<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 July 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. 19,930,550 shares of common
stock, par value $0.01 per share, as of September 12, 1996.
<PAGE>
FORM 10-Q
---------
CONTENTS
--------
<TABLE>
<CAPTION>
Page Number
-----------
PART I - FINANCIAL INFORMATION
---------------------
<S> <C>
Consolidated Condensed Balance Sheets at January 31,
1996 and July 31, 1996................................... 1
Consolidated Condensed Statements of Operations for the
three months ended July 31, 1995 and 1996................ 3
Consolidated Condensed Statements of Operations for the
six months ended July 31, 1995 and 1996.................. 4
Consolidated Condensed Statements of Cash Flows for the
six months ended July 31, 1995 and 1996.................. 5
Notes to the Consolidated Condensed Financial
Statements............................................... 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 8
PART II - OTHER INFORMATION
-----------------
Item 4: Submission of Matters to a Vote of Security
Holders......................................... 11
Item 5: Other Matters................................... 11
Item 6: Exhibits and Reports on Form 8-K................ 12
Signature................................................ 13
</TABLE>
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AT JANUARY 31, 1996 AND JULY 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
January 31, July 31,
1996 1996
---------- -----------
(audited) (unaudited)
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents........................................................ $ 3,877 $ 5,533
Accounts and notes receivable, net of allowance for doubtful accounts of $6,470
and $6,617 at January 31, 1996 and July 31, 1996, respectively................ 68,725 77,965
Inventories...................................................................... 39,967 42,906
Deferred income taxes............................................................ 10,614 10,602
Prepaid and other current assets................................................. 4,961 4,292
-------- --------
Total current assets.......................................................... 128,144 141,298
Property, plant and equipment, net of accumulated depreciation..................... 70,749 68,120
Intangible assets, less accumulated amortization of $100,162 and $116,500 at
January 31, 1996 and July 31, 1996, respectively................................. 73,233 58,732
Other noncurrent assets............................................................ 20,444 24,827
-------- --------
Total assets..................................................................... $292,570 $292,977
======== ========
</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 JULY 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
January 31, July 31,
1996 1996
----------- -----------
(audited) (unaudited)
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable.................................................... $ 22,999 $ 26,653
Accrued expenses and other current liabilities...................... 40,902 37,093
Short-term debt and current maturities of long-term debt............ 9,186 10,073
-------- --------
Total current liabilities........................................ 73,087 73,819
-------- --------
Long-term liabilities:
Long-term debt...................................................... 39,138 40,682
Noncurrent and deferred income taxes................................ 29,939 29,329
Other noncurrent liabilities........................................ 31,317 31,707
-------- --------
Total long-term liabilities...................................... 100,394 101,718
-------- --------
Stockholders' equity:
Common stock ($.01 par value; 60,000,000 shares authorized;
19,914,450 and 19,918,950 shares issued and outstanding at
January 31, 1996 and July 31, 1996, respectively)................ 199 199
Additional paid-in capital.......................................... 195,956 196,011
Retained earnings (deficit)......................................... (77,665) (78,252)
Foreign currency translation adjustment............................. 599 (518)
-------- --------
Total stockholders' equity....................................... 119,089 117,440
-------- --------
Total liabilities and stockholders' equity....................... $292,570 $292,977
======== ========
</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 JULY 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
July 31, July 31,
1995 1996
----------- -----------
<S> <C> <C>
Net sales......................................... $ 80,215 $ 91,922
Cost of goods sold................................ 43,277 50,550
---------- ----------
Gross profit................................. 36,938 41,372
Selling, general and administrative expenses...... 25,924 28,236
Amortization of intangible assets................. 9,661 6,626
---------- ----------
Operating income............................. 1,353 6,510
Interest income................................... 393 634
Interest expense on indebtedness to Samsonite..... (2,332) --
Interest expense - other.......................... (1,576) (1,323)
Other income (expense), net....................... 858 2,733
---------- ----------
Income (loss) before income taxes............ (1,304) 8,554
Income taxes...................................... 3,652 5,793
---------- ----------
Net income (loss)............................ $ (4,956) $ 2,761
========== ==========
Net income (loss) per share (Note 2)......... $ (0.31) $ 0.13
========== ==========
Weighted average shares outstanding.......... 15,889,450 21,128,561
========== ==========
</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 SIX MONTHS ENDED JULY 31, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
July 31, July 31,
1995 1996
----------- -----------
<S> <C> <C>
Net sales...................................... $ 148,982 $ 175,312
Cost of goods sold............................. 80,679 97,202
----------- -----------
Gross profit............................... 68,303 78,110
Selling, general and administrative expenses... 48,510 54,050
Amortization of intangible assets.............. 19,321 16,345
----------- -----------
Operating income........................... 472 7,715
Interest income................................ 770 1,093
Interest expense on indebtedness to Samsonite.. (5,207) --
Interest expense - other....................... (2,166) (2,705)
Other income (expense), net.................... 1,244 2,969
----------- -----------
Income (loss) before income taxes.......... (4,887) 9,072
Income taxes................................... 6,280 9,659
----------- -----------
Net loss................................... $ (11,167) $ (587)
=========== ===========
Net loss per share (Note 2)................ $ (0.70) $ (0.03)
=========== ===========
Weighted average shares outstanding........ 15,889,450 19,915,233
=========== ===========
</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 SIX MONTHS ENDED JULY 31, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
July 31, July 31,
1995 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................................. $ (11,167) $ (587)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Amortization......................................................... 19,321 16,345
Depreciation......................................................... 4,503 4,837
Deferred income taxes................................................ (978) (615)
Gain on insurance settlement......................................... -- (1,880)
Changes in assets and liabilities:
Receivables, net................................................... (8,018) (9,779)
Inventories........................................................ (1,763) (2,991)
Other current assets............................................... (898) (498)
Accounts payable and accrued expenses.............................. (2,633) (1,332)
Other net............................................................ 957 (2,242)
---------- ----------
Net cash provided by (used in) operating activities............... (676) 1,258
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment.................. 1,533 5,743
Purchases of property, plant and equipment........................... (6,069) (7,386)
Proceeds from insurance settlement................................... -- 4,500
Payments for acquisitions............................................ -- (3,760)
---------- ----------
Net cash used in investing activities.............................. (4,536) (903)
---------- ----------
Cash flows from financing activities:
Funding to Samsonite, net............................................ (111,125) --
Proceeds from exercise of common stock options....................... -- 55
Net borrowings of long-term debt..................................... 114,499 467
Net short-term borrowings............................................ 3,188 1,021
---------- ----------
Net cash provided by financing activities.......................... 6,562 1,543
---------- ----------
Effect of foreign exchange rate changes on cash............................. 554 (242)
---------- ----------
Net increase in cash and cash equivalents................................... 1,904 1,656
Cash and cash equivalents at beginning of year.............................. 5,926 3,877
---------- ----------
Cash and cash equivalents at end of period.................................. 7,830 5,533
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (including to Samsonite).................................... 7,161 2,859
Income taxes (excluding to Samsonite)................................ $ 2,497 $ 9,409
========== ==========
</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 JULY 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 months
ended July 31, 1996 include the dilutive effect of stock options. The effect of
these options are not included in shares outstanding for the six months ended
July 31, 1996 or the prior year as they were antidilutive in such periods.
<TABLE>
<CAPTION>
3. INVENTORIES
Inventories consisted of the following:
January 31, July 31,
1996 1996
----------- --------
(audited) (unaudited)
<S> <C> <C>
Raw materials............................. $ 13,721 $ 14,796
Work in process........................... 3,134 3,170
Finished goods............................ 23,112 24,940
------ ------
$ 39,967 $ 42,906
====== ======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
January 31, July 31,
1996 1996
----------- --------
(audited) (unaudited)
<S> <C> <C>
Land and land improvements.............. $ 25,378 $ 20,529
Buildings............................... 24,039 25,196
Machinery and equipment................. 34,561 41,302
------ ------
83,978 87,027
Less accumulated depreciation........... (13,229) (18,907)
------ ------
$ 70,749 $ 68,120
====== ======
</TABLE>
6
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JULY 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
5. INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
January 31, July 31,
1996 1996
---------- -----------
(audited) (unaudited)
<S> <C> <C>
Reorganization value in excess of identifiable assets.......... $15,551 $ --
Trade names.................................................... 45,373 44,766
Other intangible assets........................................ 12,309 13,966
------- -------
$73,233 $58,732
======= =======
</TABLE>
Amortization of intangible assets consists of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Expected July 31, July 31,
Useful ------------------------- -------------------------
Life 1995 1996 1995 1996
-------- ----------- ----------- ----------- -----------
(years) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Amortization of reorganization value in
excess of identifiable assets................ 3 $9,329 $6,221 $18,660 $15,551
Amortization of trade names..................... 40 325 325 650 650
------ ------ ------- -------
"Fresh start" amortization...................... 9,654 6,546 19,310 16,201
Amortization of other intangibles............... 3 to 40 7 80 11 144
------ ------ ------- -------
Amortization of intangible assets............... $9,661 $6,626 $19,321 $16,345
====== ====== ======= =======
</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
Accrued expenses and other current liabilities consisted of the following:
<TABLE>
<CAPTION>
January 31, July 31,
1996 1996
----------- -----------
(audited) (unaudited)
<S> <C> <C>
Accrued compensation and vacation......................................... $13,069 $10,060
Accruals for claims in litigation......................................... 5,063 4,493
Accrued income taxes...................................................... 2,335 3,078
Other..................................................................... 20,435 19,462
------- -------
$40,902 $37,093
======= =======
</TABLE>
7. OTHER INCOME (EXPENSE), NET
Results for the three month and six month periods ended July 31, 1996,
include a gain of $1,880 on an insurance settlement 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 July 31, 1996
with the Company's results of operations for the three months ended July 31,
1995, and (ii) the Company's results of operations for the six months ended
July 31, 1996 with the results of operations for the six months ended July 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 six months ended July 31, 1995 and
July 31, 1996.
<TABLE>
<CAPTION>
Three months ended Six months ended
July 31, July 31,
-------------------------------------- ----------------------------------------
1995 1996 1995 1996
----------------- ------------------ ------------------ ------------------
(dollars in thousands)
Dollars % Dollars % Dollars % Dollars %
------- ------ ------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............................. $80,215 100.0% $91,922 100.0% $148,982 100.0% $175,312 100.0%
Gross profit........................... 36,938 46.0% 41,372 45.0% 68,303 45.8% 78,110 44.6%
Selling, general and administrative
expenses............................ 25,924 32.3% 28,236 30.7% 48,510 32.6% 54,050 30.9%
Amortization of intangible assets...... 9,661 6,626 19,321 16,345
------- ------- -------- --------
Operating income....................... 1,353 6,510 472 7,715
Other income (expense), net (a)........ 858 2,733 1,244 2,969
------- ------- -------- --------
Income before interest
and income taxes.................... $ 2,211 $ 9,243 $ 1,716 $ 10,684
======= ======= ======== ========
Adjusted income before interest
and taxes (b)....................... $12,280 15.3% $14,203 15.5% $ 21,873 14.7% $ 25,683 14.7%
EBITDA(b).............................. $14,193 17.7% $16,441 17.9% $ 25,540 17.1% $ 29,986 17.1%
-----------
</TABLE>
(a) Other income (expense), net for the three month and six month periods ended
July 31, 1996 includes a gain of $1,880 on 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 Six months ended
July 31, July 31,
-------------------- --------------------
1995 1996 1995 1996
------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Income (loss) before interest and taxes......................... $ 2,211 $ 9,243 $ 1,716 $10,684
"Fresh start" amortization and depreciation..................... 10,069 6,840 20,157 16,879
Gain on insurance settlement.................................... - (1,880) - (1,880)
------- ------- ------- -------
Adjusted income before interest and taxes....................... 12,280 14,203 21,873 25,683
Depreciation and amortization (other than "fresh start")........ 1,913 2,238 3,667 4,303
------- ------- ------- -------
EBITDA.......................................................... $14,193 $16,441 $25,540 $29,986
======= ======= ======= =======
</TABLE>
8
<PAGE>
Three Month and Six Month Periods Ended July 31, 1996 Compared to the Three
- ---------------------------------------------------------------------------
Month and Six Month Periods Ended July 31, 1995
-----------------------------------------------
Net Sales. Net sales increased $11.7 million, or 14.6%, from $80.2 million for
the three months ended July 31, 1995 to $91.9 million for the three months ended
July 31, 1996 and increased $26.3 million, or 17.7%, from $149.0 million for the
six months ended July 31, 1995 to $175.3 million for the six months ended July
31, 1996. In the first six months of the current fiscal year, household product
sales increased $12.4 million, or 15.3%, primarily due to increased sales at
company-owned dealerships in both the U.S. and France, and the continued demand
for the Company's drinking and bottled water products in the U.S. Approximately
$2.0 million of the increase in household product sales was attributable to the
acquisition of retail dealers made during the last two quarters of fiscal 1996.
Commercial and industrial product sales increased $13.9 million, or 20.2%,
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 $41.4 million for the three month
period from $36.9 million in the prior year, an increase of $4.5 million, or
12.2%, and increased to $78.1 million for the six months ended July 31, 1996
from $68.3 million in the prior year, an increase of $9.8 million, or 14.3%.
Gross profit as a percentage of sales decreased to 45.0% during the second
quarter of fiscal 1997 and to 44.6% for the six month period ended July 31, 1996
from 46.0% and 45.8%, respectively, during the prior year's comparable periods.
These decreases resulted from an expected shift in product mix primarily
resulting from 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
30.7% for the quarter, and 30.9% for the six month period ended July 31, 1996,
decreasing, as a percentage of sales, by 1.6% and 1.7%, 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 $3.0 million in the three month and six month periods of fiscal 1997 from the
prior year's comparable periods due to the "Reorganization Value in Excess of
Identifiable Assets" attributable to 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. Amortization of
intangible assets related to such "Reorganization Value in Excess of
Identifiable Assets" was $15.6 million in the six months ended July 31, 1996 and
$18.7 million in the six months ended July 31, 1995.
Other Income (Expense), Net. In the three month and six month periods of fiscal
1997, other income (expense), net included a gain of $1.9 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 $1.9 million, or 15.4%, from $12.3 million for the three month
period ended July 31, 1995, to $14.2 million for the three month period ended
July 31, 1996. For the six month period ended July 31, 1996, adjusted income
before interest and taxes increased $3.8 million, or 17.4%, to $25.7 million
from $21.9 million for the prior year's comparable period due principally to the
reasons described above.
EBITDA. EBITDA as a percentage of sales was 17.1% in each of the six month
periods. 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 $1.6 million during the first six months of fiscal 1997 and $0.7
million in the second quarter of fiscal 1997 from $6.6 million and $3.5 million,
respectively, in the prior year's comparable periods 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, and more favorable
interest rates resulting from the refinancing of debt in July 1995.
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."
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 six months ended July 31, 1996, cash provided by operating activities
was $1.3 million, an increase of $1.9 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 six months ended July 31,
1996 was $7.4 million. During the first six 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 July 31, 1996, the Company had available credit under its bank credit
facility (the "Credit Facility") of $114 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.
In the fourth quarter of fiscal 1996, the Company completed a public offering
of 4,025,000 shares of common stock, at $23.50 per share, providing net proceeds
of approximately $87 million which were used to repay indebtedness under the
Credit Facility. The offering proceeds have provided the Company with a capital
structure which will enable it to pursue its acquisition initiatives and
strategically compete in the water industry today.
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
$21.6 million, which includes the assumption of approximately $3.9 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 July 31, 1996, the Company had three
forward exchange contracts. One contract for $2.0 million expired in August
1996 and the other contracts for $4.3 million expire in July 1997. Net assets
of the Company's non-U.S. subsidiaries translated at July 31, 1996 exchange
rates were approximately $41.0 million at July 31, 1996, an increase of
approximately 10% from January 31, 1996.
10
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on June 14, 1996 at
its corporate headquarters in Northbrook, Illinois. At the meeting,
stockholders elected four directors, all of whom were previously serving as
directors of the Company, for a three-year term expiring in 1999. The directors
elected and the votes cast for and withheld were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
DOUGLAS A. PERTZ 14,102,756 For 10,633 Withheld
ROBERT L. ROSEN 14,103,051 For 10,338 Withheld
MARC J. ROWAN 14,103,001 For 10,388 Withheld
STEPHEN J. SOLARZ 14,092,807 For 20,582 Withheld
</TABLE>
At the meeting, stockholders also (a) approved a new Directors' Stock Plan by
a vote of 13,365,373 for, 474,045 against, 3,971 abstain (including broker non-
votes); (b) approved an amendment to the Company's 1995 Stock Option and
Incentive Compensation Plan to increase the number of options available for
grant thereunder by a vote of 13,434,365 for, 675,981 against, 3,043 abstain
(including broker non-votes); and (c) ratified and approved the appointment of
KPMG Peat Marwick LLP as independent auditors for the Company by a vote of
14,108,524 for, 3,680 against, 1,185 abstain (including broker non-votes).
Item 5. Other Matters.
Stockholder Rights Plan
On September 13, 1996 the Company adopted a stockholder rights plan and
authorized the execution of the Rights Agreement between the Company and The
First National Bank of Boston, as Rights Agent (the "Rights Agreement"). The
rights plan is intended to deter coercive or partial offers which will not
provide fair value to all stockholders and enhance the Board's ability to
represent all stockholders and thereby maximize stockholder values.
Pursuant to the Rights Agreement, one right ("Right") will be issued for each
share of common stock, par value $.01 per share, of the Company outstanding as
of the close of business on September 26, 1996. Each of the Rights will entitle
the registered holder to purchase from the Company one one-hundredth of a share
of Series A Junior Participating Preferred Stock, par value $.01 per share, at a
price of $78 per one one-hundredth of a share. The Rights generally will not
become exercisable unless and until, among other things, any person acquires 15%
or more of the outstanding stock (other than a person that owned 15% or more on
September 3, 1996 as long as such person does not increase its percentage
ownership by more than five percentage points over its percentage ownership on
such date). The new Rights are generally redeemable at $.005 per Right at any
time until 10 business days following a public announcement that a 15% or
greater position in the Company's common stock has been acquired and will
expire, unless earlier redeemed or extended, on September 13, 1997.
A description of the new Rights is set forth in Exhibit C to the Rights
Agreement, a copy of which is incorporated herein by reference.
Employee Loan Program
The Company has implemented a loan program to facilitate the purchase by
employees of shares of the Company's Common Stock in the open market. The
program provides that if requested by employees, the Company will make loans to
such employees in an amount not to exceed 75% of the aggregate purchase price of
the shares purchased. Such loans will bear interest at floating rates based on
the interest rate payable from time to time on borrowings under the Credit
Facility, and will mature on the earliest of (a)
11
<PAGE>
the fifth anniversary of the date of the loan, (b) 90 days following termination
of the employee's employment with the Company or (c) acceleration of the
maturity of the loan as a result of certain events of default.
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 July 31, 1996.
(c) Exhibits.
Exhibit No. Description
----------- -----------
4 Rights Agreement, dated as of September 13, 1996 between Culligan
Water Technologies, Inc. and The First National Bank of Boston,
as Rights Agent, including the Form of Certificate of
Designation, Preferences and Rights setting forth the terms of
the Series A Junior Participating Preferred Stock, par value $.01
per share, as Exhibit A, the Form of Rights Certificate as
Exhibit B, and the Summary of Rights to Purchase Preferred Stock
as Exhibit C (incorporated by reference to Exhibit 3 to the
Company's Registration Statement on Form 8-A filed with the
Securities and Exchange Commission on September 16, 1996).
12
<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: September 16, 1996
--------------------------------
13
<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 END JULY 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 5,533
<SECURITIES> 0
<RECEIVABLES> 77,965
<ALLOWANCES> 0
<INVENTORY> 42,906
<CURRENT-ASSETS> 141,298
<PP&E> 87,027
<DEPRECIATION> 18,907
<TOTAL-ASSETS> 292,977
<CURRENT-LIABILITIES> 73,819
<BONDS> 0
<COMMON> 199
0
0
<OTHER-SE> 117,241
<TOTAL-LIABILITY-AND-EQUITY> 292,977
<SALES> 175,312
<TOTAL-REVENUES> 175,312
<CGS> 97,202
<TOTAL-COSTS> 97,202
<OTHER-EXPENSES> (2,969)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,705
<INCOME-PRETAX> 9,072
<INCOME-TAX> 9,659
<INCOME-CONTINUING> (587)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (587)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
