SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X]{X} Quarterly report pursuant to Section 13 and 15(d)15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended JUNESEPTEMBER 30, 1996
-------------------------------
or
[_]{ } Transition report pursuant to Section 13 or 15(d)15 (d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
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
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d)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 No
---- --------- -----
The number of shares of common stock, $.01 par value, outstanding as of August
7,November
10, 1996, is 57,905,964 shares.
Total number of pages 17
----16
------------
THERE IS ONE EXHIBITARE FOUR EXHIBITS FILED WITH THIS REPORT.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNESEPTEMBER 30, 1996 AND MARCH 31, 1996
(UNAUDITED)
JuneSeptember 30, 1996 March 31, 1996
------------------------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 7,483,000 16,685,00019,488,000 18,405,000
Short-term investments 1,443,000816,000 65,000
Accounts receivable, net 171,510,000 183,666,000213,594,000 218,855,000
Costs and estimated earnings in excess of billings on uncompleted
contracts 44,242,000 32,156,00052,802,000 33,575,000
Inventories 60,722,000 57,511,00088,230,000 75,313,000
Prepaid expenses 8,595,000 7,230,00011,981,000 7,922,000
Deferred taxes 3,577,000 3,577,0007,771,000 7,771,000
Other current assets 10,537,000 9,388,0009,614,000 10,073,000
------------ -----------
Total current assets 308,109,000 310,278,000404,296,000 371,979,000
------------ -----------
Property, plant and equipment, net 163,387,000 159,631,000178,362,000 165,989,000
Investment in leasehold interests, net 27,392,00027,057,000 27,688,000
Cost in excess of net assets of businesses acquired, net 279,024,000276,627,000 271,891,000
Other assets 37,875,000 33,091,00050,317,000 38,958,000
------------ -----------
$815,787,000 802,579,000$936,659,000 876,505,000
============ ===========
LIABILITIES AND STOCKHOLDERS'SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 65,514,000 80,122,000$101,329,000 100,224,000
Accrued liabilities 87,365,000 86,391,000102,000,000 102,415,000
Current portion of long-term debt 1,542,000 7,757,0001,386,000 7,892,000
Billings in excess of costs and
estimated earnings on uncompleted contracts 19,510,000 14,854,00019,631,000 15,797,000
Other current liabilities 19,466,000 23,202,000
-----------11,344,000 21,894,000
------------ -----------
Total current liabilities 193,397,000 212,326,000
-----------235,690,000 248,222,000
------------ -----------
Notes payable 42,507,000 30,413,00081,156,000 35,756,000
Long-term debt, excluding current portion 7,767,000 8,286,0007,617,000 9,788,000
Convertible subordinated debentures 199,975,000193,565,000 200,000,000
Deferred taxes 1,929,000 1,929,0001,223,000 1,223,000
Other liabilities 13,876,000 10,780,000
-----------17,405,000 13,015,000
------------ -----------
Total liabilities 459,451,000 463,734,000536,656,000 508,004,000
------------ -----------
Shareholders' equity:
Common stock, par value $.01. Authorized 150,000,000
shares; 49,280,734 and 47,873,133 shares issued and outstanding
at September 30, 1996 and March 31, 1996, respectively 493,000 338,000
Additional paid-in capital 370,625,000 351,254,000
Currency translation adjustment 2,691,000 1,836,000
Retained earnings 26,194,000 15,073,000
------------ -----------
Total shareholders' equity 400,003,000 368,501,000
------------ -----------
$936,659,000 876,505,000
============ ===========
(Continued)
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSTATEMENTS.
2
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)STATEMENTS OF INCOME
(UNAUDITED)
JuneThree Months Six Months
Ended Ended
September 30, September 30,
----------------------------- -----------------------------
1996 March 31,1995 1996 -------------1995
-------------- ------------ -------------- ------------
Stockholders' equity:
Common stock, $.01 par value; 75,000,000 shares
authorized; 43,738,571 and 42,178,173 shares
issued and outstanding at June 30, 1996 and
March 31, 1996, respectively 437,000 422,000
Additional paid-in capital 352,787,000 341,715,000
Currency translation adjustment 2,009,000 1,836,000
Retained earnings (accumulated deficit) 1,103,000 (5,128,000)
Revenues $225,210,000 173,927,000 433,719,000 332,099,000
Costs of sales 163,224,000 127,771,000 315,398,000 247,093,000
------------ ----------- Total stockholders' equity 356,336,000 338,845,000----------- -----------
Gross profit 61,986,000 46,156,000 118,321,000 85,006,000
Selling, general and
administrative expenses 44,620,000 34,136,000 86,140,000 64,368,000
Merger expenses 5,581,000 - 5,581,000 -
------------ ----------- $815,787,000 802,579,000----------- -----------
50,201,000 34,136,000 91,721,000 64,368,000
------------ ----------- ----------- -----------
Operating income 11,785,000 12,020,000 26,600,000 20,638,000
Other income (expense):
Interest expense (3,582,000) (3,536,000) (7,972,000) (6,548,000)
Other 383,000 634,000 1,004,000 1,363,000
------------ ----------- ----------- -----------
(3,199,000) (2,902,000) (6,968,000) (5,185,000)
------------ ----------- ----------- -----------
Income before taxes 8,586,000 9,118,000 19,632,000 15,453,000
Income taxes 2,361,000 2,747,000 5,404,000 4,743,000
------------ ----------- ----------- -----------
Net income $ 6,225,000 6,371,000 14,228,000 10,710,000
============ =========== =========== ===========
Net income per common share $ 0.12 0.15 0.28 0.27
============ =========== =========== ===========
Weighted average number of
shares outstanding 51,108,000 40,124,000 50,629,000 37,911,000
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSTATEMENTS.
3
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1996 1995
------------ ----------
Revenues $150,801,000 98,489,000
Cost of sales 104,060,000 68,456,000
------------ ----------
Gross profit 46,741,000 30,033,000
Selling, general and
administrative expenses 33,498,000 23,724,000
------------ ----------
Operating income 13,243,000 6,309,000
Other income (expense):
Interest expense (4,280,000) (2,653,000)
Other income 585,000 705,000
------------ ----------
(3,695,000) (1,948,000)
------------ ----------
Income before income taxes 9,548,000 4,361,000
Income taxes 2,631,000 1,184,000
------------ ----------
Net income $ 6,917,000 3,177,000
============ ==========
Net income per common share $ 0.15 0.10
============ ==========
Weighted average number of
common shares outstanding 45,133,000 30,881,000
============ ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
UNITED STATES FILTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREESIX MONTHS ENDED JUNESEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,917,000 3,177,00014,228,000 10,710,000
Adjustments to reconcile net income to net cash
used in operating activities:
Provision for bad debts 1,049,000 1,320,000
Depreciation and amortization 9,821,000 4,744,000
Provision for doubtful accounts 419,000 646,000
Gain on sale of property and equipment (5,000) (177,000)20,509,000 11,439,000
Deferred income taxes - 194,000
Stock option compensation - 28,00056,000
Decrease in closure reserves - (1,175,000)
(Gain) loss on sale of assets (5,000) 128,000
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable 15,541,000 (5,879,000)9,016,000 (2,446,000)
Increase in costs and estimated earnings
on uncompleted contracts (12,086,000) (10,968,000)(19,227,000) (12,409,000)
Increase in inventories (3,153,000) (4,568,000)(12,859,000) (11,361,000)
Increase in other assets (7,306,000) (3,899,000)
Decrease(15,684,000) (752,000)
Increase (decrease) in accounts payable and
accrued expenses (13,791,000) (5,322,000)3,726,000 (3,477,000)
Increase (decrease) in billings in excess of costs and
estimated earnings or uncompleted contracts 4,656,000 (2,068,000)
Increase (decrease)3,834,000 (3,968,000)
Decrease in other liabilities (1,889,000) 7,078,000(6,559,000) (1,273,000)
------------ ------------
Net cash used in operating activities (876,000) (17,208,000)(1,972,000) (13,014,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of property, plant & equipment (11,159,000) (3,818,000)(29,905,000) (13,520,000)
Payment for purchase of acquisitions, net of cash acquired (5,209,000) (91,739,000)
Investment in leasehold interests(7,369,000) (111,042,000)
Proceeds from disposal of equipment 79,000 1,282,000203,000 1,287,000
Purchase of short-term investments (1,378,000) (2,979,000)(751,000) (117,000)
------------ ------------
Net cash used in investing activities (17,667,000) (97,254,000)(37,822,000) (123,392,000)
------------ ------------
(Continued)
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5STATEMENTS.
4
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREESIX MONTHS ENDED JUNESEPTEMBER 30, 1996 AND 1995 (CONTINUED)
(UNAUDITED)
1996 1995
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock - 97,510,000
Net proceeds from sale of convertible subordinated debentures - 136,249,000
Repurchase of preferred stock - (4,709,000)
Principal payments on debt (3,399,000) (237,000)
Dividends paid on preferred stock (40,000) (40,000)
Proceeds(5,342,000) (54,690,000)
Net proceeds from borrowings on notes payable and long-term debt 12,094,000 6,155,00045,400,000 32,519,000
Proceeds from issuanceexercise of common stock 686,000 98,114,000options 1,215,000 799,000
Dividends paid (396,000) (891,000)
----------- -----------
Net cash provided by financing activities 9,341,000 103,992,00040,877,000 206,787,000
----------- -----------
Net decreaseincrease in cash (9,202,000) (10,470,000)1,083,000 70,381,000
Cash balance at March 31, 1996 and 1995 16,685,000 16,274,00018,405,000 20,020,000
----------- -----------
Cash balance at JuneSeptember 30, 1996 and 1995 $ 7,483,000 5,804,000$19,488,000 90,401,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 3,123,000 3,341,0008,654,000 5,087,000
=========== ===========
Cash paid during the period for income taxes $ 273,000 357,0004,553,000 2,519,000
=========== ===========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6STATEMENTS.
5
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND MARCH 31, 1996
(UNAUDITED)(unaudited)
Note 1. Operations and Significant Accounting Policies
----------------------------------------------
The accompanying condensed consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
regulations. The condensed consolidated financial statements reflect all
adjustments and disclosures which are, in the opinion of management, of the Company,
necessary
for a fair presentation of the information contained therein. All such
adjustments are of a normal recurring nature. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto that are contained in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1996, a copy of which may be obtained from the
Company.1996. The results
of operations for the interim periods are not necessarily indicative of the
results of operations forthe full fiscal years.year.
Income per Common Share
- -----------------------
Income per common share is computed based on the weighted average number of
shares outstanding. Common stock equivalents, consisting of convertible preferred stock, options and warrants are included
in the computation of income per share when their effect is dilutive. All income
per share data in the accompanying condensed consolidated financial statements
have been restated to reflect a three for two common stock split paid by way of
a stock dividend on July 15, 1996.
Primary and fully diluted income per common share for the three monthsand six month
periods ended JuneSeptember 30, 1996 and 1995, respectively, were calculated as follows:
7
Three Months Ended Six Months Ended
September 30, September 30,
1996 1995 -------------1996 1995
------------ ----------- ----------- -----------
Net income $ 6,917,000 3,177,0006,225,000 6,371,000 14,228,000 10,710,000
Dividends on preferred stock - (179,000) - (358,000)
----------- ---------- ---------- ----------
Adjusted net income applicable to
common shares $ 6,917,000 2,998,0006,225,000 6,192,000 14,228,000 10,352,000
=========== =================== ========== ==========
Weighted average shares outstanding 43,552,000 30,191,00048,944,000 39,029,000 48,671,000 37,019,000
Add:
Exercise of stock options and warrants reduced by
the number of shares purchased with
proceeds 1,581,000 690,0002,164,000 1,095,000 1,958,000 892,000
----------- ---------- ---------- ----------
Adjusted weighted average shares
outstanding 45,133,000 30,881,00051,108,000 40,124,000 50,629,000 37,911,000
=========== ========== ========== ==========
Income per common share:
Net income $ 0.15 0.100.12 0.16 0.28 0.28
Dividends on preferred stock - (0.00)(0.01) - (0.01)
----------- ---------- ---------- ----------
Adjusted income per common share $ 0.12 0.15 0.100.28 0.27
=========== ========== ========== ==========
6
Note 2. Inventories
-----------
Inventories at JuneSeptember 30, 1996 and March 31, 1996 consist of the following:
JuneSeptember 30, 1996 March 31, 1996
------------------------------- --------------
Raw materials $23,282,000 21,048,000
Work-in-process 15,773,000 16,650,000Materials $25,525,000 21,578,000
Work-in-Process 25,906,000 17,997,000
Finished goods 21,667,000 19,813,000Goods 36,799,000 35,738,000
----------- ----------
$60,722,000 57,511,000$88,230,000 75,313,000
=========== ==========
8
Note 3. 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 585,074877,611 shares (877,611 shares on a post-split basis) 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 theThe Hancock Funds in exchange for 114,994172,491 shares
(172,491 shares on a post-split basis) of
Company common stock and $1,000,000 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 combined consolidated financial statements and notes thereto for all
periods presented have been restated to include the accounts and operations of
Zimpro.
Separate results of operations of
the combined entities for the three months ended June 30, 1995 are as
follows:
Three Months
Ended
June 30, 1995
--------------
Revenues:
U.S. Filter (as previously reported) $91,539,000
Zimpro 6,950,000
-----------
Combined $98,489,000
===========
Net Income (loss)
U.S. Filter (as previously reported) $ 3,359,000
Zimpro (182,000)
-----------
Combined $ 3,177,000
===========
Income per common share and
common equivalent share:
As previously reported $ 0.11
===========
As restated $ 0.10
===========
9
On June 10,August 23, 1996, the Company entered into a definitive merger
agreement withcompleted the acquisition of Davis Water & Waste
Industries, Inc. ("Davis"). The Company issued 4,817,349 shares of the Company's
common stock in connection with a proposed acquisition by the Company ofexchange for all of the outstanding capital stock of Davis. Pursuantcommon shares and rights to
the terms of the
definitive agreement the Company will exchange 1.3995 shares of itsacquire common stock for each of the approximately 3,443,000 shares of Davis subjectpursuant to adjustment.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.
The proposedThis transaction is expected to be completed on August 23,
1996, subject to Davis shareholder approval and other conditions
precedent, and will behas been accounted for as a pooling of interests. The
Company's futureinterests and,
accordingly, the consolidated financial statements will beand notes thereto for all
periods presented have been restated to include the accounts and operations of
Davis.
7
Separate results of Davis.
Davis had revenuesoperations of $202,621,000, $215,649,000 and $226,489,000the combined entities for the fiscal yearsthree and six
months ended AprilSeptember 30, 1994, 1995 are as follows:
Three Months Ended Six Months Ended
September 30, September 30,
1995 1995
------------------ -----------------
Revenues:
U.S. Filter (as previously reported) 108,308,000 199,847,000
Zimpro 6,752,000 13,702,000
Davis 58,867,000 118,550,000
----------- -----------
Combined 173,927,000 332,099,000
=========== ===========
Net Income (loss)
U.S. Filter (as previously reported) 4,509,000 7,868,000
Zimpro 46,000 (136,000)
Davis 1,816,000 2,978,000
----------- -----------
Combined 6,371,000 10,710,000
=========== ===========
Net income per common share and common
equivalent share:
As previously reported 0.13 0.23
=========== ===========
As restated 0.15 0.27
=========== ===========
Merger expenses incurred to consummate the Davis transaction totaled $5,581,000
and 1996,
respectively. Additionally,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 had net income (losses) of
($5,340,000), $3,448,000pension plans and $5,749,000 for the fiscal years ended
April 30, 1994, 1995, 1996, respectively.change in control payments.
Note 4. Stockholders' Equity
--------------------
On July 15, 1996, the Company paid in the formeffected, by way of a stock dividend, a three for
two split of the Company's common stock. All references to income per share and
other common stock information in the accompanying condensed consolidated
financial statements and notes thereto have been restated to reflect the stock
dividends.
10Note 5. Subsequent Events
-----------------
On October 25, 1996, the Company acquired all of the outstanding capital stock
of The Utility Supply Group, Inc. ("USG") in a tax-free merger pursuant to an
Agreement and Plan of Merger. The Company issued 771,157 shares of its common
stock in exchange for all of the outstanding capital stock of USG. The Company
also assumed and/or repaid approximately $21,750,000 in third party debt. USG is
a leading provider of water and wastewater related products and services to
industrial and municipal customers through 30 offices in the United States.
USG had revenues of $156,838,000 and net income of $1,049,000 for the year ended
December 31, 1995. The transaction will be accounted for as a purchase.
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 Company issued as the entire consideration an aggregate of
3,201,507 shares of its common stock in exchange for all of the capital stock of
WaterPro (1,157,734 shares) and in consideration for the repayment of related
party debt (2,043,773 shares). WaterPro is the largest national distributor of
water and wastewater related products and services for municipal water, sewer
authorities and underground contractors, and has 43 locations throughout the
United States.
WaterPro had revenues of $187,540,000 and net income of $2,329,000 for the
period April 7, 1995 to December 31, 1995. The transaction will be accounted for
as a purchase.
8
On September 14, 1996, the Company entered into a Purchase and Sale Agreement
with Wheelabrator Technologies Inc. ("Wheelabrator") in connection with a
proposed acquisition by the Company of Wheelabrator's Water Systems and
Manufacturing Group ("WSMG"). Pursuant to the terms of the definitive agreement,
the Company will pay approximately $369,600,000 in cash for WSMG, subject to
adjustment, which provides a broad range of water and wastewater engineering,
technology and systems.
In addition, the Company and Wheelabrator announced they had executed a letter
of intent to establish a joint venture to develop, finance, own and operate
water and wastewater infrastructure in North America.
WSMG had revenues of $293,207,000, $364,335,000 and $452,134,000 for the years
ended December 31, 1993, 1994 and 1995, respectively. In addition, WSMG had net
income of $13,454,000, $13,226,000 and $16,361,000 for the years ended December
31, 1993, 1994, 1995, respectively. The proposed transaction is expected to be
completed in November 1996, and will be accounted for as a purchase.
On October 7, 1996, the Company entered into a Purchase and Sale Agreement with
United Utilities PLC ("UU") and certain of its subsidiaries in connection with a
proposed acquisition by the Company of UU's Process Equipment Division ("PED").
In accordance with the terms of the definitive agreement, the Company will pay
(Pounds)100,500,000 in cash (approximately $160,050,000 based on assumed
currency exchange rates), subject to adjustment, and (Pounds)25,000,000 in
shares of the Company's common stock (approximately $41,250,000 based on assumed
currency exchange rates) for PED, which provides a broad range of water and
wastewater engineering technology and systems.
PED had revenues of $254,955,000 and $267,358,000 for the years ended March 31,
1995 and 1996, respectively, and net losses of $13,576,000 and $39,496,000 for
the years ended March 31, 1995 and 1996 respectively. The proposed transaction
is expected to be completed in January 1997, and will be accounted for as a
purchase.
On September 12, 1996, the Company provided notice, pursuant to terms of its
Indenture dated October 20, 1993, of its intent to redeem on October 25, 1996
all of its outstanding 5% Convertible Subordinated Debentures due 2000. As of
October 25, 1996, all holders of the debentures converted the debentures into a
total of approximately 4,390,000 shares of Company common stock pursuant to the
terms of the Debentures.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Revenues.
Revenues for the three months ended JuneSeptember 30, 1996 were $150,801,000,$225,210,000, an
increase of $52,312,000$51,283,000 or 29.5% from $98,489,000the $173,927,000 for the comparablethree months
ended September 30, 1995. For the six months ended September 30, 1996, revenues
increased $101,620,000 or 30.6% from the corresponding period ofin the prior fiscal year.
This increase wasThese increases were due primarily to acquisitions completed by the Company
after the first
quarter ended Junesubsequent to September 30, 1995. RevenuesFor the three months ended September 30, 1996,
revenues from capital equipment sales for
the three months ended June 30, 1996 represented 52%39.0% of total revenues, while
revenues from services and operations represented 30%,22.8% of total revenues,
revenues from distribution represented 21.2% of total revenues and revenues from
replacement parts and consumables represented 18%.17.0% of total revenues.
Gross Profit. Gross profit increased 55.6% to $46,741,000 for the
three months ended June 30, 1996 from $33,033,000 for the comparable
period of the prior fiscal year. Total gross profit as a percentage of revenue ("gross margin") increased to 31.0%was 27.5% for the three
months ended JuneSeptember 30, 1996 compared to 30.5%26.5% in the corresponding period in
the prior year. For the six months ended September 30, 1996, the Company's gross
margin was 27.3% as compared to 25.6% for the comparablecorresponding period ofin the prior
fiscal year. TheThis increase in gross margin through June 30, 1996 was due primarily to both a continued strengthening of gross marginsthe shift in therevenue
mix to recurring and higher margin service-based revenue business and to increased economies
of scale in manufacturing operations.
Selling, General and Administrative Expenses. Selling,revenues.
For the three months ended September 30, 1996, selling, general and
administrative expenses, excluding merger expenses, increased $10,484,000 to
$44,620,000 as compared to the $34,136,000 in the comparable period in the prior
year. During this period, selling, general and administrative expenses were
19.8% of revenues compared to 19.6% for the comparable period in the prior year.
For the six months ended September 30, 1996, selling, general and administrative
expenses were 19.9% compared to 19.4% for the corresponding period in the prior
year.
Merger expenses were incurred during the three months ended September 30, 1996
relating to the Company's acquisition of Davis which was accounted for as a
pooling of interests. These merger expenses, which totaled $5,581,000, 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 increased to $33,498,000$3,582,000 for the three months ended JuneSeptember
30, 1996 from $23,724,000$3,536,000 for the comparablecorresponding period ofin the prior fiscal year. This increase was primarily due to the addition of
sales and administrative personnel accompanying the Company's recent
acquisitions. As a percentage of revenues, selling, general and
administrative expenses decreased to 22.2% during the three months
ended June 30, 1996, as compared to 24.1% for the comparable period of
the prior fiscal year. The decrease in the percentage of selling,
general and administrative expenses to revenues for the three months
ended June 30, 1996 was due primarily to the benefits derived from
economies of scale resulting from growth in revenues, the continued
implementation of cost controls and elimination of certain
redundancies.
11
Interest Expense.
Interest expense increased to $4,280,000$7,972,000 for the threesix months ended JuneSeptember 30,
1996 from $2,653,000$6,548,000 for the comparablecorresponding period ofin the prior fiscal year. Interest
expense for the three and six months ended JuneSeptember 30, 1996 consistsconsisted
primarily of interest on the Company's 5.0%(i) 5% Convertible Subordinated
Debentures issueddue 2000 (all of which have been, as of October 20, 1993 and
6.0%25, 1996, converted
into shares of the Company's common stock), (ii) Subordinated Notes which were
delivered in connection with the exercise of warrants to acquire common stock on
September 18, 1995, (iii) 6% Convertible Subordinated Notes issued on September
18, 1995 respectively,due 2005, and increased(iv) borrowings under the Company's bank line of credit to finance its revenue expansion and recent acquisitions.credit.
At JuneSeptember 30, 1996, the Company had cash and short-term investments of
$8,926,000.$20,304,000.
Income Taxes.tax expense decreased to $2,361,000 for the three months ended September
30, 1996, from $2,747,000 in the corresponding period in the prior year. Income
tax expense increased to $2,631,000 for$5,404,000 in the threesix months ended JuneSeptember 30, 1996,
from $1,184,000 for$4,743,000 in the comparablecorresponding period ofin the prior fiscal year. This increase was attributable to
increased net income. The Company's
effective tax rate for the three and six months ended JuneSeptember 30, 1996 was
27.6%27.5%.
As of March 31, 1996, the Company
had net operating loss carryforwards in France of approximately
$19,952,000 and other European countries of approximately $7,338,000
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, pursuant to an agreement between the Company and
Alcoa related to the Company's acquisition of SCT in 1992.
Net Income.10
Net income increased to $6,917,000 for the three months ended JuneSeptember 30, 1996 was $6,225,000, a
decrease of $146,000 from $3,177,000the $6,371,000 for the comparablethree months ended September
30, 1995. Excluding the merger expenses of $5,581,000 incurred by the Company to
complete the Davis acquisition, net income was $10,271,000, an increase of 61.2%
over the same period ofin the prior fiscalyear. For the six months ended September 30,
1996, net income increased $3,518,000 to $14,228,000 from $10,710,000 for the
same period in the prior year. Excluding Davis merger expenses, net income for
the six months ended September 30, 1996 totaled $18,279,000, an increase of
70.7% over the same period in the prior year. Net income per common share increased to $0.15 per
share (based upon 45,133,000 weighted average common shares
outstanding) for
the three and six months ended JuneSeptember 30, 1996 from $0.10 per
common share (based upon 30,881,000 weighted average common shares
outstanding) for the comparable period of the prior fiscal year, after
deducting $179,000 for dividends on the Company's preferred shares for
the three-month period ended June 30, 1995.
12
LIQUIDITY AND CAPITAL RESOURCESand 1995 were as follows:
Three Months Ended Six Months Ended
September 30, September 30,
------------------ ----------------
1996 1995 1996 1995
------ ------ ------ -------
Before merger expenses $0.20 $0.15 $0.36 $0.27
After merger expenses $0.12 $0.15 $0.28 $0.27
Liquidity and Capital Resources
- -------------------------------
The Company's principal sources of funds are cash and other working capital,
cash flow generated from operations and borrowings under the Company's bank line
of credit. At JuneSeptember 30, 1996, the Company had working capital of
$114,712,000,$168,606,000, including cash and short-term investments of $8,926,000.$20,304,000. The
Company's long-term debt at JuneSeptember 30, 1996 included $59,975,000$53,565,000 of convertible subordinated
debentures bearing interest at 5.0% per annum5%
Convertible Subordinated Debentures due in year 2000 (all of which were converted into
shares of the Company's common stock on October 25, 1996), $140,000,000 of convertible subordinated debt6%
Convertible Subordinated Notes due in year 2005 and bearing interest at 6.0% per
annum, and notes payableother long-term debt totaling
$9,309,000$9,003,000 and bearing interest at rates ranging from 2.0% to 11.5%.
As of JuneSeptember 30, 1996, the Company had an availableexisting bank line of credit of
$135,000,000, of which there were outstanding borrowings of $42,507,000$81,156,000 and
outstanding letters of credit of $14,753,000.$14,446,000. The Company expects to obtain all
or part of the funds necessary to complete the WSMG acquisition and the PED
acquisition from borrowings under bank credit facilities. The Company has
received a commitment letter from The First National Bank of Boston pursuant to
which, subject to the satisfaction of various conditions, credit facilities of
up to $700,000,000 would be made available to the Company to finance
acquisitions (including the WSMG acquisition and the PED acquisition), to
refinance any borrowings under the Company's current credit agreement, and for
working capital and other general corporate purposes. Borrowings under these
committed credit facilities would bear interest at variable rates of up to 2.25%
above certain Eurocurrency rates or 0.05% above The First National Bank of
Boston's base rate and have a five year maturity.
As of March 31, 1996, the Company had net operating loss carryforwards generated
from SCTSociete des Ceramiques Techniques S.A. ("SCT") 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 fiscal years 1997 toand 1998, while the remainder have an indefinite carryforward
period. The Company also has net operating loss carryforwards in other European
countries of approximately $7,338,000 which expire from fiscal 1997 to 2002 for
which no financial statement benefit has been recognized. The Company also has
net operating loss carryforwards generated from Zimpro of approximately
$2,905,000 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. Future recognition of these
net operating loss carryforwards will occur if the operations of SCT and Zimpro
generate sufficient earnings before the expiration of the respective net
operating loss carryforwards. In addition, in the case of SCT, until March 31,
1997, the benefit, if any, of such carryforwards is to be shared equally between
the Company and Alcoa.Aluminum Company of America.
The Company also has available at March 31, 1996, other net operating loss
carryforwards for FederalU.S. federal income tax purposes of approximately $13,327,000$13,552,000
which expire infrom fiscal 2007 to 2010.
11
Pursuant to an agreement entered into in conjunction with the acquisition of
WaterPro, all former WaterPro stockholders and former WaterPro debtholders, who
together hold an aggregate of 3,201,507 shares of the Company's common stock,
have the right, exercisable during the 90-day period commencing on the sixtieth
day after the date of consummation of the acquisition transaction, to require
the Company to purchase all or any portion of such shares of Common Stock at a
purchase price equal to $33.24 per share.
Pursuant to an agreement to be entered into in conjunction with the pending
acquisition of PED, the Company has agreed to pay in cash the portion of the
purchase price otherwise payable in shares of Common Stock if such shares are
not at the time of issuance immediately saleable pursuant to the Company's shelf
Registration Statement on Form S-4. In addition, the Agreement provides that if
such shares are issued and then sold within a specified number of days after
consummation of the acquisition for aggregate net proceeds of less than
$39,000,000 (based on exchange rates for British pounds sterling as of November
12, 1996), the Company will pay the deficiency to PED in cash, and if the
aggregate net proceeds exceed such amount, PED will pay the excess to the
Company in cash.
The Company believes its current cash position, cash flow from operations, and
available borrowings under the Company's line of credit will be adequate to meet
its anticipated cash needs forfrom working capital, revenue growth, scheduled debt
repayment and capital investment objectives for at least the next twelve months.
13
Certain Trends and Uncertainties
- -----------------------------------------------------------------
Acquisition Strategy. In pursuit of its strategic objective of becoming the
leading global single-source provider of water treatment systems and services,
the Company has, since 1991, acquired and successfully integrated more than 4045
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 the
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.
International Transactions. The companyCompany has made and expects it will continue to
make acquisitions and to obtain contracts in Europe, Asia, Latin America, and
other areas 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 risks of currency
fluctuations, slower payment of invoices, nationalization and possible social,
political and economic instability.
Reliance on Key Personnel. The Company's operations are, and will be, dependent
on the continued efforts of senior management, in particular, Richard J.
Heckmann, its Chairman, Chief Executive Officer and President. Should any of the
Seniorsenior managers be unable to continue in their present roles, the Company's
prospects could be adversely affected.
Profitability of Fixed Price Contracts. A significant portion of the Company's
revenues are, and will be, 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. The sale of capital equipment within the
wastewater 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, and will, be 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 fluctuations in certain
climates. As a result of the acquisitions of Davis, USG and
12
WaterPro, the sale of water and wastewater distribution equipment and supplies
is expected to become 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.
13
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 civil or criminal enforcement
actions or private actions that could have a material adverse effect on
the Company. In that regard, allegations have been made by federal and
state 14
environmental regulatory authorities of multiple violations by a
wholly owned subsidiary of the Company with respect to applicable
wastewater pretreatment standards at a Connecticut ion exchange
regeneration facility acquired by the Company in October 1995 from Anjou
International Company ("Anjou"). A grand jury investigation is pending
which is believed to relate to the same conditions that were the subject
toof the allegations.civil actions. The Company has 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, storage 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"). It is possible that the Company could receive
other such notices under CERCLA or other analogous state laws in the
future. The Company does not believe that its liability, if any, relating
to such matters will be material. In addition, to some extent, the
liabilities and risks imposed by environmental laws on the Company's
customer's 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.position
Competition. The water purification and wastewater treatment industry is fragmented and
highly competitive. The Company competes with many United States-
basedStates-based and
international companies in its global markets. The principal methods or
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, and relative ease of system
operations and maintenance, and the prompt availability of replacement parts.
The municipal contract bid process, pricing and ability to meet bid
specifications are the primary considerations. While no competitor is considered
dominant, there are companies that are divisions or subsidiaries of
larger companiescompetitors which have have significantly greater resources
thatthan the Company, which, among other things, could be a competitive disadvantage
to the Company in securing certain projects.
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 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 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 introduction and
applications, including lack of market acceptance, delays in development or
failure of products to operate properly.
15Municipal Market. Completion of the Company's pending acquisitions will increase
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 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.
14
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
NoneNONE
Item 2. CHANGES IN SECURITIES
N/A
Item 3. DEFAULTS UPON SENIOR SECURITIES
N/A
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
N/A(i) The following directors were reelected to terms expiring in
1999:
For Withheld
--- --------
James E. Clark - Class III Director 24,214,119 161,960
Richard J. Heckmann - Class III Director 24,211,163 164,916
Robert S. Hillas - Class III Director 24,214,954 161,124
(ii) An amendment to the Company's 1991 Employee Stock Option Plan
to increase the number of authorized shares thereunder by 750,000
shares:
For Against Withheld
---------- ------- --------
22,750,389 723,444 66,385
(iii) An amendment to the Company's 1991 Directors Stock Option Plan to
increase the number of authorized shares thereunder by 375,000 shares:
For Against Withheld
---------- ------- --------
22,852,806 611,444 75,967
(iv) An amendment to the Company's Articles of Incorporation to
increase the number of total authorized shares to 150,000,000 common
shares:
For Against Withheld
---------- ------- --------
23,872,522 452,399 51,157
(v) Ratification of the appointment of KPMG Peat Marwick LLP as
independent accountants for the Company:
For Against Withheld
---------- ------- --------
24,321,259 9,301 45,519
15
Item 5. OTHER INFORMATION
N/A
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
2.1 Agreement and PlanThe following exhibits are filed herewith or incorporated herein by
reference:
3.0 Restated Certificate of Merger, datedIncorporation, as of June
10, 1996, amongamended.
10.0 United States Filter Corporation U.S. Filter/DWW Acquisition
Corporation, and Davis Water & Waste Industries,
Inc./1/
99.1 Joint Press Release, dated June 10, 1996, issued
by1991 Employee Stock Option Plan,
as amended through September 13, 1996.
10.1 United States Filter Corporation and Davis
Water & Waste Industries, Inc./2/1991 Directors Stock Option
Plan, as amended through September 13, 1996.
27.0 Financial Data Schedule
b) Reports on Form 8-K
The Company filed threesix Current Reports on formForm 8-K during the quarter
ended JuneSeptember 30, 1996 one dated May 31,as follows:
(1) July 15, 1996 as amendedreporting a three-for-two stock split by way of stock
dividend paid on form 8-K/A dated JuneJuly 15, 1996.
(2) July 15, 1996 filing certain accountants' consents;
(3) August 23, 1996 reporting consummation of the acquisition of Davis
Water & Waste Industries, Inc.;
(4) September 6, 1996 reporting the execution of definitive agreements
for the acquisition The Utility Supply Group, Inc., WaterPro
Supplies Corporation and certain assets of Wheelabrator
Technologies Inc.;
(5) October 28, 1996 under Item 2reporting consummation of that form, one
dated June 10,the acquisition of
WaterPro Supplies Corporation and filing certain financial
statements and pro forma financial information for certain pending
and completed acquisitions; and
(6) November 6, 1996 under Item 5 of that Form, and one dated June
27, 1996 under Item 5 of that Form. Financial statements were
included in the Current Report on Form 8-K dated May 31, 1996
under Item 7 of that Form and in the Current Report on Form 8-K
dated June 27, 1996 under Item 7 of that Form.
- ----------------
/1/ Previously filed with the Company's Current Report on Form 8-K dated June
10, 1996 and incorporated herein by reference.
/2/ Previously filed with the Company's Current Report on Form 8-K dated June
10,1996 and incorporated herein by reference.filing an accountants' consent.
16
SIGNATURES
Pursuant to the requirements of the U.S. Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED STATES FILTER CORPORATION
By: /s/ KevinKEVIN L. Spence
--------------------------------SPENCE
----------------------------
Dated: August 13,November 14, 1996 Kevin L. Spence
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
17
EXHIBIT INDEX
Exhibit Sequential
Number Description Page Number
- ------- ----------- -----------
3.0 Restated Certificate of Incorporation, as amended.
10.0 United States Filter Corporation 1991 Employee Stock Option Plan, as
amended through September 13, 1996.
10.1 United States Filter Corporation 1991 Directors Stock Option Plan, as
amended through September 13, 1996.
27.0 Financial Data Schedule
18