<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K Commission File No. 0-15902
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
X EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended September 30, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from _____________ to ______________
ESSEF CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 34-0777631
- --------------------------------------- ---------------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
220 Park Drive, Chardon, Ohio 44024
- --------------------------------------- ---------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (216) 286-2200
---------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on which Registered
- -------------------------- -----------------------------------------
Common Shares, None. The Company's common stock trades on The
No Par Value. Nasdaq Stock Market under the symbol ESSF.
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, and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the Registrant's Common Shares held by
non-affiliates of the Registrant on December 6, 1995 was $48,251,396.
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 December 6, 1995
- --------------------------- --------------------------------
Common Shares, no par value 5,184,928 Shares
Portions of the following documents are incorporated by reference:
(1) Definitive Proxy Statement for the Annual
Meeting of Shareholders to be held January 23, 1996 Part III
The sequential page in this Report where the Exhibit Index appears is 52.
Page 1 of 68 sequentially numbered pages
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ESSEF CORPORATION
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Begins
PART I On
Page
------
<S> <C> <C>
Item 1. Business..................................................... 3
Item 2. Properties................................................... 9
Item 3. Legal Proceedings............................................ 11
Item 4. Submission of Matters to a Vote of Security Holders ......... 11
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholders' Matters........................................ 12
Item 6. Selected Financial Data...................................... 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 14
Item 8. Financial Statements and Supplementary Data.................. 18
Item 9. Disagreements on Accounting and Financial Disclosure......... 41
PART III
Item 10. Directors and Executive Officers of the Registrant........... 42
Item 11. Executive Compensation....................................... 43
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 43
Item 13. Certain Relationships and Related Transactions............... 44
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..................................................... 45
</TABLE>
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PART I
ITEM 1. BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS.
Essef Corporation was incorporated in Ohio in 1954 as Structural
Fibers, Inc. and commenced operations by focusing on an emerging technology:
the use of fiberglass reinforced plastics (FRP) as an alternative to metal in
cast, forged, and other formed or fabricated parts. The Company, having a
strong engineering oriented emphasis, pioneered the production of such products
for use in Polaris and Hercules missiles, jet engines, electrical components,
and other national defense related items.
This experience helped the Company successfully develop a proprietary
molding technology that radically changed its direction. Perfection of the
internal bag-molding process enabled mass production of seamless pressure
vessels with fiberglass-reinforced plastic, and in 1959, the Company began to
specialize in the manufacture of these products.
By the early 1970's, with the Company's basic product well established
in the pressure vessel market, the Company acquired Pac-Fab, Inc. (Pac-Fab) a
manufacturer of iron, brass and steel pump and filter products. As a result of
product conversion to polymeric materials, Pac-Fab today is a manufacturer of
swimming pool filters, pumps, underwater lights, and other swimming pool
equipment produced from engineered plastics.
In 1976, sa SFC nv was formed in Herentals, Belgium. This company
manufactures and distributes FRP pressure vessels, polyglass wound vessels, and
swimming pool filters for the European market.
In October 1991, sa SFC nv formed a new subsidiary, Structural Iberica
S.A. (Structural Iberica), located in Barcelona, Spain. This subsidiary
distributes water treatment, well system, and swimming pool products, primarily
in Spain.
In 1981, the Company acquired QPI and thus entered into the blow
molding business. QPI transferred its manufacturing operations to the
Company's Chardon facility in 1985 to support the Company's manufacturing
capabilities for its proprietary pressure vessels. During the period 1989
through early 1991, QPI entered the market as a custom blow molder specializing
in the production of structural flat panel systems. Today, as an integral part
of Structural Fibers, and no longer recognized as a separate business unit, the
capabilities of QPI are almost entirely focused on the Company's proprietary
product lines. The Company also has blow molding capabilities in Europe to
support its proprietary products which are manufactured there.
As part of the plan to sustain growth and to finance working capital
needs, the Company made an initial public offering of common shares in June,
1987. The offering enabled the Company to expand manufacturing capacity in all
operating segments in the period 1987 through 1990, although some facilities
and equipment have since been sold.
ENPAC Corporation (ENPAC) was formed in 1988. It designs,
manufactures, and markets proprietary engineered plastic vessels and related
accessory products for secondary containment and regulated transport of
industrial and environmentally hazardous waste materials.
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In the Fall of 1988, the Company acquired Hobson Brothers Aluminum
Foundry & Mould Works, Inc. (Hobson Brothers) a blow mold and injection mold
toolmaker operating in Shell Rock, Iowa.
Contaminant Recovery Systems, Inc. (ConRec) was formed in March, 1989
as a joint venture to develop and market proprietary equipment for the
minimization of hazardous waste generation and recycling of process water in
plating, metal finishing, and other chemical process industries where hazardous
waste management is of growing concern.
In 1981, the Company acquired FAME Plastics, Inc. (FAME), a custom
injection molder specializing in engineered plastic parts for the business
machine and computer industry. During the fourth quarter of fiscal year 1990,
the Company adopted a plan to dispose of FAME and substantially all of the net
assets of FAME were sold in fiscal year 1991.
In September 1992, Structural Fibers Division and its sister company
in Europe, SFC, agreed to a simultaneous name change. Structural Fibers became
Structural North America, and SFC became Structural Europe N.V. (Structural
Europe).
In March of 1994, Pac-Fab acquired Purex Pool Systems, Inc., (Purex
Pool Systems) a manufacturer of pumps, filters and heaters for the swimming
pool market.
In December of 1994, the Company signed a joint venture agreement with
a German manufacturer and distributor of metal hydropneumatic pressure vessels.
The joint venture, Reflex-WellMate GmbH is developing a composite
hydropneumatic pressure vessel to be manufactured and sold in Europe.
In July 1995, the Company acquired Advanced Structures, Inc. of
Escondido, California, a manufacturer of composite pressure vessel housings for
industrial and municipal reverse osmosis membrane systems.
In August of 1995, the Company acquired Euroimpex Srl, in Milan,
Italy, a manufacturer of pressure vessels and other components for the water
treatment industry.
In September of 1995, the company acquired Compool Corporation of
Mountain View, California, a manufacturer of electronic controls and valves for
swimming pools and spas.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
[For financial information about industry segments in which the
Company is engaged in business see Item 8 Financial Statements and
Supplementary Data; Note 10: Business Segment Information under Notes
to Consolidated Financial statements.]
(c) NARRATIVE DESCRIPTION OF BUSINESS.
- in general
Essef Corporation designs, manufactures and markets products made from
engineered plastics and specialized polymers combined with fiberglass and other
reinforcing materials. Principal products in the water treatment and systems
equipment segment include pressure vessels used in the treatment,
Page 4 of 68 sequentially numbered pages.
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storage and delivery of water. Principal products in the swimming pool and spa
equipment segment include filters, heaters, pumps, underwater lights, and
accessories for swimming pools and spas. The Company draws on its ability to
adapt emerging technologies in plastic materials and plastic processing
equipment to design and manufacture products requiring special performance
characteristics such as high strength-to-weight ratios, resistance to
corrosion, precise dimensional tolerances, and particular surface appearance.
The Company operates in two industry segments: 1) water treatment and
systems equipment, and 2) swimming pool and spa equipment. The water treatment
and systems equipment segment manufactures and markets fiberglass reinforced
plastic pressure vessels and related components used in the treatment,
filtration and storage of water in residential, commercial and industrial water
supply systems. Additionally this segment manufactures engineered plastic
vessels and accessory products for secondary containment and regulated
transport of industrial and environmentally hazardous waste materials.
Structural North America, Advanced Structures, ENPAC, ConRec, Hobson Brothers,
Structural Europe, Euroimpex, Reflex-WellMate GmbH and Structural Iberica
operate in this segment.
The swimming pool and spa equipment segment manufactures and markets
filters, heaters, pumps, underwater lights, white goods, electronic controls
and valves and other components for swimming pools and spas. Pac-Fab, Purex
Pool Systems, Compool and Structural Europe operate in this segment.
Structural North America, Advanced Structures, ENPAC, Pac-Fab, Compool
and Purex Pool Systems serve primarily the domestic and Canadian markets.
Hobson Brothers serves both the domestic and international markets. Structural
Europe, Euroimpex, Reflex-WellMate and Structural Iberica serve the European
and other International markets. ConRec serves principally the domestic
market.
-by industry segment
WATER TREATMENT AND SYSTEMS EQUIPMENT INDUSTRY SEGMENT
Principal Products
Structural North America and the Company's European subsidiaries
manufacture and distribute fiberglass reinforced plastic pressure vessels for
the treatment, storage and delivery of water for residential, commercial and
industrial use. The Company produces two companion lines of vessels,
distinguishable by design and method of construction but not by purpose or
function, for sale to both the water treatment equipment and water systems
equipment markets of this industry segment. The vessels comprising what has
become known as the FRP product line (an acronym for fiberglass reinforced
plastic) are integrally cast of a matrix of thermosetting resin and randomly
laid chopped fiberglass reinforcing filaments. By contrast, the vessels
comprising the newer polyglass (PolyGlass(TM)) product line are either
blow-molded or rotationally cast of thermoplastic resins and then reinforced by
a patterned winding of continuous fiberglass filaments.
ENPAC manufactures engineered plastic vessels and related accessory
products for secondary containment and regulated transport of industrial and
environmentally hazardous waste materials.
ConRec, a majority-owned joint venture of Essef Corporation, designs
and markets proprietary contaminant filtration and recovery systems and
hazardous
Page 5 of 68 sequentially numbered pages
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waste minimization systems to the electroplating, metal finishing and circuit
board manufacturing industries. Operations of this company are included in the
water treatment and systems equipment segment.
Hobson Brothers designs and manufactures custom blow molds which are
used by its customers for processing engineered plastics in various industries.
The molds are sold by inside salesmen and commissioned sales representatives.
Hobson Brothers believes that it receives a significant portion of its business
through referrals from plastics material suppliers.
Reflex-Wellmate GmbH is developing a composite hydropneumatic pressure
vessel to be manufactured and sold in Europe.
Advanced Structures manufactures composite pressure vessel housings
for industrial and municipal reverse osmosis membrane systems.
[For information relating to the amount of sales of the water
treatment and systems equipment segment, see Item 8 Financial
Statements and Supplementary Data; NOTE 10: BUSINESS SEGMENT
INFORMATION UNDER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.]
Customers and Distribution
The Company sells water treatment products to major original equipment
manufacturers (OEMs) in the United States, Canada, Europe and other
International markets through salaried sales personnel. It sells water systems
products through both salaried sales personnel and commissioned sales
representatives to plumbing wholesalers and well system supply houses,
primarily in the United States and Canada. The Company sells environmental
containers and related plastic products primarily through distributors located
primarily in the United States.
Competition
The Company's only major competitor in water treatment products in the
United States is Park International, Inc. The Company has several competitors
in Europe. The Company competes both domestically and in Europe on the basis
of its more extensive product line, quality and service.
Manufacturers of steel tanks currently hold approximately 88% of the
water systems market. The largest producer of steel tanks and the Company's
primary competitor in these products is Amtrol, Inc. The Company believes that
it competes in this market by providing its customers with better features,
responsive distribution practices, and competitive pricing.
The Company is one of several manufacturers supplying vessels, the
majority of which in this industry are steel, for secondary containment of
environmentally hazardous waste materials. The Company competes on the basis
of quality and an innovative product line.
The Company competes in the mold business with several manufacturers.
The Company believes it has one of the largest blow mold manufacturing
facilities in the U.S. The Company offers a full range of capabilities with a
mold shop, foundry, pattern shop, engraving, CAD/CAM, and complete engineering
design services, as well as the capability to sample many blow molds. The
Company believes that it competes by producing high quality custom molds with
technologically advanced machinery, and with on-time delivery.
Page 6 of 68 sequentially numbered pages
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SWIMMING POOL AND SPA EQUIPMENT INDUSTRY SEGMENT
Principal Products
The Company manufactures and sells a complete line of filters, heaters,
pumps, underwater lights, white goods, electronic controls, valves and other
accessories for swimming pools and spas through Pac-Fab, Purex Pool Systems,
Compool and through the Company's European subsidiary, Structural Europe. The
Company sells its products under the Purex-Triton(TM) and Compool(TM) names.
The filters come in a range of sizes and materials to satisfy consumer
needs. The filter media is sand, diatomaceous earth, or cartridge. Pumps are
made in a range of sizes from 1/2 to 20 horsepower and configured for high flow
or high pressure. Lights are made in a variety of wattages as well as bulb
type and cord length. The heaters are gas and are available with electronic or
pilot light ignition. White goods consist of skimmers, main drains, and
fittings and come in a variety of configurations and sizes.
[For information relating to the amount of sales of the swimming pool
and spa equipment segment, see Item 8 Financial Statements and Supplementary
Data; NOTE 10: BUSINESS SEGMENT INFORMATION UNDER NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.]
Customers and Distribution
In the swimming pool market, the Company sells its products primarily
to distributors. Sales of spa products and jetted tub pumps are primarily to
OEMs and the balance to distributors. The Company maintains a field sales
organization made up of salaried territory managers, each of whom is assigned
to and based in a geographic region to service customer accounts and develop
business within that particular region. The Company also has two commissioned
sales groups geographically disbursed in the United States and Canada.
Competition
There are eight significant competitors in the swimming pool and spa
equipment market, two of which are considered by the Company to be its major
competitors. The Company is a market leader in sales of in-ground pool filters
and estimates that it currently sells about 9.5% of all such pool filters.
The Company believes that it competes in the filter market by offering high
quality products which are priced competitively.
Historically, the Company's sales of pumps have been less than its
sales of filters. With the growing family of Challenger(TM) and WhisperFlo(TM)
pumps, the Company now competes effectively in the pump market. In particular,
the Company believes that its market presence, existing distribution channels
and reputation for quality in the filter market is contributing to market
penetration and increasing sales of its pumps.
SOURCES AND AVAILABILITY OF RAW MATERIALS - ALL INDUSTRY SEGMENTS
The principal material used in all segments of the Company's business,
except mold making and certain of ConRec's products, is plastic resins. The
Company has alternate sources for these resins and is not dependent on any
single supplier. The supply of materials for making molds and the ConRec
products is readily available from a number of suppliers. The Company
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believes that it has alternate sources for substantially all other materials
required for the production of its products.
BACKLOG - BUSINESS IN GENERAL
As of September 30, 1995 and September 30, 1994, the Company had a
backlog of orders believed by it to be firm of approximately $7,511,000 and
$7,871,000 respectively. The Company expects the backlog as of September 30,
1995 to be delivered in fiscal 1996.
SEASONALITY AND WORKING CAPITAL - BY INDUSTRY SEGMENT
Swimming pool and spa equipment experiences the greatest demand for
their products during the second and third quarters of each fiscal year, when
Pac-Fab, Purex Pool Systems, Compool and the Company's European subsidiaries
fill approximately 60% of their orders to distributors who are increasing their
inventories to meet the peak demand for swimming pool equipment in the spring
and early summer months.
Because of the seasonality described above, the Company's peak demand
for working capital occurs during the second and third quarters. In addition,
Pac-Fab, Purex Pool Systems, Compool and Structural Europe offer their
customers extended terms during this period and thereby decrease the cash flow
from operations available to the Company during these quarters. The Company
has historically met these needs from its revolving credit facility and income
from operations. The Company expects its working capital requirements to
continue to fluctuate on a seasonal basis and to be financed both from its
revolving credit facility and from cash flow from operations.
ENGINEERING AND DEVELOPMENT - BUSINESS IN GENERAL
The Company believes its success is dependent upon its ability to
adapt materials, machines, processes and other emerging technologies to the
design and manufacture of new products and to the improvement of the
performance, quality and manufactured cost of existing products. For this
reason, expenditures of the Company in engineering and development have been
primarily directed to the development of devices and processes and not to
fundamental research.
[For expenditures on engineering and development see Item 8 Financial
Statements and Supplementary Data; CONSOLIDATED STATEMENTS OF INCOME -
ESSEF AND SUBSIDIARIES FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994,
AND 1993; line item ENGINEERING AND DEVELOPMENT.]
PATENTS AND TRADEMARKS - BUSINESS IN GENERAL
The Company owns various trademarks, trade names and logos, the most
important of which are Triton(R), Challenger(TM), Purex-Triton(TM),
Codeline(TM), Purex(TM), Hatteras(R), Nautilus(R), WhisperFlo(TM), MiniMax(TM),
Poly Glass(TM), and WellMate(TM). The Company owns a number of patents covering
various aspects of the Company's products and manufacturing processes. Although
the Company believes its patents, trademarks, trade names and logos enhance its
competitive position and the name recognition of its products, the Company
relies more on its reputation for quality and its relationship with customers
for the maintenance and growth of its business.
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ENVIRONMENTAL MATTERS - BUSINESS IN GENERAL
The Company's manufacturing processes, like those of the plastics
industry generally, result in the generation of hazardous and other plant waste
and emissions. Consequently, the Company is subject to various federal, state
and local laws and regulations relating to environmental protection. The
Company routinely monitors and maintains installed equipment as necessary to
assure operation continuously in substantial compliance with the environmental
regulations to which they are subject. All operating facilities file reports
with and obtain current operating permits from appropriate governmental
oversight agencies.
EMPLOYEES - BUSINESS IN GENERAL
At September 30, 1995, the Company employed 1096 persons, of whom 338
are salaried managerial, administrative and supervisory personnel. The balance
are hourly personnel. Hourly employees at the Purex Pool Systems subsidiary are
covered by a collective bargaining agreement. The Company has not experienced
work stoppages and considers its relations with its employees to be good.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
[For financial information about foreign and domestic operations and
export sales see item 8 Financial Statements and Supplementary Data;
NOTE 10: BUSINESS SEGMENT INFORMATION under NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.]
ITEM 2. PROPERTIES.
The Company's headquarters are in Chardon, Ohio, in offices contiguous to the
division operating there.
The Company conducts its manufacturing, accounting, purchasing, marketing and
engineering operations at eleven facilities in the United States, one in
Belgium, two in Italy and one in Wales, U.K. The Company has rented additional
facilities near its Chardon, Ohio operations for use as temporary storage or
operations. The table below summarizes certain information with respect to the
principal facilities. The table does not include the administrative/sales
office which is leased by the Company's joint venture, ConRec.
<TABLE>
<CAPTION>
Approximate
Acreage and Principal
Location Square Footage Status Products
- -------- -------------- ------ ---------
<S> <C> <C> <C>
Chardon, Ohio 234,000 sq. ft. Owned Manufacture of water
treatment and systems
equipment; Corporate
Headquarters
Sanford, North Carolina 243,200 sq. ft. Owned Manufacture and ware-
housing of swimming
pool and spa equipment
</TABLE>
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<TABLE>
<CAPTION>
Approximate
Acreage and Principal
Location Square Footage Status Products
- -------- -------------- ------ ---------
<S> <C> <C> <C>
City Of Industry, 139,000 sq.ft. Leased Manufacture and ware-
California housing of swimming
pool and spa equipment
Chardon, Ohio 19,700 sq.ft. Leased Manufacture of hazardous
waste containers and related
products.
Chardon, Ohio 7,000 sq.ft. Leased Manufacture of hazardous waste
containers and related products.
Chardon, Ohio 16,280 sq.ft. Leased Administrative and
engineering for environ-
mental containers
Chardon, Ohio 22,000 sq.ft. Leased Warehouse for environ-
mental containers
Shell Rock, Iowa 56,214 sq.ft. Owned Manufacture of molds
and tooling for blow
molding applications
Herentals, Belgium 116,400 sq.ft. Owned Manufacture of water
treatment and systems
equipment, and swimming
pool and spa equipment
Escondido, California 49,258 sq.ft. Leased Manufacture of composite
pressure vessel housings
Escondido, California 6,000 sq.ft. Leased Warehouse for composite
pressure vessel housings.
Wales, U.K 20,500 sq.ft. Leased European sales office and
warehouse for composite
pressure vessel housings.
Milan, Italy 19,375 sq.ft. Leased Manufacture of pressure
vessels and other products
for water treatment.
Milan, Italy 19,375 sq.ft. Leased Manufacture of pressure
vessels and other products
for water treatment
Mountain View, California 16,600 sq.ft. Leased Manufacture of electronic
California.controls and valves
for swimming pools and spas
</TABLE>
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The Company considers all of its properties, both owned and leased, together
with the related machinery and equipment contained therein to be well
maintained, in good operating condition, and suitable and adequate for its
present and forseeable future needs.
ITEM 3. LEGAL PROCEEDINGS.
Certain claims, suits and complaints arising in the ordinary course of business
have been filed or are pending against the Company. In the opinion of
management, all such matters are adequately covered by insurance, or if not so
covered are without merit or are of such a nature, or involve such sums, as not
to have a significant adverse effect on the financial position of the Company
or the results of its operations were they to be disposed of unfavorably.
The Company is a participating defendant under a 1985 consent decree issued in
United States of America v. Chem-Dyne Corporation. This consent decree
attempts to resolve conflicting claims of responsibility and provide for the
cleanup of a toxic waste disposal site in Hamilton, Ohio. The Company
contributed approximately $29,000 of the $23,000,000 trust established by the
consent decree and paid approximately $12,000 in administrative costs
associated with the suit. Although the Company remains contingently liable for
any and all additional amounts that may be necessary for the cleanup of the
disposal site, the Company does not believe that any significant additional
expense will be incurred.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the year
covered by this report.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS'
MATTERS.
Essef Corporation Common Shares are listed in THE NASDAQ Stock Market
under the symbol ESSF. At November 17, 1995 the outstanding common shares were
held by 419 shareholders of record. There were no cash dividends declared or
paid for the year ended September 30, 1995 as the company continued its policy
of retaining earnings and cash for future expansion of the business. [For
information in respect of the market price range see Item 8 Financial
Statements and Supplementary Data; Note 13: Quarterly Information (unaudited)
of Notes to Consolidated Financial statements.]
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ITEM 6. SELECTED FINANCIAL DATA.
The following data has been selected from the Consolidated Financial Statements
of the Company and its Subsidiaries for the periods and dates indicated:
INCOME STATEMENT DATA:
(Dollars in Thousands
Except Per Share Data)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991
---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $157,507 $134,020 $104,466 $99,061 $95,909
Cost of Sales 114,124 93,283 73,048 68,285 67,136
Operating Expenses 31,478 28,727 24,431 22,596 22,221
Income from Operations 11,905 12,010 6,987 8,180 6,552
Interest Expense 2,075 1,275 1,164 1,809 3,304
Other Income, net (471) (639) (877) (1,456) (176)
Income Before Income Taxes
and Extraordinary Item 10,301 11,374 6,700 7,827 3,424
Provision for
Income Taxes 3,710 4,379 527 867 925
Income Before
Extraordinary Item 6,591 6,995 6,173 6,960 2,499
Extraordinary Item, net 920 -- -- -- --
Net Income $ 7,511 $ 6,995 $ 6,173 $ 6,960 $ 2,499
Per Share Information
Income Before
Extraordinary Item $ 1.13 $ 1.22 $ 1.08 $ 1.22 $ .47
Net Income $ 1.29 $ 1.22 $ 1.08 $ 1.22 $ .47
Average Number of
Shares Outstanding (1) 5,831,098 5,742,705 5,713,763 5,696,268 5,310,835
</TABLE>
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BALANCE SHEET DATA:
(AT SEPTEMBER 30)
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working Capital $21,423 $18,212 $ 8,316 $ 4,880 $ 1,431
Total Assets 106,624 74,171 55,199 57,297 58,410
Short-Term Debt 5,272 1,436 2,068 3,787 4,404
Long-Term Debt 22,421 16,246 8,819 12,573 18,972
Shareholders' Equity 51,426 37,896 30,076 25,598 17,018
</TABLE>
(1) Average shares outstanding represents common shares outstanding plus
equivalents (stock options).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
1995 COMPARED WITH 1994
NET SALES
Net sales of $157,507,000 increased 17.5 percent from 1994 net sales of
$134,020,000. Water treatment and systems equipment segment sales increased 9.9
percent to $71,556,000 from $65,134,000 recorded in 1994. The acquisitions of
Advanced Structures and Euroimpex contributed approximately 60 percent of this
increase. Other contributors to the sales increase in this segment were
commercial and industrial water treatment products and the Company's Hobson
Brothers subsidiary. This growth was partially offset by reduced sales in the
secondary containment business (ENPAC). The Company's business generated from
its European subsidiary in this segment increased 19.3 percent compared with
last year. Sales of the swimming pool and spa equipment segment of $85,951,000
increased 24.8 percent from $68,886,000 reported in 1994. Domestic swimming
pool and spa equipment sales increased 25.3 percent over 1994, while swimming
pool and spa equipment sales generated from the Company's European subsidiary
increased 17.6 percent from the prior year. Purex Pool Systems (acquired in
March, 1994) was the major contributor to the domestic increase. As of
September 30, 1995 and 1994, the Company had a backlog of orders of
approximately $7,511,000 and $7,871,000 respectively. The Company expects that
the September 30, 1995 backlog will be delivered in fiscal 1996.
COSTS AND EXPENSES
Cost of sales increased from 69.6 percent to 72.5 percent. All divisions
experienced increases except Structural Europe which was flat. The cost of
sales increase was primarily the result of an increase in material cost and
changes in product mix. Operating expenses, consisting of engineering and
development, selling, and administrative expenses increased $2,751,000, but
Page 14 of 68 sequentially numbered pages
<PAGE> 15
as a percentage of sales decreased from 21.4 percent to 20.0 percent. The
percentage of sales decrease is a result of better management of operating
expenses and increased sales.
INTEREST EXPENSE
Interest expense increased by $800,000 to $2,075,000. This was primarily the
result of an approximate 15 percent increase in average outstanding borrowings
of the Company (for acquisition purposes) and an increase in the effective
interest rate of approximately 170 basis points.
OTHER INCOME
Other income in 1995 and 1994 consists primarily of interest income received
pursuant to a receivable under an Agreement for Deed.
INCOME TAXES
The Company recorded a $3,710,000 tax provision in fiscal 1995, which reflects
an effective tax rate of 36.0 percent. In fiscal 1994 the Company recorded a
$4,379,000 provision which represents an effective tax rate of 38.5 percent.
INCOME BEFORE EXTRAORDINARY ITEM
The Company reported income before extraordinary item of $6,591,000 compared to
$6,995,000 in 1994. The change between years is a result of the addition of
Purex offset by decreased income at ENPAC and increased interest expense.
NET INCOME
The Company reported net income of $7,511,000 compared to 1994 net income of
$6,995,000. In addition to the items listed above, the change between years is
a result of the fire in Hobson Brothers' foundry building. The excess of
$1,437,000 (less related income tax of $517,000) of the insurance claim over
the net book value of the Company's assets has been reflected as an
extraordinary gain.
RESULTS OF OPERATIONS
1994 COMPARED WITH 1993
NET SALES
Net sales of $134,020,000 increased 28.3 percent from 1993 net sales of
$104,466,000. Water treatment and systems equipment segment sales increased
10.9 percent to $65,134,000 from $58,723,000 recorded in 1993. Major
contributors to the sales increase in this segment were commercial and
industrial water treatment products, WellMate sales and the Company's Hobson
Brothers subsidiary. This growth was partially offset by reduced sales in the
secondary containment business (ENPAC). The Company's business generated from
its European subsidiary in this segment was flat compared with 1993. Sales of
the swimming pool and spa equipment segment of $68,886,000 increased 50.6
percent from $45,743,000 reported in 1993. Domestic swimming pool and spa
equipment sales increased 54.6 percent over
Page 15 of 68 sequentially numbered pages
<PAGE> 16
1993, while swimming pool and spa equipment sales generated from the Company's
European subsidiary increased 10.8 percent from the prior year. In March,
1994, the Company acquired the assets and assumed certain liabilities of Purex
Pool Systems, Inc. (Purex). Without the impact of the Purex sales, the swimming
pool and spa equipment segment sales would have increased 16.4 percent. As of
September 30, 1994 and 1993, the Company had a backlog of orders believed by it
to be firm of approximately $7,871,000 and $5,090,000 respectively.
COSTS AND EXPENSES
Cost of sales decreased from 69.9 percent to 69.6 percent. Improvements
occurred at Pac-Fab and Hobson due to increased sales which resulted in better
utilization of fixed costs. This was partially offset by a shift in product
mix with a higher cost of sales for products sold at Structural North America
and Purex. Operating expenses, consisting of engineering and development,
selling and administrative expenses, increased $4,296,000, but as a percentage
of sales decreased from 23.4 percent to 21.4 percent. In fiscal 1993 a
non-recurring charge was incurred for an arbitration award and a severance
package for the Company's European managing director. While no such
non-recurring charge was incurred in fiscal 1994, additional engineering and
development expenses related to new product development and a new marketing
program in the domestic swimming pool business, and the addition of Purex
expenses exceeded the 1993 non-recurring charge.
INTEREST EXPENSE
Interest expense increased by $111,000 to $1,275,000. This was primarily the
result of an approximate 9.3 percent increase in average outstanding borrowings
of the Company, caused by the acquisition of Purex, and a slight increase in
the effective interest rate.
OTHER INCOME
Other income in 1994 and 1993 consists primarily of interest income received
pursuant to a receivable under an Agreement for Deed.
INCOME TAXES
The Company recorded a $4,379,000 tax provision in fiscal 1994, which reflects
an effective tax rate of 38.5 percent. In fiscal 1993 the Company recorded a
$527,000 provision. This provision reflected tax expense in the Company's
international operations and state tax provisions related to certain of the
Company's domestic operations. Net book operating loss carryforwards of
approximately $5.4 million were used during fiscal 1993 to offset approximately
$1.8 million of U.S. tax provision.
NET INCOME
The Company reported net income of $6,995,000 as compared to a 1993 net income
of $6,173,000. The change between years is a result of increased sales and
income from operations offset by an increase in the effective tax rate.
Page 16 of 68 sequentially numbered pages
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $21,423,000 at September 30, 1995 compared
to $18,212,000 at September 30, 1994, and the ratio of current assets to
current liabilities decreased to 1.76 to 1.00 from 2.00 to 1.00. The increase
in working capital is due primarily to an increase in accounts receivable,
inventories and prepayments offset by an increase in notes payable, accounts
payable and accrued expenses. These increases are primarily due to the
acquisitions of Advanced Structures, Inc., Euroimpex and Compool. Capital
expenditures for fiscal 1995 totaled $8,387,000 compared to $4,906,000 in
fiscal 1994, 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. The Company has a revolving loan,
acquisition-related line of credit and term loan facility providing a maximum
availability of $53 million through its bank group. In addition, the Company's
Belgium subsidiary has a line of credit available of $8.5 million. As of
September 30, 1995, approximately $39.4 million is available under these
facilities. Management expects that cash generated from operating activities
and its borrowing capacity will be sufficient to meet its current obligations,
to fund current operating and capital requirements and finance future growth.
The Company is involved in various claims and lawsuits incidental to its
business, including product liability claims which are covered by insurance and
for which the self-insured deductible per claim has over the past several years
ranged from a low of $75,000 to its current level of $275,000. Although the
Company believes that its' reserves, approximately $748,000 as of September 30,
1995, are adequate, a significant increase in the aggregate amount of claims
could have an adverse effect on the deductible level or upon the Company's
ability to obtain product liability coverage for certain product lines.
Management is addressing this issue in various ways and is reasonably
confident, but cannot guarantee, that the situation will be managed with no
material adverse impact on the Company. As of the end of September 1995, the
Company had foreign assets of approximately $18 million principally located in
Belgium and Italy. The assets were converted at year end using a U.S. dollar
exchange rate that was 8.6% lower than at September 30, 1994.
DIVIDENDS
The Company intends to continue its policy of retaining earnings and cash for
the future expansion of the business.
Page 17 of 68 sequentially numbered pages
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONSOLIDATED STATEMENTS OF INCOME
ESSEF CORPORATION AND SUBSIDIARIES
For the Years Ended September 30, 1995, 1994, and 1993
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $157,507 $134,020 $104,466
COST OF SALES 114,124 93,283 73,048
-----------------------------------------
GROSS PROFIT 43,383 40,737 31,418
OPERATING EXPENSES
Engineering and development 4,174 3,168 2,581
Selling 16,319 16,105 12,537
Administrative 10,985 9,454 9,313
-----------------------------------------
TOTAL OPERATING EXPENSES 31,478 28,727 24,431
-----------------------------------------
INCOME FROM OPERATIONS 11,905 12,010 6,987
INTEREST EXPENSE 2,075 1,275 1,164
OTHER INCOME, NET (471) (639) (877)
------------------------------------------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 10,301 11,374 6,700
PROVISION FOR INCOME TAXES 3,710 4,379 527
-----------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM 6,591 6,995 6,173
EXTRAORDINARY ITEM
(From fire insurance settlement,
less applicable income taxes of
$517) 920 -- -
-----------------------------------------
NET INCOME $ 7,511 $ 6,995 $ 6,173
==========================================
PER SHARE INFORMATION
INCOME BEFORE
EXTRAORDINARY ITEM $ 1.13 $ 1.22 $ 1.08
==========================================
NET INCOME $ 1.29 $ 1.22 $ 1.08
==========================================
</TABLE>
See Notes to Consolidated Financial Statements
Page 18 of 68 sequentially numbered pages
<PAGE> 19
CONSOLIDATED BALANCE SHEETS
ESSEF CORPORATION AND SUBSIDIARIES
September 30, 1995 and 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ ---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,870 $ 2,509
Accounts receivable, less allowance
for doubtful accounts of $1,167
and $845, respectively 25,714 20,983
Inventories 16,928 11,789
Prepayments and other 3,165 1,221
-------- --------
Total current assets 49,677 36,502
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land 369 350
Buildings 17,582 16,689
Machinery and equipment 62,476 49,510
Construction-in-progress 1,702 1,381
-------- --------
82,129 67,930
Less accumulated depreciation 44,383 38,376
-------- --------
Net property, plant and equipment 37,746 29,554
OTHER ASSETS
Receivable under agreement for deed 3,850 4,079
Goodwill, net 13,305 3,123
Other 2,046 913
-------- --------
Total other assets 19,201 8,115
-------- --------
$106,624 $ 74,171
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
Page 19 of 68 sequentially numbered pages
<PAGE> 20
CONSOLIDATED BALANCE SHEETS
ESSEF CORPORATION AND SUBSIDIARIES (CONTINUED)
September 30, 1995 and 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
- ------------------------------------ ---- ----
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt 5,272 1,436
Accounts payable 9,562 6,716
Accrued expenses 10,708 10,138
Accrued income taxes 2,712 --
-------- ---------
Total current liabilities 28,254 18,290
LONG-TERM DEBT 22,421 16,246
DEFERRED INCOME TAXES 1,571 --
OTHER LONG-TERM LIABILITIES 2,952 1,739
-------- --------
Total liabilities 55,198 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 5,289,188 shares and
4,970,250 shares in 1995 and
1994, respectively, less
101,330 Treasury shares at cost,
stated at 20,411 15,045
Retained earnings 29,012 21,501
Cumulative foreign currency
translation adjustment 2,003 1,350
-------- --------
Total shareholders' equity 51,426 37,896
-------- --------
$106,624 $ 74,171
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
Page 20 of 68 sequentially numbered pages
<PAGE> 21
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ESSEF CORPORATION AND SUBSIDIARIES
For the Years Ended September 30, 1995, 1994, and 1993
(Dollars in Thousands except for number of shares)
<TABLE>
<CAPTION>
COMMON SHARES
-------------------
CUMULATIVE
NUMBER RETAINED TRANSLATION
OF SHARES AMOUNT EARNINGS ADJUSTMENT TOTAL
--------- ------ -------- ---------- -----
<S> <C> <C> <C> <C> <C>
BALANCE
SEPTEMBER 30, 1992 4,860,325 $14,664 $ 8,333 $2,601 $25,598
Net Income -- -- 6,173 -- 6,173
Stock Options 4,390 137 -- -- 137
Foreign currency
translation adjustment -- -- -- (1,832) (1,832)
---------- -------- --------- ------- ------
BALANCE
SEPTEMBER 30, 1993 4,864,715 14,801 14,506 769 30,076
Net Income -- -- 6,995 -- 6,995
Stock Options 4,205 244 -- -- 244
Foreign currency
translation adjustment -- -- -- 581 581
---------- -------- --------- ------ -------
BALANCE
SEPTEMBER 30, 1994 4,868,920 15,045 21,501 1,350 37,896
Net Income -- -- 7,511 -- 7,511
Stock Options 8,947 96 -- -- 96
Issuance of shares
for acquisition 309,991 5,270 -- -- 5,270
Foreign currency
translation adjustment -- -- -- 653 653
---------- ------- ------- -------- --------
BALANCE
SEPTEMBER 30, 1995 5,187,858 $20,411 $29,012 $ 2,003 $51,426
========= ======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
Page 21 of 68 sequentially numbered pages
<PAGE> 22
CONSOLIDATED STATEMENTS OF CASH FLOWS
ESSEF CORPORATION AND SUBSIDIARIES
For the Years Ended September 30, 1995, 1994, and 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 7,511 $6,995 $6,173
Adjustments to reconcile net income
to net cash provided by operating activities
Extraordinary item (920) -- --
Depreciation and amortization 6,229 5,499 5,210
Other 96 471 122
Gain on liquidation of subsidiary -- (201) --
Changes in Operating Assets & Liabilities
Accounts receivable (1,929) (6,326) (2,788)
Inventories (1,046) 29 515
Prepayments & other (1,484) (85) 397
Accounts payable 243 996 (379)
Accrued expenses (1,428) 1,389 (119)
Accrued and deferred income taxes 4,111 (367) (196)
------- ----- ------
Net cash provided by operating
activities 11,383 8,400 8,935
------- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (8,387) (4,906) (3,662)
Business acquisitions (1,577) (10,750) --
Other assets, net (1,880) 19 573
-------- -- ---
Net cash used in investing
activities (11,844) (15,637) (3,089)
-------- -------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments)on term loan (1,429) 9,643 (11,756)
Net borrowings (payments) on revolving
credit agreement 5,900 (2,780) 6,610
Other loans (2,744) (68) (318)
-------- ------- -------
Net cash provided by (used in)
financing activities 1,727 6,795 (5,464)
------- ------- --------
</TABLE>
See Notes to Consolidated Financial Statements
Page 22 of 68 sequentially numbered pages
<PAGE> 23
CONSOLIDATED STATEMENTS OF CASH FLOWS
ESSEF CORPORATION AND SUBSIDIARIES (CONTINUED)
For the Years Ended September 30, 1995, 1994, and 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS 95 115 (381)
------ --- ----
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,361 (327) 1
CASH AND CASH EQUIVALENTS
- -- BEGINNING OF YEAR 2,509 2,836 2,835
------- ----- -----
CASH AND CASH EQUIVALENTS
- -- END OF YEAR $ 3,870 $ 2,509 $ 2,836
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 2,168 $ 1,191 $ 1,391
Income taxes paid, net $ 126 $ 4,386 $ 680
</TABLE>
See Notes to Consolidated Financial Statements
Page 23 of 68 sequentially numbered pages
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Essef Corporation is the leading worldwide supplier of composite components and
subsystems for the movement, storage and treatment of water. Residential,
commercial, industrial, and municipal end-users rely on the Company's
high-performance products for consistent and reliable results. Essef's
technology produces products that are basic to almost any water treatment,
filtration, or storage system. The Company reports its business in two
segments: Swimming Pool and Spa Equipment, and Water Treatment and Systems
Equipment.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Essef Corporation
and subsidiaries (the Company). All significant intercompany items have been
eliminated. Certain reclassifications have been made to prior year amounts in
order to be consistent with the presentation for the current year.
REVENUE RECOGNITION
The Company recognizes revenue when products are shipped.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short term investments with initial
maturities of three months or less to be cash equivalents.
DEPRECIATION AND AMORTIZATION
Depreciation is computed on the straight-line method for financial reporting
purposes while accelerated methods are used for tax reporting purposes.
Goodwill arising from business acquisitions is amortized on the straight-line
method over forty years. The Company continually evaluates goodwill to assess
recoverability.
INCOME TAXES
Effective October 1, 1993, the Company adopted the provisions of the Financial
Accounting Standards Board Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes", which requires the use of the
liability method of accounting for deferred taxes. SFAS No. 109 supersedes SFAS
No. 96, "Accounting for Income Taxes", which the Company had adopted in the
first quarter of 1992. The consolidated
Page 24 of 68 sequentially numbered pages
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1995, 1994, AND 1993
financial statements for prior years have not been restated and the cumulative
effect of the accounting change was not material. The provision for income
taxes includes federal, foreign, state and local taxes currently payable and
those deferred because of temporary differences between financial statement and
tax bases of assets and liabilities.
EARNINGS PER SHARE
The computation of earnings per share is based on the weighted average number
of outstanding common shares and equivalents (stock options) during the
periods. Average shares outstanding for the purpose of calculating
earnings per share were 5,831,098 in 1995, 5,742,705 in 1994, and 5,713,763 in
1993.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign subsidiaries are
translated at current exchange rates and the results of operations are
translated at the average exchange rates during the periods. Adjustments
resulting from these translations are recorded as a separate component of
Shareholders' Equity.
NOTE 2: INVENTORIES
Inventories are stated at the lower of cost or market. The majority of domestic
inventories are valued using the last-in, first-out (LIFO) method and the
balance of the Company's inventories are valued using the first-in, first-out
(FIFO) method.
Inventories are valued as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Raw Materials $10,089 $ 8,418
Work-in-process 2,445 1,306
Finished goods 6,225 3,374
-----------------------------
Inventories at FIFO Cost 18,759 13,098
Less: Allowance to
reduce carrying value
to LIFO cost (1,831) (1,309)
-----------------------------
Net Inventories $16,928 $11,789
=============================
</TABLE>
Page 25 of 68 sequentially numbered pages
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 2: INVENTORIES (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
U.S. Companies using
LIFO cost method $ 9,350 $ 8,553
U.S. Companies using
FIFO cost method 4,309 1,256
Foreign companies
using FIFO cost method 3,269 1,980
Net Inventories $16,928 $11,789
</TABLE>
NOTE 3: ACCRUED EXPENSES
The following components of accrued expenses were in excess of 5% of total
current liabilities:
(dollars in thousands)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Accrued compensation $4,057 $ 3,567
Product liability
retention $ 748 $ 931
</TABLE>
NOTE 4: NOTE 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. Under the Agreement for Deed,
conveyance of title to the buyer will occur upon full payment of the $3.85
million receivable. Until such time, title remains with the Company.
Page 26 of 68 sequentially numbered pages
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 5: FINANCIAL INSTRUMENTS
The Company has financial instruments which consist primarily of cash and cash
equivalents, accounts receivable, a receivable under an agreement for deed,
notes payable and long-term debt. The Company has determined that the estimated
fair value of its financial instruments approximates carrying value. At
September 30, 1995 the Company held no derivative financial instruments.
NOTE 6: LONG-TERM DEBT
The Company and its bank group have an unsecured $33,000,000 revolving loan, an
acquisition-related line of credit in the maximum aggregate amount of
$10,000,000, and an additional term loan facility in the maximum aggregate
amount of $10,000,000. There are no outstanding borrowings on the
acquisition-related line of credit at September 30, 1995. The revolving loan
extends through January 31, 1997 and may be extended in one year increments
with the approval of the bank group. The term loan is payable in equal
quarterly installments using a seven year amortization schedule with the unpaid
principal balance outstanding due January 31, 1997. Interest rates for the
revolving loan, acquisition-related line of credit, and term loan are based on
increments over the lead bank's base lending rate or LIBOR rate at the
Company's option. A 3/8 percent commitment fee is payable on the unused
portion of the revolving loan and the acquisition-related line of credit.
The Company's Belgium subsidiary has a line of credit available of approximately
$8.5 million. There are no outstanding borrowings as of September 30, 1995. In
addition, a note payable of $3.75 million is outstanding related to the
acquisition of a subsidiary and is due January 31, 1996. Interest is charged
at a rate of 8% annually.
The Company is in compliance with all of its covenants under the credit
facility. As of September 30, 1995, interest rates for the revolving debt
and the term loan ranged from 7.25% to 8.75%. The long term debt balances are
as follows: (dollars in thousands)
September 30,
1995 1994
--------------------------
Term loan $ 8,214 $ 9,643
Revolving credit
agreement 13,900 8,000
Other loans 5,579 39
--------------------------
27,693 17,682
Less current maturities 5,272 1,436
--------------------------
$22,421 $16,246
==========================
Page 27 of 68 sequentially numbered pages
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1995, 1994, AND 1993
Future maturities of long-term debt at September 30, 1995 are $5,272 in 1996
and $22,421 in 1997.
NOTE 7: INCOME TAXES
During 1994, the Company adopted the provisions of the Financial Accounting
Standards Board Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." SFAS No. 109 supersedes SFAS No. 96,
"Accounting for Income Taxes," which the Company adopted in the first quarter
of 1992. The consolidated financial statements for prior years have not been
restated and the cumulative effect of the accounting change was not material.
The provision for income taxes is calculated based upon the following
components of income before taxes:
(dollars in thousands)
September 30,
1995 1994 1993
-----------------------------------------------
Domestic $ 8,393 $10,225 $6,056
Foreign 1,908 1,149 644
-----------------------------------------------
$10,301 $11,374 $6,700
===============================================
The significant components of the provision for income taxes are as follows:
(dollars in thousands)
September 30,
1995 1994 1993
---------------------------------------
Current
Federal $2,485 $3,369 $ 37
Foreign (311) 313 322
State 226 603 198
---------------------------------------
Total Current $2,400 $4,285 $ 557
---------------------------------------
Deferred
Federal $1,199 $ 96 $ --
Foreign (116) (18) (30)
State 227 16 --
---------------------------------------
Total Deferred 1,310 94 (30)
---------------------------------------
$3,710 $4,379 $ 527
=======================================
Page 28 of 68 sequentially numbered pages
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1995, 1994, AND 1993
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities are
as follows: (dollars in thousands)
<TABLE>
<CAPTION>
September 30,
1995 1994
----- ------
<S> <C> <C>
Deferred income tax assets:
Nondeductible accruals $ 2,201 $ 2,769
Tax credit and net operating
loss carryforwards 403 205
Other -- 280
-------- ------
$ 2,604 $ 3,254
Valuation allowance -- (205)
-------- -------
Total deferred income tax assets $ 2,604 $ 3,049
------- -------
Deferred tax liabilities:
Depreciation and
amortization $ 4,175 $2,682
------- ------
Total deferred income tax
liabilities $ 4,175 $2,682
------- ------
Net deferred
income tax asset (liability) $(1,571) $ 367
======== =======
</TABLE>
The consolidated tax provision differs from the tax provision computed at
statutory United States tax rates for the following reasons: (dollars in
thousands)
<TABLE>
<CAPTION>
September 30,
1995 1994 1993
----- ---- ----
<S> <C> <C> <C>
Tax provision at federal
rate of 34% $3,502 $3,867 $2,278
State income taxes 453 619 131
Foreign tax differential (426) (96) (71)
Utilization of net operating
loss carryforward -- -- (1,816)
Other, net 181 (11) 5
------ ------ ------
$3,710 $4,379 $ 527
====== ======= ======
</TABLE>
Page 29 of 68 sequentially numbered pages
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 8: LEASES
The Company leases some of its facilities and equipment. Total rental expenses
were $982,000, $945,000, and $801,000 in 1995, 1994, and 1993, respectively.
Minimum annual rental commitments for the next five years under non-cancelable
operating leases at September 30, 1995, are as follows:
(dollars in thousands)
1996 $1,585
1997 1,146
1998 817
1999 261
2000 220
NOTE 9: RETIREMENT AND DEFERRED COMPENSATION PLANS
The Company has a qualified defined contribution retirement plan covering
substantially all of its employees. The plan provides for an annual basic
contribution by the Company equal to 2% of each participant's compensation
(which is fully vested), a discretionary contribution (which is fully vested
after seven years), and a matching contribution (which is fully vested). Total
Company contributions were approximately $1,211,000, $1,070,000, and $892,000
for the years ended September 30, 1995, 1994, and 1993, respectively.
The Company has a deferred compensation plan for executive officers. At
September 30, 1995 and 1994, liabilities of approximately $576,000 and
$501,000, respectively, have been recorded in other long-term liabilities. The
Company has a non qualified retirement plan for its Board of Directors. At
September 30, 1995 and 1994, liabilities of approximately $375,000 and
$420,000, respectively, have been recorded in other long-term liabilities.
NOTE 10: BUSINESS SEGMENT INFORMATION
By Industry--The Company operates in two industry segments: water treatment and
systems equipment, and swimming pool and spa equipment. The water treatment and
systems equipment segment manufactures products for moving, storing and
treating water in residential, commercial, industrial and municipal water
supply systems. This segment also manufactures products for the transport and
containment of hazardous and industrial waste materials, as well as molds and
tools used in the plastic blow molding industries. Swimming pool and spa
equipment operations include pumps, filters, heaters, lights, and components
for swimming pools and spas.
Page 30 of 68 sequentially numbered pages
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 10: BUSINESS SEGMENTS (CONTINUED)
The following table contains a summary of information of each industry segment.
The principal corporate assets are cash and cash equivalents, and a receivable
under agreement for deed, neither of which is included as an asset in an
industry segment.
(dollars in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
NET SALES
Water Treatment and Systems
Equipment $ 71,556 $ 65,134 $ 58,723
Swimming Pool and Spa Equipment 85,951 68,886 45,743
------------------------------------------
$157,507 $134,020 $104,466
==========================================
INCOME FROM OPERATIONS
Water Treatment and Systems
Equipment $ 5,714 $ 7,330 $ 5,905
Swimming Pool and Spa Equipment 8,309 6,848 3,185
Corporate Development and
Administration (2,118) (2,168) (2,103)
------------------------------------------
$ 11,905 $ 12,010 $ 6,987
==========================================
IDENTIFIABLE ASSETS
Water Treatment and Systems
Equipment $ 55,509 $ 31,455 $ 32,458
Swimming Pool and Spa Equipment 40,174 34,308 16,073
------------------------------------------
95,683 65,763 48,531
Construction-In-Progress 1,702 1,381 1,005
Corporate Development and
Administration 9,239 7,027 5,663
------------------------------------------
$106,624 $ 74,171 $ 55,199
==========================================
CAPITAL EXPENDITURES
Water Treatment and Systems
Equipment $ 5,509 $ 3,481 $ 2,432
Swimming Pool and Spa Equipment 2,833 1,395 1,213
------------------------------------------
8,342 4,876 3,645
Corporate Development and
Administration 45 30 17
------------------------------------------
$ 8,387 $ 4,906 $ 3,662
==========================================
</TABLE>
Page 31 of 68 sequentially numbered pages
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 10: BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
DEPRECIATION AND AMORTIZATION
Water Treatment and System
Equipment $ 3,705 $ 3,379 $ 3,289
Swimming Pool and Spa Equipment 2,480 2,063 1,853
-------- ----- -----
6,185 5,442 5,142
Corporate Development and
Administration 44 57 68
-------- -------- --------
$ 6,229 $ 5,499 $ 5,210
======== ======== ========
</TABLE>
Page 32 of 68 sequentially numbered pages
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 10: BUSINESS SEGMENT INFORMATION (CONTINUED)
By Geographic Area--Operations of the Company are located in the United States
and Europe. The following table contains a summary of activity by geographic
area.
(dollars in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
NET SALES
United States $126,124 $110,548 $ 85,363
Foreign 31,838 23,472 19,103
-------- ------ ------
$157,507 $134,020 $104,466
======== ======== ========
INCOME FROM OPERATIONS
United States $ 9,280 $ 10,195 $ 5,815
Foreign 2,625 1,815 1,172
-------- ----- -----
$ 11,905 $ 12,010 $ 6,987
======== ======== ========
IDENTIFIABLE ASSETS
United States $ 88,777 $ 63,825 $ 43,653
Foreign 17,847 10,346 11,546
-------- ------ ------
$106,624 $ 74,171 $ 55,199
======== ======== ========
CAPITAL EXPENDITURES
United States $ 6,583 $ 4,104 $ 2,779
Foreign 1,804 802 883
-------- --- ---
$ 8,387 $ 4,906 $ 3,662
======== ======== ========
DEPRECIATION AND AMORTIZATION
United States $ 4,886 $ 4,357 $ 4,158
Foreign 1,343 1,142 1,052
-------- ----- -----
$ 6,229 $ 5,499 $ 5,210
======== ======== ========
</TABLE>
Page 33 of 68 sequentially numbered pages
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 11: CAPITAL STOCK AND STOCK OPTION PLAN
The Company has 1,000,000 Serial Preferred Shares authorized, none of which
have been issued. When issued, each of such shares would have one vote, and in
special situations the Serial Preferred Shares would vote in a class separate
from the Company's common shares. The Board of Directors is authorized to
establish the dividend rates, cumulative rights, redemption prices, sinking
fund provisions and conversion rights of the Serial Preferred Shares.
The Company has a stock option plan for employees granting ten year
options for the purchase of up to 500,000 common shares of the Company and the
granting of stock appreciation rights. Options may be exercised partially
during the first three to five years from the date of grant, and in whole or in
part thereafter. The outstanding options expire at various dates through the
year 2005. Activity in the stock option plan is as follows:
<TABLE>
<CAPTION>
NUMBER
OF OPTIONS PRICE PER SHARE
---------- ---------------
<S> <C> <C>
Option Shares
Outstanding
October 1, 1993 63,620 $3.38 -$ 8.50
Granted 187,314 $16.33 -$16.50
Expired (663)
Exercised (4205)
-------
Outstanding
October 1, 1994 246,066 $3.38 -$16.50
Granted 16,000 $15.75 -$16.33
Expired (14,323) --
Exercised (8,947) --
-------
Outstanding
September 30,1995 238,796 $3.38 -$16.50
=======
Exercisable
September 30, 1995 108,026
=======
</TABLE>
In addition to the options shown above, in 1990, the company granted options to
purchase 971,800 common shares at $2.00 per share. These options expire ten
years from the date of grant and are fully vested. None of these options have
been exercised. Additionally, in 1994 and 1995, the Company granted certain
officers options to purchase 150,000 and 25,000 common shares. These options
shall vest based on attainment of specified financial ratios and expire 10
years from the date of grant.
Page 34 of 68 sequentially numbered pages
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 11: CAPITAL STOCK AND STOCK OPTION PLAN (Continued)
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 123, "Accounting for Stock-Based Compensation," which
requires adoption no later than fiscal years beginning after December 15, 1995.
The new standard defines a fair value method of accounting for stock options
and similar equity instruments. Companies are also permitted to continue to
account for such transactions under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," with certain other disclosures.
The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year of adoption. The Company
has not yet determined if it will elect to change to the fair value method, nor
has it determined the effect the new standard will have on net income and
earnings per share should it elect to make such a change. Adoption of the new
standard will have no effect on the Company's cash flows.
Page 35 of 68 sequentially numbered pages
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 12: QUARTERLY INFORMATION (UNAUDITED)
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
QUARTER
-------
FIRST SECOND THIRD FOURTH TOTAL
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
1995
Net Sales $32,019 $39,926 $45,942 $39,620 $157,507
Gross Profit 8,951 11,525 13,574 9,333 43,383
Income Before
Extraordinary Item 897 2,125 3,179 390 6,591
Net Income 897 2,125 3,179 1,310 7,511
Earnings Per Share
Income Before
Extraordinary Item .16 .37 .55 .06 1.13 (b)
Net Income .16 .37 .55 .22 1.29 (b)
Range of Stock Prices (a)
High $16.00 $16.25 $16.50 $18.50 $18.50
Low $14.25 $14.00 $15.50 $15.75 $14.00
1994
Net Sales $24,658 $32,181 $42,896 $34,285 $134,020
Gross Profit 7,204 10,272 13,313 9,948 40,737
Net Income 835 1,963 2,966 1,231 6,995
Earnings Per Share .15 .34 .52 .21 1.22
Range of Stock Prices (a)
High $13.25 $18.25 $16.50 $15.25 $18.25
Low $11.50 $12.75 $14.00 $13.75 $11.50
</TABLE>
(a) The prices in this table, representing the high and low "Bid" prices, have
been supplied to the Company by The National Association of Securities Dealers,
Inc. These prices reflect quotations between dealers which do not include
mark-ups, mark-downs, or commissions, and may not be actual transactions.
(b) The total of the earnings per share for each quarter does not equal the
earnings per share for the full year, either because the calculations are based
on the weighted average shares outstanding during each of the individual
periods, or due to rounding.
Note: The quoted market price of the Company's common share was $17.875 at the
close of business on November 17, 1995.
Page 36 of 68 sequentially numbered pages
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 13: BUSINESS ACQUISITIONS
On July 21, 1995, Advanced Structures, Inc. of Escondido, California, a
manufacturer of composite pressure vessel housings for industrial and municipal
reverse osmosis membrane systems, was merged into a wholly-owned subsidiary of
the Company. On August 4, 1995, the Company acquired certain assets and assumed
certain liabilities of Euroimpex Srl, in Milan, Italy, a manufacturer of
pressure vessels and other components for the water treatment industry. On
September 1, 1995, the Company acquired certain assets and liabilities of
Compool Corporation of Mountain View, California, a manufacturer of electronic
controls and valves for swimming pools and spas. The Company paid
approximately $13 million in cash, Essef Common Stock, and notes payable for
these companies. The purchase price was allocated to the assets and
liabili-ties based on their estimated fair values as of the date of
acquisition. Under earn-out agreements related to these acquisitions,
additional amounts are contingent on the acquired companies reaching certain
profitability goals through September 30, 2000. Any such payments will be
accounted for as additional cost in excess of net assets acquired in the year
earned.
On March 7, 1994 the Company acquired certain assets and assumed
certain liabilities of the Purex Pool Products Division of Hydrotech Chemical
Corporation, a subsidiary of Great Lakes Chemical Company for approximately
$13.6 million. Purex is a manufacturer of filters, pumps, lights, and heaters
for swimming pools and spas.
All of the acquisitions were accounted for as purchases and the results of
operations have been included in the Company's results since acquisition. The
cost in excess of net assets acquired is amortized on a straight line basis
over forty years.
The following unaudited proforma consolidated results of operations give effect
to the above acquisitions as though they were acquired at the beginning of each
period shown. The proforma information has been presented for comparative
purposes only and does not purport to be indicative of what would have occurred
had the acquisitions been made at the beginning of the earliest period
presented, or of results which may occur in the future.
Page 37 of 68 sequentially numbered pages
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 13: BUSINESS ACQUSITIONS (CONTINUED)
(Unaudited)
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1995 1994
-------- ------
<S> <C> <C>
Net Sales $179,137 $166,121
Income Before Extraordinary Item $ 7,030 $ 7,087
Net Income $ 7,950 $ 7,087
Earnings per Share:
Income Before Extraordinary Item $ 1.16 $ 1.17
Net Income $ 1.31 $ 1.17
</TABLE>
On December 1, 1994, the Company signed a joint venture agreement with a German
manufacturer and distributor of metal hydropneumatic pressure vessels. The
joint venture, Reflex-WellMate GmbH is developing a composite hydropneumatic
pressure vessel to be manufactured and sold in Europe. The Company's interest
in the joint venture is being accounted for using the equity method of
accounting. At September 30, 1995 the Company had made investments and
advances of approximately $1.57 million to the joint venture, $.66 million of
which are included in other current assets. During 1995, the Company had no
equity income from the investment.
NOTE 14: EXTRAORDINARY ITEM
In February, 1995, Hobson Brothers, a subsidiary of the Company, suffered a
major fire in their foundry building. All assets destroyed were insured and the
Company has settled its claim with the carrier. The excess of $1,437,000 (less
related income tax of $517,000) of the insurance claim over the net book value
of the Company's assets has been reflected as an extraordinary gain.
Additionally, proceeds of $200,000 were included in operating income to offset
fire-related business interruption costs.
Page 38 of 68 sequentially numbered pages
<PAGE> 39
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS,
We have audited the accompanying consolidated balance sheet of Essef
Corporation and Subsidiaries as of September 30, 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
year then ended. Our audit also included the Financial Statement Schedule
listed in the index at Item 14(a)(2). These financial statements and the
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audit. The financial
statements of the Company for the years ended September 30, 1994 and 1993 were
audited by other auditors whose report, dated November 4, 1994, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and
financial statement schedule. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of the Company
at September 30, 1995, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles. Also in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the information set forth
therein.
Deloitte & Touche LLP
Cleveland Ohio
November 10, 1995
Page 39 of 68 sequentially numbered pages
<PAGE> 40
REPORT OF MANAGEMENT
The Management of Essef Corporation is responsible for the preparation and
accuracy of the financial statements and other information included in this
report. The financial statements have been prepared in accordance with
generally accepted accounting principles using, where appropriate, management's
best estimates and judgement.
In meeting its responsibility for the reliability of the financial statements,
the Company depends upon its system of internal accounting controls. The system
is designed to provide reasonable assurance that assets are safeguarded and
that transactions are properly authorized and recorded. The system is supported
by policies and guidelines, and by careful selection and training of financial
management personnel.
The Company's independent public accountants, Deloitte & Touche LLP, are
retained to audit Essef Corporation's financial statements. Their audit is
conducted in accordance with generally accepted auditing standards and provides
an independent assessment that helps ensure fair presentation of the Company's
financial statements.
The Board of Directors meets its responsibility for overview of the Company's
financial statements through its Audit Committee which is composed entirely of
Directors who are neither officers nor employees of the Company.
The Audit Committee meets periodically with Management and with the independent
public accountants to review and assess the activities of each in meeting their
respective responsibilities. The independent public accountants have full
access to the Audit Committee to discuss the results of their audit work, the
adequacy of internal accounting controls, and the quality of financial
reporting.
Thomas B. Waldin
President and Chief Executive Officer
Theodore A. Havens
Vice President, Chief Financial Officer and Treasurer
Page 40 of 68 sequentially numbered pages
<PAGE> 41
ITEM 9.DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None
Page 41 of 68 sequentially numbered pages
<PAGE> 42
PART III
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Identification of Directors
[For identity of directors and director-nominees including age, business
experience, positions held and other relevant information see Essef
Corporation - Proxy Statement - December 22, 1995; (definitive proxy
statement filed with the Commission pursuant to Regulation 14A) under the
headings NOMINATION AND ELECTION OF DIRECTORS, NOMINEE AND DIRECTORS, on
pages 2-4 and DIRECTORS' COMMITTEES, MEETINGS AND FEES on page 5;
incorporated herein by this reference].
(b) Identification of Executive Officers
The persons named below are the executive officers of the Company at the
date hereof. Messrs. Waldin, Ross, Hornick and Havens were elected to their
current positions at the Annual Meeting of Directors held January 25, 1995.
All serve at the pleasure of the Board of Directors; otherwise all terms
expire with the Annual Meeting of Directors to be held January 23, 1996. Mr
Britelle was elected to his current position by the Board of Directors of
Pac-Fab, Inc. at a meeting held on January 25, 1995.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Thomas B. Waldin 53 President and Chief Executive
Officer, Director
Elliot B. Ross 49 Executive Vice President and
Chief Operating Officer, Director Nominee
Theodore A. Havens 49 Vice President, Chief Financial
Officer and Treasurer
Gerald C. Hornick 62 Vice President and
Assistant Treasurer
Doug J.Britelle 48 President Pac-Fab Inc.
</TABLE>
Page 42 of 68 sequentially numbered pages
<PAGE> 43
Thomas B. Waldin has been Chief Executive Officer of the Company since
his appointment on October 26, 1990, and President and a Director since his
appointment and election January 31, 1991. Since 1977, Mr. Waldin has been
active as an investor in and director of a number of small businesses. He
retired in 1987 as Chief Operating Officer of USG Interiors, Inc., and Chief
Executive Officer of Donn, Inc. The former is a unit of USG Corporation, a
worldwide manufacturer and distributor of building products, created in
connection with the acquisition of Donn, Inc. in 1986.
Elliot B. Ross has been Executive Vice President and Chief Operating
Officer of the Company since January 31, 1994. Prior to joining the Company,
Mr. Ross was the co-chairman of Inverness Partners and Inverness Casting Group.
Prior to founding Inverness, he spent 14 years as a member and partner in the
Cleveland office of McKinsey & Company.
Theodore A. Havens has been Vice President, Chief Financial Officer and
Treasurer of the Company since September 1994. Prior to that, Mr. Havens had
served in various positions since joining the Company in 1977. Most recently,
he was the Vice President of Purex Pool Systems and the Assistant Treasurer and
Controller of Pac-Fab, Inc.
Gerald C Hornick has been a Vice President of the Company since 1970 and
has served as Chief Operating Officer of Structural North America since 1985,
and as President since January, 1991. He has been Assistant Treasurer of Essef
Corporation since 1988.
Douglas J. Britelle came to Pac-Fab from General Electric where he
served in a variety of assignments since 1971. Most recently, he served as
General Manager of G.E's Apparatus Service Business headquartered in
Schenetady, New York. Prior to that, he was General Manager of G.E's
Transformer Business headquartered in Hickory, North Carolina from 1983 to
1992.
ITEM 11. EXECUTIVE COMPENSATION.
[For information relating to compensation of executive officers and
directors see Essef Corporation - Proxy Statement - December 22, 1995;
under the headings DIRECTORS' COMMITTEES, MEETINGS AND FEES on page 5,
and EXECUTIVE COMPENSATION on page 6; incorporated herein by this
reference].
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
[For information relating to security ownership of certain beneficial
owners and management see Essef Corporation - Proxy Statement - December
22, 1995; under the heading BENEFICIAL OWNERSHIP OF SHARES appearing on
pages 12-14; incorporated herein by this reference].
Page 43 of 68 sequentially numbered pages
<PAGE> 44
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
[For information regarding related transactions see Essef Corporation -
Proxy Statement - December 22, 1995; under the heading BENEFICIAL
OWNERSHIP OF SHARES on pages 12-14; incorporated herein by this
reference].
Page 44 of 68 sequentially numbered pages
<PAGE> 45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a) 2. Financial Statement Schedules
SCHEDULE VIII - VALUATION AND
QUALIFYING ACCOUNTS FOR THE YEARS
ENDED SEPTEMBER 30, 1995, 1994
AND 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------------------------------------------------------------------------
Additions
Balance At Charged To Balance At
Beginning Of Costs and End Of
Description Period Expenses Deductions(A) Period
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year Ended September 30, 1995... $ 845 $310 $ 12 $ 1,167
Year Ended September 30, 1994... $ 555 $555 $ (265) $ 845
Year Ended September 30, 1993... $ 603 $110 $ (158) $ 555
</TABLE>
(A) Uncollectible accounts charged off, less recoveries, foreign currency
translation adjustments and acquisition costs.
All other schedules are omitted either because they are not applicable or the
required disclosure information is included in the consolidated financial
statements or notes thereto.
Page 45 of 68 sequentially numbered pages
<PAGE> 46
a) 3. Exhibit List
<TABLE>
<CAPTION>
Current Form 10-K Document/Data
Exhibit Number Required
- ----------------- -------------
<S> <C>
3.1 Second Amended Articles of Incorporation
effective May 8, 1987. (Reference is made
to Exhibit 3.1 to the report on Form 10K
for the year ended September 30, 1993,
which exhibit is herein incorporated by
reference.)
3.2 Code of Regulations as Amended January 30,
1992.(Reference is made to Exhibit 3.2 to
the report on Form 10K for the year
ended September 30, 1993, which exhibit is
herein incorporated by reference.)
4.1 Articles 4 and 5 of Second Amended
Articles of Incorporation effective May 8,
1987 (See 3.1 above)
4.2 Credit Agreement between Essef Corporation
and Society National Bank, Agent for banks
named therein, dated March 1, 1994.
(Reference is made to Exhibit 4.2 to the
report on form 10Q for the quarter ended
March 31, 1994, which exhibit is herein
incorporated by reference)
10.1 1987 Employees' Stock Option Plan.
(Reference is made to Exhibit 10.1 to the
report on Form 10K for the year ended
September 30, 1994, which exhibit is
herein incorporated by reference.)
10.2 Deferred Compensation Plan as amended
September 29, 1989 (Reference is made to
Exhibit 10.2 to the report on form 10K for
the year ended September 30, 1989, which
exhibit is herein incorporated by
reference)
10.3 Trust Agreement for Essef Corporation
Employees' Retirement Plan and Trust (October 1,
1992 Restatement) (Reference is made to
Exhibit 10.3 to the report on form 10K for the
year ended September 30,1993, which exhibit is herein
incorporated by reference)
10.4 Employment Agreement - Thomas B. Waldin,
Chief Executive Officer (Reference is made
to Exhibit 10.7 to the report on form 10K
for the year ended September 30, 1990,
which exhibit is herein incorporated by
reference)
</TABLE>
Page 46 of 68 sequentially numbered pages
<PAGE> 47
<TABLE>
<CAPTION>
Current Form 10-K Document/Data
Exhibit Number Required
- ----------------- ------------
<S> <C>
10.5 First Amendment to Employment Agreement -
Thomas B. Waldin, Chief Executive Officer
(Reference is made to Exhibit 10.9 to the
report on form 10K for the year ended
September 30, 1994, which exhibit is
herein incorporated by reference)
10.6 Agreement for Deed made as of June 18,
1991 between Sanford Technology
Corporation, c/o Essef Corporation, and
Apogee Plastics, Inc. (Reference is made
to exhibit 10.1 to the report on form 10Q
for the quarter ended June 30, 1991, which
exhibit is herein incorporated by
reference)
10.7 First Amended and Restated Asset Purchase
Agreement, dated as of June 15, 1991,
between Sanford Technology Corporation and
Apogee Plastics, Inc. (Reference is made
to Exhibit 10.2 to the report on form 10Q
for the quarter ended June 30, 1991, which
exhibit is herein incorporated by
reference)
10.8 Amendment to Agreement for Deed made as of
February 18, 1995 between Sanford Technology
Corporation, c/o Essef Corporation, and
Apogee Plastics Inc. and Apogee Acquisition
Corporation. (Reference is made to Exhibit 10.2 to the
report on form 10Q for the quarter ended
March 31, 1995, which exhibit is herein
incorporated by reference)
10.9 Asset Purchase Agreement between Purex
Pool Systems, Inc. and Hydrotech Chemical
Corporation dated as of March 1, 1994.
(Reference is made to Exhibit 2 to the
report on form 10Q for the quarter ended
March 1, 1994, which exhibit is herein
incorporated by reference)
10.10 Amendment Number One, dated March 19,
1994, to Asset Purchase Agreement between
Purex Pool Systems, Inc. and Hydrotech
Chemical Corporation dated as of March 1,
1994. (Reference is made to form 8-K
dated March 19, 1994 which exhibit is
herein incorporated by reference)
10.11 Employment Agreement - Elliot B. Ross,
Chief Operating Officer. (Reference is
made to form 8-K filed January 25, 1994,
which exhibit is herein incorporated by
reference.)
</TABLE>
Page 47 of 68 sequentially numbered pages
<PAGE> 48
<TABLE>
<CAPTION>
Current Form 10-K Document/Data
Exhibit Number Required
- ----------------- -------------
<S> <C>
10.12 Employment Agreement - Douglas J.Britelle,
President Pac-Fab, Inc.
10.13 Credit Agreement between Essef Corporation
and Society National Bank, Agent for banks
named therein, dated March 1, 1994.
(Reference is made to Exhibit 4.2 to the
report on form 10Q for the quarter ended
March 31, 1994, which exhibit is herein
incorporated by reference)
10.14 Credit Agreement amendment between Essef
Corporation and Society National Bank,
Agent for banks named therein, dated
January 3, 1995. (Reference is made to Exhibit 10.1
to the report on form 10Q for the quarter ended
March 31, 1995,which exhibit is herein
incorporated by reference)
11 Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23.1 Consent of Deloitte and Touche LLP
23.2 Consent of Arthur Andersen LLP.
23.3 1994 Report of Independent Public
Accountants
27.1 Financial Data Schedule.
</TABLE>
(b) There were no reports filed on Form 8-K
during the last quarter of fiscal year ended 1995.
Page 48 of 68 sequentially numbered pages
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Essef Corporation
By THEODORE A. HAVENS
-----------------------
Theodore A. Havens
Vice President,
Chief Financial Officer
and Treasurer
December 22, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title
- --------- -----
THOMAS B. WALDIN Chief Executive Officer
- ------------------- (Principal Executive Officer)
Thomas B. Waldin
THEODORE A. HAVENS Vice President, Chief Financial Officer
- ------------------- and Treasurer
Theodore A. Havens (Principal Financial Officer)
Page 49 of 68 sequentially number pages
<PAGE> 50
Signature Title
- --------- -----
GORDON D. HARNETT Director
- -------------------------
Gordon D. Harnett
CHARLES W. W. HORNER Director
- -------------------------
Charles W. W. Horner
GEORGE M. HUMPHREY, II Director
- -------------------------
George M. Humphrey, II
MARY ANN JORGENSON Director
- ------------------------
Mary Ann Jorgenson
RALPH T. KING Director
- ------------------------
Ralph T. King
ELLIOT B. ROSS Director
- ------------------------
Elliot B. Ross
Date: December 22, 1995
Page 50 of 68 sequentially numbered pages
<PAGE> 51
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995
Commission File No. 0-15902
_____________
Essef Corporation
EXHIBIT VOLUME
Page 51 of 68 sequentially numbered pages
<PAGE> 52
Essef Corporation
1995 Form 10-K Annual Report
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>
10.12 Employment Agreement -
Douglas J.Britelle 53
11 Computation of Earnings Per Share 64
21 Subsidiaries of the Registrant 65
23.1 Consent of Deloitte & Touche LLP 66
23.2 Consent of Arthur Andersen LLP 67
23.3 1994 Report of Independent Public Accountants 68
27.1 Financial Data Schedule
</TABLE>
Page 52 of 68 sequentially numbered pages
<PAGE> 1
EXHIBIT 10.12
-------------
EMPLOYMENT AGREEMENT
--------------------
ESSEF Corporation ("ESSEF"), an Ohio corporation, Pac-Fab, Inc.
("Pac-Fab"), a Delaware corporation and a subsidiary of ESSEF, and Douglas J.
Brittelle (the "Executive") agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) Pac-Fab agrees to employ the Executive, and the Executive
agrees to serve Pac-Fab and ESSEF, as the President of Pac-Fab. The Executive
shall be the senior executive officer of Pac-Fab and shall report to ESSEF's
Chief Operating Officer and shall have supervision and control over, and
responsibility for, the day-to-day general operations of Pac-Fab and such other
powers and duties commensurate with such senior officer position as may from
time to time be prescribed by the ESSEF's Chief Executive Officer, Chief
Operating Officer and the Board of Directors of ESSEF (the "Board").
(b) The Executive shall (i) perform such duties commensurate
with the position of senior officer of Pac-Fab as may be assigned by the Chief
Operating Officer, the Chief Executive Officer, and the Board, (ii) devote
substantially all of his working time to the business and affairs of Pac-Fab,
and (iii) use his best efforts to advance the interests of Pac-Fab and ESSEF
and to improve the value of Pac-Fab and ESSEF to their shareholders.
2. TERM. Pac-Fab's employment of the Executive shall commence on
January 3, 1995 (the "Commencement Date") and shall expire on the second
anniversary of the Commencement Date, unless terminated or extended according
to the terms stated in this Agreement. Until terminated by thirty (30) days
prior written notice by either party or otherwise terminated as provided in
Section 9 hereof, this Agreement shall be extended automatically as of the
anniversary of the Commencement Date in each year thereafter for an additional
one (1) year period with such modified terms as mutually agreed.
3. COMPENSATION.
(a) The Executive's annual base salary ("base salary") during
the term of this Agreement shall be Two Hundred Thousand Dollars (USD 200,000),
such base salary to be reviewed annually by the Compensation
Page 53 of 68 sequentially numbered pages
<PAGE> 2
Committee of the Board (the "Compensation Committee").
(b) In addition to the base salary, Pac-Fab shall pay the
Executive an annual bonus based upon the Executive's performance. The
Executive's target bonus shall be equal to forty percent (40%) of the
Executive's base salary (the "Target Bonus"). For each year that this
Agreement remains in effect, the Compensation Committee shall determine an
appropriate percentage of the Target Bonus that Pac-Fab shall pay to the
Executive based upon Pac-Fab's attainment of certain budget targets established
from time to time by the Compensation Committee. Pac-Fab shall pay the bonus
within thirty (30) days after the date that Pac-Fab's audited financial
statements become available. The Executive shall have the right to bonus
payments earned so long as the Executive was actually employed by Essef and/or
Pac-Fab at the end of the fiscal year regardless of whether the Executive
continues to be employed on the bonus payment date. The Executive's bonus
payment for fiscal 1995 shall be determined on the basis of the payment matrix
attached as Exhibit A; provided, however, that such bonus for fiscal 1995 shall
not be less than Forty Thousand Dollars (USD 40,000).
4. OPTIONS.
(a) INITIAL OPTIONS.
(i) Subject to the limitation in (iii) below, ESSEF
hereby grants to the Executive options (the "Initial Options") to purchase
Fifteen Thousand (15,000) shares of ESSEF's common stock (the "Shares") at the
price and subject to the following terms and conditions. The Initial Options
shall vest as of the Commencement Date.
(ii) The exercise price per Share for the Initial Options
shall be the higher of (aa) the average closing price per Share as reported by
NASDAQ during the five (5) trading dayimmediately preceding the Page 54 of 68
sequentially numbered pages Commencement Date or (bb) Sixteen Dollars and
Thirty-Two and One-Half Cents (USD 16.325) per Share.
(iii) Except in the case of a Change of Control as
provided in (a)(iv) below, the Executive may exercise not more than the
following percentage of the total number of Initial Options during the periods
set forth below:
Page 54 of 68 sequentially numbered pages
<PAGE> 3
0% prior to the first anniversary of the Commencement Date;
20% at any time after the first anniversary of the Commencement
Date;
40% at any time after the second anniversary of the Commencement
Date;
60% at any time after the third anniversary of the Commencement
Date;
80% at any time after the fourth anniversary of the Commencement
Date; and
100% at any time after the fifth anniversary of the Commencement
Date.
(iv) Notwithstanding the limitations in (iii) above, the
Executive may exercise one hundred percent (100%) of the Initial Options
immediately upon the occurrence of a Change of Control. As used in this
Agreement, a Change of Control shall mean the acquisition by any individual or
entity of beneficial ownership of fifty-one percent (51%) or more of the
Shares; provided, however, that the following shall not constitute a Change of
Control: (aa) any acquisition by ESSEF or any entity controlled by ESSEF, (bb)
any acquisition by any employee benefit or welfare plan or related trust
sponsored or maintained by ESSEF or by any company controlled by ESSEF, (cc)
any acquisition by any entity pursuant to a reorganization, merger, or
consolidation of ESSEF following which sixty percent (60%) or more of the
common stock of the corporation resulting from such reorganization, merger, or
consolidation is beneficially owned, directly or indirectly, by substantially
the same individuals and entities that are the beneficial owners of the Shares
immediately prior to such reorganization, merger, or consolidation, or (dd)
approval by the beneficial owners of a majority of the Shares of either the
liquidation or dissolution of ESSEF. For the purposes of this Subsection. For
purposes of this Subsection (a)(iv) and Subsection (b)(iv), "acquisition" shall
mean any purchase, exchange, merger, consolidation, or succession, and
"control" shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management of a particular entity, whether
through the ownership of shares, voting securities, partnership or other
ownership interests, agreements, or otherwise.
(B) PERFORMANCE OPTIONS.
(i) ESSEF hereby grants the Executive options (the
"Performance Options") to purchase an additional Twenty-Five Thousand (25,000)
Shares. The Performance Options shall vest as of the fiscal year end for which
the net income per Share (fully diluted) of ESSEF as reported by ESSEF for such
fiscal year equals or exceeds Two Dollars and Forty Cents (USD 2.40) (the
"Vesting Date").
Page 55 of 68 sequentially numbered pages
<PAGE> 4
(ii) The exercise price per Share for the Performance
Options shall be the higher of (x) the price determined under Section 4(a)(ii)
above and (y) the average closing price per Share as reported by NASDAQ for the
five (5) trading days prior to the first anniversary of the Commencement Date.
However, such price shall not exceed Seventeen Dollars (USD 17.00) per Share
unless the number computed in (x) exceeds Seventeen Dollars (USD 17.00) per
Share, in which case the maximum price shall be equal to the amount computed in
(x).
(iii) The Executive may exercise not more than the
following percentage of the total number of Performance Options during the
periods set forth below:
0% prior to the first anniversary of the Vesting Date;
20% at any time after the first anniversary of the Vesting Date;
40% at any time after the second anniversary of the Vesting Date;
60% at any time after the third anniversary of the Vesting Date;
80% at any time after the fourth anniversary of the Vesting Date;
and
100% at any time after the fifth anniversary of the Vesting Date.
(iv) Notwithstanding the limitations in (iii) above, the
Executive may exercise one hundred percent (100%) of the Performance Options
subject to the following: (aa) the Vesting Date has occurred and (bb) a Change
of Control has occurred, provided that the Compensation Committee that is in
office immediately prior to the Change of Control has determined that no
extenuating circumstances exist that should operate to preclude such exercise.
(c) TRANSFERABILITY OF OPTIONS. Neither the Initial Options
nor the Performance Options are transferable by the Executive other than by
will or by the laws of descent and distribution, and all such options are
exercisable, during the lifetime of the Executive, only by the Executive or his
guardian or legal representative.
(d) TERM OF OPTIONS. Subject to the terms and conditions
hereof, the Initial Options and/or the Page 56 of 68 sequentially numbered
pages Performance Options (collectively, the "Options") may be exercised at any
time prior to the tenth (10th) anniversary of the Commencement Date by
delivering to ESSEF at its principal place of business a written notice, signed
by the person entitled to exercise the options, stating the Executive's
election to exercise the Options and stating the number of Options to be
exercised. Such notice shall, as an essential part thereof, be accompanied
Page 56 of 68 sequentially numbered pages
<PAGE> 5
by the payment of the full purchase price of the Shares then to be purchased
and the amount, if any, required to be withheld for federal, state and local
tax purposes on account of the exercise of the Options. The Options shall be
deemed exercised as of the date that ESSEF receives such notice and payment.
Payment of the full purchase price must be made in cash or by certified check.
Promptly after the proper exercise of an Option, ESSEF or its transfer agent
shall issue in the name of the person exercising the Option, and deliver to
him, a certificate or certificates for the Shares purchased. As holder of the
Options, the Executive shall have no rights as Shareholder or otherwise in
respect of any of the Shares as to which the Options shall not have effectively
been exercised.
(e) RESTRICTIONS ON EXERCISE. No Option shall be exercisable
if such exercise would violate:
(i) any generally applicable state securities laws;
(ii) any applicable registration or other requirements
under the Securities Act of 1993, as amended (the
"Act"), or applicable requirements of NASDAQ; or
(iii) any generally applicable legal requirement of any
other governmental authority.
Furthermore, if a registration statement with respect to the Shares to be
issued upon the exercise of the Options is not in effect and if counsel for
ESSEF deems it necessary or desirable in order to avoid possible violation of
the Act, ESSEF may require, as a condition to its issuance and delivery of
certificates for the Shares, the delivery to ESSEF of a commitment in writing
by the person exercising the Options that at the time of such exercise it is
his intention to acquire such Shares for his own account for investment only
and not with a view to, or for resale in connection with, the distribution
thereof; that such person understands the Shares may be "restricted securities"
as defined in Rule 144 of the Securities and Exchange Commission; and that any
resale, transfer or other disposition of said Shares will be accomplished only
in compliance with Rule 144, the Act, or other or subsequently applicable Rules
and Regulations thereunder. ESSEF may place on the certificates evidencing
such Shares an appropriate legend reflecting the aforesaid commitment and may
refuse to permit transfer of such certificates until it has been furnished
evidence satisfactory to it that no violation of the Act or the Rules and
Regulations thereunder would be involved in such transfer.
5. Benefits. During the term of this Agreement, the Executive and
his eligible dependents shall be
Page 57 of 68 sequentially numbered pages
<PAGE> 6
entitled to participate in and receive benefits under any profit-sharing plan,
health, disability, medical insurance or other employee welfare plan or
arrangement made generally available by ESSEF during the term of this Agreement
to its executives and key management employees.
6. CAR. During the term of this Agreement, Pac-Fab shall
provide the Executive with an automobile and shall pay for operating
expenses incurred in connection with the use of the automobile,
including the costs of insurance, gas, maintenance and car phone.
7. VACATION. The Executive shall be entitled to the number of paid
vacation days in each calendar year determined by the Board from time to time,
but not less than twenty (20) business days in any calendar year.
8. RIGHT OF FIRST REFUSAL.
(a) If the Executive wishes to sell, assign or otherwise
transfer to a single purchaser Twenty-Five Thousand (25,000) or more Shares,
the Executive shall first comply with the terms of the following right of first
refusal.
(b) The Executive may sell such Shares if the Shares proposed
to be sold are first offered for purchase to ESSEF. Such offer of purchase
shall be delivered by the Executive to ESSEF by a written notice containing (i)
a true copy of the offer of the proposed purchaser of the Shares (the "Offer"),
which offer shall set forth the number of Shares to be purchased, the price for
those Shares and the name and address of the proposed purchaser and (ii) a
written offer by the Executive to sell all of the Shares covered by the Offer
to ESSEF in accordance with the terms of this Agreement and the Offer.
(c) Upon approval by the Board, ESSEF or its nominee shall have
the right to accept the Executive's offer in writing within sixty (60) days
after the date of the notice. If such offer is accepted, the Shares shall be
sold to ESSEF or such nominee at the office of ESSEF at a mutually convenient
time within twenty (20) days after the acceptance of the offer. At the Closing
of such sale, the Executive shall deliver the certificates
Page 58 of 68 sequentially numbered pages
<PAGE> 7
representing the Shares free of any adverse claims, liens or encumbrances
whatsoever, duly endorsed for transfer, and ESSEF or its nominee, as the case
may be, shall deliver to the Executive the purchase price relating to the
Shares being purchased.
(d) If ESSEF fails to exercise its purchase rights under this
Section 8 for a period of thirty (30) days after the termination of the period
within which ESSEF had the right to purchase the Shares, the Executive may
transfer the Shares that are the subject of the Offer to the proposed
purchaser, but only in strict accordance with the Offer. If such sale is
consummated within a sixty (60) day period thereafter, the Shares in the hands
of the proposed purchaser shall no longer be subject to the provisions of this
right of first refusal. If such sale is not so consummated, the Shares shall
continue to be subject to all of the provisions of this Agreement.
9. DISABILITY OR DEATH; RESIGNATION; TERMINATION FOR CAUSE; OTHER
TERMINATIONS.
(a) DISABILITY OR DEATH. If the Executive is incapacitated for
a period of three (3) consecutive months so that he cannot perform his duties
hereunder on a full-time basis, then either ESSEF or the Executive may give
written notice to the other terminating the Executive's employment effective
thirty (30) days thereafter (the "Disability Termination Date"). ESSEF shall
continue to provide salary, medical coverage and group life insurance to the
Executive for six (6) months after the Disability Termination Date. If the
Executive dies prior to the termination of his employment or if notice of
termination for disability is given as provided above, ESSEF's obligations
hereunder shall terminate as of the earlier of the Executive's death or the
Disability Termination Date; provided that, in either case, the Executive or
his estate shall be paid the pro rata share of any bonus earned prior to the
Executive's death or Disability Termination Date. In the event of the
Executive's death or termination by reason of disability, his estate or he may
exercise any Options vested at the date of death or Disability Termination Date
for one (1) year after such death or Disability Termination Date.
(b) RESIGNATION. If the Executive's employment is terminated
by reason of his voluntary resignation, all of the obligations of ESSEF and
Pac-Fab hereunder shall terminate. All unexercised Options, both vested and
unvested, shall be automatically forfeited and canceled by ESSEF.
Page 59 of 68 sequentially numbered pages
<PAGE> 8
(c) TERMINATION FOR CAUSE. If the Executive's employment is
terminated for cause (as defined below), all of the obligations of ESSEF and
Pac-Fab hereunder shall immediately terminate. All unexercised Options, both
vested and unvested, shall be automatically forfeited and canceled by ESSEF.
As used herein, "for cause" shall mean (i) gross misconduct by the Executive
that is materially inconsistent with the terms hereof, (ii) material failure by
the Executive to perform his duties, or (iii) the Executive's conviction for
committing a felony.
(d) OTHER TERMINATIONS. If the Executive's employment is
terminated by ESSEF and Pac-Fab other than for cause, including withou
limitation, at the end of a term, the obligations of ESSEF, Pac-Fab, and the
Executive hereunder shall immediately terminate; provided, however, that (i)
the Executive may exercise within one (1) year from the date ESSEF and Pac-Fab
deliver notice of termination (the "Termination Date") any vested Options
notwithstanding any exercise restrictions held by him on the Termination Date,
and (ii) ESSEF shall continue to provide salary and medical, group life and
disability insurance (collectively, "insurance benefits") to the Executive
until the later of (x) the later of December 31, 1996 or one (1) year after the
Termination Date or (y) the Executive begins receiving salary and/or insurance
benefits through other employment.
10. TRADE SECRETS; CONFIDENTIAL AND PROPRIETARY INFORMATION. The
Executive shall not at any time or in any manner, either directly or
indirectly, divulge, disclose or communicate to any person, firm, company,
corporation or business in any manner whatsoever any confidential information
relating to the business of ESSEF or Pac-Fab, including without limitation,
ESSEF's or Pac-Fab's pricing policies, trade secrets, know-how, strategic plans
and similar types of information: provided, however, that the Executive may,
without liability under this Section, comply with orders and other legal
process required by the courst of competent jurisdiction over the Executive..
This Section 10 shall remain in full force and effect for a period of ten (10)
years after expiration or termination of this Agreement for any reason.
11. COVENANT NOT TO COMPETE. During the term of this Agreement and
for a period of five (5) years thereafter the Executive will not, without
ESSEF's prior written consent, directly or indirectly engage in, make any
investment in or have any interest in any business in competition with the
business of ESSEF; and the Executive will not advise, assist or render services
either directly or indirectly to any person, firm, company,
Page 60 of 68 sequentially numbered pages
<PAGE> 9
corporation or business other than ESSEF or Pac-Fab with reference to any
business in competition with the businesses engaged in by ESSEF or Pac-Fab
during the Executive's employment under this Agreement. Notwithstanding the
foregoing, the ownership of securities of any business competing with ESSEF or
Pac-Fab, if such securities are publicly traded on a national securities market
and constitute less than five percent (5%) of the outstanding stock thereof,
shall not constitute a violation of this provision. For purposes of this
Section 11, a business in competition with ESSEF or Pac-Fab shall mean any
business engaged in the manufacture, design, processing, sale or distribution
of products that are the same as or similar to those of ESSEF or Pac-Fab at any
time during the term of this Agreement. This Agreement shall inure to the
benefit of, and be enforceable by, the parties' successors, representatives,
executors, administrators or assignees.
12. NOTICES. All notices, requests, demands and other communications
made or given in connection with this Agreement shall be in writing and shall
be deemed to have been duly given (a) if delivered, at the time delivered or
(b) if mailed, at the time mailed at any general or branch United States Post
Office enclosed in a registered or certified postage paid envelope addressed to
the address of the respective parties as follows:
To ESSEF or Pac-Fab:
ESSEF Corporation
220 Park Drive
Chardon, Ohio 44024
Attention: Chief Operating Officer
To the Executive: Douglas J. Brittelle
_____________________
_____________________
or to such other addresses as the party to whom notice is to be given may have
previously furnished to the other
Page 61 of 68 sequentially numbered pages
<PAGE> 10
party in writing in the manner set forth above, provided that notices of
changes of address shall only be effective upon receipt.
13. MODIFICATIONS AND WAIVERS. No provisions of this Agreement may be
modified or discharged unless such modification or discharge is authorized by
the Board of Directors of ESSEF and is agreed to in writing and signed by each
party; provided, however, that the Executive may not sign on behalf of Pac-Fab.
No waiver by a party hereto of any breach by another party hereto or any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties hereto relating to the subject matter hereof, and
there are no written or oral terms or representations made by any party other
than those contained herein.
15. GOVERNING LAW. The validity, interpretation, construction,
performance and enforcement of this Agreement shall be governed by the
laws of the State of Ohio.
16. INVALIDITY. The unenforceability or invalidity of any provision
of this Agreement shall not affect the enforceability or validity of the
balance of the Agreement. In the event that any such provision should be or
becomes invalid for any reason, such provision shall remain effective to the
maximum extent permissible, and the parties shall consult and agree on a
legally acceptable modification giving effect to the commercial objectives of
the unenforceable or invalid provision, and every other provision of this
Agreement shall remain in full force and effect.
Page 62 of 68 sequentially numbered pages
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on December
21, 1994.
Douglas J. Britelle
ESSEF CORPORATION
By:
------------------------
Its: Chief Operating Officer
PAC-FAB, INC.
By:
-------------------------
Its: Assistant Treasurer.
Page 63 of 68 sequentially numbered pages
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
The computation of simple earnings per share and primary earnings per share is
as follows:
<TABLE>
<CAPTION>
Year ended Sept 30,
1995 1994
------ -------
<S> <C> <C>
Average shares outstanding for
computation of simple earnings
per share 4,949,485 4,867,075
Add equivalent shares for un-
exercised options at end of
period (a) 881,613 875,630
--------- ---------
Average shares outstanding for
computation of primary earnings
per share 5,831,098 5,742,705
========== =========
Earnings per common share:
Before Extraordinary Item $1.33 $1.43
Net Income $1.52 $1.43
Primary earnings per common
share:
Before Extraordinary Item $1.13 $1.22
Net Income $1.29 $1.22
<FN>
(a) Computed under the "Treasury Stock Method" using the average market price for the respective period.
</TABLE>
Page 64 of 68 sequentially numbered pages
<PAGE> 1
Exhibit 21
----------
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State or other
jurisdiction of
incorporation
Subsidiary or organization
- ---------- ---------------
<S> <C>
Pac-Fab, Inc. Delaware
Purex Pool Systems, Inc. Delaware
Sanford Technology Corporation North Carolina
Structural Europe N.V. Belgium
ENPAC Corporation Delaware
Hobson Brothers Aluminum Foundry
& Mould Works, Inc. Ohio
Structural Iberica S.A. Spain
Essef Corporation FSC U.S. Virgin Islands
Compool Corporation, Inc. Ohio
Advanced Structures, Inc. Ohio
Euroimpex Spa Italy
</TABLE>
Page 65 of 68 sequentially numbered pages
<PAGE> 1
EXHIBIT 23.1
------------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-17758 of Essef Corporation on Form S-8 of our report dated November 10,
1995, appearing in this Annual Report on Form 10-K of Essef Corporation for the
year ended September 30, 1995.
Deloitte & Touche LLP
Cleveland, Ohio
December 22, 1995
Page 66 of 68 sequentially numbered pages
<PAGE> 1
EXHIBIT 23.2
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated November 4, 1994, included and incorporated by reference in
this Form 10-K, into the Company's previously filed Registration Statement on
Form S-8 File No. 33-17758.
Arthur Andersen LLP
Cleveland, Ohio
December 22, 1995
Page 67 of 68 sequentially numbered pages
<PAGE> 1
Exhibit 23.3
------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Essef Corporation
We have audited the accompanying consolidated balance sheet of Essef
Corporation (an Ohio corporation) and Subsidiaries as of September 30, 1994,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the two years in the period ended September 30, 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of Essef
Corporation and Subsidiaries as of September 30, 1994, and the results of their
operations and their cash flows for each of the two years in the period ended
September 30, 1994, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Cleveland Ohio
November 4, 1994
Page 68 of 68 sequentially numbered pages.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 3,870
<SECURITIES> 0
<RECEIVABLES> 31,479
<ALLOWANCES> 0
<INVENTORY> 16,928
<CURRENT-ASSETS> 49,677
<PP&E> 82,129
<DEPRECIATION> 44,383
<TOTAL-ASSETS> 106,624
<CURRENT-LIABILITIES> 28,254
<BONDS> 0
<COMMON> 20,411
0
0
<OTHER-SE> 31,015
<TOTAL-LIABILITY-AND-EQUITY> 51,426
<SALES> 157,507
<TOTAL-REVENUES> 157,507
<CGS> 114,424
<TOTAL-COSTS> 145,602
<OTHER-EXPENSES> (471)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,075
<INCOME-PRETAX> 10,301
<INCOME-TAX> 3,710
<INCOME-CONTINUING> 6,591
<DISCONTINUED> 0
<EXTRAORDINARY> 920
<CHANGES> 0
<NET-INCOME> 7,511
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
</TABLE>
