<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): September 30, 1997
WATERLINK, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 1-13041 34-1788678
(State or Other Commission File Number (IRS Employer Identification No.)
Jurisdiction of
Incorporation)
4100 Holiday Street, N.W., Suite 201, Canton, Ohio 44718
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (330) 649-4000
<PAGE> 2
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
Item 7 of Current Report on Form 8-K dated September 30, 1997 and filed on
October 14, 1997 is amended to include the financial statements of Hycor
Corporation and pro forma financial information of Waterlink, Inc. (the
"Company") as shown in the following index to financial statements:
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
(a) Historical Financial Statements of Hycor Corporation
Report of Independent Public Accountants F-1
Balance Sheets at March 31, 1996 and 1997 and September 30, 1997 (Unaudited) F-2
Statements of Income for the two years ended March 31, 1997 and the six
months ended September 30, 1996 and 1997 (Unaudited) F-4
Statements of Shareholders' Equity for the two years ended March 31, 1997
and the six months ended September 30, 1997 (Unaudited) F-5
Statements of Cash Flows for the two years ended March 31, 1997 and the
six months ended September 30, 1996 and 1997 (Unaudited) F-6
Notes to Financial Statements F-7
(b) Unaudited Pro Forma Consolidated Financial Data
Basis of Presentation F-14
Unaudited Pro Forma Consolidated Statement of Income for the year ended
September 30, 1997 F-15
Notes to Unaudited Pro Forma Consolidated Financial Data F-16
</TABLE>
(c) Exhibits
Exhibit 23 - Consent of Independent Auditors
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 hereunto duly authorized.
WATERLINK, INC.
Dated: December 11, 1997 By: /s/ Michael J. Vantusko
---------------------------
Michael J. Vantusko
Chief Financial Officer
<PAGE> 3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ----------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF HYCOR CORPORATION
We have audited the accompanying balance sheets of HYCOR CORPORATION as
of March 31, 1996 and 1997, and the related statements of income, shareholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of HYCOR CORPORATION as
of March, 31, 1996 and 1997, and the results of its operations and cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Pacquesi Sheppard LLC
Pasquesi Sheppard LLC
December 5, 1997
Lake Forest, Illinois
F-1
<PAGE> 4
HYCOR CORPORATION
-----------------
BALANCE SHEETS
--------------
================================================================================
A S S E T S
-----------
<TABLE>
<CAPTION>
MARCH 31 MARCH 31 SEPTEMBER 30
1996 1997 1997
----------- ----------- -----------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C> <C>
Cash $ 134,322 $ - $ 130,630
Accounts receivable, less allowance
of $30,000 at March 31, 1996 and 1997 and $75,000
at September 30, 1997 2,356,932 4,182,708 3,035,577
Income taxes receivable - - 18,000
Inventories 647,530 1,201,349 1,025,483
Prepaid expenses 87,050 120,127 132,959
Deferred income tax benefit 75,000 125,000 200,000
----------- ----------- -----------
Total current assets 3,300,834 5,629,184 4,542,649
EQUIPMENT AND IMPROVEMENTS, at cost:
Leasehold improvements 208,626 131,511 131,511
Machinery and equipment 926,859 929,052 882,643
Office equipment 455,433 568,801 598,019
----------- ----------- -----------
1,590,918 1,629,364 1,612,173
Less - Accumulated depreciation 1,089,154 954,749 994,439
----------- ----------- -----------
Equipment and improvements, net 501,764 674,615 617,734
OTHER ASSETS:
Patent, net of amortization of
$36,745 at March 31, 1997 and $60,112 - 664,235 640,869
at September 30, 1997
Goodwill, net of amortization of
$1,048 at March 31, 1997 and $1,715 - 18,952 18,285
at September 30, 1997
Other 22,500 39,335 -
----------- ----------- -----------
Total other assets 22,500 722,522 659,154
----------- ----------- -----------
TOTAL ASSETS $ 3,825,098 $ 7,026,321 $ 5,819,537
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE> 5
HYCOR CORPORATION
-----------------
BALANCE SHEETS
--------------
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
MARCH 31 MARCH 31 SEPTEMBER 30
1996 1997 1997
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Checks drawn in excess of
cash balance $ - $ 269,556 $ -
Line of credit - 450,000 -
Current portion of long-term debt 125,000 49,034 -
Accounts payable-trade 1,361,706 1,705,969 1,555,844
Customer deposits 307,678 724,971 448,577
Accrued expenses 996,174 1,531,436 1,342,938
Income taxes payable 90,016 159,830 -
----------- ----------- -----------
Total current liabilities 2,880,574 4,890,796 3,347,359
LONG-TERM DEBT - 501,946 501,946
SHAREHOLDERS' EQUITY:
10% cumulative convertible
preferred stock, Class A,
$.01 par value, 50,000 shares
authorized and issued,
convertible into one common
share for each preferred
share 500 500 500
Common stock, no par value,
75,000 shares authorized and
outstanding 7,500 7,500 7,500
Additional paid-in capital 188,759 188,759 188,759
Retained earnings 1,414,734 2,038,670 2,375,323
Deferred ESOP contributions (125,000) - -
----------- ----------- -----------
1,486,493 2,235,429 2,572,082
Less: Treasury stock
(16,905 preferred shares at March 31, 1996
and 18,701 preferred shares at March
31, 1997 and September 30, 1997) (541,969) (601,850) (601,850)
----------- ----------- -----------
Total shareholders' equity 944,524 1,633,579 1,970,232
----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 3,825,098 $ 7,026,321 $ 5,819,537
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 6
HYCOR CORPORATION
-----------------
STATEMENTS OF INCOME
--------------------
================================================================================
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------- ---------------------------------
1996 1997 1996 1997
------------ ---------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $13,214,437 $16,600,803 $ 6,139,017 $ 8,742,047
COST OF SALES 6,615,911 8,167,235 3,077,410 4,147,836
----------- ----------- ----------- -----------
Gross profit 6,598,526 8,433,568 3,061,607 4,594,211
SELLING AND ADMINISTRATIVE EXPENSES 5,938,199 7,303,610 2,967,751 3,943,604
AMORTIZATION 18,000 55,793 22,827 28,534
----------- ----------- ----------- -----------
Operating income 642,327 1,074,165 71,029 622,073
OTHER INCOME (EXPENSE):
Interest expense (38,728) (95,746) (54,374) (36,412)
Interest income 2,406 10,712 5,784 11,000
----------- ----------- ------------ -----------
Net other (expense) (36,322) (85,034) (48,590) (25,412)
----------- ----------- ----------- -----------
Income before provision
for income taxes 606,005 989,131 22,439 596,661
PROVISION FOR INCOME TAXES 183,800 240,000 5,385 196,149
----------- ----------- ----------- -----------
NET INCOME $ 422,205 $ 749,131 $ 17,054 $ 400,512
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 7
HYCOR CORPORATION
-----------------
STATEMENTS OF SHAREHOLDERS' EQUITY
----------------------------------
================================================================================
<TABLE>
<CAPTION>
Preferred Additional Deferred
Stock Common Paid-in Retained ESOP Treasury
Class A Stock Capital Earnings Contributions Stock Total
--------- ------- --------- ---------- ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
March 31, 1995 $ 500 $ 7,500 $ 188,759 $1,168,970 $ (375,000) $ (23,097) $ 967,632
Dividends paid on
Class A preferred
stock - - - (176,441) - - (176,441)
Principal payments
on loans
to ESOP - - - - 250,000 - 250,000
Net income for the
year - - - 422,205 - - 422,205
Purchase of
treasury stock - - - - - (518,872) (518,872)
--------- ------- --------- ---------- ------------ ---------- ----------
Balance,
March 31, 1996 500 7,500 188,759 1,414,734 (125,000) (541,969) 944,524
Dividends paid on
Class A preferred
stock - - - (125,195) - - (125,195)
Principal payments
on loans
to ESOP - - - - 125,000 - 125,000
Net income for the
year - - - 749,131 - - 749,131
Purchase of
treasury stock - - - - - (59,881) (59,881)
--------- ------- --------- ---------- ------------ --------- ----------
BALANCE,
March 31, 1997 500 7,500 188,759 2,038,670 - (601,850) 1,633,579
Dividends paid on
Class A
preferred stock
(Unaudited) - - - (63,859) - - (63,859)
Net income for the
six months ended
(Unaudited) - - - 400,512 - - 400,512
--------- ------- ---------- ---------- ------------- --------- ----------
BALANCE, (Unaudited)
September 30, 1997 $ 500 $ 7,500 $ 188,759 $2,375,323 $ - $ (601,850) $1,970,232
========= ======= ========== ========== ============= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 8
HYCOR CORPORATION
-----------------
STATEMENTS OF CASH FLOWS
------------------------
================================================================================
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
-------------------------- -------------------------------
1996 1997 1996 1997
------------ ---------- ------------ ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 422,205 $ 749,131 $ 17,054 $ 400,512
Adjustments to reconcile net income to net
cash provided by/used in operating activities --
Depreciation and amortization 229,847 268,994 121,519 119,666
Deferred income tax expense 69,800 (50,000) - (75,000)
Impact on cash from changes in --
Accounts receivable (573,152) (1,825,776) (1,102,046) 1,129,131
Inventory 25,890 (485,154) (586,970) 175,866
Prepaid expenses 50,762 (33,077) (61,970) (12,832)
Accounts payable 406,689 275,597 39,815 (150,125)
Customer deposits (459,585) 417,294 1,496,447 (276,394)
Accrued expenses 226,861 535,256 (523,018) (348,328)
Income taxes (3,907) 69,814 (90,016) -
----------- ----------- ------------ ----------
Net cash provided (used) by
operating activities 395,410 (77,921) (689,185) 962,496
INVESTING ACTIVITIES:
Purchases of equipment and improvements (239,913) (420,881) (314,548) (48,451)
Purchase of patent and goodwill - (720,980) (720,980) -
----------- ----------- ------------ ----------
Net cash (used) by
investing activities (239,913) (1,141,861) (1,035,528) (48,451)
FINANCING ACTIVITIES:
Loan arising from patent and goodwill purchase - 550,980 550,980 -
Net borrowings on line of credit - 1,180,000 1,180,000 -
Payments on bank loan (250,000) (855,000) - (450,000)
Dividends paid on Class A preferred stock (176,441) (125,195) (67,500) (63,859)
Payment received on ESOP loan 250,000 125,000 - -
Purchase of treasury stock (518,872) (59,881) - -
----------- ----------- ------------ ----------
Net cash provided/(used) by
financing activities (695,313) 815,904 1,663,480 (513,859)
----------- ----------- ------------ ----------
Increase/(Decrease) in cash (539,816) (403,878) (61,233) 400,186
CASH, (checks drawn in excess of cash balance),
beginning of period 674,138 134,322 134,322 (269,556)
----------- ----------- ------------ ----------
CASH, (checks drawn in excess of cash balance),
end of period $ 134,322 $ (269,556) $ 73,089 $ 130,630
=========== =========== ============ ==========
</TABLE>
OTHER SUPPLEMENTARY INFORMATION
-------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Cash paid during the period for:
Interest $ 21,857 $ 95,746 $ 31,875 $ 63,258
Income taxes, net of refunds 190,924 220,187 137,226 657,106
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 9
HYCOR CORPORATION
-----------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
MARCH 31, 1996 AND 1997
-----------------------
(INFORMATION AS OF SEPTEMBER 30, 1997 AND
-----------------------------------------
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
------------------------------------------------------------------
================================================================================
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- --------------------------------------------------
DESCRIPTION OF THE COMPANY --
--------------------------
Hycor Corporation, a Delaware corporation, is a designer and manufacturer
of liquid/solid separation, dewatering and conveying equipment for
municipal, industrial and pulp and paper applications.
INTERIM FINANCIAL INFORMATION -
-------------------------------
The balance sheet as of September 30, 1997, the related statements of
operations and cash flows for the six months ended September 30, 1996 and
1997, and the statement of shareholders' equity for the six months ended
September 30, 1997 are unaudited and, in the opinion of management,
include all adjustments, consisting of only normal recurring adjustments,
considered necessary for a fair presentation of the results of interim
periods. Operating results of interim periods are not necessarily
indicative of the results to be expected for any other interim period or
for the year.
CASH EQUIVALENTS --
----------------
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
REVENUE RECOGNITION --
-------------------
Sales are recognized when products are shipped.
ACCOUNTS RECEIVABLE --
-------------------
Included in accounts receivable at March 31, 1996 and 1997 and September
30, 1997, are retentions receivable of $272,248, $514,983 and $533,554,
respectively. All retentions are expected to be collected within one year.
FINANCIAL INSTRUMENTS --
---------------------
The carrying values of cash, accounts receivable and accounts payable are
a reasonable estimate of their fair market value due to the short-term
nature of these instruments.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and trade
receivables. The Company maintains its cash in bank deposit accounts which,
at times, exceed federally insured limits. The Company has not experienced
any losses in such accounts. Management believes it is not exposed to any
significant credit risk on cash.
F-7
<PAGE> 10
HYCOR CORPORATION
-----------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
MARCH 31, 1996 AND 1997
-----------------------
(INFORMATION AS OF SEPTEMBER 30, 1997 AND
-----------------------------------------
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
------------------------------------------------------------------
================================================================================
Concentrations of credit risk with respect to trade receivables are
reduced by the Company collecting customer deposits in conjunction with
larger contracts. The Company grants credit to customers based on an
evaluation of their financial condition and collateral is generally not
required. Losses from credit sales are provided for in the financial
statements and have been within management's expectations.
INVENTORY --
---------
Inventory is stated at the lower of cost using the last-in, first-out
(LIFO) method, or market. If the first-in, first-out method of inventory
valuation had been used, inventory would have been $125,833, $115,604 and
$122,813 higher at March 31, 1996 and 1997 and September 30, 1997,
respectively.
EQUIPMENT AND IMPROVEMENTS --
--------------------------
Equipment and improvements are recorded at cost. Maintenance and repairs
are charged to expense as incurred. The costs of equipment and improvements
are depreciated over estimated useful lives primarily using accelerated
methods.
LICENSE FEES --
------------
The costs of license fees are amortized over the life of the license
agreements. License fee amortization expense for the years ended March 31,
1996 and 1997 was $18,000 per year, and $9,000 and $4,500 for the six months
ended September 30, 1996 and 1997, respectively.
PATENT --
------
Expenses incurred in obtaining patents are capitalized and are amortized
using the straight line method over 15 years. Amortization expense was
$36,745 for the year ended March 31, 1997 and $13,443 and $23,367 for the
six months ended September 30, 1996 and 1997, respectively.
GOODWILL --
--------
Goodwill represents costs in excess of net assets of an acquired business
and is being amortized on the straight line method over 15 years.
Amortization expense was $1,048 for the year ended March 31, 1997 and $384
and $667 for the six months ended September 30, 1996 and 1997, respectively.
PRODUCT WARRANTIES --
------------------
The Company sells the majority of its products with a repair or
replacement warranty of approximately one year. Estimated future costs
applicable to products sold under warranties are charged to expense in the
year of sale. The accompanying balance sheets include a current liability
F-8
<PAGE> 11
HYCOR CORPORATION
-----------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
MARCH 31, 1996 AND 1997
-----------------------
(INFORMATION AS OF SEPTEMBER 30, 1997 AND
-----------------------------------------
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
------------------------------------------------------------------
================================================================================
for estimated warranty claims of $206,000, $201,000 and $285,000 as of March
31, 1996 and 1997 and September 30, 1997, respectively. Warranty expense
was $72,575 and $104,074 for the year ended March 31, 1996 and 1997,
respectively; and $36,360 and $135,336 for the six months ended September
30, 1996 and 1997, respectively.
INCOME TAXES --
------------
The Company records income tax expense based on the amount of taxes due
on its tax return plus deferred taxes computed based on the expected future
tax consequences of temporary differences between the carrying amounts and
tax bases of assets and liabilities, using enacted tax rates.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS --
-------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) INVENTORY:
- -----------------
The components of inventory were as follows:
<TABLE>
<CAPTION>
MARCH 31 MARCH 31 SEPTEMBER 30
1996 1997 1997
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Raw materials $ 456,647 $ 686,795 $ 465,150
Work in process 117,955 396,397 395,611
Finished goods 72,928 118,157 164,722
----------- ----------- -----------
Total $ 647,530 $ 1,201,349 $ 1,025,483
=========== =========== ===========
</TABLE>
(3) EQUIPMENT AND IMPROVEMENTS:
- ------------------------------------
Equipment and improvements depreciable lives are summarized as follows:
Leasehold improvements 15 years
Machinery and equipment 5 - 7 years
Office equipment 5 - 10 years
F-9
<PAGE> 12
HYCOR CORPORATION
-----------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
MARCH 31, 1996 AND 1997
-----------------------
(INFORMATION AS OF SEPTEMBER 30, 1997 AND
-----------------------------------------
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
------------------------------------------------------------------
================================================================================
(4) LONG-TERM DEBT:
- ------------------------
<TABLE>
<CAPTION>
MARCH 31 MARCH 31 SEPTEMBER 30
1996 1997 1997
---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
ESOP bank loan payable in
quarterly principal
installments through
September 1996.
Interest is payable
annually. $ 125,000 $ - $ -
Notes payable to an
individual for the purchase
of patent, maturing in June
2006. Principal and interest
are payable annually. - 550,980 501,946
Less - Current portion 125,000 49,034 -
---------- ---------- ----------
$ - $ 501,946 $ 501,946
========== ========== ==========
</TABLE>
Future maturities of long-term debt for the five years subsequent to
March 31, 1997 and September 30, 1997 are as follows:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30
1997 1997
---------- ------------
(unaudited)
<S> <C> <C>
1998 $ 49,034 -
1999 - $ 2,845
2000 2,845 53,833
2001 53,833 58,813
2002 58,813 64,253
</TABLE>
(5) LINE OF CREDIT:
- ---------------------
The Company has a secured revolving line of credit which expires
December 15, 1998. Borrowings are based upon eligible receivables, inventory and
fixed assets and are limited to $1,500,000. Outstanding borrowings accrue
interest at the bank's prime lending rate. Outstanding borrowings on the line of
credit were $450,000 as of March 31, 1997. There were no outstanding borrowings
as of March 31, 1996 and September 30, 1997.
F-10
<PAGE> 13
HYCOR CORPORATION
-----------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
MARCH 31, 1996 AND 1997
-----------------------
(INFORMATION AS OF SEPTEMBER 30, 1997 AND
-----------------------------------------
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
------------------------------------------------------------------
================================================================================
(6) INCOME TAXES:
- ----------------------
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
MARCH 31 MARCH 31 SEPTEMBER 30 SEPTEMBER 30
1996 1997 1996 1997
--------- ---------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current expense $ 114,000 $ 290,000 $ 5,385 $ 271,149
Deferred tax benefit 69,800 (50,000) - ( 75,000)
--------- ---------- ----------- -----------
Total income tax
provision $ 183,800 $ 240,000 $ 5,385 $ 196,149
========= ========== =========== ===========
</TABLE>
A reconciliation of the provision for income taxes to income taxes
computed by applying the statutory federal tax rate to income before taxes is as
follows:
<TABLE>
<CAPTION>
MARCH 31 MARCH 31 SEPTEMBER 30 SEPTEMBER 30
1996 1997 1996 1997
--------- ---------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Tax computed at 34% of pretax
income $ 206,000 $ 336,300 $ 7,600 $ 202,900
Effect of non-deductible
expenses 4,100 1,200 1,600 1,800
Deductible ESOP dividends (60,000) (53,600) (10,650) (21,700)
State and local taxes, net 17,300 21,000 1,000 17,600
Utilization of AMT credits - (45,000) - -
Effect of graduated rates
and other 16,400 (19,900) 5,835 (4,451)
---------- ---------- ----------- -----------
Total income tax provision $ 183,800 $ 240,000 $ 5,385 $ 196,149
========== ========== =========== ===========
</TABLE>
The details of the deferred tax assets are as follows:
<TABLE>
<CAPTION>
MARCH 31 MARCH 31 SEPTEMBER 30
1996 1997 1997
-------- ---------- ----------
(Unaudited)
<S> (C) <C> <C>
Allowance for doubtful
accounts $ 10,200 $ 10,200 $ 25,500
Accrued vacation 19,000 45,500 20,400
Accrued warranty 45,800 69,300 96,300
Inventory obsolescence - - 57,800
--------- ---------- ----------
Total deferred tax assets $ 75,000 $ 125,000 $ 200,000
========= ========== ==========
</TABLE>
F-11
<PAGE> 14
HYCOR CORPORATION
-----------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
MARCH 31, 1996 AND 1997
-----------------------
(INFORMATION AS OF SEPTEMBER 30, 1997 AND
-----------------------------------------
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
------------------------------------------------------------------
================================================================================
(7) EMPLOYEE STOCK OWNERSHIP PLAN:
- ------------------------------------
In 1989, the Company established an Employee Stock Ownership Plan
(ESOP) covering substantially all employees and the ESOP acquired the total
outstanding preferred stock of the principal shareholders.
The funds for this purchase by the ESOP were financed by a loan from
the Company to the ESOP. The loan receivable from the ESOP is shown as a
reduction of stockholders' equity and described as Deferred ESOP Contributions.
At March 31, 1997, the loan has been fully paid.
(8) LEASE COMMITMENT WITH RELATED PARTY:
- ------------------------------------------
Effective March 20, 1996, the Company entered into a 15 year operating
lease agreement for the land and building with a limited liability company (LLC)
owned primarily by the then majority-shareholder of the Company. The lease
provides that the Company shall have the option until December 1998, to purchase
the land and building for $2,300,000. If such option is not exercised, the LLC
shall have the option to require the Company to purchase the land and building
for $2,000,000.
In connection with the lease agreement, the Company is required to make
monthly lease payments and is responsible for other costs such as real estate
taxes, normal maintenance costs and insurance. Rent expense approximated
$106,000 and $216,000 for the year ended March 31, 1996 and 1997, respectively;
and $108,000 and $139,000 for the six months ended September 30, 1996 and 1997,
respectively.
Future minimum rent payments subsequent to March 31, 1997 and September
30, 1997 on a fiscal year basis are as follows:
<TABLE>
<CAPTION>
MARCH 31 SEPTEMBER 30
1997 1997
--------- ---------
(Unaudited)
<S> <C> <C>
1998 $ 226,609 $ 229,421
1999 232,235 235,047
2000 237,860 240,873
2001 243,887 249,511
2002 255,137 259,154
Thereafter 3,426,465 3,294,879
---------- ----------
$4,622,193 $4,508,885
========== ==========
</TABLE>
F-12
<PAGE> 15
HYCOR CORPORATION
-----------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
MARCH 31, 1996 AND 1997
-----------------------
(INFORMATION AS OF SEPTEMBER 30, 1997 AND
-----------------------------------------
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
------------------------------------------------------------------
================================================================================
(9) PATENT AND OTHER ASSETS PURCHASED:
- ---------------------------------------
In June 1996, the Company purchased the patent and other assets of a
liquid sludge and biosolids thickening equipment manufacturer. The agreement
provides, among other things, that a defined royalty of 6-1/4% of sales of the
patented product will be paid with an annual minimum guarantee of $100,000 for
the first ten years, and 2% of sales for the next five years. The costs were as
follows:
<TABLE>
<S> <C>
Inventory $ 63,100
Machinery and equipment 116,900
Patent 700,980
Goodwill 20,000
----------
$ 900,980
==========
</TABLE>
The cost of the patent ($700,980) was determined based on the present
value of the annual minimum payments to be incurred and a loan payable has been
recorded based on this cost.
(10) SUBSEQUENT EVENT - SALE OF COMPANY:
- --------------------------------------------
On September 30, 1997, the shareholders of the Company sold their
shares of the Company to Waterlink, Inc.
(11) ADJUSTMENTS TO UNAUDITED FINANCIAL STATEMENTS AT MARCH 31, 1996 AND
- ----------------------------------------------------------------------------
MARCH 31, 1997:
---------------
Accounting errors resulting in the understatement of liabilities on the
unaudited financial statements as of March 31, 1997 and 1996, were discovered
and corrected by management of the Company during the current year. Accordingly,
the accompanying audited financial statements as of March 31, 1996 and 1997
include the adjustments to correct the accounting errors.
F-13
<PAGE> 16
Waterlink, Inc. and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
BASIS OF PRESENTATION
The Consolidated Balance Sheet of Waterlink, Inc. and Subsidiaries (the
"Company") as of September 30, 1997 included in the Company's Annual
Report on Form 10-K filed December 3, 1997 includes the accounts of
Hycor Corporation ("Hycor"), which was acquired on September 30, 1997.
The following Unaudited Pro Forma Consolidated Statement of Income for the
year ended September 30, 1997 adjusts the Company's historical statement of
income to give effect to the acquisitions completed in fiscal 1997 up to and
including the acquisition of Hycor as if they had occurred as of October 1,
1996.
The pro forma financial statement has been derived in part from the historical
financial statements of Hycor included elsewhere in this filing. In preparing
the pro forma financial statement, the historical financial statements of Hycor
were converted from a March 31 fiscal year to a September 30 fiscal year end.
With regard to the Company, operating results for the year ended September 30,
1997 were derived from the Company's Form 10-K filed on December 3, 1997. The
amounts in the column entitled "Fiscal 1997 Acquisitions" were derived from the
historical financial statements of the following acquired companies for the
periods in fiscal 1997 prior to their respective acquisition by the Company:
Nordic Water Products Group, acquired March 5, 1997; Bioclear Technology, Inc.,
acquired June 27, 1997; Lanco Environmental Products, Inc., acquired June 27,
1997 and Mellegard V.A. Maskiner AB, acquired September 12, 1997.
The Unaudited Pro Forma Consolidated Financial Statement has been prepared by
the Company's management. This pro forma data does not purport to represent the
Company's results of operations had the aforementioned acquisitions been
completed as of the beginning of the period indicated, or project the Company's
results of operations at any future date or for any future period. The
Unaudited Pro Forma Consolidated Financial Data should be read in conjunction
with the Consolidated Financial Statements and notes thereto included in the
Company's Annual Report on Form 10-K filed December 3, 1997.
F-14
<PAGE> 17
WATERLINK, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FISCAL
1997 PRO FORMA
COMPANY ACQUISITIONS HYCOR ADJUSTMENTS PRO FORMA
-------- ------------ -------- ----------- -- -------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net Sales $ 64,699 $24,624 $ 19,241 $ 2,462 (1) $111,026
Cost of sales 40,390 15,753 9,339 1,926 (1) 67,408
-------- -------- -------- ------- -------
Gross profit 24,309 8,871 9,902 536 43,618
Selling, general and
administrative expenses 18,683 6,137 8,206 (588) (2) 32,438
Special management
compensation 2,630 - - - 2,630
Amortization 751 22 62 854 (3) 1,689
-------- -------- -------- ------- -------
Operating income 2,245 2,712 1,634 270 6,861
Other income (expense):
Interest expense (1,281) (120) (78) (2,760) (4) (4,239)
Interest income and
other items, net 263 160 7 - 430
-------- -------- -------- ------- -------
Income before income taxes 1,227 2,752 1,563 (2,490) 3,052
Income taxes 470 679 431 (268) (5) 1,312
-------- -------- -------- ------- -------
Income before extraordinary
item 757 2,073 1,132 (2,222) 1,740
Extraordinary item, net of
income taxes (385) - - - (385)
-------- -------- -------- ------- -------
Net income $ 372 $2,073 $ 1,132 $(2,222) $ 1,355
======== ======== ======== ======= =======
Pro forma net income
per share:
Income before extraordinary
item $ 0.09 $ 0.21
Extraordinary item (0.05) (0.05)
-------- -------
$ 0.04 $ 0.16
======== =======
Number of shares used to compute
pro forma per share data 8,337 8,378
======== =======
</TABLE>
The accompanying notes are an integral part of this financial statement
F-15
<PAGE> 18
Waterlink, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Financial Data
Unaudited Pro Forma Consolidated Statement of Income Adjustments
The Unaudited Pro Forma Consolidated Statement of Income gives effect to the
following adjustments:
(1) To recognize revenue on the percentage of completion method of
accounting at the Nordic Water Products Group.
(2) To adjust selling, general and administrative expenses for certain
adjustments in salaries and benefits to certain key employees at
businesses acquired in fiscal 1997 to levels specified in the
employment agreements entered into as part of the business combinations.
(3) To record amortization of goodwill to be recorded as a result of the
acquisitions over a period of 40 years.
(4) To record interest expense relating to debt assumed to be issued and cash
assumed to be used in connection with the acquisitions.
(5) To adjust income taxes to an effective rate of 43%.
F-16
<PAGE> 1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-29911) pertaining to the Employee Stock Purchase Plan of Waterlink,
Inc.; 1997 Non-Employee Director Stock Option Plan of Waterlink, Inc.;
Waterlink, Inc. Amended and Restated 1995 Stock Option Plan, and the Waterlink,
Inc. 1997 Omnibus Incentive Plan of our report dated December 5, 1997, with
respect to the financial statements of Hycor Corporation included in Amendment
No. 1 of the Waterlink, Inc. Current Report (Form 8-K/A) dated September 30,
1997.
/s/ Pasquesi Sheppard LLC
PASQUESI SHEPPARD LLC
December 10, 1997
Lake Forest, Illinois
