<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 4, 1995
REGISTRATION NO. 33-58141
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
UNITED STATES FILTER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 33-0266015
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
73-710 FRED WARING DRIVE PALM DESERT, CALIFORNIA 92260 (619) 340-0098
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DONALD L. BERGMANN
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY UNITED STATES FILTER CORPORATION
73-710 FRED WARING DRIVE PALM DESERT, CALIFORNIA 92260 (619) 340-0098
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
WILLIAM J. FEIS, ESQ. TROY & GOULD ROD A. GUERRA, JR., ESQ. SKADDEN, ARPS,
PROFESSIONAL CORPORATION 1801 CENTURY SLATE, MEAGHER & FLOM 300 SOUTH GRAND
PARK EAST, SUITE 1600 LOS ANGELES, AVENUE, SUITE 3400 LOS ANGELES,
CALIFORNIA 90067(310) 553-4441 CALIFORNIA 90071 (213) 687-5000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+ REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+ SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+ OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+ BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+ THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+ SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+ UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 4, 1995
PROSPECTUS
, 1995
5,000,000 SHARES
[LOGO OF U.S. FILTER APPEARS HERE]
UNITED STATES FILTER CORPORATION
COMMON STOCK
All of the 5,000,000 shares of Common Stock offered (the "Offering") hereby
are being sold by United States Filter Corporation. The Company's Common Stock
is traded on the New York Stock Exchange under the symbol "USF." On April 3,
1995, the last reported sale price for the Common Stock was $15.50 per share.
See "Price Range of Common Stock."
The net proceeds of the Offering will be used to repay indebtedness incurred
in connection with the acquisition of The Permutit Group (as defined herein)
and to be incurred in connection with the pending acquisition of Arrowhead
Industrial Water, Inc.; the balance, if any, will be used for working capital,
capital expenditures and general corporate purposes, including possible future
acquisitions. See "Use of Proceeds" and "Recent and Pending Acquisitions and
Joint Venture."
SEE "INVESTMENT CONSIDERATIONS" FOR CERTAIN INFORMATION RELATING TO THE
OFFERING.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................... $ $ $
Total(3)..................................... $ $ $
- --------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $560,000, payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
750,000 additional shares of Common Stock on the same terms and conditions
as set forth above, to cover over-allotments, if any. To the extent that
the option is exercised, the Underwriters will offer the additional shares
at the Price to the Public shown above. If the option is exercised in full,
the total Price to the Public, Underwriting Discounts and Commissions, and
Proceeds to the Company will be $ , $ and $ , respectively.
See "Underwriting."
The shares of Common Stock are offered by the several Underwriters when, as
and if issued to and accepted by them, subject to certain conditions, including
their right to withdraw, cancel or reject orders in whole or in part. It is
expected that delivery of the share certificates will be made in New York, New
York on or about , 1995.
DONALDSON, LUFKIN & JENRETTE PAINEWEBBER INCORPORATED
SECURITIES CORPORATION
<PAGE>
[PHOTOS TO COME]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including the financial statements and notes thereto, appearing
elsewhere in this Prospectus. Except as otherwise specified, all information in
this Prospectus has been adjusted to reflect a 3-for-2 split of the Common
Stock effective December 5, 1994, and a 1-for-75 reverse split of the Common
Stock effective February 25, 1991, and assumes no exercise of the Underwriters'
over-allotment option to purchase up to 750,000 additional shares of Common
Stock.
THE COMPANY
The Company is a leading provider of water treatment systems, services and
replacement parts to industrial and commercial customers of the multi-billion
dollar global water treatment industry. The Company offers what it believes to
be the industry's broadest line of treatment systems and services, integrating
a wide spectrum of proven technologies designed to provide cost-effective water
treatment solutions. The Company provides a single-source solution to its
industrial, commercial and municipal customers by identifying and evaluating
water purification and wastewater treatment needs, conducting treatability
studies, and designing, manufacturing, selling, installing and servicing water
treatment systems. As of March 31, 1995, the Company had an installed base of
more than 60,000 systems in the United States, Europe, Latin America and the
Far East. The Company also sells replacement parts and consumables, such as
membranes and carbon, that support its systems. In addition, through its global
network of 94 sales and service facilities, the Company is a leading provider
of service deionization ("SDI") in the United States and Western Europe, and
provides ongoing service and maintenance to its customers. See "Business--
Principal Products and Services." The Company also offers outsourcing options
to its customers, including Company- operated water purification and wastewater
treatment systems and provision of water by the gallon. The Company has grown
internally and through the strategic acquisition and integration of numerous
domestic and international water treatment companies. The Company's revenues
have grown from $42.6 million for the fiscal year ended March 31, 1991 to
$180.4 million for the fiscal year ended March 31, 1994, representing a
compound annual growth rate of 61.8%. The Company generated $194.5 million in
revenues for the nine months ended December 31, 1994 as compared to $118.8
million for the comparable period of the prior year, representing a growth rate
of 63.7%. See "Selected Consolidated Financial Data."
Due to global population growth, economic expansion and the limited supply of
usable water, water has become an increasingly scarce resource. In addition to
the need for potable water, industrial and commercial companies require
purified water for most manufactured products, whether as an ingredient in the
finished product or as part of the manufacturing process. Furthermore,
government regulations require most industrial and commercial companies and
municipalities to treat their outgoing wastewater. As a result, many companies
require increasingly sophisticated solutions to their water purification and
wastewater treatment needs. The water treatment industry is highly fragmented,
with numerous regional participants who are limited in their geographic scope.
Most participants in the industry provide a limited number of treatment
technologies, a limited number of products or services, or focus on a
particular industry. While the number of industry participants ranges from a
few large companies to hundreds of small local companies, there are few
companies in the industry that offer a full range of water treatment equipment,
technologies and services.
The Company's customer base includes a broad range of major industrial and
commercial companies, such as Abbott Laboratories, U.S. Steel, Coca-Cola,
Advanced Micro Devices, Chrysler, Eli Lilly, Minnesota Mining and Manufacturing
Company, Procter & Gamble and Southern California Edison. The Company believes
it provides its customers with a unique full-service and cost-effective
approach through a combination of its wide range of products and services, its
breadth of technologies and its global network of local sales and service
facilities.
3
<PAGE>
The Company has developed a strategy designed to expand its operations,
achieve earnings growth and capitalize on its position as a leading full-
service provider of water treatment systems and services. The Company's
strategy is as follows:
. Provide single-source water treatment solutions to industrial, commercial
and municipal customers
. Offer the broadest and most up-to-date range of proven treatment
technologies
. Pursue acquisitions that provide strategic fit and contribute to the
Company's growth
. Expand the Company's presence in the build, own and operate segment
. Achieve cost savings, synergies and economies of scale in its operations
Since July 1991, the Company has acquired and integrated a number of
businesses with strong market positions and substantial expertise in the
design, manufacture and operation of systems for the filtration, purification
and treatment of water and wastewater. These acquisitions have helped the
Company achieve its objective of being a leading single-source provider of
water purification and wastewater treatment solutions. Through integration of
these operations, by sharing technologies and experience and by cross-selling a
broad product line through an expanded marketing and sales organization, the
Company believes it is well positioned to meet the needs of current and
prospective customers. On April 3, 1995 the Company acquired The Permutit Group
for approximately $10 million in cash. Currently pending is the acquisition of
Arrowhead Industrial Water, Inc. (approximately $80 million in cash) and a
joint venture with Nalco Chemical Company. See "Recent and Pending Acquisitions
and Joint Venture."
ARROWHEAD INDUSTRIAL WATER, INC.
Through its nine offices, Arrowhead Industrial Water, Inc. ("AIW") is a
leading independent supplier of owned and operated on-site industrial water
treatment systems, as well as a leading provider of mobile water treatment
services in North America. The Company believes that the acquisition of AIW
will enhance its ability to provide outsourced water purification systems and
services for which the Company believes there is growing demand. In addition,
the Company believes that the acquisition of AIW will significantly enhance its
technological and service capabilities, expand its service network and provide
opportunities to achieve certain synergies, including the use of its
engineering and manufacturing capabilities to design and build AIW water
treatment equipment. The Company believes AIW's service capabilities and
reputation will complement the Company's other water purification and treatment
services. The proposed acquisition of AIW is subject to certain conditions,
including regulatory approval and satisfactory completion of due diligence. The
Company currently anticipates consummation of the AIW acquisition in late
April, although there can be no assurance that all of the conditions precedent
to the acquisition will be satisfied.
NALCO JOINT VENTURE
In conjunction with its acquisition of AIW, the Company has entered into a
memorandum of intent to form a joint venture (the "Nalco JV") with Nalco
Chemical Company ("Nalco"), pursuant to which the Nalco JV will acquire or
otherwise have the right to certain assets of AIW. As part of the Nalco JV, it
is currently contemplated that Nalco will contribute approximately $16 million
toward the Company's cost to acquire AIW. The Nalco JV contemplates utilization
of Nalco's sales force and access to its extensive customer base. The
consummation of the Nalco JV is subject to a number of conditions, including
further negotiation of the terms and conditions and execution of a definitive
agreement. There can be no assurance that the parties will be able to reach
agreement on definitive terms or that the conditions precedent to the
consummation of the Nalco JV will be satisfied.
4
<PAGE>
THE PERMUTIT GROUP
On April 3, 1995 the Company acquired The Permutit Group. Through its 10
offices, The Permutit Group has a strong position in the United Kingdom
("U.K."), Australian and New Zealand markets in ion exchange and membrane
technology. The Permutit Group offers a range of products, including pre-
engineered water treatment systems for the pharmaceutical, laboratory and
chemical markets and other commercial customers. The Company believes that The
Permutit Group's comprehensive service and SDI network will complement the
Company's already strong presence in Western Europe and enhance its presence in
the Far East.
Upon integration of these acquisitions, the Company expects to achieve cost
savings through rationalization of operations and implementation of strict cost
controls and standardized operating procedures. Additionally, the Company
believes these acquisitions will enable it to continue to achieve economies of
scale, such as enhanced purchasing power and increased asset utilization.
The Company's principal executive offices are located at 73-710 Fred Waring
Drive, Suite 222, Palm Desert, California 92260. The Company's telephone number
is (619) 340-0098. References herein to the Company shall mean United States
Filter Corporation and its subsidiaries, unless the context requires otherwise.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company....................... 5,000,000 shares
Common Stock to be outstanding
after the Offering........... 20,219,066 shares (1)
Use of proceeds............... To repay indebtedness incurred in connection
with the acquisition of The Permutit Group and
to be incurred in connection with the pending
acquisition of Arrowhead Industrial Water, Inc.;
the balance, if any, will be used for working
capital, capital expenditures and general corpo-
rate purposes, including possible future acqui-
sitions.
New York Stock Exchange
symbol........................ USF
</TABLE>
- --------
(1) Based on shares of Common Stock outstanding as of March 31, 1995. Does not
include 1,703,204 shares issuable upon exercise of stock options
outstanding at an average exercise price of $12.70 per share of Common
Stock as of such date and additional shares reserved for issuance upon
exercise of options available for grant under the Company's stock option
plans, 1,597,777 shares issuable upon conversion at the rate of 1.5 shares
of Common Stock per share of Convertible Preferred Stock, 2,926,829 shares
issuable upon conversion of convertible debentures at a conversion price of
$20.50 per share of Common Stock, and 2,500,000 shares issuable upon
exercise of warrants, at an exercise price of $18.00 per share of Common
Stock, that were issued with $45,000,000 of subordinated notes. See
"Description of Capital Stock" and Note 15 of Notes to Consolidated
Financial Statements.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
As a part of its strategy, the Company has acquired and intends to continue
to acquire businesses that provide the Company with specific technologies,
products and services, penetration into certain industries and geographic areas
and an expanded customer base. During the past four years, the Company has
acquired a number of businesses, helping the Company achieve its objective of
being a single-source provider of water purification and wastewater treatment
solutions.
The Summary Consolidated Financial Data is qualified in its entirety by and
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
In July 1994, the Company acquired Liquipure Technologies, Inc. ("Liquipure")
by merger, issuing 1,852,221 shares of the Company's Common Stock for all of
the outstanding common and preferred shares of Liquipure. In addition, the
Company issued 45,000 shares of its Common Stock to one of the shareholders of
Liquipure in satisfaction of a $700,000 loan, plus accrued interest. This
acquisition has been accounted for as a pooling of interests and, accordingly,
the historical consolidated financial data for all periods presented have been
restated to include the accounts and operations of Liquipure.
6
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, (1) DECEMBER 31, (1)
------------------------------------------------- -----------------
1990 1991 1992 (2) 1993 (3) 1994 (4) 1993 (4) 1994 (5)
------- ------- -------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................ $35,792 $42,624 $62,840 $128,376 $180,421 $118,812 $194,453
Gross profit............ 9,249 12,844 14,581 34,480 47,610 31,501 55,289
Operating income (loss). (2,481) (1,848) (6,290) 648 (4,874) 2,372 9,470
Interest expense........ 824 763 1,016 1,327 2,077 1,091 3,632
Income (loss) before
extraordinary item..... (2,689)(6) (2,919) (6,587) (338) (2,541) 979 5,423
Net income (loss) (7)... (2,468) (2,508) (6,587) 67 (2,541) 979 5,423
Net income (loss) per
common share (7)(8)(9). $ (0.60)(6) $ (0.45) $ (0.88) $ (0.12) $ (0.26) $ 0.04 $ 0.33
Weighted average number
of common shares
outstanding (9)........ 4,114 5,593 7,846 10,095 12,453 11,767 14,881
</TABLE>
The historical consolidated financial data for all periods presented has been
restated to include the accounts and operations of Liquipure, which was merged
with the Company in July 1994 and accounted for as a pooling of interests.
Separate results of operations of the combined entities for the years ended
March 31, 1990, 1991, 1992, 1993 and 1994 and the nine months ended December
31, 1993 and 1994 are presented below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, DECEMBER 31,
----------------------------------------------- ---------------------
1990 1991 1992(2) 1993(3) 1994(4) 1993(4) 1994(5)(10)
------- ------- ------- -------- -------- -------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Company (as previously
reported).............. $25,239 $23,249 $41,238 $101,397 $147,870 $ 95,015 $194,453
Liquipure............... 10,553 19,375 21,602 26,979 32,551 23,797 --
------- ------- ------- -------- -------- -------- --------
Combined................ $35,792 $42,624 $62,840 $128,376 $180,421 $118,812 $194,453
======= ======= ======= ======== ======== ======== ========
GROSS PROFIT:
Company (as previously
reported).............. $ 6,045 $ 7,213 $ 8,692 $ 27,166 $ 39,046 $ 24,859 $ 55,289
Liquipure............... 2,875 5,631 5,889 7,314 8,564 6,642 --
------- ------- ------- -------- -------- -------- --------
Combined................ $ 8,920 $12,844 $14,581 $ 34,480 $ 47,610 $ 31,501 $ 55,289
======= ======= ======= ======== ======== ======== ========
OPERATING INCOME (LOSS):
Company (as previously
reported).............. $ 741 $ 1,416 $(4,165) $ 4,708 $ 2,089 $ 4,065 $ 9,470
Liquipure............... (3,222) (3,264) (2,125) (4,060) (6,963) (1,693) --
------- ------- ------- -------- -------- -------- --------
Combined................ $(2,481) $(1,848) $(6,290) $ 648 $ (4,874) $ 2,372 $ 9,470
======= ======= ======= ======== ======== ======== ========
NET INCOME (LOSS):
Company (as previously
reported)(7)........... $ 383(6) $ 899 $(3,964) $ 4,402 $ 4,986 $ 3,266 $ 5,423
Liquipure............... (2,851) (3,407) (2,623) (4,335) (7,527) (2,287) --
------- ------- ------- -------- -------- -------- --------
Combined................ $(2,468) $(2,508) $(6,587) $ 67 $ (2,541) $ 979 $ 5,423
======= ======= ======= ======== ======== ======== ========
NET INCOME (LOSS) PER
COMMON SHARE:(7)(8)(9)
As previously reported.. $ 0.17(6) $ 0.24 $ (0.71) $ 0.38 $ 0.41 $ 0.27 $ 0.33
======= ======= ======= ======== ======== ======== ========
As restated............. $ (0.60) $ (0.45) $ (0.88) $ (0.12) $ (0.26) $ 0.04 $ 0.33
======= ======= ======= ======== ======== ======== ========
</TABLE>
- -------
Footnotes, which are applicable to both tables, are included on the following
page.
7
<PAGE>
(1) The historical consolidated financial data for all periods presented has
been restated to include the accounts and operations of Liquipure, which
was merged with the Company in July 1994 and accounted for as a pooling of
interests.
(2) Includes eight months of results of Lancy Waste Management Systems (now
U.S. Filter, Inc., Warrendale, PA), acquired July 31, 1991, and three
months of results of Alcoa Separations Technology, Inc. ("ASTI"), acquired
from Aluminum Company of America ("Alcoa") January 6, 1992. Each of these
acquisitions was accounted for as a purchase. Losses from ASTI (which had
operated at a loss in each of the prior three years) since its acquisition
and the effect of the acquisition on the Company's existing operations
contributed significantly to the Company's loss for the fiscal year ended
March 31, 1992. As a result of such losses incurred by ASTI and certain
purchase accounting adjustments, and pursuant to the terms of the ASTI
acquisition agreement, an acquisition note payable to Alcoa was reduced by
$5,000,000. Such reduction in the note was treated as a purchase price
adjustment and as such did not affect the Company's results of operations.
See Note 9 of Notes to Consolidated Financial Statements.
(3) Includes twelve months of results of Societe des Ceramiques Techniques
S.A. ("SCT"), acquired April 1, 1992, and three months of results of The
Permutit Company, Inc., a United States company acquired January 5, 1993,
accounted for as purchases. See Note 9 of Notes to Consolidated Financial
Statements.
(4) Includes four months and one month of results of Ionpure Technologies
Corp. ("Ionpure"), acquired December 1, 1993 and accounted for as a
purchase, for the year ended March 31, 1994 and nine months ended December
31, 1993, respectively. Selling, general and administrative expenses for
the year ended March 31, 1994 reflect four months of integration of
Ionpure and certain charges totalling $2,359,000 related to the
rationalization of certain wastewater operations. See Note 9 of Notes to
Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Twelve Months
Ended March 31, 1994 Compared with Twelve Months Ended March 31, 1993."
(5) Includes the results of operations of Smogless, Crouzat, Sation, Seral and
Ceraflo from the dates of their respective acquisitions, accounted for as
purchases. See Note 9 of Notes to Consolidated Financial Statements.
(6) Includes income from discontinued operations of approximately $270,000,
resulting primarily from the sale of BCL Associates, Inc. ("BCL") at a
gain in June 1989, after the adoption by the Company in February 1988 of a
formal plan to dispose of the operations of BCL.
(7) Includes extraordinary items of $221,000 and $411,000 for the fiscal years
ended March 31, 1990 and 1991, respectively, attributable to utilization
of net operating loss carryforwards, and an extraordinary gain of $405,000
for fiscal year ended March 31, 1993 for forgiveness of debt in connection
with the buyout of a capital lease obligation.
(8) Amounts are after (i) dividends on the Series A Preferred Stock of
$165,000 for the fiscal year ended March 31, 1992, $660,000 for the fiscal
year ended March 31, 1993, $715,000 for the fiscal year ended March 31,
1994 and $537,000 for the nine months ended December 31, 1993 and 1994 and
(ii) accretion on the Series A Preferred Stock, a noncash accounting
adjustment required by Securities and Exchange Commission Staff Accounting
Bulletin No. 68 ("SAB 68"), in the amounts of $154,000 for the fiscal year
ended March 31, 1992 and $617,000 for the fiscal year ended March 31,
1993. As of April 1, 1993, the Company and the holder of the Series A
Preferred Stock agreed to a fixed dividend of $715,000 per year on the
Series A Preferred Stock, thus eliminating the increasing rate and,
therefore, the accretion of dividends pursuant to SAB 68.
(9) Reflects a 3-for-2 split of the Common Stock effective December 5, 1994.
(10) The financial data for the nine months ended December 31, 1994 include
three months of results of Liquipure prior to the merger and six months of
results of Liquipure after the merger. In addition, the net income (loss)
per common share for the nine months ended December 31, 1994 reflects the
issuance of 1,852,221 shares of Common Stock in conjunction with the
Liquipure merger.
8
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial data presents pro forma
combined statement of operations data for the fiscal year ended March 31, 1994
and the nine months ended December 31, 1994, after giving effect to the pending
acquisition of AIW and the acquisition of The Permutit Group (the
"Acquisitions") as if they had been consummated as of the beginning of the
respective periods presented. The Company's fiscal year ends on March 31 and
AIW's fiscal year ends on December 31. Pro forma data for the year ended
March 31, 1994 combines the results of the Company for the year ended March 31,
1994 with the results of AIW for the year ended December 31, 1993, and pro
forma data for the nine months ended December 31, 1994 combines the results of
the Company and AIW for such nine-month period. The Permutit Group's fiscal
year ends on March 31 and, as such, the pro forma data combines the results of
the Company and The Permutit Group for such twelve- and nine-month periods.
The pro forma data is based on the historical combined statements of the
Company, AIW and The Permutit Group, giving effect to the Acquisitions under
the purchase method of accounting and the assumptions and adjustments outlined
in the accompanying Notes to Pro Forma Combined Financial Information. Under
the purchase method of accounting, assets acquired and liabilities assumed are
recorded at their estimated fair value at the dates of the Acquisitions. The
pro forma adjustments reflected in the following pro forma data are estimates
and may differ from the actual adjustments when they become known. The
unaudited pro forma combined financial information assumes (i) an acquisition
price of approximately $80 million for AIW and approximately $10 million for
The Permutit Group; and (ii) the borrowing of approximately $80 million to fund
the Acquisitions.
The As Adjusted column presented below gives effect to the proposed Offering
and the anticipated application of the net proceeds therefrom. See "Use of
Proceeds." Except as described in the preceding sentence, the pro forma data as
presented does not give effect to the proposed Offering or the Nalco JV.
The pro forma data is provided for comparative purposes only. It does not
purport to be indicative of the results that actually would have occurred if
the Acquisitions had been consummated on the dates indicated or that may be
obtained in the future. The pro forma combined financial data should be read in
conjunction with the notes thereto and the audited financial statements of AIW
and The Permutit Company Limited (a member of The Permutit Group) and the notes
thereto included elsewhere herein and the audited consolidated financial
statements of the Company and the notes thereto also included elsewhere herein.
<TABLE>
<CAPTION>
AS ADJUSTED
-----------------
YEAR ENDED NINE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 1994 DECEMBER 31, 1994 DECEMBER 31, 1994
-------------- ----------------- -----------------
(in thousands, except per share data)
<S> <C> <C> <C>
PRO FORMA COMBINED STATE-
MENT OF OPERATIONS DATA:
Revenues................... $238,519 $241,220 $241,220
Gross profit............... 65,082 70,583 70,583
Operating income (loss).... (7,957) 11,010 11,010
Interest expense........... (10,186) (9,697) (4,306)
Net income (loss).......... $(13,319) $ 2,130 $ 6,011
======== ======== ========
Net income (loss) per com-
mon share................. $ (1.13) $ 0.11 $ 0.27
======== ======== ========
</TABLE>
9
<PAGE>
INVESTMENT CONSIDERATIONS
Prospective investors should carefully consider the following factors
relating to the business of the Company and the Offering, together with the
information and financial data set forth elsewhere in this Prospectus, before
purchasing shares of Common Stock offered hereby.
ACQUISITION STRATEGY
Since 1991, the Company has pursued a strategy of identifying and acquiring
companies with complementary products or services that could be expected to
enhance the Company's operations. This acquisition strategy entails the
potential risks inherent in assessing the value, strengths, weaknesses and
potential profitability of acquisition candidates and in integrating the
operations of acquired companies. Although the Company generally has been
successful in pursuing these acquisitions, there can be no assurance that
acquisition opportunities will continue to be available, that the Company will
have access to the capital required to finance potential acquisitions, that the
Company will continue to acquire businesses or that any business acquired by
the Company will be integrated successfully into the Company's operations or
prove profitable.
The Company has made and expects it will continue to make acquisitions and to
obtain contracts in Europe, Latin America and other areas outside the United
States. While these activities may provide important opportunities for the
Company to offer its products and services internationally, they also entail
the risks associated with doing business in foreign countries, including the
risk of currency fluctuations and social, political and economic instability.
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of senior
management, in particular Richard J. Heckmann, its Chairman, President and
Chief Executive Officer. Should any of the senior managers be unable to
continue in their present roles, the Company's prospects could be adversely
affected. See "Management."
PROFITABILITY OF FIXED PRICE CONTRACTS
A significant portion of the Company's revenues are generated under fixed
price contracts. To the extent that original cost estimates are inaccurate,
costs to complete increase, delivery schedules are delayed or progress under a
contract is otherwise impeded, revenue recognition and profitability from a
particular contract may be adversely affected. The Company routinely records
upward or downward adjustments with respect to fixed price contracts due to
changes in estimates of costs to complete such contracts. There can be no
assurance that future downward adjustments will not be material. See Note 1 of
Notes to Consolidated Financial Statements.
CYCLICALITY OF CAPITAL EQUIPMENT SALES
The sale of capital equipment within the water treatment industry is cyclical
and influenced by various economic factors including interest rates and general
fluctuations of the business cycle. The Company's revenues from capital
equipment sales were 63% of total revenues for the fiscal year ended March 31,
1994. While the Company sells capital equipment to customers in diverse
industries and in domestic and international markets, cyclicality of capital
equipment sales and instability of general economic conditions could have an
adverse effect on the Company's revenues and profitability.
POTENTIAL ENVIRONMENTAL RISKS
The Company's business and products may be significantly influenced by the
constantly changing body of environmental laws and regulations, which require
that certain environmental standards be met and impose
10
<PAGE>
liability for the failure to comply with such standards. While the Company
endeavors at each of its facilities to assure compliance with environmental
laws and regulations, there can be no assurance that the Company's operations
or activities, or historical operations by others at the Company's locations,
will not result in civil or criminal enforcement actions or private actions
that could have a material adverse effect on the Company. In particular, the
Company's activities as owner and operator of a hazardous waste treatment and
recovery facility are subject to stringent laws and regulations and compliance
reviews. Failure of this facility to comply with those regulations could result
in substantial fines and the suspension or revocation of the facility's
hazardous waste permit. In addition, to some extent, the liabilities and risks
imposed by such environmental laws as affect the Company's customers may
adversely impact demand for the Company's products or services or impose
greater liabilities and risks on the Company, which could also have an adverse
effect on the Company's competitive or financial position. See "Business--
Environmental Regulation."
COMPETITION
The water purification and wastewater treatment industry is fragmented and
highly competitive. The Company competes with many domestic and international
companies in its global markets. The principal methods of competition in the
markets in which the Company competes are price, technology, service, product
specifications, customized design, product knowledge and reputation, ability to
obtain sufficient performance bonds, timely delivery, the relative ease of
system operation and maintenance, and the prompt availability of replacement
parts. In the municipal contract bid process, pricing and ability to meet bid
specifications are the primary considerations. While no competitor is
considered dominant, there are competitors that are larger and have
significantly greater resources than the Company, which, among other things,
could be a competitive disadvantage in securing certain projects.
TECHNOLOGICAL AND REGULATORY CHANGE
The water purification and wastewater treatment business is characterized by
changing technology, competitively imposed process standards and regulatory
requirements, each of which influences the demand for the Company's products
and services. Changes in regulatory or industrial requirements may render
certain of the Company's purification and treatment products and processes
obsolete. Acceptance of new products may also be affected by the adoption of
new government regulations requiring stricter standards. The Company's ability
to anticipate changes in technology and regulatory standards and to
successfully develop and introduce new and enhanced products on a timely basis
will be a significant factor in the Company's ability to grow and to remain
competitive. There can be no assurance that the Company will be able to achieve
the technological advances that may be necessary for it to remain competitive
or that certain of its products will not become obsolete. In addition, the
Company is subject to the risks generally associated with new product
introductions and applications, including lack of market acceptance, delays in
development or failure of products to operate properly. See "Business--
Competition" and "--Research and Development."
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Company's Common Stock could be adversely affected by
the availability for sale of shares held by the current stockholders of the
Company, including 7,735,997 shares outstanding or issuable upon conversion of
other securities of the Company that are currently registered under three shelf
registration statements, and 1,496,847 shares beneficially owned on March 31,
1995 by directors and executive officers of the Company, which, upon expiration
of 90 days after the date of this Prospectus, may be sold, subject, in the case
of affiliates, to the volume and manner of sale limitations of Rule 144 adopted
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Shares Eligible for Future Sale" and "Underwriting."
11
<PAGE>
RECENT AND PENDING ACQUISITIONS AND JOINT VENTURE
ARROWHEAD INDUSTRIAL WATER, INC.
The Company and The BFGoodrich Company ("Goodrich") have entered into an
agreement (the "Stock Purchase Agreement"), dated as of February 27, 1995, for
the proposed purchase by the Company of Arrowhead Industrial Water, Inc.
("AIW"). The pending acquisition is to be effected as a purchase of all of the
outstanding stock of AIW, but excluding certain assets and liabilities to be
retained by Goodrich. AIW is a leading independent supplier of owned and
operated on-site industrial water treatment systems, as well as mobile water
treatment systems in North America. AIW provides equipment and services to
customers in industries that typically process and require treatment of large
quantities of water, such as chemical processing, refining and power
generation.
A substantial part of AIW's business is in the build, own and operate segment
of the industry. Through its Pure Water Management Program ("PWMP"), AIW
installs and operates integrated water treatment units at customers' production
facilities. These water treatment units utilize reverse osmosis, SDI, softening
and other filtration technologies, and are owned, operated and maintained by
AIW under contracts typically with three- to 15-year terms. AIW also deploys
and maintains mobile water treatment units, principally utilizing reverse
osmosis, deionization, softening and other filtration processes. AIW owns
approximately 200 trailers in which equipment and systems are mounted and can
be moved to customers' sites to provide temporary or emergency water treatment
services as backup in the event the regular water treatment systems are
interrupted. The modular nature of truck-mounted equipment gives AIW
flexibility in meeting the specific water treatment needs of customers. As of
December 31, 1994, AIW had PWMP contracts that the Company believes provide for
future revenues of approximately $140 million over the terms of the contracts,
subject to certain buy-out provisions contained in many of the contracts upon
early termination.
In addition, AIW provides various ancillary water treatment services,
including the deployment of smaller portable deionization units and the sale of
deionized water in bulk. AIW is based in Lincolnshire, Illinois and has sales
and service facilities in nine locations, three in California and one each in
Illinois, Ohio, Pennsylvania, Texas, Louisiana and Florida. AIW had 247
employees as of December 31, 1994. AIW's audited revenues for the fiscal year
ended December 31, 1994 were $43.9 million.
The Company believes that the acquisition of AIW will enhance its ability to
provide outsourced water purification systems and services for which the
Company believes there is a growing demand. In addition, the Company believes
that the acquisition of AIW will significantly enhance its technological and
service capabilities, expand its service branch network and customer base and
provide opportunities to achieve certain synergies, including the use of its
engineering and manufacturing capabilities to design and build AIW water
treatment equipment. The Company believes AIW's service capabilities and
reputation will complement the Company's other water purification and treatment
services.
Under the Stock Purchase Agreement, the Company will pay to Goodrich a
purchase price of $80 million in cash, subject to downward or upward
adjustments based on AIW's audited net worth. In the event this acquisition is
consummated before the completion of the Offering, the Company intends to
borrow funds, to be repaid with a portion of the proceeds of the Offering. The
proposed acquisition is subject to certain conditions, including regulatory
approval and satisfactory completion of due diligence. The Company currently
anticipates consummation of the AIW acquisition in late April 1995, although
there can be no assurance that all of the conditions precedent to the
acquisition will be satisfied.
JOINT VENTURE WITH NALCO CHEMICAL COMPANY
The Company has signed a memorandum of intent with Nalco Chemical Company
("Nalco") to form a joint venture (the "Nalco JV") to build, own and operate
water purification facilities on customers' sites under long-term agreements.
It is expected that the Nalco JV will acquire or have rights to certain assets
of AIW.
12
<PAGE>
Under the proposed joint venture, equipment will be purchased from the Company
and chemical supplies will be purchased from Nalco. As part of the Nalco JV, it
is currently contemplated that Nalco will contribute approximately $16 million
towards the Company's cost to acquire AIW. The consummation of the Nalco JV is
subject to certain conditions, including further negotiation of the terms and
conditions of the Nalco JV and the execution of a definitive agreement. There
can be no assurance that the parties will be able to reach agreement on
definitive terms or that the conditions precedent to the consummation of the
Nalco JV will be satisfied.
THE PERMUTIT GROUP
On April 3, 1995, the Company purchased from Thames Water PLC all of the
outstanding stock of The Permutit Company Limited, a U.K. company, and Permutit
Company Pty. Limited, an Australian company that has a New Zealand subsidiary
(collectively, "The Permutit Group"), for a cash price of approximately $10
million. Through its ten offices, The Permutit Group has a strong position in
the United Kingdom, Australian and New Zealand markets in ion exchange and
membrane technology. The Permutit Group also offers a range of products,
including pre-engineered water treatment systems for the pharmaceutical,
laboratory and chemical markets and other commercial customers. The Permutit
Group believes it has the largest market share in its Australian and New
Zealand markets. The Company believes that The Permutit Group's comprehensive
service and SDI network will complement the Company's already strong presence
in Western Europe. This acquisition will further implement the Company's
strategy of offering a broad range of products and services in its market
areas, and will also expand the Company's operations into Australia and New
Zealand and will enhance its presence in the Far East. The Permutit Group's
revenues for the year ended March 31, 1994 were approximately $19.7 million.
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
$71,878,000 (or $82,743,000 if the Underwriters' over-allotment option is
exercised in full), based upon an assumed public offering price of $15.25 per
share and after deducting estimated underwriting discounts and commissions and
estimated offering expenses. Such proceeds will be used to repay indebtedness
of approximately $10 million incurred in connection with the acquisition of The
Permutit Group and indebtedness of approximately $80 million to be incurred in
connection with the pending acquisition of AIW, which is expected to be
consummated in late April 1995; the balance, if any, will be used for working
capital, capital expenditures and general corporate purposes, including
possible future acquisitions. The $10 million used to acquire The Permutit
Group was borrowed by the Company under its bank line of credit that matures on
March 31, 1999 and bears interest at variable rates equal to the bank's quoted
base rate, which was 9% on March 31, 1995. See "Recent and Pending Acquisitions
and Joint Venture." In the event the AIW acquisition is not completed, the
proceeds of the Offering not used for that purpose will be added to working
capital.
Pending utilization as described above, the proceeds of the Offering will be
invested in short-term interest-bearing obligations.
13
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at December 31, 1994, as adjusted for the pro forma effect of the
acquisitions of AIW and The Permutit Group and as further adjusted to reflect
the sale of 5,000,000 shares of Common Stock by the Company pursuant to the
Offering and the application of the estimated net proceeds therefrom (based
upon an assumed public offering price of $15.25 per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses). See "Use of Proceeds." This table should be read in conjunction
with and is qualified by reference to the Company's Consolidated Financial
Statements and related Notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
------------------------------------------
PRO FORMA FOR
AIW AND THE AS FURTHER
PERMUTIT GROUP ADJUSTED FOR
ACTUAL ACQUISITIONS THE OFFERING(1)
---------- -------------- ---------------
(in thousands)
<S> <C> <C> <C>
Notes payable and current portion of
long-term debt(2)................... $ 24,896 $ 24,896 $ 24,896
========== ======== ========
Long-term debt, excluding current
portion(3).......................... $ 7,936 $ 87,936 $ 16,058
Convertible Subordinated Debt(4).... 105,000 105,000 105,000
Stockholders' equity:
Preferred Stock, par value $.10 per
share; 3,000,000
shares authorized:
Series A Voting Cumulative
Convertible Preferred
Stock, $25 liquidation
preference; 880,000
shares authorized and
outstanding..................... 22,071 22,071 22,071
Series B Voting Convertible
Preferred Stock, $27 liquidation
preference; 250,000 shares
authorized and 185,185 shares
outstanding..................... 3,506 3,506 3,506
Common Stock, par value $.01 per
share; 25,000,000 shares
authorized and 14,990,868 shares
outstanding;
19,990,868 shares outstanding as
adjusted(5)....................... 150 150 200
Additional paid-in capital......... 128,496 128,496 200,324
Currency translation adjustment(6). 215 215 215
Accumulated deficit................ (20,764) (20,764) (20,764)
---------- -------- --------
Total stockholders' equity.... 133,674 133,674 205,552
---------- -------- --------
Total capitalization.......... $ 246,610 $326,610 $326,610
========== ======== ========
</TABLE>
- --------
(1) Does not give effect to the Nalco JV.
(2) Includes $23,818,000 of notes payable and $1,078,000 of current portion of
long-term debt.
(3) See Note 10 of Notes to Consolidated Financial Statements for additional
information regarding the Company's long-term obligations.
(4) Consists of (i) $60,000,000 principal amount of 5% Convertible
Subordinated Debentures due 2000 and (ii) $45,000,000 principal amount of
subordinated notes due August 31, 2001 bearing interest at a rate of 6.5%
per annum through September 30, 1995 and 4.5% thereafter, which notes are
combined with warrants to purchase Common Stock at an exercise price of
$18.00 per share, payment of which may be made only through surrender of
such notes in a principal amount equal to the aggregate exercise price
(such notes and warrants are sometimes referred to herein and in the
financial statements as convertible subordinated debt).
(5) The authorized Common Stock was increased to 75,000,000 shares on March
14, 1995. The number of outstanding shares does not include 1,320,000
shares of Common Stock issuable upon conversion of Series A Preferred
Stock, 277,777 shares issuable upon conversion of Series B Preferred
Stock, 2,926,829 shares issuable upon conversion of the 5% Convertible
Subordinated Debentures, 2,500,000 shares issuable upon exercise of
warrants issued with the $45,000,000 of subordinated notes, and 1,964,676
shares issuable upon exercise of stock options either outstanding or
available for future grant under the Company's stock option plans. See
"Management," "Description of Capital Stock," "Description of Certain
Indebtedness" and Notes 11 and 15 of Notes to Consolidated Financial
Statements.
(6) See Note 1 of Notes to Consolidated Financial Statements.
14
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company has been listed under the symbol "USF" on the
New York Stock Exchange since September 1, 1993 and was listed on the American
Stock Exchange from April 8, 1991 through August 31, 1993. The following table
sets forth for the quarters indicated the high and low composite sales prices
as reported by the American Stock Exchange and New York Stock Exchange, as
applicable.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
Fiscal year ended March 31, 1994
1st Quarter........................................................ 16.83 11.17
2nd Quarter........................................................ 16.50 11.92
3rd Quarter........................................................ 19.08 14.33
4th Quarter........................................................ 15.67 12.25
Fiscal year ended March 31, 1995
1st Quarter........................................................ 14.50 12.17
2nd Quarter........................................................ 14.67 12.25
3rd Quarter........................................................ 15.08 13.33
4th Quarter........................................................ 16.87 15.00
</TABLE>
On April 3, 1995, the last reported sales price for the Common Stock on the
New York Stock Exchange was $15.50 per share.
DIVIDEND POLICY
The Company currently intends to retain earnings to provide funds for the
operation and expansion of its business and accordingly does not anticipate
paying cash dividends on the Common Stock in the foreseeable future. Any
payment of cash dividends on the Common Stock in the future will depend upon
the Company's financial condition, earnings, capital requirements and such
other factors as the Board of Directors deems relevant. Dividends on the Common
Stock are subject to the prior payment of dividends on the Series A Preferred
Stock. In addition, under the Company's credit agreement with The First
National Bank of Boston, no dividends may be paid on the Common Stock without
the consent of that bank.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data as of and for the years ended March
31, 1992, 1993 and 1994 are derived from the consolidated financial statements
of United States Filter Corporation and subsidiaries, which are included
elsewhere in this Prospectus. The selected consolidated financial data as of
and for the years ended March 31, 1990 and 1991 are derived from the individual
audited consolidated financial statements of United States Filter Corporation
and subsidiaries and Liquipure Technologies, Inc. and subsidiaries, which are
not included herein. All such historical consolidated financial data has been
restated to reflect the acquisition in July 1994 of Liquipure, which
acquisition has been accounted for as a pooling of interests. The financial
data as of and for the nine months ended December 31, 1993 and 1994 are derived
from unaudited consolidated financial statements, which, in the opinion of the
Company, reflect all adjustments (consisting principally of normal, recurring
accruals) necessary for the fair statement of the financial position and
results of operations for the periods presented and are not necessarily
indicative of the results for any other interim period or for the full fiscal
year. The data presented below is qualified in its entirety by and should be
read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein.
16
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31,(1) DECEMBER 31,(1)
--------------------------------------------- ------------------
1990 1991 1992(2) 1993(3) 1994(4) 1993(4) 1994(5)
------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA: (in thousands, except per share data)
Revenues................ $35,792 $42,624 $62,840 $128,376 $180,421 $118,812 $194,453
Cost of sales........... 26,543 29,780 48,259 93,896 132,811 87,311 139,164
------- ------- ------- -------- -------- -------- --------
Gross profit............ 9,249 12,844 14,581 34,480 47,610 31,501 55,289
Selling, general and
administrative expenses. 11,730 14,692 20,871 33,832 52,484 29,129 45,819
------- ------- ------- -------- -------- -------- --------
Operating income (loss). (2,481) (1,848) (6,290) 648 (4,874) 2,372 9,470
Interest expense........ (824) (763) (1,016) (1,327) (2,077) (1,091) (3,632)
Other income (expense).. 533 287 770 639 1,174 247 1,641
Provision (benefit) for
income taxes............ 187 595 51 298 (3,236) 549 2,056
------- ------- ------- -------- -------- -------- --------
Income (loss) from
continuing operations
before extraordinary
items.................. (2,959) (2,919) (6,587) (338) (2,541) 979 5,423
Income (loss) from
discontinued
operations(6)........... 270 -- -- -- -- -- --
------- ------- ------- -------- -------- -------- --------
Income (loss) before
extraordinary items..... (2,689) (2,919) (6,587) (338) (2,541) 979 5,423
Extraordinary items(7).. 221 411 -- 405 -- -- --
------- ------- ------- -------- -------- -------- --------
Net income (loss)....... $(2,468) $(2,508) $(6,587) $ 67 $ (2,541) $ 979 $ 5,423
======= ======= ======= ======== ======== ======== ========
Weighted average number
of common shares
outstanding(8)......... 4,114 5,593 7,846 10,095 12,453 11,767 14,881
PER COMMON SHARE
DATA:(8)(9)
Income (loss) from
continuing operations... $ (0.72) $ (0.52) $ (0.88) $ (0.16) $ (0.26) $ 0.04 $ 0.33
Income (loss) from
discontinued
operations(6)........... 0.07 -- -- -- -- -- --
------- ------- ------- -------- -------- -------- --------
Income (loss) before
extraordinary items..... (0.65) (0.52) (0.88) (0.16) (0.26) 0.04 0.33
Extraordinary items(7).. 0.05 0.07 -- 0.04 -- -- --
------- ------- ------- -------- -------- -------- --------
Net income (loss)....... $ (0.60) $ (0.45) $ (0.88) $ (0.12) $ (0.26) $ 0.04 $ 0.33
======= ======= ======= ======== ======== ======== ========
CONSOLIDATED BALANCE SHEET DATA (END OF PERIOD):
Working capital......... $ 1,273 $ 4,845 $11,455 $ 23,471 $ 66,018 $ 76,749 $ 55,460
Total assets............ 25,190 26,168 89,501 121,178 253,185 244,718 373,763
Long-term debt,
including current
portion................. 5,222 7,773 10,002 5,012 4,913 4,973 9,014
Convertible subordinated
debt.................... -- -- -- -- 60,000 60,000 105,000
Stockholders' equity ... 8,656 8,339 41,219 79,631 125,610 122,711 133,674
</TABLE>
The historical consolidated financial data for all periods presented has
been restated to include the accounts and operations of Liquipure, which was
merged with the Company in July 1994 and accounted for as a pooling of
interests. Separate results of operations of the combined entities for the
years ended March 31, 1990, 1991, 1992, 1993 and 1994 and the nine months
ended December 31, 1993 and 1994 are presented below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, DECEMBER 31,
----------------------------------------------- ---------------------
1990 1991 1992(2) 1993(3) 1994(4) 1993(4) 1994(5)(10)
------- ------- ------- -------- -------- -------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Company (as previously
reported).............. $25,239 $23,249 $41,238 $101,397 $147,870 $ 95,015 $194,453
Liquipure............... 10,553 19,375 21,602 26,979 32,551 23,797 --
------- ------- ------- -------- -------- -------- --------
Combined................ $35,792 $42,624 $62,840 $128,376 $180,421 $118,812 $194,453
------- ------- ------- -------- -------- -------- --------
GROSS PROFIT:
Company (as previously
reported).............. $ 6,045 $ 7,213 $ 8,692 $ 27,166 $ 39,046 $ 24,859 $ 55,289
Liquipure............... 2,875 5,631 5,889 7,314 8,564 6,642 --
------- ------- ------- -------- -------- -------- --------
Combined................ $ 8,920 $12,844 $14,581 $ 34,480 $ 47,610 $ 31,501 $ 55,289
======= ======= ======= ======== ======== ======== ========
OPERATING INCOME (LOSS):
Company (as previously
reported).............. $ 741 $ 1,416 $(4,165) $ 4,708 $ 2,089 $ 4,065 $ 9,470
Liquipure............... (3,222) (3,264) (2,125) (4,060) (6,963) (1,693) --
------- ------- ------- -------- -------- -------- --------
Combined................ $(2,481) $(1,848) $(6,290) $ 648 $ (4,874) $ 2,372 $ 9,470
======= ======= ======= ======== ======== ======== ========
NET INCOME (LOSS):
Company (as previously
reported)(7)........... $ 383(6) $ 899 $(3,964) $ 4,402 $ 4,986 $ 3,266 $ 5,423
Liquipure............... (2,851) (3,407) (2,623) (4,335) (7,527) (2,287) --
------- ------- ------- -------- -------- -------- --------
Combined................ $(2,468) $(2,508) $(6,587) $ 67 $ (2,541) $ 979 $ 5,423
======= ======= ======= ======== ======== ======== ========
NET INCOME (LOSS) PER
COMMON SHARE:(7)(8)(9)
As previously reported.. $ 0.17(6) $ 0.24 $ (0.71) $ 0.38 $ 0.41 $ 0.27 $ 0.33
======= ======= ======= ======== ======== ======== ========
As restated............. $ (0.60) $ (0.45) $ (0.88) $ (0.12) $ (0.26) $ 0.04 $ 0.33
======= ======= ======= ======== ======== ======== ========
</TABLE>
- -------
Footnotes, which are applicable to both tables, are included on the following
page.
17
<PAGE>
(1) The historical consolidated financial data for all periods presented has
been restated to include the accounts and operations of Liquipure, which
was merged with the Company in July 1994 and accounted for as a pooling of
interests.
(2) Includes eight months of results of Lancy, acquired July 31, 1991, and
three months of results of ASTI, acquired from Alcoa January 6, 1992. Each
of these acquisitions was accounted for as a purchase. Losses from ASTI
(which had operated at a loss in each of the prior three years) since its
acquisition and the effect of the acquisition on the Company's existing
operations contributed significantly to the Company's loss for the fiscal
year ended March 31, 1992. As a result of such losses incurred by ASTI and
certain purchase accounting adjustments, and pursuant to the terms of the
ASTI acquisition agreement, an acquisition note payable to Alcoa was
reduced by $5,000,000. Such reduction in the note was treated as a purchase
price adjustment and as such did not affect the Company's results of
operations. See Note 9 of Notes to Consolidated Financial Statements.
(3) Includes twelve months of results of SCT, acquired April 1, 1992, and three
months of The Permutit Company, Inc., a United States company acquired
January 5, 1993, accounted for as purchases. See Note 9 of Notes to
Consolidated Financial Statements.
(4) Includes four months and one month of results of Ionpure, acquired December
1, 1993 and accounted for as a purchase, for the year ended March 31, 1994
and nine months ended December 31, 1993, respectively. Selling, general and
administrative expenses for the year ended March 31, 1994 reflect four
months of integration of Ionpure and certain charges totalling $2,359,000
related to the rationalization of certain wastewater operations. See Note 9
of Notes to Consolidated Financial Statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Twelve
Months Ended March 31, 1994 Compared with Twelve Months Ended March 31,
1993."
(5) Includes the results of operations of Smogless, Crouzat, Sation, Seral and
Ceraflo from the dates of their respective acquisitions, accounted for as
purchases. See Note 9 of Notes to Consolidated Financial Statements.
(6) Income (loss) from discontinued operations resulted primarily from the
sale of BCL Associates, Inc. ("BCL") at a gain in June 1989, after the
adoption by the Company in February 1988 of a formal plan to dispose of
the operations of BCL.
(7) Includes extraordinary items of $221,000 and $411,000 for the fiscal years
ended March 31, 1990 and 1991, respectively, attributable to utilization
of net operating loss carryforwards, and an extraordinary gain of $405,000
for the fiscal year ended March 31, 1993 for forgiveness of debt in
connection with the buyout of a capital lease obligation.
(8) Amounts are after (i) dividends on the Series A Preferred Stock of
$165,000 for the fiscal year ended March 31, 1992, $660,000 for the fiscal
year ended March 31, 1993, $715,000 for the fiscal year ended March 31,
1994 and $537,000 for the nine months ended December 31, 1993 and 1994 and
(ii) accretion on the Series A Preferred Stock, a noncash accounting
adjustment required by Securities and Exchange Commission Staff Accounting
Bulletin No. 68 ("SAB 68"), in the amounts of $154,000 for the fiscal year
ended March 31, 1992 and $617,000 for the fiscal year ended March 31,
1993. As of April 1, 1993, the Company and the holder of the Series A
Preferred Stock agreed to a fixed dividend of $715,000 per year on the
Series A Preferred Stock, thus eliminating the increasing rate and,
therefore, the accretion of dividends pursuant to SAB 68.
(9) Reflects a 3-for-2 stock split effective December 5, 1994.
(10) The financial data for the nine months ended December 31, 1994 include
three months of results of Liquipure prior to the merger and six months of
results of Liquipure after the merger. In addition, the net income (loss)
per common share for the nine months ended December 31, 1994 reflects the
issuance of 1,852,221 shares of Common Stock in conjunction with the
Liquipure merger.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.
GENERAL
The Company's primary objective is to offer customers a single-source
solution to their water and wastewater treatment needs. Accordingly, since July
1991, the Company has acquired and integrated a number of businesses with
substantial expertise in the design and manufacture of systems for the
filtration, purification and treatment of water and wastewater. Due to the
magnitude of these acquisitions and the Company's integration of the acquired
operations with its existing businesses, results of operations for prior
periods are not necessarily comparable to or indicative of results of
operations for current or future periods.
RESULTS OF OPERATIONS
In July 1994 the Company merged with Liquipure in a transaction accounted for
as a pooling of interests. Accordingly, the historical consolidated financial
data for all periods presented has been restated to include the accounts and
operations of Liquipure.
The following table sets forth for the periods indicated certain items in the
Selected Consolidated Financial Data and the percentages of total revenues such
items represent.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
--------------------- -------------------
1992 1993 1994 1993 1994
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues......................... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales.................... 76.8 73.1 73.6 73.5 71.6
Gross profit..................... 23.2 26.9 26.4 26.5 28.4
Selling, general and
administrative expenses......... 33.2 26.4 29.1 24.5 23.6
Operating income (loss).......... (10.0) 0.5 (2.7) 2.0 4.9
Interest expense................. 1.6 1.0 1.2 0.9 1.9
Income (loss) before
extraordinary items............. (10.5) (0.3) (1.4) 0.8 2.8
Net income (loss)................ (10.5) 0.1 (1.4) 0.8 2.8
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1994 COMPARED WITH NINE MONTHS ENDED DECEMBER
31, 1993
Revenues. Revenues for the nine months ended December 31, 1994 were
$194,453,000, an increase of $75,641,000 from $118,812,000 for the nine months
ended December 31, 1993. Approximately 85% of this increase was due to the
acquisitions completed by the Company to date during the current fiscal year.
Gross Profit. Gross profit increased 75.5% to $55,289,000 for the nine months
ended December 31, 1994 from $31,501,000 for the nine months ended December 31,
1993. Total gross profit as a percentage of revenue ("gross margin") increased
to 28.4% for the nine months ended December 31, 1994, compared to 26.5% for the
nine months ended December 31, 1993. This increase in gross margin for the nine
months ended December 31, 1994 as compared to the nine months ended December
31, 1993 was due primarily to the Company's emphasis on and expansion of its
SDI business during the most recent period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $45,819,000 for the nine-month period
ended December 31, 1994 from $29,129,000 for the nine months ended December 31,
1993. Selling, general and administrative expenses as a percentage of revenues
decreased to 23.6% during the nine months ended December 31, 1994, compared to
24.5% for the nine months ended
19
<PAGE>
December 31, 1993. The decrease in the percentage of selling, general and
administrative expenses to revenues for the nine-month period ended December
31, 1994 as compared to the nine months ended December 31, 1993 was due
primarily to the Company's emphasis on cost reductions and administrative
efficiencies gained through economies of scale.
Interest Expense. Interest expense increased to $3,632,000 for the nine
months ended December 31, 1994 from $1,091,000 for the nine months ended
December 31, 1993. Interest expense for the nine-month period ended December
31, 1994 consists primarily of interest on the Company's 5% Convertible
Subordinated Debentures issued October 20, 1993 and borrowings under the
Company's bank line of credit.
Income Tax. Income tax expense increased to $2,056,000 for the nine-month
period ended December 31, 1994 from $549,000 for the nine months ended December
31, 1993. This increase was attributable to the Company's recognition during
the twelve months ended March 31, 1994 of the future income tax benefit related
to federal net operating loss carryforwards.
Net Income. Net income increased to $5,423,000 for the nine months ended
December 31, 1994 from $979,000 for the nine months ended December 31, 1993.
Net income per common share increased to $.33 per share (with 14,881,000
weighted average common shares outstanding) for the nine months ended December
31, 1994 from $.04 per share (with 11,767,000 weighted average common shares
outstanding) for the nine months ended December 31, 1993.
TWELVE MONTHS ENDED MARCH 31, 1994 ("FISCAL 1994") COMPARED WITH TWELVE MONTHS
ENDED MARCH 31, 1993 ("FISCAL 1993")
Revenues. Revenues for fiscal 1994 were $180,421,000, an increase of
$52,045,000 from $128,376,000 for fiscal 1993. Approximately $25,000,000 of
this increase during fiscal 1994 was the result of the Company's acquisition of
Ionpure in December 1993. The acquisition of Ionpure was accounted for as a
purchase, and therefore its results were included in the operations of the
Company for four months of fiscal 1994. Additionally, a significant portion of
the remaining increase in revenues over the prior year relates to strength in
the Company's ultrapurification high-purity water business.
Gross Profit. Gross profit increased 38.1% to $47,610,000 for fiscal 1994
from $34,480,000 for fiscal 1993. Gross margin remained substantially constant
from fiscal 1994 compared to fiscal 1993, decreasing to 26.4% in fiscal 1994,
compared to 26.9% in the prior year.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $52,484,000 for fiscal 1994, an increase of
$18,652,000 from $33,832,000 for fiscal 1993. Approximately $9,300,000 of this
increase reflects the addition of Ionpure's operations during fiscal 1994 and a
full year's operations of Permutit. Included in selling, general and
administrative expenses during fiscal 1994 were $3,738,000 of charges related
to the writeoff of the remaining net book value of certain intangibles in the
Company's Continental Penfield subsidiary, which management determined had no
future economic value. Additionally, included in selling, general and
administrative expenses during fiscal 1994 were $2,359,000 of charges related
to the Company's closure in February 1994 of its leased facility in Marlboro,
New Jersey, which was integrated into the wastewater operations facility owned
by the Company in Warrendale, Pennsylvania. The closure charges related
primarily to the accrual of lease and maintenance costs of the closed facility
over the remaining lease period, costs to transport certain equipment
transferred to other Company locations and the writeoff of leasehold
improvements and equipment that have no future economic value. The remaining
increase is due primarily to the increase in business activity in fiscal 1994
from the prior year.
Interest Expense. Interest expense increased to $2,077,000 for fiscal 1994,
from $1,327,000 in fiscal 1993. This increase was attributable entirely to the
Company's issuance in October 1993 of $60,000,000 of convertible subordinated
debentures due October 2000. The debentures bear interest at the annual rate
of 5%.
20
<PAGE>
Income Taxes. Income tax expense decreased $3,534,000 in fiscal 1994 from
fiscal 1993 as a result of an income tax benefit recorded in fiscal 1994 of
$3,236,000. Because of the Company's recent earnings history and anticipated
future earnings and in accordance with the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," the Company
recognized the future income tax benefit related to federal net operating loss
carryforwards. At March 31, 1994 the Company had available approximately
$21,000,000 of net operating loss carryforwards reported by SCT for French tax
purposes. The French tax net operating loss carryforwards may be used only to
offset future income generated by SCT, and until March 31, 1997, the benefit,
if any, of such carryforwards is to be shared equally between the Company and
Alcoa.
Net Income. The Company recorded a net loss of $2,541,000 for fiscal year
1994 as compared to net income of $67,000 for fiscal year 1993. Net loss per
common share increased to $.26 per share (with 12,453,000 weighted average
common shares outstanding) for fiscal 1994, from $.12 per share (with
10,095,000 weighted average common shares outstanding) for fiscal 1993.
TWELVE MONTHS ENDED MARCH 31, 1993 ("FISCAL 1993") COMPARED WITH TWELVE MONTHS
ENDED MARCH 31, 1992 ("FISCAL 1992")
Revenues. Revenues for fiscal 1993 were $128,376,000, an increase of
$65,536,000 from $62,840,000 for fiscal 1992. This 104.3% increase from the
prior year was attributable almost entirely to the inclusion of the Lancy and
ASTI acquisitions for an entire year as well as the addition during fiscal 1993
of SCT and The Permutit Company, Inc.
Gross Profit. Gross profit increased 136.5% to $34,480,000 for fiscal 1993
from $14,581,000 for fiscal 1992. Gross margin increased to 26.9% in fiscal
1993, compared to 23.2% in the prior year. This increase was due, in part, to
the Company's continuing efforts to integrate all of the acquisitions and the
efficiencies gained in the Company's manufacturing processes through the
economies of scale achieved with significantly higher production volumes.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $33,832,000 for fiscal 1993 from
$20,871,000 for fiscal 1992. This increase of $12,961,000 reflected the
addition of a full year's operations of Lancy and ASTI and fiscal 1993's
acquisitions of SCT and The Permutit Company, Inc. Selling, general and
administrative expenses as a percentage of revenues decreased to 26.4% during
fiscal 1993, compared to 33.2% in the prior year, reflecting the Company's
emphasis on cost reductions and the administrative efficiencies gained through
economies of scale.
Interest Expense. Interest expense increased to $1,327,000 for fiscal 1993
from $1,016,000 for fiscal 1992. This increase of $311,000 related entirely to
the interest on the notes payable to Alcoa in connection with the ASTI and SCT
acquisitions. These notes were repaid in full in October 1992.
Income Taxes. The Company's income tax expense for fiscal 1993 reflected the
utilization of its net operating loss carryforwards. Utilization of net
operating loss carryforwards was reflected as an extraordinary item in fiscal
1991 but in fiscal 1993 was reflected as a reduction of the provision for
income taxes, as required by Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," adopted by the Company in fiscal 1992. At
March 31, 1993 the Company had available an approximate $10,500,000 of net
operating loss carryforwards for federal income tax purposes and approximately
$23,400,000 of net operating loss carryforwards reported by SCT for French tax
purposes. The French net operating loss carryforwards may be used only to
offset income generated by SCT and, until March 31, 1997, the benefit, if any,
of such carryforwards is to be shared equally between the Company and Alcoa.
21
<PAGE>
Extraordinary Item. The extraordinary item for fiscal 1993 represented the
Company's buyout of its capital lease obligation related to its USF Recovery
Services facility. On June 30, 1992, the Company paid $5,770,000 in cash to the
Port Authority of St. Paul, Minnesota in full satisfaction of its recorded
capital lease, resulting in an extraordinary gain of $405,000 from forgiveness
of debt.
Net Income. Net income increased to $67,000 for fiscal 1993, from a net loss
of $6,587,000 for fiscal 1992. Net loss per common share decreased to $.12 per
share (with 10,095,000 weighted average common shares outstanding) for fiscal
1993, from a net loss per share of $.88 per share (with 7,846,000 weighted
average common shares outstanding) for fiscal 1992, after deduction of $.12 per
share representing dividends paid on the Series A Preferred Stock and $.11 per
share representing accretion on the Series A Preferred Stock, a noncash
accounting adjustment required by SAB 68. See Note 1 of Notes to Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are cash and other working capital,
cash flow generated from operations and borrowings under the Company's bank
line of credit. At December 31, 1994 the Company had working capital of
$55,460,000, including cash and short-term investments of $19,517,000. The
Company's long-term debt at December 31, 1994 included $60,000,000 of
convertible subordinated debentures bearing interest at 5% per annum due in
year 2000, $45,000,000 of subordinated debt due in year 2001 and bearing
interest at 6.5% per annum through September 30, 1995 and 4.5% thereafter, and
two mortgage notes payable totaling $2,655,000 and bearing interest at rates
ranging from 2% to 6.02%. As of December 31, 1994, the Company had an available
bank line of credit of $33,000,000, of which there were outstanding borrowings
of $23,818,000 and outstanding letters of credit of $8,881,000. On March 31,
1995, the available bank line of credit was increased to $45,000,000, of which
there were outstanding borrowings of $34,510,000 and outstanding letters of
credit of $8,881,000.
As of March 31, 1994, the Company had net operating loss carryforwards gener-
ated from SCT of approximately $21,109,000, for which no financial statement
benefit has been recognized. Approximately $4,802,000 of the net operating loss
carryforwards will expire in the years 1994 to 1999, while the remainder have
an indefinite carryforward period. No benefit has been given to these net oper-
ating loss carryforwards because of the limited carryforward periods or the un-
certain business conditions relating to the operations giving rise to such
carryforwards. Additionally, as of March 31, 1994, the Company has net operat-
ing loss carryforwards generated from Liquipure of approximately $15,000,000
for which no financial statement benefit had been recognized. These net operat-
ing carryforwards will expire in the years 2004 to 2008. These net operating
loss carryforwards can be used only against future taxable income of Liquipure
and, accordingly, no benefit has been given to these net operating loss
carryforwards due to the uncertain business conditions relating to the opera-
tions of Liquipure. Future recognition of these net operating loss
carryforwards will occur if the operations of SCT and Liquipure generate suffi-
cient earnings before the expiration of the respective net operating loss
carryforwards, and in the case of SCT, until March 31, 1997, the benefit, if
any, of such carryforwards is to be shared equally between the Company and
Alcoa.
The Company believes its current cash position, cash flow from operations,
available borrowings under the Company's line of credit, and the net proceeds
of the Offering will be adequate to meet its anticipated cash needs for working
capital, revenue growth, scheduled debt repayment and capital investment
objectives for the next twelve months.
22
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial data presents the Pro
Forma Combined Balance Sheet at December 31, 1994, giving effect to the pending
acquisition of AIW and the acquisition of The Permutit Group (the
"Acquisitions") as if they had been consummated on that date. Also presented
are the Pro Forma Combined Statements of Operations for the fiscal year ended
March 31, 1994 and the nine months ended December 31, 1994, after giving effect
to the Acquisitions as if they had been consummated as of the beginning of the
respective periods presented. The Company's fiscal year ends on March 31 and
AIW's fiscal year ends on December 31. Pro forma data for the year ended
March 31, 1994 combines the results of the Company for the year ended March 31,
1994 with the results of AIW for the year ended December 31, 1993, and pro
forma data for the nine months ended December 31, 1994 combines the results of
each of the Company and AIW for such nine-month period. AIW had revenues of
approximately $11,000,000 and a loss before income taxes of approximately
$203,000 for the three months ended March 31, 1994. The Permutit Group's fiscal
year ends on March 31 and as such the pro forma data combines the results of
each of the Company and The Permutit Group for each such twelve- and nine-month
period.
The pro forma data is based on the historical combined statements of the
Company, AIW and The Permutit Group, giving effect to the Acquisitions under
the purchase method of accounting and the assumptions and adjustments outlined
in the accompanying Notes to Pro Forma Combined Financial Information. Under
the purchase method of accounting, assets acquired and liabilities assumed will
be recorded at their estimated fair value at the date of Acquisitions. The pro
forma adjustments set forth in the following Unaudited Pro Forma Combined
Financial Statements are estimates and may differ from the actual adjustments
when they become known. The pro forma data as presented does not give effect to
the proposed Offering or the Nalco JV. The As Further Adjusted for the Offering
columns presented below give effect to the proposed Offering and the
anticipated application of the net proceeds therefrom (which net proceeds are
estimated to be $71,878,000 based upon an assumed public offering price of
$15.25 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses). See "Use of Proceeds." Except as
described in the preceding sentence, the pro forma data as presented does not
give effect to the proposed Offering or the Nalco JV.
The following Unaudited Pro Forma Combined Financial Statements do not
reflect certain cost savings that management believes may be realized following
the Acquisitions. These savings are expected to be realized primarily through
rationalization of operations and implementation of strict cost controls and
standardized operating procedures. Additionally, the Company believes the
Acquisitions will enable it to continue to achieve economies of scale, such as
enhanced purchasing power and increased asset utilization. No assurances can be
made as to the amount of cost savings, if any, that actually will be realized.
There can be no assurance that the acquisition of AIW or the Nalco JV will be
consummated.
The pro forma data is provided for comparative purposes only. It does not
purport to be indicative of the results that actually would have occurred if
the Acquisitions had been consummated on the dates indicated or that may be
obtained in the future. The pro forma combined financial data should be read in
conjunction with the notes thereto and the audited financial statements of AIW
and The Permutit Company Limited (a member of The Permutit Group) and the notes
thereto included elsewhere herein and the audited consolidated financial
statements of the Company and the notes thereto also included elsewhere herein.
23
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
----------------------------------------------------------------------
HISTORICAL PRO FORMA
-------------------------- -------------------------------------------
AS
FURTHER
THE ADJUSTMENTS ADJUSTED
PERMUTIT INCREASE ADJUSTMENTS FOR THE
COMPANY AIW GROUP (DECREASE) REFERENCES COMBINED OFFERING
-------- ------- -------- ----------- ----------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash................... $ 11,893 $ -- $ 771 $(2,751) a(i) $ 9,913 $ 9,913
Short-term investments. 7,624 -- -- (7,624) a(i) -- --
Accounts receivable,
net................... 87,325 6,828 3,350 97,503 97,503
Cost and estimated
earnings in excess of
billings on
uncompleted contracts. 20,206 -- -- 20,206 20,206
Inventories............ 36,623 788 1,356 38,767 38,767
Prepaid expenses....... 4,853 417 194 5,464 5,464
Deferred taxes......... 2,598 -- -- 2,598 2,598
Other current assets... 2,097 -- 120 2,217 2,217
-------- ------- ------ -------- --------
Total current
assets............. 173,219 8,033 5,791 176,668 176,668
Property, plant and
equipment, net......... 63,440 62,378 1,479 127,297 127,297
Investment in leasehold
interest, net.......... 21,634 -- -- 21,634 21,634
Goodwill, net........... 97,510 8,090 14,566 a(ii) 120,166 120,166
Other assets............ 17,960 2,171 281 20,412 20,412
-------- ------- ------ -------- --------
$373,763 $80,672 $7,551 $466,177 $466,177
======== ======= ====== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 28,812 $ 4,322 $1,712 $ 34,846 $ 34,846
Accrued liabilities.... 40,567 3,812 953 45,332 45,332
Current portion of
long-term debt........ 1,078 -- -- 1,078 1,078
Notes payable.......... 23,818 -- -- 23,818 23,818
Billings in excess of
costs and estimated
earnings on
uncompleted contracts. 15,715 -- -- 15,715 15,715
Other current
liabilities........... 7,769 -- 1,254 9,023 9,023
-------- ------- ------ -------- --------
Total current
liabilities........ 117,759 8,134 3,919 129,812 129,812
Long-term debt,
excluding current
portion................ 7,936 -- -- 80,000 a(iii) 87,936 16,058
Convertible subordinated
debt................... 105,000 -- -- 105,000 105,000
Loan (receivable)
payable--parent........ -- (5,295) 5,295 b -- --
Deferred taxes.......... 5,774 -- -- 5,774 5,774
Other liabilities....... 3,620 -- 361 3,981 3,981
-------- ------- ------ -------- --------
240,089 8,134 (1,015) 332,503 260,625
Stockholders' equity:
Convertible preferred
stock................. 25,577 -- -- 25,577 25,577
Common stock........... 150 -- -- 150 200
Additional paid-in
capital............... 128,496 72,538 9,380 (81,918) c 128,496 200,324
Translation adjustment. 215 -- -- 215 215
Accumulated deficit.... (20,764) -- (814) 814 c (20,764) (20,764)
-------- ------- ------ -------- --------
Total stockholders'
equity............. 133,674 72,538 8,566 133,674 205,552
-------- ------- ------ -------- --------
$373,763 $80,672 $7,551 $466,177 $466,177
======== ======= ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial data.
24
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, 1994
-----------------------------------------------------------------------
HISTORICAL PRO FORMA
--------------------------- ------------------------------------------
AS
FURTHER
THE ADJUSTMENTS ADJUSTED
PERMUTIT INCREASE ADJUSTMENTS FOR THE
COMPANY AIW GROUP (DECREASE) REFERENCE COMBINED OFFERING
-------- ------- -------- ----------- ----------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $180,421 $38,411 $19,687 $238,519 $238,519
Cost of sales........... 132,811 26,644 12,545 $1,437 d (i) 173,437 173,437
Depreciation and
amortization........... -- 7,469 -- (7,469) d (i) -- --
-------- ------- ------- -------- --------
Gross profit........... 47,610 4,298 7,142 65,082 65,082
Selling, general and
administrative
expenses............... 52,484 5,547 8,601 6,407 d (i) 73,039 73,039
-------- ------- ------- -------- --------
Operating loss......... (4,874) (1,249) (1,459) (7,957) (7,957)
-------- ------- ------- -------- --------
Other income (expense):
Interest expense....... (2,077) (1,246) (109) (6,754) d (ii) (10,186) (2,998)
Other.................. 1,174 -- 50 1,224 1,224
-------- ------- ------- -------- --------
(903) (1,246) (59) (8,962) (1,774)
-------- ------- ------- -------- --------
Loss before income
taxes................. (5,777) (2,495) (1,518) (16,919) (9,731)
Benefit for income
taxes.................. (3,236) -- (364) (3,600) (3,600)
-------- ------- ------- -------- --------
Net loss .............. $ (2,541) $(2,495) $(1,154) $(13,319) $ (6,131)
======== ======= ======= ======== ========
Net loss per common
share................. $ (0.26) $ (1.13) $ (0.39)
======== ======== ========
Weighted average number
of shares outstanding.. 12,453 12,453 17,453
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial data.
25
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31, 1994
------------------------------------------------------------------------
HISTORICAL PRO FORMA
--------------------------- -------------------------------------------
AS
FURTHER
THE ADJUSTMENTS ADJUSTED
PERMUTIT INCREASE ADJUSTMENTS FOR THE
COMPANY AIW GROUP (DECREASE) REFERENCES COMBINED OFFERING
-------- ------- -------- ----------- ----------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $194,453 $32,851 $13,916 $241,220 $241,220
Cost of sales........... 139,164 21,175 8,587 $ 1,711 d(i) 170,637 170,637
Depreciation and
amortization........... -- 6,137 -- (6,137) d(i) -- --
-------- ------- ------- -------- --------
Gross profit........ 55,289 5,539 5,329 70,583 70,583
Selling, general and
administrative
expenses............... 45,819 3,848 5,199 4,707 d(i) 59,573 59,573
-------- ------- ------- -------- --------
Operating income.... 9,470 1,691 130 11,010 11,010
-------- ------- ------- -------- --------
Other income (expense):
Interest expense.... (3,632) (1,491) (65) (4,509) d(ii) (9,697) (4,306)
Other............... 1,641 -- 6 1,647 1,647
-------- ------- ------- -------- --------
(1,991) (1,491) (59) (8,050) (2,659)
-------- ------- ------- -------- --------
Income before income
taxes.............. 7,479 200 71 2,960 8,351
Provision (benefit) for
income taxes........... 2,056 -- (119) (1,107) d(iii) 830 2,340
-------- ------- ------- -------- --------
Net income.......... $ 5,423 $ 200 $ 190 $ 2,130 $ 6,011
======== ======= ======= ======== ========
Net income per
common share....... $ 0.33 $ 0.11 $ 0.27
======== ======== ========
Weighted average number
of shares outstanding.. 14,881 14,881 19,881
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial data.
26
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
a. The pro forma combined balance sheet has been prepared to reflect the
pending acquisition of AIW and the acquisition of The Permutit Group (the
"Acquisitions") for aggregate estimated all-cash purchase prices comprised
of the following:
<TABLE>
<S> <C>
(in thousands)
AIW....................................................... $ 80,000
The Permutit Group........................................ 10,000
Estimated transaction costs............................... 375
--------------
$ 90,375
==============
</TABLE>
The estimated tangible net book values, as adjusted, of AIW and The Permutit
Group are assumed to be $72,538,000 and $3,271,000, respectively. The fair
values of the net assets of AIW and The Permutit Group as of the closing date
are assumed to be equal to their respective estimated tangible net book values,
as adjusted. The difference between the estimated purchase prices and the
estimated fair values of the net assets of AIW and The Permutit Group is
approximately $14,566,000, which has been recorded as goodwill attributable to
the Acquisitions in the accompanying pro forma combined balance sheet and will
be amortized over 40 years.
For the fiscal year ended March 31, 1994, the historical results of
operations of AIW reflect AIW's operations for the twelve months ended December
31, 1993.
The pro forma combined balance sheet has been adjusted to reflect the above
as follows:
(i) To record the payment of cash and estimated
transaction costs;
(ii) To adjust goodwill for the difference
between the estimated purchase prices and
the estimated fair values of the net assets
acquired;
(iii) To record the assumed incurrence of
$80,000,000 of indebtedness with an
interest rate of 10% to consummate the
Acquisitions. The Company, however, intends
to retire the debt with the proceeds from
the Offering. See "Use of Proceeds."
b. The pro forma combined balance sheet has been adjusted to eliminate the net
loan receivable of The Permutit Company Limited from its parent company.
c. The pro forma combined balance sheet has been adjusted to eliminate the
equity of AIW and The Permutit Group.
The As Further Adjusted for the Offering columns give effect to the proposed
Offering and the anticipated application of the net proceeds therefrom, which
results in a reduction in long-term debt of $71,878,000 and an increase in
stockholders' equity of the same amount at December 31, 1994.
27
<PAGE>
d. The pro forma combined statements of operations give effect to the
following pro forma adjustments as follows:
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
MARCH 31, DECEMBER 31,
1994 1994
----------- ------------
(in thousands)
<S> <C> <C>
(i) Selling, general and administrative expenses:
-- To allocate AIW's depreciation and
amortization between cost of sales and
selling, general and administrative
expenses $622 $473
-- To allocate a portion of AIW's cost of
sales to selling, general and
administrative expenses for consistency
with Company historical presentation 6,160 4,514
-- To adjust goodwill amortization, which
will be amortized over 40 years (375) (280)
------- -------
$ 6,407 $ 4,707
======= =======
(ii) To adjust interest expense related to the
indebtedness that will be incurred to
finance the Acquisitions, net of interest
expense recorded by AIW, which interest
expense has been eliminated. Interest on the
indebtedness is assumed to be at an
effective rate of 10% per annum. $(6,754) $(4,509)
======= =======
The As Further Adjusted for the Offering
columns give effect to the proposed Offering
and the anticipated application of the net
proceeds therefrom, which results in a
reduction in interest expense of $7,188,000
and $5,391,000 for the fiscal year ended March
31, 1994 and the nine months ended December
31, 1994, respectively. See "Use of Proceeds."
(iii) To adjust the provision for income taxes to
reflect the combined results of operations. -- $(1,107)
</TABLE>
28
<PAGE>
THE WATER TREATMENT INDUSTRY
INTRODUCTION
As a result of global population growth, economic expansion and the limited
supply of usable water, water has become an increasingly scarce resource. In
addition to the need for potable water, industrial and commercial companies
require purified water for most manufactured products, whether as an ingredient
in the finished product or as part of the manufacturing process. Accordingly,
most manufacturers utilize water treatment systems to purify their incoming
water ("influent"). Furthermore, government regulations require most industrial
and commercial companies and municipalities to treat their outgoing wastewater
("effluent"). Water purification and wastewater treatment has developed into a
multi-billion dollar global industry.
Customers of the water treatment industry can be classified into three
categories: (i) industrial and commercial businesses, such as pharmaceutical,
semiconductor and food and beverage manufacturers; (ii) municipal and private
suppliers of public water services; and (iii) individual consumers of potable
water. Many industrial, commercial and municipal users seek a systems solution
that includes: water purification and wastewater treatment systems
incorporating a broad range of treatment technologies; replacement parts and
consumables (such as membranes and carbon); and support services that include
ongoing service and maintenance. As an alternative to purchasing entire
systems, some customers may prefer to outsource the purification of their
influent and effluent.
As industrial and commercial companies seek to increase manufacturing
productivity, they require water treatment systems that enable them to purify
greater quantities of influent at existing facilities. In addition, advances in
manufacturing technology in certain industries, such as electronics and
pharmaceuticals, are dependent upon highly purified and ultrapure water. These
factors, combined with higher water prices and government regulation regarding
effluent, have resulted in demand for increasingly sophisticated water
purification and wastewater treatment systems. These complex systems require
specially trained operators, floor space and significant capital outlays. As a
result, rather than committing such resources to operate in-house water
treatment systems, some users are increasingly seeking water treatment
companies to operate their facilities or provide purified water under contract.
The water treatment industry is highly fragmented, with numerous regional
participants who are limited in their geographic scope. This fragmentation is
primarily due to local differences in water quality and supply, different
levels of demand for water resulting from varying concentrations of industry
and population, and local governmental regulation. Most participants in the
water treatment industry provide a limited number of treatment technologies, a
limited number of products or services, or focus on a particular industry.
While the number of industry participants ranges from a few large companies to
hundreds of small local companies, there are few competitors in the industry
that offer a full range of water treatment equipment, technologies and
services.
INDUSTRIAL AND COMMERCIAL USERS
Industrial and commercial users have a significant need for purified water
because it is a necessary component in many products and industrial processes.
The quality of water varies dramatically across geographic regions, and water
contains impurities which, if untreated, can render it effectively useless for
most industrial purposes. The use of untreated water in manufacturing processes
can result not only in inconsistent product quality, but also in substantial
equipment degradation, which can lead to costly maintenance or replacement
costs. Consequently, most manufacturers treat their influent in order to
maintain a consistently acceptable degree of purity. For example, purified
water is an integral component of many consumer goods and is used in the
manufacture of pharmaceutical products, electronics and chemicals.
Additionally, food and beverage manufacturers require water with consistent
quality to preserve uniformity
29
<PAGE>
of taste and appearance in their products. As a result of these process
specifications, industrial and commercial customers often require a broad range
of treatment technologies to purify their influent.
In addition to treating their influent to ensure product quality, industrial
and commercial users are often required to treat their effluent. Government
regulations regarding the disposal of aqueous industrial waste, combined with
public concern regarding industrial pollution, have led to increased awareness
on the part of businesses and public utilities as to the benefits of wastewater
treatment and waste minimization. In response to higher water prices and rising
wastewater discharge fees, industrial and commercial manufacturers have also
become aware of the cost-effectiveness of recycling their effluent. As a result
of these factors, industrial companies increasingly require complex systems and
equipment to treat and recycle process water.
MUNICIPAL USERS
Public awareness and governmental concern regarding the increasing scarcity
of water, the quality of drinking water, and the potential health hazards
associated with waste products discharged into the environment, have resulted
in legislation, regulation and enforcement requiring strict standards for
potable water and restrictions on the discharge of pollutants in wastewater. As
a result, municipalities are experiencing increasing costs for water, water
purification and wastewater treatment. Accordingly, providers of public
drinking water and municipal wastewater treatment facilities are increasingly
purchasing sophisticated treatment systems to solve their treatment needs. In
addition, because many municipal water systems are operating at or near
capacity and many municipalities are experiencing budgetary constraints, such
customers are seeking innovative solutions to their water treatment needs, such
as improved technologies and equipment and various outsourcing and service
options.
INDIVIDUAL USERS
The market for individual users consists of bottled water and point-of-use
products, such as domestic filtration systems and parts. Consumers' needs vary
by geography as a result of differing water qualities and by level of economic
development. This segment of the industry is highly fragmented, and management
believes there are hundreds of competitors in the potable water and point-of-
use products markets.
30
<PAGE>
BUSINESS
INTRODUCTION
The Company is a leading provider of water treatment systems, services and
replacement parts to industrial and commercial customers of the multi-billion
dollar global water treatment industry. The Company offers what it believes to
be the industry's broadest line of treatment systems and services, integrating
a wide spectrum of proven technologies designed to provide cost-effective water
treatment solutions. The Company provides a single-source solution to its
industrial, commercial and municipal customers by identifying and evaluating
water purification and wastewater treatment needs, conducting treatability
studies, and designing, manufacturing, selling, installing and servicing water
treatment systems. As of March 1, 1995, the Company had an installed base of
more than 60,000 systems in the United States, Europe, Latin America and the
Far East. The Company also sells replacement parts and consumables, such as
membranes and carbon, that support its systems. In addition, through its global
network of 94 sales and service facilities, the Company is a leading provider
of service deionization ("SDI") in the United States and Western Europe, and
provides ongoing service and maintenance to its customers. See "Business--
Principal Products and Services." The Company also offers outsourcing options
to its customers, including operation of water purification and wastewater
treatment systems and provision of water by the gallon. The Company has grown
internally and through the strategic acquisition and integration of numerous
domestic and international water treatment companies. The Company's revenues
have grown from $42.6 million for the fiscal year ended March 31, 1991 to
$180.4 million for the fiscal year ended March 31, 1994, representing a
compound annual growth rate of 61.8%. The Company generated $194.5 million in
revenues for the nine months ended December 31, 1994 as compared to $118.8
million for the comparable period of the prior year, representing a growth rate
of 63.7%.
The Company's customer base includes a broad range of major industrial and
commercial companies, such as Abbott Laboratories, U.S. Steel, Coca-Cola,
Advanced Micro Devices, Chrysler, Eli Lilly, Minnesota Mining and Manufacturing
Company, Procter & Gamble and Southern California Edison. With growing demands
for purified water and a diminishing supply of usable water, many companies
require increasingly sophisticated solutions to their water treatment needs.
The Company believes it provides its customers with a unique full-service and
cost-effective approach through a combination of its wide range of products and
services, its breadth of technologies and its global network of local sales and
service facilities.
STRATEGY
The Company has developed a strategy designed to expand its operations,
achieve earnings growth and capitalize on its position as a leading full-
service provider of water treatment systems and services. The Company's
strategy is as follows:
PROVIDE SINGLE-SOURCE WATER TREATMENT SOLUTIONS TO INDUSTRIAL, COMMERCIAL
AND MUNICIPAL CUSTOMERS. The Company believes that industrial, commercial
and municipal users of water treatment systems and services desire to
obtain such systems and services from a single source willing to guarantee
and service the entire system, rather than from separate engineers,
manufacturers and service contractors. Therefore, the Company plans to
continue to emphasize its one-stop approach by providing a wide range of
water treatment systems and services. The Company strives to meet the
diverse demands of its customers through its ability to sell a system
outright, sell the system and operate it as a service option for its
customers, or build and retain ownership and, under contract, operate the
system. Through utilization of its global network of local sales and
service facilities, the Company assesses its customers' needs and develops
innovative and cost-effective water treatment solutions.
OFFER THE BROADEST AND MOST UP-TO-DATE RANGE OF PROVEN TREATMENT
TECHNOLOGIES. The Company intends to continue to offer a wide variety of
filtration and purification technologies to meet each customer's individual
needs. The Company provides a broad range of treatment technologies,
ranging from basic water treatment systems, such as sedimentation, to
systems that utilize state-of-the-art technology, such as CDI (TM)
continuous deionization. Additionally, the Company plans to continue to
capitalize on what
31
<PAGE>
it believes to be an emerging trend away from traditional chemical
treatment to treatment of water with capital equipment, such as reverse
osmosis systems. The Company conducts its own research and development,
augmented by customer- and government-funded research spending and may
acquire, as appropriate, other water treatment companies and their
respective technologies.
PURSUE ACQUISITIONS THAT PROVIDE STRATEGIC FIT AND CONTRIBUTE TO THE
COMPANY'S GROWTH. In addition to growing internally, the Company has grown
significantly through the strategic acquisition and integration of numerous
domestic and international water treatment companies, which have provided
the Company with specific technologies, products and services and
penetration into certain industries and geographic areas. For example, the
Company's acquisition of Ionpure provided it with CDI capability, domestic
sales and service offices in new regions, and an entrance into the European
market. Following the acquisition of a business, management takes
affirmative steps to redirect the focus of the acquired company, integrate
its operations and technologies into the Company, rationalize operations,
reduce personnel and other costs where appropriate, and promote employee
initiative and responsibility. The Company plans to continue to pursue
acquisitions that add to its technologies and products, broaden its
customer base and expand its global network of local sales and service
facilities. The Company recently acquired a franchisee of Continental
Penfield Corporation ("Continental"), a subsidiary of the Company, and
currently intends to acquire additional Continental franchisees when
appropriate.
EXPAND THE COMPANY'S PRESENCE IN THE BUILD, OWN AND OPERATE SEGMENT. The
Company is expanding its presence in the emerging build, own and operate
segment of the water treatment industry through its pending acquisition of
AIW and pending joint venture (the "Nalco JV") with Nalco Chemical Company
("Nalco"). The build, own and operate segment of the industry enables the
Company to provide customers with purified water by the gallon under
contract through construction, ownership and operation of water
purification and wastewater treatment systems. By offering this option, the
Company minimizes its customers' capital outlays and the costs associated
with operating complex in-house systems. Because construction of water
treatment systems is capital-intensive, the Company has pursued the
creation of the Nalco JV to finance such construction. In addition, the
proposed Nalco JV contemplates utilization of Nalco's sales force and
access to its extensive customer base. Providing build, own and operate
arrangements to its customers will enable the Company to generate recurring
future revenues under long-term contracts.
ACHIEVE COST SAVINGS, SYNERGIES AND ECONOMIES OF SCALE IN ITS
OPERATIONS. The Company operates its business through a decentralized
organizational structure, which provides low overhead and minimizes
redundancy. The Company achieves cost savings through implementation of
strict controls and standardized operating procedures. Additionally, the
Company's acquisitions generally provide it with economies of scale through
enhanced purchasing power, increased asset utilization and decreased
dependency on third-party suppliers, as well as decreased operating
expenses due to rationalization of operations. The integration of the
acquired companies also generally provides synergies, such as cross-selling
and significant sharing of experience and technology.
RECENT GROWTH OF THE COMPANY
Since July 1991, the Company has acquired and integrated a number of
businesses with strong market positions and substantial expertise in the
design, manufacture and operation of systems for the filtration, purification
and treatment of water and wastewater. These acquisitions have enabled the
Company to differentiate itself from its competitors and establish itself as
one of the most comprehensive, single-source providers capable of meeting its
customers' diverse water treatment needs. Following an acquisition, management
takes affirmative steps to redirect the focus of the acquired business,
integrate its operations and technologies into the Company, reduce personnel
and other costs where appropriate, and promote employee initiative and
responsibility. Additionally, the Company's acquisitions generally provide it
with economies of scale through enhanced purchasing power, increased asset
utilization and decreased dependency on third-party suppliers, as well as
decreased operating expenses due to rationalization of operations. The
integration of the acquired companies also generally provides synergies, such
as cross-selling and significant sharing of experience and technology.
32
<PAGE>
The Company intends to actively seek additional acquisitions that enhance its
geographic network, customer base, and range of product offerings, technologies
and industries served. On April 3, 1995 the Company acquired The Permutit
Group. Currently pending is the proposed acquisition of Arrowhead Industrial
Water, Inc. ("AIW"). The Company believes that these acquisitions will
significantly enhance its technological and service capabilities and
substantially expand its service network in the United States and
internationally. See "Recent and Pending Acquisitions and Joint Venture." The
principal businesses acquired since July 1991, together with the pending
acquisition of AIW, include the following:
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS ACTIVITY
ACQUISITION DATE NAME AND PRINCIPAL LOCATION AT TIME OF ACQUISITION
---------------- --------------------------- ---------------------------
<S> <C> <C>
DOMESTIC ACQUISITIONS:
July 1991 Lancy Waste Management Systems Industrial wastewater treatment systems
Warrendale, Pennsylvania
January 1992 Illinois Water Treatment ("IWT") Industrial process filtration and
Rockford, Illinois treatment systems
January 1992 Metro Recovery Systems Centralized treatment and recovery
Roseville, Minnesota facility
January 1993 Permutit (U.S.A.) Condensate polishing equipment
Warren, New Jersey
December 1993 Ionpure Technologies Corp. Ultrapure water systems, CDI and SDI
Lowell, Massachusetts
July 1994 Continental Water Systems Ultrapure water systems and SDI
San Antonio, Texas
and
Continental Penfield Corp. Ultrapure water systems
Plantsville, Connecticut
August 1994 Ceraflo Ceramic filter products
Warrendale, Pennsylvania
February 1995 Continental Water Conditioning Ultrapure water systems and SDI
Company of the Bay Area
Palo Alto, California
Pending Arrowhead Industrial Water On-site and mobile water treatment
Lincolnshire, Illinois systems and services and SDI
INTERNATIONAL ACQUISITIONS:
April 1992 Societe des Ceramiques Techniques Ceramic filters and various industrial
Tarbes, France ceramic components
May 1994 Sation S.A. Water treatment systems and SDI
Barcelona, Spain
June 1994 Sanilo, S.A. Water treatment systems and SDI
Amboise, France
July 1994 Seral Erich Alhauser GmbH Laboratory equipment manufacturing
Ransbach-Baumbach, Germany and SDI
September 1994 Smogless S.p.A. Wastewater treatment services for
Milan, Italy industrial and municipal customers
December 1994 Groupe Crouzat S.A. Water treatment systems and SDI
Toulouse, France
April 1995 The Permutit Group Water treatment systems and SDI
Isleworth, England
</TABLE>
33
<PAGE>
PRINCIPAL PRODUCTS AND SERVICES
The Company provides a single-source solution to its industrial, commercial
and municipal customers by identifying and evaluating water purification and
wastewater treatment needs, conducting treatability studies, and designing,
manufacturing, selling, installing and servicing water and wastewater treatment
systems for the filtration and purification of influent and effluent on a cost-
effective basis. The Company does not currently supply the market for
individual users of bottled water and household point-of-use products, such as
residential filtration systems and parts. The Company's principal products and
services include (i) capital equipment, (ii) services and (iii) replacement
parts and consumables.
Capital Equipment. The Company manufactures both pre-engineered and
customized treatment systems and utilizes more than 16 different proven
physical, biological and chemical treatment techniques including, among others,
continuous deionization, reverse osmosis, electrodialysis, adsorption and ion
exchange, that can be combined and configured to meet wide-ranging customer
needs. The Company utilizes a global sales and service force to provide direct
contact and service to its customers. The Company designs, engineers,
manufactures and assembles its systems at its manufacturing facilities located
in the United States and Western Europe. Components that are not manufactured
by the Company are purchased from vendors in the United States and abroad. See
"--Technologies."
Services. The Company's service business represents a growing portion of its
revenues. The Company is a leading provider of service deionization ("SDI") in
the United States and Western Europe for industrial and commercial users. SDI
is a term given to portable water deionization treatment equipment that uses
resins as the filtration medium and is designed to be easily connected to a
local feed water supply and to produce ultrapure water. Resin is retrieved and
transported by a Company service representative to a Company regeneration plant
for chemical recharging when it is exhausted. Unlike many permanent systems,
SDI requires no chemical handling or maintenance by the customer. SDI is a
widely used technology among industrial and commercial companies and provides
the Company with a recurring source of revenues and the opportunity to market
its systems and other services to its existing SDI customer base.
As part of its service business, the Company has expanded its product
offerings to include the construction and operation of wastewater facilities
under long-term contracts on behalf of public water and wastewater treatment
providers such as municipalities. In Italy, the Company is managing two
municipal water treatment operations serving more than 1.5 million people under
long-term contracts. During 1993, the Company became the first United States-
based company to be awarded a contract to build and operate a wastewater
treatment facility in Mexico, located in the city of Cuernavaca. The Company
has also obtained a contract to build a water desalination plant in the Cayman
Islands. In addition, under an agreement with Nalco, the Company currently
provides water to U.S. Steel on a long-term basis.
Another component of the Company's service business is its hazardous waste
treatment facility located in Roseville, Minnesota. This facility operates a
federal Resource Conservation and Recovery Act ("RCRA") permitted "Part B"
centralized treatment and recovery facility which sells products recovered from
the treatment of industrial waste. The facility receives wastes generated
primarily by the metal finishing industry and printed circuit board
manufacturers. The facility offers the Company's customers a cost-effective
recovery approach that reduces processing costs, the quantity of sludge
generated and the environmental exposure associated with industrial waste.
Replacement Parts and Consumables. The Company manufactures and sells
replacement parts required to support treatment systems manufactured by both
the Company and, to a limited extent, its competitors. The Company also
provides consumables, such as membranes and carbon, to its customers.
34
<PAGE>
HISTORICAL SALES
A percentage breakdown of the Company's sales, as restated, by product
category for the past three fiscal years is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
-------------------------------
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Sales by product category:
Capital equipment............................... 83% 58% 63%
Services........................................ 4% 7% 19%
Replacement parts, consumables and other........ 13% 35% 18%
</TABLE>
CUSTOMER MARKETS AND PRODUCT APPLICATIONS
The Company's customer base includes a broad range of major industrial and
commercial companies, such as Abbott Laboratories, U.S. Steel, Coca-Cola,
Advanced Micro Devices, Chrysler, Eli Lilly, Minnesota Mining and Manufacturing
Company, Procter & Gamble and Southern California Edison. With growing demands
for purified water and a diminishing supply of usable water, many companies
require increasingly sophisticated solutions to their water treatment needs.
The following are industries and customers that the Company services and some
of the products used therein:
Pharmaceutical and Biotechnology. Process water used in the pharmaceutical
and biotechnology industries must meet the highest standards of purity. Reverse
osmosis in conjunction with CDI ("RO/CDI") technology provides high purity
water that meets the strictest quality specifications. The Company's ceramic
membranes, in combination with other membrane or ion exchange equipment, meet
these requirements by achieving nearly 100% contaminant removal. This equipment
is used in fermentation, purification and recovery processes. Ion exchange
technologies are also used to purify process streams, as well as to purify and
recover antibiotics, vitamins and chemical elements. In addition, ion exchange
is employed in industrial fermentation to process substrates. Customers include
Eli Lilly, Merck, Upjohn and Chiron.
Semiconductor and Electronics. Semiconductor manufacturing processes require
ultra-high purity water to avoid contamination from even the smallest
microscopic particles. The Company's ceramic membrane filters are advanced
inorganic, multilayered filter media that provide superior contaminant removal
in the most demanding environments. In addition, the Company's membrane and ion
exchange technology is used by electronic components manufacturers to produce
ultra-high purity water and to reduce the level of microcontamination in rinse
waters. Customers include Advanced Micro Devices and Hitachi.
Chemical and Petrochemical. Incoming water supplies for chemical and
petrochemical manufacturers require filtration and treatment to remove solid
particles and dissolved impurities. The Company manufactures demineralizers,
water softeners, clarifiers, multimedia filters and reverse osmosis systems to
deliver water of controlled quality and content. Additionally, the Company's
Membralox(R) and Ceraflo ceramic membranes are used to accomplish the
separation of chemical and petrochemical streams in very harsh environments.
Customers include Dow Chemical, DuPont and Stouffer Chemical.
Food and Beverage. The food and beverage industries require high-quality yet
cost-effective water treatment systems. The Company offers physical and
chemical filtration and treatment technologies to purify incoming water and
refine and concentrate process fluids. Its ion exchange and ADSEP systems are
advanced technologies for the separation of sugars and corn syrups. In the
beverage industry, ceramic membrane filters achieve a high level of fluid
purity using nonchemical processing techniques. Customers include Anheuser
Busch, Coca-Cola, Cargill and Holly Sugar.
Metal Finishing. The Company's metal treatment and recovery systems
facilitate regulatory compliance of effluent and reduce the level of heavy
metals and solids generated from metal finishing operations such as printed
circuit board manufacturing, electroplating, galvanizing and anodizing. The
Company's key
35
<PAGE>
technology offerings include ion exchange, reverse osmosis, electrolytic
recovery, sorption filtration, ceramic membrane ultrafiltration, as well as a
full complement of conventional precipitation settling and filtration
technologies. Customers include Hughes Aircraft, Rockwell Corporation and
Minnesota Mining and Manufacturing Company.
Power Generation. Nuclear and fossil fueled electric power plants are subject
to steam generator and boiler corrosion and turbine fouling if damaging
contaminants are not removed from the incoming and recirculating feedwater
supplies. The Company's filtration membrane and ion exchange systems provide
power plants with high-quality, demineralized boiler feedwater. The Company's
tube filter and deep bed condensate polishing systems employ advanced resin
separation and regeneration technologies to improve the quality of the
condensate returned to the boiler. Sand and other media filters are used in
cogeneration and other power plant applications. Nuclear-grade resins are
available to meet the more stringent water quality requirements of nuclear
power plants. Customers include Southern California Edison and Southern
Company.
Oil Field and Refinery. The petroleum industry uses large quantities of water
for steam and water flooding of oil fields for the secondary recovery of oil.
The Company's systems remove oil contaminants and suspended solids from the
resurfaced water for reuse for down-hole water and steam injection. Refineries
use the Company's oil/water separators to remove oil and suspended solids from
process water and refinery effluents, as well as a full range of water
purification equipment to remove dissolved solids. Customers include Shell Oil,
Marathon Oil and Chinese Petroleum.
Medical/Dialysis. RO/CDI systems produce a continuous stream of ultra-high
purity water by removing organics, minerals and other contaminants while
providing the necessary bacteria and endotoxin control for high-flux dialysis
machines and other high-quality, high-capacity water requirements in the
medical field.
Laboratory. Cartridge-type reverse osmosis filters, deionization systems,
electrodiaresis ("EDR") modules, ultrafiltration units, particle filters and
activated carbon filters remove contaminants, bacteria, pyrogens and odor to
provide point-of-use water polishing for critical and demanding laboratory
applications.
Pulp and Paper. The Company's dissolved air flotation systems remove and
recover suspended solids from waste streams for pulp and paper manufacturers
and require considerably less floor space than conventional separation units.
The Company's boiler feedwater treatment systems are also utilized in this
industry.
Groundwater Remediation and Landfill Leachate Treatment. The Company's
remediation systems are used to remove organic compounds and soluble metals
from contaminated groundwater. Biosystems employ a "pump and treat" technology
that incorporates equalization, separation of metals, biological treatment and
clarification processes. The Company's leachate systems, combining chemical
pre-treatment systems with biological treatment technologies, address the
treatment or elimination of wastewater drainage into the groundwater and
surrounding waterways. Customers include WMX Technologies, Inc., Browning-
Ferris Industries and Laidlaw Inc.
Drinking Water. Food and beverage processors, hotels and other institutions
require high quality yet affordable water treatment systems to meet consumer
and regulatory standards. In addition, suppliers of drinking water are seeking
alternative purification systems. The Company manufactures filtration, water
treatment and clarification systems for the drinking water industry that meet
United States Environmental Protection Agency ("EPA") standards under the Safe
Drinking Water Act. Pre-assembled systems capable of handling small and large
volume flows are also available.
Municipal Water Recovery and Reuse. Municipal sewage plants often utilize
three stages of treatment (primary, secondary and tertiary) before discharge to
the environment. In addition to offering equipment and systems to satisfy these
requirements, the Company's membrane, reverse osmosis and ion exchange
technologies add a fourth stage by removing remaining contaminants to a purity
level that allows water to be recycled and reused in additional industrial
applications. These technologies are cost-effective and reduce the adverse
impact of industrial growth in communities where water tables are low.
36
<PAGE>
SALES AND MARKETING
The Company sells its products through direct sales and service employees
and independent manufacturers' representatives, who may be assigned certain
geographic territories and are paid on a commission basis. The Company
provides engineering and sales support to its representatives. A portion of
the Company's revenues are derived from recommendations by independent
engineers and consultants who advise the ultimate customer. The Company sells
its ceramic membrane products to end users, distributors and original
equipment manufacturers.
The Company currently has 94 sales and service facilities worldwide and has
approximately 175 manufacturers' representatives, distributors and licensees.
As part of the marketing integration strategy, sales prospects are reviewed to
determine which of the Company's engineering and manufacturing resources
should be utilized to best meet customers' needs and maximize profitability.
A number of licensees manufacture and sell certain of the Company's products
in Western Europe, Asia, Africa, Australia and Mexico. The Company provides
technical support to these licensees and is either paid a royalty on sales or
participates in the sale directly.
For the fiscal years ended March 31, 1993 and 1994 and the nine months ended
December 31, 1994, the Company's international sales were approximately
$24,018,000, $37,841,000 and $69,094,000, respectively.
BACKLOG AND SEASONALITY
The Company had the following backlog of purchase orders for its products as
of December 31, 1993 and 1994. These figures do not include revenues from
service or SDI. The orders are scheduled for delivery and installation during
the following twelve months and are believed by management to be firm.
<TABLE>
<CAPTION>
DATE AMOUNT
---- ------------
<S> <C>
December 31, 1993 $ 73,505,000
December 31, 1994 112,784,000
</TABLE>
The rate of booking new orders varies from month to month. In addition, the
orders have varying delivery schedules, and the Company's backlog as of any
particular date may not be representative of actual revenues for any
succeeding period.
Certain of the Company's contracts for engineered products and services
provide for progress payments during the engineering and manufacturing period.
The balance is due upon acceptance or start-up or, in the case of most
municipal and governmental purchasers, 90 to 180 days after delivery and
installation. Demand for the Company's products and services is not typically
affected by seasonal changes.
PRODUCT WARRANTIES
The Company generally offers one-year product warranties on its equipment.
In some instances the warranties may be for longer periods, consistent with
market practices. Performance guarantees apply to most of the Company's
systems. The costs incurred by the Company to date under its product
warranties and systems guarantees have not been material.
RESEARCH AND DEVELOPMENT
In order to provide its customers with cost-effective water treatment
solutions, the Company offers a wide variety of filtration and purification
technologies. The Company uses its own research and development, augmented by
customer- and government-funded research spending, in order to provide its
customers with state-of-the-art products. In addition, the Company uses its
analytical laboratories to perform water analyses and to test the
effectiveness of filtration media and techniques in order to enhance the
Company's capability to design systems tailored specifically for the
particular needs of customers. The Company has also acquired companies with
advanced research and development capabilities. The Company's research and
development expenditures for the fiscal years ended March 31, 1993 and 1994
and the nine months ended December 31, 1994 were approximately $2,525,000,
$5,350,000 and $3,097,000, respectively.
37
<PAGE>
RAW MATERIALS AND SUPPLIES
Raw materials, primarily steel, filtration media, resins, membranes and
component parts such as pumps and valves are available from several sources.
The Company has not experienced difficulty in obtaining the materials and
components used in its operations.
COMPETITION
The water purification and wastewater treatment industry is currently
fragmented and highly competitive. Many companies compete to varying degrees
with the Company in its markets. The Company knows of no reliable statistics
that provide a basis from which to estimate the Company's relative competitive
position in these markets. The principal methods of competition in the markets
in which the Company competes are technology, service, price, product
specifications, customized design, product knowledge and reputation, timely
delivery, bonding capacity, the relative ease of operation and maintenance and
the prompt availability of spare parts. In the municipal contract bid process,
pricing and the ability to meet bid specifications are the primary
considerations. While no competitor is considered dominant, there are some
competitors that significantly greater resources than the Company.
TECHNOLOGIES
Water and wastewater treatment methods can be classified into 16 primary
separation processes. Some of these processes may overlap in certain respects,
depending on the particular application. Although each process can function
independently, multiple processes are often utilized to accomplish a more
complete separation and achieve the desired treatment. The Company manufactures
or supplies systems and components that utilize but are not limited to each of
the following processes:
Continuous Deionization. The CDI continuous deionization system is a
proprietary process of the Company that uses ion exchange resins, ion exchange
membranes and an electrical current to purify water continuously, without the
need for hazardous chemicals. CDI systems use electricity instead of acid and
caustic to continuously regenerate the resins, producing high purity water. The
process produces a small wastewater stream that can be safely discharged into
municipal collection systems without special treatment.
Ion Exchange. Ion exchange is a process in which electrically charged ions
that are electrochemically held by ion exchange resin beads are exchanged for
ions of similar charge in a solution in which the beads are immersed. The
Company has developed and applied ion exchange technologies extensively for
water and wastewater treatment. Applications have included removal of hardness
ions from water supplies, removal of nitrates, iron and manganese from
groundwater supplies, complete demineralization for boiler feedwater and high-
purity water applications, and removal and recovery of heavy metals from
industrial wastewater produced in such activities as electroplating. The
Company is involved in ion exchange resin and equipment sales, resin
regeneration and related service and customer applications.
Reverse Osmosis. Solutions are desalted (desalination) or concentrated by
driving them through membranes using relatively high hydraulic pressure as the
driving force. Contaminants are excluded, or rejected, by the membranes.
Ultrafiltration. Moderate hydraulic pressure is used to transfer water and
low molecular weight species through a membrane while blocking contaminants
such as suspended solids, colloids and large organic molecules. Ultrafiltration
is generally used for separations where particle sizes are larger than those of
metal or salt ions.
Microfiltration. Relatively low hydraulic pressure is used for separating
rather large particles and high molecular weight species from water. Uses
include the clarification of fruit juices prior to bottling.
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<PAGE>
Electrodialysis. Electrodialysis is a membrane process that utilizes
electrical current to extract ions from water. The primary uses are to
desalinate brackish water, to recover water from the concentrate from reverse
osmosis and to recover salt from seawater.
Adsorption. Adsorption is a significant phenomenon in most natural physical,
biological and chemical processes and involves electrostatic and chemical
attraction or bonds. Adsorption on solids, particularly activated carbon, has
become a widely used method for purifying water and wastewater and capturing
volatile organic compounds that might otherwise be released into the
atmosphere. The Company has applied the principles of adsorption in numerous
ways, typically involving powdered or granular activated carbon. Applications
have included the advanced treatment of high-purity water for use in the
production of such diverse products as artificial sweeteners and aerospace
components, as well as the pre-treatment of heavily contaminated industrial
wastewater and the treatment of contaminated groundwater.
Electrolytic Processes. Electrolytic metal recovery involves the attraction
of metal ions via electrolytic deposition and is used to remove and recover
heavy metals from industrial wastewater. In addition to the design and sale of
electrolytic equipment, the Company currently utilizes this process at its USF
Recovery Services facility.
Biological Processes. Utilized in both municipal and industrial markets,
biological treatment processes involve the use of organic microbes to digest
undesired substances for such diverse industries as food and beverage
processing, pharmaceutical and chemical manufacturing and petrochemical
production. The Company engages in the design, construction and operation of
activated sludge systems, aerobic and anaerobic bio-towers, rotating biological
contactors and sequencing batch reactors. The Company has recently applied
biological processes in the treatment of groundwater and landfill leachates to
destroy or remove dangerous or noxious organic compounds.
Chemical Oxidation. The purpose of oxidation in water and wastewater
treatment is to convert undesirable chemical content into chemicals that are
neither harmful nor otherwise objectionable. Oxidants used by the Company have
included chlorine, chlorine dioxide, ultraviolet irradiation, ozone,
permanganate and hydrogen peroxide. The Company has applied oxidation
techniques to inorganic and organic substances for such purposes as municipal
water and wastewater disinfection, landfill leachate treatment and cyanide
destruction.
Disinfection. Disinfection is a process in which disease-producing organisms
are destroyed or otherwise inactivated. The Company has applied this process in
several physiochemical methods including thermal energy, ultraviolet
irradiation and addition of chemical reagents.
Aeration and Gas Transfer. Aeration, a process in which oxygen is
artificially injected into a waste stream, removes many undesirable undissolved
gasses and dissolved inorganic materials such as iron and manganese. Aeration
is commonly applied in wastewater treatment and is used in the Company's
aerobic bio-tower and induced air flotation. Other gas transfer technologies
available from the Company include decarbonator, denitrifier, chemical scrubber
and nitrification equipment.
Sludge Treatment. Sludge treatment is utilized to reduce the volume of
hazardous sludge generated by a customer and requiring disposal. The Company's
processes are focused on altering the nature of the sludge in order to render
it inoffensive. The Company accomplishes this by applying techniques to
condition, thicken, dewater and dry the sludge prior to ultimate disposal. In
addition to its existing municipal and industrial water and wastewater sludge
applications, the Company is attempting to develop a sludge stabilization
process to render hazardous sludge nonhazardous.
Sedimentation. Gravitational separation by sedimentation is generally an
effective way to remove solids from water and wastewater. However, different
types of solids have distinctly different settling characteristics. As a
result, the selection of sedimentation equipment for clarification of water or
wastewater requires a
39
<PAGE>
thorough understanding of the available processes and the variables that can
affect their efficiency. The Company has designed, built, installed and
operated sedimentation systems for municipal and industrial applications
worldwide. Systems range from large conventional sedimentation basins to small,
high-rate, inclined plate separators.
Coagulation and Flocculation. Many impurities are too small for gravitational
settling alone to be an effective removal process. Aggregation of these
impurities into larger particles that will more readily settle, a process
termed coagulation, is necessary for successful separation by sedimentation.
The Company has several decades of coagulation and flocculation experience
ranging from conventional municipal and industrial applications to highly
specialized, complex metals removal from industrial wastewater.
Filtration. Filtration is used extensively in water and wastewater treatment.
The Company has a broad array of filtration techniques for municipal,
industrial and commercial applications. Types of filters include cartridge
(backwashable or disposable), diatomaceous earth, pressure leaf, tubular,
multimedia, green sand, walnut shell, pressure, gravity, upflow and downflow
sand filters.
PATENTS, TRADEMARKS AND LICENSES
The Company currently owns a number of United States and foreign patents.
Although the Company believes that the patents and trademarks associated with
the Company's various product lines are of value, it does not consider any of
them to be essential to its business.
The Company's Ionpure subsidiary is licensed to use the CDI process (the "CDI
Technology") and certain other technologies pursuant to royalty-free license
agreements with Millipore Corporation and one of its affiliates. In 1993,
litigation was undertaken (the "Infringement Suit") by Electropure, Inc.
("Electropure") and HOH Water Technology Corporation ("HOH") against Ionpure
(which was acquired by the Company in December 1993) and Millipore (together,
the "Defendants"). The litigation alleges that the Defendants are infringing
the claims of U.S. Patent No. 4,465,573 (the "573 patent") by reason of the
manufacture, sale and use of an apparatus allegedly covered by the claims of
the 573 patent owned by HOH and licensed to Electropure. The 573 patent relates
to methods and systems for purifying water, and the alleged infringement arises
out of Ionpure's use of the technology utilized in systems incorporating the
CDI Technology.
Millipore has undertaken the defense of the Infringement Suit under the terms
of the license agreement. It is not possible to determine with certainty the
outcome of the Infringement Suit or its effect on Ionpure's business. However,
under the terms of the CDI Technology license agreement, Millipore is obligated
to indemnify Ionpure against all losses, liabilities and damages, including
loss of use, suffered by Ionpure or its affiliates that are incurred due to any
claim made against Ionpure or its affiliates by a third party alleging
infringement of a patent of such third party by reason of Ionpure's or its
affiliates' use of the rights granted under the CDI Technology license
agreement. The CDI Technology license agreement also provides that the amount
of any judgment, settlement or obligation to pay royalties to a third party,
along with Ionpure's losses, liabilities, damages, costs and expenses for loss
of use of any rights granted under the license agreement, will be borne
entirely by Millipore and the licensor. There can be no assurance, however,
that any damages that would be recovered in such event would fully compensate
Ionpure for the loss of use of the CDI Technology, due to the inherently
speculative nature of such damages.
The Company is also a licensee under certain agreements to manufacture and
market certain products. The Lyco Rotating Biological Contactor ("RBC") was
initially developed by George A. Hormel & Co. ("Hormel") and was further
developed and redesigned by U.S. Filter/Marlboro, Inc., which in 1981 obtained
an exclusive license from Hormel to manufacture and sell the RBC. Under that
license the Company pays Hormel a royalty of 3% of sales of RBC equipment. The
license is subject to periodic five-year renewals, with the last renewal
effected in 1991 for the five-year period ending December 1996.
40
<PAGE>
ENVIRONMENTAL REGULATION
Demand for the Company's products is affected in part by federal, state,
local and foreign environmental laws and regulations requiring the Company's
customers to meet environmental standards. A decline in enforcement or in
expenditures to address those regulations could have an adverse effect on the
demand for the equipment and services offered by the Company.
While the Company endeavors at each of its facilities to assure compliance
with environmental laws and regulations, there can be no assurance that the
Company's operations or activities, or historical operations at the Company's
locations, will not result in civil or criminal enforcement actions or private
actions resulting in mandatory cleanup requirements, revocation of required
permits or licenses, denial of applications for future permits, or significant
fines, penalties or damages that could have a material adverse effect on the
Company. The Company's Rockford facility has been identified as a potentially
responsible party ("PRP") under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA" or "Superfund"),
for the cleanup of contamination resulting from past disposals of wastes at a
landfill to which the Company, among others, sent wastes. CERCLA requires PRPs
to pay for cleanup of sites from which there has been a release or threatened
release of hazardous substances. Courts have interpreted CERCLA to impose
strict, joint and several liability upon all persons liable for cleanup costs.
As a practical matter, however, at sites where there are multiple PRPs, the
costs of cleanup typically are allocated among the parties according to a
volumetric or other standard. Although there can be no assurance, the Company
believes, based on the volume of wastes allegedly sent to the site (0.9% of the
total), among other things, that its liability for this site will not be
material. In addition, one of the Company's leased sites was investigated by
the U.S. Environmental Protection Agency (the "EPA") prior to the time the
Company began operations at the site. The Company does not believe that its
operations have contributed to the contamination, and it believes, based in
part on certain indemnities, that other parties are responsible for any cleanup
that may be required.
USF Recovery Services is the owner and operator of a hazardous waste
treatment and recovery facility and therefore is subject to stringent
regulations and compliance reviews applicable to its hazardous waste treatment
and recovery activities. Failure to comply with those regulations could result
in substantial fines and the suspension or revocation of the "Part B"
treatment, storage and disposal permit currently held by USF Recovery Services
pursuant to the federal Resource Conservation and Recovery Act ("RCRA") for
such activities. The state of Minnesota is authorized to enforce the hazardous
waste laws under RCRA.
The Company currently is involved in groundwater remediation at its Rockford,
Illinois facility as a result of soil and groundwater contamination occurring
at the facility prior to the Company's acquisition of ASTI from Alcoa.
Similarly, the Company also currently is undergoing remediation for on-site
soil contamination in connection with the closure of its Marlboro facility. The
Company has established reserves which it believes are adequate to cover its
costs related to these efforts, and, as a result, the Company does not believe
either such remediation is material.
In addition, to some extent, the liabilities and risks imposed by
environmental laws that affect the Company's customers may adversely impact
demand for the Company's products or services or impose greater liabilities and
risks on the Company, which could also have an adverse effect on the Company's
competitive or financial position. Furthermore, the environmental laws and
regulations to which the Company, as well as its customers, are subject are
continually changing. If such laws or regulations should change to impose
greater liabilities on the Company or, to some extent, its customers, this
could have an adverse effect on the Company's competitive or financial
condition.
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INSURANCE
The Company maintains general liability insurance for itself and its
principal domestic and foreign subsidiaries, including products and completed
operations, automobile and employer's liability insurance, in the amount of
$15,000,000 per occurrence and in the aggregate, with a self-insured retention
of $100,000. The Company also maintains environmental pollution liability
insurance in the amount of $5,000,000 per occurrence and in the aggregate, with
a self-insured retention of $250,000.
EMPLOYEES
As of February 8, 1995, the Company had 1,757 full-time employees assigned to
the Company's various offices and facilities, including 607 employees in
Europe. Certain of the Company's United States employees at Rockford, Illinois
and Whittier, California are covered by collective bargaining agreements, the
terms of which expire, respectively, in March 31, 1996 and April 30, 1995.
Certain of the Company's non-United States-based employees are covered by
collective bargaining agreements. Management believes that the Company's
relationships with the unions are good.
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PROPERTIES
The following lists the principal facilities of the Company as of March 31,
1995:
<TABLE>
<CAPTION>
APPROXIMATE
FLOOR SPACE DATE OF LEASE
PRINCIPAL FACILITY LOCATION (SQUARE FEET) EXPIRATION
---------------------------- ---------------- --------------- -------------
<C> <S> <C> <C>
Corporate Offices 73-710 Fred 4,588 (leased) 9/30/96
Waring Dr.
Suite 222
Palm Desert, CA
U.S. Filter/IWT 4669 Shepherd 163,000 (owned) --
Trail
Rockford, IL
U.S. Filter/SCT Usine a Bazet 215,000 (owned) --
Tarbes, France
U.S. Filter/Permutit 30 Technology 20,460 (leased) 1/31/01
Drive
Warren, NJ
U.S. Filter Recovery Services 2430 Rose Place 69,700 (owned) --
Roseville, MN
U.S. Filter/Warrendale 181 Thorn Hill 71,000 (owned) --
Road
Warrendale, PA
U.S. Filter/Whittier 12422 E. Putnam 89,500 (leased) 3/31/99
Street
Whittier, CA
U.S. Filter/Lowell 10 Technology 57,692 (leased) 4/1/00
Drive
Lowell, MA
U.S. Filter/Continental 5405 Bandera 33,246 (leased) 12/31/95
Road
San Antonio, TX
U.S. Filter/Penfield 8 West Street 23,300 (leased) 3/31/07
Plantsville, CT
U.S. Filter/Ionpure 1/3 rue Pavlov 12,500 (leased) 11/15/96
Trappes, France
U.S. Filter/Sanilo 5 rue du 40,000 (owned) --
Colombier
Amboise, France
U.S. Filter/Seral Industriegebiet 67,000 (owned) --
Struth
Ransbach-
Baumbach,
Germany
U.S. Filter/Smogless Via Mascheroni 52,600 (leased) 12/29/96
29 to
Milan, Italy 2/29/00
U.S. Filter/Sation Luchana 77 9,731 (leased) 8/6/96
Barcelona, Spain
U.S. Filter/Crouzat 10 rue Alsace- 28,266 (owned) --
Lorraine
Toulouse, France
</TABLE>
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Richard J. Heckmann 51 Chairman of the Board of Directors, President and
Chief Executive Officer
Michael J. Reardon 41 Director, Executive Vice President and Chief
Operating Officer
Nicholas C. Memmo 33 Executive Vice President and General Manager, U.S.
Filter/Ionpure Inc.
Thierry Reyners 50 Senior Vice President--Europe
Andrew D. Seidel 32 Senior Vice President--Wastewater Group and General
Manager, U.S. Filter, Inc., Warrendale, Pennsylvania
Vice President, Chief Financial Officer and
Kevin L. Spence 38 Treasurer
Director and Senior Vice President--Corporate
Tim L. Traff 36 Development
Donald L. Bergmann 53 Vice President, General Counsel and Secretary
H. Lawrence Pelegrin 50 Vice President--Sales & Marketing
John S. Swartley 56 Vice President
Gerald E. Rogers 44 Senior Vice President--Administration
Molly M. Tschang 31 Vice President--Corporate Communications
James R. Bullock 50 Director
James E. Clark 66 Director
John L. Diederich 58 Director
J. Atwood Ives 58 Director
Arthur B. Laffer 54 Director
Alfred E. Osborne, Jr. 50 Director
C. Howard Wilkins, Jr. 57 Director
</TABLE>
Richard J. Heckmann was elected Chairman of the Board of Directors, President
and Chief Executive Officer of the Company on July 16, 1990. Mr. Heckmann was a
Senior Vice President at Prudential-Bache Securities in Rancho Mirage,
California from January 1982 to August 1990. He joined the U.S. Small Business
Administration in 1977 and served as Associate Administrator for Finance and
Investment from 1978 to 1979. Prior thereto he was founder and Chairman of the
Board of Tower Scientific Corporation, a manufacturer of custom prosthetic
devices, which was sold to Hexcel Corporation in 1977. Mr. Heckmann is also a
director of Air Cure Environmental Inc., Smith Sport Optics, The Earth
Technology Corporation and U.S.A. Waste.
Michael J. Reardon was appointed Chief Operating Officer of the Company on
September 28, 1993, having previously served as Executive Vice President of the
Company since February 17, 1992, and prior to that as the Chief Financial
Officer and Secretary of the Company since July 16, 1990. He became President
and General Manager of IWT in March 1992. From 1981 to July 1990 he was Chief
Financial Officer of The C&C Organization, a company engaged in restaurant
ownership, management and construction. Mr. Reardon is a certified public
accountant and was a senior auditor with Arthur Andersen & Co. from 1978 to
1981.
Nicholas C. Memmo was appointed Senior Vice President and General Manager of
Ionpure on March 7, 1994. He had previously been Senior Vice President--Sales &
Marketing since December 8, 1992. Mr. Memmo had also been the senior operating
officer of U.S. Filter/Whittier, Inc. since January 1992, having previously
been Marketing Manager of that company since January 1991. He was appointed
General
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<PAGE>
Manager in April 1992. Mr. Memmo was employed from July 1984 to September 1988
with Hercules Incorporated, a New York Stock Exchange specialty chemical and
aerospace company, in sales, marketing and distribution positions. Mr. Memmo
received a B.S. degree in chemical engineering from Drexel University. Between
his employment with Hercules and the Company, he completed an M.B.A. program at
the John E. Anderson Graduate School of Management at UCLA.
Thierry Reyners was appointed Senior Vice President--Europe on March 7, 1994,
having previously been appointed Senior Vice President--European Sales on
December 1, 1993, the date the Company acquired Ionpure. Mr. Reyners served as
Vice President and General Manager--Europe of Ionpure Technologies Corporation
from 1990 to December 1993, and from 1981 through 1989 he was employed by
Millipore Corporation, including as European Area Manager from 1987 through
1989. Mr. Reyners has a Ph.D. in Organic Chemistry from the Research Institute
in Natural Substances, University of Orsay, France and an M.B.A. from INSEAD,
Fontainebleau, France.
Andrew D. Seidel was appointed Senior Vice President--Wastewater Group and
General Manager of U.S. Filter, Inc., Warrendale, Pennsylvania, on September
28, 1993, having previously served as Vice President--Membralox Group since
December 8, 1992, and had been General Manager of Membralox since March 1992.
From October 1991 to March 1992, Mr. Seidel was Marketing Manager for U.S.
Filter/Marlboro, Inc. From October 1990 until his employment by the Company, he
was a senior consultant with Deloitte & Touche Management Consulting. Mr.
Seidel had various responsibilities with Hercules Incorporated from 1984
through 1988, including technical marketing and product management at Hercules
Specialty Chemical Company and Quality Control/Process Engineering in Hercules
Aerospace Company. Mr. Seidel received a B.S. degree in chemical engineering
from the University of Pennsylvania. Between his employment with Hercules and
Deloitte & Touche, he completed an M.B.A. program at the Wharton School, the
University of Pennsylvania.
Kevin L. Spence was appointed Vice President of the Company on December 8,
1992 and has been Chief Financial Officer of the Company since January 6, 1992
and Treasurer since February 17, 1992. From October 1989 through 1991 he was
Chief Financial Officer, first with Cal-Star Financial, a mortgage banker, and
then with American National Corporation, a manufacturer of bedding materials.
Mr. Spence is a certified public accountant and was with KPMG Peat Marwick from
1978 to September 1989 and a partner with that firm from July 1988.
Tim L. Traff was appointed Senior Vice President--Corporate Development of
the Company on December 8, 1992 and has been Vice President--Corporate
Development since March 1992. He had been President of Traff Capital
Management, a money management company, since 1989. From 1985 to 1988 he was an
analyst at SIT Investment, a money management company. Mr. Traff received a
B.S. degree in business economics from the University of Minnesota.
Donald L. Bergmann was appointed Vice President, General Counsel and
Secretary of the Company on February 17, 1992. From February 1990 through 1991
he was a Vice President and General Counsel of ABB Business Services, Inc., a
subsidiary of Asea Brown Boveri Inc., an international electrical engineering
and manufacturing company, and for the preceding 15 years was an attorney, and
since 1985 held the position of Vice President and Associate General Counsel,
with Combustion Engineering, Inc., a New York Stock Exchange company engaged in
the manufacture and engineering of power generation, petrochemical and other
industrial equipment and services. Mr. Bergmann has a B.A. degree from Colgate
University and a J.D. degree from Harvard Law School.
H. Lawrence Pelegrin was appointed Vice President--Sales & Marketing on March
7, 1994. He joined IWT in May 1991 as Vice President--Water Technologies and
became Vice President--Marketing in January 1992. From 1966 to October 1991 Mr.
Pelegrin was employed in various senior sales and managerial positions with
E.I. duPont de Nemours and Company.
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<PAGE>
John S. Swartley joined the Company as a Vice President in July 1994 when the
Company acquired Liquipure Technologies, Inc. Mr. Swartley had started a new
business in 1988 with venture capital backing from Warburg, Pincus Capital
Company, L.P., and made a series of water treatment company acquisitions that
ultimately became Liquipure. From 1982 through 1987 he was at Olin Corporation
as president of its consumer products group, which dealt mainly with pool
chemicals. From 1965 through 1982 he was with General Foods in various
marketing, development and management positions. He received a degree in
chemical engineering from Lehigh University and an M.B.A. degree from Harvard
Business School.
Gerald E. Rogers was appointed Senior Vice President--Administration on
September 28, 1993, having previously served as Senior Vice President--
Wastewater Group since December 8, 1992, and has been the senior operating
officer of USF/Warrendale (formerly Lancy), since its acquisition by the
Company in July 1991. He became General Manager of Lancy in April 1992. Mr.
Rogers first joined Lancy in 1983 and has served in a number of positions,
including Vice President, Controller and Director of Operations.
Molly M. Tschang was appointed Vice President--Corporate Communications on
December 1, 1993, having previously served as the Director of Marketing since
joining the Company on April 28, 1992. From October 1990 through April 1992,
Ms. Tschang was a management consultant with Deloitte & Touche and from
September 1985 through June 1988 was employed in sales with IBM. Ms. Tschang
received a B.S. degree in chemical engineering from Cornell University. Between
her employment with IBM and Deloitte & Touche she completed an M.B.A. program
at the John E. Anderson Graduate School of Management at UCLA.
James R. Bullock has been President and Chief Executive Officer and a
director of Laidlaw Inc. since October 1993. Prior thereto he was President and
Chief Executive Officer of The Cadillac Fairview Corporation from 1987 to 1993.
He is a director of Live Entertainment Inc. and Telemedia Inc.
James E. Clark was President of Western Operations for Prudential Insurance
from 1978 to June 1990. Since June 1990, he has been a consultant and a private
investor. Mr. Clark is also a director of Asian Business Connection, Durotest
Corporation, The Earth Technology Corporation and Managed Health Network, Inc.
He is also a trustee of the Yul Brynner Foundation.
John L. Diederich has been Executive Vice President--Chairman's Counsel for
Aluminum Company of America ("Alcoa") since August 1991. Prior to assuming his
present position, he had been Group Vice
President--Alcoa Metals and Chemicals since 1986 and a Vice President of Alcoa
since 1982. Mr. Diederich is a trustee of Shadyside Hospital and a director of
Copperweld Steel Company Industries and Alcoa Foundation.
J. Atwood Ives is Chairman and Chief Executive Officer of Eastern Enterprises
("Eastern"). Prior to joining Eastern in 1991, he was Vice Chairman, Chief
Financial Officer and Member of the Office of the Chairman for more than five
years of General Cinema Corporation and since 1987 of The Neiman Marcus Group,
Inc. He is a Trustee of the Museum of Fine Arts, Boston and a Director or
Trustee of several mutual funds advised by Massachusetts Financial Services
Company.
Dr. Arthur B. Laffer has been Chairman and Chief Executive Officer of A.B.
Laffer, V.A. Canto & Associates, an economic research and financial firm (and
its predecessor, A.B. Laffer Associates), since founding the firm in 1979. He
is also Chairman of Calport Asset Management, Inc., a money management firm.
Dr. Laffer has been Chief Executive Officer of Laffer Advisors, Inc., a
registered broker-dealer and investment advisor, since 1981. He was the Charles
B. Thornton Professor of Business Economics at the University of Southern
California from 1976 through 1984, Distinguished University Professor at
Pepperdine University from October 1984 to September 1987, and was a member of
President Reagan's economic policy advisory board. Dr. Laffer received a B.A.
degree in economics from Yale University and later received an M.B.A. degree
and a Ph.D. in economics from Stanford University. He is a director of Lottery
Enterprise, Inc., Master, Inc., Nicholas Applegate Mutual and Growth Equity
Funds and Value Vision, Inc.
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<PAGE>
Dr. Alfred E. Osborne, Jr. is Director of the Entrepreneurial Studies Center
and Associate Professor of Business Economics at the John E. Anderson Graduate
School of Management at UCLA. He has been on the UCLA faculty since 1972. Dr.
Osborne was educated at Stanford University, where he earned a B.S. degree in
electrical engineering, an M.B.A. in finance, a master's degree in economics
and a Ph.D. in business-economics. He is a director of First Interstate Bank of
California, Greyhound Lines, Inc., Nordstrom, Inc., ReadiCare, Inc., Seda
Specialty Packaging Corporation and The Times Mirror Company.
C. Howard Wilkins, Jr. served as the United States Ambassador to the
Netherlands from June 1989 to July 10, 1992. Prior to being Ambassador and
thereafter, Mr. Wilkins has been Chairman of the Board of Maverick Restaurant
Corp., which owns and operates restaurants under franchise agreements, and
Maverick Development Corp. He was Vice Chairman of Pizza Huts, Inc. until 1975.
From 1981 to 1983 Mr. Wilkins served as a director of U.S. Synthetic Fuels
Corporation. Mr. Wilkins received a B.A. degree from Yale University in 1960.
The Board of Directors (the "Board") of the Company is currently fixed at ten
directors and is divided into three classes, each of which consists of one-
third of the total number of directors (or as nearly as possible). Each year
one class is elected for a three-year term.
All of the officers of the Company serve at the pleasure of the Board. There
are no family relationships among any of the above directors and officers.
Certain Voting Arrangements. Pursuant to the agreements whereby the Company
acquired Ionpure from Eastern Enterprises in 1993, the Company agreed, so long
as Eastern Associated Securities Corporation, or its affiliates (collectively
with Eastern Enterprises, "Eastern"), own at least 5% of the Company's voting
securities, to nominate J. Atwood Ives (or his successor at Eastern) for
election to the Board and, so long as Eastern owns at least 10% of the
Company's voting securities, Eastern has the right to designate a second member
of the Board. The Company also agreed that Mr. Ives (or his successor) will be
a member of the Audit Committee of the Board and that, upon request and with
the consent of the Board, Mr. Ives will also be appointed to the Compensation
Committee or any other committee of the Board, other than the Nominating
Committee. Pursuant to the agreements whereby the Company acquired Smogless in
September 1994, the Company agreed, so long as Laidlaw Inc. ("Laidlaw") owns at
least 5% of the Company's voting securities, to nominate a person designated by
Laidlaw for election to the Board. In addition, Eastern and Laidlaw agreed to
vote all shares owned by them for the Board's nominees for election to the
Board, and on all other matters in the same proportion as the votes cast by
other holders of voting securities, other than those that relate to any
business combination or similar transaction involving the Company or any
amendment to the Company's Certificate of Incorporation or By-laws.
Eastern and Laidlaw have also agreed not to (i) solicit proxies in opposition
to a recommendation of the Board, (ii) join a group for the purpose of
acquiring, voting or disposing of voting securities of the Company or (iii)
solicit stockholders for the approval of one or more stockholder proposals.
Eastern and Laidlaw have each separately agreed not to acquire voting
securities of the Company during the six-year period following the date of the
Ionpure acquisition in the case of Eastern or the Smogless acquisition in the
case of Laidlaw if, after the acquisition, its percentage share of the
Company's voting power would exceed its percentage share on the date of
consummation of the Ionpure or the Smogless acquisition, as the case may be,
except under certain circumstances, including if any person makes (a) an offer
to acquire voting securities of the Company that would result in such person
owning 20% or more of the voting power of the Company or (b) a formal proposal
for a business combination involving control of the Company, which proposal is
either (i) not withdrawn or terminated or rejected by the Board within 30 days
after such proposal is made, or (ii) accepted by the Board.
47
<PAGE>
PRINCIPAL STOCKHOLDERS
Set forth below is information as of March 31, 1995 concerning the ownership
of the Company's Common Stock, Series A Preferred Stock and Series B Preferred
Stock by (i) all persons or entities known to the Company to be beneficial
owners of more than 5% of the outstanding Common Stock or Series A or Series B
Preferred Stock, (ii) each director of the Company, (iii) certain executive
officers and (iv) all executive officers and directors of the Company as a
group. Except as otherwise indicated and subject to applicable community
property and similar laws, each of the persons or entities named has sole
voting and investment power with respect to the securities owned. The data
presented below does not include shares that may be purchased pursuant to
preemptive rights held by certain stockholders. See "Description of Capital
Stock--Stock Purchase Rights."
<TABLE>
<CAPTION>
COMMON STOCK
------------------------
NUMBER OF PERCENTAGE
BENEFICIAL OWNERS(1) SHARES(2) OF CLASS(2)
-------------------- --------- ----------
<S> <C> <C>
Eastern Associated Securities Corporation(3)......... 3,041,092 20.0%
Laidlaw, Inc.(4)..................................... 2,965,829(5) 16.7%
The TCW Group, Inc.(6)............................... 860,975 5.4%
Warburg, Pincus Capital Company, L.P.(7)............. 1,768,076 11.6%
Richard J. Heckmann.................................. 650,647 4.2%
Michael J. Reardon................................... 119,929(8) *
Kevin L. Spence...................................... 38,125 *
Tim L. Traff......................................... 155,222 1.0%
Donald L. Bergmann................................... 30,000 *
Gerald E. Rogers..................................... 31,650 *
James R. Bullock(9).................................. 6,000(10)
James E. Clark....................................... 60,000 *
John L. Diederich(11)................................ 19,500 *
J. Atwood Ives(12)................................... 19,500(13) *
Arthur B. Laffer..................................... 48,000 *
Alfred E. Osborne, Jr................................ 53,450 *
C. Howard Wilkins, Jr................................ 87,000 *
All directors and executive officers as a group (19
persons)............................................ 1,496,847 9.3%
</TABLE>
<TABLE>
<CAPTION>
PREFERRED STOCK
----------------------
NUMBER PERCENTAGE
OF SHARES OF CLASS
---------- ----------
<S> <C> <C>
Series A Convertible Preferred Stock
Aluminum Company of America(14)......................... 880,000(15) 100.0%
Series B Convertible Preferred Stock
Laidlaw, Inc............................................ 139,518(15) 75.3%
Marfit S.p.A............................................ 45,667(15) 24.7%
</TABLE>
- --------
* Less than 1%
(1) The address of each person listed in this table, except as otherwise
noted, is c/o United States Filter Corporation, 73-710 Fred Waring Drive,
Palm Desert, California 92260.
(2) The number of shares shown includes shares that may be acquired upon the
exercise of options or warrants or the conversion of outstanding
convertible debentures within 60 days of the date of this Prospectus. Such
numbers are as follows: Mr. Heckmann--180,625; Mr. Reardon--95,005; Mr.
Traff--45,125; Mr. Bullock--6,000; Mr. Clark--36,000; Mr. Diederich--
18,000; Mr. Ives--18,000; Mr. Laffer--36,000; Mr. Osborne--36,000; Mr.
Wilkins--36,000; Mr. Bergmann--30,000; Mr. Rogers--31,650; Mr. Spence--
38,125; all directors and executive officers as a group--791,218; Laidlaw
Inc.--2,500,000; and The TCW Group, Inc.--860,975.
(3) The address of Eastern Associated Securities Corporation is c/o Eastern
Enterprises, 9 Riverside Road, Weston, Massachusetts 02193.
(4) The address of Laidlaw Inc. is 3221 North Service Road, Burlington,
Ontario, Canada L7R 3Y8.
48
<PAGE>
(5) Consists of 465,829 shares of Common Stock owned of record and 2,500,000
shares issuable upon exercise of warrants.
(6) The address of TCW Group, Inc. is 865 South Figueroa Street, Los Angeles,
California 90017.
(7) The address of Warburg, Pincus Capital Company, L.P. is 466 Lexington
Avenue, New York, NY 10017.
(8) Includes 1,800 shares that Mr. Reardon holds as trustee for the benefit
of his father-in-law, and as to which Mr. Reardon disclaims beneficial
ownership.
(9) The address of Mr. Bullock is c/o Laidlaw Inc., 3221 North Service Road,
Burlington, Ontario, Canada L7R 3Y8.
(10) Excludes 2,965,829 shares that are beneficially owned by Laidlaw Inc., of
which Mr. Bullock is the President and Chief Executive Officer.
(11) The address of Mr. Diederich is c/o Aluminum Company of America, Alcoa
Building, 425 Sixth Avenue, Pittsburgh, Pennsylvania 15219.
(12) The address of Mr. Ives is c/o Eastern Enterprises, 9 Riverside Road,
Weston, Massachusetts 02193.
(13) Excludes 3,041,092 shares that are beneficially owned by Eastern
Enterprises, of which Mr. Ives is the Chairman and Chief Executive
Officer.
(14) The address of Aluminum Company of America is Alcoa Building, 425 Sixth
Avenue, Pittsburgh, Pennsylvania 15219.
(15) Each share of Series A and Series B Preferred Stock is convertible into
1.5 shares of Common Stock.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General. As of March 31, 1995, the Company was authorized to issue 75,000,000
shares of Common Stock, par value $.01 per share, of which 15,219,066 shares
were issued and outstanding, and 3,000,000 shares of preferred stock, par value
$.10 per share, of which 880,000 shares have been designated Series A Preferred
Stock and were issued and outstanding and of which 250,000 shares have been
designated Series B Preferred Stock and 185,185 shares were issued and
outstanding. Of the unissued shares of Common Stock, 1,320,000 shares were
reserved for issuance upon conversion of the Series A Preferred Stock, 277,777
shares were reserved for issuance upon conversion of the Series B Preferred
Stock, 2,500,000 shares were reserved for issuance upon the exercise of
outstanding warrants that are exercisable until August 31, 2001 at an exercise
price of $18.00 per share (payable only by delivery of notes issued with such
warrants in the principal amount of the exercise price of such warrants),
2,926,829 shares were reserved for issuance upon conversion of the Company's 5%
Convertible Subordinated Debentures due 2000, an aggregate of 1,601,676 shares
were reserved for issuance pursuant to the Company's 1991 Employee Stock Option
Plan, and 363,000 shares were reserved for issuance pursuant to the Company's
1991 Directors Stock Option Plan.
Common Stock. The holders of Common Stock are entitled to one vote for each
share held of record by them on all matters to be voted on by stockholders.
There is no cumulative voting with respect to the election of directors; thus,
the holders of more than 50% of the shares (including both common and voting
preferred shares) voting for the election of directors can elect all of the
directors. The holders of Common Stock are entitled to receive dividends when,
as and if declared by the Board of Directors out of funds legally available
therefor, subject to the prior rights of preferred stockholders. In the event
of liquidation, dissolution or a winding up of the Company's affairs, the
holders of Common Stock are entitled to share ratably in all assets remaining
available for distribution to them after payment of liabilities and after
provision has been made for each class of stock, including any preferred stock,
that has preference over the Common Stock. Except as described below under
"Stock Purchase Rights," holders of shares of Common Stock, as such, have no
conversion, preemptive or other subscription rights, and there are no
redemption or sinking fund provisions applicable to the Common Stock. All of
the outstanding shares of Common Stock are, and the shares of Common Stock
being sold in the Offering will be, fully paid and nonassessable.
Preferred Stock. Shares of preferred stock may be issued without stockholder
approval. The Board of Directors is authorized to issue such shares in one or
more series and to fix the rights, preferences, privileges, qualifications,
limitations and restrictions thereof, including dividend rights and rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of such series, without any vote or action by the stockholders. The
Company has no current plans for the issuance of any additional shares of
preferred stock. Any preferred stock to be issued could rank prior to the
Common Stock with respect to dividend rights and rights on liquidation. The
Board of Directors, without stockholder approval, may issue preferred stock
with voting and conversion rights that could adversely affect the voting power
of holders of Common Stock or create impediments to persons seeking to gain
control of the Company.
Series A Voting Cumulative Preferred Stock. Each share of Series A Preferred
Stock is currently convertible into 1.5 shares of Common Stock subject to
certain events, and votes together with the Common Stock on an "as converted"
basis, except with respect to certain actions for which the Series A Preferred
Stock is entitled to vote as a class. The Series A Preferred Stock
automatically converts into Common Stock if the closing price of the Common
Stock is at least $25.00 for a period of 60 consecutive calendar days. A
cumulative dividend is payable on the Series A Preferred Stock at the rate of
$.812 per share annually. The Series A Preferred Stock has a preference in
liquidation over holders of common stock of $25 per share plus accrued
dividends. The Company, at its option, may redeem shares of the Series A
Preferred Stock, subject to certain conditions, at a price of $30 per share
plus accrued dividends. Reacquired or redeemed shares are required to be
retired and canceled.
50
<PAGE>
Series B Voting Convertible Preferred Stock. Each share of Series B Preferred
Stock is currently convertible into 1.5 shares of Common Stock, and votes
together with the Common Stock on an "as converted" basis, except with respect
to certain matters on which the Series B Preferred Stock is entitled to vote as
a class. No dividend is payable on the Series B Preferred Stock. The Series B
Preferred Stock has a preference in liquidation over holders of Common Stock of
$27.00 per share. After August 31, 1997, at any time the current market price
per share of the Common Stock on the date of the notice of redemption is not
less than $24.67, the Company, at its option, may redeem shares of the Series B
Preferred Stock at prices ranging from $27.77 in 1997 to $27.00 in 2001. Each
share of Series B Preferred Stock outstanding on August 31, 2001 will be
automatically converted into that number of shares of Common Stock equal to the
quotient obtained by dividing $18.00 by the current market price per share of
Common Stock on the date of conversion.
Stock Purchase Rights. Eastern and its affiliates, which currently hold
3,041,092 shares of Common Stock, Laidlaw, which currently holds 2,965,829
shares of Common Stock and 139,518 shares of Series B Convertible Preferred
Stock, and Alcoa, which currently holds 880,000 shares of Series A Convertible
Preferred Stock, have certain rights to purchase voting securities of the
Company in order to maintain their respective percentage voting interests.
Except in connection with mergers or other acquisitions or in the ordinary
course under an employee stock option or stock bonus plan, in the event the
Company proposes to sell or issue shares of voting securities, each of these
holders has the right to purchase, on the same terms as the proposed sale or
issuance, that number of shares or rights as will maintain such holder's
percentage interest in the voting securities of the Company, assuming the
conversion of all convertible securities and the exercise of all options and
warrants then outstanding. In addition, these holders have other purchase
rights with respect to sales or issuances of securities by the Company at
prices below 85% of current market price at the time of sale or issuance or the
prevailing customary price for such securities or their equivalent.
Certain Charter and Bylaw Provisions. The Company's Certificate of
Incorporation (the "Certificate") places certain restrictions on the voting
rights of a "Related Person," defined therein as any person who directly or
indirectly owns 5% or more of the outstanding voting stock of the Company. The
founders and the original directors of the Company are excluded from the
definition of "Related Persons," as are seven named individuals including
Richard J. Heckmann, the Chairman of the Board, President and Chief Executive
Officer of the Company. These voting restrictions apply in two situations.
First, the vote of a director who is also a Related Person is not counted in
the vote of the Board of Directors to call a meeting of stockholders where that
meeting will consider a proposal made by the Related Person director. Second,
any amendments to the Certificate that relate to specified Articles therein
(those dealing with corporate governance, limitation of director liability or
amendments to the Certificate), in addition to being approved by the Board of
Directors and a majority of the Company's outstanding voting stock, must also
be approved by either (i) a majority of directors who are not Related Persons,
or (ii) the holders of at least 80% of the Company's outstanding voting stock,
provided that if the change was proposed by or on behalf of a Related Person,
then approval by the holders of a majority of the outstanding voting stock not
held by Related Persons is also required.
The Certificate and the Company's Bylaws provide that the Board of Directors
shall fix the number of directors. Stockholders may not take action by written
consent. Meetings of stockholders may be called only by the Board of Directors
(or by a majority of its members). Stockholder proposals, including director
nominations, may be considered at a meeting only if written notice of that
proposal is delivered to the Company from 30 to 60 days in advance of the
meeting, or within ten days after notice of the meeting is first given to
stockholders.
Delaware Anti-Takeover Law. Section 203 of the Delaware General Corporation
Law ("Section 203") provides, in general, that a stockholder acquiring more
than 15% of the outstanding voting shares of a corporation subject to the
statute (an "Interested Stockholder"), but less than 85% of such shares, may
not engage in certain "Business Combinations" with the corporation for a period
of three years subsequent to the date on which the stockholder became an
Interested Stockholder unless (i) prior to such date the corporation's board of
directors has approved either the Business Combination or the transaction in
which the stockholder
51
<PAGE>
became an Interested Stockholder or (ii) the Business Combination is approved
by the corporation's board of directors and authorized by a vote of at least
two-thirds of the outstanding voting stock of the corporation not owned by the
Interested Stockholder.
Section 203 defines the term "Business Combination" to encompass a wide
variety of transactions with or caused by an Interested Stockholder in which
the Interested Stockholder receives or could receive a benefit on other than a
pro rata basis with other stockholders, including mergers, certain asset sales,
certain issuances of additional shares to the Interested Stockholder,
transactions with the corporation which increase the proportionate interest of
the Interested Stockholder or transactions in which the Interested Stockholder
receives certain other benefits.
These provisions could have the effect of delaying, deferring or preventing a
change of control of the Company. The Company's stockholders, by adopting an
amendment to the Certificate or Bylaws of the Company, may elect not to be
governed by Section 203, effective twelve months after adoption. Neither the
Certificate nor the Bylaws of the Company currently excludes the Company from
the restrictions imposed by Section 203.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summarizes the material long-term indebtedness of the Company.
At December 31, 1994, the Company's total consolidated long-term debt
(including current maturities), after giving effect to the Offering being made
hereby and the application of the net proceeds therefrom as described in "Use
of Proceeds," accounted for 37.4% of its total capitalization. See
"Capitalization." The summary is not a complete description of such
indebtedness. Copies of the material agreements relating to such indebtedness
have been filed with the Commission, and the description set forth herein is
qualified in its entirety by reference to such agreements.
5% Convertible Subordinated Debentures Due 2000. The Company has outstanding
$60,000,000 principal amount of 5% Convertible Subordinated Debentures due 2000
(the "5% Debentures"). Interest on the 5% Debentures is payable semi-annually.
The 5% Debentures are redeemable in whole or in part at the option of the
Company at any time on or after October 25, 1996 at a price, expressed as a
percentage of the principal amount, ranging from 102.86% in 1996 to 100.71% in
1999, plus accrued interest. Upon certain changes in control of the Company,
holders of 5% Debentures have the right to require the Company to repurchase
all or a portion of their 5% Debentures at 100% of principal amount plus
accrued interest. The 5% Debentures are convertible into Common Stock,
currently at a conversion price of $20.50 per share, subject to adjustment upon
the occurrence of certain events. The Company has filed and is maintaining the
effectiveness of a shelf registration statement covering resales by the holders
of all 5% Debentures and the Common Stock issuable upon conversion thereof.
Subordinated Notes Due 2001 and Common Stock Purchase Warrants. Ionpure
Technologies, S.r.L. ("Ionpure Italy"), a wholly-owned subsidiary of the
Company, has outstanding $45,000,000 of subordinated promissory notes due
August 31, 2001 (the "Notes"), guaranteed by the Company. The Notes bear
interest at 6.5% for the period January 1, 1995 through September 30, 1995 and
4.5% per annum thereafter, provided that the interest rate shall increase by 1%
per annum for any fiscal quarter in which the Company's debt-to-equity ratio
exceeds two-to-one. Interest on the Notes is payable quarterly. The Notes are
subordinated to all of the Company's existing and future Senior Indebtedness
(as defined in the Notes). If none of the 5% Debentures remain outstanding, the
notes are redeemable in whole or in part at the option of Ionpure Italy at any
time after August 31, 1997, at a price, expressed as a percentage of the
principal amount, ranging from 102.86% in 1997 to 100.71% in 2000, plus accrued
interest. Upon certain changes in control of the Company, the holders of the
Notes have the right, subject to certain restrictions and conditions, to
require the Company to repurchase their Notes at 100% of principal amount plus
accrued interest.
52
<PAGE>
The related Common Stock Purchase Warrants (the "Warrants") are exercisable
at any time through August 31, 2001, currently at an exercise price of $18.00
per share. Payment of such exercise price may be made only through the delivery
of Notes in the principal amount of the exercise price. The exercise price of
the Warrants is subject to adjustment in the event of certain corporate actions
such as a stock dividend or a subdivision of the Common Stock or if the Company
issues to substantially all of its holders of Common Stock rights or warrants
to acquire Common Stock at a price per share below the then current market
price per share of Common Stock. Subject to the restrictions imposed under the
Securities Act, the Warrants are transferable, but only together with Notes in
a principal amount equal to the exercise price of the Warrants being
transferred. In addition, the Warrants may not be transferred in an offering
not registered under the Securities Act to any person or group who would
immediately thereafter own more than 5% of the voting power of the Company's
voting securities.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
There were 15,219,066 shares of Common Stock outstanding as of March 31,
1995, of which 53,322 shares were "restricted securities" subject to
restrictions set forth in Rule 144 adopted under the Securities Act. Of these
shares, 39,214 may be sold under Rule 144 (subject to volume and manner of
sales restrictions) and the remaining 14,108 shares may not be sold pursuant to
Rule 144 prior to the expiration of their various two-year holding periods.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Act, is entitled
to sell within any three-month period a number of shares beneficially owned for
at least two years that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock (approximately 202,191 shares following the
issuance of the 5,000,000 shares offered hereby, assuming no exercise of
outstanding options or warrants or conversion of Debentures or Preferred Stock)
or (ii) the average weekly trading volume of the outstanding shares of Common
Stock during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain requirements as to the manner of sale, notice and
the availability of current public information about the Company. However, a
person (or persons whose shares are aggregated) who is not an "affiliate" of
the Company during the 90 days preceding a proposed sale by such person and who
has beneficially owned "restricted securities" for at least three years is
entitled to sell such shares under Rule 144 without regard to the volume,
manner or sale or notice requirements. As defined in Rule 144, an "affiliate"
of an issuer is a person that directly or indirectly controls, or is controlled
by, or is under common control with such issuer.
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, could
adversely affect prevailing market prices of the Common Stock.
Registration Rights. The Company has entered into registration rights
agreements with various holders of its securities, including (i) Aluminum
Company of America as to its Series A Preferred Stock and the shares of Common
Stock issuable upon conversion thereof, (ii) Laidlaw Inc. and others as to the
Common Stock issuable upon conversion of their Series B Preferred Stock and
exercise of their stock purchase warrants, (iii) Eastern Enterprises as to the
Common Stock it acquired in the sale of Ionpure to the Company, (iv) Warburg,
Pincus Capital Company, L.P. and others as to the Common Stock they acquired in
the sale of Liquipure to the Company, and (v) holders of its 5% Convertible
Subordinated Debentures and the Common Stock issuable upon conversion thereof.
Under these agreements, these holders have certain rights to request the
Company to register part or all of their Common Stock and, in the case of
Alcoa, its Series A Preferred Stock under the Securities Act. In addition, if
the Company proposes to register any of its securities under the Securities
Act, these holders are entitled to include certain percentages of their shares
in such registration, provided that, among other conditions, the underwriters
of any offering have the right to limit the number of shares included in such
registration. Pursuant to the provisions of three of these agreements, the
Company has filed and is maintaining the effectiveness of shelf registration
statements covering resales of Common Stock by Eastern Enterprises and by
Warburg, Pincus Capital Company, L.P. and the other sellers of Liquipure and
resales of the 5% Convertible Subordinated Debentures and the Common Stock
issuable upon conversion thereof by the holders thereof. The existence of these
registration rights may facilitate the resale of the shares covered thereby.
54
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Donaldson, Lufkin
& Jenrette Securities Corporation and PaineWebber Incorporated are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions of an underwriting agreement (the "Underwriting
Agreement"), to purchase from the Company the respective number of shares of
Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.............
PaineWebber Incorporated........................................
---------
Total......................................................... 5,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligation of the several
Underwriters to purchase shares of Common Stock is subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of the
shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all such shares of Common Stock (other than the shares
of Common Stock covered by the over-allotment option described below) must be
so purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Common Stock to the public initially at the price to the
public set forth on the cover page of this Prospectus and to certain dealers
(who may include the Underwriters) at such price less a concession not to
exceed $ per share. The Underwriters may allow, and such dealers may
reallow, discounts not in excess of $ per share to any other Underwriter
and certain other dealers. After the public offering of the shares of Common
Stock, the public offering price and other selling terms may be changed by the
Representatives.
The Company has granted to the Underwriters an option to purchase up to an
aggregate of 750,000 additional shares of Common Stock, at the initial public
offering price less underwriting discounts and commissions, solely to cover
over-allotments. Such option may be exercised at any time until 30 days after
the date of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase a number of option shares proportionate to such
Underwriter's initial commitment as indicated in the table above.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
The shares of Common Stock offered hereby will be listed on the New York
Stock Exchange under the symbol "USF."
55
<PAGE>
The Company, its officers, directors and certain stockholders, who
collectively are the beneficial owners of an aggregate of 9,033,045 shares of
Common Stock, have agreed with the Underwriters not to, directly or indirectly,
offer, sell, contract to sell, grant any option to purchase or otherwise
dispose of, without the prior written consent of the Representatives, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for, or warrants, options or rights to purchase or acquire, Common
Stock or in any other manner transfer all or a portion of the economic
consequences associated with the ownership of any Common Stock, or enter into
any agreement to do any of the foregoing, for a period of 90 days after the
date of this Prospectus.
Certain stockholders of the Company holding preemptive rights, see
"Description of Capital Stock--Stock Purchase Rights," have expressed an
interest in purchasing shares of Common Stock in the Offering at the public
offering price. The number of shares available for sale to the general public
would be reduced to the extent such stockholders purchase any such shares.
The Company has agreed to pay Donaldson, Lufkin & Jenrette Securities
Corporation a customary financial advisory fee and out-of-pocket expenses in
connection with the Company's acquisition of AIW.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Troy & Gould Professional Corporation, Los Angeles, California.
Certain legal matters will be passed upon for the Underwriters by Skadden,
Arps, Slate, Meagher & Flom, Los Angeles, California.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The consolidated financial statements of United States Filter Corporation and
its subsidiaries as of March 31, 1994 and 1993 and for each of the three years
in the period ended March 31, 1994, except for the financial statements of
Liquipure Technologies, Inc. and its subsidiaries, as of December 31, 1993 and
1992 and for each of the three years in the period ended December 31, 1993,
have been audited by KPMG Peat Marwick LLP as stated in their report appearing
herein and elsewhere in the Registration Statement. The consolidated financial
statements of Liquipure Technologies, Inc. and its subsidiaries, which have
been consolidated with those of the Company, have been audited by Ernst & Young
LLP as stated in their report included herein. Such financial statements of the
Company and its consolidated subsidiaries are included herein in reliance upon
the report of such firms. Both of the foregoing accounting firms are
independent auditors.
The financial statements of Arrowhead Industrial Water Division of The
BFGoodrich Company as of December 31, 1993 and 1994 and for the three years in
the period ended December 31, 1994 included in this Prospectus, have been
audited by Ernst & Young LLP, independent auditors, as stated in their report
appearing herein.
The financial statements of The Permutit Company Limited as of March 31, 1993
and 1994 and for the years then ended, included in this Prospectus, have been
audited by Coopers & Lybrand, independent public accountants, as stated in
their report appearing herein.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy materials and other information with
the Commission. The Registration Statement, the exhibits and schedules forming
a part thereof, and the reports, proxy materials and other information filed by
the Company with the Commission in accordance with the Exchange Act may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: Seven World Trade Center, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, such reports, proxy materials and other information may be
inspected and copied at the New York Stock Exchange, 20 Broad Street, New York,
New York 10005.
56
<PAGE>
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated by reference (other than
exhibits to such documents that are not specifically incorporated by reference
in such documents). Written requests for such copies should be directed to
Dorrie Osborne at the Company at 73-710 Fred Waring Drive, Suite 222, Palm
Desert, California 92260 (telephone number: (619) 340-0098).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company (Commission File No. 1-10728)
with the Commission under the Exchange Act are incorporated in this Prospectus
by reference: (a) the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1994; (b) the Company's Quarterly Reports on Form 10-Q for the
quarters ended June 30, 1994, September 30, 1994 and December 31, 1994; and (c)
the Company's current reports on Form 8-K dated December 1, 1993, February 10,
1994, May 2, 1994, May 10, 1994, June 10, 1994, June 17, 1994, July 8, 1994,
July 26, 1994, August 10, 1994, September 1, 1994, September 19, 1994, October
4, 1994, November 8, 1994, December 2, 1994, December 16, 1994, January 13,
1995, January 20, 1995, February 8, 1995, February 27, 1995, March 2, 1995,
March 17, 1995 and April 3, 1995, and all other reports filed pursuant to
Section 13(a) or 15(d) of the Exchange Act since March 31, 1994.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the securities offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part of
this Prospectus from the date of filing of such documents. Any statement
contained in a document incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein (or in any other subsequently filed document that
also is, or is deemed to be, incorporated by reference herein) modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
57
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNITED STATES FILTER CORPORATION:
Independent Auditors' Report--KPMG Peat Marwick LLP....................... F-1
Report of Independent Auditors--Ernst & Young LLP......................... F-2
Consolidated Balance Sheets as of March 31, 1993 and 1994 and December
31, 1994
(unaudited)............................................................ F-3
Consolidated Statements of Operations for the years ended March 31,
1992, 1993 and 1994 and the nine months ended December 31, 1993 and
1994 (unaudited)....................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended
March 31, 1992, 1993 and 1994 and the nine months ended December 31,
1994 (unaudited)....................................................... F-5
Consolidated Statements of Cash Flows for the years ended March 31,
1992, 1993 and 1994 and the nine months ended December 31, 1994
(unaudited)............................................................ F-7
Notes to Consolidated Financial Statements.............................. F-9
ARROWHEAD INDUSTRIAL WATER DIVISION OF THE BFGOODRICH COMPANY:
Report of Independent Auditors--Ernst & Young LLP......................... F-29
Statement of Assets to be Acquired and Liabilities to be Assumed as of
December 31, 1994 and 1993............................................. F-30
Statement of Revenues and Expenses for the years ended December 31,
1994, 1993 and 1992.................................................... F-31
Notes to Financial Statements........................................... F-32
THE PERMUTIT COMPANY LIMITED:
Report of Coopers & Lybrand............................................... F-36
Profit and Loss Account................................................. F-37
Balance Sheets as of March 31, 1994 and 1993............................ F-38
Notes to Financial Statements........................................... F-40
</TABLE>
58
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
United States Filter Corporation:
We have audited the accompanying consolidated balance sheets of United States
Filter Corporation and subsidiaries as of March 31, 1993 and 1994, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended March 31, 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the consolidated
financial statements of Liquipure Technologies, Inc., a wholly-owned
subsidiary, which statements reflect total assets constituting 15 percent and 5
percent in 1993 and 1994, respectively, and total revenues constituting 34
percent, 21 percent and 18 percent in 1992, 1993 and 1994, respectively, of the
related consolidated totals. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates
to the amounts included for Liquipure Technologies, Inc., is based solely on
the report of the other auditors.
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 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 audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of United States Filter Corporation
and subsidiaries as of March 31, 1993 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1994, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Orange County, California
June 3, 1994, except as to the
acquisition of Liquipure
Technologies, Inc., which is
as of July 8, 1994, and the
common stock split, which is
as of December 5, 1994.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Liquipure Technologies, Inc.
We have audited the consolidated balance sheets of Liquipure Technologies,
Inc. (the "Company") as of December 31, 1993 and 1992, and the related
consolidated statements of operations and accumulated deficit, and cash flows
for the years ended December 31, 1993, 1992 and 1991 (not presented separately
herein). 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 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Liquipure
Technologies, Inc. at December 31, 1993 and 1992, and the consolidated results
of its operations and its cash flows for the years ended December 31, 1993,
1992 and 1991 in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Stamford, Connecticut
April 15, 1994
F-2
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1993 AND 1994 AND DECEMBER 31, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
------------------------- DECEMBER 31,
1993 1994 1994
ASSETS ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents (note 2)... $ 2,939,000 18,031,000 11,893,000
Short-term investments (note 3)...... -- 15,625,000 7,624,000
Accounts receivable, less allowance
for doubtful accounts of $1,163,000
at March 31, 1993 and $1,857,000 at
March 31, 1994 and $2,479,000 at
December 31, 1994 (unaudited)
(notes 10 and 11)................... 27,437,000 42,652,000 87,325,000
Costs and estimated earnings in
excess of billings on uncompleted
contracts
(note 10)........................... 9,567,000 22,172,000 20,206,000
Inventories (note 4)................. 14,922,000 24,608,000 36,623,000
Prepaid expenses..................... 1,162,000 1,643,000 4,853,000
Deferred taxes (note 14)............. -- 2,598,000 2,598,000
Other current assets................. 3,134,000 2,881,000 2,097,000
------------ ----------- ------------
Total current assets............... 59,161,000 130,210,000 173,219,000
------------ ----------- ------------
Property, plant and equipment, net
(notes 5 and 11)..................... 38,969,000 51,080,000 63,440,000
Investment in leasehold interest (note
6)................................... -- 15,766,000 21,634,000
Deferred taxes (note 14).............. -- 1,208,000 --
Cost in excess of net assets of busi-
nesses acquired, net (notes 7 and 9) 20,586,000 51,199,000 97,510,000
Other assets (note 8)................. 2,462,000 3,722,000 17,960,000
------------ ----------- ------------
$121,178,000 253,185,000 373,763,000
============ =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................... $ 13,928,000 21,528,000 28,812,000
Accrued liabilities (note 13)........ 16,778,000 29,063,000 40,567,000
Current portion of long-term debt
(note 11)........................... 985,000 2,111,000 1,078,000
Notes payable (note 11).............. 2,089,000 7,114,000 23,818,000
Billings in excess of costs and
estimated earnings on uncompleted
contracts (note 10)................. 563,000 1,946,000 15,715,000
Other current liabilities............ 1,347,000 2,430,000 7,769,000
------------ ----------- ------------
Total current liabilities.......... 35,690,000 64,192,000 117,759,0000
------------ ----------- ------------
Long-term debt, excluding current
portion (note 11).................... 4,027,000 2,802,000 7,936,000
Convertible subordinated debt (note
12).................................. -- 60,000,000 105,000,000
Deferred taxes (note 14).............. - - 5,774,000
Other liabilities..................... 1,830,000 581,000 3,620,000
------------ ----------- ------------
Total liabilities.................. 41,547,000 127,575,000 240,089,000
------------ ----------- ------------
Shareholders' equity (note 15):.......
Series A voting cumulative
convertible preferred stock, $.10
par value, $25 liquidation
preference; 880,000 shares
authorized and issued at March 31,
1993 and 1994....................... 22,071,000 22,071,000 22,071,000
Series B voting convertible
preferred stock, $.10 par value,
$27 liquidation preference; 250,000
shares authorized; 185,185 shares
outstanding at December 31, 1994
(unaudited)......................... - - 3,506,000
Common stock par value $.01;
25,000,000 shares authorized;
11,081,507 and 14,296,209 shares
issued and 14,990,868 outstanding
at March 31, 1993, 1994 and
December 31, 1994 (unaudited),
respectively........................ 74,000 95,000 150,000
Additional paid-in capital........... 79,456,000 129,216,000 128,496,000
Currency translation adjustment...... 304,000 (256,000) 215,000
Accumulated deficit.................. (22,274,000) (25,516,000) (20,764,000)
------------ ----------- ------------
Total shareholders' equity......... 79,631,000 125,610,000 133,674,000
Commitments and contingencies (notes
11, 15, 16 and 18)...................
------------ ----------- ------------
$121,178,000 253,185,000 373,763,000
============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------- ------------------------
1992 1993 1994 1993 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $62,840,000 128,376,000 180,421,000 118,812,000 194,453,000
Costs of sales.......... 48,259,000 93,896,000 132,811,000 87,311,000 139,164,000
----------- ----------- ----------- ----------- -----------
Gross profit............ 14,581,000 34,480,000 47,610,000 31,501,000 55,289,000
Selling, general and ad-
ministrative expenses.. 20,871,000 33,832,000 52,484,000 29,129,000 45,819,000
----------- ----------- ----------- ----------- -----------
Operating income (loss). (6,290,000) 648,000 (4,874,000) 2,372,000 9,470,000
Other income (expense):
Interest expense........ (1,016,000) (1,327,000) (2,077,000) (1,091,000) (3,632,000)
Interest and other in-
come................... 770,000 639,000 1,174,000 247,000 1,641,000
----------- ----------- ----------- ----------- -----------
(246,000) (688,000) (903,000) (844,000) (1,991,000)
----------- ----------- ----------- ----------- -----------
Income (loss) before in-
come taxes and extraor-
dinary item............ (6,536,000) (40,000) (5,777,000) 1,528,000 7,479,000
Income taxes (note 14).. 51,000 298,000 (3,236,000) 549,000 2,056,000
----------- ----------- ----------- ----------- -----------
Income (loss) before ex-
traordinary item....... (6,587,000) (338,000) (2,541,000) 979,000 5,423,000
Extraordinary item--for-
giveness of debt (note
18).................... -- 405,000 -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)....... $(6,587,000) 67,000 (2,541,000) 979,000 5,423,000
=========== =========== =========== =========== ===========
Income (loss) per common
share (primary and
fully diluted) (notes 1
and 15):
Income (loss) before ex-
traordinary item (after
reduction for dividends
and accretions on pre-
ferred stock of $.04,
$.13 and $.06 for the
years ended March 31,
1992, 1993 and 1994,
respectively, and $.05
and $.03 for the nine
months ended December
31, 1993 and 1994 (un-
audited), respective-
ly).................... $ (.88) (.16) (.26) .04 .33
Extraordinary item...... -- .04 -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) per
common share........... $ (.88) (.12) (.26) .04 .33
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
--------------------- ------------------- ADDITIONAL CURRENCY
NUMBER OF NUMBER OF PAID-IN TRANSLATION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT TOTAL
--------- ---------- ---------- ------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1991, as previously re-
ported................. 888,000 $ 89,000 3,637,260 $24,000 10,256,000 -- (4,921,000) 5,448,000
Restatement for acquisi-
tion of Liquipure, ac-
quired through pooling
of interests (note 9).. -- -- 1,852,221 12,000 24,801,000 -- (9,402,000) 15,411,000
-------- ---------- ---------- ------- ---------- ------- ----------- -----------
Balance at March 31,
1991, restated......... 888,000 89,000 5,489,481 36,000 35,057,000 -- (14,323,000) 20,859,000
Conversion of fractional
shares due to reverse
stock split............ -- -- (2,497) -- -- -- -- --
Conversion of preferred
stock (note 15)........ (888,000) (89,000) 710,382 5,000 84,000 -- -- --
Conversion of convert-
ible debentures........ -- -- 31,999 -- 200,000 -- -- 200,000
Shares issued through
public offering, net of
offering costs of
$1,887,000 (note 15)... -- -- 2,415,000 16,000 17,820,000 -- -- 17,836,000
Issuance of preferred
stock in connection
with acquisition (note
15).................... 880,000 21,300,000 -- -- -- -- -- 21,300,000
Compensation related to
excess of fair value of
director stock options
over exercise price
(note 15).............. -- -- -- -- 64,000 -- -- 64,000
Exercise of common stock
warrants (note 15)..... -- -- 82,479 1,000 81,000 -- -- 82,000
Accretion of dividends
on preferred stock..... -- 154,000 -- -- -- -- (154,000) --
Net loss................ -- -- -- -- -- -- (6,587,000) (6,587,000)
-------- ---------- ---------- ------- ---------- ------- ----------- -----------
Balance at March 31,
1992................... 880,000 21,454,000 8,726,844 58,000 53,306,000 -- (21,064,000) 53,754,000
Compensation related to
excess of fair value of
director stock options
over exercise price
(note 15).............. -- -- -- -- 55,000 -- -- 55,000
Exercise of common stock
options (note 15)...... -- -- 45,300 1,000 208,000 -- -- 209,000
Shares issued through
public offering, net of
offering costs of
$2,064,000 (note 15)... -- -- 2,250,000 15,000 25,297,000 -- -- 25,312,000
Shares issued to employ-
ee..................... -- -- 805 -- 14,000 -- -- 14,000
Dividends paid on pre-
ferred stock (note 15). -- -- -- -- -- -- (660,000) (660,000)
Issuance of common stock
related to redemption
of minority interest
(note 9)............... -- -- 26,559 -- 376,000 -- -- 376,000
Conversion of convert-
ible debentures........ -- -- 31,999 -- 200,000 -- -- 200,000
Accretion of dividends
on preferred stock..... -- 617,000 -- -- -- -- (617,000) --
Currency translation ad-
justment............... -- -- -- -- -- 304,000 -- 304,000
Net income.............. -- -- -- -- -- -- 67,000 67,000
-------- ---------- ---------- ------- ---------- ------- ----------- -----------
Balance at March 31,
1993................... 880,000 22,071,000 11,081,507 74,000 79,456,000 304,000 (22,274,000) 79,631,000
(Continued)
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
--------------------- ------------------- ADDITIONAL CURRENCY
NUMBER OF NUMBER OF PAID-IN TRANSLATION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT TOTAL
--------- ----------- ---------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Compensation related to
excess of fair value of
director stock options
over exercise price
(note 15).............. -- -- -- -- 80,000 -- -- 80,000
Exercise of common stock
options (note 15)...... -- -- 157,954 1,000 1,254,000 -- -- 1,255,000
Issuance of common stock
in connection with
acquisitions (note 9).. -- -- 3,056,748 20,000 48,469,000 -- -- 48,489,000
Dividends paid on
preferred stock (note
15).................... -- -- -- -- -- -- (701,000) (701,000)
Shareholders' equity
transactions of
Liquipure prior to
merger................. -- -- -- -- (43,000) -- -- (43,000)
Currency translation
adjustment............. -- -- -- -- -- (560,000) -- (560,000)
Net loss................ -- -- -- -- -- -- (2,541,000) (2,541,000)
--------- ----------- ---------- -------- ----------- -------- ----------- -----------
Balance at March 31,
1994................... 880,000 22,071,000 14,296,209 95,000 129,216,000 (256,000) (25,516,000) 125,610,000
Net loss of Liquipure
for the three months
ended March 31, 1994... -- -- -- -- -- -- (313,000) (313,000)
Compensation related to
excess of fair value of
director stock options
over exercise price
(unaudited)............ -- -- -- -- 72,000 -- -- 72,000
Exercise of common stock
options (unaudited).... -- -- 44,571 1,000 484,000 -- -- 485,000
Issuance of common stock
in connection with
acquisitions
(unaudited) (note 9)... -- -- 591,088 4,000 7,197,000 -- -- 7,201,000
Reduction in valuation
of common stock issued
in connection with
Ionpure acquisition
(unaudited)............ -- -- -- -- (9,123,000) -- -- (9,123,000)
Dividends paid on
preferred stock
(unaudited) (note 15).. -- -- -- -- -- -- (358,000) (358,000)
Preferred stock issued
in connection with
acquisition of Smogless
(unaudited) (note 9)... 185,185 3,506,000 -- -- -- -- -- 3,506,000
Issuance of common stock
to pay off indebtedness
(unaudited)............ -- -- 59,000 -- 700,000 -- -- 700,000
Currency translation
adjustment (unaudited). -- -- -- -- -- 471,000 -- 471,000
Par value of shares
issued in connection
with a three-for-two
stock split (unaudited)
(note 15).............. -- -- -- 50,000 (50,000) -- -- --
Net income (unaudited).. -- -- -- -- -- -- 5,423,000 5,423,000
--------- ----------- ---------- -------- ----------- -------- ----------- -----------
Balance at December 31,
1994 (unaudited)....... 1,065,185 $25,577,000 14,990,868 $150,000 128,496,000 215,000 (20,764,000) 133,674,000
========= =========== ========== ======== =========== ======== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------- -----------------------
1992 1993 1994 1993 1994
----------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income (loss)...... $(6,587,000) 67,000 (2,541,000) 979,000 5,423,000
Adjustments to recon-
cile net income (loss)
to net cash provided
by (used in) operating
activities:
Extraordinary item--
forgiveness of debt.... -- (405,000) -- -- --
Deferred income taxes.. -- -- (3,806,000) -- 300,000
Depreciation and amor-
tization............... 2,067,000 4,352,000 7,015,000 4,708,000 7,604,000
Decrease in minority
interest............... -- (20,000) -- -- --
Gain on extinguishment
of debt................ -- (119,000) -- -- --
Interest converted to
equity................. -- 310,000 -- -- --
Provision for doubtful
accounts............... 129,000 90,000 661,000 83,000 100,000
(Gain) loss on sale of
property and equip-
ment................... 58,000 (5,000) (5,000) (5,000) (2,000)
Stock and stock option
compensation........... 64,000 69,000 80,000 48,000 72,000
Writeoff of goodwill... -- -- 3,738,000 -- --
Change in operating
assets and liabili-
ties:
(Increase) decrease
in accounts receiv-
able................ 2,313,000 (2,546,000) (8,504,000) (4,135,000) 245,000
(Increase) decrease
in costs and esti-
mated earnings in
excess of billings
on uncompleted con-
tracts.............. (2,493,000) (5,099,000) (12,100,000) (7,276,000) 1,981,000
(Increase) decrease
in inventories...... 413,000 (1,079,000) (1,964,000) (4,569,000) (8,226,000)
(Increase) decrease
in prepaid expenses
and other assets.... 192,000 (3,296,000) 894,000 (1,466,000) (3,533,000)
Increase (decrease)
in accounts payable
and accrued ex-
penses.............. 4,693,000 (2,547,000) 7,625,000 (1,169,000) (9,299,000)
Increase (decrease)
in billings in ex-
cess of costs and
estimated earnings
on uncompleted con-
tracts.............. (1,153,000) (1,094,000) 1,384,000 2,017,000 2,561,000
Increase (decrease)
in other liabili-
ties................ (46,000) (560,000) (3,000) 617,000 (5,173,000)
----------- ----------- ----------- ----------- ----------
Net cash used in op-
erating activities... (350,000) (11,882,000) (7,526,000) (10,168,000) (7,947,000)
----------- ----------- ----------- ----------- ----------
Cash flows from invest-
ing activities:
Investment in leasehold
interest............... -- -- (15,766,000) -- (6,358,000)
Purchase of property,
plant and equipment.... (1,977,000) (4,101,000) (6,930,000) (4,699,000) (8,658,000)
Proceeds from disposal
of equipment........... 16,000 29,000 182,000 54,000 238,000
Purchase of minority
interest............... -- (345,000) -- -- --
Purchase of short-term
investments............ -- -- (15,625,000) -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------- ----------------------
1992 1993 1994 1993 1994
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sale of short-term in-
vestments............... -- -- -- -- 8,001,000
Payment for purchase of
acquisitions (net of
cash acquired).......... (4,885,000) (9,088,000) (362,000) (4,678,000) (1,755,000)
----------- ----------- ----------- ---------- ----------
Net cash used in in-
vesting activities... (6,846,000) (13,505,000) (38,501,000) (9,323,000) (8,532,000)
----------- ----------- ----------- ---------- ----------
Cash flows from financ-
ing activities:
Net proceeds from sale
of common stock........ 17,836,000 32,412,000 -- 755,000 --
Net proceeds from sale
of convertible subordi-
nated debentures....... -- -- 57,923,000 58,042,000 --
Proceeds from exercise
of common stock options
and warrants........... 82,000 209,000 1,242,000 -- 485,000
Principal payments on
debt................... (4,206,000) (13,841,000) (651,000) (66,000) (4,471,000)
Dividends paid on pre-
ferred stock........... -- (660,000) (701,000) (343,000) (357,000)
Principal payments and
buyout of capital lease
obligations............ (66,000) (5,331,000) -- -- --
Proceeds from
borrowings on note pay-
able................... 3,250,000 1,779,000 3,306,000 2,493,000 14,684,000
----------- ----------- ----------- ---------- ----------
Net cash provided by
financing activities. 16,896,000 14,568,000 61,119,000 60,881,000 10,341,000
----------- ----------- ----------- ---------- ----------
Net increase (decrease)
in cash................. 9,700,000 (10,819,000) 15,092,000 41,390,000 (6,138,000)
Cash and cash equiva-
lents at beginning of
period.................. 4,058,000 13,758,000 2,939,000 2,939,000 18,031,000
----------- ----------- ----------- ---------- ----------
Cash and cash equiva-
lents at end of period.. $13,758,000 2,939,000 18,031,000 44,329,000 11,893,000
=========== =========== =========== ========== ==========
Supplemental disclosures
of cash flow informa-
tion:
Cash paid during the
period for interest.... $ 571,000 1,323,000 775,000 353,000 3,972,000
=========== =========== =========== ========== ==========
Cash paid during the
period for income tax-
es..................... $ 230,000 199,000 294,000 64,000 111,000
=========== =========== =========== ========== ==========
Noncash investing and
financing activities
consisted of the follow-
ing:
Common stock issued:
Conversion of pre-
ferred stock........... $ 89,000 -- -- -- --
Conversion of deben-
tures.................. 200,000 200,000 -- -- --
Forgiveness of indebt-
edness................. -- 405,000 -- -- --
Property, plant and
equipment acquired un-
der long-term
borrowings............. -- 2,859,000 -- -- --
----------- ----------- ----------- ---------- ----------
$ 289,000 3,464,000 -- -- --
=========== =========== =========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the financial statements of the
Company and its wholly owned subsidiaries (see note 9). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Method of Accounting for Contracts
The accounting records of the Company are maintained and income is reported
for financial reporting and income tax purposes for long-term contracts under
the percentage-of-completion method of accounting.
Under this method, an estimated percentage for each contract, based on the cost
of work performed to date that has contributed to contract performance compared
to the total estimated cost, is applied to total estimated revenue. No amount
is taken into income until a contract has reached a stage of completion
sufficient to reasonably determine, in the opinion of management, the ultimate
realizable profit. Provision is made for the entire amount of future estimated
losses on contracts in progress in the period in which such losses are
determined. Claims for additional contract compensation due the Company are not
reflected in the accounts until the year in which such claims are allowed,
except where contract terms specifically provide for certain claims.
Contract costs include all direct material and labor and those indirect costs
related to contract performance. General and administrative expenses are
charged to expense as incurred.
Income Taxes
In 1992, the Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," which requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse (see note 14).
Prior to 1992, the provision for income taxes was based on income and
expenses included in the accompanying consolidated statements of operations.
Differences between taxes so computed and taxes payable under applicable
statutes and regulations were classified as deferred taxes arising from timing
differences.
United States income taxes are not provided on the undistributed earnings of
the foreign subsidiaries as such earnings are intended to be indefinitely
reinvested in those operations.
Foreign Currency Translation
In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation," the assets and liabilities denominated in
foreign currency are translated into U.S. dollars at the current rate of
exchange existing at period-end, and revenues and expenses are translated at
the average monthly exchange rates. Translation adjustments are included as a
separate component of shareholders' equity. The transaction gains and losses
included in income are immaterial.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
F-9
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is calculated
on the straight-line method over the estimated useful lives of the assets,
which range from 3 to 25 years. Leasehold improvements are amortized on the
straight-line method over the remaining lease term.
Cost in Excess of Net Assets of Businesses Acquired
Cost in excess of net assets of businesses acquired is amortized on the
straight-line method over a 20- to 40-year life. At each balance sheet date,
the Company evaluates the realizability of these costs based upon expectations
of nondiscounted cash flows and operating income for each subsidiary. Based
upon its most recent analysis, the Company believes that no material impairment
exists at March 31, 1994.
Unamortized Debt Issuance Costs
Unamortized debt issuance costs, aggregating $1,961,000 at March 31, 1994,
have been deferred and are being amortized over the term of the related
convertible subordinated debentures (note 12).
Warranties
The Company's products are generally under warranty against defects in
material and workmanship for a period of one year. The Company has established
an accrual for these anticipated future warranty costs.
Earnings (Loss) per Common Share
Earnings (loss) per common share is computed based on the weighted average
number of shares outstanding. Common stock equivalents consisting of
convertible preferred stock, options and warrants are included in the
computation of earnings (loss) per share when their effect is dilutive.
Primary and fully diluted earnings (loss) per common share were calculated as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
----------------------------------- ----------------------
1992 1993 1994 1993 1994
----------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss)....... $(6,587,000) 67,000 (2,541,000) 979,000 5,423,000
Dividends and accretion
on preferred stock..... (319,000) (1,277,000) (701,000) (537,000) (537,000)
----------- ---------- ---------- ---------- ----------
Adjusted net income
(loss) applicable to
common shares.......... $(6,906,000) (1,210,000) (3,242,000) 442,000 4,886,000
=========== ========== ========== ========== ==========
Weighted average shares
outstanding............ 7,830,000 9,802,000 12,159,000 11,457,000 14,654,000
Add:
Exercise of options
and warrants reduced
by the number of
shares purchased with
proceeds............. 16,000 293,000 294,000 310,000 227,000
----------- ---------- ---------- ---------- ----------
Adjusted weighted
average shares
outstanding............ 7,846,000 10,095,000 12,453,000 11,767,000 14,881,000
=========== ========== ========== ========== ==========
Earnings (loss) per
common share:
Net income (loss)..... $ (.84) .01 (.20) .09 .36
Dividends and accretion
on preferred stock..... (.04) (.13) (.06) (.05) (.03)
----------- ---------- ---------- ---------- ----------
Adjusted earnings (loss)
per common share....... $ (.88) (.12) (.26) .04 .33
=========== ========== ========== ========== ==========
</TABLE>
F-10
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
68, dividends on the Cumulative Convertible Preferred Stock were accreted
through March 31, 1993 so as to yield the perpetual dividend rate as of the
issuance date of the preferred stock. Effective April 1, 1993, the Company and
its preferred shareholder agreed to a level $.812 per share annual dividend
($.406 semi-annual) on the Company's preferred shares, thus eliminating the
increasing rate and the accretion of dividends.
(2) CASH AND CASH EQUIVALENTS
Cash equivalents consist of demand deposits and certificates of deposit with
original maturities of 90 days or less.
(3) SHORT-TERM INVESTMENTS
Short-term investments consist of highly liquid municipal issues with
original maturities of more than 90 days when purchased, and are carried at
amortized cost, which approximates market value.
(4) INVENTORIES
Inventories at March 31, 1993 and 1994 and December 31, 1994 (unaudited)
consist of:
<TABLE>
<CAPTION>
MARCH 31,
----------------------- DECEMBER 31,
1993 1994 1994
------------ ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.............................. $ 8,416,000 10,428,000 14,832,000
Work-in-process............................ 3,530,000 6,402,000 11,567,000
Finished goods............................. 2,976,000 7,778,000 10,224,000
------------ ---------- ----------
$ 14,922,000 24,608,000 36,623,000
============ ========== ==========
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 1993 and 1994 and December 31,
1994 (unaudited) consist of:
<TABLE>
<CAPTION>
MARCH 31,
----------------------- DECEMBER 31,
1993 1994 1994
------------ ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Land ...................................... $ 2,538,000 2,471,000 1,486,000
Building and improvements ................. 12,886,000 15,881,000 14,546,000
Equipment.................................. 21,761,000 31,214,000 47,008,000
Furniture and fixtures..................... 6,014,000 8,009,000 9,803,000
Vehicles................................... 385,000 643,000 857,000
Construction in progress................... 910,000 2,334,000 3,829,000
------------ ---------- ----------
44,494,000 60,552,000 77,529,000
Less accumulated depreciation.............. 5,525,000 9,472,000 14,089,000
------------ ---------- ----------
$ 38,969,000 51,080,000 63,440,000
============ ========== ==========
</TABLE>
F-11
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
(6) INVESTMENT IN LEASEHOLD INTEREST
In August 1993, the Company entered into a concession agreement with the
state of Morelos, Mexico to build and operate a wastewater treatment plant in
the City of Cuernavaca. The term of the concession is approximately 13 years
and includes monthly payments to be received by the Company from the
municipality of Cuernavaca at various prices per cubic meter of sewage treated
at the facility based upon the Company's initial investment, fixed operating
and variable operating expenses. The Company will amortize the investment on a
straight-line basis over the term of the concession. Subsequent to March 31,
1994, the Company completed the wastewater treatment facility and began
treatment operations.
(7) COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED
Cost in excess of net assets of businesses acquired and accumulated
amortization at March 31, 1993 and 1994 and December 31, 1994 (unaudited)
consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------- DECEMBER 31,
1993 1994 1994
----------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Cost in excess of net assets of
businesses acquired................... $22,925,000 54,175,000 101,855,000
Less accumulated amortization.......... 2,339,000 2,976,000 4,345,000
----------- ---------- -----------
$20,586,000 51,199,000 97,510,000
=========== ========== ===========
</TABLE>
During fiscal 1994, the Company's Liquipure subsidiary commenced a study of
the recoverability of the recorded value of its cost in excess of net assets of
businesses acquired. Due to the recurring losses generated by Liquipure and a
conclusion on the part of management that its strategy respecting its market
penetration for its impulse product technology was impaired, the Company
forecasted undiscounted cash flows being generated from Liquipure using its
best estimate of expected future results. The Company concluded that the
carrying amounts of Liquipure's cost in excess of net assets of businesses
acquired was not recoverable and, accordingly, recorded a charge of $3,738,000,
which is included in selling, general and administrative expenses for the year
ended March 31, 1994.
(8) OTHER ASSETS
Other assets at March 31, 1993 and 1994 and December 31, 1994 (unaudited)
consist of:
<TABLE>
<CAPTION>
MARCH 31,
-------------------- DECEMBER 31,
1993 1994 1994
---------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Closure Trust Fund
(restricted)............. $ 342,000 -- --
Long-term receivables and
advances................. 489,000 548,000 8,104,000
Investment in
unconsolidated
subsidiaries............. -- -- 4,571,000
Other assets at amortized
cost:
Operating permits and
development costs...... 974,000 717,000 816,000
Patents................. 97,000 83,000 72,000
Deferred debt costs..... -- 1,961,000 1,813,000
Other................... 560,000 413,000 2,584,000
---------- --------- ----------
$2,462,000 3,722,000 17,960,000
========== ========= ==========
</TABLE>
F-12
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
The above amounts reflect accumulated amortization of $832,000 and $1,051,000
at March 31, 1993 and 1994, respectively, and $1,208,000 at December 31, 1994
(unaudited).
(9) ACQUISITIONS
On July 31, 1991, Lancy Environmental Systems, Inc. ("Lancy"), a newly
formed, wholly owned subsidiary of the Company, acquired the business and
substantially all of the assets and assumed certain liabilities of Lancy Waste
Management Systems division of Alcoa Separations Technology, Inc. ("ASTI"), a
subsidiary of Aluminum Company of America ("Alcoa"). Lancy designs and sells
equipment primarily for the treatment of wastewater and contaminated ground
water for industrial users. The total purchase price was $3,072,000 (including
acquisition costs of $185,000). The Company paid cash for the acquisition,
which was financed through the proceeds of its common stock offering (note 15).
The acquisition of Lancy has been accounted for as a purchase and,
accordingly, the results of Lancy's operations for the eight months ended March
31, 1992 are included in the Company's consolidated statements of operations
for the year ended March 31, 1992. The excess of cost over the fair value of
net assets acquired was $1,729,000 and is being amortized on a straight-line
basis over 20 years.
On January 6, 1992, the Company completed the acquisition of ASTI from Alcoa
by means of a purchase of all of ASTI's outstanding capital stock. The total
purchase price was $26,675,000 (including acquisition costs of $769,000) and
consisted of $2,769,000 in cash, 880,000 shares of a new Series A Voting
Cumulative Convertible Preferred Stock of the Company (see note 15), and a
promissory note in the initial principal amount of $7,605,000 (which was
subsequently reduced by $5,000,000 to $2,605,000, based upon the terms of the
promissory note) and was subsequently repaid in full in October 1992.
Supplementary information related to the acquisition of ASTI for the March
31, 1992 consolidated statement of cash flows is as follows:
<TABLE>
<S> <C>
Assets acquired........................................... $ 50,027,000
Liabilities assumed....................................... (26,727,000)
Preferred stock issued.................................... (21,300,000)
------------
Cash paid................................................. 2,000,000
Fees and expenses......................................... 769,000
Less cash acquired........................................ (956,000)
------------
Net cash paid........................................... $ 1,813,000
============
</TABLE>
The Stock Purchase Agreement pursuant to which the Company acquired ASTI also
provided that, subject to certain conditions, the Company would purchase all of
the outstanding stock of Societe des Ceramiques Techniques S.A. ("SCT"), a
French subsidiary of Alcoa, in exchange for a promissory note of the Company.
ASTI was comprised of three business units consisting of Illinois Water
Treatment ("IWT"), located in Rockford, Illinois; a 75% interest in Metro
Recovery Systems ("MRS"), located in Minneapolis, Minnesota; and Membrane
Products Group ("MPG"), located in Warrendale, Pennsylvania. IWT manufactures
water treatment equipment using technologies such as reverse osmosis,
filtration, softeners, ion exchange, membrane filtration, ultrafiltration and
other specialty separations. MRS is a Resource Conservation and Recovery Act
("RCRA") Part B permitted facility that treats and recovers industrial and
municipal hazardous waste. MPG markets ceramic membranes manufactured by SCT
for use in filtration in the pharmaceutical, food processing, electronics and
oil industries.
F-13
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
The acquisition of ASTI has been accounted for as a purchase and,
accordingly, the results of operations of ASTI for the three months ended March
31, 1992 are included in the Company's consolidated statements of operations
for the year ended March 31, 1992. The excess cost over the fair value of net
assets acquired was $7,105,000 and is being amortized on a straight-line basis
over 20 years.
In November 1991, the Company, through its wholly owned subsidiary, Lyco,
Inc., acquired manufacturing equipment and leased a facility in Davenport, Iowa
to manufacture enameled hot-rolled steel. The total purchase price was
$125,000.
On April 1, 1992, the Company completed the acquisition of SCT from Alcoa by
means of a purchase of all of SCT's outstanding capital stock. The total
purchase price of SCT consisted of a 7.5% promissory note payable to Alcoa in
the principal amount of $9,473,000. This promissory note was subsequently
repaid in full in October 1992. The acquisition of SCT has been accounted for
as a purchase and, accordingly, the results of operations of SCT for the year
ended March 31, 1993 are included in the Company's consolidated statement of
operations from the acquisition date. The purchase price approximated the fair
value of the net assets acquired.
Supplementary information related to the acquisition of SCT for the March 31,
1993 consolidated statement of cash flows is as follows:
<TABLE>
<S> <C>
Assets acquired............................................ $13,550,000
Liabilities assumed*....................................... (14,113,000)
-----------
Net cash acquired.......................................... $ 563,000
===========
</TABLE>
* Includes note payable to seller
On June 19, 1992, the Company acquired the remaining 25% interest in MRS from
Metro Recovery Corporation. The purchase price consisted of $345,000 in cash
and 26,559 shares of the Company's common stock, 8,853 of which are being held
in escrow pending certain performance guarantees on the part of Metro Recovery
Corporation. The excess of cost over the fair value of the minority interest
acquired was $384,000 and is being amortized on a straight-line basis over 20
years.
On January 5, 1993, the Company completed an acquisition of The Permutit
Company, Inc. ("Permutit"), a wholly owned subsidiary of Zurn Industries, Inc.,
by means of a purchase of all of Permutit's outstanding capital stock. The all-
cash purchase price of Permutit totaled $7,406,000 (including acquisition costs
of $90,000). Permutit, located in Warren, New Jersey, designs and sells water
treatment equipment.
The acquisition of Permutit has been accounted for as a purchase and,
accordingly, the results of Permutit's operations for the three months ended
March 31, 1993 are included in the Company's consolidated statement of
operations for the year ended March 31, 1993. The excess of cost over fair
value of net assets acquired was $4,805,000 and is being amortized on a
straight-line basis over 20 years.
Supplementary information related to the acquisition of Permutit for the
March 31, 1993 consolidated statement of cash flows is as follows:
<TABLE>
<S> <C>
Assets acquired............................................ $ 9,329,000
Liabilities assumed........................................ (2,014,000)
-----------
Cash paid.................................................. 7,315,000
Fees and expenses.......................................... 90,000
Less cash acquired......................................... (418,000)
-----------
Net cash paid............................................ $ 6,987,000
===========
</TABLE>
F-14
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
Summarized below are the unaudited pro forma results of operations of the
Company as though Permutit had been acquired on April 1, 1991:
<TABLE>
<CAPTION>
1992 1993
----------- -----------
<S> <C> <C>
Revenue....................................... $79,457,000 136,129,000
=========== ===========
Net loss...................................... $(6,856,000) (362,000)
=========== ===========
Net loss per common share..................... $ (.91) (.16)
=========== ===========
</TABLE>
On October 1, 1992, the Company completed an acquisition of certain assets
and assumption of certain liabilities of The Censys Group, Inc., located in
Redmond, Washington. The maximum aggregate purchase price payable by the
Company, including acquisition costs, is $565,000 with $300,000 of such amount
contingent upon the attainment of certain performance criteria. The acquisition
has been accounted for as a purchase. The excess of cost over fair value of net
assets acquired was $310,000.
On December 1, 1993, the Company acquired all of the outstanding capital
stock of Ionpure Technologies Corporation and IP Holding Company (together,
"Ionpure") from Eastern Enterprises and Eastern Enterprises' subsidiary, Water
Products Group Incorporated (together, "Eastern"). The total purchase price was
$41,394,000 (including acquisition costs of $1,960,000) and consisted of
$100,000 in cash and 3,041,092 shares of Company common stock.
Ionpure designs, manufactures, installs and services ultrapure water
purification products and systems primarily for customers in the
pharmaceutical, electronics, hemodialysis, chemical, laboratory and power
generation industries throughout the United States, Europe and other major
international markets.
The acquisition of Ionpure has been accounted for as a purchase and,
accordingly, the results of Ionpure's operations for the four months ended
March 31, 1994 are included in the Company's consolidated statement of
operations for the year ended March 31, 1994. The excess of cost over fair
value of net assets acquired was $27,875,000 and is being amortized on a
straight-line basis over 40 years.
Supplementary information related to the acquisition of Ionpure for the March
31, 1994 consolidated statement of cash flows is as follows:
<TABLE>
<S> <C> <C>
Assets acquired................................ $ 63,142,000
Liabilities assumed............................ (14,588,000)
Common stock issued............................ (48,454,000)
------------
Cash paid...................................... 100,000
Fees and expenses.............................. 1,960,000
Less cash acquired............................. (1,698,000)
------------
Net cash paid................................ $ 362,000
============
Summarized below are the unaudited pro forma results of operations of the
Company as though Ionpure had been acquired on April 1, 1992:
<CAPTION>
1993 1994
------------ -----------
<S> <C> <C>
Revenue........................................ $182,567,000 212,268,000
============ ===========
Net loss....................................... $ (1,754,000) (5,885,000)
============ ===========
Net loss per common share...................... $ (.23) (.48)
============ ===========
</TABLE>
F-15
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
On July 8, 1994, the business of the Company and Liquipure Technologies, Inc.
("Liquipure") were merged upon the exchange of 1,852,221 shares of the
Company's common stock for all of the outstanding common and preferred shares
of Liquipure. In addition, the Company issued 45,000 shares of its common stock
to one of the shareholders of Liquipure in satisfaction of a $700,000 loan,
plus accrued interest.
This transaction has been accounted for as a pooling of interests and,
accordingly, the consolidated financial statements and notes thereto for all
periods presented have been restated to include the accounts and operations of
Liquipure. Separate results of operations of the combined entities for the
years ended March 31, 1992, 1993 and 1994 are as follows:
<TABLE>
<CAPTION>
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
U.S. Filter (as previously
reported)...................... $41,238,000 101,397,000 147,870,000
Liquipure (year ended December
31)............................ 21,602,000 26,979,000 32,551,000
----------- ----------- -----------
Combined...................... $62,840,000 128,376,000 180,421,000
=========== =========== ===========
Net earnings (loss):
U.S. Filter (as previously
reported)...................... $(3,964,000) 4,402,000 4,986,000
Liquipure (year ended December
31)............................ (2,623,000) (4,335,000) (7,527,000)
----------- ----------- -----------
Combined...................... $(6,587,000) 67,000 (2,541,000)
=========== =========== ===========
</TABLE>
Separate unaudited results of operations of the combined entities for the
nine months ended December 31, 1993 are as follows:
<TABLE>
<CAPTION>
NET
REVENUES INCOME (LOSS)
------------ -------------
<S> <C> <C>
U.S. Filter (nine months ended December 31,
1993)....................................... $ 95,015,000 3,266,000
Liquipure (nine months ended September 30,
1993)....................................... 23,797,000 (2,287,000)
------------ ----------
Combined................................... $118,812,000 979,000
============ ==========
</TABLE>
Separate unaudited results of operations of combined entities for the period
April 1, 1994 to the effective date of the merger and included in the
consolidated statement of operations for the nine months ended December 31,
1994 are as follows:
<TABLE>
<CAPTION>
NET
REVENUES INCOME (LOSS)
------------ -------------
<S> <C> <C>
U.S. Filter.................................. $ 47,857,000 1,414,000
Liquipure.................................... 7,206,000 (307,000)
------------ ----------
Combined................................... $ 55,063,000 1,107,000
============ ==========
</TABLE>
Effective August 31, 1994, the Company, through two of the Company's
subsidiaries, IP Holding Company ("IP Holding") and Ionpure Technologies,
S.r.L. ("Ionpure Italy"), acquired all of the outstanding capital stock of
Smogless S.p.A. ("Smogless") from Laidlaw Inc. The total consideration for the
acquisition of Smogless (excluding acquisition costs of $396,000) consists of
the following: (i) $45,000,000 in aggregate principal amount of subordinated
debt of Ionpure Italy due August 31, 2001 and bearing interest at 6.5% for the
period January 1, 1995 through September 30, 1995 and 4.5% thereafter, (ii)
common stock purchase warrants exercisable in whole or part at any time on or
before August 31, 2001 by the surrender of the subordinated debt at the rate of
$18.00 in principal amount of subordinated debt for each share of common stock,
(iii) 185,185 shares of a new Series B Voting Convertible Preferred Stock, (iv)
18,000 shares of the Company's common stock, and (v) $700,000 in cash.
F-16
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
The acquisition of Smogless has been accounted for as a purchase and,
accordingly, the results of operations of Smogless for the 4 months ended
December 31, 1994 are included in the Company's consolidated statements of
operations. The excess of cost over fair value of net assets acquired was
approximately $39,340,000 and is being amortized on a straight-line basis over
40 years. Supplementary information related to the acquisition of Smogless for
the consolidated statement of cash flows for the nine months ended December 31,
1994 is as follows:
<TABLE>
<S> <C>
Assets acquired........................................... $110,962,000
Liabilities assumed....................................... (106,516,000)
Preferred stock issued.................................... (3,506,000)
Common stock issued....................................... (240,000)
------------
Cash paid................................................. 700,000
Fees and expenses......................................... 396,000
Less cash acquired........................................ (8,340,000)
------------
Net cash acquired......................................... $ (7,244,000)
============
</TABLE>
Summarized below are the unaudited pro forma results of operations of the
Company as though Smogless had been acquired at the beginning of the nine month
periods ended December 31, 1993 and 1994:
<TABLE>
<CAPTION>
1993 1994
------------ -----------
<S> <C> <C>
Revenues....................................... $151,489,000 215,525,000
============ ===========
Net income..................................... $ 2,159,000 7,492,000
============ ===========
Net income per common share.................... $ 0.14 0.47
============ ===========
</TABLE>
On November 30, 1994, the Company completed the acquisition of the Crouzat
Group ("Crouzat") by means of a purchase of all of Crouzat's outstanding
capital stock. The total purchase price was $5,750,000, of which $4,640,000 was
paid in cash at closing, with three annual payments of $370,000 in 1995, 1996
and 1997. Crouzat comprises three sites in France, in Toulouse, Mantes and
Lille. Crouzat primarily services ultrapure water purification products and had
revenues in 1994 of approximately $6,000,000. The acquisition has been
accounted for as a purchase and, accordingly, the results of the operations of
Crouzat are included in the consolidated statement of operations for the period
from the date of acquisition. The excess cost over the fair value of net assets
acquired was approximately $3,800,000 and is being amortized on a straight-line
basis over 40 years. Supplementary information related to the acquisition of
Crouzat for the December 31, 1994 consolidated statement of cash flows is as
follows:
<TABLE>
<S> <C>
Assets acquired............................................. $7,220,000
Liabilities assumed......................................... (2,580,000)
----------
Cash paid................................................... 4,640,000
Fees and expenses........................................... 100,000
Less cash acquired.......................................... (1,320,000)
----------
Net cash paid............................................... $3,420,000
==========
</TABLE>
F-17
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
On May 27, 1994, the Company completed the acquisition of Sation, S.A.
("Sation") by means of a purchase of all of Sation's outstanding capital stock.
The total purchase price of approximately $1,546,000 (including acquisition
costs of $46,000) consisted of approximately $755,000 in cash and 56,250 shares
of Company stock. Sation, located in Barcelona, Spain, primarily services
ultrapure water purification products and had revenues for the year ended
December 31, 1993 of approximately $2,000,000. The acquisition has been
accounted for as a purchase and, accordingly, the results of operations of
Sation are included in the Company's consolidated statements of operations for
the periods from the date of acquisition. The excess cost over the fair value
of net assets acquired was approximately $1,148,000 and is being amortized on a
straight-line basis over 40 years. Supplementary information related to the
acquisition of Sation for the December 31, 1994 consolidated statement of cash
flows is as follows:
<TABLE>
<S> <C>
Assets acquired............................................. $2,010,000
Liabilities assumed......................................... (510,000)
Common stock issued......................................... (745,000)
----------
Cash paid................................................... 755,000
Fees and expenses........................................... 46,000
Less cash acquired.......................................... (40,000)
----------
Net cash paid............................................... $ 761,000
==========
</TABLE>
On July 27, 1994, the Company acquired Seral Erich Alhauser GmbH ("Seral") by
means of a purchase of Seral's outstanding capital stock. The total purchase
price was approximately $8,100,000 and consisted of $4,250,000 in cash and
300,000 shares of Company common stock. Seral, located in Germany, designs,
manufactures, installs and services water purification products and systems.
Seral had revenues for the year ended December 31, 1993 of approximately
$10,000,000. The acquisition has been accounted for as a purchase and,
accordingly, the results of operations of Seral are included in the Company's
consolidated statements of operations for the periods from the date of
acquisition. The excess cost over the fair value of net assets acquired was
approximately $8,222,000 and is being amortized on a straight-line basis over
40 years. Supplementary information related to the acquistion of Seral for the
December 31, 1994 consolidated statement of cash flows is as follows:
<TABLE>
<S> <C>
Assets acquired........................................... $ 16,135,000
Liabilities assumed....................................... (8,035,000)
Common stock issued....................................... (3,850,000)
------------
Cash paid................................................. 4,250,000
Fees and expenses......................................... 575,000
Less cash acquired........................................ (7,000)
------------
Net cash paid............................................. $ 4,818,000
============
</TABLE>
On August 10, 1994, the Company acquired from Millipore Corporation that
corporation's Ceraflo ceramic product line. The total price of the product line
was approximately $2,500,000 and consisted of 202,729 shares of Company common
stock.
All pro forma information presented above is in response to applicable
accounting rules relating to business acquisitions. This pro forma information
does not purport to be indicative of the results that actually would have been
obtained if the combined operations had been conducted during the periods
presented and is not intended to be a projection of future results due to
extensive changes being made in the organization, facilities, personnel and
other costs of the acquired companies.
F-18
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
(10) CONTRACT BILLING STATUS
Information with respect to the billing status of contracts in process at
March 31, 1993 and 1994 and December 31, 1994 (unaudited) is as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------------- DECEMBER 31,
1993 1994 1994
------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Contract costs incurred to date. $ 17,588,000 41,704,000 153,798,000
Estimated profits............... 3,461,000 8,730,000 51,706,000
------------ ----------- ------------
Contract revenue earned to date. 21,049,000 50,434,000 205,504,000
Less billings to date........... (12,045,000) (30,208,000) (201,013,000)
------------ ----------- ------------
Cost and estimated earnings in
excess of billings, net........ $ 9,004,000 20,226,000 4,491,000
============ =========== ============
The above amounts are included in the accompanying consolidated balance
sheets as:
Costs and estimated earnings in
excess of billings on uncom-
pleted contracts............... $ 9,567,000 22,172,000 20,206,000
Billings in excess of costs and
estimated earnings on uncom-
pleted contracts............... (563,000) (1,946,000) (15,715,000)
------------ ----------- ------------
$ 9,004,000 20,226,000 4,491,000
============ =========== ============
</TABLE>
Accounts receivable include retainage that has been billed but is not due
pursuant to retainage provisions in construction contracts until completion of
performance and acceptance by the customer. This retainage aggregated
$1,294,000 and $1,341,000 at March 31, 1993 and 1994, respectively.
Substantially all retained balances are collectible within one year.
F-19
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
(11) LONG-TERM DEBT
Long-term debt at March 31, 1993 and 1994 and December 31, 1994 (unaudited)
consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER
---------------------- 31,
1993 1994 1994
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
6.02% mortgage note payable, secured by
land and building, due in monthly
principal and interest installments of
$14,000 through November 2007............ $1,598,000 1,591,000 1,546,000
2% mortgage note payable, secured by land
and building, due in monthly principal
and interest installments of $8,000
through January 2008..................... 1,240,000 1,166,000 1,109,000
Prime plus 1.5% (prime was 6.25% at March
31, 1994) promissory note payable,
secured by certain accounts receivable,
due in monthly principal and interest
installments of $14,000 through November
1995..................................... 310,000 165,000 48,000
Notes payable bearing interest at prime
plus 3/4% due monthly, with principal
payable in annual installments of
$450,000................................. 900,000 450,000 --
6.75% notes payable in annual principal
installments of $150,000 in 1995 and
$450,000 in 1996......................... 600,000 600,000 --
Notes payable, bearing interest at prime
plus 1.5%, due monthly, with principal
installments of $83,000 on September 30,
1993, 1994 and 1995...................... 250,000 167,000 83,000
Demand promissory notes payable to
Liquipure preferred stockholder (repaid
in July 1994)............................ 700,000 --
Mortgage note payable, secured by land and
building, due October 1, 2009, payable in
quarterly principal and interest install-
ments of $117,000, with interest at 7.5%
through July 1, 1996 and at prime plus 3%
thereafter............................... -- -- 3,896,000
6% mortgage note payable, secured by land
and building, due in quarterly principal
and interest installments of $22,000
through March 30, 1996................... -- -- 151,000
Note payable bearing interest at prime
plus 3.5% (prime was 4.9% at December 31,
1994) payable in annual principal in-
stallments of $374,000 on November 30,
1995, 1996 and 1997...................... -- -- 1,123,000
Note payable to former owner, due in an-
nual principal installments through July
7, 1997, bearing interest at prime plus
3.5%..................................... -- -- 400,000
Mortgage note payable bearing interest at
prime plus 3% (prime was 5.25% at Decem-
ber 31, 1994) with principal and interest
installments due semi-annually through
December 1999............................ -- -- 125,000
9.21% unsecured note payable due in
semiannal principal and interest install-
ments through December 2004.............. -- -- 443,000
Other..................................... 114,000 74,000 90,000
---------- ---------- ----------
5,012,000 4,913,000 9,014,000
Less: Current portion..................... (985,000) (2,111,000) (1,078,000)
---------- ---------- ----------
$4,027,000 2,802,000 7,936,000
========== ========== ==========
</TABLE>
The aggregate maturities of long-term debt for each of the five years
subsequent to March 31, 1994 are as follows: 1995, $2,111,000; 1996, $256,000;
1997, $176,000; 1998, $174,000; 1999, $175,000; and thereafter, $2,021,000.
The Company has an unsecured revolving line of credit with a bank of up to
$33,000,000, of which $3,910,000 was outstanding at March 31, 1994. The line-
of-credit expires September 1996 and bears interest at the bank's prime rate
plus 0.25% or, in certain circumstances, the Eurodollar rate. At March 31,
1994, $2,000,000 of standby letters of credit were issued under this line of
credit.
F-20
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
The Company also had a demand line of credit with a bank, bearing interest at
prime plus 1 1/4%, secured by certain assets of the Company. Balances
outstanding at March 31, 1993 and 1994 totaled $2,089,000 and $3,204,000,
respectively.
(12) CONVERTIBLE SUBORDINATED DEBENTURES
On October 20, 1993, the Company sold $60,000,000 aggregate principal amount
of 5% convertible subordinated debentures due October 15, 2000. The debentures
are convertible into common stock at any time prior to maturity, redemption or
repurchase at a conversion price of $20.50 per share, subject to adjustment in
certain circumstances. The debentures are not redeemable prior to October 25,
1996, at which time the debentures are redeemable at the option of the Company,
in whole or in part, at specified redemption prices plus accrued and unpaid
interest to the date of redemption. Interest is payable on April 15 and October
15, commencing April 15, 1994.
Additionally, the Company issued $45,000,000 of subordinated debt with common
stock purchase warrants on August 31, 1994 in connection with the acquisition
of Smogless (see note 9).
(13) ACCRUED LIABILITIES
Accrued liabilities at March 31, 1993 and 1994 and December 31, 1994
(unaudited) consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------- DECEMBER 31,
1993 1994 1994
----------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Payroll, benefits and related taxes..... $ 3,813,000 4,594,000 5,708,000
Sales commission........................ 949,000 1,453,000 1,242,000
Warranty................................ 2,434,000 2,607,000 3,127,000
Accrued job costs, start-up and customer
deposits............................... 5,903,000 10,811,000 14,868,000
Future remediation costs................ 1,456,000 1,339,000 305,000
Sales, property and other taxes......... 503,000 907,000 4,519,000
Interest................................ -- 1,456,000 977,000
Other................................... 1,720,000 5,896,000 9,821,000
----------- ---------- ----------
$16,778,000 29,063,000 40,567,000
=========== ========== ==========
</TABLE>
(14) INCOME TAXES
Income tax expense (benefit) for continuing operations for the years ended
March 31, 1992, 1993 and 1994 consist of:
<TABLE>
<CAPTION>
1992 1993 1994
----------- ---------- ----------
<S> <C> <C> <C>
Federal:
Current................................. $ -- -- --
Deferred................................ -- -- (3,239,000)
State:
Current................................. 51,000 298,000 3,000
Deferred................................ -- -- --
----------- ---------- ----------
$ 51,000 298,000 (3,236,000)
=========== ========== ==========
</TABLE>
F-21
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
Effective April 1, 1991, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The adoption of SFAS 109 did not have a material effect on the 1992
consolidated financial statements.
Total income tax expense differed from the amounts computed by applying the
United States federal corporate tax rate of 34% to income from continuing
operations before income taxes and extraordinary item as a result of the
following:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------
1992 1993 1994
----------- ---------- ----------
<S> <C> <C> <C>
Expected income tax provision (benefit)... $(2,222,000) (14,000) (1,964,000)
Permanent differences..................... 253,000 237,000 (377,000)
State franchise tax, net of federal tax
benefit.................................. 51,000 295,000 2,000
Charge in lieu of income taxes............ -- 3,000 --
Change in balance of valuation allowance
for deferred tax assets allocated to in-
come tax expense......................... -- -- (3,201,000)
Net operating loss carryforward unable to
be utilized.............................. 1,969,000 1,611,000 2,559,000
Net operating loss carryforward utilized.. -- (1,834,000) --
Benefit of foreign net operating loss
carryforwards............................ -- -- (255,000)
----------- ---------- ----------
$ 51,000 298,000 (3,236,000)
=========== ========== ==========
</TABLE>
As of March 31, 1994, the Company had net operating loss carryforwards in
France of approximately $21,109,000 for which no financial statement benefit
has been recognized. Approximately $4,802,000 of the operating losses expire in
the years 1994 to 1999, while the remainder have an indefinite carryforward
period. No benefit has been given to these operating loss carryforwards because
of the limited carryforward periods and the uncertain business conditions
relating to the operations giving rise to such carryforwards, and the benefit,
if any, of such carryforwards is to be shared equally between the Company and
Alcoa. Additionally, as of March 31, 1994, the Company has net operating loss
carryforwards generated from Liquipure of approximately $15,000,000 for which
no financial statement benefit has been recognized. These loss carryforwards
expire in the years 2004 to 2008. These operating loss carryforwards can be
used only against future taxable income of Liquipure. In addition, the
transaction with Liquipure resulted in a change in ownership that places an
annual limitation on the utilization of the net operating losses. Accordingly,
no benefit has been given to these operating loss carryforwards due to the
uncertain business conditions relating to the operations of Liquipure. Future
recognition of these carryforwards will be reflected if the operations in
France and Liquipure generate sufficient earnings before the expiration periods
of the respective loss carryforwards.
The Company also has available, at March 31, 1994, other net operating loss
carryforwards for federal income tax purposes of approximately $11,200,000,
which expire in 1998 to 2009.
F-22
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
The sources and tax effects of temporary differences between the financial
statement carrying amounts and tax basis of assets and liabilities are as
follows:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1993 1994
---------- -----------
<S> <C> <C>
Deferred tax assets:
Vacation.............................................. $ 258,000 275,000
Warranty.............................................. 1,228,000 715,000
Other accruals........................................ 204,000 419,000
Allowance for doubtful accounts....................... 515,000 556,000
Inventory............................................. 1,001,000 1,397,000
Writeoff of intangibles............................... -- 1,260,000
Operating loss carryforwards.......................... 5,948,000 13,565,000
Other................................................. 13,000 252,000
---------- -----------
9,167,000 18,439,000
Valuation allowances.................................. (5,868,000) (11,357,000)
---------- -----------
Total deferred tax assets.......................... 3,299,000 7,082,000
---------- -----------
Deferred tax liabilities:
Prepaid expenses...................................... 582,000 605,000
Depreciation.......................................... 2,717,000 2,671,000
---------- -----------
3,299,000 3,276,000
---------- -----------
Net deferred taxes................................. $ -- 3,806,000
========== ===========
</TABLE>
The Company believes that it is more likely than not that certain federal net
operating loss carryforwards will be utilized prior to their expiration. This
belief is based, in part, on the fact that the Company has completed several
acquisitions during and including the three years ended March 31, 1994 of
companies with strong positions in their respective markets and experience in
the design and manufacture of systems for the filtration, purification and
treatment of water and wastewater. This acquisition strategy has enhanced the
Company's ability to generate taxable profits and improved the operating
performance of the Company through the expansion of the Company's breadth of
technology in the water treatment industry and enabling the Company to serve a
more varied customer base, including municipalities and companies in a wide
range of industries. Accordingly, due to the Company's recent earnings history
and anticipated future earnings, a valuation allowance for this deferred tax
asset is not necessary. The remaining valuation allowance of $11,357,000
consists primarily of state net operating losses that may not be realized prior
to their expiration periods, as well as net operating loss carryforwards
related to Liquipure. In addition, tax benefits relating to the federal net
operating loss carryforwards of acquired enterprises of approximately $570,000
were allocated to goodwill in 1994.
(15) SHAREHOLDERS' EQUITY
Convertible Preferred Stock
The 888,000 shares of $.70 liquidation preference convertible preferred stock
outstanding at March 31, 1991 were converted into 473,588 shares of the
Company's common stock in May 1991.
In January 1992, the Company issued 880,000 shares of a new series of
Cumulative Convertible Preferred Stock to effect the acquisition of ASTI. Each
share of Series A Voting Cumulative Convertible Preferred Stock is convertible
into one share of the Company's common stock subject to certain events, and
carries
F-23
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
voting rights on an "as converted" basis. Beginning January 1, 1995, the
preferred stock automatically converts into common stock if certain conditions
are met. The preferred stock had a carrying value of $24.00 per share,
representing the fair value at date of issuance based upon an independent
appraisal. The shares were entitled to cumulative dividends of $0.75 per share
annually ($0.375 semiannually) increasing annually up to $1.50 per share and a
preference in liquidation over holders of common stock of $25 per share plus
accrued dividends. Effective April 1, 1993, the Company and its preferred
shareholder agreed to a level of $.812 per share annual dividend ($.406 semi-
annual) on the Company's preferred shares, thus eliminating the increasing rate
and the accretion of dividends. The Company, at its option, may redeem shares
of preferred stock subject to certain conditions at a price of $30 per share
plus accrued dividends. Reacquired or redeemed shares are required to be
retired and canceled.
Common Stock
On December 5, 1994, the Company paid in the form of a stock dividend a 3-
for-2 split of the Company's common stock. The par value of the new shares
issued totaled $50,000, which was transferred from additional paid-in capital
to the common stock account. All references to earnings per share and other
common stock information in the accompanying consolidated financial statements
and notes thereto have been restated to reflect the split.
On July 24, 1991, the Company effected a public offering of common stock and
issued 2,415,000 shares of common stock and received net cash proceeds of
$17,836,000 (net of sales commissions and offering expenses of $1,887,000).
On October 20, 1992, the Company effected a public offering of common stock
and issued 2,250,000 shares of common stock and received net cash proceeds of
$25,312,000 (net of sales commissions and offering expenses of $2,064,000).
Options
The Company had an incentive stock option plan for key employees, which
provided for options to purchase up to 84,000 shares of common stock at fair
market value on the date of grant. During fiscal 1989, options for 708 shares
were exercised at prices ranging from $2.50 to $8.50. No options were granted
under the plan during 1990 or 1991. The Company terminated this plan during
1992.
At March 31, 1993, a former employee of the Company held options on 3,999
shares of the Company's common stock at $34.00 per share. These options expired
on April 11, 1993.
Under the Company's 1991 Employee Stock Option Plan (the "Plan"), the
exercise price of options granted will be equal to their fair market value at
the date of grant and the maximum term of the option may not exceed 10 years.
If the optionee is a holder of more than 10% of the outstanding common stock of
the Company, the option price per share is increased to at least 110% of fair
market value, and the option term is limited to five years. The total number of
shares of common stock available under the Plan is 1,462,000 shares. Each
option granted becomes exercisable on a cumulative basis, 25% either on the
date of grant or six months following that date and 25% on each subsequent
anniversary of the grant date.
Under the Company's 1991 Directors Stock Option Plan, the exercise price of
options granted will be equal to the higher of $2.00 below the market price or
60% of the market price on the date of grant. Under the Plan, each director of
the Company who is not a full-time employee of the Company will receive each
year an option to purchase 12,000 shares of common stock. The total number of
shares available under the Director's stock option plan is 225,000 shares.
Compensation expense of $64,000, $55,000 and $80,000 was recorded in 1992, 1993
and 1994, respectively, related to the Directors Stock Option Plan.
F-24
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
Transactions involving the plans are summarized as follows:
<TABLE>
<CAPTION>
NUMBER AGGREGATE
OF SHARES EXERCISE PRICE VALUE
--------- --------------- -----------
<S> <C> <C> <C>
Balance at March 31, 1991.......... 236,499 $ 4.00 to 34.00 1,066,000
Options granted.................... 356,895 3.67 to 11.00 3,574,000
--------- --------------- -----------
Balance at March 31, 1992.......... 593,394 3.67 to 34.00 4,640,000
Options granted.................... 449,604 11.42 to 16.46 6,114,000
Options exercised.................. (45,300) 4.00 to 11.00 (209,000)
Options canceled................... (2,625) 11.00 (29,000)
--------- --------------- -----------
Balance at March 31, 1993.......... 995,073 3.67 to 34.00 10,516,000
Options granted.................... 465,000 13.58 to 16.42 6,874,000
Options exercised.................. (157,954) 3.67 to 13.92 (1,255,000)
Options canceled................... (37,626) 11.00 to 34.00 (532,000)
--------- --------------- -----------
Balance at March 31, 1994.......... 1,264,493 $ 3.67 to 16.42 15,603,000
========= =============== ===========
</TABLE>
Warrants
In connection with the acquisition of Fluid Systems Corporation in August
1988, the Company issued to the lenders warrants to acquire an aggregate of
82,479 shares of the Company's common stock at an exercise price of $1.00 per
share which were exercised in December 1991 with proceeds to the Company of
$82,000. Warrants outstanding to acquire 9,999 shares of the Company's common
stock at an exercise price of $20.00 per share expired December 28, 1993. No
additional warrants were granted, forfeited or exercised during the fiscal
years ended March 31, 1993 and 1994.
In connection with the warrants, options, convertible debentures and
preferred stock, the Company has reserved 2,411,073 shares at March 31, 1993
and 5,690,823 shares at March 31, 1994 for future issuance.
(16) PENSION PLAN
IWT has a defined benefit pension plan covering substantially all of its
hourly employees. Pension plan benefits are generally based upon years of
service and compensation. IWT's funding policy is to contribute at least the
minimum amounts required by the Employee Retirement Income Security Act of 1974
or additional amounts to assure that plan assets will be adequate to provide
retirement benefits. Plan assets are invested in broadly diversified portfolios
of government obligations, mutual funds and fixed income and equity securities.
F-25
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
The following table sets forth the funded status of the pension plan and the
amounts recognized in the Company's consolidated balance sheet at March 31,
1993 and 1994:
<TABLE>
<CAPTION>
1993 1994
---------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $596,000 and $586,000 at March 31,
1993 and 1994, respectively..................... $(617,000) (606,000)
========== =========
Projected benefit obligation for service rendered
to date......................................... $(617,000) (606,000)
Plan assets at fair value.......................... 431,000 480,000
---------- ---------
Projected benefit obligations in excess of plan as-
sets.............................................. (186,000) (126,000)
Unrecognized net (gain) loss from past experience
different from that assumed and effects of changes
in assumptions.................................... (5,000) (17,000)
Prior service cost not yet recognized in net peri-
odic pension cost................................. -- --
Unrecognized net asset............................. -- --
Contribution in the fourth quarter................. 11,000 --
---------- ---------
Pension liability recognized in the balance sheet.. $(180,000) (143,000)
========== =========
Net pension cost included the following components:
Service cost-benefits earned during the period... $13,000 4,000
Interest cost on projected benefit obligation.... 47,000 49,000
Actual return on plan assets..................... (14,000) (47,000)
Net amortization and deferral.................... (25,000) 7,000
---------- ---------
Net periodic pension cost.......................... $21,000 13,000
========== =========
The principal actuarial assumptions used were:.....
Long-term rate of return on plan assets.......... 9.00% 9.00%
========== =========
Discount rate.................................... 8.00% 7.75%
========== =========
</TABLE>
The Company has a defined contribution plan (under IRC Section 401(k))
covering substantially all salaried and hourly participating employees that
provides for contributions based primarily upon compensation levels and
employee contributions. The Company funds its contributions to these plans as
accrued. Defined contribution plan expense for the Company was $172,000,
$362,000 and $519,000 for the years ended March 31, 1992, 1993 and 1994,
respectively.
In addition to pension benefits, the Company provides certain health care
benefits to retired employees of IWT at the time of acquisition of ASTI. The
plan is not open to any other employees. In conjunction with the acquisition of
ASTI, the Company established an accumulated postretirement benefit obligation
("APBO") of $1,200,000 as of March 31, 1992 in accordance with SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." In
determining the accumulated postretirement benefit obligation, a 15% increase
in the cost of covered health care benefits was assumed for fiscal 1992 and was
assumed to decrease incrementally to 6.5% after eight years and remain at that
level thereafter. The weighted average discount rate used was 8.5%. During
1994, benefits paid totaled approximately $97,000 and the remaining APBO is
$988,000 at March 31, 1994.
F-26
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
(17) BUSINESS SEGMENT DATA AND EXPORT SALES
The Company's sole business segment is the design and manufacture of
equipment for filtration, water treatment and wastewater treatment for
industrial and municipal customers.
There were no sales to any individual customers that accounted for 10% or
more of revenue in fiscal 1992, 1993 and 1994, and for the nine months ended
December 31, 1994 (unaudited).
Export sales accounted for $5,334,000, $10,851,000 and $18,803,000 in fiscal
1992, 1993 and 1994, respectively, and $20,454,000 for the nine months ended
December 31, 1994 (unaudited).
Information about the Company's operations in different geographic locations
for the years ended March 31, 1993 and 1994 is as follows:
<TABLE>
<CAPTION>
1993 1994
------------ -----------
<S> <C> <C>
Revenues from unaffiliated customers:
United States............................... $104,358,000 142,580,000
Foreign..................................... 24,018,000 37,841,000
------------ -----------
$128,376,000 180,421,000
============ ===========
Operating income (loss):
United States............................... $ (963,000) (6,137,000)
Foreign..................................... 1,611,000 1,263,000
------------ -----------
$ 648,000 (4,874,000)
============ ===========
Identifiable assets:
United States............................... $105,946,000 228,531,000
Foreign..................................... 15,232,000 24,654,000
------------ -----------
$121,178,000 253,185,000
============ ===========
</TABLE>
(18) COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
The Company and its subsidiaries lease certain facilities and equipment under
various noncancelable and month-to-month leases. These leases are accounted for
as operating leases. Rent expense aggregated $1,385,000, $1,883,000 and
$2,999,000 in 1992, 1993 and 1994, respectively.
A summary of the future minimum annual rental commitments under operating
leases follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
Fiscal year ending:
1995...................................................... $ 3,424,000
1996...................................................... 2,770,000
1997...................................................... 2,086,000
1998...................................................... 1,088,000
1999...................................................... 951,000
Thereafter................................................ 661,000
-----------
Total minimum lease payments................................ $10,980,000
===========
</TABLE>
F-27
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1992, 1993 AND 1994
AND THE NINE MONTHS ENDED DECEMBER 31, 1993 AND 1994 (UNAUDITED)
Building and improvements, and equipment at March 31, 1992 included
approximately $6,551,000 of facilities and equipment under leases that had been
capitalized. Accumulated depreciation and amortization for such facilities and
equipment approximated $77,000 at March 31, 1992. On June 30, 1992, the Company
paid $5,770,000 in cash to the Port Authority of the City of St. Paul,
Minnesota in full payment of its capital lease obligation of approximately
$6,000,000 and its mortgage note payable of $630,000. This payment resulted in
a forgiveness of debt of $405,000, which is shown as an extraordinary item in
the accompanying consolidated financial statements for the year ended March 31,
1993.
Contingent Liabilities
Legal proceedings pending against the Company consist of litigation
incidental to the Company's business and in the opinion of management, based in
part upon the opinion of counsel, the outcome of such litigation will not
materially affect the Company's consolidated financial position or results of
operations.
(19) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET INCOME
GROSS NET INCOME (LOSS)
1994 REVENUES PROFIT (LOSS) PER SHARE*
---- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
First quarter..................... $35,546,000 9,243,000 170,000 .03
Second quarter.................... 38,007,000 10,427,000 915,000 .07
Third quarter..................... 45,259,000 11,831,000 234,000 .01
Fourth quarter.................... 61,609,000 16,109,000 (3,860,000) (.37)**
</TABLE>
<TABLE>
<CAPTION>
NET INCOME
GROSS NET INCOME (LOSS)
1995 REVENUES PROFIT (LOSS) PER SHARE*
---- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
First quarter...................... $55,063,000 15,221,000 1,107,000 .06
Second quarter..................... 67,201,000 19,285,000 1,908,000 .12
Third quarter...................... 72,189,000 20,783,000 2,408,000 .15
</TABLE>
- --------
* Per common and common equivalent share.
** Includes a fourth quarter charge of $3,738,000 for nonrecoverable cost in
excess of net assets of businesses acquired.
F-28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
The BFGoodrich Company
We have audited the accompanying statement of assets to be acquired and
liabilities to be assumed of Arrowhead Industrial Water Division of The
BFGoodrich Company as of December 31, 1994 and 1993, and the related statement
of revenues and expenses for each of the three years in the period ended
December 31, 1994. These financial statements are the responsibility of the
management of The BFGoodrich Company. 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 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 audits provide a reasonable basis
for our opinion.
As described in Note A, the accompanying financial statements were prepared
solely to present the assets to be acquired and liabilities to be assumed
pursuant to the Stock Purchase Agreement, and are not intended to be a complete
presentation of the assets and liabilities of the Arrowhead Industrial Water
Division of The BFGoodrich Company.
In our opinion, the statements referred to above present fairly the assets to
be acquired and liabilities to be assumed of Arrowhead Industrial Water
Division of The BFGoodrich Company at December 31, 1994 and 1993, and its
revenues and expenses for each of the three years in the period ended December
31, 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Cleveland, Ohio
March 9, 1995
F-29
<PAGE>
ARROWHEAD INDUSTRIAL WATER DIVISION OF THE BFGOODRICH COMPANY
STATEMENT OF ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Current assets:
Accounts receivable, less allowance for doubtful accounts
of $327.4
and $174.0 at December 31, 1994 and 1993, respectively.. $ 6,827.7 $ 6,578.9
Inventory................................................ 788.3 715.9
Other current assets..................................... 416.5 341.7
--------- ---------
Total current assets....................................... 8,032.5 7,636.5
Property--net.............................................. 62,378.4 55,092.3
Goodwill................................................... 8,089.8 8,322.6
Identifiable intangible assets............................. 1,727.0 1,980.0
Other assets............................................... 444.1 149.8
--------- ---------
Total assets............................................. 80,671.8 73,181.2
Current liabilities:
Accounts payable......................................... 4,321.9 2,662.8
Accrued liabilities...................................... 3,812.0 4,868.5
--------- ---------
Total current liabilities.................................. 8,133.9 7,531.3
--------- ---------
Net assets................................................. $72,537.9 $65,649.9
========= =========
</TABLE>
See notes to financial statements.
F-30
<PAGE>
ARROWHEAD INDUSTRIAL WATER DIVISION OF THE BFGOODRICH COMPANY
STATEMENT OF REVENUES AND EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Services.................................... $39,471.1 $34,432.9 $31,518.8
Sales of equipment.......................... 4,458.6 3,977.8 3,247.5
--------- --------- ---------
Total revenues............................ 43,929.7 38,410.7 34,766.3
Costs and expenses:
Cost of sales and service................... 28,647.8 26,643.5 26,606.7
Depreciation and amortization............... 8,111.2 7,468.9 6,270.4
Administrative expenses..................... 5,343.7 5,547.0 5,271.6
--------- --------- ---------
Operating income (loss)....................... 1,827.0 (1,248.7) (3,382.4)
Interest expense.............................. (1,829.8) (1,245.8) (985.1)
--------- --------- ---------
Loss before income taxes...................... $ (2.8) $(2,494.5) $(4,367.5)
========= ========= =========
</TABLE>
See notes to financial statements.
F-31
<PAGE>
ARROWHEAD INDUSTRIAL WATER DIVISION OF THE BFGOODRICH COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
NOTE A: BASIS OF PRESENTATION
Arrowhead Industrial Water Division ("AIW" or the "Company") comprises
primarily Arrowhead Industrial Water, Inc., which is a wholly-owned subsidiary
of The BFGoodrich Company ("BFG"). The Company's primary business is in water
systems and services. AIW provides customers with cost-effective reverse
osmosis water purification systems owned by the Company and managed on-site by
Company employees under long-term service agreements, generally of five to ten
years with renewal options. AIW also operates a fleet of mobile water treatment
units that provide emergency and temporary water treatment services. In
addition, the Company sells water purification systems.
The accompanying Statement of Assets to be Acquired and Liabilities to be
Assumed and Statement of Revenues and Expenses have been prepared from the
historical books and records of the Company. As a result of the Stock Purchase
Agreement (see Note B), these financial statements reflect the net assets of
the business to be acquired and the results of its operations. Assets and
liabilities of AIW that were not acquired or assumed and have no continuing
significance to the business have been omitted from the Statement of Assets to
be Acquired and Liabilities to be Assumed. These include income tax accounts
and liabilities for defined benefit pension and postretirement plans. Expenses
related to these plans of $507.0, $480.5 and $450.5 are included in the
Statement of Revenues and Expenses as part of costs allocated by BFG for the
years ended December 31, 1994, 1993 and 1992, respectively.
AIW is included in the consolidated federal income tax return of BFG for each
of the years ended December 31, 1994, 1993 and 1992. BFG's policy is to account
for all income taxes at the parent company level. As a result, no income tax
assets or liabilities relating to temporary differences and no income tax
expense (benefit) have been reflected in the accompanying financial statements.
BFG provides various treasury functions for AIW and maintains a cash
management program under which cash generated by AIW is transferred to BFG and
working capital requirements of AIW are paid by BFG. Incident to this system,
BFG maintains an interest-bearing intercompany account to record the net amount
owed to or due from AIW. Interest expense in the accompanying Statement of
Revenues and Expenses represents the interest charged to AIW by BFG on this
intercompany account balance at a below- market variable rate of interest.
Certain costs have been allocated to AIW based upon methods that management
of BFG believes are reasonable; however, these allocations are not necessarily
indicative of the expenses that would have been incurred had AIW been operated
as a stand-alone business. BFG allocates costs related to defined benefit
pension and postretirement plans based on actuarial valuations. In addition,
BFG performs certain services on a centralized basis and allocates the cost of
these services to its divisions based on usage, a percentage of sales or other
methods. These services include administration, human resources management,
computer support, accounting and financial reporting, legal services,
engineering and research and development. Allocated costs (including
allocations related to defined benefit pension and postretirement plans)
included in the Statement of Revenues and Expenses were $1,372.0, $1,324.3 and
$1,287.1 for the years ended December 31, 1994, 1993 and 1992, respectively.
NOTE B: STOCK PURCHASE AGREEMENT
As of February 27, 1995, BFG entered into a Stock Purchase Agreement (the
"Agreement") with United States Filter Corporation whereby United States Filter
Corporation agreed to purchase AIW, other than
F-32
<PAGE>
ARROWHEAD INDUSTRIAL WATER DIVISION OF THE BFGOODRICH COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
certain assets and liabilities to be retained by BFG as defined in the
Agreement. Assets and liabilities to be retained by BFG primarily consist of
those related to BFG's water treatment chemicals business, cash, deferred
income tax assets, and liabilities for defined benefit pension and
postretirement arrangements.
NOTE C: SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition. Revenue for services is recognized when the service is
performed. Revenue related to sales of equipment and merchandise is recognized
when shipped.
Inventory. Inventory consists primarily of chemicals, membranes, resins,
equipment parts, and work-in-process. Inventory is valued at cost that is not
in excess of market.
Property. Property is stated at cost and is depreciated using the straight-
line method over useful lives ranging from three to twenty-five years. Repairs
and maintenance costs are expensed as incurred. Certain components of
filtration equipment require replacement in periods shorter than the life of
the total equipment. The Company accrues this replacement cost over the
estimated period, generally three to five years, and charges the cost of
replacement components as a reduction of the accrual.
Goodwill and Identifiable Intangible Assets. Arrowhead Industrial Water, Inc.
was acquired by BFG in 1989. Goodwill was recorded for the excess of the 1989
purchase price over the fair value of the net tangible assets and identifiable
intangible assets acquired. Goodwill is amortized using the straight-line
method over forty years. Identifiable intangible assets were recorded at
estimated fair value. These assets include primarily patents, proprietary
technology and trademarks, and are amortized using the straight-line method
over estimated periods benefited of eight to forty years.
Long-lived Assets. AIW's policy is to recognize impairment of long-lived
assets when events or changes in circumstances indicate that the carrying
amount of a related group of assets may not be recoverable. Measurement of the
amount of impairment may be based on appraisal, market values of similar assets
or estimated undiscounted future cash flows resulting from use and ultimate
disposition of the asset.
NOTE D: PROPERTY
Property consisted of the following at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Land................................................. $ 3,473.0 $ 3,473.0
Buildings and improvements........................... 3,969.0 3,667.0
Furniture, fixtures and vehicles..................... 4,416.8 3,641.0
Membranes and resins................................. 11,006.4 8,644.6
Filtration equipment................................. 56,210.7 44,097.7
Construction-in-progress............................. 7,825.9 8,763.8
--------- ---------
Total.............................................. 86,901.8 72,287.1
Accumulated depreciation and amortization............ 24,523.4 17,194.8
--------- ---------
Property--net $62,378.4 $55,092.3
========= =========
</TABLE>
Property depreciation and amortization expense was $7,625.4, $6,983.1 and
$5,793.6 for the years ended December 31, 1994, 1993 and 1992, respectively.
F-33
<PAGE>
ARROWHEAD INDUSTRIAL WATER DIVISION OF THE BFGOODRICH COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
NOTE E: GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS
Goodwill and identifiable intangible assets consisted of the following at
December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
-------- ---------
<S> <C> <C>
Goodwill............................................... $9,309.7 $ 9,309.7
Patents and technology................................. 1,945.0 1,955.0
Trademarks............................................. 1,000.0 1,000.0
Noncompete agreement................................... 50.0 50.0
-------- ---------
Total................................................ 12,304.7 12,314.7
Accumulated amortization............................... 2,487.9 2,012.1
-------- ---------
$9,816.8 $10,302.6
======== =========
</TABLE>
Amortization expense related to goodwill and identifiable intangible assets
was $485.8, $485.8 and $476.8 for the years ended December 31, 1994, 1993 and
1992, respectively.
NOTE F: ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Compensation........................................... $ 808.5 $ 989.0
Self-insurance......................................... 205.8 479.2
Taxes other than income................................ 417.7 378.1
Accrued replacement costs.............................. 1,193.7 1,228.9
Accrued workers' compensation.......................... 395.5 195.1
Accrued utilities...................................... 228.4 88.2
Other.................................................. 562.4 1,510.0
-------- --------
$3,812.0 $4,868.5
======== ========
</TABLE>
NOTE G: LEASES
The Company leases certain plant facilities, office space and equipment under
operating leases. The future minimum lease payments, by year and in the
aggregate, under operating leases with initial or remaining noncancelable lease
terms in excess of one year, consisted of the following at December 31, 1994:
<TABLE>
<S> <C>
1995........................................................... $1,695.6
1996........................................................... 1,544.8
1997........................................................... 1,239.3
1998........................................................... 985.0
1999........................................................... 465.9
Thereafter..................................................... 100.3
--------
$6,030.9
========
</TABLE>
Rent expense for the years ended December 31, 1994, 1993 and 1992 was
$2,062.8, $2,235.2 and $2,140.0, respectively.
F-34
<PAGE>
ARROWHEAD INDUSTRIAL WATER DIVISION OF THE BFGOODRICH COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(DOLLARS IN THOUSANDS)
NOTE H: RETIREMENT SAVINGS PLAN
Substantially all employees of the Company are eligible to participate in
BFG's voluntary retirement savings plan. Under provisions of this plan,
eligible employees can receive Company matching contributions on up to the
first 6% of their eligible earnings. The Company matches one dollar for each
one dollar of employee contributions (up to 6% of earnings) invested in BFG
common stock, or 50 cents for each one dollar of eligible employee
contributions invested in other available investment options. Company
contributions for the years ended December 31, 1994, 1993 and 1992 amounted to
$557.5, $483.7 and $479.1, respectively.
NOTE I: CONTINGENCIES
There are pending or threatened against the Company various claims and
lawsuits, all arising from the normal course of business. The Company believes
that any liability that may finally be determined should not have a material
effect on net assets.
F-35
<PAGE>
THE PERMUTIT COMPANY LIMITED
(A WHOLLY OWNED SUBSIDIARY OF THAMES WATER PLC)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of The Permutit Company Limited
We have audited the accompanying balance sheets of The Permutit Company
Limited (a wholly owned subsidiary of Thames Water PLC) at 31 March 1994 and
1993, and the related profit and loss accounts and statements of cashflows for
the years then ended set out on pages F-37 to F-48. These financial statements
are the responsibility of management. Our responsibility is to express an
opinion on those financial statements.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom which are substantially the same as auditing
standards generally accepted in the United States. 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 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 The Permutit Company Limited
at 31 March 1994 and 1993 and the results of its operations and its cashflows
for the years then ended in conformity with generally accepted accounting
principles in the United Kingdom.
The financial statements were prepared in accordance with the accounting
policies set out in note 1 and comply with generally accepted accounting
principles in the United Kingdom which differ in certain respects from United
States generally accepted accounting principles as set out in note 29.
/s/ Coopers & Lybrand
- ---------------------
Coopers & Lybrand
Independent Accountants and Registered Auditors
Uxbridge
West London
United
Kingdom
16 June 1994,
except for note
30, as to which
the date is 3
April 1995
F-36
<PAGE>
THE PERMUTIT COMPANY LIMITED
(A WHOLLY OWNED SUBSIDIARY OF THAMES WATER PLC)
PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
31 MARCH 31 MARCH
NOTE 1994 1993
---- ---------- ----------
(Pounds) (Pounds)
<S> <C> <C> <C>
Turnover........................................... 2 8,195,824 10,439,674
Cost of sales...................................... (5,199,271) (6,703,198)
---------- ----------
Gross profit....................................... 2,996,553 3,736,476
Marketing, selling and distribution expenses....... (2,829,780) (2,847,449)
Administration expenses............................ (1,309,684) (1,292,505)
---------- ----------
Loss on ordinary activities before interest........ (1,142,911) (403,478)
Interest receivable................................ 3 212 9,711
Interest payable................................... 4 (61,599) (21,096)
---------- ----------
Loss on ordinary activities before taxation........ 5 (1,204,298) (414,863)
Tax on ordinary activities......................... 8 238,108 77,311
---------- ----------
Loss on ordinary activities after taxation......... (966,190) (337,552)
Dividends paid..................................... -- (657,843)
---------- ----------
Loss retained for the financial year............... 18 (966,190) (995,395)
========== ==========
</TABLE>
The above results all arise from continuing activities.
The company has no recognised gains and losses other than those included in
the results above, and therefore no separate statement of total recognised
gains and losses has been presented.
There is no difference between the loss on ordinary activities before
taxation and the retained loss for the year stated above, and their historical
cost equivalents.
The notes on pages F-40 to F-48 form part of these accounts.
F-37
<PAGE>
THE PERMUTIT COMPANY LIMITED
(A WHOLLY OWNED SUBSIDIARY OF THAMES WATER PLC)
BALANCE SHEETS
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
NOTE 1994 1993
---- ---------- ----------
(Pounds) (Pounds)
<S> <C> <C> <C>
Fixed assets
Intangible assets................................ 9 185,511 190,936
Tangible assets.................................. 10 714,241 904,430
Investments...................................... 11 6 6
---------- ----------
899,758 1,095,372
---------- ----------
Current assets
Stocks........................................... 12 956,859 1,084,272
Debtors.......................................... 13 5,673,473 6,646,263
Cash at bank and in hand......................... -- 64,864
---------- ----------
6,630,332 7,795,399
Creditors
Amounts falling due within 1 year................ 14 (2,488,038) (2,969,073)
---------- ----------
Net current assets................................. 4,142,294 4,826,326
---------- ----------
Total assets less current liabilities.............. 5,042,052 5,921,698
Creditors
Amounts falling due after more than 1 year....... 15 (5) (5)
Provisions for liabilities and charges............. 16 (175,052) (88,508)
---------- ----------
Net assets......................................... 4,866,995 5,833,185
========== ==========
Capital & reserves
Called up share capital.......................... 17 5,800,000 5,800,000
Profit and loss account.......................... (933,005) 33,185
---------- ----------
4,866,995 5,833,185
========== ==========
</TABLE>
The notes on pages F-40 to F-48 form part of these accounts.
F-38
<PAGE>
THE PERMUTIT COMPANY LIMITED
(A WHOLLY OWNED SUBSIDIARY OF THAMES WATER PLC)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED 31
MARCH
--------------------
NOTE 1994 1993
---- --------- --------
(Pounds) (Pounds)
<S> <C> <C> <C>
Net cash inflow/(outflow) from operating activities. 27 (578,664) 17,909
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received................................. 212 9,711
Interest paid..................................... (61,599) (21,096)
Dividends paid.................................... -- (657,843)
--------- --------
Net cash outflow from returns in investments and
servicing of finance............................... (640,051) (651,319)
TAXATION
Group tax relief received........................... 92,000 201,157
INVESTING ACTIVITIES
Purchase of tangible fixed assets................... (129,753) (364,650)
Sale of tangible fixed assets....................... 59,426 35,354
--------- --------
Net cashflow from investing activities.............. (70,327) (329,296)
--------- --------
Net cash inflow (outflow) before financing.......... (618,378) (779,458)
--------- --------
Increase/(decrease) in cash and cash equivalents.... 28 (618,378) (779,458)
========= ========
</TABLE>
The notes on pages F-40 to F-48 form part of these accounts.
F-39
<PAGE>
THE PERMUTIT COMPANY LIMITED
(A WHOLLY OWNED SUBSIDIARY OF THAMES WATER PLC)
NOTES TO THE ACCOUNTS
1. ACCOUNTING POLICIES
a) Accounting Convention
The accounts have been prepared in accordance with the historical cost
convention rules and applicable accounting standards. The company is a wholly
owned subsidiary undertaking of Thames Water Plc.
The parent has committed to continue its support of the operations of the
Company for the next twelve months. Accordingly, the financial statements may
not be indicative of the conditions that would have existed or the results of
operations that would have been obtained had the Company operated on a stand
alone basis.
The Company receives certain managerial, financial, technical and other
support from its parent for which the Company receives a management charge,
which amounted to (Pounds)49,000 during the year (1993:(Pounds)57,000). This
management charge is allocated by the parent to its subsidiaries based upon the
budgeted turnover for each subsidiary. Management of the parent is of the
opinion that the allocation method used is reasonable, as a more specific
allocation of the actual expenses is not practicable. In addition certain
central management personnel costs which are not separately identifiable have
been borne by the parent.
b) Turnover
Turnover, which excludes value added tax, represents the income receivable in
the ordinary course of business for goods and services provided.
c) Stock and Work in Progress
Stock and work in progress are, with the exception of long term contract work
in progress, valued at the lower of cost and net realisable value. Cost
includes the direct cost of materials and labour. Long term contract work in
progress is stated at costs incurred net of amounts transferred to cost of
sales, after deducting foreseeable losses and payments on account not matched
with turnover.
d) Depreciation
Depreciation of all fixed assets is provided on a straight line basis over
the estimated economic lives of individual assets, based on their cost, and the
rates generally applied range from 10% p.a. to 33 1/3% p.a.
e) Research and Development
Research and development expenditure is written off in the period during
which it is incurred.
f) Contributions to Pension Schemes
Contributions to pension schemes at rates recommended by independent
actuaries are charged to the profit and loss account on a consistent annual
basis.
g) Interest
Interest payable is written off to the profit and loss account as it is
incurred.
h) Taxation
The charge or credit for taxation is based on the result for the year as
adjusted for disallowable and non- taxable items.
Consideration receivable or payable in respect of losses surrendered or
claimed by way of group relief is dealt with in the profit and loss account.
The credit in respect of corporation tax has been computed in accordance with
the group accounting policy of Thames Water Plc. This represents an estimate of
the net present value of losses surrendered to other companies within the
Thames Water group under the provisions of UK tax legislation.
F-40
<PAGE>
THE PERMUTIT COMPANY LIMITED
(A WHOLLY OWNED SUBSIDIARY OF THAMES WATER PLC)
NOTES TO THE ACCOUNTS
Tax deferred or accelerated is accounted for in respect of all material
timing differences to the extent that it is probable that a liability or asset
will crystallise. Provision is made at the rate which is expected to be applied
when the liability or asset is expected to crystallise.
i) Foreign Currency
All transactions denominated in foreign currencies are translated into
sterling at the actual rate of exchange ruling on the date of the transaction.
Assets and liabilities in foreign currencies have been translated into sterling
at rates of exchange ruling at the balance sheet date. All exchange differences
arising are dealt with in the profit and loss account.
j) Operating Lease Commitments
These are provided for in the financial statements at the time the rental
liabilities arise.
k) Cash and Cash Equivalents
Cash and cash equivalents for the purpose of the cash flow statement comprise
cash at bank, current asset investments which are readily convertible into
known amounts of cash without notice and which are within three months of
maturity when acquired, less bank loans and overdrafts repayable within three
months from the date of the advance.
2. TURNOVER
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
31 MARCH 31 MARCH
1994 1993
----------------- ------------------
(Pounds) (Pounds)
<S> <C> <C>
Geographical distribution by market
United Kingdom........................ 6,399,165 8,050,779
Continental Europe.................... 726,162 416,537
Americas.............................. 160,358 155,266
Africa................................ 275,461 311,153
Australasia........................... 89,709 35,445
Asia.................................. 544,969 1,470,494
----------------- ------------------
(Pounds)8,195,824 (Pounds)10,439,674
----------------- ------------------
</TABLE>
3. INTEREST RECEIVABLE
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
31 MARCH 31 MARCH
1994 1993
----------------- ------------------
(Pounds) (Pounds)
<S> <C> <C>
On bank and money market deposits..... 212 9,711
----------------- ------------------
(Pounds)212 (Pounds)9,711
----------------- ------------------
</TABLE>
4. INTEREST PAYABLE
<TABLE>
<CAPTION>
YEAR ENDED
31 MARCH YEAR ENDED
1994 31 MARCH 1993
----------------- ------------------
(Pounds) (Pounds)
<S> <C> <C>
On bank loans and overdrafts.......... 61,599 21,096
----------------- ------------------
(Pounds)61,599 (Pounds)21,096
----------------- ------------------
</TABLE>
F-41
<PAGE>
THE PERMUTIT COMPANY LIMITED
(A WHOLLY OWNED SUBSIDIARY OF THAMES WATER PLC)
NOTES TO THE ACCOUNTS
5. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
31 MARCH 31 MARCH
1994 1993
---------- ----------
(Pounds) (Pounds)
<S> <C> <C>
The profit on ordinary activities before taxation is
stated after crediting:
Gains on foreign currency borrowings/Deposits..... 6,557 22,525
Profit on disposals of fixed assets............... 16,122 11,365
And after charging:
Depreciation and diminution in value of tangible
assets........................................... 268,560 273,135
Depreciation and diminution in value of intangible
assets........................................... 5,425 5,425
Auditors' remuneration............................ 31,390 26,000
Auditors' remuneration for non-audit services..... 585 7,512
Loss on disposals of fixed assets................. 8,078 3,177
Other operating lease rentals..................... 357,475 356,558
Directors' emoluments............................. 61,733 62,932
Research and development.......................... 47,775 183,479
</TABLE>
6. EMPLOYEES
<TABLE>
<CAPTION>
AVERAGE NUMBERS AGGREGATE PAYROLL COSTS
--------------------- -----------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
31 MARCH 31 MARCH 31 MARCH 31 MARCH
1994 1993 1994 1993
---------- ---------- ----------------- -----------------
(Pounds) (Pounds)
<S> <C> <C> <C> <C>
Production.............. 53 68 856,111 946,629
Marketing, selling &
distribution........... 48 55 1,660,202 1,665,334
Administration.......... 20 24 419,025 399,119
--- --- ----------------- -----------------
121 147 (Pounds)2,935,338 (Pounds)3,011,082
--- --- ----------------- -----------------
Aggregate payroll costs
comprise:
Wages & salaries...... 2,571,977 2,596,630
Social security costs. 194,022 212,498
Contributions to
pension scheme....... 169,339 201,954
----------------- -----------------
(Pounds)2,935,338 (Pounds)3,011,082
----------------- -----------------
</TABLE>
7. DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
31 MARCH 31 MARCH
1994 1993
-------------- --------------
(Pounds) (Pounds)
<S> <C> <C>
Emoluments.................................... (Pounds)61,733 (Pounds)62,932
Emoluments excluding pension contributions:
Chairman.................................... NIL NIL
Highest paid Director....................... (Pounds)44,595 (Pounds)57,754
</TABLE>
Number of Directors within the following ranges of emoluments excluding
pension scheme contributions:
<TABLE>
<CAPTION>
NO. NO.
--- ---
<S> <C> <C>
Up to (Pounds)5,000.................................................. 1 1
(Pounds)10,001 to (Pounds)15,000..................................... 1 --
(Pounds)40,001 to (Pounds)45,000..................................... 1 --
(Pounds)55,001 to (Pounds)60,000..................................... -- 1
</TABLE>
F-42
<PAGE>
THE PERMUTIT COMPANY LIMITED
(A WHOLLY OWNED SUBSIDIARY OF THAMES WATER PLC)
NOTES TO THE ACCOUNTS
8. TAXATION
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
31 MARCH 31 MARCH
1994 1993
--------------- --------------
(Pounds) (Pounds)
<S> <C> <C>
No liability to UK corporation tax arises
on the results for the year:
Amounts receivable for Group relief
surrendered........................... 238,084 84,847
Deferred taxation account transfers.... (7,129) (9,627)
--------------- --------------
Total taxation for the year.............. 230,955 75,220
Adjustments of prior years............... 7,153 2,091
--------------- --------------
(Pounds)238,108 (Pounds)77,311
--------------- --------------
</TABLE>
The consideration receivable in respect of Group relief reflects the
estimated present value of the losses as agreed with the claimant companies.
9. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
TRADEMARKS
---------------
(Pounds)
<S> <C>
Cost:
At 31 March 1993........................................... 216,995
---------------
At 31 March 1994........................................... (Pounds)216,995
---------------
Depreciation:
At 31 March 1993........................................... 26,059
Provided during year....................................... 5,425
---------------
At 31 March 1994........................................... (Pounds)31,484
---------------
Net book value:
At 31 March 1994........................................... (Pounds)185,511
---------------
At 31 March 1993........................................... (Pounds)190,936
---------------
</TABLE>
10. TANGIBLE ASSETS
<TABLE>
<CAPTION>
FIXTURES
PLANT & MOTOR FITTINGS &
MACHINERY VEHICLES EQUIPMENT TOTAL
--------------- --------------- --------------- -----------------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Cost:
At 31 March 1993...... 444,717 627,468 917,666 1,989,851
Additions at cost..... 15,034 93,639 21,080 129,753
Disposals............. -- (211,389) (13,803) (225,192)
--------------- --------------- --------------- -----------------
At 31 March 1994...... (Pounds)459,751 (Pounds)509,718 (Pounds)924,943 (Pounds)1,894,412
--------------- --------------- --------------- -----------------
Depreciation:
At 31 March 1993...... 187,131 301,263 597,027 1,085,421
Provided during year.. 30,833 145,674 92,053 268,560
Disposals............. -- (164,270) (9,540) (173,810)
--------------- --------------- --------------- -----------------
At 31 March 1994...... (Pounds)217,964 (Pounds)282,667 (Pounds)679,540 (Pounds)1,180,171
--------------- --------------- --------------- -----------------
Net book value:
At 31 March 1994...... (Pounds)241,787 (Pounds)227,051 (Pounds)245,403 (Pounds) 714,241
--------------- --------------- --------------- -----------------
At 31 March 1993...... (Pounds)257,586 (Pounds)326,205 (Pounds)320,639 (Pounds) 904,430
--------------- --------------- --------------- -----------------
</TABLE>
F-43
<PAGE>
THE PERMUTIT COMPANY LIMITED
(A WHOLLY OWNED SUBSIDIARY OF THAMES WATER PLC)
NOTES TO THE ACCOUNTS
11. INVESTMENTS
<TABLE>
<CAPTION>
UNLISTED SUBSIDIARY
AT COST COMPANIES TOTAL
--------- ---------- ---------
<S> <C> <C> <C>
Cost or valuation at 31 March 1994 and 31
March 1993................................. (Pounds)1 (Pounds)5 (Pounds)6
</TABLE>
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
1994 1993
--------- ---------
<S> <C> <C>
Investment in subsidiary undertakings (see note 25):
Shares at cost or valuation: (Pounds)5 (Pounds)5
</TABLE>
In the opinion of the Directors the value of the Company's investment in its
subsidiary undertakings is not less than the figure stated above.
12. STOCKS
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
1994 1993
----------------- -----------------
(Pounds) (Pounds)
<S> <C> <C>
Raw materials and consumables........ 606,948 740,434
Work in progress (see below)......... 180,264 136,630
Finished goods and goods for resale.. 169,647 207,208
----------------- -----------------
(Pounds) 956,859 (Pounds)1,084,272
----------------- -----------------
Work in progress includes:
Long term contract costs incurred.... 875,856 2,038,379
WIP offset........................... 328,278 --
Less: Progress claims made........... (1,319,961) (2,229,811)
----------------- -----------------
(Pounds) (115,827) (Pounds) (191,432)
----------------- -----------------
Representing:
Carrying value of contracts in excess
of progress claims made (included in
Note 13)............................ 15,539 168,695
Progress claims made in excess of
carrying value of contracts
(included in Note 14)............... (131,366) (360,127)
----------------- -----------------
(Pounds) (115,827) (Pounds) (191,432)
----------------- -----------------
</TABLE>
13. DEBTORS
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
1994 1993
----------------- -----------------
(Pounds) (Pounds)
<S> <C> <C>
Trade debtors........................... 1,820,016 2,726,746
Amounts recoverable on contracts (see
note below) ........................... 15,539 168,695
Bills of exchange receivable............ 8,126 5,085
Amounts owed by parent & fellow
subsidiaries........................... 3,711,599 3,576,762
Other debtors........................... 17,672 25,202
Prepayments and accrued income.......... 100,521 143,773
----------------- -----------------
(Pounds)5,673,473 (Pounds)6,646,263
----------------- -----------------
</TABLE>
Included within trade debtors of (Pounds)1,820,016 is (Pounds)73,782 falling
due after more than one year. Amounts recoverable on contracts include the
excess of turnover over payments on account.
F-44
<PAGE>
THE PERMUTIT COMPANY LIMITED
(A WHOLLY OWNED SUBSIDIARY OF THAMES WATER PLC)
NOTES TO THE ACCOUNTS
14. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
1994 1993
----------------- -----------------
(Pounds) (Pounds)
<S> <C> <C>
Progress claims and advance payments.... 131,366 360,127
Trade creditors......................... 776,576 1,565,223
Taxation (VAT & PAYE)................... 53,340 130,934
Amounts owed to parent and fellow
subsidiaries........................... 179,028 121,489
Social security contributions........... 21,292 27,093
Accruals and deferred income............ 275,314 266,599
Bank overdraft.......................... 1,051,122 497,608
----------------- -----------------
(Pounds)2,488,038 (Pounds)2,969,073
----------------- -----------------
</TABLE>
Progress claims and advance payments include payments on account in excess of
amounts matched with turnover or offset against long term contract balances.
15. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
1994 1993
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Amounts owed to parent and fellow subsidiaries............. 5 5
</TABLE>
Amounts owed to group companies are repayable after more than five years.
Interest on these amounts is charged at group rates.
16. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
DEFERRED OTHER
TAXATION PROVISIONS TOTAL
-------------- --------------- ---------------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
At 31 March 1993............ 12,023 76,485 88,508
Utilised during the year.... -- (76,485) (76,485)
Provided during the year.... 7,129 155,900 163,029
-------------- --------------- ---------------
At 31 March 1994............ (Pounds)19,152 (Pounds)155,900 (Pounds)175,052
-------------- --------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT
PROVIDED PROVIDED
31 MARCH 31 MARCH
1994 1993
-------------- --------------
(Pounds) (Pounds)
<S> <C> <C>
The provision for deferred taxation is:
Excess of capital allowances over
depreciation................................. 16,768 8,028
Income assessable to tax in future years...... 2,384 3,995
-------------- --------------
Deferred tax liability........................ (Pounds)19,152 (Pounds)12,023
-------------- --------------
</TABLE>
The liability for deferred taxation relating to the excess of capital
allowances over depreciation has been calculated at 33% (1993 33%).
Other provisions consist of provisions for future expenditure on closed
contracts (Pounds)155,900 (1993 (Pounds)76,485).
F-45
<PAGE>
THE PERMUTIT COMPANY LIMITED
(A WHOLLY OWNED SUBSIDIARY OF THAMES WATER PLC)
NOTES TO THE ACCOUNTS
17. SHARE CAPITAL
<TABLE>
<CAPTION>
ALLOTTED, CALLED UP
AUTHORISED AND FULLY PAID
----------------------------------- -----------------------------------
31 MARCH 31 MARCH 31 MARCH 31 MARCH
1994 1993 1994 1993
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Ordinary shares of
(Pounds)1 each......... (Pounds)5,800,000 (Pounds)5,800,000 (Pounds)5,800,000 (Pounds)5,800,000
----------------- ----------------- ----------------- -----------------
</TABLE>
18. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
31 MARCH 31 MARCH
1994 1993
----------------- -----------------
(Pounds) (Pounds)
<S> <C> <C>
Loss for the financial year............ (966,190) (337,552)
Dividends.............................. - (657,843)
----------------- -----------------
(966,190) (995,395)
Opening shareholders' funds............ 5,833,185 6,828,580
----------------- -----------------
Closing shareholders' funds............ (Pounds)4,866,995 (Pounds)5,833,185
----------------- -----------------
</TABLE>
19. CONTRACTS FOR CAPITAL EXPENDITURE
Capital expenditure contracted for, and authorised but not contracted for, at
31st March 1994 for which no provision has been made in these accounts was:
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
1994 1993
--------------- ---------------
(Pounds) (Pounds)
<S> <C> <C>
Contracted for.............................. 13,422 48,660
Authorised but not contracted for........... 205,589 180,419
--------------- ---------------
(Pounds)219,011 (Pounds)229,079
--------------- ---------------
</TABLE>
20. LEASING COMMITMENTS
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
1994 1993
--------------- ---------------
(Pounds) (Pounds)
<S> <C> <C>
Operating leases:
Amounts payable within one year........... (Pounds)293,021 (Pounds)314,853
--------------- ---------------
Commitments expiring:
Land and buildings:
Between two and five years.............. -- 8,500
More than five years.................... 104,000 100,400
--------------- ---------------
104,000 108,900
Other operating leases:
Less than one year........................ 17,940 18,341
Between one and two years................. 131,446 29,424
Between two and five years................ 25,086 143,639
More than five years...................... 14,549 14,549
--------------- ---------------
(Pounds)293,021 (Pounds)314,853
--------------- ---------------
</TABLE>
21. OTHER FINANCIAL COMMITMENTS
Forward contracts existed at 31st March 1994 for the sale of foreign
currencies at a sterling equivalent of (Pounds)32,345 (1993 (Pounds)43,243).
F-46
<PAGE>
THE PERMUTIT COMPANY LIMITED
(A WHOLLY OWNED SUBSIDIARY OF THAMES WATER PLC)
NOTES TO THE ACCOUNTS
22. GUARANTEES
There are contingent liabilities in respect of guarantees given on our behalf
for plants installed or under construction and other engagements in the
ordinary course of business amounting to (Pounds)754,126 (1993
(Pounds)742,881).
23. HOLDING COMPANY
The immediate holding company is Thames Water Products & Services Limited
incorporated in Great Britain and registered in England and Wales. The ultimate
holding Company, for which consolidated financial statements are prepared, is
Thames Water PLC incorporated in Great Britain and registered in England and
Wales. Copies of the consolidated financial statements can be obtained from
Thames Water Plc., 14 Cavendish Place, London W1M 9DJ.
24. PENSIONS AND SIMILAR OBLIGATIONS
Pension arrangements for the majority of the Company's employees are of the
defined benefit type funded through the Thames Water (PWT) Pension Scheme whose
assets are held separately from those of the Company in an independently
administered fund. The Thames Water (PWT) Pension Scheme also provides pension
benefits for employees of other companies within the Thames Water group.
The total pension cost for the Company was (Pounds)169,339 (1993
(Pounds)201,954). The pension cost relating to the Thames Water (PWT) Pension
Scheme is assessed in accordance with advice received relating to the scheme as
a whole from Bacon & Woodrow, the consulting actuaries to the scheme.
Details of the actuarial valuation of the Thames Water (PWT) Pension Scheme
are disclosed in the financial statements of Thames Water Plc.
25. SUBSIDIARY UNDERTAKING
The subsidiary undertaking, Ion Exchange Ltd., is dormant and in the opinion
of the Directors is not material in terms of profit or assets.
The subsidiary undertaking is wholly owned. It is incorporated in Great
Britain, registered in England and operates in the United Kingdom.
26. GROUP ACCOUNTS
Under section 5 of the Companies Act 1989 group accounts are not required as
the company is itself a wholly owned subsidiary undertaking of another company
incorporated in an EEC country.
27. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW/(OUTFLOW) FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED 31 MARCH
--------------------
1994 1993
---------- --------
(Pounds) (Pounds)
<S> <C> <C>
Operating loss..................................... (1,142,911) (403,478)
Depreciation on tangible fixed assets.............. 273,985 278,560
(Profit)/loss on sale of tangible fixed assets..... (8,044) (8,188)
(Increase)/decrease in stocks...................... 127,413 (143,836)
(Increase)/decrease in debtors..................... 1,126,027 (78,752)
Increase/(decrease) in creditors................... (955,134) 373,603
---------- --------
Net cash inflow/(outflow) from operating
activities........................................ (578,664) 17,909
========== ========
</TABLE>
F-47
<PAGE>
THE PERMUTIT COMPANY LIMITED
(A WHOLLY OWNED SUBSIDIARY OF THAMES WATER PLC)
NOTES TO THE ACCOUNTS
28. ANALYSIS OF THE BALANCE OF CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
31 MARCH
--------------------
1994 1993 CHANGE IN YEAR
---------- -------- --------------
(Pounds) (Pounds) (Pounds)
<S> <C> <C> <C>
Cash at bank and in hand............ -- 64,864 (64,864)
Bank over drafts.................... (1,051,122) (497,608) (553,514)
---------- -------- --------
Decrease in cash and cash
equivalents........................ (1,051,122) (432,744) (618,378)
========== ======== ========
</TABLE>
29. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP") AND OTHER US FINANCIAL INFORMATION
DEFERRED TAXES
Under UK GAAP, provision is made for deferred tax under the liability method
where in the opinion of the Directors it is probable that a tax liability will
become payable within the forseeable future. Under US GAAP, deferred tax is
provided in full under the liability method. However, the net loss and total
net assets of the Permutit Company Limited is stated at the same amount under
both US and UK GAAP in respect of this matter.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Under UK GAAP, returns on investments and servicing of finance are shown as a
separate activity in the statement of cash flows. Under US GAAP, returns on
investments and taxation would be shown as cash flows from operating activities
and dividends paid would be shown as financing activities.
The statement of cash flows is reconciled to an amount that includes bank
overdraft balances. Under US GAAP, changes to such balances are generally
included as financing activities.
For US GAAP purposes, the following cash flow headings and totals would have
been reported.
<TABLE>
<CAPTION>
YEAR ENDED 31
MARCH
------------------
1994 1993
-------- --------
(Pounds) (Pounds)
-------- --------
<S> <C> <C>
Net cash (used
in)/provided by operat-
ing activities......... (548,051) 207,681
======== ========
Net cash (used in) in-
vesting activities..... (70,327) (329,296)
======== ========
Net cash provided
by/(used in) financing
activities............. 553,514 (160,235)
======== ========
Net increase/(decrease)
in cash and cash equiv-
alents................. 432,744 (281,850)
======== ========
Cash and cash equiva-
lents at beginning of
year................... 64,864 346,714
======== ========
Cash and cash equiva-
lents at end of year... -- 64,864
======== ========
</TABLE>
In addition, there are certain other aspects in which UK GAAP differs from US
GAAP, however these differences do not result in material adjustments to either
the reported loss or net assets for the years ended 31 March 1993 and 1994.
30. POST BALANCE SHEET EVENTS
On April 3, 1995, United States Filter Corporation ("US Filter") acquired
all of the outstanding stock of the Company. US Filter has committed to provide
the necessary financial support to enable the Company to meet its debts as and
when they fall due effective for twelve months from the date of the
acquisition.
F-48
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY......................................................... 3
INVESTMENT CONSIDERATIONS.................................................. 10
RECENT AND PENDING ACQUISITIONS AND JOINT VENTURE.......................... 12
USE OF PROCEEDS............................................................ 13
CAPITALIZATION............................................................. 14
PRICE RANGE OF COMMON STOCK................................................ 15
DIVIDEND POLICY............................................................ 15
SELECTED CONSOLIDATED FINANCIAL DATA....................................... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS............................................................. 19
UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION..................................................... 23
THE WATER TREATMENT INDUSTRY............................................... 29
BUSINESS................................................................... 31
MANAGEMENT................................................................. 44
PRINCIPAL STOCKHOLDERS..................................................... 48
DESCRIPTION OF CAPITAL STOCK............................................... 50
DESCRIPTION OF CERTAIN INDEBTEDNESS........................................ 52
SHARES ELIGIBLE FOR FUTURE SALE............................................ 54
UNDERWRITING............................................................... 55
LEGAL MATTERS.............................................................. 56
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS................................... 56
AVAILABLE INFORMATION...................................................... 56
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 57
INDEX TO FINANCIAL STATEMENTS.............................................. 58
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,000,000 SHARES
[LOGO OF U.S. FILTER APPEARS HERE]
UNITED STATES FILTER CORPORATION
COMMON STOCK
------------------
PROSPECTUS
------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PAINEWEBBER INCORPORATED
, 1995
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
UNITED STATES FILTER CORPORATION
Inside Front Cover
Photo upper left-hand corner of an Arrowhead Industrial water treatment mobile
trailer. Caption description to the right.
U.S. Filter Logo Left center of page
Photo lower left-hand corner of an Ion Exchange Augmentation station with
various portable resis canisters for delivery of ultrapure water treatment.
Photo lower right-hand corner of reverse osmosis and continuous deionization
water purification system with photo inset in upper left-hand corner of this
photo and to the right of the US Filter logo of a water purification/filtration
system utilized in laboratories.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14.OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company estimates that expenses in connection with the distribution
described in this Registration Statement will be as follows:
<TABLE>
<S> <C>
SEC registration fee............................................ $ 30,238
NASD fee........................................................ 9,305
New York Stock Exchange supplemental listing fee................ 20,125
Printing and engraving expenses................................. 75,000
Accounting fees and expenses.................................... 275,000
Legal fees and expenses......................................... 125,000
Transfer agent and registrar fees............................... 10,000
Fees and expenses for qualification under state securities laws. 10,000
Miscellaneous................................................... 5,332
--------
Total..................................................... $560,000
========
</TABLE>
ITEM 15.INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and the Bylaws of the Company provide for
the indemnification of directors and officers to the fullest extent permitted
by the General Corporation Law of the State of Delaware, the state of
incorporation of the Company.
Section 145 of the General Corporation Law of the State of Delaware
authorizes indemnification when a person is made a party to any proceeding by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation or was serving as a director, officer, employee or
agent of another enterprise, at the request of the corporation, and if such
person acted in good faith and in a manner reasonably believed by him or her to
be in, or not opposed to, the best interests of the corporation. With respect
to any criminal proceeding, such person must have had no reasonable cause to
believe that his or her conduct was unlawful. If it is determined that the
conduct of such person meets these standards, he or she may be indemnified for
expenses incurred and amounts paid in such proceeding (including attorneys'
fees) if actually and reasonably incurred by him or her in connection
therewith.
If such a proceeding is brought by or on behalf of the corporation (i.e., a
derivative suit), such person may be indemnified against expenses actually and
reasonably incurred if he or she acted in good faith and in a manner reasonably
believed by him or her to be in, or not opposed to, the best interests of the
corporation. There can be no indemnification with respect to any matter as to
which such person is adjudged to be liable to the corporation; however, a court
may, even in such case, allow such indemnification to such person for such
expenses as the court deems proper. Where such person is successful in any such
proceeding, he or she is entitled to be indemnified against expenses actually
and reasonably incurred by him or her. In all other cases, indemnification is
made by the corporation upon a determination that indemnification of such
person is proper because such person has met the applicable standard of
conduct. Such determination is made (i) by a majority vote of the directors who
are not parties to such proceeding, or (2) if there are no such directors, or
if such directors so direct, by independent legal counsel in a written opinion,
or (3) by the stockholders.
The Company maintains an errors and omissions liability policy for the
benefit of its officers and directors, which may cover certain liabilities of
such individuals to the Company.
The Underwriting Agreement, the form of which is included as Exhibit 1.1 to
this Registration Statement, provides that the Company shall indemnify the
Underwriters under certain circumstances and the Underwriters shall indemnify
the officers and directors of the Company under certain circumstances.
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Stock Purchase Agreement by and between The BFGoodrich Company and United
States Filter Corporation dated February 27, 1995.(1)
4.1 Specimen Common Stock Certificate.(2)
5.1 Opinion of Troy & Gould Professional Corporation.
Consent of Troy & Gould Professional Corporation (to be included in
23.1 Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Ernst & Young LLP regarding Arrowhead Industrial Water.
23.4 Consent of Coopers & Lybrand.
23.5 Consent of Ernst & Young LLP regarding Liquipure Technologies, Inc.
24.1 Power of Attorney (included on page II-3 hereof).
27.1 Financial Data Schedule.
</TABLE>
- --------
(1) Previously filed as an exhibit to the Company's Report on Form 8-K dated
March 2, 1995 and incorporated herein by reference.
(2) Previously filed as Exhibit 4.1 to the Company's Registration Statement on
Form S-1 (Reg. No. 33-41089), filed on June 21, 1991, and incorporated
herein by reference.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
(b) The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Company pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) For purposes of determining any liability under the Securities Act
of 1933, each filing of the Company's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Palm Desert, State of California, on
March 31, 1995.
UNITED STATES FILTER CORPORATION
*
By:____________________________
Richard J. Heckmann
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*
- ------------------------------------ Chairman of the Board,
Richard J. Heckmann President and Chief
Executive Officer
*
- ------------------------------------ Vice President and Chief
Kevin L. Spence Financial Officer
(Principal Accounting
Officer)
*
- ------------------------------------ Director
Michael J. Reardon
*
- ------------------------------------ Director
Tim L. Traff
*
- ------------------------------------ Director
James R. Bullock
*
- ------------------------------------ Director
James E. Clark
*
- ------------------------------------ Director
John L. Diederich
*
- ------------------------------------ Director
J. Atwood Ives
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*
- ------------------------------------ Director
Arthur B. Laffer
* Director
- ------------------------------------
Alfred E. Osborne, Jr.
*
- ------------------------------------ Director
C. Howard Wilkins, Jr.
</TABLE>
*By /s/ Donald L. Bergmann April 4, 1995
-------------------------
Donald L. Bergmann
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
2.1 Stock Purchase Agreement by and between The BFGoodrich Company and
United States Filter Corporation dated February 27, 1995.(1)
4.1 Specimen Common Stock Certificate.(2)
5.1 Opinion of Troy & Gould Professional Corporation.
23.1 Consent of Troy & Gould Professional Corporation (to be included in
Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Ernst & Young LLP regarding Arrowhead Industrial Water.
23.4 Consent of Coopers & Lybrand.
23.5 Consent of Ernst & Young LLP regarding Liquipure Technologies, Inc.
24.1 Power of Attorney (included on page II-3 hereof).
27.1 Financial Data Schedule.
</TABLE>
- --------
(1) Previously filed as an exhibit to the Company's report on Form 8-K dated
March 2, 1995 and incorporated herein by reference.
(2) Previously filed as Exhibit 4.1 to the Company's Registration Statement on
Form S-1 (Reg. No. 33-41089), filed on June 21, 1991, and incorporated
herein by reference.
<PAGE>
5,000,000 Shares
UNITED STATES FILTER CORPORATION
Common Stock
UNDERWRITING AGREEMENT
----------------------
__________, 1995
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PAINEWEBBER INCORPORATED
As representatives of the
several underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
140 Broadway
New York, New York 10005
Dear Sirs:
United States Filter Corporation, a Delaware corporation (the
"Company"), proposes to sell an aggregate of 5,000,000 shares of Common Stock,
$.01 par value per share, of the Company (the "Firm Shares"), to the several
underwriters named in Schedule I hereto (the "Underwriters"). The Company also
proposes to issue and sell to the several Underwriters not more than 750,000
additional shares of Common Stock, $.01 par value per share, of the Company (the
"Additional Shares"), if requested by the Underwriters as provided in Section 2
hereof. The Firm Shares and the Additional Shares are herein collectively
called the Shares. The shares of Common Stock, $.01 par value per share, of the
Company to be outstanding after giving effect to the sales contemplated hereby
are hereinafter referred to as the Common Stock.
<PAGE>
1. Registration Statement and Prospectus. The Company has prepared
-------------------------------------
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively called the
"Act"), a registration statement on Form S-3 including a prospectus relating to
the Shares, which may be amended. The registration statement as amended at the
time when it becomes effective, including any documents and information
incorporated by reference therein and including information (if any) deemed to
be part of the registration statement at the time of effectiveness pursuant to
Rule 430A under the Act, is hereinafter referred to as the Registration
Statement; and the prospectus in the form first used to confirm sales of Shares
is hereinafter referred to as the Prospectus.
2. Agreements to Sell and Purchase. On the basis of the
-------------------------------
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Company agrees to issue and sell, and each Underwriter
agrees, severally and not jointly, to purchase from the Company at a price per
share of $______ (the "Purchase Price") the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, (i) the Company agrees to
issue and sell the Additional Shares and (ii) the Underwriters shall have the
right to purchase, severally and not jointly, up to an aggregate of 750,000
Additional Shares from the Company at the Purchase Price. Additional Shares may
be purchased solely for the purpose of covering over-allotments made in
connection with the offering of the Firm Shares. The Underwriters may exercise
their right to purchase Additional Shares in whole or in part from time to time
by giving written notice thereof to the Company within 30 days after the date of
this Agreement. You shall give any such notice on behalf of the Underwriters
and such notice shall specify the aggregate number of Additional Shares to be
purchased pursuant to such exercise and the date for payment and delivery
thereof. The date specified in any such notice shall be a business day (i) no
earlier than the Closing Date (as hereinafter defined), (ii) no later than ten
business days after such notice has been given and (iii) no earlier than two
business days after such notice has been given. If any Additional Shares are to
be purchased, each Underwriter, severally and not jointly, agrees to purchase
from the Company the number of Additional Shares (subject to such adjustments to
eliminate fractional shares as you may determine) which bears the same
proportion to the total number of Additional Shares to be purchased from the
Company as the number of
2
<PAGE>
Firm Shares set forth opposite the name of such Underwriter in Schedule I bears
to the total number of Firm Shares.
The Company hereby agrees and the Company shall, concurrently with the
execution of this Agreement, deliver an agreement executed by (i) each of the
directors and officers of the Company and (ii) each stockholder listed on Annex
I hereto, pursuant to which each such person agrees not to offer, sell, contract
to sell, grant any option to purchase, or otherwise dispose of any Common Stock
of the Company or any securities convertible into or exercisable or exchangeable
for such Common Stock or in any other manner transfer all or a portion of the
economic consequences associated with the ownership of any such Common Stock,
except to the Underwriters pursuant to this Agreement, for a period of 90 days
after the date of the Prospectus without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation. Notwithstanding the foregoing, during
such period (i) the Company may grant stock options pursuant to the Company's
existing stock option plans and (ii) the Company may issue shares of its common
stock upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof.
3. Terms of Public Offering. The Company is advised by you that the
------------------------
Underwriters propose (i) to make a public offering of their respective portions
of the Shares as soon after the effective date of the Registration Statement as
in your judgment is advisable and (ii) initially to offer the Shares upon the
terms set forth in the Prospectus.
4. Delivery and Payment. Delivery to the Underwriters of and
--------------------
payment for the Firm Shares shall be made at 10:00 A.M., New York City time, on
the fifth business day (the "Closing Date") following the date of the initial
public offering of the Firm Shares as advised by you, at such place as you shall
designate. The Closing Date and the location of delivery of and the form of
payment for the Firm Shares may be varied by agreement between you and the
Company.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at such place as you shall
designate at 10:00 A.M., New York City time, on the date specified in the
applicable exercise notice given by you pursuant to Section 2 (an "Option
Closing Date"). Any such Option Closing Date and the location of delivery of
and the form of payment for such Additional Shares may be varied by agreement
between you and the Company.
3
<PAGE>
Certificates for the Shares shall be registered in such names and
issued in such denominations as you shall request in writing not later than two
full business days prior to the Closing Date or an Option Closing Date, as the
case may be. Such certificates shall be made available to you for inspection
not later than 9:30 A.M., New York City time, on the business day next preceding
the Closing Date or an Option Closing Date, as the case may be. Certificates in
definitive form evidencing the Shares shall be delivered to you on the Closing
Date or an Option Closing Date, as the case may be, with any transfer taxes
thereon duly paid by the Company, for the respective accounts of the several
Underwriters, against payment of the Purchase Price therefor by certified or
official bank checks payable in New York Clearing House or similar next-day
funds to the order of the Company.
5. Agreements of the Company. The Company agrees with you:
-------------------------
(a) To use its best efforts to cause the Registration Statement to
become effective at the earliest possible time.
(b) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) when the Registration Statement has become effective
and when any post-effective amendment to it becomes effective, (ii) of any
request by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction, or
the initiation of any proceeding for such purposes, and (iv) of the
happening of any event during the period referred to in paragraph (e) below
which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires the making of any
additions to or changes in the Registration Statement or the Prospectus in
order to make the statements therein (with respect to the Prospectus, in
the light of the circumstances under which they were made) not misleading.
If at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal or lifting of such order at the
earliest possible time.
4
<PAGE>
(c) To furnish to you, without charge, three (3) signed copies of the
Registration Statement as first filed with the Commission and of each
amendment to it, including all exhibits (in each case, to the extent not
previously furnished to you or your counsel), and to furnish to you and
each Underwriter designated by you such number of conformed copies of the
Registration Statement as so filed and of each amendment to it, without
exhibits, as you may reasonably request.
(d) Not to file any amendment or supplement to the Registration
Statement, whether before or after the time when it becomes effective, or
to make any amendment or supplement to the Prospectus of which you shall
not previously have been advised and provided a copy of prior to the filing
thereof or to which you shall reasonably object; and to prepare and file
with the Commission, promptly upon your reasonable request, any amendment
to the Registration Statement or supplement to the Prospectus which may be
necessary or advisable in connection with the distribution of the Shares by
you, and to use its best efforts to cause the same to become promptly
effective.
(e) Promptly after the Registration Statement becomes effective, and
from time to time thereafter for such period as in the opinion of counsel
for the Underwriters a prospectus is required by law to be delivered in
connection with sales by an Underwriter or a dealer, to furnish to each
Underwriter and dealer as many copies of the Prospectus (and of any
amendment or supplement to the Prospectus) as such Underwriter or dealer
may reasonably request for the purposes contemplated by the Act.
(f) If during the period specified in paragraph (e) any event shall
occur as a result of which, in the opinion of counsel for the Underwriters,
it becomes necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with any law,
forthwith to prepare and file with the Commission an appropriate amendment
or supplement to the Prospectus so that the statements in the Prospectus,
as so amended or supplemented, will not in the light of the circumstances
when it is so delivered, be misleading, or so that the Prospectus will
comply with law, and to furnish to each Underwriter and to such dealers as
you shall specify, such number of copies thereof as such Underwriter or
dealers may reasonably request.
5
<PAGE>
(g) Prior to any public offering of the Shares, to cooperate with you and
counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters
and by dealers under the state securities or Blue Sky laws of such
jurisdictions as you may reasonably request, to continue such qualification
in effect so long as required for distribution of the Shares and to file
such consents to service of process or other documents as may be necessary
in order to effect such registration or qualification; except that in no
event shall the Company be obligated in connection therewith to qualify as
a foreign corporation or to take any action that would subject it to
service or process in any jurisdiction or subject itself to taxation in
respect of doing business in any jurisdiction in which it is not otherwise
subject.
(h) To mail and make generally available to its stockholders as soon
as reasonably practicable an earnings statement covering a period of at
least twelve months after the effective date of the Registration Statement
(but in no event commencing later than 90 days after such date) which shall
satisfy the provisions of Section 11(a) of the Act.
(i) During the period of five years after the date of this Agreement,
(i) to mail as soon as reasonably practicable after the end of each fiscal
year to the record holders of its Common Stock a financial report of the
Company and its subsidiaries on a consolidated basis (and a similar
financial report of all unconsolidated subsidiaries, if any), all such
financial reports to include a consolidated balance sheet, a consolidated
statement of operations, a consolidated statement of cash flows and a
consolidated statement of stockholders' equity as of the end of and for
such fiscal year, together with comparable information as of the end of and
for the preceding year, certified by independent certified public
accountants, and (ii) to mail and make generally available as soon as
practicable after the end of each quarterly period (except for the last
quarterly period of each fiscal year) to such holders, a consolidated
balance sheet, a consolidated statement of operations and a consolidated
statement of cash flows (and similar financial reports of all
unconsolidated subsidiaries, if any) as of the end of and for such period,
and for the period from the beginning of such year to the close of such
quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(j) During the period referred to in paragraph (i), to furnish to you
as soon as available a copy of each report or other publicly available
6
<PAGE>
information of the Company mailed to the holders of Common Stock or filed
with the Commission and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably request.
(k) To pay all costs, expenses, fees and taxes incident to (i) the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including financial statements and exhibits), each
preliminary prospectus and all amendments and supplements to any of them
prior to or during the period specified in paragraph (e), (ii) the printing
and delivery of the Prospectus and all amendments or supplements to it
during the period specified in paragraph (e), (iii) the printing and
delivery of this Agreement, the Preliminary and Supplemental Blue Sky
Memoranda and all other agreements, memoranda, correspondence and other
documents printed and delivered in connection with the offering of the
Shares (including in each case any disbursements of counsel for the
Underwriters relating to such printing and delivery), (iv) the registration
or qualification of the Shares for offer and sale under the securities or
Blue Sky laws of the several states referred to in paragraph 5(g)
(including in each case the reasonable fees and disbursements of counsel
for the Underwriters relating to such registration or qualification and
memoranda relating thereto), (v) filings and clearance with the National
Association of Securities Dealers, Inc. in connection with the offering,
(vi) the listing of the Shares on the New York Stock Exchange, (vii)
furnishing such copies of the Registration Statement, the Prospectus and
all amendments and supplements thereto as may be requested for use in
connection with the offering or sale of the Shares by the Underwriters or
by dealers to whom Shares may be sold prior to or during the period
specified in paragraph 5(e) and (viii) the performance by the Company of
its other obligations under this Agreement.
(l) To use its best efforts to maintain the inclusion of the Common
Stock on the New York Stock Exchange for a period of five years after the
effective date of the Registration Statement.
(m) To apply the net proceeds from the offering received by it in the
manner set forth under the caption "Use of Proceeds" in the Prospectus.
7
<PAGE>
(n) To use its best efforts to maintain insurance of the types and in
the amounts which it deems adequate for its business, including, but not
limited to, general liability insurance covering all real and personal
property owned or leased by the Company against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against.
(o) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company
prior to the Closing Date or any Option Closing Date, as the case may be,
and to satisfy all conditions precedent to the delivery of the Shares.
6. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) Each part of the Registration Statement, when such part became
effective, did not contain and each such part, as amended or supplemented,
if applicable, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) the Registration
Statement and the Prospectus comply and, as amended or supplemented, if
applicable, will comply in all material respects with the Act and (iii) the
Prospectus does not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph (b) do not apply
to statements or omissions in the Registration Statement or the Prospectus
based upon and conforming with information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you
expressly for use therein. The Company acknowledges for all purposes under
this Agreement (including this paragraph and Section 7 hereof) that the
statements set forth in the first and third paragraphs under the caption
"Underwriting" in the Prospectus constitute the only written information
furnished to the Company by the
8
<PAGE>
Underwriters for use in the Registration Statement or the Prospectus or any
preliminary prospectus (or any amendment or supplement to them).
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act; and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) The Company and each of its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as it is currently being conducted
and to own, lease and operate its properties, and each is duly qualified
and is in good standing as a foreign corporation authorized to do business
in each jurisdiction in which the nature of its business or its ownership
or leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, cash flow, business
affairs or business prospects of the Company and its subsidiaries, taken as
a whole (a "Material Adverse Effect").
(e) All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable, and
are owned by the Company [(except for ________________________, which is
_____% owned by the Company)], free and clear of any security interest,
claim, lien, encumbrance or adverse interest of any nature.
(f) All the outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid, non-assessable
and, except as otherwise set forth in the Prospectus, not subject to any
preemptive or similar rights; and the Shares to be issued and sold by the
Company hereunder have been duly authorized and, when issued and delivered
to the Underwriters against payment therefor as provided by this Agreement,
will be validly issued, fully paid and non-assessable, and, except as
otherwise set forth in the Prospectus, the issuance of such Shares will not
be subject to any preemptive or similar rights.
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(g) The authorized capital stock of the Company, including the Common
Stock, conforms to the description thereof contained in the Prospectus.
(h) Neither the Company nor any of its subsidiaries is in violation of
its respective charter or by-laws or other equivalent instruments, as the
case may be, or, except as such as would not have a Material Adverse
Effect, in default in the performance of any obligation, agreement or
condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any other agreement, lease, contract, indenture or
instrument material to the conduct of the business of the Company and its
subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or their
respective property is bound, and there exists no condition which, with the
passage of time or otherwise, would constitute such a default under any
such document or instrument.
(i) The execution, delivery and performance of this Agreement,
compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not require any
consent, approval, authorization or other order of any court, regulatory
body, administrative agency or other governmental body (except as such may
be required under the securities or Blue Sky laws of the various states)
and will not conflict with or constitute a breach of any of the terms or
provisions of, or a default (with the passage of time or otherwise) under,
the charter or by-laws or other equivalent instruments, as the case may be,
of the Company or any of its subsidiaries or any agreement, lease,
contract, indenture or other instrument to which it or any of its
subsidiaries is a party or by which it or any of its subsidiaries or their
respective property is bound, or violate or conflict with any laws,
administrative regulations or rulings or court decrees applicable to the
Company, any of its subsidiaries or their respective property.
(j) Except as would not result in a Material Adverse Effect, there are
no legal or governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any of their respective property is
subject, and, to the best of the Company's knowledge, no such proceedings
are threatened or contemplated. No contract or document of a character
required to be described in the Registration
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Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement is not so described or filed as required.
(k) Except as disclosed in the Prospectus, neither the Company nor any
of its subsidiaries nor any other person or entity for whom either is or
may be liable is in violation of any federal, state, local, provincial or
foreign laws or regulations relating to pollution or protection of human
health or the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata), including,
without limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum or petroleum
products, asbestos or asbestos-containing materials, or polychlorinated
biphenyls ("Materials of Environmental Concern"), or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Materials of Environmental Concern
(collectively, "Environmental Laws"), which violation would have a Material
Adverse Effect. "Violation" includes, but is not limited to, noncompliance
with any permit or other governmental authorization required under
applicable Environmental Laws and noncompliance with the terms and
conditions of any such permit or authorization.
(l) Except as disclosed in the Prospectus, neither the Company nor any
of its subsidiaries has received any communication (written or oral),
whether from a governmental authority, citizens' group, employee or
otherwise, alleging that the Company or any of its subsidiaries or any
other person or entity for whom either is or may be liable is not in full
compliance with any Environmental Laws or permit or authorization required
under applicable Environmental Laws where such failure to comply fully
would have a Material Adverse Effect, and there are no circumstances that
may prevent or interfere with such full compliance in the future, except
where failure to so comply would not have a Material Adverse Effect.
(m) Except as disclosed in the Prospectus, there is no claim, action,
cause of action, investigation or notice (written or oral) by any person or
entity alleging potential liability (including, without limitation,
potential liability for investigatory costs, natural resources damages,
property damages, personal injuries or penalties) arising out of, based on
or resulting from (i) the presence in or release into the environment of
any
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Materials of Environmental Concern at any location owned, leased or
operated, now or in the past, by the Company or any of its subsidiaries or
any other person or entity for whom either is or may be liable, or (ii)
circumstances forming the basis of any violation or alleged violation of
any Environmental Law (collectively, "Environmental Claims") pending or
threatened against the Company or any of its subsidiaries or any other
person or entity whose liability for any Environmental Claim the Company or
any of its subsidiaries has retained or assumed either contractually or by
operation of law.
(n) Except as disclosed in the Prospectus, there are no past or
present actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the release, emission, discharge,
presence or disposal of any Materials of Environmental Concern, that could
form the basis of any Environmental Claim against the Company or any of its
subsidiaries with respect to property owned, leased or operated by or for
the Company or any of its subsidiaries, now or in the past, or against any
person or entity whose liability for any Environmental Claim the Company or
any of its subsidiaries has retained or assumed either contractually or by
operation of law.
(o) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business,
operations and properties of the Company and its subsidiaries, in the
course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties). On the basis of such review, the Company has reasonably
concluded that such associated costs and liabilities would not, singly or
in the aggregate, have a Material Adverse Effect.
(p) Except as otherwise set forth in the Prospectus or such as would
not, singly or in the aggregate, have a Material Adverse Effect, the
Company and each of its subsidiaries has good and marketable title, free
and clear of all liens, claims, encumbrances and restrictions, except liens
for taxes not yet due and payable, to all property and assets described in
the Registration Statement as being owned by it. All leases to which the
Company or any of its subsidiaries is a party are valid and binding and,
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except as would not have a Material Adverse Effect, no default has occurred
or is continuing thereunder; and the Company and its subsidiaries enjoy
peaceful and undisturbed possession under all such leases to which any of
them is a party as lessee.
(q) The Company and each of its subsidiaries maintains reasonably
adequate insurance.
(r) Each of the accountants who certified the financial statements and
supporting schedules included in the Registration Statement is an
independent public accountant as required by the Act.
(s) The financial statements, together with related schedules and
notes, as set forth or incorporated by reference in the Registration
Statement and the Prospectus (and any amendment or supplement thereto),
present fairly the consolidated financial position, results of operations
and changes in financial position of the Company and its subsidiaries on
the basis stated in the Registration Statement at the respective dates or
for the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as disclosed therein; and the other financial and
statistical information and data set forth in the Registration Statement
and the Prospectus (and any amendment or supplement thereto) is, in all
material respects, accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the Company.
The pro forma financial information included in the Prospectus presents
fairly the information shown therein and has been prepared in accordance
with the relevant accounting requirements of Regulation S-X. In the
opinion of the Company, the assumptions used in the preparation of the pro
forma financial information are reasonable and the adjustments used
therein are appropriate to give effect to the transactions or circumstances
referred to therein.
(t) The Company and each of its subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits") as are necessary to own, lease and operate its
respective properties and to conduct its business in the manner described
in the Prospectus, subject to such qualifications as may be set forth in
the Prospectus; the Company and each of its subsidiaries has fulfilled and
13
<PAGE>
performed all of its material obligations with respect to such permits and
no event has occurred which allows, or after notice or lapse of time would
allow, revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permit, subject in each
case to such qualification as may be set forth in the Prospectus; and,
except as described in the Prospectus, such permits contain no restrictions
that are materially burdensome to the Company or any of its subsidiaries.
(u) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(v) Except as otherwise set forth in the Prospectus, and for which
waivers have been obtained in writing with respect to inclusion in this
offering, no holder of any security of the Company has any right to require
registration of shares of Common Stock or any other security of the
Company.
(w) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
(x) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens related to or
entitling any person to purchase or otherwise to acquire any shares of the
capital stock of, or other ownership interest in, the Company or any
subsidiary thereof except as otherwise disclosed in the Registration
Statement.
(y) Except as would not, singly or in the aggregate, have a Material
Adverse Effect, neither the Company nor any of its subsidiaries has (A)
violated any applicable federal, state, provincial or foreign law relating
to employment or employment practices or the terms and conditions of
employment, including, without limitation, discrimination in the hiring,
promotion or pay of employees, wages, hours of work, plant closings and
layoffs, collective bargaining, and occupational safety and health, or any
provisions of the Employee Retirement Income Security Act of 1974 ("ERISA")
or the rules and regulations promulgated thereunder or any other applicable
law (whether foreign or domestic) relating to or governing the operation or
maintenance of any plan or arrangement falling within the definition of an
"employee benefit plan" (as such term is
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defined in Section 3(3) of ERISA) or any other employee benefit plan or
arrangement, or (B) engaged in any unfair labor practice. There is (i) no
unfair labor practice charge or complaint pending or threatened against the
Company or any of its subsidiaries before the National Labor Relations
Board or any corresponding state, local, provincial or foreign agency, and
no grievance or arbitration proceeding arising out of or under any
collective bargaining agreement is so pending or threatened against the
Company or any of its subsidiaries which would, singly or in the aggregate,
have a Material Adverse Effect; and (ii) no union representation claim or
question existing with respect to the employees of the Company or any of
its subsidiaries and no union organizing activities taking place. No labor
dispute involving the employees of the Company or any of its subsidiaries
exists or, to the knowledge of the Company, is threatened or imminent; and
the Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any principal suppliers, manufacturers or
contractors of the Company or any of its subsidiaries which would result in
any Material Adverse Effect.
(z) The books, records and accounts of the Company and its
subsidiaries accurately and fairly reflect, in reasonable detail, the
transactions in and dispositions of the assets of the Company and its
subsidiaries. The Company and each of its subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(aa) All material tax returns required to be filed by the Company and
each of its subsidiaries in any jurisdiction have been filed, other than
those filings being contested in good faith, and all material taxes,
including withholding taxes, penalties and interest, assessments, fees and
other charges due pursuant to such returns or pursuant to any assessment
received by the Company or any of its subsidiaries have been paid, other
than those being contested in good faith and for which adequate reserves
have been provided. No deficiency or adjustment for any material taxes
15
<PAGE>
has been proposed or assessed against the Company or any of its
subsidiaries.
(bb) The Company and its subsidiaries own, license or possess the
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names presently employed by them in
connection with the businesses now operated by them, and neither the
Company nor any of its subsidiaries has received any notice of infringement
of or conflict with asserted rights of others with respect to any of the
foregoing, which, singly or in the aggregate, if the subject of any
unfavorable decision, ruling or finding, would result in a Material
Adverse Effect.
(cc) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes the legal, valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms
(except as rights to indemnity and contribution hereunder may be limited
by applicable law).
(dd) The Company has full power, authority and legal capacity to enter
into and perform its obligations under this Agreement and to issue, sell
and deliver the Shares; and the Company has taken all necessary corporate
action to authorize the execution and the performance of its obligations
under this Agreement.
(ee) No bid or purchase by the Company, and no bid or purchase that
could be attributed to the Company (as a result of bids or purchases by an
"affiliated purchaser" within the meaning of Rule 10b-6 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) for or of
the Common Stock, any securities of the same class or series as the Common
Stock or any securities immediately convertible into or exchangeable for or
that represent any right to acquire Common Stock, is now pending or in
progress or will have commenced at any time prior to the completion of the
distribution of the Shares.
(ff) Each of the Company and its subsidiaries is in compliance with
all laws, ordinances and regulations (domestic and foreign) applicable to
its properties (whether owned or leased) and its business, as described in
the Prospectus, except where noncompliance with such laws, ordinances
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<PAGE>
and regulations would not, singly or in the aggregate, have a Material
Adverse Effect.
(gg) To the best knowledge of the Company, after due inquiry, the
representations and warranties of each of (i) The B.F. Goodrich Company
set forth in the Stock Purchase Agreement, dated as of February 27, 1995,
by and between the Company and The B.F. Goodrich Company (the "AIW Purchase
Agreement"), and (ii) [Thames set forth in the Agreement, dated _______, by
and between the Company and Thames (together with the AIW Purchase
Agreement, the "Purchase Agreements"),] are true, accurate and complete, as
of the dates thereof and as of the date hereof, except for such matters
which in the aggregate would not have a Material Adverse Effect. The
representations and warranties of the Company in each of the Purchase
Agreements are true, accurate and complete, as of the dates thereof and as
of the date hereof.
7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless (i) each of the
Underwriters and (ii) each person, if any, who controls (within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act) any of the
Underwriters (any of the persons referred to in this clause (ii) being
hereinafter referred to as a "controlling person"), and (iii) the
respective officers, directors, partners, employees, representatives and
agents of any of the Underwriters or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as
an "Indemnified Person") to the fullest extent lawful, from and against any
and all losses, claims, damages, liabilities, judgments, actions and
expenses (including without limitation and as incurred, reimbursement of
all reasonable costs of investigating, preparing, pursuing or defending any
claim or action, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, including the reasonable fees and
expenses of counsel to any Indemnified Person) directly or indirectly
caused by, related to, based upon, arising out of or in connection with any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement (or any amendment thereto), including the
information deemed to be a part of the Registration Statement pursuant to
Rule 430A(b) promulgated under the Act, if applicable, or the Prospectus
(including any amendment or supplement thereto) or any preliminary
prospectus, or any omission or alleged omission to state therein a material
17
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fact required to be stated therein or necessary to make the statements
therein (in the case of the Prospectus, in light of the circumstances under
which they were made) not misleading, except insofar as such losses,
claims, damages, liabilities or expenses are caused by an untrue statement
or omission or alleged untrue statement or omission that is made in
reliance upon and in conformity with information relating to any of the
Underwriters furnished in writing to the Company by any of the Underwriters
through you expressly for use in the Registration Statement (or any
amendment thereto) or the Prospectus (or any amendment or supplement
thereto) or any preliminary prospectus. The Company shall notify you
promptly of the institution, threat or assertion of any claim, proceeding
(including any governmental investigation) or litigation in connection with
the matters addressed by this Agreement which involves the Company or an
Indemnified Person.
(b) In case any action or proceeding (including any governmental
investigation) shall be brought or asserted against any of the Indemnified
Persons with respect to which indemnity may be sought against the Company,
such Underwriter (or the Underwriter controlled by such controlling person)
shall promptly notify the Company in writing (provided, that the failure to
give such notice shall not relieve the Company of its obligations pursuant
to this Agreement). Such Indemnified Person shall have the right to employ
its own counsel in any such action and the fees and expenses of such
counsel shall be paid, as incurred, by the Company (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder). The Company shall not, in connection with any
one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the
same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys (in addition
to any local counsel) at any time for such Indemnified Persons, which firm
shall be designated by the Underwriters. The Company shall be liable for
any settlement of any such action or proceeding effected with the Company's
prior written consent, which consent will not be unreasonably withheld, and
the Company agrees to indemnify and hold harmless any Indemnified Person
from and against any loss, claim, damage, liability or expense by reason of
any settlement of any action effected with the written consent of the
Company. Notwithstanding the foregoing sentence, if at any time an
Indemnified Person shall have requested the Company to reimburse the
Indemnified Person for fees and
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<PAGE>
expenses of counsel as contemplated by the second sentence of this
paragraph, the Company agrees that it shall be liable for any settlement of
any proceeding effected without its written consent if (i) such settlement
is entered into more than 10 business days after receipt by the Company of
the aforesaid request and (ii) the Company shall not have reimbursed the
Indemnified Person in accordance with such request prior to the date of
such settlement. The Company shall not, without the prior written consent
of each Indemnified Person, settle or compromise or consent to the entry of
judgment in or otherwise seek to terminate any pending or threatened
action, claim, litigation or proceeding in respect of which indemnification
or contribution may be sought hereunder (whether or not any Indemnified
Person is a party thereto), unless such settlement, compromise, consent or
termination includes an unconditional release of each Indemnified Person
from all liability arising out of such action, claim, litigation or
proceeding.
(c) Each of the Underwriters agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who
sign the Registration Statement, any person controlling (within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act) the Company,
and the officers, directors, partners, employees, representatives and
agents of each such person, to the same extent as the foregoing indemnity
from the Company to each of the Indemnified Persons, but only with respect
to claims and actions based on information relating to and in conformity
with such information furnished in writing by such Underwriter expressly
for use in the Prospectus.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or expenses referred to herein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities and expenses (i) in such proportion as
is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other
hand from the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the indemnifying parties
and the indemnified party, as well as any other relevant equitable
considerations.
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<PAGE>
The relative benefits received by the Company, on the one hand, and any of
the Underwriters, on the other hand, shall be deemed to be in the same
proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received
by such Underwriter, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company and the
Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact related to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The indemnity and
contribution obligations of the Company set forth herein shall be in
addition to any liability or obligation the Company may otherwise have to
any Indemnified Person.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages, liabilities or expenses referred
to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, none of the Underwriters (and its related
Indemnified Persons) shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the total underwriting discount
applicable to the Shares purchased by such Underwriter exceeds the amount
of any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 7(d) are
several in proportion to the respective number of Shares purchased by each
of the Underwriters hereunder and not joint.
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8. Conditions of Underwriters' Obligations. The several obligations
---------------------------------------
of the Underwriters to purchase the Firm Shares under this Agreement are subject
to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same
force and effect as if made on and as of the Closing Date.
(b) The Registration Statement shall have become effective not later
than 5:00 P.M., New York City time, on the date of this Agreement or at
such later date and time as you may approve in writing, and at the Closing
Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall
have been commenced or shall be pending before or contemplated by the
Commission.
(c) (i) Since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, there shall not have been any
material adverse change, or any development involving a prospective
material adverse change, in the condition, financial or otherwise, or in
the earnings, cash flows, business affairs or business prospects, whether
or not arising in the ordinary course of business, of the Company, (ii)
since the date of the latest balance sheet included in the Registration
Statement and the Prospectus there shall not have been any material change,
or any development involving a prospective material adverse change, in the
capital stock or in the long-term debt of the Company from that set forth
in the Registration Statement and Prospectus, (iii) the Company and its
subsidiaries shall have no liability or obligation, direct or contingent,
which is material to the Company and its subsidiaries, taken as a whole,
other than those reflected in the Registration Statement and the Prospectus
and (iv) on the Closing Date you shall have received a certificate dated
the Closing Date, signed by Richard J. Heckmann and Kevin L. Spence, in
their capacities as the Chief Executive Officer and the Chief Financial
Officer of the Company, respectively, confirming the matters set forth in
paragraphs (a), (b), and (c) of this Section 8.
(d) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of Troy & Gould, counsel for the Company, to the effect that:
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(i) the Company and each of its subsidiaries has been duly
incorporated, is existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power
and corporate authority required to carry on its business as described
in the Prospectus and to own, lease and operate its properties;
(ii) the Company and each of its subsidiaries is duly qualified
and is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or
its ownership or leasing of property requires such qualification,
except where the failure to be so qualified would not have a Material
Adverse Effect;
(iii) all of the outstanding shares of capital stock of, or
other ownership interests in, each of the Company's subsidiaries have
been duly and validly authorized and issued and are fully paid and
non-assessable, and are owned by the Company [(except for
_______________________, which is ____% owned by the Company)], free
and clear of any security interest, claim, lien, encumbrance or
adverse interest of any nature;
(iv) all the outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid, non-assessable and,
except as otherwise set forth in the Prospectus, not subject to any
preemptive or similar rights;
(v) the Shares to be issued and sold by the Company hereunder
have been duly authorized, and when issued and delivered to the
Underwriters against payment therefor as provided by this Agreement,
will have been validly issued and will be fully paid and
nonassessable, and, to such counsel's knowledge, except as otherwise
set forth in the Prospectus, the issuance of such Shares is not
subject to any preemptive or similar rights;
(vi) the authorized capital stock of the Company, including the
Common Stock, conforms as to legal matters to the description thereof
contained in the Prospectus;
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<PAGE>
(vii) based on the oral advice of the Staff of the Commission,
the Registration Statement has become effective under the Act, and, to
such counsel's knowledge, no stop order suspending its effectiveness
has been issued and no proceedings for that purpose are pending before
or contemplated by the Commission;
(viii) the statements under the captions "Pending Acquisitions
and Joint Venture," "Dividend Policy," "Description of Capital Stock,"
"Description of Certain Indebtedness," "Shares Eligible for Future
Sale" and "Underwriting" in the Prospectus and Items 14 and 15 of Part
II of the Registration Statement, insofar as such statements
constitute a summary of legal matters, documents or proceedings
referred to therein, fairly present the information called for with
respect to such legal matters, documents and proceedings;
(ix) such contracts and documents as are summarized in the
Prospectus are fairly summarized in all material respects; and, to the
best of the knowledge of such counsel, each contract or document so
described is in full force and effect in accordance with its terms;
(x) neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or other equivalent
instruments, as the case may be, and, to the best of such counsel's
knowledge after due inquiry, neither the Company nor any of its
subsidiaries is in default in the performance of any obligation,
agreement or condition contained in any bond, debenture, note or any
other evidence of indebtedness or in any other agreement, lease,
contract, indenture or instrument material to the conduct of the
business of the Company and its subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party or by which it
or any of its subsidiaries or their respective property is bound, and
there exists no condition which, with the passage of time or
otherwise, would constitute such a default under any such document or
instrument;
(xi) the execution, delivery and performance of this Agreement by
the Company, compliance by the Company with all the provisions hereof
and the consummation of the transactions
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contemplated hereby will not require any consent, approval,
authorization or other order of any court, regulatory body,
administrative agency or other governmental body (except as such may
be required under the Act or other securities or Blue Sky laws) and
will not conflict with or constitute a breach of any of the terms or
provisions of, or a default (with the passage of time or otherwise)
under, the charter or by-laws or other equivalent instruments, as the
case may be, of the Company or any of its subsidiaries or any
agreement, lease, contract, indenture or other instrument known to
such counsel to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or their
respective properties are bound, or violate or conflict with any laws,
administrative regulations or rulings or court decrees applicable to
the Company or any of its subsidiaries or their respective properties
which, in such counsel's opinion, are normally applicable to the
transactions of the type contemplated by this Agreement;
(xii) after due inquiry, such counsel does not know of any legal
or governmental proceeding pending or threatened to which the Company
or any of its subsidiaries is a party or to which any of their
respective property is subject which is required to be described in
the Registration Statement or the Prospectus and is not so described,
or of any contract or other document which is required to be described
in the Registration Statement or the Prospectus or is required to be
filed as an exhibit to the Registration Statement which is not
described or filed as required;
(xiii) the Company has the corporate power and authority to
enter into and perform this Agreement; this Agreement has been duly
authorized, executed and delivered by the Company and is a valid and
binding agreement of the Company enforceable in accordance with its
terms (except as rights to indemnity and contribution hereunder may be
limited by applicable law); and the Company has full legal right,
authority and capacity to issue, sell and deliver the Shares;
(xiv) the Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended;
24
<PAGE>
(xv) to the best of such counsel's knowledge, except as otherwise
set forth in the Prospectus, and for which waivers have been obtained
in writing with respect to inclusion in this offering, no holder of
any security of the Company has any right to require registration of
shares of Common Stock or any other security of the Company;
(xvi) (1) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for financial statements as to
which no opinion need be expressed) comply as to form in all material
respects with the Act, and (2) such counsel believes that (except for
financial statements, as aforesaid) the Registration Statement and the
prospectus included therein at the time the Registration Statement
became effective did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and that the
Prospectus, as amended or supplemented, if applicable (except for
financial statements, as aforesaid) does not contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
In giving such opinion with respect to the matters covered by clause
(xvi) such counsel may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification except as
specified.
The opinion of Troy & Gould described in paragraph (d) above shall be
rendered to you at the request of the Company and shall so state therein. In
rendering such opinions, such counsel may rely upon certificates of any officer
of the Company or of government officials as to matters of fact of which the
maker of such certificate has knowledge provided that counsel rendering such
opinion shall furnish the Underwriters with copies of any such statements or
certificates. In addition, in rendering their opinion, such counsel may state
that their opinion is limited to matters of California, Delaware and federal
law.
25
<PAGE>
(e) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of Donald L. Bergmann, General Counsel for the Company, to the effect
that:
(i) such contracts and documents as are summarized in the
Prospectus are fairly summarized in all material respects; and, to the
best of the knowledge of such counsel, each contract or document so
described is in full force and effect in accordance with its terms;
(ii) neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or other equivalent
instruments, as the case may be, and, to the best of such counsel's
knowledge after due inquiry, except as would not have a Material
Adverse Effect, neither the Company nor any of its subsidiaries is in
default in the performance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of
indebtedness or in any other agreement, lease, contract, indenture or
instrument material to the conduct of the business of the Company and
its subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or
their respective property is bound, and there exists no condition
which, with the passage of time or otherwise, would constitute such a
default under any such document or instrument;
(iii) the execution, delivery and performance of this Agreement
by the Company, compliance by the Company with all the provisions
hereof and the consummation of the transactions contemplated hereby
will not require any consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other
governmental body (except as such may be required under the Act or
other securities or Blue Sky laws) and will not conflict with or
constitute a breach of any of the terms or provisions of, or a default
(with the passage of time or otherwise) under, the charter or by-laws
or other equivalent instruments, as the case may be, of the Company or
any of its subsidiaries or any agreement, lease, contract, indenture
or other instrument to which the Company or any of its subsidiaries is
a party or by which the
26
<PAGE>
Company or any of its subsidiaries or their respective properties are
bound, or violate or conflict with any laws, administrative
regulations or rulings or court decrees applicable to the Company or
any of its subsidiaries or their respective properties;
(iv) after due inquiry, such counsel does not know of any legal
or governmental proceeding pending or threatened to which the Company
or any of its subsidiaries is a party or to which any of their
respective property is subject which is required to be described in
the Registration Statement or the Prospectus and is not so described,
or of any contract or other document which is required to be described
in the Registration Statement or the Prospectus or is required to be
filed as an exhibit to the Registration Statement which is not
described or filed as required;
(v) the Company has the corporate power and authority to enter
into and perform each of the Purchase Agreements; each of the Purchase
Agreements has been duly authorized, executed and delivered by the
Company and is a valid and binding agreement of the Company
enforceable in accordance with its terms (except as rights to
indemnity and contribution thereunder may be limited by applicable
law);
(vi) (1) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for financial statements as to
which no opinion need be expressed) comply as to form in all material
respects with the Act, and (2) such counsel believes that (except for
financial statements, as aforesaid) the Registration Statement and the
prospectus included therein at the time the Registration Statement
became effective did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and that the
Prospectus, as amended or supplemented, if applicable (except for
financial statements, as aforesaid) does not contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
27
<PAGE>
In giving such opinion with respect to the matters covered by clause
(vi) such counsel may state that his opinion and belief are based upon his
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification except as
specified.
The opinion of Donald L. Bergmann described in paragraph (e) above
shall be rendered to you at the request of the Company and shall so state
therein.
(f) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Skadden, Arps, Slate, Meagher & Flom ("Skadden Arps"),
counsel for the Underwriters, in form and substance reasonably satisfactory
to you.
(g) You shall have received a letter on and as of the Closing Date, in
form and substance satisfactory to you, from each of KPMG Peat Marwick,
Ernst & Young and Coopers & Lybrand (collectively, the "Accountants"),
independent public accountants, with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus and substantially in the form and substance of the
letter delivered to you by each of the Accountants on the date of this
Agreement.
(h) At the Closing Date, the Shares shall have been approved for
listing on the New York Stock Exchange, subject to official notice of
issuance.
(i) Skadden Arps shall have been furnished with such documents and
opinions as they may reasonably require for the purpose of enabling them to
review or pass upon the matters referred to in this Section 8 and in order
to evidence the accuracy, completeness or satisfaction in all material
respects of any of the representations, warranties or conditions herein
contained.
(j) Prior to the Closing Date, the Company shall have furnished to you
or caused to be furnished to you such further information, certificates and
documents as you may reasonably request.
28
<PAGE>
(k) The Company shall not have failed at or prior to the Closing Date
to perform or comply with any of the agreements herein contained and
required to be performed or complied with by the Company at or prior to the
Closing Date.
The several obligations of the Underwriters to purchase any Additional Shares
hereunder are subject to satisfaction on and as of each Option Closing Date of
the conditions set forth in paragraphs (a) through (k) except that the opinions
called for in paragraphs (d), (e) and (f) and the letters referred to in
paragraph (g) shall be revised to reflect the sale of the Additional Shares.
9. Effective Date of Agreement and Termination. This Agreement
-------------------------------------------
shall become effective upon the later of (i) execution of this Agreement and
(ii) the effectiveness of the Registration Statement.
This Agreement may be terminated at any time prior to the Closing Date
by you by written notice to the Company if any of the following has occurred:
(i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any adverse change or development
involving a prospective adverse change in the condition, financial or otherwise,
of the Company or any of its subsidiaries or the earnings, cash flows, business
affairs, or business prospects of the Company or any of its subsidiaries,
whether or not arising in the ordinary course of business, which would, in your
reasonable judgment, make it impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus, (ii) any outbreak or escalation of
hostilities or other national or international calamity or crisis or change in
economic conditions or in the financial markets of the United States or
elsewhere that, in your judgment, is material and adverse and would, in your
reasonable judgment, make it impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus, (iii) the suspension or material
limitation of trading in securities on the New York Stock Exchange, the American
Stock Exchange or the NASDAQ National Market System or limitation on prices for
securities on any such exchange or National Market System, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority which in
your reasonable judgment materially and adversely affects, or will materially
and adversely affect, the business or operations of the Company and its
subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in
29
<PAGE>
your reasonable judgment has a material adverse effect on the financial markets
in the United States and would, in your reasonable judgment, make it
impracticable or inadvisable to market the Shares.
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase is not more than one-tenth of the total number of Shares to be
purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I bears to the total number of Firm
Shares which all the non-defaulting Underwriters, as the case may be, have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase on such date; provided that in no event shall the number of Firm Shares
--------
or Additional Shares, as the case may be, which any Underwriter has agreed to
purchase pursuant to Section 2 hereof be increased pursuant to this Section 9 by
an amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date or on an Option Closing Date, as the case may be, any
Underwriter or Underwriters shall fail or refuse to purchase Firm Shares, or
Additional Shares, as the case may be, and the aggregate number of Firm Shares
or Additional Shares, as the case may be, with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares to be purchased
on such date by all Underwriters, and arrangements satisfactory to you and the
Company for purchase of such Shares are not made within 48 hours after such
default, this Agreement will terminate without liability on the part of any non-
defaulting Underwriter and the Company. In any such case which does not result
in termination of this Agreement, either you or the Company shall have the right
to postpone the Closing Date or the applicable Option Closing Date, as the case
may be, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and the Prospectus or any other
documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve any defaulting Underwriter from liability in respect
of any default of any such Underwriter under this Agreement.
30
<PAGE>
10. Miscellaneous. Notices given pursuant to any provision of his
-------------
Agreement shall be addressed as follows: (a) if to the Company, to United States
Filter Corporation, 73-710 Fred Waring Drive, Suite 222, Palm Desert, California
92260, Attention: ________, and (b) if to any Underwriter or to you, to you c/o
Donaldson, Lufkin & Jenrette Securities Corporation, 140 Broadway, New York, New
York 10005, Attention: Syndicate Department, or in any case to such other
address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, its officers and directors and
of the several Underwriters set forth in or made pursuant to this Agreement
shall remain operative and in full force and effect, and will survive delivery
of and payment for the Shares, regardless of (i) any investigation, or statement
as to the results thereof, made by or on behalf of any Underwriter or by or on
behalf of the Company, the officers or directors of the Company or any
controlling person of the Company, (ii) acceptance of the Shares and payment for
them hereunder and (iii) termination of this Agreement.
If this Agreement shall be terminated by the Underwriters because of
any failure or refusal on the part of the Company to comply with the terms or to
fulfill any of the conditions of this Agreement, the Company agrees to reimburse
the several Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the
Underwriters, any controlling persons referred to herein and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
31
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
UNITED STATES FILTER CORPORATION
By___________________________
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PAINEWEBBER INCORPORATED
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By_________________________
32
<PAGE>
SCHEDULE I
----------
Number of Firm Shares
Underwriters to be Purchased
------------ -------------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
PaineWebber Incorporated
____________________
Total 5,000,000
33
<PAGE>
ANNEX I
-------
Required Stockholder Lock-ups
-----------------------------
34
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF TROY & GOULD]
March 31, 1995
FILE NO.
UNIF-12
United States Filter Corporation
73-710 Fred Waring Drive
Palm Desert, California 92260
Re: Registration Statement on Form S-3
----------------------------------
Gentlemen:
At your request, we have examined the Registration Statement on Form S-3,
as amended by Amendment No. 1 thereto (the "Registration Statement"), of United
States Filter Corporation (the "Company"), exhibits filed in connection
therewith and the form of Prospectus related thereto that you have filed with
the Securities and Exchange Commission (the "SEC") in connection with the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of 5,000,000 shares of Common Stock, plus 750,000 additional shares to
cover over-allotments, if any (collectively, the "Shares"), to be issued and
sold by the Company. The Shares are to be sold to Donaldson, Lufkin & Jenrette
Securities Corporation and PaineWebber Incorporated, as representatives of the
several underwriters, on a firm commitment basis pursuant to an underwriting
agreement (the "Underwriting Agreement") to be entered into between the Company
and the underwriters listed in the Underwriting Agreement.
For purposes of this opinion, we have examined such matters of law and
originals, or copies certified or otherwise identified to our satisfaction, of
such documents, corporate records and other instruments as we have deemed
necessary. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as certified,
photostatic or conformed copies, and the authenticity of originals of all such
latter documents. We have also assumed the due execution and delivery of all
documents where due execution and delivery are prerequisites to the
effectiveness thereof. We have relied upon certificates of public
<PAGE>
United States Filter Corporation
March 31, 1995
Page 2
officials and certificates of officers of the Company for the accuracy of
material factual matters contained therein that were not independently
established.
Based on the foregoing, it is our opinion that, subject to effectiveness
with the SEC (such Registration Statement as finally declared effective and the
form of Prospectus filed pursuant to Rule 424(b) under the Securities Act being
hereinafter referred to as the "Registration Statement" and the "Prospectus,"
respectively) and to registration or qualification under the securities laws of
the states in which securities may be sold, the Shares are duly and validly
authorized and, upon the sale and issuance thereof in the manner referred to in
the Registration Statement, and upon payment therefor, will be legally issued,
fully paid and nonassessable.
We consent to the use of our name under the caption "Legal Matters" in the
Prospectus and the Registration Statement, and to the filing of this opinion as
an exhibit to the Registration Statement. By giving you this opinion and
consent, we do not admit that we are experts with respect to any part of the
Registration Statement or Prospectus within the meaning of the term "expert" as
used in Section 11 of the Securities Act or the rules and regulations
promulgated thereunder, nor do we admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ Troy & Gould
--------------------
TROY & GOULD
Professional Corporation
<PAGE>
EXHIBIT 23.2
The Board of Directors and Shareholders
United States Filter Corporation
We consent to the use of our reports included herein and the reference to our
firm under the heading "Independent Certified Public Accountants" in the
prospectus.
KPMG Peat Marwick LLP
Orange County, California
April 3, 1995
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Certified Public Accountants" and to the use of our report dated March 9, 1995,
with respect to the financial statements of the Arrowhead Industrial Water
Division of The BFGoodrich Company included in Amendment No. 1 to the
Registration Statement (Form S-3 No. 33-58141) and related Prospectus of United
States Filter Corporation for the registration of 5,750,000 shares of its
common stock.
ERNST & YOUNG LLP
Cleveland, Ohio
April 3, 1995
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in this Registration Statement of United
States Filter Corporation on Form S-3 of our report dated June 16, 1994, except
for note 30 as to which the date is April 3, 1995, on our audits of the
financial statements of The Permutit Company Limited. We also consent to the
reference to our firm as independent accountants under the caption "Independent
Certified Public Accountants".
Coopers & Lybrand
Uxbridge
West London
United Kingdom
April 3, 1995
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Certified Public Accountants" and to the use of our report dated April 15,
1994, with respect to the financial statements of Liquipure Technologies, Inc.
included in Amendment No. 1 to the Registration Statement (Form S-3, No. 33-
58141) and related Prospectus of United States Filter Corporation for the
registration of 5,750,000 shares of its common stock.
ERNST & YOUNG LLP
Stamford, Connecticut
April 3, 1995
