<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT Of 1934
For the quarterly period ended March 31, 1999
--------------------------
[ ] 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
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(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 (440) 286-2200
----------------
None
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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 10,1999
- --------------------------------------------------------------------------------
Common Shares, no par value 13,073,400 Shares
Page 1 of 18
<PAGE> 2
ESSEF CORPORATION
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1999
INDEX
Sequential
Page No.
--------
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1999 and September 30, 1998................... 3
Condensed Consolidated Statements of Income -
Three Months and Six Months Ended March 31, 1999
and 1998................................................. 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended March 31, 1999 and 1998................. 5
Notes to Condensed Consolidated Financial
Statements............................................... 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 11-14
Part II - Other Information
Item 1. Legal Proceedings...................................... 15
Item 2. Changes in Securities.................................. 15
Item 4. Submission of Matters to a Vote of Security
Holders.............................................. 15
Item 6. Exhibits and Reports on Form 8-K....................... 15
Page 2 of 18
<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,
ASSETS 1999 1998
- ------ ----------- ---------
(unaudited) (audited)
<S> <C> <C>
Current Assets
Cash and cash equivalents ............... $ 2,271 $ 1,137
Accounts receivable, net ................ 90,405 44,545
Inventories, net ........................ 53,004 50,163
Prepayments and other ................. 5,634 3,069
-------- --------
Total current assets ............... 151,314 98,914
Property, plant and equipment, net ............ 77,332 79,076
Goodwill, net ................................. 74,163 74,444
Deferred income taxes ......................... 3,415 4,391
Other ......................................... 7,770 10,098
-------- --------
$313,994 $266,923
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Short-term borrowings ................. $ 5,398 $ 3,853
Current maturities of long-term debt .. 662 859
Accounts payable ...................... 25,903 23,871
Accrued expenses ...................... 36,797 33,301
Accrued income taxes .................. 3,592 3,685
-------- --------
Total current liabilities .......... 72,352 65,569
Long-term debt ................................ 151,554 112,622
Other long-term Liabilities ................... 6,356 5,054
Shareholders' Equity
Preferred shares without par value,
authorized 1,000,000 shares,
none issued ........................
-------- --------
Common shares without par value,
authorized 40,000,000 shares, issued
13,687,425 and 13,503,734 shares, .. 52,192 50,570
Treasury shares at cost, 618,127
and 503,927 shares, respectively ... (9,898) (7,962)
Retained earnings ..................... 41,994 40,888
Other Comprehensive Income ............ (556) 182
Total shareholders' equity ......... 83,732 83,678
-------- --------
$313,994 $266,923
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
Page 3 of 18
<PAGE> 4
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
------ ------- -------- ------
Net sales.................... $115,202 $ 91,756 $208,822 $ 171,374
Cost of sales................ 84,692 66,621 155,302 128,108
-------- -------- -------- --------
Gross profit............... 30,510 25,135 53,520 43,266
Operating expenses........... 24,383 19,894 47,186 36,291
-------- -------- -------- --------
Income from operations..... 6,127 5,241 6,334 6,975
Interest and other expense... 2,499 2,157 4,632 3,765
-------- -------- -------- --------
Income before income taxes. 3,628 3,084 1,702 3,210
Provision for income taxes... 1,270 1,079 596 1,123
-------- -------- -------- --------
Net income................. $ 2,358 $ 2,005 $ 1,106 $ 2,087
======== ======== ======== ========
Earnings per share:
Basic $.18 $.16 $.08 $.16
======== ======== ======== ========
Diluted $.16 $.14 $.07 $.14
======== ======== ======== ========
Average shares outstanding:
Basic 13,078 12,885 13,065 12,850
======== ======== ======== ========
Diluted 15,001 14,786 14,967 14,769
======== ======== ======== ========
See notes to condensed consolidated financial statements.
Page 4 of 18
<PAGE> 5
ESSEF CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1999 1998
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities
Net income ..................................... $ 1,106 $ 2,087
Adjustments to reconcile net income
to net cash used for operating activities
Depreciation and amortization ........ 7,418 5,413
Deferred taxes ....................... 1,043 308
Other ................................ 538 (761)
Changes in operating assets and liabilities
Accounts receivable ....................... (46,864) (33,245)
Inventories ............................... (3,377) (8,956)
Prepayments and other ..................... (2,610) (216)
Accounts payable .......................... 2,512 9,945
Accrued expenses .......................... 5,950 (5,698)
Accrued income taxes ...................... (93) (1,088)
-------- --------
Net cash used in operating activities (34,377) (32,211)
-------- --------
Cash Flows for Investing Activities
Additions to property, plant and equipment ..... (4,717) (9,625)
Proceeds on sale of land and buildings ......... 1,127 --
Business acquisitions .......................... (412) (5,117)
Other, net ..................................... -- (2,169)
-------- --------
Net cash used in investing activities (4,002) (16,911)
-------- --------
Cash Flows from Financing Activities
Proceeds from long term debt ................... 39,060 49,013
Increase in short-term borrowings .............. 1,220 54
Treasury stock acquired ........................ (1,936) --
Proceeds from exercise of stock options ........ 1,169 188
-------- --------
Net cash provided by financing activities . 39,513 49,255
-------- --------
Net change in cash and cash equivalents .............. 1,134 133
Cash and cash equivalents
Beginning of period ................................ 1,137 1,668
-------- --------
End of period ...................................... $ 2,271 $ 1,801
======== ========
Supplemental Cash Flow Information
Interest paid ............................. $ 4,467 $ 3,414
======== ========
Income taxes paid ......................... $ 165 $ 2,206
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
Page 5 of 18
<PAGE> 6
ESSEF CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) The accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting of only normal and
recurring adjustments) which, in the opinion of management, are
necessary to present fairly the consolidated financial position of
Essef Corporation and subsidiaries (the "Company") as of March 31,
1999, and the results of operations for the three month and six month
periods ended March 31, 1999 and 1998, and cash flows for the
six-month periods ended March 31, 1999 and 1998.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes
thereto included in the Company's 1998 Annual Report to Shareholders,
sections of which are incorporated into the Company's Form 10-K filed
for the fiscal year ended September 30, 1998. The results of
operations for the three month and six month periods ended March 31,
1999 may not necessarily be indicative of the operating results for
the full year.
(2) RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts in
order to be consistent with the presentation for the current year.
(3) EARNINGS PER SHARE
Earnings per share is computed in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". Basic
earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding during the period.
Diluted earnings per share is based on the combined weighted average
number of shares outstanding which include the assumed exercise or
conversion of options. In computing diluted earnings per share, the
Company has utilized the treasury stock method.
The computation of weighted average common and common equivalent
shares used in the calculation of basic and diluted earnings per
share is as follows:
Page 6 of 18
<PAGE> 7
<TABLE>
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
------- ------- ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Numerator
Net income available to
common shareholders $ 2,358 $ 2,005 $ 1,106 $ 2,087
======= ======= ======= =======
Denominator
Weighted average common
shares outstanding 13,078 12,885 13,065 12,850
Dilutive effect of
stock options 1,923 1,901 1,902 1,919
------- ------- ------- -------
Denominator for net
income per diluted share 15,001 14,786 14,967 14,769
Earnings per share:
Basic $.18 $.16 $.08 $.16
======= ======= ======= =======
Diluted $.16 $.14 $.07 $.14
======= ======= ======= =======
</TABLE>
(4) INVENTORIES
Inventories are valued as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
----------- ---------
(unaudited) (audited)
<S> <C> <C>
FIFO COST
Raw materials...................... $23,501 $24,543
Work-in-process.................... 1,694 1,926
Finished goods..................... 29,009 24,818
------- -------
54,204 51,287
Excess of FIFO over LIFO cost.... (1,200) (1,124)
------- -------
Net Inventories............... $53,004 $50,163
======= =======
</TABLE>
(5) SHORT-TERM BORROWINGS
The Company's European subsidiaries have working capital lines of
credit of approximately $12,000,000. At March 31, 1999 and
September 30, 1998, $2,987,000 and $1,595,000, respectively was
outstanding. At March 31, 1999, interest was at rates ranging from
3.95% to 9.0%. In addition, a note payable of $2,411,000 and
$2,258,000 relating to an acquisition was outstanding at March 31,
1999 and September 30, 1998, respectively. At March 31, 1999, the
interest rate on the note was 6%.
Page 7 of 18
<PAGE> 8
(6) LONG-TERM DEBT
The Company through its bank group has an unsecured $185,000,000
multi-currency revolving loan facility ("Credit Facility"). The
Credit Facility matures April 30, 2003 and may be extended in one
year increments with the approval of the bank group. The Credit
Facility includes commitment reductions at specified dates and for
events throughout the term of the loan; however, the commitment
does not reduce below $135,000,000. Interest rates are based on
increments over the LIBOR or foreign currency equivalent rate. A
17.5 basis point facility fee is payable on the total amount of the
commitment. As of March 31, 1999, interest rates ranged from 5.26%
to 5.62%. The Company is in compliance with all of its covenants
under its credit facilities.
In October 1998, the Company entered into an interest rate swap
arrangement with one of the members of its bank group. The swap
arrangement is for a $50,000,000 notional amount for a two-year
term with a bank option for a third year and fixes the Company's
interest rate at 4.45% plus the applicable bank margin based on the
Company's leverage ratio. The effective interest rate on this
portion of debt was 4.945% at March 31, 1999. Additionally, in May
1997, the Company entered into an interest rate swap arrangement
with another commercial bank for a $30,000,000 notional amount for
a two-year period that effectively fixes the Company's interest
rate at 6.33% plus the applicable bank margin based on the
Company's leverage ratio. The effective interest rate on this
portion of debt was 6.83% at March 31, 1999. The Company does not
use derivatives for trading purposes.
Long-term debt consists of the following:
(In thousands)
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
-------- --------
(unaudited) (audited)
<S> <C> <C>
Revolving credit facilities $150,000 $110,940
Other 2,216 2,541
-------- --------
152,216 113,481
Less current maturities (662) (859)
-------- --------
Long-term debt $151,554 $112,622
======== ========
</TABLE>
(7) COMMON STOCK
Under a stock repurchase program authorized by the Company's Board
of Directors, the Company purchased 114,200 shares of treasury
stock in the six month period ended March 31, 1999, for $1,936,000.
Page 8 of 18
<PAGE> 9
(8) COMPREHENSIVE INCOME
Effective October 1, 1998, the Company adopted Statement of
Financial Accounting Standard's No. 130 ("SFAS 130") "Reporting
Comprehensive Income". SFAS 130 establishes new standards for
reporting comprehensive income and its components. Comprehensive
income is a measurement of all changes in shareholders' equity
that result from transactions and other economic events other than
transactions with shareholders.
Consolidated statements of comprehensive income are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
------ ------- -------- ------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Income $2,358 $2,005 $1,106 $2,087
Other Comprehensive
(loss)/Income:
Foreign Currency
translation adjustment (879) (172) (738) 77
------ ------ ------ ------
Comprehensive Income $1,479 $1,833 $ 368 $2,164
====== ====== ====== ======
</TABLE>
(9) STOCK DIVIDEND
On February 4, 1999, the Board of Directors authorized a 10%
dividend which was distributed on March 10, 1999 to shareholders
of record on February 19, 1999. The consolidated financial
statements have been retroactively restated to reflect the number
of shares outstanding following the dividend.
(10) ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("Board")
issued Statement of Financial Accounting Standard's No. 131 ("SFAS
131") "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 redefines how operating segments are
determined and requires disclosure of certain financial and
descriptive information about a company's operating segments.
Applying SFAS 131, the Company would presently have three
reportable segments: Swimming Pool and Spa Equipment, Water
Treatment and Systems Equipment and Swimming Pool Sales and
Installation. The Company will adopt SFAS 131 for its financial
statement disclosures in its annual report for the year ending
September 30, 1999.
Page 9 of 18
<PAGE> 10
(11) LITIGATION
There has been no material change to the status of the litigation
referred to in the Company's 1998 Annual Report to Shareholders,
sections of which are incorporated in the Company's Form 10-K filed
for the fiscal year ended September 30, 1998.
(12) SUBSEQUENT EVENT
On April 30, 1999, the Company announced that it had entered
into a merger agreement with Pentair, Inc. whereby each Essef
common share would be exchanged for $19.09 cash. In addition
to the $19.09 in cash per share, just prior to the merger,
the Company will distribute to its shareholders, for each
share of Essef common stock held, 0.25 shares of its Anthony
& Sylvan Pools Corporation subsidiary, thus creating a new
stand-alone public company. Holders of Essef shares
immediately prior to the consummation of the acquisition will
receive Anthony & Sylvan shares in connection with the
split-off. Based on independent valuation analyses, the value
of the Anthony & Sylvan stock to be received by Essef
shareholders is expected to be $3.00 - $3.50 for each Essef
share held. The purchase price for the Essef common shares
will total approximately $312 million in cash plus the
assumption of debt. These transactions are expected to close
on or about July 31, 1999.
The merger agreement, which was approved by the boards of directors
of both Essef and Pentair, is subject to Essef shareholder
approval, regulatory approval under the Hart-Scott-Rodino Act and
the completion of limited due diligence by Pentair. The
distribution of Anthony & Sylvan shares is subject to the clearance
of a registration statement to be filed with the Securities and
Exchange Commission. The receipt of Anthony & Sylvan shares will be
treated as a taxable distribution to Essef shareholder's, and will
not be preceded by an initial public offering as earlier announced
by Essef in 1998. Anthony & Sylvan, as part of the transaction with
Pentair, will also assume $17 million of Essef debt, subject to
certain adjustments.
Page 10 of 18
<PAGE> 11
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH
THREE MONTHS ENDED MARCH 31, 1998
Net sales of $115,202,000 for the second quarter of fiscal 1999 increased 26%
over fiscal 1998 net sales of $91,756,000. The increase was primarily
attributable to the Swimming Pool and Spa Equipment Segment and the Swimming
Pool Sales and Installation Segment as a result of four acquisitions completed
in the latter part of fiscal 1998.
Gross profit decreased from 27.4% to 26.5%. The decrease was primarily
attributable to increased sales from the Swimming Pool Sales and Installation
Segment which has lower gross margin's during it's off-season than the Company's
other businesses. Additionally, employee and other related costs incurred in the
Water Treatment and Systems Equipment Segment related to staffing reductions
also contributed to the decrease for the quarter. The decrease was partially
offset by improved gross profit margins in the Swimming Pool and Spa Equipment
Segment as a result of increased sales volumes and acquisitions.
Operating expenses, consisting of engineering and development, selling, and
administrative expenses, as a percentage of sales decreased from 21.7% to 21.2%.
Reductions within the Swimming Pool and Spa Equipment Segment due to synergies
created with prior year acquisitions were partially offset by increases within
the Swimming Pool Sales and Installation Segment which were attributable to
increased spending for sales and marketing lead-generating activities.
Interest and other expense increased by $342,000 to $2,499,000. The increase was
the result of increased borrowings, which were used to finance the acquisitions
completed in fiscal 1998.
The Company's effective tax rate was 35% in both periods.
As a result of the above items, net income of $2,358,000 or $.16 per diluted
share, increased $353,000 from $2,005,000 or $.14 per diluted share in the prior
year.
SIX MONTHS ENDED MARCH 31, 1999 COMPARED WITH
SIX MONTHS ENDED MARCH 31, 1998
Net sales of $208,822,000 increased 22% over fiscal 1998 net sales of
$171,374,000. As with the second quarter results described above, the increase
was attributable to five acquisitions completed in fiscal 1998 which benefited
both the Swimming Pool and Spa Equipment and Swimming Pool Sales and
Installation Segments.
Page 11 of 18
<PAGE> 12
Gross profit increased from 25.2% of sales to 25.6% as a result of improved
gross profit margins within the Swimming Pool and Spa Equipment Segment. The
increase in gross margins was partially offset by an increase in sales within
the Swimming Pool Sales and Installation Segment which has lower gross margins
than the Company's other businesses.
Operating expenses, consisting of engineering and development, selling, and
administrative expenses, as a percentage of sales increased from 21.2% to 22.6%.
The increase came principally from the Swimming Pool Sales and Installation
Segment due to additional sales and marketing lead-generating activities and
lower than normal expenses in 1998 due to an adjustment in the accrual for
incentive based employee stock options related to a reduction in the number of
eligible stock options. Partially offsetting these increases were reductions in
the Water Treatment and Systems Equipment Segment as a result of a number of
cost reduction initiatives implemented during the first quarter of fiscal 1999.
Interest and other expense increased by $867,000 to $4,632,000. The increase was
the result of increased borrowings, which were used to finance the five
acquisitions completed in fiscal 1998.
The Company's effective tax rate was 35% in both periods.
As a result of the above items, net income of $1,106,000 or $.07 per diluted
share, decreased $981,000 from $2,087,000 or $.14 per diluted share in the prior
year period.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999 funded debt was $157,614,000 an increase of $40,280,000 from
September 30, 1998. The increase came principally as a result of normal seasonal
working capital requirements which increased working capital by $46,965,000 from
September 30, 1998 to a level of $85,022,000 at March 31, 1999.
Capital expenditures of $4,717,000 for the six months decreased $4,908,000
compared to $9,625,000 for the same period last year. The decrease is
attributable to higher than normal capital expenditures in fiscal 1998, related
to the Company's expansion into India and consolidation activities undertaken in
the Swimming Pool and Spa Equipment Segment following the acquisition of General
Aquatics and subsequent closure of the Company's City of Industry plant.
The Company believes that funds available under its revolving credit facility
and funds generated from operations will be sufficient to satisfy its
anticipated operating needs and capital improvements in fiscal 1999.
Page 12 of 18
<PAGE> 13
The Company is involved in various claims and lawsuits incidental to its
business, including product liability claims which are covered by insurance
after certain deductibles. Although, the Company believes that its reserves 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. While the ultimate result
of these contingencies cannot be predicted with certainty, management does not
expect these matters to have a material adverse effect on the consolidated
financial position, results of operations or cash flows of the Company.
YEAR 2000 MATTERS
The Company utilizes computer technologies to varying degrees throughout its
three business segments to effectively carry out its day-to-day operations.
Computer technologies include both information technology in the form of
hardware and software, as well as embedded technology in the Company's
facilities and equipment. Similar to most companies, the Company must determine
whether its systems are capable of recognizing and processing date sensitive
information properly as the year 2000 approaches.
During the past several years as a result of an operational decision to improve
its information systems, most of the significant business units within the Water
Treatment and Systems Equipment Segment and Swimming Pool and Spa Equipment
Segment have implemented enterprise-wide information systems. These information
systems are substantially year 2000 compliant, and therefore the costs to make
them fully compliant are not expected to be material. The Company is currently
in the process of assessing the information systems in the remaining business
units within these segments for year 2000 compliance. Business units whose
information systems are not year 2000 compliant will either implement the
Company's enterprise-wide information system or make modifications to existing
systems. In addition, these segments are in the process of evaluating the
computer controlled equipment and other systems utilized in the business that
use embedded processors that have the potential to be date sensitive to the year
2000 issue. Costs to replace or modify these information systems and processors
are not expected to exceed $1 million and will be completed by mid-1999. In
addition, the Swimming Pool Sales and Installation Segment in 1997, as part of
an overall modernization and upgrade of its information systems, began preparing
its computer systems and applications for the date change in the year 2000. To
date, this process has involved modifying or replacing certain hardware and
upgrading certain software and has not involved material costs to the Company.
The Company believes that substantially all of the necessary systems and
applications changes will be completed by mid-1999, and that the amount of
additional costs, if any, needed to address the year 2000 issue will be
immaterial. For all of the Company's business segments, the costs of year 2000
issue are being funded through operating cash flow and are not material to the
Company. The Company's segments have also not deferred any significant
information technology projects to address the year 2000 issue.
Page 13 of 18
<PAGE> 14
The Company currently believes it will be able to modify, replace or mitigate
its affected systems in time to avoid any material detrimental impact on its
operations. If the Company determines that it may be unable to modify and
properly test affected systems on a timely basis, the Company intends to develop
appropriate contingency plans for any such mission-critical systems at the time
such determination is made. While the Company is not presently aware of any
significant exposure that its systems will not be properly changed or modified
on a timely basis, there can be no assurances that all year 2000 correction
activities will be completed and properly tested before the year 2000, or that
contingency plans will sufficiently mitigate the risk of a year 2000 readiness
problem. An interruption of the Company's ability to conduct its business due to
a year 2000 issue could have a material adverse effect on the Company.
The Company is in the process of surveying suppliers and customers critical to
its business for the purpose of obtaining assurance regarding their ability to
properly operate their systems in the year 2000. The Company has targeted the
completion of these activities by mid-1999. The Company will develop appropriate
contingency plans in the event that a significant exposure is identified
relative to the dependencies on third-party systems. While the Company is not
presently aware of any such significant exposure, there can be no guarantee that
the systems of third-parties on which the Company relies will be converted in a
timely manner, or that a failure to properly convert by another company would
not have a material adverse effect on the Company.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this report and
other materials filed with the Securities and Exchange Commission (as well as
information included in oral or other written statements made or to be made by
the Company) contains statements that are forward-looking. Such statements may
relate to plans for future expansion, plant integration's and consolidations,
business development activities, other capital spending, financing or the
effects of regulation and competition. Such information involves important risks
and uncertainties that could significantly affect anticipated results in the
future and, accordingly, such results may differ from those expressed in any
forward-looking statements made by or on behalf of the Company. These risks and
uncertainties include, but are not limited to those relating to: the costs of
integrating acquired businesses; product development activities; dependence on
existing management; global economic and market conditions; the impact of
weather on the pool businesses; the unpredictability of the stock markets;
events that may impact the availability of bank financing and year 2000 issues.
Page 14 of 18
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There has been no material change to the status of the legal
proceedings referred to in the 1998 Form 10-K during the period
covered by this report.
ITEM 2. CHANGES IN SECURITIES
No change.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
13 Independent Public Accountants' Review
Report
15 Independent Public Accountants'
Awareness Letter
27 Financial Data Schedule
(b) Form 8-K
The following report was filed on Form 8-K during the quarter for
which this Report is filed
Filed May 7, 1999 - Agreement and Plan of Merger dated April 30,
1999, among Pentair, Inc., Northstar Acquisition Company and
Essef Corporation.
Page 15 of 18
<PAGE> 16
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)
Stuart D. Neidus
------------------------------------
STUART D. NEIDUS
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
Date: May 12, 1999
Page 16 of 18
<PAGE> 1
EXHIBIT 13
----------
INDEPENDENT PUBLIC ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Shareholders of
Essef Corporation
Chardon, Ohio
We have reviewed the accompanying condensed consolidated balance sheet of Essef
Corporation and Subsidiaries (the "Company") as of March 31, 1999, and the
related condensed consolidated statements of income for the three month and six
month periods ended March 31, 1999 and 1998, and their cash flows for the
six-month periods ended March 31, 1999 and 1998. These financial statements are
the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of September 30,
1998, and the related consolidated statements of income, shareholders' equity,
and cash flows for the year then ended (not presented herein) and in our report
dated November 13, 1998, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of September 30, 1998
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
April 20, 1999
Page 17 of 18
<PAGE> 1
EXHIBIT 15
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INDEPENDENT PUBLIC ACCOUNTANTS' AWARENESS LETTER
May 12, 1999
The Shareholders and Board of Directors
Essef Corporation and Subsidiaries
220 Park Drive
Chardon, Ohio
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Essef Corporation and Subsidiaries for the periods ended March
31, 1999 and 1998, as indicated in our report dated April 20, 1999; because we
did not do an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, is
incorporated by reference in Registration Statement No. 33-17758 on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
Page 18 of 18
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<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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<INVENTORY> 53,004
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<DEPRECIATION> (63,350)
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0
0
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<SALES> 115,202
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