ABOUT OUR COMPANY
Davis Water & Waste Industries, Inc. manufactures and markets products
relating to the distribution of water and the treatment of water and
wastewater. The Company markets a broad line of water distribution
equipment and supplies, including underground pipe, pipe fittings, valves,
fire hydrants, water meters and related equipment, and believes that it is
the largest distributor of water distribution equipment and supplies in the
Southeast, based on annual sales of such products. The Company also
designs, engineers, manufactures, sells and installs water and wastewater
treatment and pumping equipment. From humble beginnings, Davis has grown
from a small regional company to become a New York Stock Exchange listed
company with over 670 employees nationwide. Its mission is to meet the
growing demand for clean water into the 21st Century.
Financial Highlights
<TABLE>
<CAPTION>
Year Ended April 30,
-----------------------------------------------
(In thousands, except share data,
percentages and ratios)
FOR THE YEAR 1995 1994 1993
-------------------------------------- -----------------------------------------------
<S> <C> <C> <C>
Net sales................................ $215,649 $202,621 $190,990
Net income (loss) before the cumulative
effect of the change in the method of
accounting for income taxes............. $ 3,448 ($ 5,340) $ 194
Cumulative effect of the change in the
method of accounting for income taxes... $ 0 $ 0 $ 459
Net income (loss)........................ $ 3,448 ($ 5,340) $ 653
Net income (loss) per share before the
cumulative effect of the change in the
method of accounting for income taxes... $ 1.06 ($ 1.64) $ 0.06
Cumulative effect per share of the change
in the method of accounting for income
taxes................................... $ 0.00 $ 0.00 $ 0.14
Net income (loss) per share.............. $ 1.06 ($ 1.64) $ 0.20
Cash dividends per share................. $ 0.08 $ 0.00 $ 0.00
Net income (loss) as a percentage of
beginning stockholders' equity.......... 15.5% (19.3%) 2.4%
AT YEAR-END
----------------------------------------
Total assets............................. $ 81,536 $ 82,085 $ 79,341
Working capital.......................... $ 30,594 $ 31,731 $ 33,782
Stockholders' equity..................... $ 25,332 $ 22,309 $ 27,635
Stockholders' equity per share........... $ 7.77 $ 6.83 $ 8.50
</TABLE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
About Our Company......................................... 1
Financial Highlights...................................... 1
Letter to Stockholders.................................... 2
Review of Operations...................................... 3
Selected Consolidated Financial Data...................... 6
Management's Discussion and Analysis Financial Condition
and Results of Operations................................ 8
Consolidated Financial Statements......................... 15
Directors and Executive Officers.......................... 30
Stockholder Information................................... 31
List of Locations......................................... 32
</TABLE>
<PAGE> 1
TO OUR STOCKHOLDERS:
Fiscal 1995 was a record year in both sales and net profit. Sales
for fiscal 1995 were $215,649,362, up 6.4% from fiscal 1994. Net income
was $3,448,227 as compared to a net loss of $5,340,258 for fiscal 1994. On
a per share basis, net income was $1.06 as compared to net loss of $1.64 in
fiscal 1994.
The Distribution Group's net sales for fiscal 1995 increased by
$22,393,842, or 15.5% over fiscal 1994. The increased sales of the
Distribution Group are attributed to the improvement in the economy and its
positive effects on commercial and residential land development. The
Distribution Group is currently in the process of opening two new
locations, one in Florida and the other in the Atlanta area to capitalize
on the improvement in the economy and the increased demand for the
Company's products. Sales of the Water Treatment Group were down for
fiscal 1995 compared to fiscal 1994 as a result of the shutdown of the
Turbitrol Company, a division of The Taulman Company. However, the
remaining operations in the Water Treatment Group recorded an increase in
net sales for fiscal 1995 of $4,585,158, or 10.8%. The Water Treatment
Group's backlog for fiscal 1995 has declined compared to fiscal 1994 levels
due to the shutdown of Turbitrol, but increased bookings for the first two
and a half months of fiscal 1996 indicate that the Water Treatment Group's
backlog should return to a strong level by mid year.
As a result of the Company's improved performance during the first
two quarters of fiscal 1995, the Board of Directors approved a semi-annual
cash dividend of eight cents ($0.08) per share which was paid during the
third quarter of fiscal 1995. Also, as a result of subsequent
improvements in the Company's financial position, the Board of Directors
approved a second semi-annual cash dividend in the amount of fourteen cents
($0.14) per share, which was paid on July 3, 1995 to shareholders of record
on June 26, 1995. The payment of the two semi-annual cash dividends
reflects our continuing strong operating results, our confidence in the
future, and the Company's dedication to enhancing shareholder value.
All of us at Davis Water & Waste are proud of our record year in
fiscal 1995 and excited about the new year. Management is optimistic that
fiscal 1996 will be even better than fiscal 1995, and all current
indications tend to confirm this. Housing starts are much improved and
interest rates are not expected to increase, as indicated by the June 6,
1995 reduction announced by the Federal Reserve.
Management of your Company is dedicated to maximizing the return on
stockholders' equity through outstanding service to our customers,
efficient control of costs and margins, internal growth, and sensible
acquisitions. Management extends sincere appreciation to our customers,
our dedicated employees and our loyal stockholders for their support and
contribution to the Company's success. We look forward with you to the
continuing improvement in the Company's performance and financial results
during fiscal 1996.
R. Doyle White
Chairman of the Board,
President and Chief Executive Officer
<PAGE> 2
REVIEW OF OPERATIONS
The Davis name has been associated with water for more than half a
century. A family-owned Georgia business founded in 1938 to supply
hardware for community waterworks was incorporated as Davis Water & Waste
Industries, Inc. (the "Company" or "Davis") in 1956. The Company has
subsequently expanded beyond its Southeast regional market to become a
nationally-recognized supplier of water distribution products and water and
wastewater treatment and pumping equipment. The Davis name was highlighted
in 1987 when the Company listed its common stock on the New York Stock
Exchange.
Although the Company encountered a mild downturn in its net sales
during fiscal 1992 and 1993, the Company has grown substantially since the
early 1980's and reported record sales in fiscal 1995. This growth is
attributable primarily to the implementation of an acquisition and
expansion strategy during the mid - 1980's, which led to expansion into new
markets and increased market share, and to the introduction of new water
treatment products. The Company is cautiously optimistic that its
performance in fiscal 1996 will reflect continued financial growth in
conjunction with the continued improvements in the national economy.
The Company generates the major portion of its revenues from its
traditional business of marketing water distribution equipment and
supplies, including underground pipe, pipe fittings, valves, fire hydrants
and water meters. These products are purchased from numerous manufacturers
for distribution through a network of 23 service center warehouses in 9
Southern and Western states. These products are sold principally to
independent contractors, industrial customers, municipalities and other
government agencies, and private utilities. The Company believes that it
is the largest distributor of water distribution equipment and supplies in
the Southeast, based on annual sales of such products.
Davis also offers comprehensive, turnkey solutions to the growing
public concern about water quality and wastewater treatment. The Company
custom designs, manufactures and installs water and wastewater treatment
equipment custom tailored for municipal and industrial use and distributes
related materials that enable municipalities and industry to meet
applicable health and water quality standards. Water treatment plants and
wastewater systems that process up to five million gallons of water per day
are among the large systems built by Davis at its Thomasville, Georgia
facilities and sold throughout the United States by the Company's sales
force and manufacturer's representatives. The Company also offers process
materials that are used to control odor in municipal wastewater collection
and treatment systems and other process materials that treat water and
condition sludge for disposal. These products are distributed by the
Company through its own sales force and manufacturer's representatives
primarily to municipal and industrial customers.
<PAGE> 3
The following table illustrates the contributions to the Company's
annual sales, operating income (loss), and assets attributable to regions
of the United States served by the Company. Export sales are included in
"Other."
<TABLE>
<CAPTION>
Operating
(Dollars in thousands) Net Sales Income (Loss) Assets
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1995:
Southeastern $131,569 61% $4,236 73% $65,787 81%
Midwestern 33,777 16% 1,018 18% 7,911 10%
Western 12,717 6% (860) (15%) 1,819 2%
Rocky Mountain 24,689 11% 1,056 18% 5,316 6%
Other 12,897 6% 357 6% 703 1%
-------- ---- ------ ----- ------- ----
$215,649 100% $5,807 100% $81,536 100%
======== ==== ====== ===== ======= ====
Fiscal 1994:
Southeastern $123,452 61% ($3,449) 41% $62,398 76%
Midwestern 32,236 16% (1,602) 19% 7,914 10%
Western 17,130 8% (361) 4% 5,822 7%
Rocky Mountain 16,624 8% 491 (6%) 5,248 6%
Other 13,179 7% (3,474) 42% 703 1%
-------- ---- ------- ----- ------- ----
$202,621 100% ($8,395) 100% $82,085 100%
======== ==== ======= ===== ======= ====
Fiscal 1993:
Southeastern $115,354 60% $1,272 326% $62,521 79%
Midwestern 29,746 16% 116 30% 6,760 8%
Western 16,400 9% (842) (216%) 5,295 7%
Rocky Mountain 13,503 7% (197) (51%) 3,873 5%
Other 15,987 8% 41 11% 892 1%
-------- ---- ------ ----- ------- ----
$190,990 100% $ 390 100% $79,341 100%
======== ==== ====== ===== ======= ====
</TABLE>
The Company's export sales in fiscal 1995, 1994 and 1993 totaled
$1,120,000, $1,776,000, and $5,003,000, respectively. Export sales
consisted principally of water and wastewater treatment equipment and were
made primarily in Canada, Mexico, and Puerto Rico.
Various divisions of the Company offer a wide variety of specialized
products and services that contribute to the overall performance of the
Company. A few examples of the specialized products and services provided
by these divisions are noted below.
Water Distribution Equipment and Supplies
The Distribution Group distributes a broad line of water
distribution equipment and supplies. These products include
underground pipe, pipe fittings, valves, fire hydrants, water meters
and related products. The Distribution Group operates 23 Service
Centers and handles more than 20,000 products from over 3,000
vendors. The Company's estimated 20,000 customers consist of
municipal and other government agencies, private utilities,
industrial companies, and independent contractors. The products are
used by customers in their water distribution infrastructure systems
for maintenance and repair, upgrading, and construction of new
facilities.
To assist its customers' response to the increasing need to
lower costs, the Distribution Group has instituted several technology
initiatives, including:
An integrated management information system
A part number interchange program
An on-line order information system
A job materials management system
<PAGE> 4
These systems consist of microcomputers containing the
Distribution Group's proprietary software installed at the
customer's location. Using dial up capabilities to the nearest
Distribution Group location, the customer is then connected by high
speed telecommunication lines to the appropriate Distribution Group
database. The customer has immediate access to information which
assists the customer in reducing procurement costs.
The increased application of technology, along with a focused
effort to better identify customer needs and provide solutions to
reduce customers' total cost, is designed to increase the Company's
value to the customer and thereby increase the Company's market
share.
The Company believes that it is the only national distribution
company focused entirely on water related infrastructure equipment
and supplies.
Water and Wastewater Treatment and Pumping Equipment
The Davis Industrial Waste Systems Group within the DAVCO
division provides its industrial customers with a turnkey treatment
system to assist in complying with the EPA requirement that contami-
nants be reduced in wastewater to approximately the strength of
typical domestic sewage before it reaches a municipal treatment
facility. Davis IWS also provides advanced and secondary treatment
systems for direct and indirect discharges. In addition,
construction management services, plant operations and maintenance,
and treatability/pilot studies are offered by Davis IWS.
The DAVCO division builds advanced wastewater treatment systems
on site which are able to meet the most stringent environmental
requirements, including biological nutrient removal systems. DAVCO
also builds a tertiary wastewater treatment system, the discharge
from which can be used in such applications as golf course
irrigation, thereby reducing the demand for potable water.
The Davis-EMU Group within the DAVCO division sells submersible
pumps, mixers and aerators designed and built by the German company
EMU Unterwasserpumpen. This equipment is used to pump, mix and
aerate wastewater. Davis-EMU is a major supplier of submersibles for
large municipal projects in the United States.
The Davis Process division manufactures, distributes and
supplies a variety of technology based products, equipment and
services used in the treatment and processing of water and
wastewater. The products include ODOPHOS, a solution used for
nutrient and hydrogen sulfide removal in wastewater treatment
systems; BIOXIDE, a patented biochemical process for the treatment
and prevention of hydrogen sulfide in wastewater collection systems;
POLYSTAGE scrubbers, a patented line of multistage scrubbers and
biofilter systems used primarily for the treatment of contaminated
air and vapors generated in collection and treatment systems; and
ALKA-PRO, a patented biological process control system for the
effective and efficient control of biological treatment processes.
Additionally, the Davis Process division provides full service
environmental and potable water laboratory analysis, product storage
and feed systems, maintenance services and odor surveys.
The Davis Composting and Residuals Management Group designs,
manufactures and markets equipment, processes and service for the
treatment and beneficial reuse of water and wastewater residuals.
The demand for these products and services has increased
significantly in recent years in response to new Environmental
Protection Agency regulations related to the processing and
beneficial reuse of wastewater residuals. Davis has the largest
installed base of residuals compost systems in North America. In
addition to residuals compost systems, this group also supplies lime
stabilization systems, residuals driers and residuals management
services. This complete line of products and services enables Davis
to provide our customers with the most efficient and effective
solutions to their residual processing needs.
<PAGE> 5
Selected Consolidated Financial Data
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------------------------------------------------
(In thousands, except share
data, percentages and ratios)
FOR THE YEAR 1995 1994 1993 1992 1991
--------------------------- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales................. $215,649 $202,621 $190,990 $186,719 $203,983
Income (loss) before
income taxes and the
cumulative effect of the
change in the method of
accounting for income
taxes................... $ 5,807 ($ 8,395) $ 390 ($ 1,250) ($ 1,401)
Net income (loss) before
the cumulative effect of
the change in the method
of accounting for income
taxes.................... $ 3,448 ($ 5,340) $ 194 ($ 844) ($ 1,239)
Cumulative effect of the
change in the method of
accounting for income
taxes.................... $ 0 $ 0 $ 459 $ 0 $ 0
Net income (loss)......... $ 3,448 ($ 5,340) $ 653 ($ 844) ($ 1,239)
Net income (loss) per
share before the
cumulative effect of the
change in the method of
accounting for income
taxes................... $ 1.06 ($ 1.64) $ 0.06 ($ 0.26) ($ 0.38)
Cumulative effect per
share of the change in
the method of accounting
for income taxes......... $ 0.00 $ 0.00 $ 0.14 $ 0.00 $ 0.00
Net income (loss) per
share.................... $ 1.06 ($ 1.64) $ 0.20 ($ 0.26) ($ 0.38)
Cash dividends per share $ 0.08 $ 0.00 $ 0.00 $ 0.10 $ 0.29
Average shares outstanding 3,261 3,261 3,265 3,266 3,270
Gross margin as a
percentage of net
sales.................... 14.8% 14.8% 16.5% 15.5% 15.5%
Net income (loss) as a
percentage of net
sales.................... 1.6% (2.6%) 0.3% (0.5%) (.6%)
Net income (loss) as a
percentage of beginning
stockholders' equity..... 15.5% (19.3%) 2.4% (3.0%) (4.1%)
</TABLE>
<TABLE>
<CAPTION>
AT YEAR-END
--------------------------
<S> <C> <C> <C> <C> <C>
Total assets.............. $ 81,536 $ 82,085 $ 79,341 $ 82,402 $ 88,632
Working capital........... $ 30,593 $ 31,731 $ 33,782 $ 41,891 $ 43,767
Current ratio............. 1.78 1.84 2.19 2.98 2.71
Long-term debt, less
current portion.......... $ 14,787 $ 19,425 $ 20,719 $ 30,051 $ 29,868
Stockholders' equity...... $ 25,332 $ 22,309 $ 27,635 $ 27,089 $ 28,314
Ratio of stockholders'
equity to total
liabilities.............. .45 .37 .53 .49 .47
Stockholders' equity per
share.................... $ 7.77 $ 6.83 $ 8.50 $ 8.30 $ 8.68
<PAGE> 6
Selected Consolidated Financial Data
</TABLE>
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------------------------------------------------
(In thousands, except share
data, percentages and ratios)
FOR THE YEAR 1990 1989 1988 1987 1986
--------------------------- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales................. $193,280 $196,638 $165,182 $124,895 $101,354
Income (loss) before
income taxes and the
cumulative effect of the
change in the method of
accounting for income
taxes................... $ 1,761 $ 5,699 $ 5,465 $ 4,806 $ 3,389
Net income (loss) before
the cumulative effect of
the change in the method
of accounting for income
taxes.................... $ 1,035 $ 3,433 $ 3,352 $ 2,525 $ 1,716
Cumulative effect of the
change in the method of
accounting for income
taxes.................... $ 0 $ 0 $ 0 $ 0 $ 0
Net income (loss)......... $ 1,035 $ 3,433 3,352 $ 2,525 $ 1,716
Net income (loss) per
share before the
cumulative effect of the
change in the method of
accounting for income
taxes................... $ 0.32 $ 1.05 $ 1.03 $ 0.87 $ 0.60
Cumulative effect per
share of the change in
the method of accounting
for income taxes......... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Net income (loss) per
share.................... $ 0.32 $ 1.05 $ 1.03 $ 0.87 $ 0.60
Cash dividends per share.. $ 0.28 $ 0.28 $ 0.17 $ 0.12 $ 0.09
Average shares outstanding 3,279 3,272 3,245 2,888 2,873
Gross margin as a
percentage of net sales.. 14.1% 14.6% 13.7% 15.6% 13.8%
Net income (loss) as a
percentage of net sales.. 0.5% 1.7% 2.0% 2.0% 1.7%
Net income (loss) as a
percentage of beginning
stockholders' equity..... 3.4% 12.5% 17.7% 15.0% 11.2%
</TABLE>
<TABLE>
<CAPTION>
AT YEAR-END
--------------------------
<S> <C> <C> <C> <C> <C>
Total assets.............. $ 70,295 $ 62,890 $ 60,031 $ 44,296 $ 39,288
Working capital........... $ 41,133 $ 36,622 $ 30,429 $ 19,318 $ 18,672
Current ratio............. 3.31 3.30 2.52 2.11 2.30
Long-term debt, less
current portion.......... $ 18,152 $ 14,103 $ 10,548 $ 5,694 $ 5,889
Stockholders' equity...... $ 30,430 $ 30,015 $ 27,401 $ 18,936 $ 16,868
Ratio of stockholders'
equity to total
liabilities.............. 0.76 0.91 0.84 0.75 0.75
Stockholders' equity per
share.................... $ 9.37 $ 9.29 $ 8.51 $ 6.61 $ 5.87
</TABLE>
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
During fiscal 1995, the Company reported a record year in both net
sales and net income. The Company recorded net income of $3,448,000 or
$1.06 per share for fiscal 1995 compared to a net loss of $5,340,000 or
$1.64 per share for fiscal 1994 and net income of $653,000 or $ .20 per
share for fiscal 1993. The Company's net sales for fiscal 1995 were
$215,649,000, an increase of $13,028,000, or 6.4%, compared to fiscal 1994
net sales of $202,621,000. Fiscal 1994 net sales reflected a 6.1%
improvement over fiscal 1993 net sales of $190,990,000. The improved
results for fiscal 1995 compared to fiscal 1994 are due to improved
performance by the Company's water distribution business, which reflects
the improvement in the economy nationwide, and the shutdown of The
Turbitrol Instrumentation and Controls of The Taulman Company ("Taulman")
late in fiscal 1994. The results for fiscal 1994 compared to fiscal 1993
reflect the writedown of the Company's investment in Taulman to its
realizable value and the establishment of a reserve for the shutdown of the
Turbitrol division of Taulman. The adjustment for the write down and
reserve resulted in an $8,895,000 pre-tax charge in fiscal 1994. Excluding
the writedown and shutdown adjustment, the results for fiscal 1994 would
have reflected net income of $499,000 before taxes.
<PAGE> 8
Net sales
Net sales for fiscal 1995 increased 6.4% as compared to fiscal 1994,
while fiscal 1994 net sales increased 6.1% as compared to fiscal 1993. Set
forth below is sales information for the past three fiscal years regarding
the Company's principal product classes:
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------------------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------------------------------------------
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
-------------------------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Water distribution equipment
and supplies:
Pipes and fittings....... $ 92,862 43% $ 76,197 38% $ 67,317 35%
Valves, hydrants, water
meters and accessories.. 73,960 34% 68,231 34% 58,930 31%
-------- ------ -------- ------ -------- ------
166,822 77% 144,428 72% 126,247 66%
-------- ------ -------- ------ -------- ------
Water and wastewater
equipment:
Treatment equipment..... 20,721 10% 33,013 16% 42,836 22%
Pumping equipment....... 6,234 3% 6,678 3% 6,391 4%
Process materials and
services............... 21,872 10% 18,502 9% 15,516 8%
-------- ------ -------- ------ -------- ------
48,827 23% 58,193 28% 64,743 34%
-------- ------ -------- ------ -------- ------
Total $215,649 100% $202,621 100% $190,990 100%
======== ====== ======== ====== ======== ======
</TABLE>
Net sales by the Company's water distribution business increased by
15.5% in fiscal 1995 as compared to fiscal 1994 and increased by 14.4% in
fiscal 1994 when compared to fiscal 1993. The increase in net sales in each
period is attributed to increased activity in the commercial and
residential land development and construction markets as a result of the
improvement in the national economy and the increased efforts by the
Company's sales force to increase sales. This increased activity led to an
increased demand for the Company's water distribution products, which
resulted in both increased sales volume and generally higher per unit
prices.
Net sales by the Company's water and wastewater treatment business
decreased by 16.1% in fiscal 1995 as compared to fiscal 1994 and decreased
by 10.1% in fiscal 1994 as compared to fiscal 1993. The decrease in water
and wastewater treatment sales for fiscal 1995 is a direct result of the
Taulman shutdown in the fourth quarter of fiscal 1994. Operating results
for fiscal 1995 exclude the operations of the Turbitrol division of
Taulman. (See Note 2 of Notes to Consolidated Financial Statements.)
Excluding the effects of the Taulman shutdown, net sales by the remainder
of the water and wastewater treatment business increased by 10.8% in fiscal
1995 as compared to fiscal 1994. The increase in net sales was due to the
improvement in the economy, which increased the volume of products sold.
The decrease in water and wastewater treatment sales for fiscal 1994 as
compared to fiscal 1993 is a direct result of reduced sales by Taulman in
fiscal 1994.
Management is cautiously optimistic that sales of distribution
products will increase in fiscal 1996 due to anticipated continued
improvement in the economy, the land development and construction markets
in particular, from lower long-term interest rates.
<PAGE> 9
Cost of products sold
The gross profit margin (the difference between net sales and cost of
products sold expressed as a percentage of net sales) was 14.8% for both
fiscal 1995 and fiscal 1994 and was 16.5% for fiscal 1993. The gross
profit margin for fiscal 1995 as compared to fiscal 1994 remained
unchanged, although the gross profit margin for fiscal 1995 excluded the
operating results of the Turbitrol division of Taulman.
The overall decrease in the margin for fiscal 1994 as compared to
fiscal 1993 was attributable primarily to a decrease in Taulman's gross
profit margin to 8.9% in fiscal 1994 from 24.9% in fiscal 1993. During
fiscal 1993, the gross profit margin included the settlement of a claim by
the Company against the former stockholders of Taulman which resulted in a
$495,000 reduction in cost of products sold during fiscal 1993. This
served to reimburse the Company for cost overruns on long-term contracts
which the Company had previously recognized during fiscal 1991 and fiscal
1992. (See Note 8 of Notes to Consolidated Financial Statements.)
Selling, general and administrative expenses
When measured as a percentage of net sales, selling, general and
administrative expenses were 11.4%, 14.0%, and 15.7% for fiscal 1995, 1994
and 1993, respectively. The decrease in selling, general and
administrative expense as a percentage of net sales for fiscal 1995 as
compared to fiscal 1994 is attributed to the 6.4% increase in sales and a
$3,978,000 decrease in expenses. The decrease in expenses is primarily due
to the exclusion of the operating results of Taulman from the fiscal 1995
operating results and management's continuing efforts to reduce costs where
possible.
The decreased selling, general and administrative expenses as a
percentage of net sales for fiscal 1994 as compared to fiscal 1993 is due
primarily to the high cost associated with relocating the Company's
distribution centers to more profitable markets during fiscal 1993.
Interest expense
Interest expense increased by 6.6% in fiscal 1995 as compared to
fiscal 1994 and decreased by 11.5% in fiscal 1994 as compared to fiscal
1993. The increase from fiscal 1994 to fiscal 1995 was due primarily to
an increase in the average borrowing rate, despite a decline in the average
amount of long-term and short-term debt. During fiscal 1995, the Company's
average borrowing rate increased 160 basis points, or 25.4%, while average
borrowings declined by $3,482,000, or 16.5%, when compared to fiscal 1994.
The increase in the average borrowing rate was due to higher rates which
were established in connection with a renegotiation of the Sun Bank
revolving loan agreement during fiscal 1994. (See Note 4 of Notes to
Consolidated Financial Statements). The decrease in average borrowings
from fiscal 1995 to fiscal 1994 was a result of management's continued
efforts to control inventories and improvements in average days to collect
accounts receivable.
The 11.5% decrease in interest expense from fiscal 1993 to fiscal 1994
was due to a $5,372,000, or 20.2%, decline in average borrowings, despite
an increase of 80 basis points, or 14.5%, in the Company's average
borrowing rate. The reasons for the decline in average borrowings in
fiscal 1994 were the same as in fiscal 1995.
Management believes that the Company's fiscal 1996 interest expense
will decrease slightly from 1995 levels based on a reduction in the
Company's average borrowing rate as a result of an amendment in June 1995
to the Company's revolving loan agreement with Sun Bank. (See Note 4 of
Notes to Consolidated Financial Statements.)
<PAGE> 10
Provision (benefit) for income taxes
The effective income tax provision (benefit) rates for fiscal 1995,
1994 and 1993 were 40.6%, (36.4%) and 50.3%, respectively. The effective
tax rate for fiscal 1995 was higher than the federal statutory rate due to
the impact of state income taxes and an increase in the nondeductible
portion of meals and entertainment expenses. The Omnibus Budget
Reconciliation Act of 1993 ("OBRA"), which was enacted on August 10, 1993,
raised the statutory corporate income rate from 34% on taxable income in
excess of $10,000,000 and limited deductibility of meals and entertainment
expenses. Based upon OBRA's enactment date, OBRA did not impact fiscal
1994 results of operations, but by limiting the deduction of meals and
entertainment costs, OBRA increased income tax expense during fiscal 1995
by approximately $89,000, or $.03 per share.
The effective tax rate (benefit) for fiscal 1994 was higher than the
federal statutory rate due to the additional state income tax benefit,
which was somewhat offset by the nondeductible portion of meals and
entertainment expenses. The effective rate for fiscal 1993 was higher than
the federal statutory rate due to the nondeductible portion of meals and
entertainment expenses.
In the second quarter of fiscal 1994, the Company agreed to a
settlement with the Internal Revenue Service ("IRS") in connection with its
examination of the Company's federal income tax returns for the four years
ended April 30, 1992. The IRS adjustments related principally to the
timing of recognition of certain expense items for tax purposes. The
aggregate amount allocated to various identifiable intangible assets and
their weighted average lives were not significantly changed. The effects
of these adjustments did not materially impact the Company's results of
operations or financial position.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of liquidity for the Company are funds generated
internally from operations and bank borrowings. Set forth below for the
past three years is information regarding the sources and amounts of
internally generated funds:
<TABLE>
<CAPTION>
Year Ended April 30,
---------------------------------------------
(In thousands) 1995 1994 1993
-------------------------- ---------------------------------------------
<S> <C> <C> <C>
Net income (loss)............ $3,448 ($5,340) $ 653
Depreciation and amortization 2,110 2,689 3,188
Deferred taxes............... (430) (4,536) (844)
Taulman reserve.............. (1,480) 8,895 0
-------- -------- -------
$3,648 $1,708 $2,997
======== ======== =======
When internally generated funds have been insufficient to support
operations, capital expenditures and acquisitions, the Company has been
able to borrow funds to meet its needs.
At April 30, 1995, the Company had $18,890,000 of available borrowing
capacity under its revolving loan agreement with Sun Bank. These available
funds, together with a cash balance of approximately $3,746,000, placed the
Company's potential cash availability at $22,636,000 as of April 30, 1995.
As of June 15, 1995, the Company's available borrowing capacity under its
Revolving Loan Agreement was reduced by $2,000,000. ( See Note 4 of Notes
to Consolidated Financial Statements.) Management believes that the
Company's internally generated funds and the amount available under the
revolving term loan agreement are sufficient to support its activities for
the foreseeable future. At the present time, the Company has no commitments
for significant capital expenditures or acquisitions of other businesses.
<PAGE> 11
The Company's working capital decreased in fiscal 1995 by $1,138,000
when compared to fiscal 1994. The decrease in working capital was due
primarily to an increase in accounts payable of $2,921,000 offset by a
decrease in inventories of $1,748,000. The Company's working capital
decreased in fiscal 1994 by $2,051,000 when compared to fiscal 1993. This
decrease in working capital was due primarily to an increase in accounts
payable and other accrued liabilities totaling $9,231,000. The major
component of the increase in other accrued liabilities was the $5,987,000
reserve established for the shutdown of the Turbitrol Division of Taulman.
(See Note 2 of Notes to Consolidated Financial Statements). Set forth
below is the Company's working capital position and certain liquidity
comparisons at the dates indicated:
</TABLE>
<TABLE>
<CAPTION>
April 30,
-------------------------------------------------------
(In thousands) 1995 1994 1993
------------------------------ -------------------------------------------------------
<S> <C> <C> <C>
Working capital............... $30,593 $31,731 $33,782
------- ------- -------
Cash.......................... 3,746 2,100 1,352
Accounts receivable, net...... 39,795 39,158 38,100
Inventories................... 18,778 20,526 18,076
------- ------- -------
62,319 61,784 57,528
Accounts payable.............. (24,158) (21,237) (17,715)
Notes payable and current
portion of long-term debt... (249) (216) (294)
------- ------- -------
$37,912 $40,331 $39,519
======= ======= =======
</TABLE>
The two most significant tangible assets of the Company are accounts
receivable and inventory. The Company measures the effectiveness of its
accounts receivable management program by a calculation which estimates the
number of days which it takes the Company to collect accounts receivable.
For fiscal 1995, the Company's average number of days to collect its
accounts receivable decreased 4.6 days as compared to fiscal 1994. The
decrease in days outstanding in fiscal 1995 when compared to fiscal 1994
reflected in an increase in accounts receivable of only $637,000, or 1.6%,
despite an increase in net sales of 6.4%. For fiscal 1994, the Company's
average number of days to collect its accounts receivable decreased by 2.5
days as compared to fiscal 1993. The decrease in average days outstanding
in fiscal 1994 when compared to fiscal 1993 is attributable to the
$11,631,000 increase in sales with only a $1,058,000 increase in accounts
receivable.
The Company measures the effectiveness of its inventory management
program by a calculation which uses average quarterly inventory amounts to
estimate the number of times inventory turns on an annual basis. For
fiscal 1995, the Company's inventory turns increased by half a complete
turn when compared to fiscal 1994 and by over one complete turn when
compared to fiscal 1993. The increase is due to management's efforts to
maintain a lower level of inventory while continuing to ensure adequate
product availability.
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------------------
1995 1994 1993
------------------------------ ----------------------------------------------------
<S> <C> <C> <C>
Average days to collect
accounts receivable.......... 61.0 65.6 68.1
Inventory turns............... 9.2 8.7 7.9
</TABLE>
<PAGE> 12
Average long-term and short-term borrowings decreased by $3,482,000,
or 16.5%, during fiscal 1995 when compared to fiscal 1994. This decrease
is due to the profitability of the Company, management's efforts to improve
collection of accounts receivable and the Company's computerized inventory
program which enables the Company to better manage its inventory levels and
its purchasing program. The Company's average borrowing rate increased 160
basis points during fiscal 1995 when compared to fiscal 1994 due to higher
rates under the Sun Bank revolving loan agreement. (See Note 4 of Notes to
Consolidated Financial Statements.) The table below sets forth average
borrowing balances and the average interest rate over the past three fiscal
years.
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------------------------------
(Dollars in thousands) 1995 1994 1993
------------------------------ --------------------------------------------------------
<S> <C> <C> <C>
Average long-term debt........ $17,146 $20,653 $26,513
Weighted average interest rate 7.9% 6.3% 5.5%
Average short-term borrowings. $529 $504 $16
Weighted average interest rate 6.7% 4.4% 5.2%
</TABLE>
The payment of cash dividends is approved by the Board of Directors
and depends, among other factors, on earnings, capital requirements, and
the operating and financial condition of the Company. Additionally, under
the terms of the Company's line of credit with Sun Bank, any cash dividend
payment must be approved by Sun Bank. During the third quarter of fiscal
1992, as a result of losses sustained by the Company, the Board of
Directors elected to forego the payment of cash dividends. Due to improved
operating results during fiscal 1995, the Board of Directors, with the
approval of Sun Bank, elected to pay a cash dividend of $0.08 per share
during the third quarter of fiscal 1995 and, with the approval of Sun Bank,
paid a second cash dividend of $0.14 per share in the first quarter of
fiscal 1996.
SEASONALITY
The Company typically experiences a seasonal downturn in the third
fiscal quarter of each year. Harsh weather during the third fiscal quarter
usually restricts construction activities in the Company's more northern
and mountainous sales markets, thereby reducing the demand for the
Company's products in these areas. This seasonality is normally reflected
in reduced sales and earnings of the Company in the third quarter. Certain
portions of the Company's sales markets, notably South Georgia, Florida,
Texas, Arizona, Nevada and Southern California, are not significantly
affected by the seasonal change. (See Note 10 of Notes to Consolidated
Financial Statements.)
IMPACT OF INFLATION
Inflationary pressures were moderate over most of the past three
years. To date, the Company has been able to offset most cost increases
through periodic price increases, labor efficiencies and higher
productivity.
<PAGE> 13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of DAVIS WATER & WASTE INDUSTRIES, Inc.
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the
financial position of DAVIS WATER & WASTE INDUSTRIES, Inc. and its
subsidiary at April 30, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended April
30, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993.
Price Waterhouse LLP
Atlanta, Georgia
June 16, 1995
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements included in this report were
prepared by the Company in conformity with generally accepted accounting
principles. Management's best estimates and judgments were used where
appropriate. Management is responsible for the integrity of the financial
statements and for other financial information included in this report.
The financial statements have been audited by the Company's independent
accountants, Price Waterhouse LLP. As set forth in their report, their
audit was conducted in accordance with generally accepted auditing
standards and formed the basis for their opinion on the accompanying
financial statements. They evaluated the system of internal accounting
controls and performed such tests and other procedures as they deemed
necessary to reach and express an opinion on the fairness of the financial
statements.
The Company maintains a system of internal accounting controls which
is designed to provide a reasonable assurance that assets are safeguarded
and that the financial records reflect the authorized transactions of the
Company. As a part of this process, the Company has an internal auditor
who evaluates the adequacy and effectiveness of internal accounting
controls.
The Audit Committee of the Board of Directors is composed of Directors
who are neither officers nor employees of the Company. The Committee meets
periodically with management, the internal auditor and the independent
accountants to discuss auditing, internal accounting control and financial
reporting matters. The internal auditor and the independent accountants
have full and free access to meet with the Audit Committee, with and
without management being present.
R. Doyle White Stan White
Chairman of the Board, Secretary/Treasurer
President and Chief and Chief Financial Officer
Executive Officer
<PAGE> 14
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------------------------------------------------------
(In thousands, except share data) 1995 1994 1993
----------------------------------------- ------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales................................ $215,649 $202,621 $190,990
Cost of products sold (Notes 3 and 8).... 183,654 172,654 159,431
-------- -------- --------
Gross profit margin...................... 31,995 29,967 31,559
Selling, general and administrative 24,483 28,461 30,000
Interest expense......................... 1,335 1,252 1,415
Other income, net........................ 308 246 246
Provision for Taulman shutdown and
related intangible assets (Note 2)...... 678 8,895 0
-------- -------- --------
Income (loss) before income taxes and the
cumulative effect of the change in the
method of accounting for income taxes... 5,807 (8,395) 390
Provision (benefit) for income taxes..... 2,359 (3,055) 196
-------- -------- --------
Net income (loss) before the cumulative
effect of the change in the method of
accounting for income tax............... 3,448 (5,340) 194
Cumulative effect of the change in the
method of accounting for income taxes
(Note 1)................................ 0 0 459
-------- -------- --------
Net income (loss) $ 3,448 $ (5,340) $ 653
======== ======== ========
EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Net income per share before the
cumulative effect of the change in the
method of accounting for income taxes.. $1.06 ($1.64) $0.06
Cumulative effect of the change in the
method of accounting for income taxes
(Note 1)............................... 0.00 0.00 0.14
----- ----- -----
Net income (loss) per share............. $1.06 ($1.64) $0.20
===== ===== =====
Weighted average shares outstanding..... 3,261,351 3,260,608 3,264,830
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
<PAGE> 15
Consolidated Balance Sheet
<TABLE>
<CAPTION>
April 30,
----------------------------------------------------
(In thousands, except share data) 1995 1994
---------------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 3,746 $ 2,100
Accounts receivable, less allowance for doubtful accounts
($1,135 at April 30, 1995 and $1,338 at April 30, 1994). 39,795 39,158
Inventories (Notes 1 and 3).............................. 18,778 20,526
Prepaid expenses......................................... 631 666
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 1,097 972
Prepaid income taxes..................................... 0 68
Deferred income taxes (Note 6)........................... 5,634 5,837
-------- --------
Total current assets................................... 69,681 69,327
Property, plant and equipment: (Notes 1 and 4)
Land..................................................... 1,040 1,211
Buildings and improvements............................... 5,667 6,482
Manufacturing equipment.................................. 5,633 5,340
Transportation and office equipment...................... 8,066 8,172
Construction in progress................................. 295 32
-------- --------
20,701 21,237
Less-accumulated depreciation............................. (14,407) (13,674)
-------- --------
6,294 7,563
-------- --------
Other assets............................................. 5,561 5,195
-------- --------
$ 81,536 $ 82,085
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 4).................... $ 249 $ 216
Accounts payable.............................................. 24,158 21,237
Accrued salaries and commissions.............................. 3,735 3,275
Other accrued liabilities (Notes 2 and 5)..................... 8,883 9,889
Billings in excess of costs and estimated earnings on
uncompleted contracts........................................ 1,449 2,201
Customer deposits............................................. 614 778
-------- --------
Total current liabilities.................................... 39,088 37,596
-------- --------
Long-term debt, less current portion (Note 4)................. 14,787 19,425
-------- --------
Deferred income taxes (Note 6)................................ 265 898
-------- --------
Other accrued liabilities (Note 5)........................... 2,064 1,857
-------- --------
Commitments and contingent liabilities (Note 8)...............
Stockholders' equity (Note 7)
Common stock, $0.01 par value: 50,000,000 shares authorized;
3,265,308 shares issued...................................... 33 33
Capital in excess of par value............................... 9,788 9,788
Retained earnings............................................ 15,705 12,539
-------- --------
25,526 22,360
Treasury stock at cost-19,379 shares at April 30, 1995 and
6,344 shares at April 30, 1994............................... (194) (51)
-------- --------
25,332 22,309
-------- --------
$ 81,536 $ 82,085
======== ========
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
<PAGE> 16
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Capital
in excess Total
(In thousands, Common of par Retained Treasury stockholders'
except share data) stock value earnings stock equity
--------------------------- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1992 $33 $9,788 $17,316 ($48) $27,089
Issuance of common stock
in connection with
employee benefit plans.. (47) 188 141
Purchase of treasury
stock................... (248) (248)
Net income............... 653 653
--- ------ ------- ----- -------
Balance at April 30, 1993 33 9,788 17,922 (108) 27,635
Issuance of common stock
in connection with
employee benefit plans.. (43) 181 138
Purchase of treasury
stock................... (124) (124)
Net (loss)............... (5,340) (5,340)
--- ------ ------- ----- -------
Balance at April 30, 1994 33 9,788 12,539 (51) 22,309
Issuance of common stock
in connection with
employee benefit plans.. (21) 122 101
Purchase of treasury
stock................... (265) (265)
Dividends paid, $0.08 per
share................... (261) (261)
Net income............... 3,448 3,448
--- ------ ------- ----- -------
Balance at April 30, 1995 $33 $9,788 $15,705 ($194) $25,332
=== ====== ======= ===== =======
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
<PAGE> 17
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------------------------------------------
(In thousands) 1995 1994 1993
----------------------------------------- ----------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................ $ 3,448 ($ 5,340) $ 653
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation and amortization.......... 2,110 2,689 3,188
Provision for Taulman shutdown and
write off intangible assets........... (1,480) 8,895 0
Provision for doubtful accounts........ 472 665 1,731
Loss (gain) on sale of assets.......... 0 86 (335)
Deferred income taxes.................. (430) (4,536) (385)
Cumulative effect of the change in the
method of accounting for income taxes 0 0 (459)
(Increase) decrease in accounts
receivable............................ (1,109) (1,723) (6,200)
Decrease (increase) in inventories..... 1,748 (2,450) 3,898
(Increase) decrease in cost and
estimated earnings in excess of
billings.............................. (125) 280 1,283
(Increase) in other assets............. (393) (15) (50)
(Decrease) increase in billings in
excess of cost and estimated earnings. (752) 32 785
Increase in accounts payable and
accrued expenses...................... 3,898 4,290 7,168
-------- -------- --------
Net cash provided by operating
activities.......................... 7,387 2,873 11,277
-------- -------- --------
INVESTING ACTIVITIES
Purchase of property, plant and
equipment............................... (1,566) (837) (883)
Proceeds from sale of property, plant and
equipment............................... 855 70 489
-------- -------- --------
Net cash (used in) investing activities (711) (767) (394)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from revolving and long-term
debt.................................... 56,292 54,549 56,380
Principal payments made on debt.......... (60,897) (55,921) (67,734)
Proceeds from sale of stock.............. 100 138 141
Purchase of treasury stock............... (265) (124) (248)
Dividends paid........................... (261) 0 0
-------- -------- --------
Net cash (used in) financing activities (5,030) (1,358) (11,461)
-------- -------- --------
CASH
Increase in cash during period........... 1,646 748 (578)
Cash and cash equivalents at beginning of
year.................................... 2,100 1,352 1,930
-------- -------- --------
Cash and cash equivalents at end of year $ 3,746 $ 2,100 $ 1,352
======== ======== ========
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - APRIL 30, 1995, 1994, and 1993
Note 1 - Description of Business and Summary of Significant Accounting
Policies:
DESCRIPTION OF BUSINESS
The Company manufactures and markets products relating to the
distribution and treatment of water.
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of the
Company and its wholly-owned subsidiary, The Taulman Company. All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain amounts in the prior year statements have been
reclassified to conform to the current year presentation.
ACCOUNTS RECEIVABLE
Accounts receivable at April 30, 1995 and 1994 include amounts under
long-term contracts of approximately $4,060,000 and $8,503,000,
respectively. Balances billed but not paid by customers pursuant to
retainage provisions in long-term contracts will be due upon completion of
the contracts and acceptance by the owner and aggregated approximately
$2,216,000 and $2,735,000 at April 30, 1995 and 1994, respectively.
Approximately $788,000 of these retention balances are expected to be
collected during fiscal 1996, with the remainder to be collected during the
following year.
CONCENTRATION OF CREDIT RISK
The Company grants credit to its customers, who are primarily
involved in the construction and real estate industries, including
independent contractors, developers, municipalities and industrial
customers. To secure its interest in trade accounts receivable, the
Company obtains bonds or liens where considered prudent. The majority of
the Company's sales are made to customers located in the Southeast. Other
important markets include Texas, California and the Rocky Mountain states.
INVENTORIES
Inventories are carried at the lower of cost (first-in, first-out) or
market value.
PROPERTY, PLANT AND EQUIPMENT
Fixed assets are stated at cost. Depreciation is calculated using
principally the straight-line method over the estimated useful lives of the
assets. Expenditures for additions and improvements are charged to
property accounts; maintenance and repairs are charged to expense. Upon
retirement or sale, the cost of the asset and related accumulated
depreciation are removed from the accounts and any resulting gain or loss
is included in income.
The approximate annual rates of depreciation are 4% to 14% for
buildings and improvements, 14% to 20% for manufacturing equipment and 14%
to 33 1/3% for transportation and office equipment.
INTANGIBLE ASSETS
Intangible assets resulting from the acquisition of certain assets
and liabilities of Taulman were being amortized on a straight line basis
over their estimated useful lives ranging from one to 40 years. As a
result of the shutdown or reorganization of Taulman, these intangibles were
written off (see Note 2).
<PAGE> 19
TREASURY STOCK
Treasury stock is carried at cost determined using the first-in,
first-out method. Any excess of cost over proceeds from re-issuance of
treasury stock is charged to retained earnings; any excess of proceeds over
cost is credited to retained earnings to the extent of any prior charges
and thereafter credited to capital in excess of par.
REVENUE
Income from short-term contracts for the manufacture or installation
of water and wastewater treatment and pumping equipment is recognized at
time of shipment or when installation is completed, respectively. Income
from long-term contracts for the manufacture of process equipment and
control systems used in water and wastewater treatment facilities was
recognized on the percentage-of-completion basis; however, revenues are no
longer recognized in the Company's operations for these types of contracts
due to the shutdown of Taulman. Income is recognized from the sale of
water distribution equipment and supplies and process materials and
supplies at the time of shipment. Commission income from the sale of
products manufactured by others is recognized when the customer's order is
shipped by the third party manufacturer.
INCOME TAXES
Effective May 1, 1992, the Company elected early adoption of SFAS No.
109, "Accounting for Income Taxes" (FAS 109). The adoption of FAS 109
changes the Company's method of accounting for income taxes from the
deferred method (APB 11) to an asset and liability approach. Previously
the Company deferred the past effects of timing differences between
financial reporting and taxable income. The asset and liability approach
requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of other assets and liabilities. The
cumulative effect of this change in accounting principle was a $459,000
reduction in the Company's deferred tax liability. This reduction primarily
represented the impact of adjusting deferred taxes to reflect the current
federal tax rate of 34% as opposed to the higher tax rates that were in
effect when the deferred taxes originated. The effect of the change on net
income for fiscal 1993, exclusive of the cumulative effect of the change as
of May 1, 1992, was immaterial.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing net income (loss)
by the average number of common shares outstanding, increased by common
equivalent shares determined using the treasury stock method.
STATEMENT OF CASH FLOWS
Cash equivalents are considered to be short term, highly liquid
investments with original maturities of three months or less.
Supplemental disclosure of cash flows follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------------------------------
(In thousands) 1995 1994 1993
---------------------------- -------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest......................... $1,429 $1,276 $1,488
Income taxes..................... 2,423 1,272 15
------ ------ ------
$3,852 $2,548 $1,503
====== ====== ======
</TABLE>
<PAGE> 20
Note 2 - Provision for Taulman Shutdown and Related Intangible Assets:
During the fourth quarter of fiscal 1994, the Company adopted a plan to
shutdown or reorganize the operations of Taulman. Substantially all of
Taulman's operations are contained within its Turbitrol Instrumentation and
Control division; these operations are in the process of being shut down.
Taulman Composting Systems, an immaterial component of Taulman, was combined
with the Company's Process division. The pre-tax loss provision for these
actions recorded in fiscal 1994 includes the write-off of intangible assets
totalling $2,908,000 associated with Taulman and the accrual of $5,987,000 to
provide for anticipated losses during the shutdown period. Accordingly, the
results of operations of Taulman during fiscal 1995 were excluded from the
results of operations of the Company.
Taulman is engaged in the environmental pollution control business,
primarily through the design, manufacture and sale of process equipment and
control systems used in water and wastewater treatment facilities. Revenues
and expenses on its long- term contracts are recognized on the percentage-of -
completion basis. Taulman has ceased bidding on new contracts, has terminated
its sales force and is working to complete its current obligations on long-
term contracts during the next two years. The provision for losses during the
shutdown period reflects declining revenues and relatively high levels of
general and administrative costs necessary to complete the shutdown of these
operations.
During fiscal 1995, activity within the reserve for anticipated losses
during the shutdown period is summarized as follows:
<TABLE>
<CAPTION>
Year Ended
(In thousands) April 30, 1995
--------------------------- --------------
<S> <C>
Balance, beginning of year $5,987
Operating loss of Taulman (2,158)
Adjustment to reserve 678
------
Balance, end of year $4,507
======
</TABLE>
The adjustment to the reserve represents an increase in the reserve
resulting from a revised estimate of the anticipated losses during the
shutdown period. There have been no changes to the plan for shutting down
Taulman since the adoption of the plan in the fourth quarter of fiscal 1994.
The Taulman shutdown represents the discontinuation of a product line.
Therefore, Taulman's results of operations through the fourth quarter of
fiscal 1994 have been included as components of continuing operations in the
statement of operations for fiscal 1994 and fiscal 1993. Taulman's results of
operations during fiscal 1995 and in future periods have been or will be
charged against the reserve for anticipated losses during the shutdown period.
Certain income, expense, asset and liability information with respect to
Taulman for the three most recent fiscal years is as follows:
<TABLE>
<CAPTION>
As of or for As of or for As of or for
the year ended the year ended the year ended
(In thousands) April 30, 1995 April 30, 1994 April 30, 1995
------------------------------------- ----------------------------------------------------------
<S> <C> <C> <C>
Net sales............................ $11,252 $15,871 $24,739
Cost of products sold................ 9,791 14,465 18,583
Selling, general and administrative
expense............................. 3,445 4,302 5,862
Assets............................... 5,252 12,523 20,431
Liabilities.......................... 2,614 10,111 13,925
</TABLE>
<PAGE> 21
Assets and liabilities at April 30, 1995, 1994 and 1993 consisted
primarily of accounts receivable, inventory, accounts payable, accrued
expenses and intercompany debt.
Intangible assets written off as a part of the shutdown included a
technology licensing agreement of $1,321,000, noncompete agreements of
$1,155,000 and goodwill of $432,000. The technology licensing agreement was
written off because the Company, in response to changing marketplace demands,
elected to forego its exclusive North American rights to this waste composting
technology during the fourth quarter of fiscal 1994. Recently developed
methods for waste composting are much more economical and substantially
reduced the demand for the Company's licensed technology. The noncompete
agreements and goodwill were written off because their value will not be
recovered as a result of the shutdown.
Note 3 - Inventories:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
April 30,
-------------------------------
(In thousands) 1995 1994
------------------------------------- -------------------------------
<S> <C> <C>
Finished goods and products purchased
for resale.......................... $16,137 $17,689
Work-in-process...................... 2,073 2,667
Raw materials and purchased
components.......................... 568 170
------- -------
$18,778 $20,526
======= =======
</TABLE>
Note 4 - Notes Payable and Long-Term Debt:
The Company's line of credit with Sun Bank, National Association
("SBNA") provided a $32,000,000 revolving term loan as well as an annual
$3,000,000 overline facility as of April 30, 1995. The loan agreement
required the Company to maintain specified working capital, equity and
earnings ratios in addition to minimum levels of tangible net worth. The loan
agreement effectively curtailed the payment of cash dividends by specifying
certain minimum levels of tangible net worth. Furthermore, the agreement
required the Company to obtain SBNA's approval prior to payment of any cash
dividends. The Company's accounts receivable and inventory served as
collateral under the agreement. The Company was not in compliance with the
working capital requirement as of April 30, 1995. On June 15, 1995, the
Company and SBNA signed a commitment letter that extends the loan maturity
through April 30, 1997, provides specific guidelines that the Company must
meet to eliminate the security interest that SBNA has on the Company's
accounts receivable and inventory, eliminates the working capital requirement
with which the Company was not in compliance at April 30, 1995 and limits the
amount that the Company may spend in connection with acquisitions to
$2,500,000 per year during the term of the loan agreement without the prior
consent of SBNA.
As of April 30, 1995, the interest on balances outstanding under the
SBNA revolving term note was payable at SBNA's prime commercial rate. The
Company pays a commitment fee equal to one-fourth of one percent per annum on
the average daily unused portion of the revolving term note. The June 15,
1995 commitment letter allows the Company the option to change between the
then current prime rate or the then current LIBOR rate plus two percent for
advances under the revolving term loan.
<PAGE> 22
Notes payable and long-term debt consist of:
<TABLE>
<CAPTION>
April 30,
--------------------------
(In thousands) 1995 1994
----------------------------------------------------------------------- --------------------------
<S> <C> <C>
Revolving term loan due March 1996 with interest at prime; maturity was extended
to April 30, 1997 by a signed commitment between SBNA and the Company dated June
15, 1995 ........................................... $13,110 $17,790
Promissory note with interest at prime with monthly installment payments through
December 1996 secured by an airplane with a net book value approximating $442
and $665 at April 30, 1995 and 1994, respectively............................. 242 373
Capitalized lease with interest at 7.70% with monthly installment payments
through April 1998............................................................ 75 0
Capitalized lease with interest at 8.61% with monthly installment payments
through December 1994......................................................... 0 83
Capitalized lease with interest at 4.90% with monthly installment payments
through February 1998......................................................... 248 0
Loans payable to insurance companies with interest at varying rates secured by
cash surrender value of life insurance policies approximating $1,818 and $1,673
at April 30, 1995 and 1994, respectively....................................... 1,361 1,395
------- -------
15,036 19,641
Amounts due within one year 249 216
------- -------
Amounts due after one year $14,787 $19,425
======= =======
</TABLE>
Annual maturities of long-term debt in each of the succeeding five
years from April 30, 1995 are approximately $249; $13,323; $103; $0; and $0
respectively. Loans payable to insurance companies secured by cash
surrender value in the amount of $1,361 do not have a stated maturity date.
Note 5 - Pension Plan:
The Company has a defined benefit pension plan covering substantially
all of its employees. The benefits are based on years of service and the
employee's highest average compensation earned during any consecutive five-
year period within the last ten years of employment, reduced by payments
from Social Security. Pension cost is funded at amounts determined by
management but not less than the minimum funding required by the Employee
Retirement Income Security Act of 1974 (ERISA). At April 30, 1995, the
assets of this Plan included cash equivalents and equity and fixed income
mutual funds. Participants of certain acquired companies received service
credit for vesting in the Plan upon date of acquisition or termination of
any former benefit plans. The cost of these benefits will be amortized
over 18 years, which is the average remaining service period of the
participants.
The Company also has a supplemental defined benefit pension plan (the
Supplemental Plan) covering all Company officers. The Supplemental Plan
provides for annual disability benefits in amounts of 50% - 80% of base pay
at the time of the disabling injury, to be paid to participants who become
permanently disabled. This benefit will terminate at age 65.
Additionally, the Supplemental Plan provides for retirement benefits to
participants representing approximately 50% - 80% of base pay at the date
of retirement, reduced by payments from Social Security. These retirement
benefits will be paid over the expected lifetime of the participant. The
Company has not funded the Supplemental Plan. This plan is not subject to
ERISA funding requirements. The Company intends to fund the Supplemental
Plan as benefits are paid.
<PAGE> 23
Net periodic pension cost of these plans for fiscal 1995, 1994 and
1993 included the following components:
<TABLE>
<CAPTION>
Year Ended April 30, 1995 Year Ended April 30, 1994 Year Ended April 30, 1993
------------------------- --------------------------- ----------------------------
Assets Accumulated Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed Accumulated Exceed
(In thousands) Benefits Assets Benefits Assets Benefits Assets
------------------ -------------------------- --------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost
benefit earned
during the
period........... $350 $ 40 $362 $ 37 $360 $ 41
Interest cost on
projected benefit
obligation....... 613 112 623 114 635 111
Actual return on
plan assets...... (900) (809) (642)
Net amortization
and deferral..... 37 73 25 71 (3) 73
----- ----- ----- ----- ----- -----
Net periodic
pension cost..... $100 $225 $201 $222 $350 $225
===== ===== ===== ===== ===== =====
</TABLE>
Assumptions used to determine net periodic pension cost for these plans
for fiscal 1995, 1994 and 1993 were:
<TABLE>
<CAPTION>
As of April 30,
------------------------------------
1995 1994 1993
------------------------------------
<S> <C> <C> <C>
Discount rates......................................................... 7.5% 7.5% 8.5%
Rates of increase in compensation levels............................... 4.5% 4.5% 5.0%
Expected long-term rate of return on assets............................ 9.0% 9.0% 9.0%
</TABLE>
The following table sets forth these plans' funded status and amounts
recognized on the Company's consolidated balance sheet at April 30, 1995 and
April 30, 1994.
<TABLE>
<CAPTION>
April 30, 1995 April 30, 1994
------------------------------ ---------------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
(In thousands) Benefits Assets Benefits Assets
--------------------------------- -------------------------------- ------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Accumulated benefit obligation
Vested........................ $6,982 $1,602 $6,405 $1,560
Nonvested..................... 298 311
------ ------- ------ -------
$7,280 $1,602 $6,716 $1,560
====== ======= ====== =======
Plan assets at fair value........ $9,180 $8,571
Projected benefit obligation..... 9,007 $1,602 8,240 $1,560
------ ------- ------ -------
Projected benefit obligation less
than (in excess of) plan assets. 173 (1,602) 331 (1,560)
Unrecognized prior service costs. (149) 367 (116) 444
Unrecognized net loss (gain)..... 410 (74) 409 (49)
Additional liability............. (274) (372)
Unrecognized net asset at May 1,
1995 being amortized over 19
years and 15 years,
respectively.................... (812) (19) (902) (23)
------ ------- ------ -------
Pension (liability) recognized in
the balance sheet............... ($378) ($1,602) ($278) ($1,560)
====== ======= ====== =======
</TABLE>
<PAGE 24
Note 6 - Income Taxes:
The components of the provision for income tax expense (benefit) are as
follows:
<TABLE>
<CAPTION>
Year Ended April 30,
---------------------------------------------------
1995 1994 1993
---------------------------------------------------
<S> <C> <C> <C>
Current tax expense:
Federal.............. $2,297 $1,237 $498
State................ 492 244 94
Deferred tax (benefit)
Federal.............. (362) (3,820) (354)
State................ (68) (716) (42)
------ ------- -----
$2,359 ($3,055) $196
====== ======= =====
</TABLE>
Deferred tax liabilities (assets) recorded under FAS 109 are comprised
of the following at April 30, 1995 and 1994 :
<TABLE>
<CAPTION>
April 30,
----------------------------------
(In thousands) 1995 1994
-------------------------------------------------------- ----------------------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation............................................ $ 211 $ 386
Change in the method of inventory accounting for income
tax purposes........................................... 393 673
------- -------
Gross deferred tax liabilities.......................... 604 1,059
------- -------
Deferred tax assets:
Pension................................................ (725) (610)
Vacation............................................... (365) (356)
Other employee benefit plans........................... (413) (146)
Warranty reserves...................................... (177) (125)
Inventory.............................................. (639) (570)
Allowance for doubtful accounts........................ (431) (508)
Noncompete agreements.................................. (187) (280)
Shutdown reserve for Taulman........................... (2,488) (3,072)
Other.................................................. (548) (331)
------- -------
Gross deferred tax assets............................. (5,973) (5,998)
------- -------
($5,369) ($4,939)
======= =======
</TABLE>
A reconciliation between the actual income tax expense (benefit) and
the amount computed by applying the federal income tax rate (34.0%) in
1995, 1994 and in 1993 to pre- tax income from continuing operations
follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-----------------------------------
(In thousands) 1995 1994 1993
------------------------------------------------------------------- -----------------------------------
<S> <C> <C> <C>
Computed amount based on federal statutory rate..................... $1,974 ($2,854) $ 132
Increases (reductions) in taxes:
State income taxes, net of federal income tax
benefit............................................................. 232 (332) 16
Tax on meals and entertainment expense disallowed................... 132 54 55
Other............................................................... 21 77 (7)
------ ------- ------
Provision (benefit)................................................. $2,359 ($3,055) $ 196
====== ======= ======
</TABLE>
<PAGE> 25
Note 7 - Stockholders' Equity:
During the third quarter of fiscal 1995, the Board of Directors
approved the Davis Water & Waste Industries, Inc. 1994 Employee Stock
Option Plan (the " Employees Plan") and the Davis Water & Waste Industries,
Inc. Directors Stock Option Plan (the "Directors Plan"). Both Plans are
subject to approval by the stockholders of the Company at the 1995 Annual
Meeting of Stockholders on September 8, 1995.
Under the Employees Plan and the Directors Plan (the "Plans"), options
to acquire up to 250,000 and 75,000 shares of the Company's common stock,
respectively, may be granted to employees and outside directors of the
Company, respectively, by a committee of the Board of Directors. No
options may be granted after ten years from the date of approval of the
Plans by the Board. Options granted under the Plans vest evenly over five
years and are exercisable for a period not exceeding ten years after the
date of grant at a price equal to the quoted market value of the common
stock as of the date of grant. Optionees may exercise the options by
paying cash, exchanging Company stock having a quoted market value equal to
or less than the exercise price, by instructing the Company to retain
shares of stock upon the exercise of the option with a quoted market value
equal to the exercise price as payment, or exchanging property or services
as may be acceptable to the committee of the Board. The options are not
transferrable except to the optionee's beneficiaries. The Plans may be
amended or terminated at the discretion of the Board. Compensation expense
is accrued for the Plans for options as earned by the optionees as the
difference between the quoted market price at the period end and the option
price multiplied by the number of options. Accrued compensation expense is
adjusted for the changes in the quoted market value of the stock from
period to period. At April 30, 1995, total compensation expense accrued
for the Plans aggregated approximately $74,000.
Under the Employees Plan, the Board granted options to acquire 162,660
shares to certain Company officers at an option price of $7.75 per share,
which was equal to the quoted market price for the shares of the Company's
common stock at the date of grant. All such options were outstanding at
April 30, 1995. No options were exercised, cancelled or expired during
fiscal year 1995. At April 30, 1995, options for the purchase of 87,340
shares of common stock were available to be granted under the Employees
Plan.
Under the Directors Plan, options to acquire 32,000 shares of common
stock were granted to the outside directors of the Company at an option
price of $7.75 per share, which was equal to the quoted market price for
the shares of the Company's common stock at the date of grant. All such
options were outstanding at April 30, 1995. No options were exercised,
cancelled or expired during fiscal 1995. At April 30, 1995, options for
the purchase of 43,000 shares of common stock were available to be granted
under the Directors Plan.
During fiscal 1989, the stockholders of the Company approved a
qualified employee stock purchase plan (the"1988 ESP Plan"). During fiscal
1992, the stockholders of the Company approved an amendment to the 1988 ESP
Plan increasing the shares of common stock reserved for issuance under this
plan from 80,000 to 160,000 shares. Under the terms of the 1988 ESP Plan,
all regular full time employees and officers of the Company may purchase
common stock of the Company quarterly at 85% of the lower of market value
on the offering date or the termination date of the offering period. The
1988 ESP Plan will terminate at such time as all shares made available
under the plan have been issued. During fiscal 1995, 1994, and 1993,
13,616, 24,225 and 28,485 shares, respectively, were issued under the plan,
and at April 30, 1995, 24,497 shares of common stock were reserved and
available for issuance.
During August 1988, a Long-Term Incentive Plan (the "Incentive Plan")
was approved by the Company's stockholders. The Board of Directors had
previously approved the Incentive Plan whereby certain key officers (the
participants) would become eligible to receive performance shares provided
the Company achieves specified financial goals over four year periods.
<PAGE> 26
Performance shares represent rights to receive common stock or, at the
election of the participant, a combination of cash and common stock. Under
this plan, participants were granted 55,642 performance shares during
fiscal 1993. During fiscal 1995, 349 shares of common stock were
distributed and payments of $2,967 were made to participants under the
1991-1994 Incentive Plan. During fiscal 1994 and fiscal 1995, the Board
of Directors determined not to approve a Long-Term Incentive Plan for key
officers but instead proposed the adoption of a stock option plan for the
key employees of the Company (as discussed above).
The cost of the Incentive Plan is limited to twice the grant price at
the grant date of the maximum number of performance shares issuable. The
grant price is determined by the higher of the book value per share or the
average of the closing price of the Company's common stock for a period
prior to and following the public release of the preceding year's annual
earnings. The grant price of the performance shares granted during fiscal
1993 was $8.30. The estimated costs of the Incentive Plan are charged to
income over the applicable four year periods. During the fiscal years
ended April 30, 1995, April 30, 1994 and April 30, 1993, no income or
expense was recognized.
The Company purchases shares of its common stock to be held as
treasury stock until needed for issuance through the Company's employee
stock plans and directors and employees stock option plans discussed above.
On December 15, 1989, the Board of Directors of the Company adopted a
Share Rights Plan and, in connection therewith, declared a dividend distri-
bution of one Right for each outstanding share of the Company's common
stock to stockholders of record at the close of business on January 8,
1990. The Company had 3,248,621 shares of its common stock outstanding at
such date. The Share Rights Plan generally provides that 20 days following
a public announcement that a person or a group of affiliated or associated
persons have become owners of 10% or more of the Company's common stock
(and have thus become an "Acquiring Person"), each Right will entitle the
registered holder to purchase from the Company common stock at a purchase
price per share equal to 20% of current market value. Any Rights
beneficially owned by an Acquiring Person or any of the Acquiring Person's
affiliates or associates are not exercisable. The number of shares that
each holder of a Right will be entitled to receive upon exercise is equal
to one share of common stock multiplied by a fraction, the numerator of
which is the number of shares of common stock outstanding on the date of
the first public announcement that a person has become an Acquiring Person
(the "Stock Acquisition Date") and the denominator of which is the number
of Rights outstanding on the Stock Acquisition Date that are not
beneficially owned by the Acquiring Person or its affiliates or associates.
Until such time as the Rights become exercisable, (a) the Rights will be
evidenced by the common stock certificates and will be transferred with and
only with such common stock certificates, (b) new common stock certificates
issued after January 8, 1990 will contain a notation incorporating the
Rights Agreement by reference and (c) the surrender for transfer of any
certificates for common stock will also constitute the transfer of the
Rights associated with the common stock represented by such certificate.
On June 16, 1995, the Board of Directors approved a cash dividend of
fourteen cents ($0.14) per share, totalling $454,000, to all stockholders
of record at the close of business on June 26, 1995. This dividend was
paid on July 3, 1995.
Note 8 - Commitments and Contingent Liabilities:
The Company leases certain warehouse facilities and equipment,
principally trucking equipment, under operating leases. Certain leases
provide for additional rental based on actual usage and many leases have
renewal options. Under some leases the Company agrees to pay insurance
costs and increases in property taxes. Total rent expense amounted to
approximately $3,009,000 in 1995, $3,141,000 in 1994, and $3,458,000 in
1993, of which $251,000, $250,000 and $254,000 was for truck rental based
on mileage. The Company leases certain computer equipment and a front end
loader under noncancelable capital lease agreements (see Note 4). The
<PAGE> 27
original capitalized cost of leases included in property and equipment was
$318,000. As of April 30, 1995 the net book value of leased equipment
totaled $304,808. Minimum lease and rental commitments under non-cancela-
ble capital and operating leases in effect at April 30, 1995 are as
follows:
<TABLE>
<CAPTION>
Year Ending
April 30 Capital Operating Total
(In thousands) Leases Leases Commitments
------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C>
1996............................................ $123 $2,091 $2,214
1997............................................ 121 1,597 1,718
1998............................................ 104 1,127 1,231
1999............................................ 834 834
2000............................................ 313 313
2001-2003.......................................... 53 53
----- ------ ------
Total minimum lease payments.......................... $348 $6,015 $6,363
Less-Amount representing interest..................... (25) ====== ======
-----
Present value of minimum lease payments............... $323
=====
</TABLE>
During fiscal 1993, the Company filed a claim against the former
stockholders of Taulman. Through the claim, the Company, pursuant to certain
indemnification provisions in the acquisition agreement, sought to be
reimbursed for losses incurred in connection with certain long-term contracts
in existence at the date of acquisition. The claim was resolved during the
second quarter of fiscal 1993 when the Company received $1,100,000 in cash in
full settlement of such claim. Approximately $605,000 of the settlement was
applied to establish the necessary reserves for the long-term contracts. The
remaining $495,000 was recorded as a reduction of cost of products sold during
the second quarter of fiscal 1993 because the Company had previously recognized
the cost to complete these long-term contracts in earlier reporting periods.
The nature of the Company's business results in a certain amount of
litigation. Accordingly, the Company is a party (as plaintiff and defendant)
to a number of lawsuits incidental to its business, and in certain of such
matters, claims have been asserted against the Company in substantial amounts.
Management believes that the Company has meritorious defenses to these claims,
and the Company, together with its insurance carriers, is vigorously defending
these claims.
Note 9 - Fair Value Of Financial Instruments
Cash, Cash Equivalents and Long-term Notes Receivable
The carrying amount reflected in the consolidated balance sheet
approximates the fair value of cash, cash equivalents and long-term notes
receivable.
Notes Payable and Long-term Debt
Substantially all of the balance of notes payable and long-term debt is
represented by a variable rate revolving term loan. Because this variable
rate approximates a market rate of interest at year end, the carrying amount
of notes payable and long-term debt approximates fair value.
<PAGE> 28
Note 10 - Quarterly Financial Data (unaudited)
Summarized unaudited quarterly consolidated financial data is as follows:
<TABLE>
<CAPTION>
(In thousands, Net Income Dividends
except per share Net Gross Income (Loss) Paid
amounts) Sales Profit (Loss) Per Share Per Share
---------------- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 Fiscal
Quarter
First $ 50,914 $ 7,250 $ 518 $0.16 $0.00
Second 56,056 8,754 1,299 0.40 0.00
Third 52,730 7,868 776 0.23 0.08
Fourth 55,949 8,123 855 0.27 0.00
-------- ------- ------ ----- -----
$215,649 $31,995 $3,448 $1.06 $0.08
======== ======= ====== ===== =====
1994 Fiscal
Quarter
First $ 46,101 $ 7,435 $ 71 $0.02 $0.00
Second 51,212 7,650 60 0.02 0.00
Third 49,992 7,230 87 0.03 0.00
Fourth 55,316 7,652 (5,558) (1.71) 0.00
-------- ------- ------- ------ -----
$202,621 $29,967 ($5,340) ($1.64) $0.00
======== ======= ======= ====== =====
</TABLE>
The net income for the fourth quarter of fiscal 1995 includes an additional
provision of $678,000 for management's revised estimate of the Taulman shutdown
reserve. The net loss for the fourth quarter of fiscal 1994 was a result of a
$2,908,000 write-down in the investment in Taulman to its realizable value and
the establishment of a $5,987,000 shutdown reserve for Taulman. See Note 2.
<PAGE> 29
BOARD OF
DIRECTORS
Joe E. Beverly
Vice Chairman of the Board of Synovus
Financial Corp. of Columbus, Georgia
O. Larry Comer
Senior Partner of Comer Associates, an
investment partnership, and Chairman of the Board of
Caravelle Boats, Inc., a boat manufacturer
Robert P. Crozer
Vice Chairman of the Board of Flowers Industries,
Inc., a diversified food products company
H. Forbes Davis
Retired executive officer of the Company
Jasper C. Davis III
Retired executive officer of the Company
R. R. Davis
Vice Chairman of the Board of the Company
Thomas R. Pledger
Chairman of the Board and Chief Executive Officer of Dycom
Industries, Inc., a telecommunications and electrical
services corporation
R. Doyle White
Chairman of the Board, President and Chief Executive Officer of
the Company
OFFICERS
R. Doyle White
Chairman of the Board, President and Chief Executive Officer of
the Company
Larry May
Executive Vice President and Chief Operating Officer of the
Company
Robert H. Pless
Vice President and General Manager - Davco Division
Robert D. Tatum
Vice President and General Manager - Process Division
Stan White
Secretary-Treasurer and Chief Financial Officer
<PAGE> 30
STOCKHOLDER INFORMATION
Corporate Headquarters General Counsel
Davis Water & Waste Industries, Inc. Alexander & Vann
1820 Metcalf Avenue 218 East Jackson Street
Thomasville, Georgia 31792 Thomasville, Georgia 31792
(912) 226-5733
Financial Public Relations Independent Accountants
Porter, LeVay & Rose, Inc. Price Waterhouse LLP
225 West 34th Street 50 Hurt Plaza Suite 1700
New York, New York 10001 Atlanta, Georgia 30303
Stock Prices and Cash Dividends Special Counsel
The Company's Common Stock is listed Long, Aldridge & Norman
on the New York Stock Exchange under One Peachtree Center,
the symbol "DWW." The table below Suite 5300
sets forth the high and low closing 303 Peachtree Street
sales prices of the Common Stock and Atlanta, Georgia 30308
the cash dividends paid per share
for each quarter during fiscal 1995
and fiscal 1994.
<TABLE>
<CAPTION>
1995 1994
---------------------------------------- -----------------------------------------
Dividends Dividends
paid per paid per
High Low share High Low share
--------------- ---------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ 8.875 $7.500 .00 $7.125 $5.875 .00
Second Quarter 9.250 7.875 .00 7.000 5.750 .00
Third Quarter 10.000 7.625 .08 8.000 5.750 .00
Fourth Quarter 10.000 8.500 .00 8.625 6.750 .00
</TABLE>
As of July 21, 1995, there were approximately 690 record holders of the
Company's Common Stock. The total amount of dividends paid by the Company
during each of the past ten fiscal years is set forth in Selected Consolidated
Financial Data on page 6 and 7 of this report. Restrictions on the amount of
dividends the Company may pay are described in Note 4 of Notes to Consolidated
Financial Statements. Dividends are disbursed by Wachovia Bank of North
Carolina, P.O. Box 3001, Winston-Salem, North Carolina 27102.
Transfer Agent and Registrar
Wachovia Bank of North Carolina
Winston-Salem, North Carolina 27102
(800) 633-4236
Changes of address, questions regarding lost certificates, requests for
changes in registration and other general correspondence concerning
stockholders' accounts should be directed to the Transfer Agent.
Annual Meeting
The 1995 Annual Meeting of Stockholders of Davis Water & Waste Industries,
Inc. will be held on Friday, September 8, 1995 at the Garden Center located at
1002 South Broad Street, Thomasville, Georgia 31792 at 11:00 A.M. Proxy
materials and a notice of the meeting addressed to stockholders of record on
July 21, 1995 are included in the mailing of this report. Stockholders are
cordially invited to attend.
Form 10-K
A copy of the Company's Annual Report on Form 10-K for fiscal 1995 (without
exhibits), as filed with the Securities and Exchange Commission, will be sent
without charge to any stockholder who submits a written request to:
Mr. Stan White
Secretary-Treasurer
Davis Water & Waste Industries, Inc.
1820 Metcalf Avenue
Thomasville, Georgia 31792
<PAGE> 31
DAVIS WATER & WASTE INDUSTRIES, Inc.
List of Locations
DAVIS METER & SUPPLY DAVIS PROCESS
Sales Office/Service Center Sales Office/Warehouse
Cape Coral, FL Laguna Nigel, CA
Jacksonville, FL Wilmington, DE
Ocala, FL Tallevast, FL
Orlando, FL Canton, GA
Pensacola, FL Granite City, IL
Tallahassee, FL Florence, SC
Tampa, FL Seguin, TX
West Palm Beach, FL
Kennesaw, GA DAVCO
Savannah, GA Sales Office/Manufacturing
Asheville, NC Thomasville, GA
Charlotte, NC
Raleigh, NC EMU-SUBMERSIBLE PUMPS
Knoxville, TN Sales Office/Warehouse
Nashville, TN Thomasville, GA
TAYLOR-JETT COMPANY
Sales Office/Service Center
South El Monte, CA
WATERWORKS EQUIPMENT COMPANY
Sales Office/Service Center
Bullhead City, AZ
Las Vegas, NV
Ogden, UT
McALLEN PIPE & SUPPLY COMPANY
Sales Office/Service Center
Corpus Christi, TX
Laredo, TX
McAllen, TX
San Antonio, TX
ABOUT THE LOGO ...
The Davis Water & Waste Industries, Inc. logo is the Theta sign. This Greek
letter is identified as the universal symbol for ecology and has been adopted
to signify our goal to meet the growing demand for clean water.
<PAGE> 32
