<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MAY 12, 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>
<TABLE>
<S> <C>
40-004 COOK STREET, PALM DESERT, CALIFORNIA 92211
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
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 February 9,
1998, United States Filter Corporation, a Delaware corporation ("U.S.
Filter"), entered into a Agreement and Plan of Merger (the "Merger Agreement")
dated as of February 9, 1998 by and among U.S. Filter, Palm Water Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of U.S. Filter
("Merger Sub"), and Culligan Water Technologies, Inc, a Delaware corporation
("Culligan"). Pursuant to the Merger Agreement, Merger Sub will be merged with
and into Culligan, and holders of Culligan Common Stock, par value $.01 per
share, will be entitled to receive shares of Common Stock, par value $.01 per
share, of U.S. Filter, at the exchange ratio provided in the Merger Agreement.
Prior to the Merger Agreement, Culligan acquired Protean plc, a United
Kingdom corporation ("Protean"), and The Water Filtration Business ("Ametek"),
formerly a wholly owned subsidiary of Ametek, Inc. As previously reported on a
Current Report on Form 8-K filed by Culligan dated December 2, 1997 (as
amended), on December 2, 1997, Culligan declared its cash offer of
approximately $174.5 million to acquire all of the outstanding shares of
Protean unconditional in all respects. As of December 2, 1997, Culligan owned
or received valid acceptances for an aggregate of 97.9% of Protean's
outstanding shares. Subsequent thereto, Culligan acquired the remaining
outstanding shares of Protean in accordance with United Kingdom law and
Protean has become a wholly owned subsidiary of Culligan. As previously
reported on a Current Report on Form 8-K filed by Culligan dated August 13,
1997, effective August 1, 1997, Culligan acquired Ametek for approximately
$155.0 million in Culligan common stock and cash in lieu of fractional shares.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
The following are filed herewith:
(a) FINANCIAL STATEMENTS OF BUSINESSES TO BE ACQUIRED
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CULLIGAN:
Index to Consolidated Financial Statements............................... F-1
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of January 31, 1996 and 1997.............. F-3
Consolidated Statements of Operations for the years ended January 31,
1995, 1996 and 1997..................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended January 31, 1995, 1996 and 1997................................... F-5
Consolidated Statements of Cash Flows for the years ended January 31,
1995, 1996 and 1997..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
PROTEAN:
Index to Consolidated Financial Statements............................... F-28
Independent Auditors' Report............................................. F-29
Consolidated Balance Sheet as at 31 March 1997........................... F-30
Consolidated Profit and Loss Account for the year ended 31 March 1997.... F-31
Consolidated Cash Flow Statement for the year ended 31 March 1997........ F-32
Consolidated Statement of Total Recognised Gains and Losses for the year
ended 31 March 1997..................................................... F-33
Notes to the Consolidated Financial Statements........................... F-34
AMETEK:
Index to Combined Financial Statements................................... F-49
Report of Independent Auditors........................................... F-50
Combined Statement of Income for the years ended December 31, 1996, 1995
and 1994................................................................ F-51
Combined Balance Sheet at December 31, 1996 and 1995..................... F-52
Combined Statement of Cash Flows for the years ended December 31, 1996,
1995 and 1994........................................................... F-53
Notes to Combined Financial Statements................................... F-54
(b) UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION F-60
Unaudited Pro Forma Combined Balance Sheet as of December 31, 1997....... F-63
Unaudited Pro Forma Combined Statements of Operations for the year ended
March 31, 1997 and the nine months ended December 31, 1997.............. F-64
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-66
Notes to Unaudited Pro Forma Combined Financial Information.............. F-69
</TABLE>
<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 12, 1998 By: /s/ Kevin L. Spence
_________________________________
Kevin L. Spence
Executive Vice President/
Chief Financial Officer
2
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of January 31, 1997 and 1998............... F-3
Consolidated Statements of Operations for the years ended January 31,
1996, 1997 and 1998...................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended January 31, 1996, 1997 and 1998.................................... F-5
Consolidated Statements of Cash Flows for the years ended January 31,
1996, 1997 and 1998...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Culligan Water Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Culligan
Water Technologies, Inc. and subsidiaries as of January 31, 1997 and 1998, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
January 31, 1998. These consolidated financial statements are the
responsibility of the management of Culligan Water Technologies, Inc. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Culligan
Water Technologies, Inc. and subsidiaries as of January 31, 1997 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended January 31, 1998, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
April 7, 1998
Chicago, Illinois
F-2
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE PER SHARE)
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
ASSETS 1997 1998
------ ----------- -----------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents............................ $ 8,984 $ 14,293
Restricted Cash...................................... -- 3,287
Accounts and Notes Receivable, Net of Allowance for
Doubtful Accounts
of $5,695 and $7,387 in 1997 and 1998, respectively. 80,843 132,923
Inventories.......................................... 47,213 74,740
Deferred Income Taxes................................ 10,964 16,213
Net Assets of Discontinued Operations................ -- 106,743
Prepaid Expenses and Other Current Assets............ 4,650 3,541
-------- --------
Total Current Assets............................... 152,654 351,740
-------- --------
Property, Plant, and Equipment, Net.................... 78,740 144,631
Intangible Assets, Less Accumulated Amortization of
$117,671 and $178,914
in 1997 and 1998, respectively........................ 76,883 312,699
Other Noncurrent Assets................................ 29,085 49,193
-------- --------
Total Assets....................................... $337,362 $858,263
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts Payable..................................... $ 23,867 $ 39,470
Accrued Expenses..................................... 36,950 90,533
Short-Term Debt and Current Maturities of Long-Term
Debt................................................ 12,414 34,610
-------- --------
Total Current Liabilities.......................... 73,231 164,613
-------- --------
Long-Term Liabilities:
Long-Term Debt....................................... 36,231 337,557
Noncurrent and Deferred Income Taxes................. 29,805 30,703
Other Noncurrent Liabilities......................... 24,455 25,171
-------- --------
Total Long-Term Liabilities........................ 90,491 393,431
-------- --------
Minority Interest...................................... -- 2,191
-------- --------
Stockholders' Equity:
Common Stock ($.01 Par Value; 60,000,000 Shares
Authorized;
21,342,957 and 25,814,543 Shares Issued and
Outstanding at
January 31, 1997 and 1998, respectively)............ 213 258
Additional Paid-In Capital........................... 235,894 367,602
Retained Deficit..................................... (61,780) (63,879)
Foreign Currency Translation Adjustment.............. (687) (5,953)
-------- --------
Total Stockholders' Equity......................... 173,640 298,028
-------- --------
Total Liabilities and Stockholders' Equity......... $337,362 $858,263
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales............................... $ 304,502 $ 371,018 $ 505,744
Cost of Goods Sold...................... 168,363 205,581 288,851
----------- ----------- -----------
Gross Profit.......................... 136,139 165,437 216,893
Selling, General, and Administrative.... 95,723 113,932 146,807
Write-off of Goodwill and In-process
Research
and Development........................ -- -- 55,803
Merger and Restructuring Expenses....... -- -- 5,236
Amortization of Intangible Assets....... 38,802 17,522 5,440
----------- ----------- -----------
Operating Income...................... 1,614 33,983 3,607
Interest Income......................... 1,576 2,633 1,765
Interest Expense on Indebtedness to
Former Parent.......................... (5,207) -- --
Interest Expense--Other................. (7,219) (5,490) (9,903)
Other, Net.............................. 2,867 5,023 32,888
----------- ----------- -----------
Income (Loss) Before Income Taxes,
Minority Interest
and Extraordinary Item............... (6,369) 36,149 28,357
Income Taxes............................ 14,910 20,264 32,638
Minority Interest....................... -- -- 919
----------- ----------- -----------
Net Income (Loss) before
Extraordinary Item................. $ (21,279) $ 15,885 $ (5,200)
Extraordinary Item (Net of Tax Benefit
of $272)............................... -- -- (422)
----------- ----------- -----------
Net Income (Loss)................... $ (21,279) $ 15,885 $ (5,622)
=========== =========== ===========
Basic Income (Loss) Per Share:
Income (Loss) before Extraordinary
Item................................. $ (1.30) $ 0.78 $ (0.22)
Extraordinary Item.................... -- -- (0.02)
----------- ----------- -----------
Net Income (Loss) Per Share......... $ (1.30) $ 0.78 $ (0.24)
=========== =========== ===========
Weighted Average Shares Of Common Stock
Outstanding............................ 16,311,426 20,356,046 23,444,322
=========== =========== ===========
Diluted Income (Loss) Per Share:
Income (Loss) Before Extraordinary
Item................................. (1.30) $ 0.74 (0.22)
Extraordinary Item.................... -- -- (0.02)
----------- ----------- -----------
Net Income (Loss) Per Share......... (1.30) $ 0.74 (0.24)
=========== =========== ===========
Weighted Average Shares Of Common Stock
Outstanding............................ 16,311,426 21,374,672 23,444,322
=========== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARES OUTSTANDING)
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
---------------- ADDITIONAL RETAINED CURRENCY TOTAL
PAR PAID-IN EARNINGS TRANSLATION STOCKHOLDERS'
SHARES VALUE CAPITAL (DEFICIT) ADJUSTMENT EQUITY
---------- ----- ---------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31,
1995................... 15,889,450 $159 $105,815 $ (56,386) $ (1,344) $ 48,244
Capital Contribution
from Former Parent... -- -- 4,785 -- -- 4,785
Sale of Common Stock.. 4,025,000 40 94,547 -- -- 94,587
Costs of Issuance and
Distribution......... -- (9,191) -- -- (9,191)
Net Loss.............. -- -- (21,279) -- (21,279)
Foreign Currency
Translation
Adjustment, Net...... -- -- -- 1,943 1,943
---------- ---- -------- --------- -------- --------
Balance at January 31,
1996................... 19,914,450 199 195,956 (77,665) 599 119,089
Sale of Common Stock.. 749,239 7 28,183 -- -- 28,190
Costs of Issuance and
Distribution......... (1,584) -- -- (1,584)
Exercise of Stock
Options.............. 679,268 7 5,784 -- -- 5,791
Income Tax Benefit
from Exercise of
Stock Options........ -- 7,555 -- -- 7,555
Net Income............ -- -- 15,885 -- 15,885
Foreign Currency
Translation
Adjustment, Net...... -- -- -- (1,286) (1,286)
---------- ---- -------- --------- -------- --------
Balance at January 31,
1997................... 21,342,957 213 235,894 (61,780) (687) 173,640
Costs of Issuance and
Distribution......... 25 -- -- 25
Exercise of Stock
Options.............. 56,800 -- 735 -- -- 735
Income Tax Benefit
from Exercise of
Stock Options........ -- -- 598 -- -- 598
Shares Issued Pursuant
to Directors' Stock
Plan................. 6,974 -- 274 -- -- 274
Issuance of Common
Stock in Connection
With Acquisitions.... 4,407,812 45 130,076 3,523 -- 133,644
Net Loss.............. -- -- -- (5,622) -- (5,622)
Foreign Currency
Translation
Adjustment, Net...... -- -- -- -- (5,266) (5,266)
---------- ---- -------- --------- -------- --------
Balance at January 31,
1998................... 25,814,543 $258 $367,602 $(63,879) $(5,953) $298,028
========== ==== ======== ========= ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
CULLIGAN WATER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, 1996 JANUARY 31, 1997 JANUARY 31, 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash Flows from Operating
Activities:
Net Income (Loss)......... $ (21,279) $ 15,885 $ (5,622)
Adjustments to Reconcile
Net Income (Loss) to Net
Cash Provided by
Operating Activities:
Write-off of Goodwill
and In-process R&D..... -- -- 55,803
Depreciation............ 9,409 10,091 15,161
Amortization............ 38,802 17,522 5,440
(Gain)/Loss on Sales of
Assets................. (295) (382) 26
Gain on Disposition of
Investment in
Affiliate.............. -- -- (31,098)
Insurance Settlement.... -- (1,980) --
Deferred Income Taxes... 255 (299) (5,670)
Changes in Assets and
Liabilities:
Receivables, Net...... (5,845) (10,230) (12,409)
Inventories........... 3,575 (6,626) (7,998)
Other Current Assets.. (1,659) (636) 5,015
Accounts Payable and
Accrued Expenses..... (6,962) 345 (3,887)
Other, Net............ (2,635) (7,157) (7,808)
--------- -------- ---------
Net Cash Provided by
Operating
Activities......... 13,366 16,533 6,953
--------- -------- ---------
Cash Flows from Investing
Activities:
Proceeds from Sales of
Assets................... 2,093 6,323 2,219
Proceeds from Insurance
Settlement............... -- 4,500 --
Proceeds from Disposition
of Investment in
Affiliate................ -- -- 50,897
Capital Expenditures...... (8,841) (17,043) (35,528)
Payments for Acquisitions. (13,872) (20,745) (216,912)
Net Assets of Discontinued
Operations............... -- -- (106,743)
Restricted Cash Held in
Escrow for Protean
Acquisition.............. -- -- (3,287)
--------- -------- ---------
Net Cash Used in
Investing
Activities......... (20,620) (26,965) (309,354)
--------- -------- ---------
Cash Flows from Financing
Activities:
Net Proceeds from Sale of
Common Stock............. 85,396 26,606 25
Proceeds from Exercise of
Stock Options............ -- 5,791 735
Funding to Former Parent,
Net...................... (111,125) (6,743) --
Net Borrowings
(Repayments) of Long-term
Debt..................... 32,616 (11,165) 284,460
Net Short-term Borrowings
(Repayments)............. (2,099) 1,336 23,339
--------- -------- ---------
Net Cash Provided by
Financing
Activities......... 4,788 15,825 308,559
--------- -------- ---------
Effect of Foreign Exchange
Rate Changes on Cash....... 417 (286) (849)
--------- -------- ---------
Net Increase (Decrease) in
Cash and Cash Equivalents.. (2,049) 5,107 5,309
Cash and Cash Equivalents at
Beginning of Year.......... 5,926 3,877 8,984
--------- -------- ---------
Cash and Cash Equivalents at
End of Year................ $ 3,877 $ 8,984 $ 14,293
========= ======== =========
Supplemental Disclosures of
Cash Flow Information:
Cash Paid During the Year
for:
Interest (Including to
Former Parent)........... $ 12,149 $ 5,236 $ 6,980
Income Taxes (Excluding to
Former Parent)........... $ 8,086 $ 12,618 $ 37,064
Supplemental Schedule of
Noncash Financing
Activities:
Former Parent Contribution
to Equity Capital........ $ 4,785 $ -- $ --
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Culligan Water Technologies, Inc. (the "Company" or "Culligan") and
subsidiaries are engaged in the manufacture and sale of water purification and
treatment products. A significant part of the Company's sales are made to
franchised dealers and licensees.
"Fresh Start" Basis of Accounting
On May 25, 1993 the United States Bankruptcy Court confirmed a Plan of
Reorganization (the "Plan") of Culligan's parent at the time, Astrum
International Corp. ("Astrum"). Pursuant to the terms of the Plan, which
became effective on June 8, 1993, Astrum completed a comprehensive financial
reorganization (the "Restructuring"). The Restructuring has been accounted for
in accordance with the American Institute of Certified Public Accountants
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7"). SOP 90-7 requires that the Company's
assets and liabilities be adjusted to their fair values ("Fresh Start") and
that a new reporting entity be created. Although Culligan did not file for
bankruptcy, as a subsidiary company, Culligan was required to record the
effects of Astrum's "Fresh Start" adjustments of assets and liabilities as
additional capitalization (the "recapitalization") as of June 30, 1993.
The Consolidated Balance Sheets as of January 31, 1997 and 1998 and
Consolidated Statements of Operations and Cash Flows for the years ended
January 31, 1996, 1997 and 1998 include the continuing impact of the
recapitalization.
Spin-Off
On September 12, 1995, Samsonite Corporation ("Samsonite"), formerly known
as Astrum, distributed one share of Culligan common stock for each share of
Samsonite common stock in a spin-off (the "Spin-Off"). In connection with the
Spin-Off, Culligan's capital stock was recapitalized. All share amounts for
the periods preceding the Spin-Off have been retroactively restated to give
effect to the stock distribution.
Principles of Consolidation
The consolidated financial statements include the financial statements of
the Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Revenue Recognition
Sales of the Company's products are recorded upon shipment. Estimated costs
to be incurred by the Company related to product installation and warranty
fulfillment are accrued at the date of shipment.
Revenues and profits on long-term contracts, performed over extended periods
of time, are recognized under the percentage-of-completion method of
accounting, principally based on direct labor dollars incurred and related
billings from outside vendors. Revenues and profits on long-term contracts are
based on the Company's estimates to complete and are reviewed periodically,
with adjustments recorded in the period in which the revisions are made. Any
anticipated losses on contracts are charged to operations as soon as they are
determinable.
Foreign Currency Translation
The accounts of the Company's non-U.S. subsidiaries are measured using local
currency as the functional currency. These operations report financial results
on a calendar year basis. The Company translates assets and
F-7
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
liabilities denominated in non-U.S. currencies at exchange rates prevailing at
balance sheet dates and income, costs, and expenses are translated at the
average rates during the period. Translation adjustments are included as a
separate component of stockholders' equity.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Inventories
Inventories, consisting of materials, labor and overhead, are valued at the
lower of cost on the first-in, first-out ("FIFO") method or market.
Property, Plant, and Equipment
In connection with the adoption of "Fresh Start" accounting, the Company
adjusted property, plant, and equipment to fair market values. Depreciation is
provided on the straight-line method over the estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 3 to 40 years
Furniture and fixtures...................................... 4 to 10 years
Machinery and equipment..................................... 3 to 10 years
</TABLE>
Gains or losses resulting from dispositions are included in other income
(expense), net. Improvements which extend the life of an asset are
capitalized; maintenance and repair costs are expensed.
Intangible Assets
As a result of "Fresh-Start" accounting, the Company recorded reorganization
value in excess of identifiable assets. Tradenames and other intangibles were
recorded at fair market value based on independent appraisals. Intangible
assets are amortized on a straight-line basis over their estimated useful
lives as follows:
<TABLE>
<S> <C>
Reorganization value in excess of identifiable assets..... 3 years
Tradenames................................................ 40 years
Goodwill.................................................. 10 to 40 years
Other intangible assets................................... 3 to 40 years
</TABLE>
The Company accounts for intangible assets at the lower of amortized cost or
fair value. On an ongoing basis, the Company reviews the valuation and
amortization of intangible assets by comparing carrying values to projected
discounted future operating results using a discount rate reflecting the
Company's average cost of capital and taking into consideration any events or
circumstances that could impair the assets' carrying values.
Advertising
Costs incurred for advertising, including costs incurred under the Company's
U.S. cooperative advertising program with its dealers and franchisees, are
expensed when incurred.
Computer Software
In 1998, the Company began capitalizing certain costs of computer software
developed or obtained for internal use. The amount capitalized as of January
31, 1998, was $797 million. If such costs were capitalized in
F-8
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
prior years, the effect would not have been material. Software assets are
classified as property, plant and equipment and will be amortized over periods
up to seven years.
Research and Development
Research and development costs are expensed during the year in which such
costs are incurred and amounted to approximately $3,221, $3,212 and $4,082 for
the years ended January 31, 1996, 1997 and 1998, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Insurance
The Company retains risks for workers' compensation, automobile and general
liability up to $250 per individual claim. Culligan purchases excess workers
compensation, automobile and general liability coverage for individual claims
in excess of $250.
Earnings (Loss) Per Share
The Company adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings Per Share", in 1998. SFAS 128 simplifies the computation
of earnings per share ("EPS") previously required in Accounting Principles
Board (APB) Opinion No. 15, "Earnings Per Share," by replacing primary and
fully diluted EPS with basic and diluted EPS. Under SFAS 128, basic EPS is
calculated by dividing net earnings (loss) by the weighted-average common
shares outstanding during the period. Diluted EPS reflects the potential
dilution to basic EPS that could occur upon the conversion of stock options to
common shares using the treasury stock method based upon the weighted-average
fair value of the Company's common shares during the period. SFAS 128 was
required to be adopted by the Company in fiscal 1998 and earnings per share
for prior periods have been restated in accordance with SFAS 128. The only
reconciling item related to the numerators and denominators of the basic and
diluted earnings per share calculations is the dilutive impact of stock
options for the year ended January 31, 1997 in the amount of 1,018,626 shares
on the denominator.
Employee Stock Options
The Company accounts for employee stock options under the provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees" and related interpretations. Accounting for the issuance of
stock options under the provisions of APB Opinion No. 25 typically does not
result in compensation expense for the Company as the exercise price of
options are normally established at the market price of the Company's common
stock on the date granted.
Use of Estimates in the Preparation of Financial Statements
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
F-9
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
related disclosures 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.
Reclassifications
Certain reclassifications were made to the prior periods' financial
statements in order to conform with the 1998 presentation.
(2) INVENTORIES
Inventories at January 31, 1997 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Raw materials............................................. $19,137 $15,499
Work in process........................................... 7,788 8,947
Finished goods............................................ 20,288 50,294
------- -------
Total................................................. $47,213 $74,740
======= =======
</TABLE>
(3) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at January 31, 1997 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Land and land improvements............................ $ 21,113 $ 22,639
Buildings............................................. 28,289 45,820
Machinery and equipment............................... 51,132 121,423
-------- --------
100,534 189,882
Less accumulated depreciation......................... (21,794) (45,251)
-------- --------
Total............................................. $ 78,740 $144,631
======== ========
</TABLE>
(4) ACQUISITIONS, DISCONTINUED OPERATIONS AND DIVESTITURES
Acquisitions and Discontinued Operations
In August, 1997 the Company completed a $157 million acquisition of the
Water Filtration Business of Ametek, Inc. (the "Water Filtration Business"),
by merging a wholly owned subsidiary of the Company into Ametek, Inc.
immediately following the spin-off of Ametek's non-water filtration
operations. As a result of the merger, which was accounted for under the
purchase method, each share of Ametek common stock was converted into the
right to receive .105 shares of common stock of the Company (or an aggregate
of 3,466,667 shares of the Company's common stock resulting in additional paid
in capital of $129.3 million) and cash in lieu of fractional shares. The Water
Filtration Business, located in Sheboygan Wisconsin, manufactures and markets
point of use water filtration and treatment products and is a leading supplier
in the do-it-yourself, plumbing wholesale and commercial/industrial water
treatment markets. The excess of fair value of net assets acquired of $94.5
million is being amortized on a straight-line basis over 40 years. The
acquisition includes $33.1 million of purchased in-process research and
development which was charged to expense during the year ended January 31,
1998 since the technology had not reached technological feasibility and was
determined to have no alternative future use.
F-10
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
On December 2, 1997, the Company declared its cash offer of approximately
$174 million to acquire all of the outstanding shares of Protean plc
("Protean"), a United Kingdom corporation, unconditional in all respects. As
of December 2, 1997, the Company owned or received valid acceptances for an
aggregate of 97.9% of Protean's outstanding shares. Subsequent thereto,
Culligan acquired the remaining outstanding shares of Protean in accordance
with United Kingdom law and Protean became a wholly owned subsidiary of the
Company. Protean is engaged in the design, manufacture and sale of water
purification equipment sold primarily to commercial and industrial customers
and analytical and thermal equipment.
In connection with the acquisition, the Company decided to divest the
Analytical and Thermal Equipment Division of Protean within the next 12 months
as these businesses do not fit the Company's long-term strategic objectives.
This Division consists of eight operating units involved in the manufacture
and sale of analytical and thermal equipment and consumables principally for
use in medical, academic, research and industrial laboratories worldwide.
These operations are reflected as discontinued operations for all periods
presented in the accompanying combined financial statements at the estimated
proceeds from the sale of such operations plus the estimated cash flows during
the holding period less the estimated interest on debt associated with the
discontinued operations. The results of operations of the discontinued
operations of Protean included in the Net Assets of Discontinued Operations
are not material to the Consolidated Statements of Operations.
The acquisition of Protean has been accounted for as a purchase and,
accordingly, the results of Protean's continuing operations are included in
the Company's consolidated statements of income from the date of acquisition.
The fair market value of Protean's assets and liabilities from continuing
operations has been included in the Consolidated Balance Sheet at January 31,
1998. The excess of fair value of continuing net assets acquired of $40.4
million is being amortized on a straight-line basis over 40 years. The
acquisition includes $19.5 million of purchased in-process research and
development which was charged to expense during the year ended January 31,
1998 since the technology had not reached technological feasibility and was
determined to have no alternative future use.
Summarized below are the unaudited pro forma results of operations of the
Company as though the Water Filtration Business of Ametek, Inc. and the
continuing operations of Protean had been acquired at the beginning of the
Company's fiscal year ended January 31, 1997:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1997 1998
----------- -----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues.......................................... $500,490 $596,066
Net Income........................................ $ 17,725 $ (4,755)
Basic Income per share............................ $ 0.74 $ (0.19)
Diluted Income per share.......................... $ 0.71 $ (0.19)
</TABLE>
On September 30, 1997, the Company acquired all of the outstanding capital
stock of the R&S McCoy Corporation, Florida Bottled Water Company, McCoy
Transport, Inc., H2O Ventures, Inc. and Gold Coast Water Technologies, Inc.
(collectively, referred to as "McCoy"), in a $16,865 transaction accounted for
by the pooling of interests method. Additionally, in January 1998, the Company
acquired all of the outstanding common stock of two franchise dealerships in
New England and Ohio for approximately $26,363 accounted for by the pooling of
interests method. The Company issued 941,145 shares of common stock for these
three poolings. The effect of these poolings are not material to the Company's
operations and accordingly, prior years' financial statements have not been
restated.
On April 1, 1997, the Company acquired a 51% interest in Sparkling S.A.
("Sparkling"), a bottled water company based in Buenos Aires, Argentina for a
purchase price of approximately $19.5 million. An additional
F-11
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
29% was acquired on October 1, 1997 for an amount to be determined based on
financial performance for the twelve months ended March 31, 1998. The Company
will purchase the remaining 20% on March 31, 1999 at a price to be determined
based on Sparkling's financial performance for the twelve months ending March
31, 1999. Sparkling provides the Company with a strong, well established
presence in the Argentine market.
During the year ended January 31, 1998, the Company completed several other
acquisitions of businesses which complement existing products and operations
of the Company for approximately $90,924 of cash and $7,620 of notes payable.
These acquisitions have been accounted for under the purchase method of
accounting and the results of these acquired businesses have been included in
the Consolidated Statements of Operations from the dates of acquisition. The
excess of fair value of net assets acquired is being amortized on a straight-
line basis over 40 years.
During the year ended January 31, 1997, the Company completed a number of
acquisitions for approximately $20,745 of cash and $11,203 of notes payable.
These acquisitions have been accounted for under the purchase method of
accounting and the results of these acquired businesses have been included in
the Consolidated Statements of Operations from the dates of acquisition. The
excess of fair value of net assets acquired is being amortized on a straight-
line basis over 40 years.
During fiscal 1998, the Company entered into a securities purchase agreement
with Packaged Ice, Inc. ("Packaged Ice") in which the Company purchased $23.5
million of preferred stock and warrants to purchase 1,807,692 shares of
Packaged Ice common stock. The dividend rate is 10% and can be paid in cash or
additional preferred stock and warrants to acquire additional common stock.
The Company's investment is included in other noncurrent assets in the
accompanying Consolidated Balance Sheet at January 31, 1998.
Divestitures
On March 15, 1997, the Company disposed of its investment in Anvil Holdings,
Inc. for total cash proceeds of $50,897. The transaction, which included
payment of accrued interest receivable and dividends resulted in a pre-tax
gain of approximately $31,098 which is included in other income in the
Consolidated Statement of Operations for the year ended January 31, 1998.
Proceeds from this transaction were used to reduce outstanding borrowings
under the Company's credit facility.
(5) RESTRUCTURING AND ASSET WRITE-DOWN
Restructuring
As a result of the acquisition of Ametek's Water Filtration Business on
August 1, 1997 and the subsequent decision made by the Company in the quarter
to exit the market for the sale of consumer products in the department store
and mass merchant channels, the Company recorded a merger and restructuring
charge of $5.2 million during the year ended January 31, 1998. The merger and
restructuring charge reflects the costs of integrating and streamlining
manufacturing, sales, distribution, research and development, and
administrative functions completed during the third quarter in the Company's
point-of-use business. Included in the $5.2 million merger and restructuring
charge are $0.7 million for severance costs related to the elimination of
redundant employees, $1.3 million related to the write-down of receivables
aggregating $3.1 million in the Consumer Products Division, $2.5 million
related to the write-down of excess property, equipment and other assets, and
$0.7 million representing legal and other professional fees. The property,
equipment and other assets consist principally of fixed assets used in the
manufacture of molded carbon block, of which approximately $0.5 million was
acquired in the acquisition of UltraPure in January 1996 and the balance of
which relates to property and equipment of the Company's Everpure and Consumer
Products businesses. The value of these fixed assets is
F-12
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
considered to be impaired as a result of improved extruded carbon block
technology acquired in the acquisition of Ametek's Water Filtration Business
in August 1997. These assets are not expected to generate any significant
future cash flows and have therefore been written-down to estimated salvage
value, which is not material. The write-down of these assets is not expected
to have a material effect on future operations. In addition to the $5.2
million merger and restructuring charge, the Company recorded a charge of $4.2
million to cost of goods sold to write down excess inventory and to establish
reserves for excess purchase commitments that resulted from the Company's
restructuring plan. Total future cash requirements relating to the merger and
restructuring are not expected to be material.
Asset Write-Down
The Company wrote-off $3,170 of goodwill pertaining to the Company's
UltraPure operations as a result of improved technology acquired in the
acquisition of Ametek's Water Filtration Business. Because the UltraPure
technology was abandoned in favor of technology acquired in the acquisition of
the Water Filtration Business, the Company does not expect significant future
cash flows from the UltraPure operations. As a result, the goodwill associated
with the UltraPure acquisition was written off.
(6) INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, at January 31, 1997 and
1998 consist of the following:
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Trademarks............................................... $44,160 $ 42,947
Goodwill................................................. 26,424 259,252
Other intangible assets.................................. 6,299 10,500
------- --------
Total................................................ $76,883 $312,699
======= ========
</TABLE>
Amortization of intangible assets consists of the following:
<TABLE>
<CAPTION>
EXPECTED
USEFUL YEAR ENDED YEAR ENDED YEAR ENDED
LIFE JANUARY 31, JANUARY 31, JANUARY 31,
(YEARS) 1996 1997 1998
-------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Amortization of
reorganization value in
excess of identifiable
assets.................... 3 $37,322 $15,551 $ --
Amortization of trademarks
and other "Fresh Start"
intangibles............... 40 1,300 1,300 1,300
------- ------- ------
"Fresh Start" amortization. 38,622 16,851 1,300
Amortization of goodwill... 10 to 40 158 504 3,784
Amortization of other
intangibles............... 3 to 9 22 167 356
------- ------- ------
Total.................. $38,802 $17,522 $5,440
======= ======= ======
</TABLE>
"Fresh Start" amortization represents the expense arising from the adoption
of "Fresh Start" accounting in accordance with SOP 90-7.
F-13
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(7) ACCRUED EXPENSES
Accrued expenses at January 31, 1997 and 1998 consist of the following:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Accrued wages and other compensation..................... $15,512 $20,402
Accrued professional fees................................ 2,153 10,021
Deferred income.......................................... 3,502 8,323
Accrued warranty expense................................. 1,365 4,153
Accruals for claims in litigation (see Note 16).......... 3,312 1,122
Other.................................................... 11,106 46,512
------- -------
Total................................................ $36,950 $90,533
======= =======
</TABLE>
(8) FINANCING ARRANGEMENTS
The Company's debt at January 31, 1997 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
1997 1998
CURRENT --------------- ----------------
INTEREST LONG- LONG-
RATES CURRENT TERM CURRENT TERM
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Notes payable to banks......... 4.0-10.0% $ 9,549 $29,294 $31,762 $328,779
Other.......................... 6.5-12.0% 2,865 6,937 2,848 8,778
------- ------- ------- --------
Total...................... $12,414 $36,231 $34,610 $337,557
======= ======= ======= ========
</TABLE>
Principal payments for each of the years ending January 31, 1999, through
the year 2003 and thereafter are $34,610, $61,618, $4,767, $264,908, $2,889
and $3,375, respectively.
On April 30, 1997, the Company signed a new credit facility to replace its
existing $150 million reducing revolving credit facility (the "New Credit
Facility"). The Company borrowed $37.8 million under the new facility to repay
outstanding indebtedness under previous financing arrangements in May 1997.
The New Credit Facility is a $300 million multi-currency revolving credit
facility consisting of a $200 million, five-year multi-currency revolving
credit facility and a $100 million, 364-day multi-currency revolving credit
facility, which at the option of the Company may be converted into a four year
amortizing term loan. The New Credit Facility provides for unsecured multi-
currency borrowings and the issuance of letters of credit. The New Credit
Facility is guaranteed by the Company's principal domestic subsidiaries. Loans
under the New Credit Facility bear interest, at the election of the Company,
at either a base rate based on (i) the higher of the prime rate or .5% per
annum above the Federal Funds Rate or (ii) a Eurodollar rate, together with an
applicable margin tied to the Company's financial leverage. As of February 13,
1998 the New Credit Facility was amended (the "Amended Credit Facility") to
modify certain covenants and lessen restrictions on the incurrence of debt
outside the Amended Credit Facility, guarantees, and certain other matters.
The Amended Credit Facility contains customary representations and warranties
and certain financial and other covenants as well as customary events of
default including, but not limited to, payment defaults, breaches of covenants
or representations, or insolvency. The 364-day multi-currency revolving
portion of the Amended Credit Facility was subsequently extended and currently
matures at April 28, 1999. At January 31, 1998, the weighted average interest
rate on borrowings under the Credit Facility was 6.58% per annum. Of the
$287,797 outstanding under the New Credit Facility, $141,298 is denominated in
British Pound Sterling which is intended to hedge the Company's investment in
Protean.
F-14
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
In connection with the signing of the New Credit Facility, the Company was
required to write-off certain capitalized costs associated with the previous
credit facility. The write-off of $694, net of an applicable tax benefit of
$272, is reflected as an extraordinary item on the Consolidated Statement of
Operations for the year ended January 31, 1998.
On October 21, 1997, the Company established a $100 million line of credit
pursuant to a letter agreement (the "Letter Agreement") with The First
National Bank of Chicago. The Letter Agreement originally matured at April 21,
1998, but has subsequently been replaced with the Letter Agreements discussed
below aggregating $200 million. Borrowings under the Letter Agreement were
guaranteed by the Company's principal domestic subsidiaries and bore interest,
at the election of the Company, at either a base rate based on (i) the prime
rate or (ii) a fixed rate equal to the sum of .65% per annum plus an
applicable Eurodollar rate. The Company used the Letter Agreement to finance
various acquisitions and for general corporate purposes. As of January 31,
1998 the Company had available credit under the Letter Agreement of $44,200.
On March 10, 1998, the Company entered into four letter agreements (the "New
Letter Agreements") with various financial institutions to establish a 364-day
line of credit in the aggregate amount of $200 million. The Company drew
initial borrowings under the New Letter Agreements to replace indebtedness
incurred under the Letter Agreement discussed above. The Company intends to
use the Letter Agreements to fund future acquisitions and working capital
needs of the Company. Loans made under the New Letter Agreements bear
interest, at the election of the Company, at either (i) the prime rate or (ii)
a Eurodollar rate plus .75% per annum. The New Letter Agreements incorporate
by reference various representations, warranties, certain financial and other
covenants, and events of default set forth in the Amended Credit Facility.
At January 31, 1998, the Company had non-U.S. lines of credit of
approximately $24.6 million, with interest rates ranging from 4.4% to 10.5%
and varying maturity dates. At January 31, 1998, the weighted average interest
rate on the $13.5 million of borrowings under these lines of credit was
approximately 6.7% per annum.
(9) INCOME TAXES
Prior to the Spin-Off, the Company's results were included in the
consolidated U.S. federal and, where applicable, unitary state income tax
returns filed by Samsonite. For periods prior to the Spin-Off, the provision
for income taxes has been computed as if the Company had filed its own U.S.
federal and state income tax returns. The provision for income taxes is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Currently payable:
U.S. federal........................ $ 8,793 $12,516 $24,970
State............................... 1,537 2,956 4,787
Non-U.S............................. 3,650 4,966 7,060
------- ------- -------
Total currently payable........... $13,980 $20,438 $36,817
======= ======= =======
Deferred:
U.S. federal........................ $ 1,067 $ 1,122 $(3,826)
State............................... (24) (708) (692)
Non-U.S............................. (113) (588) 339
------- ------- -------
Total deferred.................... 930 (174) (4,179)
------- ------- -------
Total income taxes.............. $14,910 $20,264 $32,638
======= ======= =======
</TABLE>
F-15
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at January 31, 1997 and
1998 are presented below:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Accounts and notes receivable...................... $ 3,259 $ 2,556
Inventories........................................ 3,527 4,199
Insurance and litigation accruals.................. 2,822 3,051
Pension and postretirement benefits................ 4,654 5,044
Other accruals..................................... 6,884 10,776
Net operating loss carryforwards................... 4,143 4,415
Other.............................................. 469 440
-------- --------
Total gross deferred tax assets.................. 25,758 30,481
Less valuation allowance........................... (2,892) (2,992)
-------- --------
Net deferred tax assets.............................. 22,866 27,489
-------- --------
Deferred tax liabilities:
Property, plant, and equipment..................... (10,306) (12,788)
Trademarks and other intangible assets............. (19,051) (19,898)
Unremitted earnings................................ (2,550) --
-------- --------
Total gross deferred tax liabilities............. (31,907) (32,686)
-------- --------
Net deferred tax liabilities..................... $ (9,041) $ (5,197)
======== ========
</TABLE>
Deferred income taxes have been provided on undistributed earnings of non-
U.S. subsidiaries to the extent that management plans to have these earnings
remitted to the U.S. in the future. At January 31, 1998, undistributed
earnings of non-U.S. subsidiaries that will be permanently invested and for
which no deferred taxes have been provided amount to approximately $49,300. It
is not practicable for the Company to compute the amount of unrecognized
deferred tax liability on these undistributed earnings.
A valuation allowance has been provided for those net operating loss
carryforwards and temporary differences which management believes will not be
utilized. The increase (decrease) in the total valuation allowance for the
years ended January 31, 1996, 1997 and 1998, was $(1,691), $1,159 and $100,
respectively. Management believes that it is more likely than not that the
results of future operations will generate sufficient taxable income to
realize the remaining deferred tax assets.
F-16
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Total income tax expense differed from the amounts computed by applying the
U.S. federal income tax rate of 35% to income (loss) before income taxes,
minority interest and extraordinary item as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Income (loss) before income taxes,
minority interest and
extraordinary item:
U.S.............................. $(9,715) $17,732 $11,222
Non-U.S.......................... 3,346 18,417 17,135
------- ------- -------
Total.......................... $(6,369) $36,149 $28,357
======= ======= =======
Income taxes computed at the U.S.
federal statutory income tax rate. $(2,229) $12,652 $ 9,925
State income taxes, net of U.S.
federal Income tax benefit........ 983 1,461 2,662
Non-U.S. rate differential......... 2,366 (2,068) 1,402
Amortization and write-off of
nondeductible intangible assets... 13,063 5,443 20,233
Change in valuation allowance...... (1,691) 1,159 100
Unremitted Earnings................ 487 1,155 (1,402)
Other, net......................... 1,931 462 (282)
------- ------- -------
Total.......................... $14,910 $20,264 $32,638
======= ======= =======
</TABLE>
(10) EMPLOYEE BENEFIT PLANS
Pension Plans
The Company has pension plans which cover substantially all salaried
employees and certain hourly-paid employees. Plans covering salaried employees
generally provide pension benefits to employees who complete five or more
years of service. Pension benefits are generally based upon years of service
and compensation during the final years of employment. Plans covering hourly-
paid employees generally provide pension benefits of fixed amounts for each
year of service.
The Company also has an unfunded supplemental retirement plan for certain
employees and unfunded supplemental benefit agreements for two former
executives of the Company. The annual costs of the supplemental retirement
plan and supplemental benefit agreements are included in the determination of
net periodic pension cost shown below.
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Service cost.......................... $ 1,196 $1,421 $1,345
Interest cost....................... 3,297 3,415 3,692
Actual return on plan assets........ (11,289) (7,362) (8,590)
Net amortization and deferral....... 7,727 3,435 4,287
------- ------ ------
Net periodic pension cost......... $ 931 $ 909 $ 734
======= ====== ======
</TABLE>
F-17
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents the plans' status reconciled with amounts
recognized as other non-current liabilities in the Consolidated Balance Sheets
at January 31, 1997 and 1998:
<TABLE>
<CAPTION>
ACCUMULATED ASSETS EXCEED
BENEFITS ACCUMULATED
EXCEED ASSETS BENEFITS
---------------- ------------------
1997 1998 1997 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested $(1,942) $(3,169) $(37,042) $(41,838)
Nonvested -- (245) (1,845) (2,156)
------- ------- -------- --------
Accumulated benefit obligations $(1,942) $(3,414) $(38,887) $(43,994)
======= ======= ======== ========
Projected benefit obligations $(2,011) $(3,482) $(44,978) $(50,577)
Fair value of plan assets,
principally equity securities, and
corporate and government bonds -- 1,119 56,536 62,249
------- ------- -------- --------
Projected benefit obligations (in
excess of) less than plan assets (2,011) (2,363) 11,558 11,672
Unrecognized net gain from past
experience different from that
assumed and effect of changes in
assumptions (1,073) (405) (10,222) (11,692)
Prior service cost not yet recognized
in net periodic pension cost 112 262 (955) (185)
------- ------- -------- --------
Prepaid (accrued) pension cost $(2,972) $(2,506) $ 381 $ (205)
======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
1996 1997 1998
---- ------- ---------
<S> <C> <C> <C>
Actuarial assumptions were:
Discount rates 7.50% 8.0-8.5% 6.25%-8.5%
Rates of increase in compensation levels 6.00 5.00 3.75-6.00
Expected long-term rate of return on assets 8.50 8.50 8.50
</TABLE>
Plan assets are invested primarily in equity securities and fixed income
instruments. The plans do not have significant liabilities other than benefit
obligations. The Company's funding policy is to contribute amounts equal to
the minimum funding requirements of the Employee Retirement Income Security
Act of 1974.
Defined Contribution Plans
The Company has defined contribution plans which cover substantially all
domestic salaried employees and certain hourly-paid employees. Company
contributions are based primarily on a percentage of earnings of the Company,
as defined. The Company's expenses related to these plans were approximately
$3,125, $3,609 and $3,576 for the years ended January 31, 1996, 1997 and 1998,
respectively.
Other Postretirement Benefit Plans
The Company sponsors a defined benefit health care plan that provides
postretirement medical benefits to full-time employees who meet minimum age
and service requirements. The plan is contributory and contains other cost-
sharing features such as deductibles and limits on certain coverages. The
Company has the right to modify or terminate the plan.
The Company's policy is to fund the cost of these benefits as incurred.
Employees hired subsequent to August 1, 1992 are not eligible for
postretirement medical benefits.
F-18
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents the plan's status reconciled with amounts
recognized as other noncurrent liabilities in the Consolidated Balance Sheets
at January 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................. $2,473 $2,638
Fully eligible active plan participants.................. 1,741 2,002
Other active plan participants........................... 2,449 2,787
------ ------
Accumulated postretirement benefit obligation in excess of
plan assets............................................... 6,663 7,427
Unrecognized net loss...................................... 1,483 1,154
------ ------
Accrued postretirement benefit cost.................... $8,146 $8,581
====== ======
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Service cost.......................... $219 $195 $173
Interest cost......................... 467 483 512
Net amortization and deferral......... (74) (45) (74)
---- ---- ----
Net periodic postretirement
benefit cost..................... $612 $633 $611
==== ==== ====
</TABLE>
For measurement purposes, a 14% annual rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) was assumed for
fiscal year 1992; the rate was assumed to decrease 1% each year to 5.5% by the
year 2000 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as
of January 31, 1998 by $1,026 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for the year ended
January 31, 1998 by $103. The weighted average discount rate used in
determining the accumulated postretirement benefit obligation was 8.00% and
7.5% at January 31, 1997 and 1998, respectively.
(11) LEASES
The Company leases certain office facilities or other assets for which the
future minimum rental payments under noncancelable operating leases for each
of the years ending January 31, 1999 through the year 2003 and thereafter are
$3,921, $3,297, $2,478, $1,720, $1,252, and $2,180, respectively.
Rental expense amounted to $2,205, $2,169 and $3,056 for the years ended
January 31, 1996, 1997 and 1998, respectively.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments at January 31, 1997 and 1998 include
long-term receivables, notes payable, and long-term debt. The fair values of
such financial instruments have been determined based on market interest rates
as of the respective year-ends and are not materially different from their
financial statement carrying values.
F-19
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(13) FINANCIAL INSTRUMENTS
Several of the Company's non-U.S. subsidiaries are exposed to foreign
currency risk as they have monetary assets and liabilities denominated in
currencies other than their respective functional currencies. Financial
instruments currently utilized by continuing operations of the Company include
local currency bank borrowings and, from time to time, forward foreign
exchange contracts. Forward exchange contracts are not held for trading
purposes, but correlate with the Company's net exposure in specific
transactions in all material respects.
As of January 31, 1997 and 1998, the Company had forward exchange contracts
not extending beyond one year, to trade principally Belgian francs, lira,
pesetas, or yen in the total gross notional amounts of $4,100 and $3,348
respectively. Unrealized gains and losses on the forward contracts are
deferred until the related transaction occurs. Deferred gains and losses on
forward exchange contracts incurred during the years ended January 31, 1996,
1997 and 1998 were not material. Other, immaterial instruments outstanding at
January 31, 1998 include two interest rate swap transactions intended to
mitigate floating interest rates related to debt acquired through the
Company's discontinued Analytical & Thermal division.
(14) INTERNATIONAL OPERATIONS
During the year ended January 31, 1997, the Company received an insurance
settlement related to a fire which substantially destroyed the Company's
facility in Belgium during July 1993. The settlement of $4,500 was offset by
additional incremental costs related to the fire of $2,520. The resulting pre-
tax gain of $1,980 is included as a component of other, net in the
Consolidated Statement of Operations for the year ended January 31, 1997.
(15) TRANSACTIONS WITH RELATED PARTIES
The following summarizes information about certain transactions between the
Company and Samsonite:
Tax Sharing Agreement
Prior to the Spin-Off, Culligan's results of operations had been included in
Samsonite's consolidated U.S. federal income tax returns. In connection with
the Spin-Off, Culligan and Samsonite entered into a Tax Sharing Agreement (the
"Tax Sharing Agreement") providing, among other things, for the allocation
between Samsonite and Culligan of federal and state tax liabilities for all
periods prior to completion of the Spin-Off. Under the Tax Sharing Agreement,
the balance in Culligan's intercompany tax payable account remained
outstanding and was converted into a long-term obligation. During the year
ended January 31, 1996, Culligan paid to Samsonite, approximately $7,325 of
its intercompany tax payable. During the year ended January 31, 1997, Culligan
settled the remaining tax payable with Samsonite.
Note Payable to Samsonite
In June 1993, Culligan issued a $150,000 subordinated note payable with an
interest rate of 11.5% to Samsonite. In December 1994, the Company made a
principal payment to Samsonite of $20,000. In January 1995, Samsonite reduced
the principal amount outstanding under the note payable through a $30,000
contribution to equity capital of the Company. The outstanding balance of such
note was repaid by Culligan during July 1995 in connection with the
Refinancing. For the year ended January 31, 1996, Culligan incurred interest
expense under this obligation of $5,207.
F-20
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(16) LITIGATION
In August 1997, a purported class action was filed against Culligan
International Company, certain unidentified distributors and certain other
unidentified individual defendants in the Superior Court, County of Los
Angeles, State of California. The Complaint in the action alleges that the
defendants violated provisions of California law relating to home
solicitations by failing to include language and notices relating to rights of
rescission and engaging in unfair, unlawful and deceptive business acts and
practices. The Complaint in such action seeks disgorgement of alleged illicit
profits, injunctive relief, punitive damages and treble damages and alleges
that the amount the class is entitled to exceeds $20 million. In February
1998, a second purported class action was filed against Culligan International
Company, Household International and others in the Superior Court, County of
Los Angeles, State of California. The complaint in such action also alleges
violations of California law relating to home solicitations and seeks
equitable relief and consequential and exemplary damages in an unspecified
amount. The Company intends to vigorously contest these matters and does not
believe that they will have a material adverse effect on its financial
condition or results of operations.
In November 1997, an action was commenced by Culligan Springs Limited
("Culligan Springs") against Culligan of Canada Ltd., ("Culligan of Canada"),
a wholly owned subsidiary of the Company, in Bracebridge, Ontario. Culligan
Springs is an authorized producer of bottled water under Culligan of Canada's
trademarks in Canada. The action alleges breach of contract and breach of
warranty in connection with an alleged license to use the CULLIGAN trademark
in connection with the processing, distribution and sale of bottled water in
the eastern United States. The Statement of Claim seeks $50 million in
damages, interest, attorneys fees and other unspecified relief. Culligan of
Canada answered, denying the claim. The Company believes it has meritorious
defenses to such action and does not believe it will have a material adverse
effect on its financial condition or the results of operations.
In February 1998, a complaint was filed by KX Industries, LP and Koslow
Technologies Corporation against the Company and its Water Filtration Business
alleging that infringement of a patent for the production of carbon block,
false advertising in connection with a carbon block faucet mount filter
marketed by the Company's consumer products division, and the misappropriation
of certain of KX's trade secrets. The Complaint seeks injunctive relief,
disgorgement, compensatory and exemplary damages in an unspecified amount. The
Company believes it has meritorious defenses to such action and does not
believe it will have a material adverse effect on its financial condition or
the results of operations.
The Company is party to various other pending and threatened litigation
arising in the normal course of business. While it is not possible to predict
the outcome of these matters, management believes that the pending items will
not have a material adverse effect upon the financial condition or results of
operations of the Company.
F-21
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(17) SEGMENT INFORMATION
The Company operates in one industry segment--the design, manufacture and
marketing of water treatment products and equipment. The Company has a
diversified customer base with no one customer accounting for 10% or more of
consolidated net sales. The Company has subsidiaries in Europe, the Pacific
Rim, Latin America, Canada and the Caribbean. Information regarding the
Company's operations in the United States and internationally are presented
below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
United States....................... $203,441 $265,904 $358,265
Europe.............................. 102,607 105,558 142,752
Other non-U.S....................... 14,284 18,065 37,455
Intercompany sales.................. (15,830) (18,509) (32,728)
-------- -------- --------
Consolidated net sales............ $304,502 $371,018 $505,744
======== ======== ========
Operating income (loss):
United States....................... $ (9,027) $ 19,617 $ 3,555
Europe.............................. 8,315 13,044 (4,609)
Other non-U.S....................... 2,655 2,471 6,350
Adjustments and eliminations........ (329) (1,149) (1,689)
-------- -------- --------
Consolidated operating income..... $ 1,614 $ 33,983 $ 3,607
======== ======== ========
Depreciation expense
United States....................... $ 5,921 $ 7,234 $ 10,009
Europe.............................. 1,418 1,287 2,077
Other non-U.S....................... 194 404 2,359
Corporate........................... 1,876 1,166 716
-------- -------- --------
Total depreciation expense........ $ 9,409 $ 10,091 $ 15,161
======== ======== ========
Amortization expense
United States....................... $ 23 $ 382 $ 2,576
Europe.............................. 157 152 684
Other non-U.S....................... 0 138 722
Corporate........................... 38,622 16,850 1,458
-------- -------- --------
Total amortization expense........ $ 38,802 $ 17,522 $ 5,440
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
-----------------
1997 1998
-------- --------
<S> <C> <C>
Identifiable assets:
United States........................................ $179,438 $416,611
Europe............................................... 74,613 317,987
Other non-U.S........................................ 15,972 60,523
Corporate............................................ 67,339 63,142
-------- --------
Consolidated identifiable assets....................... $337,362 $858,263
======== ========
Capital Expenditures:
United States........................................ $ 12,702 $ 22,009
Europe............................................... 2,601 4,204
Other non-U.S........................................ 1,740 9,315
Corporate............................................ 0 0
-------- --------
Total Capital Expenditures......................... $ 17,043 $ 35,528
======== ========
</TABLE>
F-22
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(18) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Year Ended January 31, 1997:
Net sales............................. $83,390 $ 91,922 $ 97,104 $ 98,602
Gross profit.......................... 36,738 41,372 42,610 44,717
Net income (loss)..................... $(3,348) $ 2,761 $ 7,951 $ 8,521
======= ======== ======== =========
Basic Income (Loss) Per Share:
Income (Loss) Before Extraordinary
Item................................. (0.17) 0.14 0.40 0.40
Extraordinary Item.................... -- -- -- --
------- -------- -------- ---------
Net Income (Loss) Per Share......... (0.17) 0.14 0.40 0.40
======= ======== ======== =========
Diluted Income (Loss) Per Share:
Income (Loss) Before Extraordinary
Item................................. (0.17) 0.13 0.37 0.39
Extraordinary Item.................... -- -- -- --
------- -------- -------- ---------
Net income (Loss) Per Share......... (0.17) 0.13 0.37 0.39
======= ======== ======== =========
Year Ended January 31, 1998:
Net sales............................. $99,403 $114,765 $140,086 $ 151,490
Gross profit.......................... 45,049 49,757 57,002 65,085
Net income (loss)..................... $26,592 $ 9,472 $(15,160) $ (26,526)
======= ======== ======== =========
Basic Income (Loss) Per Share:
Income (Loss) Before Extraordinary
Item................................. 1.26 0.44 (0.61) (1.03)
Extraordinary Item.................... (0.02) -- -- --
------- -------- -------- ---------
Net Income (Loss) Per Share......... 1.24 0.44 (0.61) (1.03)
======= ======== ======== =========
Diluted Income (Loss) Per Share:
Income (Loss) Before Extraordinary
Item................................. 1.22 0.43 (0.61) (1.03)
Extraordinary Item.................... (0.02) -- -- --
------- -------- -------- ---------
Net Income (Loss) Per Share......... 1.20 0.43 (0.61) (1.03)
======= ======== ======== =========
</TABLE>
(19) STOCKHOLDER RIGHTS
On September 13, 1996, the Company adopted a stockholder rights plan and
authorized the execution of the Rights Agreement between the Company and The
First National Bank of Boston, as Rights Agent (the "Rights Agreement") for
which American Stock Transfer and Trust Company serves as successor rights
agent. The rights plan is intended to deter coercive or partial offers which
will not provide fair value to all stockholders and enhance the Board's
ability to represent all stockholders and thereby maximize stockholder values.
Pursuant to the Rights Agreement, one right ("Right") was issued for each
share of common stock, par value $.01 per share, of the Company outstanding as
of the close of business on September 26, 1996. Each of the Rights entitle the
registered holder to purchase from the Company one one-hundredth of a share of
Series A Junior Participating Preferred Stock, par value $.01 per share, at a
price of $78 per one one-hundredth of a share. Initially, the Rights are
attached to common stock certificates representing shares then outstanding and
no separate rights certificates will be distributed until the occurrence of a
Distribution Date as defined in the Rights Agreement. The Rights generally
will not become exercisable unless and until, among other things, any person
acquires 15% or more of the outstanding stock (other than a person that owned
15% or more on September 3, 1996 as long as such person does not increase its
percentage ownership by more than five percentage points over its percentage
ownership on such date). The Rights are generally redeemable at $.005 per
Right at any time until
F-23
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10 business days following a public announcement that a 15% or greater
position in the Company's common stock has been acquired and will expire,
unless earlier redeemed or extended, on September 13, 1998.
In connection with the Agreement and Plan of Merger described in Note 22,
the Company has amended the Rights Agreement to among other things, provide
that the rights shall not become exercisable as a result of the Agreement and
Plan of Merger or the merger provided for therein, and reduce the beneficial
ownership threshold at which a person becomes an "Acquiring Person" under the
Rights Agreement from 15% of the outstanding shares of Company Common Stock to
9.9%.
(20) STOCK OPTIONS
Pursuant to his employment agreement, the Company granted to its chief
executive officer (CEO) options to purchase 491,426 shares at an exercise
price of $9.98 per share. Such options expire in 2005 and are fully vested as
of January 31, 1998. The Company has also granted to the CEO options for
300,000 shares at an exercise price of $33.25 under the 1997 Plan described
below, in connection with an extension of his employment agreement.
Approximately 60% of these options are exercisable in five equal annual
installments upon the attainment by the Company of performance goals developed
jointly by the Compensation Committee and the CEO, and the remainder are
exercisable in five equal annual installments, so long as the CEO remains
employed with the Company.
At January 31, 1998, the Company had two stock option plans, the Culligan
1995 Amended and Restated Stock Option and Incentive Award Plan (the "1995
Plan") and the Culligan 1997 Stock Option and Incentive Award Plan (the "1997
Plan"). Under the 1995 Plan, as amended, the Company may grant options to its
employees for up to 1,050,000 shares of common stock. As of January 31, 1998,
the Company has granted options, net of cancellations, for 879,950 shares
pursuant to the 1995 Plan. Under the 1997 Plan, the Company may grant options
to its employees for up to 1,000,000 shares of common stock. As of January 31,
1998, the Company has granted options for 300,000 shares pursuant to the 1997
Plan. Except for the options referred to above included under the 1997 Plan,
no options are outstanding under such Plan. Options under both plans vest over
a five-year period subject to satisfaction of certain time and performance
vesting criteria.
A summary of the status of the Company's fixed stock option activity as of
January 31, 1996, 1997, and 1998, and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1996 1997 1998
------------------ ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
FIXED OPTIONS SHARE PRICE SHARE PRICE SHARE PRICE
------------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 286,666 $ 9.98 1,256,434 $ 9.74 1,028,766 $22.32
Granted.................
1995 Plan............. 298,600 $12.58 362,500 $35.49 57,500 $42.09
1997 Plan............. -- 120,000 $33.25 --
Options granted outside
the plans.............. 671,168 $ 8.37 -- --
Exercised............. -- (662,768) $ 8.43 (32,320) $12.93
Cancelled............. -- (47,400) $11.33 (100,740) $25.54
--------- --------- ---------
Outstanding at end of
year................... 1,256,434 $ 9.74 1,028,766 $22.32 953,206 $22.66
========= ========= =========
Options exercisable at
year-end............... 810,923 296,530 531,466
Weighted-average fair
value of options
granted during the
year................... $ 4.81 $ 13.03 $ 14.07
</TABLE>
F-24
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes information about the Company's fixed stock
options outstanding at January 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------- ---------------------
NUMBER WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING WEIGHTED-AVERAGE AVERAGE EXERCISABLE AVERAGE
EXERCISE JANUARY 31, REMAINING EXERCISE JANUARY 31, EXERCISE
PRICES 1998 CONTRACTUAL LIFE PRICE 1998 PRICE
-------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 7.87 17,500 -- $ 7.87 17,500 $ 7.87
$ 9.98 286,666 7.0 years $ 9.98 286,666 $ 9.98
$12.23 198,040 7.8 years $12.59 100,700 $12.49
$33.13-
$46.01 451,000 8.0 years $35.70 126,600 $35.10
------- -------
953,206 7.5 years $22.65 531,466 $16.37
======= =======
</TABLE>
A summary of the status of the Company's performance based stock option
activity as of January 31, 1996, 1997, and 1998, and changes during the years
ended on those dates is presented below:
<TABLE>
<CAPTION>
1996 WEIGHTED- 1997 WEIGHTED- 1998 WEIGHTED-
AVERAGE AVERAGE AVERAGE
PERFORMANCE OPTIONS SHARE EXERCISE PRICE SHARE EXERCISE PRICE SHARE EXERCISE PRICE
------------------- ------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 204,760 $ 9.98 430,660 $11.10 742,660 $22.86
Granted
1995 Plan............. 225,900 $12.11 195,000 $35.24 19,500 $38.09
1997 Plan............. -- 180,000 $33.25 --
Exercised............. -- (16,500) $10.92 (24,480) $12.89
Cancelled............. -- (46,500) $10.37 (2,010) $27.97
------- ------- -------
Outstanding at end of
year................... 430,660 $11.10 742,660 $22.86 735,670 $23.72
======= ======= =======
Options exercisable at
year-end............... 105,153 194,212 380,710
Weighted-average fair
value of options
granted during the
year................... $ 4.84 $ 12.81 $ 13.18
</TABLE>
The following table summarizes information about the Company's performance
based stock options outstanding at January 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------- ---------------------
NUMBER WEIGHTED- WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
EXERCISE JANUARY 31, REMAINING EXERCISE JANUARY 31, EXERCISE
PRICES 1998 CONTRACTUAL LIFE PRICE 1998 PRICE
-------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$9.98 204,760 7.0 years $ 9.98 204,760 $ 9.98
$12.23 130,410 8.1 years $12.23 66,450 $12.23
$33.13-
$46.01 400,500 8.9 years $34.49 109,500 $34.67
------- -------
735,670 7.8 years $23.72 380,710 $17.47
======= =======
</TABLE>
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost for the Company's
stock option plans been determined using a fair value method rather than the
intrinsic value
F-25
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
method prescribed by APB Opinion No. 25, the Company's net income (loss) and
earnings (loss) per share would have been reduced to the pro forma amounts
indicated below.
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C> <C>
Net Income (Loss)................... As Reported $15,885 $(5,622)
Pro Forma $15,626 $(7,272)
Earnings (Loss) per Share........... As Reported--Basic $ 0.78 $ (0.24)
As Reported--Diluted $ 0.74 (0.24)
Pro Forma--Basic $ 0.77 $ (0.31)
Pro Forma--Diluted $ 0.73 (0.31)
</TABLE>
Pro forma net income (loss) primarily reflects options granted in the years
ended January 31, 1996 and 1997. As a result, the full impact of calculating
compensation cost for stock options under the fair value method is not
reflected in the pro forma net income amounts presented above. Compensation
cost for options granted at the end of the year ended January 31, 1998, will
be reflected over the options' vesting period of 5 years beginning in fiscal
1999.
The fair value of options granted under the Company's stock plans during
fiscal 1997 and 1998 was estimated on the date of grant using the Black-
Scholes option-pricing model with the following assumptions used: no dividend
yield, expected volatility of 29.98%, risk free interest rates ranging from
6.20%-6.94% and expected lives ranging from 3 to 5 years.
(21) PUBLIC OFFERING OF COMMON STOCK
In October 1996, the Company issued additional shares of its common stock
upon the exercise of over-allotment options granted to underwriters in
connection with a secondary public offering of shares of the Company's common
stock. The net proceeds of approximately $32,000 from the issuance of such
shares and from the exercise of stock options by one of the selling
stockholders in the offering were used to repay indebtedness under a then
existing Credit Facility.
(22) SUBSEQUENT EVENTS (UNAUDITED)
On February 9, 1998, the Company entered into the Agreement and Plan of
Merger (the "Merger Agreement"), dated as of February 9, 1998 among United
States Filter Corporation ("USF"), the Company and Palm Water Acquisition
Corp., a newly-formed wholly owned subsidiary of USF ("Merger Sub").
Pursuant to the Merger Agreement, Merger Sub will be merged with and into
the Company (the "Merger"). In connection with the Merger, USF will issue in
exchange for each issued and outstanding share (other than treasury shares and
shares owned by USF) of the Company's common stock, par value $.01 per share
("Company Common Stock"), 1.714 shares of common stock, par value $.01 per
share of USF ("USF Common Stock") if the average of the closing prices of the
shares of USF Common Stock as reported on the New York Stock Exchange
Composite Tape on each of the last ten trading days ending on the sixth
trading day prior to the date of the meeting of the Company's stockholders at
which the approval of the Merger by the Company's stockholders is obtained
(the "Average Share Price") is equal to or greater than $35 (the "Exchange
Ratio"); provided, however, that (i) if the Average Share Price is less than
$35, but greater than or equal to $32, then the Exchange Ratio shall be equal
to the quotient obtained (rounded to the nearest ten-thousandth of a share) by
dividing $60 by the Average Share Price; and (ii) if the Average Share Price
is less than $32, the Exchange Ratio shall be equal to 1.875. Among other
circumstances, the Merger Agreement may be terminated by the Company if the
Average Share Price, or if the average of the closing prices of the shares of
USF Common Stock
F-26
<PAGE>
CULLIGAN WATER TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
as reported on the New York Stock Exchange Composite Tape for any period of 10
consecutive trading days which ends after the last trading day used in
calculating the Average Share Price, is less than $26.25.
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 USF. The Merger is expected to be consummated in the first
half of 1998.
Apollo Investment Fund, LP, and Lion Advisors, LP (collectively, "Apollo"),
which beneficially own in the aggregate 7,334,859 shares of the Company's
common stock (representing approximately 28.4% of the total number of shares
of Company Common Stock outstanding) have each entered into a Support/Voting
Agreement with USF pursuant to which they have agreed, among other things, to
cause such shares of Company Common Stock that they beneficially own to be
voted in favor of the Merger.
F-27
<PAGE>
PROTEAN PLC
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report............................................... F-29
Consolidated Balance Sheet................................................. F-30
Consolidated Profit and Loss Account....................................... F-31
Consolidated Cash Flow Statement........................................... F-32
Reconciliation of Net Cash Flow to Movement in Net Debt.................... F-32
Consolidated Statement of Total Recognised Gains and Losses................ F-33
Reconciliation of Movements in Shareholders' Funds......................... F-33
Note of Consolidated Historic Cost Profits and Losses...................... F-33
Notes to the Consolidated Financial Statements............................. F-34
</TABLE>
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the members of Protean plc:
We have audited the accompanying consolidated balance sheet of Protean plc
as of 31 March 1997 and the related consolidated profit and loss account, cash
flow statement, reconciliation of net cash flow to movement in net debt,
statement of total recognised gains and losses, reconciliation of movements in
shareholders' funds, and note of consolidated historical cost profits and
losses for the year ended 31 March 1997. These consolidated financial
statements are the responsibility of the management of Protean plc. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United Kingdom which do not differ in any material respects
from auditing standards generally accepted in the United States. Those
standards require that we plan and perform our 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Protean
plc and its subsidiaries as of 31 March 1997 and the results of their
operations and their cash flows for the year ended 31 March 1997 in conformity
with generally accepted accounting principles in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted accounting principles in
the United States. Application of generally accepted accounting principles in
the United States would have affected results of operations for year ended 31
March 1997 and shareholders' funds as of 31 March 1997 to the extent
summarised in note 28 to the consolidated financial statements.
KPMG Audit PLC
Chartered Accountants and Registered
Auditor London
12 June 1997, except for note 27
which is as of 2 December 1997
F-29
<PAGE>
PROTEAN PLC
CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH 1997
<TABLE>
<CAPTION>
NOTES 1997
----- -----------
(Pounds)000
<S> <C> <C>
Fixed assets...............................................
Tangible assets............................................ 10 9,081
Current assets.............................................
Stocks..................................................... 11 12,936
Debtors.................................................... 12 21,855
Cash deposits as security for Loan Notes................... 400
Cash at bank and in hand................................... 6,356
-------
41,547
Creditors: Amounts falling due within one year............. 13 (27,464)
-------
Net current assets......................................... 14,083
-------
Total assets less current liabilities...................... 23,164
Creditors: Amounts falling due after more than one year.... 14 (6,487)
Provisions for liabilities and charges..................... 15 (1,127)
-------
Net assets................................................. 15,550
=======
Capital and reserves.......................................
Called up share capital.................................... 16 2,190
Share premium account...................................... 17 13,046
Revaluation reserve........................................ 17 206
Capital reserve............................................ 10
Profit and loss account.................................... 17 98
-------
Shareholders' equity....................................... 15,550
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
PROTEAN PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 1997
<TABLE>
<CAPTION>
NOTES 1997
----- -----------
(Pounds)000
<S> <C> <C>
Turnover...................................................
Continuing operations...................................... 2 75,978
Acquisitions............................................... 2 5,163
-------
Total continuing operations................................ 81,141
Operating costs before exceptional item:
Continuing operations...................................... 3 (66,602)
Acquisitions............................................... 3 (4,068)
Exceptional item:
Continuing operations: reorganisation costs................ 4 (1,324)
-------
Total operating costs...................................... (71,994)
Operating profit...........................................
Continuing operations...................................... 2 8,052
Acquisitions............................................... 2 1,095
-------
Total operating profit..................................... 9,147
Net interest payable....................................... 6 (406)
-------
Profit on ordinary activities before taxation.............. 8,741
Tax on profit on ordinary activities....................... 7 (3,033)
-------
Profit for the financial year.............................. 5,708
Dividends paid and proposed................................ 8 (2,890)
-------
Retained profit for the financial year..................... 2,818
=======
Earnings per share......................................... 9 13.3p
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
PROTEAN PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 1997
<TABLE>
<CAPTION>
NOTES 1997
----- -----------
(Pounds)000
<S> <C> <C>
Net cash inflow from operating activities.................. 22 9,992
Returns on investments and servicing of finance............ 23 (105)
Taxation................................................... (3,484)
Capital expenditure........................................ 23 (1,430)
------
4,973
Acquisitions and disposals................................. 23 (9,599)
Equity dividends paid...................................... (2,781)
------
Cash outflow before financing.............................. (7,407)
------
Financing--Issue of shares................................. 23 5,140
--Increase in loans and finance leases..................... 23 4,505
------
9,645
------
Increase in cash in the period............................. 2,238
======
</TABLE>
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
FOR THE YEAR ENDED 31 MARCH 1997
<TABLE>
<CAPTION>
NOTES 1997
----- -----------
(Pounds)000
<S> <C> <C>
Increase in cash in the period............................ 2,238
Cash (inflow)/outflow from increase/decrease in loans and
finance leases .......................................... 24 (4,505)
Release of Loan Note security deposit..................... 24 (568)
------
Change in net debt resulting from cash flows.............. 24 (2,835)
Loans acquired with subsidiaries.......................... 24 (554)
New finance leases........................................ 24 (13)
Translation difference.................................... 24 272
------
Movement in net debt in the period........................ (3,130)
Net debt at 1 April 1996.................................. 24 (1,085)
------
Net debt at 31 March 1997................................. (4,215)
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
PROTEAN PLC
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 MARCH 1997
<TABLE>
<CAPTION>
TOTAL
(Pounds)
000
--------
<S> <C>
Profit for the financial year....................................... 5,708
Currency translation difference on foreign currency net investments. (895)
------
Total recognised gains and losses in the period................... 4,813
======
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE YEAR ENDED 31 MARCH 1997
<CAPTION>
1997
(Pounds)
000
--------
<S> <C>
Profit for the financial year....................................... 5,708
Dividends paid and proposed......................................... (2,890)
------
2,818
Other recognised gains and losses relating to the year (net)........ (895)
Net share capital subscribed........................................ 5,140
Net goodwill written off............................................ (9,124)
------
Net (deduction)/addition to shareholders' funds..................... (2,061)
Opening shareholders' funds......................................... 17,611
------
Closing shareholders' funds......................................... 15,550
======
NOTE OF CONSOLIDATED HISTORIC COST PROFITS AND LOSSES
FOR THE YEAR ENDED 31 MARCH 1997
<CAPTION>
1997
(Pounds)
000
--------
<S> <C>
Reported and historical cost profit on ordinary activities before
taxation........................................................... 8,741
======
Historical cost profit for the year retained after taxation and
dividends.......................................................... 2,818
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
PROTEAN PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
The principal accounting policies that have been adopted in the preparation
of these financial statements are given below:
Basis of preparation
The consolidated financial statements have been prepared in conformity with
accounting standards applicable in the United Kingdom, under the historical
cost accounting standards.
Accounting principles generally accepted in the United Kingdom vary in
certain respects from accounting principles generally accepted in the United
States. Application of accounting principles generally accepted in the United
States would have affected the results of operations for periods reported in
the year ended 31 March 1997 and the shareholders' funds at 31 March 1997 to
the extent summarised in note 28 to the consolidated financial statements.
Goodwill
Fair values are ascribed to assets and liabilities of subsidiary companies
at the dates of acquisition. Goodwill, which is the difference between the
fair value of the consideration and the fair value of the assets acquired is
dealt with through reserves in the year of acquisition.
On the subsequent disposal of a previously acquired business, the profit or
loss on disposal is calculated after charging any related goodwill previously
taken to reserves.
Turnover
Turnover comprises amounts charged by Group companies for goods and services
provided to customers and the for value carried out during the year, excluding
sales taxes and inter-company sales.
Depreciation
Depreciation is provided on a straight-line basis on all tangible fixed
assets, with the exception of land, at rates calculated to write off the cost
or valuation of each asset less estimated residual value over its expected
useful life. Leased assets are depreciated over the shorter of their useful
life and the term of the lease. The principal rates used are:
<TABLE>
<S> <C>
Freehold and long leasehold buildings............................... 2-4%
Fixtures, fittings and equipment.................................... 10-20%
Plant and machinery................................................. 10-20%
Computer equipment.................................................. 20-33%
Motor vehicles...................................................... 25%
</TABLE>
Leases
Tangible fixed assets include assets operated by the Group under finance
leases and hire purchase contracts where the Group has substantially all the
risks and rewards of ownership of the asset. Correspondingly, creditors shown
in the balance sheet include the commitment for the capital element of future
lease or hire purchase payments. The finance element of lease or hire purchase
payments is charged to the profit and loss account over the term of the lease
or the hire purchase contract.
All other leases are treated as operating assets and payments are charged to
the profit and loss account as they are incurred.
F-34
<PAGE>
PROTEAN PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stocks
Stocks have been valued at the lower of cost and net realisable value. Cost
includes the cost of materials, labour and an appropriate proportion of
production overhead expenses.
Research and Development
Research and development expenditure is written off against the profit and
loss account in the year in which it is incurred.
Taxation
The charge for taxation is based on the profits for the year and takes into
account taxation deferred because of timing differences between the treatment
of certain items for taxation and accounting purposes.
Provision is made for deferred taxation only to the extent that the
Directors consider that a liability will become payable in the foreseeable
future. No provision is made for any additional taxation that might arise
should the retained reserves of certain overseas companies be remitted to the
United Kingdom.
Deferred Income
Amounts received from customers for vouchers entitling them to future
services are not credited to revenue until redemption or expiry of the
vouchers. The amount so deferred is calculated by reference to the issue price
of the voucher.
Translation of foreign currencies
Assets and liabilities in foreign currencies are expressed in sterling at
the rates of exchange ruling at the end of the financial period. Gains or
losses arising on the translation of net assets of overseas companies, net of
related foreign currency borrowings are taken to reserves. Trading results of
overseas companies are translated into sterling at the average rates of
exchange for the period.
Transactions in foreign currencies are recorded at the rate of exchange at
the date of the transaction or, if hedged forward, at the rate of exchange
under the related forward currency contract. Differences arising between the
transaction date and the payment date are taken immediately to the profit and
loss account.
Pension costs
The Group operates a number of pension schemes, covering the majority of
employees, under which contributions by eligible employees and the employing
companies are administered in funds independent from the companies' assets.
The regular cost of providing benefits is charged to profit so as to spread
the cost over the employee working lives on a systematic basis. Variations
from regular cost are spread over the remaining service lives of the
employees.
F-35
<PAGE>
PROTEAN PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) GEOGRAPHICAL ANALYSIS OF TURNOVER
<TABLE>
<CAPTION>
1997
(Pounds)
BY CUSTOMER LOCATION 000
-------------------- --------
<S> <C>
United Kingdom.................................................... 29,427
France............................................................ 10,985
Germany........................................................... 9,177
Other Western Europe.............................................. 11,139
USA and Canada.................................................... 9,423
Asia and Far East................................................. 5,621
Others............................................................ 5,369
------
81,141
======
</TABLE>
By operating location
<TABLE>
<CAPTION>
OTHER
UNITED WESTERN INTER
KINGDOM EUROPE USA SEGMENT TOTAL
(Pounds) (Pounds) (Pounds) (Pounds) (Pounds)
000 000 000 000 000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Turnover
Continuing operations........ 54,743 20,684 4,999 (4,448) 75,978
Acquisitions................. -- -- 5,163 -- 5,163
------- ------- ------ ------ -------
Total turnover................. 54,743 20,684 10,162 (4,448) 81,141
Operating costs continuing
operations
Continuing operations........ (46,888) (19,029) (5,133) 4,448 (66,602)
Acquisitions................. -- -- (4,068) -- (4,068)
Exceptional item............... (1,324) (1,324)
Operating profit before
interest continuing operations
Continuing operations........ 7,855 331 (134) -- 8,052
Acquisitions................. -- -- 1,095 -- 1,095
Total operating profit before
interest...................... 7,855 331 961 -- 9,147
------- ------- ------ ------ -------
Net operating assets........... 12,410 4,380 2,975 -- 19,765
------- ------- ------ ------ -------
</TABLE>
Net operating assets are stated before deducting net debt of
(Pounds)4,215,000 to give net assets of (Pounds)15,550,000
F-36
<PAGE>
PROTEAN PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) OPERATING COSTS BEFORE EXCEPTIONAL ITEM
<TABLE>
<CAPTION>
1997
CONTINUING 1997
OPERATIONS ACQUISITIONS 1997
(Pounds)000 (Pounds)000 (Pounds)000
----------- ------------ -----------
<S> <C> <C> <C>
Change in stocks of finished goods and
work in progress..................... (219) 108 (111)
Raw materials and consumables......... 28,675 1,236 29,911
Staff costs (note 5).................. 24,310 1,688 25,998
Depreciation of fixed tangible
assets:..............................
owned............................... 1,079 35 1,114
leased.............................. 230 -- 230
Amounts paid to KPMG Audit plc and its
associates:
As auditors......................... 219 10 229
For non audit services.............. 60 -- 60
Operating leases:
Plant and machinery................. 1,262 4 1,266
Land and buildings.................. 877 7 884
Research and development.............. 1,992 298 2,290
Other operating charges............... 8,117 682 8,799
------ ----- ------
66,602 4,068 70,670
====== ===== ======
</TABLE>
Group auditors: in addition to the above, (Pounds)61,000 and (Pounds)139,000
were paid to the Group auditor and its associates in respect of non audit
services, which have been included in the cost of acquisitions and exceptional
item respectively.
(4) EXCEPTIONAL ITEM
The exceptional item represents reorganisation costs incurred in respect of
DWA GmbH & Co. KG totalling (Pounds)1,324,000, and consists of redundancies
and professional and consultancy assistance in Germany, together with stock
wrtie downs and other provisions.
(5) EMPLOYEES AND DIRECTORS
The average number of employees during the year was as follows:
<TABLE>
<CAPTION>
1997
(Pounds)000
-----------
<S> <C>
Production....................................................... 600
Sales and administration......................................... 537
------
1,137
======
<CAPTION>
(Pounds)000
-----------
<S> <C>
Staff (including Directors) costs were as follows:
Wages and salaries............................................. 22,191
Social security costs.......................................... 2,932
Other pension costs............................................ 875
------
25,998
======
</TABLE>
F-37
<PAGE>
PROTEAN PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997
(Pounds)000
-----------
<S> <C>
The emoluments of the directors, including pension
contributions were as follows:
Basic remuneration.......................................... 506
Performance related bonuses................................. --
Pension contributions and benefits in kind.................. 93
---
599
===
</TABLE>
Included in the above is (Pounds)14,500 paid to the management service
company of a director for the provision of his services.
The aggregate emoluments of the highest paid Director were (Pounds)139,828.
He is a member of a defined benefit pension scheme, under which his accrued
pension entitlement at 31 March 1997 was (Pounds)66,096.
(6) NET INTEREST PAYABLE
<TABLE>
<CAPTION>
1997
(Pounds)000
-----------
<S> <C>
Interest payable on loans and other borrowings:
Bank loans and overdrafts...................................... 645
Other loans.................................................... 154
Finance leases................................................. 9
----
808
Interest receivable............................................ (402)
----
406
====
</TABLE>
(7) TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1997
(Pounds)000
-----------
<S> <C>
UK corporation tax at 33%........................................ 2,783
Under-provision in prior years charges........................... 104
Overseas corporate taxation...................................... 232
Deferred taxation................................................ (86)
-----
3,033
=====
</TABLE>
The taxation charge for the water division includes a tax credit in respect
of the exceptional item of (Pounds)542,000.
(8) DIVIDENDS PAID AND PROPOSED
<TABLE>
<CAPTION>
1997
(Pounds)000
-----------
<S> <C>
Interim (paid): 1.60p per share.................................. 700
Final (proposed): 5.00p per share................................ 2,190
-----
2,890
=====
</TABLE>
F-38
<PAGE>
PROTEAN PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) EARNINGS PER SHARE
Earnings per share is calculated by dividing the profit after taxation
attributable to ordinary shareholders of (Pounds)5,708,000 by the weighted
average number of shares in issue during the year, 42,968,438. The fully
diluted earnings per share is not materially different from the basic earnings
per share.
(10) TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FIXTURES,
LAND AND FITTINGS AND PLANT AND
BUILDINGS EQUIPMENT MACHINERY TOTAL
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Cost or valuation
1 April 1996................... 5,201 4,417 7,124 16,742
Currency translation........... (218) (244) (191) (653)
Subsidiary acquired............ 613 83 194 890
Additions...................... 90 747 889 1,726
Disposals...................... -- (54) (364) (418)
----- ----- ----- ------
31 March 1997.................. 5,686 4,949 7,652 18,287
===== ===== ===== ======
Depreciation
1 April 1996................... 564 3,118 4,738 8,420
Currency translation........... (14) (174) (115) (303)
Charge for the year............ 166 444 734 1,344
Disposals...................... -- (30) (225) (255)
----- ----- ----- ------
31 March 1997.................. 716 3,358 5,132 9,206
===== ===== ===== ======
Net book value
31 March 1997.................. 4,970 1,591 2,520 9,081
===== ===== ===== ======
</TABLE>
(11) STOCKS
<TABLE>
<CAPTION>
1997
(Pounds)000
-----------
<S> <C>
Raw materials and consumable................................... 6,647
Work in progress............................................... 2,208
Finished goods................................................. 4,081
------
12,936
======
</TABLE>
(12) DEBTORS
<TABLE>
<CAPTION>
1997
(Pounds)000
-----------
<S> <C>
Trade debtors.................................................. 17,233
Amounts recoverable on contracts............................... 794
Other debtors.................................................. 1,879
Prepayments.................................................... 878
Corporation tax recoverable.................................... 1,071
------
21,855
======
</TABLE>
F-39
<PAGE>
PROTEAN PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Debtors at 31 March 1997 are all due within one year with the exception of
(Pounds)555,000 consisting of taxation recoverable and other debtors.
(13) CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1997
(Pounds)000
-----------
<S> <C>
Loan notes 1993/2000........................................... 2,202
Bank loans and overdrafts...................................... 2,266
Payments on account............................................ 566
Trade creditors................................................ 7,237
Other creditors including taxation and social security......... 7,369
Accruals....................................................... 4,145
Deferred income................................................ 1,473
Finance lease obligations...................................... 16
Dividends payable.............................................. 2,190
------
27,464
======
</TABLE>
The loan notes 1993/2000 are unsecured and:
a) are guaranteed by Midland Bank plc;
b) are wholly or partly redeemable at certain dates in any year, but no
later than 11 December 2000;
c) carry a floating interest rate linked to Midland Bank base rate.
Cash deposits of (Pounds)400,000 are held by Midland Bank plc as security
for certain of their guarantees and this has been separately disclosed in the
Group Balance Sheet and the analysis of net debt (Note 24)
(14) CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
TOTAL
(Pounds)000
-----------
<S> <C>
Bank loans..................................................... 6,464
Finance lease obligations...................................... 23
-----
6,487
</TABLE>
Interest rates are set by reference to prevailing bank base rates.
Borrowings are repayable by instalments as follows:
<TABLE>
<CAPTION>
FINANCE
BANK LOANS LEASES
(Pounds)000 (Pounds)000
----------- -----------
<S> <C> <C>
In less than one year.............................. 1,385 16
Between one and two years.......................... 1,528 8
Between two and five years......................... 4,438 15
After five years................................... 498 --
----- ---
7,849 39
===== ===
</TABLE>
Bank loans and overdrafts totalling (Pounds)1,043,000 are secured on certain
assets in subsidiaries of the water group.
F-40
<PAGE>
PROTEAN PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(15) PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
WARRANTY PENSION DEFERRED
PROVISON PROVISON TAXATION TOTAL
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1 April 1996.............. 950 98 215 1,263
Currency translation...... (87) (8) (11) (106)
Transfer to profit and
loss account............. (95) (11) (86) (192)
Subsidiaries acquired..... 189 -- -- 189
Movement on ACT
recoverable.............. -- -- (27) (27)
--- --- --- -----
957 79 91 1,127
=== === === =====
</TABLE>
Deferred taxation is made up as follows:
<TABLE>
<CAPTION>
FULL
POTENTIAL
PROVIDED LIABILITY
(Pounds)000 (Pounds)000
----------- -----------
<S> <C> <C>
Surplus on property valuation...................... -- 23
Accelerated capital allowances..................... 310 310
Short term timing differences...................... (47) (47)
---- ---
263 286
===
Less ACT recoverable............................... (172)
----
91
====
</TABLE>
(16) CALLED UP SHARE CAPITAL
<TABLE>
<S> <C> <C>
Authorised (Pounds)000
56,500,000 Ordinary 5p shares......................... 2,825
-----------
Issued and fully paid Ordinary 5p shares: Number (Pounds)000
1 April 1996.......................................... 41,608,535 2,080
Issued during the year
Share options exercised............................. 110,273 6
Share placing....................................... 2,080,420 104
---------- -----------
31 March 1997......................................... 43,799,228 2,190
========== ===========
</TABLE>
Shares were issued by way of a public placing on 21 August 1996 at a value
of 245p per ordinary share (market price 257p).
At 31 March 1997 there were outstanding options in respect of the following
Protean Share Option Schemes:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISE
OPTIONS EXERCISE DATES PRICES
----------- ------------------------- --------
<S> <C> <C> <C>
Directors' Share Option
Scheme...................... 97,500 July 2000-July 2006 260p
Group Share Option Plan...... 145,250 July 1999-July 2006 260p
Executive Share Option
Plan...................... 605,945 June 1990-July 2005 70p-192p
Savings Related Share Option
Plan........................ 566,445 October 1997-January 2002 97p-209p
</TABLE>
F-41
<PAGE>
PROTEAN PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(17) RESERVES
<TABLE>
<CAPTION>
SHARE PROFIT AND
PREMIUM REVALUATION LOSS
ACCOUNT RESERVE ACCOUNT
----------- ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C>
1 April 1996............................. 8,016 261 7,244
Currency translation..................... -- -- (895)
Retained profit for the year............. -- -- 2,818
Shares issued............................ 4,993 -- --
Share issue expenses..................... (49) -- --
Share options exercised.................. 86 -- --
Goodwill arising on acquisitions......... -- -- (9,124)
Transfer................................. -- (55) 55
------ --- ------
13,046 206 98
====== === ======
</TABLE>
(18) CONTINGENT LIABILITIES
Guarantees and bonds totalling (Pounds)2,235,000 had been given as at 31
March 1997 in the normal course of business.
The Company has provided cross guarantees in respect of the bank facilities
of certain subsidiary undertakings.
Under the terms of the acquisition of FTS Systems Inc, additional
consideration on a rising sale will be payable if the adjusted net operating
profit for FTS Systems for the two years ending 31 December 1997 exceeds
US$5,750,000. The maximum additional consideration payable is US$6,000,000
((Pounds)3,680,000) in cash.
(19) COMMITMENTS
At 31 March 1997 capital expenditure contracted but not provided for in
these financial statements was (Pounds)102,000.
(20) OPERATING LEASES
Payments under operating leases due to be made in the next year, analysed
over the periods when the leases expire, are as follows.
<TABLE>
<CAPTION>
LAND AND
BUILDINGS OTHER
1997 1997
----------- -----------
(Pounds)000 (Pounds)000
<S> <C> <C>
Within one year.................................... 81 107
Between two and five years......................... 268 489
After five years................................... 442 1
--- ---
791 597
=== ===
</TABLE>
F-42
<PAGE>
PROTEAN PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(21) PURCHASE OF SUBSIDIARY UNDERTAKINGS
<TABLE>
<CAPTION>
BOOK FAIR VALUE ACCOUNTING FAIR VALUE
VALUES ADJUSTMENTS POLICY ADJUSTMENTS
------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net assets/(liabilities) acquired
Acquisitions in the year ended 31
March 1997:
FTS Systems Inc
Fixed tangible assets.............. 761 151 -- 912
Stock and work in progress......... 1,932 (258) -- 1,674
Debtors............................ 1,511 (32) (31) 1,448
Cash............................... 269 -- -- 269
Creditors and accruals............. (1,088) (440) (61) (1,589)
Bank loans and overdrafts.......... (998) -- -- (998)
Provisions......................... (107) (82) -- (189)
------ ---- --- ------
2,280 (661) (92) 1,527
====== ==== ===
Goodwill arising on acquisition.................................. 11,626
------
Fair value of consideration 13,153
------
Satisfied by:
Cash paid........................................................ 12,539
Accrual in respect of earnout subsequently paid on 15 May 1997... 614
------
13,153
======
</TABLE>
The fair value adjustments above reflect the revaluation of fixed assets and
other adjustments to recognise previously unrecorded provisions and
liabilities. Further adjustments have been made to ensure consistency between
the accounting policies of the Group and FTS Systems Inc.
Goodwill
Goodwill arising on the acquisition of subsidiary companies is analysed
below:
<TABLE>
<CAPTION>
1997
-----------
(Pounds)000
<S> <C>
Adjustment to goodwill arising on acquisitions in the year
ended 31 March 1996
DWA GmbH & Co. KG........................................... (2,652)
HPLC Technology Company Limited............................. 150
------
(2,502)
Goodwill arising on acquisition in the year ended 31 March
1997
FTS Systems Inc............................................. 11,626
------
Goodwill taken to reserves.................................... 9,124
======
</TABLE>
The adjustment to goodwill in respect of DWA is a cash rebate of tax
suffered by former subsidiaries of DWA. This has been accounted for as a
reduction in the fair value of the consideration for the acquisition.
The adjustment in respect of HPLC Technology Company Arises from a final
appraisal of the value of net assets acquired, and consists mainly of a
reduction in the value of stocks.
F-43
<PAGE>
PROTEAN PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pre-acquisition trading of FTS Systems Inc
The profit before tax (after interest charges of (Pounds)653,000) included
in these accounts for FTS Systems Inc is (Pounds)383,000. The profit after tax
for the year ended 31 December 1995, the last financial year for which the
published figures for FTS are available was (Pounds)1,365,000 and for the
period from 1 January 1996 to 31 August 1996 (the date of acquisition by the
Group) was (Pounds)1,014,000. Prior to the acquisition, the tax status of the
company was such that the majority of federal and state taxes was met by the
shareholders.
FTS Systems Inc, which was acquired during the year, contributed
(Pounds)830,000 to the Group's net operating cash flow, paid (Pounds)541,000
in respect of repayment of loan finance, paid (Pounds)105,000 in respect of
taxation and utilised (Pounds)76,000 for capital expenditure.
(22) RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS
<TABLE>
<CAPTION>
1997
-----------
(Pounds)000
<S> <C>
Operating profit................................................. 9,147
Depreciation charges............................................. 1,344
Profit on sale of tangible fixed assets.......................... (31)
Increase in stocks............................................... (476)
Decrease in debtors.............................................. 27
Increase in creditors............................................ 82
Decrease in provisions........................................... (101)
-----
Net cash inflow from operating activities........................ 9,992
=====
</TABLE>
F-44
<PAGE>
PROTEAN PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(23) ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT
<TABLE>
<CAPTION>
1997
-----------
(Pounds)000
<S> <C>
Returns on investment and servicing of finance
Interest received............................................. 357
Interest paid................................................. (453)
Interest element of finance lease rental payments............. (9)
-------
Net cash flow for returns on investment and servicing of
finance........................................................ (105)
Capital expenditure.............................................
Purchase of tangible fixed assets............................. (1,623)
Sale of plant and machinery................................... 193
-------
Net cash flow for capital expenditure........................... (1,430)
-------
Acquisitions and disposals
Purchase of subsidiary undertaking............................ (12,539)
Cash acquired with subsidiary................................. 269
Receipt of cash re prior year acquisitions.................... 2,671
-------
Net cash flows from acquisitions................................ (9,599)
-------
Financing.......................................................
Issue of ordinary share capital................................. 5,140
Debt due within a year: increase in short term borrowings....... (1,121)
Debt due beyond a year: new loans............................... 5,676
Capital element of finance lease rental payments................ (50)
-------
Net cash flow from financing.................................... 9,645
=======
</TABLE>
(24) ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
OTHER
LOANS ON NON-CASH EXCHANGE
1996 CASH FLOW ACQUISITION CHANGES MOVEMENT TOTAL
----------- ----------- ----------- ----------- ----------- -----------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
<S> <C> <C> <C> <C> <C> <C>
Cash at bank and in
hand................... 4,620 1,881 -- -- (145) 6,356
Overdrafts (1,379) 357 -- -- 141 (881)
------
2,238 -- -- --
Bank loans due after one
year................... (1,249) (5,523) -- -- 308 (6,464)
Bank loans due within
one year............... -- (799) (554) -- (32) (1,385)
Finance leases.......... (75) 49 -- (13) -- (39)
Loan Notes 1993/2000.... (3,970) 1,768 -- -- -- (2,202)
------
(4,505)
Cash deposit as security
for Loan Notes......... 968 (568) -- -- -- 400
------
(5,073)
------ ------ ---- --- ---- ------
Total................. (1,085) (2,835) (554) (13) 272 (4,215)
====== ====== ==== === ==== ======
</TABLE>
Cash deposits are held by Midland Bank plc as security for certain of their
guarantees given in respect to Loan Notes (Note 13)
F-45
<PAGE>
PROTEAN PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(25) PENSION COMMITMENTS
There are three defined benefit and six defined contribution schemes within
the Group. All schemes have assets held in separate funds administered by
trustees.
All defined benefit schemes are subject to valuation by qualified actuaries
and all valuations assume that investment returns exceed salary growth by 2 to
2.50%. The latest valuations were at dates between 1 February 1994 and 6 April
1995 and in each case the assets exceeded the liabilities for benefits that
had accrued to members at those dates, when using the Project Unit method.
The largest scheme in the Group is the Elga Pension Scheme, which is a
defined benefit scheme. The most recent valuation of the scheme was based on
membership details as at 6 April 1995 using the Defined Accrued Benefit
method. The market value of scheme assets was (Pounds)5,056,064 which,
together with assets in the form of annuity contracts, represented 99% of
accrued liabilities allowing for future earnings increases. This valuation
assumed that the investment returns would be 9% pa and would exceed salary
growth by 2.50%. (The funding level on the Project Unit method was 106%).
Details of the other individual operating company schemes are given in the
financial statements of those companies as appropriate.
Contributions by Group companies totalled (Pounds)875,000 for the year which
were charged against profit. The pension costs on a basis consistent with the
requirements of SSAP24, were not materially different from the contributions
paid.
(26) RELATED PARTY TRANSACTIONS
The Group had no related party transactions which might reasonably be
expected to influence decisions made by the users of these financial
statements.
(27) POST BALANCE SHEET EVENT
Following discussions between Protean Plc (Protean) and Culligan Water
Technologies, Inc. (Culligan), a U.S. based manufacturer of water purifying
systems, Protean received a proposal from Culligan to purchase their business,
offering to acquire all of the issued share capital of Protean for 105 million
British pound sterling. This offer was recommended to shareholders by the
Board of the Company on 24 October 1997. The offer was declared wholly
unconditional on 2 December 1997.
(28) SIGNIFICANT DIFFERENCES BETWEEN UK AND US ACCOUNTING PRINCIPLES
The above accounts have been prepared in accordance with generally accepted
accounting principles (GAAP) in the U.K. which differ in certain material
respects from U.S. GAAP. The significant differences relate principally to the
following items and the adjustments necessary to restate net income and
shareholders' equity in accordance with U.S. GAAP are shown below.
a) Goodwill
In the consolidated financial statements, goodwill, together with the fair
value of purchased trademarks, patents and other related intangibles, arising
on the acquisition of a subsidiary, is immediately eliminated against
reserves. Under U.S. GAAP, such goodwill and other intangibles would be
capitalised and amortised against income over the estimated useful lives of
the assets, not exceeding 40 years. For the purposes of calculating the effect
of capitalising the goodwill on the balance sheet and amortising the goodwill
and other intangibles through the statement of income, a life of 40 years has
generally been assumed.
F-46
<PAGE>
PROTEAN PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
b) Tangible Asset Revaluation
U.K. GAAP allows the periodic revaluation of land and buildings.
Professional revaluations of Protean properties were carried out during the
past several years. Under U.S. GAAP, revaluations would not be permitted and
all fixed assets, other than land, would be depreciated over their estimated
economic lives. The reconciling adjustments in respect of tangible fixed
assets relate primarily to Elga properties.
c) Ordinary Dividends
Under U.K. GAAP, the proposed dividends on ordinary shares, as recommended
by the directors, are deducted from shareholders' equity and shown as a
liability in the balance sheet at the end of the period to which they relate.
Under U.S. GAAP, such dividends are only deducted from shareholders' equity at
the date of the declaration of the dividend.
d) Pension Costs (Credits)
The Company provides for the cost of retirement benefits based upon
consistent percentages of employees' pension payable as recommended by
independent qualified actuaries. U.S. GAAP requires that projected benefit
obligation (pension liability) be matched against the fair value of the plans'
assets and be adjusted to reflect unrecognised obligations or assets in
determining the pension cost or credit for the year.
The following is a summary of the significant adjustments to net income for
the year ended 31 March 1997 and to parent company investment as of 31 March
1997, which would have been required if the combined financial statements had
been reported in accordance with U.S. GAAP instead of U.K. GAAP.
<TABLE>
<CAPTION>
1997
----------------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C>
Profit for the financial year according to the consolidated
financial statements
prepared under U.K. GAAP................................... 5,708
U.S. GAAP Adjustments:
Decrease due to effects of goodwill previously written off
against reserves......................................... (296)
Increase related to differences in projected pension
obligations.............................................. 95
-----
Net Income in accordance with U.S. GAAP..................... 5,507
=====
</TABLE>
The following is a summary of the significant adjustments to shareholders'
funds for the year ended 31 March 1997 and to parent company investment as of
31 March 1997, which would have been required if the combined financial
statements had been reported in accordance with U.S. GAAP instead of U.K.
GAAP.
<TABLE>
<CAPTION>
1997
----------------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C>
Equity shareholders' funds under U.K. GAAP................. 15,550
U.S. GAAP Adjustments:
Increase due to the effects of goodwill previously
written off against reserves............................ 10,935
Decrease due to the revaluation of tangible fixed assets. (206)
Increase due to the timing of dividends declared......... 2,190
Increase related to differences in projected pension
obligations............................................. 712
------
Equity shareholders' funds under U.S. GAAP................. 29,181
======
</TABLE>
F-47
<PAGE>
PROTEAN PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash Flows
The above combined financial statements comply with Financial Reporting
Standard No. 1--"Cash Flow Statements" (FRS 1). Its objective and principles
are similar to those set out in Statement of Financial Accounting Standards
No. 95--"Statement of Cash Flows" (SFAS 95). The principle difference between
the standards relates to classification. Under FRS 1, cash flows are presented
for a) operating activities; b) returns on investments and servicing of
finance; c) taxation; d) investing activities; and e) financing activities.
SFAS 95 requires only three categories of cash flow activities: a) operating;
b) investing; c) financing.
Cash flows arising from taxation and returns on investments and servicing of
finance under FRS 1 would, with the exception of dividends paid, be included
as operating activities under SFAS 95; dividend payments would be included as
a financing activity under SFAS 95. In addition, under FRS 1, cash and cash
equivalents include short term borrowings with original maturities of less
than 90 days. SFAS 95 requires that movements on such short term borrowings to
be included in financing activities.
A summarised consolidated cash flow under U.S. GAAP is as follows:
<TABLE>
<CAPTION>
1997
----------------
(IN THOUSANDS OF
BRITISH POUNDS
STERLING)
<S> <C>
Cash inflow from operating activities....................... 6,403
Cash outflow from investing activities...................... (11,029)
Cash inflow from finance activities......................... 6,507
-------
Increase in cash and cash equivalents at year end........... 1,881
Exchange adjustments........................................ (145)
Cash and cash equivalents at beginning of year.............. 4,620
-------
Cash and cash equivalents at end of year.................... 6,356
=======
</TABLE>
F-48
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Combined Financial Statements
Report of Independent Auditors............................................ F-50
Combined Statement of Income for the years ended December 31, 1996, 1995
and 1994................................................................. F-51
Combined Balance Sheet at December 31, 1996 and 1995...................... F-52
Combined Statement of Cash Flows for the years ended December 31, 1996,
1995 and 1994............................................................ F-53
Notes to Combined Financial Statements.................................... F-54
</TABLE>
F-49
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of AMETEK, Inc.
We have audited the accompanying combined balance sheets of The Water
Filtration Business (a wholly owned business of AMETEK, Inc.) as of December
31, 1996 and 1995, and the related combined statements of income and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of AMETEK'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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The Water
Filtration Business (a wholly owned business of AMETEK, Inc.) at December 31,
1996 and 1995, and the combined results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 14, 1997
F-50
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net sales............................................. $68,650 $55,643 $54,086
------- ------- -------
Expenses:
Cost of sales, excluding depreciation............... 44,039 35,768 33,563
Selling, general and administrative................. 10,332 7,477 7,071
Depreciation........................................ 1,919 1,575 1,528
------- ------- -------
Total expenses.................................... 56,290 44,820 42,162
------- ------- -------
Operating income...................................... 12,360 10,823 11,924
Other income (expense), net........................... (9) 32 17
------- ------- -------
Income before income taxes............................ 12,351 10,855 11,941
Provision for income taxes............................ 4,188 3,857 4,210
------- ------- -------
Net income............................................ $ 8,163 $ 6,998 $ 7,731
======= ======= =======
</TABLE>
See accompanying notes.
F-51
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------- -------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.................................... $ 697 $ 367
Receivables, net............................................. 9,030 6,800
Inventories.................................................. 7,882 7,256
Deferred income taxes........................................ 79 86
Other current assets......................................... 482 219
------- -------
Total current assets....................................... 18,170 14,728
Property, plant and equipment, net............................. 17,548 16,650
Intangibles and other assets................................... 3,539 6,144
------- -------
$39,257 $37,522
======= =======
LIABILITIES AND NET WORTH
-------------------------
Current liabilities:
Notes payable................................................ $ 343 $ --
Accounts payable............................................. 3,827 3,047
Income taxes payable......................................... 79 2
Accrued liabilities.......................................... 3,295 2,176
------- -------
Total current liabilities.................................. 7,544 5,225
Long-term notes payable........................................ -- 311
Deferred income taxes.......................................... 1,606 1,656
Other long-term liabilities.................................... 400 462
Net worth...................................................... 29,707 29,868
------- -------
$39,257 $37,522
======= =======
</TABLE>
See accompanying notes.
F-52
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
Net income........................................ $ 8,163 $ 6,998 $ 7,731
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 2,247 1,657 1,625
Deferred income taxes........................... (43) 32 80
Changes in working capital:
(Increase) decrease in receivables............ (440) (1,230) 57
(Increase) decrease in inventories and other
current assets............................... 341 (635) (96)
Increase (decrease) in payables, accruals and
income taxes................................. 296 150 (981)
Other........................................... (16) 40 (28)
------- ------- -------
Total operating activities.................. 10,548 7,012 8,388
------- ------- -------
INVESTING ACTIVITIES:
Additions to property, plant and equipment........ (2,169) (2,404) (2,434)
Purchase of business.............................. -- (5,699) --
Other............................................. (142) -- --
------- ------- -------
Total investing activities.................. (2,311) (8,103) (2,434)
------- ------- -------
FINANCING ACTIVITIES:
Change in notes payable........................... -- -- 313
Cash transfer (to) from AMETEK, Inc............... (7,907) 1,020 (6,086)
------- ------- -------
Total financing activities...................... (7,907) 1,020 (5,773)
------- ------- -------
Increase (decrease) in cash and cash equivalents.... 330 (71) 181
CASH AND CASH EQUIVALENTS:
Beginning of year................................. 367 438 257
------- ------- -------
End of year....................................... $ 697 $ 367 $ 438
======= ======= =======
</TABLE>
See accompanying notes.
F-53
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Basis of Presentation
The accompanying combined financial statements present the financial
position, results of operations and cash flows of the Water Filtration
Business (the "Water Filtration Business") owned directly or indirectly by
AMETEK, Inc. ("AMETEK") and its subsidiaries. The accompanying combined
financial statements have been prepared on a historical cost basis and present
financial information for the Water Filtration Business as derived from
AMETEK's historical cost financial accounts. All significant intercompany
accounts and transactions of the Water Filtration Business have been
eliminated.
Description of Business
The Water Filtration Business is primarily in the business of manufacturing
water filtration products for retail, residential, commercial and industrial
customers in the United States and many foreign countries worldwide. The Water
Filtration Business sells its products through both retail and wholesale
distribution channels. It has a broad line of cartridge filtration products,
offering whole-house, countertop and other complete water filtration systems.
The Water Filtration Business's point-of-use drinking water filters and
cartridges are designed for the removal of objectionable taste, odor,
hazardous chemicals and bacteria. In addition, the Water Filtration Business
produces filters, housings and cartridges for use in food and beverage
dispensing, cosmetics and chemical production applications; as well as for use
by plumbing professionals to serve their residential and commercial customers.
The Water Filtration Business's operations consist of Plymouth Products, a
United States division of AMETEK, and three wholly owned foreign subsidiaries:
AMETEK Filters, Limited; APIC International S.A. ("APIC"); and AFIMO S.A.M.
("AFIMO").
2. THE WATER FILTRATION BUSINESS MERGER
On February 5, 1997, AMETEK announced that it will separate all of its other
businesses from the Water Filtration Business and a wholly owned subsidiary of
Culligan Water Technologies, Inc. ("Culligan") will be merged with and into
the Water Filtration Business for a total purchase price to Culligan of
approximately $155 million. The purchase price, less assumed debt, is payable
to AMETEK's stockholders in Culligan common stock valued at $37.50 per share.
Following the merger, Culligan will assume $25 million of AMETEK's debt. Based
on the assumption of $25 million of AMETEK's debt, Culligan will distribute
3,466,667 shares of its common stock to AMETEK's stockholders, or 0.11 shares
of Culligan common stock for each outstanding share of AMETEK common stock
(based on shares outstanding at December 31, 1996).
The transaction is subject to certain conditions, including receipt of a
favorable ruling from the Internal Revenue Service to the effect that the
merger and distribution will be tax-free for federal income tax purposes, and
approval by AMETEK's stockholders.
In connection with the merger of the Water Filtration Business into
Culligan, AMETEK will enter into certain contractual agreements with Culligan.
Such agreements include an Indemnification Agreement, a Tax Allocation
Agreement, a Trademark Agreement and a Transition Services Agreement. The
agreements will provide, among other things, each party's rights and
obligations with respect to tax matters, use of trade names, certain
indemnification matters, and support services to facilitate an orderly
transition as they relate to the Water Filtration Business.
F-54
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
The Water Filtration Business's revenues are recorded when products are
shipped and services are rendered. The policy with respect to sales returns
and allowances generally provides that the customer may not return the
products, or be given allowances, except at the Water Filtration Business's
option. The provision for estimated warranty costs (not material in amount) is
recorded at the time of sale and periodically adjusted to reflect actual
experience.
Cash Management
AMETEK uses a centralized cash management system for all of its domestic
operations, including that of the Water Filtration Business. Cash and cash
equivalents, consisting of highly liquid investments with maturities of three
months or less when purchased, reflected in the combined balance sheet,
represents balances maintained by the Water Filtration Business's foreign
operations.
Inventories
Inventories are stated at lower of cost or market, cost being determined on
a first-in, first-out (FIFO) basis. Reserves are provided for obsolete
inventory and for slow moving inventory based on historical and projected
usage.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of property,
plant and equipment is calculated principally on the straight-line method
(accelerated methods for tax purposes) over the useful lives of the assets.
Expenditures for maintenance and repairs, which do not materially extend the
lives of the assets, as well as expenditures for tools and dies, are included
in operations as incurred.
Financial Accounting Standards Board Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
which established new accounting standards for measuring the impairment of
long-lived assets, was adopted by the Water Filtration Business in the first
quarter of 1996. The adoption of this new Statement did not have any impact on
the Water Filtration Business's combined financial position or results of
operations.
Advertising Costs
Costs incurred for producing and communicating advertising are expensed when
incurred, including costs incurred under the Water Filtration Business's
cooperative advertising programs with its dealers and mass merchandises.
F-55
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Intangible Assets
Intangible assets consists of goodwill, and other acquired intangibles. For
financial reporting purposes, goodwill is being amortized on a straight line
basis over 20 to 30 years. The other acquired intangibles are being amortized
over their estimated useful lives of five to seven years. The Water Filtration
Business reviews the carrying value of intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount may not
be recoverable.
Foreign Currency Translation
Results of operations of foreign subsidiaries are translated to U.S. dollars
by using the average exchange rates during the year. The assets and
liabilities of those subsidiaries are translated into U.S. dollars using the
exchange rates in effect at the balance sheet date. The related foreign
currency translation adjustments are recorded in a separate component of net
worth.
Income Taxes
The results of the Water Filtration Business's U.S. operations are included
in AMETEK's consolidated United States federal and state income tax returns.
The provision for income taxes included in these combined financial statements
represents the Water Filtration Business's allocated share of AMETEK's
domestic income tax expense (including a credit attributable to U.S. export
sales), which approximates the net expense that the Water Filtration Business
would have incurred on a separate tax return basis, along with the actual
income tax provisions of its foreign subsidiaries.
As part of the plan of the merger, AMETEK and Culligan have entered into a
Tax Matters Agreement. This agreement generally provides that for periods
prior to the merger the two companies will retain the liability for any unpaid
taxes attributable to their respective operations.
Research and Development
Water Filtration Business funded research and development costs are charged
to operations as incurred. The amounts charged to operations during the years
ended December 31, 1996, 1995 and 1994 were $600,000, $500,000 and $300,000,
respectively.
4. ACQUISITION
On November 1, 1995, the Water Filtration Business purchased APIC and AFIMO,
a French- and Monaco-based manufacturer of water filtration products, for $5.7
million cash. Accounting for this acquisition was completed in early 1996 upon
the determination of fair values of the assets acquired and the liabilities
assumed. The acquisition was accounted for by the purchase method and the
results of APIC's and AFIMO's operations are included in the Water Filtration
Business's combined results from the date of acquisition.
Assuming that the acquisition was made as of January 1, 1994, pro forma
unaudited net sales would have been $63.0 million for 1995 and $60.6 million
for 1994. Pro forma operating income and net income for 1995 and 1994 would
not have been materially different from the amounts reported.
F-56
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. TRANSACTIONS WITH AMETEK
Net worth as shown in the combined balance sheet primarily represents
AMETEK's cumulative net investment in the combined business of the Water
Filtration Business. AMETEK's practice is to incur indebtedness for its
domestic operations at the parent company level, or at a limited number of
foreign subsidiaries, and to centrally manage various cash functions for its
domestic operations. The Water Filtration Business's financing requirements
have, therefore, been substantially satisfied by transactions with AMETEK.
There are no material intercompany purchase or sale transactions between
AMETEK and the Water Filtration Business. Advances from AMETEK and excess cash
sent to AMETEK are reflected as net transactions with AMETEK and are included
in net worth. No interest is charged, or has been otherwise allocated to the
Water Filtration Business on outstanding balances due AMETEK.
The following table sets forth the changes in net worth.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Beginning balance.................................... $29,868 $21,868 $20,159
Cash from operations................................. (10,367) (8,687) (9,436)
Working capital transfers, net....................... (527) 1,784 839
Additions to property, plant and equipment........... 2,169 2,402 2,434
Purchase of business................................. -- 5,699 --
Net income........................................... 8,163 6,998 7,731
Other................................................ 401 (196) 141
------- ------- -------
Ending balance....................................... $29,707 $29,868 $21,868
======= ======= =======
Average balance...................................... $29,788 $25,868 $21,014
======= ======= =======
</TABLE>
Cumulative losses from foreign currency translation adjustment included in
the net worth shown above at December 31 are as follows: 1996--$647,000;
1995--$533,000; 1994--$519,000.
At December 31, 1996, the Water Filtration Business's U.K. subsidiary,
Ametek Filters, Limited, had noninterest bearing notes payable to a subsidiary
of AMETEK totaling $343,000. The notes are payable in 2002, but are being
accelerated for payment in 1997, prior to the merger. The amount due is shown
as notes payable in the accompanying combined balance sheet.
The Plymouth Products Division participates with other AMETEK Divisions in a
number of risk management, insurance and employee benefit programs, some of
which are self insured directly by AMETEK, or insured through its captive
insurance subsidiary. An estimate of the expense attributable to the Plymouth
Products Division for such programs is reflected in the combined statement of
income. The combined balance sheet includes accruals for specific workers'
compensation and products liability claims of the Plymouth Products Division
which were transferred through the intercompany account with AMETEK (see note
6).
Certain operating expenses, capital expenditures, general corporate
expenses, and other cash requirements of the Water Filtration Business were
paid or accrued by AMETEK and charged directly or allocated to the Water
Filtration Business. Amounts included in the combined statement of income
related to the services provided to the Water Filtration Business by AMETEK
amounted to approximately $1.7 million in 1996, $1.4 million in 1995, and $1.3
million in 1994.
F-57
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
These charges and allocations include amounts for consulting, legal and
other support services and were based on direct charges and an estimate of the
proportion of such corporate expenses related to the Water Filtration Business
for the periods presented and, in the opinion of management, have been made on
a reasonable basis.
6. OTHER BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
INVENTORIES
Finished goods............................................. $ 5,155 $ 5,644
Work in process............................................ 198 202
Raw materials.............................................. 2,529 1,410
-------- --------
$ 7,882 $ 7,256
======== ========
PROPERTY, PLANT AND EQUIPMENT, at cost
Land....................................................... $ 195 $ 188
Buildings.................................................. 12,909 12,612
Machinery and equipment.................................... 19,426 16,836
-------- --------
32,530 29,636
Less accumulated depreciation.............................. (14,982) (12,986)
-------- --------
$ 17,548 $ 16,650
======== ========
INTANGIBLES AND OTHER ASSETS
Acquired intangibles, at cost:
Goodwill................................................. $ 3,210 $ 27
Non-compete agreements................................... 623 372
Other acquired intangibles............................... 129 129
-------- --------
3,962 528
Less accumulated amortization............................ (644) (318)
-------- --------
3,318 210
Intangible pension asset................................... 221 235
Investment in acquired business............................ -- 5,699
-------- --------
$ 3,539 $ 6,144
======== ========
ACCRUED LIABILITIES
Accrued employee compensation and benefits................. $ 1,254 $ 1,068
Real estate, personal property, social and other non income
taxes..................................................... 307 337
Accrued workers compensation and product liability
insurance................................................. 640 161
Other...................................................... 1,094 610
-------- --------
$ 3,295 $ 2,176
======== ========
</TABLE>
The allowance for uncollectible accounts receivable at December 31 was as
follows: 1996--$0 and 1995--$15.
F-58
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
The details of the provision for (benefit from) income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes:
Current:
Federal.............................................. $3,836 $3,571 $3,907
Foreign.............................................. 76 4 --
State................................................ 302 262 221
------ ------ ------
Total current...................................... 4,214 3,837 4,128
------ ------ ------
Deferred:
Federal.............................................. (24) 4 45
State................................................ (2) 16 37
------ ------ ------
Total deferred..................................... (26) 20 82
------ ------ ------
Total provision.................................. $4,188 $3,857 $4,210
====== ====== ======
</TABLE>
Significant components of the Water Filtration Business's deferred tax
(asset) liability as of December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Current deferred tax (asset) liability:
Reserve net currently deductible.......................... $ (76) $ (82)
Other..................................................... (3) (4)
------ ------
Net current deferred tax asset............................ (79) (86)
------ ------
Long-term deferred tax (asset) liability:
Differences in basis of property and accelerated
depreciation............................................. 1,729 1,592
Reserves not currently deductible......................... (224) (57)
Other..................................................... 101 121
------ ------
Net long-term deferred tax liability...................... 1,606 1,656
------ ------
Net deferred tax liability.............................. $1,527 $1,570
====== ======
</TABLE>
The effective rate of the provision for income taxes reconciles to the
statutory rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory rate............................................. 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit...... 1.6 1.7 1.4
Foreign Sales Corporation credits.......................... (1.0) (1.0) (0.8)
Effect of foreign operations and other..................... (1.7) (0.2) (0.3)
---- ---- ----
33.9% 35.5% 35.3%
==== ==== ====
</TABLE>
Undistributed earnings of the Water Filtration Business's foreign
subsidiaries at December 31, 1996, are considered to be indefinitely
reinvested and are not significant. Accordingly, no provision has been
recorded for U.S. deferred income taxes.
F-59
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. PENSION PLANS
The Water Filtration Business maintains a noncontributory defined benefit
pension plan for eligible U.S. hourly employees. Additionally, eligible U.S.
salaried employees participate in AMETEK's salaried pension plan. Benefits are
generally based on years of service and average compensation. Pension costs
under those plans are funded through a trust established in connection with
the plans, which is maintained by AMETEK. Assets of the trust are principally
invested in a variety of equity and debt instruments. Pension expenses
(excluding administrative expenses) associated with these plans are charged
directly to the Water Filtration Business and are shown in the table below.
AMETEK's funding policy with respect to these plans is to contribute amounts
determined annually on an actuarial basis that provide for current and future
benefits in accordance with funding requirements of federal law and
regulation. In connection with the Merger, AMETEK will transfer to New Ametek
all liabilities with respect to pension benefits of the Water Filtration
Business's U.S. salaried employees. Accordingly, no pension-related assets or
liabilities associated with the salaried U.S. employees are included in the
accompanying combined balance sheet. Employees of the foreign operations are
covered by pension arrangements in their individual country of operation and
no liabilities associated with these arrangements are included in the balance
sheets.
Net pension expense consists of the following components:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost for benefits earned during the period...... $ 227 $ 192 $ 193
Interest cost on projected benefit obligation........... 314 287 240
Actual return on plans assets........................... (361) (326) (294)
Net amortization and deferrals.......................... 10 6 (33)
----- ----- -----
Net pension expense..................................... $ 190 $ 159 $ 106
===== ===== =====
</TABLE>
Net pension expense reflects an expected long-term rate of return on plan
assets of 9 1/4% for 1996, 1995 and 1994. The actual return has been adjusted
to defer gains and losses that differ from the expected return. The present
value of the projected benefit obligation was determined by using an assumed
discount rate of 7 3/4% in 1996, 7 1/2% in 1995 and 7 3/4% in 1994. The
balance sheet reflects an additional long-term pension liability of $400,000
($462,000 in 1995), a long-term intangible asset of $221,000 ($235,000 in
1995), and a charge in net worth (net of deferred taxes) of $116,000 in 1996
($148,000 in 1995).
The following table sets forth the funded status of the hourly plan:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................... $ 922 $ 784
======= =======
Accumulated benefit obligation ......................... $ 1,128 $ 1,053
======= =======
Projected benefit obligation............................ $ 1,128 $ 1,053
Plan assets at fair value............................... 954 689
------- -------
Plan assets less than projected benefit obligation...... (174) (364)
Unrecognized prior service cost......................... 193 205
Unrecognized net loss................................... 179 228
Unrecognized net transition obligation, net of
amortization........................................... 28 30
------- -------
Prepaid pension expense................................. $ 226 $ 99
======= =======
</TABLE>
F-60
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Water Filtration Business provides benefits to eligible U.S. employees
through participation in the AMETEK Saving and Investment Plan, a defined
contribution plan. Expenses relating to this plan in 1996, 1995, and 1994 were
not material.
The Water Filtration Business does not provide significant postretirement or
postemployment benefits other than pensions.
9. LEASES
Future minimum lease payments under non-cancelable leases with remaining
terms of more than one year amounted to $1,637,000, consisting of annual
payments of $442,000 in 1997, and decreasing amounts thereafter.
Rent expense under operating leases of $761,000 was charged to income in
1996, $244,000 in 1995, and $202,000 in 1994.
10. STOCK OPTIONS
AMETEK has certain Stock Option Plans under which incentive stock options,
stock appreciation rights, restricted stock awards and phantom stock awards
may be granted to officers and key employees. In connection with the
separation of the water filtration business, employees of the Water Filtration
Business with options in the Plans that are not exercised prior to the
effective date, will either be converted into their cash value or Culligan
options, at the election of the employee, based on a formula that preserves
the inherent economic value and vesting terms and provisions of such AMETEK
options. Stock options for 113,140 shares of AMETEK common stock at prices
ranging from $11.69 to $19.19 were outstanding at December 31, 1996. Stock
options for 50,590 shares were exercisable at December 31, 1996.
F-61
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
11. GEOGRAPHIC INFORMATION
Net sales, income before income taxes and identifiable assets by geographic
area for the year ended December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales (based on destination):
United States....................................... $49,341 $44,410 $44,573
International (including United States exports shown
below):
Europe............................................ 12,214 4,810 3,171
Other............................................. 7,095 6,423 6,342
------- ------- -------
Total combined.................................. $68,650 $55,643 $54,086
======= ======= =======
Income before income taxes
United States....................................... $11,544 $10,800 $11,817
Europe.............................................. 807 55 124
------- ------- -------
Total combined.................................. $12,351 $10,855 $11,941
======= ======= =======
Identifiable assets
United States....................................... $29,685 $29,204 $26,625
Europe.............................................. 9,572 8,318 2,537
------- ------- -------
Total combined.................................. $39,257 $37,522 $29,162
======= ======= =======
United States export sales (reported in international
sales above)
Europe.............................................. $ 3,229 $ 2,082 $ 1,923
Asia................................................ 3,014 2,765 2,167
Canada.............................................. 1,017 1,009 1,013
Other............................................... 2,388 2,138 1,759
------- ------- -------
Total combined.................................. $ 9,648 $ 7,994 $ 6,862
======= ======= =======
</TABLE>
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(A) TOTAL
------- ------- ------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1996
Net sales.......................... $18,499 $18,036 $17,877 $14,238 $68,650
Operating income................... $ 3,644 $ 3,728 $ 3,139 $ 1,849 $12,360
Net income......................... $ 2,344 $ 2,410 $ 2,135 $ 1,274 $ 8,163
1995
Net sales.......................... $14,553 $13,913 $14,344 $12,833 $55,643
Operating income................... $ 3,066 $ 2,431 $ 2,675 $ 2,651 $10,823
Net income......................... $ 2,027 $ 1,537 $ 1,733 $ 1,701 $ 6,998
</TABLE>
- --------
(a) Fourth quarter 1996 reflects the short-term impacts of a soft economy in
Europe, the impact of changes in foreign currency exchange rates, and the
residual effects of a two week truckers' strike in France. The fourth
quarter of 1996 also reflects the recognition of higher than normal
charges related to advertising and sales promotion programs in the Water
Filtration Business's retail water filtration market.
F-62
<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 excess of fair value of net assets
acquired was approximately $66.1 million, and is being amortized on a
straight-line basis over 40 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 merger with 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-63
<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. Any such final adjustments,
including adjustments to purchase price allocations, are not anticipated to
have a material effect to the financial position as reflected on the Unaudited
Pro Forma Combined Balance Sheet as of December 31, 1997.
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
F-64
<PAGE>
of operations for Ametek including revenue of $6.4 million and net income of
$0.7 million for the month ended 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-65
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997 (NOTE A)
------------------------------------------------------------------
HISTORICAL PRO FORMA
------------------------------ -----------------------------------
ADJUSTMENTS
INCREASE
U.S. 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-66
<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-67
<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) 2,187,305
---------- -------- -------- ------- -------- ---------
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-68
<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-69
<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-70
<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-71
<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-72
<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-73
<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-74
<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-75
<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-76
<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-77
