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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 3)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: MARCH 31, 1995 COMMISSION FILE NUMBER: 1-10728
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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
73-710 FRED WARING DRIVE, SUITE 222, PALM DESERT, CA 92260
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 340-0098
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
(TITLE OF EACH CLASS) NAME OF EACH EXCHANGE ON WHICH
REGISTERED
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days. Yes X No
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of June 22, 1995, was approximately $341,522,000. The number of
shares of Common Stock outstanding on June 22, 1995 was 22,206,066 shares.
Documents incorporated by reference:
1. Notice of 1995 Annual Meeting and Proxy Statement (Part III of Form 10-
K).
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
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PART I
ITEM 1--BUSINESS
(A) GENERAL
United States Filter Corporation (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
117 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. 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.
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.
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.
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The Company intends to actively seek additional acquisitions that enhance
its geographic network, customer base, and range of product offerings,
technologies and industries served. The principal businesses acquired by the
Company since July 1991, include the following:
<TABLE>
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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
April 1995 Arrowhead Industrial Water On-site and mobile water treatment systems
Lincolnshire, Illinois 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 and SDI
Ransbach-Baumbach, Germany
September 1994 Smogless S.p.A. Wastewater treatment services for industrial
Milan, Italy 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>
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Of the transactions occurring since the Company's fiscal year beginning
April 1, 1994, the purchase prices paid by the Company for the acquisitions of
Continental Water Systems and Continental Penfield Corp., Ceraflo, Continental
Water Conditioning Company of the Bay Area, Sation S.A., Seral Erich Alhauser
GmbH and Smogless S.p.A. comprise either solely or in significant part shares
of the common stock of the Company and, for the acquisition of Smogless S.p.A.
debt in the principal amount of $45,000,000 and related warrants convertible
into common stock (the "Warrants") and shares of the Company's Series B Voting
Convertible Preferred Stock (the "Series B Preferred Stock"). Pursuant to the
Continental Water Systems and Continental Penfield Corp. acquisitions, the
Company filed a "shelf" Registration Statement on Form S-3 under the
Securities Act of 1933, as amended, (the "Act") with respect to 1,897,221
shares of common stock issued by the Company pursuant to the terms of that
transaction. That Registration Statement became effective on November 2, 1994.
In addition, under the terms of the Smogless S.p.A. acquisition, upon the
request of the selling stockholders of Smogless S.p.A., the Company has
certain obligations to register under the Act the shares of common stock
issuable upon the exercise of the Warrants or upon the conversion of the
Series B Preferred Stock.
Subsequent to the acquisition of Arrowhead Industrial Water ("Arrowhead"),
but related to that acquisition, the Company and Nalco Chemical Company
("Nalco") entered into a Joint Venture Agreement dated June 9, 1995 (the
"Nalco JV"). Under the terms of the Nalco JV, a fifty fifty partnership was
established, Treated Water Outsourcing, a Nalco/U.S. Filter Joint Venture
("TWO"). TWO was established to engage in the business of building, owning and
operating water purification facilities on customer's sites under long-term
agreements. Under the Nalco JV, equipment will be purchased from the Company
and chemical supplies will be purchased from Nalco.
On November 8, 1994, the Company announced a three-for-two split of its
common stock. The split was effected in the form of a stock dividend, payable
on December 5, 1994 to shareholders of record as of the close of business on
November 18, 1994.
In May 1995, the Company effected a public offering of 6,900,000 shares of
common stock at $15.00 per share. The net proceeds from this offering after
underwriting discounts and commissions before other related expenses, were
$98,118,000. Of these net proceeds, approximately $10,000,000 was used to
repay indebtedness incurred in connection with the acquisition of The Permutit
Group and $80,000,000 was used for the acquisition of Arrowhead. The balance
was used for general corporate purposes.
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.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS:
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, and the provision of services, replacement
parts and consumables to those markets.
(C) NARRATIVE DESCRIPTION OF BUSINESS:
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INTRODUCTION
THE WATER TREATMENT INDUSTRY
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 regulations. 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 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.
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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.
THE BUSINESS OF 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 117 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. The Company also offers outsourcing options to its customers,
including operation of water purification and wastewater treatment systems and
the provision of water by the gallon. A substantial part of Arrowhead's
business is in the build, own and operate segment of the industry. Through
that subsidiary's Pure Water Management Program and the Nalco JV, the Company
will install and operate integrated water treatment units at customers'
production 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:
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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 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 acquisition of
Arrowhead and the Nalco JV. 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 pursued the Nalco
JV to finance such construction. In addition, the 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
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the acquired companies also generally provides synergies, such as cross-
selling and significant sharing of experience and technology.
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.
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.
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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,
-------------------------------
1993 1994 1995
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<S> <C> <C> <C>
Sales by product category:
Capital equipment............................... 58% 63% 60%
Services and operations......................... 7% 19% 19%
Replacement parts, consumables and other........ 35% 18% 21%
</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
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circuit board manufacturing, electroplating, galvanizing and anodizing. The
Company's key 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.
9
<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 has 117 sales and service facilities worldwide, including 35
franchise dealers, and has approximately 122 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, 1994 and 1995, the Company's
international sales were approximately $24,018,000, $37,841,000 and
$104,132,000, respectively.
BACKLOG AND SEASONALITY
The Company had the following backlog of purchase orders for its products as
of April 30, 1994 and 1995. 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>
April 30, 1994 $ 72,190,000
April 30, 1995 $140,421,000
</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
10
<PAGE>
with advanced research and development capabilities. The Company's research
and development expenditures for the fiscal years ended March 31, 1993, 1994
and 1995 were approximately $2,525,000, $5,350,000 and $4,408,000,
respectively.
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.
11
<PAGE>
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.
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.
12
<PAGE>
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 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.
13
<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.
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
14
<PAGE>
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 May 1, 1995, the Company had 2,047 full-time employees assigned to the
Company's various offices and facilities, including 607 employees in Europe
and Latin America. 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, 1998. 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.
15
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company as of June 1, 1995 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 51 Senior Vice President--Europe
Andrew D. Seidel 33 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
</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 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, as European
16
<PAGE>
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 LLP
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
1990 Mr. Pelegrin was employed in various senior sales and managerial
positions with E.I. duPont de Nemours and Company.
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.
17
<PAGE>
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.
All of the officers of the Company serve at the pleasure of the Board. Each
of the officers, other than Mr. Reyners, has an Executive Retention Agreement
with the Company providing for a severance payment, primarily in the event
their employment is terminated, including following a change in control. Mr.
Reyners has a separate severance agreement and Mr. Swartley has a separate
employment agreement.
There are no family relationships among any of the above individuals.
18
<PAGE>
ITEM 2--PROPERTIES
The following lists the principal facilities of the Company as of April 30,
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/Arrowhead 300 Tri-State 14,758 (leased) 5/31/99
International
Lincolnshire, IL
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
U.S. Filter/Permutit Wythenshawe, 30,000 (leased) 3/25/05
Manchester M23
9LE
Great Britain
</TABLE>
19
<PAGE>
ITEM 3--LEGAL PROCEEDINGS
None.
ITEM 4--SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The following action was approved at a Special Meeting of Stockholders of
the Company held on February 17, 1995, with the number of votes cast for,
against or withheld indicated, separately:
An amendment to the Company's restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock of the Company
from 25,000,000 shares to 75,000,000 shares;
<TABLE>
<CAPTION>
FOR AGAINST WITHHELD
--- ------- --------
<S> <C> <C>
14,204,119 227,652 21,320
</TABLE>
PART II
ITEM 5--MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Common Stock Price Summary. 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 June 22, 1995, the last reported sales price for the Company's common
stock on the New York Stock Exchange was $19.00 per share.
(b) Holders. The number of holders of record of Registrant's common stock on
June 1, 1995 was 4,017.
(c) Dividends. 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 and First Interstate Bank of California, no
dividends may be paid on the Common Stock without the consent of those banks.
20
<PAGE>
ITEM 6--SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,(1)
----------------------------------------------
1991 1992(2) 1993(3) 1994(4) 1995(5)
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA: (in thousands, except per share data)
Revenues....................... $42,624 $62,840 $128,376 $180,421 $272,032
Cost of sales.................. 29,780 48,259 93,896 132,811 193,432
------- ------- -------- -------- --------
Gross profit................... 12,844 14,581 34,480 47,610 78,600
Selling, general and
administrative expenses........ 14,692 20,871 33,832 52,484 64,015
------- ------- -------- -------- --------
Operating income (loss)........ (1,848) (6,290) 648 (4,874) 14,585
Interest expense............... (763) (1,016) (1,327) (2,077) (5,384)
Other income (expense)......... 287 770 639 1,174 1,787
Provision (benefit) for income
taxes.......................... 595 51 298 (3,236) 2,657
------- ------- -------- -------- --------
Income (loss) before
extraordinary items........... (2,919) (6,587) (338) (2,541) 8,331
Extraordinary items(6)......... 411 -- 405 -- --
------- ------- -------- -------- --------
Net income (loss).............. $(2,508) $(6,587) $ 67 $ (2,541) $ 8,331
======= ======= ======== ======== ========
Weighted average number of
common shares outstanding(8).. 5,593 7,846 10,095 12,453 15,026
PER COMMON SHARE DATA:(7)(8)
Income (loss) before
extraordinary items............ (0.52) (0.88) (0.16) (0.26) 0.51
Extraordinary items(6)......... 0.07 -- 0.04 -- --
------- ------- -------- -------- --------
Net income (loss).............. $ (0.45) $ (0.88) $ (0.12) $ (0.26) $ 0.51
======= ======= ======== ======== ========
CONSOLIDATED BALANCE SHEET DATA
(END OF PERIOD):
Working capital................ $ 4,845 $11,455 $ 23,471 $ 66,018 $ 57,670
Total assets................... 26,168 89,501 121,178 253,185 378,728
Long-term debt, including
current portion................ 7,773 10,002 5,012 4,913 10,825
Convertible subordinated debt.. -- -- -- 60,000 105,000
Stockholders' equity .......... 8,339 41,219 79,631 125,610 137,144
</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, 1991, 1992, 1993, 1994 and 1995 are presented below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
----------------------------------------------
1991 1992(2) 1993(3) 1994(4) 1995(9)
------- ------- -------- -------- --------
REVENUES: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Company (as previously
reported).............. $23,249 $41,238 $101,397 $147,870 $272,032
Liquipure............... 19,375 21,602 26,979 32,551 --
------- ------- -------- -------- --------
Combined................ $42,624 $62,840 $128,376 $180,421 $272,032
------- ------- -------- -------- --------
GROSS PROFIT:
Company (as previously
reported).............. $ 7,213 $ 8,692 $ 27,166 $ 39,046 $ 78,600
Liquipure............... 5,631 5,889 7,314 8,564 --
------- ------- -------- -------- --------
Combined................ $12,844 $14,581 $ 34,480 $ 47,610 $ 78,600
======= ======= ======== ======== ========
OPERATING INCOME (LOSS):
Company (as previously
reported).............. $ 1,416 $(4,165) $ 4,708 $ 2,089 $ 14,585
Liquipure............... (3,264) (2,125) (4,060) (6,963) --
------- ------- -------- -------- --------
Combined................ $(1,848) $(6,290) $ 648 $ (4,874) $ 14,585
======= ======= ======== ======== ========
NET INCOME (LOSS):
Company (as previously
reported)(6)........... $ 899 $(3,964) $ 4,402 $ 4,986 $ 8,331
Liquipure............... (3,407) (2,623) (4,335) (7,527) --
------- ------- -------- -------- --------
Combined................ $(2,508) $(6,587) $ 67 $ (2,541) $ 8,331
======= ======= ======== ======== ========
NET INCOME (LOSS) PER
COMMON SHARE:(6)(7)(8)
As previously reported.. $ 0.24 $ (0.71) $ 0.38 $ 0.41 $ 0.51
======= ======= ======== ======== ========
As restated............. $ (0.45) $ (0.88) $ (0.12) $ (0.26) $ 0.51
======= ======= ======== ======== ========
</TABLE>
--------
Footnotes, which are applicable to both tables, are included on the following
page.
21
<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.
(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 of results of Ionpure, acquired December 1, 1993 and
accounted for as a purchase, for the year ended March 31, 1994. 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 extraordinary item of $411,000 for the fiscal year ended March
31, 1991, 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.
(7) 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, $701,000 for the fiscal year ended March 31,
1994 and $715,000 for the fiscal year ended March 31, 1995, 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.
(8) Reflects a 3-for-2 stock split effective December 5, 1994.
(9) The financial data for the year ended March 31, 1995 include three months
of results of Liquipure prior to the merger and nine months of results of
Liquipure after the merger. In addition, the net income (loss) per common
share for the year ended March 31, 1995 reflects the issuance of 1,852,221
shares of Common Stock in conjunction with the Liquipure merger.
22
<PAGE>
ITEM 7--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
Annual Report.
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. These
acquisitions have enabled the Company to differentiate itself from its
competitors as one of the most comprehensive providers of water treatment
services, and generally provide the Company with economies of scale through
enhanced purchasing power, increased asset utilization, and decreased
operating expenses due to rationalization of operations. 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
MARCH 31,
---------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Revenues................................................ 100.0 % 100.0 % 100.0 %
Cost of sales........................................... 73.1 73.6 71.1
Gross profit............................................ 26.9 26.4 28.9
Selling, general and administrative expenses............ 26.4 29.1 23.5
Operating income (loss)................................. 0.5 (2.7) 5.4
Interest expense........................................ 1.0 1.2 2.0
Income (loss) before extraordinary items................ (0.3) (1.4) 3.1
Net income (loss)....................................... 0.1 (1.4) 3.1
</TABLE>
The following table sets forth a percentage breakdown of the Company's
sales, as restated, by product category for the past three fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MARCH 31,
---------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Sales by product category:
Capital equipment..................................... 58% 63% 60%
Services and operations............................... 7% 19% 19%
Replacement parts, consumables and other.............. 35% 18% 21%
</TABLE>
TWELVE MONTHS ENDED MARCH 31, 1995 ("FISCAL 1995") COMPARED WITH TWELVE MONTHS
ENDED MARCH 31, 1994 ("FISCAL 1994")
Revenues. Revenues for fiscal 1995 were $272,032,000, an increase of
$91,611,000 from $180,421,000 for fiscal 1994. Approximately 84% of this
increase was due to acquisitions completed by the Company in fiscal 1994
23
<PAGE>
and 1995. Company revenues increased by approximately $15,000,000 (or 16%)
excluding the effect of these acquisitions. Fiscal 1995 revenues for capital
equipment were 60%, while revenues for services and operations totaled 19% and
replacement parts and consumables totaled 21%. Based upon the Company's
emphasis on increasing its services and operations revenue as well as
replacement parts and consumables revenue, sales by product category for these
recent acquisitions during fiscal 1995 were 25.8% for services and operations
and 30.3% for replacement parts and consumables. See Note 9 of Notes to
Consolidated Financial Statements related to acquisitions.
Gross Profit. Gross profit increased 65.1% to $78,600,000 for fiscal 1995
from $47,610,000 for fiscal 1994. Total gross profit as a percentage of
revenue ("gross margin") increased to 28.9% for fiscal 1995, compared to 26.4%
for fiscal 1994. This increase in gross margin for fiscal 1995 as compared to
fiscal 1994 was due primarily to the Company's emphasis on and expansion of
its higher gross margin service, operations and consumables business during
the most recent period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $64,015,000 for fiscal 1995 from
$52,484,000 for fiscal 1994. Selling, general and administrative expenses as a
percentage of revenues decreased to 23.5% during fiscal 1995, compared to
29.1% for fiscal 1994. The decrease in the percentage of selling, general and
administrative expenses to revenues for fiscal 1995 as compared to fiscal 1994
was due primarily to the Company's emphasis on cost reductions and
administrative efficiencies gained through economies of scale. In addition,
fiscal 1994 selling, general and administrative expenses include $3,738,000 of
charges related to the write-off of certain intangibles in the Company's
Continental Penfield subsidiary.
Interest Expense. Interest expense increased to $5,384,000 for fiscal 1995
from $2,077,000 for fiscal 1994. Interest expense for fiscal 1995 consists
primarily of interest on the Company's 5% and 4.5% Convertible Subordinated
Debentures issued October 20, 1993 and August 31, 1994, respectively, and
borrowings under the Company's bank line of credit.
Income Taxes. Income tax expense increased to $2,657,000 for fiscal 1995
from a benefit of $3,236,000 for fiscal 1994. This increase was attributable
to increased profits and the Company's partial recognition during fiscal 1994
of the future income tax benefit related to federal net operating loss
carryforwards. As of March 31, 1995, the Company has net operating loss
carryforwards in France of approximately $20,351,000 and other European
countries of approximately $6,400,000 for which no financial statement benefit
has been recognized. In addition, the Company has net operating loss
carryforwards generated from Liquipure of approximately $13,500,000 for which
no financial statement benefit has been recognized. Future recognition of
these carryforwards will be reflected if the above operations generate
sufficient earnings before the expiration periods of the loss carryforwards.
In addition, the benefit of the French loss carryforwards must be shared
equally between the Company and Alcoa until March 31, 1997. See Note 14 of
Notes to Consolidated Financial Statements related to income taxes.
Net Income. Net income increased to $8,331,000 for fiscal 1995 from a net
loss of $2,541,000 in fiscal 1994. Net income per common share increased to
$.51 per share (with 15,026,000 weighted average common shares outstanding)
for fiscal 1995 from a net loss of $.26 per common share (with 12,453,000
weighted average common shares outstanding) for fiscal 1994, after deducting
$.06 and $.05 per common share for dividends on the Company's preferred shares
in fiscal 1994 and 1995, respectively.
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 48% of this
increase during fiscal 1994 was the result of the Company's acquisition of
Ionpure in December 1993. Company revenues increased by approximately
$12,000,000 (or 13%) excluding the effect of acquisitions completed by the
Company in fiscal 1993 and 1994. The acquisition of Ionpure was accounted for
as a purchase, and therefore its results were included in the operations of
the Company for four
24
<PAGE>
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. Selling, general and
administrative expenses as a percentage of revenues increased to 29.1% during
fiscal 1994, compared to 26.4% 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%.
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.
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 March 31, 1995 the Company had working capital of
$57,670,000, including cash and short-term investments of $18,577,000. The
Company's long-term debt at March 31, 1995 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 notes payable
totaling $10,825,000 and bearing interest at rates ranging from 2% to 9.21%.
As of March 31, 1995, the Company had an available bank line of credit of
$45,000,000, of which there were outstanding borrowings of $24,538,000 and
outstanding letters of credit of $8,689,000.
As of March 31, 1995, the Company had net operating loss carryforwards
generated from SCT of approximately $20,351,000, for which no financial
statement benefit has been recognized. Approximately
25
<PAGE>
$4,044,000 of the net operating loss carryforwards will expire in the years
1995 to 2000, while the remainder have an indefinite carryforward period. The
Company also has net operating loss carryforwards in other European countries
of approximately $6,400,000 for which no financial statement benefit has been
recognized. No benefit has been given to these net operating loss
carryforwards because of the limited carryforward periods or the uncertain
business conditions relating to the operations giving rise to such
carryforwards. Additionally, as of March 31, 1995, the Company has net
operating loss carryforwards generated from Liquipure of approximately
$13,500,000 for which no financial statement benefit had been recognized.
These operating loss carryforwards will expire in the years 2004 to 2008, and
can be used only against future taxable income of Liquipure. Future
recognition of these net operating loss carryforwards will occur if the
operations in SCT and Liquipure generate sufficient 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 also has available at March 31, 1995, other net operating loss
carryforwards for Federal income tax purposes of approximately $16,062,000
which expire in 2002 and 2010.
The Company believes its current cash position, cash flow from operations,
and available borrowings under the Company's line of credit, will be adequate
to meet its anticipated cash needs for working capital, revenue growth,
scheduled debt repayment and capital investment objectives for the next twelve
months.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to part IV, Item 14 of this Annual Report for the
information required by Item 8.
ITEM 9--CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this Item (other than the information regarding
executive officers set forth at the end of Item 1 of Part I of this Form 10-K)
will be contained in the Company's definitive Proxy Statement for its 1995
Annual Meeting of Stockholders, and is incorporated herein by reference.
ITEM 11--EXECUTIVE COMPENSATION
The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 1995 Annual Meeting of Stockholders, and is
incorporated herein by reference.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 1995 Annual Meeting of Stockholders, and is
incorporated herein by reference.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 1995 Annual Meeting of Stockholders, and is
incorporated herein by reference.
26
<PAGE>
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(A) (1), (2) FINANCIAL STATEMENTS AND SCHEDULE:
Consolidated Balance Sheets as of March 31, 1994 and 1995
Consolidated Statements of Operations for the Years Ended March 31, 1993,
1994 and 1995
Consolidated Statements of Shareholders' Equity for the Years Ended March
31, 1993, 1994 and 1995
Consolidated Statements of Cash Flows for the Years Ended March 31, 1993,
1994 and 1995
Notes to Consolidated Financial Statements
(A) (3) EXHIBITS:
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger dated as of June 17, 1994, without
exhibits and schedules, by and among United States Filter Corporation,
Illinois Water Treatment, Inc., Liquipure Technologies, Inc., Warburg,
Pincus Capital Company, L.P. and John S. Swartley, and a related
Transfer, Registration and Other Rights Agreement among United States
Filter Corporation, Warburg, Pincus Capital Company, L.P., and the
individual stockholders identified therein.(1)
2.2 Stock Purchase Agreement, dated as of August 31, 1994 without exhibits
and schedules, by and among United States Filter Corporation, IP
Holding Company, Ionpure Technologies, S.r.L., Laidlaw, Inc., Laidlaw
Investments (Barbados) Ltd., Laidlaw International Investments
(Luxembourg) S.A. and Smogless S.p.A., and the related (i) Ionpure
Technologies, S.r.L. Subordinated Promissory Notes and United States
Filter Corporation Guaranty (ii) Common Stock Purchase Warrants of
United States Filter Corporation, and (iii) Transfer, Registration and
Other Rights Agreement by and among United States Filter Corporation,
Laidlaw International Investments (Barbados) Ltd., Marfit, S.p.A.,
Laidlaw, Inc., and Ing. Gilberto Cominetta.(2)
2.3 Stock Purchase Agreement dated as of February 27, 1995, by and between
the B.F. Goodrich Company and United States Filter Corporation.(3)
3.1 Certificate of Incorporation, as amended and restated.(4)
3.2 Certificate of Amendment of the Restated Certificate of Incorporation
dated September 29, 1992.(5)
3.3 Certificates of Amendment of the Restated Certificate of Incorporation
dated October 28, November 30 and December 1, 1993.(6)
3.4 Certificate of Amendment of the Restated Certificate of Incorporation
dated March 14, 1994.
3.5 Certificate of Designation, Preferences, Rights and Limitations of
Preferred Stock.(7)
3.6 Certificate of Designations, Preferences, Rights and Limitations of
Series A Voting Cumulative Convertible Preferred Stock.(8)
3.7 Certificate of Correction to the Certificate for the Series A Voting
Cumulative Preferred Stock.(9)
3.8 Certificate of Designation Preferences, Rights and Limitations of
Series B Voting Convertible Preferred Stock.(2)
3.9 Bylaws of the Company, as amended and restated.(4)
4.0 5% Convertible Subordinated Debenture Indenture dated as of October 20,
1993 between United States Filter Corporation and The First National
Bank of Boston, as Trustee.(10)
10.1 License Agreement dated June 25, 1981 between George A. Hormel &
Company and Remsco Associates and Assignment and Assumption Agreement
dated April 1, 1984 between Remsco Associates and Lyco, Inc.(11)
</TABLE>
27
<PAGE>
<TABLE>
<C> <S>
10.2 License Agreements dated November 22, 1989 between Millipore
Corporation, Millipore Investment Holdings Limited and IP Holding
Company.(12)
10.3 United States Filter Corporation 1991 Employees Stock Option Plan, as
amended through September 14, 1994.(13)
10.4 United States Filter Corporation 1991 Directors Stock Option Plan, as
amended through September 14, 1994.(13)
10.5 Employment Agreement dated July 8, 1994 between John S. Swartley and
United States Filter Corporation.(13)
10.6 Form of Executive Retention Agreement.(14)
10.7 Form of Executive Retirement Plan.(14)
21 Schedule of Subsidiaries.(14)
23 Consent of Accountants.(14)
24 Powers of Attorney.(14)
27 Financial Data Schedule
</TABLE>
--------
(1) Previously filed with the Company's report on Form 8-K dated June 17,
1994 and incorporated herein by reference.
(2) Previously filed with the Company's report on Form 8-K dated October 4,
1994 and incorporated herein by reference.
(3) Previously filed with the Company's report on Form 8-K dated March 2,
1995 and incorporated herein by reference.
(4) Previously filed with the Company's Form S-1 registration statement as
amended (file number 33-41089) filed on June 7, 1991 and incorporated
herein by reference.
(5) Previously filed with the Company's report on Form 10-Q for the period
ended September 30, 1992 and incorporated herein by reference.
(6) Previously filed with the Company's report on Form 8-K dated December 1,
1993 and incorporated herein by reference.
(7) Previously filed with the Company's report on Form 10-Q for the period
ended June 30, 1990 and incorporated herein by reference.
(8) Previously filed with the Company's report on Form 8-K dated January 20,
1992.
(9) Previously filed with the Company's annual report on Form 10-K for the
year ended March 31, 1992 and incorporated herein by reference.
(10) Previously filed with the Company's report on Form 8-K dated October 20,
1993 and incorporated herein by reference.
(11) Previously filed with the Company's registration statement on Form S-4 as
amended (Registration No. 33-16459) filed on September 12, 1987 and
incorporated herein by reference.
(12) Previously filed with the Company's annual report on Form 10-K for the
year ended March 31, 1994 and incorporated herein by reference.
(13) Previously filed with the Company's report on Form 10-Q for the period
ending September 30, 1994 and incorporated herein by reference.
(14) Previously filed with the Company's report on Form 10-K dated June 28,
1995.
(B) REPORTS ON FORM 8-K:
The Company filed reports on Form 8-K during the quarter ended March 31,
1994 as follows, including as referenced, the applicable items under that
Form: January 13, 1995 (item 5); January 20, 1995 (item 2); February 8, 1995
(item 5); February 27, 1995 (item 5); March 2, 1995 (item 2); and March 17,
1995 (item 5).
28
<PAGE>
(C) EXHIBITS:
See (a) (3) above.
(D) FINANCIAL STATEMENT SCHEDULE:
Accountants' Report on Financial Statement Schedule and Consent.
SCHEDULE
VIII Valuation and Qualifying Accounts and Reserves
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because such schedules are not required under the related instructions or are
inapplicable or because the information required is included in the
consolidated financial statements or notes thereto.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
UNITED STATES FILTER CORPORATION
Date: August 9, 1995 By: /s/ Kevin L. Spence
------------------------------
Kevin L. Spence
Chief Financial and
Accounting Officer
30
<PAGE>
United States Filter Corporation
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Financial Statements:
Consolidated Balance Sheets as of March 31, 1994 and 1995................ F-3
Consolidated Statements of Operations for the Years Ended March 31, 1993,
1994 and 1995........................................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended March
31, 1993, 1994 and 1995................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended March 31, 1993,
1994 and 1995........................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Independent Auditors' Report on Schedule and Consent...................... F-16
Schedule:
Schedule VIII--Valuation and Qualifying Accounts......................... F-17
</TABLE>
F-1
<PAGE>
United States Filter Corporation and Subsidiaries
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, 1994 and 1995, and the re-
lated consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended March 31, 1995.
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 conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United States Fil-
ter Corporation and subsidiaries as of March 31, 1994 and 1995, and the results
of their operations and their cash flows for each of the years in the three-
year period ended March 31, 1995, in conformity with generally accepted ac-
counting principles.
KPMG Peat Marwick LLP
Orange County, California
June 1, 1995
F-2
<PAGE>
United States Filter Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1994 1995
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 2)............... $ 18,031,000 $ 16,159,000
Short-term investments (note 3).................. 15,625,000 2,418,000
Accounts receivable, less allowance for doubtful
accounts of $1,857,000 at March 31, 1994 and
$3,272,000 at March 31, 1995 (notes 10 and 11).. 42,652,000 89,352,000
Costs and estimated earnings in excess of
billings on uncompleted contracts (note 10)..... 22,172,000 20,016,000
Inventories (note 4)............................. 24,608,000 34,707,000
Prepaid expenses................................. 1,643,000 2,858,000
Deferred taxes (note 14)......................... 2,598,000 3,482,000
Other current assets............................. 2,881,000 6,495,000
------------ ------------
Total current assets........................... 130,210,000 175,487,000
------------ ------------
Property, plant and equipment, net (notes 5 and
11).............................................. 51,080,000 68,395,000
Investment in leasehold interest, net (note 6).... 15,766,000 20,390,000
Deferred taxes (note 14).......................... 1,208,000 --
Cost in excess of net assets of businesses
acquired, net (notes 7 and 9).................... 51,199,000 99,162,000
Other assets (note 8)............................. 3,722,000 15,294,000
------------ ------------
$253,185,000 $378,728,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 21,528,000 $ 35,846,000
Accrued liabilities (note 13).................... 29,063,000 33,727,000
Current portion of long-term debt (note 11)...... 2,111,000 2,033,000
Notes payable (note 11).......................... 7,114,000 24,538,000
Billings in excess of costs and estimated
earnings on uncompleted contracts (note 10)..... 1,946,000 15,940,000
Other current liabilities........................ 2,430,000 5,733,000
------------ ------------
Total current liabilities...................... 64,192,000 117,817,000
------------ ------------
Long-term debt, excluding current portion (note
11).............................................. 2,802,000 8,792,000
Convertible subordinated debentures (note 12)..... 60,000,000 105,000,000
Deferred taxes (note 14).......................... -- 8,028,000
Other liabilities................................. 581,000 1,947,000
------------ ------------
Total liabilities.............................. 127,575,000 241,584,000
------------ ------------
Shareholders' equity (notes 9 and 15):
Series A voting cumulative convertible preferred
stock, $.10 par value, $25 liquidation
preference, 880,000 shares authorized and issued
at March 31, 1994 and 1995...................... 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
March 31, 1995.................................. -- 3,506,000
Common stock par value $.01; authorized
75,000,000 shares; 14,296,209 and 15,220,003
shares issued and outstanding at March 31, 1994
and 1995, respectively.......................... 95,000 152,000
Additional paid-in capital....................... 129,216,000 131,654,000
Currency translation adjustment.................. (256,000) (2,026,000)
Accumulated deficit.............................. (25,516,000) (18,213,000)
------------ ------------
Total shareholders' equity..................... 125,610,000 137,144,000
Commitments and contingencies (notes 11, 15, 16
and 18)..........................................
Subsequent events (note 20).......................
------------ ------------
$253,185,000 $378,728,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
United States Filter Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues............................ $128,376,000 $180,421,000 $272,032,000
Costs of sales...................... 93,896,000 132,811,000 193,432,000
------------ ------------ ------------
Gross profit..................... 34,480,000 47,610,000 78,600,000
Selling, general and administrative
expenses........................... 33,832,000 52,484,000 64,015,000
------------ ------------ ------------
Operating income (loss) ......... 648,000 (4,874,000) 14,585,000
Other income (expense):
Interest expense................... (1,327,000) (2,077,000) (5,384,000)
Interest and other income.......... 639,000 1,174,000 1,787,000
------------ ------------ ------------
(688,000) (903,000) (3,597,000)
------------ ------------ ------------
Income (loss) before income taxes
and extraordinary item.......... (40,000) (5,777,000) 10,988,000
Income taxes (note 14).............. 298,000 (3,236,000) 2,657,000
------------ ------------ ------------
Income (loss) before
extraordinary item.............. (338,000) (2,541,000) 8,331,000
Extraordinary item--forgiveness of
debt (note 18)..................... 405,000 -- --
------------ ------------ ------------
Net income (loss)................ $ 67,000 $ (2,541,000) $ 8,331,000
============ ============ ============
Income (loss) per common share
(primary and fully diluted) (notes
1 and 15):
Income (loss) before extraordinary
item (after reduction for
dividends and accretions on
preferred stock of $.13, $.06 and
$.05 for the years ended March 31,
1993, 1994 and 1995, respectively. $ (.16) (.26) .51
Extraordinary item................. .04 -- --
------------ ------------ ------------
Net income (loss) per common
share........................... $ (.12) $ (.26) $ .51
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
United States Filter Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years ended March 31, 1993, 1994 and 1995
-----------------------------------------------------------------------------------------------
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,
1992, as previously
reported............... 880,000 $21,454,000 6,874,623 $ 46,000 $ 28,505,000 $ -- $ (9,039,000) $ 40,966,000
Restatement for acquisi-
tion of Liquipure, ac-
quired through pooling
of interests (note 9).. -- -- 1,852,221 12,000 24,801,000 -- (12,025,000) 12,788,000
--------- ----------- ---------- -------- ------------ ----------- ------------ ------------
Balance at March 31,
1992, restated......... 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
employee............... -- -- 805 -- 14,000 -- -- 14,000
Dividends paid on
preferred 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
convertible debentures. -- -- 31,999 -- 200,000 -- -- 200,000
Accretion of dividends
on preferred stock..... -- 617,000 -- -- -- -- (617,000) --
Currency translation
adjustment............. -- -- -- -- -- 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
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
(note 9)............... -- -- -- -- -- -- (313,000) (313,000)
Compensation related to
excess of fair value of
director stock options
over exercise price
(note 15).............. -- -- -- -- 122,000 -- -- 122,000
Exercise of common stock
options (note 15)...... -- -- 160,693 2,000 1,420,000 -- -- 1,422,000
Issuance of common stock
in connection with
acquisitions (note 9).. -- -- 704,101 5,000 8,982,000 -- -- 8,987,000
Dividends paid on
preferred stock (note
15).................... -- -- -- -- -- -- (715,000) (715,000)
Reduction in valuation
of common stock issued
in connection with
Ionpure acquisition
(note 9)............... -- -- -- -- (9,123,000) -- -- (9,123,000)
Preferred stock issued
in connection with
acquisition of Smogless
(note 9)............... 185,185 3,506,000 -- -- -- -- -- 3,506,000
Issuance of common stock
to pay off indebtedness
(note 9)............... -- -- 59,000 -- 700,000 -- -- 700,000
Par value of shares
issued in connection
with three-for-two
stock split (note 15).. -- -- -- 50,000 (50,000) -- -- --
Income tax benefit from
exercise of stock
options................ -- -- -- -- 387,000 -- -- 387,000
Currency translation
adjustment............. -- -- -- -- -- (1,770,000) -- (1,770,000)
Net income.............. -- -- -- -- -- -- 8,331,000 8,331,000
--------- ----------- ---------- -------- ------------ ----------- ------------ ------------
Balance at March 31,
1995................... 1,065,185 $25,577,000 15,220,003 $152,000 $131,654,000 $(2,026,000) $(18,213,000) $137,144,000
========= =========== ========== ======== ============ =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
United States Filter Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................... $ 67,000 $ (2,541,000) $ 8,331,000
Adjustments to reconcile 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) 1,377,000
Depreciation and amortization..... 4,352,000 7,015,000 12,770,000
Decrease in minority interest..... (20,000) -- --
Gain on extinguishment of debt.... (119,000) -- --
Interest converted to equity...... 310,000 -- --
Provision for doubtful accounts... 90,000 661,000 1,558,000
(Gain) loss on sale of property
and equipment.................... (5,000) (5,000) 388,000
Stock and stock option
compensation..................... 69,000 80,000 122,000
Write-off of goodwill............. -- 3,738,000 --
Change in operating assets and
liabilities:
(Increase) decrease in accounts
receivable..................... (2,546,000) (8,504,000) (4,514,000)
Increase in costs and estimated
earnings in excess of billings
on uncompleted contracts....... (5,099,000) (12,100,000) 2,171,000
(Increase) decrease in
inventories.................... (1,079,000) (1,964,000) (6,524,000)
(Increase) decrease in prepaid
expenses and other assets...... (3,296,000) 894,000 (3,544,000)
Increase (decrease) in accounts
payable and accrued expenses... (2,547,000) 7,625,000 (16,273,000)
Increase (decrease) in billings
in excess of costs and
estimated earnings on
uncompleted contracts.......... (1,094,000) 1,384,000 2,481,000
Increase (decrease) in other
liabilities.................... (560,000) (3,000) (2,888,000)
------------ ------------ ------------
Net cash provided by (used in)
operating activities.......... (11,882,000) (7,526,000) (4,545,000)
------------ ------------ ------------
Cash flows from investing activities:
Investment in leasehold interest.... -- (15,766,000) (6,397,000)
Purchase of property, plant and
equipment.......................... (4,101,000) (6,930,000) (16,214,000)
Proceeds from disposal of equipment. 29,000 182,000 22,000
Purchase of minority interest....... (345,000) -- --
Purchase of short-term investments.. -- (15,625,000) --
Sale of short-term investments...... -- -- 13,207,000
Payment for purchase of
acquisitions, net of cash acquired. (9,088,000) (362,000) (1,787,000)
------------ ------------ ------------
Net cash used in investing
activities.................... (13,505,000) (38,501,000) (11,169,000)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from sale of common
stock.............................. 32,412,000 -- --
Net proceeds from sale of
convertible subordinated
debentures......................... -- 57,923,000 --
Proceeds from exercise of common
stock options and warrants......... 209,000 1,242,000 1,422,000
Principal payments of debt.......... (13,841,000) (651,000) (4,512,000)
Dividends paid on preferred stock... (660,000) (701,000) (715,000)
Principal payments and buy-out of
capital lease obligations.......... (5,331,000) -- --
Proceeds from borrowings on note
payable............................ 1,779,000 3,306,000 17,647,000
------------ ------------ ------------
Net cash provided by financing
activities.................... 14,568,000 61,119,000 13,842,000
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................... (10,819,000) 15,092,000 (1,872,000)
Cash and cash equivalents at
beginning of period................. 13,758,000 2,939,000 18,031,000
------------ ------------ ------------
Cash and cash equivalents at end of
period.............................. $ 2,939,000 $ 18,031,000 $ 16,159,000
============ ============ ============
Supplemental disclosures of cash flow
information:
Cash paid during the period for
interest........................... $ 1,323,000 $ 775,000 $ 5,390,000
============ ============ ============
Cash paid during the period for
income taxes....................... $ 199,000 $ 294,000 $ 173,000
============ ============ ============
Noncash investing and financing
activities consisted of the
following:
Common stock issued:
Satisfaction of debt.............. $ -- $ -- $ 700,000
Conversion of debentures.......... 200,000 -- --
Forgiveness of indebtedness......... 405,000 -- --
Property, plant and equipment
acquired under long-term
borrowings......................... 2,859,000 -- --
------------ ------------ ------------
$ 3,464,000 $ -- $ 700,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
United States Filter Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended March 31, 1993, 1994 and 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the financial statements of
United States Filter Corporation and its wholly owned subsidiaries (the "Compa-
ny") (see note 9). All significant intercompany accounts and transactions have
been eliminated in consolidation.
Revenue Recognition
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. 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 Com-
pany 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.
Products and Services
Sales of other products and services are recorded as products are shipped or
services rendered.
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 meth-
od, 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.
United States income taxes are not provided on the undistributed earnings of
its foreign subsidiaries as such earnings are intended to be indefinitely rein-
vested in those operations.
Foreign Currency Translation
In accordance with Statement of Financial Accounting Standard No. 52, "Foreign
Currency Translation," the assets and liabilities denominated in foreign cur-
rency 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 net income
(loss) are immaterial.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.
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 respective as-
sets which range from 3 to 25 years. Leasehold improvements are amortized on
the straight-line method over the lesser of their estimated useful lives or the
related 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 of each subsidiary. Based upon
its most recent analysis, the Company believes that no material impairment ex-
ists at March 31, 1995.
Investments in Unconsolidated Joint Ventures
Investments in unconsolidated joint ventures are accounted for using the equity
method, under which the Company's share of earnings or losses from these joint
ventures is reflected in income as earned and dividends are credited against
the investment when received.
Unamortized Debt Issuance Costs
Unamortized debt issuance costs, aggregating $1,961,000 and $1,735,000 at March
31, 1994 and 1995, respectively, 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 accrued for estimated
future warranty costs.
Income (Loss) per Common Share
Income (loss) per common share is computed based on the weighted average number
of shares outstanding. Common stock equivalents consisting of convertible pre-
ferred stock, options and warrants are included in the computation of income
(loss) per share when their effect is dilutive.
F-7
<PAGE>
United States Filter Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Primary and fully diluted income (loss) per common share were calculated as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss)....................... $ 67,000 $(2,541,000) $ 8,331,000
Dividends and accretion on preferred
stock.................................. (1,277,000) (701,000) (715,000)
----------- ----------- -----------
Adjusted net income (loss) applicable to
common shares.......................... $(1,210,000) $(3,242,000) $ 7,616,000
=========== =========== ===========
Weighted average shares outstanding..... 9,802,000 12,159,000 14,780,000
Add:
Exercise of options and warrants
reduced by the number of shares
purchased with proceeds............... 293,000 294,000 246,000
----------- ----------- -----------
Adjusted weighted average
shares outstanding..................... 10,095,000 12,453,000 15,026,000
=========== =========== ===========
Income (loss) per common share:
Net income (loss)...................... $ .01 $ (.20) $ .56
Dividends and accretion on preferred
stock................................. (.13) (.06) (.05)
----------- ----------- -----------
Adjusted income (loss) per common share. $ (.12) $ (.26) $ .51
=========== =========== ===========
</TABLE>
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 is-
suance 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 semiannual) on the Company's preferred shares, thus eliminating the in-
creasing 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, 1994 and 1995 consist of:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Raw materials........................................... $10,428,000 $14,243,000
Work-in-process......................................... 6,402,000 10,007,000
Finished goods.......................................... 7,778,000 10,457,000
----------- -----------
$24,608,000 $34,707,000
=========== ===========
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 1994 and 1995 consist of:
<TABLE>
<CAPTION>
1994 1995
----------- ------------
<S> <C> <C>
Land................................................. $ 2,471,000 $ 3,112,000
Buildings and improvements........................... 15,881,000 25,566,000
Equipment............................................ 31,214,000 35,133,000
Furniture and fixtures............................... 8,009,000 13,456,000
Vehicles............................................. 643,000 1,185,000
Construction in progress............................. 2,334,000 5,075,000
----------- ------------
60,552,000 83,527,000
Less accumulated depreciation........................ (9,472,000) (15,132,000)
----------- ------------
$51,080,000 $ 68,395,000
=========== ============
</TABLE>
(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 15 years, as
amended, 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. In May 1994, the Company completed the waste-
water treatment facility and began treatment operations. The Company is amor-
tizing the investment on a straight-line basis over the term of the concession.
Accumulated amortization at March 31, 1995 totaled $955,000. The investment is
stated at cost which does not exceed market based on projected non-discounted
future cash flows.
(7) COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED
Cost in excess of net assets of businesses acquired and accumulated amortiza-
tion at March 31, 1994 and 1995 consists of the following:
<TABLE>
<CAPTION>
1994 1995
----------- ------------
<S> <C> <C>
Cost in excess of net
assets of businesses
acquired............... $54,175,000 $104,831,000
Less accumulated
amortization........... (2,976,000) (5,669,000)
----------- ------------
$51,199,000 $ 99,162,000
=========== ============
</TABLE>
During fiscal 1994, the Company concluded that the excess of net assets of a
business 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, 1994 and 1995 consist of:
<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
Investment in unconsolidated joint ventures............. $ -- $ 7,406,000
Long-term receivables and advances...................... 548,000 3,508,000
Other assets at amortized cost:
Operating permits and development costs................ 717,000 1,819,000
Deferred debt costs.................................... 1,961,000 1,735,000
Patents................................................ 83,000 119,000
Other.................................................. 413,000 707,000
---------- -----------
$3,722,000 $15,294,000
========== ===========
</TABLE>
F-8
<PAGE>
United States Filter Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The above amounts reflect accumulated amortization of $1,051,000 and $1,373,000
at March 31, 1994 and 1995, respectively. The carrying amount of these other
assets approximate their fair value.
(9) ACQUISITIONS
On April 1, 1992, the Company completed an acquisition of Societe des
Ceramiques Techniques S.A. ("SCT") from Aluminum Company of America ("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 re-
paid 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 January 5, 1993, the Company completed an acquisition of The Permutit Compa-
ny, 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, accord-
ingly, 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>
Summarized below are the unaudited pro forma results of operations of the Com-
pany 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 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 purifica-
tion products and systems primarily for customers in the pharmaceutical, elec-
tronics, 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, according-
ly, 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 ac-
quired was $27,875,000 and is being amortized on a straight-line basis over 40
years. In fiscal 1995, the Company received and independent appraisal of the
value of the Company's common stock. As a result of the appraisal, shares is-
sued in connection with this acquisition had a value $9,123,000 less than orig-
inally ascribed to the common stock at the time of acquisition. Accordingly,
additional paid in capital and excess cost over fair value of net assets ac-
quired were reduced in fiscal 1995.
Supplementary information related to the acquisition of Ionpure for the March
31, 1994 consolidated statement of cash flows is as follows:
<TABLE>
<S> <C>
Assets acquired.................................................. $ 54,019,000
Liabilities assumed.............................................. (14,588,000)
Common stock issued.............................................. (39,331,000)
------------
Cash paid........................................................ 100,000
Fees and expenses................................................ 1,960,000
Less cash acquired............................................... (1,698,000)
------------
Net cash paid................................................... $ 362,000
============
</TABLE>
Summarized below are the unaudited pro forma results of operations of the Com-
pany as though Ionpure had been acquired on April 1, 1992:
<TABLE>
<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-9
<PAGE>
United States Filter Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Liquipure, based in Connecticut, provides service deionization products and
services through company operated and franchised dealers, and designs, manufac-
tures, installs and services ultrapure water purification products and systems
primarily for the pharmaceutical market and also manufactures standard, ultra-
pure water products for the laboratory market.
This transaction has been accounted for as a pooling of interests and, accord-
ingly, 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, 1993 and 1994 are as follows:
<TABLE>
<CAPTION>
1993 1994
------------ ------------
<S> <C> <C>
Revenues:
U.S. Filter (as previously reported).............. $101,397,000 $147,870,000
Liquipure......................................... 26,979,000 32,551,000
------------ ------------
Combined......................................... $128,376,000 $180,421,000
============ ============
Net income (loss):
U.S. Filter (as previously reported).............. $ 4,402,000 $ 4,986,000
Liquipure......................................... (4,335,000) (7,527,000)
------------ ------------
Combined......................................... $ 67,000 $ (2,541,000)
============ ============
</TABLE>
Separate unaudited results of operations of the combined entities for the pe-
riod April 1, 1994 to the effective date of the merger and included in the con-
solidated statement of operations for the year ended March 31, 1995 are as fol-
lows:
<TABLE>
<CAPTION>
NET
INCOME
REVENUES (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 2 of the Company's subsidiar-
ies, 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 acquisi-
tion of Smogless (excluding acquisition costs of $396,000) consists of the fol-
lowing: (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.
Smogless is headquartered in Milan, Italy and provides a broad range of serv-
ices for wastewater treatment, including feasibility studies, process evalua-
tion, plant design, construction and commissioning and design of specialized
machinery.
The acquisition of Smogless has been accounted for as a purchase and, accord-
ingly, the results of operations of Smogless for the 7 months ended March 31,
1995 are included in the Company's consolidated statement of operations for the
year ended March 31, 1995. The excess of cost over fair value of net assets ac-
quired 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 year ended March
31, 1995 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 Com-
pany as though Smogless had been acquired on April 1, 1993:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Revenues............................................ $230,538,000 $293,104,000
============ ============
Net income.......................................... $ 526,000 $ 10,400,000
============ ============
Net income (loss) per common share.................. $ (0.02) $ 0.64
============ ============
</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 capi-
tal 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 ac-
counted 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 March 31, 1995 consolidated statement of cash flows is as fol-
lows:
<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-10
<PAGE>
United States Filter Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $1,546,000 (including acquisition costs of $46,000)
consisted of $755,000 in cash and 56,250 shares of Company stock. Sation, lo-
cated in Barcelona, Spain, primarily services ultrapure water purification
products and had revenues in 1993 of approximately $2,000,000. The acquisition
has been accounted for as a purchase and, accordingly, the results of opera-
tions of Sation are included in the Company's consolidated statement of opera-
tions for the period from the date of acquisition to March 31, 1995. The excess
cost over the fair value of net assets acquired was $1,148,000 and is being am-
ortized on a straight-line basis over 40 years. Supplementary information re-
lated to the acquisition of Sation for the March 31, 1995 consolidated state-
ment 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 $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, in-
stalls and services water purification products and systems. Seral had revenues
of approximately $10,000,000 in 1993. The acquisition has been accounted for as
a purchase and, accordingly, the results of operations of Seral are included in
the Company's consolidated statement of operations for the period from the date
of acquisition to March 31, 1995. 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 ac-
quisition of Seral for the March 31, 1995 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 the 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 account-
ing rules relating to business acquisitions. This pro forma information does
not purport to be indicative of the results that actually would have been ob-
tained if the combined operations had been conducted during the periods pre-
sented and is not intended to be a projection of future results due to exten-
sive changes being made in the organization, facilities, personnel and other
costs of the acquired companies.
(10) CONTRACT BILLING STATUS
Information with respect to the billing status of contracts in process at March
31, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
1994 1995
------------ -------------
<S> <C> <C>
Contract costs incurred to date................... $ 41,704,000 $ 104,337,000
Estimated profits................................. 8,730,000 34,802,000
------------ -------------
Contract revenue earned to date................... 50,434,000 139,139,000
Less billings to date............................. (30,208,000) (135,063,000)
------------ -------------
Cost and estimated earnings in excess of billings,
net.............................................. $ 20,226,000 $ 4,076,000
============ =============
The above amounts are included in the accompanying consolidated balance sheets
as:
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... $ 22,172,000 $ 20,016,000
Billings in excess of costs and estimated earnings
on uncompleted contracts......................... (1,946,000) (15,940,000)
------------ -------------
$ 20,226,000 $ 4,076,000
============ =============
</TABLE>
Accounts receivable include retainage which 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
$1,341,000 and $1,734,000 at March 31, 1994 and 1995, respectively. Substan-
tially all retained balances are collectible within one year.
(11) LONG-TERM DEBT
Long-term debt at March 31, 1994 and 1995 consists of the following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Mortgage notes payable, secured by land and
buildings, interest rates ranging from 2% to 8.25%,
due in 1996 through 2009............................ $ 2,757,000 $ 7,396,000
Guaranteed bank notes, interest at 8.4%, due in 1997. -- 1,911,000
Unsecured notes payable, interest rates of prime +
1.5% (9.0% at March 31, 1995) to 9.21%, due in 1996
through 2004........................................ 1,217,000 1,353,000
Demand promissory notes payable to Liquipure
preferred stockholder............................... 700,000 --
Other................................................ 239,000 165,000
----------- -----------
4,913,000 10,825,000
Less: Current portion................................ (2,111,000) (2,033,000)
----------- -----------
$ 2,802,000 $ 8,792,000
=========== ===========
</TABLE>
F-11
<PAGE>
United States Filter Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The aggregate maturities of long-term debt for each of the five years sub-
sequent to March 31, 1995 are as follows: 1996, $2,033,000; 1997, $1,741,000;
1998, $1,633,000; 1999, $852,000; 2000, $834,000; and thereafter, $3,732,000.
The Company has an unsecured revolving line-of-credit with a bank of up
to $45,000,000, of which $24,538,000 was outstanding at March 31, 1995. The
line-of-credit expires September 1996 and bears interest at the bank's prime
rate plus 0.25% or, in certain circumstances, Eurodollar rate. At March 31,
1995, $8,689,000 of standby letters of credit were issued under this line-of-
credit.
The Company had a line of credit with a bank which terminated July 8, 1994,
bearing interest at prime plus 1.25%, secured by certain assets of the Company.
At March 31, 1994, $3,204,000 was outstanding.
(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 re-
purchase 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 in-
terest 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 (note 9).
(13) ACCRUED LIABILITIES
Accrued liabilities at March 31, 1994 and 1995 consist of the following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Accrued job costs, start-up and customer deposits....... $10,811,000 $ 8,783,000
Payroll, benefits and related taxes..................... 4,594,000 5,343,000
Warranty................................................ 2,607,000 2,991,000
Sales, property and other taxes......................... 907,000 4,081,000
Interest................................................ 1,456,000 1,540,000
Sales commission........................................ 1,453,000 1,441,000
Future remediation costs................................ 1,339,000 300,000
Other................................................... 5,896,000 9,248,000
----------- -----------
$29,063,000 $33,727,000
=========== ===========
</TABLE>
(14) INCOME TAXES
Income tax expense (benefit) from continuing operations for the years ended
March 31, 1993, 1994 and 1995 consist of:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ----------- ----------
<S> <C> <C> <C>
Federal:
Current..................................... $ -- $ -- $ --
Deferred.................................... -- (3,239,000) 1,314,000
State:
Current..................................... 298,000 3,000 157,000
Deferred.................................... -- -- (368,000)
Foreign:
Current..................................... -- -- --
Deferred.................................... -- -- 1,554,000
-------- ----------- ----------
$298,000 $(3,236,000) $2,657,000
======== =========== ==========
</TABLE>
Total income tax expense (benefit) differed from the amounts computed by apply-
ing the U.S. Federal corporate tax rate of 34% to income from continuing opera-
tions before income taxes and extraordinary item as a result of the following:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- ----------
<S> <C> <C> <C>
Expected income tax provision (benefit).. $ (14,000) $(1,964,000) $3,736,000
Permanent differences.................... 237,000 (377,000) (189,000)
State franchise tax, net of Federal tax
benefit................................. 295,000 2,000 105,000
Charge in lieu of income taxes........... 3,000 -- --
Change in balance of valuation allowance
for deferred tax assets allocated to
income tax expense...................... -- (3,201,000) (925,000)
Net operating loss carry-forward unable
to be utilized.......................... 1,611,000 2,559,000 --
Net operating loss carryforward utilized. (1,834,000) -- --
Difference in U.S. tax rate and foreign
tax rates............................... -- -- 511,000
Benefit of foreign net operating loss
carryforwards........................... -- (255,000) (581,000)
----------- ----------- ----------
$ 298,000 $(3,236,000) $2,657,000
=========== =========== ==========
</TABLE>
As of March 31, 1995, the Company has net operating loss carryforwards in
France of approximately $20,351,000. Approximately $4,044,000 of the operating
losses expire in the years 1995--2000, while the remainder have an indefinite
carryforward period. Any benefit of the French loss carryforward must be shared
equally between the Company and Alcoa until March 31, 1997. As of March 31,
1995, the Company also has net operating loss carryforwards in other European
countries of approximately $6,400,000.
Additionally, as of March 31, 1995, the Company has net operating loss
carryforwards generated from Liquipure of $14,597,000 of which $1,087,000 has
been recognized. These loss carryforwards expire from 2004 to 2008. These oper-
ating loss carryforwards can be used only against future taxable income of
Liquipure.
F-12
<PAGE>
United States Filter Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company also has available, at March 31, 1995, other net operating loss
carryforwards for U.S. Federal income tax purposes of approximately $16,692,000
which expire in 2002 to 2010.
The sources and tax effects of temporary differences between the financial
statement carrying amounts and tax basis of assets and liabilities are as fol-
lows:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards...................... $ 13,565,000 $ 16,456,000
Inventory......................................... 1,397,000 1,530,000
Allowance for doubtful accounts................... 556,000 673,000
Warranty.......................................... 715,000 645,000
Vacation.......................................... 275,000 347,000
Other accruals.................................... 419,000 118,000
Write-off of intangible........................... 1,260,000 --
Other............................................. 252,000 370,000
------------ ------------
18,439,000 20,139,000
Valuation allowances.............................. (11,357,000) (10,503,000)
------------ ------------
Total deferred tax assets........................ 7,082,000 9,636,000
Deferred tax liabilities:
Depreciation and amortization..................... 2,671,000 6,201,000
Prepaid expenses.................................. 605,000 201,000
Other............................................. -- 7,780,000
------------ ------------
3,276,000 14,182,000
------------ ------------
Net deferred tax assets/(liabilities)............ $ 3,806,000 $ (4,546,000)
============ ============
</TABLE>
The Company believes that it is more likely than not that the Federal net oper-
ating loss carryforwards will be utilized prior to their expiration. This be-
lief is based, on recent and anticipated future earnings and in part, on the
fact that the Company has completed several acquisitions during and including
the three years ended March 31, 1995 of companies with strong earnings poten-
tial. A valuation allowance of $10,503,000 at March 31, 1995 has been recog-
nized and consists primarily of state and foreign net operating losses which
may not be realized prior to their expiration periods.
(15) SHAREHOLDERS' EQUITY
Convertible Preferred Stock
In January 1992 and September 1994, the Company issued 880,000 shares of a new
Series A Cumulative Convertible Preferred Stock and 185,185 shares of a new Se-
ries B Convertible Preferred Stock, respectively, in connection with an acqui-
sitions. Each share of Series A and Series B Preferred Stock is convertible
into 1.5 shares of the Company's common stock subject to certain events, and
carries voting rights on an "as converted" basis. The Series A 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 Series A shares were entitled
to cumulative dividends of $0.75 per share annually ($0.375 semiannually) in-
creasing 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 Series A preferred shareholder agreed to a
level of $.812 per share annual dividend ($.406 semiannual) 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 Series A preferred
stock subject to certain conditions at a price of $30 per share plus accrued
dividends. Reacquired or redeemed shares of Series A 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 was
$50,000 which was transferred from additional paid-in-capital to the common
stock account. All references to income (loss) per share and other common stock
information in the accompanying consolidated financial statements and notes
thereto have been restated to reflect the 3-for-2 split.
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
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 mar-
ket value, and the option term is limited to five years. The total number of
shares of common stock available under the Plan is 1,837,500 shares. Each op-
tion 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 anniver-
sary of the grant date.
Under the Company's 1991 Director Stock Option Plan, the exercise price of op-
tions 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 8,000 shares of common stock. The total number of
shares available under the Director's stock option plan is 375,000 shares. Com-
pensation expense of $55,000, $80,000 and $122,000 was recorded in 1993 and
1994, and 1995, respectively, related to the Directors Stock Option Plan.
F-13
<PAGE>
United States Filter Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 1992............... 595,511 $ 3.67 to 34.00 $ 4,644,000
Options granted......................... 452,276 11.42 to 16.46 6,119,000
Options exercised....................... (45,300) 4.00 to 11.00 (209,000)
Options canceled........................ (2,625) 11.00 (29,000)
--------- --------------- -----------
Balance at March 31, 1993............... 999,862 3.67 to 34.00 10,525,000
Options granted......................... 479,639 11.42 to 16.17 6,904,000
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............... 1,283,921 3.67 to 16.17 15,642,000
Options granted......................... 575,146 12.54 to 15.88 7,355,000
Options exercised....................... (160,693) 3.67 to 14.75 (1,422,000)
Options canceled........................ (27,190) 11.00 to 14.75 (375,000)
--------- --------------- -----------
Balance at March 31, 1995............... 1,671,184 $ 3.67 to 16.17 $21,200,000
========= =============== ===========
</TABLE>
Warrants
In connection with the warrants, options, convertible debentures and preferred
stock, the Company has reserved 5,690,823 shares at March 31, 1994 and
8,895,169 shares at March 31, 1995 for future issuance.
(16) RETIREMENT PLANS
One of the Company's subsidiaries ("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. The accumulated benefit obligation under
this plan is not material to be consolidated financial statements.
The Company has a defined contribution plan (under IRC Section 401(k)) covering
substantially all salaried and hourly participating employees which provide for
contributions based primarily upon compensation levels and employee contribu-
tions. The Company funds its contributions to these plans as accrued. Defined
contribution plan expense to the Company was $362,000, $519,000 and $810,000
for the years ended March 31, 1993, 1994 and 1995, respectively.
(17) BUSINESS SEGMENT DATA AND EXPORT SALES
The Company's sole business segment is the design, manufacture, operation and
service of equipment for filtration, water treatment and wastewater treatment
for industrial and municipal customers.
There were no sales to any individual customers which accounted for 10% or more
of revenue in fiscal 1993, 1994 and 1995.
Export sales accounted for $10,851,000, $18,803,000 and $29,306,000 in fiscal
1993, 1994 and 1995, respectively.
Information about the Company's operations in different geographic locations
for the years ended March 31, 1993, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
United States........................ $104,358,000 $142,580,000 $167,900,000
Foreign.............................. 24,018,000 37,841,000 104,132,000
------------ ------------ ------------
$128,376,000 180,421,000 272,032,000
============ ============ ============
Operating income (loss):
United States........................ $ (963,000) $ (6,137,000) $ 8,157,000
Foreign.............................. 1,611,000 1,263,000 6,428,000
------------ ------------ ------------
$ 648,000 $ (4,874,000) $ 14,585,000
============ ============ ============
Identifiable assets:
United States........................ $105,946,000 $228,531,000 $214,599,000
Foreign.............................. 15,232,000 24,654,000 164,129,000
------------ ------------ ------------
$121,178,000 $253,185,000 $378,728,000
============ ============ ============
</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 $1,883,000, $2,999,000 and
$4,623,000 in 1993, 1994 and 1995, respectively.
A summary of the future minimum annual rental commitments as of March 31, 1995,
under operating leases follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
Fiscal year ending:
1996............................................................... $ 4,210,000
1997............................................................... 3,658,000
1998............................................................... 3,137,000
1999............................................................... 1,977,000
2000............................................................... 1,169,000
Thereafter......................................................... 1,105,000
-----------
Total minimum lease payments....................................... $15,256,000
===========
</TABLE>
Buildings and improvements, and equipment at March 31, 1992 included approxi-
mately $6,551,000 of facilities and equipment under leases that had been capi-
talized. 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, Minne-
sota 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
F-14
<PAGE>
United States Filter Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
part upon the opinion of counsel, the outcome of such litigation will not mate-
rially affect the Company's consolidated financial position or results of oper-
ations.
(19) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Net income
Net Income (Loss)
1994 Revenues Gross 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 (3,520,000) (.25)**
<CAPTION>
1995
----
<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
Fourth quarter................ 77,579,000 23,311,000 2,908,000 .18
</TABLE>
* Per common and common equivalent share
** Includes a fourth quarter charge of $3,738,000 for nonrecoverable costs in
excess of net assets of business acquired (see note 7).
(20) SUBSEQUENT EVENTS
On April 3, 1995, the Company acquired all of the outstanding capital stock of
the Permutit Company Limited, an English corporation and The Permutit Company
Pty Ltd., an Australian corporation, (collectively the "Permutit Group"), pur-
suant to a Share Purchase Agreement between the Company and Thames Water PLC,
an English corporation. The transaction will be accounted as a purchase. The
all-cash purchase price totaled approximately $10,000,000 and is subject to
certain adjustments. The Permutit Group had revenues of approximately
$19,000,000 for the year ended March 31, 1994 and offers a range of products,
including pre-engineered water treatment systems for the pharmaceutical, labo-
ratory and chemical markets and other commercial customers.
On May 4, 1995, the Company completed the acquisition of all of the outstanding
capital stock of Arrowhead Industrial Water, Inc. ("AIW") from B.F. Goodrich
Company pursuant to a stock purchase agreement dated as of February 27, 1995,
as amended. The acquisition was effective as of April 30, 1995. The all-cash
purchase price was $80,000,000 and is subject to adjustment based upon the net
asset value of AIW, as determined as of April 30, 1995 by comparing AIW's au-
dited net asset value as of April 30, 1995 with the audited net asset value as
of December 31, 1994. The acquisition will be accounted for by the Company as a
purchase. AIW, headquartered in Lincolnshire, Illinois, had revenues of approx-
imately $44,000,000 for the year ended December 31, 1994 and is a supplier of
owned and operated on-site industrial water treatment systems in the United
States and provides emergency and temporary mobile water treatment systems.
On May 3, 1995, the Company completed an underwritten public offering of
6,900,000 share of its common stock at a price of $15.00 per share. The net
proceeds to the Company, after underwriting discounts and commissions and be-
fore other related expenses, were $98,118,000.
F-15
<PAGE>
United States Filter Corporation and Subsidiaries
INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT
To the Board of Directors and Shareholders
United States Filter Corporation:
The audits referred to in our report dated June 1, 1995 included the related
financial statement schedule as of March 31, 1994 and 1995, and for each of the
years in the three-year period ended March 31, 1995, included in the annual re-
port on Form 10-K of United States Filter Corporation. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our au-
dits. In our opinion, such financial statement schedule, when considered in re-
lation to the basic consolidated financial statements taken as a whole, pre-
sents fairly in all material respects the information set forth therein.
We consent to incorporation by reference in the Registration Statements (No.
33-73542, No. 33-49382, No. 33-56744 and No. 33-89662) on Form S-8 and in the
Registration Statements (No. 33-75910, No. 33-76042 and No. 33-85026) on Form
S-3 of United States Filter Corporation of our report dated June 1, 1995, re-
lating to the consolidated balance sheets of United States Filter Corporation
as of March 31, 1994 and 1995, and the related consolidated statements of oper-
ations, shareholders' equity, and cash flows and related schedule for each of
the years in the three-year period ended March 31, 1995, which report appears
in the March 31, 1995 annual report on Form 10-K of United States Filter Corpo-
ration.
KPMG Peat Marwick LLP
Orange County, California
June 23, 1995
F-16
<PAGE>
United States Filter Corporation and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS
Three Years Ended March 31, 1995
SCHEDULE VIII
<TABLE>
<CAPTION>
BALANCE ACQUIRED AMOUNTS AMOUNTS BALANCE
AT BEGINNING THROUGH CHARGED TO WRITTEN AT END
DESCRIPTION OF PERIOD ACQUISITION EXPENSE OFF OF PERIOD
----------- ------------ ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended March 31,
1995:
Allowance for Doubtful
Accounts.............. $1,857,000 $603,000 $1,558,000 $(746,000) $3,272,000
========== ======== ========== ========= ==========
Year Ended March 31,
1994:
Allowance for Doubtful
Accounts.............. $1,163,000 $454,000 $ 661,000 $(421,000) $1,857,000
========== ======== ========== ========= ==========
Year Ended March 31,
1993:
Allowance for Doubtful
Accounts.............. $1,558,000 $130,000 $ 90,000 $(615,000) $1,163,000
========== ======== ========== ========= ==========
</TABLE>
F-17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNITED
STATES FILTER CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 16,159,000
<SECURITIES> 2,418,000
<RECEIVABLES> 92,624,000
<ALLOWANCES> (3,272,000)
<INVENTORY> 34,707,000
<CURRENT-ASSETS> 175,487,000
<PP&E> 83,527,000
<DEPRECIATION> (15,132,000)
<TOTAL-ASSETS> 378,728,000
<CURRENT-LIABILITIES> 117,817,000
<BONDS> 115,825,000
<COMMON> 152,000
0
25,577,000
<OTHER-SE> 111,415,000
<TOTAL-LIABILITY-AND-EQUITY> 378,728,000
<SALES> 272,032,000
<TOTAL-REVENUES> 272,032,000
<CGS> 193,432,000
<TOTAL-COSTS> 193,432,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,558,000
<INTEREST-EXPENSE> 5,384,000
<INCOME-PRETAX> 10,988,000
<INCOME-TAX> 2,657,000
<INCOME-CONTINUING> 8,331,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,331,000
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
