<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 16, 1998
UNITED STATES FILTER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 1-10728 33-0266015
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION FILE NUMBER) IDENTIFICATION NO.)
</TABLE>
40-004 COOK STREET, PALM DESERT, CALIFORNIA 92211
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 760-340-0098
<PAGE>
ITEM 5.OTHER EVENTS.
As previously reported on a Current Report on Form 8-K dated January 16,
1998 (as amended), United States Filter Corporation, a Delaware corporation
(the "Company"), acquired all of the outstanding common stock of The Kinetics
Group, Inc. ("Kinetics") as of December 31, 1997 in exchange for 5,803,803
shares of Common Stock, par value $.01 per share, of the Company.
This transaction has been accounted for as a pooling of interests and,
accordingly, the consolidated financial statements and notes thereto of the
Company have been restated to include the accounts and operations of Kinetics.
Such restated consolidated financial statements and notes thereto are included
herein. Additionally, Selected Consolidated Financial Data and Management's
Discussion and Analysis of Financial Condition and Results of Operations have
been restated to reflect the acquisition of Kinetics and are included
elsewhere herein. Unaudited Pro Forma Combined Financial Information is also
included herein.
Recent Developments
U.S. Filter is contemplating the issuance of $750 to $900 million of unsecured
redeemable or remarketable securities to qualified institutional buyers (as
defined in Rule 144A of the U.S. Securities Act of 1933, as amended) to
refinance existing indebtedness under U.S. Filter's Senior Credit Facility and
for general corporate purposes. The proposed issuance of such securities is
not expected to have a material impact on U.S. Filter's financial position or
its future results of operations.
ITEM 7.FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS
The following are filed herewith:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index to Consolidated Financial Statements F-1
Independent Auditors' Report--KPMG Peat Marwick LLP F-2
Report of Independent Auditors--Ernst & Young LLP F-3
Consolidated Financial Statements (as restated for the acquisition
of Kinetics, which was accounted for as a pooling of interests):
Consolidated Balance Sheets as of March 31, 1996 and 1997 F-4
Consolidated Statements of Income for the years ended
March 31, 1995, 1996 and 1997 F-5
Consolidated Statements of Shareholders' Equity for the
years ended March 31, 1995, 1996 and 1997 F-6
Consolidated Statements of Cash Flows for the years ended
March 31, 1995, 1996 and 1997 F-8
Notes to Consolidated Financial Statements F-10
(b) PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Combined Balance Sheet as of December 31, 1997 F-33
Unaudited Pro Forma Combined Statements of Operations for the year
ended March 31, 1997 and the nine months ended December 31, 1997 F-34
Unaudited Pro Forma Combined Statements of Operations for the years
ended March 31, 1996 and 1995 and the nine months ended December
31, 1996 F-36
Notes to Unaudited Pro Forma Combined Financial Information F-39
</TABLE>
1
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UNITED STATES FILTER CORPORATION
Date: May 14, 1998 By: /s/ Kevin L. Spence
_________________________________
Kevin L. Spence
Executive Vice President/
Chief Financial Officer
2
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31,(1) DECEMBER 31,(1)
---------------------------------------------------- ----------------------
1993(2) 1994(3) 1995(4) 1996(5) 1997(6) 1996(6) 1997(7)
-------- -------- -------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues................ $511,623 $620,709 $830,765 $1,090,745 $1,764,406 $1,094,636 $2,346,553
Cost of Sales........... 408,859 500,731 658,834 836,973 1,376,615 859,754 1,798,595
-------- -------- -------- ---------- ---------- ---------- ----------
Gross Profit........... 102,764 119,978 171,931 253,772 387,791 234,882 547,958
Selling, general and
administrative
expenses............... 95,357 115,979 131,210 192,387 316,190 196,752 414,546
Purchased in-process
research and
development............ -- -- -- -- -- -- 299,505
Merger, restructuring
and other acquisition
related charges........ -- -- -- -- 5,581 5,581 141,109
-------- -------- -------- ---------- ---------- ---------- ----------
95,357 115,979 131,210 192,387 321,771 202,333 855,160
-------- -------- -------- ---------- ---------- ---------- ----------
Operating income
(loss)................ 7,407 3,999 40,721 61,385 66,020 32,549 (307,202)
Other income (expense):
Interest expense....... (4,627) (5,570) (8,807) (16,280) (26,509) (15,907) (34,374)
Other.................. 2,236 (6,953) 1,611 5,923 3,678 2,981 3,002
-------- -------- -------- ---------- ---------- ---------- ----------
(2,391) (12,523) (7,196) (10,357) (22,831) (12,926) (31,372)
-------- -------- -------- ---------- ---------- ---------- ----------
Income (loss) before
income tax expense
(benefit),
extraordinary item and
cumulative effect of a
change in accounting
principle............. 5,016 (8,524) 33,525 51,028 43,189 19,623 (338,574)
Income tax expense
(benefit).............. 1,237 (5,751) 8,904 20,329 10,681 3,845 (1,273)
-------- -------- -------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary item and
cumulative effect of a
change in accounting
principle............. 3,779 (2,773) 24,621 30,699 32,508 15,778 (337,301)
Extraordinary item...... 405 -- -- -- -- -- --
Cumulative effect of a
change in accounting
principle.............. 459 -- -- -- -- -- --
-------- -------- -------- ---------- ---------- ---------- ----------
Net income (loss)...... $ 4,643 $ (2,773) $ 24,621 $ 30,699 $ 32,508 $ 15,778 $ (337,301)
======== ======== ======== ========== ========== ========== ==========
PER COMMON SHARE
DATA:(8)
BASIC:
Income (loss) before
extraordinary item and
cumulative effect of a
change in accounting
principle............. $ 0.09 $ (0.11) $ 0.68 $ 0.62 $ 0.51 $ 0.27 $ (3.65)
Extraordinary item..... 0.01 -- -- -- -- -- --
Cumulative effect of a
change in accounting
principle............. 0.02 -- -- -- -- -- --
-------- -------- -------- ---------- ---------- ---------- ----------
Net Income (loss)...... $ 0.12 $ (0.11) $ 0.68 $ 0.62 $ 0.51 $ 0.27 $ (3.65)
======== ======== ======== ========== ========== ========== ==========
Basic weighted average
number of common
shares outstanding.... 27,878 31,267 35,198 48,369 64,082 59,016 92,340
======== ======== ======== ========== ========== ========== ==========
DILUTED:
Income (loss) before
extraordinary item and
cumulative effect of a
change in accounting
principle............. $ 0.09 $ (0.11) $ 0.66 $ 0.61 $ 0.49 $ 0.26 $ (3.65)
Extraordinary item..... 0.01 -- -- -- -- -- --
Cumulative effect of a
change in accounting
principle............. 0.02 -- -- -- -- -- --
-------- -------- -------- ---------- ---------- ---------- ----------
Net Income (loss)...... $ 0.12 $ (0.11) $ 0.66 $ 0.61 $ 0.49 $ 0.26 $ (3.65)
======== ======== ======== ========== ========== ========== ==========
Diluted weighted
average number of
common shares
outstanding........... 28,171 31,267 43,707 49,668 66,531 61,071 92,340
======== ======== ======== ========== ========== ========== ==========
CONSOLIDATED BALANCE
SHEET DATA (END OF
PERIOD):
Working capital......... $ 79,094 $113,105 $135,079 $ 159,148 $ 515,152 $ 641,333 $ 545,628
Total assets............ $274,635 $430,206 $583,633 $1,003,316 $2,397,563 $2,129,806 $3,360,782
Notes payable and long-
term debt, including
current portion........ $ 42,899 $ 41,398 $ 65,192 $ 74,848 $ 86,066 $ 76,972 $ 629,633
Convertible subordinated
debt................... $ -- $ 60,000 $105,000 $ 200,000 $ 554,000 $ 554,000 $ 554,000
Stockholders' equity.... $128,189 $171,758 $200,548 $ 407,390 $1,045,830 $ 970,526 $1,193,524
</TABLE>
(note on following page)
3
<PAGE>
- --------
(1) The historical consolidated financial data for U.S. Filter for the fiscal
years ended March 31, 1993, 1994, 1995, 1996 and 1997 and for the nine
months ended December 31, 1996 have been restated to include the accounts
and operations of Kinetics. Separate results of operations for each of
U.S. Filter and Kinetics for the years ended March 31, 1993, 1994, 1995,
1996 and 1997 and the nine months ended December 31, 1996 and 1997 are
presented below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, DECEMBER 31,
-------------------------------------------- --------------------
1993(2) 1994(3) 1995(4) 1996(5) 1997(6) 1996(6) 1997(7)
------- ------- ------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
U.S. Filter (as
previously reported)... 416,725 475,236 600,832 812,322 1,376,601 838,936 2,346,553
Kinetics................ 94,898 145,473 229,933 278,423 387,805 255,700 --
------- ------- ------- --------- --------- --------- ---------
Combined............... 511,623 620,709 830,765 1,090,745 1,764,406 1,094,636 2,346,553
======= ======= ======= ========= ========= ========= =========
OPERATING INCOME (LOSS):
U.S. Filter (as
previously reported)... 6,049 (2,358) 28,047 45,382 82,913 51,296 (307,202)
Kinetics................ 1,358 6,357 12,674 16,003 (16,893) (18,747) --
------- ------- ------- --------- --------- --------- ---------
Combined............... 7,407 3,999 40,721 61,385 66,020 32,549 (307,202)
======= ======= ======= ========= ========= ========= =========
NET INCOME (LOSS):
U.S. Filter (as
previously reported)... 2,547 (7,892) 15,267 21,967 46,197 29,014 (337,301)
Kinetics................ 2,096 5,119 9,354 8,732 (13,689) (13,236) --
------- ------- ------- --------- --------- --------- ---------
Combined............... 4,643 (2,773) 24,621 30,699 32,508 15,778 (337,301)
======= ======= ======= ========= ========= ========= =========
NET INCOME (LOSS) PER
COMMON SHARE(8):
BASIC:
As previously
reported.............. 0.02 (0.34) 0.50 0.50 0.79 0.55 (3.65)
As restated............ 0.12 (0.11) 0.68 0.62 0.51 0.27 --
DILUTED:
As previously
reported.............. 0.02 (0.34) 0.49 0.49 0.77 0.52 (3.65)
As restated............ 0.12 (0.11) 0.66 0.61 0.49 0.26 --
</TABLE>
(2) The fiscal year ended March 31, 1993 includes twelve months of results of
Societe des Ceramiques Techniques, S.A. ("SCT"), acquired April 1, 1992
and three months of The Permutit Company, Inc., a United States company
acquired January 5, 1993, accounted for as purchases. The fiscal year
ended March 31, 1993 also includes an extraordinary gain of $0.4 million
resulting from the forgiveness of debt in connection with the buyout of a
capital lease obligation and a gain for the cumulative effect of a change
in accounting principle of $0.5 million resulting from U.S. Filter's Davis
subsidiary's adoption of SFAS No. 109, "Accounting for Income Taxes."
(3) 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 totaling
$2.4 million related to the rationalization of certain wastewater
operations and write-off of certain intangibles in the U.S. Filter's
Continental Penfield subsidiary totaling $3.7 million. In addition, the
year ended March 31, 1994 includes a charge of $8.9 million to reflect a
plan to shutdown and reorganize certain operations of Davis.
(4) 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.
(5) 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.
General and administrative expenses for the year ended March 31, 1996
includes charges totaling $3.2 million related to the write-down of
certain patents and equipment of Zimpro.
4
<PAGE>
(6) The fiscal year ended March 31, 1997 includes the results of operations of
USG, WaterPro, WSMG, and PED from the dates of their respective
acquisitions, accounted for as purchases. The year ended March 31, 1997
and the nine months ended December 31, 1996 includes merger expenses of
$5.6 million, related to the acquisition of Davis, which was accounted for
as a pooling of interests. Cost of goods sold for the year ended March 31,
1997 includes charges recorded by Kinetics totaling $26.0 million related
certain unreimbursed project costs. Selling, general and administrative
expenses for the year ended March 31, 1997 includes charges totaling $6.8
million for increases in Kinetics' allowance doubtful accounts, the write-
off of certain receivables, the write-down of certain assets and the
establishment of certain accruals.
(7) The nine months ended December 31, 1997 includes the results of operations
for Memtec from the date of its acquisition on December 9, 1997, accounted
for as a purchase. The nine months ended December 31, 1997 also includes a
charge of $299.5 million related to the acquisition from Memtec of certain
in-process research and development projects that had not reached
technological feasibility and that had no alternative future uses.
Additionally, U.S. Filter recorded charges totaling $141.1 million related
to a restructuring plan that U.S. Filter implemented concurrent with the
acquisitions of Memtec and Kinetics. Cost of goods sold for the nine
months ended December 31, 1997 includes charges recorded by Kinetics
totaling $13.7 million related to certain unreimbursed project costs.
Selling, general and administrative expenses for the nine months ended
December 31, 1997 includes charges recorded by Kinetics totaling $3.6
million related to increases in Kinetics allowance for doubtful accounts,
the write-off of certain receivables, the write-down of certain assets and
the establishment of certain accruals.
(8) Income (loss) per common share amounts are computed in accordance with
SFAS 128 and are after (i) dividends on the Series A Preferred Stock of
$0.7 million for the fiscal year ended March 31, 1993, $0.7 million for
the fiscal year ended March 31, 1994, $0.7 million for the fiscal year
ended March 31, 1995 and $0.5 million for the fiscal year ended March 31,
1996 and (ii) accretion on the Series A Preferred Stock, a noncash
accounting adjustment required by Securities and Exchange Commission Staff
Accounting Bulletin No. 68 ("SAB 68"), in the amount of $0.6 million for
the fiscal year ended March 31, 1993. As of April 1, 1993 U.S. Filter and
the holder of the Series A Preferred Stock agreed to a fixed dividend of
$0.7 million per year on the Series A Preferred Stock eliminating the
increasing rate and, therefore, the accretion of dividends pursuant to SAB
68. The Series A Preferred Stock was converted into shares of Common Stock
in March 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Form 8-K.
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 125 businesses with substantial expertise in the design
and manufacture of systems of 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 operation for current or future periods.
RESULTS OF OPERATIONS
In May 1996, August 1996, March 1997 and December 1997 subsidiaries of the
Company merged with Zimpro, Davis, Sidener and Kinetics, respectively, in
transactions accounted for as poolings of interests. Historical consolidated
financial data for the fiscal years ended March 31, 1993 through March 31,
1997 have been restated to reflect these acquisitions.
5
<PAGE>
The following table sets forth for the periods indicated certain items in
the Selected Consolidated Financial Data as a percentage of total revenues:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MARCH 31,
--------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Revenues................................................ 100.0% 100.0% 100.0%
Cost of sales........................................... 79.3% 76.7% 78.0%
Gross profit............................................ 20.7% 23.3% 22.0%
Selling, general and administrative expenses............ 15.8% 17.6% 17.9%
Merger expense.......................................... -- -- 0.3%
Operating income........................................ 4.9% 5.6% 3.7%
Interest expense........................................ 1.1% 1.5% 1.5%
Net income.............................................. 3.0% 2.8% 1.8%
</TABLE>
The following table sets forth a percentage breakdown of the Company's sales
by product category for the past three fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED MARCH
31,
--------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Sales by product category:
Capital equipment........................................... 52% 50% 52%
Services and operations..................................... 6% 13% 11%
Distribution................................................ 30% 25% 24%
Replacement parts, consumables and other.................... 12% 12% 13%
</TABLE>
TWELVE MONTHS ENDED MARCH 31, 1997 ("FISCAL 1997") COMPARED WITH TWELVE MONTHS
ENDED MARCH 31, 1996 ("FISCAL 1996")
Revenues
Revenues for fiscal 1997 were $1,764.4 million, an increase of $673.7
million from $1,090.7 for the comparable period of the prior fiscal year. This
61.8% increase was due primarily to acquisitions completed by the Company
after fiscal 1996. For fiscal 1997 revenues from capital equipment sales
represented 52% of total revenues, while revenues from services and operations
represented 11% of total revenues, revenues from distribution represented 24%
of total revenues and revenues from replacement parts and consumables
represented 13% of total revenues.
Gross Profit
Gross profit increased 52.8% to $387.8 million for fiscal 1997 from $253.8
million for the comparable period of the prior fiscal year. Total gross profit
as a percentage of revenue ("gross margin") was 22.0% for fiscal 1997 compared
to 23.3% for the comparable period of the prior fiscal year. The decrease in
gross margin is due primarily to the incurrence of certain unreimbursed
project costs at Kinetics during the fiscal year ended March 31, 1997 after
restatement for the acquisition of Kinetics in the current period accounted
for as a pooling of interests.
Selling, General and Administrative Expenses
For fiscal 1997, selling, general, and administrative expenses, excluding
merger expenses, increased $123.8 million to $316.2 million as compared to the
$192.4 million in the comparable period in the prior year. The increase in
these expenses can be attributed primarily to the addition of sales and
administrative personnel accompanying the Company's acquisitions after fiscal
1996. During fiscal 1997, selling, general and administrative expenses,
excluding Davis merger expenses, were 17.9% of revenues compared to 17.6% for
the
6
<PAGE>
comparable period in the prior year. The increase was primarily due to
Kinetics, recording certain charges in selling, general and administrative
expenses during the fiscal year ended March 31, 1997 for the write-off of
certain receivables, the write-down of certain assets, the increase in
Kinetics allowance for doubtful accounts and the establishment of certain
accruals. These charges are included in fiscal 1997, after restatement for the
acquisition of Kinetics in the current period accounted for as a pooling of
interests.
Excluding Davis merger expenses, operating income as a percentage of
revenues decreased to 4.1% for fiscal 1997 from 5.6% for the corresponding
period in fiscal 1996 due primarily to the decrease in the gross margin.
Merger Expenses
Merger expenses were incurred during fiscal 1997 relating to the Company's
acquisition of Davis 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, 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 $26.5 million for fiscal 1997 from $16.3
million for the corresponding period in the prior year. Interest expense for
fiscal 1997 consisted primarily of interest on the Company's: (i) 5%
Convertible Debentures due 2000 (all of which were, as of October 25, 1996,
converted into shares of Common Stock); (ii) 6% Convertible Subordinated Notes
due 2005 issued on September 18, 1995; (iii) 4.5% Convertible Subordinated
Debentures due 2001 issued on December 11, 1996; (iv) 8% Senior Subordinated
Notes issued by Kinetics; (v) borrowings under the Company's bank line of
credit and (vi) borrowings under Kinetics' line of credit. At March 31, 1997,
the Company had cash, cash equivalents and short-term investments of $137.3
million.
Income Tax Expense
Income tax expense decreased to $10.7 million in fiscal 1997 from $20.3
million in the corresponding period in the prior year. The Company's effective
tax rate for fiscal 1997 was 24.7% as compared to 39.8% in the corresponding
period in the prior year. At March 31, 1997, the Company had net operating
loss carryforwards of approximately $16.4 million in France for which
financial statement benefit was recognized in fiscal 1997.
Net Income
For fiscal 1997, net income increased $1.8 million to $32.5 million from
$30.7 million for the same period in the prior year. Excluding Davis merger
expenses, net income totaled $36.5 million, an increase of 19.1% over the same
period in the prior year. Net income per common share for fiscal 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Basic............................................................ $0.51 $0.62
Diluted.......................................................... $0.49 $0.61
</TABLE>
7
<PAGE>
TWELVE MONTHS ENDED MARCH 31, 1996 ("FISCAL 1996") COMPARED WITH TWELVE MONTHS
ENDED MARCH 31, 1995 ("FISCAL 1995")
Revenues
Revenues for fiscal 1996 were $1,090.7 million, an increase of $260.0
million from $830.8 million for fiscal 1995. This 31.3% increase was due
primarily to acquisitions completed by the Company in fiscal 1995 and fiscal
1996. See Note 9 of Notes to Consolidated Financial Statements related to
acquisitions.
Gross Profit
Gross profit increased 47.6% to $253.8 million for fiscal 1996 from $171.9
million for fiscal 1995. Gross margin increased to 23.3% for fiscal 1996 as
compared to 20.7% 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 $192.4 million for
fiscal 1996 from $131.2 million for fiscal 1995. This increase was primarily
due to the addition of sales and administrative personnel accompanying the
Company's acquisitions during the period. As a percentage of revenues,
selling, general and administrative expenses were 17.6% for fiscal 1996, as
compared to 15.8% for fiscal 1995. This increase was due primarily to a write-
down of certain patents and equipment totaling $3.2 million 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 4.9% for fiscal 1995 to 5.6% for fiscal 1996 due primarily to
improvement in gross margin.
Interest Expense
Interest expense increased to $16.3 million for fiscal 1996 from $8.8
million 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 acquisitions during the period.
Other Income (Expense)
Other income (expense) increased to $5.9 million of income for fiscal 1996
from $1.6 million 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 $140.0 million aggregate
principle amount of 6% Convertible Subordinated notes on September 18, 1995
and the Company's issuance of 10.4 million shares of Common Stock on May 3,
1995 with net proceeds of approximately $97.8 million.
Income Tax Expense
Income tax expense increased to $20.3 million for fiscal 1996 from $8.9
million for fiscal 1995. This increase was attributable to increased income.
The Company's effective tax rate for fiscal 1996 was 39.8% and for fiscal 1995
was 26.6%. This increase in effective rate in fiscal 1996 is due primarily to
a net loss before income taxes of $6.1 million 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
8
<PAGE>
nondeductibility of certain items. As of March 31, 1996, the Company had net
operating loss carryforwards in France of approximately $20.0 million and
other European countries of approximately $7.3 million 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 $14.4 million for which financial statement benefit was
recognized in fiscal 1996. The Company also had net operating loss
carryforwards generated from Zimpro of approximately $2.9 million for which
financial statement benefit has not been recognized. In addition, the benefit
of the French loss carryforwards was required to 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 $30.7 million for fiscal 1996 from $24.6 million for
fiscal 1995. Net income per common share, after deducting $.5 million and $.7
million for dividends on the Company's preferred shares for fiscal 1996 and
1995, respectively, is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Basic............................. 0.62 0.68
Diluted........................... 0.61 0.66
</TABLE>
Liquidity and Capital Resources
The Company's principal sources of funds are cash, cash equivalents and
other working capital, cash flow generated from operations and borrowings
under the Company's bank line of credit. At March 31, 1997 the Company had
working capital of $515.2 million, including cash, cash equivalents and short-
term investments of $137.3 million. The Company's long-term debt at March 31,
1997 included $140.0 million aggregate principal amount of 6% Convertible
Subordinated Notes due 2005, $414.0 million aggregate principal amount of 4.5%
Convertible Subordinated Notes due 2001 and other long-term debt totaling
$43.4 million and bearing interest at rates ranging from 2.0% to 9.2%.
Capital expenditures totaled $24.9 million, $38.3 million and $56.8 million
for fiscal years ended March 31, 1995, 1996, 1997, 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 recent acquisitions and specifically
the acquisitions of WSMG, USG, WaterPro and PED.
As of March 31, 1997, the Company has an unsecured multicurrency bank line
of credit of $400.0 million, of which there were outstanding borrowings of
$6.5 million and outstanding letters of credit of $62.1 million. Borrowings
under the Credit Agreement bear interest at certain Eurocurrency rates or at
the First National Bank of Boston's base rate and have a five year maturity.
In connection with the acquisition of Kinetics, the Company has an
additional loan agreement with a bank that provides a revolving line-of-credit
under which a subsidiary of the Company may borrow up to $100.0 million of
which there were borrowings of $33.8 at March 31, 1997. Borrowings under this
agreement bear interest at the bank's reference rate or other interest rates
that the subsidiary may select.
The Company believes its current cash position, cash flow from operations,
and available borrowings under the Credit Agreement will be adequate to meet
its anticipated cash needs for working capital, revenue growth, scheduled debt
repayment and capital investment objectives for at least the next twelve
months.
9
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report--KPMG Peat Marwick LLP F-2
Report of Independent Auditors--Ernst & Young LLP F-3
Consolidated Financial Statements (as restated for the
acquisition of Kinetics, which was accounted for as a pooling of
interests):
Consolidated Balance Sheets as of March 31, 1996 and 1997; F-4
Consolidated Statements of Income for the years ended March 31,
1995, 1996 and 1997 F-5
Consolidated Statements of Shareholders' Equity for the years
ended March 31, 1995, 1996 ad 1997 F-6
Consolidated Statements of Cash Flows for the years ended March
31, 1995, 1996 and 1997; and F-8
Notes to Consolidated Financial Statements F-10
</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 (the "Company") as of March 31,
1996 and 1997, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended March 31, 1997. 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 The Kinetics Group,
Inc., which statements reflect total assets constituting 10 percent and 7
percent in 1996 and 1997, respectively, and total revenues constituting 28
percent, 26 percent and 22 percent in 1995, 1996 and 1997, 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 The Kinetics Group,
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 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, 1996 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Orange County, California
June 6, 1997, except as to notes
9 and 20 relating to
transactions with Memtec
Limited, The Kinetics Group,
Inc. and Culligan Water
Technologies, Inc. which are as
of December 9, 1997, December
31, 1997 and February 9, 1998,
respectively.
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
The Kinetics Group, Inc.
We have audited the accompanying consolidated balance sheets of The Kinetics
Group, Inc. as of September 30, 1996 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the three
years in the period ended September 30, 1997 (not presented separately
herein). 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 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Kinetics
Group, Inc. at September 30, 1996 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1997 in conformity with generally accepted accounting
principles.
Ernst & Young LLP
January 16, 1998
F-3
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (note 2)..................... $ 27,730 135,144
Short-term investments (note 3)........................ 65 2,158
Accounts receivable, less allowance for doubtful
accounts of $11,365 at March 31, 1996 and $27,095 at
March 31, 1997 (note 10).............................. 285,264 572,940
Costs and estimated earnings in excess of billings on
uncompleted contracts (note 10)....................... 44,117 130,310
Inventories (note 4)................................... 87,387 245,201
Prepaid expenses....................................... 8,219 8,931
Deferred taxes (note 14)............................... 9,140 53,152
Other current assets................................... 11,252 17,086
---------- ---------
Total current assets................................. 473,174 1,164,922
---------- ---------
Property, plant and equipment, net (notes 5 and 11)...... 189,221 319,687
Investment in leasehold interests, net (note 6).......... 27,688 23,230
Costs in excess of net assets of businesses acquired, net
(notes 7 and 9)......................................... 271,891 788,096
Other assets (note 8).................................... 41,342 101,628
---------- ---------
$1,003,316 2,397,563
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 129,321 274,653
Accrued liabilities (note 13).......................... 113,124 275,537
Current portion of long-term debt (note 11)............ 9,849 11,956
Billings in excess of costs and estimated earnings on
uncompleted contracts (note 10)....................... 32,772 61,441
Other current liabilities.............................. 28,960 26,183
---------- ---------
Total current liabilities............................ 314,026 649,770
---------- ---------
Notes payable (note 11).................................. 51,056 42,646
Long-term debt, excluding current portion (note 11)...... 13,943 31,464
Convertible subordinated debt (note 12).................. 200,000 554,000
Deferred taxes (note 14)................................. 1,900 12,198
Other liabilities (note 13).............................. 15,001 61,655
---------- ---------
Total liabilities.................................... 595,926 1,351,733
---------- ---------
Shareholders' equity (notes 9 and 15):
Preferred stock, authorized 3,000 shares............... -- --
Common stock, par value $.01. Authorized 150,000
shares; issued and outstanding 55,206 and 80,334 at
March 31, 1996 and 1997, respectively................. 411 803
Additional paid-in capital............................. 379,331 1,013,734
Currency translation adjustment........................ 1,836 (19,491)
Retained earnings...................................... 25,812 50,784
---------- ---------
Total shareholders' equity........................... 407,390 1,045,830
Commitments and contingencies (notes 11, 15, 16 and 18)
---------- ---------
$1,003,316 2,397,563
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Revenues....................................... $830,765 1,090,745 1,764,406
Costs of sales................................. 658,834 836,973 1,376,615
-------- --------- ---------
Gross profit............................... 171,931 253,772 387,791
-------- --------- ---------
Selling, general and administrative expenses... 131,210 192,387 316,190
Merger expenses (note 9)....................... -- -- 5,581
-------- --------- ---------
131,210 192,387 321,771
-------- --------- ---------
Operating income........................... 40,721 61,385 66,020
-------- --------- ---------
Other income (expense):
Interest expense............................. (8,807) (16,280) (26,509)
Interest and other income, net............... 1,611 5,923 3,678
-------- --------- ---------
(7,196) (10,357) (22,831)
-------- --------- ---------
Income before income tax expense........... 33,525 51,028 43,189
Income tax expense (note 14)................... 8,904 20,329 10,681
-------- --------- ---------
Net income................................. $ 24,621 30,699 32,508
======== ========= =========
Net income per common share (notes 1 and 15):
Basic........................................ $ 0.68 0.62 0.51
======== ========= =========
Diluted...................................... $ 0.66 0.61 0.49
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK RETAINED
------------------ ---------------- ADDITIONAL CURRENCY EARNINGS
NUMBER OF NUMBER OF PAID-IN TRANSLATION (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT) TOTAL
--------- -------- --------- ------ ---------- ----------- ------------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1994................... 880 $ 22,071 21,444 $ 95 129,273 (256) (32,572) 118,611
Restatement for
acquisitions of Zimpro,
Davis, Sidener and
Kinetics acquired
through pooling of
interests (note 9)..... -- -- 13,028 130 29,660 -- 23,357 53,147
----- -------- ------ ---- ------- ------ ------- -------
Balance at March 31,
1994, restated......... 880 22,071 34,472 225 158,933 (256) (9,215) 171,758
Net loss of Liquipure
for the three months
ended March 31, 1994... -- -- -- -- -- -- (313) (313)
Compensation related to
excess of fair value of
director stock options
over exercise price
(note 15).............. -- -- -- -- 122 -- -- 122
Exercise of common stock
options (note 15)...... -- -- 241 2 1,420 -- -- 1,422
Issuance of common stock
in connection with
acquisitions........... -- -- 1,056 5 8,982 -- -- 8,987
Dividends paid on
preferred stock........ -- -- -- -- -- -- (715) (715)
Reduction in valuation
of common stock issued
in connection with
Ionpure acquisition.... -- -- -- -- (9,123) -- -- (9,123)
Preferred stock issued
in connection with
acquisition of
Smogless............... 185 3,506 -- -- -- -- -- 3,506
Issuance of common stock
to pay off
indebtedness........... -- -- 89 -- 700 -- -- 700
Par value of shares
issued in connection
with three-for-two
stock split (note 15).. -- -- -- 50 (50) -- -- --
Income tax benefit from
exercise of stock
options................ -- -- -- -- 387 -- -- 387
Currency translation
adjustment............. -- -- -- -- -- (1,770) -- (1,770)
Shareholders' equity
transactions of Zimpro,
Davis, Sidener and
Kinetics prior to
merger (notes 9 and
20).................... -- -- -- -- 9,320 -- (8,354) 966
Net income.............. -- -- -- -- -- -- 24,621 24,621
----- -------- ------ ---- ------- ------ ------- -------
Balance at March 31,
1995................... 1,065 25,577 35,858 282 170,691 (2,026) 6,024 200,548
Compensation related to
excess of fair value of
director stock options
over exercise price
(note 15).............. -- -- -- -- 112 -- -- 112
Conversion of preferred
shares to common shares
(note 15).............. (926) (22,936) 2,083 14 22,922 -- -- --
Redemption of Series B
convertible preferred
stock (note 15)........ (139) (2,641) -- -- (2,068) -- -- (4,709)
Issuance of common stock
in connection with
acquisitions (note 9).. -- -- 2,453 16 36,284 -- -- 36,300
Shares issued through
public offering, net of
offering costs of
$6,106,000 (note 15)... -- -- 10,350 69 97,325 -- -- 97,394
Conversion of
subordinated debentures
to common stock (note
12).................... -- -- 3,750 25 44,975 -- -- 45,000
Dividends paid on
preferred stock (note
15).................... -- -- -- -- -- -- (715) (715)
Exercise of common stock
options (note 15)...... -- -- 488 3 3,678 -- -- 3,681
Issuance of common stock
to acquire assets (note
15).................... -- -- 224 2 2,974 -- -- 2,976
Shareholders' equity
transactions of Zimpro,
Davis, Sidener and
Kinetics prior to
merger (notes 9 and
20).................... -- -- -- -- 2,438 -- (10,196) (7,758)
Currency translation
adjustment............. -- -- -- -- -- 3,862 -- 3,862
Net income.............. -- -- -- -- -- -- 30,699 30,699
----- -------- ------ ---- ------- ------ ------- -------
Balance at March 31,
1996................... -- $ -- 55,206 $411 379,331 1,836 25,812 407,390
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY--(CONTINUED)
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK RETAINED
---------------- ---------------- ADDITIONAL CURRENCY EARNINGS
NUMBER OF NUMBER OF PAID-IN TRANSLATION (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT) TOTAL
--------- ------ --------- ------ ---------- ----------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss of Zimpro for
the three months ended
March 31, 1996 (note
9)..................... -- $ -- -- $ -- -- -- (606) (606)
Exercise of common stock
options (note 15)...... -- -- 659 7 5,991 -- -- 5,998
Issuance of common stock
in connection with
acquisitions (note 9).. -- -- 7,686 76 196,639 -- -- 196,715
Shareholders' equity
transactions of Zimpro,
Davis, Sidener and
Kinetics prior to
merger (notes 9 and
20).................... -- -- -- -- 4,711 -- (6,930) (2,219)
Issuance of common stock
to pay off indebtedness
(note 9)............... -- -- 271 2 6,741 -- -- 6,743
Conversion of
subordinated debentures
to common stock (note
12).................... -- -- 4,389 43 58,535 -- -- 58,578
Shares issued through
public offering, net of
offering costs of
$17,154 (note 15)...... -- -- 11,804 118 356,035 -- -- 356,153
Issuance of common stock
to acquire assets...... -- -- 319 3 5,894 -- -- 5,897
Par value of shares
issued in connection
with three-for-two
stock split (note 15).. -- -- -- 143 (143) -- -- --
Currency translation
adjustment............. -- -- -- -- -- (21,327) -- (21,327)
Net income.............. -- -- -- -- -- -- 32,508 32,508
--- ----- ------ ----- --------- ------- ------ ---------
Balance at March 31,
1997................... -- $ -- 80,334 $ 803 1,013,734 (19,491) 50,784 1,045,830
=== ===== ====== ===== ========= ======= ====== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 24,621 30,699 32,508
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Deferred income taxes........................ 474 (4,932) 1,732
Depreciation and amortization................ 20,798 32,469 50,643
Provision for doubtful accounts.............. 2,030 5,929 5,536
(Gain) loss on sale of property and
equipment................................... 377 (260) (15)
Stock and stock option compensation.......... 122 112 --
(Decrease) increase in closure reserves and
write off of intangible assets.............. (1,368) 768 --
Change in operating assets and liabilities:
Increase in accounts receivable............ (17,009) (39,603) (23,364)
Increase in costs and estimated earnings in
excess of billings on uncompleted
contracts................................. (1,116) (8,471) (53,302)
Increase in inventories.................... (7,480) (5,468) (29,136)
Increase in prepaid expenses and other
assets.................................... (2,273) (5,359) (43,913)
Increase (decrease) in accounts payable and
accrued expenses.......................... (5,293) 4,473 37,885
Increase (decrease) in billings in excess
of costs and estimated earnings on
uncompleted contracts..................... 9,688 (2,110) 8,182
Decrease in other liabilities.............. (933) (1,612) (2,564)
-------- -------- --------
Net cash provided by (used in) operating
activities.............................. 22,638 6,635 (15,808)
-------- -------- --------
Cash flows from investing activities:
Investment in leasehold interests.............. (6,397) (8,347) --
Purchase of property, plant and equipment...... (24,935) (38,335) (56,834)
Proceeds from disposal of equipment............ 877 7,670 6,301
(Purchase) sale of short-term investments...... 13,012 9,871 (374)
Payment for purchase of acquisitions, net of
cash acquired................................. (2,815) (206,936) (586,059)
-------- -------- --------
Net cash used in investing activities.... (20,258) (236,077) (636,966)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from sale of common stock......... 8,018 97,783 356,154
Net proceeds from sale of convertible
subordinated debentures....................... -- 136,249 403,650
Proceeds from exercise of common stock
options....................................... 1,422 3,681 6,088
Principal payments of debt..................... (67,086) (71,909) (13,393)
Dividends paid on common and preferred stock... (8,867) (9,988) (3,901)
Payment to repurchase Series B preferred
stock......................................... -- (4,709) --
Net proceeds from borrowings on notes payable.. 71,928 76,990 11,590
-------- -------- --------
Net cash provided by financing
activities.............................. 5,415 228,097 760,188
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................. 7,795 (1,345) 107,414
Cash and cash equivalents at beginning of year... 21,280 29,075 27,730
-------- -------- --------
Cash and cash equivalents at end of year......... $ 29,075 27,730 135,144
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for interest................. $8,889 16,463 21,472
====== ====== ======
Cash paid during the year for income taxes............. $3,458 11,275 14,936
====== ====== ======
Noncash investing and financing activities consisted of
the following:
Common stock issued:
Satisfaction of debt................................. $ 700 -- --
Conversion of subordinated debentures................ -- 45,000 60,000
Purchase of property or equipment.................... -- 2,976 5,897
Property, plant and equipment exchanged for
receivables........................................... -- 5,318 --
------ ------ ------
$ 700 53,294 65,897
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1995, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
United States Filter Corporation and its wholly owned subsidiaries (the
"Company") (see note 9). All significant intercompany accounts and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Method of Accounting for Contracts
The accounting records of the Company are maintained and income is reported
for financial reporting and income tax purposes for long-term contracts under
the percentage-of-completion method of accounting. Under this method, an
estimated percentage for each contract, based on the cost of work performed to
date that has contributed to contract performance compared to the total
estimated cost, is applied to total estimated revenue. Provision is made for
the entire amount of future estimated losses on contracts in progress in the
period in which such losses are determined. Claims for additional contract
compensation due the Company are not reflected in the accounts until the year
in which such claims are allowed, except where contract terms specifically
provide for certain claims.
Contract costs include all direct material and labor and those indirect
costs related to contract performance. General and administrative expenses are
charged to expense as incurred.
Products and Services
Sales of other products and services are recorded as products are shipped or
services rendered.
INCOME TAXES
The Company follows Statement of Financial Accounting Standards ("SFAS") 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 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 non-U.S. subsidiaries as such earnings are intended to be indefinately
reinvested in those operations.
FOREIGN CURRENCY TRANSLATION
In accordance with SFAS No. 52, "Foreign Currency Translation," those assets
and liabilities that are denominated in a functional currency other than U.S.
dollars 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. Transaction gains and losses included in
net income are immaterial. The effects of exchange rate changes on cash are
immaterial.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
F-10
<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 three 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.
COSTS IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED
Costs in excess of net assets of businesses acquired are amortized on the
straight-line method over a 20- to 40-year life. The Company evaluates the
recoverability of these costs based upon expectations of non-discounted cash
flows of each subsidiary. Based upon its most recent analysis, the Company
believes that no material impairment exists at March 31, 1997.
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 $6.2 million and $16.9 million
at March 31, 1996 and 1997, respectively, have been deferred and are being
amortized over the term of the related debt (see 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 maturities.
INCOME PER COMMON SHARE
Income per common share is computed based on the weighted average number of
shares outstanding and in accordance with SFAS No. 128 "Earnings Per Share".
Common stock equivalents consisting of convertible preferred stock,
convertible subordinated debentures and common stock options are included in
the computation of income per diluted share when their effect is dilutive.
Accordingly, "Basic EPS" and "Diluted EPS" were calculated as follows:
F-11
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1995 1996 1997
------- ------ ------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
BASIC
Net income......................................... $24,621 30,699 32,508
Dividends on preferred stock....................... (715) (536) -- ***
------- ------ ------
Net income applicable to common shares............. 23,906 30,163 32,508
======= ====== ======
Weighted average shares outstanding................ 35,198 48,369 64,082
======= ====== ======
Basic income per common share...................... 0.68 0.62 0.51
======= ====== ======
DILUTED
Net income applicable to common shares............. 23,906 30,163 32,508
Add: Effect on net income of conversion of
convertible subordinated debentures............ 4,890* -- ** -- **
------- ------ ------
Adjusted net income applicable to common shares.... 28,796 30,163 32,508
======= ====== ======
Weighted average shares outstanding................ 35,198 48,369 64,082
Add: Assumed conversion of subordinated
debentures........................................ 8,139* -- ** -- **
Exercise of options.............................. 370 1,299 2,449
------- ------ ------
Adjusted weighted average shares outstanding....... 43,707 49,668 66,531
======= ====== ======
Diluted income per common share.................... 0.66 0.61 0.49
======= ====== ======
</TABLE>
- --------
* The calculation of diluted EPS for the year ended March 31, 1995 assumes
conversion of subordinated debentures as the effect is dilutive to income
per common share.
** The calculation of diluted EPS for the years ended March 31, 1996 and 1997
does not assume conversion of subordinated debentures as the effect would
be antidilutive to income per common share.
*** 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).
RECLASSIFICATIONS
Certain amounts in the 1995 and 1996 consolidated financial statements have
been reclassified to conform with the 1997 presentation.
(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 available
for sale with original maturities of more than 90 days when purchased, and are
carried at amortized cost, which approximates market value.
F-12
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) INVENTORIES
Inventories at March 31, 1996 and 1997 consist of:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials................................................ $24,068 56,830
Work-in-process.............................................. 17,997 58,619
Finished goods............................................... 45,322 129,752
------- -------
$87,387 245,201
======= =======
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 1996 and 1997 consist of:
<TABLE>
<CAPTION>
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land..................................................... $ 9,954 20,697
Buildings and improvements............................... 52,061 110,925
Equipment................................................ 151,152 199,240
Furniture and fixtures................................... 30,971 65,415
Vehicles................................................. 6,391 14,477
Construction in progress................................. 17,191 18,668
-------- --------
267,720 429,422
Less accumulated depreciation............................ (78,499) (109,735)
-------- --------
$189,221 319,687
======== ========
</TABLE>
(6) INVESTMENT IN LEASEHOLD INTERESTS
The Company has concession agreements to 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, 1996
and 1997 totaled $2.0 million and $3.2 million, respectively. The investments
are stated at cost which does not exceed market based on projected non-
discounted future cash flows.
(7) COSTS IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED
Costs in excess of net assets of businesses acquired and accumulated
amortization at March 31, 1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
1996 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Costs in excess of net assets of businesses acquired..... $283,275 811,054
Less accumulated amortization............................ (11,384) (22,958)
-------- -------
$271,891 788,096
======== =======
</TABLE>
F-13
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) OTHER ASSETS
Other assets at March 31, 1996 and 1997 consist of:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Investment in unconsolidated joint ventures.................. $12,419 10,645
Long-term receivables and advances........................... 6,972 7,837
Other assets at amortized cost:
Deferred debt costs........................................ 6,200 16,939
Operating permits and development costs.................... 1,212 5,994
Patents.................................................... 2,469 3,074
Other...................................................... 12,070 57,139
------- -------
$41,342 101,628
======= =======
</TABLE>
The above amounts reflect accumulated amortization of $2.0 million and $3.8
million at March 31, 1996 and 1997, respectively.
During fiscal 1996, the Company's Zimpro subsidiary evaluated certain
patents in accordance with SFAS 121. Based upon this evaluation, patents with
a carrying value of $3.6 million were written down by $2.6 million to
estimated fair value.
(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 ("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 $1.0 million 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. Merger costs related to the Zimpro transaction were expensed
concurrent with its acquisition and are immaterial.
On August 23, 1996, a wholly-owned subsidiary of the Company merged with and
into Davis Water & Waste Industries, Inc. ("Davis"), upon the exchange of
4,817,349 shares of its common stock for all of the outstanding common and
preferred 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.
F-14
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Merger expenses incurred to consummate the Davis transaction totaled $5.6
million and consisted primarily of investment banking fees, printing, stock
fees, legal fees, accounting fees, governmental filings fees and certain other
costs related to existing Davis pension plans and change in control charges.
On March 6, 1997, a wholly-owned subsidiary of the Company merged with and
into Sidener Supply Company ("Sidener"), upon the exchange of 1,528,732 shares
of its common stock for all of the outstanding common shares of Sidener
pursuant to an Acquisitions Agreement between the Company and Sidener. In
addition, the Company issued 98,449 shares of common stock to liquidate
certain indebtedness of Sidener.
Sidener, with headquarters in St. Louis, Missouri, markets products relating
to the distribution of water and wastewater. 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 Sidener. Merger costs
related to the Sidener transaction were expensed concurrent with its merger
and are immaterial.
On December 31, 1997, a wholly owned subsidiary of the Company merged with
and into The Kinetics Group, Inc. ("Kinetics") in a tax-free reorganization
(see note 20). In connection with this merger, the Company issued 5,803,803
shares of the Company's common stock for all of the outstanding common stock
of Kinetics (0.5824 share of the Company's common stock for each outstanding
share and each outstanding option or other right to acquire a share of
Kinetics common stock). In addition, the Company assumed approximately $50.0
million of third party institutional debt.
Kinetics, based in Santa Clara, California, is a provider and manufacturer
of sophisticated high purity process piping systems and is also a leading
integrator in the United States of high purity water, fluid and gas handling
systems that are critical to the pharmaceutical, biotechnology and micro
electronics industries.
This transaction has been accounted for as a pooling of interests and the
consolidated financial statements for the period ended December 31, 1997
reported the combined companies; accordingly, the consolidated financial
statements and notes thereto for all periods presented have been restated to
include the accounts and operations of Kinetics. In restating the Company's
historical financial statements for the pooling of interests with Kinetics,
the Company's balance sheets as of March 31, 1996 and 1997 were combined with
Kinetics audited balance sheets as of September 30, 1996 and 1997,
respectively. The results of the Company for the year ended March 31, 1997
were combined with historical results of Kinetics for the year ended September
30, 1997; historical results of the Company for the year ended March 31, 1996
were combined with historical results of Kinetics for the year ended September
30, 1996; historical results of the Company for the year ended March 31, 1995
were combined with historical results of Kinetics for the year ended September
30, 1995. Accordingly, results of Kinetics for the six month period ended
September 30, 1994 (including revenue of $85.4 million and net income of $3.9
million) are not included in the combined results of operations presented
herein. Concurrent with U.S. Filter's merger, Kinetics' year end was recast to
March 31. Accordingly, results for Kinetics for the six months ended September
30, 1997 (including revenue of $227.4 million and a net loss of $8.5 million)
will be included in both the results for the year ended March 31, 1997 and in
the results for the year ended March 31, 1998.
Merger expenses incurred to consummate the Kinetics transaction totaled $4.3
million and consisted primarily of investment banking, printing, stock, legal,
accounting and governmental filing fees. These costs were expensed concurrent
with the merger with Kinetics on December 31, 1997.
F-15
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Separate results of operations of the combined entities for the years ended
March 31, 1995, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1995 1996 1997
-------- --------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Revenues:
U.S. Filter (as previously reported)........ $272,032 472,537 1,376,601
Zimpro...................................... 31,678 28,877 --
Davis....................................... 215,649 226,489 --
Sidener..................................... 81,473 84,419 --
Kinetics.................................... 229,933 278,423 387,805
-------- --------- ---------
Combined.................................. $830,765 1,090,745 1,764,406
======== ========= =========
Net income (loss):
U.S. Filter (as previously reported)........ $ 8,331 20,290 46,197
Zimpro...................................... 460 (6,732) --
Davis....................................... 3,448 5,749 --
Sidener..................................... 3,028 2,660 --
Kinetics.................................... 9,354 8,732 (13,689)
-------- --------- ---------
Combined.................................. $ 24,621 30,699 32,508
======== ========= =========
Net income per common share:
Basic:
As previously reported...................... $ 0.35 0.56 0.79
======== ========= =========
As restated................................. $ 0.68 0.62 0.51
======== ========= =========
Diluted:
As previously reported...................... $ 0.34 0.54 0.77
======== ========= =========
As restated................................. $ 0.66 0.61 0.49
======== ========= =========
</TABLE>
Separate unaudited results of operations of each of U.S. Filter, Zimpro,
Davis and Sidener for the period during the year ended March 31, 1997
preceding the mergers between U.S. Filter and each of Zimpro, Davis and
Sidener are included in the consolidated statement of income for the year
ended March 31, 1997 as follows:
<TABLE>
<CAPTION>
NET
REVENUES INCOME
---------- --------
<S> <C> <C>
U.S. Filter................................................ $ 142,410 $ 6,653
Zimpro..................................................... 8,391 264
---------- --------
Three months ended June 30, 1996.......................... $ 150,801 $ 6,917
========== ========
U.S. Filter................................................ $ 312,691 $ 12,837
Davis...................................................... 121,028 1,391
---------- --------
Six months ended September 30, 1996....................... $ 433,719 $ 14,228
========== ========
U.S. Filter................................................ $1,289,375 $ 43,727
Sidener.................................................... $ 87,226 2,470
---------- --------
Fiscal year ended March 31, 1997......................... $1,376,601 $ 46,197
========== ========
</TABLE>
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. The purchase price for the acquisition of USG,
F-16
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
including acquisition costs, was approximately $40 million, consisting of the
repayment of $18.3 million of USG long-term debt paid in cash and the delivery
of 771,157 shares of Company common stock.
USG, headquartered in Waco, Texas, is a distributor of water and wastewater
related products and services to industrial and municipal customers throughout
the United States.
The acquisition of USG has been accounted for as a purchase and,
accordingly, the results of operations of USG are included in the Company's
consolidated statements of income from the date of acquisition. The excess of
fair value of net assets acquired was approximately $18 million, and is being
amortized on a straight-line basis over 40 years.
On October 28, 1996, the Company acquired all of the outstanding capital
stock of WaterPro Supplies Corporation ("WaterPro") pursuant to a Stock
Purchase Agreement. The purchase price for the acquisition of WaterPro,
including acquisition costs, was approximately $91 million, consisting of
3,201,507 shares of Company common stock.
WaterPro, headquartered in Edina, Minnesota 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 acquisition of WaterPro has been accounted for as a purchase and,
accordingly, the results of operations of WaterPro are included in the
Company's consolidated statements of income from the date of acquisition. The
excess of fair value of net assets acquired was approximately $29 million, and
is being amortized on a straight-line basis over 40 years.
On December 2, 1996, pursuant to an Amended and Restated Purchase and Sale
Agreement dated September 14, 1996 between the Company and Wheelabrator Water
Technologies Inc. ("Seller"), the Company completed the acquisition of the
capital stock of certain of the Seller's subsidiaries and certain other
entities, and substantially all of the assets and liabilities of certain other
subsidiaries, collectively Wheelabrator's Water Systems and Manufacturing
Group ("WSMG"). The purchase price, as amended, for the acquisition of WSMG,
including acquisition costs, was approximately $374 million and was paid
entirely in cash.
WSMG provides a broad range of water and wastewater engineering, technology
and systems. The acquisition of WSMG has been accounted for as a purchase and,
accordingly, the results of operations of WSMG are included in the Company's
consolidated statements of income from the date of acquisition. The excess of
fair value of net assets acquired was approximately $308 million and is being
amortized on a straight-line basis over 40 years.
On January 6, 1997, pursuant to a Purchase and Sale Agreement dated October
7, 1996, between the Company and United Utilities PLC ("UU"), the Company
completed the acquisition of the capital stock of certain other subsidiaries,
collectively, the Process Equipment Division ("PED") of UU. The purchase
price, subject to adjustment, for the acquisition of PED, including
acquisition costs, was approximately $166 million in cash and 1,320,312 shares
of Company stock.
PED provides a broad range of water and wastewater engineering, technology
and systems. The acquisition of PED has been accounted for as a purchase and,
accordingly, the results of operations of PED are included in the Company's
consolidated statements of income from the date of acquisition. The excess of
fair value of net assets acquired was approximately $108 million and is being
amortized on a straight-line basis over 40 years.
F-17
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Supplementary information related to the acquisitions of USG, WaterPro, WSMG
and PED is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Assets acquired............................................... $1,018,537
Liabilities assumed........................................... (318,059)
Common stock issued........................................... (139,025)
----------
Cash paid..................................................... 561,453
Fees and expenses............................................. 3,001
Less cash acquired............................................ (11,039)
----------
Net cash paid............................................... $ 553,415
==========
</TABLE>
Summarized below are the unaudited pro forma results of operations of the
Company as though USG, WaterPro, WSMG and PED had been acquired on April 1,
1996:
<TABLE>
<CAPTION>
1997
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
Revenues............................................... $2,499,998
==========
Net income............................................. $ 45,085
==========
Net income per common share:
Basic................................................ $ 0.57
==========
Diluted.............................................. $ 0.55
==========
</TABLE>
During the year ended March 31, 1997, the Company completed other
acquisitions with an aggregate purchase price, including acquisition costs, of
approximately $77 million, consisting of $19.0 million in cash and the
delivery of 2,392,768 shares of Company common stock. The excess of fair value
of net assets acquired was approximately $65 million, and is being amortized
on a straight-line basis over 40 years.
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 million consisting of $51.7 million 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 statements of income
from the date of acquisition. The excess of fair value of net assets acquired
was approximately $48 million 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 million consisting of $20.1 million 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
F-18
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 income from the date of acquisition. The excess of fair value of
net assets acquired was approximately $19 million, 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
million 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 income from the date of acquisition. The excess of cost over
fair value of net assets acquired was approximately $7 million 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 $84.3 million consisting
of $82.0 million 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.
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 income from the date of acquisition. The excess of
fair value of net assets acquired was approximately $36 million 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 $59 million,
consisting of $40 million 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 million, 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 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Assets acquired............................................... $230,986
Liabilities assumed........................................... (50,911)
Common stock issued........................................... (17,484)
--------
Cash paid..................................................... 162,591
Fees and expenses............................................. 1,514
Less cash acquired............................................ (894)
--------
Net cash paid............................................... $163,211
========
</TABLE>
F-19
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summarized below are the unaudited pro forma results of operations of the
Company as though USG, WaterPro, WSMG, PED, Polymetrics, Interlake, The
Permutit Group and AIW had been acquired on April 1, 1995:
<TABLE>
<CAPTION>
1996
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
Revenue................................................ $2,237,712
==========
Net income............................................. $ 41,135
==========
Net income per common share:
Basic................................................ $ 0.58
==========
Diluted.............................................. $ 0.57
==========
</TABLE>
(10) CONTRACT BILLING STATUS
Information with respect to the billing status of contracts in process at
March 31, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Contract costs incurred to date..................... $ 478,474 971,292
Estimated profits................................... 105,046 160,949
--------- ----------
Contract revenue earned to date..................... 583,520 1,132,241
Less billings to date............................... (572,175) (1,063,372)
--------- ----------
Cost and estimated earnings in excess of billings,
net................................................ $ 11,345 68,869
========= ==========
The above amounts are included in the accompanying consolidated balance
sheets as:
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... $ 44,117 130,310
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... (32,772) (61,441)
--------- ----------
$ 11,345 68,869
========= ==========
</TABLE>
Accounts receivable include retainage which has been billed, but is not due
pursuant to retainage provisions in construction contracts until completion of
performance and acceptance by the customer. This retainage aggregated $12.0
million and $21.7 million at March 31, 1996 and 1997, respectively.
Substantially all retained balances are collectible within one year.
F-20
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) LONG-TERM DEBT
Long-term debt at March 31, 1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Mortgage notes payable, secured by land and buildings,
interest rates ranging from 2% to 9.2%, due in 1999
through 2010............................................. $ 7,180 13,304
Guaranteed bank notes, interest rates ranging from 3.9% to
9.2%, due in 1999 through 2004........................... 5,784 1,631
Unsecured notes payable, interest rates ranging from 3.0%
to 9.0%, due in 1997 through 2002........................ 1,007 24,954
Other..................................................... 9,821 3,531
------- -------
23,792 43,420
Less current portion...................................... (9,849) (11,956)
------- -------
$13,943 31,464
======= =======
</TABLE>
The aggregate maturities of long-term debt for each of the five years
subsequent to March 31, 1997 are as follows: 1998, $12.0 million; 1999, $2.1
million; 2000, $2.0 million; 2001, $1.9 million; 2002, $19.9 million; and
thereafter, $5.5 million.
The Company has a long-term, unsecured revolving line of credit with a bank
of up to $400.0 million, of which $6.5 million was outstanding at March 31,
1997 and is included in notes payable in the accompanying consolidated balance
sheet. The line of credit expires December, 2001 and bears interest at the
bank's base rate or, in certain circumstances, Eurodollar rate. The line of
credit is subject to certain covenants for which the Company was in compliance
at March 31, 1997. At March 31, 1997, $62.1 million of standby letters of
credit were issued under this line of credit.
In connection with the acquisition of Kinetics (see notes 9 and 20), the
Company has an additional loan agreement with a bank that provides a revolving
line-of-credit under which a subsidiary of the Company may borrow up to
$100.0 million of which there were borrowings of $33.8 million at March 31,
1997. Borrowings under this agreement bear interest at the bank's reference
rate or other interest rate options that the subsidiary may select and are
included in notes payable in the accompanying consolidated balance sheet.
(12) CONVERTIBLE SUBORDINATED DEBENTURES
On December 11, 1996, the Company sold $414.0 million aggregate principal
amount of 4.5% Convertible Subordinated Debentures due December 15, 2001 (the
"Debentures"). The Debentures are convertible into common stock at any time
prior to maturity, redemption or repurchase at a conversion price of $39.50
per share, subject to adjustments in certain circumstances. The Debentures are
not redeemable prior to December 15, 1999, at which time the Debentures become
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 June 15 and December 15, commencing June
15, 1997.
On September 18, 1995 the Company sold $140.0 million aggregate principal
amount of 6% Convertible Subordinated Notes due September 15, 2005 (the
"Notes"). 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 become 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.
F-21
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective August 31, 1994, the Company issued $45.0 million of subordinated
debt (the "Debt") with common stock purchase warrants in connection with the
acquisition of Smogless. On September 18, 1995, these warrants to purchase 3.8
million shares of Company common stock were exercised in exchange for the
Debt.
On October 20, 1993, the Company sold $60.0 million aggregate principal
amount of 5% convertible subordinated debentures due October 15, 2000. As of
October 25, 1996, all of such debentures were converted into a total of
approximately 4.4 million shares of Company common stock pursuant to the terms
of the debentures.
(13) ACCRUED LIABILITIES
Accrued liabilities at March 31, 1996 and 1997 consist of the following:
<TABLE>
<CAPTION>
1996 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued job costs, start-up and customer deposits........... $ 27,329 75,108
Payroll, benefits and related taxes......................... 25,252 71,157
Organization, relocation and closure costs.................. 20,239 41,088
Warranty.................................................... 6,631 25,727
Future remediation.......................................... 1,729 10,625
Sales commission............................................ 3,674 10,014
Sales, property and other taxes............................. 5,335 9,647
Interest.................................................... 3,204 7,978
Other....................................................... 19,731 24,193
-------- -------
$113,124 275,537
======== =======
</TABLE>
Included in other long-term liabilities at March 31, 1997 is $14.6 million
of retiree benefits assumed by the Company as a result of certain acquisitions
during fiscal 1997.
(14) INCOME TAXES
Income tax expense (benefit) from continuing operations for the years ended
March 31, 1995, 1996 and 1997 consist of:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current............................................ $4,086 9,569 5,806
Deferred........................................... 1,739 2,584 2,342
State:
Current............................................ 2,011 2,393 2,904
Deferred........................................... (506) (542) (768)
Non-U.S.:
Current............................................ 20 4,085 5,821
Deferred........................................... 1,554 2,240 (5,424)
------ ------ ------
$8,904 20,329 10,681
====== ====== ======
</TABLE>
F-22
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total income tax expense differed from the amounts computed by applying the
U.S. Federal corporate tax rate of 34% for 1995 and 1996 and 35% for 1997 to
income from continuing operations before income taxes as a result of the
following:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Expected income tax provision.................... $11,399 17,349 15,116
Permanent differences............................ 24 1,573 2,302
State franchise tax, net of Federal tax benefit.. 1,467 1,641 1,937
Change in balance of valuation allowance ........ (1,973) (3,351) (10,796)
Difference in U.S. tax rate and foreign tax
rates........................................... 511 2,032 1,762
Other............................................ (2,524) 1,085 360
------- ------ -------
$ 8,904 20,329 10,681
======= ====== =======
</TABLE>
As of March 31, 1997, the Company has net operating loss carryforwards in
France of approximately $16.4 million with an indefinite carryforward period
for which income tax benefit was recognized during fiscal 1997. Any benefit of
the French loss carryforward was required to be shared equally between the
Company and Alcoa until March 31, 1997. As of March 31, 1997, the Company also
had net operating loss carryforwards in other non-U.S. countries of
approximately $44.6 million which expire from 1998 to 2003.
Additionally, as of March 31, 1997, the Company has recognized the future
benefit of net operating loss carryforwards generated from Liquipure of $14.4
million. These loss carryforwards expire from 2002 to 2007. These operating
loss carryforwards can be used only against future taxable income of
Liquipure.
The Company also has available, at March 31, 1997, other net operating loss
carryforwards for U.S. federal income tax purposes of approximately $15.0
million which expire in 2007 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>
1996 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards............................ $ 27,664 36,514
Inventory............................................... 3,540 8,044
Allowance for doubtful accounts......................... 2,220 6,250
Warranty................................................ 1,837 2,656
Vacation................................................ 1,030 1,465
Other accruals.......................................... 1,784 33,495
Tax credits............................................. 501 276
Other................................................... 6,777 1,049
-------- -------
45,353 89,749
Valuation allowance....................................... (19,946) (20,659)
-------- -------
Total deferred tax assets............................. 25,407 69,090
Deferred tax liabilities:
Depreciation and amortization........................... 12,841 12,658
Prepaid expenses........................................ 500 353
Long-term contracts..................................... 4,206 11,123
Other................................................... 620 4,002
-------- -------
18,167 28,136
-------- -------
Net deferred tax assets............................... $ 7,240 40,954
======== =======
</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, 1997 of companies with strong earnings potential. A valuation
allowance of $20.7 million at March 31, 1997 has been provided primarily for
state and foreign net operating losses which may not be realized prior to
expiration.
(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 $4.7 million 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.
COMMON STOCK
On December 5, 1994 and July 15, 1996, the Company paid in the form of stock
dividends a three-for-two split of the Company's common stock. All references
to income per common share and other common stock information in the
accompanying consolidated financial statements and notes thereto have been
restated to reflect these splits.
F-24
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On December 11, 1996, the Company completed an underwritten public offering
of 11,804,206 shares of its common stock at a price equal to $31.625 per
share. The net proceeds to the Company, after underwriting discounts and
commissions and other related expenses, were $356.1 million.
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 other related expenses, were $97.8 million.
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 available 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 until fully vested.
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 $.1 million was recorded in fiscal 1995 and fiscal 1996 related to
the Directors Plan.
The per share weighted-average fair value of stock options granted during
fiscal 1996 and fiscal 1997 was $5.93 and $9.49, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions for fiscal 1996 and fiscal 1997: expected dividend yield 0%, risk-
free interest rate of 6.3%, expected volatility of the stock price of 41.9%
and an expected life of 5 years.
The Company continues to apply APB Opinion No. 25 in accounting for its
Plans and, accordingly, no compensation cost has been recognized for its stock
options in the consolidated financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income and net income per common
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
--------------
1996 1997
------- ------
(IN THOUSANDS,
EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net income
As reported................................................. $30,699 32,508
Pro forma................................................... $28,658 28,178
Net income per common share:
Basic
As reported................................................. 0.62 0.51
Pro forma................................................... 0.58 0.44
Diluted
As reported................................................. 0.61 0.49
Pro forma................................................... 0.57 0.42
</TABLE>
F-25
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro forma net income and net income per common share reflects only options
granted in fiscal 1996 and 1997. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not reflected in the
pro forma net income and net income per common share amounts presented above
because compensation reflected over the options' vesting period of 10 years
and compensation cost for options granted prior to April 1, 1995 is not
considered. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that do not have vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's stock options have
characteristics significantly different from those of traded options and
because changes in the subjective input assumptions can materially affect the
value of an estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
Transactions involving the Plan and Directors Plan are summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
SHARES EXERCISE PRICE VALUE
--------- --------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at March 31, 1994.......... 1,925,882 $ 1.35 to 10.95 $ 15,642
Options granted.................... 898,290 1.35 to 10.59 7,650
Options exercised.................. (241,040) 2.45 to 9.83 (1,422)
Options canceled................... (40,785) 7.33 to 9.83 (375)
--------- --------------- --------
Balance at March 31, 1995.......... 2,542,347 1.35 to 10.95 21,495
Options granted.................... 1,013,250 9.04 to 18.67 12,764
Options exercised.................. (487,886) 1.35 to 10.95 (3,678)
Options canceled................... (20,626) 8.53 to 10.58 (183)
--------- --------------- --------
Balance at March 31, 1996.......... 3,047,085 1.35 to 18.67 30,398
Options granted.................... 934,874 18.67 to 34.88 18,773
Options exercised.................. (659,260) 1.35 to 26.25 (11,886)
Options canceled................... (27,415) 4.97 to 13.83 (309)
--------- --------------- --------
Balance at March 31, 1997.......... 3,295,284 $ 1.35 to 34.88 $ 36,976
========= =============== ========
</TABLE>
At March 31, 1996 and 1997, the number of options exercisable was 1.8
million and 2.2 million, respectively.
In connection with the options and convertible subordinated debentures, the
Company has reserved 20.9 million shares at March 31, 1997 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 U.S. Employee
Retirement Income Security Act of 1974 ("ERISA") 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.
A subsidiary of the Company provides pension and health and welfare benefits
to employees who are members of the United Association of Journeymen and
Apprentices of the Plumbing and Pipefitting Industry of the United States and
Canada (the "Pipefitters Union") under multiemployer defined benefit plans.
Approximately 67% of the subsidiary's full-time workforce is represented by
the Pipefitters Union. Contributions
F-26
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to the Pipefitters Union pension plan were $4.9 million, $5.3 million and
$7.5 million for the years ended March 31, 1995, 1996 and 1997, respectively.
Contributions to the Pipefitters Union health and welfare plan were
$5.8 million, $6.5 million and $9.8 million for the years ended March 31,
1995, 1996 and 1997, respectively.
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 and as provided by ERISA. Defined contribution plan expense to the
Company was $0.9 million, $1.7 million and $4.2 million for the years ended
March 31, 1995, 1996 and 1997, respectively.
(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 1995, 1996 and 1997. Export sales were $37.9
million, $58.6 million and $85.4 million in fiscal 1995, 1996 and 1997,
respectively.
Information about the Company's operations in different geographic locations
for the years ended March 31, 1995, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues from unaffiliated customers:
United States................................. $717,999 875,792 1,342,496
Non-U.S....................................... 112,766 214,953 421,910
-------- --------- ---------
$830,765 1,090,745 1,764,406
======== ========= =========
Operating income:
United States................................. $ 34,293 44,565 38,535
Non-U.S....................................... 6,428 16,820 27,485
-------- --------- ---------
$ 40,721 61,385 66,020
======== ========= =========
Income before income tax expense:
United States................................. $ 28,747 37,635 21,578
Non-U.S....................................... 4,778 13,393 21,611
-------- --------- ---------
$ 33,525 51,028 43,189
======== ========= =========
Identifiable assets:
United States................................. $419,504 701,649 1,695,336
Non-U.S....................................... 164,129 301,667 702,227
-------- --------- ---------
$583,633 1,003,316 2,397,563
======== ========= =========
</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 $9.5 million, $10.5
million and $16.3 million in 1995, 1996 and 1997, respectively.
F-27
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the future minimum annual rental commitments as of March 31,
1997, under operating leases follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
--------------
(IN THOUSANDS)
<S> <C>
Fiscal year ending:
1998........................................................ $19,053
1999........................................................ 14,772
2000........................................................ 10,241
2001........................................................ 6,105
2002........................................................ 5,592
Thereafter.................................................. 4,326
-------
Total minimum lease payments.................................. $60,089
=======
</TABLE>
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. 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 (see note
9).
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.
F-28
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(19) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET INCOME PER SHARE
--------------------
REVENUES GROSS PROFIT NET INCOME BASIC DILUTED
-------- ------------ ---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1996
First quarter... $233,948 51,432 6,652 0.15 0.15
Second quarter.. $268,041 61,312 9,540 0.20 0.20
Third quarter... $282,540 66,718 10,115 0.19 0.19
Fourth quarter.. $306,216 74,310 4,392 0.08 0.08
1997
First quarter... $295,153 71,707 9,379 0.17 0.16
Second quarter.. $336,060 69,488 71 -- --
Third quarter... $463,423 93,687 6,328 0.10 0.09
Fourth quarter.. $669,770 152,909 16,730 0.21 0.20
</TABLE>
(20) SUBSEQUENT EVENTS
On February 9, 1998, the Company announced it had entered into an Agreement
and Plan of Merger (the "Merger Agreement") dated as of February 9, 1998,
among the Company, Palm Water Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of the Company ("Merger Sub"), and Culligan Water
Technologies, Inc. ("Culligan"), a Delaware corporation. Pursuant to the
Merger Agreement, Merger Sub will be merged with and into Culligan (the
"Merger"). In connection with the Merger, the Company will issue in exchange
for each issued and outstanding share (other than treasury shares and shares
owned by the Company) of Culligan common stock, par value $.01 per share,
1.714 shares of common stock, par value $.01 per share, of the Company
pursuant to formula.
The Merger will be accounted for as a pooling of interests and is intended
to qualify as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended. Consummation of the Merger is subject to
customary regulatory approvals and the approval of the stockholders of each of
the Company and Culligan. The Merger is expected to be consummated in the
first half of fiscal 1999.
On December 31, 1997, a wholly owned subsidiary of the Company merged with
and into Kinetics in a tax-free reorganization. In connection with this
acquisition, the Company issued 5,803,803 shares of the Company's common stock
for all of the outstanding common stock of Kinetics (0.5824 share of U.S.
Filter Common Stock for each outstanding share and each outstanding option or
other right to acquire a share of Kinetics common stock). In addition, the
Company assumed approximately $50.0 million of third party institutional debt.
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 of Kinetics (see
note 9).
On December 9, 1997, the Company, through a wholly-owned subsidiary,
consummated its tender offer (the "Offer") commenced on October 25, 1997 to
purchase all of the outstanding ordinary shares (including American Depository
Shares) of Memtec Limited ("Memtec"). The purchase price was $36.00 per share.
The Company acquired certain shares in privately negotiated and open market
purchases prior to the Offer resulting in a total cash purchase price of
approximately $399.6 million (including estimated transaction costs of
$13.0 million). The acquisition of Memtec will be accounted for as a purchase.
Memtec is incorporated under the law of the State of New South Wales,
Australia and has worldwide operations. Memtec is a leader in the designing,
engineering, manufacturing and marketing of an extensive range of filtration
products and systems, focusing on two principal areas of the filtration
market: industrial filtration and water filtration. Memtec had revenues of
approximately $243.6 million and net income of approximately $7.5 million for
the year ended June 30, 1997.
F-29
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
On February 9, 1998, U.S. Filter announced that it had signed the Merger
Agreement with Culligan providing, among other things, for the acquisition by a
wholly owned subsidiary of U.S. Filter of all outstanding shares of Culligan.
Effective December 2, 1997, Culligan acquired Protean for approximately $174.5
million in cash and effective August 1, 1997, Culligan acquired Ametek for
approximately $155.0 million in Culligan common stock and cash in lieu of
fractional shares. On December 9, 1997, U.S. Filter acquired approximately 96%
of the outstanding shares (the "Memtec Shares") of Memtec Limited ("Memtec")
pursuant to a tender offer. The remaining Memtec Shares were acquired on
February 5, 1998. The total purchase price for all Memtec Shares was
approximately $397.2 (including estimated transaction costs of $10.6 million)
and was allocated to the assets and liabilities of Memtec based upon their
respective fair values. The value of developed technology was approximately
$64.4 million and is being amortized over 25 years. The value of other
intangible assets including patents, trademarks, license and distribution fees
was approximately $7.3 million, and is being amortized over periods ranging from
5 to 12 years. The Company also acquired from Memtec certain in-process research
and development projects that had not reached technological feasibility and that
had no alternative future use. Such projects were valued by an independent
appraiser using a risk adjusted cash flow model under which expected future cash
flows were discounted, taking into account risks related to existing and future
markets and assessments of the life expectancy of such projects. The estimated
market value of such in-process research and development projects was $299.5
million and was expensed at the acquisition date. The allocation of the purchase
price of Memtec is final and is not expected to change materially subsequent to
December 31, 1997. During the fiscal year ended March 31, 1997, U.S. Filter
completed several significant acquisitions that were accounted for as purchases
including the acquisitions of The Utility Supply Group, Inc. ("USG"), WaterPro
Supplies Corporation ("WaterPro"), the Systems and Manufacturing Group ("WSMG")
of Wheelabrator Technologies Inc. and the businesses of the Process Equipment
Division ("PED") of United Utilities Plc, which were completed on October 25,
1996, October 28, 1996, December 2, 1996 and January 6, 1997, respectively.
U.S. Filter acquired all of the common stock of The Kinetics Group, Inc.
("Kinetics") as of December 31, 1997 in exchange for 5,803,803 shares of U.S.
Filter's Common Stock, par value $.01 per share. The acquisition of Kinetics
was accounted for as a pooling of interests and accordingly all U.S. Filter
historical consolidated financial information has been restated to include
Kinetics. In restating the historical consolidated financial data for this
transaction, the historical results of U.S. Filter for the fiscal year ended
March 31, 1997 were combined with the historical results of Kinetics for the
fiscal year ended September 30, 1997; the historical results of U.S. Filter
for the year ended March 31, 1996 were combined with the historical results of
Kinetics for the year ended September 30, 1996; and the historical results of
U.S. Filter for the year ended March 31, 1995 were combined with the
historical results of Kinetics for the year ended September 30, 1995.
Accordingly, results of Kinetics for the six month period ended September 30,
1994 (including revenue of $85.4 million and net income of $3.9 million) are
not included in the combined results of operations of U.S. Filter presented
herein. Concurrent with U.S. Filter's acquisition of Kinetics, Kinetics' year
end was recast to March 31. Thus, results for Kinetics as of and for the nine
months ended December 31, 1997 are included in the Company's results as of and
for the nine months ended December 31, 1997. Accordingly, Kinetics' results
for the six months ended September 30, 1997 (including revenue of $227.4
million and a net loss of $8.5 million) are included in both the restated
historical results for the fiscal year ended March 31, 1997 and the results
for the nine months ended December 31, 1997.
The following pro forma data is based on the historical combined statements
of U.S. Filter (as restated for the acquisition of Kinetics accounted for as a
pooling of interests), Memtec, Culligan, Protean, Ametek, USG, WaterPro, WMSG
and PED giving effect to (i) the Culligan acquisition under the pooling of
interests method of accounting, (ii) the Memtec, USG, WaterPro, WMSG and PED
acquisitions under the purchase method of accounting, (iii) Culligan's
acquisitions of Protean and Ametek under the purchase method of accounting and
(iv) the assumptions and adjustments (which U.S. Filter believes to be
reasonable and in accordance with US generally accepted accounting principles
("US GAAP")) described in the accompanying Notes to Unaudited Pro Forma
Combined Financial Information. Under the pooling of interests method of
accounting, the recorded
F-30
<PAGE>
assets and liabilities of the separate entities become the recorded assets and
liabilities of the combined entity. 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 final adjustments.
The following unaudited pro forma combined financial information presents
the Unaudited Pro Forma Combined Balance Sheet at December 31, 1997 giving
effect to the acquisitions of Culligan and Protean as if they had been
consummated on that date. U.S. Filter's fiscal year ends March 31, Memtec's
fiscal year ends on June 30, Culligan's fiscal year ends on January 31,
Protean's fiscal year ends on March 31 and Ametek's fiscal year ends on
December 31. The Unaudited Pro Forma Combined Balance Sheet combines the
balance sheet of U.S. Filter as of December 31, 1997, the balance sheet of
Culligan as of October 31, 1997 and the balance sheet of Protean as of
September 30, 1997. The assets and liabilities of Kinetics, Memtec, USG,
WaterPro, WMSG and PED are included in U.S. Filter's historical balance sheet
at December 31, 1997 as these acquisitions were consummated on or before
December 31, 1997. The assets and liabilities of Ametek are included in
Culligan's historical balance sheet as of October 31, 1997 as Culligan's
acquisition of Ametek was consummated on August 1, 1997.
The unaudited pro forma combined financial information also presents the
Unaudited Pro Forma Combined Statements of Operations for the fiscal year
ended March 31, 1997, giving effect to the acquisitions of Memtec, Culligan,
Protean, Ametek, USG, WaterPro, WSMG and PED as if each of the acquisitions
had been consummated as of the beginning of the earliest period presented. The
Unaudited Pro Forma Combined Statement of Operations for the fiscal year ended
March 31, 1997, combines (i) the results of the U.S. Filter (as restated for
the acquisition of Kinetics which was accounted for as a pooling of interests)
and Protean for such fiscal year, (ii) the results of Memtec for their fiscal
year ended June 30, 1997, (iii) the results of Culligan for their fiscal year
ended January 31, 1997 (iv) the results of Ametek for their fiscal year ended
December 31, 1996 (v) the results of USG for the period beginning on April 1,
1996 and ending immediately prior to U.S. Filter's acquisition of USG on
October 25, 1996, (vi) the results of WaterPro for the period beginning on
April 1, 1996 and ending immediately prior to U.S. Filter's acquisition of
WaterPro on October 28, 1996, (vii) the results of WSMG for the period
beginning on April 1, 1996 and ending immediately prior to U.S. Filter's
acquisition of WSMG on December 2, 1996, and (vii) the results of PED for the
period beginning on April 1, 1996 and ending immediately prior to U.S.
Filter's acquisition of PED on January 6, 1997. Results for USG, WaterPro,
WSMG and PED after they were acquired by U.S. Filter to March 31, 1997 are
included in U.S. Filter's historical results for the fiscal year ended March
31, 1997.
The Unaudited Pro Forma Combined Statement of Operations for the nine months
ended December 31, 1997 combines (i) the results of U.S. Filter for such
period, (ii) the results of Memtec for the period beginning on April 1, 1997
and ending immediately prior to Memtec being acquired by U.S. Filter on
December 9, 1997, (iii) the results of Culligan for the nine months ended
October 31, 1997, (iv) the results of Protean for the nine months ended
September 30, 1997 and (v) the results of Ametek for the period beginning
February 1, 1997 and ending immediately prior to Ametek being acquired by
Culligan on August 1, 1997. Results for Memtec for the period from the date
Memtec was acquired by U.S. Filter to December 31, 1997 are included in U.S.
Filter's historical results. Results of Kinetics, which was acquired on
December 31, 1997 and was accounted for as a pooling of interests, for the
nine months ended December 31, 1997 are included in U.S. Filter's historical
results. Results for USG, WaterPro, WSMG and PED for the nine months ended
December 31, 1997 are included in U.S. Filter's historical results as these
business were owned by U.S. Filter for the entire nine month period. Results
for Ametek for the period from the date Ametek was acquired by Culligan to
October 31, 1997 are included in Culligan's historical results.
Results of operations for Memtec for the three months ended June 30, 1997
including revenue of $67.8 million and net income of $0.7 million are included
in the Unaudited Pro Forma Combined Statements of Operations for the fiscal
year ended March 31, 1997 and for the nine months ended December 31, 1997.
Results of operations for Ametek including revenue of $6.4 million and net
income of $0.7 million for the month ended
F-31
<PAGE>
January 31, 1997 are not included in either the Unaudited Pro Forma Combined
Results of Operations for the fiscal year ended March 31, 1997 or the nine
months ended December 31, 1997. Results of operations for Protean for the
three months ended March 31, 1997 including revenue of $38.9 million and net
income of $6.0 million are included in the Unaudited Pro Forma Combined
Statements of Operations for the fiscal year ended March 31, 1997 and for the
nine months ended December 31, 1997.
It is anticipated that the acquisition of Culligan will be accounted for as
a pooling of interests and the estimated costs to effect the transaction of
$35-$40 million will be expensed as incurred. Accordingly, Unaudited Pro Forma
Combined Statements of Operations for the years ended March 31, 1996 and 1995
and the nine months ended December 31, 1996 are also presented. The Unaudited
Pro Forma Combined Statements of Operations for the years ended March 31, 1996
and 1995 combines the results of U.S. Filter for such fiscal years with the
results of Culligan for their fiscal years ended January 31, 1996 and 1995,
respectively. The Unaudited Pro Forma Combined Statement of Operations for the
nine months ended December 31, 1996 combines the results of U.S. Filter (as
restated for the acquisition of Kinetics accounted for as a pooling of
interests) for the nine months ended December 31, 1996 with the results of
Culligan for the nine months ended October 31, 1996. The Unaudited Pro Forma
Combined Statements of Operations for the years ended March 31, 1996 and 1995,
respectively, and the nine months ended December 31, 1996 are in effect a
restatement of the historical operations of each of U.S. Filter and Culligan
and accordingly do not include the results of Memtec, Protean, Ametek, USG,
WaterPro, WSMG and PED, which were acquisitions accounted for as purchases.
The historical financial statements of Protean and PED were prepared in
accordance with UK generally accepted accounting principles ("UK GAAP"), which
differs in certain respects from US GAAP. The historical PED Financial
Statements included in the unaudited combined financial information have been
restated to reflect PED's financial position and results of operations in
accordance with US GAAP. The pro forma adjustments contain certain adjustments
necessary to reflect Protean's historical financial statements in accordance
with US GAAP. Certain reclassifications have been made to the historical
financial statements of Protean to conform with U.S. Filter's presentation.
The following Unaudited Pro Forma Combined Financial Information does not
reflect certain cost savings that U.S. Filter believes may be realized
following the Kinetics, Memtec, Culligan, USG, WaterPro, WMSG and PED
acquisitions as well as Culligan's acquisitions of Protean and Ametek. Such
cost savings are expected to be realized primarily through the elimination of
certain overhead expenses and geographic overlap and the implementation of
strict cost controls and standardized operating procedures. Additionally, U.S.
Filter believes that such acquisitions will enable it to realize increased
operating efficiencies and economies of scale including enhanced purchasing
power and increased asset utilization.
The pro forma data is provided for illustrative purposes only. It does not
purport to be indicative of the results that actually would have occurred if
the acquisitions of Kinetics, Memtec, Culligan, USG, WaterPro, WMSG and PED,
as well as Culligan's acquisitions of Protean and Ametek, 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 consolidated financial statements and notes
thereto of Culligan, Protean and Ametek included elsewhere herein, the audited
consolidated financial statements and notes thereto of Kinetics, Memtec,
WaterPro, WMSG and PED, incorporated herein by reference and U.S. Filter's
Consolidated Financial Statements and related Notes thereto, incorporated
herein by reference.
F-32
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997 (NOTE a)
-----------------------------------------------------------------
HISTORICAL PRO FORMA
----------------------------- -----------------------------------
ADJUSTMENTS
U.S. INCREASE
FILTER CULLIGAN PROTEAN (DECREASE) NOTES COMBINED
---------- -------- ------- ----------- ------------ ----------
(IN THOUSANDS)
ASSETS
------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash................... $ 57,821 $ 8,992 $ 7,177 $ 73,990
Restricted cash........ -- 143,968 -- (143,968) a(i) --
Short-term
investments........... 904 -- -- 904
Accounts receivable,
net................... 739,587 113,904 25,654 879,145
Cost and estimated
earnings in excess of
billings on
uncompleted
contracts............. 205,427 -- -- 205,427
Inventories............ 350,968 63,486 22,323 436,777
Prepaid expenses....... 19,893 6,499 6,377 (1,175) a(ii) 31,594
Deferred taxes......... 82,246 10,775 -- 93,021
Other current assets... 28,257 -- -- 28,257
---------- -------- ------- ----------
Total current
assets.............. 1,485,103 347,624 61,531 1,749,115
---------- -------- ------- ----------
Property, plant and
equipment, net........ 761,147 125,109 15,086 508 a(iii),a(iv) 901,850
Investment in leasehold
interests, net........ 22,424 -- -- 22,424
Cost in excess of net
assets of businesses
acquired, net......... 978,271 219,031 -- 143,994 a(v) 1,341,296
Other assets........... 113,837 101,005 -- (28,436) a(vi),a(vii) 186,406
---------- -------- ------- ----------
$3,360,782 $792,769 $76,617 $4,201,091
========== ======== ======= ==========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C> <C> <C>
Current liabilities:
Accounts payable....... $ 304,890 $ 36,658 $38,205 $ 379,753
Accrued liabilities.... 410,245 19,052 -- 429,297
Current portion of
long-term debt........ 25,464 11,126 -- 36,590
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts............. 121,831 -- -- 121,831
Other current
liabilities........... 77,045 37,549 -- 114,594
---------- -------- ------- ----------
Total current
liabilities......... 939,475 104,385 38,205 1,082,065
---------- -------- ------- ----------
Notes payable........... 475,181 -- -- 475,181
Long-term debt,
excluding current
portion................ 128,988 307,567 8,401 304 a(viii) 445,260
Convertible subordinated
debentures............. 554,000 -- -- 554,000
Deferred taxes.......... 3,506 29,949 -- (1,175) a(ii) 32,280
Other liabilities....... 66,108 27,935 1,805 95,848
---------- -------- ------- ----------
Total liabilities.... 2,167,258 469,836 48,411 2,684,634
---------- -------- ------- ----------
Minority interest....... -- 1,972 -- 1,972
Shareholders' equity:...
Common stock........... 1,040 252 3,528 (3,339) a(ix),a(x) 1,481
Additional paid-in
capital............... 1,500,786 366,370 21,004 (21,193) a(ix),a(x) 1,866,967
Currency translation
adjustment............ (37,287) (5,749) -- (43,036)
Retained earnings
(accumulated
deficit).............. (271,015) (39,912) 3,674 (3,674) a(x) (310,927)
---------- -------- ------- ----------
Total shareholders'
equity.............. 1,193,524 320,961 28,206 $1,514,485
---------- -------- ------- ----------
$3,360,782 $792,769 $76,617 $4,201,091
========== ======== ======= ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
F-33
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, 1997 (NOTE b)
---------------------------------------------------------------------------------------------------
HISTORICAL (NOTE c)
---------------------------------------------------------------------------------------
INCREASE
COMPANY MEMTEC CULLIGAN AMETEK PROTEAN USG WATERPRO WSMG PED (DECREASE)
---------- -------- -------- ------- -------- ------- -------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........... $1,764,406 $243,616 $371,018 $68,650 $129,014 $85,899 $185,199 $218,973 $130,407 $ (827)
Cost of sales...... 1,376,615 155,638 205,581 44,039 66,980 70,011 151,238 171,673 92,728 885
---------- -------- -------- ------- -------- ------- -------- -------- --------
Gross profit...... 387,791 87,978 165,437 24,611 62,034 15,888 33,961 47,300 37,679
Selling, general
and administrative
expenses.......... 316,190 72,702 131,454 12,251 45,385 13,595 24,689 32,854 32,270 9,324
Merger,
restructuring,
acquisition and
other related
charges............ 5,581 1,677 -- -- 2,105 -- -- -- 1,992 (975)
---------- -------- -------- ------- -------- ------- -------- -------- --------
321,771 74,379 131,454 12,251 47,490 13,595 24,689 32,854 34,262
---------- -------- -------- ------- -------- ------- -------- -------- --------
Operating
income............ 66,020 13,599 33,983 12,360 14,544 2,293 9,272 14,446 3,417
---------- -------- -------- ------- -------- ------- -------- -------- --------
Other income
(expense):
Interest
expense........... (26,509) (5,613) (5,490) -- (1,285) (932) (2,433) -- (9,469) (35,972)
Interest and
other income...... 3,678 816 7,656 (9) 639 411 358 439 --
---------- -------- -------- ------- -------- ------- -------- -------- --------
(22,831) (4,797) 2,166 (9) (646) (521) (2,075) 439 (9,469)
---------- -------- -------- ------- -------- ------- -------- -------- --------
Income before
income tax
expense........... 43,189 8,802 36,149 12,351 13,898 1,772 7,197 14,885 (6,052)
Income tax expense
(benefit)......... 10,681 1,306 20,264 4,188 4,822 711 2,829 5,954 (310) (16,112)
---------- -------- -------- ------- -------- ------- -------- -------- --------
Net income........ $ 32,508 $ 7,496 $ 15,885 $ 8,163 $ 9,076 $ 1,061 $ 4,368 $ 8,931 $ (5,742)
========== ======== ======== ======= ======== ======= ======== ======== ========
Net income per
common share:
Basic........... $ 0.51
==========
Diluted......... $ 0.49
==========
Weighted average
shares
outstanding:
Basic........... 64,082
==========
Diluted......... 66,531
==========
<CAPTION>
PRO FORMA
--------------------------------
NOTES COMBINED
-------------------- -----------
<S> <C> <C>
Revenues........... b(i) $3,196,355
Cost of sales...... b(i), b(ii), b(iii) 2,335,388
b(iv), b(v)
-----------
Gross profit...... 860,967
Selling, general
and administrative
expenses.......... b(i), b(ii), b(iii), 690,714
b(vi), b(vii),
b(viii), b(ix), b(x)
Merger,
restructuring,
acquisition and
other related
charges............ b(x) 10,380
-----------
701,094
-----------
Operating
income............ 159,873
-----------
Other income
(expense):
Interest
expense........... b(xi) (87,703)
Interest and
other income...... 13,988
-----------
(73,715)
-----------
Income before
income tax
expense........... 86,158
Income tax expense
(benefit)......... b(xii) 34,333
-----------
Net income........ $ 51,825
===========
Net income per
common share:
Basic........... $ 0.47
===========
Diluted......... $ 0.45
===========
Weighted average
shares
outstanding:
Basic........... 110,877
===========
Diluted......... 114,775
===========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial data.
F-34
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31, 1997 (NOTE b)
-----------------------------------------------------------------------------------------------------------
HISTORICAL (NOTE c) PRO FORMA
------------------------------------------------ ---------------------------------------------------------
U.S. ADJUSTMENTS
FILTER MEMTEC CULLIGAN AMETEK PROTEAN INCREASE (DECREASE) NOTES COMBINED
---------- -------- -------- ------- -------- ------------------- --------------------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........... $2,346,553 $168,503 $354,254 $38,381 $104,129 3,011,820
Cost of sales...... 1,798,595 106,412 202.441 24,623 54,926 $ 38 b (v) 2,187,035
---------- -------- -------- ------- -------- ---------
Gross profit...... 547,958 62,091 151,813 13,758 49,203 824,785
Selling, general
and administrative
expenses.......... 414,546 53,130 105,543 7,206 34,683 5,463 b(vi), b(viii), b(ix), b(x) 620,571
Purchased in-
process research
and development... 299,505 -- 20,170 -- -- 319,675
Merger,
restructuring,
acquisition and
other related
charges........... 141,109 2,714 5,236 -- -- 149,059
---------- -------- -------- ------- -------- ---------
855,160 55,844 130,949 7,206 34,683 1,089,305
---------- -------- -------- ------- -------- ---------
Operating income
(loss)........... (307,202) 6,247 20,864 6,552 14,520 (264,520)
---------- -------- -------- ------- -------- ---------
Other income
(expense):
Interest
expense.......... (34,374) (3,869) (5,277) -- (1,593) (24,359) b(xi) (69,472)
Gain on
disposition of
affiliate........ -- -- 31,098 -- -- 31,098
Interest and
other income..... 3,002 92 2,398 83 867 6,442
---------- -------- -------- ------- -------- ---------
(31,372) (3,777) 28,219 83 (726) (31,932)
---------- -------- -------- ------- -------- ---------
Income (loss)
before income
tax expense...... (338,574) 2,470 49,083 6,635 13,794 (296,452)
Income tax expense
(benefit)......... (1,273) 1,543 27,092 2,744 4,826 (10,451) b(xii) 24,481
Minority interest.. -- -- 665 -- -- 665
---------- -------- -------- ------- -------- ---------
Net income (loss)
before
extraordinary
item............. $ (337,301) $ 927 $ 21,326 $ 3,891 $ 8,968 $(321,598)
========== ======== ======== ======= ======== =========
Net income (loss)
per common share
before
extraordinary
item:
Basic........... $ (3.65) $ (2.36)
========== =========
Diluted......... $ (3.65) $ (2.36)
========== =========
Weighted average
shares
outstanding:
Basic........... 92,340 136,499
========== =========
Diluted......... 92,340 136,499
========== =========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
F-35
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, 1996 (NOTE b)
-------------------------------------------------
HISTORICAL PRO FORMA
-------------------- ---------------------------
U.S. INCREASE
FILTER CULLIGAN (DECREASE) NOTES COMBINED
---------- -------- ---------- ----- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues................... $1,090,745 $304,502 $1,395,247
Cost of sales.............. 836,973 168,363 1,005,336
---------- -------- ----------
Gross profit............. 253,772 136,139 389,911
Selling, general and
administrative expenses... 192,387 134,525 326,912
---------- -------- ----------
Operating income......... 61,385 1,614 62,999
---------- -------- ----------
Other income (expense):
Interest expense......... (16,280) (12,426) (28,706)
Interest and other
income.................. 5,923 4,443 10,366
---------- -------- ----------
(10,357) (7,983) (18,340)
---------- -------- ----------
Income (loss) before
income tax expense...... 51,028 (6,369) 44,659
Income tax expense......... 20,329 14,910 35,239
---------- -------- ----------
Net income (loss)........ $ 30,699 $(21,279) $ 9,420
========== ======== ==========
Net income per common
share:
Basic.................. $ 0.62 $ 0.12
========== === ==========
Diluted................ $ 0.61 $ 0.11
========== === ==========
Weighted average shares
outstanding:
Basic.................. 48,369 76,326
========== === ==========
Diluted................ 49,668 78,147
========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
F-36
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, 1995 (NOTE b)
------------------------------------------------
HISTORICAL PRO FORMA
------------------ ----------------------------
U.S. INCREASE
FILTER CULLIGAN (DECREASE) NOTES COMBINED
-------- -------- --------- ------ ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues.................... $830,765 $280,051 $1,110,816
Cost of sales............... 658,834 155,829 814,663
-------- -------- ----------
Gross profit.............. 171,931 124,222 296,153
Selling, general and
administrative expenses.... 131,210 131,775 262,985
Restructuring expenses...... -- 5,917 5,917
-------- -------- ----------
131,210 137,692 268,902
-------- -------- ----------
Operating income (loss)... 40,721 (13,470) 27,251
-------- -------- ----------
Other income (expense):
Interest expense.......... (8,807) (19,085) (27,892)
Interest and other
income................... 1,611 1,837 3,448
-------- -------- ----------
(7,196) (17,248) (24,444)
-------- -------- ----------
Income (loss) before
income tax expense....... 33,525 (30,718) 2,807
Income tax expense.......... 8,904 5,678 14,582
-------- -------- ----------
Net income (loss)......... $ 24,621 $(36,396) $ (11,775)
======== ======== ==========
Net income (loss) per common
share:
Basic..................... $ 0.68 $ (0.20)
======== ==========
Diluted................... $ 0.66 $ (0.20)
======== ==========
Weighted average shares
outstanding:
Basic..................... 35,198 62,432
======== ==========
Diluted................... 43,707 62,432
======== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
F-37
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31, 1996 (NOTE b)
---------------------------------------------------
HISTORICAL PRO FORMA
--------------------- ----------------------------
INCREASE
COMPANY CULLIGAN (DECREASE) NOTES COMBINED
----------- -------- --------- ------ ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues................. $ 1,094,636 $272,416 $1,367,052
Cost of sales............ 859,754 151,696 1,011,450
----------- -------- ----------
Gross profit........... 234,882 120,720 355,602
Selling, general and
administrative
expenses................ 196,752 100,220 296,972
Merger expenses.......... 5,581 0 5,581
----------- -------- ----------
202,333 100,220 302,553
----------- -------- ----------
Operating income ...... 32,549 20,500 53,049
----------- -------- ----------
Other income (expense):
Interest expense....... (15,907) (4,076) (19,983)
Interest and other
income................ 2,981 5,683 8,664
----------- -------- ----------
(12,926) 1,607 (11,319)
----------- -------- ----------
Income (loss) before
income tax expense.... 19,623 22,107 41,730
Income tax expense....... 3,845 14,743 18,588
----------- -------- ----------
Net income (loss)...... $ 15,778 $ 7,364 $ 23,142
=========== ======== ==========
Net income (loss) per
common share:
Basic.................. $ 0.27 $ 0.24
=========== ==========
Diluted................ $ 0.26 $ 0.23
=========== ==========
Weighted average shares
outstanding:
Basic.................. 58,016 95,290
=========== ==========
Diluted................ 61,464 98,737
=========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
F-38
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
a. The Unaudited Pro Forma Combined Balance Sheet has been prepared to reflect
the pending acquisition by U.S. Filter of Culligan under the pooling of
interests method of accounting. U.S. Filter plans to acquire all of the
outstanding capital stock of Culligan in exchange for approximately 44.2
million shares of U.S. Filter's Common Stock (assuming an exchange ratio of
1.714 shares of U.S. Filter's Common Stock for each outstanding share of
Culligan Common Stock). Pursuant to the pooling of interests method of
accounting, the recorded assets and liabilities of each of U.S. Filter and
Culligan will be recorded as the assets and liabilities of the combined
entity.
The Unaudited Pro Forma Combined Balance Sheet has also been prepared to
reflect Culligan's acquisition of Protean under the purchase method of
accounting. Including transaction costs of approximately $8.7 million, the
equity purchase price of Protean was approximately $174.5 million. The
purchase price will be allocated to the assets of Protean based on their
respective estimated fair values. In addition to the equity purchase price,
Culligan assumed Protean's long-term indebtedness of approximately $8.4
million. The Protean balance sheet has been derived from the historical
financial statements, presented in accordance with UK GAAP and has been
translated into US dollars. The pro forma adjustments include certain
adjustments necessary to reflect Protean's historical financial statements
in accordance with US GAAP. Certain reclassifications have been made to the
historical financial statements of Protean to conform with U.S. Filter's
presentation. All amounts herein are presented in US dollars. In connection
with the acquisition of Protean, Culligan had decided to divest the
Analytical and Thermal Group of Protean by November 1998. These operations
were reflected as discontinued operations in the unaudited pro forma
financial information presented in Culligan's Form 8-K/A dated February 17,
1998 which has been incorporated by reference herein. Upon completion of
the merger, U.S. Filter will record a cumulative adjustment to reflect the
results of operations of the Analytical and Thermal Group of Protean as if
it had never been held for sale. The cumulative adjustment for the period
from the date of acquisition through January 31, 1998 will result in a
reduction in net income of $264,000.
The Unaudited Pro Forma Combined Balance Sheet as of December 31, 1997
combines the consolidated balance sheet of U.S. Filter as of December 31,
1997 with the consolidated balance sheets of Culligan as of October 31,
1997 and Protean as of September 30, 1997 and has been adjusted as follows.
The U.S. Filter consolidated balance sheet as of December 31, 1997 includes
the accounts of Kinetics, Memtec, USG, WaterPro, WMSG and PED as all of
these acquisitions were closed on or prior to December 31, 1997. The
Culligan consolidated balance sheet as of October 31, 1997 includes the
accounts of Ametek as Culligan acquired Ametek on August 1, 1997.
(i) To eliminate restricted cash that was held in escrow until Culligan's
offer to acquire Protean was declared unconditional on December 2,
1997. The restricted cash was used to acquire a portion of Protean's
outstanding shares.
(ii) To reclassify non-current deferred tax assets included in Protean's
prepaid assets.
(iii) To reverse the periodic revaluation of certain property, plant and
equipment allowed for UK GAAP purposes. Under US GAAP such
revaluations are not permitted and all property, plant and equipment,
other than land, is depreciated over their estimated economic lives.
The adjustment results in a reduction of the carrying value of net
property plant and equipment of $332,000.
(iv) To increase property, plant and equipment for the estimated step-up to
fair value in the amount of $840,000.
(v) To record the goodwill related to Culligan's acquisition of Protean.
Goodwill represents the excess of the purchase price paid over the sum
of the estimated fair value of identifiable assets acquired less
liabilities assumed and may change based on the final asset valuation.
(vi) To record a non-current asset of $1,757,000 to reflect Protean's
pension accounting on a US GAAP basis. Protean provides for the cost
of retirement benefits based upon consistent percentages of
F-39
<PAGE>
employees' pension payables as recommended by independent qualified
actuaries. US GAAP requires that the projected benefit obligation be
reduced to the extent of the plans' fair value of assets and be
adjusted to reflect unrecognized obligations or assets in determining
pension cost or credit for the year.
(vii)To eliminate Culligan's equity investment in Protean of $30,193,000
that was recorded on Culligan's consolidated balance sheet at October
31, 1997.
(viii) To record incremental indebtedness for Culligan's acquisition of
Protean. The total cash purchase price of Protean was approximately
$174.5 million including transactional costs of approximately
$8.7 million. Incremental indebtedness is calculated as follows:
<TABLE>
<S> <C>
Protean purchase price.................................... $ 174,465,000
Less:
Proceeds from restricted cash............................. (143,968,000)
Proceeds from initial equity investment................... (30,193,000)
-------------
Incremental indebtedness for acquisition of Protean....... $ 304,000
=============
</TABLE>
Proceeds from restricted cash and from initial equity investment were
obtained through borrowings by Culligan prior to October 31, 1997.
Accordingly debt associated with such borrowings are included on
Culligan's balance sheet as of October 31, 1997.
(ix)To reflect the equity adjustments necessary to reflect the acquisition
of Culligan on a pooling of interests basis. Such adjustments had the
effect of increasing common stock $189,000 and reducing additional
paid-in-capital by $189,000.
(x)To eliminate the equity of Protean.
b. The Unaudited Pro Forma Combined Statement of Operations for the fiscal
year ended March 31, 1997, combines (i) the results of U.S. Filter (as
restated for the acquisition of Kinetics which was accounted for as a
pooling of interests) and Protean for such fiscal year, (ii) the results of
Memtec for their fiscal year ended June 30, 1997, (iii) the results of
Culligan for their fiscal year ended January 31, 1997, (iv) the results of
Ametek for their fiscal year ended December 31, 1996, (v) the results of
USG for the period beginning on April 1, 1996 and ending immediately prior
to U.S. Filter's acquisition of USG on October 25, 1996, (vi) the results
of WaterPro for the period beginning on April 1, 1996 and ending
immediately prior to U.S. Filter's acquisition of WaterPro on October 28,
1996, (vii) the results of WSMG for the period beginning on April 1, 1996
and ending immediately prior to U.S. Filter's acquisition of WSMG on
December 2, 1996, and (vii) the results of PED for the period beginning on
April 1, 1996 and ending immediately prior to U.S. Filter's acquisition of
PED on January 6, 1997. Results of USG, WaterPro, WSMG and PED after they
were acquired by U.S. Filter to March 31, 1997 are included in U.S.
Filter's historical results for the fiscal year ended March 31, 1997.
The Unaudited Pro Forma Combined Statement of Operations for the nine
months ended December 31, 1997 combines (i) the results of U.S. Filter for
such nine month period (which includes the results of Kinetics as such
acquisition closed on December 31, 1997 and was accounted for as a pooling
of interests), (ii) the results of Memtec for the period beginning on April
1, 1997 and ended immediately prior to the acquisition by U.S. Filter on
December 9, 1997 (Memtec's results subsequent to its acquisition are
included in U.S. Filter's historical results), (iii) the results of
Culligan for their nine months ended October 31, 1997, (iv) the results of
Ametek for the period beginning on February 1, 1997 and ending immediately
prior to its acquisition by Culligan on August 1, 1997 (Ametek's results
subsequent to its acquisition by Culligan are included in Culligan's
historical results) and (v) the results of Protean for their nine months
ended September 30, 1997. The Protean statements of operations have been
derived from the historical financial accounts of Protean and are presented
in accordance with UK GAAP. These statements of operations have been
translated into US dollars using exchange rates of $1.59 and $1.63 per
British pound sterling for the
F-40
<PAGE>
year ended March 31, 1997 and the nine months ended September 30, 1997,
respectively. Additionally, certain pro forma adjustments were made to
conform Protean's historical financial information with US GAAP.
For the fiscal years ended March 31, 1996 and 1995, the historical results
of U.S. Filter for the fiscal years ended March 31, 1996 and 1995, are
combined with the results of Culligan for their fiscal years ended January
31, 1996 and 1995, respectively. For the nine month period ended December
31, 1996, the historical results of U.S. Filter (as restated for the
acquisition of Kinetics which was accounted for as a pooling of interests)
for such period are combined with the results of Culligan for the nine
months ended October 31, 1996. The Unaudited Pro Forma Combined Statements
of Operations for these periods are in effect a restatement of the
historical operations of each of U.S. Filter and Culligan and accordingly
do not include the results of Memtec, Protean, Ametek, USG, WaterPro, WSMG
and PED which were acquisitions accounted for as purchases.
The Unaudited Pro Forma Combined Statements of Operations gives effect to
the following adjustments:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED NINE MONTHS ENDED
MARCH 31, 1997 DECEMBER 31, 1997
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
(i) To eliminate November and December 1995 sales (and
related expenses) of APIC International, S.A., a wholly
owned subsidiary of Ametek, to reduce the results to
the twelve months ended December 31, 1996. The
adjustment impacts the following accounts:
Sales................................................ $ 827 $--
======= ====
Cost of sales........................................ $ (359) $--
======= ====
Selling, general and administrative expenses......... $ (367) $--
======= ====
(ii) To reclassify research and development expenses
included in cost of sales in Ametek's historical
results for the year ended December 31, 1996 to
selling, general and administrative expenses in order
to combine Ametek's historical results on a basis
consistent with U.S. Filter. The adjustment impacts
the following accounts:
Cost of sales........................................ $ (618) $--
======= ====
Selling, general and administrative expenses......... $ 618 $--
======= ====
(iii) To reclassify depreciation expense of Ametek to cost
of sales from selling, general and administrative
expenses for the year ended December 31, 1996 in
order to combine Ametek's historical results on a
basis consistent with U.S. Filter. The adjustment
impacts the following accounts:
Cost of sales........................................ $ 1,856 $--
======= ====
Selling, general and administrative expenses......... $(1,856) $--
======= ====
(iv) To adjust cost of sales to capitalize tooling costs
expensed by Ametek, net of additional depreciation
expense related to such capitalized amounts, in
order to present Ametek's historical results on a
basis consistent with U.S. Filter and the accounting
policies that are being used subsequent to
Culligan's acquisition of Ametek ................... $ (45) $--
======= ====
</TABLE>
F-41
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED NINE MONTHS ENDED
MARCH 31, 1997 DECEMBER 31, 1997
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
(v) To adjust cost of sales to record
depreciation expense on the net step-up
in fair value of the property, plant and
equipment acquired by Culligan in the
Protean acquisition. Such assets are
depreciated over a 10 year economic life
......................................... $ 51 $ 38
====== ======
(vi) To adjust selling, general and
administrative expenses to record
amortization expense of identifiable
trademarks acquired in connection with
Culligan's acquisition of Ametek ....... $ 160 $ 80
====== ======
(vii) To adjust selling, general and
administrative expenses to reflect
goodwill amortization from U.S.
Filter's acquisitions of USG, WaterPro,
WSMG and PED, with such goodwill of
approximately $262,326,000 amortized
over 40 years. The Pro Forma adjustment
reflects goodwill amortization from
April 1, 1996 until each of USG,
WaterPro, WSMG and PED were acquired.
Goodwill amortization related to these
acquirees after their respective
acquisition dates is included in U.S.
Filter's historical results............ $3,279 $ --
====== ======
(viii) To adjust selling, general and
administrative expenses to reflect the
goodwill amortization from Culligan's
acquisitions of Protean and Ametek,
with such goodwill of approximately
$262,634,000 amortized over 40 years
...................................... $6,566 $4,924
====== ======
(ix) To reclassify restructuring expenses
recorded by Protean in accordance with
UK GAAP into selling, general and
administrative expenses for the year
ended March 31, 1997, as they do not
meet the definition of restructuring
costs under US GAAP. Additionally,
during the nine months ended December
31, 1997 certain costs that were accrued
by Protean as restructuring costs at
March 31, 1997 should have been expensed
as selling, general and administrative
costs as incurred in the subsequent nine
month period. The adjustments impact the
following accounts:
Selling, general and administrative
expenses................................ $ 975 $ 619
====== ======
Merger, restructuring, acquisition and
other related charges................... $ (975) $ --
====== ======
(x) To adjust selling, general and
administrative expenses to recognize the
effect of accounting for pension costs on
a US GAAP basis.......................... $ (51) $ (160)
====== ======
(xi) To adjust interest expense related to
the debt of approximately $562,829,000
incurred or to be incurred to finance
the acquisitions Memtec and Protean; and
to adjust interest expense related to
the debt of $25,000,000 assumed in
Culligan's acquisition of Ametek.
Interest on the total debt of
$587,829,000 is assumed to be either
financed by or refinanced by borrowings
under U.S. Filter's Senior Credit
Facility at an assumed effective rate of
5.92% per annum.
</TABLE>
F-42
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED NINE MONTHS ENDED
MARCH 31, 1997 DECEMBER 31, 1997
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
For the fiscal year ended March 31,
1997, the total incremental debt of
$587,829,000 is assumed to be
outstanding for the entire fiscal year.
For the nine months ended December 31,
1997, incremental debt of $388,364,000
used to finance the acquisition of
Memtec is assumed to be outstanding for
period beginning on April 1, 1997 and
ending immediately prior to its
acquisition by U.S. Filter on December
9, 1997 (from that date until the end of
the nine month period on December 31,
1997 debt to acquire Memtec was actually
outstanding and interest expense on such
debt was included in U.S. Filter's
historical results). Additionally, for
the nine months ended December 31, 1997,
incremental debt of $174,465,000 used to
finance Culligan's acquisition of
Protean is assumed to be outstanding for
the entire nine month period; whereas
debt assumed in Culligan's acquisition
of Ametek of $25,000,000 is assumed to
be outstanding for the period beginning
on February 1, 1997 and ending
immediately prior to its acquisition by
Culligan on August 1, 1997 (from that
date until the end of the nine month
period on October 31, 1997 debt assumed
in Culligan's acquisition of Ametek was
actually outstanding and interest
expense on such debt was included in
Culligan's actual results).
For the fiscal year ended March 31,
1997, the interest expense adjustment
includes a provision for the debt of
approximately $541,025,000 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 $2,433,000 and $9,469,000
respectively, for the period beginning
April 1, 1996 and ending when upon
acquisition of the individual
businesses. The assumed interest rate on
$414,000,000 of the debt incurred to
finance the WSMG and PED acquisitions is
4.5% as this debt was funded by
convertible subordinated debentures
issue December 12, 1996. The remaining
$137,025,000 of such debt is assumed to
be financed on borrowings under U.S.
Filter's Senior Credit Facility with an
effective interest rate of 5.92%.
The assumed effective interest of
5.92% on assumed borrowings under U.S.
Filter's Senior Credit Facility is
subject to variability. A 0.125%
increase-decrease in the assumed
effective interest rate incrementally
decreases-increases pro forma combined
net income (loss) $505,000 and
$325,000 for the year ended March 31,
1997 and the nine months ended
December 31, 1997..................... $ 35,972 $ 24,359
======== ========
(xii) To adjust the provision for income
taxes for each of the pro forma
adjustments assuming the statutory
tax rate of 35%..................... $(16,112) $(10,451)
======== ========
</TABLE>
F-43
<PAGE>
c. During the fiscal year ended March 31, 1997, U.S. Filter recorded merger
expenses of $5.6 million related to the acquisition of Davis. Such expenses
consisted primarily of investment banking, printing, stock transfer, legal,
accounting, governmental filing fees and certain other costs related to
existing Davis pension plans and change of control payments. On December 9,
1997, U.S. Filter acquired all of the outstanding shares of Memtec in
exchange for cash totaling $397.2 million (including estimated transaction
costs of $10.6 million). U.S. Filter acquired from Memtec certain in-
process research and development projects that had not reached
technological feasibility and that had no alternative future use. The
estimated market value of such in-process research and development
projects, as determined by an independent appraiser, was $299.5 million and
was expensed at the acquisition date. During the nine months ended December
31, 1997, U.S. Filter recorded a pre-tax charge for merger, restructuring,
acquisition and other related charges of $141.1 million. Such charges
related to a restructuring plan that U.S. Filter designed and implemented
concurrent with the acquisitions of Kinetics and Memtec. The plan was
designed to streamline U.S. Filter's manufacturing and production base,
improve efficiency and enhance its competitiveness. Included in the merger,
restructuring, acquisition and other related charges was merger expenses
incurred to consummated the Kinetics transaction of $4.3 million consisting
of investment banking, printing, stock transfer, legal, accounting,
governmental filing and certain other transaction costs.
During the fiscal year ended June 30, 1997 and the nine months ended
December 31, 1997, Memtec recorded restructuring expenses of $1.7 million
and $2.7 million, respectively. Such restructuring expenses related to
employee terminations and asset write-downs at Memtec's French operations.
The restructuring was performed to focus Memtec's French operations on
global brands and away from non-core businesses.
During the nine months ended October 31, 1997, Culligan recorded a merger
and restructuring charge of $9.5 million in connection with the acquisition
of Ametek to reflect the integration and restructuring of the Culligan's
Everpure(R), UltraPure(R) and US Water(R) Products operations with Ametek
and the restructuring of Culligan's consumer products division to focus
principally on the "do-it-yourself" and hybrid retail markets. During the
nine months ended October 31, 1997, Culligan acquired from Ametek certain
in-process research and development projects that had not reached
technological feasibility and that had no alternative future use. The
estimated market value of such in-process research and development projects
was $17.0 million and was expensed at the acquisition date. In addition
during such nine months, Culligan wrote-off the remaining goodwill of $3.2
million arising from the acquisition of Ultra Pure(R) in January 1996
related to more costly technology used prior to the acquisition of Ametek.
During the nine months ended October 31, 1997, Culligan disposed of its
investment in Anvil Holdings, Inc. for total cash proceeds of $50.9
million. The transaction, which included payment of outstanding accrued
interest receivable and dividends, resulted in a pre-tax gain of
approximately $31.1 million.
During the fiscal year ended March 31, 1997, Protean recorded a charge of
$2.1 million ($1.1 million for US GAAP purposes) for reorganization costs
incurred in respect of DWA GmBH & Co. AG consisting of redundancies and
professional and consultancy assistance in Germany, together with inventory
write downs and other provisions.
Prior to the acquisition of PED by U.S. Filter during the fiscal year ended
March 31, 1997, PED incurred restructuring charges relating to the plant
closure and relocation of the operations of Wallace & Tieman, Inc. a
subsidiary, from Belleville, N.J. to Vineland, N.J. These restructuring
charges totaled $2.0 million during the period beginning of April 1, 1996
and ending immediately prior to PED being acquired by U.S. Filter on
January 6, 1997.
F-44
