ITEM 1. BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS.
Essef Corporation was incorporated in Ohio in 1954 as Structural Fibers, Inc. and commenced operations by focusing on an emerging technology: the use of fiberglass reinforced plastics (FRP) as an alternative to metal in cast, forged, and other formed or fabricated parts. The Company, having a strong engineering oriented emphasis, pioneered the production of such products for use in Polaris and Hercules missiles, jet engines, electrical components, and other national defense related items.
This experience helped the Company successfully develop a proprietary molding technology that radically changed its direction. Perfection of the internal bag-molding process enabled mass production of seamless pressure vessels with fiberglass-reinforced plastic, and in 1959, the Company began to specialize in the manufacture of these products.
By the early 1970's, with the Company's basic product well established in the pressure vessel market, the Company acquired Pac-Fab, Inc. (Pac-Fab) a manufacturer of iron, brass and steel pump and filter products. As a result of product conversion to polymeric materials, Pac-Fab today is a manufacturer of swimming pool filters, pumps, underwater lights, and other swimming pool equipment produced from engineered plastics.
In 1976, sa SFC nv was formed in Herentals, Belgium. This company manufactures and distributes FRP pressure vessels, polyglass wound vessels, and swimming pool filters for the European market.
In October 1991, sa SFC nv formed a new subsidiary, Structural Iberica S.A. (Structural Iberica), located in Barcelona, Spain. This subsidiary distributes water treatment, well system, and swimming pool products, primarily in Spain.
In 1981, the Company acquired QPI and thus entered into the blow molding business. QPI transferred its manufacturing operations to the Company's Chardon facility in 1985 to support the Company's manufacturing capabilities for its proprietary pressure vessels. During the period 1989 through early 1991, QPI entered the market as a custom blow molder specializing in the production of structural flat panel systems. Today, as an integral part of Structural Fibers, and no longer recognized as a separate business unit, the capabilities of QPI are almost entirely focused on the Company's proprietary product lines. The Company also has blow molding capabilities in Europe to support its proprietary products which are manufactured there.
As part of the plan to sustain growth and to finance working capital needs, the Company made an initial public offering of common shares in June, 1987. The offering enabled the Company to expand manufacturing capacity in all operating segments in the period 1987 through 1990, although some facilities and equipment have since been sold.
ENPAC Corporation (ENPAC) was formed in 1988. It designs, manufactures, and markets proprietary engineered plastic vessels and related accessory products for secondary containment and regulated transport of industrial and environmentally hazardous waste materials.
Page 3 of 68 sequentially numbered pages In the Fall of 1988, the Company acquired Hobson Brothers Aluminum Foundry & Mould Works, Inc. (Hobson Brothers) a blow mold and injection mold toolmaker operating in Shell Rock, Iowa.
Contaminant Recovery Systems, Inc. (ConRec) was formed in March, 1989 as a joint venture to develop and market proprietary equipment for the minimization of hazardous waste generation and recycling of process water in plating, metal finishing, and other chemical process industries where hazardous waste management is of growing concern.
In 1981, the Company acquired FAME Plastics, Inc. (FAME), a custom injection molder specializing in engineered plastic parts for the business machine and computer industry. During the fourth quarter of fiscal year 1990, the Company adopted a plan to dispose of FAME and substantially all of the net assets of FAME were sold in fiscal year 1991.
In September 1992, Structural Fibers Division and its sister company in Europe, SFC, agreed to a simultaneous name change. Structural Fibers became Structural North America, and SFC became Structural Europe N.V. (Structural Europe).
In March of 1994, Pac-Fab acquired Purex Pool Systems, Inc., (Purex Pool Systems) a manufacturer of pumps, filters and heaters for the swimming pool market.
In December of 1994, the Company signed a joint venture agreement with a German manufacturer and distributor of metal hydropneumatic pressure vessels. The joint venture, Reflex-WellMate GmbH is developing a composite hydropneumatic pressure vessel to be manufactured and sold in Europe.
In July 1995, the Company acquired Advanced Structures, Inc. of Escondido, California, a manufacturer of composite pressure vessel housings for industrial and municipal reverse osmosis membrane systems.
In August of 1995, the Company acquired Euroimpex Srl, in Milan, Italy, a manufacturer of pressure vessels and other components for the water treatment industry.
In September of 1995, the company acquired Compool Corporation of Mountain View, California, a manufacturer of electronic controls and valves for swimming pools and spas.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
[For financial information about industry segments in which the Company is engaged in business see Item 8 Financial Statements and Supplementary Data; Note 10: Business Segment Information under Notes to Consolidated Financial statements.]
(c) NARRATIVE DESCRIPTION OF BUSINESS.
- in general
Essef Corporation designs, manufactures and markets products made from engineered plastics and specialized polymers combined with fiberglass and other reinforcing materials. Principal products in the water treatment and systems equipment segment include pressure vessels used in the treatment,
Page 4 of 68 sequentially numbered pages. storage and delivery of water. Principal products in the swimming pool and spa equipment segment include filters, heaters, pumps, underwater lights, and accessories for swimming pools and spas. The Company draws on its ability to adapt emerging technologies in plastic materials and plastic processing equipment to design and manufacture products requiring special performance characteristics such as high strength-to-weight ratios, resistance to corrosion, precise dimensional tolerances, and particular surface appearance.
The Company operates in two industry segments: 1) water treatment and systems equipment, and 2) swimming pool and spa equipment. The water treatment and systems equipment segment manufactures and markets fiberglass reinforced plastic pressure vessels and related components used in the treatment, filtration and storage of water in residential, commercial and industrial water supply systems. Additionally this segment manufactures engineered plastic vessels and accessory products for secondary containment and regulated transport of industrial and environmentally hazardous waste materials. Structural North America, Advanced Structures, ENPAC, ConRec, Hobson Brothers, Structural Europe, Euroimpex, Reflex-WellMate GmbH and Structural Iberica operate in this segment.
The swimming pool and spa equipment segment manufactures and markets filters, heaters, pumps, underwater lights, white goods, electronic controls and valves and other components for swimming pools and spas. Pac-Fab, Purex Pool Systems, Compool and Structural Europe operate in this segment.
Structural North America, Advanced Structures, ENPAC, Pac-Fab, Compool and Purex Pool Systems serve primarily the domestic and Canadian markets. Hobson Brothers serves both the domestic and international markets. Structural Europe, Euroimpex, Reflex-WellMate and Structural Iberica serve the European and other International markets. ConRec serves principally the domestic market.
-by industry segment
WATER TREATMENT AND SYSTEMS EQUIPMENT INDUSTRY SEGMENT
Principal Products
Structural North America and the Company's European subsidiaries manufacture and distribute fiberglass reinforced plastic pressure vessels for the treatment, storage and delivery of water for residential, commercial and industrial use. The Company produces two companion lines of vessels, distinguishable by design and method of construction but not by purpose or function, for sale to both the water treatment equipment and water systems equipment markets of this industry segment. The vessels comprising what has become known as the FRP product line (an acronym for fiberglass reinforced plastic) are integrally cast of a matrix of thermosetting resin and randomly laid chopped fiberglass reinforcing filaments. By contrast, the vessels comprising the newer polyglass (PolyGlass(TM)) product line are either blow-molded or rotationally cast of thermoplastic resins and then reinforced by a patterned winding of continuous fiberglass filaments.
ENPAC manufactures engineered plastic vessels and related accessory products for secondary containment and regulated transport of industrial and environmentally hazardous waste materials.
ConRec, a majority-owned joint venture of Essef Corporation, designs and markets proprietary contaminant filtration and recovery systems and hazardous
Page 5 of 68 sequentially numbered pages waste minimization systems to the electroplating, metal finishing and circuit board manufacturing industries. Operations of this company are included in the water treatment and systems equipment segment.
Hobson Brothers designs and manufactures custom blow molds which are used by its customers for processing engineered plastics in various industries. The molds are sold by inside salesmen and commissioned sales representatives. Hobson Brothers believes that it receives a significant portion of its business through referrals from plastics material suppliers.
Reflex-Wellmate GmbH is developing a composite hydropneumatic pressure vessel to be manufactured and sold in Europe.
Advanced Structures manufactures composite pressure vessel housings for industrial and municipal reverse osmosis membrane systems.
[For information relating to the amount of sales of the water treatment and systems equipment segment, see Item 8 Financial Statements and Supplementary Data; NOTE 10: BUSINESS SEGMENT INFORMATION UNDER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.]
Customers and Distribution
The Company sells water treatment products to major original equipment manufacturers (OEMs) in the United States, Canada, Europe and other International markets through salaried sales personnel. It sells water systems products through both salaried sales personnel and commissioned sales representatives to plumbing wholesalers and well system supply houses, primarily in the United States and Canada. The Company sells environmental containers and related plastic products primarily through distributors located primarily in the United States.
Competition
The Company's only major competitor in water treatment products in the United States is Park International, Inc. The Company has several competitors in Europe. The Company competes both domestically and in Europe on the basis of its more extensive product line, quality and service.
Manufacturers of steel tanks currently hold approximately 88% of the water systems market. The largest producer of steel tanks and the Company's primary competitor in these products is Amtrol, Inc. The Company believes that it competes in this market by providing its customers with better features, responsive distribution practices, and competitive pricing.
The Company is one of several manufacturers supplying vessels, the majority of which in this industry are steel, for secondary containment of environmentally hazardous waste materials. The Company competes on the basis of quality and an innovative product line.
The Company competes in the mold business with several manufacturers. The Company believes it has one of the largest blow mold manufacturing facilities in the U.S. The Company offers a full range of capabilities with a mold shop, foundry, pattern shop, engraving, CAD/CAM, and complete engineering design services, as well as the capability to sample many blow molds. The Company believes that it competes by producing high quality custom molds with technologically advanced machinery, and with on-time delivery. Page 6 of 68 sequentially numbered pages SWIMMING POOL AND SPA EQUIPMENT INDUSTRY SEGMENT
Principal Products
The Company manufactures and sells a complete line of filters, heaters, pumps, underwater lights, white goods, electronic controls, valves and other accessories for swimming pools and spas through Pac-Fab, Purex Pool Systems, Compool and through the Company's European subsidiary, Structural Europe. The Company sells its products under the Purex-Triton(TM) and Compool(TM) names.
The filters come in a range of sizes and materials to satisfy consumer needs. The filter media is sand, diatomaceous earth, or cartridge. Pumps are made in a range of sizes from 1/2 to 20 horsepower and configured for high flow or high pressure. Lights are made in a variety of wattages as well as bulb type and cord length. The heaters are gas and are available with electronic or pilot light ignition. White goods consist of skimmers, main drains, and fittings and come in a variety of configurations and sizes.
[For information relating to the amount of sales of the swimming pool and spa equipment segment, see Item 8 Financial Statements and Supplementary Data; NOTE 10: BUSINESS SEGMENT INFORMATION UNDER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.]
Customers and Distribution
In the swimming pool market, the Company sells its products primarily to distributors. Sales of spa products and jetted tub pumps are primarily to OEMs and the balance to distributors. The Company maintains a field sales organization made up of salaried territory managers, each of whom is assigned to and based in a geographic region to service customer accounts and develop business within that particular region. The Company also has two commissioned sales groups geographically disbursed in the United States and Canada.
Competition
There are eight significant competitors in the swimming pool and spa equipment market, two of which are considered by the Company to be its major competitors. The Company is a market leader in sales of in-ground pool filters and estimates that it currently sells about 9.5% of all such pool filters. The Company believes that it competes in the filter market by offering high quality products which are priced competitively.
Historically, the Company's sales of pumps have been less than its sales of filters. With the growing family of Challenger(TM) and WhisperFlo(TM) pumps, the Company now competes effectively in the pump market. In particular, the Company believes that its market presence, existing distribution channels and reputation for quality in the filter market is contributing to market penetration and increasing sales of its pumps.
SOURCES AND AVAILABILITY OF RAW MATERIALS - ALL INDUSTRY SEGMENTS
The principal material used in all segments of the Company's business, except mold making and certain of ConRec's products, is plastic resins. The Company has alternate sources for these resins and is not dependent on any single supplier. The supply of materials for making molds and the ConRec products is readily available from a number of suppliers. The Company
Page 7 of 68 sequentially numbered pages believes that it has alternate sources for substantially all other materials required for the production of its products.
BACKLOG - BUSINESS IN GENERAL
As of September 30, 1995 and September 30, 1994, the Company had a backlog of orders believed by it to be firm of approximately $7,511,000 and $7,871,000 respectively. The Company expects the backlog as of September 30, 1995 to be delivered in fiscal 1996.
SEASONALITY AND WORKING CAPITAL - BY INDUSTRY SEGMENT
Swimming pool and spa equipment experiences the greatest demand for their products during the second and third quarters of each fiscal year, when Pac-Fab, Purex Pool Systems, Compool and the Company's European subsidiaries fill approximately 60% of their orders to distributors who are increasing their inventories to meet the peak demand for swimming pool equipment in the spring and early summer months.
Because of the seasonality described above, the Company's peak demand for working capital occurs during the second and third quarters. In addition, Pac-Fab, Purex Pool Systems, Compool and Structural Europe offer their customers extended terms during this period and thereby decrease the cash flow from operations available to the Company during these quarters. The Company has historically met these needs from its revolving credit facility and income from operations. The Company expects its working capital requirements to continue to fluctuate on a seasonal basis and to be financed both from its revolving credit facility and from cash flow from operations.
ENGINEERING AND DEVELOPMENT - BUSINESS IN GENERAL
The Company believes its success is dependent upon its ability to adapt materials, machines, processes and other emerging technologies to the design and manufacture of new products and to the improvement of the performance, quality and manufactured cost of existing products. For this reason, expenditures of the Company in engineering and development have been primarily directed to the development of devices and processes and not to fundamental research.
[For expenditures on engineering and development see Item 8 Financial Statements and Supplementary Data; CONSOLIDATED STATEMENTS OF INCOME - ESSEF AND SUBSIDIARIES FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994, AND 1993; line item ENGINEERING AND DEVELOPMENT.]
PATENTS AND TRADEMARKS - BUSINESS IN GENERAL
The Company owns various trademarks, trade names and logos, the most important of which are Triton(R), Challenger(TM), Purex-Triton(TM), Codeline(TM), Purex(TM), Hatteras(R), Nautilus(R), WhisperFlo(TM), MiniMax(TM), Poly Glass(TM), and WellMate(TM). The Company owns a number of patents covering various aspects of the Company's products and manufacturing processes. Although the Company believes its patents, trademarks, trade names and logos enhance its competitive position and the name recognition of its products, the Company relies more on its reputation for quality and its relationship with customers for the maintenance and growth of its business.
Page 8 of 68 sequentially numbered pages ENVIRONMENTAL MATTERS - BUSINESS IN GENERAL
The Company's manufacturing processes, like those of the plastics industry generally, result in the generation of hazardous and other plant waste and emissions. Consequently, the Company is subject to various federal, state and local laws and regulations relating to environmental protection. The Company routinely monitors and maintains installed equipment as necessary to assure operation continuously in substantial compliance with the environmental regulations to which they are subject. All operating facilities file reports with and obtain current operating permits from appropriate governmental oversight agencies.
EMPLOYEES - BUSINESS IN GENERAL
At September 30, 1995, the Company employed 1096 persons, of whom 338 are salaried managerial, administrative and supervisory personnel. The balance are hourly personnel. Hourly employees at the Purex Pool Systems subsidiary are covered by a collective bargaining agreement. The Company has not experienced work stoppages and considers its relations with its employees to be good.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES.
[For financial information about foreign and domestic operations and export sales see item 8 Financial Statements and Supplementary Data; NOTE 10: BUSINESS SEGMENT INFORMATION under NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.]
ITEM 2.

ITEM 2. PROPERTIES.
The Company's headquarters are in Chardon, Ohio, in offices contiguous to the division operating there.
The Company conducts its manufacturing, accounting, purchasing, marketing and engineering operations at eleven facilities in the United States, one in Belgium, two in Italy and one in Wales, U.K. The Company has rented additional facilities near its Chardon, Ohio operations for use as temporary storage or operations. The table below summarizes certain information with respect to the principal facilities. The table does not include the administrative/sales office which is leased by the Company's joint venture, ConRec.
Page 9 of 68 sequentially numbered pages
Page 10 of 68 sequentially numbered pages The Company considers all of its properties, both owned and leased, together with the related machinery and equipment contained therein to be well maintained, in good operating condition, and suitable and adequate for its present and forseeable future needs.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
Certain claims, suits and complaints arising in the ordinary course of business have been filed or are pending against the Company. In the opinion of management, all such matters are adequately covered by insurance, or if not so covered are without merit or are of such a nature, or involve such sums, as not to have a significant adverse effect on the financial position of the Company or the results of its operations were they to be disposed of unfavorably.
The Company is a participating defendant under a 1985 consent decree issued in United States of America v. Chem-Dyne Corporation. This consent decree attempts to resolve conflicting claims of responsibility and provide for the cleanup of a toxic waste disposal site in Hamilton, Ohio. The Company contributed approximately $29,000 of the $23,000,000 trust established by the consent decree and paid approximately $12,000 in administrative costs associated with the suit. Although the Company remains contingently liable for any and all additional amounts that may be necessary for the cleanup of the disposal site, the Company does not believe that any significant additional expense will be incurred.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the year covered by this report.
Page 11 of 68 sequentially numbered pages PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS' MATTERS.
Essef Corporation Common Shares are listed in THE NASDAQ Stock Market under the symbol ESSF. At November 17, 1995 the outstanding common shares were held by 419 shareholders of record. There were no cash dividends declared or paid for the year ended September 30, 1995 as the company continued its policy of retaining earnings and cash for future expansion of the business. [For information in respect of the market price range see Item 8 Financial Statements and Supplementary Data; Note 13: Quarterly Information (unaudited) of Notes to Consolidated Financial statements.]
Page 12 of 68 sequentially numbered pages ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA.
The following data has been selected from the Consolidated Financial Statements of the Company and its Subsidiaries for the periods and dates indicated:
INCOME STATEMENT DATA: (Dollars in Thousands Except Per Share Data)
Page 13 of 68 sequentially numbered pages BALANCE SHEET DATA: (AT SEPTEMBER 30) (Dollars in Thousands)
(1) Average shares outstanding represents common shares outstanding plus equivalents (stock options).
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS 1995 COMPARED WITH 1994
NET SALES
Net sales of $157,507,000 increased 17.5 percent from 1994 net sales of $134,020,000. Water treatment and systems equipment segment sales increased 9.9 percent to $71,556,000 from $65,134,000 recorded in 1994. The acquisitions of Advanced Structures and Euroimpex contributed approximately 60 percent of this increase. Other contributors to the sales increase in this segment were commercial and industrial water treatment products and the Company's Hobson Brothers subsidiary. This growth was partially offset by reduced sales in the secondary containment business (ENPAC). The Company's business generated from its European subsidiary in this segment increased 19.3 percent compared with last year. Sales of the swimming pool and spa equipment segment of $85,951,000 increased 24.8 percent from $68,886,000 reported in 1994. Domestic swimming pool and spa equipment sales increased 25.3 percent over 1994, while swimming pool and spa equipment sales generated from the Company's European subsidiary increased 17.6 percent from the prior year. Purex Pool Systems (acquired in March, 1994) was the major contributor to the domestic increase. As of September 30, 1995 and 1994, the Company had a backlog of orders of approximately $7,511,000 and $7,871,000 respectively. The Company expects that the September 30, 1995 backlog will be delivered in fiscal 1996.
COSTS AND EXPENSES
Cost of sales increased from 69.6 percent to 72.5 percent. All divisions experienced increases except Structural Europe which was flat. The cost of sales increase was primarily the result of an increase in material cost and changes in product mix. Operating expenses, consisting of engineering and development, selling, and administrative expenses increased $2,751,000, but
Page 14 of 68 sequentially numbered pages as a percentage of sales decreased from 21.4 percent to 20.0 percent. The percentage of sales decrease is a result of better management of operating expenses and increased sales.
INTEREST EXPENSE
Interest expense increased by $800,000 to $2,075,000. This was primarily the result of an approximate 15 percent increase in average outstanding borrowings of the Company (for acquisition purposes) and an increase in the effective interest rate of approximately 170 basis points.
OTHER INCOME
Other income in 1995 and 1994 consists primarily of interest income received pursuant to a receivable under an Agreement for Deed.
INCOME TAXES
The Company recorded a $3,710,000 tax provision in fiscal 1995, which reflects an effective tax rate of 36.0 percent. In fiscal 1994 the Company recorded a $4,379,000 provision which represents an effective tax rate of 38.5 percent.
INCOME BEFORE EXTRAORDINARY ITEM
The Company reported income before extraordinary item of $6,591,000 compared to $6,995,000 in 1994. The change between years is a result of the addition of Purex offset by decreased income at ENPAC and increased interest expense.
NET INCOME
The Company reported net income of $7,511,000 compared to 1994 net income of $6,995,000. In addition to the items listed above, the change between years is a result of the fire in Hobson Brothers' foundry building. The excess of $1,437,000 (less related income tax of $517,000) of the insurance claim over the net book value of the Company's assets has been reflected as an extraordinary gain.
RESULTS OF OPERATIONS 1994 COMPARED WITH 1993
NET SALES
Net sales of $134,020,000 increased 28.3 percent from 1993 net sales of $104,466,000. Water treatment and systems equipment segment sales increased 10.9 percent to $65,134,000 from $58,723,000 recorded in 1993. Major contributors to the sales increase in this segment were commercial and industrial water treatment products, WellMate sales and the Company's Hobson Brothers subsidiary. This growth was partially offset by reduced sales in the secondary containment business (ENPAC). The Company's business generated from its European subsidiary in this segment was flat compared with 1993. Sales of the swimming pool and spa equipment segment of $68,886,000 increased 50.6 percent from $45,743,000 reported in 1993. Domestic swimming pool and spa equipment sales increased 54.6 percent over
Page 15 of 68 sequentially numbered pages 1993, while swimming pool and spa equipment sales generated from the Company's European subsidiary increased 10.8 percent from the prior year. In March, 1994, the Company acquired the assets and assumed certain liabilities of Purex Pool Systems, Inc. (Purex). Without the impact of the Purex sales, the swimming pool and spa equipment segment sales would have increased 16.4 percent. As of September 30, 1994 and 1993, the Company had a backlog of orders believed by it to be firm of approximately $7,871,000 and $5,090,000 respectively.
COSTS AND EXPENSES
Cost of sales decreased from 69.9 percent to 69.6 percent. Improvements occurred at Pac-Fab and Hobson due to increased sales which resulted in better utilization of fixed costs. This was partially offset by a shift in product mix with a higher cost of sales for products sold at Structural North America and Purex. Operating expenses, consisting of engineering and development, selling and administrative expenses, increased $4,296,000, but as a percentage of sales decreased from 23.4 percent to 21.4 percent. In fiscal 1993 a non-recurring charge was incurred for an arbitration award and a severance package for the Company's European managing director. While no such non-recurring charge was incurred in fiscal 1994, additional engineering and development expenses related to new product development and a new marketing program in the domestic swimming pool business, and the addition of Purex expenses exceeded the 1993 non-recurring charge.
INTEREST EXPENSE
Interest expense increased by $111,000 to $1,275,000. This was primarily the result of an approximate 9.3 percent increase in average outstanding borrowings of the Company, caused by the acquisition of Purex, and a slight increase in the effective interest rate.
OTHER INCOME
Other income in 1994 and 1993 consists primarily of interest income received pursuant to a receivable under an Agreement for Deed.
INCOME TAXES
The Company recorded a $4,379,000 tax provision in fiscal 1994, which reflects an effective tax rate of 38.5 percent. In fiscal 1993 the Company recorded a $527,000 provision. This provision reflected tax expense in the Company's international operations and state tax provisions related to certain of the Company's domestic operations. Net book operating loss carryforwards of approximately $5.4 million were used during fiscal 1993 to offset approximately $1.8 million of U.S. tax provision.
NET INCOME
The Company reported net income of $6,995,000 as compared to a 1993 net income of $6,173,000. The change between years is a result of increased sales and income from operations offset by an increase in the effective tax rate.
Page 16 of 68 sequentially numbered pages
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $21,423,000 at September 30, 1995 compared to $18,212,000 at September 30, 1994, and the ratio of current assets to current liabilities decreased to 1.76 to 1.00 from 2.00 to 1.00. The increase in working capital is due primarily to an increase in accounts receivable, inventories and prepayments offset by an increase in notes payable, accounts payable and accrued expenses. These increases are primarily due to the acquisitions of Advanced Structures, Inc., Euroimpex and Compool. Capital expenditures for fiscal 1995 totaled $8,387,000 compared to $4,906,000 in fiscal 1994, and were funded from net income, depreciation and borrowing. The difference in capital expenditures relates to building renovations, investment in tooling for new and existing products and capital expenditures associated with Purex which was acquired in March, 1994. The Company has a revolving loan, acquisition-related line of credit and term loan facility providing a maximum availability of $53 million through its bank group. In addition, the Company's Belgium subsidiary has a line of credit available of $8.5 million. As of September 30, 1995, approximately $39.4 million is available under these facilities. Management expects that cash generated from operating activities and its borrowing capacity will be sufficient to meet its current obligations, to fund current operating and capital requirements and finance future growth.
The Company is involved in various claims and lawsuits incidental to its business, including product liability claims which are covered by insurance and for which the self-insured deductible per claim has over the past several years ranged from a low of $75,000 to its current level of $275,000. Although the Company believes that its' reserves, approximately $748,000 as of September 30, 1995, are adequate, a significant increase in the aggregate amount of claims could have an adverse effect on the deductible level or upon the Company's ability to obtain product liability coverage for certain product lines. Management is addressing this issue in various ways and is reasonably confident, but cannot guarantee, that the situation will be managed with no material adverse impact on the Company. As of the end of September 1995, the Company had foreign assets of approximately $18 million principally located in Belgium and Italy. The assets were converted at year end using a U.S. dollar exchange rate that was 8.6% lower than at September 30, 1994.
DIVIDENDS
The Company intends to continue its policy of retaining earnings and cash for the future expansion of the business.
Page 17 of 68 sequentially numbered pages ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CONSOLIDATED STATEMENTS OF INCOME ESSEF CORPORATION AND SUBSIDIARIES For the Years Ended September 30, 1995, 1994, and 1993 (Dollars in Thousands Except Per Share Data)
See Notes to Consolidated Financial Statements
Page 18 of 68 sequentially numbered pages CONSOLIDATED BALANCE SHEETS ESSEF CORPORATION AND SUBSIDIARIES September 30, 1995 and 1994 (Dollars in Thousands)
See Notes to Consolidated Financial Statements
Page 19 of 68 sequentially numbered pages CONSOLIDATED BALANCE SHEETS ESSEF CORPORATION AND SUBSIDIARIES (CONTINUED) September 30, 1995 and 1994 (Dollars in Thousands)
See Notes to Consolidated Financial Statements
Page 20 of 68 sequentially numbered pages CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ESSEF CORPORATION AND SUBSIDIARIES For the Years Ended September 30, 1995, 1994, and 1993 (Dollars in Thousands except for number of shares)
See Notes to Consolidated Financial Statements
Page 21 of 68 sequentially numbered pages CONSOLIDATED STATEMENTS OF CASH FLOWS ESSEF CORPORATION AND SUBSIDIARIES For the Years Ended September 30, 1995, 1994, and 1993 (Dollars in Thousands)
See Notes to Consolidated Financial Statements
Page 22 of 68 sequentially numbered pages CONSOLIDATED STATEMENTS OF CASH FLOWS ESSEF CORPORATION AND SUBSIDIARIES (CONTINUED) For the Years Ended September 30, 1995, 1994, and 1993 (Dollars in Thousands)
See Notes to Consolidated Financial Statements
Page 23 of 68 sequentially numbered pages NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ESSEF CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 1995, 1994, AND 1993 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Essef Corporation is the leading worldwide supplier of composite components and subsystems for the movement, storage and treatment of water. Residential, commercial, industrial, and municipal end-users rely on the Company's high-performance products for consistent and reliable results. Essef's technology produces products that are basic to almost any water treatment, filtration, or storage system. The Company reports its business in two segments: Swimming Pool and Spa Equipment, and Water Treatment and Systems Equipment.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Essef Corporation and subsidiaries (the Company). All significant intercompany items have been eliminated. Certain reclassifications have been made to prior year amounts in order to be consistent with the presentation for the current year.
REVENUE RECOGNITION
The Company recognizes revenue when products are shipped.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short term investments with initial maturities of three months or less to be cash equivalents.
DEPRECIATION AND AMORTIZATION
Depreciation is computed on the straight-line method for financial reporting purposes while accelerated methods are used for tax reporting purposes. Goodwill arising from business acquisitions is amortized on the straight-line method over forty years. The Company continually evaluates goodwill to assess recoverability.
INCOME TAXES
Effective October 1, 1993, the Company adopted the provisions of the Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires the use of the liability method of accounting for deferred taxes. SFAS No. 109 supersedes SFAS No. 96, "Accounting for Income Taxes", which the Company had adopted in the first quarter of 1992. The consolidated
Page 24 of 68 sequentially numbered pages NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ESSEF CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 1995, 1994, AND 1993
financial statements for prior years have not been restated and the cumulative effect of the accounting change was not material. The provision for income taxes includes federal, foreign, state and local taxes currently payable and those deferred because of temporary differences between financial statement and tax bases of assets and liabilities.
EARNINGS PER SHARE
The computation of earnings per share is based on the weighted average number of outstanding common shares and equivalents (stock options) during the periods. Average shares outstanding for the purpose of calculating earnings per share were 5,831,098 in 1995, 5,742,705 in 1994, and 5,713,763 in 1993.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign subsidiaries are translated at current exchange rates and the results of operations are translated at the average exchange rates during the periods. Adjustments resulting from these translations are recorded as a separate component of Shareholders' Equity.
NOTE 2: INVENTORIES
Inventories are stated at the lower of cost or market. The majority of domestic inventories are valued using the last-in, first-out (LIFO) method and the balance of the Company's inventories are valued using the first-in, first-out (FIFO) method.
Inventories are valued as follows:
(dollars in thousands)
Page 25 of 68 sequentially numbered pages NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ESSEF CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 2: INVENTORIES (CONTINUED)
NOTE 3: ACCRUED EXPENSES
The following components of accrued expenses were in excess of 5% of total current liabilities: (dollars in thousands)
NOTE 4: NOTE RECEIVABLE UNDER AGREEMENT FOR DEED
The Company has restructured the original Agreement for Deed which was for the sale of the remaining assets of Fame Plastics, Inc., now known as Sanford Technology Corporation, to Apogee Plastics. Subsequent to the sale of Fame, Apogee Plastics was acquired by Apogee Acquisition Corporation which acquired and assumed all rights and obligations of Apogee Plastics under the Agreement for Deed. Simultaneously with the assumption, the face value of the note was reduced to $4.6 million, a payment for $.75 million was then made to reduce the receivable to $3.85 million. The receivable bears interest at 10% and requires interest payments from April 1, 1995 through March 1, 1996, at which time a $.25 million principal payment is due. Interest and principal payments, based on a 15 year amortization, are required monthly beginning April 1, 1996 through and including February 1, 2000. On March 1, 2000 there shall be due and payable a final payment in an amount equal to the entire unpaid principal balance and all unpaid accrued interest. Under the Agreement for Deed, conveyance of title to the buyer will occur upon full payment of the $3.85 million receivable. Until such time, title remains with the Company.
Page 26 of 68 sequentially numbered pages NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ESSEF CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 5: FINANCIAL INSTRUMENTS
The Company has financial instruments which consist primarily of cash and cash equivalents, accounts receivable, a receivable under an agreement for deed, notes payable and long-term debt. The Company has determined that the estimated fair value of its financial instruments approximates carrying value. At September 30, 1995 the Company held no derivative financial instruments.
NOTE 6: LONG-TERM DEBT
The Company and its bank group have an unsecured $33,000,000 revolving loan, an acquisition-related line of credit in the maximum aggregate amount of $10,000,000, and an additional term loan facility in the maximum aggregate amount of $10,000,000. There are no outstanding borrowings on the acquisition-related line of credit at September 30, 1995. The revolving loan extends through January 31, 1997 and may be extended in one year increments with the approval of the bank group. The term loan is payable in equal quarterly installments using a seven year amortization schedule with the unpaid principal balance outstanding due January 31, 1997. Interest rates for the revolving loan, acquisition-related line of credit, and term loan are based on increments over the lead bank's base lending rate or LIBOR rate at the Company's option. A 3/8 percent commitment fee is payable on the unused portion of the revolving loan and the acquisition-related line of credit.
The Company's Belgium subsidiary has a line of credit available of approximately $8.5 million. There are no outstanding borrowings as of September 30, 1995. In addition, a note payable of $3.75 million is outstanding related to the acquisition of a subsidiary and is due January 31, 1996. Interest is charged at a rate of 8% annually.
The Company is in compliance with all of its covenants under the credit facility. As of September 30, 1995, interest rates for the revolving debt and the term loan ranged from 7.25% to 8.75%. The long term debt balances are as follows: (dollars in thousands)
September 30, 1995 1994 -------------------------- Term loan $ 8,214 $ 9,643 Revolving credit agreement 13,900 8,000 Other loans 5,579 39 -------------------------- 27,693 17,682 Less current maturities 5,272 1,436 -------------------------- $22,421 $16,246 ==========================
Page 27 of 68 sequentially numbered pages NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ESSEF CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 1995, 1994, AND 1993
Future maturities of long-term debt at September 30, 1995 are $5,272 in 1996 and $22,421 in 1997.
NOTE 7: INCOME TAXES
During 1994, the Company adopted the provisions of the Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 supersedes SFAS No. 96, "Accounting for Income Taxes," which the Company adopted in the first quarter of 1992. The consolidated financial statements for prior years have not been restated and the cumulative effect of the accounting change was not material. The provision for income taxes is calculated based upon the following components of income before taxes:
(dollars in thousands) September 30, 1995 1994 1993 ----------------------------------------------- Domestic $ 8,393 $10,225 $6,056 Foreign 1,908 1,149 644 ----------------------------------------------- $10,301 $11,374 $6,700 ===============================================
The significant components of the provision for income taxes are as follows: (dollars in thousands) September 30, 1995 1994 1993 --------------------------------------- Current Federal $2,485 $3,369 $ 37 Foreign (311) 313 322 State 226 603 198 --------------------------------------- Total Current $2,400 $4,285 $ 557 ---------------------------------------
Deferred Federal $1,199 $ 96 $ -- Foreign (116) (18) (30) State 227 16 -- --------------------------------------- Total Deferred 1,310 94 (30) --------------------------------------- $3,710 $4,379 $ 527 =======================================
Page 28 of 68 sequentially numbered pages NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ESSEF CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 1995, 1994, AND 1993 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows: (dollars in thousands)
The consolidated tax provision differs from the tax provision computed at statutory United States tax rates for the following reasons: (dollars in thousands)
Page 29 of 68 sequentially numbered pages NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ESSEF CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 8: LEASES
The Company leases some of its facilities and equipment. Total rental expenses were $982,000, $945,000, and $801,000 in 1995, 1994, and 1993, respectively.
Minimum annual rental commitments for the next five years under non-cancelable operating leases at September 30, 1995, are as follows: (dollars in thousands) 1996 $1,585 1997 1,146 1998 817 1999 261 2000 220
NOTE 9: RETIREMENT AND DEFERRED COMPENSATION PLANS
The Company has a qualified defined contribution retirement plan covering substantially all of its employees. The plan provides for an annual basic contribution by the Company equal to 2% of each participant's compensation (which is fully vested), a discretionary contribution (which is fully vested after seven years), and a matching contribution (which is fully vested). Total Company contributions were approximately $1,211,000, $1,070,000, and $892,000 for the years ended September 30, 1995, 1994, and 1993, respectively.
The Company has a deferred compensation plan for executive officers. At September 30, 1995 and 1994, liabilities of approximately $576,000 and $501,000, respectively, have been recorded in other long-term liabilities. The Company has a non qualified retirement plan for its Board of Directors. At September 30, 1995 and 1994, liabilities of approximately $375,000 and $420,000, respectively, have been recorded in other long-term liabilities.
NOTE 10: BUSINESS SEGMENT INFORMATION
By Industry--The Company operates in two industry segments: water treatment and systems equipment, and swimming pool and spa equipment. The water treatment and systems equipment segment manufactures products for moving, storing and treating water in residential, commercial, industrial and municipal water supply systems. This segment also manufactures products for the transport and containment of hazardous and industrial waste materials, as well as molds and tools used in the plastic blow molding industries. Swimming pool and spa equipment operations include pumps, filters, heaters, lights, and components for swimming pools and spas.
Page 30 of 68 sequentially numbered pages NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ESSEF CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 10: BUSINESS SEGMENTS (CONTINUED)
The following table contains a summary of information of each industry segment. The principal corporate assets are cash and cash equivalents, and a receivable under agreement for deed, neither of which is included as an asset in an industry segment. (dollars in thousands)
Page 31 of 68 sequentially numbered pages NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ESSEF CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 10: BUSINESS SEGMENTS (CONTINUED)
Page 32 of 68 sequentially numbered pages NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ESSEF CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 10: BUSINESS SEGMENT INFORMATION (CONTINUED)
By Geographic Area--Operations of the Company are located in the United States and Europe. The following table contains a summary of activity by geographic area. (dollars in thousands)
Page 33 of 68 sequentially numbered pages NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ESSEF CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 11: CAPITAL STOCK AND STOCK OPTION PLAN
The Company has 1,000,000 Serial Preferred Shares authorized, none of which have been issued. When issued, each of such shares would have one vote, and in special situations the Serial Preferred Shares would vote in a class separate from the Company's common shares. The Board of Directors is authorized to establish the dividend rates, cumulative rights, redemption prices, sinking fund provisions and conversion rights of the Serial Preferred Shares.
The Company has a stock option plan for employees granting ten year options for the purchase of up to 500,000 common shares of the Company and the granting of stock appreciation rights. Options may be exercised partially during the first three to five years from the date of grant, and in whole or in part thereafter. The outstanding options expire at various dates through the year 2005. Activity in the stock option plan is as follows:
In addition to the options shown above, in 1990, the company granted options to purchase 971,800 common shares at $2.00 per share. These options expire ten years from the date of grant and are fully vested. None of these options have been exercised. Additionally, in 1994 and 1995, the Company granted certain officers options to purchase 150,000 and 25,000 common shares. These options shall vest based on attainment of specified financial ratios and expire 10 years from the date of grant.
Page 34 of 68 sequentially numbered pages NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ESSEF CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 11: CAPITAL STOCK AND STOCK OPTION PLAN (Continued)
In October 1995, the Financial Accounting Standards Board issued Statement of Financial Standards No. 123, "Accounting for Stock-Based Compensation," which requires adoption no later than fiscal years beginning after December 15, 1995. The new standard defines a fair value method of accounting for stock options and similar equity instruments. Companies are also permitted to continue to account for such transactions under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," with certain other disclosures.
The accounting requirements of the new method are effective for all employee awards granted after the beginning of the fiscal year of adoption. The Company has not yet determined if it will elect to change to the fair value method, nor has it determined the effect the new standard will have on net income and earnings per share should it elect to make such a change. Adoption of the new standard will have no effect on the Company's cash flows.
Page 35 of 68 sequentially numbered pages NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ESSEF CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 12: QUARTERLY INFORMATION (UNAUDITED) (Dollars in Thousands Except Share Data)
(a) The prices in this table, representing the high and low "Bid" prices, have been supplied to the Company by The National Association of Securities Dealers, Inc. These prices reflect quotations between dealers which do not include mark-ups, mark-downs, or commissions, and may not be actual transactions.
(b) The total of the earnings per share for each quarter does not equal the earnings per share for the full year, either because the calculations are based on the weighted average shares outstanding during each of the individual periods, or due to rounding.
Note: The quoted market price of the Company's common share was $17.875 at the close of business on November 17, 1995.
Page 36 of 68 sequentially numbered pages NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ESSEF CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 13: BUSINESS ACQUISITIONS
On July 21, 1995, Advanced Structures, Inc. of Escondido, California, a manufacturer of composite pressure vessel housings for industrial and municipal reverse osmosis membrane systems, was merged into a wholly-owned subsidiary of the Company. On August 4, 1995, the Company acquired certain assets and assumed certain liabilities of Euroimpex Srl, in Milan, Italy, a manufacturer of pressure vessels and other components for the water treatment industry. On September 1, 1995, the Company acquired certain assets and liabilities of Compool Corporation of Mountain View, California, a manufacturer of electronic controls and valves for swimming pools and spas. The Company paid approximately $13 million in cash, Essef Common Stock, and notes payable for these companies. The purchase price was allocated to the assets and liabili-ties based on their estimated fair values as of the date of acquisition. Under earn-out agreements related to these acquisitions, additional amounts are contingent on the acquired companies reaching certain profitability goals through September 30, 2000. Any such payments will be accounted for as additional cost in excess of net assets acquired in the year earned.
On March 7, 1994 the Company acquired certain assets and assumed certain liabilities of the Purex Pool Products Division of Hydrotech Chemical Corporation, a subsidiary of Great Lakes Chemical Company for approximately $13.6 million. Purex is a manufacturer of filters, pumps, lights, and heaters for swimming pools and spas.
All of the acquisitions were accounted for as purchases and the results of operations have been included in the Company's results since acquisition. The cost in excess of net assets acquired is amortized on a straight line basis over forty years.
The following unaudited proforma consolidated results of operations give effect to the above acquisitions as though they were acquired at the beginning of each period shown. The proforma information has been presented for comparative purposes only and does not purport to be indicative of what would have occurred had the acquisitions been made at the beginning of the earliest period presented, or of results which may occur in the future.
Page 37 of 68 sequentially numbered pages NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ESSEF CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 1995, 1994, AND 1993
NOTE 13: BUSINESS ACQUSITIONS (CONTINUED)
(Unaudited) (Dollars in Thousands Except Per Share Data)
On December 1, 1994, the Company signed a joint venture agreement with a German manufacturer and distributor of metal hydropneumatic pressure vessels. The joint venture, Reflex-WellMate GmbH is developing a composite hydropneumatic pressure vessel to be manufactured and sold in Europe. The Company's interest in the joint venture is being accounted for using the equity method of accounting. At September 30, 1995 the Company had made investments and advances of approximately $1.57 million to the joint venture, $.66 million of which are included in other current assets. During 1995, the Company had no equity income from the investment.
NOTE 14: EXTRAORDINARY ITEM
In February, 1995, Hobson Brothers, a subsidiary of the Company, suffered a major fire in their foundry building. All assets destroyed were insured and the Company has settled its claim with the carrier. The excess of $1,437,000 (less related income tax of $517,000) of the insurance claim over the net book value of the Company's assets has been reflected as an extraordinary gain. Additionally, proceeds of $200,000 were included in operating income to offset fire-related business interruption costs.
Page 38 of 68 sequentially numbered pages INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS,
We have audited the accompanying consolidated balance sheet of Essef Corporation and Subsidiaries as of September 30, 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended. Our audit also included the Financial Statement Schedule listed in the index at Item 14(a)(2). These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. The financial statements of the Company for the years ended September 30, 1994 and 1993 were audited by other auditors whose report, dated November 4, 1994, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial statement schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the financial position of the Company at September 30, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Also in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
Deloitte & Touche LLP
Cleveland Ohio November 10, 1995
Page 39 of 68 sequentially numbered pages REPORT OF MANAGEMENT
The Management of Essef Corporation is responsible for the preparation and accuracy of the financial statements and other information included in this report. The financial statements have been prepared in accordance with generally accepted accounting principles using, where appropriate, management's best estimates and judgement.
In meeting its responsibility for the reliability of the financial statements, the Company depends upon its system of internal accounting controls. The system is designed to provide reasonable assurance that assets are safeguarded and that transactions are properly authorized and recorded. The system is supported by policies and guidelines, and by careful selection and training of financial management personnel.
The Company's independent public accountants, Deloitte & Touche LLP, are retained to audit Essef Corporation's financial statements. Their audit is conducted in accordance with generally accepted auditing standards and provides an independent assessment that helps ensure fair presentation of the Company's financial statements.
The Board of Directors meets its responsibility for overview of the Company's financial statements through its Audit Committee which is composed entirely of Directors who are neither officers nor employees of the Company.
The Audit Committee meets periodically with Management and with the independent public accountants to review and assess the activities of each in meeting their respective responsibilities. The independent public accountants have full access to the Audit Committee to discuss the results of their audit work, the adequacy of internal accounting controls, and the quality of financial reporting.
Thomas B. Waldin President and Chief Executive Officer
Theodore A. Havens Vice President, Chief Financial Officer and Treasurer
Page 40 of 68 sequentially numbered pages ITEM 9.

ITEM 9.DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None
Page 41 of 68 sequentially numbered pages
PART III
ITEM 10.

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Identification of Directors
[For identity of directors and director-nominees including age, business experience, positions held and other relevant information see Essef Corporation - Proxy Statement - December 22, 1995; (definitive proxy statement filed with the Commission pursuant to Regulation 14A) under the headings NOMINATION AND ELECTION OF DIRECTORS, NOMINEE AND DIRECTORS, on pages 2-4 and DIRECTORS' COMMITTEES, MEETINGS AND FEES on page 5; incorporated herein by this reference].
(b) Identification of Executive Officers
The persons named below are the executive officers of the Company at the date hereof. Messrs. Waldin, Ross, Hornick and Havens were elected to their current positions at the Annual Meeting of Directors held January 25, 1995. All serve at the pleasure of the Board of Directors; otherwise all terms expire with the Annual Meeting of Directors to be held January 23, 1996. Mr Britelle was elected to his current position by the Board of Directors of Pac-Fab, Inc. at a meeting held on January 25, 1995.
Page 42 of 68 sequentially numbered pages Thomas B. Waldin has been Chief Executive Officer of the Company since his appointment on October 26, 1990, and President and a Director since his appointment and election January 31, 1991. Since 1977, Mr. Waldin has been active as an investor in and director of a number of small businesses. He retired in 1987 as Chief Operating Officer of USG Interiors, Inc., and Chief Executive Officer of Donn, Inc. The former is a unit of USG Corporation, a worldwide manufacturer and distributor of building products, created in connection with the acquisition of Donn, Inc. in 1986.
Elliot B. Ross has been Executive Vice President and Chief Operating Officer of the Company since January 31, 1994. Prior to joining the Company, Mr. Ross was the co-chairman of Inverness Partners and Inverness Casting Group. Prior to founding Inverness, he spent 14 years as a member and partner in the Cleveland office of McKinsey & Company.
Theodore A. Havens has been Vice President, Chief Financial Officer and Treasurer of the Company since September 1994. Prior to that, Mr. Havens had served in various positions since joining the Company in 1977. Most recently, he was the Vice President of Purex Pool Systems and the Assistant Treasurer and Controller of Pac-Fab, Inc.
Gerald C Hornick has been a Vice President of the Company since 1970 and has served as Chief Operating Officer of Structural North America since 1985, and as President since January, 1991. He has been Assistant Treasurer of Essef Corporation since 1988.
Douglas J. Britelle came to Pac-Fab from General Electric where he served in a variety of assignments since 1971. Most recently, he served as General Manager of G.E's Apparatus Service Business headquartered in Schenetady, New York. Prior to that, he was General Manager of G.E's Transformer Business headquartered in Hickory, North Carolina from 1983 to 1992.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION.
[For information relating to compensation of executive officers and directors see Essef Corporation - Proxy Statement - December 22, 1995; under the headings DIRECTORS' COMMITTEES, MEETINGS AND FEES on page 5, and EXECUTIVE COMPENSATION on page 6; incorporated herein by this reference].
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
[For information relating to security ownership of certain beneficial owners and management see Essef Corporation - Proxy Statement - December 22, 1995; under the heading BENEFICIAL OWNERSHIP OF SHARES appearing on pages 12-14; incorporated herein by this reference].
Page 43 of 68 sequentially numbered pages ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
[For information regarding related transactions see Essef Corporation - Proxy Statement - December 22, 1995; under the heading BENEFICIAL OWNERSHIP OF SHARES on pages 12-14; incorporated herein by this reference].
Page 44 of 68 sequentially numbered pages PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a) 2. Financial Statement Schedules
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993 (Dollars in Thousands)
(A) Uncollectible accounts charged off, less recoveries, foreign currency translation adjustments and acquisition costs.
All other schedules are omitted either because they are not applicable or the required disclosure information is included in the consolidated financial statements or notes thereto.
Page 45 of 68 sequentially numbered pages a) 3. Exhibit List
Page 46 of 68 sequentially numbered pages
Page 47 of 68 sequentially numbered pages
(b) There were no reports filed on Form 8-K during the last quarter of fiscal year ended 1995.
Page 48 of 68 sequentially numbered pages SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Essef Corporation
By THEODORE A. HAVENS -----------------------
Theodore A. Havens Vice President, Chief Financial Officer and Treasurer
December 22, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title - --------- -----
THOMAS B. WALDIN Chief Executive Officer - ------------------- (Principal Executive Officer) Thomas B. Waldin
THEODORE A. HAVENS Vice President, Chief Financial Officer - ------------------- and Treasurer Theodore A. Havens (Principal Financial Officer)
Page 49 of 68 sequentially number pages
Signature Title - --------- -----
GORDON D. HARNETT Director - ------------------------- Gordon D. Harnett
CHARLES W. W. HORNER Director - ------------------------- Charles W. W. Horner
GEORGE M. HUMPHREY, II Director - ------------------------- George M. Humphrey, II
MARY ANN JORGENSON Director - ------------------------ Mary Ann Jorgenson
RALPH T. KING Director - ------------------------ Ralph T. King
ELLIOT B. ROSS Director - ------------------------ Elliot B. Ross
Date: December 22, 1995
Page 50 of 68 sequentially numbered pages
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995 Commission File No. 0-15902
_____________
Essef Corporation
EXHIBIT VOLUME
Page 51 of 68 sequentially numbered pages
Essef Corporation 1995 Form 10-K Annual Report
Exhibit Volume - Table of Contents
Exhibits filed with and sequentially numbered as part of the report
Page 52 of 68 sequentially numbered pages