valuable, it does not consider any of its business materially dependent upon any
single patent.
BACKLOG
The dollar amounts of backlogged orders at May 26, 1995 and May 27, 1994 were
$4,134,000 and $3,454,000, respectively. During the current fiscal year the
Company expects to fill all of the orders which were backlogged at May 26, 1995.
EMPLOYEES
At April 30, 1995, the Company employed approximately 880 people. The Company is
not a party to any collective bargaining agreements.
HACH COMPANY AND SUBSIDIARIES
COMMON STOCK PRICE RANGE AND DIVIDENDS
CASH
FISCAL SALE DIVIDENDS
YEAR QUARTER HIGH LOW PER SHARE
- --------------------------------------------------------------------------------
1995 Fourth . . . . . . . . . . 16 14 1/2 .05
Third. . . . . . . . . . . 15 3/4 12 3/4 .04
Second . . . . . . . . . . 16 13 1/4 .04
First. . . . . . . . . . . 16 1/4 13 5/8 .04
1994* Fourth . . . . . . . . . . 17 14 1/2 .04
Third. . . . . . . . . . . 17 1/4 13 1/2 .032
Second . . . . . . . . . . 18 16 1/2 .032
First. . . . . . . . . . . 21 1/4 14 3/4 .032
<FN>
*All share and per-share amounts have been restated to give effect to the
five-for-four stock split in April 1994.
The Company's Common Stock is traded in the over-the-counter market and is
quoted on the National Association of Securities Dealers Automated Quotation
System (NASDAQ) under the symbol HACH. The preceding table sets forth the daily
high and low last sales prices for the Company's Common Stock for the periods
indicated, as reported in the WALL STREET JOURNAL, together with the amounts of
dividends paid for the fiscal years ended April 30, 1995 and 1994. These prices
represent quotations between dealers in securities, do not include retail
markdowns or commissions, and do not necessarily represent "actual
transactions." The current quoted price of the stock is listed daily in the WALL
STREET JOURNAL in the NASDAQ National Market System section. On April 30, 1995,
there were 865 holders of record of the Company's Common Stock.
18
HACH COMPANY AND SUBSIDIARIES
MANAGEMENT'S REPORT AND REPORT OF INDEPENDENT ACCOUNTANTS
Stockholders of Hach Company:
The information presented in this Annual Report was prepared by your Company's
management. The financial statements were prepared in accordance with generally
accepted accounting principles applied on a consistent basis. These principles
require choices among alternatives and numerous estimates of financial matters.
We believe that the accounting principles chosen are appropriate in the
circumstances and the estimates and judgments involved in Hach's financial
reporting are reasonable and conservative. All other financial and operating
data included in this Annual Report are presented to provide information we
believe useful to investors.
Management recognizes its responsibility for the integrity and objectivity of
the information presented. To meet this responsibility, management maintains a
system of internal accounting controls designed to provide reasonable assurance
that the financial reports are fairly presented and that our employees comply
with our stated policies and procedures, including policies on the ethical
conduct of business.
The Audit Committee recommended and the Board of Directors approved the
appointment of Coopers & Lybrand L.L.P. as independent auditor for the Company.
The Coopers & Lybrand L.L.P. report on the financial statements is presented in
this Annual Report.
Audit and related activities of Coopers & Lybrand L.L.P. are conducted
throughout the year for the purposes of the annual audit and limited reviews of
interim financial statements. The audit of the financial statements is conducted
in accordance with generally accepted auditing standards and includes tests of
internal controls and accounting records as deemed necessary.
The Audit Committee of the Board of Directors, which is composed solely of
outside directors, performs an oversight role relating to Hach's public
financial reporting. The Audit Committee meets at least two times a year with
management and Coopers & Lybrand L.L.P., both privately and collectively, to
discuss internal accounting control and financial reporting matters. Coopers &
Lybrand L.L.P. has access to the Audit Committee to discuss any matter.
KATHRYN HACH-DARROW
Chairman of the Board
GARY R. DREHER
Vice President and
Chief Financial Officer
To the Stockholders and Board of Directors of Hach Company:
We have audited the accompanying consolidated balance sheets of Hach Company and
Subsidiaries as of April 30, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended April 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Hach
Company and Subsidiaries as of April 30, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended April 30, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1994.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
June 8, 1995
19
HACH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED APRIL 30, 1995, 1994 AND 1993
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $105,269 $100,369 $94,001
Cost of sales 51,994 49,534 46,623
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 53,275 50,835 47,378
Selling, general and administrative expense 32,240 30,802 28,685
Research and development expense 6,875 6,586 5,752
Provision to reduce carrying value of electrochemical assets 775 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Income from operations 13,385 13,447 12,941
Interest income 661 467 427
Interest expense (1) (12) (48)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of accounting change 14,045 13,902 13,320
Income tax expense 4,775 4,842 4,700
- ------------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 9,270 9,060 8,620
Cumulative effect of change in accounting for income taxes -- 448 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $9,270 $9,508 $8,620
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net income per common share:
Before cumulative effect of accounting change $0.81 $0.80 $0.76
Cumulative effect of change in accounting for income taxes -- 0.04 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $0.81 $0.84 $0.76
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 11,385,355 11,385,793 11,361,958
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
20
HACH COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1995 AND 1994
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
1995 1994
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $13,050 $ 9,037
Marketable securities, held to maturity 3,925 1,568
Accounts receivable, less reserves of $247 and $167, respectively 16,336 15,943
Inventories, net 11,731 11,574
Deferred tax assets and other current assets 4,414 2,357
- -------------------------------------------------------------------------------------------------------------------
Total current assets 49,456 40,479
- -------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost:
Buildings and improvements 23,387 21,513
Machinery and equipment 42,305 38,861
- -------------------------------------------------------------------------------------------------------------------
65,692 60,374
Less: allowance for depreciation and amortization 37,586 32,478
- -------------------------------------------------------------------------------------------------------------------
28,106 27,896
Land 1,022 1,007
- -------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 29,128 28,903
- -------------------------------------------------------------------------------------------------------------------
Marketable securities, held to maturity 4,385 4,260
Other assets 1,289 716
- -------------------------------------------------------------------------------------------------------------------
Total assets $84,258 $74,358
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES
Current liabilities:
Accounts payable $ 2,835 $ 2,450
Accrued liabilities:
Compensation 381 347
Compensated absences 3,487 3,303
Profit sharing 2,435 2,547
Property taxes 485 270
Other 1,237 863
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 10,860 9,780
- -------------------------------------------------------------------------------------------------------------------
Deferred income taxes 2,070 2,081
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 12,930 11,861
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 5)
STOCKHOLDERS' EQUITY
Common stock, $1 par value; authorized 40,000,000 shares; issued 11,622,953 shares 11,623 11,623
Capital contributed in excess of par value of common stock 148 31
Retained earnings 58,425 51,090
Cumulative currency translation adjustment 2,405 497
- -------------------------------------------------------------------------------------------------------------------
72,601 63,241
Less: shares held in treasury, at cost (246,479 in 1995 and 227,687 in 1994) (1,273) (744)
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 71,328 62,497
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $84,258 $74,358
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
21
HACH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1995, 1994 AND 1993
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
Common Capital Retained Cumulative Shares held Total
stock, $1 contributed in earnings currency in treasury, stockholders'
par value excess of par translation at cost equity
value of adjustment
common stock
- ------------------------------------------------------------------------------------------------------------------------------------
Balance April 30, 1992 $ 9,298 $ 0 $38,021 $692 $(710) $47,301
Net income -- -- 8,620 -- -- 8,620
Cash dividends, $.128 per share -- -- (1,454) -- -- (1,454)
Stock options exercised, net -- 143 -- -- (39) 104
Foreign currency
translation adjustment -- -- -- 80 -- 80
- ------------------------------------------------------------------------------------------------------------------------------------
Balance April 30, 1993 $ 9,298 $ 143 $45,187 $772 $(749) $54,651
Net income -- -- 9,508 -- -- 9,508
Cash dividends, $.136 per share -- -- (1,548) -- -- (1,548)
Five-for-four stock split 2,325 (268) (2,057) -- -- --
Purchase of treasury
stock (339 shares), net -- -- -- -- (6) (6)
Stock options exercised, net -- 156 -- -- 11 167
Foreign currency
translation adjustment -- -- -- (275) -- (275)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance April 30, 1994 $11,623 $ 31 $51,090 $497 $(744) $62,497
Net income -- -- 9,270 -- -- 9,270
Cash dividends, $.17 per share -- -- (1,935) -- -- (1,935)
Purchase of treasury
stock (30,922 shares), net -- -- -- -- (445) (445)
Stock options exercised, net -- 117 -- -- (84) 33
Foreign currency
translation adjustment -- -- -- 1,908 -- 1,908
- ------------------------------------------------------------------------------------------------------------------------------------
Balance April 30, 1995 $11,623 $ 148 $58,425 $2,405 $(1,273) $71,328
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
22
HACH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 1995, 1994 AND 1993
(THOUSANDS OF DOLLARS)
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 9,270 $ 9,508 $ 8,620
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,769 5,704 5,279
Provision (benefit) for deferred income taxes (559) (165) 253
Loss on disposal of equipment 177 112 90
Provision to reduce carrying value of electrochemical assets 775 -- --
(Increase) in accounts receivable (393) (1,198) (1,476)
(Increase) decrease in inventories (362) (841) 371
(Increase) decrease in deferred tax assets
and other current assets (1,509) 877 (509)
Increase (decrease) in accounts payable 385 (707) (960)
Increase (decrease) in accrued liabilities 695 509 (720)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 14,248 13,799 10,948
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of equipment 62 61 65
Capital expenditures (6,445) (5,553) (6,591)
Purchases of investments held-to-maturity (4,723) (4,514) (2,780)
Proceeds from maturities of short-term investments 2,241 1,517 1,892
(Increase) in other assets (573) (92) (57)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (9,438) (8,581) (7,471)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Payments on long-term debt -- (100) (450)
Payments on capital lease obligations (6) (14) (121)
Dividends paid (1,935) (1,548) (1,454)
Purchases of treasury stock (445) -- --
Exercise of stock options 33 167 104
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (2,353) (1,495) (1,921)
Effects of exchange rate changes 1,556 (220) 61
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 4,013 3,503 1,617
Cash and cash equivalents at the beginning of the year 9,037 5,534 3,917
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $13,050 $ 9,037 $ 5,534
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 6,422 $ 4,283 $ 5,133
The accompanying notes are an integral part of the consolidated financial
statements.
23
HACH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
account balances have been eliminated in consolidation.
Certain amounts in the financial statements for prior years have been
reclassified to conform with the current year's presentation.
CASH EQUIVALENTS AND CONCENTRATIONS OF CREDIT RISK
Cash and cash equivalents include currency on hand, demand deposits with banks
or other financial institutions, and other highly liquid securities purchased
with a maturity of three months or less. Financial instruments which
potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents. The Company places its cash
equivalents with high-credit-quality financial institutions.
The Company's concentration of credit risk with respect to accounts receivable
is limited due to a large customer base and its geographic dispersion.
INVESTMENTS
The Company uses the amortized cost method of accounting for investments in
held-to-maturity debt securities for which it has the positive intent and
ability to hold to maturity. Of these securities, $3,925,000 have contracted
maturities within one year, and $4,385,000 within one to five years.
INVENTORIES
Inventories are valued at the lower of cost or market. The cost of United States
inventories is based on the last-in, first-out (LIFO) method; all other
inventories are based on the average cost method.
PROPERTY, PLANT AND EQUIPMENT
The property, plant and equipment are stated at cost. Depreciation and
amortization are computed by using the straight-line method based on estimated
useful lives of the related assets or the lease term. Estimated useful lives
range from three to 30 years.
Maintenance and repairs are charged to expense as incurred while major renewals
and improvements are capitalized.
The cost and related allowances for depreciation of assets sold or otherwise
disposed of are deducted from the related accounts and resulting gains or losses
are reflected in operations.
INCOME TAXES
Effective May 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (FAS 109) Accounting for Income Taxes. The adoption of FAS 109
changed the Company's method of accounting for income taxes from the deferred
method (APB 11) to an asset and liability approach. Previously the Company
deferred the past tax effects of timing differences between financial reporting
and taxable income. The asset and liability approach requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of those
assets and liabilities.
FOREIGN CURRENCY TRANSLATION
Foreign asset and liability accounts are converted into U.S. dollars using the
exchange rate in effect at the end of the year, and revenue and expense accounts
are converted at the average exchange rate in effect during the year.
Unrealized gains and losses are recognized as an adjustment of stockholders'
equity; realized gains and losses are recognized in the statement of income.
The Company's European subsidiary enters into foreign exchange forward contracts
in an attempt to mitigate risk of currency fluctuations on a portion of the
anticipated inventory purchases to be made from Hach Company. As of April 30,
1995, the Company had several forward contracts to sell Belgium Francs in
exchange for $3.5 million, maturing up through November 1995. Gains and losses
on these contracts are included in the determination of net income.
REVENUE RECOGNITION
The Company sells a large number of different tangible products and the average
size of a customer order is relatively small. Revenue is recognized upon
shipment of products to customers. Customers purchasing products from the
Company may return the products within a 30-day period if they are not
satisfied. Estimated returns are charged against earnings in the period the
original sale occurred.
The Company does not warrant products for an extended period of time. Warranty
claims historically have been minor. Known warranty claims are accrued in the
period they become known.
EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of shares
outstanding during each year. Stock options outstanding do not have a material
dilutive effect on earnings per share. Shares used in computing per share
amounts give a retroactive effect in all periods to the stock splits described
in Note 4.
2. INVENTORIES
Components of inventory at April 30 were:
(THOUSANDS OF DOLLARS)
1995 1994
- -------------------------------------------------------------------------------
Raw materials and purchased parts $ 2,832 $ 2,846
Work in process 1,785 1,492
Finished goods 6,635 6,851
Resale 479 385
- -------------------------------------------------------------------------------
Inventories, net $11,731 $11,574
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Inventory valuation allowances at April 30, 1995, 1994 and 1993 were $505,000,
$203,000 and $329,000, respectively.
Management believes the LIFO method, which results in better matching of current
costs with current revenues, minimizes inflation-induced inventory profits and
thus more clearly reflects the results of operations. The cost of United States
inventories stated under the LIFO method for 1995 and 1994 was approximately 80%
of the value of total inventories.
For purposes of comparison to companies not utilizing the LIFO method, the
following information is presented. If all inventories had been determined using
the current replacement cost at April 30, 1995 and 1994, reported inventories
would have been $2,667,000 and $2,342,000 higher, respectively. Reported net
income would have been $208,000 ($.02 per common share) higher for fiscal 1995,
$113,000 ($.01 per common share) lower for fiscal 1994, and $247,000 ($.02 per
common share) higher for fiscal year 1993. The impact on reported net income
utilizing LIFO, as opposed to the current replacement cost method, has been
computed by taking the change from year to year in the difference between the
inventory valuation under LIFO and the inventory valuation under current
replacement costs and tax affecting such difference by 36% in 1995, 1994 and
1993, the approximate incremental tax rate for each year.
24
3. INCOME TAXES
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109), as of the beginning
of fiscal year 1994. The Company previously accounted for income taxes under APB
No. 11. As permitted under the new rules, the Company elected to report the
cumulative effect of the change in the method of accounting for its income taxes
as of the beginning of the 1994 fiscal year in the consolidated statements of
income in lieu of restating prior year financial statements. The cumulative
effect of the change was a benefit of $448,000, or $.04 per share.
Income before income tax expense consisted of the following:
(THOUSANDS OF DOLLARS)
1995 1994 1993
- --------------------------------------------------------------------------------
Income before income taxes:
Domestic $12,352 $12,836 $11,108
Foreign 1,693 1,066 2,212
- --------------------------------------------------------------------------------
$14,045 $13,902 $13,320
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Income tax expense:
Current:
Federal $ 4,045 $ 3,819 $ 2,961
State 606 553 448
Foreign 683 406 857
- --------------------------------------------------------------------------------
5,334 4,778 4,266
Deferred:
Federal $ (496) 27 434
State (69) 7 --
Foreign 6 30 --
- --------------------------------------------------------------------------------
(559) 64 434
Total $ 4,775 $ 4,842 $ 4,700
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Components of the 1995 net deferred tax asset and the 1994 net deferred tax
liability resulting from differences in book and tax accounting methods are as
follows:
Net Deferred Tax Asset and Liability (THOUSANDS OF DOLLARS)
1995 1994
- --------------------------------------------------------------------------------
Deferred tax assets:
Vacation pay 1,055 1,016
Inventory capitalization 484 462
Write-off of electrochemical assets 233 --
Deferred compensation 208 152
Intercompany profits 117 141
Marketable securities 75 --
Inventory reserves 61 9
Employee benefit plans 53 --
Other 114 93
- --------------------------------------------------------------------------------
Total deferred tax assets 2,400 1,873
Deferred tax liabilities:
Accelerated depreciation $ 1,998 $ 2,015
Foreign deferrals 95 89
Employee benefit plans -- 22
- --------------------------------------------------------------------------------
Total deferred tax liabilities 2,093 2,126
Net deferred tax asset (liability) $ 307 $ (253)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Current deferred income tax asset 2,377 1,828
Noncurrent deferred income tax liability $ 2,070 $ 2,081
- --------------------------------------------------------------------------------
Net deferred tax asset (liability) $ 307 $ (253)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Company believes, based upon past earnings and the forecast of future
earnings, that as of April 30, 1995 all of the deferred tax assets will be
realized. Accordingly, no valuation allowance has been provided.
Components of the provision for deferred income taxes for 1993 (a disclosure
required under APB No.11 tax accounting but not under SFAS No. 109 tax
accounting) are as follows:
DEFERRED TAX EXPENSE (THOUSANDS OF DOLLARS)
1993
- --------------------------------------------------------------------------------
Accelerated depreciation $ 206
Employee benefit plans 100
Inventory reserves 72
Intercompany profits 29
Vacation pay (95)
Other 122
- --------------------------------------------------------------------------------
$ 434
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Effective tax rates on income before income taxes for the years ended April 30,
1995, 1994 and 1993 were 34%, 35% and 35%, respectively. Differences from
applying the statutory Federal corporate income tax rate to income before income
taxes are due to the following:
(THOUSANDS OF DOLLARS)
1995 1994 1993
- --------------------------------------------------------------------------------
Computed statutory expense $4,775 $4,727 $4,529
State income tax, net 386 361 296
Prior year's tax accrual adjustment 284 -- --
Difference between U.S.
statutory rates and foreign
effective rates 114 74 105
Foreign sales corporation (95) (90) (102)
Current year's tax credits, net (185) (158) (6)
Prior year's amended tax
credits, net (418) -- --
Other, net (86) (72) (122)
- --------------------------------------------------------------------------------
$4,775 $4,842 $4,700
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Undistributed earnings intended to be reinvested indefinitely by the foreign
subsidiaries totaled $6,500,000 at April 30, 1995. These earnings would become
taxable upon the sale or liquidation of the foreign subsidiaries or upon the
remittance of dividends. The determination of the deferred tax liability
related to these undistributed earnings is not practicable and, accordingly, no
U.S. deferred income tax has been recorded.
4. COMMON STOCK
In April 1994, the Company effected a five-for-four stock split in the form of a
25% stock dividend. Capital contributed in excess of par value of common stock
and retained earnings has been charged and common stock has been credited for
the par value of the 2,324,591 shares issued in connection with the split based
upon those outstanding shares at March 18, 1994.
In June 1992, the Company effected a three-for-two stock split in the form of a
50% stock dividend. As of April 30, 1992, capital contributed in excess of par
value of common stock and retained earnings has been charged and common stock
has been credited for the par value of the 3,099,454 shares issued in connection
with the split based upon those outstanding shares at May 14, 1992.
All per-share figures and common stock amounts in the consolidated financial
statements and notes to consolidated financial statements have been restated to
give effect to these stock splits.
25
5. EMPLOYEE BENEFITS
The Company has an employee profit-sharing plan covering substantially all
regular employees of the Company with the maximum contribution limited to the
amount allowable for federal tax purposes. Each year the Company's Board of
Directors approves an amount the Company will contribute to the plan. The
Company's annual contributions under the Plan were $1,967,000 in 1995;
$1,941,000 in 1994 and $1,489,000 in 1993.
The Company has an Employee Stock Ownership Plan (ESOP) which is a
noncontributory plan established to acquire shares of the Company's common stock
for the benefit of all eligible employees. The Company accounts for the ESOP
under Employers' Accounting for Employee Stock Ownership Plans (SOP 93-6). Each
year the Company's Board of Directors approves an amount the Company will
contribute to the plan. The Company contributions to the Plan were $650,000 in
1995, $649,000 in 1994 and $993,000 in 1993. ESOP stock purchases are made
from the open market. As of April 30, 1995, all shares in the ESOP plan were
allocated to participants.
The Company periodically grants certain officers and key employees incentive
stock options to purchase common stock. Under the 1993 Plan, 625,000 shares of
the Company's common stock have been reserved for option at a price not less
than the market price on the date of grant. Options granted under the plan may
not be exercised until one year after the date of grant. Options are exercisable
in installments on a cumulative basis beginning in the second year after grant
and expiring not later than ten years from the date of grant. At April 30, 1995,
a total of 493,750 shares was available for future grants under the 1993 plan.
Options outstanding at April 30, 1995 include options granted under the
Company's previous stock option plan.
A summary of stock option information follows:
Number of Price per Shares
shares share exercisable
- --------------------------------------------------------------------------------
April 30, 1992 110,988 $8.96 23,487
Granted 118,125 21.80
Exercised (23,003) 8.96
Cancelled -- --
- --------------------------------------------------------------------------------
April 30, 1993 206,110 8.96--21.80 44,235
Granted 131,250 16.20
Exercised (26,713) 8.96
Cancelled (7,344) 8.96
- --------------------------------------------------------------------------------
April 30, 1994 303,303 8.96--21.80 96,632
Granted -- -- --
Exercised (25,101) 8.96
Cancelled -- -- --
- --------------------------------------------------------------------------------
April 30, 1995 278,202 $8.96 - 21.80 152,992
- --------------------------------------------------------------------------------
The Company has employment agreements with seven of its officers which come into
effect only upon a change in control of the Company (as defined), and thereafter
provide for continued employment of such individuals for a three-year term at an
annual compensation rate (aggregate of approximately $2,250,000), and with such
employment benefits as in effect at the time of the commencement of the
employment period.
On April 24, 1995, the Board of Directors, subject to stockholders' approval at
the August 29, 1995 annual meeting, approved the Hach Company Employee Stock
Purchase Plan. Under the plan, the Company has reserved and may issue up to an
aggregate of 500,000 shares of common stock in semi-annual offerings over a
five-year period. Stock will be sold at 85% of fair market value, as defined in
the plan.
6. SEGMENT INFORMATION
The Company operates primarily in a single industry segment encompassing
laboratory instruments, process analyzers and test kits which analyze the
chemical content and other properties of water and other aqueous solutions.
This segment also encompasses the chemicals manufactured and sold by the
Company, most of which are used with the instruments and test kits manufactured
by the Company.
Sales for the Company's European subsidiary are made to European dealers and to
customers in the Middle East and Mediterranean Africa in Belgium francs and U.S.
dollars, respectively. Payments from the European subsidiary to the U.S. parent
are made in U.S. dollars and are subject to the exchange rate in effect at the
time of payment. Export transactions made to all other parts of the world by
the international staff based in Loveland, Colorado, are conducted primarily in
U.S. dollars.
The amount of sales made into the international marketplace is influenced to
some degree by the strength of the U.S. dollar against other currencies. Other
conditions which to some extent affect the sales of the Company's products in
international markets include restrictive tariff and trade policies imposed by
foreign countries, and domestic and foreign tax and economic policies.
The following table summarizes certain financial information by geographic
segments:
26
HACH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEOGRAPHIC SEGMENT INFORMATION
(thousands of dollars) 1995 1994 1993
- --------------------------------------------------------------------------------
Net Sales to Unaffiliated Customers:
United States:
Domestic $ 69,867 $ 69,100 $ 62,497
- --------------------------------------------------------------------------------
Export:
Canada 3,951 3,724 3,678
Asia 7,414 6,077 5,874
Australia/Oceania 1,212 1,134 828
Mexico/Central America/Caribbean 2,924 2,804 2,885
South America 3,023 2,133 1,809
Other 1,889 1,319 1,331
- --------------------------------------------------------------------------------
20,413 17,191 16,405
- --------------------------------------------------------------------------------
90,280 86,291 78,902
Europe 14,989 14,078 15,099
- --------------------------------------------------------------------------------
105,269 100,369 94,001
- --------------------------------------------------------------------------------
Net Sales to European Subsidiaries:
United States 8,310 9,868 8,497
Eliminations (8,310) (9,868) (8,497)
- --------------------------------------------------------------------------------
$ 105,269 $ 100,369 $ 94,001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Income from Operations:
United States $ 11,766 $ 12,495 $ 10,802
Europe 1,619 952 2,139
- --------------------------------------------------------------------------------
$ 13,385 $ 13,447 $ 12,941
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Identifiable Assets:
United States $ 48,795 $ 48,383 $ 47,276
Europe 8,401 8,036 7,472
- --------------------------------------------------------------------------------
57,196 56,419 54,748
Corporate Assets 27,062 17,939 12,223
- --------------------------------------------------------------------------------
$ 84,258 $ 74,358 $ 66,971
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. UNAUDITED SUMMARY OF QUARTERLY FINANCIAL INFORMATION
(THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
Fiscal Year 1995:
Net sales $25,072 $26,082 $25,953 $28,162
Gross profit 12,761 13,265 13,177 14,072
Net income 2,250 2,425 2,285 2,310*
Net income per common share 0.20 0.21 0.20 0.20*
Fiscal Year 1994:
Net sales $24,847 $24,773 $23,290 $27,459
Gross profit 12,488 12,854 11,831 13,662
Net income 2,793+ 2,095 1,825 2,795
Net income per common share 0.25+ 0.18 0.16 0.25
<FN>
*Includes a one-time pretax charge of $775,000 or $.05 per share after tax for
provision to reduce the carrying value of electrochemical assets.
+Includes income of $448,000 or $.04 per share for the cumulative effect of a
change in accounting for income taxes.
27