<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
---------
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT Of 1934
For the quarterly period ended June 30, 1995
------------------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT Of 1934
For the transition period from to
-------------- ---------------
Commission File Number 0-15902
------------------------------------------------
ESSEF Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0777631
------------------------------ ------------------------------
(State or other jurisdiction of (I.R.S. Employer
Identification No.) incorporation or organization)
220 Park Drive, Chardon, Ohio 44024
----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 286-2200
------------------
None
----------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No N/A
----- ----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common shares, as of the latest practicable date.
Class Outstanding at August 10,1995
---------------------------------- -----------------------------
Common Shares, no par value 4,876,641 Shares
Page 1 of 17
<PAGE> 2
ESSEF CORPORATION
Form 10-Q
For Quarter Ended June 30, 1995
INDEX
<TABLE>
<CAPTION>
Sequential
Page No.
-----------
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1995 and September 30, 1994............................... 3
Condensed Consolidated Statements of Operations -
Three Months and Nine Months Ended June 30, 1995
and 1994 .......................................................... 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended June 30, 1995 and 1994 .......................... 5
Notes to Condensed Consolidated Financial
Statements ........................................................ 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................... 8-10
Part II - Other Information
Item 1. Legal Proceedings ............................................... 11
Item 2. Changes in Securities............................................ 11
Item 6. Exhibits and Reports on Form 8-K................................. 12-17
</TABLE>
Page 2 of 17
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
----------- ------------
ASSETS
------
<S> <C> <C>
Current Assets
Cash and cash equivalents........................................ $ 1,521 $ 2,509
Accounts receivable, net ........................................ 31,479 20,983
Inventories, net ................................................ 16,708 11,789
Other current assets ............................................ 947 1,221
-------- --------
Total current assets ......................................... 50,655 36,502
Property, Plant and Equipment, net................................... 31,114 29,554
Other Assets......................................................... 10,485 8,115
-------- --------
$ 92,254 $ 74,171
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Current maturities of long-term debt ........................... $ 1,429 $ 1,436
Accounts payable ............................................... 10,287 6,716
Other current liabilities ...................................... 12,287 10,138
-------- --------
Total current liabilities ............................... 24,003 18,290
Long-Term Debt ..................................................... 19,899 16,246
Other Long-Term Liabilities ........................................ 3,153 1,739
-------- --------
Total liabilities ....................................... 47,055 36,275
Shareholders' Equity
Preferred shares without par value,
authorized 1,000,000 shares,
none issued ................................................. ----- -----
Common shares without par value,
authorized 15,000,000 shares, issued
4,976,796 and 4,970,250 shares less
101,330 treasury shares at cost,
stated at ................................................... 15,154 15,045
Retained earnings .............................................. 27,702 21,501
Cumulative foreign currency translation
adjustment .................................................. 2,343 1,350
-------- --------
Total shareholders' equity .............................. 45,199 37,896
-------- --------
$ 92,254 $ 74,171
======== ========
</TABLE>
The accompanying notes to the condensed consolidated financial statements are
an integral part of these statements.
Page 3 of 17
<PAGE> 4
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands,
except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------- --------------------
1995 1994 1995 1994
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net Sales....................... $ 45,942 $42,896 $117,887 $99,735
Cost of Sales................... 32,368 29,583 83,837 68,946
-------- ------- -------- -------
Gross profit............... 13,574 13,313 34,050 30,789
Operating Expenses.............. 8,012 8,167 23,153 21,081
-------- ------- -------- -------
Income from Operations..... 5,562 5,146 10,897 9,708
Interest Expense................ 582 478 1,572 886
Other Expense(Income)........... 13 (155) (364) (545)
-------- ------- -------- -------
Income Before Income Taxes...... 4,967 4,823 9,689 9,367
Provision for Income Taxes ..... 1,788 1,857 3,488 3,603
-------- ------- -------- -------
Net Income ..................... $ 3,179 $ 2,966 $ 6,201 $ 5,764
======== ======= ======= =======
Weighted Average Common Shares
Outstanding..................... 5,759,161 5,751,762 5,750,198 5,741,806
Earnings Per Share.............. $ .55 $ .52 $ 1.08 $ 1.00
</TABLE>
The accompanying notes to the condensed consolidated financial statements are
an integral part of these statements.
Page 4 of 17
<PAGE> 5
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
--------------------
1995 1994
------- -------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income ...................................................... $ 6,201 $ 5,764
Adjustments to reconcile net income
to net cash flows from operating activities
Depreciation and amortization .......................... 4,809 4,197
Deferred income tax expense ............................ 1,399 93
Stock option compensation expense ...................... 109 146
Change in Operating Assets and Liabilities
Accounts receivable ........................................ (10,065) (15,471)
Inventories ................................................. (4,675) (1,610)
Other current assets ........................................ 280 (627)
Accounts payable ............................................ 3,384 4,859
Other current liabilities ................................... 1,999 1,385
------- ------
Net cash flows from operating activities ........................ 3,441 ( 1,264)
------- ------
Cash Flows from Investing Activities
Additions to property, plant and
equipment ................................................... (6,834) (3,505)
Other, net ....................................................... (1,410) 173
Acquisition of business .......................................... -- (10,750)
------- ------
Net cash flows from investing activities. (8,244) (14,082)
------- ------
Cash Flows from Financing Activities
Borrowing on outstanding debt, net ............................... 3,646 14,800
------- ------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents ............................................ 169 159
------- ------
Net Decrease in Cash and Cash Equivalents .......................... (988) (387)
Cash and Cash Equivalents Balance - Beginning ...................... 2,509 2,836
------- ------
Cash and Cash Equivalents Balance - Ending ......................... $ 1,521 $ 2,449
======= =======
Supplemental Cash Flow Information
Interest paid $1,668 $ 585
======= =======
Income taxes paid $ 59 $ 3,195
======= =======
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
Page 5 of 17
<PAGE> 6
ESSEF CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) In the opinion of the Company the accompanying unaudited Condensed
Consolidated Financial Statements contain all normal and recurring
adjustments and accruals necessary to present fairly the Company's
financial position as of June 30, 1995, the results of its operations
for the three month and nine month periods ended June 30, 1995 and 1994,
and its cash flows for the nine month periods ended June 30, 1995 and
1994.
These financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's
1994 Annual Report to Shareholders, sections of which are incorporated
by reference into the Company's Form 10-K filed for the fiscal year
ended September 30, 1994. The results of operations for the three month
and nine month periods ended June 30, 1995 may not necessarily be
indicative of the operating results for the full year.
(2) Inventories
<TABLE>
Inventories consist of:
(Dollars in thousands)
<CAPTION>
June 30, September 30,
1995 1994
-------------------------
(unaudited)
<S> <C> <C>
Raw materials .................................... $ 9,340 $ 8,418
Work-in-process .................................. 2,762 1,306
Finished goods ................................... 6,441 3,374
------- -------
Inventories at FIFO cost ....................... 18,543 13,098
Less: Allowance to reduce carrying
value to LIFO cost ............................. (1,835) (1,309)
------- -------
Net Inventories ............................. $16,708 $11,789
======= =======
</TABLE>
(3) Receivable under Agreement for Deed
The Company has restructured the original Agreement for Deed which was
for the sale of the remaining assets of Fame Plastics, Inc., now known as
Sanford Technology Corporation to Apogee Plastics. Subsequent to the
sale of Fame, Apogee Plastics was acquired by Apogee Acquisition
Corporation which acquired and assumed all rights and obligations of
Apogee Plastics under the Agreement for Deed. Simultaneously with the
assumption, the face value of the note was reduced to $4.6 million, a
payment for $ .75 million was then made to reduce the receivable to $3.85
million. The receivable bears interest at 10% and requires interest
payments from April 1, 1995 through March 1, 1996, at which time a $.25
million principal payment is due. Interest and principal payments,
based on a 15 year amortization, are required monthly beginning April
1,1996 through and including February 1, 2000. On March 1, 2000
there shall be due and payable a final payment in an amount equal to the
entire unpaid principal balance and all unpaid accrued interest.
Page 6 of 17
<PAGE> 7
(4) Long-Term Debt
Effective January 3, 1995, the Company amended its agreement with its
bank group. The amendment reduced borrowing rates as follows:
<TABLE>
<CAPTION>
Current Rate Previous Rate Reduction
----------------- ------------------- ----------------
Libor BLR Libor BLR
Plus Plus Plus Plus Libor BLR
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Revolving Credit 1.375% 0% 1.875% 0% .5% 0%
Agreement
Term & acquisition 1.625% 0% 2.125% .25% .5% .25%
Loan
</TABLE>
The Company is in compliance with all of its covenants under the new
credit facility. As of June 30, 1995, interest rates for the revolving
debt and the term loan ranged from 7.38% to 9.0%.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
----------- -------------
(Dollars in thousands) (unaudited)
<S> <C> <C>
Term loan 8,571 9,643
Revolving credit agreement 12,725 8,000
Other loans 32 39
----------- ------------
21,328 17,628
Less current maturities 1,429 1,436
----------- ------------
Long-term debt $ 19,899 $ 16,246
========== ===========
</TABLE>
(5) The following components of other current liabilities were in excess
of 10% of total current liabilities:
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
------------ -------------
(Dollars in thousands) (unaudited)
<S> <C> <C>
Accrued compensation $ 2,909 $ 3,567
</TABLE>
(6) Subsequent to the end of the quarter, the Company completed two
acquisitions and announced an agreement to purchase a third business.
The merger of Advanced Structures, Inc. of Escondido, California with
Essef Corporation was completed on July 19, 1995. On August 4, 1995,
the Company acquired Euroimpex Srl of Milan, Italy. Also, on August 4,
1995, an agreement was signed for the acquisition of Compool Inc. of
Mountain View, California. Annual sales of these businesses are
approximately $25 million.
Page 7 of 17
<PAGE> 8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995
COMPARED WITH THREE MONTHS
ENDED JUNE 30, 1994
NET SALES
Net sales of $45,942,000 increased 7.1% from 1994 net sales of $42,896,000.
The water treatment and systems equipment segment reported a 3.6% increase in
sales to $17,507,000. The swimming pool and spa equipment segment sales of
$28,435,000 increased 9.4% over last year. This was primarily the result from
increased sales at Purex Pool Systems and the Company's European subsidiary.
Sales generated by the Company's European subsidiary were approximately 12.3%
of total U.S. dollar sales. The average U.S. dollar exchange rate used to
translate the results of operations as of June 30, 1995 weakened
by 15.8% compared to June 30, 1994 and had the effect of
increasing sales and income from operations.
The Company had a backlog of orders believed by it to be firm of approximately
$8.2 million and $9.0 million as of June 30, 1995 and June 30 1994,
respectively.
COST AND EXPENSES
Cost of sales increased from 69.0% to 70.5% of net sales in fiscal 1995. This
was primarily the result of an increase in material cost. The addition of
Purex, which has higher manufacturing costs than other business units of the
Company, also contributed to the increased cost of sales percentage. The
increase in net sales resulted in an increase in the Company's gross profit
from $13,313,000 to $13,574,000.
Operating expenses, consisting of administrative, selling, and engineering and
development expenses, decreased $155,000 to $8,012,000. As a percentage of
sales, these expenses decreased from 19.0% to 17.4%. The percentage of sales
decrease is a result of better management of operating expenses and the
allocation of the expenses over increased sales.
INTEREST EXPENSE
Interest expense increased by $104,000 to $582,000. This primarily was the
result of an increase in the effective interest rate of approximately 190 basis
points.
INCOME TAXES
The Company recorded a $1,788,000 provision in 1995 which represents an
effective tax rate of 36%. In 1994 the Company recorded a $1,857,000 provision
which represented an effective tax rate of 38.5%.
Page 8 of 17
<PAGE> 9
NET INCOME
The Company reported net income of $3,179,000 as compared to a 1994 net income
of $2,966,000. The change between years is a result of increased income from
Purex and the Company's European subsidiary. This was partially offset by
decreased income at ENPAC and increased interest expense.
NINE MONTHS ENDED JUNE 30, 1995
COMPARED WITH NINE MONTHS
ENDED JUNE 30, 1994
NET SALES
Net sales of $117,887,000 increased 18.2% from 1994 net sales of $99,735,000.
The water treatment and systems equipment segment reported a 4.3% increase in
sales to $50,256,000. All products in this segment increased over the prior
year except products from the Company's ENPAC subsidiary. The swimming pool
and spa equipment segment sales of $67,631,000 increased 31.2% over last year.
Sales generated by the Company's European subsidiary were approximately 12.3%
of total U.S. dollar sales and in U.S. dollars increased 25.0% over fiscal 1994
results.
COST AND EXPENSES
Cost of sales increased from 69.1% to 71.1% of net sales in fiscal 1995. This
was primarily the result of an increase in material cost and from the addition
of Purex which has a higher than average manufacturing cost. The Company's
gross profit increased from $30,789,000 to $34,050,000 due to the strong sales
growth. Operating expenses, consisting of administrative, selling, and
engineering and development expenses, increased $2,072,000 to $23,153,000. The
addition of operating expenses for Purex, acquired in March 1994, accounted for
66.9% of this increase. As a percentage of sales, these expenses decreased from
21.1% to 19.6%.
INTEREST EXPENSE
Interest expense increased by $686,000 to $1,572,000. This was the result of
an approximate 22% increase in average outstanding borrowings of the Company
(for acquisition purposes) and an increase in the effective interest rate of
approximately 200 basis points.
INCOME TAXES
The Company recorded a $3,488,000 provision in fiscal 1995 which represents an
effective tax rate of 36%. In fiscal 1994 the Company recorded a $3,603,000
provision which represents an effective tax rate of 38.5%.
NET INCOME
The Company reported net income of $ 6,201,000 as compared to a 1994 net income
of $5,764,000. The change between years is a result of the addition of Purex
offset by decreased income at ENPAC and increased interest expense.
Page 9 of 17
<PAGE> 10
SUBSEQUENT EVENTS
Subsequent to the end of the quarter, the Company completed two acquisitions
and announced an agreement to purchase a third business. The merger of
Advanced Structures, Inc. of Escondido, California with Essef Corporation
was completed on July 19, 1995. On August 4, 1995, the Company acquired
Euroimpex Srl of Milan, Italy. Also, on August 4, 1995, an agreement was
signed for the acquisition of Compool Inc. of Mountain View, California. Annual
sales of these businesses are approximately $25 million. The impact of these
acquisitions is not expected to be significant on fourth quarter profits which
are normally lower than the third quarter peak for the year. Seasonal markets
have peaked and weakness in our major markets has slowed growth making a fourth
quarter rebound unlikely.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $26,652,000 at June 30, 1995 compared to
$18,212,000 at September 30, 1994, and the ratio of current assets to current
liabilities increased to 2.11 to 1.00 from 2.00 to 1.00. The increase in
working capital is due to a $10.5 million increase in net accounts receivable,
a $4.9 million increase in net inventories offset by a $1.0 decrease in cash, a
$3.5 million increase in accounts payable and a $2.1 million increase in other
current liabilities. The increases in accounts receivable, inventory, and
accounts payable reflect normal seasonal working capital requirements.
Capital expenditures for the first nine months of fiscal year 1995 totaled
$6,834,000 compared to $3,505,000 for the same period last year, and were
funded from net income, depreciation and borrowing. The difference in capital
expenditures relates to building renovations, investment in tooling for new and
existing products and capital expenditures associated with Purex which was
acquired in March, 1994.
As of the end of June, 1995, the Company had foreign assets of approximately
$14.2 million principally located in Belgium. The assets were converted at
quarter end using a U.S. dollar exchange rate that was 12.3% lower than at
September 30, 1994.
The Company does not have any material post retirement or post employment
benefits, and thus will not experience any significant effect resulting from
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions" and SFAS No. 112, "Employers Accounting for Postemployment Benefits."
Page 10 of 17
<PAGE> 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
No change.
Item 2. Changes in Securities
No change.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Per Share Earnings
27 Financial Data Schedule
(b) Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this Report is filed.
Page 11 of 17
<PAGE> 12
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarter ended June 30, 1995
Commission File No. 0-15902
_______________
Essef Corporation
EXHIBIT VOLUME
Page 12 of 17
<PAGE> 13
Essef Corporation
Form 10-Q
For the Quarter Ended June 30, 1995
Exhibit Volume - Table of Contents
Exhibits filed with and sequentially numbered as part of the report
<TABLE>
<CAPTION>
Sequential
number of
Exhibit page of
Number Exhibit Description full report
------- ------------------- -----------
<S> <C> <C>
11 Computation of Per Share Earnings 16
27 Financial Data Schedule 17
</TABLE>
Page 13 of 17
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ESSEF Corporation
(Registrant)
/s/ Thomas B. Waldin
---------------------------------------
Thomas B. Waldin
President and Chief Executive
Officer (Principal Executive
Officer)
/s/ Theodore A. Havens
---------------------------------------
Theodore A. Havens
Chief Financial Officer and
Treasurer (Principal
Accounting Officer)
Date: August 10, 1995
Page 14 of 17
<PAGE> 15
This page intentionally left blank.
Page 15 of 17
<PAGE> 1
ESSEF CORPORATION EXHIBIT 11
Computation of Per Share Earnings
The computation of simple earnings per share and primary earnings per share is
as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30 June 30 June 30
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Average shares outstanding for
computation of simple earnings
per share 4,875,372 4,868,714 4,871,705 4,866,498
Add equivalent shares for un-
exercised options at end of
period (a) 883,789 883,048 878,493 875,308
--------- --------- --------- ---------
Average shares outstanding for
computation of primary earnings
per share 5,759,161 5,751,762 5,750,198 5,741,806
========= ========= ========= =========
Earnings per common share: $0.65 $0.61 $1.27 $1.18
Primary earnings per common
share: $0.55 $0.52 $1.08 $1.00
<FN>
(a) Computed under the "Treasury Stock Method" using the average market price for the respective period.
</TABLE>
Page 16 of 17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,521
<SECURITIES> 0
<RECEIVABLES> 31,479
<ALLOWANCES> 0
<INVENTORY> 16,708
<CURRENT-ASSETS> 50,655
<PP&E> 75,002
<DEPRECIATION> 43,888
<TOTAL-ASSETS> 92,254
<CURRENT-LIABILITIES> 24,003
<BONDS> 0
<COMMON> 15,154
0
0
<OTHER-SE> 30,045
<TOTAL-LIABILITY-AND-EQUITY> 92,254
<SALES> 117,887
<TOTAL-REVENUES> 117,887
<CGS> 83,837
<TOTAL-COSTS> 83,837
<OTHER-EXPENSES> (364)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,572
<INCOME-PRETAX> 9,689
<INCOME-TAX> 3,488
<INCOME-CONTINUING> 6,201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,201
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
</TABLE>
