1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Period Ended FEBRUARY 28, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Transition Period From _________________ to _________________.
COMMISSION FILE NUMBER 0 -25068 .
HASKEL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-4107640
(State or other jurisdiction (IRS Employer
incorporation or organization) Identification No.)
100 EAST GRAHAM PLACE
BURBANK, CALIFORNIA 91502
(Address of principal executive offices) (Zip Code)
(818) 843 - 4000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, address and former fiscal year, if changed since last report)
Indicated 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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]. No [ ].
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceeding Five Years
Indicated by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes [ ]. No [ ].
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
AS OF APRIL 6, 1998 THE REGISTRANT HAD 4,759,205 SHARES OF
CLASS A COMMON STOCK, AND 40,000 SHARES OF
CLASS B COMMON STOCK OUTSTANDING.
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INDEX
HASKEL INTERNATIONAL, INC.
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - May 31, 1997 and February 28, 1998.......................... 3
Consolidated statements of operations - Three months ended February 28, 1997 and 1998;
Nine months ended February 28, 1997 and 1998.......................................... 5
Consolidated statements of cash flows - Nine months ended February 28, 1997 and 1998...... 6
Notes to consolidated financial statements - February 28, 1998............................ 7
Item 2. Management's discussion and analysis of financial condition and results of
operations............................................................................ 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................................... 13
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3
HASKEL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
May 31, February 28,
1997 1998
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,490,000 $ 7,998,000
Accounts receivable, net 11,751,000 11,799,000
Inventories 10,335,000 11,062,000
Prepaid expenses and other current assets 942,000 597,000
Deferred income taxes 1,419,000 1,415,000
----------- -----------
TOTAL CURRENT ASSETS 32,937,000 32,871,000
PROPERTY, PLANT & EQUIPMENT, Net 5,376,000 5,354,000
GOODWILL, Net 698,000 941,000
DEFERRED INCOME TAXES 2,156,000 2,131,000
OTHER ASSETS 65,000 229,000
----------- -----------
TOTAL $41,232,000 $41,526,000
=========== ===========
See notes to consolidated financial statements.
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HASKEL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
May 31, February 28,
1997 1998
------------ ------------
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 978,000 $ 997,000
Accounts payable 4,070,000 3,476,000
Dividends payable 335,000 334,000
Accrued liabilities 3,249,000 1,909,000
Income taxes payable 210,000 787,000
------------ ------------
TOTAL CURRENT LIABILITIES 8,842,000 7,503,000
LONG-TERM DEBT 1,401,000 666,000
OTHER ACCRUED LIABILITIES 2,322,000 2,308,000
COMMITMENTS & CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock: 2,000,000 shares authorized;
none issued and outstanding
Common Stock:
Class A, without par value; 20,000,000 shares authorized;
4,748,230 and 4,736,205 issued and outstanding at
May 31, 1997 and February 28, 1998, respectively 13,855,000 13,792,000
Class B, without par value; 40,000 shares
authorized, issued and outstanding at
May 31, 1997 and February 28, 1998 19,000 19,000
Retained Earnings 14,733,000 17,330,000
Cumulative foreign currency translation adjustment 60,000 (92,000)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 28,667,000 31,049,000
------------ ------------
TOTAL $ 41,232,000 $ 41,526,000
============ ============
See notes to consolidated financial statements.
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HASKEL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
February 28, February 28, February 28, February 28,
1997 1998 1997 1998
------------ ------------ ------------ ------------
SALES $ 12,401,000 $ 14,175,000 $ 37,626,000 $ 39,025,000
COST OF SALES 6,670,000 8,086,000 20,373,000 20,838,000
------------ ------------ ------------ ------------
GROSS PROFIT 5,731,000 6,089,000 17,253,000 18,187,000
EXPENSES:
Selling 1,938,000 1,927,000 5,877,000 6,063,000
General and administrative 1,842,000 1,961,000 4,928,000 5,625,000
Engineering design, research and development 292,000 309,000 777,000 936,000
------------ ------------ ------------ ------------
Total 4,072,000 4,197,000 11,582,000 12,624,000
------------ ------------ ------------ ------------
OPERATING INCOME 1,659,000 1,892,000 5,671,000 5,563,000
OTHER INCOME 104,000 73,000 202,000 204,000
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,763,000 1,965,000 5,873,000 5,767,000
PROVISION FOR INCOME TAXES 727,000 776,000 2,294,000 2,233,000
------------ ------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS 1,036,000 1,189,000 3,579,000 3,534,000
DISCONTINUED OPERATIONS:
Loss from operations, less applicable
income taxes (529,000)
Gain (loss) on disposal of segment (5,406,000) 346,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 1,036,000 $ 1,189,000 $ (2,356,000) $ 3,880,000
============ ============ ============ ============
See notes to consolidated financial statements.
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HASKEL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
-----------------------------
February 28, February 28,
1997 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by continuing operations $ 3,220,000 $ 2,479,000
Net cash used in discontinued operations (334,000) (348,000)
----------- -----------
Net cash provided by operating activities 2,886,000 2,131,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,255,000) (1,167,000)
Proceeds from sale of property 71,000 279,000
Purchase of subsidiary (net of cash acquired) (1,172,000) (13,000)
----------- -----------
Net cash used in investing activities (2,356,000) (901,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (767,000) (750,000)
Proceeds from issuance of common stock 22,000 188,000
Dividends declared (994,000) (1,001,000)
----------- -----------
Net cash used in financing activities (1,739,000) (1,563,000)
----------- -----------
EFFECT OF EXCHANGE RATE ON
CASH AND CASH EQUIVALENTS 107,000 (159,000)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,102,000) (492,000)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 8,239,000 8,490,000
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 7,137,000 $ 7,998,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest -
Continuing operations $ 23,000 $ 111,000
=========== ===========
Discontinued operations $ 132,000 $ 8,000
=========== ===========
Income taxes $ 1,720,000 $ 1,750,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES -
In September 1997, the Company sold its electronic products business in
exchange for 35,000 shares of the Company's stock (valued at $534,000)
and a note receivable in the amount of $159,000.
On June 3, 1996, the Company's foreign subsidiary, Haskel Energy Systems,
Limited ("HESL"), acquired all of the outstanding stock of Hydraulic
Mobile Equipment Limited ("HME") for $851,000 ($814,000 in cash and
$37,000 in acquisition costs) plus liabilities.
Fair value of assets acquired $ 1,067,000
Cash paid (851,000)
-----------
Liabilities assumed $ 216,000
===========
See notes to consolidated financial statements.
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PART I. FINANCIAL INFORMATION
HASKEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (which
comprise only normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the period ended February
28, 1998 are not necessarily indicative of the results that may be expected for
the year ending May 30, 1998. For further information, refer to the consolidated
financial statements and notes thereto for the year ended May 31, 1997.
NOTE B - INVENTORIES
Inventories consist of the following:
May 31, February 28,
1997 1998
----------- -----------
Raw Materials $ 3,029,000 $ 3,203,000
Work in Process 1,697,000 2,398,000
Finished Products 5,609,000 5,461,000
----------- -----------
$10,335,000 $11,062,000
=========== ===========
NOTE C - CHANGE IN ACCOUNTING PERIODS
Effective June 1, 1997, the Company changed its accounting period for financial
statement purposes from a calendar year to a 52/53 week fiscal year. Beginning
with fiscal year 1998, the Company's fiscal year will end on the Saturday
closest to May 31. Interim fiscal quarters end on the Saturday closest to the
calendar end of August, November and February of each year. This change will not
have a significant impact on the consolidated financial results or financial
position of the Company.
NOTE D - ACQUISITIONS
In November 1997, the Company's foreign subsidiary, Haskel Energy Systems, Ltd.,
acquired all of the outstanding stock of Palpro Limited in exchange for $30,000
plus liabilities. In connection with the acquisition, the Company recorded
goodwill of approximately $280,000, which is being amortized over 15 years.
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PART I. FINANCIAL INFORMATION
HASKEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE E - EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
128, Earnings Per Share, which replaces the presentation of "primary" earnings
per share with "basic" earnings per share and the presentation of "fully
diluted" earnings per share with "diluted" earnings per share. All previously
reported earnings per share amounts have been restated based on the provisions
of the new standard. Basic earnings per share are based upon the weighted
average number of common shares outstanding. Diluted earnings per share amounts
are based upon the weighted average number of common and common equivalent
shares for each period presented. Common equivalent shares include stock options
assuming conversion under the treasury stock method.
Three Months Ended Nine Months Ended
-------------------------------- -------------------------------
February 28, February 28, February 28, February 28,
1997 1998 1997 1998
------------- ------------ ------------- -----------
BASIC AND DILUTED EARNINGS
Income from continuing operations $ 1,036,000 $ 1,189,000 $ 3,579,000 $ 3,534,000
Loss from discontinued operations (529,000)
Income (loss) from disposal of segment (5,406,000) 346,000
------------- ------------ ------------- -----------
Net income (loss) $ 1,036,000 $ 1,189,000 $ (2,356,000) $ 3,880,000
============= ============ ============= ===========
COMPUTATION OF BASIC AND DILUTED SHARES
Basic EPS
Common Shareholders 4,732,230 4,734,277 4,732,003 4,737,817
Effect of Dilutive Securities
Dilutive options 113,276 245,781 88,282 298,577
------------- ------------ ------------- -----------
Diluted EPS
Common shareholders plus assumed conversion
of dilutive securities 4,845,506 4,980,058 4,820,285 5,036,394
============= ============ ============= ===========
EARNINGS PER SHARE
Basic EPS
Income from continuing operations $ 0.22 $ 0.25 $ 0.76 $ 0.74
Loss from discontinued operations (0.11)
Income (loss) from disposal of segment (1.14) 0.07
------------- ------------ ------------- -----------
Net income (loss) $ 0.22 $ 0.25 $ (0.49) $ 0.81
============= ============ ============= ===========
Diluted EPS
Income from continuing operations $ 0.21 $ 0.24 $ 0.74 $ 0.70
Loss from discontinued operations (0.11)
Income (loss) from disposal of segment (1.12) 0.07
------------- ------------ ------------- -----------
Net income (loss) $ 0.21 $ 0.24 $ (0.49) $ 0.77
============= ============ ============= ===========
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PART I. FINANCIAL INFORMATION
HASKEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE F - DISCONTINUED OPERATIONS
In fiscal year 1997, the Company decided to sell its electronic products
distribution business. Accordingly, the electronic products business has been
treated as a discontinued segment, and the financial results segregate the
effect of these operations.
The operating loss from this discontinued segment reflected in the accompanying
consolidated statements of operations for the nine months ended February 28,
1997, are net of the related income tax benefit of $220,000. The operating
results for the discontinued operations for the three and nine months ended
February 28, 1998 approximated amounts estimated and reserved for in the loss on
disposal of the segment recorded in fiscal year 1997.
In September 1997, the Company sold the electronic products business in exchange
for 35,000 shares of the Company's stock (valued at $534,000) and a note
receivable in the amount of $159,000. The Company recognized a gain on the sale
of $346,000.
NOTE G - SUBSEQUENT EVENT
Effective March 1, 1998, the Company acquired all of the operating assets of
M.D.C. Australasia Pty. Ltd. and Hydraulics & Air Engineering, Pty. Ltd. for
approximately $632,000 in cash plus liabilities. The businesses are located in
Brisbane, Australia.
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HASKEL INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Report may contain forward-looking statements that involve risks and
uncertainties. The Company's actual results and timing of certain events could
differ materially from those discussed in any forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, the integration of acquired operations, management of growth and
other factors.
RESULTS OF CONTINUING OPERATIONS
Sales for the third quarter ended February 28, 1998 increased $1,774,000, or
14.3%, to $14,175,000, as compared with sales of $12,401,000 for the same period
in the prior year. For the first nine months of fiscal year 1998, sales were
$39,025,000, or $1,399,000 (3.7%) higher than the same period in fiscal year
1997. Sales for the nine months ended February 28, 1997 included approximately
$1,200,000 in large system deliveries to the automotive industry which were not
repeated in fiscal year 1998. Sales for the three and nine months ended February
28, 1998 included approximately $2,200,000 in sales from a long-term system
contract acquired with the Palpro business in November 1997. Accounting
principles appropriate to accounting for long-term contracts, including the
recognition of revenue under the percentage of completion method, have been
adopted in connection with long-term contracts acquired or purchased.
Additionally, in the beginning of fiscal year 1998 the Company discontinued
distribution of third-party products in the Western United States resulting in a
decrease in sales of approximately $1,000,000 and $2,400,000 for the three and
nine months ended February 28, 1998, respectively, as compared to the same
periods in the prior year. In contrast to these decreases, sales of the
Company's core manufactured products increased approximately 5.5% and 8.2% for
the three and nine months ended February 28, 1998, respectively, as compared to
the same periods in the prior year.
Gross profit for the third quarter ended February 28, 1998 increased $358,000 to
$6,089,000, or 43.0 % of sales, as compared with gross profit of $5,731,000, or
46.2% of sales, for the same period in fiscal year 1997. Gross profit for the
first nine months of fiscal year 1998 was $18,187,000 (46.6% of sales) as
compared to $17,253,000 (45.9% of sales) for the comparable period in fiscal
year 1997. The gross profit as a percentage of sales for the three months ended
February 28, 1998 decreased compared to the prior year principally as a result
of a lower-margin associated with the long-term system sales recognized during
the quarter. This long-term contract, which is expected to be substantially
complete by fiscal year end 1998, was acquired in November 1997 with the
acquisition of the Palpro business, and is not expected to be representative of
the on-going systems and product margins from this acquisition beyond the
current contract. The gross profit as a percentage of sales for the nine months
ended February 28, 1998 increased compared to the prior year principally as a
result of the elimination of lower-margin third-party product sales, through
increased production of its manufactured products, lowering its overhead costs
as a percentage of sales, resulting in higher gross margin rates.
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HASKEL INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Selling, general and administrative, and engineering ("operating") expenses were
$4,197,000 or 29.6% of sales for the third quarter of fiscal year 1998 as
compared to $4,072,000 or 32.8% of sales for the comparable period in fiscal
year 1997. For the first nine months of fiscal year 1998, operating expenses
were $12,624,000 or 32.3% of sales as compared to $12,258,000 or 32.6% of sales
for the prior year, before legal reimbursements. General and administrative
expenses for the first nine months of fiscal year 1997 include reimbursements of
$676,000 from the Company's insurance carriers representing the recovery of
legal expenses relating to environmental matters. Operating expenses for the
three and nine months ended February 28, 1998 included approximately $372,000
and $911,000, respectively, attributable to activities of new businesses
acquired and started.
Income from continuing operations for the third quarter ended February 28, 1998
increased $153,000 or 14.8% to $1,189,000 (8.4% of sales) as compared with
$1,036,000 (8.4% of sales) for the comparable prior period. For the nine months
ended February 28, 1998, income from continuing operations increased $355,000 or
11.2% to $3,534,000 (9.1% of sales) as compared to $3,179,000 (8.4% of sales)
for the same period in fiscal year 1997 before the reimbursements of legal
costs. Included in income from continuing operations for the nine months ended
February 28, 1997, was approximately $400,000 (net of taxes) relating to the
insurance reimbursements discussed above. The increased income from continuing
operations is a result of the improvement in gross margins as well as lower
operating expenses.
DISCONTINUED OPERATIONS
In fiscal year 1997, the Company decided to sell its electronic products
distribution business. Accordingly, the electronic products business has been
treated as a discontinued segment, and the financial results segregate the
effect of these operations. The loss from discontinued operations for the nine
months ended February 28, 1997 was $529,000, which includes $240,000 in
restructuring costs incurred in the first quarter of fiscal year 1997. The
operating results for the discontinued operations for the three and nine months
ended February 28, 1998 were previously provided for in the Company's reserve
for loss on disposal of the segment in fiscal year 1997. In September 1997, the
Company sold the electronic products business and recognized a gain on the sale
of $346,000.
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HASKEL INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND SOURCES OF CAPITAL
For the nine months ended February 28, 1998, net cash provided by operating
activities included $2,479,000 from continuing operations as compared to
$3,220,000 for the same period in the prior year. The decrease in cash provided
by operating activities was principally due to the reduction of accrued
liabilities in the first quarter of fiscal year 1998. Net cash of $348,000 was
used in discontinued operations in the first nine months of fiscal year 1998 as
compared to $334,000 in the prior year.
During the nine months ended February 28, 1998, cash used for investing
activities consisted mainly of capital expenditures. During the nine months
ended February 28, 1997, cash used in investing activities consisted primarily
of capital expenditures and cash used to purchase a new subsidiary. Cash used in
financing activities for the nine months ended February 28, 1998 and 1997
consists principally of payments on long-term debt and dividends paid to
shareholders.
To insure the availability of funds to meet its various needs, the Company has a
comprehensive credit facility with its bank. The credit facility includes a
$5,000,000 revolving line of credit; a $10,000,000 acquisition line of credit
available for use in making acquisitions or capital expenditures; and a
$1,370,000 term loan. At February 28, 1998, the Company had no outstanding
balances under the revolving credit or acquisition lines. As of February 28,
1998, the balance of the term debt was $1,370,000, which bears interest at the
LIBOR rate plus 1-1/2 % (7.4063% at February 28, 1998.)
As of February 28, 1998, the Company had $7,998,000 in cash and cash
equivalents, and working capital of $25,368,000, with a ratio of current assets
to current liabilities of approximately 4.4 : 1. This compares with cash and
cash equivalents of $8,490,000, and working capital of $24,095,000, with a ratio
of current assets to current liabilities of 3.7 : 1 as of May 31, 1997. The
Company believes it has adequate resources to achieve its operating goals for at
least the next 12 month period.
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HASKEL INTERNATIONAL, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
10.30 Amended and Restated Loan Agreement dated February 13, 1998
between the Company and Union Bank of California, N.A.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the fiscal quarter covered by
this report on Form 10-Q.
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HASKEL INTERNATIONAL, INC.
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.
HASKEL INTERNATIONAL, INC. (REGISTRANT)
DATE 4-13-98 /S/ R. MALCOLM GREAVES
---------------------- ----------------------------------------
R. Malcolm Greaves
President & Chief Executive Officer
DATE 4-13-98 /S/ LONNIE D. SCHNELL
---------------------- ----------------------------------------
Lonnie D. Schnell
Chief Financial Officer
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