<PAGE>
UNITED STATES
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 April 30, 1996
OR
( ) 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 - 26630
---------------------
CULLIGAN WATER TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0350629
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Culligan Parkway, Northbrook, IL 60062
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(847) 205-6000
----------------------------------------------------
(Registrant's telephone number, including area code)
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 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
X Yes _______ No
-------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 19,914,450 shares of common
stock, par value $0.01 per share, as of June 10, 1996.
<PAGE>
FORM 10-Q
---------
CONTENTS
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<TABLE>
<CAPTION>
Page Number
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<S> <C> <C>
PART I - FINANCIAL INFORMATION
---------------------
Consolidated Condensed Balance Sheets at January 31, 1996
and April 30, 1996........................................... 1
Consolidated Condensed Statements of Operations for the
three months ended April 30, 1995 and 1996................... 3
Consolidated Condensed Statements of Cash Flows for the
three months ended April 30, 1995 and 1996................... 4
Notes to the Consolidated Condensed Financial Statements..... 5
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 7
PART II - OTHER INFORMATION
-----------------
Item 1: Legal Proceedings.................................... 10
Item 6: Exhibits and Reports on Form 8-K..................... 10
Signature.................................................... 11
</TABLE>
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AT JANUARY 31, 1996 AND APRIL 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
January 31, April 30,
1996 1996
----------- -----------
(audited) (unaudited)
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents................................................................. $ 3,877 $ 4,510
Accounts and notes receivable, net of allowance for doubtful accounts of $6,470
and $6,529 at January 31, 1996 and April 30, 1996, respectively...................... 68,725 70,544
Inventories............................................................................... 39,967 40,511
Deferred income taxes..................................................................... 10,614 10,600
Prepaid and other current assets.......................................................... 4,961 5,728
----------- -----------
Total current assets................................................................. 128,144 131,893
Property, plant and equipment, net of accumulated depreciation................................. 70,749 66,838
Intangible assets, less accumulated amortization of $90,339 and $100,162 at
January 31, 1996 and April 30, 1996, respectively......................................... 73,233 65,441
Other noncurrent assets........................................................................ 20,444 21,075
----------- -----------
Total assets.............................................................................. $292,570 $285,247
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AT JANUARY 31, 1996 AND APRIL 30, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
January 31, April 30,
1996 1996
----------- -----------
(audited) (unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable.......................................................................... $ 22,999 $ 22,896
Accrued expenses.......................................................................... 40,902 39,351
Short-term debt and current maturities of long-term debt.................................. 9,186 7,391
-------- --------
Total current assets................................................................. 73,087 69,638
-------- --------
Long-term liabilities:
Long-term debt............................................................................ 39,138 39,370
Noncurrent and deferred income taxes...................................................... 29,939 29,660
Other noncurrent liabilities.............................................................. 31,317 31,354
-------- --------
Total long-term liabilities.......................................................... 100,394 100,384
-------- --------
Stockholders' equity:
Common stock ($.01 par value; 60,000,000 shares authorized;
19,914,450 shares issued and outstanding)............................................ 199 199
Additional paid-in capital................................................................ 195,956 195,956
Retained earnings (deficit)............................................................... (77,665) (81,013)
Foreign currency translation adjustment................................................... 599 83
-------- --------
Total stockholders' equity........................................................... 119,089 115,225
-------- --------
Total liabilities and stockholders' equity...................................... $292,570 $285,247
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
2
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
April 30, April 30,
1995 1996
------------- -------------
<S> <C> <C>
Net sales...................................... $ 68,767 $ 83,390
Cost of goods sold............................. 37,402 46,652
----------- -----------
Gross profit............................... 31,365 36,738
Selling, general and administrative expenses... 22,586 25,814
Amortization of intangible assets.............. 9,660 9,719
----------- -----------
Operating income (loss).................... (881) 1,205
Interest income................................ 377 459
Interest expense on indebtedness to Samsonite.. (2,875) --
Interest expense - other....................... (590) (1,382)
Other income (expense), net.................... 386 236
----------- -----------
Income (loss) before income taxes.......... (3,583) 518
Income taxes................................... 2,628 3,866
----------- -----------
Net loss................................... $ (6,211) $ (3,348)
=========== ===========
Net loss per share (Note 2)................ (0.39) (0.17)
=========== ===========
Weighted average shares outstanding........ 15,889,450 19,914,450
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 30, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
April 30, April 30,
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................................... $ (6,211) $ (3,348)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Amortization............................................................. 9,660 9,719
Depreciation............................................................. 2,182 2,385
Gains on sales of assets................................................. (67) (97)
Deferred income taxes.................................................... (189) (298)
Changes in assets and liabilities:
Receivables, net....................................................... 182 (1,782)
Inventories............................................................ (1,498) (543)
Other current assets................................................... (938) (1,217)
Accounts payable and accrued expenses.................................. (8,218) (1,962)
Other net................................................................ (868) (405)
------------ ------------
Net cash provided by (used in) operating activities.................... (5,965) 2,452
------------ ------------
Cash flows from investing activities:
Proceeds from sales of property, plant and equipment..................... 1,399 5,644
Purchases of property, plant and equipment............................... (1,752) (3,388)
Payments for acquisitions................................................ -- (1 441)
------------ ------------
Net cash provided by (used in) investing activities.................... (353) 815
------------ ------------
Cash flows from financing activities:
Funding from Samsonite, net.............................................. 370 --
Net borrowings (repayments) of long-term debt............................ 210 (792)
Net short-term borrowings (repayments)................................... 2,415 (1,731)
------------ ------------
Net cash provided by (used in) financing activities.................... 2,995 (2,523)
------------ ------------
Effect of foreign exchange rate changes on cash............................... 435 (111)
------------ ------------
Net decrease in cash and cash equivalents..................................... (2,888) 633
Cash and cash equivalents at beginning of year................................ 5,926 3,877
------------ ------------
Cash and cash equivalents at end of period.................................... $ 3,038 $ 4,510
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (including to Samsonite)........................................ $ 3,465 $ 1,488
Income taxes (excluding to Samsonite).................................... $ 913 $ 698
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED APRIL 30, 1996
(IN THOUSANDS)
1. GENERAL
Culligan Water Technologies, Inc. and subsidiaries (Culligan or the
Company) are engaged in the manufacture and sale of water purification and
treatment products and services. A substantial part of the Company's sales
are made to franchised dealers and licensees.
In the opinion of management, the unaudited interim consolidated
financial information of the Company contains all adjustments, consisting
only of those of a recurring nature, necessary to present fairly the
Company's financial position and results of operations. All significant
intercompany accounts, transactions and profits have been eliminated. These
financial statements are for interim periods and do not include all
information normally provided in annual financial statements and should be
read in conjunction with the Company's Annual Report on Form 10-K for the
year ended January 31, 1996 filed with the Securities and Exchange
Commission. The results of operations for interim periods are not
necessarily indicative of the results that may be expected for the full
year.
2. NET LOSS PER SHARE
Net loss per share is computed based on the weighted average number of
common shares outstanding. Stock options are not included as share
equivalents because they are antidilutive.
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
January 31, April 30,
1996 1996
----------- -----------
(audited) (unaudited)
<S> <C> <C>
Raw materials........................... $ 13,721 $ 13,031
Work in process......................... 3,134 2,885
Finished goods.......................... 23,112 24,595
-------- --------
$ 39,967 $ 40,511
======== ========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
January 31, April 30,
1996 1996
----------- -----------
(audited) (unaudited)
<S> <C> <C>
Land and land improvements.............. $ 25,378 $ 20,341
Buildings............................... 24,039 24,955
Machinery and equipment................. 34,561 37,346
-------- --------
83,978 82,642
Less accumulated depreciation........... (13,229) (15,804)
-------- --------
$ 70,749 $ 66,838
======== ========
</TABLE>
5
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED APRIL 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
5. INTANGIBLE ASSETS
Intangible assets consisted of the following: January 31, April 30,
1996 1996
----------- ----------
(unaudited) (unaudited)
<S> <C> <C>
Reorganization value in excess of identifiable assets.............. $15,551 $ 6,221
Tradenames......................................................... 45,373 45,070
Other intangible assets............................................ 12,309 14,150
------- -------
$73,233 $65,441
======= =======
</TABLE>
Amortization of intangible assets consists of the following:
<TABLE>
<CAPTION>
Three Months Ended
Expected April 30,
Useful -------------------------
Life 1995 1996
-------- ----------- -----------
(years) (unaudited) (unaudited)
<S> <C> <C> <C>
Amortization of reorganization value in
excess of identifiable assets............................. 3 $9,331 $9,330
Amortization of tradenames................................. 40 325 325
---------- ----------
"Fresh start" amortization................................. 9,656 9,655
Amortization of other intangibles.......................... 3 to 40 4 64
---------- ----------
Amortization of intangible assets.......................... $9,660 $9,719
========== ==========
</TABLE>
"Fresh start" amortization is for a period of primarily three years beginning
June 30, 1993 and represents the expense arising from the adoption of "fresh
start" accounting in accordance with SOP 90-7.
6. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
January 31, April 30,
1996 1996
----------- -----------
(audited) (unaudited)
<S> <C> <C>
Accrued compensation and vacation.......... $13,069 $12,005
Accruals for claims in litigation.......... 5,063 5,058
Accrued income taxes....................... 2,335 5,778
Other...................................... 20,435 16,510
------- -------
$40,902 $39,351
======= =======
</TABLE>
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARATIVE SUMMARY OF OPERATING RESULTS
- ----------------------------------------
The following discussion and analysis of results of operations compare the
Company's results of operations for the three months ended April 30, 1996 with
the Company's results of operations for the three months ended April 30, 1995.
As an aid to understanding the Company's operations on a comparative basis,
the following table has been prepared to set forth certain statement of
operations and other data for the three months ended April 30, 1995 and April
30, 1996.
<TABLE>
<CAPTION>
Three Months Ended
April 30,
1995 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
(dollars in thousands)
Dollars % Dollars %
------- ------ ------- ------
Net sales ......................................................... $68,767 100.0% $83,390 100.0%
Gross Profit ...................................................... 31,365 45.6% 36,738 44.1%
Selling, general and administrative expenses ...................... 22,586 32.8% 25,814 31.0%
Amortization of intangible assets ................................. 9,660 9,719
------- -------
Operating Income (loss) ........................................... (881) 1,205
Other income (expense), net ....................................... 386 236
------- -------
Income (loss) before interest and income taxes .................... $ (495) $ 1,441
======= =======
Adjusted income before interest and taxes (a) ..................... $ 9,593 14.0% $11,480 13.8%
EBITDA(a) ......................................................... $11,347 16.5% $13,545 16.2%
-----------
</TABLE>
(a) Adjusted income before interest and taxes and EBITDA have been
calculated as follows:
<TABLE>
<CAPTION>
Three months ended
April 30,
-----------------------
<S> <C> <C>
1995 1996
------- -------
(dollars in thousands)
Income (loss) before interest and taxes ........................... $ (495) $ 1,441
"Fresh start" amortization and depreciation ....................... 10,088 10,039
------- -------
Adjusted income before interest and taxes ...................... 9,593 11,480
Depreciation and amortization (other than "fresh start") .......... 1,754 2,065
------- -------
EBITDA ............................................................ $11,347 $13,545
======= =======
</TABLE>
7
<PAGE>
Three Month Period Ended April 30,1996 Compared to the Three Month Period Ended
- -------------------------------------------------------------------------------
April 30, 1995
- ---------------
Net Sales. Sales increased to $83.4 million during the first quarter of fiscal
1997 from $68.8 million during the first quarter of fiscal 1996, an increase of
$14.6 million or 21.2%. Household product sales increased $7.6 million, or
21.1%, primarily due to strong demand for drinking and bottled water products in
the U.S. and increased sales at the Company's retail operations in both the U.S.
and France. Approximately $1.0 million of the increase in household sales
resulted from acquisitions of retail dealers near the end of fiscal 1996.
Commercial and industrial product sales increased $7.0 million, or 21.4%,
primarily due to acquisitions consummated in the fourth quarter of fiscal 1996.
Changes in currency exchange rates had a favorable impact on household and
commercial/industrial product sales of $.3 million and $.2 million,
respectively, during the first quarter.
Gross Profit. Gross profit increased to $36.7 million during the first quarter
of fiscal 1997 from $31.4 million in the first quarter of fiscal 1996, an
increase of $5.3 million, or 16.9%. Gross profit as a percentage of sales
decreased to 44.1% during the first quarter as compared to 45.6% during the
same quarter in the prior year, due to an expected shift in product mix
primarily resulting from the acquisitions of commercial and industrial product
lines completed at the end of fiscal 1996.
Selling, General and Administrative ("SG&A"). As a percentage of sales, SG&A was
31.0% for the quarter, a decrease, as a percentage of sales, of 1.8% from the
comparable prior year period. The improvement was related to continued cost
containment initiatives as well as the impact from acquired businesses which
have, after integration, a SG&A level as a percentage of sales below the
Company's historical levels.
Amortization of Intangible Assets. Amortization of intangible assets increased
slightly in the first quarter of fiscal 1997 from the comparable prior year
period as a result of amortization related to intangible assets recorded in
connection with the Company's acquisitions consummated during the fourth quarter
of fiscal 1996. Amortization of intangible assets in fiscal 1997 and fiscal
1996 includes $9.3 million of "Amortization of Reorganization Value in Excess of
Identifiable Assets" resulting from "Fresh Start" accounting as required by SOP
90-7, which becomes fully amortized in June 1996.
Other Income (Expense), Net. The decrease in other income (expense), net in the
first quarter of fiscal 1997 as compared to the first quarter of the prior
fiscal year was primarily due to the inclusion in the prior year of equity in
earnings of an affiliate largely offset by foreign currency transaction losses
in Italy and Spain for which there were no comparable amounts in fiscal 1997.
Adjusted Income Before Interest and Taxes. Adjusted income before interest and
taxes increased $1.9 million, or 19.7%, to $11.5 million in the first quarter of
fiscal 1997 from $9.6 million in the comparable period of the prior fiscal year
due principally to the reasons described above.
EBITDA. EBITDA as a percentage of sales remained relatively constant in the
comparable year to year periods as increased sales and the improvement in SG&A
as a percentage of sales were offset by expected decreases in the gross profit
percentages.
Interest Income (Expense), Net. Interest income (expense), net improved during
the first quarter of fiscal 1997 due to a reduction in borrowings resulting from
the paydown of debt with proceeds from the Company's equity offering in the
fourth quarter of fiscal 1996 and more favorable interest rates resulting from
the refinancing of debt in July 1995.
Income Taxes. The effective tax rate differs from the statutory rate primarily
because of the nondeductibility of the "Amortization of Reorganization Value in
Excess of Identifiable Assets."
8
<PAGE>
Liquidity and capital resources
- -------------------------------
In general, the Company's operating cash requirements consist principally of
working capital requirements, capital expenditures and scheduled repayments of
principal on its outstanding indebtedness. The Company believes that anticipated
cash flows from operating activities and periodic borrowings under its credit
facility will be adequate to meet its short and long term operating cash
requirements, while maintaining substantial borrowing availability for, among
other things, the implementation of its growth strategy.
The Company's principal foreign operations are located in Western Europe, the
economies of which are not considered to be highly inflationary. It is the
company's policy not to speculate in foreign currencies, but rather to hedge
against currency changes by using bank borrowings by its foreign subsidiaries to
reduce the extent to which its monetary assets are at risk. Net assets of the
Company's foreign subsidiaries translated at April 30, 1996 exchange rates were
$41.0 million at April 30, 1996, an increase of approximately 10% from January
31, 1996.
9
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1 Legal Proceedings
-----------------
As previously reported, on October 18, 1995, Everpure was served with a
complaint naming Everpure as the defendant in an action in the United States
District Court for the District of Connecticut entitled Cuno Incorporated v.
Everpure, Inc. (The "Connecticut Action") alleging infringement by Everpure of a
patent issued to Cuno Incorporated ("Cuno") in 1994. The Everpure product
involved in the litigation is a multiport connecting device for filter
cartridges, used in many food service applications. The complaint seeks
preliminary and permanent injunctive relief, an accounting for damages,
compensatory damages and interest and costs. The Company believes, after
consultation with patent counsel, that it has meritorious defenses to Cuno's
claims in the Connecticut Action. On April 30, 1996, Everpure filed
counterclaims in the Connecticut Action seeking a declaratory judgment that the
Cuno patent is invalid, void, unenforceable and not infringed, and also
preliminary and permanent injunctive relief, treble damages, costs and fees in
connection with Cuno's infringement of a reissue patent issued to Everpure in
1992. Cuno has denied the allegations in Everpure's counterclaims.
On March 28, 1996, Everpure commenced an action against Cuno in the United
States District Court for The Northern District of Illinois entitled Everpure,
Inc. v. Cuno Incorporated (the "Illinois Action"). The complaint in the
Illinois Action seeks permanent injunctive relief, declaratory relief and
damages against Cuno for its infringement of the Everpure's trademarks and trade
dress for certain of its filter cartridges. Cuno has denied the allegations in
the complaint and filed counterclaims against Everpure. Cuno's counterclaims
allege antitrust violations, unfair competition and false advertising claims
invalidity of Everpure's's trademarks and trade dress, and seek declaratory and
injunctive relief, compensatory and punitive damages, interest, costs and fees.
The Company believes, after consultation with counsel, that it has meritorious
defenses to Cuno's counterclaims.
The Company does not believe that the ultimate outcome of the Connecticut and
Illinois Actions will have material adverse effect on the Company's financial
condition or results of operations.
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the three
months ended April 30, 1996.
10
<PAGE>
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.
CULLIGAN WATER TECHNOLOGIES, INC.
(REGISTRANT)
By /S/ Gregory Wm. Hunt
------------------------------------
Name: Gregory Wm. Hunt
Title: Vice President, Finance and
Chief Financial Officer
Date: June 13, 1996
-------------
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> APR-30-1996
<CASH> 4,510
<SECURITIES> 0
<RECEIVABLES> 70,544
<ALLOWANCES> 0
<INVENTORY> 40,511
<CURRENT-ASSETS> 131,893
<PP&E> 82,642
<DEPRECIATION> 15,804
<TOTAL-ASSETS> 285,247
<CURRENT-LIABILITIES> 69,638
<BONDS> 0
0
0
<COMMON> 199
<OTHER-SE> 115,026
<TOTAL-LIABILITY-AND-EQUITY> 285,247
<SALES> 83,390
<TOTAL-REVENUES> 83,390
<CGS> 46,652
<TOTAL-COSTS> 46,652
<OTHER-EXPENSES> (236)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,382
<INCOME-PRETAX> 518
<INCOME-TAX> 3,866
<INCOME-CONTINUING> (3,348)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,348)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
