<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 December 31, 1995
-------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT Of 1934
For the transition period from ______________ to _______________
Commission File Number 0-15902
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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 February 6, 1996
----------------------------- --------------------------------
Common Shares, no par value 5,176,959 Shares
Page 1 of 13
<PAGE> 2
ESSEF CORPORATION
Form 10-Q
For Quarter Ended December 31, 1995
INDEX
Sequential
Page No.
-----------
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1995 and September 30, 1995.............. 3
Condensed Consolidated Statements of Operations -
Three Months Ended December 31, 1995 and 1994......... 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended December 31, 1995 and 1994......... 5
Notes to Condensed Consolidated Financial
Statements............................................ 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations... 8-9
Part II - Other Information
Item 1. Legal Proceedings................................... 10
Item 2. Changes in Securities............................... 10
Item 4. Submission of Matters to a Vote of Security
Holders......................................... 10
Item 6. Exhibits and Reports on Form 8-K.................... 12-13
Page 2 of 13
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, September 30
1995 1995
------------ ------------
ASSETS (unaudited)
- ------
<S> <C> <C>
Current Assets
Cash and cash equivalents.............. $ 1,103 $ 3,870
Accounts receivable, net .............. 29,806 25,714
Inventories, net ...................... 19,729 16,928
Other current assets................... 2,697 3,165
-------- --------
Total current assets................ 53,335 49,677
Property, plant and equipment, net......... 37,907 37,746
Goodwill, net.............................. 13,200 13,305
Other Assets............................... 7,117 5,896
-------- --------
$111,559 $106,624
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Current maturities of long-term debt... $ 7,186 $ 5,272
Accounts payable....................... 14,115 9,562
Accrued expenses....................... 9,419 10,708
Accrued income taxes................... 2,839 2,712
-------- --------
Total current liabilities....... 33,559 28,254
Long-Term Debt ............................ 21,979 22,421
Deferred Income Taxes...................... 1,939 1,571
Other Long-Term Liabilities................ 2,021 2,952
-------- --------
Total liabilities............... 59,498 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
5,291,308 and 5,289,188 shares less
118,180 and 101,330 treasury shares
at cost,stated at................... 20,152 20,411
Retained earnings...................... 29,902 29,012
Cumulative foreign currency translation
adjustment.......................... 2,007 2,003
-------- --------
Total shareholders' equity...... 52,061 51,426
-------- --------
$111,559 $106,624
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
Page 3 of 13
<PAGE> 4
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands,
except share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
------------------
1995 1994
------- -------
<S> <C> <C>
Net Sales....................... $ 39,133 $ 32,019
Cost of Sales................... 28,253 23,068
------- -------
Gross Profit............ 10,880 8,951
Operating Expenses.............. 9,051 7,093
------- -------
Income from Operations.. 1,829 1,858
Interest Expense................ 486 390
Other Expense(Income)........... (48) 66
------- -------
Income Before Income Taxes...... 1,391 1,402
Provision for Income Taxes ..... 501 505
------- ------
Net Income ..................... $ 890 $ 897
======= ======
Weighted Average Common Shares
Outstanding..................... 6,076,093 5,746,248
Earnings Per Share.............. $ .15 $ .16
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
Page 4 of 13
<PAGE> 5
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-----------------------------
1995 1994
------- -------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income..................................... $ 890 $ 897
Adjustments to reconcile net income
to net cash flows from operating activities
Depreciation and amortization............ 1,460 1,310
Other.................................... 12 24
Change in Operating Assets and Liabilities
Accounts receivable......................... (4,077) (3,464)
Inventories................................. (2,787) (1,819)
Other current assets........................ 469 (156)
Accounts payable............................ 4,544 1,353
Accrued expenses............................ (1,299) (2,794)
Accrued and deferred income taxes........... 496 496
------- -------
Net cash used in operating activities..... (292) (4,153)
------- -------
Cash Flows from Investing Activities
Additions to property, plant and
equipment................................... (1,518) (2,297)
Other, net..................................... (1,214) (15)
Payment for acquisition of business............ (936) --
------- -------
Net cash used in investing activities...... (3,668) ( 2,312)
------- -------
Cash Flows from Financing Activities
Net borrowings (payments) on term loan......... (357) (357)
Net borrowings (payments) on revolving credit.. 1,550 5,350
Net borrowings (payments) on other loans....... 250 (7)
Treasury stock acquired........................ (272) --
Proceeds from exercise of stock options........ 13 --
------- -------
Net cash provided by financing activities.. 1,184 4,986
------- -------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents........................... 9 41
------- -------
Net Decrease in Cash and Cash Equivalents......... (2,767) (1,438)
Cash and Cash Equivalents - Beginning of year..... 3,870 2,509
------- -------
Cash and Cash Equivalents - End of year........... $ 1,103 $ 1,071
======= =======
Supplemental Cash Flow Information
Interest paid $ 390 $ 466
====== =======
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
Page 5 of 13
<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 December 31, 1995, the results of its
operations and its cash flows for the three month periods ended December
31, 1995 and 1994.
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, sections of which are 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 period ended
December 31, 1995 may not necessarily be indicative of the operating
results for the full year.
(2) Inventories
Inventories are valued as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, September 30,
1995 1995
------------- ------------
(unaudited)
<S> <C> <C>
Raw materials...................... $ 9,806 $10,089
Work-in-process.................... 2,865 2,445
Finished goods..................... 9,417 6,225
------ -------
Inventories at FIFO cost......... 22,088 18,759
Less: Allowance to reduce carrying
value to LIFO cost............... (2,359) (1,831)
------ ------
Net Inventories............... $19,729 $16,928
====== ======
</TABLE>
(3) 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 December 31,
1995. The Company's Belgium subsidiary has a line of credit
available of approximately $8.2 million. There are no outstanding
borrowings as of December 31, 1995.
The Company is in compliance with all of its debt covenants. As of
December 31, 1995, interest rates ranged from 7.05% to 8.75%.
Page 6 of 13
<PAGE> 7
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
----------- -------------
(Dollars in thousands) (unaudited)
<S> <C> <C>
Term loan 7,857 8,214
Revolving credit agreement 15,450 13,900
Other loans 5,858 5,579
----------- -----------
29,165 27,693
Less current maturities 7,186 5,272
----------- ------------
Long-term debt $ 21,979 $ 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 December 31, 1995 by approximately $335,000
and as a result, earnings increased approximately $.04 per share for the
quarter.
(5) Treasury Shares
During the quarter ended December 31, 1995, the Company repurchased
16,850 shares of its common stock on the open market at an aggregate
purchase price of $272,489.
(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 December
31, 1995 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 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.
(Unaudited)
(Dollars in Thousands except per Share Data)
1995 1994
------ ------
Net Sales 39,133 38,143
Net Income 890 997
Earnings per Share .15 .16
Page 7 of 13
<PAGE> 8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 30, 1995 COMPARED WITH
THREE MONTHS ENDED DECEMBER 30, 1994
NET SALES
Net sales of $39,133,000 increased 22.2% from 1994 net sales of $32,019,000.
The water treatment and systems equipment segment reported a 45.0% increase in
sales to $22,250,000. In July and August, 1995 the Company acquired Advanced
Structures, and Euroimpex. Without the acquisitions, the water treatment and
systems equipment segment would have had an increase in sales of 5.3%. The
swimming pool and spa equipment segment sales of $16,883,000 increased 1.3%
from 1994 net sales.
Sales generated by the Company's European subsidiary were approximately 16.4%
of total U.S. dollar sales. The average U.S. dollar exchange rate used to
translate the results of operations as of December 31, 1995 weakened by 8.0%
compared to December 31, 1994 and had the effect of increasing sales and income
from operations.
The Company had a backlog of orders believed by it to be firm of approximately
$19.6 million and $14.3 million as of December 31, 1995 and December 31 1994,
respectively.
COST AND EXPENSES
Cost of sales increased from 72.0% to 72.2% of net sales in fiscal 1995.
Excluding the effect of the change in estimate of the lives of certain fixed
assets which reduced depreciation expense approximately $335,000, cost of sales
would have increased from 72.0% to 73.0%. The increase in net sales along with
the change in estimate of fixed asset lives resulted in an increase in the
Company's gross profit from $ 8,951,000 to $10,880,000.
Operating expenses, consisting of administrative, selling, and engineering and
development expenses, as a percentage of sales increased from 22.2% to 23.1%.
This increase was partially due to a one-time cost for new information systems
implementation and acquisition integration.
INTEREST EXPENSE
Interest expense increased by $96,000 to $486,000, primarily as a result of an
increase in the volume of borrowings of approximately 13% for acquisitions.
INCOME TAXES
The Company recorded a $501,000 provision in 1995 which represents an effective
tax rate of 36%. In 1994 the Company recorded a $505,000 provision which
represented an effective tax rate of 36%.
Page 8 of 13
<PAGE> 9
NET INCOME
The Company reported net income of $890,000 as compared to a 1994 net income of
$897,000. The change between years reflects the positive impact of the
acquisitions and the effect of the change in estimate of fixed asset lives
partially offset by decreased income at ENPAC and Hobson Brothers and increased
interest expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $19,776,000 at December 31, 1995 compared to
$21,423,000 at September 30, 1995, and the ratio of current assets to current
liabilities decreased to 1.59 to 1.00 from 1.76 to 1.00. The decrease in
working capital is due to a $4.1 million increase in net accounts receivable, a
$2.8 million increase in net inventories offset by a $2.8 decrease in cash, a
.5 million decrease in other current assets, a $4.6 million increase in
accounts payable and a $.7 million increase in other current liabilities. The
increases in accounts receivable, inventory, and accounts payable reflect
normal seasonal working capital requirements.
Capital expenditures for the first three months of fiscal year 1996 totaled
$1,518,000 compared to $2,297,000 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 for investment in tooling for
new and existing products which were more extensive in fiscal year 1995.
As of the end of December, 1995, the Company had foreign assets of
approximately $19.2 million principally located in Belgium and Italy. The
assets were converted at quarter end using a U.S. dollar exchange rate that was
approximately flat when compared to September 30, 1995.
Page 9 of 13
<PAGE> 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
No change.
Item 2. Changes in Securities
No change.
Item 4. Submission of Matters to a Vote of the Security Holders
The following matters were submitted to a vote of security holders at the
Annual Meeting of Shareholders held January 23, 1996, with the results
indicated:
Proposal 1.) To elect three (3) directors to hold office until the
Annual Meeting of Shareholders in 1999 and until their respective
successors are duly elected and qualified:
Votes cast FOR the election of Mr. Humphrey: 4,893,334
Votes cast AGAINST the election of Mr. Humphrey: -0-
Votes WITHHELD: 6,922
Votes cast FOR the election of Mrs. Jorgenson: 4,893,437
Votes cast AGAINST the election of Mrs. Jorgenson: -0-
Votes WITHHELD: 6,819
Votes cast FOR the election of Mr. Waldin: 4,892,271
Votes cast AGAINST the election of Mr. Waldin: -0-
Votes WITHHELD: 7,985
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Per Share Earnings
27 Financial Data Schedule
(b) Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this Report is filed.
Page 10 of 13
<PAGE> 11
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: February 6, 1996
Page 11 of 13
<PAGE> 12
Essef Corporation
Form 10-Q
For the Quarter Ended December 31, 1995
Exhibit Volume - Table of Contents
Exhibits filed with and sequentially numbered as part of the report
<TABLE>
<CAPTION>
Sequential
number of
Exhibit page of
Number Exhibit Description full report
- ------- ------------------- -----------
<S> <C> <C>
11 Computation of Per Share Earnings 13
27 Financial Data Schedule
</TABLE>
Page 12 of 13
<PAGE> 1
ESSEF CORPORATION EXHIBIT 11
Computation of Per Share Earnings
The computation of simple earnings per share and primary earnings per share is
as follows:
<TABLE>
<CAPTION>
Three Months Ended
December 31
1995 1994
---------- ------------
<S> <C> <C>
Average shares outstanding for
computation of simple earnings
per share 5,183,259 4,868,950
Add equivalent shares for un-
exercised options at end of
period (a) 892,834 877,298
--------- ---------
Average shares outstanding for
computation of primary earnings
per share 6,076,093 5,746,248
========== =========
Earnings per common share: $0.17 $0.18
Primary earnings per common
share: $0.15 $0.16
</TABLE>
(a) Computed under the "Treasury Stock Method" using the average market price
for the respective period.
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-1-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,103
<SECURITIES> 0
<RECEIVABLES> 31,105
<ALLOWANCES> (1,299)
<INVENTORY> 19,729
<CURRENT-ASSETS> 53,335
<PP&E> 83,634
<DEPRECIATION> (45,727)
<TOTAL-ASSETS> 111,559
<CURRENT-LIABILITIES> 33,559
<BONDS> 0
<COMMON> 20,152
0
0
<OTHER-SE> 31,909
<TOTAL-LIABILITY-AND-EQUITY> 111,559
<SALES> 39,133
<TOTAL-REVENUES> 39,133
<CGS> 28,253
<TOTAL-COSTS> 28,253
<OTHER-EXPENSES> (48)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 486
<INCOME-PRETAX> 1,391
<INCOME-TAX> 501
<INCOME-CONTINUING> 890
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 890
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
