<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
- ---------
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT Of 1934
For the quarterly period ended March 31, 1996
--------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT Of 1934
For the transition period from to
---------------- -------------------------
Commission File Number 0-15902
---------------------------------------------------------
ESSEF Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0777631
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
-----------------------------
None
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No N/A
------- ------ -----
Indicate the number of shares outstanding of each of the issuer's classes of
common shares, as of the latest practicable date.
Class Outstanding at May 7, 1996
--------------------------- --------------------------
Common Shares, no par value 5,133,447 Shares
Page 1 of 17
<PAGE> 2
ESSEF CORPORATION
Form 10-Q
For Quarter Ended March 31, 1996
INDEX
<TABLE>
<CAPTION>
Sequential
Page No.
--------
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1996 and September 30, 1995............. 3
Condensed Consolidated Statements of Operations -
Three Months and Six Months Ended March 31, 1996
and 1995.......................................... 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended March 31, 1996 and 1995.......... 5
Notes to Condensed Consolidated Financial
Statements........................................ 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations... 9-11
Part II - Other Information
Item 1. Legal Proceedings............................... 12
Item 2. Changes in Securities........................... 12
Item 6. Exhibits and Reports on Form 8-K................ 13-17
</TABLE>
Page 2 of 17
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
-------- --------
ASSETS (unaudited)
- ------
<S> <C> <C>
Current Assets
Cash and cash equivalents ............ $ 1,017 $ 3,870
Accounts receivable, net .............. 48,977 25,714
Inventories, net ...................... 21,229 16,928
Other current assets .................. 2,015 3,165
-------- --------
Total current assets ............... 73,238 49,677
Property, Plant and Equipment, net ....... 37,736 37,746
Goodwill ................................. 13,498 13,305
Other Assets ............................. 7,376 5,896
-------- --------
$131,848 $106,624
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Current maturities of long-term debt .. $ 8,083 $ 5,272
Accounts payable ...................... 16,301 9,562
Accrued Expenses ...................... 10,738 10,708
Accrued Income Taxes .................. 3,146 2,712
-------- --------
Total current liabilities ............. 38,268 28,254
Long-Term Debt ........................... 34,095 22,421
Deferred Income Taxes .................... 3,085 1,571
Other Long-Term Liabilities .............. 1,937 2,952
-------- --------
Total liabilities .............. 77,385 55,198
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
5,304,134 and 5,289,188 shares less
125,180 and 101,330 treasury shares
at cost, stated at................ 20,089 20,411
Retained earnings ..................... 32,599 29,012
Cumulative foreign currency translation
adjustment ......................... 1,775 2,003
-------- --------
Total shareholders' equity ..... 54,463 51,426
-------- --------
$131,848 $106,624
======== ========
</TABLE>
The accompanying notes to the condensed consolidated financial statements are an
integral part of these statements.
Page 3 of 17
<PAGE> 4
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands,
except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ -----------------
1996 1995 1996 1995
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Net Sales....................... $ 53,674 $39,926 $ 92,807 $71,945
Cost of Sales................... 38,418 28,401 66,671 51,469
-------- ------- -------- -------
Gross Profit............... 15,256 11,525 26,136 20,476
Operating Expenses.............. 10,295 8,048 19,346 15,141
-------- ------- -------- -------
Income from Operations..... 4,961 3,477 6,790 5,335
Interest Expense................ 780 600 1,266 990
Other Income.................... (33) (443) (81) (377)
-------- ------- -------- -------
Income Before Income Taxes...... 4,214 3,320 5,605 4,722
Provision for Income Taxes ..... 1,517 1,195 2,018 1,700
-------- ------- -------- -------
Net Income ..................... $ 2,697 $ 2,125 $ 3,587 $ 3,022
======== ======= ======== =======
Weighted Average Common Shares
Outstanding..................... 6,062,289 5,750,349 6,076,093 5,746,384
Earnings Per Share.............. $ .44 $ .37 $ .59 $ .53
</TABLE>
See notes to financial statements.
Page 4 of 17
<PAGE> 5
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
--------------------
1996 1995
-------- ---------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income ................................. $ 3,587 $ 3,022
Adjustments to reconcile net income
to net cash used in operating activities
Depreciation and amortization ....... 3,312 3,137
Other ............................... (24) 71
Change in Operating Assets and Liabilities
Accounts receivable ....................... (23,369) (18,829)
Inventories ............................... (4,341) (2,881)
Other current assets ...................... (1,149) (808)
Accounts payable .......................... 7,743 3,947
Accrued expenses .......................... 47 (1,422)
Accrued and Deferred Income Taxes ......... 945 1,486
-------- --------
Net cash used in operating activities ..... (10,951) (12,277)
-------- --------
Cash Flows from Investing Activities
Additions to property, plant and
equipment .............................. (3,254) (4,156)
Other assets, net .......................... (1,811) (334)
Payment for acquisition of business ........ (936) --
-------- --------
Net cash used in investing activities ... (6,001) (4,490)
-------- --------
Cash Flows from Financing Activities
Net payments on term loan .................. (714) (1,072)
Net borrowings on revolving credit agreement 14,025 16,600
Net borrowings (payments) on other loans ... 1,121 (14)
Treasury stock acquired .................... (393) --
Proceeds from exercise of stock options .... 71 --
-------- --------
Net cash provided by financing activities 14,110 15,514
-------- --------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents ........................ (11) 195
-------- --------
Net Decrease in Cash ........................... (2,853) (1,058)
Cash and Cash Equivalents Balance - Beginning .. 3,870 2,509
-------- --------
Cash and Cash Equivalents Balance - Ending ..... $ 1,017 $ 1,451
======== ========
Supplemental Cash Flow Information
Interest paid .............................. $ 1,266 $ 982
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
Page 5 of 17
<PAGE> 6
ESSEF CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) In the opinion of the Company the accompanying unaudited Condensed
Consolidated Financial Statements contain all normal and recurring
adjustments and accruals necessary to present fairly the Company's
financial position as of March 31, 1996, the results of its operations for
the three month and six month periods ended March 31, 1995 and 1996 and its
cash flows for the six month periods ended March 31, 1995 and 1996.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's 1995 Annual
Report to Shareholders, which is incorporated into the Company's Form 10-K
filed for the fiscal year ended September 30, 1995. The results of
operations for the three month and six month periods ended March 31, 1996
may not necessarily be indicative of the operating results for the full
year.
(2) Inventories
<TABLE>
<CAPTION>
Inventories are valued as follows:
(Dollars in thousands) March 31, September 30,
1996 1995
---------------------------
(unaudited)
<S> <C> <C>
Raw materials...................... $ 8,952 $10,089
Work-in-process.................... 1,451 2,445
Finished goods..................... 13,271 6,225
------- -------
Inventories at FIFO cost......... 23,674 18,759
Less: Allowance to reduce carrying
value to LIFO cost............... (2,445) (1,831)
------- -------
Net Inventories............... $21,229 $16,928
======= =======
</TABLE>
(3) Long-Term Debt
The Company has 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 all with one bank group. There are no outstanding
borrowings on the acquisition-related line of credit at March 31,1996. The
Company's Belgian subsidiary has a line of credit available of
approximately USD $9.5 million. As of March 31, 1996 approximately $6.6
million of credit is available under this facility.
The Company is in compliance with all of its debt covenants. As of March
31, 1996, interest rates ranged from 6.57% to 8.25%.
During the quarter the Company amended its agreement with its bank group.
The amendment extended the current maturity on the revolving loan through
January 31, 1998 which may be further extended in one year increments with
the approval of the bank group and reduced borrowing rates, effective April
1, 1996, as follows:
Page 6 of 17
<PAGE> 7
<TABLE>
<CAPTION> Current Previous
Rate Rate
Libor + Libor +
------- --------
<S> <C> <C>
Revolving credit agreement 1.0% 1.375%
Term and acquisition loan 1.0% 1.625%
Long Term Debt consists of
the following
</TABLE>
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
-------- -------------
<S> <C> <C>
Term loan 7,500 8,214
Revolving credit agreement 27,925 13,900
Other loans 6,753 5,579
------- -------
42,178 27,693
Less current maturities 8,083 5,272
------- -------
Long term debt $34,095 $22,421
======= =======
</TABLE>
(4) Depreciation of Property, Plant and Equipment
The Company determined, effective October 1, 1995, that as a result of,
among other things, its preventative maintenance program, asset lives have
been extended. The effect of this change reduced depreciation expense for
the quarter ended March 31, 1996 by approximately $335,000 and $670,000 for
the year to date. As a result earnings increased approximately $.04 per
share for the quarter and $.07 per share for the year to date.
(5) Treasury Shares
During the 1996 fiscal year, the Company repurchased 23,850 shares of its
common stock on the open market at an aggregate purchase price of $392,429.
(6) Business Acquisitions
During the fourth quarter of 1995 the Company acquired certain assets and
liabilities of two companies, Euroimpex Srl, and Compool Corporation and
merged the operations of a third company, Advanced Structures, Inc. into a
wholly owned subsidiary of the Company. The results of the aforementioned
acquisitions for the quarter ended March 31, 1996 are included in the
consolidated results of operations of the Company.
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
Page 7 of 17
<PAGE> 8
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.
<TABLE>
<CAPTION>
(Unaudited)
(Dollars in Thousands except per Share Data)
3 Months 6 Months
ended March ended March
31, 1995 31,1995
----------- -----------
<S> <C> <C>
Net Sales 46,133 84,276
Net Income 2,301 3,298
Earnings per Share .44 .55
</TABLE>
(7) The following component of other current liabilities were in excess of 5%
of total current liabilities:
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
----------- --------------
(Dollars in thousands) (unaudited)
---------------------
<S> <C> <C>
Accrued compensation $ 2,331 $ 4,057
</TABLE>
Page 8 of 17
<PAGE> 9
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH
THREE MONTHS ENDED MARCH 31, 1995
Net Sales
Net sales of $53,674,000 increased 34.3% from 1995 net sales of $39,926,000. The
water treatment and systems equipment segment reported a 35.9% increase in sales
to $23,656,000. As described in Note 6, during the fourth quarter of fiscal
1995, the Company acquired the assets and assumed certain liabilities of both
Advanced Structures, Inc. and Euroimpex Srl. Excluding the impact of these
acquisitions, the water treatment segment sales would have been approximately
the same as that recorded in the second quarter of 1995. The swimming pool and
spa equipment segment sales of $30,018,000 increased 33.3% over last year.
Sales generated by the Company's European subsidiaries were approximately 15.2%
of total U.S. dollar sales. The average U.S. dollar exchange rate used to
translate the results of operations as of March 31, 1996 weakened by 15.5%
compared to March 31, 1995 and had the effect of increasing sales and income
from operations.
The Company had a backlog of orders believed by it to be firm of approximately
$11.7 million and $9.4 million as of March 31, 1996 and March 31 1995,
respectively.
Costs and Expenses
Cost of sales increased from 71.1% to 71.6% of net sales. This was the result of
changes in product sales mix and increases in raw material cost which reduced
gross margins and which were partially offset by the effect of the change in
estimate of asset lives which reduced depreciation expenses approximately
$335,000. The increase in net sales resulted in an increase in the Company's
gross profit from $11,525,000 to $15,256,000.
Operating expenses, consisting of administrative, selling, and engineering and
development expenses, increased $2,247,000 to $10,295,000. The additions of
Advanced Structures Inc, Euroimpex Spa and Compool operating expenses accounted
for $1,499,000 or 66.7% of this increase. As a percentage of sales, these
expenses decreased slightly from the prior years.
Other Income
Other income decreased from $443,000 to $33,000. The decrease relates primarily
to interest income received from the restructuring of the receivable under
agreement for deed during the second quarter of 1995.
Page 9 of 17
<PAGE> 10
Interest Expense
Interest expense increased by $180,000 to $780,000. This primarily was the
result of an approximate 31% increase in average outstanding borrowings of the
Company due to the 1995 acquisitions.
Income Taxes
The Company recorded a $1,517,000 provision in fiscal 1996 which represents an
effective tax rate of 36%. In fiscal 1995 the Company recorded a $1,195,000
provision which represented an effective tax rate of 36%.
Net Income
The Company reported net income of $2,697,000 as compared to a 1995 net income
of $2,125,000. The change between years reflects the positive impact of the
acquisitions and the change in estimate of asset lives which were offset by
slight reductions in gross profit resulting from the change in product sales mix
and increases in material costs, increases in interest expense and the decrease
in other income.
SIX MONTHS ENDED MARCH 31, 1996 COMPARED WITH
SIX MONTHS ENDED MARCH 31, 1995
Net Sales
Net sales of $92,807,000 increased 29.0% from 1995 net sales of $71,945,000. The
water treatment and systems equipment segment reported a 40.2% increase in sales
to $45,906,000. Without the impact of the acquisitions, the water treatment and
systems segment would have increased 2.1%. The swimming pool and spa equipment
segment sales of $46,901,000 increased 19.7% over last year.
Sales generated by the Company's European subsidiaries were approximately 15.6%
of total U.S. dollar sales and in U.S. dollars increased 64.7% over fiscal 1994
results, primarily due to the Euroimpex acquisition.
Cost and Expenses
Cost of sales increased from 71.5% to 71.8% of net sales in fiscal 1996. This
was primarily the result of changes in product sales mix and slight increases in
material costs which were partially offset by the effect of the change in
estimate of asset lives which reduced depreciation expenses approximately
$670,000. The increase in net sales resulted in the Company's gross profit
increasing from $20,476,000 to $26,136,000. Operating expenses, consisting of
administrative, selling, and engineering and development expenses, increased
$4,205,000 to $19,346,000. The additions of Advanced Structures Inc, Euroimpex
Spa and Compool operating expenses accounted for $2,883,000 or 68.6% of this
increase. As a percentage of sales, these expenses decreased slightly from the
prior years.
Interest Expense
Interest expense increased by $276,000 to $1,266,000. This was the result of a
32% increase in average outstanding borrowings of the Company and an
Page 10 of 17
<PAGE> 11
decrease in the effective interest rate of approximately 49 basis points.
Other Income
Other income decreased from $377,000 to $81,000. The decrease relates primarily
to interest income received from the restructuring of the receivable under
agreement for deed during the second quarter of 1995.
Income Taxes
The Company recorded a $2,018,000 provision in fiscal 1996 which represents an
effective tax rate of 36%. In fiscal 1995 the Company recorded a $1,700,000
provision which represents an effective tax rate of 36%.
Net Income
The Company reported net income of $3,587,000 as compared to a 1995 net income
of $3,022,000. The change between years reflects the positive impact of the
acquisitions and the change in estimate of asset lives which were offset by
slight reductions in gross profit resulting from the change in product sales mix
and increases in material costs, increases in interest expense and the decrease
in other income.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $34,970,000 at March 31, 1996 compared to
$21,423,000 at September 30,1995, the ratio of current assets to current
liabilities increased to 1.91 to 1.00 from 1.76 to 1.00. The increase in working
capital is due to a $23.3 million increase in net accounts receivable, a $4.3
million increase in net inventories offset by a $2.9 million decrease in cash
and a $6.7 million increase in accounts payable. The increases in accounts
receivable, inventory, and accounts payable reflect normal seasonal working
capital requirements.
Capital expenditures for the first six months of fiscal year 1996 were
$3,254,000 compared to $4,156,000 for the same period last year, and were funded
from net income, depreciation and borrowing. The difference in capital
expenditures relates to building renovations and investments in tooling for new
and existing products which were more extensive in 1995.
As of the end of March, 1996, the Company had foreign assets of approximately
$20.9 million principally located in Belgium. The assets were converted at
quarter end using a U.S. dollar exchange rate that was 3.3% more favorable than
September 30, 1995.
Page 11 of 17
<PAGE> 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
No change.
Item 2. Changes in Securities
No change.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
-----------
11 Computation of Per Share Earnings
27 Financial Data Schedule
(b) Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this Report is filed.
Page 12 of 17
<PAGE> 13
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarter ended March 31, 1996
Commission File No. 0-15902
--------------------
Essef Corporation
EXHIBIT VOLUME
Page 13 of 17
<PAGE> 14
Essef Corporation
Form 10-Q
For the Quarter Ended March 31, 1996
Exhibit Volume - Table of Contents
Exhibits filed with and sequentially numbered as part of the report
<TABLE>
<CAPTION>
Sequential
number of
Exhibit page of
Number Exhibit Description full report
- ------- ------------------- -----------
<S> <C> <C>
11 Computation of Per Share Earnings 16
27 Financial Data Schedule 17
</TABLE>
Page 14 of 17
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ESSEF Corporation
(Registrant)
Thomas B. Waldin
-------------------------------
Thomas B. Waldin
President and
Chief Executive Officer
(Principal Executive Officer)
Theodore A. Havens
-------------------------------
Theodore A. Havens
Chief Financial Officer
and Treasurer
(Principal Accounting Officer)
Date: May 15, 1996
Page 15 of 17
<PAGE> 16
ESSEF CORPORATION EXHIBIT 11
Computation of Per Share Earnings
The computation of simple earnings per share and primary earnings per share is
as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Average shares outstanding for
computation of simple earnings
per share 5,179,185 4,870,815 5,181,233 4,869,872
Add equivalent shares for un-
exercised options at end of
period (a) 883,104 879,534 892,834 876,512
--------- --------- --------- ---------
Average shares outstanding for
computation of primary earnings
per share 6,062,289 5,750,349 6,076,093 5,746,384
========= ========= ========= =========
Earnings per common share: $0.44 $0.37 $0.59 $0.53
Primary earnings per common
share: $0.44 $0.37 $0.59 $0.53
</TABLE>
(a) Computed under the "Treasury Stock Method" using the average market price
for the respective period.
Page 16 of 17
<PAGE> 17
This page intentionally left blank.
Page 17 of 17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,017
<SECURITIES> 0
<RECEIVABLES> 48,977
<ALLOWANCES> 0
<INVENTORY> 21,229
<CURRENT-ASSETS> 73,238
<PP&E> 84,980
<DEPRECIATION> (47,244)
<TOTAL-ASSETS> 131,848
<CURRENT-LIABILITIES> 38,268
<BONDS> 0
<COMMON> 20,089
0
0
<OTHER-SE> 34,374
<TOTAL-LIABILITY-AND-EQUITY> 131,848
<SALES> 53,674
<TOTAL-REVENUES> 53,674
<CGS> 38,418
<TOTAL-COSTS> 48,713
<OTHER-EXPENSES> (33)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 780
<INCOME-PRETAX> 4,214
<INCOME-TAX> 1,517
<INCOME-CONTINUING> 2,697
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,697
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
