<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 October 31, 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: 21,342,957 shares of common
stock, par value $0.01 per share, as of December 5, 1996.
<PAGE>
FORM 10-Q
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CONTENTS
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Page Number
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PART I - FINANCIAL INFORMATION
---------------------
Item 1: Financial Statements
Consolidated Condensed Balance Sheets at January 31, 1996
and October 31, 1996...................................... 1
Consolidated Condensed Statements of Operations for the
three months ended October 31, 1995 and 1996.............. 3
Consolidated Condensed Statements of Operations for the
nine months ended October 31, 1995 and 1996............... 4
Consolidated Condensed Statements of Cash Flows for the
nine months ended October 31, 1995 and 1996............... 5
Notes to the Consolidated Condensed Financial Statements.. 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 8
PART II - OTHER INFORMATION
-----------------
Item 6: Exhibits and Reports on Form 8-K................. 11
Signature................................................. 12
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AT JANUARY 31, 1996 AND OCTOBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
January 31, October 31,
1996 1996
----------- -----------
(audited) (unaudited)
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents....................................................................... $ 3,877 $ 6,733
Accounts and notes receivable, net of allowance for doubtful accounts of $6,470
and $5,930 at January 31, 1996 and October 31, 1996, respectively............................ 68,725 82,173
Inventories..................................................................................... 39,967 46,820
Deferred income taxes........................................................................... 10,614 10,604
Prepaid and other current assets................................................................ 4,961 4,493
-------- --------
Total current assets......................................................................... 128,144 150,823
Property, plant and equipment, net of accumulated depreciation..................................... 70,749 75,101
Intangible assets, less accumulated amortization of $100,162 and $117,051 at
January 31, 1996 and October 31, 1996, respectively............................................. 73,233 72,689
Other noncurrent assets............................................................................ 20,444 24,294
-------- --------
Total assets............................................................................. $292,570 $322,907
======== ========
</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 OCTOBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
January 31, October 31,
1996 1996
----------- -----------
(audited) (unaudited)
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable................................................................................. $ 22,999 $ 25,735
Accrued expenses and other current liabilities................................................... 40,902 35,740
Short-term debt and current maturities of long-term debt......................................... 9,186 15,118
-------- --------
Total current liabilities................................................................... 73,087 76,593
-------- --------
Long-term liabilities:
Long-term debt................................................................................... 39,138 20,477
Noncurrent and deferred income taxes............................................................. 29,939 29,142
Other noncurrent liabilities..................................................................... 31,317 31,832
-------- --------
Total long-term liabilities................................................................. 100,394 81,451
-------- --------
Stockholders' equity:
Common stock ($.01 par value; 60,000,000 shares authorized;
19,914,450 and 21,342,957 shares issued and outstanding at
January 31, 1996 and October 31, 1996, respectively)........................................ 199 213
Additional paid-in capital....................................................................... 195,956 235,486
Retained earnings (deficit)...................................................................... (77,665) (70,300)
Foreign currency translation adjustment.......................................................... 599 (536)
-------- --------
Total stockholders' equity.................................................................. 119,089 164,863
-------- --------
Total liabilities and stockholders' equity.................................................. $292,570 $322,907
======== ========
</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 OCTOBER 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
October 31, October 31,
1995 1996
------------- -------------
<S> <C> <C>
Net sales............................................................................. $ 74,212 $ 97,104
Cost of goods sold.................................................................... 41,031 54,494
----------- -----------
Gross profit..................................................................... 33,181 42,610
Selling, general and administrative expenses.......................................... 23,221 29,274
Amortization of intangible assets..................................................... 9,661 551
----------- -----------
Operating income................................................................. 299 12,785
Interest income....................................................................... 431 725
Interest expense...................................................................... (2,769) (1,371)
Other income, net..................................................................... 1,118 896
----------- -----------
Income (loss) before income taxes................................................ (921) 13,035
Income taxes.......................................................................... 3,384 5,084
----------- -----------
Net income (loss)................................................................ $ (4,305) $ 7,951
=========== ===========
Net income (loss) per share (Note 2)............................................. $ (0.27) $ 0.37
=========== ===========
Weighted average shares outstanding.............................................. 15,889,450 21,310,262
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
October 31, October 31,
1995 1996
------------ ------------
<S> <C> <C>
Net sales...................................... $ 223,194 $ 272,416
Cost of goods sold............................. 121,710 151,696
----------- -----------
Gross profit.............................. 101,484 120,720
Selling, general and administrative expenses... 71,731 83,324
Amortization of intangible assets.............. 28,982 16,896
----------- -----------
Operating income.......................... 771 20,500
Interest income................................ 1,201 1,818
Interest expense on indebtedness to Samsonite.. (5,207) --
Interest expense - other....................... (4,935) (4,076)
Other income, net.............................. 2,362 3,865
----------- -----------
Income (loss) before income taxes......... (5,808) 22,107
Income taxes................................... 9,664 14,743
----------- -----------
Net income (loss)......................... $ (15,472) $ 7,364
=========== ===========
Net income (loss) per share (Note 2)...... $ (0.97) $0.35
=========== ===========
Weighted average shares outstanding....... 15,889,450 21,163,346
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
October 31, October 31,
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................ $ (15,472) $ 7,364
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Amortization................................................................. 28,982 16,896
Depreciation................................................................. 6,905 7,405
Deferred income taxes........................................................ (1,573) (796)
Gain on sale of property, plant and equipment................................ (206) (103)
Gain on insurance settlement................................................. -- (1,980)
Changes in assets and liabilities:
Receivables, net........................................................... (5,938) (12,467)
Inventories................................................................ (1,207) (6,668)
Other current assets....................................................... (1,787) (579)
Accounts payable and accrued expenses...................................... (2,299) 1,439
Other, net................................................................... 1,177 (3,907)
--------- --------
Net cash provided by operating activities.................................. 8,582 6,604
--------- --------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment.......................... 1,674 5,760
Purchases of property, plant and equipment................................... (8,203) (11,231)
Proceeds from insurance settlement........................................... -- 4,500
Payments for acquisitions.................................................... (869) (13,961)
--------- --------
Net cash used in investing activities...................................... (7,398) (14,932)
--------- --------
Cash flows from financing activities:
Funding to Samsonite, net.................................................... (111,125) --
Proceeds from stock offering................................................. -- 27,063
Proceeds from exercise of common stock options............................... -- 5,769
Net borrowings (repayments) of long-term debt................................ 103,971 (26,195)
Net short-term borrowings.................................................... 1,318 4,803
--------- --------
Net cash provided by (used in) financing activities........................ (5,836) 11,440
--------- --------
Effect of foreign exchange rate changes on cash..................................... 428 (256)
--------- --------
Net increase (decrease) in cash and cash equivalents................................ (4,224) 2,856
Cash and cash equivalents at beginning of year...................................... 5,926 3,877
--------- --------
Cash and cash equivalents at end of period.......................................... $ 1,702 $ 6,733
========= ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (including to Samsonite).......................................... $ 9,315 $ 4,248
Income taxes (excluding to Samsonite)...................................... $ 3,118 $ 12,438
========= ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED OCTOBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
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 INCOME (LOSS) PER SHARE
Net income (loss) per share is computed based on the weighted average
number of common shares outstanding. Shares outstanding for the three month
and nine month periods ended October 31, 1996 include the dilutive effect
of stock options. The effect of these options are not included in shares
outstanding for the prior year as they were antidilutive in such periods.
<TABLE>
<CAPTION>
3. INVENTORIES
Inventories consisted of the following: January 31, October 31,
1996 1996
----------- -----------
(audited) (unaudited)
<S> <C> <C>
Raw materials............................................. $13,721 $ 18,232
Work in process........................................... 3,134 3,410
Finished goods............................................ 23,112 25,178
------ ------
$39,967 $ 46,820
====== ======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
January 31, October 31,
1996 1996
----------- -----------
(audited) (unaudited)
<S> <C> <C>
Land and land improvements................................ $ 25,378 $ 21,130
Buildings................................................. 24,039 26,692
Machinery and equipment................................... 34,561 47,963
------- ------
83,978 95,785
Less accumulated depreciation............................ (13,229) (20,684)
------- ------
$ 70,749 $ 75,101
====== ======
</TABLE>
6
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED OCTOBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
<S> <C> <C>
5. INTANGIBLE ASSETS
Intangible assets consisted of the following: January 31, October 31,
1996 1996
----------- -----------
(audited) (unaudited)
Reorganization value in excess of identifiable assets.......... $15,551 $ --
Tradenames..................................................... 45,373 44,463
Other intangible assets........................................ 12,309 28,226
------- -------
$73,233 $72,689
======= =======
Amortization of intangible assets consists of the following:
Three Months Ended Nine Months Ended
Expected October 31, October 31,
Useful ---------------------------- -------------------------
Life 1995 1996 1995 1996
-------- ----------- ----------- ----------- -----------
(years) (unaudited) (unaudited) (unaudited) (unaudited)
Amortization of reorganization value in
excess of identifiable assets............... 3 $9,331 $ -- $27,991 $15,551
Amortization of tradenames................... 40 325 325 975 975
------ ---- ------- -------
"Fresh start" amortization................... 9,656 325 28,966 16,526
Amortization of other intangibles............ 3 to 40 5 226 16 370
------ ---- ------- -------
Amortization of intangible assets............ $9,661 $551 $28,982 $16,896
====== ==== ======= =======
</TABLE>
"Fresh start" amortization consists primarily of amortization of reorganization
value in excess of identifiable assets and represents the expense arising from
the adoption of "fresh start" accounting in accordance with SOP 90-7. Such
amortization of reorganization value in excess of identifiable assets was
recorded over a period of three years and ceased on June 30, 1996.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
Accrued expenses and other current liabilities consisted of the following:
January 31, October 31,
1996 1996
----------- -----------
(audited) (unaudited)
<S> <C> <C>
Accrued compensation and vacation.. $13,069 $11,759
Accruals for claims in litigation.. 5,063 3,874
Other.............................. 22,770 20,107
------- -------
$40,902 $35,740
======= =======
</TABLE>
7. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
During the third quarter of fiscal 1997, the Company issued additional shares of
common stock upon the exercise of over-allotment options granted to underwriters
in connection with a secondary public offering of shares of the Company's common
stock. The net proceeds from the issuance of such shares of approximately $32
million were used to repay indebtedness under the Credit Facility. In addition,
as a result of the exercise of stock options by one of the selling stockholders
in the offering, the Company recognized an income tax benefit of approximately
$6.7 million which it recorded as additional paid-in capital during the quarter.
8. OTHER INCOME, NET
Results for the three month and nine month periods ended October 31, 1996,
include a gain on an insurance settlement of $100 and $1,980, respectively. The
gain is associated with a fire which substantially destroyed the Company's
facility in Belgium in July 1993.
7
<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 (i) the
Company's results of operations for the three months ended October 31, 1996 with
the Company's results of operations for the three months ended October 31, 1995,
and (ii) the Company's results of operations for the nine months ended October
31, 1996 with the results of operations for the nine months ended October 31,
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 and nine months ended October 31, 1995
and October 31, 1996.
<TABLE>
<CAPTION>
Three months ended Nine months ended
October 31, October 31,
-------------------------------------------- --------------------------------------------
1995 1996 1995 1996
------------------- ------------------- -------------------- ------------------
(dollars in thousands)
Dollars % Dollars % Dollars % Dollars %
-------- ------- ------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $74,212 100.0% $97,104 100.0% $223,194 100.0% $272,416 100.0%
Gross profit......................... 33,181 44.7% 42,610 43.9% 101,484 45.5% 120,720 44.3%
Selling, general and administrative
expenses........................... 23,221 31.3% 29,274 30.1% 71,731 32.1% 83,324 30.6%
Amortization of intangible assets.... 9,661 551 28,982 16,896
------- ------- -------- --------
Operating income..................... 299 12,785 771 20,500
Other income, net (a)................ 1,118 896 2,362 3,865
------- ------- -------- --------
Income before interest and income
taxes.............................. $ 1,417 $13,681 $ 3,133 $ 24,365
======= ======= ======== ========
Adjusted income before interest
and taxes (b)...................... $11,458 15.4% $14,019 14.4% $ 33,331 14.9% $ 39,702 14.6%
EBITDA(b)............................ $13,480 18.2% $16,700 17.2% $ 39,020 17.5% $ 46,686 17.1%
- -------------------------
</TABLE>
(a) Other income, net for the three month and nine month periods ended October
31, 1996 includes a gain of $100 and $1,980, respectively. The gain relates
to an insurance settlement associated with a fire at the Company's Belgian
facility in July 1993.
(b) Adjusted income before interest and taxes and EBITDA have been calculated as
follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
October 31, October 31,
-------------------- --------------------
1995 1996 1995 1996
------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Income before interest and taxes................................ $ 1,417 $13,681 $ 3,133 $24,365
"Fresh start" amortization and depreciation..................... 10,041 438 30,198 17,317
Gain on insurance settlement.................................... -- (100) -- (1,980)
------- ------- ------- -------
Adjusted income before interest and taxes....................... 11,458 14,019 33,331 39,702
Depreciation and amortization (other than "fresh start")........ 2,022 2,681 5,689 6,984
------- ------- ------- -------
EBITDA.......................................................... $13,480 $16,700 $39,020 $46,686
======= ======= ======= =======
</TABLE>
8
<PAGE>
Three Month and Nine Month Periods Ended October 31, 1996 Compared to the Three
Month and Nine Month Periods Ended October 31, 1995
- ---------------------------------------------------
Net Sales. Net sales increased $22.9 million, or 30.8%, from $74.2 million for
the three months ended October 31, 1995 to $97.1 million for the three months
ended October 31,1996 and increased $49.2 million, or 22.1%, from $223.2 million
for the nine months ended October 31, 1995 to $272.4 million for the nine
months ended October 31, 1996. In the first nine months of the current fiscal
year, household product sales consisting of household softeners and filters,
drinking and bottled water products, and consumer market products increased
$25.9 million, or 21.4%, primarily due to increased sales at Company-owned
dealerships in both the U.S. and France, the continued demand for the
Company's drinking and bottled water products in the U.S. and the initial
results from the roll out of consumer market products during the third quarter.
Approximately $4.0 million of the increase in year-to-date household product
sales was attributable to the acquisition of retail dealers. Commercial and
industrial product sales increased $23.4 million, or 22.8%, primarily due to
acquisitions consummated in the fourth quarter of fiscal 1996 and increased
market penetration in non-U.S. markets.
Gross Profit. Gross profit increased to $42.6 million for the three month
period from $33.2 million in the prior year, an increase of $9.4 million, or
28.4%, and increased to $120.7 million for the nine months ended October 31,
1996 from $101.5 million in the prior year, an increase of $19.2 million, or
19.0%. Gross profit as a percentage of sales decreased to 43.9% during the third
quarter of fiscal 1997 and to 44.3% for the nine month period ended October 31,
1996 from 44.7% and 45.5%, respectively, during the prior year's comparable
periods. These decreases resulted from an expected shift in product mix
primarily resulting from the introduction of the bottle water cooler product
line and 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 30.1% for the quarter, and 30.6% for the nine month period ended October 31,
1996, decreasing, as a percentage of sales, by 1.2% and 1.5%, respectively, from
the prior year's comparable periods. The improvements were 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 decreased
by $9.1 million in the three month period and $12.1 million in the nine month
period of fiscal 1997 from the prior year's comparable periods due to the
"Reorganization Value in Excess of Identifiable Assets" attributable to the
reorganization of the Company's former parent, which became fully amortized in
June 1996. This decrease was slightly offset by amortization related to
intangibles recorded in connection with the Company's acquisitions consummated
during the fourth quarter of fiscal 1996 and the first nine months of fiscal
1997. Amortization of intangible assets related to such "Reorganization Value
in Excess of Identifiable Assets" was $15.6 million in the nine months ended
October 31, 1996 and $28.0 million in the nine months ended October 31, 1995.
Other Income, Net. In the nine month period of fiscal 1997, other income, net
included a gain of $2.0 million, from an insurance settlement related to a fire
at the Company's Belgian facility in July 1993.
Adjusted Income Before Interest and Taxes. Adjusted income before interest and
taxes increased $2.6 million, or 22.4%, from $11.4 million for the three month
period ended October 31, 1995, to $14.0 million for the three month period
ended October 31, 1996. For the nine month period ended October 31, 1996,
adjusted income before interest and taxes increased $6.4 million, or 19.1%, to
$39.7 million from $33.3 million for the prior year's comparable period due to
the reasons described above.
EBITDA. EBITDA as a percentage of sales was 17.1% in the nine months ended
October 31, 1996 compared to 17.5% in the prior year period. 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 expense, net of interest income,
decreased to $0.6 million and to $2.3 million in the three month and nine month
periods of fiscal 1997, respectively, from $2.3 million and $8.9 million in the
prior year's comparable periods. Such decrease was primarily due to a reduction
in borrowings resulting from the repayment of debt with proceeds from the
Company's equity offering in the fourth quarter of fiscal 1996. Additionally,
more favorable interest rates resulting from the refinancing of debt in July
1995 reduced interest, net during the first nine months of fiscal 1997.
9
<PAGE>
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 " attributable to the Company's former parent.
Liquidity and Capital Resources
- -------------------------------
The Company's operating cash requirements consist principally of working
capital requirements, scheduled payments of principal on its outstanding
indebtedness and capital expenditures. The Company believes that cash flow from
operating activities and periodic borrowings will be adequate to meet the
Company's operating cash requirements in the future.
In the nine months ended October 31, 1996, cash provided by operating
activities was $6.6 million, a decrease of $2.0 million from the prior year's
comparable period resulting from improved operating results and reduced interest
offset by increases in working capital which were required to fund the higher
sales volume and new initiatives such as the introduction of new consumer
products in the current year.
Cash utilized for capital expenditures during the nine months ended October
31, 1996 was $11.2 million. During the first nine months of fiscal 1997,
capital expenditures have increased over historical levels due to expenditures
associated with new dealerships in the U.S. and France and the expansion of
manufacturing operations at the Company's Everpure facility. Capital
expenditures are expected to continue to be made, as required, for the purpose
of maintaining and improving operating facilities and equipment to increase
manufacturing efficiencies and enhance the Company's competitiveness and
profitability on a worldwide basis.
At October 31, 1996, the Company had available credit under its bank credit
facility (the "Credit Facility") of $137 million. The Credit Facility is
available, among other things, to finance the working capital needs of the
Company, fund standby letters of credit to support international debt and
finance acquisitions. Loans obtained under the Credit Facility bear interest, at
the election of the Company, at either the bank's base rate or a Eurodollar
rate, in both cases, together with an applicable margin based on the
consolidated financial performance of the Company.
During the third quarter of fiscal 1997, the Company issued additional shares
of common stock upon the exercise of over-allotment options granted to
underwriters in connection with a secondary public offering of shares of the
Company's common stock. The net proceeds from the issuance of such shares of
approximately $32 million were used to repay indebtedness under the Credit
Facility. In addition, as a result of the exercise of stock options by one of
the selling stockholders in the offering, the Company recognized an income tax
benefit of approximately $6.7 million which it recorded as additional paid-in
capital during the quarter.
Since the spin-off from its former parent in September 1995, the Company
completed several acquisitions of businesses which complement existing products
and operations of the Company. The aggregate purchase price of approximately
$40.3 million, which includes the assumption of approximately $12.4 million of
debt, was financed through borrowings under the Credit Facility. The Company
intends to continue to make strategic acquisitions as part of its business
strategy and presently expects to finance these activities either by internally
generated funds, bank borrowings, public offerings or private placements of
equity or debt securities, or a combination of the foregoing. No assurance can
be given, however, with respect to the financial or business effect of any
possible future acquisitions.
The Company's principal non-U.S. operations are located in Western Europe, the
economies of which are not considered to be highly inflationary. The Company's
subsidiaries in Spain, Italy and Belgium are subject to currency fluctuations
because these subsidiaries have monetary assets and liabilities denominated in
other than their respective local currencies. It is the Company's policy not to
speculate in non-U.S. currencies, but rather to hedge against currency changes
by using bank borrowings by its non-U.S. subsidiaries to reduce the extent to
which its monetary assets are at risk. From time to time, the Company has
entered into forward exchange contracts in order to hedge its exposure on
certain intercompany transactions. At October 31, 1996, the Company had two
forward exchange contracts. The contracts, for an aggregate of $4.2 million,
expire in July 1997. Net assets of the Company's non-U.S. subsidiaries
translated at October 31, 1996 exchange rates were approximately $43.9 million
at October 31, 1996, an increase of approximately 17% from January 31, 1996.
10
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
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 October 31, 1996.
11
<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/ Michael E. Salvati
---------------------------------------
Name: Michael E. Salvati
Title: Vice President, Finance and
Chief Financial Officer
Date: December 13, 1996
--------------------
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Financial Statements included in the Company's Quarterly
Report on Form 10-Q for the Quarter ended October 31, 1996 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 6,733
<SECURITIES> 0
<RECEIVABLES> 82,173
<ALLOWANCES> 0
<INVENTORY> 46,820
<CURRENT-ASSETS> 150,823
<PP&E> 95,785
<DEPRECIATION> 20,684
<TOTAL-ASSETS> 322,907
<CURRENT-LIABILITIES> 76,593
<BONDS> 0
<COMMON> 213
0
0
<OTHER-SE> 164,650
<TOTAL-LIABILITY-AND-EQUITY> 322,907
<SALES> 272,416
<TOTAL-REVENUES> 272,416
<CGS> 151,696
<TOTAL-COSTS> 151,696
<OTHER-EXPENSES> (3,865)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,076
<INCOME-PRETAX> 22,107
<INCOME-TAX> 14,743
<INCOME-CONTINUING> 7,364
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,364
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
