<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 27, 1996
-------------
United States Filter Corporation
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-10728 33-0266015
- ---------------------------- ----------- ------------------
(State of other juris- (Commission (IRS Employer
diction of incorporation File Number) Identification No.)
40-004 Cook Street, Palm Desert, California 92211
-------------------------------------------------
(Address of principal executive offices) zip code
Registrant's telephone number, including area code (619) 340-0098
---------------
-1-
<PAGE>
ITEM 2. PENDING AND COMPLETED ACQUISITIONS
As previously reported on a Current Report on Form 8-K dated May 31,
1996, United States Filter Corporation ("U.S. Filter"), through a wholly-owned
subsidiary, U.S. Filter/Zimpro Acquisition Corp., completed on May 31, 1996 the
acquisition (the "Zimpro Acquisition") of all of the outstanding capital stock
of Zimpro Environmental, Inc. ("Zimpro"). Consolidated financial statements of
Zimpro and its subsidiaries as of December 31, 1995 and 1994 and for each of the
three years in the period ended December 31, 1995, together with the report
thereon of Ernst & Young LLP, and unaudited pro forma combined financial data
giving effect to the Zimpro Acquisition, were filed as a part of such Form 8-K.
As previously reported on a Current Report on Form 8-K dated June 10, 1996,
U.S. Filter entered into an Agreement and Plan of Merger (the "Davis Agreement")
dated June 10, 1996 by and among U.S. Filter, U.S. Filter/DWW Acquisition
Corporation ("Sub") and Davis Water & Waste Industries, Inc. ("Davis") providing
for the merger of Sub into Davis, pursuant to which Davis would become a wholly-
owned subsidiary of U.S. Filter (the "Davis Acquisition" and, together with the
Zimpro Acquisition, the "Acquisitions"). As a result of the Davis Acquisition,
each issued and outstanding share of common stock of Davis and each employee and
director stock option to purchase shares of common stock of Davis will be
converted into .933 share of U.S. Filter common stock, subject to adjustment as
provided in the Davis Agreement.
The following are filed herewith:
FINANCIAL STATEMENTS OF PROBABLE BUSINESS ACQUISITION:
Index to Davis Water & Waste Industries, Inc. Consolidated Financial
Statements
Report of Independent Accountants;
Management's Responsibility for Financial Statements;
Consolidated Statement of Operations for the years ended April 30,
1996, 1995 and 1994;
Consolidated Balance Sheet as of April 30, 1996 and 1995;
Consolidated Statement of Stockholders' Equity for the years ended
April 30, 1996, 1995 and 1994;
-2-
<PAGE>
Consolidated Statement of Cash Flows for the years ended April 30,
1996, 1995 and 1994; and
Notes to Consolidated Financial Statements.
PRO FORMA COMBINED FINANCIAL INFORMATION:
Unaudited Pro Forma Combined Consolidated Balance Sheet as of March
31, 1996;
Unaudited Pro Forma Combined Consolidated Statements of Operations for
the years ended March 31, 1994, 1995 and 1996;
Notes to Pro Forma Combined Consolidated Financial
Information.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(c) EXHIBITS
23.0 Consent of Independent Accountants
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UNITED STATES FILTER CORPORATION
By: /s/ Kevin L. Spence
-----------------------
Kevin L. Spence
Vice President
Date: June 27, 1996
-4-
<PAGE>
INDEX TO DAVIS WATER & WASTE INDUSTRIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................................... F-2
Management's Responsibility for Financial Statements........................ F-2
Consolidated Statement of Operations........................................ F-3
Consolidated Balance Sheet.................................................. F-4
Consolidated Statement of Changes in Stockholders' Equity................... F-5
Consolidated Statement of Cash Flows........................................ F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of DAVIS WATER & WASTE INDUSTRIES, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity and
of cash flows present fairly, in all material respects, the financial position
of DAVIS WATER & WASTE INDUSTRIES, Inc. and its subsidiaries at April 30, 1996
and 1995, and the results of their operations and their cash flows for each of
the three years in the period ended April 30, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Atlanta, Georgia
June 13, 1996
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements included in this report were prepared
by the Company in conformity with generally accepted accounting principles.
Management's best estimates and judgments were used where appropriate.
Management is responsible for the integrity of the financial statements and
for other financial information included in this report. The financial
statements have been audited by the Company's independent accountants, Price
Waterhouse LLP. As set forth in their report, their audit was conducted in
accordance with generally accepted auditing standards and formed the basis for
their opinion on the accompanying financial statements. They evaluated the
system of internal accounting controls and performed such tests and other
procedures as they deemed necessary to reach and express an opinion on the
fairness of the financial statements.
The Company maintains a system of internal accounting controls which is
designed to provide a reasonable assurance that assets are safeguarded and
that the financial records reflect the authorized transactions of the Company.
As a part of this process, the Company has an internal auditor who evaluates
the adequacy and effectiveness of internal accounting controls.
The Audit Committee of the Board of Directors is composed of Directors who
are neither officers nor employees of the Company. The Committee meets
periodically with management, the internal auditor and the independent
accountants to discuss auditing, internal accounting control and financial
reporting matters. The internal auditor and the independent accountants have
full and free access to meet with the Audit Committee, with and without
management being present.
R. Doyle White Stan White
Chairman of the Board, Secretary/Treasurer
President and Chief and Chief Financial Officer
Executive Officer
F-2
<PAGE>
DAVIS WATER & WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Net sales....................................... $ 226,489 $ 215,649 $ 202,621
Cost of products sold .......................... 188,720 183,654 172,654
--------- --------- ---------
Gross profit margin............................. 37,769 31,995 29,967
Selling, general and administration............. 26,877 24,483 28,461
Interest expense................................ 1,022 1,335 1,252
Other income, net............................... 206 308 246
Provision for Taulman shutdown and related in-
tangible assets (Note 3)....................... 0 678 8,895
--------- --------- ---------
Income (loss) before income taxes............... 10,076 5,807 (8,395)
Provision (benefit) for income taxes............ 4,327 2,359 (3,055)
--------- --------- ---------
Net income (loss)............................... $ 5,749 $ 3,448 $ (5,340)
========= ========= =========
EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Net income (loss) per share--primary............ $ 1.78 $ 1.06 $ (1.64)
========= ========= =========
Net income (loss) per share--fully diluted...... $ 1.72 $ 1.05 $ (1.64)
========= ========= =========
Weighted average shares outstanding--primary.... 3,234,824 3,261,351 3,260,608
Weighted average shares outstanding--fully di-
luted.......................................... 3,340,242 3,284,170 3,260,608
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-3
<PAGE>
DAVIS WATER & WASTE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
APRIL 30,
------------------
1996 1995
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 1,720 $ 3,746
Accounts receivable, less allowance for doubtful ac-
counts ($1,261 at April 30, 1996 and $1,135 at April
30, 1995) (Note 1).................................. 35,189 39,795
Inventories (Notes 1 and 4).......................... 17,802 18,778
Prepaid expenses..................................... 692 631
Cost and estimated earnings in excess of billings on
uncompleted contracts............................... 1,419 1,097
Prepaid income taxes................................. 685 0
Deferred income taxes (Note 7)....................... 4,194 5,634
-------- --------
Total current assets............................... 61,701 69,681
Property, plant and equipment (Note 1):
Land................................................. 1,016 1,040
Buildings and improvements........................... 5,858 5,667
Manufacturing equipment.............................. 5,597 5,633
Transportation and office equipment.................. 8,348 8,066
Construction in progress............................. 281 295
-------- --------
21,100 20,701
Less--accumulated depreciation......................... (14,742) (14,407)
-------- --------
6,358 6,294
Deferred income taxes (Note 7)........................ 706 0
Other assets.......................................... 5,867 5,561
-------- --------
$ 74,632 $ 81,536
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 5)........... $ 135 $ 249
Accounts payable..................................... 20,102 24,158
Accrued salaries and commissions..................... 6,702 3,735
Other accrued liabilities (Notes 3 and 6)............ 6,861 8,883
Billings in excess of cost and estimated earnings on
uncompleted contracts............................... 943 1,449
Customer deposits.................................... 1,153 614
-------- --------
Total current liabilities.......................... 35,896 39,088
-------- --------
Long-term debt, less current portion (Note 5).......... 6,845 14,787
-------- --------
Deferred income taxes (Note 7)......................... 0 265
-------- --------
Other accrued liabilities (Note 6)..................... 2,235 2,064
-------- --------
Commitments and contingent liabilities (Note 9)........
Stockholders' equity (Note 8)
Common stock, $.01 par value: 50,000,000 shares
authorized; 3,265,308 shares issued................. 33 33
Capital in excess of par value......................... 9,788 9,788
Retained earnings...................................... 20,201 15,705
-------- --------
30,022 25,526
Treasury stock at cost--29,129 shares at April 30, 1996
and 19,379 shares at April 30, 1995................... (366) (194)
-------- --------
29,656 25,332
-------- --------
$ 74,632 $ 81,536
======== ========
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-4
<PAGE>
DAVIS WATER & WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN TOTAL
COMMON EXCESS OF RETAINED TREASURY STOCKHOLDERS'
STOCK PAR VALUE EARNINGS STOCK EQUITY
------ ---------- -------- -------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1993 $33 $9,788 $17,922 $(108) $27,635
Issuance of common stock in
connection with employee
benefit plans............... (43) 181 138
Purchase of treasury stock... (124) (124)
Net (loss)................... (5,340) (5,340)
--- ------ ------- ----- -------
Balance at April 30, 1994 33 9,788 12,539 (51) 22,309
Issuance of common stock in
connection with employee
benefit plans............... (21) 122 101
Dividends paid, $.08 per
share....................... (261) (261)
Purchase of treasury stock (265) (265)
Net income................... 3,448 3,448
--- ------ ------- ----- -------
Balance at April 30, 1995.... 33 9,788 15,705 (194) 25,332
Issuance of common stock in
connection with employee
benefit plans............... 10 102 112
Purchase of treasury stock... (274) (274)
Dividends paid, $.39 per
share....................... (1,263) (1,263)
Net income................... 5,749 5,749
--- ------ ------- ----- -------
Balance at April 30, 1996 $33 $9,788 $20,201 $(366) $29,656
=== ====== ======= ===== =======
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-5
<PAGE>
DAVIS WATER & WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................ $ 5,749 $ 3,448 $ (5,340)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:..........
Depreciation and amortization................... 1,494 2,110 2,689
(Decrease) increase in reserve for Taulman shut-
down and write off of intangible assets........ (2,425) (1,480) 8,895
Provision for doubtful accounts................. 632 472 665
Loss on sale of property, plant and equipment... 22 0 86
Deferred income taxes........................... 469 (430) (4,536)
Decrease (increase) in accounts receivable...... 3,974 (1,109) (1,723)
Decrease (increase) in inventories.............. 976 1,748 (2,450)
(Increase) decrease in cost and estimated earn-
ings in excess of billings on uncompleted con-
tracts......................................... (322) (125) 280
(Increase) in other assets (1,052) (393) (15)
(Decrease) increase in billings in excess of
cost and estimated earnings on uncompleted con-
tracts......................................... (506) (752) 32
Increase in accounts payable and accrued ex-
penses......................................... 24 3,898 4,290
-------- -------- --------
Net cash provided by operating activities..... 9,035 7,387 2,873
-------- -------- --------
INVESTING ACTIVITIES
Purchase of property, plant and equipment........ (1,656) (1,566) (837)
Proceeds from sale of property, plant and equip-
ment............................................ 76 855 70
-------- -------- --------
Net cash (used in) investing activities....... (1,580) (711) (767)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from long-term debt..................... 62,131 56,292 54,549
Principal payments made on long-term debt........ (70,187) (60,897) (55,921)
Proceeds from sale of stock...................... 112 101 138
Purchase of treasury stock....................... (274) (265) (124)
Dividends paid................................... (1,263) (261) 0
-------- -------- --------
Net cash (used in) financing activities....... (9,481) (5,030) (1,358)
-------- -------- --------
CASH
(Decrease) increase in cash during period........ (2,026) 1,646 748
Cash and cash equivalents at beginning of year... 3,746 2,100 1,352
-------- -------- --------
Cash and cash equivalents at end of year......... $ 1,720 $ 3,746 $ 2,100
======== ======== ========
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995, AND 1994
NOTE 1--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Description of Business
Davis Water & Waste Industries, Inc. ("Davis") manufactures and markets
products relating to the distribution and treatment of water and wastewater.
Basis of Presentation
The accompanying financial statements include the accounts of Davis and its
wholly-owned subsidiary, The Taulman Company ("Taulman"). All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain amounts in the prior year statements have been reclassified to conform
to the current year presentation.
Accounts Receivable
Accounts receivable at April 30, 1996 and 1995 include amounts under long-
term contracts of approximately $2,504,000 and $4,060,000, respectively.
Balances billed but not paid by customers pursuant to retainage provisions in
long-term contracts will be due upon completion of the contracts and
acceptance by the owner and aggregated approximately $1,493,000 and $2,216,000
at April 30, 1996 and 1995, respectively. Approximately $700,000 of these
retention balances are expected to be collected during the year ended April 30,
1997, with the remainder to be collected during the following year.
Concentration of Credit Risk
Davis grants credit to its customers, who are primarily involved in the
construction and real estate industries, including independent contractors,
developers, municipalities and industrial customers. To secure its interest in
trade accounts receivable, Davis obtains bonds or liens where considered
prudent. The majority of Davis' sales are made to customers located in the
Southeast. Other important markets include Texas, California and the Rocky
Mountain states.
Inventories
Inventories are carried at the lower of cost (first-in, first-out) or market
value.
Property, Plant and Equipment
Fixed assets are stated at cost. Depreciation is calculated using
principally the straight-line method over the estimated useful lives of the
assets. Expenditures for additions and improvements are charged to property
accounts; maintenance and repairs are charged to expense. Upon retirement or
sale, the cost of the asset and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is included in income.
The approximate annual rates of depreciation are 4% to 14% for buildings and
improvements, 14% to 20% for manufacturing equipment and 14% to 33 1/3% for
transportation and office equipment.
Intangible Assets
Intangible assets resulting from the acquisition of certain assets and
liabilities of Taulman were being amortized on a straight line basis over
their estimated useful lives ranging from one to 40 years. As a result of the
shutdown or reorganization of Taulman, these intangibles were written off in
fiscal 1994 (see Note 3).
Treasury Stock
Treasury stock is carried at cost determined using the first-in, first-out
method. Any excess of cost over proceeds from re-issuance of treasury stock is
charged to retained earnings; any excess of proceeds over cost is credited to
retained earnings to the extent of any prior charges and thereafter credited
to capital in excess of par.
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
Revenue
Income from short-term contracts for the manufacture or installation of
water and wastewater treatment and pumping equipment is recognized at time of
shipment or when installation is completed, respectively. Income from long-
term contracts for the manufacture of process equipment and control systems
used in water and wastewater treatment facilities was recognized on the
percentage-of-completion basis; however, revenues are no longer recognized in
Davis' operations for these types of contracts due to the shutdown of Taulman.
Income is recognized from the sale of water distribution equipment and
supplies and process materials and supplies at the time of shipment.
Commission income from the sale of products manufactured by others is
recognized when the customer's order is shipped by the third party
manufacturer.
Income Taxes
Davis accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes" (FAS 109). FAS 109 requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of other assets and
liabilities.
Net Income (Loss) Per Share
Net income (loss) per share is computed by dividing net income (loss) by the
average number of common shares outstanding, increased by common equivalent
shares determined using the treasury stock method.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amount 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.
Statement of Cash Flows
Cash equivalents are considered to be short term, highly liquid investments
with original maturities of three months or less.
Supplemental disclosure of cash flows follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the year for:
Interest.............................................. $1,172 $1,429 $1,276
Income taxes.......................................... 4,278 2,423 1,272
------ ------ ------
$5,450 $3,852 $2,548
====== ====== ======
</TABLE>
NOTE 2--POTENTIAL SALE OF DAVIS
On June 10, 1996, Davis entered into a definitive Agreement and Plan of
Merger (the "Agreement") with United States Filter Corporation ("U.S. Filter")
whereby USF/DWW Acquisition Corporation, a wholly-owned subsidiary of U.S.
Filter, would be merged with and into Davis with Davis as the surviving
entity. Each outstanding share of common stock of Davis, par value $0.01 per
share, would be exchanged for 0.933 share of U.S. Filter common stock, par
value $0.01 per share (the "Exchange Ratio"). In the event that the average
market price per share of U.S. Filter common stock for the 20 consecutive
trading days beginning on the 25th trading day prior to the vote of Davis'
stockholders' on the merger ("Average Market Price") is less than $28
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
per share, the Exchange Ratio shall be adjusted to $26.12 divided by the
Average Market Price. If the Average Market Price is greater than $34 per
share, the Exchange Ratio shall be adjusted to $31.72 divided by the Average
Market Price. Davis may terminate the Agreement if the Average Market Price of
U.S. Filter common stock is less than $25.25 and U.S. Filter may terminate the
Agreement if the Average Market Price of the U.S. Filter common stock is
greater than $37.25.
Under the terms of the Agreement, all outstanding unexercised stock options
of Davis, whether or not then exercisable, would be converted into the right
to receive 0.933 share of U.S. Filter common stock (the "Option Exchange
Ratio"). The Option Exchange Ratio shall be adjusted in the same manner as the
Exchange Ratio for Davis' common stock based on certain levels of the Average
Market Price of U.S. Filter Common Stock as described above.
The consummation of the merger transaction is subject to approval by Davis'
stockholders and certain other conditions. The transaction is expected to be
consummated by August 31, 1996.
NOTE 3--PROVISION FOR TAULMAN SHUTDOWN AND RELATED INTANGIBLE ASSETS:
During the fourth quarter of fiscal 1994, Davis adopted a plan to shutdown
or reorganize the operations of Taulman. Substantially all of Taulman's
operations are contained within its Turbitrol Instrumentation and Control
division; these operations are in the process of being shut down. Taulman
Composting Systems, an immaterial component of Taulman, was combined with
Davis' Process division. The pre-tax loss provision for these actions recorded
in fiscal 1994 includes the write-off of intangible assets totaling $2,908,000
associated with Taulman and the accrual of $5,987,000 to provide for
anticipated losses during the shutdown period. Accordingly, the results of
operations of Taulman during fiscal 1996 and 1995 were excluded from the
results of operations of Davis.
Taulman is engaged in the environmental pollution control business,
primarily through the design, manufacture and sale of process equipment and
control systems used in water and wastewater treatment facilities. Revenues
and expenses on its long- term contracts are recognized on the percentage-of -
completion basis. Taulman has ceased bidding on new contracts, has terminated
its sales force and is working to complete its current obligations on long-
term contracts during the estimated two and one half year period from the
decision to shut down. The provision for losses during the shutdown period
reflects declining revenues and relatively high levels of general and
administrative costs necessary to complete the shutdown of these operations.
During fiscal 1996 and 1995, activity within the reserve for anticipated
losses during the shutdown period is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Balance, beginning of year........................ $ 4,507 $ 5,987
Operating loss of Taulman......................... (2,425) (2,158)
Adjustment to reserve............................. 0 678
---------- ----------
Balance, end of year.............................. $ 2,082 $ 4,507
========== ==========
</TABLE>
The adjustment in fiscal 1995 to the reserve represented an increase in the
reserve resulting from a revised estimate of the anticipated losses during the
shutdown period. There have been no changes to the plan for shutting down
Taulman since the adoption of the plan in the fourth quarter of fiscal 1994.
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
The Taulman shutdown represents the discontinuation of a product line.
Therefore, Taulman's results of operations through the fourth quarter of
fiscal 1994 have been included as components of continuing operations in the
statement of operations for fiscal 1994. Taulman's results of operations
during fiscal 1995, 1996 and in future periods have been or will be charged
against the reserve for anticipated losses during the shutdown period. Certain
income, expense, asset and liability information with respect to Taulman for
the three most recent fiscal years is as follows:
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR
ENDED APRIL 30,
----------------------
1996 1995 1994
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................................. $4,843 $11,252 $15,871
Cost of products sold................................. 5,370 9,791 14,465
Selling, general and administrative expense........... 1,913 3,445 4,302
Assets................................................ 3,626 5,252 12,523
Liabilities........................................... 2,730 2,614 10,111
</TABLE>
Assets and liabilities at April 30, 1996, 1995 and 1994 consisted primarily
of accounts receivable, inventory, accounts payable, accrued expenses and
intercompany debt.
Intangible assets written off in fiscal 1994 as a part of the shutdown
included a technology licensing agreement of $1,321,000, noncompete agreements
of $1,155,000 and goodwill of $432,000. The technology licensing agreement was
written off because Davis, in response to changing marketplace demands, elected
to forego its exclusive North American rights to this waste composting
technology during the fourth quarter of fiscal 1994. Recently developed methods
for waste composting are much more economical and substantially reduced the
demand for Davis' licensed technology. The noncompete agreements and goodwill
were written off because their value will not be recovered as a result of the
shutdown.
NOTE 4--INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
APRIL 30,
---------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Finished goods and products purchased for resale............. $15,925 $16,137
Work-in-process.............................................. 1,347 2,073
Raw materials and purchased components....................... 530 568
------- -------
$17,802 $18,778
======= =======
</TABLE>
NOTE 5--LONG-TERM DEBT:
During the first quarter of fiscal 1996, Davis and SunTrust Bank Central
Florida, National Association ("STBNA") entered into a second amendment to the
October 13, 1992 loan agreement. The second amendment extended the loan
maturity through April 30, 1997, reduced the principal amount Davis can borrow
to $30,000,000, provided specific guidelines that Davis must meet to eliminate
the security interest that STBNA has on Davis' accounts receivable and
inventory, eliminated the working capital requirement and limited the amount
of cash that Davis may spend in connection with acquisitions without the prior
consent of STBNA to $2,500,000 per year during the term of the loan agreement.
The amended loan agreement also permits Davis to choose between the then
current prime rate or the then current LIBOR rate plus or minus various basis
point rates for advances under the revolving term loan, depending on Davis
achieving certain financial results. Davis was in compliance with the
financial covenants of the loan agreement as of April 30, 1996.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
On June 6, 1996, STBNA extended the loan maturity to April 30, 1998, and
because of Davis' improved operating results and meeting the established
guidelines, eliminated the security interest on Davis' accounts receivable and
inventory.
As of April 30, 1996, the interest on balances outstanding under the STBNA
revolving term note was payable at either STBNA's prime commercial rate less
50 basis points or LIBOR plus 150 basis points. Davis pays a commitment fee
equal to one-fourth of one percent per annum on the average daily unused
portion of the revolving term note.
The payment of cash dividends is subject to the approval by the Board of
Directors and depends on, among other factors, earnings, capital requirements,
and the operating and financial condition of Davis. The payment of cash
dividends also requires the prior approval of STBNA unless certain financial
requirements are met. During the first, third and fourth quarters of fiscal
1996, Davis' Board of Directors authorized cash dividends of $0.14, $0.15 and
$0.10 per share, which were paid on July 3, 1995, January 5, 1996 and April
12, 1996 to stockholders of record on June 26, 1995, December 26, 1995 and
April 1, 1996, respectively.
Notes payable and long-term debt consist of:
<TABLE>
<CAPTION>
APRIL 30,
--------------
1996 1995
------ -------
(IN THOUSANDS)
<S> <C> <C>
Revolving term loan due April 1997 with interest at prime; ma-
turity was extended to April 30, 1998 by STBNA in letter dated
June 6, 1996.................................................. $5,343 $13,110
Promissory note with interest at prime with monthly installment
payments secured by an airplane............................... 0 242
Capitalized lease with interest at 7.70% with monthly install-
ment payments through April 1998.............................. 50 75
Capitalized lease with interest at 4.90% with monthly install-
ment payments through February 1998........................... 165 248
Capitalized lease with interest at 4.90% with monthly install-
ment payments through November 1998........................... 61 0
Loans payable to insurance companies with interest at varying
rates secured by cash surrender value of life insurance poli-
cies approximating $1,947 and $1,818 at April 30, 1996 and
1995, respectively............................................ 1,361 1,361
------ -------
6,980 15,036
Amounts due within one year.................................... 135 249
------ -------
Amounts due after one year..................................... $6,845 $14,787
====== =======
</TABLE>
Annual maturities of long-term debt in each of the succeeding five years
from April 30, 1996 are approximately $135; $5,470; $14; $0; and $0
respectively. Loans payable to insurance companies secured by cash surrender
value in the amount of $1,361 do not have a stated maturity date.
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
NOTE 6--PENSION PLAN:
Davis has a defined benefit pension plan covering substantially all of its
employees. The benefits are based on years of service and the employee's
highest average compensation earned during any consecutive five-year period
within the last ten years of employment, reduced by payments from Social
Security. Pension cost is funded at amounts determined by management but not
less than the minimum funding required by the Employee Retirement Income
Security Act of 1974 (ERISA). At April 30, 1996, the assets of this Plan
included cash equivalents and equity and fixed income mutual funds.
Participants of certain acquired companies received service credit for vesting
in the Plan upon date of acquisition or termination of any former benefit
plans. The cost of these benefits will be amortized over 18 years, which is
the average remaining service period of the participants.
Davis also has a supplemental defined benefit pension plan (the Supplemental
Plan) covering all Davis officers. The Supplemental Plan provides for annual
disability benefits in amounts of 50%-80% of base pay at the time of the
disabling injury, to be paid to participants who become permanently disabled.
This benefit will terminate at age 65. Additionally, the Supplemental Plan
provides for retirement benefits to participants representing approximately
50%-80% of base pay at the date of retirement, reduced by payments from Social
Security. These retirement benefits will be paid over the expected lifetime of
the participant. Davis has not funded the Supplemental Plan. This plan is not
subject to ERISA funding requirements. The Davis intends to fund the
Supplemental Plan as benefits are paid.
Net periodic pension cost of these plans for fiscal 1996, 1995 and 1994
included the following components:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, 1996 YEAR ENDED APRIL 30, 1995 YEAR ENDED APRIL 30, 1994
------------------------------ ------------------------------ ------------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS BENEFITS ASSETS
-------------- ------------ ------------- ------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service cost benefit
earned during the
period................. $ 386 $ 47 $ 350 $ 40 $ 362 $ 37
Interest cost on pro-
jected benefit
obligation............. 680 114 613 112 623 114
Actual return on plan
assets................. (1,481) (900) (809)
Net amortization and
deferral............... 567 73 37 73 25 71
-------- ---- ------- ---- ---- ----
Net periodic pension
cost................... $ 152 $234 $ 100 $225 $201 $222
======== ==== ======= ==== ==== ====
</TABLE>
Assumptions used to determine net periodic pension cost for these plans for
fiscal 1996, 1995 and 1994 were:
<TABLE>
<CAPTION>
AS OF APRIL 30,
---------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Discount rates....................................... 7.5% 7.5% 7.5%
Rates of increase in compensation levels............. 4.5% 4.5% 4.5%
Expected long-term rate of return on assets.......... 9.0% 9.0% 9.0%
</TABLE>
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
The following table sets forth these plans' funded status and amounts
recognized on Davis' consolidated balance sheet at April 30, 1996 and April 30,
1995.
<TABLE>
<CAPTION>
APRIL 30, 1996 APRIL 30, 1995
----------------------- -----------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Accumulated benefit obligation
Vested....................... $ 7,698 $ 1,637 $6,982 $ 1,602
Nonvested.................... 317 298
------- ------- ------ -------
$ 8,015 $ 1,637 $7,820 $ 1,602
======= ======= ====== =======
Plan assets at fair value...... $10,351 $9,156
Projected benefit obligation... 9,984 $ 1,637 9,007 $ 1,602
------- ------- ------ -------
Projected benefit obligation
less than (in excess of) plan
assets........................ 367 (1,637) 149 (1,602)
Unrecognized prior service
costs......................... (136) 291 (149) 367
Unrecognized net loss (gain)... (39) (114) 433 (74)
Additional liability........... (161) (274)
Unrecognized net asset at May
1, 1996 being amortized over
19 years and 15 years, respec-
tively........................ (722) (16) (812) (19)
------- ------- ------ -------
Pension (liability) recognized
in the balance sheet.......... $ (530) $(1,637) $ (379) $(1,602)
======= ======= ====== =======
</TABLE>
NOTE 7--INCOME TAXES:
The components of the provision for income tax expense (benefit) are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------
1996 1995 1994
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense:
Federal............................................ $3,248 $2,297 $ 1,237
State.............................................. 610 492 244
Deferred tax expense (benefit):
Federal............................................ 395 (362) (3,820)
State.............................................. 74 (68) (716)
------ ------ -------
$4,327 $2,359 $(3,055)
====== ====== =======
</TABLE>
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
Deferred tax liabilities (assets) recorded under FAS 109 are comprised of
the following at April 30, 1996 and 1995:
<TABLE>
<CAPTION>
APRIL 30,
----------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Depreciation................................................ $ 122 $ 211
Change in the method of inventory accounting for income tax
purposes 0 393
------- -------
Gross deferred tax liabilities............................ 122 604
------- -------
Deferred tax assets:
Pension................................................... (832) (725)
Vacation.................................................. (317) (365)
Other employee benefit plans.............................. (623) (413)
Warranty reserves......................................... (233) (177)
Inventory................................................. (649) (639)
Allowance for doubtful accounts........................... (479) (431)
Noncompete agreements..................................... (155) (187)
Shutdown reserve for Taulman.............................. (1,524) (2,488)
Other..................................................... (210) (548)
------- -------
Gross deferred tax assets............................... (5,022) (5,973)
------- -------
$(4,900) $(5,369)
======= =======
</TABLE>
A reconciliation between the actual income tax expense (benefit) and the
amount computed by applying the federal income tax rate (34.0%) in 1996, 1995
and in 1994 to pre- tax income from continuing operations follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------
1996 1995 1994
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed amount based on federal statutory rate......... $3,426 $1,974 $(2,854)
Increases (reductions) in taxes:
State income taxes, net of federal income tax benefit... 402 232 (322)
Tax on meals and entertainment expense disallowed....... 144 132 54
Nondeductible accrual for incentive stock options....... 373 0 0
Other................................................... (18) 21 77
------ ------ -------
Provision (benefit)..................................... $4,327 $2,359 $(3,055)
====== ====== =======
</TABLE>
NOTE 8--STOCKHOLDERS' EQUITY:
During the third quarter of fiscal 1995, the Board of Directors approved the
Davis Water & Waste Industries, Inc. 1994 Employee Stock Option Plan (the "
Employees Plan") and the Davis Water & Waste Industries, Inc. Directors Stock
Option Plan (the "Directors Plan"). Both Plans were approved by the
stockholders of Davis at the 1995 Annual Meeting of Stockholders on September
8, 1995.
Under the Employees Plan and the Directors Plan (collectively, the "Plans"),
options to acquire up to 250,000 and 75,000 shares of Davis' common stock,
respectively, may be granted to employees and outside directors of Davis,
respectively, by a committee of the Board of Directors. No options may be
granted after ten years from the date of approval of the Plans by the Board.
Options granted under the Plans vest
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
evenly over five years and are exercisable for a period not exceeding ten
years after the date of grant at a price equal to the quoted market value of
the common stock as of the date of grant. Optionees may exercise the options
by paying cash, exchanging Davis shares having a quoted market value equal to
or less than the exercise price, by instructing Davis to retain shares of
stock upon the exercise of the option with a quoted market value equal to the
exercise price as payment, or exchanging property or services as may be
acceptable to the committee of the Board. The options are not transferable
except to the optionee's beneficiaries. The Plans may be amended or terminated
at the discretion of the Board. Compensation expense is accrued for the Plans
for options as earned by the optionees as the difference between the quoted
market price at the period end and the option price multiplied by the number
of options. Accrued compensation expense is adjusted for the changes in the
quoted market value of the stock from period to period. At April 30, 1996 and
1995, total compensation expense accrued for the Plans aggregated
approximately $1,176,000 and $74,000, respectively.
Under the Employees Plan in December 1994, the Board granted options to
acquire 162,660 shares to certain Davis officers at an option price of $7.75
per share, which was equal to the quoted market price for the shares of Davis'
common stock at the date of grant. All but 1,000 of the options were
outstanding at April 30, 1996. No options were canceled or expired during
fiscal year 1996 and 1,000 shares were exercised. At April 30, 1996, options
for the purchase of 87,340 shares of common stock were available to be granted
under the Employees Plan.
Under the Directors Plan in December 1994, options to acquire 32,000 shares
of common stock were granted to the outside directors of Davis at an option
price of $7.75 per share, which was equal to the quoted market price for the
shares of Davis' common stock at the date of grant. All such options were
outstanding at April 30, 1996. No options were exercised, canceled or expired
during fiscal 1996. At April 30, 1996, options for the purchase of 43,000
shares of common stock were available to be granted under the Directors Plan.
During fiscal 1989, the stockholders of Davis approved a qualified employee
stock purchase plan (the "1988 ESP Plan"). During fiscal 1992, the
stockholders of Davis approved an amendment to the 1988 ESP Plan increasing
the shares of common stock reserved for issuance under this plan from 80,000
to 160,000 shares. Under the terms of the 1988 ESP Plan, all regular full time
employees and officers of Davis may purchase common stock of Davis quarterly
at 85% of the lower of market value on the offering date or the termination
date of the offering period. The 1988 ESP Plan will terminate at such time as
all shares made available under the plan have been issued. During fiscal 1996,
1995, and 1994, 9,223, 13,616 and 24,225 shares, respectively, were issued
under the plan, and at April 30, 1996, 15,309 shares of common stock were
reserved and available for issuance.
During August 1988, a Long-Term Incentive Plan (the "Incentive Plan") was
approved by Davis' stockholders. The Board of Directors had previously
approved the Incentive Plan whereby certain key officers (the participants)
would become eligible to receive performance shares provided Davis achieves
specified financial goals over four year periods. Performance shares represent
rights to receive common stock or, at the election of the participant, a
combination of cash and common stock. During fiscal 1996, 349 shares of common
stock were distributed and payments of $2,967 were made to participants under
the 1991-1994 Incentive Plan. During fiscal 1994 and fiscal 1995, the Board of
Directors determined not to approve a Long-Term Incentive Plan for key
officers but instead proposed the adoption of a stock option plan for the key
employees of Davis (as discussed above).
The cost of the Incentive Plan is limited to twice the grant price at the
grant date of the maximum number of performance shares issuable. The grant
price is determined by the higher of the book value per share or the average
of the closing price of Davis' common stock for a period prior to and
following the public
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
release of the preceding year's annual earnings. The grant price of the
performance shares granted during fiscal 1993 was $8.30. The estimated costs
of the Incentive Plan are charged to income over the applicable four year
periods. During the fiscal year ended April 30, 1996 $50,000 was expensed, and
for fiscal years 1995 and 1994, no income or expense was recognized.
Davis purchases shares of its common stock to be held as treasury stock
until needed for issuance through Davis' employee stock plans and directors
and employees stock option plans discussed above.
On December 15, 1989, the Board of Directors of Davis adopted a Share Rights
Plan and, in connection therewith, declared a dividend distribution of one
Right for each outstanding share of Davis' common stock to stockholders of
record at the close of business on January 8, 1990. Davis had 3,248,621 shares
of its common stock outstanding at such date. The Share Rights Plan generally
provides that 20 days following a public announcement that a person or a group
of affiliated or associated persons have become owners of 10% or more of
Davis' common stock (and have thus become an "Acquiring Person"), each Right
will entitle the registered holder to purchase from Davis common stock at a
purchase price per share equal to 20% of current market value. Any Rights
beneficially owned by an Acquiring Person or any of the Acquiring Person's
affiliates or associates are not exercisable. The number of shares that each
holder of a Right will be entitled to receive upon exercise is equal to one
share of common stock multiplied by a fraction, the numerator of which is the
number of shares of common stock outstanding on the date of the first public
announcement that a person has become an Acquiring Person (the "Stock
Acquisition Date") and the denominator of which is the number of Rights
outstanding on the Stock Acquisition Date that are not beneficially owned by
the Acquiring Person or its affiliates or associates. Until such time as the
Rights become exercisable, (a) the Rights will be evidenced by the common
stock certificates and will be transferred with and only with such common
stock certificates, (b) new common stock certificates issued after January 8,
1990 will contain a notation incorporating the Rights Agreement by reference
and (c) the surrender for transfer of any certificates for common stock will
also constitute the transfer of the Rights associated with the common stock
represented by such certificate. In connection with the merger agreement with
U.S. Filter (Note 2), the Share Rights Plan was amended whereby the Rights
will not become effective upon consummation of the merger.
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
NOTE 9--COMMITMENTS AND CONTINGENT LIABILITIES:
Davis leases certain warehouse facilities and equipment, principally
trucking equipment, under operating leases. Certain leases provide for
additional rental based on actual usage and many leases have renewal options.
Under some leases Davis agrees to pay insurance costs and increases in
property taxes. Total rent expense amounted to approximately $2,737,000 in
1996, $3,009,000 in 1995, and $3,141,000 in 1994, of which $233,000, $251,000
and $250,000 was for truck rental based on mileage. Davis leases certain
computer equipment and a front end loader under noncancelable capital lease
agreements (see Note 5). The original capitalized cost of leases included in
property and equipment was $386,629. As of April 30, 1996 the net book value
of leased equipment totaled $303,317. Minimum lease and rental commitments
under non-cancelable capital and operating leases in effect at April 30, 1996
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30, CAPITAL LEASES OPERATING LEASES TOTAL COMMITMENTS
--------------------- -------------- ---------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
1997.................... $146 $2,270 $2,416
1998.................... 127 1,812 1,939
1999.................... 15 1,531 1,546
2000.................... 935 935
2001.................... 377 377
2002-2004................ 68 68
---- ------ ------
Total minimum lease pay-
ments.................... 288 $6,993 $7,281
====== ======
Less--Amount representing
interest................. (12)
----
Present value of minimum
lease payments........... $276
====
</TABLE>
The nature of Davis' business results in a certain amount of litigation.
Accordingly, Davis is a party (as plaintiff and defendant) to a number of
lawsuits incidental to its business, and in certain of such matters, claims
have been asserted against Davis in substantial amounts. Management believes
that Davis has meritorious defenses to these claims and together with its
insurance carriers, is vigorously defending them.
NOTE 10--FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents
The carrying amount reflected in the consolidated balance sheet approximates
the fair value of cash and cash equivalents.
Notes Payable and Long-term Debt
Substantially all of the balance of long-term debt is represented by a
variable rate revolving term loan. Because this variable rate approximates a
market rate of interest at year end, the carrying amount of notes payable and
long-term debt approximates fair value.
F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
NOTE 11--QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly consolidated financial data is as follows:
<TABLE>
<CAPTION> FULLY
PRIMARY NET DILUTED NET
INCOME INCOME DIVIDENDS PAID
NET SALES GROSS PROFIT NET INCOME PER SHARE PER SHARE PER SHARE
--------- ------------ ---------- ----------- ----------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
1996 Fiscal Quarter
First................. $ 59,683 $ 8,817 $1,162 $0.36 $0.35 $0.14
Second................ 58,867 10,158 1,816 0.56 0.55 0.00
Third................. 52,457 8,680 1,156 0.36 0.35 0.15
Fourth................ 55,482 10,114 1,615 0.48 0.48 0.10
-------- ------- ------ ----- ----- -----
$226,489 $37,769 $5,749 $1.76 $1.73 $0.39
======== ======= ====== ===== ===== =====
1995 Fiscal Quarter
First................. $ 50,914 $ 7,250 $ 518 $0.16 $0.16 $0.00
Second................ 56,056 8,754 1,299 0.40 0.40 0.00
Third................. 52,730 7,868 776 0.23 0.23 0.08
Fourth................ 55,949 8,123 855 0.27 0.26 0.00
-------- ------- ------ ----- ----- -----
$215,649 $31,995 $3,448 $1.06 $1.05 $0.08
======== ======= ====== ===== ===== =====
</TABLE>
Primary and fully diluted earnings per share for the fiscal year ended April
30, 1996 do not equal the sum of primary and fully diluted earnings per share
for each quarter during fiscal year due to the application of the treasury stock
method for determining the impact of certain common stock equivalents.
The net income for the fourth quarter of fiscal 1995 includes an additional
provision of $678,000 for management's revised estimate of the Taulman
shutdown reserve. See Note 3 to Notes of the Consolidated Financial
Statements.
F-18
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial data presents the Pro
Forma Combined Consolidated Balance Sheet at March 31, 1996, giving effect to
the Acquisitions as if they were consummated on that date. Also presented are
the Pro Forma Combined Consolidated Statements of Operations for the fiscal
years ended March 31, 1994, 1995 and 1996, after giving effect to the
Acquisitions as if they had been consummated as of the beginning of the
respective periods presented. U.S. Filter's fiscal year ends on March 31, and
Davis' fiscal year ends on April 30. Pro forma combined statement of operations
information for the years ended March 31, 1994, 1995 and 1996 combines the
results of U.S. Filter for the years ended March 31, 1995 and 1996 with the
results of Davis for the years ended April 30, 1994, 1995 and 1996,
respectively. Zimpro's fiscal year ends on December 31. Pro forma data for the
years ended March 31, 1994, 1995 and 1996 combine the results of U.S. Filter
with the results of Zimpro for the years ended December 31, 1993, 1994 and 1995,
respectively.
The pro forma data is based on the historical combined statements of U.S.
Filter, Davis and Zimpro giving effect to the Acquisitions under the pooling of
interests method of accounting and the assumptions and adjustments outlined in
the accompanying Notes to Pro Forma Combined Consolidated Financial Information.
The pro forma adjustments set forth in the following unaudited pro forma
combined financial data are estimates and may differ from the actual adjustments
when they become known.
The pro forma combined statement of operations for the fiscal years ended
March 31, 1994, 1995 and 1996 include certain charges recorded by U.S. Filter,
Davis and Zimpro as follows:
Fiscal year ended March 31, 1994:
The results of operations of U.S. Filter for the fiscal year ended March 31,
1994 included certain charges totaling $2,359,000 related to the
rationalization of certain wastewater operations. These charges were included
in U.S. Filter's historical results of operations in selling, general and
administrative expenses in the accompanying pro forma combined statement of
operations for the fiscal year ended March 31, 1994.
The results of operations of Davis for the fiscal year ended April 30, 1994
included a provision for the shutdown of the Turbitrol division of Davis'
Taulman Company subsidiary and related intangible assets of $8,895,000. This
provision was included in other expense in Davis' historical results of
operations in the accompanying pro forma combined statement of operations for
the fiscal year ended March 31, 1994.
Fiscal year ended March 31, 1995:
The results of operations of Davis for the fiscal year ended April 30, 1995
included a provision for the shutdown of the Turbitrol division of Davis'
Taulman Company subsidiary and related intangible assets of $678,000. This
provision was included in other expense in Davis' historical results of
operations in the accompanying pro forma combined statement of operations for
the fiscal year ended March 31, 1995.
Fiscal year ended March 31, 1996:
The results of operations of Zimpro for the year ended December 31, 1995
included the write-off of $3,337,000 with respect to patents and equipment
which recorded values were deemed by Zimpro management to have been impaired.
These write-offs were included in Zimpro's historical results of operations in
cost of sales and selling, general and administrative expenses in the
accompanying pro forma combined statement of operations for the fiscal year
ended March 31, 1996.
The pro forma data give effect to the charges described above and assume
that each outstanding share of, and each outstanding option to purchase, Davis
Common Stock is converted into the right to receive .933 share of U.S. Filter
Common Stock. The following unaudited pro forma combined financial data do not
give effect to anticipated expenses related to the Acquisitions and do not
reflect certain cost savings that management of U.S.
F-19
<PAGE>
Filter believes may be realized following the Acquisitions. These savings are
expected to be realized primarily through rationalization of operations and
implementation of strict cost controls and standardized operating procedures.
Additionally, U.S. Filter believes the Acquisitions will enable it to continue
to achieve economies of scale, such as enhanced purchasing power and increased
asset utilization. No assurances can be made as to the amount of cost savings,
if any, that actually will be realized.
The pro forma data are provided for comparative purposes only. It does not
purport to be indicative of the results that actually would have occurred if
the acquisitions of Davis and Zimpro had been consummated on the dates
indicated or that may be obtained in the future. The pro forma combined
financial data should be read in conjunction with the notes thereto and the
audited consolidated financial statements of Davis and the notes thereto
included herewith and filed in its report on Form 10-K for the year ended April
30, 1996, the audited consolidated financial statements of Zimpro and the
notes thereto filed in U.S. Filter's report on Form 8-K dated May 31, 1996 and
the audited consolidated financial statements of U.S. Filter and the notes
thereto filed in its report on Form 10-K for the year ended March 31, 1996.
F-20
<PAGE>
UNITED STATES FILTER CORPORATION
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(in thousands)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL --------------------------------
--------------- ADJUSTMENTS
U.S. FILTER DAVIS ZIMPRO ADJUSTMENTS REFERENCE COMBINED
----------- ------- ------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash................... $ 16,545 $ 1,720 $ 140 $(1,000) a(ii) $ 17,405
Short-term invest-
ments................. 65 -- -- 65
Accounts receivable,
net................... 177,658 35,189 6,008 218,855
Cost and estimated
earnings in excess of
billings on uncom-
pleted contracts...... 31,258 1,419 898 33,575
Inventories............ 55,755 17,802 1,756 75,313
Prepaid expenses....... 7,230 692 -- 7,922
Deferred taxes......... 3,577 4,194 -- 7,771
Other current assets... 9,139 685 249 10,073
-------- ------- ------- --------
Total current assets. 301,227 61,701 9,051 370,979
-------- ------- ------- --------
Property, plant and
equipment, net......... 156,025 6,358 3,606 165,989
Investment in leasehold
interests, net......... 27,688 -- -- 27,688
Cost in excess of net
assets of businesses
acquired, net.......... 271,891 -- -- 271,891
Other assets............ 32,180 6,573 911 39,664
-------- ------- ------- --------
$789,011 $74,632 $13,568 $876,211
======== ======= ======= ========
LIABILITIES AND SHARE-
HOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 77,761 $20,102 $ 2,361 $100,224
Accrued liabilities.... 84,097 13,563 2,294 99,954
Current portion of
long-term debt........ 1,394 135 6,363 (4,260) a(ii) 3,632
Billings in excess of
costs and estimated
earnings on uncom-
pleted contracts...... 13,338 943 1,516 15,797
Other current liabili-
ties.................. 21,380 1,153 1,822 24,355
-------- ------- ------- --------
Total current liabil-
ities............... 197,970 35,896 14,356 243,962
-------- ------- ------- --------
Notes payable........... 30,413 -- -- 30,413
Long-term debt, exclud-
ing current portion.... 8,286 6,845 -- 15,131
Convertible subordinated
debentures............. 200,000 -- -- 200,000
Deferred taxes.......... 1,929 -- -- 1,929
Other liabilities....... 9,078 2,235 1,702 13,015
-------- ------- ------- --------
Total liabilities.... 447,676 44,976 16,058 504,450
-------- ------- ------- --------
Shareholders' equity:
Convertible preferred
stock................. -- -- 20 (20) (ai) --
Common stock........... 281 33 -- 9 (a)(i)(ii) 323
Additional paid-in
capital............... 337,856 9,422 3,980 3,271 (a)(i)(ii) 354,529
Translation adjust-
ment.................. 1,836 -- -- 1,836
Retained earnings (ac-
cumulated deficit).... 1,362 20,201 (6,490) 15,073
-------- ------- ------- --------
Total shareholders'
equity.............. 341,335 29,656 (2,490) 371,761
-------- ------- ------- --------
$789,011 $74,632 $13,568 $876,211
======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial data.
F-21
<PAGE>
UNITED STATES FILTER CORPORATION
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED
MARCH 31, 1994 (in thousands, except per share and share data)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL -------------------------------
---------------- ADJUSTMENTS
U.S. FILTER DAVIS ZIMPRO ADJUSTMENTS REFERENCE COMBINED
----------- -------- ------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $180,421 $202,621 $29,470 $412,512
Cost of sales........... 132,811 172,654 21,383 326,848
-------- -------- ------- --------
Gross profit.......... 47,610 29,967 8,087 85,664
Selling, general and
administrative
expenses............... 52,484 28,461 9,774 90,719
-------- -------- ------- --------
Operating income
(loss)............... (4,874) 1,506 (1,687) (5,055)
-------- -------- ------- --------
Other income (expense):
Interest expense...... (2,077) (1,252) (715) 595 b(i) (3,449)
Other................. 1,174 (8,649) 93 (7,382)
-------- -------- ------- --------
(903) (9,901) (622) (10,831)
-------- -------- ------- --------
Income (loss) before
income taxes......... (5,777) (8,395) (2,309) (15,886)
Provision (benefit) for
income taxes........... (3,236) (3,055) (796) (7,087)
-------- -------- ------- --------
Net income (loss)..... $ (2,541) $ (5,340) $(1,513) $ (8,799)
======== ======== ======= ========
Net income per common
share................ $ (0.26) $ (0.57)
======== ========
Weighted average number
of
shares outstanding..... 12,453 16,595
======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial data.
F-22
<PAGE>
UNITED STATES FILTER CORPORATION
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED
MARCH 31, 1995
(in thousands, except per share and share data)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL --------------------------------
------------------ ADJUSTMENTS
U.S. FILTER DAVIS ZIMPRO ADJUSTMENTS REFERENCE COMBINED
----------- --------- ------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $272,032 $215,649 $31,678 $519,359
Cost of sales........... 193,432 183,654 21,669 398,755
-------- -------- ------- --------
Gross profit.......... 78,600 31,995 10,009 120,604
Selling, general and
administrative
expenses............... 64,015 24,483 8,983 97,481
-------- -------- ------- --------
Operating income...... 14,585 7,512 1,026 23,123
-------- -------- ------- --------
Other income (expense):
Interest expense...... (5,384) (1,335) (795) 595 b(i) (6,919)
Other................. 1,787 (370) 25 1,442
-------- -------- ------- --------
(3,597) (1,705) (770) (5,477)
-------- -------- ------- --------
Income before income
taxes................ 10,988 5,807 256 17,646
-------- -------- ------- --------
Provision (benefit) for
income taxes........... 2,657 2,359 (204) 4,812
-------- -------- ------- --------
Net income............ $ 8,331 $ 3,448 $ 460 $ 12,834
======== ======== ======= ========
Net income per common
share................ $ 0.51 $ 0.63
======== ========
Weighted average number
of
shares outstanding..... 15,026 19,168
======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial data.
F-23
<PAGE>
UNITED STATES FILTER CORPORATION
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED
MARCH 31, 1996
(in thousands, except per share and share data)
<TABLE>
<CAPTION>
HISTORICAL
----------------- ADJUSTMENTS
U.S. FILTER DAVIS ZIMPRO ADJUSTMENTS REFERENCE COMBINED
----------- -------- ------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $472,537 $226,489 $28,877 $727,903
Cost of sales........... 328,057 188,720 21,796 538,573
-------- -------- ------- --------
Gross profit.......... 144,480 37,769 7,081 189,330
Selling, general and
administrative
expenses............... 109,525 26,877 12,281 148,683
-------- -------- ------- --------
Operating income
(loss)............... 34,955 10,892 (5,200) 40,647
-------- -------- ------- --------
Other income (expense):
Interest expense...... (12,546) (1,022) (851) 595 b(i) (13,824)
Other................. 4,963 206 (35) 5,134
-------- -------- ------- --------
(7,583) (816) (886) (8,690)
-------- -------- ------- --------
Income (loss) before
income taxes......... 27,372 10,076 (6,086) 31,957
Provision for income
taxes.................. 7,082 4,327 646 (646) b(ii) 11,409
-------- -------- ------- --------
Net income (loss)..... $ 20,290 $ 5,749 $(6,732) $ 20,548
======== ======== ======= ========
Net income per common
share................ $ 0.81 $ 0.70
======== ========
Weighted average number
of
shares outstanding..... 24,309 28,451
======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial data.
F-24
<PAGE>
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
The pro forma combined balance sheet has been prepared to reflect the
acquisitions of all the outstanding capital stock of Davis and Zimpro in
exchange for 3,442,000 (.933 share of U.S. Filter Common Stock for each
outstanding share, and each outstanding option or other right to acquire a
share, of Davis Common Stock) and 585,074 shares of U.S. Filter Common Stock,
respectively. The Acquisitions have been accounted for on a pooling of
interests basis. Additionally, the pro forma combined balance sheet reflects
the repayment of $4,335,000 of indebtedness of Zimpro outstanding at May 31,
1996 with the delivery of 114,994 shares of U.S. Filter Common Stock and
$1,000,000 in cash.
(a) The pro forma combined balance sheet reflects the financial position of
Davis at April 30, 1996 and Zimpro at December 31, 1995 and has been
adjusted to reflect the above as follows:
(i) To record the equity adjustments required to reflect the
Acquisitions of Davis and Zimpro on a pooling of interests basis;
and
(ii) To record the repayment of indebtedness of Zimpro ($4,260,000
outstanding at December 31, 1995) in exchange for 114,994 shares
of U.S. Filter Common Stock and $1,000,000 in cash.
(b) For the fiscal years ended March 31, 1994, 1995 and 1996, the historical
results of operations reflect Davis' results of operations for the years
ended April 30, 1994, 1995 and 1996 and reflect Zimpro's results of
operations for the years ended December 31, 1993, 1994 and 1995,
respectively and have been adjusted to reflect the above as follows:
(i) To adjust interest expense related to the indebtedness of Zimpro
repaid at the date of Acquisition; and
(ii) To adjust the provision for income taxes to reflect the combined
results of operations.
F-25
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<C> <S>
23.0 Consent of Independent Accountants
</TABLE>
<PAGE>
EXHIBIT 23.0
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-4 (No. 33-63251) of
United States Filter Corporation of our report dated June 13, 1996 relating to
the consolidated financial statements of Davis Water & Waste Industries, Inc.,
which appears in this Current Report on Form 8-K of United States Filter
Corporation dated June 27, 1996.
PRICE WATERHOUSE LLP
Atlanta, Georgia
June 27, 1996
