<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) OCTOBER 28, 1996
----------------
UNITED STATES FILTER CORPORATION
--------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1-10728 33-0266015
--------------------- --------------------- ---------------------
(STATE OR OTHER (COMMISSION FILE NUMBER) (IRS EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION)
40-004 COOK STREET, PALM DESERT, CALIFORNIA 92211
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (619) 340-0098
<PAGE>
Item 5 of the Registrant's Current Report on Form 8-K dated October 28, 1996
is hereby amended and restated as set forth below. The Index to Financial
Statements and financial statements referenced therein are not amended hereby.
ITEM 5. OTHER EVENTS
RECENT AND PENDING ACQUISITIONS
As previously reported on a Current Report on Form 8-K dated May 31, 1996,
the Company completed on May 31, 1996 the acquisition of Zimpro Environmental,
Inc. ("Zimpro"). Consolidated financial statements of Zimpro and its
subsidiaries as of December 31, 1995 and 1994 and for each of the three years
in the period ended December 31, 1995, together with the report thereon of
Ernst & Young LLP, and unaudited pro forma combined financial data giving
effect to the Zimpro acquisition, were filed as a part of such Form 8-K.
As previously reported on a Current Report on Form 8-K dated August 23, 1996, on
August 23, 1996 the Company completed the acquisition of Davis Water and Waste
Industries, Inc. ("Davis") in exchange for $4,817,349 shares of Common Stock.
Consolidated financial statements of Davis and its subsidiaries as of April 30,
1996 and 1995 and for each of the three years in the period ended April 30,
1996, together with the report thereon of Price Waterhouse LLP, and unaudited
pro forma financial information giving effect to the Davis acquisition, were
filed as part of the Current Report on Form 8-K dated June 27, 1996.
On October 25, 1996, the Company completed the acquisition of The Utility
Supply Group, Inc. ("USG") in exchange for 771,157 shares of Common Stock.
On October 28, 1996, the Company completed the acquisition of WaterPro
Supplies Corporation ("WaterPro") in exchange for 3,201,507 shares of Common
Stock.
On December 2, 1996, the Company acquired certain businesses and assets
(collectively referred to as the Water Systems and Manufacturing Group and
referred to herein as "WSMG") from Wheelabrator Technologies Inc. for $369.6
million in cash, subject to possible post-closing adjustment .
On October 7, 1996, the Company entered into an agreement to acquire the
Process Equipment Division ("PED") of United Utilities Plc for approximately
(Pounds)100.5 million in cash and approximately (Pounds)25.0 million in shares
of Common Stock of the Company, subject to possible post-closing adjustment.
Registration statements filed with the United States Securities and Exchange
Commission under the United States Securities Act of 1933, as amended, with
respect to domestic and international underwritten offerings of shares of Common
Stock (the "Common Stock Offerings") and an underwritten offering (the "Notes
Offering") of $360,000,000 million aggregate principal amount of 4 1/2%
Convertible Subordinated Notes due 2001 were declared effective December 11,
1996. The aggregate net proceeds of the Common Stock Offerings and the Notes
Offering were used to repay indebtedness used to fund the acquisition by the
Company of WSMG, and otherwise to
1
<PAGE>
reduce revolving credit borrowings under the Credit Agreement described below; a
portion of the balance is expected to be used to fund the cash portion of the
consideration for the pending acquisition by the Company of PED; and any
remainder will be used for working capital, capital expenditures and general
corporate purposes, including possible future acquisitions. If the PED
acquisition is not completed, the net proceeds of the Common Stock Offerings and
the Notes Offering not used for such acquisition will be added to working
capital.
The Company has entered into an Amended and Restated Multicurrency Credit
Agreement, dated as of December 2, 1996 (the "Credit Agreement"), with lenders
for whom The First National Bank of Boston is acting as Managing Agent, pursuant
to which credit facilities of up to $700.0 million were made available to the
Company to finance acquisitions (including the WSMG acquisition and the pending
PED acquisition), to refinance any borrowings under the Company's previous
credit agreement, and for working capital and other general corporate purposes.
Borrowings under the Credit Agreement bear interest at variable rates of up to
2.25% above certain Eurocurrency rates or 0.50% above The First National Bank of
Boston's base rate and have a five year maturity. Following completion of the
Notes Offering and the Common Stock Offerings, availability under the Credit
Agreement has been reduced to a level that the Company considers appropriate for
its working capital and other needs.
2
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Financial Information presents
the Pro Forma Combined Balance Sheet at September 30, 1996, giving effect to
the acquisitions of WSMG, WaterPro and USG and the pending acquisition of PED
as if they had been consummated on that date. Also presented are the Pro Forma
Combined Statements of Operations for the fiscal year ended March 31, 1996 and
the six months ended September 30, 1996, after giving effect to the recent
acquisitions of WSMG, WaterPro and USG and the pending acquisition of PED as
if they had been consummated as of the beginning of the respective periods
presented. The Company's and PED's fiscal years end on March 31 and WSMG's,
WaterPro's and USG's fiscal years end on December 31. The Pro Forma Balance
Sheet combines the respective balance sheets of the Company, WSMG, PED,
WaterPro and USG as of September 30, 1996. The Pro Forma Statement of
Operations for the year ended March 31, 1996 combines the results of the
Company and PED for such year with the results of WSMG, WaterPro and USG for
the year ended December 31, 1995, and the Pro Forma Statement of Operations
for the six months ended September 30, 1996 combines the results of each of
the Company, WSMG, PED, WaterPro and USG for such six month period. All
Company historical consolidated financial data has been restated to reflect
the acquisitions in May 1996 and August 1996 of Zimpro and Davis,
respectively, which acquisitions have been accounted for as poolings of
interests.
The As Adjusted column gives effect to: (i) the recent acquisitions of WSMG,
WaterPro and USG and the pending acquisition of PED; and (ii) the assumed
borrowings under the Credit Agreement of approximately $541.0 million to fund
the cash portion of the consideration for such acquisitions and estimated
transaction costs. The As Further Adjusted column gives effect to: (i) the
sale by the Company of the Notes and the anticipated application of the net
proceeds therefrom to the reduction of amounts outstanding under the Credit
Agreement; (ii) the sale by the Company of 11,000,000 shares of Common Stock
in the Common Stock Offerings at a public offering price of $31.625 per share
and the anticipated application of the net proceeds therefrom to the reduction
of amounts outstanding under the Credit Agreement; and (iii) the conversion of
the Company's $60.0 million aggregate principal amount of 5% Convertible
Subordinated Debentures due 2000 into 4,390,000 shares of Common Stock.
The pro forma data is based on the historical combined statements of the
Company, WSMG, PED, WaterPro and USG giving effect to such acquisitions under
the purchase method of accounting and the assumptions and adjustments (which
the Company believes to be reasonable) described in the accompanying Notes to
Unaudited Pro Forma Combined Financial Information. Under the purchase method
of accounting, assets acquired and liabilities assumed will be recorded at
their estimated fair value at the date of acquisition. The pro forma
adjustments set forth in the following Unaudited Pro Forma Combined Financial
Information are estimated and may differ from the actual adjustments when they
become known, however, no material differences are anticipated.
The historical financial statements of PED were prepared in accordance with
UK GAAP, which differs in certain respects from US GAAP. The historical PED
financial statements included in the following Unaudited Pro Forma Combined
Financial Information have been restated to reflect PED's financial position
and results of operations in accordance with US GAAP.
The following Unaudited Pro Forma Combined Financial Information does not
reflect certain cost savings that management believes may be realized
following the acquisitions. These savings are expected to be realized
primarily through rationalization of operations and implementation of strict
cost controls and standardized operating procedures. Additionally, the Company
believes the acquisitions will enable it to continue to achieve economies of
scale, such as enhanced purchasing power and increased asset utilization.
There can be no assurance that the acquisition of PED will be consummated.
The pro forma data is provided for comparative purposes only. It does not
purport to be indicative of the results that actually would have occurred if
the acquisitions of WSMG, PED, WaterPro and USG had been consummated on the
dates indicated or that may be obtained in the future. The Unaudited Pro Forma
Combined Financial Information should be read in conjunction with the notes
thereto, the audited financial statements of WSMG, PED and WaterPro and the
notes thereto, included elsewhere herein, and the Company's Consolidated
Financial Statements and Notes thereto, included elsewhere herein.
3
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
----------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA
-------------------------------------------- ------------------------------------------------
ADJUSTMENTS
INCREASE AS AS FURTHER
COMPANY USG WATERPRO WSMG PED (DECREASE) NOTES ADJUSTED ADJUSTED NOTES
-------- ------- -------- -------- --------- ----------- ------ ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.............. $ 19,488 $ 280 $ -- $ 12,619 $ 2,055 $ 34,442 $ 79,911 a(vi)
Short-term
investments...... 816 -- -- -- 1,275 2,091 2,091
Accounts
receivable, net.. 213,594 25,622 70,751 93,325 166,042 569,334 569,334
Cost and estimated
earnings in
excess of
billings on
uncompleted
contracts........ 52,802 -- -- 19,785 -- 72,587 72,587
Inventories....... 88,230 15,812 26,448 41,622 51,127 223,239 223,239
Prepaid expenses.. 11,981 -- 292 -- -- 12,273 12,273
Deferred taxes.... 7,771 -- -- -- -- 7,771 7,771
Other current
assets........... 9,614 417 -- 3,790 -- 13,821 13,821
-------- ------- -------- -------- --------- ---------- ----------
Total current
assets......... 404,296 42,131 97,491 171,141 220,499 935,558 981,027
-------- ------- -------- -------- --------- ---------- ----------
Property, plant and
equipment, net.... 178,362 2,686 5,062 55,752 31,420 273,282 273,282
Investment in
leasehold
interests, net.... 27,057 -- -- -- -- 27,057 27,057
Costs in excess of
net assets of
businesses
acquired, net..... 276,627 -- 13,968 155,578 -- $ 262,326 a(ii) 708,499 708,499
Other assets....... 50,317 736 -- 4,044 1,974 5,250 a(i) 62,321 72,021 a(v)
-------- ------- -------- -------- --------- ---------- ----------
Total assets.... $936,659 $45,553 $116,521 $386,515 $ 253,893 $2,006,717 $2,061,886
======== ======= ======== ======== ========= ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
liabilities:
Accounts payable.. $101,329 $16,113 $ 35,439 $ 53,338 $ 82,467 $ 288,686 $ 288,686
Accrued
liabilities...... 102,000 3,491 11,341 43,822 31,375 192,029 192,029
Current portion of
long-term debt... 1,386 -- -- -- 91,276 $ (91,276) a(iii) 1,386 1,386
Revolving credit
line with parent. -- -- 58,679 -- -- (58,679) a(iii) -- --
Billings in excess
of costs and
estimated
earnings on
uncompleted
contracts........ 19,631 -- -- 18,911 -- 38,542 38,542
Other current
liabilities...... 11,344 332 -- -- 806 12,482 12,482
-------- ------- -------- -------- --------- ---------- ----------
Total current
liabilities.... 235,690 19,936 105,459 116,071 205,924 533,125 533,125
-------- ------- -------- -------- --------- ---------- ----------
Notes payable...... 81,156 16,025 -- -- -- 541,025 a(i) 638,206 -- a(vi)
Long-term debt,
excluding current
portion........... 7,617 3,450 -- -- -- 11,067 11,067
Convertible
subordinated debt. 193,565 -- -- -- -- 193,565 500,000 a(vii)
Loan payable-
parent............ -- -- -- -- 225,704 (225,704) a(iii) -- --
Deferred taxes..... 1,223 -- 151 -- -- 1,374 1,374
Other liabilities.. 17,405 -- -- 13,962 37,481 68,848 68,848
-------- ------- -------- -------- --------- ---------- ----------
Total
liabilities.... 536,656 39,411 105,610 130,033 469,109 1,446,185 1,114,414
-------- ------- -------- -------- --------- ---------- ----------
Shareholders'
equity:
Common stock...... 493 2,553 1 -- -- (2,501) a(iv) 546 700 a(viii)
Additional paid-in
capital.......... 370,625 149 4,999 254,400 17,168 (116,240) a(iv) 531,101 917,887 a(viii)
Translation
adjustment....... 2,691 -- -- 2,082 -- (2,082) a(iv) 2,691 2,691
Retained earnings
(accumulated
deficit)......... 26,194 3,440 5,911 -- (232,384) 223,033 a(iv) 26,194 26,194
-------- ------- -------- -------- --------- ---------- ----------
Total
shareholders'
equity......... 400,003 6,142 10,911 256,482 (215,216) 560,532 947,472
-------- ------- -------- -------- --------- ---------- ----------
$936,659 $45,553 $116,521 $386,515 $ 253,893 $2,006,717 $2,061,886
======== ======= ======== ======== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma combined
financial information.
4
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, 1996
-------------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA
----------------------------------------------- ------------------------------------------------
ADJUSTMENTS
INCREASE AS AS FURTHER
COMPANY USG WATERPRO WSMG PED (DECREASE) NOTES ADJUSTED ADJUSTED NOTES
-------- -------- -------- -------- -------- ----------- ----- ---------- ---------- -----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $727,903 $156,838 $234,391 $452,134 $267,358 $1,838,624 $1,838,624
Cost of sales........... 538,573 130,432 195,258 361,462 189,529 1,415,254 1,415,254
-------- -------- -------- -------- -------- ---------- ----------
Gross profit........... 189,330 26,406 39,133 90,672 77,829 423,370 423,370
Selling, general and
administrative
expenses............... 148,683 21,821 32,767 68,170 66,903 $ 6,558 b(i) 344,902 344,902
Restructuring expense... -- -- -- -- 9,260 9,260 9,260
-------- -------- -------- -------- -------- ---------- ----------
Operating income....... 40,647 4,585 6,366 22,502 1,666 69,208 69,208
-------- -------- -------- -------- -------- ---------- ----------
Other income (expense):
Interest expense....... (14,419) (2,227) (3,593) -- (19,865) (17,119) b(ii) (57,223) (31,646) b(iii)
Other.................. 5,134 (582) 657 4,767 -- 9,976 9,976
-------- -------- -------- -------- -------- ---------- ----------
(9,285) (2,809) (2,936) 4,767 (19,865) (47,247) (21,670)
-------- -------- -------- -------- -------- ---------- ----------
Income (loss) before
income taxes.......... 31,362 1,776 3,430 27,269 (18,199) 21,961 47,538
Provision (benefit) for
income taxes........... 12,055 727 1,477 10,908 2,165 (18,987) b(iv) 8,345 18,064 b(v)
-------- -------- -------- -------- -------- ---------- ----------
Net income (loss)...... $ 19,307 $ 1,049 $ 1,953 $ 16,361 $(20,364) $ 13,616 $ 29,474 c
======== ======== ======== ======== ======== ========== ==========
Net income per common
share................. $ 0.45 $ 0.28 $ 0.46 c
======== ========== ==========
Weighted average number
of common shares
outstanding............ 42,159 47,437 62,827
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma combined
financial information.
5
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA
---------------------------------------------- ------------------------------------------------
ADJUSTMENTS
INCREASE AS AS FURTHER
COMPANY USG WATERPRO WSMG PED (DECREASE) NOTES ADJUSTED ADJUSTED NOTES
-------- ------- -------- -------- -------- ----------- ----- ---------- ---------- ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $433,719 $85,899 $185,199 $218,973 $130,407 $1,054,197 $1,054,197
Cost of sales........... 315,398 70,011 151,238 171,673 92,728 801,048 801,048
-------- ------- -------- -------- -------- ---------- ----------
Gross profit........... 118,321 15,888 33,961 47,300 37,679 253,149 253,149
Selling, general and
administrative
expenses............... 86,140 13,595 24,689 32,854 32,270 $ 3,279 b(i) 192,827 192,827
Merger and restructuring
expenses................ 5,581 -- -- -- 1,992 7,573 7,573
-------- ------- -------- -------- -------- ---------- ----------
Operating income....... 26,600 2,293 9,272 14,446 3,417 52,749 52,749
-------- ------- -------- -------- -------- ---------- ----------
Other income (expense):
Interest expense....... (7,972) (932) (2,433) -- (9,469) (8,386) b(ii) (29,192) (16,404) b(iii)
Other.................. 1,004 411 358 439 -- 2,212 2,212
-------- ------- -------- -------- -------- ---------- ----------
(6,968) (521) (2,075) 439 (9,469) (26,980) (14,192)
-------- ------- -------- -------- -------- ---------- ----------
Income (loss) before
income taxes.......... 19,632 1,772 7,197 14,885 (6,052) 25,769 38,557
Provision (benefit) for
income taxes........... 5,404 711 2,829 5,954 (310) (4,796) b(iv) 9,792 14,652 b(v)
-------- ------- -------- -------- -------- ---------- ----------
Net income (loss)...... $ 14,228 $ 1,061 $ 4,368 $ 8,931 $ (5,742) $ 15,977 $ 23,905 c
======== ======= ======== ======== ======== ========== ==========
Net income per common
share................. $ 0.28 $ 0.29 $ 0.34 c
======== ========== ==========
Weighted average number
of common shares
outstanding........... 50,629 55,907 71,297
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma combined
financial information.
6
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
a. The Pro Forma Combined Balance Sheet has been prepared to reflect the
acquisitions by the Company of WSMG, USG and WaterPro and the pending
acquisition of PED for aggregate estimated equity purchase prices comprised
of the following:
<TABLE>
<CAPTION>
FORM OF EQUITY
COMPANY CONSIDERATION PURCHASE PRICE
------- ------------- --------------
(in thousands)
<S> <C> <C> <C>
USG.................................... Common Stock $ 22,000
WaterPro............................... Common Stock 38,600
WSMG................................... Cash 369,600
PED.................................... Cash $160,075
..................................... Common Stock 41,250 201,325
--------
Estimated transaction costs............ 6,100
--------
$637,625
========
</TABLE>
In addition to the purchase prices described above, the Company assumed
long-term indebtedness of approximately $22,000,000 ($19,475,000 at
September 30, 1996) and $67,935,000 ($58,679,000 at September 30, 1996) in
connection with the acquisitions of USG and WaterPro, respectively. The
$67,935,000 of indebtedness related to WaterPro was repaid with shares of
Common Stock concurrently with the closing of such acquisition.
The cash portion of the purchase price for PED is approximately
(Pounds)100,500,000. The Company has entered into a forward contract pursuant
to which it has the obligation to purchase (Pounds)100,000,000 for
approximately $159,250,000 at any time between December 16, 1996 and February
14, 1997, for the purpose of hedging the cash portion of the purchase price of
the acquisition of PED. No gain or loss is anticipated from this transaction.
The remaining (Pounds)500,000 cash portion of the consideration and the
(Pounds)25,000,000 in shares of Common Stock are based on exchange rates for
British pounds sterling as of December 11, 1996. The estimated shares of
Common Stock to be issued is also based on an assumed price per share of
$31.75.
The estimated net book value, as adjusted, of USG, WaterPro, WSMG and PED
and the estimated fair value of their net assets as of the closing date are
assumed to be $6,142,000, $10,911,000, $256,482,000 and $101,764,000,
respectively. PED's estimated fair value of net assets excludes the net loan
payable of PED to its parent company of $316,980,000, which will be
contributed to PED's shareholders' equity (negative $215,216,000 at
September 30, 1996) by such parent company. The aggregate difference between
the estimated equity purchase prices and the estimated fair values of the
identified net assets of USG, WaterPro, WSMG and PED is approximately
$262,326,000, which has been recorded as costs in excess of net assets of
businesses acquired attributable to such acquisitions in the accompanying Pro
Forma Combined Balance Sheet.
The Pro Forma Combined Balance Sheet has been adjusted to reflect the above
as follows:
(i) To record the assumed incurrence of $541,025,000 of indebtedness under
the Credit Agreement with an assumed effective interest rate of 7.50%.
The incurrence of such additional indebtedness includes: (i) the cash
consideration for the acquisition of WSMG of $369,600,000; (ii) the
cash portion of the consideration for the acquisition of PED of
$160,075,000; (iii) estimated transaction costs of $6,100,000; and
(iv) estimated bank commitment fees of $5,250,000. The Company intends
to retire a portion of such debt with the net proceeds of the Common
Stock Offerings and the Notes Offering or, if completion of the Common
Stock Offerings and the Notes Offering occurs prior to the completion
of the acquisition of PED, to use such proceeds directly to acquire
PED. See "Use of Proceeds."
7
<PAGE>
(ii) To adjust goodwill for the difference between the estimated equity
purchase prices and the estimated fair values of the identified net
assets acquired. The adjustment is calculated as follows: (in
thousands)
<TABLE>
<S> <C>
Aggregate estimated equity purchase prices..................... $637,625
Aggregate estimated fair value of identified net assets
acquired...................................................... 375,299
--------
Adjustment................................................. $262,326
========
</TABLE>
(iii) To eliminate: (i) the net loan payable of WaterPro of $58,679,000 to
its parent company, which will be repaid by the Company with Common
Stock; and (ii) the net loan payable of PED of $316,980,000 to its
parent company, which will be contributed to PED's equity by such
parent company.
(iv) To eliminate the equity of USG, WaterPro, WSMG and PED and record the
issuance of Common Stock for the stock portion of the consideration
for the acquisitions of USG (771,157 shares), WaterPro (3,201,507
shares) and PED (1,299,213 shares).
<TABLE>
<CAPTION>
ELIMINATE ISSUANCE
EQUITY OF EQUITY ADJUSTMENT
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Common Stock............................ $ (2,554) $ 53 $ (2,501)
Additional paid-in capital.............. (276,716) 160,476 (116,240)
Translation adjustment.................. (2,082) -- (2,082)
Retained earnings (accumulated deficit). 223,033 -- 223,033
</TABLE>
(v) To record the incurrence of approximately $9,700,000 of capitalized
costs related to the Notes Offering.
(vi) To record the assumed reduction of $638,206,000 of indebtedness and an
increase in cash of $45,469,000 with the estimated net proceeds of
$333,375,000 from the Common Stock Offerings and $350,300,000 from the
Notes Offering. See "Use of Proceeds."
(vii) To record: (i) the issuance of $360,000,000 of convertible
subordinated debt in the Notes Offering; and (ii) the conversion of
$60,000,000 aggregate principal amount of 5% Convertible Subordinated
Debt due 2000 into 4,390,000 shares of Common Stock.
(viii) To record: (i) the conversion of the Company's $60,000,000 aggregate
principal amount of 5% Convertible Subordinated Debentures due 2000
into 4,390,000 shares of Common Stock and; (ii) the assumed issuance
of 11,000,000 shares of Common Stock in the Common Stock Offerings.
Adjustments are calculated as follows:
<TABLE>
<CAPTION>
CONVERSION OF
5% CONVERTIBLE
SUBORDINATED
DEBENTURES OFFERINGS ADJUSTMENT
-------------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Common Stock......................... $ 44 $ 110 $ 154
Additional paid-in capital........... 53,521 333,265 386,786
</TABLE>
8
<PAGE>
b. For the fiscal year ended March 31, 1996, the historical results of
operations of USG, WaterPro and WSMG reflect their results of operations
for the twelve months ended December 31, 1995 and reflect the results of
operations of PED and the Company for the year ended March 31, 1996. The
historical results of operations for the six months ended September 30,
1996 combines the results of each of the Company, WSMG, PED, WaterPro and
USG for such six-month period.
The Pro Forma Combined Statements of Operations gives effect to the
following adjustments:
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
ENDED ENDED
MARCH 31, 1996 SEPTEMBER 30, 1996
-------------- ------------------
(IN THOUSANDS)
<C> <S> <C> <C>
(i) To adjust selling, general and
administrative expenses to
reflect the goodwill amortization
from the acquisitions of WSMG,
PED, WaterPro and USG, with such
goodwill of approximately
$262,326,000 amortized over 40
years. $ 6,558 $ 3,279
======== =======
(ii) To adjust interest expense related
to the indebtedness of
approximately $541,025,000
incurred or to be incurred to
finance the acquisitions of WSMG
and PED, net of historical
interest expense recorded by
WaterPro and PED on parent
company debt. WaterPro and PED
incurred interest on such parent
company debt at the prime rate
and approximately 11%,
respectively, and incurred
interest expense of $3,593,000
and $19,865,000, respectively,
for the fiscal year ended March
31, 1996, and $2,433,000 and
$9,469,000, respectively, for the
six months ended September 30,
1996, which interest expense has
been eliminated because such debt
would not have been in existence
at the beginning of such periods.
Interest on the indebtedness
under the Credit Agreement is
assumed to be at an effective
rate of 7.50% per annum. The
Company, however, intends to
retire such debt with the net
proceeds of the Common Stock
Offerings and the Notes Offering
or, if completion of the Common
Stock Offerings and the Notes
Offering occurs prior to the
completion of the acquisition of
PED, to use such net proceeds
directly to acquire PED. See "Use
of Proceeds."
The assumed effective interest
rate of 7.50% on borrowings under
the Credit Agreement is subject
to variability. A 0.125%
increase/decrease in the assumed
effective interest rate
incrementally decreases/increases
As Adjusted net income by
$419,000 and $209,000 for the
year ended March 31, 1996 and six
months ended September 30, 1996,
respectively, and As Further
Adjusted net income is unaffected
as a result of repayment of the
acquisition indebtedness with the
net proceeds of the Common Stock
Offerings and the Notes Offering. $(17,119) $(8,386)
======== =======
(iii) The As Further Adjusted column
presented gives effect to the
Common Stock Offerings and the
Notes Offering and the
anticipated application of the
net proceeds therefrom, which
results in a reduction in
interest expense of $22,577,000
and $11,288,000 for the fiscal
year ended March 31, 1996 and the
six months ended September 30,
1996, respectively. See "Use of
Proceeds." The As Further
Adjusted column also gives effect
to the conversion of $60,000,000
aggregate principal amount 5%
Convertible Subordinated
Debentures due 2000 to Common
Stock which results in a
reduction in interest expense of
$3,000,000 and $1,500,000 for the
fiscal year ended March 31, 1996
and the six months ended
September 30, 1996, respectively,
and a resulting increase of
4,390,000 in shares of Common
Stock outstanding. $ 25,577 $12,788
======== =======
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
ENDED ENDED
MARCH 31, 1996 SEPTEMBER 30, 1996
-------------- ------------------
(IN THOUSANDS)
<C> <S> <C> <C>
(iv) To adjust the provision for income
taxes to reflect the combined
results of operations assuming a
combined tax rate of 38%. $(18,987) $4,796
======== ======
(v) To adjust the provision for income
taxes to reflect the combined
results of operations assuming a
combined tax rate of 38%. $ 9,719 $4,860
======== ======
</TABLE>
c. During the fiscal year ended March 31, 1996 and the six months ended
September 30, 1996, PED incurred significant restructuring charges relating
to the plant closure and relocation of the operations of Wallace & Tiernan,
Inc., a subsidiary, from Belleville, N.J., to Vineland, N.J. These
restructuring charges totaled $9,260,000 and $1,992,000 for the fiscal year
ended March 31, 1996 and the six months ended September 30, 1996,
respectively. The Company believes that the restructuring and relocation
will be completed prior to the acquisition of PED by the Company. The terms
of the Stock Purchase Agreement between the Company and the United
Utilities Plc provides that the Company will assume no ownership interest
in and no liability associated with the Belleville, N.J. facility.
Excluding the effects of these charges, net income and net income per
common share for the fiscal year ended March 31, 1996 and the six months
ended September 30, 1996 would have been:
<TABLE>
<CAPTION>
AS AS FURTHER
ADJUSTED ADJUSTED
-------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Fiscal Year Ended March 31, 1996:
Net income............................................. $19,357 $35,215
Net income per common share............................ $ 0.40 $ 0.55
Six Months Ended September 30, 1996:
Net income............................................. $17,212 $25,140
Net income per common share............................ $ 0.31 $ 0.35
</TABLE>
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data as of and for the fiscal years ended
March 31, 1992, 1993, 1994, 1995 and 1996 are derived from the Consolidated
Financial Statements and Notes thereto of the Company, which are included or
incorporated by reference herein. The financial data as of and for the six
months ended September 30, 1995 and 1996 are derived from unaudited consolidated
financial statements of the Company, which, in the opinion of the Company,
reflect all adjustments (consisting principally of normal, recurring accruals)
necessary for the fair statement of the financial position and results of
operations for the periods presented and are not necessarily indicative of the
results for any other interim period or for the full fiscal year. Historical
consolidated financial data for the fiscal years ended March 31, 1992, 1993,
1994, 1995 and 1996 and the six months ended September 30, 1995 have been
restated to reflect the acquisitions in May 1996 and August 1996 of Zimpro and
Davis, respectively, which acquisitions have been accounted for as poolings of
interests. The data presented below are qualified in their entirety by and
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto included or incorporated by reference herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31,(1) SEPTEMBER 30,(1)
-------------------------------------------------- ------------------
1992(2) 1993(3) 1994(4) 1995(5) 1996(6)(7) 1995 1996(11)
-------- -------- -------- -------- ---------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $289,994 $358,041 $412,512 $519,359 $727,903 $332,099 $433,719
Cost of sales........... 234,714 280,671 326,848 398,755 538,573 247,093 315,398
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 55,280 77,370 85,664 120,604 189,330 85,006 118,321
Selling, general and
administrative
expenses............... 59,111 73,709 90,719 97,481 148,683 64,368 86,140
Merger expenses......... -- -- -- -- -- -- 5,581
-------- -------- -------- -------- -------- -------- --------
Operating income (loss). (3,831) 3,661 (5,055) 23,123 40,647 20,638 26,600
Interest expense........ (3,862) (3,582) (4,044) (7,514) (14,419) (6,548) (7,972)
Other income (expense).. 1,472 895 (7,382) 1,442 5,134 1,363 1,004
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes.................. (6,221) (974) (16,481) 17,051 31,362 15,453 19,632
Provision (benefit) for
income taxes........... 245 647 (7,087) 4,812 12,055 4,743 5,404
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ (6,466) $ 1,191 $ (9,394) $ 12,239 $ 19,307 $ 10,710 $ 14,228
======== ======== ======== ======== ======== ======== ========
Net income (loss) per
common share(8)........ $ (0.39) $ -- $ (0.42) $ 0.41 $ 0.45 $ 0.27 $ 0.28
======== ======== ======== ======== ======== ======== ========
Weighted average number
of common shares
outstanding............ 17,465 20,838 23,934 28,235 42,159 37,911 50,629
BALANCE SHEET DATA (AT
PERIOD END):
Working capital......... $ 56,125 $ 60,238 $ 97,855 $113,972 $123,757 $223,856 $168,606
Total assets............ 196,121 222,120 357,354 482,723 876,505 729,551 936,659
Notes payable and long-
term debt, including
current portion........ 46,858 32,220 29,758 57,116 53,436 29,545 90,159
Convertible subordinated
debt................... -- -- 60,000 105,000 200,000 200,000 193,565
Shareholders' equity.... 73,773 113,041 152,021 166,878 368,501 325,552 400,003
OTHER DATA:
EBITDA(9)............... $ 2,628 $ 12,710 $ 6,237 $ 39,777 $ 67,227 $ 32,238 $ 47,109
Cash provided by (used
in)
Operating activities.. 6,230 3,274 (6,523) 3,269 (342) (13,014) (1,972)
Investing activities.. (8,574) (14,460) (40,176) (12,857) (225,731) (123,392) (37,822)
Financing activities.. 11,870 2,895 59,384 9,391 224,458 206,787 40,877
Ratio of earnings to
fixed charges(10)...... -- 1.0x -- 2.5x 2.5x 2.8x 3.0x
Net income (loss) before
Davis and Zimpro
acquisitions........... $ (6,587) $ 67 $ (2,541) $ 8,331 $ 20,290 $ 7,868 $ 14,228
Net income (loss) per
common share before
Davis and Zimpro
acquisitions(8)........ $ (0.59) $ (0.08) $ (0.17) $ 0.34 $ 0.54 $ 0.23 --
</TABLE>
11
<PAGE>
The historical consolidated financial data for the fiscal years ended March
31, 1992, 1993, 1994, 1995 and 1996 and for the six months ended September 30,
1995 have been restated to include the accounts and operations of Zimpro and
Davis, which were merged with the Company in May 1996 and August 1996,
respectively, and accounted for as poolings of interests. Separate results of
operations for each of the Company, Davis and Zimpro for the years ended
March 31, 1992, 1993, 1994, 1995 and 1996 and the six months ended September
30, 1995 are presented below.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31,(1) SEPTEMBER 30,(1)
------------------------------------------------- -----------------
1992(2) 1993(3) 1994(4) 1995(5) 1996(6)(7) 1995 1996(11)
-------- -------- -------- -------- ---------- -------- --------
(UNAUDITED) (UNAUDITED)
REVENUES: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Company (as previously
reported).............. $ 62,840 $128,376 $180,421 $272,032 $472,537 $199,847 $433,719
Davis................... 186,719 190,990 202,621 215,649 226,489 118,550 --
Zimpro.................. 40,435 38,675 29,470 31,678 28,877 13,702 --
-------- -------- -------- -------- -------- -------- --------
Combined.............. $289,994 $358,041 $412,512 $519,359 $727,903 $332,099 $433,719
======== ======== ======== ======== ======== ======== ========
OPERATING INCOME (LOSS):
Company (as previously
reported).............. $ (6,290) $ 648 $ (4,874) $ 14,585 $ 34,955 $ 14,760 $ 26,600
Davis................... 189 1,559 1,506 7,512 10,892 5,497 --
Zimpro.................. 2,270 1,454 (1,687) 1,026 (5,200) 381 --
-------- -------- -------- -------- -------- -------- --------
Combined.............. $ (3,831) $ 3,661 $ (5,055) $ 23,123 $ 40,647 $ 20,638 $ 26,600
======== ======== ======== ======== ======== ======== ========
NET INCOME (LOSS):
Company (as previously
reported).............. $ (6,587) $ 67 $ (2,541) $ 8,331 $ 20,290 $ 7,868 $ 14,228
Davis................... (844) 653 (5,340) 3,448 5,749 2,978 --
Zimpro.................. 965 471 (1,513) 460 (6,732) (136) --
-------- -------- -------- -------- -------- -------- --------
Combined.............. $ (6,466) $ 1,191 $ (9,394) $ 12,239 $ 19,307 $ 10,710 $ 14,228
======== ======== ======== ======== ======== ======== ========
NET INCOME (LOSS) PER
COMMON SHARE:(8)
As previously reported.. $ (0.59) $ (0.08) $ (0.17) $ 0.34 $ 0.54 $ 0.23 $ --
As restated............. (0.39) -- (0.42) 0.41 0.45 0.27 0.28
</TABLE>
- -------------------
(1) The historical consolidated financial data for the fiscal years ended
March 31, 1992, 1993, 1994, 1995 and 1996 and for the six months ended
September 30, 1995 have been restated to include the accounts and
operations of Zimpro and Davis, which were merged with the Company in May
1996 and August 1996, respectively, and accounted for as poolings of
interests. The historical consolidated financial data for the six months
ended September 30, 1996 include the operations of Zimpro and have been
restated to include the accounts and operations of Davis.
(2) The fiscal year ended March 31, 1992 includes three months of results of
Aluminum Company of America ("Alcoa") Separations Technologies, Inc.
("ASTI"), acquired from Alcoa on January 6, 1992. The acquisition 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) The fiscal year ended March 31, 1993 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.
(4) The fiscal year ended March 31, 1994 includes four months of results of
Ionpure Technologies Corporation and IP Holding Company ("Ionpure"),
acquired December 1, 1993 and accounted for as a purchase. Selling,
general and administrative expenses for the year ended March 31, 1994
reflect four months of integration of Ionpure, certain charges totalling
$2,359,000 related to the rationalization of certain wastewater operations
and write-off of certain intangibles in the Company's Continental Penfield
subsidiary totalling $3,738,000. In addition, the year ended March 31,
1994 includes a charge of $8,895,000 to reflect a plan to shutdown and
reorganize certain operations of Davis.
(5) The fiscal year ended March 31, 1995 includes the results of operations of
Smogless S.p.A., Crouzat S.A., Sation S.A., Seral Erich Alhauser GmbH and
the Ceraflo ceramic product line from the dates of their respective
acquisitions, accounted for as purchases. See Note 9 of Notes to
Consolidated Financial Statements.
(6) The fiscal year ended March 31, 1996 includes the results of operations of
The Permutit Company Limited and The Permutit Company Pty Ltd., Interlake
Water Systems, Arrowhead Industrial Water, Inc. and Polymetrics, Inc. from
the dates of their respective acquisitions, accounted for as purchases.
See Note 9 of Notes to Consolidated Financial Statements.
(7) Selling, general and administrative expenses for the year ended March 31,
1996 includes charges totalling $3,193,000 related to the write-down of
certain patents and equipment of Zimpro.
(8) Net income (loss) per common share 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, $715,000 for the fiscal year ended March
31, 1995 and $537,000 for the fiscal year ended March 31, 1996, 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. The Series A Preferred Stock was converted into shares
of Common Stock in March 1996.
12
<PAGE>
(9) "EBITDA" consists of operating income plus depreciation and amortization.
EBITDA data is presented because such data is used by certain investors to
determine the Company's ability to meet debt service requirements. The
Company considers EBITDA to be an indicative measure of the Company's
operating performance. However, such information should not be considered
as an alternative to net income, operating profit, cash flows from
operations, or any other operating or liquidity performance measure
prescribed by generally accepted accounting principles. The EBITDA measure
presented by the Company may not be comparable to similarly titled
measures by other companies.
(10) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income before provision for income
taxes, plus fixed charges) by fixed charges. Fixed charges consist of
interest expense (including amortization of deferred financing costs) and
the portion of rental expense that is representative of the interest
factor (deemed by the Company to be one-third). Fixed charges exceeded
earnings before fixed charges by $7,693,000 and $9,099,000 for the years
ended March 31, 1992 and March 31, 1994, respectively.
(11) The six months ended September 30, 1996 includes merger expenses of
$5,581,000, related to the acquisition of Davis, which was accounted for
as a pooling of interests.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes included elsewhere herein.
GENERAL
The Company's strategy is to offer a single-source solution to industrial
and municipal customers through what the Company believes is the industry's
broadest range of cost-effective systems, products, services and proven
technologies. Accordingly, since July 1991, the Company has acquired and
integrated more than 45 businesses with substantial expertise in the design
and manufacture of systems for the filtration and treatment of water and
wastewater. Due to the magnitude of these acquisitions and the integration of
the acquired operations with the Company's 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 May and August 1996, the Company merged with Zimpro and Davis,
respectively, in transactions accounted for as poolings of interests.
Historical consolidated financial data for the fiscal years ended March 31,
1994 through March 31, 1996 and the six months ended September 30, 1995 have
been restated to reflect the acquisitions in May 1996 and August 1996 of
Zimpro and Davis, respectively, which acquisitions have been accounted for as
poolings of interests. Historical financial data for the six months ended
September 30, 1996 have been restated to reflect the operations of Davis.
The following table sets forth for the periods indicated certain Selected
Consolidated Financial Data as a percentage of total revenues.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER
MARCH 31, 30,
------------------- ------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................... 79.2 76.8 74.0 74.4 72.7
----- ----- ----- ----- -----
Gross profit................................ 20.8 23.2 26.0 25.6 27.3
Selling, general and administrative
expenses................................... 22.0 18.8 20.4 19.4 19.9
Merger expense.............................. -- -- -- -- 1.3
----- ----- ----- ----- -----
Operating income (loss)..................... (1.2) 4.5 5.6 6.2 6.1
Interest expense............................ 1.0 1.4 2.0 2.0 1.8
Net income (loss)........................... (2.3) 2.4 2.7 3.2 3.3
</TABLE>
The following table sets forth, as a percentage of the Company's total
revenues, each of the Company's product categories by revenue for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
MARCH 31, SEPTEMBER 30,
--------------------- ---------------
1994 1995 1996 1995 1996
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues by product category:
Capital equipment.................. 41% 42% 39% 39% 39%
Services and operations............ 9 9 20 22 22
Distribution....................... 37 33 25 21 21
Replacement parts, consumables and
other............................. 13 16 16 17 18
</TABLE>
14
<PAGE>
SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH SIX MONTHS ENDED SEPTEMBER
30, 1995
REVENUES
Revenues for the six months ended September 30, 1996 were $433,719,000, an
increase of $101,620,000 from $332,099,000 for the comparable period of the
prior fiscal year. This 30.6% increase was due primarily to acquisitions
completed by the Company after September 30, 1995. For the six months ended
September 30, 1996, revenues from capital equipment sales represented 39% of
total revenues, while revenues from services and operations represented 22% of
total revenues, revenues from distribution represented 21% of total revenues
and revenues from replacement parts and consumables represented 18% of total
revenues.
GROSS PROFIT
Gross profit increased 39.2% to $118,321,000 for the six months ended
September 30, 1996 from $85,006,000 for the comparable period of the prior
fiscal year. Total gross profit as a percentage of revenue ("gross margin")
increased to 27.3% for the six months ended September 30, 1996, compared to
25.6% for the comparable period of the prior fiscal year. The increase in
gross margin for the six months ended September 30, 1996 was due to: (i) a
continued strengthening of gross margin in the recurring and higher margin
service-based revenue business and (ii) rationalization of operations and
increased economies of scale from the integration of acquisitions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the six months ended September 30, 1996, selling, general and
administrative expenses, excluding merger expenses, increased $21,772,000 to
$86,140,000 as compared to the $64,368,000 in the comparable period in the
prior year. During this period, selling, general and administrative expenses,
excluding merger expenses, were 19.9% of revenues compared to 19.4% for the
comparable period in the prior year.This increase was primarily due to the
addition of sales and administrative personnel accompanying the Company's
recent acquisitions.
Excluding merger expenses, operating income as a percentage of revenues
increased to 7.4% for the six months ended September 30, 1996 from 6.2% for
the corresponding period in fiscal 1995 due primarily to improvement in gross
margin.
MERGER EXPENSES
Merger expenses were incurred during the six months ended September 30, 1996
relating to the Company's acquisition of Davis which was accounted for as a
pooling of interests. These merger expenses, which totaled $5,581,000,
consisted primarily of investment banking fees, printing, stock transfer fees,
legal fees, accounting fees, governmental filing fees and certain other costs
related to existing Davis pension plans and change of control payments.
INTEREST EXPENSE
Interest expense increased to $7,972,000 for the six months ended September
30, 1996 from $6,548,000 for the corresponding period in the prior year.
Interest expense for the six months ended September 30, 1996 consisted
primarily of interest on the Company's: (i) 5% Convertible Subordinated
Debentures due 2000 (all of which have been, as of October 25, 1996, converted
into shares of Common Stock); (ii) 6% Convertible Subordinated Notes issued on
September 18, 1995 due 2005; and (iii) borrowings under the Company's bank
line of credit. At September 30, 1996, the Company had cash and short-term
investments of $20,304,000.
INCOME TAX EXPENSE
Income tax expense increased to $5,404,000 in the six months ended September
30, 1996, from $4,743,000 in the corresponding period in the prior year. The
Company's effective tax rate for the three and six months ended September 30,
1996 was 27.5% as compared to 30.7% in the corresponding period in the prior
year.
15
<PAGE>
NET INCOME
For the six months ended September 30, 1996, net income increased
$3,518,000 to $14,228,000 from $10,710,000 for the same period in the prior
year. Excluding Davis merger expenses, net income for the six months ended
September 30, 1996 totaled $18,279,000, an increase of 70.6% over the same
period in the prior year. Net income per common share for the six months ended
September 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
-------- --------
<S> <C> <C>
Before merger expenses................................. $ 0.36 $ 0.27
After merger expenses.................................. $ 0.28 $ 0.27
</TABLE>
TWELVE MONTHS ENDED MARCH 31, 1996 COMPARED WITH TWELVE MONTHS ENDED MARCH 31,
1995
REVENUES
Revenues for fiscal 1996 were $727,903,000, an increase of $208,544,000 from
$519,359,000 for fiscal 1995. This 40.2% increase was due primarily to
acquisitions completed by the Company in fiscal 1995 and 1996. See Note 9 of
Notes to Consolidated Financial Statements related to acquisitions.
GROSS PROFIT
Gross profit increased 57.0% to $189,330,000 for fiscal 1996 from
$120,604,000 for fiscal 1995. Gross margin increased to 26.0% for fiscal 1996
as compared to 23.2% for fiscal 1995. The increase in gross margin through
fiscal 1996 was due to: (i) a continued strengthening of gross margin in the
recurring and higher margin service-based revenue business;
(ii) rationalization of operations and economies of scale from the integration
of acquisitions; and (iii) a focus on products with higher gross margins in
Davis' distribution business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $148,683,000 for
fiscal 1996 from $97,481,000 for fiscal 1995. This increase was primarily due
to the addition of sales and administrative personnel accompanying the
Company's recent acquisitions. As a percentage of revenues, selling, general
and administrative expenses were 20.4% for fiscal 1996, as compared to 18.8%
for fiscal 1995. This increase was due primarily to a write-down of certain
patents and equipment totalling $3,193,000 at the Company's Zimpro subsidiary
and, to a lesser extent, increased levels of incentive compensation earned by
management and employees of Davis as compared to fiscal 1995.
Notwithstanding the increase in selling, general and administrative expenses
as a percentage of revenues, operating income as a percentage of revenues
increased from 4.5% for fiscal 1995 to 5.6% for fiscal 1996 due primarily to
improvement in gross margin.
INTEREST EXPENSE
Interest expense increased to $14,419,000 for fiscal 1996 from $7,514,000
for fiscal 1995. Interest expense for fiscal 1996 consisted primarily of
interest on the Company's 5% Convertible Subordinated Debentures due 2000
issued October 20, 1993 and approximately seven months of interest on the
Company's 6% Convertible Subordinated Notes due 2005 issued September 18,
1995, respectively, and interest on increased borrowings under the Company's
bank line of credit, which was used to finance the Company's revenue expansion
and recent acquisitions.
16
<PAGE>
OTHER INCOME (EXPENSE)
Other income (expense) increased to $5,134,000 of income for fiscal 1996
from $1,442,000 of income for fiscal 1995. Other income consisted primarily of
interest income on short-term investments, which increased during fiscal 1996
primarily as a result of the Company's sale of $140,000,000 aggregate
principal amount of 6% Convertible Subordinated Notes on September 18, 1995
and the Company's issuance of 10,350,000 shares of Common Stock on May 3, 1995
with net proceeds of approximately $98,118,000.
INCOME TAX EXPENSE
Income tax expense increased to $12,055,000 for fiscal 1996 from $4,812,000
for fiscal 1995. This increase was attributable to increased income. The
Company's effective tax rate for fiscal 1996 was 38.4% and for fiscal 1995 was
28.2%. This increase in effective rate in fiscal 1996 is due primarily to a
net loss before income taxes of $6,086,000 incurred at Zimpro (see "Selling,
General and Administrative Expenses") for which no income tax benefit was
recognized because its realization was not assured and because of the
nondeductibility of certain items. As of March 31, 1996, the Company had net
operating loss carryforwards in France of approximately $19,952,000 and other
European countries of approximately $7,338,000 for which no financial
statement benefit has been recognized. In addition, the Company had net
operating loss carryforwards generated from its Liquipure subsidiary of
approximately $14,362,000 for which financial statement benefit was recognized
in fiscal 1996. The Company also had net operating loss carryforwards
generated from Zimpro of approximately $2,905,000 for which financial
statement benefit has not been recognized. In addition, the benefit of the
French loss carryforwards must be shared equally between the Company and
Aluminum Corporation of America until March 31, 1997. See Note 14 of Notes to
Consolidated Financial Statements related to income taxes.
NET INCOME
Net income increased to $19,307,000 for fiscal 1996 from $12,239,000 for
fiscal 1995. Net income per common share increased to $0.45 per share (based
upon 42,159,000 weighted average common shares outstanding) for fiscal 1996
from $0.41 per common share (based upon 28,235,000 weighted average common
shares outstanding) for fiscal 1995, after deducting $536,000 and $715,000 for
dividends on the Company's preferred shares for fiscal 1996 and 1995,
respectively.
TWELVE MONTHS ENDED MARCH 31, 1995 COMPARED WITH TWELVE MONTHS ENDED MARCH 31,
1994
REVENUES
Revenues for fiscal 1995 were $519,359,000, an increase of $106,847,000 from
$412,512,000 for fiscal 1994. This 25.9% increase was due primarily to
acquisitions completed by the Company in fiscal 1994 and 1995. See Note 9 of
Notes to Consolidated Financial Statements related to acquisitions.
GROSS PROFIT
Gross profit increased 40.8% to $120,604,000 for fiscal 1995 from
$85,664,000 for fiscal 1994. Gross margin increased to 23.2% for fiscal 1995
as compared to 20.8% for fiscal 1994. The increase in gross margin through
fiscal 1995 was due to: (i) a continued strengthening of gross margin in the
recurring and higher margin service-based revenue business; and
(ii) rationalization of operations and economies of scale from the Company's
acquisitions. Gross margin in the Company's distribution business remained
unchanged in fiscal 1995 as compared to fiscal 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $97,481,000 for
fiscal 1995 from $90,719,000 for fiscal 1994. This increase was primarily due
to the addition of sales and administrative personnel accompanying the
Company's recent acquisitions. As a percentage of revenues, selling, general
and administrative expenses
17
<PAGE>
were 18.8% during fiscal 1995, as compared to 22.0% for fiscal 1994. This
decrease in selling, general and administrative expenses as a percentage of
revenues for fiscal 1995 as compared to fiscal 1994 was due primarily to (i)
the Company's emphasis on cost reductions and administrative efficiencies
gained through economies of scale, (ii) the write-off of certain intangibles
in the Company's Continental Penfield subsidiary totalling $3,738,000 in
fiscal 1994, (iii) the exclusion from operating results in fiscal 1995 of a
division of Davis which was shut down in fiscal 1994, and (iv) certain charges
totalling $2,359,000 related to the rationalization of certain wastewater
operations. See Note 8 of Notes to Consolidated Financial Statements related
to such shutdown.
Due primarily to the decrease in selling, general and administrative
expenses as a percentage of revenues and the improvement in gross margin,
operating income as a percentage of revenues increased from a loss of 1.2% for
fiscal 1994 to 4.5% for fiscal 1995.
INTEREST EXPENSE
Interest expense increased to $7,514,000 for fiscal 1995 from $4,044,000 for
fiscal 1994. Interest expense for fiscal 1995 consisted primarily of interest
on the Company's 5% Convertible Subordinated Debentures due 2000 issued
October 20, 1993 and interest on increased borrowings under the Company's bank
line of credit, which was used to finance the Company's revenue expansion and
recent acquisitions.
OTHER INCOME (EXPENSE)
Other income (expense) increased $8,824,000 in fiscal 1995 from an expense
of $7,382,000 in fiscal 1994 to income of $1,442,000 in fiscal 1995. During
the fourth quarter of fiscal 1994, the Company's Davis subsidiary adopted a
plan to shutdown or reorganize the operations of its wholly owned subsidiary,
The Taulman Company ("Taulman"). The pre-tax loss provision for these actions
was recorded in fiscal 1994 and included the write-off of intangible assets
totaling $2,908,000 associated with Taulman and the accrual of $5,987,000 to
provide for anticipated losses during the shutdown.
INCOME TAX EXPENSE
Income tax expense increased to $4,812,000 for fiscal 1995 from a tax
benefit of $7,087,000 for fiscal 1994. This increase was attributable to
increased income 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 had 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
had been recognized. In addition, the Company had net operating loss
carryforwards generated from its Liquipure subsidiary of approximately
$13,500,000 for which no financial statement benefit was 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 Aluminum Corporation of America
until March 31, 1997. See Note 14 of Notes to Consolidated Financial
Statements related to income taxes.
NET INCOME
Net income increased to $12,239,000 for fiscal 1995 from a net loss of
$9,394,000 for fiscal 1994. Net income per common share increased to $0.41 per
share (based upon 28,235,000 weighted average common shares outstanding) for
fiscal 1995 from a net loss of $0.42 per common share (based upon 23,934,000
weighted average common shares outstanding) for fiscal 1994, after deducting
$715,000 and $701,000 for dividends on the Company's preferred shares for
fiscal 1995 and 1994, respectively.
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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 September 30, 1996, the Company had working capital of
$168,606,000, including cash and short-term investments of $20,304,000. The
Company's long-term debt at September 30, 1996 included $53,565,000 aggregate
principal amount of 5% Convertible Subordinated Debentures due 2000 (all of
which were converted into 4,390,000 shares of Common Stock on October 25,
1996), $140,000,000 of 6% Convertible Subordinated Notes due 2005 and other
long-term debt totalling $9,003,000 and bearing interest at rates ranging from
2.0% to 11.5%.
Capital expenditures totaled $8,050,000, $18,304,000 and $28,392,000 for
fiscal years ended March 31, 1994, 1995, and 1996, respectively. Although the
Company has no material firm commitments for capital expenditures, capital
expenditure requirements are expected to increase as a result of the Company's
anticipated growth, including from the acquisitions of WSMG, USG and WaterPro
and the pending acquisition of PED. The Company has no plans for further
investments in leasehold interests.
As of September 30, 1996, the Company had a multicurrency bank line of
credit of $135,000,000, of which there were outstanding borrowings of
$81,156,000 and outstanding letters of credit of $14,446,000. Pursuant to the
Credit Agreement, credit facilities of up to $700,000,000 have been made
available to the Company to finance acquisitions (including the WSMG
acquisition and the pending PED acquisition), to refinance any borrowings
under the Company's previous bank line of credit, and for working capital and
other general corporate purposes. Borrowings under the Credit Agreement are
secured by the stock of certain of the Company's United States subsidiaries.
Borrowings under the Credit Agreement bear interest at variable rates of up to
2.25% above certain Eurocurrency rates or 0.50% above The First National Bank
of Boston's base rate and have a five year maturity. The Company anticipates
that, following completion of the Notes Offering and/or the Common Stock
Offerings, the Company's bank credit facilities will be reduced to a level
that the Company considers appropriate for its working capital and other
needs.
As of March 31, 1996, the Company had net operating loss carryforwards
generated from Societe des Ceramiques Techniques S.A. ("SCT") of approximately
$19,952,000, for which no financial statement benefit has been recognized.
Approximately $1,946,000 of net operating loss carryforwards will expire in
fiscal years 1997 and 1998, while the remainder have an indefinite
carryforward period. The Company also has net operating loss carryforwards in
other European countries of approximately $7,338,000 which expire from fiscal
1997 to 2002 for which no financial statement benefit has been recognized. The
Company also has net operating loss carryforwards generated from Zimpro of
approximately $2,905,000 for which no financial statement benefit has been
recognized. No benefit has been given to these net operating loss carryfowards
because of the limited carryforward periods or the uncertain business
conditions relating to the operations giving rise to such carryforwards.
Future recognition of these net operating carryforwards will occur if the
operations of SCT and Zimpro generate sufficient earnings before the
expiration of the respective net operating loss carryforwards. In addition, 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 Aluminum Company
of America.
The Company also has available at March 31, 1996, other net operating loss
carryforwards for Federal income tax purposes of approximately $13,552,000
which expire from fiscal 2007 to 2010.
Pursuant to an agreement entered into in conjunction with the acquisition of
WaterPro, all former WaterPro stockholders and former WaterPro debtholders,
who together hold an aggregate of 3,201,507 shares of the Common Stock, have
the right, exercisable during the 90-day period commencing on December 27,
1996, to require the Company to purchase all or any portion of such shares of
Common Stock at a purchase price equal to $33.24 per share.
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Pursuant to an agreement to be entered into in conjunction with the pending
acquisition of PED, the Company has agreed to pay in cash the portion of the
purchase price otherwise payable in shares of Common Stock if such shares are
not at the time of issuance immediately saleable pursuant to the Company's
shelf Registration Statement on Form S-4. In addition, the Agreement provides
that if such shares are issued and any or all of them are sold within a
specified number of days after consummation of the acquisition for net
proceeds per share of less than an amount determined by dividing
(Pounds)25,000,000 by the number of shares issued, the Company will pay the
aggregate deficiency to PED in cash, and if the net proceeds per share exceed
such amount, PED will pay the aggregate excess to the Company in cash.
The Company believes its current cash position, cash flow from operations,
and available borrowings under the Credit Agreement will be adequate to meet
its anticipated cash needs for working capital, revenue growth, scheduled debt
repayment and capital investment objectives for at least the next twelve
months.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UNITED STATES FILTER CORPORATION
By: /s/ Damian C. Georgino
-----------------------
Damian C. Georgino
Vice President, General Counsel
and Secretary
Date: December 19, 1996
