<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): March 25, 1998
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 March 25, 1998 and filed on April 9,
1998 is amended to include the combined financial statements of Aquafine
Engineering Services Limited and Purac Engineering Incorporated 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 Combined Financial Statements of Aquafine
Engineering Services Limited and Purac Engineering, Inc.
Report of Independent Auditors F-1
Combined Profit and Loss Account for the year ended March 31, 1997
and the six months ended September 30, 1997 and 1996 (Unaudited) F-2
Combined Statement of Recognised Gains and Losses for the year ended
March 31, 1997 and the six months ended September 30, 1997 and
1996 (Unaudited) F-3
Combined Balance Sheet at March 31, 1997 and September 30, 1997
(Unaudited) F-4
Combined Statement of Cash Flows for the year ended March 31, 1997
and the six months ended September 30, 1997 and 1996 (Unaudited) F-5
Notes to the Combined Financial Statements F-6
(b) Unaudited Pro Forma Consolidated Financial Data
Basis of Presentation F-18
Unaudited Pro Forma Consolidated Statement of Income for the year ended
September 30, 1997 F-19
Unaudited Pro Forma Consolidated Statement of Income for the six months
ended March 31, 1998 F-20
Notes to Unaudited Pro Forma Consolidated Financial Data F-21
</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: June 5, 1998 By: /s/ Michael J. Vantusko
---------------------------
Michael J. Vantusko
Chief Financial Officer
<PAGE> 3
REPORT OF INDEPENDENT AUDITORS
to the Board of Directors:
Waterlink, Inc.
We have audited the accompanying combined balance sheet of Aquafine Engineering
Services Limited and Purac Engineering, Inc. as at March 31, 1997, and the
related combined profit and loss account, statement of total recognised gains
and losses and statement of cash flows for the year then ended. These combined
financial statements which are expressed in UK pounds sterling are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Aquafine
Engineering Services Limited and Purac Engineering, Inc. at March 31, 1997, and
the combined results of its operations and its combined cash flows for the year
then ended, in conformity with accounting principles generally accepted in the
United Kingdom, which differ in certain respects from those generally accepted
in the United States (see Note 22 of Notes to the Combined Financial
Statements).
Ernst & Young
Chartered Accountants
Cambridge, England
June 4, 1998
F-1
<PAGE> 4
Aquafine Engineering Services Limited and Purac Engineering, Inc.
- --------------------------------------------------------------------------------
COMBINED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
6 months 6 months
Year ended ended ended
March 31, September 30, September 30,
1997 1997 1996
(Unaudited) (Unaudited)
Notes (pound)000 (pound)000 (pound)000
<S> <C> <C> <C> <C>
TURNOVER
Continuing operations 9,004 4,782 3,608
Discontinued operations 1,756 - 1,756
------- ------ ------
2 10,760 4,782 5,364
Cost of sales 2 9,028 3,864 4,584
------- ------ ------
GROSS PROFIT 1,732 918 780
Administrative expenses 2 1,487 869 782
OPERATING PROFIT/(LOSS)
Continuing operations 82 49 (165)
Discontinued operations 163 - 163
------- ------ ------
2, 3 245 49 (2)
Interest receivable 138 39 72
Interest payable and similar charges 6 (135) (42) (63)
------- ------ ------
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION 248 46 7
Tax on profit on ordinary activities 7 - - -
------- ------ ------
PROFIT RETAINED FOR THE PERIOD 14 248 46 7
======= ====== ======
</TABLE>
F-2
<PAGE> 5
Aquafine Engineering Services Limited and Purac Engineering, Inc.
- --------------------------------------------------------------------------------
COMBINED STATEMENT OF RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
6 months 6 months
Year ended ended ended
March 31, September 30, September 30,
1997 1997 1996
(Unaudited) (Unaudited)
(pound)000 (pound)000 (pound)000
<S> <C> <C> <C>
Profit retained for the financial year 248 46 7
Exchange differences on retranslation
of net assets of Purac Engineering, Inc. 17 (10) 7
------------ ------------ ------------
Total recognised gains 265 36 14
============ ============ ============
</TABLE>
F-3
<PAGE> 6
Aquafine Engineering Services Limited and Purac Engineering, Inc.
- --------------------------------------------------------------------------------
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
At At
March 31, September 30,
1997 1997
(Unaudited)
Notes (pound)000 (pound)000
<S> <C> <C> <C>
FIXED ASSETS
Intangible assets 8 14 12
Tangible assets 9 574 598
------ -----
588 610
CURRENT ASSETS
Stocks and work in progress 10 1,947 1,491
Debtors 11 3,080 3,026
Cash at bank and in hand 499 1,971
------ -----
5,526 6,488
CREDITORS: amounts falling due within one year 12 4,425 5,373
------ -----
NET CURRENT ASSETS 1,101 1,115
------ -----
TOTAL ASSETS LESS CURRENT LIABILITIES 1,689 1,725
====== =====
INVESTED CAPITAL 14 1,689 1,725
====== =====
</TABLE>
F-4
<PAGE> 7
Aquafine Engineering Services Limited and Purac Engineering, Inc.
- --------------------------------------------------------------------------------
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
6 months 6 months
Year ended ended ended
March 31, September 30, September 30,
1997 1997 1996
(Unaudited) (Unaudited)
Notes (pound)000 (pound)000 (pound)000
<S> <C> <C> <C> <C>
NET CASH (OUTFLOW)/INFLOW FROM
OPERATING ACTIVITIES 15(a) (770) 1,239 893
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE 3 (25) (28)
CAPITAL EXPENDITURE 15(b) (292) (99) (330)
ACQUISITIONS AND DISPOSALS
Receipts from sale of business 259 - -
-------- -------- -------
NET CASH (OUTFLOW)/INFLOW BEFORE
FINANCING (800) 1,115 535
FINANCING
Repayment of group loan 15(c) (47) - -
-------- -------- -------
(DECREASE)/INCREASE IN CASH 15(c) (847) 1,115 535
======== ======== =======
RECONCILIATION OF NET CASH FLOW TO
MOVEMENT IN NET DEBT
(Decrease)/increase in cash (847) 1,115 535
Repayment of group loan 47 - -
-------- -------- -------
Change in net debt resulting from cash flows (800) 1,115 535
Exchange differences 98 (20) 40
-------- -------- -------
MOVEMENT IN NET DEBT (702) 1,095 575
OPENING NET DEBT 259 (443) 259
-------- -------- -------
CLOSING NET DEBT 15(c) (443) 652 834
======== ======== =======
</TABLE>
F-5
<PAGE> 8
Aquafine Engineering Services Limited and Purac Engineering, Inc.
- --------------------------------------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Information for the period ended September 30, 1997 and September 30, 1996 is
unaudited
1. ACCOUNTING POLICIES
The financial statements are prepared under the historical cost convention
and in accordance with applicable accounting standards.
BASIS OF COMBINATION
The combined financial statements have been prepared to reflect the
combined operations of Aquafine Engineering Services Limited (`AES') and
Purac Engineering, Inc. (`Purac'), being the companies purchased by
Waterlink, Inc. in a transaction consummated on March 25, 1998. During the
periods included in these financial statements the combined operations of
AES and Purac did not constitute a separate group for accounting or
taxation purposes, being ultimately owned by Anglian Water Plc.
These combined financial statements are based on an aggregation of the
audited financial statements of AES and Purac and are expressed in UK
pounds sterling ("(pound)"). There were no transactions, balances or
investments between these companies.
UNAUDITED INTERIM COMBINED FINANCIAL STATEMENTS
The accompanying unaudited combined balance sheet at September 30, 1997 and
profit and loss account and statements of recognised gains and losses and
cash flows for the six months ended September 30, 1997 and September 30,
1996 have been prepared on the same basis as the audited combined
financial statements and, in the opinion of management, include all
adjustments (consisting only of normal and recurring accruals) necessary
to present fairly the financial information set forth therein. The results
of operations for the six month period ended September 30, 1997 are not
necessarily indicative of the results to be expected for the entire
financial year.
FIXED ASSETS
Tangible and intangible fixed assets are initially recorded at cost.
DEPRECIATION
Depreciation is provided on all tangible and intangible fixed assets, other
than freehold land, at rates calculated to write off the cost, less
estimated residual value based on prices prevailing at the date of
acquisition, of each asset evenly over its expected useful life as follows:
Land and buildings - 40 years
Vehicles, mobile plant and computers - 3 to 10 years
Licences and patents - 7 years
FOREIGN CURRENCIES
Companies
Transactions in foreign currencies are recorded at the rate ruling at the
date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are
retranslated at the rate of exchange ruling at the balance sheet date.
All differences are taken to the profit and loss account.
F-6
<PAGE> 9
Aquafine Engineering Services Limited and Purac Engineering, Inc.
- --------------------------------------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Information for the period ended September 30, 1997 and September 30, 1996 is
unaudited
1. ACCOUNTING POLICIES (continued)
FOREIGN CURRENCIES (continued)
Combined financial statements
The balance sheet of Purac is translated from US Dollars ("US$") to (pound)
using the closing rate method at the closing rates shown below. The results
and cash flows of Purac are translated at the average rates shown below.
<TABLE>
<CAPTION>
US$ : (pound)1
Closing Average
<S> <C> <C>
Year ended March 31, 1997 1.6448 1.5933
6 months ended September 30, 1997 1.6117 1.6338
6 months ended September 30, 1996 1.5653 1.5451
</TABLE>
The exchange difference arising on the retranslation of opening net assets
of Purac is taken directly to reserves.
LEASING AND HIRE PURCHASE COMMITMENTS
Assets held under finance leases, which are leases where substantially all
the risks and rewards of ownership have passed to the company, and hire
purchase contracts are capitalised in the balance sheet and are depreciated
over their useful lives. The capital element of future obligations under
the leases and hire purchase contracts are included as liabilities in the
balance sheet.
The interest elements of the rental obligations are charged in the profit
and loss account over the periods of the leases and represent a constant
proportion of the balance of capital repayments outstanding.
Rentals payable under operating leases are charged in the profit and loss
account on a straight line basis over the lease term.
STOCKS AND WORK IN PROGRESS
Stocks are stated at the lower of cost and net realisable value. Cost
includes all costs incurred in bringing each product to its present
location and condition, as follows:
Raw materials, consumables and goods - purchase cost, on a first-in,
for resale first-out basis.
Work in progress and finished goods - cost of direct materials and
labour plus attributable
overheads based on a normal
level of activity.
LONG-TERM CONTRACTS
Contracts fulfilling certain criteria are accounted for as long term
contracts.
Profit on long-term contracts is taken as the work is carried out if the
final outcome can be assessed with reasonable certainty. The profit
included is calculated on a prudent basis to reflect the proportion of the
work carried out at the year end, by recording turnover and related costs
(as defined in Stocks above) as contract activity progresses. Turnover is
calculated as that proportion of total contract value which costs incurred
to date bear to total expected costs for that contract. Revenues derived
from variations on contracts are recognised only when they have been
accepted by the customer. Full provision is made for losses on all
contracts in the year in which they are first foreseen.
All other contracts are accounted for as short term contracts.
F-7
<PAGE> 10
Aquafine Engineering Services Limited and Purac Engineering, Inc.
- --------------------------------------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Information for the period ended September 30, 1997 and September 30, 1996 is
unaudited
1. ACCOUNTING POLICIES (continued)
PENSION COSTS
The Anglian Water Plc Group operates various pension schemes, mainly of the
defined benefit type. As a member of the Anglian Water Plc group, AES
employees received pension benefits under these schemes. Contributions to
the Group pension schemes are charged to the profit and loss account so as
to spread the regular cost of pensions over the average services lives of
employees in accordance with the advice of an independent qualified
actuary. Actuarial surpluses and deficits are amortised, where appropriate,
over the average remaining service lives of employees in proportion to
their expected payroll costs.
DEFERRED TAXATION
Deferred taxation is provided using the liability method on all timing
differences, which are expected to reverse in the future without being
replaced, calculated at the rate at which it is anticipated the timing
differences will reverse.
Deferred taxation assets are only recognised if recovery without
replacement by equivalent debit balances is reasonably certain.
2. ANALYSIS OF TURNOVER AND OPERATING PROFIT/(LOSS)
Turnover, which is stated net of value added tax, represents amounts
invoiced to third parties on completed contracts and, for long term
contracts, is calculated as that proportion of contract value which costs
incurred to date bear to total expected costs for the contract.
Turnover includes sales to Anglian Water plc group companies of (pound)
6,036,000.
<TABLE>
<CAPTION>
Year ended March 31, 1997
Operating
Sales profit
(pound)000 (pound)000
By class of business:
<S> <C> <C>
Design and fabrication 9,004 82
Vehicle and Plant Maintenance 1,756 163
------------ ------------
10,760 245
============ ============
By geographical market:
United Kingdom 8,505
United States 1,503
Rest of World 752
------------
10,760
============
</TABLE>
F-8
<PAGE> 11
Aquafine Engineering Services Limited and Purac Engineering, Inc.
- --------------------------------------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Information for the period ended September 30, 1997 and September 30, 1996 is
unaudited
2. ANALYSIS OF TURNOVER AND OPERATING PROFIT/(LOSS) (continued)
The vehicle and plant maintenance business was discontinued on October 1,
1996 when it was transferred to Powermarque Limited, a fellow subsidiary of
Anglian Water plc.
<TABLE>
<CAPTION>
Cost Administrative
of sales expenses
(pound)000 (pound)000
<S> <C> <C>
Year ended March 31, 1997
Continuing 7,521 1,401
Discontinued 1,507 86
------------ ------------
9,028 1,487
============ ============
</TABLE>
The vehicle and plant maintenance division was transferred to Powermarque
Limited at a value equivalent to the net assets transferred. The net book
values of assets transferred were as follows:
<TABLE>
<CAPTION>
(pound)000
<S> <C>
Fixed assets 317
Stocks 117
Debtors 10
Creditors (185)
------------
259
============
</TABLE>
3. OPERATING PROFIT/(LOSS)
<TABLE>
<CAPTION>
Year ended
March 31,
1997
(pound)000
<S> <C>
This is stated after charging:
Depreciation and amortisation 185
Previous auditors' remuneration - audit 28
- non-audit 10
Operating lease rentals - other 130
Profit on sale of tangible fixed assets 51
</TABLE>
4. DIRECTORS' EMOLUMENTS
<TABLE>
<CAPTION>
Year ended
March 31,
1997
(pound)000
<S> <C>
Contributions to company pension scheme 9
Emoluments 143
------------
152
============
</TABLE>
During the period certain of the AES and Purac directors have been employed
and remunerated as directors or executives of other Group companies in
respect of their services to the Anglian Water plc group as a whole.
F-9
<PAGE> 12
Aquafine Engineering Services Limited and Purac Engineering, Inc.
- --------------------------------------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Information for the period ended September 30, 1997 and September 30, 1996 is
unaudited
5. STAFF COSTS
<TABLE>
<CAPTION>
Year ended
March 31,
1997
(pound)000
<S> <C>
Staff costs:
Wages and salaries 2,419
Social security costs 269
Other pension costs (see note 16 ) 155
-----
2,843
=====
</TABLE>
The monthly average number of employees during the year ended March 31,
1997 was 99.
6. INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
Year ended
March 31,
1997
(pound)000
<S> <C>
Interest payable on bank loans and overdrafts 75
Interest payable on other loans 25
Interest payable to group companies 35
-----
135
=====
</TABLE>
7. TAX ON PROFIT ON ORDINARY ACTIVITIES
No liability to corporation or overseas taxes arose in respect of the
profit for the year due to the availability of tax losses in other group
companies. No provision for deferred taxation is required (see note 13).
8. INTANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Licences/
patents
(pound)000
<S> <C>
Cost:
At April 1, 1996 and March 31, 1997 24
-----
Amortisation:
At April 1, 1996 7
Charge for the year 3
-----
At March 31, 1997 10
-----
Net book amount:
At March 31, 1997 14
=====
At April 1, 1996 17
=====
</TABLE>
F-10
<PAGE> 13
Aquafine Engineering Services Limited and Purac Engineering, Inc.
- --------------------------------------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Information for the period ended September 30, 1997 and September 30, 1996 is
unaudited
9. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Freehold
land and Plant and
buildings equipment Vehicles Total
(pound)000 (pound)000 (pound)000 (pound)000
<S> <C> <C> <C> <C>
Cost:
At April 1, 1996 148 788 409 1,345
Additions 3 289 113 405
Disposals - (55) (64) (119)
Exchange movements - (34) - (34)
Transfers (5) (228) (155) (388)
------ ------ ------ ------
At March 31, 1997 146 760 303 1,209
------ ------ ------ ------
Depreciation:
At April 1, 1996 18 405 175 598
Charge for the year 6 93 83 182
Disposals - (13) (43) (56)
Exchange movements - (18) - (18)
Transfers - (1) (70) (71)
------ ------ ------ ------
At March 31, 1997 24 466 145 635
------ ------ ------ ------
Net book amount:
At March 31, 1997 122 294 158 574
====== ====== ====== ======
At April 1, 1996 130 383 234 747
====== ====== ====== ======
</TABLE>
10. STOCKS AND WORK IN PROGRESS
<TABLE>
<CAPTION>
At At
March 31, September 30,
1997 1997
(Unaudited)
(pound)000 (pound)000
<S> <C> <C>
Raw materials and consumable stores 83 83
Work in progress 1,855 1,397
Finished goods 9 11
----- -----
1,947 1,491
===== =====
</TABLE>
The difference between purchase price or production cost of stocks and
their replacement cost is not material.
F-11
<PAGE> 14
Aquafine Engineering Services Limited and Purac Engineering, Inc.
- --------------------------------------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Information for the period ended September 30, 1997 and September 30, 1996 is
unaudited
11. DEBTORS
<TABLE>
<CAPTION>
At At
March 31, September 30,
1997 1997
(Unaudited)
(pound)000 (pound)000
<S> <C> <C>
Trade debtors 1,573 2,745
Other debtors 165 126
Amounts owned by Anglian Water plc group
undertakings 1,327 111
Prepayments 15 44
----- -----
3,080 3,026
===== =====
</TABLE>
12. CREDITORS: amounts falling due within one year
<TABLE>
<CAPTION>
At At
March 31, September 30,
1997 1997
(Unaudited)
(pound)000 (pound)000
<S> <C> <C>
Bank overdraft 380 746
Trade creditors 1,050 1,320
Payments on account 1,223 1,365
Amounts owed to Anglian Water plc group
undertakings 616 588
Other taxation and social security costs 20 30
Accruals and deferred income 1,103 936
Other creditors 33 388
----- -----
4,425 5,373
===== =====
</TABLE>
13. DEFERRED TAX
There is no provision for deferred tax at March 31, 1997.
The full potential deferred tax asset, calculated under the liability
method at a tax rate of 33% is as follows:
<TABLE>
<CAPTION>
At March 31,
1997
(pound)000
<S> <C>
Depreciation in advance of capital allowances 3
Other timing differences 195
-----
198
=====
</TABLE>
F-12
<PAGE> 15
Aquafine Engineering Services Limited and Purac Engineering, Inc.
- --------------------------------------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Information for the period ended September 30, 1997 and September 30, 1996 is
unaudited
14. RECONCILIATION OF INVESTED CAPITAL
<TABLE>
<CAPTION>
(pound)000
<S> <C>
At April 1, 1996 1,424
Profit for the year 248
Exchange difference recognised in the period 17
-----
At March 31, 1997 1,689
=====
</TABLE>
15. NOTES TO THE STATEMENT OF CASH FLOWS
(a) Reconciliation of operating profit to net cash outflow from operating
activities
<TABLE>
<CAPTION>
Year ended
March 31,
1997
(pound)000
<S> <C>
Operating profit 245
Depreciation and amortisation 185
Decrease in debtors 1,519
Increase in stocks (1,209)
Decrease in creditors (1,459)
Profit on sale of fixed assets (51)
-----
Net cash outflow from operating activities (770)
=====
</TABLE>
(b) Analysis of cash flows for headings netted in the statement of cash
flows
<TABLE>
<CAPTION>
6 months 6 months
Year ended ended ended
March 31, September 30, September 30,
1997 1997 1996
(Unaudited) (Unaudited)
(pound)000 (pound)000 (pound)000
<S> <C> <C> <C>
Returns on investments and servicing of finance
Interest received 138 17 35
Interest paid (135) (42) (63)
---- ---- ----
3 (25) (28)
==== ==== ====
Capital expenditure
Payments to acquire tangible fixed assets (406) (111) (349)
Receipts from sales of tangible fixed assets 114 12 19
---- ---- ----
(292) (99) (330)
==== ==== ====
</TABLE>
F-13
<PAGE> 16
Aquafine Engineering Services Limited and Purac Engineering, Inc.
- --------------------------------------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Information for the period ended September 30, 1997 and September 30, 1996 is
unaudited
15. NOTES TO THE STATEMENT OF CASH FLOWS (continued)
(c) Analysis of net debt
<TABLE>
<CAPTION>
At April 1, Cash Exchange At March 31,
1996 flow differences 1997
(pound)000 (pound)000 (pound)000 (pound)000
<S> <C> <C> <C> <C>
Cash at bank and in hand 2,080 (1,572) (9) 499
Overdrafts (1,166) 725 61 (380)
------ ------ ------ ------
914 (847) 52 119
Loans * (655) 47 46 (562)
------ ------ ------ ------
259 (800) 98 (443)
====== ====== ====== ======
</TABLE>
* Loans are included within amounts owed to group undertakings in creditors
(note 12).
16. PENSION COMMITMENTS
The two principal schemes for the majority of Anglian Water plc UK
employees are the Anglian Water Mirror Image Pension Scheme (AWMIPS) and
the Anglian Water Pension Scheme (AWPS). These schemes are both of the
defined benefit type, with assets held in separately administered funds.
Other schemes of both the defined benefit and defined contribution type
operate in the UK and overseas.
During the year the Schemes' Actuaries undertook valuations of AWMIS and
AWPS, details of which are summarised below:
<TABLE>
<CAPTION>
AWMIS AWPS
Date of valuation March 31, 1996 March 31, 1996
Actuarial method Attained age Projected unit
<S> <C> <C>
Main assumptions:
Excess of investment returns over:
- general salary increases 2.5% 2.5%
- dividend growth 4.5% 4.5%
- annual increases in pensions 4.5% 4.0%
Results:
Market value of assets (pound)250.5m (pound)73.1m
Funding level 137% 113%
</TABLE>
Both schemes are subject to triennial valuations.
F-14
<PAGE> 17
Aquafine Engineering Services Limited and Purac Engineering, Inc.
- --------------------------------------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Information for the period ended September 30, 1997 and September 30, 1996 is
unaudited
17. OTHER FINANCIAL COMMITMENTS
At March 31, 1997 there were the following annual commitments under
non-cancellable operating leases:
<TABLE>
<CAPTION>
At March 31,
1997
(pound)000
<S> <C>
Operating leases which expire:
Within one year -
Between two and five years 130
In over five years -
---
130
===
</TABLE>
18. CONTINGENT LIABILITIES
At March 31, 1997 performance bonds in the normal course of business
amounting to (pound) 197,000 had been entered into.
19. RELATED PARTIES
As wholly owned subsidiaries of Anglian Water Plc, advantage has been
taken of the exemption granted in Financial Reporting Standard 8 not to
disclose related party transactions with other members of the group.
20. ULTIMATE PARENT UNDERTAKING
At March 31, 1997 the ultimate parent company of AES and Purac was Anglian
Water Plc, copies of whose accounts may be obtained from the Company
Secretary, Anglian House, Ambury Road, Huntingdon, Cambridgeshire, England,
PE18 6NZ.
21. POST BALANCE SHEET EVENTS
On March 25, 1998 AES and Purac were purchased by Waterlink (UK) Limited (a
wholly owned subsidiary of Waterlink, Inc.) and Waterlink, Inc.
respectively.
F-15
<PAGE> 18
Aquafine Engineering Services Limited and Purac Engineering, Inc.
- --------------------------------------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Information for the period ended September 30, 1997 and September 30, 1996 is
unaudited
22. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED KINGDOM AND THE UNITED STATES
The combined financial statements are prepared under accounting principles
generally accepted in the United Kingdom (UK GAAP) which differ in certain
respects from United States generally accepted accounting principles (US
GAAP).
The differences which have significant effects on the profit and net assets
of the combined entities are set out below.
Accounting for pension costs
Pension costs based on actuarial assumptions and methods are charged in the
combined financial statements so as to allocate the cost of providing
benefits over the service lives of the employees.
US GAAP prescribes the method of calculation of the net periodic pension
cost, which differs in certain respects from the method used to calculate
pension costs under UK GAAP.
Income taxes
Had tax losses in other Anglian Water plc group companies not been
available, the tax charge in the income statement would have been as set
out below.
Deferred tax
The potential deferred tax asset has not been recognised under UK GAAP,
however, under US GAAP, the AES deferred tax asset does meet the criteria
for recognition.
Discontinued Operations
Discontinued activities comprises the vehicle and plant maintenance
business, the net result of which would be reported after income from
continuing operations under US GAAP.
Reconciliation of net income
<TABLE>
<CAPTION>
6 months 6 months
Year ended ended ended
March 31, September 30, September 30,
1997 1997 1996
(unaudited) (unaudited)
(pound)000 (pound)000 (pound)000
<S> <C> <C> <C>
Net profit as reported 248 46 7
Pension costs 42 12 33
Taxation - stand alone adjustment (117) (52) (76)
Deferred taxation - methodology (28) 11 (1)
- on adjustments 14 4 11
---- ---- ----
Net profit/(loss) as adjusted to accord with
US GAAP 159 21 (26)
==== ==== ====
Comprising profit/(loss) from: continuing activities 38 21 (147)
discontinued activities 121 -- 121
---- ---- ----
159 21 (26)
==== ==== ====
</TABLE>
F-16
<PAGE> 19
Aquafine Engineering Services Limited and Purac Engineering, Inc.
- --------------------------------------------------------------------------------
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Information for the period ended September 30, 1997 and September 30, 1996 is
unaudited
22. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED KINGDOM AND THE UNITED STATES (continued)
Reconciliation of net assets
<TABLE>
<CAPTION>
At At
March September
31, 1997 30, 1997
(pound)000 (pound)000
<S> <C> <C>
Net assets as reported 1,689 1,725
Current creditor: accounting for pension
costs (26) (14)
Taxation - stand alone adjustment (117) (169)
Deferred taxation - methodology 76 87
- on adjustments 9 4
------ ------
Net assets as adjusted to accord
with US GAAP 1,631 1,633
====== ======
</TABLE>
STATEMENT OF CASH FLOWS
The statement of cash flows prepared in accordance with UK GAAP present
substantially the same information as that required under US GAAP. UK and
US GAAP differ, however, with regard to the classification of items within
the statements and as regards the definition of cash.
Under UK GAAP, cash flows are presented separately for operating
activities, returns on investments and servicing of finance, taxation,
investing activities and financing activities. US GAAP, however, requires
only three categories of cash flow activity to be reported: operating,
investing and financing. Cash flows from taxation and returns on
investments and servicing of finance shown under UK GAAP would be included
as operating activities under US GAAP. Under US GAAP, cash would not
include bank overdrafts.
The categories of cash flow activity under US GAAP can be summarised as
follows:
<TABLE>
<CAPTION>
6 months 6 months
Year ended ended ended
March 31, September 30, September 30,
1997 1997 1996
(Unaudited) (Unaudited)
(pound)000 (pound)000 (pound)000
<S> <C> <C> <C>
Cash (outflow)/inflow from operating activities (767) 1,214 865
Cash outflow on investing activities (33) (99) (330)
Cash (outflow)/inflow from financing activities (772) 352 (52)
------ ------ ------
(Decrease)/increase in cash (1,572) 1,467 483
Exchange differences (9) 5 (4)
Opening cash 2,080 499 2,080
------ ------ ------
Closing cash 499 1,971 2,559
====== ====== ======
</TABLE>
F-17
<PAGE> 20
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 March 31, 1998 included in the Company's Form 10-Q for the
quarterly period ended March 31, 1998 filed on May 13, 1998 includes the
accounts of Chemitreat Services, Inc. ("C'treat"), which was acquired on March
2, 1998; and of Aquafine Engineering Services Limited ("AES") and Purac
Engineering, Inc. ("Purac"), both of which were acquired on March 25,
1998. These acquisitions have been accounted for using the purchase method of
accounting. The allocation of the purchase price for these acquisitions is
based on an estimate of the fair market value of the net assets acquired and
is subject to adjustment. To date, no information has been gathered that would
cause the Company to believe that the final purchase price allocations will
be materially different than the preliminary estimates.
The following Unaudited Pro Forma Consolidated Statements of Income for the
year ended September 30, 1997 and the six months ended March 31, 1998 adjust
the Company's historical Statements of Income to give effect to the
acquisitions completed in fiscal 1997 and fiscal 1998 up to and including the
acquisitions of AES and Purac as if they had occurred as of October 1, 1996.
The pro forma financial statements have been derived in part from the
historical combined financial statements of AES and Purac included elsewhere
in this filing. In preparing the pro forma financial statements, the historical
combined financial statements of AES and Purac were converted from a March 31
fiscal year to a September 30 fiscal year end. No material changes, other than
as described in the Notes to Unaudited Pro Forma Consolidated Financial Data,
are required to conform the AES and Purac results to generally accepted
accounting principles in the United States. The exchange rates used to present
the financial information for AES and Purac is located on page F-7.
With regard to the Company, operating results for the year ended September 30,
1997 were derived from the Company's Form S-1 filed on February 12, 1998, and
operating results for the six months ended March 31, 1998 were derived from the
Form 10-Q filed on May 13, 1998. 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; Mellegard V.A. Maskiner
AB, acquired September 12, 1997; and Hycor Corporation, acquired September 30,
1997.
The Unaudited Pro Forma Consolidated Financial Data 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 filing on Form S-1 filed February 12, 1998.
F-18
<PAGE> 21
WATERLINK, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
FISCAL
1997 AES/ PRO FORMA
COMPANY ACQUISITIONS C'TREAT PURAC ADJUSTMENTS PRO FORMA
-------- ------------ -------- ----- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 64,699 $43,865 $ 5,106 $ 15,267 $ 2,740 (1) $131,677
Cost of sales 40,390 25,092 3,011 12,161 1,888 (2) 82,542
-------- -------- -------- --------- ------- -------
Gross profit 24,309 18,773 2,095 3,106 852 49,135
Selling, general and
administrative expenses 18,683 14,343 1,867 2,631 (1,175) (3) 36,349
Special management
compensation 2,630 - - - - 2,630
Amortization 751 84 - - 1,013 (4) 1,848
-------- -------- -------- --------- ------- -------
Operating income 2,245 4,346 228 475 1,014 8,308
Other income (expense):
Interest expense (1,281) (198) (2) (176) (3,473) (5) (5,130)
Interest income and
other items, net 263 167 - 218 - 648
-------- -------- -------- --------- ------- -------
Income before income taxes 1,227 4,315 226 517 (2,459) 3,826
Income taxes 470 1,110 24 - (74) (6) 1,530
-------- -------- -------- --------- ------- -------
Income before extraordinary
item 757 3,205 202 517 (2,385) 2,296
Extraordinary item, net of
income taxes (385) - - - - (385)
-------- -------- -------- --------- ------- -------
Net income $ 372 $3,205 $ 202 $ 517 $(2,385) $ 1,911
======== ======== ======== ========= ======= =======
Pro forma net income
per share:
Basic
Income before extraordinary
item $ 0.15 $ 0.44
Extraordinary item (0.08) (0.07)
-------- -------
$ 0.07 $ 0.37
======== =======
Assuming Dilution:
Income before extraordinary
item $ 0.10 $ 0.29
Extraordinary item (0.05) (0.05)
-------- -------
$ 0.05 $ 0.24
======== =======
Number of shares used to compute
pro forma per share data:
Basic 4,924 5,207
Assuming Dilution: 7,804 8,087
</TABLE>
The accompanying notes are an integral part of this financial statement
F-19
<PAGE> 22
WATERLINK, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
AES/ PRO FORMA
COMPANY C'TREAT PURAC ADJUSTMENTS PRO FORMA
-------- ------------ ------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net Sales $ 59,330 $ 1,903 $ 7,317 $ 1,094 (1) $ 69,644
Cost of sales 37,210 1,119 5,492 751 (2) 44,572
-------- -------- -------- ------- --------
Gross profit 22,120 784 1,825 343 25,072
Selling, general and
administrative expenses 16,752 1,196 1,127 (537) (3) 18,538
Amortization 842 - - 79 (4) 921
-------- -------- -------- ------- --------
Operating income 4,526 (412) 698 801 5,613
Other income (expense):
Interest expense (719) - (55) (359) (5) (1,133)
Interest income and
other items, net (19) - 118 - 99
-------- -------- -------- ------- --------
Income before income taxes 3,788 (412) 761 (442) 4,579
Income taxes 1,556 1 - 275 (6) 1,832
-------- -------- -------- ------- --------
Net income $ 2,232 $ (413) $ 761 $ 167 $ 2,747
======== ======== ======== ======= ========
Pro forma net income
per share:
Basic $ 0.19
Assuming Dilution $ 0.18 $ 0.23
$ 0.22
Number of shares used to compute
pro forma per share data:
Basic 11,943 11,943
Assuming Dilution: 12,700 12,700
</TABLE>
The accompanying notes are an integral part of this financial statement
F-20
<PAGE> 23
Waterlink, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Financial Data
Unaudited Pro Forma Consolidated Statements of Income Adjustments
The Unaudited Pro Forma Consolidated Statements of Income give effect to the
following adjustments:
(1) To recognize revenue on the percentage of completion method of
accounting at the Nordic Water Products Group, AES and Purac to
conform with Waterlink's accounting policy. These companies
previously utilized the completed contract method for statutory
accounting purposes.
(2) To adjust cost of sales for the following items:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
September 30, 1997 March 31, 1998
------------------ ----------------
<S> <C> (In thousands) <C>
Percentage of completion method
of accounting at the Nordic
Water Products Group, AES
and Purac $ 2,092 $ 959
Reclassification of commissions
and other expenses to selling,
general and administrative
expenses (204) (208)
---------- ----------
$ 1,888 $ 751
========== ==========
</TABLE>
(3) To adjust selling, general and administrative expenses for the following
items:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
September 30, 1997 March 31, 1998
------------------ ----------------
<S> <C> (In thousands) <C>
To adjust wages, benefits and
management fees to levels
specified in the employment and
management agreements entered
into as part of the business
combinations $ (1,282) $ (700)
Reclassification of commissions
and other expenses from cost
of sales 204 208
Depreciation and other expenses
versus rent on property,
acquired as part of the
acquisition of AES (97) (45)
---------- ----------
$ (1,175) $ (537)
========== ==========
</TABLE>
(4) To record amortization of goodwill to be recorded as a result of the
acquisitions over a period of 40 years.
(5) To record interest expense relating to debt assumed to be issued and cash
assumed to be used in connection with the acquisitions.
(6) To adjust income taxes to an effective rate of 40%.
F-21
<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 June 4, 1998,
with respect to the combined financial statements of Aquafine Engineering
Services Limited and Purac Engineering, Inc. included in Amendment No. 1
of the Waterlink, Inc. Current Report (Form 8-K/A) dated March 25, 1998.
Ernst & Young
Chartered Accountants
June 4, 1998
Cambridge, England
