<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTION, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 and 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended SEPTEMBER 30, 1997
------------------
or
[_] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
----------- -----------
Commission file number 1-10728
-------
UNITED STATES FILTER CORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0266015
---------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
40-004 COOK STREET, PALM DESERT, CA 92211
------------------------------------------
(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including area code (760) 340-0098
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of common stock, $.01 par value, outstanding as of November
7, 1997 was 93,974,355 shares.
Total number of pages 20
----
THERE ARE THREE EXHIBITS FILED WITH THIS REPORT
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1997 March 31, 1997
------------------ --------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 32,622 $ 126,237
Short-term investments 483 2,158
Accounts receivable, net 618,256 481,015
Costs and estimated earnings in excess
of billings on uncompleted contracts 121,494 107,537
Inventories 303,960 242,483
Prepaid expenses 13,677 8,040
Deferred taxes 38,969 38,589
Other current assets 41,247 17,086
---------- ----------
Total current assets 1,170,708 1,023,145
---------- ----------
Property, plant and equipment, net 597,987 296,840
Investment in leasehold interests, net 22,916 23,230
Costs in excess of net assets of businesses acquired, net 903,982 788,096
Other assets 109,373 97,017
---------- ----------
$2,804,966 $2,228,328
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 278,233 $ 237,895
Accrued liabilities 272,633 239,337
Current portion of long-term debt 10,699 10,806
Billings in excess of costs and estimated
earnings on uncompleted contracts 58,012 42,183
Other current liabilities 43,997 21,327
---------- ----------
Total current liabilities 663,574 551,548
---------- ----------
Notes payable 6,346 8,876
Long-term debt, excluding current portion 60,521 12,286
Convertible subordinated debentures 554,000 554,000
Deferred taxes 13,110 11,521
Other liabilities 43,679 61,247
---------- ----------
Total liabilities 1,341,230 1,199,478
---------- ----------
</TABLE>
(Continued)
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND MARCH 31, 1997 (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1997 March 31, 1997
------------------ --------------
(in thousands)
<S> <C> <C>
Shareholders' equity:
Common stock, par value $.01. Authorized 300,000
shares; 92,897 and 74,530 shares issued and
outstanding at September 30, 1997 and March 31, 1997,
respectively 929 745
Additional paid-in capital 1,384,570 990,004
Currency translation adjustment (34,579) (19,491)
Retained earnings 112,816 57,592
---------- ----------
Total shareholders' equity 1,463,736 1,028,850
---------- ----------
Commitments and contingencies $2,804,966 $2,228,328
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
September 30, September 30,
----------------------- ----------------------
1997 1996 1997 1996
--------- --------- ---------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $691,488 $247,854 $1,289,722 $470,813
Costs of sales 520,690 181,430 971,117 345,236
-------- -------- ---------- --------
Gross profit 170,798 66,424 318,605 125,577
Selling, general and
administrative expenses 125,325 47,850 234,676 92,331
Merger expenses -- 5,581 -- 5,581
-------- -------- ---------- --------
125,325 53,431 234,676 97,912
-------- -------- ---------- --------
Operating income 45,473 12,993 83,929 27,665
Other income (expense):
Interest expense (9,530) (3,750) (18,389) (8,286)
Other 162 369 1,087 971
-------- -------- ---------- --------
(9,368) (3,381) (17,302) (7,315)
-------- -------- ---------- --------
Income before taxes 36,105 9,612 66,627 20,350
Income taxes 11,561 2,643 21,357 5,686
-------- -------- ---------- --------
Net income $ 24,544 $ 6,969 $ 45,270 $ 14,664
======== ======== ========== ========
Net income
per common share $ 0.29 $ 0.13 $ 0.55 $ 0.28
======== ======== ========== ========
Weighted average number
of shares outstanding 85,246 52,637 82,968 52,158
======== ======== ========== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months
Ended
September 30,
----------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 45,270 $ 14,664
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for bad debts 3,982 1,049
Depreciation and amortization 44,200 21,034
(Gain) loss on sale of assets 402 (11)
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (64,961) 8,015
Increase in costs and estimated earnings in excess of
billings on uncompleted contracts (6,347) (19,227)
Increase in inventories (35,149) (13,603)
Increase in other assets (16,499) (15,292)
Increase in accounts payable and
accrued expenses 11,585 7,673
Increase in billings in excess of costs and
estimated earnings on uncompleted contracts 12,349 3,834
Increase (decrease) in other liabilities 3,137 (6,072)
-------- -------
Net cash provided by (used in) operating activities (2,031) 2,064
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of property, plant & equipment (34,387) (30,381)
Payment for purchase of acquisitions, net of cash acquired (44,389) (7,369)
Proceeds from disposal of equipment 1,055 210
Purchase of investments (9,550) (751)
-------- --------
Net cash used in investing activities $(87,271) $(38,291)
-------- --------
</TABLE>
(Continued)
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
UNITED STATES FILTER CORPORATION
AND SUSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months
Ended
September 30,
--------------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 2,574 1,215
Principal payments on debt (4,307) (5,342)
Net (payments) proceeds from borrowings on notes payable (2,530) 43,600
Dividends paid (50) (2,234)
-------- --------
Net cash provided by (used in) financing activities (4,313) 37,239
-------- --------
Net increase (decrease) in cash and cash equivalents (93,615) 1,012
Cash and cash equivalents at March 31, 1997 and 1996 126,237 18,886
-------- --------
Cash and cash equivalents at September 30, 1997 and 1996 $ 32,622 $ 19,898
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 17,290 $ 8,958
======== ========
Cash paid during the period for income taxes $ 5,414 $ 4,553
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Operations and Significant Accounting Policies
----------------------------------------------
The accompanying condensed consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with U.S. generally
accepted accounting principles have been condensed or omitted pursuant to such
regulations. The condensed consolidated financial statements reflect all
adjustments and disclosures which are, in the opinion of management, necessary
for a fair presentation of the information contained therein. All such
adjustments are of a normal recurring nature. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto that are contained in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1997. The
results of operations for the interim periods are not necessarily indicative of
the results of the full fiscal year.
Income per Common Share
- -----------------------
Income per common share is computed based on the weighted average number of
shares outstanding. Common stock equivalents, consisting of options, are
included in the computation of income per share when their effect is dilutive.
Primary and fully diluted income per common share for the three and six months
ended September 30, 1997 and 1996, respectively, were calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
------ ------ ------ ------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net income $24,544 $ 6,969 $45,270 $14,664
------- ------- ------- -------
Weighted average shares outstanding 83,016 50,473 80,909 50,200
Add:
Exercise of stock options reduced by
the number of shares purchased with proceeds 2,230 2,164 2,059 1,958
------- ------- ------- -------
Adjusted weighted average shares outstanding 85,246 52,637 82,968 52,158
======= ======= ======= =======
Income per common share $ 0.29 $ 0.13 $ 0.55 $ 0.28
======= ======= ======= =======
</TABLE>
<PAGE>
Note 2. Inventories
-----------
Inventories at September 30, 1997 and March 31, 1997 consist of the following:
<TABLE>
<CAPTION>
September 30, 1997 March 31, 1997
------------------ --------------
(in thousands)
<S> <C> <C>
Raw Material $ 79,621 $ 54,112
Work in Progress 70,056 58,619
Finished Goods 154,283 129,752
-------- --------
$303,960 $242,483
======== ========
</TABLE>
Note 3. Property, Plant and Equipment
-----------------------------
On September 17, 1997, the Company acquired more than 47,000 acres of
agricultural land in Imperial County, California and other parts of the
Southwestern United States in exchange for 8.0 million shares and warrants to
acquire 1.2 million shares of common stock, par value $0.01 per share, of the
Company. These shares and warrants are subject to certain restrictions and
limitations more fully described in agreements among the Company and the holders
of such securities. The recorded value of the acquired land is approximately
$210.0 million.
Note 4. Notes Payable
-------------
As of September 30, 1997, the Company had a multicurrency bank line-of-credit of
up to $400.0 million, of which $6.3 million was outstanding (see note 5). This
line-of-credit was scheduled to expire December 2001 and had 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. At September 30, 1997, $44.2
million of standby letters of credit were outstanding under this line-of-credit.
Note 5. Commitments and Contingencies
-----------------------------
On September 17, 1997, a wholly owned subsidiary of the Company (the
"Purchaser") announced its intention to offer to purchase (the "Offer") all
outstanding ordinary shares, par value A$2.50 per share (the "Shares"),
including American Depositary Shares representing Shares, of Memtec Limited, a
corporation incorporated under laws of the State of New South Wales, Australia
("Memtec"), at a price of US$30.00 per Share in cash. On November 11, 1997, the
Purchaser announced that it had increased the price of the Offer to US$34.50 per
Share in cash. As of September 15, 1997, Memtec had approximately 10,989,984
Shares outstanding on a fully diluted basis. The Offer is made upon the terms
and subject to the conditions described in the Statement on Schedule 14D-1 filed
with the United States Securities and Exchange Commission on October 24, 1997
and amended on October 27, 1997, November 7, 1997 and November 11, 1997. The
Offer is scheduled to expire on November 26, 1997, unless extended.
The maximum amount payable by the Purchaser under the Offer for the Shares
including American Depositary Shares representing Shares to which the Company
does not already own will be approximately US$360.0 million. The Purchaser will
obtain such amount by borrowing the amount required from the Company, as it's
parent entity. The Company will obtain the amount required from its current
credit facilities. On October 20, 1997, the Company entered into an Amended and
Restated Multicurrency Credit Agreement which provides credit facilities to the
Company of up to US$750.0 million (the "Credit Facilities") to refinance
existing debt and for working capital and other corporate purposes, including
acquisitions. The line-of-credit consists of a five year US$600.0 million
multicurrency revolving credit facility and a US$150.0 million revolving credit
facility and bears interest at variable rates. The Credit Facilities permit the
Company to make loans to the Purchaser
<PAGE>
for the purpose of paying the consideration payable under the Offer. The Credit
Facilities are subject to customary and usual terms and conditions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Revenues for the three months ended September 30, 1997 were $691.5 million, an
increase of $443.6 million or 179.0% from the $247.9 million for the three
months ended September 30, 1996. Revenues for the six months ended September 30,
1997 were $1.3 billion, an increase of $818.9 million or 173.9% from the $470.8
million for the six months ended September 30, 1996. These increases were due
primarily to acquisitions completed by the Company subsequent to September 30,
1996. For the six months ended September 30, 1997, revenues from capital
equipment sales represented 36.5% of total revenues, while revenues from
services, operations, replacement parts and consumables represented 25.8% of
total revenues, revenues from distribution represented 36.0% of total revenues
and revenues from consumer products represented 1.7% of total revenues.
Gross profit as percentage of revenue ("gross margin") was 24.7% for the three
months ended September 30, 1997 compared to 26.8% in the corresponding period in
the prior year. Gross margin was 24.7% for the six months ended September 30,
1997 compared to 26.7% in the corresponding period in the prior year. These
decreases in gross margin for the three and six months ended September 30, 1997
were due primarily to the effect of adding the results of operations from the
Company's acquisitions of The Utility Supply Group, Inc. and WaterPro
Corporation in October 1996, each of which are in the waterworks distribution
business.
Selling, general and administrative expenses for the three months ended
September 30, 1997 were $125.3 million, an increase of $77.5 million or 161.9%
from the $47.9 million for the three months ended September 30, 1996. During
this period, selling, general and administrative expenses were 18.1% of revenues
compared to 19.3% (before merger expenses described below) for the comparable
period. For the six months ended September 30, 1997, selling, general and
administrative expenses increased $142.4 million to $234.7 million as compared
to the $92.3 million in the comparable period in the prior year. During this
period, selling, general and administrative expenses were 18.2% of revenues
compared to 19.6% (before merger expenses) for the comparable period in the
prior year. The decrease in the percentage of selling, general and
administrative expenses to revenue for the three months and six months ended
September 30, 1997 was due primarily to the increase in the Company's revenues
from the distribution business and to a lesser extent from economies of scale
resulting from growth in total revenues.
Merger expenses were incurred during the three and six months ended September
30, 1996 relating to the Company's acquisition of Davis Water and Waste
Industries, Inc. which was accounted for as a pooling of interests. These merger
expenses, which totaled $5.6 million, consisted primarily of investment banking
fees, printing, stock transfer fees, accounting fees, legal fees, governmental
filing fees and certain other costs related to existing Davis pension plans and
change of control payments.
Interest expense increased to $9.5 million for the three months ended September
30, 1997 from $3.8 million for the corresponding period in the prior year.
Interest expense increased to $18.4 million for the six months ended September
30, 1997 from $8.3 million for the corresponding period in the prior year.
Interest expense for the three and six months ended September 30, 1997 consisted
primarily of interest on the Company's (i) 6% Convertible Subordinated Notes
issued on September 18, 1995 due 2005, (ii) 4.5% Convertible Subordinated Notes
issued on December 11, 1996 due 2001, (iii) other long-term debt bearing
interest at rates ranging from 2.0% to 9.2% and (iv) borrowings under the
Company's bank line-of-credit. At September 30, 1997, the Company had cash and
short-term investments of $33.1 million.
<PAGE>
Income tax expense increased to $21.4 million for the six months ended September
30, 1997, from $5.7 million in the corresponding period in the prior year. The
Company's effective tax rate for the three and six months ended September 30,
1997 was 32.1%.
Net income for the three months ended September 30, 1997 was $24.5 million, an
increase of $17.5 million from the $7.0 million for the three months ended
September 30, 1996. Net income for the six months ended September 30, 1997 was
$45.3 million, an increase of $30.6 million from the $14.7 million for the six
months ended September 30, 1996. Excluding Davis merger expenses, net income for
the six months ended September 30, 1997 increased $26.5 million from the
corresponding period in the prior year. Net income per common share for the
three and six months ended September 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Before merger expenses $0.29 0.21 0.55 0.36
After merger expenses $0.29 0.13 0.55 0.28
</TABLE>
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, 1997, the Company had working capital of $507.1
million including cash and short-term investments of $33.1 million. The
Company's long-term debt at September 30, 1997, was $554.0 million consisting of
$140.0 million of 6.0% Convertible Subordinated Notes due 2005 and $414.0
million of 4.5% Convertible Subordinated Notes due 2001. The Company also had
other long-term debt totaling $71.2 million and bearing interest at rates
ranging from 2.0% to 9.2%.
As of September 30, 1997, the Company had a multicurrency bank line-of-credit of
up to $400.0 million, of which there were outstanding borrowings of $6.3 million
and outstanding letters of credit of $44.2 million. Borrowings under this credit
facility 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.
On September 17, 1997, a wholly owned subsidiary of the Company (the
"Purchaser") announced its intention to offer to purchase (the "Offer") all
outstanding ordinary shares, par value A$2.50 per share (the "Shares"),
including American Depositary Shares representing Shares, of Memtec Limited, a
corporation incorporated under laws of the State of New South Wales, Australia
("Memtec"), at a price of US$30.00 per Share in cash. On November 11, 1997, the
Purchaser announced that it had increased the price of the Offer to US$34.50 per
Share in cash. As of September 15, 1997, Memtec had approximately 10,989,984
Shares outstanding on a fully diluted basis. The Offer is made upon the terms
and subject to the conditions described in the Statement on Schedule 14D-1 filed
with the United States Securities and Exchange Commission on October 24, 1997
and amended on October 27, 1997, November 7, 1997 and November 11, 1997. The
Offer is scheduled to expire on November 26, 1997, unless extended.
The maximum amount payable by the Purchaser under the Offer for the Shares
including American Depositary Shares representing Shares to which the Company
does not already own will be approximately US$360 million. The Purchaser will
obtain such amount by borrowing the amount required from the Company, as it's
parent entity. The Company will obtain the amount required from its current
credit facilities. On October 20, 1997, the Company entered into an Amended and
Restated Multicurrency Credit Agreement which provides credit facilities to the
Company of up to US$750 million (the "Credit Facilities") to refinance existing
debt and for working capital and other corporate purposes, including
acquisitions. The line-of-credit consists of a five year US$600.0 million
multicurrency revolving credit facility and a US$150.0 million revolving credit
facility and bears interest at variable rates. The Credit Facilities permit the
Company to make loans to the Purchaser for
<PAGE>
the purpose of paying the consideration payable under the Offer. The Credit
Facilities are subject to customary and usual terms and conditions.
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 from working capital, revenue growth, scheduled debt
repayment and capital investment objectives for at least the next twelve months.
<PAGE>
CERTAIN TRENDS AND UNCERTAINTIES
The Company and its representatives may from time to time make written or
oral forward-looking statements, including statements contained in the Company's
filings with the United States Securities and Exchange Commission and in its
reports to stockholders. In connection with the "safe harbor" provisions of the
U.S. Private Securities Litigation Reform Act of 1995, the Company is hereby
identifying important factors that could cause actual results to differ
materially from those contained in any forward-looking statement made by or on
behalf of the Company; any such statement is qualified by reference to the
following cautionary 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, U.S. Filter has, since 1991, successfully acquired and integrated
more than 100 United States based and international businesses with strong
market positions and substantial water and wastewater treatment expertise. U.S.
Filter plans to continue to pursue acquisitions that expand the segments of the
water and wastewater treatment and water-related industries in which it
participates, complement its technologies, products or services, broaden its
customer base and geographic areas served and/or expand its global distribution
network, as well as acquisitions which provide other opportunities to further
and implement U.S. Filter's one-stop-shop approach in terms of technology,
distribution or service. U.S. Filter'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
U.S. Filter generally has been successful in pursuing these acquisitions, there
can be no assurance that acquisition opportunities will continue to be
available, that U.S. Filter will have access to the capital required to finance
potential acquisitions, that U.S. Filter will continue to acquire businesses or
that any business acquired will be integrated successfully or prove profitable.
International Transactions U.S. Filter has made and expects it will continue
to make acquisitions and obtain contracts in markets outside the United States.
While these activities may provide important opportunities for U.S. Filter 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.
Reliance On Key Personnel U.S. Filter's operations are dependent on the
continued efforts of senior management, in particular Richard J. Heckmann, U.S.
Filter's Chairman of the Board, President and Chief Executive Officer. U.S.
Filter does not have employment agreements with most members of senior
management, including Mr. Heckmann. Should any of the senior managers with whom
U.S. Filter does not have a contract be unable or choose not to continue in
their present roles, U.S. Filter's prospects could be adversely affected.
Profitability Of Fixed Price Contracts A significant portion of U.S.
Filter's revenues are generated under fixed price contracts. To the extent that
original cost estimates are inaccurate, costs to complete increase, delivery
schedules are delayed or progress under a contract is otherwise impeded, revenue
recognition and profitability from a particular contract may be adversely
affected. U.S. Filter 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 U.S. Filter's revenues is derived from capital equipment
sales. While U.S. Filter 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 U.S.
Filter's revenues and profitability.
<PAGE>
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. The sale of water and wastewater distribution equipment and supplies
is a significant component of U.S. Filter's business. Cyclicality and
seasonality of water and wastewater distribution equipment and supplies sales
could have an adverse effect on U.S. Filter's revenues and profitability.
Potential Environmental Risks U.S. Filter'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. U.S. Filter 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 U.S. Filter. While U.S. Filter endeavors at each of its
facilities to assure compliance with environmental laws and regulations, there
can be no assurance that U.S. Filter's operations or activities, or historical
operations by others at U.S. Filter's locations, will not result in cleanup
obligations, civil or criminal enforcement actions or private actions that could
have a material adverse effect on U.S. Filter. In that regard, United States
federal and state environmental regulatory authorities have issued certain
notices of violation related to alleged multiple violations of applicable
wastewater pretreatment standards by a wholly owned subsidiary of U.S. Filter at
a Connecticut ion exchange resin regeneration facility acquired by U.S. Filter
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 notices of violation. U.S. Filter has certain rights of
indemnification from Anjou which may be available with respect to these matters.
In addition, U.S. Filter'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 one 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, U.S.
Filter 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
U.S. Filter or its predecessors allegedly sent waste in the past. It is possible
that U.S. Filter could receive other such notices under CERCLA or analogous
state laws in the future. U.S. Filter 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 U.S. Filter's
customers may adversely impact demand for certain of U.S. Filter's products or
services or impose greater liabilities and risks on U.S. Filter, which could
also have an adverse effect on U.S. Filter's competitive or financial position.
Competition All of the markets in which U.S. Filter competes are highly
competitive. Due to the nature of these markets, many of which are fragmented
and include an array of different sources of competition, U.S. Filter knows of
no reliable statistics that provide a basis from which to estimate U.S. Filter's
relative competitive position. There are competitors of U.S. Filter in certain
markets that are divisions or subsidiaries of large companies that have
significantly greater resources than U.S. Filter. In connection with the
marketing of water distribution equipment and supplies, U.S. Filter competes not
only with a large number of independent wholesalers and with other distribution
chains similar to U.S. Filter, but also with manufacturers who sell directly to
customers. In the residential water market, U.S. Filter competes with companies
with national distribution networks, businesses with regional scope and local
product assemblers or service companies, as well as retail outlets. U.S. Filter
believes that there are thousands of participants in the household water market.
Potential Risks Of Water Rights And Water Transfers U.S. Filter recently
acquired more than 47,000 acres of agricultural land (the "Properties"),
situated in the Southwestern United States, the substantial majority of which
are in Imperial County, California (the "IID Properties") located within the
Imperial Irrigation District (the "IID"). Substantially all of the Properties
are currently leased to third party agricultural tenants, including prior owners
of the Properties. U.S. Filter acquired the Properties with appurtenant water
rights, and is actively seeking to acquire additional properties with water
rights, primarily in the Southwestern and Western United
<PAGE>
States. U.S. Filter may seek in the future to transfer water attributable to
water rights appurtenant to the Properties, particularly the IID Properties (the
"IID Water"). However, since the IID holds title to all of the water rights
within the IID in trust for the landowners, the IID would control the timing and
terms of any transfers of IID Water by U.S. Filter. The circumstances under
which transfers of water can be made and the profitability of any transfers are
subject to significant uncertainties, including hydrologic risks of variable
water supplies, risks presented by allocations of water under existing and
prospective priorities, and risks of adverse changes to or interpretations of
United States federal, state and local laws, regulations and policies. Transfers
of water attributable to water rights appurtenant to the IID Properties (the
"IID Water Rights") are subject to additional uncertainties. Allocations of
Colorado River water, which is the source of all water deliveries to the IID
Properties, are subject to limitations under complex international treaties,
interstate compacts, United States federal and state laws and regulations, and
contractual arrangements and, in times of drought, water deliveries could be
curtailed by the United States government. Further, any transfers of IID Water
would require the approval of the United States Secretary of the Interior. Even
if a transfer were approved, other California water districts and users could
assert claims adverse to the IID Water Rights including but not limited to,
claims that IID has failed to satisfy United States federal law and California
constitutional requirements that IID Water must be put to reasonable and
beneficial use. A finding that IID's water use is unreasonable or nonbeneficial
could adversely impact title to IID Water Rights and the ability to transfer IID
Water. Water transferred by the IID to metropolitan areas of Southern
California, such as San Diego, would be transported through aqueducts owned or
controlled by the Metropolitan Water District, a quasi-governmental agency (the
"MWD"). The transportation cost for any transfer of IID Water and the volume of
water which the MWD can be required to transport at any time are subject to
California laws of uncertain application, some aspects of which are currently in
litigation.
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
U.S. Filter's products and services. Changes in regulatory or industrial
requirements may render certain of U.S. Filter's treatment products and
processes obsolete. Acceptance of new products may also be affected by the
adoption of new government regulations requiring stricter standards. U.S.
Filter'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 U.S. Filter's ability to grow and to
remain competitive. There can be no assurance that U.S. Filter 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, U.S. Filter 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 A significant percentage of U.S. Filter's
revenues is 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 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. A company
acquired by U.S. Filter, Zimpro Environmental, Inc. ("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 U.S.
Filter), 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 U.S. Filter 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 U.S. Filter or U.S. Filter'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 U.S. Filter an
<PAGE>
interpretation contrary to that of U.S. Filter. U.S. Filter 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.
Impact of Recently Issued Accounting Standards. In February 1997, the
Financial Accounting Standards Board issued a new statement titled "Earnings Per
Share." The new statement is effective for fiscal years and interim periods
ending after December 15, 1997. The Company does not believe that adoption of
this new standard will have a material effect on the consolidated financial
statements.
In June 1997, the Financial Accounting Standards Board issued a new
statement titled "Reporting Comprehensive Income." The new statement is
effective for fiscal years beginning after December 15, 1997. The Company is
currently evaluating its options for disclosure under this new standard and will
implement the statement during its fiscal year ending March 31, 1999.
In June 1997, The Financial Accounting Standards Board issued a new
statement titled "Disclosures about Segments of an Enterprise and Related
Information." The new statement is effective for fiscal years beginning after
December 15, 1997. The Company is currently evaluating its options for
disclosure under this standard and will implement the statement during its
fiscal year ending March 31, 1999.
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
N/A
Item 2. CHANGES IN SECURITIES
Privately Placed Securities
On September 17, 1997, the Company issued 8,000,000 shares (the "Shares") of its
common stock, par value $.01 per share (the "Common Stock"), and non-
transferable warrants (the "Warrants") to purchase the aggregate of 1,200,000
shares of the Common Stock, as consideration for the acquisition, by wholly
owned subsidiaries, of all of the partnership interests in Western Farms, L.P.,
a California limited partnership, and FW Ranchlands L.P., a Texas limited
partnership. The Shares and Warrants were issued in a transaction exempt from
registration pursuant to Section 4(2) of the United States Securities Act of
1933 as amended (the "Securities Act").
Item 3. DEFAULTS UPON SENIOR SECURITIES
N/A
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
(i) The following directors were elected to terms expiring in 2000:
Class I Directors: For Withheld
--- --------
John L. Diederich 64,146,745 630,619
Nicholas C. Memmo 64,194,753 582,611
C. Howard Wilkins, Jr. 64,193,202 584,162
(ii) To approve the Company's 1991 Employee Stock Option Plan as amended and
restated:
For Against Withheld
- ---------------- ----------------- ---------------
63,264,827 1,237,265 275,272
(iii) An amendment to the Company's Articles of Incorporation to increase the
number of total authorized shares to 300,000,000 common shares:
For Against Withheld
- ---------------- ----------------- ---------------
62,615,454 1,932,866 229,044
(iv) Ratification of the appointment of KPMG Peat Marwick LLP as independent
accountants for the Company:
For Against Withheld
- ---------------- ----------------- ---------------
64,529,462 84,318 163,584
<PAGE>
Item 5. OTHER INFORMATION
On September 17, 1997, a wholly owned subsidiary of the Company (the
"Purchaser") announced its intention to offer to purchase (the "Offer") all
outstanding ordinary shares, par value A$2.50 per share (the "Shares"),
including American Depositary Shares representing Shares, of Memtec Limited, a
corporation incorporated under laws of the State of New South Wales, Australia
("Memtec"), at a price of US$30.00 per Share in cash. On November 11, 1997, the
Purchaser announced that it had increased the price of the Offer to US$34.50 per
Share in cash. As of September 15, 1997, Memtec had approximately 10,989,984
Shares outstanding on a fully diluted basis. The Offer is made upon the terms
and subject to the conditions described in the Statement on Schedule 14D-1 filed
with the United States Securities and Exchange Commission on October 24, 1997
and amended on October 27, 1997, November 7, 1997 and November 11, 1997. The
Offer is scheduled to expire on November 26, 1997, unless extended.
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
The following exhibits are filed herewith or incorporated herein by reference:
3.01 Certificate of Amendment of Certificate of Incorporation of United
States Filter Corporation (filed herewith)
4.01 Amended and Restated Multicurrency Credit Agreement dated as of October
20, 1997 by and among United States Filter Corporation and various
lenders, with BankBoston, N.A. as Managing Agent (incorporated by
referenced to Registration Statement on Form S-4 dated November 6, 1997
(File No. 333-39711)
4.02 United States Filter Corporation 1991 Employee Stock Option Plan, as
amended through June 12, 1997 (filed herewith)
27.0 Financial Data Schedule
Reports on Form 8-K
The Company filed three Current Reports on Form 8-K during the quarter ended
September 30, 1997, as follows
(1) August 4, 1997, reporting the execution of definitive agreement
for the acquisition of partnership interests pursuant to that
certain Sale and Purchase of Partnership Interests dated as of
August 3, 1997, by and among Western Farm & Cattle Company,
California Land & Cattle Company, N.N. Investors, L.P., ST Ranch
GenPar, Inc., FW Ranch Partners, L.P., and the Company, and
related press release.
(2) September 17, 1997, reporting the consummation of the partnership
interests pursuant to that certain Sale and Purchase of
Partnership Interests dated as of August 3, 1997, by and among
Western Farm & Cattle Company, California Land & Cattle Company,
N.N. Investors, L.P., ST Ranch GenPar, Inc., FW Ranch Partners,
L.P., and the Company, and related press release.
(3) September 19, 1997, reporting the tender offer by USFC Acquisition
Inc., a wholly owned subsidiary of the Company to purchase any and
all outstanding ordinary shares of Memtec Limited, a corporation
incorporated under the laws of New South Wales, Australia, and
related press releases.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Sequential
Number Description Page Number
- ---------- ----------- -----------
<C> <S> <C>
3.01 Certificate of Amendment of Certificate of Incorporation
of United States Filter Corporation (filed herewith) 23
4.02 United States Filter Corporation 1991 Employee Stock
Option Plan, as amended through June 12, 1997
(filed herewith) 24
27.0 Financial Data Schedule 32
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED STATES FILTER CORPORATION
By: /s/Kevin L. Spence
- ------------------------ ------------------
Dated: November 13, 1997 Kevin L. Spence
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
<PAGE>
EXHIBIT 3.01
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
UNITED STATES FILTER CORPORATION
UNITED STATES FILTER CORPORATION, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That Section 1 of Article V of the Restated Certificate of
Incorporation of the Corporation is hereby amended to read in its entirety as
follows:
"Section 1: Authorized Stock. The Corporation shall be authorized to issue
----------------
two classes of shares to be designated, respectively, "Preferred Stock" and
"Common Stock"; the total number of shares which the Corporation shall have the
authority to issue is three hundred three million (303,000,000) shares; the
total number of authorized shares of Preferred Stock shall be three million
(3,000,000) and each share shall have a par value of ten cents ($.10); and the
total number of authorized shares of Common Stock shall be three hundred million
(300,000,000) and each share shall have a par value of one cent ($.01)."
SECOND: The amendment set forth has been duly approved by the Board of
Directors of the Corporation and by the Stockholders entitled to vote thereon.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, I, the undersigned, president of the Corporation, for
the purpose of amending the Restated Certificate of Incorporation of the
Corporation pursuant to Section 242 of the Delaware General Corporation Law, do
make and file this Certificate of Amendment, hereby declaring and certifying
that the facts herein stated are true and accordingly have hereunto set my hand,
as of this 14th day of August, 1997.
UNITED STATES FILTER CORPORATION
BY: /s/Damian C. Georgino
----------------------
Damian C. Georgino
Senior Vice President
Attest:
/s/Michael E. Hulme, Jr.
- ------------------------
Michael E. Hulme, Jr.
Assistant Secretary
<PAGE>
EXHIBIT 4.02
UNITED STATES FILTER CORPORATION
1991 EMPLOYEE STOCK OPTION PLAN
1. Purpose. The United States Filter Corporation 1991 Employee Stock
-------
Option Plan (the "Plan") is hereby established to grant to officers, directors
and key employees of United States Filter Corporation and its Subsidiaries
(individually and collectively, the "Company") a favorable opportunity to
acquire Common Stock of United States Filter Corporation (the "Stock"), and to
create an incentive for such persons to remain in the employ of the Company and
to contribute to its success.
As used in the Plan, the term "Code" shall mean the Internal Revenue Code
of 1986, as amended, and any successor statute, and the terms "Parent" and
"Subsidiary" shall have the meaning set forth in Sections 424(e) and (f) of the
Code.
2. Administration. The Plan shall be administered by the Compensation
--------------
Committee of the Board of Directors of the Company (the "Committee"). The
Committee shall determine the meaning and application of the provisions of the
Plan and all option agreements executed pursuant thereto, and its decisions
shall be conclusive and binding upon all interested persons. The Committee may
not grant an option to any member of the Committee. An option may be granted to
a member of the Committee only by action of the Board of Directors of the
Company. Subject to the provisions of the Plan, the Committee shall have the
sole authority to determine:
(a) The persons to whom options to purchase Stock shall be granted;
(b) The number of options to be granted to each person;
(c) The price to be paid for the Stock upon the exercise of each
option;
(d) The period within which each option shall be exercised; and
(e) The terms and conditions of each stock option agreement entered
into between the Company and persons to whom the Company has
granted an option.
3. Eligibility. Officers, directors and key employees of the Company, as
-----------
determined by the Committee, shall be eligible to receive grants of options
under the Plan. No individual may be granted, in any calendar year, options
under the Plan to purchase more than 150,000 shares of Common Stock.
4. Stock Subject to Plan. There shall be reserved for issue upon the
---------------------
exercise of options granted under the Plan 6,131,250 shares of Common Stock or
the number of shares of Stock, which, in accordance with the provisions of
Section 9 hereof, shall be substituted therefor. Such shares may be authorized
but unissued shares or treasury shares. If an option granted under the
_________________
/1/ As amended by the Board of Directors through June 12, 1997.
<PAGE>
Plan shall expire or terminate for any reason without having been exercised in
full, unpurchased shares subject thereto shall again be available for the
purposes of the Plan.
5. Terms of Options.
----------------
(a) Incentive Stock Options. It is intended that options granted
-----------------------
pursuant to this Section 5(a) qualify as incentive stock options as defined in
Section 422 of the Code. Incentive stock options shall be granted only to
employees of the Company. Each stock option agreement evidencing an incentive
stock option shall provide that the option is subject to the following terms and
conditions and to such other terms and conditions not inconsistent therewith as
the Committee may deem appropriate in each case:
(1) Option Price. The price to be paid for each share of Stock
------------
upon the exercise of each incentive stock option shall be determined by the
Committee at the time the option is granted, but shall in no event be less than
100% of the fair market value of the shares on the date the option is granted,
or not less than 110% of the fair market value of such shares on the date such
option is granted in the case of an individual then owning (within the meaning
of Section 424(d) of the Code) more than 10% of the total combined voting power
of all classes of stock of the Company or of its Parent or Subsidiaries. As used
in this Plan the term "date the option is granted" means the date on which the
Committee authorizes the grant of an option hereunder or any later date
specified by the Committee. Fair market value of the shares shall be (i) the
mean of the high and low prices of shares of Stock sold on a national stock
exchange on the date the option is granted (or if there was no sale on such
date, the highest asked price for the Stock on such date), or (ii) if the Stock
is not listed on any national stock exchange on the date the option is granted,
the mean between the "bid" and "asked" prices of the Stock in the National Over-
The-Counter Market on the date the option is granted, or (iii) if the Stock is
not traded in any market, that price determined by the Committee to be fair
market value, based upon such evidence as it may think necessary or desirable.
(2) Period of Option. The period or periods within which an
----------------
option may be exercised shall be determined by the Committee at the time the
option is granted, but in no event shall any option granted hereunder be
exercised more than ten years from the date the option was granted, nor more
than five years from the date the option was granted in the case of an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or of its Parent or Subsidiaries.
(3) Payment for Stock. The option exercise price for each share
-----------------
of Stock purchased under an option shall be paid in full at the time of
purchase. The Committee may provide that the option price be payable, at the
election of the holder of the option and with the consent of the Committee, in
whole or in part either in cash or by delivery in transferable form of shares of
Stock which have been held by the Optionee for at least six months prior to the
date of exercise or such shorter period as qualifies as the measurement period
for "mature shares" under applicable generally accepted accounting rules. Such
delivered shares of Stock shall be valued for such purpose at their fair market
value on the date on which the option is exercised. In the discretion of the
Committee, the delivery of shares of Stock in full or partial payment of the
option exercise price may be accomplished without the actual delivery by the
Optionee of stock certificates representing the delivered shares under a
procedure whereby the Optionee attests in
2
<PAGE>
writing, on a form acceptable to the Committee, to ownership of the subject
shares and the Company delivers to the Optionee certificates representing the
net shares issuable upon such option exercise. Payment may also be made, in the
discretion of the Committee, by delivery (including by fax) to the Company or
its designated agent of an executed irrevocable option exercise form together
with irrevocable instructions to a broker-dealer to sell or margin a sufficient
portion of the shares and deliver the sale or margin loan proceeds directly to
the Company to pay for the exercise price. No share of Stock shall be issued
until full payment therefor has been made, and no employee shall have any rights
as an owner of Stock until the date of issuance to him of the stock certificate
evidencing such Stock.
(4) Limitation on Amount. Subject to the overall limitations of
--------------------
Section 4 hereof (relating to the aggregate shares subject to the Plan), the
aggregate fair market value (determined as of the time the option is granted) of
the Common Stock with respect to which incentive stock options are exercisable
for the first time by the Optionee during any calendar year (under the Plan and
all other incentive stock option plans of the Company, any Parent or
Subsidiaries) shall not exceed $100,000.
(b) Nonqualified Stock Options. Each nonqualified stock option
--------------------------
granted under the Plan shall be evidenced by a stock option agreement between
the person to whom such option is granted and the Company. Such stock option
agreement shall provide that the option is subject to the following terms and
conditions and to such other terms and conditions not inconsistent therewith as
the Committee may deem appropriate in each case:
(1) Option Exercise Price. The exercise price to be paid for
---------------------
each share of Stock upon the exercise of an option shall be determined by the
Committee at the time the option is granted, but shall in no event be less than
100% of the fair market value of the shares on the date the option is granted.
As used in this Plan, the term "date the option is granted" means the date on
which the Committee authorizes the grant of an option hereunder or any later
date specified by the Committee. Fair market value of the shares shall be (i)
the mean of the high and the low prices of shares of Stock sold on a national
stock exchange on the date the option is granted (or if there was no sale on
such date, the highest asked price for the Stock on such date), or (ii) if the
Stock is not listed on a national stock exchange on the date the option is
granted the mean between the "bid" and "asked" prices of the Stock in the
National Over-The-Counter market on the date the option is granted, or (iii) if
the Stock is not traded in any market, that price determined by the Committee to
be fair market value, based upon such evidence as it may think necessary or
desirable.
(2) Period of Option. The period or periods within which an
----------------
option may be exercised shall be determined by the Committee at the time the
option is granted, but shall in no event exceed ten years from the date the
option is granted.
(3) Payment for Stock. The option exercise price for each share
-----------------
of Stock purchased under an option shall be paid in full at the time of
purchase. The Committee may provide that the option price be payable, at the
election of the holder of the option and with the consent of the Committee, in
whole or in part either in cash or by delivery in transferable form of shares of
Stock which have been held by the Optionee for at least six months prior to the
date of exercise or such shorter period as qualifies as the measurement period
for "mature shares" under applicable generally accepted accounting rules. Such
delivered shares of Stock shall be valued for
3
<PAGE>
such purpose at their fair market value on the date on which the option is
exercised. In the discretion of the Committee, the delivery of shares of Stock
in full or partial payment of the option exercise price may be accomplished
without the actual delivery by the Optionee of stock certificates representing
the delivered shares under a procedure whereby the Optionee attests in writing,
on a form acceptable to the Committee, to ownership of the subject shares and
the Company delivers to the Optionee certificates representing the net shares
issuable upon such option exercise. Payment may also be made, in the discretion
of the Committee, by delivery (including by fax) to the Company or its
designated agent of an executed irrevocable option exercise form together with
irrevocable instructions to a broker-dealer to sell or margin a sufficient
portion of the shares and deliver the sale or margin loan proceeds directly to
the Company to pay for the exercise price. No share of Stock shall be issued
until full payment therefor has been made, and no employee shall have any rights
as an owner of Stock until the date of issuance to him of the stock certificate
evidencing such Stock.
6. Nontransferability. The options granted pursuant to the Plan shall be
------------------
nontransferable except by will or the laws of descent and distribution, and
shall be exercisable during the optionee's lifetime only by him and after his
death, by his personal representative or by the person entitled thereto under
his will or the laws of intestate succession.
7. Termination of Employment. Upon termination of the optionee's
-------------------------
employment, except as the Committee shall otherwise authorize at the time of
grant and any time thereafter, his rights to exercise options then held by him
shall be only as follows:
(a) Death or Disability. Upon the death of any person holding options
-------------------
granted under this Plan, his options shall be exercisable, by the holder's
representative or by the person entitled thereto under his will or the laws of
intestate succession, only if and to the extent they are exercisable on the date
of his death, and such options shall terminate twelve months after the date of
his death (or such shorter period as the Committee may prescribe in his option
agreement). Upon the disability of an optionee his options shall be exercisable
only if and to the extent they are exercisable on the date of his disability,
and such options shall terminate twelve months after the date of his disability
(or such shorter period as the Committee may prescribe in his option agreement).
Notwithstanding the foregoing, with respect to options granted on or after June
12, 1997, if, upon the disability of an optionee, the optionee's age plus years
of continuous service with the Company and its affiliates and predecessors (as
combined and rounded to the nearest month) equal 65 or more, then all of his
options shall be exercisable, whether or not they were exercisable on the date
of such disability, for the exercise period stated above. However, in no event
shall any option be exercised more than ten years from the date the option was
granted. For purposes of this Section 7(a), an individual is disabled if he is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months.
(b) Retirement. Upon the retirement of an officer, director or
----------
employee or the cessation of services provided by a nonemployee (either pursuant
to a Company retirement plan, if any, or pursuant to the approval of the
Committee) or if any officer, director, employee or non-employee optionee leaves
the Company, a Parent or a Subsidiary, for any reason other than as set forth in
Section 7(a), 7(c) or 7(d) hereof, his options shall be exercisable only if and
to the extent
4
<PAGE>
they are exercisable on the date of his retirement or cessation of services and
such options shall terminate three months after the date of his retirement or
cessation of services as the case may be (or such shorter period as the
Committee may prescribe in his option agreement). The optionee's option shall
terminate upon the expiration of such period unless the holder of the options
dies prior thereto, in which event he shall be deemed to have died on the date
of his retirement or cessation of services. Notwithstanding the foregoing, with
respect to options granted on or after June 12, 1997 , if, upon the retirement
of an optionee, the optionee's age plus years of continuous service with the
Company and its affiliates [and predecessors] (as combined and rounded to the
nearest month) equal 65 or more, then all of his options shall be exercisable,
whether or not they were exercisable on the date of such retirement, for the
exercise period stated above. However, in no event shall such options be
exercised more than ten years from the date they are granted.
(c) Transfer to Related Corporation. In the event that an officer,
-------------------------------
director or employee leaves the employ of the Company to become an officer,
director or employee of any Subsidiary, or an officer, director or employee
ceases to serve as an officer or director or leaves the employ of a Subsidiary
to become an officer, director or employee of the Company or another Subsidiary,
such officer, director or employee shall be deemed to continue as an officer,
director or employee for all purposes of this Plan.
(d) Other Termination. In the event an officer, director or
-----------------
employee ceases to serve as an officer or director or leaves the employ of the
Company, a Parent or a Subsidiary, or a nonemployee ceases to provide services
to the Company, of his own volition, or if his relationship with the Company, a
Parent or a Subsidiary is terminated by the Company for cause, his options shall
terminate at the earlier of the date his employment terminates or he ceases
providing services to the Company, a Parent or a Subsidiary, or the date he
receives written notice that his employment or rendering of services is or will
be terminated.
8. Acceleration upon Termination or Sale of Company. The Committee may
------------------------------------------------
determine to accelerate the exercisability of any or all options after
termination of employment. In the event the Parent or its stockholders enter
into an agreement to dispose of all or substantially all of the assets or
capital stock of the Parent by means of a sale, merger, consolidation,
reorganization, liquidation or otherwise, an option granted under the Plan will,
in the discretion of the Committee, if so authorized by the Board of Directors
and conditioned upon consummation of such disposition of assets or stock, become
immediately exercisable during the period commencing as of the date of the
execution of such agreement and ending as of the earlier of the stated
termination date of the option or the date on which the disposition of assets or
stock contemplated by the agreement is consummated.
5
<PAGE>
9. Adjustment of Shares.
--------------------
(a) In the event of changes in the outstanding Stock by reason of
stock dividends, stock splits, reverse stock splits, split-ups, consolidations,
recapitalizations, reorganizations or like events (as determined by the
Committee), an appropriate adjustment shall be made by the Committee in the
number of shares reserved under the Plan, in the number of shares set forth in
Section 4 hereof, and in the number of shares and the option price per share
specified in any stock option agreement with respect to any unpurchased shares.
The determination of the Committee as to what adjustments shall be made shall be
conclusive. Adjustments for any options to purchase fractional shares shall also
be determined by the Committee. The Committee shall give prompt notice to all
optionees of any adjustment pursuant to this Section.
(b) Section 9(a) above to the contrary notwithstanding, in the event
of any merger, consolidation or other reorganization of United States Filter
Corporation in which United States Filter Corporation is not the surviving or
continuing corporation (as determined by the Committee) or in the event of the
liquidation or dissolution of United States Filter Corporation, all options
granted hereunder shall terminate on the effective date of the merger,
consolidation, reorganization, liquidation, or dissolution unless the agreement
with respect thereto provides for the assumption of such options by the
continuing or surviving corporation. Any other provision of this Plan to the
contrary notwithstanding, all outstanding options granted hereunder shall be
fully exercisable for a period of 30 days prior to the effective date of any
such merger, consolidation, reorganization, liquidation, or dissolution unless
such options are assumed by the continuing or surviving corporation.
10. Securities Law Requirements. The Committee may require prospective
---------------------------
optionees, as a condition of either the grant or the exercise of an option, to
represent and establish to the satisfaction of the Committee that all shares of
Stock acquired upon the exercise of such option will be acquired for investment
and not for resale. The Company may refuse to permit the sale or other
disposition of any shares acquired pursuant to any such representation until it
is satisfied that such sale or other disposition would not be in contravention
of applicable state or federal securities law.
11. Tax Withholding. The Company may require an optionee to pay to the
---------------
Company all applicable federal, state and local taxes which the Company is
required to withhold with respect to the exercise of an option granted
hereunder.
12. Amendment. The Board of Directors may amend the Plan at any time,
---------
except that without shareholder approval:
(a) The number of shares of Stock which may be reserved for issuance
under the Plan shall not be increased except as provided in Section 9 hereof;
(b) The option price per share of Stock may not be fixed at less than
100% of the fair market value of a share of Stock on the date the option was
granted;
(c) The maximum period of ten years during which the options may be
exercised may not be extended;
6
<PAGE>
(d) The class of persons eligible to receive options under the Plan
as set forth in Section 3 shall not be changed; and
(e) This Section 12 may not be amended in a manner that limits or
reduces the amendments which require shareholder approval.
13. Termination. The Plan shall terminate automatically on February 27,
-----------
2001. The Board of Directors may terminate the Plan at any earlier time. The
termination of the Plan shall not affect the validity of any option agreement
outstanding at the date of such termination, but no option shall be granted
after such date.
14. Effective Date. The Plan shall be effective upon its adoption by the
--------------
Board of Directors of the Company. Options may be granted but not exercised
prior to stockholder approval of the Plan. If any options are so granted and
stockholder approval shall not have been obtained on or before February 27,
1992, such options shall terminate retroactively as of the date they were
granted.
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENTS OF INCOME OF UNITED STATES
FILTER CORPORATION AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1998
<PERIOD-START> JUL-01-1997 APR-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 32,622 0
<SECURITIES> 483 0
<RECEIVABLES> 646,067 0
<ALLOWANCES> (27,811) 0
<INVENTORY> 303,960 0
<CURRENT-ASSETS> 1,170,708 0
<PP&E> 737,707 0
<DEPRECIATION> (139,720) 0
<TOTAL-ASSETS> 2,804,966 0
<CURRENT-LIABILITIES> 663,574 0
<BONDS> 625,220 0
0 0
0 0
<COMMON> 929 0
<OTHER-SE> 1,462,807 0
<TOTAL-LIABILITY-AND-EQUITY> 1,463,736 0
<SALES> 691,488 1,289,722
<TOTAL-REVENUES> 691,488 1,289,722
<CGS> 520,690 971,117
<TOTAL-COSTS> 520,690 971,117
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 2,051 3,982
<INTEREST-EXPENSE> 9,530 18,389
<INCOME-PRETAX> 36,105 66,627
<INCOME-TAX> 11,561 21,357
<INCOME-CONTINUING> 24,544 45,270
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 24,544 45,270
<EPS-PRIMARY> 0.29 0.55
<EPS-DILUTED> 0.29 0.55
</TABLE>
