<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended June 30, 1999
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from to
Commission File Number 1-13041
WATERLINK, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 34-1788678
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
---------------------------------
4100 Holiday Street N.W., Suite 201
Canton, Ohio 44718
(Address of Principal Executive Offices)
(Zip Code)
---------------------------------
330-649-4000
(Registrant's Telephone Number, Including Area Code)
----------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.001 par value -12,635,861 shares outstanding as of July 31, 1999
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INDEX
WATERLINK, INC. AND SUBSIDIARIES
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - September 30, 1998 and
June 30, 1999 3 - 4
Consolidated statements of operations - Three months
ended June 30, 1998 and 1999; Nine months ended
June 30, 1998 and 1999 5
Consolidated statements of cash flows - Nine months
ended June 30, 1998 and 1999 6
Notes to consolidated financial statements 7 - 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
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PART I, ITEM I - FINANCIAL STATEMENTS
WATERLINK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS-UNAUDITED
<TABLE>
<CAPTION>
September 30, June 30,
1998 1999
-------- --------
ASSETS (In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,925 $ 1,611
Accounts receivable:
Trade, net 29,906 30,806
Other 2,757 1,800
Inventories 22,160 20,793
Costs in excess of billings 17,195 25,466
Refundable income taxes 840 --
Other current assets 3,111 3,192
-------- --------
Total Current Assets 79,894 83,668
Property, plant and equipment, at cost:
Land, buildings and improvements 4,095 2,852
Machinery and equipment 8,293 7,423
Office equipment 2,899 3,312
-------- --------
15,287 13,587
Less accumulated depreciation 1,557 2,490
-------- --------
13,730 11,097
Other assets:
Goodwill, net 79,936 77,373
Patents, net 1,408 1,335
Other assets 8,593 6,714
-------- --------
89,937 85,422
-------- --------
Total Assets $183,561 $180,187
======== ========
</TABLE>
See notes to consolidated financial statements
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PART I, ITEM I - FINANCIAL STATEMENTS
WATERLINK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS-UNAUDITED (CONTINUED)
<TABLE>
<CAPTION>
September 30, June 30,
1998 1999
--------- ---------
(In thousands,
LIABILITIES AND SHAREHOLDERS' EQUITY except share data)
<S> <C> <C>
Current Liabilities:
Accounts payable-trade $ 15,133 $ 19,166
Accrued expenses 18,881 20,663
Additional purchase price payable 1,000 500
Billings in excess of cost 3,392 2,865
Accrued income taxes 1,158 983
Deferred income taxes 164 120
Current portion of long-term debt 9,429 8,444
--------- ---------
Total Current Liabilities 49,157 52,741
Long-term obligations:
Long-term debt 73,639 75,444
Convertible subordinated notes-related parties 4,250 3,250
Other long-term obligations 1,637 1,103
--------- ---------
79,526 79,797
Shareholders' equity:
Preferred Stock, $.001 par value, 10,000,000 shares
authorized, none issued and outstanding -- --
Common Stock, voting, $.001 par value,
authorized - 40,000,000 shares,
issued and outstanding - 12,225,604 shares
at September 30, 1998 and 12,635,861
at June 30, 1999 12 13
Additional paid-in capital 71,973 72,966
Accumulated other comprehensive income (loss) 231 (4,834)
Accumulated deficit (17,338) (20,496)
--------- ---------
Total Shareholders' Equity 54,878 47,649
--------- ---------
Total Liabilities and Shareholders' Equity $ 183,561 $ 180,187
========= =========
</TABLE>
See notes to consolidated financial statements
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PART I, ITEM I - FINANCIAL STATEMENTS
WATERLINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS-UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1999 1998 1999
--------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 34,937 $ 43,083 $ 94,267 $ 128,858
Cost of sales 21,387 31,229 58,597 88,707
--------- --------- --------- ---------
Gross Profit 13,550 11,854 35,670 40,151
Selling, general and
administrative expenses 10,706 11,600 27,458 32,829
Special charges 1,494 2,084 1,494 2,787
Amortization 570 515 1,412 1,569
--------- --------- --------- ---------
Operating Income (Loss) 780 (2,345) 5,306 2,966
Other income (expense):
Interest expense (1,018) (1,702) (1,737) (5,092)
Interest income and other items - net 145 (147) 126 (163)
--------- --------- --------- ---------
Income (Loss) Before Income Taxes (93) (4,194) 3,695 (2,289)
Income taxes 75 367 1,631 869
--------- --------- --------- ---------
Net Income (Loss) $ (168) $ (4,561) $ 2,064 $ (3,158)
========= ========= ========= =========
Earnings (Loss) per Common Share:
Basic $ (0.01) $ (0.36) $ 0.17 $ (0.25)
Assuming dilution $ (0.01) $ (0.36) $ 0.16 $ (0.25)
Weighted Average Common Shares Outstanding:
Basic 12,006 12,636 11,964 12,529
Assuming dilution 12,006 12,636 12,641 12,529
</TABLE>
See notes to consolidated financial statements.
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PART I, ITEM I - FINANCIAL STATEMENTS
WATERLINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1998 1999
-------- --------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 2,064 $ (3,158)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Special charges 1,494 2,183
Depreciation and amortization 2,400 2,962
Deferred income taxes 501 379
Changes in working capital:
Accounts receivable 6,103 (991)
Inventories (1,357) 40
Costs in excess of billings (10,351) (9,128)
Refundable income taxes 303 840
Other assets (6,355) 3,073
Accounts payable (973) 4,568
Accrued expenses 1,545 2,764
Billings in excess of cost (1,125) (465)
Accrued income taxes 1,427 (730)
-------- --------
Net cash provided (used) by operating activities (4,324) 2,337
INVESTING ACTIVITIES
Purchases of equipment (1,671) (1,470)
Proceeds from sale of building -- 519
Purchases of subsidiaries, net of cash acquired (52,667) (1,902)
-------- --------
Net cash used in investing activities (54,338) (2,853)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 67,176 3,106
Payments on long-term borrowings (1,213) (2,341)
Proceeds from sale of common stock 456 --
-------- --------
Net cash provided by financing activities 66,419 765
Effect of exchange rate changes on cash (1,091) (2,563)
-------- --------
Increase (decrease) in cash and cash equivalents 6,666 (2,314)
Cash and cash equivalents at beginning of period 2,482 3,925
-------- --------
Cash and cash equivalents at end of period $ 9,148 $ 1,611
======== ========
</TABLE>
See notes to consolidated financial statements.
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PART I, ITEM I - FINANCIAL STATEMENTS
WATERLINK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE THREE AND NINE-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine-month periods ended June
30, 1999 are not necessarily indicative of the results that may be expected for
the year ending September 30, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1998.
2. INVENTORIES
Inventories consisted of the following (thousands of dollars):
September 30, June 30,
1998 1999
---- ----
Raw materials and supplies $11,843 $12,793
Work in process 3,500 3,131
Finished goods 6,817 4,869
------- -------
$22,160 $20,793
======= =======
3. CONTRACT BILLING STATUS
Information with respect to the billing status of contracts in process is as
follows (thousands of dollars):
<TABLE>
<CAPTION>
September 30, June 30,
1998 1999
---- ----
<S> <C> <C>
Contract costs incurred to date $57,435 $63,218
Estimated profits 24,497 25,691
------- -------
Contract revenue earned to date 81,932 88,909
Less billings to date 68,129 66,308
------- -------
Cost and estimated earnings in excess of billings, net $13,803 $22,601
======= =======
</TABLE>
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The above amounts are included in the accompanying consolidated balance sheets
as follows (in thousands):
September 30, June 30,
1998 1999
---- ----
Costs in excess of billings $17,195 $25,466
Billings in excess of cost 3,392 2,865
------- -------
$13,803 $22,601
======= =======
4. CAPITALIZATION
During December 1998 the Company entered into an agreement with one of its
existing holders of convertible subordinated notes to reduce the note principal
amount from $2,000,000 to $1,000,000 in exchange for 410,257 shares of Common
Stock. In addition, the maturity date of the $1,000,000 principal amount of the
convertible subordinated note was extended from September 30, 1999 to October 1,
2000; the interest rate on the remaining note balance was increased from 5.81%
to 6.06%; and the conversion rate was decreased from $22.25 per share to $6.75
per share.
A progression of shareholders' equity follows (thousands of dollars):
<TABLE>
<CAPTION>
Accumulated
Other
Additional Comprehensive Accumu- Total
Common Paid-in Income lated Shareholders'
Stock Capital (Loss) Deficit Equity
------ -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1998 $ 12 $ 71,973 $ 231 $ (17,338) $ 54,878
Net loss (3,158) (3,158)
Foreign currency translation
adjustments (5,065) (5,065)
--------
Comprehensive loss (8,223)
Issuance of 410,257 shares of common
stock in connection with the conversion
of convertible subordinated notes 1 999 1,000
Other (6) (6)
---- -------- -------- --------- --------
Balance at June 30, 1999 $ 13 $ 72,966 $ (4,834) $ (20,496) $ 47,649
==== ======== ======== ========= ========
</TABLE>
The comprehensive loss for the three months ended June 30, 1999 and 1998 was
$6,654,000 and $673,000, respectively. Comprehensive income for the nine months
ended June 30, 1998 was $552,000.
5. SPECIAL CHARGES
During the fourth quarter of fiscal 1998, the Company's Board of Directors
approved the 1999 Strategic Operating Plan (the "1999 Plan"), which is designed
to restructure the Company from a holding company with 23 operating companies
into five integrated divisions that focus on specific market segments. The 1999
Plan, has eliminated redundant costs and is intended to improve operating
efficiencies, is expected to be substantially completed by the end of fiscal
1999. The plan includes costs associated with the exiting and consolidation of
certain facilities and employee termination costs. In conjunction with the 1999
Plan, the Company expected to
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reduce its domestic and foreign workforce by approximately 75 people and
eliminate certain administrative and production-related functions no longer
required. Through June 30, 1999, 114 employees have been terminated in
conjunction with the 1999 Plan. Of the 114 employees terminated, 90 people have
received, or are currently receiving, termination benefits in accordance with
Company guidelines or local laws. Further, six facilities have been closed or
relocated as of June 30, 1999, with one additional facility scheduled to
relocate prior to September 30, 1999. Other costs associated with the 1999 Plan
of approximately $1,700,000, which did not meet the criteria for recognition at
September 30, 1998, are expected to be incurred during fiscal 1999, of which,
the Company incurred $784,000 and $1,487,000 during the quarter and nine months
ended June 30, 1999, respectively.
The following table summarizes the provisions, payments and the unpaid balances
associated with the 1999 Plan. The unpaid balances, or reserve, are expected to
be utilized through fiscal 1999 and 2000:
TERMINATIONS OTHER EXIT
BENEFITS COSTS TOTAL
------------ ---------- -----
(In thousands)
Provision in fiscal 1998 $ 1,076 $ 1,782 $ 2,858
Payments in fiscal 1998 (120) (480) (600)
------- ------- -------
Reserve at September 30, 1998 956 1,302 2,258
Provision in fiscal 1999 596 891 1,487
Payments in fiscal 1999 (1,150) (1,426) (2,576)
------- ------- -------
Reserve at June 30, 1999 $ 402 $ 767 $ 1,169
======= ======= =======
In conjunction with its 1999 Plan, the Company determined that it would exit the
acquired Bioclear business. During the fourth quarter of fiscal 1998, the assets
of Bioclear, primarily related to its manufacturing facility located in
Winnipeg, Canada, were reduced to their estimated net realizable value. Based on
the status of the sales process and Waterlink's June 1999 decision regarding how
to best dispose of the facility, the Company further reduced the estimated net
realizable value of these remaining assets by $1,300,000 and recorded this
change in accounting estimate during the quarter ended June 30, 1999.
As a result of the reduction in estimated net realizable value of the remaining
Bioclear assets, together with the termination and facility consolidation costs
previously discussed, the Company has recorded special charges totaling
$2,084,000 and $2,787,000 during the quarter and nine months ended June 30,
1999, respectively.
The Company incurred special charges of $1,494,000 during the three and nine
months ended June 30, 1998 primarily attributable to contractual obligations to
its former chief executive officer, who resigned in June 1998, and costs
necessary to recruit executives to Waterlink.
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6. EARNINGS PER SHARE
The following table sets forth the computation of basic and assuming dilution
earnings (loss) per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings (loss) per share-
net income (loss) $ (168) $(4,561) $ 2,064 $(3,158)
======= ======= ======= =======
Denominator:
Average shares outstanding- basic 12,006 12,636 11,964 12,529
Effect of dilutive securities:
Stock options and warrants -- -- 677 --
------- ------- ------- -------
Denominator for diluted earnings (loss) per share-
weighted average shares and assumed conversions 12,006 12,636 12,641 12,529
======= ======= ======= =======
Earnings (loss) per common share:
Basic $ (0.01) $ (0.36) $ 0.17 $ (0.25)
Assuming dilution $ (0.01) $ (0.36) $ 0.16 $ (0.25)
</TABLE>
For all periods presented, certain issuances of potential common stock and
certain outstanding convertible subordinated notes were excluded from the
computation of earnings per share, assuming dilution, since their inclusion in
the computation would have an anti-dilutive effect.
7. SUBSEQUENT EVENTS
On July 9, 1999, Waterlink entered into an amendment of its $87 million
domestic credit facility. This amendment was effective on June 29, 1999 and
waives until October 8, 1999 certain financial covenants that were not
otherwise satisfied at June 30, 1999, assuming Waterlink realizes not less than
$700,000 of operating income on a monthly basis for the remainder of fiscal
1999. As part of this amendment, $2.6 million of borrowings were made available
to Waterlink as the result of third party guarantees.
In connection with assisting in the process of improving our capital structure
by providing the $2.6 million of guarantees, Waterlink granted the guarantors
warrants to purchase, in the aggregate, up to 283,637 shares of Waterlink
common stock at an exercise price of $.01 per share. The warrants are
immediately exercisable and expire if unexercised in five years. Of the 283,637
warrants, 125,000 were issued at the time the guarantees were issued and the
remaining 158,637 warrants will be issued upon shareholder approval. The
125,000 warrants were valued at $2.74 per warrant and the remaining 158,637
will not be valued until shareholder approval is obtained.
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PART I, ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
WATERLINK, INC. AND SUBSIDIARIES
OVERVIEW
Waterlink is an international provider of integrated water purification
and wastewater treatment solutions, principally to industrial and municipal
customers. Waterlink was incorporated in Delaware on December 7, 1994 and has
grown externally by completing thirteen acquisitions.
The current focus of Waterlink is the implementation of its 1999
Strategic Operating Plan. The 1999 plan is being implemented in three phases:
the restructuring phase, the cost reduction phase, and the growth phase.
The restructuring phase was completed prior to October 1, 1998, the
beginning of Waterlink's current fiscal year, and restructured Waterlink from
a holding company that completed 13 acquisitions consisting of 23 separate
operating companies into the following five fully integrated divisions that
are focused on their specific markets:
- the Biological Wastewater Treatment Division
- the Separations Division
- the Pure Water Division
- the Specialty Products Division
- the European Water and Wastewater Division
This divisional structure allows Waterlink to utilize the strengths of
its complementary product lines and brand name to work closer with customers.
The cost reduction phase established goals of reducing selling, general
and administrative expenses by $4.3 million in fiscal 1999, principally by
reducing the number of employees by 75, or approximately 10% of the work force,
and by closing seven facilities. Waterlink has decided to curtail its
manufacturing activities wherever possible in favor of partnering with vendors
who manufacture components used in our systems and equipment. As of June 30,
1999, the total number of employees has been reduced by 114 people, in excess
of the 75 originally contemplated by the 1999 plan, and the annualized cost
savings goal of $4.3 million has been surpassed by approximately $1.1 million.
With regard to facilities, six have been closed and the remaining one is
scheduled to relocate before September 30, 1999, the end of Waterlink's fiscal
year.
The cost reduction phase also includes an initiative to reduce
production costs by identifying common suppliers among divisions and
consolidating purchases to increase Waterlink's purchasing power. Supply
contracts with these common vendors are expected to provide cost savings to help
Waterlink remain competitive in the long term.
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Waterlink is now focused on implementing the growth phase of the 1999
plan, which provides for adding at least 25 sales and marketing professionals
this fiscal year, 15 of whom have already accepted positions, in order to
improve revenue performance over the long term. These additional costs will be
funded, in part, by the additional $1.1 million of annualized savings as a
result of the cost reduction phase of the 1999 plan.
The improved communications and specific identification of markets and
products resulting from the restructuring of Waterlink, together with the
reinvestment in sales and marketing professionals, are intended to allow
Waterlink to increase its sales efforts. Two specific areas of focus are the
implementation of a key account program with selected worldwide buyers of
Waterlink product offerings, and our integrated systems effort that is expected
to provide more interdivisional cross selling opportunities with certain key
customers. Waterlink is also developing sales strategies in regions where we do
not currently have a significant presence or wish to increase our opportunities,
like South America. The growth phase of the 1999 plan is expected to help build
Waterlink into a sales, marketing and engineering leader in the industry,
focused on profitable growth over the long term.
Waterlink's new organization is also designed to more efficiently
integrate future acquisitions. Waterlink's current capital structure does not
support an acquisition program. Waterlink's intends to improve its capital
structure through a combination of improved operating performance and access to
capital markets, which we expect will enable us to resume our acquisition
program. Acquisitions are expected to play a strategic role in Waterlink's
future to increase competitiveness, spur revenue and earnings growth, and
enhance our total solutions capability.
All acquisitions have been accounted for under the purchase method of
accounting and are included in the results of operations for the period
subsequent to the effective date of acquisition. Due to the timing and magnitude
of these acquisitions, results of operations for the periods presented are not
necessarily comparable or indicative of operating results for current or future
periods.
The majority of the systems and equipment produced by Waterlink are
custom designed and take a number of months to produce. Revenues from large
contracts are recognized using the percentage of completion method of accounting
in the proportion that costs incurred bear to total estimated costs at
completion. Revisions of estimated costs or potential contract losses, if any,
are recognized in the period in which they are determined. Provisions are made
currently for all known or anticipated losses. Variations from estimated
contract performance could result in a material adjustment to operating results
for any fiscal quarter or year. Claims for extra work or changes in scope of
work are included in revenues when collection is probable. Revenues from
remaining systems and equipment sales are recognized when shipped.
In the past Waterlink has experienced quarterly fluctuations in
operating results due to the contractual nature of its business and the
consequent timing of these orders. As part of its strategic plan, Waterlink
expects that it may receive contracts that are significantly larger than those
received by Waterlink historically. In addition, certain of
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the contracts will be subject to the customer's ability to finance, or fund
from government sources, the actual costs of completing the project as well as
the ability to receive any necessary permits to commence the project.
Therefore, Waterlink expects that its future operating results could fluctuate
significantly, especially on a quarterly basis, due to the timing of the
awarding of such contracts, the ability to fund project costs, and the
recognition by Waterlink of revenues and profits. In addition, Waterlink has
historically operated with a moderate backlog. However, as a result of its
strategic plan, Waterlink anticipates that both the dollar volume and number of
contracts in its backlog will increase significantly. As of June 30, 1999,
Waterlink's total backlog was approximately $46.0 million, consisting of $39.8
million of written purchase orders for capital goods equipment and $6.2 million
of firm commitments to purchase recurring revenue products from our specialty
products division. Quarterly sales and operating results will be affected by
the volume and timing of contracts received and performed within the quarter,
which are difficult to forecast. Any significant deferral or cancellation of a
contract could have a material adverse effect on Waterlink's operating results
in any particular period. Because of these factors, Waterlink believes that
period-to-period comparisons of its operating results are not necessarily
indicative of future performances.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, statements of
operations data as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1999 1998 1999
----- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 61.2 72.5 62.2 68.8
----- ----- ----- -----
Gross Profit 38.8 27.5 37.8 31.2
Selling, general and administrative expenses 30.6 26.9 29.1 25.5
Special charges 4.3 4.8 1.6 2.2
Amortization 1.7 1.2 1.5 1.2
----- ----- ----- -----
Operating Income (Loss) 2.2 (5.4) 5.6 2.3
Other income (expense):
Interest expense (2.9) (4.0) (1.8) (4.0)
Interest income and other items - net 0.4 (0.3) 0.1 (0.1)
----- ----- ----- -----
Income (Loss) Before Income Taxes (0.3) (9.7) 3.9 (1.8)
Income taxes 0.2 0.9 1.7 0.7
----- ----- ----- -----
Net Income (Loss) (0.5)% (10.6)% 2.2% (2.5)%
===== ===== ===== =====
</TABLE>
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Net Sales: Net sales for the three months ended June 30, 1999 were $43,083,000,
an increase of $8,146,000 from the comparable prior period. The increase was due
to the acquisition on June 5, 1998 of Barnebey & Sutcliffe Corporation,
Sutcliffe Speakman Carbons Limited and Sutcliffe Croftshaw Limited, which we
collectively refer to as our specialty products division. Waterlink experienced
negative internal growth for the
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quarter of 6.8%, resulting primarily from the timing of orders at two specific
domestic locations. If currency rate fluctuations were excluded, negative
internal growth for the quarter would have been 4.5%. Waterlink measures
internal growth by comparing each subsidiary's net sales from the months
subsequent to their respective acquisition dates during the prior year to those
same months in the current year.
Gross Profit: Gross profit for the three months ended June 30, 1999 was
$11,854,000, a decrease of $1,696,000 from the comparable prior period. Gross
margin was 27.5% for the 1999 period as compared to 38.8% for the 1998 period.
We decided to discontinue the manufacturing processes for our Great Lakes
subsidiary product line in favor of utilizing subcontractors. As a result of
this decision, during the quarter ended June 30, 1999, Waterlink recognized
$2,137,000 of costs, comprised of $1,191,000 of cost overruns that took place
on a contractual obligation and $946,000 of inventory write downs and other
costs. Absent the $2,137,000 of costs associated with the exit of the Great
Lakes facility, the gross margin would have been 32.5% for the three months
ended June 30, 1999. The adjusted gross margin of 32.5% is lower than the 38.8%
realized in the 1998 period primarily due to the timing of the acquisition of
the specialty products division, which is included in operations for one month
in 1998 versus three months in 1999. The specialty products division
experiences lower margins as compared to other Waterlink divisions.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses for the three months ended June 30, 1999 were
$11,600,000, an increase of $894,000 from the comparable prior period. The
increase was primarily due to the acquisition of the specialty products
division. Selling, general and administrative expenses as a percentage of net
sales were 26.9% in 1999 as compared to 30.6% for the comparable prior period.
This decrease primarily reflects the costs savings realized from Waterlink's
1999 plan; as well as the impact of the June 1998 acquisition of the specialty
products division, which historically experiences a lower percentage of
selling, general and administrative expenses as a percentage of sales as
compared to other Waterlink divisions. Selling, general and administrative
expenses for the three months ended June 30, 1999 were increased by a charge of
$255,000 from the write off of costs associated with acquisition activity that
ceased during the quarter. Absent this write off, the increase from the 1998
period would have been $639,000 and selling, general and administrative
expenses as a percentage of sales would have been 26.3% for the three months
ended June 30, 1999.
Special Charges: Special charges of $2,084,000 during the three months ended
June 30, 1999 consisted of the following:
- Continuing costs of $784,000 associated with the implementation of
Waterlink's 1999 plan, primarily related to termination benefits
and facility consolidation costs.
- In conjunction with our 1999 plan, we determined that we would
exit the acquired Bioclear business. During the fourth quarter of
fiscal 1998, the assets of Bioclear, primarily related to
Bioclear's manufacturing facility
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<PAGE> 15
located in Winnipeg, Canada, were reduced to their estimated net
realizable value. Based on the status of the sales process and
Waterlink's June 1999 decision regarding how to best dispose of
the facility, we further reduced the estimated net realizable
value of these remaining assets by $1,300,000.
We expect to recognize additional special charges associated with our 1999 plan
of approximately $213,000 during the remainder of fiscal 1999.
Waterlink incurred special charges of $1,494,000 during the three months ended
June 30, 1998 primarily attributable to contractual obligations to our former
chief executive officer, who resigned in June 1998, and costs necessary to
recruit executives to Waterlink.
Amortization: Amortization expense for the three months ended June 30, 1999 was
$515,000, a decrease of $55,000 from the comparable prior period. This net
decrease has two components. First, amortization expense was reduced by $107,000
from the exit of Waterlink's Bioclear business during the fourth quarter of
fiscal 1998. Second, this reduction was partially offset by $52,000 of
additional amortization of goodwill associated with the June 1998 acquisition of
the specialty products division.
Interest Expense: Interest expense for the three months ended June 30, 1999 was
$1,702,000, an increase of $684,000 from the comparable prior period primarily
due to increased borrowings related to Waterlink's fiscal 1998 acquisitions. We
expect interest expense to increase by approximately $100,000 per quarter as a
result of an interest rate increase effected in the fifth amendment to our bank
credit agreement.
Income Taxes: Waterlink recorded income taxes of $367,000 on a pre-tax loss of
$4,194,000 for the three months ended June 30, 1999. This income tax expense was
recorded on our earnings outside the United States and in certain states
domestically. For the three months ended June 30, 1998, Waterlink recorded
income taxes of $75,000 on a pre-tax loss of $93,000 due to non-deductible
goodwill amortization in connection with certain of its acquisitions.
Nine Months Ended June 30, 1999 Compared to Nine Months Ended June 30, 1998
Net Sales: Net sales for the nine months ended June 30, 1999 were $128,858,000,
an increase of $34,591,000 from the comparable prior period. The increase was
due to the acquisition of Chemitreat Services, Inc, on March 2, 1998; of
Aquafine Engineering Services Limited and Purac Engineering Incorporated in a
single transaction on March 25, 1998; and of the specialty products division on
June 5, 1998. Waterlink experienced negative internal growth for the nine months
of 16.1%, resulting primarily from significant revenues generated by
German-based sales activity and a Utah-based land development wastewater project
in the comparable prior period. Excluding these two factors, internal growth
would have declined by 6.4% due to the timing of orders at two specific domestic
locations. Further, if currency rate fluctuations were excluded, negative
internal growth for the nine months would have been 5.5%.
15
<PAGE> 16
Gross Profit: Gross profit for the nine months ended June 30, 1999 was
$40,151,000, an increase of $4,481,000 from the comparable prior period due to
the acquisitions. Gross margin was 31.2% for the 1999 period as compared to
37.8% for the 1998 period. We decided to discontinue the manufacturing processes
for our Great Lakes subsidiary product line in favor of utilizing
subcontractors. As a result of this decision, during the nine months ended June
30, 1999, Waterlink recognized $2,137,000 of costs, comprised of $1,191,000 of
cost overruns that took place on a contractual obligation and $946,000 of
inventory write downs and other costs. Absent the $2,137,000 of costs associated
with the exit of the Great Lakes facility, the gross margin would have been
32.8% for the nine months ended June 30, 1999. The adjusted gross margin of
32.8% is lower than the 37.8% realized in the 1998 period primarily due to the
June 1998 acquisition of the specialty products division, which historically
experiences lower margins as compared to other Waterlink divisions.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses for the nine months ended June 30, 1999 were
$32,829,000, an increase of $5,371,000 from the comparable prior period. The
increase was primarily due to the acquisitions. Selling, general and
administrative expenses as a percentage of net sales were 25.5% in 1999 as
compared to 29.1% for the comparable prior period. This decrease primarily
reflects the costs savings realized from Waterlink's 1999 plan; as well as the
impact of the June 1998 acquisition of the specialty products division, which
historically experiences a lower percentage of selling, general and
administrative expenses as a percentage of sales as compared to other Waterlink
divisions. The selling, general and administrative expenses for the nine months
ended June 30, 1999 were increased by a charge of $255,000 from the write off of
costs associated with acquisition activity that ceased during the quarter ended
June 30, 1999.
Special Charges: Special charges of $2,787,000 during the nine months ended June
30, 1999 related to the following:
- Continuing costs of $1,487,000 associated with the implementation
of Waterlink's 1999 plan, primarily related to termination
benefits and facility consolidation costs.
- In conjunction with our 1999 plan, we determined that we would
exit the acquired Bioclear business. During the fourth quarter of
fiscal 1998, the assets of Bioclear, primarily related to
Bioclear's manufacturing facility located in Winnipeg, Canada,
were reduced to their estimated net realizable value. Based on the
status of the sales process and Waterlink's June 1999 decision
regarding how to best dispose of the facility, we further reduced
the estimated net realizable value of these remaining assets by
$1,300,000.
We expect to recognize additional special charges associated with our 1999 plan
of approximately $213,000 during the remainder of fiscal 1999.
16
<PAGE> 17
Waterlink incurred special charges of $1,494,000 during the nine months ended
June 30, 1998 primarily attributable to contractual obligations to our former
chief executive officer, who resigned in June 1998, and costs necessary to
recruit executives to Waterlink.
Amortization: Amortization expense for the nine months ended June 30, 1999 was
$1,569,000, an increase of $157,000 from the comparable prior period. The
increase was primarily due to the additional goodwill resulting from the fiscal
1998 acquisitions, offset by $322,000 reduction in amortization expense
resulting from the exit of Waterlink's Bioclear business during the fourth
quarter of fiscal 1998.
Interest Expense: Interest expense for the nine months ended June 30, 1999 was
$5,092,000, an increase of $3,355,000 from the comparable prior period primarily
due to increased borrowings related to Waterlink's fiscal 1998 acquisitions.
Income Taxes: Waterlink recorded income taxes of $869,000 on a pre-tax loss of
$2,289,000 for the nine months ended June 30, 1999. This income tax expense was
recorded on its earnings outside the United States and in certain states
domestically. The effective income tax rate of 44.1% for the nine months ended
June 30, 1998 exceeded the United States federal statutory rate of 34% due
primarily to non-deductible goodwill amortization related to certain
acquisitions made by Waterlink as well as state and local income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, Waterlink's primary sources of liquidity have
been:
- borrowings available under credit facilities
- net proceeds from the sale of Waterlink's common and preferred
stock
- issuance of common stock and seller financing incurred in
connection with Waterlink's completed acquisitions
- cash flow from certain profitable acquisitions
Historically, Waterlink's primary uses of capital have been:
- the funding of its acquisition program
- working capital requirements including the funding for growth
at certain acquisitions
- the funding required for certain under-performing acquisitions
Waterlink does not currently anticipate making significant capital
investments in plant and equipment because of our efforts to partner with
vendors who manufacture most of the components used in our systems and
equipment.
For the nine months ended June 30, 1999, net cash provided by operating
activities was $2,337,000. This positive cash flow, along with $519,000 of
proceeds
17
<PAGE> 18
from the sale of a building, were used to help fund purchases of equipment
totaling $1,470,000 and cash outlays related to the purchases of businesses of
$1,902,000.
In the fourth quarter of fiscal 1998, Waterlink's board of directors
approved the 1999 plan. The 1999 plan provides for costs associated with the
exiting of certain facilities and employee termination costs. Costs associated
with this plan totaled $2,858,000 during fiscal 1998 and $1,487,000 for the nine
months ended June 30, 1999, of which approximately $1,169,000 remains reserved
for future payment at June 30, 1999. We expect to recognize additional special
charges associated with the 1999 plan of approximately $213,000 during the
remainder of fiscal 1999.
Waterlink is in the process of selling and disposing of non-revenue
producing assets. A Waterlink-owned facility vacated during fiscal 1998 was sold
and the proceeds of $519,000 were received during January 1999. Waterlink is
also in the process of selling our land, building and equipment in Winnipeg,
Manitoba, Canada, the former site of our Bioclear manufacturing facility. Based
on the status of the sales process and Waterlink's June 1999 decision regarding
how to best dispose of the facility, Waterlink further reduced the estimated net
realizable value of these remaining assets held for sale by $1,300,000 to
approximately $1,000,000, and recorded this change in accounting estimate during
the quarter ended June 30, 1999.
During fiscal 1998 Waterlink invested in Aquatec Water Systems,
Incorporated, a designer and manufacturer of specialized multi-chamber pumps for
the pure water industry, in the form of two $700,000 subordinated notes,
convertible into approximately 30% of the equity of Aquatec, together with other
stock purchase options. Waterlink reached an agreement to sell both notes at
their face value of $700,000 each plus interest to a group of investors.
Waterlink has received payment for one of the $700,000 notes and has received
$550,000 of the other note. Waterlink expects to collect the remaining balance
of $150,000 before September 30, 1999, the end of our fiscal year.
Acquisitions
Waterlink's current capital structure does not support an acquisition
program. Waterlink's intends to improve its capital structure through a
combination of improved operating performance and access to capital markets,
which we expect will enable us to resume our acquisition program. Acquisitions
are expected to play a strategic role in Waterlink's future to increase
competitiveness, spur revenue and earnings growth, and enhance our total
solutions capability. The timing, size and success of any acquisition effort and
the associated potential capital commitments are unpredictable at this time. As
a result of the specialty products division acquisition and the implementation
of our 1999 plan, our debt is in excess of our stockholders' equity and we bear
the risks associated with increased leverage.
During the nine months ended June 30, 1999 Waterlink made additional
purchase consideration payments of $1,902,000 related to the achievement of
targeted operating results of two of our acquisitions. In addition, additional
purchase consideration of
18
<PAGE> 19
$500,000 in connection with one of Waterlink's acquisitions had been earned and
recorded as of June 30, 1999, and is expected to be satisfied during this
calendar year. These amounts have been recorded as additional goodwill.
Under the terms of certain of the purchase agreements, Waterlink may be
required to make additional purchase consideration payments of up to $1,224,000,
contingent upon the achievement of specified operating results through fiscal
2000. The payments that are expected to be required for meeting fiscal 1999 and
2000 targets are $224,000 and $1,000,000, respectively. Any additional purchase
consideration payments will be treated as additional goodwill for accounting
purposes.
Credit Availability
Waterlink's credit facilities are comprised of (1) an $87,000,000
domestic facility with Bank of America National Trust & Savings Association as
agent, which expires on May 19, 2003 and (2) separate facilities aggregating
approximately $6,500,000 at three of its overseas subsidiaries. The credit
facilities will be utilized to primarily fund operating activities of Waterlink
and, to a lesser extent, fund future acquisitions.
Effective June 29, 1999, Waterlink entered into an amendment of our $87
million domestic facility, which waives until October 8, 1999 certain financial
covenants that were not satisfied at June 30, 1999, assuming Waterlink realizes
not less than $700,000 of operating income on a monthly basis for the remainder
of fiscal 1999. As part of this amendment, $2,600,000 of borrowings was made
available to Waterlink as the result of third party guarantees, and the interest
rate charged Waterlink was increased by 50 basis points. These third party
guarantees were provided by Brantley Venture Partners III, L.P. in the amount of
$2,300,000, and by the three executive officers of Waterlink totaling $300,000.
In connection with assisting in the process of improving our capital
structure by providing the $2,600,000 of guarantees, Waterlink granted the
guarantors warrants to purchase, in the aggregate, up to 283,637 shares of
Waterlink common stock at an exercise price of $.01 per share. Of the 283,637
warrants, 125,000 were issued at the time the guarantees were issued and the
remaining 158,637 warrants will be issued subject to shareholder approval. The
warrants are immediately exercisable and expire if unexercised in five years.
The number of warrants granted to each guarantor was based on their
proportionate share of the $2,600,000 in guarantees.
Availability for future borrowings of $2,600,000 at June 30, 1999 under
the credit facilities is based on third party guarantees. Availability for
future borrowings may increase or decrease based on the pro forma operating
performance of Waterlink, the ability to raise additional capital to reduce
indebtedness, and the successful negotiation of amended terms and conditions of
the $87 million domestic facility. Presently, Waterlink is exploring with
certain institutional investors financing alternatives, including the sale
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<PAGE> 20
of equity type securities, part of the proceeds of which would be used primarily
to reduce indebtedness. No agreement to that effect has been reached to date.
In the event that the terms of the June 29, 1999 amendment are not met,
we are unable to raise additional capital to comply with the credit agreement,
or we are unable to negotiate a further amendment to the credit agreement, then
Waterlink would be in default under the terms of the credit agreement. If there
is an event of default the lenders could declare that all borrowings under the
credit agreement are immediately due and payable. If we are unable to repay
those amounts then the lenders could proceed to foreclose on their security
interest, which comprises substantially all of our assets.
We are currently discussing with our lenders an additional amendment to
the credit agreement. If we are able to raise sufficient additional capital we
expect to amend the credit agreement to make additional funds available to us
and to continue the growth phase of the 1999 plan.
Loans under the credit facilities bear interest at a designated
variable base rate plus spreads ranging from 0 to 75 basis points depending on a
leverage ratio of total consolidated indebtedness to Waterlink's earnings before
interest, taxes, depreciation and amortization. At Waterlink's option, the
credit facilities bear interest based on a designated London interbank offering
rate, or LIBOR, plus spreads ranging from 100 to 275 basis points, depending on
Waterlink's leverage ratio.
The credit facilities restrict or prohibit Waterlink from taking many
actions, including paying dividends and incurring or assuming other indebtedness
or liens. The banks that participate in the credit facilities also must approve
most acquisitions. Waterlink's obligations under the credit facilities are
secured by liens on substantially all of Waterlink's domestic assets, including
equipment, inventory, accounts receivable and general intangibles and the pledge
of most of the stock of Waterlink's subsidiaries. Waterlink has guaranteed the
payment by our three overseas subsidiaries of their obligations under the
overseas facilities. The three overseas subsidiaries have given the lenders an
assurance that the subsidiaries would not pledge their assets to any other
party.
Waterlink also has in place a $3,000,000 credit facility with Royal
Bank of Canada to fund Canadian working capital requirements including banker's
acceptances and letters of credit. Interest rates are negotiated on an
individual borrowing basis and are related to the Royal Bank of Canada's prime
rate. At June 30, 1999 the Canadian credit facility was fully utilized.
Borrowings under the Canadian credit facility are payable upon demand and are
guaranteed by the real and personal property of Waterlink's Bioclear facility.
Waterlink's earnings are affected by changes in interest rates charged
on our domestic facility. During 1998, Waterlink entered into an interest rate
swap agreement with a major commercial bank to modify the interest
characteristics of its domestic facility. The agreement involves the exchange of
amounts based on a fixed rate of interest for an amount based on a LIBOR-based
floating rate over the life of the agreement without an exchange of the notional
amount upon which the payments are based. The
20
<PAGE> 21
agreement, which expires on December 30, 1999, fixes Waterlink's LIBOR-based
rate at 5.25% on a notional amount of $75,000,000.
Waterlink also has exposure to currency rate fluctuations related
primarily to the purchases of inventory. Waterlink continues to utilize a
limited number of foreign exchange instruments, primarily forward contracts, to
manage this exposure.
Waterlink believes that through the end of fiscal 1999, sufficient
funds for our working capital needs, additional cash requirements of the 1999
plan and additional contingent consideration payments related to acquisitions
will be provided by:
- future cash flow from operations
- borrowings under its credit facilities
- issuance of subordinated indebtedness, common stock, preferred
stock and seller financing incurred in connection with future
financings or acquisitions
- the sale of certain non-revenue producing assets
Before October 8, 1999 Waterlink intends to enter into an amendment to
our $87 million domestic facility or enter into a new credit facility with other
lenders in order to meet our working capital requirements and to avoid being in
default on that date. The success of either action is dependent upon Waterlink's
operational performances, our ability to raise additional capital to reduce
indebtedness and the willingness of our senior lenders to agree to a
satisfactory amendment or our ability to finalize a new credit facility. While
we believe that we will be able to enter into a satisfactory amendment to
our domestic facility or a new credit facility to meet our requirements and
avoid default, if we are unable to do so, we would seek other sources of
capital or pursue other strategic alternatives.
Year 2000
The year 2000 issue, as widely reported, could cause malfunctions in
certain computer-related applications with respect to dates on or after January
1, 2000. These malfunctions could relate to Information Technology , IT, or
non-IT environments. Due to Waterlink's decentralized IT environments,
individual assessments, in accordance with Waterlink's year 2000 program, have
been conducted at Waterlink's operating companies. Collectively, these
assessments indicate that Waterlink's exposure to this segment of the year 2000
issue is not significant as Waterlink does not extensively rely on IT systems
which require modification. Waterlink's externally developed system issues have
been assessed company-wide through inquiry of external vendors and testing
procedures where necessary. The appropriate upgrades, if required, have been (or
are scheduled to be) attained in order to make these systems year 2000
compliant. Waterlink has tested internally developed software systems where
applicable and has developed programs to make these systems year 2000 compliant.
Testing of upgraded or modified systems has begun at Waterlink's various
operating units. Results of these testing procedures, which are scheduled to be
completed by the end of fiscal 1999, are incomplete.
The year 2000 program also addresses issues related to non-IT
environments. Collectively, these assessments indicate that Waterlink's exposure
to this segment of the year 2000 issue is not significant due to Waterlink's
limited manufacturing operations and related capital equipment needs.
Waterlink's operating equipment has been assessed
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<PAGE> 22
through inquiry of external manufacturers and internal testing procedures.
Remediation efforts have begun where necessary. Collectively, Waterlink intends
to complete and test remediated assets by the end of fiscal 1999.
Waterlink's primary system interface with an external party involves
its banking institutions. Based on inquiries of its banking institutions,
Waterlink is not aware of any unresolved year 2000 issues. Further, due to
Waterlink's decentralized operations, individual assessments, in accordance with
Waterlink's year 2000 program, have been conducted at Waterlink's operating
companies regarding significant suppliers and subcontractors. These assessments,
which are not complete, have been executed primarily through inquiry of our
various suppliers and subcontractors. To date, Waterlink is not aware of any
external party with an unresolved year 2000 issue that would materially impact
Waterlink's operations and financial position. However, Waterlink has no means
of ensuring that external parties will be year 2000 compliant. The inability of
external parties to resolve their year 2000 issue in a timely manner could
impact Waterlink's operations and financial position. The effect of
non-compliance by external parties is not determinable.
Waterlink has primarily utilized internal resources to assess, test,
remediate and implement software and equipment related to the year 2000. The
total cost of Waterlink's year 2000 program, excluding employee salaries, is
estimated at $400,000, primarily attributable to software upgrades and
modifications. Waterlink has incurred approximately $325,000 related to the
various phases of our year 2000 program through June 30, 1999.
Management of Waterlink believes that it has a program established to
resolve the year 2000 issue in a timely manner. Waterlink's year 2000 program
has not been completed. In the event Waterlink does not complete its remaining
year 2000 procedures, certain functions may be interrupted. Waterlink does not
have a formal contingency plan established if all phases of its year 2000
program are not completed. However, appropriate actions, such as interim manual
information systems, will be instituted to mitigate such interruption. In
addition, disruptions in the economy generally resulting from unresolved year
2000 issues could also materially adversely affect Waterlink. The potential
liability and loss of revenue from these issues is not determinable.
Impact of Recently Issued Accounting Standards
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for the reporting and display of
comprehensive income and its components. This statement is intended to address
the concerns of financial statement users for the increasing number of items
that bypass the income statement, such as foreign currency translation
adjustments. Waterlink adopted this statement on October 1, 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which changes the way public
companies report
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<PAGE> 23
segment information in annual financial statements. The statement also requires
public companies to report selected segment information in interim financial
reports to shareholders. The statement is effective for Waterlink's annual
reporting in fiscal 1999 and restatement of comparative information for earlier
years is required in the initial year of adoption. The implementation of the
1999 plan will require Waterlink to present segmented industry information upon
adoption of SFAS No. 131.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. The statement will require, among other things, that all
derivatives be recorded on the balance sheet at fair value. In June 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133", which
makes SFAS No. 133 effective for Waterlink beginning October 1, 2000. Waterlink
has not yet determined what the effect of adopting SFAS No. 133 will be on our
operations or financial position.
FORWARD LOOKING STATEMENTS
With the exception of historical information, the matters discussed in
this report may include forward-looking statements that involve risks and
uncertainties. While forward-looking statements are sometimes presented with
numerical specificity, they are based on variety of assumptions made by
management regarding future circumstances over which Waterlink has little or no
control. A number of important factors, including those identified in this
section as well as factors discussed elsewhere herein, could cause Waterlink's
actual results to differ materially from those in forward-looking statements or
financial information. Actual results may differ from forward-looking results
for a number of reasons, including the following:
- changes in world economic conditions, including
- instability of governments and legal systems in countries in
which Waterlink conducts business
- significant changes in currency valuations
- recessionary environments
- year 2000 compliance issues relating to Waterlink's programs
and external parties, including suppliers and customers
- the effects of military conflicts
- changes in customer demand and timing of orders as they affect
sales and product mix, including
- the effect of delays in government approvals and funding
- the effect of strikes at customer's facilities
- variations in backlog
- the impact of changes in industry business cycles
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<PAGE> 24
- competitive factors, including
- changes in market penetration
- introduction of new products by existing and new competitors
- changes in operating costs, including
- changes in Waterlink's and its subcontractors' manufacturing
processes
- changes in costs associated with varying levels of operations
- changes resulting from different levels of customers demands
- effects of unplanned work stoppages
- changes in cost of labor and benefits
- the cost and availability of raw materials and energy
- the success of Waterlink's strategic plan
- the ability to raise sufficient additional capital
- the ability to amend Waterlink's credit agreement
- unanticipated litigation, claims or assessments
24
<PAGE> 25
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
27.1 Financial Data Schedule as of and for the nine months ended
June 30, 1999
(b) Reports on Form 8-K.
None.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Waterlink, Inc.
(Registrant)
By: /s/ T. Scott King
------------------
T. Scott King
President and Chief Executive Officer
By: /s/ Michael J. Vantusko
------------------------
Michael J. Vantusko
Chief Financial Officer
Dated: August 11, 1999
26
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