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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: MARCH 31, 1996 COMMISSION FILE NUMBER: 1-10728
UNITED STATES FILTER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 33-0266015
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
40-004 COOK STREET, PALM DESERT, CA 92211
(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)
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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
such filing requirements for the past 90 days. Yes X No
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 5, 1996 was approximately $997,849,707. The number of
shares of Common Stock outstanding on June 5, 1996 was 29,134,298 shares.
Documents incorporated by reference:
1. Notice of 1996 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
GENERAL
United States Filter Corporation (the "Company") is a leading global
provider of industrial and commercial water treatment systems and services,
with an installed base of more than 100,000 systems worldwide. The Company
offers a single-source solution to its industrial, commercial and municipal
customers through what the Company believes to be the industry's broadest
range of cost-effective water treatment systems, services and proven
technologies. The Company capitalizes on its substantial installed base to
sell additional systems and utilizes its global network of 125 sales and
service facilities, including 21 manufacturing plants, to provide customers
with ongoing service and maintenance. In addition, the Company is a leading
international provider of service deionization ("SDI") and outsourced water
services, including operation of water purification and wastewater treatment
systems at customer sites. See "--Principal Products and Services."
The Company's principal executive offices are located at 40-004 Cook Street,
Palm Desert, California 92211 and its telephone number is (619) 340-0098.
References herein to the Company shall mean United States Filter Corporation
and its subsidiaries, unless the context requires otherwise.
The Company has, since 1991, acquired and successfully integrated more than
40 United States based and international businesses with strong market
positions and substantial water treatment expertise. These acquisitions have
enabled the Company to enter into additional geographic areas and industries
and to expand its installed base, service network and range of products and
technologies. The Company intends to actively seek additional acquisitions
that enhance its geographic network, customer base, and range of product
offerings, technologies and industries served.
Following March 31, 1995, the Company acquired the 14 businesses described
below, enhancing its manufacturing, sales and service capacity. In addition,
as part of the Company's efforts to become a direct distributor of standard
water treatment systems the Company acquired 12 distributors of the Company's
Continental product line in Arkansas, Colorado, Georgia, Louisiana, Oklahoma,
Tennessee, Texas and Washington and an additional distributorship in Texas.
U.S. Filter/Zimpro. The Company acquired Zimpro Environmental, Inc.
("Zimpro") on May 31, 1996 for approximately $18.0 million, all of which was
paid in shares of the Company's Common Stock, and liquidated existing
indebtedness to certain Zimpro shareholders by delivery of 114,994 shares of
the Company's Common Stock and $1.0 million in cash. Zimpro, based in
Rothschild, Wisconsin, is a leading manufacturer of wastewater treatment
equipment with significant proprietary technologies in wet air oxidation,
landfill leachate treatment systems, groundwater remediation, filtration and
sludge treatment systems. The Company's international expansion is expected to
open new markets for Zimpro's product line.
U.S. Filter/WTS. The Company acquired Wastewater Treatment Systems, Inc.
("WTS") on February 23, 1996 for approximately $1.8 million in cash. Prior to
its acquisition, WTS was a wholly owned subsidiary of Thames Water PLC, from
whom the Company also purchased Permutit (Egypt) Ltd., the Permutit Group and
the Home/Houseman companies during fiscal 1996 (described below) and Permutit
(U.S.A.) in fiscal 1993. WTS, located in San Francisco, California, designs
and assembles wastewater treatment systems with a specialization in
microelectronics, particularly in the Asian semiconductor fabrication market.
With its expertise in acid waste neutralization and metals precipitation, WTS
is well positioned geographically and technically to complement and support
the Company's process water efforts in the microelectronics industry.
Permutit (Egypt) Ltd. Concurrently with the Company's acquisition of WTS,
the Company acquired Permutit (Egypt) Ltd. ("Permutit (Egypt)") for
approximately $750,000 paid entirely in cash. Located near Cairo, Permutit
(Egypt) designs water treatment systems used primarily in the Middle East and
adds seawater desalination, potable and wastewater treatment technologies to
the Company's current product offerings in that area of the world.
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KBS Pure Water Pte. Ltd. and KBS Pure Water Sdn. Bhd. The Company acquired
KBS Pure Water Pte. Ltd. and KBS Pure Water Sdn. Bhd. (together "KBS") on
February 13, 1996 for $6.0 million, $3.0 million of which was paid in cash and
$3.0 million of which was paid in shares of the Company's Common Stock. With
manufacturing and regeneration plants in Singapore and Malaysia, KBS supplies
a variety of water treatment services, including SDI, water purification
equipment and wastewater equipment to microelectronics manufacturers and other
industrial customers in Asia. In connection with the acquisition of KBS, the
Company also acquired a 30,000 square foot facility in Singapore to
accommodate expansion of KBS and the Company in Asia.
Jet-Tech, Inc. The Company acquired Jet-Tech, Inc. ("Jet-Tech") on January
1, 1996 for $3.3 million in cash and $10.7 million of the Company's Common
Stock. Jet-Tech designs, manufactures and installs wastewater treatment
systems for industrial and municipal users, emphasizing the use of proprietary
jet mixing and aeration technology to biologically destroy contaminants. Jet-
Tech's advanced technologies include Sequencing Batch Reactors ("SBR's") and
Autothermal Thermophilic Aerobic Digesters ("ATAD's") which treat sludge and
biosolids for land application or landfilling. Jet-Tech's network of
approximately 40 U.S. and approximately 25 international manufacturers'
representatives expands the Company's distribution system and Jet-Tech's
manufacturing capabilities complement the Company's already strong
design/build capabilities in the wastewater business.
Bekox, S.A. The Company acquired Bekox, S.A. ("Bekox") of Madrid Spain in
December 1995 for approximately $6.0 million, half of which was paid in shares
of the Company's Common Stock. Bekox designs and manufactures large reverse
osmosis systems for industrial and commercial markets throughout Spain and
Latin America. Bekox has an installed base of over 400 systems with extensive
experience in brackish water and seawater desalinization.
Home/Houseman. The Company acquired Home Waterbehandeling B.V. of the
Netherlands ("Home") and Houseman B.V. of the Netherlands, including Houseman
N.V. of Belgium (together "Houseman"), on November 10, 1995 for approximately
$10.0 million in cash from Thames Water plc. Home designs, assembles and
installs water purification and wastewater treatment systems for industrial,
commercial and hospital markets and provides SDI to companies in the
Netherlands. Houseman provides water treatment equipment, chemicals and
services to industrial users as well as specialty products and services used
in steam boilers and cooling systems for the power, petrochemical, pulp and
paper, and construction industries. These acquisitions strengthened the
Company's product and service offerings in the Netherlands and Belgium and
provided additional distribution capability for Company products manufactured
in Europe and the United States.
Polymetrics, Inc. The Company acquired Polymetrics, Inc. and subsidiaries
("Polymetrics") on October 2, 1995 for $60.2 million, subject to adjustment,
$51.7 million of which was paid in cash and the balance was paid in shares of
the Company's Common Stock. Polymetrics is a leader in the design,
manufacture, installation and service of water treatment systems for the
electronics, pharmaceutical, laboratory, power generation and cogeneration
industries. Polymetrics' locations in California, Colorado, Oregon and
Washington increase the Company's presence in the western United States.
Polymetrics also enhances the Company's customer base in the electronics
industry and complements the Company's service business, including SDI.
Interlake Water Systems. The Company acquired Continental H/2/O Services,
Inc. and Evansville Water Corporation d/b/a Interlake Water Systems
("Interlake") on August 11, 1995 for $20.1 million in cash and $7.0 million of
the Company's Common Stock. Interlake is a leading provider of water treatment
services, including SDI, in Illinois and Michigan. In addition, Interlake
sells and services a broad range of standard and custom-engineered water
treatment systems and is the largest distributor of the Company's Continental
product line in the United States. Interlake enhances the Company's customer
base in the automotive and pharmaceutical industries, and Interlake's SDI
business complements the Company's service business.
Arrowhead Industrial Water, Inc. The Company acquired Arrowhead Industrial
Water, Inc. ("Arrowhead") on May 4, 1995 for $82.0 million in cash and $2.3
million of the Company's Common Stock. Arrowhead is a leading supplier of
owned and operated on-site industrial water treatment systems, as well as a
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leading provider of mobile water treatment services in North America. Arrowhead
enhances the Company's ability to provide customers with outsourced water
purification systems and services, for which the Company believes there is
growing demand. In addition, Arrowhead enhances the Company's technological and
service capabilities, expands its service branch network, increases its
customer base and provides certain synergies, including the use of the
Company's engineering and manufacturing capabilities to design and build
Arrowhead water treatment equipment.
Treated Water Outsourcing, a Nalco/U.S. Filter Joint Venture. In conjunction
with the Company's acquisition of Arrowhead, the Company formed Treated Water
Outsourcing, a Nalco/U.S. Filter Joint Venture ("TWO"), with Nalco Chemical
Company ("Nalco") on June 9, 1995 to focus on the outsourcing of industrial and
commercial customers' water treatment needs. TWO, which is 50% owned by a
subsidiary of Nalco and 50% owned by a subsidiary of the Company, was formed to
finance, build, own and operate water treatment systems at customer sites under
long-term contracts. Nalco, a leader in water chemistry, supplies the chemicals
necessary for TWO's water treatment systems, while the Company supplies the
capital equipment, design and service functions to meet TWO's customers' needs.
TWO has access to Nalco's extensive sales force and customer base. Nalco and
the Company each provide advisory and administrative services in order to
assist TWO in bid and contract preparation and marketing. The Company believes
that the formation of TWO enhances the Company's position as one of the leading
providers of outsourced water services in the world.
The Permutit Group. The Company acquired The Permutit Group (as defined) on
April 3, 1995 for approximately $10.0 million in cash. The "Permutit Group,"
comprising The Permutit Company Limited and The Permutit Company Pty Ltd., has
a strong position in the United Kingdom, Australian and New Zealand markets in
ion exchange and membrane technology. The Permutit Group also offers a range of
products, including pre-engineered water treatment systems for the
pharmaceutical, laboratory and chemical markets and other commercial customers.
The Permutit Group's comprehensive service network complements the Company's
already strong presence in western Europe and enhances its presence in the
Pacific Rim.
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.
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.
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 bottled
water and household point-of-use products, such as domestic filtration systems
and parts. The Company does not currently supply the market for individual
consumers. The industries' two other categories of customers are described
below.
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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 that, 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.
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 and wastewater.
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, including privatization.
PRINCIPAL PRODUCTS AND SERVICES
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, ion exchange resin and carbon); and support services that
include ongoing service and maintenance. The Company offers a single-source
solution to these customers through what the Company believes to be the
industry's broadest range of cost-effective treatment systems, services and
proven technologies. The Company's principal products and services can be
divided into the following three groups: capital equipment, services, and
replacement parts and consumables.
Capital Equipment. Through its 21 manufacturing facilities, the Company
manufactures both preengineered and customized treatment systems and utilizes
more than 19 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. See "--Technologies." The
Company designs, engineers, manufactures and assembles its systems at its
manufacturing facilities located in the United States, Europe, Australia and
Asia. Components that are not manufactured by the Company are purchased from
vendors in the United States and internationally. The Company utilizes a
global sales and service force to provide direct contact and service to its
customers.
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Services. The Company's service business consists of short- and long-term
contracts for the operation of customer- or Company-owned water treatment
systems and ongoing service and maintenance of existing systems. The Company
is a leading provider of 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 ion exchange resins as the
filtration medium to produce ultrapure water and is designed to be easily
connected to a local feed water supply. 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.
The Company's "PWMP," or Pure Water Management Program, is a custom-designed
system installed and operated on the customer's site by the Company's trained
service technicians. The system design is tailored to the customer's specific
pure water requirements. The Company gives special attention to the critical
pretreatment process to ensure operational reliability. A PWMP contract
encompasses the following: a measurement of the quality and quantity of
purified water needed; a definition of system space requirements; system
utility requirements; process and instrumentation design; feedwater
parameters; and the length of contract and pricing considerations. The Company
is a leading worldwide provider of managed water services.
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 currently manages 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.
Since that time the Company has been awarded two other contracts to operate
similar facilities in other parts of Latin America. The Company also
supervises, under a long-term contract, the operation of a water desalination
plant in the Cayman Islands.
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 that 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, ion exchange resin and carbon, to its
customers.
The following table sets forth the percentage breakdown of the Company's
revenues, as restated, by product category for the periods indicated:
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FISCAL YEAR ENDED
MARCH 31,
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1994 1995 1996
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Revenues by product
category:
Capital equipment....... 63% 60% 49%
Services and operations. 19 19 31
Replacement parts,
consumables and other.. 18 21 20
</TABLE>
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CUSTOMER MARKETS AND PRODUCT APPLICATIONS
The markets for the Company's services and products span many industries and
many geographic locations, including the United States, Europe, Latin America,
Asia and the Pacific Rim. Information regarding the amount of revenue,
operating income (loss) and assets attributable to for each of the past three
fiscal years is incorporated herein by reference to Note 17 of Notes to
Consolidated Financial Statements. The following are industries 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.
Microelectronics. Microelectronics 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.
Automotive. The Company designs, manufactures, sells, services and operates,
on a global basis, a broad portfolio of technologies for the automotive
industry. The specific manufacturing processes include metal processing, metal
finishing, assembly and non-metal processing. Each of these processes operates
under the strictest of quality, process control and regulatory requirements.
The Company offers all of the technologies necessary to meet these
requirements including physical, chemical and biological methods. The Company
can deliver these technologies as bid-to-specification equipment, full
turnkey, service, build-own-operate or any combination of the above. Of
particular importance are the Company's capabilities in the areas of water
reuse and resource recovery.
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.
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.
Metal Finishing. The Company's metal treatment and recovery systems
facilitate regulatory compliance of effluent and reduce the level of heavy
metals and solids generated from metal finishing operations such as printed
circuit board manufacturing, electroplating, galvanizing and anodizing. The
Company's key technology offerings include ion exchange, reverse osmosis,
electrolytic recovery, adsorption filtration, ceramic membrane
ultrafiltration, as well as a full complement of conventional precipitation
settling and filtration technologies.
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
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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.
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.
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/Research and Development/Quality Control/Chemical
Analysis. Cartridge-type reverse osmosis filters, deionization systems,
electrodialysis 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.
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 low- and high-
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.
SALES AND MARKETING
As part of the Company's marketing 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.
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The Company's worldwide distribution network includes 125 sales and service
facilities and approximately 95 manufacturers' representatives, 69
international representatives, and numerous distributors and licensees. During
1996 the Company increased its direct sales and service capability by
acquiring 12 distributors of the Company's Continental product line in eight
states.
The Company provides engineering and sales support to independent
manufacturers' representatives, who may be assigned certain geographic
territories and are paid on a commission basis. A number of licensees
manufacture and sell certain of the Company's products in 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. In addition, a portion of the Company's revenues are derived from
recommendations by independent engineers and consultants who advise the
ultimate customer.
For the fiscal years ended March 31, 1994, 1995 and 1996, the Company's
international sales were approximately $37,841,000, $104,132,000 and
$202,943,000, respectively, and accounted for approximately 21%, 38% and 43%,
respectively, of the Company's total sales.
BACKLOG AND SEASONALITY
The Company had the following backlog as of March 31, 1995 and 1996, which
includes capital equipment purchase orders and revenues expected to be
generated during the next 12 months under certain long-term contracts. The
capital equipment orders are scheduled for delivery and installation during
the following 12 months and are believed by management to be firm.
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DATE AMOUNT
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March 31, 1995............................................... $132,074,000
March 31, 1996............................................... $183,024,000
</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 shorter or 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-funded and government-funded research spending, in order to provide
its customers with state-of-the-art products. In addition, the Company uses
its analytical laboratories to perform water analyses and to test the
effectiveness of filtration media and techniques in order to enhance the
Company's capability to design systems tailored specifically for the
particular needs of customers. The Company has also acquired companies with
advanced research and development capabilities. The Company's research and
development expenditures for the fiscal years ended March 31, 1994, 1995 and
1996 were approximately $5,350,000, $4,408,000 and $5,525,000, respectively.
9
<PAGE>
RAW MATERIALS AND SUPPLIES
Raw materials, primarily steel, filtration media, ion exchange 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 treatment industry is fragmented, with numerous regional
participants who are limited in their geographic scope. This fragmentation is
primarily due to local differences in water quality and supply, different
levels of demand for water resulting from varying concentrations of industry
and population, and local governmental regulation. Most participants in the
water treatment industry provide a limited number of treatment technologies, a
limited number of products or services, or focus on a particular industry.
While the number of industry participants ranges from several 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. The Company believes it offers the industry's broadest range of
cost-effective treatment systems, services and proven technologies.
The markets in which the Company competes are highly competitive. 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, ability to obtain sufficient performance
bonds, timely delivery, the relative ease of operation and maintenance and the
prompt availability of replacement 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
competitors that are divisions or subsidiaries of larger companies which have
significantly greater resources than the Company.
TECHNOLOGIES
Water and wastewater treatment methods utilized by the Company can be
classified into 19 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 activities such as electroplating. The
Company is involved in ion exchange resin and equipment sales, resin
regeneration and related service and customer applications.
Short Cycle Ion Exchange (SCION). The Company has developed a complete range
of proprietary packaged counter-current demineralizer sold under the name of
SCION. SCION produces high-purity waters without the
10
<PAGE>
problems usually associated with the more conventional ion exchange plants.
This range of equipment is supplied as pre-engineered systems and is widely
used throughout industry, especially in the pharmaceutical and power
industries, in which reliable high-quality equipment and water is essential to
their operations.
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. The
Company has also developed a unique double-pass, reverse osmosis system. The
patented process uses interstage chemical injection to adjust pH gases to
their ionic form, which can be effectively removed by the reverse osmosis
membranes. This technology permits the production of water that can be several
orders of magnitude purer than conventional single-pass systems, while
significantly reducing the chemical consumption associated with ion exchange.
This process is widely used in the electronics and power industries, in which
ultra-high purity water is essential.
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 in which particle sizes are
larger than those of metal or salt ions.
Microfiltration. Relatively low hydraulic pressure is used for separating
rather large particles and high molecular weight species from water. Uses
include the clarification of fruit juices prior to bottling.
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
Roseville, MN 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.
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 and oxidation methods used by the
Company have included chlorine, chlorine dioxide, ultraviolet irradiation,
ozone, permanganate, high pressure and high temperature techniques 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.
11
<PAGE>
Disinfection. Disinfection is a process in which disease-producing organisms
are destroyed or otherwise inactivated. The Company has applied this process
in several physicochemical 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 gases and dissolved inorganic materials such as iron and
manganese. Aeration is commonly applied in wastewater treatment and is used in
the Company's aerobic bio-tower and induced air flotation. Other gas transfer
technologies available from the Company include decarbonator, denitrifier,
chemical scrubber and nitrification equipment.
Sludge Treatment. Sludge treatment is utilized to reduce the volume of
hazardous sludge generated by a customer and requiring disposal. The Company's
processes are focused on altering the nature of the sludge in order to render
it inoffensive. The Company accomplishes this by applying techniques to
condition, thicken, dewater and dry the sludge prior to ultimate disposal. In
addition to its existing municipal and industrial water and wastewater sludge
applications, the Company is attempting to develop a sludge stabilization
process to render hazardous sludge nonhazardous.
Sedimentation. Gravitational separation by sedimentation is generally an
effective way to remove solids from water and wastewater. However, different
types of solids have distinctly different settling characteristics. As a
result, the selection of sedimentation equipment for clarification of water or
wastewater requires a 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.
Ceramic Filtration. The Company manufactures ceramic membranes for
filtration. Selective separations can be achieved using Membralox ceramic
membranes in various operating environments--high pressure, high temperature,
harsh chemicals or other extreme operating conditions. Membralox membranes can
increase yields, recover valuable products and concentrate streams in process
operations. These membranes are ideal for use in chemical and petrochemical
processing, food, beverage, dairy, pharmaceutical, process water, and waste
treatment applications. The Company also derives a portion of its revenues
from the sale of industrial ceramics. The Company is a worldwide leader in
ceramic technologies and has established itself as a leading manufacturer of
technologically sophisticated ceramic products. These products include
satellite battery components, capacitors, translucent tubes, fiber-optic
ferrules, biomedical devices and semiconductor housings for many applications,
including the French high-speed rail system.
Incineration and Cogeneration. Incineration is the process of thermal
oxidation of organic compounds to carbon dioxide and water vapor, leaving only
inorganic components such as ash. When organics are burned at high
temperature, off gas is generated with high heat content that can be
recovered. Heat recovery is typically carried out using heat recovery boilers
to produce steam. This steam can be used for heating purposes or by steam
turbines to produce electricity.
12
<PAGE>
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.
ENVIRONMENTAL REGULATION
Demand for the Company's products is affected in part by various
environmental laws and regulations enacted throughout the world 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 certain of 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 affect on the
Company.
On December 19, 1995 the Regional Administrator of the United States
Environmental Protection Agency ("EPA"), Region I, issued an administrative
order (the "EPA Order") in connection with wastewater discharges at an ion
exchange regeneration facility in South Windsor, Connecticut (the "Facility")
owned by U.S. Filter/Polymetrics, Inc., a wholly-owned subsidiary of the
Company ("USFP"), requiring USFP to immediately cease all discharges not in
compliance with applicable pretreatment standards under the United States
Clean Water Act, as amended, and other applicable statutes and regulations.
USFP subsequently received a Notice of Violation (the "NOV") from the
Connecticut Department of Environmental Protection (the "DEP") alleging
multiple violations of the Facility's discharge permit and of the regulations
of the Connecticut state agencies regarding wastewater treatment. USFP was
required to verify by February 12, 1996 that such violations had been
corrected, and it has provided such verification. The DEP reserved in the NOV
the right to take further actions with respect to the alleged violations or
any other violations. A grand jury investigation is pending which is believed
to be related to the same conditions that were the subject of the EPA Order
and the NOV. USFP is continuing to investigate the matter and has been
cooperating with regulatory authorities. The Facility was acquired by the
Company as part of its acquisition of all of the stock of Polymetrics from
Anjou International Company ("Anjou") on October 2, 1995. The Company has
rights of indemnity from Anjou which could be available with respect to
monetary damages and penalties which may be incurred in connection with any
such violations which occurred prior to the Company's acquisition of
Polymetrics.
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 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.
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 Alcoa
13
<PAGE>
Separations Technology, Inc. ("ASTI") from Aluminum Company of America
("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 of such remediations is material.
USF Recovery Services Inc., a subsidiary, 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, Inc. pursuant to the U.S. Resource Conservation and Recovery Act
("RCRA") for such activities. The State of Minnesota is authorized to enforce
the hazardous waste laws under RCRA.
In addition, to some extent, the liabilities and risks imposed by
environmental laws that affect the Company's customers may adversely impact
demand for certain of 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
$35,000,000 per occurrence and in the aggregate, with a self-insured retention
of $100,000. The Company also maintains environmental pollution liability
insurance in the amount of $5,000,000 per occurrence and in the aggregate,
with a self-insured retention of $250,000.
EMPLOYEES
As of March 31, 1996, the Company had approximately 3,000 full-time
employees assigned to the Company's various worldwide offices and facilities.
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, on April 1, 1999 and April 30, 1998.
Certain of the Company's non-United States based employees also are covered by
collective bargaining agreements. The Company believes that its relationships
with the unions and with its non-represented employees are good.
14
<PAGE>
EXECUTIVE OFFICERS
The executive officers of the Company as of June 14, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<C> <C> <S>
Richard J. Heckmann 52 Chairman of the Board of Directors,
Chief Executive Officer and
President
Michael J. Reardon 42 Director and Executive Vice
President
Nicholas C. Memmo 34 Executive Vice President--Process
Water Group
Thierry Reyners 52 Executive Vice President--European
Group
Andrew D. Seidel 34 Senior Vice President--Wastewater
Group
Kevin L. Spence 39 Vice President and Chief Financial
Officer
Damian C. Georgino 35 Vice President, General Counsel and
Secretary
Tim L. Traff 37 Director and Senior Vice President
John S. Swartley 57 Senior Vice President--Corporate
Development
James W. Dierker 33 Vice President, Controller and
Treasurer
Michael E. Hulme, Jr. 34 Assistant General Counsel and
Assistant Secretary
</TABLE>
Richard J. Heckmann was elected Chairman of the Board of Directors, Chief
Executive Officer and President 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 United States 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 a member of the management board of TWO. He is also a director of
U.S.A. Waste Services, Inc.
Michael J. Reardon was appointed Executive Vice President of the Company in
June 1995, having previously served as Executive Vice President and Chief
Operating Officer, and prior to that as the Chief Financial Officer and
Secretary of the Company. From May 1995 to April 1996, Mr. Reardon served as
president of Arrowhead Industrial Water, Inc. He became President and General
Manager of Illinois Water Treatment, Inc. ("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. Mr. Reardon is a member of the management board of TWO
(USF/Nalco Joint Venture). In June 1978, Mr. Reardon received a B.S. in
Business Administration from California State Polytechnic University, Pomona,
California, and in 1995 attended the Kellogg Management Institute,
Northwestern University, Evanston, Illinois.
Nicholas C. Memmo was appointed Executive Vice President--Process Water on
July 1, 1995, having previously served as Senior Vice President and General
Manager of Ionpure since 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 Executive Vice President--European Group on
July 1, 1995, having previously served as Senior Vice President--Europe since
March 7, 1994. He had previously been Senior Vice President--European Sales
since December 1, 1993, the date the Company acquired Ionpure. Mr. Reyners
served
15
<PAGE>
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 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 Executive Vice President--Wastewater Group on
July 1, 1995, having previously served as Senior Vice President--Wastewater
Group and General Manager of U.S. Filter, Inc., Warrendale, Pennsylvania,
since September 28, 1993. He had 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,
1991 and has been Chief Financial Officer of the Company since January 6, 1992
and was Treasurer from February 17, 1992 until June 9, 1995. 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.
Damian C. Georgino was appointed Vice President, General Counsel and
Secretary of the Company on August 4, 1995. From September 1992 through July
31, 1995, he served as General Attorney with Aluminum Company of America
("Alcoa"), where his primary responsibilities included mergers and
acquisitions and serving as chief legal counsel for several growing
international manufacturing and service businesses. From June 1988 through
August 1992, Mr. Georgino was an Attorney with Alcoa, where his primary
responsibilities included securities, mergers and acquisitions and corporate
finance. From June 1986 through May 1988, he was an associate with Houston
Harbaugh P.C. Mr. Georgino received a B.S. degree in economics and political
science from Dickinson College in 1982 and received a JD/MBA joint degree from
Emory University in 1986.
Tim L. Traff was appointed a Senior Vice President of the Company on
December 8, 1992, having previously 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.
John S. Swartley was appointed Senior Vice President--Corporate Development
on July 1, 1995, having previously served as a Vice President since July 1994,
when the Company acquired Liquipure Technologies, Inc. ("Liquipure"). 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.
James W. Dierker was appointed Vice President, Controller and Treasurer on
June 9, 1995. From July 1985 to June 1995 he was with KPMG Peat Marwick LLP,
and was a senior manager with that firm at the time of his departure. Mr.
Dierker is a certified public accountant, and received a B.S. degree in
business administration with an emphasis in accounting from California State
Polytechnic University in Pomona.
16
<PAGE>
Michael E. Hulme, Jr. was appointed Assistant General Counsel and Assistant
Secretary on February 13, 1996. From December 1994 through January 1996, he
served as Vice President/Corporate Counsel of Forte Hotels, Inc., formerly a
wholly owned subsidiary of Forte Plc, and from October 1992 through December
1994 as Corporate Counsel of Forte Hotels, Inc. His primary responsibilities
included hotel and real estate development, acquisition and sale transactions.
From 1989 through 1992 he was a business associate with the law firm of Duckor
& Spradling, and from 1986 through 1989 he was an associate with the law firm
of Best, Best & Krieger. Mr. Hulme received an B.A. degree in economics from
the University of California at Davis in 1983 and received a JD from the
University of Southern California in 1986.
ITEM 2--PROPERTIES
The Company has a global network of 125 sales and service facilities,
including 21 manufacturing plants. Because the Company has grown by
acquisition, the Company's facilities vary in terms of age and condition, but
management generally believes that these facilities are suitable and adequate
for their respective operations. As discussed in "Business--General," the
Company intends to seek additional properties to enhance its geographic
network, customer base, and range of product offerings, technologies and
industries served.
The Company's principal facilities as of March 31, 1996 are listed below.
Many of the Company's manufacturing facilities operated at or near their
productive capacities during 1996. Of those facilities listed below which are
owned, three are subject to mortgages securing notes payable due in fiscal
years 1999 and 2009. See Note 11 of Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
DATE OF
SQUARE FOOTAGE LEASE
FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED) EXPIRATION
----------------- ------------- ----------------- ----------
<C> <S> <C> <C>
NORTH AMERICA
Pure Water
U.S. Filter/IWT Industrial process 163,000 (owned) --
Rockford, IL filtration and treatment
systems
U.S. Filter/Whittier Industrial and municipal 89,500 (leased) 03/31/99
Whittier, CA water treatment systems
U.S. Filter/Ionpure Ultrapure water systems; 57,692 (leased) 04/01/00
Lowell, MA CDI; regional
administrative center
U.S. Filter/Continental Ultrapure water systems; 33,246 (leased) 04/29/98
San Antonio, TX SDI
U.S. Filter/Polymetrics Industrial process 23,000 (leased)* 08/31/96
Colorado Springs, CO filtration; ultra pure 11,500 (leased)* 06/30/96
water systems and water
treatment systems
U.S. Filter/Penfield Ultrapure water systems 23,300 (leased) 03/31/07
Plantsville, CT
U.S. Filter/Permutit Condensate polishing 20,460 (leased) 01/31/01
Warren, NJ equipment
U.S. Filter/Arrowhead** Headquarters for on-site 14,758 (leased) 05/31/99
Lincolnshire, IL and mobile treatment
systems and services;
SDI
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
DATE OF
SQUARE FOOTAGE LEASE
FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED) EXPIRATION
----------------- ------------- --------------- ----------
<C> <S> <C> <C>
NORTH AMERICA
Wastewater
U.S. Filter/Zimpro*** Wastewater treatment 94,579 (owned) --
Rothschild, WI equipment for industrial
and municipal users
U.S. Filter/Warrendale Assembly of treatment 71,000 (owned) --
Warrendale, PA systems; SDI
U.S. Filter/WTS Industrial wastewater 35,000 (leased) 11/20/00
Sunnyvale, CA treatment systems
U.S. Filter/Jet Tech Wastewater treatment 30,000 (owned) --
Edwardsville, KS systems for industrial
and municipal users
EUROPE
U.S. Filter/SCT Ceramic filters and 170,000 (owned) --
Tarbes, France various industrial
ceramic components
U.S. Filter/Seral Laboratory equipment 73,000 (owned) --
Ransbach-Baumbach, Germany manufacturing; SDI
U.S. Filter/Permutit Water treatment systems; 30,000 (leased) 03/25/05
Manchester, England SDI
U.S. Filter/Ionpure Water treatment systems 25,000 (leased) 11/15/99
Trappes, France
U.S. Filter/Smogless Plastic media 21,650 (owned) --
Naples, Italy
U.S. Filter/Bekox Water treatment systems 20,174 (owned) --
Madrid, Spain
U.S. Filter/Smogless Wastewater treatment 16,250 (leased) 02/29/00
Milan, Italy services for industrial
and municipal customers
U.S. Filter/Sanilo Water treatment systems; 14,450 (owned) --
Toulouse, France SDI
U.S. Filter/Sanilo Water treatment systems; 11,000 (owned) --
Amboise, France SDI
ASIA
U.S. Filter (Asia) Pte. Ltd. Water treatment systems, 30,000 (owned) --
Woodlands, Singapore ultrapure water systems;
SDI
U.S. Filter/Permutit Water treatment systems 14,500 (leased) 03/30/98
New South Wales, Australia
</TABLE>
- --------
* The Company purchased a 77,000 square foot building in Colorado Springs
which it intends to occupy during the summer of 1996.
** The Company intends to close this facility at the end of summer 1996, at
which time operations will be moved to the Rockford, Illinois facility.
***Acquired on May 31, 1996 in connection with the acquisition of Zimpro.
As part of its service business, the Company, through its subsidiaries and
TWO, builds, owns and/or leases and operates water purification and wastewater
facilities under long-term operating contracts on behalf of industrial users
and public water and wastewater treatment providers.
18
<PAGE>
In addition, the Company operates 36 regeneration plants in 16 states and
nine countries, of which seven are owned and the majority of the remainder are
held under short-term leases. As part of the Company's SDI business, these
regeneration plants use chemical processes to recharge exhausted resins used
in portable water deionization treatment equipment. The Company also owns and
operates a 69,000 square foot RCRA Part B hazardous waste treatment facility
located in Roseville, Minnesota. Further, under concession agreements with
various governmental entities, the Company operates municipal treatment
facilities in Latin America, including a residential wastewater treatment
facility located in the City of Cuernavaca, Mexico.
As further described in "Business--Sales and Marketing," the Company owns 12
distributors of the Company's Continental product line located in eight
states. Each company-owned distributor occupies approximately 10,000 square
feet.
In March 1996 the Company moved its corporate headquarters to a new location
in Palm Desert, California. The two-story office building in which corporate
headquarters are now housed is owned by the Company and has 18,000 square feet
of floor space.
ITEM 3--LEGAL PROCEEDINGS
The information required by this Item is incorporated by reference to Item 1
of Part I of this Form 10-K under the caption "Environmental Regulation."
ITEM 4--SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
19
<PAGE>
PART II
ITEM 5--MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE AND HOLDERS OF COMMON STOCK
The Common Stock of the Company (the "Common Stock") is listed on the New
York Stock Exchange and traded under the symbol "USF." The following table
sets forth for the quarters indicated the high and low composite sales prices
as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal year ended March 31, 1995
1st Quarter................................................... $14.50 $12.17
2nd Quarter................................................... 14.67 12.25
3rd Quarter................................................... 16.13 13.17
4th Quarter................................................... 16.88 15.00
Fiscal year ended March 31, 1996
1st Quarter................................................... 19.63 14.88
2nd Quarter................................................... 24.13 18.75
3rd Quarter................................................... 27.00 20.13
4th Quarter................................................... 29.00 24.63
</TABLE>
On June 24, 1996, the last reported sales price for the Common Stock on the
New York Stock Exchange was $33.88 per share. The number of holders of record
of the Common Stock on June 18, 1996 was 4,062.
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. 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)
-----------------------------------------------
1992(2) 1993(3) 1994(4) 1995(5) 1996(10)
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues...................... $62,840 $128,376 $180,421 $272,032 $472,537
Cost of sales................. 48,259 93,896 132,811 193,432 328,057
------- -------- -------- -------- --------
Gross Profit.................. 14,581 34,480 47,610 78,600 144,480
Selling, general and adminis-
trative expenses............. 20,871 33,832 52,484 64,015 109,525
------- -------- -------- -------- --------
Operating income (loss)....... (6,290) 648 (4,874) 14,585 34,955
Interest expense.............. (1,016) (1,327) (2,077) (5,384) (12,546)
Other income.................. 770 639 1,174 1,787 4,963
Provision (benefit) for income
taxes........................ 51 298 (3,236) 2,657 7,082
------- -------- -------- -------- --------
Income (loss) before extraor-
dinary items................. (6,587) (338) (2,541) 8,331 20,290
Extraordinary items(6)........ -- 405 -- -- --
------- -------- -------- -------- --------
Net income (loss)............. $(6,587) $ 67 $ (2,541) $ 8,331 $ 20,290
======= ======== ======== ======== ========
Weighted average number of
common shares outstanding(8). 7,846 10,095 12,453 15,026 24,309
PER COMMON SHARE DATA:(7)(8)
Income (loss) before extraor-
dinary items................. (0.88) (0.16) (0.26) 0.51 0.81
Extraordinary items(6)........ -- 0.04 -- -- --
------- -------- -------- -------- --------
Net income (loss)............. $ (0.88) $ (0.12) $ (0.26) $ 0.51 $ 0.81
======= ======== ======== ======== ========
CONSOLIDATED BALANCE SHEET
DATA (END OF PERIOD):
Working capital............... $11,445 $ 23,471 $ 66,018 $ 82,208 $103,257
Total assets.................. 89,501 121,178 253,185 378,728 789,011
Long-term debt, including
current portion.............. 10,002 5,012 4,913 10,825 9,680
Convertible subordinated debt. -- -- 60,000 105,000 200,000
Stockholders' equity.......... 41,219 79,631 125,610 137,144 341,335
</TABLE>
21
<PAGE>
The historical consolidated financial data for all periods presented prior
to fiscal 1995 has been restated to include the accounts and operations of
Liquipure Technologies, Inc. ("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, 1992, 1993,
1994, 1995 and 1996 are presented below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
----------------------------------------------
1992(2) 1993(3) 1994(4) 1995(9) 1996(10)
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES:
Company (as previously
reported)..................... $41,238 $101,397 $147,870 $272,032 $472,537
Liquipure...................... 21,602 26,979 32,551 -- --
------- -------- -------- -------- --------
Combined....................... $62,840 $128,376 $180,421 $272,032 $472,537
GROSS PROFIT:
Company (as previously
reported)..................... $ 8,692 $ 27,166 $ 39,046 $ 78,600 $144,480
Liquipure...................... 5,889 7,314 8,564 -- --
------- -------- -------- -------- --------
Combined....................... $14,581 $ 34,480 $ 47,610 $ 78,600 $144,480
======= ======== ======== ======== ========
OPERATING INCOME (LOSS):
Company (as previously
reported)..................... $(4,165) $ 4,708 $ 2,089 $ 14,585 $ 34,955
Liquipure...................... (2,125) (4,060) (6,963) -- --
------- -------- -------- -------- --------
Combined....................... $(6,290) $ 648 $ (4,874) $ 14,585 $ 34,955
======= ======== ======== ======== ========
NET INCOME (LOSS):
Company (as previously
reported)(6).................. $(3,964) $ 4,402 $ 4,986 $ 8,331 $ 20,290
Liquipure...................... (2,623) (4,335) (7,527) -- --
------- -------- -------- -------- --------
Combined....................... $(6,587) $ 67 $ (2,541) $ 8,331 $ 20,290
======= ======== ======== ======== ========
NET INCOME (LOSS) PER COMMON
SHARE:(6)(7)(8)
As previously reported......... $ (0.71) $ 0.38 $ 0.41 $ 0.51 $ 0.81
------- -------- -------- -------- --------
As restated.................... $ (0.88) $ (0.12) $ (0.26) $ 0.51 $ 0.81
======= ======== ======== ======== ========
</TABLE>
- --------
(1) The historical consolidated financial data for all periods presented prior
to fiscal 1995 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) The fiscal year ended March 31, 1992 includes eight months of results of
Lancy Waste Management Systems (now U.S. Filter, Inc., Warrendale, PA),
acquired on July 31, 1991, and three months of results of Alcoa
Separations Technology, Inc. ("ASTI"), acquired from a subsidiary of
Aluminum Company of America ("Alcoa") on 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) The fiscal year ended March 31, 1993 includes 12 months of results of
Societe des Ceramiques Techniques S.A. ("SCT"), acquired on April 1, 1992,
and three months of results of The Permutit Company, Inc., a United States
company acquired on January 5, 1993. Both acquisitions were accounted for
as purchases. See Note 9 of Notes to Consolidated Financial Statements.
(4) The fiscal year ended March 31, 1994 includes four months of results of
Ionpure Technologies Corporation and IP Holding Company ("Ionpure"),
acquired on December 1, 1993 and accounted for as a purchase.
22
<PAGE>
Selling, general and administrative expenses for the year ended March 31,
1994 reflect four months of integration of Ionpure and certain charges
totaling $2,359,000 related to the rationalization of certain wastewater
operations.
(5) The fiscal year ended March 31, 1995 includes the results 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) Includes an extraordinary gain of $405,000 for the fiscal year ended March
31, 1993 resulting from the 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, $715,000 for the fiscal year ended March 31, 1995 and $536,000 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. On March 4, 1996, the holder of the Series A Preferred
Stock converted its shares into Common Stock.
(8) Reflects a 3-for-2 split of the Common Stock 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.
(10) The financial data for the year ended March 31, 1996 includes the results
of operations of Polymetrics, Interlake, Arrowhead and the Permutit Group
from the dates of their respective acquisitions, accounted for as
purchases. See Note 9 of Notes to Consolidated Financial Statements.
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
Form 10-K.
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
products and 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.
23
<PAGE>
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,
--------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Revenues............................................... 100.0% 100.0% 100.0%
Cost of sales.......................................... 73.6% 71.1% 69.4%
Gross profit........................................... 26.4% 28.9% 30.6%
Selling, general and administrative expenses........... 29.1% 23.5% 23.2%
Operating income (loss)................................ (2.7)% 5.4% 7.4%
Interest expense....................................... 1.2 % 2.0% 2.7%
Net income (loss)...................................... (1.4)% 3.1% 4.3%
</TABLE>
The following table sets forth a percentage breakdown of the Company's sales
by product category for the past three fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
MARCH 31,
----------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Sales by product category:
Capital equipment............................................ 63% 60% 49%
Services and operations...................................... 19% 19% 31%
Replacement parts, consumables and other..................... 18% 21% 20%
</TABLE>
TWELVE MONTHS ENDED MARCH 31, 1996 ("FISCAL 1996") COMPARED WITH TWELVE MONTHS
ENDED MARCH 31, 1995 ("FISCAL 1995")
Revenues. Revenues for Fiscal 1996 were $472,537,000, an increase of
$200,505,000 from $272,032,000 for Fiscal 1995. Approximately 83% of this
increase was due to acquisitions completed by the Company in Fiscal 1995 and
1996. Company revenues increased by approximately $34,086,000 (or 17%)
excluding the effect of these acquisitions. Fiscal 1996 revenues for capital
equipment were 49% while revenues for services and operations totaled 31%, and
replacement parts and consumables totaled 20%. See Note 9 of Notes to
Consolidated Financial Statements related to acquisitions.
Gross Profit. Gross profit increased 83.8% to $144,480,000 for Fiscal 1996
from $78,600,000 for Fiscal 1995. Total gross profit as a percentage of
revenue ("gross margin") increased to 30.6% for Fiscal 1996, compared to 28.9%
for Fiscal 1995. This increase in gross margin for Fiscal 1996 as compared to
Fiscal 1995 was due primarily to the Company's emphasis on and expansion of
its higher gross margin service, operations and consumables business during
the more recent period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $109,525,000 for Fiscal 1996 from
$64,015,000 for Fiscal 1995. Selling, general and administrative expenses as a
percentage of revenues decreased to 23.2% during Fiscal 1996, compared to
23.5% for Fiscal 1995. The decrease in the percentage of selling, general and
administrative expenses to revenues for Fiscal 1996 as compared to Fiscal 1995
was due primarily to the Company's emphasis on cost reductions and
administrative efficiencies gained through economies of scale.
Interest Expense. Interest expense increased to $12,546,000 for Fiscal 1996
from $5,384,000 for Fiscal 1995. Interest expense for Fiscal 1996 consists
primarily on interest of the Company's 5% Convertible Subordinated Debentures
due 2000 and 6% Convertible Subordinated Notes due 2005, and borrowings under
the Company's bank line of credit.
Income Taxes. Income tax expense increased to $7,082,000 for Fiscal 1996
from $2,657,000 for Fiscal 1995. This increase was attributable to increased
profits. As of March 31, 1996, the Company had net operating
24
<PAGE>
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 Liquipure of approximately $14,362,000 for which
financial statement benefit was recognized in Fiscal 1996. Future recognition
of the French and European 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 $20,290,000 for Fiscal 1996 from
$8,331,000 in Fiscal 1995. Net income per common share increased to $.81 per
share (with 24,309,000 weighted average common shares outstanding) for Fiscal
1996 from $.51 per common share (with 15,026,000 weighted average common
shares outstanding) for Fiscal 1995, after deducting $.05 and $.02 per common
share for dividends on the Company's preferred shares in Fiscal 1995 and 1996,
respectively.
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 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%. In accordance with the
Company's emphasis on increasing its services and operations revenue as well
as replacement parts and consumables revenue, sales by product category during
Fiscal 1995 for these recent acquisitions 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 more 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% Convertible Subordinated Debentures
due 2000 and Subordinated Notes due 2001, which bear interest at 6.5% per
annum through September 30, 1995 and 4.5% thereafter, 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 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
has been recognized.
25
<PAGE>
In addition, the Company had 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.
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. On September 18, 1995, the Company realized net proceeds of
$136,325,000 before offering expenses from the private placement of
$140,000,000 principal amount 6% Convertible Subordinated Notes due 2005. In
addition, on May 3, 1995, the Company realized net proceeds of $98,118,000
before offering expenses from the sale of 6,900,000 shares of Common Stock.
At March 31, 1996 the Company had working capital of $103,257,000, including
cash and short-term investments of $16,610,000. The Company's long-term debt
at March 31, 1996 included $60,000,000 of Convertible Subordinated Debentures
due 2000, $140,000,000 of 6% Convertible Subordinated Notes due 2005 and notes
payable totaling $9,680,000 and bearing interest at rates ranging from 2.0% to
11.5%. As of March 31, 1996, the Company had an available bank line of credit
of $135,000,000, of which there were outstanding borrowings of $30,413,000 and
outstanding letters of credit of $14,036,000.
As of March 31, 1996, the Company had net operating loss carryforwards
generated from entities in France of approximately $19,952,000, for which no
financial statement benefit has been recognized. Approximately $1,946,000 of
the net operating loss carryforwards will expire in the years 1997 to 1998,
while the remainder have an indefinite carryforward period. The Company also
had net operating loss carryforwards in other European countries of
approximately $7,338,000 which expire from 1997 to 2002 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, 1996, the Company had net
operating loss carryforwards generated from Liquipure of approximately
$14,362,000 for which financial statement benefit has been recognized in
Fiscal 1996. These operating loss carryforwards will expire in the years 2002
to 2007. The benefit, if any, of the French carryforwards is to be shared
equally between the Company and Alcoa until March 31, 1997.
The Company also had available at March 31, 1996, other net operating loss
carryforwards for federal income tax purposes of approximately $13,327,000
which expire in 2007 to 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.
26
<PAGE>
CERTAIN TRENDS AND UNCERTAINTIES
As a cautionary note to investors, the Company and its representatives may
make oral or written statements from time to time that are "forward-looking
statements" within the meaning of the United States federal securities laws,
including information contained in this Form 10-K which is not historical.
There are a number of important factors which could cause actual results to
differ materially from those anticipated. Such factors include, but are not
limited to, those set forth below.
Acquisition Strategy. In pursuit of its strategic objective of becoming the
leading global single-source provider of water treatment systems and services
the Company has, since 1991, acquired and successfully integrated more than 40
United States based and international businesses with strong market positions
and substantial water treatment expertise. The Company's acquisition strategy
entails the potential risks inherent in assessing the value, strengths,
weaknesses, contingent or other liabilities and potential profitability of
acquisition candidates and in integrating the operations of acquired
companies. Although the Company generally has been successful in pursuing
these acquisitions, there can be no assurance that acquisition opportunities
will continue to be available, that the Company will have access to the
capital required to finance potential acquisitions, that the Company will
continue to acquire businesses or that any business acquired will be
integrated successfully or prove profitable. See "Business--General."
International Transactions. The Company has made and expects it will
continue to make acquisitions and to obtain contracts in Europe, Asia, Latin
America and other areas outside the United States. While these activities may
provide important opportunities for the Company to offer its products and
services internationally, they also entail the risks associated with
conducting business internationally, including the risk of currency
fluctuations, slower payment of invoices and possible social, political and
economic instability.
Reliance on Key Personnel. The Company's operations are dependent on the
continued efforts of senior management, in particular Richard J. Heckmann, its
Chairman, Chief Executive Officer and President. Should any of the senior
managers be unable to continue in their present roles, the Company's prospects
could be adversely affected. See "Business--Executive Officers."
Profitability of Fixed Price Contracts. A significant portion of the
Company's revenues are generated under fixed price contracts. To the extent
that original cost estimates are inaccurate, costs to complete increase,
delivery schedules are delayed or progress under a contract is otherwise
impeded, revenue recognition and profitability from a particular contract may
be adversely affected. The Company routinely records upward or downward
adjustments with respect to fixed price contracts due to changes in estimates
of costs to complete such contracts. There can be no assurance that future
downward adjustments will not be material.
Cyclicality of Capital Equipment Sales. The sale of capital equipment within
the water treatment industry is cyclical and influenced by various economic
factors including interest rates and general fluctuations of the business
cycle. The Company's revenues from capital equipment sales were approximately
60% of total revenues for the fiscal year ended March 31, 1995 and 49% for the
fiscal year ended March 31, 1996. While the Company sells capital equipment to
customers in diverse industries and in global markets, cyclicality of capital
equipment sales and instability of general economic conditions could have an
adverse effect on the Company's revenues and profitability.
Potential Environmental Risks. The Company's business and products may be
significantly influenced by the constantly changing body of environmental laws
and regulations, which require that certain environmental standards be met and
impose liability for the failure to comply with such standards. While the
Company endeavors at each of its facilities to assure compliance with
environmental laws and regulations, there can be no assurance that the
Company's operations or activities, or historical operations by others at the
Company's locations, will not result in civil or criminal enforcement actions
or private actions that could have a materially adverse effect on the Company.
In that regard, allegations have been made by federal and state environmental
regulatory authorities of multiple violations by a wholly owned subsidiary of
the Company with respect to
27
<PAGE>
applicable wastewater pretreatment standards at a Connecticut ion exchange
regeneration facility acquired by the Company in October 1995 from Anjou. A
grand jury investigation is pending which is believed to relate to the same
conditions that were the subject of the allegations. The Company has rights of
indemnification from Anjou which may be available with respect to these
matters. The Company's activities as owner and operator of a hazardous waste
treatment and recovery facility are subject to stringent laws and regulations
and compliance reviews. Failure of this facility to comply with those
regulations could result in substantial fines and the suspension or revocation
of the facility's hazardous waste permit. In addition, to some extent, the
liabilities and risks imposed by environmental laws on the Company's customers
may adversely impact demand for certain of the Company's products or services
or impose greater liabilities and risks on the Company, which could also have
an adverse effect on the Company's competitive or financial position. See
"Business--Environmental Regulation."
Competition. The water purification and wastewater treatment industry is
fragmented and highly competitive. The Company competes with many United
States based and international companies in its global 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, ability to obtain sufficient performance bonds,
timely delivery, the relative ease of system operation and maintenance, and
the prompt availability of replacement parts. In the municipal contract bid
process, pricing and ability to meet bid specifications are the primary
considerations. While no competitor is considered dominant, there are
competitors that are divisions or subsidiaries of larger companies which have
significantly greater resources than the Company, which, among other things,
could be a competitive disadvantage to the Company in securing certain
projects. See "Business--Competition."
Technological and Regulatory Change. The water purification and wastewater
treatment business is characterized by changing technology, competitively
imposed process standards and regulatory requirements, each of which
influences the demand for the Company's products and services. Changes in
regulatory or industrial requirements may render certain of the Company's
purification and treatment products and processes obsolete. Acceptance of new
products may also be affected by the adoption of new government regulations
requiring stricter standards. The Company's ability to anticipate changes in
technology and regulatory standards and to successfully develop and introduce
new and enhanced products on a timely basis will be a significant factor in
the Company's ability to grow and to remain competitive. There can be no
assurance that the Company will be able to achieve the technological advances
that may be necessary for it to remain competitive or that certain of its
products will not become obsolete. In addition, the Company is subject to the
risks generally associated with new product introductions and applications,
including lack of market acceptance, delays in development or failure of
products to operate properly.
Impact of Recently Issued Accounting Standards. In March 1995, the Financial
Accounting Standards Board issued a new statement titled "Accounting for
Impairment of Long-Lived Assets." In October 1995, the Financial Accounting
Standards Board issued a new statement titled "Accounting for Stock-Based
Compensation." The new statements are effective for fiscal years beginning
after December 15, 1995. The Company does not believe that adoption of these
new standards will have a material effect on the consolidated financial
statements.
28
<PAGE>
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 1995 and 1996, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended March 31,
1996. 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
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United
States Filter Corporation and subsidiaries as of March 31, 1995 and 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended March 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Orange County, California
June 7, 1996
29
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
ASSETS ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 2).................. $ 16,159,000 $ 16,545,000
Short-term investments (note 3)..................... 2,418,000 65,000
Accounts receivable, less allowance for doubtful
accounts of $3,272,000
at March 31, 1995 and $8,165,000 at March 31, 1996
(note 10).......................................... 89,352,000 177,658,000
Costs and estimated earnings in excess of billings
on uncompleted contracts (note 10)................. 20,016,000 31,258,000
Inventories (note 4)................................ 34,707,000 55,755,000
Prepaid expenses.................................... 2,858,000 7,230,000
Deferred taxes (note 14)............................ 3,482,000 3,577,000
Other current assets................................ 6,495,000 9,139,000
------------ ------------
Total current assets............................. 175,487,000 301,227,000
------------ ------------
Property, plant and equipment, net (notes 5 and 11).. 68,395,000 156,025,000
Investment in leasehold interests, net (note 6)...... 20,390,000 27,688,000
Cost in excess of net assets of businesses acquired,
net (notes 7 and 9)................................. 99,162,000 271,891,000
Other assets (note 8)................................ 15,294,000 32,180,000
------------ ------------
$378,728,000 $789,011,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
<TABLE>
<CAPTION>
1995 1996
LIABILITIES AND SHAREHOLDERS' EQUITY ------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable................................... $ 35,846,000 $ 77,761,000
Accrued liabilities (note 13)...................... 33,727,000 84,097,000
Current portion of long-term debt (note 11)........ 2,033,000 1,394,000
Billings in excess of costs and estimated earnings
on uncompleted contracts (note 10)................ 15,940,000 13,338,000
Other current liabilities.......................... 5,733,000 21,380,000
------------ ------------
Total current liabilities....................... 93,279,000 197,970,000
------------ ------------
Notes payable (note 11)............................. 24,538,000 30,413,000
Long-term debt, excluding current portion (note 11). 8,792,000 8,286,000
Convertible subordinated debentures (note 12)....... 105,000,000 200,000,000
Deferred taxes (note 14)............................ 8,028,000 1,929,000
Other liabilities................................... 1,947,000 9,078,000
------------ ------------
Total liabilities............................... 241,584,000 447,676,000
------------ ------------
Shareholders' equity (notes 9 and 15):
Series A voting cumulative convertible preferred
stock, $.10 par value,
$25 liquidation preference. Authorized and issued
880,000 shares at
March 31, 1995.................................... 22,071,000 --
Series B voting convertible preferred stock, $.10
par value,
$27 liquidation preference. Authorized 250,000
shares; outstanding 185,185 shares at March 31,
1995.............................................. 3,506,000 --
Common stock par value $.01. Authorized 75,000,000
shares; issued and outstanding 15,220,003 and
28,118,782 at March 31, 1995 and 1996,
respectively...................................... 152,000 281,000
Additional paid-in capital......................... 131,654,000 337,856,000
Currency translation adjustment.................... (2,026,000) 1,836,000
Retained earnings (accumulated deficit)............ (18,213,000) 1,362,000
------------ ------------
Total shareholders' equity...................... 137,144,000 341,335,000
Commitments and contingencies (notes 11, 15, 16 and
18)
Subsequent events (note 20).........................
------------ ------------
$378,728,000 $789,011,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues............................. $180,421,000 $272,032,000 $472,537,000
Costs of sales....................... 132,811,000 193,432,000 328,057,000
------------ ------------ ------------
Gross profit..................... 47,610,000 78,600,000 144,480,000
Selling, general and administrative
expenses............................ 52,484,000 64,015,000 109,525,000
------------ ------------ ------------
Operating income (loss).......... (4,874,000) 14,585,000 34,955,000
Other income (expense):
Interest expense.................... (2,077,000) (5,384,000) (12,546,000)
Interest and other income........... 1,174,000 1,787,000 4,963,000
------------ ------------ ------------
(903,000) (3,597,000) (7,583,000)
------------ ------------ ------------
Income (loss) before income tax
expense (benefit)............... (5,777,000) 10,988,000 27,372,000
Income tax expense (benefit) (note
14)................................. (3,236,000) 2,657,000 7,082,000
------------ ------------ ------------
Net income (loss)................ $ (2,541,000) $ 8,331,000 $ 20,290,000
============ ============ ============
Net income (loss) per common share
(primary and fully diluted) (notes 1
and 15) after reduction for
dividends on preferred stock of $.06
, $.05 and $.02 for the years ended
March 31, 1994, 1995 and 1996,
respectively........................ $ (.26) $ .51 $ .81
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK RETAINED
--------------------- ------------------ ADDITIONAL CURRENCY EARNINGS
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,
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.
33
<PAGE>
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY--(CONTINUED)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK RETAINED
----------------------- ------------------ ADDITIONAL CURRENCY EARNINGS
NUMBER NUMBER OF PAID-IN TRANSLATION (ACCUMULATED
OF SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT) TOTAL
--------- ------------ ---------- ------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Compensation related to
excess of fair value of
director stock options
over exercise price
(note 15).............. -- $ -- -- -- 112,000 -- -- 112,000
Conversion of preferred
shares to common shares
(note 15).............. (925,667) (22,936,000) 1,388,500 14,000 22,922,000 -- -- --
Redemption of Series B
convertible preferred
stock (note 15)........ (139,518) (2,641,000) -- -- (2,068,000) -- -- (4,709,000)
Issuance of common stock
in connection with
acquisitions (note 9).. -- -- 1,635,607 16,000 36,284,000 -- -- 36,300,000
Shares issued through
public offering, net of
offering costs of
$6,106,000
(note 15).............. -- -- 6,900,000 69,000 97,325,000 -- -- 97,394,000
Conversion of
subordinated debentures
to common stock (note
12).................... -- -- 2,500,000 25,000 44,975,000 -- -- 45,000,000
Dividends paid on
preferred stock (note
15).................... -- -- -- -- -- -- (715,000) (715,000)
Exercise of common stock
options (note 15)...... -- -- 325,257 3,000 3,678,000 -- -- 3,681,000
Issuance of common stock
to acquire assets (note
15).................... -- -- 149,415 2,000 2,974,000 -- -- 2,976,000
Currency translation
adjustment............. -- -- -- -- -- 3,862,000 -- 3,862,000
Net income.............. -- -- -- -- -- -- 20,290,000 20,290,000
-------- ------------ ---------- ------- ----------- --------- ---------- -----------
Balance at March 31,
1996................... -- $ -- 28,118,782 281,000 337,856,000 1,836,000 1,362,000 341,335,000
======== ============ ========== ======= =========== ========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............... $ (2,541,000) $ 8,331,000 $ 20,290,000
Adjustments to reconcile net
income (loss) to net cash used
in operating activities:
Deferred income taxes.......... (3,806,000) 1,377,000 (5,578,000)
Depreciation and amortization.. 7,015,000 12,770,000 23,405,000
Provision for doubtful
accounts...................... 661,000 1,558,000 5,297,000
(Gain) loss on sale of property
and equipment................. (5,000) 388,000 (265,000)
Stock and stock option
compensation.................. 80,000 122,000 112,000
Write-off of goodwill.......... 3,738,000 -- --
Change in operating assets and
liabilities:
Increase in accounts
receivable................... (8,504,000) (4,514,000) (33,610,000)
(Increase) decrease in costs
and estimated earnings in
excess of billings on
uncompleted contracts........ (12,100,000) 2,171,000 (4,277,000)
Increase in inventories....... (1,964,000) (6,524,000) (5,278,000)
(Increase) decrease in prepaid
expenses and other assets.... 894,000 (3,544,000) (6,141,000)
Increase (decrease) in
accounts payable and accrued
expenses..................... 7,625,000 (16,273,000) 363,000
Increase (decrease) in
billings in excess of costs
and estimated earnings on
uncompleted contracts........ 1,384,000 2,481,000 (3,029,000)
Decrease in other liabilities. (3,000) (2,888,000) (1,551,000)
------------ ------------ -------------
Net cash used in operating
activities.................. (7,526,000) (4,545,000) (10,262,000)
------------ ------------ -------------
Cash flows from investing
activities:
Investment in leasehold inter-
ests........................... (15,766,000) (6,397,000) (8,347,000)
Purchase of property, plant and
equipment...................... (6,930,000) (16,214,000) (26,390,000)
Proceeds from disposal of equip-
ment........................... 182,000 22,000 7,594,000
(Purchase) sale of short-term
investments.................... (15,625,000) 13,207,000 9,938,000
Payment for purchase of acquisi-
tions, net of cash acquired.... (362,000) (1,787,000) (206,600,000)
------------ ------------ -------------
Net cash used in investing
activities.................. (38,501,000) (11,169,000) (223,805,000)
------------ ------------ -------------
Cash flows from financing activi-
ties:
Net proceeds from sale of common
stock.......................... -- -- 97,394,000
Net proceeds from sale of con-
vertible subordinated deben-
tures.......................... 57,923,000 -- 136,249,000
Proceeds from exercise of common
stock options.................. 1,242,000 1,422,000 3,681,000
Principal payments of debt...... (651,000) (4,512,000) (1,806,000)
Dividends paid on preferred
stock.......................... (701,000) (715,000) (715,000)
Payment to repurchase Series B
preferred stock................ -- -- (4,709,000)
Net proceeds from borrowings on
note payable................... 3,306,000 17,647,000 4,359,000
------------ ------------ -------------
Net cash provided by
financing activities........ 61,119,000 13,842,000 234,453,000
------------ ------------ -------------
Net increase (decrease) in
cash and cash equivalents... 15,092,000 (1,872,000) 386,000
Cash and cash equivalents at
beginning of year............... 2,939,000 18,031,000 16,159,000
------------ ------------ -------------
Cash and cash equivalents at end
of year......................... $ 18,031,000 $ 16,159,000 $ 16,545,000
============ ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
1994 1995 1996
-------- ---------- -----------
<S> <C> <C> <C>
Supplemental disclosures of cash flow
information:
Cash paid during the year for interest....... $775,000 $5,390,000 $12,592,000
======== ========== ===========
Cash paid during the year for income taxes... $294,000 $ 173,000 $ 2,513,000
======== ========== ===========
Noncash investing and financing activities
consisted of the following:
Common stock issued:
Satisfaction of debt........................ $ -- $ 700,000 $ --
Conversion of debentures.................... -- -- 45,000,000
Purchase of property........................ -- -- 2,976,000
Property, plant and equipment exchanged for
receivables................................. -- -- 5,318,000
-------- ---------- -----------
$ -- $ 700,000 $53,294,000
======== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(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
"Company") (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 Company are not reflected in the accounts until the year
in which such claims are allowed, except where contract terms specifically
provide for certain claims.
Contract costs include all direct material and labor and those indirect
costs related to contract performance. General and administrative expenses are
charged to expense as incurred.
Products and Services
Sales of other products and services are recorded as products are shipped or
services rendered.
INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
United States income taxes are not provided on the undistributed earnings of
its foreign subsidiaries as such earnings are intended to be indefinitely
reinvested 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 currency are translated into U.S. dollars at the current rate of
exchange existing at period-end and revenues and expenses are translated at
the average monthly exchange rates. Translation adjustments are included as a
separate component of shareholders' equity. The transaction gains and losses
included in 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.
37
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
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
assets 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. The Company evaluates the
recoverability 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 exists at March 31,
1996.
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 $1,735,000 and $5,450,000 at
March 31, 1995 and 1996, 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, short-term investments,
accounts receivable, accounts payable, and accrued liabilities approximate
fair value because of the short maturity of these instruments. The carrying
amount of the Company's revolving credit facility approximates its fair value
because the interest rate on the instrument changes with market interest
rates. The fair value of the Company's long-term debt (including current
portion) is estimated to be equal to the carrying amounts based on quoted
market prices for similar issues or on the current rates offered to the
Company for debt of the same remaining securities.
RECLASSIFICATIONS
Certain amounts in the 1995 consolidated financial statements have been
reclassified to conform with the 1996 presentation.
38
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
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 preferred stock and options are included in the computation of
income (loss) per share when their effect is dilutive.
Primary and fully diluted income (loss) per common share were calculated as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------ ----------- -----------
<S> <C> <C> <C>
Net income (loss)................... $ (2,541,000) $ 8,331,000 $20,290,000
Dividends on preferred stock........ (701,000) (715,000) (536,000)
------------ ----------- -----------
Adjusted net income (loss)
applicable to common shares........ $(3,242,000) $ 7,616,000 $19,754,000
============ =========== ===========
Weighted average shares outstanding. $ 12,159,000 $14,780,000 $23,560,000
Add:
Exercise of options reduced by the
number of shares purchased with
proceeds.......................... 294,000 246,000 749,000
------------ ----------- -----------
Adjusted weighted average shares
outstanding........................ $ 12,453,000 $15,026,000 $24,309,000
============ =========== ===========
Income (loss) per common share:
Net income (loss)................. $ (.20) $ .56 $ .83
Dividends on preferred stock...... (.06) (.05) (.02)
------------ ----------- -----------
Adjusted income (loss) per common
share.............................. $ (.26) $ .51 $ .81
============ =========== ===========
</TABLE>
On March 4, 1996, the preferred shareholder tendered its Series A Preferred
stock for conversion into Company common stock thus eliminating further
dividends (see note 15).
(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, 1995 and 1996 consist of:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Raw materials........................................ $14,243,000 $20,664,000
Work-in-process...................................... 10,007,000 15,278,000
Finished goods....................................... 10,457,000 19,813,000
----------- -----------
$34,707,000 $55,755,000
=========== ===========
</TABLE>
39
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 1995 and 1996 consist of:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Land............................................. $ 3,112,000 $ 7,772,000
Buildings and improvements....................... 25,566,000 33,732,000
Equipment........................................ 35,133,000 111,288,000
Furniture and fixtures........................... 13,456,000 24,812,000
Vehicles......................................... 1,185,000 2,719,000
Construction in progress......................... 5,075,000 16,910,000
------------ ------------
83,527,000 197,233,000
Less accumulated depreciation.................... (15,132,000) (41,208,000)
------------ ------------
$ 68,395,000 $156,025,000
============ ============
</TABLE>
(6) INVESTMENT IN LEASEHOLD INTERESTS
The Company has concession agreements to build and operate wastewater
treatment plants in Mexico. The terms of the concessions are approximately 15
to 18 years, as amended, and include monthly payments to be received by the
Company at various prices per cubic meter of sewage treated at the facilities
based upon the Company's initial investments, fixed operating expenses and
variable operating expenses. The Company is amortizing the investments on a
straight-line basis over the terms of the concessions. Accumulated
amortization at March 31, 1995 and 1996 totaled $955,000 and $2,026,000,
respectively. The investments are 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
amortization at March 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Cost in excess of net assets of businesses
acquired...................................... $104,831,000 $283,275,000
Less accumulated amortization.................. (5,669,000) (11,384,000)
------------ ------------
$ 99,162,000 $271,891,000
============ ============
</TABLE>
(8) OTHER ASSETS
Other assets at March 31, 1995 and 1996 consist of:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Investment in unconsolidated joint ventures......... $ 7,406,000 $12,407,000
Long-term receivables and advances.................. 3,508,000 6,415,000
Other assets at amortized cost:
Operating permits and development costs........... 1,819,000 1,212,000
Deferred debt costs............................... 1,735,000 5,450,000
Patents........................................... 119,000 1,561,000
Other............................................. 707,000 5,135,000
----------- -----------
$15,294,000 $32,180,000
=========== ===========
</TABLE>
40
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
The above amounts reflect accumulated amortization of $1,373,000 and
$1,982,000 at March 31, 1995 and 1996, respectively. The carrying amount of
these other assets approximate their fair value.
(9) ACQUISITIONS
On October 2, 1995, the Company completed the acquisition of all of the
outstanding capital stock of Polymetrics, Inc., and subsidiaries, a California
corporation ("Polymetrics"), pursuant to a Stock Purchase Agreement dated as
of August 30, 1995, as amended, between the Company and Anjou International
Company, a U.S. subsidiary of Compagnie Generale des Eaux of France. The total
purchase price for the acquisition of Polymetrics including acquisition costs,
was approximately $60,200,000 consisting of $51,700,000 in cash and the
delivery of 391,229 shares of Company common stock. The transaction was
effective as of October 1, 1995.
Polymetrics designs, manufactures, installs and services water treatment
systems for the electronics, pharmaceutical, laboratory, power generation and
cogeneration industries. Polymetrics also provides water treatment services,
including service deionization ("SDI"). The acquisition of Polymetrics has
been accounted for as a purchase and, accordingly, the results of operations
of Polymetrics are included in the Company's consolidated statement of
operations from the date of acquisition. The excess of fair value of net
assets acquired was approximately $47,600,000 and is being amortized on a
straight-line basis over 40 years.
On August 11, 1995, the Company purchased substantially all of the assets
and assumed certain liabilities of Continental H/2/O Services, Inc., d/b/a
Interlake Water Systems, an Illinois corporation ("Interlake"), pursuant to an
Asset Purchase Agreement among the Company, Interlake and the Stockholders of
Interlake. The acquisition was effective as of August 1, 1995. The purchase
price for the acquisition of Interlake, including acquisition costs, was
approximately $27,100,000 consisting of $20,100,000 in cash and the delivery
of 332,036 shares of Company common stock.
Interlake provides water treatment services, including SDI, in Illinois and
Michigan. In addition, Interlake sells and services a broad range of complex
water treatment systems and was the largest distributor of the Company's
Continental product line in the United States. The acquisition of Interlake
has been accounted for as a purchase and, accordingly, the results of
operations of Interlake are included in the Company's consolidated statements
of operations from the date of acquisition. The excess of fair value of net
assets acquired was approximately $19,000,000, and is being amortized on a
straight-line basis over 40 years.
On April 3, 1995, the Company acquired all of the outstanding capital stock
of The Permutit Company Limited, a U.K. corporation, and The Permutit Company
Pty. Ltd., an Australian corporation (collectively "The Permutit Group"),
pursuant to a Share Purchase Agreement between the Company and Thames Water
PLC, a U.K. corporation. The aggregate purchase price was approximately
$10,000,000 and was paid entirely in cash.
The Permutit Group provides a range of products, including pre-engineered
water treatment systems for the pharmaceutical, laboratory and chemical
markets and other commercial customers. The acquisition of The Permutit Group
has been accounted for as a purchase and, accordingly, the results of
operations of The Permutit Group are included in the Company's consolidated
statements of operations from the date of acquisition. The excess of cost over
fair value of net assets acquired was approximately $7,200,000 and is being
amortized on a straight-line basis over 40 years.
On May 4, 1995, the Company completed the acquisition of all of the
outstanding capital stock of Arrowhead Industrial Water, Inc. ("AIW") from The
B.F. Goodrich Company ("Goodrich") pursuant to a Stock Purchase Agreement
dated as of February 27, 1995, as amended. The acquisition was effective as of
April
41
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
30, 1995. The purchase price, as adjusted, was $84,300,000 consisting of
$82,000,000 in cash and the delivery of 87,744 shares of Company common stock.
AIW, headquartered in Lincolnshire, Illinois, is a supplier of owned and
operated on-site industrial water treatment systems in the United States and
also provides emergency and temporary mobile water treatment systems.
The acquisition of AIW has been accounted for as a purchase and,
accordingly, the results of operations of AIW are included in the Company's
consolidated statements of operations from the date of acquisition. The excess
of fair value of net assets acquired was approximately $36,400,000 and is
being amortized on a straight-line basis over 40 years.
During the year ended March 31, 1996, the Company completed other
acquisitions with an aggregate purchase price of approximately $58,900,000,
consisting of $40,084,000 in cash and the delivery of 821,444 shares of
Company Common Stock. The excess of fair value of net assets acquired was
approximately $68,200,000, and is being amortized on a straight-line basis
over 40 years.
Supplementary information related to the acquisitions of Polymetrics,
Interlake, The Permutit Group and AIW for the March 31, 1996 consolidated
statement of cash flows is as follows:
<TABLE>
<S> <C>
Assets acquired................................................ $230,986,000
Liabilities assumed............................................ (50,911,000)
Common stock issued............................................ (17,484,000)
------------
Cash paid...................................................... 162,591,000
Fees and expenses.............................................. 1,514,000
Less cash acquired............................................. (894,000)
------------
Net cash paid................................................ $163,211,000
============
</TABLE>
Summarized below are the unaudited pro forma results of operations of the
Company as though Polymetrics, Interlake, The Permutit Group and AIW had been
acquired on April 1, 1994:
<TABLE>
<CAPTION>
1995 1996
------------ -------------
<S> <C> <C>
Revenue.......................................... $398,187,000 $ 508,783,000
============ =============
Net income....................................... $ 7,039,000 $ 21,164,000
============ =============
Net income per common share...................... $ .40 $ .83
============ =============
</TABLE>
On August 10, 1994, the Company acquired from Millipore Corporation the
Ceraflo(R) 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.
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, installs and services water purification products and systems.
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.
42
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
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.
On November 30, 1994, the Company completed the acquisition of the Crouzat
Group ("Crouzat") by means of a purchase of all of Crouzat's outstanding
capital stock. The total purchase price was $5,750,000, of which $4,640,000
was paid in cash at closing, with three annual payments of $370,000 in 1995,
1996 and 1997. Crouzat comprises three sites in France and primarily services
ultrapure water purification products and had revenues in 1994 of
approximately $6,000,000. The acquisition has been accounted for as a purchase
and, accordingly, the results of the operations of Crouzat are included in the
consolidated statement of operations for the period from the date of
acquisition to March 31, 1995. 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.
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 consisted of $755,000 in cash
and 56,250 shares of Company stock. Sation, located in Barcelona, Spain,
primarily services ultrapure water purification products. The acquisition has
been accounted for as a purchase and, accordingly, the results of operations
of Sation 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 $1,148,000 and is being
amortized on a straight-line basis over 40 years.
Effective August 31, 1994, the Company, through two of the Company's
subsidiaries, acquired all of the outstanding capital stock of Smogless S.p.A.
("Smogless") from Laidlaw, Inc. The total consideration for the acquisition of
Smogless (excluding acquisition costs of $396,000) consists of the following:
(i) $45,000,000 in aggregate principal amount of subordinated debt of Ionpure
Italy due August 31, 2001 and bearing interest at 6.5% for the period January
1, 1995 through September 30, 1995 and 4.5% thereafter, (ii) common stock
purchase warrants exercisable in whole or part at any time on or before August
31, 2001 by the surrender of the subordinated debt at the rate of $18.00 in
principal amount of subordinated debt for each share of common stock, (iii)
185,185 shares of a new Series B Voting Convertible Preferred Stock, (iv)
18,000 shares of the Company's common stock, and (v) $700,000 in cash.
Smogless is headquartered in Milan, Italy and provides a broad range of
services for wastewater treatment, including feasibility studies, process
evaluation, plant design, construction and commissioning and design of
specialized machinery.
43
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
The acquisition of Smogless has been accounted for as a purchase and,
accordingly, 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 acquired was approximately $39,340,000 and is being
amortized on a straight-line basis over 40 years. Supplementary information
related to the acquisitions of Seral, Crouzat, Sation and Smogless for the
consolidated statement of cash flows for the year ended March 31, 1995 is as
follows:
<TABLE>
<S> <C>
Assets acquired............................................... $ 136,327,000
Liabilities assumed........................................... (117,641,000)
Preferred stock issued........................................ (3,506,000)
Common stock issued........................................... (4,835,000)
-------------
Cash paid..................................................... 10,345,000
Fees and expenses............................................. 1,117,000
Less cash acquired............................................ (9,707,000)
-------------
Net cash acquired........................................... $ 1,755,000
=============
</TABLE>
Summarized below are the unaudited pro forma results of operations of the
Company 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............... $ (.02) $ .64
============ ============
</TABLE>
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 SDI products and services through
company operated and franchised dealers, and designs, manufactures, installs
and services ultrapure water purification products and systems primarily for
the pharmaceutical market and also manufactures standard, ultrapure water
products for the laboratory market.
This transaction has been accounted for as a pooling of interests and,
accordingly, the consolidated financial statements and notes thereto for all
periods presented have been restated to include the accounts and operations of
Liquipure. Separate results of operations of the combined entities for the
year ended March 31, 1994 are as follows:
<TABLE>
<CAPTION>
1994
------------
<S> <C>
Revenues:
U.S. Filter (as previously reported)......................... $147,870,000
Liquipure.................................................... 32,551,000
------------
Combined.................................................. $180,421,000
============
Net income (loss):
U.S. Filter (as previously reported)......................... $ 4,986,000
Liquipure.................................................... (7,527,000)
------------
Combined.................................................. $ (2,541,000)
============
</TABLE>
44
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
Separate unaudited results of operations of the combined entities for the
period April 1, 1994 to the effective date of the merger and included in the
consolidated statement of operations for the year ended March 31, 1995 are as
follows:
<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>
All pro forma information presented above is in response to applicable
accounting rules relating to business acquisitions. This pro forma information
does not purport to be indicative of the results that actually would have been
obtained if the combined operations had been conducted during the periods
presented and is not intended to be a projection of future results due to
extensive changes being made in the organization, facilities, personnel and
other costs of the acquired companies.
(10) CONTRACT BILLING STATUS
Information with respect to the billing status of contracts in process at
March 31, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Contract costs incurred to date............... $ 104,337,000 $ 214,286,000
Estimated profits............................. 34,802,000 69,878,000
------------- -------------
Contract revenue earned to date............... 139,139,000 284,164,000
Less billings to date......................... (135,063,000) (266,244,000)
------------- -------------
Cost and estimated earnings in excess of bill-
ings, net.................................... $ 4,076,000 $ 17,920,000
============= =============
The above amounts are included in the accompanying consolidated balance
sheets as:
Costs and estimated earnings in excess of
billings on uncompleted contracts............ $ 20,016,000 $ 31,258,000
Billings in excess of costs and estimated
earnings on uncompleted contracts............ (15,940,000) (13,338,000)
------------- -------------
$ 4,076,000 $ 17,920,000
============= =============
</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
$1,734,000 and $2,701,000 at March 31, 1995 and 1996, respectively.
Substantially all retained balances are collectible within one year.
45
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(11) LONG-TERM DEBT
Long-term debt at March 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Mortgage notes payable, secured by land and
buildings, interest rates ranging from 2% to
8.5%, due in 1999 through 2009................... $ 7,396,000 $ 7,180,000
Guaranteed bank notes, interest rates ranging from
6.0% to 9.2%, due in 1997 through 2004........... 1,911,000 1,276,000
Unsecured notes payable, interest rates ranging
from 7% to 11.5%, due in 1997 through 1999....... 1,353,000 1,007,000
Other............................................. 165,000 217,000
----------- -----------
10,825,000 9,680,000
Less current portion.............................. (2,033,000) (1,394,000)
----------- -----------
$ 8,792,000 $ 8,286,000
=========== ===========
</TABLE>
The aggregate maturities of long-term debt for each of the five years
subsequent to March 31, 1996 are as follows: 1997, $1,394,000; 1998,
$1,367,000; 1999, $801,000; 2000, $598,000; 2001, $580,000; and thereafter,
$4,940,000.
The Company has a long-term, unsecured revolving line-of-credit with a bank
of up to $135,000,000, of which $30,413,000 was outstanding at March 31, 1996.
The line of credit expires November 30, 1999 and bears interest at the bank's
prime rate plus 0.25% or, in certain circumstances, Eurodollar rate. The line
of credit is subject to certain covenants for which the Company was in
compliance at March 31, 1996. At March 31, 1996, $14,036,000 of standby
letters of credit were issued under this line of credit.
(12) CONVERTIBLE SUBORDINATED DEBENTURES
On October 20, 1993, the Company sold $60,000,000 aggregate principal amount
of 5% convertible subordinated debentures due October 15, 2000. The debentures
are convertible into common stock at any time prior to maturity, redemption or
repurchase at a conversion price of $20.50 per share, subject to adjustment in
certain circumstances. The debentures are not redeemable prior to October 25,
1996, at which time the debentures are redeemable at the option of the
Company, in whole or in part, at specified redemption prices plus accrued and
unpaid interest to the date of redemption. Interest is payable on April 15 and
October 15, commencing April 15, 1994.
On September 18, 1995 the Company sold $140,000,000 aggregate principal
amount of 6% Convertible Subordinated Notes due September 15, 2005. The notes
are convertible into common stock at any time prior to maturity, redemption or
repurchase at a conversion price of $27.50 per share, subject to adjustment in
certain circumstances. The notes are not redeemable prior to September 23,
1998 at which time the notes are redeemable at the option of the Company, in
whole or in part, at specified redemption prices plus accrued and unpaid
interest to the date of redemption. Interest is payable semi-annually on March
15 and September 15 of each year, commencing on March 15, 1996.
Effective August 31, 1994, the Company issued $45,000,000 of subordinated
debt with common stock purchase warrants in connection with the acquisition of
Smogless (see note 9). On September 18, 1995, these warrants to purchase
2,500,000 shares of Company common stock were exercised in exchange for the
delivery of the $45,000,000 principal amount of subordinated debt.
46
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(13) ACCRUED LIABILITIES
Accrued liabilities at March 31, 1995 and 1996 consist of the following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Accrued job costs, start-up and customer deposits... $ 8,783,000 $23,995,000
Payroll, benefits and related taxes................. 5,343,000 10,899,000
Warranty............................................ 2,991,000 5,609,000
Sales, property and other taxes..................... 4,081,000 3,971,000
Interest............................................ 1,540,000 2,993,000
Sales commission.................................... 1,441,000 1,998,000
Future remediation, relocation & closure costs...... 300,000 19,886,000
Other............................................... 9,248,000 14,746,000
----------- -----------
$33,727,000 $84,097,000
=========== ===========
</TABLE>
(14) INCOME TAXES
Income tax expense (benefit) from continuing operations for the years ended
March 31, 1994, 1995 and 1996 consist of:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ---------- ----------
<S> <C> <C> <C>
Federal:
Current............................... $ -- $ -- $ 238,000
Deferred.............................. (3,239,000) 1,314,000 442,000
State:
Current............................... 3,000 157,000 250,000
Deferred.............................. -- (368,000) (173,000)
Foreign:
Current............................... -- -- 4,085,000
Deferred.............................. -- 1,554,000 2,240,000
----------- ---------- ----------
$(3,236,000) $2,657,000 $7,082,000
=========== ========== ==========
</TABLE>
Total income tax expense (benefit) differed from the amounts computed by
applying the U.S. Federal corporate tax rate of 34% for 1994 and 1995 and 35%
for 1996 to income from continuing operations before income taxes as a result
of the following:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ---------- ------------
<S> <C> <C> <C>
Expected income tax provision
(benefit).......................... $(1,964,000) $3,736,000 $ 9,580,000
Permanent differences............... (377,000) (189,000) 358,000
State franchise tax, net of Federal
tax benefit........................ 2,000 105,000 519,000
Change in balance of valuation
allowance for deferred tax assets
allocated to income tax expense.... (3,201,000) (925,000) (4,646,000)
Net operating loss carryforward
unable to be utilized.............. 2,559,000 -- --
Difference in U.S. tax rate and
foreign tax rates.................. -- 511,000 2,032,000
Benefit of foreign net operating
loss carryforwards................. (255,000) (581,000) (761,000)
----------- ---------- ------------
$(3,236,000) $2,657,000 $ 7,082,000
=========== ========== ============
</TABLE>
47
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
As of March 31, 1996, the Company has net operating loss carryforwards in
France of approximately $19,952,000. Approximately $1,946,000 of the operating
losses expire in the years 1997-1998, 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, 1996, the Company also has net operating loss carryforwards in other
European countries of approximately $7,338,000 which expire from 1997 to 2002.
Additionally, as of March 31, 1996, the Company has net operating loss
carryforwards generated from Liquipure of $14,362,000, which has been
recognized in fiscal 1996. These loss carryforwards expire from 2002 to 2007.
The Company also has available, at March 31, 1996, other net operating loss
carryforwards for U.S. Federal income tax purposes of approximately
$13,327,000 which expire in 2007 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
follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards.................... $ 16,456,000 $ 26,581,000
Inventory....................................... 1,530,000 2,579,000
Allowance for doubtful accounts................. 673,000 1,123,000
Warranty........................................ 645,000 1,604,000
Vacation........................................ 347,000 713,000
Other accruals.................................. 118,000 317,000
Tax credits..................................... -- 276,000
Other........................................... 370,000 1,581,000
------------ ------------
20,139,000 34,774,000
Valuation allowance............................. (10,503,000) (16,890,000)
------------ ------------
Total deferred tax assets.................... 9,636,000 17,884,000
Deferred tax liabilities:
Depreciation and amortization................... 6,201,000 11,313,000
Prepaid expenses................................ 201,000 410,000
Long-term contracts............................. -- 4,206,000
Other........................................... 7,780,000 307,000
------------ ------------
14,182,000 16,236,000
------------ ------------
Net deferred tax assets (liabilities)........ $ (4,546,000) $ 1,648,000
============ ============
</TABLE>
The Company believes that it is more likely than not that the net deferred
tax assets, including Federal net operating loss carryforwards, will be
realized prior to their expiration. This belief 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, 1996 of companies with strong earnings potential. A valuation
allowance of $16,890,000 at March 31, 1996 has been recognized and consists
primarily of state and foreign net operating losses which may not be realized
prior to their expiration periods.
48
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(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 Series B Convertible Preferred Stock, respectively, in connection with
acquisitions. On September 18, 1995, the Company repurchased and canceled
139,518 shares of Series B Preferred stock for $4,709,000, and converted
45,667 shares of Series B Preferred Stock into 68,500 shares of Company common
stock. On March 4, 1996, the holder of the Company's Series A Preferred Stock
tendered the 880,000 preferred shares for conversion into 1,320,000 shares of
Company common stock pursuant to terms of the security.
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 May 3, 1995, the Company completed an underwritten public offering of
6,900,000 shares of its common stock at a price equal to $15.00 per share. The
net proceeds to the Company, after underwriting discounts and commissions and
before other related expenses, were $98,118,000.
OPTIONS
Under the Company's 1991 Employee Stock Option Plan (the "Plan"), the
exercise price of options granted is equal to their fair market value at the
date of grant and the maximum term of the option may not exceed 10 years. If
the optionee is a holder of more than 10% of the outstanding common stock of
the Company, the option price per share is increased to at least 110% of fair
market value, and the option term is limited to 5 years. The total number of
shares of common stock authorized under the Plan is 2,587,500 shares. Each
option granted becomes exercisable on a cumulative basis, 25% six months
following the date of grant and 25% on each subsequent anniversary of the
grant date.
Under the Company's 1991 Director Stock Option Plan (the "Directors Plan"),
the exercise price of options granted was equal to the higher of $2.00 below
the market price or 60% of the market price on the date of grant. Effective
April 1, 1996 the Directors Plan was amended to grant options equal to their
fair market value at the date of grant. Under the Plan, each director of the
Company who is not a full-time employee of the Company will receive each year
an option to purchase 12,000 shares of common stock. The total number of
shares available under the Directors Plan is 375,000 shares. Compensation
expense of $80,000, $122,000 and $112,000 was recorded in 1994, 1995 and 1996,
respectively, related to the Directors Plan.
49
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
Transactions involving the Plan and Directors Plan are summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
SHARES EXERCISE PRICE VALUE
--------- --------------- -----------
<S> <C> <C> <C>
Balance at March 31, 1993............ 999,862 $ 2.02 to 34.00 $10,525,000
Options granted...................... 479,639 2.02 to 16.42 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 2.02 to 16.42 15,642,000
Options granted...................... 598,860 2.02 to 15.88 7,650,000
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............ 1,694,898 2.02 to 16.42 21,495,000
Options granted...................... 675,500 13.56 to 28.00 12,764,000
Options exercised.................... (325,257) 2.02 to 16.42 (3,678,000)
Options canceled..................... (13,751) 12.79 to 15.87 (183,000)
--------- --------------- -----------
Balance at March 31, 1996............ 2,031,390 $ 2.02 to 28.00 $30,398,000
========= =============== ===========
</TABLE>
In connection with the warrants, options, convertible debentures and
preferred stock, the Company has reserved 8,895,169 shares at March 31, 1995
and 10,316,000 shares at March 31, 1996 for future issuance.
(16) RETIREMENT PLANS
Pursuant to the terms of a collective bargaining agreement, one of the
Company's U.S. subsidiaries 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. The Company'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 the consolidated financial statements.
The Company has a defined contribution plan (under IRC Section 401(k))
covering substantially all U.S. salaried and hourly participating employees
which provide for contributions based primarily upon compensation levels and
employee contributions. The Company funds its contributions to these plans as
accrued. Defined contribution plan expense to the Company was $519,000,
$810,000 and $1,631,000 for the years ended March 31, 1994, 1995 and 1996,
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 1994, 1995 and 1996.
50
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
Export sales accounted for $18,803,000, $29,306,000 and $48,636,000 in
fiscal 1994, 1995 and 1996, respectively.
Information about the Company's operations in different geographic locations
for the years ended March 31, 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues from unaffiliated
customers:
United States................... $142,580,000 $167,900,000 $269,594,000
Foreign......................... 37,841,000 104,132,000 202,943,000
------------ ------------ ------------
$180,421,000 $272,032,000 $472,537,000
============ ============ ============
Operating income (loss):
United States................... $ (6,137,000) $ 8,157,000 $ 17,874,000
Foreign......................... 1,263,000 6,428,000 17,081,000
------------ ------------ ------------
$ (4,874,000) $ 14,585,000 $ 34,955,000
============ ============ ============
Identifiable assets:
United States................... $228,531,000 $214,599,000 $487,344,000
Foreign......................... 24,654,000 164,129,000 301,667,000
------------ ------------ ------------
$253,185,000 $378,728,000 $789,011,000
============ ============ ============
</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 $2,999,000,
$4,623,000 and $5,904,000 in 1994, 1995 and 1996, respectively.
A summary of the future minimum annual rental commitments as of March 31,
1996, under operating leases follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
Fiscal year ending:
1997........................................................... $ 5,065,000
1998........................................................... 3,947,000
1999........................................................... 3,511,000
2000........................................................... 1,656,000
2001........................................................... 803,000
Thereafter..................................................... 892,000
-----------
Total minimum lease payments................................... $15,874,000
===========
</TABLE>
51
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
CONTINGENT LIABILITIES
In December of 1995, allegations were made by federal and state
environmental regulatory authorities of multiple violations in connection with
wastewater discharges at a facility owned by the Company. The facility was
acquired by the Company as part of its acquisition of Polymetrics on October
2, 1995 (note 9). The Company has rights of indemnity from the seller which
could be available if monetary damages and penalties are incurred in
connection with any alleged violations occurring prior to the Company's
acquisition of Polymetrics. In the opinion of management, the ultimate
liability that may result from the above matter will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
Legal proceedings pending against the Company consist of litigation
incidental to the Company's business and in the opinion of management, based
in part upon the opinion of counsel, the outcome of such litigation will not
materially affect the Company's consolidated financial position or results of
operations.
(19) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
GROSS NET INCOME
REVENUES PROFIT NET INCOME PER SHARE*
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
1995
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
1996
First quarter................ $ 91,539,000 $27,874,000 $3,359,000 $.16
Second quarter............... 108,308,000 33,506,000 4,509,000 .19
Third quarter................ 126,907,000 38,199,000 5,880,000 .22
Fourth quarter............... 145,783,000 44,901,000 6,542,000 .24
</TABLE>
- --------
* Per common and common equivalent share
(20) SUBSEQUENT EVENTS
On April 18, 1996, the Company signed a definitive agreement to acquire
Zimpro Environmental, Inc. from Landegger Environmental Holdings Inc., an
affilitate of The Black Clawson Company, and two limited partnerships in the
John Hancock Capital Growth Fund ("The Hancock Fund") (collectively the
"Stockholders"). Pursuant to the Agreement and Plan of Merger, the Company
delivered 585,074 shares of Company Common Stock to the Stockholders and
liquidated existing indebtedness to the Hancock Fund in exchange for 114,994
shares of Company common stock and $1,000,000 in cash. Zimpro manufactures
wastewater treatment equipment with proprietary technologies in wet air
oxidation, landfill leachate treatment systems, ground water remediation,
filtration and sludge treatment systems.
The transaction was consummated on May 31, 1996 and will be treated as a
pooling of interests and, accordingly, the Company's future historical
consolidated financial statements will be restated to include the accounts and
results of Zimpro.
Zimpro had revenues of $29,470,000, $31,678,000 and $28,877,000 for the
years ended December 31, 1993, 1994 and 1995 respectively. Additionally,
Zimpro had net income (losses) of ($1,513,000), $460,000 and ($6,732,000) for
the years ended December 31, 1993, 1994 and 1995, respectively.
52
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
On June 10, 1996, the Company entered into a definitive merger agreement
with Davis Water & Waste Industries, Inc. ("Davis") in connection with a
proposed acquisition by the Company of all of the outstanding capital stock of
Davis. Pursuant to the terms of the definitive agreement the Company will
exchange .933 shares of its common stock for each of the approximately
3,260,000 shares of Davis, subject to adjustment. Davis manufactures and
markets products relating to the distribution of water and wastewater. Davis
also designs, engineers, manufactures, sells and installs water and wastewater
treatment equipment to comply with applicable health and water quality
standards.
The proposed transaction is expected to be completed by September 1996, and
will be treated as a pooling of interests and, accordingly, the Company's
future consolidated financial statements will be restated to include the
accounts and results of Davis.
Davis had revenues of $202,621,000, $215,649,000 and $226,489,000 for the
years ended April 30, 1994, 1995 and 1996, respectively. Additionally, Davis
had net income (losses) of ($5,340,000), $3,448,000 and $5,749,000 for the
years ended April 30, 1994, 1995 and 1996, respectively.
On June 4, 1996, the Company announced a 3-for-2 split of the Company's
common stock to be paid in the form of a stock dividend on July 15, 1996 to
shareholders of record as of the close of business on June 14, 1996. The
accompanying consolidated financial statements do not reflect the effects of
this 3-for-2 split.
53
<PAGE>
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 1996
Annual Meeting of Stockholders under the captions "Election of Directors" and
"Security Ownerhsip," 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 1996 Annual Meeting of Stockholders under
the captions "Election of Directors" and "Executive Compensation," 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 1996 Annual Meeting of Stockholders under
the caption "Security Ownership," 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 1996 Annual Meeting of Stockholders under
the caption "Certain Transactions," and is incorporated herein by reference.
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS:
The following report and financial statements are filed as part of this Form
10-K:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report........................................ 29
Consolidated Balance Sheets as of March 31, 1995 and 1996........... 30
Consolidated Statements of Operations--Years Ended March 31, 1994,
1995 and 1996...................................................... 32
Consolidated Statements of Shareholders' Equity--Years Ended March
31, 1994, 1995 and 1996............................................ 33
Consolidated Statements of Cash Flows--Years Ended March 31, 1994,
1995 and 1996 ..................................................... 35
Notes to Consolidated Financial Statements.......................... 37
</TABLE>
(A)(2) FINANCIAL STATEMENT SCHEDULE:
See (d) below.
(A)(3) EXHIBITS:
The following exhibits are filed herewith or incorporated by reference
herein:
54
<PAGE>
<TABLE>
<C> <S>
2.0 Stock Purchase Agreement dated as of February 27, 1995 between United
States Filter Corporation and The B.F.Goodrich Company (incorporated be
reference to Exhibit 1.0 to Form 8-K dated March 2, 1995 (File No. 1-
10728)).*
2.1 Share Purchase Agreement dated April 3, 1995 among United States Filter
Corporation, Thames Water Products & Services Limited, PWT Overseas
Limited, Ionpure Technologies Limited and Thames Water PLC, including
only Schedules 1, 2 and 3 (incorporated by reference to Exhibit 2.0 to
Form 8-K dated April 3, 1995 (File No. 1-10728)).*
2.2 Asset Purchase Agreement dated August 10, 1995 among Continental H2O
Services, Inc. d/b/a Interlake Water Systems, U.S. Filter/Ionpure, Inc.
and Florence E. Stockdale, James Timothy Stockdale, William E. Stockdale,
III, John Christopher Stockdale and Melody S. Williamson and Katherine S.
Price (incorporated by reference to Exhibit 1.0 to Form 8-K dated August
11, 1995 (File No. 1-10728)).*
2.3 Stock Purchase Agreement dated August 30, 1995 among United States Filter
Corporation, Anjou International Company and Polymetrics, Inc.
(incorporated by reference to Exhibit 1.0 to Form 8-K dated October 2,
1995 (File No. 1-10728)).*
2.4 Agreement and Plan of Merger dated as of April 15, 1996 among United
States Filter Corporation,
U.S. Filter/Zimpro Acquisition Corp., Landegger Environmental Holdings,
Inc., John Hancock Capital Growth Fund II Limited Partnership, John
Hancock Capital Growth Fund II Limited Partnership, Carl C. Landegger,
Trustee and Black Clawson Company (incorporated by reference to Exhibit
1.0 to
Form 8-K dated May 31, 1996 (File No. 1-10728)).*
2.5 Agreement and Plan of Merger dated as of June 10, 1996 among United
States Filter Corporation,
U.S. Filter/DWW Acquisition Corporation and Davis Water & Waste
Industries, Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K
dated June 10, 1996 (File No. 1-10728)).*
3.0 Restated Certificate of Incorporation, as amended.
3.1 Restated Bylaws (incorporated by reference to Exhibit 3.3 to Registration
Statement on Form S-1
(No. 33-41089)).
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 (incorporated by reference to Exhibit 4.1 to Form
8-K dated October 20, 1993 (File No. 1-10728)).
4.1 6% Convertible Subordinated Notes Indenture dated as of September 18,
1995 between United States Filter Corporation and The First National Bank
of Boston, as Trustee (incorporated by reference to Exhibit 4.3 to
Registration Statement on Form S-3 (No. 33-63281)).
4.2 Amended and Restated Multicurrency Revolving Credit Agreement dated as of
November 30, 1995 among United States Filter Corporation, certain of its
subsidiaries, and The First National Bank of Boston, as Managing Agent,
First Interstate Bank of California and ABN Amro Bank N.V., as
Co-Agents, and certain other banks and financial institutions listed and
named therein, including
Exhibits A and K thereto (incorporated by reference to Exhibit 4 to Form
10-Q for the quarter ended December 31, 1995 (File No. 1-10728)).
4.3 Transfer, Registration and Other Rights Agreement dated as of August 31,
1994 by and among United States Filter Corporation, Laidlaw International
Investments (Luxembourg) S.A., Laidlaw Investments (Barbados) Ltd.,
Marfit, S.p.A., Laidlaw, Inc. and Ing. Gilberto Cominetta (incorporated
by reference to Exhibit 2.5 to Form 8-K dated October 4, 1994 (File No.
1-10728)).
4.4 Letter Dated May 29, 1996 from Laidlaw Inc. to United States Filter
Corporation, amending the Transfer, Registration and Other Rights
Agreement dated as of August 31, 1994.
10.1 License Agreements dated November 22, 1989 between Millipore Corporation,
Millipore Investment Holdings Limited and IP Holding Company
(incorporated by reference to Exhibit 10.4 to Form 10-K for the year
ended March 31, 1994 (File No. 1-10728)).
</TABLE>
55
<PAGE>
<TABLE>
<C> <S>
10.2 United States Filter Corporation 1991 Employees Stock Option Plan, as
amended through September 11, 1995.
10.3 United States Filter Corporation 1991 Directors Stock Option Plan, as
amended through September 14, 1994 (incorporated by reference to Exhibit
10.2 to Form 10-Q for the quarter ended September 30, 1994 (File No. 1-
10728)).
10.4 Form of Executive Retention Agreement (incorporated by reference to
Exhibit 10.6 to Form 10-K for the year ended March 31, 1995 (File No. 1-
10728)).
10.5 Form of Executive Retirement Plan (incorporated by reference to Exhibit
10.7 to Form 10-K for the year ended March 31, 1995 (File No. 1-10728)).
10.6 Annual Incentive Compensation Plan Summary.
10.7 Employment Agreement dated July 2, 1992 between Thierry Reyners and
United States Filter Corporation, as amended on December 30, 1992
(incorporated by reference to Exhibit 10.8 to
Form 10-K for the year ended March 31, 1995 (File No. 1-10728).
21.0 Schedule of Subsidiaries.
23.0 Independent Auditors' Consent.
27.0 Financial Data Schedule.
</TABLE>
- --------
* Certain exhibits and schedules to the Exhibits attached hereto have been
omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any
omitted exhibit or schedule will be furnished to the Commission upon
request.
(B) REPORTS ON FORM 8-K:
The Company filed one report on Form 8-K during the quarter ended March 31,
1996 dated February 15, 1996 announcing the election of Robert S. Hillas and
J. Danforth Quayle as directors of the Company to fill two vacancies.
(C) EXHIBITS:
See (a) (3) above.
(D) FINANCIAL STATEMENT SCHEDULE:
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Independent Auditors' Report on Schedule................................ 57
<CAPTION>
SCHEDULE
--------
<C> <S> <C>
II Valuation and Qualifying Accounts............................. 58
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the United States 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.
56
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Board of Directors and Shareholders
United States Filter Corporation:
The audits referred to in our report dated June 7, 1996 included the related
financial statement schedule as of March 31, 1995 and 1996, and for each of
the years in the three-year period ended March 31, 1996, included in the
annual report 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 audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
KPMG Peat Marwick LLP
Orange County, California
June 26, 1996
57
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
THREE-YEARS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
BALANCE AT ACQUIRED AMOUNTS BALANCE
BEGINNING THROUGH CHARGED AMOUNTS AT END OF
DESCRIPTION OF PERIOD ACQUISITION TO EXPENSE WRITTEN OFF PERIOD
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended March 31,
1996:
Allowance for Doubtful
Accounts.............. $3,272,000 $1,172,000 $5,297,000 $(1,576,000) $8,165,000
========== ========== ========== =========== ==========
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
========== ========== ========== =========== ==========
</TABLE>
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
UNITED STATES FILTER CORPORATION
By: /s/ Richard J. Heckmann
-------------------------------
Richard J. Heckmann
Chief Executive Officer and
President
Date: June 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard J. Heckmann Chairman of the Board, Chief June 27, 1996
- ------------------------------------ Executive Officer and
Richard J. Heckmann President
/s/ Kevin L. Spence Vice President and Chief June 27, 1996
- ------------------------------------ Financial Officer
Kevin L. Spence (Principal Accounting
Officer)
/s/ Michael J. Reardon Director and Executive Vice June 27, 1996
- ------------------------------------ President
Michael J. Reardon
/s/ Tim L. Traff Director and Senior Vice June 27, 1996
- ------------------------------------ President
Tim L. Traff
/s/ James E. Clark Director June 27, 1996
- ------------------------------------
James E. Clark
/s/ John L. Diederich Director June 27, 1996
- ------------------------------------
John L. Diederich
/s/ Robert S. Hillas Director June 27, 1996
- ------------------------------------
Robert S. Hillas
/s/ Arthur B. Laffer Director June 27, 1996
- ------------------------------------
Arthur B. Laffer
/s/ Alfred E. Osborne, Jr. Director June 27, 1996
- ------------------------------------
Alfred E. Osborne, Jr.
/s/ J. Danforth Quayle Director June 27, 1996
- ------------------------------------
J. Danforth Quayle
/s/ C. Howard Wilkins, Jr. Director June 27, 1996
- ------------------------------------
C. Howard Wilkins, Jr.
</TABLE>
59
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
2.0 Stock Purchase Agreement dated as of February 27, 1995 between
United States Filter Corporation and The B.F. Goodrich Company
(incorporated by reference to Exhibit 1.0 to Form 8-K dated
March 2, 1995 (File No. 1-10728)).*
2.1 Share Purchase Agreement dated April 3, 1995 among United States
Filter Corporation, Thames Water Products & Services Limited,
PWT Overseas Limited, Ionpure Technologies Limited and Thames
Water PLC, including only Schedules 1, 2 and 3 (incorporated by
reference to Exhibit 2.0 to Form 8-K dated April 3, 1995
(File No. 1-10728)).*
2.2 Asset Purchase Agreement dated August 10, 1995 among Continental
H2O Services, Inc. d/b/a Interlake Water Systems, U.S.
Filter/Ionpure, Inc. and Florence E. Stockdale, James Timothy
Stockdale, William E. Stockdale, III, John Christopher Stockdale
and Melody S. Williamson and Katherine S. Price (incorporated by
reference to Exhibit 1.0 to Form 8-K dated August 11, 1995 (File
No. 1-10728)).*
2.3 Stock Purchase Agreement dated August 30, 1995 among United
States Filter Corporation, Anjou International Company and
Polymetrics, Inc. (incorporated by reference to Exhibit 1.0 to
Form 8-K dated October 2, 1995 (File No. 1-10728)).*
2.4 Agreement and Plan of Merger dated as of April 15, 1996 among
United States Filter Corporation, U.S. Filter/Zimpro Acquisition
Corp., Landegger Environmental Holdings, Inc., John Hancock
Capital Growth Fund II Limited Partnership, John Hancock Capital
Growth Fund II Limited Partnership, Carl C. Landegger, Trustee
and Black Clawson Company (incorporated by reference to Exhibit
1.0 to Form 8-K dated May 31, 1996 (File No. 1-10728)).*
2.5 Agreement and Plan of Merger dated as of June 10, 1996 among
United States Filter Corporation, U.S. Filter/DWW Acquisition
Corporation and Davis Water & Waste Industries, Inc.
(incorporated by reference to Exhibit 2.1 to Form 8-K dated June
10, 1996 (File No. 1-10728)).*
3.0 Restated Certificate of Incorporation, as amended.
3.1 Restated Bylaws (incorporated by reference to Exhibit 3.3 to
Registration Statement on Form S-1 (No. 33-41089)).
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 (incorporated by
reference to Exhibit 4.1 to Form 8-K dated October 20, 1993
(File No. 1-10728)).
4.1 6% Convertible Subordinated Notes Indenture dated as of
September 18, 1995 between United States Filter Corporation and
The First National Bank of Boston, as Trustee (incorporated by
reference to Exhibit 4.3 to Registration Statement on Form S-3
(No. 33-63281)).
4.2 Amended and Restated Multicurrency Revolving Credit Agreement
dated as of November 30, 1995 among United States Filter
Corporation, certain of its subsidiaries, and The First National
Bank of Boston, as Managing Agent, First Interstate Bank of
California and ABN Amro Bank N.V., as Co-Agents, and certain
other banks and financial institutions listed and named therein,
including Exhibits A and K thereto (incorporated by reference to
Exhibit 4 to Form 10-Q for the quarter ended December 31, 1995
(File No. 1-10728)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
4.3 Transfer, Registration and Other Rights Agreement dated as of
August 31, 1994 by and among United States Filter Corporation,
Laidlaw International Investments (Luxembourg) S.A., Laidlaw
Investments (Barbados) Ltd., Marfit, S.p.A., Laidlaw, Inc. and
Ing. Gilberto Cominetta (incorporated by reference to Exhibit
2.5 to Form 8-K dated October 4, 1994 (File No. 1-10728)).
4.4 Letter Dated May 29, 1996 from Laidlaw Inc. to United States
Filter Corporation, amending the Transfer, Registration and
Other Rights Agreement dated as of August 31, 1994.
10.1 License Agreements dated November 22, 1989 between Millipore
Corporation, Millipore Investment Holdings Limited and IP
Holding Company (incorporated by reference to Exhibit 10.4 to
Form 10-K for the year ended March 31, 1994 (File No. 1-10728)).
10.2 United States Filter Corporation 1991 Employees Stock Option
Plan, as amended through September 11, 1995.
10.3 United States Filter Corporation 1991 Directors Stock Option
Plan, as amended through
September 14, 1994 (incorporated by reference to Exhibit 10.2
to Form 10-Q for the quarter ended September 30, 1994 (File No.
1-10728)).
10.4 Form of Executive Retention Agreement (incorporated by reference
to Exhibit 10.6 to Form 10-K for the year ended March 31, 1995
(File No. 1-10728)).
10.5 Executive Retirement Plan (incorporated by reference to Exhibit
10.7 to Form 10-K for the year ended March 31, 1995 (File No. 1-
10728)).
10.6 Annual Incentive Compensation Plan Summary.
10.7 Employment Agreement dated July 2, 1992 between Thierry Reyners
and United States Filter Corporation, as amended on December 30,
1992 (incorporated by reference to Exhibit 10.8 to Form 10-K for
the year ended March 31, 1995 (File No. 1-10728)).
21.0 Schedule of Subsidiaries.
23.0 Independent Auditors' Consent
27.0 Financial Data Schedule.
</TABLE>
- --------
* Certain exhibits and schedules to the Exhibits attached hereto have been
omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any
omitted exhibit or schedule will be furnished to the Commission upon
request.
<PAGE>
EXHIBIT 3.0
RESTATED CERTIFICATE OF INCORPORATION
OF
UNITED STATES FILTER CORPORATION
UNITED STATES FILTER CORPORATION (incorporated on November 12, 1987 as Novan
Energy, Inc.), a corporation duly organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, desiring to give
notice of corporate action effectuating the restatement of its Articles of
Incorporation, sets forth the following facts:
ARTICLE I
Name of Corporation
The name of this corporation is:
UNITED STATES FILTER CORPORATION
ARTICLE II
Definitions
A. "Affiliate" and "Associate" have the meanings set forth in Rule 12b-2
under the Securities Exchange Act of 1934 as in effect on January 1, 1987.
B. "Beneficially Owns" has the meaning set forth in Rule 13d-3 under the
Securities Exchange Act of 1934 as in effect on January 1, 1987.
C. "Continuing Director" means as to any Related Person, any member of the
Board of Directors of the Corporation (the "Board") who (i) is unaffiliated
with and is not the Related Person and (ii) became a member of the Board prior
to the time that the Related Person became a Related Person, and any successor
of a Continuing Director who is recommended to succeed a Continuing Director
by a majority of Continuing Directors then on the Board.
D. "Disinterested Shares" means, as to any Related Person, shares of Voting
Stock held by shareholders other than such Related Person.
E. "Related Person" means and includes any individual, corporation,
partnership or other person or entity, or any group of two or more of the
foregoing that have agreed to act together, which, together with its
Affiliates and Associates, Beneficially Owns, in the aggregate, five percent
(5%) (the "Threshold Percentage") or more of the outstanding Voting Stock, and
any Affiliate or Associate of any such individual, corporation, partnership or
other person, entity or group; provided, however, that the term "related
person" shall not include Gary Leger, Lou Purmort, Joseph Mendel, Richard J.
Heckmann, Richard Bertea, Richard R. Kreitler, Richard Neslund, Charles B.
Slack, Cliff Traff, Jr., Verne H. Winchell.
F. "Subsidiary" means any corporation in which the Corporation owns,
directly or indirectly, securities which entitle the Corporation to elect a
majority of the Board of Directors of such corporation or which otherwise give
to the Corporation the power to control such corporation.
G. "Voting Stock" means all outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors of the
Corporation and each reference to a percentage or portion of shares of Voting
Stock shall refer to such percentage or portion of the votes entitled to be
cast by such shares.
<PAGE>
ARTICLE III
Registered Office
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, and the name of its registered agent at that
address is The Corporation Trust Company.
ARTICLE IV
Purpose
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
the State of Delaware.
ARTICLE V
Authorized Capital Stock
Section 1. Authorized Stock. The Corporation shall be authorized to issue
two classes of shares to be designated, respectively, "Preferred Stock" and
"Common Stock"; the total number of shares which the Corporation shall have
authority to issue is Sixteen Million (16,000,000) shares; the total number of
shares of Preferred Stock shall be One Million (1,000,000) and each share
shall have a par value of ten cents ($.10); and the total number of authorized
shares of Common Stock shall be Fifteen Million (15,000,000) and each one
shall have a par value of one cent ($.01).
Section 2. Preferred Stock. The shares of Preferred Stock may be issued from
time to time in one or more series. The Board of Directors is hereby vested
with authority to fix by resolution or resolutions the designations and the
powers, preferences and relative, participating, optional or other special
rights, and without limitation the rights with respect to dividends,
conversion rights, redemption price and liquidation preference, of any series
of shares of Preferred Stock, and to fix the number of shares constituting any
such series, and to increase or decrease the number of shares thereof then
outstanding. In case the number of shares of any such series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution or resolutions originally
fixing the number of shares of such series.
ARTICLE VI
Number of Directors
The number of directors which shall constitute the whole Board of Directors
of the Corporation shall be as determined in accordance with the Bylaws of the
Corporation, as the same may be amended from time to time. Elections of
directors need not be by written ballot unless the Bylaws of the Corporation
shall so provide.
ARTICLE VII
Limitation of Director Liability
To the fullest extent permitted by the General Corporation Law of Delaware
as the same exists or may hereafter be amended, a director of this Corporation
shall not be liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
ARTICLE VIII
No Actions by Written Consent of Shareholders
No action required to be taken or which may be taken at any annual or
special meeting of stockholders of the corporation may be taken without a
meeting, and the power of stockholders to consent in writing without a meeting
to the taking of any action is specifically denied.
<PAGE>
ARTICLE IX
Call of Special Meetings
Special meetings of the stockholders of the Corporation for any purpose or
purposes may be called at any time by the Board, or by a majority of the
members of the Board; provided, however, that where a proposal requiring
stockholder approval is made by or on behalf of a Related Person or director
affiliated with a Related Person, or where a Related Person otherwise seeks
action requiring stockholder approval, then the affirmative vote of a majority
of the Continuing Directors shall also be required to call a special meeting
of stockholders for the purpose of considering such proposal or obtaining such
approval. Such special meetings may not be called by any other person or
persons or in any other manner.
ARTICLE X
Amendment of Corporate Documents
Section 1. Certificate of Incorporation. In addition to any affirmative vote
required by applicable law and any voting rights granted to or held by the
holders of Preferred Stock, any alteration, amendment, repeal or rescission
(any "Change") of any provision of this Certificate of Incorporation must be
approved by a majority of the directors of the Corporation then in office and
by the affirmative vote of the holders of a majority of the outstanding Voting
Stock of the Corporation; provided, however, that if any such Change relates
to Articles II, VI, VII, VIII, IX hereof or to this Article X, such Change
must also be approved either (i) by a majority of the authorized number of
directors and, if one or more Related Persons exist, by a majority of the
directors who are Continuing Directors with respect to all Related Persons, or
(ii) by the affirmative vote of the holders of not less than eighty percent
(80%) of the outstanding Voting Stock of the Corporation, and if the Change is
proposed by or on behalf of a Related Person or a director affiliated with a
Related Person, by the affirmative vote of the holders of a majority of the
Disinterested Shares.
Subject to the foregoing, the Corporation reserves the right to amend,
alter, repeal or rescind any provision contained in this Certificate of
Incorporation in the manner now or hereafter prescribed by law, and all rights
conferred on stockholders herein are granted subject to this reservation.
Section 2. Bylaws. Any proposed Change of the Bylaws of the Corporation must
be approved either (i) by a majority of the authorized number of directors
and, if one or more Related Persons exist, by a majority of the directors who
are Continuing Directors with respect to all Related Persons, or (ii) by the
affirmative vote of the holders of not less than eighty percent (80%) of the
outstanding Voting Stock of the Corporation and, if the Change is proposed by
or on behalf of a Related Person or a director affiliated with a Related
Person, by the affirmative vote of the holders of a majority of the
Disinterested Shares.
Subject to the foregoing, the Board of Directors is expressly authorized to
make, repeal, alter, amend and rescind the Bylaws of this Corporation, subject
to any limitations expressed in such Bylaws.
ARTICLE XI
Corporate Power
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred on stockholders
herein are granted subject to this reservation.
ARTICLE XII
Creditor Compromise or Arrangement
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this
<PAGE>
Corporation under the provisions of Section 291 of Title 8 of the Delaware
Code or on the application of trustees in dissolution or of any receiver or
receivers appointed for this Corporation under the provisions of Section 279
of Title 8 of the Delaware Code order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of this Corporation as a consequence
of such compromise or arrangement, the said compromises or arrangement and the
said reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of this
Corporation, as the case may be, and also on this Corporation.
The Board of Directors of this Corporation has duly authorized by resolution
this restatement of the Corporation's Articles of Incorporation which restates
and integrates and does not further amend the provisions of the Corporation's
Certificate of Incorporation as theretofore amended or supplemented, and there
is no discrepancy between those provisions and the provisions of the restated
Certificate.
This Restated Certificate of Incorporation has been duly adopted in
accordance with the provisions of Section 245 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said UNITED STATES FILTER CORPORATION has caused this
Restated Certificate of Incorporation to be signed by Richard J. Heckmann, its
President and attested by Michael J. Reardon, its Secretary, as of the 14th
day of March, 1991.
/s/ Richard J. Heckmann
-------------------------------
Richard J. Heckmann, President
Attest: /s/ Michael J. Reardon
-------------------------------
Michael J. Reardon, Secretary
The undersigned declare under penalty of perjury under the laws of the State
of Delaware, that the instrument is the act and deed of the corporation, and
that the facts stated therein are true.
Executed at Whittier, California, as of March 14, 1991.
/s/ Richard J. Heckmann
-------------------------------------
Richard J. Heckmann, President
/s/ Michael J. Reardon
-------------------------------------
Michael J. Reardon, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
UNITED STATES FILTER CORPORATION
United States Filter Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That Section 2 of Article V of the Restated Certificate of
Incorporation of the Corporation is hereby amended to read in its entirety as
follows:
"Section 2. Preferred Stock. The shares of Preferred Stock may be
issued from time to time in one or more series. The Board of Directors
is hereby vested with authority to fix by resolution or resolutions the
designations and the powers, preferences and relative, participating,
optional or other special rights, and without limitation the rights
with respect to voting, dividends, conversion rights, redemption price
and liquidation preference, of any series of shares of Preferred Stock,
and to fix the number of shares constituting any such series, and to
increase or decrease the number of shares thereof then outstanding. In
case the number of shares of any such series shall be so decreased, the
shares constituting such decrease shall resume the status which they
had prior to the adoption of the resolution or resolutions originally
fixing the number of shares of such series."
SECOND: The amendment set forth has been duly approved by the Board of
Directors of the Corporation and by the Stockholders entitled to vote thereon.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, I, the undersigned, being a Vice President of the
Corporation, for the purpose of amending the Restated Certificate of
Incorporation of the Corporation pursuant to Section 242 of the Delaware
General Corporation Law, do make and file this Certificate of Amendment,
hereby declaring and certifying that the facts herein stated are true and
accordingly have hereunto set my hand, this 29th day of September, 1992.
By: /s/ Donald L. Bergmann
-------------------------------
Donald L. Bergmann
Vice President
Attest: /s/ Dorrie B. Osborne
-------------------------------
Dorrie B. Osborne
Assistant Secretary
<PAGE>
CERTIFICATE RELATING TO
CERTIFICATE OF DESIGNATION, PREFERENCES, RIGHTS,
AND LIMITATIONS OF PREFERRED STOCK FILED ON JULY 18, 1990
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
United States Filter Corporation, a corporation organized and existing under
the by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That on July 18, 1990, the Corporation filed with the Secretary of
State of Delaware a Certificate of Designation, Preferences, Rights and
Limitations of Preferred Stock, $.10 Par Value of American Toxxic Control,
Inc. ("Certificate of Designation"), the name of which corporation was
subsequently changed to United States Filter Corporation. The Certificate of
Designation authorized the issuance of 1,000,000 shares of Preferred Stock,
$.10 par value ("Preferred Stock") of the Corporation.
SECOND: That the Board of Directors of the Corporation, acting by a
unanimous consent dated November 30, 1993, adopted the following resolution in
respect of the shares subject to the Certificate of Designation:
RESOLVED, that none of the authorized shares designated "Preferred
Stock, $.10 par value," by virtue of the Certificate of Designation,
Preferences, Rights and Limitations of Preferred Stock, $.10 Par Value
of the Corporation filed with the Secretary of State of Delaware on
July 18, 1990 are presently outstanding, and that none of such shares
will be issued subject to such Certificate of Designation, Preferences,
Rights and Limitations.
THIRD: Pursuant to Section 151(g) of the General Corporation Law of the
State of Delaware, upon its effectiveness, this certificate shall have the
effect of eliminating from the Certificate of Incorporation of the
Corporation, as amended, all matters set forth in the Certificate of
Designation with respect to the Preferred Stock.
IN WITNESS WHEREOF, United States Filter Corporation has caused this
certificate to be signed by its Vice President and attested by its Assistant
Secretary, and the undersigned affirms the foregoing as true and correct under
the penalties of perjury as of this 30th day of November, 1993.
UNITED STATES FILTER CORPORATION
By: /s/ Donald L. Bergmann
-------------------------------
Donald L. Bergmann
Vice President
ATTEST:
By: /s/ Dorrie B. Osborne
-------------------------------
Dorrie B. Osborne Assistant
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
UNITED STATES FILTER CORPORATION
United States Filter Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That Section 1 of Article V of the Restated Certificate of
Incorporation of the Corporation is hereby amended in its entirety to read as
follows:
"Section 1. Authorized Stock. The Corporation shall be authorized to
issue two classes of shares to be designated, respectively, "Preferred
Stock" and "Common Stock"; the total number of shares which the
Corporation shall have authority to issue is twenty-eight million
(28,000,000) shares; the total number of authorized shares of Preferred
Stock shall be three million (3,000,000) and each share shall have a
par value of ten cents ($.10); and the total number of authorized
shares of Common Stock shall be twenty-five million (25,000,000) and
each share shall have a par value of one cent ($.01)."
SECOND: That Article VI of the Restated Certificate of Incorporation of the
Corporation is hereby amended in its entirety to read as follows:
"ARTICLE VI
Numbers of Directors; Classification
The business and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors consisting of such number
of directors as is determined from time to time by resolution adopted
by affirmative vote of majority of the entire Board of Directors;
provided, however, that in no event shall the number of directors be
less than three. The directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist,
as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors. At the 1993
Annual Meeting of Stockholders, Class I directors shall be elected for
a one-year term, Class II directors for a two-year term and Class III
directors for a three-year term. At each succeeding annual meeting of
stockholders beginning in 1994, successors to the class of directors
whose term expires at the annual meeting shall be elected for a three-
year term. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as possible, and any
additional director of any class elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall
coincide with the remaining term of any incumbent director. A director
shall hold office until the annual meeting for the year in which his or
her term expires and until his or her successor shall be elected and
shall qualify, subject, however, to prior death, resignation,
incapacitation or removal from office. A majority of the entire Board
of Directors shall constitute a quorum for the transaction of business.
Except as otherwise required by law, any vacancy in the Board of
Directors that results from an increase in the number of directors
shall be filled by only a majority of the directors then in office,
even if less than a quorum, or by a sole remaining director. Any
director elected to fill a vacancy not resulting from an increase in
the number of directors shall have the same remaining term as that of
his or her predecessor. A director may be removed only for cause by
either the stockholders or by the vote of a majority of the directors
then in office.
<PAGE>
Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at
an annual or special meeting of stockholders, the election, term of
office, filling of vacancies and other features of such directorships
shall be governed by the terms of this Certificate of Incorporation
applicable thereto, such directors so elected shall not be divided into
classes pursuant to this Article VI, and the number of directors shall
not be counted in determining the maximum number of directors permitted
under the foregoing provisions of the Article VI, in each case unless
expressly provided by such terms."
THIRD: The amendments set forth have been duly approved by the Board of
Directors of the Corporation and by the Stockholders entitled to vote thereon.
FOURTH: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, I, the undersigned, being a Vice President of the
Corporation, for the purpose of amending the Restated Certificate of
Incorporation of the Corporation pursuant to Section 242 of the Delaware
General Corporation Law, do make and file this Certificate of Amendment,
hereby declaring and certifying that the facts herein stated are true and
accordingly have hereunto set my hand, as of this 1st day of December, 1993.
By: /s/ Donald L. Bergmann
-------------------------------
Donald L. Bergmann
Vice President
Attest: /s/ Dorrie B. Osborne
---------------------------
Dorrie B. Osborne
Assistant Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
UNITED STATES FILTER CORPORATION
United States Filter Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That Section 1 of Article V of the Restated Certificate of
Incorporation of the Corporation is hereby amended to read in its entirety as
follows:
"Section 1. Authorized Stock. The Corporation shall be authorized to
issue two classes of shares to be designated, respectively, "Preferred
Stock" and "Common Stock"; the total number of shares which the
Corporation shall have authority to issue is seventy-eight million shares
(78,000,000); the total number of shares of Preferred Stock shall be three
million (3,000,000) and each share shall have a par value of ten cents
($.10); and the total number of authorized shares of Common Stock shall be
seventy-five million (75,000,000) and each share shall have a par value of
one cent ($.01)."
SECOND: The amendment set forth has been duly approved by the Board of
Directors of the Corporation and by the Stockholders entitled to vote thereon.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, I, the undersigned, being a Vice President of the
Corporation, for the purpose of amending the Restated Certificate of
Incorporation of the Corporation pursuant to Section 242 of the Delaware
General Corporation Law, do make and file this Certificate of Amendment,
hereby declaring and certifying that the facts herein stated are true and
accordingly have hereunto set my hand, as of this 14th day of March, 1994.
By: /s/ Kevin L. Spence
-------------------------------
Kevin L. Spence
Vice President
Attest: /s/ Dorrie B. Osborne
-------------------------------
Dorrie B. Osborne
Assistant Secretary
<PAGE>
CERTIFICATE OF ELIMINATION
OF
UNITED STATES FILTER CORPORATION
United States Filter Corporation (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of
the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is United States Filter Corporation.
SECOND: That at a meeting of the Board of Directors of the Corporation
resolutions were duly adopted eliminating the designation of a "Series B
Voting Convertible Preferred Stock" as set forth in the Certificate of
Designations, Preferences, Rights and Limitations filed on October 3, 1994.
The resolutions setting forth the elimination are as follows:
NOW, THEREFORE, BE IT RESOLVED, that no shares of the Series B Voting
Convertible Preferred Stock are outstanding; and
RESOLVED FURTHER, that no shares of the Series B Voting Convertible
Preferred Stock will be issued subject to that Certificate of
Designations, Preferences, Rights and Limitations filed by the Company
with the Delaware Secretary of State on October 3, 1994; and
RESOLVED FURTHER, that a Certificate of Elimination be filed with the
Delaware Secretary of State eliminating the designation of the Series B
Voting Convertible Preferred Stock.
THIRD: These resolutions were duly adopted in accordance with Section 151(g)
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, United States Filter Corporation has caused this
Certificate to be executed by a duly authorized officer this 3rd day of
November, 1995.
UNITED STATES FILTER CORPORATION
By: /s/ Damian C. Georgino
----------------------------------
Damian C. Georgino
Vice President, General
Counsel and Secretary
<PAGE>
CERTIFICATE OF ELIMINATION
OF
UNITED STATES FILTER CORPORATION
United States Filter Corporation (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of
the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is United States Filter Corporation.
SECOND: That at a meeting of the Board of Directors of the Corporation
resolutions were duly adopted eliminating the designation of a "Series A
Voting Convertible Preferred Stock" as set forth in the Certificate of
Designations, Preferences, Rights and Limitations filed on December 31, 1991.
The resolutions setting forth the elimination are as follows:
NOW, THEREFORE, BE IT RESOLVED, that no shares of the Series A Voting
Convertible Preferred Stock are outstanding; and
RESOLVED FURTHER, that no shares of the Series A Voting Convertible
Preferred Stock will be issued subject to that Certificate of
Designations, Preferences, Rights and Limitations filed by the Company
with the Delaware Secretary of State on December 31, 1991; and
RESOLVED FURTHER, that a Certificate of Elimination be filed with the
Delaware Secretary of State eliminating the designation of the Series A
Voting Convertible Preferred Stock.
THIRD: These resolutions were duly adopted in accordance with Section 151(g)
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, United States Filter Corporation has caused this
Certificate to be executed by a duly authorized officer this 14th day of June,
1996.
UNITED STATES FILTER CORPORATION
By: /s/ Damian C. Georgino
----------------------------------
Damian C. Georgino
Vice President, General
Counsel and Secretarty
<PAGE>
EXHIBIT 4.4
[Laidlaw Inc. letterhead]
May 29, 1996
United States Filter Corporation
40-004 Cook Street
Palm Desert, CA 92211
Reference is made to that certain Transfer, Registration and Other Rights
Agreement by and among United States Filter Corporation and Laidlaw Inc. and
others dated as of August 31, 1994.
Laidlaw Inc., as the indirect beneficial owner of all of the shares of
Laidlaw International Investments (Luxembourg) S.A., a Luxembourg corporation
that has been liquidated, hereby covenants and agrees that the above described
agreement is hereby amended by deleting in its entirety section 21 with
respect to Board Representation.
LAIDLAW INC.
per: /s/ L.W. Haworth
-------------------------------
per: /s/ Ivan R. Cairns
-------------------------------
<PAGE>
EXHIBIT 10.2
UNITED STATES FILTER CORPORATION
1991 EMPLOYEE STOCK OPTION PLAN(1)
1. Purpose. The United States Filter Corporation 1991 Employee Stock Option
Plan (the "Plan") is hereby established to grant to officers, directors and
key employees of United States Filter Corporation and its Subsidiaries
(individually and collectively, the "Company") a favorable opportunity to
acquire Common Stock of United States Filter Corporation (the "Stock"), and to
create an incentive for such persons to remain in the employ of the Company
and to contribute to its success.
As used in the Plan, the term "Code" shall mean the Internal Revenue Code of
1986, as amended, and any successor statute, and the terms "Parent" and
"Subsidiary" shall have the meaning set forth in Sections 425(e) and (f) of
the Code.
2. Administration. The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company (the "Committee"). The
Committee shall determine the meaning and application of the provisions of the
Plan and all option agreements executed pursuant thereto, and its decisions
shall be conclusive and binding upon all interested persons. The Committee may
not grant an option to any member of the Committee. An option may be granted
to a member of the Committee only by action of the Board of Directors of the
Company. Subject to the provisions of the Plan, the Committee shall have the
sole authority to determine:
(a) The persons to whom options to purchase Stock shall be granted;
(b) The number of options to be granted to each person;
(c) The price to be paid for the Stock upon the exercise of each option;
(d) The period within which each option shall be exercised; and
(e) The terms and conditions of each stock option agreement entered into
between the Company and persons to whom the Company has granted an option.
3. Eligibility. Officers, directors and key employees of the Company, as
determined by the Committee, shall be eligible to receive grants of options
under the Plan.
4. Stock Subject to Plan. There shall be reserved for issue upon the
exercise of options granted under the Plan 600,000 shares of Common Stock of
the number of shares of Stock, which, in accordance with the provisions of
Section 9 hereof, shall be substituted therefor. Such shares may be authorized
but unissued shares or treasury shares. If an option granted under the Plan
shall expire or terminate for any reason without having been exercised in
full, unpurchased shares subject thereto shall again be available for the
purposes of the Plan.
5. Terms of Options
(a) Incentive Stock Options. It is intended that options granted pursuant
to this Section 5(a) qualify as incentive stock options as defined in
Section 422A of the Code. Incentive stock options shall be granted only to
employees of the Company. Each stock option agreement evidencing an
incentive stock option shall provide that the option is subject to the
following terms and conditions and to such other terms and conditions not
inconsistent therewith as the Committee may deem appropriate in each case:
- --------
(1) As amended through September 28, 1992.
<PAGE>
(1) Option Price. The price to be paid for each share of Stock upon
the exercise of each incentive stock option shall be determined by the
Committee at the time the option is granted, but shall in no event be
less than 100% of the fair market value of the shares on the date the
option is granted, or not less than 110% of the fair market value of
such shares on the date such option is granted in the case of an
individual then owning (within the meaning of Section 425(d) of the
Code) more than 10% of the total combined voting power of all classes
of stock of the Company or of its Parent or Subsidiaries. As used in
this Plan the term "date the option is granted" means the date on which
the Committee authorizes the grant of an option hereunder or any later
date specified by the Committee. Fair market value of the shares shall
be (i) the mean of the high and low prices of shares of Stock sold on a
national stock exchange on the date the option is granted (or if there
was no sale on such date, the highest asked price for the Stock on such
date), or (ii) if the Stock is not listed on any national stock
exchange on the date the option is granted, the mean between the "bid"
and "asked" prices of the Stock in the National Over-The-Counter Market
on the date the option is granted, or (iii) if the Stock is not traded
in any market, that price determined by the Committee to be fair market
value, based upon such evidence as it may think necessary or desirable.
(2) Period of Option. The period or periods within which an option
may be exercised shall be determined by the Committee at the time the
option is granted, but in no event shall any option granted hereunder
be exercised more than ten years from the date the option was granted,
nor more than five years from the date the option was granted in the
case of an individual then owning (within the meaning of Section 425(d)
of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or of its Parent or Subsidiaries.
(3) Payment for Stock. The option exercise price for each share of
Stock purchased under an option shall be paid in full at the time of
purchase. The Committee may provide that the option price be payable,
at the election of the holder of the option and with the consent of the
Committee, in whole or in part either in cash or by delivery of Stock
in transferable form, such Stock to be valued for such purpose at its
fair market value on the date on which the option is exercised. No
share of Stock shall be issued until full payment therefor has been
made, and no employee shall have any rights as an owner of Stock until
the date of issuance to him of the stock certificate evidencing such
Stock.
(4) Limitation on Amount. Subject to the overall limitations of
Section 4 hereof (relating to the aggregate shares subject to the
Plan), the aggregate fair market value (determined as of the time the
option is granted) of the Common Stock with respect to which incentive
stock options are exercisable for the first time by the Optionee during
any calendar year (under the Plan and all other incentive stock option
plans of the Company, any Parent or Subsidiaries) shall not exceed
$100,000.
(b) Nonqualified Stock Options. Each nonqualified stock option granted
under the Plan shall be evidenced by a stock option agreement between the
person to whom such option is granted and the Company. Such stock option
agreement shall provide that the option is subject to the following terms
and conditions and to such other terms and conditions not inconsistent
therewith as the Committee may deem appropriate in each case:
(1) Option Exercise Price. The exercise price to be paid for each
share of Stock upon the exercise of an option shall be determined by
the Committee at the time the option is granted, but shall in no event
be less than 100% of the fair market value of the shares on the date
the option is granted. As used in this Plan, the term "date the option
is granted" means the date on which the Committee authorizes the grant
of an option hereunder or any later date specified by the Committee.
Fair market value of the shares shall be (i) the mean of the high and
the low prices of shares of Stock sold on a national stock exchange on
the date the option is granted (or if there was no sale on such date,
the highest asked price for the Stock on such date), or (ii) if the
Stock is not listed on a national stock exchange on the date the option
is granted the mean between the "bid" and "asked" prices of the Stock
in the National Over-The-Counter Market on the date the option is
granted, or (iii) if the Stock is not traded in any market, that price
determined by the Committee to be fair market value, based upon such
evidence as it may think necessary or desirable.
<PAGE>
(2) Period of Option. The period or periods within which an option
may be exercised shall be determined by the Committee at the time the
option is granted, but shall in no event exceed ten years from the date
the option is granted.
(3) Payment for Stock. The option exercise price for Stock purchased
under an option shall be paid in full at the time of purchase. The
Committee may provide that the option exercise price be payable, at the
election of the holder of the option, with the consent of the
Committee, in whole or in part either in cash or by delivery of Stock
in transferable form, such Stock to be valued for such purpose at its
fair market value on the date on which the option is exercised. No
share of Stock shall be issued until full payment therefor has been
made, and no employee shall have any rights as an owner of shares of
Stock until the date of issuance to him of the stock certificate
evidencing such Stock.
6. Nontransferability. The options granted pursuant to the Plan shall be
nontransferable except by will or the laws of descent and distribution, and
shall be exercisable during the optionee's lifetime only by him and after his
death, by his personal representative or by the person entitled thereto under
his will or the laws of intestate succession.
7. Termination of Employment. Upon termination of the optionee's employment,
except as the Committee shall otherwise authorize at the time of grant and any
time thereafter, his rights to exercise options then held by him shall be only
as follows:
(a) Death or Disability. Upon the death of any person holding options
granted under this Plan, his options shall be exercisable, by the holder's
representative or by the person entitled thereto under his will or the laws
of intestate succession, only if and to the extent they are exercisable on
the date of his death, and such options shall terminate twelve months after
the date of his death (or such shorter period as the Committee may
prescribe in his option agreement). Upon the disability (within the meaning
of Section 105(d)(4) of the Code) of an optionee his options shall be
exercisable only if and to the extent they are exercisable on the date of
his disability, and such options shall terminate twelve months after the
date of his disability (or such shorter period as the Committee may
prescribe in his option agreement). However, in no event shall any option
be exercised more than ten years from the date the option was granted.
(b) Retirement. Upon the retirement of an officer, director or employee
or the cessation of services provided by a nonemployee (either pursuant to
a Company retirement plan, if any, or pursuant to the approval of the
Committee) or if any officer, director, employee or non-employee optionee
leaves the Company, a Parent or a Subsidiary, for any reason other than as
set forth in Section 7(a), 7(c) or 7(d) hereof, his options shall be
exercisable only if and to the extent they are exercisable on the date of
his retirement or cessation of services and such options shall terminate
three months after the date of his retirement or cessation of services as
the case may be (or such shorter period as the Committee may prescribe in
his option agreement). The optionee's option shall terminate upon the
expiration of such period unless the holder of the options dies prior
thereto, in which event he shall be deemed to have died on the date of his
retirement or cessation of services; provided, however, in no event shall
such options be exercised more than ten years from the date they are
granted.
(c) Transfer to Related Corporation. In the event that an officer,
director or employee leaves the employ of the Company to become an officer,
director or employee of any Subsidiary, or an officer, director or employee
ceases to serve as an officer or director or leaves the employ of a
Subsidiary to become an officer, director or employee of the Company or
another Subsidiary, such officer, director or employee shall be deemed to
continue as an officer, director or employee for all purposes of this Plan.
(d) Other Termination. In the event an officer, director or employee
ceases to serve as an officer or director or leaves the employ of the
Company, a Parent or a Subsidiary, or a nonemployee ceases to provide
services to the Company, of his own volition, or if his relationship with
the Company, a Parent or a Subsidiary is terminated by the Company for
cause, his options shall terminate at the earlier of the date his
employment terminates or he ceases providing services to the Company, a
Parent or a Subsidiary, or the date he receives written notice that his
employment or rendering of services is or will be terminated.
<PAGE>
8. Acceleration upon Termination or Sale of Company. The Committee may
determine to accelerate the exercisability of any or all options after
termination of employment. In the event the Parent or its stockholders enter
into an agreement to dispose of all or substantially all of the assets or
capital stock of the Parent by means of a sale, merger, consolidation,
reorganization, liquidation or otherwise, an option granted under the Plan
will, in the discretion of the Committee, if so authorized by the Board of
Directors and conditioned upon consummation of such disposition of assets or
stock, become immediately exercisable during the period commencing as of the
date of the execution of such agreement and ending as of the earlier of the
stated termination date of the option or the date on which the disposition of
assets or stock contemplated by the agreement is consummated.
9. Adjustment of Shares
(a) In the event of changes in the outstanding Stock by reason of stock
dividends, stock splits, reverse stock splits, split-ups, consolidations,
recapitalizations, reorganizations or like events (as determined by the
Committee), an appropriate adjustment shall be made by the Committee in the
number of shares reserved under the Plan, in the number of shares set forth
in Section 4 hereof, and in the number of shares and the option price per
share specified in any stock option agreement with respect to any
unpurchased shares. The determination of the Committee as to what
adjustments shall be made shall be conclusive. Adjustments for any options
to purchase fractional shares shall also be determined by the Committee.
The Committee shall give prompt notice to all optionees of any adjustment
pursuant to this Section.
(b) Section 9(a) above to the contrary notwithstanding, in the event of
any merger, consolidation or other reorganization of United States Filter
Corporation in which United States Filter Corporation is not the surviving
or continuing corporation (as determined by the Committee) or in the event
of the liquidation or dissolution of United States Filter Corporation, all
options granted hereunder shall terminate on the effective date of the
merger, consolidation, reorganization, liquidation, or dissolution unless
the agreement with respect thereto provides for the assumption of such
options by the continuing or surviving corporation. Any other provision of
this Plan to the contrary notwithstanding, all outstanding options granted
hereunder shall be fully exercisable for a period of 30 days prior to the
effective date of any such merger, consolidation, reorganization,
liquidation, or dissolution unless such options are assumed by the
continuing or surviving corporation.
10. Securities Law Requirements. The Committee may require prospective
optionees, as a condition of either the grant or the exercise of an option, to
represent and establish to the satisfaction of the Committee that all shares
of Stock acquired upon the exercise of such option will be acquired for
investment and not for resale. The Company may refuse to permit the sale or
other disposition of any shares acquired pursuant to any such representation
until it is satisfied that such sale or other disposition would not be in
contravention of applicable state or federal securities law.
11. Tax Withholding. The Company may require an optionee to pay to the
Company all applicable federal, state and local taxes which the Company is
required to withhold with respect to the exercise of an option granted
hereunder.
12. Amendment. The Board of Directors may amend the Plan at any time, except
that without shareholder approval:
(a) The number of shares of Stock which may be reserved for issuance
under the Plan shall not be increased except as provided in Section 9
hereof;
(b) The option price per share of Stock may not be fixed at less than
100% of the fair market value of a share of Stock on the date the option
was granted;
(c) The maximum period of ten years during which the options may be
exercised may not be extended;
<PAGE>
(d) The class of persons eligible to receive options under the Plan as
set forth in Section 3 shall not be changed; and
(e) This Section 12 may not be amended in a manner that limits or reduces
the amendments which require shareholder approval.
13. Termination. The Plan shall terminate automatically on February 27,
2001. The Board of Directors may terminate the Plan at any earlier time. The
termination of the Plan shall not affect the validity of any option agreement
outstanding at the date of such termination, but no option shall be granted
after such date.
14. Effective Date. The Plan shall be effective upon its adoption by the
Board of Directors of the Company. Options may be granted but not exercised
prior to stockholder approval of the Plan. If any options are so granted and
stockholder approval shall not have been obtained on or before February 27,
1992, such options shall terminate retroactively as of the date they were
granted.
<PAGE>
THIRD AMENDMENT
TO
UNITED STATES FILTER CORPORATION
1991 EMPLOYEE STOCK OPTION PLAN
WHEREAS, United States Filter Corporation (the "Company") has established
the United States Filter Corporation 1991 Employee Stock Option Plan (the
"Plan");
WHEREAS, Section 12 of the Plan authorized the Company's Board of Directors
to amend the Plan, except in certain respects not herein applicable;
WHEREAS, it is desired to amend the Plan to increase the number of shares
authorized for option grants under the Plan; and
WHEREAS, the Plan was last amended September 28, 1992.
NOW THEREFORE, the Plan is amended effective upon the requisite favorable
vote of the stockholders of the Company, as follows:
I Amend Section 2 by substituting "750,000 shares" for "600,000 shares";
and
II In all other respects, the Plan shall continue in full force and
effect.
Dated: As of December 8, 1992
UNITED STATES FILTER CORPORATION
By: /s/ Donald L. Bergmann
-------------------------------
Donald L. Bergmann
Vice President
<PAGE>
FOURTH AMENDMENT
TO
UNITED STATES FILTER CORPORATION
1991 EMPLOYEE STOCK OPTION PLAN
WHEREAS, United States Filter Corporation (the "Company") has established
the United States Filter Corporation 1991 Employee Stock Option Plan (the
"Plan");
WHEREAS, Section 12 of the Plan authorizes the Company's Board of Directors
to amend the Plan, except in certain respects not herein applicable;
WHEREAS, it is desired to amend the Plan to increase the number of shares
authorized for option grants under the Plan; and
WHEREAS, the Plan was last amended December 8, 1992.
NOW THEREFORE, the Plan is amended effective upon the requisite favorable
vote of the stockholders of the Company, as follows:
I Amend Section 2 by substituting "775,000 Shares" for "750,000 Shares";
and
II In all other respects, the Plan shall continue in full force and
effect.
Dated: As of June 18, 1993
UNITED STATES FILTER CORPORATION
By: /s/ Donald L. Bergmann
-------------------------------
Donald L. Bergmann
Vice President
<PAGE>
FIFTH AMENDMENT
TO
UNITED STATES FILTER CORPORATION
1991 EMPLOYEE STOCK OPTION PLAN
WHEREAS, United States Filter Corporation (the "Company") has established
the United States Filter Corporation 1991 Employee Stock Option Plan (the
"Plan");
WHEREAS, Section 12 of the Plan authorized the Company's Board of Directors
to amend the Plan, except in certain respects not herein applicable;
WHEREAS, it is desired to amend the Plan to increase the number of shares
authorized for option grants under the Plan; and
WHEREAS, the Plan was last amended June 18, 1993.
NOW THEREFORE, the Plan is amended effective upon the requisite favorable
vote of the stockholders of the Company, as follows:
I Amend Section 2 by substituting "975,000 Shares" for "775,000 Shares";
and
II In all other respects, the Plan shall continue in full force and
effect.
Dated: As of September 15, 1993
UNITED STATES FILTER CORPORATION
By: /s/ Donald L. Bergmann
-------------------------------
Donald L. Bergmann
Vice President
<PAGE>
SIXTH AMENDMENT
TO
UNITED STATES FILTER CORPORATION
1991 EMPLOYEE STOCK OPTION PLAN
WHEREAS, United States Filter Corporation (the "Company") has established
the United States Filter Corporation 1991 Employee Stock Option Plan (the
"Plan");
WHEREAS, Section 12 of the Plan authorizes the Company's Board of Directors
to amend the Plan, except in certain respects not herein applicable;
WHEREAS, it is desired to amend the Plan to increase the number of shares
authorized for option grants under the Plan and to provide for an annual limit
on option grants to any individual; and
WHEREAS, the Plan was last amended September 15, 1993.
NOW THEREFORE, the Plan is amended effective upon the requisite favorable
vote of the stockholders of the Company, as follows:
I Amend Section III by adding the following sentence at the end of that
Section:
"No individual may be granted, in any calendar year, options under
the Plan to purchase more than 100,000 shares of Common Stock."
II Amend Section 4 by substituting "1,225,000 Shares" for "975,000
Shares";
III In all other respects, the Plan shall continue in full force and
effect.
Dated: As of June 9, 1994
UNITED STATES FILTER CORPORATION
By: /s/ Donald L. Bergmann
-------------------------------
Donald L. Bergmann
Vice President
<PAGE>
SEVENTH AMENDMENT
TO
UNITED STATES FILTER CORPORATION
1991 EMPLOYEE STOCK OPTION PLAN
WHEREAS, United States Filter Corporation (the "Company") has established
the United States Filter 1991 Employee Stock Option Plan (the "Plan");
WHEREAS, Section 12 of the Plan authorizes the Company's Board of Directors
to amend the Plan, except in certain respects not herein applicable;
WHEREAS, as a result of the Company's three-for-two split of its common
stock in the form of a stock dividend payable on December 5, 1994, it is
appropriate to amend the Plan to increase the number of shares authorized for
option grants under the Plan and to adjust the annual limit on option grants
to any individual; and
WHEREAS, the Plan was last amended June 9, 1994.
NOW THEREFORE, the Plan is amended, effective December 5, 1994, as follows:
I Amend Section 3 by substituting "150,000 shares" for "100,000
shares."
II Amend Section 4 by substituting "1,837,500 shares" for "1,225,000
shares."
III In all other respects, the Plan shall continue in full force and
effect.
Dated: As of November 7, 1994
UNITED STATES FILTER CORPORATION
By: /s/ Donald L. Bergmann
-------------------------------
Donald L. Bergmann
Vice President
<PAGE>
EIGHTH AMENDMENT
TO
UNITED STATES FILTER CORPORATION
1991 EMPLOYEE STOCK OPTION PLAN
WHEREAS, United States Filter Corporation (the "Company") has established
the United States Filter 1991 Employee Stock Option Plan (the "Plan");
WHEREAS, Section 12 of the Plan authorizes the Company's Board of Directors
to amend the Plan, except in certain respects not herein applicable;
WHEREAS, it is desired to amend the Plan to increase the number of shares
authorized for option grants under the Plan; and
WHEREAS, the Plan was last amended November 7, 1994.
NOW THEREFORE, the Plan is amended as follows:
I Amend Section 4 by substituting "2,587,500 shares" for "1,837,500
shares";
II In all other respects, the Plan shall continue in full force and
effect.
Dated: As of June 9, 1995
UNITED STATES FILTER CORPORATION
By: /s/ Donald L. Bergmann
-------------------------------
Donald L. Bergmann
Vice President
<PAGE>
EXHIBIT 10.6
UNITED STATES FILTER CORPORATION
ANNUAL INCENTIVE COMPENSATION PLAN SUMMARY
MAY 1995
PLAN PURPOSE
. Advance the interests of the Company by providing key employees with
financial incentives to promote the success of the Company's long-term
business objectives
. Reward key management employees for continued service and contributions to
increasing shareholder value
. Provide a performance-based element of competitive total compensation
program for key management staff
PLAN CONCEPT
. Key managers eligible to earn incentive bonus each year based on Company
performance, Divisional performance, and individual performance factors
PLAN ADMINISTRATION
. The Plan will be administered by the Chief Executive Officer and the
Compensation Committee of the Board of Directors
ELIGIBILITY AND PARTICIPATION
. Eligibility for Plan participation is determined by the Chief Executive
Officer and the Compensation Committee; Participants will include:
<TABLE>
<CAPTION>
CORPORATE POSITIONS DIVISIONAL POSITIONS
------------------- --------------------
<S> <C>
Chairman, President, and CEO General Manager, Whittier
Executive Vice President General Manager, Warrendale/Membralox
General Counsel and Secretary General Manager, IWT
Senior Vice President, Administration General Manager, Recovery
Vice President, Chief Financial
Officer General Manager, Permutit
Senior Vice President, Investor
Relations General Manager, Ionpure Domestic
Senior Vice President, Corporate
Communications General Manager, Latin America
Vice President, Corporate Development General Manager, Arrowhead
</TABLE>
EFFECTIVE DATE
The Plan will be effective for the Company's fiscal year ending March 31,
1996.
AWARD OPPORTUNITY LEVELS
Maximum award levels will be based on position and defined as a percent of
base salary:
. Corporate Positions 25%
. Divisional Positions 35%
<PAGE>
PERFORMANCE MEASUREMENT
Depending on the position, each Participant's incentive award will be
determined by three or four performance factors:
. All Participants will earn 8% of salary if the Company (for corporate
positions) or Division (for Divisional positions) meets its profit
plan. None of this award will be paid at a performance level below 100%
of plan.
.All Participants may earn up to 8% of salary if the Company exceeds its
profit plan
.Divisional positions will be eligible for up to 10% of salary if their
Division exceeds its profit plan.
. All Participants will be eligible to receive up to 9% of salary based
on the subjective assessment of their individual performance.
These are summarized in the table below:
<TABLE>
<CAPTION>
CORPORATE POSITIONS DIVISIONAL POSITIONS
- -------------------------------------------- ---------------------------------------------
% OF % OF
PERFORMANCE FACTOR SALARY PERFORMANCE FACTOR SALARY
- ---------------------------------- -------- ------------------------------------ --------
<S> <C> <C> <C>
Company achieves profit plan 8% Company achieves profit plan --
Company exceeds profit plan Up to 8% Company exceeds profit plan Up to 8%
Division achieves profit plan n/a Division achieves profit plan 8%
Division exceeds profit plan n/a Division exceeds profit plan 10%
Subjective assessment of
performance 9% Subjective assessment of performance 9%
TOTAL AWARD OPPORTUNITY 25% TOTAL AWARD OPPORTUNITY 35%
</TABLE>
If the Company (for corporate and divisional positions) or Division (for
divisional positions only) exceeds the profit plan, the following percentage
of salary will be paid:
<TABLE>
<CAPTION>
COMPANY PERFORMANCE
(CORPORATE AND DIVISIONAL DIVISIONAL PERFORMANCE
POSITIONS) (DIVISIONAL POSITIONS ONLY)
------------------------------------ -----------------------------------
ACTUAL PROFIT ACTUAL PROFIT
AS A PERCENT ADDITIONAL % AS A PERCENT ADDITIONAL %
OF PLANNED PROFIT OF SALARY PAID OF PLANNED PROFIT OF SALARY PAID
----------------- -------------- ----------------- --------------
<S> <C> <C> <C>
100% 0% 100% 0%
105% 3% 105% 3%
110% 5% 110% 5%
115% 6% 115% 7%
120% 7% 120% 9%
125% or more 8% 125% or more 10%
</TABLE>
The specified profit performance level must be achieved for payment of the
award; performance levels between those shown above will not receive pro rata
credit. (For example, 107% of planned Division profit results in the 5% of
salary payment for 105% profit performance.)
AWARD PAYMENT
Incentive awards earned will be paid in a lump sum amount, less any required
withholding and employment taxes, on or about July 1, 1996.
AMENDMENT, SUSPENSION, OR TERMINATION OF PLAN
. The Board of Directors may amend, suspend, or terminate the Plan at any
time and for any reason
. No action by the Board of Directors may reduce or eliminate any right or
privilege previously granted under the provisions of the Plan
<PAGE>
TERMINATION OF EMPLOYMENT
If a Participant's employment terminates prior to the end of the Company's
fiscal year, the status of any award for that year will be as follows:
<TABLE>
<S> <C>
. Involuntary with Cause
No award for fiscal year
or voluntary
. Without cause At the discretion of the Compensation Committee
pro rata award may be paid
. Retirement At the discretion of the Compensation Committee
pro rata award may be paid
. Early Retirement, Death, At the discretion of the Compensation Committee
or Disability pro rata award may be paid
</TABLE>
EFFECT ON OTHER PLANS
. Amounts earned under the Plan will be counted as compensation for purposes
of deferrals under the 401(k) plan.
. Amounts earned under the Plan will not be counted as compensation for
calculations on:
. Supplemental life insurance
. Supplemental long-term disability insurance
. Paid time off
. Basic life insurance
. Basic long-term disability insurance
<PAGE>
EXHIBIT 21.0
LIST OF SUBSIDIARIES OF THE COMPANY
The following lists the subsidiaries of United States Filter Corporation as
of June 26, 1996, excluding those subsidiaries which, considered in the
aggregate as a single subsidiary, do not constitute a significant subsidiary.
The subsidiaries listed are all wholly owned, either directly or indirectly.
<TABLE>
<CAPTION>
STATE (COUNTRY)
NAME OF INCORPORATION
---- ----------------
<S> <C>
Illinois Water Treatment, Inc. ............................. Delaware
Ionpure Technologies B.V. .................................. Netherlands
Ionpure Technologies GmbH................................... Germany
Ionpure Technologies Limited................................ Ireland
Ionpure Technologies Limited................................ United Kingdom
The Permutit Company Ptd Ltd. .............................. Australia
Societe des Ceramiques Techniques, S.A. .................... Egypt
U.S. Filter (Asia) Pte. Ltd. ............................... Singapore
U.S. Filter de Argentina S.A. .............................. Argentina
U.S. Filter (Malaysia) Sdn. Bhd. ........................... Malaysia
U.S. Filter de Mexico, S.A. de C.V. ........................ Mexico
U.S. Filter, Inc., Warrendale, PA. ......................... Delaware
U.S. Filter/Ionpure, Inc. .................................. Massachusetts
U.S. Filter/Polymetrics, Inc. .............................. California
U.S. Filter/Whittier, Inc. ................................. Delaware
U.S. Filter/Zimpro, Inc. ................................... Delaware
USF France S.A.R.L. ........................................ France
USF Smogless S.p.A. ........................................ Italy
USF Spain S.A. ............................................. Spain
USF Two, Inc. .............................................. Delaware
Wastewater Treatment Systems, Inc. ......................... California
</TABLE>
<PAGE>
EXHIBIT 23.0
INDEPENDENT AUDITORS' CONSENT
We consent to incorporation by reference in the Registration Statements (No.
33-49382, No. 33-56744, No. 33-73542, No. 33-89662, No. 33-63285, No. 33-
82424, No. 33-63287) on Form S-8, the Registration Statements (No. 33-75910,
No. 33-76042, No. 33-85026, No. 33-63281, No. 33-63325) on Form S-3 and
Registration Statement on Form S-4 (No. 33-63251) of United States Filter
Corporation of our report dated June 7, 1996, relating to the consolidated
balance sheets of United States Filter Corporation as of March 31, 1995 and
1996, and the related consolidated statements of operations, shareholders'
equity, and cash flows and related schedule for each of the years in the
three-year period ended March 31, 1996, which report appears in the March 31,
1996 Annual Report on Form 10-K of United States Filter Corporation.
KPMG Peat Marwick LLP
Orange County, California
June 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS OF UNITED STATES FILTER
CORPORATION AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 16,545,000
<SECURITIES> 65,000
<RECEIVABLES> 185,823,000
<ALLOWANCES> 8,165,000
<INVENTORY> 55,755,000
<CURRENT-ASSETS> 301,227,000
<PP&E> 197,233,000
<DEPRECIATION> 41,208,000
<TOTAL-ASSETS> 789,011,000
<CURRENT-LIABILITIES> 197,970,000
<BONDS> 209,680,000
0
0
<COMMON> 281,000
<OTHER-SE> 341,054,000
<TOTAL-LIABILITY-AND-EQUITY> 789,011,000
<SALES> 472,537,000
<TOTAL-REVENUES> 472,537,000
<CGS> 328,057,000
<TOTAL-COSTS> 328,057,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,297,000
<INTEREST-EXPENSE> (12,546,000)
<INCOME-PRETAX> 27,372,000
<INCOME-TAX> 7,082,000
<INCOME-CONTINUING> 20,290,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,290,000
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
</TABLE>
