UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q10-Q/A
(Mark One)
[X] Quarterly report pursuant to Section 13 and 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended JUNE 30, 1997
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or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file number 1-10728
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UNITED STATES FILTER CORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0266015
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
40-004 COOK STREET, PALM DESERT, CA 92211
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (760) 340-0098
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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 No
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The number of shares of common stock, $.01 par value, outstanding as of
August 8, 1997, is 71,622,86981,970,167 shares.
Total number of pages 16
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THERE IS ONE EXHIBIT FILED WITH THIS REPORT
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND MARCH 31, 1997
(UNAUDITED)
June 30, 1997 March 31, 1997
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(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 57,331 126,237
Short-term investments 593 2,158
Accounts receivable, net 555,698 481,015
Costs and estimated earnings in excess
of billings on uncompleted contracts 129,182 107,537
Inventories 267,021 242,483
Prepaid expenses 12,480 8,040
Deferred taxes 38,900 38,589
Other current assets 30,616 17,086
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Total current assets 1,091,821 1,023,145
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Property, plant and equipment, net 356,092 296,840
Investment in leasehold interests, net 22,921 23,230
Cost in excess of net assets of businesses acquired, net 875,902 788,096
Other assets 93,125 97,017
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$2,439,861 2,228,328
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 264,048 237,895
Accrued liabilities 255,006 239,337
Current portion of long-term debt 12,497 10,806
Billings in excess of costs and estimated
earnings on uncompleted contracts 47,170 42,183
Other current liabilities 34,427 21,327
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Total current liabilities 613,148 551,548
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Notes payable 7,091 8,876
Long-term debt, excluding current portion 29,794 12,286
Convertible subordinated debentures 554,000 554,000
Deferred taxes 11,521 11,521
Other liabilities 42,563 61,247
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Total liabilities 1,258,117 1,199,478
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(Continued)
2
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND MARCH 31, 1997 (CONTINUED)
(UNAUDITED)
June 30, 1997 March 31, 1997
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(in thousands)
Shareholders' equity:
Common stock, par value $.01. Authorized 150,000
shares; 80,247 and 74,530 shares issued and
outstanding at June 30, 1997 and March 31, 1997,
respectively 802 745
Additional paid-in capital 1,127,219 990,004
Currency translation adjustment (24,383) (19,491)
Retained earnings 78,106 57,592
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Total shareholders' equity 1,181,744 1,028,850
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$2,439,861 2,228,328
========== =========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
1997 1996
----------------- -----------------
(in thousands, except per share data)
Revenues $598,234 222,958
Costs of sales 450,427 163,806
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Gross profit 147,807 59,152
Selling, general and administrative expenses 109,351 44,481
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Operating income 38,456 14,671
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Other income (expense):
Interest expense (8,859) (4,536)
Interest and other income 925 602
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(7,934) (3,934)
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Income before income tax expense 30,522 10,737
Income tax expense 9,796 3,043
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Net income $ 20,726 7,694
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Net income per common share $ 0.26 0.15
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Weighted average number of shares outstanding 80,653 51,480
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
1997 1996
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(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,726 7,694
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for bad debts 1,931 668
Depreciation and amortization 21,652 10,337
Decrease in closure reserves - 151
(Gain) loss on sale of assets 39 (2)
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (34,613) 18,628
Increase in costs and estimated earnings
on uncompleted contracts (14,040) (12,086)
Increase in inventories (17,653) (4,149)
Increase in other assets (2,379) (8,149)
Increase (decrease) in accounts payable and
accrued expenses 28,436 (13,856)
Increase in billings in excess of costs and
estimated earnings on uncompleted contracts 1,507 4,574
Decrease in other liabilities (15,011) (1,830)
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Net cash provided by (used in) operating activities (9,405) 1,980
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CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of property, plant & equipment (17,471) (11,607)
Payment for purchase of acquisitions, net of cash acquired (38,277) (5,209)
Proceeds from disposal of equipment 293 82
(Purchase) sale of short-term investments 1,571 (1,378)
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Net cash used in investing activities (53,884) (18,112)
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(Continued)
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996 (CONTINUED)
(UNAUDITED)
1997 1996
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(in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 683 924
Principal payments on debt (4,465) (18,808)
Net (payments) proceeds from borrowings on notes payable (1,785) 25,412
Dividends paid (50) (461)
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Net cash provided by (used in) financing activities (5,617) 7,067
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Net decrease in cash and cash equivalents (68,906) (9,065)
Cash and cash equivalents at March 31, 1997 and 1996 126,237 18,886
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Cash and cash equivalents at June 30, 1997 and 1996 $ 57,331 9,821
======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 10,864 3,384
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Cash paid during the period for income taxes $ 2,443 1,424
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Operations and Significant Accounting Policies
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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, 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, 1997. The results
of operations for the interim periods are not necessarily indicative of the
results of the full fiscal 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 options, are
included in the computation of income per share when their effect is dilutive.
Primary and fully diluted income per common share for the three months ended
June 30, 1997 and 1996, respectively, were calculated as follows:
1997 1996
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(in thousands, except per share data)
Net income $20,726 7,694
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Weighted average shares outstanding 78,802 49,899
Add:
Exercise of stock options reduced by
the number of shares purchased with proceeds 1,851 1,581
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Adjusted weighted average shares outstanding 80,653 51,480
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Income per common share $ 0.26 0.15
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Note 2. Inventories
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Inventories at June 30, 1997 and March 31, 1997 consist of the following:
June 30, 1997 March 31, 1997
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(in thousands)
Raw Materials $ 73,622 54,112
Work-in-Process 51,526 58,619
Finished Goods 141,873 129,752
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$267,021 242,483
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7
Note 3. Notes Payable
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The Company has an unsecured multicurrency bank line-of-credit of up to
$400.0 million, of which $7.1 million was outstanding at June 30, 1997. The
line-of-credit expires December 2001 and bears interest at variable rates of up
to 2.25% above certain Eurocurrency rates or 0.50% above The First National Bank
of Boston's base rate. At June 30, 1997, $56.1 million of standby letters of
credit were outstanding under this line-of-credit.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- ---------------------
Revenues for the three months ended June 30, 1997 were $598.2 million, an
increase of $375.2 million or 168.3% from the $223.0 million for the three
months ended June 30, 1996. This increase was due primarily to acquisitions
completed by the Company subsequent to June 30, 1996. For the three months ended
June 30, 1997, revenues from capital equipment sales represented 37.8% of total
revenues, while revenues from services, operations, replacement parts and
consumables represented 27.4% of total revenues and revenues from distribution
represented 34.8% of total revenues.
Gross profit as a percentage of revenue ("gross margin") was 24.7% for the three
months ended June 30, 1997 compared to 26.5% in the corresponding period in the
prior year. This decrease in gross margin for the three months ended June 30,
1997 was due primarily to the effect of adding the results of operations from
the Company's recently completed acquisitions of Utility Supply Group and
WaterPro Corporation, each of which are in the waterworks distribution business.
For the three months ended June 30, 1997, selling, general and administrative
expenses increased $64.9 million to $109.4 million as compared to the
$44.5 million in the comparable period in the prior year. During this period,
selling, general and administrative expenses were 18.3% of revenues compared to
20.0% for the comparable period in the prior year.
Interest expense increased to $8.9 million for the three months ended June 30,
1997 from $4.5 million for the corresponding period in the prior year. Interest
expense for the three months ended June 30, 1997 consisted primarily of interest
on the Company's (i) 6% Convertible Subordinated Notes issued on September 18,
1995 due 2005, (ii) 4.5% Convertible Subordinated Notes issued on December 11,
1996 due 2001 and (iii) borrowings under the Company's bank line of credit. At
June 30, 1997, the Company had cash and short-term investments of $57.9 million.
Income tax expense increased to $9.8 million for the three months ended June 30,
1997, from $3.0 million in the corresponding period in the prior year. The
Company's effective tax rate for the three months ended June 30, 1997 was 32.0%.
Net income for the three months ended June 30, 1997 was $20.7 million, an
increase of $13.0 million from the $7.7 million for the three months ended
June 30, 1996.
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 June 30, 1997, the Company had working capital of $478.7 million
including cash and short-term investments of $57.9 million. The Company's
long-term debt at June 30, 1997, was $554.0 million consisting of $140.0 million
of 6.0% Convertible Subordinated Notes due 2005 and $414.0 million of 4.5%
Convertible Subordinated Notes due 2001. The Company also had other long-term
debt totaling $42.3 million and bearing interest at rates ranging from 2.0% to
9.2%.
As of June 30, 1997, the Company had an existing bank line of credit of
$400.0 million, of which there were outstanding borrowings of $7.1 million and
outstanding letters of credit of $56.1 million. Borrowings under this credit
facility bear interest at variable rates of up to 2.25% above certain
Eurocurrency rates or 0.50% above The First National Bank of Boston's base rate
and have a five year maturity.
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 from working capital, revenue growth, scheduled debt
repayment and capital investment objectives for at least the next twelve months.
9
CERTAIN TRENDS AND UNCERTAINTIES
The Company and its representatives may from time to time make written or
oral forward-looking statements, including statements contained in the Company's
filings with the United States Securities and Exchange Commission and in its
reports to stockholders. In connection with the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the Company is hereby
identifying important factors that could cause actual results to differ
materially from those contained in any forward-looking statement made by or on
behalf of the Company; any such statement is qualified by reference to 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 75 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.
International Transactions. The Company has made and expects it will
continue to make acquisitions and expects to obtain contracts in markets 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.
Reliance on Key Personnel. The Company's operations are dependent on the
continued efforts of senior management, in particular Richard J. Heckmann, the
Company's Chairman of the Board, President and Chief Executive Officer. There
are no employment agreements between the Company and 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.
Profitability Of 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 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. A
significant portion of the Company's revenues are derived from capital equipment
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.
10
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 material adverse effect on the Company. In that regard federal and state
environmental regulatory authorities have commenced civil enforcement actions
related to alleged multiple violations of applicable wastewater pretreatment
standards by a wholly owned subsidiary of the Company 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 of the
civil actions. The Company has certain rights of indemnification from Anjou
which may be available with respect to these matters. In addition, the Company's
activities as owner and operator of certain hazardous waste treatment and
recovery facilities are subject to stringent laws and regulations and compliance
reviews. Failure of these 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.
Competition. The water 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 which have significantly greater resources than
the Company, which, among other things, could be a competitive disadvantage to
the Company in securing certain projects.
Technological and Regulatory Change. The water 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 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 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
11
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 February 1997, the
Financial Accounting Standards Board issued a new statement titled "Earnings Per
Share." The new statement is effective for fiscal years ending after
December 15, 1997. The Company does not believe that adoption of this new
standard will have a material effect on the consolidated financial statements.
12
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
N/A
Item 2. CHANGES IN SECURITIES
N/A
Item 2. DEFAULTS UPON SENIOR SECURITIES
N/A
Item 3. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
N/A
Item 4. OTHER INFORMATION
N/A
13
Item 5. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed herewith or incorporated herein by reference:
27.0 Financial Data Schedule
(b) Reports on Form 8-K
None
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED STATES FILTER CORPORATION
By: /S/ KEVIN L. SPENCE
-------------------
Dated: August 12,21, 1997 Kevin L. Spence
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
15
EXHIBIT INDEX
Exhibit Sequential
Number Description Page Number
- ------- ----------- -----------
27.0 Financial Data Schedule 21
162