<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
- ---------
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT Of 1934
For the quarterly period ended June 30, 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)
<TABLE>
<S> <C>
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)
</TABLE>
Registrant's telephone number, including area code (216) 286-2200
---------------------------
None
- ------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
90 days. Yes X No N/A
----- ----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common shares, as of the latest practicable date.
Class Outstanding at August 8, 1996
- ------------------------------------ ---------------------------------------
Common Shares, no par value 5,070,947 Shares
Page 1 of 17
<PAGE> 2
ESSEF CORPORATION
Form 10-Q
For Quarter Ended June 30, 1996
INDEX
<TABLE>
<CAPTION>
Sequential
Page No.
----------
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 1996 and September 30, 1995................ 3
Condensed Consolidated Statements of Operations -
Three Months and Nine Months Ended June 30, 1996
and 1995............................................ 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended June 30, 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...................... 12-17
</TABLE>
Page 2 of 17
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
---------- -------------
ASSETS (unaudited)
- ------
<S> <C> <C>
Current Assets
Cash and cash equivalents.............. $ 265 $ 3,870
Accounts receivable, net ............... 40,369 25,714
Inventories, net ....................... 22,122 16,928
Other current assets.................... 1,846 3,165
-------- --------
Total current assets................. 64,602 49,677
Property, Plant and Equipment, net......... 37,520 37,746
Goodwill................................... 13,382 13,305
Other Assets............................... 6,954 5,896
-------- --------
$122,458 $106,624
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Current maturities of long-term debt.... $ 7,937 $ 5,272
Accounts payable........................ 17,363 9,562
Accrued expenses........................ 11,570 10,708
Accrued income taxes..... .............. 3,739 2,712
-------- --------
Total current liabilities........ 40,609 28,254
Long-Term debt ............................ 18,428 22,421
Deferred income taxes...................... 4,924 1,571
Other long-term liabilities................ 1,678 2,952
-------- --------
Total liabilities................ 65,639 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
5,306,627 and 5,289,188 shares less
231,180 and 101,330 treasury shares
at cost,stated at.................... 18,314 20,411
Retained earnings....................... 36,962 29,012
Cumulative foreign currency translation
adjustment........................... 1,543 2,003
-------- --------
Total shareholders' equity....... 56,819 51,426
-------- --------
$122,458 $106,624
======== ========
</TABLE>
See notes to financial statements.
Page 3 of 17
<PAGE> 4
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands,
except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales....................... $ 61,376 $45,942 $154,183 $117,887
Cost of Sales................... 42,815 32,368 109,486 83,837
-------- ------- -------- --------
Gross Profit............... 18,561 13,574 44,697 34,050
Operating Expenses.............. 10,939 8,012 30,285 23,153
-------- ------- -------- --------
Income from Operations..... 7,622 5,562 14,412 10,897
Interest Expense................ 821 582 2,087 1,572
Other Income.................... (14) 13 (95) (364)
-------- ------- -------- --------
Income before Income Taxes...... 6,815 4,967 12,420 9,689
Provision for Income Taxes ..... 2,452 1,788 4,470 3,488
-------- ------- -------- --------
Net Income ..................... $ 4,363 $ 3,179 $ 7,950 $ 6,201
======== ======= ======== ========
Weighted Average Common Shares
Outstanding..................... 5,993,987 5,759,161 6,043,885 5,750,198
Earnings Per Share.............. $ .73 $ .55 $ 1.32 $ 1.08
</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>
Nine Months Ended
June 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income................................... $ 7,950 $ 6,201
Adjustments to reconcile net income
to net cash used in operating activities
Depreciation and amortization......... 4,956 4,809
Other................................. (90) 109
Changes in Operating Assets and Liabilities
Accounts receivable....................... (14,854) (10,065)
Inventories............................... (5,280) (4,675)
Other current assets...................... 1,329 280
Accounts payable.......................... 8,858 3,384
Accrued expenses.......................... 904 1,999
Accrued and Deferred income taxes......... 3,129 1,399
------- -------
Net cash provided by operating activities. 6,902 3,441
------- -------
Cash Flows from Investing Activities
Additions to property, plant and
equipment................................. (4,658) (6,834)
Other assets, net............................ (1,362) (1,410)
Payment for acquisition of business.......... (936) --
------- -------
Net cash used in investing activities..... (6,956) (8,244)
------- -------
Cash Flows from Financing Activities
Payment on term loan......................... (1,071)
Net borrowings on revolving credit agreement. (1,275)
Net borrowings on other loans................ 931 3,646
Treasury stock acquired...................... (2,184) --
Proceeds from exercise of stock options...... 87 --
------- -------
Net cash provided by/(used in) financing
activities ............................... (3,512) 3,646
------- -------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents......................... (39) 169
------- -------
Net Decrease in Cash and Cash Equivalents........ (3,605) (988)
Cash and Cash Equivalents Balance - Beginning.... 3,870 2,509
------- -------
Cash and Cash Equivalents Balance - Ending....... $ 265 $ 1,521
======= =======
Supplemental Cash Flow Information
Interest paid $ 2,087 $ 1,668
======= =======
Income taxes paid $ -- $ 59
======= =======
</TABLE>
See notes to financial statements.
Page 5 of 17
<PAGE> 6
ESSEF CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) In the opinion of the Company the accompanying unaudited Condensed
Consolidated Financial Statements contain all normal and recurring
adjustments and accruals necessary to present fairly the Company's
financial position as of June 30, 1996, the results of its operations for
the three month and nine month periods ended June 30, 1995 and 1996 and its
cash flows for the nine month periods ended June 30, 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 nine month periods ended June 30,
1996 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) June 30, September 30,
1996 1995
---------------------------
(unaudited)
<S> <C> <C>
Raw materials...................... $ 9,715 $10,089
Work-in-process.................... 1,808 2,445
Finished goods..................... 12,641 6,225
------- -------
Inventories at FIFO cost......... 24,164 18,759
Less: Allowance to reduce carrying
value to LIFO cost............... (2,042) (1,831)
------- -------
Net Inventories............... $22,122 $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 June 30,1996. The Company's European subsidiaries have lines of
credit available of approximately USD $10.9 million. As of June 30, 1996,
approximately $8.3 million of credit is available under these
facilities.
The Company is in compliance with all of its debt covenants. As of June
30, 1996, interest rates ranged from 6.25% to 12.00%.
Page 6 of 17
<PAGE> 7
Long Term Debt consists of the following
<TABLE>
<CAPTION>
(Dollars in thousands)
JUNE 30, SEPTEMBER 30,
1996 1995
-------- --------
<S> <C> <C>
Term loan 7,143 8,214
Revolving credit agreement 12,625 13,900
Other loans 6,597 5,579
------- -------
26,365 27,693
Less current maturities 7,937 5,272
------- -------
Long term debt $18,428 $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 June 30, 1996, by approximately $335,000 and $1,005,000
for the year to date. As a result earnings increased approximately $.04
per share for the quarter and $.11 per share for the year to date.
(5) TREASURY SHARES
During the 1996 fiscal year, the Company repurchased 129,850 shares of its
common stock on the open market at an aggregate purchase price of
$2,184,354.
(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 three months and nine months ended June 30, 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 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 7 of 17
<PAGE> 8
<TABLE>
<CAPTION>
(Unaudited)
(Dollars in Thousands except per Share Data)
3 Months 9 Months
ended June ended June
30, 1995 30, 1995
---------- ----------
<S> <C> <C>
Net Sales 52,653 136,929
Net Income 3,336 6,634
Earnings per Share .55 1.10
</TABLE>
(7) The following component of other current liabilities was in excess of 5%
of total current liabilities:
<TABLE>
<CAPTION>
June 30, September 30,
(Dollars in thousands) 1996 1995
---------------------- ----------- -------------
(unaudited)
<S> <C> <C>
Accrued compensation $ 2,821 $ 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 JUNE 30, 1996 COMPARED WITH
THREE MONTHS ENDED JUNE 30, 1995
NET SALES
Net sales of $61,376,000 increased 33.6% from 1995 net sales of $45,942,000.
The water treatment and systems equipment segment reported a 47.5% increase in
sales to $25,824,000. 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 and system equipment segment sales would have
increased 6.7% from the third quarter of 1995. The swimming pool and spa
equipment segment sales of $35,552,000 increased 25.0% over last year.
Sales generated by the Company's European subsidiaries were approximately 13.6%
of total U.S. dollar sales. The average U.S. dollar exchange rate used to
translate the results of operations as of June 30, 1996, was approximately the
same as that used at June 30, 1995.
The Company had a backlog of orders believed by it to be firm of approximately
$11.9 million and $8.2 million as of June 30, 1996 and June 30, 1995,
respectively.
COSTS AND EXPENSES
Cost of sales decreased from 70.5% to 69.8% of net sales. This was the result
of changes in product sales mix and the effect of the change in estimate of
asset lives which reduced depreciation expense approximately $335,000. The
increase in net sales resulted in an increase in the Company's gross profit
from $13,574,000 to $18,561,000.
Operating expenses, consisting of administrative, selling, and engineering and
development expenses, increased $2,927,000 to $10,939,000. The additions of
Advanced Structures Inc, Euroimpex Spa and Compool operating expenses accounted
for $1,541,000 or 52.6% of this increase. As a percentage of sales, these
expenses increased slightly from the prior years.
INTEREST EXPENSE
Interest expense increased by $239,000 to $821,000. This was the result of a
28.3% increase in average outstanding borrowings of the Company due to the 1995
acquisitions, and an increase in the effective interest rate of approximately
85 basis points.
INCOME TAXES
The Company recorded a $2,452,000 provision in fiscal 1996 which represents an
effective tax rate of 36%. In fiscal 1995 the Company recorded a
Page 9 of 17
<PAGE> 10
$1,788,000 provision which represented an effective tax rate of 36%.
NET INCOME
The Company reported net income of $4,363,000 as compared to 1995 net income of
$3,179,000. The change between years reflects the positive impact of the
acquisitions and the change in estimate of asset lives which was partially
offset by increases in interest expense.
NINE MONTHS ENDED JUNE 30, 1996 COMPARED WITH
NINE MONTHS ENDED JUNE 30, 1995
NET SALES
Net sales of $154,183,000 increased 30.8% from 1995 net sales of $117,887,000.
The water treatment and systems equipment segment reported a 42.7% increase in
sales to $71,730,000. Without the impact of the acquisitions, the water
treatment and systems segment would have increased 3.7%. The swimming pool and
spa equipment segment sales of $82,453,000 increased 21.9% over last year.
Sales generated by the Company's European subsidiaries were approximately 14.8%
of total U.S. dollar sales and in U.S. dollars increased 58.3% over fiscal 1995
results, primarily due to the Euroimpex acquisition.
COST AND EXPENSES
Cost of sales decreased from 71.1% to 71.0% of net sales in fiscal 1996. This
was the result of changes in product sales mix and some increases in material
costs which reduced gross margin and were offset by the effect of the change in
estimate of asset lives which reduced depreciation expense approximately
$1,005,000. The increase in net sales resulted in the Company's gross profit
increasing from $34,050,000 to $44,697,000. Operating expenses, consisting of
administrative, selling, and engineering and development expenses, increased
$7,132,000 to $30,285,000. The additions of Advanced Structures Inc, Euroimpex
Spa and Compool operating expenses accounted for $4,501,000 or 63.1% of this
increase. As a percentage of sales, these expenses were the same as last year.
INTEREST EXPENSE
Interest expense increased by $515,000 to $2,087,000. This was the result of a
30.4% increase in average outstanding borrowings of the Company and an increase
in the effective interest rate of approximately 20 basis points.
OTHER INCOME
Other income decreased from $364,000 to $95,000. 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 $4,470,000 provision in fiscal 1996 which represents
Page 10 of 17
<PAGE> 11
an effective tax rate of 36%. In fiscal 1995 the Company recorded a $3,488,000
provision which also represented an effective tax rate of 36%.
NET INCOME
The Company reported net income of $7,950,000 as compared to 1995 net income of
$6,201,000. 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 $23,993,000 at June 30, 1996 compared to
$21,423,000 at September 30, 1995. The ratio of current assets to current
liabilities decreased to 1.59 to 1.00 from 1.76 to 1.00. The changes are due
to a $14.7 million increase in net accounts receivable and a $5.2 million
increase in net inventories offset by a $3.6 million decrease in cash, a $7.8
million increase in accounts payable and a $2.7 million increase in current
maturities of long-term debt. The increases in accounts receivable, inventory,
and accounts payable reflect normal seasonal working capital requirements.
Capital expenditures for the first nine months of fiscal year 1996 were
$4,658,000 compared to $6,834,000 for the same period last year, and were
funded from net income and depreciation. 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 June 1996, the Company had foreign assets of approximately
$20.8 million principally located in Belgium. The assets were converted at
quarter end using a U.S. dollar exchange rate that was 6.1% more favorable at
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
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
11 Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
(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
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: August 8, 1996
Page 13 of 17
<PAGE> 14
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarter ended June 30, 1996
Commission File No. 0-15902
-----------------
Essef Corporation
EXHIBIT VOLUME
Page 14 of 17
<PAGE> 15
Essef Corporation
Form 10-Q
For the Quarter Ended June 30, 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 15 of 17
<PAGE> 1
ESSEF CORPORATION EXHIBIT 11
Computation of Per Share Earnings
The computation of simple earnings per share and primary earnings per share is
as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
1996 1995 1996 1995
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Average shares outstanding for
computation of simple earnings
per share 5,119,014 4,875,372 5,160,569 4,871,705
Add equivalent shares for un-
exercised options at end of
period (a) 874,973 883,789 883,316 878,493
--------- --------- --------- ---------
Average shares outstanding for
computation of primary earnings
per share 5,993,987 5,759,161 6,043,885 5,750,198
========= ========= ========= =========
Earnings per common share: $0.85 $0.65 $1.54 $1.27
Primary earnings per common
share: $0.73 $0.55 $1.32 $1.08
<FN>
(a) Computed under the "Treasury Stock Method" using the average market price
for the respective period.
</TABLE>
Page 16 of 17
<PAGE> 2
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Page 17 of 17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 265
<SECURITIES> 0
<RECEIVABLES> 40,369
<ALLOWANCES> 0
<INVENTORY> 22,122
<CURRENT-ASSETS> 64,602
<PP&E> 86,046
<DEPRECIATION> (48,526)
<TOTAL-ASSETS> 122,458
<CURRENT-LIABILITIES> 40,609
<BONDS> 0
<COMMON> 18,314
0
0
<OTHER-SE> 38,505
<TOTAL-LIABILITY-AND-EQUITY> 122,458
<SALES> 61,376
<TOTAL-REVENUES> 61,376
<CGS> 42,815
<TOTAL-COSTS> 53,754
<OTHER-EXPENSES> (14)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 821
<INCOME-PRETAX> 6,815
<INCOME-TAX> 2,452
<INCOME-CONTINUING> 4,363
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,363
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
</TABLE>
