<PAGE>
FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1997
Commission file number: 333-16247
PURO WATER GROUP, INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 1-325396-8
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(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
56-24 58th Street, Maspeth, New York 11378
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(Address of principal executive offices)
(718) 326-7000
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 |_|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes | | No |X|
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
3,476,789
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Transitional Small Business Disclosure Format (Check one):Yes |_| No |X|
<PAGE>
PURO WATER GROUP, INC.
BALANCE SHEET
AS OF JUNE 30, 1997 AND SEPT. 30, 1997
UNAUDITED
<TABLE>
<CAPTION>
JUNE 30, SEPT. 30,
ASSETS 1997 1997
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CURRENT ASSETS:
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<S> <C> <C>
Cash............................................. 387,610 322,295
Accounts Receivable, less allowance for
doubtful accounts of $201,205 and $201,205,
respectively................................... 2,997,416 2,767,210
Inventory........................................ 571,528 571,528
Prepaid Expenses................................. 537,196 710,987
TOTAL CURRENT ASSETS........................ 4,493,750 4,372,020
Property, Plant & Equipment, net of accumulated
depreciation of $1,103,602 & $1,370,542,
respectively................................... 5,171,731 5,502,044
Intangible Assets, net of accumulated
amortization of $942,263 & $1,052,660,
respectively................................... 7,763,035 7,817,230
Other Assets..................................... 120,228 118,761
TOTAL ASSETS................................ 17,548,744 17,810,055
LIABILITIES & SHAREHOLDERS' EQUITY:
LIABILITIES
CURRENT LIABILITIES
- -------------------
Accounts Payable.............................. 657,679 774,326
Accrued Expenses and Other Current
Liabilities................................. 198,235 76,351
Accrued Registration Costs.................... 0 0
Current Income Taxes Payable.................. 145,535 191,991
Deferred Income............................... 236,184 144,087
Short-term Borrowings......................... 365,000 580,000
Current Portion of Long-Term Debt............. 1,000,972 982,972
Current Portion of Capital Leases Payable..... 209,304 239,402
TOTAL CURRENT LIABILITIES.................. 2,812,909 2,989,129
LONG-TERM LIABILITIES:
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Long-Term Debt................................. 2,702,428 2,436,468
Capital Lease Obligations...................... 192,520 265,280
Deferred Tax Liability......................... 765,000 765,000
Other Liabilities.............................. 46,693 24,128
TOTAL LONG-TERM LIABILITIES................. 3,706,641 3,490,896
TOTAL LIABILITIES........................... 6,519,550 6,480,025
SHAREHOLDERS' EQUITY
Common Stock, $.0063 par value; 10,000.000
shares authorized; 3,476,789 shares &
3,476,789 shares issued and outstanding,
respectively............................... 21,904 21,904
Additional Paid-in Capital.................... 9,420,019 9,420,019
Retained Earnings............................. 1,587,271 1,888,107
TOTAL SHAREHOLDERS' EQUITY................ 11,029,194 11,330,030
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY.. 17,548,744 17,810,055
</TABLE>
<PAGE>
PURO WATER GROUP, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPT. 30, 1996 AND 1997
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income............................................. 300,837 278,328 601,216 514,789
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and Amortization.......................... 314,918 312,728 872,742 758,717
Deferred Taxes......................................... 0 181,655 231,655
Provision for Doubtful Accounts........................ (74,780) (38,585)
Changes in Assets and Liabilities
Increase in Accounts Receivable...................... 230,206 (501,378) (239,295) (1,307,384)
Increase in Inventory................................ (21,285) (93,632)
Increase in Prepaid expenses and other assets........ (173,791) (61,032) (506,959) (341,944)
Increase in deferred registration costs.............. (198,800) (198,800)
Increase (Decrease) in accounts payable, accrued
expenses and other liabilities..................... 53,320 (96,611) (357,377) 414,328
Increase (Decrease) in deferred income................. (92,097) 21,783 (92,097) 132,408
Net Cash (used) provided by operating Activities........ 633,393 (138,107) 256,945 71,552
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant, property and equipment............ (529,015) (533,579) (1,369,861) (2,517,503)
Advance on acquisition............................... 500,000
Net Assets Acquired.................................. (168,948) (862,967) (167,780) (5,446,052)
Sale of building..................................... 0 989,550 0
Net cash provided (used) by in investing activities.... (697,963) (896,546) (548,091) (7,963,555)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Short term borrowings.................. 215,000 (1,500,000) 530,000 1,000,000
Repayment of capital lease obligations............... 72,760 (24,688) (16,644) (118,494)
Repayment of short term debt......................... 290,730 (2,050,000) (280,138)
Repayment of long term debt.......................... (288,505) 5,927,588 (4,622,927) 6,427,588
Proceeds from issuance of common stock............... (3,500,000) 6,556,052 500,000
Net cash provided (used) by financing activities..... (745) 1,193,630 396,481 7,528,956
NET INCREASE (DECREASE) IN CASH........................ (65,315) 158,977 105,335 (363,047)
CASH, beginning of period.............................. 387,610 167,308 216,960 689,332
CASH, end of period.................................... 322,295 326,285 322,295 326,285
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest............................................. 76,381 203,335 539,384 521,019
0 0
Income Taxes........................................... 63,612 (218,624) 584,987 0
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Capital, lease obligations incurred.................. 119,250 10 219,600 80,405
</TABLE>
<PAGE>
PURO WATER GROUP, INC.
STATEMENT OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED SEPT. 30, 1996 AND 1997
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
<S> <C> <C> <C> <C>
Revenue
Bottled Water and Other............................ 2,752,685 2,373,020 7,605,429 6,383,653
Rental Revenue..................................... 585,218 631,928 1,639,133 1,684,092
Total Revenue...................................... 3,337,903 3,004,948 9,244,562 8,067,745
COGS
COGS excluding depr.............................. 1,070,557 974,591 3,153,049 2,292,550
Depr............................................. 148,080 92,903 444,240 336,440
Gross Profit....................................... 2,119,266 1,937,454 5,647,273 5,438,755
Operating Expenses
Operating Expenses excluding Depr................ 1,156,850 452,877 2,712,432 1,523,137
G&A.............................................. 253,752 395,756 1,291,163 1,892.384
Depreciation and Amort........................... 139,745 219,825 401,408 422,277
Total Operating Expenses........................... 1,550,347 1,068,458 4,405,003 3,837,798
Income from Operations............................. 568,919 868,996 1,242,270 1,600,957
Other Income & Expense
Other Income..................................... 8,856 (9,519) 73,044 (5,335)
Other Expense (Plant Relocation)................. 0 (250,000) 0 (250,000)
Interest Expense................................. (76,381) (211,580) (313,288) (541,264)
Income Before Prov for Inc Taxes................... 501,394 397,897 1,002,026 804,358
Provision for Taxes................................ 200,557 119,569 400,810 289,569
Net Income......................................... 300,837 278,328 601,216 514,789
Earnings per share................................. 0.09 0.12 0.17 0.23
============= ============= ============= =============
Weighted Ave Common shares O/S..................... 3,476,789 2,237,679 3,476,789 2,237,679
============= ============= ============= =============
</TABLE>
<PAGE>
PURO WATER GROUP, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPT. 30, 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1996
UNAUDITED
<TABLE>
<CAPTION>
Common Stock
Number of Additional Retained Total
Shares Par Value Paid in Capital Earnings
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995...................... 1,971,361 12,420 2,842,694 659,728 3,514,842
Issuance of Common Stock........................ 98,568 621 499,379 0 500,000
Exercise of Stock Warrants...................... 56,860 358 642 0 1,000
Net Income...................................... -- -- -- 627,163 627,163
BALANCE, December 31, 1996...................... 2,126,789 13,399 3,342,715 1,286,891 4,643,005
Issuance of Common Stock........................ 1,350,000 8,505 6,077,304 -- 6,085,809
Net Income...................................... -- -- -- 601,216 601,216
BALANCE, SEPT. 30, 1997
(Unaudited).................................... 3,476,789 21,904 9,420,019 1,888,107 11,330,030
</TABLE>
<PAGE>
PURO WATER GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
1. Reference should be made to Puro Water Group, Inc.'s (the "Company")
financial statements for the year ended December 31, 1996 for a description
of the accounting policies which have been continued without change. Also,
reference should be made to the notes to the Company's December 31, 1996
financial statements for additional details of the Company's financial
condition, results of operations and cash flows. All adjustments (of a
normal and recurring nature) which are, in the opinion of management,
necessary to a fair presentation of the results of the interim period have
been included.
2. The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share". This Statement
establishes standards for computing and presenting earnings per share
("EPS") and applies to all entities with publicly held common stock or
potential common stock. This statement replaces the presentation of primary
EPS and fully diluted EPS with a presentation of basic EPS and diluted EPS,
respectively. Basic EPS excludes dilution and is computed by dividing
earnings available to common stockholders by the weighted-average number of
common shares outstanding for the period. Similar to fully diluted EPS,
diluted EPS reflects the potential dilution of securities that could share
in the earnings. This Statement is not expected to have a material effect
on the Company's reported EPS amounts. This Statement is effective for the
Company's financial statements for the year ended December 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section and other parts of this Quarterly Report on Form 10-QSB
contain forward-looking statements that involve risks and uncertainties. The
issuer's actual results may differ significantly from the results discussed in
the forward-looking statements. The following discussion and analysis should be
read in conjunction with the Company's financial statements and the notes
thereto included elsewhere in this Report.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations (MD&A) should be read in conjunction with the MD&A
contained in the Company's 1996 Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996.
RESULTS OF OPERATIONS
The Company derives its revenues from two major sources: bottled water
sales and the rental and service of water coolers, filtration systems and
plumbed-in fountains. While most other bottled water companies sell only
pre-packaged bottled water, the Company also rents water treatment equipment
which processes and dispenses drinking water at the point of use which enables
the consumer to enjoy quality drinking water with reduced contaminants.
Additionally, in contrast to most other water treatment dealers and
distributors that have historically sold their water treatment equipment
outright, the Company creates long-term relationships with its own customers by
renting or placing the equipment under lease/service agreements. These
agreements result in revenue streams which provide the Company with a base of
recurring revenue.
In the quarter ended September 30 , 1997 the Company continued the
consolidation of the routes and related assets of Savoy Refreshment Services,
Inc. d/b/a Dial Refreshment Services ("Dial"), Ozone Water Company of Newark
("Ozone") and American Water Group, Inc. d/b/a Virgin Springs ("Virgin").
Estimated annual revenues of these operations are eight hundred eighty five
thousand dollars ($885,000). Following the sale of its twenty three thousand
(23,000) square foot facility in Maspeth, New York on June 30, 1997, the
Company entered into a lease and began occupation of its seven thousand five
hundred (7,500) square foot premises located at 56-24 58th Street, Maspeth,
New York 11378-0010. Said premises are used for sales, distribution, cooler
repair and the Company's executive offices.
<PAGE>
THE YEAR ENDED DECEMBER 31, 1995, YEAR ENDED DECEMBER 31, 1996, QUARTER ENDED
SEPTEMBER 30, 1996 AND QUARTER ENDED SEPTEMBER 30, 1997
REVENUES.
Revenues for the year ended December 31, 1996 increased by 93% to $10.6
million from $5.5 million for the year ended December 31, 1995. This increase in
revenues reflects the acquisition of Electrified's operations in East Orange,
New Jersey for eleven of the twelve months ended December 31, 1996 and the
acquisition of the five-gallon routes from Mountainwood for the six months
beginning July 1, 1996 through December 31, 1996. Moreover, this increase
occurred notwithstanding an abnormally harsh winter in 1996 evidenced by a
record snow fall and unusually cold spring and summer seasons during the same
year. This factor is even more significant when considering the significantly
higher than normal temperatures experienced in the summer of 1995.
Revenues for the quarter ended September 30, 1997 increased by
approximately 11% to $3.3 million from $3.0 million for the quarter ended
September 30, 1996. This increase in revenues reflects increases in both five
gallon and case goods sales from the Commack and East Orange plants as well
as the office refreshment sales of the Dial Refreshment division acquired in
April 1997. Revenues for the nine months ended September 30, 1997 increased
14.6% to $9.2 million from $8.1 million for the nine months ended September
30, 1996.
COST OF GOODS SOLD.
Cost of goods sold (excluding depreciation) for the year ended December
31, 1996 increased to $3.5 million from $1.6 million, or 118% over that
incurred in 1995. This increase results principally from increases in volume
relating to certain acquisitions. Cost of goods sold (excluding depreciation)
as a percentage of revenues for the year ended December 31, 1996 increased to
33% from 29% for the same period in 1995. The increase reflects entry into
the case goods product market which is traditionally a more costly product
due to packaging.
Cost of goods sold (excluding depreciation) for the quarter ended September
30, 1997 increased by 9.9% to $1.1 million from $1.0 million for the quarter
ended September 30, 1996. This increase results principally from the increase
in total water revenues. Cost of goods sold (excluding depreciation) as a
percentage of revenues for the quarter ended September 30, 1997 decreased to
32.1% from 32.4% for the same period in 1996. Cost of goods sold (excluding
depreciation) as a percentage of revenues for the nine months ended September
30, 1997 increased to 35.3% from 24.3% for the same period in 1996. This
reflects an increase in the amount of one gallon case goods sold from the
Company's American Eagle bottling facility.
OPERATING EXPENSES.
Operating expenses (excluding depreciation and amortization) increased by
46% to $1.9 million for the year ended December 31, 1996 from $1.3 million for
the year ended December 31, 1995. The increase reflects the acquisition of
Electrified's operations for eleven of the twelve months ended December 31,
1996, and the acquisition of Mountainwood's delivery routes for the six months
from July 1, 1996 through December 31, 1996. However, operating expenses
(excluding depreciation and amortization) decreased as a percentage of revenues
to 18% for the year ended December 31, 1996 compared to 24% from the year ended
December 31, 1995. This decrease was also due primarily to the efficiencies
achieved in the Company's bottling operations, route delivery and servicing
system. It was also reflective of entry into the case goods product market,
delivery costs of which are less intensive than the five gallon market.
Operating expenses (excluding depreciation and amortization) for the
quarter ended September 30, 1997 increased by 155.4% to $1.2 million from $0.4
million for the quarter ended September 30, 1996. This increase reflects the
increase in total revenues; additionally, the plant relocation expenses in 1996
of $0.3 million were reported as a separate line item. Operating expenses
(excluding depreciation and amortization) increased as a percentage of revenues
to 34.7% for the quarter ended September 30, 1997 from 15.0% for the same period
in 1996. This increase reflects additional delivery commissions, temporary
help, salary expense and continued rerouting and consolidation efforts
associated with the Dial, Ozone and Virgin acquisitions. Operating
<PAGE>
expenses (excluding depreciation and amortization) as a percentage of revenues
for the nine months ended September 30, 1997 increased to 28.6% from 18.2% for
the same period in 1996.
GENERAL AND ADMINISTRATIVE EXPENSES.
General and administrative expenses increased by 69% to $2.2 million in the
year ended December 31, 1996 from $1.3 million for the same period in 1995 due
to the acquisitions referred to above. However, such expenses decreased as a
percentage of revenues to 20% for the year ended December 31, 1996 from 24% for
the same period in 1995. This decrease in general and administrative expenses
reflects efficiencies gained from the Electrified and Mountainwood transactions
with respect to office and clerical staffing.
General and administrative expenses for the quarter ended September 30,
1997 decreased by 35.9% to $0.3 million from $0.4 million for the quarter ended
September 30, 1996. General and administrative expenses decreased as a
percentage of revenues to 7.6% for the quarter ended September 30, 1997 from
13.2% for the same period in 1996. This decrease reflects a portion of the
bottling plant relocation charges incurred in 1996 and efficiencies gained from
consolidation of office and clerical staffing, and was achieved notwithstanding
increased expenses incurred in connection with the Company's status as a public
company. General and administrative expenses as a percentage of revenues for
the nine months ended September 30, 1997 decreased to 16.1% from 28.2% for the
same period in 1996.
TOTAL DEPRECIATION AND AMORTIZATION.
Total depreciation and amortization for the year ended December 31, 1996
increased by 100% to $1.0 million from $0.5 million for the same period in 1995.
Total depreciation and amortization increased as a percentage of revenues to 9%
for the year ended December 31, 1996 from 8% for the same period in 1995. This
increase resulted primarily from the Electrified acquisition, which included a
modern high-capacity bottling facility and the opening of a new bottling
facility in Commack, Long Island, New York.
Total depreciation and amortization for the quarter ended September 30,
1997 decreased by 8.0% to $0.29 million from $0.31 million for the quarter
ended September 30, 1996. Total depreciation and amortization decreased as a
percentage of revenues to 8.6% for the quarter ended September 30, 1997 from
10.4% for the same period in 1996. This decrease results primarily from
higher revenues in the quarter ended September 30, 1997. Total depreciation and
amortization as a percentage of revenues for the nine months ended September 30,
1997 increased to 9.0% from 8.7% for the same period in 1996.
Income from Operations. Decreases in income from operations for all periods
discussed above relate to increases in sales, the cost of consolidation of
routes, the higher cost of goods sold in the office refreshment division, and
the decrease in general and administrative expenses.
INTEREST EXPENSE.
For the year ended December 31, 1996, interest expense increased by 167%
to $0.8 million for the same period in 1995. Interest expense increased as a
percentage of revenues to 7% for the year ended December 31, 1996 from 6% for
the same period in 1995. This increase was due to additional borrowings in
connection with certain acquisitions. Approximately $5.3 million of the $10.0
million total debt outstanding at December 31, 1996 was repaid with proceeds
from the Company's initial public offering as further discussed below.
Interest expense for the quarter ended September 30, 1997 decreased by
63.9% to $0.08 million from $0.21 million for the quarter ended September 30,
1996. Interest expense decreased as a percentage of revenues to 2.3% for the
quarter ended September 30, 1997 from 7.0% for the same period in 1996. This
reflects the use of proceeds from the Company's Initial Public Offering
available in late February 1997 to reduce $5.2 million of indebtedness incurred
in connection with the Company's acquisitions.
<PAGE>
Plant Relocation Charges. During the year ended December 31, 1996, the
Company relocated all bottled water production from its plants in Maspeth, New
York, and Port Jefferson, New York, to the Electrified facility in East Orange,
New Jersey, and the newly opened bottling plant in Commack, Long Island, New
York. The Maspeth and Port Jefferson bottling plants were subsequently closed.
Non-recurring plant relocation charges of $0.3 million or 2% of revenues for the
period ended December 31, 1996 were incurred.
Provision for Income Taxes. The effective income tax rate was 42% for the
year ended December 31, 1996 and 36% for the year ended December 31, 1995. The
increase in the effective rate in 1996 is primarily attributable to
non-recurring write-offs of certain accounts receivable for income tax purposes
in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources have been
cash flow from operations, proceeds from the sale of equity securities to the
Company's current stockholders, purchase money financing for business
acquisitions and borrowings under the Company's bank agreement described below.
In February 1997, the Company completed an initial public offering of
1,350,000 shares of common stock raising net proceeds of $6.1 million. The
Company used substantially all of the proceeds to retire $5.4 million of debt
related primarily to certain acquisitions. As a result of the offering, the
Company is now able to borrow an additional $1.5 million under its bank
agreement.
During the quarter ended September 30, 1997, net cash used by operating
activities was $0.6 million, and net cash used by operating activities for
the nine months ended September 30, 1997 was $0.3 million. During the quarter
ended September 30, 1997 the Company used $0.5 million to purchase capital
equipment, and for the nine months ended September 30, 1997 cash used to
purchase capital equipment was $1.4 million. The sale of the Company's Maspeth
facility generated net cash of $0.03 million after mortgage retirement and
expenses. Cash at the end of the period was $0.3 million.
During 1996 and 1995, net cash provided by operating activities was $0.7
million and $0.4 million, respectively. During 1996, the Company made capital
expenditures in the amount of $2.8 million. In addition, the Company acquired
the net assets of two of its competitors whose aggregate purchase price was $5.5
million. The equipment purchases and the acquisitions were funded by operations
as well as seller financing. In 1995, the Company made capital expenditures for
coolers, other equipment and routes aggregating $2.8 million, which was funded
by cash from operations, private equity placement, purchase money financing of
business acquisitions and borrowings under the Company's bank agreement.
At December 31, 1996, cash totaled $0.2 million and no additional borrowing
was available under the Company's bank agreement. As of December 31, 1995, cash
totaled $0.7 million, and approximately $1.0 million of additional borrowings
were available under the Company's bank agreement.
The Company's bank agreement provides for aggregate long-term borrowings
of up to $3.0 million, approximately all of which was currently outstanding
as of December 31, 1996, maturing between May 31, 1997 and December 31, 2001,
bearing interest at prime plus .25%-.50% per annum, secured by substantially
all of the assets of the Company. The Company has also borrowed $0.5 million
from the same lender under another agreement. These borrowings are also
secured by certain stockholders of the Company and were used for the
acquisitions referred to above. In addition, the bank agreement contains
covenants that include requirements to maintain certain working capital, debt
coverage and other financial ratios and restrictions and limitations on the
payment of dividends, guaranty payments, additional borrowings and the amount
of compensation paid to employees who are stockholders.
<PAGE>
The Company's continued success is dependent upon the maintenance of its
delivery truck fleet and bottling equipment and its access to water sources.
These activities are currently funded through operations and bank financing. The
Company believes that it has sufficient sources of funding to achieve its
business objectives in the future.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
United States Filter Corporation, a corporation organized and existing
under the laws of the State of Delaware ("USF"), USF/PW Acquisition
Corporation, a corporation organized and existing under the laws of the State
of Delaware ("USF SUB") and the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") dated as of October 8, 1997, pursuant to
which the Company will be merged with USF SUB (the "Merger"). The Board of
Directors of the Company approved the Merger Agreement and the transactions
contemplated thereby at a meeting held on October 7, 1997.
In accordance with the terms of the Merger Agreement, each share of the
Company's common stock, par value $.0063 per share (the "Company's Common
Stock"), issued and outstanding immediately prior to the effective time of the
Merger will be converted into and become that certain fraction of a share of
common stock of USF, par value $.01 per share (the "USF Common Stock"), as shall
be determined by dividing $7.20 by the "average market price" of the USF Common
Stock during the 10 consecutive trading day period beginning on the 16th trading
day prior to the meeting of the stockholders of the Company (rounding the result
to two decimal places). The "average market price" of a share of USF Common
Stock shall be calculated by averaging the high and low per share sale prices
for each trading day during such period on which there were any trades in USF
Common Stock, adding such daily averages together, and dividing the sum by 10
(reduced by the number of such trading days during which there were no trades).
Each holder of the Company's Common Stock who would otherwise be entitled to
receive a fractional share of USF Common Stock will receive cash in lieu
thereof.
The Merger Agreement may be terminated by the Company and/or USF by written
notice by the terminating party to the other under the following circumstances:
(a) by mutual written consent of USF and the Company; or (b) by either USF or
the Company if the Merger shall not have been consummated by March 31, 1998
(provided that this right to terminate shall not be available to any party whose
failure to fulfill any material obligation under the Merger Agreement has been a
cause or has resulted in the failure of the Merger to occur on or before such
date); or (c) by USF or the Company if (i) the other party has materially
breached any representation or warranty contained in the Merger Agreement, or
(ii) there has been a breach of a covenant or agreement set forth in the Merger
Agreement on the part of the other party, which shall not have been cured within
ten business days following receipt by the breaching party of written notice of
such breach from the other party (other than those covenants and agreements with
respect to non-solicitation by the Company, as to which there shall be no cure
period); or (d) by either USF or the Company if a court of competent
jurisdiction or other governmental authority enjoins or otherwise prohibits the
Merger; (e) by either USF or the Company if the requisite vote of the
stockholders of the Company in favor of the Merger Agreement shall not have been
obtained; or (f) by USF if (i) the Company shall provide information to or
engage in negotiations regarding any acquisition proposal with any person other
than USF or its affiliates, (ii) the Company's Board of Directors shall have
withdrawn or modified its recommendation of the Merger Agreement or shall have
resolved to do so; (iii) the Company's Board of Directors shall have recommended
to the stockholders of the Company an acquisition transaction other than one
made by USF or an affiliate of USF, or (iv) a tender offer or exchange offer for
50% or more of the outstanding shares of the Company's Common Stock is
consummated other than by USF or an affiliate of USF.
The Merger is intended to constitute a reorganization under 368(a) of the
Internal Revenue Code of 1986, as amended, and to be accounted for as a pooling
of interests.
In addition, the Merger Agreement contemplates that each stock option or
other right to purchase shares of the Company's Common Stock (each an "Option"
and, collectively, the
<PAGE>
"Options") will be converted into and become a right to purchase shares of USF
Common Stock in accordance with the terms of the agreement by which such Option
is evidenced.
Consummation of the Merger is subject to various conditions, including: (i)
receipt of the requisite approval and adoption of the Merger Agreement by the
affirmative vote of the holders of a majority of the outstanding shares of the
Company's Common Stock; (ii) receipt of all required authorizations from any
governmental authorities or agencies or any third parties; (iii) listing on the
New York Stock Exchange of the USF Common Stock to be issued in the Merger; (iv)
receipt of opinions as to the tax and accounting treatment of the Merger (which
condition may be waived in writing by USF or USF SUB); and (v) satisfaction of
certain other conditions.
The Merger Agreement and the Merger will be submitted for approval at a
meeting of the stockholders of the Company currently anticipated to occur on
December 10, 1997. Prior to such meeting, USF has filed a registration
statement with the Securities and Exchange Commission registering under the
Securities Act of 1933, as amended, the USF common stock to be issued to the
Company's stockholders in connection with the Merger, including a prospectus
that will also serve as a proxy statement for the meeting of the stockholders
of the Company.
In connection with the execution of the Merger Agreement, Peter T. Dixon,
the Trusts Under Article 16 of the Will of W. Palmer Dixon for the Benefit of
Peter T. and Palmer Dixon, Beth Levy, Scott Levy, Jack C. West and Edberg
Associates Limited Partnership, each of which is a stockholder of the Company
(the "Stockholders"), entered into stockholder agreements with USF pursuant to
which the Stockholders have agreed to vote their shares of the Company's Common
Stock in favor of the Merger at the meeting of the stockholders of the Company.
The Stockholders own approximately Sixty Two Percent (62%) of the Company's
Common Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K
On October 24, 1997 the Company filed its Report on Form 8-k reporting its
execution of the Merger Agreement as set forth in Part II, Item 5 above.
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Signature Title Date
- ------------------------- ------------------------- --------------------
/s/ Jack C. West President and Director November 14, 1997
- -------------------------
Jack C. West
/s/ Scott Levy Chief Executive Officer November 14, 1997
- ------------------------- and Director
Scott Levy
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<PAGE>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 322,295
<SECURITIES> 0
<RECEIVABLES> 2,767,210
<ALLOWANCES> 201,205
<INVENTORY> 571,528
<CURRENT-ASSETS> 4,372,020
<PP&E> 5,502,044
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0
0
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<CGS> 3,597,469
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