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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: MARCH 31, 19961997 COMMISSION FILE NUMBER: 1-10728
UNITED STATES FILTER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0266015
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
40-004 COOK STREET, PALM DESERT, CA 92211
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 340-0098
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
(TITLE OF EACH CLASS)DELAWARE 33-0266015
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
40-004 COOK STREET, PALM DESERT, CA 92211
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (760) 340-0098
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
4 1/2% CONVERTIBLE SUBORDINATED NOTES NEW YORK STOCK EXCHANGE
DUE 2001 (NAME OF EACH EXCHANGE ON WHICH
(TITLE OF EACH CLASS) REGISTERED)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X[X] No The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 5, 1996 was approximately $997,849,707. The number of
shares of Common Stock outstanding on June 5, 1996 was 29,134,298 shares.
Documents incorporated by reference:
1. Notice of 1996 Annual Meeting and Proxy Statement (Part III of Form 10-
K).[_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant'sregistrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
- -------------------------------------------------------------------------------The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 23, 1997 was approximately $2,167,988,924.
The number of shares of Common Stock outstanding on June 23, 1997 was
80,377,604 shares.
Documents incorporated by reference:
Notice of 1997 Annual Meeting and Proxy Statement (Part III of Form 10-K).
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PART I
ITEM 1--BUSINESS
GENERAL
United States Filter Corporation (the "Company") is a leading global
provider of industrial and commercialmunicipal water and wastewater treatment systems,
products and services, with an installed base of more than 100,000 systems that the Company
believes is one of the largest worldwide. The Company offersis also a single-source solution to its industrial, commercial and municipal
customers through what the Company believes to be the industry's broadest
range of cost-effective water treatment systems, services and proven
technologies. The Company capitalizes on its substantial installed base to
sell additional systems and utilizes its global network of 125 sales and
service facilities, including 21 manufacturing plants, to provide customers
with ongoing service and maintenance. In addition, the Company is a leading
international
provider of service deionization ("SDI") and outsourced water services,
including the operation of water purification and wastewater treatment systems at customer
sites. See "--Principal ProductsIt is actively involved in the development of privatization initiatives
for municipal wastewater treatment facilities in the United States, Mexico and
Services."Canada. The Company sells equipment and provides services to its customers
through more than 450 locations throughout the world. The Company also markets
a broad line of water distribution and sewer and stormwater equipment and
supplies through a network of over 110 service centers in the United States.
In addition, the Company sells, installs and services a wide range of water
treatment and water-related products for the residential and consumer markets.
The Company's principal executive offices are located at 40-004 Cook Street,
Palm Desert, California 92211 and its telephone number is (619)(760) 340-0098. References hereinIn
this report, references to the Company or U.S. Filter shall mean United States
Filter Corporation and its subsidiaries, unless the context requires
otherwise.
The Company has, since 1991, acquired and successfully integrated more than
4075 United States based and international businesses with strong market
positions and substantial water treatment expertise.businesses. These acquisitions have
enabled the Company to expand significantly the segments of the water and
wastewater treatment industry in which it participates, to enter into
additional geographic areas and serve additional industries, municipalities,
governments and other customers and to expand its installed base, service
network and range of products and technologies. The Company intends to
actively seek additional acquisitions that enhance its geographic network,
customer base, and range of product offerings, technologies, markets and
industries served. FollowingThe significant businesses acquired by the Company since
March 31, 1995,1996 are described below.
PED. On January 6, 1997, the Company acquired the 14Process Equipment Division
("PED") of United Utilities Plc for approximately $166 million in cash,
including acquisition costs, and 1,320,312 shares of Common Stock of the
Company, subject to post-closing adjustments. The acquisition of PED provides
the Company with a significant manufacturing and distribution presence in the
municipal market for wastewater treatment equipment and systems, principally
in Europe and North America. PED's principal business units include Envirex, a
leading manufacturer of wastewater treatment equipment; General Filter, a
world leader in potable water treatment systems; Wallace & Tiernan, a world
leader in the manufacture of water and wastewater disinfection systems and
components; and Edward & Jones and Asdor, which design and manufacture
biosolids handling equipment.
WSMG. On December 2, 1996, the Company acquired the Water Systems and
Manufacturing Group ("WSMG") of Wheelabrator Technologies Inc. ("WTI") for
approximately $374 million in cash, including acquisition costs. The
acquisition of WSMG added to the Company's technological capabilities and
product offerings, particularly in the municipal and industrial wastewater
markets. WSMG products and systems are sold under brand names such as
Microfloc(TM), IX/ER(R), Totaltreat(TM), Memclean(TM), EVAP(TM), RMS(TM) and
ACMS(TM), and include such businesses described
below, enhancing itsas HPD, CPC, Rossmark, Darchet, Johnson
Screens and Westates Carbon. With close to half of WSMG's 1995 revenues
generated outside North America, principally in Europe and Asia, this
acquisition also expanded the Company's engineering and manufacturing
salescapabilities in those markets.
Distribution Businesses. Beginning in August 1996, the Company acquired four
businesses engaged primarily in marketing a broad line of water distribution
and service capacity. In addition,
as partsewer and stormwater collection equipment and supplies purchased from
independent manufacturers and suppliers, including underground pipe, pipe
fittings, valves, fire hydrants, water meters and related equipment. The
companies acquired were Davis Water and Waste
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Industries, Inc. ("Davis"), WaterPro Supplies Corporation ("WaterPro"), The
Utility Supply Group, Inc. ("USG"), and Sidener Supply Company ("Sidener").
These businesses serve customers in the continental United States and Mexico
through a total of more than 110 distribution facilities located in 29 states.
Another Davis unit added to the Company's capabilities in the design and
manufacture of wastewater treatment equipment. The Company issued a total of
10,417,194 shares of Common Stock in connection with these acquisitions.
EOS. On April 1, 1997, the Company acquired the contract operations and
privatization businesses ("EOS") of WTI for 2,291,059 shares of the Company's
effortsCommon Stock. EOS provides water and wastewater treatment maintenance and
operation services pursuant to becomeapproximately 130 contracts. In addition, EOS
is active in the development of privatization initiatives for municipal water
and wastewater treatment facilities. In 1995 EOS became the first company in
the United States to acquire a direct distributorpublicly-owned wastewater treatment plant
pursuant to Executive Order 12803. This plant is located in Franklin, Ohio.
U.S. Water. On April 11, 1997, the Company acquired United States Water
Company, Inc. ("U.S. Water"), a network of standard20 service branches located
primarily in the midwestern United States serving the residential and
commercial water treatment systemsmarkets. The Company issued an aggregate of 493,077
shares of Common Stock in the acquisition of U.S. Water, subject to post-
closing adjustment. The acquisition of U.S. Water's service network provides
the Company with a strong entry into the residential market for bottled water,
water softeners and whole-house and household point-of-use water treatment
products and systems.
In addition, since March 31, 1996, the Company has acquired a variety of
other businesses, principally in the water and wastewater treatment industry,
including a number of manufacturers of wastewater treatment equipment; a
wastewater treatment engineering company; European and United States
manufacturers and distributors of surface cleaning and preparation equipment;
a resource recovery business located in Los Angeles, California; a total of 16
SDI, including 12 distributors of the Company's Continental product line of
pre-engineered deionization systems, located in Alabama, Arkansas, Colorado,
Georgia,Florida, Illinois, Kansas, Louisiana, Minnesota, New Mexico, Oklahoma,
Tennessee Texas and WashingtonTexas; and a number of small bottled water businesses for the
individual consumer market.
THE WATER TREATMENT INDUSTRY
Global population growth, economic expansion, scarcity of available water
resources, heightened public concern about water quality and growing
regulatory and legislative requirements have resulted in the continued growth
in demand for water and wastewater treatment. In addition to the need for
potable water, industrial companies require treated water for most
manufactured products, whether as an additional distributorshipingredient in Texas.
U.S. Filter/Zimpro. The Company acquired Zimpro Environmental, Inc.
("Zimpro") on May 31, 1996 for approximately $18.0 million, all of which was
paid in sharesthe finished product or as
part of the Company's Common Stock,manufacturing process. Accordingly, most manufacturers utilize
water treatment systems to purify their incoming, or "process", water. Public
water departments and liquidated existing
indebtednessprivate water companies, responsible for providing
potable water, employ water treatment technology to certain Zimpro shareholders by delivery of 114,994 sharespurify their water supply.
Furthermore, government regulations require most industrial companies and
municipalities to treat their outgoing wastewater.
Customers of the Company's Common Stockwater and $1.0 millionwastewater treatment industry can be classified
into three broad categories: (i) industrial and commercial businesses, which
include companies in cash. Zimpro, based in
Rothschild, Wisconsin,such markets as pharmaceuticals, microelectronics,
automotive, power generation, chemical processing, oil and metal finishing;
(ii) municipal and private suppliers of public water and wastewater services;
and (iii) individual consumers of bottled water, household point-of-use
products, such as domestic filtration systems and parts, and water softening
and conditioning equipment.
INDUSTRIAL AND COMMERCIAL USERS
Industrial and commercial users have a significant need for treated water
because it is a leading manufacturernecessary component in many products and industrial and other
processes. The quality of water varies dramatically across geographic regions,
and water contains impurities that, if untreated, can render it effectively
useless for most
3
industrial purposes. The use of untreated water in manufacturing processes can
result not only in inconsistent product quality, but also in substantial
equipment degradation, which can lead to costly maintenance or replacement
costs. Consequently, most manufacturers treat their process water in order to
maintain a consistently acceptable degree of purity. For example, treated
water is an integral component of many consumer goods and is used in the
manufacture of pharmaceutical products, microelectronics and chemicals. Food
and beverage manufacturers require water with consistent quality to preserve
uniformity of taste and appearance in their products. As a result of these
process specifications, industrial customers often require a broad range of
treatment technologies to treat their process water.
In addition to treating their process water to ensure product quality,
industrial users are often required to treat their wastewater. Government
regulations regarding the disposal of aqueous industrial waste, combined with
public concern regarding industrial pollution, have led to increased awareness
on the part of businesses and public utilities as to the benefits of
wastewater treatment and waste minimization. In response to higher water
prices and rising wastewater discharge fees, industrial manufacturers have
also become aware of the cost-effectiveness of recycling their wastewater. As
a result of these factors, industrial companies increasingly require complex
systems and equipment to treat and recycle process water and wastewater.
MUNICIPAL USERS
Public awareness and governmental concern regarding the increasing scarcity
of water, the quality of drinking water, and the potential health hazards
associated with waste products discharged into the environment, have resulted
in legislation, regulation and enforcement requiring strict standards for
potable water and restrictions on the discharge of pollutants in municipal
wastewater.
The Company believes that, in many areas of the United States, aged
municipal water and wastewater treatment infrastructure is operating at or
near capacity, is in need of substantial capital expenditures and is not well-
equipped to satisfy increasing regulatory and legislative requirements. In
addition, many municipalities are experiencing reduced economic resources. The
Company believes that, as a result, many such customers are seeking innovative
solutions to their water treatment needs, such as improved technologies and
equipment, and various outsourcing and service options, such as contract
operations and privatization. Privatization involves the transfer of ownership
and operation of water and wastewater treatment facilities to companies
capable of providing such services on a long-term basis. Outside the United
States, aged infrastructure and, in many areas, underdeveloped infrastructure,
also require significant proprietary technologiescapital outlays and advanced technological approaches
to address the populations' potable water and sewage treatment needs.
INDIVIDUAL CONSUMERS
The market for individual consumers consists of bottled water, point-of-use
products, such as residential filtration systems and parts, and water
softening and conditioning equipment installed at the point of entry to a
household water system. Consumers' needs vary by geographic location as a
result of differing water qualities and level of economic development. This
segment of the industry is highly fragmented, and the Company believes there
are thousands of participants in wet air oxidation,
landfill leachatethe potable water and point-of-use products
markets.
PRODUCTS AND SERVICES
PROCESS WATER GROUP
The Company's Process Water Group provides single-source solutions for the
treatment of industrial process water and municipal drinking water through
what the Company believes to be the industry's broadest range of treatment
systems, groundwater remediation,services and proven technologies.
4
Products
The Process Water Group designs, engineers, manufactures and installs pre-
engineered and customized systems for the treatment of industrial process
water and municipal drinking water utilizing a broad range of physical,
biological and chemical treatment technologies that can be combined and
configured to meet wide-ranging customer needs. The Company's process water
systems range from a pre-packaged 0.5 liter-per-minute laboratory unit to a
custom-designed boiler feedwater system that delivers thousands of gallons of
high-purity water per minute.
The separation processes and technologies utilized by the Company in process
water treatment equipment and systems include, among others, cross-flow
filtration (including reverse osmosis, ultrafiltration and microfiltration),
media filtration (including microfiltration, particle filtration and sludge treatmentceramic
filtration), ion exchange, continuous deionization ("CDI"), electrodialysis,
carbon adsorption, biological processes, oxidation, disinfection, aeration,
coagulation, flocculation, evaporation and crystallization. The Company's
proprietary CDI process uses ion exchange resins, ion exchange membranes and
an electrical current to produce high-purity water continuously, without the
need for strong chemicals such as sulfuric acid and caustic soda required in
typical ion exchange regeneration systems. The Company's international expansion is expected to
open new markets for Zimpro's product line.
U.S. Filter/WTS.Membralox(R) ceramic
membranes used in filtration permit the achievement of selective separations
in extreme operating environments.
The Company acquired Wastewater Treatment Systems, Inc.
("WTS") on February 23, 1996 for approximately $1.8 million in cash. Prior to
its acquisition, WTS was a wholly owned subsidiary of Thameswater treatment equipment and systems sold by the Process Water PLC, from
whomGroup
are designed, engineered and assembled by the Company also purchased Permutit (Egypt) Ltd., the Permutit Groupfrom one or more pieces
of equipment and the Home/Houseman companies during fiscal 1996 (described below) and Permutit
(U.S.A.) in fiscal 1993. WTS, located in San Francisco, California, designs
and assembles wastewater treatment systems with a specialization in
microelectronics, particularly in the Asian semiconductor fabrication market.
With its expertise in acid waste neutralization and metals precipitation, WTS
is well positioned geographically and technically to complement and support
the Company's process water efforts in the microelectronics industry.
Permutit (Egypt) Ltd. Concurrently with the Company's acquisitionvariety of WTS,other components manufactured by the Company acquired Permutit (Egypt) Ltd. ("Permutit (Egypt)") for
approximately $750,000 paid entirely in cash. Located near Cairo, Permutit
(Egypt) designsor
purchased from third-party vendors. Larger industrial process water treatment
systems usedcan be trailer- or skid-mounted, or permanently installed on the
customer's premises. Turnkey systems are generally designed and installed
within 24 months following acceptance of a customer order. On such projects,
the Company typically enters into lump-sum contracts under which the Company
receives payments throughout the contract term based on a predetermined
schedule.
The Company's principal United States manufacturing facilities for the
design, engineering, fabrication and assembly of reverse osmosis, media
filtration and ion exchange process water treatment systems are located in
Rockford, Illinois; Whittier, California; Colorado Springs, Colorado;
Plantsville, Connecticut; and St. Genevieve, Missouri. These facilities
aggregate approximately 392,300 square feet, and typically include sales,
service and office space in addition to manufacturing capacity. The Company's
CDI equipment is assembled at its facility in Lowell, Massachusetts. Smaller,
standardized ion exchange water treatment systems primarily infor the Middle Eastlaboratory
and adds seawater desalination, potablemedical markets are designed, engineered and wastewater treatment technologies toassembled at the Company's
current product offerings in that area ofSan Antonio, Texas location. Laboratory and analytical testing for the world.
2
KBS PureProcess
Water Pte. Ltd.Group is done at the Rockford and KBS PureLowell facilities, and research and
development is centered at Lowell.
The Process Water Sdn. Bhd.Group also manufactures and sells replacement parts
required to support treatment systems manufactured by both the Company and, to
a limited extent, its competitors. In addition, the Company markets
consumables, such as membranes, ion exchange resin and carbon, to its
customers.
The Company acquired
KBS Pure Water Pte. Ltd.also produces and KBS Pure Water Sdn. Bhd. (together "KBS") on
February 13, 1996installs profile wire screens for $6.0 million, $3.0 million of which was paid in cashgroundwater
applications, oil and $3.0 million of which was paid in shares of the Company's Common Stock. With
manufacturinggas wells, food processing and regeneration plants in Singaporecoal/mineral processing.
These welded, continuous-slot screen products are designed and Malaysia, KBS suppliesmanufactured at
a variety of water treatment services, including SDI, water purification
equipment and wastewater equipment to microelectronics manufacturers and other
industrial customers in Asia. In connection with the acquisition of KBS, the
Company also acquired a 30,000188,783 square foot facility in Singapore to
accommodate expansion of KBSNew Brighton, Minnesota.
The Process Water Group also assembles and the Company in Asia.
Jet-Tech, Inc. The Company acquired Jet-Tech, Inc. ("Jet-Tech") on January
1, 1996 for $3.3 million in cash and $10.7 million of the Company's Common
Stock. Jet-Tech designs, manufactures and installs wastewater treatmentsells water bottling plant
equipment, including semi-automatic, adjustable fill tables, bottling
machines, injection systems for industrialminerals, chemicals and municipal users, emphasizing the use of proprietary
jet mixingflavors, and aeration technology to biologically destroy contaminants. Jet-
Tech's advanced technologies include Sequencing Batch Reactors ("SBR's")ozone and
Autothermal Thermophilic Aerobic Digesters ("ATAD's") which treat sludge and
biosolids for land application or landfilling. Jet-Tech's network of
approximately 40 U.S. and approximately 25 international manufacturers'
representatives expands the Company's distribution system and Jet-Tech's
manufacturing capabilities complement the Company's already strong
design/build capabilities in the wastewater business.
Bekox, S.A. The Company acquired Bekox, S.A. ("Bekox") of Madrid Spain in
December 1995 for approximately $6.0 million, half of which was paid in shares
of the Company's Common Stock. Bekox designs and manufactures large reverse
osmosisrepressurization post-treatment systems for industrial and commercial markets throughout Spain and
Latin America. Bekox has an installed base of over 400 systems with extensive
experiencebacterial control in brackish water and seawater desalinization.
Home/Houseman.a 4,800
square foot facility in Santa Ana, California.
Services
SDI. The Company acquired Home Waterbehandeling B.V. of the
Netherlands ("Home") and Houseman B.V. of the Netherlands, including Houseman
N.V. of Belgium (together "Houseman"), on November 10, 1995 for approximately
$10.0 million in cash from Thames Water plc. Home designs, assembles and
installs water purification and wastewater treatment systems for industrial,
commercial and hospital markets and provides SDI to companies in the
Netherlands. Houseman provides water treatment equipment, chemicals and
services to industrial users as well as specialty products and services used
in steam boilers and cooling systems for the power, petrochemical, pulp and
paper, and construction industries. These acquisitions strengthened the
Company's product and service offerings in the Netherlands and Belgium and
provided additional distribution capability for Company products manufactured
in Europe and the United States.
Polymetrics, Inc. The Company acquired Polymetrics, Inc. and subsidiaries
("Polymetrics") on October 2, 1995 for $60.2 million, subject to adjustment,
$51.7 million of which was paid in cash and the balance was paid in shares of
the Company's Common Stock. Polymetrics is a leader in the design,
manufacture, installation and service of water treatment systems for the
electronics, pharmaceutical, laboratory, power generation and cogeneration
industries. Polymetrics' locations in California, Colorado, Oregon and
Washington increase the Company's presence in the western United States.
Polymetrics also enhances the Company's customer base in the electronics
industry and complements the Company's service business, including SDI.
Interlake Water Systems. The Company acquired Continental H/2/O Services,
Inc. and Evansville Water Corporation d/b/a Interlake Water Systems
("Interlake") on August 11, 1995 for $20.1 million in cash and $7.0 million of
the Company's Common Stock. Interlake is a leading provider of SDI for industrial and commercial
users. SDI is a term given to portable water deionization treatment equipment
that uses ion exchange resins as the filtration medium to
5
produce high-purity water and is designed to connect easily to a local water
supply. Resin is retrieved and transported by a Company service representative
to a Company regeneration plant for chemical recharging when it is exhausted.
In the United States, the Company operates 37 regeneration plants in 18
states. SDI is widely-used in commercial and industrial applications and
provides the Company with a recurring source of revenues and the opportunity
to market its systems and other services includingto its existing SDI customer base.
The Company, through its carbon reactivation facility located in Illinois and Michigan. In addition, Interlake
sells and services a broad range of standard and custom-engineeredParker,
Arizona, also has the ability to recycle spent carbon utilized in water
treatment systems and issold by the largest distributor ofCompany
Outsourced Water. In addition to SDI, the Company's Continental
product line inNorth American service
business for process water treatment consists of short- and long-term
contracts for the United States. Interlake enhancesconstruction and operation of customer-owned water treatment
systems, ongoing service and maintenance of existing systems and mobile water
treatment services. The Company's outsourcing programs involve standard
products and custom-designed systems installed and operated on the customers'
sites by the Company's customer
basetrained service technicians. Service contracts range in
the automotivelength depending on type of service from one to five years and pharmaceutical industries,are on a fixed
price basis, subject to adjustments for inflation and Interlake's SDI
business complements the Company's service business.
Arrowhead Industrial Water, Inc.other cost increases.
The Company acquired Arrowhead Industrial
Water, Inc. ("Arrowhead") on May 4, 1995 for $82.0 million in cash and $2.3
million ofalso offers customers the Company's Common Stock. Arrowhead is a leading supplier of
ownedopportunity to outsource their water
purification requirements through Company-owned and operated on-site industrial water
treatment systems, as well as a
3
leading provider of mobile water treatment servicessystems. These contracts range in North America. Arrowhead
enhances the Company's abilitylength from three to provide customers with outsourced water
purification systems and services, for which the Company believes there is
growing demand.20 years.
TWO. In addition, Arrowhead enhances the Company's technological and
service capabilities, expands its service branch network, increases its
customer base and provides certain synergies, including the use of the
Company's engineering and manufacturing capabilities to design and build
Arrowhead water treatment equipment.
Treated Water Outsourcing, a Nalco/U.S. Filter Joint Venture. In conjunction
with the Company's acquisition of Arrowhead,1995, the Company formed Treated Water Outsourcing a Nalco/U.S. Filter Joint Venture ("TWO"), a 50/50
joint venture with Nalco Chemical Company ("Nalco") on June 9, 1995 to focus on the outsourcing of industrial and
commercial customers' water treatment needs. TWO, which is 50% owned by a
subsidiary of Nalco and 50% owned by a subsidiary of the Company, was formed, to finance, build, own
and operate water treatment systems at customer sites under long-term
contracts. Nalco, a leader in water chemistry, supplies the chemicals
necessary for TWO's water treatment systems, while the Company supplies the
capital equipment, design and service functions to meet TWO's customers'
needs. TWO has access to Nalco's extensive sales force and customer base.
Nalco and the Company each provide advisory and administrative services in
order to assist TWO in bid and contract preparation and marketing.
Customer Markets
The markets for the Process Water Group's products and services span many
industries, as well as public water departments and private water companies
responsible for the supply of municipal drinking water. Systems and products
manufactured at United States facilities are also marketed and sold throughout
the world and, in particular, Europe, Asia and Latin America, as well as in
North America.
The Process Water Group's high-purity water treatment systems are marketed
to customers in the pharmaceutical/biotechnology, food and beverage and
medical/laboratory/research markets. Ultra-high-purity systems are offered for
the microelectronics industry, where the removal of contaminants at a
microscopic level is required. Other industrial markets for the Company's
process water treatment products and technologies include a wide variety of
applications in the automotive, chemical and petrochemical, metal finishing,
power generation, oil field and refinery, pulp and paper and mining
industries, all of which require improved or customized water in their
manufacturing or other industrial processes. The Company believes
that the formation of TWO enhances the Company's position as one of the leading
providers ofalso offers
outsourced water services to customers in the world.
The Permutit Group. The Company acquired The Permutit Group (as defined) on
April 3, 1995 for approximately $10.0 million in cash. The "Permutit Group,"
comprising The Permutit Company Limitedthese markets, including financing,
operating and The Permutit Company Pty Ltd., has
a strong position in the United Kingdom, Australian and New Zealand markets in
ion exchange and membrane technology. The Permutit Group also offers a range of
products, including pre-engineeredmaintaining process water treatment systems for the
pharmaceutical, laboratoryat customer sites,
and chemical marketsproviding mobile water treatment services on an emergency or short-term
basis.
The Process Water Group sells both custom-engineered and other commercial customers.
The Permutit Group's comprehensive service network complements the Company's
already strong presence in western Europe and enhances its presence in the
Pacific Rim.
WATER TREATMENT INDUSTRY
As a result of global population growth, economic expansion and the limited
supply of usable water, water has become an increasingly scarce resource. In
addition to the need for potable water, industrial and commercial companies
require purified water for most manufactured products, whether as an ingredient
in the finished product or as part of the manufacturing process. Accordingly,
most manufacturers utilizepre-assembled water
treatment systems to purify their incoming
water ("influent"). Furthermore, government regulations require most industrial
and commercial companies and municipalities to treat their outgoing wastewater
("effluent"). Water purification and wastewater treatment has developed into a
multi-billion dollar global industry.
As industrial and commercial companies seek to increase manufacturing
productivity, they require water treatment systems that enable them to purify
greater quantities of influent at existing facilities. In addition, advances in
manufacturing technology in certain industries, such as electronics and
pharmaceuticals, are dependent upon highly purified and ultrapure water. These
factors, combined with higher water prices and government regulation regarding
effluent, have resulted in demand for increasingly sophisticated water
purification and wastewater treatment systems. These complex systems require
specially trained operators, floor space and significant capital outlays. As a
result, rather than committing such resources to operate in-house water
treatment systems, some users are increasingly seeking water treatment
companies to operate their facilities or provide purified water under contract.
Customers of the water treatment industry can be classified into three
categories (i) industrial and commercial businesses, such as pharmaceutical,
semiconductor and food and beverage manufacturers; (ii) municipal and private
suppliers of public water services; and (iii) individual consumers of bottled
water and household point-of-use products, such as domestic filtration systems
and parts. The Company does not currently supply the market for individual
consumers. The industries' two other categories of customers are described
below.
4
Industrial and Commercial Users. Industrial and commercial users have a
significant need for purified water because it is a necessary component in
many products and industrial processes. The quality of water varies
dramatically across geographic regions, and water contains impurities that, if
untreated, can render it effectively useless for most industrial purposes. The
use of untreated water in manufacturing processes can result not only in
inconsistent product quality, but also in substantial equipment degradation,
which can lead to costly maintenance or replacement costs. Consequently, most
manufacturers treat their influent in order to maintain a consistently
acceptable degree of purity. For example, purified water is an integral
component of many consumer goods and is used in the manufacture of
pharmaceutical products, electronics and chemicals. Additionally, food and
beverage manufacturers require water with consistent quality to preserve
uniformity of taste and appearance in their products. As a result of these
process specifications, industrial and commercial customers often require a
broad range of treatment technologies to purify their influent.
In addition to treating their influent to ensure product quality, industrial
and commercial users are often required to treat their effluent. Government
regulations regarding the disposal of aqueous industrial waste, combined with
public concern regarding industrial pollution, have led to increased awareness
on the part of businesses and public utilities as to the benefits of
wastewater treatment and waste minimization. In response to higher water
prices and rising wastewater discharge fees, industrial and commercial
manufacturers have also become aware of the cost-effectiveness of recycling
their effluent. As a result of these factors, industrial companies
increasingly require complex systems and equipment to treat and recycle
process water and wastewater.
Municipal Users. Public awareness and governmental concern regarding the
increasing scarcity of water, the quality of drinking water and the potential
health hazards associated with waste products discharged into the environment,
have resulted in legislation, regulation and enforcement requiring strict
standards for potable water and restrictions on the discharge of pollutants in
wastewater. As a result, municipalities are experiencing increasing costs for
water, water purification and wastewater treatment. Accordingly, providers of
public drinking water and municipal wastewater treatment facilities are
increasingly purchasing sophisticated treatment systems to solve their
treatment needs. In addition, because many municipal water systems are
operating at or near capacity and many municipalities are experiencing
budgetary constraints, such customers are seeking innovative solutions to
their water treatment needs, such as improved technologies and equipment and
various outsourcing and service options, including privatization.
PRINCIPAL PRODUCTS AND SERVICES
Many industrial, commercial and municipal users seek a systems solution that
includes: water purification and wastewater treatment systems incorporating a
broad range of treatment technologies; replacement parts and consumables (such
as membranes, ion exchange resin and carbon); and support services that
include ongoing service and maintenance.market. The Company offers
a single-source
solutioncryptosporidium giardia cyst removal, nitrate removal, reverse osmosis
desalination and water softening technologies, as well as intake screens,
aerators, clarifiers and disinfection, coagulation and chemical disinfection
feed equipment to these customers through what the Company believes to be the
industry's broadest range of cost-effective treatment systems, services and
proven technologies.this market.
WASTEWATER GROUP
The Company's principal products and services can be
divided into the following three groups: capital equipment, services, and
replacement parts and consumables.
Capital Equipment. Through its 21 manufacturing facilities, the Company
manufactures both preengineered and customized treatment systems and utilizes
more than 19 different proven physical, biological and chemical treatment
techniques including, among others, continuous deionization, reverse osmosis,
electrodialysis, adsorption and ion exchange, that can be combined and
configured to meet wide-ranging customer needs. See "--Technologies." The
Company designs, engineers, manufactures and assembles its systems at its
manufacturing facilities located in the United States, Europe, Australia and
Asia. Components that are not manufactured by the Company are purchased from
vendors in the United States and internationally. The Company utilizes a
global sales and service force to provide direct contact and service to its
customers.
5
Services. The Company's service business consists of short- and long-term
contracts for the operation of customer- or Company-owned water treatment
systems and ongoing service and maintenance of existing systems. The CompanyWastewater Group is a leading provider of SDIsystems and services
to treat and recycle municipal and industrial wastewater, biosolids treatment
products and technologies and liquid hazardous waste treatment and recovery
services.
6
Products
The Wastewater Group designs, engineers, manufactures and installs
wastewater treatment equipment and systems for municipalities and industrial
and commercial customers utilizing a wide range of treatment technologies,
including many of those employed by the Company in process water applications.
See "Process Water Group--Products". Systems and products also are offered for
the treatment of municipal and industrial sludge and biosolids through
dewatering, thickening, conditioning, composting and drying techniques. In
addition, the Company provides systems to remove solids from liquid streams
through the use of self-cleaning bar filter screens, grinders, macerators,
conveyors and compactor systems. The Company also supplies material and
equipment to wastewater customers for the control and monitoring of hydrogen
sulfide odor. Time intervals for installation of completed equipment and
systems sold by the Wastewater Group can range from six months to two years
after acceptance of the Company's bid, depending upon the nature and
complexity of the project. Replacement parts and consumables are marketed and
sold to Wastewater Group customers as well.
The Company's broad range of technologies enables the Wastewater Group to
offer industrial customers products and systems for removing from liquid waste
streams heavy metals and other inorganic solids, organics, toxic wastes,
nitrogen compounds and solids, and free and emulsified grease and oil.
Evaporation and crystallization technologies are used to clean and recycle
wastewater, particularly in zero liquid discharge industrial applications. The
Company's significant disinfection and biological treatment capabilities,
including fixed-film and suspended growth systems that utilize microorganisms
for nitrification and denitrification, specific organic destruction, BOD/COD
reduction and nutrient removal, are critical in municipal wastewater and
sewage treatment. Biological, chemical, carbon adsorption and fluidized bed
technologies are offered to customers which require groundwater remediation
systems or landfill leachate treatment. Landfill leachate treatment systems
are designed to treat or eliminate wastewater drainage into groundwater and
surrounding waterways.
The Wastewater Group manufactures a variety of equipment and products for
inclusion in its wastewater treatment, biosolids treatment, groundwater
remediation, landfill leachate, fluid separation and odor control systems.
Components for these systems are also purchased from third party vendors. The
Company's principal North American facilities for the manufacture and assembly
of wastewater treatment products and systems are located in Madison, Indiana;
Woodstock, Illinois; Waukesha, Wisconsin; Rothschild, Wisconsin; Thomasville,
Georgia; Vineland, New Jersey; Waterboro, South Carolina; Ames, Iowa;
Edwardsville, Kansas; Warrendale, Pennsylvania; Billerica, Massachusetts; and
Sarasota, Florida. These facilities aggregate 840,556 square feet, including,
in most cases, sales and office space as well as manufacturing capacity.
Design and engineering for Wastewater Group products is performed at the
Warrendale location, as well as at facilities in Naperville, Illinois and
Pittsburgh, Pennsylvania. Laboratory and analytical testing, including
treatability studies, are conducted at the Warrendale and Rothschild plants,
and at Company facilities in Roseville, Minnesota and Vernon, California.
At a plant in St. Paul, Minnesota, the Company also manufactures automation
and control systems for municipal water and wastewater treatment equipment
using liquid level pressure and flow sensors, automatic pump
controllers/alternators and remote control technology capabilities.
Services
Contract Operations. The Company provides services under more than 130
municipal and industrial wastewater treatment plant maintenance and operation
contracts, including plant start-up assistance, plant operations and
maintenance, planning and management, training of plant supervisors, operators
and laboratory and maintenance personnel, refining process systems, management
systems for process control, and plant diagnostic evaluations and energy
audits. The Company also provides specialty repair and cleaning services for
industrial wastewater management equipment. The Company's maintenance and
operation contracts generally range in length from three to 10 years and often
provide the owner of the facility with renewal options. The majority of such
contracts are fixed price or lump sum contracts. In addition to operation and
maintenance of customer-owned facilities, the Company also offers the option
of Company-owned wastewater treatment facilities designed, constructed, owned
and operated by the Company adjacent to or within industrial customers'
facilities.
7
Privatization. The Company is actively involved in the development of
privatization initiatives for municipal wastewater treatment facilities. In
July 1995, a subsidiary of EOS was the first to acquire a publicly-owned
wastewater treatment plant in the United States and western Europepursuant to Executive Order
12803 issued in 1992, which was intended to facilitate the privatization of
municipal facilities. The agreement provides for industrial and commercial users. SDI is a term given to portable water
deionization treatment equipment that uses ion exchange resins as the
filtration medium to produce ultrapure water and is designed to be easily
connected to a local feed water supply. Resin is retrieved and transported by
a Company service representative to a Company regeneration plant for chemical
recharging when it is exhausted. Unlike many permanent systems, SDI requires
no chemical handling or maintenance by the customer. SDI is a widely used
technology among industrial and commercial companies and providessubsidiary of the Company
with a recurring source of revenues and the opportunity to market its systems
and other services to its existing SDI customer base.
The Company's "PWMP," or Pure Water Management Program, is a custom-designed
system installed and operated on the customer's site by the Company's trained
service technicians. The system design is tailored to the customer's specific
pure water requirements. The Company gives special attention to the critical
pretreatment process to ensure operational reliability. A PWMP contract
encompasses the following: a measurement of the quality and quantity of
purified water needed; a definition of system space requirements; system
utility requirements; process and instrumentation design; feedwater
parameters; and the length of contract and pricing considerations. The Company
is a leading worldwide provider of managed water services.
As part of its service business, the Company has expanded its product
offerings to include the construction and operation of wastewater facilities
under long-term contracts on behalf of public water and wastewater treatment
providers such as municipalities. In Italy, the Company currently manages two
municipal water treatment operations serving more than 1.5 million people
under long-term contracts. During 1993, the Company became the first United
States based company to be awarded a contract to build and operate a
wastewater treatment facility in Mexico, located in the city of Cuernavaca.
Since that time the Company has been awarded two other contracts to operate similar facilitiesthe 4.5 million gallon per day MCD Franklin Wastewater Treatment
Plant in other partsFranklin, Ohio for a period of Latin America. The Company also
supervises, under a long-term contract,20 years and to expand the operation of a water desalination
plant in the Cayman Islands.facility as
needed to meet future population growth.
Resource Recovery. Another component of the Company's service business is
its hazardous waste treatment facilityfacilities located in Roseville, Minnesota. ThisMinnesota and
Los Angeles, California. The Roseville facility operates a federal Resource
Conservation and Recovery Act ("RCRA") permitted "Part B"Part B centralized treatment
and recovery facility. The Los Angeles facility that sells products recovered from
the treatment of industrial waste. The facility receivesoperates a similar RCRA Part B
facility. These facilities receive and treat wastes generated primarily by the
metal finishing industry and printed circuit board manufacturers. The facility offersmanufacturers, and recover
from these wastes and sell reusable chemicals and metals. These facilities
offer the Company's customers a cost-effective recovery approach that reduces
processing costs, the quantity of sludge generated and the environmental
exposure associated with industrial waste. Replacement Parts and Consumables. The Company manufactures and sells
replacement parts required to support treatment systems manufactured by both
the Company and, to a limited extent, its competitors. The Company also provides consumables, such as membranes, ion exchange resin and carbon, to its
customers.
The following table sets forth the percentage breakdownoperates a
facility in Parker, Arizona, which is authorized under Section 3005 of the Company's
revenues, as restated, by product categoryRCRA
for the periods indicated:
FISCAL YEAR ENDED
MARCH 31,
---------------------
1994 1995 1996
----- ----- -----
Revenues by product
category:
Capital equipment....... 63% 60% 49%
Services and operations. 19 19 31
Replacement parts,
consumables and other.. 18 21 20
6
CUSTOMER MARKETS AND PRODUCT APPLICATIONSreactivation of spent carbon. The marketsCompany is currently negotiating the
final terms and conditions for the Company's servicesa RCRA Part B permit for such facility.
Customer Markets
Municipalities in North America, Europe, Asia and Latin America are a
significant market for systems and products span many industries and
many geographic locations, includingmanufactured by the Wastewater
Group in the United States, Europe, Latin America,
Asia and the Pacific Rim. Information regarding the amount of revenue,
operating income (loss) and assets attributable to for each of the past three
fiscal years is incorporated herein by reference to Note 17 of Notes to
Consolidated Financial Statements. The following are industries that the
Company services and some of the products used therein:
Pharmaceutical and Biotechnology. Process water used in the pharmaceutical
and biotechnology industries must meet the highest standards of purity.
Reverse osmosis in conjunction with CDI ("RO/CDI") technology provides high-
purity water that meets the strictest quality specifications. The Company's
ceramic membranes, in combination with other membrane or ion exchange
equipment, meet these requirements by achieving nearly 100% contaminant
removal. This equipment is used in fermentation, purification and recovery
processes. Ion exchange technologies are also used to purify process streams,
as well as to purify and recover antibiotics, vitamins and chemical elements.
In addition, ion exchange is employed in industrial fermentation to process
substrates.
Microelectronics. Microelectronics manufacturing processes require ultra-
high purity water to avoid contamination from even the smallest microscopic
particles. The Company's ceramic membrane filters are advanced inorganic,
multilayered filter media that provide superior contaminant removal in the
most demanding environments. In addition, the Company's membrane and ion
exchange technology is used by electronic components manufacturers to produce
ultra-high purity water and to reduce the level of microcontamination in rinse
waters.
Automotive. The Company designs, manufactures, sells, services and operates,
on a global basis, a broad portfolio of technologies for the automotive
industry. The specific manufacturing processes include metal processing, metal
finishing, assembly and non-metal processing. Each of these processes operates
under the strictest of quality, process control and regulatory requirements.
The Company offers all of the technologies necessary to meet these
requirements including physical, chemical and biological methods. The Company
can deliver these technologies as bid-to-specification equipment, full
turnkey, service, build-own-operate or any combination of the above. Of
particular importance are the Company's capabilities in the areas of water
reuse and resource recovery.
Chemical and Petrochemical. Incoming water supplies for chemical and
petrochemical manufacturers require filtration and treatment to remove solid
particles and dissolved impurities. The Company manufactures demineralizers,
water softeners, clarifiers, multimedia filters and reverse osmosis systems to
deliver water of controlled quality and content. Additionally, the Company's
Membralox(R) and Ceraflo ceramic membranes are used to accomplish the
separation of chemical and petrochemical streams in very harsh environments.
Food and Beverage. The food and beverage industries require high-quality yet
cost-effective water treatment systems. The Company offers physical and
chemical filtration and treatment technologies to purify incoming water and
refine and concentrate process fluids. Its ion exchange and ADSEP systems are
advanced technologies for the separation of sugars and corn syrups. In the
beverage industry, ceramic membrane filters achieve a high level of fluid
purity using nonchemical processing techniques.
Metal Finishing. The Company's metal treatment and recovery systems
facilitate regulatory compliance of effluent and reduce the level of heavy
metals and solids generated from metal finishing operations such as printed
circuit board manufacturing, electroplating, galvanizing and anodizing. The
Company's key technology offerings include ion exchange, reverse osmosis,
electrolytic recovery, adsorption filtration, ceramic membrane
ultrafiltration, as well as a full complement of conventional precipitation
settling and filtration technologies.
Power Generation. Nuclear and fossil-fueled electric power plants are
subject to steam generator and boiler corrosion and turbine fouling if
damaging contaminants are not removed from the incoming and recirculating
feedwater supplies. The Company's filtration membrane and ion exchange systems
provide power plants with
7
high-quality, demineralized boiler feedwater. The Company's tube filter and
deep bed condensate polishing systems employ advanced resin separation and
regeneration technologies to improve the quality of the condensate returned to
the boiler. Sand and other media filters are used in cogeneration and other
power plant applications. Nuclear-grade resins are available to meet the more
stringent water quality requirements of nuclear power plants.
Oil Field and Refinery. The petroleum industry uses large quantities of
water for steam and water flooding of oil fields for the secondary recovery of
oil. The Company's systems remove oil contaminants and suspended solids from
the resurfaced water for reuse for down-hole water and steam injection.
Refineries use the Company's oil/water separators to remove oil and suspended
solids from process water and refinery effluents, as well as a full range of
water purification equipment to remove dissolved solids.
Medical/Dialysis. RO/CDI systems produce a continuous stream of ultra-high
purity water by removing organics, minerals and other contaminants while
providing the necessary bacteria and endotoxin control for high-flux dialysis
machines and other high-quality, high-capacity water requirements in the
medical field.
Laboratory/Research and Development/Quality Control/Chemical
Analysis. Cartridge-type reverse osmosis filters, deionization systems,
electrodialysis modules, ultrafiltration units, particle filters and activated
carbon filters remove contaminants, bacteria, pyrogens and odor to provide
point-of-use water polishing for critical and demanding laboratory
applications.
Pulp and Paper. The Company's dissolved air flotation systems remove and
recover suspended solids from waste streams for pulp and paper manufacturers
and require considerably less floor space than conventional separation units.
The Company's boiler feedwater treatment systems are also utilized in this
industry.
Groundwater Remediation and Landfill Leachate Treatment. The Company's
remediation systems are used to remove organic compounds and soluble metals
from contaminated groundwater. Biosystems employ a "pump and treat" technology
that incorporates equalization, separation of metals, biological treatment and
clarification processes. The Company's leachate systems, combining chemical
pre-treatment systems with biological treatment technologies, address the
treatment or elimination of wastewater drainage into the groundwater and
surrounding waterways.
Drinking Water. Food and beverage processors, hotels and other institutions
require high-quality yet affordable water treatment systems to meet consumer
and regulatory standards. In addition, suppliers of drinking water are seeking
alternative purification systems. The Company manufactures filtration, water
treatment and clarification systems for the drinking water industry that meet
United States Environmental Protection Agency ("EPA") standards under the Safe
Drinking Water Act. Pre-assembled systems capable of handling low- and high-
volume flows are also available.
Municipal Water Recovery and Reuse.States. Municipal sewage plants often utilize three stages
of treatment (primary, secondary and tertiary) before discharge to the
environment. The Company offers wastewater and biosolids treatment systems to
address those requirements. In addition, to offering equipment and systems to satisfy
these requirements, the Company's membrane,media filtration,
reverse osmosis and ion exchange technologies addhave the capability of adding a
fourth stage of treatment of municipal wastewater by removing remaining
contaminants to a purity level that allows water to be recycled and reused in
additional industrial applications. These technologies are cost-effective andcan reduce the adverse impact of
industrial growth in communities where water tables are low.
Systems produced by the Wastewater Group are marketed to a variety of
industrial customers. Markets include the pulp and paper, chemical,
petrochemical, mining, power generation, meat and poultry, food processing,
automotive, metal finishing and microelectronics industries. The recycle/reuse
systems offered by the Company permit zero liquid discharge applications,
providing industrial customers with the ability to circulate treated water
back into plant processes, thereby reducing water usage, operating costs and
discharges to the environment. In addition, prepackaged sewage treatment
systems are sold to commercial and residential land developers, as well as
industrial plants.
DISTRIBUTION GROUP
The Company's Distribution Group markets a broad line of water distribution
and sewer and stormwater collection equipment and supplies, including
underground pipe, pipe fittings, valves, fire hydrants, water meters and other
related equipment necessary to underground construction. The Distribution
Group purchases more than 20,000 products from approximately 3,000
manufacturers and suppliers. Certain products manufactured by the Company also
are sold by the Distribution Group, as well as through the Company's other
sales channels. The Company believes it is one of the largest suppliers of
water distribution and sewer products in the United States.
The Distribution Group's products are marketed primarily to contractors and
municipalities through a network in the United States of more than 110 service
centers located in 29 states. Each service center covers a radius of 50 to 200
miles, and maintains an inventory of water and sewer products that are sold to
the industry at large. More than 95% of orders are filled and shipped from the
service centers on the date that the order is requested by the customer.
Products are transported to customers through a fleet of more than 300
vehicles, with larger orders being shipped direct from the manufacturer.
8
All of the Distribution Group's locations are electronically linked through
on-line systems. These systems give the individual service centers the ability
to utilize inventory located throughout the United States to service their
accounts. The system also includes an inventory management system which
ensures that sufficient levels of inventory are available at each service
center. The Distribution Group also offers municipalities on-line computer
access that allows the customer to place orders, review quotations, check
inventory and shipment status and confirm invoices.
The Distribution Group also provides various services to its customers,
including automatic meter reading installations; water meter testing, repair
and certification; fire hydrant maintenance and replacement; manhole
rehabilitation; pipeline taps; valve installations, repairs, replacement and
testing; and on-the-job heavy duty polyethylene fusion capabilities.
CONSUMER PRODUCTS GROUP
The Company sells, installs and services a wide range of products which
address household water problems. These products include water softening and
conditioning equipment and other products installed at the point of entry to a
residential water system, designed to soften hard water by reducing or
removing minerals through ion exchange technology. The Consumer Products Group
also sells point-of-use filtration units for improving the quality of drinking
water, which utilize media filtration, reverse osmosis and/or carbon filter
processes. These products are designed to be installed under sinks or directly
at the point of use. Point-of-use systems are designed to reduce or remove
from household water dirt and other sediment, rust, lead, chlorine, sulfur,
off-tastes, odors, and other chemicals and microscopic impurities, including
parasitic protozoan cysts.
Through the Consumer Products Group's 25 service branches located
principally in the Midwestern United States, Company representatives provide
solutions to household water problems through testing and analysis, product
selection, installation, monitoring and service. The Company also offers
rental and financing of systems to residential customers.
Point-of-entry systems are manufactured at the Company's facilities in
Rockford, Illinois, as well as purchased from third party vendors. Point-of-
use products sold and installed by the Consumer Products Group are purchased
from third parties. Testing and analysis of household water samples is
performed at Process Water Group laboratories in Rockford, Illinois.
The Company also sells water in five-gallon bottles on a route basis through
its residential service branches, and in a limited number of shopping centers
on a walk-up basis. Purified drinking water is produced and bottled in five-
gallon bottles by the Company at four bottling locations in the United States.
The Consumer Products Group's representatives typically pick up for refill and
deliver the five-gallon bottles to a customer's home or office on a regular
route. Customers rent the bottled water dispensers from the Company. In
addition, at a small number of locations in Texas and Florida, the Company
also sells purified water by refilling customer-supplied containers at
shopping center locations. Consumer water filtration and water-quality related
products are also sold at these locations. The Company currently does not
participate in any other segment of the bottled water market.
INTERNATIONAL
The Company has substantial sales and significant operations outside the
United States, principally in Europe, Asia, Latin America and the Middle East.
Information regarding the amounts of revenue, operating profit and
identifiable assets attributable to each of the company's geographic areas and
export sales is incorporated herein by reference to Note 17 of the Notes to
Consolidated Financial Statements included in Item 8 of this Form 10-K.
Europe, the Middle East and Africa
Process water and wastewater treatment equipment and systems are designed,
engineered, serviced and manufactured at over 50 facilities in 13 countries
throughout Europe, the Middle East and Africa. This broad
9
presence allows the Company to provide systems that respond to important local
differences in environmental legislation, water quality, availability and
cost. A wide range of separation processes and treatment technologies are
employed in these systems, including most of those utilized by the Process
Water Group and the Wastewater Group in the United States. The Company's
systems and products are sold internationally to municipalities for drinking
water purification, sewage treatment and sludge handling. The Company also has
a wide variety of industrial customers in the pharmaceutical, food and
beverage, power generation, metal finishing, chemical, petrochemical and
automotive markets.
Manufacturing facilities in Europe include plants in Tarbes, France; Almelo,
the Netherlands; Stoke-on-Trent, United Kingdom; Ransbach-Baumbach, Germany;
Dublin, Ireland; Soresina, Italy; and Madrid, Spain.
The Company also provides SDI for industrial and laboratory users throughout
western Europe, operating regeneration plants in the United Kingdom, France,
the Netherlands, Germany and Spain. Also as part of its service business in
Europe, the Company operates two municipal water treatment plants in Italy
serving more than 1.5 million people under long-term contracts.
Asia
Through manufacturing and regeneration facilities in Singapore and Malaysia,
the Company supplies a variety of process water treatment products and
services, including SDI, to microelectronics manufacturers and other
industrial customers in Asia. The Company also produces its profile wire
screen products for distribution throughout Asia from its manufacturing
facilities in Brisbane, Australia; Hyderabad, India; Ahmedabad, India; and
Yokohama, Japan. The Company serves the wastewater market for industrial
customers in Asia through the design and manufacture of wastewater treatment
systems at locations in Singapore and Malaysia, and serves the municipal
wastewater treatment market through two design and manufacturing facilities in
Taiwan. In addition, water, wastewater and sewage treatment systems designed
and manufactured at these locations and in the United States and Europe are
marketed through sales offices in Hong Kong; Singapore; Malaysia; Australia;
The Peoples Republic of China; The Republic of China (Taiwan); Japan; and
Korea.
Latin America
The Company markets process water and wastewater treatment systems
engineered and assembled by the Process Water Group and the Wastewater Group,
through sales locations in Mexico, Venezuela, Brazil, Puerto Rico and
Argentina. In Mexico, the Company also has a manufacturing facility where
pumps and other equipment are made for sale around the world. Additionally,
through a joint venture with a Mexican partner, the Company operates an SDI
business that is focused on industrial and commercial customers throughout
Mexico. The Company also owns and operates two concessions for wastewater
treatment facilities under long term contracts for the cities of Cuernavaca
and Yautepec, Mexico. These wastewater systems were designed, manufactured,
and installed by the Company.
OTHER BUSINESSES
The Company also manufactures a line of nonpolluting surface finishing
systems for use by a variety of industrial customers, including foundries,
steel processors, aircraft manufacturing, automobile producers and rubber and
plastics producers, in cleaning and finishing metal and other materials. The
Company manufactures portable, fully-enclosed units for finishing difficult-
to-clean surfaces such as concrete surfaces, ship decks and hulls. These
systems capture the emissions particulate generated by such operations,
preventing contamination of the environment. In addition, spare parts for
materials cleaning systems are produced. The Company also manufactures high-
alloy combustion grates used in the high-temperature furnaces of trash-to-
energy facilities.
10
SALES AND MARKETING
As partThe Company maintains a worldwide distribution network of sales and service
facilities, a global network of manufacturers' representatives and
international representatives, and numerous distributors and licensees.
In the Company'sUnited States, sales and marketing strategy,responsibilities for the Process
Water Group, Wastewater Group and Consumer Products Group are divided across
five geographic regions in the U.S. Each industrial, commercial and municipal
sales prospects areprospect is reviewed to determine which of the Company's engineering and
manufacturing resources should be utilized to best meet customers' needsthe customer's needs.
Technical support is available across the Company to assist marketing
personnel in working with the end-user to select the appropriate technology
for a given application.
Process Water Group products and maximize profitability.
8
systems are sold predominantly through a
direct sales force. The Wastewater Group's sales are made principally through
a network of independent manufacturer's representatives.
The Company's worldwide distribution network includes 125 sales and service
facilities and approximately 95 manufacturers'manufacturer's representatives 69
international representatives, and numerous distributors and licensees. During
1996 the Company increased its direct sales and service capability by
acquiring 12 distributors of the Company's Continental product line in eight
states.
The Company provides engineering and sales support toare independent manufacturers' representatives, who may be assigned certain geographic
territories andbusinesses
which are paid on a commission basis.basis and in certain cases have the exclusive
right to sell the Company's products and systems in a specified geographical
area. The Company provides both engineering and marketing support to its
manufacturer's representatives.
A portion of the Company's revenues are derived from recommendations by
independent engineers and consultants who advise the ultimate customer. Both
the Company's manufacturers' representatives and direct sales force work with
engineers, consultants and customers to encourage them to specify the
Company's products.
Sales of process water, wastewater and sewage treatment systems and products
outside the United States are conducted through a direct sales force and
international representatives. In addition, a number of licensees manufacture
and sell certain of the Company's products in Europe, Asia, Africa, Australia
and Mexico. The Company provides technical support to these licensees and is
either paid a royalty on sales or participates in the sale directly. In addition, a portion of the Company's revenues are derived from
recommendations by independent engineers and consultants who advise the
ultimate customer.
For the
fiscal years ended March 31, 1994, 1995, 1996 and 1996,1997, the Company's international sales outside
the United States were approximately $37,841,000, $104,132,000$112.8 million, $212.9 million and $202,943,000,$419.5
million, respectively, and accounted for approximately 21%19%, 38%26% and 43%30%,
respectively, of the Company's total sales.
The Distribution Group's equipment and supplies are marketed by Company-
employed salesmen. Salesmen call directly on customers within their assigned
territories and work with architects, engineers and government agencies to
assist customers in determining their product needs.
RAW MATERIALS AND SUPPLIES
Raw materials, primarily steel, filtration media, ion exchange resins,
membranes and component parts such as pumps and valves, and products purchased
for resale by the Distribution Group, are available from a number of sources.
The Company has not experienced difficulty in obtaining the materials,
components and supplies used in its operations.
11
BACKLOG AND SEASONALITY
The Company had the following backlog as of March 31, 19951996 and 1996,1997, which
includes capital equipment purchase orders and revenues expected to be
generated during the next 12 months under certain long-term contracts. The
capital equipment orders are scheduled for delivery and installation during
the following 12 months and are believed by management to be firm.
DATE AMOUNT
---- --------------------------
(IN THOUSANDS)
March 31, 1995............................................... $132,074,0001996................ $219,124
March 31, 1996............................................... $183,024,0001997................ $644,535
The rate of booking new orders varies from month to month. In addition, the
orders have varying delivery schedules, and the Company's backlog as of any
particular date may not be representative of actual revenues for any
succeeding period. There is no material backlog for water distribution
equipment and supplies since these orders normally are shipped within one to
ten days following receipt of an order. Backlog also is not a meaningful
measure of ongoing business in the residential water business.
Certain of the Company's contracts for engineered products and services
provide for progress payments during the engineering and manufacturing period.
The balance is due upon acceptance or start-up, or, in the case of most
municipal and governmental purchasers, 90 to 180 days after delivery and
installation. Demand for most of the Company's products and services is not
typically affected by seasonal changes. PRODUCT WARRANTIES
The Company generally offers one-year product warranties on its equipment.
In some instances the warranties may be for shorter or longer periods,
consistent with market practices. Performance guarantees apply to mostDistribution Group's operations
are affected by winter weather in parts of the Company's systems. The costs incurred byUnited States, and generally
can be expected to generate lower sales in the Company to date under its product
warrantiesthird and systems guarantees have not been material.
RESEARCHfourth fiscal
quarters.
PRODUCT DEVELOPMENT; PATENTS, TRADEMARKS AND DEVELOPMENTLICENSES
In order to provide its customers with cost-effective water treatment
solutions, the Company offers a wide variety of filtration and purification
technologies. The Company uses its own research and development, augmented by
customer-funded, vendor-funded and government-funded research spending, in
order to provide its customers with state-of-the-artadvanced products. In addition, the
Company uses its analytical laboratories to perform water analyses and to test
the effectiveness of filtration media and techniques in order to enhance the
Company's capability to design systems tailored specifically for the
particular needs of customers. The Company has also acquired companies with
advanced research and development capabilities. The Company's research andproduct development expenditures
for the fiscal years ended March 31, 1994, 1995, 1996 and 19961997 were approximately
$5,350,000, $4,408,000$5.5 million, $6.5 million and $5,525,000,$8.3 million, respectively.
9
RAW MATERIALS AND SUPPLIES
Raw materials, primarily steel, filtration media, ion exchange resins,
membranes and component parts such as pumps and valves are available from
several sources.
The Company hascurrently owns a significant number of patents in the United
States and in various countries worldwide. Although the Company believes that
the patents and trademarks associated with the Company's various product lines
are of value, it does not experienced difficulty in obtaining the
materials and components used inconsider any of them to be essential to its
operations.business.
COMPETITION
The water and wastewater treatment industry is fragmented, with numerous
regional participants in the United States and in countries throughout the
world who are limited in their geographic scope. This fragmentation is
primarily due to local differences in water quality and supply, different
levels of demand for water resulting from varying concentrations of industry
and population, and local governmental regulation. Most participants in the
water and wastewater treatment industry provide a limited number of treatment
technologies, a limited number of products or services, or focus on a
particular industry. While the number of industry participants ranges from
several large companies to hundreds of small local companies, there are few
competitors in the industry that offer a full range of water and wastewater
treatment equipment, technologies and services. The Company believes it offers
the industry's broadest range of cost-effective treatment systems, services
and proven technologies.
12
The water and wastewater treatment markets in which the Company competes are highly competitive. The
Company knows of no reliable statistics that provide a basis from which to
estimate the Company's relative competitive position in these markets. The
principal methods of competition in the water and wastewater treatment markets
in which the Company competes are technology, service, price, product
specifications, customized design, product knowledge and reputation, ability
to obtain sufficient performance bonds, timely delivery, the relative ease of
operation and maintenance and the prompt availability of replacement parts. In
the municipal contract bid process, pricing and the ability to meet bid
specifications are the primary considerations. For privatization and
outsourcing projects, performance guarantees are also a factor. While no
competitor is considered dominant, there are competitors that are divisions or
subsidiaries of larger companies which have significantly greater resources
than the Company.
TECHNOLOGIES
WaterIn connection with the marketing of water distribution equipment and
wastewater treatmentsupplies, the Company competes with a large number of independent wholesalers,
other distribution chains similar to the Company and manufacturers who sell
directly to customers. The principal methods utilizedof competition include product
knowledge by the sales force, prompt delivery following receipt of an order,
local service and price. Due to the various sources and methods of competition
and types of products sold by the Company, canthe Company knows of no reliable
statistics upon which there might be classified into 19 primary separation processes. Some of these processes may
overlap in certain respects, depending on the particular application. Although
each process can function independently, multiple processes are often utilized
to accomplish a more complete separation and achieve the desired treatment.
The Company manufactures or supplies systems and components that utilize but
are not limited to eachbased an estimate of the following processes:
Continuous Deionization. The CDI continuous deionization system is a
proprietary process of the Company that uses ion exchange resins, ion exchange
membranes and an electrical current to purify water continuously, without the
need for hazardous chemicals. CDI systems use electricity instead of acid and
caustic to continuously regenerate the resins, producing high-purity water.
The process produces a small wastewater stream that can be safely discharged
into municipal collection systems without special treatment.
Ion Exchange. Ion exchange is a processCompany's
relative competitive position in which electrically charged ions
that are electrochemically held by ion exchange resin beads are exchanged for
ions of similar charge in a solution in which the beads are immersed. The
Company has developed and applied ion exchange technologies extensively for
water and wastewater treatment. Applications have included removal of hardness
ions from water supplies, removal of nitrates, iron and manganese from
groundwater supplies, complete demineralization for boiler feedwater and high-
purity water applications, and removal and recovery of heavy metals from
industrial wastewater produced in activities such as electroplating. The
Company is involved in ion exchange resin and equipment sales, resin
regeneration and related service and customer applications.
Short Cycle Ion Exchange (SCION). The Company has developed a complete range
of proprietary packaged counter-current demineralizer sold under the name of
SCION. SCION produces high-purity waters without the
10
problems usually associated with the more conventional ion exchange plants.
This range of equipment is supplied as pre-engineered systems and is widely
used throughout industry, especially in the pharmaceutical and power
industries, in which reliable high-quality equipment and water is essential to
their operations.
Reverse Osmosis. Solutions are desalted (desalination) or concentrated by
driving them through membranes using relatively high hydraulic pressure as the
driving force. Contaminants are excluded, or rejected, by the membranes. The
Company has also developed a unique double-pass, reverse osmosis system. The
patented process uses interstage chemical injection to adjust pH gases to
their ionic form, which can be effectively removed by the reverse osmosis
membranes. This technology permits the production of water that can be several
orders of magnitude purer than conventional single-pass systems, while
significantly reducing the chemical consumption associated with ion exchange.
This process is widely used in the electronics and power industries, in which
ultra-high purity water is essential.
Ultrafiltration. Moderate hydraulic pressure is used to transfer water and
low molecular weight species through a membrane while blocking contaminants
such as suspended solids, colloids and large organic molecules.
Ultrafiltration is generally used for separations in which particle sizes are
larger than those of metal or salt ions.
Microfiltration. Relatively low hydraulic pressure is used for separating
rather large particles and high molecular weight species from water. Uses
include the clarification of fruit juices prior to bottling.
Electrodialysis. Electrodialysis is a membrane process that utilizes
electrical current to extract ions from water. The primary uses are to
desalinate brackish water, to recover water from the concentrate from reverse
osmosis and to recover salt from seawater.
Adsorption. Adsorption is a significant phenomenon in most natural physical,
biological and chemical processes and involves electrostatic and chemical
attraction or bonds. Adsorption on solids, particularly activated carbon, has
become a widely used method for purifying water and wastewater and capturing
volatile organic compounds that might otherwise be released into the
atmosphere. The Company has applied the principles of adsorption in numerous
ways, typically involving powdered or granular activated carbon. Applications
have included the advanced treatment of high-purity water for use in the
production of such diverse products as artificial sweeteners and aerospace
components, as well as the pre-treatment of heavily contaminated industrial
wastewater and the treatment of contaminated groundwater.
Electrolytic Processes. Electrolytic metal recovery involves the attraction
of metal ions via electrolytic deposition and is used to remove and recover
heavy metals from industrial wastewater. In addition to the design and sale of
electrolytic equipment, the Company currently utilizes this process at its
Roseville, MN facility.
Biological Processes. Utilized in both municipal and industrial markets,
biological treatment processes involve the use of organic microbes to digest
undesired substances for such diverse industries as food and beverage
processing, pharmaceutical and chemical manufacturing and petrochemical
production. The Company engages in the design, construction and operation of
activated sludge systems, aerobic and anaerobic bio-towers, rotating
biological contactors and sequencing batch reactors. The Company has recently
applied biological processes in the treatment of groundwater and landfill
leachates to destroy or remove dangerous or noxious organic compounds.
Oxidation. The purpose of oxidation in water and wastewater treatment is to
convert undesirable chemical content into chemicals that are neither harmful
nor otherwise objectionable. Oxidants and oxidation methods used by the
Company have included chlorine, chlorine dioxide, ultraviolet irradiation,
ozone, permanganate, high pressure and high temperature techniques and
hydrogen peroxide. The Company has applied oxidation techniques to inorganic
and organic substances for such purposes as municipal water and wastewater
disinfection, landfill leachate treatment and cyanide destruction.
11
Disinfection. Disinfection is a process in which disease-producing organisms
are destroyed or otherwise inactivated. The Company has applied this process
in several physicochemical methods including thermal energy, ultraviolet
irradiation and addition of chemical reagents.
Aeration and Gas Transfer. Aeration, a process in which oxygen is
artificially injected into a waste stream, removes many undesirable
undissolved gases and dissolved inorganic materials such as iron and
manganese. Aeration is commonly applied in wastewater treatment and is used in
the Company's aerobic bio-tower and induced air flotation. Other gas transfer
technologies available from the Company include decarbonator, denitrifier,
chemical scrubber and nitrification equipment.
Sludge Treatment. Sludge treatment is utilized to reduce the volume of
hazardous sludge generated by a customer and requiring disposal. The Company's
processes are focused on altering the nature of the sludge in order to render
it inoffensive. The Company accomplishes this by applying techniques to
condition, thicken, dewater and dry the sludge prior to ultimate disposal. In
addition to its existing municipal and industrial water and wastewater sludge
applications, the Company is attempting to develop a sludge stabilization
process to render hazardous sludge nonhazardous.
Sedimentation. Gravitational separation by sedimentation is generally an
effective way to remove solids from water and wastewater.market. However, different
types of solids have distinctly different settling characteristics. As a
result, the selection of sedimentation equipment for clarification of water or
wastewater requires a thorough understanding of the available processes and
the variables that can affect their efficiency. The Company has designed,
built, installed and operated sedimentation systems for municipal and
industrial applications worldwide. Systems range from large conventional
sedimentation basins to small, high-rate, inclined plate separators.
Coagulation and Flocculation. Many impurities are too small for
gravitational settling alone to be an effective removal process. Aggregation
of these impurities into larger particles that will more readily settle, a
process termed coagulation, is necessary for successful separation by
sedimentation. The Company has several decades of coagulation and flocculation
experience ranging from conventional municipal and industrial applications to
highly specialized, complex metals removal from industrial wastewater.
Filtration. Filtration is used extensively in water and wastewater
treatment. The Company has a broad array of filtration techniques for
municipal, industrial and commercial applications. Types of filters include
cartridge (backwashable or disposable), diatomaceous earth, pressure leaf,
tubular, multimedia, green sand, walnut shell, pressure, gravity, upflow and
downflow sand filters.
Ceramic Filtration. The Company manufactures ceramic membranes for
filtration. Selective separations can be achieved using Membralox ceramic
membranes in various operating environments--high pressure, high temperature,
harsh chemicals or other extreme operating conditions. Membralox membranes can
increase yields, recover valuable products and concentrate streams in process
operations. These membranes are ideal for use in chemical and petrochemical
processing, food, beverage, dairy, pharmaceutical, process water, and waste
treatment applications. The Company also derives a portion of its revenues
from the sale of industrial ceramics. The Company is a worldwide leader in
ceramic technologies and has established itself as a leading manufacturer of
technologically sophisticated ceramic products. These products include
satellite battery components, capacitors, translucent tubes, fiber-optic
ferrules, biomedical devices and semiconductor housings for many applications,
including the French high-speed rail system.
Incineration and Cogeneration. Incineration is the process of thermal
oxidation of organic compounds to carbon dioxide and water vapor, leaving only
inorganic components such as ash. When organics are burned at high
temperature, off gas is generated with high heat content that can be
recovered. Heat recovery is typically carried out using heat recovery boilers
to produce steam. This steam can be used for heating purposes or by steam
turbines to produce electricity.
12
PATENTS, TRADEMARKS AND LICENSES
The Company currently owns a number of United States and foreign patents.
Although the Company believes
that the patents and trademarks associated with
the Company's various product lines are of value, it does not consider any of
them to be essential to its business.
ENVIRONMENTAL REGULATION
Demand for the Company's products is affected in part by various
environmental laws and regulations enacted throughout the world requiring the
Company's customers to meet environmental standards. A decline in enforcement
or in expenditures to address those regulations could have an adverse effect
on the demand for certainone of the largest distributors of water distribution equipment and
services offered by the
Company.
While the Company endeavors at each of its facilities to assure compliance
with environmental laws and regulations, there can be no assurance that the
Company's operations or activities, or historical operations at the Company's
locations, will not resultsupplies in civil or criminal enforcement actions or private
actions resulting in mandatory cleanup requirements, revocation of required
permits or licenses, denial of applications for future permits, or significant
fines, penalties or damages that could have a material adverse affect on the
Company.
On December 19, 1995 the Regional Administrator of the United States Environmental Protection Agency ("EPA"), Region I, issued an administrative
order (the "EPA Order")based on annual revenues from sales of such
products.
The residential water market is also highly competitive and fragmented. The
Company competes in connectionthis market with wastewater discharges at an ion
exchange regeneration facilitycompanies with national distribution
networks, businesses with regional scope and local product assemblers or
service companies, as well as retail outlets. The principal methods of
competition in South Windsor, Connecticut (the "Facility")
owned by U.S. Filter/Polymetrics, Inc., a wholly-owned subsidiarythis market are distribution capabilities, product
specifications, product knowledge, reputation, technology, service and price.
The Company believes that there are thousands of participants in the household
water market.
PRODUCT WARRANTIES; INSURANCE
The Company generally offers one-year product warranties on its equipment.
In some instances the warranties may be for shorter or longer periods,
consistent with market practices. Performance guarantees apply to most of the
Company ("USFP"), requiring USFP to immediately cease all discharges not in
compliance with applicable pretreatment standards under the United States
Clean Water Act, as amended, and other applicable statutes and regulations.
USFP subsequently received a Notice of Violation (the "NOV") from the
Connecticut Department of Environmental Protection (the "DEP") alleging
multiple violations of the Facility's discharge permit and of the regulations
of the Connecticut state agencies regarding wastewater treatment. USFP was
required to verify by February 12, 1996 that such violations had been
corrected, and it has provided such verification.Company's systems. The DEP reserved in the NOV
the right to take further actions with respect to the alleged violations or
any other violations. A grand jury investigation is pending which is believed
to be related to the same conditions that were the subject of the EPA Order
and the NOV. USFP is continuing to investigate the matter and has been
cooperating with regulatory authorities. The Facility was acquiredcosts incurred by the Company as part ofto date under its acquisition of all of the stock of Polymetrics from
Anjou International Company ("Anjou") on October 2, 1995.product
warranties and systems guarantees have not been material.
The Company has
rights of indemnity from Anjou which could be available with respect to
monetary damages and penalties which may be incurred in connection with any
such violations which occurred prior to the Company's acquisition of
Polymetrics.
The Company's Rockford facility has been identified as a potentially
responsible party ("PRP") under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA" or "Superfund"),
for the cleanup of contamination resulting from past disposals of wastes at a
landfill to which the Company, among others, sent wastes. CERCLA requires PRPs
to pay for cleanup of sites from which there has been a release or threatened
release of hazardous substances. Courts have interpreted CERCLA to impose
strict, joint and several liability upon all persons liable for cleanup costs.
As a practical matter, however, at sites where there are multiple PRPs, the
costs of cleanup typically are allocated among the parties according to a
volumetric or other standard. Although there can be no assurance, the Company
believes, based on the volume of wastes allegedly sent to the site (0.9% of
the total), among other things, that its liability for this site will not be
material. In addition, one of the Company's leased sites was investigated by
the EPA prior to the time the Company began operations at the site. The
Company does not believe that its operations have contributed to the
contamination, and it believes, based in part on certain indemnities, that
other parties are responsible for any cleanup that may be required.
The Company currently is involved in groundwater remediation at its
Rockford, Illinois facility as a result of soil and groundwater contamination
occurring at the facility prior to the Company's acquisition of Alcoa
13
Separations Technology, Inc. ("ASTI") from Aluminum Company of America
("Alcoa"). Similarly, the Company also currently is undergoing remediation for
on-site soil contamination in connection with the closure of its Marlboro
facility. The Company has established reserves which it believes are adequate
to cover its costs related to these efforts, and, as a result, the Company
does not believe either of such remediations is material.
USF Recovery Services Inc., a subsidiary, is the owner and operator of a
hazardous waste treatment and recovery facility and therefore is subject to
stringent regulations and compliance reviews applicable to its hazardous waste
treatment and recovery activities. Failure to comply with those regulations
could result in substantial fines and the suspension or revocation of the
"Part B" treatment, storage and disposal permit currently held by USF Recovery
Services, Inc. pursuant to the U.S. Resource Conservation and Recovery Act
("RCRA") for such activities. The State of Minnesota is authorized to enforce
the hazardous waste laws under RCRA.
In addition, to some extent, the liabilities and risks imposed by
environmental laws that affect the Company's customers may adversely impact
demand for certain of the Company's products or services or impose greater
liabilities and risks on the Company, which could also have an adverse effect
on the Company's competitive or financial position. Furthermore, the
environmental laws and regulations to which the Company, as well as its
customers, are subject are continually changing. If such laws or regulations
should change to impose greater liabilities on the Company or, to some extent,
its customers, this could have an adverse effect on the Company's competitive
or financial condition.
INSURANCE
The Company maintains general liability insurance for itself and its principal domesticUnited States
based and foreigninternational subsidiaries including productsin amounts and completed
operations, automobilewith coverages which the
Company believes to be adequate and employer's liability insurance, inappropriate for the amount of
$35,000,000 per occurrence and in the aggregate, with a self-insured retention
of $100,000. The Company also maintains environmental pollution liability
insurance in the amount of $5,000,000 per occurrence and in the aggregate,
with a self-insured retention of $250,000.covered risks.
EMPLOYEES
As of March 31, 1996,1997, the Company had approximately 3,00010,000 full-time
employees assigned to the Company's various worldwide offices and facilities.
Certain of the Company's United States employees at Rockford, IllinoisIllinois;
Whittier, California; Washington, Illinois; Granite City, Illinois; and
Whittier, CaliforniaWarren, Michigan are covered by collective bargaining agreements, the terms of
which expire, respectively, on April 1, 1999, and April 30, 1998.1998, April 14, 1998,
November 30, 1997 and July 30, 1999. Certain of the Company's non-United
States based employees also are covered by collective bargaining agreements.
The Company believes that its relationships with the unions and with its non-representednon-
represented employees are good.
1413
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of the Company as of June 14, 1996 are as follows:Company:
NAME AGE POSITION
WITH THE COMPANY
---- --- ---------------------------------
Richard J. Heckmann 52Heckmann............. 53 Chairman of the Board of Directors, Chief
Executive Officer and President
Michael J. Reardon 42 Director andReardon.............. 43 Executive Vice President
Nicholas C. Memmo 34Memmo............... 35 Executive Vice President--Process Water
Group
Thierry ReynersReyners................. 52 Executive Vice President--European Group
Andrew D. Seidel 34 SeniorSeidel................ 35 Executive Vice President--Wastewater Group
Harry K. Hornish, Jr. .......... 52 Executive Vice President--Distribution
Group
Kevin L. Spence 39Spence................. 40 Vice President and Chief Financial Officer
Damian C. Georgino 35Georgino.............. 36 Vice President, General Counsel and
Secretary
Tim L. Traff 37 Director andTraff.................... 38 Senior Vice President
John S. Swartley 57Swartley................ 58 Senior Vice President--Corporate
Development
James W. Dierker 33Dierker................ 34 Vice President, Controller and Treasurer
Michael E. Hulme, Jr. 34.......... 35 Assistant General Counsel and Assistant
Secretary
Richard J. Heckmann was elected Chairman of the Board of Directors, Chief
Executive Officer and President of the Company on July 16, 1990. Mr. Heckmann
was a Senior Vice President at Prudential-Bache Securities in Rancho Mirage,
California from January 1982 to August 1990. He joined the United StatesU.S. Small Business
Administration in 1977 and served as Associate Administrator for Finance and
Investment from 1978 to 1979. Prior thereto he was founder and Chairman of the
Board of Tower Scientific Corporation, a manufacturer of custom prosthetic
devices, which was sold to Hexcel Corporation in 1977. Mr. Heckmann is a
member of the management board of TWO. He is also a director of U.S.A.USA Waste
Services, Inc. and K2, Inc.
Michael J. Reardon was appointed Executive Vice President of the Company in
June of 1995, having previously served as Executive Vice President and Chief
Operating Officer, and prior to that as the Chief Financial Officer and
Secretary of the Company. From May 1995 to April 1996, Mr. Reardon served as
presidentPresident of Arrowhead Industrial Water, Inc. a subsidiary of the Company. He
became President and General Manager of Illinois Water Treatment, Inc. ("IWT"), a
subsidiary of the Company, in March 1992. From 1981 to July 1990 he was Chief
Financial Officer of The C&C Organization, a company engaged in restaurant
ownership, management and construction. Mr. Reardon is a certified public
accountant and was a senior auditor with Arthur Andersen & Co. from 1978 to
1981. Mr. Reardon is a member of the management board of TWO
(USF/Nalco Joint Venture).TWO. In June 1978,
Mr. Reardon received a B.S. in Business Administration from California State
Polytechnic University, Pomona,
California, and infrom 1994 to 1995 attended the Kellogg Management
Institute, Northwestern University, Evanston, Illinois.University.
Nicholas C. Memmo was appointed Executive Vice President--Process Water
Group on July 1, 1995, having previously served as Senior Vice President and
General Manager of Ionpure since March 7, 1994. He had previously been Senior
Vice President--Sales & Marketing since December 8, 1992. Mr. Memmo had also
been the senior operating officer of U.S. Filter/Whittier, Inc. since January
1992, having previously been Marketing Manager of that company since January
1991. He was appointed General Manager in April 1992. Mr. Memmo was employed
from July 1984 to September 1988 with Hercules Incorporated, a New York Stock
Exchange specialty chemical and aerospace company, in sales, marketing and
distribution positions. Mr. Memmo received a B.S. degree in chemical
engineering from Drexel University. Between his employment with Hercules and
the Company, he completed an M.B.A. program at the John E. Anderson Graduate
School of Management at UCLA.
Thierry Reyners was appointed Executive Vice President--European Group on
July 1, 1995, having previously served as Senior Vice President--Europe since
March 7, 1994. He had previously been Senior Vice President--European Sales
since December 1, 1993, the date the Company acquired Ionpure. Mr. Reyners
served 15
as Vice President and General Manager--Europe of Ionpure Technologies
Corporation from 1990 to December
14
1993, and from 1981 through 1989 he was employed by Millipore Corporation,
including as European Area Manager from 1987 through 1989. Mr. Reyners has a
Ph.D. in Organic Chemistry from the Research Institute in Natural Substances,
University of Orsay, France and an M.B.A. from INSEAD, Fontainebleau, France.
Andrew D. Seidel was appointed Executive Vice President--Wastewater Group on
July 1, 1995, having previously served as Senior Vice President--Wastewater
Group and General Manager of U.S. Filter, Inc., Warrendale, Pennsylvania,
since September 28, 1993. He had previously served as Vice President--
Membralox Group since December 8, 1992, and had been General Manager of
Membralox since March 1992. From October 1991 to March 1992, Mr. Seidel was
Marketing Manager for U.S. Filter/Marlboro, Inc. From October 1990 until his
employment by the Company, he was a senior consultant with Deloitte & Touche
Management Consulting. Mr. Seidel had various responsibilities with Hercules
Incorporated from 1984 through 1988, including technical marketing and product
management at Hercules Specialty Chemical Company and Quality Control/Process
Engineering in Hercules Aerospace Company. Mr. Seidel received a B.S. degree
in chemical engineering from the University of Pennsylvania. Between his
employment with Hercules and Deloitte & Touche, he completed an M.B.A. program
at the Wharton School, the University of Pennsylvania.
Harry K. Hornish, Jr. was appointed Executive Vice President--Distribution
Group on February 20, 1997. Mr. Hornish began his career in distribution in
1974 with Owens Corning Fiberglas Corporation ("OCF"). In 1987, Mr. Hornish
was hired by CertainTeed Corporation ("CertainTeed") as President of their
Building Materials Distribution Group, which was sold by CertainTeed in 1990.
In November 1991, CertainTeed named Mr. Hornish as President of its Utility
Supply Group, Inc. ("USG"). Mr. Hornish led a buyout of USG from CertainTeed
in 1994. Mr. Hornish continued to serve as President of USG until October 25,
1996, when the Company acquired USG. Mr. Hornish holds a B.A. in Political
Science and Business Administration from Marshall University.
Kevin L. Spence was appointed Vice President of the Company on December 8,
1991 and has been Chief Financial Officer of the Company since January 6, 1992
and was Treasurer from February 17, 1992 until June 9, 1995. From October 1989
through 1991 he was Chief Financial Officer, first with Cal-Star Financial, a
mortgage banker, and then with American National Corporation, a manufacturer
of bedding materials. Mr. Spence is a
certified public accountant and was with KPMG Peat Marwick LLP from 1978 to
September 1989 and a partner with that firm from July 1988. Mr. Spence
received a B.S. in Business Administration from the University of Southern
California.
Damian C. Georgino was appointed Vice President, General Counsel and
Secretary of the Company on August 4, 1995. From September 1992 through July
31, 1995, he served as General Attorney with Aluminum Company of America
("Alcoa"), where his primary responsibilities included mergers and
acquisitions and serving as chief legal counsel for several growing
international manufacturing and service businesses. From June 1988 through
August 1992, Mr. Georgino was an Attorney with Alcoa, where his primary
responsibilities included securities, mergers and acquisitions and corporate
finance. From June 1986 through May 1988, he was an associate with Houston
Harbaugh P.C. Mr. Georgino received a B.S. degree in economics and political
science from Dickinson College in 1982 and received a JD/MBA joint degree from
Emory University in 1986.University.
Tim L. Traff was appointed a Senior Vice President of the Company on
December 8, 1992, having previously been Vice President--Corporate Development
since March 1992. He had been President of Traff Capital Management, a money
management company, since 1989. From 1985 to 1988 he was an analyst at SIT
Investment, a money management company. Mr. Traff received a B.S. degree in
business economics from the University of Minnesota.
John S. Swartley was appointed Senior Vice President--Corporate Development
on July 1, 1995, having previously served as a Vice President since July 1994,
when the Company acquired Liquipure Technologies, Inc. ("Liquipure"). Mr. Swartley had
started a new business in 1988 with venture capital backing from Warburg,
Pincus Capital Company, L.P., and made a series of water treatment company
acquisitions that ultimately became Liquipure. From 1982 through 1987 he was
at Olin Corporation as president of its consumer products group, which dealt
mainly with pool chemicals. From 1965 through 1982 he was with General Foods
in various marketing,
15
development and management positions. He received a degree in chemical
engineering from Lehigh University and an M.B.A. degree from Harvard Business
School.
James W. Dierker was appointed Vice President, Controller and Treasurer on
June 9, 1995. From July 1985 to June 1995 he was with KPMG Peat Marwick LLP,
and was a senior manager with that firm at the time of his departure. Mr.
Dierker is a certified public accountant, and received a B.S. degree in
business administration with an emphasis in accounting from California State
Polytechnic University in Pomona.
16
University.
Michael E. Hulme, Jr. was appointed Assistant General Counsel and Assistant
Secretary on February 13, 1996. From December 1994 through January 1996, he
served as Vice President/Corporate Counsel of Forte Hotels, Inc., formerly a
wholly owned subsidiary of Forte Plc, and from October 1992 through December
1994 as Corporate Counsel of Forte Hotels, Inc. His primary responsibilities
included hotel and real estate development, acquisition and sale transactions.
From 1989 through 1992 he was a business associate with the law firm of Duckor
& Spradling, and from 1986 through 1989 he was an associate with the law firm
of Best, Best & Krieger. Mr. Hulme received ana B.A. degree in economics from
the University of California at Davis in 1983 and received a JD from the
University of Southern California in 1986.
ITEM 2--PROPERTIES
The Company has a global network of 125approximately 470 sales and service
facilities including 21and 63 manufacturing plants. Because the Company has grown by
acquisition, the Company's facilities vary in terms of age and condition, but
management generally believes that these facilities are suitable and adequate
for their respective operations. As discussed in "Business--General," the
Company intends to seek additional properties to enhance its geographic
network, customer base, and range of product offerings, technologies and
industries served.
The Company's principal facilities as of March 31, 1996 are listed below.
Many of the Company's manufacturing
facilities operated at or near their productive capacities during 1996. Of thosefiscal 1997.
The Company's corporate headquarters is located in a Company-owned office
building in Palm Desert, California, with 18,000 square feet of floor space. A
description of the Company's other principal facilities listed below whichis included in Item 1
of this Form 10-K. Approximately 20% of the Company's manufacturing facilities
are owned, threewith the remainder under leases expiring from June 30, 1997 through
April 30, 2026, in most cases with Company options to renew. Of the Company's
37 regeneration plants, 11 are owned and the majority of the remainder are
held under short-term leases. In most cases, the Company's 63 manufacturing
and 37 regeneration plants include sales and service offices. The Company also
owns or leases various small production facilities not described in this Form
10-K. A small number of the Company's facilities are subject to mortgages
securing notes payable due in fiscal years 1999 and 2009.2010. See Note 11 of Notes
to Consolidated Financial Statements.
DATE OF
SQUARE FOOTAGE LEASE
FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED) EXPIRATION
----------------- ------------- ----------------- ----------
NORTH AMERICA
Pure Water
U.S. Filter/IWT Industrial process 163,000 (owned) --
Rockford, IL filtration and treatment
systems
U.S. Filter/Whittier Industrial and municipal 89,500 (leased) 03/31/99
Whittier, CA water treatment systems
U.S. Filter/Ionpure Ultrapure water systems; 57,692 (leased) 04/01/00
Lowell, MA CDI; regional
administrative center
U.S. Filter/Continental Ultrapure water systems; 33,246 (leased) 04/29/98
San Antonio, TX SDI
U.S. Filter/Polymetrics Industrial process 23,000 (leased)* 08/31/96
Colorado Springs, CO filtration; ultra pure 11,500 (leased)* 06/30/96
water systems and water
treatment systems
U.S. Filter/Penfield Ultrapure water systems 23,300 (leased) 03/31/07
Plantsville, CT
U.S. Filter/Permutit Condensate polishing 20,460 (leased) 01/31/01
Warren, NJ equipment
U.S. Filter/Arrowhead** Headquarters for on-site 14,758 (leased) 05/31/99
Lincolnshire, IL and mobile treatment
systems and services;
SDI
17
DATE OF
SQUARE FOOTAGE LEASE
FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED) EXPIRATION
----------------- ------------- --------------- ----------
NORTH AMERICA
Wastewater
U.S. Filter/Zimpro*** Wastewater treatment 94,579 (owned) --
Rothschild, WI equipment for industrial
and municipal users
U.S. Filter/Warrendale Assembly of treatment 71,000 (owned) --
Warrendale, PA systems; SDI
U.S. Filter/WTS Industrial wastewater 35,000 (leased) 11/20/00
Sunnyvale, CA treatment systems
U.S. Filter/Jet Tech Wastewater treatment 30,000 (owned) --
Edwardsville, KS systems for industrial
and municipal users
EUROPE
U.S. Filter/SCT Ceramic filters and 170,000 (owned) --
Tarbes, France various industrial
ceramic components
U.S. Filter/Seral Laboratory equipment 73,000 (owned) --
Ransbach-Baumbach, Germany manufacturing; SDI
U.S. Filter/Permutit Water treatment systems; 30,000 (leased) 03/25/05
Manchester, England SDI
U.S. Filter/Ionpure Water treatment systems 25,000 (leased) 11/15/99
Trappes, France
U.S. Filter/Smogless Plastic media 21,650 (owned) --
Naples, Italy
U.S. Filter/Bekox Water treatment systems 20,174 (owned) --
Madrid, Spain
U.S. Filter/Smogless Wastewater treatment 16,250 (leased) 02/29/00
Milan, Italy services for industrial
and municipal customers
U.S. Filter/Sanilo Water treatment systems; 14,450 (owned) --
Toulouse, France SDI
U.S. Filter/Sanilo Water treatment systems; 11,000 (owned) --
Amboise, France SDI
ASIA
U.S. Filter (Asia) Pte. Ltd. Water treatment systems, 30,000 (owned) --
Woodlands, Singapore ultrapure water systems;
SDI
U.S. Filter/Permutit Water treatment systems 14,500 (leased) 03/30/98
New South Wales, Australia
- --------
* The Company purchased a 77,000 square foot buildingStatements included in Colorado Springs
which it intends to occupy during the summerItem 8 of 1996.
** The Company intends to close this facility at the end of summer 1996, at
which time operations will be moved to the Rockford, Illinois facility.
***Acquired on May 31, 1996 in connection with the acquisition of Zimpro.
As part of its service business, the Company, through its subsidiaries and
TWO, builds, owns and/or leases and operates water purification and wastewater
facilities under long-term operating contracts on behalf of industrial users
and public water and wastewater treatment providers.
18
In addition, the Company operates 36 regeneration plants in 16 states and
nine countries, of which seven are owned and the majority of the remainder are
held under short-term leases. As part of the Company's SDI business, these
regeneration plants use chemical processes to recharge exhausted resins used
in portable water deionization treatment equipment. The Company also owns and
operates a 69,000 square foot RCRA Part B hazardous waste treatment facility
located in Roseville, Minnesota. Further, under concession agreements with
various governmental entities, the Company operates municipal treatment
facilities in Latin America, including a residential wastewater treatment
facility located in the City of Cuernavaca, Mexico.
As further described in "Business--Sales and Marketing," the Company owns 12
distributors of the Company's Continental product line located in eight
states. Each company-owned distributor occupies approximately 10,000 square
feet.
In March 1996 the Company moved its corporate headquarters to a new location
in Palm Desert, California. The two-story office building in which corporate
headquarters are now housed is owned by the Company and has 18,000 square feet
of floor space.Form 10-K.
ITEM 3--LEGAL PROCEEDINGS
The information requiredVarious lawsuits, claims and proceedings have been or may be instituted or
asserted against the Company, including those pertaining to environmental,
product liability and safety and health matters. While the amounts claimed may
be substantial, the ultimate liability cannot now be determined because of the
considerable uncertainties that exist. Therefore, it is possible that results
of operations or liquidity in a particular period could be materially affected
by this Itemcertain contingencies. However, based on facts currently available,
management believes that the disposition of matters that are pending or
asserted will not have a materially adverse effect on the financial position
of the Company. Information regarding certain environmental contingencies is
incorporated herein by reference to Item 1
of Part I7 of this Form 10-K under the caption
"Environmental Regulation.""Certain Trends and Uncertainties--Potential Environmental Risks".
ITEM 4--SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
1916
PART II
ITEM 5--MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE AND HOLDERS OF COMMON STOCK
The Common Stock of the Company (the "Common Stock") is listed on the New York Stock Exchange and
traded under the symbol "USF." The following table sets forth for the quartersfiscal
periods indicated the high and low composite sales prices of the Common Stock as
reported byon the New York Stock Exchange.Exchange Composite Tape. No cash dividends were
paid on the Common Stock during such periods. The amounts below have been
adjusted to reflect a three for two split of the Common Stock effective July
15, 1996.
HIGH LOW
------ ------
Fiscal year ended March 31, 19951996
1st Quarter................................................... $14.50 $12.17Quarter................................................. $13.08 $ 9.92
2nd Quarter................................................... 14.67 12.25Quarter................................................. 16.08 12.50
3rd Quarter................................................... 16.13 13.17Quarter................................................. 18.00 13.42
4th Quarter................................................... 16.88 15.00Quarter................................................. 19.33 16.42
Fiscal year ended March 31, 19961997
1st Quarter................................................... 19.63 14.88Quarter................................................. $23.75 $18.42
2nd Quarter................................................... 24.13 18.75Quarter................................................. 34.75 18.50
3rd Quarter................................................... 27.00 20.13Quarter................................................. 36.25 30.38
4th Quarter................................................... 29.00 24.63Quarter................................................. 39.00 28.88
On June 24, 1996,23, 1997, the last reported sales price for the Common Stock as
reported on the New York Stock Exchange Composite Tape was $33.88$28.38 per share.
The number of holders of record of the Common Stock on June 18, 199623, 1997 was
4,062.approximately 3,312.
DIVIDENDS
The Company currently intends to retain earnings to provide funds for the
operation and expansion of its business and accordingly does not anticipate
paying cash dividends on the Common Stock in the foreseeable future. Any
payment of cash dividends on the Common Stock in the future will depend upon
the Company's financial condition, earnings, capital requirements and such
other factors as the Board of Directors deems relevant. Under the Company's
credit agreement with lenders for whom The First National Bank of Boston and First Interstate
Bank of California,is
acting as Managing Agent, no dividends may be paid on the Common Stock without
the consent of those banks.
20lenders whose lending commitments constitute a majority of the
lending commitments thereunder.
17
ITEM 6--SELECTED CONSOLIDATED FINANCIAL DATA
FISCAL YEAR ENDED MARCH 31,(1)
-----------------------------------------------
1992(2) 1993(3) 1994(4) 1995(5) 1996(10)----------------------------------------------
1993(2) 1994(3) 1995(4) 1996(5) 1997(7)
-------- ------- -------- -------- -------- --------------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues...................... $62,840 $128,376 $180,421 $272,032 $472,537Revenues....................... $416,725 475,236 600,832 812,322 1,376,601
Cost of sales................. 48,259 93,896 132,811 193,432 328,057sales.................. 326,618 376,441 463,959 606,226 1,026,248
-------- ------- -------- -------- -------- --------------- ------- ---------
Gross Profit.................. 14,581 34,480 47,610 78,600 144,480Profit............... 90,107 98,795 136,873 206,096 350,353
Selling, general and
adminis-
trative expenses............. 20,871 33,832 52,484 64,015 109,525administrative expenses....... 84,058 101,153 108,826 160,714 261,859
Merger expenses: -- -- -- -- 5,581
-------- ------- ------- ------- ---------
84,058 101,153 108,826 160,714 267,440
-------- -------- -------- --------------- ------- ------- ---------
Operating income (loss)....... (6,290) 648 (4,874) 14,585 34,955.... 6,049 (2,358) 28,047 45,382 82,913
Other income (expenses):
Interest expense.............. (1,016) (1,327) (2,077) (5,384) (12,546)
Other income.................. 770 639 1,174 1,787 4,963
Provision (benefit) for income
taxes........................ 51 298 (3,236) 2,657 7,082expense........... (4,044) (4,486) (8,058) (15,212) (22,585)
Other...................... 915 (7,335) 1,280 4,979 3,350
-------- ------- ------- ------- ---------
(3,129) (11,821) (6,778) (10,233) (19,235)
-------- -------- -------- --------------- ------- ------- ---------
Income (loss) before extraor-
dinary items................. (6,587) (338) (2,541) 8,331 20,290income
tax expense (benefit) and
extraordinary items....... 2,920 (14,179) 21,269 35,149 63,678
Income tax expense (benefit)... 1,237 (6,287) 6,002 13,182 17,481
-------- ------- ------- ------- ---------
Income (loss) before
extraordinary items....... 1,683 (7,892) 15,267 21,967 46,197
Extraordinary items(6)........ -- 405items(2)......... 864 -- -- -- --
-------- ------- -------- -------- -------- --------------- ------- ---------
Net income (loss)............. $(6,587).......... $ 67 $ (2,541) $ 8,331 $ 20,2902,547 (7,892) 15,267 21,967 46,197
======== ======= ======== ======== ======== =============== ======= =========
Weighted average number of
common shares outstanding(8). 7,846 10,095 12,453 15,026 24,309outstanding..... 22,367 25,904 29,763 43,688 60,324
PER COMMON SHARE DATA:(7)(8)(6)
Income (loss) before
extraor-
dinary items................. (0.88) (0.16) (0.26) 0.51 0.81extraordinary items........... $ 0.02 (0.33) 0.49 0.49 0.77
Extraordinary items(6)........ --items(2)......... 0.04 -- -- -- --
-------- ------- -------- -------- -------- --------------- ------- ---------
Net income (loss)........................... $ (0.88) $ (0.12) $ (0.26) $ 0.51 $ 0.810.06 (0.33) 0.49 0.49 0.77
======== ======= ======== ======== ======== =============== ======= =========
CONSOLIDATED BALANCE SHEET DATA
(END OF PERIOD):
Working capital............... $11,445capital................ $ 23,471 $ 66,018 $ 82,208 $103,25770,258 108,602 126,417 138,652 471,597
Total assets.................. 89,501 121,178 253,185 378,728 789,011
Long-termassets................... $241,652 377,893 508,083 904,337 2,228,328
Notes payable and long-term
debt, including current
portion.............. 10,002 5,012 4,913 10,825 9,680portion....................... $ 36,220 33,858 61,916 60,736 31,968
Convertible subordinated debt. --debt.. $ -- 60,000 105,000 200,000 Stockholders' equity.......... 41,219 79,631 125,610 137,144 341,335554,000
Shareholders' equity........... $121,226 161,004 177,085 379,611 1,028,850
2118
The historical consolidated financial data for all periods presented prior
tothe fiscal years ended March
31, 1993, 1994, 1995 hasand 1996 have been restated to include the accounts and
operations of Liquipure Technologies,Zimpro Environmental, Inc. ("Liquipure"Zimpro"),. Davis and Sidener which
waswere merged with the Company in July 1994May 1996, August 1996 and March 1997,
respectively, and accounted for as a poolingpoolings of interests. Separate results of
operations of the combined entities for the years ended March 31, 1992, 1993 1994, 1995 and 1996through
March 31, 1997 are presented below.below:
FISCAL YEAR ENDED MARCH 31,
----------------------------------------------
1992(2) 1993(3) 1994(4) 1995(9) 1996(10)(1)
---------------------------------------------
1993(2) 1994(3) 1995(4) 1996(5) 1997(7)
-------- ------- -------- -------- -------- --------------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUES:REVENUES
Company (as previously
reported)..................... $41,238 $101,397 $147,870 $272,032 $472,537
Liquipure...................... 21,602 26,979 32,551...................... $128,376 180,421 272,032 472,537 1,376,601
Zimpro.......................... 38,675 29,470 31,678 28,877 --
Davis........................... 190,990 202,621 215,649 226,489 --
Sidener......................... 58,684 62,724 81,473 84,419 --
-------- ------- -------- -------- -------- --------
Combined....................... $62,840 $128,376 $180,421 $272,032 $472,537
GROSS PROFIT:------- ------- ---------
$416,725 475,236 600,832 812,322 1,376,601
======== ======= ======= ======= =========
OPERATING INCOME (LOSS)
Company (as previously
reported)........................................... $ 8,692648 (4,874) 14,585 34,955 82,913
Zimpro.......................... 1,454 (1,687) 1,026 (5,200) --
Davis........................... 1,559 1,506 7,512 10,892 --
Sidener......................... 2,388 2,697 4,924 4,735 --
-------- ------- ------- ------- ---------
$ 27,166 $ 39,046 $ 78,600 $144,480
Liquipure...................... 5,889 7,314 8,564 -- --
------- -------- -------- -------- --------
Combined....................... $14,581 $ 34,480 $ 47,610 $ 78,600 $144,4806,049 (2,358) 28,047 45,382 82,913
======== ======= ======== ======== ======== ========
OPERATING======= ======= =========
NET INCOME (LOSS):
Company (as previously
reported)..................... $(4,165) $ 4,708 $ 2,089 $ 14,585 $ 34,955
Liquipure...................... (2,125) (4,060) (6,963) -- --
------- -------- -------- -------- --------
Combined....................... $(6,290) $ 648 $ (4,874) $ 14,585 $ 34,955
======= ======== ======== ======== ========
NET INCOME (LOSS):
Company (as previously
reported)(6).................. $(3,964) $ 4,402 $ 4,986 $ 8,331 $ 20,290
Liquipure...................... (2,623) (4,335) (7,527) -- --
------- -------- -------- -------- --------
Combined....................... $(6,587)...................... $ 67 (2,541) 8,331 20,290 46,197
Zimpro.......................... 471 (1,513) 460 (6,732) --
Davis........................... 653 (5,340) 3,448 5,749 --
Sidener......................... 1,356 1,502 3,028 2,660 --
-------- ------- ------- ------- ---------
$ (2,541) $ 8,331 $ 20,2902,547 (7,892) 15,267 21,967 46,197
======== ======= ======== ======== ======== =============== ======= =========
NET INCOME (LOSS) PER COMMON
SHARE:(6)(7)(8)
As previously reported.........reported.......... $ (0.71)(0.08) (0.17) 0.34 0.54 --
As restated..................... $ 0.38 $ 0.41 $ 0.51 $ 0.81
------- -------- -------- -------- --------
As restated.................... $ (0.88) $ (0.12) $ (0.26) $ 0.51 $ 0.81
======= ======== ======== ======== ========0.06 (0.33) 0.49 0.49 0.77
- --------
(1) The historical consolidated financial data for all periods presented prior
tothe fiscal 1995 hasyears ended
March 31, 1993 through March 31, 1996 have been restated to include the
accounts and operations of Liquipure,Zimpro, Davis and Sidener, which waswere merged
with the Company in July 1994May 1996, August 1996, and March 1997, respectively,
and accounted for as a poolingpoolings of interests.
(2) The fiscal year ended March 31, 1992 includes eight months of results of
Lancy Waste Management Systems (now U.S. Filter, Inc., Warrendale, PA),
acquired on July 31, 1991, and three months of results of Alcoa
Separations Technology, Inc. ("ASTI"), acquired from a subsidiary of
Aluminum Company of America ("Alcoa") on January 6, 1992. Each of these
acquisitions was accounted for as a purchase. Losses from ASTI (which had
operated at a loss in each of the prior three years) since its acquisition
and the effect of the acquisition on the Company's existing operations
contributed significantly to the Company's loss for the fiscal year ended
March 31, 1992. As a result of such losses incurred by ASTI and certain
purchase accounting adjustments, and pursuant to the terms of the ASTI
acquisition agreement, an acquisition note payable to Alcoa was reduced by
$5,000,000. Such reduction in the note was treated as a purchase price
adjustment and as such did not affect the Company's results of operations.
(3) The fiscal year ended March 31, 1993 includes 12twelve months of results of
Societe des Ceramiques Techniques, S.A. ("SCT"), acquired on April 1, 1992
and three months of results of The Permutit Company, Inc., a United States company
acquired on January 5, 1993. Both acquisitions were1993, accounted for as purchases. See Note 9The fiscal year
ended March 31, 1993 also includes extraordinary gains of Notes to Consolidated Financial Statements.
(4)$.4 million
resulting from the forgiveness of debt in connection with the buyout of a
capital lease obligation and $.5 million resulting from the Company's
Davis subsidiary's adoption of SFAS No, 109, "Accounting for Income
Taxes."
(3) The fiscal year ended March 31, 1994 includes four months of results of
Ionpure Technologies Corporation and IP Holding Company ("Ionpure"),
acquired on December 1, 1993 and accounted for as a purchase.
22
Selling,
general and administrative expenses for the year ended March 31, 1994
reflect four months of integration of Ionpure, and certain charges totaling
$2,359,000$2.4 million related to the rationalization of certain wastewater
operations.
(5)operations and write-off certain intangibles in the Company's Continental
Penfield subsidiary totaling $3.7 million. In addition, the year ended
March 31, 1994 includes a charge of $8.9 million to reflect a plan to
shutdown and reorganize certain operations of Davis.
(4) The fiscal year ended March 31, 1995 includes the results of operations of
Smogless S.p.A., Crouzat S.A., Sation S.A., Seral Erich Alhauser GmbH and
the CerafloCereflo ceramic product line from the dates of their respective
acquisitions, accounted for as purchases.
19
(5) The fiscal year ended March 31, 1996 includes the results of operations of
The Permutit Company Limited and The Permutit Company Pty Ltd., Interlake
Water Systems, Arrowhead Industrial Water Inc. and Polymetrics Inc. from
the dates of their respective acquisitions, accounted for as purchases.
See Note 9 of Notes to Consolidated Financial Statements. (6) Includes an extraordinary gain of $405,000Selling, general
and administrative expenses for the fiscal year ended March 31, 1993 resulting from1996 includes
charges totaling $3.2 million related to the forgivenesswrite-down of debt in connection with the
buyoutcertain patents
and equipment of a capital lease obligation.
(7) AmountsZimpro.
(6) Net income (loss) per common share amounts are after (i) dividends on the
Series A Preferred Stock of $165,000 for the fiscal year ended March 31, 1992, $660,000$.7 million for the fiscal year ended March
31, 1993, $701,000$.7 million for the fiscal year ended March 31, 1994, $715,000$.7
million for the fiscal year ended March 31, 1995 and $536,000$.5 million for the
fiscal year ended March 31, 1996 and (ii) accretion on the Series A
Preferred Stock, a noncash accounting adjustment required by Securities
and Exchange Commission Staff Accounting Bulletin No. 68 ("SAB 68"), in
the amountsamount of $154,000 for the fiscal year ended March 31, 1992 and
$617,000$.6 million for the fiscal year ended March 31, 1993. As of
April 1, 1993 the Company and the holder of the Series A Preferred Stock
agreed to a fixed dividend of $715,000$.7 million per year on the Series A
Preferred Stock thus eliminating the increasing rate and, therefore, the
accretion of dividends pursuant to SAB 68. On March 4, 1996, the holder of theThe Series A Preferred Stock
was converted its shares into Common Stock.
(8) Reflects a 3-for-2 split of the Common Stock effective December 5, 1994.
(9) The financial data for the year ended March 31, 1995 include three months
of results of Liquipure prior to the merger and nine months of results of
Liquipure after the merger. In addition, the net income (loss) per common
share for the year ended March 31, 1995 reflects the issuance of 1,852,221 shares of Common Stock in conjunction with the Liquipure merger.
(10)March 1996.
(7) The financial data for thefiscal year ended March 31, 19961997 includes the results of operations of
Polymetrics, Interlake, ArrowheadUSG, WaterPro, WSMG, and the Permutit GroupPED from the dates of their respective
acquisitions, accounted for as purchases. See(See Note 9 of Notes to
Consolidated Financial Statements.) The year ended March 31, 1997 also
includes merger expenses of $5.6 million, related to the acquisition of
Davis, which was accounted for as a pooling of interests.
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contained in this Item 7 should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this Form 10-K.
GENERAL
The Company's primary objectivestrategy is to offer customers a single-source solution to their waterindustrial
and wastewater treatment needs.municipal customers through what the Company believes is the industry's
broadest range of cost-effective systems, products, services and proven
technologies. Accordingly, since July 1991, the Company has acquired and
integrated a number ofmore than 75 businesses with substantial expertise in the design
and manufacture of systems forof the filtration purification and treatment of water and
wastewater. These
acquisitions have enabled the Company to differentiate itself from its
competitors as one of the most comprehensive providers of water treatment
products and services, and generally provide the Company with economies of
scale through enhanced purchasing power, increased asset utilization, and
decreased operating expenses due to rationalization of operations. Due to the magnitude of these acquisitions and the Company's integration of
the acquired operations with itsthe Company's existing businesses, results of
operations for prior periods are not necessarily comparable to or indicative
of results of operationsoperation for current or future periods.
RESULTS OF OPERATIONS
In July 1994May 1996, August 1996 and March 1997 subsidiaries of the Company merged
with LiquipureZimpro, Davis, and Sidener, respectively, in a transactiontransactions accounted for
as a poolingpoolings of interests. Accordingly, the historicalHistorical consolidated financial data for all periods presented hasthe
fiscal years ended March 31, 1993 through March 31, 1996 have been restated to
include the
accounts and operations of Liquipure.
23reflect these acquisitions.
20
The following table sets forth for the periods indicated certain items in
the Selected Consolidated Financial Data and the percentagesas a percentage of total revenues
such items represent.revenues:
FISCAL YEAR ENDED
MARCH 31,
--------------------
1994 1995 1996 ----- ----- -----1997
------ ------ ------
Revenues...............................................Revenues................................................ 100.0% 100.0% 100.0%
Cost of sales.......................................... 73.6% 71.1% 69.4%sales........................................... 77.2% 74.6% 74.5%
Gross profit........................................... 26.4% 28.9% 30.6%profit............................................ 22.8% 25.4% 25.5%
Selling, general and administrative expenses........... 29.1% 23.5% 23.2%expenses............ 18.1% 19.8% 19.0%
Merger expense.......................................... -- -- 0.4%
Operating income (loss)................................ (2.7)% 5.4% 7.4%income........................................ 4.7% 5.6% 6.0%
Interest expense....................................... 1.2 % 2.0%expense........................................ 1.3% 1.9% 1.6%
Net income.............................................. 2.5% 2.7% Net income (loss)...................................... (1.4)% 3.1% 4.3%
The following table sets forth a percentage breakdown of the Company's sales
by product category for the past three fiscal years.
3.4%
The following table sets forth a percentage breakdown of the Company's sales
by product category for the past three fiscal years:
FISCAL YEAR ENDED
MARCH 31,
----------------
1994--------------------
1995 1996 ---- ---- ----1997
------ ------ ------
Sales by product category:
Capital equipment............................................ 63% 60% 49%equipment..................................... 36% 35% 40%
Services and operations...................................... 19% 19%operations............................... 8% 18% 14%
Distribution.......................................... 42% 33% 31%
Replacement parts, consumables and other..................... 18% 21% 20%other.............. 14% 14% 15%
TWELVE MONTHS ENDED MARCH 31, 1997 ("FISCAL 1997") COMPARED WITH TWELVE MONTHS
ENDED MARCH 31, 1996 ("FISCAL 1996")
Revenues
Revenues for fiscal 1997 were $1,376.6 million, an increase of $564.3
million from $812.3 for the comparable period of the prior fiscal year. This
69.5% increase was due primarily to acquisitions completed by the Company
after fiscal 1996. For fiscal 1997 revenues from capital equipment sales
represented 40.0% of total revenues, while revenues from services and
operations represented 14.0% of total revenues, revenues from distribution
represented 31.0% of total revenues and revenues from replacement parts and
consumables represented 15.0% of total revenues.
Gross Profit
Gross profit increased 70.0% to $350.4 million for fiscal 1997 from $206.1
million for the comparable period of the prior fiscal year. Total gross profit
as a percentage of revenue ("gross margin") was 25.5% for fiscal 1997 compared
to 25.4% for the comparable period of the prior fiscal year.
Selling, General and Administrative Expenses
For fiscal 1997, selling, general, and administrative expenses, excluding
merger expenses, increased $101.2 million to $261.9 million as compared to the
$160.7 million in the comparable period in the prior year. During this period,
selling, general and administrative expenses, excluding Davis merger expenses,
were 19.0% of revenues compared to 19.8% for the comparable period in the
prior year. This decrease was primarily due to certain economies of scale
accompanying the Company's recent acquisitions.
Excluding Davis merger expenses, operating income as a percentage of
revenues increased to 6.4% for fiscal 1997 from 5.6% for the corresponding
period in fiscal 1996 due primarily to the decrease in the percentage of
selling, general and administrative expense to revenues.
21
Merger Expenses
Merger expenses were incurred during fiscal 1997 relating to the Company's
acquisition of Davis which was accounted for as a pooling of interests. These
merger expenses, which totaled $5.6 million, consisted primarily of investment
banking fees, printing, stock transfer fees, legal fees, accounting fees,
governmental filing fees and certain other costs related to existing Davis
pension plans and change of control payments.
Interest Expense
Interest expense increased to $22.6 million for fiscal 1997 from $15.2
million for the corresponding period in the prior year. Interest expense for
fiscal 1997 consisted primarily of interest on the Company's: (i) 5%
Convertible Debentures due 2000 (all of which were, as of October 25, 1996,
converted into shares of Common Stock); (ii) 6% Convertible Subordinated Notes
due 2005 issued on September 18, 1995; (iii) 4.5% Convertible Subordinated
Debentures due 2001 issued on December 11, 1996; and (iv) borrowings under the
Company's bank line of credit. At March 31, 1997, the Company had cash, cash
equivalents and short-term investments of $128.4 million.
Income Tax Expense
Income tax expense increased to $17.5 million in fiscal 1997 from $13.2
million in the corresponding period in the prior year. The Company's effective
tax rate for fiscal 1997 was 27.5% as compared to 37.5% in the corresponding
period in the prior year. At March 31, 1997, the Company had net operating loss
carryforwards of approximately $16.4 million in France for which financial
statement benefit was recognized in fiscal 1997.
Net Income
For fiscal 1997 net income increased $24.2 million to $46.2 million from
$22.0 million for the same period in the prior year. Excluding Davis merger
expenses, net income totaled $50.2 million, an increase of 128.2% over the same
period in the prior year. Net income per common share for fiscal 1997 and 1996
were as follows:
1997 1996
----- -----
Before merger expenses......................................... $0.83 $0.49
After merger expenses.......................................... $0.77 $0.49
TWELVE MONTHS ENDED MARCH 31, 1996 ("FISCAL 1996") COMPARED WITH TWELVE MONTHS
ENDED MARCH 31, 1995 ("FISCAL 1995")
Revenues.Revenues
Revenues for Fiscalfiscal 1996 were $472,537,000,$812.3 million, an increase of $200,505,000$211.5 million
from $272,032,000$600.8 million for Fiscalfiscal 1995. Approximately 83% of thisThis 35.2% increase was due primarily to
acquisitions completed by the Company in Fiscalfiscal 1995 and fiscal 1996. Company revenues increased by approximately $34,086,000 (or 17%)
excluding the effect of these acquisitions. Fiscal 1996 revenues for capital
equipment were 49% while revenues for services and operations totaled 31%, and
replacement parts and consumables totaled 20%. See Note
9 of Notes to Consolidated Financial Statements related to acquisitions.
Gross Profit.Profit
Gross profit increased 83.8%50.6% to $144,480,000$206.1 million for Fiscalfiscal 1996 from $78,600,000$136.9
million for Fiscalfiscal 1995. Total gross profit as a percentage of
revenue ("gross margin")Gross margin increased to 30.6%25.4% for Fiscalfiscal 1996 as
compared to 28.9%22.8% for Fiscalfiscal 1995. ThisThe increase in gross margin for Fiscalthrough fiscal
1996 as compared to
Fiscal 1995 was due primarily toto: (i) a continued strengthening of gross margin in the Company's emphasisrecurring
and higher margin service-based revenue business; (ii) rationalization of
operations and economies of scale from the integration of acquisitions; and
(iii) a focus on and expansion of
itsproducts with higher gross margin service, operations and consumables business during
the more recent period.margins in Davis' distribution
business.
Selling, General and Administrative Expenses.Expenses
Selling, general and administrative expenses increased to $109,525,000$160.7 million for
Fiscalfiscal 1996 from $64,015,000$108.8 million for Fiscalfiscal 1995. Selling,This increase was primarily
due to the addition of sales and administrative personnel accompanying the
Company's acquisitions during the period. As a percentage of revenues, selling,
general and
22
administrative expenses were 19.8% for fiscal 1996, as compared to 18.1% for
fiscal 1995. This increase was due primarily to a write-down of certain
patents and equipment totaling $3.2 million at the Company's Zimpro subsidiary
and, to a lesser extent, increased levels of incentive compensation earned by
management and employees of Davis as compared to fiscal 1995.
Notwithstanding the increase in selling, general and administrative expenses
as a percentage of revenues, decreased to 23.2% during Fiscal 1996, compared to
23.5% for Fiscal 1995. The decrease in theoperating income as a percentage of selling, general and
administrative expensesrevenues
increased from 4.7% for fiscal 1995 to revenues5.6% for Fiscalfiscal 1996 as compared to Fiscal 1995
was due primarily to
the Company's emphasis on cost reductions and
administrative efficiencies gained through economies of scale.improvement in gross margin.
Interest Expense.Expense
Interest expense increased to $12,546,000$15.2 million for Fiscalfiscal 1996 from $5,384,000$8.1
million for Fiscalfiscal 1995. Interest expense for Fiscalfiscal 1996 consistsconsisted primarily
onof interest ofon the Company's 5% Convertible Subordinated Debentures due 2000
issued October 20, 1993 and approximately seven months of interest on the
Company's 6% Convertible Subordinated Notesnotes due 2005 issued September 18,
1995, respectively, and interest on increased borrowings under the Company's
bank line of credit.credit, which was used to finance the Company's revenue expansion
and acquisitions during the period.
Other Income Taxes.(Expense)
Other income (expense) increased to $5.0 million of income for fiscal 1996
from $1.3 million of income for fiscal 1995. Other income consisted primarily
of interest income on short-term investments, which increased during fiscal
1996 primarily as a result of the Company's sale of $140.0 million aggregate
principle amount of 6% Convertible Subordinated notes on September 18, 1995
and the Company's issuance of 10.4 million shares of Common Stock on May 3,
1995 with net proceeds of approximately $98.1 million.
Income Tax Expense
Income tax expense increased to $7,082,000$13.2 million for Fiscalfiscal 1996 from $2,657,000$6.0
million for Fiscalfiscal 1995. This increase was attributable to increased profits.income.
The Company's effective tax rate for fiscal 1996 was 37.5% and for fiscal 1995
was 28.2%. This increase in effective rate in fiscal 1996 is due primarily to
a net loss before income taxes of $6.1 million incurred at Zimpro (see
"Selling, General and Administrative Expenses") for which no income tax
benefit was recognized because its realization was not assured and because of
nondeductibility of certain items. As of March 31, 1996, the Company had net
operating 24
loss carryforwards in France of approximately $19,952,000$20.0 million and
other European countries of approximately $7,338,000$7.3 million for which no financial
statement benefit has been recognized. In addition, the Company had net
operating loss carryforwards generated from its Liquipure subsidiary of
approximately $14,362,000$14.4 million for which financial statement benefit was
recognized in Fiscalfiscal 1996. Future recognitionThe Company also had net operating loss
carryforwards generated from Zimpro of the French and European carryforwards will be reflected if the above
operations generate sufficient earnings before the expiration periods of the
loss carryforwards.approximately $2.9 million for which
financial statement benefit has not been recognized. In addition, the benefit
of the French loss carryforwards mustwas required to be shared equally between the
Company and AlcoaAluminum Corporation of America until March 31, 1997. See Note 14
of Notes to Consolidated Financial Statements related to income taxes.
Net Income.Income
Net income increased to $20,290,000$22.0 million for Fiscalfiscal 1996 from $8,331,000 in Fiscal$15.3 million for
fiscal 1995. Net income per common share increased to $.81was $0.49 per share (with 24,309,000(based upon 43.7
million weighted average common shares outstanding) for Fiscalfiscal 1996 from $.51and $0.49
per common share (with 15,026,000(based upon 29.8 million weighted average common shares
outstanding) for Fiscalfiscal 1995, after deducting $.05$.5 million and $.02 per common
share$.7 million for
dividends on the Company's preferred shares in Fiscal 1995 andfor fiscal 1996
respectively.
TWELVE MONTHS ENDED MARCH 31, 1995 ("FISCAL 1995") COMPARED WITH TWELVE MONTHS
ENDED MARCH 31, 1994 ("FISCAL 1994")
Revenues. Revenues for Fiscal 1995 were $272,032,000, an increase of
$91,611,000 from $180,421,000 for Fiscal 1994. Approximately 84% of this
increase was due to acquisitions completed by the Company in Fiscal 1994 and
1995. Company revenues increased by approximately $15,000,000 (or 16%)
excluding the effect of these acquisitions. Fiscal 1995 revenues for capital
equipment were 60%, while revenues for services and operations totaled 19%,
and replacement parts and consumables totaled 21%. In accordance with the
Company's emphasis on increasing its services and operations revenue as well
as replacement parts and consumables revenue, sales by product category during
Fiscal 1995 for these recent acquisitions were 25.8% for services and
operations and 30.3% for replacement parts and consumables. See Note 9 of
Notes to Consolidated Financial Statements related to acquisitions.
Gross Profit. Gross profit increased 65.1% to $78,600,000 for Fiscal 1995
from $47,610,000 for Fiscal 1994. Total gross profit as a percentage of
revenue ("gross margin") increased to 28.9% for Fiscal 1995, compared to 26.4%
for Fiscal 1994. This increase in gross margin for Fiscal 1995 as compared to
Fiscal 1994 was due primarily to the Company's emphasis on and expansion of
its higher gross margin service, operations and consumables business during
the more recent period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $64,015,000 for Fiscal 1995 from
$52,484,000 for Fiscal 1994. Selling, general and administrative expenses as a
percentage of revenues decreased to 23.5% during Fiscal 1995, compared to
29.1% for Fiscal 1994. The decrease in the percentage of selling, general and
administrative expenses to revenues for Fiscal 1995 as compared to Fiscal 1994
was due primarily to the Company's emphasis on cost reductions and
administrative efficiencies gained through economies of scale. In addition,
Fiscal 1994 selling, general and administrative expenses include $3,738,000 of
charges related to the write-off of certain intangibles in the Company's
Continental Penfield subsidiary.
Interest Expense. Interest expense increased to $5,384,000 for Fiscal 1995
from $2,077,000 for Fiscal 1994. Interest expense for Fiscal 1995 consists
primarily of interest on the Company's 5% Convertible Subordinated Debentures
due 2000 and Subordinated Notes due 2001, which bear interest at 6.5% per
annum through September 30, 1995 and 4.5% thereafter, and borrowings under the
Company's bank line of credit.
Income Taxes. Income tax expense increased to $2,657,000 for Fiscal 1995
from a benefit of $3,236,000 for Fiscal 1994. This increase was attributable
to increased profits and the Company's partial recognition during Fiscal 1994
of the future income tax benefit related to federal net operating loss
carryforwards. As of March 31, 1995, the Company had net operating loss
carryforwards in France of approximately $20,351,000 and other European
countries of approximately $6,400,000 for which no financial statement benefit
has been recognized.
25
In addition, the Company had net operating loss carryforwards generated from
Liquipure of approximately $13,500,000 for which no financial statement
benefit has been recognized. Future recognition of these carryforwards will be
reflected if the above operations generate sufficient earnings before the
expiration periods of the loss carryforwards. In addition, the benefit of the
French loss carryforwards must be shared equally between the Company and Alcoa
until March 31, 1997. See Note 14 of Notes to Consolidated Financial
Statements related to income taxes.
Net Income. Net income increased to $8,331,000 for Fiscal 1995 from a net
loss of $2,541,000 in Fiscal 1994. Net income per common share increased to
$.51 per share (with 15,026,000 weighted average common shares outstanding)
for Fiscal 1995 from a net loss of $.26 per common share (with 12,453,000
weighted average common shares outstanding) for Fiscal 1994, after deducting
$.06 and $.05 per common share for dividends on the Company's preferred shares
in Fiscal 1994 and 1995,
respectively.
LIQUIDITY AND CAPITAL RESOURCES23
Liquidity and Capital Resources
The Company's principal sources of funds are cash, cash equivalents and
other working capital, cash flow generated from operations and borrowings
under the Company's bank line of credit. On September 18, 1995, the Company realized net proceeds of
$136,325,000 before offering expenses from the private placement of
$140,000,000 principal amount 6% Convertible Subordinated Notes due 2005. In
addition, on May 3, 1995, the Company realized net proceeds of $98,118,000
before offering expenses from the sale of 6,900,000 shares of Common Stock.
At March 31, 19961997 the Company had
working capital of $103,257,000,$471.6 million, including cash, cash equivalents and short-termshort-
term investments of $16,610,000.$128.4 million. The Company's long-term debt at March 31,
19961997 included $60,000,000 of Convertible Subordinated Debentures
due 2000, $140,000,000$140.0 million aggregate principal amount of 6% Convertible
Subordinated Notes due 2005, $414.0 million aggregate principal amount of 4.5%
Convertible Subordinated Notes due 2001 and notes
payableother long-term debt totaling
$9,680,000$23.1 million and bearing interest at rates ranging from 2.0% to 11.5%9.2%.
Capital expenditures totaled $19.3 million, $30.2 million and $45.4 million
for fiscal years ended March 31, 1995, 1996, 1997, respectively. Although the
Company has no material firm commitments for capital expenditures, capital
expenditure requirements are expected to increase as a result of the Company's
anticipated growth, including from the recent acquisitions and specifically
the acquisitions of WSMG, USG, WaterPro and PED.
As of March 31, 1996,1997, the Company hadhas an availableunsecured multicurrency bank line
of credit of $135,000,000,$400.0 million, of which there were outstanding borrowings of
$30,413,000$6.5 million and outstanding letters of credit of $14,036,000.
As$62.1 million. Borrowings
under the Credit Agreement bear interest at certain Eurocurrency rates or at
the First National Bank of March 31, 1996, the Company had net operating loss carryforwards
generated from entities in France of approximately $19,952,000, for which no
financial statement benefit has been recognized. Approximately $1,946,000 of
the net operating loss carryforwards will expire in the years 1997 to 1998,
while the remainderBoston's base rate and have an indefinite carryforward period. The Company also
had net operating loss carryforwards in other European countries of
approximately $7,338,000 which expire from 1997 to 2002 for which no financial
statement benefit has been recognized. No benefit has been given to these net
operating loss carryforwards because of the limited carryforward periods or
the uncertain business conditions relating to the operations giving rise to
such carryforwards. Additionally, as of March 31, 1996, the Company had net
operating loss carryforwards generated from Liquipure of approximately
$14,362,000 for which financial statement benefit has been recognized in
Fiscal 1996. These operating loss carryforwards will expire in the years 2002
to 2007. The benefit, if any, of the French carryforwards is to be shared
equally between the Company and Alcoa until March 31, 1997.
The Company also had available at March 31, 1996, other net operating loss
carryforwards for federal income tax purposes of approximately $13,327,000
which expire in 2007 to 2010.a five year maturity.
The Company believes its current cash position, cash flow from operations,
and available borrowings under the Company's line of creditCredit Agreement will be adequate to meet
its anticipated cash needs for working capital, revenue growth, scheduled debt
repayment and capital investment objectives for at least the next twelve
months.
26
CERTAIN TRENDS AND UNCERTAINTIES
As a cautionary note to investors, theThe Company and its representatives may make oral or written statements from time to time that are "forward-looking
statements" withinmake written or
oral forward-looking statements, including statements contained in the
meaning ofCompany's filings with the United States federal securities laws,
including information containedSecurities and Exchange Commission
and in this Form 10-K whichits reports to stockholders. In connection with the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the
Company is not historical.
There are a number ofhereby identifying important factors whichthat could cause actual
results to differ materially from those anticipated. Such factors include, but are not
limitedcontained in any forward-looking
statement made by or on behalf of the Company; any such statement is qualified
by reference to those set forth below.the following cautionary statements.
Acquisition Strategy. In pursuit of its strategic objective of becoming the
leading global single-source provider of water and wastewater treatment
systems and services, the Company has, since 1991, acquired and successfully
integrated more than 4075 United States based and international businesses with
strong market positions and substantial water and wastewater treatment
expertise. The Company plans to continue to pursue acquisitions that
complement its technologies, products and services, broaden its customer base
and expand its global distribution network. The Company's acquisition strategy
entails the potential risks inherent in assessing the value, strengths,
weaknesses, contingent or other liabilities and potential profitability of
acquisition candidates and in integrating the operations of acquired
companies. Although the Company generally has been successful in pursuing
these acquisitions, there can be no assurance that acquisition opportunities
will continue to be available, that the Company will have access to the
capital required to finance potential acquisitions, that the Company will
continue to acquire businesses or that any business acquired will be
integrated successfully or prove profitable.
See "Business--General."
International Transactions. The Company has made and expects it will
continue to make acquisitions and expects to obtain contracts in Europe, Asia, Latin
America and other areasmarkets
outside the United States. While these activities may provide important
opportunities for the Company to offer its products and services
internationally, they also entail the risks associated with conducting
business internationally, including the risk of currency fluctuations, slower
payment of invoices, nationalization and possible social, political and
economic instability.
24
Reliance on Key Personnel. The Company's operations are dependent on the
continued efforts of senior management, in particular Richard J. Heckmann, itsthe
Company's Chairman of the Board, President and Chief Executive OfficerOfficer. There
are no employment agreements between the Company and President.the members of its senior
management, except Thierry Reyners, the Company's Executive Vice President--
European Group, and Harry K. Hornish, Jr., the Company's Executive Vice
President--Distribution Group. Should any of the senior managers be unable to
continue in their present roles, the Company's prospects could be adversely
affected.
See "Business--Executive Officers."
Profitability ofOf Fixed Price Contracts. A significant portion of the
Company's revenues are generated under fixed price contracts. To the extent
that original cost estimates are inaccurate, costs to complete increase,
delivery schedules are delayed or progress under a contract is otherwise
impeded, revenue recognition and profitability from a particular contract may
be adversely affected. The Company routinely records upward or downward
adjustments with respect to fixed price contracts due to changes in estimates
of costs to complete such contracts. There can be no assurance that future
downward adjustments will not be material.
Cyclicality of Capital Equipment Sales.and Seasonality. The sale of capital equipment within the water
treatment industry is cyclical and influenced by various economic factors
including interest rates and general fluctuations of the business cycle. TheA
significant portion of the Company's revenues are derived from capital
equipment sales were approximately
60% of total revenues for the fiscal year ended March 31, 1995 and 49% for the
fiscal year ended March 31, 1996.sales. While the Company sells capital equipment to customers in
diverse industries and in global markets, cyclicality of capital equipment
sales and instability of general economic conditions could have an adverse
effect on the Company's revenues and profitability.
The sale of water and wastewater distribution equipment and supplies is also
cyclical and influenced by various economic factors including interest rates,
land development and housing construction industry cycles. Sales of such
equipment and supplies are also subject to seasonal fluctuation in northern
climates. As a result of recent acquisitions, the sale of water and wastewater
distribution equipment and supplies is a significant component of the
Company's business. Cyclicality and seasonality of water and wastewater
distribution equipment and supplies sales could have an adverse effect on the
Company's revenues and profitability.
Potential Environmental Risks. The Company's business and products may be
significantly influenced by the constantly changing body of environmental laws
and regulations, which require that certain environmental standards be met and
impose liability for the failure to comply with such standards. The Company is
also subject to inherent risks associated with environmental conditions at
facilities owned, and the state of compliance with environmental laws, by
businesses acquired by the Company. While the Company endeavors at each of its
facilities to assure compliance with environmental laws and regulations, there
can be no assurance that the Company's operations or activities, or historical
operations by others at the Company's locations, will not result in cleanup
obligations, civil or criminal enforcement actions or private actions that
could have a materiallymaterial adverse effect on the Company. In that regard allegations have been made by federal
and state environmental regulatory authorities ofhave commenced civil
enforcement actions related to alleged multiple violations of applicable
wastewater pretreatment standards by a wholly owned subsidiary of the Company with respect to
27
applicable wastewater pretreatment standards
at a Connecticut ion exchange regeneration facility acquired by the Company in
October 1995 from Anjou.Anjou International Company ("Anjou"). A grand jury
investigation is pending which is believed to relate to the same conditions
that were the subject of the allegations.civil actions. The Company has certain rights of
indemnification from Anjou which may be available with respect to these
matters. TheIn addition, the Company's activities as owner and operator of
acertain hazardous waste treatment and recovery facilityfacilities are subject to
stringent laws and regulations and compliance reviews. Failure of this facilitythese
facilities to comply with those regulations could result in substantial fines
and the suspension or revocation of the facility's hazardous waste permit. In
other matters, the Company has been notified by the United States
Environmental Protection Agency that it is a potentially responsible party
under the Comprehensive Environmental Response, Compensation, and Liability
Act ("CERCLA") at certain sites to which the Company or its predecessors
allegedly sent waste in the past. It is possible that the Company could
receive other such notices under CERCLA or analogous state laws in the future.
The Company does not believe that its liability, if any, relating to such
matters will be material. However, there can be no assurance that such matters
will not be material. In addition, to some extent, the liabilities and risks
imposed by environmental laws on the Company's customers may adversely impact
demand for certain of the Company's products or services or impose greater
liabilities and risks on the Company, which could also have an adverse effect
on the Company's competitive or financial position.
See
"Business--Environmental Regulation."25
Competition. The water purification and wastewater treatment industry is fragmented and
highly competitive. The Company competes with many United States based and
international companies in its global markets. The principal methods of
competition in the markets in which the Company competes are technology,
prompt availability of local service capability, price, product
specifications, customized design, product knowledge and reputation, ability
to obtain sufficient performance bonds, timely delivery, the relative ease of
system operation and maintenance, and the prompt availability of replacement
parts. In the municipal contract bid process, pricing and ability to meet bid
specifications are the primary considerations. While no competitor is
considered dominant, there are competitors that are divisions or subsidiaries of larger companies which have significantly greater
resources than the Company, which among other things, could be a competitive
disadvantage to the Company in securing certain projects.
See "Business--Competition."
Technological and Regulatory Change. The water purification and wastewater treatment
business is characterized by changing technology, competitively imposed
process standards and regulatory requirements, each of which influences the
demand for the Company's products and services. Changes in
regulatory or industrial requirements may render certain of the Company's
purification and treatment products and processes obsolete. Acceptance of new
products may also be affected by the adoption of new government regulations
requiring stricter standards. The Company's ability to anticipate changes in
technology and regulatory standards and to develop successfully develop and introduce
new and enhanced products on a timely basis will be a significant factor in
the Company's ability to grow and to remain competitive. There can be no
assurance that the Company will be able to achieve the technological advances
that may be necessary for it to remain competitive or that certain of its
products will not become obsolete. In addition, the Company is subject to the
risks generally associated with new product introductions and applications,
including lack of market acceptance, delays in development or failure of
products to operate properly.
Municipal and Wastewater Market. Completion of certain of the Company's
acquisitions has increased significantly the percentage of the Company's
revenues derived from municipal customers. While municipalities represent an
important market in the water and wastewater treatment industry, contractor
selection processes and funding for projects in the municipal sector entail
certain additional risks not typically encountered with industrial customers.
Competition for selection of a municipal contractor typically occurs through a
formal bidding process which can require the commitment of significant
resources and greater lead times than industrial projects. In addition, demand
in the municipal market is dependent upon the availability of funding at the
local level, which may be the subject of increasing pressure as local
governments are expected to bear a greater share of the cost of public
services. Zimpro is party to certain agreements (entered into in 1990 at the
time Zimpro was acquired from unrelated third parties by the entities from
which it was later acquired by the Company), pursuant to which Zimpro agreed,
among other things, to pay the original sellers a royalty of 3.0% of its
annual consolidated net sales of certain products in excess of $35.0 million
through October 25, 2000. Under certain interpretations of such agreements,
with which the Company disagrees, Zimpro could be liable for such royalties
with respect to the net sales attributable to products, systems and services
of certain defined wastewater treatment businesses acquired by Zimpro or the
Company or the Company's other subsidiaries after May 31, 1996. The defined
businesses include, among others, manufacturing machinery and equipment, and
engineering installation, operation and maintenance services related thereto,
for the treatment and disposal of waste liquids, toxic waste and sludge. One
of the prior sellers has revealed in a letter to the Company an interpretation
that may be contrary to that of the Company. The Company believes that it
would have meritorious defenses to any claim based upon any such
interpretation and would vigorously pursue the elimination of any threat to
expand what it believes to be its obligations pursuant to such agreements.
Impact of Recently Issued Accounting Standards. In March 1995,February 1997, the
Financial Accounting Standards Board issued a new statement titled "Accounting for
Impairment of Long-Lived Assets." In October 1995, the Financial Accounting
Standards Board issued a new statement titled "Accounting for Stock-Based
Compensation."Earnings
Per Share." The new statements arestatement is effective for fiscal years beginningending after
December 15, 1995.1997. The Company does not believe that adoption of thesethis new
standardsstandard will have a material effect on the consolidated financial statements.
28
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Part IV, Item 14 of this Annual Report on Form 10-K for
the information required by Item 8.
26
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report............................................... 28
Financial Statements:
Consolidated Balance Sheets as of March 31, 1996 and 1997................ 29
Consolidated Statements of Income for the Years Ended March 31, 1995,
1996 and 1997........................................................... 30
Consolidated Statements of Shareholders' Equity for the Years Ended March
31, 1995, 1996 and 1997................................................. 31
Consolidated Statements of Cash Flows for the Years Ended March 31, 1995,
1996 and 1997........................................................... 33
Notes to Consolidated Financial Statements............................... 35
Independent Auditors' Report on Schedule .................................. 57
Schedule:
Schedule II--Valuation and Qualifying Accounts........................... 58
27
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
UNITED STATES FILTER CORPORATION:The Board of Directors and Shareholders
United States Filter Corporation:
We have audited the accompanying consolidated balance sheets of United
States Filter Corporation and subsidiaries as of March 31, 19951996 and 1996,1997, and
the related consolidated statements of operations,income, shareholders' equity, and cash
flows for each of the years in the three-year period ended March 31, 1996.1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits 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. 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 audits provide 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 United
States Filter Corporation and subsidiaries as of March 31, 19951996 and 1996,1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended March 31, 1996,1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Orange County, California
June 7, 1996
296, 1997
28
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 19951996 AND 19961997
1995 1996 ASSETS ------------ ------------1997
-------- ---------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents (note 2)......................................... $ 16,159,000 $ 16,545,00018,886 126,237
Short-term investments (note 3)..................... 2,418,000 65,000.......................... 65 2,158
Accounts receivable, less allowance for doubtful accounts
of $3,272,000
at March 31, 1995 and $8,165,000$10,165 at March 31, 1996 and $24,595 at March 31,
1997 (note 10).......................................... 89,352,000 177,658,000230,973 481,015
Costs and estimated earnings in excess of billings on
uncompleted contracts (note 10)................. 20,016,000 31,258,000......................... 33,575 107,537
Inventories (note 4)................................ 34,707,000 55,755,000..................................... 84,897 242,483
Prepaid expenses.................................... 2,858,000 7,230,000expenses......................................... 7,922 8,040
Deferred taxes (note 14)............................ 3,482,000 3,577,000................................. 7,771 38,589
Other current assets................................ 6,495,000 9,139,000
------------ ------------assets..................................... 10,221 17,086
-------- ---------
Total current assets............................. 175,487,000 301,227,000
------------ ------------assets................................... 394,310 1,023,145
-------- ---------
Property, plant and equipment, net (notes 5 and 11).. 68,395,000 156,025,000........ 171,171 296,840
Investment in leasehold interests, net (note 6)...... 20,390,000 27,688,000
Cost............ 27,688 23,230
Costs in excess of net assets of businesses acquired, net
(notes 7 and 9)................................. 99,162,000 271,891,000........................................... 271,891 788,096
Other assets (note 8)................................ 15,294,000 32,180,000
------------ ------------
$378,728,000 $789,011,000
============ ============
See accompanying notes to consolidated financial statements.
30
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
1995 1996...................................... 39,277 97,017
-------- ---------
$904,337 2,228,328
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------ ------------
Current liabilities:
Accounts payable................................... $ 35,846,000 $ 77,761,000payable......................................... $104,567 237,895
Accrued liabilities (note 13)...................... 33,727,000 84,097,000............................ 104,445 239,337
Current portion of long-term debt (note 11)........ 2,033,000 1,394,000.............. 7,892 10,806
Billings in excess of costs and estimated earnings on
uncompleted contracts (note 10)................ 15,940,000 13,338,000......................... 15,797 42,183
Other current liabilities.......................... 5,733,000 21,380,000
------------ ------------liabilities................................ 22,957 21,327
-------- ---------
Total current liabilities....................... 93,279,000 197,970,000
------------ ------------liabilities.............................. 255,658 551,548
-------- ---------
Notes payable (note 11)............................. 24,538,000 30,413,000.................................... 43,056 8,876
Long-term debt, excluding current portion (note 11). 8,792,000 8,286,000........ 9,788 12,286
Convertible subordinated debentures (note 12)....... 105,000,000 200,000,000.............. 200,000 554,000
Deferred taxes (note 14)............................ 8,028,000 1,929,000................................... 1,223 11,521
Other liabilities................................... 1,947,000 9,078,000
------------ ------------liabilities (note 13)................................ 15,001 61,247
-------- ---------
Total liabilities............................... 241,584,000 447,676,000
------------ ------------liabilities...................................... 524,726 1,199,478
-------- ---------
Shareholders' equity (notes 9 and 15):
Series A voting cumulative convertible preferredPreferred stock, $.10 par value,
$25 liquidation preference. Authorized and issued
880,000 shares at
March 31, 1995.................................... 22,071,000authorized 3,000,000 shares............. --
Series B voting convertible preferred stock, $.10
par value,
$27 liquidation preference. Authorized 250,000
shares; outstanding 185,185 shares at March 31,
1995.............................................. 3,506,000 --
Common stock, par value $.01. Authorized 75,000,000150,000 shares;
issued and outstanding 15,220,00349,402 and 28,118,78274,530 at March 31,
19951996 and 1996,
respectively...................................... 152,000 281,0001997, respectively............................. 353 745
Additional paid-in capital......................... 131,654,000 337,856,000capital............................... 359,415 990,004
Currency translation adjustment.................... (2,026,000) 1,836,000adjustment.......................... 1,836 (19,491)
Retained earnings (accumulated deficit)............ (18,213,000) 1,362,000
------------ ------------earnings........................................ 18,007 57,592
-------- ---------
Total shareholders' equity...................... 137,144,000 341,335,000equity............................. 379,611 1,028,850
Commitments and contingencies (notes 11, 15, 16 and 18)
Subsequent events (note 20).........................
------------ ------------
$378,728,000 $789,011,000
============ ============-------- ---------
$904,337 2,228,328
======== =========
See accompanying notes to consolidated financial statements.
3129
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONSINCOME
YEARS ENDED MARCH 31, 1994, 1995, 1996 AND 19961997
1994 1995 1996 ------------ ------------ ------------1997
-------- ------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
Revenues............................. $180,421,000 $272,032,000 $472,537,000Revenues......................................... $600,832 812,322 1,376,601
Costs of sales....................... 132,811,000 193,432,000 328,057,000
------------ ------------ ------------sales................................... 463,959 606,226 1,026,248
-------- ------- ---------
Gross profit..................... 47,610,000 78,600,000 144,480,000profit................................. 136,873 206,096 350,353
-------- ------- ---------
Selling, general and administrative expenses............................ 52,484,000 64,015,000 109,525,000
------------ ------------ ------------expenses..... 108,826 160,714 261,859
Merger expenses (note 9)......................... -- -- 5,581
-------- ------- ---------
108,826 160,714 267,440
-------- ------- ---------
Operating income (loss).......... (4,874,000) 14,585,000 34,955,000income............................. 28,047 45,382 82,913
-------- ------- ---------
Other income (expense):
Interest expense.................... (2,077,000) (5,384,000) (12,546,000)expense............................... (8,058) (15,212) (22,585)
Interest and other income........... 1,174,000 1,787,000 4,963,000
------------ ------------ ------------
(903,000) (3,597,000) (7,583,000)
------------ ------------ ------------income...................... 1,280 4,979 3,350
-------- ------- ---------
(6,778) (10,233) (19,235)
-------- ------- ---------
Income (loss) before income tax expense (benefit)............... (5,777,000) 10,988,000 27,372,000expense............. 21,269 35,149 63,678
Income tax expense (benefit) (note 14)................................. (3,236,000) 2,657,000 7,082,000
------------ ------------ ------------..................... 6,002 13,182 17,481
-------- ------- ---------
Net income (loss)................income................................... $ (2,541,000) $ 8,331,000 $ 20,290,000
============ ============ ============15,267 21,967 46,197
======== ======= =========
Net income (loss) per common share (primary and fully
diluted) (notes 1 and 15) after reduction for
dividends on preferred stock of $.06
, $.05$.02 and $.02$.01
for the years ended March 31, 1994, 1995 and 1996,
respectively........................respectively.................................... $ (.26) $ .51 $ .81
============ ============ ============0.49 0.49 0.77
======== ======= =========
See accompanying notes to consolidated financial statements.
3230
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1994, 1995, 1996 AND 19961997
CONVERTIBLE
PREFERRED STOCK COMMON STOCK RETAINED
--------------------- ------------------ ---------------- ADDITIONAL CURRENCY EARNINGS
NUMBER OF NUMBER OF PAID-IN TRANSLATION (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT) TOTAL
--------- ------------------- --------- ------ ---------- ------- ----------- ----------- ------------ ------------------
(IN THOUSANDS)
Balance at March 31,
1993................... 880,000 $22,071,000 11,081,507 74,000 79,456,000 304,000 (22,274,000) 79,631,0001994................... 880 $ 22,071 21,444 $ 95 129,273 (256) (32,572) 118,611
Restatement for
acquisitions of Zimpro,
Davis and Sidener
acquired through
pooling of interests
(note 9)............... -- -- 7,224 72 18,942 -- 23,379 42,393
----- -------- ------ ---- ------- ------ ------- -------
Balance at March 31,
1994, restated......... 880 22,071 28,668 167 148,215 (256) (9,193) 161,004
Net loss of Liquipure
for the three months
ended March 31, 1994... -- -- -- -- -- -- (313) (313)
Compensation related to
excess of fair value of
director stock options
over exercise price
(note 15).............. -- -- -- -- 80,000122 -- -- 80,000122
Exercise of common stock
options (note 15)...... -- -- 157,954 1,000 1,254,000241 2 1,420 -- -- 1,255,0001,422
Issuance of common stock
in connection with
acquisitions (note 9)..acquisitions........... -- -- 3,056,748 20,000 48,469,0001,056 5 8,982 -- -- 48,489,0008,987
Dividends paid on
preferred stock
(note 15)..............stock........ -- -- -- -- -- -- (701,000) (701,000)
Shareholders' equity
transactions(715) (715)
Reduction in valuation
of Liquipure prior to
merger.................common stock issued
in connection with
Ionpure acquisition.... -- -- -- -- (43,000)(9,123) -- -- (43,000)(9,123)
Preferred stock issued
in connection with
acquisition of
Smogless............... 185 3,506 -- -- -- -- -- 3,506
Issuance of common stock
to pay off
indebtedness........... -- -- 89 -- 700 -- -- 700
Par value of shares
issued in connection
with three-for-two
stock split (note 15).. -- -- -- 50 (50) -- -- --
Income tax benefit from
exercise of stock
options................ -- -- -- -- 387 -- -- 387
Currency translation
adjustment............. -- -- -- -- -- (560,000)(1,770) -- (560,000)(1,770)
Shareholders' equity
transactions of Zimpro,
Davis and Sidener prior
to merger.............. -- -- -- -- 1,054 -- (3,443) (2,389)
Net loss................income.............. -- -- -- -- -- -- (2,541,000) (2,541,000)
--------- ----------- ----------15,267 15,267
----- -------- ------ ---- ------- ----------- ---------- ----------- ----------------- ------- -------
Balance at March 31,
1994................... 880,000 22,071,000 14,296,209 95,000 129,216,000 (256,000) (25,516,000) 125,610,000
Net loss of Liquipure
for the three months
ended March 31, 1994
(note 9)............... -- -- -- -- -- -- (313,000) (313,000)1995................... 1,065 25,577 30,054 224 151,707 (2,026) 1,603 177,085
Compensation related to
excess of fair value of
director stock options
over exercise price
(note 15).............. -- -- -- -- 122,000112 -- -- 122,000
Exercise112
Conversion of preferred
shares to common stock
optionsshares
(note 15).................... (926) (22,936) 2,083 14 22,922 -- -- 160,693 2,000 1,420,000--
Redemption of Series B
convertible preferred
stock (note 15)........ (139) (2,641) -- -- 1,422,000(2,068) -- -- (4,709)
Issuance of common stock
in connection with
acquisitions (note 9).. -- -- 704,101 5,000 8,982,0002,453 16 36,284 -- -- 8,987,00036,300
Shares issued through
public offering, net of
offering costs of
$6,106,000 (note 15)... -- -- 10,350 69 97,325 -- -- 97,394
Conversion of
subordinated debentures
to common stock (note
12).................... -- -- 3,750 25 44,975 -- -- 45,000
Dividends paid on
preferred stock (note
15).................................. -- -- -- -- -- -- (715,000) (715,000)
Reduction in valuation(715) (715)
Exercise of common stock
issued
in connection with
Ionpure acquisitionoptions (note 9)...............15)...... -- -- 488 3 3,678 -- -- 3,681
Issuance of common stock
to acquire assets (note
15).................... -- -- 224 2 2,974 -- -- 2,976
Shareholders' equity
transactions of Zimpro,
Davis and Sidener prior
to merger.............. -- -- -- -- (9,123,000)1,506 -- -- (9,123,000)
Preferred stock issued
in connection with
acquisition of Smogless
(note 9)............... 185,185 3,506,000(4,848) (3,342)
Currency translation
adjustment............. -- -- -- -- -- 3,506,0003,862 -- 3,862
Net income.............. -- -- -- -- -- -- 21,967 21,967
----- -------- ------ ---- ------- ------ ------- -------
Balance at March 31,
1996................... -- $ -- 49,402 $353 359,415 1,836 18,007 379,611
See accompanying notes to consolidated financial statements.
31
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY--(CONTINUED)
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
PREFERRED STOCK COMMON STOCK RETAINED
---------------- ---------------- ADDITIONAL CURRENCY EARNINGS
NUMBER OF NUMBER OF PAID-IN TRANSLATION (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT) TOTAL
--------- ------ --------- ------ ---------- ----------- ------------ ---------
(IN THOUSANDS)
Net loss of Zimpro for
the three months ended
March 31, 1996 (note
9)..................... -- $ -- -- $ -- -- -- (606) (606)
Exercise of common stock
options (note 15)...... -- -- 659 7 5,991 -- -- 5,998
Issuance of common stock
in connection with
acquisitions (note 9).. -- -- 7,686 76 196,639 -- -- 196,715
Shareholders' equity
transactions of Zimpro,
Davis and Sidener prior
to merger.............. -- -- -- -- 897 -- (6,006) (5,109)
Issuance of common stock
to pay off indebtedness
(note 9)............... -- -- 59,000 -- 700,000271 2 6,741 -- -- 700,0006,743
Conversion of
subordinated debentures
to common stock (note
12).................... -- -- 4,389 43 58,535 -- -- 58,578
Shares issued through
public offering, net of
offering costs of
$17,154 (note 15)...... -- -- 11,804 118 356,035 -- -- 356,153
Issuance of common stock
to acquire assets...... -- -- 319 3 5,894 -- -- 5,897
Par value of shares
issued in connection
with three-for-two
stock split (note 15).. -- -- -- 50,000 (50,000)143 (143) -- -- --
Income tax benefit from
exercise of stock
options................ -- -- -- -- 387,000 -- -- 387,000
Currency translation
adjustment............. -- -- -- -- -- (1,770,000)(21,327) -- (1,770,000)(21,327)
Net income.............. -- -- -- -- -- -- 8,331,000 8,331,00046,197 46,197
--- ----- ------ ----- ------- ------- ------ --------- ----------- ---------- ------- ----------- ---------- ----------- -----------
Balance at March 31,
1995................... 1,065,185 $25,577,000 15,220,003 152,000 131,654,000 (2,026,000) (18,213,000) 137,144,0001997................... -- $ -- 74,530 $ 745 990,004 (19,491) 57,592 1,028,850
=== ===== ====== ===== ======= ======= ====== =========
See accompanying notes to consolidated financial statements.
32
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
Cash flows from operating activities:
Net income..................................... $ 15,267 21,967 46,197
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes........................ 713 (4,479) 14,926
Depreciation and amortization................ 17,425 27,521 43,272
Provision for doubtful accounts.............. 2,030 5,929 5,536
(Gain) loss on sale of property and
equipment................................... 377 (260) (15)
Stock and stock option compensation.......... 122 112 --
(Decrease) increase in closure reserves and
write off of intangible assets.............. (1,480) 768 --
Change in operating assets and liabilities:
(Increase) decrease in accounts
receivable................................ (9,671) (26,367) 14,529
(Increase) decrease in costs and estimated
earnings in excess of billings on
uncompleted contracts..................... 2,046 (4,599) (41,071)
Increase in inventories.................... (6,567) (5,358) (28,908)
Increase in prepaid expenses and other
assets.................................... (2,622) (5,967) (43,875)
Decrease in accounts payable and accrued
expenses.................................. (12,398) (1,809) (493)
Increase (decrease) in billings in excess
of costs and estimated earnings on
uncompleted contracts..................... 2,529 (4,096) 5,899
Decrease in other liabilities.............. (933) (1,612) (2,564)
-------- -------- --------
Net cash provided by operating
activities.............................. 6,838 1,750 13,433
-------- -------- --------
Cash flows from investing activities:
Investment in leasehold interests.............. (6,397) (8,347) --
Purchase of property, plant and equipment...... (19,275) (30,236) (45,416)
Proceeds from disposal of equipment............ 877 7,670 1,801
(Purchase) sale of short-term investments...... 13,207 9,938 (1,170)
Payment for purchase of acquisitions, net of
cash acquired................................. (2,240) (206,600) (585,070)
-------- -------- --------
Net cash used in investing activities.... (13,828) (227,575) (629,855)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from sale of common stock......... -- 97,783 356,154
Net proceeds from sale of convertible
subordinated debentures....................... -- 136,249 403,650
Proceeds from exercise of common stock
options....................................... 1,422 3,681 5,998
Principal payments of debt..................... (65,409) (72,347) (3,948)
Dividends paid on common and preferred stock... (4,293) (5,573) (3,901)
Payment to repurchase Series B preferred
stock......................................... -- (4,709) --
Net proceeds from borrowings (payments) on
notes payable................................. 75,378 68,990 (34,180)
-------- -------- --------
Net cash provided by financing
activities.............................. 7,098 224,074 723,773
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................. 108 (1,751) 107,351
Cash and cash equivalents at beginning of year... 20,529 20,637 18,886
-------- -------- --------
Cash and cash equivalents at end of year......... $ 20,637 18,886 126,237
======== ======== ========
See accompanying notes to consolidated financial statements.
33
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY--CASH FLOWS--(CONTINUED)
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
CONVERTIBLE
PREFERRED STOCK COMMON STOCK RETAINED
----------------------- ------------------ ADDITIONAL CURRENCY EARNINGS
NUMBER NUMBER OF PAID-IN TRANSLATION (ACCUMULATED
OF SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT) TOTAL
--------- ------------ ---------- ------- ----------- ----------- ------------ -----------1995 1996 1997
------ ------ ------
(IN THOUSANDS)
Compensation related to
excessSupplemental disclosures of fair valuecash flow information:
Cash paid during the year for interest................. $8,135 15,395 18,772
====== ====== ======
Cash paid during the year for income taxes............. $2,626 6,807 7,341
====== ====== ======
Noncash investing and financing activities consisted of
directorthe following:
Common stock options
over exercise price
(note 15)..............issued:
Satisfaction of debt................................. $ 700 -- $ -- -- -- 112,000 -- -- 112,000
Conversion of preferred
shares to common shares
(note 15).............. (925,667) (22,936,000) 1,388,500 14,000 22,922,000 -- -- --
Redemption of Series B
convertible preferred
stock (note 15)........ (139,518) (2,641,000) -- -- (2,068,000) -- -- (4,709,000)
Issuance of common stock
in connection with
acquisitions (note 9).. -- -- 1,635,607 16,000 36,284,000 -- -- 36,300,000
Shares issued through
public offering, net of
offering costs of
$6,106,000
(note 15).............. -- -- 6,900,000 69,000 97,325,000 -- -- 97,394,000
Conversion of subordinated debentures
to common stock (note
12)....................debentures................ -- 45,000 60,000
Purchase of property or equipment.................... -- 2,500,000 25,000 44,975,0002,976 5,897
Property, plant and equipment exchanged for
receivables........................................... -- 5,318 --
45,000,000
Dividends paid on
preferred stock (note
15).................... -- -- -- -- -- -- (715,000) (715,000)
Exercise of common stock
options (note 15)...... -- -- 325,257 3,000 3,678,000 -- -- 3,681,000
Issuance of common stock
to acquire assets (note
15).................... -- -- 149,415 2,000 2,974,000 -- -- 2,976,000
Currency translation
adjustment............. -- -- -- -- -- 3,862,000 -- 3,862,000
Net income.............. -- -- -- -- -- -- 20,290,000 20,290,000
-------- ------------ ---------- ------- ----------- --------- ---------- -----------
Balance at March 31,
1996................... -------- ------ ------
$ -- 28,118,782 281,000 337,856,000 1,836,000 1,362,000 341,335,000
======== ============ ========== ======= =========== ========= ========== ===========700 53,294 65,897
====== ====== ======
See accompanying notes to consolidated financial statements.
34
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
1994 1995 1996
------------ ------------ -------------
Cash flows from operating
activities:
Net income (loss)............... $ (2,541,000) $ 8,331,000 $ 20,290,000
Adjustments to reconcile net
income (loss) to net cash used
in operating activities:
Deferred income taxes.......... (3,806,000) 1,377,000 (5,578,000)
Depreciation and amortization.. 7,015,000 12,770,000 23,405,000
Provision for doubtful
accounts...................... 661,000 1,558,000 5,297,000
(Gain) loss on sale of property
and equipment................. (5,000) 388,000 (265,000)
Stock and stock option
compensation.................. 80,000 122,000 112,000
Write-off of goodwill.......... 3,738,000 -- --
Change in operating assets and
liabilities:
Increase in accounts
receivable................... (8,504,000) (4,514,000) (33,610,000)
(Increase) decrease in costs
and estimated earnings in
excess of billings on
uncompleted contracts........ (12,100,000) 2,171,000 (4,277,000)
Increase in inventories....... (1,964,000) (6,524,000) (5,278,000)
(Increase) decrease in prepaid
expenses and other assets.... 894,000 (3,544,000) (6,141,000)
Increase (decrease) in
accounts payable and accrued
expenses..................... 7,625,000 (16,273,000) 363,000
Increase (decrease) in
billings in excess of costs
and estimated earnings on
uncompleted contracts........ 1,384,000 2,481,000 (3,029,000)
Decrease in other liabilities. (3,000) (2,888,000) (1,551,000)
------------ ------------ -------------
Net cash used in operating
activities.................. (7,526,000) (4,545,000) (10,262,000)
------------ ------------ -------------
Cash flows from investing
activities:
Investment in leasehold inter-
ests........................... (15,766,000) (6,397,000) (8,347,000)
Purchase of property, plant and
equipment...................... (6,930,000) (16,214,000) (26,390,000)
Proceeds from disposal of equip-
ment........................... 182,000 22,000 7,594,000
(Purchase) sale of short-term
investments.................... (15,625,000) 13,207,000 9,938,000
Payment for purchase of acquisi-
tions, net of cash acquired.... (362,000) (1,787,000) (206,600,000)
------------ ------------ -------------
Net cash used in investing
activities.................. (38,501,000) (11,169,000) (223,805,000)
------------ ------------ -------------
Cash flows from financing activi-
ties:
Net proceeds from sale of common
stock.......................... -- -- 97,394,000
Net proceeds from sale of con-
vertible subordinated deben-
tures.......................... 57,923,000 -- 136,249,000
Proceeds from exercise of common
stock options.................. 1,242,000 1,422,000 3,681,000
Principal payments of debt...... (651,000) (4,512,000) (1,806,000)
Dividends paid on preferred
stock.......................... (701,000) (715,000) (715,000)
Payment to repurchase Series B
preferred stock................ -- -- (4,709,000)
Net proceeds from borrowings on
note payable................... 3,306,000 17,647,000 4,359,000
------------ ------------ -------------
Net cash provided by
financing activities........ 61,119,000 13,842,000 234,453,000
------------ ------------ -------------
Net increase (decrease) in
cash and cash equivalents... 15,092,000 (1,872,000) 386,000
Cash and cash equivalents at
beginning of year............... 2,939,000 18,031,000 16,159,000
------------ ------------ -------------
Cash and cash equivalents at end
of year......................... $ 18,031,000 $ 16,159,000 $ 16,545,000
============ ============ =============
See accompanying notes to consolidated financial statements.
35
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
1994 1995 1996
-------- ---------- -----------
Supplemental disclosures of cash flow
information:
Cash paid during the year for interest....... $775,000 $5,390,000 $12,592,000
======== ========== ===========
Cash paid during the year for income taxes... $294,000 $ 173,000 $ 2,513,000
======== ========== ===========
Noncash investing and financing activities
consisted of the following:
Common stock issued:
Satisfaction of debt........................ $ -- $ 700,000 $ --
Conversion of debentures.................... -- -- 45,000,000
Purchase of property........................ -- -- 2,976,000
Property, plant and equipment exchanged for
receivables................................. -- -- 5,318,000
-------- ---------- -----------
$ -- $ 700,000 $53,294,000
======== ========== ===========
See accompanying notes to consolidated financial statements.
36
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1994, 1995, 1996 AND 19961997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
United States Filter Corporation and its wholly owned subsidiaries (the
"Company") (see note 9). All significant intercompany accounts and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Method of Accounting for Contracts
The accounting records of the Company are maintained and income is reported
for financial reporting and income tax purposes for long-term contracts under
the percentage-of-completion method of accounting. Under this method, an
estimated percentage for each contract, based on the cost of work performed to
date that has contributed to contract performance compared to the total
estimated cost, is applied to total estimated revenue. Provision is made for
the entire amount of future estimated losses on contracts in progress in the
period in which such losses are determined. Claims for additional contract
compensation due the Company are not reflected in the accounts until the year
in which such claims are allowed, except where contract terms specifically
provide for certain claims.
Contract costs include all direct material and labor and those indirect
costs related to contract performance. General and administrative expenses are
charged to expense as incurred.
Products and Services
Sales of other products and services are recorded as products are shipped or
services rendered.
INCOME TAXES
The Company follows Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes." Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
United States income taxes are not provided on the undistributed earnings of
its foreignnon-U.S. subsidiaries as such earnings are intended to be indefinitelyindefinately
reinvested in those operations.
FOREIGN CURRENCY TRANSLATION
In accordance with Statement of Financial Accounting StandardSFAS No. 52, "Foreign Currency Translation," thethose assets
and liabilities that are denominated in foreigna functional currency other than U.S.
dollars are translated into U.S. dollars at the current rate of exchange
existing at period-end and revenues and expenses are translated at the average
monthly exchange rates. Translation adjustments are included as a separate
component of shareholders' equity. The transactionTransaction gains and losses included in
net income (loss) are immaterial.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
3735
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is calculated
on the straight-line method over the estimated useful lives of the respective
assets which range from 3three to 25 years. Leasehold improvements are
amortized on the straight-line method over the lesser of their estimated
useful lives or the related lease term.
COSTCOSTS IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED
CostCosts in excess of net assets of businesses acquired isare amortized on the
straight-line method over a 20- to 40-year life. The Company evaluates the
recoverability of these costs based upon expectations of nondiscountednon-discounted cash
flows and operating income of each subsidiary. Based upon its most recent analysis, the Company
believes that no material impairment exists at March 31, 1996.1997.
INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
Investments in unconsolidated joint ventures are accounted for using the
equity method, under which the Company's share of earnings or losses from
these joint ventures is reflected in income as earned and dividends are
credited against the investment when received.
UNAMORTIZED DEBT ISSUANCE COSTS
Unamortized debt issuance costs, aggregating $1,735,000$6.2 million and $5,450,000$16.9 million
at March 31, 19951996 and 1996,1997, respectively, have been deferred and are being
amortized over the term of the related convertible subordinated debentures
(notedebt (see note 12).
WARRANTIES
The Company's products are generally under warranty against defects in
material and workmanship for a period of one year. The Company has accrued for
estimated future warranty costs.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, short-term investments,
accounts receivable, accounts payable, and accrued liabilities approximate
fair value because of the short maturity of these instruments. The carrying
amount of the Company's revolving credit facility approximates its fair value
because the interest rate on the instrument changes with market interest
rates. The fair value of the Company's long-term debt (including current
portion) is estimated to be equal to the carrying amounts based on quoted
market prices for similar issues or on the current rates offered to the
Company for debt of the same remaining securities.
RECLASSIFICATIONS
Certain amounts in the 1995 consolidated financial statements have been
reclassified to conform with the 1996 presentation.
38
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996maturities.
INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share is computed based on the weighted average number of
shares outstanding. Common stock equivalents consisting of convertible
preferred stock, convertible subordinated debentures and common stock options
are included in the computation of income (loss) per share when their effect is
dilutive.
36
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Primary and fully diluted income (loss) per common share were calculated as
follows:
1994 1995 1996 ------------ ----------- -----------1997
------- ------ ------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net income (loss)................... $ (2,541,000) $ 8,331,000 $20,290,000income............................................. $15,267 21,967 46,197
Dividends on preferred stock........ (701,000) (715,000) (536,000)
------------ ----------- -----------stock........................... (715) (536) --
------- ------ ------
Adjusted net income (loss) applicable to common shares........ $(3,242,000) $ 7,616,000 $19,754,000
============ =========== ===========$14,552 21,431 46,197
======= ====== ======
Weighted average shares outstanding. $ 12,159,000 $14,780,000 $23,560,000outstanding.................... 29,394 42,565 58,278
Add:
Exercise of options reduced by the number of shares
purchased with proceeds.......................... 294,000 246,000 749,000
------------ ----------- -----------proceeds............................. 369 1,123 2,046
------- ------ ------
Adjusted weighted average shares outstanding........................ $ 12,453,000 $15,026,000 $24,309,000
============ =========== ===========outstanding........... 29,763 43,688 60,324
======= ====== ======
Income (loss) per common share:
Net income (loss).................income........................................... $ (.20) $ .56 $ .830.51 0.50 0.77
Dividends on preferred stock...... (.06) (.05) (.02)
------------ ----------- -----------stock......................... (0.02) (0.01) --
------- ------ ------
Adjusted income (loss) per common share..............................share....................... $ (.26) $ .51 $ .81
============ =========== ===========0.49 0.49 0.77
======= ====== ======
On March 4, 1996, the preferred shareholder tendered its Series A Preferred
stock for conversion into Company common stock thus eliminating further
dividends (see note 15).
RECLASSIFICATIONS
Certain amounts in the 1996 consolidated financial statements have been
reclassified to conform with the 1997 presentation.
(2) CASH AND CASH EQUIVALENTS
Cash equivalents consist of demand deposits and certificates of deposit with
original maturities of 90 days or less.
(3) SHORT-TERM INVESTMENTS
Short-term investments consist of highly liquid municipal issues available
for sale with original maturities of more than 90 days when purchased, and are
carried at amortized cost, which approximates market value.
(4) INVENTORIES
Inventories at March 31, 19951996 and 19961997 consist of:
1995 1996 ----------- -----------1997
------- -------
(IN THOUSANDS)
Raw materials........................................ $14,243,000 $20,664,000
Work-in-process...................................... 10,007,000 15,278,000materials................................................ $21,578 54,112
Work-in-process.............................................. 17,997 58,619
Finished goods....................................... 10,457,000 19,813,000
----------- -----------
$34,707,000 $55,755,000
=========== ===========goods............................................... 45,322 129,752
------- -------
$84,897 242,483
======= =======
3937
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 19951996 and 19961997 consist of:
1995 1996 ------------ ------------1997
-------- -------
(IN THOUSANDS)
Land.............................................Land...................................................... $ 3,112,000 $ 7,772,0009,954 20,697
Buildings and improvements....................... 25,566,000 33,732,000
Equipment........................................ 35,133,000 111,288,000improvements................................ 46,031 102,817
Equipment................................................. 132,110 175,494
Furniture and fixtures........................... 13,456,000 24,812,000
Vehicles......................................... 1,185,000 2,719,000fixtures.................................... 25,542 56,881
Vehicles.................................................. 5,159 13,270
Construction in progress......................... 5,075,000 16,910,000
------------ ------------
83,527,000 197,233,000progress.................................. 17,191 18,668
-------- -------
235,987 387,827
Less accumulated depreciation.................... (15,132,000) (41,208,000)
------------ ------------
$ 68,395,000 $156,025,000
============ ============depreciation............................. (64,816) (90,987)
-------- -------
$171,171 296,840
======== =======
(6) INVESTMENT IN LEASEHOLD INTERESTS
The Company has concession agreements to build and operate wastewater treatment plants
in Mexico. The terms of the concessions are approximately 15 to 18 years, as
amended, and include monthly payments to be received by the Company at various
prices per cubic meter of sewage treated at the facilities based upon the
Company's initial investments, fixed operating expenses and variable operating
expenses. The Company is amortizing the investments on a straight-line basis
over the terms of the concessions. Accumulated amortization at March 31, 19951996
and 19961997 totaled $955,000$2.0 million and $2,026,000,$3.2 million, respectively. The investments
are stated at cost which does not exceed market based on projected non-discountednon-
discounted future cash flows.
(7) COSTCOSTS IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED
CostCosts in excess of net assets of businesses acquired and accumulated
amortization at March 31, 19951996 and 19961997 consists of the following:
1995 1996 ------------ ------------1997
-------- -------
(IN THOUSANDS)
CostCosts in excess of net assets of businesses acquired...................................... $104,831,000 $283,275,000acquired..... $283,275 811,054
Less accumulated amortization.................. (5,669,000) (11,384,000)
------------ ------------
$ 99,162,000 $271,891,000
============ ============amortization............................ (11,384) (22,958)
-------- -------
$271,891 788,096
======== =======
38
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) OTHER ASSETS
Other assets at March 31, 19951996 and 19961997 consist of:
1995 1996 ----------- -----------1997
------- ------
(IN THOUSANDS)
Investment in unconsolidated joint ventures......... $ 7,406,000 $12,407,000ventures................... $12,419 10,645
Long-term receivables and advances.................. 3,508,000 6,415,000advances............................ 6,415 7,105
Other assets at amortized cost:
Deferred debt costs......................................... 6,200 16,939
Operating permits and development costs........... 1,819,000 1,212,000
Deferred debt costs............................... 1,735,000 5,450,000
Patents........................................... 119,000 1,561,000
Other............................................. 707,000 5,135,000
----------- -----------
$15,294,000 $32,180,000
=========== ===========costs..................... 1,212 5,994
Patents..................................................... 2,469 3,074
Other....................................................... 10,562 53,260
------- ------
$39,277 97,017
======= ======
The above amounts reflect accumulated amortization of $2.0 million and $3.7
million at March 31, 1996 and 1997, respectively.
During fiscal 1996, the Company's Zimpro subsidiary evaluated certain
patents in accordance with SFAS 121. Based upon this evaluation, patents with
a carrying value of $3.6 million were written down by $2.6 million to
estimated fair value.
(9) ACQUISITIONS
On May 31, 1996, a wholly owned subsidiary of the Company merged with and
into Zimpro Environmental, Inc. ("Zimpro"), in a tax free reorganization. In
connection with this acquisition, the Company issued 877,611 shares of the
Company's common stock for all of the outstanding common and preferred shares
of Zimpro pursuant to an Agreement and Plan of Merger among the Company,
Landegger Environmental Holdings, Inc., The Black Clawson Company, a trust,
and two limited partnerships in the John Hancock Capital Growth Fund ("The
Hancock Funds") (collectively the "Stockholders"). In addition, the Company
liquidated existing indebtedness to The Hancock Funds in exchange for 172,491
shares of Company common stock and $1.0 million in cash.
Zimpro, based in Wisconsin, manufactures wastewater treatment equipment with
proprietary technologies in wet air oxidation, landfill leachate treatment
systems, ground water remediation, filtration and sludge treatment systems.
This transaction has been accounted for as a pooling of interests and,
accordingly, the consolidated financial statements and notes thereto for all
periods presented have been restated to include the accounts and operations of
Zimpro.
On August 23, 1996, a wholly-owned subsidiary of the Company merged with and
into Davis Water & Waste Industries, Inc. ("Davis"), upon the exchange of
4,817,349 shares of its common stock for all of the outstanding common and
preferred shares of Davis pursuant to an Agreement and Plan of Merger between
the Company and Davis.
Davis manufactures and markets products relating to the distribution of
water and wastewater. Davis also designs, engineers, manufactures, sells and
installs water and wastewater treatment equipment to comply with applicable
health and water quality standards.
39
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
This transaction has been accounted for as a pooling of interests and,
accordingly, the consolidated financial statements and notes thereto for all
periods presented have been restated to include the accounts and operations of
Davis.
Merger expenses incurred to consummate the Davis transaction totaled $5.6
million and consisted primarily of investment banking fees, printing, stock
fees, legal fees, accounting fees, governmental filings fees and certain other
costs related to existing Davis pension plans and change in control charges.
On March 6, 1997, a wholly-owned subsidiary of the Company merged with and
into Sidener Supply Company ("Sidener"), upon the exchange of 1,528,732 shares
of its common stock for all of the outstanding common shares of Sidener
pursuant to an Acquisitions Agreement between the Company and Sidener. In
addition, the Company issued 98,449 shares of common stock to liquidate
certain indebtedness of Sidener.
Sidener, with headquarters in St. Louis, Missouri, markets products relating
to the distribution of water and wastewater. This transaction has been
accounted for as a pooling of interests and, accordingly, the consolidated
financial statements and notes thereto for all periods presented have been
restated to include the accounts and operations of Sidener.
Separate results of operations of the combined entities for the years ended
March 31, 1995 and 1996 are as follows:
YEAR ENDED MARCH
31,
----------------
1995 1996
-------- -------
(IN THOUSANDS)
Revenues:
U.S. Filter (as previously reported).................... $272,032 472,537
Zimpro.................................................. 31,678 28,877
Davis................................................... 215,649 226,489
Sidener................................................. 81,473 84,419
-------- -------
Combined.............................................. $600,832 812,322
======== =======
Net income (loss):
U.S. Filter (as previously reported).................... 8,331 20,290
Zimpro.................................................. 460 (6,732)
Davis................................................... 3,448 5,749
Sidener................................................. 3,028 2,660
-------- -------
Combined.............................................. $ 15,267 21,967
======== =======
Net income per common share and common equivalent share:
As previously reported.................................. $ 0.34 0.54
======== =======
As restated............................................. $ 0.49 0.49
======== =======
On October 25, 1996, the Company acquired all of the outstanding capital
stock of the Utility Supply Group, Inc. ("USG") pursuant to an Agreement and
Plan of Merger. The purchase price for the acquisition of USG, including
acquisition costs, was approximately $40 million, consisting of the repayment
of $18.3 million of USG long-term debt paid in cash and the delivery of
771,157 shares of Company common stock.
USG, headquartered in Waco, Texas, is a distributor of water and wastewater
related products and services to industrial and municipal customers throughout
the United States.
40
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995The acquisition of USG has been accounted for as a purchase and,
accordingly, the results of operations of USG are included in the Company's
consolidated statements of income from the date of acquisition. The excess of
fair value of net assets acquired was approximately $18 million, and is being
amortized on a straight-line basis over 40 years.
On October 28, 1996, the Company acquired all of the outstanding capital
stock of WaterPro Supplies Corporation ("WaterPro") pursuant to a Stock
Purchase Agreement. The purchase price for the acquisition of WaterPro,
including acquisition costs, was approximately $91 million, consisting of
3,201,507 shares of Company common stock.
WaterPro, headquartered in Edina, Minnesota is a national distributor of
water and wastewater related products and services for municipal water, sewer
authorities and underground contractors, and has locations throughout the
United States.
The acquisition of WaterPro has been accounted for as a purchase and,
accordingly, the results of operations of WaterPro are included in the
Company's consolidated statements of income from the date of acquisition. The
excess of fair value of net assets acquired was approximately $29 million, and
is being amortized on a straight-line basis over 40 years.
On December 2, 1996, pursuant to an Amended and Restated Purchase and Sale
Agreement dated September 14, 1996 between the Company and Wheelabrator Water
Technologies Inc. ("Seller"), the Company completed the acquisition of the
capital stock of certain of the Seller's subsidiaries and certain other
entities, and substantially all of the assets and liabilities of certain other
subsidiaries, collectively Wheelabrator's Water Systems and Manufacturing
Group ("WSMG"). The purchase price, as amended, for the acquisition of WSMG,
including acquisition costs, was approximately $374 million and was paid
entirely in cash.
WSMG provides a broad range of water and wastewater engineering, technology
and systems. The acquisition of WSMG has been accounted for as a purchase and,
accordingly, the results of operations of WSMG are included in the Company's
consolidated statements of income from the date of acquisition. The excess of
fair value of net assets acquired was approximately $308 million and is being
amortized on a straight-line basis over 40 years.
On January 6, 1997, pursuant to a Purchase and Sale Agreement dated October
7, 1996, between the Company and United Utilities PLC ("Seller"), the Company
completed the acquisition of the capital stock of certain other subsidiaries,
collectively, the Process Equipment Division ("PED") of Seller. The purchase
price, subject to adjustment, for the acquisition of PED, including
acquisition costs, was approximately $166 million in cash and 1,320,312 shares
of Company stock.
PED provides a broad range of water and wastewater engineering, technology
and systems. The acquisition of PED has been accounted for as a purchase and,
accordingly, the results of operations of PED are included in the Company's
consolidated statements of income from the date of acquisition. The excess of
fair value of net assets acquired was approximately $108 million and is being
amortized on a straight-line basis over 40 years.
41
UNITED STATES FILTER CORPORATION AND 1996
The above amounts reflect accumulated amortizationSUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Supplementary information related to the acquisitions of $1,373,000USG, WaterPro, WSMG
and $1,982,000 atPED is as follows:
(IN THOUSANDS)
Assets acquired............................................... $1,018,537
Liabilities assumed........................................... (318,059)
Common stock issued........................................... (139,025)
----------
Cash paid..................................................... 561,453
Fees and expenses............................................. 3,001
Less cash acquired............................................ (11,039)
----------
Net cash paid............................................... $ 553,415
==========
Summarized below are the unaudited pro forma results of operations of the
Company as though USG, WaterPro, WSMG and PED had been acquired on April 1,
1996:
1997
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Revenues............................................... $2,112,193
==========
Net income............................................. $ 58,774
==========
Net income per common share............................ $ 0.78
==========
During the year ended March 31, 19951997, the Company completed other
acquisitions with an aggregate purchase price, including acquisition costs, of
approximately $77 million, consisting of $19.0 million in cash and 1996, respectively.the
delivery of 2,392,768 shares of Company common stock. The carrying amountexcess of these otherfair value
of net assets approximate their fair value.
(9) ACQUISITIONSacquired was approximately $65 million, and is being amortized
on a straight-line basis over 40 years.
On October 2, 1995, the Company completed the acquisition of all of the
outstanding capital stock of Polymetrics, Inc., and subsidiaries, a California
corporation ("Polymetrics"), pursuant to a Stock Purchase Agreement dated as
of August 30, 1995, as amended, between the Company and Anjou International
Company, a U.S. subsidiary of Compagnie Generale des Eaux of France. The total
purchase price for the acquisition of Polymetrics including acquisition costs,
was approximately $60,200,000$60 million consisting of $51,700,000$51.7 million in cash and the
delivery of 391,229586,844 shares of Company common stock. The transaction was
effective as of October 1, 1995.
Polymetrics designs, manufactures, installs and services water treatment
systems for the electronics, pharmaceutical, laboratory, power generation and
cogeneration industries. Polymetrics also provides water treatment services,
including service deionization ("SDI"). The acquisition of Polymetrics has
been accounted for as a purchase and, accordingly, the results of operations
of Polymetrics are included in the Company's consolidated statementstatements of operationsincome
from the date of acquisition. The excess of fair value of net assets acquired
was approximately $47,600,000$48 million and is being amortized on a straight-line basis
over 40 years.
On August 11, 1995, the Company purchased substantially all of the assets
and assumed certain liabilities of Continental H/2/O Services, Inc., d/b/a
Interlake Water Systems, an Illinois corporation ("Interlake"), pursuant to an
Asset Purchase Agreement among the Company, Interlake and the Stockholders of
Interlake. The acquisition was effective as of August 1, 1995. The purchase
price for the acquisition of Interlake, including acquisition costs, was
approximately $27,100,000$27 million consisting of $20,100,000$20.1 million in cash and the delivery
of 332,036498,054 shares of Company common stock.
Interlake provides water treatment services, including SDI, in Illinois and
Michigan. In addition, Interlake sells and services a broad range of complex
water treatment systems and was the largest distributor of the
42
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company's Continental product line in the United States. The acquisition of
Interlake has been accounted for as a purchase and, accordingly, the results
of operations of Interlake are included in the Company's consolidated
statements of operationsincome from the date of acquisition. The excess of fair value of
net assets acquired was approximately $19,000,000,$19 million, and is being amortized on a
straight-line basis over 40 years.
On April 3, 1995, the Company acquired all of the outstanding capital stock
of The Permutit Company Limited, a U.K. corporation, and The Permutit Company
Pty. Ltd., an Australian corporation (collectively "The Permutit Group"),
pursuant to a Share Purchase Agreement between the Company and Thames Water
PLC, a U.K. corporation. The aggregate purchase price was approximately $10,000,000$10
million and was paid entirely in cash.
The Permutit Group provides a range of products, including pre-engineered
water treatment systems for the pharmaceutical, laboratory and chemical
markets and other commercial customers. The acquisition of The Permutit Group
has been accounted for as a purchase and, accordingly, the results of
operations of The Permutit Group are included in the Company's consolidated
statements of operationsincome from the date of acquisition. The excess of cost over
fair value of net assets acquired was approximately $7,200,000$7 million and is being
amortized on a straight-line basis over 40 years.
On May 4, 1995, the Company completed the acquisition of all of the
outstanding capital stock of Arrowhead Industrial Water, Inc. ("AIW") from The
B.F. Goodrich Company ("Goodrich") pursuant to a Stock Purchase Agreement
dated as of February 27, 1995, as amended. The acquisition was effective as of
April 41
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
30, 1995. The purchase price, as adjusted, was $84,300,000$84.3 million consisting
of $82,000,000$82.0 million in cash and the delivery of 87,744131,616 shares of Company common
stock.
AIW, headquartered in Lincolnshire, Illinois, is a supplier of owned and
operated on-site industrial water treatment systems in the United States and
also provides emergency and temporary mobile water treatment systems.
The acquisition of AIW has been accounted for as a purchase and,
accordingly, the results of operations of AIW are included in the Company's
consolidated statements of operationsincome from the date of acquisition. The excess of
fair value of net assets acquired was approximately $36,400,000$36 million and is being
amortized on a straight-line basis over 40 years.
During the year ended March 31, 1996, the Company completed other
acquisitions with an aggregate purchase price of approximately $58,900,000,$59 million,
consisting of $40,084,000$40 million in cash and the delivery of 821,4441,232,166 shares of
Company Common Stock. The excess of fair value of net assets acquired was
approximately $68,200,000,$68 million, and is being amortized on a straight-line basis
over 40 years.
Supplementary information related to the acquisitions of Polymetrics,
Interlake, The Permutit Group and AIW for the March 31, 1996 consolidated
statement of cash flows is as follows:
(IN THOUSANDS)
Assets acquired................................................ $230,986,000acquired............................................... $230,986
Liabilities assumed............................................ (50,911,000)assumed........................................... (50,911)
Common stock issued............................................ (17,484,000)
------------issued........................................... (17,484)
--------
Cash paid...................................................... 162,591,000paid..................................................... 162,591
Fees and expenses.............................................. 1,514,000expenses............................................. 1,514
Less cash acquired............................................. (894,000)
------------acquired............................................ (894)
--------
Net cash paid................................................ $163,211,000
============paid............................................... $163,211
========
43
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summarized below are the unaudited pro forma results of operations of the
Company as though USG, WaterPro, WSMG, PED, Polymetrics, Interlake, The
Permutit Group and AIW had been acquired on April 1, 1994:1995:
1995 1996
------------ ----------------------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Revenue.......................................... $398,187,000Revenue................................................ $1,959,289
==========
Net income............................................. $ 508,783,000
============ =============
Net income....................................... $ 7,039,000 $ 21,164,000
============ =============32,403
==========
Net income per common share......................share............................ $ .40 $ .83
============ =============
On August 10, 1994, the Company acquired from Millipore Corporation the
Ceraflo(R) ceramic product line. The total price of the product line was
approximately $2,500,000 and consisted of 202,729 shares of Company common
stock.
On July 27, 1994, the Company acquired Seral Erich Alhauser GmbH ("Seral")
by means of a purchase of Seral's outstanding capital stock. The total
purchase price was $8,100,000 and consisted of $4,250,000 in cash and 300,000
shares of Company common stock. Seral, located in Germany, designs,
manufactures, installs and services water purification products and systems.
The acquisition has been accounted for as a purchase and, accordingly, the
results of operations of Seral are included in the Company's consolidated
statement of operations for the period from the date of acquisition to March
31, 1995.
42
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
The excess cost over the fair value of net assets acquired was approximately
$8,222,000 and is being amortized on a straight-line basis over 40 years.
On November 30, 1994, the Company completed the acquisition of the Crouzat
Group ("Crouzat") by means of a purchase of all of Crouzat's outstanding
capital stock. The total purchase price was $5,750,000, of which $4,640,000
was paid in cash at closing, with three annual payments of $370,000 in 1995,
1996 and 1997. Crouzat comprises three sites in France and primarily services
ultrapure water purification products and had revenues in 1994 of
approximately $6,000,000. The acquisition has been accounted for as a purchase
and, accordingly, the results of the operations of Crouzat are included in the
consolidated statement of operations for the period from the date of
acquisition to March 31, 1995. The excess cost over the fair value of net
assets acquired was approximately $3,800,000 and is being amortized on a
straight-line basis over 40 years.
On May 27, 1994, the Company completed the acquisition of Sation, S.A.
("Sation") by means of a purchase of all of Sation's outstanding capital
stock. The total purchase price of $1,546,000 consisted of $755,000 in cash
and 56,250 shares of Company stock. Sation, located in Barcelona, Spain,
primarily services ultrapure water purification products. The acquisition has
been accounted for as a purchase and, accordingly, the results of operations
of Sation are included in the Company's consolidated statement of operations
for the period from the date of acquisition to March 31, 1995. The excess cost
over the fair value of net assets acquired was $1,148,000 and is being
amortized on a straight-line basis over 40 years.
Effective August 31, 1994, the Company, through two of the Company's
subsidiaries, acquired all of the outstanding capital stock of Smogless S.p.A.
("Smogless") from Laidlaw, Inc. The total consideration for the acquisition of
Smogless (excluding acquisition costs of $396,000) consists of the following:
(i) $45,000,000 in aggregate principal amount of subordinated debt of Ionpure
Italy due August 31, 2001 and bearing interest at 6.5% for the period January
1, 1995 through September 30, 1995 and 4.5% thereafter, (ii) common stock
purchase warrants exercisable in whole or part at any time on or before August
31, 2001 by the surrender of the subordinated debt at the rate of $18.00 in
principal amount of subordinated debt for each share of common stock, (iii)
185,185 shares of a new Series B Voting Convertible Preferred Stock, (iv)
18,000 shares of the Company's common stock, and (v) $700,000 in cash.
Smogless is headquartered in Milan, Italy and provides a broad range of
services for wastewater treatment, including feasibility studies, process
evaluation, plant design, construction and commissioning and design of
specialized machinery.
43
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
The acquisition of Smogless has been accounted for as a purchase and,
accordingly, the results of operations of Smogless for the 7 months ended
March 31, 1995 are included in the Company's consolidated statement of
operations for the year ended March 31, 1995. The excess of cost over fair
value of net assets acquired was approximately $39,340,000 and is being
amortized on a straight-line basis over 40 years. Supplementary information
related to the acquisitions of Seral, Crouzat, Sation and Smogless for the
consolidated statement of cash flows for the year ended March 31, 1995 is as
follows:
Assets acquired............................................... $ 136,327,000
Liabilities assumed........................................... (117,641,000)
Preferred stock issued........................................ (3,506,000)
Common stock issued........................................... (4,835,000)
-------------
Cash paid..................................................... 10,345,000
Fees and expenses............................................. 1,117,000
Less cash acquired............................................ (9,707,000)
-------------
Net cash acquired........................................... $ 1,755,000
=============
Summarized below are the unaudited pro forma results of operations of the
Company as though Smogless had been acquired on April 1, 1993:
1994 1995
------------ ------------
Revenues......................................... $230,538,000 $293,104,000
============ ============
Net income....................................... $ 526,000 $ 10,400,000
============ ============
Net income (loss) per common share............... $ (.02) $ .64
============ ============
On July 8, 1994, the business of the Company and Liquipure Technologies,
Inc. ("Liquipure") were merged upon the exchange of 1,852,221 shares of the
Company's common stock for all of the outstanding common and preferred shares
of Liquipure. In addition, the Company issued 45,000 shares of its common
stock to one of the shareholders of Liquipure in satisfaction of a $700,000
loan, plus accrued interest.
Liquipure, based in Connecticut, provides SDI products and services through
company operated and franchised dealers, and designs, manufactures, installs
and services ultrapure water purification products and systems primarily for
the pharmaceutical market and also manufactures standard, ultrapure water
products for the laboratory market.
This transaction has been accounted for as a pooling of interests and,
accordingly, the consolidated financial statements and notes thereto for all
periods presented have been restated to include the accounts and operations of
Liquipure. Separate results of operations of the combined entities for the
year ended March 31, 1994 are as follows:
1994
------------
Revenues:
U.S. Filter (as previously reported)......................... $147,870,000
Liquipure.................................................... 32,551,000
------------
Combined.................................................. $180,421,000
============
Net income (loss):
U.S. Filter (as previously reported)......................... $ 4,986,000
Liquipure.................................................... (7,527,000)
------------
Combined.................................................. $ (2,541,000)
============
44
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
Separate unaudited results of operations of the combined entities for the
period April 1, 1994 to the effective date of the merger and included in the
consolidated statement of operations for the year ended March 31, 1995 are as
follows:
NET INCOME
REVENUES (LOSS)
----------- ----------
U.S. Filter.......................................... $47,857,000 $1,414,000
Liquipure............................................ 7,206,000 (307,000)
----------- ----------
Combined......................................... $55,063,000 $1,107,000
===========0.49
==========
All pro forma information presented above is in response to applicable
accounting rules relating to business acquisitions. This pro forma information
does not purport to be indicative of the results that actually would have been
obtained if the combined operations had been conducted during the periods
presented and is not intended to be a projection of future results due to
extensive changes being made in the organization, facilities, personnel and
other costs of the acquired companies.
(10) CONTRACT BILLING STATUS
Information with respect to the billing status of contracts in process at
March 31, 19951996 and 19961997 is as follows:
1995 1996 ------------- -------------1997
--------- --------
(IN THOUSANDS)
Contract costs incurred to date...............date....................... $ 104,337,000 $ 214,286,000243,976 504,725
Estimated profits............................. 34,802,000 69,878,000
------------- -------------profits..................................... 80,700 117,740
--------- --------
Contract revenue earned to date............... 139,139,000 284,164,000date....................... 324,676 622,465
Less billings to date......................... (135,063,000) (266,244,000)
------------- -------------date................................. (306,898) (557,111)
--------- --------
Cost and estimated earnings in excess of bill-
ings, net....................................billings,
net.................................................. $ 4,076,000 $ 17,920,000
============= =============17,778 65,354
========= ========
The above amounts are included in the accompanying consolidated balance
sheets as:
Costs and estimated earnings in excess of billings on
uncompleted contracts............contracts................................ $ 20,016,000 $ 31,258,00033,575 107,537
Billings in excess of costs and estimated earnings on
uncompleted contracts............ (15,940,000) (13,338,000)
------------- -------------contracts................................ (15,797) (42,183)
--------- --------
$ 4,076,000 $ 17,920,000
============= =============17,778 65,354
========= ========
Accounts receivable include retainage which has been billed, but is not due
pursuant to retainage provisions in construction contracts until completion of
performance and acceptance by the customer. This retainage aggregated $1,734,000$4.8
million and $2,701,000$13.7 million at March 31, 19951996 and 1996,1997, respectively.
Substantially all retained balances are collectible within one year.
4544
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(11) LONG-TERM DEBT
Long-term debt at March 31, 19951996 and 19961997 consists of the following:
1995 1996 ----------- -----------1997
------- -------
(IN THOUSANDS)
Mortgage notes payable, secured by land and buildings,
interest rates ranging from 2% to 8.5%9.2%, due in 1999
through 2009...................2010............................................. $ 7,396,000 $ 7,180,0007,180 13,304
Guaranteed bank notes, interest rates ranging from 6.0%3.9% to
9.2%, due in 19971999 through 2004........... 1,911,000 1,276,0002004........................... 1,276 1,631
Unsecured notes payable, interest rates ranging from 7%3.0%
to 11.5%9.0%, due in 1997 through 1999....... 1,353,000 1,007,000
Other............................................. 165,000 217,000
----------- -----------
10,825,000 9,680,0002001........................ 1,007 7,194
Other..................................................... 8,217 963
------- -------
17,680 23,092
Less current portion.............................. (2,033,000) (1,394,000)
----------- -----------portion...................................... (7,892) (10,806)
------- -------
$ 8,792,000 $ 8,286,000
=========== ===========9,788 12,286
======= =======
The aggregate maturities of long-term debt for each of the five years
subsequent to March 31, 19961997 are as follows: 1997, $1,394,000; 1998, $1,367,000;$10.8 million; 1999, $801,000;$1.7
million; 2000, $598,000;$1.6 million; 2001, $580,000;$1.6 million; 2002, $1.9 million; and
thereafter, $4,940,000.$5.5 million.
The Company has a long-term, unsecured revolving line-of-creditline of credit with a bank
of up to $135,000,000,$400.0 million, of which $30,413,000$6.5 million was outstanding at March 31,
1996.1997 and is included in notes payable in the accompanying consolidated balance
sheet. The line of credit expires November 30, 1999December, 2001 and bears interest at the
bank's primebase rate plus 0.25% or, in certain circumstances, Eurodollar rate. The line of
credit is subject to certain covenants for which the Company was in compliance
at March 31, 1996.1997. At March 31, 1996, $14,036,0001997, $62.1 million of standby letters of
credit were issued under this line of credit.
(12) CONVERTIBLE SUBORDINATED DEBENTURES
On October 20, 1993,December 11, 1996, the Company sold $60,000,000$414.0 million aggregate principal
amount of 5% convertible subordinated debentures4.5% Convertible Subordinated Debentures due OctoberDecember 15, 2000.2001 (the
"Debentures"). The debenturesDebentures are convertible into common stock at any time
prior to maturity, redemption or repurchase at a conversion price of $20.50$39.50
per share, subject to adjustmentadjustments in certain circumstances. The debenturesDebentures are
not redeemable prior to October 25,
1996,December 15, 1999, at which time the debentures areDebentures become
redeemable at the option of the Company, in whole or in part, at specified
redemption prices plus accrued and unpaid interest to the date of redemption.
Interest is payable semi-annually on AprilJune 15 and OctoberDecember 15, commencing AprilJune
15, 1994.1997.
On September 18, 1995 the Company sold $140,000,000$140.0 million aggregate principal
amount of 6% Convertible Subordinated Notes due September 15, 2005.2005 (the
"Notes"). The notesNotes are convertible into common stock at any time prior to
maturity, redemption or repurchase at a conversion price of $27.50$18.33 per share,
subject to adjustment in certain circumstances. The notesNotes are not redeemable
prior to September 23, 1998 at which time the notes areNotes become redeemable at the
option of the Company, in whole or in part, at specified redemption prices
plus accrued and unpaid interest to the date of redemption. Interest is
payable semi-annually on March 15 and September 15 of each year, commencing on
March 15, 1996.
Effective August 31, 1994, the Company issued $45,000,000$45.0 million of subordinated
debt (the "Debt") with common stock purchase warrants in connection with the
acquisition of Smogless (see note 9).Smogless. On September 18, 1995, these warrants to purchase 2,500,0003.8
million shares of Company common stock were exercised in exchange for the
delivery of the $45,000,000 principal amount of subordinated debt.
46Debt.
45
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 ANDOn October 20, 1993, the Company sold $60.0 million aggregate principal
amount of 5% convertible subordinated debentures due October 15, 2000. As of
October 25, 1996, all of such debentures were converted into a total of
approximately 4.4 million shares of Company common stock pursuant to the terms
of the debentures.
(13) ACCRUED LIABILITIES
Accrued liabilities at March 31, 19951996 and 19961997 consist of the following:
1995 1996 ----------- -----------1997
-------- -------
(IN THOUSANDS)
Accrued job costs, start-up and customer deposits...deposits........... $ 8,783,000 $23,995,00026,329 61,108
Payroll, benefits and related taxes................. 5,343,000 10,899,000
Warranty............................................ 2,991,000 5,609,000taxes......................... 18,450 50,406
Organization, relocation and closure costs.................. 20,239 41,088
Warranty.................................................... 6,631 25,727
Future remediation.......................................... 1,729 10,625
Sales commission............................................ 3,674 10,014
Sales, property and other taxes..................... 4,081,000 3,971,000
Interest............................................ 1,540,000 2,993,000
Sales commission.................................... 1,441,000 1,998,000
Future remediation, relocation & closure costs...... 300,000 19,886,000
Other............................................... 9,248,000 14,746,000
----------- -----------
$33,727,000 $84,097,000
=========== ===========taxes............................. 5,335 9,647
Interest.................................................... 3,204 7,978
Other....................................................... 18,854 22,744
-------- -------
$104,445 239,337
======== =======
Included in other long-term liabilities at March 31, 1997 is $14.6 million
of retiree benefits assumed by the Company as a result of certain acquisitions
during fiscal 1997.
(14) INCOME TAXES
Income tax expense (benefit) from continuing operations for the years ended
March 31, 1994, 1995, 1996 and 19961997 consist of:
1994 1995 1996 ----------- ---------- ----------1997
------ ------ ------
(IN THOUSANDS)
Federal:
Current............................... $ -- $ -- $ 238,000
Deferred.............................. (3,239,000) 1,314,000 442,000Current............................................ $2,274 3,484 1,584
Deferred........................................... 1,926 2,999 13,364
State:
Current............................... 3,000 157,000 250,000
Deferred.............................. -- (368,000) (173,000)
Foreign:
Current............................... -- -- 4,085,000
Deferred.............................. -- 1,554,000 2,240,000
----------- ---------- ----------
$(3,236,000) $2,657,000 $7,082,000
=========== ========== ==========Current............................................ 682 878 732
Deferred........................................... (454) (504) 1,404
Non-U.S.:
Current............................................ 20 4,085 5,821
Deferred........................................... 1,554 2,240 (5,424)
------ ------ ------
$6,002 13,182 17,481
====== ====== ======
46
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total income tax expense (benefit) differed from the amounts computed by applying the
U.S. Federal corporate tax rate of 34% for 19941995 and 19951996 and 35% for 19961997 to
income from continuing operations before income taxes as a result of the
following:
1994 1995 1996 ----------- ---------- ------------1997
------- ------ -------
(IN THOUSANDS)
Expected income tax provision
(benefit).......................... $(1,964,000) $3,736,000provision.................... $ 9,580,0007,231 11,951 22,287
Permanent differences............... (377,000) (189,000) 358,000differences............................ 24 1,573 2,302
State franchise tax, net of Federal tax benefit........................ 2,000 105,000 519,000benefit.. 346 666 1,937
Change in balance of valuation allowance for deferred tax assets
allocated to income tax expense.... (3,201,000) (925,000) (4,646,000)
Net operating loss carryforward
unable to be utilized.............. 2,559,000 -- --........ (1,973) (3,351) (10,796)
Difference in U.S. tax rate and foreign tax
rates.................. -- 511,000 2,032,000
Benefit of foreign net operating
loss carryforwards................. (255,000) (581,000) (761,000)
----------- ---------- ------------
$(3,236,000) $2,657,000rates........................................... 511 2,032 1,762
Other............................................ (137) 311 (11)
------- ------ -------
$ 7,082,000
=========== ========== ============6,002 13,182 17,481
======= ====== =======
47
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
As of March 31, 1996,1997, the Company has net operating loss carryforwards in
France of approximately $19,952,000. Approximately $1,946,000 of the operating
losses expire in the years 1997-1998, while the remainder have$16.4 million with an indefinite carryforward period.period
for which income tax benefit was recognized during fiscal 1997. Any benefit of
the French loss carryforward mustwas required to be shared equally between the
Company and Alcoa until March 31, 1997. As of March 31, 1996,1997, the Company also
hashad net operating loss carryforwards in other Europeannon-U.S. countries of
approximately $7,338,000$44.6 million which expire from 19971998 to 2002.2003.
Additionally, as of March 31, 1996,1997, the Company has recognized the future
benefit of net operating loss carryforwards generated from Liquipure of $14,362,000, which has been
recognized in fiscal 1996.$14.4
million. These loss carryforwards expire from 2002 to 2007. These operating
loss carryforwards can be used only against future taxable income of
Liquipure.
The Company also has available, at March 31, 1996,1997, other net operating loss
carryforwards for U.S. Federal income tax purposes of approximately $13,327,000$15.0
million which expire in 2007 to 2010.
47
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The sources and tax effects of temporary differences between the financial
statement carrying amounts and tax basis of assets and liabilities are as
follows:
1995 1996 ------------ ------------1997
-------- -------
(IN THOUSANDS)
Deferred tax assets:
Operating loss carryforwards....................carryforwards............................ $ 16,456,000 $ 26,581,000
Inventory....................................... 1,530,000 2,579,00027,664 36,514
Inventory............................................... 3,540 8,044
Allowance for doubtful accounts................. 673,000 1,123,000
Warranty........................................ 645,000 1,604,000
Vacation........................................ 347,000 713,000accounts......................... 1,776 5,215
Warranty................................................ 1,837 2,656
Vacation................................................ 1,030 1,465
Other accruals.................................. 118,000 317,000accruals.......................................... 1,134 19,967
Tax credits..................................... -- 276,000
Other........................................... 370,000 1,581,000
------------ ------------
20,139,000 34,774,000credits............................................. 501 276
Other................................................... 6,467 1,049
-------- -------
43,949 75,186
Valuation allowance............................. (10,503,000) (16,890,000)
------------ ------------allowance....................................... (19,946) (20,659)
-------- -------
Total deferred tax assets.................... 9,636,000 17,884,000assets............................. 24,003 54,527
Deferred tax liabilities:
Depreciation and amortization................... 6,201,000 11,313,000amortization........................... 12,129 11,981
Prepaid expenses................................ 201,000 410,000expenses........................................ 500 353
Long-term contracts............................. -- 4,206,000
Other........................................... 7,780,000 307,000
------------ ------------
14,182,000 16,236,000
------------ ------------contracts..................................... 4,206 11,123
Other................................................... 620 4,002
-------- -------
17,455 27,459
-------- -------
Net deferred tax assets (liabilities)........assets............................... $ (4,546,000) $ 1,648,000
============ ============6,548 27,068
======== =======
The Company believes that it is more likely than not that the net deferred
tax assets, including Federal net operating loss carryforwards, will be
realized prior to their expiration. This belief is based on recent and
anticipated future earnings and, in part, on the fact that the Company has
completed several acquisitions during and including the three years ended
March 31, 19961997 of companies with strong earnings potential. A valuation
allowance of $16,890,000$20.7 million at March 31, 19961997 has been recognized and consistsprovided primarily offor
state and foreign net operating losses which may not be realized prior to
their expiration periods.
48
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996expiration.
(15) SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
In January 1992 and September 1994, the Company issued 880,000 shares of a
new Series A Cumulative Convertible Preferred Stock and 185,185 shares of a
new Series B Convertible Preferred Stock, respectively, in connection with
acquisitions. On September 18, 1995, the Company repurchased and canceled
139,518 shares of Series B Preferred stock for $4,709,000,$4.7 million and converted
45,667 shares of Series B Preferred Stock into 68,500102,750 shares of Company
common stock. On March 4, 1996, the holder of the Company's Series A Preferred
Stock tendered the 880,000 preferred shares for conversion into 1,320,0001,980,000
shares of Company common stock pursuant to terms of the security.
COMMON STOCK
On December 5, 1994 and July 15, 1996, the Company paid in the form of stock
dividends a stock dividend a 3-
for-2three-for-two split of the Company's common stock. The par value of the new shares
issued was $50,000 which was transferred from additional paid-in-capital to
the common stock account. All references
to income (loss) per common share and other common stock information in the
accompanying consolidated financial statements and notes thereto have been
restated to reflect the 3-for-2 split.these splits.
48
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On May 3, 1995,December 11, 1996, the Company completed an underwritten public offering
of 6,900,00011,804,206 shares of its common stock at a price equal to $15.00$31.625 per
share. The net proceeds to the Company, after underwriting discounts and
commissions and before other related expenses, were $98,118,000.$356.1 million.
On May 3, 1995, the Company completed an underwritten public offering of
10,350,000 shares of its common stock at a price equal to $10.00 per share.
The net proceeds to the Company, after underwriting discounts and commissions
and other related expenses, were $97.3 million.
OPTIONS
Under the Company's 1991 Employee Stock Option Plan (the "Plan"), the
exercise price of options granted is equal to their fair market value at the
date of grant and the maximum term of the option may not exceed 10 years. If
the optionee is a holder of more than 10% of the outstanding common stock of
the Company, the option price per share is increased to at least 110% of fair
market value, and the option term is limited to 5 years. The total number of
shares of common stock authorizedavailable under the Plan is 2,587,5003,881,250 shares. Each
option granted becomes exercisable on a cumulative basis, 25% six months
following the date of grant and 25% on each subsequent anniversary of the
grant date.date until fully vested.
Under the Company's 1991 Director Stock Option Plan (the "Directors Plan"),
the exercise price of options granted was equal to the higher of $2.00 below
the market price or 60% of the market price on the date of grant. Effective
April 1, 1996 the Directors Plan was amended to grant options equal to their
fair market value at the date of grant. Under the Plan, each director of the
Company who is not a full-time employee of the Company will receive each year
an option to purchase 12,000 shares of common stock. The total number of
shares available under the Directors Plan is 375,000562,500 shares. Compensation
expense of $80,000, $122,000 and $112,000$.1 million was recorded in 1994,fiscal 1995 and fiscal 1996
respectively, related to
the Directors Plan.
The per share weighted-average fair value of stock options granted during
fiscal 1996 and fiscal 1997 was $5.93 and $9.49, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions for fiscal 1996 and fiscal 1997: expected dividend yield 0%, risk-
free interest rate of 6.3%, expected volatility of the stock price of 41.9%
and an expected life of 5 years.
The Company continues to apply APB Opinion No. 25 in accounting for its
Plans and, accordingly, no compensation cost has been recognized for its stock
options in the consolidated financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income and net income per common
share would have been reduced to the pro forma amounts indicated below:
YEAR ENDED
MARCH 31,
--------------
1996 1997
------- ------
(IN THOUSANDS,
EXCEPT PER
SHARE DATA)
Net income
As reported................................................. $21,967 46,197
Pro forma................................................... $19,926 41,867
Net income per common share
As reported................................................. $ 0.49 0.77
Pro forma................................................... $ 0.44 0.69
49
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994,Pro forma net income and net income per common share reflects only options
granted in fiscal 1996 and 1997. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected in the
pro forma net income and net income per common share amounts presented above
because compensation reflected over the options' vesting period of 10 years
and compensation cost for options granted prior to April 1, 1995 AND 1996is not
considered. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that do not have vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's stock options have
characteristics significantly different from those of traded options and
because changes in the subjective input assumptions can materially affect the
value of an estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
Transactions involving the Plan and Directors Plan are summarized as
follows:
NUMBER OF AGGREGATE
SHARES EXERCISE PRICE VALUE
--------- --------------- -------------------------
(IN THOUSANDS)
Balance at March 31, 1993............ 999,8621994.......... 1,925,882 $ 2.021.35 to 34.00 $10,525,00010.95 $ 15,642
Options granted...................... 479,639 2.02granted.................... 898,290 1.35 to 16.42 6,904,00010.59 7,650
Options exercised.................... (157,954) 3.67exercised.................. (241,040) 2.45 to 13.92 (1,255,000)9.83 (1,422)
Options canceled..................... (37,626) 11.00canceled................... (40,785) 7.33 to 34.00 (532,000)9.83 (375)
--------- --------------- -------------------
Balance at March 31, 1994............ 1,283,921 2.021995.......... 2,542,347 1.35 to 16.42 15,642,00010.95 21,495
Options granted...................... 598,860 2.02granted.................... 1,013,250 9.04 to 15.88 7,650,00018.67 12,764
Options exercised.................... (160,693) 3.67exercised.................. (487,886) 1.35 to 14.75 (1,422,000)10.95 (3,678)
Options canceled..................... (27,190) 11.00canceled................... (20,626) 8.53 to 14.75 (375,000)10.58 (183)
--------- --------------- -------------------
Balance at March 31, 1995............ 1,694,898 2.021996.......... 3,047,085 1.35 to 16.42 21,495,00018.67 30,398
Options granted...................... 675,500 13.56granted.................... 934,874 18.67 to 28.00 12,764,00034.88 18,773
Options exercised.................... (325,257) 2.02exercised.................. (659,260) 1.35 to 16.42 (3,678,000)26.25 (11,886)
Options canceled..................... (13,751) 12.79canceled................... (27,415) 4.97 to 15.87 (183,000)13.83 (309)
--------- --------------- -------------------
Balance at March 31, 1996............ 2,031,3901997.......... 3,295,284 $ 2.021.35 to 28.00 $30,398,00034.88 $ 36,976
========= =============== ===================
At March 31, 1996 and 1997, the number of options exercisable was 1.8
million and 2.2 million, respectively.
In connection with the warrants, options and convertible subordinated debentures, and
preferred stock, the
Company has reserved 8,895,16920.9 million shares at March 31, 1995
and 10,316,000 shares at March 31, 19961997 for future
issuance.
(16) RETIREMENT PLANS
Pursuant to the terms of a collective bargaining agreement, one of the
Company's U.S. subsidiaries has a defined benefit pension plan covering
substantially all of its hourly employees. Pension plan benefits are generally
based upon years of service and compensation. The Company's funding policy is
to contribute at least the minimum amounts required by the U.S. Employee
Retirement Income Security Act of 1974 ("ERISA") or additional amounts to
assure that plan assets will be adequate to provide retirement benefits. Plan
assets are invested in broadly diversified portfolios of government
obligations, mutual funds and fixed income and equity securities. The
accumulated benefit obligation under this plan is not material to the
consolidated financial statements.
50
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has a defined contribution plan (under IRC Section 401(k))
covering substantially all U.S. salaried and hourly participating employees
which provide for contributions based primarily upon compensation levels and
employee contributions. The Company funds its contributions to these plans as
accrued.accrued and as provided by ERISA. Defined contribution plan expense to the
Company was $519,000,
$810,000$.8 million, $1.6 million and $1,631,000$3.8 million for the years ended
March 31, 1994, 1995, 1996 and 1996,1997, respectively.
(17) BUSINESS SEGMENT DATA AND EXPORT SALES
The Company's sole business segment is the design, manufacture, operation,
distribution and service of equipment and supplies for filtration, water
treatment and wastewater treatment for industrial and municipal customers.
There were no sales to any individual customers which accounted for 10% or
more of revenue in fiscal 1994, 1995, 1996 and 1996.
50
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 19961997. Export sales accounted for $18,803,000, $29,306,000were $37.9
million, $58.6 million and $48,636,000$85.4 million in fiscal 1994, 1995, 1996 and 1996,1997,
respectively.
Information about the Company's operations in different geographic locations
for the years ended March 31, 1994, 1995, 1996 and 19961997 is as follows:
1994 1995 1996 ------------ ------------ ------------1997
-------- ------- ---------
(IN THOUSANDS)
Revenues from unaffiliated customers:
United States................... $142,580,000 $167,900,000 $269,594,000
Foreign......................... 37,841,000 104,132,000 202,943,000
------------ ------------ ------------
$180,421,000 $272,032,000 $472,537,000
============ ============ ============States................................... $488,066 599,455 957,078
Non-U.S......................................... 112,766 212,867 419,523
-------- ------- ---------
$600,832 812,322 1,376,601
======== ======= =========
Operating income:
United States................................... $ 21,619 28,301 52,982
Non-U.S......................................... 6,428 17,081 29,931
-------- ------- ---------
$ 28,047 45,382 82,913
======== ======= =========
Income before income (loss):tax expense:
United States...................States................................... $ (6,137,000)16,491 21,520 39,462
Non-U.S......................................... 4,778 13,629 24,216
-------- ------- ---------
$ 8,157,000 $ 17,874,000
Foreign......................... 1,263,000 6,428,000 17,081,000
------------ ------------ ------------
$ (4,874,000) $ 14,585,000 $ 34,955,000
============ ============ ============21,269 35,149 63,678
======== ======= =========
Identifiable assets:
United States................... $228,531,000 $214,599,000 $487,344,000
Foreign......................... 24,654,000 164,129,000 301,667,000
------------ ------------ ------------
$253,185,000 $378,728,000 $789,011,000
============ ============ ============States................................... $343,954 602,670 1,526,101
Non-U.S......................................... 164,129 301,667 702,227
-------- ------- ---------
$508,083 904,337 2,228,328
======== ======= =========
(18) COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS
The Company and its subsidiaries lease certain facilities and equipment
under various noncancelable and month-to-month leases. These leases are
accounted for as operating leases. Rent expense aggregated $2,999,000,
$4,623,000$8.3 million, $9.0
million and $5,904,000$13.7 million in 1994, 1995, 1996 and 1996,1997, respectively.
51
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the future minimum annual rental commitments as of March 31,
1996,1997, under operating leases follows:
OPERATING
LEASES
-------------------------
(IN THOUSANDS)
Fiscal year ending:
1997........................................................... $ 5,065,000
1998........................................................... 3,947,000
1999........................................................... 3,511,000
2000........................................................... 1,656,000
2001........................................................... 803,000
Thereafter..................................................... 892,000
-----------1998........................................................ $14,956
1999........................................................ 11,177
2000........................................................ 7,335
2001........................................................ 4,345
2002........................................................ 4,513
Thereafter.................................................. 3,704
-------
Total minimum lease payments................................... $15,874,000
===========payments.................................. $46,030
=======
51
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
CONTINGENT LIABILITIES
In December of 1995, allegations were made by federal and state
environmental regulatory authorities of multiple violations in connection with
wastewater discharges at a facility owned by the Company. The facility was
acquired by the Company as part of its acquisition of Polymetrics on October
2, 1995 (note 9).1995. The Company has rights of indemnity from the seller which could be
available if monetary damages and penalties are incurred in connection with
any alleged violations occurring prior to the Company's acquisition of
Polymetrics. In the opinion of management, the ultimate liability that may
result from the above matter will not have a material adverse effect on the
Company's consolidated financial position or results of operations.operations (see note
9).
Zimpro is party to certain agreements (entered into in 1990 at the time
Zimpro was acquired from unrelated third parties by the entities from which it
was later acquired by the Company), pursuant to which Zimpro agreed, among
other things, to pay the original sellers a royalty of 3.0% of its annual
consolidated net sales of certain products in excess of $35.0 million through
October 25, 2000. Under certain interpretations of such agreements, with which
the Company disagrees, Zimpro could be liable for such royalties with respect
to the net sales attributable to products, systems and services of certain
defined wastewater treatment businesses acquired by Zimpro or the Company or
the Company's other subsidiaries after May 31, 1996. The defined businesses
include, among others, manufacturing machinery and equipment, and engineering,
installation, operation and maintenance services related thereto, for the
treatment and disposal of waste liquids, toxic waste and sludge. One of the
prior sellers has revealed in a letter to the Company an interpretation
contrary to that of the Company. The Company believes that it would have
meritorious defenses to any claim based upon any such interpretation and would
vigorously pursue the elimination of any threat to expand what it believes to
be its obligations pursuant to such agreements.
Legal proceedings pending against the Company consist of litigation
incidental to the Company's business and in the opinion of management, based
in part upon the opinion of counsel, the outcome of such litigation will not
materially affect the Company's consolidated financial position or results of
operations.
(19) QUARTERLY FINANCIAL DATA (UNAUDITED)
GROSS NET INCOME
REVENUES PROFIT NET INCOME PER SHARE*
------------ ----------- ---------- ----------
1995
First quarter................ $ 55,063,000 $15,221,000 $1,107,000 $.06
Second quarter............... 67,201,000 19,285,000 1,908,000 .12
Third quarter................ 72,189,000 20,783,000 2,408,000 .15
Fourth quarter............... 77,579,000 23,311,000 2,908,000 .18
1996
First quarter................ $ 91,539,000 $27,874,000 $3,359,000 $.16
Second quarter............... 108,308,000 33,506,000 4,509,000 .19
Third quarter................ 126,907,000 38,199,000 5,880,000 .22
Fourth quarter............... 145,783,000 44,901,000 6,542,000 .24
- --------
* Per common and common equivalent share
(20) SUBSEQUENT EVENTS
On April 18, 1996, the Company signed a definitive agreement to acquire
Zimpro Environmental, Inc. from Landegger Environmental Holdings Inc., an
affilitate of The Black Clawson Company, and two limited partnerships in the
John Hancock Capital Growth Fund ("The Hancock Fund") (collectively the
"Stockholders"). Pursuant to the Agreement and Plan of Merger, the Company
delivered 585,074 shares of Company Common Stock to the Stockholders and
liquidated existing indebtedness to the Hancock Fund in exchange for 114,994
shares of Company common stock and $1,000,000 in cash. Zimpro manufactures
wastewater treatment equipment with proprietary technologies in wet air
oxidation, landfill leachate treatment systems, ground water remediation,
filtration and sludge treatment systems.
The transaction was consummated on May 31, 1996 and will be treated as a
pooling of interests and, accordingly, the Company's future historical
consolidated financial statements will be restated to include the accounts and
results of Zimpro.
Zimpro had revenues of $29,470,000, $31,678,000 and $28,877,000 for the
years ended December 31, 1993, 1994 and 1995 respectively. Additionally,
Zimpro had net income (losses) of ($1,513,000), $460,000 and ($6,732,000) for
the years ended December 31, 1993, 1994 and 1995, respectively.
52
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
On June 10, 1996, the Company entered into a definitive merger agreement
with Davis Water & Waste Industries, Inc. ("Davis") in connection with a
proposed acquisition by the Company of all of the outstanding capital stock of
Davis. Pursuant to the terms of the definitive agreement the Company will
exchange .933 shares of its(19) QUARTERLY FINANCIAL DATA (UNAUDITED)
NET INCOME
REVENUES GROSS PROFIT NET INCOME PER SHARE*
-------- ------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1996
First quarter.................... $174,793 42,309 4,733 0.12
Second quarter................... $194,669 50,326 7,108 0.17
Third quarter.................... $211,673 54,188 8,061 0.17
Fourth quarter................... $231,187 59,273 2,065 0.04
1997
First quarter.................... $222,958 59,152 7,694 0.15
Second quarter................... $247,854 66,424 6,969 0.13
Third quarter.................... $368,124 91,180 14,351 0.23
Fourth quarter................... $537,665 133,597 17,183 0.23
- --------
* Per common stock for each of the approximately
3,260,000 shares of Davis, subject to adjustment. Davis manufactures and markets products relating to the distribution of water and wastewater. Davis
also designs, engineers, manufactures, sells and installs water and wastewater
treatment equipment to comply with applicable health and water quality
standards.
The proposed transaction is expected to be completed by September 1996, and
will be treated as a pooling of interests and, accordingly, the Company's
future consolidated financial statements will be restated to include the
accounts and results of Davis.
Davis had revenues of $202,621,000, $215,649,000 and $226,489,000 for the
years ended April 30, 1994, 1995 and 1996, respectively. Additionally, Davis
had net income (losses) of ($5,340,000), $3,448,000 and $5,749,000 for the
years ended April 30, 1994, 1995 and 1996, respectively.
On June 4, 1996, the Company announced a 3-for-2 split of the Company's
common stock to be paid in the form of a stock dividend on July 15, 1996 to
shareholders of record as of the close of business on June 14, 1996. The
accompanying consolidated financial statements do not reflect the effects of
this 3-for-2 split.equivalent share.
53
ITEM 9--CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this Item (other than the information regarding
executive officers set forth at the end of Item 1 of Part I of this Form 10-K)
will be contained in the Company's definitive Proxy Statement for its 19961997
Annual Meeting of Stockholders under the captions "Election of Directors" and
"Security Ownerhsip,Ownership--Section 16(a) Beneficial Ownership Reporting Compliance,"
and is incorporated herein by reference.
ITEM 11--EXECUTIVE COMPENSATION
The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 19961997 Annual Meeting of Stockholders under
the captions "Election of Directors" and "Executive Compensation," and is
incorporated herein by reference.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 19961997 Annual Meeting of Stockholders under
the caption "Security Ownership," and is incorporated herein by reference.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 19961997 Annual Meeting of Stockholders under
the caption "Certain"Executive Compensation--Certain Transactions," and is
incorporated herein by reference.
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(A)(a)(1) FINANCIAL STATEMENTS:
The following report and financial statements are filed as part of this Form
10-K:
PAGE
----
Independent Auditors' Report........................................ 29Report............................................. 28
Consolidated Balance Sheets as of March 31, 19951996 and 1996........... 301997................ 29
Consolidated Statements of Operations--YearsIncome--Years Ended March 31, 1994,
1995, 1996 and
1996...................................................... 321997.................................................................... 30
Consolidated Statements of Shareholders' Equity--Years Ended March 31,
1994, 1995, 1996 and 1996............................................ 331997..................................................... 31
Consolidated Statements of Cash Flows--Years Ended March 31, 1994,
1995, 1996
and 1996 ..................................................... 351997................................................................ 33
Notes to Consolidated Financial Statements.......................... 37Statements............................... 35
(A)(a)(2) FINANCIAL STATEMENT SCHEDULE:
See (d) below.
(A)54
(a)(3) EXHIBITS:
The following exhibits are filed herewith or incorporated by reference
herein:
54
2.0 Stock Purchase Agreement dated as of February 27, 1995 between United
States Filter Corporation and The B.F.Goodrich Company (incorporated be
reference to Exhibit 1.0 to Form 8-K dated March 2, 1995 (File No. 1-
10728)).*
2.1 Share Purchase Agreement dated April 3, 1995 among United States Filter
Corporation, Thames Water Products & Services Limited, PWT Overseas
Limited, Ionpure Technologies Limited and Thames Water PLC, including
only Schedules 1, 2 and 3 (incorporated by reference to Exhibit 2.0 to
Form 8-K dated April 3, 1995 (File No. 1-10728)).*
2.2 Asset Purchase Agreement dated August 10, 1995 among Continental H2O
Services, Inc. d/b/a Interlake Water Systems, U.S. Filter/Ionpure, Inc.
and Florence E. Stockdale, James Timothy Stockdale, William E. Stockdale,
III, John Christopher Stockdale and Melody S. Williamson and Katherine S.
Price (incorporated by reference to Exhibit 1.0 to Form 8-K dated August
11, 1995 (File No. 1-10728)).*
2.3 Stock Purchase Agreement dated August 30, 1995 among United States Filter
Corporation, Anjou International Company and Polymetrics, Inc.
(incorporated by reference to Exhibit 1.0 to Form 8-K dated October 2,
1995 (File No. 1-10728)).*
2.42.2 Agreement and Plan of Merger dated as of April 15, 1996 among United
States Filter Corporation, U.S. Filter/Zimpro Acquisition Corp.,
Landegger Environmental Holdings, Inc., John Hancock Capital Growth Fund
II Limited Partnership, John Hancock Capital Growth Fund II Limited
Partnership, Carl C. Landegger, Trustee and Black Clawson Company
(incorporated by reference to Exhibit 1.0 to Form 8-K dated May 31, 1996
(File No. 1-10728)).*
2.52.3 Agreement and Plan of Merger dated as of June 10, 1996 among United States
Filter Corporation, U.S. Filter/DWW Acquisition Corporation and Davis
Water & Waste Industries, Inc. (incorporated by reference to Exhibit 2.1
to Form 8-K dated June 10, 1996 (File No. 1-10728)).*
2.4 Amendment to Agreement and Plan of Merger dated as of July 10, 1996, among
United States Filter Corporation, U.S. Filter/DWW Acquisition Corporation
and Davis Water & Waste Industries, Inc., (incorporated by reference to
Exhibit 2.02 to Registration Statement on Form S-4 (File No. 333-08223)).
2.5 Amended and Restated Purchase and Sale Agreement dated as of September 14,
1996 between Wheelabrator Technologies Inc. and United States Filter
Corporation (incorporated by reference to Exhibit 2.1 to Registration
Statement on Form S-3 (File No. 333-14277)).*
2.6 Agreement and Amendment dated as of December 2, 1996 between Wheelabrator
Technologies Inc. and United States Filter Corporation (incorporated by
reference to Exhibit 2.2 to Form 8-K dated December 2, 1996 (File No. 1-
10728)).*
2.7 Agreement, dated October 7, 1996, between United Utilities PLC and certain
of its subsidiaries and United States Filter Corporation (incorporated by
reference to Exhibit 2.2 to Form 8-K dated October 28, 1996 (File No. 1-
10728)).*
2.8 Stock Purchase Agreement dated as of September 10, 1996 among Edmundson
International, Inc., United States Filter Corporation and WaterPro
Supplies Corporation (incorporated by reference to Exhibit 2.3 to
Registration Statement on Form S-3 (File No. 333-14277)).*
3.0 Restated Certificate of Incorporation, as amended.amended (incorporated by
reference to Exhibit 3.0 to Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 (File No. 1-10728)).
3.1 Restated Bylaws (incorporated by reference to Exhibit 3.3 to Registration
Statement on Form S-1 (No. 33-41089)).
4.0 5% Convertible Subordinated Debenture Indenture dated as of October 20,
1993 between United States Filter Corporation and The First National Bank
of Boston, as Trustee (incorporated by reference to Exhibit 4.1 to Form
8-K dated October 20, 1993 (File No. 1-10728)).
4.1 6% Convertible Subordinated Notes Indenture dated as of September 18, 1995
between United States Filter Corporation and The First National Bank of
Boston, as Trustee (incorporated by reference to Exhibit 4.3 to
Registration Statement on Form S-3 (No. 33-63281)).
4.1 4 1/2% Convertible Subordinated Notes Indenture dated as of December 17,
1996 between United States Filter Corporation and State Street Bank and
Trust Company of California, N.A., as Trustee (incorporated by reference
to Exhibit 4.1 to Registration Statement on Form S-3 (No. 333-14281)).
4.2 Amended and Restated Multicurrency Revolving Credit Agreement, dated as of November 30, 1995December
2, 1996, among United States Filter Corporation and certain of its
subsidiaries, the Lenders named therein, DLJ Capital Funding, Inc., as
Documentation Agent, ABN AMRO Bank, N.V., as Co-Agent, and The First
National Bank of Boston, as Managing Agent First Interstate Bank of California and ABN Amro Bank N.V., as
Co-Agents, and certain other banks and financial institutions listed and
named therein, including
Exhibits A and K thereto (incorporated by reference to
Exhibit 44.1 to Form 10-Q for the quarter ended8-K dated December 31, 19952, 1996 (File No. 1-10728)).
4.3 Transfer, Registration and Other Rights Agreement dated as of August 31,
1994 by and among United States Filter Corporation, Laidlaw International
Investments (Luxembourg) S.A., Laidlaw Investments (Barbados) Ltd.,
Marfit, S.p.A., Laidlaw, Inc. and Ing. Gilberto Cominetta (incorporated
by reference to Exhibit 2.5 to Form 8-K dated October 4, 1994 (File No.
1-10728)).
55
4.4 Letter Dated May 29, 1996 from Laidlaw Inc. to United States Filter
Corporation, amending the Transfer, Registration and Other Rights
Agreement dated as of August 31, 1994.1994 (incorporated by reference to
Exhibit 4.4 to Form 10-K for the year ended March 31, 1996 (File No. 1-
10728)).
10.1 License Agreements dated November 22, 1989 between Millipore Corporation,
Millipore Investment Holdings Limited and IP Holding Company
(incorporated by reference to Exhibit 10.4 to Form 10-K for the year
ended March 31, 1994 (File No. 1-10728)).
55
10.2 United States Filter Corporation 1991 Employees Stock Option Plan, as
amended through September 11, 1995.13, 1996 (incorporated by reference to Exhibit
10.0 to Form 10-Q for the quarter ended September 30, 1996 (File No. 1-
10728)).
10.3 United States Filter Corporation 1991 Directors Stock Option Plan, as
amended through September 14, 199413, 1996 (incorporated by reference to Exhibit
10.210.0 to Form 10-Q for the quarter ended September 30, 19941996 (File No. 1-
10728)).
10.4 Form of Executive Retention Agreement (incorporated by reference to
Exhibit 10.6 to Form 10-K for the year ended March 31, 1995 (File No. 1-
10728)).
10.5 Form of Executive Retirement Plan (incorporated by reference to Exhibit
10.7 to Form 10-K for the year ended March 31, 1995 (File No. 1-10728)).
10.6 Annual Incentive Compensation Plan Summary.
10.7 Employment Agreement dated July 2, 1992 between Thierry Reyners and
United States Filter Corporation, as amended on December 30, 1992Summary (incorporated by reference to
Exhibit 10.810.6 to Form 10-K for the year ended March 31, 19951996 (File No. 1-10728)1-
10728)).
10.7 Employment Agreement dated October 25, 1996 between Harry K. Hornish, Jr.
and United States Filter Corporation.
12.0 Statement re computation of ratio of earnings to fixed charges.
21.0 Schedule of Subsidiaries.
23.0 Independent Auditors' Consent.
27.0 Financial Data Schedule.
- --------
* Certain exhibits and schedules to the Exhibits attached heretoincorporated by reference
herein have been omitted in accordance with Item 601(b)(2) of Regulation S-K.S-
K. A copy of any omitted exhibit or schedule will be furnished to the
Commission upon request.
(B) REPORTS ON FORM 8-K:
The Company filed one report on Form 8-K during the quarter ended March 31,
19961997 dated February 15, 1996 announcingJanuary 6, 1997 reporting the election of Robert S. Hillas and
J. Danforth Quayle as directorsacquisition by the Company of the
Company to fill two vacancies.Process Equipment Division of United Utilities Plc ("PED"). The Profit and
Loss Account of PED for the Six Months ended 30 September 1995 and 1996, the
Balance Sheet of PED as of 30 September 1996 and the Cash Flow Statements of
PED for the Six Months ended 30 September 1995 and 1996 were filed as part of
such Form 8-K. The other financial statements of PED and pro forma financial
information as required by Regulation S-X of the Commission were previously
filed in the Company's Form 8-K dated October 28, 1996, as amended on Form 8-
K/A dated December 19, 1996.
(C) EXHIBITS:
See (a) (3) above.
(D) FINANCIAL STATEMENT SCHEDULE:
PAGE
----
Independent Auditors' Report on Schedule................................Schedule.............................. 57
SCHEDULE
--------
II Valuation and Qualifying Accounts.............................Accounts................................ 58
All other schedules for which provision is made in the applicable accounting
regulations of the United States Securities and Exchange Commission have been
omitted because such schedules are not required under the related instructions
or are inapplicable or because the information required is included in the
consolidated financial statements or notes thereto.
56
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Board of Directors and Shareholders United States Filter Corporation:
The audits referred to in our report dated June 7, 19966, 1997 included the related
financial statement schedule as of March 31, 19951996 and 1996,1997, and for each of
the years in the three-year period ended March 31, 1996,1997, included in the
annual report on Form 10-K of United States Filter Corporation. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
KPMG Peat Marwick LLP
Orange County, California
June 26, 199623, 1997
57
UNITEDSCHEDULE II--UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATIONVALUATION AND QUALIFYING ACCOUNTS
THREE-YEARS ENDED MARCH 31, 19961997
(IN THOUSANDS)
BALANCE AT ACQUIRED AMOUNTS AMOUNTS BALANCE
AT BEGINNING THROUGH CHARGED AMOUNTSTO WRITTEN AT END OF
DESCRIPTION OF PERIOD ACQUISITION TO EXPENSE WRITTEN OFF OF PERIOD
----------- ---------------------- ----------- ---------- ----------- ----------------- ---------
Year Ended March 31,
1997:
Allowance for Doubtful
Accounts............... $10,165 $11,802 $6,871 $(4,243) $24,595
======= ======= ====== ======= =======
Year Ended March 31,
1996:
Allowance for Doubtful
Accounts.............. $3,272,000 $1,172,000 $5,297,000 $(1,576,000) $8,165,000
========== ========== ========== =========== ==========Accounts............... $ 4,928 $ 1,172 $6,220 $(2,155) $10,165
======= ======= ====== ======= =======
Year Ended March 31,
1995:
Allowance for Doubtful
Accounts.............. $1,857,000Accounts............... $ 603,000 $1,558,0003,584 $ (746,000) $3,272,000
========== ========== ========== =========== ==========
Year Ended March 31,
1994:
Allowance for Doubtful
Accounts.............. $1,163,000603 $2,266 $(1,525) $ 454,000 $ 661,000 $ (421,000) $1,857,000
========== ========== ========== =========== ==========4,928
======= ======= ====== ======= =======
58
SIGNATURES
Pursuant to the requirements of SectionPURSUANT TO THE REQUIREMENTS OF SECTION 13 orOR 15(d) of the Securities
Exchange Act ofOF THE UNITED STATES
SECURITIES EXCHANGE ACT OF 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.THE REGISTRANT HAS DULY CAUSED THIS ANNUAL
REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
UNITED STATES FILTER CORPORATION
By: /s/ Richard J. Heckmann
-------------------------------By: _________________________________
RICHARD J. HECKMANN
CHAIRMAN OF THE BOARD, CHIEF
EXECUTIVE OFFICER AND PRESIDENT
Date: June 23, 1997
PURSUANT TO THE REQUIREMENTS OF THE UNITED STATES 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 DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Richard J. Heckmann Chairman of the June 23, 1997
- ------------------------------------- Board, Chief
RICHARD J. HECKMANN Executive Officer
and President
Date:/s/ Kevin L. Spence Vice President and June 27, 1996
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
Registrant23, 1997
- ------------------------------------- Chief Financial
KEVIN L. SPENCE Officer (Principal
Accounting Officer)
/s/ Michael J. Reardon Director and in the capacitiesJune 23, 1997
- ------------------------------------- Executive Vice
MICHAEL J. REARDON President
/s/ Tim L. Traff Director and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
Senior June 23, 1997
- ------------------------------------- Vice President
TIM L. TRAFF
/s/ James E. Clark Director June 23, 1997
- -------------------------------------
JAMES E. CLARK
/s/ John L. Diederich Director June 23, 1997
- -------------------------------------
JOHN L. DIEDERICH
59
SIGNATURE TITLE DATE
/s/ Robert S. Hillas Director June 23, 1997
- -------------------------------------
ROBERT S. HILLAS
/s/ Arthur B. Laffer Director June 23, 1997
- -------------------------------------
ARTHUR B. LAFFER
/s/ Alfred B. Osborne, Jr. Director June 23, 1997
- -------------------------------------
ALFRED B. OSBORNE, JR.
/s/ J. Danforth Quayle Director June 23, 1997
- -------------------------------------
J. DANFORTH QUAYLE
/s/ Richard J. Heckmann Chairman of the Board, Chief June 27, 1996
- ------------------------------------ Executive Officer and
Richard J. Heckmann President
/s/ Kevin L. Spence Vice President and Chief June 27, 1996
- ------------------------------------ Financial Officer
Kevin L. Spence (Principal Accounting
Officer)
/s/ Michael J. Reardon Director and Executive Vice June 27, 1996
- ------------------------------------ President
Michael J. Reardon
/s/ Tim L. Traff Director and Senior Vice June 27, 1996
- ------------------------------------ President
Tim L. Traff
/s/ James E. Clark Director June 27, 1996
- ------------------------------------
James E. Clark
/s/ John L. Diederich Director June 27, 1996
- ------------------------------------
John L. Diederich
/s/ Robert S. Hillas Director June 27, 1996
- ------------------------------------
Robert S. Hillas
/s/ Arthur B. Laffer Director June 27, 1996
- ------------------------------------
Arthur B. Laffer
/s/ Alfred E. Osborne, Jr. Director June 27, 1996
- ------------------------------------
Alfred E. Osborne, Jr.
/s/ J. Danforth Quayle Director June 27, 1996
- ------------------------------------
J. Danforth Quayle
/s/ C. Howard Wilkins, Jr. Director June 27, 1996
- ------------------------------------ C. Howard Wilkins, Jr.
59Director June 23, 1997
- -------------------------------------
C. HOWARD WILKINS, JR.
60
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.0 Stock Purchase Agreement dated as of February 27, 1995 between
United States Filter Corporation and The B.F. Goodrich Company
(incorporated by reference to Exhibit 1.0 to Form 8-K dated
March 2, 1995 (File No. 1-10728)).*
2.1 Share Purchase Agreement dated April 3, 1995 among United States
Filter Corporation, Thames Water Products & Services Limited,
PWT Overseas Limited, Ionpure Technologies Limited and Thames
Water PLC, including only Schedules 1, 2 and 3 (incorporated by
reference to Exhibit 2.0 to Form 8-K dated April 3, 1995
(File No. 1-10728)).*
2.2 Asset Purchase Agreement dated August 10, 1995 among Continental
H2O Services, Inc. d/b/a Interlake Water Systems, U.S.
Filter/Ionpure, Inc. and Florence E. Stockdale, James Timothy
Stockdale, William E. Stockdale, III, John Christopher Stockdale
and Melody S. Williamson and Katherine S. Price (incorporated by
reference to Exhibit 1.0 to Form 8-K dated August 11, 1995 (File
No. 1-10728)).*
2.3 Stock Purchase Agreement dated August 30, 1995 among United States
Filter Corporation, Anjou International Company and Polymetrics, Inc.
(incorporated by reference to Exhibit 1.0 to Form 8-K dated October
2, 1995 (File No. 1-10728)).*
2.42.2 Agreement and Plan of Merger dated as of April 15, 1996 among United
States Filter Corporation, U.S. Filter/Zimpro Acquisition Corp.,
Landegger Environmental Holdings, Inc., John Hancock Capital Growth
Fund II Limited Partnership, John Hancock Capital Growth Fund II
Limited Partnership, Carl C. Landegger, Trustee and Black Clawson
Company (incorporated by reference to Exhibit 1.0 to Form 8-K dated
May 31, 1996 (File No. 1-10728)).*
2.52.3 Agreement and Plan of Merger dated as of June 10, 1996 among United
States Filter Corporation, U.S. Filter/DWW Acquisition Corporation
and Davis Water & Waste Industries, Inc. (incorporated by reference
to Exhibit 2.1 to Form 8-K dated June 10, 1996 (File No. 1-10728)).*
2.4 Amendment to Agreement and Plan of Merger dated as of July 10, 1996,
among United States Filter Corporation, U.S. Filter/DWW Acquisition
Corporation and Davis Water & Waste Industries, Inc., (incorporated
by reference to Exhibit 2.02 to Registration Statement on Form S-4
(File No. 333-08223)).
2.5 Amended and Restated Purchase and Sale Agreement dated as of September
14, 1996 between Wheelabrator Technologies Inc. and United States
Filter Corporation (incorporated by reference to Exhibit 2.1 to
Registration Statement on Form S-3 (File No. 333-14277)).*
2.6 Agreement and Amendment dated as of December 2, 1996 between
Wheelabrator Technologies Inc. and United States Filter Corporation
(incorporated by reference to Exhibit 2.2 to Form 8-K dated December
2, 1996 (File No. 1-10728)).*
2.7 Agreement, dated October 7, 1996, between United Utilities PLC and
certain of its subsidiaries and United States Filter Corporation
(incorporated by reference to Exhibit 2.2 to Form 8-K dated October
28, 1996 (File No. 1-10728)).*
2.8 Stock Purchase Agreement dated as of September 10, 1996 among
Edmundson International, Inc., United States Filter Corporation and
WaterPro Supplies Corporation (incorporated by reference to Exhibit
2.3 to Registration Statement on Form S-3 (File No. 333-14277)).*
3.0 Restated Certificate of Incorporation, as amended.amended (incorporated by
reference to Exhibit 3.0 to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 (File No. 1-10728)).
3.1 Restated Bylaws (incorporated by reference to Exhibit 3.3 to
Registration Statement on Form S-1 (No. 33-41089)).
4.0 5% Convertible Subordinated Debenture Indenture dated as of
October 20, 1993 between United States Filter Corporation and
The First National Bank of Boston, as Trustee (incorporated by
reference to Exhibit 4.1 to Form 8-K dated October 20, 1993
(File No. 1-10728)).
4.1 6% Convertible Subordinated Notes Indenture dated as of September 18,
1995 between United States Filter Corporation and The First National
Bank of Boston, as Trustee (incorporated by reference to Exhibit 4.3
to Registration Statement on Form S-3 (No. 33-63281)).
4.1 4 1/2% Convertible Subordinated Notes Indenture dated as of December
17, 1996 between United States Filter Corporation and State Street
Bank and Trust Company of California, N.A., as Trustee (incorporated
by reference to Exhibit 4.1 to Registration Statement on Form S-3
(No. 333-14281)).
4.2 Amended and Restated Multicurrency Revolving Credit Agreement, dated as of
November 30, 1995December 2, 1996 among United States Filter Corporation and certain
of its subsidiaries, the Lenders named therein, DLJ Capital Funding,
Inc., as Documentation Agent, ABN AMRO Bank, N.V., as Co-Agent, and
The First National Bank of Boston, as Managing Agent First Interstate Bank of
California and ABN Amro Bank N.V., as Co-Agents, and certain
other banks and financial institutions listed and named therein,
including Exhibits A and K thereto (incorporated by
reference to Exhibit 44.1 to Form 10-Q for the quarter ended8-K dated December 31, 19952, 1996 (File No.
1-10728)).
61
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
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4.3 Transfer, Registration and Otherother Rights Agreement dated as of August
31, 1994 by and among United States Filter Corporation, Laidlaw
International Investments (Luxembourg) S.A., Laidlaw Investments
(Barbados) Ltd., Marfit, S.p.A., Laidlaw, Inc. and Ing. Gilberto
Cominetta (incorporated by reference to Exhibit 2.5 to Form 8-K dated
October 4, 1994 (File No. 1-10728)).
4.4 Letter Dated May 29, 1996 from Laidlaw Inc. to United States Filter
Corporation, amending the Transfer, Registration and Other Rights
Agreement dated as of August 31, 1994.1994 (incorporated by reference to
Exhibit 4.4 to Form 10-K for the year ended March 31, 1996 (File No.
1-10728)).
10.1 License Agreements dated November 22, 1989 between Millipore
Corporation, Millipore Investment Holdings Limited and IP Holding
Company (incorporated by reference to Exhibit 10.4 to Form 10-K for
the year ended March 31, 1994 (File No. 1-10728)).
10.2 United States Filter Corporation 1991 Employees Stock Option Plan, as
amended through September 11, 1995.13, 1996 (incorporated by reference to
Exhibit 10.0 to Form 10-Q for the quarter ended September 30, 1996
(File No. 1-10728)).
10.3 United States Filter Corporation 1991 Directors Stock Option Plan, as
amended through September 14, 199413, 1996 (incorporated by reference to
Exhibit 10.210.0 to Form 10-Q for the quarter ended September 30, 19941996
(File No. 1-10728)).
10.4 Form of Executive Retention Agreement (incorporated by reference to
Exhibit 10.6 to Form 10-K for the year ended March 31, 1995 (File No.
1-10728)).
10.5 Form of Executive Retirement Plan (incorporated by reference to
Exhibit 10.7 to Form 10-K for the year ended March 31, 1995 (File No.
1-
10728)1-10728)).
10.6 Annual Incentive Compensation Plan Summary.
10.7 Employment Agreement dated July 2, 1992 between Thierry Reyners
and United States Filter Corporation, as amended on December 30,
1992Summary (incorporated by reference
to Exhibit 10.810.6 to Form 10-K for the year ended March 31, 1995 (File1996 (file
No. 1-10728)).
10.7 Employment Agreement dated October 25, 1996 between Harry K. Hornish,
Jr. and United States Filter Corporation.
12.0 Statement re computation of ratio of earnings to fixed charges.
21.0 Schedule of Subsidiaries.
23.0 Independent Auditors' ConsentConsent.
27.0 Financial Data Schedule.
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* Certain exhibits and schedules to the Exhibits attached heretoincorporated by reference
herein have been omitted in accordance with Item 601(b)(2) of Regulation S-K.S-
K. A copy of any omitted exhibit or schedule will be furnished to the
Commission upon request.
62