<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-13098
AQUA-CHEM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 39-1900496
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7800 NORTH 113TH STREET 53201
P.O. BOX 421, MILWAUKEE, WISCONSIN (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (414) 359-0600
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
PART I
<S> <C> <C>
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 5
Item 3. Legal Proceedings........................................... 6
Item 4. Submission of Matters to a Vote of Security Holders......... 7
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... 7
Item 6. Selected Financial Data..................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 10
Item 8. Financial Statements and Supplementary Data................. 19
Index to Financial Statements of Aqua-Chem, Inc............. 19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 44
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 44
Item 11. Executive Compensation...................................... 47
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 50
Item 13. Certain Relationships and Related Transactions.............. 53
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 54
Financial Statements Included in Item 8..................... 54
Index to Financial Statements and Schedule Included in Item
14........................................................ 54
Schedules Omitted as Not Required or Inapplicable........... 54
Reports on Form 8-K......................................... 55
Exhibits.................................................... 55
</TABLE>
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PART I
ITEM 1. BUSINESS.
Aqua-Chem, Inc. ("The Company", "Aqua-Chem") is organized into three
operating units: the Boiler Group, the Freshwater and Military Business ("F&M
Business"), and the Seawater and Industrial Business ("S&I Business").
The Boiler Group is the world's largest manufacturer of commercial and
industrial packaged boilers and related equipment and markets its products
primarily under the Cleaver-Brooks, Nebraska Boiler, Energy Recovery
International, and Industrial Combustion brand names.
The F&M Business is a leader in the design and production of water
purification and treatment products for selected commercial, government and
military applications sold under the Aqua-Chem brand name.
The S&I Business designs and constructs highly engineered systems for
seawater desalination and industrial evaporation processes also sold under the
Aqua-Chem brand name. During the fourth quarter of Fiscal 2000, the Company
decided to exit the S&I Business and has adjusted its reporting for all periods
to reflect this business as a discontinued operation.
HISTORY
Founded in 1929 as the John C. Cleaver Company and later known as
Cleaver-Brooks, the Company began as an innovative manufacturer of small,
portable boilers that were sold packaged and fully assembled. The Company
eventually became, and for over 20 years has been, the world's largest
manufacturer of commercial and industrial packaged boilers and related
equipment. The Company increased its presence in the packaged boiler market with
the acquisition of substantially all of the assets of National Dynamics
Corporation ("NDC") on June 23, 1998 ("NDC Acquisition") and subsequently
combined the product lines acquired from NDC, most notably Nebraska Boiler and
Energy Recovery International, with the Cleaver-Brooks and Industrial Combustion
product lines to form the Boiler Group.
The Company began manufacturing steam-powered water purification stills in
the early 1940's in response to a military request for a portable system capable
of purifying drinking water. From this start, the Company evolved to become,
through its F&M and S&I Businesses, a global provider of innovative water
treatment products and systems for a variety of commercial, government, military
and industrial applications.
On July 31, 1997, Aqua-Chem Management, led by Jeffrey A. Miller, Chairman
and former CEO, and Whitney Equity Partners, L.P. (a fund managed by Whitney &
Co.) acquired Aqua-Chem (the "Management Buy-Out") from its former owners.
THE BOILER GROUP
Products and Market
The boiler market can generally be segmented according to boiler capacity
and end use. Residential boilers are the smallest, followed by commercial
boilers, industrial boilers, and utility boilers, which are the largest. The
Company competes primarily in the commercial and industrial segments of the
boiler market.
The Company believes that it has the largest installed base of packaged
boilers in the world (estimated at over 80,000) and, that in the U.S. market for
each of its three principal boiler product lines, it enjoys the #1 or #2 market
position.
Based on industry sources, the annual worldwide market for packaged
commercial and industrial boilers of all types is estimated to be in excess of
$1 billion, of which approximately $400 million is attributable to the North
American commercial and industrial boiler market.
The Boiler Group's main products include firetube packaged boilers,
industrial watertube packaged boilers, commercial packaged boilers, waste heat
recovery systems, burners, boiler room accessories, and aftermarket parts and
service
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associated with these products. The Company manufacturers, markets, and
distributes these products primarily under its Cleaver-Brooks, Nebraska Boiler,
Energy Recovery International, and Industrial Combustion brand names. During
Fiscal 2000, 82% of Aqua-Chem's consolidated revenue was attributable to these
boilers and related products.
As a result of the NDC Acquisition, the Boiler Group also competes in the
steel fabrication business and supplies fabricated steel components both
internally to support the boiler business and externally to other boiler
manufacturers and businesses that require steel fabrication.
Sales, Marketing and Customers
High efficiency is often the primary criterion in selecting a boiler as a
slight increase in efficiency can translate into substantial annual fuel
savings. Low nitrous oxide ("NOx") emission levels are also a primary selection
criterion as regulations typically restrict emission levels on new boiler
systems. As a result, the Company's boilers are designed to both reduce cost and
help minimize emission levels. The Boiler Group is also highly regarded for its
engineering ability, design flexibility, broad range of products and sizes, and
its products' quality, safety, and long operating lives. The Company believes
that these factors provide it with a competitive advantage in the boiler market.
The Boiler Group sells boilers through 84 domestic sales representatives
located throughout North America and 48 international sales representatives
located in Eastern Europe, Asia, Australia, Central and South America, and the
Middle East. These sales representatives have sold the Company's products for an
average of more than 25 years. No sales representative accounted for more than
10% of the Boiler Group's net sales during Fiscal 2000. The Boiler Group
believes that its worldwide network of sales and service representatives, which
management believes to be the most extensive global distribution network for
commercial and packaged industrial boilers, provides it with a significant
competitive advantage.
The Boiler Group sells boilers to a diverse, global customer base in a
broad range of industries, with no significant customer concentration. During
Fiscal 2000, no customer represented more than 10% of Aqua-Chem's net sales.
International customers represented approximately 17% of Aqua-Chem's net sales
during the same period.
Raw Materials and Suppliers
The Boiler Group's primary raw materials include steel plate and coil
steel. The Boiler Group also purchases finished components for its products,
such as burners, tubes, controls, insulation, refractory materials, valves,
gauges and pumps. The Boiler Group generally maintains one-year supply
agreements with certain primary steel suppliers. These arrangements typically
specify volume and price, but are cancelable at any time by either party. For
raw materials not covered by supply agreements, the Boiler Group generally
chooses a particular supplier based on market conditions, availability and
pricing. The Boiler Group works closely with its major suppliers and is not
dependent on any single supplier for any of its raw material or component needs.
The Boiler Group is currently implementing new purchasing procedures to reduce
material costs, including consolidation of its suppliers.
Manufacturing
The Boiler Group operates through manufacturing facilities located in
Stratford, Ontario, Canada; Thomasville, Georgia; Monroe, Wisconsin; Mexico
City, Mexico; Gonzales, Texas; and two facilities in Lincoln, Nebraska. The
Boiler Group also conducts applied engineering and product development
activities at a Milwaukee, Wisconsin location. See "Properties and Employees."
All of the Company's manufacturing facilities are committed to being
dynamic, world-class operations providing customer satisfaction and excellent
quality, and one of the Boiler Group's Lincoln, Nebraska facilities is ISO 9001
certified. Lean manufacturing and the continuous improvement philosophy are
supported in each location to promote manufacturing excellence and incorporation
of best practices.
The Company's focus on continuous improvement has resulted in significant
efficiency improvements, cycle time reductions, and cost reductions and has
enabled the Company to consolidate its manufacturing operations to further
improve operating efficiency. Specifically, beginning in 1995, Aqua-Chem closed
its Lebanon,
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Pennsylvania facility and consolidated its large firetube boiler production in
its Thomasville facility and its smaller firetube boiler production in its
Stratford facility. Additionally, in Fiscal 2000, the Company completed the
closure of its Greenville, Mississippi manufacturing facility and relocated the
production performed at the Greenville facility to other Company facilities. The
Company has also adopted a capital spending strategy intended to maximize its
manufacturing ability. As part of this strategy, the Thomasville, Georgia
facility recently completed a plant renovation which the Company believes will
further improve material flow, process efficiency and reductions in
manufacturing cost. The Company's Fiscal 2001 capital budget totals
approximately $4 million and is expected to be spent primarily on projects and
equipment designed to improve quality and efficiency.
FRESHWATER AND MILITARY BUSINESS
Products
The F&M Business' products are primarily pre-engineered water purification
and treatment products and systems and related replacement parts sold to
customers in the bottled water, pharmaceutical, off-shore oil, and military
markets. Although individual units may be adapted to meet unique customer
specifications, the F&M Business manufactures all freshwater and military
products to basic design parameters at its Knoxville, Tennessee facility and
ships them to the customer as fully-manufactured systems that require a minimal
number of piping and electrical connections for installation.
The F&M Business' products include various types of thermal distillation
units, including an all-electric thermal distillation unit that is installed on
all U.S. Navy Trident submarines. Aqua-Chem believes that every U.S. aircraft
carrier and over 90% of the rest of the U.S. Naval Fleet utilize F&M Business'
products to purify water for onboard personnel. The F&M Business also produces
heat exchangers which are used in a variety of specialized applications,
including those in the chemical and military markets. The U.S. Navy uses the
Company's heat exchangers for cooling of nuclear reactor waste water and
feedwater preheating in steam propulsion plants of nuclear aircraft carriers.
During Fiscal 2000, in conjunction with Fredrick Manufacturing, the F&M
Business completed the design, development and testing and delivered to the U.S.
Army three specialized water purification units (termed Tactical Water
Purification System units - "TWPS units"). The U.S. Army is currently testing
these developmental units. Once this testing is complete, the Company, in
conjunction with Frederick Manufacturing, expects to continue with a long-term
production contract for this product. The Company has no assurance, however,
when, or even if, the U.S. Army will choose to proceed with this project or
whether the U.S. Army will include the Company as a supplier.
Late in Fiscal 2000, the Company acquired technology and rights to the
Vaponics pure steam generator and multiple effect distiller product lines. These
product lines compliment the F&M Business' existing pharmaceutical products, and
the Company believes that these added product lines will facilitate its
expansion in this market. These product lines did not contribute substantially
to the F&M Business' Fiscal 2000 results and, on a stand-alone basis, are
expected to contribute less than 10% of the F&M Business net sales during Fiscal
2001.
Sales, Marketing and Customers
The F&M Business utilizes a network of 10 representatives, distributors and
licensees worldwide to sell and market its products. Sales representatives are
compensated on a commission-only basis, while distributors typically make a
profit margin on the purchase and resale of the products.
During Fiscal 2000, the F&M Business represented 10.2% of Aqua-Chem's
consolidated net sales. None of the F&M Business' customers represented more
than 10% of Aqua-Chem's consolidated net sales.
In aggregate, the U.S. Government, primarily through the U.S. Army and
U.S. Navy, either through direct contracts with the U.S. Government or as a
subcontractor on a U.S. Government project, is the F&M Business' largest
customer, with Fiscal 2000 sales of approximately 50% of total F&M Business net
sales. Exclusive of the U.S. Government, during Fiscal 2000, no one customer
represented more than 10% of the F&M Business' net sales.
International customers represented approximately 26% of the F&M Business'
net sales during Fiscal 2000. Typically, over half of the F&M Business' annual
revenue is based upon fixed price, long term contracts. Generally, the term of
the contracts for F&M Business products extends from the order date through
shipment, which usually ranges from 4 to 12 months. A short start up or test
period may follow shipment and would typically last less than a month.
The F&M Business supports its products with a staff of engineers and
service specialists who provide parts, technical training, and service
publications, as well as overhaul and repair services for customers around the
world.
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Raw Materials and Suppliers
The F&M Business utilizes a wide variety of raw materials in the
construction of its products, including copper-nickel alloys, stainless steel,
electrical control systems and a number of plastic and metal component parts.
The F&M Business maintains relationships with a select group of suppliers to
leverage its purchasing power and may enter into purchasing agreements to ensure
a reliable source of materials. The F&M Business has never experienced a
significant shortage of raw materials.
Manufacturing
The F&M Business' primary production facility is an ISO 9001 certified
facility located in Knoxville, Tennessee. The Knoxville facility, as with all of
the Company's manufacturing facilities, is committed to being a dynamic,
world-class operation providing customer satisfaction and excellent quality.
Lean manufacturing and the continuous improvement philosophy are supported in
Knoxville to promote manufacturing excellence and incorporation of best
practices.
SEAWATER AND INDUSTRIAL BUSINESS
The S&I Business has historically generated revenue by undertaking projects
to design and construct highly engineered systems for land-based and off-shore
desalination and manufacturing process plants. Typically, these projects have
been contracted on a fixed-price basis at contract values ranging from $1
million to $10 million and have taken 10 to 14 months to complete.
The market in which the S&I Business participates has grown increasingly
competitive with a decreasing amount of differentiating technology. As a result,
suppliers wishing to expand their business in this market, including the S&I
Business, are forced to accept profit margins which are disproportionate to the
often significant associated contract risks. The Company believes that to be
consistently and adequately profitable in this market, the Company would need to
divert an unacceptably high portion of its financial and managerial resources.
Accordingly, the Company has chosen to exit the S&I Business in an orderly
manner.
The Company intends to complete all active contracts of the S&I Business
and to fulfill its commitments for warranty service, payments to vendors, and
all other applicable liabilities. While the Company intends to fulfill those
commitments of and exit the S&I Business within one year, management will
consider other more cost effective strategic alternatives as they arise during
the year, including any opportunities to sell all or part of the discontinued
business. In the fourth quarter of Fiscal 2000, the Company recorded a pre-tax
charge of $4.2 million related to its plan to exit the S&I business. This charge
included a pre-tax provision of $.7 million for anticipated operating losses
during Fiscal 2001 until the orderly completion of contracts in backlog, a $2.2
million pre-tax charge to write down the carrying value of the S&I Business'
assets (primarily goodwill and intangibles), $.6 million related to severance
and outplacement costs, and $.7 million of other related costs.
COMPETITION
The Company operates in a highly competitive environment. It competes
directly and indirectly with other manufacturers of industrial and commercial
boilers and water desalination and purification equipment and systems, as well
as with manufacturers of parts and components for all of the foregoing. Some of
the Company's competitors are larger, have greater financial resources, and may
be less leveraged than the Company. The Company competes in its markets through
its extensive global distribution network, brand recognition, quality,
dependability, longstanding customer relationships, and engineering ability.
FOREIGN SALES
The Company does not rely on any one country for the majority of its
foreign sales. For a further discussion of sales by geographic area, see Note 15
to the Company's Consolidated Financial Statements.
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INTELLECTUAL PROPERTY
The Company has a number of United States and foreign patents, patent
applications, patent licensing agreements, trademarks, trademark applications
and copyrights. The Company does not consider its business to be materially
dependent upon any patent, patent application, patent license agreement,
trademark, trademark application or copyright.
ITEM 2. PROPERTIES.
PROPERTIES AND EMPLOYEES
The following table sets forth certain information regarding the Company's
properties and employees as of March 31, 2000:
<TABLE>
<CAPTION>
Approximate
Number of
Approximate Employees
Square at
Facility Location Usage Footage Ownership Facility
---------------------- ----------------------------- ----------- --------- -------------
<S> <C> <C> <C> <C>
Milwaukee, Wisconsin Aqua-Chem, Inc. 81,000 Leased (a) 185
Corporate Headquarters
Milwaukee, Wisconsin Boiler Group Development and 27,000 Owned 9
Design
Greenville, Mississippi Boiler Group 88,000 Leased (b) - (b)
Manufacturing
Stratford, Ontario, Canada Boiler Group, Cleaver-Brooks of 74,000 Owned 103 (c)
Canada, Ltd Manufacturing
(Firetube and Commercial
Watertube Boilers)
Mexico City, Mexico Boiler Group, Cleaver-Brooks de 40,000 Owned 41 (c)
Mexico Manufacturing
(Miscellaneous Parts and
Components)
Thomasville, Georgia Boiler Group Manufacturing 185,000 Owned 194
(Firetube Boilers)
Knoxville, Tennessee F&M Business 162,000 Owned 106
Manufacturing
Monroe, Wisconsin Boiler Group Manufacturing 81,000 Owned 95 (c)
(Burners and Combustion
and Emissions Controls)
Lincoln, Nebraska Boiler Group Manufacturing 150,000 Owned 230 (c)
(Industrial Watertube
Boilers, Waste Heat
Recovery Systems)
Lincoln, Nebraska Boiler Group Manufacturing 50,000 Owned 56
(Fabricated Steel
Components)
Gonzales, Texas Boiler Group Manufacturing 75,000 Owned 103
(Industrial Watertube
Boilers, Waste Heat Recovery
Systems and Fabricated Steel
Products)
Elk Grove Village, Illinois Boiler Group -- CB-Kramer Sales & 46,000 Leased (d) 32
Service,Inc. Sales,
Service, Warehouse
--------------
Total: 1,154
==============
</TABLE>
(a) The Company occupies the facility under a lease which expires in June 2006.
(b) The Company leases this facility under a year to year lease which
automatically renews until 2061 unless terminated by either party upon six
months notice. The Company is actively pursuing a party to purchase its
interest in this lease.
(c) As of March 31, 2000, approximately 27% of the Company's employees were
represented by various unions. The Company's agreements with its unions
expire on June 6, 2003 in Stratford, Ontario; on February 1, 2001 in Mexico
City, Mexico; on January 19, 2001 in Monroe, Wisconsin and on October 31,
2003 in Lincoln, Nebraska. In the last five years the Company has
experienced no strikes.
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(d) The Company occupies this facility under a lease which expires in June
2000. Prior to July 1, 2000, the Company plans to transfer the warehousing
function currently served by this facility to its Thomasville, Georgia,
facility and will move the remaining functions to a smaller facility in
Lombard, Illinois. The Company has signed a five-year lease effective July
1, 2000 for a 12,400 square foot facility in Lombard, Illinois.
ITEM 3. LEGAL PROCEEDINGS.
ENVIRONMENTAL AND RELATED MATTERS
The Company is subject to a variety of foreign, federal, state and local
laws and regulations relating to the use, storage, handling, generation,
transportation, treatment, emission, discharge, disposal and remediation of, and
exposure to, hazardous and non-hazardous substances, materials, and wastes
("Environmental Laws"). The Company is also subject to laws and regulations
governing employee health and safety.
The Company is in the process of taking action to implement recommendations
at certain locations, which actions may include further investigation or
monitoring and possibly remediation. The Company does not currently believe that
the costs associated with these matters will have a material adverse effect on
the results of operations or the financial condition of the Company.
The Company from time to time has sold certain properties and, in some
cases, has retained responsibility for environmental issues related to periods
prior to the sale. The Company is currently unaware of any subsequent property
owners asserting environmental claims related to such properties.
Although the Company believes that there are currently no existing
environmental conditions that would require the Company to incur costs that
would have a material impact on the Company, there can be no assurance that
additional environmental situations will not arise or be discovered, either with
respect to the Company's existing or formerly owned facilities, which could have
a material adverse effect on the Company's business, results of operations or
financial conditions.
LEGAL PROCEEDINGS
The Company has been named as one of a number of defendants in numerous
lawsuits alleging personal injury arising from exposure to asbestos-containing
materials allegedly contained in certain boilers manufactured by the Company in
the past. To date, the Company has disposed of approximately 3,300 lawsuits of
this nature which included approximately 17,000 defendants, and, in the vast
majority of these closed cases, neither the Company nor its insurers have made
payments to the plaintiffs. The Company has not admitted liability or been found
liable for the plaintiffs injuries in any case.
There are approximately 11,200 of such lawsuits pending against the Company
which include approximately 40,900 plaintiffs. While the Company intends to
continue to work to dispose of these lawsuits, both the number of cases filed
and the number of plaintiffs per case increased during Fiscal 2000 from those
filed during prior periods, and the Company expects that additional lawsuits
will be filed in the future. The Company believes that substantially all of the
pending lawsuits are without merit. The Company is vigorously defending the open
cases, although many may not be resolved for several years.
Because pleadings generally do not specify the amount of damages sought,
because the Company is typically only one of numerous defendants initially
named, and because it is impossible to determine the Company's proportionate
share of liability in these cases, the Company cannot calculate its total
potential liability in these cases. However, based on its historical experience,
the Company believes that its insurance coverage from its primary and umbrella
insurers combined with indemnification from former owners of the Company should
be adequate to cover future liabilities in these cases. Although Aqua-Chem
believes the costs and liabilities associated with these matters will not have a
material adverse effect on its results of operations or financial condition,
there can be no assurance to this effect.
The Company is involved in various other litigation matters arising in the
normal course of business. Management believes that the Company's recovery or
liability, if any, under pending litigation is not expected to have a material
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effect on the Company's financial position or results of operations, although no
assurance to that effect can be given.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the Fiscal year ended March 31, 2000 or to the date
of filing of this Form 10K.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
There is no established public trading market for any equity securities
of the Registrant.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical financial data of
Aqua-Chem as of and for: (i) the years ended December 31, 1996 and 1995, derived
from the audited consolidated financial statements of Aqua-Chem, but which are
not included elsewhere herein and (ii) the seven-month period ended July 31,
1997, the five-month period ended December 31, 1997, the three months ended
March 31, 1998, and the years ended March 31, 2000 and 1999, derived from the
consolidated financial statements of Aqua-Chem, which have been audited by
Arthur Andersen LLP and are included elsewhere herein. Additionally, the
unaudited three-month period ended March 31, 1997 is included. This table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Aqua-Chem" and the consolidated financial
statements of Aqua-Chem included elsewhere herein.
<TABLE>
<CAPTION>
Pre-Buy-Out Basis of Accounting Post-Buy-Out Basis of Accounting
------------------------------------------------ ---------------------------------------------------
Three Seven Three
Year Ended Months Months Five Months Months Year Year
December 31, Ended Ended Ended Ended Ended Ended
---------------------- March 31, July 31, December 31, March 31, March 31, March 31,
1995 1996 1997 1997(a) 1997(a) 1998 1999 2000
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
STATEMENT OF OPERATIONS
DATA:
Net sales $ 162,340 $ 176,231 $ 32,500 $ 93,281 $ 84,384 $ 31,821 $ 203,943 $ 206,657
Cost of goods sold 125,428 131,225 24,547 68,632 60,333 23,543 157,358 159,251
--------- --------- --------- --------- --------- --------- --------- ---------
Gross margin 36,912 45,006 7,953 24,649 24,051 8,278 46,585 47,406
Selling, general and
administrative expenses 34,018 30,385 7,437 20,980 15,642 7,978 39,681 35,334
Restructuring charges(b) 4,593 5,038 -- -- -- -- 5,881 1,738
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income (loss) (1,699) 9,583 516 3,669 8,409 300 1,023 10,334
Other income (expense):
Interest income 358 464 184 450 202 148 500 160
Interest expense (1,663) (1,448) (307) (753) (2,559) (1,463) (12,842) (15,047)
Other income (expense) 2,635 (806) 16 110 57 (69) 62 (124)
--------- --------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before
income taxes, minority
interest and extraordinary
item (369) 7,793 409 3,476 6,109 (1,084) (11,257) (4,677)
Income tax expense 189 507 48 421 2,416 (365) (4,088) (1,352)
(benefit)
Minority interest in
earnings (loss) of
consolidated subsidiary (52) 231 55 171 174 72 300 376
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary item (506) 7,055 306 2,884 3,519 (791) (7,469) (3,701)
Extraordinary item, net
of tax -- -- -- -- -- -- (1,260) --
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
continuing operations (506) 7,055 306 2,884 3,519 (791) (8,729) (3,701)
Results of discontinued
operations, net of tax
benefit(expense) of $0, $0,
$0, $0, $127, $(28), $(169),
and $846, respectively (5,948) (2,961) (247) (1,030) (210) 46 280 (1,395)
Loss on disposal, net of
tax benefits of $1,030 -- -- -- -- -- -- -- (3,127)
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ (6,454) $ 4,094 $ 59 $ 1,854 $ 3,309 $ (745) $ (8,449) $ (8,223)
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
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<TABLE>
<CAPTION>
Pre-Buy-Out Basis of Accounting Post-Buy-Out Basis of Accounting
------------------------------------------------ ---------------------------------------------------
Three Seven Three
Year Ended Months Months Five Months Months Year Year
December 31, Ended Ended Ended Ended Ended Ended
---------------------- March 31, July 31, December 31, March 31, March 31, March 31,
1995 1996 1997 1997(a) 1997(a) 1998 1999 2000
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
OTHER FINANCIAL DATA:
EBITDA(c) 1,334 12,447 1,347 5,289 9,669 954 6,308 16,247
Adjusted EBITDA(d) 5,927 17,485 1,347 5,289 10,356 954 13,985 17,985
Gross profit margin 22.7% 25.5% 24.5% 26.4% 28.5% 26.0% 22.8% 22.9%
Total depreciation and
amortization 3,033 2,864 831 1,620 1,260 654 5,285 5,913
Capital expenditures 4,867 2,789 360 2,051 1,192 577 3,172 4,077
Cash provided by (used in)
operating activities (1,551) 8,052 1,973 4,603 9,256 (6,563) (2,941) 2,692
Cash provided by (used in)
investing activities (939) (1,025) 781 (627) (50,644) (566) (51,754) (1,465)
Cash provided by (used in)
financing activities 538 1,492 70 6 40,715 (51) 55,437 601
BALANCE SHEET DATA (AT END
OF PERIOD):
Total assets 101,381 96,323 91,381 99,292 119,596 106,123 169,356 169,589
Total debt 18,636 20,128 20,198 -- 59,691 59,671 125,000 125,689
Redeemable preferred stock -- -- -- -- 7,365 7,519 4,944 4,970
Stockholders' equity
(deficit) 36,636 39,960 39,890 -- 3,205 2,330 (6,925) (15,436)
</TABLE>
(a) On July 31, 1997, Aqua-Chem management and certain investors acquired
Aqua-Chem in the Management Buy-Out, which was accounted for as a purchase.
As a result, data for all periods presented prior to August 1, 1997 is
prepared using Aqua-Chem's historical basis of accounting. Data for all
periods presented subsequent to July 31, 1997 reflects the fair values as
of July 31, 1997 of the assets acquired and liabilities assumed in the
Management Buy-Out.
(b) For further information on such restructurings, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Aqua-Chem," and Note 4 to the Consolidated Financial Statements of
Aqua-Chem included in Item 8 herein.
(c) EBITDA is defined as operating income before depreciation and amortization.
(d) Adjusted EBITDA for the periods presented is defined as EBITDA excluding
restructuring charges, and, in the five months ended December 31, 1997 and
the year ended March 31, 1999, excludes $687 and $1,796, respectively, of
non-cash purchase accounting adjustments to cost of goods sold related to
writing up inventory to fair market value at the time of the Management
Buy-Out and at the time of the NDC Acquisition, respectively.
UNAUDITED PRO FORMA FINANCIAL DATA
The Pro Forma Consolidated Statement of Operations is included in order to
make comparisons to the year ended March 31, 1999 in "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
On July 31, 1997, Aqua-Chem, Inc. ("OLDCO") entered into a definitive
merger agreement with A-C Acquisition Corp. ("A-C Acquisition"), a 100% owned
subsidiary of Rush Creek LLC ("Rush Creek"). Rush Creek is a limited liability
Company owned by certain management of OLDCO and Whitney Equity Partners, L.P.
Also on July 31, 1997, pursuant to the merger, A-C Acquisition Corp. acquired
the assets of OLDCO (the "Management Buy-Out"). Concurrently with the Management
Buy-Out, A-C Acquisition amended its certificate of incorporation to change its
name to Aqua-Chem, Inc. ("Aqua-Chem").
The unaudited pro forma financial data includes the unaudited pro forma
consolidated statement of operations of the Company for the twelve months ended
December 31, 1997 (the "Pro Forma Statement of Operations"). The Pro Forma
Statement of Operations gives effect to the Management Buy-Out as if it had
occurred on January 1, 1997 and represents Aqua-Chem's Statement of Operations
for the period January 1, 1997 to July 31, 1997, prepared using Aqua-Chem's
historical basis of accounting and Aqua-Chem's Statement of Operations for the
period August 1, 1997 to December 31, 1997, prepared under a new basis of
accounting that reflects the fair
8
<PAGE> 11
values of assets acquired and liabilities assumed, the related financing cost
and all debt incurred in connection with the Management Buy-Out, on a combined
basis, adjusted as described in the footnotes.
The Pro Forma Consolidated Statement of Operations is based on certain
estimates and assumptions made by the management of the Company as to the
operations of Aqua-Chem which the Company believes to be reasonable. The
statement does not purport to be indicative of the results of operations or
financial position of Aqua-Chem that actually would have been obtained had the
Management Buy-Out been completed as of the assumed date, or to project the
results of operations or financial position of the Company for any future date
or period.
The Pro Forma Consolidated Statement of Operations should be read in
conjunction with the financial statements of Aqua-Chem included elsewhere
herein. See also "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Aqua-Chem, Inc.".
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Historical
-------------------------------------------- Pro Forma
Seven Five Twelve Twelve
Months Months Months Months
Ended Ended Ended Management Ended
July 31, December 31, December 31, Buy-Out December 31,
1997 1997 1997 Adjustments 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 93,281 $ 84,384 $ 177,665 $ -- $ 177,665
Cost of goods sold 68,632 60,333 128,965 961(a) 129,926
------------ ------------ ------------ ------------ ------------
Gross margin 24,649 24,051 48,700 (961) 47,739
Selling, general and
administrative expenses 20,980 15,642 36,622 (1,083)(a) 35,539
------------ ------------ ------------ ------------ ------------
Operating income 3,669 8,409 12,078 122 12,200
Other income (expenses):
Interest income 450 202 652 (193)(b) 459
Interest expense (753) (2,559) (3,312) (2,433)(c) (5,745)
Other 110 57 167 52 (d) 219
------------ ------------ ------------ ------------ ------------
Income before income taxes
and minority interest 3,476 6,109 9,585 (2,452) 7,133
Income tax expense 421 2,416 2,837 (421)(e) 2,416
Minority interest in earnings
of consolidated subsidiary 171 174 345 -- 345
------------ ------------ ------------ ------------ ------------
Income from continuing operations 2,884 3,519 6,403 (2,031) 4,372
Results of discontinued operations,
net of tax benefit of $0 and
$127, respectively (1,030) (210) (1,240) -- (1,240)
------------ ------------ ------------ ------------ ------------
Net income from operations $ 1,854 $ 3,309 $ 5,163 $ (2,031) $ 3,132
============ ============ ============ ============ ============
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Operations.
9
<PAGE> 12
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) Reflects the historical results of operations of Aqua-Chem adjusted for the
period from January 1, 1997 to the Management Buy-Out date as follows:
<TABLE>
<CAPTION>
Cost of Selling,
Goods General and
Sold Administrative
----------------- -----------------
<S> <C> <C>
Additional depreciation expense due to the recording of
fixed assets at fair market value $ 961 $ 290
Reduction of postretirement benefits expense due to the
recognition of the full accumulated postretirement
benefit liability -- (102)
Amortization of intangible assets resulting from the
Management Buy-Out (40 year amortization) -- 20
Elimination of certain payments to management from the
Management Buy-Out (See "Management -- Executive
Compensation" and "Certain Relationships and Related
Transactions -- Management Agreements") -- (1,291)
----------------- -----------------
$ 961 $ (1,083)
================= =================
(b) Reflects a reduction of interest income for $6,600 of cash used in the
Management Buy-Out at a rate of 5.0%.
(c) Reflects additional interest expense determined as follows:
Amortization of deferred financing costs $ 333
Annualized interest on existing subordinated debt ($21,000 @
10.5%) 2,205
Annualized interest on existing revolving credit facility
($5,000 @ 8.0%) 400
Annualized interest on existing term loan facility ($40,000
@ 8.0%) 3,200
Less: interest on $6,000 of principal payments against the
existing debt (393)
-----------------
5,745
Less: historical interest expense (3,312)
-----------------
$ 2,433
=================
</TABLE>
A one-eighth of 1% (0.125%) change in the interest rate payable on the
outstanding amount of the existing revolving credit facility would change
annual interest expense by $6 before the effect of income taxes.
(d) Reflects the elimination of amortization of deferred financing for debt
retired in conjunction with the Management Buy-Out.
(e) Reflects the pro forma tax effects of all adjustments using Aqua-Chem's
consolidated effective tax rate for the applicable period. See Note 10 to
Aqua-Chem's consolidated financial statements for a reconciliation from the
statutory tax rate to the effective tax rate.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ("MD&A").
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the consolidated financial statements
of Aqua-Chem appearing elsewhere herein. For information regarding the pro forma
financial condition of Aqua-Chem, see "Unaudited Pro Forma Financial Data".
10
<PAGE> 13
On December 30, 1998, Aqua-Chem elected to change the date of its Fiscal
year-end to March 31. As a result, the Fiscal year ended March 31, 1999 is
compared to the pro forma twelve months ended December 31, 1997 in this MD&A.
Additionally, the three month transition period ended March 31, 1998 is included
for comparison against the three month period ended March 31, 1997.
Due to purchase accounting adjustments resulting from the Management
Buy-Out on July 31, 1997, the seven-month period ended July 31, 1997 and the
five-month period ended December 31, 1997 are not comparable in all material
respects. The financial data for the seven-month period ended July 31, 1997 and
the five-month period ended December 31, 1997 are presented within "Selected
Financial Data of Aqua-Chem." The pro forma financial data for the twelve months
ended December 31, 1997 was prepared using Aqua-Chem's historical results for
the year then ended, adjusted to reflect the Management Buy-Out as if the
Management Buy-Out had occurred on January 1, 1997. See footnote (a) to the
Notes to Unaudited Pro Forma Consolidated Statements of Operations under
"Unaudited Pro Forma Financial Data." See also "Business -- History" for further
description of the Management Buy-Out. The pro forma financial data for the
twelve months ended December 31, 1997 is discussed below in order to make
comparisons to the year ended March 31, 1999.
RESULTS OF OPERATIONS
Composition of net sales and gross margins for the Boiler Group and the F&M
Business for the periods indicated is listed below, as well as additional
financial data.
<TABLE>
<CAPTION>
Pro Forma
Twelve Three Months Ended
Months Year Year March 31,
Ended Ended Ended --------------------------
December 31, March 31, March 31, 1997
1997 1999 2000 (Unaudited) 1998
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Dollars in Millions
Net sales:
Boiler Group $ 154.9 $ 186.1 $ 185.6 $ 27.3 $ 28.1
F&M Business 22.8 17.8 21.1 5.2 3.7
---------- ---------- ---------- ---------- ----------
Total $ 177.7 $ 203.9 $ 206.7 $ 32.5 $ 31.8
========== ========== ========== ========== ==========
Gross margin:
Boiler Group $ 41.7 $ 43.5 $ 43.9 $ 6.9 $ 7.4
F&M Business 6.0 3.1 3.5 1.0 0.9
---------- ---------- ---------- ---------- ----------
Total $ 47.7 $ 46.6 $ 47.4 $ 7.9 $ 8.3
========== ========== ========== ========== ==========
Selling, general and
administrative expenses $ 35.5 $ 39.7 $ 35.4 $ 7.4 $ 8.0
Restructuring charges -- 5.9 1.7 -- --
---------- ---------- ---------- ---------- ----------
Operating income $ 12.2 $ 1.0 $ 10.3 $ 0.5 $ 0.3
========== ========== ========== ========== ==========
Other income (expense), primarily
interest $ (5.1) $ (12.3) $ (15.0) $ (0.1) $ (1.4)
========== ========== ========== ========== ==========
Loss on disposal of
discontinued operations,
net of tax benefits of
$0, $0 $1.0, $0 and $0 -- -- (3.1) -- --
Results of discontinued
operations, net of tax
benefits (expense) of,
$0.1, $(0.2), $0, $0.1
and $0 $ (1.2) $ 0.3 $ (1.4) $ (0.2) $ 0.1
========== ========== ========== ========== ==========
Net income (loss) $ 3.1 $ (8.4) $ (8.2) $ 0.1 $ (0.7)
========== ========== ========== ========== ==========
</TABLE>
11
<PAGE> 14
Fiscal Year Ended March 31, 2000 Compared To Fiscal Year Ended March 31, 1999
Net Sales. Net sales from continuing operations for Fiscal 2000 increased
$2.7 million (1.3%) to $206.7 million from $203.9 million.
Boiler Group net sales for Fiscal 2000, which included a full year of
results attributable to the NDC Acquisition as opposed to approximately nine
months of activity in Fiscal 1999, declined by $.5 million (.3%). On a pro-forma
basis, including NDC sales for the 3 months prior to the NDC Acquisition, the
decline would have been $11.3 million (6.0%). This decline is primarily a result
of soft orders during Fiscal 1999 and the first nine months of Fiscal 2000 for
industrial watertube and firetube boilers and waste heat recovery systems.
Net sales from the F&M Business increased $3.3 million (18.5%) in Fiscal
2000 to $21.1 million from $17.8 million due primarily to increases in its sales
to the U.S. Army attributable to the F&M Business' involvement with the
development of the TWPS units. The Company's pharmaceutical product line also
realized increased net sales during the period resulting from an increased
marketing emphasis toward this industry.
During Fiscal 2000, the Company's backlog from continuing operations grew
$21.7 million to $64.1 million at March 31, 2000 from $42.4 million at March 31,
1999. The backlog increased to $65.1 million at May 31, 2000. The Boiler Group's
backlog increased $21.6 million to $58.7 million at March 31, 2000 from $37.1
million at March 31, 1999. The Boiler Group's backlog totaled $59.8 million at
May 31, 2000. The F&M Business backlog increased slightly from $5.3 million at
March 31, 1999 to $5.4 million at March 31, 2000. The F&M Business backlog
totaled $5.3 million at May 31, 2000.
Gross Margin. Total gross margin from continuing operations increased $.8
million (1.7%) in Fiscal 2000 to $47.4 million from $46.6 million. The gross
margin percentage remained relatively flat at 22.9%.
The Boiler Group's gross margin percentage increased in Fiscal 2000 to
23.7% from 23.4%. The Boiler Group's Fiscal 1999 gross margin percentage was
negatively impacted by a $1.8 million increase in inventory value pursuant to
the purchase accounting associated with the NDC Acquisition. Without this
adjustment, the Boiler Group's gross margin percentage in Fiscal 1999 would have
been 24.3%. Excluding this acquisition adjustment, the decrease in the Boiler
Group's gross margin percentage is attributable to a changing sales mix more
heavily weighted toward lower priced, lower margin products, pricing pressure
due to the softness of the market, and manufacturing inefficiencies associated
with the closure of the Greenville facility as well as learning curve
inefficiencies at the facilities that started manufacturing the products
previously built in Greenville.
Gross margin from the F&M Business declined in Fiscal 2000 to 16.6% from
17.4% due primarily to the low margin earned on the TWPS development contract
completed during the current period combined with learning curve inefficiencies
associated with the deaerator product line previously manufactured at the
Greenville facility. During the fourth quarter of Fiscal 2000, the Company
decided to outsource a portion of its deaerator production and to relocate the
remaining production to other Company-owned manufacturing facilities. Gross
margin on the F&M Business'other product lines was higher than in the prior year
due to increased selling prices and manufacturing improvements. Excluding the
gross margin attributable to the TWPS development contract and the deaerator
product line, gross margin earned by the F&M Business increased from 23.0% to
30.1%.
Selling, General and Administrative Expense. Selling, general and
administrative expense declined $4.3 million (11.0%) in Fiscal 2000 to $35.4
million from $39.7 million. The decrease was due to lower commission expense
resulting from lower Boiler Group sales volume and to savings from restructuring
actions undertaken during recent periods. The decrease was partially offset by
the inclusion in Fiscal 2000 of a full year of expense attributable to the
operations acquired in the NDC acquisition verses the inclusion of approximately
nine months of such expense during Fiscal 1999. On a pro-forma basis, as if the
NDC acquisition occurred on April 1,
12
<PAGE> 15
1998 instead of June 23, 1998, Fiscal 1999 selling, general, and administrative
expenses would have otherwise been $1.7 million higher in that year and the year
to year decline in these expenses would have been $6.0 million.
Restructuring Charges. The Company recorded restructuring charges of $5.9
million during Fiscal 1999 to accrue for the costs of the closure of the
Greenville, MS facility and to implement additional restructuring actions deemed
appropriate in light of a worldwide decline in demand for boiler equipment (the
"1999 Restructuring Actions"). The provision for the Greenville, MS closure
totaled $4.7 million and included $2.9 million to write down the value of
certain fixed assets, $1.0 million for employee termination payments and $0.8
million for other costs related to closing the existing facility. The remaining
$1.2 million related to employee termination payments, outplacement costs, and
other related professional costs resulting from market related restructuring
actions.
In further response to worldwide market conditions and to better organize
the Company to accommodate future business fluctuations, the Company implemented
additional restructuring actions and, during Fiscal 2000, recorded $1.7 million
of restructuring charges related to these matters. These charges consisted
primarily of employee severance payments, outplacement costs, and other related
professional costs.
Operating Income. For the reasons set forth above, operating income
increased $9.3 million in Fiscal 2000 to $10.3 million from $1.0 million in
Fiscal 1999.
Other Income/(Expense). Other expense increased by $2.7 million in Fiscal
2000 to $15.0 million from $12.3 million primarily as the result of increased
interest expense. Interest expense was higher by $2.2 million in Fiscal 2000
primarily because the Company's $125 million of subordinated debt was
outstanding for a full year in Fiscal 2000 verses approximately nine months
during Fiscal 1999.
Discontinued Operations. During the fourth quarter of Fiscal 2000, the
Company recorded a pre-tax charge of $4.2 million related to its decision to
exit the S&I Business. This charge included a pre-tax provision of $.7 million
for anticipated operating losses during Fiscal 2001 until the S&I Business has
completed its remaining contractual commitments, a $2.2 million pre-tax charge
to reduce the carrying value of the S&I Business' assets (primarily goodwill and
intangibles), $.6 million related to severance and outplacement costs, and $.7
million of other related costs. While the Company intends to fulfill those
commitments of the S&I Business within one year, management will consider other
more cost effective strategic alternatives as they arise during the year,
including any opportunities to sell all or part of the discontinued business.
During Fiscal 2000, the Company recognized a pre-tax loss of $1.8 million
on the S&I Business' operations verses pre-tax income of $.4 million in Fiscal
1999. The decline in profitability was due primarily to a decline in volume and
lower profitability on jobs as the result of poor market conditions.
Earnings before Interest, Taxes, Depreciation and Amortization. The
Company, in conjunction with the required accounting adjustments to disclose
results of operations from discontinued operations separately from that of
continuing operations, has recalculated its Earnings before Interest, Taxes,
Depreciation and Amortization ("EBITDA") for each of the quarters of Fiscal
2000. EBITDA from continuing operations before restructuring expense was $2.6
million, $4.8 million, $5.7 million, and $4.9 million in the first through
fourth quarters of Fiscal 2000.
Management anticipates that EBITDA from continuing operations will continue
to improve during Fiscal 2001. While no assurances of such improvements can be
made, the Company believes that various business conditions which impact EBITDA
from continuing operations have improved during the last year. Such conditions
are exemplified in the higher backlog as of the date of this report as compared
to one year ago, improving operating margins resulting from a stronger market,
growing production efficiencies, product mix, and lean manufacturing techniques,
and the benefit of the cost reduction efforts implemented over the last year.
The Company cautions the reader, however, that events or business conditions may
arise that
13
<PAGE> 16
could cause the Company's result to be worse than management's expectations.
Such potential events or business conditions include, but are not limited to,
the deteriorating economic conditions in some or all of the Company's worldwide
markets or unfavorable developments in current or future litigation or related
settlements thereof.
Year Ended March 31, 1999 Compared To Twelve Months Ended December 31, 1997
(Pro Forma)
Net Sales. Net sales from continuing operations for Fiscal 1999 increased
$26.2 million (14.8%) to $203.9 million from $177.7 million.
The Boiler Group's net sales increased $31.2 million to $186.1 million from
$154.9 million. This increase was attributable to the NDC acquisition, which
occurred on June 23, 1998 and which contributed $46.4 million of net sales from
the date of the acquisition until the end of the Fiscal year. Net sales of
firetube, industrial watertube, and commercial watertube declined $9.7 million.
The Company believes the declines were the result of the economic crisis in Asia
and its effect on the domestic market. The decline in firetube boilers totaled
$2.5 million and included reduced sales of premium firetube boilers by $7.1
million offset partially by increased sales of a newly introduced, baseline
product. Net sales were also reduced by $6.0 million as the result of the Boiler
Group's sale of its contract machining business in October 1997.
The F&M Business' net sales decreased $5.0 million from $22.8 million to
$17.8 million due primarily to declines in the Group's Navy and Bottled Water
product lines offset partially by increases in the Group's Offshore Oil product
line.
Gross Margin. Gross margin from continuing operations decreased $1.1
million to $46.6 million in Fiscal 1999 from $47.7 million recorded in the
comparable prior period, and the gross margin percentage declined to 22.8% from
26.8%.
The Boiler Group's gross margin declined to 23.4% from 26.9%. The Boiler
Group's Fiscal 1999 results were negatively impacted by a $1.8 million increase
in inventory value pursuant to the purchase accounting associated with the NDC
Acquisition. Excluding this adjustment, the Boiler Group's Fiscal 1999 gross
margin would have been 24.3%. The Boiler Group's remaining decline is
attributable primarily to the shift in firetube sales from the Company's premium
product to the Company's baseline product as well as inefficiencies related to
the closure of the Greenville facility.
The F&M Business' gross margin declined from 26.3% to 17.4%. This decline
was attributable primarily to manufacturing inefficiencies related to reduced
production as well as depressed gross margins resulting from market related
pricing pressure.
Selling, General and Administrative Expenses. Selling, general and
administrative expense increased $4.2 million (11.7%) in Fiscal 1999 to $39.7
million from $35.5 million. The NDC Acquisition in June 1998 increased selling,
general and administrative expense by $5.2 million. This increase was partially
reduced by lower commissions resulting from decreased volume and reduced bonus
and profit sharing expense due to decreased profitability.
Restructuring Charges. The Company recorded $5.9 million during Fiscal 1999
attributable to the 1999 Restructuring Actions. The Company recorded no
restructuring charges during the twelve months ended December 31, 1997.
Operating Income. For the reasons set forth above, operating income
decreased $11.2 million in Fiscal 1999 to $1.0 million from 12.2 million.
Excluding the $5.9 million in total restructuring charges, operating income
decreased $5.3 million to $6.9 million in Fiscal 1999.
Other Income (Expense). Other income (expense) for 1999 was an expense of
$12.3 million as compared to an expense of $5.1 million for 1997. This
difference
14
<PAGE> 17
of $7.2 million is due to higher interest expense as a result of the increased
debt issued in conjunction with the subordinated debt offering. See "--
Liquidity and Capital Resources."
Discontinued Operations. During Fiscal 1999, the Company recognized pre-tax
income of $.4 million on the S&I Business' operations verses a pre-tax loss of
$1.4 million during the 12 months ended December 31, 1997. The increase in
profitability was due primarily to an increase in volume due to work performed
on several large contracts.
Seven Months Ended July 31, 1997 And Five Months Ended December 31, 1997
In addition to the comparative analysis of the pro forma operating results
for the year ended December 31, 1997 presented above, the following paragraphs
specifically address the actual results for the seven months ended July 31, 1997
and the five months ended December 31, 1997. As noted on the accompanying
Selected Financial Data table, these periods have a different basis of
accounting as a result of the Management Buy-Out effective on July 31, 1997.
Net Sales and Gross Margin. Net sales and gross margin for the seven months
ended July 31, 1997 were $93.3 million and $24.6 million, respectively. The net
sales and gross margin for the five months ended December 31, 1997 were $84.4
million and $24.0 million, respectively. The gross margin as a percentage of net
sales for those periods was 26.4% and 28.5%, respectively. The higher gross
margin for the five month period of December 31, 1997 results from a better mix
of products and higher production levels in that period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the seven months ended July 31, 1997 and five months
ended December 31, 1997 were $21.0 million and $15.6 million, respectively. This
represents 22.5% and 18.5% as a percentage of net sales for the respective
periods. The significantly higher costs as a percentage of sales in the seven
months ended July 31, 1997, is attributable to higher information systems costs
and travel expenses in the first seven months of the year. These amounts also
include certain payments to management in conjunction with the Management
Buy-Out of $1.3 million.
Other Income. Other income (expense) for the seven months ended July 31,
1997 and the five months ended December 31, 1997 was expense of ($193) and
($2,300), respectively. The substantially higher expenses in the five months
ended December 31, 1997 result primarily from the higher interest expense
associated with the increased debt issued in conjunction with the Management
Buy-Out.
Discontinued Operations. The S&I Business recognized pre-tax losses of $1.0
million and $.3 million, repectively, during the seven months ended July 31,
1997 and five months ended December 31, 1997. The smaller loss during the five
months ended December 31, 1997 was attributable to higher volume during that
period.
Three Months Ended March 31, 1998 Compared To Three Months Ended March 31, 1997
Net Sales. Net sales from continuing operations for the three month period
ended March 31, 1998 decreased $.7 million (2.2%) to $31.8 million from $32.5
million. Net sales attributable to the Boiler Group increased $0.8 million
(2.9%). The increased sales resulted from volume improvements for firetube
boilers, commercial watertube boilers and parts and an increase in the Group's
Mexico operation with an offsetting decrease resulting from the sale of the
contract machining business in October, 1997 representing $1.7 million of the
offsetting decrease. The F&M business' net sales decreased $1.5 million to $3.7
million, primarily due to low volume during the period in the Group's Navy
product line.
Gross Margin. Gross margin increased $0.4 million to $8.3 million from $7.9
million. The gross margin percentage improved to 26.0% from 24.3% primarily due
to continued improvements in throughput at the Boiler Group's manufacturing
facilities and improved Boiler Group aftermarket margin.
15
<PAGE> 18
Selling, General and Administrative Expenses. Selling, general and
administrative expense increased $0.6 million to $8.0 million, primarily due to
continued increased commissions earned by sales representatives from the higher
sales volume and higher costs reported by the Boiler Group's Mexico operations
resulting from consolidation of an additional month of operating results with
Aqua-Chem. Selling, general and administrative expense as a percentage of net
sales was 25.1% compared to 22.8% for the prior year period.
Operating Income. For the reasons set forth above, operating income
decreased $0.2 million, to $0.3 million from $0.5 million.
Other Income (Expense). Other income (expense) for the three months ended
March 31, 1998 was an expense of $1.4 million as compared to an expense of $0.1
million for the same period in 1997 with the increase due primarily to interest
on debt issued in conjunction with the Management Buy-Out.
Discontinued Operations. The S&I Business recognized pre-tax income of $.1
million in the three months ended March 31, 1998 verses a pre-tax loss of $.2
million during the three months ended March 31, 1997 primarily as the result of
increased volume during the three months ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $2.7 million during Fiscal 2000
compared to cash used of $2.9 million during Fiscal 1999 and cash provided of
$13.9 million during the 12 months ended December 31, 1997. The increase of $5.6
million during Fiscal 2000 was attributable primarily to improvement in billings
and collections of accounts receivable and increases of trade accounts payable
offset partially by increased interest payments. During Fiscal 2000, the Company
made two interest payments on its subordinated debt whereas it made only one
interest payment during Fiscal 1999 due to the timing of the debt issuance. The
decrease during Fiscal 1999 as compared to the 12 months ended December 31, 1997
was also attributable to additional interest payments related to the
Subordinated Notes plus an increase in accounts receivable due to slower
collections at the locations acquired in the NDC Acquisition.
Cash used in investing activities was $1.5 million for the year ended March
31, 2000, $51.8 million for the year ended March 31, 1999, and $51.3 million for
the 12 months ended December 31, 1997. The Fiscal 1999 period included $48.5
million for the NDC Acquisition, and the twelve months ended December 31, 1997
included $52.1 million used for the Management Buy-Out. Capital expenditures
during Fiscal 2000 were $4.1 as compared to $3.2 million during Fiscal 1999 and
$3.2 million during the twelve months ended December 31, 1997. These
expenditures relate primarily to ongoing maintenance and upgrades to Aqua-Chem's
manufacturing equipment.
Cash provided by financing activities was $.6 million and $55.4 million,
respectively, during Fiscal 2000 and Fiscal 1999 and $40.7 million during the
twelve months ended December 31, 1997. Fiscal Year 1999 included $125.0 million
in proceeds from the Subordinated Notes issued in connection with the NDC
Acquisition and repayments of $63.1 million, of which $60.1 million related to
repayment of debt incurred as a result of the Management Buy-Out and $3.0
million related to the redemption for a portion of the Preferred A stock issued
in connection with the Management Buy-Out. The twelve months ended December 31,
1997 included $65.6 million in proceeds from debt issued in connection with the
Management Buy-Out and repayments of $26.0 million, of which $20.0 million
related to repayment of debt outstanding at the time of the Management Buy-Out
and $6.0 million related to repayment of debt incurred as a result of the
Management Buy-Out.
BORROWING AVAILABILITY AND LIMITATIONS.
The Company has a $45.0 million revolving credit facility that is secured
by substantially all assets of the Company. Under the revolving credit facility,
the Company is required to comply with covenants included in the agreement as
amended. These covenants include a requirement to maintain a specified level of
consolidated
16
<PAGE> 19
tangible net worth, a specified fixed charge coverage ratio, and a specified
senior funded debt to consolidated EBITDA ratio. Effective March 31, 2000, the
Company and its lenders amended the revolving credit facility to provide for a
borrowing base calculation if the Company were to fall below EBITDA levels
specified in the amendment. At March 31, 2000 and as of the date of this filing,
the Company's actual EBITDA level exceeded those specified in the amendment and,
as a result, no borrowing base limitation was in effect. As of May 31, 2000,
under the amended revolving credit facility, the Company was eligible to borrow
$40.8 million, had no borrowings against the facility, and had $6 million of
invested cash. The Company intends to fund future working capital, capital
expenditures and debt service requirements through cash flows generated from
operating activities and, when necessary, from borrowings under the revolving
credit facility.
At March 31, 2000 the Company had $125 million of 11 1/4% Senior
Subordinated Notes (the "Notes") outstanding under an Indenture dated June 23,
1998 (the "Indenture"). The Indenture generally prohibits the Company from
incurring additional debt unless the Company satisfies certain requirements
identified in the Indenture. At March 31, 2000, subject to other covenant
limitations, the Company could have incurred approximately $77.3 million of
additional indebtedness pursuant to the terms of the Indenture.
The Company expects that its cash needs for debt service under the
Indenture during Fiscal 2001 will be approximately $14.1 million. Mandatory
repayments of the Company's outstanding indebtedness and mandatory redemptions
of the Company's outstanding Series A Preferred Stock subsequent to March 31,
2000 are $1 million in each of Fiscal 2001 and 2002 and $125 million thereafter.
The Company believes that its manufacturing facilities and computer
software and hardware are generally adequate to meet projected needs. During the
year ended March 31, 2001, the Company expects to make approximately $4 million
of capital expenditures to be spent primarily at its manufacturing facilities on
projects and equipment designed to improve quality and efficiency.
Management believes that its existing cash resources, cash generated from
operating activities, and its borrowing availability under the revolving credit
facility will be adequate to cover the Company's working capital, debt service
and capital expenditure requirements on a short and long term basis.
At March 31, 2000, the Company had no material market risk exposure (e.g.,
interest rate risk, foreign currency exchange rate risk or commodity price
risk).
STRATEGY
The Board of Directors of the Company has in the past and may, from time to
time in the future, consider a variety of strategic alternatives to maximize
shareholder value for the holders of its common and preferred stock, including,
but not limited to, the disposition of one or more of its business units,
entering into partnerships, joint ventures or other strategic alliances or the
pursuit of acquisitions within the industry it serves.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements, trend analysis and other information contained in this
report relative to markets for the Company's products and trends in the
Company's operations or financial results, as well as other statements including
words such as "anticipate," "believe," "plan," "estimate," "expect," "intend"
and other similar expressions, constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors which may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include general
economic conditions, the cyclical nature of its business, its customers' access
to credit, political uncertainty and civil unrest in various areas of the world,
pricing, product initiatives and other actions taken by competitors, disruptions
in production capacity, excess inventory levels,
17
<PAGE> 20
the effect of changes in laws and regulations (including government subsidies
and international trade regulations), technological difficulties, changes in
environmental laws, and employee and labor relations.
18
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS OF AQUA-CHEM, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of independent public accountants 20
Consolidated balance sheet as of March 31, 2000 and 1999 21
Consolidated statement of operations for the years ended
March 31, 2000 and 1999, the three months ended March 31, 1998, the five
months ended December 31, 1997 and the seven months ended July 31, 1997 22
Consolidated statement of stockholders' equity for years ended March 31, 2000
and 1999, the three months ended March 31, 1998, the five months ended
December 31, 1997 and the seven months ended July 31, 1997 23
Consolidated statement of cash flows for the years ended March 31, 2000 and
1999, the three months ended March 31, 1998, the five months ended December
31, 1997 and the seven months ended July 31, 1997 24
Notes to consolidated financial statements 25
</TABLE>
19
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Aqua-Chem, Inc.:
We have audited the accompanying consolidated balance sheets of Aqua-Chem,
Inc. and subsidiaries as of March 31, 2000 and 1999 and the related consolidated
statement of operations, stockholders' equity and cash flows for the years ended
March 31, 2000 and 1999, the period from January 1, 1998 to March 31, 1998, the
period from August 1, 1997 to December 31, 1997 and the period from January 1,
1997 to July 31, 1997. These financial statements and the supplemental schedule
referred to below are the responsibility of Aqua-Chem's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free 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 Aqua-Chem,
Inc. and subsidiaries as of March 31, 2000 and 1999, and the results of their
operations and their cash flows for the years ended March 31, 2000 and 1999, the
period from January 1, 1998 to March 31, 1998, the period August 1, 1997 to
December 31, 1997 and the period from January 1, 1997 to July 31, 1997, in
conformity with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. The supplemental schedule,
Schedule II -- Valuation and Qualifying Accounts, is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. The supplemental schedule has
been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
April 28, 2000 (except with respect to the matter discussed in Note 8, as to
which the date is June 27, 2000)
20
<PAGE> 23
AQUA-CHEM, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
March 31, March 31,
ASSETS 2000 1999
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,326 $ 5,498
Accounts receivable, less allowances of $830 and $848 at
March 31, 2000 and 1999, respectively 36,870 37,927
Revenues in excess of billings 6,939 4,631
Inventories 26,063 25,702
Deferred income taxes 6,230 6,438
Prepaid expenses and other current assets 1,727 5,788
--------- ---------
Total current assets 85,155 85,984
Property, plant and equipment - net 32,576 35,859
Intangible assets, less accumulated amortization of $2,522
and $1,228 at March 31, 2000 and 1999, respectively 37,373 36,156
Deferred income taxes 7,498 3,304
Other assets 6,987 8,053
--------- ---------
TOTAL ASSETS $ 169,589 $ 169,356
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings $ 500 $ --
Accounts payable-
Trade 15,637 13,993
Other 5,547 4,314
Billings in excess of revenues 4,463 3,344
Compensation and profit sharing 3,509 3,910
Accrued restructuring 1,406 2,531
Accrued interest 3,591 3,516
Net (assets) liabilities of discontinued operations 3,445 (3,517)
Other accrued expenses 10,767 12,280
--------- ---------
Total current liabilities 48,865 40,371
Long-term debt 125,189 125,000
Other long-term liabilities 5,399 5,480
--------- ---------
Total other liabilities 130,588 130,480
Minority interest 602 486
Preferred stock with mandatory redemption provisions,
maximum redemption value in aggregate of $12,255
at March 31, 2000 and 1999 4,970 4,944
Stockholders' equity:
Common stock, $.01 par value. Authorized 2,000,000 shares;
issued and outstanding 1,000,000 shares at March 31,
2000 and 1999 10 10
Additional paid-in capital 90 90
Retained earnings (deficit) (15,684) (7,050)
Accumulated other comprehensive income 148 25
--------- ---------
Total stockholders' equity (deficit) (15,436) (6,925)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 169,589 $ 169,356
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this statement.
21
<PAGE> 24
AQUA-CHEM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pre-Buy-Out
Basis of
Post-Buy-Out Basis of Accounting Accounting
------------------------------------------------------------ ------------
Year Year January 1 August 1 January 1
Ended Ended to to to
March 31, March 31, March 31, December 31, July 31,
2000 1999 1998 1997 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 206,657 $ 203,943 $ 31,821 $ 84,384 $ 93,281
Cost of goods sold 159,251 157,358 23,543 60,333 68,632
------------ ------------ ------------ ------------ ------------
Gross margin 47,406 46,585 8,278 24,051 24,649
Costs and expenses:
Selling, general and
administrative 35,334 39,681 7,978 15,642 20,980
Restructuring charges 1,738 5,881 -- -- --
------------ ------------ ------------ ------------ ------------
37,072 45,562 7,978 15,642 20,980
------------ ------------ ------------ ------------ ------------
Operating income 10,334 1,023 300 8,409 3,669
Other income (expense):
Interest income 160 500 148 202 450
Interest expense (15,047) (12,842) (1,463) (2,559) (753)
Other, net (124) 62 (69) 57 110
------------ ------------ ------------ ------------ ------------
(15,011) (12,280) (1,384) (2,300) (193)
------------ ------------ ------------ ------------ ------------
Income (loss) from continuing
operations before income
taxes, minority interest and
extraordinary charge (4,677) (11,257) (1,084) 6,109 3,476
Income tax expense (benefit) (1,352) (4,088) (365) 2,416 421
Minority interest in earnings
of consolidated subsidiary 376 300 72 174 171
------------ ------------ ------------ ------------ ------------
Income (loss) from continuing
operations before
extraordinary charge (3,701) (7,469) (791) 3,519 2,884
Discontinued operations:
Income (loss) from
discontinued operations, net
of tax benefits (expense)
of $846, $(169), $(28), $127, and
$0, respectively (1,395) 280 46 (210) (1,030)
Loss on disposal, net of tax benefit of
$ 1,030 (3,127) -- -- -- --
------------ ------------ ------------ ------------ ------------
Income (loss) before extraordinary
charge (8,223) (7,189) (745) 3,309 1,854
Extraordinary charge for early
retirement of debt, net of tax
benefit of $840 -- (1,260) -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (8,223) $ (8,449) $ (745) $ 3,309 $ 1,854
============ ============ ============ ============ ============
Preferred stock dividends 411 750 155 260 --
------------ ------------ ------------ ------------ ------------
Net income (loss) applicable to
common stock $ (8,634) $ (9,199) $ (900) $ 3,049 $ 1,854
============ ============ ============ ============ ============
PER SHARE DATA:
Basic:
Income (loss) from continuing
operations before extraordinary
charge $ (4.11) $ (8.22) $ (0.95) $ 3.26 NA
Income (loss) from
discontinued operations (1.39) 0.28 0.05 (0.21) NA
Loss on disposal of business (3.13) -- -- -- NA
------------ ------------ ------------ ------------ ------------
Income (loss) before
extraordinary charge (8.63) (7.94) (0.90) 3.05 NA
Extraordinary charge -- (1.26) -- -- NA
------------ ------------ ------------ ------------ ------------
Income (loss) per common
share $ (8.63) $ (9.20) $ (0.90) $ 3.05 NA
============ ============ ============ ============ ============
Diluted:
Income (loss) from continuing
operations before
extraordinary charge $ (4.11) $ (8.22) $ (0.95) $ 2.80 NA
Income (loss) from
discontinued operations (1.39) 0.28 0.05 (0.21) NA
(Loss) on disposal of business (3.13) -- -- -- NA
------------ ------------ ------------ ------------ ------------
Income (loss) before
extraordinary charge (8.63) (7.94) (0.90) 2.59 NA
Extraordinary charge -- (1.26) -- -- NA
------------ ------------ ------------ ------------ ------------
Diluted net income (loss) per
share $ (8.63) $ (9.20) $ (0.90) $ 2.59 NA
============ ============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this statement.
22
<PAGE> 25
AQUA-CHEM, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Retained Other
---------------------- Paid-In Earnings Comprehensive Comprehensive
Shares Amount Capital (Deficit) Income (Loss) Income (Loss)
---------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PRE-BUY-OUT BASIS OF ACCOUNTING
Balance at December 31, 1996 1,300 $ 1 $ 36,924 $ 4,445 $ (1,410)
Net income -- -- -- 1,854 -- $ 1,854
Translation adjustment -- -- -- -- (404) (404)
----------
Total $ 1,450
---------- ---------- ---------- ---------- ---------- ==========
Balance at July 31, 1997 1,300 $ 1 $ 36,924 $ 6,299 $ (1,814)
========== ========== ========== ========== ==========
POST-BUY-OUT BASIS OF ACCOUNTING
Balance at July 31, 1997 1,300 $ 1 $ 36,924 $ 6,299 $ (1,814)
Cancellation of former equity and
elimination of retained earnings
and cumulative translation
adjustment (1,300) (1) (36,924) (6,299) 1,814
Issuance of new common stock 1,000,000 10 90 -- --
Preferred stock dividends accrued -- -- -- (260) --
Net income -- -- -- 3,309 -- $ 3,309
Translation adjustment -- -- -- -- 56 56
----------
Total $ 3,365
---------- ---------- ---------- ---------- ---------- ==========
Balance at December 31, 1997 1,000,000 $ 10 $ 90 $ 3,049 $ 56
Preferred stock dividends
accrued -- -- -- (155) --
Net loss -- -- -- (745) -- $ (745)
Translation adjustment -- -- -- -- 25 25
----------
Total $ (720)
---------- ---------- ---------- ---------- ---------- ==========
Balance at March 31, 1998 1,000,000 $ 10 $ 90 $ 2,149 $ 81
Preferred stock dividends
accrued -- -- -- (750) --
Net loss -- -- -- (8,449) -- $ (8,449)
Translation adjustment -- -- -- -- (56) (56)
----------
Total $ (8,505)
---------- ---------- ---------- ---------- ---------- ==========
Balance at March 31, 1999 1,000,000 $ 10 $ 90 $ (7,050) $ 25
Preferred stock dividends
accrued -- -- -- (411) --
Net loss -- -- -- (8,223) -- $ (8,223)
Translation adjustment -- -- -- -- 123 123
----------
Total $ (8,100)
---------- ---------- ---------- ---------- ---------- ==========
Balance at March 31, 2000 1,000,000 $ 10 $ 90 $ (15,684) $ 148
========== =========== ========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this statement.
23
<PAGE> 26
AQUA-CHEM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Pre-Buy-Out
Post-Buy-Out Basis of Accounting Basis of
------------------------------------------------ Accounting
Year Year January 1 January 1,
Ended Ended to August 1 to To
March 31, March 31, March 31, December 31, July 31,
2000 1999 1998 1997 1997
---------- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (8,223) $ (8,449) $ (745) $ 3,309 $ 1,854
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 5,913 5,285 654 1,260 1,620
Deferred tax (benefit) expense (2,027) (3,471) 979 (1,657) --
Minority interest in earnings of
consolidated subsidiary 376 300 72 174 171
(Income) Loss from discontinued operations,
net 4,522 (280) (46) 210 1,030
Extraordinary loss, after tax -- 1,260 -- -- --
Restructuring charge, net of cash expended
of $2,863 and $450, respectively (1,125) 5,431 -- -- --
Increase (decrease) in cash due to changes in:
Accounts receivable 1,057 (3,540) 8,054 (4,611) 4,010
Revenues in excess of billings (2,308) (1,534) 484 1,719 (1,741)
Inventories (361) 9,768 (3,595) 3,473 (1,948)
Prepaid expenses and other current assets 1,906 (1,093) 138 (332) (623)
Accounts payable - trade 1,644 159 235 (1,486) 2,056
Accounts payable - other 1,233 1,791 (2,954) 509 (1,848)
Billings in excess of revenues 1,119 (4,204) 388 (1,570) 1,230
Accrued expenses and other current
liabilities (1,922) (1,525) (7,201) 3,947 (710)
Other, net 888 (2,839) (3,026) 4,311 (498)
--------- --------- --------- --------- ---------
Total adjustments 10,915 5,508 (5,818) 5,947 2,749
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities 2,692 (2,941) (6,563) 9,256 4,603
Cash flows from investing activities:
Management Buy-Out of Aqua-Chem, Inc -- -- -- (52,102) --
Purchase of National Dynamics Corporation -- (48,500) -- -- --
Proceeds from sales of property, plant and
equipment and other assets 1,499 1,057 11 2,000 73
Additions to property, plant and equipment (4,077) (3,172) (577) (1,192) (2,051)
Additions to intangibles (1,267) (1,239) -- -- (160)
Proceeds from notes receivable 2,380 100 -- 650 1,511
--------- --------- --------- --------- ---------
Net cash used in investing activities (1,465) (51,754) (566) (50,644) (627)
Cash flows from financing activities:
Issuance of Notes -- 125,000 -- -- --
Proceeds from debt 689 -- -- 65,573 118
Net principal payments on debt -- (60,063) (51) (26,016) (112)
Issuance of common stock -- -- -- 100 --
Issuance of warrants -- -- -- 433 --
Issuance of preferred stock -- -- -- 2,655 --
Redemption of Series A Preferred Stock -- (3,000) -- -- --
Deferred financing costs -- (6,159) -- (2,030) --
Dividends paid (88) (341) -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities 601 55,437 (51) 40,715 6
Net increase (decrease) in cash and cash
equivalents 1,828 742 (7,180) (673) 3,982
Cash and cash equivalents at beginning of period 5,498 4,756 11,936 12,609 8,627
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period $ 7,326 $ 5,498 $ 4,756 $ 11,936 $ 12,609
========= ========= ========= ========= =========
Cash paid during the period for:
Interest $ 14,178 $ 8,843 $ 1,427 $ 2,513 $ 658
========= ========= ========= ========= =========
Taxes $ 12 $ 218 $ 1,825 $ 1,214 $ 11
========= ========= ========= ========= =========
Details of Acquisition of National Dynamics
Corporation and Management Buy-Out:
Fair value of assets acquired $ -- $ 38,487 -- $ 116,058 --
Goodwill -- 27,351 -- 9,689 --
Liabilities assumed -- (17,338) -- (69,196) --
Issuance of Series A Cumulative Preferred
Stock -- -- -- (4,449) --
--------- --------- --------- --------- ---------
Cash paid for assets $ -- $ 48,500 $ -- $ 52,102 $ --
========= ========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this statement.
24
<PAGE> 27
AQUA-CHEM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS; EXCEPT PER SHARE DATA)
NOTE 1: MANAGEMENT BUY-OUT AND NDC ACQUISITION
On July 31, 1997, Aqua-Chem, Inc. ("OLDCO") entered into a definitive
merger agreement with A-C Acquisition Corp. ("A-C Acquisition"), a 100% owned
subsidiary of Rush Creek LLC ("Rush Creek"). Rush Creek is a Limited Liability
Company owned by certain management of OLDCO and Whitney Equity Partners, L.P.
Also on July 31, 1997, pursuant to the merger, A-C Acquisition Corp. acquired
the assets of OLDCO (the "Management Buy-Out") for $125,747, which included
$69,196 of liabilities assumed and $5,000 of Series A Cumulative Preferred Stock
issued to the sellers. The amount paid or assumed does not include contingent
consideration attached to the Series B Cumulative Preferred Stock to be paid to
the sellers based on cumulative earnings of certain operations of OLDCO
subsequent to the Management Buy-Out. Maximum additional consideration is $7,500
and will be settled as part of the Series B Cumulative Preferred Stock as
discussed in Note 11.
Concurrently with the Management Buy-Out, A-C Acquisition amended its
certificate of incorporation to change its name to Aqua-Chem, Inc., (hereinafter
referred to as "Aqua-Chem"). The Management Buy-Out was accounted for using the
purchase method of accounting. The total purchase cost was allocated first to
the identified tangible and intangible assets and liabilities of OLDCO based
upon their respective fair values, with the remainder of $9,689 being allocated
to goodwill, which is being amortized on a straight-line basis over 40 years.
Prior to the Management Buy-Out, OLDCO was an 80% owned subsidiary of
Lyonnaise American Holding, Inc.
On June 23, 1998, Aqua-Chem acquired substantially all of the assets of
National Dynamics Corporation ("NDC") for $65,838, which included $17,338 of
liabilities assumed and now conducts NDC's former operations as part of its
Boiler Group. The acquisition was accounted for using the purchase method of
accounting. The total purchase cost was allocated first to identified tangible
assets and liabilities based upon their respective fair values, with the
remainder of $27,351 being allocated to goodwill, which is being amortized on a
straight-line basis over 40 years.
The following information presents unaudited pro forma condensed
consolidated statements of operations assuming OLDCO had been acquired by
Aqua-Chem as of January 1, 1996 and that the acquisition of NDC occurred as of
January 1, 1997. Such information includes adjustments to reflect additional
interest expense and depreciation expense, amortization of goodwill and other
intangibles and a reduction of other expenses due to Management Buy-Out related
compensation payments being made by OLDCO.
<TABLE>
<CAPTION>
YEAR JANUARY 1
ENDED TO YEAR ENDED
MARCH 31, MARCH 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales 213,571 44,466 235,771
Income (loss) before extraordinary
item and discontinued operations (8,353) (789) 5,256
Net income (loss) applicable to
common shares (10,087) (898) 3,629
Basic earnings (loss) per common
share (10.09) (0.90) 3.63
Diluted earnings (loss) per common
share (10.09) (0.90) 3.63
</TABLE>
The above pro forma financial information is prepared in accordance
with generally accepted accounting principles and is not necessarily indicative
of either the results of operations that would have occurred had the Management
Buy-Out or the acquisition of NDC been effective at the dates assumed above or
of future operations of Aqua-Chem.
25
<PAGE> 28
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements for the period from January 1,
1997 to July 31, 1997 were prepared using OLDCO's historical basis of accounting
(the "pre-buy-out basis of accounting"). The consolidated financial statements
for the years ended March 31, 2000 and 1999 and the periods January 1, 1998 to
March 31, 1998 and August 1, 1997 to December 31, 1997 were prepared under a new
basis of accounting that reflects the fair values of assets acquired and
liabilities assumed, the related financing costs and all debt incurred in
connection with the acquisition of OLDCO by Aqua-Chem (the "post-buy-out basis
of accounting"). Accordingly, the accompanying financial statements are not
comparable in all material respects since those financial statements report
financial position, results of operations, and cash flows of two separate
entities.
(b) Consolidation Policy and Use of Estimates
The consolidated financial statements include the accounts of Aqua-Chem
and all of its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
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, liabilities and the
disclosure of commitments and contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(c) Inventories
Inventories are stated at cost determined on the first-in, first-out
(FIFO) basis. The resulting inventory values are not in excess of market.
Inventory cost includes material, labor, burden, and engineering.
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
2000 1999
---------- ----------
<S> <C> <C>
Raw materials and work-in-process $ 20,813 $ 20,632
Finished goods 5,250 5,070
---------- ----------
Total inventories $ 26,063 $ 25,702
========== ==========
</TABLE>
(d) Property, Plant and Equipment
Prior to August 1, 1997, property, plant and equipment was carried at
cost, less allowances for depreciation and adjustments to net realizable value,
and included expenditures which substantially increased the existing useful
lives of plant and equipment. Depreciation of plant and equipment was provided
over the estimated useful lives of the respective assets using accelerated
methods for both financial statement and income tax purposes.
Effective with the Management Buy-Out, property, plant, and equipment
were adjusted to estimated fair values and are being depreciated on a
straight-line basis. The lives used for depreciation calculations are as
follows: 20 years for buildings and building improvements; 3 to 15 years for
machinery and equipment; and 3 to 10 years for furniture and fixtures. Leasehold
improvements are depreciated over the term of the related lease. Depreciation
expense totaled $4,545, $4,313, $581, $971, and $1,564, for the years ended
March 31, 2000 and 1999, the period
26
<PAGE> 29
January 1 to March 31, 1998, the period August 1 to December 31, 1997, and the
period January 1 to July 31, 1997, respectively.
(e) Goodwill and Intangible Assets
Goodwill is being amortized on a straight-line basis over 40 years. At
March 31, 2000 and 1999, goodwill totaled $34,012 and $34,920, respectively, net
of accumulated amortization of $1,879 and $971, respectively. Amortization
expense totaled $908, $718, $52 and $201, for the years ended March 31, 2000 and
1999, the period January 1 to March 31, 1998, and the period August 1, 1997 to
December 31, 1997, respectively.
Aqua-Chem continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of goodwill may
warrant revision or that the remaining balance of goodwill may not be
recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, Aqua-Chem uses an estimate of the undiscounted cash flows
over the remaining life of the goodwill in measuring whether the goodwill is
recoverable.
Prior to August 1, 1997, intangible assets, principally licenses and
technology, were carried at cost, less allowances for amortization. Amortization
of intangible assets was provided on the straight-line basis over the estimated
useful lives of the respective assets.
Effective with the Management Buy-Out, intangible assets were adjusted
to estimated fair values and are being amortized on a straight-line basis over
estimated useful lives ranging from 5 to 17 years. At March 31, 2000 and 1999,
intangibles totaled $3,361 and $1,236, respectively, net of accumulated
amortization of $643 and $257, respectively. Amortization expense totaled $386,
$217, $24, $40, and $56, for the years ended March 31, 2000 and 1999, for the
period January 1 to March 31, 1998, for the period August 1 to December 31,
1997, and for the period January 1 to July 31, 1997, respectively.
(f) Income Taxes
Aqua-Chem accounts for income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and operating
loss and tax credit carryforwards. 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. In
assessing the realizability of deferred tax assets, Aqua-Chem considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the years in which
those temporary differences become deductible. Aqua-Chem considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment.
Prior to the Management Buy-Out, Aqua-Chem filed a consolidated United
States corporate income tax return with Lyonnaise American Holding, Inc.
(Parent). The tax liability was calculated consistent with the provisions of a
1984 tax allocation agreement with the Parent which provided for the allocation
of income tax expense (benefit) based principally on a consolidated return
basis.
(g) Revenue Recognition
Aqua-Chem recognizes revenue utilizing the completed contract method of
accounting, except for certain contracts meeting the criteria for percentage of
completion revenue recognition under Statement of Position ("SOP") No. 81-1. For
those contracts under the completed contract method, revenue is recognized upon
shipment of the finished product to the customer. Under the percentage of
completion
27
<PAGE> 30
method, earned revenue is based on the percentage that incurred costs to date
bear to estimates of total costs. The cumulative impact of revisions in total
cost estimates during the progress of work is reflected in the year in which
these changes become known. Earned revenue reflects the original contract price
adjusted for agreed upon change order revenue, if any. Losses expected to be
incurred on jobs in process, after consideration of estimated recoveries on
change orders, are charged to operations as soon as such losses are known.
Progress billings in accounts receivable are currently due. Estimated revenues
in excess of progress billings and billings in excess of estimated revenues are
disclosed in Note 5.
Aqua-Chem has numerous contracts that are in various stages of
completion. Such contracts require estimates to determine the appropriate cost
and revenue recognition. Aqua-Chem has a substantial history of making
reasonably dependable estimates of the extent of progress towards completion,
contract revenues and contract costs. However, current estimates may be revised
as additional information becomes available.
(h) Retainages
Retainages are unpaid amounts due in accordance with the specific terms
of boiler contracts. Certain contracts provide for a percentage of the total
billing price to be retained by the customer until final acceptance of the
product. The amount of retainages included in Aqua-Chem's accounts receivable
balance was $66 and $2,241 at March 31, 2000 and 1999, respectively.
(i) Foreign Currency Translation
All assets and liabilities of foreign subsidiaries are translated at
the exchange rate prevailing at the balance sheet date and all income and
expense accounts are translated at the average exchange rate in effect during
the year. Translation adjustments are accumulated as a component of accumulated
other comprehensive income (loss) or directly to the consolidated statement of
operations for those countries whose currency has been classified as highly
inflationary. Foreign exchange transaction gains(losses) were not material for
the periods presented in the consolidated statement of operations.
(j) Commissions Payable
Aqua-Chem's domestic and international sales representatives sell
products on a commission basis. The related commissions payable were $3,598 and
$2,630 at March 31, 2000 and 1999, respectively, and are included in accounts
payable-other.
(k) Start-Up Accrual
Included in the sales price of Aqua-Chem's products is an estimated
future cost to prepare the product for use. These future costs, referred to as
start-up costs, are accrued by Aqua-Chem at the time of sale. When the customer
is ready for start-up, the service is requested through the sales representative
who performs the necessary work to prepare the product for use. The sales
representative then bills Aqua-Chem for the cost of the work performed. At March
31, 2000 and 1999, Aqua-Chem had accrued $2,571 and $3,210, respectively, for
future start-up costs, which are included in accrued expenses.
(l) Warranty Costs
Aqua-Chem accrues estimated warranty costs at the same time revenues
are recognized. Reserves for warranty costs were $3,432 and $3,022 at March 31,
2000 and 1999, respectively, and are included in accrued expenses.
(m) Research and Development
Research and development costs are expensed as incurred and are
included in selling, general, and administrative expenses. Research and
development expense totaled $1,647, $1,845, $358, $627, and $847, for the years
ended March 31, 2000 and
28
<PAGE> 31
1999, the period January 1 to March 31, 1998, the period August 1 to December
31, 1997, and the period January 1 to July 31, 1997, respectively.
(n) Advertising
Advertising costs are expensed as incurred and are included in selling,
general and administrative expenses. Advertising expense totaled $816, $982,
$276, $354 and $561, for the years ended March 31, 2000 and 1999, the period
January 1 to March 31, 1998, the period August 1 to December 31, 1997, and the
period January 1 to July 31, 1997, respectively.
(o) Cash Equivalents
For purposes of the consolidated statement of cash flows, Aqua-Chem
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
(p) Fair Value of Financial Instruments
The carrying amounts of financial instruments approximate fair value
due to the short maturity of these instruments unless otherwise stated. The
carrying amounts of short-term borrowings approximate fair value because their
stated interest rates approximate current rates for similar instruments with
similar maturities as of March 31, 2000 and 1999. At March 31, 2000, the
Company's unsecured senior subordinated notes were bid at 56%. Based on this
information, management believes the fair value of the Senior Notes is
approximately $70 million versus a carrying value of $125 million (see Note 9).
(q) New Accounting Pronouncements
Effective December 31, 1997, Aqua-Chem adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
This statement establishes standards for reporting and display of comprehensive
income which includes foreign currency translation adjustments. SFAS No. 130
requires that an enterprise classify items of other comprehensive income by
their nature in a financial statement for the period in which they are
recognized. Aqua-Chem has chosen to disclose comprehensive income in the
Consolidated Statement of Stockholders' Equity. Accumulated other comprehensive
income at March 31, 2000 and 1999 is comprised of only foreign currency
translation adjustments. Prior years have been restated to conform to the SFAS
No. 130 requirements.
Effective April 1, 1998, the Company adopted SOP No. 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use." The
adoption of this statement did not have an effect on the Company's financial
position or results of operations.
The Company adopted SOP No. 98-5, "Reporting on the Costs of Start-Up
Activities," effective April 1, 1999. The adoption of this statement did not
have an effect on the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. This statement must be adopted no later
than April 1, 2001, although earlier application is permitted. The Company is
currently evaluating the impact of adopting SFAS No. 133 but does not expect the
impact to be material to its financial position or results of operations.
29
<PAGE> 32
(r) Reclassifications
Certain prior period amounts as originally reported have been
reclassified to conform with the 2000 presentation.
(s) Extraordinary Charge
On June 23, 1998, Aqua-Chem issued $125,000 of senior subordinated
notes. Proceeds from this offering were used, in part, to repay the secured term
loan and subordinated debt issued in conjunction with the Management Buy-Out.
As a result of the repayment of the aforementioned borrowings,
Aqua-Chem recorded a $1,260 extraordinary, after-tax charge for the write-off of
unamortized deferred financing fees established at the time of the Management
Buy-Out in July, 1997.
(t) Change in Fiscal Year
On December 30, 1998, Aqua-Chem elected to change the date of its
Fiscal year-end to March 31. As a result, a transition period for the three
months ended March 31, 1998 and the three months ended March 31, 1997
(unaudited), was previously reported on a transition report on Form 10-Q. The
three months ended March 31, 1998 have been included in Aqua-Chem's Consolidated
Statement of Operations.
The Company's condensed unaudited operating results for the three
months ended March 31, 1997 are as follows:
<TABLE>
<S> <C>
Net sales $ 32,500
Costs of goods sold 24,547
--------
Gross margin 7,953
Selling, general and administrative expenses 7,437
--------
Operating income 516
Other expense (107)
--------
Income from continuing operations before income taxes and
minority interest 409
Income tax expense 48
Minority interest 55
--------
Income from continuing operations 306
--------
Discontinued operations, net of tax benefit of $0 (247)
--------
Net income $ 59
========
</TABLE>
NOTE 3: DISCONTINUED OPERATIONS
During the fourth quarter of Fiscal 2000, the Company decided to exit
the S&I Business and has adjusted its reporting for all periods to reflect this
business as a discontinued operation.
The Company intends to complete all active contracts of the S&I
Business and to fulfill its commitments for warranty service, payments to
vendors, and all other appropriate liabilities. While the Company intends to
fulfill those commitments of the S&I Business within one year, management will
consider other more cost effective strategic alternatives as they arise during
the year, including any opportunities to sell all or part of the discontinued
business.
During the fourth quarter of Fiscal 2000, the Company recorded a
pre-tax charge of $4,157 related to this plan. This charge included a pre-tax
provision of $700 for anticipated operating losses during Fiscal 2001 until the
orderly completion of contracts in the backlog is complete, a $2,208 pre-tax
charge to write down the carrying value of the S&I Business' assets (primarily
goodwill and
30
<PAGE> 33
intangibles), $594 related to severance and outplacement costs, and $655 of
other related costs.
In accordance with its treatment of the S&I Business as a discontinued
operation, the Company has separately delineated the net liabilities (assets)
and net operating results of the S&I Business on both its Consolidated Balance
Sheet and its Consolidated Statement of Operations. The following tables present
certain additional financial information with respect to the S&I Business:
<TABLE>
<CAPTION>
Year
Ended
March 31,
2000
----------
<S> <C>
Net sales $ 10,726
Cost of goods sold 8,636
----------
Gross margin 2,090
Selling, general and administrative expenses 4,331
----------
Operating loss (2,241)
Income tax benefit 846
----------
Net loss $ (1,395)
==========
</TABLE>
<TABLE>
<CAPTION>
Balance
at
March 31,
2000
----------
<S> <C>
Accounts receivable $ 1,012
Revenues in excess of billing 597
Other assets 213
Accounts payable, trade (1,368)
Accrued warranty (1,057)
Accrued exit costs (1,494)
Other liabilities (1,348)
----------
Net liabilities of discontinued operations $ (3,445)
==========
</TABLE>
NOTE 4: RESTRUCTURING CHARGES
During 1996, Aqua-Chem adopted a restructuring plan ("1996 Plan")
focused on improving overall performance and profitability. The 1996 Plan
included an early retirement program for 47 salaried individuals and certain
organizational changes within its operating units. As a result, a restructuring
charge of $5,038 was recorded in 1996.
A summary of restructuring activity for the 1996 Plan is as follows:
<TABLE>
<CAPTION>
1996 Activity 1997 Activity
------------------------------------------- ----------------------------
Balance at Balance at
Initial December 31, July 31,
Charges Expenditures 1996 Expenditures 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Employee termination benefits $ 3,045 $ (1,915) $ 1,130 $ (588) $ 542
Professional services 1,993 (1,993) -- -- --
------------ ------------ ------------ ------------ ------------
Total restructuring
reserve $ 5,038 $ (3,908) $ 1,130 $ (588) $ 542
============ ============ ============ ============ ============
</TABLE>
31
<PAGE> 34
On June 25, 1998 the Board of Directors approved a plan of closure for
the Greenville, Mississippi facility ("1998 Plan"). As a result, the Company
recorded a restructuring charge of $4,720 to operations in June 1998. The
production historically performed at the facility has been transferred to other
Company facilities or outsourced. The plant closed in June 1999, resulting in
the elimination of 149 positions.
The Company transferred some of the fixed assets from the Greenville
facility to other facilities, sold other fixed assets and will sell or dispose
of the remaining assets. Approximately $2,900 of the restructuring charge was
for the recognition of the estimated impairment of assets at the Greenville
facility as a direct result of its closure. The valuation adjustment to reflect
this impairment was based upon the estimated fair value of the assets at the
date of commitment as compared to the carrying value of the assets. A charge of
$955 was for employee termination payments representing the employee cash
severance costs to reduce personnel as a result of the closure of the Greenville
facility. These termination payments included the cost of severance and
contractual benefits in accordance with collective bargaining arrangements and
Company policy. The remaining charge of $865 included facility exit costs, such
as employee costs associated with the plant closure that were incurred after
operations ceased and the disposal of other plant-related assets not included in
property, plant and equipment.
An analysis of Aqua-Chem, Inc.'s 1998 Plan is summarized in the table
below:
<TABLE>
<CAPTION>
Balance at Balance at
1998 Reserves March 31, Reserves March 31,
Plan Utilized 1999 Utilized 2000
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Writedown of property, plant and
equipment $ 2,900 $ (2,900) $ -- $ -- $ --
Employee termination payments 955 (129) 826 (826) --
Costs related to closing the
existing facility 865 -- 865 (471) 394
------------ ------------ ------------ ------------ ------------
Total restructuring $ 4,720 $ (3,029) $ 1,691 $ (1,297) $ 394
============ ============ ============ ============ ============
</TABLE>
During Fiscal 2000, the Company also recognized $313 of relocation
charges resulting from the Greenville facility closure which, under generally
accepted accounting principles, could not be accrued as part of the 1998 Plan.
In March 2000, the Company determined that its remaining costs associated with
the 1998 Plan would be lower than originally anticipated and reduced the
restructuring reserve attributable to the 1998 Plan by $250. This reduction is
reflected in the above table as reserves utilized during Fiscal 2000.
In January 1999, Aqua-Chem recognized a restructuring charge of $1,161
("1999 Plan"). The charge for the 1999 Plan consisted of employee termination
payments associated with the termination of 35 personnel. These termination
payments included the cost of severance and outplacement services. As of March
31, 1999, the Company had utilized $321 of this reserve. During Fiscal Year
2000, the Company utilized $703 of this reserve, leaving a balance of $137.
In April 1999, Aqua-Chem recognized a restructuring charge of $240
consisting of payments associated with the termination of 23 personnel. These
termination payments include the cost of severance and outplacement services. In
September 1999, the Company recognized an additional charge of $594 consisting
of $367 for employee termination payments associated with the termination of an
additional 11 personnel and $227 for incremental contractual payments as a
result of the restructuring plan. In October, 1999, Aqua-Chem recognized a
restructuring charge of $905 for additional employee termination payments and
other related costs. In March 2000, the Company decided to relocate its
deaerator production from its Knoxville, Tennessee facility and to perform other
restructuring actions at that facility designed to improve the efficiency and
profitability of that facility. The Company recognized a restructuring charge of
$250 associated with this action consisting primarily of
32
<PAGE> 35
severance payments, outplacement costs, and other related costs associated with
this plan. As of March 31, 2000, the Company had utilized $1,114 of these
reserves, leaving a balance of $875.
The Company expects to fund the cash requirements of these plans with
cash flows from operations and, if necessary, additional borrowings under the
Company's existing revolving credit facility. The specific restructuring
measures and associated estimated costs were based on management's best business
judgment under prevailing circumstances. If future events warrant changes to the
reserve, such adjustments will be reflected as "Restructuring charges" in the
applicable statement of operations.
NOTE 5: CONTRACTS IN PROGRESS
Components of contracts in progress, the majority of which are
accounted for under the percentage of completion method of revenue recognition,
are as follows:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
---------- ----------
<S> <C> <C>
REVENUES IN EXCESS OF BILLINGS
Costs and estimated earnings $ 47,099 $ 43,168
Billings 40,160 38,537
---------- ----------
$ 6,939 $ 4,631
========== ==========
BILLINGS IN EXCESS OF REVENUES
Billings $ 9,196 $ 6,679
Costs and estimated earnings 4,733 3,335
---------- ----------
$ 4,463 $ 3,344
========== ==========
</TABLE>
All receivables on contracts in progress are considered to be
collectible within twelve months. No cumulative losses on contracts are
estimated or accrued as of March 31, 2000 and 1999.
NOTE 6: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
---------- ----------
<S> <C> <C>
Land and land improvements $ 2,807 $ 3,067
Buildings and building improvements 14,326 14,535
Machinery and equipment 20,756 19,373
Furniture and fixtures 4,853 3,877
---------- ----------
42,742 40,852
Less: accumulated depreciation (10,166) (4,993)
---------- ----------
$ 32,576 $ 35,859
========== ==========
</TABLE>
NOTE 7: LEASES
Aqua-Chem leases its corporate offices under a fifteen year operating
lease with two five-year renewal options.
The future minimum payments under all noncancellable operating leases
with initial or remaining terms in excess of one year are as follows:
<TABLE>
<S> <C>
2001 $1,607
2002 1,432
2003 1,188
2004 1,125
2005 1,065
Thereafter 1,193
------
Total minimum rental commitments $7,610
======
</TABLE>
33
<PAGE> 36
Total rent expense for all operating leases was $1,784, $1,689, $312,
$632 and $891 for the years ended March 31, 2000 and 1999, the period from
January 1 to March 31, 1998, the period from August 1, 1997 to December 31,
1997, and the period from January 1 to July 31, 1997, respectively.
NOTE 8: REVOLVING CREDIT FACILITY
Aqua-Chem has a $45,000 secured revolving credit facility with three
major banks. Borrowings under this facility are made in the form of revolving
credit notes. These notes bear interest at a rate of either eurocurrency plus a
factor as defined in the agreement or prime. The revolving credit agreement will
terminate July 1, 2003. The facility is secured by the assets of the Company.
Outstanding borrowings totaled $500 and $0 at March 31, 2000 and 1999,
respectively. The amount available under the facility is reduced by revolver
usage, outstanding letters of credit, and certain reserves as defined in the
facility. At March 31, 2000, availability under the facility totaled $40.5
million. Among other restrictions, the credit agreement contains covenants
relating to financial ratios and other limitations, as defined by the agreement.
Effective March 31, 2000, the Company obtained an amendment to this facility
that includes certain structural changes, including a borrowing base limitation
that would be implemented if the Company were to fall below certain EBITDA
levels defined in the facility. As of March 31, 2000, the Company was in
compliance with the covenants contained in the amended agreement.
NOTE 9: LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
---------- ----------
<S> <C> <C>
Unsecured Senior Subordinated Notes $ 125,000 $ 125,000
Note payable 189 --
---------- ----------
Total long-term debt 125,189 125,000
Less: Current maturities -- --
---------- ----------
Long-term debt $ 125,189 $ 125,000
========== ==========
</TABLE>
On June 23, 1998 Aqua-Chem issued $125,000 in unsecured senior
subordinated notes. The notes carry an interest rate of 11 1/4% and are due July
1, 2008. Interest is payable semi-annually beginning January 1, 1999.
A summary of the minimum annual principal repayments of long-term debt
at March 31, 2000, is as follows:
<TABLE>
<S> <C>
2001 $ --
2002 120
2003 69
2004 --
2005 --
Thereafter 125,000
--------
$125,189
========
</TABLE>
34
<PAGE> 37
NOTE 10: INCOME TAXES
The sources of income (loss) from continuing operations before income
taxes, minority interest and extraordinary charge were as follows:
<TABLE>
<CAPTION>
Pre-Buy-Out
Basis of
Post-Buy-Out Basis of Accounting Accounting
------------------------------------------------------------ ------------
January 1, August 1 January 1
Year Ended Year Ended to to to
March 31, March 31, March 31, December 31, July 31,
2000 1999 1998 1997 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
U.S. sources $ (6,503) $ (12,559) $ (1,551) $ 5,395 $ 2,691
Foreign sources 1,826 1,302 467 714 785
------------ ------------ ------------ ------------ ------------
Income (loss) from continuing
operations before income taxes,
minority interest, and
extraordinary charge $ (4,677) $ (11,257) $ (1,084) $ 6,109 $ 3,476
============ ============ ============ ============ ============
</TABLE>
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
Pre-Buy-Out
Basis of
Post-Buy-Out Basis of Accounting Accounting
------------------------------------------------------------ ------------
January 1, August 1 January 1
Year Ended Year Ended to to to
March 31, March 31, March 31, December 31, July 31,
2000 1999 1998 1997 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current:
United States $ 14 $ (1,296) $ (1,371) $ 3,258 $ --
Foreign 629 473 265 215 271
State 32 206 (238) 600 150
------------ ------------ ------------ ------------ ------------
Total current 675 (617) (1,344) 4,073 421
Deferred:
United States (1,858) (2,915) 829 (1,393) --
Foreign -- -- -- -- --
State (169) (556) 150 (264) --
------------ ------------ ------------ ------------ ------------
Total deferred (2,027) (3,471) 979 (1,657) --
------------ ------------ ------------ ------------ ------------
Total income tax provision
(benefit) $ (1,352) (4,088) $ (365) $ 2,416 $ 421
============ ============ ============ ============ ============
</TABLE>
Total income tax provision (benefit) differs from amounts derived from
applying the Federal statutory income tax rate to income (loss) before income
taxes and minority interest, as set forth in the following table.
<TABLE>
<CAPTION>
Post-Buy-Out Basis of Accounting
-----------------------------------------------------------------------------------------------
Year Ended March 31, Year Ended March 31, January 1 to August 1 to
2000 1999 March 31, 1998 December 31, 1997
-------------------- -------------------- -------------------- --------------------
Tax Tax Tax Tax
Expense Expense Expense Expense
(Benefit) Percent (Benefit) Percent (Benefit) Percent (Benefit) Percent
--------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax expense
(benefit)
at federal
statutory rate $ (1,590) (34.0)% $ (3,828) (34.0)% $ (369) (34.0)% $ 2,077 34.0%
Impact of foreign
subsidiary income
and tax rates 2 .04 32 0.30 107 9.9 (27) (.4)
Change in valuation
allowance -- -- -- -- -- -- -- --
Foreign tax credit 170 3.64 -- -- -- -- -- --
State income taxes,
net of Federal
income tax
benefit (204) (4.36) (380) (3.38) (59) (5.4) 227 3.7
Management Buy-Out
goodwill
amortization 40 .86 31 .27 11 1.0 78 1.3
Other 230 4.92 57 .50 (55) (5.1) 61 1.0
--------- ------- --------- ------- --------- ------- --------- -------
Total income
tax
expense
(benefit) $ (1,352) (28.90)% $ (4,088) (36.31)% $ (365) (33.6)% $ 2,416 39.6%
========= ======= ========= ======= ========= ======= ========= =======
</TABLE>
<TABLE>
<CAPTION>
Pre-Buy-Out Basis
of Accounting
--------------------
January 1 to
July 31, 1997
--------------------
Tax
Expense
(Benefit) Percent
--------- -------
<S> <C> <C>
Tax expense
(benefit)
at federal
statutory rate $ 1,182 34.0%
Impact of foreign
subsidiary income
and tax rates 4 0.1
Change in valuation
allowance (954) (27.4)
Foreign tax credit -- --
State income taxes,
net of Federal
income tax
benefit 150 4.3
Management Buy-Out
goodwill
amortization -- --
Other 39 1.1
--------- -------
Total income
tax
expense
(benefit) $ 421 12.1%
========= =======
</TABLE>
35
<PAGE> 38
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:.
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
---------- ----------
<S> <C> <C>
Deferred tax assets
Inventory $ 688 $ 728
Employee benefits 2,731 2,912
Start-up and warranty expenses 2,216 1,773
Restructuring charges 3,359 2,243
Net operating loss carryforward 6,311 2,324
Other 1,096 1,355
---------- ----------
Total deferred tax assets 16,401 11,335
Deferred tax liabilities
Contract related transactions (752) (484)
Property, plant and equipment (1,111) (794)
Other (810) (315)
---------- ----------
Total deferred tax liabilities (2,673) (1,593)
---------- ----------
Net deferred tax asset $ 13,728 $ 9,742
========== ==========
</TABLE>
The classification of the net deferred tax asset is as follows:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
---------- ----------
<S> <C> <C>
Current deferred tax asset $ 6,230 $ 6,438
Long-term deferred tax asset 7,498 3,304
---------- ----------
Net deferred tax asset $ 13,728 $ 9,742
========== ==========
</TABLE>
During 1995, Aqua-Chem incurred a net operating loss for tax purposes.
Due to a January 1996 modification to the existing tax allocation agreement
between Aqua-Chem and the former owners, a carryback of the loss would not have
resulted in a refund of cash to Aqua-Chem. Accordingly, Aqua-Chem elected to
carry the tax loss forward and a valuation allowance was established. During the
period January 1, 1997 through July 31, 1997, Aqua-Chem had sufficient income to
realize the value of a portion of the net operating loss. Accordingly, the
valuation reserve was reduced in both periods by the amount of the benefit
realized.
The Company has a total Federal tax loss carryforward of $16,101. The
total loss carryforward is comprised of $5,760 from the tax year ended March 31,
1999, which will expire in 2019, and $10,341 from the tax year ended March 31,
2000, which will expire in 2020.
NOTE 11: STOCKHOLDERS' EQUITY AND PREFERRED STOCK WITH MANDATORY REDEMPTION
PROVISIONS
As of March 31, 2000, Aqua-Chem had 2,006,260 shares of authorized
capital stock, itemized by class and series as follows:
(i) 2,000,000 shares of Common Stock, par value $.01 per share,
with 1,000,000 shares issued and outstanding;
(ii) 6,260 shares of Preferred Stock, par value $.01 per share,
divided into the following series:
(a) 130 shares of Series A Cumulative Preferred Stock, par
value $0.01 per share with 52 shares issued and outstanding.
(b) 130 shares of Series B Cumulative Preferred Stock, par
value $0.01 per share, with 130 shares issued and outstanding.
(c) 6,000 shares of Series C Cumulative Preferred Stock, par
value $.01 per share, with 2,755 shares issued and outstanding.
36
<PAGE> 39
The Company formerly had 130 shares of Series A Preferred outstanding,
and used approximately $3.1 million of the proceeds of the subordinated debt
offering to redeem 78 of such shares. The remaining 52 shares of Series A
Preferred will remain outstanding subject to redemption as follows: one-half
(26) of such shares will be redeemed (at a redemption price of $1 million plus
accrued dividends minus other adjustments, if any) on August 1, 2000 and the
remainder will be redeemed (at a redemption price of $1 million plus accrued
dividends minus other adjustments, if any) on August 1, 2001. Under the
Company's Certificate of Incorporation (the "Certificate"), holders of the
outstanding non-voting Series A Preferred are entitled to receive cumulative
cash dividends of $577 per share per quarter beginning August 1, 1998. In
addition, the carrying value of this Series A Preferred may be reduced for
certain items as defined in the Certificate. During 2000, the carrying value of
the preferred stock was reduced by $275 to reflect the impact of certain shared
defense costs associated with asbestos litigation (see the "Legal Proceedings"
section of this Form 10-K for further information). Holders of Preferred A have
the right to require the Company to redeem Series A Preferred at an aggregate
redemption price of $2 million plus accrued dividends minus other adjustments,
if any, (i) simultaneous with the occurrence of an "overall ownership shift,"
"employee ownership shift" or "asset shift" (each as defined in the
Certificate); or (ii) within the 120 day period following an initial public
offering of the Company's equity securities. The Company may call the
outstanding shares at any time at the redemption price of $38,462 per share plus
accrued dividends. As the Preferred A carries a below market dividend rate of
6%, Aqua-Chem recorded the Preferred A at a discount. Aqua-Chem is accreting the
discount over the term of the Series A Preferred with the accretion charged to
retained earnings. The carrying value, including accretion and dividends, of the
Series A Preferred at March 31, 2000 and 1999 was $1,595 and $1,839,
respectively.
Holders of the non-voting Series B Cumulative Preferred Stock
("Preferred B") are entitled to receive cumulative cash dividends of $1,538 per
share per year beginning August 1, 1997 payable at redemption. The redemption
price of the Preferred B shall be the "Normal Redemption Price," which shall
generally be based upon Aqua-Chem's Water Technologies Division's ("Water
Technologies") cumulative earnings before taxes for the period 1997 through
2001. (Note that the Water Technologies Division describes the combination of
the F&M Business and the S&I Business under which the Company previously
reported the results of those two businesses.) The redemption price is modified
in the event that prior to December 31, 2001, either (i) Water Technologies is
sold to an unrelated third party; or (ii) there occurs an initial public
offering of the Company's equity securities; or (iii) there occurs an "overall
ownership shift," "employee ownership shift" or "asset shift" (each as defined
in the Certificate). The maximum redemption price, under any circumstance, shall
be $7,500. Holders of Preferred B generally shall have the right to require the
Company to redeem the Series Preferred B at the applicable redemption price plus
accrued dividends (i) simultaneous with the occurrence of an "overall ownership
shift" (as defined by the Certificate); (ii) within the 120 day period following
an initial public offering of Aqua-Chem's equity securities; (iii) within the
120 day period following a refinancing and retirement of the existing
subordinated debt; or (iv) July 31, 2004. The holders of the Series B Preferred
elected not to require that the Series B Preferred be redeemed in connection
with the subordinated debt offering. The Certificate further specifies that
until the Company has redeemed all of the shares of Series B Preferred Stock,
the Company is required to obtain the prior written consent of all Series B
Preferred shareholders before reorganizing, restructuring, or otherwise
transferring any of the assets of its Water Technologies Group or performing any
other action that would have the effect of altering the calculation of the
Series B redemption price. The carrying value of the Series B Preferred was zero
at March 31, 2000 and 1999, respectively as the redemption value is contingent
upon future events.
Holders of Series C Preferred Stock are entitled to receive quarterly
dividends at the rate of 10.17% per year on the original issue price per share
($964) beginning on August 1, 1997. Holders of Series C Preferred generally
shall have the right to require the Company to redeem all or any part of Series
C Preferred at a price equal to $1,000 per share, plus accrued dividends upon
(i) an "overall ownership shift, "employee ownership shift," or "asset shift"
(each as defined by the Certificate); (ii) within the 120-day period following
an initial
37
<PAGE> 40
public offering; or (iii) July 31, 2005. Any time after July 31, 2004, the
Company may call the outstanding shares at the redemption price of $1,000 per
share plus accrued dividends. Holders of the Series C Preferred are entitled to
voting rights equivalent to the rights of one share of common stock. As the
redemption price of $1,000 per share exceeds the original issue price of $964,
Aqua-Chem recorded the Series C Preferred at a discount. Similar to the Series A
Preferred, the Company is accreting the discount over the term of the Series C
Preferred with the accretion charged to retained earnings. The carrying value,
including dividends, of the Series C Preferred at March 31, 2000 and 1999 was
$3,375 and $3,105, respectively.
NOTE 12: STOCK OPTIONS
As of and for the Fiscal year ended March 31, 2000, the Company had in
place two stock option plans, the Aqua-Chem, Inc. 1997 Stock Option Plan (as
amended and restated, the "1997 Stock Option Plan") and the Aqua-Chem, Inc. 1998
Stock Option Plan (the "1998 Stock Option Plan"). Aqua-Chem accounted for these
plans under APB Opinion No. 25. These plans were designed to provide
non-statutory stock options to key employees.
All options granted under the 1997 and 1998 Stock Option Plans were
made during the year ended March 31, 1999 at exercise prices that approximated
fair market value of the stock, and, as a result, the Company recorded no
compensation expense associated with these grants. As of March 31, 2000, all
options previously granted under the 1997 and 1998 Stock Option Plans had been
forfeited by the respective optionees, and at March 31, 2000, there were no
options outstanding under either of these plans. In June 2000, the Company
terminated the 1999 and 1998 option plans.
Under separate agreements from the 1997 Plan and the 1998 Plan, two of
the Company's outside Directors have options to purchase 2,925 shares of the
Company's common stock at $3.75 per share, which does not differ significantly
from fair market value. At March 31, 2000, 1,650 of these options were vested.
Of the remaining options, 600 are scheduled to vest on July 31, 2000 and 225 are
scheduled to vest on each of December 31, 2000, 2001 and 2002. In both cases,
the vesting is contingent upon the optionee remaining as a Director of the
Company.
NOTE 13: COMMON STOCK PURCHASE WARRANTS
Warrants were issued in conjunction with the Management Buy-Out whereby
the holders of these warrants can acquire, at any time through July 31, 2007, in
total, 176,471 shares of Aqua-Chem's common stock. These warrants remained
outstanding at March 31, 2000.
The exercise price payable upon exercise of the warrants is $.01 per
share of stock, with adjustments made to prevent dilution in the event of any
changes in capitalization of Aqua-Chem.
After July 31, 2002, there are put and call features that may require
Aqua-Chem to purchase all or any part of the warrants or the common stock
obtained by the exercise of such warrants at the higher of a price determined in
the agreement or the fair market value of the Company's stock. During the year
ended March 31, 2000, no warrants were exercised.
The warrants were recorded within other long-term liabilities at their
approximate fair value.
NOTE 14: EMPLOYEE BENEFIT PLANS
Defined Benefit and Postretirement Benefit Plans
Aqua-Chem maintains a defined benefit pension plan covering
substantially all union employees at one of the Boiler Group's Lincoln, Nebraska
manufacturing facilities. The benefits are based on years of service and the
employee's compensation during the last five years of employment. The Company's
funding policy is to contribute amounts necessary to satisfy the funding
requirements as prescribed
38
<PAGE> 41
by laws and regulations. Plan assets consist primarily of investments managed by
Principal Financial Group, which has discretionary authority and control over
such assets.
Aqua-Chem maintains unfunded health care plans covering certain
eligible retirees and employees. The estimated costs of postretirement benefits,
principally health care, are accrued over the period the benefits are earned.
Aqua-Chem's policy is to fund postretirement benefits as incurred.
The following assumptions were utilized in determining the funded
status of Aqua-Chem's defined benefit pension plan:
<TABLE>
<CAPTION>
March 31,
----------------
2000 1999
------ ------
<S> <C> <C>
Weighted-average discount rate 7.5% 6.0%
Rate of increase in future compensation 4.9% 4.9%
Weighted-average, long-term rates of return on plan assets 7.5% 7.5%
</TABLE>
The following assumptions were utilized in determining the funded
status of Aqua-Chem's postretirement health plan:
<TABLE>
<CAPTION>
Pre-Buy-Out
Basis of
Post-Buy-Out Basis of Accounting Accounting
---------------------------------------------------------------- --------------
January 1, August 1 January 1
Year Ended Year Ended to to to
March 31, March 31, March 31, December 31, July 31,
2000 1999 1998 1997 1997
-------------- -------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Weighted-average discount rate 7.5% 7.5% 7.5% 7.5% 7.5%
</TABLE>
<TABLE>
<CAPTION>
Postretirement Health
Defined Benefit Plan Plan
------------------------ ------------------------
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Changes in benefit obligations:
Actuarial present value of benefit obligation
at the beginning of the period $ 1,577 $ 1,430 $ 6,059 $ 4,516
Service cost 132 97 11 15
Interest cost 94 72 387 358
Gross benefits paid (44) (10) (595) (330)
Actuarial gain (loss) (608) (12) (424) 631
Other 236 -- -- --
---------- ---------- ---------- ----------
Actuarial present value of benefit obligation at
end of period 1,387 1,577 5,438 5,190
Change in plan assets
Plan assets at fair value at the beginning
of the measurement period 1,175 929 -- --
Actual return on plan assets 91 67 -- --
Employer contributions 153 189 -- --
Gross benefits paid (44) (10) -- --
---------- ---------- ---------- ----------
Plan assets at fair value at end of period 1,375 1,175 -- --
Plan assets less than total benefit obligation 12 402 5,438 5,190
Unrecognized prior service cost (236) -- -- --
Unrecognized net actuarial gain / (loss) 645 -- (996) (609)
---------- ---------- ---------- ----------
Net liability recognized at end of year $ 421 $ 402 $ 4,442 $ 4,581
========== ========== ========== ==========
</TABLE>
The liability above is recognized in the accompanying Consolidated
Balance Sheet within Other Long-Term Liabilities.
39
<PAGE> 42
The components of the net periodic benefit costs of Aqua-Chem's defined
benefit and post-retirement health plan are as follows:
<TABLE>
<CAPTION>
Postretirement Health Plan
--------------------------------------------------------------------
Pre-Buy-Out
Basis of
Defined Benefit Plan Post-Buy-Out Basis of Accounting Accounting
--------------------------- ------------------------------------------------------ ------------
January 1 August 1 January 1
Year Ended Year Ended Year Ended Year Ended to to to
March 31, March 31, March 31, March 31, March 31, December 31, July 31,
2000 1999 2000 1999 1998 1997 1997
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Components of net
periodic benefit cost:
Service cost $ 132 $ 97 $ 11 $ 15 $ 4 $ 6 $ 9
Interest cost 94 72 387 358 89 139 203
Expected return on
assets (53) (74) -- -- -- --
Amortization of
transition obligation -- -- -- -- -- -- 248
Amortization of
Unrecognized gain -- -- 59 13 3 -- (140)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net periodic benefit
cost $ 173 $ 95 $ 457 $ 386 $ 96 $ 145 $ 320
============ ============ ============ ============ ============ ============ ============
</TABLE>
The weighted-average assumed health care cost trend rate used in
determining the March 31, 2000 postretirement benefit obligation was 7.5%
declining to 5.5% over 6 years.
Increasing the assumed health care cost trend rate by one percentage
point would increase the total accumulated postretirement benefit obligation as
of March 31, 2000, by approximately $278, and would increase the aggregate of
the service cost and interest cost components of the net postretirement benefit
cost by approximately $22 in Fiscal 2000. Decreasing the assumed health care
cost trend rate by one percentage point would decrease the total accumulated
postretirement benefit obligation as of March 31, 2000, by approximately $251,
and would decrease the aggregate of the service cost and interest cost
components of the net postretirement benefit cost by approximately $20 in Fiscal
2000.
Aqua-Chem is also required to make payments to certain pension and
employee benefit funds, some of which are not controlled or administered by
Aqua-Chem and certain foreign subsidiary maintained government-mandated pension
plans. Pension expense of these plans for the years ended March 31, 2000 and
1999, the three months ended March 31, 1998, the period August 1 to December 31,
1997 and the period January 1 to July 31, 1997, was $276, $365, $22, $189, and
$140, respectively.
Defined Contribution Plans
Aqua-Chem maintains a defined contribution retirement plan which
includes a 401(k) savings plan. Substantially all employees who are not members
of collective bargaining groups or who are not otherwise employees working at
the operations acquired as part of the NDC Acquisition are eligible to
participate. Aqua-Chem's retirement contribution equals 4% of eligible
compensation while 401(k) contributions equal 50% of employee contributions to a
maximum Aqua-Chem contribution of 3% of eligible compensation. Under provisions
of the 401(k) savings plan, employees may voluntarily contribute a maximum of
17% of eligible compensation.
Aqua-Chem also maintains a defined contribution retirement plan
covering substantially all employees working at the operations acquired as part
of the NDC Acquisition who are not members of collective bargaining groups.
Participants may contribute up to 15% of their pay in pretax dollars. The
Company made a matching contribution of 50% of each participant's contributions,
up to 6% of eligible compensation. This discretionary matching contribution by
the Company may vary from year to year. Vesting in Company contributions is 100%
after five years in the plan.
For the years ended March 31, 2000 and 1999, the three months ended
March 31, 1998, the period August 1, 1997 to December 31, 1997, and the period
January 1, 1997 to July 31, 1997, Aqua-Chem contributed $1,540, $1,767, $406,
$675, and $910, respectively, to these plans.
40
<PAGE> 43
NOTE 15: SEGMENT INFORMATION
In 1999, Aqua-Chem adopted SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information". Aqua-Chem's reportable business segments
are:
Boiler Group: consists of packaged firetube, commercial and
industrial watertube boilers, burners and aftermarket parts.
F&M Business: consists of water purification and desalination
systems.
Other: includes the operations of the corporate office,
interest expense on Aqua-Chem's current and long-term debt obligations, interest
income, and any eliminating entries.
Aqua-Chem's reportable segments are strategic business units that offer
different products and services. They are managed differently as each business
requires different technology and marketing strategies.
Aqua-Chem markets its products through a network of sales
representatives, distributors and an international direct sales force while
maintaining manufacturing facilities in the United States, Canada, and Mexico.
Aqua-Chem does not have any customers who represent 10% or more of
consolidated sales.
<TABLE>
<CAPTION>
Pre-Buy-Out
Basis of
Post-Buy-Out Basis of Accounting Accounting
--------------------------------------------------------- ------------
January 1, August 1 January 1
Year Ended Year Ended to to to
March 31, March 31, March 31, December 31, July 31,
Segment 2000 1999 1998 1997 1997
------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales:
Boiler Group $ 185,562 $ 186,085 $ 28,112 $ 73,974 $ 80,868
F&M Business 21,095 17,858 3,709 10,410 12,413
------------ ------------ ------------ ------------ ------------
Total $ 206,657 $ 203,943 $ 31,821 $ 84,384 $ 93,281
============ ============ ============ ============ ============
Income (loss) from continuing
operations before income taxes,
minority interest
and extraordinary charge:
Boiler Group $ 14,041 $ 4,113 $ 639 $ 7,632 $ 4,380
F&M Business (557) (964) (33) 1,805 1,108
Other (18,161) (14,406) (1,690) (3,328) (2,012)
------------ ------------ ------------ ------------ ------------
Total $ (4,677) $ (11,257) $ (1,084) $ 6,109 $ 3,476
============ ============ ============ ============ ============
Depreciation and amortization:
Boiler Group $ 4,099 $ 3,709 $ 434 $ 794 $ 1,222
F&M Business 1,025 1,039 118 198 227
Other 789 537 102 268 171
------------ ------------ ------------ ------------ ------------
Total $ 5,913 $ 5,285 $ 654 $ 1,260 $ 1,620
============ ============ ============ ============ ============
Restructuring charge:
Boiler Group $ (114) $ 5,340 $ -- $ -- $ --
F&M Business 487 158 -- -- --
Other 1,365 383 -- -- --
------------ ------------ ------------ ------------ ------------
Total $ 1,738 $ 5,881 $ -- $ -- $ --
============ ============ ============ ============ ============
Total assets:
Boiler Group $ 120,385 $ 122,405 $ 70,520 $ 71,803 $ 61,898
F&M Business 22,027 21,809 20,957 20,078 18,522
Other 27,177 25,142 14,646 27,715 18,872
------------ ------------ ------------ ------------ ------------
Total $ 169,589 $ 169,356 $ 106,123 $ 119,596 $ 99,292
============ ============ ============ ============ ============
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
Pre-Buy-Out
Basis of
Post-Buy-Out Basis of Accounting Accounting
----------------------------------------------------- ------------
January 1, August 1 January 1
Year Ended Year Ended to To to
March 31, March 31, March 31, December 31, July 31,
Segment 2000 1999 1998 1997 1997
------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Capital expenditures:
Boiler Group $ 3,458 $ 2,456 $ 109 $ 337 $ 567
F&M Business 364 313 80 183 1,096
Other 255 403 388 672 388
------------ ------------ ------------ ------------ ------------
Total $ 4,077 $ 3,172 $ 577 $ 1,192 $ 2,051
============ ============ ============ ============ ============
Information by region is as
follows:
Net sales (based on customer
destination):
United States $ 165,377 $ 163,354 $ 20,291 $ 63,022 $ 61,726
Canada 12,367 12,181 4,931 8,993 11,704
Latin America 15,545 14,720 1,855 4,874 4,765
Far East 8,633 8,235 1,472 3,775 11,184
Others 4,735 5,453 3,272 3,720 3,902
------------ ------------ ------------ ------------ ------------
Total $ 206,657 $ 203,943 $ 31,821 $ 84,384 $ 93,281
============ ============ ============ ============ ============
Long-lived assets:
United States $ 30,429 $ 33,761 $ 29,090 $ 29,047 $ 19,957
Canada 1,387 1,323 1,206 1,229 1,301
Mexico 760 775 787 792 797
------------ ------------ ------------ ------------ ------------
Total $ 32,576 $ 35,859 $ 31,083 $ 31,068 $ 22,055
============ ============ ============ ============ ============
</TABLE>
NOTE 16: COMMITMENTS AND CONTINGENCIES
Aqua-Chem and its subsidiaries are involved in legal proceedings,
claims and litigation arising in the ordinary course of business. These claims
arise from a variety of factors, including suits alleging personal injury
related to the use and exposure to certain of Aqua-Chem's products (see the
"Legal Proceedings" section of this Form 10-K for further information). The
Company has successfully resolved most closed claims and cases without payment
and is vigorously defending open claims, and believes that it has strong
defenses to all claims brought to date. Although Aqua-Chem believes the costs
and liabilities associated with these matters will not have a material adverse
effect on its results of operations or financial condition, there can be no
assurances to this effect.
In the ordinary course of business, Aqua-Chem is contingently liable
for performance under letters of credit totaling approximately $3,000 and $3,700
at March 31, 2000 and 1999, respectively. Management does not expect any
material losses to result from these off-balance sheet instruments, and,
therefore, values these instruments at zero.
Under the terms of the purchase agreement for the NDC Acquisition,
Aqua-Chem is contractually obligated to perform certain post-sale product work,
such as warranty, for pre-acquisition sales on behalf of the sellers. The costs
incurred by Aqua-Chem are billed to the sellers as the work is incurred.
Aqua-Chem had recorded a receivable from the sellers of $313 and $902 at March
31, 2000 and 1999, respectively, for services performed which is included in
other assets. As the sellers in the NDC Acquisition have retained the
contractual liability for post-sale product obligations for pre-acquisition
sales, the accompanying consolidated balance sheet does not reflect a liability
for the future costs to be incurred by Aqua-Chem for performance of their
obligation under the terms of the purchase agreement.
NOTE 17: EARNINGS (LOSS) PER SHARE
At December 31, 1997, Aqua-Chem adopted SFAS No. 128, "Earnings per
Share" for all periods presented. The new standard simplified the computation of
earnings per share (EPS) and provides improved comparability with international
standards. SFAS No. 128 replaces primary EPS with "Basic" EPS, which excludes
dilution and is computed by dividing net earnings or (loss) by the
weighted-average number of common shares outstanding for the period. "Diluted"
EPS is computed similarly to primary EPS by reflecting the potential dilution
that occurs if securities or other contracts to issue common stock were
exercised or converted to common stock or resulted in the issuance of common
stock that then shared in the earnings. The
42
<PAGE> 45
following reconciles the numerators and denominators of the basic and diluted
earnings per share computations.
<TABLE>
<CAPTION>
Year Ended Year Ended January 1 to August 1 to
March 31, March 31, March 31, December 31,
2000 1999 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic Earnings Per Share:
Income (loss) from continuing
operations $ (8,223) $ (7,189) $ (745) $ 3,309
Less: Preferred Stock Dividends 411 750 155 260
------------ ------------ ------------ ------------
Income (loss) from continuing operations
after Preferred Stock dividends
applicable to common $ (8,634) $ (7,939) $ (900) $ 3,049
============ ============ ============ ============
Weighted Average Number of Shares 1,000,000 1,000,000 1,000,000 1,000,000
Basic Earnings (Loss) from continuing
operations Per Share $ (8.63) $ (7.94) $ (0.90) $ 3.05
============ ============ ============ ============
Diluted Earnings (Loss) Per Share:
Income (loss) from continuing operations
after Preferred Stock dividends
applicable to common $ (8,634) $ (7,939) $ (900) $ 3,049
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended January 1 to August 1 to
March 31, March 31, March 31, December 31,
2000 1999 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted Average Number of Shares - Basic 1,000,000 1,000,000 1,000,000 1,000,000
Effect of Dilutive Securities:
Warrants --(a) --(a) --(a) --(a)
Options --(a) --(a) --(a) --(a)
------------ ------------ ------------ ------------
Weighted Average Number of Shares -Diluted 1,000,000 1,000,000 1,000,000 1,000,000
============ ============ ============ ============
Diluted Earnings (Loss) Per Share from
continuing operations $ (8.63) $ (7.94) $ (0.90) $ 3.05
============ ============ ============ ============
</TABLE>
(a) The warrants and options are excluded from the calculation since they would
be antidilutive.
43
<PAGE> 46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
directors and executive officers of the Company. Each director is elected for a
one year term or until such person's successor is duly elected and qualified.
The Company's by-laws provide for six directors, and all six positions are
currently filled.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jeffrey A. Miller..................... 49 Director (Chairman of the Board)
David M. Tenniswood ................... 62 President, Chief Executive Officer, and Director
Donna P. Chapman...................... 52 Vice President, Human Resources
Robert D. Endacott.................... 56 Director
James A. Feddersen.................... 55 Secretary
James H. Fordyce...................... 41 Director
P. Welch Goggins ..................... 46 Vice President, Sales and Marketing
James W. Hook......................... 63 Director
James A. Kettinger.................... 42 Senior Vice President and Chief Financial
Officer
William P. Killian.................... 65 Director
Robert S. Loomis .................... 45 Vice President, Strategic Planning
Charles J. Norris..................... 53 Vice President and Chief Information Officer
Carl R. Strong .................... 52 Vice President, Manufacturing
Ronald G. Thimm....................... 44 Treasurer
</TABLE>
Jeffrey A. Miller served as President and Chief Executive Officer of
the Company beginning in July, 1996 and assumed the role of Chairman of the
Board in August, 1997. In October, 1999, Mr. Miller resigned as President and
Chief Executive Officer but continues to serve as Chairman of the Board. Prior
to joining the Company, Mr. Miller had undertaken permanent and interim Chief
Executive Officer and Chief Operating Officer assignments for various major
industrial companies, including serving as interim President and Chief Operating
Officer of Donnelly Corporation (an automotive supplier) from October, 1995 to
May, 1996, performing various independent consulting and interim management
positions from June, 1993 to October, 1995, and serving as Group Vice President
of the Automotive Products Group of Aeroquip Corporation (an automotive
supplier) from August, 1992 to June, 1993. Mr. Miller also spent 19 years in
numerous managerial and executive positions within various business groups of
The General Electric Company, including transportation systems (locomotives,
transit cars, transit equipment), major appliances, mining, oil well drilling,
industrial electronics, industrial controls, factory automation and automotive.
David M. Tenniswood has served as President and Chief Executive Officer
of the Company since October, 1999. Mr. Tenniswood was elected as a Director of
the Company in April, 2000. Prior to joining the Company, Mr. Tenniswood was,
from 1997 until 1999, Vice President of European Operations with Numatics, Inc.
From 1985 through 1996, Mr. Tenniswood was employed by Mascotech, Inc. and
served as the President of Electrical Controls Operations. Mr. Tenniswood also
spent 17 years with McGraw-Edison and 7 years with Ford Motor Company serving in
various senior management and executive roles.
Donna P. Chapman has served as Vice President, Human Resources since
December, 1998. Prior to joining the Company, Ms. Chapman served in a similar
role at General Signal Corporation from 1996 to 1998. From 1989 to 1996, Ms.
Chapman held a variety of human resource positions with the Mead Corporation.
Ms. Chapman also spent 12 years in various management and executive positions
with Smith and Schnacke and General Electric.
Robert D. Endacott served as Vice Chairman from January, 1999 until he
resigned in November 1999. In April 2000, Mr. Endacott was elected as a Director
of the Company. Prior to joining the Company, Mr. Endacott was a founding member
of CMR Partners LLC, a privately held investment and merchant-banking firm based
in Miami, Florida since 1996. From 1992 until 1996 he served as Managing
Director of the Armand Group, Inc., a Chicago-based investment banking firm. See
"Certain Relationships and Related Transactions".
44
<PAGE> 47
James A. Feddersen has served as Secretary of the Company since 1990.
Mr. Feddersen is a shareholder of the law firm of Whyte Hirschboeck Dudek S.C.,
which he joined in 1973. See "Certain Relationships and Related Transactions".
James H. Fordyce has served as a Director of the Company since August,
1997. Mr. Fordyce is a managing director of Whitney & Co., a private investment
firm, which he joined in 1996. Mr. Fordyce serves on the board of directors of
several private companies. Mr. Fordyce was Senior Vice President of Heller
Financial, Inc., from 1988 to 1996.
P. Welch Goggins, Jr. has served as Vice President, Sales and Marketing
since April, 2000. Mr. Goggins began his career in 1975 with Industrial Boiler
Company, which Aqua-Chem acquired in 1992, and, prior to his promotion to his
current position, has served in various sales and marketing and operational
management and executive positions within the Company.
James W. Hook has served as a Director of the Company since January,
1998. Mr. Hook was a professor at the Robert J. McCormick School of Engineering
at Northwestern University from 1992 until 1999. Mr. Hook served as consultant
to Mascotech, Inc. from 1992 to 1996.
James A. Kettinger joined the Company in May, 1999 as Senior Vice
President and Chief Financial Officer. Mr. Kettinger previously served as
President of Corporate Financial Outsource, LLC, providing general and financial
management consulting from 1996 until joining the Company. From 1980 to 1996,
Mr. Kettinger served in senior financial management positions for Emmpak Foods,
Inc., Tulip Corporation and Terex Corporation and provided client service while
employed by Price Waterhouse.
William P. Killian has served as a Director of the Company since 1993.
Mr. Killian served as Vice President - Corporate Development and Strategy at
Johnson Controls, Inc., a global manufacturer of automotive systems and
controls, from 1988 until March 2000. Mr. Killian is also a director of Gehl
Company, and Q.E.P. Company, Inc.
Robert S. Loomis has served as Vice President, Strategic Planning since
October, 1999. From 1996 through 1999, Mr. Loomis was self-employed as a
financial consultant. From 1986 through 1996, Mr. Loomis served as Chief
Financial Officer and Treasurer and was a part owner of the Gleason Reel
Company. From 1981 through 1986, Mr. Loomis served in various management
positions within McGraw-Edison, the former parent company of Gleason Reel
Company.
Charles J. Norris has served as Vice President and Chief Information
Officer of the Company since 1996. Prior to joining the Company, Mr. Norris
spent 16 years at Norris Systems Group, Inc., a business systems consulting
company founded and owned by Mr. Norris.
Carl R. Strong has served as Vice President, Manufacturing since
joining the Company in December, 1999. Prior to joining the Company, Mr. Strong
was General Manager for Saturn Electronics from 1995 to 1999. Mr. Strong also
spent 15 years in various managerial and executive positions with Allied Signal,
ITT Automotive, and Textron Automotive.
Ronald G. Thimm has served as Treasurer of the Company since 1990, and
as Assistant Treasurer from 1981 to 1990.
Michael R. Stone resigned as a Director of the Company on April 8,
1999. Mr. Stone served as a Director of the Company since August, 1997. Mr.
Stone is a managing director of Whitney & Co., a private investment firm, which
he joined in 1989.
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<PAGE> 48
DIRECTOR COMPENSATION
Directors of the Company, other than Messrs. Endacott, Hook and
Killian, receive no compensation for their services as directors. Under the plan
currently in place, which was adopted in April 2000, each of the aforementioned
directors receives an annual retainer of $15,000, payable quarterly, plus $1,000
for each meeting attended.
The Company has also entered into written agreements with Messrs. Hook
and Killian. Under his agreement with the Company, Mr. Hook was granted 1,125
options to purchase common stock of the Company at $3.75 per share. These
options vest at a rate of 225 on December 31 of each year beginning in 1998. At
March 31, 2000, 450 of Mr. Hook's options were fully vested and exercisable.
Under his agreement with the Company, Mr. Killian receives each August 1
beginning on August 1, 1997 options to purchase 600 shares of common stock of
the Company at $3.75 per share. These options vest on the July 31 following the
date of grant. At March 31, 2000, Mr. Killian had options to purchase 1,800
shares of common stock of the company of which options to purchase 1,200 shares
were fully vested and exercisable as of March 31, 2000. Mr. Killian's remaining
outstanding options vest on July 31, 2000.
The options granted to Messrs. Hook and Killian are non-statutory
options that are not part of Aqua-Chem's employee Stock Option Plan and are
non-transferable, except through inheritance. Any stock acquired by Messrs.
Killian or Hook pursuant to such options is subject to certain put-call
provisions in the event of death or disability and to a right of first refusal
of the Company in the event of any sale, transfer or other disposition of such
stock.
Messrs. Hook, Killian and Endacott are also participants of the
Incentive Bonus Plan described in Item 11, Executive Compensation and
participate in this plan as indicated in that section.
In accordance with the agreement entered into between the Company and
Mr. Hook on February 19, 1998, effective January 23, 1998, the Company paid Mr.
Hook a one-time fee of $20,000 upon his acceptance of such agreement and, for so
long as Mr. Hook remains a director of the Company, the Company agreed to pay
him $2,500 on the first day of February, April, July and November each year,
regardless of the number of meetings held or attended. This cash compensation
arrangement was amended as indicated above in April, 2000. In addition, the
Company granted Mr. Hook an option to purchase 1,125 shares of Common Stock of
the Company at a price of $3.75 per share, which vest and become fully
exercisable at the rate of 225 shares per year commencing on December 31, 1998
through and including December 31, 2002, and which, if not previously exercised,
expires and terminates on February 11, 2008; provided, however, that in the
event of a Stock Sale, Reorganization or Termination, as those terms are defined
in the February 19, 1998 agreement, the option may expire and terminate prior to
such date.
The options granted to Messrs. Killian and Hook pursuant to their
compensation agreements with the Company are non-statutory options that are not
part of Aqua-Chem's employee Stock Option Plan and are non-transferable, except
through inheritance. Any stock acquired by Messrs. Killian or Hook pursuant to
such options is subject to certain put-call provisions in the event of death or
disability and to a right of first refusal of the Company in the event of any
sale, transfer or other disposition of such stock.
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<PAGE> 49
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash and other compensation paid by
the Company in the twelve months ended March 31, 2000 and March 31, 1999 to the
Company's Chief Executive Officer and to each of the Company's four other most
highly compensated executive officers as of March 31, 2000 (collectively,
including the Chief Executive Officer, the "Named Executive Officers"). At
December 30, 1998, the Company changed its year end to March 31, 1999. As such,
this table also includes compensation to the Named Executive Officers for the
twelve months ended December 31, 1998 and December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation (a)
-----------------------------------------------------------
All
Other Annual Securities
Compensation Underlying
Name and Principal Position Year Salary Bonus(b) (c) Options
--------------------------- ----------- -------------- ------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
David M. Tenniswood 2000 $207,000 $ -- $4,666 --
President, Chief Executive 1999 -- -- -- --
Officer and Director 1998 -- -- -- --
1997 -- -- -- --
James A. Kettinger 2000 $151,445 $45,938 $4,230 --
Senior Vice President and Chief 1999 -- -- -- --
Financial Officer 1998 -- -- -- --
1997 -- -- -- --
Donna P. Chapman 2000 $150,000 $45,000 $31,284 --
Vice President, Human Resources 1999(d) 46,154 45,000 23,000 --
1998 11,538 20,000 -- --
1997 -- -- -- --
Paul W. Goggins 2000 $98,766 $15,807 $6,471 --
Vice President, Sales and 1999(d) 84,297 -- 3,299 --
Marketing 1998 86,846 18,199 3,302 --
1997(e) 119,129 -- 130,002 --
Charles J. Norris 2000 $110,314 $ -- $8,208 --
Vice President, Chief 1999(d) 110,000 -- 8,912 --
Information Officer 1998 111,540 -- 34,341 --
1997(e) 101,478 34,804 31,534 --
Daniel J. Johnson 2000 $130,463 $ -- $10,389 --
Former President - Water 1999(d) 160,014 41,763 12,438 4,000
Technologies 1998 166,169 41,763 6,122 4,000
1997(e) 49,235 15,704 494 --
Jeffrey A. Miller(f) 2000 $312,713 $ -- $44,141 --
Former Chief Executive Officer 1999(d) 487,500 -- 48,061 44,167
and President 1998 511,569 -- 41,950 44,167
1997(e) 182,736 304,712 8,189 --
</TABLE>
(a) Certain personal benefits provided by the Company to the Named
Executive Officers are not included in the table as permitted by
regulations of the Commission because the aggregate amount of such
personal benefits for each Named Executive Officer in each year
reflected in the table did not exceed the lesser of $50,000 or 10% of
the sum of such officer's salary and bonus in such year.
(b) Bonuses are reported for the year or period in which earned, although
the bonuses were paid after the end of the year or period shown.
Amounts shown for Ms. Chapman for Fiscal 2000, 1999 and 1998 and for
Mr. Johnson for Fiscal 1999 and 1998, and Mr. Goggins and Mr. Kettinger
for Fiscal 2000 were paid pursuant to guarantees incorporated into
their respective employment agreements.
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<PAGE> 50
(c) "All Other Annual Compensation" includes the following:
<TABLE>
<CAPTION>
Miller
Tenniswood Kettinger Chapman Goggins Norris Johnson (g)
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Company match under
Aqua-Chem's 401(k)
savings plan 2000 $ 4,045 $ 3,508 $ 6,047 $ 3,149 $ -- $ 3,507 $ --
1999 -- -- -- 3,045 -- 4,430 4,511
1998 -- -- -- 3,050 -- 4,514 4,800
1997 -- -- -- 4,750 -- -- --
Life insurance premium
payments 2000 $ 621 $ 722 $ 1,226 $ 299 $ 3,411 $ 482 $ 25,307
1999 -- -- -- 254 3,197 1,608 17,880
1998 -- -- -- 252 3,197 1,608 17,880
1997 -- -- -- 252 390 494 292
Company Retirement
Plan contribution 2000 $ -- $ -- $ 6,400 $ 3,013 $ 4,797 $ 6,400 $ --
1999 -- -- -- -- 5,715 6,400 6,400
1998 -- -- -- -- 6,144 -- --
1997 -- -- -- -- 6,144 -- --
"Change In Control"
bonus(i) 1998 $ -- $ -- $ -- $ -- $ 25,000 $ -- $ --
1997 -- -- -- -- 25,000 -- --
Other(h) 2000 $ -- $ -- $ 17,611 $ -- $ -- $ -- $ --
1999 -- -- 23,000 -- -- -- --
1998 -- -- -- -- -- -- --
1997 -- -- -- 125,000 -- -- --
</TABLE>
(d) This period includes nine months of compensation included in the "1998"
column due to the change in Fiscal year end to March 31, as of December
30, 1998.
(e) Represents aggregate compensation for the twelve months ended December
31, 1997 (combining the seven-months ended July 31, 1997 and the five
months ended December 31, 1997).
(f) Mr. Miller became President and Chief Executive Officer pursuant to an
Interim Management Agreement (the "Management Agreement"), dated July
8, 1996, as amended, between the Company and J. Miller Management, Inc.
("JMM"). Amounts paid by the Company under the Management Agreement
were paid to JMM and Mr. Miller was separately compensated by JMM. Mr.
Miller served as President and Chief Executive Officer pursuant to the
Management Agreement until July 31, 1997, when he became employed by
the Company. On October 29, 1999, Mr. Miller resigned as an employee of
the Company but continues to serve as Chairman of the Board as a
non-employee.
(g) Mr. Miller's "All Other Annual Compensation" includes travel and
lodging reimbursements of $18,834, $19,270, $19,270 and $7,897 for
2000, 1999, 1998 and 1997, respectively.
(h) As part of their employment agreements, Mr. Goggins received a one-time
payment of $125,000 as compensation for the termination of his previous
agreement. Ms. Chapman received a one-time payment of $17,611 and
$23,000 for moving reimbursement and relocation, respectively.
(i) See "Employment Agreements," below.
EMPLOYMENT AGREEMENTS
On October 15, 1999, the Company entered into an employment agreement
with Mr. Tenniswood that provides for an initial base salary of $9,000 per week.
The contract may be terminated without penalty by either party for any reason
with a thirty-day notice. The agreement also provides for the creation of a
non-statutory stock option arrangement between the Company and Mr. Tenniswood
that vests immediately and that is structured to provide a $2.5 million
opportunity if the Company's value appreciates to specified levels. Based upon
mutual consent of Mr. Tenniswood and the Company, rather than participating in
this non-statutory stock option arrangement, Mr. Tenniswood will instead
participate in the Incentive Bonus Plan at a similar opportunity level. Under
the terms of this agreement, Mr.
48
<PAGE> 51
Tenniswood is eligible to participate in all fringe benefit programs with the
exception of the MONEY.Q4 program.
The Company has also entered into employment agreements with each of
the other Named Executive Officers. These contracts indicate the initial base
salary, bonus opportunity, and fringe benefits agreed to as of the inception of
each contract that may, from time to time, be adjusted at the discretion of the
compensation committee of the Board of Directors. The terms of the contracts are
open ended and may be terminated by either party at any time by giving notice as
required under the agreement. Each agreement calls for the payment of severance
benefits under specified conditions. Mr. Goggins' agreement, dated May 15, 1997,
included a one-time payment of $125,000 paid in 1997 as compensation for the
termination of his previous agreement. In addition, when Mr. Goggins was
promoted to Vice President, North American Sales in April 1999, he was awarded a
first year guaranteed bonus of $10,000 which is reflected in the Summary
Compensation Table as a portion of his bonus earned during Fiscal 2000. In
conjunction with the Management Buy-Out in July 1997, Mr. Norris was awarded a
bonus of $50,000 pursuant to a change in control with half of the bonus paid
during 1997 and half during 1998. Ms. Chapman's offer of employment included a
hiring and retention bonus of $45,000 as well as a guaranteed bonus of $45,000
to be earned during her first 12 months of employment. Mr. Kettinger's offer of
employment included a guaranteed bonus of $52,500 to be paid during his first 12
months of employment. $45,938 of this bonus was earned during Fiscal 2000, and
the remainder will be earned during Fiscal 2001. Mssrs. Goggins, Norris and
Kettinger and Ms. Chapman are participants in the MONEY.Q4 plan, and Ms. Chapman
and Mr. Kettinger are participants in the Incentive Bonus Plan.
RETIREMENT AND SAVINGS PROGRAMS
Aqua-Chem maintains a defined contribution retirement plan which
includes a 401(k) savings plan. Substantially all employees who are not members
of collective bargaining groups or who are not otherwise employees working at
the operations acquired as part of the NDC Acquisition are eligible to
participate. Aqua-Chem's retirement contribution equals 4% of eligible
compensation while 401(k) contributions equal 50% of employee contributions to a
maximum Aqua-Chem contribution of 3% of eligible compensation. Under provisions
of the 401(k) savings plan, employees may voluntarily contribute a maximum of
17% of eligible compensation.
Aqua-Chem also maintains a defined contribution retirement plan
covering substantially all employees working at the operations acquired as part
of the NDC Acquisition who are not members of collective bargaining groups.
Participants may contribute up to 15% of their eligible compensation in pretax
dollars. The Company makes a matching contribution of 50% of each participant's
contributions, up to 6% of eligible compensation. This discretionary matching
contribution by the Company may vary from year to year. Vesting in Company
contributions is 100% after five years in the plan.
MANAGEMENT INCENTIVE PLANS
In May 2000, the Company adopted the MONEY.Q4 Plan to reward eligible
employees for the achievement by the Company of specified financial results.
Each of the Named Executives is eligible to participate in this plan and has
been provided with an incentive opportunity approved by the Compensation
Committee of the Board of Directors. These payout opportunities range between
10% and 50% and can double to provide payouts of up to 100% if the Company
achieves specified financial results.
INCENTIVE BONUS PLAN
In June 2000, the Company implemented an Incentive Bonus Plan with
certain Executive Officers and Directors of the Company whereby the plan
participants will have the opportunity to receive cash payments based upon
increases in the value of the Company.
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<PAGE> 52
Under the Incentive Bonus Plan, each participant is issued a specific number of
bonus units from a population of 231,216 units. The value of each bonus unit
will be calculated by dividing the fair market value of the Company's common
equity by the sum of common stock outstanding (assuming any and all warrant,
options, or other rights to acquire common stock have been exercised) plus
231,216 and then subtracting from this result $3.75. The fair market value of
the Company's common equity will be determined by an investment banking firm
selected by the Company's Board of Directors.
In general, one-third of the bonus units granted under the Incentive Bonus Plan
vest on each of the third through fifth anniversaries of their grant date.
Vesting may also be altered based upon the terms of a written agreement between
the Company and a plan participant at the time of grant under the Incentive
Bonus Plan or in the event of a change in control.
STOCK OPTION PLANS
As of and for the Fiscal year ended March 31, 2000, the Company had in
place two stock option plans, the Aqua-Chem, Inc. 1997 Stock Option Plan (as
amended and restated, the "1997 Stock Option Plan") and the Aqua-Chem, Inc. 1998
Stock Option Plan (the "1998 Stock Option Plan"). As of March 31, 2000, all
options previously granted under the 1997 and 1998 Stock Option Plans had been
forfeited by the respective optionees, and at March 31, 2000, there were no
options outstanding under either of these plans. In June 2000, the Company
terminated the 1999 and 1998 Option Plans.
PHANTOM STOCK PLAN
On January 23, 1998, the Board approved the Aqua-Chem, Inc. 1998
Phantom Stock Plan (the "Phantom Stock Plan"), effective April 1, 1998. There
were no amounts payable under this plan as of March 31, 2000. In April 2000, the
Company terminated the Phantom Stock Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
Series A and Series B Preferred. The Company's Series A Preferred and
Series B Preferred are owned as follows:
<TABLE>
<CAPTION>
Series A Preferred Series B Preferred
------------------------------ ------------------------------
Number of Percent of Number of Percent of
Shares Class Shares Class
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Lyonnaise American Holding, Inc. 41.6 80.0% 104 80.0%
Gestra Corporation, N.V. 10.4 20.0% 26 20.0%
</TABLE>
Common and Series C Preferred. All of the outstanding shares of Common
and Series C Preferred are held by Rush Creek LLC ("Rush Creek"). Pursuant to
the Operating Agreement of Rush Creek, shares of Common and Series C Preferred
(and, in the case of the Whitney Subordinated Debt Fund, L.P., the Warrant) are
allocated to each member's account. The following table sets forth the
beneficial ownership as of the date of this filing of the outstanding Common and
Series C Preferred by (i) each person who is known to the Company to be the
beneficial owner of five percent
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<PAGE> 53
or more of the outstanding classes shown; (ii) each director; (iii) each of the
Named Executive Officers; and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
Common Stock Series C Preferred Stock Total Voting Power
--------------------------- ----------------------------- ------------------------
Number of Percent Number of
Shares of Shares Percent Number Percent
Beneficially Class Beneficially of Class of Votes of Votes
Owned (a) (b) Owned (a) (b) (c) (b)(e)
---------------- ---------- --------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Whitney Equity Partners, L.P.(d) 510,000 51.0% 1,743 63.3% 511,743 51.0%
Jeffrey A. Miller(f)(g) 449,202 44.9 928 33.7 450,130 44.9
James H. Fordyce(f) -- -- -- -- -- --
William P. Killian(h) 8,166 * 17 * 8,183 *
Robert D. Endacott(i) 8,166 * 17 * 8,183 *
Charles J. Norris(j) 16,300 1.6 34 1.2 16,334 1.6
All directors and executive
officers as a group
(consisting of 14 Persons) 490,000 49.0 1,012 36.7 490,012 49.0
</TABLE>
(a) "Beneficial ownership" is defined under regulations of the Commission
as the power directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise to vote (or direct the voting
of) or dispose of (or direct the disposition of) stock, including stock
of which an individual has the right to acquire beneficial ownership
(as defined) within 60 days. In the above table, beneficial ownership
reflects the number of shares of Common or Series C Preferred allocated
to the Rush Creek capital account of the entity and individual members
shown. Fractional shares are not shown in the table, rather, the
numbers of shares are rounded to the nearest whole share.
(b) Asterisk (*) denotes less than 1%.
(c) Voting power is combined because each share of Common and each share of
Series C Preferred has one (1) vote per share.
(d) Whitney Equity Partners, L.P. ("WEP"), 177 Broad Street, Stamford,
Connecticut 06901, has 510,000 shares of Common and 1,743 shares of
Series C Preferred allocated to its Rush Creek capital account. WEP is
a manager of Rush Creek (see Note (f)).
(e) The Whitney Subordinated Debt Fund, L.P., 177 Broad Street, Stamford,
Connecticut 06901, a fund managed by Whitney & Co. ("WSDF") owns a
Warrant to purchase up to 176,471 shares of Common Stock at $.01 per
share allocated to its Rush Creek capital account. WSDF is a manager of
Rush Creek (see Note (f)). If the Warrant were exercised in full, the
voting power (with respect to allocated shares of Series C Preferred
and Common) of all other entities, individuals, and the group listed in
the above table would be diluted, with the resulting voting percentages
as follows:
<TABLE>
<CAPTION>
Resulting
Voting Power
Assuming
Exercise of
Beneficial Owner Warrant
---------------- --------------------
<S> <C>
WEP 43.4%
WSDF 15.0
Jeffrey A. Miller (see Note (g), below) 38.2
Charles J. Norris (see Note (j), below) 1.4
All directors and executive officers as a group (consisting of 14 persons) 41.6
</TABLE>
(f) There are four managers of Rush Creek: WEP, WSDF, and Messrs. Miller
and Fordyce. As managers of Rush Creek, these entities and individuals
may be deemed to share voting and dispositive power with respect to all
(100%, or 1,000,000 shares) of Common and all (100%, or 2,755 shares)
Series C Preferred held by Rush Creek. Each such individual or entity
disclaims beneficial ownership with respect to all 1,000,000 shares of
Common and all 2,755 shares of Series C Preferred other than those
shares set forth opposite
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<PAGE> 54
their respective names in the above table; in addition, Mr. Miller
further disclaims beneficial ownership with respect to certain of the
shares set forth opposite his name in the above table. See Note (g),
below.
(g) These shares are beneficially owned by two entities controlled by Mr.
Miller. The Jeffrey A. Miller Family LLC ("Miller LLC") is a limited
liability company of which Jeffrey A. Miller is the manager and sole
voting member. The Miller LLC is a member of Rush Creek and has 130,001
shares of Common and 269 shares of Class C Preferred allocated to its
Rush Creek capital account. The Jeffrey A. Miller Trust u/a/d/ May 10,
1997 ("Miller Trust") is a revocable trust of which Jeffrey A. Miller
is the grantor, beneficiary, and trustee. The Miller Trust is a member
of Rush Creek and has 319,201 shares of Common and 659 shares of Series
C Preferred allocated to its Rush Creek capital account.
(h) Mr. Killian is a member of Rush Creek and has 8,166 shares of Common
and 17 shares of Series C Preferred allocated to his Rush Creek capital
account.
(i) Mr. Endacott is a member of Rush Creek and has 8,166 shares of Common
and 17 shares of Series C Preferred allocated to his Rush Creek capital
account.
(j) These shares are beneficially owned by two entities controlled by Mr.
Norris. The Charles J. Norris Family LLC ("Norris LLC") is a limited
liability company of which Mr. Norris is the manager and sole voting
member. The Norris LLC is a member of Rush Creek and has 3,260 shares
of Common and 7 shares of Series C Preferred allocated to its Rush
Creek capital account. The Charles Norris Trust u/a/d/ November 21,
1997 ("Norris Trust") is a revocable trust of which Mr. Norris is the
grantor, beneficiary, and trustee. The Norris Trust is a member of Rush
Creek and has 13,040 shares of Common and 27 shares of Series C
Preferred allocated to its Rush Creek capital account.
VOTING AGREEMENT
Pursuant to a Stockholders' and Members' Agreement among the
stockholders of the Company and the Members of Rush Creek, the parties thereto
have agreed to vote to elect a six-member board of directors consisting of (i)
two directors designated by Whitney & Co. (or WEP and WSDF) (currently, Mr.
Fordyce and Mr. Tenniswood); (ii) two directors designated by certain senior
executive officers of the Company ("Management") (currently, Mr. Miller and Mr.
Endacott); and (iii) two independent directors who are agreeable to each of
Whitney & Co. and Management (currently, Messrs. Hook and Killian). The
Stockholders' and Members' Agreement further provides that, in the event of a
material breach of certain documents entered into by the parties in connection
with the Management Buy-Out ("Transaction Documents"), the parties agree to
increase the number of directors to nine and to elect three additional directors
designated by Whitney & Co. (or WEP and WSDF). Each Member of Rush Creek, other
than WSDF, currently has one vote per Membership Unit. However, pursuant to the
Rush Creek Operating Agreement, the Membership Units of Rush Creek are
designated as either "Institutional Investor Membership Units" (which includes
the Membership Units held by WEP and WSDF) or "Management Membership Units"
(which includes the Membership Units held by the Miller LLC, the Miller Trust,
the Norris LLC, and the Norris Trust). The election of the Managers of Rush
Creek is subject to a provision of the Operating Agreement which requires that
two managers shall be elected by a majority of the Institutional Investor
Membership Units and two managers shall be elected by a majority of the
Management Membership Units. The Operating Agreement further provides that, in
the event of a material breach of a Transaction Document, one additional manager
shall be designated by a majority of the Institutional Investor Membership
Units.
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<PAGE> 55
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
JEFFREY MILLER / J. MILLER MANAGEMENT
The Company entered into an Interim Management Agreement ("Management
Agreement") with J. Miller Management, Inc. ("JMM") dated July 8, 1996, pursuant
to which the Company engaged JMM to provide the services of Mr. Miller as the
Company's President and Chief Executive Officer. Mr. Miller is the President and
co-owner of JMM. The Management Agreement provided that Mr. Miller would serve
as Interim Chief Executive Officer, provide management services and expertise to
the Company, and manage the operations of the Company, commencing on July 8,
1996.
The Management Agreement was terminated on July 31, 1997 when Mr.
Miller became employed by, and entered into an employment agreement with, the
Company (see "Management -- Employment Agreements"). The total cost to the
Company for Mr. Miller's services under the Management Agreement for 1997 was
approximately $1,514,000, including incentive compensation of approximately
$267,000 and a Sale Bonus of $861,000. The total cost to the Company for Mr.
Miller's services under the Management Agreement for 1996 was approximately
$286,000.
On October 29, 1999, Mr. Miller and the Company entered into an
agreement whereby Mr. Miller resigned as an employee. Under this agreement, Mr.
Miller agreed to remain as a Director of the Company and to serve as a
non-employee Chairman of the Board. Related to this agreement, Mr. Miller, JMM,
and the Company also entered into a consulting agreement under which JMM agreed
to perform consulting services on an as needed basis at a rate of $498,750 per
year from the period October 18, 1999 through October 17, 2000 and at a rate of
$200,000 per year from the period October 18, 2000 through October 17, 2001.
OTHER
Two of the directors of the Company (Messrs. Fordyce and Miller) are
managers of Rush Creek, which holds 100% of the Common and Series C Preferred
Stock of the Company. One of the directors of the Company (Mr. Fordyce) is a
managing director of Whitney & Co., which manages Whitney Equity Partners, L.P.,
a principal owner of Rush Creek. See "Capital Stock and Principal Stockholders
-- Principal Stockholders." The Company has agreed to pay Whitney & Co. a
monitoring fee of $50,000 annually on the first business day of each year
commencing in 1998, and an annual recognition fee of $25,000, also commencing in
1998. In exchange for these fees, Whitney & Co. performs financial and strategic
investment advisory services for the Company. The recognition fee is accrued
annually and will become payable upon the occurrence of an initial public
offering or an "Organic Transaction" (as defined in the Certificate to include a
sale of substantially all the assets of the Company or a merger of the Company
or other similar transaction) or an initial public offering of the Company's
securities. In connection with the Management Buy-Out, the Company
agreed to pay certain legal fees on behalf of Whitney & Co. During Fiscal 2000,
Aqua-Chem paid legal fees totaling $77,386 on behalf of Whitney & Co.
James A. Feddersen, Secretary of Aqua-Chem, is a shareholder in the law
firm of Whyte Hirschboeck Dudek S.C., which performs legal services for
Aqua-Chem. Through Rush Creek, Mr. Feddersen owns approximately 8,166 shares, or
approximately 0.8% of the outstanding Common Stock and approximately 17 shares,
or approximately 0.6%, of the outstanding Series C Preferred Stock. See "Capital
Stock and Principal Stockholders -- Common and Series C Preferred" and "Legal
Matters." For Fiscal year 2000, the Company paid $1,063,544 in fees to Whyte
Hirschboeck Dudek S.C.
Robert D. Endacott, a Director of the Company, was a founding member of
CMR Partners, LLC, ("CMR") which has provided consulting services to the Company
since 1997. Through Rush Creek, Mr. Endacott owns approximately 8,166 shares, or
approximately 0.8% of the outstanding Common Stock and approximately 17 shares,
or approximately 0.6%, of the outstanding Series C Preferred Stock. See "Capital
Stock and Principal Stockholders -- Common and Series C Preferred." Subsequent
to March 31, 1999, and prior to Mr. Endacott joining the Company as an employee
on June 1, 1999, CMR was paid retainer fees totaling $40,500. Mr. Endacott
remained an employee of the Company from June 1, 1999 until he resigned on
November 19, 1999. During his tenure as an employee, Mr. Endacott earned a
salary totaling $87,243 and, upon his resignation, received severance payments
totaling $100,000. In April 2000, Mr. Endacott was named as a Director of the
Company.
53
<PAGE> 56
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
FINANCIAL STATEMENTS INCLUDED IN ITEM 8
See "Index to Financial Statements of Aqua-Chem, Inc." set forth in
Item 8, "Financial Statements and Supplementary Data."
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE INCLUDED IN ITEM 14
Schedule of the Company and Consolidated Subsidiaries
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Schedule II Valuation and qualifying accounts for the years ended
March 31, 2000 and 1999, the three months ended March 31,
1998, the five months ended December 31, 1997, the
seven months ended July 31, 1997............................ 55
SCHEDULES OMITTED AS NOT REQUIRED OR INAPPLICABLE
Schedule I Condensed financial information of registrant...............
Schedule III Real estate and accumulated depreciation....................
Schedule IV Mortgage loans on real estate...............................
Supplemental Information Concerning Property -- Casualty....
Schedule V Insurance Operations........................................
</TABLE>
54
<PAGE> 57
AQUA-CHEM, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
-----------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
of Period Expenses Account Deductions Period
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts receivable:
April 1 to March 31, 2000 $ 848 $ 103 $ -- $ 121 $ 830
========== ========== ========== ========== ==========
April 1 to March 31, 1999 $ 548 $ 27 $ 300(a)$ 27 $ 848
========== ========== ========== ========== ==========
January 1 to March 31, 1998 $ 638 $ 74 $ -- $ 164 $ 548
========== ========== ========== ========== ==========
August 1 to December 31, 1997 $ 684 $ 28 $ -- $ 74 $ 638
========== ========== ========== ========== ==========
January 1 to July 31, 1997 $ 659 $ 136 $ -- $ 111 $ 684
========== ========== ========== ========== ==========
</TABLE>
(a) Reflects the balance acquired as a result of the acquisition of
National Dynamics Corporation.
REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during Fiscal 2000 or through
the date of this Form 10-K.
EXHIBITS
A list of the exhibits included as part of this Form 10-K is set forth
in the Index to Exhibits that immediately precedes such exhibits, which is
incorporated herein by reference.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
The company has not sent and does not intend to send any annual report
or proxy material to security holders.
55
<PAGE> 58
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Aqua-Chem,
Inc. has duly caused this Registration Statement on Form 10-K to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Milwaukee, State of Wisconsin, on this 27th day of June, 2000.
By: /s/ James A. Kettinger
-----------------------
Name: James A. Kettinger
Title: Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the date indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Principal Executive Officer:
/s/ David M. Tenniswood President and Chief Executive Officer
-----------------------
David M. Tenniswood
Principal Financial and Accounting Officer:
/s/ James A. Kettinger Senior Vice President and Chief
----------------------- Financial Officer
James A. Kettinger
Board of Directors:
/s/ Jeffrey A. Miller Director (Chairman of the Board)
-----------------------
Jeffrey A. Miller
/s/ James H. Fordyce Director
-----------------------
James H. Fordyce
/s/ James W. Hook Director
-----------------------
James W. Hook
/s/ William P. Killian Director
-----------------------
William P. Killian
/s/ Robert D. Endacott Director
-----------------------
Robert D. Endacott
/s/ David M. Tenniswood Director
-----------------------
David M. Tenniswood
</TABLE>
56
<PAGE> 59
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
2.1(1) o Asset Purchase Agreement dated May 28, 1998 among
Aqua-Chem, Inc., National Dynamics Corporation, and
certain shareholders of National Dynamics Corporation
3.1(1) o Aqua-Chem, Inc. Certificate of Incorporation
(incorporating amendments)
3.2(1) o Aqua-Chem, Inc. Bylaws
4.1(1) o Indenture of Trust dated June 23, 1998 between Aqua-Chem,
Inc. and United States Trust Company of New York, as
Trustee
4.2(1) o Form of Aqua-Chem, Inc. 11 1/4% Senior Subordinated Note
Due 2008, to be issued in the Exchange Offer
4.3(1) o Form of Aqua-Chem, Inc. 11 1/4% Senior Subordinated Note
Due 2008 issued on June 23, 1998
4.4(1) o Common Stock Purchase Warrant dated July 31, 1997
9.1(1) o Stockholders' and Members' Agreement dated July 31, 1997
among the Stockholders of Aqua-Chem, Inc. and the Members
of Rush Creek, LLC
10.1(1) o Credit Agreement dated June 23, 1998 among Aqua-Chem,
Inc. and Comerica Bank
10.2(1) o Employment Agreement dated July 31, 1997 between
Aqua-Chem, Inc. and Jeffrey A. Miller, as amended
10.3(1) o Employment Agreement dated February 5, 1997 between
Aqua-Chem, Inc. and Rand E. McNally, as amended
10.4(1) o Employment Agreement dated January 20, 1997 between
Aqua-Chem, Inc. and J. Scott Barton, as amended
10.5(1) o Employment Agreement dated January 7, 1997 between
Aqua-Chem, Inc. and Charles J. Norris, as amended
10.6(1) o Employment Agreement dated September 1, 1997 between
Aqua-Chem, Inc. and Daniel L. Johnson, as amended
10.7(1) o Interim Management Agreement dated July 8, 1996 between
Aqua-Chem, Inc., J. Miller Management, Inc. and Jeffery
A. Miller
10.8(1) o Aqua-Chem, Inc. 1997 Stock Option Plan Amended and
Restated
10.9(1) o Aqua-Chem, Inc. Management Incentive Plan approved
November 15, 1996
10.10(1) o Aqua-Chem, Inc. Executive Management Incentive Plan
approved November 15, 1996
10.11(1) o Aqua-Chem, Inc. 1998 Phantom Stock Plan
10.12(1) o Amendment to Interim Management Agreement between
Aqua-Chem, Inc., J. Miller Management, Inc. and Jeffrey
A. Miller
10.13(1) o Aqua-Chem, Inc. 11 1/4% Senior Subordinated Notes Due
2008, Purchase Agreement dated June 18, 1998
10.14(1) o Amended and Restated Securities Purchase Agreement
December 5, 1997 by and among Rush Creek, LLC, A-C
Acquisition Corp., CB-Kramer Sales and Service, Inc.,
Whitney Subordinated Debt Fund, LP, and Whitney Partners,
LP
10.15(1) o First Amendment and Consent Agreement dated June 23,
1998, by and among Rush Creek, LLC, A-C Acquisition
Corp., CB-Kramer Sales and Service, Inc., Whitney
Subordinated Debt Fund, LP, and Whitney Equity Partners,
LP
10.16(1) o Letter Agreement with William P. Killian dated December
17, 1997
10.17(1) o Letter Agreement with James W. Hook dated February 11,
1998
10.18(1) o Agreement and Plan of Reorganization dated July 31, 1997
among Lyonnaise American Holding, Inc., Gestra
Corporation N.V., Rush Creek LLC, Aqua-Chem, Inc., A-C
Acquisition Corp. and Jeffrey A. Miller [OMITTED
PROVISIONS SUBJECT TO CONFIDENTIAL TREATMENT BY ORDER OF
THE SECURITIES AND EXCHANGE COMMISSION]
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
10.19(1) o Amendment dated June 22, 1998 to Agreement and Plan of
Reorganization among Lyonnaise American Holding, Inc.,
Gestra Corporation N.V., Rush Creek LLC, Aqua-Chem, Inc.,
A-C Acquisition Corp. and Jeffrey A. Miller [OMITTED
PROVISIONS SUBJECT TO CONFIDENTIAL TREATMENT BY ORDER OF
THE SECURITIES AND EXCHANGE COMMISSION]
10.20(1) o Employment Agreement dated August 13, 1998 between
Aqua-Chem, Inc. and Daniel B. Teich
10.21(1) o Aqua-Chem, Inc. 1998 Stock Option Plan
10.22(2) o Stock Option Agreement dated September 9, 1998 between
Aqua-Chem, Inc. and Daniel J. Johnson
10.23(2) o Stock Option Agreement dated September 9, 1998 between
Aqua-Chem, Inc. and Jeffrey A. Miller
10.24(2) o Stock Option Agreement dated September 18, 1998 between
Aqua-Chem, Inc. and Daniel B. Teich
10.25(2) o Severance Agreement dated February 8, 1999 between
Aqua-Chem, Inc. and J. Scott Barton
10.26(2) o Second Amendment to Credit Agreement dated June 23, 1998
among Aqua-Chem, Inc. and Comerica Bank
10.27 o Severance Agreement dated July 21, 1999 between
Aqua-Chem, Inc. and Daniel J. Johnson
10.28 o Severance Agreement dated October 29, 1999 between
Aqua-Chem, Inc. and Jeffrey A. Miller
10.29 o Severance Agreement dated November 12, 1999 between
Aqua-Chem, Inc. and Robert D. Endacott
10.30 o Money.Q4 Summary Plan Description
10.31 o Employment Agreement dated October 15, 1999 between
Aqua-Chem, Inc. and David M. Tenniswood
10.32 o Employment Agreement dated May 15, 1997 between
Aqua-Chem, Inc. and Welch Goggins
10.33 o Consent and first amendment to Aqua-Chem, Inc. second
amended and restated revolving credit agreement
10.34 o Incentive Bonus Plan Agreement dated June 23, 2000
between Aqua-Chem, Inc. and David M. Tenniswood
10.35 o Incentive Bonus Plan Agreement dated June 23, 2000
between Aqua-Chem, Inc. and James A. Kettinger
10.36 o Incentive Bonus Plan Agreement dated June 23, 2000
between Aqua-Chem, Inc. and Robert S. Loomis
10.37 o Incentive Bonus Plan Agreement dated June 23, 2000
between Aqua-Chem, Inc. and Donna P. Chapman
10.38 o Employment Agreement dated June 27, 2000 between
Aqua-Chem, Inc. and Donna P. Chapman
10.39 o Employment Agreement dated June 27, 2000 between
Aqua-Chem, Inc. and James A. Kettinger
16.1(1) o Letter regarding change in Certifying Accountant
21.1(1) o Subsidiaries of the Registrant
23.1 o Consent of Arthur Andersen LLP
24.1(1) o Powers of Attorney of Directors and Officers of
Aqua-Chem, Inc.
25.1(1) o Statement of Eligibility of United States Trust Company
of New York as Trustee under the Indenture on Form T-1
under the Trust Indenture Act of 1939, as amended
27.1 o Financial Data Schedule (12 months ended 3/31/00)
</TABLE>
(1) Previously filed as an exhibit to registration statement on Form S-4
dated January 5, 1999.
(2) Previously field as an exhibit to the Company's Amended Form 10-K dated
March 31, 2000.
