-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VowjZJjH9ShM7XQ96sUT4fbv5n6bcKGdWcpQC3GdySrs0ICQpd/A67XDA2VsxNS+ st0hsZubeQsn5IxKBfrJYw== 0000950150-98-001442.txt : 19980824 0000950150-98-001442.hdr.sgml : 19980824 ACCESSION NUMBER: 0000950150-98-001442 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980530 FILED AS OF DATE: 19980821 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HASKEL INTERNATIONAL INC CENTRAL INDEX KEY: 0000918022 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] IRS NUMBER: 954107640 STATE OF INCORPORATION: CA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25068 FILM NUMBER: 98695953 BUSINESS ADDRESS: STREET 1: 100 EAST GRAHAM PL CITY: BURBANK STATE: CA ZIP: 91502 BUSINESS PHONE: 8188434000 MAIL ADDRESS: STREET 1: 100 EAST GRAHAM PLACE CITY: BURBANK STATE: CA ZIP: 91502 10-K 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] Annual Report Under section 13 or 15(d) of The Securities Exchange Act of 1934 for the Fiscal Year Ended May 30, 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 NO. 0-25068 HASKEL INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 95-4107640 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 EAST GRAHAM PLACE, BURBANK, CA 91502 (Address of principal executive office) Registrant's telephone number, including area code: (818) 843-4000 Securities registered under Section 12(b) of the Exchange Act: Class A Common Stock Name of each exchange on which registered: The Nasdaq Stock Market Securities registered under Section 12(g) of the Exchange Act: None 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. [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of the voting stock held by non-affiliates of the registrant: $26,199,198 as of August 14, 1998. As of August 14, 1998, the registrant had 4,759,205 shares of Class A Common Stock and 40,000 shares of Class B Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the registrant's 1998 Annual Stockholder's Meeting are incorporated by reference in Part III. 2 PART I ITEM 1. DESCRIPTION OF BUSINESS OVERVIEW Established in 1946, the Company manufactures pneumatically (compressed air or gas) and hydraulically (oil) driven, high-pressure low-flow, fixed displacement, reciprocating plunger, liquid pumps, gas boosters, chemical injection pumps and air pressure amplifiers ("Haskel(R) Specialty Products") for industrial, commercial, aerospace and military applications. The Company is one of the world's leading manufacturers of pneumatically-driven, high-pressure liquid pumps and gas boosters, which represent the vast majority of Haskel(R) Specialty Products manufactured by the Company. The Company also manufactures high-pressure valves, metering valves, metal seals, regulators, and accessories to complement these products. The Company distributes third-party manufactured valves, actuators, and other pneumatic and hydraulic devices throughout Europe and the Asia-Pacific regions. The Company also utilizes its engineering expertise and high-pressure technology in the manufacture of test and control ("value added") systems. The Company's systems business consists of the design and manufacture of equipment that incorporates the Company's products, engineering knowledge and high pressure technology, often using electronic controls to achieve a functional piece of equipment to provide customers with high-pressure solutions. This integrated equipment (a "Haskel(R) System") has a wide variety of applications in many industries. The Company's corporate offices are located in Burbank, California. The Company consists of the Industrial Technologies Division ("ITD"), also located in Burbank, California, and the Company's wholly owned subsidiaries, Haskel Energy Systems, Ltd. ("HESL"), located in Sunderland, England and its divisions and subsidiaries, Haskel-Hogan Systems and Service ("Haskel-Hogan"), located in Houston, Texas, Haskel Asia Pte. Ltd., located in Singapore, and Haskel Australasia Pty. Ltd., located in Brisbane, Australia. The ITD is the U.S. manufacturer of Haskel(R) Specialty Products, Haskel(R) Systems, high-pressure valves, metal seals, regulators and accessories to complement these products. HESL is the Company's European manufacturing and distribution center with offices located in Sunderland and Manchester, England; Aberdeen, Scotland; Lille, France; Wesel, Germany; Zoetermeer, the Netherlands; and San Sebastian, Spain. Haskel Asia, Pte. Ltd. is the Company's Asian manufacturing and distribution operations with offices located in Singapore and Hong Kong. Haskel Australasia, Pty. Ltd. is the Company's Australian manufacturing and distribution operations with offices located in Brisbane, Australia. HESL and its divisions and subsidiaries, Haskel Asia and Haskel Australasia primarily distribute the Company's products, design and manufacturer Haskel(R) Systems for specific applications, and distribute complementary products of other third-party manufacturers in Asia, Australia, Europe, India, and the Middle East. HESL Sunderland also manufactures metering valves and products needed for HESL's markets that are not produced in the United States, such as the Jetflow Airmover(R). Certain financial information about the Company's business segments and export sales is presented in Note 16 of the Notes to Consolidated Financial Statements appearing in this Report. No single customer accounted for more than 10% of sales during fiscal 1996, 1997 or 1998. PRODUCTS The Company is one of the world's leading manufacturers of pneumatically-driven, high-pressure liquid pumps and gas boosters. These products produce high pressures (typically 4,000 to 20,000 psi with a capability of up to 150,000 psi) at low volumes of flow, with rated fluid power of up to ten horsepower. In order to generate these pressures, reciprocating plungers within fixed displacement bodies are principally utilized. Haskel(R) Specialty Products are designed for niche markets where high pressure with low flow of liquids or gases is required. The pump's function is to generate 2 3 high-pressure, low-flow liquids and gases using low-pressure, low-flow liquids and gases as a drive source. The energy produced by a pump is used to move a linear or rotary actuator, generate pressure for testing or metal forming, charge pressure containers, and transfer and mix liquids and gases under pressure. Additional products include metal seals for extreme temperature and pressure applications; high-pressure valves and fittings; IRCDs(R), a valve for precise injection of liquids such as chemicals in metering applications; Nanojet(R) homogenizers, which use a super high-pressure process to mix liquids; Hydroswage(R) products, which use high pressure liquid for metal expansion, creating a high integrity joint between the metal tube and the tube sheet as found in boilers and heat exchangers; and the Jetflow Airmover(R), which ventilates stagnant environments, such as that found in mines, by diluting and removing hazardous gases. The Company has also entered into private branding agreements with other companies in the pressure industry to have manufactured certain products in the Company's name for use or sale by the Company in selected markets. Haskel(R) Systems' business consists of the design and manufacture of equipment that incorporates the Company's products, engineering knowledge and experience in high pressure technology, together with third party products. Haskel(R) Systems often incorporate electronic controls to achieve a functional piece of equipment. Haskel(R) Systems have a wide variety of applications in many industries. Some of the applications of Haskel(R) Systems include: - pressure testing hoses, valves, pipes and cylinders - mixing and transferring liquids and gases under pressure - injecting gases into plastics in order to improve the molding process - metering valves for precise injection of liquids such as chemicals - boosting oxygen for life support and emergency service use - homogenization for mixing liquids - food preservation - boosting nitrogen for charging cryostats in missile guidance applications, commercial aircraft tires, struts and escape chutes - pressurizing argon for infrared cooling in missiles - boosting helium for testing automotive brake and air conditioning hoses and charging satellite rocket motors - pressure charging and testing of automotive air bag canisters - recovering and charging chloroflurocarbons ("CFC's") used in air conditioning and refrigeration applications - recovering and charging SF6 (Sulfer Hexafluoride), an arc suppressant gas, used in high voltage switch gear - pressurizing carbon dioxide for filling fire extinguishers and manufacturing foam - compressing natural gas (CNG) for use as a vehicle fuel - hydrostatic forming of metal using the Company's Hydroswage(R) process - work holding and press overload applications - chemical injection and well head control applications for oil and gas production platforms - boosting shop compressed air In addition, other manufacturers incorporate Haskel(R) Specialty Products in their equipment for these and similar purposes. The Company has been awarded the ISO 9001 accreditation, a quality certification from the International Standards Organization ("ISO"), for its manufacturing facilities in the United States and United Kingdom. The ISO 9001 accreditation gives recognition for maintaining an internationally recognized standard of quality in both its products and engineering. 3 4 MARKETS The markets served by Haskel International, Inc. are substantial and diversified. The following table lists the broad range of industries utilizing Haskel(R) Specialty Products and Haskel(R) Systems. The industries that, taken in the aggregate, account for a majority of the Company's sales are marked with an asterisk (*). INDUSTRIES USING HASKEL(R) PRODUCTS Abrasive Pressure Water Cleaning Marine Engineering Aerospace and Aircraft Mining Automotive * Medical Equipment and Emergency Support Scvs. Boiler and Heat Exchanger Manufacture Oil and Gas Exploration and Production * Brewing and Distilling Oil and Petrochemical Refining and Production * Chemicals Pressure Testing * CNG Charging Stations Paper Industry Defense * Plastic Machinery * Diving Charging Equipment Railways Electronic/Electrical Machinery Refrigeration and Air Conditioning Fire Fighting and Related Services Research and Development Establishments, General Engineering * including Universities and Colleges I.C. Engines and Compressors Textile Engineering Industrial Machinery Utilities, Power Generation, Electricity Distribution * Valve Testing and Packing Removal
The useful lives of the Company's products are generally quite long, however specific applications have various lives. Product parts are usually replaceable from current stock; older products can be modified to include the latest technology providing a source of recurring revenue. SALES AND DISTRIBUTION The Company's products are sold through a direct sales force, independent distributors, and authorized manufacturers' representatives throughout the world. The largest distribution of the Company's products are through its own subsidiaries and divisions. Products are sold throughout the United States; Canada; the United Kingdom; other European countries, including France, Germany, the Netherlands, and Spain; the former Soviet Republics; Asia-Pacific, including China and Japan; Australia; Africa; South America; India; and the Middle East. Distribution of the Company's products is accomplished through a network of 123 distributor locations within the United States, Canada, and Central and South America; 24 distributor locations within Europe and the Middle East; and 24 distributor locations within the Asia-Pacific region. The activities of these distributors are supported by the Company's worldwide offices and regional and product sales managers who have extensive technical backgrounds. The Company also distributes approximately 15 different lines of third-party manufactured products throughout Europe and the Asia-Pacific regions. These products are used primarily in the pump and pump-related fluid power business, and include pneumatic actuators, pneumatic and hydraulic valves, hoses and fittings, high-pressure components, pumps and motors. In the beginning of fiscal year 1998, the Company eliminated the distribution of third-party products in the Western United States to strategically focus its sales efforts in this region on the Company's primary product lines. 4 5 MANUFACTURING The Company manufactures Haskel(R) Specialty Products and related products and Haskel(R) Systems at the Company's facilities in Burbank, California, and in Sunderland, England. Manufacturing operations in Sunderland include metering valves and products that are not produced in the United States, which are needed for European markets, such as the Jetflow Airmover(R). Haskel(R) Systems are also designed and manufactured at facilities in Manchester, England; Aberdeen, Scotland; Lille, France; Wesel, Germany; Zoetermeer, the Netherlands; Houston, Texas; Singapore; and Brisbane, Australia. Historically, the Company has been able to pass a significant portion of increased component part prices through to their customers by price increases, although there is no assurance that they will be able to continue to do so in the future. Currently, all materials used by the Company in the manufacturing process are readily available at reasonable prices, and Management does not anticipate any adverse change in this situation. The Company has an ongoing program to improve its manufacturing processes. BACKLOG Backlog of unfilled firm orders was approximately $8,899,000 at May 30, 1998, as compared to approximately $9,036,000 at May 31, 1997. Of the backlog at May 31, 1997, approximately $1,064,000 represented the outstanding orders pertaining to the third-party distribution business in the Western United States which was eliminated in the beginning of fiscal year 1998. Excluding these orders, the backlog increased $927,000 or 12%. This increase in backlog was due primarily to increased orders as a result of continued growth as the Company expands its international markets, especially throughout Europe. Substantially all of the Company's fiscal 1998 year-end backlog is expected to be recognized as revenue in fiscal 1999. Pursuant to the customary terms of the Company's agreements with government contractors and other customers and in accordance with industry custom, a customer may cancel or reschedule an order without penalty if the Company has not made financial commitments with respect to the order. Lead times for the release of purchase orders depend upon the scheduling and forecasting practices of the individual customers, which also can affect the timing of the conversion of the Company's backlog into revenues. For these reasons, among others, the Company's backlog at a particular date may not be indicative of its future revenue, and there is no assurance that the backlog will be completed and recorded as revenue. Cancellation of pending contracts or termination or reductions of contracts in progress may have a materially adverse effect on the Company's business. DISCONTINUED OPERATIONS During fiscal years 1994, 1995, 1996 and the first half of fiscal year 1997, the Company operated an electronic products distribution business. In January 1997, the Company announced its decision to sell or discontinue these operations. The financial impact of this was first reflected in the Company's third quarter 1997 financial statements. Accordingly, the operations have been treated as a discontinued segment, and the prior financial results have been restated to segregate the effect of these operations. The loss from these operations have been reflected separately in the Company's financial results, and a loss on disposal of these operations was recorded in fiscal year 1997. In fiscal year 1998, the Company sold the electronics products business and recognized a gain on sale. See Footnote 15 in the Notes to Financial Statements. Prior to the disposal of this business, the Company had been organized under two business groups: the electronic products group (the "EPG") and the industrial products group (the "IPG"). As a consequence of the sale of the electronics business segment, in January 1998, the Company eliminated the "group" structure, including the IPG and the executive position of IPG President. 5 6 COMPETITION The principal competitive factors in the Company's markets are product quality and performance, availability, reliability, technical support and price. In the air driven, high-pressure, pump markets, the Company has three major U.S. and European based competitors: Teledyne Fluid Systems, a division of Teledyne Inc.; Schmidt Kranz & Company GmbH; and SC Hydraulic Engineering Corporation. Certain of the Company's competitors are larger overall and have greater financial resources than the Company. The Company has a significantly larger worldwide market share in this line of business than do any of its competitors, but there can be no assurance that the Company will maintain its market share. In order to remain competitive, the Company supports the reliability and reputation of its products with customer service, good product delivery, competitive pricing, and comprehensive technical assistance. The Company's competitors in the systems market include some of the same companies that compete with the Company in the high-pressure pump market and a number of small manufacturers of systems, as well as unrelated distributors of systems. ENGINEERING, DESIGN, RESEARCH AND DEVELOPMENT Substantially all of the Company's engineering, design, research and development ("EDR&D") is performed in connection with its manufacturing business and falls into three categories. The first category is the modification or improvement of existing products. Modifications are usually the result of application engineering, where the Company tailors a product to fit a specific application, often at the request of a particular customer. The Company also endeavors to engineer improvements that apply to all of its pumps. The second type of EDR&D involves utilizing Haskel(R) high-pressure technology and know how to develop new products. The third type of EDR&D is the development of products unrelated to pumps where the Company can utilize its expertise in valve and seal technology. The Company's business requires ongoing EDR&D expenditures. For fiscal years 1996, 1997 and 1998, the Company incurred approximately $905,000, $1,079,000, and $1,294,000, respectively, on general engineering and research and development (R&D) with a significant part of these expenditures directed towards R&D. The Company relies on market opportunities to determine the allocation of it's research and development expenditures. The Company expects to continue to pursue product development programs and to increase expenditures in all of its principal product lines and services. CUSTOMER SUPPORT AND SERVICES The Company provides warranty service for each of its product lines, as well as follow-up service, training, and support, for which the Company typically charges separately. During 1998, the Company extended its warranty period from 12 months to 18 months, which exceeds that offered by the competition. Management views customer support services as a critical competitive advantage, as well as a revenue source. The Company maintains its own service groups and trains its customers and distributors in the performance of user-level maintenance. 6 7 GOVERNMENT REGULATION The Company's manufacturing operations are subject to various foreign, federal, state and local laws, including those restricting the discharge of materials into the environment. The Company is subject to environmental regulation governing the generation, transportation and disposal of hazardous waste, the appropriate labeling of products and materials, storage and use of hazardous materials, and employee safety training. Applicable federal environmental regulations include, but are not limited to, the Federal Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"); the Resource Conservation and Recovery Act; the Clean Air Act; and the Clean Water Act. Individual Company sites may also be subject to similar state and local environmental regulation. The Company is not involved in any pending or threatened proceedings that would require curtailment of its operations because of such regulations. The Company continually expends funds to assure that its facilities are in compliance with applicable environmental regulations. See additional discussion regarding environmental matters under Item 3. Legal Proceedings. ACQUISITIONS The Company pursues opportunities to expand its market position in high pressure technology business through various methods, including acquisitions of related businesses, product lines, distribution and/or new technologies. During fiscal years 1996, 1997 and 1998, the Company acquired the following businesses: certain assets of Armaturenbau GmbH (now Haskel Hochdrucksysteme, GmbH), located in Wesel, Germany in November 1995; Hydraulic Mobile Equipment Limited ("HME"), located in Manchester, England in June 1996; Hogan Fluid Power (now Haskel-Hogan Systems and Service) located in Houston, Texas in December 1996; Nanojet Engineering GmbH, located in Wesel, Germany in May 1997; Palpro Ltd., located in Brixworth, England in November 1997; and MDC, Ltd. and Hydraulic & Air, Ltd. (now Haskel Australasia), located in Brisbane, Australia in March 1998. In addition to these acquisitions, the Company opened offices in Zoetermeer, the Netherlands, in June 1996; Singapore in May 1997; Hong Kong in May 1997; and San Sebastian, Spain in August 1997. While Management is continually evaluating possible acquisitions and, from time to time, is engaged in discussions with respect thereto, the Company currently has no commitments for any material acquisition. PATENTS AND TRADEMARKS The Company currently owns a number of United States and foreign patents and trademarks, which expire at various dates through 2010. Although Management believes that the patents and trademarks associated with the Company's various products are of value, Management does not consider any of them to be essential to the Company's business. HUMAN RESOURCES As of May 30, 1998, the Company had 335 employees, including 64 in general management, administration and finance; 85 in sales and marketing; 25 in engineering and research and development; and 161 in operations, manufacturing, and customer service. Management believes that the Company's success depends in part upon its ability to attract, retain, train and motivate highly skilled and dedicated employees. None of the Company's employees is represented by a labor union, and the Company has never experienced a work stoppage. Management believes the Company's relations with its employees are good. 7 8 EXECUTIVE OFFICERS OF THE REGISTRANT The Executive Officers of the Company are as follows:
Name Age Position with Company - ---- --- --------------------- R. Malcolm Greaves 59 President, Chief Executive Officer and Director Lonnie D. Schnell 49 Chief Financial Officer and Secretary Henry Mason 48 Managing Director of HESL
R. Malcolm Greaves was appointed President and Chief Executive Officer of the Company in February 1996. He joined HESL as General Manager in January 1989 and was appointed Managing Director of HESL in June 1989. Mr. Greaves has served as a director of the Company since September 1990. Between January 1994 and February 1995, he served as Executive Vice President in charge of worldwide pump operations, after serving as Vice President, Chief Operating Officer for Europe, the Middle East, India and Africa from April 1993. Lonnie D. Schnell joined the Company as Chief Financial Officer and Secretary in November 1994. From August 1990 through October 1994, Mr. Schnell was Vice President and Controller of Teleflex Control Systems, Inc., an electromechanical actuator and cargo handling business. Henry Mason was appointed Managing Director of HESL in January 1997. He has been employed by HESL since its formation in the United Kingdom in 1978 where he held the position of Business Manager for its Mining Products Division. In 1987, he was appointed Sales Manager for HESL and was appointed Sales and Marketing Director in April 1993. ITEM 2. DESCRIPTION OF PROPERTIES The Company's principal facilities are as follows:
Lease Expiration Owned/ Square Feet Dates, Including Location Leased Under Roof Occupied By Option Periods -------- ------ ---------- ----------- -------------- Burbank, California Owned 103,500 Corporate, ITD -- Houston, Texas Leased 16,200 ITD October 2001 Chino, California Leased 1,440 ITD December 1998 Sunderland, England Owned 41,000 HESL -- Manchester, England Leased 7,000 HESL October 1999 Manchester, England Leased 15,000 HESL May 2007 Zoetermeer, the Netherlands Leased 3,500 HESL January 2000 Lille, France Owned 7,000 HESL -- Aberdeen, Scotland Leased 1,000 HESL October 2000 Wesel, Germany Leased 5,500 HESL June 1999 San Sebastian, Spain Leased 7,900 HESL June 2000
8 9
Lease Expiration Owned/ Square Feet Dates, Including Location Leased Under Roof Occupied By Option Periods -------- ------ ---------- ----------- -------------- Singapore Leased 2,379 Haskel Asia, Pte. February 1999 Brisbane, Australia Leased 5,114 Haskel February 2003 Australasia, Pty. Hong Kong Leased 779 Haskel Asia, Pte. March 2000
The Company's corporate headquarters and principal executive offices are located at the Burbank, California premises. The locations in Burbank, California, and Sunderland, England represent the two main manufacturing facilities for the Company's products and have both manufacturing and office areas. The locations in Houston, Texas; Manchester, England; Zoetermeer, the Netherlands; Lille, France; Aberdeen, Scotland; Wesel, Germany; San Sebastian, Spain; Singapore; and Brisbane, Australia have both office and manufacturing area; however, the manufacturing areas are currently used for assembly purposes only. The facilities located in Chino, California and Hong Kong represent office space used for engineering and sales, respectively. Management believes that the facilities used by the Company are suitable and adequate for the Company's business as presently conducted. ITEM 3. LEGAL PROCEEDINGS Other than as set forth below, the Company is not a party to any legal proceedings other than routine litigation incidental to its business. San Fernando Valley Area 2 Superfund Site The Environmental Protection Agency (the "EPA") named the Company as one of approximately 35 Potentially Responsible Parties ("PRPs"), as that term is defined in applicable law, for an area known as the San Fernando Valley Area 2 Superfund Site (the "Superfund Site"), in which the groundwater has been contaminated by solvents. Most of the parties named by the EPA as PRPs for the Superfund Site, including the Company, chose to cooperate with the EPA in complying with EPA directives, and formed the Glendale PRP Group (the "Group") as a vehicle through which to accomplish that goal. Under applicable law, most notably the federal Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"), the Company might be jointly and severally liable with other PRPs for the full cost of cleaning up the Superfund Site, including the cost of the remedial design phase and EPA oversight costs discussed below (the "Remediation Cost"). There is legal authority, however, which holds that when the approximate extent of contamination caused by each PRP can be determined, liability must be allocated among the PRPs in proportion to their relative contribution. Based on this authority, Management and the Company's environmental counsel believe there will be a rational, pro rata allocation of responsibility for the cleanup of the Superfund Site among the participating PRPs. Management and the Company's environmental counsel believe, based upon extensive research conducted on the Company's site, that the Company was, at most, a small contributor to groundwater contamination at the Superfund Site. 9 10 On December 21, 1993, an independent mediation team engaged by the Group presented a confidential proposed interim allocation schedule (the "Interim Allocation"), which allocated 1.76% responsibility to the Company for the remedial design phase. In May 1994, 23 of the 27 parties (including the Company) signed an Administrative Order on Consent ("AOC"), by which the parties committed to accomplish the Remedial Investigation and Remedial Design phases of the project, as set forth in the AOC. As a result of certain parties having dropped out of the Group, and other parties joining the Group, the Company's Interim Allocation has fluctuated between 1.76% and 2.36%. The Group completed the remedial design phase and fully complied with the AOC, at a cost to the Group of approximately $6 million. In 1995, the Group agreed upon a process by which a retroactive reallocation of the Interim Allocation could be accomplished. The process agreed upon by the Group entailed a two-phase procedure: Phase I consisted of an arbitration whereby a panel of scientific arbitrators ascertained what percentage of the contamination in the Superfund Site was caused by sources from Burbank versus sources from Glendale (the Burbank-Glendale split). The arbitrators determined that responsibility for the share found to have emanated from Burbank-based sources would be borne by one PRP who was to bear 58.8% of all past and future costs incidental to the Superfund Site; all other Group members (the Intra-Glendale parties) were to bear 41.2% of such costs. The Burbank-based member of the PRP appealed the Phase I result to the agreed-upon judicial neutral, who eventually affirmed the arbitrator's 58.8% / 41.2% split between Burbank and Glendale, respectively. Subsequently, a civil court upheld the arbitration award. The court's ruling is now under appeal by the Burbank-based party. Allocation amongst the Intra-Glendale parties of the percentage share allocated to Glendale was to constitute Phase II of this retroactive reallocation process. Once this two-phase process was complete, the results would constitute the Final Allocation which was to apply retroactively as well as prospectively to all Group members. In addition, discussions have been held among the Intra-Glendale parties regarding a possible settlement, whereby certain PRP members would accept dollar sums from the other PRPs, thereby effectuating a cash-out settlement for the majority of PRPs. The settlement discussions have been based upon a total cost (including the initial AOC work which has already been accomplished) of approximately $48.0 million plus past and future direct and indirect Governmental EPA oversight and administrative costs of approximately $14.0 million. Each of these estimates constitute the total for both the Burbank and Intra-Glendale parties combined, such that the Intra-Glendale parties would only be responsible for 41.2% of the total amount pending the confirmation judgment of the trial court being affirmed. In addition to the Remedial Investigation and Remedial Design phase of the project as set forth in the AOC, the EPA issued a Unilateral Administrative Order (UAO), thereby ordering all PRPs to perform the second phase of the AOC, namely the construction phase. Almost all of the work required by the UAO has now been completed. The total amount of money which the Group has spent on implementing the AOC and performing all tasks required under the UAO is $7.7 million; the Company's portion of which has been approximately $113,000, or about 1.4%. If the settlement negotiations within the Group fail, and assuming the Final Allocation agreed upon is similar to the Interim Allocation, an assumption the Management and the Company's environmental counsel believe is reasonable, the Company's share of the Remediation Cost should not exceed the Company's reserve amount of $898,000. If the Group cannot agree upon a process by which to arrive at a Final Allocation, the process of allocating shares would likely be by judicial determination. Whether the allocation proceeds by way of group negotiation or judicial determination, Management and the Company's environmental counsel believe that the Company's reserve amount will be adequate. 10 11 To the extent that a member of the Group does not accept the Final Allocation or does not pay its share of the liability for remediation, the remaining members may each, on a pro rata basis, become responsible for that member's allocation. Further data, negotiation or disagreements among the PRPs, insolvencies of or refusals to pay by PRPs or increases in actual costs of remediation could cause the Company's ultimate liability for remediation for the Superfund Site to increase from the amount calculated based upon the Interim Allocation percentage. Consequently, there can be no assurance that remediation of the Superfund Site will not have a materially adverse effect on the results of operations or financial condition of the Company. Insurance and Reserves When the Company initially tendered all of the environmental claims relative to the Superfund Site, the Company's insurers refused to pay or to properly defend the Company. The Company brought litigation against its insurers in which the Company sought indemnity relative to the claims by the EPA for the Superfund Site, and to force its carriers to provide a defense for these claims. In March 1995, the Company successfully moved for summary adjudication of the carriers' duties to defend. As a result of this ruling, during fiscal year 1997, the carriers paid the Company approximately $676,000 for fees incurred prior to May 31, 1996 and has paid the Company's fees incurred after that date at a reasonable rate. Litigation is pending as to whether the Company's insurers must indemnify the Company for the Superfund Site liability. The Company established an environmental reserve for contingent liabilities that may arise in connection with the Superfund Site. At May 30, 1998, the environmental reserve was $898,000. The Company has not included any specific amount in the environmental reserve for litigation defense costs, which cannot be estimated but could be substantial if these matters precipitate more litigation than is anticipated. Due to the nature of environmental matters, there can be no assurance that the environmental reserve will be adequate to cover contingent liabilities arising from the above-referenced environmental matters or that any liability in excess of the environmental reserve will not have a material adverse effect on the Company's results of operations or financial condition. On-Site Contamination The soil at the property occupied by the Company at 100 East Graham Place, Burbank, California had been contaminated by solvents. Pursuant to a directive of the Regional Water Quality Control Board ("RWQCB") the Company assessed and remediated the soil. All on-site assessment and remediation work has been completed and a no further action letter was obtained from the RWQCB in 1996. Toxic Tort Litigation In December 1997, the Company was named a defendant in eight separate tort complaints filed by approximately 2700 individuals against over 100 defendants wherein the plaintiffs are claiming personal injuries and property damages allegedly resulting from exposure to the release of toxic and carcinogenic chemicals by Defendants into the soil, water and air in the Burbank/Glendale area of Los Angeles County. This litigation stems from a toxic tort action previously filed in the United States District Court containing the same allegations. In October 1997, the eight separate tort actions were consolidated with the pending United States District Court case. Subsequent to the consolidation of these lawsuits, the Company joined a Joint Defense Group comprised of approximately 40 of the newly named defendants. A Pretrial Order and Agreement Re Cooperation, Joint Defense and Terms of Stay and Severance was negotiated among the parties and in April 1998, 28 of the newly named defendants petitioned and in May 1998, the court granted, an order to (1) stay any proceedings against the newly named defendants until such time as a determination has been made by the court in the consolidated 11 12 action, and (2) sever the newly named defendants from the pending litigation. However, ten of the remaining defendants will continue to vigorously defend against the plaintiffs' claims in the consolidated case. If these Defendants are successful in defeating the plaintiff's claims, Management and the Company's environmental counsel believe the plaintiffs would not pursue the Company and the other defendants. In the event the Defendants settle and/or lose at trial, then it is likely the plaintiffs would seek similar settlements or prosecute their case against the Company and the other defendants. A trial date has not been set. The Company is currently preparing a technical presentation representing that the Company never used hexavalent chromium, an air-bourne particle named in the complaint, and demonstrating that the groundwater under the Company's property never impacted the Burbank drinking water wells as the Company's property is downstream from the named Burbank locations. The defense costs in this matter are being shared among four insurance carriers under a reservation of rights. Compliance with Existing Regulations Although Management anticipates increases in the Company's cost of ongoing compliance with existing environmental regulations due to inflation, Management believes that the cost of compliance will not have a material adverse effect on the Company's financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders of the Company during the fourth quarter of fiscal 1998. 12 13 PART II ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Class A Common Stock is quoted on the Nasdaq Stock Market under the symbol "HSKL". Prior to November 1, 1994, there was no public trading market for the Company's Common Stock. The following table sets forth the high and low sales prices for the Company's Class A Common Stock as reported by the Nasdaq Stock Market:
Fiscal 1997 High Low ------------- ------- ------- First Quarter $ 8 7/8 $ 6 3/4 Second Quarter $ 8 5/8 $ 7 1/2 Third Quarter $ 9 3/4 $ 7 1/2 Fourth Quarter $ 10 1/2 $ 8 7/8 Fiscal 1998 -------------- First Quarter $ 14 1/4 $ 9 1/2 Second Quarter $ 16 1/2 $ 11 3/8 Third Quarter $ 12 1/4 $ 9 13/16 Fourth Quarter $ 12 1/4 $ 9 3/4
On August 14, 1998, the closing price of the Company's Class A Common Stock on the Nasdaq Stock Market was $ 8.75. On August 14, 1998, there were approximately 334 holders of record of the Company's Class A Common Stock. There is no established trading market for shares of the Company's Class B Common Stock. As of August 14, 1998, all of the Company's Class B Common Stock was held by eight irrevocable trusts. Altogether, there are three beneficiaries of these trusts and each trust has only one beneficiary. All eight trusts have the same co-trustees. The Company paid cash dividends in the amount of $.28 per share in fiscal years 1996, 1997 and 1998, on shares of its Class A and Class B Common Stock. The Company currently expects that comparable cash dividends will continue to be paid in fiscal year 1999. 13 14 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth selected consolidated financial data of the Company as of and for each of the five fiscal years ended May 30, 1998 and is derived from the Consolidated Financial Statements of the Company. The consolidated financial statements as of May 31, 1997 and May 30, 1998, and for each of the years in the three-year period ended May 30, 1998, and the auditor's report thereon, are included elsewhere herein. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto included elsewhere in this Report.
Year Ended --------------------------------------------------------------------------------------------- May 31, 1994 May 31, 1995 May 31, 1996 May 31, 1997 May 30, 1998 ------------ ------------ ------------ ------------ ------------ OPERATING PERFORMANCE: Revenues $ 37,457,000 $ 38,883,000 $ 42,169,000 $ 51,400,000 $ 53,710,000 Income (loss) from Continuing Operations Before Taxes (1), (2) (36,000) 2,700,000 4,566,000 7,775,000 7,477,000 Net Income from Continuing Operations (1), (2) -- 1,551,000 2,647,000 4,734,000 4,682,000 Cash Flow from Continuing Operations 367,000 3,178,000 1,055,000 4,725,000 5,776,000 FINANCIAL POSITION: Cash & Cash Equivalents $ 7,120,000 $ 8,806,000 $ 8,239,000 $ 8,490,000 $ 9,710,000 Working Capital 17,172,000 20,969,000 21,891,000 24,095,000 25,460,000 Total Assets 44,411,000 44,295,000 45,360,000 41,232,000 46,292,000 Long-term Debt 10,187,000 3,514,000 3,366,000 2,379,000 1,426,000 Shareholders' Equity 24,384,000 31,007,000 32,220,000 28,667,000 31,881,000 PER SHARE DATA (DILUTED): Net Income from Continuing Operations (1), (2) $ -- $ 0.35 $ 0.56 $ 0.98 $ 0.93 Cash Dividends 0.36 0.28 0.28 0.28 0.28 Book Value 6.33 6.56 6.81 5.99 6.64 Average shares outstanding 3,929,349 4,500,783 4,738,266 4,839,739 5,050,717
(1) Financial results in 1994 include restructuring expenses of $620,000 and environmental reserve expenses of $1,039,000 resulting in a reduction in net earnings of $995,000, or $.25 per share after tax. (2) Financial results in 1998 include a $676,000 legal settlement with the Company's insurance carriers regarding past environmental matters which resulted in an increase in net income of $400,000, or $.08 per share after tax. 14 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is provided to increase understanding of, and should be read in conjunction with, the consolidated financial statements and accompanying notes. OVERVIEW The consolidated financial statements include the results of the Company and all of its operating divisions and subsidiaries. See discussion of discontinued operations below. The Company's corporate offices are located in Burbank, California. The Company consists of the Industrial Technologies Division ("ITD"), also located in Burbank, California, and the Company's wholly owned subsidiaries, Haskel Energy Systems, Ltd. ("HESL"), located in Sunderland, England and its divisions and subsidiaries, Haskel-Hogan Systems and Service ("Haskel-Hogan"), located in Houston, Texas, Haskel Asia Pte. Ltd., located in Singapore, and Haskel Australasia Pty. Ltd., located in Brisbane, Australia. The ITD is the U.S. manufacturer of Haskel(R) Specialty Products, Haskel(R) Systems, high-pressure valves, metal seals, regulators and accessories to complement these products. HESL is the Company's European manufacturing and distribution center with offices located in Sunderland and Manchester, England; Aberdeen, Scotland; Lille, France; Wesel, Germany; Zoetermeer, the Netherlands; and San Sebastian, Spain. Haskel Asia, Pte. Ltd. is the Company's Asian manufacturing and distribution operations with offices located in Singapore and Hong Kong. Haskel Australasia, Pty. Ltd. is the Company's Australian manufacturing and distribution operations with offices located in Brisbane, Australia. HESL and its divisions and subsidiaries, Haskel Asia and Haskel Australasia primarily distribute the Company's products, design and manufacturer Haskel(R) Systems for specific applications, and distribute complementary products of other third-party manufacturers in Asia, Australia, Europe, India, and the Middle East. HESL Sunderland also manufactures metering valves and products needed for HESL's markets that are not produced in the United States, such as the Jetflow Airmover(R). DISCONTINUED OPERATIONS In January 1997, the Company announced its decision to sell its electronic products distribution business. The financial impact of this was first reflected in the Company's third quarter 1997 financial statements. Accordingly, the electronic products business has been treated as a discontinued segment, and the Company's prior financial results have been restated to exclude the affect of these operations. A loss on disposal of these operations was recorded in fiscal year 1997 and is reflected separately in the Company's financial results. In fiscal year 1998, the Company sold the electronics products business. Upon the sale of the electronic products business in September 1997, the Company recognized a gain on sale of $346,000 which is the difference between the expected fair market value of the business, determined in fiscal year 1997, and the final selling price. In fiscal year 1997, the estimated loss on disposal of segment of $7,095,000 included the net amount of the following components: the write-down of the net assets of the Electronic Products Distribution Segment to the expected market value; disposal costs; anticipated operating income of the segment through the expected date of disposal; and an income tax benefit of $2,515,000 from the reversal of related deferred tax liabilities. The Company also recognized a loss from the operations of this discontinued segment of $529,000 and $100,000 for the each of the years ended May 31, 1997 and 1996, respectively. 15 16 RESULTS OF CONTINUING OPERATIONS The following table sets forth, for the periods presented, the percentage of net sales represented by certain items included in the Consolidated Statements of Income:
Year Ended --------------------------------------------- May 31, 1996 May 31, 1997 May 30, 1998 ------------ ------------ ------------ Sales ................................................ 100.0% 100.0% 100.0% Cost of sales ........................................ 54.4 54.4 54.4 -------- -------- -------- Gross profit ......................................... 45.6 45.6 45.6 Selling expenses ..................................... 17.0 15.7 15.1 General and administrative expenses .................. 16.2 13.2 14.7 Engineering, design, research and development expenses 2.1 2.1 2.4 -------- -------- -------- Total operating costs ................................ 35.3 31.0 32.2 -------- -------- -------- Operating Income ..................................... 10.3 14.6 13.4 Other income ......................................... 0.6 0.5 0.5 -------- -------- -------- Income from continuing operations before income taxes 10.9 15.1 13.9 Provision for income taxes ........................... 4.6 5.9 5.2 -------- -------- -------- Income from continuing operations .................... 6.3% 9.2% 8.7% ======== ======== ========
COMPARISON OF FISCAL YEARS 1996, 1997 AND 1998 Sales increased by $2,310,000, or 4.5%, between 1997 and 1998 and increased by $9,231,000, or 21.9%, from 1996 to 1997. In the beginning of 1998, the Company eliminated the distribution of third-party products in the Western United States, which represented sales of $678,000, $4,326,000, and $4,649,000 in 1998, 1997, and 1996, respectively. Distribution of these lower margin, non-proprietary products was eliminated in order to better concentrate sales and marketing efforts in this region on the Company's core business products and systems. In November 1997, the Company completed a strategic acquisition of a company in the business of systems integration, which contributed $4,767,000 in net sales in 1998. In 1997, the Company recorded revenues of $1,200,000 from a single order to the automotive safety products sector which was not repeated in 1998. Excluding the third-party products, the results from the acquisition, and the automotive order, the Company's core business increased $2,391,000, or 5.2%, from 1997 to 1998, and $8,354,000, or 22.3%, from 1996 to 1997. The slower rate of growth in 1998 as compared to 1997 was in part the result of the weakened foreign currencies throughout most of Europe and a slowdown in the Asian economies. The slowdown experienced within the overseas markets was partially mitigated by increased core product sales domestically, principally as a result of the Company's focus within the western region. The slowdown in the Asian economies continues to affect the Company's order levels, and this trend is anticipated to continue over the next few quarters. The Company estimates that approximately 15% of its products are sold, either directly or indirectly, into Asian countries. In 1997, approximately $3,513,000 of the sales increase over 1996 was due to newly opened and acquired operations with the remaining increase resulting from expanded sales and marketing efforts and strong economic conditions worldwide during 1997. 16 17 Cost of sales increased $1,264,000, or 4.5%, from 1997 to 1998 and $4,982,000, or 21.7%, from 1996 to 1997. The change in cost of sales from 1996 to 1998 was principally associated with increased sales volumes. Gross margin as a percent of sales remained constant at 45.6% for all three years. With the elimination of lower-margin third party products sales in the beginning of 1998, the Company experienced higher overall gross margins; however, this was offset by a lower-margin, long-term contract acquired as part of the purchase of the Palpro business. The gross margin on the Company's core products remained relatively consistent from year to year. General and administrative expenses in 1997 include a credit of approximately $676,000 from a settlement paid by the Company's insurance carriers for the recovery of prior year's environmental legal expenses. Selling, general and administrative, and engineering, ("Operating") expenses, before this insurance reimbursement in 1997, grew by $713,000, or 4.3%, from 1997 to 1998, and by $1,703,000, or 11.4%, from 1996 to 1997. Approximately $1,110,000 and $1,121,000 of the operating expenses for 1998 and 1997, respectively, represented activities of new businesses acquired and started. The offsetting decrease in operating expenses in 1998 compared to 1997 principally represents costs which were eliminated with the discontinuance of the third-party distribution business in the United States. The remaining increase in expenses from 1996 to 1997 represents initial costs associated with the Company's efforts to expand market share worldwide and support the Company's growth. The Company's effective tax rate was 37% in 1998 and 39% in 1997 as compared to 42% in 1996. The higher effective tax rate in 1996 was due primarily to additional income taxes associated with dividends from foreign subsidiaries. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company has financed its operations and met its capital requirements primarily through cash generated from operations.
Year Ended ------------------------------------------------------ May 31, 1996 May 31, 1997 May 30, 1998 ------------ ------------ ------------ Cash and cash equivalents ........................ $ 8,239,000 $ 8,490,000 $ 9,710,000 ============ ============ ============ Net cash provided by continuing operations ....... $ 1,055,000 $ 4,725,000 $ 5,776,000 ============ ============ ============ Net cash provided by (used in) discontinued operations ..................................... $ 1,495,000 $ (250,000) $ (348,000) ============ ============ ============ Net cash used in investing activities ............ $ (1,341,000) $ (2,489,000) $ (1,959,000) ============ ============ ============ Net cash used in financing activities ............ $ (1,726,000) $ (1,896,000) $ (2,003,000) ============ ============ ============
WORKING CAPITAL AND LIQUIDITY The Company had working capital at May 30, 1998 of $25,460,000 as compared to $24,095,000 at May 31, 1997. Net cash provided by continuing operations was $1,055,000, $4,725,000, and $5,776,000 in 1996, 1997 and 1998, respectively. The increase in cash provided by continuing operations in 1998 from 1997 was principally the result of lower working capital requirements in relation to the level of operations. The increase in cash provided by continuing operations in 1997 versus 1996 was principally the result of an increase of $2,087,000 in income and a significant reduction in the level of 17 18 inventory. Depreciation and amortization was $925,000, $1,282,000, and $1,290,000 in 1996, 1997 and 1998, respectively. Net cash used for investing activities was $1,341,000, $2,489,000, and $1,959,000 in fiscal years 1996, 1997 and 1998, respectively. Capital expenditures of $1,272,000, $1,236,000, and $1,430,000 represent the primary use of cash for investing activities in fiscal year 1996, 1997, and 1998, respectively. Additionally, the Company used $159,000, $1,348,000, and $834,000 in fiscal year 1996, 1997, and 1998, respectively, for new business acquisitions. Net cash used in financing activities in 1996, 1997, and 1998 was $1,726,000, $1,896,000, and $2,003,000, respectively, and consisted mainly of principal payments on long-term debt as well as the payment of dividends. In 1997 and 1998, the Company raised $419,000 and $318,000, respectively, from the issuance of common stock as a result of exercised stock options. The effect of the exchange rates on cash and cash equivalents resulted in a decrease in cash and cash equivalents of $50,000 in 1996, an increase of $161,000 in 1997 and a decrease of $246,000 in 1998. The Company maintains substantial cash balances in Europe consisting of accumulated earnings from its foreign subsidiaries. The Company retains approximately one-half of these funds in U.S. dollars to hedge against exchange risks, and intends to use these funds primarily for acquisitions and expansion of operations. See "Consolidated Statements of Cash Flows" for supplemental disclosures of cash flow information related to the Company's acquisitions. At May 30, 1998, the Company's principal source of liquidity was $9,710,000 in cash and cash equivalents. The Company believes that these funds plus funds generated by operations, and the available borrowing capacity under its bank credit line, will be sufficient to finance its working capital and capital expenditure requirements for at least the next 12 months. CREDIT FACILITIES The Company maintains a term-loan with its bank, which as of May 30, 1998, had a balance outstanding of $1,174,000 and bears interest at the LIBOR rate plus 1.5% (7.43% at May 30, 1998). Additionally, the Company has obtained, from the same bank, a $5 million revolving line of credit available at an interest rate equal to the LIBOR rate plus 1.25% (7.18% at May 30, 1998). There were no outstanding balances under the line of credit as of May 31, 1997 or May 30, 1998. The Company also has secured a $10 million line of credit available with the same bank at an interest rate equal to the LIBOR rate plus 1.5% (7.43% at May 30, 1998) for the purpose of acquiring new businesses or major capital and expansion programs. The Company may make minimum draws of $250,000 against this line, and any balances outstanding at the end of December each year are converted into a five-year term loan, payable in 48 equal installments beginning one year from the date of conversion to a term loan. The resulting term loans bear interest at the same rate as the acquisition line. There were no borrowings against this acquisition line and no term loans associated with this line outstanding as of May 31, 1997 or May 30, 1998. All amounts advanced under the loan agreement, as amended, (the "Loan Agreement") are secured by 50 percent of the outstanding shares of HESL. The Loan Agreement requires, among other things, that the Company maintain working capital of not less than $15,000,000; tangible net worth of not less than $25,000,000; debt no greater than 1.25 times tangible net worth; and earnings before income taxes, depreciation and amortization and non-cash expenses equal to or greater than 1.25 times required debt service, dividends and capital expenditures. In addition, the covenants restrict the Company's ability to incur indebtedness, pay dividends in the event of 18 19 default, consummate certain mergers and make capital expenditures in excess of $5,000,000. As of May 30, 1998, the Company was in compliance with all of the covenants of the loan agreement. YEAR 2000 COMPLIANCE The Year 2000 compliance issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could potentially result in a system failure or miscalculations. The Company is in the process of conducting a comprehensive review of its principal computer and other operating systems and those of its principal suppliers to identify the systems that could be materially affected by the Year 2000 issue. The Company will be making appropriate modifications and conducting compliance tests. These reviews and tests are expected to be completed by the end of March 1999. The Company estimates that costs associated with the principal resolution of this issue will be approximately $500,000. The Company believes that with modifications to, or replacement of, existing systems, the Year 2000 issue will not pose significant operating problems for the Company's operating systems as modified and corrected. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, which becomes effective for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of financial statements. In February 1998, the FASB issued SFAS No. 132, Employer's Disclosures about Pensions and Other Postretirement Benefits, which becomes effective for fiscal years beginning after December 15, 1997. SFAS No. 132 revises employers' disclosures about pension and other postretirement benefits. The Company has not yet determined the impact of adopting these statements. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which becomes effective for all fiscal quarters beginning after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. The Company does not engage in hedging or other derivative activities and does not believe the adoption of this pronouncement will have an impact on the financial statements. SAFE HARBOR STATEMENT The provisions of the Private Securities Litigation Reform Act of 1995 ("Act"), became effective in December 1995. The Act provides a "safe harbor" for companies which make forward-looking statements providing prospective information. The "safe harbor" under the Act relates to protection for companies with respect to litigation filed on the basis of such forward-looking statements. The statements contained in this Annual Report, if not historical, are forward-looking statements and involve risk and uncertainties which are described below that could cause actual results to differ materially from the results, financial or otherwise, or other expectations described in such forward-looking statements. These statements are identified by the use of forward-looking terminology such as "beliefs", "expects", "may", "will", "should", "plans", or "anticipates" or variations thereon are comparable terminology or by a discussion of strategy. Therefore, forward-looking statements should not be relied upon as a prediction of actual future results or occurrences. 19 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Index to Consolidated Financial Statements of Haskel International, Inc. and Subsidiaries included herein and listed on the Index to Consolidated Financial Statements set forth below. Index to Consolidated Financial Statements
Page ---- Independent Auditors' Reports.................................................................. F-1 Consolidated Balance Sheets at May 31, 1997 and May 30, 1998 ............................................................. F-3 Consolidated Statements of Operations for the years ended May 31, 1996 and 1997, and May 30, 1998.................................... F-5 Consolidated Statements of Shareholders' Equity for the years ended May 31, 1996 and 1997, and May 30, 1998.................................... F-6 Consolidated Statements of Cash Flows for the years ended May 31, 1996 and 1997, and May 30, 1998.................................... F-7 Notes to Consolidated Financial Statements..................................................... F-9
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES NONE PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding executive officers of the Company is included in Part I. For the other information called for by Items 10, 11, 12 and 13, reference is made to the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after May 30, 1998, and which is incorporated herein by reference. 20 21 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
Exhibit Number Exhibit Description ------ ------------------- 3.1 Restated Articles of Incorporation of the Company, as amended. (Incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1995) 3.2 Restated Bylaws of the Company, as amended. (Incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for fiscal year ended May 31, 1996) 4.1 Specimen Class A Common Stock and Class B Stock Certificates. (Incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 4.2 Form of Underwriter's Warrants. (Incorporated by reference to Exhibit 4.2 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.1 1989 Incentive Stock Option Plan and form of Stock Option Agreement. (Incorporated by reference to Exhibit 10.1 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.2 Non-Qualified Stock Option Plan and form of Stock Option Agreement. (Incorporated by reference to Exhibit 10.2 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.3 1995 Incentive Stock Option Plan and form of Stock Option Agreement. (Incorporated by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K for fiscal year ended May 31, 1996) 10.4 1995 Formula Stock Option Plan and form of Stock Option Agreement. (Incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K for fiscal year ended May 31, 1996) 10.5 Haskel Inc. Profit Sharing Plan. (Incorporated by reference to Exhibit 10.3 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.6 Haskel Energy Systems, Ltd. Pension Plan. (Incorporated by reference to Exhibit 10.4 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.7 Agreement and Plan of Reorganization of M.G. Electronics, Inc. into Haskel Network Group, Inc. dated November 17, 1993 and related Indemnification Agreement and Agreement of Merger. (Incorporated by reference to Exhibit 10.7 of the Company's Registration Statement on Form S-1 (File No. 33-74362))
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Exhibit Number Exhibit Description ------ ------------------- 10.8 Employment Agreement dated November 17, 1993 between Maury S. Friedman and the Company. (Incorporated by reference to Exhibit 10.8 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.9 Non-Competition Agreement dated November 17, 1993 between Maury S. Friedman, the Friedman Family Trust and M.G. Electronics, Inc. (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.10 Consulting Agreement dated March 21, 1996 between the Company and Maury S. Friedman. (Incorporated by reference to Exhibit 10.17 of the Company's Quarterly Report on Form 10-Q for the period ended February 29, 1996) 10.11 Leases dated June 1, 1993 and September 24, 1993 between West Lake Village Industrial Park and M.G. Electronics, Inc. (Incorporated by reference to Exhibit 10.10 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.12 Consultant and Widow's Pension Agreement dated May 16, 1983 between the Company and Frederick J. Broderick and related Memorandum dated April 22, 1993. (Incorporated by reference to Exhibit 10.13 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.13 Glendale Superfund Site PRP Organization Agreement dated October 28, 1993 by and among the Company and the other PRPs in the Group. (Incorporated by reference to Exhibit 10.14 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.14 Amendment to the Glendale Superfund Site PRP Organization Agreement dated as of January 11, 1996 by and among the Company and the other PRPs in the Group. (Incorporated by reference to Exhibit 10.14 of the Company's Annual Report on Form 10-K for fiscal year ended May 31, 1996) 10.15 Memorandum of Agreement Regarding Cost-Sharing for the Glendale Operable Unit Superfund Sites dated June 7, 1995 by and among the Company and the other PRPs in the Group. (Incorporated by reference to Exhibit 10.15 of the Company's Annual Report on Form 10-K for fiscal year ended May 31, 1996) 10.16 Underwriter's Warrant Agreement. (Incorporated by reference to Exhibit 10.18 of the Company's Registration Statement on Form S-1 (File No. 33-74362)) 10.17 Loan Agreement dated February 21, 1995 by and between the Company and Union Bank and related Commercial Promissory Note, Arbitration Agreement, Continuing Guaranty and Security Agreement-Pledge. (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended February 28, 1995) 10.18 First Amendment dated as of August 30, 1995 to Loan Agreement between the Company and Union Bank. (Incorporated by reference to Exhibit 10.18 of the Company's Annual Report on Form 10-K for fiscal year ended May 31, 1996)
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Exhibit Number Exhibit Description ------ ------------------- 10.19 Second Amendment dated as of February 13, 1996 to Loan Agreement between the Company and Union Bank. (Incorporated by reference to Exhibit 10.19 of the Company's Annual Report on Form 10-K for fiscal year ended May 31, 1996) 10.20 Third Amendment dated as of April 16, 1996 to Loan Agreement between the Company and Union Bank. (Incorporated by reference to Exhibit 10.20 of the Company's Annual Report on Form 10-K for fiscal year ended May 31, 1996) 10.21 Employment Agreement dated December 22, 1995 regarding James C. Minyard. (Incorporated by reference to Exhibit 10.21 of the Company's Annual Report on Form 10-K for fiscal year ended May 31, 1996) 10.22 Haskel International, Inc. Executive Separation Pay Plan. (Incorporated by reference to Exhibit 10.22 of the Company's Annual Report on Form 10-K for fiscal year ended May 31, 1996) 10.23 Employment Agreement dated July 8, 1996 regarding Doranda Frison. (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the period ended August 31, 1996) 10.24 Fourth Amendment dated as of November 15, 1996 to Loan Agreement between the Company and Union Bank. (Incorporated by reference to Exhibit 10.23 of the Company's Quarterly Report on Form 10-Q for the period ended February 28, 1997) 10.25 Fifth Amendment dated as of February 4, 1997 to Loan Agreement between the Company and Union Bank. (Incorporated by reference to Exhibit 10.24 of the Company's Quarterly Report on Form 10-Q for the period ended February 28, 1997) 10.26 Sixth Amendment dated as of September 15, 1997 to Loan Agreement between the Company and Union Bank. (Incorporated by reference to Exhibit of the Company's Quarterly Report on Form 10-Q for the period ended August 29, 1997) 10.27 Change in Control Agreement dated September 27, 1997 between R. Malcolm Greaves and the Company. (Incorporated by reference to Exhibit 10.27 of the Company's Quarterly Report on Form 10-Q for the period ended November 28, 1997) 10.28 Change in Control Agreement dated September 27, 1997 between Lonnie D. Schnell and the Company. (Incorporated by reference to Exhibit 10.28 of the Company's Quarterly Report on Form 10-Q for the period ended November 28, 1997) 10.29 Change in Control Agreement dated September 27, 1997 between Henry Mason and the Company. (Incorporated by reference to Exhibit 10.29 of the Company's Quarterly Report on Form 10-Q for the period ended November 28, 1997) 10.30 Amended and Restated Loan Agreement dated February 13, 1998 between the Company and Union Bank of California, N.A.. (Incorporated by reference to Exhibit 10.30 of the Company's Quarterly Report on Form 10-Q for the period ended February 28, 1998)
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Exhibit Number Exhibit Description ------ ------------------- 21 Schedule of Subsidiaries. 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of Price Waterhouse. 27 Financial Data Schedule.
The following schedules supporting the financial statements: Schedule II Valuation and Qualifying Accounts (b) Reports on Form 8-K: None. 24 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date: August 21, 1998 HASKEL INTERNATIONAL, INC. By /s/ Lonnie D. Schnell --------------------------- Lonnie D. Schnell Chief Financial Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, each person whose signature appears below constitutes and appoints R. Malcolm Greaves and Lonnie D. Schnell, or any one of them, his attorney-in-fact and agent, with full power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or their substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the dates indicated.
Signature Title Date - --------- ----- ---- Chairman of the Board /s/ Edward Malkowicz and Director August 21, 1998 - ------------------------------------ Edward Malkowicz Chief Executive Officer /s/ R. Malcolm Greaves and Director August 21, 1998 - ------------------------------------ R. Malcolm Greaves /s/ Stanley T. Myers Director August 21, 1998 - ------------------------------------ Stanley T. Myers /s/ Terrence A. Noonan Director August 21, 1998 - ------------------------------------ Terrence A. Noonan /s/ John T. Vinke Director August 21, 1998 - ------------------------------------ John T. Vinke H. Carr Wells Director August 21, 1998 - ------------------------------------ H. Carr Wells /s/ W. Bradley Zehner II, Ph.D. Director August 21, 1998 - ------------------------------------ W. Bradley Zehner II, Ph.D.
25 26 HASKEL INTERNATIONAL, INC. INDEX TO FINANCIAL STATEMENTS
Page ---- Independent Auditors' Reports................................................................ F-1 Consolidated Balance Sheets at May 31, 1997 and May 30, 1998.......................................................... F-3 Consolidated Statements of Operations for the years ended May 31, 1996 and 1997, and May 30, 1998............................... F-5 Consolidated Statements of Shareholders' Equity for the years ended May 31, 1996 and 1997, and May 30, 1998............................... F-6 Consolidated Statements of Cash Flows for the years ended May 31, 1996 and 1997, and May 30, 1998............................... F-7 Notes to Consolidated Financial Statements................................................... F-9
26 27 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Haskel International, Inc.: We have audited the accompanying consolidated balance sheets of Haskel International, Inc. ("the Company") and its subsidiaries as of May 31, 1997 and May 30, 1998, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended May 30, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based upon our audits. We did not audit the financial statements of Haskel Energy Systems, Ltd. ("HESL") (a consolidated subsidiary), which statements reflect total assets constituting 43% and 40% of consolidated total assets at May 31, 1997 and May 30, 1998 and total sales constituting 42% for fiscal year 1996 and 45% for fiscal years 1997 and 1998 of consolidated total sales. Those financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for HESL, is based solely upon the report of such other auditors. 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 and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based upon our audits and the report of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of Haskel International, Inc. and its subsidiaries at May 31, 1997 and May 30, 1998, and the results of their operations and their cash flows for each of the three years in the period ended May 30, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, based on our audits and the report of other auditors, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP Costa Mesa, California July 17, 1998 F-1 28 INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF HASKEL ENERGY SYSTEMS LIMITED We have audited the consolidated balance sheets of Haskel Energy Systems Limited and its subsidiaries as of May 31, 1997 and May 30, 1998, and the related consolidated statements of income, of shareholders' equity, and of cash flows for each of the three years in the period ended May 30, 1998 (not included herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based upon 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 statements presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the consolidated financial position of Haskel Energy Systems Limited and its subsidiaries as of May 31, 1997 and May 30, 1998, and the results of its operations and its cash flows for each of the three years in the period ended May 30, 1998 in conformity with generally accepted accounting principles. PRICE WATERHOUSE Chartered Accountants and Registered Auditors Newcastle United Kingdom July 17, 1998 F-2 29 HASKEL INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS
May 31, May 30, 1997 1998 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 8,490,000 $ 9,710,000 Accounts receivable, net 11,751,000 15,333,000 Inventories 10,335,000 10,450,000 Prepaid expenses and other current assets 942,000 630,000 Deferred income taxes 1,419,000 1,004,000 ----------- ----------- TOTAL CURRENT ASSETS 32,937,000 37,127,000 PROPERTY, PLANT & EQUIPMENT, Net 5,376,000 5,315,000 GOODWILL, Net 698,000 1,474,000 DEFERRED INCOME TAXES 2,156,000 2,167,000 OTHER ASSETS 65,000 209,000 ----------- ----------- TOTAL $41,232,000 $46,292,000 =========== ===========
See notes to consolidated financial statements. F-3 30 HASKEL INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (Continued)
May 31, May 30, 1997 1998 ------------ ------------ LIABILITIES & SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 978,000 $ 960,000 Accounts payable 4,070,000 7,007,000 Dividends payable 335,000 331,000 Accrued liabilities 3,249,000 2,785,000 Income taxes payable 210,000 584,000 ------------ ------------ TOTAL CURRENT LIABILITIES 8,842,000 11,667,000 LONG-TERM DEBT 1,401,000 466,000 OTHER ACCRUED LIABILITIES 2,322,000 2,278,000 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 4,759,205 issued and outstanding at May 31, 1997 and May 30, 1998, respectively 13,855,000 13,922,000 Class B, without par value; 40,000 shares authorized, issued and outstanding at May 31, 1997 and May 30, 1998 19,000 19,000 Retained Earnings 14,733,000 18,144,000 Cumulative foreign currency translation adjustment 60,000 (204,000) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 28,667,000 31,881,000 ------------ ------------ TOTAL $ 41,232,000 $ 46,292,000 ============ ============
See notes to consolidated financial statements. F-4 31 HASKEL INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Year Ended ------------------------------------------------------ May 31, May 31, May 30, 1996 1997 1998 ------------ ------------ ------------ SALES $ 42,169,000 $ 51,400,000 $ 53,710,000 COST OF SALES 22,956,000 27,938,000 29,202,000 ------------ ------------ ------------ GROSS PROFIT 19,213,000 23,462,000 24,508,000 ------------ ------------ ------------ EXPENSES: Selling 7,162,000 8,081,000 8,134,000 General and administrative 6,845,000 6,779,000 7,900,000 Engineering, design, research and development 905,000 1,079,000 1,294,000 ------------ ------------ ------------ Total 14,912,000 15,939,000 17,328,000 ------------ ------------ ------------ OPERATING INCOME 4,301,000 7,523,000 7,180,000 OTHER INCOME (EXPENSE): Interest Income 356,000 358,000 385,000 Interest Expense (104,000) (118,000) (143,000) Other 13,000 12,000 55,000 ------------ ------------ ------------ 265,000 252,000 297,000 ------------ ------------ ------------ INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES 4,566,000 7,775,000 7,477,000 PROVISION FOR INCOME TAXES 1,919,000 3,041,000 2,795,000 ------------ ------------ ------------ INCOME FROM CONTINUING OPERATIONS 2,647,000 4,734,000 4,682,000 ------------ ------------ ------------ DISCONTINUED OPERATIONS: Loss from operations, net of taxes (100,000) (529,000) Gain/(loss) on disposal of segment, net of taxes (7,095,000) 346,000 ------------ ------------ ------------ NET INCOME (LOSS) $ 2,547,000 $ (2,890,000) $ 5,028,000 ============ ============ ============
See notes to consolidated financial statements. F-5 32 HASKEL INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Fiscal Year Ended ------------------------------------------------------ May 31, May 31, May 30, 1996 1997 1998 ------------ ------------ ------------ Shares outstanding Common stock, Class A shares Balance, beginning of year 4,688,230 4,688,230 4,748,230 Issuance of common stock 60,000 45,975 Repurchase and retirement of common stock (35,000) ------------ ------------ ------------ Balance, end of year 4,688,230 4,748,230 4,759,205 ============ ============ ============ Common stock, Class B shares Balance, end of year 40,000 40,000 40,000 ============ ============ ============ Common stock, Class A Balance, beginning of year $ 13,436,000 $ 13,436,000 $ 13,855,000 Issuance of common stock 419,000 318,000 Repurchase and retirement of common stock (251,000) ------------ ------------ ------------ Balance, end of year $ 13,436,000 $ 13,855,000 $ 13,922,000 ============ ============ ============ Common stock, Class B Balance, end of year $ 19,000 $ 19,000 $ 19,000 ============ ============ ============ Retained earnings Balance, beginning of year $ 17,729,000 $ 18,951,000 $ 14,733,000 Net income (loss) 2,547,000 (2,890,000) 5,028,000 Repurchase and retirement of common stock (283,000) Cash dividends, Class A and B shares (1,325,000) (1,328,000) (1,334,000) ------------ ------------ ------------ Balance, end of year $ 18,951,000 $ 14,733,000 $ 18,144,000 ============ ============ ============ Cumulative translation adjustment Balance, end of year $ (186,000) $ 60,000 $ (204,000) ------------ ------------ ------------ Total shareholders' equity $ 32,220,000 $ 28,667,000 $ 31,881,000 ============ ============ ============
See notes to consolidated financial statements. F-6 33 HASKEL INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended --------------------------------------------------- May 31, May 31, May 30, 1996 1997 1998 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Income from continuing operations $ 2,647,000 $ 4,734,000 $ 4,682,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 925,000 1,282,000 1,290,000 (Gain) Loss on sale of property (33,000) 62,000 9,000 Deferred income taxes (35,000) 13,000 404,000 Effect of exchange rate changes 41,000 84,000 (18,000) Changes in operating assets and liabilities (net of acquisitions): Accounts receivable, net (1,441,000) (2,690,000) (2,996,000) Inventories (1,450,000) 703,000 436,000 Prepaid expenses and other current assets (74,000) (596,000) 424,000 Accounts payable and accrued liabilities 686,000 1,010,000 1,171,000 Income taxes payable (211,000) 123,000 374,000 ----------- ----------- ----------- Net cash provided by continuing operations 1,055,000 4,725,000 5,776,000 ----------- ----------- ----------- Net cash provided by (used in) discontinued operations 1,495,000 (250,000) (348,000) ----------- ----------- ----------- Net cash provided by operating activities 2,550,000 4,475,000 5,428,000 ----------- ----------- ----------- CASH FLOWS USED IN INVESTING ACTIVITIES: Capital expenditures (1,272,000) (1,236,000) (1,430,000) Proceeds from sale of property 90,000 95,000 305,000 Purchase of subsidiary (net of cash acquired) (159,000) (1,348,000) (834,000) ----------- ----------- ----------- Net cash used in investing activities (1,341,000) (2,489,000) (1,959,000) ----------- ----------- ----------- CASH FLOWS USED IN FINANCING ACTIVITIES: Principal payments on long-term debt (401,000) (987,000) (987,000) Proceeds from issuance of common stock 419,000 318,000 Dividends declared (1,325,000) (1,328,000) (1,334,000) ----------- ----------- ----------- Net cash used in financing activities (1,726,000) (1,896,000) (2,003,000) ----------- ----------- ----------- EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS (50,000) 161,000 (246,000) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (567,000) 251,000 1,220,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,806,000 8,239,000 8,490,000 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,239,000 $ 8,490,000 $ 9,710,000 =========== =========== ===========
See notes to consolidated financial statements. F-7 34 HASKEL INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Fiscal Year Ended ---------------------------------------------- May 31, May 31, May 30, 1996 1997 1998 ---------- ---------- ---------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest Continuing operations $ 75,000 $ 121,000 $ 139,000 ========== ========== ========== Discontinued operations $ 181,000 $ 111,000 ========== ========== ========== Income taxes $2,128,000 $2,557,000 $1,990,000 ========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: On November 30, 1995, HESL acquired certain assets of Armaturenbau GmbH for $412,000 ($159,000 in cash and a note payable of $253,000). Liabilities assumed in conjunction with acquisitions of businesses:
May 31, May 30, 1997 1998 Acquisitions (Note 2): Fair value of assets acquired $ 1,243,000 $ 2,377,000 Cash paid (880,000) (834,000) ----------- ----------- Liabilities assumed $ 363,000 $ 1,543,000 =========== ===========
On September 11, 1997, the Company sold its electronic products business in exchange for 35,000 shares of the Company's Class A common stock (valued at $534,000) and a note receivable in the amount of $159,000. See notes to consolidated financial statements. F-8 35 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of Haskel International, Inc. (the "Company"), its wholly owned operating domestic subsidiaries and its operating foreign subsidiaries: Haskel Energy Systems, Ltd. ("HESL") and its operating subsidiaries; Haskel Asia Pte. Ltd.; and Haskel Australasia Pty. Ltd. All significant intercompany accounts and transactions have been eliminated. Cash Equivalents The Company considers all short-term investments with original maturities of 90 days or less to be cash equivalents. Inventories Inventories are stated at the lower of cost or market. The cost of the Company's principal domestic inventories is determined by the last-in, first-out (LIFO) method and represents approximately 55% and 48% of consolidated inventories at May 31, 1997 and May 30, 1998, respectively. All other inventories are valued using the first-in, first-out (FIFO) method. If domestic inventories had been valued on the FIFO method, they would have been greater by $1,944,000 and $1,799,000 at May 31, 1997 and May 30, 1998, respectively. Property, Plant and Equipment Property, plant and equipment is stated at cost. Provision for depreciation has been made based upon the estimated useful lives of the assets, which range from 3 to 30 years, principally using the straight-line method. Provision for amortization of leasehold improvements is based upon the estimated lives of the assets or terms of the leases, whichever is shorter. Income Taxes Deferred income tax assets and liabilities are computed annually for differences between the financial statement and income tax bases of assets and liabilities. Such deferred income tax assets and liabilities are based on enacted tax laws and rates applicable to periods in which the differences are expected to reverse. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred income tax assets and liabilities. Fair Value of Financial Instruments The carrying values of cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short maturities of such instruments. The carrying values of notes payable approximate fair value since the majority of the notes carry variable interest rates that approximate market rates. F-9 36 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue Recognition Revenue is recognized upon shipment of product or completion of identified contract milestones. Revenue on certain long-term contracts is recognized under the percentage of completion method. Accounts receivable are not pledge as collateral and contain no significant concentrations of credit risk. At May 30, 1998, the Company had approximately $3,700,000 of unbilled receivables, principally secured by an irrevocable letter of credit, included within trade receivables. Research and Development Research and development costs are expensed as incurred. Earnings Per Share During 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. SFAS No. 128 requires the Company to disclose a basic and diluted earnings per share calculation. Basic earnings per share amounts 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, using the average market price during the period. The Company has adopted the provisions of SFAS No. 128 during fiscal year 1998. All previously reported earnings per share amounts have been restated based upon the provisions of the new standard (see Note 12). Foreign Currency Foreign assets and liabilities are translated to their United States dollar equivalents based on rates of exchange prevailing at the end of each respective period. The statement of operations is translated using the average rate for the year. Gains and losses resulting from foreign currency transactions (which have not been significant) are included in the consolidated statements of operations. Gains and losses resulting from translation of foreign financial statements are included as a separate component of shareholders' equity. F-10 37 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Intangible Assets The Company accounts for the impairment and disposition of long-lived assets in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. In accordance with SFAS No. 121, long-lived assets to be held are reviewed for events or changes in circumstances which indicate that their carrying value may not be recoverable. The Company annually evaluates the carrying value of the intangible assets versus the cash benefit expected to be realized and adjusts for any impairment in value. The Company also reviews the carrying value of all goodwill on a quarterly basis, and if future undiscounted cash flows are believed insufficient to recover the remaining carrying value of the goodwill, the carrying value is written down to fair market value in the period the impairment is identified. Stock Options In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based Compensation. The standard defines a fair value method of accounting for stock options and other equity instruments. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. Pursuant to the accounting standard, companies are encouraged, but are not required, to adopt the fair value method of accounting for employee stock-based transactions. Companies are also permitted to account for such transactions under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, but are required to disclose in a note to the financial statements pro forma net income and earnings per share as if the Company had applied the new method of accounting. The Company has determined that it will not change to the fair value method and will continue to use APB Opinion No. 25 for measurement and recognition of employee stock-based transactions (see Note 9). Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-11 38 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounting Periods Effective June 1, 1997, the Company changed its accounting period for financial statement purposes from a calendar month-end fiscal year to a 52/53-week fiscal year. Beginning with fiscal year 1998, the Company's fiscal year ends 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 does not have a significant impact on the consolidated financial results or financial position of the Company. Segment Reporting In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which becomes effective for fiscal years beginning after December 15, 1997. SFAS No. 131 establishes standards for the way that public businesses report information about operating segments and requires businesses to report selected information about operating segments in interim financial reports. The Company has elected early adoption of this standard and has restated its segment reporting in prior years to reflect the Company's existing business segments as of May 30, 1998 (see Note 16.) 2. MERGERS AND ACQUISITIONS During fiscal years 1996, 1997 and 1998, the Company completed several acquisitions recorded using the purchase accounting method. The acquisitions were principally purchased for cash plus the assumption of liabilities, and the issuance of notes payable. The proforma effects of the acquisitions are not significant to the financial statements. The following represent the more significant acquisitions during these three years. On June 3, 1996, HESL acquired all of the outstanding stock of Hydraulic Mobile Equipment Limited ("HME") in exchange for $814,000 in cash and $37,000 in acquisition costs. In connection with the acquisition, the Company recorded goodwill of approximately $161,000, which is being amortized over 15 years. On December 4, 1996, the Company acquired certain assets of Hogan Fluid Power, Inc. for approximately $380,000 in cash and $50,000 in acquisition costs. In connection with the acquisition, the Company recorded goodwill of approximately $40,000, which is being amortized over 5 years. On November 27, 1997, HESL acquired all of the outstanding stock of Palpro Limited for $13,000, plus liabilities. In connection with the acquisition, the Company recorded goodwill of approximately $280,000, which is being amortized over 15 years. On March 24, 1998, the Company acquired certain assets of two Australian companies, M.D.C., Pty. Ltd. and Hydraulics and Air, Pty. Ltd, for approximately $821,000 in cash and $70,000 in acquisition costs. In connection with the acquisition, the Company recorded goodwill of approximately $642,000, which is being amortized over 15 years. F-12 39 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS
May 31, May 30, 1997 1998 ------------ ------------ Cash and cash equivalents: Cash in banks ........................................ $ 3,077,000 $ 3,596,000 Time deposits ........................................ 5,413,000 6,114,000 ------------ ------------ $ 8,490,000 $ 9,710,000 ============ ============ Accounts receivable: Accounts receivable .................................. $ 12,294,000 $ 15,731,000 Less: Allowance for doubtful accounts ................ (543,000) (398,000) ------------ ------------ $ 11,751,000 $ 15,333,000 ============ ============ Inventories: Raw materials ........................................ $ 3,029,000 $ 3,154,000 Work-in-process ...................................... 1,697,000 1,128,000 Finished goods ....................................... 5,609,000 6,168,000 ------------ ------------ $ 10,335,000 $ 10,450,000 ============ ============ Property, plant and equipment: Land and building .................................... $ 2,870,000 $ 2,600,000 Computer equipment ................................... 2,022,000 2,657,000 Machinery and equipment .............................. 4,321,000 4,641,000 Furniture and fixtures ............................... 529,000 682,000 Leasehold improvements ............................... 962,000 1,033,000 ------------ ------------ 10,704,000 11,613,000 Less: Accumulated depreciation and amortization ...... (5,328,000) (6,298,000) ------------ ------------ $ 5,376,000 $ 5,315,000 ============ ============ Goodwill: Goodwill ............................................. $ 804,000 $ 1,655,000 Less: Accumulated amortization ....................... (106,000) (181,000) ------------ ------------ $ 698,000 $ 1,474,000 ============ ============ Accrued Liabilities: Accrued bonuses ...................................... $ 913,000 $ 488,000 Accrued vacation ..................................... 518,000 418,000 Other ................................................ 1,818,000 1,879,000 ------------ ------------ $ 3,249,000 $ 2,785,000 ============ ============
F-13 40 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 4. LONG-TERM DEBT Long-term debt consists of the following:
May 31, 1997 May 30, 1998 ------------ ------------ Note payable to bank, principal payable in 46 equal monthly installments of $65,200 through November 1999. The unpaid principal balance accrues interest, to be paid monthly, based upon the LIBOR rate plus 1.5%. Interest rate at May 30, 1998 was 7.43%. Collateralized by 50% of the Company's stock in HESL ........... $ 1,957,000 $ 1,174,000 Various installment notes issued in connection with stock repurchases. Principal payable in equal quarterly installments through February 2000. Interest payable at a rate equal to one-year Treasury Notes adjusted quarterly. Interest rate at May 30, 1998 was 5.41% ............................................ 271,000 162,000 Non-interest bearing note payable issued in connection with acquisition. Payable in three annual installments of $95,000 beginning November 1996. Interest imputed based on an assumed interest rate of 8% ................................................................ 151,000 90,000 ----------- ----------- 2,379,000 1,426,000 Less: Current portion of long-term debt ............................................. (978,000) (960,000) ----------- ----------- Long-term debt ....................................................................... $ 1,401,000 $ 466,000 =========== ===========
Amounts of scheduled debt repayments by fiscal year are summarized as follows:
Fiscal year ending May 29, 1999 ................................... $ 960,000 May 27, 2000 ................................... 466,000 ---------- Total ............................................. $1,426,000 ==========
The Company has a $5 million revolving line of credit available with a bank at an interest rate equal to the LIBOR rate plus 1.25% (7.18% at May 30, 1998). The Company may make minimum draws of $100,000 against this line. There were no outstanding balances under the line of credit as of May 31, 1997 or May 30, 1998. The Company has a $10 million acquisition line of credit available with the same bank at an interest rate equal to the LIBOR rate plus 1.5% (7.43% at May 30, 1998). The Company may make minimum draws of $250,000 against this line. Balances outstanding against this line at the end of December each year are converted into a five-year term loan, payable in 48 equal installments beginning one year from the conversion to a term loan. The term loan with the bank bears interest at the same rate as the acquisition line. There were no borrowings against this acquisition line and no term loans associated with this line outstanding as of May 31, 1997 or May 30, 1998. F-14 41 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 4. LONG-TERM DEBT (CONTINUED) All amounts advanced under the loan agreement with the Company's bank (the "Loan Agreement") are collateralized by 50 percent of the outstanding shares of HESL. The above loan agreement with the bank contains certain covenants, including a requirement to maintain working capital of not less than $15,000,000; tangible net worth of not less than $25,000,000; debt no greater than 1.25 times tangible net worth; and earnings before income taxes, depreciation and amortization and non-cash expenses equal to or greater than 1.25 times required debt service, dividends and capital expenditures. In addition, the covenants restrict the Company's ability to incur indebtedness, pay dividends in the event of default, consummate certain mergers and make capital expenditures in excess of $5,000,000. As of May 30, 1998, the Company was in compliance with all of the covenants of the loan agreement. 5. LEASE COMMITMENTS The Company leases office space, plant and warehouse facilities under operating lease agreements expiring at various dates through May 2007. Some of the operating leases contain renewal options and provisions requiring the Company to pay property tax increases in addition to the minimum rental. Additionally, the Company leases automobiles under operating lease agreements expiring at various dates through March 2002. Future minimum rental payments under operating leases with an initial term of one year or more are as follows:
Fiscal year ending May 29, 1999 ....................................... $ 575,000 May 27, 2000 ....................................... 450,000 May 26, 2001 ....................................... 312,000 May 25, 2002 ....................................... 175,000 May 31, 2003 ....................................... 114,000 ---------- Total minimum lease payments ......................... $2,014,000 ==========
Rent expense for all operating leases was $246,000, $222,000 and $360,000 for fiscal years 1996, 1997 and 1998, respectively. F-15 42 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 6. INCOME TAXES The provision for income taxes is summarized as follows:
Fiscal Year Ended -------------------------------------------------- May 31, May 31, May 30, 1996 1997 1998 ----------- ----------- ----------- Current: Federal ................ $ 1,059,000 $ 1,163,000 $ 872,000 State .................. 313,000 500,000 252,000 Foreign ................ 901,000 1,171,000 1,267,000 ----------- ----------- ----------- 2,273,000 2,834,000 2,391,000 Deferred: Federal ................ (305,000) 140,000 202,000 State .................. (49,000) 12,000 194,000 Foreign ................ 55,000 8,000 ----------- ----------- ----------- $ 1,919,000 $ 3,041,000 $ 2,795,000 =========== =========== ===========
At May 30, 1998, applicable United States federal income taxes and foreign withholding taxes have not been provided on approximately $8,600,000 of accumulated earnings of foreign subsidiaries that are expected to be permanently reinvested abroad. Management does not believe it is practical to determine the amount of the unrecognized deferred tax liability for the temporary difference related to investments in foreign subsidiaries that is essentially permanent in duration. Management believes that, if determined, such amount would be immaterial. The components of deferred tax assets (liabilities) are as follows:
May 31, May 30, 1997 1998 ----------- ----------- Deferred tax assets: Uniform capitalization rules .................... $ 303,000 $ 273,000 Reserve for obsolescence ........................ 489,000 322,000 Environmental accrual ........................... 363,000 352,000 Retirement accrual .............................. 524,000 497,000 Purchased land/building - related party ......... 1,624,000 1,558,000 Other ........................................... 709,000 474,000 ----------- ----------- Total deferred tax assets ......................... 4,012,000 3,476,000 ----------- ----------- Deferred tax liabilities: Other ........................................... (437,000) (305,000) ----------- ----------- Total deferred tax liabilities .................... (437,000) (305,000) ----------- ----------- Net deferred tax asset ............................ $ 3,575,000 $ 3,171,000 =========== ===========
Management believes that it is more likely than not that future operations will generate sufficient taxable income to realize the deferred tax assets. F-16 43 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 6. INCOME TAXES (CONTINUED) The provisions for income taxes differ from the provisions that would have resulted by applying the federal statutory rates to the income from continuing operations before income taxes as follows:
Fiscal Year Ended ------------------------------------------------- May 31, May 31, May 30, 1996 1997 1998 ----------- ----------- ----------- Income tax expense at statutory rate ............... $ 1,552,000 $ 2,644,000 $ 2,542,000 State income taxes, net of federal tax benefit ................................... 174,000 338,000 294,000 Taxes associated with dividends from HESL .......................................... 53,000 Foreign income subject to tax other than at federal statutory rate ................ 110,000 Other .............................................. 30,000 59,000 (41,000) ----------- ----------- ----------- $ 1,919,000 $ 3,041,000 $ 2,795,000 =========== =========== ===========
7. PROFIT SHARING PLAN The Company has a profit sharing plan that covers substantially all U.S. employees. Contributions to the plan are at the discretion of the Board of Directors. The Company did not make any profit sharing contributions for fiscal years 1996 and 1997. Effective June 1, 1997, the Company's Plan adopted a format to meet the requirements of a qualified retirement plan pursuant to the provisions of Section 401(k) of the Internal Revenue Code. The Plan provides eligible employees the opportunity to make tax deferred contributions to a retirement trust account in amounts up to 15% of their qualified wages (or a maximum of $9,500 annually). The Company will match 25% of the employee's deferred contribution for contributions representing up to 6 percent of each participating employee's qualified earnings. Employees vest in the Company's matching contribution at 20% per year of qualified service. In fiscal year 1998, the Company's matching contribution was $139,000. F-17 44 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 8. RETIREMENT PLANS HESL maintains two pension plans for the benefit of employees: (a) The Haskel Retirement Benefits Plan provides future benefits for all employees of HESL who have completed one year of qualifying service. (b) A Discretionary Benefits Plan provides additional future benefits for United Kingdom directors. Pension costs are determined under the provisions of SFAS No. 87, Employers' Accounting for Pensions. Plan assets are held separately from those of HESL and are invested with insurance companies. Certain selected information for the plans is as follows:
May 31, May 30, 1997 1998 ----------- ----------- Actuarial present value of benefit obligations: Vested benefits .................................................. $ 2,159,000 $ 2,591,000 Non-vested benefits .............................................. 197,000 377,000 ----------- ----------- Accumulated benefit obligation ..................................... 2,356,000 2,968,000 Effect of projected salary increases ............................... 294,000 369,000 ----------- ----------- Projected benefit obligation ....................................... 2,650,000 3,337,000 Net assets available for benefits (market value) ................... 2,369,000 3,021,000 ----------- ----------- Projected benefit obligation in excess of plan assets .............. 281,000 316,000 Unrecognized net obligation being recognized over 15 years ......... 351,000 186,000 ----------- ----------- Accrued (Prepaid) pension cost ..................................... $ (70,000) $ 130,000 =========== ===========
Net periodic pension cost included the following components:
Fiscal Year Ended --------------------------------------------- May 31, May 31, May 30, 1996 1997 1998 --------- --------- --------- Service cost - benefits earned during the period ......... $ 158,000 $ 164,000 $ 198,000 Interest cost on projected benefit obligation ............ 184,000 191,000 212,000 Expected return on plan assets ........................... (150,000) (276,000) (507,000) Amortization of unrecognized net obligation .............. 16,000 136,000 309,000 --------- --------- --------- Net periodic pension cost ................................ $ 208,000 $ 215,000 $ 212,000 ========= ========= =========
The weighted-average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 8 percent and 6 percent, respectively, for fiscal years 1996 and 1997, and 6.5 percent and 4 percent, respectively, for fiscal year 1998. The expected long-term rate of return on assets was 8 percent for all fiscal years presented. The discount rate approximates the rate on AA-rated bonds in the United Kingdom. F-18 45 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 9. STOCK OPTIONS AND WARRANTS Under the Company's stock option plans, the Company may issue up to 1,380,000 nonqualified and incentive stock options to officers, directors and other employees to purchase the Company's Class A common stock at a price that is not less than 100 percent of the fair market value at the date of grant. The options granted under the Incentive Stock Option Plan become exercisable at such times and in such installments as are determined by the Stock Option Committee at the time of grant. The options granted under the Nonqualified Option Plans become exercisable in equal installments over five years. The options under both of the above plans expire no later than ten years after the date of grant. The following table summarizes the stock option activity:
Range of Option Shares Prices Per Share -------------- ---------------- Outstanding at June 1, 1995 ............ 778,885 $7.00 - $10.00 Options granted ...................... 238,000 $5.38 - $7.25 Options canceled ..................... (182,320) $5.38 - $9.50 -------------- Outstanding at May 31, 1996 ............ 834,565 $5.38 - $10.00 Options exercised .................... (60,000) $5.38 - $7.18 Options granted ...................... 244,000 $7.50 - $10.00 Options canceled ..................... (125,000) $7.00 - $8.03 -------------- Outstanding at May 31, 1997 ............ 893,565 $5.38 - $10.00 Options exercised .................... (45,975) $5.38 - $10.00 Options granted ...................... 30,000 $8.03 - $14.00 Options canceled ..................... (124,450) $5.38 - $10.00 -------------- Outstanding at May 30, 1998 ............ 753,140 $5.38 - $14.00 ==============
As of May 30, 1998, options for 538,940 shares were exercisable.
Options Outstanding at May 30, 1998 - ----------------------------------------------------------------------------------------------- Weighted Weighted Average Weighted Average Remaining Options Average Range of Options Exercise Contractual Exercisable at Exercise Exercise Price Outstanding Price Life May 30, 1998 Price - --------------- ----------- -------- ----------- -------------- --------- $5.38 - $7.18 361,000 $ 6.79 4.13 313,800 $ 6.91 $7.25 - $9.46 275,540 $ 8.74 5.36 200,140 $ 9.09 $10.00 - $14.00 116,600 $ 10.63 8.64 25,000 $ 10.00
The weighted average fair value of options granted during fiscal years 1996, 1997 and 1998 were $2.70, $3.91 and $5.23, respectively. F-19 46 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 9. STOCK OPTIONS AND WARRANTS (CONTINUED) In connection with the initial public offering of its common stock, the Company sold Representative's Warrants that entitle the holder to purchase up to 75,000 shares of Class A common stock at a price per share of $15.00. The Warrants are exercisable for a period of four years beginning November 1, 1995. The Warrants contain certain restrictions regarding transferability and registration rights. On November 22, 1994, an option to purchase 25,000 shares of Class A common stock was granted to an unaffiliated person at an option price of $10.00 per share. This option is 100% vested and expires November 22, 1999. The Company applies APB Opinion No. 25 and related interpretations in accounting for its Stock Option Plans and no compensation cost has been recognized. Had compensation cost for the Company's Stock Option Plan been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, the Company's net income (loss) and net earnings (loss) per share for the years ended May 31, 1996, 1997 and May 30, 1998 would have been reduced to the pro forma amounts indicated below:
Fiscal Year Ended -------------------------------------------------------- May 31, May 31, May 30, 1996 1997 1998 ------------- ------------- ------------- Net income (loss) As reported ................................ $ 2,547,000 $ (2,890,000) $ 5,028,000 Pro forma .................................. 2,491,000 (2,990,000) 4,908,000 Net income (loss) per share Basic: As reported ............................... $ .54 $ (.61) $ 1.05 Pro forma ................................. .53 (.63) 1.03 Net income (loss) per share Diluted: As reported ............................... $ .54 $ (.60) $ 1.00 Pro forma ................................. .53 (.62) .97
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to June 1, 1996, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The fair value of options granted under the Company's Stock Option Plans during fiscal years 1996, 1997 and 1998 were estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted-average assumptions used: (i) dividend rate of $.28 per share in 1996, 1997 and 1998, (ii) expected volatility of approximately 45% in 1996, 1997 and 1998, (iii) risk-free interest rate of approximately 5.8% in 1996, 6.0% in 1997 and 5.5% in 1998, and (iv) expected lives of approximately five years in 1996, 1997 and 1998. The Company's calculations are based on a single-option valuation approach and forfeitures are recognized as they occur. F-20 47 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 10. STOCK The Company is authorized to issue 2,000,000 shares of preferred stock, no par value. Shares of preferred stock may be issued from time to time in one or more series, and the Board of Directors, without further stockholder approval, is authorized to fix the rights and terms, including dividends and liquidation preferences and any other rights to each such series of preferred stock. At May 31, 1997 and May 30, 1998, no shares of preferred stock were issued or outstanding. Shareholders of Class B common stock elect the majority, and shareholders of Class A common stock elect the minority, of the Board of Directors. The holders of Class A common stock and Class B common stock have equal rights on a per share basis (including the right to dividends) and vote as a single class on all matters except the election of directors. 11. RETIREMENT BENEFITS The Company is committed under unfunded consultant and non-compete agreements to make post-retirement payments to employees in return for consulting services from date of retirement to date of death or disability and subsequent retirement payments to each employee's widow. Total payments associated with these retirement agreements were $139,000, $140,000 and $142,000 for fiscal years 1996, 1997 and 1998, respectively. Additionally, the Company has accrued costs of $1,328,000 and $1,303,000 associated with the actuarial present value of the accumulated obligation as of May 31, 1997 and May 30, 1998, respectively. The actuarial assumptions used to determine the obligation include an assumed interest rate of 7%. Such accrual was made because the Company determined that significant consulting service would not be required in the future. The current portion of the liability was $141,000 and $139,000 as of May 31, 1997 and May 30, 1998, respectively, and is included in accrued liabilities. Other accrued liabilities include $1,187,000 and $1,164,000 as of May 31, 1997 and May 30, 1998, respectively. F-21 48 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 12. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share.
Fiscal Year Ended --------------------------------------------------------- May 31, May 31, May 30, 1996 1997 1998 ------------- ------------- ------------- BASIC AND DILUTED EARNINGS Income from continuing operations $ 2,647,000 $ 4,734,000 $ 4,682,000 Loss from discontinued operations (100,000) (529,000) Gain (loss) from disposal of segment (7,095,000) 346,000 ------------- ------------- ------------- Net income (loss) $ 2,547,000 $ (2,890,000) $ 5,028,000 ============= ============= ============= COMPUTATION OF BASIC AND DILUTED SHARES Basic Shares Weighted average shares 4,728,230 4,732,060 4,781,907 Effect of Dilutive Options 10,036 107,679 268,810 ------------- ------------- ------------- Diluted Shares Weighted average shares plus assumed conversion of dilutive securities 4,738,266 4,839,739 5,050,717 ============= ============= ============= EARNINGS PER SHARE Basic EPS Income from continuing operations $ 0.56 $ 1.00 $ 0.98 Loss from discontinued operations (0.02) (0.11) Gain (loss) from disposal of segment (1.50) 0.07 ------------- ------------- ------------- Net income (loss) $ 0.54 $ (0.61) $ 1.05 ============= ============= ============= Diluted EPS Income from continuing operations $ 0.56 $ 0.98 $ 0.93 Loss from discontinued operations (0.02) (0.11) Gain (loss) from disposal of segment (1.47) 0.07 ------------- ------------- ------------- Net income (loss) $ 0.54 $ (0.60) $ 1.00 ============= ============= =============
13. RELATED PARTY TRANSACTIONS The Company incurred attorneys' fees in the amount of $358,000 and $292,000 in 1996 and 1997, respectively, in connection with services provided by a law firm. A principal with that law firm, served as the Company's general counsel and as a director of the Company until November 1996. In addition, during that time, the firm represented a major shareholder and the Haskel, Inc. Profit Sharing Plan, which is also a principal shareholder of the Company. F-22 49 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 14. CONTINGENCY The Environmental Protection Agency (the "EPA") named the Company as one of approximately 35 Potentially Responsible Parties ("PRPs"), as that term is defined in applicable law, for an area known as the San Fernando Valley Area 2 Superfund Site (the "Superfund Site"), in which the groundwater has been contaminated by solvents. Most of the parties named by the EPA as PRPs for the Superfund Site, including the Company, chose to cooperate with the EPA in complying with EPA directives, and formed the Glendale PRP Group (the "Group") as a vehicle through which to accomplish that goal. Under applicable law, the Company might be jointly and severally liable with other PRPs for the full cost of cleaning up the Superfund Site, including the cost of the remedial design phase and EPA oversight costs discussed below (the "Remediation Cost"). There is legal authority, however, which holds that when the approximate extent of contamination caused by each PRP can be determined, liability must be allocated among the PRPs in proportion to their relative contribution. Based on this authority, Management and the Company's environmental counsel believe there will be a rational, pro rata allocation of responsibility for the cleanup of the Superfund Site among the participating PRPs. Management and the Company's environmental counsel believe, based upon extensive research conducted on the Company's site, that the Company was, at most, a small contributor to groundwater contamination at the Superfund Site. In fiscal year 1994, an independent mediation team engaged by the Group presented a confidential proposed interim allocation schedule (the "Interim Allocation"), which allocated 1.76% responsibility to the Company for the remedial design phase. In May 1994, 23 of the 27 parties (including the Company) signed an Administrative Order on Consent ("AOC"), by which the parties committed to accomplish the Remedial Investigation and Remedial Design phases of the project, as set forth in the AOC. As a result of certain parties having dropped out of the Group, and other parties joining the Group, the Company's Interim Allocation has fluctuated between 1.76% and 2.36%. The Group completed the remedial design phase and fully complied with the AOC, at a cost to the Group of approximately $6 million. In 1995, the Group agreed upon a process by which a retroactive reallocation of the Interim Allocation could be accomplished. The process agreed upon by the Group entailed a two-phase procedure: Phase I consisted of an arbitration whereby a panel of scientific arbitrators ascertained what percentage of the contamination in the Superfund Site was caused by sources from Burbank versus sources from Glendale (the Burbank-Glendale split). The arbitrators determined that responsibility for the share found to have emanated from Burbank-based sources would be borne by one PRP who was to bear 58.8% of all past and future costs incidental to the Superfund Site; all other Group members (the Intra-Glendale parties) were to bear 41.2% of such costs. The Burbank-based member of the PRP appealed the Phase I result to the agreed-upon judicial neutral, who eventually affirmed the arbitrator's 58.8% / 41.2% split between Burbank and Glendale, respectively. Subsequently, a civil court upheld the arbitration award. The court's ruling is now under appeal by the Burbank-based party. F-23 50 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 14. CONTINGENCY (CONTINUED) Allocation amongst the Intra-Glendale parties of the percentage share allocated to Glendale was to constitute Phase II of this retroactive reallocation process. Once this two-phase process was complete, the results would constitute the Final Allocation which was to apply retroactively as well as prospectively to all Group members. In addition, discussions have been held among the Intra-Glendale parties regarding a possible settlement, whereby certain PRP members would accept dollar sums from the other PRPs, thereby effectuating a cash-out settlement for the majority of PRPs. The settlement discussions have been based upon a total cost (including the initial AOC work which has already been accomplished) of approximately $48.0 million plus past and future direct and indirect Governmental EPA oversight and administrative costs of approximately $14.0 million. Each of these estimates constitute the total for both the Burbank and Intra-Glendale parties combined, such that the Intra-Glendale parties would only be responsible for 41.2% of the total amount pending the confirmation judgment of the trial court being affirmed. In addition to the Remedial Investigation and Remedial Design phase of the project as set forth in the AOC, the EPA issued a Unilateral Administrative Order (UAO), thereby ordering all PRPs to perform the second phase of the AOC, namely the construction phase. Almost all of the work required by the UAO has now been completed. The total amount of money which the Group has spent on implementing the AOC and performing all tasks required under the UAO is $7.7 million; the Company's portion of which has been approximately $113,000, or about 1.4%. If the settlement negotiations within the Group fail, and assuming the Final Allocation agreed upon is similar to the Interim Allocation, an assumption the Management and the Company's environmental counsel believe is reasonable, the Company's share of the Remediation Cost should not exceed the Company's reserve amount of $898,000. If the Group cannot agree upon a process by which to arrive at a Final Allocation, the process of allocating shares would likely be by judicial determination. Whether the allocation proceeds by way of group negotiation or judicial determination, Management and the Company's environmental counsel believe that the Company's reserve amount will be adequate. To the extent that a member of the Group does not accept the Final Allocation or does not pay its share of the liability for remediation, the remaining members may each, on a pro rata basis, become responsible for that member's allocation. Further data, negotiation or disagreements among the PRPs, insolvencies of or refusals to pay by PRPs or increases in actual costs of remediation could cause the Company's ultimate liability for remediation for the Superfund Site to increase from the amount calculated based upon the Interim Allocation percentage. Consequently, there can be no assurance that remediation of the Superfund Site will not have a materially adverse effect on the results of operations or financial condition of the Company. When the Company initially tendered all of the environmental claims relative to the Superfund Site, the Company's insurers refused to pay or to properly defend the Company. The Company brought litigation against its insurers in which the Company sought indemnity relative to the claims by the EPA for the Superfund Site, and to force its carriers to provide a defense for these claims. In March 1995, the Company successfully moved for summary adjudication of the carriers' duties to defend. As a result of this ruling, during fiscal year F-24 51 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 14. CONTINGENCY (CONTINUED) 1997, the carriers paid the Company approximately $676,000 for fees incurred prior to May 31, 1996 and has paid the Company's fees incurred after that date at a reasonable rate. Litigation is pending as to whether the Company's insurers must indemnify the Company for the Superfund Site liability. The Company established an environmental reserve for contingent liabilities that may arise in connection with the Superfund Site. At May 30, 1998, the environmental reserve was $898,000. The Company has not included any specific amount in the environmental reserve for litigation defense costs, which cannot be estimated but could be substantial if these matters precipitate more litigation than is anticipated. Due to the nature of environmental matters, there can be no assurance that the environmental reserve will be adequate to cover contingent liabilities arising from the above-referenced environmental matters or that any liability in excess of the environmental reserve will not have a materially adverse effect on the Company's results of operations or financial condition. Additionally, the Company was issued a mandate by the Regional Water District to perform testing and cleanup of a site at the same facility. Pursuant to a directive of the Regional Water Quality Control Board ("RWQCB"), the Company assessed and remediated the soil. All on-site assessment and remediation work has been completed and a no further action letter was obtained from the RWQCB in 1996. The Company had an accrued liability of $56,000 as of May 31, 1996 relative to this matter. Based on the above, no reserve was deemed necessary as of May 31, 1997 or May 30, 1998. In December 1997, the Company was named a defendant in eight separate tort complaints filed by approximately 2,700 individuals against over 100 defendants wherein the plaintiffs are claiming personal injuries and property damages allegedly resulting from exposure to the release of toxic and carcinogenic chemicals by Defendants into the soil, water and air in the Burbank/Glendale area of Los Angeles County. This litigation stems from a toxic tort action previously filed in the United States District Court containing the same allegations. In October 1997, the eight separate tort actions were consolidated with the pending United States District Court case. Subsequent to the consolidation of these lawsuits, the Company joined a Joint Defense Group comprised of approximately 40 of the newly named defendants. A Pretrial Order and Agreement Re Cooperation, Joint Defense and Terms of Stay and Severance was negotiated among the parties and in April 1998, 28 of the newly named defendants petitioned and in May 1998, the court granted, an order to (1) stay any proceedings against the newly named defendants until such time as a determination has been made by the court in the consolidated action, and (2) sever the newly named defendants from the pending litigation. However, ten of the remaining defendants will continue to vigorously defend against the plaintiffs' claims in the consolidated case. If these Defendants are successful in defeating the plaintiff's claims, Management and the Company's environmental counsel believe the plaintiffs would not pursue the Company and the other defendants. In the event the Defendants settle and/or lose at trial, then it is likely the plaintiffs would seek similar settlements or prosecute their case against the Company and the other defendants. A trial date has not been set. F-25 52 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 14. CONTINGENCY (CONTINUED) The Company is currently preparing a technical presentation representing that the Company never used hexavalent chromium, an air-bourne particle named in the complaint, and demonstrating that the groundwater under the Company's property never impacted the Burbank drinking water wells, as the Company's property is downstream from the named Burbank locations. The defense costs in this matter are being shared among four insurance carriers under a reservation of rights. 15. DISCONTINUED OPERATIONS In January 1997, the Company announced its decision to sell its electronic products distribution business. The financial impact of this was first reflected in the Company's third quarter 1997 financial statements. Accordingly, the operations have been treated as a discontinued segment, and the prior financial results have been restated to segregate the effect of these operations. The income or loss from these operations have been reflected separately in the Company's financial results, and a loss on discontinuance of these operations was recorded in fiscal year 1997. As the market value of the net assets of the business were equal to the expected costs to dispose of the business, there were no net assets held for sale of the business shown in the consolidated balance sheet as of May 31, 1997. The loss from discontinued operations reflected in the accompanying consolidated statements of operations are net of an income tax provision of $78,000 for fiscal year 1996 and an income tax benefit of $221,000 for fiscal year 1997. Sales from these operations were $14,622,000 and $1,904,000 for fiscal years 1996 and 1997, respectively. The estimated loss on disposal of segment of $7,095,000 included in the statement of operations for fiscal year 1997 reflected the net amount of the following components: the write-down of the net assets of the electronic products distribution segment to the expected market value at that date; disposal costs; anticipated operating income of the segment through the expected date of disposal; and an income tax benefit of $2,515,000 from the reversal of related deferred tax liabilities. On September 11, 1997, the Company sold its electronics 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. 16. BUSINESS SEGMENTS Haskel International, Inc. operates predominantly in one industry segment. The Company designs and manufactures pneumatically and hydraulically driven, high-pressure low-flow, fixed displacement, reciprocating, liquid pumps, gas boosters, chemical injection pumps, air pressure amplifiers, high-pressure valves, metering valves, regulators, and accessories to complement these products, as well as integrated systems that include the various components. The Company sells its products through a network of industrial distributors and directly to customers through its own sales employees and manufacturer's representatives. The principal markets for the Company's products are North and South America, Europe, and Asia-Pacific. F-26 53 HASKEL INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 31, 1996 AND 1997, AND MAY 30, 1998 16. BUSINESS SEGMENTS (CONTINUED) Geographic information for the three years ended May 30, 1998 is presented in the following tables. Transfers between geographic areas are accounted for at cost plus a profit margin. Income and expenses not allocated to geographic areas include investment income, interest expense, and corporate administrative costs. Identifiable assets are those assets used exclusively in the operations in each geographic area. Corporate assets are principally cash, cash equivalents and deferred tax assets. In fiscal year 1996, corporate assets include $10,802,000 associated with discontinued operations.
Transfers between Sales to geographic unaffiliated Operating Identifiable Sales areas customers income assets ------------ ------------ ------------ ------------ ------------ Fiscal Year Ended May 30, 1998 - -------------------------------------------------------------------------------------------------------------------------------- North and South America $ 30,472,000 $ 9,424,000 $ 21,048,000 $ 4,394,000 $ 26,587,000 Europe 27,568,000 407,000 27,161,000 3,905,000 23,172,000 Asia-Pacific 5,501,000 5,501,000 960,000 854,000 Corporate (2,079,000) 9,412,000 Eliminations (9,831,000) (9,831,000) (13,733,000) ------------ ------------ ------------ ------------ ------------ $ 53,710,000 $ -- $ 53,710,000 $ 7,180,000 $ 46,292,000 ============ ============ ============ ============ ============ Fiscal Year Ended May 31, 1997 - -------------------------------------------------------------------------------------------------------------------------------- North and South America $ 33,315,000 $ 9,022,000 $ 24,293,000 $ 5,056,000 $ 22,340,000 Europe 23,065,000 164,000 22,901,000 3,454,000 16,729,000 Asia-Pacific 4,206,000 4,206,000 828,000 Corporate (1,815,000) 13,235,000 Eliminations (9,186,000) (9,186,000) (11,072,000) ------------ ------------ ------------ ------------ ------------ $ 51,400,000 $ -- $ 51,400,000 $ 7,523,000 $ 41,232,000 ============ ============ ============ ============ ============ Fiscal Year Ended May 31, 1996 - -------------------------------------------------------------------------------------------------------------------------------- North and South America $ 28,952,000 $ 8,174,000 $ 20,778,000 $ 3,349,000 $ 15,199,000 Europe 17,865,000 154,000 17,711,000 2,675,000 13,160,000 Asia-Pacific 3,680,000 3,680,000 608,000 Corporate (2,331,000) 26,658,000 Eliminations (8,328,000) (8,328,000) (9,657,000) ------------ ------------ ------------ ------------ ------------ $ 42,169,000 $ -- $ 42,169,000 $ 4,301,000 $ 45,360,000 ============ ============ ============ ============ ============
F-27 54 SCHEDULE II HASKEL INTERNATIONAL, INC. VALUATION AND QUALIFYING ACCOUNTS Allowance for Doubtful Accounts
Balance at Balance at Beginning of End of Period Additions Write-offs Period ---------- ---------- ---------- ---------- May 31, 1996 $ 915,000 $ 389,000 $ 343,000 $ 961,000 May 31, 1997 $ 961,000 $ 27,000 $ 445,000 $ 543,000 May 30, 1998 $ 543,000 $ 77,000 $ 222,000 $ 398,000
F-28 55 EXHIBIT INDEX
Exhibit Number Exhibit Description ------ ------------------- 3.1(4) Restated Articles of Incorporation of the Company, as amended. 3.2(6) Restated Bylaws of the Company, as amended. 4.1(2) Specimen Class A Common Stock and Class B Stock Certificates. 4.2(2) Form of Underwriter's Warrants. 10.1(2) 1989 Incentive Stock Option Plan and form of Stock Option Agreement. 10.2(2) Non-Qualified Stock Option Plan and form of Stock Option Agreement. 10.3(6) 1995 Incentive Stock Option Plan and form of Stock Option Agreement. 10.4(6) 1995 Formula Stock Option Plan and form of Stock Option Agreement. 10.5(2) Haskel Inc. Profit Sharing Plan. 10.6(2) Haskel Energy Systems, Ltd. Pension Plan. 10.7(2) Agreement and Plan of Reorganization of M.G. Electronics, Inc. into Haskel Network Group, Inc. dated November 17, 1993 and related Indemnification Agreement and Agreement of Merger. 10.8(2) Employment Agreement dated November 17, 1993 between Maury S. Friedman and the Company. 10.9(2) Non-Competition Agreement dated November 17, 1993 between Maury S. Friedman, the Friedman Family Trust and M.G. Electronics, Inc.
56
Exhibit Number Exhibit Description ------ ------------------- 10.10(5) Consulting Agreement dated March 21, 1996 between the Company and Maury S. Friedman. 10.11(2) Leases dated June 1, 1993 and September 24, 1993 between West Lake Village Industrial Park and M.G. Electronics, Inc. 10.12(2) Consultant and Widow's Pension Agreement dated May 16, 1983 between the Company and Frederick J. Broderick and related Memorandum dated April 22, 1993. 10.13(2) Glendale Superfund Site PRP Organization Agreement dated October 28, 1993 by and among the Company and the other PRPs in the Group 10.14(6) Amendment to the Glendale Superfund Site PRP Organization Agreement dated as of January 11, 1996 by and among the Company and the other PRPs in the Group. 10.15(6) Memorandum of Agreement Regarding Cost-Sharing for the Glendale Operable Unit Superfund Sites dated June 7, 1995 by and among the Company and the other PRPs in the Group. 10.16(2) Underwriter's Warrant Agreement. 10.17(3) Loan Agreement dated February 21, 1995 by and between the Company and Union Bank and related Commercial Promissory Note, Arbitration Agreement, Continuing Guaranty and Security Agreement-Pledge. 10.18(6) First Amendment dated as of August 30, 1995 to Loan Agreement between the Company and Union Bank. 10.19(6) Second Amendment dated as of February 13, 1996 to Loan Agreement between the Company and Union Bank. 10.20(6) Third Amendment dated as of April 16, 1996 to Loan Agreement between the Company and Union Bank. 10.21(6) Employment Agreement dated December 22, 1995 regarding James C. Minyard.
57
Exhibit Number Exhibit Description ------ ------------------- 10.22(6) Haskel International, Inc. Executive Separation Pay Plan. 10.23(7) Employment Agreement dated July 8, 1996 regarding Doranda Frison. 10.24(8) Fourth Amendment dated as of November 15, 1996 to Loan Agreement between the Company and Union Bank. 10.25(8) Fifth Amendment dated as of February 4, 1997 to Loan Agreement between the Company and Union Bank. 10.26(9) Sixth Amendment dated as of September 15, 1997 to Loan Agreement between the Company and Union Bank. 10.27(10) Change in Control Agreement dated September 27, 1997 between R. Malcolm Greaves and the Company. 10.28(10) Change in Control Agreement dated September 27, 1997 between Lonnie D. Schnell and the Company. 10.29(10) Change in Control Agreement dated September 27, 1997 between Henry Mason and the Company. 10.30(11) Amended and Restated Loan Agreement dated February 13, 1998 between the Company and Union Bank of California, N.A.. 21(1) Schedule of Subsidiaries. 23.1(1) Consent of Deloitte & Touche LLP. 23.2(1) Consent of Price Waterhouse. 27(1) Financial Data Schedule.
The following schedules supporting the financial statements: Schedule II Valuation and Qualifying Accounts (1) Filed herewith. (2) Filed as an exhibit to the Registrant's Registration Statement on Form S-1 (SEC File no. 33-74362), and incorporated by this reference. (3) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the period ended February 28, 1995, and incorporated herein by this reference. (4) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1995, and incorporated herein by this reference. (5) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the period ended February 29, 1996, and incorporated herein by this reference. 58 (6) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the year ended May 31, 1996, and incorporated herein by this reference. (7) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the period ended August 31, 1996, and incorporated herein by this reference. (8) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the period ended February 28, 1997, and incorporated herein by this reference. (9) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the period ended August 29, 1997, and incorporated herein by this reference. (10) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the period ended November 28, 1997, and incorporated herein by this reference. (11) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the period ended February 28, 1998, and incorporated herein by this reference. EX-21 2 SCHEDULE OF SUBSIDIARIES 1 EXHIBIT 21 SCHEDULE OF SUBSIDIARIES HASKEL INTERNATIONAL, INC. Direct and indirect subsidiaries:
State or Country Name of Organization Parent - ---- --------------- ------ Haskel International, Inc. California N/A Haskel-Hogan Systems and Service Texas Haskel International, Inc. Haskel Energy Systems, Ltd. England Haskel International, Inc. S.A.T. Air Limited England Haskel Energy Systems, Ltd. Environclean Systems Limited England Haskel Energy Systems, Ltd. Hydraulic Mobile Equipment, Ltd. England Haskel Energy Systems, Ltd. MGE (UK), Ltd. England Haskel Energy Systems, Ltd. Palpro, Ltd. England Haskel Energy Systems, Ltd. General Pneumatic S.A. France Haskel Energy Systems, Ltd. Haskel HochdruckSysteme GmbH Germany Haskel Energy Systems, Ltd. Nanojet Engineering GmbH Germany Haskel Energy Systems, Ltd. Haskel Sistemas de Fludos Espana SRL Spain Haskel Energy Systems, Ltd. Haskel Asia Pte. Ltd. Singapore Haskel International, Inc. Haskel Australasia Pty. Ltd. Australia Haskel International, Inc.
EX-23.1 3 INDEPENDENT AUDITOR'S CONSENT 1 EXHIBIT 23.1 INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in Registration Statement No. 333-05567 of Haskel International, Inc. on Form S-8 of our report dated July 17, 1998, appearing in the Annual Report on Form 10-K of Haskel International, Inc. for the year ended May 30, 1998. Deloitte & Touche LLP Costa Mesa, California August 19, 1998 EX-23.2 4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Registration Statement (No. 333-05567) of our report dated July 17, 1998, included in Haskel International, Inc.'s Form 10-K for the year ended May 30, 1998 and to all references to our firm in this Registration Statement. PRICE WATERHOUSE Chartered Accountants and Registered Auditors Newcastle upon Tyne United Kingdom August 19, 1998 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED FINANCIAL STATEMENTS OF HASKEL INTERNATIONAL, INC., AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL 10-K. YEAR MAY-30-1998 MAY-30-1998 9,710,000 0 15,731,000 398,000 10,450,000 37,127,000 11,613,000 6,298,000 46,292,000 11,667,000 0 0 0 13,941,000 17,940,000 46,292,000 53,710,000 53,710,000 29,202,000 29,202,000 17,328,000 77,000 143,000 7,477,000 2,795,000 4,682,000 346,000 0 0 5,028,000 1.05 1.00 OTHER EXPENSES ARE COMPRISED OF SELLING, GENERAL AND ADMINISTRATIVE, ENGINEERING, DESIGN AND DEVELOPMENT. FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
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