<PAGE>
REGISTRATION NO. 333-14277
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
UNITED STATES FILTER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 33-0266015
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
40-004 COOK STREET
PALM DESERT, CALIFORNIA 92211
(619) 340-0098
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DAMIAN C. GEORGINO
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
UNITED STATES FILTER CORPORATION
40-004 COOK STREET
PALM DESERT, CALIFORNIA 92211
(619) 340-0098
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
Copies to:
JANICE C. HARTMAN NICHOLAS P. SAGGESE
KIRKPATRICK & LOCKHART LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1500 OLIVER BUILDING 300 SOUTH GRAND AVENUE, SUITE 3400
PITTSBURGH, PENNSYLVANIA 15222 LOS ANGELES, CALIFORNIA 90071
(412) 355-6500 (213) 687-5000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 21, 1996
PROSPECTUS
, 1996
10,000,000 SHARES
[LOGO OF UNITED STATES FILTER CORPORATION]
COMMON STOCK
All of the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby are being sold by United States Filter Corporation (the
"Company"). Of the 10,000,000 shares of Common Stock offered hereby, 8,000,000
shares are being offered for sale in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering") and 2,000,000 shares are being offered for
sale outside the United States and Canada in a concurrent offering by the
International Managers (the "International Offering," and, together with the
U.S. Offering, the "Offerings"), subject to transfers between the U.S.
Underwriters and the International Managers. See "Underwriting."
Concurrently with the Offerings, the Company is offering (the "Notes
Offering") pursuant to a separate Prospectus $200,000,000 principal amount
(excluding the underwriters' over-allotment option) of % Convertible
Subordinated Notes due 2001 (the "Notes"). The net proceeds of the Offerings
and the Notes Offering are expected to be used to fund or to repay indebtedness
to be incurred to fund the pending acquisitions by the Company of certain
businesses and assets (collectively referred to as the Water Systems and
Manufacturing Group and referred to herein as "WSMG") of Wheelabrator
Technologies Inc. ("WTI") and the businesses of the Process Equipment Division
("PED") of United Utilities PLC; the balance, if any, will be used for working
capital, capital expenditures and general corporate purposes, including
possible future acquisitions. Consummation of the Offerings is not a condition
to consummation of the Notes Offering, and consummation of the Notes Offering
is not a condition to consummation of the Offerings. See "Recent and Pending
Acquisitions" and "Use of Proceeds."
The Common Stock is listed on the New York Stock Exchange and traded under
the symbol "USF." On November 20, 1996, the closing sale price of the Common
Stock as reported on the New York Stock Exchange Composite Tape was $33.125 per
share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share..................................... $ $ $
Total(3)...................................... $ $ $
</TABLE>
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(1) The Company and the Selling Stockholders referred to below have agreed to
indemnify the several U.S. Underwriters and the International Managers
(collectively, the "Underwriters") against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $750,000.
(3) The Company and certain Selling Stockholders (the "Selling Stockholders")
have granted to the U.S. Underwriters an option exercisable within 30 days
after the date of this Prospectus to purchase an aggregate of up to
1,500,000 additional shares of Common Stock, on the same terms as set forth
above, at the Price to the Public, less the Underwriting Discounts and
Commissions, solely for the purpose of covering over-allotments, if any. If
such option were exercised in full, the total Price to the Public,
Underwriting Discounts and Commissions and Proceeds to the Company would be
$ , $ and $ , respectively, and the total proceeds to
the Selling Stockholders would be $ . See "Selling Stockholders" and
"Underwriting."
The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by the Underwriters, subject to certain
conditions, including their rights to withdraw, cancel or reject orders in
whole or in part. It is expected that delivery of the shares of Common Stock
will be made in New York, New York on or about , 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEUTSCHE MORGAN GRENFELL
NATWEST SECURITIES LIMITED
SALOMON BROTHERS INC
SMITH BARNEY INC.
<PAGE>
[Map depicting sales and service facilities located in
North America, Europe and the Pacific Rim.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including, without limitation, the Selected Consolidated Financial
Data, the Company's Consolidated Financial Statements and Notes thereto and the
Unaudited Pro Forma Combined Financial Information, included or incorporated by
reference in this Prospectus. Except as otherwise specified, all information in
this Prospectus has been adjusted to reflect a 3-for-2 split of the Common
Stock effected July 15, 1996 and a 3-for-2 split of the Common Stock effected
December 5, 1994, and does not give effect to the over-allotment option
described under the caption "Underwriting."
THE COMPANY
The Company is a leading global provider of industrial and municipal water
and wastewater treatment systems, products and services, with an installed base
of systems that the Company believes is one of the largest worldwide. The
Company offers a single-source solution to industrial and municipal customers
through what the Company believes is the industry's broadest range of cost-
effective systems, products, services and proven technologies. In addition, the
Company has one of the industry's largest networks of sales and service
facilities. The Company capitalizes on its large installed base, extensive
distribution network and manufacturing capabilities to provide customers with
ongoing local service and maintenance. The Company is also a leading provider
of service deionization ("SDI") and outsourced water services, including the
operation of water and wastewater treatment systems at customer sites.
The Company has grown internally and through the strategic acquisition and
successful integration of more than 45 United States based and international
water and wastewater treatment companies since 1991. On a previously reported
basis, the Company's revenues increased to $472.5 million for the fiscal year
ended March 31, 1996 from $41.2 million for the fiscal year ended March 31,
1992, representing a compound annual growth rate of approximately 84%. The
Company's revenues for the fiscal year ended March 31, 1996 would have been
approximately $1.8 billion after giving effect to the completed acquisitions of
Zimpro Environmental, Inc. ("Zimpro") and Davis Water & Waste Industries, Inc.
("Davis") and including, on a pro forma basis, the pending acquisitions of WSMG
and PED and the recent acquisitions of WaterPro Supplies Corporation
("WaterPro") and The Utility Supply Group, Inc. ("USG") as if such acquisitions
were completed at the beginning of such year.
Global population growth, economic expansion, scarcity of available water
resources, heightened public concern about water quality and growing regulatory
requirements have resulted in: (i) continued growth of the multibillion dollar
water and wastewater treatment industry; and (ii) heightened demand for
increasingly complex water and wastewater treatment systems. The water
treatment industry is highly fragmented, with numerous regional participants
who provide customers with a limited range of water and wastewater treatment
solutions. The Company differentiates itself from competitors by serving as a
single-source water and wastewater treatment provider capable of designing,
manufacturing, operating, financing and maintaining water and wastewater
systems on a local basis for industrial and municipal customers. The Company's
customer base includes a broad range of major industrial customers, which
require treated water as a necessary component of many products and industrial
processes, and municipalities, which treat water and wastewater for their
communities. Industrial customers include Chinese Petroleum, Coca-Cola, Dow
Chemical, General Motors, Hyundai, Intel, Johnson & Johnson, Merck, Procter &
Gamble and Samsung. Municipal customers include the Cities of Los Angeles,
Minneapolis-St. Paul and St. Louis.
3
<PAGE>
In order to achieve earnings growth and expand its operations to enhance its
position as a leading global single-source provider of water and wastewater
treatment systems and services, the Company has developed the following
strategy:
.Provide single-source water and wastewater treatment solutions to
industrial and municipal customers
.Pursue acquisitions that provide a strategic fit and contribute to revenue
and earnings growth
.Realize synergies and economies of scale from acquisitions
.Expand global market presence, especially in the Pacific Rim region
.Expand penetration of the municipal market
.Capitalize on distribution strength to enhance local sales and service
capabilities
.Capitalize on outsourcing and privatization opportunities
RECENT AND PENDING ACQUISITIONS
The Company has become a leading single-source provider of cost-effective
water and wastewater treatment systems primarily through acquisitions of
businesses that have expanded the Company's geographic presence, industries
served, installed base and range of products and technologies. The Company's
acquisition strategy has also recently focused on establishing the Company as a
leading distributor of water and wastewater distribution products and services
to the industrial and municipal markets.
The Company has entered into a definitive agreement with WTI to acquire WSMG
for $369.6 million in cash, subject to possible adjustment. The Company has
also entered into a definitive agreement to acquire PED from United Utilities
PLC for (Pounds)125.5 million in cash and stock, subject to possible
adjustment. Additionally, the Company has acquired Davis in exchange for
4,817,349 shares of Common Stock, WaterPro in exchange for 3,201,507 shares of
Common Stock, and USG in exchange for 771,157 shares of Common Stock.
WATER SYSTEMS AND MANUFACTURING GROUP
WSMG provides a broad range of water and wastewater treatment products and
technologies, as well as other environmental products, worldwide. For the
fiscal year ended December 31, 1995, WSMG generated approximately $452.1
million of revenues, of which approximately 56% were attributable to sales in
North America, with the remainder generated principally in Europe, the Pacific
Rim and the Middle East.
The Company believes that the acquisition of WSMG will significantly broaden
the Company's product offerings, technological capabilities and municipal
market penetration. WSMG is also expected to provide the Company with cross-
selling opportunities as well as opportunities to rationalize operations and
increase asset utilization. In addition, the Company believes that WSMG will
provide it with the infrastructure required to capitalize on opportunities in
the Pacific Rim and further strengthens the Company's presence in European
markets.
PROCESS EQUIPMENT DIVISION
PED is a leading manufacturer and distributor of a broad range of water and
wastewater treatment equipment sold primarily to the municipal market. For the
fiscal year ended March 31, 1996, PED generated approximately $267.4 million of
revenues, of which approximately 60% were attributable to sales in North
America, with the remainder generated principally in Europe, Latin America and
the Pacific Rim. For the fiscal year ended March 31, 1996, a majority of PED's
revenues were attributable to sales in the municipal market.
4
<PAGE>
The Company believes that the acquisition of PED will significantly
strengthen the Company's municipal water and wastewater treatment capabilities
and provide the Company with opportunities to rationalize operations and
increase asset utilization. Additionally, the Company believes that
opportunities exist to expand PED's industrial sales by distributing PED's
products through the Company's extensive network of sales and service
facilities.
DISTRIBUTION ACQUISITIONS
The Company believes that the recent acquisitions of Davis, WaterPro and USG
establish the Company as a leading distributor of water and wastewater
distribution products and services to the industrial and municipal markets.
Through the addition of 105 distribution facilities, these recent acquisitions
provide the Company with a strategically important local sales and service
presence in the markets being served. Additionally, each of Davis, WaterPro and
USG benefits from established relationships with municipalities. The Company
believes that these relationships will provide it with an effective means of
penetrating the municipal market and permit the Company to capitalize on
opportunities to retrofit, replace and repair aging water infrastructure in the
United States. The Company intends to utilize its distribution channels, local
presence and single-source capabilities to sell its extensive product line,
including capital equipment, replacement parts, and services, to customers in
both the industrial and municipal markets. As a result, the Company believes
that its distribution infrastructure will provide a mechanism to leverage its
manufacturing capabilities and technology base. The Company also believes that
the distribution acquisitions will provide cost-saving opportunities through
rationalization of overhead expenses and realization of economies of scale and
operating efficiencies.
----------------
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 refer to United States Filter Corporation and
its subsidiaries, unless the context requires otherwise.
5
<PAGE>
THE OFFERINGS
<TABLE>
<C> <S>
Common Stock offered by the Company:
U.S. Offering........................ 8,000,000 shares
International Offering............... 2,000,000 shares
----------
Total............................ 10,000,000 shares
==========
Common Stock to be outstanding after the
Offerings.............................. 67,905,964 shares(1)
Use of Proceeds......................... The net proceeds of the Offerings,
together with the net proceeds of the
Notes Offering, are expected to be
used to fund or to repay indebtedness
to be incurred to fund the pending
acquisitions by the Company of WSMG
and PED; the balance, if any, will be
used for working capital, capital
expenditures and general corporate
purposes, including possible future
acquisitions. If the net proceeds of
the Offerings and the Notes Offering
are not available, the Company
expects to fund the acquisitions of
WSMG and PED from borrowings under
committed bank credit facilities.
New York Stock Exchange symbol.......... USF
Notes Offering.......................... The Company is offering concurrently
$200,000,000 aggregate principal
amount of % Convertible
Subordinated Notes due 2001
($230,000,000 if the underwriters'
over-allotment option is exercised in
full). The Notes are convertible into
Common Stock at a conversion price of
$ per share. Consummation of the
Offerings is not a condition to
consummation of the Notes Offering
and consummation of the Notes
Offering is not a condition to
consummation of the Offerings.
</TABLE>
- --------------------
(1) Based on the number of shares of Common Stock outstanding as of
November 10, 1996. Does not include: (i) 3,354,698 shares issuable upon
exercise of stock options outstanding at a weighted average exercise price
of $10.73 per share of Common Stock as of such date and 1,041,896
additional shares reserved for issuance upon exercise of options available
for grant under the Company's stock options plans; (ii) 7,636,363 shares
issuable upon conversion of the Company's 6% Convertible Subordinated Notes
due 2005 at a conversion price of $18.33 per share of Common Stock; (iii)
approximately shares issuable upon conversion of the Notes at a
conversion price of $ per share of Common Stock; and (iv) an aggregate
of approximately 1,267,925 shares issuable in connection with the pending
acquisition of PED. Does not give effect to shares that are subject to the
Underwriters' over-allotment option, 845,794 shares of which are owned by
the Selling Stockholders and 654,206 shares of which would be issuable by
the Company. See "Selling Stockholders" and "Underwriting."
6
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following data present selected historical consolidated financial data of
the Company (restated to reflect the acquisitions of Zimpro and Davis, which
were accounted for as poolings of interests) as of the date and for the periods
presented, and As Adjusted to give effect to: (i) the recent acquisitions of
WaterPro and USG and the pending acquisitions of WSMG and PED as if they had
been consummated as of the beginning of the respective periods presented (in
the case of Statement of Operations Data and Other Data) and as of September
30, 1996 (in the case of Balance Sheet Data); and (ii) the assumed borrowings
under bank credit facilities of approximately $541.0 million to fund the cash
portion of the consideration for such acquisitions and estimated transaction
costs. The As Further Adjusted column gives effect to: (i) the sale by the
Company of 10,000,000 shares of Common Stock in the Offerings at an assumed
public offering price of $33.125 per share and the anticipated application of
the net proceeds therefrom; (ii) the sale by the Company of the Notes and the
anticipated application of the net proceeds therefrom; and (iii) the conversion
of the Company's $60.0 million aggregate principal amount of 5% Convertible
Subordinated Debentures due 2000 into 4,390,000 shares of Common Stock.
The pro forma data is derived from the historical financial statements of the
Company, WSMG, PED, WaterPro and USG giving effect to such acquisitions under
the purchase method of accounting and based on assumptions and adjustments
described under the caption "Unaudited Pro Forma Combined Financial
Information." The pro forma adjustments are estimated and may differ from the
actual adjustments when they become known. The pro forma data does not reflect
certain cost savings that management believes may be realized following the
acquisitions, through rationalization of operations and economies of scale. See
"Unaudited Pro Forma Combined Financial Information."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
MARCH 31, 1996 SEPTEMBER 30, 1996(1)
-------------------------------- -----------------------------------
AS AS FURTHER AS FURTHER
ACTUAL ADJUSTED(2) ADJUSTED(2) ACTUAL AS ADJUSTED(2) ADJUSTED(2)
-------- ----------- ----------- -------- -------------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $727,903 $1,838,624 $1,838,624 $433,719 $1,054,197 $1,054,197
Gross profit............ 189,330 423,370 423,370 118,321 253,149 253,149
Operating income........ 40,647 69,189 69,189 26,600 52,739 52,739
Interest expense........ 14,419 57,224 25,754 7,972 29,193 13,458
Net income.............. 19,307 13,603 33,114 14,228 15,970 25,726
Net income per common
share.................. $ 0.45 $ 0.28 $ 0.53 $ 0.28 $ 0.29 $ 0.37
Weighted average number
of common shares
outstanding............ 42,159 47,400 61,790 50,629 55,870 70,260
OTHER DATA:
EBITDA(2)............... $ 67,227 $ 120,554 $ 120,554 $ 47,109 $ 86,748 $ 86,748
Ratio of EBITDA to
interest expense....... 4.7x 2.1x 4.7x 5.9x 3.0x 6.4x
Ratio of earnings to
fixed charges.......... 2.5x 1.2x 2.4x 3.0x 1.7x 3.4x
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
-------- ----------- ----------
(in thousands)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................ $168,606 $ 402,433 $ 402,433
Total assets................................... 936,659 2,007,482 2,012,632
Notes payable and long-term debt, including
current portion............................... 90,159 650,674 137,746
Convertible subordinated debt.................. 193,565 193,565 340,000
Shareholders' equity........................... 400,003 561,282 932,925
</TABLE>
- -------------------
(1) The six months ended September 30, 1996 includes merger expenses of
$5,581,000 related to the acquisition of Davis.
(2) The fiscal year ended March 31, 1996 and the six months ended September 30,
1996 include restructuring charges of $9,260,000 and $1,992,000,
respectively, related to the plant closure and relocation of the operations
of Wallace & Tiernan, Inc., a subsidiary of PED.
(3) "EBITDA" consists of operating income plus depreciation and amortization.
EBITDA data is presented because such data is used by certain investors to
determine the Company's ability to meet debt service requirements. The
Company considers EBITDA to be an indicative measure of the Company's
operating performance. However, such information should not be considered
as an alternative to net income, operating profit, cash flows from
operations, or any other operating or liquidity performance measure
prescribed by generally accepted accounting principles. The EBITDA measure
presented by the Company may not be comparable to similarly titled measures
used by other companies.
7
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following factors
relating to the businesses of the Company, WSMG, PED, WaterPro and USG,
together with the other information and financial data included or
incorporated by reference in this Prospectus, before acquiring the securities
offered hereby. Information contained or incorporated by reference in this
Prospectus includes "forward-looking statements" which can be identified by
the use of forward-looking terminology such as "believes," "contemplates,"
"expects," "may," "will," "should," "would" or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or by
discussions of strategy. No assurance can be given that the future results
covered by the forward-looking statements will be achieved. The following
matters constitute cautionary statements identifying important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to vary materially from the
future results covered in such forward-looking statements. Other factors could
also cause actual results to vary materially from the future results covered
in such forward-looking statements.
ACQUISITION STRATEGY
In pursuit of its strategic objective of becoming the leading global single-
source provider of water and wastewater treatment systems and services, the
Company has, since 1991, acquired and successfully integrated more than 45
United States based and international businesses with strong market positions
and substantial water and wastewater treatment expertise. The Company plans to
continue to pursue acquisitions that complement its technologies, products and
services, broaden its customer base and expand its global distribution
network. 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.
Consummation of the pending acquisitions of each of WSMG and PED are subject
to the satisfaction of certain conditions, including expiration or termination
of applicable waiting periods under the United States Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. The waiting period with
respect to WSMG has expired. There can be no assurance that the pending
acquisition of PED will not be challenged on antitrust grounds, or if
challenged, that the Company will prevail. There can also be no assurance as
to whether or when the Company's pending acquisitions of WSMG and PED will be
completed. The net proceeds to the Company of the Offerings and the Notes
Offering are expected to be used to fund or to repay indebtedness used to fund
these pending acquisitions; the balance, if any, will be used for working
capital, capital expenditures and general corporate purposes, including
possible future acquisitions. If either or both of the pending acquisitions of
WSMG and PED are not completed, the net proceeds of the Offerings and the
Notes Offering not used for those acquisitions will be added to working
capital. See "Recent and Pending Acquisitions" and "Use of Proceeds."
INTERNATIONAL TRANSACTIONS
The Company has made and expects it will continue to make acquisitions and
expects to obtain contracts in markets 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, nationalization and possible social,
political and economic instability. In particular, the purchase price for the
pending acquisition by the Company of PED is (Pounds)125.5 million, comprised
of approximately (Pounds)100.5 million in cash and (Pounds)25.0 million in
shares of Common Stock. The Company has entered into a forward contract
pursuant to which it is obligated to purchase 100.0 million British pounds
sterling for approximately $159.3 million at any time between December 16,
1996 and February 14, 1997, for the purpose of hedging the cash portion of the
purchase price of its
8
<PAGE>
acquisition of PED. With respect to the remaining (Pounds)0.5 million cash
portion of the consideration and the (Pounds)25.0 million in shares of Common
Stock, to the extent the value of the United States dollar declines relative
to pounds sterling prior to the closing of the acquisition, the cost to the
Company of acquiring PED would increase. In addition, if the acquisition of
PED is not consummated, or the acquisition is consummated after February 14,
1997, the Company would be at risk with respect to the (Pounds)100.0 million
it purchased pursuant to such forward contract to the extent that the value of
the British pound sterling decreases relative to the value of other
currencies.
RELIANCE ON KEY PERSONNEL
The Company's operations are, and will, after consummation of the Company's
pending acquisitions, be dependent on the continued efforts of senior
management, in particular Richard J. Heckmann, the Company's Chairman of the
Board, President and Chief Executive Officer. There are no employment
agreements between the Company and the members of its senior management,
except Thierry Reyners, the Company's Executive Vice President-European Group.
Should any of the senior managers be unable to continue in their present
roles, the Company's prospects could be adversely affected.
PROFITABILITY OF FIXED PRICE CONTRACTS
A significant portion of the Company's revenues are, and will, after
consummation of the Company's pending acquisitions, be 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 AND SEASONALITY
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. A significant portion of the
Company's revenues are, and will, after consummation of the Company's pending
acquisitions, be derived from capital equipment sales. 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.
The sale of water and wastewater distribution equipment and supplies is also
cyclical and influenced by various economic factors including interest rates,
land development and housing construction industry cycles. Sales of such
equipment and supplies are also subject to seasonal fluctuation in northern
climates. As a result of the acquisitions of Davis, WaterPro and USG, the sale
of water and wastewater distribution equipment and supplies is a significant
component of the Company's business. See "Recent and Pending Acquisitions."
Cyclicality and seasonality of water and wastewater distribution equipment and
supplies sales 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. The Company is also subject to inherent
risks associated with environmental conditions at facilities owned, and the
state of compliance with environmental laws, by businesses acquired 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,
9
<PAGE>
or historical operations by others at the Company's locations, will not result
in cleanup obligations, civil or criminal enforcement actions or private
actions that could have a material adverse effect on the Company. In that
regard federal and state environmental regulatory authorities have commenced
civil enforcement actions related to alleged multiple violations of applicable
wastewater pretreatment standards by a wholly owned subsidiary of the Company
at a Connecticut ion exchange regeneration facility acquired by the Company in
October 1995 from Anjou International Company ("Anjou"). A grand jury
investigation is pending which is believed to relate to the same conditions
that were the subject of the civil actions. The Company has certain rights of
indemnification from Anjou which may be available with respect to these
matters. In addition, the Company's activities as owner and operator of certain
hazardous waste treatment and recovery facilities are subject to stringent laws
and regulations and compliance reviews. Failure of these facilities to comply
with those regulations could result in substantial fines and the suspension or
revocation of the facility's hazardous waste permit. In other matters, the
Company has been notified by the United States Environmental Protection Agency
that it is a potentially responsible party under the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") at certain
sites to which the Company or its predecessors allegedly sent waste in the
past. It is possible that the Company could receive other such notices under
CERCLA or analogous state laws in the future. The Company does not believe that
its liability, if any, relating to such matters will be material. However,
there can be no assurance that such matters will not be material. 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.
COMPETITION
The water 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, prompt
availability of local service capability, 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 which have significantly greater
resources than the Company, which, among other things, could be a competitive
disadvantage to the Company in securing certain projects.
TECHNOLOGICAL AND REGULATORY CHANGE
The water 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 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 develop successfully 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.
MUNICIPAL AND WASTEWATER MARKET
Completion of the Company's recent and pending acquisitions will increase
significantly the percentage of the Company's revenues derived from municipal
customers. While municipalities represent an important market in the water and
wastewater treatment industry, contractor selection processes and funding for
projects in the
10
<PAGE>
municipal sector entail certain additional risks not typically encountered
with industrial customers. Competition for selection of a municipal contractor
typically occurs through a formal bidding process which can require the
commitment of significant resources and greater lead times than industrial
projects. In addition, demand in the municipal market is dependent upon the
availability of funding at the local level, which may be the subject of
increasing pressure as local governments are expected to bear a greater share
of the cost of public services. See "Recent and Pending Acquisitions" and
"Business."
Zimpro is party to certain agreements (entered into in 1990 at the time
Zimpro was acquired from unrelated third parties by the entities from which it
was later acquired by the Company), pursuant to which Zimpro agreed, among
other things, to pay the original sellers a royalty of 3.0% of its annual
consolidated net sales of certain products in excess of $35.0 million through
October 25, 2000. Under certain interpretations of such agreements, with which
the Company disagrees, Zimpro could be liable for such royalties with respect
to the net sales attributable to products, systems and services of certain
defined wastewater treatment businesses acquired by Zimpro or the Company or
the Company's other subsidiaries after May 31, 1996. The defined businesses
include, among others, manufacturing machinery and equipment, and engineering,
installation, operation and maintenance services related thereto, for the
treatment and disposal of waste liquids, toxic waste and sludge. One of the
prior sellers has revealed in a letter to the Company an interpretation
contrary to that of the Company. The Company believes that it would have
meritorious defenses to any claim based upon any such interpretation and would
vigorously pursue the elimination of any threat to expand what it believes to
be its obligations pursuant to such agreements.
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock could be adversely affected by the
availability for public sale of shares held on November 10, 1996 by security
holders of the Company, including: (i) up to 3,750,093 shares which may be
delivered by Laidlaw Inc. or its affiliates ("Laidlaw"), at Laidlaw's option
in lieu of cash, at maturity pursuant to the terms of 5 3/4% Exchangeable
Notes due 2000 of Laidlaw (the amount of shares or cash delivered or paid to
be dependent within certain limits upon the value of the Common Stock at
maturity); (ii) 7,636,363 shares issuable upon conversion of the Company's 6%
Convertible Subordinated Notes due 2005 at a conversion price of $18.33 per
share of Common Stock; (iii) shares issuable upon conversion of the
Notes at a conversion price of $ per share of Common Stock; (iv)
2,908,171 outstanding shares that are currently registered for sale under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to two
shelf registration statements; and (v) 7,036,939 shares which are subject to
agreements pursuant to which the holders have certain rights to request the
Company to register the sale of such holders' Common Stock under the
Securities Act and/or, subject to certain conditions, to include certain
percentages of such shares in other registration statements filed by the
Company (1,980,000 of which shares also may be sold from time to time by the
holder thereof pursuant to Rule 144 under the Securities Act). The shares
referred to in clause (v) include up to 845,794 shares that may be sold by
Selling Stockholders upon exercise of the U.S. Underwriters' over-allotment
option. In addition, the Company has registered for sale under the Securities
Act 5,777,380 shares which may be issuable by the Company from time to time in
connection with acquisitions of businesses from third parties.
11
<PAGE>
RECENT AND PENDING ACQUISITIONS
The Company has become a leading single-source provider of cost-effective
water and wastewater treatment systems primarily through acquisitions of
businesses that have expanded the Company's geographic presence, industries
served, installed base, and range of products and technologies. The Company's
pending acquisitions of WSMG and PED are expected to provide the Company with
important products and technologies which enhance the Company's single-source
provider capabilities. The Company believes that these acquisitions will also
significantly expand the Company's municipal and wastewater treatment
capabilities and international presence, particularly in the Pacific Rim and
Europe. The Company is negotiating the possible formation of a joint venture
with WTI (the "Joint Venture") to develop, finance, own and operate water and
wastewater treatment facilities for both industrial and municipal customers in
North America. See "--Possible Joint Venture."
The Company's acquisition strategy has also recently focused on establishing
the Company as one of the industry's leading distributors of water and
wastewater distribution products and services to both the industrial and
municipal markets. The recent acquisitions of Davis, WaterPro and USG are
expected to provide the Company with a platform to: (i) enhance the Company's
local sales and service infrastructure; (ii) penetrate the municipal segment
of the water and wastewater treatment market by capitalizing on each
distribution company's long-term municipal relationships; (iii) leverage the
Company's manufacturing capabilities and technology base; and (iv) capitalize
on efficiencies from consolidation of operations and economies of scale. In
addition, the Company believes that these distribution acquisitions will
permit the Company to capitalize on opportunities to retrofit, replace and
repair aging water infrastructure in the United States.
Together, these recent and pending acquisitions are expected to distinguish
further the Company as a leading single-source provider capable of designing,
manufacturing, operating, financing and maintaining water and wastewater
treatment systems on a local basis for industrial and municipal customers
worldwide.
WATER SYSTEMS AND MANUFACTURING GROUP
On September 14, 1996, the Company entered into a definitive agreement to
acquire WSMG from WTI for $369.6 million in cash, subject to possible post-
closing adjustment. WSMG provides a broad range of water and wastewater
treatment products and technologies, as well as other environmental products,
worldwide. As of October 4, 1996, WSMG had 1,993 employees and 57 facilities
located in 17 countries.
For the fiscal year ended December 31, 1995, WSMG generated approximately
$452.1 million of revenues, of which approximately 56% were attributable to
sales in North America, with the remainder generated principally in Europe,
the Pacific Rim and the Middle East.
The Company believes that the acquisition of WSMG will significantly broaden
the Company's product offerings, technological capabilities and municipal
market penetration. WSMG is also expected to provide the Company with cross-
selling opportunities as well as opportunities to rationalize operations and
increase asset utilization. In addition, the Company believes that the
acquisition of WSMG will provide it with the infrastructure required to
capitalize on increasing opportunities in the Pacific Rim and will further
strengthen the Company's presence in European markets. A description of
certain of the WSMG business units follows.
NEW PRODUCTS AND TECHNOLOGIES
Johnson Screens. Johnson Screens is recognized as a leader in well screen
design and development and screen installation. Johnson Screens' welded
continuous-slot products are widely used in groundwater applications, oil and
gas wells, and other industrial filtration applications worldwide. Johnson
Screens is expected to provide the Company with an opportunity to sell
additional products through the Company's extensive distribution channel of
sales and service facilities.
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<PAGE>
HPD. HPD's primary water treatment technologies include evaporation and
crystallization serving the pulp and paper, chemical, petrochemical, mining
and power industries. These technologies are expected to enhance the Company's
zero-discharge and product recovery techniques, thereby providing what the
Company believes to be an important addition to its single-source provider
capabilities.
CPC Engineering. CPC designs water and wastewater treatment systems for
municipalities on a standard or custom-engineered basis under the "Microfloc"
brand name. CPC also produces solids screening, dewatering, conveying and
grinding equipment used in municipal wastewater treatment, municipal storm
water collection, and industrial wastewater treatment in the meat and poultry,
food processing, pulp and paper, mining, petrochemical and power utility
markets.
Westates Carbon. Westates Carbon is a full-service granular activated carbon
company. Westates Carbon offers systems, service and support, including a
carbon reactivation facility. Westates Carbon is expected to provide the
Company with the ability to recycle and reuse spent carbon utilized for both
water and wastewater treatment applications.
Memtek. Memtek products remove inorganic solids and heavy metals from
contaminated wastewater for the microelectronics, metal finishing and
industrial laundry marketplace. Sophisticated cross-flow membrane
microfiltration products are expected to be an important addition to the
Company's product offerings. Memtek products are sold under the brand names
IX/ER(R), TOTALTREAT(TM), MEMCLEAN(TM), EVAP(TM), RMS(TM) and ACMS(TM).
The Wheelabrator Corporation. The Wheelabrator Corporation ("WTC") designs
and manufactures environmentally sound surface cleaning and preparation
equipment and supplies. WTC also manufactures metal screening and grating used
in wastewater separation and organic and inorganic waste handling.
EXPANDED GLOBAL MARKET PRESENCE
Darchet Engineering. Darchet serves the water and wastewater needs of the
microelectronics, metal finishing and other industries in the Pacific Rim,
with specific market presence in Singapore, Malaysia, Indonesia, Thailand and
the Philippines. Darchet specializes in ion-exchange, reverse osmosis,
ultrafiltration and conventional technologies. The Company believes Darchet
will enhance the Company's growing market presence in the Pacific Rim.
Sun Chi. Sun Chi, based in Taiwan, designs and installs wastewater treatment
systems primarily for municipal applications. Sun Chi offers a wide range of
biological treatment technologies, including dissolved air floatation, aerobic
and anaerobic fluidized beds, ion exchange, oxidation, sequential biological
reactors and denitrification. Sun Chi's installed base of systems in Taiwan,
Malaysia, Indonesia, Thailand, the Philippines and China is also expected to
enhance the Company's growing market presence in the Pacific Rim.
Rossmark. Rossmark is an industry leader in northern Europe serving the
industrial and municipal water and wastewater treatment markets. Rossmark's
services include process engineering, systems design, turnkey water and
wastewater treatment systems and equipment manufacturing. Rossmark has
operations in the Netherlands, Belgium, the United Kingdom and Germany.
PSS. PSS, based in Spain, uses evaporation, crystallization and membrane
separation technologies, primarily in the chemical and pulp and paper
industries. PSS is expected to expand the Company's zero-discharge
capabilities in Europe and the Middle East.
The Company anticipates that the acquisition of WSMG will be completed by
early December 1996, although there can be no assurance that the acquisition
will be consummated at such time or at all.
13
<PAGE>
POSSIBLE JOINT VENTURE
The Company and WTI are negotiating the possible formation of the Joint
Venture to develop, finance, own and operate water and wastewater treatment
facilities for both industrial and municipal customers in North America. It is
expected that the operating strategy for the Joint Venture, if formed, would
be to offer customers: (i) turnkey operations, including system design,
manufacture, operation and maintenance on a local basis; (ii) warrantied
performance; (iii) potential cost savings; and (iv) customized financing
options. There can be no assurance as to whether or when or on what specific
terms the Joint Venture will actually be formed. The Company is currently a
50% owner of Treated Water Outsourcing, a Nalco/U.S. Filter Joint Venture
("TWO"), which focuses on the outsourcing of industrial customers' water
treatment needs.
PROCESS EQUIPMENT DIVISION
On October 7, 1996, the Company entered into a definitive agreement to
acquire PED from United Utilities PLC for (Pounds)125.5 million, comprised of
approximately (Pounds)100.5 million in cash and (Pounds)25.0 million in shares
of Common Stock, subject to possible post-closing adjustment. PED is a leading
manufacturer and distributor of water and wastewater treatment equipment
primarily to the municipal market. As of June 30, 1996, PED had approximately
1,935 employees and 17 facilities located in seven countries.
For the fiscal year ended March 31, 1996, PED generated approximately $267.4
million of revenues, of which approximately 60% were attributable to sales in
North America, with the remainder generated principally in Europe, Latin
America and the Pacific Rim. For the fiscal year ended March 31, 1996, a
majority of PED's revenues were attributable to sales in the municipal market.
The Company believes that the acquisition of PED will significantly
strengthen the Company's municipal water and wastewater treatment capabilities
and provide the Company with opportunities to rationalize operations and
increase asset utilization. Additionally, the Company believes that
opportunities exist to expand PED's industrial sales by distributing PED's
products through the Company's sales, service and distribution facilities. A
description of certain PED business units follows.
Envirex. Envirex manufactures wastewater treatment equipment, including
screening, grit removal, biological treatment and solids collection equipment.
The Company believes that Envirex has one of the largest number of wastewater
treatment units installed worldwide as well as one of the broadest product
lines in the wastewater equipment market. The Company believes that by
integrating and rationalizing Envirex's product lines with the Company's
existing wastewater products, it will enhance its municipal wastewater product
lines, which in turn will enable the Company to establish more effective
municipal sales channels. The Company also believes that it may be able to
increase Envirex's sales to industrial markets through the Company's
industrial distribution channels.
Wallace & Tiernan. Wallace & Tiernan is one of the world leaders in the
manufacture of water and wastewater disinfection systems and components. The
Company believes that significant opportunities exist to use Wallace &
Tiernan's global presence and large installed base to cross-sell certain of
the Company's other products and services. Additionally, Wallace & Tiernan's
large installed base is expected to continue to generate revenue from the sale
of replacement parts and services.
Edwards & Jones/Asdor. Edwards & Jones designs, manufactures and installs
biosolids handling equipment primarily for the municipal markets in Europe and
the Pacific Rim, while Asdor performs the same functions in North America. The
Company believes that the acquisition of Edwards & Jones will provide the
Company with a critical mass of wastewater expertise in the European market
and a channel to integrate further the Company's existing wastewater expertise
into its European operations.
General Filter/Acumem. General Filter is a leading provider of pre-treatment
equipment, granular media filtration systems and microfiltration systems
primarily to the municipal water markets in North America.
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<PAGE>
Acumem sells microfiltration systems for the treatment of surface and
groundwater to potable water standards for industrial and municipal users in
the United States, the United Kingdom and Australia. It also offers a range of
cross-flow microfiltration and ultrafiltration membrane systems for municipal
tertiary wastewater treatment.
Consolidated Electric. Consolidated Electric is a leading supplier of
automation and control systems for municipal water and wastewater treatment
equipment using liquid level pressure and flow sensors, automatic pump
controllers/alternators, and remote control technology capabilities. The
Company believes that these control systems will complement its existing
design-build capabilities in both industrial and municipal markets.
The Company anticipates that the acquisition of PED will be completed by the
end of December 1996, although there can be no assurance that the acquisition
will be consummated at such time or at all.
DISTRIBUTION ACQUISITIONS
The Company believes that the recent acquisitions of Davis, WaterPro and USG
establish the Company as a leading distributor of water and wastewater
distribution products and services to the industrial and municipal markets.
Through the addition of 105 distribution facilities, these recent acquisitions
provide the Company with a strategically important local sales and service
presence in the markets being served. Additionally, each of Davis, WaterPro
and USG benefits from established relationships with municipalities. The
Company believes that these relationships will provide it with an effective
means of penetrating the municipal market and permit the Company to capitalize
on opportunities to retrofit, replace and repair aging water infrastructure in
the United States. The Company intends to utilize its distribution channels,
local presence and single-source capabilities to sell its extensive product
line, including capital equipment, replacement parts, and services to both the
industrial and municipal markets. As a result, the Company believes that its
distribution infrastructure will provide a mechanism to leverage its
manufacturing capabilities and technology base. The Company also believes that
the distribution acquisitions will provide cost-saving opportunities through
rationalization of overhead expenses and realization of economies of scale and
operating efficiencies.
Davis Water and Waste Industries, Inc. In August 1996, the Company completed
the acquisition of Davis, a leading distributor of water and wastewater
distribution products and services to the industrial and municipal markets.
Davis also designs, engineers, manufactures and installs water and wastewater
treatment and pumping equipment. Davis has 32 distribution facilities located
primarily in the southeastern United States which service more than 25,000
customers. For the fiscal year ended April 30, 1996, Davis generated
approximately $226.5 million of revenues, of which approximately $178.2
million, or 79%, were attributable to the sale of distribution products and
services, and approximately $48.3 million, or 21%, were attributable to
manufacturing, installing, processing and servicing water and wastewater
treatment and pumping equipment. The acquisition of Davis provides the Company
with a significant distribution channel in the southeastern United States to
market its line of products and services.
WaterPro Supplies Corporation. In October 1996, the Company completed the
acquisition of WaterPro, a leading distributor of water and wastewater
distribution products and services to the industrial and municipal markets, in
exchange for 3,201,507 shares of Common Stock (including the repayment of
approximately $67.9 million in outstanding WaterPro debt with shares of Common
Stock). WaterPro serves approximately 18,000 customers through its 43
distribution facilities in 18 states, located primarily in the midwestern and
mid-Atlantic United States. For the period April 7, 1995 to December 31, 1995,
WaterPro generated approximately $187.5 million of revenues. The acquisition
of WaterPro increases the Company's distribution presence in the midwestern
and mid-Atlantic United States and expands the Company's presence in the
municipal market.
The Utility Supply Group, Inc. In October 1996, the Company completed the
acquisition of USG, a leading distributor of water and wastewater distribution
products and services to the municipal market, in exchange for 771,157 shares
of Common Stock, subject to adjustment. USG serves approximately 6,000
customers through 30 distribution and sales facilities, located primarily in
Texas, Florida and California. For the fiscal year ended December 31, 1995,
USG generated revenues of approximately $156.8 million. The acquisition of USG
increases the Company's distribution presence in the western, southern and
southeastern United States and expands the Company's municipal customer base.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company of the Offerings are estimated to be
$318.1 million ($338.9 million if the U.S. Underwriters' over-allotment option
is exercised in full), based on the closing sale price per share of Common
Stock on November 20, 1996 as reported on the New York Stock Exchange
Composite Tape and after deducting estimated underwriting discounts and
commissions and estimated offering expenses. The net proceeds to the Company
of the Notes Offering are estimated to be $194.9 million ($224.1 million if
the underwriters' over-allotment option is exercised in full), after deducting
estimated underwriting discounts and commissions and estimated offering
expenses. The aggregate net proceeds of the Offerings and the Notes Offering
are expected to be used to fund or to repay indebtedness used to fund the
pending acquisition by the Company of WSMG, and to fund the cash portion of
the consideration for the pending acquisition by the Company of PED, in each
case depending on whether such acquisition is completed after or before
consummation of the Offerings and the Notes Offering. The purchase price for
WSMG is $369.6 million in cash, subject to possible adjustment, and the cash
portion of the purchase price for PED is approximately (Pounds)100.5 million,
subject to possible adjustment. The Company has entered into a forward
contract pursuant to which it is obligated to purchase (Pounds)100.0 million
for approximately $159.3 million at any time between December 16, 1996 and
February 14, 1997. The balance of the net proceeds of the Offerings, if any,
will be used for working capital, capital expenditures and general corporate
purposes, including possible future acquisitions. If either or both of the
WSMG acquisition and the PED acquisition are not completed, the net proceeds
of the Offerings and the Notes Offering not used for such acquisitions will be
added to working capital. See "Recent and Pending Acquisitions." Consummation
of the Offerings is not a condition to consummation of the Notes Offering, and
consummation of the Notes Offering is not a condition to consummation of the
Offerings.
To the extent that net proceeds of the Offerings and/or the Notes Offering
are not available or are insufficient, the Company expects to obtain all or
part of the funds necessary to complete the WSMG acquisition and the PED
acquisition from borrowings under bank credit facilities. The Company has
received a commitment letter from The First National Bank of Boston pursuant
to which, subject to the satisfaction of various conditions, credit facilities
(the "Committed Credit Facilities") of up to $700.0 million would be made
available to the Company to finance acquisitions (including the WSMG
acquisition and the PED acquisition), to refinance any borrowings under the
Company's current credit agreement, and for working capital and other general
corporate purposes. Borrowings under the Committed Credit Facilities would
bear interest at variable rates of up to 2.25% above certain Eurocurrency
rates or 0.50% above The First National Bank of Boston's base rate and have a
five year maturity. The Company anticipates that, following completion of the
Offerings and the Notes Offering, its bank credit facilities will be reduced
to a level that the Company considers appropriate for its working capital and
other needs.
Pending utilization as described above, the net proceeds of the Offerings
and the Notes Offering will be invested in short-term, interest-bearing
obligations.
The Company will not receive any of the net proceeds, if any, from the sale
of shares of Common Stock by the Selling Stockholders. See "Selling
Stockholders."
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<PAGE>
CAPITALIZATION
The following table sets forth the historical consolidated capitalization of
the Company at September 30, 1996 and As Adjusted to give effect to: (i) the
acquisitions of WSMG, PED, WaterPro and USG; and (ii) the assumed borrowing
under the Committed Credit Facilities of approximately $541.0 million to fund
the cash portion of the consideration for such acquisitions and estimated
transaction costs. The As Further Adjusted column gives effect to: (i) the
sale by the Company of 10,000,000 shares of Common Stock in the Offerings at
an assumed public offering price of $33.125 per share and the anticipated
application of the net proceeds therefrom; (ii) the sale by the Company of the
Notes and the anticipated application of the net proceeds therefrom; and (iii)
the conversion of the Company's $60.0 million aggregate principal amount of 5%
Convertible Subordinated Debentures due 2000 into 4,390,000 shares of Common
Stock. This table should be read in conjunction with and is qualified by
reference to the Company's Consolidated Financial Statements and related Notes
thereto and the Unaudited Combined Pro Forma Financial Information included
elsewhere herein. See "Recent and Pending Acquisitions" and "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
-------- ----------- ----------
(in thousands)
<S> <C> <C> <C>
Current portion of long-term debt(1)........... $ 1,386 $ 1,386 $ 1,386
======== ========== ==========
Long-term debt:
Notes payable and long-term debt, excluding
current portion(1)............................ $ 88,773 $ 649,288 $ 136,360
5% Convertible Subordinated Debentures due
2000.......................................... 53,565 53,565 --
6% Convertible Subordinated Notes due 2005..... 140,000 140,000 140,000
% Convertible Subordinated Notes due 2001(2).. -- -- 200,000
-------- ---------- ----------
Total long-term debt, excluding current
portion..................................... 282,338 842,853 476,360
-------- ---------- ----------
Shareholders' equity:
Common Stock, 150,000,000 shares authorized,
49,280,734 shares (Actual), 54,521,323
shares (As Adjusted) and 68,911,323 shares
(As Further Adjusted) issued and
outstanding(3).............................. 493 545 689
Additional paid-in capital................... 370,625 531,852 903,351
Currency translation adjustment.............. 2,691 2,691 2,691
Retained earnings............................ 26,194 26,194 26,194
-------- ---------- ----------
Total shareholders' equity................. 400,003 561,282 932,925
-------- ---------- ----------
Total capitalization..................... $682,341 $1,404,135 $1,409,285
======== ========== ==========
</TABLE>
- ---------------------
(1) See Note 11 of Notes to Consolidated Financial Statements included
elsewhere herein for additional information regarding the Company's long-
term obligations.
(2) Assumes no exercise of the underwriters' over-allotment option.
(3) The number of authorized shares of Common Stock was increased from
75,000,000 to 150,000,000 effective September 11, 1996. The 49,280,734
shares issued and outstanding on an Actual basis do not include: (i)
4,390,000 shares issued upon conversion of the Company's 5% Convertible
Subordinated Debentures due 2000 (fully converted into shares of Common
Stock as of October 25, 1996); (ii) 7,636,363 shares issuable upon
conversion of the Company's 6% Convertible Subordinated Notes due 2005;
(iii) shares issuable upon conversion of the Notes; and (iv)
4,396,594 shares issuable upon exercise of stock options either
outstanding or available for future grant under the Company's stock option
plans. The 54,521,323 shares issued and outstanding on an As Adjusted
basis includes 3,972,664 shares issued in connection with the acquisitions
of WaterPro and USG and an estimated 1,267,925 shares issuable in
connection with the acquisition of PED. The 68,911,323 shares issued and
outstanding on an As Further Adjusted basis includes the 10,000,000 shares
to be issued in the Offerings and the 4,390,000 shares issued upon
conversion of the Company's 5% Convertible Subordinated Debentures due
2000. Assumes no exercise of the Underwriters' over-allotment option.
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<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company is listed on the New York Stock Exchange and
traded under the symbol "USF." The following table sets forth for the fiscal
periods indicated the range of high and low sales prices of the Common Stock
as reported on the New York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal year ended March 31, 1995:
First Quarter................................................... $ 9.67 $ 8.11
Second Quarter.................................................. 9.78 8.17
Third Quarter................................................... 10.75 8.78
Fourth Quarter.................................................. 11.25 10.00
Fiscal year ended March 31, 1996:
First Quarter................................................... 13.08 9.92
Second Quarter.................................................. 16.08 12.50
Third Quarter................................................... 18.00 13.42
Fourth Quarter.................................................. 19.33 16.42
Fiscal year ended March 31, 1997:
First Quarter................................................... 23.75 18.42
Second Quarter.................................................. 34.75 18.50
Third Quarter (through November 20, 1996)....................... 36.25 31.13
</TABLE>
On November 20, 1996, the closing sale price of the Common Stock as reported
on the New York Stock Exchange Composite Tape was $33.125 per share.
DIVIDEND POLICY
The Company currently intends to retain earnings to provide funds for the
operation and expansion of its business and accordingly does not anticipate
paying cash dividends on the Common Stock in the foreseeable future. Any
payment of cash dividends on the Common Stock in the future will depend upon
the Company's financial condition, earnings, capital requirements and such
other factors as the Board of Directors deems relevant. 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.
18
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Financial Information presents
the Pro Forma Combined Balance Sheet at September 30, 1996, giving effect to
the acquisitions of WaterPro and USG and the pending acquisitions of WSMG and
PED as if they had been consummated on that date. Also presented are the Pro
Forma Combined Statements of Operations for the fiscal year ended March 31,
1996 and the six months ended September 30, 1996, after giving effect to the
recent acquisitions of WaterPro and USG and the pending acquisitions of WSMG
and PED as if they had been consummated as of the beginning of the respective
periods presented. The Company's and PED's fiscal years end on March 31 and
WSMG's, WaterPro's and USG's fiscal years end on December 31. The Pro Forma
Balance Sheet combines the respective balance sheets of the Company, WSMG,
PED, WaterPro and USG as of September 30, 1996. The Pro Forma Statement of
Operations for the year ended March 31, 1996 combines the results of the
Company and PED for such year with the results of WSMG, WaterPro and USG for
the year ended December 31, 1995, and the Pro Forma Statement of Operations
for the six months ended September 30, 1996 combines the results of each of
the Company, WSMG, PED, WaterPro and USG for such six month period. All
Company historical consolidated financial data has been restated to reflect
the acquisitions in May 1996 and August 1996 of Zimpro and Davis,
respectively, which acquisitions have been accounted for as poolings of
interests.
The As Adjusted column gives effect to: (i) the recent acquisitions of
WaterPro and USG and the pending acquisitions of WSMG and PED; and (ii) the
assumed borrowings under the Committed Credit Facilities of approximately
$541.0 million to fund the cash portion of the consideration for such
acquisitions and estimated transaction costs. The As Further Adjusted column
gives effect to: (i) the sale by the Company of 10,000,000 shares of Common
Stock in the Offerings at an assumed public offering price of $33.125 per
share and the anticipated application of the net proceeds thereof to the
reduction of amounts outstanding under the Committed Credit Facilities; (ii)
the sale by the Company of the Notes and the anticipated application of the
net proceeds thereof to the reduction of amounts outstanding under the
Committed Credit Facilities; and (iii) the conversion of the Company's $60.0
million aggregate principal amount of 5% Convertible Subordinated Debentures
due 2000 into 4,390,000 shares of Common Stock.
The pro forma data is based on the historical combined statements of the
Company, WSMG, PED, WaterPro and USG giving effect to such acquisitions under
the purchase method of accounting and the assumptions and adjustments (which
the Company believes to be reasonable) described in the accompanying Notes to
Unaudited Pro Forma Combined Financial Information. Under the purchase method
of accounting, assets acquired and liabilities assumed will be recorded at
their estimated fair value at the date of acquisition. The pro forma
adjustments set forth in the following Unaudited Pro Forma Combined Financial
Information are estimated and may differ from the actual adjustments when they
become known; however, no material differences are anticipated.
The historical financial statements of PED were prepared in accordance with
UK GAAP, which differs in certain respects from US GAAP. The historical PED
financial statements included in the Unaudited Pro Forma Combined Financial
Information have been restated to reflect PED's financial position and results
of operations in accordance with US GAAP.
The following Unaudited Pro Forma Combined Financial Information does not
reflect certain cost savings that management believes may be realized
following the acquisitions. These savings are expected to be realized
primarily through rationalization of operations and implementation of strict
cost controls and standardized operating procedures. Additionally, the Company
believes the acquisitions will enable it to continue to achieve economies of
scale, such as enhanced purchasing power and increased asset utilization.
There can be no assurance that the acquisitions of WSMG or PED will be
consummated.
The pro forma data is provided for comparative purposes only. It does not
purport to be indicative of the results that actually would have occurred if
the acquisitions of WSMG, PED, WaterPro and USG had been consummated on the
dates indicated or that may be obtained in the future. The Unaudited Pro Forma
Combined Financial Information should be read in conjunction with the notes
thereto, the audited financial statements of WSMG, PED and WaterPro and the
notes thereto, included elsewhere herein, and the Company's Consolidated
Financial Statements and Notes thereto, included elsewhere herein.
19
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
----------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA
-------------------------------------------- ------------------------------------------------
ADJUSTMENTS
INCREASE AS AS FURTHER
COMPANY USG WATERPRO WSMG PED (DECREASE) NOTES ADJUSTED ADJUSTED NOTES
-------- ------- -------- -------- --------- ----------- ------ ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.............. $ 19,488 $ 280 $ -- $ 12,619 $ 2,055 $ 34,442 $ 34,442
Short-term
investments...... 816 -- -- -- 1,275 2,091 2,091
Accounts
receivable, net.. 213,594 25,622 70,751 93,325 166,042 569,334 569,334
Cost and estimated
earnings in
excess of
billings on
uncompleted
contracts........ 52,802 -- -- 19,785 -- 72,587 72,587
Inventories....... 88,230 15,812 26,448 41,622 51,127 223,239 223,239
Prepaid expenses.. 11,981 -- 292 -- -- 12,273 12,273
Deferred taxes.... 7,771 -- -- -- -- 7,771 7,771
Other current
assets........... 9,614 417 -- 3,790 -- 13,821 13,821
-------- ------- -------- -------- --------- ---------- ----------
Total current
assets......... 404,296 42,131 97,491 171,141 220,499 935,558 935,558
-------- ------- -------- -------- --------- ---------- ----------
Property, plant and
equipment, net.... 178,362 2,686 5,062 55,752 31,420 273,282 273,282
Investment in
leasehold
interests, net.... 27,057 -- -- -- -- 27,057 27,057
Costs in excess of
net assets of
businesses
acquired, net..... 276,627 -- 13,968 155,578 -- $ 263,091 a(ii) 709,264 709,264
Other assets....... 50,317 736 -- 4,044 1,974 5,250 a(i) 62,321 67,471 a(v)
-------- ------- -------- -------- --------- ---------- ----------
Total assets.... $936,659 $45,553 $116,521 $386,515 $ 253,893 $2,007,482 $2,012,632
======== ======= ======== ======== ========= ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
liabilities:
Accounts payable.. $101,329 $16,113 $ 35,439 $ 53,338 $ 82,467 $ 288,686 $ 288,686
Accrued
liabilities...... 102,000 3,491 11,341 43,822 31,375 192,029 192,029
Current portion of
long-term debt... 1,386 -- -- -- 91,276 $ (91,276) a(iii) 1,386 1,386
Revolving credit
line with parent. -- -- 58,679 -- -- (58,679) a(iii) -- --
Billings in excess
of costs and
estimated
earnings on
uncompleted
contracts........ 19,631 -- -- 18,911 -- 38,542 38,542
Other current
liabilities...... 11,344 332 -- -- 806 12,482 12,482
-------- ------- -------- -------- --------- ---------- ----------
Total current
liabilities.... 235,690 19,936 105,459 116,071 205,924 533,125 533,125
-------- ------- -------- -------- --------- ---------- ----------
Notes payable...... 81,156 16,025 -- -- -- 541,040 a(i) 638,221 125,293 a(vi)
Long-term debt,
excluding current
portion........... 7,617 3,450 -- -- -- 11,067 11,067
Convertible
subordinated debt. 193,565 -- -- -- -- 193,565 340,000 a(vii)
Loan payable-
parent............ -- -- -- -- 225,704 (225,704) a(iii) -- --
Deferred taxes..... 1,223 -- 151 -- -- 1,374 1,374
Other liabilities.. 17,405 -- -- 13,962 37,481 68,848 68,848
-------- ------- -------- -------- --------- ---------- ----------
Total
liabilities.... 536,656 39,411 105,610 130,033 469,109 1,446,200 1,079,707
-------- ------- -------- -------- --------- ---------- ----------
Shareholders'
equity:
Common stock...... 493 2,553 1 -- -- (2,502) a(iv) 545 689 a(viii)
Additional paid-in
capital.......... 370,625 149 4,999 254,400 17,168 (115,489) a(iv) 531,852 903,351 a(viii)
Translation
adjustment....... 2,691 -- -- 2,082 -- (2,082) a(iv) 2,691 2,691
Retained earnings
(accumulated
deficit)......... 26,194 3,440 5,911 -- (232,384) 223,033 a(iv) 26,194 26,194
-------- ------- -------- -------- --------- ---------- ----------
Total
shareholders'
equity......... 400,003 6,142 10,911 256,482 (215,216) 561,282 932,925
-------- ------- -------- -------- --------- ---------- ----------
$936,659 $45,553 $116,521 $386,515 $ 253,893 $2,007,482 $2,012,632
======== ======= ======== ======== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma combined
financial information.
20
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, 1996
-------------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA
----------------------------------------------- ------------------------------------------------
ADJUSTMENTS
INCREASE AS AS FURTHER
COMPANY USG WATERPRO WSMG PED (DECREASE) NOTES ADJUSTED ADJUSTED NOTES
-------- -------- -------- -------- -------- ----------- ----- ---------- ---------- -----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $727,903 $156,838 $234,391 $452,134 $267,358 $1,838,624 $1,838,624
Cost of sales........... 538,573 130,432 195,258 361,462 189,529 1,415,254 1,415,254
-------- -------- -------- -------- -------- ---------- ----------
Gross profit........... 189,330 26,406 39,133 90,672 77,829 423,370 423,370
Selling, general and
administrative
expenses............... 148,683 21,821 32,767 68,170 66,903 $ 6,577 b(i) 344,921 344,921
Restructuring expense... -- -- -- -- 9,260 9,260 9,260
-------- -------- -------- -------- -------- ---------- ----------
Operating income....... 40,647 4,585 6,366 22,502 1,666 69,189 69,189
-------- -------- -------- -------- -------- ---------- ----------
Other income (expense):
Interest expense....... (14,419) (2,227) (3,593) -- (19,865) (17,120) b(ii) (57,224) (25,754) b(iii)
Other.................. 5,134 (582) 657 4,767 -- 9,976 9,976
-------- -------- -------- -------- -------- ---------- ----------
(9,285) (2,809) (2,936) 4,767 (19,865) (47,248) (15,778)
-------- -------- -------- -------- -------- ---------- ----------
Income (loss) before
income taxes.......... 31,362 1,776 3,430 27,269 (18,199) 21,941 53,410
Provision (benefit) for
income taxes........... 12,055 727 1,477 10,908 2,165 (18,995) b(iv) 8,337 20,296 b(v)
-------- -------- -------- -------- -------- ---------- ----------
Net income (loss)...... $ 19,307 $ 1,049 $ 1,953 $ 16,361 $(20,364) $ 13,603 $ 33,114 c
======== ======== ======== ======== ======== ========== ==========
Net income per common
share................. $ 0.45 $ 0.28 $ 0.53 c
======== ========== ==========
Weighted average number
of common shares
outstanding............ 42,159 47,400 61,790
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma combined
financial information.
21
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA
---------------------------------------------- ------------------------------------------------
ADJUSTMENTS
INCREASE AS AS FURTHER
COMPANY USG WATERPRO WSMG PED (DECREASE) NOTES ADJUSTED ADJUSTED NOTES
-------- ------- -------- -------- -------- ----------- ----- ---------- ---------- ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $433,719 $85,899 $185,199 $218,973 $130,407 $1,054,197 $1,054,197
Cost of sales........... 315,398 70,011 151,238 171,673 92,728 801,048 801,048
-------- ------- -------- -------- -------- ---------- ----------
Gross profit........... 118,321 15,888 33,961 47,300 37,679 253,149 253,149
Selling, general and
administrative
expenses............... 86,140 13,595 24,689 32,854 32,270 $ 3,289 b(i) 192,837 192,837
Merger and restructuring
expenses................ 5,581 -- -- -- 1,992 7,573 7,573
-------- ------- -------- -------- -------- ---------- ----------
Operating income....... 26,600 2,293 9,272 14,446 3,417 52,739 52,739
-------- ------- -------- -------- -------- ---------- ----------
Other income (expense):
Interest expense....... (7,972) (932) (2,433) -- (9,469) (8,387) b(ii) (29,193) (13,458) b(iii)
Other.................. 1,004 411 358 439 -- 2,212 2,212
-------- ------- -------- -------- -------- ---------- ----------
(6,968) (521) (2,075) 439 (9,469) (26,981) (11,246)
-------- ------- -------- -------- -------- ---------- ----------
Income (loss) before
income taxes.......... 19,632 1,772 7,197 14,885 (6,052) 25,758 41,493
Provision (benefit) for
income taxes........... 5,404 711 2,829 5,954 (310) (4,800) b(iv) 9,788 15,767 b(v)
-------- ------- -------- -------- -------- ---------- ----------
Net income (loss)...... $ 14,228 $ 1,061 $ 4,368 $ 8,931 $ (5,742) $ 15,970 $ 25,726 c
======== ======= ======== ======== ======== ========== ==========
Net income per common
share................. $ 0.28 $ 0.29 $ 0.37 c
======== ========== ==========
Weighted average number
of common shares
outstanding........... 50,629 55,870 70,260
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma combined
financial information.
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
a. The Pro Forma Combined Balance Sheet has been prepared to reflect the
acquisitions by the Company of USG and WaterPro and the pending
acquisitions of WSMG and PED for aggregate estimated equity purchase prices
comprised of the following:
<TABLE>
<CAPTION>
EQUITY
FORM OF PURCHASE
COMPANY CONSIDERATION PRICE
------- ------------- -----------
(in thousands)
<S> <C> <C> <C>
USG................................... Common Stock $ 22,000
WaterPro.............................. Common Stock 38,600
WSMG.................................. Cash 369,600
PED................................... Cash $160,090
.................................... Common Stock 42,000 202,090
--------
Estimated transaction costs........... 6,100
---------
$ 638,390
=========
</TABLE>
In addition to the purchase prices described above, the Company assumed
long-term indebtedness of approximately $22,000,000 ($19,475,000 at
September 30, 1996) and $67,935,000 ($58,679,000 at September 30, 1996) in
connection with the acquisitions of USG and WaterPro, respectively. The
$67,935,000 of indebtedness related to WaterPro was repaid with shares of
Common Stock concurrently with the closing of such acquisition.
The cash portion of the purchase price for PED is approximately
(Pounds)100,500,000. The Company has entered into a forward contract pursuant
to which it has the obligation to purchase (Pounds)100,000,000 for
approximately $159,250,000 at any time between December 16, 1996 and February
14, 1997. The remaining (Pounds)500,000 cash portion of the consideration and
the (Pounds)25,000,000 in shares of Common Stock are based on exchange rates
for British pounds sterling as of November 20, 1996. The estimated shares of
Common Stock to be issued is also based on an assumed price per share of
$33.125, the closing price of the Common Stock on the New York Stock Exchange
on November 20, 1996.
The estimated net book value, as adjusted, of USG, WaterPro, WSMG and PED
and the estimated fair value of their net assets as of the closing date are
assumed to be $6,142,000, $10,911,000, $256,482,000 and $101,764,000,
respectively. PED's estimated fair value of net assets excludes the net loan
payable of PED to its parent company of $316,980,000, which will be
contributed to PED's shareholders' equity (negative $215,216,000 at
September 30, 1996) by such parent company. The aggregate difference between
the estimated equity purchase prices and the estimated fair values of the
identified net assets of USG, WaterPro, WSMG and PED is approximately
$263,091,000, which has been recorded as costs in excess of net assets of
businesses acquired attributable to such acquisitions in the accompanying Pro
Forma Combined Balance Sheet.
The Pro Forma Combined Balance Sheet has been adjusted to reflect the above
as follows:
(i) To record the assumed incurrence of $541,040,000 of indebtedness under
the Committed Credit Facilities with an assumed effective interest rate
of 7.50%. The incurrence of such additional indebtedness includes:
(i) the cash consideration for the acquisition of WSMG of $369,600,000;
(ii) the cash portion of the consideration for the acquisition of PED
of $160,090,000; (iii) estimated transaction costs of $6,100,000; and
(iv) estimated bank commitment fees of $5,250,000. The Company intends
to retire a portion of such debt with the net proceeds of the Offerings
and the Notes Offering or, if completion of the Offerings and the Notes
Offering occurs prior to the completion of the acquisitions of WSMG and
PED, to use such proceeds directly to acquire WSMG and PED. See "Use of
Proceeds."
23
<PAGE>
(ii) To adjust goodwill for the difference between the estimated equity
purchase prices and the estimated fair values of the identified net
assets acquired. The adjustment is calculated as follows: (in
thousands)
<TABLE>
<S> <C>
Aggregate estimated equity purchase prices..................... $638,390
Aggregate estimated fair value of identified net assets
acquired...................................................... 375,299
--------
Adjustment................................................. $263,091
========
</TABLE>
(iii) To eliminate: (i) the net loan payable of WaterPro of $58,679,000 to
its parent company, which will be repaid by the Company with Common
Stock; and (ii) the net loan payable of PED of $316,980,000 to its
parent company, which will be contributed to PED's equity by such
parent company.
(iv) To eliminate the equity of USG, WaterPro, WSMG and PED and record the
issuance of Common Stock for the stock portion of the consideration
for the acquisitions of USG (771,157 shares), WaterPro (3,201,507
shares) and PED (1,267,925 shares).
<TABLE>
<CAPTION>
ELIMINATE ISSUANCE
EQUITY OF EQUITY ADJUSTMENT
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Common Stock............................ $ (2,554) $ 52 $ (2,502)
Additional paid-in capital.............. (276,716) 161,227 (115,489)
Translation adjustment.................. (2,082) -- (2,082)
Retained earnings (accumulated deficit). 223,033 -- 223,033
</TABLE>
(v) To record the incurrence of approximately $5,150,000 of capitalized
costs related to the Notes Offering.
(vi) To record the assumed reduction of $512,928,000 of indebtedness under
the Committed Credit Facilities with the estimated net proceeds of
$318,078,000 from the Offerings and $194,850,000 from the Notes
Offering. See "Use of Proceeds."
(vii) To record: (i) the issuance of $200,000,000 of convertible
subordinated debt in the Notes Offering; and (ii) the conversion of
$60,000,000 aggregate principal amount of 5% Convertible Subordinated
Debt due 2000 into 4,390,000 shares of Common Stock.
(viii) To record: (i) the conversion of the Company's $60,000,000 aggregate
principal amount of 5% Convertible Subordinated Debentures due 2000
into 4,390,000 shares of Common Stock and; (ii) the assumed issuance
of 10,000,000 shares of Common Stock in the Offerings. Adjustments
are calculated as follows:
<TABLE>
<CAPTION>
CONVERSION OF
5% CONVERTIBLE
SUBORDINATED
DEBENTURES OFFERINGS ADJUSTMENT
-------------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Common Stock......................... $ 44 $ 100 $ 144
Additional paid-in capital........... 53,521 317,978 371,499
</TABLE>
24
<PAGE>
b. For the fiscal year ended March 31, 1996, the historical results of
operations of USG, WaterPro and WSMG reflect their results of operations
for the twelve months ended December 31, 1995 and reflect the results of
operations of PED and the Company for the year ended March 31, 1996. The
historical results of operations for the six months ended September 30,
1996 combines the results of each of the Company, WSMG, PED, WaterPro and
USG for such six-month period.
The Pro Forma Combined Statements of Operations gives effect to the
following adjustments:
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
ENDED ENDED
MARCH 31, 1996 SEPTEMBER 30, 1996
-------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
(i) To adjust selling, general and
administrative expenses to
reflect the goodwill amortization
from the acquisitions of WSMG,
PED, WaterPro and USG, with such
goodwill of approximately
$263,091,000 amortized over 40
years. $ 6,577 $ 3,289
======== =======
(ii) To adjust interest expense related
to the indebtedness of
approximately $541,040,000 to be
incurred to finance the
acquisitions of WSMG and PED, net
of historical interest expense
recorded by WaterPro and PED on
parent company debt. WaterPro and
PED incurred interest on such
parent company debt at the prime
rate and approximately 11%,
respectively, and incurred
interest expense of $3,593,000
and $19,865,000, respectively,
for the fiscal year ended March
31, 1996, and $2,433,000 and
$9,469,000, respectively, for the
six months ended September 30,
1996, which interest expense has
been eliminated because such debt
would not have been in existence
at the beginning of such periods.
Interest on the indebtedness
under the Committed Credit
Facilities is assumed to be at an
effective rate of 7.50% per
annum. The Company, however,
intends to retire a portion of
such debt with the net proceeds
of the Offerings and the Notes
Offering or, if completion of the
Offerings and the Notes Offering
occurs prior to the completion of
the acquisitions of WSMG and PED,
to use such net proceeds directly
to acquire WSMG and PED. See "Use
of Proceeds."
The assumed effective interest
rate of 7.50% on the Committed
Credit Facilities is subject to
variability. A 0.125%
increase/decrease in the assumed
effective interest rate
incrementally decreases/increases
As Adjusted net income by
$419,000 and $210,000 for the
year ended March 31, 1996 and six
months ended September 30, 1996,
respectively, and As Further
Adjusted net income by $22,000
and $11,000 for the year ended
March 31, 1996 and the six months
ended September 30, 1996,
respectively. $(17,120) $(8,387)
======== =======
(iii) The As Further Adjusted column
presented gives effect to the
Offerings and the Notes Offering
and the anticipated application
of the net proceeds therefrom,
which results in a reduction in
interest expense of $28,470,000
and $14,235,000 for the fiscal
year ended March 31, 1996 and the
six months ended September 30,
1996, respectively. See "Use of
Proceeds." The As Further
Adjusted column also gives effect
to the conversion of $60,000,000
aggregate principal amount 5%
Convertible Subordinated
Debentures due 2000 to Common
Stock which results in a
reduction in interest expense of
$3,000,000 and $1,500,000 for the
fiscal year ended March 31, 1996
and the six months ended
September 30, 1996, respectively,
and a resulting increase of
4,390,000 in shares of Common
Stock outstanding. $ 31,470 $15,735
======== =======
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
ENDED ENDED
MARCH 31, 1996 SEPTEMBER 30, 1996
-------------- ------------------
<S> <C> <C>
(IN THOUSANDS)
(iv) To adjust the provision for income
taxes to reflect the combined
results of operations assuming a
combined tax rate of 38%. $(18,995) $(4,800)
======== =======
(v) To adjust the provision for income
taxes to reflect the combined
results of operations assuming a
combined tax rate of 38%. $ 11,959 $ 5,979
======== =======
</TABLE>
c. During the fiscal year ended March 31, 1996 and the six months ended
September 30, 1996, PED incurred significant restructuring charges relating
to the plant closure and relocation of the operations of Wallace & Tiernan,
Inc., a subsidiary, from Belleville, N.J., to Vineland, N.J. These
restructuring charges totaled $9,260,000 and $1,992,000 for the fiscal year
ended March 31, 1996 and the six months ended September 30, 1996,
respectively. The Company believes that the restructuring and relocation
will be completed prior to the acquisition of PED by the Company. The terms
of the Stock Purchase Agreement between the Company and the United Utilities
PLC provides that the Company will assume no ownership interest in and no
liability associated with the Belleville, N.J. facility. Excluding the
effects of these charges, net income and net income per common share for the
fiscal year ended March 31, 1996 and the six months ended September 30, 1996
would have been:
<TABLE>
<CAPTION>
AS AS FURTHER
ADJUSTED ADJUSTED
-------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Fiscal Year Ended March 31, 1996:
Net income............................................. $19,344 $38,856
Net income per common share............................ $ 0.40 $ 0.62
Six Months Ended September 30, 1996:
Net income............................................. $17,205 $26,961
Net income per common share............................ $ 0.31 $ 0.38
</TABLE>
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data as of and for the fiscal years
ended March 31, 1994, 1995 and 1996 are derived from the Consolidated
Financial Statements and Notes thereto of the Company, which are included
elsewhere herein. The financial data as of and for the six months ended
September 30, 1995 and 1996 are derived from unaudited consolidated financial
statements of the Company, which, in the opinion of the Company, reflect all
adjustments (consisting principally of normal, recurring accruals) necessary
for the fair statement of the financial position and results of operations for
the periods presented and are not necessarily indicative of the results for
any other interim period or for the full fiscal year. Historical consolidated
financial data for the fiscal years ended March 31, 1994, 1995 and 1996 and
the six months ended September 30, 1995 have been restated to reflect the
acquisitions in May 1996 and August 1996 of Zimpro and Davis, respectively,
which acquisitions have been accounted for as poolings of interests. The data
presented below are qualified in their entirety by and should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31,(1) SEPTEMBER 30,(1)
------------------------------ ------------------
1994(2) 1995(3) 1996(4)(5) 1995 1996(9)
-------- -------- ---------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................................... $412,512 $519,359 $727,903 $332,099 $433,719
Cost of sales...................................................... 326,848 398,755 538,573 247,093 315,398
-------- -------- -------- -------- --------
Gross profit....................................................... 85,664 120,604 189,330 85,006 118,321
Selling, general and administrative expenses....................... 90,719 97,481 148,683 64,368 86,140
Merger expenses.................................................... -- -- -- -- 5,581
-------- -------- -------- -------- --------
Operating income (loss)............................................ (5,055) 23,123 40,647 20,638 26,600
Interest expense................................................... (4,044) (7,514) (14,419) (6,548) (7,972)
Other income (expense)............................................. (7,382) 1,442 5,134 1,363 1,004
-------- -------- -------- -------- --------
Income (loss) before taxes......................................... (16,481) 17,051 31,362 15,453 19,632
Provision (benefit) for income taxes............................... (7,087) 4,812 12,055 4,743 5,404
-------- -------- -------- -------- --------
Net income (loss).................................................. $ (9,394) $ 12,239 $ 19,307 $ 10,710 $ 14,228
======== ======== ======== ======== ========
Net income (loss) per common share(6).............................. $ (0.42) $ 0.41 $ 0.45 $ 0.27 $ 0.28
======== ======== ======== ======== ========
Weighted average number of common shares outstanding............... 23,934 28,235 42,159 37,911 50,629
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................................................... $ 97,855 $113,972 $123,757 $223,856 $168,606
Total assets....................................................... 357,354 482,723 876,505 729,551 936,659
Notes payable and long-term debt, including current portion........ 29,758 57,116 53,436 29,545 90,159
Convertible subordinated debt...................................... 60,000 105,000 200,000 200,000 193,565
Shareholders' equity............................................... 152,021 166,878 368,501 325,552 400,003
OTHER DATA:
EBITDA(7).......................................................... $ 6,237 $ 39,777 $ 67,227 $ 32,238 $ 47,109
Cash provided by (used in)
Operating activities............................................. (6,523) 3,269 (342) (13,014) (1,972)
Investing activities............................................. (40,176) (12,857) (225,731) (123,392) (37,822)
Financing activities............................................. 59,384 9,391 224,458 206,787 40,877
Ratio of earnings to fixed charges(8).............................. -- 2.5x 2.5x 2.8x 3.0x
Net income (loss) before Davis and Zimpro acquisitions............. $ (2,541) $ 8,331 $ 20,290 $ 7,868 $ 14,228
Net income (loss) per common share before Davis and Zimpro
acquisitions(6)................................................... $ (0.17) $ 0.34 $ 0.54 $ 0.23 -
</TABLE>
27
<PAGE>
The historical consolidated financial data for the fiscal years ended March
31, 1994, 1995 and 1996 and for the six months ended September 30, 1995 have
been restated to include the accounts and operations of Zimpro and Davis,
which were merged with the Company in May 1996 and August 1996, respectively,
and accounted for as poolings of interests. Separate results of operations for
each of the Company, Davis and Zimpro for the years ended March 31, 1994, 1995
and 1996 and the six months ended September 30, 1995 are presented below.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31,(1) SEPTEMBER 30,(1)
----------------------------- -----------------
1994(2) 1995(3) 1996(4)(5) 1995 1996(9)
-------- -------- ---------- -------- --------
(UNAUDITED)
REVENUES: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Company (as previously
reported).................... $180,421 $272,032 $472,537 $199,847 $433,719
Davis......................... 202,621 215,649 226,489 118,550 --
Zimpro........................ 29,470 31,678 28,877 13,702 --
-------- -------- -------- -------- --------
Combined.................... $412,512 $519,359 $727,903 $332,099 $433,719
======== ======== ======== ======== ========
OPERATING INCOME (LOSS):
Company (as previously
reported).................... $ (4,874) $ 14,585 $ 34,955 $ 14,760 $ 26,600
Davis......................... 1,506 7,512 10,892 5,497 --
Zimpro........................ (1,687) 1,026 (5,200) 381 --
-------- -------- -------- -------- --------
Combined.................... $ (5,055) $ 23,123 $ 40,647 $ 20,638 $ 26,600
======== ======== ======== ======== ========
NET INCOME (LOSS):
Company (as previously
reported).................... $ (2,541) $ 8,331 $ 20,290 $ 7,868 $ 14,228
Davis......................... (5,340) 3,448 5,749 2,978 --
Zimpro........................ (1,513) 460 (6,732) (136) --
-------- -------- -------- -------- --------
Combined.................... $ (9,394) $ 12,239 $ 19,307 $ 10,710 $ 14,228
======== ======== ======== ======== ========
NET INCOME (LOSS) PER COMMON
SHARE:(6)
As previously reported........ $ (0.17) $ 0.34 $ 0.54 $ 0.23 $ --
As restated................... (0.42) 0.41 0.45 0.27 0.28
</TABLE>
- -------------------
(1) The historical consolidated financial data for the fiscal years ended
March 31, 1994, 1995 and 1996 and for the six months ended September 30,
1995 have been restated to include the accounts and operations of Zimpro
and Davis, which were merged with the Company in May 1996 and August 1996,
respectively, and accounted for as poolings of interests. The historical
consolidated financial data for the six months ended September 30, 1996
include the operations of Zimpro and have been restated to include the
accounts and operations of Davis.
(2) The fiscal year ended March 31, 1994 includes four months of results of
Ionpure Technologies Corporation and IP Holding Company ("Ionpure"),
acquired December 1, 1993 and accounted for as a purchase. Selling,
general and administrative expenses for the year ended March 31, 1994
reflect four months of integration of Ionpure, certain charges totalling
$2,359,000 related to the rationalization of certain wastewater operations
and write-off of certain intangibles in the Company's Continental Penfield
subsidiary totalling $3,738,000. In addition, the year ended March 31,
1994 includes a charge of $8,895,000 to reflect a plan to shutdown and
reorganize certain operations of Davis.
(3) The fiscal year ended March 31, 1995 includes the results of operations of
Smogless S.p.A., Crouzat S.A., Sation S.A., Seral Erich Alhauser GmbH and
the Ceraflo ceramic product line from the dates of their respective
acquisitions, accounted for as purchases. See Note 9 of Notes to
Consolidated Financial Statements.
(4) The fiscal year ended March 31, 1996 includes the results of operations of
The Permutit Company Limited and The Permutit Company Pty Ltd., Interlake
Water Systems, Arrowhead Industrial Water, Inc. and Polymetrics, Inc. from
the dates of their respective acquisitions, accounted for as purchases.
See Note 9 of Notes to Consolidated Financial Statements.
(5) Selling, general and administrative expenses for the year ended March 31,
1996 includes charges totalling $3,193,000 related to the write-down of
certain patents and equipment of Zimpro.
(6) Net income (loss) per common share amounts are after dividends on the
Series A Preferred Stock of $701,000 for the fiscal year ended March 31,
1994, $715,000 for the fiscal year ended March 31, 1995 and $537,000 for
the fiscal year ended March 31, 1996. The Series A Preferred Stock was
converted into shares of Common Stock in March 1996.
(7) "EBITDA" consists of operating income plus depreciation and amortization.
EBITDA data is presented because such data is used by certain investors to
determine the Company's ability to meet debt service requirements. The
Company considers EBITDA to be an indicative measure of the Company's
operating performance. However, such information should not be considered
as an alternative to net income, operating profit, cash flows from
operations, or any other operating or liquidity performance measure
prescribed by generally accepted accounting principles. The EBITDA measure
presented by the Company may not be comparable to similarly titled
measures by other companies.
(8) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income before provision for income
taxes, plus fixed charges) by fixed charges. Fixed charges consist of
interest expense (including amortization of deferred financing costs) and
the portion of rental expense that is representative of the interest
factor (deemed by the Company to be one-third). Fixed charges exceeded
earnings before fixed charges by $7,693,000 and $9,099,000 for the years
ended March 31, 1992 and March 31, 1994, respectively. The ratio of
earnings charges to fixed charges was 1.0x for the year ended March 31,
1993.
(9) The six months ended September 30, 1996 includes merger expenses of
$5,581,000, related to the acquisition of Davis, which was accounted for
as a pooling of interests.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.
GENERAL
The Company's strategy is to offer a single-source solution to industrial
and municipal customers through what the Company believes is the industry's
broadest range of cost-effective systems, products, services and proven
technologies. Accordingly, since July 1991, the Company has acquired and
integrated more than 45 businesses with substantial expertise in the design
and manufacture of systems for the filtration and treatment of water and
wastewater. Due to the magnitude of these acquisitions and the integration of
the acquired operations with the Company's existing businesses, results of
operations for prior periods are not necessarily comparable to or indicative
of results of operations for current or future periods.
RESULTS OF OPERATIONS
In May and August 1996, the Company merged with Zimpro and Davis,
respectively, in transactions accounted for as poolings of interests.
Historical consolidated financial data for the fiscal years ended March 31,
1994 through March 31, 1996 and the six months ended September 30, 1995 have
been restated to reflect the acquisitions in May 1996 and August 1996 of
Zimpro and Davis, respectively, which acquisitions have been accounted for as
poolings of interests. Historical financial data for the six months ended
September 30, 1996 have been restated to reflect the operations of Davis.
The following table sets forth for the periods indicated certain Selected
Consolidated Financial Data as a percentage of total revenues.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER
MARCH 31, 30,
-------------------- ------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues................................... 100.0 % 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................. 79.2 76.8 74.0 74.4 72.7
----- ----- ----- ----- -----
Gross profit............................... 20.8 23.2 26.0 25.6 27.3
Selling, general and administrative
expenses.................................. 22.0 18.8 20.4 19.4 19.9
Merger expense............................. -- -- -- -- 1.3
----- ----- ----- ----- -----
Operating income (loss).................... (1.2) 4.5 5.6 6.2 6.1
Interest expense........................... 1.0 1.4 2.0 2.0 1.8
Net income (loss).......................... (2.3) 2.4 2.7 3.2 3.3
</TABLE>
The following table sets forth, as a percentage of the Company's total
revenues, each of the Company's product categories by revenue for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER
MARCH 31, 30,
--------------------- -------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues by product category:
Capital equipment.................... 41% 42% 39% 39% 39%
Services and operations.............. 9 9 20 22 22
Distribution......................... 37 33 25 21 21
Replacement parts, consumables and
other............................... 13 16 16 17 18
</TABLE>
29
<PAGE>
SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH SIX MONTHS ENDED SEPTEMBER
30, 1995
REVENUES
Revenues for the six months ended September 30, 1996 were $433,719,000, an
increase of $101,620,000 from $332,099,000 for the comparable period of the
prior fiscal year. This 30.6% increase was due primarily to acquisitions
completed by the Company after September 30, 1995. For the six months ended
September 30, 1996, revenues from capital equipment sales represented 39% of
total revenues, while revenues from services and operations represented 22% of
total revenues, revenues from distribution represented 21% of total revenues
and revenues from replacement parts and consumables represented 18% of total
revenues.
GROSS PROFIT
Gross profit increased 39.2% to $118,321,000 for the six months ended
September 30, 1996 from $85,006,000 for the comparable period of the prior
fiscal year. Total gross profit as a percentage of revenue ("gross margin")
increased to 27.3% for the six months ended September 30, 1996, compared to
25.6% for the comparable period of the prior fiscal year. The increase in
gross margin for the six months ended September 30, 1996 was due to: (i) a
continued strengthening of gross margin in the recurring and higher margin
service-based revenue business and (ii) rationalization of operations and
increased economies of scale from the integration of acquisitions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
For the six months ended September 30, 1996, selling, general and
administrative expenses, excluding merger expenses, increased $21,772,000 to
$86,140,000 as compared to the $64,368,000 in the comparable period in the
prior year. During this period, selling, general and administrative expenses,
excluding merger expenses, were 19.9% of revenues compared to 19.4% for the
comparable period in the prior year.This increase was primarily due to the
addition of sales and administrative personnel accompanying the Company's
recent acquisitions.
Excluding merger expenses, operating income as a percentage of revenues
increased to 7.4% for the six months ended September 30, 1996 from 6.2% for
the corresponding period in fiscal 1995 due primarily to improvement in gross
margin.
MERGER EXPENSES
Merger expenses were incurred during the six months ended September 30, 1996
relating to the Company's acquisition of Davis which was accounted for as a
pooling of interests. These merger expenses, which totaled $5,581,000,
consisted primarily of investment banking fees, printing, stock transfer fees,
legal fees, accounting fees, governmental filing fees and certain other costs
related to existing Davis pension plans and change of control payments.
INTEREST EXPENSE
Interest expense increased to $7,972,000 for the six months ended September
30, 1996 from $6,548,000 for the corresponding period in the prior year.
Interest expense for the six months ended September 30, 1996 consisted
primarily of interest on the Company's: (i) 5% Convertible Subordinated
Debentures due 2000 (all of which have been, as of October 25, 1996, converted
into shares of Common Stock); (ii) 6% Convertible Subordinated Notes issued on
September 18, 1995 due 2005; and (iii) borrowings under the Company's bank
line of credit. At September 30, 1996, the Company had cash and short-term
investments of $20,304,000.
INCOME TAX EXPENSE
Income tax expense increased to $5,404,000 in the six months ended September
30, 1996, from $4,743,000 in the corresponding period in the prior year. The
Company's effective tax rate for the six months ended September 30, 1996 was
27.5% as compared to 30.7% in the corresponding period in the prior year.
30
<PAGE>
NET INCOME
For the six months ended September 30, 1996, net income increased $3,518,000
to $14,228,000 from $10,710,000 for the same period in the prior year.
Excluding Davis merger expenses, net income for the six months ended September
30, 1996 totaled $18,279,000, an increase of 70.6% over the same period in the
prior year. Net income per common share for the six months ended September 30,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
-------- --------
<S> <C> <C>
Before merger expenses................................. $ 0.36 $ 0.27
After merger expenses.................................. $ 0.28 $ 0.27
</TABLE>
TWELVE MONTHS ENDED MARCH 31, 1996 COMPARED WITH TWELVE MONTHS ENDED MARCH 31,
1995
REVENUES
Revenues for fiscal 1996 were $727,903,000, an increase of $208,544,000 from
$519,359,000 for fiscal 1995. This 40.2% increase was due primarily to
acquisitions completed by the Company in fiscal 1995 and 1996. See Note 9 of
Notes to Consolidated Financial Statements related to acquisitions.
GROSS PROFIT
Gross profit increased 57.0% to $189,330,000 for fiscal 1996 from
$120,604,000 for fiscal 1995. Gross margin increased to 26.0% for fiscal 1996
as compared to 23.2% for fiscal 1995. The increase in gross margin through
fiscal 1996 was due to: (i) a continued strengthening of gross margin in the
recurring and higher margin service-based revenue business;
(ii) rationalization of operations and economies of scale from the integration
of acquisitions; and (iii) a focus on products with higher gross margins in
Davis' distribution business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $148,683,000 for
fiscal 1996 from $97,481,000 for fiscal 1995. This increase was primarily due
to the addition of sales and administrative personnel accompanying the
Company's recent acquisitions. As a percentage of revenues, selling, general
and administrative expenses were 20.4% for fiscal 1996, as compared to 18.8%
for fiscal 1995. This increase was due primarily to a write-down of certain
patents and equipment totalling $3,193,000 at the Company's Zimpro subsidiary
and, to a lesser extent, increased levels of incentive compensation earned by
management and employees of Davis as compared to fiscal 1995.
Notwithstanding the increase in selling, general and administrative expenses
as a percentage of revenues, operating income as a percentage of revenues
increased from 4.5% for fiscal 1995 to 5.6% for fiscal 1996 due primarily to
improvement in gross margin.
INTEREST EXPENSE
Interest expense increased to $14,419,000 for fiscal 1996 from $7,514,000
for fiscal 1995. Interest expense for fiscal 1996 consisted primarily of
interest on the Company's 5% Convertible Subordinated Debentures due 2000
issued October 20, 1993 and approximately seven months of interest on the
Company's 6% Convertible Subordinated Notes due 2005 issued September 18,
1995, respectively, and interest on increased borrowings under the Company's
bank line of credit, which was used to finance the Company's revenue expansion
and recent acquisitions.
OTHER INCOME (EXPENSE)
Other income (expense) increased to $5,134,000 of income for fiscal 1996
from $1,442,000 of income for fiscal 1995. Other income consisted primarily of
interest income on short-term investments, which increased during fiscal 1996
primarily as a result of the Company's sale of $140,000,000 aggregate
principal amount of 6% Convertible Subordinated Notes on September 18, 1995
and the Company's issuance of 10,350,000 shares of Common Stock on May 3, 1995
with net proceeds of approximately $98,118,000.
31
<PAGE>
INCOME TAX EXPENSE
Income tax expense increased to $12,055,000 for fiscal 1996 from $4,812,000
for fiscal 1995. This increase was attributable to increased income. The
Company's effective tax rate for fiscal 1996 was 38.4% and for fiscal 1995 was
28.2%. This increase in effective rate in fiscal 1996 is due primarily to a
net loss before income taxes of $6,086,000 incurred at Zimpro (see "Selling,
General and Administrative Expenses") for which no income tax benefit was
recognized because its realization was not assured and because of the
nondeductibility of certain items. As of March 31, 1996, the Company had net
operating loss carryforwards in France of approximately $19,952,000 and other
European countries of approximately $7,338,000 for which no financial
statement benefit has been recognized. In addition, the Company had net
operating loss carryforwards generated from its Liquipure subsidiary of
approximately $14,362,000 for which financial statement benefit was recognized
in fiscal 1996. The Company also had net operating loss carryforwards
generated from Zimpro of approximately $2,905,000 for which financial
statement benefit has not been recognized. In addition, the benefit of the
French loss carryforwards must be shared equally between the Company and
Aluminum Corporation of America until March 31, 1997. See Note 14 of Notes to
Consolidated Financial Statements related to income taxes.
NET INCOME
Net income increased to $19,307,000 for fiscal 1996 from $12,239,000 for
fiscal 1995. Net income per common share increased to $0.45 per share (based
upon 42,159,000 weighted average common shares outstanding) for fiscal 1996
from $0.41 per common share (based upon 28,235,000 weighted average common
shares outstanding) for fiscal 1995, after deducting $536,000 and $715,000 for
dividends on the Company's preferred shares for fiscal 1996 and 1995,
respectively.
TWELVE MONTHS ENDED MARCH 31, 1995 COMPARED WITH TWELVE MONTHS ENDED MARCH 31,
1994
REVENUES
Revenues for fiscal 1995 were $519,359,000, an increase of $106,847,000 from
$412,512,000 for fiscal 1994. This 25.9% increase was due primarily to
acquisitions completed by the Company in fiscal 1994 and 1995. See Note 9 of
Notes to Consolidated Financial Statements related to acquisitions.
GROSS PROFIT
Gross profit increased 40.8% to $120,604,000 for fiscal 1995 from
$85,664,000 for fiscal 1994. Gross margin increased to 23.2% for fiscal 1995
as compared to 20.8% for fiscal 1994. The increase in gross margin through
fiscal 1995 was due to: (i) a continued strengthening of gross margin in the
recurring and higher margin service-based revenue business; and
(ii) rationalization of operations and economies of scale from the Company's
acquisitions. Gross margin in the Company's distribution business remained
unchanged in fiscal 1995 as compared to fiscal 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $97,481,000 for
fiscal 1995 from $90,719,000 for fiscal 1994. This increase was primarily due
to the addition of sales and administrative personnel accompanying the
Company's recent acquisitions. As a percentage of revenues, selling, general
and administrative expenses were 18.8% during fiscal 1995, as compared to
22.0% for fiscal 1994. This decrease in selling, general and administrative
expenses as a percentage of revenues for fiscal 1995 as compared to fiscal
1994 was due primarily to (i) the Company's emphasis on cost reductions and
administrative efficiencies gained through economies of scale, (ii) the write-
off of certain intangibles in the Company's Continental Penfield subsidiary
totalling $3,738,000 in fiscal 1994, (iii) the exclusion from operating
results in fiscal 1995 of a division of Davis which was shut down in fiscal
1994, and (iv) certain changes totalling $2,359,000 related to the
rationalization of certain wastewater operations. See Note 8 of Notes to
Consolidated Financial Statements related to such shutdown.
32
<PAGE>
Due primarily to the decrease in selling, general and administrative
expenses as a percentage of revenues and the improvement in gross margin,
operating income as a percentage of revenues increased from a loss of 1.2% for
fiscal 1994 to 4.5% for fiscal 1995.
INTEREST EXPENSE
Interest expense increased to $7,514,000 for fiscal 1995 from $4,044,000 for
fiscal 1994. Interest expense for fiscal 1995 consisted primarily of interest
on the Company's 5% Convertible Subordinated Debentures due 2000 issued
October 20, 1993 and interest on increased borrowings under the Company's bank
line of credit, which was used to finance the Company's revenue expansion and
recent acquisitions.
OTHER INCOME (EXPENSE)
Other income (expense) increased $8,824,000 in fiscal 1995 from an expense
of $7,382,000 in fiscal 1994 to income of $1,442,000 in fiscal 1995. During
the fourth quarter of fiscal 1994, the Company's Davis subsidiary adopted a
plan to shutdown or reorganize the operations of its wholly owned subsidiary,
The Taulman Company ("Taulman"). The pre-tax loss provision for these actions
was recorded in fiscal 1994 and included the write-off of intangible assets
totaling $2,908,000 associated with Taulman and the accrual of $5,987,000 to
provide for anticipated losses during the shutdown.
INCOME TAX EXPENSE
Income tax expense increased to $4,812,000 for fiscal 1995 from a tax
benefit of $7,087,000 for fiscal 1994. This increase was attributable to
increased income and the Company's partial recognition during fiscal 1994 of
the future income tax benefit related to federal net operating loss
carryforwards. As of March 31, 1995, the Company had net operating loss
carryforwards in France of approximately $20,351,000 and other European
countries of approximately $6,400,000 for which no financial statement benefit
had been recognized. In addition, the Company had net operating loss
carryforwards generated from its Liquipure subsidiary of approximately
$13,500,000 for which no financial statement benefit was recognized. Future
recognition of these carryforwards will be reflected if the above operations
generate sufficient earnings before the expiration periods of the loss
carryforwards. In addition, the benefit of the French loss carryforwards must
be shared equally between the Company and Aluminum Corporation of America
until March 31, 1997. See Note 14 of Notes to Consolidated Financial
Statements related to income taxes.
NET INCOME
Net income increased to $12,239,000 for fiscal 1995 from a net loss of
$9,394,000 for fiscal 1994. Net income per common share increased to $0.41 per
share (based upon 28,235,000 weighted average common shares outstanding) for
fiscal 1995 from a net loss of $0.42 per common share (based upon 23,934,000
weighted average common shares outstanding) for fiscal 1994, after deducting
$715,000 and $701,000 for dividends on the Company's preferred shares for
fiscal 1995 and 1994, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are cash and other working capital,
cash flow generated from operations and borrowings under the Company's bank
line of credit. At September 30, 1996, the Company had working capital of
$168,606,000, including cash and short-term investments of $20,304,000. The
Company's long-term debt at September 30, 1996 included $53,565,000 aggregate
principal amount of 5% Convertible Subordinated Debentures due 2000 (all of
which were converted into 4,390,000 shares of Common Stock on October 25,
1996), $140,000,000 aggregate principal amount of 6% Convertible Subordinated
Notes due 2005 and other long-term debt totalling $9,003,000 and bearing
interest at rates ranging from 2.0% to 11.5%.
Capital expenditures totaled $8,050,000, $18,304,000 and $28,392,000 for
fiscal years ended March 31, 1994, 1995 and 1996, respectively. Although the
Company has no material firm commitments for capital expenditures, capital
expenditure requirements are expected to increase as a result of the Company's
anticipated growth, including from the acquisitions of USG and WaterPro and
the pending acquisitions of WSMG and PED. The Company has no plans for further
investments in leasehold interests.
33
<PAGE>
As of September 30, 1996, the Company had an existing multicurrency bank
line of credit of $135,000,000, of which there were outstanding borrowings of
$81,156,000 and outstanding letters of credit of $14,446,000. The Company
expects to obtain all or part of the funds necessary to complete the WSMG
acquisition and the PED acquisition from borrowings under bank credit
facilities. The Company has received a commitment letter from The First
National Bank of Boston pursuant to which, subject to the satisfaction of
various conditions, credit facilities of up to $700,000,000 would be made
available to the Company to finance acquisitions (including the WSMG
acquisition and the PED acquisition), to refinance any borrowings under the
Company's current credit agreement, and for working capital and other general
corporate purposes. The existing bank line of credit is, and the anticipated
credit facilities would be, secured by the stock of certain of the Company's
United States subsidiaries. Borrowings under these committed credit facilities
would bear interest at variable rates of up to 2.25% above certain
Eurocurrency rates or 0.50% above The First National Bank of Boston's base
rate and have a five year maturity. The Company anticipates that, following
completion of the Offerings and the Notes Offering, the Company's facilities
will be reduced to a level that the Company considers appropriate for its
working capital and other needs.
As of March 31, 1996, the Company had net operating loss carryforwards
generated from Societe des Ceramiques Techniques S.A. ("SCT") of approximately
$19,952,000, for which no financial statement benefit has been recognized.
Approximately $1,946,000 of net operating loss carryforwards will expire in
fiscal years 1997 and 1998, while the remainder have an indefinite
carryforward period. The Company also has net operating loss carryforwards in
other European countries of approximately $7,338,000 which expire from fiscal
1997 to 2002 for which no financial statement benefit has been recognized. The
Company also has net operating loss carryforwards generated from Zimpro of
approximately $2,905,000 for which no financial statement benefit has been
recognized. No benefit has been given to these net operating loss carryfowards
because of the limited carryforward periods or the uncertain business
conditions relating to the operations giving rise to such carryforwards.
Future recognition of these net operating carryforwards will occur if the
operations of SCT and Zimpro generate sufficient earnings before the
expiration of the respective net operating loss carryforwards. In addition, in
the case of SCT, until March 31, 1997, the benefit, if any, of such
carryforwards is to be shared equally between the Company and Aluminum Company
of America.
The Company also has available at March 31, 1996, other net operating loss
carryforwards for Federal income tax purposes of approximately $13,552,000
which expire from fiscal 2007 to 2010.
Pursuant to an agreement entered into in conjunction with the acquisition of
WaterPro, all former WaterPro stockholders and former WaterPro debtholders,
who together hold an aggregate of 3,201,507 shares of the Common Stock, have
the right, exercisable during the 90-day period commencing on December 27,
1996, to require the Company to purchase all or any portion of such shares of
Common Stock at a purchase price equal to $33.24 per share.
Pursuant to an agreement to be entered into in conjunction with the pending
acquisition of PED, the Company has agreed to pay in cash the portion of the
purchase price otherwise payable in shares of Common Stock if such shares are
not at the time of issuance immediately saleable pursuant to the Company's
shelf Registration Statement on Form S-4. In addition, the Agreement provides
that if such shares are issued and any or all of them are sold within a
specified number of days after consummation of the acquisition for net
proceeds per share of less than an amount determined by dividing
(Pounds)25,000,000 by the number of shares issued, the Company will pay the
aggregate deficiency to PED in cash, and if the net proceeds per share exceed
such amount, PED will pay the aggregate excess to the Company in cash.
The Company believes its current cash position, cash flow from operations,
and available borrowings under the 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 at least the
next twelve months.
34
<PAGE>
THE WATER TREATMENT INDUSTRY
Global population growth, economic expansion, scarcity of available water
resources, heightened public concern about water quality and growing
regulatory and legislative requirements have resulted in the continued growth
in demand for water and wastewater treatment. In addition to the need for
potable water, industrial companies require treated 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"). Public
water departments, responsible for providing potable water, employ water
treatment technology to purify their water supply. Furthermore, government
regulations require most industrial companies and municipalities to treat
their outgoing wastewater ("effluent"). Growing demand for treated water
combined with the limited supply of usable water has created a significant
need for cost-effective, sophisticated water and wastewater treatment
solutions. Water and wastewater treatment has developed into a multi-billion
dollar global industry.
The global water and wastewater treatment industry is highly fragmented,
with numerous regional participants who are limited in their geographic scope.
This fragmentation is primarily due to local differences in water quality and
supply, different levels of demand for water resulting from varying
concentrations of industry and population, and local government regulation.
Most participants in the water and wastewater 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 thousands of small local
companies, there are few competitors in the industry that offer a full range
of water and wastewater treatment equipment, technologies and services.
Customers of the water and wastewater treatment industry can be classified
into three broad categories: (i) industrial businesses, which include
companies in such markets as power generation, chemical process, oil,
pharmaceutical, microelectronics, automotive and steel; (ii) municipal and
private suppliers of public water and wastewater services; and (iii)
individual consumers of bottled water and household point-of-use products,
such as domestic filtration systems and parts.
INDUSTRIAL USERS
Industrial users have a significant need for treated 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, treated
water is an integral component of many consumer goods and is used in the
manufacture of pharmaceutical products, microelectronics and chemicals. 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 customers often require a broad range of
treatment technologies to treat their influent.
In addition to treating their influent to ensure product quality, industrial
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 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.
Industrialization worldwide, manufacturers' desire to enhance productivity,
rising water prices, increased regulation and emphasis on water recycling and
reuse affect demand for industrial water and wastewater treatment and have
resulted in the need for increasingly sophisticated industrial water and
wastewater treatment
35
<PAGE>
systems. Rather than committing the significant resources required to operate
complex in-house systems, industrial customers are increasingly outsourcing
their water and wastewater treatment needs to water and wastewater treatment
companies to build, own and/or operate the customer's facilities or to provide
treated water under contract.
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 and
wastewater treatment.
The Company believes that, in many areas of the United States aged municipal
water and wastewater treatment infrastructure is operating at or near
capacity, is in need of substantial capital expenditures and is not well-
equipped to satisfy increasing regulatory and legislative requirements. In
addition, many municipalities are experiencing reduced economic resources. The
Company believes that, as a result, many such customers are seeking innovative
solutions to their water treatment needs, such as improved technologies and
equipment, and various outsourcing and service options, such as contract
operations and privatization. Privatization involves the transfer of ownership
and operation of water and wastewater treatment facilities to companies
capable of providing such services on a long-term basis.
INDIVIDUAL USERS
The market for individual users consists of bottled water and point-of-use
products, such as residential filtration systems and parts. Consumers' needs
vary by geographic location as a result of differing water qualities and level
of economic development. This segment of the industry is highly fragmented,
and the Company believes there are thousands of participants in the potable
water and point-of-use products markets.
36
<PAGE>
BUSINESS
The Company is a leading global provider of industrial and municipal water
and wastewater treatment systems, products and services, with an installed
base of systems that the Company believes is one of the largest worldwide. The
Company offers a single-source solution to industrial and municipal customers
through what the Company believes is the industry's broadest range of cost-
effective systems, products, services and proven technologies. In addition,
the Company has one of the industry's largest global networks of sales and
service facilities. The Company capitalizes on its large installed base,
extensive distribution network and manufacturing capabilities to provide
customers with ongoing local service and maintenance. The Company is also a
leading provider of SDI and outsourced water services, including the operation
of water and wastewater treatment systems at customer sites.
The Company has grown internally and through the strategic acquisition and
successful integration of more than 45 domestic and international water and
wastewater treatment companies since 1991. On a previously reported basis, the
Company's revenues have grown to $472.5 million for the fiscal year ended
March 31, 1996 from $41.2 million for the fiscal year ended March 31, 1992,
representing a compound annual growth rate of approximately 84%. The Company's
revenues for the fiscal year ended March 31, 1996 would have been
approximately $1.8 billion after giving effect to the acquisitions of Zimpro
and Davis (accounted for as poolings of interests) and including, on a pro
forma basis, the pending acquisitions of WSMG and PED and the recent
acquisitions of WaterPro and USG as if such acquisitions were completed at the
beginning of such year.
Global population growth, economic expansion, scarcity of available water
resources, heightened public concern about water quality and growing
regulatory requirements have resulted in: (i) continued growth of the
multibillion dollar water and wastewater treatment industry; and (ii)
heightened demand for increasingly complex water and wastewater treatment
systems. The water and wastewater treatment industry is highly fragmented,
with numerous regional participants who provide customers with a limited range
of water and wastewater treatment solutions. The Company differentiates itself
from competitors by serving as a single-source water and wastewater treatment
provider capable of designing, manufacturing, operating, financing and
maintaining water and wastewater systems on a local basis for industrial and
municipal customers. The Company's customer base includes a broad range of
major industrial customers, which require treated water as a necessary
component of many products and industrial processes, and municipalities, which
treat water and wastewater for their communities. Industrial customers include
Chinese Petroleum, Coca-Cola, Dow Chemical, General Motors, Hyundai, Intel,
Johnson & Johnson, Merck, Procter & Gamble, and Samsung. Municipal customers
include the Cities of Los Angeles, Minneapolis-St. Paul, and St. Louis.
STRATEGY
In order to achieve earnings growth and expand its operations to enhance its
position as a leading global single-source provider of water and wastewater
treatment systems and services, the Company has developed the following
strategy:
PROVIDE SINGLE-SOURCE WATER AND WASTEWATER TREATMENT SOLUTIONS TO
INDUSTRIAL AND MUNICIPAL CUSTOMERS. The Company believes that industrial
and municipal users of water and wastewater treatment systems, products and
services increasingly desire to obtain from a single source a broad range
of systems, technologies and services. The Company addresses the full scope
of its customers' water and wastewater treatment needs through what the
Company believes is the industry's broadest line of cost-effective
treatment systems, services and proven technologies. In addition, the
Company has an extensive global distribution network through which it
offers customers convenient local service and support. The Company also
meets the diverse demands of its customers through its ability to sell
systems outright, to sell systems and operate them for its customers, or to
build, own, operate and finance such systems.
PURSUE ACQUISITIONS THAT PROVIDE A STRATEGIC FIT AND CONTRIBUTE TO REVENUE
AND EARNINGS GROWTH. In addition to growing internally, the Company has
grown significantly since 1991 through the strategic
37
<PAGE>
acquisition of more than 45 United States-based and international
businesses with strong market positions and substantial water and
wastewater treatment expertise. These acquisitions have enabled the Company
to expand its geographic presence, industries served, installed base, range
of products and technologies offered and network of sales and distribution
facilities. The Company plans to continue to pursue acquisitions that
complement its technologies, products and services, broaden its customer
base and expand its global distribution network.
REALIZE SYNERGIES AND ECONOMIES OF SCALE FROM ACQUISITIONS. The Company
operates its business through an organizational structure which provides
low overhead, minimizes redundancy and creates opportunities to achieve
cost savings and synergies in its acquisitions. The Company has significant
experience in integrating acquired businesses. The Company believes that
the acquisitions of Davis, WaterPro and USG and the pending acquisitions of
WSMG and PED will provide cost savings through rationalization of
operations and economies of scale, including increased asset utilization.
The Company also believes that the integration of these recent and pending
acquisitions will provide synergies, such as cross-selling of product lines
to a broader customer base, expanded distribution and service capabilities
and exchange of experience and technology.
EXPAND GLOBAL MARKET PRESENCE, ESPECIALLY IN THE PACIFIC RIM REGION. The
Company expects that population growth, economic expansion and continued
degradation of water quality in both industrialized and less-developed
countries will result in strong growth in international markets. The
Company intends to further increase its international market presence by
expanding its international operations and by acquiring additional
international businesses. The Company believes that the proposed
acquisitions of WSMG and PED will significantly strengthen the Company's
capabilities in the Pacific Rim and Europe.
EXPAND PENETRATION OF THE MUNICIPAL MARKET. The Company believes that the
recent acquisitions of Davis, WaterPro and USG and the pending acquisitions
of WSMG and PED will significantly expand its presence in the municipal
market. The Company intends to strengthen its municipal presence by
utilizing WSMG's and PED's strong technologies, product offerings and
reputation in the municipal market to capitalize on cross-selling
opportunities and improve its municipal sales channels. Additionally, the
Company intends to use its extensive distribution network, including the
long-term municipal relationships and local service capabilities of Davis,
WaterPro and USG, as a channel to expand its penetration of the municipal
market. The Company believes that its combination of single-source provider
capabilities, local service capabilities and long-term municipal
relationships will provide a significant competitive advantage in
penetrating the municipal market.
CAPITALIZE ON DISTRIBUTION STRENGTH TO ENHANCE LOCAL SALES AND SERVICE
CAPABILITIES. The Company believes that the acquisitions of Davis, WaterPro
and USG establish the Company as a leading distributor of water and
wastewater distribution products and services to both the industrial and
municipal markets. These acquisitions are expected to provide the Company
with a platform to: (i) enhance the Company's local sales and service
infrastructure; (ii) penetrate the municipal segment of the water and
wastewater treatment market by capitalizing on each distribution company's
long-term municipal relationships; (iii) leverage the Company's leading
manufacturing capabilities and technology base; and (iv) capitalize upon
efficiencies from consolidation of operations and economies of scale. In
addition, the Company believes that these distribution acquisitions will
allow the Company to capitalize on opportunities to retrofit, replace and
repair aging water infrastructure in the United States.
CAPITALIZE ON OUTSOURCING AND PRIVATIZATION OPPORTUNITIES. The Company is
currently a 50% owner of TWO, which focuses on the outsourcing of
industrial customers' water treatment needs. The operating strategy for
TWO, or, if formed, the Joint Venture, is or would be to offer customers:
(i) turnkey operation, including system design, manufacture, operation, and
maintenance on a local basis; (ii) warrantied performance; (iii) potential
cost savings; and (iv) customized financing options.
38
<PAGE>
PRINCIPAL PRODUCTS AND SERVICES
The Company's principal products and services can be divided into the
following four groups: capital equipment, services, replacement parts and
consumables, and distribution.
CAPITAL EQUIPMENT. The Company manufactures both standard and customized
water and wastewater treatment equipment. The Company believes that its
systems utilize the industry's broadest range of proven physical, biological
and chemical treatment technologies including, among others, continuous
deionization, reverse osmosis, electrodialysis, adsorption and ion exchange,
that can be combined and configured to meet wide-ranging customer needs. The
Company designs, engineers, manufactures and assembles its systems at its
manufacturing facilities located in the United States and internationally.
Components that are not manufactured by the Company are purchased from vendors
in the United States and internationally. The Company utilizes its
distribution network including its global sales and service force, as well as
manufacturers' representatives, to provide direct contact and service to its
customers.
SERVICES. The Company's service business consists of the following: SDI,
outsourcing of water and wastewater treatment under long-term contracts,
mobile water treatment and, following the pending acquisition of WSMG, carbon
regeneration. SDI is a term given to portable water deionization treatment
equipment that uses ion exchange resins as a filtration medium and is designed
to connect easily to a local water supply. Resin is retrieved and transported
by a Company service representative to a Company regeneration plant for
chemical recharging when it is exhausted. Service-based revenues have been
generally recurring in nature, and have historically generated higher profit
margins than capital equipment sales.
TWO, which is 50% owned by a subsidiary of Nalco Chemical Company ("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 and to focus on the outsourcing of industrial customers' water
treatment needs. The Company and Nalco have entered into long-term supply and
service agreements with TWO in order to support TWO's performance under such
contracts.
REPLACEMENT PARTS AND CONSUMABLES. The Company manufactures and sells
replacement parts and consumables, such as membranes, ion exchange resin and
carbon, manufactured by both the Company and other suppliers that are required
to support water treatment systems.
DISTRIBUTION. The Company believes that the acquisitions of Davis, WaterPro
and USG establish the Company as a leading distributor of water and wastewater
distribution products and services. The Company emphasizes convenient customer
support, with each distribution office servicing customers within
approximately a 50 mile to 150 mile radius, depending on population density in
the area.
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, Pacific Rim
and Latin America. Information regarding the amount of revenue, operating
income and assets attributable to United States and international sales for
each of the past three fiscal years appears in Note 17 of Notes to
Consolidated Financial Statements, included elsewhere herein. The following
are industries that the Company serves 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.
39
<PAGE>
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 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.
40
<PAGE>
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.
POTABLE WATER. 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 WASTEWATER TREATMENT, 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.
BACKLOG
The Company had the following backlog as of September 30, 1995 and 1996,
which includes capital equipment purchase orders and revenues expected to be
generated during the succeeding 12 months under certain long-term contracts.
The capital equipment orders are scheduled for delivery and installation
during the succeeding 12 months and are believed by the Company to be firm.
<TABLE>
<CAPTION>
DATE AMOUNT
------------------ ------------
<S> <C>
September 30, 1995 $199,500,000
September 30, 1996 254,000,000
</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.
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<PAGE>
MANAGEMENT
The following table sets forth certain information regarding the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
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 35 Executive Vice President-Process Water Group
Thierry Reyners 52 Executive Vice President-European Group
Andrew D. Seidel 34 Executive Vice President-Wastewater Group
Kevin L. Spence 40 Vice President and Chief Financial Officer
Damian C. Georgino 36 Vice President, General Counsel and Secretary
Tim L. Traff 38 Director and Senior Vice President
John S. Swartley 58 Senior Vice President-Corporate Development
James W. Dierker 34 Vice President, Controller and Treasurer
Michael E. Hulme, Jr. 35 Assistant General Counsel and Assistant Secretary
James E. Clark 67 Director
John L. Diederich 59 Director
Robert S. Hillas 47 Director
Arthur B. Laffer 56 Director
Alfred E. Osborne, Jr. 51 Director
J. Danforth Quayle 49 Director
C. Howard Wilkins, Jr. 58 Director
</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 U.S. Small Business
Administration in 1977 and served as Associate Administrator for Finance and
Investment from 1978 to 1979. Prior thereto he was founder and Chairman of the
Board of Tower Scientific Corporation, a manufacturer of custom prosthetic
devices, which was sold to Hexcel Corporation in 1977. Mr. Heckmann is a
member of the management board of TWO. He is also a director of USA Waste
Services, Inc.
Michael J. Reardon was appointed Executive Vice President of the Company in
June of 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., a subsidiary of the Company, 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. In June 1978, Mr. Reardon received a B.S. in
Business Administration from California State Polytechnic University, and in
1995 attended the Kellogg Management Institute, Northwestern University.
Nicholas C. Memmo was appointed Executive Vice President-Process Water Group
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
42
<PAGE>
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 as Vice President and General Manager-Europe of Ionpure Technologies
Corporation from 1990 to December 1993, and from 1981 through 1989 he was
employed by Millipore Corporation, including as European Area Manager from
1987 through 1989. Mr. Reyners has a Ph.D. in Organic Chemistry from the
Research Institute in Natural Substances, University of Orsay, France and an
M.B.A. from INSEAD, Fontainebleau, France.
Andrew D. Seidel was appointed 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 a 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 a received a JD/MBA joint degree
from Emory University in 1986.
Tim L. Traff was appointed 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. 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.
43
<PAGE>
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.
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.
James E. Clark was President of Western Operations for Prudential Insurance
from 1978 to June 1990. Since June 1990, he has been a consultant and a
private investor. Mr. Clark is also Chairman of Asian-American Communication
Company, Inc., and a director of Asian American Association, Inc., a joint
venture with Sprint, and Durotest Corporation. He is also a trustee of the Yul
Brynner Foundation.
John L. Diederich has been Executive Vice President-Chairman's Counsel for
Aluminum Company of America since August 1991. Prior to assuming his present
position, he had been Group Vice President-Alcoa Metals and Chemicals since
1986 and a Vice President of Aluminum Company of America since 1982.
Mr. Diederich is a trustee of Shadyside Hospital and a director of Alcoa
Foundation.
Robert S. Hillas has served as a Managing Director of E.M. Warburg, Pincus &
Co., Inc., a private investment firm, since 1993. Previously, Mr. Hillas was a
partner of DSV Management Ltd., a venture capital investment firm, and its
affiliated venture capital partnerships. Mr. Hillas is currently a director of
Advanced Technology Materials, Inc., Transition Systems, Inc. and several
privately-held companies. Mr. Hillas was previously associated with Warburg,
Pincus from 1972 until he joined DSV Management Ltd. in 1981. Mr. Hillas was
graduated from Dartmouth College in 1970 with a Bachelor of Arts degree in
Mathematics, and was graduated from Stanford University with an M.B.A. degree
in 1972.
Dr. Arthur B. Laffer has been Chairman and Chief Executive Officer of A.B.
Laffer, V.A. Canto & Associates, an economic research and financial firm (and
its predecessor, A.B. Laffer Associates), since founding the firm in 1979. He
is also Chairman of Calport Asset Management, Inc., a money management firm.
Dr. Laffer has been Chief Executive Officer of Laffer Advisors, Inc., a
registered broker-dealer and investment advisor, since 1981. He was the
Charles B. Thornton Professor of Business Economics at the University of
Southern California from 1976 through 1984, Distinguished University Professor
at Pepperdine University from October 1984 to September 1987, and was a member
of President Reagan's economic policy advisory board. Dr. Laffer received a
B.A. degree in economics from Yale University and later received an M.B.A.
degree and a Ph.D. in economics from Stanford University. He is a director of
Coinmach Laundry Corporation, Mastec, Inc., Nicholas Applegate Mutual and
Growth Equity Funds and Value Vision, Inc.
Dr. Alfred E. Osborne, Jr. is Director of the Harold Price Center for
Entrepreneurial Studies and Associate Professor of Business Economics at the
John E. Anderson Graduate School of Management at UCLA. He has been on the
UCLA faculty since 1972. Dr. Osborne was educated at Stanford University,
where he earned a B.S. degree in electrical engineering, an M.B.A. in finance,
a master's degree in economics and a Ph.D. in business-economics. He is a
director of Greyhound Lines, Inc., Nordstrom, Inc., ReadiCare, Inc., SEDA
Specialty Packaging Corporation and The Times Mirror Company.
J. Danforth Quayle was the forty-fourth Vice President of the United States.
He was graduated from DePaul University in 1969 with a B.A. degree in
political science and from Indiana University in 1974 with a law degree. In
1976, Mr. Quayle was elected to Congress and in 1980 to the United States
Senate, being reelected in 1986
44
<PAGE>
and serving until 1989. As Vice President, he headed the Competitiveness and
Space Councils for the President. Since leaving office in January 1993, Mr.
Quayle served as Chairman of Circle Investors, Inc. (a private financial
services and insurance holding company), and BTC, Inc. (a private company
through which he operates certain of his personal business interests). He is a
director of Amtran, Inc., Central Newspapers, Inc. and American Standard
Companies, Inc. and is a member of the Board of Trustees of The Hudson
Institute.
C. Howard Wilkins, Jr. served as the United States Ambassador to the
Netherlands from June 1989 to July 10, 1992. Prior to being Ambassador and
thereafter, Mr. Wilkins has been Chairman of the Board of Maverick Restaurant
Corp., which owns and operates restaurants under franchise agreements, and
Maverick Development Corp. He was Vice Chairman of Pizza Hut, Inc. until 1975.
From 1981 to 1983 Mr. Wilkins served as a director of U.S. Synthetic Fuels
Corporation. Mr. Wilkins received a B.A. degree from Yale University in 1960.
45
<PAGE>
SECURITY OWNERSHIP
Set forth below is information as of September 30, 1996 concerning the
ownership of Common Stock by all persons or entities known to the Company to
be beneficial owners of more than five percent of the outstanding Common
Stock, each director of the Company, certain executive officers and all
directors and executive officers of the Company as a group. Unless otherwise
indicated, the holders of all shares shown in the table have sole voting and
investment power with respect to such shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME(1) BENEFICIALLY OWNED(2) PERCENT OF CLASS(3)
------- --------------------- -------------------
<S> <C> <C>
Laidlaw, Inc.(4).................. 4,054,093 8.1%
Warburg, Pincus Capital Company,
L.P.(5).......................... 2,719,618 5.4
The TCW Group, Inc.(6)............ 2,508,900 5.0
Richard J. Heckmann(7)............ 1,134,182 2.3
Michael J. Reardon(8)............. 213,705 *
R. Doyle White.................... 75,844 *
Tim L. Traff...................... 247,081 *
Nicholas C. Memmo(9).............. 91,892 *
Thierry Reyners(10)............... 45,000 *
Kevin L. Spence................... 90,000 *
James E. Clark.................... 126,000 *
John L. Diederich................. 65,250 *
Robert S. Hillas(11).............. 2,719,618 5.4
Arthur B. Laffer(12).............. 106,875 *
Alfred E. Osborne, Jr............. 108,525 *
J. Danforth Quayle................ 27,000 *
C. Howard Wilkins, Jr............. 103,500 *
All Directors and Executive Offi-
cers as a Group (19 persons)..... 5,346,607 10.7
</TABLE>
- -------------------
(1) The address of each person listed, except as otherwise indicated, is c/o
United States Filter Corporation, 40-004 Cook Street, Palm Desert,
California 92211.
(2) The number of shares shown includes shares that may be acquired upon the
exercise of options exercisable within 60 days of September 30, 1996 as
follows: Mr. Heckmann--440,325; Mr. Reardon--175,319; Mr. Traff--81,561;
Mr. Memmo--91,874; Mr. Reyners--45,000; Mr. Spence--90,000; Mr. Clark--
72,000; Mr. Diederich--63,000; Dr. Laffer--72,000; Dr. Osborne--72,000;
Mr. Quayle--27,000; Mr. Wilkins--72,000; all Directors and Executive
Officers as a Group--1,442,704. All options were granted pursuant to the
Company's 1991 Employee Stock Option Plan or the Company's 1991 Directors
Stock Option Plan.
(3) An asterisk (*) indicates ownership of less than 1% of the Common Stock.
(4) The address of Laidlaw, Inc. is 3221 North Service Road, Burlington,
Ontario, Canada L7R 3Y8. The Company believes that Laidlaw, Inc.
beneficially owns 3,750,093 shares as of October 31, 1996.
(5) The address of Warburg, Pincus Capital Company, L.P. is 466 Lexington
Avenue, New York, New York 10017.
(6) The address of The TCW Group, Inc. is 865 South Figueroa Street, Los
Angeles, California 90017. As reported in a Schedule 13G/A dated February
12, 1996, The TCW Group, Inc. had sole voting and dispositive power with
respect to the shares and Robert Day, an individual whose address is 200
Park Avenue, Suite 2200, New York, New York 10166, may be deemed to
control The TCW Group, Inc.
(7) Includes 19,050 shares held by Mr. Heckmann's wife and by Mr. Heckmann as
custodian for his children as to which Mr. Heckmann may be deemed to have
indirect beneficial ownership.
(8) Includes 2,700 shares held in a trust for the benefit of Mr. Reardon's
father-in-law. As the trustee, Mr. Reardon has voting and investment
power with respect to the shares held by the trust and may be deemed to
have indirect beneficial ownership of them. Mr. Reardon disclaims
beneficial ownership of such shares.
(9) Includes 18 shares held by Mr. Memmo's wife as custodian for his minor
children.
(10) Includes 1,050 shares held by Mr. Reyners' wife.
(11) Constitutes shares owned by Warburg, Pincus Capital Company, L.P.
("Warburg"). The sole general partner of Warburg is Warburg, Pincus &
Co., a New York general partnership ("WP"). E.M. Warburg, Pincus & Co.,
Inc. ("EMW"), through a wholly owned subsidiary, manages Warburg. WP owns
all of the outstanding stock of EMW and, as the sole general partner of
Warburg, has a 20% interest in the profits of Warburg. EMW owns 0.9% of
the limited partnership interests in Warburg. Lionel I. Pincus is the
managing partner of WP and may be deemed to control it. Mr. Hillas, a
director of the Company, is a Managing Director of EMW and a general
partner of WP. As such, Mr. Hillas may be deemed to have an indirect
pecuniary interest in an indeterminate portion of the shares beneficially
owned by Warburg. All of the shares indicated as owned by Mr. Hillas are
owned directly by Warburg and are included herein because of Mr. Hillas'
affiliation with Warburg. Mr. Hillas disclaims "beneficial ownership" of
these shares within the meaning of Rule 13d-3 under the Exchange Act.
(12) Includes 30,000 shares held by A.B. Laffer, V.A. Canto & Associates, a
company controlled by Dr. Laffer.
46
<PAGE>
SELLING STOCKHOLDERS
The Selling Stockholders have granted to the U.S. Underwriters an option
exercisable within 30 days after the date of this Prospectus to purchase an
aggregate of up to 845,794 shares of Common Stock, at the Price to the Public,
less Underwriting Discounts and Commissions, set forth on the cover page of
this Prospectus, to cover over-allotments, if any. See "Underwriting." The
following table sets forth certain information regarding beneficial ownership
of shares of Common Stock by the Selling Stockholders as of October 31, 1996,
and as adjusted to reflect the sale of shares of Common Stock by the Selling
Stockholders assuming that the U.S. Underwriters' over-allotment option is
exercised in full. The respective number of shares indicated as to each
Selling Stockholder constitutes less than one percent of the shares of Common
Stock outstanding as of such date.
<TABLE>
<CAPTION>
MAXIMUM
SHARES SHARES OWNED
SHARES OWNED TO BE BENEFICIALLY
SELLING STOCKHOLDERS BENEFICIALLY SOLD AS ADJUSTED
-------------------- ------------ ------- ------------
<S> <C> <C> <C>
John Hancock Capital Growth Fund IIB Limited
Partnership................................. 26,283 23,323 2,960
John Hancock Capital Growth Fund III Limited
Partnership................................. 322,309 286,027 36,282
Carl C. Landegger, as Trustee of the 1990
Family Trust................................ 298,549 70,000 228,549
The Black Clawson Company.................... 228,018 191,444 36,574
CGW Southeast Partners I, L.P. .............. 718,307 275,000 443,307
</TABLE>
The Selling Stockholders other than CGW Southeast Partners I, L.P. ("CGW")
acquired the shares of Common Stock indicated on May 31, 1996 in connection
with the acquisition by the Company of Zimpro. Pursuant to the Zimpro
transaction, the Company acquired by merger all of the outstanding capital
stock of Zimpro. Prior to such merger, such Selling Stockholders were
significant shareholders and creditors of Zimpro and had certain contractual
and other rights with respect to their share and debt holdings of Zimpro.
CGW acquired shares of Common Stock in connection with the acquisition by
the Company of USG on October 25, 1996. Prior to such acquisition, CGW was a
significant shareholder of USG.
Other than as described herein, none of the Selling Stockholders has, or
within the past three years has had, any office or any other material
relationship with the Company or any of its predecessors or affiliates.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
As of September 30, 1996, the Company was authorized to issue 150,000,000
shares of Common Stock, of which 50,009,131 shares were issued and
outstanding, and 3,000,000 shares of preferred stock, par value $.10 per
share, of which none were issued and outstanding. Of the unissued shares of
Common Stock as of such date, 4,390,000 shares were reserved for issuance upon
conversion of the Company's 5% Convertible Subordinated Debentures due 2000
(all of which were issued on October 25, 1996 in connection with a redemption
call), 7,636,363 shares were reserved for issuance upon conversion of the
Company's 6% Convertible Subordinated Notes due 2005 and an aggregate of
4,396,594 shares were reserved for issuance upon exercise of options either
outstanding or available for future grant under the Company's stock option
plans for employees and directors.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record by them on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors; thus, the holders
of shares having more than 50% of the Company's voting power (including both
common and voting preferred shares) voting for the election of directors can
elect all of the directors. The holders of Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefor, subject to the prior rights of preferred
stockholders. In the event of liquidation, dissolution or winding up of the
Company's affairs, the holders of Common Stock are entitled to share ratably
in all assets remaining available for distribution to them after payment of
liabilities and after provision has been made for each class of stock,
including any preferred stock, that has preference over the Common Stock.
Except as described below under "Stock Purchase Rights," holders of shares of
Common Stock, as such, have no conversion, preemptive or other subscription
rights, and there are no redemption or sinking fund provisions applicable to
the Common Stock.
PREFERRED STOCK
Shares of preferred stock may be issued without stockholder approval. The
Board of Directors is authorized to issue such shares in one or more series
and to fix the rights, preferences, privileges, qualifications, limitations
and restrictions thereof, including dividend rights and rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the
designation of such series, without any vote or action by the stockholders.
The Company has no current plans for the issuance of any shares of preferred
stock. Any preferred stock to be issued could rank prior to the Common Stock
with respect to dividend rights and rights of liquidation. The Board of
Directors, without stockholder approval, may issue preferred stock with voting
and conversion rights that could adversely affect the voting power of holders
of Common Stock or create impediments to persons seeking to gain control of
the Company.
STOCK PURCHASE RIGHTS
Laidlaw, which, as of October 31, 1996, held 3,750,093 shares of Common
Stock, has certain rights to purchase voting securities of the Company in
order to maintain its percentage voting interest. Except in connection with
mergers or other acquisitions or in the ordinary course under an employee
stock option or stock bonus plan, in the event the Company proposes to sell or
issue shares of voting securities, Laidlaw has the right to purchase, on the
same terms as the proposed sale or issuance, that number of shares or rights
as will maintain its percentage interest in the voting securities of the
Company, assuming the conversion of all convertible securities and the
exercise of all options and warrants then outstanding. In addition, Laidlaw
has other purchase rights with respect to sales or issuances of securities by
the Company at prices below 85% of current market price at the time of sale or
issuance or the prevailing customary price for such securities or their
equivalent.
CERTAIN VOTING ARRANGEMENTS
Pursuant to the agreements whereby the Company acquired Smogless S.p.A. in
September 1994, Laidlaw has agreed to vote all shares owned by it for the
nominees of the Company's Board for election to the Board,
48
<PAGE>
and on all other matters in the same proportion as the votes cast by other
holders of voting securities, other than those that relate to any business
combination or similar transaction involving the Company or any amendment to
the Company's Certificate of Incorporation or Bylaws.
CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Certificate of Incorporation (the "Certificate") places
certain restrictions on the voting rights of a "Related Person," defined
therein as any person who directly or indirectly owns 5% or more of the
outstanding voting stock of the Company. The founders and the original
directors of the Company are excluded from the definition of "Related
Persons," as are seven named individuals including Richard J. Heckmann, the
Chairman of the Board, President and Chief Executive Officer of the Company.
These voting restrictions apply in two situations. First, the vote of a
director who is also a Related Person is not counted in the vote of the Board
of Directors to call a meeting of stockholders where that meeting will
consider a proposal made by the Related Person director. Second, any
amendments to the Certificate that relate to specified Articles therein (those
dealing with corporate governance, limitation of director liability or
amendments to the Certificate), in addition to being approved by the Board of
Directors and a majority of the Company's outstanding voting stock, must also
be approved by either (i) a majority of directors who are not Related Persons,
or (ii) the holders of at least 80% of the Company's outstanding voting stock,
provided that if the change was proposed by or on behalf of a Related Person,
then approval by the holders of a majority of the outstanding voting stock not
held by Related Persons is also required. In addition, any amendment to the
Company's Bylaws must be approved by one of the methods specified in clauses
(i) and (ii) in the preceding sentence.
The Certificate and the Company's Bylaws provide that the Board of Directors
shall fix the number of directors and that the Board shall be divided into
three classes, each consisting of one-third of the total number of directors
(or as nearly as may be possible). Stockholders may not take action by written
consent. Meetings of stockholders may be called only by the Board of Directors
(or by a majority of its members). Stockholder proposals, including director
nominations, may be considered at a meeting only if written notice of that
proposal is delivered to the Company from 30 to 60 days in advance of the
meeting, or within ten days after notice of the meeting is first given to
stockholders.
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law ("Section 203")
provides, in general, that a stockholder acquiring more than 15% of the
outstanding voting shares of a corporation subject to the statute (an
"Interested Stockholder"), but less than 85% of such shares, may not engage in
certain "Business Combinations" with the corporation for a period of three
years subsequent to the date on which the stockholder became an Interested
Stockholder unless (i) prior to such date the corporation's board of directors
has approved either the Business Combination or the transaction in which the
stockholder became an Interested Stockholder or (ii) the Business Combination
is approved by the corporation's board of directors and authorized by a vote
of at least two-thirds of the outstanding voting stock of the corporation not
owned by the Interested Stockholder.
Section 203 defines the term "Business Combination" to encompass a wide
variety of transactions with or caused by an Interested Stockholder in which
the Interested Stockholder receives or could receive a benefit on other than a
pro rata basis with other stockholders, including mergers, certain asset
sales, certain issuances of additional shares to the Interested Stockholder,
transactions with the corporation that increase the proportionate interest of
the Interested Stockholder or transactions in which the Interested Stockholder
receives certain other benefits.
These provisions could have the effect of delaying, deferring or preventing
a change of control of the Company. The Company's stockholders, by adopting an
amendment to the Certificate or Bylaws of the Company, may elect not to be
governed by Section 203, effective twelve months after adoption. Neither the
Certificate nor the Bylaws of the Company currently excludes the Company from
the restrictions imposed by Section 203.
49
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States Federal tax
consequences of the acquisition, ownership, and disposition of Common Stock by
a holder that, for United States Federal income tax purposes, is not a "United
States person" (as defined below) (a "Non-United States Holder"). This
discussion is based upon a review and analysis of the United States Federal
tax law now in effect, which is subject to change, possibly retroactively.
This discussion does not consider any specific facts or circumstances that may
apply to a particular Non-United States Holder. Prospective investors are
urged to consult their tax advisors regarding the United States Federal tax
consequences of acquiring, holding, and disposing of Common Stock, as well as
any tax consequences that may arise under the laws of any foreign state,
local, or other taxing jurisdiction.
For purposes of this discussion, a "United States person" means (i) a
citizen or resident of the United States, (ii) a corporation, partnership, or
other entity created or organized in the United States or under the laws of
the United States or of any political subdivision thereof, (iii) an estate
whose income is includible in gross income for United States Federal income
tax purposes regardless of its source, or (iv) a trust whose administration is
subject to the primary supervision of a United States court and which has one
or more United States fiduciaries who have the authority to control all
substantial decisions of the trust.
DIVIDENDS
Dividends paid to a Non-United States Holder will generally be subject to
withholding of United States Federal income tax at the rate of 30% unless the
dividend is effectively connected with the conduct of a trade or business
within the United States by the Non-United States Holder, in which case the
dividend will be subject to the United States Federal income tax imposed on
net income on the same basis that applies to United States persons generally
(and, with respect to corporate holders and under certain circumstances, the
branch profits tax). Non-United States Holders should consult any applicable
income tax treaties that may provide for a lower rate of withholding or other
rules different from those described above. A Non-United States Holder may be
required to satisfy certain certification requirements in order to claim
treaty benefits or otherwise claim a reduction of or exemption from
withholding under the foregoing rules.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
Federal income tax on gain recognized on a sale or other disposition of Common
Stock unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-United States Holder or (ii)
in the case of a Non-United States Holder who is a nonresident alien
individual and holds the Common Stock as a capital asset, such holder is
present in the United States for 183 or more days in the taxable year and
certain other requirements are met. Gain that is effectively connected with
the conduct of a trade or business within the United States by the Non-United
States Holder will be subject to the United States Federal income tax imposed
on net income on the same basis that applies to United States persons
generally (and, with respect to corporate holders and under certain
circumstances, the branch profits tax) but will not be subject to withholding.
Non-United States Holders should consult applicable treaties that may provide
for different rules.
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for United States Federal estate tax
purposes) of the United States on the date of death will be included in such
individual's estate for United States Federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
50
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the United States Internal Revenue
Service and to each Non-United States Holder the amount of dividends paid to,
and the tax withheld with respect to, such holder, regardless of whether any
tax has been actually withheld. This information may also be made available to
the tax authorities of a country in which the Non-United States Holder
resides.
Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally
not apply to dividends paid on the Common Stock to a Non-United States Holder
at an address outside the United States. Payments by a United States office of
a broker of the proceeds of a sale of the Common Stock is subject to both
backup withholding at a rate of 31% and information reporting unless the
holder certifies its Non-United States Holder status under penalties of
perjury or otherwise establishes an exemption. Information reporting
requirements (but not backup withholding) will also apply to payments of the
proceeds of sales of the Common Stock by foreign offices of United States
brokers, or foreign brokers with certain types of relationships to the United
States, unless the broker has documentary evidence in its records that the
holder is a Non-United States Holder and certain other conditions are met, or
the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-United
States Holder's United States Federal income tax liability, provided that
certain required information is furnished to the United States Internal
Revenue Service.
These information reporting and backup withholding rules are under review by
the United States Treasury and their application to the Common Stock could be
changed by future regulations. The United States Internal Revenue Service has
recently issued proposed Treasury regulations concerning these rules which are
presently proposed to be effective for payments made after December 31, 1997.
Prospective investors should consult their tax advisors concerning the
potential adoption of such proposed Treasury regulations and the potential
effect on their ownership and disposition of the Common Stock.
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement"), the United States Underwriters named below
(the "U.S. Underwriters"), for whom Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), Deutsche Morgan Grenfell Inc., NatWest Securities Limited
("NatWest"), Salomon Brothers Inc and Smith Barney Inc. ("Smith Barney") are
acting as representatives (the "U.S. Representatives"), and the international
managers named below (the "International Managers" and, together with the U.S.
Underwriters, the "Underwriters"), for whom DLJ, Morgan Grenfell & Co.,
Limited, NatWest, Salomon Brothers International Limited and Smith Barney are
acting as representatives (the "International Representatives" and, together
with the U.S. Representatives, the "Representatives"), have severally agreed
to purchase from the Company the number of shares of Common Stock set forth
opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- ----------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...............
Deutsche Morgan Grenfell Inc......................................
NatWest Securities Limited........................................
Salomon Brothers Inc..............................................
Smith Barney Inc..................................................
----------
U.S. Offering subtotal.......................................... 8,000,000
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
---------------------- ----------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...............
Morgan Grenfell & Co., Limited....................................
NatWest Securities Limited........................................
Salomon Brothers International Limited............................
Smith Barney Inc..................................................
----------
International Offering subtotal................................. 2,000,000
----------
Total......................................................... 10,000,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions. If any of the shares of Common Stock are
purchased by the Underwriters pursuant to the Underwriting Agreement, all such
shares (other than those covered by the over-allotment option described below)
must be purchased. The offering price and underwriting discounts and
commissions per share for the U.S. Offering and the International Offering are
identical.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public initially at the price set
forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such price, less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may re-allow,
discounts not in excess of $ per share to any other Underwriter and
certain other dealers. After the Offerings, the offering price and other
selling terms may be changed by the Underwriters.
The Company and the Selling Stockholders have granted to the U.S.
Underwriters an option to purchase up to an aggregate of 1,500,000 additional
shares of Common Stock, at the Price to the Public, less the Underwriting
Discounts and Commissions, set forth on the cover page of this Prospectus,
solely to cover over-allotments. See
52
<PAGE>
"Selling Stockholders." Such option may be exercised at any time until 30 days
after the date of this Prospectus. To the extent that the U.S. Underwriters
exercise such option, each of the U.S. Underwriters will be committed, subject
to certain conditions, to purchase a number of shares proportionate to such
U.S. Underwriter's initial commitment as indicated in the preceding tables.
The Company and its executive officers and directors, and certain other
stockholders, who collectively are the beneficial owners of an aggregate of
9,532,217 shares of Common Stock, have agreed, subject to certain exceptions,
with the Underwriters not to, directly or indirectly, offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of, without the prior
written consent of DLJ, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for, or warrants, options or
rights to purchase or acquire, Common Stock or in any other manner transfer
all or a portion of the economic consequences associated with the ownership of
any Common Stock, or enter into any agreement to do any of the foregoing, for
a period of 90 days after the date of this Prospectus.
Pursuant to an Agreement Between U.S. Underwriters and International
Managers (the "Agreement Between U.S. Underwriters and International
Managers"), each U.S. Underwriter has represented and agreed that, with
respect to the shares included in the U.S. Offering and with certain
exceptions, (a) it is not purchasing any Common Stock for the account of
anyone other than a United States or Canadian Person (as defined below) and
(b) it has not offered or sold, and will not offer or sell, directly or
indirectly, any Common Stock or distribute this Prospectus outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each International Manager has represented and agreed that, with
respect to the shares included in the International Offering and with certain
exceptions, (a) it is not purchasing any Common Stock for the account of any
United States or Canadian Person and (b) it has not offered or sold, and will
not offer or sell, directly or indirectly, any Common Stock or distribute this
Prospectus within the United States or Canada or to any United States or
Canadian Person. The foregoing limitations do not apply to stabilization
transactions and to certain other transactions among the International
Managers and the U.S. Underwriters. As used herein, "United States or Canadian
Person" means any national or resident of the United States or Canada or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States or Canada or
any United States or Canadian Person) and includes any United States or
Canadian branch of a person who is not otherwise a United States or Canadian
Person, and "United States" means the United States of America, its
territories, its possessions and all areas subject to its jurisdiction.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, sales may be made between the U.S. Underwriters and the
International Managers of any number of shares of Common Stock to be purchased
pursuant to the Underwriting Agreement as may be mutually agreed. The per
share price and currency of settlement of any shares so sold shall be the
public offering price set forth on the cover page hereof, in United States
dollars, less an amount not greater than the per share amount of the
concession to dealers set forth above.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each U.S. Underwriter has represented that it has not offered or
sold, and has agreed not to offer or sell, any Common Stock, directly or
indirectly, in Canada in contravention of the securities laws of Canada or any
province or territory thereof and has represented that any offer of Common
Stock in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in
which such offer is made. Each U.S. Underwriter has further agreed to send any
dealer who purchases from it any Common Stock a notice stating in substance
that, by purchasing such Common Stock, such dealer represents and agrees that
it has not offered or sold, and will not offer or sell, directly or
indirectly, any of such Common Stock in Canada in contravention of the
securities laws of Canada or any province or territory thereof and that any
offer of Common Stock in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of
Canada in which such offer is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Common Stock a notice to the
foregoing effect.
53
<PAGE>
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each International Manager has represented and agreed that (i) it
has not offered or sold and during the period of six months from the date of
this Prospectus will not offer or sell any Common Stock to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their business or otherwise in circumstances which
do not constitute an offer to the public in the United Kingdom for the
purposes of the Public Offers of Securities Regulations 1995 of Great Britain
(the "Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 of Great Britain and the
Regulations with respect to anything done by it in relation to the Common
Stock in, from or otherwise involving the United Kingdom; and (iii) it has
only issued or passed on and will only issue or pass on in the United Kingdom
any document in connection with the issue or sale of the Common Stock to a
person who is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1995 of Great Britain
or is a person to whom the document may otherwise lawfully be issued or passed
on.
No action has been taken in any jurisdiction by the Company or the
Underwriters that would permit a public offering of the Common Stock offered
pursuant to the Offerings in any jurisdiction where action for that purpose is
required, other than the United States. The distribution of this Prospectus
and the offering or sale of the shares of Common Stock offered hereby in
certain jurisdictions may be restricted by law. Accordingly, the shares of
Common Stock offered hereby may not be offered or sold, directly or
indirectly, and neither this Prospectus nor any other offering material or
advertisements in connection with the Common Stock may be distributed or
published, in or from any jurisdiction, except under circumstances that will
result in compliance with applicable rules and regulations of any such
jurisdiction. Such restrictions may be set out in applicable Prospectus
supplements. Persons into whose possession this Prospectus comes are required
by the Company and the Underwriters to inform themselves about and to observe
any applicable restrictions. This Prospectus does not constitute an offer of,
or an invitation to subscribe for purchase of, any shares of Common Stock and
may not be used for the purpose of an offer to, or solicitation by, anyone in
any jurisdiction or in any circumstances in which such offer or solicitation
is not authorized or is unlawful.
DLJ has in the past provided, and may in the future provide, investment
banking services for the Company and an affiliate of DLJ has committed to
funding a portion of the Committed Credit Facilities. The Company has also
engaged DLJ to provide certain financial advisory services to the Company for
customary fees. Additionally, the U.S. Representatives are participating as
underwriters in the Notes Offering.
54
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Damian C. Georgino, Vice President, General Counsel
and Secretary of the Company. Certain legal matters will be passed upon for
the Company by Kirkpatrick & Lockhart LLP, Pittsburgh, Pennsylvania, and for
the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles,
California.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The consolidated financial statements of United States Filter Corporation
and its subsidiaries as of March 31, 1995 and 1996 and for each of the three
years in the period ended March 31, 1996, except for the consolidated
financial statements of Davis Water & Waste Industries, Inc. and its
subsidiaries as of April 30, 1996 and 1995 and for each of the three years in
the period ended April 30, 1996, have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, as stated in their report appearing
herein and in the Registration Statement. The consolidated financial
statements of Davis Water & Waste Industries, Inc. and its subsidiaries, which
have been consolidated with those of the Company, have been audited by Price
Waterhouse LLP as stated in their report included herein. Such financial
statements of the Company and its consolidated subsidiaries are included
herein in reliance upon the report of such firms. Both of the foregoing
accounting firms are independent auditors.
The combined financial statements of the Systems and Manufacturing Group of
Wheelabrator Technologies Inc. as of December 31, 1994 and 1995 and for each
of the years in the three year period ended December 31, 1995 have been
included herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, which
report is included herein, and upon the authority of said firm as experts in
accounting and auditing.
The aggregated financial statements of the United Utilities PLC Process
Equipment Division as of March 31, 1996 and 1995 and for each of the years in
the two year period ended March 31, 1996 have been included herein and in the
Registration Statement in reliance upon the report of KPMG Audit Plc,
independent chartered accountants, which report is included herein, and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Davis Water & Waste Industries,
Inc. incorporated in this Prospectus by reference to the audited historical
financial statements included in United States Filter Corporation's Form 8-K
dated June 27, 1996 have been so incorporated in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The consolidated financial statements of Zimpro Environmental, Inc. as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995 incorporated herein by reference, have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report thereon
incorporated by reference elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The audited financial statements of WaterPro Supplies Corporation as of
December 31, 1995 and for the period from April 7, 1995 to December 31, 1995
included in this prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
55
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy solicitation materials and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy solicitation materials and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices located at Seven World Trade Center,
Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can also be obtained at
prescribed rates from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission. Such reports, proxy and information statements and other
information may be found at the Commission's Web site address,
http://www.sec.gov. The Common Stock is listed on the New York Stock Exchange.
Such reports, proxy solicitation materials and other information can also be
inspected and copied at the New York Stock Exchange at 20 Broad Street, New
York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits thereto, referred to as
the "Registration Statement") under the Securities Act, with respect to the
offering made hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement, certain portions of which are omitted
in accordance with the rules and regulations of the Commission. Such
additional information may be obtained from the Commission's principal office
in Washington, D.C. as set forth above. For further information, reference is
hereby made to the Registration Statement, including the exhibits filed as a
part thereof or incorporated by reference therein. Statements made in this
Prospectus as to the contents of any documents referred to are not necessarily
complete, and in each instance reference is made to such exhibit for a more
complete description and each such statement is modified in its entirety by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
1-10728) pursuant to the Exchange Act are incorporated herein by reference:
the Company's Annual Report on Form 10-K for the year ended March 31, 1996;
the Company's Quarterly Reports on Form 10-Q for the quarters ended June 30,
1996 and September 30, 1996; the Company's Current Reports on Form 8-K dated
May 31, 1996 (as amended on Form 8-K/A dated June 28, 1996), June 10, 1996,
June 27, 1996, July 15, 1996 (two such Current Reports), August 23, 1996,
September 6, 1996, October 28, 1996 and November 6, 1996; and the description
of the Common Stock contained in the Company's Registration Statement on Form
8-A, as the same may be amended.
All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering made by this
Prospectus shall be deemed to be incorporated by reference herein. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is incorporated
or deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person,
a copy of any or all of the documents that are incorporated herein by
reference, other than exhibits to such information (unless such exhibits are
specifically incorporated by reference into such documents). Requests should
be directed to the Vice President, General Counsel and Secretary of United
States Filter Corporation at 40-004 Cook Street, Palm Desert, California 92211
(telephone (619) 340-0098).
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNITED STATES FILTER CORPORATION
Independent Auditors' Report--KPMG Peat Marwick LLP....................... F-2
Report of Independent Accountants--Price Waterhouse LLP................... F-3
Financial Statements:
Consolidated Balance Sheets as of March 31, 1995 and 1996 and September
30, 1996 (unaudited)................................................... F-4
Consolidated Statements of Operations for the Years Ended March 31,
1994, 1995 and 1996 and the six months ended September 30, 1995 and
1996 (unaudited)....................................................... F-6
Consolidated Statements of Shareholders' Equity for the Years Ended
March 31, 1994, 1995 and 1996 and the six months ended September 30,
1996 (unaudited)....................................................... F-7
Consolidated Statements of Cash Flows for the Years Ended March 31,
1994, 1995 and 1996 and the six months ended September 30, 1995 and
1996 (unaudited)....................................................... F-9
Notes to Consolidated Financial Statements.............................. F-11
WHEELABRATOR TECHNOLOGIES INC.--SYSTEMS AND MANUFACTURING GROUP
Independent Auditors' Report--KPMG Peat Marwick LLP....................... F-30
Financial Statements:
Combined Balance Sheets as of December 31, 1994 and 1995 and September
30, 1996 (unaudited)................................................... F-31
Combined Income Statements for the years ended December 31, 1993, 1994
and 1995 and the nine months ended September 30, 1995 and 1996
(unaudited)............................................................ F-32
Combined Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995 and the nine months ended September 30, 1995 and 1996
(unaudited)............................................................ F-33
Notes to Consolidated Financial Statements.............................. F-34
UNITED UTILITIES PLC--PROCESS DIVISION
Statement of United Utilities PLC directors' responsibilities............. F-40
Auditors' Report to the Board of Directors of United Utilities PLC--KPMG
Audit Plc ............................................................... F-41
Financial Statements:
Profit and Loss Account for the years ended March 31, 1996 and 1995 and
the six months ended September 30, 1995 and 1996 (unaudited)........... F-42
Balance Sheets as of March 31, 1996 and 1995 and September 30, 1996
(unaudited)............................................................ F-43
Cash Flow Statement for the year ended March 31, 1996................... F-44
Notes to Financial Statements .......................................... F-45
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
United States Filter Corporation:
We have audited the accompanying consolidated balance sheets of United
States Filter Corporation and subsidiaries as of March 31, 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 did not audit the
consolidated financial statements of Davis Water & Waste Industries, Inc.,
which statements reflect total assets constituting 17 percent and 9 percent in
1995 and 1996, respectively, and total revenues constituting 49 percent, 42
percent and 31 percent in 1994, 1995 and 1996, respectively, of the related
consolidated totals. Those consolidated financial statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for Davis Water & Waste Industries,
Inc., is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of United States Filter Corporation
and subsidiaries as of March 31, 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.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Orange County, California
June 7, 1996, except as to the
acquisitions of Davis Water & Waste
Industries, Inc. and Zimpro
Environmental Inc., which are as of
August 23, 1996 and May 31, 1996,
respectively, the common stock
split, which is as of July 15,
1996, and note 20 which is as of
October 28, 1996.
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of DAVIS WATER & WASTE INDUSTRIES, Inc.
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations, of changes in stockholders' equity and of cash flows
of Davis Water & Waste Industries, Inc. and its subsidiaries (not presented
seperately herein) present fairly, in all material respects, their financial
position 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. We have not audited the consolidated financial
statements of Davis Water & Waste Industries, Inc. and its subsidiaries for
any period subsequent to April 30, 1996.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Atlanta, Georgia
June 13, 1996
F-3
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
------------------------- SEPTEMBER 30,
1995 1996 1996
------------ ------------ -------------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents (note 2).... $ 20,020,000 $ 18,405,000 $ 19,488,000
Short-term investments (note 3)....... 2,418,000 65,000 816,000
Accounts receivable, less allowance
for doubtful accounts of $4,643,000
at March 31, 1995, $9,857,000 at
March 31, 1996 and $9,797,000 at
September 30, 1996 (unaudited)
(note 10)............................ 138,891,000 218,855,000 213,594,000
Costs and estimated earnings in excess
of billings on uncompleted contracts
(note 10)............................ 21,808,000 33,575,000 52,802,000
Inventories (note 4).................. 55,328,000 75,313,000 88,230,000
Prepaid expenses...................... 3,489,000 7,922,000 11,981,000
Deferred taxes (note 14).............. 9,746,000 7,771,000 7,771,000
Other current assets.................. 6,882,000 10,073,000 9,614,000
------------ ------------ ------------
Total current assets............... 258,582,000 371,979,000 404,296,000
------------ ------------ ------------
Property, plant and equipment, net
(notes 5 and 11)...................... 79,495,000 165,989,000 178,362,000
Investment in leasehold interests, net
(note 6).............................. 20,390,000 27,688,000 27,057,000
Cost in excess of net assets of busi-
nesses acquired, net (notes 7 and 9).. 99,162,000 271,891,000 276,627,000
Other assets (note 8).................. 25,094,000 38,958,000 50,317,000
------------ ------------ ------------
$482,723,000 $876,505,000 $936,659,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
<TABLE>
<CAPTION>
MARCH 31,
-------------------------- SEPTEMBER 30,
1995 1996 1996
------------ ------------ -------------
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Accounts payable..................... $ 64,478,000 $100,224,000 $101,329,000
Accrued liabilities (note 13)........ 50,684,000 102,415,000 102,000,000
Current portion of long-term debt
(note 11)........................... 4,336,000 7,892,000 1,386,000
Billings in excess of costs and
estimated earnings on uncompleted
contracts (note 10)................. 19,263,000 15,797,000 19,631,000
Other current liabilities............ 5,849,000 21,894,000 11,344,000
------------ ------------ ------------
Total current liabilities......... 144,610,000 248,222,000 235,690,000
------------ ------------ ------------
Notes payable (note 11)............... 37,648,000 35,756,000 81,156,000
Long-term debt, excluding current por-
tion (note 11)....................... 15,132,000 9,788,000 7,617,000
Convertible subordinated debentures
(note 12)............................ 105,000,000 200,000,000 193,565,000
Deferred taxes (note 14).............. 8,293,000 1,223,000 1,223,000
Other liabilities..................... 5,162,000 13,015,000 17,405,000
------------ ------------ ------------
Total liabilities................. 315,845,000 508,004,000 536,656,000
------------ ------------ ------------
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 150,000,000 shares;
issued and outstanding 28,524,965
and 47,873,133 and 49,280,734 at
March 31, 1995 and 1996, and
September 30, 1996 (unaudited),
respectively........................ 209,000 338,000 493,000
Additional paid-in capital........... 145,224,000 351,254,000 370,625,000
Currency translation adjustment...... (2,026,000) 1,836,000 2,691,000
Retained earnings (accumulated defi-
cit)................................ (2,106,000) 15,073,000 26,194,000
------------ ------------ ------------
Total shareholders' equity........ 166,878,000 368,501,000 400,003,000
Commitments and contingencies (notes
11, 15, 16 and 18)
Subsequent events (notes 9 and 20)....
------------ ------------ ------------
$482,723,000 $876,505,000 $936,659,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
---------------------------------------- --------------------------
1994 1995 1996 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $412,512,000 $519,359,000 $727,903,000 $332,099,000 $433,719,000
Costs of sales.......... 326,848,000 398,755,000 538,573,000 247,093,000 315,398,000
------------ ------------ ------------ ------------ ------------
Gross profit.......... 85,664,000 120,604,000 189,330,000 85,006,000 118,321,000
Selling, general and
administrative
expenses............... 90,719,000 97,481,000 148,683,000 64,368,000 86,140,000
Merger expenses......... -- -- -- -- 5,581,000
------------ ------------ ------------ ------------ ------------
Operating income
(loss)............... (5,055,000) 23,123,000 40,647,000 20,638,000 26,600,000
Other income (expense):
Interest expense....... (4,044,000) (7,514,000) (14,419,000) (6,548,000) (7,972,000)
Interest income and
other................. (7,382,000) 1,442,000 5,134,000 1,363,000 1,004,000
------------ ------------ ------------ ------------ ------------
(11,426,000) (6,072,000) (9,285,000) (5,185,000) (6,968,000)
------------ ------------ ------------ ------------ ------------
Income (loss) before
income tax expense
(benefit)............ (16,481,000) 17,051,000 31,362,000 15,453,000 19,632,000
Income tax expense
(benefit) (note 14).... (7,087,000) 4,812,000 12,055,000 4,743,000 5,404,000
------------ ------------ ------------ ------------ ------------
Net income (loss)..... $ (9,394,000) $ 12,239,000 $ 19,307,000 $ 10,710,000 $ 14,228,000
============ ============ ============ ============ ============
Net income (loss) per
common share (primary
and fully diluted)
(notes 1 and 15) after
reduction for dividends
on preferred stock of
$.03, $.02 and $.01 for
the years ended March
31, 1994, 1995 and
1996, respectively..... $ (0.42) $ 0.41 $ 0.45 $ 0.27 $ 0.28
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1994, 1995 AND 1996,
AND SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<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, as previously
reported............... 880,000 $22,071,000 16,622,261 $ 74,000 79,456,000 304,000 (22,274,000) 79,631,000
Restatement for
acquisitions of Zimpro
and Davis, acquired
through pooling of
interests (note 9)..... -- -- 5,694,960 57,000 13,656,000 -- 19,697,000 33,410,000
--------- ----------- ---------- -------- ----------- ---------- ----------- -----------
Balance at March 31,
1993, restated......... 880,000 22,071,000 22,317,221 131,000 93,112,000 304,000 (2,577,000) 113,041,000
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)...... -- -- 236,931 1,000 1,254,000 -- -- 1,255,000
Issuance of common stock
in connection with
acquisitions (note 9).. -- -- 4,585,122 20,000 48,469,000 -- -- 48,489,000
Dividends paid on
preferred stock
(note 15).............. -- -- -- -- -- -- (701,000) (701,000)
Shareholders' equity
transactions of
Liquipure, Zimpro and
Davis prior to merger.. -- -- -- -- 14,000 -- (203,000) (189,000)
Currency translation
adjustment............. -- -- -- -- -- (560,000) -- (560,000)
Net loss................ -- -- -- -- -- -- (9,394,000) (9,394,000)
--------- ----------- ---------- -------- ----------- ---------- ----------- -----------
Balance at March 31,
1994................... 880,000 22,071,000 27,139,274 152,000 142,929,000 (256,000) (12,875,000) 152,021,000
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)...... -- -- 241,040 2,000 1,420,000 -- -- 1,422,000
Issuance of common stock
in connection with
acquisitions (note 9).. -- -- 1,056,151 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)............... -- -- 88,500 -- 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
Shareholders' equity
transactions of Zimpro
and Davis prior to
merger................. -- -- -- -- (143,000) -- (442,000) (585,000)
Currency translation
adjustment............. -- -- -- -- -- (1,770,000) -- (1,770,000)
Net income.............. -- -- -- -- -- -- 12,239,000 12,239,000
--------- ----------- ---------- -------- ----------- ---------- ----------- -----------
Balance at March 31,
1995................... 1,065,185 $25,577,000 28,524,965 209,000 145,224,000 (2,026,000) (2,106,000) 166,878,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<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) 2,082,750 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).. -- -- 2,453,411 16,000 36,284,000 -- -- 36,300,000
Shares issued through
public offering, net of
offering costs of
$6,106,000 (note 15)... -- -- 10,350,000 69,000 97,325,000 -- -- 97,394,000
Conversion of
subordinated debentures
to common stock (note
12).................... -- -- 3,750,000 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)...... -- -- 487,885 3,000 3,678,000 -- -- 3,681,000
Issuance of common stock
to acquire assets (note
15).................... -- -- 224,122 2,000 2,974,000 -- -- 2,976,000
Shareholders' equity
transactions of Zimpro
and Davis prior to
merger................. -- -- -- -- (172,000) -- (1,413,000) (1,585,000)
Currency translation
adjustment............. -- -- -- -- -- 3,862,000 -- 3,862,000
Net income.............. -- -- -- -- -- -- 19,307,000 19,307,000
-------- ------------ ---------- -------- ----------- --------- ---------- -----------
Balance at March 31,
1996 .................. -- -- 47,873,133 338,000 351,254,000 1,836,000 15,073,000 368,501,000
Net loss of Zimpro for
the three months ended
March 31, 1996 (note 9)
(unaudited) ........... -- -- -- -- -- -- (606,000) (606,000)
Exercise of common stock
options (unaudited) ... -- -- 252,635 2,000 1,214,000 -- -- 1,216,000
Issuance of common stock
in connection with
acquisitions
(unaudited) ........... -- -- 511,412 4,000 8,404,000 -- -- 8,408,000
Shareholders' equity
transactions of Zimpro
and Davis prior to
merger (unaudited) .... -- -- -- -- 132,000 -- (2,501,000) (2,369,000)
Issuance of common stock
to pay off indebtedness
(unaudited) ........... -- -- 172,491 1,000 3,334,000 -- -- 3,335,000
Conversion of
subordinated debentures
to common stock
(unaudited) ........... -- -- 471,063 5,000 6,430,000 -- -- 6,435,000
Par value of shares
issued in connection
with three-for-two
stock split (note 15)
(unaudited)............ -- -- -- 143,000 (143,000) -- -- 0
Currency translation
adjustment (unaudited)
....................... -- -- -- -- -- 855,000 -- 855,000
Net income (unaudited) . -- -- -- -- -- -- 14,228,000 14,228,000
-------- ------------ ---------- -------- ----------- --------- ---------- -----------
Balance at September 30,
1996 (unaudited)....... -- $ -- 49,280,734 $493,000 370,625,000 2,691,000 26,194,000 400,003,000
======== ============ ========== ======== =========== ========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED MARCH 31, ENDED SEPTEMBER 30,
----------------------------------------- --------------------------
1994 1995 1996 1995 1996
------------ ------------ ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss)..... $ (9,394,000) $ 12,239,000 $ 19,307,000 $ 10,710,000 $ 14,228,000
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Deferred income taxes. (9,281,000) 713,000 (4,479,000) 194,000 --
Depreciation and
amortization......... 11,292,000 16,654,000 26,580,000 11,439,000 20,509,000
Provision for doubtful
accounts............. 1,326,000 2,030,000 5,929,000 1,320,000 1,049,000
(Gain) loss on sale of
property and
equipment............ 81,000 388,000 (243,000) 128,000 (5,000)
Stock and stock option
compensation......... 80,000 122,000 112,000 56,000 --
(Decrease) increase in
closure reserves and
write off of
intangible assets.... 12,633,000 (1,480,000) 768,000 (1,175,000) --
Change in operating
assets and
liabilities:
(Increase) decrease
in accounts
receivable.......... (13,737,000) (6,966,000) (25,900,000) (2,446,000) 9,016,000
(Increase) decrease
in costs and
estimated earnings
in excess of
billings on
uncompleted
contracts........... (11,820,000) 2,046,000 (4,599,000) (12,409,000) (19,227,000)
Increase in
inventories......... (4,510,000) (5,016,000) (4,215,000) (11,361,000) (12,859,000)
(Increase) decrease
in prepaid expenses
and other assets.... 608,000 (3,763,000) (7,055,000) (752,000) (15,684,000)
Increase (decrease)
in accounts payable
and accrued
expenses............ 15,283,000 (14,110,000) (1,726,000) (3,477,000) 3,726,000
Increase (decrease)
in billings in
excess of costs and
estimated earnings
on uncompleted
contracts........... 866,000 2,529,000 (4,096,000) (3,968,000) 3,834,000
Increase (decrease)
in other
liabilities......... 50,000 (2,117,000) (725,000) (1,273,000) (6,559,000)
------------ ------------ ------------- ------------ ------------
Net cash provided by
(used in) operating
activities......... (6,523,000) 3,269,000 (342,000) (13,014,000) (1,972,000)
------------ ------------ ------------- ------------ ------------
Cash flows from
investing activities:
Investment in
leasehold interests.. (15,766,000) (6,397,000) (8,347,000) -- --
Purchase of property,
plant and equipment.. (8,050,000) (18,304,000) (28,392,000) (13,520,000) (29,905,000)
Proceeds from disposal
of equipment......... 252,000 877,000 7,670,000 1,287,000 203,000
Purchase of short-term
investments.......... (58,411,000) (605,000) (2,591,000) (2,578,000) (755,000)
Proceeds upon maturity
of short-term
investments.......... 42,786,000 13,812,000 12,529,000 2,461,000 4,000
Payment for purchase
of acquisitions, net
of cash acquired..... (987,000) (2,240,000) (206,600,000) (111,042,000) (7,369,000)
------------ ------------ ------------- ------------ ------------
Net cash used in
investing
activities......... (40,176,000) (12,857,000) (225,731,000) (123,392,000) (37,822,000)
------------ ------------ ------------- ------------ ------------
Cash flows from
financing activities:
Net proceeds from sale
(purchase) of common
stock................ 14,000 (164,000) 97,232,000 97,510,000 --
Net proceeds from sale
of convertible
subordinated
debentures........... 57,923,000 -- 136,249,000 136,249,000 --
Proceeds from exercise
of common stock
options.............. 1,242,000 1,422,000 3,681,000 799,000 1,215,000
Principal payments of
debt................. (56,572,000) (65,409,000) (72,347,000) (54,690,000) (5,342,000)
Dividends paid........ (861,000) (1,136,000) (2,138,000) (891,000) (396,000)
Payment to repurchase
Series B preferred
stock................ -- -- (4,709,000) (4,709,000) --
Net proceeds from
borrowings on note
payable.............. 57,638,000 74,678,000 66,490,000 32,519,000 45,400,000
------------ ------------ ------------- ------------ ------------
Net cash provided by
financing
activities......... 59,384,000 9,391,000 224,458,000 206,787,000 40,877,000
------------ ------------ ------------- ------------ ------------
Net increase
(decrease) in cash
and cash
equivalents........ 12,685,000 (197,000) (1,615,000) 70,381,000 1,083,000
Cash and cash
equivalents at
beginning of period... 7,532,000 20,217,000 20,020,000 20,020,000 18,405,000
------------ ------------ ------------- ------------ ------------
Cash and cash
equivalents at end of
period................ $ 20,217,000 $ 20,020,000 $ 18,405,000 $ 90,401,000 $ 19,488,000
============ ============ ============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED MARCH 31, ENDED SEPTEMBER 30,
--------------------------------- ---------------------
1994 1995 1996 1995 1996
---------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures
of cash flow
information:
Cash paid during the
period for interest... $2,786,000 $7,603,000 $14,615,000 $5,087,000 $8,654,000
========== ========== =========== ========== ==========
Cash paid during the
period for income
taxes................. $1,709,000 $2,626,000 $ 6,807,000 $2,519,000 $4,553,000
========== ========== =========== ========== ==========
Noncash investing and
financing activities
consisted of the fol-
lowing:
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.
F-10
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1994, 1995 AND 1996 AND THE
SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(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
principally 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.
F-11
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 principally over 40 years. 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.
F-12
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements for the three months ended June 30,
1995 and 1996 are unaudited. In the opinion of management, all adjustments,
consisting only of normal recurring items, considered necessary for a fair
presentation have been included. Certain information and footnote disclosures
normally included in financial statements have been condensed or omitted from
the interim consolidated financial statements. The results of operations for
the six months ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending March 31, 1997.
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>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
-------------------------------------- ------------------------
1994 1995 1996 1995 1996
------------ ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss)....... $ (9,394,000) $12,239,000 $19,307,000 $10,710,000 $14,228,000
Dividends on preferred
stock.................. (701,000) (715,000) (536,000) (358,000) --
------------ ----------- ----------- ----------- -----------
Adjusted net income
(loss) applicable to
common shares.......... $(10,095,000) $11,524,000 $18,771,000 $10,352,000 $14,228,000
============ =========== =========== =========== ===========
Weighted average shares
outstanding............ 23,934,000 27,866,000 41,036,000 37,019,000 48,671,000
Add:
Exercise of options
reduced by the number
of shares purchased
with proceeds......... -- 369,000 1,123,000 892,000 1,958,000
------------ ----------- ----------- ----------- -----------
Adjusted weighted
average shares
outstanding............ 23,934,000 28,235,000 42,159,000 37,911,000 50,629,000
============ =========== =========== =========== ===========
Income (loss) per common
share:
Net income (loss)..... $ (0.38) $ 0.43 $ 0.46 $ 0.28 $ 0.28
Dividends on preferred
stock................ (0.03) (0.02) (0.01) (0.01) (0.00)
------------ ----------- ----------- ----------- -----------
Adjusted income (loss)
per common share....... $ (0.42) $ 0.41 $ 0.45 $ 0.27 $ 0.28
============ =========== =========== =========== ===========
</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.
F-13
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) INVENTORIES
Inventories at March 31, 1995 and 1996 and September 30, 1996 (unaudited)
consist of:
<TABLE>
<CAPTION>
MARCH 31,
----------------------- SEPTEMBER 30,
1995 1996 1996
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.......................... $15,298,000 $21,578,000 $25,525,000
Work-in-process........................ 13,436,000 17,997,000 25,906,000
Finished goods......................... 26,594,000 35,738,000 36,799,000
----------- ----------- -----------
$55,328,000 $75,313,000 $88,230,000
=========== =========== ===========
</TABLE>
(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............................................. $ 4,352,000 $ 8,988,000
Buildings and improvements....................... 32,879,000 41,338,000
Equipment........................................ 55,068,000 129,903,000
Furniture and fixtures........................... 13,456,000 24,812,000
Vehicles......................................... 1,185,000 2,719,000
Construction in progress......................... 5,370,000 17,191,000
------------ ------------
112,310,000 224,951,000
Less accumulated depreciation.................... (32,815,000) (58,962,000)
------------ ------------
$ 79,495,000 $165,989,000
============ ============
</TABLE>
During fiscal 1996, the Company's Zimpro subsidiary (note 9) evaluated the
ongoing value of equipment in accordance with Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of ("FAS 121"). Based upon this
evaluation, it was determined that certain equipment with a carrying value of
$768,000 was impaired and was written down by $689,000 to its estimated fair
value.
(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>
F-14
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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......... $ 7,592,000 $12,419,000
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........................................... 4,355,000 2,469,000
Other............................................... 6,085,000 10,993,000
----------- -----------
$25,094,000 $38,958,000
=========== ===========
</TABLE>
The above amounts reflect accumulated amortization of $4,600,000 and
$1,982,000 at March 31, 1995 and 1996, respectively. The carrying amount of
these other assets approximate their fair value.
During fiscal 1996, the Company's Zimpro subsidiary evaluated the ongoing
value of certain patents in accordance with FAS 121. Based upon this
evaluation, it was determined that patents with a carrying value of $3,556,000
were impaired and were written down by $2,648,000 to their estimated fair
value.
During the fourth quarter of fiscal 1994, the Company's Davis subsidiary
(note 9) adopted a plan to shutdown or reorganize the operations of its
wholly-owned subsidiary, The Taulman Company ("Taulman"). The pre-tax loss
provision for these actions 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.
During fiscal 1995, an additional $678,000 was added to the accrual for future
anticipated losses.
The Taulman shutdown represents the discontinuation of a product line.
Therefore, Taulman's results of operations through the fourth quarter of
fiscal 1994 were included as components of continuing operations in the
consolidated 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.
As of March 31, 1996 the balance in the reserve was $2,082,000. 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 MARCH 31,
-------------------------------
1994 1995 1996
---------- ---------- ---------
<S> <C> <C> <C>
Net sales............... 15,871,000 11,252,000 4,843,000
Cost of products sold... 14,465,000 9,791,000 5,370,000
Selling, general and
administrative expense. 4,302,000 3,445,000 1,913,000
Assets.................. 12,523,000 5,252,000 3,626,000
Liabilities............. 10,111,000 2,614,000 2,730,000
</TABLE>
(9) ACQUISITIONS
On May 31, 1996, a wholly owned subsidiary of the Company merged with and
into Zimpro Environmental, Inc. ("Zimpro"), in a tax free reorganization. In
connection with this acquisition, the Company issued 877,611 shares of the
Company's common stock for all of the outstanding common and preferred shares
of Zimpro pursuant to an Agreement and Plan of Merger among the Company,
Landegger Environmental Holdings, Inc., The Black Clawson Company, a trust,
and two limited partnerships in the John Hancock Capital Growth Fund
F-15
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
("The Hancock Funds") (collectively the "Stockholders"). In addition, the
Company liquidated existing indebtedness to The Hancock Funds in exchange for
172,491 shares of Company common stock and $1,000,000 in cash.
Zimpro, based in Wisconsin, manufactures wastewater treatment equipment with
proprietary technologies in wet air oxidation, landfill leachate treatment
systems, ground water remediation, filtration and sludge treatment systems.
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
Zimpro.
On August 23, 1996, the businesses of the Company and Davis Water & Waste
Industries, Inc. ("Davis"), were merged upon the exchange of 4,817,349 shares
of the Company's common stock for all of the outstanding common and shares of
Davis pursuant to an Agreement and Plan of Merger between the Company and
Davis.
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.
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
Davis.
Separate results of operations of the combined entities for the years ended
March 31, 1994, 1995 and 1996 and the six months ended September 30, 1995 and
1996 (unaudited) are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
--------------------------------------- --------------------------
1994 1995 1996 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
U.S. Filter (as
previously reported).. $180,421,000 $272,032,000 $472,537,000 $199,847,000 $433,719,000
Zimpro................. 29,470,000 31,678,000 28,877,000 13,702,000 --
Davis.................. 202,621,000 215,649,000 226,489,000 118,550,000 --
------------ ------------ ------------ ------------ ------------
Combined............ $412,512,000 $519,359,000 $727,903,000 $332,099,000 $433,719,000
============ ============ ============ ============ ============
Net income (loss)
U.S. Filter (as
previously reported).. $ (2,541,000) $ 8,331,000 $ 20,290,000 $ 7,868,000 $ 14,228,000
Zimpro................. (1,513,000) 460,000 (6,732,000) (136,000) --
Davis.................. (5,340,000) 3,448,000 5,749,000 2,978,000 --
------------ ------------ ------------ ------------ ------------
Combined............ $ (9,394,000) $ 12,239,000 $ 19,307,000 $ 10,710,000 $ 14,228,000
============ ============ ============ ============ ============
Net income (loss) per
common share and common
equivalent share:
As previously reported. $ (0.17) $ 0.34 $ 0.54 $ 0.23 $ 0.28
============ ============ ============ ============ ============
As restated............ $ (0.41) $ 0.41 $ 0.45 $ 0.27 $ 0.28
============ ============ ============ ============ ============
</TABLE>
F-16
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 586,844 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 498,054 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 30, 1995. The purchase price, as adjusted, was $84,300,000 consisting of
$82,000,000 in cash and the delivery of 131,616 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.
F-17
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 1,232,166 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...................... $ 0.27 $ 0.55
============ =============
</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 304,094 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 450,000
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.
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,
F-18
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 84,375 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 $12.00 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)
27,000 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.
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............... $ (0.01) $ 0.43
============ ============
</TABLE>
F-19
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On July 8, 1994, the business of the Company and Liquipure Technologies,
Inc. ("Liquipure") were merged upon the exchange of 2,778,332 shares of the
Company's common stock for all of the outstanding common and preferred shares
of Liquipure. In addition, the Company issued 67,500 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>
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.
On December 1, 1993, the Company acquired all of the outstanding capital
stock of Ionpure Technologies Corporation and IP Holdings Company. The total
purchase price consisted of $100,000 in cash and 4,561,638 shares of Company
Common Stock. In fiscal 1995, the Company received an independent appraisal of
the value of the Company's Common Stock. As a result of the appraisal, shares
issued in connection with this acquisition had a value $9,123,000 less than
originally ascribed to the Common Stock at the time of acquisition.
Accordingly, additional paid in capital and excess cost over fair value of net
assets acquired were reduced in fiscal 1995.
F-20
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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............... $ 143,886,000 $ 243,976,000
Estimated profits............................. 47,904,000 80,700,000
------------- -------------
Contract revenue earned to date............... 191,790,000 324,676,000
Less billings to date......................... (189,245,000) (306,898,000)
------------- -------------
Cost and estimated earnings in excess of bill-
ings, net.................................... $ 2,545,000 $ 17,778,000
============= =============
The above amounts are included in the accompanying consolidated balance
sheets as:
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts............ $ 21,808,000 $ 33,575,000
Billings in excess of costs and estimated
earnings on uncompleted contracts............ (19,263,000) (15,797,000)
------------- -------------
$ 2,545,000 $ 17,778,000
============= =============
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
$5,729,000 and $4,760,000 at March 31, 1995 and 1996, respectively.
Substantially all retained balances are collectible within one year.
(11) LONG-TERM DEBT
Long-term debt at March 31, 1995 and 1996 consists of the following:
<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......................................... 8,808,000 8,217,000
------------- -------------
19,468,000 17,680,000
Less current portion.......................... (4,336,000) (7,892,000)
------------- -------------
$ 15,132,000 $ 9,788,000
============= =============
</TABLE>
The aggregate maturities of long-term debt for each of the five years
subsequent to March 31, 1996 are as follows: 1997, $7,892,000; 1998,
$1,494,000; 1999, $815,000; 2000, $598,000; 2001, $580,000; and thereafter,
$6,301,000.
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
F-21
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
The Company's Davis subsidiary had a long-term, secured revolving line of
credit with a bank of up to $30,000,000, of which $5,343,000 was outstanding
at March 31, 1996. This line of credit bore interest at the bank's prime rate
or, in certain circumstances, LIBOR plus or minus various basis points.
(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 $13.67 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 $18.33 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
3,750,000 shares of Company common stock were exercised in exchange for the
delivery of the $45,000,000 principal amount of subordinated debt.
(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. $10,916,000 $ 26,329,000
Payroll, benefits and related taxes............... 9,008,000 18,450,000
Warranty.......................................... 3,866,000 6,631,000
Sales, property and other taxes................... 5,653,000 5,335,000
Interest.......................................... 1,771,000 3,204,000
Sales commission.................................. 2,949,000 3,674,000
Future remediation, relocation & closure costs.... 4,807,000 21,968,000
Other............................................. 11,714,000 16,824,000
----------- ------------
$50,684,000 $102,415,000
=========== ============
</TABLE>
F-22
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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.............................. $ 1,343,000 $2,274,000 $ 3,484,000
Deferred............................. (7,864,000) 736,000 1,872,000
State:
Current.............................. 265,000 682,000 878,000
Deferred............................. (850,000) (454,000) (504,000)
Foreign:
Current.............................. 19,000 20,000 4,085,000
Deferred............................. -- 1,554,000 2,240,000
----------- ---------- -----------
$(7,087,000) $4,812,000 $12,055,000
=========== ========== ===========
</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)............................ $(5,603,000) $5,797,000 $10,976,000
Permanent differences................. (300,000) 24,000 1,573,000
State franchise tax, net of Federal
tax benefit.......................... (406,000) 346,000 666,000
Change in balance of valuation
allowance for deferred tax assets
allocated to income tax expense...... (2,930,000) (1,392,000) (2,590,000)
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)
Other................................. (152,000) 107,000 159,000
----------- ---------- -----------
$(7,087,000) $4,812,000 $12,055,000
=========== ========== ===========
</TABLE>
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.
As of March 31, 1996, the Company also 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. In addition, the
Company has net operating loss carryforwards generated from Zimpro of
$2,905,000, which have not been recognized due to the uncertainty as to future
realizability of these carryforwards. These loss carryforwards expire in 2009.
The Company also has available, at March 31, 1996, other net operating loss
and foreign tax credit carryforwards for U.S. Federal income tax purposes of
approximately $13,552,000 which expire in 1999 to 2010.
F-23
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.................... $ 17,077,000 $ 27,664,000
Pension......................................... 725,000 832,000
Inventory....................................... 2,288,000 3,540,000
Allowance for doubtful accounts................. 1,196,000 1,776,000
Long-term contracts............................. 1,084,000 175,000
Warranty........................................ 822,000 1,837,000
Vacation........................................ 712,000 1,030,000
Other accruals.................................. 668,000 1,134,000
Tax credits..................................... 258,000 501,000
Closure reserves................................ 2,488,000 1,524,000
Other........................................... 1,677,000 3,936,000
------------ ------------
28,995,000 43,949,000
Valuation allowance............................. (10,503,000) (19,946,000)
------------ ------------
Total deferred tax assets.................... 18,492,000 24,003,000
Deferred tax liabilities:
Depreciation and amortization................... 7,148,000 12,129,000
Prepaid expenses................................ 243,000 500,000
Long-term contracts............................. -- 4,206,000
Other........................................... 9,648,000 620,000
------------ ------------
17,039,000 17,455,000
------------ ------------
Net deferred tax assets...................... $ 1,453,000 $ 6,548,000
============ ============
</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 $19,946,000 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.
(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 102,750 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 1,980,000
shares of Company common stock pursuant to terms of the security.
F-24
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
10,350,000 shares of its common stock at a price equal to $10.00 per share.
The net proceeds to the Company, after underwriting discounts and commissions
and before other related expenses, were $98,118,000.
On July 15, 1996, the Company paid in the form of a stock dividend a 3-for-2
split of the Company's common stock. 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.
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 3,881,250 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 562,500 shares. Compensation
expense of $80,000, $122,000 and $112,000 was recorded in 1994, 1995 and 1996,
respectively, related to the Directors Plan.
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............. 1,499,793 $1.35 to 22.67 $10,525,000
Options granted....................... 719,459 1.35 to 10.95 6,904,000
Options exercised..................... (236,931) 2.45 to 9.28 (1,255,000)
Options canceled...................... (56,439) 7.33 to 22.67 (532,000)
--------- -------------- -----------
Balance at March 31, 1994............. 1,925,882 1.35 to 10.95 15,642,000
Options granted....................... 898,290 1.35 to 10.59 7,650,000
Options exercised..................... (241,040) 2.45 to 9.83 (1,422,000)
Options canceled...................... (40,785) 7.33 to 9.83 (375,000)
--------- -------------- -----------
Balance at March 31, 1995............. 2,542,347 1.35 to 10.95 21,495,000
Options granted....................... 1,013,250 9.04 to 18.67 12,764,000
Options exercised..................... (487,886) 1.35 to 10.95 (3,678,000)
Options canceled...................... (20,626) 8.53 to 10.58 (183,000)
--------- -------------- -----------
Balance at March 31, 1996............. 3,047,085 $1.35 to 18.67 $30,398,000
========= ============== ===========
</TABLE>
F-25
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the warrants, options, convertible debentures and
preferred stock, the Company has reserved 13,342,754 shares at March 31, 1995
and 15,474,000 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.
The Company's Davis subsidiary had a defined benefit pension plan covering
substantially all of its employees. Upon acquisition of Davis by the Company,
the defined benefit pension plan was frozen and all liabilities have been
fully accrued. The pension plan expense for prior years was not significant.
(17) BUSINESS SEGMENT DATA AND EXPORT SALES
The Company's sole business segment is the design, manufacture, operation,
distribution and service of equipment and supplies 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.
Export sales accounted for $28,881,000, $37,940,000 and $58,560,000 in
fiscal 1994, 1995 and 1996, respectively.
F-26
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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................... $ 364,593,000 $406,593,000 $515,036,000
Foreign......................... 47,919,000 112,766,000 212,867,000
------------- ------------ ------------
$412,512,000 $519,359,000 $727,903,000
============= ============ ============
Operating income (loss):
United States................... $ (6,318,000) $ 16,695,000 $ 23,566,000
Foreign......................... 1,263,000 6,428,000 17,081,000
------------- ------------ ------------
$ (5,055,000) $ 23,123,000 $ 40,647,000
============= ============ ============
Income (loss) before income tax
expense:
United States................... $ (17,226,000) $ 12,273,000 $ 17,733,000
Foreign......................... 745,000 4,778,000 13,629,000
------------- ------------ ------------
$ (16,481,000) $ 17,051,000 $ 31,362,000
============= ============ ============
Identifiable assets:
United States................... $ 332,700,000 $318,594,000 $574,838,000
Foreign......................... 24,654,000 164,129,000 301,667,000
------------- ------------ ------------
$ 357,354,000 $482,723,000 $876,505,000
============= ============ ============
</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 $6,521,000, $8,033,000 and
$8,991,000 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........................................................... $ 7,481,000
1998........................................................... 5,852,000
1999........................................................... 5,073,000
2000........................................................... 2,591,000
2001........................................................... 1,180,000
Thereafter..................................................... 960,000
-----------
Total minimum lease payments................................... $23,137,000
===========
</TABLE>
F-27
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Zimpro is party to certain agreements (entered into in 1990 at the time
Zimpro was acquired from unrelated third parties by the entities from which it
was later acquired by the Company), pursuant to which Zimpro agreed, among
other things, to pay the original sellers a royalty of 3.0% of its annual
consolidated net sales of certain products in excess of $35.0 million through
October 25, 2000. Under certain interpretations of such agreements, with which
the Company disagrees, Zimpro could be liable for such royalties with respect
to the net sales attributable to products, systems and services of certain
defined wastewater treatment businesses acquired by Zimpro or the Company or
the Company's other subsidiaries after May 31, 1996. The defined businesses
include, among others, manufacturing machinery and equipment, and engineering,
installation, operation and maintenance services related thereto, for the
treatment and disposal of waste liquids, toxic waste and sludge. One of the
prior sellers has revealed in a letter to the Company an interpretation
contrary to that of the Company. The Company believes that it would have
meritorious defenses to any claim based upon any such interpretation and would
vigorously pursue the elimination of any threat to expand what it believes to
be its obligations pursuant to such agreements.
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................ $113,638,000 $24,761,000 $1,801,000 $0.06
Second quarter............... 130,522,000 30,324,000 3,215,000 0.11
Third quarter................ 133,027,000 31,195,000 3,192,000 0.11
Fourth quarter............... 142,172,000 34,324,000 4,031,000 0.13
1996
First quarter................ $158,173,000 $38,850,000 $4,339,000 $0.12
Second quarter............... 173,927,000 46,156,000 6,371,000 0.15
Third quarter................ 186,663,000 49,172,000 7,002,000 0.15
Fourth quarter............... 209,140,000 55,152,000 1,595,000 0.03
1997
First quarter................ $208,509,000 $56,335,000 $8,003,000 $0.16
Second quarter............... 225,210,000 61,986,000 6,225,000 0.12
</TABLE>
- ---------------------
* Per common and common equivalent share
F-28
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(20) SUBSEQUENT EVENTS
On October 25, 1996, the Company acquired all of the outstanding capital
stock of The Utility Supply Group, Inc. ("USG") pursuant to an Agreement and
Plan of Merger. USG is a provider of water and wastewater related products and
services to industrial and municipal customers throughout the United States.
The purchase price was approximately $44 million. The transaction was
accounted for as a purchase.
On October 28, 1996, the Company acquired all of the outstanding capital
stock of WaterPro Supplies Corporation ("WaterPro") pursuant to a Stock
Purchase Agreement. WaterPro is a national distributor of water and wastewater
related products and services for municipal water, sewer authorities and
underground contractors, and has locations throughout the United States.
The purchase price was approximately $102 million paid in shares of Company
Common Stock. The transaction was accounted for as a purchase. In connection
with this transaction and subject to certain conditions, the WaterPro
shareholders have the right to require the Company to repurchase the shares at
$33.24 per share.
On September 14, 1996, the Company entered into a Purchase and Sale
Agreement with Wheelabrator Technologies Inc. in connection with a proposed
acquisition by the Company of Wheelabrator's Water Systems and Manufacturing
Group ("WSMG"). Pursuant to the terms of the agreement, the Company will pay
approximately $369 million in cash for WSMG, subject to possible adjustment,
which provides a broad range of water and wastewater engineering, technology
and systems. The proposed transaction is expected to be completed in December
1996, and will be accounted for as a purchase.
On October 7, 1996, the Company entered into a Purchase and Sale Agreement
with United Utilities PLC ("UU") and certain of its subsidiaries in connection
with a proposed acquisition by the Company of UU's Process Equipment Division
("PED"). In accordance with the terms of the definitive agreement, the Company
will pay approximately (Pounds)125 million for PED, which provides a broad
range of water and wastewater engineering technology and systems. In
connection with this proposed transaction, the Company entered into a forward
contract to purchase 100 million British pounds sterling for approximately
$159.3 million between December 16, 1996 and February 14, 1997. The proposed
transaction is expected to be completed in January 1997, and will be accounted
for as a purchase.
On September 12, 1996, the Company provided notice, pursuant to terms of its
Indenture dated October 20, 1993, of its intent to redeem on October 25, 1996
all of its outstanding 5% Convertible Subordinated Debentures due 2000. As of
October 25, 1996, all holders of the debentures converted the debentures into
a total of approximately 4.4 million shares of Company Common Stock pursuant
to the terms of the Debentures.
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wheelabrator Technologies Inc.:
The Board of Directors
United States Filter Corporation:
We have audited the accompanying combined balance sheets of the Systems and
Manufacturing Group of Wheelabrator Technologies Inc. (the "Businesses") as of
December 31, 1994 and 1995, and the related combined statements of income and
cash flows for each of the years in the three-year period ended December 31,
1995. These financial statements are the responsibility of the management of
the Businesses. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Systems and
Manufacturing Group of Wheelabrator Technologies Inc. as of December 31, 1994
and 1995 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Chicago, Illinois
October 15, 1996
F-30
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
ASSETS 1994 1995 1996
------ -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents........................ $ 25,122 $ 25,092 $ 12,619
Accounts receivable, net......................... 81,490 87,526 93,325
Inventories...................................... 31,527 48,407 41,622
Costs and estimated earnings in excess of
billings on uncompleted contracts............... 20,498 22,710 19,785
Other current assets............................. 2,920 2,028 3,790
-------- -------- --------
Total current assets........................... 161,557 185,763 171,141
-------- -------- --------
Property, plant, and equipment, net................ 48,253 47,354 55,752
Goodwill, net...................................... 151,483 158,074 155,578
Other assets....................................... 5,365 3,756 4,044
-------- -------- --------
Total assets................................... $366,658 $394,947 $386,515
======== ======== ========
<CAPTION>
LIABILITIES AND GROUP EQUITY
----------------------------
<S> <C> <C> <C>
Current Liabilities:
Accounts payable................................. $ 56,485 $ 53,163 $ 53,338
Accrued liabilities.............................. 51,615 47,816 43,822
Advance payment on contracts..................... 19,802 19,966 18,911
-------- -------- --------
Total current liabilities...................... 127,902 120,945 116,071
-------- -------- --------
Other long-term liabilities........................ 17,732 16,003 13,962
Commitments and contingencies......................
Group Equity:
Group equity..................................... 220,527 255,816 254,400
Cumulative translation adjustment................ 497 2,183 2,082
-------- -------- --------
Total group equity............................... 221,024 257,999 256,482
-------- -------- --------
Total liabilities and group equity............. $366,658 $394,947 $386,515
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-31
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
COMBINED INCOME STATEMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.......................... $293,207 $364,335 $452,134 $337,589 $329,527
Operating expenses............... 222,384 281,946 361,462 269,479 257,985
-------- -------- -------- -------- --------
Gross margin................... 70,823 82,389 90,672 68,110 71,542
Selling, general & administrative
expenses........................ 47,261 62,224 68,170 50,180 49,371
-------- -------- -------- -------- --------
Operating income............... 23,562 20,165 22,502 17,930 22,171
Gain (loss) on sale of assets.... (5) 955 4,212 15 18
Interest, net.................... 288 168 423 244 487
Other income (expense), net...... (1,421) 755 132 127 96
-------- -------- -------- -------- --------
Income before pro forma income
tax provision................. 22,424 22,043 27,269 18,316 22,772
Pro forma income tax provision... 8,970 8,817 10,908 7,326 9,109
-------- -------- -------- -------- --------
Net income..................... $ 13,454 $ 13,226 $ 16,361 $ 10,990 $ 13,663
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-32
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income................. $ 13,454 $ 13,226 $ 16,361 $ 10,990 $ 13,663
Adjustment to reconcile net
income to cash flows from
operating activities:.....
Depreciation and
amortization............ 5,581 9,608 11,211 8,492 9,145
Changes in assets and
liabilities, net of
effects of acquired
businesses:.............
Accounts receivable.... (2,088) (8,116) (5,292) (8,739) (5,799)
Inventories............ 5,254 (6,423) (11,222) (10,313) 6,785
Costs and estimated
earnings in excess of
billings on
uncompleted contracts. (17,182) 3,014 (2,212) 255 2,925
Accounts payable....... 5,865 4,327 (4,143) (8,068) 175
Accrued liabilities.... 3,213 (2,889) (4,182) (2,940) (3,994)
Advance payments on
contracts............. (982) (239) (6,358) (5,376) (1,055)
Other, net................. 4,603 2,310 (2,973) 3,764 293
-------- -------- -------- -------- --------
Net cash provided by
(used for) operating
activities............ 17,718 14,818 (8,810) (11,935) 22,138
-------- -------- -------- -------- --------
Investing Activities:
Capital expenditures....... (4,202) (5,075) (9,817) (5,612) (22,443)
Sale of property, plant,
and equipment............. 5,805 3,834 8,054 4,259 477
Cash paid for acquisitions,
net of acquired cash...... (24,790) (18,848) (5,746) -- (850)
Other, net................. -- (1,375) 46 (1,459) --
-------- -------- -------- -------- --------
Net cash provided by
(used for) investing
activities.............. (23,187) (21,464) (7,463) (2,792) (22,816)
-------- -------- -------- -------- --------
Financing Activities:
Increase (decrease) in
group equity.............. 6,073 20,073 20,614 17,015 (15,180)
Other, net................. -- 3,423 (4,371) (2,906) 3,385
-------- -------- -------- -------- --------
Net cash provided by
(used for) investing
activities.............. 6,073 23,496 16,243 14,109 (11,795)
-------- -------- -------- -------- --------
Increase (decrease) in cash
and cash equivalents........ 604 16,850 (30) (618) (12,473)
Cash and cash equivalents at
beginning of period......... 7,668 8,272 25,122 25,122 25,092
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of period............... $ 8,272 $ 25,122 $225,092 $ 24,504 $ 12,619
======== ======== ======== ======== ========
Significant noncash investing
activities
Liabilities assumed in
acquisitions.............. $ 29,883 $ 74,067 $ 8,232 $ -- $ --
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-33
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
The Systems and Manufacturing Group (the "Businesses") of Wheelabrator
Technologies Inc. ("WTI") provide products and services to customers in the
water, wastewater and general industrial markets, primarily in the United
States, Europe and Asia. The majority of the Businesses have been acquired by
WTI in the last three years. Certain other Businesses have been owned by WTI
or its predecessors since prior to 1993. The Businesses have no separate legal
status or existence. The assets and liabilities comprising the majority of the
U.S. based Businesses are owned by a wholly owned subsidiary of WTI.
In connection with a proposed transaction whereby WTI would sell the
Businesses to United States Filter Corporation ("USF"), WTI and USF have
entered into a definitive Purchase and Sale Agreement dated September 14, 1996
(the "Agreement"), the terms of which provide for certain assets to be
purchased and certain liabilities assumed by USF in connection with Businesses
based in the United States. Additionally, the Agreement provides for certain
liabilities relating to the Businesses to be retained by WTI and for WTI to
indemnify USF in connection with certain other matters (collectively the
"Retained Liabilities"). These financial statements reflect the financial
condition, results of operations and cash flows for the Businesses on a
combined basis, excluding the Retained Liabilities, for all periods presented.
NOTE 2 SIGNIFICANT ACCOUNT POLICIES
Combined Financial Statements
The combined financial statements include the accounts of the Businesses and
the majority-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated. Investments in affiliates WTI does not control
are accounted for using the equity method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets, liabilities, income,
expenses and disclosures of contingencies. Future events could alter such
estimates.
Concentrations
The Businesses offer a multitude of products and services to a diverse
customer base. Management believes the Businesses have no significant
customer, supplier, product line, credit risk, geographic or other
concentrations that could expose the Businesses to adverse, near-term severe
financial impacts.
Revenue Recognition
Revenues from certain long-term engineering and equipment supply contracts
are recognized on the percentage-of-completion basis, with estimated losses
recognized in full when identified. All other revenues are recognized when
services are rendered or products are shipped.
Foreign Currency
Foreign subsidiaries' income statement accounts are translated at the
average exchange rates in effect during the period, while assets and
liabilities are translated at the rates of exchange at the balance sheet date.
The resulting balance sheet translation adjustments are charged or credited
directly to group equity. Foreign exchange transaction gains and losses
realized during 1993, 1994 and 1995 were not significant.
F-34
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Combined Statements of Cash Flows
For purposes of the Combined Statements of Cash Flows, all highly liquid
instruments purchased with an original maturity of three months or less are
considered to be cash equivalents.
Derivative Financial Instruments
From time to time, the Businesses use derivative instruments to manage
currency risk. Immaterial amounts of various currencies were sold forward for
delivery at various dates in 1995 to hedge foreign exchange exposure on
specifically identified transactions. Gains or losses on these transactions
are included in the measurement of the subsequent transaction. Where deemed
advantageous, management will enter similar hedges in the future to mitigate
foreign exchange exposure.
Fair Value of Financial Instruments
Financial instruments of the Businesses consist primarily of cash and cash
equivalents, receivables and accounts payable. The book values of such
instruments are considered to be representative of their respective fair
values.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market (net realizable value).
Property, Plant and Equipment
Property, plant, and equipment (including major improvements) are
capitalized and stated at cost. Items of an ordinary maintenance or repair
nature are charged directly to operating expense. The cost less estimated
salvage value of property, plant, and equipment is generally depreciated on a
straight-line basis over estimated useful lives that range from 3 to 35 years.
Goodwill
The excess of cost over fair value of the net assets of acquired businesses
("goodwill") is amortized on a straight-line basis over 40 years. The
accumulated amortization balances as of December 31, 1994 and 1995 were $8.2
million and $12.2 million, respectively. On an ongoing basis, the
realizability of goodwill is measured by the ability of the acquired
businesses to generate current and undiscounted expected future cash flows in
excess of unamortized goodwill. If such realizability were in doubt, an
adjustment would be made to reduce the carrying value of the goodwill. No such
adjustments have been made with respect to the Businesses.
Pro Forma Income Taxes
Certain of the assets and liabilities comprising the Businesses are not
stand alone, taxable entities (see Note 1). The taxable income from Businesses
operating in the United States have been included in the consolidated federal
tax returns of WTI for all periods presented. Entities outside the United
States are taxable in the jurisdictions in which they are organized or are
doing business. For the purposes of the accompanying combined financial
statements, a pro forma income tax expense has been provided at 40 percent of
reported combined pretax income.
F-35
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Contracts in Process
Information with respect to contracts in process at December 31, 1994 and
1995 follows. Contracts in process are included in the combined balance sheets
under the following captions (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1994 1995
------- -------
<S> <C> <C>
Costs and earnings in excess of billings................ $20,498 $22,710
Advance payments on contracts........................... (19,802) (19,966)
------- -------
Total contracts in process............................ $ 696 $ 2,744
======= =======
</TABLE>
All contracts in process are expected to be billed and collected within two
years.
Accounts receivable include retainage that has been billed but is not due
until completion pursuant to the terms of the contract. Such retainage at
December 31, 1995 was $3.7 million, all of which (except for amounts provided
for) is expected to be collected within one year. At December 31, 1994,
retainage was $3.0 million.
Accounting Pronouncements
Effective January 1, 1994, the Businesses adopted Statement of Financial
Accounting Standards No. 112 "Employers' Accounting for Postemployment
Benefits" ("FAS 112"). This new statement established accounting standards for
employers who provide benefits to former or inactive employees after
employment but before retirement. The adoption of FAS 112 did not have a
material impact on the combined financial statements of the Businesses since
its accounting prior to adoption of FAS 112 was substantially in compliance
with the new standard. Also effective during 1994 was Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Debt and Equity
Securities" ("FAS 115"). The Businesses do not have significant investments
and does not contemplate acquiring significant investments of the type covered
in FAS 115.
The Businesses are required to adopt Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("FAS 121"), beginning in 1996.
Management does not believe the adoption of FAS 121 will have a material
impact on the combined financial statements of the Businesses.
Unaudited Interim Information
The combined financial statements as of September 30, 1996 and for the nine
months ended September 30, 1995 and 1996 are unaudited. In the opinion of
management, the unaudited combined financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation. Certain information and footnote disclosures normally
included in financial statements have been condensed or omitted from the
interim combined financial statements. The results of operations for the nine
months ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996.
F-36
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. GROUP EQUITY, ALLOCATIONS AND OTHER RELATED PARTY TRANSACTIONS
Group Equity
The group equity account reflects the activity between WTI and the
Businesses, a summary of which follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Beginning balance............................ $168,198 $187,725 $221,024
Net income................................... 13,454 13,226 16,361
Net intercompany transactions................ 6,969 18,680 18,928
Translation adjustment....................... (896) 1,393 1,686
-------- -------- --------
Ending balance............................. $187,725 $221,024 $257,999
======== ======== ========
</TABLE>
Cash Management
Certain of the Businesses participate in WTI's centralized cash management
system and, as such, their cash funding requirements have been met by WTI and
all excess cash has been transferred to WTI.
Allocations
The combined income statements includes all direct costs of the Businesses
as well as certain corporate costs directly identified with the Businesses.
WTI has not allocated interest income or expense to the Businesses. In the
opinion of management, these allocations have been made on a basis which is
believed to be reasonable for a group of businesses operating within the
structure of a larger parent organization. However, the allocations are not
necessarily indicative of the level of expenses which might have been incurred
by the Businesses operating as a stand-alone entity.
NOTE 4. ACQUISITIONS
The Businesses include three environmental services businesses acquired in
1993, six acquired in 1994 and one acquired in 1996 in exchange for
consideration, net of cash acquired and including assumed debt, of
approximately $24.8 million, $21.5 million and $5.7 million, respectively. The
Businesses utilize the purchase method of accounting, and the purchase price
of the acquisitions has been allocated to their respective net assets based
upon estimated fair market values. The results of operations of acquired
entities have been included in the Businesses' combined financial statements
from their respective dates of acquisition. The pro forma effect of the
acquisitions made during 1993, 1994 and 1995 was not material.
NOTE 5. PRO FORMA INCOME TAXES
The Businesses reported income before income tax for each of the years
indicated on the accompanying combined statements of income. During such
periods, the Businesses operating in the United States were included in WTI's
consolidated federal income tax returns. Those Businesses located outside of
the United States are taxable in the jurisdictions in which they are
organized. For the purposes of the accompanying combined financial statements,
a pro forma income tax expense has been provided at 40% of reported combined
pretax income.
F-37
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. BENEFIT PLANS
Substantially all employees based in the United States are participants in
the Wheelabrator-Rust Savings and Retirement Plan, which is a qualified
defined contribution plan consisting of a contributory component and a non-
contributory component. Under the terms of the contributory component,
eligible employees may elect to contribute a portion of their annual
compensation and the Businesses are required to match a minimum of 30 percent
of the first six percent of eligible compensation contributed by an employee.
Under the terms of the non-contributory component, eligible employees receive
an annual contribution equal to a minimum of three percent of their eligible
earnings. The Businesses' contributions to such plans during 1993, 1994 and
1995 amounted to approximately $1.7 million, $2.1 million and $2.4 million,
respectively.
The Businesses based outside the United States have in place various other
plans that are not significant that provide pension and welfare benefits to
certain active and former employees.
NOTE 7. ADDITIONAL FINANCIAL INFORMATION
The allowance for doubtful accounts was $3.7 million and $4.3 million as of
December 31, 1994 and 1995, respectively.
The following is a summary of inventories (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
------- -------
<S> <C> <C>
Raw materials............................................. $ 7,697 $21,429
Work in process........................................... 14,276 15,259
Finished goods............................................ 9,554 11,719
------- -------
Total inventories....................................... $31,527 $48,407
======= =======
</TABLE>
The following is a summary of property, plant and equipment (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
-------- --------
<S> <C> <C>
Land.................................................. $ 847 $ 743
Machinery and equipment............................... 51,005 53,484
Buildings and improvements............................ 39,174 37,661
Less: accumulated depreciation........................ (42,773) (44,534)
-------- --------
Total property, plant, and equipment................ $ 48,253 $ 47,354
======== ========
</TABLE>
Depreciation of property, plant, and equipment for the years ended December
31, 1993, 1994 and 1995 was $4.9 million, $5.9 million, and $7.0 million,
respectively.
The following is a summary of accrued liabilities (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
------- -------
<S> <C> <C>
Wages, salaries and benefits............................. $ 8,453 $ 8,936
Warranties and contract reserves......................... 9,149 11,100
Other.................................................... 34,013 27,780
------- -------
Total accrued liabilities.............................. $51,615 $47,816
======= =======
</TABLE>
F-38
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Noncancelable operating lease payments at December 31, 1995 are due as
follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1996............................... $ 4,290
1997............................... 3,613
1998............................... 3,172
1999............................... 2,670
2000............................... 2,648
Thereafter......................... 15,290
-------
Total............................ $31,683
=======
</TABLE>
Total rent expense was $2.2 million, $2.6 million and $2.8 million in 1993,
1994 and 1995, respectively.
NOTE 8. COMMITMENTS AND CONTINGENCIES
There are various lawsuits and claims pending against the Businesses that
have arisen in the normal course of business and related mainly to matters of
product liability, personal injury, and property damage. The outcomes of these
matters are not presently determinable, but in the opinion of management,
based on the advice of counsel, the ultimate resolution of these matters will
not have a material adverse effect on the financial condition or results of
operations of the Businesses.
The Businesses are self-insured for general liability claims up to $2.0
million per occurrence. Liability insurance in effect during the last several
years provides coverage for environmental matters only to a limited extent. In
the normal course of business, the Businesses have issued or are parties to
bank letters of credit, performance bonds, and other guarantees.
Certain of the Businesses operate in the environmental industry and are
involved with the protection of the environment. As such, a significant
portion of the Businesses' operating costs and capital expenditures could be
characterized as costs of environmental protection. While the Businesses are
faced, in the normal course of its business, with the need to expend funds for
environmental protection, it is not expected that such expenditures will have
a material adverse effect on financial condition or results of operations.
F-39
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
STATEMENT OF UNITED UTILITIES PLC DIRECTORS' RESPONSIBILITIES
The directors have assumed the responsibility to prepare financial
statements for each financial year which present fairly the financial position
of the division and of the profit or loss of the division for that period. In
preparing those financial statements, the directors are required to:
. select suitable accounting policies and then apply them consistently;
. make judgements and estimates that are reasonable and prudent;
. state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the
financial statements;
. prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the companies within the division will
continue in business.
The directors are responsible for maintaining proper accounting records
which disclose with reasonable accuracy at any time the financial position of
the division and to enable them to ensure that the financial statements comply
with relevant aspects of the Companies Act 1985. They are also responsible for
safeguarding the assets of the division and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
F-40
<PAGE>
AUDITORS' REPORT TO THE BOARD OF DIRECTORS OF UNITED UTILITIES PLC
We have audited the accompanying aggregated balance sheets of the United
Utilities PLC Process Division as at 31 March 1996 and 31 March 1995, the
related aggregated profit and loss accounts for each of the years in the two
year period ended 31 March 1996 and the cash flow for the year ended 31 March
1996. These aggregated financial statements are the responsibility of the
Directors of United Utilities PLC. Our responsibility is to express an opinion
on these aggregated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom which are substantially the same as auditing
standards generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free from 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 aggregated financial statements referred to above
present fairly, in all material respects, the financial position of the United
Utilities PLC Process Division at 31 March 1996 and 31 March 1995, the results
of its operations for each of the years in the two year period ended 31 March
1996 and the cash flow for the year ended 31 March 1996 in conformity with
generally accepted accounting principles in the United Kingdom.
KPMG AUDIT PLC Manchester
Chartered Accountants
Registered Auditors
16 October 1996
F-41
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
US $ US $
AUDITED UNAUDITED
YEAR ENDED 6 MONTHS ENDED
-------------------- -------------------------
31 MARCH 31 MARCH 30 SEPTEMBER 30 SEPTEMBER
NOTE 1996 1995 1996 1995
---- --------- --------- ------------ ------------
$000 $000 $000 $000
<S> <C> <C> <C> <C> <C>
Turnover.................. 2 267,358 254,955 130,407 119,309
Cost of sales............. (189,529) (179,057) (92,728) (85,230)
--------- --------- ------- -------
Gross profit.............. 77,829 75,898 37,679 34,079
Net operating costs and
administrative expenses.. 3 (63,983) (65,321) (32,460) (32,166)
Business restructuring.... 4 (31,312) -- -- --
--------- --------- ------- -------
Operating (loss)/profit... (17,466) 10,577 5,219 1,913
Profit on disposal of
fixed assets............. 5 -- 1,833 -- --
--------- --------- ------- -------
(Loss)/profit on ordinary
activities............... (17,466) 12,410 5,219 1,913
Net interest.............. 6 (19,865) (19,925) (9,469) (9,788)
--------- --------- ------- -------
Loss on ordinary
activities before
taxation................. (37,331) (7,515) (4,250) (7,875)
Taxation on loss on
ordinary activities...... 8 (2,165) (6,061) 309 (570)
--------- --------- ------- -------
Loss on ordinary
activities after
taxation................. (39,496) (13,576) (3,941) (8,445)
Dividends................. -- -- (18,038) --
--------- --------- ------- -------
Retained loss for the
financial year/period.... (39,496) (13,576) (21,979) (8,445)
========= ========= ======= =======
</TABLE>
A statement of movements on the profit and loss account is given in note 17.
The above results all arise from continuing activities.
There is no difference between the loss on ordinary activities before taxation
and the retained loss for the period stated above, and their historical cost
equivalents.
There are no recognised gains or losses other than those included in the
results above and therefore no separate statement of total recognised gains
and losses has been presented.
F-42
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
BALANCE SHEETS
<TABLE>
<CAPTION>
US $
US $ AUDITED UNAUDITED
------------------ ------------
31 MARCH 31 MARCH 30 SEPTEMBER
NOTE 1996 1995 1996
---- -------- -------- ------------
$000 $000 $000
<S> <C> <C> <C> <C>
Fixed assets
Tangible assets......................... 9 34,865 35,734 39,114
Investments............................. 10 1,526 1,780 1,557
Intangible assets....................... 11 869 -- 1,242
-------- -------- --------
37,260 37,514 41,913
-------- -------- --------
Current assets
Stocks.................................. 12 55,556 57,729 51,127
Debtors................................. 13 184,249 152,118 166,042
Cash at bank and in hand................ 2,438 7,393 3,329
-------- -------- --------
242,243 217,240 220,498
Creditors: (amounts falling due within
one year)............................... 14 (197,760) (170,055) (205,923)
-------- -------- --------
Net current assets....................... 44,483 47,185 14,575
-------- -------- --------
Total assets less current liabilities.... 81,743 84,699 56,488
Creditors: (amounts falling due after
more than one year)..................... 14 (231,325) (225,064) (234,454)
Provisions for liabilities and charges... 15 (33,178) (2,450) (28,731)
-------- -------- --------
Net liabilities.......................... (182,760) (142,815) (206,697)
======== ======== ========
Capital and reserves
Aggregated called up share capital...... 16 4,426 4,698 4,309
Share premium account................... 17 12,262 12,262 12,502
Capital redemption reserve.............. 17 350 373 357
Revaluation reserve..................... 17 7,580 9,798 7,729
Profit and loss account................. 17 (207,378) (169,946) (231,594)
-------- -------- --------
Shareholders' funds..................... (182,760) (142,815) (206,697)
======== ======== ========
</TABLE>
Approved by the Board of directors on 16 October 1996 and signed on its behalf
by:
R. Ferguson
Director
F-43
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
CASH FLOW STATEMENT
<TABLE>
<CAPTION>
US $ UNAUDITED
US $ SIX MONTHS ENDED
AUDITED -------------------------
YEAR ENDED 30 SEPTEMBER 30 SEPTEMBER
NOTE 31 MARCH 1996 1996 1995
---- ------------- ------------ ------------
$000 $000 $000
<S> <C> <C> <C> <C>
Net cash (outflow) inflow from
operating activities............. 20 (30,320) 16,102 (11,545)
------- ------- -------
Returns on investments and
servicing of finance.............
Interest received............... 600 422 460
Interest paid................... (2,880) (2,609) (2,132)
------- ------- -------
Net cash outflow from returns on
investments and servicing of
finance.......................... (2,280) (2,187) (1,672)
------- ------- -------
Taxation..........................
Corporation tax paid............ (1,007) (125) (660)
------- ------- -------
Cash (outflow) inflow from
operations after tax............. (33,607) 13,790 (13,877)
------- ------- -------
Investing activities..............
Purchase of tangible fixed
assets......................... (6,394) (5,141) (2,515)
Expenditure on capitalized
development costs.............. (869) (8) (230)
Receipts from sales of tangible
fixed assets................... 364 12 100
------- ------- -------
Net cash outflow from investing
activities....................... (6,899) (5,137) (2,645)
------- ------- -------
Increase (decrease) in cash and
cash equivalents................. 20 (40,506) 8,653 (16,522)
======= ======= =======
</TABLE>
F-44
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
1. ACCOUNTING POLICIES
BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The aggregated financial statements incorporate the financial statements of
each of the entities which constitute the Process Division of United Utilities
PLC as detailed in note 21. The financial statements have been prepared under
the historical cost convention and in accordance with applicable accounting
standards and with UK generally accepted accounting principles.
BASIS OF AGGREGATION
The Process Division is composed of the entities set out in note 21, all of
which are owned by United Utilities PLC. There is no single holding company
for the Process Division.
The figures presented in these financial statements have been prepared by
combining the results of all these entities. All intra group Process Division
transactions and balances have been eliminated. As the Process Division is not
a statutory entity, directors emoluments have not been disclosed.
CASH FLOW STATEMENT
As its parent undertaking, United Utilities PLC, publishes a consolidated
cash flow statement, the Process Division is exempt, under Financial Reporting
Standard 1, from preparing such a statement. Notwithstanding this exemption, a
cash flow statement has been provided for the year ended 31 March 1996.
Comparative cash flow information, which would have been required had the
exemption not been available, has not been provided.
UNAUDITED INTERIM AGGREGATED FINANCIAL STATEMENTS
The aggregated financial statements for the six months ended 30 September,
1995 and 1996 are unaudited. In the opinion of management, all adjustments,
consisting only of normal recurring items, considered necessary for a fair
presentation have been included. Certain information and all footnote
disclosures normally included in financial statements have been excluded from
the interim aggregated financial statements. The results of operations for the
six months ended 30 September, 1996 are not necessarily indicative of the
results that may be expected for the year ending 31 March, 1997.
TURNOVER
Turnover represents the income receivable in the ordinary course of business
for goods or services provided and excludes VAT and foreign sales tax.
RESEARCH AND DEVELOPMENT
Expenditure on research and development is written off against profits in
the year in which it is incurred. Development expenditure incurred on projects
which meet the criteria of SSAP 13 is capitalized and amortized over 5 years.
GOODWILL
The net assets of companies and businesses acquired are incorporated into
the aggregated financial statements at their fair value to the Process
Division and after adjustments to bring the accounting policies of the
companies and businesses acquired into alignment with those of the Division.
Past fair value adjustments include provisions for reorganisation and
restructuring costs. In the year ended 31 March 1996, in accordance with
F-45
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
Financial Reporting Standard 7, reorganisation and restructuring costs have
not been included in fair value adjustments. If the estimates on which these
provisions are based prove to be in excess of actual expenditure, the
unutilised surplus provisions will not be taken to profit and loss, but will
be credited to reserves as a recalculation of goodwill.
TANGIBLE FIXED ASSETS
Additions are included at cost.
Freehold land is not depreciated. Other assets are depreciated evenly over
their estimated economic lives which are principally as follows:
<TABLE>
<S> <C>
Buildings........................................................ 30-60 years
Fixtures, fittings, tools, equipment and motor vehicles.......... 3-40 years
Capitalised computer software costs.............................. 3-10 years
</TABLE>
LEASED ASSETS
Assets financed by leasing arrangements which transfer substantially all the
risks and rewards of ownership to the lessee (finance leases) are capitalised
in the balance sheet and the corresponding capital cost is shown as an
obligation to the lessor. Leasing repayments comprise both a capital and a
finance element. The finance element is written off to the profit and loss
account so as to produce an approximately constant periodic rate of charge on
the outstanding obligation. Such assets are depreciated over the shorter of
their estimated useful lives and the period of the lease.
Operating lease rentals are charged to the profit and loss account on a
straight line basis over the period of the lease.
FIXED ASSET INVESTMENTS
Investments held as fixed assets are stated at cost less amounts written off
for permanent diminution.
STOCKS
Stocks are stated at cost less any provision necessary to recognise damage
and obsolescence.
Long term contract work in progress is stated at cost, net of amounts
transferred to cost of sales, after deducting payments received in advance and
making provision for foreseeable losses.
Finished goods and goods for resale are stated at the lower of cost,
including appropriate production overheads, and net realisable value.
PENSIONS
Approximately half of the Division's employees belong to pension schemes
which provide for defined benefits based on final pensionable pay. Pension
costs are charged against profits over the estimated remaining service lives
of employees.
FOREIGN CURRENCY
For the convenience of the reader, these financial statements have been
stated in US dollars. The balance sheets have been translated into dollars at
exchange rates applicable at the year end. The profit and loss accounts are
translated into dollars using the average rate. Differences arising from the
application of the closing rate to opening net assets, offset by translation
differences on foreign currency loans which finance investments in overseas
subsidiary undertakings, together with differences between profits and losses
translated at average rates and at closing rates, are recorded as a movement
in reserves.
F-46
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
DEFERRED TAXATION
Provision is made for deferred taxation where a liability is considered
likely to arise in the foreseeable future.
ASSOCIATED UNDERTAKINGS
The appropriate share of the results of associated undertakings is
recognised in the aggregated profit and loss account where the directors
consider that the Division is in a position to exert significant influence
over the associated undertakings.
REVALUATION RESERVE
Surpluses or deficits arising as a result of the incorporation of land and
buildings valuations in the accounts are taken to the revaluation reserve
unless the deficit exceeds the accumulated surpluses when it would be taken
directly to the profit and loss account.
2. TURNOVER, PROFIT AND NET ASSETS BY BUSINESS
Turnover, loss or profit before interest and taxation and net assets were
all attributable to the same class of business namely Process Equipment.
The geographical analysis of these items is shown below:
By geographical origin:
<TABLE>
<CAPTION>
PROFIT/(LOSS)
BEFORE
INTEREST AND NET OPERATING
TURNOVER TAX ASSETS
--------------- --------------- ---------------
1996 1995 1996 1995 1996 1995
------- ------- ------- ------ ------- -------
$000 $000 $000 $000 $000 $000
<S> <C> <C> <C> <C> <C> <C>
United Kingdom.................. 47,344 45,401 3,763 4,427 29,337 30,539
Europe.......................... 30,117 29,077 2,737 3,368 12,774 11,348
The Americas.................... 181,916 172,525 (24,313) 4,207 84,573 80,888
Rest of the world............... 7,981 7,952 347 408 3,406 2,919
------- ------- ------- ------ ------- -------
267,358 254,955 (17,466) 12,410 130,090 125,694
======= ======= ======= ====== ======= =======
</TABLE>
The geographical destination of turnover does not differ materially from the
geographical origin analysis above.
Net operating assets comprise fixed assets and net current
(liabilities)/assets and provisions excluding net borrowings, investments and
taxation.
F-47
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
3. NET OPERATING COSTS AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
-------- --------
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Distribution costs......................................... 33,117 29,230
Administrative expenses.................................... 30,866 36,091
------ ------
63,983 65,321
====== ======
</TABLE>
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
-------- --------
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Net operating costs and administrative expenses include:
Operating lease rentals--hire of plant and machinery..... 1,187 1,148
--other........................................ 1,286 1,223
Depreciation............................................. 4,016 3,196
Auditors remuneration
--audit................................................ 247 207
--other fees........................................... 48 127
Research and development costs........................... 2,410 481
</TABLE>
Additional non-audit fees of $424,000 were charged against provisions for
liabilities and charges in 1996.
4. BUSINESS RESTRUCTURING
In December 1995, United Utilities PLC announced its plans to relocate a
certain obsolete facility of its Wallace & Tiernan, Inc. subsidiary. In
connection with this plan, a business restructuring expense totaling
$31,312,000 was charged to operations during the year ended 31 March 1996. The
charges consist of severance costs, professional fees, relocation of existing
employees, inventory and equipment, a provision for impaired property, plant
and equipment and other related restructuring costs.
5. PROFIT ON DISPOSAL OF FIXED ASSETS
The profit on disposal of fixed assets in the year ended 31 March 1995
relates wholly to the disposal of land and buildings held by Wallace & Tiernan
Limited.
6. NET INTEREST
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
-------- --------
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Interest payable:
To non Process Division Group undertakings............... 23,003 22,662
To external parties...................................... 4,604 3,054
Interest receivable:
From non Process Division Group undertakings............. (7,452) (5,267)
From external parties.................................... (290) (524)
------ ------
19,865 19,925
====== ======
</TABLE>
F-48
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
7. EMPLOYEE COSTS
The aggregate remuneration of all employees of the Division comprised:
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
-------- --------
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Wages and salaries......................................... 71,477 68,970
Social security costs...................................... 11,389 10,613
Other pension costs & payroll expenses..................... 5,960 6,318
------ ------
88,826 85,901
====== ======
</TABLE>
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
-------- --------
1996 1995
-------- --------
<S> <C> <C>
Average number of employees during the year were........... 1,976 2,071
===== =====
</TABLE>
8. TAXATION ON LOSS ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
-------- --------
1996 1995
-------- --------
$000 $000
<S> <C> <C>
UK corporation tax at 33% (1995:33%)....................... 1,217 3,279
Overseas corporate taxes................................... 948 2,782
----- -----
2,165 6,061
===== =====
</TABLE>
9. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FIXTURES,
LAND FITTINGS, ASSETS IN
& TOOLS & COURSE OF
BUILDINGS EQUIPMENT VEHICLES CONSTRUCTION TOTAL
--------- --------- -------- ------------ ------
$000 $000 $000 $000 $000
<S> <C> <C> <C> <C> <C>
Cost or Valuation
At 1 April 1995.......... 23,028 32,014 1,175 876 57,093
Revaluations............. (1,775) -- -- -- (1,775)
Additions................ 1,357 4,659 378 -- 6,394
Disposals................ -- (756) (101) -- (857)
Transfers................ -- 15 -- (287) (272)
Foreign exchange......... (941) (1,031) (34) (17) (2,023)
------ ------ ----- ---- ------
At 31 March 1996......... 21,669 34,901 1,418 572 58,560
------ ------ ----- ---- ------
Depreciation
At 1 April 1995.......... 3,167 17,376 816 -- 21,359
Charge for the year...... 321 3,551 144 -- 4,016
Revaluations............. (104) -- -- -- (104)
Disposals................ -- (677) (93) -- (770)
Foreign exchange......... (192) (587) (27) -- (806)
------ ------ ----- ---- ------
At 31 March 1996......... 3,192 19,663 840 -- 23,695
------ ------ ----- ---- ------
Net book value
At 31 March 1996......... 18,477 15,238 578 572 34,865
====== ====== ===== ==== ======
At 31 March 1995......... 19,861 14,638 359 876 35,734
====== ====== ===== ==== ======
</TABLE>
F-49
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
A revaluation of the freehold land and buildings at the Tonbridge site of
Wallace & Tiernan Limited as at 31 March 1996 was undertaken by King Sturge &
Co., an independent firm of qualified chartered surveyors. The valuation was
made in accordance with the Royal Institute of Chartered Surveyors Statements
of Asset Valuation Practice. The valuation of the operational part of the site
was on a depreciated replacement cost basis and the non-operational part on an
open market value basis.
No capital gains tax is expected to arise in the event of a sale of the site
and hence no deferred tax is currently provided in respect of this
revaluation.
If the land and buildings had not been revalued to $8,700,000 (1995:
$10,850,000) they would have been shown at their historical cost net book
value of $1,120,000 (1995: $1,052,000).
10. FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Investments in associated companies........................ 1,526 1,780
======= =======
A schedule of the Division's principal operating entities and associated
undertakings is given in note 21.
11. INTANGIBLE ASSETS
The intangible asset of $869,000 (1995: nil) represents development costs
incurred and capitalised by one of the entities in the Process Division during
the year.
12. STOCKS
<CAPTION>
31 MARCH 31 MARCH
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Raw materials and consumables.............................. 17,760 18,308
Work in progress........................................... 15,233 16,558
Finished goods and goods for resale........................ 22,563 22,863
------- -------
55,556 57,729
======= =======
13. DEBTORS
<CAPTION>
31 MARCH 31 MARCH
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Amounts falling due within one year:
Trade debtors............................................. 101,615 80,317
Amounts owed by non Process Division Group undertakings... 72,663 61,449
Other debtors............................................. 8,634 9,550
Prepayments and accrued income............................ 1,337 802
------- -------
184,249 152,118
======= =======
</TABLE>
F-50
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
14 CREDITORS
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Amounts falling due within
one year:
Bank loans and
overdrafts............. 85,489 52,618
Payments received on
account................ 4,670 1,223
Trade creditors......... 23,385 22,435
Amounts owed to non-
Process Division Group
undertakings........... 56,613 50,571
UK Corporation tax...... 156 --
Other taxation and
social security........ -- 3,200
Accruals and deferred
income................. 27,447 40,008
------- -------
197,760 170,055
======= =======
Amounts falling due after
more than one year:
Bank loans and
overdrafts............. 1,839 2,059
Amounts owed to non-
Process Division Group
undertakings........... 220,516 213,760
Other creditors......... 8,970 9,245
------- -------
231,325 225,064
======= =======
</TABLE>
Bank loans and overdrafts outstanding at 31 March 1996 and 31 March 1995 are
all repayable within one year.
15. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
DEFERRED
RESTRUCTURING TAXATION OTHER TOTAL
------------- -------- ----- ------
$000 $000 $000 $000
<S> <C> <C> <C> <C>
Division
Balance at 1 April 1995.............. -- 1,846 604 2,450
Applied during the year.............. -- -- (450) (450)
Provided in the year................. 31,312 -- -- 31,312
Foreign exchange..................... -- (97) (37) (134)
------ ----- ---- ------
Balance at March 31, 1996.............. 31,312 1,749 117 33,178
====== ===== ==== ======
</TABLE>
16. SHARE CAPITAL
The total share capital of the Process Division represents the summation of
the share capital of all the Process Division companies not eliminated by sub
consolidations. These share capitals are converted to US dollars at the
appropriate year end exchange rate.
<TABLE>
<CAPTION>
1996 1995 1996 1995
---- ---- ---- ----
$000 $000 $000 $000
<S> <C> <C> <C> <C>
WALLACE & TIERNAN INC
Authorised
100 ordinary shares of $1 each.......................... -- -- -- --
Allotted, called up and fully paid
100 ordinary shares of $1 each.......................... -- -- -- --
</TABLE>
F-51
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
<TABLE>
<CAPTION>
1996 1995 1996 1995
----------- ----------- ----- -----
(Pounds)000 (Pounds)000 $000 $000
<S> <C> <C> <C> <C>
WALLACE & TIERNAN LTD
Authorised
3,000,000 ordinary shares of (Pounds)1
each.................................. 3,000 3,000
----- -----
Allotted, called up and fully paid
2,588,066 ordinary shares of (Pounds)1
each.................................. 2,588 2,588 3,963 4,215
----- -----
<CAPTION>
1996 1995
----------- -----------
A$000 A$000
<S> <C> <C> <C> <C>
WALLACE & TIERNAN PACIFIC PTY LTD
Authorised
75,000 ordinary shares of A$2.......... 150 150
----- -----
Allotted, called up and fully paid
55,000 ordinary shares of A$2.......... 110 110 86 81
----- -----
<CAPTION>
1996 1995
----------- -----------
$000 $000
<S> <C> <C> <C> <C>
GENERAL FILTER
Authorised
1,000 ordinary shares of $0.01......... -- --
----- -----
Allotted, called up and fully paid
1,000 ordinary shares of $0.01......... -- --
----- -----
<CAPTION>
1996 1995
----------- -----------
$000 $000
<S> <C> <C> <C> <C>
ENVIREX LTD
Authorised
100,000 ordinary shares of $0.01....... 1 1
----- -----
100,000 preference shares of $1........ 100 100
----- -----
Allotted, called up and fully paid
100,000 ordinary shares of $0.01....... 1 1 1 1
<CAPTION>
1996 1995 1996 1995
----------- ----------- ----- -----
(Pounds)000 (Pounds)000 $000 $000
<S> <C> <C> <C> <C>
EDWARDS & JONES HOLDINGS LTD
Authorised
157,000 ordinary shares of (Pounds)1... 157 157
----- -----
74,000 10.5% cumulative convertible
participating preferred ordinary
shares of (Pounds)1................... 74 74
----- -----
Allotted, called up and fully paid
136,000 ordinary shares of (Pounds)1... 136 136 208 222
----- -----
<CAPTION>
1996 1995
----------- -----------
(Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
EDWARDS & JONES LTD
Authorised
110,000 ordinary shares of (Pounds)1... 110 110
----- -----
Allotted, called up and fully paid
110,000 ordinary shares of (Pounds)1... 110 110 168 179
----- -----
</TABLE>
F-52
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
<TABLE>
<CAPTION>
1996 1995 1996 1995
---- ---- ----- -----
$000 $000 $000 $000
<S> <C> <C> <C> <C>
CONSOLIDATED ELECTRIC CO.
Authorised
100 ordinary shares of $1............................. -- --
--- ---
Allotted, called up and fully paid
100 ordinary shares of $1............................. -- -- -- --
----- -----
4,426 4,698
===== =====
</TABLE>
17. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
GROUP
SHARE CAPITAL PROFIT
SHARE PREMIUM REDEMPTION REVALUATION AND LOSS SHAREHOLDERS'
CAPITAL ACCOUNT RESERVE RESERVE ACCOUNT FUNDS
------- ------- ---------- ----------- -------- -------------
$000 $000 $000 $000 $000 $000
<S> <C> <C> <C> <C> <C> <C>
Balance at 1 April 1995. 4,698 12,262 373 9,798 (169,946) (142,815)
Retained loss for the
year................... -- -- -- -- (39,496) (39,496)
Revaluation in year..... -- -- -- (1,671) -- (1,671)
Foreign exchange........ (272) -- (23) (547) 2,064 1,222
----- ------ --- ------ -------- --------
Balance at 31 March
1996................... 4,426 12,262 350 7,580 (207,378) (182,760)
===== ====== === ====== ======== ========
</TABLE>
The cumulative amount of goodwill written off to reserves at 31 March 1996
was $191,709,000 (1995: $204,239,000).
18. LEASE OBLIGATIONS
The following annual obligations under operating leases for plant and
machinery vehicle and other equipment expire:
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Within one year............................................ 597 368
In the second to fifth year inclusive...................... 1,998 2,359
After five years........................................... 323 --
----- -----
2,918 2,727
===== =====
The following annual obligations under operating leases for land and
buildings expire:
<CAPTION>
31 MARCH 31 MARCH
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Within one year............................................ 17 160
In the second to fifth year inclusive...................... 676 463
----- -----
693 623
===== =====
</TABLE>
19. CAPITAL AND OTHER COMMITMENTS
Capital investment authorised by the directors of entities within the
Process Division but not contracted nor provided for as at 31 March 1996
amounted to $768,000 (1995: $1,019,000). Capital commitments which had been
contracted but not provided for as at 31 March 1996 amounted to $412,000
(1995: $1,009,000).
F-53
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
20. NOTES TO THE CASH FLOW STATEMENT
Reconciliation of operating profit to net cash inflow from operating
activities.
<TABLE>
<CAPTION>
31 MARCH
1996
--------
$000
<S> <C>
Operating loss........................................... (17,466)
-------
Non cash items
Depreciation............................................. 4,016
Profit on sale of fixed assets........................... (5)
Increase in provisions................................... 30,728
Foreign exchange adjustment to profit in the year........ (336)
-------
34,403
=======
Movement in working capital
Decrease in stocks....................................... 2,173
(Increase) in debtors.................................... (32,131)
(Decrease) in creditors.................................. (20,746)
Increase in advance payments............................. 3,447
-------
(47,257)
=======
Net cash outflow from operating activities............... (30,320)
=======
Analysis of cash and cash equivalents
<CAPTION>
31 MARCH 31 MARCH
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Cash at bank and in hand................................. 2,438 7,393
Bank overdraft........................................... (87,328) (54,677)
------- -------
(84,890) (47,284)
======= =======
Analysis of changes in cash and cash equivalents
<CAPTION>
1996
--------
$000
<S> <C>
At 1 April 1995.......................................... (47,284)
Net cash outflow for the year............................ (40,506)
Exchange adjustments..................................... 2,900
-------
At 31 March 1996......................................... (84,890)
=======
</TABLE>
F-54
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
21. PROCESS DIVISION
Details of principal operating entities in the Process Division, all of
which are unlisted, are detailed below. These undertakings are included within
the aggregated Process Division financial statements.
<TABLE>
<CAPTION>
NATURE OF BUSINESS
----------------------------------------
<C> <S>
Great Britain:
Wallace & Tiernan Limited Manufacture of equipment
Edwards and Jones Limited for water and wastewater
Acumem UK (unincorporated) treatment processes
USA:
Envirex Inc Manufacture of equipment
General Filter Company Inc for water and wastewater
Wallace & Tiernan Inc treatment processes
Consolidated Electric Company
Asdor Inc.
Australia:
Wallace & Tiernan Pacific Pty Manufacture of equipment
Limited for water and wastewater
treatment processes
Canada:
Asdor Limited Suppliers of equipment
Wallace & Tiernan Canada Inc for water and wastewater
Filtration Seco Inc. treatment processes
Germany:
Wallace & Tiernan GmbH Manufacture of equipment
Edwards & Jones GmbH for water and wastewater
treatment processes
Associated undertakings include:
Spain:
CIDA Hidroquimica SA Design and installation of equipment and
systems for water and wastewater
treatment
</TABLE>
The country under which each undertaking appears is both the country of its
incorporation and of its principal operations. All of the Great Britain
undertakings are registered in England and Wales. Shares are held indirectly
by United Utilities PLC.
22. PENSIONS
The Process Division operates a number of pension schemes in the UK, the
USA, Europe, Australia and Canada. The major schemes are of the defined
benefit type.
Edwards & Jones Limited operated two pension schemes in 1993 providing
retirement benefits for its employees and directors. The funds of both schemes
were transferred into the Water Pension Scheme, a defined benefit scheme,
operated by United Utilities PLC, during 1993/94. Contributions are based on
the pension costs of all United Kingdom subsidiary undertakings of United
Utilities PLC participating in the Water Pension Scheme. The accounts of
United Utilities PLC contain particulars of the current actuarial position of
the Water Pension Scheme.
Since 1 January 1990, Wallace & Tiernan Limited and substantially all its
employees have subscribed to the Wallace & Tiernan Pension Scheme, which is a
funded defined benefit scheme providing benefits based on
F-55
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
final pensionable pay. Contributions to the scheme are charged to the profit
and loss account so as to spread the cost of pensions over employees' working
lives with the company. The contributions are determined by a qualified
actuary. The most recent valuation was undertaken as at 1 July 1994 by the
scheme's actuary. The valuation method used for the calculation of normal
costs and liabilities was the projected unit method, while that used for the
assets was the discounted expected cash flow method. The assumptions which
have the most significant effect on the results of the valuation are those
relating to the rates of return on investments and salary and pension
increases. It was assumed that the investment returns would be 9% per annum,
that the rate of salary increase would be 7% per annum, and that pensions
would increase at the rate of 3% per annum.
The market value of scheme assets at the date of the valuation was
(Pounds)9,638,000 and the actuarial value of those assets represented
approximately 95% of the benefits that had accrued to members after allowing
for expected future increases in earnings. It is intended that this deficit,
amounting to (Pounds)543,000 will be eliminated by additional company
contributions over a period of 13 years.
For the non UK schemes the defined benefit arrangements have been reviewed
on consistent assumptions and any balance of surplus spread forward to derive
the pension cost.
23. ULTIMATE PARENT COMPANY
The ultimate parent undertaking of all the entities in the Process Division
is United Utilities PLC, a company registered in England. Copies of the United
Utilities PLC accounts are available from the registered office at Dawson
House, Great Sankey, Warrington, WA5 3LW, United Kingdom. The accounts of
United Utilities PLC represent the largest and smallest consolidation within
which all the companies in the Process Division are consolidated.
24. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
These aggregated financial statements have been prepared in accordance with
UK GAAP which differs in certain significant respects from US GAAP. The
significant differences as they relate to the United Utilities PLC Process
Division, are summarised in the following paragraphs.
Statement of cash flows: Basis of Preparation
United Utilities PLC Process Division's statement of cash flows is prepared
in accordance with UK Financial Reporting Standard 1 (FRS 1), the objectives
and principles of which are similar to those set out in Statement of Financial
Accounting Standards 95 (SFAS 95), "Statement of Cash Flows" under US GAAP.
The principal differences between FRS 1 and SFAS 95 relate to classification.
Cash flows from taxation and returns on investments and servicing of finance
under FRS 1 would be included as operating activities under SFAS 95. Under FRS
1 net cash and cash equivalents include short-term borrowings repayable within
three months from the date of their advance. Under SFAS 95 short-term
borrowings repayable within three months from the date of their advance and
overdraft balances would not be included within cash and cash equivalents and
movements on those borrowings and overdraft balances would be included in
financing activities.
PROVISIONS
In the US there are strict rules about the timing of recognition of on-going
restructuring costs; whereas in the UK there is at present some flexibility.
Given that restructuring provisions can involve very large costs, the
differences can be significant.
F-56
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
FIXED ASSET REVALUATION
In the US fixed assets must be carried at depreciated cost whereas in the UK
fixed assets may be revalued. Depreciation would then be booked on the
revalued amount.
DEVELOPMENT EXPENDITURE
In the US the rules prohibit the carrying of development costs as an asset.
In the UK they may, at the company's option, be carried as an asset if the
following criteria are met:
. there is a clearly defined project;
. the related costs are separately identifiable;
. there is a reasonable certainty that the project is technically feasible
and commercially viable;
. future revenues are reasonably expected to exceed future development,
production, selling and administration costs;
. adequate financial resources exist to complete the project.
GOODWILL
In the US positive goodwill is treated in the same way as any other acquired
intangible. Such assets must be capitalised and subsequently amortised over
their expected useful lives which may not exceed 40 years.
In the UK positive goodwill may be written off directly against reserves
which is the policy adopted by the Process Division.
F-57
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE SELLING
STOCKHOLDERS OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THERE ARE RESTRICTIONS ON THE OFFER AND SALE OF THE COMMON STOCK OFFERED
HEREBY IN THE UNITED KINGDOM. ALL APPLICABLE PROVISIONS OF THE FINANCIAL SERV-
ICES ACT 1986 AND THE PUBLIC OFFERS OF SECURITIES REGULATIONS 1995 WITH RE-
SPECT TO ANYTHING DONE BY ANY PERSON IN RELATION TO THE COMMON STOCK IN, FROM
OR OTHERWISE INVOLVING THE UNITED KINGDOM MUST BE COMPLIED WITH. SEE "UNDER-
WRITING."
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Recent and Pending Acquisitions........................................... 12
Use of Proceeds........................................................... 16
Capitalization............................................................ 17
Price Range of Common Stock............................................... 18
Dividend Policy........................................................... 18
Unaudited Pro Forma Combined
Financial Information.................................................... 19
Selected Consolidated Financial Data...................................... 27
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 29
The Water Treatment Industry.............................................. 35
Business.................................................................. 37
Management................................................................ 42
Security Ownership........................................................ 46
Selling Stockholders...................................................... 47
Description of Capital Stock.............................................. 48
Certain United States Federal Tax Consequences to Non-United States Hold-
ers...................................................................... 50
Underwriting.............................................................. 52
Legal Matters............................................................. 55
Independent Certified Public Accountants.................................. 55
Available Information..................................................... 56
Incorporation of Certain Documents by Reference........................... 56
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
10,000,000 SHARES
[LOGO OF UNITED STATES FILTER CORPORATION]
COMMON STOCK
------------------
PROSPECTUS
------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEUTSCHE MORGAN GRENFELL
NATWEST SECURITIES LIMITED
SALOMON BROTHERS INC
SMITH BARNEY INC.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 21, 1996
PROSPECTUS
, 1996
10,000,000 SHARES
[LOGO UNITED STATES FILTER CORPORATION]
COMMON STOCK
All of the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby are being sold by United States Filter Corporation (the
"Company"). Of the 10,000,000 shares of Common Stock offered hereby, 2,000,000
shares are being offered for sale outside the United States and Canada by the
International Managers (the "International Offering") and 8,000,000 shares are
being offered for sale in the United States and Canada in a concurrent offering
by the U.S. Underwriters (the "U.S. Offering" and, together with the
International Offering, the "Offerings"), subject to transfers between the
International Managers and the U.S. Underwriters. See "Underwriting."
Concurrently with the Offerings, the Company is offering (the "Notes
Offering") pursuant to a separate Prospectus $175 million principal amount of
% Convertible Subordinated Notes due 2001 (the "Notes"), excluding the
underwriters' over-allotment option. The net proceeds of the Offerings and the
Notes Offering are expected to be used to fund or to repay indebtedness to be
incurred to fund the pending acquisitions by the Company of certain businesses
and assets (collectively referred to as the Water Systems and Manufacturing
Group and referred to herein as "WSMG") of Wheelabrator Technologies Inc.
("WTI") and the businesses of the Process Equipment Division ("PED") of United
Utilities PLC; the balance, if any, will be used for working capital, capital
expenditures and general corporate purposes, including possible future
acquisitions. Consummation of the Offerings is not a condition to consummation
of the Notes Offering, and consummation of the Notes Offering is not a
condition to consummation of the Offerings. See "Recent and Pending
Acquisitions" and "Use of Proceeds."
The Common Stock is listed on the New York Stock Exchange and traded under
the symbol "USF." On November 20, 1996, the closing sale price of the Common
Stock as reported on the New York Stock Exchange Composite Tape was $33.125 per
share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total(3)...................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders referred to below have agreed to
indemnify the several U.S. Underwriters and the International Managers
(collectively, the "Underwriters") against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $750,000.
(3) The Company and certain Selling Stockholders (the "Selling Stockholders")
have granted to the U.S. Underwriters an option exercisable within 30 days
after the date of this Prospectus to purchase an aggregate of up to
1,500,000 additional shares of Common Stock, on the same terms as set forth
above, at the Price to the Public, less the Underwriting Discounts and
Commissions, solely for the purpose of covering over-allotments, if any. If
such option were exercised in full, the total Price to the Public,
Underwriting Discounts and Commissions and Proceeds to the Company would be
$ , $ and $ , respectively, and the total proceeds to
the Selling Stockholders would be $ . See "Selling Stockholders" and
"Underwriting."
The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by the Underwriters, subject to certain
conditions, including their rights to withdraw, cancel or reject orders in
whole or in part. It is expected that delivery of the shares of Common Stock
will be made in New York, New York on or about , 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEUTSCHE MORGAN GRENFELL
NATWEST SECURITIES LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
SMITH BARNEY INC.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE SELLING
STOCKHOLDERS OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OFFERED HEREBY BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THERE ARE RESTRICTIONS ON THE OFFER AND SALE OF THE COMMON STOCK OFFERED
HEREBY IN THE UNITED KINGDOM. ALL APPLICABLE PROVISIONS OF THE FINANCIAL SERV-
ICES ACT 1986 AND THE PUBLIC OFFERS OF SECURITIES REGULATIONS 1995 WITH RESPECT
TO ANYTHING DONE BY ANY PERSON IN RELATION TO THE COMMON STOCK IN, FROM OR OTH-
ERWISE INVOLVING THE UNITED KINGDOM MUST BE COMPLIED WITH. SEE "UNDERWRITING."
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Recent and Pending Acquisitions........................................... 12
Use of Proceeds........................................................... 17
Capitalization............................................................ 18
Price Range of Common Stock............................................... 19
Dividend Policy........................................................... 19
Unaudited Pro Forma Combined
Financial Information.................................................... 20
Selected Consolidated Financial Data...................................... 27
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 29
The Water Treatment Industry.............................................. 35
Business.................................................................. 37
Management................................................................ 42
Security Ownership........................................................ 46
Selling Stockholders...................................................... 47
Description of Capital Stock.............................................. 48
Certain United States Federal Tax Consequences to Non-United States Hold-
ers...................................................................... 50
Underwriting.............................................................. 52
Legal Matters............................................................. 55
Independent Certified Public Accountants.................................. 55
Available Information..................................................... 56
Incorporation of Certain Documents by Reference........................... 56
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10,000,000 SHARES
[LOGO OF UNITED STATES FILTER CORPORATION]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEUTSCHE MORGAN GRENFELL
NATWEST SECURITIES LIMITED
SALOMON BROTHERS
INTERNATIONAL LIMITED
SMITH BARNEY INC.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred by the
Company in connection with the issuance and distribution of the securities
being registered, other than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration fee................................................ $119,792
NASD fee........................................................ 30,500
NYSE listing fee................................................ *
Printing........................................................ *
Accounting fees................................................. *
Legal fees...................................................... *
Blue sky qualification fees..................................... *
Transfer agent and registrar fees............................... *
Miscellaneous................................................... *
--------
Total...................................................... $750,000
========
</TABLE>
- ---------------------
* To be furnished by amendment.
ITEM 16. EXHIBITS.
The following exhibits are filed with or incorporated by reference in this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Purchase and Sale Agreement, dated as of September 14, 1996,
between Wheelabrator Technologies Inc. and United States Filter
Corporation (previously filed)
2.2 Agreement, dated October 7, 1996, between United Utilities PLC and
certain of its subsidiaries and United States Filter Corporation
(incorporated by reference to Exhibit 2.2 to Form 8-K dated
October 28, 1996 (File No. 1-10728))
2.3 Stock Purchase Agreement, dated as of September 10, 1996, among
Edmundson International, Inc., United States Filter Corporation
and WaterPro Supplies Corporation (previously filed)
5.1 Opinion of Damian C. Georgino as to the legality of the securities
being registered
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Consents of KPMG Peat Marwick LLP and KPMG Audit Plc
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of Arthur Andersen LLP
23.5 Consent of Damian C. Georgino (included in Exhibit 5.1)
24.1 Power of Attorney (previously filed)
</TABLE>
II-1
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Palm Desert, State of California, on
November 19, 1996.
UNITED STATES FILTER CORPORATION
By: /s/ Richard J. Heckmann
----------------------------
Richard J. Heckmann
Chairman of the Board,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
/s/ Richard J. Heckmann
- ------------------------------------ Chairman of the Board, November 19, 1996
Richard J. Heckmann President and Chief
Executive Officer
(Principal Executive
Officer) and a Director
/s/ Kevin L. Spence
- ------------------------------------ Vice President and Chief November 19, 1996
Kevin L. Spence Financial Officer
(Principal Financial and
Accounting Officer)
*
- ------------------------------------ Executive Vice President and November 19, 1996
Michael J. Reardon a Director
*
- ------------------------------------ Senior Vice President and a November 19, 1996
Tim L. Traff Director
*
- ------------------------------------ Director November 19, 1996
James E. Clark
- ------------------------------------ Director November 19, 1996
John L. Diederich
*
- ------------------------------------ Director November 19, 1996
Robert S. Hillas
*
- ------------------------------------ Director November 19, 1996
Arthur B. Laffer
*
- ------------------------------------ Director November 19, 1996
Alfred E. Osborne, Jr.
*
- ------------------------------------ Director November 19, 1996
J. Danforth Quayle
*
- ------------------------------------ Director November 19, 1996
C. Howard Wilkins, Jr.
</TABLE>
By: /s/ Damian C. Georgino
--------------------------
Damian C. Georgino
Attorney-In-Fact
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
<C> <S> <C>
1.1 Form of Underwriting Agreement
2.1 Purchase and Sale Agreement, dated as of September 14,
1996, between Wheelabrator Technologies Inc. and United
States Filter Corporation (previously filed)
2.2 Agreement, dated October 7, 1996, between United
Utilities PLC and certain of its subsidiaries and United
States Filter Corporation (incorporated by reference to
Exhibit 2.2 to Form 8-K dated October 28, 1996 (File No.
1-10728))
2.3 Stock Purchase Agreement, dated as of September 10, 1996,
among Edmundson International, Inc., United States
Filter Corporation and WaterPro Supplies Corporation
(previously filed)
5.1 Opinion of Damian C. Georgino as to the legality of the
securities being registered
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Consents of KPMG Peat Marwick LLP and KPMG Audit Plc
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of Arthur Andersen LLP
23.5 Consent of Damian C. Georgino (included in Exhibit 5.1)
24.1 Power of Attorney (previously filed)
</TABLE>
<PAGE>
EXHIBIT 1.1
10,000,000 Shares
UNITED STATES FILTER CORPORATION
Common Stock
UNDERWRITING AGREEMENT
----------------------
December [ ], 1996
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEUTSCHE MORGAN GRENFELL INC.
NATWEST SECURITIES LIMITED
SALOMON BROTHERS INC
SMITH BARNEY INC.
As representatives of the several
U.S. Underwriters named in Schedule II hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN GRENFELL & CO., LIMITED
NATWEST SECURITIES LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
SMITH BARNEY INC.
As representatives of the several
International Managers named in Schedule III hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
<PAGE>
Ladies and Gentlemen:
United States Filter Corporation, a Delaware corporation (the
"Company"), confirms its agreement with (i) the several U.S. underwriters listed
in Schedule I hereto (the "U.S. Underwriters"), for whom Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"), Deutsche Morgan Grenfell Inc., NatWest
Securities Limited ("NatWest"), Salomon Brothers Inc and Smith Barney Inc.
("Smith Barney") have been duly authorized to act as representatives (the "U.S.
Representatives"), and (ii) the several International Managers named in Schedule
II hereto (the "International Managers"), for whom DLJ, Morgan Grenfell & Co.,
Limited, NatWest, Salomon Brothers International Limited and Smith Barney have
been duly authorized to act as representatives (the "International
Representatives" and, together with the U.S. Representatives, the
"Representatives"). The U.S. Underwriters and the International Managers are
hereinafter collectively referred to as the "Underwriters." The agreement is as
follows:
1. The Shares. Subject to the terms and conditions herein set
----------
forth, the Company proposes to sell to the Underwriters an aggregate of
10,000,000 shares (the "Firm Shares") of Common Stock, $.01 par value per share,
of the Company (the "Common Stock") as follows: 8,000,000 Firm Shares (the
"U.S. Shares") of Common Stock will be sold to the U.S. Underwriters in
connection with the offering and sale of such U.S. Shares in the United States
and Canada to United States and Canadian Persons (as such terms are defined in
the Agreement between U.S. Underwriters and International Managers of even date
herewith), and 2,000,000 Firm Shares (the "International Shares") will be sold
to the International Managers in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons.
The Company also proposes to sell to the U.S. Underwriters an
aggregate of not more than 654,206 additional shares of Common Stock (the
"Company Additional Shares"), and John Hancock Capital Growth Fund IIB Limited
Partnership, John Hancock Capital Growth Fund III Limited Partnership, Carl C.
Landegger, as Trustee of the 1990 Family Trust, The Black Clawson Company and
CGW Southeast Partners I, L.P. (collectively, the "Selling Stockholders")
propose to sell to the U.S. Underwriters an aggregate of not more than 845,794
additional shares of Common Stock (the "Selling Stockholders Additional Shares"
and, together with the Company Additional Shares, the "Additional Shares") as
set forth on Schedule I, if requested by the U.S. Underwriters as pro-
2
<PAGE>
vided in Section 3 hereof. The Firm Shares and the Additional Shares are herein
collectively called the "Shares."
2. Registration Statement and Prospectus. The Company has prepared
-------------------------------------
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated pursuant thereto
(collectively, the "Act"), a registration statement on Form S-3 (No. 333-[ ]),
including a preliminary prospectus, subject to completion, relating to the
Shares. The registration statement contains two prospectuses to be used in
connection with the offering and sale of the Shares: the U.S. prospectus, to be
used in connection with the offering and sale of Shares in the United States and
Canada to United States and Canadian Persons, and the international prospectus,
to be used in connection with the offering and sale of Shares outside the United
States and Canada to persons other than United States and Canadian Persons. The
international prospectus is identical to the U.S. prospectus except for the
outside front and back cover pages. The registration statement, as amended at
the time it becomes effective or, if a post-effective amendment is filed with
respect thereto, as amended by such post-effective amendment at the time of its
effectiveness (including in each case all documents incorporated or deemed
incorporated by reference therein, if any, all financial statements and
exhibits, and the information, if any, contained in a prospectus or term sheet
subsequently filed with the Commission pursuant to Rule 424(b) under the Act and
deemed to be a part of the registration statement at the time of its
effectiveness pursuant to Rule 430A or Rule 434 under the Act (as applicable)),
and any additional registration statement relating to the issuance of additional
shares of Common Stock filed pursuant to Rule 462(b) under the Act, is
hereinafter referred to as the "Registration Statement"; and the U.S. prospectus
and the international prospectus, constituting a part of the Registration
Statement at the time it became effective, or such revised U.S. or international
prospectus as shall be provided to the Underwriters for use in connection with
the offering of the Shares that differs from the U.S. or international
prospectus on file with the Commission at the time the Registration Statement
became effective, including in each case all documents incorporated or deemed
incorporated by reference therein, if any, and all financial statements, and
including any U.S. or international prospectus subject to completion and any
term sheet meeting the requirements of Rule 434(c), filed pursuant to Rule
424(b), in the respective forms used to confirm sales of the Shares, whether or
not filed with the Commission pursuant to Rule 424(b) under the Act, are
hereinafter referred to collectively as the "Prospectus."
3
<PAGE>
3. Agreements to Sell and Purchase. On the basis of the
-------------------------------
representations and warranties contained in this Agreement, and subject to the
terms and conditions hereof, the Company agrees to issue and sell to each of the
U.S. Underwriters, and each of the U.S. Underwriters agrees, severally and not
jointly, to purchase from the Company, at a price per share of $[ ] (the
"Purchase Price") the aggregate number of Firm Shares set forth opposite the
name of such U.S. Underwriter in Schedule II hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell to each of the International Managers, and each of the International
Managers agrees, severally and not jointly, to purchase from the Company at the
Purchase Price the aggregate number of Firm Shares set forth opposite the name
of such International Manager in Schedule III hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to the terms and conditions hereof, (i) the Company
agrees to issue and sell to the U.S. Underwriters, and the U.S. Underwriters
shall have a right to purchase from the Company, severally and not jointly, from
time to time, up to an aggregate of 654,206 Additional Shares at the Purchase
Price, and (ii) the Selling Stockholders agree to sell to the U.S. Underwriters,
and the U.S. Underwriters shall have a right to purchase from the Selling
Stockholders, in each case severally and not jointly, from time to time, up to
an aggregate of 845,794 Additional Shares at the Purchase Price. Additional
Shares may be purchased as provided in Section 4 hereof solely for the purpose
of covering over-allotments made in connection with the offering of the Firm
Shares. If any Additional Shares are to be purchased, each U.S. Underwriter,
severally and not jointly, agrees to purchase the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as the
Representatives may determine) which bears the same proportion to the total
number of Additional Shares to be purchased as the number of Firm Shares set
forth opposite the name of such U.S. Underwriter in Schedule I hereto bears to
the total number of Firm Shares. If any Additional Shares are to be purchased,
such Additional Shares will be purchased by the U.S. Underwriters first from the
Selling Stockholders Additional Shares, and after all of the Selling
Stockholders Additional Shares have been so purchased, then from the Company
Additional Shares.
The Company hereby agrees and shall, concurrently with the execution
of this Agreement, deliver an agreement executed by the Company and by each of
its directors, officers and stockholders listed on Schedule IV hereto,
4
<PAGE>
pursuant to which each such person agrees not to, directly or indirectly, offer,
sell, contract to sell, grant any option to purchase, or otherwise dispose of
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for, or warrants, options or rights to purchase or acquire, Common
Stock or in any other manner transfer all or a portion of the economic
consequences associated with the ownership of any Common Stock, or enter into
any agreement to do any of the foregoing, except pursuant to this Agreement (or
any other underwriting agreement in connection with which DLJ acts as lead
managing underwriter), for a period of 90 days after the date of this Agreement,
without the prior written consent of DLJ. Notwithstanding the foregoing, during
such period (i) the Company may grant stock options pursuant to the Company's
existing stock option plans; (ii) the Company may issue shares of its Common
Stock upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof; and (iii) the Company may issue not more than
[ ] shares of its Common Stock in connection with acquisitions of
businesses or assets from third parties covered by its Registration Statement on
Form S-4 (No. 33-[ ]) and not more than [ ] shares of its Common
Stock pursuant to Regulation S of the Commission.
4. Delivery and Payment. Delivery to you of and payment for the
--------------------
Firm Shares shall be made at 9:00 A.M., New York City time, on the third
business day, unless otherwise permitted by the Commission pursuant to Rule
15c6-1 under the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission thereunder (collectively, the "Exchange Act")
(such time and date being referred to as the "Closing Date") following the date
of the public offering of the Firm Shares as advised by the Representatives to
the Company, at such place as you shall reasonably designate. The Closing Date
and the location of delivery of the Firm Shares may be varied by agreement
between the Representatives and the Company.
Delivery to the U.S. Underwriters of and payment for any Additional
Shares to be purchased by the U.S. Underwriters shall be made at such place as
the U.S. Representatives shall designate in writing, at 9:00 A.M., New York City
time, on such date or dates (individually, an "Option Closing Date"), which may
be the same as the Closing Date but shall in no event be earlier than the
Closing Date, as shall be specified in a written notice from the U.S.
Representatives to the Company and the Selling Stockholders of the U.S.
Underwriters' determination to purchase a number, specified in said notice, of
Additional Shares. The date or dates specified in any such notice shall be a
business day no later than ten business days after such notice has been given
and no earlier than
5
<PAGE>
two business days after such notice has been given. Any such notice may be
given at any time not later than 30 days after the date of this Agreement. Any
Option Closing Date and the location of delivery of and payment for the
Additional Shares may be varied by agreement among the U.S. Representatives, the
Company and the Selling Stockholders.
Certificates for the Shares shall be registered in such names and
issued in such denominations as you shall request in writing not later than two
full business days prior to the Closing Date or the applicable Option Closing
Date, as the case may be, and shall be made available to you at such place as
you shall reasonably request for inspection not later than 9:30 A.M., New York
City time, on the business day next preceding the Closing Date or the applicable
Option Closing Date, as the case may be. Certificates in definitive form
evidencing the Shares (or such other method of delivery as may be acceptable to
you) shall be delivered to you on the Closing Date or the applicable Option
Closing Date, as the case may be, with any transfer taxes thereon duly paid by
the Company, in the case of the Company Additional Shares, and the Selling
Stockholders, in the case of the Selling Stockholders Additional Shares, for the
respective accounts of the Underwriters against payment of the Purchase Price by
wire transfer payable in same day funds, to an account or accounts designated in
writing by the Company and the Selling Stockholders.
5. Agreements of the Company. The Company agrees with each of the
-------------------------
Underwriters and the Selling Stockholders that:
(a) It will, if the Registration Statement has not heretofore become
effective under the Act, file an amendment to the Registration Statement
or, if necessary pursuant to Rule 430A under the Act, a post-effective
amendment to the Registration Statement, in each case as soon as
practicable after the execution and delivery of this Agreement, and will
use its best efforts to cause the Registration Statement or such post-
effective amendment to become effective at the earliest possible time. The
Company will comply fully and in a timely manner with the applicable
provisions of Rule 424, Rule 430A, and, if applicable, Rule 434, and Rule
462, under the Act.
(b) It will advise you and the Selling Stockholders promptly and, if
requested by you, confirm such advice in writing, (i) when the Registration
Statement has become effective, if and when the Prospectus is sent for
filing pursuant to Rule 424 under the Act and when any post-
6
<PAGE>
effective amendment to the Registration Statement becomes effective, (ii)
of the receipt of any comments from the Commission or any state securities
commission or regulatory authority that relate to the Registration
Statement or requests by the Commission or any state securities commission
or regulatory authority for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction, or
the initiation of any proceeding for such purpose by the Commission or any
state securities commission or other regulatory authority, and (iv) of the
happening of any event during such period as in your judgment the
Underwriters are required to deliver a prospectus in connection with sales
of the Shares which makes any statement of a material fact made in the
Registration Statement untrue or which requires the making of any additions
to or changes in the Registration Statement (as amended or supplemented
from time to time) in order to make the statements therein not misleading
or that makes any statement of a material fact made in the Prospectus (as
amended or supplemented from time to time) untrue or which requires the
making of any additions to or changes in the Prospectus (as amended or
supplemented from time to time) in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
Company shall use its best efforts to prevent the issuance of any stop
order by the Commission or order suspending the qualification or exemption
of the Shares under any state securities or Blue Sky laws, and, if at any
time the Commission shall issue any stop order suspending the effectiveness
of the Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption of the Shares under any state securities or Blue Sky laws, the
Company shall use every reasonable effort to obtain the withdrawal or
lifting of such order at the earliest possible time.
(c) It will furnish to you without charge five (5) copies of the
signed copies of the Registration Statement as first filed with the
Commission and of each amendment to it, including all exhibits filed
therewith, and will furnish to you such number of conformed copies of the
Registration Statement as so filed and of each amendment to it, without
exhibits, as you may reasonably request.
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(d) It will not file any amendment or supplement to the Registration
Statement, whether before or after the time when it becomes effective, or
make any amendment or supplement to the Prospectus, of which you shall not
previously have been advised and provided a copy within two business days
prior to the filing thereof or to which you shall reasonably object; and it
will prepare and file with the Commission, promptly upon your reasonable
request, any amendment to the Registration Statement or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and will use its best efforts to cause
any amendment to the Registration Statement to become effective promptly.
(e) Promptly after the Registration Statement becomes effective, and
from time to time thereafter for such period as in the opinion of counsel
for the Underwriters a prospectus is required by law to be delivered in
connection with sales of the Shares by the Underwriters, it will furnish to
each Underwriter and dealer without charge as many copies of the Prospectus
(and of any amendment or supplement to the Prospectus) as such Underwriters
and dealers may reasonably request for the purposes contemplated by the
Act. So long as the same is delivered or used pursuant to applicable law,
the Company consents to the use of the Prospectus and any amendment or
supplement thereto by any Underwriter or any dealer, both in connection
with the offering or sale of the Shares and for such period of time
thereafter as the Prospectus is required by the Act or the Exchange Act to
be delivered in connection therewith.
(f) If during such period specified in paragraph (e) any event shall
occur as a result of which, in the opinion of counsel for the Underwriters,
it becomes necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances existing when the
Prospectus is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with any law, it
will promptly prepare and file with the Commission an appropriate amendment
or supplement to the Prospectus so that the statements in the Prospectus,
as so amended or supplemented, will not, in the light of the circumstances
when the Prospectus is so delivered, be misleading, and will comply with
law, and will furnish to each Underwriter and dealer without charge such
number of copies thereof as such Underwriters and dealers may reasonably
request.
8
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(g) Prior to any public offering of the Shares, it will cooperate with
you and your counsel in connection with the registration or qualification
of the Shares for offer and sale by the Underwriters under the state
securities or Blue Sky laws of such jurisdictions as you may reasonably
request (provided, that the Company shall not be obligated to qualify as a
--------
foreign corporation in any jurisdiction in which it is not so qualified or
to take any action that would subject it to general consent to service of
process in any jurisdiction or subject it to taxation generally in respect
of doing business in any jurisdiction in which it is not now so subject).
The Company will continue such qualification in effect so long as required
by law for distribution of the Shares. The Company will inform the Florida
Department of Banking and Finance if, prior to the completion of the
distribution of the Shares by the Underwriters, the Company commences
engaging in business with the government of Cuba or with any person or
affiliate located in Cuba. Such information will be provided within 90
days of the commencement thereof or after a change to any such previously
reported information.
(h) It will make generally available to its security holders as soon
as reasonably practicable a consolidated earnings statement covering a
period of at least twelve months beginning after the "effective date" (as
defined in Rule 158 under the Act) of the Registration Statement (but in no
event commencing later than 90 days after such date) which shall satisfy
the provisions of Section 11(a) of the Act and Rule 158 thereunder and will
advise you in writing when such statement has been so made available.
(i) During the period of five years after the date of this Agreement,
(i) it will furnish as soon as reasonably practicable after the end of each
fiscal year to the record holders of its Common Stock a financial report of
the Company and its subsidiaries on a consolidated basis (and a similar
financial report of all unconsolidated subsidiaries, if any), all such
financial reports to include a consolidated balance sheet, a consolidated
statement of operations, a consolidated statement of cash flows and a
consolidated statement of stockholders' equity as of the end of and for
such fiscal year, together with comparable information as of the end of and
for the preceding year, certified by independent certified public
accountants, and (ii) it will make generally available as soon as
reasonably practicable after the end of each quarterly period (except for
the last quarterly period of each fiscal year) to such holders, a
consolidated balance
9
<PAGE>
sheet, a consolidated statement of operations and a consolidated statement
of cash flows (and similar financial reports of all unconsolidated
subsidiaries, if any) as of the end of and for such period, and for the
period from the beginning of such year to the close of such quarterly
period, together with comparable information for the corresponding periods
of the preceding year.
(j) During the period referred to in paragraph (i), it will furnish
to you as soon as available a copy of each report or other publicly
available information of the Company mailed to the holders of Common Stock
or filed with the Commission and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably request.
(k) Whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, it will pay and be responsible
for all costs, expenses and fees in connection with or incident to (i) the
printing, processing, filing, distribution and delivery under the Act or
the Exchange Act of the Registration Statement (including financial
statements and exhibits), each preliminary prospectus, the Prospectus and
all amendments or supplements thereto, (ii) the printing and delivery of
this Agreement, any memoranda describing state securities or Blue Sky laws
and all other agreements, memoranda, correspondence and other documents
printed, distributed and delivered in connection with the offering of the
Shares (including in each case any disbursements of counsel for the
Underwriters relating to such printing and delivery), (iii) the
registration with the Commission and the issuance and delivery of the
Shares, (iv) the registration or qualification of the Shares for offer and
sale under the securities or Blue Sky laws of the jurisdictions referred to
in paragraph (g) above (including, in each case, the fees and disbursements
(including filing fees) of counsel relating to such registration or
qualification and blue sky memoranda relating thereto), (v) furnishing such
copies of the Registration Statement, Prospectus and preliminary
prospectus, and all amendments and supplements to the Underwriters or any
dealers to whom Shares may be sold prior to or during the period specified
in paragraph 5(e), as may be reasonably requested by you, (vi) any filing
fees incurred in connection with the filing, registration and clearance
with the National Association of Securities Dealers, Inc. (the "NASD") in
connection with the offering of the Shares, (vii) the listing of the Shares
on the New York Stock Exchange, and (viii) the performance by the Company
of its other
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obligations under this Agreement, the cost of its personnel and other
internal costs and the cost of printing and engraving the certificates
representing the Shares; provided, that the Company shall have no liability
--------
or obligation with respect to any fees or expenses of counsel to the
Underwriters, except as provided in clause (iv) above, or for any costs of
personnel or other internal costs of the Underwriters.
(l) It will use the proceeds from the sale of the Shares in the manner
described in the Prospectus under the caption "Use of Proceeds."
(m) It will cause the Shares to be listed on the New York Stock
Exchange and will use its reasonable best efforts to maintain such listing
for a period of five years after the effective date of the Registration
Statement.
(n) It will use all reasonable efforts to do and perform all things
required or necessary to be done and performed under this Agreement by it
prior to or after the Closing Date or any Option Closing Date, as the case
may be, and to satisfy all conditions precedent on its part to the delivery
of the Shares.
6. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to each Underwriter and the Selling Stockholders that:
(a) The Company and the transactions contemplated by this Agreement
meet the requirements for using Form S-3 under the Act. The Registration
Statement has become effective; no stop order suspending the effectiveness
of the Registration Statement is in effect, and no proceedings for such
purpose are pending before or threatened by the Commission.
(b) (i) Each part of the Registration Statement, when such part became
effective, did not contain and each such part, as amended or supplemented,
if applicable, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) the Registration
Statement and the Prospectus comply and, as amended or supplemented, if
applicable, will comply in all material respects with the requirements of
the Act and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue state-
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<PAGE>
ment of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and warranties
set forth in this paragraph (b) do not apply to statements or omissions in
the Registration Statement or the Prospectus based upon and in conformity
with (x) information relating to any Underwriter furnished to the Company
in writing by such Underwriter through you expressly for use therein or (y)
any Selling Stockholder Information (as defined in Section 11 hereof). The
Company acknowledges for all purposes of this Agreement (including this
paragraph and Section 8 hereof) that the statements with respect to price
and underwriting discount and the last paragraph, all on the cover page,
and paragraphs 1, 4, 7, 8, 9, 10 and 12 under the caption "Underwriting" in
the Prospectus constitute the only written information furnished to the
Company by the Underwriters for use in the Registration Statement or the
Prospectus or any preliminary prospectus, or any amendment or supplement to
them (the "Underwriter Information"), and that the Underwriters shall not
be deemed to have provided any information (and therefore are not
responsible for any statement or omission) pertaining to any arrangement or
agreement with respect to any parties other than the Underwriters and that
the Selling Stockholders Information is the only written information
furnished to the Company by the Selling Stockholders for use in the
Registration Statement or the Prospectus or any preliminary prospectus (or
any amendment or supplement to them) and that the Selling Stockholders
shall not be deemed to have provided any information (and therefore is not
responsible for any statement or omission) pertaining to any arrangement or
agreement with respect to any party other than the Selling Stockholders.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the requirements of the Act; and did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(d) The Company and each of its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as it is currently being conducted
12
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and to own, lease and operate its properties, and each is duly qualified
and is in good standing as a foreign corporation authorized to do business
in each jurisdiction in which the nature of its business or its ownership
or leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, cash flow, business
affairs or business prospects of the Company and its subsidiaries, taken as
a whole (the foregoing exception herein defined as a "Material Adverse
Effect").
(e) All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and nonassessable, and,
except for the pledge to [THE FIRST NATIONAL BANK OF BOSTON AND FIRST
INTERSTATE BANK OF CALIFORNIA, OTHERS?] (the "Banks") of capital stock of
certain of the Company's subsidiaries [PURSUANT TO THE COMPANY'S CREDIT
FACILITIES WITH THE BANKS (THE "CREDIT FACILITIES") -- DEFINE NEW CREDIT
FACILITIES AS WILL BE DEFINED IN THE REGISTRATION STATEMENT], are owned by
the Company (except as provided in the last sentence of this paragraph
(e)), free and clear of any security interest, claim, lien, encumbrance or
adverse interest of any nature. The Company owns all of the outstanding
capital stock of each of its subsidiaries, except with respect to
subsidiaries that, when taken as a whole, do not account for a material
proportion of the Company's business, operations or assets, and the loss of
which would not result in a Material Adverse Effect upon the Company.
(f) All the issued and outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid,
nonassessable and, except as otherwise set forth in the Prospectus, not
subject to any preemptive or similar rights; the Shares have been duly
authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company pursuant to this
Agreement against payment of the consideration set forth herein, will be
validly issued, fully paid and nonassessable; and the issuance of the
Shares by the Company will not be subject to preemptive or other similar
rights.
(g) The authorized capital stock of the Company, including the Common
Stock, conforms to the description thereof contained in or incorporated by
reference into the Prospectus.
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(h) Neither the Company nor any of its subsidiaries is in violation of
its respective charter or by-laws or other equivalent instruments, as the
case may be, or, except as such as would not have a Material Adverse
Effect, in default in the performance of any obligation, agreement or
condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any other agreement, lease, contract, indenture or
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of its subsidiaries or their respective property is bound,
and there exists no condition which, with the passage of time or otherwise,
would constitute such a default under any such document or instrument.
(i) The execution, delivery and performance of this Agreement,
compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not require any
consent, approval, authorization or other order of any court, regulatory
body, administrative agency or other governmental body (except as such may
be required under the securities or Blue Sky laws of the various states)
and will not conflict with or constitute a breach of any of the terms or
provisions of, or a default (with the passage of time or otherwise) under,
the charter or by-laws or other equivalent instruments, as the case may be,
of the Company or any of its subsidiaries or, except such as would not have
a Material Adverse Effect, any agreement, lease, contract, indenture or
other instrument to which it or any of its subsidiaries is a party or by
which it or any of its subsidiaries or their respective property is bound,
or violate or conflict with any laws, administrative regulations or rulings
or court decrees applicable to the Company, any of its subsidiaries or
their respective property.
(j) Except as would not result in a Material Adverse Effect, there are
no legal or governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any of their respective property is
subject, and, to the best of the Company's knowledge, no such proceedings
are threatened or contemplated. No contract or document of a character
required to be described in the Registration Statement or the Prospectus or
to be filed as an exhibit to the Registration Statement is not so described
or filed as required.
(k) Except as disclosed or incorporated by reference in the
Prospectus, neither the Company nor any of its subsidiaries nor, to the
best
14
<PAGE>
knowledge of the Company, any other person or entity for whom either is or
may be liable is in violation of any Federal, state, local, provincial or
foreign laws or regulations relating to pollution or protection of human
health or the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata), including,
without limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum or petroleum
products, asbestos or asbestos-containing materials, or polychlorinated
biphenyls ("Materials of Environmental Concern"), or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Materials of Environmental Concern
(collectively, "Environmental Laws"), which violation would have a Material
Adverse Effect or would otherwise require disclosure in the Prospectus
pursuant to Item 103 of Regulation S-K under the Act ("Item 103").
"Violation" includes, but is not limited to, noncompliance with any permit
or other governmental authorization required under applicable Environmental
Laws and noncompliance with the terms and conditions of any such permit or
authorization.
(l) Except as disclosed or incorporated by reference in the
Prospectus, neither the Company nor any of its subsidiaries has received
any communication (written or, to the knowledge of the Company or any of
its subsidiaries, oral), whether from a governmental authority, citizens'
group, employee or otherwise, asserting that the Company or any of its
subsidiaries or any other person or entity for whom either is or may be
liable is not in compliance with any Environmental Laws or permit or
authorization required under applicable Environmental Laws where such
failure to comply would have a Material Adverse Effect or would otherwise
require disclosure in the Prospectus pursuant to Item 103, and there are no
circumstances that may prevent or interfere with such full compliance in
the future, except where failure so to comply would not have a Material
Adverse Effect.
(m) Except as disclosed or incorporated by reference in the
Prospectus, there is no claim, action, cause of action, investigation or
notice (written or oral) by any person or entity alleging potential
liability (including, without limitation, potential liability for
investigatory costs, natural resources damages, property damages, personal
injuries or penalties) arising out of, based on or resulting from (i) the
presence in or
15
<PAGE>
release into the environment of any Materials of Environmental Concern at
any location owned, leased or operated, now or in the past, by the Company
or any of its subsidiaries or, to the best knowledge of the Company, any
other person or entity for whom either is or may be liable, or (ii)
circumstances forming the basis of any violation or alleged violation of
any Environmental Law (collectively, "Environmental Claims") pending or
threatened against the Company or any of its subsidiaries or, to the best
knowledge of the Company, any other person or entity whose liability for
any Environmental Claim the Company or any of its subsidiaries has retained
or assumed either contractually or by operation of law, except any such
matter that would not have a Material Adverse Effect or would not otherwise
require disclosure in the Prospectus pursuant to Item 103.
(n) Except as disclosed or incorporated by reference in the
Prospectus, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Materials of Environmental Concern, that could form the basis of any
Environmental Claim against the Company or any of its subsidiaries with
respect to property owned, leased or operated by or for the Company or any
of its subsidiaries, now or in the past, or, to the best knowledge of the
Company, against any person or entity whose liability for any Environmental
Claim the Company or any of its subsidiaries has retained or assumed either
contractually or by operation of law, except any such matter that would not
have a Material Adverse Effect or would not otherwise require disclosure in
the Prospectus pursuant to Item 103.
(o) In the ordinary course of its business, the Company addresses its
environmental compliance obligations with respect to the business,
operations and properties of the Company and its subsidiaries, in the
course of which it identifies and evaluates, as appropriate, associated
costs and liabilities. On the basis of such procedures, except for costs
and liabilities heretofore incurred and reflected in the Company's
financial statements as set forth or incorporated by reference in the
Registration Statement, the Company has reasonably concluded that such
associated costs and liabilities would not, singly or in the aggregate,
have a Material Adverse Effect.
(p) Except as otherwise set forth or incorporated by reference in the
Prospectus or such as would not, singly or in the aggregate, have a
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<PAGE>
Material Adverse Effect, the Company and each of its subsidiaries has good
and marketable title, free and clear of all liens, claims, encumbrances and
restrictions, except liens for taxes not yet due and payable and
restrictions on the Company's ability to encumber its assets contained in
its [CREDIT FACILITIES] with the Banks, to all property and assets
described in the Registration Statement as being owned by it. All leases
to which the Company or any of its subsidiaries is a party are valid and
binding and, except as would not have a Material Adverse Effect, no default
has occurred or is continuing thereunder; and the Company and its
subsidiaries enjoy peaceful and undisturbed possession under all such
leases to which any of them is a party as lessee.
(q) The Company and each of its subsidiaries maintains insurance in
amounts and with limits and coverage which the Company in good faith deems
appropriate.
(r) Each of the accountants who certified the financial statements and
supporting schedules included in the Registration Statement is an
independent public accountant as required by the Act.
(s) The financial statements, together with related schedules and
notes, as set forth or incorporated by reference in the Registration
Statement and the Prospectus (and any amendment or supplement thereto),
present fairly the consolidated financial position, results of operations
and changes in financial position of the Company and its subsidiaries at
the respective dates or for the respective periods to which they apply;
such statements and related schedules and notes have been prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except as disclosed therein; and
the other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) is, in all material respects, fairly presented and prepared on a
basis consistent with such financial statements and the books and records
of the Company. The pro forma financial information included in the
--- -----
Prospectus presents fairly the information shown therein and has been
prepared in accordance with the relevant accounting requirements of
Regulation S-X. In the opinion of the Company, the assumptions used in the
preparation of the pro forma financial information are reasonable and the
adjustments used therein are appropriate to give effect to the transactions
or circumstances referred to therein.
17
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(t) Except as would not result in a Material Adverse Effect, (i) the
Company and each of its subsidiaries has such permits, licenses, franchises
and authorizations of governmental or regulatory authorities ("permits") as
are necessary to own, lease and operate its respective properties and to
conduct its business in the manner described or incorporated by reference
in the Prospectus, subject to such qualifications as may be set forth or
incorporated by reference in the Prospectus; (ii) the Company and each of
its subsidiaries has fulfilled and performed all of its obligations with
respect to such permits and no event has occurred which allows, or after
notice or lapse of time or both would allow, revocation or termination
thereof or results in any other impairment of the rights of the holder of
any such permit, subject in each case to such qualification as may be set
forth or incorporated by reference in the Prospectus; and (iii) except as
described or incorporated by reference in the Prospectus, such permits
contain no restrictions that are burdensome to the Company or any of its
subsidiaries.
(u) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(v) Except rights as to which waivers have been obtained in writing
with respect to inclusion in this offering, no holder of any security of
the Company other than the Selling Stockholders [AND _____] has any right
to require registration of shares of Common Stock or any other security of
the Company.
(w) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
(x) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens related to or
entitling any person to purchase or otherwise to acquire any shares of the
capital stock of, or other ownership interest in, the Company or any
subsidiary thereof except as otherwise disclosed or incorporated by
reference in the Registration Statement or which have been granted pursuant
to the Company's stock option plans in amounts which are immaterial or are
required by law.
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(y) Except as would not, singly or in the aggregate, have a Material
Adverse Effect, neither the Company nor any of its subsidiaries has (A)
violated any applicable federal, state, provincial or foreign law relating
to employment or employment practices or the terms and conditions of
employment, including, without limitation, discrimination in the hiring,
promotion or pay of employees, wages, hours of work, plant closings and
layoffs, collective bargaining, and occupational safety and health, or any
provisions of the Employee Retirement Income Security Act of 1974 ("ERISA")
or the rules and regulations promulgated thereunder or any other applicable
law (whether foreign or domestic) relating to or governing the operation or
maintenance of any plan or arrangement falling within the definition of an
"employee benefit plan" (as such term is defined in Section 3(3) of ERISA)
or any other employee benefit plan or arrangement, or (B) engaged in any
unfair labor practice. Except as would not, singly or in the aggregate,
result in any Material Adverse Effect, there is (i) no unfair labor
practice charge or complaint pending or threatened against the Company or
any of its subsidiaries before the National Labor Relations Board or any
corresponding state, local, provincial or foreign agency, and no grievance
or arbitration proceeding arising out of or under any collective bargaining
agreement is so pending or threatened against the Company or any of its
subsidiaries; and (ii) no union representation claim or question existing
with respect to the employees of the Company or any of its subsidiaries and
no union organizing activities taking place. Except as would not, singly
or in the aggregate, result in any Material Adverse Effect, (i) no labor
dispute involving the employees of the Company or any of its subsidiaries
exists or, to the knowledge of the Company, is threatened or imminent; and
(ii) the Company is not aware of any existing, threatened or imminent
labor disturbance by the employees of any principal suppliers,
manufacturers or contractors of the Company or any of its subsidiaries.
(z) The books, records and accounts of the Company and its
subsidiaries accurately and fairly reflect, in reasonable detail, the
transactions in and dispositions of the assets of the Company and its
subsidiaries. The Company and each of its subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
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access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(aa) All material tax returns required to be filed by the Company and
each of its subsidiaries in any jurisdiction have been filed, other than
those filings being contested in good faith, and all material taxes,
including withholding taxes, penalties and interest, assessments, fees and
other charges due pursuant to such returns or pursuant to any assessment
received by the Company or any of its subsidiaries have been paid, other
than those being contested in good faith and for which adequate reserves
have been provided. No deficiency or adjustment for any material taxes has
been proposed or assessed against the Company or any of its subsidiaries.
(bb) The Company and its subsidiaries own, license or possess the
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names presently employed by them in
connection with the businesses now operated by them, except such as to
which the failure so to own, license or possess would not, singly or in the
aggregate, have a Material Adverse Effect, and neither the Company nor any
of its subsidiaries has received any notice of infringement of or conflict
with asserted rights of others with respect to any of the foregoing, which,
singly or in the aggregate, if the subject of any unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.
(cc) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes the legal, valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms
(except as rights to indemnity and contribution hereunder may be limited by
applicable law).
(dd) The Company has full power, authority and legal capacity to enter
into and perform its obligations under this Agreement; and the Company has
taken all necessary corporate action to authorize the execution and the
performance of its obligations under this Agreement.
20
<PAGE>
(ee) No bid or purchase by the Company, and no bid or purchase that
could be attributed to the Company (as a result of bids or purchases by an
"affiliated purchaser" within the meaning of Rule 10b-6 under the Exchange
Act) for or of the Common Stock, any securities of the same class or series
as the Common Stock or any securities immediately convertible into or
exchangeable for or that represent any right to acquire Common Stock, is
now pending or in progress or will have commenced at any time prior to the
completion of the distribution of the Shares.
(ff) Each of the Company and its subsidiaries is in compliance with
all laws, ordinances and regulations (domestic and foreign) applicable to
its properties (whether owned or leased) and its business, as described in
the Prospectus, except where noncompliance with such laws, ordinances and
regulations would not, singly or in the aggregate, have a Material Adverse
Effect.
7. Representations and Warranties of the Selling Stockholders. The
----------------------------------------------------------
Selling Stockholders, each severally and not jointly, for themselves
respectively and not the others, represent and warrant to the Underwriters and
the Company that:
(a) The execution, delivery and performance of this Agreement by such
Selling Stockholder, the sale of such Selling Stockholder's Additional
Shares and the consummation of the transactions contemplated by this
Agreement will not (i) conflict with or result in a breach of any of the
terms or provisions, or constitute a default or cause an acceleration of
any obligation under, (A) the respective charter, bylaws or other
organizational documents of such Selling Stockholder or (B) any bond, note,
debenture or other evidence of indebtedness or any indenture, mortgage,
deed of trust or other material contract, lease, or other instrument to
which such Selling Stockholder is a party or by which any such Selling
Stockholder is bound, or to which any of the property or assets of such
Selling Stockholder is subject, or (C) any order of any court or
governmental agency or authority entered in any proceeding to which such
Selling Stockholder was or is a party or by which such Selling Stockholder
is bound or (ii) violate or conflict with any applicable U.S. Federal,
state, province or local law, rule, administrative regulation or ordinance
or administrative or court decree applicable to such Selling Stockholder or
its property, except in each such case as would not, singly or in the
aggre-
21
<PAGE>
gate, have a material adverse effect on the business or results of
operations, where applicable, or financial condition of such Selling
Stockholder and their subsidiaries, where applicable, taken as a whole.
(b) Such Selling Stockholder has on the date of this Agreement and
will have at the Option Closing Date, good and marketable title to such
Selling Stockholder's Additional Shares, free and clear of any liens,
claims, encumbrances and restrictions on transfer other than pursuant to
this Agreement.
(c) All authorizations, approvals and consents necessary for the
execution, delivery and performance by such Selling Stockholder of this
Agreement, and the sale and delivery by such Selling Stockholder to the
Underwriters of such Selling Stockholder's Additional Shares (other than
such authorizations, approvals or consents as may be necessary under state
securities or Blue Sky laws) have been obtained and are in full force and
effect; each such Selling Stockholder has all requisite right, power and
authority to enter into and perform its obligations under this Agreement
and to sell, transfer and deliver such Selling Stockholder's Additional
Shares; and this Agreement has been duly authorized, where applicable,
executed and delivered by such Selling Stockholder and is a valid and
binding agreement of such Selling Stockholder enforceable in accordance
with its terms (except as the enforceability thereof may be limited by
public policy, bankruptcy, insolvency, fraudulent conveyance or transfer,
reorganization, moratorium, or similar laws affecting creditors' rights
generally, the availability of equitable remedies may be limited by
equitable principles of general applicability and rights to indemnity and
contribution hereunder may be limited by applicable law).
(d) The Selling Stockholder Information, as to such Selling
Stockholder, does not, and will not on the Closing Date, include an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(e) Such Selling Stockholders has not taken, and will not take,
directly or indirectly, any action designed to, or which might reasonably
be expected to, cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of
the Shares pursuant to the distribution contemplated by this Agreement,
and,
22
<PAGE>
other than as permitted by the Act, such Selling Stockholder has not
distributed and will not distribute any prospectus or other offering
material in connection with the offering and sale of the Shares.
(f) At any time during the period described in Section 5(e) hereof, if
there is any change in the Selling Stockholder Information, as to such
Selling Stockholder, such Selling Stockholder will promptly notify the
Underwriters and the Company of such change.
(g) Such Selling Stockholders acknowledges for all purposes under this
Agreement (including this paragraph and Section 8 hereof) that the
Underwriter Information constitutes the only written information furnished
to the Company by or on behalf of the Underwriters for use in the
Registration Statement or the Prospectus (or any amendment or supplement to
them) and that the Underwriters shall not be deemed to have provided any
information (and therefore are not responsible for any statement or
omission) pertaining to any arrangement or agreement with respect to any
party other than the Underwriters.
8. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless (i) each of the
Underwriters and (ii) each person, if any, who controls (within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act) any of the
Underwriters (any of the persons referred to in this clause (ii) being
hereinafter referred to as a "controlling person"), and (iii) the
respective officers, directors, partners, employees, representatives and
agents of any of the Underwriters or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as
an "Indemnified Person") to the fullest extent lawful, from and against any
and all losses, claims, damages, liabilities, judgments, actions and
expenses (including without limitation and as incurred, reimbursement of
all reasonable costs of investigating, preparing, pursuing or defending any
claim or action, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, including the reasonable fees and
expenses of counsel to any Indemnified Person) directly or indirectly
caused by, related to, based upon, arising out of or in connection with any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement (or any amendment thereto), including the
information deemed to be a part of the Registration Statement pursuant to
Rule
23
<PAGE>
430A promulgated under the Act, if applicable, or the Prospectus (including
any amendment or supplement thereto) or any preliminary prospectus, or any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein (in the case
of the Prospectus, in light of the circumstances under which they were
made) not misleading, except insofar as such losses, claims, damages,
liabilities or expenses are caused by an untrue statement or omission or
alleged untrue statement or omission that is (i) made in reliance upon and
in conformity with information relating to any Underwriter Information or
(ii) with respect to the Underwriter from whom the person asserting the
loss, claim, damage or liability purchased Shares, made in any preliminary
prospectus if a copy of the Prospectus (as amended or supplemented) shall
have been furnished to the Underwriters by the Company with such
amendments or supplements thereto on a timely basis and such Prospectus was
not delivered by or on behalf of any of the Underwriters to the person
asserting the claim or action, if required by law to have been so delivered
by the Underwriter seeking indemnification, at or prior to the written
confirmation of the sale of the Shares, and it shall be finally determined
by a court of competent jurisdiction, by a judgment not subject to appeal
or review, that the Prospectus (as so amended or supplemented) would have
corrected such untrue statement or omission. The Company shall notify you
promptly of the institution, threat or assertion of any claim, proceeding
(including any governmental investigation) or litigation in connection with
the matters addressed by this Agreement which involves the Company or an
Indemnified Person.
Each of the Selling Stockholders agrees, if any Selling Stockholders
Additional Shares are offered or sold, severally and not jointly to
indemnify and hold harmless each Indemnified Person to the same extent as
the foregoing indemnity from the Company (but only with respect to claims
and actions based on untrue statements or omissions contained in the
Selling Stockholders Information as set forth in the Registration Statement
or the Prospectus).
Notwithstanding anything contained in this Section 8, the aggregate
liability of each of the Selling Stockholders pursuant to the provisions of
this Section 8 shall be limited to an amount equal to the aggregate
proceeds received by each Selling Stockholder from the sale of the Shares
pursuant to this Agreement.
24
<PAGE>
The several Underwriters acknowledge for all purposes under this
Agreement (including this paragraph and Section 8 hereof) that the Selling
Stockholders Information constitutes the only written information delivered
to the Company by or on behalf of the Selling Stockholders for use in the
Registration Statement or the Prospectus (or any amendment or supplement to
them) and that the Selling Stockholders shall not be deemed to have
provided any information (and therefore are not responsible for any
statement or omission) pertaining to any arrangement or agreement with
respect to any party other than the Selling Stockholders.
(b) In case any action or proceeding (including any governmental
investigation) shall be brought or asserted against any Indemnified Person
with respect to which indemnity may be sought against an indemnifying party
(or indemnifying parties), such Indemnified Person shall promptly notify
the indemnifying party (or indemnifying parties) in writing (provided that
--------
the failure to give such notice shall not relieve the indemnifying party
(or indemnifying parties) of its obligations pursuant to this Agreement
unless and only to the extent such failure to give notice results in the
loss or compromise of any material rights or defenses of the indemnifying
party (or indemnifying parties) as determined by a court of competent
jurisdiction by a final judgment no longer subject to appeal or review).
Upon receiving such notice, the indemnifying party (or indemnifying
parties) shall be entitled to participate in any such action or proceeding
and to assume, at their sole expense, the defense thereof, with counsel
satisfactory to such Indemnified Person (who shall not, except with the
consent of the Indemnified Person, be counsel to the indemnifying party (or
indemnifying parties) or an affiliate thereof) and, after written notice
from the indemnifying party (or indemnifying parties) to such Indemnified
Person of their election so to assume the defense thereof within 5 business
days after receipt of the notice from the Indemnified Person of such action
or proceeding, the indemnifying party (or indemnifying parties) shall not
be liable to such Indemnified Person hereunder for legal expenses of other
counsel subsequently incurred by such Indemnified Person in connection with
the defense thereof, other than reasonable costs of investigation, unless
(i) the indemnifying party (or indemnifying parties) agrees in writing to
pay such fees and expenses, or (ii) the indemnifying party (or indemnifying
parties) fails to assume such defense within the 5 business days specified
above or fails to employ counsel satisfactory to such Indemnified Person,
or (iii) the named parties to any such action or proceeding (including any
impleaded parties) include both such Indemnified Person
25
<PAGE>
and the indemnifying party (or indemnifying parties) or its affiliates, and
such Indemnified Person shall have been advised by counsel either (x) that
there may be one or more legal defenses available to such Indemnified
Person that are different from or additional to those available to the
indemnifying party (or indemnifying parties), or (y) a conflict of interest
exists between such Indemnified Person and the indemnifying party (or
indemnifying parties) or its affiliates (in which case, if such Indemnified
Person notifies the indemnifying party (or indemnifying parties) in
writing, neither the indemnifying party (or indemnifying parties) shall
have the right to assume the defense thereof), it being understood,
however, that the indemnifying party (or indemnifying parties) shall not,
in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) at any time for such
Indemnified Persons, which firm shall be designated in writing by DLJ. No
indemnifying party shall be liable for any settlement of any such action or
proceeding effected without its prior written consent. Notwithstanding the
foregoing sentence, if at any time an Indemnified Person shall have
requested the indemnifying party (or indemnifying parties) to reimburse the
Indemnified Person for fees and expenses of counsel as contemplated by the
second sentence of this paragraph, the indemnifying party (or indemnifying
parties) agree that they shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 45 business days after receipt by the indemnifying
party (or indemnifying parties) of the aforesaid request and (ii) the
indemnifying party (or indemnifying parties) shall not have reimbursed the
Indemnified Person in accordance with such request prior to the date of
such settlement. Neither the indemnifying party (or indemnifying parties)
shall, without the prior written consent of each Indemnified Person, settle
or compromise or consent to the entry of judgment in or otherwise seek to
terminate any pending or threatened action, claim, litigation or proceeding
in respect of which indemnification or contribution may be sought hereunder
(whether or not any Indemnified Person is a party thereto), unless such
settlement, compromise, consent or termination includes an unconditional
release of each Indemnified Person from all liability arising out of such
action, claim, litigation or proceeding.
26
<PAGE>
(c) Each of the Underwriters agrees, severally and not jointly, to
indemnify and hold harmless the Company and each of the Selling
Stockholders, their respective directors, where applicable, the officers of
the Company who sign the Registration Statement, any person controlling
(within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act) any of the Company or the Selling Stockholders, and, where applicable,
the officers, directors, partners, employees, representatives and agents of
each such person, to the same extent as the foregoing indemnity from the
Company and the Selling Stockholders to each of the Indemnified Persons,
but only with respect to claims and actions based on any Underwriter
Information.
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or expenses referred to herein, then each of the
Company, the Selling Stockholders and the Underwriters, as applicable, in
lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities and expenses (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company and
each of the Selling Stockholders on the one hand and the Indemnified
Persons on the other hand from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
indemnifying parties and the indemnified party, as well as any other
relevant equitable considerations. The relative benefits received by the
Company and each of the Selling Stockholders, on the one hand, and any of
the Underwriters, on the other hand, shall be deemed to be in the same
proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the
Company and each of the Selling Stockholders bear to the total underwriting
discounts and commissions received by such Underwriter, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
of the Company and each of the Selling Stockholders, on the one hand, and
the Underwriters, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
related to information supplied by the Company or any of the Selling
Stockholders, on the one hand, or the Underwriters, on the other
27
<PAGE>
hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The
indemnity and contribution obligations of the Company and each of the
Selling Stockholders set forth herein shall be in addition to any liability
or obligation that the Company or any of the Selling Stockholders may
otherwise have (other than with respect to the matters covered by this
Section 8) to any Indemnified Person.
The Company, each of the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to
this Section 8(d) were determined by pro rata allocation (even if the
--- ----
Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations
set forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8, none of
the Underwriters (and its related Indemnified Persons) shall be required to
contribute, in the aggregate, any amount in excess of the amount by which
the total underwriting discount applicable to the Shares purchased by such
Underwriter exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective
number of Shares purchased by each of the Underwriters hereunder and not
joint.
(e) The rights and obligations provided in this Section 8 shall
terminate seven years from the date hereof.
9. Conditions of Underwriters' Obligations. The several obligations
---------------------------------------
of the Underwriters to purchase the Firm Shares under this Agreement are subject
to the satisfaction of each of the following conditions:
28
<PAGE>
(a) All the representations and warranties of the Company and the
Selling Stockholders contained in this Agreement shall be true and correct
on the Closing Date with the same force and effect as if made on and as of
the Closing Date.
(b) The Registration Statement shall have become effective not later
than 10:00 A.M., New York City time, on the date of this Agreement or at
such later date and time as you may approve in writing, and at the Closing
Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall
have been commenced or shall be pending before or contemplated by the
Commission.
(c) No action shall have been taken and no statute, rule or regulation
or order shall have been enacted, adopted or issued by any governmental
agency which would, as of the Closing Date, prevent the sale of the Shares;
no injunction, restraining order or order of any nature by a U.S. federal
or state court of competent jurisdiction shall have been issued as of the
Closing Date which would prevent the sale of the Shares; except as
disclosed in the Prospectus, on the Closing Date, no action, suit or
proceeding shall be pending against, or, to the knowledge of the Company
or any of the Selling Stockholders, threatened against, the Company or any
of its subsidiaries or any of the Selling Stockholders, respectively,
before any court or arbitrator or any governmental body, agency or official
which, if adversely determined, would interfere with or adversely affect
the sale of the Shares or could reasonably be expected to have a Material
Adverse Effect, or in any manner invalidate this Agreement or the sale of
the Shares.
(d) (i) Since the date of the latest balance sheet included in or
incorporated by reference into the Registration Statement and the
Prospectus, there shall not have been any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, cash flows, business
affairs or business prospects, whether or not arising in the ordinary
course of business, of the Company and its subsidiaries, taken as a whole,
(ii) except as set forth in the Registration Statement, since the date of
the latest balance sheet included in or incorporated by reference into the
Registration Statement and the Prospectus, there shall not have been any
material adverse change, or any development involving a prospective
29
<PAGE>
material adverse change, in the capital stock or in the long-term debt, or
material increase in short-term debt, of the Company and its subsidiaries,
taken as a whole, (iii) the Company and its subsidiaries shall have no
liability or obligation, direct or contingent, which is material to the
Company and its subsidiaries, taken as a whole, other than those reflected
or incorporated by reference in the Registration Statement and the
Prospectus and (iv) on the Closing Date you shall have received a
certificate dated the Closing Date, signed by Richard J. Heckmann and Kevin
L. Spence, in their capacities as the Chief Executive Officer and the Chief
Financial Officer of the Company, respectively, confirming the matters
expressly relating to the Company set forth in paragraphs (a), (b), (c)
(with respect to the first two clauses of such paragraph (c), to the
Company's best knowledge) and (d) of this Section 9.
(e) The Underwriters shall have received a certificate of each of the
Selling Stockholders, dated the Closing Date, executed by a Senior
Executive Officer and its principal financial or accounting officer, in
their capacities as officers of each such Selling Stockholder, confirming
the matters relating to each of the Selling Stockholders set forth in
paragraph (a) and the last clause of paragraph (c) of this Section 9 with
respect to the sale of the Selling Stockholders Additional Shares and, to
their knowledge, with respect to the first two clauses of paragraph (c) of
this Section 9 with respect to the sale of the Selling Stockholders
Additional Shares.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of Kirkpatrick & Lockhart LLP, counsel for the Company, to the effect
that:
(i) the Company and each of its United States subsidiaries listed
on Schedule V hereto (the "Subsidiaries") has been duly incorporated,
is existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and
corporate authority required to carry on its business as described in
the Prospectus and to own, lease and operate its properties;
(ii) all of the issued and outstanding shares of capital stock
of each of the Subsidiaries have been duly and validly authorized and
issued and are fully paid and nonassessable;
30
<PAGE>
(iii) (a) the Shares have been duly authorized for issuance
and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company pursuant to this Agreement against
payment of the consideration set forth herein, will be validly
issued, fully paid and nonassessable, (b) the issuance and sale of the
Shares by the Company will not be subject to preemptive or other
similar rights and (c) the Shares to be sold by the Selling
Stockholders hereunder have been duly authorized and validly issued
and are fully paid and nonassessable, and, to such counsel's
knowledge, except as otherwise set forth in the Prospectus, the sale
of such Shares is not subject to any preemptive or similar rights;
(iv) the authorized capital stock of the Company, including the
Common Stock, conforms as to legal matters to the description thereof
contained or incorporated by reference in the Prospectus, and, except
for the pledge to the Banks of capital stock of those certain
Subsidiaries pursuant to, and as set forth in, the Credit Facilities,
are, to our knowledge, owned by the Company free and clear of any
security interest, claim, lien, encumbrance or adverse interest of any
nature;
(v) the Registration Statement has become effective under the
Act, and, to such counsel's knowledge, no stop order suspending its
effectiveness has been issued and no proceedings for that purpose are
pending before or threatened by the Commission;
(vi) the statements under the captions "Shares Eligible for
Future Sale," "Recent and Pending Acquisitions," "Dividend Policy" and
"Description of Capital Stock" in the Prospectus and Item 15 of Part
II of the Registration Statement, insofar as such statements
constitute a summary of legal matters or certain contents of documents
referred to therein, are fair summaries of such legal matters or
contents of documents; or
(vii) the execution, delivery and performance of this Agreement
by the Company, compliance by the Company with all the provisions
hereof and the consummation of the transactions contemplated hereby
will not require any consent, approval, authorization or other order
of any court, regulatory body, administra-
31
<PAGE>
tive agency or other governmental body (except as such may be required
under the Act or other securities or Blue Sky laws) and, except as
would not have a Material Adverse Effect, will not violate or
constitute a breach of any of the terms or provisions of, or a default
(with the passage of time, the giving of notice or otherwise) under,
the charter or by-laws or other equivalent instruments, as the case
may be, of the Company or any of the Subsidiaries or any agreement,
lease, contract, indenture or other instrument that is an exhibit to
the Registration Statement or any document incorporated by reference
therein, or (assuming compliance with all applicable state securities
or Blue Sky laws) violate any laws or administrative regulations
applicable to the Company or any of its Subsidiaries or their
respective properties which, in such counsel's opinion, are normally
applicable to the transactions of the type contemplated by this
Agreement or violate any judgment, injunction, order or decree known
to such counsel that names the Company or any of the Subsidiaries and
is specifically directed to any of them or any of their respective
properties;
(viii) such counsel does not know of any contract or other
document to which the Company or any Subsidiary is a party which is
required to be described in the Registration Statement or the
Prospectus or is required to be filed as an exhibit to the
Registration Statement which is not described or filed as required;
(ix) the Company has the corporate power and authority to enter
into and perform this Agreement; and this Agreement has been duly
authorized, executed and delivered by the Company and is a valid and
binding agreement of the Company enforceable in accordance with its
terms (except as rights to indemnity and contribution hereunder may be
limited by applicable law);
(x) to the best of such counsel's knowledge, except for rights as
to which waivers have been obtained in writing with respect to
inclusion in this Offering, no holder of any security of the Company
other than the Selling Stockholders [AND _______] has any right to
require registration of shares of Common Stock or any other security
of the Company other than [ ];
32
<PAGE>
(xi) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for financial statements and
financial schedules and other statistical data included or
incorporated therein as to which no opinion need be expressed) comply
as to form in all material respects with the Act; and
(xii) the Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company and the Selling Stockholders, representatives of the independent public
accountants of each of the Company[, WATERPRO SUPPLIES CORPORATION, WHEELABRATOR
TECHNOLOGIES INC.--SYSTEMS AND MANUFACTURING GROUP, UNITED UTILITIES PLC--
PROCESS DIVISION AND THE UTILITY SUPPLY GROUP, INC.,] and representatives of the
Underwriters and their counsel at which the contents of the Registration
Statement and the Prospectus were discussed and, although such counsel has not
independently verified and is not passing upon and does not assume
responsibility for the accuracy, completeness or fairness of the statements
contained in the aforesaid Registration Statement or the Prospectus (except as
specified elsewhere in such counsel's opinion), on the basis of the foregoing
(relying as to materiality to a large extent upon the statements of officers and
other representatives of the Company), nothing has come to the attention of such
counsel that causes such counsel to believe that the Registration Statement, at
the time such Registration Statement or any post-effective amendment became
effective, contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, as amended or
supplemented, as of its date and the Closing Date, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need express no opinion with respect to the financial
statements, schedules, statistical data, and pro forma and other financial data
included or incorporated by reference in the Registration Statement or the
Prospectus).
The opinion of Kirkpatrick & Lockhart LLP described in paragraph (f)
above shall be rendered to you at the request of the Company and shall so state
therein. In rendering such opinions, such counsel may rely upon certificates
33
<PAGE>
of any officer of the Company or of government officials as to matters of fact
of which the maker of such certificate has knowledge provided that counsel
rendering such opinion shall furnish the Underwriters with copies of any such
statements or certificates. In addition, in rendering their opinion, such
counsel may state that their opinion is limited to matters of the laws of the
Commonwealth of Pennsylvania, the General Corporation Law of the State of
Delaware and U.S. Federal law.
(g) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of Damian C. Georgino, General Counsel for the Company, to the effect
that:
(i) to the knowledge of such counsel, each contract or
document described in or whose description is incorporated into the
Prospectus is, unless otherwise disclosed therein, in full force and
effect in accordance with its terms, except as would not cause a
Material Adverse Effect;
(ii) neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or other equivalent
instruments, as the case may be, except as would not singly or in the
aggregate have a Material Adverse Effect, and, to such counsel's
knowledge, except as would not have a Material Adverse Effect, neither
the Company nor any of its subsidiaries is in default in the
performance of any obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any
other agreement, lease, contract, indenture or instrument to which the
Company or any of its subsidiaries is a party or by which it or any of
its subsidiaries or their respective property is bound, and there
exists no condition which, with the passage of time or otherwise,
would constitute such a default under any such document or instrument;
(iii) the execution, delivery and performance of this Agreement
by the Company, compliance by the Company with all the provisions
hereof and the consummation of the transactions contemplated hereby
will not require any consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other
governmental body (except as such may be re-
34
<PAGE>
quired under the Act or other securities or Blue Sky laws) and will
not conflict with or constitute a breach of any of the terms or
provisions of, or a default (with the passage of time or otherwise)
under, the charter or by-laws or other equivalent instruments, as the
case may be, of the Company or any of its subsidiaries or, except as
such would not have a Material Adverse Effect, any agreement, lease,
contract, indenture or other instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective properties are bound, or, except such
as would not have a Material Adverse Effect, violate or conflict with
any valid statutes or valid and published administrative regulations
applicable to the Company or any of its subsidiaries or their
respective properties which, in such counsel's opinion, are normally
applicable to the transactions of the type contemplated by this
Agreement or violate any judgment, injunction, order or decree known
to such counsel that names the Company or any of the Subsidiaries and
is specifically directed to any of them or any of their respective
properties;
(iv) such counsel does not know of any legal or governmental
proceeding pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of their respective property
is subject which is required to be described in the Registration
Statement or the Prospectus and is not so described or incorporated by
reference;
(v) the Company has the corporate power and authority to enter
into and perform this Agreement; this Agreement has been duly
authorized, executed and delivered by the Company and is a valid and
binding agreement of the Company enforceable in accordance with its
terms (except as rights to indemnity and contribution hereunder may be
limited by applicable law).
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company and the Selling Stockholder, representatives of the independent public
accountants of each of the Company[, WATERPRO SUPPLIES CORPORATION, WHEELABRATOR
TECHNOLOGIES INC.--SYSTEMS AND MANUFACTURING GROUP, UNITED UTILITIES PLC--
PROCESS DIVISION AND THE UTILITY SUPPLY GROUP, INC.,] and representatives of the
Underwriters and their counsel at which the contents of the Registration
35
<PAGE>
Statement and the Prospectus were discussed and, although such counsel has not
independently verified and is not passing upon and does not assume
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus (except as specified
elsewhere in such counsel's opinion), on the basis of the foregoing, nothing has
come to the attention of such counsel that causes such counsel to believe that
the Registration Statement, at the time such Registration Statement or any post-
effective amendment became effective, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus, as amended or supplemented, as of its date and the Closing Date,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading (it
being understood that such counsel need express no opinion with respect to the
financial statements, schedules, statistical data, and pro forma and other
financial data included in the Registration Statement or the Prospectus).
The opinion of Damian C. Georgino described in paragraph (g) above
shall be rendered to you at the request of the Company and shall so state
therein.
(h) You will receive on the Closing Date an opinion (satisfactory to
you and counsel for the Underwriters), dated the Closing Date, of each of
[_____________], counsel to John Hancock Capital Growth Fund IIB Limited
Partnership and John Hancock Capital Growth Fund III Limited Partnership,
[ ], counsel to Carl C. Landegger, as Trustee of the 1990
Family Trust, [ ], counsel to the Black Clawson Company, and
[ ], counsel to CGW Southeast Partners I, L.P., to the effect
that:
(i) such Selling Stockholder has the requisite power and
authority to enter into and perform this Agreement; this Agreement has
been duly and validly authorized by all necessary action by such
Selling Stockholder, where applicable, and has been duly executed and
delivered by such Selling Stockholder; and the transactions
contemplated by this Agreement have been duly and validly authorized
by all necessary action by such Selling Stockholder, where applicable;
36
<PAGE>
(ii) such Selling Stockholder has full legal right, power and
authority, and any approval required by law (other than any approval
imposed by the applicable state securities and Blue Sky laws), to
sell, assign, transfer and deliver such Selling Stockholder's
Additional Shares to be sold by it in the manner provided in this
Agreement;
(iii) immediately prior to the Closing Date, such Selling
Stockholder was the sole registered owner of such Selling
Stockholder's Additional Shares as disclosed in the Prospectus as
being sold by it; upon purchase of such Selling Stockholder's
Additional Shares in accordance with the terms of this Agreement,
assuming the Underwriters purchased such Selling Stockholder's
Additional Shares in good faith and without notice of any adverse
claim within the meaning of Section 8-302 of the New York Uniform
Commercial Code, the Underwriters will have acquired all rights of
such Selling Stockholder in such Selling Stockholder's Additional
Shares free of any adverse claim, any lien in favor of the Company,
and any restrictions on transfer imposed by the Company; and
(iv) neither the sale of such Selling Stockholder's Additional
Shares nor the performance of such Selling Stockholder's obligations
pursuant to this Agreement will (A) conflict with, result in a breach
or violation of, or constitute a default under the terms of any
indenture or other agreement or instrument of which such counsel has
knowledge to which such Selling Stockholder is a party or bound, or
any statute, rule or regulation to which such Selling Stockholder is
subject, or to which any of the properties of such Selling Stockholder
is subject, or any order of which such counsel has knowledge of any
court or governmental agency or body having jurisdiction over such
Selling Stockholder or any of its properties or (B) violate any of
the provisions of the charter, bylaws or other organizational
documents of such Selling Stockholder as in effect on the date of the
opinion, except that such counsel need express no opinion as to the
state securities or Blue Sky laws or as to compliance with the
antifraud provisions of Federal or state securities laws.
(i) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP
37
<PAGE>
("Skadden Arps"), counsel for the Underwriters, in form and substance
reasonably satisfactory to you.
(j) You and the Selling Stockholders shall have received letters on
and as of the date hereof as well as on and as of the Closing Date (in the
latter case constituting an affirmation of the statements set forth in the
former, based on limited procedures), in form and substance satisfactory to
you, from KPMG Peat Marwick LLP, Price Waterhouse LLP, Ernst & Young LLP,
Arthur Anderson LLP [AND DELOITTE?] (the "Accountants"), each independent
public accountants, with respect to the financial statements and certain
financial information contained in the Registration Statement and the
Prospectus.
(k) Skadden Arps shall have been furnished with such documents and
opinions as they may reasonably require for the purpose of enabling them to
review or pass upon the matters referred to in this Section 9 and in order
to evidence the accuracy, completeness or satisfaction in all material
respects of any of the representations, warranties or conditions herein
contained.
(l) Prior to the Closing Date, the Company and the Selling
Stockholders shall have furnished to you or caused to be furnished to you
such further information, certificates, opinions and documents as you may
reasonably request.
(m) The Company and the Selling Stockholders shall not have failed at
or prior to the Closing Date to perform or comply with any of the
agreements herein contained and required to be performed or complied with
by the Company or the Selling Stockholders, as applicable, at or prior to
the Closing Date.
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to satisfaction on and as of each Option Closing
Date of the conditions set forth in paragraphs (a) through (m), except that the
opinions called for in paragraphs (f), (g) and (h) and the letters referred to
in paragraph (j) shall be revised to reflect the sale of the Additional Shares.
10. Effective Date of Agreement and Termination. This Agreement
-------------------------------------------
shall become effective upon the execution of this Agreement.
38
<PAGE>
This Agreement may be terminated at any time prior to the Closing Date
by you by written notice to the Company if any of the following has occurred:
(i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any adverse change or development
involving a prospective adverse change in the condition, financial or otherwise,
of the Company or any of its subsidiaries or the earnings, cash flows, business
affairs, or business prospects of the Company or any of its subsidiaries,
whether or not arising in the ordinary course of business, which would, in your
judgment, make it impracticable or inadvisable to market the Shares or to
enforce contracts for the sale of the Shares, (ii) any outbreak or escalation of
hostilities or other national or international calamity or crisis or change in
economic conditions or in the financial markets of the United States or
elsewhere that, in your judgment, is material and adverse and would, in your
judgment, make it impracticable or inadvisable to market the Shares or to
enforce contracts for the sale of the Shares, (iii) the suspension or material
limitation of trading in securities on the New York Stock Exchange, the American
Stock Exchange or the NASDAQ National Market System or limitation on prices for
securities on any such exchange or National Market System, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority which in
your judgment materially and adversely affects, or will materially and adversely
affect, the business or operations of the Company and its subsidiaries, taken as
a whole, (v) the declaration of a banking moratorium by either federal or New
York State authorities or (vi) the taking of any action by any federal, state or
local government or agency in respect of its monetary or fiscal affairs which in
your judgment has a material adverse effect on the financial markets in the
United States and would, in your judgment, make it impracticable or inadvisable
to market the Shares or to enforce contracts for the sale of the Shares.
If on the Closing Date any one or more of the Underwriters shall fail
or refuse to purchase the Firm Shares which it or they have agreed to purchase
hereunder on such date and the aggregate number of Firm Shares which such
defaulting Underwriter or Underwriters, as the case may be, agreed but failed or
refused to purchase is not more than one-tenth of the total number of Shares to
be purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule II and Schedule III bears to the total
number of Firm Shares which all the non-defaulting Underwriters, as the case may
be, have agreed to purchase, or in such other proportion as you may specify, to
purchase the Firm Shares which such defaulting Underwriter or
39
<PAGE>
Underwriters, as the case may be, agreed but failed or refused to purchase on
such date; provided that in no event shall the number of Firm Shares which any
--------
Underwriter has agreed to purchase pursuant to Section 3 hereof be increased
pursuant to this Section 10 by an amount in excess of one-ninth of such number
of Firm Shares without the written consent of such Underwriter. If on the
Closing Date any Underwriter or Underwriters shall fail or refuse to purchase
Firm Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Shares to be
purchased on such date by all Underwriters, and arrangements satisfactory to you
and the Company for purchase of such Shares are not made within 48 hours after
such default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, the Company and the Selling Stockholders. In any
such case which does not result in termination of this Agreement, either you or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
11. Further Agreements of the Selling Stockholders. Each of the
----------------------------------------------
Selling Stockholders agrees with the Underwriters and the Company:
(a) Such Selling Stockholder has, and on the Closing Date will have,
full legal right, power and authority to enter into this Agreement and the
Custody Agreement between each of the Selling Stockholders and [ ],
as Custodian (the "Custody Agreement"), and to sell, assign, transfer
and deliver such Selling Stockholder's Shares in the manner provided herein
and therein, and this Agreement and the Custody Agreement have been duly
authorized, executed and delivered by such Selling Stockholder and each of
this Agreement and the Custody Agreement is a valid and binding agreement
of such Selling Stockholder enforceable in accordance with its terms,
except as rights to indemnity and contribution hereunder may be limited by
applicable law.
(b) The power of attorney signed by such Selling Stockholder
appointing [ ] and [ ], or any one of them, as its
attorney-in-fact to the extent set forth therein with regard to the
transactions contemplated hereby and by the Registration Statement and the
Custody Agreement has been duly authorized, executed and delivered by
40
<PAGE>
or on behalf of such Selling Stockholder and is a valid and binding
instrument of such Selling Stockholder enforceable in accordance with its
terms, and, pursuant to such power of attorney, such Selling Stockholder
has authorized [ ] and [ ], or any one of them, to
execute and deliver on his behalf this Agreement and any other document
necessary or desirable in connection with transactions contemplated hereby
and to deliver such Selling Stockholder's Additional Shares to be sold by
such Selling Stockholder pursuant to this Agreement.
(c) To pay or cause to be paid its own underwriting discounts and
commissions, and all of its costs, fees and expenses incident to the
performance of this Agreement, including any taxes, other than any fees and
expenses borne by the Company pursuant to the Transfer and Registration
Agreement dated as of May 31, 1996 between the Company and the Selling
Stockholders and [UNITED UTILITIES REGISTRATION RIGHTS AGREEMENT?], as
applicable.
(d) To take all reasonable actions in cooperation with the Company and
the Underwriters to do and perform all things to be done by it pursuant to
this Agreement prior to the Closing Date and any Option Closing Date or
reasonably requested by the Company in connection herewith and to satisfy
all conditions precedent to the delivery of the Shares to be sold by it
pursuant to this Agreement.
(e) Prior to any public offering of the Shares to be sold by it to the
Underwriters pursuant to this Agreement, it will cooperate with the
Underwriters and counsel for the Underwriters in connection with the
registration or qualification of any such Shares for offer and sale by the
Underwriters and by dealers under the securities or Blue Sky laws of such
jurisdictions as the Underwriters may reasonably request, and will continue
such qualification in effect so long as reasonably required for
distribution of any such Shares and to file such consents to service of
process or other documents as may be necessary in order to effect such
registration or qualification; provided, however, that it shall not be
-------- -------
required to take any action that would subject it to the general service of
process in any jurisdiction where it is not now so subject.
(f) It agrees to deliver to the Underwriters prior to or at the
Closing Date, if applicable, a properly completed and executed United
41
<PAGE>
States Treasury Department Form W-9 (or other form as may be required by
law).
(g) Each of the Selling Stockholders acknowledge for all purposes
under this Agreement (including Section 8 hereof) that the information
appearing under the caption "Selling Stockholders," as to such Selling
Stockholder, has been furnished by such Selling Stockholder in writing
expressly for use in the Registration Statement and the Prospectus (such
information constituting the "Selling Stockholders Information").
12. Miscellaneous. Notices given pursuant to any provision of his
-------------
Agreement shall be addressed as follows: (a) if to the Company, to United States
Filter Corporation, 40-004 Cook Street, Palm Desert, California 92211,
Attention: Kevin L. Spence, (b) if to the Selling Stockholders, to
[_____________] and (c) if to any Underwriter or to you, to you c/o Donaldson,
Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York
10172, Attention: Syndicate Department, or in any case to such other address as
the person to be notified may have requested in writing.
The respective indemnities, representations, warranties and other
statements of the Company, the Selling Stockholders, their respective officers
and directors, where applicable, and of the several Underwriters set forth in or
made pursuant to this Agreement and the respective contribution agreements of
the Company and its officers and directors and of the several Underwriters set
forth in this Agreement shall remain operative and in full force and effect, and
will survive delivery of and payment for the Shares for a period of seven years,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter or by or on behalf of the Company or the
Selling Stockholders, the officers or directors of the Company or the Selling
Stockholders, where applicable, or any controlling person of the Company or the
Selling Stockholders, where applicable, (ii) acceptance of the Shares and
payment for them hereunder and (iii) termination of this Agreement.
If this Agreement shall be terminated by the Underwriters because of
any failure or refusal on the part of the Company or the Selling Stockholders to
comply with the terms or to fulfill any of the conditions of this Agreement, the
party whose failure or refusal to comply with such terms or fulfill such
conditions shall reimburse the several Underwriters for all out-of-pocket
expenses (including the fees and disbursements of counsel) reasonably incurred
by them.
42
<PAGE>
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Selling
Stockholders, the Underwriters, any controlling persons referred to herein and
their respective successors and assigns, all as and to the extent provided in
this Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement. The term "successors and assigns" shall not include a
purchaser of any of the Shares from any of the several Underwriters merely
because of such purchase.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND
PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, EXCLUDING (TO THE GREATEST
EXTENT PERMISSIBLE BY LAW) ANY RULE OF LAW THAT WOULD CAUSE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. THE COMPANY, ON
BEHALF OF ITSELF AND ITS SUBSIDIARIES, AND EACH OF THE SELLING STOCKHOLDERS EACH
HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS
CONTEMPLATED HEREBY IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL
JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUIT,
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY
AND EACH OF THE SELLING STOCKHOLDERS EACH IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION THAT IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
43
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
UNITED STATES FILTER CORPORATION
By:___________________________________________
Name:
Title:
JOHN HANCOCK CAPITAL GROWTH FUND IIB
LIMITED PARTNERSHIP
By:_______________________________________
Name:
Title: Attorney-in-fact
JOHN HANCOCK CAPITAL GROWTH FUND III
LIMITED PARTNERSHIP
By:_______________________________________
Name:
Title: Attorney-in-fact
CARL C. LANDEGGER, TRUSTEE
By:_______________________________________
Name:
Title: Attorney-in-fact
<PAGE>
THE BLACK CLAWSON COMPANY
By:________________________________________
Name:
Title: Attorney-in-fact
CGW SOUTHEAST PARTNERS I, L.P.
By:________________________________________
Name:
Title: Attorney-in-fact
<PAGE>
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEUTSCHE MORGAN GRENFELL INC.
NATWEST SECURITIES LIMITED
SALOMON BROTHERS INC
SMITH BARNEY INC.
Acting severally on behalf of
itself and the several
U.S. Underwriters named in
Schedule II hereto:
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:_____________________________
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN GRENFELL & CO., LIMITED
NATWEST SECURITIES LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
SMITH BARNEY INC.
Acting severally on behalf of
itself and the several
International Managers named
in Schedule III hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:_____________________________
Name:
Title:
<PAGE>
SCHEDULE I
----------
<TABLE>
<CAPTION>
Number of Selling
Stockholders Additional
Shares available for
Selling Stockholders Purchase
- -------------------- ----------------------------
<S> <C>
John Hancock Capital Growth
Fund IIB Limited Partnership 23,323
John Hancock Capital Growth
Fund III Limited Partnership 286,027
Carl C. Landegger, Trustee 70,000
The Black Clawson Company 191,444
CGW Southeast Partners I, L.P. 275,000
----------
</TABLE>
845,794
==========
<PAGE>
SCHEDULE II
-----------
<TABLE>
<CAPTION>
Number of Firm Shares
U.S. Underwriters to be Purchased
- ----------------- --------------------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities corporation [ ]
Deutsche Morgan Grenfell Inc. [ ]
NatWest Securities Limited [ ]
Salomon Brothers Inc [ ]
Smith Barney Inc. [________]
Total 8,000,000
=========
</TABLE>
<PAGE>
SCHEDULE III
------------
<TABLE>
<CAPTION>
Number of Firm Shares
International Managers to be Purchased
- ---------------------- ------------------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities corporation [ ]
Morgan Grenfell & Co. Limited [ ]
NatWest Securities Limited [ ]
Salomon Brothers International Limited [ ]
Smith Barney Inc. [_______]
Total 2,000,000
=========
</TABLE>
<PAGE>
SCHEDULE IV
-----------
REQUIRED STOCKHOLDER LOCK-UPS
-----------------------------
Name
- ----
[TO BE UPDATED]
Richard J. Heckmann
Michael J. Reardon
Nicholas C. Memmo
Thierry Reyners
Andrew D. Seidel
Kevin L. Spence
Tim L. Traff
John S. Swartley
Gerald E. Rogers
Damian C. Georgino
G.G. Pique
James R. Bullock
James E. Clark
John L. Diederich
J. Atwood Ives
Arthur B. Laffer
Alfred E. Osborne, Jr.
C. Howard Wilkins, Jr.
Interlake Stockholders /(1)/
[ZIMPRO]
[KBS]
[JET-TECH]
[BEKOX]
[NORRIS]
[WATER PRO]
[USG]
[UNITED UTILITIES]
_________________
(1) The Interlake Stockholders are Florence E. Stockdale and James Timothy
Stockdale.
<PAGE>
SCHEDULE V
----------
LIST OF CERTAIN SUBSIDIARIES
----------------------------
Name Place of Incorporation
- ---- ----------------------
[TO BE UPDATED]
U.S. Subsidiaries
- -----------------
Continental Water Conditioning California
Company of the Bay Area
Illinois Water Treatment, Inc. Delaware
IP Holding Company Delaware
U.S. Filter/Arrowhead, Inc. Delaware
U.S. Filter/Ionpure, Inc. Massachusetts
U.S. Filter/Permutit, Inc. Delaware
USF Two, Inc. Delaware
U.S. Filter, Inc. Warrendale, PA Delaware
U.S. Filter/Whittier, Inc. Delaware
Continental Penfield Corporation Delaware
U.S. Filter Recovery Services, Inc. Delaware
Polymetrics, Inc. California
Foreign Subsidiaries
- --------------------
USF Smogless S.p.A. Italy
USF Limited U.K.
Societe des Ceramiques Techniques France
Seral Erich Alhauser GmbH Germany
Establishments Crouzat S.A. France
Ionpure Technologies SARL France
Ionpure Technologies Ltd. (UK) U.K.
<PAGE>
EXHIBIT 5.1
November 20, 1996
United States Filter Corporation
40-004 Cook Street
Palm Desert, California 92211
Ladies and Gentlemen:
I am Vice President, General Counsel and Secretary of United States Filter
Corporation, a Delaware corporation (the "Company"), and have acted as counsel
to the Company in connection with the Registration Statement on Form S-3 (No.
333-14277), filed by the Company on October 17, 1996, as amended (the
"Registration Statement") with the United States Securities and Exchange
Commission pursuant to the United States Securities Act of 1933, as amended (the
"Act"), with respect to an aggregate of up to 11,500,000 shares of Common Stock,
par value $.01 per share ("Common Stock"). The shares of Common Stock covered by
the Registration Statement include up to a maximum of 1,500,000 shares of Common
Stock pursuant to an over-allotment option, 845,794 of which may be offered or
sold from time to time by the selling stockholders identified in the
Registration Statement and 654,206 of which will be issuable by the Company
(such 654,206 shares, together with the 10,000,000 firm shares covered by the
Registration Statement, the "Shares").
I am familiar with the Registration Statement and have reviewed the
Company's Certificate of Incorporation and By-laws, each as amended and
restated. I have also examined such other public and corporate documents,
certificates, instruments and corporate records, and such other questions of
law, as I have deemed necessary for purposes of expressing an opinion on the
matters hereinafter set forth. In all examinations of documents, instruments and
other papers, I have assumed the genuineness of all signatures on original and
certified documents and the conformity to original and certified documents of
all copies submitted to me as conformed, photostatic or other copies.
On the basis of the foregoing, I am of the opinion that the issuance of the
shares has been duly authorized by the Company, and if and when sold by the
Company as contemplated by the Prospectus included in the Registration
Statement, will be validly issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement. I also consent to the reference under
the caption "Legal Matters" in the Registration Statement. In giving this
consent, I do not thereby admit that I am included in the category of persons
whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
Yours truly,
/s/ Damian C. Georgino
<PAGE>
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months
Ended
Fiscal Year Ended March 31, September 30,
---------------------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income before interest and income taxes $(3,831) 3,661 (5,055) 23,123 40,647 20,638 26,600
Portion of rental expense deemed to
represent interest 1,699 1,914 2,174 2,678 2,997 1,294 1,251
------- ------ ------ ------ ------ ------ ------
Earnings (loss) before fixed charges $(2,132) 5,575 (2,881) 25,801 43,644 21,932 27,851
======= ====== ====== ====== ====== ====== ======
Interest expense $ 3,862 3,582 4,044 7,514 14,419 6,548 7,972
Portion of rental expense deemed to
represent interest 1,699 1,914 2,174 2,678 2,997 1,294 1,251
------- ------ ------ ------ ------ ------ ------
Fixed charges $ 5,561 5,496 6,218 10,192 17,416 7,842 9,223
======= ====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges n/a 1.0 n/a 2.5x 2.5x 2.8x 3.0x
======= ====== ====== ====== ====== ====== ======
Deficiency of earnings to fixed charges $(7,693) n/a (9,099) n/a n/a n/a n/a
======= ====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Shareholders
United States Filter Corporation
We consent to the use of our reports included herein and the reference to
our firm under the heading "Independent Certified Public Accountants" in the
prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Orange County, California
November 21, 1996
To the Board of Directors and Shareholders
United States Filter Corporation
We consent to the use of our reports included herein and the reference to
our firm under the heading "Independent Certified Public Accountants" in the
prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Chicago, Illinois
November 21, 1996
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
To the Board of Directors and Shareholders
United Utilities PLC
We consent to the use of our report dated 16 October 1996 relating to the
aggregated financial statements of the United Utilities PLC Process Division
as of 31 March 1996 and 1995 and for each of the years in the two year period
ended 31 March 1996 and the reference to our firm under the heading
"Independent Certified Public Accountants" in the prospectus to be dated
21 November 1996.
/s/ KPMG Audit Plc
KPMG Audit Plc
Chartered Accountants Manchester
Registered Auditors 21 November 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 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 such Prospectus. We
also consent to the reference to us under the heading "Independent Certified
Public Accountants" in such Prospectus.
/s/Price Waterhouse LLP
Price Waterhouse LLP
Atlanta, Georgia
November 21, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Certified Public Accountants" in the Registration Statement (Form S-3) and
related Prospectus of United States Filter Corporation for the registration of
11,500,000 shares of its common stock and to the incorporation by reference
therein of our report dated February 8, 1996, except for Notes 4 and 10, as to
which the date is May 10, 1996, with respect to the consolidated financial
statements of Zimpro Environmental, Inc. included in the Current Report on
Form 8-K of United States Filter Corporation dated May 31, 1996, filed with
the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
Minneapolis, Minnesota
November 20, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated February 8, 1996
included in United States Filter Corporation's Report on Form 8-K dated
November 6, 1996 and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Minneapolis, Minnesota
November 20, 1996
