-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RgBGQzElCE/UHK4nQmEs3cOuaVTKPgaOIpkdO0Er+gjaPz94oxsg3JhL2t7YRiTa HvKo2yMkDuWEBnKK/14Yww== 0000944209-96-000111.txt : 19960701 0000944209-96-000111.hdr.sgml : 19960701 ACCESSION NUMBER: 0000944209-96-000111 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960627 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960628 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED STATES FILTER CORP CENTRAL INDEX KEY: 0000318025 STANDARD INDUSTRIAL CLASSIFICATION: REFRIGERATION & SERVICE INDUSTRY MACHINERY [3580] IRS NUMBER: 330266015 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10728 FILM NUMBER: 96587370 BUSINESS ADDRESS: STREET 1: 73 710 FRED WARING DR STE 222 CITY: PALM DESERT STATE: CA ZIP: 92260 BUSINESS PHONE: 6193400098 MAIL ADDRESS: STREET 1: 73 710 FRED WARING DRIVE SUITE 222 CITY: PALM DESERT STATE: CA ZIP: 92260 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN TOXXIC CONTROL INC DATE OF NAME CHANGE: 19910401 FORMER COMPANY: FORMER CONFORMED NAME: NOVAN ENERGY INC DATE OF NAME CHANGE: 19871227 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K CURRENT REPORT Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) June 27, 1996 ------------- United States Filter Corporation -------------------------------- (Exact name of registrant as specified in its charter) Delaware 1-10728 33-0266015 - ---------------------------- ----------- ------------------ (State of other juris- (Commission (IRS Employer diction of incorporation File Number) Identification No.) 40-004 Cook Street, Palm Desert, California 92211 ------------------------------------------------- (Address of principal executive offices) zip code Registrant's telephone number, including area code (619) 340-0098 --------------- -1- ITEM 2. PENDING AND COMPLETED ACQUISITIONS As previously reported on a Current Report on Form 8-K dated May 31, 1996, United States Filter Corporation ("U.S. Filter"), through a wholly-owned subsidiary, U.S. Filter/Zimpro Acquisition Corp., completed on May 31, 1996 the acquisition (the "Zimpro Acquisition") of all of the outstanding capital stock of Zimpro Environmental, Inc. ("Zimpro"). Consolidated financial statements of Zimpro and its subsidiaries as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995, together with the report thereon of Ernst & Young LLP, and unaudited pro forma combined financial data giving effect to the Zimpro Acquisition, were filed as a part of such Form 8-K. As previously reported on a Current Report on Form 8-K dated June 10, 1996, U.S. Filter entered into an Agreement and Plan of Merger (the "Davis Agreement") dated June 10, 1996 by and among U.S. Filter, U.S. Filter/DWW Acquisition Corporation ("Sub") and Davis Water & Waste Industries, Inc. ("Davis") providing for the merger of Sub into Davis, pursuant to which Davis would become a wholly- owned subsidiary of U.S. Filter (the "Davis Acquisition" and, together with the Zimpro Acquisition, the "Acquisitions"). As a result of the Davis Acquisition, each issued and outstanding share of common stock of Davis and each employee and director stock option to purchase shares of common stock of Davis will be converted into .933 share of U.S. Filter common stock, subject to adjustment as provided in the Davis Agreement. The following are filed herewith: FINANCIAL STATEMENTS OF PROBABLE BUSINESS ACQUISITION: Index to Davis Water & Waste Industries, Inc. Consolidated Financial Statements Report of Independent Accountants; Management's Responsibility for Financial Statements; Consolidated Statement of Operations for the years ended April 30, 1996, 1995 and 1994; Consolidated Balance Sheet as of April 30, 1996 and 1995; Consolidated Statement of Stockholders' Equity for the years ended April 30, 1996, 1995 and 1994; -2- Consolidated Statement of Cash Flows for the years ended April 30, 1996, 1995 and 1994; and Notes to Consolidated Financial Statements. PRO FORMA COMBINED FINANCIAL INFORMATION: Unaudited Pro Forma Combined Consolidated Balance Sheet as of March 31, 1996; Unaudited Pro Forma Combined Consolidated Statements of Operations for the years ended March 31, 1994, 1995 and 1996; Notes to Pro Forma Combined Consolidated Financial Information. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (c) EXHIBITS 23.0 Consent of Independent Accountants -3- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. UNITED STATES FILTER CORPORATION By: /s/ Kevin L. Spence ----------------------- Kevin L. Spence Vice President Date: June 27, 1996 -4- INDEX TO DAVIS WATER & WASTE INDUSTRIES, INC. CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Accountants........................................... F-2 Management's Responsibility for Financial Statements........................ F-2 Consolidated Statement of Operations........................................ F-3 Consolidated Balance Sheet.................................................. F-4 Consolidated Statement of Changes in Stockholders' Equity................... F-5 Consolidated Statement of Cash Flows........................................ F-6 Notes to Consolidated Financial Statements.................................. F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of DAVIS WATER & WASTE INDUSTRIES, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of DAVIS WATER & WASTE INDUSTRIES, Inc. and its subsidiaries at April 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Atlanta, Georgia June 13, 1996 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The consolidated financial statements included in this report were prepared by the Company in conformity with generally accepted accounting principles. Management's best estimates and judgments were used where appropriate. Management is responsible for the integrity of the financial statements and for other financial information included in this report. The financial statements have been audited by the Company's independent accountants, Price Waterhouse LLP. As set forth in their report, their audit was conducted in accordance with generally accepted auditing standards and formed the basis for their opinion on the accompanying financial statements. They evaluated the system of internal accounting controls and performed such tests and other procedures as they deemed necessary to reach and express an opinion on the fairness of the financial statements. The Company maintains a system of internal accounting controls which is designed to provide a reasonable assurance that assets are safeguarded and that the financial records reflect the authorized transactions of the Company. As a part of this process, the Company has an internal auditor who evaluates the adequacy and effectiveness of internal accounting controls. The Audit Committee of the Board of Directors is composed of Directors who are neither officers nor employees of the Company. The Committee meets periodically with management, the internal auditor and the independent accountants to discuss auditing, internal accounting control and financial reporting matters. The internal auditor and the independent accountants have full and free access to meet with the Audit Committee, with and without management being present. R. Doyle White Stan White Chairman of the Board, Secretary/Treasurer President and Chief and Chief Financial Officer Executive Officer F-2 DAVIS WATER & WASTE INDUSTRIES, INC. CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, ----------------------------- 1996 1995 1994 --------- --------- --------- (IN THOUSANDS, EXCEPT SHARE DATA) Net sales....................................... $ 226,489 $ 215,649 $ 202,621 Cost of products sold .......................... 188,720 183,654 172,654 --------- --------- --------- Gross profit margin............................. 37,769 31,995 29,967 Selling, general and administration............. 26,877 24,483 28,461 Interest expense................................ 1,022 1,335 1,252 Other income, net............................... 206 308 246 Provision for Taulman shutdown and related in- tangible assets (Note 3)....................... 0 678 8,895 --------- --------- --------- Income (loss) before income taxes............... 10,076 5,807 (8,395) Provision (benefit) for income taxes............ 4,327 2,359 (3,055) --------- --------- --------- Net income (loss)............................... $ 5,749 $ 3,448 $ (5,340) ========= ========= ========= EARNINGS (LOSS) PER SHARE OF COMMON STOCK: Net income (loss) per share--primary............ $ 1.78 $ 1.06 $ (1.64) ========= ========= ========= Net income (loss) per share--fully diluted...... $ 1.72 $ 1.05 $ (1.64) ========= ========= ========= Weighted average shares outstanding--primary.... 3,234,824 3,261,351 3,260,608 Weighted average shares outstanding--fully di- luted.......................................... 3,340,242 3,284,170 3,260,608
(The accompanying notes are an integral part of these financial statements.) F-3 DAVIS WATER & WASTE INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET
APRIL 30, ------------------ 1996 1995 -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS Current assets: Cash and cash equivalents............................ $ 1,720 $ 3,746 Accounts receivable, less allowance for doubtful ac- counts ($1,261 at April 30, 1996 and $1,135 at April 30, 1995) (Note 1).................................. 35,189 39,795 Inventories (Notes 1 and 4).......................... 17,802 18,778 Prepaid expenses..................................... 692 631 Cost and estimated earnings in excess of billings on uncompleted contracts............................... 1,419 1,097 Prepaid income taxes................................. 685 0 Deferred income taxes (Note 7)....................... 4,194 5,634 -------- -------- Total current assets............................... 61,701 69,681 Property, plant and equipment (Note 1): Land................................................. 1,016 1,040 Buildings and improvements........................... 5,858 5,667 Manufacturing equipment.............................. 5,597 5,633 Transportation and office equipment.................. 8,348 8,066 Construction in progress............................. 281 295 -------- -------- 21,100 20,701 Less--accumulated depreciation......................... (14,742) (14,407) -------- -------- 6,358 6,294 Deferred income taxes (Note 7)........................ 706 0 Other assets.......................................... 5,867 5,561 -------- -------- $ 74,632 $ 81,536 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt (Note 5)........... $ 135 $ 249 Accounts payable..................................... 20,102 24,158 Accrued salaries and commissions..................... 6,702 3,735 Other accrued liabilities (Notes 3 and 6)............ 6,861 8,883 Billings in excess of cost and estimated earnings on uncompleted contracts............................... 943 1,449 Customer deposits.................................... 1,153 614 -------- -------- Total current liabilities.......................... 35,896 39,088 -------- -------- Long-term debt, less current portion (Note 5).......... 6,845 14,787 -------- -------- Deferred income taxes (Note 7)......................... 0 265 -------- -------- Other accrued liabilities (Note 6)..................... 2,235 2,064 -------- -------- Commitments and contingent liabilities (Note 9)........ Stockholders' equity (Note 8) Common stock, $.01 par value: 50,000,000 shares authorized; 3,265,308 shares issued................. 33 33 Capital in excess of par value......................... 9,788 9,788 Retained earnings...................................... 20,201 15,705 -------- -------- 30,022 25,526 Treasury stock at cost--29,129 shares at April 30, 1996 and 19,379 shares at April 30, 1995................... (366) (194) -------- -------- 29,656 25,332 -------- -------- $ 74,632 $ 81,536 ======== ========
(The accompanying notes are an integral part of these financial statements.) F-4 DAVIS WATER & WASTE INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
CAPITAL IN TOTAL COMMON EXCESS OF RETAINED TREASURY STOCKHOLDERS' STOCK PAR VALUE EARNINGS STOCK EQUITY ------ ---------- -------- -------- ------------- (IN THOUSANDS, EXCEPT SHARE DATA) Balance at April 30, 1993 $33 $9,788 $17,922 $(108) $27,635 Issuance of common stock in connection with employee benefit plans............... (43) 181 138 Purchase of treasury stock... (124) (124) Net (loss)................... (5,340) (5,340) --- ------ ------- ----- ------- Balance at April 30, 1994 33 9,788 12,539 (51) 22,309 Issuance of common stock in connection with employee benefit plans............... (21) 122 101 Dividends paid, $.08 per share....................... (261) (261) Purchase of treasury stock (265) (265) Net income................... 3,448 3,448 --- ------ ------- ----- ------- Balance at April 30, 1995.... 33 9,788 15,705 (194) 25,332 Issuance of common stock in connection with employee benefit plans............... 10 102 112 Purchase of treasury stock... (274) (274) Dividends paid, $.39 per share....................... (1,263) (1,263) Net income................... 5,749 5,749 --- ------ ------- ----- ------- Balance at April 30, 1996 $33 $9,788 $20,201 $(366) $29,656 === ====== ======= ===== =======
(The accompanying notes are an integral part of these financial statements.) F-5 DAVIS WATER & WASTE INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED APRIL 30, ---------------------------- 1996 1995 1994 -------- -------- -------- (IN THOUSANDS) OPERATING ACTIVITIES Net income (loss)................................ $ 5,749 $ 3,448 $ (5,340) Adjustments to reconcile net income (loss) to net cash provided by operating activities:.......... Depreciation and amortization................... 1,494 2,110 2,689 (Decrease) increase in reserve for Taulman shut- down and write off of intangible assets........ (2,425) (1,480) 8,895 Provision for doubtful accounts................. 632 472 665 Loss on sale of property, plant and equipment... 22 0 86 Deferred income taxes........................... 469 (430) (4,536) Decrease (increase) in accounts receivable...... 3,974 (1,109) (1,723) Decrease (increase) in inventories.............. 976 1,748 (2,450) (Increase) decrease in cost and estimated earn- ings in excess of billings on uncompleted con- tracts......................................... (322) (125) 280 (Increase) in other assets (1,052) (393) (15) (Decrease) increase in billings in excess of cost and estimated earnings on uncompleted con- tracts......................................... (506) (752) 32 Increase in accounts payable and accrued ex- penses......................................... 24 3,898 4,290 -------- -------- -------- Net cash provided by operating activities..... 9,035 7,387 2,873 -------- -------- -------- INVESTING ACTIVITIES Purchase of property, plant and equipment........ (1,656) (1,566) (837) Proceeds from sale of property, plant and equip- ment............................................ 76 855 70 -------- -------- -------- Net cash (used in) investing activities....... (1,580) (711) (767) -------- -------- -------- FINANCING ACTIVITIES Proceeds from long-term debt..................... 62,131 56,292 54,549 Principal payments made on long-term debt........ (70,187) (60,897) (55,921) Proceeds from sale of stock...................... 112 101 138 Purchase of treasury stock....................... (274) (265) (124) Dividends paid................................... (1,263) (261) 0 -------- -------- -------- Net cash (used in) financing activities....... (9,481) (5,030) (1,358) -------- -------- -------- CASH (Decrease) increase in cash during period........ (2,026) 1,646 748 Cash and cash equivalents at beginning of year... 3,746 2,100 1,352 -------- -------- -------- Cash and cash equivalents at end of year......... $ 1,720 $ 3,746 $ 2,100 ======== ======== ========
(The accompanying notes are an integral part of these financial statements.) F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APRIL 30, 1996, 1995, AND 1994 NOTE 1--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Description of Business Davis Water & Waste Industries, Inc. ("Davis") manufactures and markets products relating to the distribution and treatment of water and wastewater. Basis of Presentation The accompanying financial statements include the accounts of Davis and its wholly-owned subsidiary, The Taulman Company ("Taulman"). All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts in the prior year statements have been reclassified to conform to the current year presentation. Accounts Receivable Accounts receivable at April 30, 1996 and 1995 include amounts under long- term contracts of approximately $2,504,000 and $4,060,000, respectively. Balances billed but not paid by customers pursuant to retainage provisions in long-term contracts will be due upon completion of the contracts and acceptance by the owner and aggregated approximately $1,493,000 and $2,216,000 at April 30, 1996 and 1995, respectively. Approximately $700,000 of these retention balances are expected to be collected during the year ended April 30, 1997, with the remainder to be collected during the following year. Concentration of Credit Risk Davis grants credit to its customers, who are primarily involved in the construction and real estate industries, including independent contractors, developers, municipalities and industrial customers. To secure its interest in trade accounts receivable, Davis obtains bonds or liens where considered prudent. The majority of Davis' sales are made to customers located in the Southeast. Other important markets include Texas, California and the Rocky Mountain states. Inventories Inventories are carried at the lower of cost (first-in, first-out) or market value. Property, Plant and Equipment Fixed assets are stated at cost. Depreciation is calculated using principally the straight-line method over the estimated useful lives of the assets. Expenditures for additions and improvements are charged to property accounts; maintenance and repairs are charged to expense. Upon retirement or sale, the cost of the asset and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income. The approximate annual rates of depreciation are 4% to 14% for buildings and improvements, 14% to 20% for manufacturing equipment and 14% to 33 1/3% for transportation and office equipment. Intangible Assets Intangible assets resulting from the acquisition of certain assets and liabilities of Taulman were being amortized on a straight line basis over their estimated useful lives ranging from one to 40 years. As a result of the shutdown or reorganization of Taulman, these intangibles were written off in fiscal 1994 (see Note 3). Treasury Stock Treasury stock is carried at cost determined using the first-in, first-out method. Any excess of cost over proceeds from re-issuance of treasury stock is charged to retained earnings; any excess of proceeds over cost is credited to retained earnings to the extent of any prior charges and thereafter credited to capital in excess of par. F-7 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) APRIL 30, 1996, 1995, AND 1994 Revenue Income from short-term contracts for the manufacture or installation of water and wastewater treatment and pumping equipment is recognized at time of shipment or when installation is completed, respectively. Income from long- term contracts for the manufacture of process equipment and control systems used in water and wastewater treatment facilities was recognized on the percentage-of-completion basis; however, revenues are no longer recognized in Davis' operations for these types of contracts due to the shutdown of Taulman. Income is recognized from the sale of water distribution equipment and supplies and process materials and supplies at the time of shipment. Commission income from the sale of products manufactured by others is recognized when the customer's order is shipped by the third party manufacturer. Income Taxes Davis accounts for income taxes under SFAS No. 109, "Accounting for Income Taxes" (FAS 109). FAS 109 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of other assets and liabilities. Net Income (Loss) Per Share Net income (loss) per share is computed by dividing net income (loss) by the average number of common shares outstanding, increased by common equivalent shares determined using the treasury stock method. Estimates The preparation of financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Statement of Cash Flows Cash equivalents are considered to be short term, highly liquid investments with original maturities of three months or less. Supplemental disclosure of cash flows follows:
YEAR ENDED APRIL 30, -------------------- 1996 1995 1994 ------ ------ ------ (IN THOUSANDS) Cash paid during the year for: Interest.............................................. $1,172 $1,429 $1,276 Income taxes.......................................... 4,278 2,423 1,272 ------ ------ ------ $5,450 $3,852 $2,548 ====== ====== ======
NOTE 2--POTENTIAL SALE OF DAVIS On June 10, 1996, Davis entered into a definitive Agreement and Plan of Merger (the "Agreement") with United States Filter Corporation ("U.S. Filter") whereby USF/DWW Acquisition Corporation, a wholly-owned subsidiary of U.S. Filter, would be merged with and into Davis with Davis as the surviving entity. Each outstanding share of common stock of Davis, par value $0.01 per share, would be exchanged for 0.933 share of U.S. Filter common stock, par value $0.01 per share (the "Exchange Ratio"). In the event that the average market price per share of U.S. Filter common stock for the 20 consecutive trading days beginning on the 25th trading day prior to the vote of Davis' stockholders' on the merger ("Average Market Price") is less than $28 F-8 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) APRIL 30, 1996, 1995, AND 1994 per share, the Exchange Ratio shall be adjusted to $26.12 divided by the Average Market Price. If the Average Market Price is greater than $34 per share, the Exchange Ratio shall be adjusted to $31.72 divided by the Average Market Price. Davis may terminate the Agreement if the Average Market Price of U.S. Filter common stock is less than $25.25 and U.S. Filter may terminate the Agreement if the Average Market Price of the U.S. Filter common stock is greater than $37.25. Under the terms of the Agreement, all outstanding unexercised stock options of Davis, whether or not then exercisable, would be converted into the right to receive 0.933 share of U.S. Filter common stock (the "Option Exchange Ratio"). The Option Exchange Ratio shall be adjusted in the same manner as the Exchange Ratio for Davis' common stock based on certain levels of the Average Market Price of U.S. Filter Common Stock as described above. The consummation of the merger transaction is subject to approval by Davis' stockholders and certain other conditions. The transaction is expected to be consummated by August 31, 1996. NOTE 3--PROVISION FOR TAULMAN SHUTDOWN AND RELATED INTANGIBLE ASSETS: During the fourth quarter of fiscal 1994, Davis adopted a plan to shutdown or reorganize the operations of Taulman. Substantially all of Taulman's operations are contained within its Turbitrol Instrumentation and Control division; these operations are in the process of being shut down. Taulman Composting Systems, an immaterial component of Taulman, was combined with Davis' Process division. The pre-tax loss provision for these actions recorded in fiscal 1994 includes the write-off of intangible assets totaling $2,908,000 associated with Taulman and the accrual of $5,987,000 to provide for anticipated losses during the shutdown period. Accordingly, the results of operations of Taulman during fiscal 1996 and 1995 were excluded from the results of operations of Davis. Taulman is engaged in the environmental pollution control business, primarily through the design, manufacture and sale of process equipment and control systems used in water and wastewater treatment facilities. Revenues and expenses on its long- term contracts are recognized on the percentage-of - completion basis. Taulman has ceased bidding on new contracts, has terminated its sales force and is working to complete its current obligations on long- term contracts during the estimated two and one half year period from the decision to shut down. The provision for losses during the shutdown period reflects declining revenues and relatively high levels of general and administrative costs necessary to complete the shutdown of these operations. During fiscal 1996 and 1995, activity within the reserve for anticipated losses during the shutdown period is summarized as follows:
YEAR ENDED APRIL 30, ---------------------- 1996 1995 ---------- ---------- (IN THOUSANDS) Balance, beginning of year........................ $ 4,507 $ 5,987 Operating loss of Taulman......................... (2,425) (2,158) Adjustment to reserve............................. 0 678 ---------- ---------- Balance, end of year.............................. $ 2,082 $ 4,507 ========== ==========
The adjustment in fiscal 1995 to the reserve represented an increase in the reserve resulting from a revised estimate of the anticipated losses during the shutdown period. There have been no changes to the plan for shutting down Taulman since the adoption of the plan in the fourth quarter of fiscal 1994. F-9 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) APRIL 30, 1996, 1995, AND 1994 The Taulman shutdown represents the discontinuation of a product line. Therefore, Taulman's results of operations through the fourth quarter of fiscal 1994 have been included as components of continuing operations in the statement of operations for fiscal 1994. Taulman's results of operations during fiscal 1995, 1996 and in future periods have been or will be charged against the reserve for anticipated losses during the shutdown period. Certain income, expense, asset and liability information with respect to Taulman for the three most recent fiscal years is as follows:
AS OF OR FOR THE YEAR ENDED APRIL 30, ---------------------- 1996 1995 1994 ------ ------- ------- (IN THOUSANDS) Net sales............................................. $4,843 $11,252 $15,871 Cost of products sold................................. 5,370 9,791 14,465 Selling, general and administrative expense........... 1,913 3,445 4,302 Assets................................................ 3,626 5,252 12,523 Liabilities........................................... 2,730 2,614 10,111
Assets and liabilities at April 30, 1996, 1995 and 1994 consisted primarily of accounts receivable, inventory, accounts payable, accrued expenses and intercompany debt. Intangible assets written off in fiscal 1994 as a part of the shutdown included a technology licensing agreement of $1,321,000, noncompete agreements of $1,155,000 and goodwill of $432,000. The technology licensing agreement was written off because Davis, in response to changing marketplace demands, elected to forego its exclusive North American rights to this waste composting technology during the fourth quarter of fiscal 1994. Recently developed methods for waste composting are much more economical and substantially reduced the demand for Davis' licensed technology. The noncompete agreements and goodwill were written off because their value will not be recovered as a result of the shutdown. NOTE 4--INVENTORIES: Inventories are summarized as follows:
APRIL 30, --------------- 1996 1995 ------- ------- (IN THOUSANDS) Finished goods and products purchased for resale............. $15,925 $16,137 Work-in-process.............................................. 1,347 2,073 Raw materials and purchased components....................... 530 568 ------- ------- $17,802 $18,778 ======= =======
NOTE 5--LONG-TERM DEBT: During the first quarter of fiscal 1996, Davis and SunTrust Bank Central Florida, National Association ("STBNA") entered into a second amendment to the October 13, 1992 loan agreement. The second amendment extended the loan maturity through April 30, 1997, reduced the principal amount Davis can borrow to $30,000,000, provided specific guidelines that Davis must meet to eliminate the security interest that STBNA has on Davis' accounts receivable and inventory, eliminated the working capital requirement and limited the amount of cash that Davis may spend in connection with acquisitions without the prior consent of STBNA to $2,500,000 per year during the term of the loan agreement. The amended loan agreement also permits Davis to choose between the then current prime rate or the then current LIBOR rate plus or minus various basis point rates for advances under the revolving term loan, depending on Davis achieving certain financial results. Davis was in compliance with the financial covenants of the loan agreement as of April 30, 1996. F-10 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) APRIL 30, 1996, 1995, AND 1994 On June 6, 1996, STBNA extended the loan maturity to April 30, 1998, and because of Davis' improved operating results and meeting the established guidelines, eliminated the security interest on Davis' accounts receivable and inventory. As of April 30, 1996, the interest on balances outstanding under the STBNA revolving term note was payable at either STBNA's prime commercial rate less 50 basis points or LIBOR plus 150 basis points. Davis pays a commitment fee equal to one-fourth of one percent per annum on the average daily unused portion of the revolving term note. The payment of cash dividends is subject to the approval by the Board of Directors and depends on, among other factors, earnings, capital requirements, and the operating and financial condition of Davis. The payment of cash dividends also requires the prior approval of STBNA unless certain financial requirements are met. During the first, third and fourth quarters of fiscal 1996, Davis' Board of Directors authorized cash dividends of $0.14, $0.15 and $0.10 per share, which were paid on July 3, 1995, January 5, 1996 and April 12, 1996 to stockholders of record on June 26, 1995, December 26, 1995 and April 1, 1996, respectively. Notes payable and long-term debt consist of:
APRIL 30, -------------- 1996 1995 ------ ------- (IN THOUSANDS) Revolving term loan due April 1997 with interest at prime; ma- turity was extended to April 30, 1998 by STBNA in letter dated June 6, 1996.................................................. $5,343 $13,110 Promissory note with interest at prime with monthly installment payments secured by an airplane............................... 0 242 Capitalized lease with interest at 7.70% with monthly install- ment payments through April 1998.............................. 50 75 Capitalized lease with interest at 4.90% with monthly install- ment payments through February 1998........................... 165 248 Capitalized lease with interest at 4.90% with monthly install- ment payments through November 1998........................... 61 0 Loans payable to insurance companies with interest at varying rates secured by cash surrender value of life insurance poli- cies approximating $1,947 and $1,818 at April 30, 1996 and 1995, respectively............................................ 1,361 1,361 ------ ------- 6,980 15,036 Amounts due within one year.................................... 135 249 ------ ------- Amounts due after one year..................................... $6,845 $14,787 ====== =======
Annual maturities of long-term debt in each of the succeeding five years from April 30, 1996 are approximately $135; $5,470; $14; $0; and $0 respectively. Loans payable to insurance companies secured by cash surrender value in the amount of $1,361 do not have a stated maturity date. F-11 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) APRIL 30, 1996, 1995, AND 1994 NOTE 6--PENSION PLAN: Davis has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee's highest average compensation earned during any consecutive five-year period within the last ten years of employment, reduced by payments from Social Security. Pension cost is funded at amounts determined by management but not less than the minimum funding required by the Employee Retirement Income Security Act of 1974 (ERISA). At April 30, 1996, the assets of this Plan included cash equivalents and equity and fixed income mutual funds. Participants of certain acquired companies received service credit for vesting in the Plan upon date of acquisition or termination of any former benefit plans. The cost of these benefits will be amortized over 18 years, which is the average remaining service period of the participants. Davis also has a supplemental defined benefit pension plan (the Supplemental Plan) covering all Davis officers. The Supplemental Plan provides for annual disability benefits in amounts of 50%-80% of base pay at the time of the disabling injury, to be paid to participants who become permanently disabled. This benefit will terminate at age 65. Additionally, the Supplemental Plan provides for retirement benefits to participants representing approximately 50%-80% of base pay at the date of retirement, reduced by payments from Social Security. These retirement benefits will be paid over the expected lifetime of the participant. Davis has not funded the Supplemental Plan. This plan is not subject to ERISA funding requirements. The Davis intends to fund the Supplemental Plan as benefits are paid. Net periodic pension cost of these plans for fiscal 1996, 1995 and 1994 included the following components:
YEAR ENDED APRIL 30, 1996 YEAR ENDED APRIL 30, 1995 YEAR ENDED APRIL 30, 1994 ------------------------------ ------------------------------ ------------------------------ ASSETS ACCUMULATED ASSETS ACCUMULATED ASSETS ACCUMULATED EXCEED BENEFITS EXCEED BENEFITS EXCEED BENEFITS ACCUMULATED EXCEED ACCUMULATED EXCEED ACCUMULATED EXCEED BENEFITS ASSETS BENEFITS ASSETS BENEFITS ASSETS -------------- ------------ ------------- ------------ ------------- ------------ (IN THOUSANDS) Service cost benefit earned during the period................. $ 386 $ 47 $ 350 $ 40 $ 362 $ 37 Interest cost on pro- jected benefit obligation............. 680 114 613 112 623 114 Actual return on plan assets................. (1,481) (900) (809) Net amortization and deferral............... 567 73 37 73 25 71 -------- ---- ------- ---- ---- ---- Net periodic pension cost................... $ 152 $234 $ 100 $225 $201 $222 ======== ==== ======= ==== ==== ====
Assumptions used to determine net periodic pension cost for these plans for fiscal 1996, 1995 and 1994 were:
AS OF APRIL 30, --------------------- 1996 1995 1994 ----- ----- ----- Discount rates....................................... 7.5% 7.5% 7.5% Rates of increase in compensation levels............. 4.5% 4.5% 4.5% Expected long-term rate of return on assets.......... 9.0% 9.0% 9.0%
F-12 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) APRIL 30, 1996, 1995, AND 1994 The following table sets forth these plans' funded status and amounts recognized on Davis' consolidated balance sheet at April 30, 1996 and April 30, 1995.
APRIL 30, 1996 APRIL 30, 1995 ----------------------- ----------------------- ASSETS ACCUMULATED ASSETS ACCUMULATED EXCEED BENEFITS EXCEED BENEFITS ACCUMULATED EXCEED ACCUMULATED EXCEED BENEFITS ASSETS BENEFITS ASSETS ----------- ----------- ----------- ----------- (IN THOUSANDS) Actuarial present value of benefit obligations: Accumulated benefit obligation Vested....................... $ 7,698 $ 1,637 $6,982 $ 1,602 Nonvested.................... 317 298 ------- ------- ------ ------- $ 8,015 $ 1,637 $7,820 $ 1,602 ======= ======= ====== ======= Plan assets at fair value...... $10,351 $9,156 Projected benefit obligation... 9,984 $ 1,637 9,007 $ 1,602 ------- ------- ------ ------- Projected benefit obligation less than (in excess of) plan assets........................ 367 (1,637) 149 (1,602) Unrecognized prior service costs......................... (136) 291 (149) 367 Unrecognized net loss (gain)... (39) (114) 433 (74) Additional liability........... (161) (274) Unrecognized net asset at May 1, 1996 being amortized over 19 years and 15 years, respec- tively........................ (722) (16) (812) (19) ------- ------- ------ ------- Pension (liability) recognized in the balance sheet.......... $ (530) $(1,637) $ (379) $(1,602) ======= ======= ====== =======
NOTE 7--INCOME TAXES: The components of the provision for income tax expense (benefit) are as follows:
YEAR ENDED APRIL 30, ---------------------- 1996 1995 1994 ------ ------ ------- (IN THOUSANDS) Current tax expense: Federal............................................ $3,248 $2,297 $ 1,237 State.............................................. 610 492 244 Deferred tax expense (benefit): Federal............................................ 395 (362) (3,820) State.............................................. 74 (68) (716) ------ ------ ------- $4,327 $2,359 $(3,055) ====== ====== =======
F-13 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) APRIL 30, 1996, 1995, AND 1994 Deferred tax liabilities (assets) recorded under FAS 109 are comprised of the following at April 30, 1996 and 1995:
APRIL 30, ---------------- 1996 1995 ------- ------- (IN THOUSANDS) Deferred tax liabilities: Depreciation................................................ $ 122 $ 211 Change in the method of inventory accounting for income tax purposes 0 393 ------- ------- Gross deferred tax liabilities............................ 122 604 ------- ------- Deferred tax assets: Pension................................................... (832) (725) Vacation.................................................. (317) (365) Other employee benefit plans.............................. (623) (413) Warranty reserves......................................... (233) (177) Inventory................................................. (649) (639) Allowance for doubtful accounts........................... (479) (431) Noncompete agreements..................................... (155) (187) Shutdown reserve for Taulman.............................. (1,524) (2,488) Other..................................................... (210) (548) ------- ------- Gross deferred tax assets............................... (5,022) (5,973) ------- ------- $(4,900) $(5,369) ======= =======
A reconciliation between the actual income tax expense (benefit) and the amount computed by applying the federal income tax rate (34.0%) in 1996, 1995 and in 1994 to pre- tax income from continuing operations follows:
YEAR ENDED APRIL 30, ---------------------- 1996 1995 1994 ------ ------ ------- (IN THOUSANDS) Computed amount based on federal statutory rate......... $3,426 $1,974 $(2,854) Increases (reductions) in taxes: State income taxes, net of federal income tax benefit... 402 232 (322) Tax on meals and entertainment expense disallowed....... 144 132 54 Nondeductible accrual for incentive stock options....... 373 0 0 Other................................................... (18) 21 77 ------ ------ ------- Provision (benefit)..................................... $4,327 $2,359 $(3,055) ====== ====== =======
NOTE 8--STOCKHOLDERS' EQUITY: During the third quarter of fiscal 1995, the Board of Directors approved the Davis Water & Waste Industries, Inc. 1994 Employee Stock Option Plan (the " Employees Plan") and the Davis Water & Waste Industries, Inc. Directors Stock Option Plan (the "Directors Plan"). Both Plans were approved by the stockholders of Davis at the 1995 Annual Meeting of Stockholders on September 8, 1995. Under the Employees Plan and the Directors Plan (collectively, the "Plans"), options to acquire up to 250,000 and 75,000 shares of Davis' common stock, respectively, may be granted to employees and outside directors of Davis, respectively, by a committee of the Board of Directors. No options may be granted after ten years from the date of approval of the Plans by the Board. Options granted under the Plans vest F-14 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) APRIL 30, 1996, 1995, AND 1994 evenly over five years and are exercisable for a period not exceeding ten years after the date of grant at a price equal to the quoted market value of the common stock as of the date of grant. Optionees may exercise the options by paying cash, exchanging Davis shares having a quoted market value equal to or less than the exercise price, by instructing Davis to retain shares of stock upon the exercise of the option with a quoted market value equal to the exercise price as payment, or exchanging property or services as may be acceptable to the committee of the Board. The options are not transferable except to the optionee's beneficiaries. The Plans may be amended or terminated at the discretion of the Board. Compensation expense is accrued for the Plans for options as earned by the optionees as the difference between the quoted market price at the period end and the option price multiplied by the number of options. Accrued compensation expense is adjusted for the changes in the quoted market value of the stock from period to period. At April 30, 1996 and 1995, total compensation expense accrued for the Plans aggregated approximately $1,176,000 and $74,000, respectively. Under the Employees Plan in December 1994, the Board granted options to acquire 162,660 shares to certain Davis officers at an option price of $7.75 per share, which was equal to the quoted market price for the shares of Davis' common stock at the date of grant. All but 1,000 of the options were outstanding at April 30, 1996. No options were canceled or expired during fiscal year 1996 and 1,000 shares were exercised. At April 30, 1996, options for the purchase of 87,340 shares of common stock were available to be granted under the Employees Plan. Under the Directors Plan in December 1994, options to acquire 32,000 shares of common stock were granted to the outside directors of Davis at an option price of $7.75 per share, which was equal to the quoted market price for the shares of Davis' common stock at the date of grant. All such options were outstanding at April 30, 1996. No options were exercised, canceled or expired during fiscal 1996. At April 30, 1996, options for the purchase of 43,000 shares of common stock were available to be granted under the Directors Plan. During fiscal 1989, the stockholders of Davis approved a qualified employee stock purchase plan (the "1988 ESP Plan"). During fiscal 1992, the stockholders of Davis approved an amendment to the 1988 ESP Plan increasing the shares of common stock reserved for issuance under this plan from 80,000 to 160,000 shares. Under the terms of the 1988 ESP Plan, all regular full time employees and officers of Davis may purchase common stock of Davis quarterly at 85% of the lower of market value on the offering date or the termination date of the offering period. The 1988 ESP Plan will terminate at such time as all shares made available under the plan have been issued. During fiscal 1996, 1995, and 1994, 9,223, 13,616 and 24,225 shares, respectively, were issued under the plan, and at April 30, 1996, 15,309 shares of common stock were reserved and available for issuance. During August 1988, a Long-Term Incentive Plan (the "Incentive Plan") was approved by Davis' stockholders. The Board of Directors had previously approved the Incentive Plan whereby certain key officers (the participants) would become eligible to receive performance shares provided Davis achieves specified financial goals over four year periods. Performance shares represent rights to receive common stock or, at the election of the participant, a combination of cash and common stock. During fiscal 1996, 349 shares of common stock were distributed and payments of $2,967 were made to participants under the 1991-1994 Incentive Plan. During fiscal 1994 and fiscal 1995, the Board of Directors determined not to approve a Long-Term Incentive Plan for key officers but instead proposed the adoption of a stock option plan for the key employees of Davis (as discussed above). The cost of the Incentive Plan is limited to twice the grant price at the grant date of the maximum number of performance shares issuable. The grant price is determined by the higher of the book value per share or the average of the closing price of Davis' common stock for a period prior to and following the public F-15 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) APRIL 30, 1996, 1995, AND 1994 release of the preceding year's annual earnings. The grant price of the performance shares granted during fiscal 1993 was $8.30. The estimated costs of the Incentive Plan are charged to income over the applicable four year periods. During the fiscal year ended April 30, 1996 $50,000 was expensed, and for fiscal years 1995 and 1994, no income or expense was recognized. Davis purchases shares of its common stock to be held as treasury stock until needed for issuance through Davis' employee stock plans and directors and employees stock option plans discussed above. On December 15, 1989, the Board of Directors of Davis adopted a Share Rights Plan and, in connection therewith, declared a dividend distribution of one Right for each outstanding share of Davis' common stock to stockholders of record at the close of business on January 8, 1990. Davis had 3,248,621 shares of its common stock outstanding at such date. The Share Rights Plan generally provides that 20 days following a public announcement that a person or a group of affiliated or associated persons have become owners of 10% or more of Davis' common stock (and have thus become an "Acquiring Person"), each Right will entitle the registered holder to purchase from Davis common stock at a purchase price per share equal to 20% of current market value. Any Rights beneficially owned by an Acquiring Person or any of the Acquiring Person's affiliates or associates are not exercisable. The number of shares that each holder of a Right will be entitled to receive upon exercise is equal to one share of common stock multiplied by a fraction, the numerator of which is the number of shares of common stock outstanding on the date of the first public announcement that a person has become an Acquiring Person (the "Stock Acquisition Date") and the denominator of which is the number of Rights outstanding on the Stock Acquisition Date that are not beneficially owned by the Acquiring Person or its affiliates or associates. Until such time as the Rights become exercisable, (a) the Rights will be evidenced by the common stock certificates and will be transferred with and only with such common stock certificates, (b) new common stock certificates issued after January 8, 1990 will contain a notation incorporating the Rights Agreement by reference and (c) the surrender for transfer of any certificates for common stock will also constitute the transfer of the Rights associated with the common stock represented by such certificate. In connection with the merger agreement with U.S. Filter (Note 2), the Share Rights Plan was amended whereby the Rights will not become effective upon consummation of the merger. F-16 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) APRIL 30, 1996, 1995, AND 1994 NOTE 9--COMMITMENTS AND CONTINGENT LIABILITIES: Davis leases certain warehouse facilities and equipment, principally trucking equipment, under operating leases. Certain leases provide for additional rental based on actual usage and many leases have renewal options. Under some leases Davis agrees to pay insurance costs and increases in property taxes. Total rent expense amounted to approximately $2,737,000 in 1996, $3,009,000 in 1995, and $3,141,000 in 1994, of which $233,000, $251,000 and $250,000 was for truck rental based on mileage. Davis leases certain computer equipment and a front end loader under noncancelable capital lease agreements (see Note 5). The original capitalized cost of leases included in property and equipment was $386,629. As of April 30, 1996 the net book value of leased equipment totaled $303,317. Minimum lease and rental commitments under non-cancelable capital and operating leases in effect at April 30, 1996 are as follows:
YEAR ENDING APRIL 30, CAPITAL LEASES OPERATING LEASES TOTAL COMMITMENTS --------------------- -------------- ---------------- ----------------- (IN THOUSANDS) 1997.................... $146 $2,270 $2,416 1998.................... 127 1,812 1,939 1999.................... 15 1,531 1,546 2000.................... 935 935 2001.................... 377 377 2002-2004................ 68 68 ---- ------ ------ Total minimum lease pay- ments.................... 288 $6,993 $7,281 ====== ====== Less--Amount representing interest................. (12) ---- Present value of minimum lease payments........... $276 ====
The nature of Davis' business results in a certain amount of litigation. Accordingly, Davis is a party (as plaintiff and defendant) to a number of lawsuits incidental to its business, and in certain of such matters, claims have been asserted against Davis in substantial amounts. Management believes that Davis has meritorious defenses to these claims and together with its insurance carriers, is vigorously defending them. NOTE 10--FAIR VALUE OF FINANCIAL INSTRUMENTS Cash and Cash Equivalents The carrying amount reflected in the consolidated balance sheet approximates the fair value of cash and cash equivalents. Notes Payable and Long-term Debt Substantially all of the balance of long-term debt is represented by a variable rate revolving term loan. Because this variable rate approximates a market rate of interest at year end, the carrying amount of notes payable and long-term debt approximates fair value. F-17 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) APRIL 30, 1996, 1995, AND 1994 NOTE 11--QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized unaudited quarterly consolidated financial data is as follows:
FULLY PRIMARY NET DILUTED NET INCOME INCOME DIVIDENDS PAID NET SALES GROSS PROFIT NET INCOME PER SHARE PER SHARE PER SHARE --------- ------------ ---------- ----------- ----------- -------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 Fiscal Quarter First................. $ 59,683 $ 8,817 $1,162 $0.36 $0.35 $0.14 Second................ 58,867 10,158 1,816 0.56 0.55 0.00 Third................. 52,457 8,680 1,156 0.36 0.35 0.15 Fourth................ 55,482 10,114 1,615 0.48 0.48 0.10 -------- ------- ------ ----- ----- ----- $226,489 $37,769 $5,749 $1.76 $1.73 $0.39 ======== ======= ====== ===== ===== ===== 1995 Fiscal Quarter First................. $ 50,914 $ 7,250 $ 518 $0.16 $0.16 $0.00 Second................ 56,056 8,754 1,299 0.40 0.40 0.00 Third................. 52,730 7,868 776 0.23 0.23 0.08 Fourth................ 55,949 8,123 855 0.27 0.26 0.00 -------- ------- ------ ----- ----- ----- $215,649 $31,995 $3,448 $1.06 $1.05 $0.08 ======== ======= ====== ===== ===== =====
Primary and fully diluted earnings per share for the fiscal year ended April 30, 1996 do not equal the sum of primary and fully diluted earnings per share for each quarter during fiscal year due to the application of the treasury stock method for determining the impact of certain common stock equivalents. The net income for the fourth quarter of fiscal 1995 includes an additional provision of $678,000 for management's revised estimate of the Taulman shutdown reserve. See Note 3 to Notes of the Consolidated Financial Statements. F-18 UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION The following unaudited pro forma combined financial data presents the Pro Forma Combined Consolidated Balance Sheet at March 31, 1996, giving effect to the Acquisitions as if they were consummated on that date. Also presented are the Pro Forma Combined Consolidated Statements of Operations for the fiscal years ended March 31, 1994, 1995 and 1996, after giving effect to the Acquisitions as if they had been consummated as of the beginning of the respective periods presented. U.S. Filter's fiscal year ends on March 31, and Davis' fiscal year ends on April 30. Pro forma combined statement of operations information for the years ended March 31, 1994, 1995 and 1996 combines the results of U.S. Filter for the years ended March 31, 1995 and 1996 with the results of Davis for the years ended April 30, 1994, 1995 and 1996, respectively. Zimpro's fiscal year ends on December 31. Pro forma data for the years ended March 31, 1994, 1995 and 1996 combine the results of U.S. Filter with the results of Zimpro for the years ended December 31, 1993, 1994 and 1995, respectively. The pro forma data is based on the historical combined statements of U.S. Filter, Davis and Zimpro giving effect to the Acquisitions under the pooling of interests method of accounting and the assumptions and adjustments outlined in the accompanying Notes to Pro Forma Combined Consolidated Financial Information. The pro forma adjustments set forth in the following unaudited pro forma combined financial data are estimates and may differ from the actual adjustments when they become known. The pro forma combined statement of operations for the fiscal years ended March 31, 1994, 1995 and 1996 include certain charges recorded by U.S. Filter, Davis and Zimpro as follows: Fiscal year ended March 31, 1994: The results of operations of U.S. Filter for the fiscal year ended March 31, 1994 included certain charges totaling $2,359,000 related to the rationalization of certain wastewater operations. These charges were included in U.S. Filter's historical results of operations in selling, general and administrative expenses in the accompanying pro forma combined statement of operations for the fiscal year ended March 31, 1994. The results of operations of Davis for the fiscal year ended April 30, 1994 included a provision for the shutdown of the Turbitrol division of Davis' Taulman Company subsidiary and related intangible assets of $8,895,000. This provision was included in other expense in Davis' historical results of operations in the accompanying pro forma combined statement of operations for the fiscal year ended March 31, 1994. Fiscal year ended March 31, 1995: The results of operations of Davis for the fiscal year ended April 30, 1995 included a provision for the shutdown of the Turbitrol division of Davis' Taulman Company subsidiary and related intangible assets of $678,000. This provision was included in other expense in Davis' historical results of operations in the accompanying pro forma combined statement of operations for the fiscal year ended March 31, 1995. Fiscal year ended March 31, 1996: The results of operations of Zimpro for the year ended December 31, 1995 included the write-off of $3,337,000 with respect to patents and equipment which recorded values were deemed by Zimpro management to have been impaired. These write-offs were included in Zimpro's historical results of operations in cost of sales and selling, general and administrative expenses in the accompanying pro forma combined statement of operations for the fiscal year ended March 31, 1996. The pro forma data give effect to the charges described above and assume that each outstanding share of, and each outstanding option to purchase, Davis Common Stock is converted into the right to receive .933 share of U.S. Filter Common Stock. The following unaudited pro forma combined financial data do not give effect to anticipated expenses related to the Acquisitions and do not reflect certain cost savings that management of U.S. F-19 Filter believes may be realized following the Acquisitions. These savings are expected to be realized primarily through rationalization of operations and implementation of strict cost controls and standardized operating procedures. Additionally, U.S. Filter believes the Acquisitions will enable it to continue to achieve economies of scale, such as enhanced purchasing power and increased asset utilization. No assurances can be made as to the amount of cost savings, if any, that actually will be realized. The pro forma data are provided for comparative purposes only. It does not purport to be indicative of the results that actually would have occurred if the acquisitions of Davis and Zimpro had been consummated on the dates indicated or that may be obtained in the future. The pro forma combined financial data should be read in conjunction with the notes thereto and the audited consolidated financial statements of Davis and the notes thereto included herewith and filed in its report on Form 10-K for the year ended April 30, 1996, the audited consolidated financial statements of Zimpro and the notes thereto filed in U.S. Filter's report on Form 8-K dated May 31, 1996 and the audited consolidated financial statements of U.S. Filter and the notes thereto filed in its report on Form 10-K for the year ended March 31, 1996. F-20 UNITED STATES FILTER CORPORATION UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET MARCH 31, 1996 (in thousands)
PRO FORMA HISTORICAL -------------------------------- --------------- ADJUSTMENTS U.S. FILTER DAVIS ZIMPRO ADJUSTMENTS REFERENCE COMBINED ----------- ------- ------- ----------- ----------- -------- Current assets: Cash................... $ 16,545 $ 1,720 $ 140 $(1,000) a(ii) $ 17,405 Short-term invest- ments................. 65 -- -- 65 Accounts receivable, net................... 177,658 35,189 6,008 218,855 Cost and estimated earnings in excess of billings on uncom- pleted contracts...... 31,258 1,419 898 33,575 Inventories............ 55,755 17,802 1,756 75,313 Prepaid expenses....... 7,230 692 -- 7,922 Deferred taxes......... 3,577 4,194 -- 7,771 Other current assets... 9,139 685 249 10,073 -------- ------- ------- -------- Total current assets. 301,227 61,701 9,051 370,979 -------- ------- ------- -------- Property, plant and equipment, net......... 156,025 6,358 3,606 165,989 Investment in leasehold interests, net......... 27,688 -- -- 27,688 Cost in excess of net assets of businesses acquired, net.......... 271,891 -- -- 271,891 Other assets............ 32,180 6,573 911 39,664 -------- ------- ------- -------- $789,011 $74,632 $13,568 $876,211 ======== ======= ======= ======== LIABILITIES AND SHARE- HOLDERS' EQUITY Current liabilities: Accounts payable....... $ 77,761 $20,102 $ 2,361 $100,224 Accrued liabilities.... 84,097 13,563 2,294 99,954 Current portion of long-term debt........ 1,394 135 6,363 (4,260) a(ii) 3,632 Billings in excess of costs and estimated earnings on uncom- pleted contracts...... 13,338 943 1,516 15,797 Other current liabili- ties.................. 21,380 1,153 1,822 24,355 -------- ------- ------- -------- Total current liabil- ities............... 197,970 35,896 14,356 243,962 -------- ------- ------- -------- Notes payable........... 30,413 -- -- 30,413 Long-term debt, exclud- ing current portion.... 8,286 6,845 -- 15,131 Convertible subordinated debentures............. 200,000 -- -- 200,000 Deferred taxes.......... 1,929 -- -- 1,929 Other liabilities....... 9,078 2,235 1,702 13,015 -------- ------- ------- -------- Total liabilities.... 447,676 44,976 16,058 504,450 -------- ------- ------- -------- Shareholders' equity: Convertible preferred stock................. -- -- 20 (20) (ai) -- Common stock........... 281 33 -- 9 (a)(i)(ii) 323 Additional paid-in capital............... 337,856 9,422 3,980 3,271 (a)(i)(ii) 354,529 Translation adjust- ment.................. 1,836 -- -- 1,836 Retained earnings (ac- cumulated deficit).... 1,362 20,201 (6,490) 15,073 -------- ------- ------- -------- Total shareholders' equity.............. 341,335 29,656 (2,490) 371,761 -------- ------- ------- -------- $789,011 $74,632 $13,568 $876,211 ======== ======= ======= ========
The accompanying notes are an integral part of these pro forma combined financial data. F-21 UNITED STATES FILTER CORPORATION UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED MARCH 31, 1994 (in thousands, except per share and share data)
PRO FORMA HISTORICAL ------------------------------- ---------------- ADJUSTMENTS U.S. FILTER DAVIS ZIMPRO ADJUSTMENTS REFERENCE COMBINED ----------- -------- ------ ----------- ----------- -------- Revenues................ $180,421 $202,621 $29,470 $412,512 Cost of sales........... 132,811 172,654 21,383 326,848 -------- -------- ------- -------- Gross profit.......... 47,610 29,967 8,087 85,664 Selling, general and administrative expenses............... 52,484 28,461 9,774 90,719 -------- -------- ------- -------- Operating income (loss)............... (4,874) 1,506 (1,687) (5,055) -------- -------- ------- -------- Other income (expense): Interest expense...... (2,077) (1,252) (715) 595 b(i) (3,449) Other................. 1,174 (8,649) 93 (7,382) -------- -------- ------- -------- (903) (9,901) (622) (10,831) -------- -------- ------- -------- Income (loss) before income taxes......... (5,777) (8,395) (2,309) (15,886) Provision (benefit) for income taxes........... (3,236) (3,055) (796) (7,087) -------- -------- ------- -------- Net income (loss)..... $ (2,541) $ (5,340) $(1,513) $ (8,799) ======== ======== ======= ======== Net income per common share................ $ (0.26) $ (0.57) ======== ======== Weighted average number of shares outstanding..... 12,453 16,595 ======== ========
The accompanying notes are an integral part of these pro forma combined financial data. F-22 UNITED STATES FILTER CORPORATION UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED MARCH 31, 1995 (in thousands, except per share and share data)
PRO FORMA HISTORICAL -------------------------------- ------------------ ADJUSTMENTS U.S. FILTER DAVIS ZIMPRO ADJUSTMENTS REFERENCE COMBINED ----------- --------- ------- ----------- ----------- -------- Revenue................. $272,032 $215,649 $31,678 $519,359 Cost of sales........... 193,432 183,654 21,669 398,755 -------- -------- ------- -------- Gross profit.......... 78,600 31,995 10,009 120,604 Selling, general and administrative expenses............... 64,015 24,483 8,983 97,481 -------- -------- ------- -------- Operating income...... 14,585 7,512 1,026 23,123 -------- -------- ------- -------- Other income (expense): Interest expense...... (5,384) (1,335) (795) 595 b(i) (6,919) Other................. 1,787 (370) 25 1,442 -------- -------- ------- -------- (3,597) (1,705) (770) (5,477) -------- -------- ------- -------- Income before income taxes................ 10,988 5,807 256 17,646 -------- -------- ------- -------- Provision (benefit) for income taxes........... 2,657 2,359 (204) 4,812 -------- -------- ------- -------- Net income............ $ 8,331 $ 3,448 $ 460 $ 12,834 ======== ======== ======= ======== Net income per common share................ $ 0.51 $ 0.63 ======== ======== Weighted average number of shares outstanding..... 15,026 19,168 ======== ========
The accompanying notes are an integral part of these pro forma combined financial data. F-23 UNITED STATES FILTER CORPORATION UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED MARCH 31, 1996 (in thousands, except per share and share data)
HISTORICAL ----------------- ADJUSTMENTS U.S. FILTER DAVIS ZIMPRO ADJUSTMENTS REFERENCE COMBINED ----------- -------- ------- ----------- ----------- -------- Revenues................ $472,537 $226,489 $28,877 $727,903 Cost of sales........... 328,057 188,720 21,796 538,573 -------- -------- ------- -------- Gross profit.......... 144,480 37,769 7,081 189,330 Selling, general and administrative expenses............... 109,525 26,877 12,281 148,683 -------- -------- ------- -------- Operating income (loss)............... 34,955 10,892 (5,200) 40,647 -------- -------- ------- -------- Other income (expense): Interest expense...... (12,546) (1,022) (851) 595 b(i) (13,824) Other................. 4,963 206 (35) 5,134 -------- -------- ------- -------- (7,583) (816) (886) (8,690) -------- -------- ------- -------- Income (loss) before income taxes......... 27,372 10,076 (6,086) 31,957 Provision for income taxes.................. 7,082 4,327 646 (646) b(ii) 11,409 -------- -------- ------- -------- Net income (loss)..... $ 20,290 $ 5,749 $(6,732) $ 20,548 ======== ======== ======= ======== Net income per common share................ $ 0.81 $ 0.70 ======== ======== Weighted average number of shares outstanding..... 24,309 28,451 ======== ========
The accompanying notes are an integral part of these pro forma combined financial data. F-24 NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION The pro forma combined balance sheet has been prepared to reflect the acquisitions of all the outstanding capital stock of Davis and Zimpro in exchange for 3,442,000 (.933 share of U.S. Filter Common Stock for each outstanding share, and each outstanding option or other right to acquire a share, of Davis Common Stock) and 585,074 shares of U.S. Filter Common Stock, respectively. The Acquisitions have been accounted for on a pooling of interests basis. Additionally, the pro forma combined balance sheet reflects the repayment of $4,335,000 of indebtedness of Zimpro outstanding at May 31, 1996 with the delivery of 114,994 shares of U.S. Filter Common Stock and $1,000,000 in cash. (a) The pro forma combined balance sheet reflects the financial position of Davis at April 30, 1996 and Zimpro at December 31, 1995 and has been adjusted to reflect the above as follows: (i) To record the equity adjustments required to reflect the Acquisitions of Davis and Zimpro on a pooling of interests basis; and (ii) To record the repayment of indebtedness of Zimpro ($4,260,000 outstanding at December 31, 1995) in exchange for 114,994 shares of U.S. Filter Common Stock and $1,000,000 in cash. (b) For the fiscal years ended March 31, 1994, 1995 and 1996, the historical results of operations reflect Davis' results of operations for the years ended April 30, 1994, 1995 and 1996 and reflect Zimpro's results of operations for the years ended December 31, 1993, 1994 and 1995, respectively and have been adjusted to reflect the above as follows: (i) To adjust interest expense related to the indebtedness of Zimpro repaid at the date of Acquisition; and (ii) To adjust the provision for income taxes to reflect the combined results of operations. F-25 EXHIBIT INDEX
Exhibit No. Description of Exhibit - ----------- ---------------------- 23.0 Consent of Independent Accountants
EX-23.0 2 CONSENT OF PRICE WATERHOUSE EXHIBIT 23.0 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-4 (No. 33-63251) of United States Filter Corporation of our report dated June 13, 1996 relating to the consolidated financial statements of Davis Water & Waste Industries, Inc., which appears in this Current Report on Form 8-K of United States Filter Corporation dated June 27, 1996. PRICE WATERHOUSE LLP Atlanta, Georgia June 27, 1996 -----END PRIVACY-ENHANCED MESSAGE-----