<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 and 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1998
-----------------
or
[_] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file number 1-10728
-------
UNITED STATES FILTER CORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0266015
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
40-004 Cook Street, Palm Desert, CA 92211
------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (760) 340-0098
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares of common stock, $.01 par value, outstanding as of February
11, 1998 was 179,908,015 shares.
Total number of pages 24
------
There are two exhibits filed with this report
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1998
--------------- -----------------
(in thousands)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 66,917 38,032
Short-term investments 241 377
Accounts receivable, net 873,890 1,116,629
Costs and estimated earnings in excess
of billings on uncompleted contracts 217,935 224,352
Inventories 473,698 534,823
Prepaid expenses 16,471 34,512
Deferred taxes 151,107 185,915
Other current assets 51,377 59,544
---------- ---------
Total current assets 1,851,636 2,194,184
---------- ---------
Property, plant and equipment, net 960,019 1,063,408
Investment in leasehold interests, net 21,699 19,960
Costs in excess of net assets of businesses
acquired, net 1,312,776 1,500,976
Other assets 319,315 347,817
---------- ---------
$4,465,445 5,126,345
========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1998 (Continued)
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1998
-------------- -----------------
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 357,260 424,823
Accrued liabilities 535,329 596,066
Current portion of long-term debt 118,849 21,602
Billings in excess of costs and estimated
earnings on uncompleted contracts 90,073 87,380
Other current liabilities 45,702 132,326
---------- ---------
Total current liabilities 1,147,213 1,262,197
---------- ---------
Notes payable 574,806 546,800
Long-term debt, excluding current portion 404,416 66,117
Convertible subordinated debentures 554,000 414,000
Redeemable or remarketable securities - 900,000
Deferred taxes 82,910 63,881
Other liabilities 110,662 140,383
---------- ---------
Total liabilities 2,874,007 3,393,378
---------- ---------
Shareholders' equity:
Preferred stock, authorized 3,000 shares - -
Common stock, par value $.01. Authorized 300,000
shares; 155,825 and 176,584 shares issued and
outstanding at March 31, 1998 and December 31, 1998,
respectively 1,558 1,766
Additional paid-in capital 1,945,223 2,160,786
Currency translation adjustment (57,282) (71,465)
Accumulated deficit (298,061) (358,120)
---------- ---------
Total shareholders' equity 1,591,438 1,732,967
---------- ---------
Commitments and contingencies
---------- ---------
$4,465,445 5,126,345
========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 1997 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
December 31, December 31,
----------------------- -----------------------
1997 1998 1997 1998
---------- ---------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 969,513 1,225,109 2,700,807 3,570,322
Costs of sales 700,740 861,690 1,996,804 2,511,304
--------- --------- --------- ---------
Gross profit 268,773 363,419 704,003 1,059,018
Selling, general and administrative expenses 189,419 241,652 520,085 709,231
Purchased in-process research and
development 319,675 - 319,675 3,558
Merger, restructuring, acquisition and other
related charges 150,582 - 150,582 257,920
--------- --------- --------- ---------
659,676 241,652 990,342 970,709
--------- --------- --------- ---------
Operating income (loss) (390,903) 121,767 (286,339) 88,309
Other income (expense):
Interest expense (15,773) (29,999) (39,651) (85,180)
Gain on disposition of affiliate - - 31,098 -
Interest and other income, net 1,532 7,497 4,314 15,227
--------- --------- --------- ---------
(14,241) (22,502) (4,239) (69,953)
--------- --------- --------- ---------
Income (loss) before income taxes (405,144) 99,265 (290,578) 18,356
Income tax expense (benefit) (15,889) 35,774 25,819 50,051
--------- --------- --------- ---------
Net income (loss) $(389,255) 63,491 (316,397) (31,695)
========= ========= ========= =========
Net income (loss) per common share:
Basic $ (2.63) 0.37 (2.32) (0.19)
========= ========= ========= =========
Diluted $ (2.63) 0.36 (2.32) (0.19)
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1997 1998
---------- ---------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(316,397) (31,695)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Deferred income taxes (23,536) (53,883)
Provision for doubtful accounts 6,172 12,387
Depreciation 57,856 81,216
Amortization 23,893 38,095
Merger, restructuring, acquisition and other related
cash charges - 155,396
Write-off of in-process research and development
and goodwill 372,195 40,818
Gain on disposition of investment in affiliate (31,098) -
Loss on sale or disposal of property, plant and equipment 11,220 26,383
Change in operating assets and liabilities:
Increase in accounts receivable (35,109) (156,154)
(Increase) decrease in costs and estimated earnings in excess
of billings on uncompleted contracts (30,158) 1,397
Increase in inventories (26,961) (5,245)
(Increase) decrease in other assets 1,188 (15,106)
Decrease in accounts payable and accrued expenses (32,455) (29,841)
Increase (decrease) in billings in excess of costs and
estimated earnings on uncompleted contracts 22,584 (17,587)
Increase (decrease) in other liabilities 11,846 (14,375)
--------- --------
Net cash provided by operating activities 11,240 31,806
--------- --------
Cash flows from investing activities:
Payment for purchase of property, plant and equipment (104,465) (147,347)
Payment for purchase of acquisitions, including certain
merger and restructuring charges, net of cash acquired (548,581) (324,215)
Proceeds from disposal of equipment 7,655 16,747
Proceeds from disposition of investment in affiliate 50,897 -
Sale (purchase) of short-term investments 1,260 (136)
Restricted cash held in escrow for acquisition (143,968) -
--------- --------
Net cash used in investing activities (737,202) (454,951)
--------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 AND 1998 (Continued)
(Unaudited)
<TABLE>
<CAPTION>
1997 1998
-------- ---------
(in thousands)
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from issuance of remarketable or
redeemable securities - 913,637
Proceeds from exercise of common stock options 4,189 2,607
Redemption of convertible subordinated debentures - (81,527)
Principal payments on long-term debt (23,228) (476,947)
Net proceeds from borrowings on notes payable 667,736 36,490
Dividends paid (50) -
------- --------
Net cash provided by financing activities 648,647 394,260
------- --------
Net decrease in cash and cash equivalents (77,315) (28,885)
Cash and cash equivalents at March 31, 1997 and 1998 144,128 66,917
------- --------
Cash and cash equivalents at December 31, 1997 and 1998 $66,813 38,032
======= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $40,006 63,868
======= ======
Cash paid during the period for income taxes $53,491 58,111
======= ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Operations and Significant Accounting Policies
----------------------------------------------
The accompanying condensed consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with U.S. generally
accepted accounting principles have been condensed or omitted pursuant to such
regulations. The condensed consolidated financial statements reflect all
adjustments and disclosures which are, in the opinion of management, necessary
for a fair presentation of the information contained therein. All such
adjustments are of a normal recurring nature. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto for the fiscal year ended March 31, 1998
that are contained in the Company's Current Report on Form 8-K/A dated June 15,
1998. The results of operations for the interim periods are not necessarily
indicative of the results of the full fiscal year.
Income (Loss) per Common Share
- ------------------------------
Income (loss) per common share is computed based on the weighted average number
of shares outstanding and in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 128 "Earnings Per Share". Dilutive securities consisting
of convertible preferred stock, convertible subordinated debt and common stock
options are included in the computation of income (loss) per dilutive share when
their effect is dilutive. Accordingly, "Basic EPS" and "Diluted EPS" were
calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- --------------------
1997 1998 1997 1998
--------- ------- --------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Basic
Net income (loss) applicable to common shares $(389,255) 63,491 (316,397) (31,695)
========= ======= ======== =======
Weighted average common shares outstanding 147,763 171,207 136,171 164,761
========= ======= ======== =======
Basic income (loss) per common share $ (2.63) 0.37 (2.32) (0.19)
========= ======= ======== =======
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------- -------------------
1997 1998 1997 1998
--------- ------- -------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Diluted
Net income (loss) applicable to common shares $(389,255) 63,491 (316,397) (31,695)
Add:
Effect on net income of conversion of
convertible subordinated debentures - * 3,312 - * - **
--------- ------- -------- -------
Adjusted net income (loss) applicable to
common shares $(389,255) 66,803 (316,397) (31,695)
========= ======= ======== =======
Weighted average shares outstanding 147,763 171,207 136,171 164,761
Add:
Assumed conversion of subordinated
debentures - * 10,481 - * - **
Exercise of options - * 5,368 - * - **
--------- ------- -------- -------
Adjusted weighted average shares outstanding 147,763 187,056 136,171 164,761
========= ======= ======== =======
Diluted income (loss) per common share $ (2.63) 0.36 (2.32) (0.19)
========= ======= ======== =======
</TABLE>
_________________
* The calculation of Diluted EPS does not assume conversion of subordinated
debentures or exercise of stock options for the three and nine months
ended December 31, 1997 as the effect would be antidilutive to loss per
common share.
** The calculation of Diluted EPS does not assume conversion of subordinated
debentures or exercise of stock options for the nine months ended
December 31, 1998 as the effect would be antidilutive to loss per share.
Under the treasury stock method, the exercise of all outstanding options
would have increased the weighted average number of shares by 5.1 million
for the nine months ended December 31, 1998.
Note 2. Inventories
-----------
Inventories at March 31, 1998 and December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1998
-------------- -----------------
(in thousands)
<S> <C> <C>
Raw materials $130,501 137,847
Work-in-progress 102,198 134,862
Finished goods 240,999 262,114
-------- -------
$473,698 534,823
======== =======
</TABLE>
8
<PAGE>
Note 3. Debt
----
Notes Payable. As of December 31, 1998, the Company had a Senior Credit
Facility which provides certain credit facilities to the Company of up to $750.0
million, of which there were outstanding borrowings of $546.8 million and
outstanding letters of credit of $51.2 million. Borrowings under the Senior
Credit Facility bear interest at variable rates of up to 0.70% above certain
Eurocurrency rates or BankBoston's base rate. The Senior Credit Facility
expires October 2002 and is subject to customary and usual terms.
Remarketable or Redeemable Securities Issuance. On May 15, 1998, the Company
issued $500.0 million 6.375% Remarketable or Redeemable Securities due 2011
(remarketing date May 15, 2001) and $400.0 million 6.50% Remarketable or
Redeemable Securities due 2013 (remarketing date May 15, 2003) (collectively,
the "ROARS"). The net proceeds from the sale of the ROARS, including a premium
payment to the Company by Nationsbanc Montgomery Securities LLC, were $913.6
million. The net proceeds were used to repay indebtedness under the Senior
Credit Facility, indebtedness assumed in the acquisition of Memtec Limited, and
a portion of the indebtedness assumed in the acquisition of Culligan Water
Technologies, Inc. ("Culligan").
Convertible Subordinated Debt. As of December 31, 1998, the Company had
outstanding $414.0 million aggregate principal amount of 4.5% Convertible
Subordinated Debentures due December 15, 2001 (the "Debentures"). The
Debentures are convertible into common stock at any time prior to maturity,
redemption or repurchase at a conversion price of $39.50 per share.
On September 23, 1998, the Company redeemed approximately $81.5 million of the
$140.0 million aggregate principal amount of 6% Convertible Subordinated Notes
due September 15, 2005 (the "Notes"). The redemption was financed with
borrowings under the Senior Credit Facility. The remaining notes were converted
into approximately 3.2 million shares of the Company's common stock.
Note 4. Acquisition
-----------
On June 15, 1998, a wholly owned subsidiary of the Company consummated the
acquisition of Culligan in a tax free reorganization. The Company issued 48.6
million shares of the Company's common stock for all of the outstanding common
stock of Culligan (1.875 shares of the Company's common stock for each
outstanding share and each outstanding option or other right to acquire a share
of Culligan common stock, par value $.01). In addition, the Company assumed
approximately $491.7 million of third party debt.
Culligan is a leading manufacturer and distributor of water purification and
treatment products and services for household, consumer and commercial
applications. Products and services offered by Culligan range from those
designed to solve residential water problems, such as filters for tap water and
household softeners, to equipment and services, such as ultrafiltration and
microfiltration products. Culligan also offers desalination systems and
portable deionization services designed for commercial and industrial
applications. In addition, Culligan sells and licenses its dealers to sell
under the Culligan trademark five-gallon bottled water.
The acquisition has been accounted for as a pooling of interests and,
accordingly, the condensed consolidated financial statements and notes thereto
for all periods presented have been restated to include the accounts of
Culligan. Reconciliation of results of operations of the combined entities for
the three and nine months ended December 31, 1997 are as follows:
9
<PAGE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
December 31, 1997 December 31, 1997
------------------ ------------------
(in thousands, except per share data)
<S> <C> <C>
Revenues:
Company (as previously reported) $ 829,427 2,346,553
Culligan 140,086 354,254
--------- ---------
Combined $ 969,513 2,700,807
========= =========
Net income (loss):
Company (as previously reported) $(374,095) (337,301)
Culligan (15,160) 20,904
--------- ---------
Combined $(389,255) (316,397)
========= =========
Loss per common share:
Basic:
As previously reported $ (3.71) (3.65)
========= =========
As restated $ (2.63) (2.32)
========= =========
Diluted:
As previously reported $ (3.71) (3.65)
========= =========
As restated $ (2.63) (2.32)
========= =========
</TABLE>
Concurrent with the acquisition of Culligan, the Company designed and
implemented a restructuring plan to streamline its manufacturing and production
base, redesign its distribution network, improve efficiency and enhance its
competitiveness. The restructuring plan resulted in a pre-tax charge of $257.9
million in the nine months ended December 31, 1998. Included in the charge is
approximately $49.2 million of merger-related expenses incurred to consummate
the Culligan transaction, including investment banking fees, printing fees,
stock transfer fees, legal fees, accounting fees, governmental filing fees and
certain other transaction costs. Integration and other acquisition costs of
approximately $40.6 million were incurred to combine the operations of Culligan
and the Company and consisted of travel, training, payroll and benefit plan
conversions, legal and consulting fees and other one-time charges related to the
transaction. The plan identified certain manufacturing facilities, distribution
sites, sales and administrative offices, retail outlets and certain related
assets that became redundant upon consummation of the Culligan transaction. As
a result, and in accordance with SFAS 121, an impairment loss was recognized and
idle assets were written down to the lower of their carrying cost or net
realizable value. These assets will not be depreciated while they are held for
disposal. Assets with remaining service lives were written down to the extent
that carrying amounts exceeded future discounted cash flows and estimated
proceeds from disposal. Had the Company not recognized the impairment losses,
the resulting depreciation expense for the period beginning with the plan's
implementation and ending December 31, 1998 would not have been material to
reported results. These assets have a carrying value of approximately $48.3
million as of December 31, 1998 and are expected to be disposed of during the
Company's current fiscal year.
The restructuring plan also resulted in the reduction of the combined workforce
by 950 employees consisting of 123 management personnel, 295 administrative
personnel, 444 manufacturing personnel and 88 sales personnel. In addition, the
plan impaired certain carrying amounts of goodwill and other intangible assets
in accordance with SFAS 121, which requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. In determining the amount
of impairment of these assets, the Company valued the assets based on the
present value of estimated expected future cash flows using discount rates
commensurate with the risks involved. The components of the merger,
restructuring, acquisition and other related charges are as follows:
10
<PAGE>
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Merger, integration and other acquisition costs $ 89,773
Write-off of duplicative assets and lease terminations 79,982
Severance, relocation and related costs 50,649
Write-off of goodwill and other intangible assets 37,516
--------
Total merger, restructuring, acquisition and other related charges $257,920
========
Cash charges $155,396
Non-cash charges 102,524
--------
$257,920
========
</TABLE>
Approximately $19.3 million of merger and restructuring related charges are
included in accrued liabilities at December 31, 1998. Additional costs to
complete the restructuring plan are not expected to be material.
Prior to the Company's acquisition of Culligan, Culligan acquired Protean plc,
including Protean's Analytical and Thermal Division ("A&T"). In connection with
Culligan's acquisition of A&T, the Company recorded a charge of $3.6 million in
the nine months ended December 31, 1998 for purchased in-process research and
development projects that had not reached technological feasibility and that had
no alternative future use.
After an income tax benefit of $50.5 million, the charges detailed above
totaling $261.5 million reduced earnings by $211.0 million.
Note 5. Comprehensive Income
--------------------
In the current period, the Company adopted SFAS 130 "Reporting Comprehensive
Income", which establishes standards for disclosing comprehensive income in both
annual and interim financial statements. Accordingly, the Company's
comprehensive income was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------- --------------------
1997 1998 1997 1998
---------- ------- --------- --------
(in thousands)
<S> <C> <C> <C> <C>
Net income (loss) $(389,255) 63,491 (316,397) (31,695)
Foreign currency translation adjustments (3,270) (161) (22,858) (14,183)
--------- ------ -------- -------
Comprehensive income (loss) $(392,525) 63,330 (339,255) (45,878)
========= ====== ======== =======
</TABLE>
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- ---------------------
Revenues. Revenues for the three months ended December 31, 1998 were $1.2
billion, an increase of $255.6 million or 26.4% from the $969.5 million for the
three months ended December 31, 1997. Revenues for the nine months ended
December 31, 1998 were $3.6 billion, an increase of $0.9 billion or 32.2% from
the $2.7 billion for the nine months ended December 31, 1997. These increases
were due primarily to acquisitions completed by the Company subsequent to
December 31, 1997. For the nine months ended December 31, 1998, revenues from
capital equipment sales represented 47.4% of total revenues. Revenues from
services, operations, replacement parts and consumables represented 23.6% of
total revenues, while revenues from distribution represented 21.3% of total
revenues and revenues from consumer products represented 7.7% of total revenues.
Gross Profit. Gross profit as a percentage of revenue ("gross margin") was
29.7% for the three months ended December 31, 1998 compared to 27.7% in the
corresponding period in the prior year. Gross margin was 29.7% for the nine
months ended December 31, 1998 compared to 26.1% in the corresponding period in
the prior year. These increases in gross margin for the three and nine month
periods ended December 31, 1998 were due primarily to (i) efficiencies realized
as a result of the Company's reorganization plans implemented in the third
quarter of the prior year and the first quarter of the current year; (ii)
certain economies of scale related to the Company's significant growth,
including enhanced purchasing power; (iii) favorable product mix in the current
periods resulting from the Company's emphasis on selling higher margin value
added products and services; and (iv) the incurrence of certain unreimbursed
project costs during the nine months ended December 31, 1997 recorded by
Kinetics, which was acquired as of December 31, 1997 and accounted for as a
pooling of interests.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended December 31, 1998 were $241.7
million, an increase of $52.3 million or 27.6% from the $189.4 million for the
three months ended December 31, 1997. During this period, selling, general and
administrative expenses were 19.7% of revenues which was nominally higher than
the 19.5% for the comparable period in the prior year. For the nine months
ended December 31, 1998 selling, general and administrative expenses, before
purchased in-process research and development and merger, restructuring,
acquisition and other related charges described below ("certain charges"),
increased $189.1 million to $709.2 million as compared to $520.1 million in the
comparable period in the prior year. During this period, selling, general and
administrative expenses before certain charges were 19.9% of revenues compared
to 19.3% for the comparable period in the prior year. The increase in selling,
general and administrative expenses before certain charges in the three and nine
months ended December 31, 1998 can be attributed primarily to acquisitions
completed subsequent to December 31, 1997.
Merger, Restructuring, Acquisition and Other Related Charges. Concurrent with
the acquisition of Culligan, the Company designed and implemented a
restructuring plan to streamline its manufacturing and production base, redesign
its distribution network, improve efficiency and enhance its competitiveness.
The restructuring plan resulted in a pre-tax charge of $257.9 million in the
nine months ended December 31, 1998. Included in the charge is approximately
$49.2 million of merger-related expenses incurred to consummate the Culligan
transaction, including investment banking fees, printing fees, stock transfer
fees, legal fees, accounting fees, governmental filing fees and certain other
transaction costs. Integration and other acquisition costs of approximately
$40.6 million were incurred to combine the operations of Culligan and the
Company, and consisted of travel, training, payroll and benefit plan
conversions, legal and consulting fees and other one-time charges related to the
transaction. The plan identified certain manufacturing facilities, distribution
sites, sales and administrative offices, retail outlets and certain related
assets that became redundant upon consummation of the Culligan transaction. As a
result, and in accordance with SFAS 121, an impairment loss was recognized and
idle assets were written down to the lower of their carrying cost or net
realizable value. These assets will not be depreciated while they are held for
disposal. Assets with remaining service lives were written down to
12
<PAGE>
the extent that carrying amounts exceeded future discounted cash flows and
estimated proceeds from disposal. Had the Company not recognized the impairment
losses, the resulting depreciation expense for the period beginning with the
plan's implementation and ending December 31, 1998 would not have been material
to reported results. These assets have a carrying value of approximately $48.3
million as of December 31, 1998 and are expected to be disposed of during the
Company's current fiscal year.
The restructuring plan also resulted in the reduction of the combined workforce
by 950 employees consisting of 123 management personnel, 295 administrative
personnel, 444 manufacturing personnel and 88 sales personnel. In addition, the
plan impaired certain carrying amounts of goodwill and other intangible assets
in accordance with SFAS 121, which requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. In determining the amount
of impairment of these assets, the Company valued the assets based on the
present value of estimated expected future cash flows using discount rates
commensurate with the risks involved. The components of the merger,
restructuring, acquisition and other related charges are as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Merger, integration and other acquisition costs $ 89,773
Write-off of duplicative assets and lease terminations 79,982
Severance, relocation and related costs 50,649
Write-off of goodwill and other intangible assets 37,516
--------
Total merger, restructuring, acquisition and other related charges $257,920
========
Cash charges $155,396
Non-cash charges 102,524
--------
$257,920
========
</TABLE>
Approximately $19.3 million of merger and restructuring related charges are
included in accrued liabilities at December 31, 1998. Additional costs to
complete the restructuring plan are not expected to be material.
Prior to the Company's acquisition of Culligan, Culligan acquired Protean plc,
including Protean's Analytical and Thermal Division ("A&T"). In connection with
Culligan's acquisition of A&T, the Company recorded a charge of $3.6 million in
the nine months ended December 31, 1998 for purchased in-process research and
development projects that had not reached technological feasibility and that had
no alternative future use.
After an income tax benefit of $50.5 million, the charges detailed above
totaling $261.5 million reduced earnings by $211.0 million for the nine months
ended December 31, 1998.
Interest Expense. Interest expense increased to $30.0 million for the three
months ended December 31, 1998 from $15.8 million for the corresponding period
in the prior year. Interest expense increased to $85.2 million for the nine
months ended December 31, 1998 from $39.7 million for the corresponding period
in the prior year. Interest expense for the nine months ended December 31, 1998
consisted primarily of interest on the Company's (i) 6.0% Convertible
Subordinated Notes issued on September 18, 1995 due 2005, (which were redeemed
or converted during the current period as discussed below) (ii) 4.5% Convertible
Subordinated Notes issued on December 11, 1996 due 2001, (iii) 6.375%
Remarketable or Redeemable Securities issued May 15, 1998 due 2011 (remarketing
date May 15, 2001), (iv) 6.5% Remarketable or Redeemable Securities due 2013
(remarketing date May 15, 2003), (v) other long-term debt bearing interest at
rates ranging from 2.0% to 10.1% and (vi) borrowings under the Company's Senior
Credit Facility. At December 31, 1998, the Company had cash and short-term
investments of $38.4 million.
Income Taxes. Income tax expense for the three months ended December 31, 1998
increased to $35.8 million from a benefit of $15.9 million in the corresponding
period in the prior year. The Company's effective tax rate for the current
period was 36.0% which was higher than the effective tax rate of 34.2% for the
third quarter in the prior year (excluding the impact of certain charges). The
Company recorded income tax expense of $50.1 million for the nine months ended
December 31, 1998, an increase of $24.3 million from income tax
13
<PAGE>
expense of $25.8 million in the comparable period in the prior year. Before
certain charges, income tax expense was $100.6 million or an effective tax rate
of 35.9% for the nine months ended December 31, 1998 as compared to 35.6% for
the comparable period in the prior year.
Net Income. Net income for the three months ended December 31, 1998 was $63.5
million, an increase from the net loss of $389.3 million for the three months
ended December 31, 1997. Income before certain charges for the three months
ended December 31, 1997 was $42.8 million. Income before certain charges for
the nine months ended December 31, 1998 was $179.3 million, an increase of $63.6
million from the $115.7 million for the nine months ended December 31, 1997.
Net loss in the nine months ended December 31, 1997 included a one-time after
tax gain of $18.8 million or $0.15 per diluted share on Culligan's disposition
of an investment in an affiliate. After non-recurring charges, net loss in the
nine months ended December 31, 1998 was $31.7 million. Net income (loss) per
common share for the three and nine months ended December 31, 1997 and 1998 were
as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -------------------
1997 1998 1997 1998
--------- ------- -------- --------
<S> <C> <C> <C> <C>
Basic $(2.63) 0.37 (2.32) (0.19)
====== ==== ===== =====
Diluted $(2.63) 0.36 (2.32) (0.19)
====== ==== ===== =====
</TABLE>
Liquidity and Capital Resources
- -------------------------------
The Company's principal sources of funds are cash and other working capital,
cash flow generated from operations and borrowings under the Company's Senior
Credit Facility. At December 31, 1998, the Company had working capital of
$932.0 million including cash and short-term investments of $38.4 million. On
May 15, 1998, the Company issued $500.0 million 6.375% Remarketable or
Redeemable Securities due 2011 (remarketing date May 15, 2001) and $400.0
million 6.50% Remarketable or Redeemable Securities due 2013 (remarketing date
May 15, 2003) (collectively, the "ROARS"). The net proceeds from the sale of
the ROARS, including a premium payment to the Company by NationsBanc Montgomery
Securities LLC, were $913.6 million. The net proceeds were used to repay
indebtedness under the Senior Credit Facility, indebtedness assumed in the
acquisition of Memtec, and a portion of the indebtedness assumed in the
acquisition of Culligan. The Company's long-term debt at December 31, 1998
consisted of (i) $414.0 million of 4.5% Convertible Subordinated Notes due 2001;
(ii) $500.0 million of ROARS due 2011 (remarketing date May 15, 2001); (iii)
$400.0 million of ROARS due 2013 (remarketing date May 15, 2003); and (iv) other
long-term debt of $87.7 million bearing interest at rates ranging from 2.0% to
10.1%.
As of December 31, 1998, the Company had a Senior Credit Facility which provides
credit facilities to the Company of up to $750.0 million, of which there were
outstanding borrowings of $546.8 million and outstanding letters of credit of
$51.2 million. Borrowings under the Senior Credit Facility bear interest at
variable rates of up to 0.70% above certain Eurocurrency rates or BankBoston's
base rate. The Senior Credit Facility expires October 2002 and is subject to
customary and usual terms.
On September 23, 1998, the Company redeemed approximately $81.5 million of the
$140.0 million aggregate principal amount of 6% Convertible Subordinated Notes
due September 15, 2005 (the "Notes"). The redemption was financed with
borrowings under the Senior Credit Facility. The remaining Notes were converted
into approximately 3.2 million shares of the Company's common stock.
The Company believes its current cash position, cash flow from operations, and
available borrowings under the Company's Senior Credit Facility will be adequate
to meet its anticipated cash needs from working capital, revenue growth,
scheduled debt repayment and capital investment objectives for at least the next
twelve months.
14
<PAGE>
Certain Trends and Uncertainties
The Company and its representatives may from time to time make written or oral
forward-looking statements, including statements contained in the Company's
filings with the United States Securities and Exchange Commission and in its
reports to stockholders. In connection with the "Safe Harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the Company is hereby
identifying important factors that could cause actual results to differ
materially from those contained in any forward-looking statement made by or on
behalf of the Company; any such statement is qualified by reference to the
following cautionary statements.
Earnings Variation Due to Business Cycles and Seasonal Factors. Our operating
results can experience quarterly or annual variations due to business cycles,
seasonality and other factors. The market price for our common stock may
decrease if our operating results do not meet the expectations of stock market
analysts.
About 45% of our sales are of capital equipment. Sales of capital equipment are
affected by general fluctuations in the business cycles in the United States and
worldwide, instability of economic conditions (such as the current conditions in
the Asia Pacific region and Latin America) and interest rates, as well as other
factors.
In addition, operating results of some of our business segments are
significantly influenced, along with other factors such as interest rates, by
particular business cycles and seasonality, including:
<TABLE>
<CAPTION>
Business Cycles
and Seasons
Segment Affecting Results
- --------------------------------------------------------
<S> <C>
Waterworks . Real estate development
Distribution . Housing starts
. Winter months in temperate
regions
. Industrial capital spending
Consumer and . Consumer spending
Commercial . Housing starts
Industrial . Microelectronics
Products and . Pharmaceutical
Services . Biotechnology
. Municipal spending
</TABLE>
Profit Uncertainty in Fixed-Price Contracts. Contracts with fixed prices make
up a significant portion of our revenues. If our original cost estimates are
incorrect, there are delays in scheduled deliveries or we otherwise do not
progress under a fixed-price contract as we expected, the profits under that
contract could decrease, or we could lose money on that contract. When our cost
estimates change for fixed-price contracts, we record adjustments in our
financial statements, and any future downward adjustments could be material.
Competition. We compete against many companies in fragmented, highly
competitive markets and we have fewer resources than some of those companies.
Our businesses compete within and outside the United States principally on the
basis of the following factors:
<TABLE>
<CAPTION>
Business Factors
- ---------------------------------------------------------
<S> <C>
Water and . Product quality and
Wastewater specifications
Treatment . Technology
. Reliability
. Price (can predominate among
competitors in the wastewater
treatment business that have
sufficient technical
qualifications, particularly in the
municipal contract bid process)
. Customize design and technical
qualifications
. Reputation
. Prompt local service
Filtration and . Price
Separation . Technical expertise
. Product quality
. Responsiveness to customer needs
. Service
. Technical support
Industrial . Quality
Products and . Service
Services . Price
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Business Factors
- ---------------------------------------------------------
<S> <C>
Waterworks . Prompt local service capability
Distribution . Product knowledge by sales force
and service branch management
. Price
Consumer and . Price
Commercial . Product Quality
products . "Taste"
. Service
. Distribution capabilities
. Geographic presence
. Reputation
</TABLE>
The waterworks distribution business competes against independent wholesalers,
distribution chains similar to ours and manufacturers who sell directly to
customers. The consumer products business competes with thousands of companies,
including those with national, regional or local distribution networks, as well
as retail outlets.
Competitive pressures, including those described above, and other factors could
cause us to lose market share or could result in decreases in prices, either of
which could have a material adverse effect on our financial position and results
of operations.
Risks Related to Acquisitions. We have made a large number of acquisitions
since 1991 and we plan to continue to pursue acquisitions. Candidates for
acquisition include businesses that allow us to:
. expand the segments of the water and wastewater treatment and water-
related industries in which we participate;
. complement our technologies, products or services;
. broaden our customer base and geographic areas served;
. expand our global distribution network; or
. use our "one-stop-shop" approach in terms of technology, distribution or
service.
If we are not correct when we assess the value, strengths, weaknesses,
liabilities and potential profitability of acquisition candidates or we are not
successful in integrating the operations of acquired companies, our results of
operation or financial position could be adversely affected and we could lose
money. In addition, if we acquire other businesses by making so-called
"hostile" tender offers, as we did with Memtec Limited, we may encounter added
risks. When we negotiate to acquire a company, that company generally makes
legally binding statements (known as "representations") to us and provides us
with access to internal documents and other data that we rely upon in deciding
whether to acquire the company and if we decide to acquire the company, on what
terms. We would not get such representations or internal information in a
"hostile" tender offer. We will continue to look for acquisition opportunities,
although we may not continue to easily find desirable acquisition candidates or
complete acquisitions.
Risks of Doing Business in Other Countries. We have acquired businesses and we
conduct business in markets outside the United States, and we expect to continue
to do so. In addition to the risk of currency fluctuations, the risks
associated with conducting business outside the United States include:
. slower payment of invoices;
. underdeveloped legal systems;
. nationalization; and
. social, political and economic instability.
Current economic conditions in the Asia Pacific region and Latin America have
adversely affected our operations and sales there. We cannot predict the full
impact of this economic instability, but it could have a material adverse effect
on our revenues and profits.
Importance of Certain Employees. Our senior officers, particularly Richard J.
Heckmann, who is our Chief Executive Officer, are very important to the success
of our operations. We have various
16
<PAGE>
compensation and benefit arrangements with our senior officers, including Mr.
Heckmann, that are designed to encourage them to continue their employment with
us. However, if any of our senior officers do not continue in their present
roles, our prospects may be adversely affected.
Year 2000 Risks. The Year 2000 issue concerns the potential exposures related
to the automated generation of business and financial misinformation resulting
from the application of computer programs which have been written using six
digits (such as 12/31/99), rather than eight (such as 12/31/1999), to define the
applicable date of business transactions. Many products and systems could
experience malfunctions when attempting to process certain dates, such as
January 1, 2000 or September 9, 1999 (a date programmers sometimes used as a
default date).
Our Year 2000 compliance program consists of three phases: identification and
assessment; remediation; and testing. For any given system, the phases occur in
sequential order, from identification and assessment of Year 2000 problems, to
remediation, and, finally, to testing our solutions.
We have completed the identification assessment and remediation of most of our
information technology ("IT") systems. We have commenced identification and
assessment of our non-IT systems, which include, among other things, components
found in water and wastewater treatment plants and process water treatment
systems owned and/or operated under contract by us and in our hazardous water
treatment facilities, as well as components of equipment in our manufacturing
facilities. Identification and assessment with respect to non-IT systems is
projected to continue until September 1999 for currently owned businesses.
However, as we acquire additional businesses, each IT and non-IT system of the
acquired businesses must be independently identified and assessed. As a result,
all three phases of our Year 2000 compliance program may be occurring
simultaneously as they relate to different systems. Each phase may have a
varying timetable to completion, depending upon the system and the date when a
particular business was acquired by us.
With the possible exception of the remediation and testing phases for certain of
our non-IT systems, all phases of our Year 2000 compliance program are expected
to be completed by September 1999, although we cannot assure you that all phases
for all businesses will be completed by that date. In particular, we cannot
assure you that recently or newly acquired businesses will be Year 2000
compliant, although we currently have a policy that requires an acquisition
candidate to represent that its business is Year 2000 compliant. To the extent
feasible, we also review the Year 2000 status of acquisition candidates before
we complete an acquisition.
In addition to our internal systems, we have begun to assess the level of Year
2000 problems associated with our various suppliers, customers and creditors.
To test the Year 2000 compliance status of our suppliers, we plan to submit
hypothetical orders to our suppliers dated after December 31, 1999 requesting
confirmation that the orders have been correctly processed.
Our costs to date for our Year 2000 compliance program, excluding employee
salaries, have not been material. Although we have not completed our
assessment, we do not currently believe that the future costs associated with
our Year 2000 compliance program will be material.
We are currently unable to determine our most reasonably likely worst-case Year
2000 scenario, as we have not identified and assessed all our systems,
particularly our non-IT systems. As we complete our identification and
assessment of internal and third-party systems, we expect to develop contingency
plans for various worst case scenarios. We expect to have such contingency
plans in place by September 1999. A failure to address Year 2000 issues
successfully could have a material adverse effect on our business, financial
condition or results of operations.
Potential Environmental Risks. Environmental laws and regulations require us to
meet certain standards and impose liability if we do not meet them.
Environmental laws and regulations and their interpretations change. We must
comply with
17
<PAGE>
any new standards and requirements, even when they require us to clean up
environmental conditions that were not illegal when the conditions were created.
We can be held responsible for failures to meet environmental standards by
businesses we acquired that happened before we acquired them. All of these
requirements can cost us money.
Environmental costs can result from cleanup obligations, civil or criminal
enforcement actions or private actions. Costs of environmental compliance and
fines or penalties for environmental violations could have a material adverse
effect on us in the future. Environmental risks that we have in our businesses
and some of the specific environmental liabilities that we know about and that
could result in significant future costs to us are discussed below.
. Cleanup Liabilities. The United States Environmental Protection Agency has
notified us that we are a potentially responsible party under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(CERCLA) at certain sites to which we (or companies we have acquired) have
allegedly sent waste in the past. We may receive additional notices under
CERCLA or state law.
You should be aware that in 1995, Culligan, one of our subsidiaries, bought
part of Anvil Holdings, Inc. and assumed certain environmental liabilities
associated with soil and ground water contamination at Anvil Knitwear's
Asheville Dyeing and Finishing Plant in Swannanoa, North Carolina. Since 1990,
Culligan has monitored the contamination pursuant to an Administrative Consent
Order entered into with the North Carolina Department of Environment, Health
and Natural Resources related to the closure of an underground storage tank at
the site. Groundwater testing at this plant and at two adjoining properties
showed levels of a cleaning solvent that Culligan believed to be from the plant
that exceed applicable state standards.
We have begun cleanup of the contamination and estimate that the costs of
future site cleanup will range from $1.0 million to $1.8 million. We have a
reserve for financial accounting purposes for cleanup of this site. We
anticipate that the potential costs of further monitoring and corrective
measures to address the groundwater problem will not have a material adverse
effect on our financial position or results of operations. However, because
the full extent of the required cleanup has not been determined, we cannot
assure you of this result.
Also, we do not believe that our liability relating to all of the sites we know
to require cleanup, including the Anvil site, will be material to us. However,
we cannot assure you that such sites and/or other sites that we do not know
about will not have a material adverse effect on our financial position or
results of operations.
. Hazardous Waste Treatment and Recovery Facilities. We own and operate several
hazardous waste treatment and recovery facilities, which are subject to very
strict environmental laws and regulations and compliance reviews. If we do
not comply with these regulations, we could be fined significant amounts of
money and/or the facilities' hazardous waste permits could be suspended or
revoked.
. Liability for Wastewater Treatment Facilities and Wastewater Discharges. By
contract, we operate various wastewater collection and treatment facilities
that were developed and are owned by governmental or industrial entities.
Under certain service contracts and applicable environmental laws we may be
held responsible as an operator of such facilities. We also operate
facilities owned by us, including service deionization centers and
manufacturing facilities, that discharge wastewater in connection with
routine operations. Potential responsibilities relating to these facilities
include paying the fines or penalties if the facilities malfunction or
discharge wastewater which fall below certain regulatory thresholds. In some
cases, such possible malfunctions or discharges depend upon design or
operational conditions over which we have limited, if any, control.
. Underground Storage Tanks and Potential for Soil and Groundwater
Contamination. Some of our facilities contain (or in the past contained)
underground storage tanks which may
18
<PAGE>
have caused soil or groundwater contamination. At one site formerly owned by
Culligan, we are investigating, and have taken certain actions to correct,
contamination that may have resulted from a former underground storage tank.
Based on the amount of contamination believed to have been present when the
tank was removed, and the probability that some of the contamination may have
originated from nearby properties, we believe, although there can be no
assurance, that this matter will not have a material adverse effect on our
financial position or results of operations.
. Impact of Environmental Laws on Our Product Sales. The liabilities and risks
imposed on our customers by environmental laws may adversely impact demand
for some of our products or services or impose greater liabilities and risks
on us, which could also have an adverse effect on our competitive and
financial position.
Risks Related to Municipal Water and Wastewater Business. Sales to municipal
customers make up a significant percentage of our revenues. We encounter some
additional risks with municipalities that we do not have with industrial
customers. Competition for selection of a municipal contractor usually requires
a formal bidding process. By requiring formal bids, municipal projects entail
longer lead times than industrial projects and force us to commit more
resources. In addition, the municipal business depends upon the availability of
funding at the local level, which may be subject to increasing pressure as local
governments are expected to bear a greater share of the cost of public services.
Technological and Regulatory Risks. Changes in technology, competitively
imposed process standards and regulatory requirements influence the demand for
many of our products and services. To grow and remain competitive, we need to
anticipate changes in technological and regulatory standards. We need to
introduce new and enhanced products on a timely basis. We may not achieve these
goals and some of our products may become obsolete.
New products often face lack of market acceptance, development delays or
operational failure. Stricter governmental regulations also may affect
acceptance of new products. The market growth potential of in-process research
and development that we have acquired with some businesses we bought is subject
to significant risks, including high development, production and sales costs,
introduction of competing technologies and the possible lack of market
acceptance of the developed products and technologies.
Our trademarks or patents may not provide substantial protection from
competition or be of commercial benefit to us. We may not be able to enforce
our rights under trademarks or patents against third parties. Some
international jurisdictions may not protect these kinds of rights to the same
extent that they are protected under U.S. law. If a third party successfully
challenges our trademarks or patents, it may affect our competitive and
financial position.
Risks Related to Water Rights and Transfers of Water. We own more than 47,000
acres of agricultural land in the southwestern United States, most of which is
located within the Imperial Irrigation District (IID) in Imperial County,
California. We lease substantially all of the 47,000 acres to agricultural
tenants.
We acquired the land with water rights, and we are seeking to acquire additional
properties with water rights, primarily in the southwestern and western United
States. In the future, we may want to transfer water attributable to such water
rights, particularly from the land located in the IID.
Our ability to transfer water and the profitability of any such transfers are
subject to various uncertainties, including:
. Hydrologic risks of variable water supplies;
. Unavailable or inadequate transportation facilities;
. Allocations of water under existing and prospective priorities;
. Risks of adverse changes to or interpretations of U.S. federal and state
laws, regulations and policies; and
19
<PAGE>
. Compliance with all U.S. federal and state environmental laws and
regulations.
Transfers of IID water are subject to additional uncertainties, including:
. Control by the IID of the timing and terms of any transfers of our IID
water (the IID holds title to all of the water rights within the IID in
trust for the landowners);
. Limitations of Colorado River water allocations (the source of all water
deliveries to IID properties) under
. international treaties;
. interstate compacts;
. U.S. federal and state laws and regulations; and
. contractual arrangements;
. Curtailment of water deliveries by the U.S. government in times of drought;
. Required approval of the U.S. Secretary of the Interior;
. If a transfer of IID water were approved, possible assertion by other
California water districts and users of claims adverse to our IID water
rights, including but not limited to claims that the IID has failed to
satisfy U.S. federal law and California constitutional requirements that
IID water must be put to reasonable and beneficial use (a finding that the
IID's water use is unreasonable or nonbeneficial could adversely impact
title to our IID water rights and the ability to transfer IID water); and
. Uncertainty of California laws relating to the cost of transportation and
volume of water which could be required to be transported via the Colorado
River owned by the Metropolitan Water District, a quasi-governmental agency
(any IID water transferred to Metropolitan areas of Southern California
such as San Diego would be transported through this aqueduct).
The uncertainties associated with water rights could have a material adverse
effect on our future profitability.
Euro Conversion. On January 1, 1999, eleven of fifteen member countries of the
European Union established fixed conversion rates between their existing
currencies (legacy currencies) and one common currency - the euro. The euro is
now trading on currency exchanges and may be used as a non-cash transitional
currency. The conversion to the euro eliminates currency exchange rate risk
between the participating member countries. Beginning in January 2002, new
euro-denominated bills and coins will be issued, and legacy currencies will be
withdrawn from circulation.
We are assessing the issues raised by the euro currency conversion. These
issues include, among others, the need to adapt computer and financial systems
to accommodate euro-denominated transactions, the competitive impact of
increased price transparency in the participating countries and the impact on
our existing contracts. Since financial systems and processes currently
accommodate multiple currencies, we contemplate systems conversion by mid-2001
if not already addressed in conjunction with Year 2000 remediation. We do not
expect system conversion costs to be material. Due to numerous uncertainties,
we cannot reasonably estimate at this time the effects a common currency will
have on pricing within the European Union and the resulting impact, if any, on
our financial condition or results of operations.
Impact of Recently Issued Accounting Standards. In June 1997, FASB issued a new
statement titled "Disclosures about Segments of an Enterprise and Related
Information". The new statement is effective for fiscal years beginning after
December 15, 1997. The Company is determining required disclosure under this
new standard and will include the disclosures in its next annual report.
In June 1998, FASB issued a new statement titled "Accounting for Derivative
Instruments and Hedging Activities." The new statement is effective for fiscal
years beginning after June 15, 1999. The Company does not believe that the
adoption of this standard will have a material impact on its consolidated
financial position or results of operations.
20
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
N/A
Item 2. CHANGES IN SECURITIES
On December 11, 1998, the Company issued to the shareholders of Insync
Systems, Inc. 526,759 shares (the "Shares") of its common stock, par
value $.01 per share. The Shares were issued in a transaction exempt
from registration pursuant to Section 4(2) of the United States
Securities Act of 1933, as amended.
On December 30, 1998, the Company issued to the shareholders of The
Reinhold Faeth Group of Companies 769,231 shares (the "Shares") of its
common stock, par value $.01 per share. The Shares were issued in a
transaction exempt from registration pursuant to Section 4(2) of the
United States Securities Act of 1933, as amended.
Item 3. DEFAULTS UPON SENIOR SECURITIES
N/A
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
N/A
21
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
The following exhibits are filed herewith:
10.1 Employment Agreement between Calvin R. Hendrix and the Company
27.0 Financial Data Schedule
The Company filed four Current Reports on Forms 8-K during the quarter ended
December 31, 1998, as follows:
November 9, 1998 reporting earnings for the three and six month periods
ended September 30, 1998.
November 10, 1998 reporting certain financial information reflecting the
pro forma results of operation for the fiscal year ended Marsh 31, 1998 as
if the Company's acquisitions of Culligan Water Technologies ("Culligan")
and Memtec Limited as well as Culligan's acquisitions of The Water
Filtration Business of Ametek, Inc. and Protean plc had occurred at the
beginning so such fiscal year.
December 3, 1998 reporting certain Year 2000 readiness disclosures.
December 3, 1997 reporting the adoptions of a Stockholder Rights Plan.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED STATES FILTER CORPORATION
By: /s/ Kevin L. Spence
-----------------------------
Dated: February 12, 1999 Kevin L. Spence
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
23
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<C> <S>
10.1 Employment Agreement between Calvin R. Hendrix and the Company
27.0 Financial Data Schedule
</TABLE>
24
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
as of August 26, 1998, by and between UNITED STATES FILTER CORPORATION, a
Delaware corporation (the "Company"), and CALVIN R. HENDRIX ("Executive").
W I T N E S S E T H :
WHEREAS, the Company and Executive desire to enter into this Agreement
to assure the Company of the continuing and exclusive service of Executive and
to set forth the terms and conditions of Executive's employment with the
Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties agree as follows:
1. Employment.
----------
1.1 Title and Duties. The Company hereby employs Executive as President
----------------
and Chief Operating Officer -- Consumer and Commercial Group of the Company.
Executive's duties, responsibilities and authority shall be consistent with
Executive's position and shall include such other duties, responsibilities and
authority as may be assigned to Executive by the Board of Directors of the
Company (the "Board") or the Chief Executive Officer of the Company (the "CEO").
1.2 Services and Exclusivity of Services. The Company and Executive
------------------------------------
recognize that the services to be rendered by Executive are of such nature as to
be peculiarly rendered by Executive, encompass the individual ability,
managerial skills and business experience of Executive and cannot be measured
exclusively in terms of hours or services rendered in any particular period.
Executive agrees to devote Executive's full business time and to use
1
<PAGE>
Executive's best efforts, energy and ability exclusively toward advancing the
business, affairs and interests of the Company, and matters related thereto.
1.3 Noncompetition and Nonsolicitation. Executive agrees that during
----------------------------------
the Term (as defined in Section 2 below) of this Agreement (and in the case of
termination pursuant to Section 5 below for a period of one year thereafter),
Executive will neither directly nor indirectly engage in a business competing
with any of the businesses conducted by the Company or any of its subsidiaries
or affiliates, nor without the prior written consent of the Board directly or
indirectly have any interest in, own, manage, operate, control, be connected
with as a stockholder, joint venturer, officer, employee, partner or consultant,
or otherwise engage, invest or participate in any business that is competitive
with any of the businesses conducted by the Company or by any subsidiary or
affiliate of the Company; provided, however, that nothing contained in this
section 1.3 shall prevent Executive from investing or trading in stocks, bonds,
commodities, securities, real estate or other forms of investment for
Executive's own account and benefit (directly or indirectly), so long as such
investment activities do not significantly interfere with Executive's services
to be rendered hereunder and are consistent with the conflict of interest
policies maintained by the Company from time to time. Executive further agrees
that during the Term of this Agreement (and in the case of termination pursuant
to Section 5 below for a period of one year thereafter) Executive will not, in
any manner, directly or indirectly induce or attempt to induce any employee of
the Company to terminate or abandon his or her employment for any purpose
whatsoever (other than for poor performance of any employee employed by the
Company at such time).
2. Term. The period of employment under this Agreement (the "Term")
----
shall commence as of the date first set forth above, (the "Effective Date") and
shall continue for a period of twenty-four (24) full calendar months thereafter,
as herein provided. Unless the Company or the Executive gives written notice to
the other party to the contrary at least 60 days prior to the end of the Term
(including any extension), on the first day of the month following the Effective
Date, and on the first day of each month thereafter, the Term shall be
automatically extended by one full calendar month. The Term shall continue until
the expiration of all
2
<PAGE>
automatic extensions affected as aforesaid unless and until it ceases or is
terminated sooner as provided in this Agreement.
3. Compensation.
------------
3.1 Base Salary. During the Term, the Company will pay to Executive
-----------
a base salary at the rate of US $247,000.00 per year, payable in accordance with
the Company practices in effect from time to time ("Base Salary"). Amounts
payable shall be reduced by standard withholding and other authorized
deductions. Such Base Salary shall be reviewed for increase (but not decrease)
in the sole discretion of the Compensation Committee of the Board of Directors
of the Company not less frequently than annually during the Term. In conducting
any such review, the Compensation Committee shall consider and take into
account, among other things, any change in Executive's responsibilities,
performance of Executive, and compensation of other similarly situated
executives of the Company and other comparable companies and other pertinent
factors. Executive's Base Salary shall not be decreased except upon mutual
agreement between the parties.
3.2 Bonuses, Incentive, Savings and Retirement Plans, Welfare Benefit
-----------------------------------------------------------------
Plans. Executive shall be entitled to participate in all annual and long-term
- -----
bonuses and incentive, savings and retirement plans generally available to other
similarly situated executive employees of the Company. Executive, and
Executive's family as the case may be, shall be eligible to participate in and
receive all benefits under welfare benefit plans, practices, programs and
policies provided to other similarly situated executive employees of the
Company, including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs. The Company reserves the right to
modify, suspend or discontinue any and all of its benefits referred to in this
Section 3.2 at any time without recourse by Executive so long as such action is
taken generally with respect to other similarly situated peer executives and
does not single out Executive.
3.3 Fringe Benefits. Executive shall be entitled to receive
---------------
fringe benefits consistent with Executive's duties and position, and in
accordance with the benefits provided to other similarly situated executive
employees of the Company. The Company reserves the right
3
<PAGE>
to modify, suspend or discontinue any and all of its fringe benefits referred to
in this Section 3.3 at any time without recourse by Executive so long as such
action is taken generally with respect to other similarly situated peer
executives and does not single out Executive.
3.4 Expenses. Executive shall be entitled to reimbursement for expenses
--------
incurred in the furtherance of the business of the Company in accordance with
the Company's practices and procedures, as they may exist from time to time.
Executive shall keep complete and accurate records of all expenditures such that
Executive may fully account according to the Company's practices and procedures.
3.5 Vacation. Executive shall be entitled to paid vacations and other
--------
absences from work that are reasonably consistent with the performance of
Executive's duties as provided in this Agreement. Such vacations and absences
shall be in accordance with those generally provided to other similarly situated
executive employees.
3.6 Additional Benefits Upon a Change of Control.
--------------------------------------------
(a) In the event a Change of Control occurs during the Term, the
Executive shall be entitled to receive, within thirty (30) days after the Change
of Control, a cash lump sum amount equal to:
(i) Executive's Base Salary for the balance of the Term, plus
the target annual incentive bonus scheduled for the year in which there is
a Change of Control and each year thereafter for the balance of the Term
(determined without regard to any performance goals); plus
(ii) the present value (as determined by a nationally recognized
employee benefits consulting firm agreed to by Executive and the Company)
of the health, life insurance, disability and accident insurance plans or
programs covering Executive for the balance of the Term.
(b) "Change of Control" shall mean the occurrence of any of the
following:
4
<PAGE>
(i) the acquisition by any person (including any syndicate or
group deemed to be a "person" under Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor provision to either of the foregoing, of "beneficial ownership"
directly or indirectly, of shares of capital stock of the Company entitling
such person to exercise 50% or more of the total voting power of all "Voting
Shares" of the Company;
(ii) during any year or any period of two consecutive years
(not including any period prior to the execution of this Agreement), individuals
who at the beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an agreement
with the Company to effect a transaction described in clause (i), (iii) or (iv)
of this definition) whose election by the Board or nomination for election by
the Board or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved (hereinafter referred to as
"Continuing Directors"), cease for any reason to constitute at least a majority
thereof;
(iii) any consolidation of the Company with, or merger of the
Company into, any other person, any merger of another person into the Company,
or any sale or transfer of all or substantially all of the assets of the Company
to another person (other than (x) a consolidation or merger which does not
result in any reclassification, conversion, exchange or cancellation of
outstanding shares of capital stock other than shares of capital stock owned by
any of the parties to the consolidation or merger or (y) a merger which is
effected solely to change the jurisdiction of incorporation of the Company or
(z) any consolidation with or merger of the Company into a wholly owned
subsidiary, or any sale or transfer by the Company of all of substantially all
of its assets to one or more of its wholly owned subsidiaries in any one
transaction or a series of transactions; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company.
5
<PAGE>
Notwithstanding the foregoing, unless otherwise determined by the Board of
Directors, no change in control of the Company shall be deemed to have
occurred if (x) the Executive is a member of a group which first announces
a proposal which, if successful, would result in a Change of Control, which
proposal (including any modifications thereof) is ultimately successful, or
(y) the Executive acquires a two percent or more equity interest in the
entity which ultimately acquires the Company pursuant to the transaction
described in (x) of this paragraph.
"Beneficial Ownership" shall be determined in accordance with Rule 13d-3
promulgated under the Exchange Act, except that a person shall be deemed to
be the "beneficial owner" of all securities that such person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time.
"Voting Share" means all outstanding shares of any class or classes
(however designated) of capital stock of the Company entitled to vote
generally in the election of the Board of Directors of the Company.
4. Confidential Information.
4.1 General. Executive acknowledges that during employment by and as a
-------
result of a relationship with the Company, Executive will obtain knowledge of
and gain access to information regarding the Company's business, operations,
products, proposed products, production methods, processes, customer lists,
advertising, marketing and promotional plans and materials, price lists, pricing
policies, financial information and other trade secrets, confidential
information and material proprietary to the Company or designated as being
confidential by the Company which is not generally known to non-Company
personnel, including information and material originated, discovered or
developed in whole or in part by Executive (collectively referred to herein as
"Confidential Information"). Executive agrees that during the Term of this
Agreement and, to the fullest extent permitted by law, thereafter, Executive
will, in a fiduciary
6
<PAGE>
capacity for the benefit of the Company, hold all Confidential Information
strictly in confidence and will not directly or indirectly reveal, report,
disclose, publish or transfer any of such Confidential Information to any
person, firm or other entity, or utilize any of the Confidential Information for
any purpose, except in furtherance of Executive's employment under this
Agreement.
4.2 Proprietary Interest. All inventions, designs, improvements,
--------------------
patents, copyrights and discoveries conceived by Executive during the Term of
this Agreement that are useful in or directly or indirectly related to the
business of the Company or to any experimental work carried on by the Company,
shall be the property of the Company. Executive will promptly and fully disclose
to the Company all such inventions, designs, improvements, patents, copyrights
and discoveries (whether developed individually or with other persons) and shall
take all steps necessary and reasonably required to assure the Company's
ownership thereof and to assist the Company in protecting or defending the
Company's proprietary rights therein.
4.3 Return of Materials. Executive expressly acknowledges that all
-------------------
lists, books, records and other Confidential Information of the Company obtained
in connection with the Company's business is the exclusive property of the
Company and that upon the expiration or earlier termination of this Agreement,
Executive will immediately surrender and return to the Company all such items
and all other property belonging to the Company then in the possession of
Executive, and Executive shall not make or retain any copies thereof.
5. Termination Prior to Expiration of Term. Executive's employment, and
---------------------------------------
his rights under this Agreement, may be terminated prior to the expiration of
the Term of this Agreement only as provided in this section 5.
5.1 Death or Disability.
-------------------
(a) The Company may terminate the Executive's employment
hereunder due to death or Disability (as defined below). If Executive's
employment is terminated as a result of death or Disability, Executive (or
Executive's estate or personal representative in the event of death) shall be
entitled to receive Executive's full Base Salary until the expiration of six
7
<PAGE>
months from the date on which Executive was first unable to substantially
perform his duties hereunder. Executive and/or Executive's dependents shall be
entitled to continue to participate in the Company's welfare benefit plans and
programs on the same terms as similarly situated active employees for a period
of six months from the date Executive was first unable to substantially perform
Executive's duties hereunder. Executive and/or Executive's dependents shall
thereafter be entitled to any continuation of such benefits provided under such
benefit plans or by applicable law.
(b) "Disability" shall mean a total and permanent physical or mental
impairment that substantially limits a major life activity of Executive and that
renders Executive unable to perform the essential functions of Executive's
position, even with reasonable accommodation that does not impose an undue
hardship on the Company. Executive's Disability shall be determined by the
Company, in good faith, based upon information supplied by Executive and/or
Executive's medical personnel or others selected by the Company or its insurers.
5.2 Termination by the Company for Cause.
------------------------------------
(a) The Company may terminate the Executive's employment hereunder
for Cause (as hereinafter defined). If the Company terminates the Executive's
employment hereunder for Cause, the Executive shall be entitled to receive (1)
all Base Salary due employee as of the date of termination, (2) any previously
authorized bonus (if any) for the period of Executive's employment prior to the
discharge or resignation, and (3) any previously vested benefits, such as
previously vested retirement benefits. Furthermore, the Company shall honor any
rights previously vested in Executive under a stock option or similar plan or
program.
(b) "Cause" shall mean (1) the Executive's conviction of a felony;
(2) a material breach of this Agreement by the Executive and/or the Executive's
gross neglect of his duties hereunder; or (3) the Executive's addiction to
alcohol or to a drug not prescribed by a physician.
5.3 Termination Without Cause or Termination for Good Reason.
--------------------------------------------------------
8
<PAGE>
(a) The Company may terminate the Executive's employment
hereunder without Cause, and the Executive shall be permitted to terminate his
employment hereunder for Good Reason (as hereinafter defined). If the Company
terminates the Executive's employment hereunder without Cause, other than due to
death or Disability, or if the Employee effects a termination for Good Reason,
the Executive shall be entitled to receive all the benefits provided for under
Section 3.6 of this Agreement.
(b) "Good Reason" means and shall be deemed to exist if, without
the prior written consent of the Executive, (1) the Executive suffers a
reduction in duties, responsibilities or effective authority associated with his
titles and positions as set forth and described in this Agreement or is assigned
any duties or responsibilities inconsistent in any material respect therewith;
(2) the Company fails to substantially perform any material term or provision of
this Agreement; or (3) the Executive's compensation or benefits provided for
hereunder is decreased.
6. Arbitration.
-----------
6.1 General. Any dispute, controversy or claim arising out of or
-------
relating to this Agreement, the breach hereof or the coverage or enforceability
of this arbitration provision shall be settled by arbitration in Riverside
County, California (or such other location as the Company and Executive may
mutually agree), conducted in accordance with the Commercial Arbitration Rules
of the American Arbitration Association, as such rules are in effect in
Riverside on the date of delivery of demand for arbitration. The arbitration of
any such issue, including the determination of the amount of any damages
suffered by either party hereto by reason of the acts or omissions of the other,
shall be to the exclusion of any court of law. Notwithstanding the foregoing,
either party hereto may seek any provisional remedy in a court, including but
not limited to an action for injunctive relief or attachment, without waiving
the right to arbitration.
6.2 Procedure. There shall be three arbitrators, one to be chosen by
---------
each party at will within 10 days from the date of delivery of demand for
arbitration and the third arbitrator to be selected by the two arbitrators so
chosen. If the two arbitrators are unable to select a third arbitrator within 10
days after the last of the two arbitrators is chosen by the parties, the third
arbitrator will be designated, on application by either party, by the American
Arbitration
9
<PAGE>
Association. The decision of a majority of the arbitrators shall be final and
binding on both parties and their respective heirs, executors, administrators,
personal representatives, successors and assigns. Judgement upon any award of
the arbitrators may be entered in any court having jurisdiction, or application
may be made to any such court for the judicial acceptance of the award and for
an order of enforcement.
6.3 Costs and Expenses. The Company shall pay the fees of all
------------------
arbitrators, witnesses and such other expenses as may be generated by the
arbitration, except Executive's attorneys fees, unless a majority of the
arbitrators concludes that such arbitration procedure was not instituted in good
faith by Executive. In such event the arbitrators shall be empowered to allocate
fees and assess costs and other expenses of the arbitrators, except attorneys
fees, as they may deem appropriate, bearing in mind the relative financial
abilities of the parties and the respective merits of their positions.
7. Non-Assignment. This Agreement shall not be assignable nor the duties
--------------
hereunder delegable by Executive. None of the payments hereunder may be
encumbered, transferred or in any way anticipated. The Company shall not assign
this Agreement nor shall it transfer all or any substantial part of its assets
without first obtaining in conjunction with such transfer the express assumption
of the obligations hereof by the assignee or transferee.
8. Remedies. Executive acknowledges that the services Executive is to
--------
render under this Agreement are of a unique and special nature, the loss of
which cannot reasonably or adequately be compensated for in monetary damages,
and that irreparable injury and damage will result to the Company in the event
of any default or breach of this Agreement by Executive. Because of the unique
nature of the Confidential Information, Executive further acknowledges and
agrees that the Company will suffer irreparable harm if Executive fails to
comply with the obligations in section 4 hereof and that monetary damages would
be inadequate to compensate the Company for such breach. Accordingly, Executive
agrees that the Company will, in addition to any other remedies available to it
at law, in equity or, without limitation, otherwise, be entitled to injunctive
relief and/or specific performance to enforce the terms, or prevent or remedy
the violation, of any provisions of this Agreement. This provision shall not
constitute a waiver by the Company of any rights to damages or other remedies
which it may have pursuant to this Agreement or otherwise.
10
<PAGE>
9. Survival. The provisions of sections 4, 5, 6 and 8 shall survive the
--------
expiration or earlier termination of this Agreement.
10. Notices. Any notices or other communications relating to this Agreement
-------
shall be in writing and delivered personally or mailed by certified mail, return
receipt requested, to the party concerned at the address set forth below:
If to Company: United States Filter Corporation
40-004 Cook Street
Palm Desert, California 92211
Attn: General Counsel
If to Executive: At Executive's residence address as maintained
by the Company in the regular course of its
business for payroll purposes.
Either party may change the address for the giving of notices at any time by
notice given to the other party under the provisions of this section 10.
11. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties and supersedes all prior written and oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof, other than that certain written letter agreement
dated as of May 4, 1998 by and among Executive, the Company and Culligan
International, Inc. This Agreement may not be changed orally, but only by an
agreement in writing signed by both parties. Such letter agreement is attached
and is incorporated by reference.
12. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be an original, but all of which together shall constitute one
agreement.
13. Construction. This Agreement shall be governed under and construed in
------------
accordance with the laws of the State of California. The paragraph headings and
captions contained herein are for reference purposes and convenience only and
shall not in any way affect the meaning or
11
<PAGE>
interpretation of this Agreement. It is intended by the parties that this
Agreement be interpreted in accordance with its fair and simple meaning, not for
or against either party, and neither party shall be deemed to be the drafter of
this Agreement.
14. Severability. If any portion or provision of this Agreement is
------------
determined by arbitration or by a court of competent jurisdiction to be
invalid, illegal or unenforceable, the remaining portions or provisions hereof
shall not be affected. The covenants in this Agreement are severable and
separate, and the unenforceability of any specific covenant shall not affect the
enforceability of any other covenant. Moreover, in the event any court of
competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth are unreasonable, then it is the intention of the parties
that such restrictions be enforced to the fullest extent which the court deems
reasonable, and this Agreement shall thereby be reformed.
15. Binding Effect. The rights and obligations of the parties under this
--------------
Agreement shall be binding upon and inure to the benefit of the permitted
successors, assigns, heirs, administrators, executors and personal
representatives of the parties.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and in the year first written above.
UNITED STATES FILTER CORPORATION
By: /s/ Alfred E. Osborne, Jr.
-----------------------------------
Name: Dr. Alfred E. Osborne, Jr.
Title: Chairman, Compensation Committee of
the Board of Directors
EXECUTIVE
CALVIN R. HENDRIX
/s/ Calvin R. Hendrix
------------------------------------------
Signature
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS OF UNITED STATES FILTER
CORPORATION AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1999
<PERIOD-START> OCT-01-1998 APR-01-1998
<PERIOD-END> DEC-31-1998 DEC-31-1998
<CASH> 38,032 0
<SECURITIES> 377 0
<RECEIVABLES> 1,162,523 0
<ALLOWANCES> (45,894) 0
<INVENTORY> 534,823 0
<CURRENT-ASSETS> 2,194,184 0
<PP&E> 1,426,165 0
<DEPRECIATION> (362,757) 0
<TOTAL-ASSETS> 5,126,345 0
<CURRENT-LIABILITIES> 1,262,197 0
<BONDS> 1,401,719 0
0 0
0 0
<COMMON> 1,766 0
<OTHER-SE> 1,731,201 0
<TOTAL-LIABILITY-AND-EQUITY> 5,126,345 0
<SALES> 1,225,109 3,570,322
<TOTAL-REVENUES> 1,225,109 3,570,322
<CGS> 861,690 2,511,304
<TOTAL-COSTS> 861,690 2,511,304
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 2,123 12,387
<INTEREST-EXPENSE> 29,999 85,180
<INCOME-PRETAX> 99,265 18,356
<INCOME-TAX> 35,774 50,051
<INCOME-CONTINUING> 63,491 (31,695)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 63,491 (31,695)
<EPS-PRIMARY> 0.37 (0.19)
<EPS-DILUTED> 0.36 (0.19)
</TABLE>
