- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q/A
(MARK ONE)10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTIONQuarterly report pursuant to Section 13 ANDand 15 (d) OF THE SECURITIES
EXCHANGE ACT OFof the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997 ORFor the quarterly period ended JUNE 30, 1998
-------------
or
[_] TRANSITION REPORT PURSUANT TO SECTIONTransition report pursuant to Section 13 ORor 15 (d) OF THE SECURITIES
EXCHANGE ACT OFof the Securities
Exchange Act of 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBERFor the transition period from __________ to __________
Commission file number 1-10728
-----------------------
UNITED STATES FILTER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0266015
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0266015
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
40-004 COOK STREET, PALM DESERT, CA 92211
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (760) 340-0098
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)--------------
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]X No
[_]------- -------
The number of shares of common stock, $.01 par value, outstanding as of February 13,August
12, 1998 was 106,278,587163,575,176 shares.
Total number of pages 2223
--
THERE ARE NO EXHIBITSIS ONE EXHIBIT FILED WITH THIS REPORT
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- -------------------------------------------------------------------------------
PART I--FINANCIALI - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 19971998 AND DECEMBER 31, 1997JUNE 30, 1998
(UNAUDITED)
MARCHMarch 31, DECEMBER 31,
1997 1997
---------- ------------
(IN THOUSANDS)1998 June 30, 1998
--------------- -------------
(in thousands)
ASSETS
Current assets:
ASSETS
Current assets:
Cash and cash equivalents............................equivalents $ 135,144 57,82166,917 58,847
Short-term investments............................... 2,158 904investments 241 417
Accounts receivable, net............................. 572,940 739,587net 873,890 993,063
Costs and estimated earnings in excess
of billings on uncompleted contracts............................... 130,310 205,427
Inventories.......................................... 245,201 350,968contracts 217,935 209,386
Inventories 473,698 492,051
Prepaid expenses..................................... 8,931 19,893expenses 16,471 33,228
Deferred taxes....................................... 53,152 82,246taxes 151,107 186,228
Other current assets................................. 17,086 28,257assets 51,377 54,572
---------- ---------
Total current assets................................ 1,164,922 1,485,103assets 1,851,636 2,027,792
---------- ---------
Property, plant and equipment, net.................... 319,687 761,147net 960,019 996,608
Investment in leasehold interests, net................ 23,230 22,424net 21,699 21,049
Costs in excess of net assets of businesses acquired, net.................................................. 788,096 913,793net 1,312,776 1,367,756
Other assets.......................................... 101,628 178,315assets 319,315 275,050
---------- ---------
$2,397,563 3,360,782$4,465,445 4,688,255
========== =========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND JUNE 30, 1998 (CONTINUED)
(UNAUDITED)
March 31, 1998 June 30, 1998
-------------- -------------
(in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.....................................payable $ 274,653 304,890357,260 369,983
Accrued liabilities.................................. 275,537 410,245liabilities 535,329 593,427
Current portion of long-term debt.................... 11,956 25,464debt 118,849 20,554
Billings in excess of costs and estimated
earnings on uncompleted contracts............................... 61,441 121,831contracts 90,073 72,006
Other current liabilities............................ 26,183 77,045liabilities 45,702 101,545
---------- ---------
Total current liabilities........................... 649,770 939,475liabilities 1,147,213 1,157,515
---------- ---------
Notes payable......................................... 31,464 475,181payable 574,806 329,810
Long-term debt, excluding current portion............. 42,646 128,988portion 404,416 74,364
Convertible subordinated debentures...................debentures 554,000 554,000
Redeemable or remarketable securities - 900,000
Deferred taxes........................................ 12,198 3,506taxes 82,910 67,390
Other liabilities..................................... 61,655 66,108liabilities 110,662 147,000
---------- ---------
Total liabilities................................... 1,351,733 2,167,258liabilities 2,874,007 3,230,079
---------- ---------
Shareholders' equity:
Preferred stock, authorized 3,000 shares - -
Common stock, par value $.01. Authorized 300,000
shares; 80,334155,825 and 103,957161,811 shares issued and
outstanding at March 31, 19971998 and December 31, 1997,
respectively........................................ 803 1,040June 30, 1998,
respectively 1,558 1,618
Additional paid-in capital........................... 1,013,734 1,500,786capital 1,945,223 1,990,004
Currency translation adjustment...................... (19,491) (37,287)
Retained earnings (accumulated deficit).............. 50,784 (271,015)adjustment (57,282) (64,189)
Accumulated deficit (298,061) (469,257)
---------- ---------
Total shareholders' equity.......................... 1,045,830 1,193,524equity 1,591,438 1,458,176
---------- ---------
Commitments and contingencies.........................
---------- ---------
$2,397,563 3,360,782contingencies
$4,465,445 4,688,255
========== =========
See Accompanying Notes to Condensed Consolidated Financial Statements.
2SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 1996JUNE 30, 1997 AND 19971998
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)1998
------------- --------------
(in thousands, except per share data)
Revenues........................... $ 463,423 829,427 1,094,636 2,346,553Revenues $792,936 1,119,331
Costs of sales..................... 369,736 621,893 859,754 1,798,595
--------- --------- ---------sales 597,573 788,169
-------- ---------
Gross profit..................... 93,687 207,534 234,882 547,958profit 195,363 331,162
-------- ---------
Selling, general and administrative expenses.......................... 81,482 148,478 196,752 414,546expenses 154,250 223,164
Purchased in-process research and development....................... -- 299,505 -- 299,505development - 3,558
Merger, restructuring, acquisition and
other related charges......... -- 141,109 5,581 141,109charges - 257,920
-------- ---------
--------- --------- ---------
81,482 589,092 202,333 855,160
--------- --------- ---------154,250 484,642
-------- ---------
Operating income (loss).......... 12,205 (381,558) 32,549 (307,202) 41,113 (153,480)
-------- ---------
Other income (expense):
Interest expense................. (6,484) (13,198) (15,907) (34,374)
Other, net....................... 1,818 1,779 2,981 3,002expense (10,995) (25,648)
Gain on disposition of investment in affiliate 31,098 -
Interest and other income, net 1,917 4,127
-------- ---------
--------- --------- ---------
(4,666) (11,419) (12,926) (31,372)
--------- --------- ---------22,020 (21,521)
-------- ---------
Income (loss) before taxes....... 7,539 (392,977) 19,623 (338,574)income taxes
and extraordinary item 63,133 (175,001)
Income tax expense (benefit)....... 1,211 (18,882) 3,845 (1,273) 23,416 (19,604)
-------- ---------
--------- ---------Income (loss) before extraordinary item 39,717 (155,397)
Extraordinary item (422) -
-------- ---------
Net income (loss)................ $ 6,328 (374,095) 15,778 (337,301)
========= ========= =========39,295 (155,397)
======== =========
Net income (loss) per common share:
Basic............................Basic $ 0.10 (3.71) 0.27 (3.65)0.31 (0.98)
======== =========
========= ========= =========
Diluted..........................Diluted $ 0.09 (3.71) 0.26 (3.65)
========= ========= =========0.30 (0.98)
======== =========
See Accompanying Notes To Condensed Consolidated Financial Statements.
3
UNITED STATES FILTER CORPORATION AND SUBSIDIARIESSEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997
(UNAUDITED)
NINE MONTHS ENDED
DECEMBER 31,
------------------
1996 1997
-------- --------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:......................
Net income (loss).......................................... $ 15,778 (337,301)
Adjustments to reconcile net income (loss) to net cash
provided by...............................................
(used in) operating activities:............................
Deferred income taxes...................................... (11,700) (23,606)
Provision for doubtful accounts............................ 3,292 6,172
Depreciation............................................... 28,406 47,236
Amortization............................................... 9,338 20,695
Write-off of in-process research and development and
goodwill.................................................. -- 352,025
Loss on sale or disposal of assets......................... 3 11,557
Change in operating assets and liabilities:................
(Increase) decrease in accounts receivable............... 7,990 (23,569)
Increase in costs and estimated earnings in excess of
billings on uncompleted contracts....................... (35,904) (30,158)
Increase in inventories.................................. (17,125) (19,590)
(Increase) decrease in other assets...................... (20,271) 1,723
Increase (decrease) in accounts payable and accrued
expenses................................................ 17,209 (26,450)
Increase (decrease) in billings in excess of costs and
estimated earnings on uncompleted contracts.............. (3,561) 22,584
Increase (decrease) in other liabilities................. (5,081) 16,796
-------- --------
Net cash provided by (used in) operating activities...... (11,626) 18,114
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of property, plant & equipment...... (43,283) (77,683)
Payment for purchase of acquisitions, net of cash ac-
quired.................................................. (404,478) (411,082)
Proceeds from disposal of equipment...................... 394 3,860
Sale of short-term investments........................... 152 1,260
-------- --------
Net cash used in investing activities.................... (447,215) (483,645)
-------- --------
See Accompanying Notes To Condensed Consolidated Financial Statements.FINANCIAL STATEMENTS.
4
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINETHREE MONTHS ENDED DECEMBER 31, 1996JUNE 30, 1997 AND 1998
(UNAUDITED)
1997 1998
--------- ---------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 39,295 (155,397)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Deferred income taxes (5,265) (50,650)
Provision for doubtful accounts 2,364 6,120
Depreciation 19,464 25,696
Amortization 7,581 12,769
Merger, restructuring, acquisition and other related
cash charges - 155,396
Write-off of in-process research and development
and goodwill - 40,818
Gain on disposition of investment in affiliate (31,098) -
(Gain) loss on sale or disposal of property, plant and equipment (27) 29,937
Change in operating assets and liabilities:
Increase in accounts receivable (55,341) (75,304)
(Increase) decrease in costs and estimated earnings in excess
of billings on uncompleted contracts (15,192) 13,287
Increase in inventories (22,533) (4,727)
Increase in other assets (3,688) (16,857)
Increase in accounts payable and accrued expenses 61,356 24,166
Increase (decrease) in billings in excess of costs and
estimated earnings on uncompleted contracts 3,928 (30,470)
Increase (decrease) in other liabilities (18,257) 37,377
-------- --------
Net cash provided by (used in) operating activities (17,413) 12,161
-------- --------
Cash flows from investing activities:
Payment for purchase of property, plant and equipment (30,075) (43,206)
Payment for purchase of acquisitions, including certain
merger and restructuring charges, net of cash acquired (73,816) (237,251)
Proceeds from disposal of equipment 400 2,837
Proceeds from disposition of investment in affiliate 50,897 -
Sale (purchase) of short-term investments 1,571 (176)
-------- --------
Net cash used in investing activities (51,023) (277,796)
-------- --------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1998 (CONTINUED)
(UNAUDITED)
NINE MONTHS ENDED
DECEMBER 31,
-------------------
1996 1997 1998
-------- ---------
--------
(IN THOUSANDS)(in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock................ 358,441 --remarketable or
redeemable securities - 913,637
Net proceeds from saleissuance of convertible subordinated
debentures............................................... 403,650 --common stock 683 -
Proceeds from exercise of common stock options............ 1,487 3,514options 465 723
Principal payments on debt................................ (7,300) (20,170)debt (8,156) (440,765)
Net (payments) proceeds from borrowings on notes payable.. (913) 404,914payable 10,462 (216,030)
Dividends paid............................................ (3,067)paid (50) ----------
-------- --------
Net cash provided by financing activities............... 752,298 388,208
---------activities 3,404 257,565
-------- --------
Net increase (decrease)decrease in cash and cash equivalents.... 293,457 (77,323)equivalents (65,032) (8,070)
Cash and cash equivalents at March 31, 19961997 and 1997...... 27,730 135,144
---------1998 144,128 66,917
-------- --------
Cash and cash equivalents at December 31, 1996June 30, 1997 and 1997...1998 $ 321,187 57,821
=========79,096 58,847
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest................interest $ 15,602 34,023
=========12,806 28,989
======== ========
Cash paid during the period for income taxes............taxes $ 10,596 22,212
=========2,964 13,469
======== ========
See Accompanying Notes To Condensed Consolidated Financial Statements.
5SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
UNITED STATES FILTER CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTENote 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIESOperations and Significant Accounting Policies
----------------------------------------------
The accompanying condensed consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with U.S. generally
accepted accounting principles have been condensed or omitted pursuant to such
regulations. The condensed consolidated financial statements reflect all
adjustments and disclosures which are, in the opinion of management, necessary
for a fair presentation of the information contained therein. All such
adjustments are of a normal recurring nature. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto that are contained in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1997.1998. The
results of operations for the interim periods are not necessarily indicative of
the results of the full fiscal year.
INCOME (LOSS) PER COMMON SHAREIncome (Loss) per Common Share
- ------------------------------
Income (loss) per common share is computed based on the weighted average number
of shares outstanding. In the current period, the Company adoptedoutstanding and in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 128 "Earnings Per Share". Dilutive securities consisting
of convertible preferred stock, convertible subordinated debt and common stock
options are included in the computation of income (loss) per dilutive share when
their effect is dilutive. Accordingly, "Basic EPS" and "Diluted EPS" were
calculated as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1996Three Months Ended
June 30,
-----------------------------
1997 1996 1997
--------- ---------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)1998
------------ --------------
(in thousands, except per share data)
BASIC
Net income (loss) applicable to common shares...................shares $ 6,328 (374,095) 15,778 (337,301)39,295 (155,397)
======== ========== ======== ==========
Weighted average common shares outstanding................... 65,061 100,927 59,016 92,340outstanding 126,087 158,524
======== ========== ======== ==========
Basic income (loss) per common share.........................share $ 0.10 (3.71) 0.27 (3.65)0.31 (0.98)
======== ========== ======== ==================
7
Three Months Ended
June 30,
-------------------------
1997 1998
---------- ------------
(in thousands, except per share data)
DILUTED
Net income (loss) applicable to common shares...................shares $ 6,328 (374,095) 15,778 (337,301)39,295 (155,397)
Add:
Effect on net income of conversion of
convertible subordinated debentures....... --debentures 5,066 - *
-- ** -- * -- **-------- -------
Adjusted net income (loss) applicable to
common shares..... 6,328 (374,095) 15,778 (337,301)shares 44,361 (155,397)
======== ========== ======== ==========
Weighted average shares outstanding..................... 65,061 100,927 59,016 92,340outstanding 126,087 158,524
Add:
Assumed conversion of subordinated
debentures 18,119 - *
Exercise of options and assumed conversion
of subordinated debentures.................... 2,418* -- ** 2,055* -- **debentures 2,266 - *
-------- ---------- -------- ----------
Adjusted weighted average shares outstanding..................... 67,479 100,927 61,071 92,340outstanding 146,472 158,524
======== ========== ======== ==========
Diluted income (loss) per common share...........................share $ 0.09 (3.71) 0.26 (3.65)0.30 (0.98)
======== ========== ========
==========- -----------------
- --------
* The calculation of diluted EPS does not assume conversion of subordinated
debentures for the three and nine months ended December 31, 1996 as the
effect would be antidilutive to income per share.
** The calculation of dilutedDiluted EPS does not assume conversion of subordinated
debentures or exercise of stock options for the three and nine months ended December 31, 1997June
30, 1998 as the effect would be antidilutive to loss per share. 6
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
NOTEUnder the
treasury stock method, the exercise of all outstanding options would have
increased the weighted average number of shares by 3.0 million for the
three months ended June 30, 1998.
Note 2. INVENTORIESInventories
-----------
Inventories at March 31, 19971998 and December 31, 1997June 30, 1998 consist of the following:
MARCH DECEMBERMarch 31, 31, 1997 1997
-------- ------------
(IN THOUSANDS)1998 June 30, 1998
-------------- -------------
(in thousands)
Raw materials...................................... $ 56,830 116,446
Work-in-progress................................... 58,619 83,136materials $130,501 139,703
Work-in-progress 102,198 94,520
Finished goods..................................... 129,752 151,386goods 240,999 257,828
-------- -------
$245,201 350,968$473,698 492,051
======== =======
NOTE8
Note 3. PROPERTY, PLANT AND EQUIPMENT
On September 17, 1997, the Company acquired more than 47,000 acres of
agricultural land in Imperial County, California and other parts of the
Southwestern United States in exchange for 8.0 million shares and warrants to
acquire 1.2 million shares of common stock, par value $0.01 per share, of the
Company. These shares and warrants are subject to certain restrictions and
limitations more fully described in agreements among the Company and the
holders of such securities. The recorded value of the acquired land is
approximately $210.0 million.
NOTE 4. NOTES PAYABLEDebt
----
Notes Payable. As of December 31, 1997,June 30, 1998, the Company had a Senior Credit Facility
which provides credit facilities to the Company of up to $750.0 million, of
which there were outstanding borrowings of $419.1$329.8 million and outstanding
letters of credit of $40.5$50.4 million. Borrowings under the Senior Credit Facility
bear interest at variable rates of up to 0.45% above certain Eurocurrency rates
or 0.15% above BankBoston's base rate. The Senior Credit Facility expires
December 2001 and is subject to customary and usual terms.
In connection with the acquisition of The Kinetics Group, Inc. ("Kinetics")
(see note 5)Remarketable or Redeemable Securities Issuance. On May 15, 1998, the Company
has an additional loan agreement with a bank that
provides a revolving line-of-credit under which a subsidiaryissued $500.0 million 6.375% Remarketable or Redeemable Securities due 2011
(remarketing date May 15, 2001) and $400.0 million 6.50% Remarketable or
Redeemable Securities due 2013 (remarketing date May 15, 2003) (collectively,
the "ROARS"). The net proceeds from the sale of the ROARS, including a premium
payment to the Company may borrow upby Nationsbanc Montgomery Securities LLC, were $913.6
million. The net proceeds were used to $100.0 million of which there were outstanding borrowings of
$33.8 million at December 31, 1997. Borrowingsrepay indebtedness under this agreement bear
interest at the bank's reference rate or other interest rate options that the
subsidiary may select.
In connection withSenior
Credit Facility, indebtedness assumed in the acquisition of Memtec, Limitedand a
portion of the indebtedness assumed in the acquisition of Culligan Water
Technologies, Inc. ("Memtec"Culligan") (see note
5), the Company has.
Note 4. Acquisition
-----------
On June 15, 1998, a Multi-Option, Multi-Currency Master Facility Agreement
with a bank that provides for borrowings of up to $60.0 million, of which
there were outstanding borrowings of $22.3 million as of December 31, 1997.
Borrowings under this agreement bear interest at LIBOR plus 0.75%.
NOTE 5. ACQUISITIONS
On December 31, 1997, a wholly-ownedwholly owned subsidiary of the Company and Kinetics
effectivelyCulligan
consummated a merger and acquisition in a tax-free reorganization (the "Merger") contemplated under and pursuant to a
definitive Agreement and Plan of Merger Agreement(the "Merger Agreement") by and among
the Company, Kinetics and substantially allPalm Water Acquisition Corp. ("Merger Sub"), a wholly owned
subsidiary of the shareholders of Kinetics. In connectionCompany, and Culligan. Pursuant to the Merger Agreement,
Merger Sub has been merged with this merger, theand into Culligan (the "Merger"). The Company
issued 5,803,80348.6 million shares of the Company's common stock for all of the
outstanding common stock of Kinetics (0.5824 shareCulligan (1.875 shares of the Company's common stock
for each outstanding share and each outstanding option or other right to acquire
a share of KineticsCulligan common stock)stock, par value $.01). In addition, the Company
assumed approximately $50.0$491.7 million of third party institutional debt.
7
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Kinetics, based in Santa Clara, California,Culligan is a providerleading manufacturer and manufacturerdistributor of sophisticated high purity process pipingwater purification and
treatment products and services for household, consumer and commercial
applications. Products and services offered by Culligan range from those
designed to solve residential water problems, such as filters for tap water and
household softeners, to equipment and services, such as ultrafiltration and
microfiltration products. Culligan also offers desalination systems and
is also a leading
integrator inportable deionization services ("PDS"), designed for commercial and industrial
applications. In addition, Culligan sells and licenses its dealers to sell
under the United States of high purity water, fluid and gas handling
systems that are critical to the pharmaceutical, biotechnology and micro
electronics industries.
This transactionCulligan trademark five-gallon bottled water.
The Merger has been accounted for as a pooling of interests and, accordingly,
the condensed consolidated financial statements and notes thereto for all
periods presented have been restated to include the accounts of Kinetics. In
restating the Company's historical financial statements for the poolingCulligan.
Reconciliation of
interests with Kinetics, the Company's balance sheet as of March 31, 1997 was
combined with Kinetics audited balance sheet as of September 30, 1997.
Additionally, results of the Company for the fiscal year ended March 31, 1997
were combined with the results of Kinetics for the fiscal year ended September
30, 1997; historical results of the Company for the three and nine months
ended December 31, 1996 were combined with historical results of Kinetics for
the three and nine months ended June 30, 1997, respectively. Concurrent with
the Company's merger, Kinetics year end was recast to March 31. Accordingly,
results of Kinetics for the six month period ended September 30, 1997
(including revenue of $227.4 million and a net loss of $8.5 million) are
included in both the restated historical results for the fiscal year ended
March 31, 1997 and the results for the nine months ended December 31, 1997.
Separate results of operations of the combined entities for the three
and nine
months ended December 31, 1996June 30, 1997 are as follows:
THREE MONTHS
ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1996
----------------- -----------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)Three Months
Ended
June 30, 1997
--------------
(in thousands)
Revenues:
Company (as previously reported).......... $368,124 838,936
Kinetics.................................. 95,299 255,700 $693,533
Culligan 99,403
--------
---------
Combined.................................. $463,423 1,094,636Combined $792,936
========
=========
Net income (loss):income:
Company (as previously reported).......... $ 14,351 29,014
Kinetics.................................. (8,023) (13,236)12,703
Culligan 26,592
--------
---------
Combined..................................Combined $ 6,328 15,778
======== =========39,295
========
9
Three Months
Ended
June 30, 1997
-------------
Income per common share:
Basic:
As previously reported.................... $ 0.24 0.54
======== =========reported $0.15
=====
As restated............................... $ 0.10 0.27
======== =========restated $0.31
=====
Diluted:
As previously reported.................... $ 0.23 0.52
======== =========reported $0.15
=====
As restated............................... $ 0.09 0.26
======== =========restated $0.30
=====
MergerConcurrent with the merger with and into Culligan, the Company designed and
implemented a restructuring plan to streamline its manufacturing and production
base, redesign its distribution network, improve efficiency and enhance its
competitiveness. The restructuring plan resulted in a pre-tax charge of $257.9
million. Included in the charge is approximately $49.2 million of merger
expenses incurred to consummate the KineticsCulligan transaction totaled $4.3
million consisting ofincluding investment
banking fees, printing fees, stock transfer fees, legal fees, accounting fees,
governmental filing fees and certain other transaction costs and are included in merger, restructuring, acquisition and
other related charges in the accompanying December 31, 1997 Condensed
Consolidated Statements of Operations.
8
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
On December 9, 1997, the Company, through a wholly-owned subsidiary,
completed its tender offer ("Offer") to purchase all of the outstanding
ordinary shares (including American Depository Shares) of Memtec. The purchase
price was $36.00 per share. The Company acquired certain shares in privately
negotiated and open market purchases prior to the Offer resulting in a total
cash purchase price of approximately $397.2 million (including estimated
transaction costs of $10.6 million). The purchase price was allocated to the
assets and liabilities of Memtec based on their estimated respective fair
values. The value of developed technology was approximately $64.4 million, and
is being amortized on a straight-line basis over 25 years. The value of other
intangible assets including patents, trademarks, license and distribution fees
was approximately $7.3 million, and is being amortized over periods ranging from
5 to 12 years.
The Company also acquired from Memtec certain in-process research and
development projects that had not reached technological feasibility and that had
no alternative future use. Such projects were valued by an independent appraiser
using a risk adjusted cash flow model under which expected future cash flows
were discounted using rates ranging from 31.9% to 45.9%. The discount rates were
determined by various internal and external factors including general economic
and industry economic conditions, cost and availability of capital, product
completion and technology risk, competition and market acceptance. The future
cash flows were based on significant estimates of revenues, cost of goods sold,
operating expenses, research and development expenses, capital expenditures,
depreciation and interest charges on financed capital expenditures over the next
ten years. The estimates of these items included significant assumptions
regarding (i) revenue growth, which was assumed to grow from no revenue in the
current period for the projects currently in-process to substantially all of the
revenue for the Memtec subsidiary over the ten year period as the projects in-
process supplant or supersede the current Memtec product offerings; (ii) gross
margin, which is projected to improve approximately 5% by the end of the ten
year period as the new projects with higher gross margins supplant or supersede
the current Memtec product offerings; (iii) operating expenses as a percentage
of sales, which were projected to be 20%. The estimated market value of such in-
process research and development projects was $299.5 million and was expensed at
the acquisition date. The allocation of the purchase price of Memtec is final
and is not expected to change materially subsequent to December 31, 1997.
Memtec is incorporated under the law of the State of New South Wales,
Australia and has worldwide operations. Memtec is a leader in the designing,
engineering, manufacturing and marketing of an extensive range of filtration
products and systems, focusing on two principal areas of the filtration
market: industrial filtration and water filtration. Memtec had revenues of
approximately $243.6 million and net income of approximately $7.5 million for
the year ended June 30, 1997.
The acquisition of Memtec has been accounted for as a purchase and,
accordingly, the results of Memtec's operations have been included in the
consolidated financial statements of the Company from the date of acquisition.
Summarized below are the unaudited pro forma results of operations of the
Company as though Memtec had been acquired at the beginning of the nine month
periods ended December 31, 1996 and 1997.
NINE MONTHS ENDED
DECEMBER 31,
--------------------
1996 1997
---------- ---------
(IN THOUSANDS,
EXCEPT PER COMMON
SHARE)
Revenues................................................. $1,269,263 2,515,056
========== =========
Net income (loss)........................................ $ 23,454 (336,394)
========== =========
Net income (loss) per common share:
Basic.................................................... $ 0.40 (3.64)
========== =========
Diluted.................................................. $ 0.38 (3.64)
========== =========
Concurrent with the merger with and into Kinetics and the acquisition of
Memtec, the Company designed and implemented a restructuring plan to
streamline its manufacturing and production base, improve efficiency and
enhance its competitiveness. The restructuring plan resulted in a pre-tax
charge of $141.1 million.costs. The plan
identifies certain productsmanufacturing facilities, distribution sites, sales and
technologies acquired in conjunction withadministrative offices, retail outlets and certain related assets that became
redundant upon consummation of the Memtec transaction that
supersede products and technologies acquired in earlier acquisitions of
membrane related businesses.Culligan transaction. As a result, the
restructuring plan included the closing or reconfiguring of certain facilities
and the reduction of the combined work force by approximately 950 employees.
In addition, the plan impaired certain carrying amounts of goodwill and other
intangible assets were determined to be impaired by approximately
$55.0 million in accordance with Statement of Financial Accounting Standards
No.SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS 121"). SFAS 121which requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate 9
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
that the carrying amount of the assets may not be recoverable. In
determining the amount of the impairment of these assets, the Company valued the
assets using the present value of estimated expected future cash flows using
discount rates commensurate with the risks involved. The restructuring plan also
included closing or reconfiguringcomponents of certain facilities and reducing the work
force by approximately 350 employees, most of whom work in the facilities to
be closed.
Included in
merger, restructuring, acquisition and other related charges are the following:as follows:
(IN THOUSANDS)(in thousands)
Write-downMerger, integration and other acquisitions costs $ 89,773
Write-off of duplicative assets and lease terminations 79,982
Severance, relocation and related costs 50,649
Write-off of goodwill and other intangible assets............... $ 54,950
Asset write-offs, including equipment and facilities............. 47,887
Merger, integration and other acquisition costs.................. 21,135
Severance and related costs...................................... 17,137assets 37,516
--------
Total merger, restructuring, acquisition and other related charges..................................................... $141,109charges $257,920
========
Cash charges..................................................... $ 36,431charges $155,396
Non-cash charges................................................. 104,678charges 102,524
--------
$141,109$257,920
========
Approximately $30.3$86.2 million of merger and restructuring related charges are
included in accrued liabilities at December 31, 1997.June 30, 1998. Additional costs to complete
the restructuring plan are not expected to be material.
Prior to the Company's acquisition of Culligan, Culligan acquired Protean plc,
including Protean's Analytical and Thermal Division ("A&T"). In connection with
the acquisition of A&T, the Company recorded a charge of $3.6 million for
purchased in-process research and development projects that had not reached
technological feasibility and that had no alternative future use.
After an income tax benefit of $34.5$50.5 million, the charges detailed above
totaling $440.6$261.5 million reduced earnings by $406.1$211.0 million.
NOTE 6. SUBSEQUENT EVENT
On February 9, 1998,10
Note 5. Comprehensive Income
--------------------
In the current period, the Company announced it had entered into an Agreementadopted SFAS 130 "Reporting Comprehensive
Income", which establishes standards for disclosing comprehensive income in both
annual and Plan of Merger (the "Merger Agreement") datedinterim financial statements. Accordingly, the Company's
comprehensive income was as of February 9, 1998,
among the Company, Palm Water Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of the Company ("Merger Sub"), and Culligan Water
Technologies, Inc. ("Culligan"), Delaware corporation. Pursuant to the Merger
Agreement, Merger Sub will be merged with and into Culligan (the "Merger"). In
connection with the Merger, the Company will issue in exchange for each issued
and outstanding share (other than treasury shares and shares owned by the
Company) of Culligan common stock, par value $.01 per share, 1.714 shares of
common stock, par value $.01 per share, of the Company pursuant to formula.
The Merger will be accounted for as a pooling of interests and is intended
to qualify as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended. Consummation of the Merger is subject to
customary regulatory approvals and the approval of the stockholders of each of
the Company and Culligan. The Merger is expected to be consummated in the
first half of fiscal 1999.
10follows:
Three Months Ended
June 30,
--------------------
1997 1998
-------- ---------
Net income (loss) $39,295 (155,397)
Foreign currency translation adjustments (8,178) (6,907)
------- --------
Comprehensive income (loss) $31,117 (162,304)
======= ========
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONSResults of Operations
- ---------------------
Revenues. Revenues for the three months ended December 31, 1997June 30, 1998 were $829.4
million,$1.1 billion,
an increase of $366.0$326.4 million or 79.0%41.2% from the $463.4$792.9 million for the three
months ended December 31, 1996. Revenues for the nine months ended
December 31, 1997 were $2.3 billion, anJune 30, 1997. This increase of $1.2 billion or 114.4%
from the $1.1 billion for the nine months ended December 31, 1996. These
increases werewas due primarily to acquisitions
completed by the Company subsequent to December 31, 1996.June 30, 1997. For the ninethree months ended
December 31, 1997,June 30, 1998, revenues from capital equipment sales represented 45.3%44.6% of total
revenues. Revenues from services, operations, replacement parts and consumables
represented 23.9%22.5% of total revenues, while revenues from distribution
represented 29.1%21.4% of total revenues and revenues from consumer products
represented 1.7%11.5% of total revenues.
Gross profit.Profit. Gross profit as a percentage of revenue ("gross margin") was
25.0%29.6% for the three months ended December 31, 1997June 30, 1998 compared to 20.2% in the
corresponding period in the prior year. Gross margin was 23.4% for the nine
months ended December 31, 1997 compared to 21.5%24.6% in the
corresponding period in the prior year. These increases in gross margin for the
three and nine
month periodsmonths ended December 31, 1997June 30, 1998 were due primarily to (i) efficiencies realized
as a result of the Company's reorganization plan implemented in the third
quarter of the prior year; (ii) certain economies of scale related to the
Company's significant growth including enhanced purchasing power; (iii)
favorable product mix in the current quarter resulting from the Company's
emphasis on selling higher margin value added products and services in the
current quarter; and (iv) the incurrence of certain unreimbursed project costs
at The Kinetics Group, Inc. ("Kinetics")
during the three and nine monthsquarter ended June 30, 1997 recorded by Kinetics, which was acquired
as of December 31, 1996 after restatement for
the acquisition of Kinetics in the current period1997 and accounted for as a pooling of interests transaction (see below).interests.
Selling, generalGeneral and administrative expenses.Administrative Expenses. Selling, general and
administrative expenses for the three months ended December 31, 1997June 30, 1998 were $148.5$223.2
million before purchased in-process research and development and merger,
restructuring, acquisition and other related charges described below ("non-recurringcertain
charges"), an increase of $67.0$68.9 million or 82.2%44.7% from the $81.5$154.3 million for the
three months ended December 31, 1996.June 30, 1997. The increase in these expenses can be
attributed primarily to the addition of sales and administrative personnel
accompanying the Company's acquisitions completed subsequent to June 30, 1997.
During thisthe current period, selling, general and administrative expenses (before
non-recurringcertain charges) were 17.9%19.9% of revenues compared to 17.6%19.5% for the comparable
period in the prior year.
For the nine months ended December 31, 1997, selling, general
and administrative expenses (before non-recurring charges) increased
$217.7 million to $414.5 as compared to the $196.8 million, before merger
expenses described below, in the comparable period in the prior year. During
this period, selling, general and administrative expenses (before non-
recurring charges) were 17.7% of revenues compared to 18.0% (before merger
expenses) for the comparable period in the prior year.
Purchased In-Process Research and Development. On December 9, 1997, the
Company, through a wholly-owned subsidiary, completed its tender offer
("Offer") to purchase all of the outstanding ordinary shares (including
American Depository Shares) of Memtec. The purchase price was $36.00 per
share. The Company acquired certain shares in privately negotiated and open
market purchases prior to the Offer resulting in a total cash purchase price
of approximately $397.2 million (including estimated transaction costs of
$10.6 million). The purchase price was allocated to the assets and liabilities
of Memtec based on their estimated respective fair values. The Company also
acquired from Memtec certain in-process research and development projects that
had not reached technological feasibility and that had no alternative future
use. Such projects were valued by an independent appraiser using a risk
adjusted cash flow model under which expected future cash flows were
discounted, taking into account risks related to existing and future markets
and assessments of the life expectancy of such projects. The estimated market
value of such in-process research and development (R&D) projects was $299.5
million and was expensed at the acquisition date.
In addition, the Company also acquired from Memtec and its subsidiaries
(consisting of Memcor, Fluid Dynamics, Filterite, and Seitz) developed
technologies including large volume purification product lines; membrane
systems for water purification and waste treatment; metal fiber product lines
for industrial applications involving elevated pressures, temperatures and
corrosive environments; disposable product lines for industrial applications;
and depth media product lines for the pharmaceutical and food and beverage
industries.
11
As a result of the degree of competition in the filtration industry and the
use of technological change as a competitive tool, a significant proportion of
Memtec's technology will be superseded, although the rate of change varies
significantly across the markets addressed. Memtec's R&D initiatives are
therefore targeted at superseding current products. Memtec has a range of
ongoing R&D projects in each of its product lines. Certain of these projects
are directed at next generation products for existing market applications
while others are directed at new market opportunities where Memtec's
technological base may be applicable.
Memcor R&D projects are primarily directed at enhanced microfiltration
products capable of cost effectively addressing larger scale applications or
more chemically aggressive environments. These R&D projects are at the
laboratory to pilot stage of development and require a number of years further
work before full introduction to the market of a product is likely. Other
Memcor R&D projects seek to utilize Memtec's knowledge of electrochemical
processes to enter new markets ranging from high quality water production to
environmental sensors. These R&D projects are also at the laboratory to pilot
stage and similarly require a number of years further R&D before a product is
available for launching.
Fluid Dynamics R&D projects are directed at developing new applications for
Memtec's proprietary metallic media. The media enables precise fine filtration
in a range of hostile environments as well as having unique conductive
properties. These R&D projects are at the laboratory stage of development and
require additional research ranging from twelve months to several years
depending upon the particular product before any market launch is possible.
Filterite R&D project center around its two proprietary technologies--the
unique Filterite highly assymetric membrane and the CoLD melt spinning
technology. R&D projects are examining expansion of product offerings from
these core technologies. These projects require further materials science
laboratory work followed by manufacturing prototyping and tailoring to market
applications--a process which will range from eighteen months to several
years.
Seitz R&D is directed at next generation filtration technologies for the
food and beverage and chemicals industries drawing on the core technologies of
Seitz. These R&D projects are predominantly at the pilot stage, requiring
extensive trialing evaluation and development based on the trialing before
market launches are possible.
Failure to complete these R&D projects successfully and on time would open
the way for competitors to introduce alternate technologies, with consequent
implications for Memtec's revenues. To be successful in most cases the R&D
projects must be developed from laboratory or pilot scale models to full scale
products capable of production within a quality accredited manufacturing
process. The existing R&D projects are expected to be completed and
commercialized over the next ten years with expected R&D and project related
expenditures of approximately $275 million over such ten year period. The
expenditures will be expenses or capitalized in accordance with generally
accepted accounting principles.
The valuation process distinguished between R&D projects with no alternate
use or value and those with alternate use. Predominantly all R&D projects are
at a stage of development where the progress to date is not applicable to any
other use within Memtec nor is it saleable to any third party known to
management.
Merger, Restructuring, Acquisition and Other Related Charges. On December 31,
1997, the Company merged with and into Kinetics in a tax-free reorganization,
which was accounted for as a pooling of interests. Concurrent with
the merger with and into Kinetics and the acquisition of Memtec,Culligan, the Company designed and implemented a
restructuring plan to streamline its manufacturing and production base, redesign
its distribution network, improve efficiency and enhance its competitiveness.
TheThis restructuring plan resulted in a pre-tax charge of $141.1$257.9 million.
Included in the charge is approximately $49.2 million of merger expenses
incurred to consummate the Culligan transaction including investment banking
fees, printing fees, stock transfer fees, legal fees, accounting fees,
governmental filing fees and certain other transaction costs. The plan
identifies certain productsmanufacturing facilities, distribution sites, sales and
technologies acquired in conjunction withadministrative offices, retail outlets and certain related assets that became
redundant upon consummation of the Memtec transaction that supersede products and technologies acquired in
earlier acquisitions of membrane related businesses.Culligan transaction. As a result, the
restructuring plan included the closing or reconfiguring of certain facilities
and the reduction of the combined work force by approximately 950 employees.
In addition, the plan impaired certain carrying amounts of goodwill and other
intangible assets were determined to be
impaired by approximately $55.0 million in accordance with Statement of
Financial Accounting Standards No.SFAS 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). SFAS
121which requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate 12
that the carrying amount of the assets may not be recoverable. In
determining the amount of the impairment of these assets, the Company valued the
assets using the present value of estimated expected future cash flows using
discount rates commensurate with the risks involved. The restructuring plan also
included closing or reconfiguringcomponents of certain facilities and reducing the work
force by approximately 350 employees, most of whom work in the facilities to
be closed.
Included in
merger, restructuring, acquisition and other related charges are the following:as follows:
12
(IN
THOUSANDS)(in thousands)
Write-downMerger, integration and other acquisitions costs $ 89,773
Write-off of duplicative assets and lease terminations 79,982
Severance, relocation and related costs 50,649
Write-off of goodwill and other intangible assets................ $ 54,950
Asset write-offs, including equipment and facilities.............. 47,887
Merger, integrationassets 37,516
--------
Total merger, restructuring, acquisition and other acquisition costs................... 21,135
Severance and related costs....................................... 17,137
--------
Total......................................................... $141,109charges $257,920
========
Cash charges...................................................... $ 36,431charges $155,396
Non-cash charges.................................................. 104,678charges 102,524
--------
$141,109$257,920
========
Approximately $30.3$86.2 million of merger and restructuring related charges are
included in accrued liabilities at December 31, 1997.June 30, 1998. Additional costs to complete
the restructuring plan are not expected to be material.
Prior to the Company's acquisition of Culligan, Culligan acquired Protean plc,
including Protean's Analytical and Thermal Division ("A&T"). In connection with
the acquisition of A&T, the Company recorded a charge of $3.6 million for
purchased in-process research and development projects that had not reached
technological feasibility and that had no alternative future use.
After an income tax benefit of $34.5$50.5 million, the charges detailed above
totaling $440.6$261.5 million reduced earnings by $406.1$211.0 million.
The write-down of assets as a result of the restructuring plan (including
assets of business' whose products were superseded by Memtec's products) will
not have a material affect on the Company's consolidated results of operations
in the future.
Merger expenses incurred during the nine months ended December 31, 1996
relate to the Company's acquisition of Davis Water & Waste Industries, Inc.
("Davis") which was accounted for as a pooling of interests. These merger
expenses, which totaled $5.6 million, consisted primarily of investment
banking fees, printing fees, stock transfer fees, accounting fees, legal fees,
governmental filing fees and certain other costs related to certain Davis
pension plans and change of control payments.
Interest expense.Expense. Interest expense increased to $13.2$25.6 million for the three
months ended December 31, 1997June 30, 1998 from $6.5 million for the corresponding period
in the prior year. Interest expense increased to $34.4 million for the nine
months ended December 31, 1997 from $15.9$11.0 million for the corresponding period in
the prior year. Interest expense for the three and nine months ended December 31, 1997June 30, 1998
consisted primarily of interest on the Company's (i) 6.0% Convertible
Subordinated Notes issued on September 18, 1995 due 2005, (ii) 4.5% Convertible
Subordinated Notes issued on December 11, 1996 due 2001, (iii) borrowings under Kinetics' long-term line-of- credit,6.375%
Remarketable or Redeemable Securities issued May 15, 1998 due 2011 (Remarketing
Date May 15, 2001), (iv) 8.0% Senior
Subordinated Notes issued by Kinetics,6.5% Remarketable or Redeemable Securities due 2013
(Remarketing date May 15, 2003), (v) borrowings under Memtec's long-term
line-of- credit, (vi) Senior Guaranteed Notes issued by Memtec bearing
interest at rates ranging from 7.7% to 8.0%, (vii) other long-term debt bearing interest at
rates ranging from 2.0% to 9.2%10.1% and (viii)(vi) borrowings under the Company's Senior
Credit Facility. At December 31, 1997,June 30, 1998, the Company had cash and short-term
investments of $58.7$59.3 million.
Income taxes.Taxes. The Company recorded an income tax benefit of $18.9$19.6 million for
the three months ended December 31, 1997June 30, 1998 as compared to income tax expense of $1.2$23.4
million in the comparable period in the prior year. Before non-
recurringnon-recurring
charges, income tax expense was $15.6$30.9 million or an effective tax rate of 32.8%35.7%
for the three months ended December 31, 1997June 30, 1998 as compared to 16.1%37.1% for the comparable
period in the prior year.
13
Net income. Net incomeIncome. Income before non-recurring charges for the three months ended
December 31, 1997June 30, 1998 was $32.0$55.6 million, an increase of $25.7$15.9 million from the $6.3$39.7
million for the three months ended December 31, 1996. Net income
before non-recurring charges for the nine months ended December 31, 1997 was
$68.8 million, an increase of $49.0 million from the $19.8 million for the
nine months ended December 31, 1996.June 30, 1997. After non-recurring charges,
net loss in the three months ended December 31, 1997June 30, 1998 was $374.1$155.4 million as compared
to net income of $6.3$39.3 million in the corresponding period in the prior year.
Net loss
for the nine months(Net income in quarter ended December 31,June 30, 1997 (after the non-recurring charges)
was $337.3included a one-time after tax gain of
$18.8 million as compared to net incomeor $0.15 per diluted share on Culligan's disposition of $15.8 millionan
investment in the
corresponding period in the prior year.an affiliate.) Net income (loss) per common share for the three
and nine months ended December 31,June 30, 1997 and 19961998 were as follows:
THREE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
------------- ------------
1996Three Months Ended
June 30,
-------------------
1997 1996 1997
------ ------ ------------1998
-------- --------
Basic........................................... $ 0.10 (3.71) 0.27 (3.65)
====== ======Basic $0.31 (0.98)
===== ======
Diluted......................................... $ 0.09 (3.71) 0.26 (3.65)
====== ====== =====
======Diluted $0.30 (0.98)
===== =====
LIQUIDITY AND CAPITAL RESOURCES13
Liquidity and Capital Resources
- -------------------------------
The Company's principal sources of funds are cash and other working capital,
cash flow generated from operations and borrowings under the Company's bank
line-of-credit.Senior
Credit Facility. At December 31, 1997,June 30, 1998, the Company had working capital of $545.6$870.3
million including cash and short-term investments of $58.7$59.3 million. On May 15,
1998, the Company issued $500.0 million 6.375% Remarketable or Redeemable
Securities due 2011 (remarketing date May 15, 2001) and $400.0 million 6.50%
Remarketable or Redeemable Securities due 2013 (remarketing date May 15, 2003)
(collectively, the "ROARS"). The net proceeds from the sale of the ROARS,
including a premium payment to the Company by Nationsbanc Montgomery Securities
LLC, were $913.6 million. The net proceeds were used to repay indebtedness under
the Senior Credit Facility, indebtedness assumed in the acquisition of Memtec,
and a portion of the indebtedness assumed in the acquisition of Culligan. The
Company's long-term debt at December 31, 1997, was $554.0 million consistingJune 30, 1998 consisted of (i) $140.0 million of
6.0% Convertible Subordinated Notes due 2005 and2005; (ii) $414.0 million of 4.5%
Convertible Subordinated Notes due 2001. The Company also had
other long-term debt totaling $154.5 million consisting of (i) $18.32001; (iii) $500.0 million of 8.0% Senior Subordinated Notes issued by Kinetics, (ii) $60.0ROARS due 2011
(remarketing date May 15, 2001); (iv) $400.0 million of Senior Guaranteed Notes issued by Memtec bearing interest at rates ranging
from 7.7% to 8.0% and (iii)ROARS due 2013
(remarketing date May 15, 2003); (v) other long-term debt of $76.2$94.9 million
bearing interest at rates ranging from 2.0% to 9.2%10.1%. Subsequent to December 31, 1997
substantially all of Kinetics' debt (including borrowings on their revolving
line-of-credit described below) was repaid with borrowings under the Company's
Senior Credit Facility.
As of December 31, 1997,June 30, 1998, the Company had a Senior Credit Facility which provides
credit facilities to the Company of up to $750.0 million, of which there were
outstanding borrowings of $419.1$329.8 million and outstanding letters of credit of
$40.5$50.4 million. Borrowings under the Senior Credit Facility bear interest at
variable rates of up to 0.45% above certain Eurocurrency rates or 0.15% above
BankBoston's base rate. The Senior Credit Facility expires December 2001 and is
subject to customary and usual terms.
In connection with the acquisitions of Kinetics and Memtec, the Company
assumed through its subsidiaries two additional loan agreements with banks.
One agreement provides a revolving line-of-credit with borrowings of up to
$100.0 million, of which $33.8 million was outstanding at December 31, 1997.
Borrowings under this agreement bear interest at the bank's reference rate or
other interest rate options that the subsidiary may select. The other
agreement is a Multi-Option, Multi-Currency Master Facility that provides
borrowings of up to $60.0 million, of which $22.3 million was outstanding as
of December 31, 1997. Borrowings under this agreement bear interest at LIBOR
plus 0.75%.
The Company believes its current cash position, cash flow from operations, and
available borrowings under the Company's line-of-creditSenior Credit Facility will be adequate
to meet its anticipated cash needs from working capital, revenue growth,
scheduled debt repayment and capital investment objectives for at least the next
twelve months.
CERTAIN TRENDS AND UNCERTAINTIES
The Company and its representatives may from time to time make written or oral
forward-looking statements, including statements contained in the Company's
filings with the United States Securities and 14
Exchange Commission and in its
reports to stockholders. In connection with the "safe harbor""Safe Harbor" provisions of the U.S.
Private Securities Litigation Reform Act of 1995, the Company is hereby
identifying important factors that could cause actual results to differ
materially from those contained in any forward-
lookingforward-looking statement made by or on
behalf of the Company; any such statement is qualified by reference to the
following cautionary statements.
Acquisition StrategyStrategy. In pursuit of its strategic objective of becoming
the leading global single-source provider of water and wastewater treatment
systems and services, the Company has, since 1991, acquired more than 125150 United
States based and international businesses. The Company plans to continue to
pursue acquisitions that expand the segments of the water and wastewater
treatment and water-related industries in which it participates, complement its
technologies, products or services, broaden its customer base and geographic
areas served and/or expand its global distribution network, as well as
acquisitions which provide opportunities to further and implement the Company's
one-stop-shop approach in terms of technology, distribution or service. The
Company's acquisition strategy entails the potential risks inherent in assessing
the value, strengths, weaknesses, contingent or other liabilities and potential
profitability of acquisition candidates and in integrating the operations of
acquired companies. In addition, the Company's acquisition of approximately 96% of the outstanding ordinary shares of Memtec was
accomplished through aan unsolicited tender offer, and the Company could make
other acquisitions in the future by means of a tender offer.such acquisitions. The level of risk associated with such acquisitions is
generally greater because frequently they are accomplished, as was the case with
the acquisition of Memtec, without the customary representations or due
diligence typical of negotiated transactions. Although the Company generally has
been successful in pursuing acquisitions, there can be no assurance that
acquisition opportunities will continue to be available, that the
14
Company will have access to the capital required to finance potential
acquisitions, that the Company will continue to acquire businesses or that any
business acquired will be integrated successfully or prove profitable.
International TransactionsTransactions. The Company has made and expects it will
continue to make acquisitions and expects to obtain contracts in markets outside
the United States. In addition, a substantial portion of the business of a
wholly owned subsidiary of the Company includes non-U.S. sales. While these
activities may provide important opportunities for the Company to offer its
products and services internationally, they also entail the risks associated
with conducting business internationally, including the risk of currency
fluctuations, slower payment of invoices, the lack in some jurisdictions of
well-developed legal systems, nationalization and possible social, political and
economic instability. In particular, the Company has significant operations in
Asia which willhave been and may in the future be adversely affected by current
economic conditions in that region. While the full impact of this economic
instability cannot be predicted, it could have a material adverse effect on the
Company's revenues and profitability.
Reliance Onon Key PersonnelPersonnel. The Company's operations of the Company are dependent on
the continued efforts of senior management, in particular Richard J. Heckmann,
the Company's Chairman of the Board, President and Chief Executive Officer. The
Company does not presently havehas entered into an employment agreement with Mr. Heckmann, and the
Company is considering employment agreements with mostfor other members of senior
management, including Mr. Heckmann.most of whom do not currently have such agreements, although the
names of such members have yet to be determined. There can be no assurance that
the Company will enter into employment agreements with members of senior
management. Should any of the Company's senior managers be unable or choose not
to continue in their present roles, the Company's prospects could be adversely
affected.
Profitability Ofof Fixed Price ContractsContracts. A significant portion of the
Company's revenues are generated under fixed price contracts. To the extent that
original cost estimates are inaccurate, costs to complete increase,
delivery schedulesscheduled deliveries are delayed or
progress under a contract is otherwise impeded, revenue recognition and
profitability from a particular contract may be adversely affected. The Company
routinely records upward or downward adjustments with respect to fixed price
contracts due to changes in estimates of costs to complete such contracts. There
can be no assurance that future downward adjustments will not be material.
Cyclicality, Seasonality Andand Possible Earnings FluctuationsFluctuations. The sale of
capital equipment within the water treatment industry is cyclical and influenced
by various economic factors including interest rates and general fluctuations of
the business cycle. A significant portion of the Company's revenues are derived
from capital equipment sales. While the Company sells capital equipment to
customers in diverse industries and in global markets, cyclicality of capital
equipment sales and instability of general economic conditions, including 15
those
currently unfolding in Asian markets, could have a material adverse effect on
the Company's revenues and profitability.
The sale of water and wastewater distribution equipment and supplies is also
cyclical and influenced by various economic factors including interest rates,
land development and housing construction industry cycles. Sales of such
equipment and supplies are also subject to seasonal fluctuation in northerntemperate
climates. The sale of water and wastewater distribution equipment and supplies
is a significant component of the Company's business. Cyclicality and
seasonality of water and wastewater distribution equipment and supplies sales
could have a material adverse effect on the Company's revenues and
profitability.
The Company's high-purity process piping systems have been sold principally to
companies in the semiconductor and, to a lesser extent, pharmaceutical and
biotechnology industries, and sales of those systems are critically dependent on
these industries. The success of customers and potential customers for high-purityhigh-
purity process piping systems is linked to economic conditions in these
respective industries, which in turn are each subject to intense competitive
pressure and are affected by overall economic conditions. The semiconductor
industry in particular has historically been, and will likely continue to be,
cyclical in nature and vulnerable to general downturns in the economy. The
semiconductor and pharmaceutical industries also represent significant markets
for the Company's water and wastewater treatment systems. Downturns in these
industries could have a material adverse effect on the Company's revenues and
profitability.
15
Operating results from the sale of high-purity process piping systems also can
be expected to fluctuate significantly as a result of the limited pool of
existing and potential customers for these systems, the timing of new contracts,
possible deferrals or cancellations of existing contracts and the evolving and
unpredictable nature of the markets for high-purity process piping systems.
As a result of these and other factors, the Company's operating results may be
subject to quarterly or annual fluctuations. There can be no assurance that at
any given time the Company's operating results will meet or exceed stock market
analysts' expectations, in which event the market price of the Common
Stockcommon stock
could be adversely affected.
Potential Environmental RisksRisks. The Company's business and products may be
significantly influenced by the constantly changing body of environmental laws
and regulations, which require that certain environmental standards be met and
impose liability for the failure to comply with such standards. The Company is
also subject to inherent risks associated with environmental conditions at
facilities owned, and the state of compliance with environmental laws, by
businesses acquired by the Company. While the Company endeavors at each of its
facilities to assure compliance with environmental laws and regulations, there
can be no assurance that the Company's operations or activities, or historical
operations by others at the Company's locations, will not result in cleanup
obligations, civil or criminal enforcement actions or private actions that could
have a material adverse effect on the Company.
In that regard, United
States federal and state environmental regulatory authorities have issued
certain notices of violation related to alleged multiple violations of
applicable wastewater pretreatment standards by a wholly owned subsidiary of
the Company (the "Subsidiary") at a Connecticut ion exchange resin regeneration facility (the
"South Windsor Facility") operated by a wholly owned subsidiary of the Company
(the "South Windsor Subsidiary"), acquired by the Company in October 1995 from
Anjou International Company ("Anjou"). A grand jury
investigation concerning these conditions also is pending., U.S. federal and state environmental
regulatory authorities issued certain notices of violation alleging multiple
violations of applicable wastewater pretreatment standards. The South Windsor
Subsidiary has
reached a tentativean agreement with the United StatesU.S. Attorney's Office and the United StatesU.S.
Environmental Protection Agency ("USEPA") to settle all agency claims and
investigations relating to this matter by entering into a plea agreement
pursuant to which the South Windsor Subsidiary would plead guilty to violating
the Clean Water Act. The settlement provides for a payment of $1.36 million,
which includes a criminal penalty of $1.0 million and annual environmental
compliance audits at the South Windsor Facility for five years among other
things. On June 10, 1998, the South Windsor Subsidiary pled guilty to a single
violationcount information alleging violations of the federal Clean Water Act in the
United States Clean Air Act, pursuant to whichDistrict Court for the Subsidiary would pay a fine andDistrict of Connecticut. Sentencing in the
South Windsor Facility would undergo
annual environmental compliance audits by the USEPAcase has been set for five years.September 1, 1998. The Company believes that this
settlement wouldwill conclude these mattersthis matter in theirits entirety; however, there can be no assurance that thisthe settlement
will become
final, and it isdoes not expected that it would include a formal release of all liabilities in this regard. As a consequence of such a settlement, the
Subsidiary would be debarred from United States government contracts for a
period of time that the Company currently expects to be brief. The Company
does not believe that the debarment would have a material adverse effect on
the Subsidiary or the Company. The Company
has certain rights of indemnification from Anjou which may be available with
respect to these
matters.this matter pursuant to the laws of the State of New York or the
Stock Purchase Agreement dated as of August 30, 1995 among the Company, Anjou
and Polymetrics, Inc.
In addition to the foregoing, the Company's
16
activities as owner and operator
of certain hazardous waste treatment and recovery facilities are subject to
stringent laws and regulations and compliance reviews. Failure of these
facilities to comply with those regulations could result in substantial fines
and the suspension or revocation of the facility's hazardous waste permit. The
Company serves as contract operator of various municipal and industrial
wastewater collection and treatment facilities, which were developed and are
owned by governmental or private entities. The Company also operates other
facilities, including service deionization centers and manufacturing facilities,
that discharge wastewater in connection with routine operations. Under thosecertain
service contracts and applicable environmental laws, the Company as operator of
such facilities may incur certain liabilities in the event those facilities
experience malfunctions or discharge wastewaterswastewater which dodoes not meet applicable
permit limits and regulatory requirements. In some cases, the potential for such
liabilities depends upon design or operational conditions over which the Company
has limited, if any, control. In other matters, the Company has been notified by
the United States Environmental Protection AgencyUSEPA that it is a potentially responsible party under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") at
certain sites to which the Company or its predecessors allegedly sent waste in
the past. It is possible that the Company could receive other such notices under
CERCLA or analogous state laws in the future. TheBased on sites which are currently
known to the Company that may require remediation, the Company does not believe
that its
16
liability, if any, relating to such matterssites will be material. However, there can
be no assurance that such matters will not be material. In addition, to some
extent, the liabilities and risks imposed by environmental laws on the Company's
customers may adversely impact demand for certain of the Company's products or
services or impose greater liabilities and risks on the Company, which could
also have an adverse effect on the Company's competitive and financial position.
CompetitionIn 1995, Culligan purchased an equity interest in Anvil Holdings, Inc. As a
result of this transaction, Culligan assumed certain environmental liabilities
associated with soil and groundwater contamination at Anvil Knitwear's Asheville
Dyeing and Finishing Plant (the "Plant") in Swannanoa, North Carolina. Since
1990, Culligan has delineated and monitored the contamination pursuant to an
Administrative Consent Order entered into with the North Carolina Department of
Environment, Health and Natural Resources related to the closure of an
underground storage tank at the site. Groundwater testing at the Plant and at
two adjoining properties has shown levels of a cleaning solvent believed to be
from the Plant that are above action levels under state guidelines. The Company
has begun remediation of the contamination. The Company currently estimates that
the costs of future site remediation will range from up to $1.0 million to $1.8
million and that it has sufficient reserves for the site cleanup. The Company
anticipates that the potential costs of further monitoring and corrective
measures to address the groundwater problem under applicable laws will not have
a material adverse effect on the financial position or the results of operations
of the Company. However, because the full extent of the required cleanup has not
been determined, there can be no assurance that this matter will not have a
material adverse effect on the Company's financial position or results of
operations.
Certain of the Company's facilities contain or in the past contained
underground storage tanks which may have caused soil or groundwater
contamination. At one site formerly owned by Culligan, the Company is
investigating, and has taken certain actions to correct, contamination that may
have resulted from a former underground storage tank. Based on the amount of
contamination believed to have been present when the tank was removed, and the
probability that some of the contamination may have originated from nearby
properties, the Company believes, although there can be no assurance, that this
matter will not have a material adverse effect on the Company's financial
position or results of operations.
Competition. All of the markets in which the Company competes are highly
competitive, and most are fragmented, with numerous regional and local
participants. There are competitors of the Company in certain markets that are
divisions or subsidiaries of companies that have significantly greater resources
than the Company. The Company's process water treatment business
competes in the United States and internationally principally on the basis of
product quality and specifications, technology, reliability, price, customized
design and technical qualifications, reputation and prompt availability of
local service. The Company's wastewater treatment business competes in the
United States and internationally largely on the basis of the same factors,
except that pricing considerations can be predominant among competitors that
have sufficient technical qualifications, particularly in the municipal
contract bid process. In connection with the marketing of waterworks
distribution equipment and supplies, the Company competes not only with a
large number of independent wholesalers and with other distribution chains
similar to the Company, but also with manufacturers who sell directly to
customers. The principal methods of competition for the Company's waterworks
distribution business include prompt local service capability, product
knowledge by the sales force and branch management, and price. The Company's
consumer products business competes with companies with national distribution
networks, businesses with regional scope and local product assemblers or
service companies, as well as retail outlets. The Company believes that there
are thousands of participants in the residential water market. The consumer
products business competes principally on the basis of price, product quality
and "taste," service, distribution capabilities, geographic presence and
reputation. Competitive pressures, including those described above, and
other factors could cause the Company to lose market share or could result in
significant price erosion, either of which could have a material adverse effect
upon the Company's financial position, results of operations and cash flows.
Potential Risks Related Toto Water Rights Andand Water TransfersTransfers. The Company
recently acquired more than 47,000 acres of agricultural land (the
"Properties"), situated in the Southwestern United States, the substantial
majority of which are in Imperial County, California (the "IID Properties")
located within the Imperial Irrigation District (the "IID"). Substantially all
of the Properties are currently leased to third party agricultural tenants,
including prior owners of the Properties. The Company acquired the Properties
with appurtenant water rights, and is actively seeking to acquire additional
properties with water rights, primarily in the Southwestern and Western United
States. The Company may seek in the future to transfer water attributable to
water rights appurtenant to the Properties, particularly the IID Properties (the
"IID Water"). However, since the IID holds title to all of the water rights
within the IID in trust for the landowners, the IID would control the timing and
terms of any transfers of IID Water by the Company. The circumstances under
which transfers of water can be made and the profitability of any transfers are
subject to significant uncertainties, including hydrologic risks of variable
water supplies, risks presented by allocations of water under existing and
prospective priorities, and risks 17
of adverse changes to or interpretations of
United StatesU.S. federal, state and local laws, regulations and policies. Transfers of IID
Water attributable to water rights appurtenant to the IID Properties (the "IID
Water Rights") are subject to additional uncertainties. Allocations of Colorado
River water, which is the source of all water deliveries to the IID Properties,
are subject to limitations under complex international treaties, interstate
compacts, United StatesU.S. federal and state laws and regulations, and contractual
arrangements and, in times of drought, water deliveries could be curtailed by
the United StatesU.S. government. Further,
17
any transfers of IID Water would require the approval of the United StatesU.S. Secretary of
the Interior. Even if a transfer were approved, other California water districts
and users could assert claims adverse to the IID Water Rights, including but not
limited to claims that the IID has failed to satisfy United StatesU.S. federal law and
California constitutional requirements that IID Water must be put to reasonable
and beneficial use. A finding that the IID's water use is unreasonable or
nonbeneficial could adversely impact title to the IID Water Rights and the
ability to transfer IID Water. Water transferred by the IID to metropolitan
areas of Southern California, such as San Diego, currently would be transported
through aqueducts owned or controlled by the Metropolitan Water District, a
quasi-governmental agency (the "MWD"). The transportation cost for any
transfer of IID Water and the volume of water which the MWD can be required to
transport at any time are subject to California laws of uncertain application,
some aspects of which are currently in litigation. The uncertainties associated
with water rights could have a material adverse effect on the Company's future
profitability.
Technological Andand Regulatory Risks TheRisks. Portions of the water and wastewater
treatment business isare characterized by changing technology, competitively
imposed process standards and regulatory requirements, each of which influences
the demand for the Company's products and services. Changes in regulatory or
industrial requirements may render certain of the Company's treatment products
and processes obsolete. Acceptance of new products may also be affected by the
adoption of new government regulations requiring stricter standards. The
Company's ability to anticipate changes in technological and regulatory
standards and to develop successfully and introduce new and enhanced products on
a timely basis will be a significant factor in the Company's ability to grow and
to remain competitive. There can be no assurance that the Company will be able
to achieve the technological advances that may be necessary for it to remain
competitive or that certain of its products will not become obsolete. In
addition, the Company is subject to the risks generally associated with new
product introductions and applications, including lack of market acceptance,
delays in development or failure of products to operate properly. The market
growth potential of acquired in-process research and development is subject to
certain risks, including costs to develop and commercialize such products, the
cost and feasibility of production of products utilizing the applicable
technologies, introduction of competing technologies and market acceptance of
the products and technologies involved.
There can be no assurance that the Company's existing or any future trademarks
or patents will be enforceable or will provide substantial protection from
competition or be of commercial benefit to the Company. In addition, the laws of
certain non-United States countries may not protect proprietary rights to the
same extent as do the laws of the United States. Successful challenges to
certain of the Company's patents or trademarks could materially adversely affect
its competitive and financial position.
Municipal MarketWater and Wastewater Business. A significant percentage of the
Company's revenues is derived from municipal customers. While municipalities
represent an important market inpart of the water and wastewater treatment industry,
contractor selection processes and funding for projects in the municipal sector
entail certain additional risks not typically encountered with industrial
customers. Competition for selection of a municipal contractor typically occurs
through a formal bidding process which can require the commitment of significant
resources
and greater lead times than industrial projects. In addition, demand
in the municipal marketthis segment is
dependent upon the availability of funding at the local level, which may be the
subject of increasing pressure as local governments are expected to bear a
greater share of the cost of public services.
Year 2000 RisksRisks. The 'Year 2000'Year 2000 issue concerns the potential exposures
related to the automated generation of business and financial misinformation
resulting from the application of computer programs which have been written
using two digits, rather than four, to define the applicable year of business
transactions. Most of the Company's operating systems with Year 2000 issues have
been modified to address those issues; accordingly, management does not
anticipate any significant costs, problems or uncertainties associated with
becoming Year 2000 compliant. The Company is currently developing a plan
intended to assure that its other internal operating systems with Year 2000
issues are modified on a timely basis. Suppliers, customers and creditors of
18
the
Company also face similar Year 2000 issues. A failure to successfully address
the Year 2000 issue could have a material adverse effect on the Company's
business or results of operations.
Recent Developments
U.S. Filter is contemplating the issuance of $750 to $900 million of unsecured
redeemable or remarketable securities to qualified institutional buyers (as
defined in Rule 144A of the U.S. Securities Act of 1933, as amended) to
refinance existing indebtedness under U.S. Filter's Senior Credit Facility and
for general corporate purposes. The proposed issuance of such securities is not
expected to have a material impact on U.S. Filter's financial position or its
future results of operations.18
Impact of Recently Issued Accounting Standards. In June 1997, the Financial Accounting Standards BoardFASB issued a
new statement titled "Reporting Comprehensive Income.""Disclosures about Segments of an Enterprise and Related
Information". The new statement is effective for fiscal years beginning after
December 15, 1997. The Company is currently evaluating its options fordetermining required disclosure
under this new standard and will implementinclude the statement duringdisclosures in its fiscal year ending March 31, 1999.next annual
report.
In June 1997, The Financial Accounting Standards Board1998, FASB issued a new statement titled "Disclosures about Segments of an Enterprise"Accounting for Derivative
Instruments and Related
Information."Hedging Activities". The new statement is effective for fiscal
years beginning after DecemberJune 15, 1997.1999. The Company is currently evaluating its options for
disclosure underdoes not believe that the
adoption of this standard and will implement the statement duringhave a material impact on its fiscal year ending March 31, 1999.consolidated
financial position or results of operations.
19
PART II--OTHERII OTHER INFORMATION
ITEMItem 1. LEGAL PROCEEDINGS
N/A
ITEMItem 2. CHANGES IN SECURITIES
Privately Placed Securities
Effective December 31, 1997, the Company issued 5,803,803 shares (the
"Shares") of its common stock, par value $.01 per share (the "Common Stock"),
to: The Bianco Family 1991 Trust, dated February 1, 1991; David J. Shimmon; BT
Capital Partners Inc.; Churchill ESOP Capital Partners; D&S Partners; Silicon
Valley Bancshares; L.H. Fine, Weinress, Franskson & Presson, Inc.; Gregory
Presson; in a tax-free merger pursuant to which the Company acquired all of
the outstanding capital stock of The Kinetics Group, Inc., a Delaware
Corporation. Such shares were issued in a transaction exempt from registration
pursuant to Section 4(2) of the United States Securities Act of 1933, as
amended. Pursuant to an agreement between the parties, such shares were
subsequently filed for registration for resale pursuant to a Registration
Statement on Form S-3 (Registration No. 333-45981).
ITEMN/A
Item 3. DEFAULTS UPON SENIOR SECURITIES
N/A
ITEMItem 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
N/A
ITEMItem 5. OTHER INFORMATION
On February 9, 1998, the Company announced it had entered into an Agreement
and Plan of Merger (the "Merger Agreement") dated as of February 9, 1998,
among the Company, Palm Water Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of the Company ("Merger Sub"), and Culligan Water
Technologies, Inc., a Delaware corporation. Pursuant to the Merger Agreement,
Merger Sub will be merged with and into Culligan (the "Merger"). In connection
with the Merger, the Company will issue in exchange for each issued and
outstanding share (other than treasury shares and shares owned by the Company)
of Culligan common stock, par value $.01 per share 1.714 shares of common
stock, par value $.01 per share of the Company pursuant to formula.
The Merger will be accounted for as a pooling of interests and is intended
to qualify as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended. Consummation of the Merger is subject to
customary regulatory approvals and the approval of the stockholders of each of
the Company and Culligan. The Merger is expected to be consummated in the
first half of fiscal 1999.
ITEMN/A
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
ThereThe following exhibits are no exhibits filing herewith.
Reports on Form 8-Kfiled herewith or incorporated herein by reference:
27.0 Financial Data Schedule
The Company filed onesix Current ReportReports on FormForms 8-K and 8-K/A during the quarter
ended December 31, 1997, dated December 9, 1997,June 30, 1998, as follows:
(1) May 12, 1998, reporting certain financial information relating to Protean
plc, a United Kingdom corporation ("Protean"), and The Water Filtration
Business ("Ametek") formerly a wholly owned subsidiary of Ametek, Inc.,
which the consummationCompany acquired in its acquisition of Culligan Water
Technologies, Inc.
(2) June 2, 1998, announcement of the Company's tender offerissuance of $900 million of
unsecured remarketable or redeemable securities to purchase allqualified institutional
buyers.
(3) June 23, 1998, announcement of the outstanding ordinary shares
(including American Depository Shares, each representing one ordinary share)completion of Memtec Limited.the Company's acquisition
of Culligan Water Technologies, Inc.
(4) May 12, 1998, amendment to 8-K dated January 16, 1998, restating certain of
the Company's financial information as a result of the Company's
acquisition of The Kinetics Group, Inc.
(5) May 14, 1998, amendment to 8-K dated January 16, 1998, restating the
Company's historical financial information as a result of the Company's
acquisition of The Kinetics Group, Inc. and disclosing the Company's
possible issuance of $750 to $900 million of unsecured redeemable or
remarketable securities to qualified institutional buyers.
20
(6) May 14, 1998, amendment to 8-K dated February 9, 1998, disclosing the
Company's possible issuance of $750 to $900 million of unsecured redeemable
or remarketable securities to qualified institutional buyers.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED STATES FILTER CORPORATION
By: /s/ Kevin L. Spence
By: _________________________________Dated: August 13, 1998 --------------------------------------------------
Kevin L. Spence
Executive Vice President, Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
Dated: May 14, 1998
2122
EXHIBIT INDEX
Exhibit Sequential
Number Description Page Number
- ------- ----------- -----------
27.0 Financial Data Schedule
23